Nuclear Power Risks Pricing Itself Out of Europe’s Energy Market
Nuclear Power Risks Pricing Itself Out of Europe’s Energy Market
(Bloomberg) -- Nuclear power is in danger of pricing itself out of the energy market in Europe.
Electricite de France SA’s announcement on Wednesday that the investment needed for two new reactors in the U.K. will be as much as 2.9 billion pounds ($3.6 billion) more than previously forecast highlighted rising costs for the industry.
Aside from the British project at Hinkley Point in southwestern England, additional nuclear plants in Finland and France are also behind schedule and over budget. The industry’s woes contrast with swiftly falling costs for installing wind and solar farms -- and especially for erecting power generation turbines at sea.
“If the industry is incapable to deliver on time and on budget, other options are going to take over,” Mycle Schneider, an independent consultant on nuclear policy, said in an interview.
Across the continent, the political winds that previously supported nuclear power are shifting. Governments everywhere are searching for low-carbon technologies to replace coal, but cost questions more often are pushing them toward renewables.
In France, which is the most dependent on nuclear power of any major economy, President Emmanuel Macron has asked EDF to prove that it can build new atomic stations at a lower cost. The government is rolling out a series of auctions for wind farm capacity.
In the U.K., the Conservative government has made new nuclear a major part of how it intends to replace aging coal plants that will close in the next decade. At the same time, it’s working to step up the pace of building offshore wind farms, and ministers remained mostly silent when two major nuclear projects were quietly shelved within the past year.
In Finland, a 1.6 gigawatt nuclear project was supposed to connect to the grid a decade ago, but is still waiting to do so amid cost overruns and legal issues.
The setback EDF reported on Wednesday in the U.K. followed a series of issues at its plants in France, where the regulator is asking the utility to repair faulty piping welds at the Flamanville project and assessing substandard welds on steam generators of the facility and at six older plants.
Hinkley’s issues are so damaging because of the scale of the project -- and the risks it entails for EDF. The Hinkley Point C reactors now will cost 21.5 billion pounds to 22.5 billion pounds to complete, EDF said Wednesday in a statement, citing “challenging ground conditions” among other extra expenses. Its shares tumbled as much as 6.9% to the lowest level in two years.
“The cost overruns are material versus the EDF market cap,” Royal Bank of Canada analysts wrote in a note to clients. “This is likely to further boost support for renewables, and especially scaleable offshore wind, as the main decarbonization solution for electricity generation.”
In January, Hitachi Ltd. walked away from the Wylfa atomic project in Wales Ltd. in January despite a generous package of support from the government. That indicated the difficulty of raising money for the projects that cost billions and can take more than a decade to start earnings revenue.
Nuclear’s eye-watering price tag stands in stark contrast to renewables in recent years. Between 2009 and 2018, the cost of new nuclear projects rose 23%, according to the World Nuclear Industry Status Report 2019. In the same period, utility-scale solar costs fell 88%, and the cost of wind energy dropped 69%.
“It’s become overwhelmingly clear that a renewable energy system based on offshore wind and other renewables is the cheapest, fastest and most reliable way to cut carbon emissions,” said Doug Parr, chief scientist at Greenpeace U.K. “Ministers should heed the lesson from the Hinkley debacle and never make the same mistake again.”
While EDF said the cost revision announced Wednesday won’t have an impact on U.K. consumers or taxpayers, it underlines just how expensive the technology is. To support the project, EDF secured a power purchase agreement with the government to ensure a fixed price. If the market price is below the agreed price, then the government would pay back the difference.
The Hinkley plant will sell power for 92.50 pounds a megawatt-hour when it starts. That’s almost double the current wholesale price in electricity markets and significantly higher than the 39.65-pounds a megawatt-hour that the offshore wind projects will cost.
As renewables get cheaper they could actually push down the price of electricity in markets, raising the overall cost of nuclear to tax payers. That’s part of the reason why the U.K. is looking for a different funding model to support the Sizewell C atomic project that EDF is promotiing.
Even that support could crumble if the Conservatives lose the next election. Britain’s main opposition Labour party plans to cut support for nuclear projects and tilt the grid toward renewables.
“You’d have to undertake heroic actions to try and resuscitate other nuclear schemes,” Alan Whitehead, the opposition Labour party’s shadow minister for energy and climate change, said in an interview. “It’s not an ideological choice. It’s a practical choice to spend the money wisely to get to your low carbon goal.”
Still, nuclear is one of the few kinds of power generation that is both low-carbon and consistent, regardless of wind speeds or sunshine.
EDF still hopes to begin generating from the first unit at the end of 2025. It also said the risk have increased of a 15-month delay for that reactor and a nine-month delay for the second. A delay would add 700 million pounds to the bill.
EDF also cut its estimated rate of return from the Hinkley project on Wednesday, to between 7.6% and 7.8%. That’s down from 8.5% it expected two years ago.
That’s an indication of the scale of the economic challenge facing nuclear power, which in raises questions about how quickly the U.K. can reduce emissions in its energy system.
“Zero carbon strengthens the case and need for some nuclear power,” said Neil Hirst, senior policy fellow for energy and mitigation at the Grantham Institute, Imperial College London. “But it’s harder to make the case.”
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