Nuclear power is cheapest option

Building new nuclear power stations would be cheaper than building new coal or gas power stations, new research from energy consultancy Wood Mackenzie shows.

Gas and coal prices have almost doubled over the past year, raising the costs of fossil fuel generation, which provides around 70 per cent of the UK's electricity.

This means that now, for the first time, it would cost more to build and operate a coal-fired power station than to build and operate a nuclear power station.

And assuming a 10 per cent rise in gas prices, it would be more expensive to build and operate a gas-fired station 10 years from now, roughly the time it takes to plan and build a nuclear reactor. Rising demand means that more power stations must be built before 2010.

Consistently higher fuel prices, and the new estimated €8/ton (£5.40) tax on carbon emissions - to be introduced in January - could bring the building of more nuclear reactors back on the agenda. Nuclear power does not emit carbon so it is not liable for the tax.

Stewart Gray, the vice-president of gas and power at Wood Mackenzie, estimates that it would cost £37 per megawatt/hour of electricity generated to finance, build, operate and decommission a nuclear reactor. This, based on industry projections, assumes the reactor operates for 25 years.

Nuclear reactor costs are mainly fixed, unlike fossil fuel generators which are exposed to volatile commodity prices.

He estimates it now costs around £37MW/h to generate electricity from coal, compared with a historic cost of £29.50 per MW/h. But next year this is set to increase to £41.30MW/h because of the emissions tax.

Current gas generating costs are £26.1MW/h, almost £10 more expensive than it was a year ago. If current gas prices increased by another 10 per cent, he estimates, generating costs, could reach £37.2MW/h for gas power stations in 2015, when carbon taxes are to rise to €40/ton.