Understanding Regulation

Facts, Analysis and Comment

Energy Regulation

Nuclear Electricity Generation

It is intended that there will eventually be eight new nuclear stations - all in England. But the program is currently subject to two threats, if that is the right word. The first is the UK government's decision to review its proposed contract with EDF and the Chinese Government to built a nuclear power station at Hinkley Point. The second is the UK's decision to leave the European Union, and hence its EURATOM research program. The latter provided access to USA technology which may no longer be made available to the UK. Further detail is below.

Click here to read the the climate change background to the UK's investment in nuclear technology.

Detail

The eight nuclear power stations will be at Hinkley Point, Sizewell, Bradwell, Moorside (previously 'Sellafield', and before that 'Windscale' and 'Calder Hall'), Wylfa, Hartlepool, Heysham and Oldbury.

(Moorside, Bradwell and Oldbury do not currently generate nuclear power. Three Scottish nuclear power stations (Torness, Hunterston and Dungeness) do currently generate but there are no current plans to build new reactors there because of opposition from the Scottish Government.)

The UK government agreed in October 2013 to buy energy from a new £16bn two-reactor nuclear power station to be built at Hinkley Point by a consortium of companies led by EDF and including Chinese companies who will provide some expertise and much of the finance - although the Chinese investment will be guaranteed by the UK government. An artist's impression is on the right.

It is intended that EDF will then build a second power station at Sizewell, this time using the Chinese variant of their reactor - see further below.

Another nuclear power stations will then be built at Bradwell. It will be an international test-bed for the Chinese third generation Hualong high temperature 1,000 MW reactor. (Note, though, that the Chinese are actually using German technology.)

Hitachi are then planning to build a reactor of their own tried and tested design at Wylfa in Angelsey, North Wales. If Hinkley Point is delayed, this may well come on stream first.

Last, but not least, Westinghouse/Toshiba intends to build three reactors of their own design at Moorside in Cumbria.

Hinkley Point & Sizewell - Risks, Pricing etc

Even for a massive company such as EDF, Hinkley Point and Sizewell are huge investments, which makes them inherently risky. For example, if the price of electricity falls, or becomes more volatile, the company could lose a lot of money. And because the plant would take eight to ten years to build, there is simply too much uncertainty to commit to such a huge investment. For this reason, EDF needs an added incentive to build the reactors. Knowing it will receive a guaranteed price for the electricity generated at Hinkley provides some kind of certainty that the investment will be worthwhile - in other words, profitable - although EDF will carry the risk that construction costs more and/or takes longer than expected. This guaranteed price is known as the strike price and is £89.50 per megawatt hour - or £92.5 pmwh if only Hinkley Point is built. Both these figures are at 2015 prices and will increase in line with inflation.

Unfortunately the government was unable to force the price down by playing different energy companies off against each other, as German power giants RWE and E.ON decided against building new plants in the UK. But this didn't mean that EDF held all the cards. The company was keen to get Hinkley Point C started so it could demonstrate its European Pressurised Reactor (EPR) which would then hopefully serve as a blueprint for similar power stations across the world. There are currently two EPRs being built by EDF-owned Areva - one in Flamanville (in Normandy, France) and one in in Finland. But both these (smaller) projects are running massively late and massively over budget. But the Chinese - now the world leaders in nuclear technology - seem to have made a success of their own variant of EDF's design, and this will be deployed at Sizewell. This has caused the Chinese investors to require the French Government (which owns EDF/Areva) to guarantee the performance of the companies at Hinkley Point. EDF itself has sought a guarantee from the French Government that the latter will if necessary provide sufficient capital to allow Hinkley Point to be completed before income starts flowing once generation has begun.

It is frankly impossible to say whether the Government (or EDF) has got a good deal. Only time will tell. But, yet again, it is very clear that consumers are paying a high price for eliminating coal powered generation. The average market price of energy was only about £45 pmwh in late 2013, and fell to c.£35 pmwh in 2016 - although this is near-certain to rise as cleaner but more expensive energy comes on stream. (The current low price reflects the fact that c.42% of UK energy is generated by burning coal, and these power stations will all be closed over the coming years.) Modern cleaner gas-powered generation costs around £80 pmwh and wind-power costs c.£135 pmwh, although this should come down to around £100 pmwh when the largest and most efficient low-maintenance turbines are installed offshore.

Much, too, will depend upon what happens to inflation. (The strike price will increase in line with the Consumer Prices Index.) And it is worth noting that there is not much true private sector involvement in Hinkley Point. The Chinese Government owns the Chinese companies that will participate in the project, the French Government effectively owns EDF, and the energy will be sold at a price guaranteed by the British government.

Two other points:

HMG Postpones Its Decision

It seemed sensible for Prime Minister Theresa May to decide, in July 2016, to review her predecessor's commitment to Hinkley Point. In particular:

But the construction of Hinkley Point (and also Bradwell) was approved only two months later, as the Prime Minister recognised the political and strategic realities associated with the UK/Chinese/French agreements.

Euratom

Euratom is an EU Framework research and training program. Members of Euratom are currently the only European entities that can receive significant transfers of nuclear material, equipment or components from the USA. (China is another.) If the UK leaves the EU, and hence leaves Euratom, it will presumably need to negotiate a new agreement with the USA under Section 123 of the US Atomic Energy Act. This could delay the UK's nuclear development programs.

Notes

One advantage of nuclear power is that it takes up much less land than other low-carbon generation. Hinkley Point will cover 430 acres. You would need 130,000 acres of solar farm or 250,000 acres of wind farm to generate the same amount of electricity. (1 acre = c.0.4 hectare)

Some concern was expressed in early 2016 about the capacity of the Office of Nuclear Regulation to oversee the safety and security of the new power stations. Many experienced staff had left - to join EDF for instance - during the years when there was relatively little UK interest in nuclear energy.

 

Martin Stanley