I have had a further message from the Committee on Climate Change, as below, saying that I have got things wrong, and asking me to clarify the position. I thus print below the relevant communications. I do not want to be accused of misrepresenting their position, so I reproduce the letter in fulll. I must say however, that I do not understand what they are saying now.................I certainly do not see how nuclear power 'appears' to be the most cost-effective low carbon source given the arguments and data so far generated.
To see my original argument you will have to scroll down to the end of this post. My original complaint was addressed to Professor Mike Grubb, who I thought was on the Committee, but who I learned later had left the Committee in April, just prior to the publication of the Committee's 'Renewable Energy Review'.
From: Barrs, Alice (CCC)
Sent: Tuesday, August 23, 2011 5:50 PM
To: David Toke
Cc: Thompson, Mike (CCC)
Subject: RE: criticism of Climate Change Committee
Dear David –
Having just read your recent blog article, and following on from your comments below, I think you have misunderstood my previous response. I would like to clarify our position on this so that you understand the Committee’s position and so that you can ensure your post is accurate (which currently we don’t think it is).
The CCC have not changed our position from the one set out in the Renewable Energy Review published in May.
The conclusions of that review (as set out on the first page of the executive summary) in relation to electricity were that:
· ‘there is scope for significant penetration of renewable energy to 2030’
· ‘The optimal policy is to pursue a portfolio approach with each of the different technologies playing a role.’
· ‘new policies are required to support technology innovation and to address barriers to uptake in order to suitably develop renewables as an option for future decarbonisation’
See also the summary box on the second page:
· “A range of options exists for delivering decarbonisation of the power sector by 2030 at reasonable cost. This includes renewables, nuclear and CCS
· A portfolio approach to technology support is therefore appropriate”
This was based on analysis set out on the third and fourth pages of the executive summary (some of which was discussed in the earlier e-mail exchange). Note that the bullets there discuss costs under the heading ‘Current uncertainties’, where we noted that key factors include ‘the ability to build nuclear to time and cost’.
We pointed out that nuclear ‘currently appears to be the most cost-effective of the low-carbon technologies’, but also that ‘full reliance on nuclear would be inappropriate, given uncertainties over costs, site availability, long-term fuel supply and waste disposal, and public acceptability’. We went on to state that ‘Given these uncertainties, a portfolio approach to development of low-carbon technologies is appropriate’. In the detailed analysis in the full report (and further reported in the technical annex) we consider discount rate as one of the factors contributing to cost uncertainty (p.62-63).
There was no intention in the previous e-mail correspondence to imply a different analysis and I hope it is clear that the CCC’s position and evidence base is unchanged from the one set out in the review. Further to that, we would be grateful if you could clarify this on your blog, which currently misrepresents our position.
We aim to be open in our analysis and up-to-date in our evidence base, and are very aware of the difficulties in estimating costs and applying discount rates. As such we’d be happy to arrange a teleconference with analysts in the team, or arrange a meeting at our offices in London should you be in town.
Kind regards
Alice
From: David Toke [mailto:d.toke@bham.ac.uk]
Sent: 09 August 2011 11:55
To: Barrs, Alice (CCC); d.toke@bham.ac.uk
Subject: RE: criticism of Climate Change Committee
Dear Alice,
Many thanks for the time you have taken to enable a reply to be made. I shall study the additional calculations made by the CCC to which you refer with interest.
I note that you say:
‘Whilst we think it is likely that nuclear will be cost competitive, consideration of the uncertainties demonstrates why it is inappropriate to base policy on a conclusion that nuclear (or onshore wind, or offshore wind...) is “the” cheapest option.’
This is clearly different to the substance in the RER itself which reads e.g. on page 12 in the Executive Summary:
‘Nuclear power currently appears to be the most cost-effective of the low carbon
Technologies’
I am very grateful for this correction being made. This may restore some lost faith in the Committee, although this will not reverse the publicity that attended the publication of the Report in May which focussed heavily on the ‘nuclear is most cost effective’ claim.
Best Wishes,
David Toke
From: Barrs, Alice (CCC)
Sent: 09 August 2011 11:41
To: d.toke@bham.ac.uk
Subject: RE: criticism of Climate Change Committee
Dear David,
Emily passed on your query to me.
In looking forward to the 2020s and 2030s for the appropriate mix of low carbon generation technologies, it is clear that there are considerable uncertainties. They impact each of the technologies, including new nuclear build. We set out the considerations in the review.
Whilst we think it is likely that nuclear will be cost competitive, consideration of the uncertainties demonstrates why it is inappropriate to base policy on a conclusion that nuclear (or onshore wind, or offshore wind...) is “the” cheapest option.
Rather, given uncertainty over future costs, as well as constraints on resource and technical considerations, the key conclusion in the review was a portfolio approach is appropriate, with nuclear, carbon capture and storage (CCS) and a portfolio of renewables.
In relation to required rates of return, the CCC commissioned Oxera to look at the appropriate discount rates for various low-carbon technologies. They identified a number of risks faced by generators, and that mature technologies (such as gas CCGT) face lower rates than less mature (e.g. offshore wind). In the Renewables Review, we use a commercial cost of capital of 10% - frequently used in comparative analysis of this kind - whilst also considering sensitivities at lower rates (7.5% and 3.5%).
We have subsequently published further analysis looking at current costs based on a wider range of discount rates, including 9% and up to 13% for nuclear, 10-14% for offshore wind, and 7-10% for onshore wind (see our website<http://www.theccc.org.uk/reports/renewable-energy-review/technical-annexes>). In the ‘real world’ the required return for an investor may well be higher or lower than this range. However, under a supportive policy environment (for example, long-term contracts under new market arrangements) and technology development there are good reasons to believe that the cost of capital may fall.
The possibility of rates differing between technologies increases the uncertainty involved in assessing in relative costs. The analysis further demonstrates the overlapping ranges of cost estimates for different technologies, depending on assumption, and supports the key conclusion to follow a portfolio approach.
Kind regards,
Alice
Dear Professor Grubb,
I am writing to express my concern and dismay at the way the Committee on Climate Change handled relative costings for renewable energy and nuclear power in its ‘Renewable Energy Review’ published in May. At the time I was annoyed to see a series of bases for costings of wind power and nuclear power using criteria which, while supporting a conclusion that ‘nuclear is cheaper’, seemed not to pay much attention to the fact that the criteria, in particular the discount rate criteria, bear little relation to judgments made by financial markets. My annoyance at this has increased now that reports from city analysts are being made confirming my own thoughts that pension funds etc will apply rather higher discount rate tests to proposed nuclear investments than they would even with offshore wind power, and certainly compared with onshore wind.
Discount rates of 15-20 per cent (for debt and equity elements combined) are the ‘real world’ tests being applied to nuclear power investments while the rates applied to onshore wind, for example will be much less than this . If you had a windfarm proposal about which there were as many cost and performance uncertainties as with new nuclear, then such higher discount rates would apply to them. But they don’t; wind power technologies, certainly onshore, and to a growing extent, offshore, are, as the Government’s own White Paper now points out, mature technologies, whilst nuclear power seems to be ‘un-maturing’.
I rather suspect that even in the case of offshore wind at the moment, if you offered a pension fund a prospect of a) building an offshore windfarm or b) a nuclear power station at a long term contract price of 15 p/KWh they would choose the offshore windfarm. Such issues are in addition, of course, to the arguments about how far nuclear construction costs can escalate.
In short the contention that nuclear power is the cheapest low carbon source is highly tendentious in the case of onshore wind, and somewhat debateable even in the case of offshore wind power. The ‘long term’ assessment using a ‘social discount rate’ of 3 per cent on energy investments used by the CCC, (and prominently displayed in the Executive Summary) is nothing short of fantasy given that it can only be realised if the electricity system is taken back into public ownership and it has access to Government borrowing terms. Even EDF does not have this facility for French power plant any more.
The CCC ought to have been a great deal more circumspect about pronouncements about which low carbon options are ‘cheapest’. Its faith in nuclear power over wind power is, well, merely faith. Of course we can be charitable and say that the CCC’s analysis is no less partial than one funded, for example, by Greenpeace (except coming to different conclusions of course). But then, if the CCC is to be regarded as just another interest with its own opinions, does it deserve much attention?
Best Wishes,
David Toke
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