If Britain's Chinese Nuclear Deal Looks Astonishing, That's Because It Is

This article was originally published on The Conversation. Read the original article.

I was rather perplexed to wake up to hear the news that British Chancellor George Osborne was pledging 2 billion-pound ($3.06 billion) in loan guarantees for the ill-fated Hinkley C nuclear power project in England. Hadn't he already pledged 10 billion pounds ($15.30 billion) in loan guarantees more than two years ago?

Hinkley C, all 3.2 gigawatts of it, was, according to earlier proud boasts, supposed to be up and running in 2018, but will now be lucky to be started by 2025. As recently as 2008, the total cost of such a plant was estimated by the UK department of energy at 5.6 billion pounds ($8.57 billion). Now it could easily be five times higher.

Has Osborne decided to cut the support he is offering French group EDF and the Chinese state nuclear companies to build the plant from 10 billion pounds to 2 billion? No, it seems he is offering an "initial" 2 billion. Has George made his current trip to Beijing with 2 billion pounds in 50-pound notes in a secure luggage arrangement? No, of course not. So what does this mean? Well, absolutely nothing apart from, no doubt, some PR consultant coming up with a bright idea to distract attention from the sheer awfulness that is the British nuclear program.

Although some may feel that this (awfulness) is all an aberration and that somewhere else nuclear power is being done much better, in my studies I can't find much evidence of this, certainly not in the U.S. and Europe. Both of the two "generation III" reactors being developed—EPR (Finland, France, China) and AP1000 (China, US, Bulgaria)—are taking ages to build and costing mountains more money than originally anticipated. Hitachi's ABWR, another reactor tipped to be built in the U.K., has a very checkered reliability record that would make it a no-go zone for investors.

Even in China the much-vaunted nuclear construction program is, as much as you hear about these things from Chinese authorities, a lot less vaunted than one would think. And we need to understand that this is before we even know whether any of these upcoming generation III reactors work well or not.

Nuclear numbers

Really this is not much of a change compared with what went on in previous decades. The marvelous hype from the nuclear people suckered an eager-to-be-suckered U.K. body politic that there really is a magical nuclear answer to our problems. So why do we find this out now?

The answer is actually surprisingly simple. Up until now, nuclear power has not been treated like other energy sources. In the U.K. and many other countries it has always been given a blank check to cover its construction costs and its electricity has never been costed according to commercial risk criteria. Now, in a bowdlerised way, it has been costed according to some commercial criteria under the U.K.'s Electricity Market Reform system for incentivizing low-carbon power generation.

This produced what many found to be a surprising answer. Two years ago Hinkley C ended up being offered (still not signed) 92.50 pounds ($141.50) per megawatt hour (MWh) (now £94 per MWh, rising with inflation) over 35 years with a 10 billion-pound loan guarantee—said to rise to 16 billion pounds ($24.5 billion) with interest payments. This means the contract price is more than double the wholesale power price and the consumer will have to pay the difference for 35 years after generation starts.

It is a higher subsidy than that offered to onshore wind farms (which also get no loan guarantees and get 15-year contracts). Earlier in the year, the government awarded premium price contracts to onshore wind farms for around 80 pounds ($122) per MWh. And if nuclear had the same contract lengths as other power plants—15 years, and certainly no more than 20 years—its contract price would rise to well over 100 pounds ($153) per MWh. That would make it look more expensive than offshore wind. Well, we couldn't have that, could we? And if the 16 billion pounds was not guaranteed, it would never be built. The risk of cost overruns would be considered far too great.

Meanwhile the other nuclear power plant proposals for the U.K. currently held by EDF, Hitachi and Toshiba seemed to have melted into the background. Even with the government's very generous offer to get new nuclear power projects off the ground, will these players take the risk of investing in these new projects? Only the Chinese seem to be at the table, having apparently been promised they can build their own reactor at Bradwell in Essex as part of the Hinkley C deal.

Of course, many would point out that we could have lots of other things, including wind farms and solar farms generating loads of clean energy by the time (if ever) that Britain's nuclear power program gets going. But the government has made sure this is not going to happen, by cutting the incentives. Even the CBI, the voice of business, is raising concerns about this. Instead the government seems to be pinning its hopes on a nuclear program happening at the end of a Chinese rainbow. Stand by for the crock of gold at Bradwell to be just as eye-watering.

David Toke is a reader in energy policy at the University of Aberdeen.