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Two of the UK’s main public bodies overseeing public spending have now criticised the government’s deal with EDF to support a new nuclear power plant, showing how Britain (and the United States today?) failed to heed the falling cost of renewables, in a warning for other countries planning to build new nuclear power plants, and raising the question why the UK government has failed to heed similar advice over the past several years.
The UK Parliament’s Public Accounts Committee (PAC) on Wednesday said that “the economic (case) of nuclear power in the UK have deteriorated” since the decision in 2008 to embark on a new fleet of nuclear power plants, and the decision to proceed with the first new plant, Hinkley Point C (HPC), in 2012.
The HPC project was finally given the green light by the present Prime Minister Teresa May just last year.
“Estimated construction costs have increased while alternative low-carbon technologies have become cheaper,” the PAC panel said on Wednesday, of the HPC project, which is being built by a consortium where the French state-owned utility, EDF, has a majority stake. “Over the life of the contract, consumers are left footing the bill and the poorest consumers will be hit hardest.”
The PAC report follows a finding by the UK’s National Audit Office (NAO) in June, that HPC was “a risky and expensive project with uncertain strategic and economic benefits”. Both the NAO and PAC have called on the UK government to prepare a Plan B against the risk that EDF ultimately abandons HPC, or demands more cash, given the track record of delays and cost-overruns at similar projects.
New nuclear power is at odds with some of the main global trends in power generation today: cheaper renewables (wind and solar), digitalisation (solar, smart grids and demand-side response, not spinning turbines), decentralisation (distributed generation, rather than huge, centralised power plants) and flexibility (where nuclear performs worst, even behind coal).
The Institute for Energy Economics and Financial Analysis (IEEFA) published a report last month arguing that the main lesson from HPC is that a major UK new-build nuclear programme now looks untenable, unless developers halve their return expectations. Instead, the government should re-double its efforts to drive alternatives, as outlined in its recently published “Clean Growth Strategy”, including investment in renewables, interconnection, demand response, storage, electric vehicles and energy efficiency.
We also warned that the government should avoid extending a loan guarantee to EDF, as allowed under the HPC deal. If EDF exercised such an option, and then walked away, the government would be boxed into a corner, and potentially an expensive bailout.
In this respect, the PAC report was at odds with our IEEFA briefing, by suggesting that the UK government should consider taking equity stakes in future new-build nuclear projects, to cut the cost of capital. In such an event, if the project failed, the government would then be forced to choose between the lesser of two losses: either to write off its investment, or throw more money to keep it afloat.
Delay and/ or cost overruns are real risks at any massive infrastructure project. In the case of HPC, they are entirely certain, given the track record of EDF projects for similar power plants in China, Finland and France. EDF has already hiked its estimated HPC build cost, by £1.5 billion, to £19.6 billion, this July, less than a year after the final go-ahead.
There are further lessons from very recent failures in the United States, which the PAC didn’t observe on Wednesday, which give cause for further misgivings.
IEEFA’s briefing last month showed multiple parallels between HPC and the recently failed U.S. nuclear power project at SCANA Corporation’s VC Summer (now shelved), and the last-remaining, struggling, new-build U.S. nuclear power project, at Southern Company’s Vogtle.
Those parallels between U.S. and European new-build nuclear projects included: they all use untested technologies; they have all seen construction delays (of five to nine years so far); they have all seen cost-overruns (of 79% to 250% to date); these delays have caused huge financial distress to the technology vendors Westinghouse-Toshiba and Areva; and internal doubts were voiced by those closest to the projects (including the resignation of EDF Finance Director Thomas Piquemal).