Carbon abatement and new investment in liberalised electricity markets: a nuclear revival in the UK?

With the recent growth in concern about climate change, advocates of nuclear electricity have claimed that this technology offers an attractive option for carbon abatement in the developed world. This paper discusses whether privately owned new reactors, subject to current nuclear technology, could have market chances in the next decades in the UK liberalised electricity supply industry, when current generation capacity will start being decommissioned and UK CO2 emissions may be priced. We discuss key parametric assumptions that condition the future cost competitiveness of nuclear power vis-à-vis gas-fired generation. We explore where greater cost uncertainties lie and which key economic and political tradeoffs are involved. Our discussion is based on well-documented sources of expected costs for nuclear and gas-fired generation. On the nuclear side, we concentrate on capital and back-end costs. By considering different scenarios for future gas prices in Europe, we analyse the levels of carbon taxation that would be needed to make current gas-fired and nuclear power technologies equally dear. Considering the political acceptability of expected triggered increases in the end-user cost of energy services, our results suggest that, for the case of carbon or energy taxation, it seems unlikely that current nuclear technology could win market space within liberalised electricity industries for new reactors in the coming decades. This diagnosis is further validated by the financial and political costs associated with significant uncertainties surrounding the valuation of nuclear back-end costs.