The Scientific Alliance Newsletter - Changing and informed scientific debate

2nd November 2012


Securing future energy supplies
This week, in a move which took most people by surprise, the Japanese company Hitachi agreed to buy the Horizon nuclear power station consortium from its present German owners (Hitachi buys UK nuclear project from E.On and RWE). For a hefty £700 million, the company has simply bought the right to build reactors at two existing nuclear generation sites, on Anglesey (Wylfa) and at Oldbury, near Bristol.

The sale was necessitated by the German government’s sudden decision to phase out its domestic nuclear generating stations, dealing a major blow to the finances of the plants’ owners and making their withdrawal from the UK almost inevitable. The UK government will be very relieved that Horizon now appears to have a future; the only other company still planning nuclear new build in the country (at Hinkley Point in Somerset) is France’s EDF, in partnership with Centrica. Neither company is guaranteed to go ahead until the financial arrangements have been agreed, but at least now the politicians can feel that their plans for nuclear power have a chance of coming to fruition.

For Hitachi, this represents a new business opportunity at a time when its domestic market is in post-Fukushima limbo and, perhaps more importantly, political tensions between Tokyo and Beijing over the Senkaku/Diaoyu islands have shut the company out of the much more promising Chinese market for the time being. This may be why they have been happy to pay more than twice the price for Horizon expected by analysts; it may turn out to be a modest price for access to a potentially lucrative market. But the fact that this price was achieved also suggests strongly that there were other bidders in the frame, perhaps Westinghouse or the China National Nuclear Company.

Hitachi plans to build its Advanced Boiling Water reactor (ABWR), several of which have been installed elsewhere, but none as yet in the UK. This will not happen overnight. To quote the BBC: “There will then be regulatory issues to clear, but once Hitachi's reactor design is approved by the necessary authorities the company intends to build 6 gigawatts of nuclear capacity, with the first plant generating power in the first half of the next decade.”

There seems to have been little comment on the timescale, but we should not forget that the story so far has been that at least one new reactor would be on stream by the end of the decade. This has seemed increasingly unlikely, but to see in black and white the acceptance of a delay of several years should be a wake-up call to anyone concerned about electricity supply security. Over this timescale, a number of ageing coal-fired stations will be taken out of service, and much of the existing nuclear fleet will be decommissioned.

The renewable energy industry would have us believe that the gap can largely be filled by wind energy. According to a Guardian article Renewable energy will overtake nuclear power by 2018, says research, assuming current growth rates continue and taking account of nuclear decommissioning. The report also says that wind will provide enough power for one in ten British homes by 2015. To repeat a well-rehearsed argument, this average figure bears no relationship to the real world situation. At times, wind may well supply enough energy for three or four times this number of homes, depending on the weather conditions and demand, but at others, output will be effectively zero.

As wind generating capacity increases, so must backup capacity which, for practical purposes means gas. One of the arguments made by the renewables lobby is that more wind energy reduces reliance on imported gas but, in practice, the amount saved will be much lower than the capacity figures might suggest. To all intents and purposes, the country will indeed depend on gas imports whether wind farms are built or not, at least until shale gas extraction becomes a commercial reality.

Underlying all these factors is a fundamental uncertainty about the future UK energy market that makes it difficult for investors in any form of generating capacity to make sensible decisions. The recent reduced enthusiasm for wind energy evidenced by the appointment of Owen Paterson (environment) and John Hayes (energy) as ministers is a twist which, although perhaps a welcome hint of a harder-headed approach to policy, has also delayed the publication of the much-needed draft energy bill.

Until there is a degree of certainty over costs and the prices suppliers will receive, investment decisions will be on hold, which only increases the likelihood that the looming energy gap will lead to power cuts. If so, voters will demand answers. But accurately modelling costs is fiendishly difficult. Estimating whole system costs for various combinations of generating technology is the fairest approach, but also most costly and difficult for non-experts to understand. Instead, costs are usually calculated per unit of output of individual generating technologies, making a range of assumptions and discounting any additional costs for backup capacity or to strengthen the grid. On this basis, the cost of wind energy is almost certainly underestimated.

The government has also got itself into something of a pickle by treating nuclear – the most effective way to reduce carbon dioxide emissions other than pure energy saving – as in a different category from renewables. While struggling to force-fit nuclear into the future energy map in a way which does not apparently break the promise of no public subsidy, the approach is now to price nuclear against wind as a benchmark. This carries the very real danger of paying the builders and operators of reactors much more than is necessary, when negotiations are conducted by civil servants without a deep knowledge of the technical issues. Studies show that nuclear remains a more cost-effective option than wind, even without adding the backup and grid strengthening costs necessary for the latter (see, for example, Electricity costs: the folly of wind power by Ruth Lea).

Consumers and industry rely on a secure and affordable electricity supply and expect the government of the day to deliver it. The present government now needs to bite the bullet and make some hard decisions on an energy policy which will deliver this as soon as possible. Currently, they seem to be stumbling in the dark; something which we could all be doing before too long if our elected leaders don’t get things right. 

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