6. Nuclear

Key data

(2017)

Number of reactors: 15 reactors

Installed capacity (2016): 8.9 GW (15 reactors at 8 sites) Electricity generation: 70.3 TWh, +11.6% since 2007

Share of nuclear: 10.4% of TPES, 15.3% of domestic energy production, 21.0% of electricity generation

Overview

As a high-technology, low-carbon option for electricity generation, nuclear energy plays a significant role in both key aspects of the Clean Growth Strategy (UK Government, 2017a) of the government, to reduce greenhouse gas (GHG) emissions and enhance industrial productivity. The United Kingdom’s Nuclear Sector Deal (UK Government, 2018a) states rebuilding a national nuclear supply chain as an explicit objective of the current government. The UK energy sector also operates under a legally binding target to reduce GHG emissions from 1990 levels by at least 80% in 2050. The fifth carbon budget set in 2016 thus requires a reduction of 57% to be reached over the period 202832.

As part of the United Kingdom’s low carbon strategy, the 70 terawatt hours (TWh) of nuclear energy produced in 2017 accounted for 21% of the total electricity generation. This ranks the United Kingdom’s share of nuclear power as the 11th highest among the Organisation for Economic and Co-operative Development (OECD) member countries. The share of nuclear power production increased steadily until the late 1990s. At its peak in 1998, nuclear power production had reached 99 TWh, which represented 27% of the total electricity generation. Subsequently, production declined to a low point of 50 TWh in 2008. Since then the trend reversed somewhat following the takeover of British Energy by the French utility Électricité de France (EDF) that same year. Today, all UK reactors are operated by the latter’s UK subsidiary EDF Energy.

However, the current share of nuclear power in the energy mix is far from being assured. The United Kingdom has 15 nuclear reactors at eight different sites with a total capacity of 8.9 gigawatts (GW). Of these, 14 are advanced gas-cooled reactors (AGRs), of which eight reactors with a combined capacity of 4.2 GW are expected to be shut down in 2023 and 2024. The other six are expected to be shut down by 2030. Only the pressurised water reactor (PWR) at Sizewell B with a capacity of 1.2 GW is expected to run to at least until 2035, when it will have reached a 40-year lifetime. The shutdown of the first

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6. NUCLEAR

To regain some momentum, in June 2018 the government set out its Nuclear Sector Deal (UK Government, 2018) to deliver “affordable, reliable and always available nuclear power”, which focuses on new financing models for the construction of new NPPs expected to deliver up to 30% lower costs by 2030, cost savings of up to 20% in decommissioning, a more competitive supply chain, and the development of a specialised workforce and increased diversity (40% female). The government sees the development of domestic nuclear power both as an opportunity to develop the nuclear technologies and skills to compete globally and as a source of social and economic benefits at the local and regional level. Concerning positive spillovers at the local level, local enterprise partnerships and industry will pursue a strategy to create clusters of nuclear expertise. The Nuclear Sector Deal is part of the UK Industrial Strategy (UK Government, 2017b), which includes substantially increased funding for research and development (R&D and, inter alia, subsidies for electric vehicle development.

In 2016, the government signed a contract for difference (CFD) with EDF Energy that started construction of two new EPRs at HPC. Developers have proposed four further projects at Sizewell (EPR), Bradwell (HPR100), Wylfa (ABWR), and Oldbury (ABWR). However, the projects at Wylfa and Oldbury have been suspended because of a commercial decision by Hitachi following negotiations with the UK government, which saw the government offer a package of support including a strike price of GBP 75 per megawatt hour, a one-third equity stake and all debt financing. A sixth project at Moorside in Cumbria was abandoned in November 2018, as its original sponsor, Toshiba of Japan, was pulling out of nuclear construction altogether due to well-known financial difficulties in its Westinghouse subsidiary and failed to find a buyer for the project. The Moorside project planned to build three AP1000 reactors. Reactors based on this design successfully began commercial operation in China during 2018. It is also one of the few reactor designs that have already undergone a generic design assessment in the United Kingdom, a first important step in the regulatory approval process.

If all four of the remaining nuclear projects are realised, which hinges partly on the forecasts of future electricity demand, this would add a further 12 GW of nuclear capacity. Future electricity demand depends partly on the extent to which a vision of the general electrification of the UK energy sector driven by concerns over air quality and climate change will come to bear. Projections by the National Grid in their most optimistic scenario on the electrification of cars and vans predict that without smart charging there could be up to 18 GW of additional peak demand by 2050.

It is generally recognised that, due to its high fixed capital costs, lengthy lead times during construction, and long lifetimes, NPPs face unique financing challenges in deregulated markets with volatile prices set at marginal costs. For HPC, the government thus concluded a CFD that offers EDF Energy and its Chinese partner China General Nuclear Power Group (CGN) a guaranteed price of British pounds (GBP) 92.50 per megawatt hour (GPB/MWh) in 2012 money for 35 years (reducing to 87.50 GBP/MWh if the construction of a further two EPRs at Sizewell goes ahead). Nuclear as a capitalintensive technology benefits strongly from a CFD that offers a stable price to coffer the cost of capacity as long as output is sufficiently stable. In addition, nuclear plants that receive CFDs are therefore only allowed to participate in the UK capacity remuneration mechanism.

The CFD contract was challenged by Austria and Luxembourg on the basis of the argument that it constitutes illegal state aid. However, the General Court of the European Union first dismissed the challenge in October 2014 and confirmed the dismissal in July

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2018 on the grounds that the distorting impacts on competition of the aid were limited and that overall the positive effects were larger than the negative ones.

Additional nuclear construction projects are currently in the planning stage and accompanied by a lively discussion about future financing models and a number of industrial reconfigurations. Questions have been raised as to whether the strike price of the CFD for HPC was sufficiently competitive and whether CFDs are, indeed, the most appropriate instrument to promote nuclear new build. On the one hand, consumer groups, non-governmental organisations, and the National Audit Office have thus criticised the high level of the strike price of the HPC CFD compared to wholesale market prices. On the other hand, nuclear developers Hitachi at Wylfa and EDF Energy at Sizewell have made it known that they hesitate to take on the totality of the construction risk in future projects based on the conclusion of a CFD alone. Ideas that are being advanced include low interest loans from the government for up to 50% of a project, direct public investment in a nuclear project, or the treatment of NPPs as regulated assets. The practice to include costs for ongoing projects already in construction in the calculation of a regulated tariff would take a regulated asset base (RAB) approach. This financing model has been used for regulated utilities in sectors such as electricity transmission, water, or transport. It could reduce the risks for capital providers and thus reduce the cost of capital. Estimates indicate that cost savings could be as high as 20 GBP/MWh.

Table 6.1 Nuclear new build projects in the United Kingdom

Notes: NEA = Nuclear Energy Agency. NNBG = Nuclear New Build Generation Company. Source: Updated and adapted from National Audit Office (NAO).

The particularity of nuclear energy is that it possesses a number of attributes difficult to price in a market environment. The reliable provision of dispatchable low-carbon power with few system costs, a feature that distinguishes nuclear energy from variable sources, can be made comparable to the megawatt hour costs of other low-carbon sources. The potential contribution of nuclear energy to carbon emission reductions will increase in the future. Until today, 75% of the United Kingdom’s impressive reductions in carbon emissions in the electricity sector have been achieved through a switch from coal-fired to gas-fired generation. With the phase out of coal, the choice will be increasingly between nuclear power and gas as a dispatchable complement to the variability of wind and solar PV output in addition to the flexibility provided by storage and demand response.

Beyond electricity provision, carbon emission reductions, and low system costs, there are also the beneficial contributions of nuclear energy to the provision of physical inertia

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