Monday, 13 October 2014

Hinkley C deal likely to wipe out UK renewables spending

A comparison of the payments schedule for Hinkley C and government projections of renewable energy spending plans suggests that from 2023 spending on first Hinkley C, and later other nuclear power stations, will obliterate spending on renewable energy.

As can be seen from the National Audit Office's (NAO) report on the 'levy control framework' (LCF) , a device used by the Treasury used to monitor and control renewables spending, spending on renewables (paid from consumer electricity bills) rises by an average of around £500 million a year from 2014-2021. Yet, assuming that the projected 3.2 GWe Hinkley C runs at 90 per cent availability, and assuming recent wholesale power prices of around £50 per MWh, consumers will be paying just over £1 billion a year extra to pay for Hinkley C - over 35 years. This is TWICE the annual increment for new renewables allowed under the LCF at the moment. In addition to this electricity consumers or taxpayers will also be liable to pay for construction cost overruns because the Treasury is underwriting £10 billion of the loans for the project.

If one assumes that the Treasury continues to apply the same cap on 'low carbon' generation spending as it is doing at the moment the spending on Hinkley C would mean that there would not be any spending on new renewable energy schemes possible until 2027. The payments under the Renewables Obligation to renewable generators come to an end in 2027, releasing around £3 billion under the cap. Yet, after 2027 spending on new nuclear is likely to gobble up all or most of this budget.  Assuming the same cap on total spending remains, even after 2027 renewables spending is likely to be little or nothing. This is because spending on two further 3.2 GWe nuclear projects (Sizewell C and another nuclear project) will take up most (or quite possibly more than all) of the £3 billion 'cap' on spending on renewables released through the end of the renewables obligation.

The details of the NAO's report on renewable energy spending can be seen at

It should be noted that the Treasury actually projects spending on renewable energy to end by 2021. Within that spending on the 'feed-in tariff' for new small renewable projects tails off to almost nothing by 2018. See page 32 in the NAO report.

What this does reveal is that the Government effectively occupy a sort of 'through the looking glass world' where after 2021 renewable energy is expected to be a mature set of technologies not needing any premium price support whilst nuclear power is a 'new' (??!) technology that needs support for 35 years per project, along with state underwriting. The fact that renewable energy sources are much more popular than nuclear power (according to the Government's own polls as well as independent polls)  cuts no ice with this view.

The biggest joke on the consumer will happen when, as is perfectly likely, oil and gas prices fall back to the levels that have been common outside of oil crisis periods. Then consumers will have to fork out staggering sums for 'new' nuclear power stations, and certainly a lot more, each year, than the annual cost paid to renewables under the Renewables Obligation - for Hinkley C until at least 2058, even longer when other new nuclear power stations come on line.

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