NICK BUTLER: How can we pay for new nuclear power stations? Funding methods that work in the water industry cannot be applied to the sector. Despite a long standing commitment to build 16GW of new nuclear capacity, only one new plant is under construction – Hinkley Point C in Somerset – which will, when eventually brought on stream, impose a long-term burden on UK consumers. The price agreed in 2013 – £92.50 per MW hour – looked extremely expensive then, but the real burden will come from the agreed index-linking of the price for 35 years. That already gives a price of over £100, a number way above those for competing sources of power such as wind, solar and natural gas. The latest attempt to reduce this headline price slipped out in a consultation paper from the department for business, energy and industrial strategy in the dying hours of former UK prime minister Theresa May’s administration. The suggestion is that future nuclear power projects should be funded through the “regulated asset base” system. Put simply, the Rab would fund new projects from the moment construction begins through a levy on consumers. This would reduce the borrowing costs for the companies building the projects and thus in turn bring down the level of future bills. £92.50 might come down to £80. This method of funding is a serious option for long-term projects with high upfront capital costs and has been used effectively in the water industry and elsewhere. As a mechanism for funding new nuclear, however, it is far from convincing. Water projects, such as reservoirs and pipeline systems, require large-scale capital investment. But the technology is proven and the construction risks are low. In new nuclear, however, the construction risks are high and to place them on the shoulders of consumers is unfair. Under the Rab funding system, consumers would have been paying a surcharge on their bills since 2007 (for Flamanville) with nothing to show for it. They would have no leverage over the company building the plant and no scope for compensation. They would also of course have to pay in addition the cost of buying the power they need from someone else. Nuclear’s future in Europe, Japan and the US is limited by these unanswered challenges. Of course there are alternatives. Wind and solar are becoming cheaper, and there is huge scope for energy efficiency. But until large grid-level storage capacity is available, economically viable renewables will always need some back-up – which means gas or, in many countries, coal. If Rab pricing systems are not the answer, is there another way through this dilemma? Next week, I will look at one possible option.
FT 9th Sept 2019 read more »