Energy Post, August 21, 2014
Author: Steve Thomas, Mycle Schneider, Antony Patrick Froggatt
Will EDF with Chinese backing build a new third-generation nuclear power plant in the U.K., and if so under what conditions? The answer to this question will be vital to the future of the European energy sector. And a great deal will depend on the European Commission, which is expected to decide any moment whether the U.K.’s agreement with EDF will be allowed under EU State Aid rules. In the World Nuclear Industry Status Report 2014, an annual independent assessment of the global nuclear industry, Steve Thomas, Mycle Schneider and Antony Patrick Froggatt tell the remarkable saga of Hinkley Point C as it has developed until today.
The British government has been attempting since 2005 to revive nuclear ordering in the U.K. The U.K. has been one of the most strategically important markets for nuclear power to crack if the long predicted “nuclear renaissance” were to materialize. Orders for the U.K. would have been a vote of confidence for so-called Generation III+ technologies. The U.K.’s civil nuclear sector, despite its poor record over the past 50 years, still retains prestige and credibility in many countries, which would see the U.K. as an example to emulate. For reactor vendors, the apparent openness of the process, the prestige of the market, and the apparent determination to force through the nuclear program almost regardless of cost has persuaded them to gamble on the British market.
However, the U.K. government promised from the start that nuclear power would be competitive with gas-fired generation and, as a result, any new nuclear orders would receive no public subsidies and, implicitly, would compete in the competitive British wholesale electricity market on equal terms with other generators.
What was particularly eye-catching about the initial publicity in surrounding the attempt to re-launch nuclear ordering in the U.K. was the very optimistic forecasts of the commercial and economic viability of new nuclear orders. Following the failure to privatize the British nuclear power plants and the lack of nuclear orders for electricity markets that had been opened to competition, the conventional wisdom was that, even if the price of power from nuclear plants were expected to be competitive with the cheapest options, nuclear would not be chosen because financiers would not be prepared to bear the economic risks associated with building nuclear.
By 2006, the original cost claims for a “nuclear renaissance”, first talked about from 1998 onwards, for example that nuclear could be built for less than US$1000/kW, a price expected to make nuclear competitive with natural gas generation, had already been proved unrealistic. The claim that, in Britain, nuclear plants would be ordered on the basis that they would be able to compete in the market with the cheapest alternatives and would be offered no public subsidies was therefore remarkable. All that would be required were a few “enabling” measures such as making suitable sites available, carrying out a Generic Design Appraisal (GDA) process and putting a cap on the cost of radioactive waste disposal.
The Enabling Decisions
On siting, the assumption was that the sites of existing nuclear plants were less likely to be problematic in terms of public consent as well as technical suitability. The British government owned the sites of the 11 first-generation Magnox plants (most of which had been retired by then) through its Nuclear Decommissioning Authority (NDA). Some of these would not have been suitable for new reactors but about half of them were worthy of consideration as well as the Sellafield complex, also owned by NDA. The government made six of these sites available for auction. The eight newer plants (at seven sites) were owned by British Energy, which had emerged from bankruptcy in 2005.
In 2009, British Energy was taken over by French state utility EDF, giving it access to three sites deemed suitable for new reactors. These arrangements for sites were meant to ensure that developers would be able to compete on equal terms and there would not be a monopoly nuclear developer. Three consortia emerged:
• NNB Gen, a consortium led by EDF, with the British energy company Centrica taking a 20 percent stake
• Horizon, a 50/50 consortium of the two leading German electric utilities, RWE and E.ON
• and NuGen, comprising Iberdrola and GDF Suez (both 37.5 percent) and Scottish & Southern Energy (SSE) with the remainder.
This meant that all six of the major energy companies active in Britain (widely known as the ‘Big 6’) had a stake in a nuclear consortium, with GDF Suez often seen as a potential new entrant as the seventh player.
The GDA process was intended to resolve all generic design issues for a number of designs, leaving only site-specific issues for any given project. This would mean that potential developers would be able to choose between several designs, confident that no significant technical issues would emerge. The GDA was initiated in 2007 with four competing designs entering the process: the AREVA EPR (PWR), the Toshiba-Westinghouse AP1000 (PWR), the GE-Hitachi ESBWR (BWR) and the AECL ACR1000 (Candu).
The measure that created most controversy then was the decision to fix the price for waste disposal at a level that would ensure the new developers would pay a “fair share” of the costs of waste disposal. There was ample scope for semantic disputes about what constituted a fair share—for example, would new developers pay only the marginal cost of expanding facilities to be built for existing (“heritage”) waste? From a presentational point of view, the price was either the minimum developers would pay even if actual costs were lower or the maximum they would pay even if costs were higher. The government claimed this did not constitute a subsidy, although given that effectively this represented a price guarantee given at no cost to the companies, this claim was hard to sustain.