Heresy! Sheer, rank heresy!

An EDF nuclear power plant: But who's going to build new ones?

An EDF nuclear power plant: But who’s going to build new ones?

I recently Tweeted about the need for our Coalition government to stop dithering, and get on with building new nuclear power infrastructure.  Someone Tweeted in reply “Yes, but who pays for it?”.  I replied “Good question, but impossible to answer in a Tweet”.  So let me try, if not to answer the question, at least to discuss it, here.  The truth is, of course, that in the end the electricity consumer pays for it.  But that leaves the question of how we structure the investment.

Tories (some of them) say they believe in free markets, and a small state, and limited government.  UKIP really does believe in these things.  And we hate nationalisation with a passion.  All my life (or ever since I became aware of politics) I have argued for private enterprise and against state intervention.

So it’s caused me considerable distress to come up with a situation that challenges my settled view on this point.

The Coalition has decided that nuclear is an essential part of the UK energy mix.  This is a widely-held view, and I agree with it.  So the government has invited relevant companies to bid for new nuclear capacity, starting with Hinckley Point.  Several companies looked at the prospect.  Hitachi got cold feet. A couple of Chinese companies expressed interest, then withdrew.  German nuclear companies E.On and RWE pulled out, after Merkel’s decision on nuclear power in their home market changed the shape of their balance sheets.

Centrica pulled out of a proposed joint deal with the French company EDF in February.  EFD is still — just about — in talks with the British government, but has made it clear that its interest is lukewarm, and that it will back off unless offered eye-watering terms.

So how do we engage with the free market, in an open and competitive bidding process, when we have exhausted all the possible bidders, and the last remaining one seems to be exploiting what appears to be a monopoly supplier position?  And why are they so reluctant anyway?

On the second question, I think a key issue is regulatory uncertainty.  We have the extreme response of Angela Merkel to the Fukushima incident.  Running scared of green opinion at home, she rashly decided to close the German nuclear fleet — a decision which she and the German people will come to regret.  As a consequence, Germany is now building or refurbishing 25 coal-fired power stations, setting at defiance the EU’s posturing on CO2 emissions.  Who will invest £14 billion with a sixty-year time-horizon, when they may be closed down on a whim?

Less radical but equally worrying is the constant regulatory chopping and changing, the interference of politicians in market pricing.  The EU introduced its wretchedly convoluted Emissions Trading Scheme, which by itself added great uncertainty to pricing in the energy market.  Then, concerned that their new scheme was failing to deliver, they tried (so far without success, but they’ll try again) to tamper with it in a process called “backloading“.

Meantime in the UK, George Osborne has responded to the low ETS emissions price by arbitrarily and unilaterally introducing a “Carbon Floor Price” over and above the ETS structure, thereby shooting himself (and British industry) in the foot.  Admittedly the carbon floor price might arguably support low-emission nuclear, but Osborne’s action perfectly illustrates the huge level of regulatory uncertainly.

So how do we respond to what appears to be a market failure in this case?  What if the choice in the end is between a nationalised nuclear industry, and no nuclear industry at all?  I consulted an extremely sound free market thinker in the USA for advice.  Several questions were suggested, and I’ve tried to think them through.

1.       Is there a reasonable alternative to this form of energy?  There must be other energy technologies in the mix, but there is a strong consensus (shared by UKIP) that we need a significant proportion of nuclear.

2.       Can another provider be found internationally and brought it to compete against EDF?  The government has done its best, and it seems the answer may be “NO”.

3.       If EDF thinks that the government may go it alone, will they come to the table on more reasonable terms?  Again, we have to wait and see, but it looks increasingly doubtful.

Since these alternatives seem to be blocked, it may be time to bite the bullet and think the unthinkable.  Perhaps in order to ensure Britain’s energy supply for the next generation, we have to contemplate the possibility of a state-owned industry.

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19 Responses to Heresy! Sheer, rank heresy!

  1. tallbloke says:

    Since the energy user and the taxpayer will be paying for the construction as well as the product, it seems reasonable that they own the business too.

  2. But have we got the expertise anymore to do what you suggest, Roger?

    It seems to me that Brown sold it all off.

    • rfhmep says:

      You’ve put you finger on a key problem, Paul. Almost as unpalatable as government financing — we may have to ask the French for help!

      • tallbloke says:

        Roger, I left School at 16 in 1979 to become a highly qualified engineer working for a Swiss multinational making the coolant circulating pumps for nuclear reactors. In the first year of my apprenticeship, half my college colleagues were made redundant by the Thatcher governments policy of shutting down Northern industry in favour of Southeast money juggling. We are islanders with no ship-building capacity. We are Brits with no boiler makers. We threw away our engineering heritage for a mess of money markets.

        How the chickens come home to roost.

  3. fenbeagleblog says:

    Whoever invests in this project is a shareholder. If you intend to force tax payers, or electricity users to pay for it without choice, then they own it between them too. If it’s to be private, then it should be built with private investment. If private investment cannot be raised then privatisation fails on this issue.

    • rfhmep says:

      Just the point, Fenbeagle. He who pays for it owns it. But we neatly avoid some moral hazard if the regulatory uncertainty (created by government) has to be borne by …. the government.

  4. Adrian Hey says:

    If it’s uneconomic (as it seems to be) compared with coal or gas then I think we should forget about it. As far as I understand the numbers, current nuclear technology is just about price competitive with wind but does have the huge advantage over wind that it actually works reliably. So the best that can be said of it is that is really could “keep the lights on”, albeit at a very high price.

    But why are we interested in it at all? Is it to provide energy security or to reduce CO2 emissions?

    As far as energy security is concerned we already know that the UK still has vast untapped coal reserves and it seems likely that the same is true for shale gas. Both of these energy sources will be cheaper and every bit as secure, at least for the forseeable future. So there’s no argument for nuclear on these grounds.

    As far as CO2 reduction is concerned, this problem (if it’s a problem at all) is surely a global problem so requires a global solution. But what about the proliferation risk inherent in current uranium cycle nuclear technologies? If we can’t trust every nation in the world with this technology then it really isn’t a global solution to the (alleged) problem. There’s no point in the UK crippling it’s own economy going it alone with expensive (uranium cycle) nuclear power.

    But what of the possibility Thorium cycle technology like LFTR?

    It seems to offer the potential of much cheaper and safer nuclear power. Apparently the main reason it was dropped in favour of Uranium by US in back in the 60s is that the US DOD wanted plutonium.

    Anyway, if it must go ahead I think we might as well make it publicly owned industry, not one owned by either EDF or French government. I simply don’t believe that the UK lacks the engineering skills or capacity to build these things. It’s probably true that there’s no UK company that can credibly bid for their construction, but that is because there has been no market for these things in the UK and hence no business servicing this market. The problem is not lack of engineering talent or resources. But we could create a publicly owned company to do this and recruit the engineers needed to oversee the program and out-source large parts of the design and construction to British engineering industry. Of course my preference would be to go for Thorium over Uranium if this was done.

    • rfhmep says:

      Thanks Adrian. But I believe nuclear is competitive with gas and coal today, and cheaper than wind. Of course gas prices may come down. But security of supply requires that we have more than one energy source (which is why UKIP says coal, gas, nuclear). Also for nuclear, 90+% of costs stays within the British economy: with gas, 60% goes to Gazprom (or wherever we buy the gas). Nuclear has very high up-front costs, but very low running costs (relatively) over a very long period, and is, as you say, reliable base-load. Also, nuclear pricing is very much more stable over many decades. Thorium needs a whole ‘nother debate, and in my view that should be more technical/economic than political.

      • Adrian Hey says:

        Yes, on reflection I think you may well be right about what nuclear costs, or at least what it ought to cost. But if this is the case, I’m not sure why EDF want such a high guaranteed price (about £100 per MWHr last I heard, about twice the price of coal?) Still, it looks like a good deal in comparison to wind, it’s even comparable with gas at current gas prices.

        Also UK nuclear program has gained itself a bad reputation on cost grounds, but the French experience has been somewhat different. I think the problem with nuclear in the UK is that for a long time it went it’s own way with AGR technology while the rest of the world opted for PWR. So every new UK reactor was effectively a new and costly experiment in reactor design and we never really got any economy of scale. The UK program never got to the point where we could just say “right that works, now let’s build another dozen of them”.

      • Adrian Hey says:

        Hmm, according to wikipedia EDF are actually asking for £90 per MWHr (not £100 as I stated).

        From a bit of maths I arrive at a figure of £ 7.9 billion per GW decade based on £90 per MWHr. So as Hinkley point C is going to be generating around 3 GW more or less constantly as I understand it, that gives the operators around £ 23.6 billion per decade in revenue. This seems pretty good for a guaranteed return on a £14 billion investment to me, though I’m sure they must have other operating costs too. I guess much also depends on what commercial risks they are actually taking themselves and to what extent the taxpayer is assuming risks. I don’t really know.

  5. Chris says:

    Privatisation and free enterprise are not the only options. The Railways should never have been privatised; we lost 3 out of 4 train manufacturing sites. The subsidies are higher under privatisation than when it was nationalised.

    The only way to get new nuclear power stations in the UK is by government. This is how we did it in the past. There are reasons why we have Harwell, Aldermaston and Sellafield.

    Does anyone believe that the French would have the TGV or have nuclear supplying 75% of the electricity supply without the French government backing it?

  6. Mike Stallard says:

    The State is not the solution: it is the problem.
    The Brithish government, of whatever stripe, has to make sure the electricity upon which we all depend for almost everything has to be affordable or they will lose the next election. So they interfere and fiddle. There is absolutely no continuity.
    The EU is off with the birdies. Carbon tax! Well, you know more about this fairy land stuff than I do. The sun rarely comes out and the wind bloweth where it listeth…… So we build a huge new wind farm project and then put in a sun thinggy in a prime farming area here at Wisbech. People say that belief in God is ridiculous and then they believe in Global Warming.
    Same with the railways, the banks, the social services, the now secret (and juryless law courts) and the NHS, the government has to interfere like a savage with a watch: the markets are therefore not free and they cannot work properly.
    And the lights are going out and that will, of course, mean, industry has to grind to a halt. Goodbye GDP.
    Already in the Mail yesterday there was a scare story about the smart freezer which turns itself off when ordered to. The power cuts are nearly upon us.

    Nationalisation can never be an answer. What we need is a long guarantee not to fiddle.

  7. Linda Hudson says:

    U.K.I.P. hate nationalization, it didn’t work for industry years back, and that is why I cannot get my head around the fact that we now have nationalized banks, in all but name, and this is the status quo, and will be around for some time yet, because the same banking system that has caused world catastrophe, is still intact!

  8. DougS says:

    We’ve burnt our nuclear boats – pitiful but true. There does not appear to be an economic case for nuclear at the moment.

    We may as well go for coal like the Germans – if they can thumb their noses at CO2 emissions so can we. But for heaven’s sake steer clear of the ridiculous carbon capture and storage, it’s a stupid solution to a non problem – or it would be if it worked!

  9. ogga1 says:

    I like the sound of Thorium what little i know of it, Thorium and shale gas, Someone must make a
    decision and stick by it, built by the people for the people all foreign elements stay foreign.
    Started yet?

    • rfhmep says:

      Given that we’ve agreed we don’t like nationalisation, I must point out that the thorium decision should be made by the industry. It shouldn’t be a political decision. It’s the job of government to get out of the way, to take away regulatory barriers and to create a stable and predictable regulatory environment. Why are EDF demanding high prices? Because (A) they can, being in a quasi-monolopy; (B) the want to provide insurance against regulatory uncertainty.

  10. CANDU says:

    Rolls-Royce Nuclear Power – ‘Nuff said ?

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