Exactly half a century after the world’s first commercial nuclear plant began operation in 1956, British politicians decided to reverse the decline of the industry their predecessors had pioneered. Back in the ‘50s, it took just five years to plan, commission and build Calder Hall, which began producing energy in October 1956. But it has taken two governments seven years to draft energy bills, planning bills, design assessments, and much more besides to get to the point where we are now. French and Chinese state-owned companies will invest $16 billion on the new reactors at Hinkley Point. I’m delighted that at last we’re building new nuclear. But is the financial package a good deal for the energy consumer?
The short answer is No. The operators of Hinkley will receive a strike price £92.50 /MWh fully indexed to the Consumer Price Index (with a small discount if they proceed with a similar project at Sizewell). Leaving aside the jargon, this means that electricity from Hinkley point will cost roughly double the current wholesale price. This has been justified on the basis that it’s a “first-of-kind” for the UK and that future reactors will be cheaper. But they will have to be a hell of a lot cheaper to live up to this promise.
The two reactors at Hinkley Point will cost £8 billion each, which, as Peter Atherton of Liberum Capital points out in a damning analysis, makes our shiny new toy “the most expensive power station in the world (excluding hydropower)”.
Power stations, like cars, are rated in terms of the energy they produce. The new reactors at Hinkley Point will be capable of producing 3,200 megawatts (MW). In other words, Hinkley Point costs £5 million per megawatt of capacity. In order to establish whether or not this is a good deal, we should compare it to alternative plants. The new gas-fired plant at Pembroke is capable of producing 2000 MW, but cost just £1 billion. In other words, it costs £500,000 per megawatt of capacity. In terms of upfront costs, Hinkley Point costs ten times more than Pembroke. For the price of Hinkley Point, Britain could have bought an entire fleet of gas-fired power stations, saving us from the looming energy gap in good time.
Nuclear power, although it has its drawbacks, has advantages which I haven’t described here. It’s a very reliable, clean way of producing a constant supply of energy and its fuel costs are much lower than conventional power generators. We can expect a new nuclear plant to operate two or three times as long as a gas-fired plant, and in all probability uranium prices will be much more stable than gas prices over the long term. And of course, the promise of nuclear power is immense. These reasons, amongst others, make nuclear power essential. However, the price of Hinkley Point suggests that other priorities than cost and security of supply — the consumer’s interest — were foremost in the minds of the politicians who negotiated the deal.