Source: The Conversation – UK – By Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster University
The UK government’s investment of around £14 billion in a new nuclear power plant marks a big economic shift for the country’s approach to energy.
The Sizewell C plant in Suffolk will be the second of a new generation of reactors to be built in the country, after Hinkley Point C in Somerset, which is expected to open in 2031.
French energy firm EDF is building Hinkley and will probably end up building Sizewell too. But it seems that the British government is finally prepared to take on the considerable financial risk which these projects bring.
Previously it has preferred to look elsewhere. China, notably, has a longstanding appetite for investment in British infrastructure. (Although in 2022, the UK government bought back China’s stakes in Sizewell C amid geopolitical concerns.)
But the money has to come from somewhere. And after EDF announced it wanted to limit its participation in Sizewell C – and in particular, exposure to the risk of cost overruns – the UK government has stepped in.
EDF has has already lost a lot of money building Hinkley Point C. When construction began in 2017, costs were estimated at £18 billion.
At the time, the UK government agreed to pay a set rate for the electricity produced so the French company could recoup its cost and make a reasonable profit. That price was perceived by some as as extremely high and remains higher than current wholesale prices.
But as construction costs have more than doubled, the project has generated an estimated loss of around £13 billion for EDF. The company hopes to keep construction costs down this time, after similar costs overruns in projects it completed in France and in Finland.
But now Sizewell C will only progress because the British government has said it will take on almost all of the financial risk.
In doing so, the UK is not an outlier. In France, China and South Korea, nuclear power plants are built by state-owned companies. In the US, private companies are waiting for public funding to finance Donald Trump’s dream of a nuclear renaissance.
And perhaps it’s an expense the state should be willing to take on.
After all, although nuclear reactors (like solar farms and wind turbines) are expensive to set up, once they are built, the cost of producing electricity is very small.
And if the long-term goal is to eliminate the need for fossil fuels, it means all electricity will need to come from a mixture of renewables, batteries and nuclear. Electricity could then become much cheaper than it is now.
But building the means of creating this power comes with varying degrees of risk.
Solar, for example, is not that risky. Panels are usually imported, there are no major safety concerns, and investors can roughly predict how much sun there will be in a typical year.
For nuclear energy, production is also predictable. But the time it will take to complete construction of a plant and the associated costs are not.
Part of this is down to choice. UK regulations around nuclear energy are complex and strict, and other countries build faster and cheaper. This may be why globally, solar power is attracting much more investment than other sources of energy.
Political energy
But this does not mean governments should ignore the nuclear option. One of the main reasons governments are useful to society is that they can afford to take risks that private investors cannot, and finance long term innovation.
This in turn can lead to much greater strategic and geopolitical autonomy. While solar panels and batteries are getting ever cheaper, the vast majority of production is in China.
Domestic production of nuclear allows for greater diversity in energy sourcing, and arguably from some more predictable partners. The key component, uranium, can be found in large quantities in places like Canada or Australia, or directly reused.
Research suggests that nuclear energy may be particularly suited to feed the needs of digital datacentres and artificial intelligence.
Meanwhile, the government also hopes to get small nuclear reactors from domestic producer Rolls Royce which could be built in factories at a much more predictable cost. Russia and China have each already built this kind of reactor.
Plus there’s £2.5 billion for UK research on nuclear fusion, with the potential to deliver electricity on an unprecedented scale.
No one knows if fusion will ever be possible. It is the kind of uncertain, incredibly expensive projects (with potentially massive returns) that pretty much no private investor would risk looking at.
But again, it is the kind of bet only governments can take. For nuclear power, for reasons of scale, risk and uncertainty, is mostly a government business – and ultimately a political choice.
It will take a long time to know if the decision to spend taxpayers’ money on Sizewell C was the right way to respond to the country’s energy needs. But ending reliance on private or foreign financing for nuclear projects could one day be seen as a positive reaction.
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Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
– ref. Nuclear energy is a risky investment, but that’s no reason for the UK government to avoid it – https://theconversation.com/nuclear-energy-is-a-risky-investment-but-thats-no-reason-for-the-uk-government-to-avoid-it-258645