Nuclear construction costs - through the roof?

Tony Roulstone
17 February 2015

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A deal on finance for Hinkley Point C – Britain’s first new nuclear station in decades - is still months away. It is an opportunity to rethink the flawed and costly structure of the £100bn nuclear investment programme, says Tony Roulstone.

It is now nine years since the Government began switching from an energy policy of “no more nuclear”, to firstly “replacing” then “expanding” the nuclear share, now a committed programme of 12 very safe new reactors, operating by 2035, with an overall price tag of £100bn.

"Apart from first-off costs, nuclear costs do not fall with more units – Nuclear construction does not exhibit a strong learning curve."

For nuclear to grow its contribution to UK energy, including the possibility of doubling by 2050, the most pressing issue arguably is cost. Though the public may be willing to pay a premium for clean energy, such a premium cannot be large. Because nuclear prices are 30% more than the alternative, new gas generation, nuclear investment is problematic and its share of energy will not grow.

Construction accounts for more than two thirds of the cost of electricity. Raw capital costs of the EPRs at Hinkley Point are three times in real terms what the Nuclear White Paper foresaw in 2008. These very high construction costs are the prime reason behind the £92.5/MWh unit price agreed for the project.

Prices may come down for later projects, with 6% lower agreed for the EPRs at Sizewell C. AP1000s from Toshiba and ABWRs from Hitachi prices are expected to be somewhat lower.  

The problem of high construction costs for nuclear in the UK is common to Europe and the US. However, the UK programme structure is a home-grown source of higher costs. For a relatively small generation capacity in global terms (16 GWe), we expect three or four different vendors, reactor designs and supply chains. This structure sought to bring forward private investment and to establish a pseudo-market in nuclear, driving down prices.

If construction costs are the key to nuclear economics, what are the drivers?

Our problems relate to four ideas about nuclear economics – each of which is questionable when set against the best nuclear practice around the world:

1.     Markets drive down nuclear prices – Nuclear projects are too big to fund (£24bn, for Hinkley Point) even for the largest utility. Much of the investment is guaranteed and prices are agreed for more than 30 years. Some will say this is transitional. But we can be sure that potential investors will ensure that they agree prices during this period up to 2018. It is highly unlikely that anyone will bid nuclear into the technology-neutral electricity auctions planned beyond 2018.

2.     The best way to get costs down is to build bigger units – UK has chosen some of the largest designs available. However, there is little or no evidence that economies of scale can be realised in nuclear. They are offset by the added complexity and longer construction duration of larger units.

3.     Nuclear construction is like any other, just with more paperwork – Experience shows that nuclear construction can be two to three times more expensive because it is complex, congested, quality-driven. UK has lost nuclear expertise. It will take many years to relearn the lessons of process and organisation, and to redevelop skills of efficient nuclear construction.

4.     Apart from first-off costs, nuclear costs do not fall with more units – Nuclear construction does not exhibit a strong learning curve. Some learning is evident, where the regulatory regime is stable and improvement is stimulated by the conditions: same design, same team and national improvement programmes, such as in Japan and S Korea.

Despite the huge progress made by EDF establishing new build in the UK, we are in an extremely difficult and high cost position. We should reconsider the programme structure with the aim of reducing duplication, driving learning and re-building skills on a scale commensurate with the task.

The challenge is huge, but so also is the potential reward.

Tony Roulstone in a member of the University of Cambridge Nuclear Energy Centre, a former MD of Rolls-Royce Nuclear and a member of the acumen7 network