Yes, they are still building the Hinckley Point C nuclear power station in the United Kingdom, and yes the latest estimated cost is more than the previously estimated cost and the completion date has receded another two years into the future.
This nuclear project received its license for construction in 2012, with an estimated cost of £18 billion and completion date in 2025. The last estimate calls for 2029-2031 completion at a cost of £46 billion. To the extent that these estimates can be trusted, the plant would end up costing double the original estimate in real terms. In the same time period, solar and wind costs will decline by at least one half. We are not sure yet whether Hinckley Point will set an all-time record as the most expensive and most delayed power-related project in history, but it certainly will be a contender.
As is the case for so many climate- or security-related projects, the UK government offered significant subsidies to the builder. But in a different way. Most governments, nowadays, offer start-up subsidies in order to bring production levels up to a point where economies of scale kick in, after which costs drop rapidly and consumers get real benefits. The cost curves for wind, solar, and energy storage show how well this strategy works. Give the industry a kickstart and watch the action take place. Not so with nuclear, where costs seem to rise with encouragement rather than fall. Opting for nuclear, then, seems more like an ideological rather than a technological or economic choice, especially for British Conservative politicians. “Nuclear has to be part of the package”, they seem to say. Even if the nuclear cost per kW installed is five-eight times higher than non-fossil alternatives. But, fortunately, the UK government is not directly on the hook for the added costs, the Chinese co-investor in the project has declared that it will not contribute more, and it looks as if French utility EDF will bear the increased costs if it does not get a new power contract. But if the UK decides to stick EDF with the bill, what will that decision do to discourage further nuclear construction? Given the perilous nature of that construction (namely the danger of cost inflation), who could take the risk of initiating new projects other than a government agency?
Hinkley Point might cause us to examine the premises underlying nuclear projects. Building a nuke has two purposes: to ensure national security and to reduce carbon emissions. As for reducing carbon emissions, those reductions could take place anywhere in the world and still benefit the planet. Some contractors (Russians or South Koreans?) in some countries apparently can build nuclear plants for less than contractors in Europe or the United States. So why not let them build nukes where it is economic to do so and pay the host countries for the carbon reductions? And maybe, if there still are savings, the paying countries that have natural gas supplies and wish to use that gas for national security reasons could contribute the savings to an international carbon reduction fund. In other words, the substantial nuclear savings made possible by differences in construction costs might create an opportunity for nuclear cost arbitrage. Just a thought. Our point: Hinkley Point C could put the kibosh on new nuclear construction in the West, but it need not discourage nuclear building everywhere.
By Leonard Hyman and William Tilles for Oilprice.com
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Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…