The Treasury sure is in a pickle right now, of that there is no doubt. EDF is playing the hardest ball they’ve likely dealt with in quite some time over the increasingly controversial and murky Hinkley nuclear reactor, a project set with such promise coming into the new year, that many, myself included, heralded this as the beginning of the UK’s nuclear renaissance. How foolish I may have been!
Centrica and EDF had planned to rejuvenate British nuclear energy with their plans for extensive new builds at Hinkley Point, signifying the first nuclear reactors in the country for, ooh, two decades or so. Considering how many are viewing the Energy Bill, or electricity market reform (EMR), as a policy mostly bent on kickstarting the fission industry through some appetising price promises and long-term certainty signals from the Coalition. Of course, there’s some side dishes for renewables and gas in there, but for all intents and purpose, it’s a sign Cameron et al want more of the green stuff (that’s uranium, I’ll come to waste briefly later before this scares you) on our grid.
Key to this, and the subject of a lot of rumour milling and grapevine wringing, is the strike price, the set price at which the government will pay nuclear, and other generators, for their electricity onto the grid. This is regardless of how much the generators bid in at during the selection process, with those plants selling below the strike price simply being paid up to it, and those selling above will have to pay back to the government, naughty people. It’s relatively simple and effective in enticing somewhat risky investments in nuclear and renewables , which inherently are risky compared to fossil fuels, by providing clear policy signals going forwards.
There’s been much hoohah about the nuclear strike price, likely the first to be set out of the myriad others, with some papers citing ‘sources’ with figures around £99/MWh, but we can’t be sure until official release. What we can be sure of, is why they might be teasing the £100/MWh mark…if the government sets this price at anything above £100/MWh, they’ll likely have the EU and angered Member States bearing down on them claiming uncompetitive and unfair subsidies to nuclear, of which the UK has pledged not to do. Whilst the strike price is literally this very thing, it has to be very carefully balanced, to both draw in investment, and keep the EU off our backs.
So when Centrica decided to bail out of the Hinkley joint venture, blaming the very uncertainty and high costs the strike price is designed to appease, EDF was left alone at the helm of an immensely important but leaking ship. Whilst this puts them in a slightly dodgy position in terms of finding outside support to continue their plans, with the Chinese apparently priority choice, it simultaneously places them in quite the power position over Osborne and his Treasury. Now they’re going solo, they’ve been playing games around this strike price, stating they could pull out altogether unless Bruce’s price is right.
Not only this, but they’re demanding a price which guarantees a 10% rate of return on their investment, stretching the maximum 8% rate the government had in mind. This would indicate a strike price set at just shy of £100/MWh, as has been rumoured, so it would seem that they may indeed get what they want even without this bullish behaviour. However, it doesn’t end there. EDF is also attempting to have some of the upfront costs underwritten, or effectively paid off by the government, to ensure the project can go ahead without issue; this would be even more damaging to government rep, as this really does constitute direct subsidy and aid to the nuclear industry. Tut tut.
So it seems that EDF may, for the moment at least, have the Treasury tied up in a little bit of a power struggle, but I wouldn’t be surprised if they get their £99/MWh strike price, with a long term CfD contract in the bag pretty soon. Underwriting of the costs however, I really don’t see going ahead given the political volatility of such an idea, but EDF is in a far better position to bargain for this when it holds the keys to the country’s first, and very much needed nuclear plant for 20 years. With our nuclear and fossil fuel fleet desperately in need of some upgrades and new paint, and our pledges towards 2020 for emissions reductions nearing, nuclear is for now, a clear and logical solution to these problems.
Whilst some people might not feel too amicably towards the idea of Chinese companies taking a fat share in our future energy mix, especially nuclear, I fear it’s something we now cannot avoid. Centrica, E.ON and RWE, our main options for new builds, have all shut the door on us, and as for homegrown skills, we have none. If EDF, the effective fission King in Europe can’t get the industry going, we’re in some serious trouble, trouble which a second ‘dash for gas’ won’t be able to meet head on. China has some expertise in nuclear, and has a large and growing fleet of them at home, and seem really quite keen to stride in and prop us up, so why not let them?
This is undoubtedly a flexing of muscles by EDF and the French, but I sincerely hope it doesn’t sour the relationship we should be doing everything to strengthen in the wake of past failures. Sure, we have Hitachi waiting on plans to continue the Horizon project, and with new gen technology to boot, but losing Hinkley and leaving them high and dry would send some inexcusably awkward signals.
Of course, some of you might be wondering about the other issues with nuclear (the horrible stuff!), not simply the political hot air and investment jargon. I want to very briefly highlight three of the biggest and most oft-quoted fears associated with the nuclear industry, and analyse them with some down-to-earth and rational thoughts, in an attempt to assuage concerns.
What about the terrorists!? – I’ve seen this quoted a few times, and at first I couldn’t help but take it as a serious problem; what if someone intentionally crashed a plane or bombed a nuke plant? Now however, after a lecture by nuclear engineer, who has spent his academic career playing with simulations and attempting to blow reactors up himself, I can see this just isn’t a reflection of reality, for one reason, and one alone.
The containment buildings, those big white concrete domes you see at nuclear plants, are so incredibly solid and reinforced, that you could throw anything – a plane, a bomb, an anti-nuke billboard, a 50m tsunami, and you would not crack it. It is the last line of defence against a reactor gone bad, and is precisely the reason Fukushima did not end up being a Chernobyl (which didn’t have a containment building, because you know, that’s lame).
Ewww, all that waste! – This one is slightly trickier to explain. Nuclear waste does contain some high-grade stuff, the real dangerous to humans stuff, but it’s a tiny proportion of the overall waste produced. In real terms, the entire current UK amount of nuclear waste, which is a lot considering we’re the world’s dumping ground, could fit entirely within 10% of the inside space of the Royal Albert Hall (email me if you’d like the slides/data on this). Gather all of it, low/medium/high, and you’ve got maybe 5 Albert Halls, the majority of which is intermediate level in grade (3.6 Albert Halls). Bear in mind this intermediate waste is stored in concrete barrels at Sellafield and nowhere else, and it puts into perspective how little there really is.
Obviously, the recent rejection by Cumbria council to be a nuclear waste storage site is a big spanner in the works, but in all honesty they made the right decision. The whole plan was a terrible idea technically speaking, just read the link above, but it’s not the end of the waste debate as we know it, not at all, it just caused us all to shout loudly about it for a while. This all also misses out the fact that technology to reuse waste for energy exists, and don’t even get me started on the relative radiation and health dangers prevalent in all fossil fuel activities and simple things we never complain about, like hospital scanners or naturally occurring radiation in rocks. If you live in the SW of England, I’d maybe read up on this a bit…
Making nukes out of the stuff – proliferation of waste is a prominent and important issue for the industry, but again, one blown out of proportion by the media and protesters alike. The IAEA, or International Atomic Energy Agency, was setup precisely to police this, and has serious clout in the industry. With the IAEA looming over any nation giving off the slightest whiff of proliferation, I’d be very surprised, as would industry experts we’ve had speak to us, if anybody managed to build a working nuclear bomb out of their fission reactors. Just look at N Korea now, who despite testing their 3rd nuke just yesterday, are under the watchful eyes of every vested interest on the planet; they won’t get far.
Reactors also simply cannot blow up like a bomb. People have tried! You need to actively prime, prepare etc the stuff to even get close to being able to detonate it. This ties in with the terrorist stuff above – even if you crack the containment building with a plane, you won’t set a nuclear bomb off.
I feel these are the main themes running through every story on the woes and dangers of nuclear energy, so Ill stop here. I don’t want to go into the whole disaster/Fukusima debate, as I’ve written posts on this before, and there’s plenty of sane evidence out there doing just that, and also because this post is once again far too long. The effect on human health also comes under this particular topic, so I urge you to research this yourself, as you will be pleasantly surprised at how benign and safe nuclear energy really is. Obviously I’m slightly biased being a ‘pro-nuclear’ person, but I’m also someone who has read both sides of the argument throughout, and been informed by the some of the best minds in the biz, and I for one know the information you seek is just a few Google’s away.
Suffice to say, nuclear energy will play an ever increasingly important role in future mixes of not just the UK, but the wider world. The only worthy argument against the industry as it currently stands, is one of economics. It’s simply hella expensive to finance and build one of these things. But this can be fixed, as the UK is currently attempting, with some success at least, and we must not let other lesser ‘threats’ from splitting the atom cloud our judgement, it would be a disservice to extremely clever science, and future generations.