The nuclear option

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The nuclear option

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Investing in nuclear power would help kickstart the British economy—and it would be a lot cheaper than other renewables (photo: Huntz)

Is electricity a commodity, to be delivered within a market context with minimal state interference? Or is it a social service, with long-term implications so great for the economy and the environment that policy needs to be coordinated centrally?

Neither the previous government nor the present one has seemed to have an answer to the question, which can perhaps be restated as “who is the ultimate guarantor of secure, economic and environmentally acceptable electricity supplies—commercial companies or the government?” So they have set up a “market,” then intervened heavily in that market on a regular basis to persuade companies to deliver on social and environmental goals. The outcome is a situation in which companies are nervous to invest but government no longer has the levers to dictate outcomes.

Left to itself, the market would build very little but gas-first power stations. They are relatively cheap and quick to construct (so investors get their money back quickly), and if the gas price increases so does the power price, protecting their profitability. Government has to work very hard to persuade the market to build low-carbon sources, which are cheaper to run but much more expensive to build and so much riskier.

Each new nuclear plant would be a major infrastructure project at a time when there is much talk of needing to kickstart the economy. It would reduce the UK’s dependence on imported gas—in the wildest of fracking scenarios we’ll still be a major importer, ultimately from Russia and the Middle East, increasingly in competition with China. It would reduce our greenhouse gas emissions. And unlike variable renewables, it would not run coach and horses through the economics of power production. (Last week German environment minister Peter Altmaier estimated the price of Germany’s plans to move from nuclear and coal to renewables at €1 trillion when all costs are included, a figure close to the UK national debt. Creating a grid which can cope with wind output when the wind is blowing, but replace it with other power when it is not, would alone cost between €27.5bn and €42.5bn.)

If the government is determined to stick to the market mantra then it faces two broad options. Abandon nuclear power, and with it the carbon targets, and commit the UK, by default, to a new dash for gas. Or intervene so heavily in the market that the risks of nuclear investment—which the Yeo report characterises as construction risks, revenue risks and policy risks—are to a considerable extent borne by electricity consumers and/or the taxpayer. Neither of these positions is a comfortable one.

John Hayes, the energy minister, has given the strongest indication I have seen that government is set on nuclear new build and will provide whatever guarantees are needed to deliver on this. But for my money the problem lies not with the specific measures being discussed, but with the concept that an essentially “short-term” market is the appropriate way of taking decisions which will still be affecting our environmental and economic performance in several decades’ time.

  1. March 13, 2013

    Andrew Aikman

    This discussion about the cost of a nuclear program appears to take no account of the cost of decommissioning and the so far unresolved questions of ultimate storage of spent fuel. (Even after six decades this problem has not been resolved.)

    The third way seems not to have been considered. In the same way that the escalating cost of petrol and diesel has given rise to more efficient engines, there is great potential in making more efficient use of our current electrical power. In lighting alone, LED systems offer huge savings. Many domestic appliances can be run off low voltages; but so far there seems to be no innovation and no encouragement for energy efficiency in electricity. I wonder just how much electricity would be saved by just turning off the unnecessary lights in the Canary wharf offices at night?

  2. March 30, 2014

    Mark Pawelek

    An excellent explanation of why the power companies prefer to build gas-fired power stations. Carbon emission rules mean that new, coal-fired, electricity is, effectively, banned. CCS is still experimental. New gas plant is much less expensive to build than non-carbon sources such as: nuclear, wind, solar, tidal, hydro. It is only about 25% the price. The main cost of gas-fired electricity is in paying for the natural gas. The ROI for gas is very quick compared to the non-carbon sources I listed. Judged on the basis of profit alone, a capitalist would be a fool to go with anything else but new natural gas.

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Malcolm Grimston
Malcolm Grimston is associate fellow of the Energy, Environment and Development programme at Chatham House 




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