The UK needs a more realistic energy strategy

Hitachi’s decision to abandon plans to invest in Wylfa, a new nuclear power station in North Wales, and write off $2.8bn of work in progress, all but sounds the death knell for the UK’s 2013 energy strategy. This is even more worrying than Toshiba’s decision to pull out of the Moorside nuclear plant in Cumbria last November because it reflects an embarrassing failure by the government to provide firm financing commitments to Hitachi. It begs the question whether nuclear is an affordable part of the UK’s energy strategy.

There were three pillars underpinning the UK’s energy policy choices when the government formulated the strategy in 2013. The first was need — all but one of the existing reactors, which provide about a fifth of UK power, are due to start closing by 2025, the same year that the remaining coal-fired power stations start to be decommissioned. The result is that by 2030 about a quarter of Britain’s energy needs must be found from new sources. The second was a belief that energy prices, especially gas, would rise inexorably. And the third was a determination to reduce carbon emissions. Six new nuclear power stations, despite their cost and complexity, offered a reasonable way to meet the need, hedge against price increases and reduce environmental harm.

Six years on, the strategy looks woefully flawed. With the future of the Wylfa power plant cast into doubt, only one new nuclear power station, at Hinkley Point, seems certain to be built. It does not make a very reassuring “last man standing”. The project is eight years behind schedule, faces huge cost overruns and has an indexed electricity price that is now over £100 per megawatt hour and locked in for more than 35 years.

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This looks even worse now that the costs of some other forms of energy have fallen dramatically, and technological innovation and efficiency gains have decreased demand. It is baffling that as the costs of replacing old nuclear plants with new ones have steadily risen and those associated with solar and wind power have dropped, the government has done so little to correct course.

Hitachi’s retreat might strengthen the Department for Business, Energy and Industrial Strategy’s case to the Treasury for the government to invest directly in Wylfa. This would be a sensible U-turn from a policy which avoided direct investment despite the ultra-low interest rate environment. More UK government investment would at least offer an alternative to Chinese funding, which is complicated by legitimate security concerns. Apart from France’s EDF which is the lead investor in Hinkley, CGN, the Chinese state-owned nuclear group already a junior partner in Hinkley, is now the only other investor interested in UK nuclear power.

Hitachi’s decision may well deliver a necessary coup de grâce to the UK’s hopelessly outdated energy strategy. At the very least it should prompt the government to re-examine whether nuclear power is needed and if so whether the inevitable cost to taxpayers is justifiable. A comprehensive, independent and strategic review of energy policy should establish whether the case for nuclear power — based on the intermittency of renewables and the need for a zero carbon base load — survives these recent project failures.

The review should consider the falling price of renewables, prioritise cost-effective ways of reducing emissions and challenge the Treasury to provide better incentives and make more government funding available. To be confident that the street lamps will remain lit in the decades to come, the government needs a more flexible, affordable and realistic energy strategy.

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This article has been updated to clarify that there is one new reactor being built, at Hinkley Point



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