The estimated cost of building the Hinkley Point C power station has risen more than 4-fold in just over 6 years since the UK Parliament voted in favour of it based on insufficient information and misleading estimates... Prof Peter Saunders
When the UK government announced in a 2008 White Paper that it was planning a new fleet of nuclear reactors, it proclaimed that nuclear was “one of the cheapest low-carbon electricity generation technologies.” It would be a very good deal for the consumer because the price would be low; and a very good deal for the taxpayer because it would not need a subsidy [1].
Now we are told that the new Hinkley Point C plant will cost more than four times the figure in the White Paper. There will most certainly be a subsidy, possibly as much as £16 bn. The government has also agreed to buy the electricity produced at Hinkley Point at a price that will be adjusted to keep up with inflation but starts at £92.50/MWh, which is about twice both the current wholesale price of electricity and the estimate given in 2008 [2].
How could the cost have risen so much in so short a time, and even before construction starts? On the new figures, and with the costs of renewables falling year by year – now equal or below the cost of fossil fuels in many parts of the world [3] - is nuclear a cheap low-carbon energy source even if we think that it really was in the first place? And in the face of this, why is the government so determined to push ahead with the project?
At the end of the Second War, the Atlee government was convinced that UK needed an independent nuclear deterrent if it was to have real influence and prestige in the world. At the same time, it was widely believed that nuclear reactors could provide electricity at a very economical price. The government therefore embarked on two linked programmes, one military and the other civilian. Both continue today, even though the deterrent is no longer independent and no new nuclear power stations have been started since 1988.
In 2003, the government published an energy White Paper [4]. While acknowledging concern about carbon emissions, it still rejected the nuclear option. It did not rule it out altogether but said only that it might be necessary “some time in the future.”
A White paper takes a long time to prepare and is supposed to represent a government’s considered view on a matter of national importance. Yet almost before the ink was dry on the printed copies, the government made a complete U-turn. This may have been a strongly held belief on the part of the then Prime Minister, Tony Blair, (like weapons of mass destruction) or it may have been the result of intense lobbying by the nuclear industry or a pro-nuclear faction in Whitehall, or a combination of the above, but by 2006 there was a new Energy Review [5] which said that nuclear was to go ahead.
The Review was challenged in the courts on the grounds that the consultation, which is a necessary part of the process, had been “seriously flawed” and that the decision to proceed was therefore unlawful. The High Court forced the government to hold a second consultation. Before it began, Blair said explicitly that the outcome of the consultation would not affect the policy at all [6], and indeed it did not.
It is unlikely that many people were surprised that a formal consultation was treated with such contempt by a government. It’s just that they don’t generally boast about it.
In the 2008 White paper [1] the government said the cost of constructing a 1.6 GW plant would be about £2.8 bn, and this would make the levelised cost of the electricity it produced about £38/MWh. These estimates, we were assured, were “prudent and appropriate.” Hinkley Point C will have two reactors, so on this basis the cost would be £5.6 bn, or about £6.8 bn in today’s money.
Electricité de France (EDF) now says that Hinkley Point C will cost £16 bn to build [7]. This is made up of what they describe as a “construction cost” (but see below) of £14 bn, and an additional £2 bn for items such as buying land, obtaining consents, building a spent fuel storage facility and preparing the team who will run the station. These extra costs do not appear to have been mentioned until now, which means that when Parliament voted on our behalf they were not made aware of the total price of what they were agreeing to.
It gets worse. The European Commission (EC) says that the total cost of construction will be not £16 bn but £24.5 bn [8]. And, according to the Financial Times, when this was put to EDF they did not challenge it. Their estimate, they explained, was in 2012 prices and excluded interest payments made during construction and other pre-building costs [9].
The EDF estimate was indeed in 2012 prices, but that only adds about 6%. And surely the “other pre-building costs” are included in the £2 bn they added at the last minute. From what EDF have said, however, it now appears that the two sides have been talking about different things. That seems the only way of accounting for the £8.5 bn gap between the two figures.
There are two quite different estimates that can be given for how much a power plant or other construction project will cost. One is the ‘overnight cost’, what it would cost to build if you could do it literally overnight. The other is the ‘cost of construction’, what you actually will have spent by the time it is completed. The latter includes things like increases in the cost of labour and materials, but the most important difference is that the overnight cost does not include the interest on the capital that has to be invested while the plant is under construction and there is no money coming in.
The overnight cost makes it easier to compare different proposals because it concentrates on the engineering problem of building the plant, separating it from the assumptions that the proposers have made about finance and inflation. On the other hand, it is bound to be less than the cost of construction, and the difference can be surprisingly large. For example, according to the 2008 White Paper, the overnight cost of a 1.6 GW reactor was £2 bn but the construction cost was £2.8 bn, which is 40% more.
If EDF’s estimate did not include the interest payments, what they describe as the “construction costs” must actually be the overnight cost of Hinkley C. And indeed, if we add 40% to their current estimate of £16 bn, we get £22.4 bn, which is close to the EC’s figure for the cost of construction. It’s hard to believe that for the past six or so years the UK government has been doing its sums assuming that the figures being discussed were construction costs whereas EDF were providing overnight costs, but that’s what it looks like.
Successive governments have consistently maintained that nuclear will require no subsidy. That was stated in the both the 2003 and 2008 White Papers, and as recently as 2013, the Secretaries of State for Business, Innovation and Skills (Vince Cable) and for Energy and Climate Change (Edward Davey) wrote [10], “The first new nuclear power station to be built in the UK for decades, having recently secured planning approval, is a clear prospect provided the agreement offers value for money for consumers and is consistent with the government’s policy of no public subsidy for new nuclear.”
We are now told that there most certainly will be a subsidy, and a massive one, at that. Exactly how massive depends on the price of electricity from other sources, but on the basis of the original UK proposal, the EC estimated it could be as much as £17 bn [11]. The EC now claims [8] that it has reduced the subsidy by over £1 bn from the original submission, but that still leaves a lot of money to be found from the consumer and the taxpayer.
Subsidies may appear contrary to EU policy, but in fact they are permitted if they satisfy the four ‘Altmark criteria’ which are meant to prevent distortions of the market. When the UK government submitted its proposals in 2013, the EC found that none of the four was satisfied [12]. The UK then submitted a revised proposal, which was accepted.
The full details have not yet been published, but the changes appear to have been relatively small, and it sounds like there was some horse trading behind the scenes, as is all too common in the EU. The deal was opposed by both the commissioner for climate and the commissioner for the environment [9]. Clearly neither of them sees heavily subsidised nuclear power plants as a good way of reducing greenhouse gas emissions.
The energy commissioner, who is from Germany, is said to have played an important role in pushing the agreement through. On the face of it this might seem odd, given the German government’s opposition to nuclear energy, but Molly Scott Cato, a UK Green MEP, explained it as a quid pro quo for the acceptance of Germany’s renewable energy scheme [9]. Austria has announced its intention to appeal against the decision, but that will have to wait until the full documentation is available.
The UK does not need new nuclear power stations to meet its energy needs and reduce its greenhouse gas emissions. Germany was the first country in Europe to decide phasing out nuclear power after the Fukushima meltdown. The growth in renewable energy between 2010 and 2013 more than made up for the post-Fukushima nuclear closures, adding output exceeding 8 large nuclear reactors in just 3 years, and leading to an overall reduction in power generation from fossil fuels [13]. It has decided it can supply all its energy needs from renewables, and the UK could as well [14] (see Green Energies 100 Percent Renewables by 2050, ISIS special report). Indeed, there are government documents that show how this could be done, though these were not drawn to Parliament’s attention when it was considering the issue in July 2011 ( [15], Nuclear Subsidies Largesse by other Names [16] ) Nuclear brings with it the danger of another disaster on the scale of Chernobyl and Fukushima, and it would be the government, not EDF, that would pick up a bill that could be in the hundreds of billions of pounds (see [17] Fukushima Crisis Goes Global and other articles in the series). The taxpayer is also responsible for most of the cost of disposing of radioactive waste.
It’s now beginning to look like EDF is having second thoughts. There are still serious problems with Olkiluoto and Flamanville, both very late and hugely over budget, and there are signs that EDF are worried that they will not be able to build Hinkley Point C for even the inflated cost of £24.5 bn. In other circumstances they could be confident that the UK government would increase the subsidy to make up any shortfall, but there is now a real danger that the EC would block that. There may be no limit to the amount of money the UK government is prepared to throw away on chasing its nuclear dream, but an unlikely ally, the European Commission, may force it to change its mind.
The decision to commission a new fleet of nuclear reactors was always a mistake. At its present estimated cost – and don’t forget that nuclear power stations generally end up costing more than was anticipated even as construction began – there is no justification whatsoever for going ahead.
Article first published 25/02/15
Got something to say about this page? Comment
There are 2 comments on this article so far. Add your comment above.
Tim K.Blades Comment left 28th February 2015 19:07:59
Thank you for a great write up. I don't think there is anything more I can add.
algimantas k bronisas Comment left 5th March 2015 04:04:03
nuclear power plants are cancerous melanomas on the very delicate lifegiving skin of mother earth,which sustains all life.........the DAMAGE that these nuclear monstrosities have caused through death and disease,from radioactivity and weaponized radioactive products is IMMESURABLE....the results of even a "minor"nuclear war are UNIMANAGINABLE.....the final toll of FUKUSHIMA is UNKNOWN and UNKNOWABLE ...the IAEA....a hypocritical sociopathic entity,whose fictional and irrational role(promoting peaceful use of nuclear energy}as an agency of the military industrial world complex complex..sweeps the radiactive damage under the rug and promotes more production.......only greedy and ignorant sociopaths and psychopaths promote more nuclear anything for the earth....we already have the sun......