Nuclear reactors: is big beautiful?

Nuclear power has long been a controversial source of energy. Detractors point to high infrastructure costs and difficulties associated with storing nuclear waste, amongst other concerns. Advocates, however, view it as a clean and reliable alternative, which the grid requires as the country steadily shifts away from coal and other fossil fuels which we have relied upon for decades.

But last week, the car giant Rolls-Royce released a report on small modular nuclear reactors (SMRs), outlining how they think the technology – first developed several decades ago to power submarines – could foreseeably bridge some of the differences in opinion between pro- and anti-nuclear voices, and usher in a “once in a lifetime opportunity” for Britain to be at the forefront of nuclear technology. Such bold claims, however, require scrutiny – given Rolls-Royce’s commercial interest in the technology’s adoption, and also the relatively untested nature of SMRs as part of the energy system.

Typically defined as nuclear reactors which can generate up to 300 megawatts of electrical power, and can be produced in a single factory on a repeated basis – i.e., ‘modularly’ – SMRs have been touted by their supporters as a way for the UK to tap a reliable source of energy, able to ensure the lights stay on when the sun isn’t shining or the wind isn’t blowing.

One of the main selling points of energy generated by SMRs – at least compared to conventional large-scale nuclear projects such as Hinkley Point C in Somerset – is cost. An economic fact true of most goods and services is that increased and repeated production has a tendency towards falling average unit costs – what economists would call economies of scale. For larger nuclear projects, which are effectively produced as ‘one offs’ every few decades or so, designers have been unable to exploit the potentially lucrative economies of scale because the actual technology involved typically changes to such a significant extent with each project. However, for SMRs, the opportunity to do so is theoretically much greater. Owing to the fact that a factory may fabricate many several SMRs, financial savings in materials and alike allow for a lower cost per reactor to be achieved, ultimately manifesting itself as a lower cost per unit of usable energy generated.

Others have highlighted the fact that financing SMRs could be more attractive to investors, relative to large-scale nuclear plants. Reasons for this are broadly twofold: on the one hand, capital expenditure costs will be lower given that the reactors will be much smaller – allowing a more diverse pool of investors to consider financing a project; on the other, the asset will begin generating dividends far sooner, because it can be built and operationalised more quickly, again, due to its smaller size. This could therefore mean that investors might agree to a lower strike price for their energy generated, given the fact they will not have to factor in more of a guarantee on their return on investment.

SMRs may not just make financial sense, but they could also play a vitally important role in expanding our nation’s ‘energy flexibility’, through helping to decentralise energy production. Decentralisation of energy can be advantageous for the environment because when energy is consumed close to where it is produced, transmission losses are minimised. Developments in other energy sources have already been heading in this decentralising direction for some time now – consider, for instance, solar photovoltaic panels atop people’s houses. Some have also suggested that because SMRs require less water for cooling than their larger cousins, they are more environmentally friendly in this respect, and could also help in bringing energy security to remote areas which may not be located close to seas or large rivers.

Nevertheless, questions do remain about SMRs. In this very blog, much of the financial case for them is based upon the theoretical assumption that economies of scale will be realised – and realised in sufficiently large proportions to warrant a revolution in the energy sector. Because the technology is so untested as a commercial source of electricity generation, estimates about how far costs will fall are difficult to accurately make at this stage.

Environmental NGOs have also criticised SMRs, largely on the basis that they are not strictly speaking a renewable form of energy generation – certainly, SMRs will still inevitably call for the intermittent disposal of spent nuclear fuel. Even if one is not inherently opposed to nuclear energy, it has been pointed out that nuclear waste is an area where large-scale plants have the upper hand over SMRs, because the latter would face a challenging coordination problem stemming from several nuclear sites all needing to dispose of individually lesser, but cumulatively equal, amounts of nuclear waste.  

Yet perhaps the foremost factor which could jeopardise the roll out of SMRs is the remarkable fall in the cost of certain forms of renewable energy, such as solar and wind power. Incidentally, these are technologies which have already very much felt the virtuous cycle of economies of scale themselves, as the costs of their parts have tumbled as they have become more and more widespread. Coupled with ongoing learning about how best to deploy renewables, and a fine tuning of the technology they utilise, wind and solar farms are now more efficient, and more cost-effective, than ever.

Indeed, in the aforementioned Rolls-Royce report, it is somewhat ambiguously claimed that they are “working towards” the medium-term target of £60 per megawatt hour of energy generated through SMRs. Initially, Rolls-Royce even concede that a figure of around £75 per megawatt hour is more likely. This would be noticeably more expensive than the £57.50 per megawatt hour of wind generated power, recently agreed to by two companies in the most recent Contracts for Difference auctions.

In 2015, the then Chancellor, George Osborne, signalled the Government’s ambition to explore new nuclear technologies – pledging £250 million into a nuclear research and development programme. Since then, it has launched a competition to invite engineers to submit their plans for the best value SMR design for the UK. As the nation continues its transition away from dirty and polluting fossil fuels, there is an ongoing debate about which technologies will power the UK forward. In theory, SMRs could have a number of potential benefits, relative to large-scale nuclear. But they also come with certain disadvantages, not least of which is their relatively untested nature.

Eamonn Ives is a Researcher at Bright Blue

Post-coal: the future of the UK energy mix

In her “reset” speech last November, Amber Rudd announced plans to close all the UK’s unabated coal power stations by 2025. With this announcement, the UK earned praise from the likes of Al Gore for its leadership in consigning one of the dirtiest forms of power generation to the history books.

The big question, of course, was what would fill the gap left by coal. Ms Rudd’s answer was unambiguous: gas and nuclear.

But investors don’t exactly seem to be queuing up to build new gas power stations. And even if the government can put in place the right incentives for new gas turbines to be built, unless this “dash for gas” is coupled with Carbon Capture and Storage (CCS) technology, the UK will break its international commitments on decarbonisation. The prospects for CCS nose-dived when, just a few days after Ms Rudd’s speech, the government quietly cancelled its £1 billion competition to develop the technology.

So much for gas – and, if anything, the outlook for nuclear is even less rosy.  The government has pinned its hopes for the first UK nuclear power station to come online since 1995 on EDF’s Hinkley Point C. But the omens aren’t good. The final investment decision has been pushed back again and again; EDF’s Chief Financial Officer has resigned over the project; and the company’s own engineers argue that the official project timeline is unrealistic and that the reactor needs to be redesigned. The other power station that EDF is building with the same “European Pressurised Reactor” technology - at Flamanville in France - was, at the last count, running three times over budget and six years late.

So, a troubled picture for gas and nuclear, which are supposed to pick up the slack from coal. No doubt we can expect another slew of headlines promising “black outs”. In the short and medium term any such headlines will be unfounded: yes, winter margins are tighter than they have been in the past, but this is all relative to the UK’s excellent energy security standards.

Nevertheless in the longer term, if the government’s hopes for gas and nuclear prove unfounded – as it seems they might - and as existing power plants continue to reach the end of their lives, there is a genuine question about the UK’s future energy mix. The answer to this question could be renewables, which accounted for over 22% of UK power in the first quarter of 2016.

But the rise of renewables poses challenges: National Grid has warned that this summer we may actually have too much power during windy, sunny days, which, if not properly managed, could lead to surges that damage grid infrastructure and even domestic electronics. Tidal lagoon technology would ease this issue by providing utterly predictable power, but until the government supports it, our renewable generation will continue to be largely in the form of wind and solar.

The need to balance the demand for power with the variable supply from wind and solar leads to some novel economics. We have reached the point where energy customers could, at certain times, actually be paid to consume power. This could be heaven for energy-intensive industries with non-time critical processes that they are happy to start and stop at short notice.

By the same token, owners of batteries could be paid to soak up excess energy by charging their batteries - and could then be paid again to provide the energy back to the grid at times of high demand. This possibility, combined with the continued fall in the cost of storage technology, will create fascinating new markets and business models.

Increased demand-side flexibility and greater use of energy storage will both be critical as we transition from a system of large centralised power stations, to one of decentralised renewables. The National Infrastructure Commission’s recognised this in its excellent Smart Power report. Sensibly, HM Treasury accepted all the report’s recommendations – a more enlightened approach than relying solely on nuclear and gas.

Juliet Davenport is CEO and founder of Good Energy

The views expressed in this article are those of the author, not necessarily those of Bright Blue.