I have already written about my visit to America to see shale gas operations in Pennsylvania. While we were in the US, we also went to visit the South Carolina Electricity and Gas Company. They’re building two new Westinghouse AP1000 nuclear reactors.
We looked around the site, and were impressed by the scale of the project. It’s awesome, practically epic, like Ben Hur with hard hats. One of the world’s largest cranes. Acres and acres of steel fabrication, pipes, wires, heavy equipment, concrete components. And a structure that would put a cathedral to shame, at least in size terms.
The Westinghouse pitch for the AP 1000 is impressive — I suspect it may be a better deal than the Areva design going in to Hinkley Point. The Areva design seems to be having scheduling and cost over-run problems at Flammanville (France) and Olkiluoto (Finland).
Westinghouse claim to have massively simplified their design, with far fewer components. They have also designed-in a range of passive fail-safe mechanisms. For example, in the event of a catastrophic loss of internal and external electricity supply (as occurred at Fukushima), the AP1000 uses gravity and convection to deliver cooling for several days, allowing an orderly shut-down. They have also managed to modularise many of the components, which (they claim) leads to shorter construction times and lower costs.
Nonetheless, I wonder if the company that pressed the button to set this project in train would have done so had they known what the price of gas in America would be today. While nuclear remains a low-cost option over the lifetime of the plant, it would be hard-pressed to compete with gas at today’s prices. This is a real problem for the nuclear industry. Capital markets, bankers and hedge funds think in short or medium-term time scales. But today’s new nuclear plants are designed for a sixty-year life, with talk of possible extensions to eighty years. No one knows what regulatory structures will be in place in sixty years (or indeed in sixty months). No one knows what the price of gas will be in 2093 — though I expect rather lower than the wilder expectations of the Peak-Oil doom-mongers. And no one knows what new technologies will be available by the end of the century. Perhaps nuclear fusion.
As I have written elsewhere, I think there are real problems in finding commercial funding for new nuclear, given the high capital costs, the long time horizon and the regulatory uncertainty. Maybe government guarantees are the only way — though I have serious doubts about the Hinkley Point model.
One area we discussed with regulators and industry representatives in Washington may offer a way forward. Several US companies are looking at Small Modular Reactors (SMRs). Whereas the AP1000 is around 1100 MW, these SMRs might be around 300 MW.
At the SONE AGM recently, I mentioned the interest in SMRs. A member commenting from the floor dismissed the idea, arguing that only a traditional full-size reactor could deliver the required economies of scale. Smaller reactors would inevitably be more expensive. They were worth it only in special applications (Rolls Royce makes small reactors for nuclear submarines, for example).
There was a different view in Washington. If SMRs can be manufactured on a modular system in factories, to be assembled on-site, the initial capital cost could be dramatically reduced. Type-approval (which is expensive) could be amortised over many units. And smaller reactors would fit into the grid in a more flexible way. Each major city or industrial complex could have its own nuclear generation.
Given the low cost of gas, is there still a case for nuclear power? Well, if you take the Al Gore view of climate alarmism, nuclear is effectively emission-free in operation. I don’t take that view. But I believe that simple prudence requires a mix of generating technologies. UKIP believes we should rely primarily on coal, gas and nuclear. The price of uranium seems likely to be more stable than the price of gas over the long-term. And while fuel may be 60% of the cost of electricity from gas, the corresponding figure for nuclear is only around 5%. So nuclear is far less susceptible to fuel price fluctuations.
We hope that the UK will be self-sufficient in gas for decades to come as we develop shale. But we don’t know that it will be. Facing this uncertainty, we need to ensure that nuclear continues to play a key rôle in power generation. It’s currently below 20%. I’d like to see it at 30%. How best to finance it will be an on-going debate.