Nuclear Politics

UK Report / Nuclear Industry Confident It Can Reduce Costs By 30%, But Calls For New Financing Model

By David Dalton
2 September 2020

‘Rigorous pre-construction planning’ and mature reactor designs are needed for new-build
Nuclear Industry Confident It Can Reduce Costs By 30%, But Calls For New Financing Model
Construction at the Hinkley Point C nuclear power station in England. Photo courtesy EDF Energy.
The UK nuclear industry says is confident that by taking key steps outlined in a new report, and by action from the government to secure a new financing model, costs of new nuclear will fall by 30% in accordance with commitments made under a deal agreed in 2018.

The cross-industry report, published by the London-based Nuclear Industry Association (NIA), takes as its starting point the Nuclear Sector Deal, which was agreed between the UK government and the nuclear industry in June 2018 and includes a commitment to reduce the cost of future new nuclear by 30% by 2030.

The Nuclear Sector Deal says new-build nuclear power is vital to achieving net zero by 2050, as well as creating thousands of high-quality jobs and economic opportunities across the country.

The new NIA report highlights the importance of “vigorous pre-construction planning”, stressing designs should be as mature as possible and emphasising that all key stakeholders must be aligned on the scope and scheduling of a project ahead of construction being started.

The report also calls for successful designs to be repeated – it predicts constructing a number of the same reactors will be able to dramatically reduce design costs, allow the application of best practice from previous projects and facilitate continuous investment in the supply chain and workforce training.

It says Hinkley Point C has already borne the “first-generation costs” for new nuclear in the UK and has had the effect of setting up the supply chain, skilling workers and building capabilities for future projects.

For the two EPR plants under construction at Hinkley Point C in England, two thirds, or £62/MWh of the cost to the consumer arose from the cost of financing the build. More than half of this (£36/MWh) can be estimated as the cost required to cover the risk of construction. “Reducing the cost of the risk of construction, as well as the capital cost, is therefore key to reducing the end cost to the consumer,” the report says.

It says the Advanced Boiling Water Reactor design that could be used at Wylfa Newydd and the EPR units planned for Sizewell C are highly advanced, and years of work have been undertaken to prepare the delivery organisations for construction.

The ABWR has been built on time and budget four times in Japan between 1992 and 2006. The last station was built in just 37 months.

“Constructing a number of the same reactors dramatically reduces design costs, allows the application of best practice from previous projects and facilitates continuous investment in the supply chain and workforce training,’ the report says.

The report, which comes ahead of a government policy paper on nuclear due this autumn, says a new financing model that controls construction risk will bring down consumer costs by mobilising a wider pool of investors and cutting the cost of capital.

The regulated asset base (RAB) funding method, which is the subject of a government consultation, encourages investment into major infrastructure projects by delivering reliable returns, at a reduced rate, before a plant is operational, the NIA  said. According to the NIA this reduces the need for large-scale, long-term borrowing at high interest rates, which significantly increases the cost of power.

The RAB approach is widely used internationally and has attracted investors for the construction of UK infrastructure projects including the Thames Tideway Tunnel and the Heathrow Terminal 5.

The UK’s fleet of 15 commercial nuclear reactors produced almost 16% of the country’s electricity generation share in 2019, but 14 of those units are advanced gas-cooled reactors (AGRs) that were commissioned beginning in the 1970s and are due to be permanently shut down by 2030.

“Without further new build, from 2030 only Sizewell B and Hinkley Point C [a total of three reactors] are due to be operating, reducing nuclear capacity to 4.4GW or 11% of electricity generation,” the report says.

Key Steps To Delivering 30% Cost Reduction Target For New Nuclear

1. The Cost Reduction Working Group, established as part of the Nuclear Sector Deal in 2018, will continue to develop a risk assessment tool. All projects will feed lessons into the tool as part of a process of continuous learning. The tool will give developers, investors and the government a shared assessment of whether those actions are being taken, and to track them through the delivery of the project.

2. The Cost Reduction Working Group will undertake further work to assess the impact of additional cost reduction strategies.

3. The government plans to lay out, in a policy White Paper in autumn, a framework for financing projects, enabling developers to access new sources of low-cost finance.

4. Project developers and the government will assess projects using the risk assessment tool before final investment decisions are taken. They will put in place arrangements to track performance and risk.

5. Developers will take the cost and risk reduction actions identified in the risk assessment tool.

6. The risk assessment tool cover 14 criteria that need to be addressed for every new-build project. They are: financing, regulation, governance, site data, technology data, design, estimates, contractual interfaces, project management, data system, construction preparation, supply chain, skills and operations preparation.

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