Ben Caldecott is Associate Fellow at Bright Blue.
The Government has unexpectedly decided to review the proposed Hinkley Point C nuclear power station, to the consternation of EDF and the nuclear lobby. It is entirely the right decision, and augurs well for the future of rational and evidence-based energy policy in the new Department for Business, Energy and Industrial Strategy.
For the last few years, we seem to have conveniently forgotten or ignored the long delays and cost overruns that continue to plague the construction of new nuclear plants in France and Finland that use the same ‘European Pressurized Reactor’ design as Hinkley. The fundamentals of finance have also been temporarily suspended – apparently there is lots of ‘cheap’ money in China with no strings attached, and there is also a shortage of ultra-cheap capital for long term investment in the UK. The opposite is in fact the case!
Now that we seem to be re-entering reality, there is an opportunity to develop a new ‘Plan A’. At Bright Blue, we think that the Government should substitute Hinkley for a combination of clean energy, electricity storage, and energy efficiency. This would have a beneficial effect on each aspect of the Government’s energy trilemma: security of supply, affordability, and decarbonisation.
A range of technologies can easily fill the envisioned capacity that Hinkley would have provided in the late 2020s had it been successfully delivered on the current (and already significantly delayed) construction schedule. They can also do this much more cheaply.
From 2011 to 2015, the share of renewables in total UK electricity generation leaped from 9 per cent to 25 per cent. The costs of solar photovoltaic (PV) and onshore wind have fallen by 50 per cent and 43 per cent respectively over that same period. The technologies are achieving maturity and cost competitiveness without subsidy, entirely unlike new build nuclear. For example, the price for onshore wind is already much cheaper than nuclear (£85/MWh today and expected to fall to £60/MWh by 2020), with large-scale PV (expected to fall to £80/MWh by 2020) and offshore wind (expected to fall to £80/MWh by 2025) set to do the same – all well before Hinkley would start to receive its staggeringly high guaranteed and index-linked £92.50/MWh. For context, the 2020 cost for UK new-build gas is estimated at 69/MW.
So renewables can plug very large gaps in capacity very quickly, and the ability of these technologies to deliver this capacity will be even more impressive in the mid to late 2020s. Some new gas will be needed too, particularly to manage intermittency from renewables, but it would be cheaper to simply run our existing and currently underutilized gas assets more than we currently do, instead of building lots of new plants unnecessarily.
The key uncertainties are the availability and cost of electricity storage and the deployment of electric vehicles. The former will help manage intermittency from renewables and reduce the need for new gas capacity, while the latter could increase the demand for electricity, it could also provide grid storage capacity. Electric vehicle deployment would also reduce the amount of air pollution from petrol and diesel cars, which is an important link with climate change policy and efforts to reduce urban air pollution. Part of a new Plan A should be encouraging this important alignment between transport policy, health policy, and energy policy – a big push for electric vehicles would deliver significant benefits for all three areas of public policy.
Domestic energy efficiency is another key area, but it is currently in a state of flux, particularly in the able to pay domestic sector due to the failure of the Green Deal. Bright Blue will soon be publishing a new report as part of our Green Conservatism Project, making specific policy recommendations for the Government to turn this around, by creating a new home improvement mechanism. This is the other pillar of a new Plan A – ensuring that energy demand continues its recent downward trend.
We also believe that proposed small modular nuclear reactors are very unlikely to be commercially available at all, let alone before the 2030s in any scalable, cost-competitive or politically acceptable way. They are too uncertain in terms of likelihood and cost for us to place too much faith in them yet, apart from perhaps investing in more R&D. Blind faith in new nuclear and shale gas have yielded precisely zero for UK security of supply, despite constant rhetoric to the contrary, and yet more punts in high risk areas would not be prudent.
Cancelling Hinkley would provide greater certainty for investors in other technologies thereby encouraging investment in new capacity today. Moreover, there are significant benefits for pollution, energy bills, and system security of pursuing a combination of clean energy, electricity storage, and energy efficiency to close any capacity gap left by Hinkley. This is a significant opportunity and we hope that the Government’s review results in the acceptance that there are cheaper and more practicable options to choose from.