24 Sep 2015

The financial cost of Oldbury and Wylfa’s Nuclear Power Stations

In the latest STAND newsletter there was the excellent article below making a compelling and detailed case for why the Advanced Boiling Water (ABW) reactors proposed for Oldbury and Wylfa are completely unaffordable. The article written by Dr David Toke, Reader in Energy Politics in the Department of Politics and International Relations in the University of Aberdeen is reprinted with permission from STAND.

Before the article I just wanted to also publicise their film night on 29th September in Lydney - STAND are fortunate to have secured a visit to the Forest of the award winning documentary film maker Pradeep Indulkar. He will be there in person to show and talk about his two new films.

See more at: http://www.standagainstoldbury.org/

The financial cost of Oldbury and Wylfa’s Nuclear Power Stations by David Toke

"The ABW design has, let us say, a chequered history in terms of reliability. None of the four operational plants can so far, according to the World Nuclear Association (WNA) database, boast a capacity factor of more than 73 per cent, and two of them have capacity factors less than 45 per cent  - some wind power plant have capacity factors around this level, and they are supposed to be that way! A capacity factor is the amount a plant generates compared to the amount that would be generated if it was operating at full power all of the time. Nuclear power plans are costed on the basis that they will achieve capacity factors of 80-90 per cent. With a capacity factor of 45 per cent (plausible outcome based on experience) any nuclear power project comes out needing twice the power price to be an economic proposition!

"These ABWRs do not seem to be very cheap to build either. Currently three are under construction (according to 'wikipedia'); two in Japan, and one in China. The plant being built in China has been under construction since 1997, admittedly delayed by political controversy at times, but still an eye-wateringly long period. The reactor cost seems high even though interest charges will not, I guess, have been factored in, which will be a real killer for any nuclear project that has to be financed through the UK's proposed low carbon mechanism. So far no ABWR projects are being built in the west, with the reactor for one project initially planned in South Texas being cancelled last year. The costs had spiralled to a reported $14 billion for 1358 MW (wikipedia), a cost that compares broadly speaking, MW for MW, with the costs quoted for building Hinkley C.

"It is strange but I have not seen any of this reality about high reported construction costs, experience of delay, and uninspiring capacity factors appear in the press coverage so far. But these facts, as opposed to the press release fantasy, mean that discussions of what 'strike' price the UK Government might offer to achieve standard commercial rates of return seem irrelevant. The figures just go off the chart. Only government underwriting with a very blank cheque seems likely to ensure that these projects go ahead........and somehow getting the project passed EU state-aid rules, which is another perhaps not-so-minor issue.

"Again the question arises, why not instead invest in renewables and energy efficiency which have much more certain outcomes and cheaper costs?

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"Hitachi/GE are busy announcing deals with engineering companies for various things to do with the project and one receives the impression from the press handouts that the potential 6.6 GW worth of developments at Wylfa and Oldbury are almost built subject to a bit of paper chasing about approval of reactor designs.

"But one teensy weensy little detail remains to be settled about the promised nuclear power stations. Who will pay for them? Hitachi? Well, Hitachi are nuclear constructors - they contract to build plant for other people. They did agree to take out a 20 per cent equity investment in a nuclear power plant in Lithuania (which the Lithuanians have just rejected in a referendum), but it seems unlikely they would take on 100 per cent of the equity never mind 100 per cent of the financing in total. Indeed, because the bulk of the Lithuanian proposal was financed by a state-guaranteed loan, Hitachi's contribution to the projected cost in fact comes out as rather less than 10 per cent. And according to the UK Government there will be no underwriting of construction costs, unless you catch energy ministers in a wavering moment. So the banks would not lend any money. Hitachi would have exactly the same problem as is faced by EDF or, for that matter, any other large company. They would have to finance the lot off their balance sheets. Their shareholders would face big risks and expect big returns, which pushes the required price to be paid for the nuclear electricity higher still.

"Hitachi themselves are not in a position to derive income from the electricity generation - they need contracts with big electricity suppliers. This implies investment from electricity suppliers. So who are these other people who will invest in the power plant? - by 'people' I mean electricity companies with a big stake in UK electricity markets. In China and Japan, of course, the power plants are built for electricity utilities who are monopoly retailers. This means that they can pass on any costs to their consumers. This cannot, as explained earlier, be done under the UK's liberalised electricity market arrangements - even if Hitachi did interest electricity majors to invest in their project. And the UK Government are unlikely, short of the blank cheque option, to offer a high enough strike price to make nuclear power stations commercially viable under the 'low carbon mechanism' projected as part of the Government's Electricity Market Reform package.

"One might ask why Hitachi/GE are buying up the option. The Financial Times suggests that the loss of business in Japan is impelling the company to take up 'risky' options.

“It does sound like desperation. The FT quotes an international lawyer specialising in nuclear power as commenting that 'What they're really buying here is an option to build reactors, without all the fundamentals in place'. The fundamentals seem unlikely to be in place to deliver Hitachi or anybody else the sort of returns that can give a commercial justification for nuclear power in the UK. So the project looks unlikely.

“Nevertheless the UK Government and nuclear proponents are keen to collaborate in all of this to keep up the myth that nuclear-is-cheap-reliable-and-coming-soon, so the fantasy continues........"

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