German female shoplifters and nuclear power

Simon Bullock

24 September 2012

A difficult question - do you think new nuclear power should be paid more or less than 74 pounds per megawatt hour? Is £74 cheap, or expensive?

Hold that thought.

I'm half way through Daniel Kahneman's amazing book "Thinking, fast and slow", which is essentially about how we are all hoodwinked, by ourselves, pretty much all the time.

One way we do this is the "anchoring effect". Kahneman gives an astounding example:  

"German judges with an average of more than 15 years experience on the bench were first read a description of a woman who had been caught shoplifting, then rolled a pair of dice that were loaded so every roll resulted in either a 3 or a 9. As soon as the dice came to a stop the judges were asked whether they would sentence the woman to a term in prison, greater or lesser, in months, than the number shown on the dice. Finally the judges were instructed to specify the exact prison sentence they would give to the shoplifter. On average, those who had rolled a 9 said they would sentence her to 8 months; those who rolled a 3 said they would sentence her to 5 months" . The first number is anchored in the judges' minds - and affects their decision.

In the coming Energy Bill, one of the big issues is what price to offer potential nuclear power operators for their electricity. £74 per megawatt hour (MWh) maybe? That's the official, low price the Government currently says nuclear costs. For years, the nuclear industry has been arguing that nuclear power is as cheap as chips. This argument was essential for getting new nuclear back on the table. But the nuclear-is-cheap argument is now a liability for the industry, when the contract negotiations are happening, when the industry will want as big a price as possible for their power. 

So now the German shoplifter "anchoring effect" is in play, for nuclear. The £74/MWh figure has disappeared. EDF boss Vincent de Rivaz has been reportedly talking of up to £140/MWh, roughly the price offshore wind costs now. He probably doesn't think he'll get it, but it's much better to anchor nuclear prices in policy makers' minds at around 140, rather than 74. It also really helps that media reports have been saying £165/MWh or even higher - it makes EDF sound so reasonable. Like Del Boy flogging watches on a street corner - "140?? For this? It's worth 165 at least. I'm cutting my own throat giving you nukes for this price." This is haggling from EDF that would make Rodney proud.

But there's two big flaws, which should see EDF having to pack up their suitcase of Rolexes and run off sharpish. 

First, £140 is in reality very expensive. We shouldn't pay anything like that much. We shouldn't be subsidising very old, well established technologies. As Ian Marchant, Chief Executive of Scottish and Southern Energy writes today, the Government and industry expect to get a new technology like offshore wind down from £140 now to £100 in less than 8 years. Onshore wind is already down to around £90 now, with its subsidy being cut further next year. Nuclear's been going for 6 decades and still needs £140, for plants that won't generate a single watt till well past 2020? Why pay that much if there are cheaper, cleaner, faster options available?

Second, nuclear is much more expensive even than £140. August 2012 estimates from Imperial College put its cost at £164, and that's with cautious estimates for cost escalation. Nuclear also has huge, hidden subsidies - for example not having to insure itself for more than a tiny fraction of the costs of a nuclear accident (see our latest report). The industry hope must that be that it can get projects started with £140, and then when costs spiral they can get extra financial help from the Government - as the project is by then just too big to fail. 

Negotiations on nuclear's price are taking place behind closed doors.  The British taxpayer is on the verge of taking a heavy hit due to the Government designing this Autumn's Energy Bill around paying a huge price for nuclear. Instead, the Energy Bill needs a simpler, clearer feed-in-tariff which helps renewable power deployment. This, not nuclear, is the cheaper future for the UK's electricity system.