ViewpointCompetitive energy markets and nuclear power: Can we have both, do we want either?
Introduction
In 1987, the UK Conservative Party was re-elected to government. Their manifesto included promises to transform the electricity industry into a privatised competitive industry and to promote an expansion of nuclear power (Conservative Party, 1987). Many commentators believed that these two objectives were incompatible. In 1989, in order to fulfil the promise to privatise the electricity industry, the government was forced to withdraw the nuclear capacity from the sale and abandon all nuclear expansion plans. This was interpreted by these commentators as confirming the incompatibility of new nuclear build with a competitive electricity industry. Despite this experience, in 2007, the British (then Labour) government launched a new policy to build nuclear power stations that would be built by the private sector and compete without subsidies in the electricity market. However, by the start of 2010, the utilities, which had earlier endorsed the government’s nuclear plans, were becoming nervous and broaching the need for various forms of support if they were to build nuclear plants. Much more surprisingly, in February 2010, the government and the economic regulator, the Office of Gas and Electricity Markets (Ofgem), seemed to signal the likely abandonment of the wholesale electricity market.
From 2000 onwards, worldwide concern about climate change has grown and finding measures that will deal with this issue has come to dominate the energy policy agenda. Many governments have based their energy policies on a combination of revitalising the nuclear power option and introducing competition to energy markets as instruments to meet their energy policy goals. If the UK, the pioneers of competitive energy markets and one of the leading nations trying to revitalise nuclear power1 , were to have to acknowledge that this combination of policies will not work, the basis for many current national energy policies would crumble. This article examines the two attempts, in 1987 and 2007, by the UK to combine expansion of nuclear power and competitive energy markets, explains the failure of the first attempt and comments on the prospects for the second attempt.
Section snippets
Why might liberalisation and nuclear power be incompatible?
It is clear that existing nuclear power plants can be fitted into competitive electricity markets. The fact that construction is complete and a track record of reliability exists significantly reduces the economic risk and if the construction cost is already amortised, the plants may be so profitable that governments will want to recover some of these profits through a windfall tax.2
There are two simple arguments why building new nuclear power plants that
The failure to privatise nuclear power in 1990
Britain had a very unusual stock of nuclear power plants in 1987 (MacKerron, 1996). It had nine nuclear stations of the so-called Magnox design, the first-generation designs, all of which were completed in the period 1963–1971; and seven advanced gas-cooled reactors (AGRs), five of which were ordered in the period 1965–1968 and two in 1979. The only plant of a design widely used outside UK was a 1200 MW pressurised water reactor (PWR) on which construction had then just started (Sizewell B).
The revival of nuclear power’s fortunes
By 1995, when the government’s review of nuclear power policy was actually carried out, Sizewell B was complete so the risk of construction cost escalation no longer existed and early operation suggested it was likely to operate reasonably reliably. The reliability of the AGRs had improved enough that the AGRs and Sizewell B were then able to more than cover their operating costs from the proceeds of sale of their output to the wholesale market. As a result the government proposed the
Progress with introducing competitive energy markets
In 1989, the UK government decided introducing energy markets was a higher priority than reviving nuclear ordering and for at least the first decade, the ‘British Model’ was portrayed worldwide as a successful model that should be emulated. However, since then, the high reputation of the British reforms has become increasingly tarnished.
The ‘British Model’ is based on creation of a wholesale market and retail competition and unbundling networks from competitive generation and retail activities.
Is nuclear power economically feasible in a competitive market?
If the economics of nuclear power were attractive, that is, if over the life of a plant, the impact of the nuclear plant would be to make electricity prices lower than if it had not been built, the fact that it was not financeable in a competitive market would be seen more as a failing of the competitive model than of nuclear power. A competitive market is a means to an end (to affordable reliable power) not an end in itself and if the market is not allowing the cheapest options to be built,
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2014, Applied EnergyCitation Excerpt :Tables 3,4 provide LCOE calculated at different values of the WACC rate. In a market context, the obtained results show that the nuclear source seems to be not competitive in comparison with fossil fuels technologies under the economic standpoint, particularly for high values of the WACC rate [25]. This means that the nuclear option is not economically viable if the level of risks perceived by the investors keeps standing high [26].
The economics of new nuclear power plants in liberalized electricity markets
2013, Energy EconomicsCitation Excerpt :Therefore, even under favorable cost scenarios it seems unlikely to expect a spontaneous decision by utilities in liberalized markets to invest in new nuclear power plants, unless either the nuclear industry itself, or the government, steps in to change the current situation and reduce the uncertainties involved. Indeed, this seems to have been proven in the case of the UK, where in a context of political support for nuclear power plants but no subsidies, utilities suggested that they would need some form of support if they were to build new nuclear power plants (Thomas, 2010) — as already anticipated by some (Citi, 2009). The promoters of the Hinckley Point C nuclear power plant, for example, are requesting a guaranteed price between 80 and 120 euros/MWh, clearly above wholesale prices (Reed, 2013).
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2013, Energy Strategy ReviewsCitation Excerpt :It is often said that constructing nuclear power is not competitive on free electricity markets due to the large investment costs and related risks seen by financing institutions. For instance, Thomas [3] has concluded from the UK viewpoint that construction of new nuclear power is not feasible on the liberalised market due to its capital intensiveness and related long pay-back times, which, when electricity market prices fall, will rapidly accumulate losses. As the second key reason he sees the poor record of nuclear power in meeting forecasts of construction cost, construction time and reliability.