From the Editors - Nuclear Subsidies Largesse by other Names
A new inquiry into energy subsidies has been launched by UK’s cross-party Environment Audit Committee, but will it uncover all that are to go into nuclear energy?
Many ways to hide nuclear subsidies
Ever since it decided to
commission a new fleet of reactors, the UK government has insisted that
nuclear power is a safe and economical source of low-carbon electricity. It
will not be too cheap to meter, as we were told half a century ago, but it will
not require a subsidy and it will not be given one.
That was what the Labour government said when it took the decision, and it’s
what the coalition government is saying today.
Despite this unusual
parliamentary consensus, it is hard to take the claim seriously. You only have
to look at the published data on the costs of building nuclear power stations.
The figures in the White Paper were obviously selected to make the case and
were implausibly optimistic (The Real Cost
of Nuclear Power SiS 47). There was solid evidence that in
successive drafts, estimates had been adjusted
to make the case appear even stronger. The
large US financial group CitiBank had carried out a detailed study and come to
the unequivocal conclusion that without a large subsidy nuclear energy would be
a bad investment.
Most observers expected the
government to devise schemes to allow it to subsidise the nuclear industry
while denying that was what it was doing. The denials would not have to be
very convincing because the opposition in Parliament, whichever party it was,
would be just as anxious as the government to justify the decision to go
nuclear. For example, while the industry would be responsible for disposing of
the nuclear waste, the government would take over this liability for a fixed
price, and no one doubted that this will be at
a very generous rate. There would also be some
form of extra payment for low carbon energy in general, and the scheme would be
arranged to favour nuclear. The new reactors are to be much larger than any
existing generators, and National Grid will have to
pay £160 m a year for backup in case one of them unexpectedly has to be
taken off line. This cost will be incurred specifically because of the new
nuclear plants, but it will be charged to all energy generators, thus
making nuclear apparently cheaper than it actually will be. The rationale for
this, according to National Grid, is that
“increasing costs on larger users [instead of the taxpayer] could delay the
commissioning of large nuclear plants by a number of years.” In other words, nuclear energy could not compete without
In the event of a serious incident, the owners of nuclear
plants will be required to meet claims up to a total of £1 bn. This is
insignificant when compared with the
total cost of Fukushima, which has been estimated to be no less than £47 bn and
possibly as much as £167 bn. Paying for insurance to cover such a loss
would obviously increase the cost of nuclear power, especially since Fukushima,
it is no longer credible to insist that such an event cannot occur in a
technologically advanced country.
There are many other ways in
which governments can and do provide substantial financial assistance for
nuclear power without openly admitting that these are subsidies, some examples are given by the Union of Concerned Scientists in
the US, and by ISIS in France (The
True Costs of French Nuclear Power, SiS 53).
Down to brass tacks
The government may or may
not have believed its claim that nuclear energy would be profitable, but the
industry clearly did not. They knew they could not go ahead without a subsidy
and that subterfuges like charging too little for dealing with the waste were
not going to be enough to make up the difference. So while Centrica, Hitachi,
E.On and RWE all expressed some level of interest, only Electricité de France
(EDF) is currently negotiating with the government.
That leaves the UK in a very weak
position; having committed the nation to nuclear
without a plan B. The UK is falling behind other countries in developing
renewables, and the government is not even standing up to the opponents of wind
farms, many of whom are its own MPs. Many critics
believe this is deliberate: just as the railways were deliberately privatised
in a way that made it very difficult for a later government to take them back
into public ownership, so the failure to promote renewables is intended to make
the nuclear option the only available choice. Unfortunately, it also means the
government cannot rely on the market to keep down the cost of nuclear power
because there is no competition.
EDF has obtained planning consent
for two reactors at Hinckley Point, which is on the Bristol Channel in the west
of England. There are already two reactors on the site, one in the process of
being decommissioned and the other scheduled to close down in 2023.
The government and EDF have yet
to agree on the “strike price”. The term comes from the financial world but
here it simply means the price that the company will receive for the
electricity it generates, whatever the cost of other electricity may be. The
price is fixed in real terms, i.e. it will increase with inflation but it will
be paid whatever the wholesale price for other electricity is at the time.
Since the contract will probably run for the unusually long period of 40 years,
the exact figure chosen will be crucial. Clearly a strike price that is too
high will be a massive subsidy for nuclear power.
Forty years from now the chief alternative sources of energy will be
renewables (with the necessary technologies probably imported from Germany and
China, both of whom are actively developing them) and
experience shows that the cost of generating electricity from renewables,
unlike that of nuclear power, tends to fall substantially over time.
must not confuse temporary subsidies to help new technologies like solar and
wind to get off the ground, with permanent subsidies to support technologies
like nuclear that will never pay their way (see ISIS’ comprehensive
report Green Energies -
100% Renewable by 2050).
What even the critics did not
anticipate was how quickly an overt subsidy has appeared on the table. The
negotiations are still going on, but here are some numbers to keep in mind. In
2008, EDF told its investors that it could produce nuclear power at £45/MWh. In
2012, the head of EDF, Vincent de Rivaz, said that EDF would be asking for a
strike price “lower than £140/MWh.”. According to reports,
the government is hoping to offer not more than £100/MWh. We have no way of
knowing how the negotiations are going, but if they settle at £110/MWh, that
would represent roughly a 2.5-fold increase in
In the White Paper, the
construction cost of a 1 GW plant was estimated to be £2.8 bn. We are now told
that the two at Hinkley Point will cost £7 bn each. Again, a factor of about
When asked why the current
estimates are so much higher than those of five years ago, de Rivaz explained
that it was because “a lot of things have changed: four years inflation, cost
of commodities, steel concrete. And it was based on Flamanville.”
That’s not very convincing. Total inflation over the period has been about 11% and steel and
concrete have risen only slightly more than that. As for Flamanville, the 1.6GW
nuclear power plant currently being built in France, this was supposed to cost
€3.3bn and begin generating electricity in 2012. The latest estimate is that it
will cost €8.5bn (£7.1bn) and go on line in 2016. EDF claims that an important
factor in the high cost of Flamanville is the “first of a kind effect”, but
they and others now estimate that the two Hinkley
Point reactors will each cost about the same as Flamanville, which rules that
out as an explanation.
for the 2012 London Olympics estimated the cost to be about £3.4bn; by
2007 this had risen to over £9bn. The government eventually reported that the
total cost had been £8.9 bn and expressed its satisfaction that the project had
come in “under budget”. The budget it was referring to was of course the figure
quoted in 2007, not the very much lower one on the basis of which the decision
to bring the Olympics to London was taken. In the same way, when EDF announced
in March 2012 that cost of the Flamanville reactor was being “revised”, they
also claimed that it was “still on schedule”, even though no electricity is to
be produced until 2016, four years later than had been promised. What they
meant was that there had been no further change since the last postponement.
When governments are deciding
whether or not to commit themselves to a project, there is an obvious incentive
for all concerned to be very optimistic about how much it will cost, how long
it will take, what it will achieve, and what sort of profit margins the suppliers
Once the decision has been taken
and the contractors are making bids on which they will be expected to deliver,
the time for optimism is over. The industry will be looking for prices on which
they are confident they can make good profits, and if the government still
wants to go ahead with the project, the most it can do is to argue at the
That would explain how the cost
of building a 1.6KW nuclear power station can be estimated at £2.8bn in 2008
and £7bn in 2013. The former was considerably lower than any other estimate we
could find at the time; the latter seems to be in line with what others are
suggesting. That is not to say that the current estimate is correct; nuclear
power plants have a habit of taking far longer to build and costing far more
than was promised, as Olkiluoto and Flamanville demonstrate all too clearly.
Finally, according to recent
reports in the French press, EDF is considering giving up on the European
pressurised reactor (EPR), the design used at both Flamanville and Olkiluoto
and planned for Hinkley Point, and replacing it with a range of smaller
reactors. If the UK government goes ahead with the current deal, we could find
ourselves having chosen an expensive and out of date design that even
supporters of nuclear energy will regret.
There is still time for the government to change its mind.
It has lost ground but it can still follow the Germans – and others, even the
French (Fukushima Fallout
SiS 51) – and invest in renewables. It would mean a loss of face; but
because the rush to nuclear began under Labour and has continued under the
Conservative/LibDem coalition, neither side will be able to accuse the other of
a U-turn. The harder problem will be to overcome the cosy relationship that has been built up over half a century
between the government, the military and the nuclear industry.
that is no excuse for not taking the right decision. Not only is nuclear energy
hazardous, it is not even better on short term economic grounds (see Death
Camp Fukushima Chernobyl - an ISIS special report, SiS 55).If the
government signs up to a poor deal now, our children and grandchildren will be
paying the cost for the next 40 or more years.
Fully referenced versions of all the
articles including this editorial are available on ISIS members website: http://www.i-sis.org.uk/sismembers.php