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UK government support for nuclear and renewables

By Dave Elliott

The UK government has been trying to have its cake and eat it. It wanted nuclear but didn’t want to have provocative and visible subsidies for it. So it came up with a Contracts for Difference (CfD) system, which will replace the Renewables Obligation (RO) from 2017 (or for some projects, earlier) and would apply to nuclear, renewables and CCS projects. However it will allow different levels of support to be offered to each. As energy secretary Ed Davey put it, “There are likely to be variations in CFD designs between one technology and another, and perhaps also between different projects within the same technology.”

Nuclear, renewables and CCS projects are all eligible to apply for CfD contracts, with “strike prices” being negotiated separately. However there would be an overall cap on how much extra cost could be passed on to consumers, via the Levy Control Framework (LCF) cap, currently set at £2.35bn for low-carbon electricity, rising to £7.6bn in 2020/21.

Some feared that if EDF got a good CfD contract for the proposed 3.2 GW Hinkley EPR nuclear plant, that would soak up all the money available under the LCF. However, given the long delays, the government is now looking to 2030 for the start-up of new nuclear plants. So the CfD cost will not fall under the existing LCF, but under whatever LCF cap emerges later. Which means that, up to 2020 or so, there is room for new renewables.

Even so, in terms of setting a price for nuclear, the Department of Energy and Climate Change (DECC) was caught in a bind. Onshore wind currently gets around £90/MWh under the RO system, and offshore wind around £120–130/MWh, with that expected to fall to £100/MWh by 2020 as the technology develops. However it has been claimed that nuclear would need maybe £120/MWh and perhaps as much as £160/MWh to be economically viable (Cost Estimates for Nuclear Power in the UK, Imperial College London, ICEPT Working Paper 2012/014).

A high EDF nuclear CfD strike price would set a precedent for similar deals for renewables, and break the LCF limit. That’s one reason why the DECC wanted to keep the EDF strike price low. But it also wanted the EPR. So we may end up with a compromise, a moderate strike price for nuclear, below £100/MWh possibly, but with a long contract period, perhaps 35 years. We are still waiting for the announcement. It seems to still be touch and go, with ancillary infrastructure support “sweetener” deals may be being offered. However, the Energy and Climate Change Select Committee warned that “new nuclear should not be delivered if the price is too high”, and suggested establishing a “plan B” in case it all went wrong, especially since a failure to get agreement on this would probably undermine the next projects in line for nuclear support, such as Hitachi’s proposed ABWRs at Wylfa and Olbury: www.publications.parliament.uk/pa/cm201213/cmselect/cmenergy/117/11706.htm#a13

Meanwhile, renewable-energy developers are angling for similar arrangements with longer contracts, not just the 10- or 15-year ones currently on offer. Indeed, for the newer, less-developed options, such as marine renewables, even more is being asked for. For example, RenewableUK had already called for the initial CfD strike price for the first generation of tidal arrays to be set at £280–300/MWh and for wave technology, £300–320/MWh: www.renewableuk.com/en/publications/index.cfm/wave-and-tidal-energy-in-the-uk-2013

The DECC has announced a Final Investment Decision Enabling Programme for renewables projects to get started and strike prices agreed before 2017, possibly even starting up in 2014/15, as soon as the CfD system is in place. It’s available to projects over 50 MW onshore and 100 MW offshore: http://www.businessgreen.com/bg/news/2254745/decc-confirms-plan-to-offer-early-subsidy-certainty-for-key-renewables-projects

The DECC had been trying to establish around £100/MWh as the benchmark CfD price for new projects due to start up in 2020, but had agreed that some, such as marine renewables, would need extra, justified on the basis that these were strategically important technologies for the UK. This largess did not seem to extend to PV solar; it has been getting around £160/MWh, having been cut back. The battle continues, with CCS yet to join the fray.

However, the government seems to want to raise the stakes. Its new Nuclear Industry Strategy explores and indeed sounds very positive about a possible major expansion to 75 GW of nuclear by 2050. It says “Nuclear could contribute roughly 40–50% to the energy mix under this scenario, compared with nearly 20% today.” (Actually it’s 17.8%.) And it presents a series of industry-derived pathways forward and progress milestones, which it says it “fully supports”. It “will work with industry to see this vision delivered”. 75 GW would be the biggest nuclear programme in the EU; indeed, in percentage terms, in the world.

What emerges from the flurry of new reports and commitments is an almost complete capture of government policy by the nuclear industry, based on a conviction that nuclear will lead to significant economic benefits to the UK. As one-time DBERR energy minister, and now Nuclear Industry Association chair, Lord Hutton, puts it in the new Nuclear Industry Strategy, “The UK is once more at the forefront of a global revival of interest in nuclear activities, and well positioned to reap the very considerable dividends that will result from a resurgent nuclear sector.”

Fortunately, that has not so far led to blank cheque funding, leaving aside the £90bn or so clean-up legacy, but neither has it been mean. The government says it provided £66m funding for nuclear R&D in 2010–2011, including for fusion, and it supported the 2009 establishment of the Nuclear Advanced Manufacturing Research Centre, with additional investment of £37m in 2012. The Technology Strategy Board’s nuclear feasibility and near-to-market nuclear innovation support programmes got £18m, and around £22m has gone on the National Skills Academy for nuclear, plus £10m support for nuclear PhDs.

Next up, a whole new raft of support, including £15m for a new National Nuclear Users Facility, with bases at Sellafield (NNL), Culham and Manchester University’s Dalton Lab; £18m from the Technology Strategy Board for 35 nuclear R&D projects; and £12.5m to join the Jules Horowitz Test Reactor programme which is being set up in France. And possibly more to come:
www.gov.uk/government/organisations/department-for-business-innovation-skills/series/nuclear-industrial-strategy

However the government admits that there may be problems. Its new Long Term Nuclear Energy Strategy says the main current priorities are to get the cost of the proposed new plants down and find somewhere for the waste. The latter seems likely to be hard, given the decision by Cumbria County Council not to volunteer. And on the economics, the government says “The size of the nuclear programme will depend on the effectiveness of developers initially being able to build to time and budget, and subsequently being able progressively to reduce costs through experience and economies of scale.” It continues: “The government challenges the nuclear industry to reduce the levelized costs of new nuclear generation and will work with the Nuclear Industry Council and the R&D community to do this.” With costs and delays escalating, for example for the EPRs being built in France and Finland, this seems a long shot: www.gov.uk/government/uploads/system/uploads/attachment_data/file/168047/bis-13-630-long-term-nuclear-energy-strategy.pdf

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