The UK’s nuclear power programme appears to be in the slow lane. However, if China comes aboard, the sector could join one of the world’s fastest growing industries. Meanwhile, old questions need new answers. Jon Herbert looks at major infrastructure projects.

Nuclear power is a global business. As Britain dips a tentative toe into the new power station market, leading Asian nations are racing ahead with cost-competitive reactor building programmes that in parallel are generating new supply chains, skill sets and major export potential.

However, joining forces with international partners has both upsides and downsides, as the UK, with its heavy emphasis on safety, is discovering. Even so, long-term relationships with China and European nuclear specialists seem inevitable, though there are numerous hurdles to overcome.

French energy specialist EDF recently let it be known that the first new UK nuclear power station to be built in decades — Hinkley Point C (HPC) on the Somerset coast — will not now be generating power by 2023. This is the latest in a series of delays with rapidly escalating costs. In fact, EDF has still made no final construction decision about the £24.5 billion HPC project — on course to become the world’s most expensive power station — even though Chancellor George Osborne has been busily wooing China to stump up a large part of the enormous investment sums needed to develop what the Government sees as a central pillar of the UK’s future energy mix.

The Chancellor has offered a £2 billion guarantee that could see China’s state-owned nuclear sector become a minority HPC investor. An announcement is expected in October when Chinese president Xi Jinping visits the UK. China’s reward could be an agreement to use Chinese nuclear technology.

Energy Secretary Amber Rudd has also floated the idea of China taking the lead in constructing a Beijing-designed reactor at Bradwell in Essex. However, there are significant safety concerns around allowing the Chinese National Nuclear Corporation and China General Nuclear to export nuclear components to the UK. Ms Rudd points out that UK compliance criteria are extremely stringent.

Global comparisons

Safety, costs, value-for-money and a 2023 EU deadline to close down old polluting coal-fired power stations are now crucial factors in the progress of a new UK civil nuclear industry. The inconvenient truth, according to a new report from the International Energy Agency (IEA) and the Nuclear Energy Agency (NEA) is that building nuclear power stations in Britain is more expensive than anywhere else in the world.

The report shows that a new generation of nuclear generation will provide power more cheaply than coal and oil-fired “base load” energy sources over a station’s full lifetime if funding costs are relatively low. However, the rub is in the cost of finance. Although making direct comparisons is difficult for technical, political and business reasons, it is estimated that the cost of developing new nuclear stations in the UK is almost three times higher than in China or South Korea.

Very rough approximations indicate that the UK cost of producing a MWh of electricity will be circa £87. This is one third more expensive than in the USA and a fifth more costly than in France or Japan. Even projected costs in Hungary and the Slovak Republic are significantly lower. Meanwhile, the Government’s current guaranteed minimum strike price to producers is £92.50/MWh for 35 years. This is linked to Consumer Price Index inflation and could rise considerably.

There are several reasons for the disparity. On pure economics of scale, China is building dozens of new nuclear plants, which gives it a cost advantage. However, another reason is the role of the state. China’s state-run nuclear projects have access to extremely low, and in some cases zero, interest rates. The logical conclusion for some analysts is for state-ownership in Britain, a suggestion that runs very counter to current government policy.

The Institute for Public Policy Research (IPPC) believes a better option would be for the UK’s 11 planned plants, with a joint capacity of nearly 16 GW, to be renationalised. Their construction and maintenance would then be carried out by private sector firms. The Government, however, is adamant that deregulation and private sector financing and development are the way to go.

Hinkley as a flagship project

Hinkley C was originally to be commissioned by 2017. In 2013, its costs under the coalition government were projected as £16 billion, with UK companies benefiting from up to 57% of the work. Some 25,000 jobs could be created during construction, with 5600 on site at peak. Circa 900 permanent jobs are expected over the station’s 60-year operational lifetime.

The station should provide power for nearly 6 million homes, equal to an area almost twice the size of London. At full capacity, it will generate some 7% of the UK’s electricity, while also reducing the UK’s CO2 emissions by 9 million tonnes every year.

However, after three previous safety concerns, EDF has now pushed delivery of two new Pressurised Reactors (EPR) back for a fourth time to 2018, with knock-on effects beyond 2023. France and the UK have both chosen the EPR as part of the replacement of their aging nuclear fleets. As a result, the NuGen consortium, which is on track to build three new AP1000 reactors at Moorside in Cumbria with a capacity similar to HPC, could be the first to come on-stream.

The manner in which nuclear energy projects are financed is a problem that the IEA-NEA report analyses in some detail. Most costs come during construction. Compared with South Korea, which anticipates borrowing costs of 6%, the UK sector will face an estimated 9.5%. In countries with government regulated or state-controlled energy markets, there is often a greater emphasis on stable prices and power supply security. Policy and financial risks are likely to be lower as a result.

Limiting these risks depresses the cost of borrowing, according to the World Nuclear Association (WNA). This, it says, is why the left-leaning IPPC believes that the cost of financing UK new-build could be cut by some 1.2% under certain conditions.

In comparison, the IEA report finds that the cost of building new gas-fired stations in the UK is expected to be £69/MWh, which doesn’t include full carbon costs. The Committee on Climate Change (CCC) anticipates that nuclear power will be cost competitive against other low-carbon power sources, with costs falling progressively.

The more right-leaning Policy Exchange think-tank notes that onshore wind is already lower than the reduced costs of nuclear power projected through the 2020s. It predicts that wind costs could fall to £60/MWh by 2020, years before any new nuclear station is actually built.

Supply chain learning curve

Another factor affecting UK costs is the pace at which fledgling supply chains evolve and develop efficient industry skills. Because Asian countries are already building nuclear plants in large numbers, they enjoy a significant edge which is boosted further by lower labour and construction costs.

Foreign finance is a contentious issue. Opponents favour a domestic solution. Supporters say the UK needs to attract Chinese investment so that billions of pounds worth of taxpayers’ money can be spent on health or education. The size and timeframes involved are beyond the scope of many private sector companies and consortia, hence the appeal of state-owned Chinese companies.

To give some idea of the scale, China’s nuclear industry currently operates 24 reactors, with a further 25 under construction. The country is also keen to export its nuclear technology to the west. Complying with British regulations would give it a huge commercial boost. Safety concerns aside, China also has an impressive track-record for delivering nuclear plants on budget and on time.

World vision

The UK currently operates 16 reactors which produce some 18% of the country’s electricity. All except one will be retired by 2023. At a peak in the 1990s, 70.6TWh of nuclear power were generated.

Globally, nuclear generation is in the ascendency. The WNA reports that 70 new nuclear stations are now under construction, the highest for a quarter of a century. A further 500 are proposed. In fact, world nuclear industry leaders met recently to discuss how the gap between the WNA’s vision for an extra 1000GWh of nuclear capacity by 2050 might be achieved within the world’s current political, regulatory and financial frameworks.

The USA alone now operates 99 power reactors. Hungary, Romania and Ukraine intend to increase their capacities; Poland and Turkey also plan to join the nuclear power club. A key motivation is to create an alternative to dependency on Russian gas.

Recurring waste question

One issue that is not new is the question of where to store Britain’s nuclear waste. Many countries only have temporary storage facilities. Typically, some 90% of nuclear plant waste is designated as “low-level”. A further 3% is “high-level” waste containing 95% of radioactivity. High-level waste generated by an operating station over 60 years would typically fill an Olympic swimming pool and take thousands of years for its radioactivity levels to decline to that of the uranium first used for nuclear fission.

Local opposition to hosting the UK’s first permanent storage facility has been sidelined by legislation that now designates such sites as “nationally significant infrastructure projects”, thus bypassing local planning laws. Henceforth, the choice of site is in the Secretary of State for Energy’s hands, who will be advised by the planning inspectorate but does not have to agree with its recommendations. Local councils and communities can object to development details but cannot halt construction.

Plans to create a £4 billion geologically designed site are being held back by “nuclear perception problems” according to the government-owned company Radioactive Waste Management (RWM). Taxpayer disposal costs are estimated to be £12 billion. RWM is launching a public information campaign with the aim of site selection being complete by 2017. It is calculated that the UK’s accumulated nuclear waste would now fill Wembley Stadium four times over.

First published by Croner-i on 16/10/2015