Never buy today what will cost the taxpayer more tomorrow
HM Treasury has this motto above the entry door. It should be re-named the Ministry of Prevarication.
Examples such as HS2 are many, but nuclear reactors currently lead the way. Hinkley Point C apart, the last reactor to be built was Sizewell B, announced in 1969 but not approved until 1980. After three years of wholly unnecessary wrangling, building commenced in 1988 costing just £2bn at 1987 prices.
25 years later, the Treasury got around to approving another of similar size at an estimated cost of £12bn. It was, according to Dame Sue Ion at her Gresham’s lecture in April, the most complex ever and, we can infer, doomed to be late and hugely over budget.
After several postponements, opening is now expected in September 2028 (but don’t hold your breath) with spending also up to £32.7bn and counting. Insanely, the government has announced a duplicate at Sizewell C with an actual decision sometime in the next Parliament.
“The Department for Business, Energy and Industrial Strategy said today [29 November 2022] that the lower cost of financing a large-scale nuclear project through this scheme was ‘expected to lead to savings for consumers of at least £30 bn on each project throughout its lifetime’ compared with the existing arrangements governing the financing of Hinkley Point C.”
That is clearly fantasy, not least because it is based on the discredited Resource Asset-Based (RAB) financial model - which HM Treasury likes. At £33bn for 3.2 GW, the cost per GWh would be more than £10 billion compared with £50,000 for small modular reactors (SMRs).
Under the RAB model, users have to start paying for the electricity years before they actually get it and then will have to pay “whatever level is necessary, however high, to generate enough income to provide the plant owners with their guaranteed income,” defined as return on investment.
This is another version of the cost-plus model which, in defence procurement, has cost the taxpayer billions. So no wonder EDF are happy to see building costs sky-rocket. The point here though is that if HM Treasury had approved another 3 GW reactor when they should have done, 20 years earlier, it would have been built at 90% less cost and we would not now be panicking about the lights going out.
More recently, the Prime Minister announced Great British Nuclear (GBN), but it took a full year for the Chancellor to approve it. The good news is that after years of refusal to even consider SMRs, they are suddenly top of the agenda. Pig-headedly, Ministers still want more Hinkley Point Cs, but the new flavour is SMRs. The interim chairman of Great British Nuclear hosted the first meeting of potential SMR suppliers on 19 April. But there is more dithering in the pipeline.
The following examples of prevarication are all taken from the slides used on that occasion.
First, there are less than a dozen potential suppliers, but it is going to take six months to issue and receive tenders. It will then take up to six years, until the end of the next Parliament, to reach a “Final Investment Decision” (slide 19). HM Treasury will help with (unspecified) development costs but to save money, only wants one SMR supplier, but also a competitive market. To his credit the Interim Chairman has pointed out that just one supplier does not make a competitive market.
When Boris Johnson announced GBN, he said: “Our aim is to lead the world once again in [nuclear] technology”. But on this timetable, we will not be world-leading but world-following. Most other top nations are either installing, or planning to install, SMRs right now.
Mr Johnson said nuclear power would supply 24GW, or 25% of Britain’s electricity needs in 2050. Someone present said he had just snatched those figures out of the air, and they may have been right. Those figures have been used ever since despite no clear justification. The 25% may be about right, but the electricity market in 2050 will need to be about six times larger than it is now, as other forms of energy convert to electricity. Arithmetic is, strangely, not one of the Treasury’s skills. We shall need closer to 60GW than 24GW.
According to slide 10, due to the closures of existing plants, nuclear will provide just 7.8% of our electricity needs in 2035. Yet somehow it will provide 25% (using the 24GW figure, never mind 60GW) by 2050. That is about as likely as my becoming a prima ballerina. An additional 52GW is about 230 SMRs (assuming 400 KW each), not just a small fleet from one supplier, starting at the back of the queue.
HM Treasury needs to do a bit of re-thinking – and do it fast.