Tuesday, 30 October 2012

Nuclear strike price to be higher than wind? - While wind development is 'capped'.

The Government seems poised to announce a policy that will see nuclear power paid more than onshore wind. In the process onshore wind development will be capped. Consumers will be big time losers as the Government prepars to give nuclear power a higher 'strike price' per MWh for electricity generated compared to the strike price to be paid to onshore wind. They will end up paying around double the subsidy for a given amount of onshore wind compared to nuclear power. It looks like a pretty clear way of signalling that nuclear power is to be given a big advantage over wind power.

There is a lot of speculation about what the Government will set as the 'strike price' for nuclear power, not to mention whether it will be high enough to bring forward nuclear projects without a government 'blank cheque' (underwriting). However, one paradox seems to be going unnoticed. All the bets on the figure for nuclear seem to be higher than anything onshore wind is likely to receive.

Various people have mentioned £100 per MWh as the likely strike price for nuclear power. It is being described as a cap!(?) So what sort of a 'cap' is this if nuclear gets paid 25 per cent more than wind for the same output? Under a feed-in-tariff regime the figure paid to onshore wind is likely to be no higher than around £80 per MWh. Is the Government really going to make it so plain that onshore wind is cheaper than nuclear power? Even £100 per MWh is unlikely to be enough to lead to nuclear power plant being built - although we will see quite a few windfarms at £80 per MWh.

The Government seem poised to make the contrast even starker by 'capping' onshore wind development in some sort of deal with George Osborne - to placate anti-windfarm Tories. So suggests Business Green http://www.businessgreen.com/bg/news/2219518/is-the-chancellor-preparing-to-cap-new-onshore-wind-farms

Consumers will, with nuclear compared to onshore wind, have to pay an excess of £50 per MWh (over and above a wholesale electricity price of £50 per MWh) compared to only £30 with onshore wind - and to cap that as well nuclear power will have a much longer contract period - 25-30 years compared to maybe only 15 years for onshore wind. Altogether consumers will end up paying around 100 per cent extra to subsidise nuclear power compared to getting the same amount of energy from wind power.

Besides making consumers pay bigtime to satisfy Tory anti-windfarm MPs, this smacks of giant political bias in favour of nuclear rather than wind power. All overseen by a Liberal Democrat Energy Secretary! If onshore wind was paid £100 per MWh we could have a lot more onshore windfarms - but the Government clearly prefers to have nuclear if it can. How can the Government justify such a policy? Certainly not according to public opinion which sees wind as being preferable to nuclear power. But Government policy will have this exactly the other way around - with a twist of the wind 'capping' knife thrown in.

And we have claims that Hitachi's reactors are 'reliable' - even though half of the Advanced Boiling Water reactors in operation work for less than half the time! At least you can predict windspeeds in advance with some accuracy, which is more than you can say for nuclear power stations which suddenly go offline.

Learn about policy options for implementing renewable energy by making amendments under the forthcoming Government Energy Bill at a Conference on January 18th at the University of Birmingham: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf

See my letter in the Guardian which also puts forward these sentiments at: http://www.guardian.co.uk/environment/2012/nov/02/the-beauty-of-wind-farms

Also, see letter published in the Daily Telegraph signed by me and a number of leading academics (and Jonathan Porritt): http://www.telegraph.co.uk/comment/letters/9662333/Barack-Obamas-potential-for-action-beyond-the-shores-of-America.html

Hitachi bid - more fantasy nuclear power?

The latest supposed breakthrough for the UK nuclear new build programme came with the announcement  that the Japanese nuclear constructors Hitachi had won a contest (with one other Japanese company, Toshiba, according to the FT) to build reactors abandoned by the former 'Horizon' consortium. But, as usual in the nuclear garden, all may very well be not quite what it seems from the press releases.

A new nuclear myth is busily being constructed by commentators that the only reason we have a blip in the nuclear power programme is that the German Government got the wobblies about nuclear power forcing E.ON and RWE out of the picture (nothing to do with nuclear power being far too expensive for the incentives likely to be offered, of course). But now others have rushed in to fill the gap. This new reactor programme, based on the Advanced Boiling Water Reactor (ABWR) is going to be cheap, quick to build and is all but a done deal.

Now pause for a moment, since, over the years, we have been subject to so much fantasy from the nuclear industry about their plans, costs etc, why should we suddenly believe everything stated in their press releases now?

The Advanced Boiling Water design has, let us say, a chequered history in terms of reliability. None of the four operational plants can so far, according to the World Nuclear Association (WNA) database (accessed 30/10/2012), boast a capacity factor of more than 73 per cent, and two of them have capacity factors less than 45 per cent (see WNA links below) - some wind power plant have capacity factors around this level, and they are supposed to be that way! A capacity factor is the amount a plant generates compared to the amount that would be generated if it was operating at full power all of the time. Nuclear power plans are costed on the basis that they will achieve capacity factors of 80-90 per cent. With a capacity factor of 45 per cent (plausible outcome based on experience) any nuclear power project comes out needing twice the power price to be an economic proposition!

 These ABWRs do not seem to be very cheap to build either. Currently three are under construction (according to 'wikipedia'); two in Japan, and one in China. The plant being built in China has been under construction since 1997, admittedly delayed by political controversy at times, but still an eye-wateringly long period. The reactor cost seems high even though interest charges will not, I guess, have been factored in, which will be a real killer for any nuclear project that has to be financed through the UK's proposed low carbon mechanism. So far no ABWR projects are being built in the west, with the reactor for one project initially planned in South Texas being cancelled last year. The costs had spiralled to a reported $14 billion for 1358 MW (wikipedia), a cost that compares broadly speaking, MW for MW, with the costs quoted for building Hinkley C.

It is strange. I have not seen any of this reality about high reported construction costs, experience of delay, and uninspiring capacity factors appear in the press coverage so far. But these facts, as opposed to the press release fantasy, mean that discussions of what 'strike' price the UK Government might offer to achieve standard commercial rates of return seem irrelevant. The figures just go off the chart. Only government underwriting with a very blank cheque seems likely to ensure that these projects go ahead........and somehow getting the project passed EU state-aid rules, which is another perhaps not-so-minor issue.

Again the question arises, why not instead invest in renewables and energy efficviency which have much more certain outcomes and cheaper costs? See previous blogs on this one.

 Hitachi/GE are busy announcing deals with engineering companies for various things to do with the project and one receives the impression from the press handouts that the potential 6.6 GW worth of developments at Wylfa and Oldbury are almost built subject to a bit of paper chasing about approval of reactor designs.

But one teensy weensy little detail remains to be settled about the promised nuclear power stations. Who will pay for them? Hitachi? Well, Hitachi are nuclear constructors - they contract to build plant for  other people. They did agree to take out a 20 per cent equity investment in a nuclear power plant in Lithuania (which the Lithuanians have just rejected in a referendum), but it seems unlikely they would take on 100 per cent of the equity never mind 100 per cent of the financing in total. Indeed, because the bulk of the Lithuanian proposal was financed by a state-guaranteed loan, Hitachi's contribution to the projected cost in fact comes out as rather less than 10 per cent. And according to the UK Government there will be no underwriting of construction costs, unless you catch energy ministers in a wavering moment (see previous blog). So the banks would not lend any money. Hitachi would have exactly the same problem as is faced by EDF or, for that matter, any other large company. They would have to finance the lot off their balance sheets.Their shareholders would face big risks and expect big returns, which pushes the required price to be paid for the nuclear electricity higher still.

Hitachi themselves are not in a position to derive income from the electricity generation - they need contracts with big electricity suppliers. This implies investment from electricity suppliers. So who are these other people who will invest in the power plant? - by 'people' I mean electricity companies with a big stake in UK electricity markets. In China and Japan, of course, the power plant are built for electricity utilities who are are monopoly retailers. This means that they can pass on any costs to their consumers. This cannot, as explained earlier, be done under the UK's liberalised electricity market arrangements -even if Hitachi did interest electricity majors to invest in their project. And the UK Government are unlikely, short of the blank cheque option, to offer a high enough strike price to make nuclear power stations commercially viable under the 'low carbon mechanism' projected as part of the Government's Electricity Market Reform package (coming soon to Parliament, on November 19th I am told).

One might ask why Hitachi/GE are buying up the option. The Financial Times suggests that the loss of business in Japan is impelling the company to take up 'risky' options.
See http://www.ft.com/cms/s/0/174ae282-227e-11e2-b606-00144feabdc0.html#axzz2AoAttZBC

It does sound like desperation. The FT quotes an international lawyer specialising in nuclear power as commenting that 'What they're really buying here is an option to build reactors, without all the fundamentals in place'. The fundamentals seem unlikely to be in place to deliver Hitachi or anybody else the sort of returns that can give a commercial justification for nuclear power in the UK. So the project looks unlikely.

Nevertheless the UK Government and nuclear proponents are keen to collaborate in all of this to keep up the myth that nuclear-is-cheap-reliable-and-coming-soon, so the fantasy continues........Everyone is a winner, except perhaps the Lithuanians who could be left with a misleading impression about what is really happening in the UK.

Learn about policy options for implementing renewable energy by making amendments under the forthcoming Government Energy Bill at a Conference on January 18th at the University of Birmingham: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf

You can study some links here for details about the performance and background of Advanced Boiling Water reactors:


http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=F98DE7C7-0F7F-467C-B98C-8E633BBD50D5 44.6

http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=BF928D6F-9277-4E05-BF0F-2658DC973FEA 72.8

http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=15DA1AEF-B63E-4EBA-827B-7280559C93B1  68.2

http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=A14A17FA-9566-494A-8975-2B6D5F8D41E8      44

world nuclear database http://world-nuclear.org/NuclearDatabase/Default.aspx?id=27232

For details of the Lithuanian deal involving Hitachi, see http://www.osw.waw.pl/en/publikacje/osw-commentary/2012-07-26/visaginas-nuclear-power-plant-still-highrisk-investment

Sunday, 7 October 2012

Secrecy and lies likely as Government considers 'blank cheque' for nuclear

The Government, via Energy Minister John Hayes, is considering a major u-turn in nuclear power policy as it considers giving a blank cheque to nuclear constructors. This is what is involved in 'underwriting' the risks faced by nuclear constructors, and it will almost inevitably lead to secrecy and lies about what consumers will pay for building Hinkley C. It means that the Government will guarantee to pay for overruns in construction costs incurred by EDF in building Hinkley C.  Such options were specifically ruled out, not only by the Conservative Party immediately prior to the 2010 General Election, but also by Ed Davey (Secretary of State at DECC) himself in May. 

A commitment to 'underwrite' nuclear power costs would almost inevitably mean either the Government keeping secret the details of how much it might cost the consumer to pay for pay for Hinkley C, or providing misleading statements that would amount to a lie. In the process nuclear power would be given immensely better incentives than renewable energy projects, who would receive no underwriting of costs and whose (transparent) payments would be wrongly held up as costing more than 'cheap' nuclear.  I will explain all of this. First the details of the u-turn. 

The Daily Telegraph reports, on October 6th, that:  'The Government is considering ways of underwriting risk in the construction of new UK nuclear plants, the energy minister John Hayes has said.' See 

Underwriting nuclear risks would be in direct contradiction to what the Conservative Party said in their pre-election energy policy statement in March 2010, called 'Rebuilding Security – Conservative Energy Policy in an Uncertain World'. The Conservatives said:  we agree with the nuclear industry that taxpayer and consumer subsidies should not and will not be provided – in particular there must be no public underwriting of construction cost overruns’. Note the statement: 'in particular there must be no public underwriting of construction cost overruns'. Whatever the interpretation off the term 'subsidy', there is not much wriggle-room there! Mr Hayes,  which part of the phrase 'there will be no public underwriting of construction cost overruns' don't you understand? See the page 18 of the pdf document at: http://www.conservatives.com/News/News_stories/2010/03/Conservatives_propose_radical_overhaul_of_Britains_energy_policy.aspx - if this (now) embarrassing document is still on the web by the time you get to it!

But it gets worse for the Government's record. Ed Davey, in a moment of clarity, declared on May 22nd this year, just as the Energy Bill was published, that: "There will be no blank cheque for nuclear - unless they are price competitive, nuclear projects will not go ahead." See http://www.bbc.co.uk/news/business-18144412 I was on BBC Radio 4 that morning and  commented that there would be no new nuclear built unless there was a blank cheque issued for them, and then Ed says, 'no blank cheque' - I thought well, 'no nuclear then'. But what a silly fool I am for believing what the Secretary of State says - or at least not understanding that at the end of the day he would have to do as he is told by Sir William McAlpine, Berhard Ingham and their 'Sir Humphrey' civil service friends in Whitehall.

Of course if nuclear costs are underwritten they are hardly 'competitive' since there is no competition! Jeremy Leggett's Solar Century will not be be told by the Government that however much their projects will cost, the electricity consumers will foot the bill. It is as if the nuclear developers are acting like a nationalised industry, except that they (EDF and whoever else they attract into this honeypot) get to take home the profits at the end of it. If you thought the way railway franchises are issued is bad, take a look at the concept of 'underwriting' nuclear costs. At least the Government do not guarantee to pay the costs of building the trains! Of course the droves of solar power companies who are going bust are not getting their costs underwritten. As things stand at the moment, independent wind power developers will not even be able to get decent power purchase contracts, and they definitely will not get their costs underwritten! Hard luck Fred Olsen Renewables, Ecotricity, Renewable Energy Systems, and so on. 

So how would a policy of 'underwriting' nuclear construction costs fit in with with the Energy Bill? Well, it would go something like this. The Government would announce that a special 'investment' instrument would be issued to EDF for Hinkley C, the terms of which are 'commercially confidential'. After some searching questions the Government would most likely come out with some statement that the (commercially confidential) estimates suggest a nuclear 'strike price' of £70 per MWh, conveniently, just under what the Government will pay to onshore windfarms organised by the major electricity suppliers. In fact though it will turn out, years later that, well shucks, you would never have guessed, the estimates were underestimates and that the consumer will just have to shell out over £100 per MWh. 

Of course the consumers should count themselves lucky here because if EDF did not have their costs underwritten, and had a level financial playing field with renewables, then the cost would be more like the £165 per MWh, of which we have heard previous mention. That is because they would have to raise money off the markets, just like renewable energy developers. Except that the renewable projects would cost the consumer a lot less than the nuclear projects in £s per MWh. It is called competition, but this means that nuclear will lose out to renewables, and that cannot possibly be allowed. Instead we will have that euphemism 'underwriting' which stands for 'blank cheque'.

But, to get back to the point, when the Government 'underwrites' the cost of nuclear power plant,  the Government would end up implying a price to be paid by electricity consumers  that would be much lower than the electricity consumers ultimately ended up paying.  It is called lying. You think I'm the one fibbing? Well, just look at what has happened in the past....Magnox, Advanced Gas Cooled reactors, Sizewell B.........Lies, lies, lies...........The beauty of it is, by the time the power stations actually get built, the ministers involved are long gone.

But do not worry, the Renewable Energy Foundation (the ones who do not like windfarms) will still be able to criticise the financing of windfarms because the information about this is transparent and truthful, and this is their democratic right. This is a stark contrast with nuclear power of course. Because if the Government told the truth about nuclear power, consumers would never, ever, allow it to be built in the first place.