UK Tories wake up to nuclear folly as wind and solar found to be cheapest

By Giles Parkinson, reneweconomy.com.au

The decision by the UK’s Tory government to put a hold on approval for the world’s biggest single energy investment – the Hinkley C nuclear plant – may have less to do with concerns about the potential role of Chinese state companies and more to do with the realisation that new nuclear is a horrendously expensive boondoggle.

The fact that the cost of wind and solar is falling and the cost of nuclear is moving in the opposite direction is of little surprise to anyone involved in the energy markets, even if the nuclear industry and its supporters wish it were not so. But it is news, apparently, to the Tories.

New data uncovered from a previously unheralded National Audit Office report shows that the UK government is now advised that the cost of wind and solar could be around half that of new nuclear by 2025 – between £50-£75/MWh compared to between £80 and £125/MWh for nuclear.

The Guardian reported that previous forecasts, made in 2010 and 2013, showed that the two renewable technologies were expected to be more expensive than nuclear or around the same cost by the time that Hinkley was built. This is the first time the government has shown it expects renewables to be a cheaper option.

The Hinkley Point nuclear project has already blown out in costs and relies on significant government guarantees and subsidies over and above the £92.50/MWh tariff it promises to pay should it ever get built. That tariff then rises with inflation over the course of the 35-year contract, meaning it could more than double in price by 2050, even as the cost of wind and solar fall even further.

‘The [energy] department’s forecasts for the levelised cost of electricity of wind and solar in 2025 have decreased since 2010. The cost forecast for gas has not changed, while for nuclear it has increased,’ the NAO said, with a degree of understatement. The detailed energy department findings have yet to be released.

The assessment is important because the UK, like Australia, is facing major decisions about its generation fleet over the next decade. Unlike Australia, the UK has decided to end coal-fired generation within a decade, and for the last two months the amount of solar production has beaten that of coal production.

Before the Brexit vote, the UK Tories had appeared entirely smitten by new nuclear, despite the evident folly of the project, which had not just blown out in cost from £16 billion to £24.5 billion, but because of the falling price of wholesale electricity, would require a lifetime subsidy of £29.7 billion compared to original estimates of £6.1 billion.

As Bridget Woodman from the University of Exeter wrote recently, accommodating Hinkley meant that the UK government had to essentially redesign the electricity market over the past few years in an effort to create a situation where investment in a new plant looked attractive.

‘Pretty much every major policy design has been geared towards creating a perfect environment for Hinkley Point C. That’s why it’s such a surprise to see the government has now stepped back – a bit – from the brink,’ she wrote.

And what the UK government was proposing to build was in sharp contrast to what is being recommended. The head of National Grid, for instance, had last year called for a complete rethink about the nature of energy systems.

‘The idea of baseload power is already outdated,’ he told Energy Post.

‘I think you should look at this the other way around. From a consumer’s point of view, baseload is what I am producing myself. The solar on my rooftop, my heat pump – that’s the baseload.

‘Those are the electrons that are free at the margin. The point is: this is an industry that was based on meeting demand. An extraordinary amount of capital was tied up for an unusual set of circumstances: to ensure supply at any moment. This is now turned on its head.’

Those thoughts are now being echoed by other experts. David Elmes, the head of Warwick Business School Global Energy Research Network, wrote in the UK edition of The Conversation that the UK had painted itself into a corner, and needed to get over the idea that megaprojects were the solution to everything.

‘Instead, it should think of a new mix between smaller and larger, be more joined up in considering consumption as well as supply and think more decentralised than central. That expands the industries, companies, institutions and government departments involved.’

This has important implications for Australia, whose official energy blue-print, apart from ignoring climate change, appears fixated with a fascination for nuclear energy and large centralised power plants.

It’s an idea that the coal generators are happy to go along with, even encourage, because it necessitates a push-back against the decentralised energy that is now emerging as an obviously cheaper and cleaner alternative to the current business models, and promises to extend the life of their assets.

Slowly, however, it is dawning on more and more conservative politicians that the smaller, distributed energy is the smartest way forward. Not just because solar, particularly in Australia, offers the cheapest technology, but because in combination with storage and smart technology it can offer an alternative to the centralised, gold-plated networks that account for half of consumer electricity bills.

The recent price surge in gas and the concentration of market power that transferred this cost, and a whole lot more, to wholesale electricity prices, particularly in South Australia, means that distributed energy is becoming an increasingly attractive option, because it also adds to competition.

That puts South Australia at the forefront of how Australia proposes to move forward. It has dabbled with the idea of nuclear power, it has suffered from the forces of a powerful oligopoly. Its consumers are being burnt by retailers.

What it and other states need most is a long-term vision for the future, and to not fall into the trap of power system security, which is usually just a euphemism for the status quo. This Friday’s meeting of state and federal energy ministers will give us a taste of whether this is possible or not.