Sussex Energy Group SPRU - Science and Technology Policy Research The Economics of New Nuclear Build Presentation at the Nuclear Consultation Group Westminster Keynote seminar, Wilson room, Portcullis House 19 October 2009 Professor Gordon MacKerron Director, SPRU, University of Sussex

Sussex Energy Group SPRU - Science and Technology Policy Research The old economics of new build (pre-1990) Monopoly utilities built reactors – costs over-ran Electricity prices were determined by utility costs So extra costs were passed straight through to customers …..and customers bore all the financial risks

Sussex Energy Group SPRU - Science and Technology Policy Research The economics of new build c.2008 Privatisation also brought liberalisation = (some) competition Electricity price now fixed in a market, independent of utility costs So if a nuclear plant has a cost over-run, and its costs exceed market price of electricity, it loses money this is why the City told new generators not to build new nuclear plant – collapse of the ‘small family’ of 4 (originally 10) PWRs …..and why no-one was interested for next 15 years or so

Sussex Energy Group SPRU - Science and Technology Policy Research The economic risks now: construction Any proposed reactor for the UK (EPR or AP) will be the first-of-a-kind here Its precise design/safety features are for UK regulatory determination Costs of construction will vary substantially depending on the number of reactors to be built Costs will also vary depending on construction time, which may be affected by public opinion/pressure For all these reasons, vendors will not be willing to offer fixed-price contracts Overall conclusion: we do not know how much new reactors will cost, with risks much greater on the side of over-runs

Sussex Energy Group SPRU - Science and Technology Policy Research The economic risks now: market risks To make a case for nuclear, you have to know your revenue stream = future price of electricity for years ahead In GB market, suppliers (retailers) of electricity unwilling to commit to long-term contracts Even where the supplier is also the generator, no-one knows the market price in years’ time, so revenue stream is indeterminate BUT this could be fixed by changing the market rules – and note that both OFGEM and the Climate Change Committee have recently argued that current market needs radical overhaul to suit both nuclear AND renewables

Sussex Energy Group SPRU - Science and Technology Policy Research The economic risks now: waste Waste and decommissioning historically very expensive (£70bn. - £100bn.) Future waste management simpler if, as assumed, no reprocessing But radical cost uncertainty, as long-term management route not clear Hence Government proposal for ‘fixed unit price’ at which Government takes ownership of waste - potentially a subsidy Waste costs unlikely to to a show-stopper for new build

Sussex Energy Group SPRU - Science and Technology Policy Research Waste: the politics Potential show-stopper in relation to waste not economics but politics CoRWM recommended eventual geological disposal for legacy waste Government has conflated this with strategy for new build waste New build waste raises different political, social and ethical issues – question is not ‘least worst’ but ‘what are the alternatives to creating new waste’? No debate along these lines In any case we have not yet met the ‘Flowers criterion’ from not to agree to new build until a clear route for final management of [any] waste exists

Sussex Energy Group SPRU - Science and Technology Policy Research Conclusions New build remains a risky proposition Everyone agrees that it needs ‘support’ – question is when does ‘support’ turn into ‘subsidy’ Note Aldersgate view that need is for “instruments that reduce investor risk” Rule of thumb: if risks are simply transferred – usually to customers – then it’s subsidy Long and tortuous debates ahead about support and subsidies