Can A Nuclear Power Boost Save Inflation-Ridden British Energy Economy?

By Ariel Cohen, Alum of The Fletcher School at Tufts University

High energy prices in the UK have led to the worst cost-of-living increases in decades— with economists warning inflation could breach 10% this year. Households faced a record energy bill spike of 54% at the beginning of April and are set to rise again in October. Prime Minister Boris Johnson wants more nuclear power generation. This is a right way to go – but it may be too little, too late, and too expensive to solve the immediate crisis.

While the Conservative Party has been reeling over Johnson’s recent fine after breaching pandemic restrictions and a Cabinet Office investigation into Downing Street leadership, it should not overlook high energy costs. They have both political and strategic meanings.

Energy prices began to rise last year after natural gas prices reached record highs across Europe. Russia limiting its gas exports to the EU and overall supply lag after pandemic easing led to increasing energy bills.

These factors impact the UK acutely because it relies heavily on natural gas to meet its energy needs, having fewer renewables and nuclear power generation than many EU countries. The country myopically closed its largest gas storage facility five years ago, leaving it with only twelve days’ worth of supply. Consequently, it is more dependent on purchasing gas through “spot markets,” which are more volatile in price and recently reflected exorbitant demand and high prices.

Electricity price hikes sent consumer prices skyrocketing. Prices of many goods, including clothing and furniture, rose at a double-digit rate. Manufacturers may further increase prices due to rising production costs. While price hikes for many households more than doubled, the increase for commercial premises and industries has been even higher. Experts warn that British households may face the steepest decline in living standards ever as real income shrinks at the sharpest rate since the 1950s.

In an attempt to remedy high energy prices, the government has proposed several solutions. Johnson unveiled a new energy security strategy to increase the UK’s energy independence and decrease its vulnerability to volatile energy markets. He committed the country to increasing offshore wind and nuclear power over the next several decades, alongside producing oil and gas domestically from new projects in the North Sea.

Notably, the strategy aims to increase the UK’s nuclear capacity with a target of 24 gigawatts by 2050— enough electricity to meet 25% of the country’s needs. Most of the UK’s nuclear fleet was decommissioned after decades of underinvestment. Currently, five out of the six existing reactors in the country are expected to be retired within a decade. The government plans to build up to eight new reactors on existing sites: one a year instead of once a decade.

The only new plant under construction presently is in South West England. Hinkley Point C, developed by French company EDF, is expected to be completed in 2026 and cost up to £23billion. The plant will use two EPR reactors— a third-generation design.

Wylfa in north Wales will likely be another site for a new power station. Previously, Horizon Nuclear Power, a subsidiary of Japanese company Hitachi, suspended its work at the site in Anglesey in 2019. The government is now speaking with two US companies, Bechtel and Westinghouse, both interested in building a plant there. Additionally, Rolls-Royce also sees construction at Wyfla as an opportunity to install its small modular reactors (SMRs). Last month, the company submitted its designs for review and is expecting approval by 2024. Each reactor is estimated to cost around £1.8 billion.

Despite plans to press ahead with nuclear power, there are reservations, even among Johnson’s own cabinet. Rishi Sunak, Chancellor of the Exchequer, is reportedly concerned about the cost of expanding the UK’s nuclear fleet during a period of high inflation. The government has already set aside hundreds of millions of pounds for new projects. The funding model being proposed by some developers is a government-led one where initial public funds attract further investors. Despite the Sunak’s misgivings, the Prime Minister has gone ahead with his push for nuclear.

The plan to boost nuclear is also coming under fire as a solution to current high costs, and for good reason. The increased share of nuclear energy is laudable, its emissions-free and highly reliable, but it is a long-term fix. According to the government’s assessment, it takes 13 to 17 years to complete a new nuclear plant project. And capital expenses for such projects are out of control as metals and other raw materials become more costly every day. To his credit, the PM himself admitted that nuclear energy is a long-term solution.

Regardless, prices continue to rise, and so should the Prime Minister’s worries. A recent YouGov poll revealed that 76% think he is mismanaging his response to inflation. He is not alone. Joe Biden’s popularity is plummeting as prices go up in the US. Johnson’s government is expected to introduce new energy legislation in the Queen’s speech on May 10th. Johnson is wise to boost the UK’s reliance on nuclear power, and support for it should be in new bills, but it offers little reprieve for today’s toxic cost-of-living crisis.

With assistance from Sarah Shinton and Julianna Rodrigues.

This piece is republished from Forbes.