Yahoo Finance Boris Johnson goes for nuclear option in energy drive
Nuclear industry bosses who walked into Downing Street on Monday may have been justifiably sceptical about what lay ahead. Successive governments have long been criticised for dithering over the technology amid concern over costs and waste.
Despite the growing need for low carbon power, no new station has opened since 1995. Fresh urgency over energy security, supply and climate goals, however, is pushing nuclear back up the agenda.
Boris Johnson is reported to be “extremely gung-ho” about the technology, having been through an “evangelical conversion” in recent months.
The Prime Minister is now believed to want about a quarter of the UK’s power to come from nuclear power stations by 2050, compared to currently just under 20pc, and 25pc in the 1990s.
Achieving that target would go well beyond just replacing current stations, as a larger chunk of the UK’s overall energy is set to come from electricity. It could even imply the construction of at least half a dozen big new stations between 2030 and 2050, according to reports.
The question now is whether Johnson’s newfound enthusiasm will turn the long-stalled nuclear revival into reality - and what that means for taxpayers’ pursestrings.
“The strategic case for nuclear remains very strong,” says Guy Newey, at Energy Systems Catapult. “But it needs high-level political attention because of the nature of the technology.”
Executives from EDF, Rolls-Royce, Bechtel, Westinghouse, Urenco and others were not the first energy bosses to meet the PM in recent days.
He also met oil and gas bosses last week and is set to meet renewable energy bosses later this week: all as part of efforts to show the Government is serious about long-term energy security at a time of soaring prices and worries over Europe's dependency on Moscow for supplies.
Russia’s invasion of Ukraine as well as years of under-investment in the global gas industry has led to recent record high prices in the UK and Europe. The energy price cap is set to climb 54pc in April, pushing average British household bills up £693 to £1,971 - with more to follow in October.
Britain’s ageing nuclear fleet has contributed to the problem, with some key plants offline for maintenance, meaning heavier reliance on gas or other expensive back-up capacity.
All but one of the fleet is set to close by 2028, with Hinkley Point C, in Somerset, the only replacement plant currently being built and EDF still in negotiations with the Government about a second plant, Sizewell C in Suffolk.
Efforts in recent years to get others off the ground have failed. Toshiba walked away from a planned development in Moorside in 2018 after its nuclear arm, Westinghouse, went into bankruptcy protection, from which it has since exited.
Hitachi walked away from its planned Horizon project in Wylfa, Anglesey, in 2019 even with Greg Clark, then energy secretary, offering significant Government backing.
At the time, Clark spoke of the “more difficult than ever” challenges of attracting private finance into nuclear projects, arguing that energy investors are “favouring other technologies that are less capital-intensive upfront, quicker to build, and less exposed to cost overruns.”
Whether the Government can now help overcome those barriers remains to be seen. It is bringing in a new financing mechanism for nuclear power plants which will allow developers to recoup costs during the construction of the plant, rather than waiting until it has been built.
The aim is to cut risks and financing costs for developers. Whitehall is also developing new rules on how to define environmentally-friendly investments, which could mean nuclear power projects in the UK are classed as “green” despite controversy around waste, and the Treasury is considering regulations aimed at encouraging insurers to fund new projects.
Industry has been looking for greater clarity and urgency. Meetings with the PM sends a "message Government is serious," says Tom Greatrex, chief executive of the Nuclear Industry Association. "That message then is important to investors.”
Industries and investors need clarity, he notes, adding: "I would argue, 10 years later than it should have been, we are finally getting to that point.”
Yet nuclear’s high upfront costs remain a challenge, for both investors and the Government. Chancellor Rishi Sunak is reportedly less gung-ho than Johnson on those grounds. In 2018, the industry set a goal to cut the costs of new build projects by 30pc by 2030, as part of a "sector deal" with the Government.
The scarcity of new nuclear projects being built makes it hard to tell where costs lie. Estimates for Hinkley Point C were raised by £2.9bn in 2019 on the back of “challenging market conditions” and by another £500m in 2021 due to the Covid pandemic, taking the overall cost to a potential £23bn. EDF reckons Sizewell C will cost several billion less.
Newey says “there's absolutely no reason” why financing and build costs can’t come down, but “you've got to be committed to it; you’ve got to push the industry hard to achieve those.”
Meanwhile, investors are showing an interest in the next generation of nuclear technology, designed to be cheaper. UK aero-engine giant Rolls-Royce has recently secured backing from Qatar, and France’s Perrodo family for the Small Modular Reactors (SMRs) it is developing with others.
At a projected cost of about £1.8bn, they could each deliver about seventh of the power of Hinkley Point C in Somerset for a twelfth of the price, if delivered on budget.
Meanwhile, private company Newcleo, led by Italian physicist Stefano Buono, on Monday launched a new €300m fundraising round, having raised €100m in September.
The money is to help develop lead-cooled fast reactors which it claims can be cheaper and have less environmental impact.
Whatever investors’ enthusiasm, even the closest new nuclear projects are several years away. Several experts are encouraging governments to do more of what it can in the meantime.
“Energy efficiency really needs to be revitalised, particularly in homes,” says Jim Watson, professor of Energy Policy at UCL. “Expanding nuclear will pay off but much more slowly than most other measures.”
