The answer is nuclear

Although so much effort is focussed on renewable energy these days, continued expansion of wind and solar energy cannot for the foreseeable future provide the basis for a secure and affordable energy supply for a modern economy. This is clear to anyone taking an objective view of the overall energy system, but apparently not to politicians.

There is a school of thought that believes politicians signing up to the EU’s original 20:20:20 targets – 20% emissions reduction, 20% energy efficiency improvement and 20% share of renewable energy by 2020 – thought the renewables target applied to the electricity generating system, not the country-wide use of energy including heating and transport.  Such are the dangers of having too few engineers and scientists among our elected representatives.

Continuing the train of thought from last week’s newsletter, the only way a country could conceivably eliminate most of the fossil fuels from its energy mix is to rely almost entirely on an expanded network of low-carbon generating stations. This would be of the order of three times the capacity of the current grid.

The only ways this need for greater generating capacity might be reduced to any significant extent is by using Combined Heat and Power plants for some urban heating and heat pumps for individual buildings. CHP systems have a lot of merits, but the heating networks have to be installed at the time the buildings are constructed; post-fitting is simply not practical. As for heat pumps, simple and cheap to run they may be, but retro-fitting is a difficult option that requires warm air ducting to be installed, together with the expensive heat pump itself. Even installation at the time the building is constructed is something for the well-heeled enthusiast rather than an average development. Otherwise, such sources of ‘free’ heat would be commonplace by now.

Logically, everything points towards a massive expansion of nuclear energy to power, heat and light homes, office buildings and factories and charge electric vehicles. Nuclear plants can run continuously and efficiently with no carbon dioxide emissions and have a design life of up to 60 years. Uranium is plentiful and currently much of its energy content is untapped. Fuel reprocessing and use in different reactor cycles have the potential to make proven uranium ore deposits supply our needs for many years to come. Beyond that, thorium is much more abundant and could be used as the fuel in a further generation of reactors for maybe centuries to come; that is, if not replaced by nuclear fusion or some other as-yet-unproven technology first.

Why, then, do we see headlines like this: Bloomberg sees 1% fall in nuclear’s global share by 2040? This is an article from World Nuclear News, reporting on the publication of Bloomberg’s New Energy Outlook 2016. This study, published by the company’s New Energy Finance division and so likely to be bullish on the topic, predicts that zero-emission energy sources will make up 60% of global installed generating capacity by 2040, with nuclear’s share of the total falling from 5% to 4%. However, this is based on some simplistic and fairly heroic assumptions, such as an embargo on the building of new coal-fired stations by 2020 and wind and solar energy getting cheaper than operating coal and gas plants by 2027 ‘particularly when carbon pricing is in place’.

Like most publications supporting renewable energy, this takes no account of total system costs and the need to provide backup from conventional thermal plant. The World Nuclear Association’s vision for electricity, in contrast, sees nuclear providing 25% of capacity by 2050. They can’t both be right, but the WNA at least presents a vision that is credible.

Nevertheless, despite the advantages on paper, nuclear in Europe is in the doldrums. Germany is closing its fleet and even France will be relying less on nuclear in years to come, despite being a world leader and having some of the cheapest electricity in the EU. Areva, the French reactor supplier, is building two new EPR installations (in Finland in France) which are way over budget and years late in delivery and EDF is proposing to build this same troublesome design at Hinkley Point in Somerset.

In fact, the EDF board is set to make a final decision on the project as I write. This is very controversial, has been opposed internally and is the subject of legal action by the company’s works council who fear the financial consequences of a politically-based decision to proceed.

However, it is almost certain to go ahead, given the political capital riding on it, despite the fact that it is equally controversial in the UK. We also read that Hinkley Point subsidy bill quadruples as power price forecasts fall. This is because a deal has been struck with EDF based on a ‘strike price’ of £92.50 per MWh, index linked for 35 years. If the wholesale price of electricity is lower, then EDF receive a subsidy. The National Audit Office estimates that the total subsidy payable over that period will be £29.7bn as against an estimate of £6.1bn in 2013.

One of the problems is that DECC (RIP) has been notoriously bad at forecasting future energy prices, regularly overestimating the likely price of gas, for example. As the consensus is now for a lower price, this makes the EDF deal look expensive. In the words of the NAO “The cost competitiveness of nuclear power is weakening as wind and solar become more established. The decision to proceed with support for nuclear power therefore relies more on strategic than financial grounds.”

One of these strategic grounds is the need for a reliable base load generator to complement wind and solar. Although it is the cost of nuclear that makes the headlines, there is a very revealing statement on renewables in the study as reported by the Telegraph: “Contracts awarded to wind, solar and biomass projects were estimated in March 2015 to cost consumers £21.6bn over their lifetime. That has now risen to £30.6bn, as of March this year.”

In other words, consumers will be paying the same premium for intermittent renewables generation (plus the additional costs of backup and integration not taken account of here) over their likely 20 year lifespan, as they will for 35 years of reliable nuclear generation, likely to continue in service for a further quarter century. This actually makes Hinkley C look like a bargain.

These present difficulties over a single reactor design may turn out simply to be an isolated case study in bad project management as further reactors are installed by Toshiba and Hitachi in years to come. Whatever happens, the case for new nuclear generating capacity remains compelling, and not just in the UK.

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