United Nations Climate Change
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Cries of the UK’s nuclear energy policy “lying in tatters” have become almost trite following Hitachi’s decision in January this year to suspend the Wylfa Newydd nuclear power project in Wales following close on the heels of Toshiba’s decision last year to wind up the Moorside nuclear power project in Cumbria.
In response to the concerns of a resultant energy gap, the Business, Energy and Industrial Strategy Committee has launched an inquiry to examine the “outlook for future investment to deliver a low carbon, low cost energy system and secure energy supplies for the long term”. The deadline for submissions passed on April 3, 2019, and so the work of the committee now begins.1
The purpose of the inquiry is to consider how the “nuclear gap” in the UK’s plans for low carbon electricity generation can be filled. Whilst the inquiry will look at the challenges facing financing “clean energy technologies such as renewables and storage”, it is only likely to look at the future financing of nuclear power. It is unclear whether, in referring separately to nuclear, the inquiry now intends to differentiate between nuclear and other clean energy technologies and potentially exclude certain low carbon technologies, such as nuclear, from the scope of its review. Renewables are a key part of the low carbon future of any energy system, and the possibilities of renewable technologies are rapidly increasing as technologies advance in conjunction with fundamental shifts in the way in which energy sources interact across the whole energy market. Examples include microgrids, technologies supporting demand side management and storage, particularly when storage is viewed beyond intra-day applications to smooth out variable electricity generation to include the potential for electricity to be “stored” through the production of hydrogen gas, which can then be used as an alternative fuel in a number of applications, including transport and heating.2
However, different technologies play different roles within the energy system, and it is generally recognised that a mix of technologies is required to provide a flexible and cost efficient system able to meet demand. The UK Government’s Clean Growth Strategy3 identified nuclear as an important clean energy technology, a view reiterated by Greg Clark following Hitachi’s announcement of the suspension of the Wylfa Newydd project.4
For many years, focus in the EU5 and the UK has been on renewable technologies, with the UK Government implementing policies to provide significant financial support for renewable technologies6 such as wind, solar, biomass and biofuels, to the exclusion of other low(er) carbon technologies including nuclear.
An increasing realisation that climate change commitments will not be met has led to a shift in the global discussion from renewables to deep decarbonisation.7 Nuclear is accepted by many as a fundamental part of meeting this global challenge.8
However, in the UK alternative technologies such as nuclear are in danger of being overlooked if policies are developed without taking into account the true system and long term costs and benefits of each of the different technologies.
Any inquiry on “future investment to deliver a low carbon, low cost energy system and secure energy supplies for the long term” must take a comprehensive look at the overall costs of the energy system as a whole in the long term, not just the “strike price” of the next project, enabling technologies that will deliver these long term objectives to overcome barriers to entry and compete on a level playing field.
The Moorside and Wylfa Newydd decisions were disappointing setbacks for the nuclear new build program and there is no denying that nuclear power projects provide major challenges for private sector developers, including the significant capex costs of the nuclear new build and the development costs for new technologies. However, the benefits of including nuclear power in the energy mix are compelling.
Nuclear power therefore has much to offer. However, Government support is required both for nuclear new build in the near future and to incentivise the next phase of nuclear technologies - including the certainty of government support for the commercial realisation of these technologies. The inquiry launched by the BEIS Committee is an ideal opportunity to consider the options for securing investment in new nuclear power.
In addition to Hinkley Point C, EdF and CGN have confirmed their commitment to the development of both Sizewell C in Suffolk and Bradwell B in Essex, with construction of Sizewell C slated to start as early as late 2021.19 However, the timetable for Sizewell C is dependent on the UK Government putting in place an alternative funding model for new nuclear projects. EdF have stated that they are pursuing a regulated asset base (RAB) model similar to the model used for the Thames Tideway super sewer (see box), and the Government have indicated that this option is being investigated. However, the RAB model will need to be adapted to fit the nuclear context and this new model will take time to develop and implement.
In the longer term, new technologies such as small modular reactors and fusion energy, may bring ever cheaper, cleaner and more flexible nuclear technologies into the market, provided that Governments demonstrate a long term commitment to support these technologies into commercial operation.20 In this context, the Energy White Paper, expected to be published this summer, is an opportunity for the Government to revisit the funding for innovative, low carbon technology in general, taking account of the UK’s commitments to decarbonisation under the Climate Change Act 2006.
Whether, and the extent to which, this leaves a short to medium term gap in the energy market depends to some extent on future demand – which has arguably itself become more uncertain with new technologies, shifts in market behaviour21 and economic uncertainties making forecasts of future energy requirements more complex. However, with the electrification of transport expected to increase demand, there seems a distinct possibility of a time gap before new nuclear can be brought on line to meet medium term requirements for electricity generation22.
If the time periods required to bring on new nuclear power plants results in a gap in the energy market, this will be a gap in market capacity arising primarily from the retirement of aging coal and nuclear plants, the latter removing a significant level of baseload generation from the market.
Renewables may well take the place of some of this retiring capacity, as renewables increase their share of the UK market23, but the Committee on Climate Change has said in its 2018 progress report that current Government policy will not deliver the additional low-carbon capacity required by 2030.
Gas may provide a practical solution to address this gap. CCGT plants have a much lower carbon footprint than coal, are relatively quick and cheap to build and can provide flexible generation to meet varying demand. However, to incentivise investors to bring new CGGT on line, support from the capacity market in Great Britain needs to be reinstated24 and further policy levers may be required to support new CCGT plants25. Carbon capture, usage and storage (CCUS) may also become available in the medium term to reduce the carbon impact of any new CCGT plants, provided that the incentives are in place for CCUS technology to be commercially developed.26
The BEIS Committee inquiry is to examine the “outlook for future investment to deliver a low carbon, low cost energy system and secure energy supplies for the long term”.
This sounds like the right question. In looking for the answer, the inquiry must not avoid the difficult questions. The investment incentives needed in the short to medium term to realise the long term goal require a clear understanding of that goal and what is required to reach it, and are not necessarily the cheapest or easiest option today.
Thames Tideway – key features
Key challenges for nuclear?
https://www.gov.uk/government/speeches/statement-on-suspension-of-work-on-thewylfa-newyddnuclear-project. The Wylfa Newydd development is based on a different technology from Hinkley Point C. The costs for Wylfa Newydd therefore still included an element of first of a kind pricing for this technology.
In the Nuclear Sector Deal agreed between the UK Government and the nuclear industry in June 2018, the industry has targeted a reduction of 30% in the cost of new build projects by 2030, with the potential for further savings thereafter: https://www.gov.uk/government/publications/nuclear-sector-deal
See National Grid’s analysis at: https://www.nationalgrid.com/group/case-studies/electric-dreams-future-evs
Cost of Energy Review” by Dieter Helm dated 25 October 2017 provides a comprehensive analysis of the distortions in the electricity market.
See for example the roadmap for SMRs developed by the Canadian government: https://www.nrcan.gc.ca/energy/uranium-nuclear/21183
Although nuclear fusion is still in development, it does appear to be coming closer to commercial reality. For example, Tokamak Energy Ltd, a UK company developing a spherical tokamak design, is now targeting 2030 to achieve grid connected electricity generation.
Please see our website for more information on storage (https://www.nortonrosefulbright.com/en/knowledge/publications/167b2b5c/focus-on-energy-storage) and the possibilities for hydrogen (https://www.nortonrosefulbright.com/en/knowledge/publications/c7e83bb7/opportunity-is-knocking-bringing-hydrogen-into-the-mix))
UK Government has taken a number of steps in relation to the support of Advanced Nuclear Technologies, which have the potential to boost to the UK nuclear industry and open a new opportunity for future exports: https://www.gov.uk/government/publications/advanced-nuclear-technologies/advanced-nuclear-technologies
For example, the rise of the micro grid and demand side management.
In the Offshore Wind Sector Deal published in March 2019 (https://www.gov.uk/government/publications/offshore-wind-sector-deal), the UK Government has committed to make up to £557m available for future Contracts for Difference for new offshore wind projects, identified as leading to up to 30GW of generating capacity in offshore wind by 2030.
The UK capacity market is currently suspended following the decision of the Court of Justice of the European Union in November 2018 in Tempus Energy Ltd and Tempus Energy Technology Ltd v Commission: https://www.nortonrosefulbright.com/en-gb/knowledge/publications/a450d7a2/tempus-energy-and-the-capacity-market-in-the-uk; https://www.nortonrosefulbright.com/en/knowledge/publications/0cc2e303/tempus-energy-and-the-capacity-market--where-are-we-now
The capacity market auctions have generally not been won by new build CCGT, whilst more carbon intensive OCGT and small diesel generators have been successful in the first auctions. This is attributed in part to the impact of embedded generator benefits on costs, but also to the lower than expected cost of diesel and OCGT technologies. See Dieter Helm’s Cost of Energy Review and Ofgem’s Annual report on the capacity market in 2017/2018 auction: https://www.gov.uk/government/publications/cost-of-energy-independent-review https://www.ofgem.gov.uk/system/files/docs/2018/08/20180802_annual_report_on_the_operation_of_cm_2017-18_final.pdf.
In November 2018, the UK Government announced a relaunch of support for CCUS, following the cancellation of the original CCS development competition in 2015.
The Clean Growth Strategy: Leading the way to a low carbon future, dated October 2017: https://www.gov.uk/government/publications/clean-growth-strategy
Oral statement to Parliament delivered by Greg Clark MP on 17 January 2019: https://www.gov.uk/government/speeches/statement-on-suspension-of-work-on-thewylfa-newyddnuclear-project
European Parliament paper “Promotion of renewable energy sources in the EU: EU policies and Member State approaches”, dated June 2016, provides a useful overview of EU focus on renewable energy development: http://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_IDA(2016)583810
For example Renewable Obligation Certificates (ROCs), feed in tariffs (FiTs), Renewable Heat Incentive and Contracts for Difference.
Pathways to deep decarbonisation 2015 report, published by Deep Decarbonisation Pathways Project (http://deepdecarbonization.org/ddpp-reports/ ); European Commission’s 2018 long term vision for climate-neutral economy 2050 (https://ec.europa.eu/clima/policies/strategies/2050_en); “Commentary: Where are we on the road to clean energy” dated 4 May 2018, by Caroline Lee, IEA Energy and Climate Change Policy Analyst
2018 MIT study “The future of nuclear energy in a carbon-constrained world” concluded that the most cost efficient options for deep decarbonisation include an important share for nuclear, which increases as cost of nuclear reduces.http://world-nuclear-news.org/Articles/Nuclear-vital-for-deep-decarbonisation-MIT-study-f.
Our aim is to help our clients understand the potential opportunities and challenges that COP25 may have on their business.
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 passed Parliament last week and received royal assent shortly after.
The Court of Justice of the European Union (CJEU) has delivered its decision in A Ltd, a case concerning the location of insured risk, and therefore which jurisdiction can charge IPT, on cross-border M&A insurance policies.