The future of nuclear power in Wales Contents

2Wylfa Newydd: Cost and scheduling

The cost of new nuclear and Wylfa Newydd

15.The UK’s energy strategy aims to balance energy security, environmental costs, and the price of energy. The Government believes that nuclear power provides a cost-effective source of energy while reducing carbon emissions, and providing a secure and stable source of energy. Andrea Leadsom MP, Minister of State, Department of Energy and Climate Change, told us:

“we are trying to meet our energy trilemma at all times, which is to keep the lights on—which is absolutely non-negotiable—to keep the bills down and to decarbonise at the lowest price. Of course, nuclear meets all of those requirements. Essentially, it is a low-carbon source of electricity. It is dispatchable—it is reliable, it has fewer additional costs for backup and so on. We believe it is also affordable”19

16.There are two main cost factors to consider in relation to nuclear power. The first is the strike price—the price at which the Government agrees to buy electricity from the supplier. The strike price agreed for Hinkley Point C was £92.50/MWh, approximately double the current wholesale cost of electricity.20 The Minister said in follow up evidence that wholesale prices only make up 40% of household electricity bills and that wholesale prices are quite volatile, while the strike price will keep nuclear costs stable.21

17.The Hinkley Point C strike price is lower than the strike price for some renewable energy sources, such as offshore wind, but Dr Doug Parr, Chief Scientist, Greenpeace UK, noted that:

“the cap prices for offshore wind into the future…would make offshore wind cheaper than nuclear by the time…Hinkley opened.”22

Some pro-nuclear groups have also said that the strike price of Hinkley Point C is too high.23 As a result, New Nuclear Watch Europe told us the Wylfa Newydd project should not be contemplated unless the strike price is below that of Hinkley Point C. They argue the benchmark should be set by other projects, such as Korean-built reactors in the UAE, and the UK should aim for a strike price of £83/MWh.24 Horizon Nuclear Power, the Wylfa Newydd developers, recognised the concern over the strike price and told us “we are acutely aware of the importance of affordability and delivering value for money”.25

18.The second cost factor relates to construction and financing costs, and cost overruns. Nuclear is capital-intensive compared to other power sources, and the upfront cost of new nuclear build will be expensive. The construction of a major infrastructure project requires a large amount of capital and the uncertainty around large projects can also make the financing costs more expensive.

19.The high cost, uncertainty and delays around the Hinkley Point C project have led some to call into question the Government’s whole nuclear power strategy. However, Alan Raymant, Chief Operating Officer, Horizon Nuclear Power, told us that whilst Hinkley Point C was “an important bellwether for the nuclear new build programme as a whole” Wylfa Newydd would not be dependent on that project succeeding.26 That said, it is clear that the experience of Hinkley Point C will inform future decisions on nuclear power. In particular, it means that the potential cost of Wylfa Newydd should be carefully considered before the Government gives it the green light.

20.More generally, some witnesses argued that the Government does not compare the costs of energy sources fairly. Dr Parr, Greenpeace UK, told us “it feels like at the moment is that certain forms of generation, particularly gas and nuclear, are getting preferential treatment”,27 whilst Gerry Wolff, Co-ordinator, Energy Fair, said that there were a number of hidden costs and subsidies involved with nuclear power. He argued that the fact that nuclear power still received subsidies despite being a mature technology showed that it was not economically practical in comparison to renewable sources.28

21.The Minister told us that she was trying to make energy pricing more transparent and easier to understand, but emphasised that all of the costs of nuclear power are taken into account. She said that there were hidden costs for all forms of energy generation, which DECC is trying to make clearer.29 The Minister also noted that the 10% discount rate for levelised cost estimates of nuclear power was the same as for all energy technologies.30 Moreover, she stated that the developers would bear the risk for any agreement on Wylfa Newydd and would be required to absorb all of the costs, a position that Horizon Nuclear Power concurred with.31 Andrea Leadsom also reiterated that nuclear power offered good value for money when viewed over a longer time horizon, because it would both guarantee a long-term source of base-load energy and would also guard against future energy price rises.32

22.We received conflicting evidence on the potential cost of new nuclear build and Wylfa Newydd in particular. Whilst nuclear power may not be the cheapest source of energy available, it does have the added benefit of providing value for money for a secure and reliable source of low-carbon power. We are also reassured that the taxpayer will be protected from excessive costs, as the risk of the investment is placed on the developer.

23.The UK Government is in favour of new nuclear build, but not at any price. Energy policy should balance cost against energy security and environmental concerns. We recommend that the Government negotiate a strike price for Wylfa Newydd below that agreed for Hinkley Point C and seek a price that would be competitive with renewable sources, such as on-shore wind. The Government should not continue with the project if the price is too high.

24.We were told by witnesses that some of the costs of nuclear power are hidden. When we questioned the Minister, she said that this was not especially the case for nuclear power, but it was the case for all energy sources. As a result, energy pricing is often difficult to understand and can seem opaque to experts, let alone the general public. Without access to all the necessary information it is difficult to compare and to critique decisions that have been taken. We recommend that the Government provide a clear and comprehensible explanation of how the lifetime cost of energy sources are compared. In particular, it should show how it compares new nuclear with renewable alternatives. The Government should also be transparent about all the costs related to new nuclear build, including the eventual cost of decommissioning and waste disposal.

The track record of the Advanced Boiling Water Reactor

25.An important element for determining the cost of energy projects is the load factor. This measures how much energy a plant can generate in practice, as a percentage of the maximum energy it could theoretically generate. No plant will have a load factor of 100%, because they need to be shut down periodically for maintenance and safety reasons. The load factor of nuclear power plants can vary, and some do not achieve a high load factor due to poor design or the need for repeated maintenance. If the load factor is lower, it will increase the cost per megawatt hour, as the plant will stand idle for longer and produce less energy.

26.Horizon Nuclear Power said that a major selling point for Wylfa Newydd is their use of the Advanced Boiling Water Reactor (ABWR). Alan Raymant, their Chief Operating Officer, told us this is the most reliable modern reactor and that this was an opportunity to bring the technology to the UK. He added “[this] is the only proven latest generation technology that has been built and been in operation, so we are building on a successful track record in Japan.”33 Based on the performance of the ABWR in Japan, Horizon Nuclear Power believe they can achieve a load factor of 85%–90% in the UK.34 Greg Evans, Operations Director, Horizon Nuclear Power said this figure informed Horizon Nuclear Power’s financial plans:

“the [ABWR] has quite a brilliant operating record…The 85% to 90%…is an investment assumption. That obviously takes in worst-case and best-case scenarios and then averages them out. As operators we are confident that we can…achieve upwards of 90% availability.”35

27.However, some witnesses questioned this figure, suggesting that the ABWRs in Japan have had lower load factors than those predicted for Wylfa Newydd. Professor Gordon MacKerron and Dr Philip Johnstone said that technical issues caused a shutdown of the reactors in 2008,36 while Greenpeace said that the load factor has been lower than 50% in the period between 2007 and 2011.37 Dr Doug Parr, Greenpeace, told us:

“the best thing to do would be to look at the actual existing performance of those reactors, and…they do not approach a 90% or even 80% load factor. …That is where I would look for evidence because saying it is going to deliver 90% load factor is an assertion. The actual evidence of existing performance says it is rather less than that.”38

28.Professor Andrew Sherry, Chief Scientist, National Nuclear Laboratory, said these figures could be explained, in part, because the reactors had not had long operational lives. Therefore, one bad year would have a large impact on the overall load factor. The evidence shows that the performance of the four ABWR reactors has fluctuated during their deployment, with annual load factors ranging from close to 100% down to zero.39In Japan, the cumulative load factors for the first ten years of operation (1997-2006) for the two older reactors were 84.7% and 76.3%. Between 2007 and 2010, the reactors did not operate as well, but the Nuclear Industry Association (NIA) explained this was “for various reasons that are not expected to arise in the UK”,40 such as the reactors being shut down for earthquakes and the deployment of new turbines. Despite this, their cumulative baseload was still 72.8% and 68.2% by 2011. The new turbines, which corrected a flaw, are now part of the new design for the ABWR at Wylfa Newydd, and the different operating conditions in the UK mean that the load factor for a similar reactor in the UK is expected to be higher. Therefore, Professor Sherry told us that, taking these factors into account, it was possible to reach a load factor of 90% in some years and a lower figure in other years.41

29.We received conflicting reports on the track record in Japan of the Advanced Boiling Water Reactor that will be used at Wylfa Newydd. We received evidence to explain why lower than expected levels of output were seen in Japan, but it seems likely to us that Horizon Nuclear Power will be able to achieve a load factor similar to its commercial assumptions in the different operating conditions in the UK.

Potential delays and their impact on cost and Government policy

30.Nuclear power projects have often suffered from significant delays, which can lead to cost overruns. A number of witnesses suggested that Wylfa Newydd could suffer from major delays that would drive up costs and would prevent it from being completed on schedule.42 Witnesses referred to the delays to Hinkley Point C (which was originally due to begin operation in 2017), and also pointed to the fact that the Flamanville reactor in France has almost tripled in cost, and the Olkiluoto 3 reactor in Finland is €5bn over budget due to delays43.

31.Professor Gordon MacKerron told us that Horizon Nuclear Power’s goal of beginning operation in the first half of the 2020s was optimistic for a number of reasons. He said:

“first of all, we do not have experience in the UK of building reactors quite at that speed even if everything else goes well. There are still licensing issues yet to be resolved. There are financing issues yet to be resolved. Horizon Nuclear Power has said publicly they still need to find extra finance.”44

32.A further issue that could cause delays for Wylfa Newydd is the labour supply. Wylfa Newydd will require a large number of skilled workers, and Horizon Nuclear Power will be competing against Hinkley Point C for those workers, to the extent that it has been suggested that the UK may not have enough workers to supply the projects. In addition, Dr Philip Johnstone told us that there could be competition between the civil and defence sectors for these workers, as the construction of reactors for nuclear propulsion and the maintenance of UK submarine infrastructure is also scheduled to take place at the same time.45

33.Furthermore, other non-nuclear infrastructure projects (such as HS2 and Crossrail) would also be competing with Wylfa Newydd for labour. Professor MacKerron asserted that a potential labour supply bottleneck could cause delays or increased costs. He said:

“It is difficult to know exactly how that may be mitigated. It may be possible to bring into the UK people from elsewhere who have relevant experience. …Short-term mitigation is difficult; it takes a while to train people up.”46

34.Horizon Nuclear Power told us they were acutely aware of potential competition for workers with other infrastructure projects.47 Horizon Nuclear Power also emphasised the successful record of building ABWRs to time and on budget in Japan. Alan Raymant told us that whilst this might not carry over perfectly to the UK, Hitachi had experience in managing large projects and would make the necessary adjustments to reduce the risks. He said,

“We are doing a lot of work to establish how to transfer that expertise to the UK…so Hitachi is already working closely with a number of UK suppliers to enable that to happen”48

and that

“A lot of the work we are doing between now and starting the project for real is [making] sure we do have a robust supply chain, the companies understand the quality requirements, the engineering of the project is well advanced and that we have a very robust schedule and work programme to make sure the project is delivered on time.”49

Furthermore, they were seeking a wide range of investors in order to ensure that financing would be secured.50

35.The Minister told us that the Department for Energy and Climate Change (DECC) is in contact with the developer to help them stay on schedule, and that the Government had no reason to think that Horizon Nuclear Power would not meet their deadlines.51 However, she emphasised that the Wylfa project alone was not critical to the security of the energy supply:

“should one new nuclear project not get taken forward, it would not be the case that, therefore, our energy security would be at risk. That is not the intention. …the diverse range of sources will ensure that that is not the case and our capacity market that buys forward electricity supply makes sure that the lights will not go out.”52

36.While the evidence we received from a number of witnesses, including Horizon Nuclear Power, show that they are trying to minimise the possibility of delays, recent experience suggests it shouldn’t be assumed the Wylfa Newydd project will stay on schedule. We have heard that nuclear power projects have a history of cost and schedule overruns and, while the ABWR has a better construction record than most, it is unlikely to be wholly immune to this. Moreover, there are a number of specific factors that could cause delays and rising costs at Wylfa Newydd. These include the lack of experience in building an ABWR in the UK and a potential labour bottleneck for large infrastructure and nuclear projects. Horizon Nuclear Power should be planning to mitigate potential delays, and the Government should work with them to find solutions to these potential obstacles.

37.New nuclear build is a major part of the Government’s plans for the UK’s future energy supply. Wylfa Newydd is scheduled to begin operation when Britain’s remaining nuclear power stations close in 2025. Although the Government told us that it is committed to a mix of energy sources, Wylfa Newydd is set to provide electricity to 5 million homes. It would be difficult to replace this provision. We recommend that the UK Government devises a contingency plan for a delayed start to the Wylfa Newydd project. It will be essential to have a back-up plan to fill the gap in the energy supply in the case that Wylfa Newydd is delayed.

19 Q279

20 Q280–283

21 Department for Energy and Climate Change - supplementary (FNP86)

22 Q79

23 See Supporters of Nuclear Energy (FNP25), New Nuclear Watch (FNP45), and “We are pro-nuclear, but Hinkley C must be scrapped”, The Guardian, 18 September 2015

24 New Nuclear Watch (FNP45)

25 Q4

26 Q1

27 Q77

28 Q174

29 Q287

30 Department for Energy and Climate Change - supplementary (FNP86)

31 Q5 and Q11

32 Q279–280

33 Q6

34 Horizon Nuclear Power (FNP34)

35 Q10

36 Professor Gordon MacKerron and Dr Phil Johnstone (FNP65)

37 Greenpeace UK (FNP68)

38 Q72

39 World Nuclear Association, Reactor database, Kashiwazaki Kariwa 6, Kashiwazaki Kariwa 7, Shika 2, Hamaoka 5, accessed 22 June 2016

40 Nuclear Industry Association, Justification Application: UK ABWR Nuclear Reactor, February 2014

41 Q267–268

42 Friends of the Earth Cymru (FNP54), Greenpeace UK (FNP68)

43Tale of woe in French nuclear sector”, Financial Times, 13 October 2015

44 Q100

45 Q105

46 Q104

47 Q37

48 Q15

49 Q6

50 Q5

51 Q288

52 Q289

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21 July 2016