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The cost of CO2 abatement from Britain’s only PWR: Sizewell B

Author

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  • Newbery, D.

Abstract

This paper argues that the cost of decarbonising depends critically on the Weighted Average Cost of Capital (WACC), illustrated with a case study of Sizewell B (SZB, the nuclear station commissioned in 1995). It calculates the cost per tonne of CO 2 abated with prices set as for transmission assets by the regulator under the Regulatory Asset Base model. The cost depends critically on the WACC set in comparable utility price controls. At a low WACC the cost is £ 2019 36.2/tonne CO 2 abated and £ 2019 43.3/t. CO2 at the high WACC, compared with the roughly £40/t. CO2 paid by GB generators in 2019. Moving from the social discount rate of 2.5% to a hurdle rate of 8% increases the cost from £15-20/t. to over £60/t. Had Britain continued building replicas of SZB the cost saving compared to the current programme might be £ 2019 9-19 billion.

Suggested Citation

  • Newbery, D., 2020. "The cost of CO2 abatement from Britain’s only PWR: Sizewell B," Cambridge Working Papers in Economics 2047, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2047
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    Keywords

    Cost of CO2; Nuclear power; RAB; WACC; Cost Benefit Analysis;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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