Hinkley C: making the best of a bad job

It seems that the UK’s first new nuclear power station for a generation – Hinkley Point C – will finally be built (Hinkley Point C finally gets green light as government approves deal with EDF and China). The deal has been widely criticised, but it still has its supporters. So, at this critical stage, it is worth trying to put this key part of the country’s future energy infrastructure into context.

With the benefit of hindsight, it is probably not something that any of the parties involved would want to start from scratch now. But we are where we are, and the project has to be viewed in that light. Of course, there are those who are opposed to nuclear power as a matter of principle, for whom no new build would be acceptable. But, for most people, there are pros and cons, as for any project of this nature.

The FT has looked at the economics in this article – Hinkley Point C: is the UK getting a good deal? – about which more later. But first we need to recognise the elephant in the room; the possibility that this massive, £18bn station will never be successfully completed. The first signs are not promising, as the first two attempts to build this reactor design (the EPR, formerly the European Pressurised Reactor), in Olkiluoto in Finland and Flamanville in France, have been very severely delayed.

However, there are two other EPRs under construction in China (Taishan) and, despite further problems, these seem set to be commissioned before the European ones. But this does confirm that this is not a proven design, and the best hope is that the UK version is delayed less than the ones currently being built. Either way, it is highly likely that Hinkley Point C will be the last EPR built.

Assuming it is commissioned in something like the projected timescale, we can expect it to be feeding electricity to the grid within ten years. EDF, the operators, are guaranteed a minimum price of £92.50 per MWh of electricity produced for 35 years, rising with inflation. This sounds excessive, but for this generous deal the taxpayer is protected against cost overruns.

The FT article points out that the subsidy for the new nuclear plant is higher than that paid currently for onshore wind or solar, although offshore wind is even costlier. However, this is really comparing apples with pears, as it takes no account of total system costs. The important thing is not how much the operator is paid per unit of electricity, but how much it costs to provide power across the country.

Wind and solar energy require backup for when they are not producing. This means having gas stations lying idle until they are needed on cold winter evenings or at other times of high demand, if the weather conditions are not right for wind or solar farms to produce. Together with increased transmission and grid strengthening costs, the need for backup pushes up the overall price of electricity delivered to the home or factory. Electricity from wind farms may be cheap at certain times, but this does not translate to overall system costs, at least in the absence of a vast reservoir of low-cost energy storage (which is nowhere even on the horizon).

So, the argument that renewables can do the job instead of nuclear really doesn’t hold water. As the FT puts it “Opponents of Hinkley say there are a range of better options. As few as four large offshore wind farms could match the 3.2 gigawatts of power expected from the Somerset plant, with gas providing back-up on windless days. At £120 per MWh, the latest UK offshore wind projects remain more expensive than nuclear. But wind subsidies are guaranteed for only 15 years, rather than Hinkley’s 35.”

The need for backup for the ‘four large offshore wind farms’ would push up system costs. Supporters of renewables argue that energy security can be guaranteed with a combination of demand management (the ‘smart grid’) and battery storage. These technologies certainly have a part to play, but they are only suitable for managing short term supply shortages. When we have a stationary anticyclone over the country (and beyond) in the middle of winter, nothing can replace nuclear or gas power stations.

The argument that wind subsidies are guaranteed for only 15 years is also misleading: that does not mean they will be free of subsidy after this time. By the time the Hinkley Point pricing deal needs to be renewed, any wind farm would be towards the end of the life of its second set of turbines, so we also have to allow for the extra capital costs of turbine renewal. Meanwhile, the nuclear reactors will continue to generate reliably for another three decades.

It is estimated that the deal will increase household electricity bills by about £12 a year by 2030 (at current prices), based on current assumptions about energy prices (which have been wrong in the past and are almost certain to be wrong again). This may prove to be a small price to pay for a reliable supply.

However, it is almost certain that new reactors to be built by EDF’s competitors Hitachi and Westinghouse (Toshiba) will deliver energy at a lower cost. They are both proven designs and should not suffer from the first-of-kind problems encountered with the EPR. The fact that it is Hinkley C that is the first new station to be approved is something of a historical quirk.

The new EPR will remain something of an embarrassment. The decision to go ahead has been contentious within EDF, and there are concerns that the UK government’s green light has been due at least in part to the need not to have a major falling out with EDF’s Chinese partners. Mrs May delayed the formal decision to at least give an appearance of reconsidering, and what understandings may have been reached behind the scenes is anyone’s guess.

The likelihood is that all partners felt that there was too much to lose by pulling out at this point. But in the case of the UK government, at least a reliable source of base load electricity has been secured, albeit at a rather higher than necessary price. There are lessons to be learned, but things could have been worse.

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