Then there is the issue of long term predictions.
By Leonard Hyman and Bill Tilles:
It was the February 4 article in the Financial Times titled, “Nuclear Hazards: struggling industry aims for power surge,” that got our attention. There’s been so much going on in the UK with Brexit and such. It’s almost easy to forget that the country remains steadily on course to build (and subsidize) multiple new nuclear power generating stations employing multiple designs and technologies.
The FT article was so polite. Author Andrew Ward pointed out that the UK is the only western nation pursuing nuclear new build on anything remotely approaching this scale. Let’s call it what it is, shall we? The policy is barking mad.
First, the consensus view is that South Korea and France have had the most successful large scale nuclear build out programs. They had one thing in common. A single reactor design relentlessly improved in each successive installation.
Labor practices and efficiencies also improved with each successive iteration as the labor force became more skilled. In addition, these countries invested considerable sums in infrastructure for fabricating plant parts (like forges), mining, uranium processing, and especially spent-fuel handling and storage.
The May government in the UK appears to neither understand nor appreciate how these strategies contributed to the successes of the French and Korean efforts. It has not laid a framework, either, to bring the employment and technology benefits that come with developing the ancillary services need to maintain the nuclear establishment.
In sum, the May government has no strategy to exploit nuclear power.
The second problem is the plant’s unattractive price tag of £20 billion. The government has guaranteed the owner/builders of Hinkley (EDF and China’s CGN) a generous contract price of £92.50 per MWH for 35 years, of course with adjustments for inflation. The FT, quoting local sources, states – correctly in our view – that the anticipated overcharge to consumers over the life of this contract is £30 billion. And remember, the British government still plans to do this four or five more times.
It’s at this point that we believe the FT author loses the thread. Nuclear critics have been citing recent record low prices for offshore wind in the UK in the neighborhood of £57.50 per MWH. But offshore wind has a capacity factor of about 40%. The capacity factor of a well-run nuclear plant can exceed 90%. Apples, oranges.
The alternative to new nuclear at that capacity factor, at least in a base load context, is not wind but natural gas. These plants can be built faster and at far less cost. But they do burn fossil fuels and extreme fuel price volatility has occurred in the past.
The UK, in pursuing an aggressive nuclear power new build program, is doing the exact opposite of Germany. The Germans are in the process of shuttering all their domestic nuclear plants. As a result, low-cost and high-carbon coal-fired power generation now provides 40% of Germany’s electrical needs. Environmental consequences aside, at an industrial policy level it’s what we’d expect from a manufacturing, export driven economy: a focus on low cost energy for industry.
If the UK pursues its nuclear new build on the scale presently contemplated, the likelihood is that the UK’s energy costs would rise versus the rest of Europe for at least several decades. Meaning that price matters and the May government has signed on for too-high a price.
Then there is the issue of long term predictions. The Tory government took up the cudgels for Hinkley Point in 2010, after putting together a 40-year energy plan that critics likened to Gosplan, the Soviet Union’s State Planning Committee. No matter the model used, nobody can predict energy usage forty years out, much less the ten years or more required to build a new nuclear power station. Putting up a huge, inflexible, expensive, immovable object like Hinkley Point based on long term projections makes no commercial sense. Hinkley Point will supply 7% of the nation’s electricity. Since the Hinkley Point countdown began in 2010, the UK’s power demand has declined 11%.
We are reminded of the recent VC Summer nuclear project cancellation in South Carolina. SCANA, the builder, cited cost overruns that made completion uneconomic. Yet when another utility moved in to rescue SCANA, it announced that it would replace the VC Summer project with a small gas turbine facility. Meaning what? That demand for power in South Carolina no longer called for the big nuclear project? Oops.
Big nuclear projects, as we have said before, are not commercial ventures. The builders cannot predict the construction costs or the demand for the plant’s output. There are other ways to produce power without those problems. Ironically, the defenders of Hinkley Point in the FT story cited the uncertain trajectory of battery economics (better batteries make renewables more competitive). But at least battery costs have fallen, which nuclear costs have not.
Betting the ranch on one (nuclear) outcome is not the way to run a business or a country.
Finally what we see here is a profound failure of imagination and loss of opportunity. There are four trends that anyone in today’s power business will have to reckon with in the future:
- The relentless cost-competition from renewables.
- The need for ever greater plant resilience due an increasingly hostile physical environment.
- The trend towards smaller, more flexible, decentralized power generating facilities.
- The industry trend toward bi-directionality.
Bi-directionality is a key industry trend. Electric power will increasingly flow two ways over the distribution system as more individuals and businesses begin to produce, store and re-sell their own energy. The more energy production is localized, the less value will be accorded central station power plants like Hinkley Point C. However ownership and management of the distribution networks are likely to assume even greater importance.
Forget for moment that Hinkley Point C is a nuclear plant. The issue here isn’t what fuel is consumed in the plant’s vast interior. All large central station power generating facilities share one characteristic: a lack of operating flexibility. With its extremely high cost, new nuclear is inflexible in an age that increasingly needs and values flexibility. Strike three. By Leonard Hyman and Bill Tilles.
So who is taking the risks, and who is getting paid to take them? Read… When Profits at Utilities are Privatized and Losses Socialized, Do We Still Need Public Shareholders?
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