In characteristic New Labour fashion, Tony Blair, the prime minister, is reported to have ruled out financial incentives from the state for new nuclear plants in the UK.
At the moment, the old arguments about the relative cost of atomic power are being overshadowed by a new one: the cost of being over-reliant on imported, carbon dioxide-producing gas. Still, private investors will want to ensure they make a decent return. Unlike coal and gas-fired plants, only about 5 per cent of the cost of nuclear power relates to fuel. Capital investment is the biggest factor. That makes nuclear power a high fixed-cost option on long-term electricity prices, with much of the risk borne upfront.
Power prices, via their link to gas, are ultimately set by the cost of oil. Lord Browne, chief executive of BP, reckons crude oil might fall from about $70 a barrel today to $40 or less in the medium term. That makes for power price volatility, but that is a fact of life with any type of generation.
It also does not necessarily make nuclear power uneconomic. The reason is the cost of CO2, which fossil-fuel plants produce in abundance compared with zero emissions for nuclear power. Using reasonable assumptions, Deutsche Bank calculates that a new nuclear plant would be competitive in a world of $30 oil and CO2 emission permits at €20 a tonne. Even if traditional subsidies are not needed, though, Mr Blair still needs to do two things. One is to mitigate political risk by speeding up the approvals process. The other is to make sure that recent wobbles in the European CO2 market do not undermine long-term commitment to reducing emissions – even if it means going it alone with a carbon tax.
That, incidentally, would also boost the investment case for another form of zero-emissions energy with proportionately high fixed costs: renewables.