WindEconomics: UK government steps up support for nuclear power

UK/GERMANY: In a complete policy reversal, the UK government has announced it will consider direct investment in a proposed new nuclear power station, Wylfa in North Wales.

This will enable the electricity price to be brought down below the level agreed for the Hinkley Point C nuclear plant, which attracted criticism from many quarters, including the government’s own spending watchdog, the National Audit Office.  

Hinkley Point will be paid £92.5/MWh for 35 years in 2012 prices, which equates to around £100/MWh (€114 or $132/MWh) in 2018 prices.

The UK government’s stake in Wylfa is likely to be around £5 billion, or around 30% of the total, although estimatesof the total cost vary between £12 billion and £20 billion.  

This discussion assumes a "central estimate" of £16 billion, which suggests the capital cost is around £5,500/kW (€6,240 or $7,340/kW.

This is higher than the estimate for new nuclear construction costs from the US Energy and Information Administration (EIA) — $5,946/kW — but less than the building costs of the two reactors now under construction in the US (Vogtle 3 and 4), which are running at about $9,200/kW.

Cost of capital

If the government takes a stake in the Wylfa project, the cost of electricity could be reduced as government finance can be repaid at lower interest rates than those by commercial developers.

This is an inversion of the more usual scenario, where equity investors require higher rates of return than those attached to repayment of bank loans.

The weighted average cost of capital (WACC) for Hinkley Point is believed to be around 9%, whereas a government equity contribution for Wylfa of around 30%, at, say, 3%, might enable WACC to fall to around 7%.  

The government has not put a figure to the expected electricity price for the Wylfa project, but speculation suggests that it will be around £75-77/MWh, payable for 35 years.

This is £15/MWh less than the Hinkley Point price. Assuming that the government is still working in 2012 prices, that corresponds to about £80/MWh in 2018 prices.

This is achievable, provided the cost of capital can be brought down to about 6.5% (see chart, below).

These estimates are based on an assumed £5,500/kW capital cost, a construction period of eight years, fuel costs of £5/MWh, and O&M costs consistent with data from the US EIA.

The UK’s Guardian newspaper points out that the £75/MWh price (payable for 35 years) for nuclear power is significantly higher than the £62/MWh average (payable for 15 years awarded for offshore wind projects due to come online about the same time.

The £13/MWh difference is higher than the cost of backup for wind, which most studies putat around £5-£10/MWh.

Disappointment over Swansea Bay decision

The UK government has announced it will not provide support for a proposed tidal lagoon in Swansea Bay, Wales, described in our March 2017 issue.

Despite the offer of a £200 million equity contribution from the Welsh government, central government concluded the project was too expensive.

The project required a contract for difference of around £150/MWh for 35 years, which is considerably more expensive than the corresponding figures for offshore wind or even nuclear.

One of the problems with tidal projects is the low load factor, coupled with high construction costs. The government considers that the latter are unlikely to fall significantly in the future.

The only lifeline thrown by the government was a promise to look at "potential local economic benefits that might result from a lagoon in Swansea".

Wind power moving ahead in Germany

Estimates of the cost of wind energy require data on capacity factors, and recent information from the Fraunhofer Institute in Germany confirms that higher values can be achieved at offshore wind farms.

Data from 11 projects shows that capacity factors range from 28% to 50%, with the highest achieving wind farm — the 288MW Dan Tysk in the North Sea — realising a value of 50.4%.

The second highest capacity factor came from the 336MW Baltic 1 and 2 project, which reached 48.7%; the weighted average value is just over 40%.

The Fraunhofer report charts the growth of renewable energy in Germany and shows that renewables delivered 210TWh in 2017 — 38% of the electricity supply.

Wind was the leading renewable-energy source, supplying 104TWh, and the second-largest contributor, behind brown coal, to electricity supplies overall.

At a glance — This month’s report conclusions

Power generation from renewable energy in Germany — assessment of 2017, Fraunhofer Institute for Solar Energy Systems, Germany, 8 May 2018 Presentation by Prof B Burger

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