UK nuclear build requires taxpayer rescue - Citi

LONDON Tue May 8, 2012 6:05pm BST

General view of the operating power plant in Flamanville April 8, 2011. REUTERS/Benoit Tessier

General view of the operating power plant in Flamanville April 8, 2011.

Credit: Reuters/Benoit Tessier

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LONDON (Reuters) - Britain's aim to expand its fleet of nuclear plants by 2025 will take place only if the taxpayer absorbs the burden of spiralling construction costs, allowing private companies to invest in the sector, a senior analyst said.

Nuclear energy policy in Britain faces major setbacks following reports that the cost of replacing ageing reactors increased dramatically in the past year, making power produced from new plants not affordable without government help.

A report from the Times newspaper on Monday said French nuclear developer EDF had raised the cost of building a nuclear power plant to 7 billion pounds from 4.5 billion pounds last year.

"If the latest cost figures are true, new nuclear power plants in the UK are not commercially viable," Citi analyst Peter Atherton told Reuters.

Based on the new figures, nuclear would be the most expensive form of electricity generation, exceeding even offshore wind, he said.

"The only way they could be built is if the construction risk was transferred to the taxpayer," Atherton said, equating to a multi-billion pound government insurance policy.

EDF's Flamanville reactor, which is under construction in France, is running four years late and at least double its original budget.

Britain's biggest nuclear power plant operator, EDF, which plans to build two atomic plants in the country, declined requests for comment.

The government must weigh the benefits of security of supply from developing nuclear power - it reduces reliance on foreign fuel imports - against the risk of underwriting the spiralling cost of construction, and decide which it favours, Atherton said.

"If construction costs are indeed anything like 7 billion pounds per reactor, then an already very challenging programme may be reaching the point of impossibility in our view," Atherton said in a separate analyst note from Citi on Tuesday.

Ministers will struggle to justify such inflated costs both politically and economically, he added.

Factoring in the new 7 billion pound construction cost and a standard 15 percent return on investment, EDF would charge about 166 pounds per megawatt hour of electricity produced from its proposed atomic plants - requiring a government handout of 115 pounds per megawatt hour, he said.

That exceeds subsidies on offshore wind farms, currently the most expensive source of electricity in Britain.

Britain is reforming its electricity market, which includes rewarding low-carbon power producers including nuclear with generous subsidies to encourage investment.

Current power prices are far too low - at 51 pounds per megawatt hour - to justify commercial investment into nuclear power without government help.

Transferring the risk of budget overruns onto the government's balance sheet would reduce the risk faced by the developer and reduce the cost of capital - essentially allowing them to charge less for the power produced, Atherton said.

No mechanism currently exists for allowing such a transfer, which would leave taxpayers facing an enormous risk over which they have little control.

Transferring risk could bring down the cost of electricity to 110 pounds per megawatt hour, which "could be sold to Parliament on the basis that it is still cheaper than offshore wind and that future reactors may cost less", he said.

EDF and utility Centrica plan to build Britain's first new nuclear plant at Hinkley Point in Somerset, with a final investment decision expected later this year.

In March German utilities E.ON and RWE pulled out of a 15 billion pound plan to build new plants.

The companies said Germany's sudden decision to phase out nuclear power, the high running costs of their Horizon joint venture and the long lead times required for nuclear plants resulted in the decision to sell the venture.

Sources also confirmed that the two utilities pulled out because they wanted more certainty from the government that nuclear investors would see a long-term return on their money.

The withdrawal may help EDF put pressure on the UK government to provide a favourable market framework for new nuclear plants, said Karen Dawson, director in the energy department at consultancy PwC.

Five groups, including Chinese, U.S. and Middle Eastern investors, are interested in buying E.ON and RWE's Horizon venture, a senior industry source said, highlighting international investor appetite for generous UK government handouts.

(Reporting by Oleg Vukmanovic, editing by Jane Baird)

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Comments (1)
nikkinomad wrote:
This so-called austerity we’re experiencing is because of the bailouts handed to the banks – now we’re being asked to bail out the nuclear industry in order that they can create more waste that no-one can get rid of and we’re being asked to give the bailout in advance!!!! Are these people for real?

The reason that the costs of nuclear new build are spiralling out of control is because the nuclear catastrophe in Japan is still anything but under control. The Spent Fuel pool in reactor 4 with over a thousand fuel assemblies, is threatening to collapse (it includes the reactor core that was placed in the pool while the reactor underwent maintenance)

The mainstream media just arent talking about Fukushima but they should be.

I just cannot fathom that we were ever considering this route or that people bought the BS sold to them by the govt & nuke industry that we need nuclear – we need nuclear like we need a collective hole in the head.

Who is going to bail out or sons and daughters, and they’re great grandchildren and theirs after when there are no more fossil fuels left with which to manage the toxic radioactive waste legacy?

Who is going to continue to build new covers for Chernobyl a hundred years from now in a 1,000 years from now? Who is going to invent the technology that doesnt exist yet to get the spent fuel out of the pools before the next big quake hits?

If pool #4 goes, the common pool which houses over 6,000 spent fuel rods becomes unmaageable as does the whole site which altogether contains 11,000 spent fuel rods?

When you’re in a hole stop digging.

To quote Walter Youngquist “Regardless of the popularity of optimism over realism, the wisest route for humanity would be that plans and decisions be based on today’s scientific and technological realities and reasonably visible resources, rather than on hopes for things which may never arrive. Optimism is vital in looking toward the future. One must be optimistic as a basis for making an effort. But optimism should be tempered with facts. The media and government leaders should try to learn the facts, and then have the courage to state them. Campaigns for public of office should not lead the citizenry into false hopes. As civilization proceeds, it will be much more convenient and less disruptive to be pleasantly surprised along the way than unpleasantly surprised. Myths must be replaced by reality on which intelligent decisions are made.”

And Aldous Huxley “Facts do not cease to exist because they are ignored”

What is happning in Japan right now is humanities worst nightmare – the fact that it is not even being talked about in our media and the rest of society is completely obscene. It is time to wake up & start basing our energy policy on the facts on the ground on not on the financial and political agendas of those with political and economic power. It is time to wake up & start dealing with what is happening in Fukushima in full awareness of the global consequences of what is unfolding there.

May 09, 2012 9:21pm BST  --  Report as abuse
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