New nuclear fleet risks locking in higher costs

Committing to build a fleet of new nuclear power stations risks locking in higher costs and preventing the UK from taking advantage of cheap renewables, the National Infrastructure Commission (NIC) has argued in a new report.

Over the last decade, renewable costs have “consistently fallen faster than forecast”. Meanwhile, there has been “no discernible trend” in nuclear costs, which have remained flat even in countries such as France that have built fleets of similarly designed reactors.

The report explored the costs of different scenarios for creating a net-zero electricity system by 2050.  Modelling undertaken by Aurora Energy Research found that increasing the penetration of renewables “does not materially impact the cost of the system” and may in fact reduce costs.

If renewables accounted for between 60 and 80 per cent of electricity generation then annual systems costs would average £59 billion between 2030 and 2050. If this proportion rose to 90 per cent then annual costs would average £53 billion.

The analysis also found that using hydrogen turbines to provide dispatchable power could reduce costs by up to 30 per cent – or £20 billion per year – depending on renewables’ share of the generation mix.

Total electricity systems costs

The NIC said the findings show “a highly renewable power system, combined with flexible technologies including hydrogen powered generation, could be substantially cheaper than alternatives that rely heavily on a fleet of nuclear power plants.”

“It does not make sense to fully commit now to a system dominated by one technology, whether that is nuclear, offshore wind or another,” the report added. “Making such decisions now, for example by committing to a fleet of nuclear power plants, rules out a more diverse future generation mix and the potential this has to reduce costs to consumers.

“That is why the Commission recommends that the government take action to ensure the UK is running on at least 50 per cent renewable generation by 2030.”

That said, the report also acknowledged that “a large amount of uncertainty does remain”, adding: “Cancelling the nuclear programme entirely risks a ‘stop start’ approach which is likely to be highly inefficient.”

“Agreeing support for no more than one more nuclear plant before 2025 allows the UK to pursue a highly renewable mix without closing off the nuclear alternative,” it concluded.

Scenarios

The report made a series of further recommendations, including that technologies such as offshore wind which have now become cost competitive should be moved to pot 1 within the Contracts for Difference scheme. Pot 1 auctions for more established technologies should then be used to deliver “the overwhelming majority of the increase in renewable capacity required.”

It said Contracts for Difference auctions should also be reformed “as far as possible” to take into account whole-system costs and that indicative dates and budgets for the next decade should be published within 2020.

At the beginning of this week, the government announced plans to hold a pot 1 auction in 2021 – the first in more than half a decade. Explaining the decision, the Department for Business, Energy and Industrial Strategy said: “We expect that some of these technologies have the lowest costs and would be able to secure CfDs at strike prices below the average expected wholesale price for electricity, and so over the course of a contract may pay back as much, or more, than they receive in CfD top-up payments.”

However, in opposition to the NIC’s recommendations, the department said it was not inclined to include offshore wind within pot 1 for fear that it would be outbid by onshore wind and solar and deployments would slow. It instead suggested that a third separate pot be created specifically for offshore wind.

The government is currently considering whether to introduce a regulatory asset base model for funding new nuclear plants that would allow investors to start receiving returns before a project is completed – the idea being that this would substantially reduce financing costs.

The future of the new nuclear programme was left in doubt after Toshiba and Hitachi shelved their respective plans for plants at Moorside in Cumbria, Wylfa in Anglesey and Oldbury in Gloucestershire.

EDF is in the midst of constructing its 3.2GW Hinkley Point C power station in Somerset and is hoping to build a sister plant at Sizewell in Suffolk. Its partner on the projects, China General Nuclear Power Corporation, also has plans for a third power station at Bradwell in Essex.

Most of the UK’s existing nuclear fleet is scheduled to close by 2030.