The UK is bracing for a coming cost of living crisis, caused by international energy prices and domestic lockdown policies. One policy once popular both with Brexiteers and the opposition Labour Party was to cut VAT on energy; though this measure will only save consumers 4 percent on average annually, and recently failed to pass Parliament. At a time when price-caps are set for a 50 percent increase, new nuclear is needed to level up Britain into an era of emission-free energy independence, and reduce wholesale costs for households. Business Secretary Kwasi Kwarteng has proposed the Nuclear Energy (Financing) Bill, incorporating the recommendation of my research in switching to a Regulated Base Asset (RAB) model rather than fronting the costs of plant construction through the present Feed-In Tariff funding system. But is this a permanent solution, or are new ideas needed to fund the UK’s nuclear future?
RABs enable energy companies to factor in projected plant costs by increasing the price of energy generated from whichever source predates the new, more cost-effective station. This mitigates the risk involved in the high upfront capital and compounded construction costs over time. It also mitigates the existing incentives to go over-budget by design, built into the government-guaranteed loans under the present state-secured loans. When the state commits to subsidising a portion of construction costs, that commitment will inevitably increase as the budget during construction escalates. Quite conversely, RABs are projected to save more than £30 billion on each new large-scale nuclear station.
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The bill was conceived to increase capacity to the 40 GW target by 2050, and to safeguard against future project cancellations; as happened with Hitachi in Wales, and Toshiba in Cumbria. It is also to ensure the cost-competitiveness of nuclear energy generation is extended to plant construction, while the technology is outpaced by the halving subsidy costs for offshore wind farms since 2015. The bill passed with bi-partisan support — sponsored by Greg Hands MP, authored a written response to my recent research paper which proposed this policy.
A national security context makes the push for nuclear-powered energy independence an easy sell to any climate sceptic politician. One need only look to Germany: whose disastrous decommissioning of its nuclear power stations produced recurring rounds of lethal blackouts, and returned them to relying on 400 percent price-hiked gas supplied by NATO adversary Russia. I share my colleagues in conservative climate advocacy’s optimism about the immanent electrification of British households. But an ideological commitment to only using renewables — becoming, as the Prime Minister put it, the “Saudi Arabia of wind” — will produce costly generation troughs which fall short of consumer demands. These methods of energy generation also ensnare us in the supply-chains China has a stranglehold over. China presently manufactures 80 percent of global battery capacity, 70 percent of the world’s solar panels, owns 7 of the world’s top 10 wind turbine manufacturers, and has subsumed Afghanistan’s $1 trillion untapped mineral deposits with its Belt & Road initiative.
As C3’s President, Drew Bond, pointed out in the past, China’s commitments to climate action cannot be taken as earnest. Already the world’s worst polluter, Beijing ordered the exceeded capacity at 252 coal production plants following blackouts across the country. This will increase global emissions by 16 percent by 2030 — while the UK’s net zero initiative will eliminate only 1% of global emissions in almost double that time. On climate, China continues to be a crouching paper tiger. Best we don’t make our best laid plans around their transparent cooperation.
Our alternative to insufficient renewables tech, reliance on Chinese money and manufacturing, and importing oil and gas from adversarial states, is simple: passing funding reform for new nuclear projects. The urgency of these undertakings has increased: most of the UK’s 13 nuclear reactors (which supply 21 percent of annual electricity) are due for decommission before 2030. Hunterston B Station shut on January 7th, and Hinkley Point B is due for closure this July — slashing generation capacity.
The EU was recently rebuked for listing nuclear as a “green investment”. But critics of this classification must be ignorant of the facts, or blinded by ideological commitments to only using renewables. Nuclear uses less land, and provides greater grid stability, than existing renewables. Fuel costs are half of that for coal and gas, and plants produce no emissions from electricity generation.
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The impediments to adopting nuclear power aren’t technological, but economic. Under the existing Contracts for Difference scheme, developers only begin receiving revenue when the completed station starts generating electricity. Delays to construction caused by necessary amendments to descriptive legislation escalate initial budgets. Of 80 nuclear plants built before 2014, 97 percent exceeded budgets at a cost rate of 117 percent. Disparate interest rates available to state and private investors make ventures risky for the private sector. EDF borrowed at an interest rate of 9%; the UK Government, at 2%. This disparity alone is estimated to have doubled the price of Hinkley Point C.
As such, government has sought investment in new nuclear energy from various sources. Though the PM has pushed for cooperation with China on addressing climate change, while holding them to account for human rights abuses. Americans were aghast when President Biden repealed an Executive Order which prevented Chinese components being used in domestic electrical grids. Republican Senators wrote to Energy Secretary Jennifer Granholm, expressing concerns that remotely-accessible transformers constituted a national security threat. Meanwhile, in the UK, China General Nuclear owns a 33 percent stake in Hinkley Point C, a 22 percent stake in Sizewell C, and shares in future Bradwell B1 & B2 nuclear plants. The government also pledged £50 million to co-fund a £50 million “cutting-edge” Chinese nuclear research centre in the UK.
The conflicts of interest in these investments are part and parcel of the state-secured loan system of funding plant construction. Moving to a RAB model allows companies to internalise costs of construction in energy prices, and consumers to reap the benefits of clean and cheap energy later. But the model also negates the need for governments to seek large capital from companies owned by our political adversaries.
The proposed ban on investment in Britain’s energy sector from China General Nuclear would be a welcome assurance for national security — though, given recent financial, political, and ideological conflicts of interest concerning China, gaining Labour votes for such a policy may prove difficult. A disconcerting strain of Chinese appeasement may impair Britain’s attempts to decouple our energy sector from their investment — but this does not negate the necessity of doing so. 22 percent of the world’s nuclear reactors under construction are in China, making the market a precarious place for when other countries are looking to purchase future patents and plans for plants.
RABs are a welcome step to making nuclear power a more secure investment for Britain’s net zero ambition. Though likely to decrease construction time by reducing the bureaucratic impediments to sourcing funding, most new nuclear power stations won’t be operable for a decade after the foundations are first laid. In the interim period, carbon-captured repatriated gas manufacturing may be needed while renewables, battery capacity, and hydrogen power play catch-up. Otherwise, consumers will face energy generation deficits, and unnecessary price hikes. But, thanks to this sensible piece of legislation, the prospect of Britain becoming an island independently powered by radioactive kettles is enough to make even the most ardent climate sceptic patriotic.
Connor Tomlinson is the Head of Research at the British Conservation Alliance, and a political commentator for Young Voices UK. He features regularly in American Spectator, The Federalist, on GB News and talkRadio. Follow him on Twitter: @Con_Tomlinson
The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.