The financial risks of nuclear power

I've been reading a report from EnergyFair on the risks of investment in nuclear power stations which I'd like to recommend to others:

     The Financial Risks of Investing in New Nuclear Power Plants

I think it will go some way to explain why E.ON and RWE npower decided to pull out of the Horizon Group formed to build Wylfa B, and why it might be hard to find other investors that are prepared to take these financial risks. For those who want a taster before reading the whole thing, there's a basic summary of the report here.

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15 comments:

Syd Morgan said...

Thank you for this, Michael.

Owen said...

I'm presuming that these companies tried to court investors from Germany? The German decision to close its nuclear plants and the proposed tax on uranium as a fuel must've been the clincher.

Anonymous said...

Russia is considering buying a stake in Horizon.

http://rt.com/business/news/rosatom-uk-nuclear-station-016/

MH said...

I'm not sure, Owen. If the business case was sound, then E.ON and RWE would surely have been able to raise capital from anywhere in the world. They wouldn't have had to rely on German investment. And the German decision to tax uranium would have no financial bearing on the viability of a project anywhere else in the world.

But obviously the German decision to quickly phase out nuclear does matter. It reduces the amount of money those companies can make from the nuclear plants they operate in Germany, leaving them more cash-strapped and therefore reliant on investment; and there are obvious advantages of scale in running nuclear power plants in both Germany and the UK rather than just in the UK.

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As for Russian interest, Anon, I think that Wylfa B will only go ahead if the amount of public subsidy is increased to the point of making it worthwhile, or if an operator that is not motivated purely by the financial viability of the project can be found. The Russians fall into the second category. They could choose to go ahead because it gives them a toehold in the nuclear industry of a country with nuclear weapons (i.e. because there is a geo-political incentive) and because they can afford to write off any loss. The more important question is whether the Americans will allow the UK to bring Russia into its nuclear industry.

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On a slightly different note, I continue to be amazed at how proponents of Wylfa B continue to turn a blind eye to the obvious. For example, Dylan Jones-Evans has said today in his blog that:

"There does not seem to be any specific technical or economic rationale for withdrawal, with insiders suggesting that political pressure may have been the main factor in the decision to pull out of not only plans for Wylfa, but other nuclear developments in the UK."

Doesn't the EnergyFair report give enough financial reasons why nuclear power can never be a viable commercial proposition? I can only assume that Dylan means he can't single out any specific reason because there must be at least half a dozen of them.

And it seems very naïve to rely on what RWE say about "the quality of the project itself" if we bear in mind that RWE and E.ON are looking to sell their interest in Horizon, and therefore have an obvious incentive to talk up its attractiveness in order to get some sort of return on what would otherwise be completely wasted investment.

MH said...

If I were asked to guess the most likely outcome, I would say that the UK will put all its effort into trying to assure that the projects that are most advanced aren't abandoned too. The most advanced are Hinkley Point C and Sizewell C, both by EDF. The UK government could then claim that it is replacing nuclear capacity in England and "keeping the lights on" without having to make a complete U-turn, and will quietly drop the others as being too much of a financial risk.

EDF, of course, is a company predominantly owned by the French state and therefore could afford to go ahead with something that is not commercially viable for political reasons. The big question is what will happen if François Hollande is elected president of France, which I'm sure he will be (take a look at this video for a taste of how unpopular Sarkozy is). Hollande is committed to cut back French reliance on nuclear energy, and the talk is that EDF might therefore withdraw from the UK nuclear market.

I don't think that will happen for two reasons. First, EDF is currently running most of the UK's nuclear power plants (all except Wylfa and Oldbury) and therefore can't pull out. And second, that France itself is so heavily dependent on nuclear that it can't make the same decision as Germany; it can only cut back its nuclear programme rather than do away with it completely. I don't think Hollande will have any qualms about saving French worker's jobs by having them build new nuclear reactors for England instead of France ... from his point of view it would be an ideal solution.

Ambiorix said...

This part is quite amusing from the article:
========================================
The tumbling cost of photovoltaics (PV) and the falling costs of other renewables, with the likely completion of the European internal market for electricity and the strengthening of the European transmission grid, means that consumers, large and small, will be empowered to generate much of their own electricity or to buy it from anywhere in Europe -- and this without the need for subsidies. Explosive growth of PV is likely to take much of the profitable peak-time market for electricity. And there will be stiff competition to fill in the gaps left by PV,
====================================
I'm afraid solar is in trouble as well,it would be nice if they checked their facts first.
See the two links below:

1)http://www.zerohedge.com/news/worlds-largest-solar-plant-21-billion-energy-department-loan-guarantee-files-bankruptcy

2 http://www.spiegel.de/international/business/0,1518,825490,00.html

Anonymous said...

"Doesn't the EnergyFair report give enough financial reasons why nuclear power can never be a viable commercial proposition?"

Would EnergyFair not be the anti-nuclear organisation set up by Gerry Wolff, anti-nuclear campaigner? Oh, it is! When you click on their homepage the top banner says "Please support Stop Hinkley and sign the Nuclear Pledge". Not biased at all then, eh?

MH you really do make yourself look stupid sometimes when you pretend to be linking to unbiased reports.

MH said...

I must admit to being a little surprised at the report's emphasis on PV, Ambiorix. I thought there would be much more emphasis on marine power, particularly tidal. But perhaps that's because tidal power is much more important to Wales than it is to the UK as a whole. Tides in our half of the Severn estuary could generate half the electricity we need, but the other half would provide maybe only 3% of England's needs. What's major for Wales is minor for England, and that is probably the main reason why there has been no appetite to take things like tidal lagoons forward by the Westminster parties. If Wales was in charge of its own energy policy, we would surely have different priorities.

There are two types of solar power: one form relies on the sun's heat, the other relies on its light. I tend to use the term "solar" for only the first, calling the other PV (photovoltaic). Interestingly enough, one of the reasons for the Solar Trust of America finding itself in trouble (your first link) is because it decided to switch horses in mid-stream and redesign Blythe for PV rather than solar due to (as it says here) the plunging price of PV panels. And that is also what scuppered Q-Cells (your second link) ... the fact that far east manufacturers are now producing PV panels so cheaply that the Q-Cells model was being drastically undercut. But what's bad news for Q-Cells as an individual company is surely very good news for the future of PV as a whole.

The thing that we're only just beginning to grasp is how PV can be used. We've tended to think of it as something to be bolted on top of our roofs, and there's nothing wrong with that. But if we start thinking of it as an integral part of the way we design buildings, we will see PV panels used instead of other cladding materials for roofs and walls.

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I don't think you understand the meaning of the word "biased", Anon. It doesn't mean coming to a different conclusion from the one you want. Using that definition, anyone who advocates nuclear energy must also be "biased".

The EnergyFair report is full of links to the sources of its information. If you disagree with what it says, why not tell us what you disagree with? We can then discuss it constructively.

Anonymous said...

MH - I don't think you know the meaning of the "biased" yourself. When a report which says Nuclear powerstations are not vaiable comes from an organisation led by a well known anti-nuclear campaigner and even has the words "Please support Stop Hinkley and sign the Nuclear Pledge" as its homepage banner, it is clear that there is an agenda.

You should look up "confirmation-bias", because your posts are full of it.

Cibwr said...

The fact is that Nuclear is only financially viable if you remove the cost of decommissioning and storage of waste. Those are the only facts that we need to decide that nuclear is not a viable option.

MH said...

I asked you to tell people what you disagreed with in the report, but it looks like you only want to make accusations, Anon.

Anonymous said...

MH - the whole thrust of the argument is because PV is becoming cheaper combined with better intergrid connections to the continent, we won't need nuclear power after all. Its such a silly argument it barely needs to be taken seriously:

1. how will we obtain power during nighttime when the majority of consumers actually require electricity?
2. likewise, what about the winter months when the sun shines less?
3. Even George Montbiot himself has said that PV panels are a joke when placed further north than the Med.

If you have concrete arguments against nuclear then make them. Don't hide behind a laughable report like this to make it look like your case is supported by 'independent' experts.

The more you wriggle, the more silly you look, MH.

MH said...

I don't know what argument you're having, Anon, but the report is about the financial risks of nuclear power and I posted it because it is relevant to the decision of E.ON and RWE npower not to go ahead with Wylfa B. PV certainly isn't the "whole thrust" of it, as anyone who takes the trouble to read it will see for themselves.

But if you want to talk instead about whether Wales needs nuclear power (irrespective of the financial risks involved) the answer is very clearly no. As I've shown in many previous posts we can produce more than all the electricity we need from renewables. This is not just my view or Plaid Cymru's view. It is also the view of Labour and the Tories. In terms of projects currently in hand, as detailed in this post, Wales will actually be producing something in the region of 18.3 TWh of electricity a year from wind alone when the Atlantic and Celtic Arrays are completed, which is more than 90% of what we consume. This is without taking into account all the other forms of renewable energy such as hydro, tidal power, biomass or (if you want to include it) energy from waste.

In other words Wales doesn't particularly need much electricity from PV, but anything we get will be useful and will fit in well with our pattern of consumption, because (contrary to what you suggest) we actually use more electricity during the day than at night.

In terms of the electricity produced by PV, the UK generated 20 GWh from an installed capacity of 26.5 MW in 2010, and 33 GWh from 76.9 MW in 2011. The capacity factor is distorted because the installed capacity is for the end of year, but the gereration figure for the whole of the year; an average capacity factor of about 9% would be about right.

The UK government reckons on us installing 20 GW of capacity before 2020, which would produce about 15.8 TWh a year. Assuming Wales had a pro-rata share, that would mean us generating 0.79 TWh a year in Wales, or about 4% of what we currently consume. Not huge, but significant.

However according to the Tyndall centre, the practical potential of PV in the UK is 266 TWh a year. Wales' pro-rata share of this figure would be 13.3 TWh, which would be would be about two-thirds of the electricity we currently consume. Personally I think this is optimistic, but everything will depend on cost. The point made in the report was that, according to a report by Ernst & Young, "by 2020 it is likely that commercial and industrial consumers in the UK will be able to generate their own electricity using PV at a cost, without subsidies, that is competitive with buying it from the grid." If we get to that point, then there really is nothing to stop us putting PV everywhere.

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Finally, I'd warn you to be more circumspect in your choice of words, Anon. No-one is "hiding behind" this report, no-one has claimed it is "independent", and we all have an "agenda" ... even, in case you are blind to it, you. There's nothing wrong with having an opinion and using a report to show why you hold it, but merely reaching a conclusion which you happen not to agree with does not make anyone "biased". So be more careful about what you say, or your next comment will be deleted.

Siônnyn said...

John - I still don't believe that the intermittency of Wind and Solar power has been fully addressed. The National Grid addresses this in its Operating the
ElectricityTransmissionNetworks in 2020
, but I'm afraid I don't find it completely satisfactory, as it assumes an increasing nuclear contribution, and using nuclear power bought from france to meet demand.

It estimates that it will need a threefold increase in energy storage facilities - we have dinowryg and Dan y Grisiau, and in my view, this is where Wales should be concentrating its efforts.

Wind turbines are all very well, but their load factor is only 30%, and at least half of that will be produced when there is no demand for electricity, and there will be times when the demand is there, but not wind energy is available. So it has to be stored somewhere if renewables really are to become more than just a sop to green consciences.

Apart from pump storage in the mountains ( and I would like to see every wind farm on high land have one of those scaled to its capacity), tidal lagoons can be used for pump storage, and also controlled so that their energy is released at peak demand times.

Energy can also be stored as compressed air - perhaps that would be a better solution to storing wind energy, if every turbine had a compressed air facility to hand.

We really be should be looking at energy storage every bit as urgently as generation, in my view.

Cibwr said...

Agreed, that and a balanced portfolio of renewables.

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