The Committee on Climate Change (CCC), which the Government was heavily influenced by, says nuclear is cheaper than renewables. Are they right or just biased?
The CCC's Renewable Energy Review (RER), published on 11 May, provides a highly-skilled analysis that is also clearly skewed in favour of nuclear power. Nuclear power is held to be the cheapest low carbon fuel. This is a challengeable conclusion.
The CCC is an outgrowth of the Climate Change Act in 2008. Its function is to report on, and carefully analyse, the progress, prospects and options for meeting the targets leading to a reduction of UK carbon emissions of 80% (of 1990 levels) by 2050.
The Climate Change Act itself was passed following a campaign led by NGO Friends of the Earth. The CCC consists of some of the best brains in the country in the field of energy, economics and the environment.
However, the future is uncertain, and the Committee appears to have interpreted data in a pro-nuclear direction. The RER comes in the aftermath of the Government's Electricity Market Reform (EMR) consultation, covered in the last issue of REF, which is widely seen by renewable advocates as shifting subsidies away from renewables and towards nuclear power. A recent analysis by the Select Committee on Energy and Climate Change gives credence to this view.
Renewable targets
The RER analyses how, and with what costs, a mixture of renewable fuels can be mobilised to meet various targets, the most looming being the EU target for 15% of UK energy to be supplied by renewable energy by 2020, which is assumed to include 30% of UK electricity from renewables.
Essentially, the Committee concludes that this can be done, as well as much higher targets for 2030 and 2040, all without a significant contribution of solar PV. The Committee settles on a central projection of seeing the electricity sector powered by a 40% share from both renewables and nuclear power by 2030, the bulk of the renewables coming from wind power.
In order to achieve 12% penetration from renewables in the heat sector by 2020, there needs to be an extra 2 billion pounds of annual investment in renewables, to be deployed through a mixture of heat incentives and stricter building regulations. The document is cautious about biofuels in the transport sector, urging emphasis to be placed on energy efficient cars and a transition to electric cars. Altogether the cost of meeting the 2020 target will add 4% to UK energy bills.
In the heating sector there are no pleas to limit investment in any particular technology, but in the electricity sector the document says that “the 2020 ambition for offshore wind (12 GW) should not be increased, and could be reduced if other means can be found to meet the EU renewable target”.
There are two crumbs of comfort in this document compared to the Government's EMR. First, it is suggested that the Renewables Obligation could be extended (beyond 2017) if the new contracts for difference arrangements are not introduced quickly enough. Second, the much touted Green Investment Bank could play a strong role in financing offshore wind power schemes.
Investment risks
Pure faith seems to form the basis of the RER's assertion that “nuclear power currently appears to be the most cost-effective of the low carbon technologies”. Actually, the difference in cost between nuclear and onshore wind is very marginal even on the Committee's own figures (drawn from a study by Mott MacDonald). They appear to be based on a hope that the costs of building European Pressurised Reactors (EPRs) at Olkiluoto (Finland) and Flamanville (France) will not continue to escalate, that things will not become even worse when translated to the UK, and that the performance of these new designs will match expectations.
Things may look relatively rosy on an economist's spreadsheet, but in the real world the perceived nuclear investment risks are so high that, without Government guarantees, pension funds and banks would demand very high risk premia to encourage them to invest in the EPRs. The cost in terms of the pence per kilowatt hour that the nuclear developers will have to be paid in order to cover the repayments to investors and lenders would be extremely large. Meanwhile offshore wind schemes and other renewables have to raise money from the markets, with or without help from the European Investment Bank or, maybe in the future, the Green Investment Bank.
In the case of France, Finland, and also the U.S., the loan repayments on the nuclear power stations are guaranteed, either directly or indirectly by the French state in the first two cases, and by the U.S. Government in the third case. There is pressure on the British Government from nuclear interests to give such guarantees for nuclear investment.
Perhaps sensing this possibility, RenewableUK has asked for Government guarantees for the offshore wind power programme, so that firms such as Vestas have the confidence to build manufacturing capacity in the UK. The Government however has not offered any guarantees for renewable investment. Instead the EMR proposals suggest a return to a 1990s's style of renewable financing, which involved ‘auctioned’ contracts being issued for projects, the majority of which were never implemented.
Future projections
A pro-nuclear slant is signalled in the way ‘forward-cost-projections’ of low carbon technologies are set out in the Executive Summary of the RER (which is all that most readers will see).
The impression is given that nuclear power will be a lot cheaper in 2040 than even onshore wind power if a ‘social discount rate’ is applied, that is by assuming that very low cost investment is available, which could only come through State guarantees and financing.
However, there are no Government guarantees for investments made for renewable energy schemes. Why should nuclear power benefit from state investment guarantees whilst renewables have had to raise finance from the markets? Why should there be a leap of faith to assume that the historic upward trends in the costs of nuclear power will be reversed? These are matters of values and faith and, yes, bias.
About:
David Toke is an academic, renewables expert and the author of ‘Ecological Modernisation and Renewable Energy’.
Renewable Energy Focus, May/June 2011