Cost of nuclear power

[Dave2002]

The proposed construction of a new power station at Hinckley Point is probably a good thing, but the reporting of guaranteed payments of £95 per Mwatt-hour is surely of some concern. What is not clear from what is being reported is whether that is at current rates, or if there is some allowance for inflation. Current generating costs from other power plants are considerably lower. It's easy to put that in context - £95/Mwatt-hour is 9.5p/kilowatt-hour - so it's lower than current retail prices.

The construction costs are expected to be £16bn. If inflation factors are estimated at 5%, then if the guaranteed payments are inflation linked (which is not at all clear) then in 10 years time the cost per Mwatt-hour will be about £155 - or 1kW-hour will be 15.5p.

The proposed capacity of the new plant is 3200 Mwatts by means of 2 x 1600 Mwatt reactors.

The costs don't seem totally unreasonable, but there is a lack of clarity about the guaranteed payments per Mwatt-hour. Are they going to be index linked?

[An_Inspector_Calls]

My first reaction was amazement at the agreed production contract (£92.50/MWh), and questions about the method of inflation. I still don't know what the indexation agreement is. I hear rumours that it's cpi, not rpi, but whether it starts now, or when the plant comes on the bars, I don't know. If it starts now, it reduces the incentive to minimise the construction time. If it starts at the end of construction, if that lasted 10 years and cpi was 3 % in the meantime, then our current production price of £50/MWh would have reached £67/MWh, which makes the pill sweeter.

Merz and McClennan (in 2010) argued that for a first time (well, for nearly 25 years, that is) build of nuclear a level of £99.00/MWh might be expected. And also, by any reckoning, the UK at this time should be considered to be a 'distressed' buyer in the market! You can thank Hewitt and Haine for that.

Several things are welcome though: at long last we have a new, non renewable power plant being built (first time in ten years?) and it's nuclear which means it can spew out energy year on year free of any fuel constraints for 60 years or so. We're free of most (but not all) of the construction risk. The construction will create a huge number of jobs, albeit the UK workforce will be mainly involved in the grunt work, rather than the high tech. stuff. And: we might get more of the same.

[aeolium]

Here is an article critical of the arrangement by someone who is in principle supportive of nuclear energy. I don't really know enough to be able to assess the merits of these arguments. Why was the GE Hitachi plan dropped?

[An_Inspector_Calls]

Monbiot gets off to a bad start because his price references are so old (about a decade). He conveniently forgets that in the meantime the UK electricity market has been beset by subsidy levels as high as £90/MWh (offshore wind) for renewable energy - which he has persistently advocated. If another carbon-free technology wants to build, why shouldn't they hold out for a similar level of recompense?

Western investors now regard nuclear (and offshore wind) construction as very high risk so this has had a huge impact on project finance. Meanwhile, the Chinese are building AP1000s for $1m/MW installed capacity.

As I said, the UK energy generation system is a 'distressed' buyer for any new plant at the moment.

Monbiot is wrong if he thinks Hinckley C will be out-dated. It will be a type III+ reactor. His vision of a thorium plant just-round-the-corner is ridiculously far-fetched, and fission is even further off. And anyway, what does it matter if it does go out of date in 60 years time as long as it delivers? I've seen hydro plants 110 years old, so what! Perhaps he's been watching too many silly day-time property-improvement programmes on TV?

[aeolium]

What about the GE Hitachi project?

[An_Inspector_Calls]

What about the GE Hitachi project?

Wylfa, you mean? That's still progressing.

[amateur51]

An expert from OU comments:

http://theconversation.com/hinkley-c-goes-ahead-but-future-nuclear-costs-must-fall-19407?utm_medium=email&utm_campaign=Latest+from+The+Conversation+for+22+October+2013&utm_content=Latest+from+The+Conversation+for+22+October+2013+CID_fadb8b9e61ccc2405ce04d8091897e2e&utm_source=campaign_monitor_uk&utm_term=Hinkley%20C%20goes%20ahead%20but%20future%20nuclear%20costs%20must%20fall

[Dave2002]

Western investors now regard nuclear (and offshore wind) construction as very high risk so this has had a huge impact on project finance. Meanwhile, the Chinese are building AP1000s for $1m/MW installed capacity.

So at 3200 MW the construction costs should be around $3.2 bn = around £2bn today. We are perhaps providing a further £14bn because of our risk factors, or maybe other factors I don't know about, both political, and relative labour costs.

What is really not clear is how the financing is going to be done, and what the guarantees for when it starts to generate are. Are the guarantees an underwriting of charges which "they" will be allowed to charge to consumers, or will the mythical "taxpayer" have to fund it?

£95 per MW-hour = £2280 per MW day = approx £840,000 per MW year.

At max capacity of 3200 MW, that would equate to approx £2.7bn per year, thus giving a break even period of around 6 years at an estimated cost of £16bn **
.
Real world economics doesn't quite work like that, as there'd be ongoing running and maintenance costs, so the real costs could be even higher.

£3bn per year is about £43 for every UK citizen - including children (70 million people). That's assuming I've got the decimal points in the right place.

If every power plant were costed similarly, given that the estimated output is to be 7% of total demand, then the per capita cost for the whole country would be over £600.

It can work, but it's unclear how the finances are actually going to be worked out, and who is actually going to pay.

Regarding employment, I think it's highly likely that there'll be a lot of employment for Chinese people, and perhaps not so much for European workers - though I may be wrong. In other countries China has been criticised for bringing its own labour force in (e.g Kenya) for large scale projects, even though the local work force should have had the knowledge and appropriate skill level to participate.

**Crude approximation, based on no interest on capital outlay.

Apologies for my perhaps not quite so "accurate" data - which I believe I got from the BBC and/or newspapers re the charges, and from Wikipedia regarding the output of the proposed generating station. According to the OU expert (msg 7), the guaranteed charges are to be £92.5/Mwatt, and he rates the output of the generating plant very slightly higher - though broadly I think my analysis and data are correct, and our views similar.

[Dave2002]

Wylfa, you mean? That's still progressing.

One old Magnox reactor has been shut down, while one remaining one will be decommissioned in a few years, it seems.

Wylfa B is planned - see http://www.bbc.co.uk/news/uk-wales-n...wales-22104340

[An_Inspector_Calls]

The Wylfa A reactor still running is burning the last of its nuclear fuel and is supposed to shut down in 2014. Whether they can squeeze this out to 2015 I don't know.

But Wylfa B, yes Hitachi are still in there, making all the right noises., people are still working on the site. They have site approval, but not reactor approval.

[teamsaint]

doesn't look like a good deal according to the revolutionary nutjobs at the FT.

http://www.ft.com/cms/s/0/96e9c976-3a43-11e3-b234-00144feab7de.html#axzz2iQgvXUpX

[Dave2002]

doesn't look like a good deal according to the revolutionary nutjobs at the FT.

http://www.ft.com/cms/s/0/96e9c976-3...#axzz2iQgvXUpX

Difficult to say really.I do hae ma douts about anyone in the British government being able to cope with sensible planning, and getting a good/reasonable deal on almost anything. There is still a lack of clarity about what has been proposed. My understanding is that the deal hasn't been completely finalised, though it is very close to being done. Also, there is mention of "underwriting", so does that mean that if the scheme runs well that the government won't actually have to pay out, or is that merely an incentive for EDF and others to run over budget?

Underwriting can in some circumstances mean that an event or project is put on, but there is only a payout if there is an eventual loss. OTOH there may not be any element of profit sharing. If UK plc has signed up to a project which could make a loss, but would not necessarily profit if there is no loss, then that does not seem to be a deal which should be allowed to proceed without considerable scrutiny. There would need to be considerable benefits of a non-financial nature.

Building the new generating station seems a good idea, but the financial details need further scrutiny, and the agreement seems so long term as to be difficult to manage sensibly IMO.

Nick Butler's article suggests that consumption has been managed better in Japan, and that would definitely be something that the UK should investigate further. I am surprised that he claims a 20% improvement compared with the UK in terms of energy consumption for similar usage. If so, it would clearly have more impact than adding in a unit which will give about a 7% increase in total capacity to the UK. What is happening in Japan (apart from nuclear meltdown) which is not happening in the UK?

[An_Inspector_Calls]

£95 per MW-hour = £2280 per MW day = approx £840,000 per MW year.

At max capacity of 3200 MW, that would equate to approx £2.7bn per year, thus giving a break even period of around 6 years at an estimated cost of £16bn **
.
Real world economics doesn't quite work like that, as there'd be ongoing running and maintenance costs, so the real costs could be even higher.

£3bn per year is about £43 for every UK citizen - including children (70 million people). That's assuming I've got the decimal points in the right place.

If every power plant were costed similarly, given that the estimated output is to be 7% of total demand, then the per capita cost for the whole country would be over £600.

There’s nothing wrong with any of these calculations (apart from the piffling £92.50, not £95 – Hinton territory), but there is another perspective.

The extra, over-the-top, amount we’re paying for Hinckley’s energy is £42.50/MWh. The typical load factor over the first 35 years of operation is likely 80 %, and roughly half of all electricity is used domestically. The extra payment per person for this plant is then £7.94 per annum, a figure, rounded to £8, which I’ve seen elsewhere. (Equivalent to £20/a/household).

That ‘subsidy’ can reasonably be compared with the £36/p/pa we’re paying towards renewable FITs and ROCs schemes.

http://www.scottishpower.co.uk/support-centre/billing/billbreakdown

Hinckley C will have the advantage that it’s sat right next to an existing, soon to be surplus, power-station grid-connection. So National Grid will only be required to provide some reinforcement of that connection, not a new connection like the 100 km Beauly – Denny extension, passing through one of our national parks. Better still, Hinckley won’t suffer any of wind’s intermittency problems. So your £8/p/a figure buys you reliable, easy-to-connect energy. No hidden extra payments are required.

Hinckley’s annual production should be 22,400 GWh. We don’t have DUKES for 2013 yet, but the 2012 report shows wind energy production for 2011 to be 12,700 GWh. So at one swoop, Hinckley C will double all the windmill output we had at the beginning of 2012. And it’ll be there for 60 years, not 20.

On that basis, can we have another ten please?

[Dave2002]

There’s nothing wrong with any of these calculations (apart from the piffling £92.50, not £95 – Hinton territory), but there is another perspective.

Thanks for the response. I did add a rider/update that the £95 was too high - maybe I made a mistake, or maybe some early newspaper/news reports had a higher figure.

You seem slightly ambivalent. Like you I welcome the development, and given the alternatives, and other factors such as it fitting into existing infrastructure it seems sensible. However, you still seem to agree that it is a bit overpriced.

You have pulled an extra figure out of the hat, but I think you have more information than I have. You mention an extra £8 per person per annum - is that compared with the FiT subsidy?

On that basis, can we have another ten please?

Indeed, why not and then maybe negotiate better pricing for quantity. Has anyone in government thought of that? The HS2 budget if abandoned would perhaps allow 3 such stations to be built. Of course that's slightly unfair, as HS2 or similar high speed trains might start to make sense if there's enough capacity in the generating system to allow them to run, which is where the French seem to have had an advantage.

Re your point about the Hinkley connection reinforcement - will that be relatively easy, or is it more like a complete new link?

Do you have any information re the Japanese energy saving measures mentioned in the FT article?

[An_Inspector_Calls]

Well, the deal price is too high (the £92.50/MWh deal - not bothered about the stray £95/MWh figure). But we're caught over a barrel here, so I'm beginning to think we haven't done too badly. If EdF build another, the agreement already says they'll get less (£87/MWh I seem to recall). My understanding of the construction price of £14b is that it includes a cost for de-commissioning. (And on that subject, a colleague in the industry pointed out that the nuclear levy that existed in the 80s, prior to privatisation produced a fund standing as hard cash to the value £11b, quite enough to do the magnox (those not already decommissioned) and AGR fleets).

Yes, I meant the £8/p/a figure to be compared to the household FITs+ROCs subsidy of £36/a/household. Multiply the Hinckley £8/p/a by 2.5 to get price per house (60 million people, 24 million houses).

It'll be interesting to see what happens now with the Horizon/Hitachi negotiations for Wylfa. The Hitachi design looks very interesting. I was initially put off by it being a BWR (even with an A in front of it) but it is a 3+ generation reactor, they've been built before, and apparently they can be built in about 4 years!

Don't know about the Hinckley connection in detail. How it pans out in the face of any local opposition we'll have to see.