Nuclear regeneration hit by red tape, costs and shale

Nuclear power has supplied up to a third of the United Kingdom's electricity since 1956. However, it would require substantial investment in the coming years if it the nuclear industry is to continue to supply power at this level.

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Nuclear power has supplied up to a third of the United Kingdom's electricity since 1956.

However, the industry in the UK is going to require substantial investment in the coming years if it is to continue to supply power at this level. Nine out of 10 nuclear power stations are due to close over the next 15 years, removing about 30 per cent of the country's generating capacity.

In theory, both the Conservative party - which is in Government with coalition partners the Liberal Democrats - and the Labour opposition, are committed to maintaining the UK's nuclear generating capacity, not least because it is a lower-carbon form of generation and therefore helps the UK to cut carbon emissions from power generation.

According to the nuclear industry, 70 per cent of the British public also think nuclear power should form part of a balanced energy mix for the future - a picture that has changed little since the Fukushima nuclear disaster in Japan in 2011.

But, in practice, successive governments have failed to get the nuclear industry to invest in building new power stations and the countdown to closedown is well under way.

There are a number of reasons why it has been difficult to get started on a nuclear renaissance in the UK, despite a long and relatively safe track record for the sector.

First, no one really wants a nuclear power station in their community, especially since a safe, long-term way to dispose of nuclear waste has still not been found.

Second, the British planning system is extremely difficult to navigate for big projects and major infrastructure can frequently be held up for years via public enquiries.

Third, which is related to the second point, until recently there has been no strategic co-ordination of need for major infrastructure. National policy statements and strategies are reasonably new initiatives for the UK, which has been beholden to a strict market ethos since the 1980s to regulate supply in many aspects of daily life, including electricity generation.

Finally, and perhaps most importantly, nuclear has been an expensive power to provide. It could not compete with cheap gas and when the British electricity market was liberalised, the country's nuclear power stations were on the point of going bust 10 years ago because the price per megawatt-hour plunged below what it cost to produce power from nuclear energy.

British Energy, the privatised generating company, was unable to survive the reform and was bailed-out by the government, to the tune of £3 billion (Dh17.03bn), in 2004. The de-facto nationalisation saw shareholders almost wiped out and the government became a major shareholder until 2008, when EDF bought the company for £12.5bn.

It is this recent history that makes energy companies nervous about investing in new nuclear build and they will not proceed without some guarantee of price from the government.

While four energy companies -RWE, EON, Centrica and EDF Energy - were originally committed to creating new nuclear capacity in Britain, only France's EDF has stayed the distance. The German companies RWE and EON, which were working together, pulled out because sentiment in favour of nuclear in their home countries went into dramatic reverse.

Centrica, the owner of British Gas, withdrew from talks this year because the timetable and costs of new projects were escalating.

Some large unknowns are still preventing progress in nuclear new build. Fresh electricity market reforms will come in from next year, but a greater unknown is the sudden emergence of shale gas as a potential new source of fuel in the UK. This is putting the nuclear sums under renewed scrutiny.

The affect significant shale gas recovery could have on nuclear new build was seen last month when EDF said that it was pulling out of nuclear power in the United States because of the revolution in pricing caused by shale gas there.

So the present UK government is negotiating with EDF, the energy giant that is 84 per cent owned by the French state, over a new nuclear power station at Hinkley Point in Somerset, south-west England. This is the first of four new nuclear plants EDF is proposing to build, if it can agree the right investment framework. The four plants could provide enough electricity to power 40 per cent of British homes, as well as creating many thousands of jobs for British workers - with 5,600 people employed at the site in Hinkley alone.

However, talks have dragged on for months over the price EDF would be paid to produce its electricity. The talks are made more difficult by the coalition's manifesto pledge not to subsidise nuclear power.

"We continue to work with the British government and expect to have a decision by the end of the year," says Henry Proglio, the chief executive of EDF.

The government announced recently that it would underwrite £10bn worth of loans towards the £14bn power plant at Hinkley and a further package of community benefits, worth £94 million, has also been proposed.

In reality, it is hard to see how any price guarantee between the government and EDF would not be seen as a subsidy.