Monday, 14 January 2019

Government aims to cover up bailout in talk about 'RAB' financing of nuclear power

There's a bunch of highly misleading statements that the Government is to adopt so-called 'Regulated Asset Base' (RAB) financing of nuclear power projects. Yes, some of the mechanisms that are being proposed are also used in RAB, but the term is being grotesquely distorted to hide the fact that this is a cover for the Government risking very large sums of money to be lent to nuclear power developers. Put simply, if the nuclear power projects are as expensive as they usually are the electricity consumer will lose an awful lot of money and prices will be jerked upwards. Either that or the taxpayer takes a hit and funding of public services suffer big time.

You can see the cover up printed in the Sunday Times yesterday where, we are told that 'Ministers are expected to accelerate plans to introduce regulated asset base (RAB) financing, which is popular in the water and infrastructure sectors, for nuclear plants including the Horizon project'. Under such schemes the developers are allowed to charge consumers in advance for the capital building projects.

What Ministers are not emphasising of course, is that in industries such as water the Government does not lend lots of money to the privatised companies. They raise this on private markets. But in the case of nuclear power plants the bulk of the money needed to build them will be borrowed from the Government. So if the nuclear plant has very big delays and cost overruns (as has happened to ALL nuclear power plant built in the West this century), the Government loses shedloads of money. The Treasury is likely to insist that this gets paid for by adding the (large) sums to electricity consumer bills.

RAB has been used to try to finance nuclear power plant in the USA, in the states of Georgia and South Carolina recently. The result was disaster and the developing company, Westinghouse, went bust. But this was 'normal' RAB where the developer takes the risk of cost overruns. But in the proposed UK nuclear version it will be the electricity consumer who goes bust when the almost inevitable cost-overruns set in!

The nuclear RAB is really a cover for a nuclear bailout. So let's call it a 'nuke bailout RAB'.

This will be embarrassing to navigate through the EU's state-aid rules (assuming we don't go down in a 'no-deal' Brexit) since the scheme will be seen as blatantly favouring the nuclear industry over renewable energy schemes who will not be offered such terms.

It will also produce a strange phenomenon, where, almost certainly the UK Government will end up bailing out foreign Governments. That's because (assuming Hitachi does withdraw from the Wylfa project) the only companies likely to take the risk of building more nuclear plant in the UK are owned either by the French or Chinese Governments. French owned EDF is already angling for Sizewell C to be funded by this 'nuke bailout' RAB. It is rumoured that CGN, the Chinese state owned nuclear developer (who want to develop a plant at Bradwell) could also take up Hitachi’s current option at Wylfa.

But private companies now want nothing to do with British nuclear power (or any for that matter) unless the Government agrees to underwrite all costs overruns. Under the Treasury approved version of nuke bailout RAB only the Government's liability for costs overruns is limited to the amount that the Government lend (which did not satisfy Hitachi). Hence only Government owned developers will be able to get some of their losses paid for by the British Government.

Thursday, 20 December 2018

Why a referendum seems the best bet for getting Mrs May's deal adopted

Politics is full of ironies, and a big irony for the Prime Minister today is that it seems her best chance for getting her deal adopted is to do the very thing she now strongly rejects - postpone Brexit and hold another referendum on relations with the EU.

It does seem that despite her attempts to frighten people with the terrible consequences of a 'no-deal' exit on March 29th next year, the prospects for her deal being passed by the House of Commons still look very thin. One problem she has is that many people simply do not believe that Parliament would allow a 'no deal' Brexit to happen. Let's deal with that issue first, then we can go on to look at the referendum issue.

A 'no deal' exit at the end of next March would be truly horrendous. The 'no deal' guidelines issued by the EU Commission give little comfort. Whole UK industries would be decimated in one swipe and much of the rest forced into a recession. I have heard people comment that things can't possibly be that bad since we got on quite well without the EU before 1973. Now, without wanting comment on what life was like before 1973  the key point is that today, after 45 years, the complex fabric, with millions of strands and networks, both regulated and informal, of life in the UK has been developed on the basis of relationships with the continent. Our economic development since 1973 rests on such relationships, and tearing them out in one thrust will immediately cancel much of such development. To suddenly tear that up now will have very serious repercussions, much more than we can imagine now.  There will be no direct loss of life, but in other respects the dislocations will resemble war.

Edmund Burke, the 18th century Tory philosopher, counselled against the type of revolution (in his case the French Revolution) that (ironically) many Tories now promote in the sense of a 'no deal' Brexit. He said, for example:

 'it is with infinite caution that any man ought to venture upon pulling down an edifice which has answered in any tolerable degree for ages the common purposes of society'..............'The nature of man is intricate; the objects of society are of the greatest possible complexity; and, therefore, no simple disposition or direction of power can be suitable either to man’s nature or to the quality of his affairs. When I hear the simplicity of contrivance aimed at and boasted of in any new political constitutions, I am at no loss to decide that the artificers are grossly ignorant of their trade or totally negligent of their duty' (see page 52 at

But to get back to the point, which is the condition under which May's deal seems most likely to come to prevail. That is if, following what look now the inevitable defeat of May's deal in the Commons in January, Brexit is postponed by revoking Article 50, and a referendum called. As has already been mooted by civil servants (I recall reading in The Times) the referendum ballot paper could have two sets of options. First, the remain/leave option and second (which would count if leave won) the choice between May's deal and 'no deal'. In this contest no doubt many would urge a 'leave' response in the first ballot (although I would opt for 'remain'), and they may be successful, in which case the vote hangs on the second question which almost certainly would give May's deal victory.

Of course the road to this being achieved is difficult. It would require a lot more than one or two  simple votes by the Commons. Legislation would have to be organised, not only to postpone Brexit, but also to organise the referendum, and that could only be passed by consistent cross party collaboration, and possibly a serious division in the Conservative Party. This will be difficult to achieve. But then I don't really see much alternative. It is too late to negotiate something else, and anyway it would require a determined Government to do so, which does not exist.

But the alternative is bleak indeed.

Sunday, 16 December 2018

Office for Nuclear Regulation demands major design improvements for Chinese nuclear reactor

The UK's Office for Nuclear Regulation (ONR) has requested a long series of safety improvements to the proposed design of the Chinese HPR1000 ('Hualong') reactor proposed to be built at Bradwell in Essex. Previous experience suggests this could presage a big increase in costs for the plant which is likely to cost a lot more than similar plant built in China. The HPR1000 design is based on one being built in China by China General Nuclear Power Group (CGN). CGN will own around two-thirds of the project, with EDF owning the remaining share.

In a judgement issued last month the ONR rapped the CGN/EDF developers for the 'slow' development of the safety case and said that their 'response revealed a number of potential shortfalls related to the status of the safety case planning and arrangements (including organisational)'. Most tellingly, the ONR has given the developers a large number of 'follow-up' points to which they need to adequately respond before they can be given the go ahead after the later stages in the 'generic design assessment' (GDA) process run by the ONR

Although the ONR has stressed that there is nothing fundamentally wrong with the developer's proposals, the evidence is that the sheer extent of 'follow up' point materials must severely question any financial estimates of the plant's costs that have been based on the plant being built in China. This is the 'Fanggchengang 3' power plant being built in South China. 

This conclusion is based partly on the experience of the last GDA process which involved the approval of Hitachi's ABWR plant which is earmarked for development in Wylfa. The construction of the Wylfa ABWR plant is now doubtful following reports that Hitachi cannot find investors. This failure has been ascribed, at least in part, to extensive cost increases racked up as a result of safety improvements needed for the plant. The cost of building the plant increased by more than a third after the ONR's GDA was completed in 2017.

Yet the ONR's commentary comprising its  'follow up' points for the HPR1000 is 50 per cent longer compared to those given to Hitachi in the same stage of the GDA for the ABWR. On this basis the cost increases for the Chinese plant could be even larger, proportionately, than what Hitachi's proposal suffered compared to any prior expectations based on plants built in the East.

Some western commentators have been keen to exclaim how quickly and cheaply the Chinese can build reactors (although recently the reactor rollout in China has slowed markedly compared to expectations) but the arduous passage of the proposed Hualong reactor design through the GDA is one reason why costs and practices in the East should not be so easily used as a basis for what happens in the West. As the  developers put it themselves in their own GDA submission, perhaps with a bit of an understatement: '
‘The HPR1000 (FCG3) design has evolved under the Chinese regulatory system, which is acknowledged to be possibly different from that of the UK in requirements and relevant good practices, including Codes of Practice’.
The GDA process is likely to be completed in early 2022.

Thursday, 29 November 2018

Lobby launched in support of revolutionary wave power device

A company with plans to manufacture a revolutionary new wave power device has held a series of meetings with MSPs to secure funding to allow testing and demonstration of the technology. Resen Waves, the Danish company behind the Resen Wave technology, is planning to open an office in Aberdeen soon. It is a novel approach since it hopes to go directly to market to provide wave-powered buoys to supply off grid sensors and instruments on the seabed and real-time data communication with the sensors. 
After completion of a successful two-year test and demonstration (T&D) programme the company intends to base manufacturing in Aberdeen to fulfil orders arising from industries such as offshore oil and gas decommissioning, geotechnical surveying and offshore wind. It is planned to do the T&D at the European Marine Energy Centre EMEC in Orkney, and the Scottish Government is being asked to grant £250,000 to fund this.
Per Resen Steenstrup, the Managing Director, after whom the technology is named, said” The approach behind Resen Waves is different to what has been tried before with wave power. It is a bottom-up method where we start with a small device for a specialised off grid market as opposed to the top-down methods tried before to supply big scale power to the grid. We are trying an incremental market method in smaller scale rather than starting off with big machines, which requires feed-in tariffs, which are not available.
The Resen Wave machine has few moving parts, no complicated hydraulic systems and a low weight to power ratio. The machine has been developed over 7 years and includes a long-life carbon fibre spring designed with the help of a Danish technological institute. Steenstrup was previously Managing Director of the Wavestar wavepower project, which was an attempt to develop a large-scale wave power device.  He further commented: “I’ve learned a lot from Wavestar and now have a model that can go directly to market. But we need some support from Government for business development through testing and demonstration to give us credibility and publicity to get orders for machines. At the moment the Scottish Government’s wavepower programme is only funding technology rather than business development.’
Dr David Toke, a renewable energy expert from the University of Aberdeen who is helping (on a pro bono basis) to promote the efforts to gain Government support said: ‘The Resen Wave concept is revolutionary. It fits in exactly with innovations theory in that revolutionary innovations start in niche markets and then optimise. This happened with wind power and solar PV which started off filling small-scale off-grid needs, and then spread to mainstream markets as costs fell. A big advantage of the Resen Wave concept is that it can get orders without the need for feed-in tariffs set by Government.’
 Details of the Resen Wave technology can be accessed at the webpage

See coverage in 'Energy Voice';

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