UK Nuclear Project Costs Soar. It’s Kind of a Thing.
February 23, 2023
For close to a decade, Great Britain’s Hinkley Point C nuclear power project has served as the go-to punching bag for anti-nuclear activists. Sure enough, the gift that keeps giving has furnished still another reason to be chary of big nuclear projects.
Background for those not in the know. The current Hinkley Point nuclear project was the brainchild of British energy planners in the early 2000s. Their goal was to build another big nuclear plant at an existing site. Several actually. French state-controlled EDF took on the task with big British energy supplier Centrica as a minority owner. But Centrica soon backed out due to the escalating costs. EDF brought in a Chinese state company as a replacement partner.
The UK government signed an agreement guaranteeing that the unit would collect a generous price for power generated (an insanely high price according to one critic at the time). In 2016, the project commenced with an estimated cost of £16-17 billion. Oilprice readers will not be surprised that these costs kept rising. In February 2023, EDF estimated that the final cost would be close to £33 billion ($40 billion), a 100% increase versus the initial estimated cost to completion. The Chinese partner may not agree to further investments beyond those initially agreed to so EDF could be exposed to even higher costs. With the completion date set for 2027, should we expect more increases?
The news stories cite inflation as a primary reason for the cost increases. But the UK’s construction price index rose 40% between 2016 and 2023, while the estimated cost of the nuclear plant almost doubled. One distinguished economist noted that the plant would have cost far less if the government had financed it, but that is another matter.
Hinkley Point is really a colossal miscalculation of risk management. Start with this statistic. The Hinkley Point project investment to date equals roughly one-fifth of the enterprise value of EDF. There are 56 other nuclear plants in EDF’s portfolio. One of the lessons learned by most US utilities after the Three Mile Island accident was that big nuclear plants and relatively small electric utilities are not a good match. In technical terms, the single asset concentration risk is too high. One might argue that EDF is big enough to take the chance, but that is clearly not so.
Then there is the matter of whether the British government worked out its aims and the risks of the various solutions. Why did the UK need this nuclear project? To protect against the insecurity of foreign energy supplies? Wind turbines, solar and domestic natural gas would do that. Or was it the main goal of policy makers to reduce greenhouse gas emissions? In this at least they may prove successful but there are much cheaper alternatives. Consider as an alternative weatherproofing all those damp and cold council houses which were designed to be drafty due to earlier pandemics and worries about gas safety. That would have saved a lot of energy and reduced the need for the project. Or was this another legacy project of the Tories’ whose main desire was to protect Britain from the labor militancy of British coal miners whose last bitter, year long strike ended in 1985? From what we can tell, the UK government simply wanted a new nuclear power generating station period—more likely for national prestige—and not a discussion of alternatives, or the risks incurred by builders, or the financial consequences imposed on consumers by this decision.
This brings us to our final point. Hinkley Point C is a classic giant project, a category of construction brilliantly analyzed by British analysts in the 1980s. It is a huge effort that will take years to complete, requires a guess at market demand years from the date of inception, and once complete and in service will have a big impact on the market all at once when completed. In addition, this project involves many different owners and contractors, domestic and international, plus multiple national governments and requires the owner/builder to finance a project whose failure might have disastrous financial consequences for it. In other words, the project entails taking not only many risks but big ones. So why didn’t they consider alternatives first before plunging in?
The latest Hinkley Point nuclear cost re-estimate just underlines the need to find alternatives to large gigawatt-scale nuclear stations. They all have similar characteristics to Hinkley Point C. And consider that EDF is one of the most experienced nuclear companies, operators, and builder, so the problem does not lie with them alone. Relatively unique, giant construction projects are almost always difficult to complete on time and within budget. (This is even true for big hydroelectric projects.) That’s the main message. And one more reason to consider small modular reactors as well as exhibit proper skepticism when making cost comparisons. Cost estimates don’t seem too reliable there either. But with a small plant, the errors should be manageable relative to the size of the builder or to the market,
Years ago, a legendary power engineer explained that large-scale electric power generating plants are always the right choice for utilities as long as one can accurately predict their costs, duration of construction, and condition of the market at the time of completion. Unfortunately, there is always an energy expert or government official who thinks this time is different and learns the hard way—as Hinkley Point C’s seemingly never-ending saga demonstrates.
Not just the US and UK. Same story in Finland:
The 1.6 gigawatt (GW) reactor, built by the French-led Areva-Siemens consortium, had originally been due to open in 2009.
Using the third-generation European Pressurized Reactor (EPR) model, which was designed to improve safety and reduce costs, it was the first nuclear power station to be procured in Europe after the 1986 Chernobyl disaster.
Olkiluoto-3 was meant to be a showcase of French-German know-how, touted as offering higher power and better safety. But the project was plagued by technological problems and cost overruns.
The cost ballooned from an initial estimate of €3 billion ($3.27 billion) to around €11 billion, according to the 2019 World Nuclear Industry Report.
The Finnish Economy Ministry and the country’s nuclear regulator said the project was beset by a string of technical and safety setbacks due to poor project management and workmanship.
The repeated delays led to bitter compensation disputes between the Finnish operator TVO and Areva, with the latter ultimately agreeing in March 2018 to pay TVO financial compensation of €450 million.
France:
EDF’s (EDF.PA) new nuclear reactor in Flamanville will be delayed by at least six more months and costs will increase by another 500 million euros ($531 million), the company said on Friday.
The new delay is the latest blow to the group’s efforts to show it can keep to its schedules and step up the output of its fleet.
The Flamanville EPR reactor, which is already a decade behind schedule and has been dogged by repeated cost overruns, is now expected to start operations in the first quarter of 2024 and cost 13.2 billion euros, EDF said.
Climate Denial Crock of the Week 
February 23, 2023 at 6:30 pm
In February 2022, after COP26, Macron responded with a government program to build six new reactors. The devil is in the details: Those reactors would have both significant government subsidies and would have guarantees for investors such that there was little downside risk (e.g., taxpayers and ratepayers would eat any cost overruns).
February 25, 2023 at 6:25 pm
‘Britain is likely to spend 69 billion pounds ($82.95 billion) on schemes to protect households and business from soaring electricity costs, half of the original estimate, a UK spending watchdog said, as a mild winter softened energy costs.’ (Reuters, Feb 7). That’s enough for four EPR reactors, even at first build cost. As you mentioned, if government had seized the nettle and funded the reactors, they would have cost far less – at least half the cost is because of the 9% finance rates, from a time when governments had access to effectively zero interest money. Politicians have dithered over building nuclear for twenty years, while gas prices were at historic lows, and energy security was not even considered.
Now that fossil prices have spiked, and supply is tight, priorities have been radically realigned. Third World countries are used to blackouts, but they don’t like them any more than we do – India, Pakistan and Bangla Desh are all building nuclear reactors with government finance. In Pakistan, there had been plans to rely increasingly on imported liquefied natural gas. That’s not an option now – European and East Asian countries with more money have monopolised the supply. Instead, Pakistan has projected increasing use of coal, but in the meantime, the two new large Chinese reactors, plus four smaller, older ones, are the largest source of electricity. In Japan and Korea, policies to reduce nuclear power have been reversed – only Taiwan still has plans to eliminate nuclear power, and those are unlikely to survive the threats of Chinese blockade. Even Germany’s Green-led energy ministry has had to, at least temporarily, defer its planned Atomausstieg. We’ll find out in April whether the new date for final closure of their three remaining reactors will prove any more auspicious for dumping their most reliable, and one of their cheapest, power sources.