The Global Warming Policy Foundation, no stranger to controversy, has published a report on nuclear prospects, which is quite damning, with the GWPF claiming that it shows that the nuclear industry is now so dysfunctional it may have no future in the UK without a concerted policy and regulatory effort. The report’s author, energy consultant and Daily Telegraph columnist Kathryn Porter, says ‘most of our existing nuclear fleet will close in the next few years, with almost nothing to replace it, and I see little cause for optimism that the economic or regulatory environment will produce significant new capacity any time soon.’
GWPF director Dr Benny Peiser said: ‘If policymakers are serious about realistic and sustainable decarbonisation policies, they need to be serious about accelerating nuclear power - and swiftly. Kathryn Porter’s paper shows that they are nothing of the sort. The Government needs to adopt a radically different attitude in order to turbo charge a nuclear renaissance.’
In the report, Porter goes through the technical options in a quite neutral way, but warns that, at present, ‘the economic opportunities for nuclear power in Great Britain are mixed. The Government hopes that the new Regulated Asset Base model will attract investor interest by increasing income certainty and transferring some risks to consumers. However, Ofgem has been designated as the economic regulator in this area, and its track record in setting consistent and effective price controls for gas and electricity network operators has been mixed. It is now under significant pressure to contain energy company profits, which may make nuclear developers nervous about the model and how it may operate in practice’.
So she is concerned about funding. And she says that ‘arguably, the Government should not shy away from direct investments in new nuclear projects, filling gaps where the private sector seems reluctant to invest. Private investors are not expected to fund physical security - the military or the police - this is done by the state. Perhaps the state should directly fund at least some portion of energy security as well’.
She also offers some more specific policy recommendations. She calls on the government to ‘accelerate the deployment of new large-scale reactors’ and to ‘develop a credible pipeline of projects to deliver new technologies in the medium term’, while ‘more speculative approaches, including nuclear fusion, should continue to receive innovation support, but should not attract undue focus’. But this is not a detailed policy action report, it’s more of a review of what it sees as the dire state of play and a critique the government’s current orientation:‘ Britain should be an attractive market for nuclear projects, but in its determination both to avoid adding costs to the state balance sheet and any perception of delivering poor value for money, the Government has failed to create the necessary conditions for new projects to flourish.’
To its credit the GWPF made the draft available for comments and has now published them. Interestingly most of them, including two from well-known pro-nuclear lobbyists, were slightly critical. Thus Prof .Wade Allison, from Keble College, Oxford University said ‘‘Kathryn Porter’s report is too narrow and conservative. If the UK moves slowly and ineffectively, as it has in the past, it will be overtaken by a long list of countries that are already moving, from Poland and Korea, to Estonia and India - we are late. Russia and China are way ahead, even if Australia and Germany are well behind. When the real challenge comes - popular demand following prolonged blackouts or climate-generated migration - our children will ask why we did not build earlier.’
Prof. Malcolm Grimson from Imperial College London focused more on the economics: ‘The paper is rightly very clear that the economic risks of nuclear power - in short, that compared to other power options, much more of the cost of nuclear generation is front-loaded in the construction phase, so managing risks of cost or schedule overruns is a practically insuperable task for private capital - are such that heavy state involvement, probably up to and including direct state investment in new nuclear construction, is unavoidable.’
He added ‘The paper is also probably right in saying that the CfD/strike price structure which was created to fund Hinkley Point C probably will not be repeated, though it should be noted that CfDs are not just a floor but also a ceiling on income and that, with wholesale prices at levels seen in recent months, Hinkley Point C, had it been operating, would have been paying back considerable sums to electricity consumers - for example, in the last three months of 2022 the ‘season ahead’ prices for winter 2023 were hovering around the £300-£350/MWh mark, well above the Hinkley Point C strike price of around £110/MWh at the time.’
He went on ‘RAB seems to be the latest attempt to apportion construction risk in such a way that the price is manageable but the risk does not entirely fall on consumers (an honourable aim) but it is yet to be seen if it will be sufficiently attractive to stimulate private sector (or rather non-UK government sector) investment. The paper notes the near-obsession with keeping nuclear investment off the national books but, as seen with PFI in the 2000s, there is no guarantee that this gives the best value.’
It will be interesting to see how the government (and the nuclear industry) responds to Porters analysis of funding and energy pricing policy, and especially to the point that, given the zero fuel costs of renewable, but also their operational costs, ‘determining the optimal generation mix of nuclear and renewable energy when taking the full costs to consumers into account is challenging’. She says that ‘if the status quo is maintained, gas prices will continue to drive whole-sale electricity prices, supporting margins for nuclear generators. The more wholesale prices are reduced by the impact of renewables, the lower those margins will be. However, in a market with high renewables penetration and a lower wholesale price, the distortions arising from the inability of the wholesale price to capture the full costs of renewable generation will increase’. But she backs off talking about nationalisation, although she says ‘it is worth considering the extent to which the competitive forces envisaged at the time of privatisation have been neutered by subsequent policy decisions designed to deliver decarbonisation, and the impact this is having on the wholesale electricity market’.
There are some interesting ideas in there! Though, even if Porter was a little concerned that ‘the GWPF has taken a somewhat more negative interpretation of my report than I expected,’ she is clearly keen on pushing ahead fast with nuclear. Well it’s a view. But there are others.
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