23/04/19 – The Future of Nuclear Energy in the UK

Speakers: David Orr, Rolls Royce; Paul Spence, Director of Strategy and Corporate Affairs, EDF Energy, and Malcolm Grimston, Nuclear Industry Association. 

23 April 2019

All-Party Parliamentary Group on Energy Costs

‘The future role of nuclear energy in the UK’

Chair: Alan Brown MP

Speakers: David Orr, EVP for the Small Modular Reactors Programme and consortium lead, Rolls Royce; Paul Spence, Director of Strategy and Corporate Affairs, EDF Energy; Malcolm Grimston from the Centre for Energy Policy and Technology at Imperial College London

Chair’s Opening Remarks:

I’d like to extend a warm welcome to you all to this, the 50th meeting of the All-Party Parliamentary Group on Energy Costs.

I am Alan Brown MP, the SNP’s energy spokesperson and a vice-Chair of this Group.

We meet this evening to discuss the future role of nuclear energy in the UK. I must confess, and I’m certain that speakers are aware, as a chair I like to be a neutral chair but I’ve made a few comments about nuclear that are on record, and my party in Scotland has a non-nuclear policy so apologies to speakers for putting this confession out there. It’s up to you to convince the room – and myself.

Britain’s old nuclear power stations supply about a fifth of electricity supplies and are a key part of the energy system. However, their share of the mix has been gradually shrinking as renewables have grown and energy demand has fallen.

Seven of the eight nuclear sites will have shut by the end of the 2020s as they reach the end of their lifetime, with only Sizewell B in Suffolk continuing to operate. Four of the existing eight are going to be decommissioned by 2024, so that’s going to leave a real gap in the existing energy generation capacity. Just by the way, I put in a written question asking what the Government intend to do to replace this capacity, and part of the response was “We’ve got decades to decide this”, which seemed quite strange to me.

So far the only new nuclear project to be given the go-ahead is EDF Energy’s Hinkley Point C, which will power about 6m homes when complete. It’s unlikely to be operational until 2027 and there could be further delays.

There were concrete plans for five nuclear plants in the running to meet the UK’s new nuclear ambitions. But three of those – Moorside, Wylfa and Oldbury – have been shelved, throwing UK energy policy into chaos.

In the meantime, a consortium led by Rolls-Royce has asked for more than £200m in government funding to help develop its project for small nuclear reactors

Supporters of small modular reactors — most of which will not be commercial until the 2030s — argue that they can deliver nuclear power at lower cost and reduced risk. My understanding is that they built almost in a factory kind of process where you have a number of SMRs built the same way and therefore costs get reduced as production increases.

Rolls-Royce has previously said it believes its reactor would cost about £2.5bn to build.

The UK government has said it will publish a white paper this summer that will overhaul its energy strategy. While nuclear is expected to remain part of the mix, the government said it is keen to examine new funding models and approaches.

We have three very pertinent speakers this evening to address this difficult issue.

David Orr, EVP for the Small Modular Reactors Programme and consortium lead

In terms of nuclear, whether it be large or small, we do see it as a key and critical part of the energy mix for the future of the country. We don’t believe that any one solution will resolve the energy needs that are required in the UK or in other countries, and a good balanced energy mix is sensible from a number of perspectives, not least the utilisation of nuclear where you’re at greater than 90% effective utilisation on the system.

The other thing is that this follows the trends that Government are seeking, which I think are absolutely right, for example the Industrial Strategy, the Clean Growth Strategy, you then take that down to the nuclear sector deal – and the Energy White Paper has also been mentioned in terms of future energy policy.

So it addresses a number of areas. If we really want to decarbonise, then it has to be a balanced energy mix.

The other thing I wanted to mention was that effectively within that, it doesn’t have to be a significant amount of nuclear. In reality it’s probably less than a third. We’ve been talking 20%. It depends on the demand and on what we’re going to decarbonise. Everybody goes on about electric vehicles and the electrification of transportation, and certainly that is going to increase the demand. But the big one that people don’t mention as regularly is the decarbonisation of heat. The power that’ll be required to substitute for thermal power in this country is massive when compared with the electrification of transportation.

So, we’ve looked at SMRs. We’ve looked at them a number of times, so it’s not new for us. The first small modular reactor we looked at was in the mid 1980s. Effectively it was a safe integral reactor (for a Canadian ice-breaker vessel) which isn’t the one we’re proposing at the moment. That was the first one I worked on. They have been around a long time, and we keep dipping in and out of SMRs.

For those of you who don’t know, we also put in a bid with NuScale for the Department of Energy funding as well at the time. When they secured that in the United States we moved away from that, but we were involved at that point.

I was asked a straightforward question by one of our Board Members, which was, “If SMRs are so good, why does nobody ever build one?” So we went back to first principles and looked at market-driven requirements. When you start looking at the nuclear industry, it is a massive infrastructure programme. It’s a power station and not just a nuclear island. When you look at the costs, only around 20% of the capital cost is the nuclear island itself. Of the balance, 40% is the turbine island and 40% is the civil infrastructure.

So what we started looking at were the major drivers of cost. Unsurprisingly, certainty of programme delivery is the major one. The other one is repeatability of designs. For us, we also started looking at finance and weighted average cost of capital, and actually, that’s the largest sensitivity of the lot –  far more than power, far more than effectively any of the other sensitivities we’ve got. It’s a higher one with capital cost itself, utilisation of the plant, more operational costs, and certainly miles more than the development budget, which is one of the lowest sensitivities when you look at the relative costs and compare with the outcome you require.

So then we started looking at ways that we could address that, it became clear that what we were intending to do is take as much production off the site as possible. We’re talking effectively about factory-driven components, and that isn’t just the primaries, it’s mechanical and electrical modules and also civil modules as well. Necessarily we will have to work closely with the regulators because that is some little way of a departure – although not that much I don’t think.

The next thing is getting reduction for high-complexity technical components in factories so you’re looking at a learning curve in order to achieve an effective volume as opposed to size: instead of economies of size we’re talking about economies of volume. Then what needs to be done is to try and standardise as much above-ground conditions as possible, and what we’ve done is to look at how to modify site conditions in various different countries and seismic areas, in various different conditions, to actual disintermediate the site conditions.

Then, turning to the interest rate being charge for finance, a lot of it is because it’s a high-risk infrastructure project. Making it look like a factory modularisation process whereby the time the assembly is being done, the risky bit – the site disintermediation – is behind you, brings the interest rate down.

Our particular design is a 1276 MW thermal 440 MW electrical small modular reactor. When we talked to operators and utilities what they wanted was the most power we could get out of it, so that’s what we did.

All our components are transportable by road or rail. What we wanted to do was to make sure that those components were charged the right interest rate, i.e. factory-production interest rate, not a difficult-on-site-construction interest rate.

So those are the things that we’re attempting to do, and with that management and modification we should go down a reduction curve in the levelised cost of electricity for power stations. What it would do as well is give us significant benefit in terms of skill sets, supply chain, academia and high-value, long-term sustainable jobs.

The other thing is the size: it only covers 4 hectares, which is just the power station itself. We can also use what we call a site factory, which is a self-erecting fancy tent we can use to disintermediate both weather and environment conditions, so again you get the benefits of that whether it’s hot or cold and wet in the country.

So what we’ve tried to do in our design process is to try to get to certainty of delivery and to reduced levelised cost of electricity over volume production.

Paul Spence, Director of Strategy and Corporate Affairs, EDF Energy

From our perspective, the starting point is that there is absolutely no doubt that we need to act on climate and climate change, and as we are seeing at the moment there is a growing public appetite to do just that. If we are going to decarbonise, then energy and in particular electricity is the key to decarbonising the economy and if we are going to get to net zero, we are convinced that nuclear has an important role to play in getting there.

I should say that EDF here in the UK are working hard on more of the levers of decarbonisation: innovative, data-driven technology solutions, energy efficiency, deploying renewables at scale, developing new renewable projects, running existing nuclear stations for as long as they continue to be safe and economical, and building and developing new nuclear power stations. So we think all of the levers need to be involved if we are to decarbonise, but in that low carbon mix we do see a role for nuclear.

Like David, we see that role as being round about 20% and maybe up to 30% depending on the scenarios you run, but certainly more than is available or is being built at the moment in terms of the stations that will continue to operate through the 2030s to the 2050s and beyond.

The next thing I should say is that we know how to build them. After 2½ years we are about 30 months into the construction of Hinckley Point C, and after that time and a lot of earth moving, concrete pouring etc. we remain on the timetable that we set ourselves. This expects that by the middle of this year we will have finished the reactor base for unit 1. Unit 2 is about a year behind in the schedule and is also on track. Once we have the base we will start building. At the moment we have just under 4,000 people on site every day, half of which are local to Somerset and the South West. 65% of the spend is or will be through UK companies. There are already 350 apprentices and over the life of the project that will grow to 1,000. We have spent about a billion pounds in the South West out of the £4 bn we expect to spend over the life of the project. The whole project is about £18bn in total and will produce a station at the end that will generate 3,300 MW, run about 90% of time over its life, and will produce about 7% of the electricity that the UK needs. It is a big project in every sense and it is having a big and positive impact in the South West.

David talked about the merit of replication and copying. There is a real benefit and opportunity that we have now to do the same as we are doing at Hinckley on the east coast of England at Sizewell. If we do that, we know that we will not need to repeat about 20% of the effort that was needed first time around, because it was the work to get the design approved and to address the specific regulatory requirements and to qualify the supply chain to be able to deliver to the necessary standards. So if we move smoothly from the first to the second, we can say with confidence that the cost of the project will be 20% lower. The risk will also be considerably lower because the team will have done it once and will be able to do it more confidently second time around. This lower risk also has a benefit on the cost of the financing of the project.

What we are hoping is that the Government is going to follow the recommendations of groups like the National Audit Office, various expert committees etc. who have said that we should consider a regulated asset structure: something similar to the structure that is being used for the Thames Tideway Project which successfully reduces the cost of capital. If we use something like that to finance construction of a nuclear power station which, when we talk to the people who provide money, looks possible for a less risky second-of-a-kind project. If we do that then we can reduce the cost to consumers even further and in that future energy mix with lots of solar and lots of renewables, the nuclear programme can be there providing grid stability and power stability whatever the weather. And it can be done for a cost that is competitive and equivalent to the cost of the other low carbon sources. It would generate enormous industrial benefits, enormous amounts of power that we need for a decarbonised economy and if, as I believe, we show that the UK can do this in a world-class way, it paves the way to a mix that does include smaller reactors and gives UK companies an opportunity to do this in more places around the world as they seek to decarbonise as well.

Malcolm Grimston from the Centre for Energy Policy and Technology at Imperial College London

In the period from 1975 and 1995 we saw the percentage of global primary energy from non-fossil sources increase from 6% to just over 13%. It then took us until 2016 to cross the 14% mark. In fact we have trodden water in terms of the percentage of non-fossil energy for over 20 years now. We recall that 1997 was the year of the Kyoto Protocol when the world finally decided to take climate change very seriously, so let’s just reflect on the scale of the achievement that we have managed since the Kyoto Protocol came into existence. Between 1997 and 2017, global use of oil has grown by 27%, global use of gas increased by 62%, global use of coal increased by 63%, even though in the UK we’ve just had our longest period without coal since the industrial revolution. Our achievements since we decided that we had to take climate change seriously, is that energy use globally has increased by 52% and carbon emissions from energy use have grown by 47%.

So that is the basic achievement that we are looking at after 20 years of taking climate change very seriously.

In effect therefore, the era since the Kyoto Protocol has been the era of fossil fuel. Fossil fuel grew at a faster rate over those 20 years than at any time in history, and that’s where we are starting from when we look at any of these issues.

As an academic, I don’t have to answer the questions, I just get to ask them! But in terms of a question like the future role of nuclear energy in the UK, and since this is the All-Party Parliamentary Group on Energy Costs, it seems to me that one really central issue that we need to get to grips with is that we need a new metric of what we mean by “energy costs”. When your power is largely dispatchable – coal, gas, nuclear – coming broadly when you want it, then the levelised cost of unit delivered is a meaningful metric for policy. It’s not perfect, because of course you need to bear in mind that some sources, notably nuclear, are much more capital-intensive than others, while others, notably gas, are much more fuel-intensive. So you use them for different parts of your electricity demand and you will all be very familiar with that. But nonetheless, levelised cost is a reasonable metric to take into account when looking at future policy and the role that all energy sources should play.

What we’re seeing increasingly is that when it comes to variable renewables, this metric is starting to fail quite seriously. There is an apparent paradox, although I don’t think it is a paradox, that just as the unit costs of renewables fall significantly, the countries which use significant amounts of renewables are seeing their energy and electricity costs increasing.

To give an example, California is a place which has invested a huge amount in solar capacity, and solar produces sufficient power for the 6 hours around the lunchtime peak and is an extremely good match for that time. Nevertheless last week on 14th April the system in California had to curtail solar output to the tune of 10 GWh. To put that in perspective, that is the equivalent of two of our current nuclear stations through that day being switched off because the system was being swamped by electricity. We have, quite rightly, focussed on what happens when the renewables aren’t generating, but we are seeing increasingly (in Germany as well as other places) that there is a challenge around how we deal with the economics of renewables when they are actually generating more electricity than is can be used. Electricity of course is one of those annoying things that if you generate too much of it, it becomes a good of negative value and starts to blow your electronic equipment and ultimately it can start to melt your wires. In terms of the system, producing too much electricity can be as damaging as not producing enough.

So during that period, a huge amount of money was paid to solar generators under their contracts (whereby they have a guaranteed income if they are able to generate) in order to persuade them to shut down. Clearly, that makes the economics a very challenging issue. If you are generating something that has negative value, then frankly the fact that you have been able to generate it 10% more cheaply than the year before is not really the central point. It’s difficult to find an analogy but it’s maybe a little like if you have a power station that burns £50 notes to produce electricity and you make a great play of the fact that you are now burning notes 20% more efficiently and producing more electricity out of that process.

Storage of course will be the great answer to this but bear in mind that the US had a very good year last year in terms of battery capacity. They now have sufficient battery capacity to provide 14 seconds of US electricity needs and of course the environmental implications of digging up that much lithium and other unpleasant chemicals are not to be taken lightly.

They still have what is called the “Duck Curve” in California. This is where there is a timing imbalance between peak demand and renewable energy production. California still has an evening peak and what happens is just as the solar is coming off-line, the demand on the system increases. So they face the enormous challenge of ratcheting up their fossil capacity at an enormously rapid rate, putting huge pressure on the substations servicing that capacity. It looks very likely that the last set of bush fires (not the very recent ones but the ones before them) may have been triggered by a fire at a substation trying to cope with ratcheting out its input at that enormous rate.

Now at the moment my fear is that it’s difficult to get to a debate about the future role of any energy source when the debate is still dominated by this concept of levelised cost. Levelised cost of course is just the total cost divided by the total number of units you can generate. This is not facing up to the issue that we have a totally different situation when you’re starting to increase the amount of variable capacity. In Germany there have been many days where the wholesale cost of electricity has dropped below zero. Germany is in a fortunate position of being surrounded by nine different grids having about 19 GW of interconnection capacity, so it has simply been able to dump its excess electricity onto its neighbours up to now, but the Poles and the Czechs have now introduced phase disruptors at the border to prevent that dumping into their electricity grids.  Since the big debate about variable renewables says if you have a big enough, wide enough grid the wind is likely to be blowing somewhere, in practice what we’re seeing is countries breaking down the integrity of those cross-border grids because of fear of their own domestic capacity being undercut by variable and unpredictable electricity being dumped into the system at negative prices.

I don’t know what the answers are to any of these but nonetheless it seems to me that if we are going to get to a serious debate about energy costs then we need to deal with these quite difficult and complicated issues, and I haven’t even touched on the issue of grid stability when the power can change very rapidly. I think there needs to be far more of a focus now. We have experience and we see the situation in Germany. We know what happens when we pull out of nuclear – you can’t replace it with renewables as things stand. You end up destroying cathedrals and forests and towns to make way for the new-brand coal mines, and that I think needs to be introduced to the whole debate. Where it leaves us on any of these energy sources, I’m not sure, but what I do know is that we’ve got enough experience from the actual record of the world in the last 20 years that tells us that what we’ve been trying to do has not just not worked – it has been dismally not up to the challenge that we face.

Questions and Comments:

Time Yeo, New Nuclear Watch Institute and former MP: I have two questions. We’re experiencing a very rapid upsurge of concern about climate change, and it’s clear that the decarbonisation of power alone has to accelerate very substantially. I’m disappointed therefore that the ambition from David and Paul was for nuclear to be 20-30% of the UK capacity, which seems rather low given how things are developing and what Malcolm said about risks of unreliable renewables. So perhaps we should be aiming for a bigger expansion. And coupled with that, we’ve got a lot of UK sites approved for nuclear installations and surprisingly consistent public support for nuclear. I know there is also intense opposition, but the general public and those who live near power stations are very supportive. Isn’t this an opportunity to really go for this? If the Government was prepared to put out a tender not just for a couple but maybe 7 or 8 nuclear power stations capable of 50 GW capacity or more, would that not have a dramatic effect on the costs, given that the economies are of numbers rather than size?

Paul Spence: So, are we being under-optimistic in talking about 20-30%? We do a lot of modelling and thinking about the future, recognising a lot of the problems that Malcolm talked about. We also look at the technical and economic behaviour of all of the different technology options and in the same way as I see opportunity in nuclear, I see opportunity in offshore and onshore wind (offshore in particular) to play a much bigger role than they have done so far. The part that I maybe am being under-ambitious about is how quickly we can remove fossil fuel from the 15% I see out there in the mid-20s to 30s. If we put the foot on the accelerator and go high and try to get that component out, which is there to help us manage and keep the system stable, then perhaps there is an opportunity for nuclear to play a bigger role, and for that to send a signal about the level of ambition. We know from experience with my parent company in France, and from China and Korea, that if a country sets itself on a path with a very clear ambition, you can build more quickly than we are perhaps planning to at the moment, and you see benefit from doing that . If you do it as a campaign – that’s the whole point, it needs to be planned if you want to go on to that sort of footing.

David Orr: I agree entirely with what you’ve just said. We’ve had a look at various different models and I think the highest model we saw was for 14 or 15 power stations in the UK, and that was around about 40%, but it does rely on nuclear getting its costs down to a more affordable level. For all the reasons that Paul said, I don’t see nuclear ruling the world really, I see it as a balanced mix. I think it’s right for this country as we have such a variation in what we use: it swings massively depending on weather conditions. I also think though that you are absolutely right in that if the Government were to go out and commit to a programme, then that will lead to greater investment and, as has been said, cost reduction by volume, and we have the sites to do it, there’s no doubt about it.

Malcolm Grimston: I’ll just add one thing. There are huge areas of the economy that we could electrify, transport being the most obvious one but actually heat as well, and then you’re asking 30% of what? 30% becomes a much more valuable contribution of any low carbon energy source and includes a big chunk of our transport and heating needs as well. I’ve felt for a long time that that is the way we need to go because then there are all sorts of interesting possibilities e.g. of using car batteries as a way of shifting the peak and so on, which affects and reduces some of the issues about variability. Nuclear is relatively inflexible compared to others. France and Germany have shown that you can work flexibly with nuclear, but economically you wouldn’t choose to because you don’t save terribly much money by not generating the way that you do with gas. So there’s going to need to be a balance within this, but potentially I would choose nuclear playing a greater role.

Alan Brown: In terms of a nuclear world where the Government puts out a tender for all these new nuclear stations, that still needs, from what you are saying, reduced financial risk for investors. It needs the Government model of underpinning the cost to be different, for instance you mentioned the regulated asset. Because otherwise you’re bidding for more stations, more risk, more capital outlay that you need to find, unless it’s another funding method.

Paul Spence: The way we funded Hinckley Point was a well-documented struggle to get the first project over the starting line and we’ve seen other projects not make it to the same point. The big challenge is the amount of money that needs to be found, and if it’s a big programme, that’s even more money. Whether the Government chooses to say that’s funded on its balance sheet as a publicly funded project, or whether they say it’s a regulated asset base and therefore funded a bit more by consumers – we need to find a different way because there aren’t the big corporate balance sheets that can take emergent risk associated with those projects. So we do need that financing structure or something like it. But if there’s the right financing structure there, everything I hear from people who have got money in pension funds and the like, is that they like nuclear as a potential investment technology because once it’s there, it’s there predictably for a very long time, and that matches the liabilities that they have to pay out in pensions in the future.

Iain Beveridge, Ecological Energy: One of the issues is that just operating on the levelised cost of energy we’re not looking at other inherent costs, whether they be environmental or in the time of delivery, and not penalising the intermittency of generation which makes it difficult for more reliable generation to compete. We can’t rely on market forces alone because of operational parameters of constraint, so would it not be an idea to take a look at what places like Dubai are doing? They’re shifting the onus of supply onto the producer. It’s a slightly different scenario because they are doing solar and storage and they have quite reliable solar radiation panels but the point being that the time of energy has a value as well as the energy itself. The supply contract would be entered into with producers, or producers would get a greater value for the energy on a contractual basis if they can deliver it at certain time periods when the country needs it. That might level the playing field a little between nuclear and renewables, in that renewables would need to implement storage as part of their mix in order to be able to compete with base load.

Andrew Chattrabhuti, ESP Consulting: This is a question for David about small modular reactors. When you have been having conversations with the Board about money you must have a vision of where you can go on levelised cost, and is there anything you could share? By the time you get to “nth of a kind” what do you think that levelised cost could be? Do you think it could be competitive without subsidy in the market? And competitive with storage?

David Orr: We’ve gone public on it. With our model and what we’ve looked at, and in terms of the market that we are talking about achieving, we think that with the “nth of a kind” we can get down to £60 per MW electric hour. That’s not taking into account one of the other comments which is that for our type of power station, the capital cost is around £1.8 – £2 bn for the first one and then reducing. When you actually look at that we understand that if we exported that, Government finance would export and finance the entire thing. Now that would be at 4½% interest rate so if you’re talking about that, we could get down to £40 per MW electric hour on the same basis as the £60. So if you’re looking at significant difference about the cost of the risk while you’re going through the infrastructure programme then that’s the kind of differential you’re talking about and in broad terms it’s about a 4% difference in interest rate. So we have this crazy thing where we have this system where the Government is prepared to export finance completely, so you’re making overseas countries potentially more competitive industrially because they can get cheaper electricity, but we won’t do it in our own country.

Malcolm Grimston: In answer to Iain’s question, yes, that is encapsulating the type of question that we have to ask. How do we compare these really quite different elements about the storage issue? Dubai is obviously a very hot country and solar fits very well. Solar does fit well when you have a midday peak that is higher than your evening peak but in a country like the UK you need a different set of metrics around that. We are in a very peculiar situation in that we are in effect paying private sector rates in return for foreign governments to carry out UK public policy, and unsurprisingly that’s not the most efficient way to do it. We have got bogged down with this idea of competition, which is brilliant when the interests of the producer and the consumer coincide. Actually with electricity for the consumer security of supply is absolutely vital, but for the producer you would question that. The price goes up extraordinarily when supplies are tight and if you don’t ensure secure supplies you save yourself all the redundant capacity sitting around for most of the year without a market on the off-chance that peak demand in one particular area is big enough for it to be needed. Now you can smooth that to an extent with capacity payments, but it’s still not at all clear to me that electricity is by any means a typical commodity. And de facto, if the lights go out the Government of the day is going to say that it’s a market matter and investment is a matter for the market. So my view for a long time has been that since de facto it’s a Government responsibility why don’t they actually say de jure this is a Government responsibility? You can then integrate your whole system and take into account these intermittency issues without needing to worry quite as much about how you apportion costs or entities in a supposedly competitive market deciding whether this investment makes sense for the next 70 or 80 years, and be happy to be paid a huge amount of money to take those sort of risks. But the consumer ends up bearing those risks and sometimes those risks go wrong. Compared to where we have patently got, where we are still limping along with this enormous cliff-edge of reliable capacity for the next decade – will coal be gone? gas cycle turbines will be reaching the end of their lives and of course (no? / low?) nuclear coming on line – I don’t think we are anywhere close to having a system that can deal with that. Calculations are that the need is probably about 5 times the total dash for gas over the course of the next 15 years.

Paul Spence: Just to try and add a couple of things. Firstly, to give credit where it’s due, we have got a system in the UK that first of all, puts a more meaningful price on carbon than you see in a lot of other places so the first thing is that nuclear and renewables are being rewarded for externalities) The second thing is that, although it is suspended at the moment, we’ve got a market and a mechanism to recognise the contribution of capacity over and above the electrons the stations are producing. And we have a market that National Grid is working on at the moment where they are looking to make more and more transparent the services that the grid needs to keep it steady and stable throughout all the periods. All of that gets bundled together with the electrons that a power station is producing and all of those things are part of the value that the different technologies may or may not bring to the system. That is sort of the complexity of trying to then say, ok so make all of that the job of a single project to work out how we can create something that is the same thing. I don’t know if that’s necessarily more efficient in the system as a whole as opposed to the system operator choosing how to buy in the different components.

Iain Beveridge, Ecological Energy: The worry is that on the 14th of last month we had a 6 hour period when we were in negative pricing. We had minus £15 per MWh or greater, so the system is not only under strain, it’s already starting to break. I think that’s the real concern and some kind of levelisation has to be done.

Paul Spence: There were some further oddities over that period. We were importing 3 GW from various sources and we had a whole variety of gas stations running to provide system stability, so there is clearly some work to do because the system at the moment is showing the strain it’s under. I would just be a bit careful saying let’s redesign a new solution. I know how long it took for the Government to put in place the last market set of arrangements and I’m not sure we’ve got that time to take while we redesign. I think we have to do something that can keep us in flight in the meantime and keep low carbon power and low carbon capacity coming on to the system .

Andrew Buckley, Major Energy Users Council: Nuclear is a baseload provider and I wanted to pick Malcolm’s brains on this because it’s always occurred to me that the true cost of nuclear also includes decommissioning. I was up in Caithness a few weeks ago and it reminded me so much of the big dream we had for fast-breeder reactors at Doonray. All I now see is a huge long-term cleanup operation which just leaves that area with that problem. Malcolm, is it possible to get a proper estimate of decommissioning costs when we talk about these stations?

Malcolm Grimston: To an extent. First of all, what do you take into account? The UK was the first into nuclear energy and we have a lot of very dirty research facilities from the late 40s and early 50s, notably at Sellafield and Doonray among other places. To what extent do you put that down to the cost of nuclear energy going forwards? If you take any reasonable rate of discounting then the decommissioning costs are actually very small compared to the initial funding cost which is the where the real cost of nuclear lies. Long-term decommissioning is ok as long as you put money away throughout the lifetime of the plant in some sort of ring-fenced structure that grows as the economy grows, and to deal with the issues as they arise some decades after the lifetime of the plant. The problem in the UK is firstly that the magnox stations were not really built with the idea of taking them down. With SMRs and even with some of the larger reactors today, a lot of it is prefabricated, a lot of the components will be replaced in the lifetime of the station, so taking them apart is not quite the same issue as it is with the magnoxes. Money was put aside for the magnoxes, but it was then swallowed up in the privatisation of electricity where a decision could have been made to put aside a considerable chunk of the proceeds of privatisation into a magnox fund instead of funding tax cuts for a forthcoming general election. I gather this was debated very vigorously for about 6 or 7 seconds! So, on privatisation you had magnoxes that were facing their backend costs without any provision for them, so there was the nuclear levy in the early years of the privatisation but that was largely spent on building Sizewell B, and then of course Sizewell B along with the AGRs got privatised as their performance improved. And so, again, money wasn’t put aside then. So institutionally the money was never actually ring-fenced in the way that it was originally conceived of. For modern stations, part of the initial licence is that they have to have a ring-fenced fund which can’t be touched and that should be enough to pay for the back-end costs.

So separating out the historical issues which certainly are extremely expensive, in terms of looking at the forward costs of nuclear, the real issue is dominated by the capital cost and the cost of capital, and not by back-end costs. So to that extent, although you can’t say precisely what decommissioning is going to be, it shouldn’t be more than about 4 or 5% of total site costs.

Paul Spence: That’s in our £92.50 along with “a number of green book conservatisms” (the technical term used at the time) that the Treasury insisted upon as part of making sure that those costs were more than enough to cover what it should take to de-fuel and decommission the future stations. The one thing I would slightly correct on Malcolm’s narrative is that the second time around when British energy was rescued, restructured and then sold to the French, the funds that at that point were paid over for EDF to buy British Energy were put into a nuclear liabilities fund that is there and from the latest estimates I’ve seen, the fund will more than cover the costs of decommissioning each of the slightly different AGRs. What we’re talking about this next time around is something that will be much more “cookie cutter” with the money put into a fund which should grow and which should pay for those end costs. Separately, as a country it is absolutely undeniable that we need to get on with finding somewhere to put that spent fuel. That’s another piece of the jigsaw that the industry needs to address.

Alan Brown: If you still don’t really know where you can put it, how can you accurately estimate the decommissioning costs?

Malcolm Grimston: It’s a question of the sensitivity. The sensitivity at the front end of the cycle, for example if you overrun on the construction, is enormous. If the cost of decommissioning was to double and it’s been discounted at 2 or 3% over several decades, it may go up from 2% to 3% of your total costs, but it remains a very small percentage of the total cycle costs as long as you have the fund.

Paul Spence: It’s uncertain because the home of the deep geological facility hasn’t been set, but when you look at the quantity of material that needs to go down there already because of the UK’s legacy, and then add the extra that would need to go down for Hinckley Point and what would be needed to go down for a fleet of 10 future reactors, I think from memory that is about a 10% increase in the volume of the waste that we would need to put into that facility, maybe about 20% increase in the underground storage space needed. But it doesn’t change fundamentally that we need to solve it for the UK’s existing waste legacy.

Chris Harris, NPower: 80% by 2050 leaves us still with a whole load of technology options. Zero carbon by 2050 seems to me to be raise a huge question with regards to gas – what on earth do we do with gas? My question is this – do you think that 80% to net zero fundamentally changes the nuclear question?

Esin Serin, Energy Institute: Can you comment on a potential coupling of nuclear development with a hydrogen economy? Would that make nuclear fusion any more favourable or less favourable than a pathway of electrifying transport?

David Orr: Taking Esin’s question first, we’ve actually looked at modelling a power station in various ways including hydrogen, and yes, you can get a model, but you’re using electrolysis to produce something that you then use again. So that needs a conversion rate and it’s got to be quite key to be able to do that in a proper manner, and very specialist in the way you use that hydrogen to extend range. There are other areas: for example the magnox has been mentioned and there are places where they have hydro stations nearby. So then you can take additional power that you’re not using and then use it at peak times, so absolutely we are looking at using the minute systems – we’ve got to because we’ve got to maximise what we do.

Regarding 80% to net zero and the nuclear equation, it’s a really good question because the higher end that I saw in the modelling, of 40%, was the one where you have the economics of nuclear right and trying to attain zero carbon as well by 2050. So I think the answer has got to be yes, you would see the nuclear equation change to an extent. I don’t think there’s been enough detailed modelling to convince me yet that the dynamics of that would be right, which is why I always stick within the 30 when I’m quoting. There are so many variables as we all know so it’s a difficult question and there are obviously countries that are far more than that – France being a good example, but then again they’ve got interconnectors going over to other countries. We know that Germany is building power stations on the boundaries to provide them with electricity so it is a very difficult dynamic system question, so the answer is yes, but I’m not sure about the magnitude.

Paul Spence: On the question of nuclear plus, hydrogen and storage, we are actually doing a project at the moment with BEIS looking at precisely that question for one of our AGRs where it’s a user of hydrogen and it could also be a producer of hydrogen. We’re doing front-end engineering design of what that might look like and if that’s sensible it may well allow us to try and demonstrate a project to show a local hydrogen economy, because then you ask yourself the question, what is that hydrogen going to be used for locally? Possibly for bus or industrial vehicle fleets, or other industrial use, so you have to think about the cluster that’s around it, but it is part of thinking about a system, and we absolutely advocate that you have to think about how nuclear fits into a whole system and how you might use the heat, how you might use the VARs, on the nature of nuclear, and how you might flex it to provide some of these other services.

Chris, your question about how the balance changes as we go from 80% to net zero, it is very very clear whether you look at it as the abatement curve or the systems cost, as you get to the lower and lower levels of carbon on the system as a whole, you’re displacing more and more expensive things and therefore the economics change. The margin and the costs you’re avoiding are changing. What I would say today is that the route to opening up those opportunities to get to net zero happen if we keep building out from what I would advocate as a starting point and then, depending on how the other technologies come over the period 2020 to 2030 to 2040, it may be that we have a breakthrough in storage technologies or capture and storage, and maybe biogas . . . I don’t know which of the other options might come off and therefore what might make sense. Or do we just carry on building more and more nuclear through that period as well? I don’t know the answer.

Malcolm Grimston: I’ll just add that as you get closer and closer to net zero, most of the capacity that you put in just competes with other capacity of the same sort, so new solar just competes with existing solar and doesn’t help terribly much with the time when solar isn’t generating. New wind just competes with other wind when wind is blowing because at other times it’s clearly not available. The two questions are actually very closely connected because so much of this would be down to the need to prepare for a world where storage really does work, but also prepare for one where it doesn’t, and that’s not easy.

Do you know the year in which hydrogen was first generated from the use of wind-generated electricity? 1891, by Poul la Cour, the great Danish scientist. It was only four years after electricity from wind was first generated in 1887 in what is now the University of Strathclyde.

It comes back again to trying to do this in the market. There’s another paradox – for storage to make sense, whether it’s done with hydrogen pump storage, batteries, or whatever, there needs to be a reliable spread between peak cost and trough cost. You need to be fairly sure that you can buy electricity when there is an excess when the wholesale price is low and then sell it when the wholesale price is high. What is happening in Germany in particular is that because at times renewable output is high, there’s a lot of renewable electricity available because of the weather conditions, and that can therefore collapse the wholesale price at what looks like peak demand. Then it’s squeezing out the economic case for storage in the market, and we’ve seen in Germany the cancellation of a number of pump storage schemes and the early closure of other ones because they can no longer make the economic case for it. It really just stresses the idea that this does need to be centrally planned. Leaving these things to market forces, which are of their nature designed brilliantly for those things where you can store the product and even out production and consumption, means that we end up with this paradox. The very things that require storage are squeezing storage out of the market to an extent. Whatever solution we choose to follow, it’s got to be planned to a much greater extent than I think is possible in our current broad approach. I know there are many people who passionately disagree with me but that is increasingly where I am coming from.

After some further discussion, questions and comments, the meeting closed at 5.30 pm.