Hinkley delay would not harm UK energy supply

21 February 2018

The UK would have enough energy if the Hinkley Point C (HPC) project faced further delays, but nuclear power remains an essential part of the country's electricity mix, Business Secretary Greg Clark has told a House of Lords committee. The government does not, however, have a specific target for nuclear energy use in the future, he said.

EDF Energy announced today the completion of the nuclear island foundations for the first of HPC's two EPR reactors (Image: EDF Energy)

Consisting of two European Pressurised Reactors in Somerset, England, HPC will be the first new nuclear power station to be built in the UK in more than 20 years and will provide about 7% of the country's electricity. The 3200 MWe was expected to come on line in 2025, but could now be delayed to 2027, which is ten years later than developer EDF Energy originally proposed.

Clark gave evidence yesterday to the House of Lords Economic Affairs Committee, which in February last year published its report, The Price of Power: Reforming the Electricity Market.

In 2013, the government announced that it expected 16 GWe of new nuclear power by 2030. Asked by the chair of the committee, Lord (Michael) Forsyth, how much of the UK's energy supply the government expected to come from nuclear over the next two decades, Clark said: "We don't have a particular target for the contributions of nuclear by that date, but it continues to be our policy to seek a broad mix of different supplies of energy for the future. Part of our policy was to restart the civil nuclear programme."

On whether there were 'contingency plans' for further delays to the HPC project, Clark said: "It's still in the early days of its construction and estimates will be updated; sometimes things go slower, and then different phases go faster, and part of the conversation my department has is to monitor that."

He added: "But in terms of making sure that we have adequate supplies of electricity for the future, we have an increasingly well-developed now capacity market. [This provides] an ability to secure the power should we need it beyond what is part of the system, and since the Committee's report those markets have increasingly matured and the cost-effectiveness is increasingly demonstrated."

Asked directly whether the country would "have enough power" should the HPC project fail, Clark replied it would.

The final agreements enabling construction of two EPR units at HPC to proceed were signed in September last year by the UK government, EDF and China General Nuclear (CGN). The agreements signed included the Contract for Difference (CfD) and the Secretary of State Investor Agreement.

Lessons learned

Forsyth referred to the "absence of working examples" of the EPR design, and the further delay to the project to build two EPR units at the Taishan nuclear power plant in China's Guangdong province.

Clark said the Taishan project is "close to being deployed". He added: "Part of the advantage in following them is the lessons that have been learned from that deployment can apply directly with us, so that is one of the benefits of following in a series of projects that's taking place." But those are lessons for the developer and not the government, he said.

"It is a feature of the [financing] model; it's not the government running it, it's EDF and its partners and their contractors. But there have been aspects of the design that have been modified during the course of that."

Jeremy Pocklington, the government's director general for energy and security, who appeared with Clark in front of the Lords committee, added: "It is very much for EDF and CGN, their partner, to oversee their development of this project, but I think that as they are at this current stage of developing the very detailed final design for Hinkley - the so-called RC2 design - they have very consciously been learning the lessons from the other projects."

He added: "We have a very developed series of governance that make sure we have proper oversight of the project and we very much track its performance through a series of quarterly meetings that we hold with Nuclear New Build, the developer. Obviously, it is for the Low Carbon Contracts Company to manage the contract on behalf of consumers, under the Electricity Market Reform arrangement."

Too big to fail?

The CfD - the ratepayer-backed guaranteed price for electricity generated by HPC - was originally agreed in October 2013 and guarantees the plant will get GBP 92.50 per MWh for for its first 35 years of operation. Like renewable energy, nuclear power qualifies for a CfD arrangement as a low-carbon source of electricity.

Forsyth suggested that, "like the banks" and the recently collapsed outsourcer Carillion, ministers see HPC as "too big to fail".

Pocklington said: "The obvious point is consumers do not pay a penny until the plant is operational - that's the nature of the CfD and the Hinkley contract. It's important to understand how the capacity market will operate."

He added: "Hinkley is not alone in being a large generating plant that is either coming on line or moving off line, for example with the coal-generating plant. And, as part of the judgements that we have to make through the capacity market, we can ensure that adequate generation margins are maintained. So, as we approach 2020, when this will really start to take effect, the Secretary of State will be receiving advice from National Grid and from our independent panel of technical experts on what is the best capacity market margin to set and what assumptions to make when an individual plant comes on line. We take a cautious and prudent approach in setting that as you would expect."

Forsyth asked, "If Hinkley didn't work, would you look for alternatives?"

Pocklington said: "It's a very complex market that we are considering here and ultimately if Hinkley is late - and I have no reason to think it will be - there are a number of other things that can happen in this market. It may be some plant stays on longer than we had previously anticipated, there might be some other plant that comes on stream. It's very hard to forecast. That's what the capacity market is designed to do, to get the best value for consumers."

Energy mix

Forsyth referred to the Cost of Energy report, an independent review undertaken by Professor Dieter Helm and published in August last year.

Asked whether the government was giving sufficient consideration to the increase in electricity demand that may arise from electric cars, Clark said: "Yes, and we will ensure that it is ... My view is that this is a good time to take stock of the policies that have brought us to where we are today, to look forward to the shape of the market, in particular the demands from new technologies that will place demands on the system, as well as the technologies that will help the system be more flexible.

"The priority very clearly at the forefront of all our minds is we will make sure at every point that we have the power we need in whatever state the economy is, and if it grows to the extent that we need more, then that will be commissioned."

Lord (Norman) Lamont asked about the second allocation round of CfDs that produced lower prices than previously for offshore wind power, and whether the government should "reconsider the energy mix".

Clark said: "No. We look at the success of the CfD auctions as having brought down the price of offshore wind progressively and in previous discussions with this Committee, various committee members recommended market mechanisms to drive down costs and that has been successful, so we are committed to that. We did as the result of a manifesto commitment commission Dieter Helm to take a look at the future arrangements over the longer term to make sure the institutions and the mechanisms that we have are optimal to both achieve the energy security that we need at the lowest possible cost and consistent with our legal obligations."

Lamont then asked about the "case for nuclear" in view of the fact there had been, he said, no formal statement about it by government for ten years.

Clark said the government's policy towards nuclear power addressed the need for baseload electricity and for diversity in energy supply. This is "one of the principles of security that we want to respect".

He added that nuclear power's more than 20% share of the UK's energy mix "is an important part of the diversity of supply that contributes baseload in a way that clearly renewable [energy], as much as the price is falling, is not able to do in a dependable way". Nuclear power "is a technology that, when we made the assessment in the case of Hinkley, is competitive with alternative sources when the costs of intermittency and other aspects of and the consequences of requirements to meet our climate change targets [are taken into account]," he said. "But that does need to be kept constantly under review. It was a negotiation that resulted in the contract agreed with Hinkley and every new nuclear power plant would have to go through a value-for-money assessment, but it was completely right to proceed with the programme, not least because of its strategic part of the mix."

Industrial Strategy

Asked about the Industrial Strategy the government unveiled last year and the important role of nuclear power in that, Clark said: "It was a deliberate part of our Industrial Strategy. The last time I was here, I said that one of the other dimensions of energy strategy there should be regard to the industrial consequences for us, whether we have an industry there that has the potential to thrive, not only domestically but internationally."

He added: "Being the first civil nuclear industry [in the world] we have the assets and attributes that are valuable and so the reason for specifying nuclear as part of Industry Strategy which proposes a Sector Deal is that if we are going to have a very long-term relationship between the state and private operators, then it's important that we get the most out of that relationship. There was a commitment to local content being used and to establishing a training school for apprentices.

"So, across the nuclear sector, we want to see more of that long-term dividend, rather than a series of short-term transactions being entered into and what it's going to do for the rest of the economy and the people working in it."

Asked how a lower price might be achieved for future nuclear power projects, Clark said, "There are a number of different ways. Clearly, as with the EDF project and learning some of the lessons from their previous installation of the technology is one aspect of this. In terms of the supply chain, there is already developing around the Hinkley project, both in Somerset and beyond, a greater capacity for suppliers to tool up and be ready to supply that project. Having established themselves, one would hope and expect that their efficiency would be so much greater for further investments. In terms of the workforce, it's so many years since we last built a new nuclear power station in this country that the workforce has aged and there is a need to bring on a new generation of nuclear engineers.

"So, the point of making it part of the Industrial Strategy is deliberately to think about and target those aspects, which as well as being beneficial for the economy of the country, also have the benefit in many cases of putting downward pressure on costs. You've got a more available workforce, you've got a better supply chain."

Researched and written
by World Nuclear News

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