Sizing Up Sizewell C

As part of last week’s spending review, the government announced a further investment of £14.2bn for the Sizewell C nuclear power station. This puts the state’s total commitment into the project at £17.8bn.

Despite the scale of these numbers, the government’s pledges for Sizewell C seem to only cover a minority of the plant’s construction costs. That’s because, per leaks to the FT, Sizewell C’s construction budget is likely to balloon to over £40bn.

Government spokespeople have defended these costs by pointing out that Sizewell C is set to be significantly cheaper than the Hinkley Point C plant — conservatively, using CPI inflation, the latter’s construction costs are set to run up to £46.8bn in 2025 prices. The lessons from Hinkley Point C, which is a virtually identical facility that also uses the European Pressurised Reactor (EPR) architecture, are apparently being realised into cost savings.

However, this does conceal the big point: the EPR plants are both grossly expensive, relative to Britain’s historic plants. Sizewell B, the last new nuclear plant built in Britain, came online in 1995 and cost £2,030mn in 1987 prices — £5.85bn in 2025, using CPI inflation.

Even accounting for the fact that Sizewell B’s nameplate capacity is 1,250MW compared to the 3,260 MW of the two EPRs, the capital costs per MW are far more expensive. The construction costs of the cheaper EPR, Sizewell C, are set to stand at £12.3mn per MW. By comparison, Sizewell B’s construction costs amount to £4.7mn per MW. So even adjusting for inflation and plant size — which should nominally reduce the cost per MW via economies of scale — the EPR reactors are nearly three times more expensive than their predecessors.

So why has nuclear become so much more expensive?

One elephant in the room is the EPR architecture. The system was designed with the ethos of risk minimisation at all costs, employing countless redundancies. Whereas many contemporary pressurised water reactors minimise risk through passive safety systems, EPRs build in countless new pumps and active countermeasures to avert a disaster. The result is an orders of magnitude increase in plant complexity, and thus cost.

However, while there’s much to be said about the faults of EPR, it probably takes a backseat to a more pressing structural problem: the way that Britain funds nuclear projects.

Unlike most “non-renewable” energy sources, capital expenses make up the overwhelming majority of the cost of nuclear energy. Depending on the project, between 60-80 per cent of the plant’s lifetime costs will come from capital and up-front construction. Fuel and operational costs (including decommissioning) are comparatively small.

Until the mid-1990s, these high fixed costs were not a deterrent for the growth of nuclear. The plants were financed, constructed, and operated under the remit of the government’s Central Electricity Generating Board (CEGB). Critically, that meant that plants could be financed through the cheapest source of borrowing possible: government bonds.

Then privatisation happened. The last part of the CEGB to be privatised were its nuclear assets in 1995, with the state abandoning its role in building new plants. Now, in private hands, any new plant was dependent on begging for a mix of subsidies and private financing. To compensate for risk and the sheer amount of time required to break even, private debt for a new nuclear plant is much more expensive than a government gilt.

These heightened financing costs are the biggest reasons for nuclear’ s cost inflation. To understand this, we can look at the Hinkley Point C project. Midway through its purchase of Britain’s nuclear industry in the late 2000s, France’s state-owned EDF Energy and the government began negotiating over the new plant – to proceed, EDF demanded a guaranteed 9 per cent rate of return.

By comparison, the state could have borrowed the money for the plant using government bonds at a 2 per cent return. In 2017, the National Audit Office explained the result: 

… if we assume the government financed the project and required a 2% return (nominal, equivalent to its borrowing cost), construction costs could overrun by between 400% and 600% to equate to the total cost of the HPC deal. If we assume government needed a 6% return (nominal), costs could overrun by between 75% and 100%.”

Or, in short, if the plant had been financed directly by the state, then the government could have theoretically paid for up to six plants for the same cost. 

The result? No new nuclear plants in three decades, exploding energy prices, and ongoing deindustrialisation

These heightened costs are felt by consumers — Hinkley Point C’s energy via exceptionally high energy prices through a pre-agreed Contract for Difference (CfD) price, and Sizewell C’s via increased energy bills during construction via a Regulated Asset Base (RAB) price hike. While in the long-run RAB is a better model than CfD for cost-minimisation, both still push up energy prices by forcing consumers to cover the far more expensive private debts of investors.

In the end, all privatisation of nuclear has traded out one state actor for another — our CEGB was replaced with France’s EDF. Rather than innovation and competition, the sheer fixed costs, long time horizons, and low margins of nuclear inevitably force consolidation of supply. Rather than accept this, the government has buried its head in the sand for decades and tried to maintain the kayfabe of a privatised electricity system powered by private capital. 

The result? No new nuclear plants in three decades, exploding energy prices, and ongoing deindustrialisation. The ideological commitment to privatised energy — particularly nuclear — has beggared us all.