The Price of Nuclear Generated Electricity

Recent events, especially concerning the proposed European Pressurised reactors at Hinkley Point C and the proposed AP1000s programmed for construction at Moorside, adjacent to Sellafield, in Cumbria and at Wylfa in Anglesey have given a misleading impression as to the costs of nuclear generated electricity.

These aforementioned stations represent a compelling reason why nuclear reactors cannot be built economically in the private sector, which being the enormous costs of capital often encountered in the private finance arena. Almost all the costs of nuclear generation are related to the expense of building a nuclear power plant in the first place, costs of running one you already have are less than a penny per kilowatt hour as was demonstrated in last week’s blog post.

The rates of return demanded by the consortium constructing Hinkley Point C are something approaching 9% - this being the primary factor driving the enormous £95/MWh strike price that has recently been agreed with the government. This is indeed the most important factor, driving even the selection of the disaster that is the EPR into the background.

Hanbit Nuclear Power Plant in South Korea

A Recent OECD/International Energy Agency report into the costs of nuclear and other forms of energy across a variety of market places this into sharp relief. The costs for nuclear range from $29-$64/MWh with capital discount rates of 3% per annum up to $51-136/MWh with capital discount rates of 10%. With electricity rates on the wholesale market in the UK tending to average around the £45/MWh (~$68) mark it is clear that electricity from nuclear generation could be competitive for a large fraction of the total energy supply if capital rates of around 3% or so can be obtained.

Unfortunately, once the 3% figures are further examined it appears that the UK is the most expensive market analysed with a cost of ~$64/MWh, as opposed to South Korea’s achievement of the $29/MWh – this could be put down to the presence of an ongoing and continuous nuclear programme in South Korea spanning at least two decades of continuous improvement and construction as well as the fact that they have selected a different reactor design than the reactors projected in the United Kingdom.

It could be expected that a large scale build out, such as that associated with a near total decarbonisation of the economy, would produce a figure that would tend to approach the $29/MWh mentioned above, so I will take $30/MWh as the achievable cost of generation if the hurdles of good reactor design and low capital costs can be overcome.

A question of capital

So the question becomes – can very large sums of capital be obtained at a discount rate of only 3%?

Well the answer, at least in the current economic climate, is emphatically yes – if you are willing to go against one of the primary taboos of the post 1979 economic consensus and simply use government capital to purchase reactor plants outright. Current discount rates on 30 year gilts are roughly 2.54% - providing a large window of opportunity before the 3% barrier is breached.

With the relatively poor economic outlook and many tens of billions of pounds of new government debt being issued each year it is unlikely that the required expenditure of ~£200-300bn pounds over five to ten years would cause catastrophic escalations in bond rates. However if the markets are unwilling to provide the required capital at the market rates we can tolerate it might be possible to make use of some sort of public campaign to persuade the public to purchase ‘Green bonds’ that would go towards paying for the construction of reactors in the same way that the public purchased enormous quantities of war bonds during the World Wars.

 

WWI War Bonds Poster

Selecting a reactor design

Whilst the capital cost problem has become the primary factor in the problems associated with nuclear power production in the UK, another has been the insistence on selecting the EPR as the primary reactor for construction here.

This is largely due to the domination of Electricité de France in the current nuclear generation market in the UK which has led to them adopting the reactor that is currently being built from them at Flamanvillle – despite the fact that the reactor is several times over budget and six years late.

Additionally the only other reactor considered for construction in any serious manner in the UK is the AP1000, which, whilst it is doing considerably better in the construction stakes than the EPR, is dogged by questions as to the reliability of its critical primary circulation pumps that have repeatedly suffered from blade failures and cannot be replaced during the life of a reactor.

The reactor design to be selected for a large scale buildout should be the simplest reactor possible that has completed design development and has the greatest selection of passive safety features available to help allay public concerns as to the safety of nuclear power.

Whilst the APWR-1000 currently under construction in South Korea and the United Arab Emirates has a record of progressing through construction on time and budget (Barakah-1 in Dubai is currently 75% complete and has not slipped a single month on its schedule) the reactor is a relatively primitive two loop PWR that relies on active safety measures that are expensive to operate and maintain and are vulnerable to common mode failures, as demonstrated at Fukushima-Daiichi during the aftermath of the 2011 Earthquake and Tsunami.

On that basis I have decided to base the remainder of my calculations on the assumption that the ESBWR would be the primary reactor selected for construction in the United Kingdom.

The ESBWR has the advantage of reusing mostly proven components from the predecessor ABWR design, that has several units built in Japan, the first two of which were actually completed on time and under budget, a rarity in modern nuclear power plant construction.

Meanwhile it develops the design to improve safety by removing the reactor circulation pumps entirely and relying simply on natural circulation to move water through the reactor vessel – removing the need for diesel generators to operate the pumps in an emergency. This results in a plant that can operate in a post-scram condition for several days without operator activity, operating generators or a supply of cooling water as the reactor is cooled by the evaporation of water in tanks mounted at the top of the containment building.

ESBWR block diagram

After 3-7 days the tanks must be refuelled which can be accomplished using a single portable pump of the type that can be carried by two people – as this make up water will not at any time come into contact with the reactor vessel the quality is relatively unimportant and even seawater could be used in an emergency without causing significant core damage from corrosion or scaling.

The probabilistic accident analysis of the ESBWR indicates it has a core damage frequency far lower than any other available reactor design and thanks to its simple design and absence of active control and safety systems it promises to be buildable at a reasonable cost and in a reasonable time.

Conclusion

Nuclear buildout remains feasible and can generate huge quantities of electricity at prices as low as $30/MWh, which is less than half the current average market price in the UK – but only if built with government capital as part of a large scale and concerted build out.

Although government construction and ownership of power generating plant is an anathema to the current economic consensus I believe this the only way to deliver the energy our civilisation needs without huge environmental impacts and without condemning the poorest in society to a miserable existence in which they struggle to heat and light their homes – let alone take part in a modern society with all its electrically powered conveniences.

In future blogs I will examine the effects of such cheap electricity on the costs of energy distribution and on the home before moving on, eventually, to the effects on industry and wider social and economic changes.