Find out what NNWI has been campaigning for. Our Chairman, Tim Yeo, regularly comments on the issues of the day and writes on the long-term landscape for nuclear energy across Europe.
End of Year Chairman's Blog
The selection of a teenage activist as Time magazine Person of the Year symbolises the upsurge in public concern about climate change in the last twelve months.
The only surprise about this upsurge is that it didn't happen sooner, given that the changes now occurring were predicted by scientists thirty years ago. But despite belated public recognition of the dangers the response of most governments continues to be alarmingly inadequate.
It's now clear that action on a scale never previously contemplated must be taken immediately if irreversible climate change is to be avoided. In these circumstances it's worrying that CoP 25 recently ended in failure, unable even to agree how wider use of carbon markets can cut the cost of reducing emissions.
All this poses a particular challenge to the energy industry. But as we cross the threshold of a new decade this challenge is also a huge opportunity for the nuclear industry.
During 2019 more and more organisations - from the International Energy Agency to the United Nations, from the Intergovernmental Panel on Climate Change to the Organisation for Economic Cooperation and Development - concluded that overcoming the threat of climate change will require substantial investment in nuclear energy.
So in 2020 the nuclear energy industry must achieve two key goals. The first task is to harness the support of these important organisations and win over the doubters. Starry eyed enthusiasts who claim to be worried about climate change and then go on to assert that renewables alone can replace fossil fuels are often well intentioned but their argument is deeply misleading.
As any country starts to depend on intermittent renewables to generate more than 50 per cent of its electricity its costs rise very sharply and its energy security is weakened.
Nevertheless there's a risk the renewable energy lobby is influencing EU policy. While it's excellent that the new President of the European Commission has put climate issues at the top of her agenda for the next five years the row about the EU taxonomy exposes a disappointing ambivalence in Europe's attitude to nuclear.
Failure to treat nuclear as a low carbon technology alongside renewables is a serious mistake. Lumping it along with gas as merely a transitional fuel is a judgment completely unsupported by evidence. We must all work hard to get this approach changed as quickly as possible.
The second task in 2020 is to drive forward the technical progress being made in various countries towards advanced reactors, including SMRs. Coupled with greater regulatory harmonisation this progress will help both to cut costs and to widen the market for future investment in new capacity.
Here at NNWI we're planning a full programme of activities in 2020 in which we will focus on these and other topical issues. We intend to follow up the successful Forum we held in November with another international conference in London bringing together industry leaders and policy makers from across Europe. We will also hold a series of breakfast panel discussions, each of will focus on a topical nuclear industry themes.
Please contact us if you would like to be involved in any of these events or with any other aspect of our work.
NNWI Forum 2019
On a perfect late autumn day last week the view across the Thames towards the Tower of London from the top floor of Norton Rose Fulbright's office was spectacular. Inside, at the New Nuclear Watch Institute Forum 2019, the audience had industry experts to debate with and a screen full of pictures, charts and tables to look at.
Alternatively, in the unlikely event that anyone's attention wandered, they could turn round and gaze out of the window behind them at the City skyline bathed soothingly in sunshine.
The Forum brought together speakers and panellists from five EU member states as well as from further afield. The topic, "Nuclear Energy as part of Europe's energy mix", excited lively discussion throughout the day.
One strong theme was the concern that the nuclear industry must make its voice heard beyond the energy community. Our vision of the crucial role which nuclear can play in providing clean, safe and cheap electricity to tackle the increasingly urgent challenge of climate change needs to be communicated persuasively to both governments and members of the public alike.
Another striking aspect was the confidence expressed by the wide range of nuclear professionals taking part both in the industry's ability to rise to this challenge and in the progress it is making on many fronts.
New faces now fill the top jobs in the EU institutions. Here in the UK an election is taking place. But even as the cast of characters changes the fundamental problems which have to be addressed remain.
For me one of the Forum's most encouraging messages was how the academic world, the NGOs, the trade unions and the top management of the leading nuclear energy companies are united in their optimism about the industry's future.
This Forum was the first international conference which NNWI has organised. I am extremely grateful to everyone who participated in it and for the helpful feedback which we have received.
This is helping us to develop our programme for 2020, in which I hope you will all take part. Thank you very much for your support so far. We will be in touch again in the New Year.
The French Nuclear Energy Society International Congress on Advances in Nuclear Power Plants in Juan-les-Pins was a good place to be this week and not just because of the sunny weather and excellent beachside restaurants, though these two factors helped.
The Congress attracted a strong international group of delegates as well as many enthusiastic PhD students, some of whom took part in a competition to find who could present their research to the audience in the most compelling way.
Over three days there was plenty of serious discussion on a range of technical issues. In addition the opening session, in which I took part, considered the international outlook for the industry as a whole.
This provided a refreshing dose of realism about both the challenges which we face and the opportunities which we may be able to seize.
Proceedings began with an encouraging introduction by Philippe Knoche, CEO of Orano. This was followed by a panel whose members came from the US, China and Japan as well as several European countries.
Shoujun Wang, President of the China Nuclear Society and Chairman of CNNC, gave an upbeat account of developments in China. From the other side of the world Ali Zbib reported on the US scene, where the industry is still alive and kicking, albeit without much help from politicians.
It was reassuring to hear Hans Rhein from DG Energy in the European Commission confirm that the EU still regards nuclear as an important part of the response to climate change. Long may that continue to be the case.
Keisuke Sadamori previewed the International Energy Agency's forthcoming report "Nuclear Power in a Clean Energy System", which will be published at the Tenth Clean Energy Ministerial in Vancouver at the end of May.
Having been a peer reviewer of this document I can testify to its high quality and it will certainly make a helpful contribution to the debate about nuclear's role. My own contribution to ICAPP can be accessed elsewhere on the NNWI website.
After these presentations a lively discussion took place under the skilful
chairmanship of Yves Desbazeille, Director General of Foratom.
The clear message from this session was that the recent upsurge in concern about climate change and the growing global consensus that decarbonisation of the power sector must accelerate offers the nuclear industry a huge opportunity.
At the same time optimism about future prospects is tempered by the continuing need to make the positive case for nuclear in the face of competition from other low carbon technologies.
Cutting the costs of new nuclear
The Green New Deal launched recently by the Democrats shows at least some American politicians support urgent action to address climate change.
The Deal sets a challenging target of cutting carbon emissions by 60% by 2030. It envisages ending the use of fossil fuels and abandoning nuclear energy.
Coming soon after the collapse of plans for two new nuclear plants in Britain this is a warning that in the West the nuclear energy industry is struggling for survival.
Strangely it is happening when concern about climate change is intensifying. There is a growing consensus that the goals in the 2015 Paris Accord need to be made more ambitious, even though few countries are on track to meet their existing commitments.
It is perverse to rule out the only secure source of dispatchable low carbon baseload electricity. Nobody knows when low cost, long term, flexible energy storage will be widely available.
Without it there’s a limit to how far a modern economy can rely on intermittent renewables for its electricity. Making policy on the basis that abundant storage capacity is just round the corner is reckless.
But what seems at first glance to be an existential threat to the nuclear industry is an opportunity for Britain to drive energy prices done.
Until recently the new plants at Wylfa and Moorside were to be built by different companies using different technologies. Now the sites can be offered as a single package.
Both are approved for nuclear installations and supported by local communities keen for the infrastructure which the development will bring. Trade unions also like the well paid jobs which nuclear reactors provide in the region.
The government should invite tenders for the construction of five plants to produce more than 6 GW of capacity. Five reactors of similar design will cost very much less than five times the cost of one.
EDF has its hands full with the construction of Hinkley, where by all accounts good progress is being made, and later with Sizewell where its plans are moving ahead.
That leaves the most credible vendors likely to be from Russia, China and Korea. Each would love to show off their wares and know that successful operation here will ease entry into other markets.
Political issues would have to be addressed but the prize for developers is big enough to enable the government to drive a hard bargain on management control as well as price.
Onerous operational conditions could be applied to ensure that the reactors functioned at all times in the national interest.
On top of the Office of Nuclear Regulation’s stringent safety requirements the government could insist on sensitive control mechanisms being manufactured by a trusted British company.
The benefit would be affordable secure clean electricity for the rest of the century and protection for consumers from the risk of higher costs caused by carbon taxes or a rising carbon price.
Thousands of jobs and hundreds of opportunities for supply chain companies would be created. This could be a timely offset to any losses caused by leaving the Single Market and the customs union.
Finally Britain would again be a player in an industry where it once led the world and which is key to overcoming climate change. It could even provide Mrs May with a legacy which goes beyond Brexit.
Chairman's New Year Blog
The final quarter of 2018 was when harsh reality finally began to confront the lofty goals of the Paris Accord and the more modest commitments of the many countries which signed it. Prospects for reaching these goals and honouring these commitments started to fade.
In October the IPCC warned that unless substantial cuts in CO2 emissions are made before 2030 the rise in global average surface temperature will exceed 1.5C. On present trends by the end of this century the world will be more than 3C hotter than it was before the Industrial Revolution, a change which will have grave consequences for humanity.
In November the UN's Emissions Gap Report confirmed that, after a three year plateau from 2014 to 2016, global emissions resumed their upward trend. The projected 2018 year on year increase is 2.7%, much bigger than the 2017 rise of 1.6%.
In December, despite these loud warning bells ringing in their ears, the diehard champions of fossil fuels, led by the US and Saudi Arabia, fought to water down the response of COP 24, held in coal dependent Poland, to the IPCC report.
Against this background it is now more urgent than ever that nuclear energy is widely recognised as an essential part of the world's response to climate change. It is extremely welcome that in the last few days this conclusion has been endorsed by Bill Gates and by a new book “A Bright Future” by Joshua Goldstein and Staffan Kvist.
Any lingering doubts about this should be removed by the example of Germany whose disastrous decision in 2011 to phase out nuclear has jeopardised its energy security, raised consumer prices, wrecked its chance of reaching its 2020 emissions reduction targets and damaged air quality in its cities.
The case for expanding nuclear has been strengthened by the good progress which the industry is making. The transition to Gen 3+ has been achieved with the first AP1000 and EPR reactors becoming operational in China, following the Russian VVER-1200 which was completed in 2016/17.
Unfortunately a lack of policy clarity in many parts of the world is still holding back investment in new nuclear capacity. In the EU, for example, a vision of becoming climate neutral by 2050, a goal which requires net zero emissions, has been set out.
But despite this ambitious aim, the European Commission continues to harbour the illusion that it can be reached solely by massive development of intermittent renewables and sometimes displays a bias against nuclear which amounts to downright hostility.
Even in China, where rapid expansion of nuclear capacity used to be seen as a key part of government efforts to cut its dependence on coal, the pace of new construction may be starting to falter in the face of (possibly misplaced) public anxiety about safety and policymakers' concerns about rising costs. The tenfold growth in Chinese nuclear capacity which was envisaged before the Fukushima accident no longer seems attainable.
Nearby in Taiwan a 60/40% majority in favour of keeping nuclear power in last month's referendum could be another sign that public support for nuclear is always strongest among people who have the most direct experience and knowledge of it. Unfortunately even this decisive outcome was insufficient to persuade the government to abandon its aim of a nuclear-free Taiwan.
The events of 2018 and the conflicting undercurrents in the energy industry are a warning that if nuclear is to fulfil the role envisaged in the Harmony programme policy will have to change.
The rapid fall in the cost of solar energy, and to a lesser extent wind, is very welcome. Nevertheless the limits to which any modern economy, where not merely success but survival increasingly needs an uninterrupted supply of electricity, can rely on intermittent renewables must be recognised.
Similarly the true cost of maintaining the back up capacity which solar and wind require, and of the subsidies payable to renewable operators at times of surplus electricity production and low wholesale prices, must always be used for any cost comparisons with nuclear.
A decisive shift in policy is needed before COP 26 takes place at the end of 2020. By then the extent to which most 2020 targets have been missed will be starkly apparent. In addition it can't be assumed either that low cost, long term, large scale, electricity storage will soon be available, or that affordable carbon capture utilisation and storage is about to come on stream.
Concern about climate change, and therefore about carbon emissions, is now rising quickly, intensified by worries about air quality. The pressure to accelerate the phase out of coal, which Bloomberg New Energy Finance now forecasts will provide only 11% of electricity in 2050, will grow.
Our report "The False Economy of Abandoning Nuclear Power" exposed the myth that gas can be the bridge fuel which facilitates the transition away from coal to a renewables dominated zero carbon electricity generation future.
In particular it showed that relying entirely on gas instead of maintaining a big element of nuclear will raise electricity prices and cause a huge and wholly unacceptable increase in emissions.
The contrast between the gradual abandonment of nuclear by mature western countries and the more positive attitude in faster growing economies elsewhere is becoming more marked. Even fossil fuel rich nations in the Middle East now accept the need to diversify their energy sources by developing nuclear capacity.
Several vendors are actively exploiting the opportunities which these trends offer. Russia's Rosatom has an impressive order book of $134 billion and contracts to build 22 reactors in 9 countries, a tally which is likely to grow. Its success is based not only on the quality of its technology but also its ability to tailor finance packages to the needs of potential customers.
Its main competition is likely to be China, whose experience of developing reactors overseas is limited at present but will probably grow. Prospects for Korea, despite its success in UAE, are hampered by the lack of enthusiasm for nuclear shown by the new government elected in 2017.
The outlook for nuclear energy is therefore a mixture of challenge and opportunity. As Fatih Birol, Executive Director of the International Energy Agency said at COP 24 "We need a secure and sustainable energy supply and I believe nuclear has an important role to play." No rational person can disagree with that.
Final quarter of the year
It's been at best a mixed final quarter of the year for the nuclear energy industry. In early October the latest IPCC report helpfully envisaged a growing role for nuclear as it warned that the pace of decarbonisation must accelerate.
This warning came in the wake of news that global emissions in 2017 rose, reversing two years of reductions. Worse may be to come as the International Energy Agency executive director Fatih Birol forecast another increase in emissions for 2018.
Coupled with a rally back above €20 in the EU ETS carbon price this background provides strong support for investment in new nuclear capacity. Nevertheless in many places including parts of the EU, and especially inside the European Commission, the mistaken notion that modern economies can rely exclusively on intermittent renewable energy sources is gaining ground.
Shortly after the IPCC report appeared I spoke at the Westminster Energy Environment & Transport Forum Keynote Seminar: The next steps for nuclear energy projects in the UK. I was preceded on the platform by Tom Samson who gave a commendably upbeat account of the prospects for Moorside. Sadly his optimism was not borne out by events. Barely three weeks later came the disappointing news that Toshiba was winding up NuGen because of the failure to find a buyer.
While Toshiba can hardly be blamed for losing patience it is frustrating that many months of negotiations between the UK government and Kepco, whose ambitions to develop the Moorside site have long been well known, have not yielded a better outcome. It is hard to avoid the conclusion that if Kepco had been offered similar terms to those agreed with Hitachi for the Wylfa project the outcome could have been different.
Whether an opportunity to develop at Moorside will now be offered to another developer is not yet known but it would be surprising if CGN, for one, was not casting an interested eye over it.
In November I headed off to Ukraine where the Ninth UN International Forum on Energy for Sustainable Development took place in Kiev in sub-zero temperatures. For the first time this Forum included a session devoted to the theme of the Role of Nuclear Energy in the Decarbonised Energy Mix. This is a welcome step in the right direction and I was pleased to participate as a panellist. Full marks to the World Nuclear Association for getting nuclear on to the Forum's agenda.
Mid-December brought news that in China the Taishan Unit 1 reactor has become the first EPR to enter into commercial operation. This is an encouraging development for EDF and for the future of Hinkley Point C.
For the West more generally it underlines how Russia and China are now the dominant global forces in nuclear energy, both commercially and technically. Unfortunately UK politicians are too mired in the unfolding disaster of Brexit, arguably the greatest act of national self-harm ever inflicted by a sophisticated and normally rational country, to reflect on the lessons to be learned from how the UK squandered its leadership of civil nuclear power.
In London NNWI has co-hosted two well attended breakfast roundtable discussion meetings, one with Pinsent Masons in November on the prospects for small and advanced modular reactors and the second with Herbert Smith Freehills in December on the theme of cutting the cost of capital for new nuclear built with a particular focus on harnessing the RAB approach.
Each began with short introductory presentations from senior figures drawn from BEIS, the nuclear industry and our co-hosts which were followed by lively discussion conducted on Chatham House rules. At Herbert Smith Freehills NNWI unveiled its latest report "Small Modular Reactors: Delayed Privatisation Financing Structure". Together with our other reports this can be accessed on our website.
The breakfast roundtable format works well around 25 participants and allows everyone to get to work soon after 10 am. Further meetings will be organised during 2019. If any readers would like to be invited please contact Veronika Struharova by email email@example.com
Finally, at the time of writing, CoP 24 at Katowice in Poland is drawing to a close. With minimal positive input from the US it is not surprising that China is filling a vacuum in international discussion of climate change, though on this issue the EU remains a clear and consistent force for good.
The risk that humanity is falling further behind where it needs to be to avert dangerous and irreversible climate change is growing rapidly. A litmus test of whether reality and reason can prevail over emotion, prejudice and short termism lies in attitudes towards nuclear energy and the policies of governments around the world.
As a matter of arithmetic it hard to see how complete decarbonisation of electricity generation can be achieved by mid-century without a substantial element of nuclear in the energy mix. Whether this stark conclusion is accepted will be seen in the decisions taken in the next five years.
What is certain is that the consequences of delay will be higher energy prices, more pollution and reduced energy security for many countries. Above all it's time to recognise that climate change is an existential threat to the human species which is one of the newest on our planet.
Travelling around Europe
Travelling around Europe this summer has exposed the growing contradictions in the continent's approach to climate change.
On one side are the increasing efforts to decarbonise the European economy. The EU deserves great credit for being right in the forefront of the global response to climate change. President Trump's withdrawal from the Paris Accord and his ill-judged attempts to revive the US coal industry have made the EU's leadership on this issue even more important.
On the other side is the reluctance of some EU member states, and even of the European Commission itself, to acknowledge that reaching the challenging carbon emissions reduction targets will be impossible without a big contribution from nuclear energy.
After the conferences in Slovakia and Bulgaria reported in my last blog I flew in late June to Thessaloniki to attend the 11th SE Europe Energy Dialogue. It was my first attendance at this event organised by IENE, the Institute of Energy for South-East Europe, led by its excellent Executive Director Mr Costis Stambolis.
The discussions covered all aspects of energy policy and a copy of my presentation is available on request. Encouragingly in this region several countries not only recognise the role which nuclear energy must play but are also actively developing or planning new nuclear plant.
A few days later I was in Brussels at the European Commission's well attended Stakeholder consultation event on the EU Strategy for long-term Emissions Reduction. Full marks to the EU for arranging this event but none for its almost complete neglect of nuclear as part of this strategy.
It was left to Agnete Rising, Director-General of the World Nuclear Association, to remind the audience of what nuclear is doing and can do in future. Ignoring nuclear, as Germany has done, leads to higher emissions, greater dependence on imported gas, worse air quality and higher consumer prices - the worst of all possible outcomes.
Back in the UK, which is at least trying to revive its nuclear development programme, it's two steps forward and one back. The very welcome government decision to take a direct equity stake in Wylfa was quickly followed by news that the regulated asset base (RAB) model is now the government's favoured financing mechanism for Moorside.
As it happens NNWI's latest breakfast roundtable discussion, hosted last month by Norton Rose Fulbright, was attended by an expert on the Thames Tideway project. This was first major UK infrastructure project to be financed using the RAB.
Discouragingly this expert warned that it took five years for the details of the RAB mechanism for the Thames Tideway to be agreed. This doesn't make things easy for the Korean team currently negotiating over Moorside. Let's hope they aren't discouraged by the UK government's stance and by Toshiba's termination of Kepco's preferred bidder status.
Our breakfast roundtable was invitation only and the discussion was off the record. It's part of a series organised by NNWI and if any readers would like to be invited to a future event please let us know.
What's happening in Europe reflects a wider global picture. Many of the old mature economies in the west are turning their back on nuclear energy. By contrast much of the rest of the world, including the fast growing Asian countries who now lead the world economy and will do for the next half century, is investing in new plant.
Decisions about energy investment have longer term consequences than those of almost any other industry. At present there's a risk that an abundance of cheap gas, coupled with the falling price of intermittent renewables, is lulling some people into wrongly concluding that new nuclear isn't needed.
This is both mistaken and dangerous. Concern about climate change will intensify, not weaken. Anxiety about air quality will grow and thereby force a much faster switch to electric vehicles than currently expected. Together with the rapid spread of highly electricity-intensive data processing technologies this will drive up demand for electricity.
As coal is phased out gas retains a significant role but it's essentially only a transitional one because it's hard to see any fossil fuel electricity generation surviving beyond mid-century. Economics may accelerate the decline of gas too. The tripling of the EU carbon price in little more than 18 months is a sign of things to come.
So countries ignore nuclear at their peril. The example of Germany stands as a warning to those who do. In the 2030s we may look back and wonder why we waited so long to wake up.
NNWI is working on a new study on both the economic and environmental benefits of nuclear energy. We hope to publish this around the end of September.
An interesting month at home and abroad
June has been an interesting month at home and abroad. It started with the annual European Nuclear Energy Forum in Bratislava, a livelier city today than at the time of my first visit in 1989.
The sun was beating down on day one of the Forum when EU top brass, including Commission Vice President Marcus Sefcovic, were on parade. Last March in Sofia at an energy conference held to mark Bulgaria's presidency of the EU he spoke for forty minutes on EU energy policy without mentioning nuclear once.
In Bratislava Commissioner Sefcovic mangled to concede that it contributes helpfully to the energy mix of some EU member states. I guess we must notch that up as a step in the right direction.
In the past this event, which is the European Commission's main annual nuclear conference, has sometimes been used, totally inappropriately in my view, by visceral critics of nuclear energy to launch vigorous attacks on the industry.
It's hard to imagine the Commission giving similar latitude to opponents of excessive reliance on intermittent or highly priced renewable energy sources. Be that as it may, in the week after the Forum the new higher EU renewable energy target of 32 per cent by 2030 was announced.
The problem with a target for renewables is that it favours one form of low carbon electricity over another and undermines the Commission's mantra that member states are free to choose their own energy mix.
It also suggests that suspicions of an anti-nuclear bias inside the Commission, despite the valiant efforts of many able officials to pursue evidence based energy policies, are well founded.
NNWI has consistently welcomed the growth of renewables, helped by
the swift and impressive fall in the price of solar and wind in particular. As both solar and onshore wind approach grid parity, I regret the hostility of some UK legislators to the expansion of onshore wind.
But, as the UK argued back in happier pre-Brexit times when it was a functioning and influential EU member, the key target for the EU to set is not for more renewables but for bigger cuts in greenhouse gas emissions.
Like the effect of Brexit on the balance of pro and anti-nuclear EU member states this is a reminder that the consequences of removing from European debates a country which has long had great expertise in understanding and addressing the threat of climate change are unhelpful.
Similarly doubts surround the UK's medium term relationship with the EU Emissions Trading System. Last year's sensible, though overdue, ETS rule changes have sparked a big rally in the carbon price which is likely to continue and will incentivise investment in all low carbon technologies including nuclear.
Unfortunately it seems likely that the UK will exit the EU ETS in 2020. This is despite the fact that participation in it is not confined to member states and despite the likely future success of a market instrument which was pioneered in the UK. This is another example of the damage inflicted by mindless Brexiters.
From Bratislava I headed for the Bulatom conference at Varna on the Black Sea coast. This was well timed given the current discussions in Bulgaria about reviving the Belene nuclear plant.
It was my first visit to this agreeable resort. A special lunch was held for the conference speakers in a beautiful villa overlooking the water. I was not surprised to learn that this luxurious property had originally been built for the exclusive use of Bulgaria's former communist rulers.
There was wide agreement that Bulgaria's heavy dependence on coal, including three highly polluting lignite plants, must be reduced. This message now seems to have been taken on board in a change of heart from Prime Minister Boyko Borisov who returned to power last year for a third time.
The search is on for the best value solution to this challenge and nuclear will probably be a significant part of the answer. Several possible vendors are interested.
One option under consideration is the Hungary's Paks II model. This involves the state meeting all the capital costs with 80% being covered by a government to government loan from the Russian Federation.
Interest is not payable on this loan until the plant is operational and generating revenue. Adopting this model enables a very competitive Levelised Cost of Electricity to be achieved. For Hungary there's the further advantage that no issues about foreign ownership arise.
Competition may come from China which sees an energy infrastructure investment in Bulgaria as valuable for President Xi Jinping's cherished One Belt One Road initiative. This may lead to an attractive financial package being available.
Finally back in the UK came the long awaited news about Horizon's negotiations over Wylfa. Although the decision must have been taken in the Treasury it was BEIS which announced the reversal of the prevailing UK orthodoxy which has prevented direct state investment in nuclear plants for more than 25 years.
Much more work has to be done before a final agreement is reached but the change, for which NNWI has been calling for years, is very welcome and opens up the possibility of lower electricity prices.
Unfortunately it appears it will be a one off. The favoured option for other new plants in the pipeline is more likely to be the Regulated Asset Base model. Expect the merits of this to be eagerly dissected, not least in Korea whose talks with BEIS about Moorside continue.
Professor Dieter Helm, not a fan of nuclear energy, continues to influence UK government policy and has pronounced the RAB model,to be "both plausible and preferable to the Hinkley model".
What Dieter Helm should include in his Cost of Energy Review
Hot on the heels of the Clean Growth Strategy, which was full of excellent intentions if less specific on detailed measures, comes Professor Dieter Helm’s review of energy costs due for publication very soon.
Greg Clark wants this to help “ensure we continue to find the opportunities to keep energy costs as low as possible, while meeting our climate change targets.” Nobody is going to quarrel with those aims and Helm is known for his trenchant criticisms of expensive energy so I am expecting some meaty recommendations. To help him with his review, I, like many others I am sure, wrote to him with my thoughts as to what should be in his review. This is what I broadly told him he should consider:
Firstly, remind the MPs who recently demanded action from Ministers to cut consumer bills that reducing energy prices doesn’t necessarily lower costs. Restricting prices when many elements of energy costs are outside government control discourages investment. Eventually it perversely leads to higher, not lower, prices because investors demand a risk premium to supply a market exposed to political intervention.
The rapidly falling price of renewable energy shows how quickly competition between equipment manufacturers, project developers and electricity generators drives down costs. It also exposes the high cost of many early CFDs awarded by the Coalition Government, particularly for offshore wind.
Competition is far preferable to price controls so future contracts for low carbon electricity generation should all be allocated through technology blind competitive auctions. In judging which bids offer the best value for money the cost of new grid connections and any back up capacity needed for intermittent generators must be factored in.
Subsidies should be confined to technologies which have a credible short-term path to grid parity. This may not extend to tidal lagoons but it certainly includes onshore wind which should be permitted in places where local communities support its development.
Nuclear remains the only source of large scale low carbon baseload electricity. Since all modern economies require a continuous supply of electricity it still has an important role. Until affordable, flexible and long-term electricity storage is available no country should allow itself to depend too heavily on intermittent renewable energy.
Unfortunately, anti-nuclear campaigners have seized on the high strike price awarded for Hinkley Point C to argue that new nuclear is not affordable. They ignore the advances in China, Russia and Korea, each of whom can now build new nuclear plant capable of generating electricity at prices far below the Hinkley strike price and fully competitive with other low carbon technologies. We should welcome China’s CGN involvement in Hinkley. It is very positive for the UK that Korea’s Kepco are interested in Moorside and we should not discount Russia’s Rosatom who are building more latest generation reactors in the world than all their competitors combined which has led to economies of scale and lower supply side risks.
Foreign involvement in UK nuclear development is not without controversy. Therefore, any foreign involvement in UK nuclear plant should meet four conditions. It must be approved by the Office of Nuclear Regulation; the shareholding of non-EEA state controlled entities in the operating company must be less than 40%; operational control must remain with EEA companies/organisations; and IT control systems must be supplied by a trusted British vendor. YouGov polling from earlier in the year showed that so long as new nuclear developments were UK/EU led then a slim majority of people would support the use of overseas technology.
Professor Helm should also point out the direct link between the cost of capital and energy prices. New large-scale electricity generating capacity often involves substantial capital investment over extended periods before any revenue is earned.
Since Government can borrow more cheaply than even the most creditworthy private company providing big energy infrastructure developers with loans cuts costs for the benefit both of consumers and of Britain’s competitive position. Making these loans repayable once construction is complete would prevent them from constituting a permanent subsidy.
There is currently too little scrutiny of transmission and distribution costs. Most consumers don’t even know the name of the company which brings electricity to their home. While debate rages over foreign investment in power stations the fact that distribution of London’s electricity is controlled by a Hong Kong company is rarely mentioned.
This lack of public attention means that competitive pressure on costs has been weaker in the transmission and distribution industries than elsewhere in the energy market. A drive for more openness and efficiency in these areas constitutes low hanging fruit which can be picked in order to cut energy costs.
Finally, Britain will consume a lot of gas in the next 20 years most of which, on present policies, will be imported. The Government should face down local protests against fracking and prioritise widespread drilling to assess the size and recoverability of Britain’s shale gas reserves.
Together these measures constitute a coherent plan to cut energy costs. Greg Clark won’t win any short-term populist plaudits for introducing them but they will be more effective than urging Ofgem to cap tariffs. If he heeds this advice he will take a bigger step towards ensuring that Britain has secure, sustainable and competitively priced electricity in the 2030s than any of his predecessors has in the last 20 years.