Summary of Dalton Position Paper – ‘Delivering Advanced Nuclear Energy: The Role of Government’

New nuclear 27 September 2022

Author: Charley Nevin, PhD Student, The University of Sheffield

The Dalton Nuclear Institute brings together the skills and expertise of the nuclear research community at The University of Manchester. Their recently published position paper titled ‘Delivery of Advanced Nuclear Energy: The Role of Government’ explores the actions that the UK Government can take to smooth the path to a UK demonstration of a fleet of Advanced Nuclear Reactors by the early 2030s.

The UK Government does envisage a significant role for nuclear energy, both in meeting the UK’s legally binding commitment to net zero and in enhancing energy security. This is clear from Government and advisory publications over the last two years, the most significant of which is the ‘Three Wave’ rollout of nuclear energy. Long-lead times and high capital costs have been identified as the primary barriers to successful nuclear power not being delivered by the private sector for over a decade, and the Government must take decisive action if the industry is to flourish. In this position paper, Dalton Nuclear Institute make seven recommendations to the UK Government to ensure their role in UK Nuclear success.

Recommendation 1:

‘Government should develop, and communicate to the market, estimates of the size and utilization of the potential HTGR fleet, including the power output of reactors envisages, and the end use of the heat output.’

The current principle of Government is accepted to be that the supply of services should be largely devolved to the market, but, in the case of carbon reduction, the Government should be driving the changes. They should have a view of the carbon curve and the plausible range of contributions of individual industries, actions, and methodologies that might make net zero a reality. It is Dalton’s view that if the Government does not have and cannot demonstrate a clear path to net zero, it is likely not achievable.

An example of this is the ’24 GW of nuclear power by 2050’ ambition set forth by the Department of Business, Economics, and Industrial Strategy (BEIS), making up Wave 1 of the ‘Three Wave’ Rollout. It does not say who will supply which reactors, but it does present an aspiration for firm, low-carbon sources of nuclear electricity. In the case of Wave 3, which is recommended to consist of High Temperature Gas-Cooled Reactors (HTGRs), Dalton states that a Government view of the anticipated market size for low carbon, high temperature heat would be a case of Government helping to define the marketplace, not manipulating it. It is crucially important to have approved figures for the required market size (i.e. how much power needs to be generated) before making any decisions on HTGR reactor size.

Recommendation 2:

‘Clear decisions should be made by Government, for example in Government-led competitions, to provide certainty to the market. While this will create winners and losers, Government should be clear, consistent and courageous in its decision making.’

The obvious risks that impede the delivery of new nuclear energy are safety, security, and environmental risks which are all mitigated by regulatory approval processes. Therefore, the main outstanding risk is tied with the economics of future programmes. All of the mechanisms for siting and financing future fleets must be in place so that developers have a firm vision of the market they are entering. The failure of recent programmes, such as Horizon, show that visibility and resulting investment have been lacking.

For less mature designs, such as the HTGR, Government has recognised that stimulating competition will foster development. But this has led to a start-stop approach, as demonstrated by the AMR Feasibility and Development Project, which has led to no obvious progress and the competition has had no visible impact on the current advanced nuclear programme.

Recommendation 3:

‘Government should make a clear, decades-long commitment to support advanced nuclear systems.’

The UK market clearly presents barriers to development, displayed by the lack of investment and successful projects for over a decade. Therefore, the Government must step in and be responsible for establishing the regulatory and commercial frameworks. In doing so, they must put into place arrangements that will ensure investors of ‘adequate return for adequate performance’. Due to the long lead-times and the multi-generational undertaking that is nuclear power, the Government must make this commitment over decades, or as far as possible given political timescales.

Recommendation 4:

‘Nuclear programmes must move at the pace required to meet the 2050 net zero deadline, and Government processes need to be able to keep up.’

The cost of nuclear power is dominated by the cost of capital and therefore a strike price was set for Hinkley Point C in 2012 at £92.50/MWh. Therefore, major reductions in deployment time and capital cost are essential if it is to become competitive. Dalton use Offshore Wind as an instructive comparison over the same period –

‘This was originally higher than £92.50 but reduced slowly through the 2010s, only dropping below £92.50 in 2019 and falling to around £38 in July 2022. This price reduction was triggered by Government action – the establishment of an Offshore Wind Investment Organisation enabled large scale fleet build of offshore wind, and there are lessons for the nuclear sector.’

The Government recognises the problems in the commercial environment, and subsequently developed and sought to apply to Regulated Asset Base (RAB) model, which was approved for the nuclear sector in March of 2022. This essentially allows some of the upfront costs to be charged to consumers before generation begins, assuring value for money for consumers and preventing spiralling financial costs for investors. Although this is a good response to the disproportionate contribution of financing to the cost of building a nuclear power plant, it was implemented too late to help the Horizon project. As such, it identifies a crucial need for Government processes to keep up with any challenges that arise.

Recommendation 5:

‘Developers should make efforts to engage early with regulators, to finalise a mature design and to establish a clear plan for the development of a site license holding entity. This should cover the whole span from reactor building, to decommissioning, and vacation of the site.’

In the UK, the nuclear safety regulator is the Office for Nuclear Regulation (ONR). The environmental regulators are the Environmental Agency (EA) in England, Natural Resources Wales in Wales, and the Scottish Environmental Protection Agency in Scotland (although Scottish laws do not allow the development of new nuclear). The ONR and relevant environmental regulators work closely together in assessing proposals and the practise seeks to develop good communication between the regulator and duty holder. There is considerable clarity in the regulatory domain, and organisational responsibilities are explicitly stated. There is a clearly defined path to regulatory approval and therefore the developers have the opportunity to work closely with regulators to develop a mature design, from conception to decommissioning.

Recommendation 6:

‘Fleet build of SMRs and HTGRs, combined with modular construction, are essential to achieve acceptable economics for these reactors. Competitions must be for quanta of work that are sufficiently large to justify investment by developers and sufficiently infrequent that they do not add significant delay to the programme.’

Dalton recognises that the timescales of political change are typically much shorter than the time it takes to deliver a nuclear project to completion, with general elections running every 5 years in the UK. Not to mention the political uncertainty that can come about even within the 5-year term of a Government, such as the recent events in July 2022 with the resignation of Prime Minister Boris Johnson, which could lead to significant policy changes. Therefore, it is recognised that long-term strategic activities such as the provision of nuclear energy can present a basic problem to the UK political system.

It is therefore evident that the requirements of commercial nuclear schemes should be examined and, as far as possible, catered for in Governmental plans over an appropriate timescale. Otherwise, there is a disincentive to companies and organisations seeking to enter the nuclear energy market. Dalton recognises that it is essential that the effect of any future changes be explicitly considered, and the vulnerability of proposed arrangements expressly debated and understood within Government; ‘progress requires Government to become comfortable with a contractual format that does not exactly conform to its instincts for competition at every project stage’.

Recommendation 7:

‘To enable early, cost-competitive financing of nuclear investments, Government should ensure that its developing Green Taxonomy properly reflects the sustainability benefits of nuclear energy and does not exaggerate its drawbacks.’

Many investors are now very focused on sustainability and thus a declaration that something is not inherently ‘green’ can make a technology extremely unattractive. Therefore, it is vital that nuclear energy be declared sustainable for it to flourish in the market. The UK Government have plans to develop its own ‘Green Taxonomy’, enabling identification of environmentally sustainable activities when judged against a set of objective criteria. If nuclear energy is to form part of the future economy of the UK, it is of crucial importance that it is not excluded from the Taxonomy process, as this may result in financing proving even more expensive. To be proven sustainable, an activity must make substantial contribution to one of the six environmental objectives, summarised in the table below, while doing no significant harm to the other objectives.

To conclude, this position paper from Dalton Nuclear Institute highlights that the success of the UK’s nuclear sector relies on the Government stepping in and making clear, consistent, and courageous decisions to shape and reflect it. It is difficult to see how national net zero and energy security needs can be met without a successful nuclear sector, so that current promise held in nuclear power generation must not be wasted.

If you would like to read more or consult the references, please refer to the Dalton Nuclear Institute’s Position Paper on this matter.