Areva, EDF, Europe, General Electric, Toshiba, Vattenfall

Nuclear power: the UK’s weapon of choice in the war on carbon

Issue 1 and Volume 16.

In January the UK backed the building of a new generation of nuclear power stations in its latest Energy Bill. But that was the easy part. How close is the UK to building its first nuclear reactor since the 1980s?

BY TIM PROBERT

That the UK should put its weight behind nuclear power in its latest energy policy Energy Bill surprised few. The Labour Government’s Energy Review of 2006, ultimately thrown out by the High Court after a legal challenge by Greenpeace, had attempted to open the way for a new British fleet of nuclear power stations.

Having gone back to the drawing board, Westminster conducted a more wide-ranging consultation on the prospect of new build and again drew the (not unexpected) conclusion that the UK should indeed build more nukes. Public opinion on the decision was mixed, but opposition to nuclear energy in the UK has diminished noticeably in recent years.

The case against nuclear has been softened by the climate change agenda. Some (but by no means all) formerly anti-nuclear environmentalists, not least Dr. Patrick Moore – co-founder of Greenpeace no less – have been extolling the virtues of atom-smashing, following the logic that nuclear energy, while far from ‘green’, is a carbon-free source of electricity. Furthermore, all but one of the UK’s 19 reactors – responsible for one-fifth of electricity production – will be out of service by 2023, and the prospect of replacing these with coal plants, as is Germany’s plan, was anathema.

The Energy Bill, however, is just the beginning. When the UK finally gets it new nuclear power stations, they will be the first in the world to be built without direct state subsidy. In a privatized, liberalized market like the UK’s, it is very easy for a government to effectively say to utilities, as Business and Enterprise secretary John Hutton did, “We want you to build nuclear power stations, even though we’re not giving you a penny, please,” and then get back to counting the cost of the credit crunch. Surely it cannot be that easy?

Well, actually, it might just be so. Nothing has stopped utilities from building nuclear power stations in the past, but planning obstacles and uncertainty about the economics over other fuels had always made it improbable.

To address these concerns, the Energy Bill contains measures to speed up the planning process and cut costs, but erecting a nuclear power station is still no cakewalk. On the important question of waste, Hutton said that firms would be expected to meet the full cost of the management and storage of waste, saying existing “interim” storage facilities were adequate until a permanent solution for the disposal of new and existing nuclear waste could be found.

To give encouragement to the public and the industry, Hutton will establish a new independent body to advise on the financial arrangements to cover operators’ waste and decommissioning costs.

So given the (still) enormous cost, time and effort required to build and maintain nuclear power stations even with government subsidy, who would want to build them now, without any state help?

Well, actually, quite a few. Eleven power companies, including all of the UK’s big six power companies plus Union Fenosa of Spain, Sweden’s Vattenfall and the French giant Suez, are finalizing their alliances and are expected to submit proposals later this year.

EDF, in tandem with compatriot Areva, and UK engineering group Amec, has said it would push ahead with plans to build four new reactors, with the first to be completed by 2017. British Energy, operator of eight nuclear power stations, expects to unveil its chosen partners to build new reactors at four of the company’s sites by March of this year.

Areva is one of four reactor builders that have already requested that their designs be considered by the UK. The others are Canada’s AECL, American giant General Electric, and Westinghouse, now owned by Japan’s Toshiba.

EDF, which has strong presence in the UK as a leading electricity provider and has robust expertise in the nuclear sector, has the financial clout to build them out of its own pocket. E.ON, unlikely to get the chance to build plants in Germany in the foreseeable future due to the phase-out policy, not to mention stiff opposition to atomic energy, believes British nuclear plants could be self-funded, without subsidies or a guaranteed carbon price.

Interesting stuff. Calculating the cost of generating electricity from nuclear energy is notoriously difficult, but most are in agreement that its costs somewhere between 2p-3p ($0.04-$0.06) per kWh. British Energy estimates that the overall cost of operating its power stations in the six months from April to September 2007 was 2.6p per kWh.

The UK’s Royal Academy of Engineering (RAE) put its costs at 2.3p per kWh. This compared with their estimates for gas fired power stations at a kilowatt-hour cost of 3.64 p, and coal stations at 3.33 p. Critics of the report say the RAE has underestimated the capital costs associated with nuclear, but they do include a provision of some four per cent of costs for decommissioning and waste management.

There is disagreement about the scale of decommissioning costs, but the numbers tend to be rather large. Latest figures from the UK Environment Agency suggest anywhere between £300m and £1bn per power station.

None of these estimates, however, take into account the price of carbon in the EU Emissions Trading Scheme (EU ETS). The EU published its initial draft directives for the third phase of the scheme late last month and they are very good news for the nuclear industry. From 2013, when phase three of the EU ETS kicks in, power generators will get fewer permits to emit carbon dioxide and they will have to buy them all.

Because it is being carried out at a European level, the carbon issue is the one over which the UK has the least control. But this is one of the most crucial issues that will determine whether the economics of new nuclear will work or not in the UK.