We all know that the UK is some way down the road of a nuclear power renaissance. Nuclear power generates around 21% of the UK’s electricity across 15 reactors. Almost half of this capacity is to be retired by 2025; ageing coal and nuclear power stations worth nearly 30 GW of capacity will shut as they reach the end of their technical lives (not withstanding some plant life extension).
The Department of Energy & Climate Change (DECCC) maintains the strategic aims of reducing greenhouse gas emissions by 80% from 1990 levels by 2050. Alongside securing the supply of electricity needed in the UK, new sources of electricity should be affordable for bill payers (given that the cost of building new generating capacity is passed onto energy consumers, rather than being funded through general taxation).
Since the UK’s electricity market was privatised in the late 1980s, the private sector has been responsible for financing and building the infrastructure to generate and transport electricity. Nuclear power forms an important part of a “balanced mix” of generating technologies, providing reliable, low-carbon and cost-competitive baseload electricity. DECC estimates that 95 GW of new generating capacity will be constructed by 2035 – equivalent to 90% of the grid’s current capacity. The first of some 19 GW of new-generation nuclear plants is expected to be on line by 2025, with 16 GW of new nuclear capacity operating by 2030.
In October 2010 the British Government gave permission for private suppliers to construct up to eight new nuclear power plants. Its policy approach to nuclear has remained broadly consistent from this time to present day. Back in 2013 the UK Government addressed the World Nuclear Association Symposium, having been working hard to formalise and develop its plans for nuclear new build within £110bn of planned overall investment in the electricity sector required over the next decade. Hitachi had entered the new build market with design assessment having started for Hitachi’s Advanced Boiling Water Reactor (ABWR) design.
The first nuclear site licence in 25 years was granted to EDF Energy for its Hinkley Point C site in Somerset and planning consent was given for its construction. NuGen had started site assessment work at Moorside and NNB GenCo (a subsidiary of EDF Energy) had launched the phase one consultation for their planned new build at Sizewell C in Suffolk.
We’re some way through that period and it’s worth taking stock of what’s happened more recently and where the industry heads next.
Financial barriers to new nuclear
Nuclear power plants are hard to finance – they have high upfront costs and take a long time to build. Given the UK has not built any nuclear plants since the 1990s it is accelerating from a standing start. Nuclear plants also have long payback periods that increase investor exposure to changes in government policy, that may reduce operating revenues. Costs to deal with spent fuel and plant decommissioning present further challenges. Planning guidance, site licensing and a standard regulatory approvals process for new reactor designs has been developed by the UK Government to remove barriers and mitigate such financial risk. This isn’t without its detractors, however, when the contract was bilaterally agreed with EDF to guarantee £92.50 for every megawatt-hour of energy produced (the so-called ‘strike price’). 2017 forecasts have revealed that EDF’s strike price guarantee could cost energy bill payers £50bn over the life of the new build project; well above the £6bn bill estimated in 2013.
The impact of Brexit on UK nuclear
Britain is a leading European nuclear nation, employing an estimated 65,000 people in its industry. From a governance perspective whilst the UK and other countries control many policy decisions at a country level, the UK currently observes the Euratom treaty (establishing the European Atomic Energy Community).
Euratom was initially created to coordinate the Member States' research programmes for the peaceful use of nuclear energy. It now helps to pool knowledge, infrastructure and funding of nuclear energy within the framework of a centralised monitoring system. Like Brexit itself, Euratom is complex – establishing 234 articles (now 177) which are set out under six titles. They span coordinated technical information regarding research and development; uniform nuclear safety standards; facilitated investment in EU nuclear programmes and balance the input resources to the nuclear process (including ores and fuels). Euratom also helps carry out International Atomic Energy Agency (IAEA)-mandated inspections on civil nuclear facilities in Britain ensuring that no material is diverted for weapons.
The challenge is that the UK Government has already announced its intent to leave Euratom. In doing so it will need to agree a new inspection agreement with the IAEA alongside creating a domestic nuclear-safeguard system to replace provisions under Euratom. The UK will also need to establish its own deals (known as Nuclear Cooperation Agreements) with a wide range of non-EU countries in order to allow for cooperation in fields such as nuclear goods trading, materials, services, research, technology and safety standards.
The future for UK nuclear post-Brexit is unclear. It has been reported that more than 100 MPs have called on the Government via a parliamentary amendment, to retain as close a relationship as possible with Euratom after Brexit. Nuclear research is apparently one of four priority areas identified by the Government for discussion in the UK's future partnership with the EU. The Government has also committed to underwrite UK funding of the Joint European Torus (JET) fusion project at Culham, Oxfordshire until the end of 2020. The UK’s Office for Nuclear Regulation is working hard to ensure international obligations are met and has made a commitment to reach Euratom standards. Setup costs of approximately £10 million have also been earmarked to establish an IT platform and recruit the staff required to operate its own system. Whether these issues can be sorted in time or whether an extended transitional period (or the continuation of Euratom support) will be required, this is clearly a big issue to resolve.
Challenges facing Hinkley Point C
In March 2017, six months after contracts were signed for Hinkley Point C (HPC) in Somerset, EDF Energy announced pouring concrete for the power station galleries (one of the first permanent structures on the site). Construction of the building for the first reactor is scheduled to start in 2019.
By July 2017 EDF announced that the total cost of HPC was likely to rise by £1.5bn to £19.6bn and could also be delayed by up to 15 months, resulting in an extra £700m in costs. It claimed that this was due to gaining a better understanding of how the nuclear reactor design will be adapted to the requirements of the British nuclear authorities and how the site work will be carried out.
Given that any increase in cost would be borne by EDF and its investment partners, if the £2.2bn cost increase came to pass, its rate of return on the project would drop from 9% to 8.2%. EDF announced in 2007 that it was hoped the new Hinkley Point reactors would provide electricity for Britons to cook their Christmas turkeys in 2017, but the plant is now expected to start delivering power to the national grid in 2025 and could now be delayed to 2027.
Skills shortages
Ensuring a sufficiently skilled workforce has long been a challenge to the UK nuclear renaissance. Tens of thousands of engineers and construction workers will be needed to complete Hinkley Point C alone with thousands more needed to decommission the existing nuclear fleet around 2030. HPC employs over 1,600 people on site each day and will create an estimated 25,000 jobs over the next decade.
Cogent’s Nuclear Workforce Assessment 2017 suggests the demand for skills across the total nuclear programme for 2017 stands at 87,560. By the anticipated 2021 peak this will rise to a workforce demand of 100,619. In addition, replacement demand (including retirement) averages 1,450 per year over the same period. The nuclear industry renaissance is also taking place against the backdrop of a large decommissioning activity and the skills requirements of a significant UK defence programme. Whilst a UK contractor base is being developed and utilised it will not meet the demand alone. There will also be an expected fall in the number of migrant labourers to contend with after the UK leaves the EU alongside other capital programmes such as HS2 taking place at the same time.
The mini-reactor future?
A number of industry players including Rolls-Royce, NuScale, Hitachi and Westinghouse have been lobbying to develop Britain’s nuclear strategy for so-called Small Modular Reactors (SMRs). Rolls-Royce claims it can generate electricity at a strike price of £60 per megawatt hour as opposed to £92.50 agreed with EDF for HPC.
Funding was announced by the UK Government in 2015 alongside an SMR competition in early 2016. Since then, Rolls-Royce, has led progress in developing the design of the power station and providing the technical, cost and economic analysis to give confidence in the programme’s delivery. It also suggests that a UK SMR programme could create up to 40,000 additional UK nuclear supply chain jobs.
Rolls-Royce’s vision for SMRs is that they could be made in centralised manufacturing facilities and then transported to anywhere in the UK or overseas. Their modular concept would be designed for factory manufacture and commissioning, leading to reduced onsite construction work. It hopes to target a global market size for SMRs of 65-85GW by 2035, valued at £250-£400bn.
The challenge remains that since there is much research and development still to be done to support SMRs, and most SMR developers still need to establish their capability in nuclear, they may never be as cost competitive as renewable energy by the time they come to market.
Where next for UK nuclear?
This is by no means an easy answer! As I’ve highlighted, many political and technical challenges remain notwithstanding the ever increasing threat of a nuclear workforce skills shortage. Brexit adds many complexities and risks delaying the UK’s nuclear revival. What’s clear however, is that these are sizeable and complex issues for the UK nuclear sector and for the UK Government to manage, and they demand action.
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