Nuclear power: British dreams

Britain's nuclear enthusiasts see hope in Tony Blair's re-election

WHEN the British government privatised its nuclear-power arm, British Energy, in 1996, it launched the shares on an eager market at £2.03. By 1999 they were well over £7. Then power prices crashed; a state bail-out left the company just afloat, but its shares were almost worthless. After a one-for-fifty consolidation, they rejoined the London market this January at about £2.50. Within weeks the firm was reporting nine-month losses of £349m (about $645m), even though each megawatt-hour from its eight plants had fetched some 25% more than they did a year earlier.

So the shares have crashed again? On the contrary. On May 12th they briefly hit £3.35. Why? On May 5th, a general election returned Tony Blair to power - and gave hope to Britain's (rare) nuclear enthusiasts.

Indeed, to enthusiasts throughout western Europe. Only one new nuclear plant has got the go-ahead in the European Union since 1991, that approved by Finland three years ago. Meanwhile, Russia is building six new reactors at existing sites, with 19 more planned, some in new locations. Even France, 75% of whose electricity is nuclear (as against 20% in Britain), completed its last plant in 1999 and has no definite new projects, though state-owned Framatome, in which Siemens now has a stake, is to build the Finnish plant, using a new pressurised-water (PWR) design, which it is eager to sell elsewhere (not least, in China).

In Britain, the nuclear industry's fresh hopes rest on the government's dream of achieving a 20% cut in carbon emissions by 2010; and the prospect that by 2020 some 70% of British electricity will come from natural gas, nearly all imported from countries not without significant political risk. Wind farms may help a little, but today's ageing nuclear plants are all due for closure by the early 2020s. If they are not replaced, the dream is destined to be exactly that. So, ask some in the industry, with Mr Blair re-elected - and said to be pro-nuclear - may we proceed?

It will come as no surprise if Mr Blair's government soon approves extending the life of existing British nuclear-power plants. But who will invest in new ones? Construction could cost over $2.5m per megawatt of capacity - about four times as much as a natural gas plant. That could fall sharply (and in South Korea did) if several plants were built; the Russians talk of, eventually, $1m per megawatt. But the time-scales are dauntingly long: at the very least seven years, even if Britain's creaking planning process could be speeded up.

And output prices are not merely uncertain so far ahead, they can also vary with extreme rapidity under the pricing scheme in force in most of Britain since 2001. That is bad news for nuclear plants, which cannot be switched off and on easily. It was prices and price volatility together that brought British Energy to its knees. Then there are waste costs. And decommissioning costs, albeit far off, and currently to be borne by the government. But who knows what future governments will think decades from now?