Readers will have seen the news (March 5) that Rolls Royce is trying to get rid of the main bulk of its civil UK nuclear business though not Small Modular Reactors, nuclear submarines and Hinkley Point C involvement. It has appointed the consultancy firm KPMG to find a buyer.
This follows the earlier revelation (January 26) that EdF Energy has been doing the same for at least a year, ie trying to find a buyer for its ageing UK reactor fleet. It is unlikely either company will find a buyer, or at least find one willing to pay a reasonable price . For example, UK energy giant Centrica has been trying for years to offload its 20% shareholding of EDF Energy. Back in 2012, after it pulled out of the mooted Hinkley Point C development (thereby losing £200 million in sunk costs), Centrica appointed the German investment bank UBS to look for a suitable buyer but none has ever been found. The main reason these companies are trying to offload their nuclear reactor businesses is that they are essentially unprofitable: the electricity they produce is more expensive than the sales they generate. And their fuel costs are far more expensive than the effectively zero fuel costs of electricity from wind and solar.
Not only are the 14 AGR reactors uneconomic, they are also ancient – mostly past their original closure dates. Some are 43 years old, among the oldest operating reactors in Europe. Some are developing serious cracks in their moderator cores. This is a generic fault in all AGRs so it is only a matter of time before all are closed leaving the Sizewell PWR reactor as the last remaining UK reactor. In sum, the outlook is bleak for the existing UK nuclear industry.
New nuclear plans?
At the same time, recent developments have spelled gloom, if not doom, for UK new nuclear prospects. In November 2018, Japanese developer Toshiba withdrew from the mooted NuGen nuclear plant in Cumbria after its nuclear division collapsed. In January, another Japanese developer Hitachi announced the suspension of its nuclear programme, including the large proposed £20bn Wylfa project, citing financial concerns. Much local fuss is still being generated by the dashed hopes of local businesses and councils in the affected areas, and indeed a public enquiry into the Wylfa B plans is still underway. But the writing on the wall seems clear, even if many in the media, and local businesses and councillors do not wish to read it.
The reality is that governments, banks, utilities and energy companies across the world have been withdrawing from nuclear projects for many years , . It’s just that this reality has caught up with the UK. One feels sorry for the many people who have been unaware of the world-wide developments against nuclear power.
Change in Government Policy?
But the most important and surprising development is that the UK Government is apparently in the process of switching tack from nuclear towards offshore wind power. Certainly the evidence points that way. In a Government statement in the Commons on February 6, the Secretary of State for Business, Energy and Industrial Strategy, Greg Clark MP, announced that the Government was establishing a review of its energy policies. The House was nearly empty because most MPs were exhausted from the debates and non-stop Divisions on motions and amendments to motions on brexit the previous day. The Government knew this would happen and slipped through a number of difficult statements – including this apparent shift in energy policy. Clark’s speech was largely ignored by MPs and totally missed by the UK media. Reuters did report the Government’s warm comments re nuclear but missed the underlying change.
A careful reading of Clark’s speech reveals that the Government (after years of denial) has noticed that the costs of the renewables, energy storage and energy efficiency have been falling whereas the costs of nuclear have been rising. Although warm words were still uttered on nuclear, they seemed to constitute lip service as no further Government money was offered to the either the Moorside or Wylfa B/Oldbury plans.
However the government is still working on a Regulated Asset Base (RAB) finance model as suggested by EdF for its proposed nuclear reactors at Sizewell and Bradwell. This complicated method of financing keeps nuclear costs off the Treasury’s public debt sheet by transferring the large financial risks of cost overruns in building new nuclear plants from the Treasury to electricity consumers. This model has disadvantages as it has been abused in the past to finance dividends rather than investment costs. Whether RAB would be viable is difficult to assess but most experts remain sceptical that the market that the RAB model would hope to tap (hedge funds, venture capitalists, pension funds) would invest in new nuclear even if most finance risks were put on consumers. For example, in June 2018, Professor Dieter Helm who is influential in Government circles, concluded that “No smart contracting and regulating framework (ie RAB) can magic away the deep challenges that nuclear faces, notably: the possibility that in the next 60 years much cheaper new low carbon technologies may become available, possibly including new nuclear ones too; the very large upfront and sunk costs; the risk and the safety regulation; and the challenges of getting rid of the waste.”
In conclusion, the Government appears to be shifting from its previous much vaunted plans for new reactors. Given that in recent years it had effectively stopped new onshore wind, solar PV and slashed the budget for efficiency measures, the only renewable option left was offshore wind. Accordingly the Government has now agreed to pay £558 million in subsidies to offshore wind developments. Actions speak louder than words.
The only remaining reactor under construction is at Hinkley Point C where the first concrete was poured in December 2018. However this faces a series of financial, legal and technical obstacles again largely unreported by UK media which make it a shaky bet. But that is another story to which I shall return in a later post.
 One wonders whether RR can sell off their bulk nuclear capability without compromising their ability to deliver on SMRs and Hinkley.