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Baseload power will continue to have an essential role for many decades
Tim Yeo, Chairman, New Nuclear Watch Europe
AUTHOR: Atanas Georgiev

The interview is published in the November issue of the UTILITIES Magazine

What is the current status of nuclear energy globally and in Europe – especially after COP21 and the Clean Energy package proposal? Do you expect a transition from "green energy policy" to "low carbon policy", the latter including more nuclear?

It is widely recognised that to achieve the carbon emission reductions needed to meet the COP21 climate target a substantial element of nuclear power is required in the world’s energy mix. The present fleet of nuclear plants is ageing and much of it will retire in the next fifteen years. For that reason, a big nuclear new build programme must now take place. Russia and China are already showing the way forward.

The need to accelerate the global switch to low carbon energy is stronger than ever and many countries accept the need for new nuclear capacity. However, in the EU there is entrenched opposition to nuclear in some member states. Supporters of nuclear must work to prevent the industry’s opponents from gaining ground.

In my view "green energy policy" and "low carbon policy" are the same thing. A low carbon energy policy must involve both nuclear and renewable energy. Nuclear and renewables are complementary, not alternatives. So I don’t expect a transition, but I do expect that the priority attached to rapid decarbonisation of the electricity generation industry will increase steadily in the next few years and that this will lead to more investment in nuclear.

What are the "hot spots" for new nuclear projects development? Are there markets and countries where you expect growth and additional new projects?

There are "hot spots" for new nuclear development in parts of East and Central Europe, in the Middle East, and in much of Asia. In addition, the size of China’s domestic programme qualifies it as another "hot spot". Most of these hot spots are in places where the need to reduce dependence on coal has been recognised.

I expect India and all the other BRICS countries – Brazil, Russia, China and South Africa – to lead the way in developing new projects. They will be followed by Turkey, Jordan and Saudi Arabia. In Europe: Czech Republic, Slovakia and possibly Poland will probably develop projects alongside UK and of course Bulgaria.

New nuclear development strongly correlates with the expected growth of the economy. Countries which are betting on growth are also betting on nuclear.

What could be the place of baseload power plants in the coming decades? Do you consider renewable energy, combined with storage, to be a direct competitor to nuclear power plants?

Baseload power will continue to have an essential role for many decades. Every modern economy depends on the availability of a continuous supply of electricity. Although there will be significant growth in distributed electricity generation and in renewable energy it is impossible to meet all the needs of large cities and big industrial complexes entirely from distributed sources or intermittent renewables.

In addition, I expect the forthcoming switch from petrol and diesel to electric vehicles to take place much more quickly than is currently forecast. This switch will increase the need for large scale baseload power. Widespread night-time charging of vehicle batteries will also mean a more even electricity consumption pattern across the 24 hour cycle than at present.

If low cost, flexible, long term electricity storage becomes available then the contribution of intermittent renewable energy can increase. For the foreseeable future however, it would be as wrong to make investment decisions on the assumption that cheap electricity storage will soon be available as it would be to invest in new coal plants on the assumption that an economically viable form of carbon capture utilisation and storage will allow current levels of coal consumption to continue.

Even if electricity storage is cheap and demand management is efficient, energy intensive users such as smelters, cement makers etc., whose energy costs can be more than half the price of their products, are unlikely to be able to replace an uninterrupted baseload energy supply with a combination of intermittent sources of power and stored electricity. The costs of even a very short blackout or extreme price hikes caused by lower than expected capacity from intermittent sources would outweigh all other benefits.

For that reason, I do not consider renewable energy with storage to be a direct competitor to nuclear power. In countries where no hydro power is available nuclear remains the only source of low-carbon clean baseload electricity with no possible substitute in the foreseeable future

The United Kingdom is the first member state of the EU to propose a scheme for supporting new nuclear units with Hinkley Point C. What are the pros and cons of the Contracts for Difference (CfD) approach and is it possible to apply it to other national markets?

The United Kingdom is showing Europe the way forward to a low carbon future with its ambitious programme of new nuclear plant construction. This programme will enable the UK to achieve big cuts in carbon emissions.

The advantage of the CfD approach is that it gives certainty about the electricity price for the project developer. At the same time, it protects consumers and taxpayers against unexpected or unforeseen price fluctuations, which can be caused by factors outside the control of government.

This approach can easily be applied to other national markets. Its implementation in the UK is being watched carefully by other countries. The main drawback of the CfD approach is that, without other support mechanisms, it is neither sufficient nor efficient.

The cost of electricity generated at Hinkley Point C will be much higher than it need have been because of the insistence of the UK government that the project be entirely privately financed with no public funds provided either through debt or equity. The high political risks associated with this project (e.g. possible European Commission intervention or delay resulting from UK government decisions) have caused the cost of capital to soar.

This in turn led to a much higher strike price for the CfD than would otherwise have been the case. This high strike price has allowed opponents of nuclear to allege wrongly that nuclear energy is more expensive than renewables. If Hinkley Point C had enjoyed access to finance at the very low interest rates available to many European wind developments, its strike price would have been close to zero.

Is it possible to build a new nuclear plant in the EU without state aid? What about ownership – is it possible for the state to entirely outsource such investments to the private sector?

As the nuclear industry continues to drive down the cost of new build it will become easier for new nuclear plant to be built without state aid. The cost of the latest reactors developed in Russia is already fully competitive with other low carbon electricity generation technologies. This enables such investments to be outsourced to the private sector as has occurred in the case of Rosatom’s project in Finland which is privately owned and privately financed.

However, the high upfront capital cost of nuclear new build, coupled with the long construction lead time, means that the provision of government finance by way of either equity or loans will result in much lower electricity prices.

The provision of government finance for the purpose of nuclear new build is perfectly compatible with long term private ownership of nuclear plant. Government loans can be repaid once plants are operational and a government equity stake can be combined with a put option so that it can later be sold to private investors. The model of state aid recently approved by Brussels for Paks NPP extension in Hungary is particularly noteworthy.

The project is 100% state owned, at least for the construction period, and financed through an inter-governmental loan which Hungary will not have to pay back or even service until the plant is operating and producing revenue. Combined with the much cheaper borrowing costs enjoyed by government compared with even the most creditworthy private investor, it translates to perhaps the lowest per-MWh price for low carbon electricity of any project in the EU.

The United Kingdom has been one of the strongest supporters of nuclear energy in the EU. What would happen with the position of pro-nuclear member states when Brexit is completed?

I believe that the UK can legally remain in Euratom even after Brexit. In my view it should definitely do so as this will promote energy security and help to keep electricity prices low.

However, if the UK government chooses, as is presently intended, to leave Euratom it should seek associate status to minimise the disruption which Brexit will otherwise impose on the nuclear industry.

After Brexit the balance of opinion among EU member states will shift more against nuclear energy. It is essential that the right of all EU member states to determine their own energy mix is preserved.

Additionally, it would be useful if in future the pro-nuclear EU member states cooperated closely with neighbouring pro-nuclear countries, including the UK. This would ensure that the advantages of including nuclear in the energy mix are widely understood and recognised. The proposal for an Organisation for Nuclear Cooperation in Europe ("ONCE") made by New Nuclear Watch Europe is designed to promote this outcome.

Since leaving the House of Commons in 2015, where Tim Yeo was Chair of the Energy & Climate Change Select Committee (2010-2015), and Minister for the Environment and Countryside (1993-1994), Tim Yeo has been working in various energy and climate change related roles in the business and academic worlds. These include Board membership (and former chair) of AFC Energy plc, an AIM listed UK based hydrogen fuel cell developer, and the University of Sheffield Energy 2050 Industrial Advisory Board. Tim Yeo remains a director of Groupe Eurotunnel SE, one of the largest listed companies in France, where he chairs the Board Strategy and Sustainable Development Committee and where he is the lead non-executive director on ElecLink, the interconnector which Eurotunnel is building through the tunnel.

Last year KOTRA, the Korean trade office, appointed Tim Yeo as the Honorary Ambassador of Foreign Investment Promotion for South Korea. He is also a very frequent visitor to China where he works with the UK-China (Guangdong) CCUS Centre on carbon capture projects, with academic collaborators on the design of China's emissions trading system and with business colleagues on inward investment into the UK from China.


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