A NEW generation of nuclear power stations could be built only if the government is prepared to put billions of pounds of public money into the project, according to a leading economic think tank.

The report by Oxera, published tomorrow, concludes that the potential returns on investment in new nuclear power stations are too small to justify the risks for private companies. Unless the government provided them with huge capital grants or debt guarantees, the required eight new nuclear power plants would not be built by industry.

Britain has 12 nuclear power stations generating about 22% of the country’s electricity; all of them are due to be decommissioned in the next two decades. The government has not committed itself to replacing them with new nuclear stations, but many in industry and Whitehall see this as unavoidable if Britain is to hit its targets for reducing carbon- dioxide emissions.

Oxera estimates that replacing the current nuclear power stations will cost about £8.6 billion, from which it thinks industry could expect a return on its equity of just 11%.

“Our figures do not indicate there would be enough of an incentive for industry to finance a new nuclear programme,” said Derek Holt, director of Oxera.

Recent analysis by the Department of Trade and Industry on the cost of onshore windfarms — another option if Britain is to hit its emissions targets — assumed a required equity return of 18%.

The government could improve the expected rate of return for nuclear investors to about 15% if it offered industry cumulative capital grants of about £1.6 billion, or debt guarantees of more than £3 billion, he said.

This week’s rising oil prices have helped focus attention on Britain’s potential energy crisis and the role that nuclear power might play.

The price of crude oil rose again in New York on Friday, touching $60 a barrel for a second day, as concerns about rising consumption in the United States increased.

Agbeli Ameko at energy consultant First Enercast Financial said: “Passing $60 is a significant moment. We have been bumping around below that level for some time. Now that we have passed it once, it will not be hard to pass it again.”

Ameko said he believed the price would fall over the summer but that the $60 price would “certainly be a drag” on the wider economy. “We have raised the bar on oil prices,” he said. The price of a barrel of oil has risen 38% since the start of the year.

The rising price resulted in heavy trading on Wall Street and in London as investors weighed up the impact on the world stock markets. All the main indexes fell, with the FTSE 100 down 0.69% on Friday. The Dow Jones was down 1.19% on Friday and 3.1% on the week. Shares that took the biggest hit were those of airlines and industrial and chemical companies, whose earnings are affected by expensive oil.

Analysts said a high oil price placed a “de facto tax” on consumer spending, and warned that British drivers would soon face higher prices at the pumps.

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