Nuclear power has high capital costs and low variable costs, so that its commercial viability depends critically on the cost of capital – the rate of return it must pay investors – and the price of electricity. Pessimists have claimed that liberalised markets, such as the UK’s, are too risky for new nuclear investment without special support. But is it correct that nuclear power is a risky and financially costly choice?

Nuclear power looks risky as its product, wholesale electricity, is sold in highly volatile markets. These price risks are set to increase for three reasons. First, if Europe is serious about the 20 per cent renewable energy target, wind generation will need to rise sharply – to perhaps 30-40 per cent of total electricity output by 2020 (which will require as much wind capacity as all our current generation capacity). If so, when the wind blows there will often be more output than demand, crashing the spot market with zero prices. At other times, prices will have to be much higher to give an annual average price high enough to pay the full cost of other generation.