Further shift of renewable incentives towards nuclear power planned by Government

In what will be a further cut in incentives for renewable energy and shift towards funding of much more expensive nuclear power stations, the Government is preparing to 'auction' contracts for onshore wind and solar power. The auctions work by giving contracts to those bids that will involve the lowest premium prices to be paid for electricity generated.

The 'auctions' for onshore wind are a back-door method of cutting windfarm deployment by at least a half since at least half of windfarms which receive contracts will never be built because they will not be given planning consent. The system is notorious in the wind industry in the UK because it was used in the UK in the 1990s and resulted in no more than 30 per cent of projects that won contracts in the 'auctions' actually being built. Reasons for this low-take up included planning failure but also the tendency for bidders to put in optimistically low bids to obtain contracts which could not be implemented when the project economics became better known.

Far from increasing the number of windfarms (as the anti-windfarm Telegraph coverage implies) history, and logic, suggests that the number of windfarms and solar power projects will be dramatically cut. Unlike the present system of fixed tariffs for each particular technology, the quantity of capacity auctioned is strictly controlled, and no account is made for projects which fail to be built.

This move can also be seen as part of a more general trend towards shifting funding of 'low carbon' energy sources away from renewables and towards nuclear power. Nuclear power, through Hinkley C, is also poised to receive much more generous terms than renewable energy, and this move will exacerbate this trend still further.

Hinkley C is set to receive £92.50 per MWh for a 35 year contract with 65 per cent loan guarantees. Onshore windfarms will receive (from 2018) £90 per MWh but only for a 15 year contract and with no loan guarantees. If windfarms were given just 20 year contracts to receive premium prices (as applies under the Renewables Obligation which is being replaced by Electricity Market Reform) and also 65 per cent loan guarantees then the 'equivalent' price (to £90 per MWh on existing terms) would fall to around £70 per MWh - around a quarter cheaper than Hinkley C.

It is often claimed that windfarms require 'back-up' services. In fact such services are relatively cheap, and a lesser known fact is that considerable reserve capacity also needs to be built (and will be paid for by the system not the developers) to safeguard against system effects of sudden breakdowns of nuclear power stations, not to mention other in-kind incentives for nuclear power (including insurance liability).

You can see a report on this latest Government shift towards nuclear power and away from green energy at:

http://www.telegraph.co.uk/earth/energy/renewableenergy/10517240/Green-energy-cost-cutting-plans-may-lead-to-more-onshore-wind-farms.html
and issues with offshore wind....http://about.bnef.com/press-releases/uk-offshore-wind-build-out-not-certain-despite-price-increase/

Why doesn't Labour criticise nuclear funding deals?

Tom Greatrex, Labour's energy spokesperson, has criticised me and my other academic colleagues for arguing that it is now plausible to talk about Scotland having independent control of electricity policy. See http://www.heraldscotland.com/news/home-news/energy-experts-in-u-turn-on-union.22875552

But as I have told him, in an email message, a big part of the credibility behind a sustained new nuclear build-up (and hence the argument for Scottish electricity independence) is precisely because Labour appears to be giving full backing to continued efforts to roll out nuclear power stations. In its most recent policy document, for example, 'Powering Britain: One Nation Labour's Plans to Reset the Energy Market', Labour talks about continuing the system of contracts for difference for nuclear power. There is no criticism of the cost of the Hinkley C deal, or indication that Labour departs from the Government's desire to continue to give, to future nuclear power plant proposals, loan guarantees, ultra long (35 year) contracts as well as premium prices much the same level as given to Hinkley C (£92.50 per MWh).

I wrote to Tom Greatrex saying the following:

Dear Tom,

I can understand your dismay at seeing a group of academics taking a new line which does not fit in so well with the 'Better Together' campaign. I have not taken this step lightly. A key reason for this (among others), but perhaps the biggest of all, is the policy of giving large premium prices to nuclear power in the shape of Hinkley C and the Government's projections to build three twin reactors by 2030. Now if Labour had cast doubt on this plan and said it would not give anything like the strike price and loan guarantees and contract length to this or other nuclear projects this this Government are doing, then obviously there would be less argument in support of the contention that in the medium and long term very great costs would be incurred by the British consumers - and Scottish consumers of course. There would be more to spend on renewables instead or energy efficiency for the same diversion of consumer and taxpayer resources.

However, Labour appears to be conspicuous in its desire to maintain a consensus position over the projected level of nuclear funding. If it was not then you would be able to reduce the strength of the argument that we present.

The other point I would make is that having Scottish control over clean energy incentives is easily absorbed in what has been called a 'devo-plus' agenda as well as full independence. 

Best Wishes,

David Toke 

Also see an article of mine on the subject of Scotland and electricity independence in 'The Conversation' at

http://theconversation.com/scotland-benefits-by-paying-for-its-energy-not-uks-mistakes-21200

Scottish electricity consumers to get lower prices in an independent electricity system - and meet Scottish renewable energy targets

As the Press release from the University of Aberdeen says:

An analysis of the effect of recent UK government policy decisions on nuclear energy suggests that Scottish consumers could face lower prices in an independent Scottish electricity system. The report is entitled Is an independent Scottish electricity system good for renewable energy and Scotland? 

The full report can be accessed at: http://issuu.com/therobertgordonuniversity/docs/the_dreud_report_2013

A collaboration of five academic experts from different UK universities have studied the effect of two new policy developments at Westminster on the Scottish renewables industry, and the consequent impact on prices for electricity consumers in Scotland as part of the UK, and as an independent Scotland with its own separately managed and financed electricity system.

The Scottish Government is set against nuclear power plant being given planning consent on Scottish soil, and has ambitious targets to supply 100% of electricity consumption in Scotland from renewable energy by 2020.

At the beginning of 2013 the group had published a paper on the prospects for renewable energy in the context of the debate about Scottish independence (Toke et al 2013). The conclusion at that time was that it would likely be rather more expensive to reach the Scottish Government’s renewable energy targets in the case of an independent Scotland as opposed to Scotland remaining within the Union, and this would push up electricity prices for Scottish consumers.

The research project Delivering Renewable Energy Under Devolution (DREUD) was funded by the UK’s Economic and Social Research Council (ESRC) from 2011-2013 and conducted by Cardiff University, University of Birmingham, Queens University Belfast, and Robert Gordon University.

However since the paper was published there have been significant developments in UK energy policy. As a result the authors have changed their conclusions with respect to the prospects for renewables – and consequently prices - in the case of Scottish independence, or ‘devo plus’ circumstances, where Scotland has an independently managed and financed electricity system.

Their new report has looked at the implications of the UK Government’s recent decisions on new nuclear power and Electricity Market Reform for the prospects of renewable energy in Scotland.

Dr David Toke, Senior Lecturer in Energy Politics previously University of Birmingham and now Reader in Energy Politics University of Aberdeen, is lead author of both reports. Dr Toke explains:  “Two new factors radically change the context of our earlier analysis. On October 21, the UK Government announced a ‘deal’ for a new twin nuclear reactor at Hinkley C, and possibly a second twin reactor at Sizewell C. This will increase prices for UK consumers for over 30 years. However this increase would not have to be paid by consumers in an independent Scottish electricity system.

“The second development is that in June 2013 the UK Government announced incentive levels and terms for renewable energy from 2017/18 as part of its Electricity Market Reform (EMR). The level of these incentives seem unlikely to support major deployment of Scottish offshore renewable resources. The incentives for offshore wind and also tidal stream and wave power payable from 2018 under EMR have been significantly reduced, and they are critical for offshore wind schemes in deeper waters. If operating an independent system, Scotland would be free to set its own incentives for development of offshore and onshore renewable schemes. Furthermore the cost of these and other technologies such as solar pv is likely to reduce, while English and Welsh consumers are still paying premium prices to support the new nuclear power stations.

“We previously argued that that, relative to remaining with the Union, Scottish Independence could substantially increase the cost to Scottish consumers of achieving its renewable energy targets. However, having reviewed the impact of the Government’s recent decisions on nuclear power and incentives for renewables, we believe that this is no longer the case. Moreover, the notion of Scotland having its own renewable energy support mechanism (and indeed its own electricity market arrangements) is no longer necessarily detrimental to the prospect of renewable energy in the long term. On the contrary, on the basis of the evidence we have considered, we believe that Scotland’s renewable energy programme would now benefit from having an independent electricity system and support arrangements for supporting non-fossil fuel sources of electricity.”

ENDS

Notes to editors

The full report Is an Independent Scottish Electricity System now a good solution for renewable energy?  is available as a pdf from Communications at University of Aberdeen

Contact Shaunagh Kirby on 01224 273108 s.kirby@abdn.ac.uk

The authors of the report are: David Toke (University of Aberdeen, previously University of Birmingham), Peter Strachan, (Robert Gordon University), Richard Cowell (Cardiff University), Fionnagala Sherry-Brennan (Cardiff University), Geraint Ellis (Queens University Belfast) 

Chinese demand right to build UK power plants as price for Hinkley C

The still tentative nature of the Hinkley C 'deal' is being emphasised by reports that the Chinese government are demanding a cast-iron commitment from the UK Government to let them build Chinese owned power plant in the UK. If the UK Government agree, this will be yet another step down the slippery slope towards paying a higher and higher price for the sake of keeping face on its badly thought-out new nuclear build programme.

See http://blogs.ft.com/nick-butler/2013/12/01/hinkley-point-is-the-new-nuclear-deal-on-or-off/

What could be next? We already know from answers to Parliamentary Questions that the Government have not ruled out altering the strike price, which means that future prices could be increased as costs overrun. We know that the Government will be hooked up to payout on its agreement to give loan guarantees if the plant does not start generating on time and loan repayments fall due with no income stream to pay them.

However we are unlikely to know for sure how much the plant will cost and how much the Government will be paying for many years yet. Indeed the whole project could be delayed for a long time by haggling at the European Commission. Their permission is required for state aid if the Hinkley deal is to go ahead, and that permission could be a long time coming. The EU law says that the UK Government can only formally demand a response after 18 months, after which the Commission is duty-bound to give a ruling within a further two months. In fact the 18 months falls dues around 3 weeks or so before the 2015 General Election. This means that it may well be up to the next Government to take a final decision over Hinkley C. Negotiations at the EU may bring demands for a revision of the deal, something that the UK Government will resist since it is likely to unravel if the terms are made tougher for the developers.

The leadership of the Government, guided I am told through the cabinet office, is determined, despite doubts in the Treasury, to force through the nuclear deal in order to satisfy critics of the Government's credibility on its energy policies. But in reality nuclear power does nothing to stop blackouts. This is because putting more nuclear online simply leads to the same amount of planned gas generating capacity being cancelled. Also it makes balancing the grid with a large proportion of renewable energy more difficult since nuclear power has to be kept running as much of the time as possible. Nuclear power saves carbon emissions, but so do renewables of course, support for which is set to start tapering off from 2017 under the Government plans.

It does seem implausible that the Government would carry on funding a sizable renewable energy programme at the same time as a nuclear one. Otherwise, with three twin reactors planned for 2030, electricity prices will rise by over 10 per cent with both a renewables and a nuclear programme, or just 7 per cent with just new nuclear being funded (with the nuclear prices rises lasting some 35 years, much longer than the incentives for renewables).

So the Government's price for its nuclear programme will include hefty price rises for an increasing size of the UK electricity market being owned by the Chinese Government.

Wind Power history blows away Ed Davey's excuse for giving short contracts to renewables

Ed Davey's excuse for limiting wind power contracts to 15 years whilst Hinkley C gets a whopping 35 year contract is blown away by some elementary history checking. Lots of wind turbines in Altamont Pass - installed during the so-called Californian 'windrush' - are still turning after 31 years. Davey claims that the contracts he has awarded are in proportion to the technologies' design life expectancy. Yet the Altamont turbines will be turning until 2015, a 33 year lifetime, and only then taken down because of a repowering exercise, and also modern planning conditions which they did not have back in 1982. See http://www.sustainablebusiness.com/index.cfm/go/news.display/id/23757. I am given to understand by a leading authority on the subject that it is likely that quite a few machines built in the early 1980s are expected to carry on running past 2015....

Certainly one can expect modern wind turbines to last a lot longer than these efforts right at the start of the modern windmill era.

So using the Davey formula (about 60 per cent of lifetime as a contract length), using even 33 years as an example, wind power should get a 20 year contracts, not 15. But if this happened, the 'strike price' for wind (£95 per MWh at year 2018) would be reduced below that set for Hinkley C.This would breed trouble as the UK Government tries to claim that they are giving the same incentives to renewables as nuclear to pass through the EU's state-aid regulations (see previous blog post). (Note added in September 2014: Since this was written, payments for onshore wind have been reduced to £90 per MWh (or less) from 2018, making the Hinkley C settlement look even more lop-sided towards nuclear power).

The fact is that wind turbines are much easier to replace than nuclear power stations means that their lifetime, tower for tower, will normally not last as long. In fact nuclear power stations are retrofitted over the years and in reality the oldest nuclear power stations still running (40-44 years) will have had much of their mechanics replaced over the years. So the comparisons being made do not mean very much - except as an excuse for a political conjuring trick to fool the European Commission.

Then there is the loan guarantee for Hinkley C, all £10 billion of it, that constitutes 65 per cent of the capital cost of the 3.2GW development. If wind power got such guarantees, their costs could be reduced much further as well, since the borrowing costs would be a lot less. Indeed borrowing costs could be reduced by at least 2 per cent - which makes a big difference to the economics of wind power.

I have calculated what the effects of these two changes - increasing the contract length from 15 years to 20 years, and giving loan guarantees for 65 per cent of the capital costs. The result is that if this was applied to windpower then a strike price of £75 would be the equivalent of the £95 per MWh the Government is offering wind power from 2018. This figure is considerably less than what the Government is giving to Hinkley C.

When the comparisons are done with Germany, the story is even starker. In Germany investment costs are very cheap compared to the UK because of arrangements with local banks, underwriting from wind generator manufacturers, high debt-to equity rations, and the schemes do not have to subsidise the utilities like they do in the UK. So, incredibly, although average windspeeds are much lower in Germany (and average capacity factors are much lower than the UK), wind still comes out as being much cheaper in Germany. Feed-in tariff rates for solar pv have also now fallen well below the rate the Government has set for Hinkley C. Indeed, the German feed-in tariff system as a whole gives out far less money since feed-in tariff rates decline during the project length and they are not uprated with inflation as compared to the UK.

See the comparison graph at http://www.renewablesinternational.net/cost-of-new-nuclear-and-new-renewables/150/537/74119/. This was prepared by Thomas Gerke of Agora Energy. As Renewables International who discuss the study comment: 'Clearly, the rates that will be offered for new nuclear by 2023 in the UK are far above what solar + wind currently cost – and the rates for solar + wind will go down by then, not up!'

By comparison with this, Hinkley C will deliver bigger and bigger profits to its investors as time goes on with a contract of such length as 35 years. This is because, as time goes on, interest charges and bank loan repayments are reduced by inflation, whilst the Hinkley C revenues are partly uprated in line with inflation (using CPI).The deal has been slammed by investment analysts for this reason. See:
http://www.theguardian.com/environment/2013/oct/30/hinkley-point-nuclear-power-plant-uk-government-edf-underwrite

All in all, the Government's reduction in the contract length for renewables and its offer of a £10 billion loan guarantee for Hinkley C with a 35 year year contract represent a piece of political gerrymandering to try and squeeze a camel through the needle of the EU state aid regulations.

Hinkley C to be paid more than twice as much as German solar pv arrays

Looming large over the UK Government's EU state aid application for Hinkley C is the charge that this deal will distort the EU's internal market, in particular to undercut solar pv arrays in Germany over 10 MW in size. Such arrays are no longer eligible to receive premium prices under the German feed-in tariff system. Such plant will only receive the wholesale electricity price, which is less than half the rates to be paid to Hinkley C.

Even the German feed-in rates for smaller solar pv arrays have been reduced to well below the contract price being offered to EDF etc in the UK (see link at the bottom of this post). In addition, even in the UK the value of the incentives for British community wind power are in practice much lower than what is being offered to Hinkley C. See previous post on http://realfeed-intariffs.blogspot.co.uk/2013/10/give-community-wind-power-same-emr.html

The fact that the Hinkley C deal distorts the EU's internal market to give a state aid to nuclear power that is not available to renewable energy directly flies in the face of the EU's state aid regulations. Under these rules it is permissable to give premium price incentives to renewable energy, subject to clearance by the EU Commission that they have been applied according to the correct procedure. However, state aid for non-renewable energy, while not necessarily illegal under EU rules, has to be the subject of a special application. The issue that arises here is that the UK Government, in effect, is wanting to give priority state aid in the EU electricity market to a fuel which has no exemption over and above a fuel which does have an exemption.

There has been disquiet among the EU about the distorting effect of feed-in tariffs for renewables themselves.  See http://realfeed-intariffs.blogspot.co.uk/2013/01/european-commission-threatens-feed-in.html
But at least these renewable energy feed-in tariffs are in keeping with EU state aid law, which is more than can be said for the Hinkley C proposal.

The issue of maintaining competition rules for the internal market is a serious one since a major priority of EU energy policy is to increase the possibilities for cross border trading in electricity. Pursuant to the EU's 'third' internal energy market package, since 2009 a body called the European Network of Transmission System Operators - Electricity (ENTSO-E) has been established under EU law. It is working with the Commission and industry stakeholders to develop a pan-EU electricity trading model and ensconce this in regulations. A key reason for this is to improve the prospects for trading the increased cross border electricity flows that are associated with a build up in variable renewable electricity.

The UK is going to be increasing trade in electricity along with the others, with increased electricity interconnector capacity helping this. But what is going to be happening now? British policy will be giving a state-aided competitive advantage to nuclear power in this cross border trade over and above renewable energy. This threatens to directly contradict EU competition and internal market policy and law.

This issue will be a prominent factor in the European Commission's investigations in the UK Government's application for state aid for Hinkley C (for which it has recently notified the Commission). Renewable generators across the EU will be pointing out how the UK policy may be contravening EU law. Analysts will remember that it took a case at the European Court of Justice (ECJ) to establish the right of the German state to give premium prices to renewable energy. What would the ECJ say about a case where nuclear power was being given priority premiums in the EU electricity market against renewable energy? I can see no basis in law for this, as discussed above.

The British Government has its plans that the Hinkley C state aid consent will be given by the Commission in a year's time. Well, nuclear interests may control the British Government so that they can plan how they like, but they do not have quite the same leverage at the EU level. The EU Commission has already rejected an attempt by the UK Government to get EU state aid rules changed to allow state aid for nuclear to be included on the same basis as renewables. Added to this of course are the politics. David Cameron's Government loves regailing the Commission with talk of incompetence, waste etc, so he can expect to have no particular favour on this issue. The British Government may be lucky to obtain state-aid approval for the Hinkley C deal in just a year!

See some details on feed-in tariff rates in Germany and the UK:

http://www.renewablesinternational.net/new-solar-fits-in-germany-and-uk/150/510/71782/

In the UK solar arrays of this size will continue to be eligible for the Renewables Obligation and the so-called feed-in tariff under Electricity Market Reform. Except of course that under EMR the 'feed-in tariff' is only accessible to the major electricity companies, and, as things look at the time being at least,  independent generators will only be offered power purchase contracts by the 'Big Six' electricity companies on the basis of them taking a significant  'cut' of the 'feed-in tariff' income stream . This is the opposite of the German system where wind, solar, biomass and hydro generators have direct access to the feed-in tariff, which was originally introduced precisely to give the independent generators freedom from reliance on the utilities.

See some discussion of German wholesale electricity prices at:
http://www.carbonbrief.org/blog/2013/07/the-energiewende-and-energy-prices-public-support-and-germany%E2%80%99s-long-term-vision/

Give community wind power the same EMR terms as Hinkley C!

EDF etc have been offered terms for constructing Hinkley C which are much superior to the terms being currently offered, under the terms of Electricity Market Reform (EMR), to community wind power schemes (and also, in crucial ways, all renewables).  Hinkley C is getting £92.5 per MWh for 35 years with 65 per cent of its capital costs 'underwritten' by loans which will be guaranteed by the Treasury. 

From 2018 onshore wind is being offered, under EMR, a 'headline' strike price of £95 per MWh, but only for 15 years and without any loan guarantees. Remember that independent generators will, in reality be paid a lot less than than £95 per MWh, perhaps little more than around £80 per MWh, since the contracts for differences (CfD) feed-in tariffs are available only to major electricity companies. The Big utilites (in effect the Big Six) will cream off this sort of difference between these two figures. So £92.5 per MWh over at least a 20 year contract with 65 per cent of their costs raised through Treasury guaranteed (and therefore low interest) loans would be a very good boost for community wind power schemes  - that is if such power purchase agreements (PPAs) were directly available to such schemes. 

The Government has talked about extending the size of the schemes which qualify under the small feed-in tariff from 5MW to 10 MW. However this makes little difference as the rates payable under the small feed-in tariff are very low for anything larger than a few hundred KW. A 2 MW project, for example, would receive less than £60 per MWh.

In addition to offering Hinkley C type terms to community wind schemes, other types of renewable energy schemes could do with having much longer power purchase agreements and access to Treasury loan guarantees. Indeed the length of the PPAs for renewables in general has been cut from 20 years under the Renewables Obligation to 15 years under EMR. Tidal and wave and offshore wind schemes would benefit greatly from having access to Treasury loan guarantees. Offshore wind schemes could benefit greatly from having 35 year contracts as much of their infrastructure would last for that long. Why not give all renewables PPAs of at least 20 years and give them access to at least £10 billion worth of Treasury-backed loan guarantees? Why not give struggling solar pv companies some Treasury backed loans?

If you factor in all of the issues discussed, then community wind is much cheaper than power from Hinkley C. If it had direct access to feed-in tariff contracts, a 20 year contract and 65 per cent loan guarantees then it could put on just as economically viable schemes for around £70 per MWh  - which is about a quarter cheaper than Hinkley C.

The Government say that they will not give 20 or 25 year contracts to wind because the contract lengths are being given out in 'proportion' to the life expectancy of the power plant. They say nuclear will last 60 years, and hence will get a contract to last 35 years. In which case, then, what is all this nonsense about having to replace nuclear power stations that are about to retire? If they last 60 years, then the first of the major existing nuclear power stations (AGRs) will not retire until 2036. So why do we need a programme to replace them at all?

To recap how you can work out what community wind loses from the 'headline' wind strike price of £95 per MWh set for 2018 com pared to the terms offered to Hinkley C:

around £15 per MWh lost to major electricity companies in 'top sliced' contracts

Around £7 per MWh lost is having a 15 rather than a 20 year contract

Another £3-5 per MWh lost through having to pay higher interest rates.

Of course offshore wind schemes, which are seen as being a bit more riskier than onshore schemes would benefit much more greatly from having Treasury loan guarantees - their cost could be reduced by £10 per MWh, in addition to having costs reduced by access to 35 year contracts. Tidal and wave projects need Treasury backed loans as a virtual necessity because the technologies are still seen to be too innovative to receive conventional bank loans.

Hinkley C: A Secret blank cheque is in the post (update)

Update - well, I wrote this under the expectation that the Government would soon formally agree a contract with EDF, they would go ahead, and later on EDF would come back for more money as the project exceeded its budget with the usual construction delays.

But as Mark Johnson has kept reminding us, the contract has never been signed. It is just a proposal, and a proposal which even if issued would only partially underwrite the deal. Perhaps this is not enough for EDF and their Chinese allies. Certainly it appears that the Chinese interests want some government to underwrite the deal, whether it be the French or British Government - to issue a water-tight bank cheque. But the Treasury is saying at least that they don't want this.  But what is the case is that there is a widespread belief that this is a project that should not go ahead even among many nuclear supporters. So, as yet no blank cheque has actually been received by EDF for Hinkley C!

But, here's the bad news - Labour think tank IPPR and, it seems, the Labour Energy Team now want to offer them a blank cheque for real! See my June 2015 posting 'Pressure Grows for blank cheque for Hinkley C'

This is the version I wrote in 2013:

The Government's hoo-hah over the Hinkley C nuclear deal hides what should be regarded as a decision by the British state - after denying it for years - to give a blank cheque for the power plant. In that sense, the headline price, whether £90 or £93 per MWh over 35-40 years does not really mean very much. All it means is that the owners of the power plant will get the returns they want (provided the plant actually works) no matter how much the plant actually costs or how long it takes to build and how much interest charge is racked up in the process. The state will take the losses, and given the history of nuclear power, this is all but assured. Never mind the fact that all of the competitor renewable energy plant have to take and pay for their own risks, nuclear is to be given a special, state-bankrolled place in the firmament, with a price tag attached as a bit of window-dressing. The cost of Hinkley C, when calculated on the same basis as other generation technologies, is more like £150 per MWh or higher, depending on the assumed contract length.


The consumer is now to be locked in to a deal which will shut out what are now, and what will assuredly be even more so in the decades to come, much cheaper alternatives, and be committed to pay extra for the near certainty of extra costs in future years on top of the declared 'strike price' of £90 or so per MWh. That is a key thing to remember. The fact that this deal breaks the key Government  commitments to financial competitiveness and previous refusal to 'underwrite' nuclear costs is interesting, but secondary to this point. We are to be kept in the dark about the extent of the Government's commitments to EDF in this deal. The details will leak out in the years to come, of course, and people will ask, how can this happen? How indeed! Not only will we witness in the unfolding years the very high probability of the usual nuclear saga of cost overruns, lengthening construction schedules, and blaming of this Government by future Governments, but once again the state will have paid heavily for this technology not just as it is being built, but ultimately to dismember it and take care of its nuclear waste products for decades and centuries to come.

I have observed in the past that Hinkley C would not be built without a blank cheque - indeed I assumed that since the Government kept denying that it would agree to this, the natural assumption was that Hinkley C would not be built. But now it seems the pass has been well and truly sold. All that remains now is for us to wait for the European Commission to take its time to approve the deal, and then the tragic comedy show of what could well be one of the last (if not the last) nuclear power station(s) built in the West will begin.

There is a lot of coverage of this, but of course, see


http://www.telegraph.co.uk/finance/newsbysector/energy/10384745/Chinese-companies-to-buy-big-stake-in-next-generation-of-British-nuclear-power.html

and of course the key passage:

'Treasury negotiators are said to have made concessions on power prices, profit sharing and construction guarantees to achieve a breakthrough in talks that have teetered on the brink of collapse'

Does the deal with EDF mean the Government is handing EDF a blank cheque now?

There are reports in today’s Times of a deal between Government and EDF involving a strike price of £93 per MWh over 40 years for the Hinkley C project. This obviously involves an enormous public commitment, but how enormous is this? The terms matter very much, including,

1. What agreement is there about ‘underwriting’ the construction risk of the Hinkley C project

2. What are the terms of the £10 billion guaranteed loan 

3. Is this strike price to be 'inflation' uprated in line with CPI or RPI? (the renewable incentives are being uprated in line with the inferior CPI)

4. Are there any provisions for altering the ‘strike’ price in future in an upwards direction? 

5. Is it not the case that the ‘deal’ will allow EDF to part-complete Hinkley C having overrun costs and exhaust the £10 billion Treasury loan and then demand more money from the taxpayer/electricity consumer to complete the project?

 All of this is important in the public knowing what the extent of the liabilities to which the electricity consumer and the taxpayer is being committed. Certainly, just on the basis of the strike price payments, without any of the public risk undertakings being included, this means that the public would be committed to paying around £100 bn to EDF for the electricity generated.  Assuming a wholesale electricity price of £50/MWh (roughly what it has been recently), this means a public ‘excess’ payment of at least over £40 billion over this period over and above what is likely to be needed to get the energy from other sources – and even this £40 billion plus excludes the costs of the risk of the project which is being supported by the taxpayer through loan guarantees. The project is said to cost £14 billion.

The prospect of a public underwriting of £10 billion loan guarantee could potentially mean that the nuclear power station could be part-built, that the project costs could overrun, and that the taxpayer would then have to come up with even more funds to complete the project under a further funding regime, much as what happened with Sizewell B.

That is what could happen if EDF gets what could well be (depending on the detail) a blank cheque for the project. The question is will we get to know about the extent of our commitments, or will we, as usual with nuclear power, only find out some of the extent much later on? Remember, just before the 2010 election the Conservatives said that they would not agree to the costs of nuclear power being underwritten by the Government. 

What is certain is that when all added together, the costs of getting energy by paying for electricity from Hinkley C are more than what it would cost people to get the same amount of electricity from renewable energy sources such as wind power and solar power, not to mention various energy efficiency possibilities.

Why the Government's planned renewables programme is mostly fantasy

Publicists at DECC and the Treasury deserve credit for convincing people that renewable energy will continue to build up at much the same rate as at present, because close inspection of the plans reveals that behind the smoke and mirrors the incentives for renewable energy planned under Electricity Market Reform (EMR) are being severely cut back. Indeed the Government plans really do deserve the description of fantasy since the public debate about the alleged impact of so-called renewable 'subsidies' on energy prices has very little real connection to what Government policies will actually produce.

The bulk of the incentives that are alleged to help new 'green energy' will be bound up with the 'carbon floor price' mechanism, which, since it is really a carbon tax, will serve as a revenue raising device for the Treasury and a cash cow for EDF's old nuclear power stations, but will have no discernable impact on developing new renewable energy schemes. The rest of the incentives will only be spent at a low level since they are set at such a puny level that little development will take place. The Government's 'green deal' for energy efficiency is practically a joke (with a miniscule uptake) whilst the incentives for renewable energy will be sharply reduced compared to the incentives currently available under the 'RenewablesObligation' (RO). On top of this the Government continues with a pantomime presentation about how 'community renewable' schemes will be given extra support whilst the reality is that the incentives on offer amount to much less than schemes organised by the Big Six and, incidentally, barely half the headline rate that has been suggested that nuclear power should receive (with nuclear power getting loan guarantees and much longer contracts to boot).

You might ask how the Government is able to get away with this. I wonder too. The renewable trade associations are the obvious candidates to shake the tree about what is happening (or not happening) on the renewables front, but they are probably worried that a more aggressive stance will lead to the disappearance of even the meagre incentives that are already on the table. Certainly some of them are funded through membership subscriptions by companies associated with the Big Six who are anxious to hang on to the excess profits they make from onshore wind power under the Renewables Obligation. They may see it as compensation for losing the income from their power stations that results from having more renewables online.   But it is notable that the quiescence of the renewable trade associations stands in contrast to the aggressive and well-resourced campaigns by EDF to push their case for ever-more types of support for the proposal at Hinkley C.

As I commented in the previous blog post, the proposals under EMR will mean that renewable energy subsidies are cut by around 15 per cent under the guise of having more cost-effective contractual arrangements using a feed-in tariff. The headline figures for the incentives are much the same as in the case of the RO, but the terms are very inferior, with less allowance for inflation and the contract length during which the premium prices will be paid reduced from 20 years under the RO to 15 years under EMR.

But as explained in the previous blog post, this will simply mean that the onshore wind developers, who are beholden to the Big Six to get power purchase agreements, will get their income stream reduced by large amounts compared to what happens under the RO. The point is that the RO implicitly gives the Big Six  a substantial 'creamed off' incentive to give contracts to supply electricity to the actual renewable developers. The Big Six will still want their cut under EMR, so, in effect, the developers will get their real income stream considerably reduced. This will mean a lot fewer projects going ahead even onshore, and there are unlikely to be many (if any) offshore wind projects going ahead. The Big Six seem to work within tighter margins in the offshore sector, so reductions in support there simply mean that very little development will take place under the incentives available under EMR.

The only way that the feed-in structure could work, for onshore schemes, given the incentive levels offered, would be to offer the contracts directly to the independent renewable developers (including the community projects). But Ed Davey has flagrantly failed to come up with a scheme to do this. Instead he appears to be allowing a system that will continue to allow the Big Six to cream off their excess, unearned, 'economic rent' from the onshore wind sector. The feed-in tariff scheme is effectively only available to the major electricity companies. It amounts to a cruel political joke to compare this contorted so-called feed-in tariff to the German feed-in tariff mechanism scheme when the whole point of the German scheme is to give rights to independent developers rather than the utilities. The ugly British version does the precise opposite! We should call the system something else. I shall call it the 'Big Six Utility tariff'. I encourage all readers to follow suit.

The Government is currently pushing proposals to expand the remit of the small feed-in tariff schemes up from 5 MW to 10 MW, in doing so giving the impression that all is well with community renewable interests. But this is an even worse piece of fantasy than the claim to be funding larger scale renewables. Under the current scheme the rates set for schemes larger than 1.5 MW are so derisory that nobody would ever bother using this mechanism for a project of this size. Extending the remit of the small feed-in tariff scheme is nothing but a smokescreen for a complete failure to incentivise the community renewables sector on a commercial basis.

At the end of this blog post I paste below some links to the tariff structures for pv and non-pv feed-in tariff rates to demonstrate what I mean.

Perhaps the scale of the Government deception is obscured partly because, under the RO, wind power deployment has been booming over the last 2 years. But that fact is itself largely explained by the knowledge among the industry that the good times are coming to and end. EMR will be phased in from next year until 2017, and advance power purchase agreements available for developers are becoming scarce even during the phase-in period. But whereas some renewable energy development has been growing at over 2 GW a year in the recent period, it is difficult to see how development will be more than 500 MW per year after 2014.

We do hear tales of tidal schemes being given planning consent in the Pentland Firth. But there is a lot more fantasy here, because the banks are unwilling to lend to these still innovative projects without loan guarantees. So unless they get the same sort of 'underwriting' loan guarantees that Hinkley C will need to go ahead, none of the substantial wave or tidal schemes will go ahead.

When David Cameron implies that renewable incentives can be cut, far from overstating the case he is actually understating it. The incentives are being cut back drastically, and the Lib Dems are proving to be little more than alibis to provide cover for this reality.


https://www.ofgem.gov.uk/ofgem-publications/58940/fit-tariff-table-1-april-2013-non-pv-only.pdf

https://www.ofgem.gov.uk/publications-and-updates/feed-tariff-scheme-tariff-table-1-october-2013-31-december-2013-pv-only

Will somebody tell the Lib Dems that the Tories have ALREADY cut renewable subsidies

Liberal Democrat ministers are anxious to say that they will stop Tory plans to cut renewable energy subsidies, but this is undermined by the fact that the premium prices paid for renewable energy have already been sharply reduced as a result of Electricity Market Reform (EMR). According to the Lib Dems the Tories cannot cut the rates payable to wind power and other renewables because they are being set in law under the EMR legislation and regulations. See http://www.theguardian.com/environment/2013/oct/07/lib-dems-tory-renewable-energy-subsidies

Well, that makes much less difference than it seems. The Lib Dem claims ignore the fact that the rates payable for wind and solar power are being slashed by large amounts under the EMR settlement - that is compared to what is paid (currently, and until 2017) under the Renewables Obligation (RO).

Under the RO the total income stream payable for onshore wind is around £95 per MWh and £135 per MWh for offshore wind, both payable for 20 years and at inflation adjusted rates according to the Retail Price Index (CPI). Although the EMR rates from 2018, at £90 per MWh for onshore wind and £135 for offshore wind look superficially similar to this they are undermined by three important factors.

The effect of these factors is to reduce the equivalent value to what is now paid through the RO to around £82 per MWh for onshore wind and around £117 per MWh for offshore wind (according to my spreadsheet calculations).

There are two principal reasons for this (about 13 per cent) reduction in the value of the income stream under EMR compared to the RO. First, the length of the period during which the premium price is payable is reduced from 20 years under the RO to 15 years under EMR. Second a different form of inflation adjustment is being used to calculate the future premium levels. The Consumer Price Index (CPI) is being used for EMP uprating which, because of its mode of calculation, fails to keep pace with price increases in the real world. The more accurate RPI is used under the RO.

Then there is the third factor. The story put about in defence of these reductions is that because of the 'firm'contracts available under the EMR, as opposed to the relatively greater uncertainty about future income streams under the RO, means that the EMR payments reduce 'risks' and therefore investment costs. So, it is claimed, the costs of developing projects are reduced.

But in reality this will not happen because of other elements of EMR. You have to remember that the RO has worked on the basis of giving a big cash handout to the Big Six electricity suppliers to give contracts (power purchase agreements) to renewable generators to supply them with electricity. In doing so the Big Six electricity majors could cream off a lot of the income stream under the argument that they were giving firm contracts to the generators (often owned in alliance with the Big Six themselves) and taking the 'risk' themselves. The renewable generators themselves would only get a portion of the total income stream available for renewable projects.

So what the Government has done, in effect, is to remove the 'cream' that was being absorbed by the Big Six. But the Big Six will still want to earn their own cut, but will do so by giving the renewable generators rather less than they were receiving before.

Of course if we had a 'fixed' feed-in tariff this problem would be reduced since independent renewable generators could access the premium price contracts directly, so avoiding having to pay the ''cream to the Big Six. But they cannot do this under EMR because the 'contracts for difference' (CfD) can only be accessed by major electricity companies. See earlier blog posts about all of this.

So, in effect, either the Big Six are expected to give contracts (power purchase agreements) to independent renewable generators and forgo the creamed-off-profits they are used to under the RO, or they will cut the value of the 'firm' contracts that they give to the independents. The outcome is likely to be that the Big Six will just cut the value of the PPAs that they give out to the renewable generators. This means that the annual rate of renewable energy deployment will fall considerably. Many projects that would be built under the RO  will now be uneconomic

Of course Ed Davey could have fought harder to ensure that the independent generators had a better mechanism for gaining PPAs, whether through a fixed feed-in tariff mechanism or through the 'green power auction market' (GPAM) proposal. But he has not done this. He has, after various signals suggesting he could do otherwise, come out with a proposal that will allow the Big Six to carry on making their unearned income out of renewable energy project. In effect, he has well and truly sold the pass while claiming to do otherwise.

Ed Davey, by the way, has been claiming that he will not agree to 'underwrite' investment costs Hinkley C. According to press reports, he is about to sell the pass on that one too. If he does will have the ugly prospect of a hamstrung renewables programme whilst a blank cheque being given for new nuclear power. But whatever happens, if Lib Dems claim to be able to stop Tory cuts to renewable funding, they are wrong. They have already not only sanctioned it but connived to see this change hidden behind Treasury smoke-and-mirrors.

Labour price freeze pledge will mean cancelling carbon tax increase

Ed Miliband's headline grabbing pledge to freeze energy prices unti 2017 must mean the cancellation of the planned increase in the 'carbon floor price' brought in by the Coalition Government.

The carbon floor price is set to increase sharply. The carbon floor price, a Treasury tax that keeps up carbon prices in the UK, effectively pushes up electricity prices because the increased price of carbon allowances (associated with the EU's Emissions Trading System (ETS) makes electricity from gas and especially coal more expensive. According to the Government's plans it will increase prices significantly by the likely general election date in 2015. But it is set to increase thereafter as well. If Ed wants to freeze electricity prices he will have little alternative but to cancel the proposed increase. See details of the projected price rises at:

http://www.hmrc.gov.uk/budget2013/tiin-1006.pdf

But what is in doubt also is that George Osborne will be able to sustain the increase until then anyway. A fall in energy prices may make this politically possible, but otherwise pressure will mount against what is really a carbon tax. The majority of the proceeds go to the Treasury. You may ask why I, as a green energy supporter, might not be too upset that this increase is cancelled. Well, the truth is that the carbon floor price does next to nothing to encourage new green energy investments because of the uncertainty about the future levels of the tax. All the carbon floor price does is, for the most part, keep old nuclear power stations running and give EDF a financial boost.

Offshore wind, energy efficiency, solar pv  loses out in favour of more tax receipts

Really it would be much better to have a smaller tax and target it to be spent on energy efficiency, offshore windfarms and solar pv. See Transform UK for their programme on energy efficiency and the failings of Treasury policies at http://www.transformuk.org/en/articles/932/budget-chancellor-gives-no-help-to-households-to-bring-down-/

Feed-in tariffs for offshore windfarms are set to fall to £135 per MWh after 2018. This sounds a lot, but the small print on the Government's EMR programme is that the government's version of feed-in tariffs aren't anything like as high as they appear when compared to the effective payments available under the existing Renewables Obligation (RO). That is because the Government's terms for the new feed-in tariff are very inferior to the RO. For a start the premium prices will only run for 15 years as opposed to 20 under the RO. Secondly there will only be a partial inflation adjustment since the 'consumer price index' (CPI) will be used which simply fails to keep pace with inflation that is more accurately measured by the Retail Price Index (used to uprate inflation under the RO). So £135 per MWh is more like £115 per MWh when compared on the same terms as the RO.

The Government are using smoke and mirrors to engineer a policy that claims to deliver green energy but in fact delivers little but higher tax income and more  money for EDF.

Can Ed think of a better policy than this? I hope so, because for offshore wind after 2015, and solar pv and energy efficiency even now,  it could not be much worse under current Government plans

Eurosolar co-operative prizewinner to speak at event discussing what makes for success in community renewable energy schemes

How can community renewable energy schemes be successful?

A half day seminar at Aberdeen University – sponsored by the School of Social Science, University of Aberdeen

This seminar will look into factors that affect the success of community renewable energy schemes, and innovative means of achieving this. Attendance is free of charge. Henning Davidsen, organiser of the prizewinning 'Hvide Sande' cooperative wind power project will be among the speakers.

Date and time: Wednesday November 20^th, 12-5pm, University of Aberdeen, King St, in room NK14, New  Kings College Building on the main University (Kings College) campus. If you want to attend,  register with David Toke by sending an email to d.toke@abdn.ac.uk and you will receive further details.

Schedule and Speakers:

12.10-12.30 – tea and coffee

12.30 – 12.50  -Dr David Toke, Reader in Energy Politics, University of Aberdeen

‘An overview –accounting for success in renewable energy cooperatives’

12.50 – 1.30 - Felix Wright, Policy and Innovation Manager, Community Energy Scotland,  – ‘Reflections on Community Renewables programmes in Scotland’

1.30- 2.10pm-  Henning Davidsen – Coordinator of the Holmsland Tourism Association in Hvide Sande, Denmark, which acted to establish a 9 MW wind power project using an innovative Trust Fund mechanism to underpin a cooperative. The project has been awarded the European Solar Prize by Eurosolar 2013. -

'How Hvide Sande got its windmills through a cooperative effort'

2.10- 2.35 Dr Richard Cowell – Reader in Environmental Policy and Planning, University of Cardiff, 'Community Renewables in Wales and Beyond'

2.35-3.15 Professor Frede Hvelplund - Aalborg University, Denmark,  'How community renewable energy schemes help integrate fluctuating renewable energy sources into the grid'

3.15-3.30 coffee break

3.30 –  3.55 Dr Claire Haggett, Lecturer in Sociology of Sustainability, University of Edinburgh  ‘Social factors that influence the success (or not) or community energy projects’

3.55 – 4.20 Professor Peter Strachan, Aberdeen Business School, Robert Gordon University, ‘How can the mainstream industry help renewable energy cooperatives?’

4.20 – 4.45pm Community Energy in Aberdeen 

4.20-4.30 - Laurie Robertson (PhD student, Department of Scoiology), Aberdeen University 'Pitmedden Community Wind Turbine - how did it come about?'

4.30-4.45 - Nick Carroll, farmer and wind power planning consultant (recently gained consent for a 800 KW machine on his land): 'Farmers and Wind Power'.

4.45 – 5pm – Discussion and close

For a report of this seminar, see http://blogs.scotland.gov.uk/coastal-monitoring/2013/12/19/community-renewable-energy-schemes-in-scotland/

Greens now only anti-nuclear party as Lib Dems go radioactive

So now the only anti-nuclear British political party is the Green Party, or two to be precise since the Scottish Green Party and the Green Party of England and Wales are separate. The Lib Dems leadership, in making an issue of this topic is clearly placing what it sees as a priority of looking like a 'centre party' ahead of appealing to radical interest groups, including the anti-nuclear movement. It is ironic that the Lib Dems are doing this at a time when the chances of any new nuclear power stations have receded into near oblivion. The only possibility for them being built is for the Government to put the interests of nuclear power before all other energy interests (including renewable energy and energy efficiency) and re-nationalise the building of new nuclear power stations (why not nationalise funding of offshore windfarms and solar farms instead?). Even the Tories don't seem keen on this, so why does the Lib Dem leadership seem so keen on advertising its backwardness on this issue?

The Guardian editorial made some good points on this:

 http://www.theguardian.com/commentisfree/2013/sep/15/nuclear-power-limits-compromise-editorial

 But this is good news for the Green Party(ies). They can now campaign on the basis that they are the only party with a future-looking sustainable energy strategy. As Caroline Lucas said after planning consent was given for Hinkley C:

 "Nuclear is a dangerous distraction from the truly ambitious energy policy we need – one which focuses on renewable energy and energy efficiency, and which would deliver more jobs, faster carbon reductions and a fundamentally more democratic energy system fit for the future."

 See: http://www.carolinelucas.com/media.html/2013/03/19/nuclear-green-light-for-hinkley-is-bad-news-for-the-taxpayer-and-bad-news-for-our-energy-future/

 What continues to be odd is how the mainstream press continue to describe nuclear power as a 'green' option in the context of nuclear power being opposed by the policies of the main green NGOs (FOE, Greenpeace, RSPB etc) and the Green Party itself. I think that green activists ought to be shouting that nuclear is the very ungreen 'dirty-expensive-industry-as-usual' option that is supported by the ungreen political establishment. The Conference decision by the Lib Dems to back nuclear only emphasises this cleavage between the green movement and the establishment parties on this issue and makes the continued efforts by the political and industrial establishment to call nuclear a 'green' option banal.

So let us write in and object when newspapers call nuclear power green. How can nuclear power be called 'green' since they are not 'green' in a political sense since they are completely at odds with what the representatives of green movement organisations are actually saying?

 The Green Party clearly has the only green policy which embraces clean energy sources and opposes dirty energy such as nuclear power, and of course the Government’s promotion of fracking for methane. It certainly gets my vote. Why not yours?

US Congress vote on Syria: a precursor to western involvement in a regional war?

President Obama's announcement that he will give Congress a vote on whether to attack the Assad regime may seem like a step back from the brink of military action for now, but it is just as likely to re-boot a slide towards ever-deeper western involvement in a widening Middle East conflict.

No doubt Congress, egged on in the spirit of response to '9/11' (what has that got to do with the Syrian civil war?), will give enough legitimacy to Obama to launch the missiles at Assad and his men. Obama will proclaim that this is a ‘limited’ action. But far from being limited, in reality a precedent will have been created that will suck the west ever deeper into the Syrian civil war. The 'limited' strike will achieve nothing except to inflame the already insoluble carnage. Very little damage will be done to the Assad war machine. More atrocities from the Assad regime will follow (with the anti-Assad atrocities receiving less publicity in the west). The action will be condemned as a failure. But paradoxically this very failure will be used as the argument for further action by the west. Plans for 'no fly zones' will be drawn up and implemented and bit by bit we will be part of the war with the Assad regime.

 There will be the added danger that we are up against, in this dispute, not some isolated tyrant as in the case of the Libyan intervention, but a deadly combination of not just bewildering ethnic and political complexity but the involvement of forces with which the west is already almost at war. These include Hezbollah and Iran - not to mention a Russian presence with whom we could, in theory, actually come into military conflict. Remember the Russian's have their own military base in the Syrian port of Tartus.

The situation in Syria is so convoluted and so toxic (in many different meanings of the term) that the results of growing western intervention, will, in hindsight make western intervention in Iraq look like a blinding success by comparison. In Syria, realistically, the best that can be hoped for in the medium term is a cease-fire that will, for the foreseeable future, create an effectively divided country - with a severe danger of an internal civil war simmering amongst the rebels (and a lot of them no friends of the west). Even if western action did succeed in defeating the Assad regime, at very great cost, the ethnic divisions would remain, and rear up soon again, just as they have done in Iraq. Western involvement will make a mockery over our efforts to mediate between Israel and Palestinians since the Syrian civil war, with western involvement, will extinguish the already flickering hopes of progress. In a worst case, but still plausible, scenario, western involvement could promote a wider regional conflagration.

 It is tremendously ironic that the west is cranking up its expensive war machines for 'humanitarian' purposes, when Syrians inside the country are dying and starving. Yes, they want ‘their’ side to win and be helped by the west, or Hezbollah, or whoever to help them 'win'. But if humanitarian assistance is really our aim, and not just the use of this emotive appeal to promote more war, then we should be spending on genuine food, refugee relief, medical help, not in spending on the firing of tomahawk missiles.

 

DEFRA poised to cover up negative impact of shale gas on house prices

Owen Paterson's much publicised prospect of what appears to be a contrived attack on the 'rural economic' impacts (on house prices one presumes) of onshore windfarms is most likely to feature a big cover-up of the impacts of shale gas extraction on rural economies (and house prices!). DEFRA has commissioned a report on the subject of the impact of energy activities on rural economies (ie constituencies that are largely held by the Tories and subject to loss of votes to UKIP).

 

The simple fact is that there is no data on the impact of shale gas extraction on rural economies in the UK since, as yet, there is no shale gas extraction! Therefore DEFRA will be able to commission research on rural impacts of shale gas extraction safe in the knowledge that no impacts for shale gas will be discovered and that it can interpret the future for shale gas extraction as being wonderfully rosy.

 

Now, I have never heard of a report that has been commissioned by a government department about energy that does not support government policy and satisfies the political aspirations of the government in power. In this case DEFRA is under the control of a politician who doesn't like windfarms but does like fracking, and DECC is run by a politician that supports both windfarms and fracking. Hence the end result is likely to be a report that is moderately critical about the impact of windfarms on house price but says that fracking will have a clearly positive effect on the local economy.

 

In fact the evidence from the US, in so far as it is comparable, suggests that the impact of shale gas on house prices is likely to be significantly negative. I base this on a report done by academics at Duke University. They identified a positive effect on property prices associated with an increase in land values because of the mineral rights that go with them (in the USA), but, on the other hand, a very big negative effect (a 24 per cent decline) impact on property prices owing to fears about groundwater contamination from shale gas extraction.

 

Now the point to make in comparisons with the UK is that here mineral rights do not accrue to the landowners as in the USA but to the Government. This means that there will be no positive pressure on house prices UK if shale gas is extracted nearby, but only negative effects from perceived loss in value because of fears about pollution.

 

Now I am confident that, despite the uncertainty, such fears will be brushed off or consigned to report annexes by DEFRA in favour of headline attention to be given to allegations about declines in house prices caused by windfarms. In fact the research here is rather inconclusive, and does not imply a significant negative impact. There may be small effects at the time of the planning application process when anti-windfarm campaigners are in action, but little if any lasting impacts on properties close to the location of the windfarm.

 

In short, the danger to house prices is likely to be much higher in the case of local shale gas extraction than it is in the case of nearby windfarms. Of course this message certainly will not be broadcast by DEFRA. Instead there will be a lot of talk about extra money to local communities being made available (as in the case of winfarms), even though this will have no impact on house prices themselves. House prices, of course are the top concern in the world for many readers of the 'Daily Telegraph' and the 'Daily Mail'.  Fears about shale gas extraction will be brushed aside on the basis of analysis of 'objective' evidence. Of course as we social scientists know, what matters is what people's perceptions are, not what specially appointed government scientists say. In this case there is a lot of uncertainty revolving about how people interpret the uncertainty, if you see what I mean, and some evidence from the USA that pollution fears will have a significantly negative effect on property prices.

 

The history of energy policy in the UK is replete with Government reports written to satisfy particular interest groups and to justify what the Government held to be its policies. The reports may thus be erroneous, and do not stand the test of time. In recent years we have witnessed a string of government reports explaining, for example, how cheap nuclear power is. Eventually reality catachs up, as it will, no doubt, in the case of house prices and shale gas.

 

You can see a summary of some research into the impact of windfarms on house prices at

www.parliament.uk/briefing-papers/SN05221.pdf

 

 

You can see the report on the impact of shale gas extraction on US property price at

http://public.econ.duke.edu/~timmins/w18390.pdf

 You can see some coverage of the proposed DEFRA report at:

http://www.businessgreen.com/bg/news/2290666/reports-defra-to-examine-impact-of-wind-farms-on-house-prices

 

 

 

King backs solar after Monbiot attacked King for backing nuclear

David King, former Chief Scientist for the UK Government and perennial nuclear power champion has boosted establishment support for solar power by urging a major effort to ensure that solar pv can supply 'bulk power' at unsubsidised prices by 2025. You can see the article at:

 http://www.ft.com/cms/s/0/71d11096-fa14-11e2-b8ef-00144feabdc0.html#axzz2atiyZtzc

 David King has, hitherto, appeared to put a high proportion of his efforts to combat climate change behind support for nuclear power, so this is a most welcome change of emphasis, though I suspect he has not yet realised the pointlessness of continuing to promote nuclear power. I don't know what has changed his mind.  I would like to think that my previous observation that the apparent wish of scientists to support nuclear power reflected their status as old males rather than that they were scientists has persuaded him to be a bit more forward-looking. However, probably he doesn't read my blog. I suspect that it is the reality of rapidly expanding deployment of solar pv at much reduced prices that has proved persuasive.

 
Some of you who are used to George Monbiot's support for nuclear power and sometimes quite outspoken attacks on support for solar pv may be confused by my headline on this blog post. It may be a bit postmodern, but it is still the case that George Monbiot DID attack David King for his support for nuclear power. This was back in 2005 when Tony Blair announced the need for new nuclear power stations, and David King joined in to support this argument. George Monbiot said:

'Sir David may have political reasons for “trying to sell” new nuclear power stations – at the Labour Party conference Tony Blair said he wants to re-examine the nuclear option...- but he would, I suspect, have as much trouble identifying a scientific case as he had at the meeting last month. The figures leave him stranded'

 I couldn't agree more with this comment, and George quoted a report from Amory Lovins which pointed out how uneconomic nuclear power was compared to renewable energy sources such as wind power. What has changed since 2005? Well, the nuclear industry's PR campaign that there was a new cheap generation of nuclear power stations has proved to be as nonsensical as all of such claims over the last 50+ years. But solar power has gotten a lot cheaper. So it is a pity that George Monbiot changed his view and decided to support nuclear power and started making prominent attacks on the viability of solar pv.

 You can see George Monbiot's blog post at:

 http://www.monbiot.com/2005/10/25/our-own-nuclear-salesman/

 Meanwhile there is more bad news for nuclear power prospects (not that there is likely to be any good news!). EDF has postponed a 'decision' on whether to give final investment go-ahead to Hinkley C yet again.  A highly resourced PR campaign is dedicated to perpetuating the myth that the project still has life in it. The fact is that the Government has already offered better terms to nuclear than is being offered to renewable energy, so it cannot really be expected to go any further unless it decides to tear up Thatcherism and reinvent a nationalised energy industry. Ed Davey says about as much in another recent interview. See

http://www.building.co.uk/sustainability/sustainability-issues/interview-ed-davey-energy-secretary/5058198.article

Of course the Government seeks to keep up appearances that nuclear is not dead. There are still too many older males who cling to their youthful expectations for 'atoms for peace' that they learned at junior school in the 1950s!

The Government managed to pour balm on nuclear supporters at the time of the budget by offering a stupendous £10 billion of loan guarantees (and promises of 35 year contracts) for Hinkley C in June's budget. This surprised me and looked for a moment that the Treasury had been hit by something and made to offer a blank cheque for nuclear. But it seems that the PR effect, once again, may have hid something rather more modest. It is not just that the Treasury do not want to give the strike price that EDF want, or index it to inflation in the way that EDF prefer, or give (and this is the big one) an 'underwriting' guarantee for the whole project, but the Treasury loan guarantee itself may not all be exactly as it might seem.

It has been pointed out to me that something similar to what happened in the USA with nuclear power may be going on in the case of the Treasury ‘offer’. Despite the fact that the US Government is offering many billions of loan 'guarantees' for nuclear power, the only nuclear power projects (in South Carolina and Georgia) that are going ahead have what effectively amounts to cost construction 'underwriting' agreed by their state regulatory agencies. This is possible because their electricity companies are monopoly suppliers. But in other states the nuclear loan guarantees have proved unworkable. This is because the US Government has demanded that the nuclear companies take out insurance on the guarantees. The point here is that unless the state, at some level, offer an underwriting guarantee, the cost of insurance will be very large indeed, jacking up the required rate of return for the project up to much the same level as if the loan guarantees did not exist. The Economist, which discussed this situation in an article in 2010, mused that maybe this was a way of the Obama Government appearing to back nuclear power whilst in reality not offering a loan guarantee scheme that was as useful as it appeared in PR terms.

Could the British Government be involved in a similar exercise to the US Government? There could be more similarities between Conservative approaches and the Obama Administration than the mere sharing of election campaign advisers!

See the 2010 Economist article:

http://www.scribd.com/doc/45932259/The-Economist-2010-10-16 page 75

Like the Obama Administration, the British Government does not want to be held responsible for loading up the British state and taxpayer with the consequences of near-inevitable nuclear cost-overruns.
 Remember: nuclear power is a dead duck; it is just some people don't realise it yet!