Mind the gap: Challenges for future UK energy policy

On 17 January, the Japanese company Hitachi announced it was suspending work at the Wylfa nuclear power plant on Anglesey, Wales. Including the suspension of a second Hitachi project at Oldbury, and the decision in November 2018 for Toshiba to pull out of a proposed plant at Moorside in Cumbria, this news means that three planned nuclear plants have been suspended in as many months.

Why is this important?

The need for a new generation of power plants is important as older coal and nuclear plants approach retirement. Today the UK has 15 operating nuclear reactors, generating approximately 20% of electricity, and 14% of low carbon electricity. These reactors are mostly due to retire by 2030. At the same time, the Government wants to close all remaining coal plants by 2025 as part of decarbonisation commitments.

As these ageing plants are coming to the end of their operating lives, new projects are struggling to get going. The Government’s 2017 Energy and Emissions Projections up to 2035 projected a growth in renewables, nuclear power (including after the Hinkley Point C project is complete) and imports.

The figure below shows the projections of generation by technology for all power producers to 2035 (source: Updated Energy and Emissions Projections 2017, Department for Business, Energy and Industrial Strategy.)

One source that has considered some of the risks concerned with the energy mix is the independent statutory Committee on Climate Change (CCC). It said in its 2018 progress report to Parliament on decarbonisation, that it does “not consider [the Government’s] pathway to be credible as there are significant risks associated with it,” such as cancellation of nuclear projects. The CCC scenarios refer specifically to low-carbon power to meet the UK’s carbon budgets, but do highlight that Government policy was based on diversity of low carbon supply including nuclear and renewables and the nuclear component of this mix is now uncertain.

What about other sources?

The CCC’s 2018 report included a range of scenarios for the power sector; some of which would result in enough low-carbon power being delivered in 2030 with no new nuclear beyond Hinkley. However, the CCC has said that current Government policy will not deliver the additional low-carbon capacity required by 2030.

The Government secures funding for large-scale renewables through contract-for-difference (CfD) auctions or agreements. CfDs fix a price per unit of power that a developer will receive. Renewables such as offshore wind have been successful in these auctions, and prices have fallen dramatically; meaning good value for money for customers who ultimately bear the cost for any new generation through their energy bills. However onshore wind and solar, some of the cheapest technologies, are not able to compete for funding in these auctions, due to Government manifesto commitments (there are also planning restrictions which limit development).

Newer technologies, such as geothermal or marine power, also struggle as they cannot compete with the low offshore wind prices. The Government also decided in 2018 not to support the Swansea tidal lagoon, saying it was too expensive. Successful offshore wind projects are also limited in terms of future capacity, as the budget for the upcoming 2019 auction has been set at £60million (of £557 million available), meaning fewer GWs of power will be delivered than some in the industry expected.

The suspension of the nuclear projects, combined with policies limiting renewables, suggests the possibility of a low-carbon energy gap in the 2030s. In addition, beyond 2030 studies have suggested there may be more demand for power as other sources of demand, such as heating and transport, increasingly use electricity. This increase in demand could necessitate a further rethink of the energy mix, especially as there is debate about the cost of grids dominated by renewables.

What about new nuclear? 

The one nuclear plant under construction, Hinkley Point C, has attracted criticism with many arguing the £97.50 per MWh price is too high (some new offshore wind will deliver at £57.50 – though strike prices cannot be directly compared – renewables often have greater system costs, such as the need for balancing and back-up capacity). The Government has said the proposal for Wylfa included a £75/MWh strike price and a one third Government equity stake. Nuclear costs have been increasing, partly due to the novelty of the reactors, greater regulation, and investment risks from the uncertain, and long-term nature of the projects.

In his response to the Wylfa announcement, the Secretary of State Greg Clark said the Government remains “committed to nuclear power” but that it “must represent good value for the taxpayer” and also referred to the falling costs of renewables. There are other options for new nuclear; the Government is considering an alternative finance model and is also promoting a new generation of advanced modular reactors.

Will there be policy changes coming?

In response to the Wylfa announcement, some press reports said nuclear and energy policy was “in ruins”. Nuclear plants take a long time to build so there is no risk of imminent shortages. Instead new policy, and capacity, has time to come forward.

An energy white paper is expected this summer, and a review of the Electricity Market Reform policy that produced CfDs is also expected this year; giving the Government opportunities to address the concern of a growing energy gap.

Suzanna Hinson is a specialist in energy policy at the House of Commons Library.

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