The political pressures driving new nuclear

This week has seen two significant prices of news relating to the new nuclear reactor being constructed at Hinkley Point in Somerset. Firstly, the French nuclear regulator, the Autorité de Sûreté Nucléaire (“ASN”), has made a preliminary decision relating to the pressure vessel at Flamanville, the proto-type European Pressurised Water Reactor for the HPC build, and secondly, the UK’s National Audit Office has found significant failings in the approvals process for HPC which has locked consumers into an expensive and risky project with uncertain economic benefits.

Flamanville pressure vessel receives partial reprieve

In 2014 the scandal of forging errors that had been subject to an extensive cover-up was first discovered. It was found that some of the nuclear reactor pressure vessels produced at  Areva’s Le Creusot facility in France and by the Japan Casting and Forging Corporation contained excess carbonisation – a matter of concern since high carbon levels can make the steel more brittle and less able to withstand high pressure.

During the winter of 2016, all of EDF’s French nuclear reactors has to be taken out of service for testing on their reactor pressure vessels and although excess carbon levels were found, the reactors were considered to be safe and returned to service.

However, the new reactor at Flamanville was also found to contain excess levels of carbonisation, and given the more stringent safety requirements that have been introduced since the previous French reactors were commissioned, the Flamanville reactor did not meet current safety standards.

This left ASN with a difficult decision. Forcing EDF to replace the pressure vessel would mean the plant could not enter service as planned in 2018, however, issuing a safety certificate would be difficult in the context of EU-wide standards.

Following extensive testing and deliberations, ASN has decided that the bottom section of the pressure vessel is acceptable for use, albeit with additional monitoring, and the containment lid may enter service in 2018 as planned, but must be replaced no later than the end of 2024 (as the manufacturing process for a containment lid is around seven years). This is a preliminary decision, with final confirmation not expected until the autumn.

France’s Liberation newspaper explains that replacement of the vessel lids is not unprecedented, and has been previously done on around fifty of EDFs other French reactors. Such a replacement would take about 5-6 months to complete at a cost of €100 million, although it reports that EDF is hoping to avoid this by implementing new control protocols.

Liberation goes on to provide some analysis of ASN’s decision. It suggests that as full replacement of the pressure vessel would cost over €1 billion (and possibly much more given the need to cut into the concrete containment around the reactor), and would further delay the commissioning of the plant. As EDF is 84% owned by the French state, and the costs of full replacement and the consequent delays in bringing the reactor into service, would increase the financial stress on EDF – described as “quasi-bankruptcy” – ASN may have been influenced by the potential financial implications for the state. The paper also suggests that ASN would have been mindful of the tensions with the UK, Finland and China where other EPRs are under construction were Flamanville to be further delayed.

The decision has been, predictable, criticised by various anti-nuclear NGOs, with Greenpeace France tweeting:

“ASN is unable to fulfill its mission in nuclear safety. To sacrifice safety to save a bankrupt industry is absurd.”

Reuters further reports on the position of Greenpeace which is that the ASN is not in fact independent. The decision on the Flamanville reactor was made following a recommendation by a committee of independent experts, however there are questions over how independent the experts actually are as they are reported to have close links with the nuclear industry. Reuters says it has seen a spreadsheet detailing the professional backgrounds of the 31 committee members, showing that eight of them work or have worked with the ASN or IRSN, the technical arm of the regulator, and another eight have worked for ADF or Areva, with only three being independent of the nuclear industry.

“The ASN is using an expert committee that is at its feet, with a text it has drafted itself, to legitimise a highly controversial decision on the safety of a device whose failure could have implications for millions of people,”
– Mycle Schneider, author of the annual World Nuclear Industry Status Report.

Meanwhile bad news on the progress of Hinkley Point C

The British press has reported on an article in Le Monde that an internal review of the HPC led by EDF’s group audit director, Jean-Michel Quilichini due to be published in the summer has shown that the project is likely to be delivered two years late and at an additional cost of between €1 and 3 billion.

This comes hot on the heels of a report by the National Audit Office which had the following findings (emphasis my own):

1. The government wants nuclear power to form part of a low-carbon generating mix, despite the economics of nuclear power deteriorating in recent years.
2. The Department aligned its approach to the HPC deal with its support for other low-carbon technologies.
3. The Department did not assess the potential value-for-money implications for bill-payers of using alternative financing models.
4. The government opted to negotiate bilaterally with EDF, rather than wait for competition between nuclear developers.
5. The Department put in place mechanisms to mitigate the risk that negotiating a deal bilaterally would not minimise the cost to consumers.
6. When the Department finalised the deal in 2016, its value-for-money tests showed the economic case for HPC was marginal and subject to significant uncertainty.
7. The Department has not sufficiently considered the costs and risks of its deal for consumers.
8. The Department’s overall case for HPC has weakened since it agreed key commercial terms on the deal in 2013.
9. The Department’s capacity to take alternative approaches to the deal was limited after it agreed terms with EDF in 2013.
10. Other parts of government reviewed the deal but did not sufficiently consider its costs and risks for consumers.
11. The government has increasingly emphasised HPC’s unquantified strategic benefits, but it has little control over these and no plan yet in place to realise them.
12. The reactor design for HPC is unproven and other projects that incorporate it are experiencing difficulties.
13. EDF’s financial position has weakened since 2013.
14. These factors mean there is a risk that NNBG will seek further financial support from the government, notwithstanding the contractual terms of the deal.
15. The Department plans to develop and maintain alternative ways of ensuring energy security to mitigate the risk of needing to provide additional support for HPC.
16. The government’s oversight arrangements of HPC’s construction will also be vital.
17. The Department will only maximise consumers’ value if it maintains effective oversight of the contractual arrangements over several decades.
18. The Department has aimed to protect taxpayers from exposure to the waste and decommissioning liabilities of HPC, but it is impossible to protect them entirely.

“It is a widely shared view that the UK needs some new nuclear power to ensure the lowest-cost route to de-carbonisation. But the Department’s deal for HPC has locked consumers into a risky and expensive project with uncertain strategic and economic benefits. While committing the developer to bearing the construction risks means taxpayers and consumers are protected from costs overrunning, consumers could end up paying more for HPC’s electricity than if the government had shared these risks. Past experience shows that ultimately these risks could shift back to taxpayers or consumers. If the project runs into trouble, the government may need to fund alternatives to ensure secure supply, or come under pressure to renegotiate its deal. The Department did not sufficiently appraise alternative ways to structure the deal.

It will not be known for decades whether HPC will be value for money. This will depend on whether the current contractual arrangements endure, along with external factors including fossil-fuel prices, the costs of alternative low-carbon generation, and developments in energy technology and the wider electricity system. However, over the time the Department negotiated the deal, the case for HPC weakened. The Department and other parts of government were concerned primarily with the strategic ramifications of not proceeding and the benefits of keeping the project off the government’s balance sheet. They did not consider sufficiently the costs and risks of the deal for consumers. The Department has, however, negotiated a deal that means some terms can be adjusted in consumers’ favour in the future. It must now ensure it has the right oversight arrangements in place to manage the contract in a way that maximises HPC’s value for consumers and taxpayers.”

According to the NAO, the government’s decisions were driven by a desire to create a backstop in case renewable energy projects were not sufficient to meet decarbonisation targets. BEIS analysis shows that deferring construction of new nuclear power stations would increase the total costs of the electricity system in scenarios where renewables fill the gap, but not in scenarios where gas generation fills the gap….a three-year delay in HPC where it is replaced by low-carbon alternatives could increase overall costs by 2.9% (£19.4 billion) whereas filling the gap with gas-fired power would result in a 0.1% (£0.8 billion) saving overall. A 10-year delay to new nuclear, with the resulting generating gap filled by a combination of offshore wind and CCS, would increase cumulative power system costs by 7.9%, (£52.3 billion).

BEIS/DECC has modelled these scenarios on three occasions since it agreed key commercial terms for HPC, with some results showing lower societal costs if nuclear deployment is delayed, however some of these options required levels of new onshore wind that would be politically unacceptable. The September 2016 analysis, which takes fuller account of the wider system impacts of renewables, showed that the onshore wind and solar PV scenario would be more expensive than proceeding with HPC and follow-on new nuclear.

However, a scenario with gas power stations filling the power gap created by a three-year delay to HPC and follow-on new nuclear would be lowest cost but this option was discounted on the grounds that gas generation would compromise the achievement of the 2050 de-carbonisation target.

The NAO also considers that as the assessment of the impact on bills does not extend beyond 2030, consumers are locked in to paying a fixed price for power from HPC even if other technologies subsequently become better value – for example, offshore wind costs are projected to be lower than the HPC CfD strike price less than halfway through its 35-year term.

Changes in market prices since 2013 mean that the expected value of top-up payments to EDF under the CfD has ballooned from £6 billion to £30 billion. In its December 2016 forecasts, the expected price of electricity was 32% lower than the price used in its 2012 projections, primarily due to falling gas prices. The CfD top-up payments will be recovered from consumers through their electricity bills.

De-carbonisation targets have been prioritised at the expense of consumers

The NAO’s report is clear that the HPC deal is not a good one for consumers, and that it has been driven by a desire to secure progress against the government’s de-carbonisation targets. Given that there are still no EPRs operational anywhere in the world, and even at the time the HPC decisions were made, other EPR projects were suffering from major delays and cost over-runs, the entire project can be seen as a gamble at the consumer’s expense.

Nuclear power is a sensible technology to deploy in a low-carbon energy system, but the choice of EPR over alternative approaches is baffling. Since 2011, two years before the initial HPC approvals were granted, Advanced Boiling Water Reactors were operating successfully in Japan. The NAO report suggests that HPC was pursued as it was further developed than other proposed nuclear projects for the UK, but as we can see from the difficulties faced by EPR projects, that situation can be reversed.

The NAO’s report suggests that the decisions to approve HPC and the basis of its subsidy were taken without adequate, or in some areas any, analysis of the alternatives, and were strongly driven by political considerations. That such a large, expensive and risky project was approved when the benefits were considered to be marginal at best, is extra-ordinary. An editorial in the Guardian newspaper describes HPC as a political vanity project and concludes:

“The document tells a depressing tale of inadequate scrutiny and successive governments ignoring the energy revolution taking place beyond their spreadsheets.”

The reality is probably worse. Successive governments have been intimidated by the green lobby to the extent that rather than promoting incrementally cleaner generation through coal to gas switching which would have immediate social benefits though improved air quality, they have pursued extremely expensive “zero-carbon” solutions which not only have high capital costs in themselves, but also in the case of renewables, have high system costs in terms of network reinforcement and managing intermittency.

The tragedy is that despite these high costs, and the risks to system reliability resulting from the de-carbonisation agenda, this “zero-carbon” generation is far from being genuinely carbon free…the vast quantities of concrete and steel in their construction being a major cause of pollution, as well as emissions from back-up generation where needed. Add to this the shakiness of the science which underpins the hypothesis that CO₂ emissions from human activity are causing harmful climate change, and the picture becomes even less attractive.

The UK needs a new energy policy with new objectives. Security of supply should be the most important consideration, followed closely by affordability. De-carbonisation should be replaced with a broader definition of environmental responsibility, which takes account of the whole value chain involved in any technology, and energy efficiency should be given greater priority as removing waste and inefficient use of resources is generally speaking a lower cost approach than the delivery of new capacity.

There is a clear role for nuclear power in the future energy mix, but there is no need for the kinds of risks being taken with the Hinkley Point C project. By all means, subsidise new nuclear power, but let’s choose proven technologies with a lower risk profile and a more predictable path to delivery.