How rational choice theory explains EDF's mad gamble on Hinkley C

The spectacle of the disastrous attempts to build a new generation of nuclear reactor - the European Pressurised Reactors (EPRs) - and EDF's apparent desire to carry on despite the increasing likelihood that the financial losses from this will destroy EDF as a going business (see my earlier blog posts on this) raise the question: If this is true, then why do they carry on with this apparent financial suicide? The answer can be analysed through something well known in political science: rational choice theory. This says that actors will pursue their self interest so that they can achieve the best outcome in a given set of circumstances that define their dilemmas. This can often lead to outcomes that are worse for everyone, despite people apparently pursuing their 'rational' self interest (eg see 'prisoners dilemma').

The set of choices facing the leaders of EDF appear to them as follows: a) abandon Hinkley C and effectively end EDF's visions as being leaders of a world (or even French) nuclear resurgence. Ok, why not? Well, the leaders believe they would have to resign! b) carry on spending money on Hinkley C and hope that not only the French Government will bail them out of any further difficulties (mounting up now, with the french and Finnish reactors going pear shaped) but that somehow the British project will come right. But what seems more likely is that the French Government will end up pouring billions into the project, as well as needing to salvage the Finnish and French EPRs still being built.

Now choice a) involves, to them, the certainty of loss of face and resignation.
choice b) involves a probability of disaster (and eventual resignation), but the faint hope that they still might win out (and regardless they remain in power for a while longer).
Of course the interests of the French state are clearly to avoid losing billions of euros, so rationally, of the two, option a) would be better.

But the French state is not independent. The problem with EDF is not that they are controlled by the state, but that they seem to control the state. Even to the extent that the French state is compelled to spend billions of euros providing the British with nuclear power stations! (which may or may not work very well). The French Ministry of Finance is currently holding out against attempts by EDF to ensure that the French Government 'immunise' EDF against losses from its project in France (and I assume the Finnish and projected UK projects), but EDF seems prepared to just go ahead and assume it will eventually cave in.

How do we get out of this? In option b) eventually the French state will have to draw a line somewhere - it will not be able to afford to carry on hurling countless billions down a bottomless pit. This will damn nuclear power even more severely than abandoning Hinkley C at this stage. But why do we have to suffer this trauma? After all it will waste so much resources.
Personally, I say to Vincent de Rivaz and Jean-Bernard Levy, the bosses of EDF, I've nothing against you, I wish you well, please carry on with your jobs, but please make an appeal to do so based on renunciation of the obviously bankrupt EPR path you are now following. Say how you are going to put investments into renewable energy and advanced energy efficiency technologies.

Help save electricity storage from its transgender problem

A campaign is being launched to get the UK Government to legislate to set up a special license for electricity storage facilities. - A license to store! At the moment the fast-developing battery storage industry, which can help power the renewable energy revolution, is being stymied by regulatory confusion. Establishing a license for storage would set up storage as a distinctive technology where that can be assigned its own place in the system alongside generation and consumption.

The problem is that storage sometimes supplies energy, but it also consumes energy to charge the batteries. As a result storage operators are double charged for taxes when they consume and supply the energy, and uncertainty reigns about how much they should be charged to connect to, and use, the electricity distribution network.

So please try and write to your MP to support efforts to license storage of electricity.

Of course the grid can 'balance' a lot more renewable energy than is being generated at the moment without much difficulty, but the point is that storage offers an increasingly cheap method of balancing the grid for whatever purpose (including managing variable renewables of course). But the system is regulated for generation or consumption, leaving storage in a sort of transgender 'limbo'.

Now, supporters of electricity storage, including the Electricity Storage Network, want the Government to solve the problem. Otherwise companies and investors will be put off investing in storage projects because of the higher charges and uncertainty that surrounds the 'gender' identity of storage.

The occasion for this particular policy debate is the issue of whether distribution network operators (DNOs) who run the local electricity systems can be allowed to install storage systems. That is whether they should be allowed licenses for storage projects over 10 MW (under 10 MW is not regulated). As the cost of storage declines so the number of circumstances where the storage could be positioned to avoid grid upgrades such as new transformers, increases. In fact storage can serve a number of functions - it is also being installed with some renewable energy projects to avoid grid upgrades and help balance the output of the projects.

Of course it is good to see schemes like Elon Musk's home battery systems getting coverage and people buying the batteries - but research indicates that setting up storage on the distribution system is more cost-effective. If storage is built on the local electricity systems ('feeders')then the storage units  can make use of electricity supplies on the local system as a whole, when they are in excess, to store for leaner times.  Home storage systems used in conjunction with solar pv sets are limited to storing the solar output from the homes themselves. Moreover storage based on the local system can also provide other services - in particular reduce the need for peak generating capacity by offering 'frequency response' services and also at peak times in the year (Triads). The storage facilities will earn money from these services.

So we need to give greater possibilities for DNOs and others to set up storage systems. Of course we don't want to give DNOs an unfair competitive advantage over the independent companies wanting to set up storage systems - the DNOs should compete on an even playing field with the rest - but the point of setting up a license is to force the issue of clearing the regulatory confusion surrounding storage.
See the text of an amendment put together by Alan Whitehead MP to the Govenrment's current Energy Bill to try and get a license for storage: https://gallery.mailchimp.com/b8d28f787986f6446a087b2db/files/Notices_of_Amendments_NC14_Electricity_Storage.pdf

EDF wants French Government to pay for British nuclear reactor at Hinkley C!

As if anything extra was needed to demonstrate the financial lunacy of the Hinkley C project to all parties concerned, EDF, according to French press reports, now wants the French Government to pay for it!
See http://www.lesechos.fr/industrie-services/energie-environnement/021648964646-epr-anglais-edf-peine-a-boucler-son-plan-de-financement-1195310.php

Quite why anyone would want to take responsibility for a project  whose potential lossmaking wildly exceeds even the over-generous offer made by the UK treasury and electricity consumers, beggars belief. Clearly EDF now do not want to. Under increasing pressure from company shareholders, unions, rating agencies, and others EDF has concluded that it just doesn't have the cash to fund this disaster-in-waiting.

Of course the subtext, is, as I have said for several years now, this project is unfinanceable in any rational way apart from being the receipt of a government blank cheque (if one accepts that as rational way!). Now, in effect EDF expects TWO governments to pay for it (UK and France)!

The EPR model to be used in Hinkley C has now failed to be built on time (indeed at all yet) in all of its three projects. Even in France, the nuclear regulators ASN have given the developers some scathing criticism. The model has been described as unconstructable - and this is before we come to discover whether it even works!

EDF was once held up as an example of how the nuclear industry is a success. But now the company is sinking into debts and potential losses as the prospect of paying large sums for not just dealing with nuclear waste but also repairing existing plant, as well as the failure of the EPR projects in Finland, france and China, comes to haunt the company. Funding Hinkley C could well be final death blow for EDF, as I commented not long ago. See http://realfeed-intariffs.blogspot.co.uk/2016/01/more-daishan-epr-delays-as-edf-ponder.html
Of course, one has to see some humour in this. It is that the French Government - and this means French taxpayers are going, if EDF's requests are granted - to make more or less direct subsidies to British electricity (state aid by other, rather curious, means). And they could end up up paying through the nose for this project since it could end up a virtually bottomless pit, if as seems a racing certainty, the project overruns.

Of course, in the end it would probably end up being as just a big row between the two governments and both would end up paying - the British electricity consumer would end up paying way more than the £92.50 per MWh (2012 prices) for 35 years it is already scheduled to do, and the French Government a lot more too, if EDF get their way.
A lot of officials on both sides of the Channel are now thinking 'how do we get out of this without getting the blame'. This latest request for more support for the French Government is just one more excuse for delaying a project that needs to be formally killed off. It should just be stopped and the money spent instead on renewables and energy saving.

Wake up UKIP UK! renewables really are the cheapest option!

It often seems to me that UKIP represent a sort of extreme version of a back-to-the past conservative Britain, in energy as in other things, where the old stereotypes of unrealistic hippies and their ideas of renewable energy are obviously ridiculous. Except of course that reality suggests that renewables aren't the preserve of hippies any more and it is fossil fuels and nuclear that are out of date. In world markets renewables installation is now far outpacing the rest, yet in the UK you would struggle to hear this. Of course sensible people just KNOW this can't be true. I am constantly surprised to hear the almost contemptuous attitude from people who refuse believe that renewables are nothing but a peripheral novelty around the world. But the facts speak otherwise - and very loudly!

But her's just a few clippings to illustrate how things are going in the (real) world. One general:
http://www.ctvnews.ca/sci-tech/renewable-energy-growth-outpaces-fossil-fuels-1.2427639

Below I post some coverage about auction results in places like Chile Brazil, South Africa. Now auctions aren't the reason that renewables costs are going down - these auction results just reflect the fact that the costs are declining anyway, and they actually restrict the rate of renewable energy installation, as I say in  see http://realfeed-intariffs.blogspot.co.uk/2015/12/study-shows-that-renewable-energy.html
BUT, the auctions do give some transparency on the price contest between renewables and other fuels - a transparency that is very much lacking in the UK's rigged-against-renewables market for new power plant. Onshore wind and solar farms are not allowed to compete for contracts to supply energy with fossil or nuclear plans, even though there are several thousand megawatts of onshore renewable capacity with planning consent being effectively banned from the market. Meanwhile nuclear gets special deals and old and new fossil fuel plant get 'capacity payments', although even the capacity payments are not yet high enough to induce new CCGTs to get built.

The message from the UK is that if the truth hurts, hide it!

See some coverage of auction results in Chile, Brazil and South Africa:

http://www.businessspectator.com.au/news/2015/10/29/renewable-energy/chile-goes-100-renewables-power-procurement-auction

http://reneweconomy.com.au/2014/26-gw-wind-solar-power-capacity-offered-brazils-upcoming-auction-26113

http://www.theguardian.com/environment/2015/jun/01/how-renewable-energy-in-south-africa-is-quietly-stealing-a-march-on-coal

What a smart response! - wind cheaper than fossil fuels

In amongst the very partial comments you here about winds obvious variability, few point out that onshore wind also has great benefits which cannot be wished away. People frequently point out occasions when there isn't much wind power and say how we need other fuels. What they don't mention is the other half of the coin - how often wind power saves the day by stepping in when power plant break down and power would otherwise be very expensive.
There was a neat exchange on this point in the House of Commons on Jan 18th:

Nigel Adams: I am very grateful. I apologise to my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), who is far more senior than I am.

The hon. Gentleman talks of how cheap onshore wind is as a renewable. Does he not accept that it must be backed up by fossil fuels, which are not so cheap? If the full system cost of onshore wind is taken into consideration, it is one of the least affordable renewable technologies that we have.

Callum McCaig: So we are backing up the cheap renewables with fossil fuels that are not so cheap, and the solution to that is to use the fossil fuels that are not so cheap all the time? That sum does not quite add up. I am not sure that I have worked out the equation.

See Jan 18th debate column 1170 http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm160118/debtext/160118-0002.htm
Also see my earlier post at http://realfeed-intariffs.blogspot.co.uk/2015/11/the-untold-story-of-how-windfarms-help.html

More Daishan EPR delays as EDF ponders financial suicide plan for funding Hinkley C

Further delays at the Daishan EPR project being built in China are hammering another nail in a coffin. The only debate now is whether the coffin will house the Hinkley C project or the whole of EDF. This news coincides with reports that EDF are planning asset sales to fund the Hinkley C project.

It is reported that the Daishan project, quite similar in design to Hinkley C, will not come online before 2017. See http://www.ft.com/cms/s/0/789e5070-974a-11e5-9228-87e603d47bdc.html

The plant's construction was begun in 2009 and was supposed to be finished in 2013. Given the calamitous history of EPR constructions 2017 would count as a hopeful rather than likely date for a start-up.  I commented earlier how funding the Hinkley C project would lead to the financial downfall of EDF. See http://realfeed-intariffs.blogspot.co.uk/2015/10/could-hinkley-c-spell-end-of-edf.html.

Now reports are being leaked of what sort of assets EDF will have to sell-off in order to fund Hinkley C. http://www.lesechos.fr/industrie-services/energie-environnement/021594340218-edf-envisage-de-ceder-plus-de-6-milliards-deuros-dactifs-en-2016-1189865.php

It becomes clear that EDF will have to sell-off profitable assets to fund Hinkley C,  something that is almost universally regarded as at least a rather large gamble or, increasingly, a probable disaster that will sink EDF.  Given that the EPR is proving to be such a turkey in three multibillion projects (Okiluoto, Flammanville and now Daishan) what sort of business decision can it be to fund a fourth project that could break the company? Only a state owned company that controls the (French) state could possibly do such a thing!
Of course in China there is still a lot of state ownership, but even their nuclear interests have become rather more circumspect about EPR prospects. They have told EDF and the UK Treasury that EDF must take the full brunt of any losses on Hinkley C.
Some within EDF may regard the leaks about asset sales as a warning to others within the company, who still want to plough on with the Hinkley C project, about the consequences. Quite apart from the argument about selling off income generating assets to fund something that could be a disastrous financial drain, EDF may find that interest rates on its bond issues jump upwards in line with warnings from ratings agencies that its credit ratings will be downgraded. That would increase the cost of Hinkley C to EDF even further.

And before you wonder about the very large amounts of money being promised by the British Government for this project, let me tell you that the projects at Okiluoto, Flammanville and Daishan are incredibly loss making. Hence even the promises on offer from the UK Government would not go anywhere near insulation of EDF from the losses that it would suffer from if the Hinkley C project also went pear-shaped.

It has been rumoured that some at the British Treasury are hoping that the Hinkley C project will not go ahead. Indeed it may serve their political purposes for them to pretend it is happening whilst hoping secretly that it does not go ahead. The pretence offers an excuse for not funding more renewable energy in the UK in order to meet carbon reduction targets, and it also helps the Treasury in its search for funding from China for various British projects. Even here, however, such hopes may be becoming increasingly wistful as China seeks to limit the loans it is giving to its state owned enterprises, many of whom are heavily in debt and dragging down the  Chinese economy.

See some updated coverage in the Ecologist at http://bit.ly/1TJwPeL