Cost over-runs, absolute pricing levels and the declining cost of renewables invite thoughts about the competitiveness of nuclear power generation. On the hypothesis of efficient project management in the construction phase, we still see it as competitive.
At the moment, the numbers look as follows: EDF’s Hinkely Point will require GBP 92.5/MWh, German solar feed-in tariffs stand at at Eur 124/MWh, German onshore wind feed-in tariffs at Eur 154/MWh and UK offshore wind at GBP 155/MWh. We have chosen these numbers as average headline indicators.
Montpellier Analysis’s renewables new entrant models suggest the following current levels: Solar Eur 45-82/MWh, onshore wind Eur 63/MWh, offshore wind Eur 135/MWh. Clearly, there is further downward potential on all of them, but most importantly on offshore wind and solar. The offshore industry expects levelised costs to hit Eur 120/MWh over the next three years, in total over the medium term a 30-40% reduction. We see that as realistic.
We estimate current mark to market cost for coal at Eur 48-50/MW and gas at Eur 50-52/MWh. On our longer term view, we calculate new entrant costs for coal around the Eur 63/MWh mark and gas at Eur 60-62/MWh.
The issues with nuclear lie in execution and uncertainties. The construction cost for Hinkley Point lies much higher than previous expectations, at GBP 7700/kW. For that construction cost, our model suggests a new entrant cost range of GBP 106/MW. We would find it reasonable if there was a hedge for over-runs built into the construction cost assumption. Hinkley Point is deprived of any synergy or standardisation benefits. That further increases its final cost. Very similar features hold true for Flammantville, EDF’s problem loaded project. The safety problems with the reactor are an additional problem.
One of the key elements that decrease the cost of nuclear is standardisation and modular architecture. There have been suggestions in the public debate of smaller reactors enabling such modular structure. The though is worth pursuing. Against that stands the argument of scale.
We see project management skills as the key to making nuclear competitive. Aside from financing guarantees, construction execution is the crucial difference. Chinese developers claim to be able to build nuclear plant at a fraction of European construction costs, in the order of USD 2000/kW. That would mean running costs around Eur 33/MWh, well below any other fuel, conventional or renewable. As a reminder, EDF’s initial estimate for Flammantville for Eur 30-40/MWh running cost which would have implied construction costs around the Eur 2000/kW level.
Theoretically, nuclear is thus still the most competitive source of generation from a cost point of view.
Chinese execution may eventually become accessible globally. Chinese partners may bring project expertise to the next rounds of UK projects. Costs may never reach the low end of Chinese reactors, in Europe, though. One element is tighter regulation, local execution, but another important one is lack of fleet synergy benefits. European new build does not comprise a large enough number of reactors for that.
However, if construction costs can be brought back to the USD 3000-4000/kW level, nuclear will be competitive. We see Engie (GSZ FP) as the best placed in Europe to achieve competitive construction costs. Already, its Nu Gen consortium has said it targets construction costs for Sellafield around the GBP 4400/kW level. The consortium also has very strong engineering skills and uses the Westinghouse reactor design.
Note that end of life costs are another consideration that merit separate analysis.