Finance needn't be harder than physics, says NIA chairman

"We talk about 2050 as a tipping point in terms of climate change, but now is the tipping point if we're going to do something about it because the pace and scale of what we have to do is colossal," Stone told delegates at the 11 February webinar Materiality of Nuclear for Global Net Zero. "We need to remind global audiences on this huge stage in Glasgow how modern nuclear technologies provide enormous carbon savings, fuel efficiency and a tiny carbon footprint and, actually, a tiny land footprint as well."

There is currently "not a single watt" of low-carbon power capacity in the UK that will still be operating in 2050. Sizewell B might receive a 20-year life extension, but this situation means the country has to build an entirely new energy system, he said, adding that the economic benefits of this are obvious.

"The impact of this on high-quality jobs is breathtaking. The investment opportunities to deliver really high-quality, long-term dividends for pension funds and insurance companies are really welcome. They can then replace the fossil industry's dividends which have been the bedrock of their income for donkey's years."

Bedrock of emissions reduction

Nuclear power has been "the colossally important bedrock" of emissions reduction, avoiding 74 billion tonnes of CO2 between 1970 and 2018, he noted. This is the second biggest contribution after hydro power, but a nuclear power plant can be built "anywhere", he added.

Nuclear energy - the largest source of clean power in the EU and the USA, and the second largest in the UK - is the most efficient fuel in the world, he said, adding that Hinkley Point C, under construction in Somerset, will power six million homes from a site no bigger than a quarter of a square mile.

One kilo of uranium has three million times the energy of a kilo of coal, making nuclear the clear answer to replacing coal for power generation, he said. Nuclear is also the most sustainable form of energy for the environment, he said, since it produces 12 grams of CO2 per kilowatt hour (the same as offshore wind), in terms of its lifecycle carbon footprint. And, like almost every other form of low-carbon energy, it is "virtually zero marginal cost" to operate. The difficulty lies, rather, in the cost of capital.

"The obstacles to nuclear are not technology; the physics we understand and we've known for donkey's years. It's now about production engineering and, more importantly than ever, solving the finance issues," Stone said.

"Modern reactors are as efficient as ever but they're longer lived than they've ever been. As I hope, we shall see the small modular reactors bringing in more sites and being much easier for people who don’t have grids at gigawatt-scale. Even more importantly, advanced modular reactors (AMRs) can create hydrogen and clean power together, and it's entirely likely that hydrogen from AMRs using processes like the copper chlorine or sulphur iodine processes, could be the cheapest way of making low-carbon hydrogen. And we'll need a stack of that."

The right capital structure

The physics of nuclear power - splitting the atom and harvesting the energy - has long been understood, he said, and so the challenge lies in coming up with a capital structure that suits nuclear.

The approach to this challenge needs to take into account the fact that a long construction period is followed by an operating life of as many as 80 years, during which time a nuclear unit provides a predictable return on the original investment, he said. State assistance in accessing private capital in the early stages of a project, requires the assurance that projects will be completed and will not be suspended "for political reasons".

Banks and other financial institutions around the world are now looking closely at how to invest in new infrastructure projects, but are seeing a dearth of investable ones, Stone said. They are also discussing the use of hybrid capital, meaning that governments invest to get projects started, but then the private sector takes over and, in due course, can repay that state investment.

"This is a rational process," he said, "and ultimately we need to make sure that the cost of capital is low enough so that the electricity cost that comes out is as low as possible, and not have the lowest cost of capital introduced simply as an artificial tax on, not just energy costs, but on national economies."

Continuous investment in nuclear energy has been under way for years in China and Russia, and used to be the case also in Japan, the USA, France and South Korea, he noted. Typically, large-scale nuclear reactors are sited on the coast and they bring prosperity to 'left-behind' regions, he said. For example, Copeland, in the North West of England, is 35% more productive than the regional average thanks to its nuclear industry, he added.

A positive legacy

"In terms of efficiency of fuel, you really can't beat E = mc2. So if you want really large amounts of energy as we rebuild the sector, then you need to have nuclear in there. I would go as far as to say: No nuclear? No net zero," he said. It is crucial therefore that the Cabinet Office ensures nuclear is "right at the heart" of COP26.

The NIA has been working closely with its counterparts in the USA, Europe, Japan, and elsewhere, to present a global nuclear industry front, he said, "to show the world just what can be achieved by a forward looking, data-driven economy for the future of our children and grandchildren".

COP26 and the delivery of nuclear's role in the UK's energy landscape will be a critical part of Prime Minister Boris Johnson's legacy, Stone said. The government's Ten-Point Plan for a Green Industrial Revolution, announced in November last year, was "courageous", and enabling the UK to reach net zero will be a legacy comparable to the creation of the National Health Service after World War II, he said.

The government published its long-awaited Energy White Paper on 14 December, in which it confirmed the status of nuclear as clean energy. Nuclear power supplies about 16% of the country's electricity, but its existing fleet of reactors is approaching the end of its operating life. In 2016, the government agreed contracts for the first new nuclear power plant in a generation - Hinkley Point C - which will provide 7% of the country's current electricity needs.

The White Paper develops the Ten Point Plan for a Green Industrial Revolution, by setting out specific steps the government will take over the next decade to cut emissions from industry, transport and buildings by 230 million metric tonnes, while supporting hundreds of thousands of new green jobs. The government then announced it would enter formal talks with EDF with the aim of reaching a Final Investment Decision on the Sizewell C project in Suffolk by the end of this Parliament, in 2024.

"If the government gets behind delivery now, that legacy will be a positive one," Stone said, "but if they dither, prevaricate or, as is sometimes the case, call for more work, then the sign of that legacy will be negative and the legacy will be shameful."

A former banker, Stone was the original financial adviser on the UAE's project to build the Arab world's first nuclear power plant - Barakah, near Abu Dhabi. The first of the plant's four units is scheduled to begin commercial operations early this year.

Highlighting how China had built its first-of-a-kind Hualong One reactor within just five years, he said: "It can be done and we need to show that we can do it in the UK. We are a country that 'does nuclear', not one that has 'nuclear done to it'." He added: "I really hope that the sparkle of the baby steps of the White Paper is in fact pixie dust and not a fleeting ray of sunshine."

Critical national infrastructure

Asked why nuclear financing in the UK is "so difficult compared with in some other nations", Stone highlighted the Regulated Asset Base (RAB) model being considered to help fund new nuclear plants in the UK as a matter of critical national infrastructure.

"There's a Groucho Marx quote, 'A billion here, a billion there, and pretty soon you're talking about real money'. I'm a banker by background and used to know how to raise 3 billion quid, but stretching it to 15 billion? Dear God, I'm not sure.

"Governments have an inescapable, irreducible and not outsourceable duty to ensure that nationally significant infrastructure is built and is maintained. What happens in other countries is that the state recognises the scale of their obligations and that's where we're now getting to with the RAB consultation."

The fundamental issue is of "shared physical scale", he said. "There are no companies around who can take the risk on the early projects, but once we get to the second, third and fourth ones, these things can be done. China has had two nuclear power plant construction companies running in parallel for a long time; they've been building for 25 years. We haven't built since Sizewell B [gird-connected in 1995]. The stop-start approach doesn’t work. If you go back to the 90s, we started building submarines again and had to spend five years rebuilding the supply chain for that."

He added: "One of the difficulties that we face is that post-privatisation we've had a very successful, purely market-driven economy, which has worked a treat when the pace and scale of the change has been very small. That's not where we are now. This is a radical revolution and it’s really fast if we're going to get there. And you do not get really fast solutions through a Darwinian evolutionary market mechanism. It needs a degree of serious controlled planning. This is a national programme, a national incentive to replace our energy system. We need to move to that sort of government supported, not government built, view of the energy sector as a whole."