Government to rip up rulebook and subsidise new nuclear plants

Monday, October 22, 2012

The Government is planning to write a "blank cheque" to the nuclear industry by underwriting the cost of new power stations, leading energy academics have claimed in a letter to The Independent.

Under a major policy U-turn being considered by ministers, the taxpayer would be left to cover the cost of budget over-runs or building delays at new nuclear plants. Costly setbacks are almost inevitable with such complex construction projects.

The proposals, which would break a long-standing Government promise never to subsidise the nuclear industry, are intended to reassure multi-national energy firms into investing in a new fleet of nuclear plants in Britain.

EDF Energy's plans for a plant at Hinkley Point in Somerset are considered the most advanced.

Last night environmentalists accused the Government of plotting to squander public money to protect the profits of energy giants.

Richard George of Greenpeace said: "Promising no subsidy for the nuclear industry, while plotting to give a massive subsidy to the nuclear industry, is a new level of betrayal for this Government and its shambolic energy strategy. Offering to pick up the tab when new reactors go over-budget would commit billions of pounds of taxpayers' money to a desperate attempt to swim against the tide of history."

In an interview earlier this month, John Hayes, the Energy Minister, hinted at some form of nuclear subsidy, saying: "There are issues around underwriting risk. It's an argument that's been put up many times by people from outside government. That's something I will certainly look at and I do think there's an argument for considering how you imbue the market with sufficient investor confidence to get to where you want to go."

In a letter to The Independent, Paul Dorfman of Warwick University and nine other energy experts write: "The Government have promised that they would never, under any circumstances, subsidise nuclear power. However, the Coalition Energy Minister John Hayes is now considering a major U-turn in energy policy by giving a blank cheque to nuclear by 'underwriting' construction cost over-runs."

There are just two new nuclear power plants under construction in Europe, one in Finland and one in France, and both are significantly over-budget as well as suffering severe delays. Both plants use the same type of nuclear reactors that are being proposed for Britain.

Mr Dorfman said: "Nuclear companies are saying to the Government, unless you do something very serious and very soon, we're not going to undertake to build these new power stations you want. The Government has promised never under any circumstances to subsidise nuclear power but John Hayes has said he is considering underwriting the construction costs, which is a subsidy."

Opponents of nuclear power argue that over many decades it has benefited from government subsidies at the expense of public investment in renewable energy.

Former Energy Minister Chris Hulme pointed out before he stepped down from his post in February that past government subsidies to the nuclear industry meant that electricity customers today are paying for nuclear-generated electricity consumed in the 1970s.

All main political parties have opposed government subsidies to the nuclear industry. But the risks inherent in building new nuclear power plants have led the nuclear industry to seek reassurances from government about who will pay for the spiralling costs.

A spokesman for DECC said last night: "We're in preliminary discussions with EDF and Centrica about the potential financial terms on which they might go ahead with their Hinkley Point C project... There will be full transparency over the terms agreed. No commitments or final decisions have been made."

John Hayes: Profile

John Hayes, the new Energy Minister, is already raising eyebrows for more than his policy initiatives. His personal speaking style, florid and orotund in a sub-Boris Johnson manner, held the House of Commons fascinated last week when he managed not to answer questions about David Cameron's own energy initiative – the Prime Minister's off-the-cuff promise that all customers would go on the lowest tariffs.

Aged 54 and married with two young sons, he is a former sales director of a Nottingham IT company and was a long-time member of Nottinghamshire County Council before entering Parliament in 1997. He was previously Minister for Further Education, Skills and Lifelong Learning.

Costly and late: Britain's nuclear option

Were Britain to build a new nuclear power station it would most likely be a European Pressurised Reactor model, a newer version of the Pressurised Water Reactor variant used the last time one was built here. Two EPR plants are currently under construction in Europe – at Olkiluoto in western Finland and Flamenville in Normandy, France

Flamanville

Construction began in December 2007. It was originally expected to start operating in 2012 and to cost €3.3bn, but quality control problems, including the discovery of cracks in the concrete base of the reactor, mean the estimated cost has risen to €6bn and the start date has been pushed back to 2016. Protests have been staged across France against the project.

Olkiluoto

Work began in 2005, with the plant originally set to open in 2009. It is now expected to begin operating no earlier than 2015. The cost was estimated at €3bn, but the final price is expected to be closer to €5bn. The joint enterprise between Areva (France) and Siemens (Germany) has been beset by issues with supervision of inexperienced contractors

Sizewell

The last nuclear power plant built in Britain was Sizewell B in Suffolk, the UK’s only PWR, which took eight years and was finished in 1995. It cost just over £2bn and the engineers said it was on budget and on time, although the project was delayed in part due to a public enquiry which took five years. Site could host a new reactor if the plan goes ahead.

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Paul Dorfman Says:
Mon, 2012-10-22 10:55

The Government have promised that they would never, under any circumstances, subsidise nuclear power. Ed Davey, the Coalition Secretary of State for the Department of Energy and Climate Change, has stated that "There will be no blank cheque for nuclear – unless they are price competitive, nuclear projects will not go ahead."

However, the Coalition Energy Minister John Hayes, is now considering a major U-turn in energy policy by giving a blank cheque to nuclear by "underwriting" construction cost over-runs. This is despite the fact that the key to nuclear is its spiralling cost over-runs.

There are two nuclear reactors being built in Western Europe at the moment, one in Finland and one in France, and both are hugely over-cost and over-time. Both use the same technology as is proposed for the UK, the European Pressurised Reactor supplied by the French company Areva.

The Finnish reactor was planned to go online in early 2009, but the Finns are now crossing their fingers and hoping to complete around late 2014. Priced at €3bn, the reactor is now costed at €6bn and rising. Because of this, the Finns are in a billion-euro legal battle with the French nuclear construction firm Areva over who pays these extra costs.

And things are no better in France. Here, the builder, EDF, the company that would build in the UK, forecast the reactor would be complete this year, but time-scales keep slipping and they now say they hope to complete around 2016. Originally priced at just over €3bn, their reactor is also currently estimated at €6bn and rising.

Whatever one's view of the risks and benefits of nuclear energy, it is clear that construction cost over-runs are highly likely. The taxpayer and consumer must not end up footing a multi-billion pound bill for what seem to be inevitable nuclear construction cost over-runs.

Dr Paul Dorfman, University of Warwick
Dr David Toke, University of Birmingham
Professor Andy Stirling, University of Sussex
Dr Nick Eyre, University of Oxford
Professor Tom Burke, Visiting Professor, Imperial and University Colleges
Jeremy Leggett, Professor Peter A Strachan, The Robert Gordon University, Aberdeen Business School
Andrew Warren, Director, Association for the Conservation of Energy
Professor Brian Wynne, University of Lancaster