Tuesday, 26 March 2013

Government admits nuclear power is a dead loss

The Government has issued its policy document 'Long Term Nuclear Energy Strategy' today. Here I 'translate' some key passages to connect it up with reality and to emphasise how, reading between the lines, the Government more or less says that nuclear power is a dead loss. Please note that my translation is in italics.

page 5
'the future of nuclear power will depend on it being able to compete effectively against other forms of low carbon electricity generation'. Translation: ' At the moment nuclear new build seems very unlikely. EDF is demanding some jaw-droppingly expensive terms and conditions for building Hinkley C which are way over and above what any government could stomach, let alone one that is cash-strapped and containing Liberal Democrats.

page 6
'the size of the nuclear programme will depend on the effectiveness of developers initially being able to build to time and budget, and subsequently being able progressively to reduce costs through experience and economies of scale.' Translation: The nuclear power industry seems incapable of building in anything like the time or costs originally projected, and all the experience so far has proved that the industry is prone to monumental catastophes which have more than neutralised any scope for cost reduction.

page17
'Government challenges the nuclear industry to reduce the levelised costs of new nuclear generation and will work with the Nuclear Industry council and the R&D community to do this'. Translation: The industry had better reduce its costs dramatically, because at the moment it has not got a snowball's chance in hell of doing any building. There's very little chance of doing this really, but to keep the nuclear industry happy and off our backs we will throw them a few nice juicy sops of taxpayers money for R&D and so on. George will let us spend this provided we don't rock the boat too much.


page 18
'Nuclear is cost competitive with other generation technologies and in the future it is expected to be the cheapest low-carbon source of electricity, so it can keep bills down and the lights on'. Translation: Nuclear might just about be cost-competitive at the moment with wave power, but very little else, and it is quite possible that even wave power will be more cost-effective that nuclear power in a few years time. But compared to sources like onshore and also offshore wind, and increasingly solar photovoltaics, nuclear is a dead loss. Lots of us at the Department of Energy and Climate Change have been saying that nuclear is the cheapest low-carbon source of energy in the past, but all of these statements are now 'inoperative'. However, we still want to be a bunch of wishful thinkers who firmly believe in the future of nuclear power because we learned this at school and clever people like David Mackay and David King keep telling us that this fairy story will one day come true.

The actual document can be read at:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/168047/bis-13-630-long-term-nuclear-energy-strategy.pdf

22 comments:

  1. Hi David.

    Most news sources now put the likely strike price for the EdF HPC plant in the region of £95/MWH, which would be considerably cheaper than any form of renewable low-carbon technology - this is directly contradictory to what you claim in this article.

    Note also that under the UK nuclear legal framework the private energy company will fully take the risk of any construction cost or timing overruns.

    Your article therefore seems rather disingenuous.

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    1. Dear Alex,

      Well, I have made a mistake in that I have assumed that people have read my earlier posts, in which case they would understand just how uneconomic nuclear really is - I take it you have not read my earlier posts. A headline strike price (£95 per MWh) cannot be simply compared with the strike prices for renewables since a) renewables are going to be offered much shorter contract lengths - 15 years, whereas EDF is demanding contracts to receive the subsidies for 35-40 years. Hence even for the same headline price Hinkley C would be getting more than twice the level of subsidies compared to the renewables b) In fact onshore wind will be offered a much lower strike price anyway - something like £80 per MWh for 15 years (note, not 35-40 years). The Government wants to offer offshore wind £100 per MWh, but only for a 15 year contract, so offshore wind could be given rather more than £100 per MWh for a 15 year contract and still get less than EDF would get in subsidies for Hinkley C. c) A crucial point that you have missed is that whilst the renewables would shoulder the risk for construction costs, EDF is demanding that at least part of the construction costs would be underwritten (I suspect this would end up as all of it being underwritten eventually). So, you see, I stand 100 per cent by my assertion that renewables are cheaper than than nuclear power. You will also get increasingly larger quantities for solar pv for less subsidies than what you would have to pay developers of new nuclear power as well.

      You say: 'under the UK nuclear legal framework the private energy company will fully take the risk of any construction cost or timing overruns'. Well yes, that is the basis of EMR, which in itself is a good principle, and this will ensure that no nuclear power stations are built!

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    2. David I'm afraid those arguments are largely disingenuous too. Taking them in turn:

      a. "...for the same headline price Hinkley C would be getting more than twice the level of subsidies compared to the renewables"

      You miss the fact that the lifetime of a new nuclear reactor is expected to be between 60 and 80 years, with the CfD therefore covering between just less than half and two thirds of that period. On the other end of the spectrum the lifetime of an offshore wind installation is 15 - 20 years and solar similar, representing CfD coverage of 75% - 100% of operational life. This means that actual subsidies are considerably (several multiples) greater (as you must compare both the solar/wind plant AND two sets of replacements to cover the same time period).


      b. Offshore wind gets the benefit of several subsidies and effective-subsidies on top of the strike price. Core amongst these is that the UK Electrictiy Grid distributes transmission costs equally amongst generators despite the fact that offshore generation results in many times greater transmission losses. A CfD strike price of £80 therefore actually represents a cost to taxpayer of closer to £130 and this is borne out by every study on the issue (which I will happily quote if you contest this point).

      c) This is almost certainly factually incorrect. Please cite credible sources (perhaps different ones to the previously cited evidence on this blog that EdF was demanding a strike price of £165....). All public statements by both EdF and the Government express the exact opposite, and this is supported by the statutory framework for nuclear power in the UK. Note that underwriting political or market risk (which are in any case inextricably linked) IS NOT the same as underwriting construction risk.

      "d)" Solar PV in Germany, the posterboy for solar use, has an annual Load Factor below 10%. Solar isn't a replacement for baseload production any more than wind is.


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    3. Ok, Alex, let's go through these points. a) Well, independent city analysts like Peter Atherton have come out with the £165 per MWh figure for Hinkley C as well, and it's not difficult to do the spreadsheet analysis on this. Sure nuclear power plant can last a reasonable length of time (although a lot of the British ones have been retired after about 40 years so far) but offshore wind would do really well with a contract length of 35-40 years, with a highish premium price for the first 15 and then it could make do with maybe as low as £60 for the next 20 years because they could build the piles/jackets a bit bigger at first and then re-blade them later fairly cheaper with the bigger and more advanced designs that are coming along all of the time. And you will find that both the Government and the industry are confident that they can do this for an initial 15 year strike price below the £140 per MWh you quote. This means that overall offshore wind will need overall much less subsidy over the 35 years contract than nuclear does. And anyway, what is the sense in the Government locking in consumers to pay high subsidies to nuclear and locking out other future options that could well prove a lot cheaper?
      b) It is pretty rich for nuclear supporters to talk about indirect subsidies given the £6 billion the treasury is spending every year on dealing with nuclear waste, not to mention guaranteeing insurance liabilities
      C) EDF is clearly on record in requesting underwriting of part of the construction costs -it has been covered in the Financial Times and the Telegraph quite a lot recently (eg http://www.telegraph.co.uk/finance/newsbysector/energy/9863994/EDF-eyes-UK-government-help-for-nuclear-reactor.html. In addition the DECC Select Committee effectively carries the message that nuclear supporters want full underwriting in the end. See the recent DECC Select Committee report on this.
      d) There are lots of ways of dealing with variability of renewables, and National Grid is on record as saying they feel that nuclear is actually less predictable than renewables. Nuclear needs a lot of back up too because when they go offline unexpectedly they can cause widespread power outages. They are also inflexible and are no use to meeting peak demand. See comments by the National Grid in http://www.carbonbrief.org/blog/2013/03/interview-with-the-national-grid
      You may not like this, but I'm not being 'disingenuous' as you suggest.
      But thanks for the feedback.



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    4. Thanks for the reply David. I always enjoy engaged discussion on this kind of topic with someone willing to support their argument.

      a) I accept that some analysists predicted ~£165 early/mid 2012, however I feel that this has now been discounted (pun!) and the accepted view is that the final strike price will be sub £100, supported by the most recent information leaking from the negotiations. Would you accept that a strike price of £95 for nuclear, if agreed, would mean that nuclear is in fact a good option on price compared to other renewables?
      The reason that Nuclear needs a longer CfD period is the upfront capital cost (which is overwhelmingly the vast majority of the total lifetime levelised cost) is so enormous. This is also why a period longer than 15 years isn't appropriate for wind - its simply not justified by the initial capital cost which in any case has fully paid itself off + investor returns by the end of the CfD period. Its pretty simple really - the CfD period needs to be of sufficient length to secure revenue sufficient to pay off the capital costs, but otherwise as short as possible.

      As I've said, the strike price for wind is not the whole picture and can't be directly compared with nuclear due to other subsidies and pseudo-subsidies. In any case its far to early to even begin to speculate on the level offshore wind will negotiate, given that no such negotations have even begun!

      b) Please let me know how much the UKGov will spend on dealing with Hinkley Point C nuclear waste (hint: the answer is zero).

      c) The article you cite demonstrates a lack of understanding of the UK Guarantee Scheme
      Here's a direct rebutting quote:
      http://www.utilityweek.co.uk/news/news_story.asp?id=197622&title=EDF+'will+take+construction+risk'+de+Rivaz+tells+MPs
      The point is that while HPC may or may not be eligible for a UK Guarantee, it wont cover construction risk in this case. Considering applying for a UK Guarantee is in no way the same as "underwriting of part of the construction costs" - your claim is false.


      I've read the DECC Select Committee report in full. You are confusing political and demand/market risks with construction risk. The former can and should be underwritten by the government since it is wholly within their control.

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    5. I am sure EDF will not get more than £100 per MWh, but Hinkley C will not be built for that price unless it is given much longer contracts than renewables and underwriting, which renewables won't get. So nuclear would need a lot more subsidies than renewables when you add these things together. Indeed the Treasury scheme involves guaranteeing loan repayments, and state aid permission is needed for this. Hence, if you had to give the same effect in support for Hinkley C with the same contract length as renewables and without underwriting the price of Hinkley C would have to be a lot higher than £100 per MWh - and here we travel back towards the £165 per MWh for nuclear power cited earlier.
      My understanding of the arguments of many nuclear supporters, including some associated with the DECC Select Committee Report, is that they are arguing for the Government to agree to guarantee loan repayments, which means, in effect full construction cost underwriting since at the end of the day the Government is going to pay for a half or threequarters built nuclear power station to be completed. I would see this as a blank cheque in all but name. But I do not think the Government are going to agree to this, and hence I do not believe Hinkley C will be be built. As you observe yourself, such a development would go against the grain of liberalised markets where the developers accept market risk even if they are given a premium price for their power that is generated.

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    6. David

      I've already explained why "much longer contracts" is incredibly misleading as the relevant figure is how much of the operational life of the plant is covered by the CfD, not the absolute length in years.

      I've also explained that the purpose of a CfD is to secure a return on investment sufficient to pay for the capital cost of the project, and nuclear requires much more significant upfront capital cost.

      Finally I've explained that to compare like with like, you need to compare the amount of subsidies an equivalent capacity wind farm would be entitled to over the same operational period (60-80 years) as the nuclear plant, which means looking at 2-3 sets of replacement wind turbines. When this is adjusted for, the wind plants receive considerably more subsidies than the nuclear plant.

      Taken together, these arguments defeat your first paragraph completely.

      Your second paragraph is also incorrect - EdF are funding HPC on balance sheet - there are no loan repayments specific to the plant as HPC will not be project-financed, thus it cannot be a guarantee of loan repayements as you suggest. I agree that an unconditional guarantee of project finance loan repayments that fully funded a nuclear power plant would amount to a construction guarantee (or at least a full assumption of construction risk), however not only is that not the case here, it has never been the case in any nuclear power plant built or under construction in the world ever.

      Would you agree that if you are wrong, and HPC is built with a strike price below 100 and no construction risk on the taxpayer, it is a good idea?

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    7. 1. You are probably making some heroic assumptions about the lifetime of the nuclear power stations here, which by the way, directly contradict the often repeated support for having new nuclear that the old ones are coming to the end of their lives. So they are not coming to the end of their lives, are they?....and all this stuff about the necessity of taking early decisions about new nuclear power are a load of old tosh? That's pretty strong stuff since we've been fed with that story for several years now by supporters of a new nuclear build programme.

      But regardless of all that, onshore wind turbines, which at a likely £80 per MWh under CfDs are already coming down towards the wholesale electricity price (£50 per MWh), are quite likely to be even cheaper later on. They are already much cheaper than nuclear for any length of time you care to consider especially when you include the long contract length, and then construction cost underwriting.

      One can do the public relations any way you want but underwriting the construction cost of nuclear power (which is what nuclear supporters are calling for, however you want to put it) will add to the Public Sector Borrowing Requirement and expose the taxpayer to considerable risks of paying for cost overruns.

      I have already explained how offshore wind would benefit from a long term contract since the sea bed infrastructure can be paid for in the first few years and the rest of the time the subsidies will be low, perhaps negative later on. That means that paying high subsidies for nuclear in the long term makes no economic sense for the UK.

      You ask if it is ok if Hinkley is built with a £100 per MWh strike price and no construction cost underwriting - well it will not be built under those terms and certainly not without being assured more subsidies than renewables by giving Hinkley C a 35-40 year long contract.
      To get parity with that renewables would have to be given the same length of contract, but that would not make economic sense since cheaper models of wind turbines, solar panels etc are likely to come along later, which is also why it does not make economic sense to give so long contracts to nuclear power.

      Yes, indeed, EDF have no option (outside construction cost underwriting) other than to build Hinkley C on balance sheet. This is precisely why they require a cripplingly high IRR (say 15 per cent), because otherwise the dividends take a hit, share prices go down and EDF's balance sheet which is already overladen by debt really would look even worse. Hence EDF's ideas about financing Hinkley C with a 10 per cent IRR only make sense by moving a lot of this investment 'off balance sheet' onto a project financed operation.

      A 10 per cent IRR implies project funding which means getting 80 per cent or so of the investment costs from banks or others at low interest rates which can only be achieved for new nuclear power with what is or amounts to be a state backed guarantee or at least a cost recovery guarantee, usually in the context of a monopoly supplier (eg Georgia in the USA). That is because banks will not take on the uncertainties associated with construction time and cost.

      No nuclear power plant, so far as I am aware, has ever been built without such guarantees, and the whole point of EMR, as i think you agree, is that the developer takes the risk over costs and is only rewarded for energy produced.

      Hence EDF will have to get construction cost underwriting which may explain why they mention funding through the Treasury infrastructure programme - I believe as a first step towards full state guarantees on construction costs.

      Yes, there are a lot of other problems with nuclear power, some of which I discussed in the earliest posts on this blog. However my point here is that regardless of these, nuclear is uneconomic compared to renewables. Given that the Government wants to limit the spending on low carbon subsidies I cannot see how it can give EDF what it wants so that Hinkley C can go ahead.

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  2. PS: here's a (strongly) pro-wind crown estate study (endorsed by the SoS for Energy) that estimates offshore wind cost at £140/MWh - http://www.thecrownestate.co.uk/media/305094/Offshore%20wind%20cost%20reduction%20pathways%20study.pdf

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  3. Better a Solar Kilowatt than a nuclear Kilowatt, and N☢ RISK...

    How to increase Solar usage nation wide in the shortest amount of time:
    What is holding America Back?
    http://www.grist.org/solar-power/2011-08-08-clever-accounting-lets-utilities-cash-in-when-you-go-solar

    The Utilities want to maximize the profits for the shareholders and so they donate to Candidates to get them to support traditional Energy Production, which does not include anything but a token amount of Solar... We are being "forced" to accept their Energy "mix", instead of using our own and being fairly paid for the Energy we produce and push INTO the grid!!

    When The Energy Utilities pay each of us for the energy we put into the grid, at the same rate that the Utility charges for that same energy someone else uses at that exact time, then you will see Solar being installed an order of magnitude faster than it is now!


    Because Solar is generated during the daytime, it is the most valuable since the Utilities charge the most for daytime usage (where they have SMART metering)! Everyone pays an additional amount to support the infrastructure (The Grid) so that when the Energy Utilities begin to pay the same as what they charge (no pun intended), then it will make adding Solar panels a no brainer, since the payback period will be much shorter. Another benefit for all of us is that during a power outage, all the small solar panel producers can help to keep power flowing which will be a huge benefit during such times as natural disasters or any other cause!

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  4. With the price of Solar (of all flavors) dropping monthly and the cost of Nuclear Reactors (construction , repairs, long term storage and decommissioning) spiraling ever upward by the time many of these new reactors get finished the energy will have to be subsidized by the Government, otherwise the ratepayers will become Energy $laves to their Utilities, like the Japanese now are!

    Left unsaid is the Trillion Dollar Eco-Disaster RISK that each of these reactors poses for mankind and especially all those downwind...

    The UK better start doing some future cost analysis or they will be digging a nuclear "hole" for themselves at the very time other major Countries are shifting to Solar (of all flavors) as the modern safe Energy Alternative!

    
If the UK wanted to become a true World Leader, they would Champion Solar from Space and then lead the World toward a safe new future; these books explain how:

    
The High Frontier by Gerard K. O'Neill,
    Colonies In Space by A. Heppenheim­er.
    The Third Industrial Revolution by G. Harry Stine
    The Space Enterprise by Philip Robert Harris
    Mining the Sky by John S. Lewis

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  5. Here are some additional links:
    Wind and solar power are leaving nuclear in the dust: http://is.gd/CfpiUJ
    and
    Solar Power Could Produce >50% of Global Electricity: http://is.gd/PU3k2y
    and
    Estimating US Gov't, Subsidies http://is.gd/hwnsic
    and
    SOLAR Power Year in Review 2011: http://is.gd/8dlYIx

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  6. Lets review the basic FACTS, we now know:
    1. Nuclear reactors can Meltdown.
    2. Nature can destroy any land based nuclear reactor, anyplace anytime!
    3. Solar (of all flavors) vs Nuclear Benefits:
    ✔ Less costly to build
    ✔ ZERO RISK OF A MELTDOWN
    ✔ No Trillion Dollar Eco-Disasters
    ✔ Faster to construct
    ✔ CLEAN from start to finish.
    ✔ No radiation worries or leaks
    ✔ No foreign dependency
    ✔ Prices are dropping yearly
    ✔ Creates large number of green jobs
    ✔ No nuclear cleanup expenses
    4. Nuclear reactors leak radioactivity
    5. Nuclear reactors are VERY expensive to de-commission
    6. Nuclear Fallout can spread quickly and last "forever"
    7. The UK cannot afford a Trillion Dollar Eco-Disaster
    8. Nuclear waste storage is an BIG Expensive problem
    9. The UK has the land mass to go Solar (of all flavors)

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  7. Great example from the USA:
    Expert Estimates Billions in Excess Costs If Nuclear Power Projects Continue in Southeast

    Read more: http://www.motherearthnews.com/energy-matters/nuclear-power-projects-zb0z1303zpit.aspx#ixzz2Ph7q7dr5
    snip
    The report from economic analyst Mark Cooper will show that these nuclear reactor projects — facing rising construction costs, stiff competition from cheaper alternative energy sources, and falling demand — are now only possible through the use of “advance cost recovery” (ACR) financing schemes provided for in-state laws. Under these laws, monopoly utilities, unlike competitive industries, are able to bill ratepayers for construction costs long before a single kilowatt of power is produced.

    Beyond the southeast U.S., the Cooper study will resonate in states such as Iowa, Missouri and Utah, which have pondered ACR-style financing of traditional large-scale nuclear reactors and “small modular reactors,” which recently received the 2013 Golden Fleece Award for tax dollar waste from Taxpayers for Common Sense.

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  8. And now this from Scotland:
    Green Growth, Green Jobs: The Success of Renewables In Scotland https://www.gov.uk/government/speeches/green-growth-green-jobs-the-success-of-renewables-in-scotland

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    Replies
    1. Thanks for your comments, CaptD - I agree with your points!

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  9. A Most Important Article about why Solar is such a threat to US Utilities, Think of it as an Fiscal/Energy War for market share:

    Disruptive Challenges:

    Financial Implications and Strategic Responses to a Changing Retail Electric Business

    http://www.eei.org/ourissues/finance/Documents/disruptivechallenges.pdf

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  10. Suggest you contact:
    Paul Gipe
    pgipe@igc.org
    http://www.wind-works.org/cms/index.php?id=86

    You will cherish this link!

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  11. The "environmentalists " you speak of care alot more about every"thing" (human or other ) , than those who believe in sticking to the same old paradigm( exploiting oil resources etc. ) at he cost of our health, solar energy in Nigeria.
    and the health of this world and everything in it ..........You talk of "common sense" then why don't you, get your head out of the sand , and stop denying what is real

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  12. Nice one Dave, I downloaded this to read your precy is fantastic and may save me the boredom of skimming the lot as I think you've drawn out and analysied the salient points ;) Keep up the good work! and I'm so glad that I think when you cut down to it most of us who arent fresh out of education think and says that they are telling us fairy stories! And that includes half the people who work in the industry - they just won't admit it publicly - yet...

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