Nuclear Follies in the UK: in Search of High-Cost Power without Strategy at the Wrong Time

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:

  1. The relentless cost-competition from renewables.
  2. The need for ever greater plant resilience due an increasingly hostile physical environment.
  3. The trend towards smaller, more flexible, decentralized power generating facilities.
  4. 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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  28 comments for “Nuclear Follies in the UK: in Search of High-Cost Power without Strategy at the Wrong Time

  1. Joan of Arc says:

    As a stock investment in uranium miners, a Fukushima, Three Mile Island, or Chernobyl type accident can wipe 90 % to 100 % of your investment.

    On a locational basis, meaning in your back yard, an accident, a war, or a terrorist strike would be devastating. Reactors could be sitting targets during times of war and terrorist strikes.

    • BTilles says:

      Hi Joan of Arc,

      I think the new term for that is “no skid marks” investments (as in straight off the highway, over the cliff, crash and burn).

      But in the US nuclear power plant owners liability is limited by the Price Anderson Nuclear Industries Indemnity Act.

  2. John says:

    Electricity…it’s penny cheap. Yeah right

    • RangnarD says:

      Great article, especially regarding the comparisons to Korean and France. No doubt the same positive effects were at play in the USA during our hey day.

      The author concludes by Pointing out the very salient point of bidirectional flows.
      What he’s not explicitly stating is the ramping aspect of power plants. That is doing morning peak hours and evening peak hours and summer midday peaking hours, you turn on natural gas burning jet engines to most efficiently cover the peak hour load and then they shut down and then you rely on your coal, nuke, hydro, combined cycle gas plants etc. whatever is available. Basically the system operators operate the system as an economically as possible.

      The problem is Nuke plants are designed to run flat out 100% full load all the time. And in a era/environment where you have lots of wind power that is sporadic and cheap and growing, them it is becomes harder and harder for the nuclear plants to stay at full load, and run most efficiently and safely.

      Interestingly in an hour will you have baseload that is flat out running 100% new plants and when generation, random when generation, what you want for lots of jet turbine engines to follow that rapidly moving load.

      • RagnarD says:

        @ myself RagnarD
        Apologies on the Voice to Text Muff in the last paragraph:
        Scratch what I wrote from “Interestingly…”

        “In a generation environment with large slow moving, full load nuclear units coupled with small, volatile, random output wind generators you need lots of fast moving natural gas turbines to reliably follow the load when the wind (or solar) generation isn’t there.

        The rise of renewables, at present, can really only happen with a concurrent rise in quick moving gas turbines to supplement renewable short falls/handle their inherent lack of reliability.”

  3. Cheap electricity is the catalyst for bitcoin mining. MS projects that electricity demand for bitcoin mining will exceed that of EVs in a few years. Regional utilities which have unused, or cheap sources of power will be able to attract this new industry. I anticipate electric rate wars (which would be good for EVs) to compete for the business, including subsidies (much as offshore manufacture has subsidized renewable energy such as solar panels). These Utes could sell below cost and offset with tax revenue from the added bitcoin mining demand. By extension these energy advantages could also apply to new AI technology.

    • BTilles says:

      Hi Ambrose Bierce,

      The economist Herb Stein used to have a saying to the effect that unsustainable trends won’t continue. One of the vitrues of low power costs is the ability to attact new industry. This can have a positive ripple effect on a local economy. If bitcoin miners begin to seriously undermine (sorry) local economies, we believe the political or regulatory response is likely to be harsh.

      • I see it as win-win, local business enjoys lower electric rates, this is how i envision electric rate wars.

        • BTilles says:

          Hi Ambrose Bearce,

          That’s precisely the problem. They all enjoy/exploit the low cost energy resource until the next unit of electricity production has to be added to ensure system reliability. Then costs escalate sharply along with finger-pointing.

    • Joan of Arc says:

      The simple solution is to outlaw bitcoin and all digital currencies. Outlawing digital currencies won’t be a problem like outlawing alcohol was during prohibition. The reason is because you can’t eat, drink, taste, feel, hear, see, or get high on bitcoin. It is not a carnal addiction. No one will care. They won’t be bootlegging bitcoin across state lines.

    • Cashboy says:

      Ambrose Bierce; I gather that you are being sarcastic regarding increasing the production of electricity for mining bitcoins?

  4. 2banana says:

    I don’t get the socialist go green global warming crowd.

    Nuclear power is the cleanest of energy production. No burning any type of fossil fuel. No carbon dioxide emissions. Not a puff a global warming.

    Yes, it is expensive. Yes, there are nuclear byproducts to treat or dispose.

    But the wacko environmentalists want massive tax hikes and a giant lowering of our standard of living to save the planet.

    Yet they a rabidly anti nuclear power.

    • Joan of Arc says:

      Yes, but if the US got into a war, with 100 + nuclear reactors, if say, 4 got bombed, it would devastate the land for hundreds of years. This is true for any country. Look at the devastation done to the land caused by Chernobyl and Fukushima. Reactors are sitting ducks.

    • Frederick says:

      After the fiasco in Fukushima you actually have the audacity to ask such an absurd question

    • BTilles says:

      Hi 2banana,

      The way we see it the properly formed question is this: would you rather pay X for electricity from a gas-fired power pant or 3X for electricity from a nuclear plant. Both are so called base load units.

      • Joan of Arc says:

        The properly formed answer is this. No. Deactivate and turn all that concrete space into storage vaults once the location is decontaminated, if possible.

        • Frederick says:

          Well in the case of the triple meltdown at Fukushima NO it is NOT possible

        • BTilles says:

          Hi Joan of Arc,

          I believe the Germans have done precisely as you suggest and now 40% of their electricity derives from coal.

        • mean chicken says:

          “Deactivate and turn all that concrete space into storage vaults once the location is decontaminated,”

          It’s unclear to me how this solution moves the subject forward toward resolution?

        • Joan of Arc says:

          mean chicken,

          You are one mean chicken, no two ways about it. The resolution is to get rid of the reactor and convert all those concrete buildings and rooms into storage units. But you have caused me to reflect further on the idea of conversion. To help relieve the housing shortage the reactor could be converted into a housing project. You being a mean chicken, I’m sure you wouldn’t want to help your fine feathered friends and convert it into a big chicken coop.

    • Erik M says:

      We’ll be sure to bury the nuclear waste, plus all the radioactive waste from demolished nuclear power plants, all the bodies of the dead of those contaminated with radiation from the likes of Fukushima, in your and others who have investments in nuclear investments —–backyards.

    • Wolf Richter says:

      You’re correct about carbon emissions. But…

      Weren’t there — and aren’t there still — a couple of environmental issues around Fukushima (ask my in-laws), such as entire no-go zones, still, years after the meltdowns occurred? And radioactive water running into the Pacific? And contaminated fish? And no fishing zones? Etc. etc.

      And Chernobyl, whose contaminants spread across much of Europe? The Exclusion Zone of 1,000 square miles is still in place three decades after the event. Here’s the map:

      And all the smaller and less totally catastrophic incidents that have occurred? Environmental issues are not limited to carbon emissions.

    • IdahoPotato says:

      “lowering of our standard of living to save the planet”

      This is like the Flat Earth Society claiming they have members around the globe.

  5. MC01 says:

    I think a large part of the problem stems from the nuclear reactors to be used at Hinkley Point.
    Hinkley Point is to house two EPR (European Pressurized Reactor) unit, and EPR has a highly troubled development history: depending on whom you ask to it was either too ambitious or EDF (Électricité de France) grossly underestimated the challenges it faced while designing it.
    EDF promised a whooping 17% decrease in fuel consumption per MW over the old Framatome N4 and Siemens Konvoi reactors, a whole new set of impressive safety features (this was years before Fukushima) and amazing reliability.
    Already in 2009 EDF was grilled by customers (including the French government) for the continous delays accumulated by the EPR, the spiralling costs and poor performance of the control systems then being designed.
    Such was the pressure in 2013 EDF bowed down and admitted defeat: the EPR was simply too ambitious and from that point on the focus has been on the “New Model EPR”, effectively a wholly new reactor.

    This, however, doesn’t mean work on the old EPR stopped. The old EPR’s already ordered by 2013 will be completed in what appears to be a “damn the torpedoes, full steam ahead” operation.
    These include one reactor in France, another in Finland and two each for China and the UK (Hinkley Point).
    Flamanville 3 should be operative by the end of 2018. So far it has cost over €10.5 billion, or €7.2 billion over the 2007 budget, not inflation adjusted.
    Olkiluoto 3 is presently €5 billion over budget, again not inflation adjusted.
    In short Hinkley Point is not an isolated folly: the EPR is indeed one expensive failure, and one of the main nails in Areva’s coffin.

    The EPR and with it Areva’s embarrassing demise have sent ripples around the world.
    After Olkiluoto 3, Finland has cancelled all further plans to buy anything from EDF and opted instead to buy a well tried (and cheap, as far as nuclear power goes) Rosatom VVR1200 reactor.
    The UAE cancelled their big order for four EPR’s and replaced them with Korean APR1400 units instead. These units have already being completed and the first two are to be operative by the end of 2018 already.
    And the announced joint venture between Northrop-Grumman and Areva to assemble EPR reactors for the US market has been buried deeper than any nuclear waste ever has.

    It will take EDF (which has since swallowed most of Areva’s nuclear program, with the choicest cuts going to Mitsubishi Heavy Industries and Japan Nuclear Fuel Ltd) many years of hard work to come out of the hole it dug itself into with the EPR.
    If the New Model EPR doesn’t work out, EDF hasn’t a whole lot riding for it until well into the 2030’s, when they hope to have some fancy new technology from their present research at Cadarache.

    • DV says:

      Good account, except the same goes for Westinghouse. Both Areva and Westinghouse went bankrupt on their failed designs. For now there are only two 3+ designs that are in operation and these are Russian and Korean (China makes an attempt to catch up, but its technology is not yet up to the proper level). Russian VVR reactors are proven and half the cost of the Western designs. There are orders for 20+ such reactors to be built in different countries. It looks like neither Areva, nor Westinghouse will be able to catch up, ever. So with the old reactors coming to the end of their service life (100+ in the US, close to that across Europe), the Western governments face a decision point on how that base load capacity can be replaced. Obviously renewables can only be part of the answer due to their intermittent nature. In the base load context, they can be relied on only to some extent, but you still need base load to keep your network running. With the Western designs being expensive failures, it looks like designs to phase out nuclear power have been driven mostly by those considerations – unproven and extremely costly, i.e. there is simply no available domestic technology to be readily used. And it is unlikely that those designs will ever be revived. And you can hardly expect the Western governments to turn to Russia (except for Finland, which proved to be a highly positive experience) or Korea for reactor technology. That is why the Western governments are now scrambling for solution and find themselves in a very difficult position. Unlike Japan, they do not want to rely on fossil fuels such as coal or natural gas, but their renewables push is also problematic. Once renewables exceed 30% of supply, those countries will face huge network reliability issues. Gas-fired stations will be still required, which will sit idle most of the time, but their owners will still need to be paid for keeping that capacity operational. In other words, that mix will have to be subsidized long-term for many years to come. They may become commercially viable in the not so close future, but subsidizing is not good for economy as a whole. Another option is to scale down the energy-intensive industries, but this will make the Western countries overdependent on countries with cheap resources. Whatever way you go, it does not look good for Europe.

      • Rag says:

        Great account. USA is in fantasy land, as far as not anticipating / planing for the retirement of huge amounts of base load coal and nuclear plants.

  6. Old Engineer says:

    The cost of qualifying the design of a nuclear plant is astronomical. Partly because regulators continue to change the safety requirements as the plant is built. This has made the approach of multiple designs untenable in the U.S. Given the safety sensitivity today it is conceivable that the safety requirements could evolve so much during the first example of a new design’s construction that the plant would never get finished.

    What would scare me in Great Britain is that recent events have demonstrated a lower emphasis on safety in public construction than in other countries. While that can lead to heartbreaking human losses in building fires, with a nuclear plant the consequences could be significantly worse.

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