The real cost of nuclear and why it is so expensive

Financial Times, 18 November 2018

How much does a nuclear plant cost? Take Britain's Hinkley Point in Somerset, currently under construction with a completion date pencilled in for some time in the late 2020s. The headline figure that is usually given?

Somewhere in the region of £20bn. But that is just for construction; it is not the whole picture. Remember you do not get a penny of revenue till the plant is up and running. That means financing those construction costs for up to 10 years, during which the debt is compounding away like rabbits.

Then you have decades when you are steadily servicing and paying down those loans. The cost of financing is so dominant that it can account for almost half of the costs of the project, according to the economist Dieter Helm.

Which leads to a key conclusion: that if you want to constrain spending, do not just focus on the price of pressure vessels, labour or concrete. No, it is the cost of capital that you really have to drive down. Looked a t through the project's life, the cost of financing alone is roughly four times the amount needed to build the thing. The fundamental difficulty with nuclear is there is simply no rational economic way to know how much, if any, to build. Driven by the UK's climate commitments, it is essentially an insurance policy against no technology emerging that produces zero-carbon, reliable power much more cheaply. The opportunity cost is substantial.

After all, each project ties large chunks of capacity to nuclear for decades to come. If nuclear is to have any place in the mix it must be at the lowest cost. Ideally the state would finance the construction of these assets as it could suppress returns the furthest. (The government has toyed with this at another project in Wales). The so-called RAB model is far from perfect. But if more reactors are to be constructed, their capital costs must fall dramatically. The UK cannot afford more nuclear if it comes at Hinkley rates.



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