The Nuclear Industry Association (NIA) welcomes the chance to respond this inquiry on UK energy supply and investment published by the Economic Affairs Committee.
The NIA is the trade association and representative body for the civil nuclear industry in the UK. We represent approximately 250 companies operating across all aspects of the nuclear fuel cycle. This includes the current and prospective operators of nuclear power stations, the international designers, and vendors of nuclear power stations, and those engaged in decommissioning, waste management and nuclear liabilities management.
Some of our members may choose to make their own detailed submissions so therefore this response should be considered a high-level overview.
What are the main challenges as regards energy supply and storage which public policy must address over the next decade?
What level of investment will be needed in the UK’s energy supply to secure an orderly transition, particularly over the next decade? Is sufficient private capital being invested in reliable and affordable energy sources that are in line with climate objectives, including the commitment to net zero (for example, hydrogen and nuclear)?
The Climate Change Committee (CCC) has estimated that the UK needs to quadruple its electricity supply by 2050, leaving a significant gap that needs to be filled by clean and low-carbon power if we are to meet these needs while simultaneously building an energy system that we get us to Net Zero. The CCC has also stated that 38% of electricity in 2050 should come from ‘firm’ sources, of which nuclear is the only proven low-carbon option at scale.
Nuclear is essential to the UK’s decarbonised electricity mix, currently supplying 20% of electricity demand and nearly a half of our low-carbon electricity. The current fleet has saved more than 1bn tonnes of carbon emissions over its lifetime. During the challenging circumstances caused by the events of covid-19 pandemic and recent energy crisis, nuclear has proven its consistency in keeping the lights on even during adverse events and has showcased its ability to be flexible when necessary.
However, all but one of the current six nuclear power stations will cease operating by 2030. This is excluding Hunterston B which closed on 7 January 2022 after 46 years of operation, and Dungeness, which closed in 2021. In total, we will lose more than 5.2GW of power from the grid.
Planned closures of nuclear reactors were reflected in the most recent DUKES (Digest of UK Energy Statistics) from BEIS, which showed nuclear generation was down to 16.1%. While it will rebound slightly next year, in the medium-term, we are losing capacity as old stations retire, and losing it fast.
Nuclear generation will drop away swiftly and will stay low unless we invest urgently in new capacity. Of the UK’s eleven generating reactors, six more will retire by March 2024 at Hinkley Point B, Hartlepool and Heysham 1. These stations have been the most productive low-carbon assets in British history. They were built decades ago yet are still some of the UK’s leading sources of clean power. In short, these reactors provide clean, always-on power for which we simply have no replacement.
We don’t just need the power to decarbonise the grid: we need it for new fleets of electric vehicles, clean hydrogen production, synthetic fuels, and clean home heating solutions. Clean electricity is the essential foundation of our decarbonisation.
In the long-term, building a new fleet of nuclear reactors will help mitigate similar events such as the recent energy crisis, making the UK less reliant on imported energy from foreign sources and keeping the lights on during periods when the wind doesn’t blow, and the sun doesn’t shine.
Our own analysis found that if the UK committed to building two large scale nuclear stations at Wylfa and Sizewell, along with a fleet of Small Modular Reactors, it could replace more than 10bn cubic metres of gas imports.
In our Forty by 50 report – published in 2020 – we stated our belief that the nuclear sector could contribute 40GW of power by 2050, which includes 240TWh of electricity, 75TWh of hydrogen and 100TWh of district heat. Meeting this target would, on average, avoid 186.75m tonnes of CO2 a year (equivalent to the annual emissions of 48 coalfired power plants), create an additional 300,000 jobs, and contribute £33bn annual GVA – greater than the entire electricity and gas industry today.
The Government has also made its intentions on nuclear power clear. In its Energy White Paper and the Prime Minister’s own Ten Point Plan, it said it would be pursuing all nuclear technologies, including large-scale reactors, and have since announced £1.8bn to help deliver the 3.2GW station at Sizewell C. Hinkley Point C and Sizewell C will together meet around 14% of the UK’s current electricity demand.
The Government’s own modelling for the Energy White Paper and Net Zero Strategy state that around 30GW of installed nuclear capacity will be required to decarbonise the UK’s electricity by 2050.
It is also working with the sector in the development of the Rolls Royce SMR. The first of their SMRs is set to be connected to the grid by 2031, with two reactors coming online each year thereafter. Rolls Royce plan on a fleet of 16 reactors across the UK, equating to 7.5GW of installed electrical capacity.
SMRs are flexible in their output. They can provide baseload electricity when variable technologies aren’t providing high enough output, or, in periods of high renewable generation, can load follow by diverting to hydrogen or synthetic aviation fuel production.
The development of AMRs is also progressing, with the Government having recently confirmed its preference to pursue High Temperature Gas Reactors as the technology of choice for its AMR programme. It committed £385m to this fund in its 2020 Energy White Paper, which may include the development of a demonstrator AMR for hydrogen production. Demonstrators are targeted to be deployed in the early 2030s.
Beyond AMRs, the UK is a key player in the burgeoning global nuclear fusion market as the home of the Joint European Torus (JET) at the Culham Centre for Fusion Energy. In the last year, the Government’s Spherical Tokamak Energy Programme (STEP) has shortlisted five sites for a UK commercial fusion reactor, making the technology more of a reality.
We are encouraged by recent Government commitments to incentivise nuclear power in the UK and this vocal confidence in the sector is integral to attracting investment into ongoing projects – from Sizewell C to STEP. However, the pace at which policies are being progressed is not enough to meet not just the scale of ambition but the necessary replacement of low-carbon electricity as our fleet of AGRs go offline over the next decade.
These projects evidently need significant investment, especially those still in the R&D stages, and the UK will miss out on funding to other competitors across the globe if the Government’s vision for nuclear in a Net Zero world does not match the ease at which investors and developers can navigate Government policy and regulation in a timely manner.
To what extent are the causes of recent rises in energy prices likely to be long-term features of global energy markets?
With more nuclear power stations coming offline in the next decade – likely to be replaced by gas as the only at-scale baseload alternative – these issues will continue to persist in the UK. The continued use of gas will keep adding to the volatility of energy prices in the coming years.
The NIA analysed data from the National Grid Electricity Systems Operator (ESO) and found that the cost of balancing the UK power grid rose by 48% year-on-year in 2021 to £2.65 billion, making it the most expensive year on record. The costs are equivalent to every UK household paying an extra £95, as the ESO says that they “are ultimately borne by consumers.”
The energy crisis beginning in September meant costs spiralled to £1.43bn over just the final four months of the year. This is the consequence of the UK relying on gas to fill the gaps in electricity generation when output from other sources is lower. Spot prices for gas-fired electricity hit £5000/MWh during the crisis.
Nuclear, by contrast, has been a cheap and reliable generator throughout the crisis, generating electricity at just £45/MWh from its current operating fleet.
In the future, low-carbon electricity from nuclear power will be sold to consumers under a fixed price – via the CfD model for Hinkley Point C and the RAB model for Sizewell C – which will help insulate consumers from variable gas prices. As the same funding mechanisms are assumed to be used in other new nuclear technologies, such as SMRs and AMRS, further nuclear will provide more safety to consumers.
Nuclear reduces balancing costs because its output is stable and predictable day-to-day, in contrast to gas-fired power. The Government estimates building a new nuclear power station would cost less than £1 per month for consumers and would cut costs by £30bn in the long-term, per power station. New stations, enabled by the Regulated Asset Base (RAB) financing bill, would cut the UK’s need for expensive fossil fuels to cover gaps in generation, and provide a backbone of firm, clean power.
To combat this, the Government must urgently invest in firm, low-carbon nuclear alongside renewables to deliver the clean, sovereign power we need. We will not see immediate relief from increasing energy prices through investment into nuclear power, as new projects take time. However, making decisions solely on based on short-term support has contributed to the situation we are now in. The Government needs to therefore invest in both short- and medium-term solutions, such as new nuclear power stations, to stabilise the market in the future.
What effect is financial services regulation, and the commitments made by financial services providers to achieve net zero in 2050, having on energy investment? Specifically, is regulation getting the right balance between encouraging investment in renewable energy and supporting the green transition, while also ensuring security of supply?
What should the Government do to incentivise and enable investment in, and financing of, reliable and affordable energy that is in line with its climate objectives, including net zero by 2050?
We hope the UK’s upcoming Taxonomy will help provide a level playing field for investment for low carbon technologies.
Nuclear energy has the lowest lifecycle carbon intensity of any electricity source, as referred to in an earlier answer in our response. A recent report by EDF Energy also showed that emissions from generating electricity are likely to be around 5.5g CO2e eq/kWh for both Hinkley Point C and Sizewell C, in line with UNECE findings.
Nuclear has the lowest land footprint of any clean energy source, minimising collateral environmental impacts. A study by the USA’s Nuclear Energy Institute found that wind farms require up to 360 times as much land to produce the same amount of electricity as nuclear energy and solar farms require up to 75 times the land.
The UK, moreover, has an exemplary record in waste management and is following international best practice in pursuing geological disposal for the long-term disposal of higher activity radioactive waste.
The NIA welcomed the Government’s intention to consult on the criteria for nuclear power to be included in the UK Taxonomy and the formation of the Energy Working Group to look at the role of nuclear power. We believe it is clear that nuclear technologies would make a substantial contribution to the Taxonomy’s objective of climate change mitigation, and these actions are a move in the right direction.
We should note that significant research on nuclear’s characteristics has already been undertaken by the EU in the drafting of its own Taxonomy. The EU commissioned an exhaustive Joint Research Centre (JRC) report that found there was no scientific basis to treat nuclear differently from other sustainable technologies.
It has since been announced that the EU will include nuclear in its Taxonomy on a series of conditions, such as plans for the disposal of nuclear waste and the use of accident-tolerant fuel. However, the UK must avoid the mistakes of the EU, who wasted years, money, and resource in a political effort to deny nuclear a sustainable classification despite the science.
As a world leader in climate change mitigation and environmental finance, the UK can make decisions that have international ramifications. Nuclear’s exclusion from the Taxonomy would make it more difficult to mobilise the investment in nuclear that the Government wants to see and make our path to Net Zero by 2050 more uncertain.
In June 2021, HMT Treasury published the Green Financing Framework which sets out how the UK Government will finance expenditures related to tackling climate change through the issuance of green gilts and Green Savings Bonds via NS&I. The Framework is intended to be aligned to the upcoming UK Taxonomy.
Nuclear power was specifically excluded from the Framework, with HMT stating that in consideration of the ‘many sustainable investors [that] have exclusionary criteria in place around nuclear energy, the UK Government will not finance any nuclear energy-related expenditures under the Framework’.
In consequent answers to numerous Parliamentary Questions, Economic Secretary John Glen said that the Framework followed current international market standards for sovereign green bonds and does not wholly represent what the Government considers to be ‘green’. Government has reiterated its stance that nuclear power has an important part to play in Net Zero by 2050 and financing for the technology will be considered as part of its development of the UK Taxonomy.
The Framework will be reviewed on a regular basis, so there may be a time when nuclear is included in the future. While the Framework will not prevent private investors from investing in nuclear, its exclusion has sent a signal to the finance community that the Government does not see nuclear power as ‘green’ enough.
This must be rectified through nuclear’s inclusion in the UK Taxonomy if Government want to show they are confident in nuclear power. The positive recognition of nuclear in the Taxonomy would help attract investors into nuclear.
To stimulate investment in nuclear, the Government should therefore:
- Pursue a level-playing field for all low-carbon technologies in the drafting of its UK Taxonomy
- Review nuclears exclusion from the Green Financing Framework
More specifically for the nuclear industry, the successful progression of the Nuclear Energy (Financing) Bill through Parliament is essential to establish the Regulated Asset Base (RAB) model, which could enable the low-cost financing of projects such as Sizewell C, and beyond. RAB financing would save consumers around £30bn on bills over the lifetime of each project, around £10 per year off the typical bill, according to official BEIS estimates. This is compared to the CfD mechanism used for Hinkley Point C.
A large-scale nuclear project financed using RAB would add a small levy to bills of no more than a few pounds during the early phase of construction and less than £1 per month over the course of a project. The income generated would allow project developers to finance the project at cheaper rates, which would substantially cut the ultimate cost to consumers.
From the NIA’s own analysis, a large-scale nuclear project such as Sizewell C would also save CO2 emissions worth £526m per year at today’s carbon prices, or £18 per year for every UK household. As the UK heads towards Net Zero the carbon price is only projected to rise steadily.
The funding needs of SMRs are different, however, to large-scale reactors and a long-term Government agreement through a Contract for Difference (CfD) model is preferred. It is important to note that the industry believes minimal changes will need to be made to the current CfD contracts and are confident that private equity can be raised. Where investors show concern with UK SMRs, it is around the lack of movement within Government on updating key policies that will enable SMR development, construction and deployment.
The biggest obstacles for the timely deployment of SMRs and investment in a UK fleet are:
- The opening of the Generic Design Assessment (GDA) process to SMRs
- Clarity on siting of these reactors, which needs to be addressed in an updated version of the National Policy Statement for Nuclear Power Generation (EN-6)
What lessons are there for the UK from comparable countries in terms of securing investment in reliable and affordable energy?
The key to securing investment in reliable and affordable low-carbon energy ultimately depends on clear Government direction and publicly communicated confidence in a technology and/or sector to deliver.
Earlier this year, French President Emmanuel Macron announced that France would build fourteen new reactors by 2050 as part of its bid to hit Net Zero. He also committed €1bn to France’s SMR project. Together, the programme will deliver 25GW of new nuclear capacity. In a clear commitment to nuclear, he said: “What our country needs […] is the rebirth of France’s nuclear industry.”
The UK Government should aim to replicate France’s strong communication to the world that the UK is also open and ready for investment into our sector through a strong commitment to multiple projects, such as Sizewell C, Rolls-Royce SMR, and beyond, as taking a one-by-one approach is not enough to provide the security the UK needs.
This message can then be underpinned by the recommendations on funding regulation that we have outlined in this response to enable investment.