The government announced a massive programme to expand electricity generating capacity. The plan included several coal-fired stations of unprecedented size. But its showpiece was the construction of five nuclear power stations to a newly developed British design, the advanced gas-cooled reactor, or AGR. “I am quite sure we have hit the jackpot,” said Fred Lee, the minister in charge, enthusing about the technology’s export prospects.
The plan was an economic disaster. The stations were subject to horrendous delays and cost overruns. It would be 30 years before they came close to operating efficiently. The shortfall in capacity did not matter much because the electricity was not needed anyway. Needless to say, the export markets did not materialise. In the 1980s the Thatcher government shut down most of the coal industry, built one new nuclear station – to a proven US design – and privatised the industry.
Privatisation was in most respects a success. Power companies built smaller stations using combined cycle gas-fired technology that was fuel efficient and quick and cheap to construct. The scale of the economic cost of nuclear was finally revealed; executives who had misled ministers and parliament were more fearful of the consequences of misleading investors. The nuclear plants were pulled from the sale. They were later privatised as British Energy, which went bust and after reconstruction was acquired by Eléctricité de France. France generates most of its electricity from nuclear power and is a global leader in that technology.
But privatisation failed to provide a stable framework for planning new electricity generation. The initial regime reflected careful thought about appropriate incentives for capacity installation, but this regime was swept away in 2001 in favour of a simpler one modelled on other commodity markets and known as Neta (New Electricity Trading Arrangements), subsequently to be Betta (British Electricity Trading and Transmission Arrangements). As so often in commodity markets, this structure worked rather better in the short run than over the long term.
Lee’s power stations are now coming to the end of their lives. But there is still no clarity as to what will replace them, or when, and the latest energy white paper published this summer proposes many interventions but no coherent policy.
The problems fall into three main groups. The first is that no one wants a power station, especially a nuclear one, near them. In fact most people do not want any power stations at all. They do, however, want to use refrigerators, computers, televisions and washing machines. Explaining this inconsistency requires political courage.
Second, building power stations with a life of many decades requires confidence in the stability of the market for their output. This is especially true of nuclear stations whose capital costs represent most of the total cost of the power they generate. Policy vacillation has created permanent uncertainty. For years there has been a ritual dance in which government offers subsidy and guarantees for new construction while pretending it is not doing so.
Third, the debate is dominated by gestures, at once feeble and costly, towards environmentalism. Perhaps the British should adopt a simpler, more self-sufficient way of life, but they have not done so and are not going to anytime soon. Until then, their demands for power can only be met by gas-fired and nuclear generation. The shale gas revolution suggests that gas will be the main element in the mixture. The efficient use of gas will cut carbon emissions by much more than expensive wind installations. The uncertain availability of wind turbines means that even if they yield some power they do not reduce the need for other generating capacity.
To be able to use power the UK needs to build power stations. But it is easier to posture, prevaricate and procrastinate than to take decisions whose consequences will only be evident many years from now. When the lights flicker, as they will, the responsibility will lie squarely with the preoccupation of politicians with sound bites and tabloid headlines.