The Secretary of State for Business, Energy and Industrial Strategy, Rt Hon Greg Clark MP, appeared before the House of Lords Economics Affairs Committee this week to give evidence on the economics of UK energy policy. Unsurprisingly a lot of attention was focused on future plans for nuclear power.
In particular, the Secretary of State was grilled by the Committee on the financing of the Hinkley Point C nuclear power plant and whether different funding models could have reduced the cost of the project, therefore lowering the levy that will ultimately be paid by consumers through their electricity bills.
The Financial Times reported in January that the Japanese and British governments have been exploring options for the financing of another nuclear project, the proposed power plant at Wylfa in Wales. There are even rumours of direct Government financing being on the table. The Wylfa project is being led by Horizon Nuclear Power, a company owned by Hitachi (the Japanese industrial giant) with the remit to build their plants in Britain. They plan to use their advanced boiling water reactor technology to generate electricity, hence the interest of Japan. With both governments able to borrow at low interest rates, there is some merit in the idea of direct investment in energy infrastructure that is beneficial to the country but that is difficult to finance through the private sector due to extremely high up-front capital requirements and long payback periods.
Greg Clark seemed not to reject this idea out of hand in giving evidence before the Committee, but he also did not accept that this would obviously have been a better funding model for Hinkley Point C. Although the guaranteed price for 35 years of £92.50 per megawatt-hour (indexed to inflation) paid to EDF for electricity generated from the plant seems generous, Mr Clark explained that by not directly investing in the plant the taxpayer has been insulated from any potential cost overruns in the construction of this vast project in Somerset. With the nuclear industry having a long and ignominious history of failing to bring new large power plants to fruition on time and to budget, the Secretary of State is right to be cautious.
Ambitions for the deployment of nuclear power in the UK appear to be softening. The Government’s previous stated ambition of having 16 GW of new nuclear capacity brought online by 2030 appears to have been abandoned. “We have no particular target for the contributions of nuclear by that date”, said Mr Clark. He also sought to reassure the committee that any delays, or even the complete failure, of Hinkley Point C could be managed and will not result in the lights going out.
The Secretary of State concluded the nuclear part of the evidence session by reaffirming his commitment to exploring the potential of small modular reactors, which Policy Exchange welcomes. In our recent report, Small Modular Reactors: the next big thing in energy?, I outlined the many benefits these technologies could bring to our energy system, including hydrogen production, district heating and the decarbonisation of heavy industry. Smaller reactors could also be built faster and financed entirely by the private sector, thereby saving Government ministers from having to make difficult choices about whether or not to directly invest billions of pounds of taxpayers’ money in risky mega-projects.