Prime Minister David Cameron’s government is drawing up a law to make building atomic reactors more profitable.
The U.K. is aiming to revive the nuclear industry after Germany’s largest utilities scrapped a project in March because the investment would take too long to pay off. Yesterday, the government announced measures including long-term contracts that give power producers guarantees to help them attract as much as 60 billion pounds ($97 billion) in finance for nuclear plants.
The proposals follow months of upheaval in the U.K. energy industry including the withdrawal of EON AG, RWE AG and SSE Plc from nuclear projects, the prospect of delays to a plant planned by Electricite de France SA and the resignation of Energy Secretary Chris Huhne. The government said the Energy Market Reform bill will become law next year, allowing utilities to take advantage of its provisions from 2014.
“Electricity market reform is about keeping the lights on,” said John Cridland, director-general of the Confederation of British Industry, the U.K.’s largest business lobby. “Business investment in low carbon will only happen when the detailed market framework is in place. Today’s announcements are an important stepping stone.”
The bill calls for so-called feed-in tariffs with contracts for difference, a mechanism that smooths out rises and drops in power prices. That plan hasn’t prevented utilities backing out of nuclear projects. RWE and EON, Germany’s two largest utilities, dropped plans to build a nuclear plant in the U.K. in March, saying they couldn’t justify the capital expenditure involved.
Their joint Horizon Nuclear Power venture has sites in Wales and the west of England and had planned to start construction of the first reactor by 2015. Their withdrawal came six months after SSE said it would sell its 25 percent stake in U.K. nuclear venture NuGeneration Ltd.
About half of Britain’s coal-fired plants are scheduled to close by 201,6 and all the nation’s nuclear stations are due to shut by 2035. Britain gets about 20 percent of its power from 10 nuclear stations. All except one reactor are owned by EDF and Centrica Plc.
The cost of a new generation of reactors may reach 60 billion pounds if all the proposed plants get built, according to the U.K.’s Nuclear Advanced Manufacturing Research Center.
“We’re not in danger of capacity shortages in the next two to three years,” Tim Yeo, a Conservative lawmaker and chairman of the cross-party Energy and Climate Change Committee, said in an interview last week. “The problem comes in the 20-teens if we haven’t started building.”
Electricite de France SA, the company furthest along in its plans to build a new nuclear plant, is unlikely to complete a reactor before 2020, according to U.K. energy markets regulator Chief Executive Officer Alistair Buchanan, two years later than originally planned. EDF has said it will make a final investment decision on its project at Hinkley Point in southwest England by the end of this year.
“As an investor, I’m closer than ever to making a decision at the end of this year to go ahead,” Chief Executive Officer Vincent de Rivaz of EDF’s U.K. unit, said at a conference in London last week.
EDF’s first-of-a-kind EPR reactor at Flamanville, France, will cost about 6 billion euros ($7.8 billion), almost double the orginal budget. The tsunami and reactor meltdown at Fukushima have also weighed on costs, Citigroup analysts including Peter Atherton said in a May 8 note to investors.
“If construction costs are indeed anything like seven billion pounds per reactor, then an already very challenging program maybe reaching the point of impossibility in our view,” the analysts said.
SSE’s former partners Iberdrola and GDF Suez SA are still part of the NuGeneration venture.
The role of nuclear power was championed by former Energy Secretary Huhne, who put aside his long-standing opposition to the energy source when he took office in May 2010. Huhne resigned in February after he was charged with lying about a driving offense.
His departure left his successor Ed Davey to oversee the proposed energy bill. The minister also faces public outcry that the government’s energy plans are driving up household bills.
U.K. families may pay as much as 65 billion pounds ($100.5 billion) a year for energy by 2020, more than quadruple he figure in 2000, according to Deutsche Bank AG. They will spend more than 1,500 pounds a year in 2006 prices by the end of the decade, Deutsche Bank analyst Martin Brough said in report in October.
“There needs to be that sense of momentum,” said Bill Easton, director of U.K. power and utilities at Ernst & Young LP. “There’s been a lot of concern about the timeline. It’s all about creating certainty to invest in low carbon generation.”