Gordon MacKerron: This way is more likely to leave us in the dark

The Government says it is committed to nuclear energy, but has done nothing to make it more attractive. The Prime Minister's announcement last week opens up the danger of the country being left with no new reactors, nor any greener alternatives

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On Thursday the Government gave the "go-ahead" for a new generation of nuclear power stations. This was hardly surprising: it has been trailed by successive Prime Ministers for many months, and the private sector has been free to make such proposals ever since a formal moratorium on nuclear power construction lapsed in 1994. The real surprise was that the rest of the statement said nothing that was substantively new. So while the Government has told us for a long time that nuclear is necessary, it has failed to provide the means to deliver it. The uncertainties that already abound in this area loom as large as ever.

On the one hand, the Government tells us that nuclear power is essential. On the other, it eschews subsidies and says it will wait and see whether or not the private sector submits any proposals. But the chances of major private sector proposals are not, on the basis of Thursday's statement, high. While the Secretary of State for Business, John Hutton, described the evidence in favour of new nuclear power as "compelling", the companies are unlikely to see it that way. Why?

The context is that no new reactor construction started anywhere in Western Europe or North America in the decade after 1994. Until very recently, therefore, reactors have been a poor economic proposition. Internationally, things have started to change, but only a bit – Finland started to build a nuclear unit in 2005 and France in 2007, so the "nuclear renaissance" has not yet arrived. Renewed governmental interest in nuclear power results from public policy worries about energy security and climate change, stressed by Mr Hutton on Thursday. These do not, in liberalised a electricity market like that of the UK, give direct financial incentives to private companies to build reactors.

For the UK, the energy security argument for nuclear power is at best thin. The Government's concerns in this area are that we are becoming over-dependent on foreign sources of oil and gas, and that the risk of a "gap" in electricity generating capacity in 5 to 10 years' time might cause the lights to go out in winter. While having some substance, both of these worries are exaggerated. More to the point, nuclear power scarcely helps relieve them. Nuclear power cannot help at all with oil dependence (nearly all oil goes into road transport) and only partially helps with gas. And as we will be lucky to get any power from new nuclear sources before 2020, it will be too late to help fill any capacity gap.

This leaves the climate change issue as the only potentially significant pro-nuclear argument. Large and sustained reductions in carbon dioxide emissions are vital for the welfare of future generations, and nuclear power represents a low-carbon option. But this does not mandate nuclear new-build. The uncertainties around nuclear economics – translating into big financial risks for private companies – are legion. None of the four reactor designs that might get built in the UK has been completed anywhere in the world – for three of them, construction has not yet even started.

The first unit of the fourth design (the Franco-German European Pressurised Water Reactor or EPR) is two years into construction in Finland. It is already two years late and at least 25 per cent over budget. And none of the designs has yet won UK safety approval, a process that could lead to higher costs. So much for the Government's view that these designs are "tried and tested". Further, the costs of constructing reactors are heavily dependent on the number built. Building eight to 10 reactors would reduce unit costs but involve huge inflexibility and dominate the market, while a single unit would have low market impact but involve much higher unit costs. The answer to the question of what it will cost to build nuclear power stations is: we don't know.

If construction costs are not known, they are at least under the control of the industry. When it comes to the other half of the financial question – revenues – things are even worse. The UK, as Mr Hutton re-emphasised last week, runs a liberalised electricity market, meaning that the wholesale price of electricity is the product of a more or less competitive market and is unknowable beyond two or three years into the future. A company planning to spend £1bn or more on a nuclear plant needs some assurance about the minimum electricity price achievable 12 to 25 years into the future. In an unreconstructed UK-style market, this is impossible. It might help if the carbon price (which tends to translate directly into the price of electricity and from which nuclear is, by virtue of producing no carbon dioxide, exempt) could be supported, and a floor price for carbon guaranteed. The industry had hoped for progress on this but none was forthcoming last week.

Overall then, the financial risks of private nuclear investment were not reduced last Thursday and company proposals are likely to be slow in coming forward. And there are serious public concerns about nuclear power in other domains – waste, safety and proliferation. It is, for instance, difficult to take the high moral ground with Iran over nuclear power if we are enthusiastically pursuing it ourselves.

If nuclear power really were unavoidable, these uncertainties and potential delays would be very worrying. But there are choices available in the difficult process of reducing carbon emissions: renewable energy (especially wind power), energy demand reduction, and more rapid development of carbon capture and storage to strip out most carbon dioxide from coal and gas combustion. Of course, without more nuclear power we need more of these alternatives, though not a very great deal more.

At the moment, we have an apparent government commitment to the essential role of nuclear, but – given the Government's attachment to liberalised markets – inadequate incentives to make for a nuclear renaissance. There is a real risk we may get the worst of both worlds, where nuclear investment stalls under a risky investment climate while markets hold back from other investment in the expectation that nuclear is just around the corner. Then we really might have a capacity gap and an even bigger risk of the lights going out.

Professor Gordon MacKerron is the director of the Sussex Energy Group at Sussex University

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