UK nuclear may come in between £80 and £100/Mwh
The government has given planning permission to the first new nuclear plant since 1995, but hasn't yet announced how much will be paid for the power that comes from it - what will represent a good deal?
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Ministers have identified two tests that must be met 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 the contract.
Ministers are likely to argue that a deal of around £90 (or less) per mega watt hour would be competitive with other low-carbon technologies for which construction also starts between 2018 and 2020.
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 same sort of reactor in France.
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 put the estimated 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.
