The Hinkley B reactor
1)
What’s happened
The Secretary of State, Ed Davey, has granted planning permission for a new nuclear plant at Hinkley in Somerset.
If built Hinkley Point C would have two reactors, potentially powering up to 5 million homes. It would be built by French state backed engineering firm Areva and run by EDF.
It would be the first new reactor to be built in the UK since Sizewell in 1988 and is reported to cost £14bn.
2)
Will it be built?
EDF need to make a Final Investment Decision (FID) on Hinkley before the project can go-ahead .
To do that EDF will need to resolve its tortured negotiations with the government over the guaranteed price for the power the new plant will produce and – potentially – find a new investor to replace British Gas owner Centrica who have pulled out of the scheme.
Finally the deal has to surmount possible legal hurdles – including a possible challenge at an EU level on competition grounds.
3) Do we know how much it costs?
No.
The government’s energy bill currently going through parliament gives the power to offer a Contract for Difference (CfD) to low carbon technologies – including nuclear.
In addition it allows the government to sign an investment contract with EDF before the bill has cleared parliament.
This contract will specify the guaranteed price that will be paid for power from the plant along with supplementary details, such as review clauses or capital guarantees which will – in turn – influence how much EDF needs to be paid. The cost would be passed on to consumers through bills.
The bill gives the Secretary of State the right to keep elements of this contract secret for commercial confidentiality reasons though he has promised full transparency.
The Treasury is reportedly demanding a price of around £80/Mwh with EDF holding out for between £90-£100/Mwh.
The current cost of wholesale power in the UK is around £45-50/Mwh.
4) Does it represent value?
Ministers have identified two tests to meet before making a deal.
It can't be state aid. Not only has the government repeatedly promised to avoid public subsidy for Nuclear, it is also illegal under EU competition law which bans public support for established technologies such as nuclear power. Any deal will be subject to a preliminary EU inquiry.
The second is that any deal should represent good value for the bill-payer relative to other sources of low carbon generation.
Whether the deal meets these tests depends on the level of the strike price, what other support is in place, whether it can be changed (for example if costs over-run) and crucially the duration.
Ministers are likely to argue that a deal of around £90 (or less) would be competitive with other low-carbon technologies also starting construction between 2018 and 2020 based on their currently published forecasts.
That is also the view of the government's climate advisors, The Committee on Climate Change.
However these costs are 25% higher than DECC’s original projections, and also significantly higher than the agreed price for power from the French reactor of the same design.
The costs of renewables technologies are also projected to fall.
Analysis by the Crown Estate and Dong suggests the cost of the largest scale renewable alternative, offshore wind, may be below £90/Mwh by 2020. Solar power costs are also falling and may well be below the cost of Nuclear by the time the first plant comes online.
The key issue, therefore, is the length of the contract. Whilst renewable contracts typically last 20-25 years the contract for nuclear power is likely to be twice that long. That risks locking consumers in to high costs for nuclear power even as the costs for other technologies fall.
A final hurdle is the cost of waste.
The National Audit Office has estimated the cost of reprocessing the UK’s existing nuclear waste at Sellafield at around £37bn and the cost of a new permanent geological storage facility could be around £12bn.
5) What about jobs?
EDF has claimed that the construction of the power plant will involve 25,000 jobs and that it will then directly employ around 800 people.
But the money for HInkley will come out of the same pot as investment in other forms of clean energy.
Research by Innovas for the REA suggested hitting the UK’s renewables target by 2020 could create 400,000 jobs.
An analysis by Cambridge Econometrics for Greenpeace found that offshore wind alone will create 100,000 jobs by 2025 – if rolled out to a far greater degree than the government currently plans and partially replacing nuclear build.
In short, advocates of clean energy argue their projects will create jobs – the question is which clean energy solutions and which jobs.
6) And the waste?
The withdrawal of the Cumbrian councils from the government’s voluntary process to find a waste disposal site leaves the government without any plan for long-term storage of waste.
The Prime Minister had previously indicated it would be hard to go forward without a waste plan and Greenpeace has raised legal questions about a planning decision taken without resolving the waste issue.
However Secretary of State Ed Davey told the commons on Tuesday that he was confident the issue could be resolved through the government’s existing strategy.
Should a solution not be found waste would be kept on site at Hinkley in temporary storage.
7) Are there other risks?
Delays to nuclear power - or any low-carbon technology - could undermine the UK's ability to hit its climate targets.
There are two reactors being built in Europe that are similar to Hinkley,both are over-due and over-cost though EDF says this is because they are 'first of a kind' technology.
In Flamanville France, Italian utility, Enel recently pulled out after repeated delays and cost over-runs. In Finland the Olkiluoto 3 project (already four years overdue)recently announced it will fail to meet its latest deadline of 2014 and a new deadline has not been set. The delays led Finland to rule out further reactors to the same design.
It's unknown who will burden the cost of any delays and depends on the nature of the contract with EDF.
