When Tony Blair warned 13 years ago that it would be a “dereliction of duty” to fail to build a fleet of new nuclear power stations, the then prime minister had little idea of the chaos that would engulf the UK’s energy policy in 2019.
Hitachi on Thursday became the second Japanese company to pull out of building a new nuclear power plant in the UK, with the cancellation of the Wylfa project in north Wales and Oldbury plant in Gloucestershire throwing the government’s plans to build six new plants into disarray.
Three out of the six planned plants, accounting for more than 40 per cent of the forecast new capacity, have now been shelved.
Hitachi’s decision is the latest hammer blow to supporters of nuclear in the UK, who believe it remains the best way to provide reliable and consistent electricity while meeting the country’s climate commitments.
It highlights the biggest question mark over the future of the industry and the government’s policy: how to justify the high cost of nuclear power and its consistent failure to attract private investment — even with government support — as the costs of other forms of energy fall.
While the Unite union and the CBI employers’ organisation respectively described the Wylfa cancellation as a “disaster” and a “significant blow” for the UK economy, there is a growing chorus of voices calling for a review of the government’s policy.
“The problems are not specific to Wylfa, they apply to all the government’s nuclear projects,” said Steve Thomas, professor of energy policy at the University of Greenwich.
Greg Clark, the business secretary, on Thursday appeared to open the door to a more radical rethink of how the UK would meet its future energy needs, highlighting the falling costs of wind and other renewables despite saying the government remained committed to the nuclear sector.
He said it would be unfair to ask taxpayers to provide greater subsidies to nuclear projects in the circumstances.
But the government will need to make a decision on nuclear quickly, with seven existing reactors due to be decommissioned by 2030, while coal is being phased out entirely by 2025.
Ministers are exploring new funding models for nuclear, but it remains to be seen if any will attract more private investment without provoking a voter backlash.
The government plans to unveil a revised approach this summer, but has a number of key issues to resolve, primarily around funding but also diversity of provider and security. This comes at a time when many of the staff at the Department for Business, Energy and Industrial Strategy are tied up in preparations for Brexit.
Only one nuclear power station is under construction, Hinkley Point C in Somerset, after a 2013 deal that was heavily criticised for its high costs to consumers. Hitachi’s Japanese rival, Toshiba, pulled out of developing a plant in Cumbria in north-west England late last year.
The biggest problem with new nuclear is funding. The UK government offered a guaranteed price of £75 per megawatt hour for Wylfa — well above current electricity prices — alongside taking a third of the equity in the project and providing debt financing.
For Hinkley, London agreed a price of £92.50 per megawatt hour (MwH) of electricity produced for 35 years and indexed it to consumer price inflation, meaning it is already worth around £107 today. Ministers were heavily criticised for the high cost.
By comparison the most recent auction for offshore wind projects saw guaranteed prices as low as £57.50 per MwH — less than half the level wind cost in 2015.
Critics contend that direct comparisons are difficult as the wind costs do not include the provision of back-up power, given renewables are only effective when the wind blows or the sun shines.
Dieter Helm, professor of economic policy at Oxford university, who authored a 2017 review for the government into the cost of energy, said that once the all-in costs of renewables were calculated, “nuclear is pretty competitive”.
But others see a broader rollout of renewables, backed up by other technologies such as small gas plants and batteries, as a simpler solution, highlighting that renewable prices are likely to keep falling.
Nuclear power generators are therefore being forced to reduce prices.
EDF, the French government-owned group that is building Hinkley Point C with the backing of Chinese investment, is hoping to persuade the government that a second proposed new nuclear plant, at Sizewell in Suffolk, could be funded via a regulated asset base model.
RAB is already used in the UK, including London’s new “super sewer”, but requires splitting the all-in costs between consumers and the constructors by placing an additional charge on consumer energy bills before the asset is built.
This reduces financing costs, according to the model’s supporters, because interest does not rack up as dramatically during the decade-long construction period for most nuclear plants.
But the de facto exit of Hitachi and Toshiba from the UK nuclear scene raises further questions, leaving France’s EDF and China as the government’s only committed partners.
That a French group could end up dominating the next phase of the UK nuclear sector at a time when the country is in the process of exiting the EU would be a rich irony.
Theresa May’s government has also been less welcoming of Chinese investment than those of her predecessors, with Washington raising concerns about Beijing taking civilian nuclear technology and transferring it to military uses.
Environment group Greenpeace, which opposes the UK government’s nuclear policy, said the government’s thinking had “finally caught up with reality”.
“Even the government now acknowledges that renewables are cheaper, quicker to build and cleaner,” said Doug Parr, chief scientist for Greenpeace UK.
Additional reporting by Jim Pickard and Jonathan Ford in London
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