Wednesday, 14 November 2018

Clark's plan to underwrite losses on Wylfa nuclear project will likely lead to an embarrassing state-aid plea to the EU Commission

Now that it seems, short of an extended 'no-deal' Brexit scenario, the UK will remain within EU state-aid rules for a long time to come, Greg Clark will have to oversee an embarrassing state aid case in support of his proposals to underwrite the (almost certain) losses from building the Hitachi-led Wylfa nuclear power plant.

I have already discussed how the taxpayer (and/or electricity consumer) is exposed to almost certain multi-billion losses as a result of the plan that Clark is touting here and in Japan. See my previous post at

The last time that the UK applied for what amounted to an exemption from EU state aid rules for nuclear power was in late 2013 when Ed Davey led the plea for the Hinkley C deal. The state aid was granted in October 2014 after the Commission ruled that the Hinkley C deal was a reasonable way to avoid 'market failure'. Any application for state aid for Wylfa would be a tougher challenge. Indeed the very proposal whereby the state will take at least a half equity share in the project and take responsibility for cost overruns is an action that in itself creates market failure if curbing carbon emissions is the objective!

The Government's cover story  in 2013 was that support for Hinkley C was on the same level available for renewable energy since renewable energy schemes were also being offered CfDs (as well as very extensive loan guarantees that most renewable energy schemes could not get from the Government of course). The European Commission seemed to buy into this line stating 'The aid would not have a negative impact on other low-carbon sources, given that they are also supported by the UK, and there is no discrimination against renewable technologies'

See para 284 in the Commission decision

But this time the type of support available for Wylfa (Govt equity support plus underwriting potential losses) is certainly not on offer to renewable energy schemes. Indeed nowadays onshore wind and solar are not eligible for even CfDs.

It will be interesting to see what happens with this (Wylfa) state aid application. No doubt we'll get Brexiteers complaining about the role of the Commission (who might save the UK from the harm the project does to the country!). The voting will be rather less favourable to the British application than last time, where only 4 out of 28 Commissioners objected to the granting of state aid for Hinkley C. The UK will have less (no?) insider influence, and there will be much less sympathy for Hitachi as a developer compared to EDF, the (French, state owned) developer of Hinkley C.

No doubt we'll hear lots of stories about how Hinkley C is important for carbon reduction - despite the fact that the Government is not even asking the Crown Estates to look for any more offshore wind sites off the English and Welsh coasts - and stories about the need for firm capacity - despite the fact that small peaking gas plant would be at least 20 times cheaper (again see last post).

Greg Clark seems to have set his store, in terms of ministerial role  as being a 'consolidator' as opposed to an innovator in his role at BEIS. Well, he'll need to be pretty innovatory to get the Wylfa proposal approved in an EU state aid case!

Sunday, 11 November 2018

How Greg Clark's Hitachi deal could lead to a £20 billion plus loss for the Treasury

Greg Clark looks likely to go down in history as the Minister who signs off on a nuclear construction deal with Hitachi for the proposed Wylfa power plant that led to a stupendous loss for the taxpayer. That loss might be £20 billion or more.

Clark has apparently put no discernable effort into the objective of securing 'subsidy' free contracts for onshore wind and solar. However, he has been spending a lot of time concocting a plan to finance the Wylfa nuclear power plant that will, on the basis of past performance, generate huge losses for the public purse years down the line. All the talk from BEIS (the energy ministry) is of the new 'Regulated Asset Base' (RAB) financing of nuclear power plant. Except that what's really happening is not really an RAB model at all. It's a piece of brownwash to obscure the reality of Government blank cheque to cover whatever it costs to build the nuclear plant.

That's because the whole plan hinges on the constructors being able to pass on cost-overruns onto the Government. And that's the point. Nuclear power stations being built in the west have almost always tended to have large cost overruns. Recent ones have ALL suffered horrendous cost overruns - in the USA (4), France (1) and Finland (1).

Yet, some otherwise sensible, financial analysts seem to ignore this fact as they extol the virtues of RAB financing. They implicitly assume that Wylfa will proceed precisely on target, in which case, they say the Government will deliver the project at a 'cheaper' price than Hinkley C through the provision of Government loans with low interest rates. Sure, the headline price that will be paid by the electricity consumer, over 35 years, will be a bit cheaper. But that's likely to be at one hell of a cost to the taxpayer.

In fact, real RAB modelling as applied to nuclear power construction in the USA has actually bankrupted Westinghouse, and nearly bankrupted Toshiba who owned it. The model operates in the USA whereby consumers pay in advance for the power stations. They cover the costs while the power plant are being built through an addition to their electricity bills. That would be good for the company constructing the plant who is guaranteed to get their money back, provided of course, the project comes in at or below planned costs. But while that might work for other infrastructure, it doesn't work for new nuclear. Nuclear power plant take longer to build than planned meaning that the workforce has to be kept on and paid and also extra interest charges accrue on loans - If a nuclear plant is supposed to be finished in 7 years, but takes 12, the costs double in that time.

The trouble is that nuclear power plants have horrendous costs overruns, as they have in the USA with the Vogtle 3&4 and Virgil Summer  2&3 plants being built in respectively Georgia and South Carolina. The constructors, in effect Westinghouse, has to cover the costs themselves. Result: bankruptcy. Indeed Summer has been abandoned and Vogtle only staggers on with the help of a 12 billion dollar Federal loan and continued payouts by consumers.

But then  Mr Clark is not considering the (real) US system - Hitachi would never buy into that because they don't want to go bankrupt. Instead the Treasury will take the hit on cost overruns. A very big hit, it's likely to be too. The 2.9GW Wylfa project is slated to cost £20 billion. If there is a 5 year construction overrun that means the costs will jump to £40 Billion. That means the Treasury will be on the hook to pay the extra £20 billion. The costs, pro rata, for the only western nuclear constructions going in (in USA, Finland and France) look even larger than this. Yes, the Treasury could end up paying a lot more than £20 billion extra for this project over and above the large amounts electricity consumers will have to pay for power from he project.

I'm sure we'll get a lot of brownwash about the marvellous tried and tested nature of the Hitachi 'Advanced Boiling Water Reactor' (ABWR) in Japan. Rather, what is proposed is a pretty new design that includes a lot of features demanded by our nuclear regulators to bring the power plant up to present required safety standards. I can assure you that there's a long list of changes. So, we're in the forever 'First of a kind' land of nuclear power. Besides which nuclear power plant are always unique to each site.

We're told how important it is to have 'firm' power in the shape of nuclear plant to compensate for renewable energy variability. But in practice nuclear power plant are not shut down to make way for wind or solar plant, rather the renewable energy is wasted. On top of this even if the plant 'only' cost  £20 billion to build, that is an awful lot to pay for providing generating capacity. If you provide it with basic, 'peaking', gas fired plant (open cycle and reciprocating engine) you can get 3 GWe for little more than £1 billion. That's likely to be very roughly a £39 billion saving if you don't build Wylfa.  In fact the nation's plans are awash with too much combined cycle gas plant already, which are really not the first choice technology for balancing renewables anyway. But that 's another story. The story here is that far from the Wylfa project looking to be cheaper for the consumer than the Hinkley C deal, it is likely to be far, far worse.

Thursday, 8 November 2018

Why is Michael Liebreich attacking Tim Jackson? - the debate about carbon emissions and economic growth

Twitter has recently advertised a clash of opinions between two supporters of renewable energy, the Conservative growthist Michael Liebreich and the allegedly 'degrowthist' Tim Jackson. To what extent are Liebreich and Jackson right in their arguments?

I must say, I've always had doubts about arguments for 'zero' economic growth. This is  partly because I don't believe that practical measures to reduce greenhouse gas emissions reduce economic growth. Also I doubt whether the complex interaction of factors that generate greenhouse gas emissions can be represented very well in theories about the 'steady state' economy.

But I do very much doubt whether people who advocate such a view, ie essentially that there are more important things that economic growth, can be regarded as any sort of a threat. In practice whatever their philosophical leanings, these people recommend doing things like conserving resources and using renewable ones. These are not even activities that necessarily threaten economic growth provided they involve a decrease in use of material non-renewable resources.  They are, in general, peace loving and anti-exploitative. If everyone was like that the world would in fact be a much better place!

So why does Liebreich spend time attacking Jackson et al? Really it's about arguments in the Conservative Party between people like Liebreich who argue correctly that people can make a lot more money from renewable energy than they can from fossil fuels and nuclear power, and atavists like Nigel Lawson and the Global Warming Policy Foundation who do not recognise the challenge of climate change. But in order to conduct this argument Liebreich thinks he can impress his Tory colleagues by bashing the (much Tory hated) leftist museli gobblers.

But. more seriously, the theorists that Liebreich promotes have their own shortcomings. He praises the works of people like William Nordhaus who thinks that carbon taxes can solve the world's climate problems much better than regulations. This appeals to some US audiences on an ideological level, but again, misses out the practical measures that need to be taken. Carbon taxes of course can be useful, arguably essential in some form, but miss the point that in order to promote technological innovation you have to have some regulatory measures to encourage 'bottom' up' technological innovation. Innovation requires niches supported by relevant incentives/regulations.

This is as opposed to solely  relying on a one-size-fits-all carbon tax that encourages mainly existing large scale technologies -  and which, moreover, will encounter political resistance from the very people (business interests) that Nordhaus and Liebreich want to please. This is because if carbon taxes are applied as the ONLY measure on the level necessary to achieve big carbon reductions they will cause  political rebellion on a much greater scale than anything attending the regulatory and incentive measures promoted by  the renewable or energy efficiency trade associations and other NGOs.  We need lots of different methods; incentives, regulations, carbon taxes, local cooperatives....whatever. Existing big business, on its own, won't deliver technological change. We need a bottom up approach that delivers innovation. Then, after some success in this pattern the big companies will decide to change what they are doing. Or go out of business.

Liebreich and Jackson trade blows on carbon dioxide figures. Jackson is right to point out that recent carbon emission reductions are overstated once 'embedded' emissions from imported good are taken into account. But then if you look at the last 20 years (since 1997) you can see that whilst total carbon emissions have been stable over this period the UK population has increased by 14 per cent. So per capita reductions in emissions have been occurring even when you take into account imported emissions. Yes, we've only scratched the surface so far, but it may be simplistic to argue that the problem is economic growth, especially when you look at the world as it is and see that population growth  seems to decline as economic growth increases incomes.  In fact Jackson himself recognises that his favoured 'entropy' law is not something  that 'immediately rules out some form of growth'. But this sort of argument is lost in the ideological positioning that Liebreich has engaged.  

Michael Liebreich's view

Tim Jackson's view

UK greenhouse gas balances

Saturday, 20 October 2018

Renewables lobbies fight to stave off Treasury massacre

UK Renewable trade associations are fighting for the survival of the renewable industry against an onslaught led by the Treasury. If the Treasury gets its way almost all future development for renewable energy in the UK will be stopped. Continued incentives and tax breaks for nuclear power, shale gas and conventional power stations will, however, remain in place.

The Treasury is pushing for:

a) An end to the policy of issuing CfDs as part of the scheduled review of electricity market reform which takes place next year. This will leave next year's auction for long term power purchase agreements giving set prices to be paid for developers (contracts for difference - CfDs) as being the last. Although it is expected that a substantial amount of capacity will be awarded to offshore wind developers next year onshore wind and onshore solar projects are not allowed to compete in these auctions. The only exception will be Scottish island inshore wind schemes, a minority of which will actually be built because of the cost of connecting them to the mainland. But the Treasury want all CfD auctions (offshore wind included) to be scrapped after 2019. This would be the biggest act of demolition of the renewables expansion programme of course, but other cuts are said to be discussed including:

b) The ending of all incentives to solar pv, including for solar power exported to the electricity distribution system. Domestic solar generators will receive nothing for this energy in future under plans preferred by the Treasury. This will be a unique humiliation for solar generators who will be the only class of generators in the country who will not be paid for the electricity they send into the grid. It will also  be humiliating in international terms. Even the most conservative US states have rules which mean that solar pv generators must receive basic levels of payment for their exported energy.

c) The ending of the carbon price floor which makes fossil fuel more expensive and non-fossil sources relatively cheaper. The Treasury is considering replacing this with an increase in the climate change levy. This raises the price of energy for larger energy users but since 2015 has been levied on energy from renewables as well as other sources. Getting rid of the carbon price floor would shift the balance in electricity generation towards coal and away from non-fossil fuels.

Meanwhile the Minister for Energy Claire Perry is said to be arguing against the Treasury's atavistic tendencies. She has even been arguing for months that CfDs might be offered to onshore wind in the future, although there is absolutely no sign of this happening in terms of Government instruments. I do not doubt her intentions, but alas she seems to be fulfilling, in practice, a role of putting a green facade on Government policies which are heading back towards conventional energy sources. As a minister of state she has little influence on her own, and even if Greg Clarke, her Secretary of State were to wade in to give her more public support (so far he hasn't stirred much), the attitudes of the Treasury still have to be overcome. The Treasury continues to support the preference being given to conventional energy sources.

The incentives offered for Hinkley C are very high - and even more Government guarantees are being discusssed for the Wylfa nuclear project. Meanwhile conventional power plant can bid for annual rounds of 'capacity mechansim' payments, a facility which suits conventional power plant much better than variable renewables. On top of this shale gas entrepreneurs are being offered generous tax breaks not available to renewable energy developers.

Some references:

Many windfarms given contracts in recent auctions are also 'subsidy free' on the same basis, with average prices ranging from 47 euros/MWh to 61 euros per MWh. See

The Government talks vaguely of 'refinements' being made to the CfD round in 2021. Some see hope for allowing bids from onshore solar and wind, but others are very sceptical.

Friday, 12 October 2018

Green surge in Bavaria puts AfD in the shade

The Green Party has surged in the polls to 19%, potentially depriving the CSU of their state Parliamentary majority. They are putting the AfD in the shade who are polling a mere 10 per cent in the latest survey. The CSU is polling on 34 per cent. The state elections in Bavaria occur on Sunday 14th October. The Greens' standing in second place in the polls put them in a prime position to enter a coalition, either with the CSU themselves, or a multi-party coalition which excludes both the CSU and the AfD.

To Brits of course, who live in a parallel reality where the far right sweeps all before them and the EU is perpetually about to split up, this is not news. It hasn't been reported. We heard earlier in the year (in the British press) about how Horst Seehofer, the Federal Interior Minister, had threatened to close the Bavarian border in a policy duel with Angela Merkel in a drive to stem the rise of the AfD. But now we hear absolutely nothing about the rise of the Greens in the polls. In fact the Greens have been leading the opinion polls in Bavaria for the last 3 months, yet still this fact is routinely airbrushed from the news.

Take the Daily Express which reports on how the CSU is about to lose its majority in the state Parlaiment but which fails to mention the Greens but does mention the CSU's fear of losing ground to the AfD. To the extent that the CSU has 'toughened' its anti-immigrant rhetoric, a bigger trend in Bavaria recently has been that the CSU appears to have lost votes to the Greens (Die Grunen).

Of course, nationally, the AfD has gained ground in the last year, but reality again is much more complex than the British want to hear. In fact, far from being the unrivalled second place party that you hear in the press, it is fighting with both the SPD and the Greens for second place, these three parties polling in the 15-20 per cent range.

Green gains in Bavaria in particular are likely to positively enhance the drive for renewable energy and energy conservation of course. In particular the Greens may be able to water down the strict rules on building windfarms which are in place in Bavaria. This has meant that there are few windfarms in Bavaria compared to the rest of Germany.

Saturday, 29 September 2018

Why another EU referendum is becoming inevitable

The Conservative Party led us into the EU Referendum in the expectation that one way or another, the issue of EU membership would be resolved. It hasn't been. The exercise has been a disaster and now the only two plausible scenarios that seem to hold at the moment is that either the UK will leave  the EU in what will be (at best) a continuing fog of uncertainty next March or that the UK's withdrawal will be cancelled.

What is pretty clear to me is that whatever the arguments may be about what we did or did not vote for as an alternative to EU membership, people did not vote either explicitly, or implicitly, for 'no deal'. Yet that is precisely the fate that awaits us at the end of March 2019.

Hence we need a further vote to determine whether the UK wishes to leave the EU without a withdrawal agreement.

The Leave campaign seemed pretty clear upon what it saw as the consequence of leaving when it said: 'It is overwhelmingly in the EU’s - particularly Germany’s - interests to agree a friendly UK-EU free trade deal.'

Well, it looks like it's not happening. No doubt many Tories will blame it on the EU, but whatever the cause (after all the UK is the country that wanted to leave), the point is that a central part of the case for Leave has collapsed. The notion of a 'friendly free trade deal' doesn't exist as a practical political proposition , or at least short of major shifts by the parties involved, it seems very unlikely to exist. The Leavers simply didn't base their argument on there being a 'no deal' - what they did do instead was base the argument on there being some sort of free trade (maybe with a lot of pluses) with the EU. The voters have been short-changedThis democratic deficit need to be urgently repaired.

At root the flaw in the Leavers position reflects a fundamental problem with the turn to nationalist-identity politics. They expect the EU to follow the same 'rational' economic logic that the nationalists have decided to ignore in favour of promoting their own sovereign identities.  What this doesn't take into account is the fact that the 'other' (in this case the EU) want to preserve their own identities, a strategic goal which ranks much higher than the prospect of tactical economic losses which are, in any case, relatively much bigger for the UK than the EU. Even states such as Austria, Poland, Hungary, most influenced by the so-called eurosceptic right in fact want to keep the UK in the EU partly because they want the UK as an ally within the EU.  

I cannot think of any plausible scenario whereby Mrs May can now deliver a withdrawal agreement with the EU. Briefly, the available options have been:

A) The 'Chequers' Agreement. The EU will not touch this with a barge-pole as it would threaten the integrity of the EU. It is a fundamental 'identity' issue for the EU that countries cannot 'pick and choose' elements of the customs and/or single market arrangements. The only value of Chequers has been to preserve the Government's notion that they have a plan. Apparently a bad plan is better than no plan!
B) The so-called 'Canada free trade deal'. This may well be acceptable to the EU provided the UK was willing to treat Northern Ireland as a separate customs zone. But this is  a non-starter for two key reasons. First because the DUP would not vote for it, scuppering any Withdrawal Agreement, and second because it is such a pale version of the current economic relationship with the EU that many Conservative MPs would not vote for it either in the Commons.
C) Staying in the EU Customs Area. This is more-or-less the Labour position, and which comes closer to solving the Irish border issue. But this is unacceptable to too many in the Conservative Party, especially as after negotiation it may resolve into the UK also being effectively in the Single Market as well. 
C) No agreement. In practice contingency measures would be put in place by both the UK and the EU so that there would be little, if any, immediate catastrophic impact at the end of March 2019. But after then it would be death by a thousand cuts as the necessary bureaucracy of VAT return forms, standards certification and so on are implemented, all proceeding in a fog of uncertainty which would dramatically reduce the UK's ability to negotiate with anybody about many things and put off anybody who wants to make long term plans about the UK.

If there could be an agreement about Ireland then possibly a Withdrawal Agreement and, maybe, a vague agreement on the future relationship could be signed between the EU and the UK and the details sorted out in the 'transitional' period which lasts until the end of 2020. But the EU, it seems, has had enough of vaguery, especially on the Irish subject.

The Leavers hopes of finding suitable allies inside the EU so that they could divide and conquer has failed miserably. If we treat this as an identity clash then clearly the EU will win and we will lose. Even the Irish (whose economy is now expanding rapidly) will lose much less with 'no deal' than us since only 13 per cent of their exports go to the UK. On the other hand well over 50 per cent of the UK's exports are dependent either on direct trade with the EU or on trade concessions organised through the EU, and which will not be available if we 'crash out' without agreement.

So we need a vote on this reality. A straight referendum choice between the only two clear options available at the moment: 'no deal' or Remain seems the best option, since these are the only certainties available.  The Brextieers for their part, now say that a 'no deal' is 'no problem'. They can say that if they want, but that was not what appeared to be the choice in 2016. Let's now put it to the voters. The Brexiteers have failed to generate a different option that can be implemented in the real world. The rest of us need to get on with life.

Some relevant references:,812529,en.pdf

Thursday, 27 September 2018

Labour's green energy plans are the surest sign yet that they are heading for Government

Labour's low cost and practical proposals for expansion of onshore and offshore wind, solar power, energy conservation and increases in renewable heat are the surest sign yet that they are the competent choice for Government. Their proposals need some elaboration in places and some work on detail, but seem to be in a different dimension compared to the Tory Government who seem increasingly certain to be heading for self-destruction on the anvil of Brexit.

Rebecca Long-Bailey is aiming for 85 per cent of electricity to come from low carbon power by 2030. This is an easily achievable target, and will be done at low cost if simultaneously Labour cancels the disaster-in-waiting project at Wylfa, and some way can be found to avoid Hinkley C being built.

As I indicated in a recent post, there's already enough offshore wind in the pipeline to ensure well over 50 per cent of electricity coming from renewables by 2025. See

Labour's plans for boosting offshore wind, onshore wind and solar pv will meet its 85 per cent of low carbon power by 2030, and, in doing so, also accommodate a substantial increase in transport and heating demand provided through electricity.

The Government could revivify the buildings insulation programme, reinstating the programme started by the last Labour Government but short-circuited by the useless and self-defeating so-called 'Green deal'.

Of course the Government will need to engender some much smarter thinking and regulation than is happening at present to integrate the coming expansion of electric cars. But this requires imagination rather than cost increases.

Although some see the target of providing over 40 per cent of heat demand from renewables as being problemmatic, we could go at least along way towards this target in a way that rests heavily on Labour's ideological strength in promoting municipal green socialism. Waiting in the wings is the developing technology in the form of industrial heat pumps. This, like a lot of other green technologies is one that is declining in cost. A Labour Government could empower local authorities to start up local green energy companies who would have a focus on developing community heating networks to be supplied with heating by industrial heat pumps. This technology, already being demonstrated in Denmark, operates by using electricity to turn energy in the air, ground or water into heat. The heat can be stored in hot water tanks so that it can be delivered when needed.

In short, there's still some loose ends in Labour's green energy proposals but the outline is good and getting to look more and more plausible in terms of practical measures.