Nuclear perspectives: the UK outlook
Plans for UK nuclear power could be in jeopardy as foreign investors begin to abandon their plant proposals. The country was relying on eight new nuclear sites to fill its energy gap as aging facilities close, but with the news of E.ON and RWE pulling out of their proposed projects, combined with concerns over limited spending power in the euro zone, nuclear may not be the best fit for future generation.
Try as is it might, the UK may be powerless to stop its plans for new nuclear from falling apart as politicians in Europe opt out of a nuclear future and foreign investors are forced to follow suit.
A little less than a year ago the island nation appeared unfazed by nuclear, declaring that eight new sites would replace aging capacity by 2025.
Energy minister Charles Hendry was adamant that the UK would fill the widening energy gap with what he described as a secure, low carbon and affordable energy resource, even after Japan's Fukushima disaster in March 2011.
But, with the recent announcement that E.ON and RWE npower have pulled out of their joint venture to build new reactors in Wales and Gloucestershire and rumours that EdF could be influenced by French politics to abandon its construction plans in Somerset, the UK nuclear programme could be in trouble.
Today, Hendry still remains optimistic about nuclear, insisting at the recent Energy and Climate Change Committee that these events "will not derail" the government's plans for nuclear. But, even he appeared to be unable to guarantee that any of the agreed new nuclear power plants would go ahead on time and at a reasonable price.
Nuclear capacity 'could be halved' by 2020
There are eight nuclear plants operating in the UK, which generate about 18% of the country's total power supply. But, if we follow the trajectory of plant closures currently published, then the first AGR plant - Wylfa 1 in North Wales - will be decommissioned in 2016.
Then, by 2020, nuclear capacity could be less than half today's level at around 4.6GW, according to Phil Grant, founding director of consultancy firm Redpoint Energy.
"This means output will fall to approximately 25TWh from around 65TWh today," explains Grant.
By 2022, the remaining plants - providing they are not closed already - will be aged between 25 and 45 years old and considering the newest plant's design life was 25 years, they will be ready for switch off.
The plan was to replace these aging nuclear facilities, but recent events may have thrown this plan off course.
Threats to UK nuclear
The first snag in the UK's nuclear programme came in March 2012 when German energy heavyweights E.ON and RWE npower scrapped their plans to build new reactors at Wylfa in Anglesey and Oldbury in Gloucestershire under a joint venture company named Horizon Nuclear Power.
This decision was influenced by the weakening financial firepower of both companies, their bosses explained at the Energy and Climate Change Committee on 15 May 2012.
RWE npower group CEO Volker Beckers said at the meeting, "The markets have weakened. If we look at the margins of gas plants in particular, they are at all time lows right now."
"The Fukushima disaster led to the closure of eight nuclear reactors [in Germany], and this led to the deterioration of our financial performance," Beckers explained.
Minister Hendry, who also attended the meeting, seemed confident that Horizon would find a new buyer, "We have seen significant interest from new companies to take forward the work of RWE and E.ON and there may be companies that can deliver the projects in the same time scale [by 2023]."
Hendry admitted, however, that the acquisition would need to take place in the next few months.
"It's an urgent situation," Hendry said. "The workforce is being maintained in Gloucester and it would be inevitable that if this was to be dragged on, then some specialist skills will drift away."
Meanwhile, analysts are concerned that France's EdF will pull out of its commitment to build new nuclear plants at Hinkley Point in Somerset and Sizewell in Suffolk.
Stress tests conducted at European nuclear plants have found little wrong, but has enough been done post-Fukushima? Criticised for being unstructured, conducted too quickly and watered down, it is questionable whether regulators, operators and the public can draw an authentic picture of the status of safety at European nuclear power plants from them.
EdF is state-owned and the newly-elected French President Francois Hollande has made his feelings towards nuclear perfectly clear, pledging in his political campaign that he would close 24 of France's 58 reactors.
The question is will EdF be influenced by Hollande's agenda? Dr Simon Harrison of the Institution of Engineering and Technology doesn't think so.
"EdF has committed much to its UK nuclear investment and will not back off lightly, and we would expect a strong focus from both EdF and the UK Government to make this work if possible," says Harrison.
But, Stephen Thomas, professor of energy policy at the Business School University of Greenwich in London believes that the government has made it all too easy for foreign companies to turn their backs on UK nuclear projects.
"The government has put itself in a weak position by putting such strong support behind nuclear. The companies don't spend serious money till they place a firm order. So if they don't like the terms, they can walk away like EON and RWE did, whereas the government loses serious face if it has to abandon a policy that has been pursued for six years," says Thomas.
Grant seconds that argument and adds, "To date there has been much planning and policy development to facilitate the development of nuclear, and whilst Horizon and EdF have incurred significant costs in the development thus far, the commitment of substantial capital, which would indicate a 'no-turning back decision', is yet to be made by either company."
The costs of new nuclear
There is a shared view among the energy industry that nuclear power remains an essential part of the mix if the country wants to meet its decarbonisation targets and keep the lights on.
Grant says, "Without nuclear it is very difficult to both maintain security of supply and meet targets."
The Institution of Civil Engineers director general Nick Baveystock agrees, "The UK faces an energy 'trilemma' of security of supply, decarbonisation and affordability which combined with a short timeframe - we are set to lose a quarter of our generating capacity over the next decade - is putting a lot of pressure on government and industry."
"For these reasons ICE believes development of a fleet of new nuclear power stations, which can meet a large share of the UK's need for reliable, low carbon baseload, is important," Baveystock adds.
But, the future of the new build programme is uncertain, so how else can we fill the energy gap?
Thomas believes there will be no energy gap, "At worst, new gas-fired plants will fill the gap and at best, a mixture of energy efficiency and renewables will compensate for retirements and minimal growth."
Harrison agrees but cautions, "The government now needs to make a priority of ensuring that the market reforms now under way give high levels of confidence to investors in such plant - even without the nuclear uncertainty we need more of it."
Even if the UK's nuclear programme does go ahead as planned, the future cost of new nuclear is unknown and will not be known until reactors are complete and operating, according to Grant.
"Until then, no-one can be certain at what electricity price new nuclear plant in GB would break even. Recently, The Sunday Times carried an article estimating that this would be £110 per MWh, compared to today's electricity price of around £50 per MWh," adds Grant.
Carbon price floor: incentive for nuclear plant construction?
These figures don't bode well for energy consumes, but will the carbon price floor - to be introduced in April 2013, give investors the incentive they need to build nuclear projects?
Harrison believes it will, "The impending carbon price floor is a key part of the UK government's support package to encourage new nuclear. Getting this and the other aspects of the electricity market reform package right will be key to not just new nuclear but other forms of electricity generation being built in Great Britain."
Fairly unscathed by the disaster in Fukushima, China still has the world's most hard-line nuclear programme. Aiming to have more than 100 reactors in operation by 2020, the country is on its way of becoming a self-sufficient and sustainable nuclear player, but challenges such as security and safety issues and a lack of skilled professionals still stand in the way of China's successful nuclear expansion.
Thomas accepts the floor price will help, but doubts it will be sufficient enough to encourage investment in new nuclear, "Financiers don't like risk and while the carbon floor price increases the assured price the companies will receive, it does nothing to reduce the risk of time and cost overruns."
So, the UK's hopes for nuclear are fading, but all is not lost. There are experts who still see a future for this energy resource.
Grant says, "The newest nuclear plant operating today in Great Britain will continue to operate well into the next decade. One option could be to further extend the lifetime of the existing AGR fleet by another five years - i.e. decommissioning starts in 2021. This could potentially be a neat way of bridging the gap between the decommissioning of the existing fleet and the commissioning of new build capacity."
"Whether there is new build depends on a complex political interplay between potential developers and the design of the UK energy market," adds Grant.