It is essential to keep nuclear power in the UK's generation mix

It is essential to maintain nuclear generation as part of the UK’s energy mix, but for this to happen the government must play its part to support the technology, says Simon Stuttaford.

It is no secret that the UK is facing an energy capacity crunch, with energy infrastructure in dire need of renewal. In fact, it is estimated that approximately £110 billion of new investment is needed in the next decade, and around 50-65GW of new generating capacity is required by 2025.

The government needs a solution that satisfies the trilemma (the need for new capacity to be low carbon, secure and affordable) as well as having the potential to create jobs via infrastructure projects, a necessity in the post-Brexit world. Nuclear is an obvious choice, and it sits particularly well with the recently launched industrial strategy, which cites the delivery of affordable energy and clean growth as a key pillar.
However, with the UK’s existing nuclear power stations largely set to come offline by about 2023, more needs to be done to address the inevitable mid-2020s capacity gap.

For many, EDF’s Hinkley Point C has been held up as the nuclear solution the energy sector needs, but it is only part of the answer. Equally important are the two other nuclear new-build projects in the pipeline in the UK: NuGen’s at Moorside in Cumbria and Horizon’s two proposed projects at Wylfa and Oldbury. And in the shorter term, focus may well shift to small modular reactors (SMRs) as an interim solution to tide us over until these projects are up and running.

So what hurdles need to be overcome to maintain a healthy energy pipeline?

 

Keeping new nuclear on track

Large infrastructure projects such as these require long-term planning and huge investment. So it is no surprise investors need at least reasonable reassurance their initial investment will be paid back and that some profit will be realised.

This reassurance should come fairly easily. Although large capital investment is required up front, operating costs compared with other energy sources are relatively low. But there needs to be a supportive policy framework to make such projects viable. The Electricity Market Reform package and its supporting mechanisms, including contracts for difference (CfDs), are an extremely important start.

Regulatory and political stability are also crucial to encourage investment. Such investment is likely to involve a combination of different forms, including equity and debt finance, government guarantees, and CfDs. The challenge for any development company here is to formulate the appropriate package that provides value for money for the UK consumer and taxpayer and at the same time provides a meaningful return for investors.

And where is this investment going to come from? Unlike EDF’s Hinkley Point C, projects like NuGen’s or Horizon’s are not state funded – meaning they must look at financing options through a different lens.

The pressure is on both Toshiba and Hitachi – the owners of these projects – to attract investment. And this requirement has become even more acute now that Engie has sold its stake in the Moorside project, leaving Toshiba the sole owner of NuGen. But the private sector cannot fund these enormous projects alone, making some form of government support package inevitable. What form this will take is still unclear; it could include taking a stake in the project or potentially participating in a capital-raising exercise, for example. Either way it is likely to look fairly different to the package enjoyed by EDF.

 

Plugging the gap with SMRs

Both NuGen and Horizon are confident their plants will be delivered by 2025, but even if the timelines do not slip, the UK still faces a couple of years with a potentially depleted energy supply.

With the right support, SMRs are potentially a promising solution to bridge the gap before we get to new nuclear. With a capacity of less than 300MW, these offer a lower initial capital investment, greater scalability, and siting flexibility.

They should, in theory, be easier to roll out as a result. But there are still a number of hurdles that need to be overcome for SMRs to become a reality in the UK – and in the timeframe that is needed.

Currently, the regulatory process for SMRs and all reactor types is lengthy, and any SMR technology needs to achieve regulatory approvals before construction can start. Agreeing a slot for generic design assessment (GDA) approval and acquiring a site is the first critical step. But there is a limited time window for new technologies to gain development funding from the government, achieve GDA approval and construct a demonstration site as a precursor to any commercial development programme.

If the government is able to support the process by assigning a GDA slot, identifying a suitable site and facilitating site acquisition, then it is possible SMRs could reach commercial operation before the end of the 2020s. However, the government tends to move slowly on matters like these, and this risks jeopardising the rollout.

 

Economies of scale

Some SMR technology vendors have suggested that more than 30 plants would need to be developed to achieve full economies of scale. Unfortunately, the relatively small UK market could not support this scale of investment alone. A manufacturing hub combined with export demand is the obvious solution to this.

A move towards standardised international licensing would also increase the likelihood of SMR success. Although this is something the nuclear industry is already considering, these discussions need to be quickly ramped up for SMRs to be a reality by the mid-2020s.

A combination of ingredients will be essential to keeping the lights on in the 2020s and beyond, and the government needs to take these seriously. As well as a stable, supportive environment to encourage ongoing investment in new nuclear projects, we need to address the hurdles SMRs face. Otherwise, developers will invest in other, less risky markets and what once might have appeared to be a solution for the upcoming energy lull will no longer be a viable option. It is time to act now – the UK’s future energy supply is at stake.

Author: Simon Stuttaford, head of nuclear, DWF,
Channel: Policy & Regulation
Tags: Hitachi , EDF Energy , Nuclear , Finance and Investment , Government and NGOs , NuGen

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