The nuclear option: what Hinkley Point says about UK energy policy

19020034765_a6f2962cca_bEDF’s battle for Hinkley C, a project first put forward a decade ago, has been won. It is a triumph for the political equivalent of siege warfare. Back in 2006, the European Pressurised Reactor was shiny and new, and nuclear power seemed like the cheapest route to a secure, low carbon power system. In 2016, the decision to back Hinkley feels more like an inevitability than a choice: the EPR is a dated design with some big flaws, and innovation in renewables and smart technology makes EDF’s version of nuclear look expensive and hard to deliver. If Hinkley’s negotiation had started even two years ago, it would either not have happened or it would be dramatically cheaper. But politics has a tendency to fight the last war.

The fact that Hinkley is going ahead tells us three big things about how the new government is tackling energy: control matters more than price; big power is now explicitly a state concern; and energy policy path dependency trumps politics.

Price shock
Perhaps most surprising fact is that the price was not renegotiated. £92.50 per MWh in 2012 money will be more like £118 per MWh by the time Hinkley is built in 2026. Offshore wind is already competitive with this, and its costs are likely to fall if the countries bordering on the North Sea collaborate and continue to deploy. Onshore wind and solar have been cheaper for years.

Nuclear can run on windless winter evenings, but almost all analysts have concluded that, despite this, Hinkley is too expensive for the value it delivers. Both Japan and Korea have managed to build nuclear plants in the past decade for around half the price of Hinkley (for around $3,000 per kW vs $6,500 per kW for Hinkley). Of course, labour costs and industrial structure differ in both countries, but twice the price feels like too high a premium for a UK reactor.

Policy makers appear to have dismissed this argument, despite a consensus which ranged from The Spectator to The Guardian. Instead, the decision announcement majors on ownership and minors on industrial opportunity (60 per cent of the construction value will allegedly come to the UK).

It’s hard not to draw the comparison with the EU referendum debate, in which control and concern about British workers trumped arguments about economic impact. Politicians seem to be signalling that nuclear being in some way ‘ours’ is more important than it being cheapest. The wind and solar industries should take note.

The state is here to stay
If ‘critical infrastructure’ means ‘can make the lights go out’, we should expect government control to extend to big kit like gas plants too. The state is already in de facto control: no gas plants will be built without capacity payments; no nuclear or carbon capture and storage projects will happen without contracts for difference (CfDs), infrastructure guarantees and special shares. But the government hasn’t liked to admit that.

The upside of taking back control is that Hinkley might be the last gasp of the old regime, in which convoluted public-private hybrid finance schemes, underpinned by uncertainty and excessive costs, were invented to preserve the pretence that the state wasn’t really calling the shots. The UK’s ‘special share’ is a recognition that it is. I’ve spoken to nuclear developers who would welcome a state tender, with government providing the project sites and finance and industry taking the construction risk.

On the renewables side, the breathtakingly cheap offshore wind being built in Dutch waters benefits from a similarly state driven approach. Green Alliance has previously argued that, as the state is now making the choices, it should at least make a virtue of this and pursue efficient deployment of big energy projects.

Path dependency
The genius of EDF has been to make Hinkley C impossible to ignore or derail by Labour, coalition, and Conservative governments alike. Its juggernaut status is, in part, because UK nuclear does need to be replaced with something low carbon, and replacing nuclear with nuclear is intuitive. But it’s been reinforced by old assumptions about baseload power.

The reality of the UK’s energy system is that renewables are dominating new build because they have won the battle for cost and public support. The new power system challenge is to make the rest of the power system flexible enough to support a renewables dominated system without relying too heavily on fossil fuels. New technology is making this possible.

Hinkley C will provide low carbon power but at a high price. Future British energy policy should break with the past and focus on developing, deploying and building new, smart technologies which we can sell to a renewably powered world.

[Image: Hinkley Point Nuclear Power Stations, courtesy of Tom Bastin from Flickr Creative Commons]

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