Steve Thomas (stephen.thomas@gre.ac.uk) PSIRU ( psiru ), Business School

1. Is new nuclear build justified? Press Conference on the need for an Independent InquiryMarch 11th 2010, Westminster Steve Thomas (stephen.thomas@gre.ac.uk) PSIRU (www.psiru.org), Business School University of Greenwich

2. National policy statement on nuclear • Nuclear would yield economic benefits to the UK in terms of reduced carbon emissions and improved security of supply • the White Paper concluded that nuclear power was likely to be an attractive economic proposition to them [investors] • Committee on Climate Change: Nuclear power is competitive with both coal and gas-fired generation in the central fossil fuel price scenario even without a carbon price. Under the high and high-high fuel price scenarios, nuclear is a clearly lower cost solution • The Secretary of State is satisfied that nuclear is a low-cost form of electricity generation which can yield economic benefits to the UK. • the risk of economic detriment is very remote

3. Issues arising • Is the government’s rosy view of nuclear economics justified? • Is the government’s claim plants can be built without subsidies and guarantees credible? • If nuclear orders are not placed, what will government do? • If things go wrong, who will pay?

4. What do companies care about? • Construction cost & time, cost of borrowing, reliability, electricity price • Repaying construction cost & interest accounts for 70% of the cost of power. Cheap loans & low capital cost essential • Reliability. The reliability, how many kWh of power it produces, determines how thinly fixed costs can be spread • A power sale price insulated from market risk is important

5. Construction costs • 10 years ago industry forecast cost $1000/kW. Cost of 1600MW plant like EPR $1.6bn • 2004: Olkiluoto ~$3000/kW • 2007/08: US utility estimates ca $5000/kW • 2008/09: Areva/Westinghouse bids for Ontario, S Africa, UAE >$6000/kW • 2008 White Paper & NPS assume £1250/kW or $2000/kW • In 2008, E.ON said cost 70% higher than government • Estimates before construction always under-estimate • Why does government assume vendors will sell to UK at 40% of price charged elsewhere?

6. Cost of borrowing • If consumers always pay for errors, risk to banks low so cost of borrowing low - ~5% real • If electricity market competitive, extra costs not passed on, they come from profits • Investment analysts, credit rating agencies may penalise companies that try to build nuclear because of this risk • Government credit guarantees protect banks: if project fails, taxpayers pay the bill • US programme to build 15 nuclear plants needs ca $100bn loan guarantees (80% cost coverage) • First loan guarantees granted Feb 2010. US$8.33bn for only two plants

7. Olkiluoto and Flamanville • Olkiluto cost: €3bn ($2800/kW) fixed price contract • €1.95bn provided by loan at 2.6% interest. Export credit guarantee provided by French & Swedish governments • Plant build to take 4 years, but after 4 years, 4 years late • Costs at least 75% over contract price. Who pays? • Fixed price contract in dispute: TVO suing Areva for €1.4bn, Areva suing TVO for €2bn • EDF has built three times as many nuclear plants as any other utility (~60) • After a year, Flamanville, >20% over budget. After 2 years, construction at least 2 years late • Regulators in UK, Finland & France threatening not to license if design issues not sorted

8. Are subsidies needed? • NPS: it will be for companies to fund & build any new nuclear power stations. There will be no burden on the tax payer • To the extent that the electricity market is competitive and the economic cost of the class or type of practice is lower than for alternative electricity generating technologies, consumers can also expect to benefit on average via downward pressure on energy prices.

9. Are subsidies needed? • Ofgem wants to abandon the wholesale market in favour of a more planned approach • Ed Miliband 2/2010: ‘We are going to need a more interventionist energy policy, ‘[we need] capacity payments to guarantee returns to developers of low-carbon sources of power’ & ‘The idea of such payments is to give greater certainty to investors in renewable and nuclear energy.’ • David Kidney 3/2010: UK government announcing measures to ‘drive up’ price of carbon • Proposals to be published April in ‘Roadmap to 2050’, • EDF: a minimum floor price for carbon permits under the European cap-and-trade system is a prerequisite before investors will consider building nuclear plants in the UK

10. If no orders, what does government do? • NPS: [Investors will decide if] the financing characteristics of nuclear power provided sufficiently attractive returns. Investment decisions remain for companies to take • But • NPS: New nuclear power should be free to contribute as much as possible towards meeting the need for 25GW of new non-renewable capacity. The Government expects that a significant proportion will be filled by nuclear power • NAO: EDF has a central position in new nuclear in the UK and a potentially significant influence over Government's aims for the construction of new nuclear power stations. [DECC must have] contingency plans should EDF be unwilling to build new nuclear power stations."

11. If things go wrong, who pays? • Taxpayers are always the last recourse if things go wrong • British Energy was privatised but rescued at a cost to future taxpayers of more than £10bn when it went bankrupt • Electricity consumers contributed for 25 years for decommissioning. In 2003, found to be no money. Future taxpayers now face a bill of £80bn and rising • Taxpayers always pay to clear up after accidents

12. Conclusions • Nuclear cost assumptions behind the White Paper and the NPS are gross under-estimates • More realistic assumptions on construction cost and cost of borrowing would triple the expected kWh cost • If there are no subsidies and guarantees, nuclear is not financeable. Already signs of government pledge on subsidies weakening • If companies are unwilling to build without subsidies, government may be forced to give in • Taxpayers are always the last recourse if things go wrong with nuclear