The UK government announced last week that it had reached a power purchase agreement with French firm EDF for the first new nuclear power plant to be built in the country in decades. This single project, known as Hinkley Point C and involving two European Pressurised Reactors, will be capable of producing 7 per cent of the UK’s entire power needs with close to zero carbon emissions.
Yet the really big news is that it finally gives us a clear and reliable indicator of the cost of power from a modern and safer third generation nuclear power plant, incorporating the decommissioning and nuclear waste management costs. The UK government has provided a 35-year guarantee for the plant to receive £92.50 per megawatt-hour, or about $156, adjusted upward annually with inflation.
By comparison, to get a new wind farm up in Australia requires in the realm of $100 per MWh, although exceptional wind speeds and Trustpower’s low cost of capital allowed Snowtown II to go ahead with a price in the realm of $85 per MWh. Also, such Australian projects don’t have the benefit of being backed by a 35-year price guarantee from the UK Treasury. If they did the price would be even lower.
Now before I go on, I’d like to point out I’m a fan of nuclear power. I make no apologies for it. Anything which you can buy from a supplier today knowing for sure it can produce very large quantities of low emission power is worth serious consideration. Yes, there are risks – if you build a plant poorly or it is near a seismic fault line or you have a regulator in bed with the industry you can get some pretty shocking results. But I think that on balance the risks are manageable and worth taking, given its benefits.
But we’ve got to be honest with ourselves about the costs of nuclear power.
The problem to date with nuclear power has been that it’s been nearly impossible to nail down just how much they actually cost. In western countries that have liberalised electricity markets, where prices and government subsidies tend to be reasonably transparent, there hasn’t been a nuclear plant built in decades. The one recent build in Finland, Olkiluoto, is hardly a glowing advertisement, with the budget blowing out to €8.5 billion ($12.31 billion), or almost three times the delivery price of €3 billion.
The other places where construction of a handful of safer third-generation nuclear plants have occurred are China and Korea. In both countries state involvement in electricity is extensive. One would be very brave to expect that their costs would readily transfer to western country market conditions.
The same cost uncertainty besets coal with carbon capture and storage, although the uncertainty is worse than nuclear.
By comparison, working out the costs of a gas turbine, wind power or solar panels is far more straightforward. There is an active market in these products where you can get reliable quotes for supply to Australia. And projects are being installed in Australia and in large numbers across a wide range of countries and market structures. Also, construction of wind and solar projects are a relatively simple proposition, meaning less chance of nasty time and budget blowout surprises, unlike nuclear. This gives us much greater confidence about their costs.
The other thing worth noting about the UK project is that this is not a first-of-a-kind plant. It is the third European pressurised reactor built by EDF (the other two, Olkiluoto and Flamanville, have had large time and budget blowouts). Also, if EDF were to proceed with constructing another nuclear plant at Sizewell in the UK, then it has only agreed to lower the price of power it will supply to $151 per MWh.
So if nuclear is so expensive, why is the UK government doing this?
1. Because its wind and solar resources are far worse than Australia’s and so nuclear’s economics are quite attractive. In reality the UK actually has a reasonably okay wind resource but it has let wind farm NIMBY-ism get out of control;
2. Because it has a bipartisan consensus that climate change is a serious problem;
3. It provides a hedge against gas prices that are at the whim of global oil and gas market dynamics – something we’re about to also experience soon; and
4. It faces a looming generation supply shortage because existing aging plant needs to shut soon.
Given the four points above they concluded this was a necessary deal to make, even if they would prefer a more market-driven process.
It also provides a superb illustration that cost dynamics for power generation technologies can be highly geographically specific. One needs to be very careful in translating the experiences of one country in power generation to another. This is something many Australian nuclear advocates, who are often not active participants in the power market, have difficulty with.