Wednesday, December 07, 2005

Nuclear power: a return to planning?

Nuclear power: a return to planning? - Energy Business Review

A new-build nuclear program in the UK is back on the agenda.

6 Dec 2005, 15:45 GMT - A new nuclear power program in the UK will require ten or so plants for economies of scale. However, this may require government intervention and will crowd out investment in other forms of generation to the detriment of customers and plant operators. There is a tension between planned investment and a liberal market and the government does not have the best record of balancing these issues.

An energy crisis is looming and we need new nuclear power stations to avert it, they say. Around ten stations, in fact, because only by building that many can the full economies of scale be milked. Since no design has been chosen, their capacity is not known, but it could total in the order of 15GW, against the 12GW that exists presently. And this is before including stations like Sizewell B that might still be around when the new ones are built. For comparison, the UK has a total installed capacity of 80GW - it has been mooted that up to one-third of our power could come from nuclear.

Installing that much nuclear capacity would not be a problem in a totally liberal market: nuclear power would compete with coal and gas-based capacity in the wholesale market and the most efficient producer would win.

However, it seems likely that the government would need to intervene as it has with the Renewable Obligation to support such a large investment program. This would close off one-third of the power generation market to market forces.

Customers could then suffer because the market would be unable to find the most cost-effective power supply at an acceptable environmental cost, and non-nuclear generators would also suffer because their potential market would have shrunk. Furthermore, such a huge investment in nuclear power would crowd out investment in other types of generation: if investors had a risk-free investment in nuclear, the cost of capital for other generators would rise.

This highlights the tension between the liberal market and the planned approach to energy investment. A planned nuclear program will bring down costs but is inimical to competition; a liberal market avoids the risk of picking the wrong winner, but could decide on ten different plant designs and therefore higher costs. The government's task is to ensure security of supply while minimizing market distortions - and it does not have an unblemished record in this regard.


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