Sunday, 31 July 2016

Why UK Government will be signing a blank cheque for Hinkley and Bradwell in one go

Theresa May may have gained short term kudos for 'stamping' her authority on the Hinkley decision by delaying it until the Autumn. But in reality all she may have done in the long term is emphasised the fact that she sanctioned a decision that resulted in the biggest industrial disaster to have affected the country in modern times. Once the Government signs the project it will be committed to footing the bill for a long running engineering construction foul-up, whatever the terms of the Government's contract may actually say.

It should be obvious from the problem that EDF has had with its attempts to build the two reactors at Okiluoto in Finland and Flamanville in Normandy that there is a very high chance that the project will end in disaster, organised by a company whose leaders ignore commercial logics in pursuit of a discredited piece of technology - the hallmark of a nationalised industry that controls the state. But now EDF say they will go ahead, in 2019, with 'pouring concrete' (ie starting building proper) once Flamanville has 'proved' itself. Yet even this timetable may not happen, pushing EDF further into its financial crisis and producing even more handouts from the french state to EDF.

The UK Government, for its part claims that it will be under no legal obligation to pay for any cost overruns. True, we understand that the contract that awaits signature says that the Hinkley C power plant must start generating by 2033 if the premium price  payments of £92.50 in 2012 prices (£97 per MWh in today's prices) are to be paid. But that is a legal nicety that obscures the political blank cheque that the UK Government will be signing this Autumn.

Imagine the situation in ten years time. It is 2026, and EDF, is beset by generally unfavourable market conditions, having in any case to pay increasing amounts of money to refurbish its own French nuclear fleet. It is facing mounting construction cost overruns on the still far from completed Hinkley C construction and EDF tells the French and UK Governments that it cannot complete the project without further financial injections. We then have the spectacle (as we did in the case of Sizewell B in 1990) of a half-built nuclear power project with no money to finish it. There will then be a political demand that it must be completed. The terms of the contract between EDF and the UK Government will then become irrelevant, and the UK Government will have to pay untold extra billions to finish the project, and fund it thereafter, the only limits being what cost-sharing it can achieve with the French Government itself.

Of course Theresa May, who is said to be reluctant to agree to the Chinese demand on behalf of CGN to be given the right to build a 'Huang' Chinese power plant at Bradwell in Essex, may seek to alter the terms of this agreement. The Chinese have agreed to invest in Hinkley C on the basis that the Bradwell project will be allowed. Indeed the Chinese are responsible for a third of the equity in the project. But the controversies and issues around this Chinese project are likely to considerable.

Apart from controversies over 'security' issues (about which I do not know enough to comment) there are going to be arguments about validation of the safety protocols for the plant. In China there have been complaints that the safety criteria have not been rigorous enough for nuclear power stations. The problem from the point of view of the British Government is that if the Chinese have put money into the Hinkley project, then the British Government will be under great pressure not be seen to be too choosey with the approval of the power plant. Will Bradwell be built according to British or Chinese safety standards? Then there is the issue with the financing and power price for the Bradwell project. Again, the Government will be under great pressure to give the project good terms, or be accused by the Chinese of having reneged by other means on the Hinkley agreement.

If Theresa May says that she will agree to Hinkley C but will not agree to the Bradwell project, then it is likely that the Chinese will walk away from Hinkley, thus ending the project - unless the French Government came up with even more money and risk-taking.  But of course if Theresa May now does give approval for the present scheme, give or take some public relations concessions, then it is May that will go down in history as having personally approved not just a Hinkley disaster but a political and industrial crisis over the Chinese nuclear power project at Bradwell.

Of course by 2030 under this scenario we will still probably have no power from the new nuclear power plant, but otherwise we would have been able, by then, to have put on line maybe another 20 per cent of our power from renewable energy from the money. That is, just using the money that we would be committing to non-existent nuclear power stations, and not including any other renewables we would have put on line anyway.

Friday, 22 July 2016

EDF to postpone Hinkley Construction start to at least mid 2019

The media is full of stories that EDF is about to announce a 'final investment decision' on Hinkley C nuclear power station, whereas the logic of its own press statements suggest that the project is in fact in deep freeze. Once again, EDF's superb public relations is convincing people that its disastrous Hinkley C power plant project is moving ahead, whilst the reality is that it is announcing that the project will not be started until at least 2019. And even this date seems to be associated with the commissioning of the terribly delayed sister project at Flamanville.

I have lost count of the number of times that EDF has sparked speculation that it is about to announce a final investment decision for the project. These 'announcements', given through press briefings about which EDF bristles with annoyance if people question their connection with reality, have occurred several times since 2012.

And yet EDF's own press release in effect says the opposite of the 'final investment decision' press stories that EDF have inspired.The document, released by EDF on July 21st, actually says: 'The first concrete of reactor 1 of HPC, scheduled for mid-2019, would coincide with perfect continuity with the start-up of the EPR at Flamanville, scheduled for the end of 2018'

So, what is actually happening is that, as experts familiar with the saga know only too well, EDF is confirming that Hinkley's construction could not possibly begin until the safety issues surrounding the reactor design have been cleared and the working of the Flamanville project has been demonstrated. This is not going to happen for a minimum of THREE YEARS.
Of course even this possibility defies commercial logic given that the project would bankrupt EDF without massive subsidy from the French state.The UK has agreed in principle to pay EDF (in June 2016 money) 97 per MWh for 35 years of operation for the project, but even this price would not go close to covering the risk that EDF would take with the project. Hence the need for a massive state handout. The French unions and many financiers and managers inside and outside the company regard the whole thing as a politically motivated piece of industrial suicide.

Even the UK Treasury has long since sidled away from the project, effectively cancelling its offer for guaranteeing the bulk of the loans that EDF would hope to take out for the project. Indeed, contrary to what seems to be widely assumed, the UK Government has not even offered EDF a legally binding contract. It beggars belief how seriously one can take a project that has not even got an offer of a contract from the people who are supposed to be paying for it!
But then the project has long since departed from being based on any sense of commercial reality, and linkages with commercial reality have always been tenuous, as they will be with any nuclear power project that has to meet the sort of safety standards demanded in developed countries these days.

Whatever 'decision' will be reached at next week's EDF Board meeting, it will, as EDF clearly state, not lead to the construction of the Hinkley project being started. But it will be just a continuation of the public relations pantomime that we have been witnessing for several years now.

See EDF's press release at:

Thursday, 14 July 2016

Government abandons the economy to try to ward off UKIP

Early pronouncements from Philip Hammond and David Davis indicate that the Government is set to abandon hopes of remaining within the Single Market as the price the UK will have to pay for imposing immigration controls on EU citizens. This strategy is clearly aimed at pacifying those who prioritise reduction of immigration within the Tories and also reducing the attacks from the xenophobic right, whose 'respectable' wing resides in UKIP.

Politically this might take the shine off the electoral threat to Conservatives posed by UKIP in the short term, but this threatens to unravel in the longer term and it will be at great cost to the British economy.

It seems that Hammond is fighting a rearguard action to preserve internal market market access for British financial services, but how successful and costly that will be to the British exchequer remains to be seen. But the British economy now faces having nearly half its trade facing not only tariffs in the EU but also falling prey to non-tariff trade barriers as the EU changes its rules to which the UK will not be subject.

In terms of energy our influence in regulations governing energy markets will decline and the automatic upgrading of energy efficiency standards and labels that comes with the EU will cease. Directives on renewable energy and energy efficiency will cease to apply.

There will be a lot of talk about trade agreements with the USA and maybe others, but in reality nothing can be effected until after the UK formally leaves the EU, which, according to David Davis, is likely to be in December 2018. That implies the issue of an article 50 notice in December of this year (2016).

In the longer term (which may not be very long at all!) this attempt to feed the monster of xenophobia is likely to fail as the hard right demand more and more stricter immigration controls. The targets of abuse have already been widened from just perceived EU migrants to muslims, and soon no doubt others.

'The hopes of self-styled 'civilised' Brexiteers such as Daniel Hannan are being dashed. His 'libertarian' eurosceptical views favouring continued free movement and internal market membership outside of the EU have merely ended as being ballast to pave the way for the objectives of the anti-immigration English nationalist lobby.

Monday, 11 July 2016

Ways in which Brexit will help the environment

‘Always look on the bright side of life’. That was a theme associated with the ‘Life of Brian’ (as is strife within the popular fronts of the Labour Party these days of course, but I won’t go into that now). So what’s good about Brexit? Well, it might be a crushing blow to our British economy and environmental laws, but in other ways it might actually help..... 
One way Brexit will definitely help is that the green interest groups will find it easier to get their way on various environmental issues in EU institutions. The UK won’t be around to perform their usual watering-down role! Take the issue of air pollution. The UK has been an opponent of tightening up EU air pollution regulations. As the Guardian reported on June 3rd this year; ‘EU states have agreed to water down a proposed law aimed at halving the number of deaths from air pollution within 15 years, after intense lobbying from the UK that cross-party MEPs have condemned as “appalling”......Some 14,000 people will die prematurely every year across Europe from 2030 as a result, if the weakened proposal is implemented, according to figures cited by the environment commissioner, Karmenu Vella.’
Then there is the issue of chemicals which scientists say are killing bees. The EU banned farmers using neocontinoids in 2014, and bees are said now to be recovering, but the UK dragged its feet at first allowing the NFU to use the chemicals in 2015. In the USA the chemicals are still used widely and bee numbers are declining. In the UK the number of bees declined by 15 per cent in 2015 according to the Beekeepers Association, continuing a trend that has set in for many years.
Under pressure from the NFU the Government has allowed farmers to carry on using these chemicals. Of course, once more over the cliff, our British lemming friends must go!
Then there is the issue of renewable energy targets. The UK, under great pressure, accepted the 2009 EU Renewable target which was set as a mandatory commitment for 2020. We’re now set to get 30 per cent of our electricity from renewable energy by 2020, even if we haven’t met our target from energy as a whole. However the UK Government has strongly resisted a further rigorous target for 2030. Clearly, without the UK, the EU could set a stronger renewable energy and energy efficiency ambition!
Moreover, anti-nuclear greens may be cheered by news that Chinese investors in Hinkley C are spooked by financial instability in the UK and the declining value of the £ making it even less likely that the Hinkley C nuclear power development will go ahead ahead.
Now, think about it, under Brexit, the UK will have a bad environment. But at least it will be better in the rest of the EU! Progress in implementing a range of environmental initiatives in the EU will be a lot smoother and more effective! Indeed, if by some miracle the UK does remain inside the internal market, the UK will have to obey the EU environmental laws anyway, but won’t be able to have any say in making them! Ideal, you could say!
But there is one pretty sure way in which the environment is likely to benefit from Brexit, and that is reducing UK energy consumption and thus reducing carbon emissions.  That’s because the Brexit-inspired reduction in economic growth will reduce energy consumption. Indeed, the Government will now find that the need to build new conventional power stations is much reduced or even abolished with Brexit. The UK’s power demand has, in any case, been going down since around 2005. Now it is set to continue to decline with slower economic growth, or even plummet with a recession. Not only will we need less power plant and coal and gas burning but people will not be able to afford to heat their own homes as much. Less energy consumption means lower carbon dioxide emissions! Another environmental winner from Brexit. See a previous post for more details

But of course there is the ‘piece de resistance’, they say, in a language now increasingly banished from English schools. That is Brexit as a means to deter any other country from thinking about quitting the EU! With so much economic and political chaos in the UK, populist politicians who where thinking about asking for referendums about EU or euro membership are now forgetting the idea or having serious second thoughts.

So as the UK descends into political and economic chaos, think about the gains, the supreme sacrifice we are making in saving the EU from the English anti-green menace....not to mention reducing carbon emissions!......

Thursday, 7 July 2016

Dutch tender award for offshore wind plant is 25% cheaper than Hinkley C contract

The Dutch Government has awarded a contract to build two 350 MW Borssele offshore windfarms for 87 euros per MWh (£74 per MWh), some 25 per cent cheaper than the current value of the contract for Hinkley C. The contract has been awarded to DONG, in which the Danish Government has a majority share.

This price for Borssele 1 and Borssele 2 includes transmission costs but, unlike the case of the proposed Hinkley C nuclear power station, the price does not include any offer of loan guarantees from the Government. Hinkley C is routinely reported as being paid £92.50 for a 35 year contract, but this is in 2012 prices. The current (jJune 2016) price is £97 per MWh, which puts it as being a lot more expensive than the Borssele offshore wind project.

Offshore wind prices have been tumbling in the past couple of years compared to earlier contracts awarded in the UK. Last year Vatenfall won a contract with the Danish Government to build the 400 MW Horns Rev plant at 103 euros per MWh (£88 per MWh) although this figure does not include transmission connection costs.

So why have costs for offshore wind been falling so much, and how come the costs appear to be so much lower than the UK's, whose last (2015) auctions revealed prices for offshore wind of around £120 per MWh?

According to DONG, their cost reduction can be ascribed to: 'The reduction of cost of electricity is driven by cross-industry collaboration, ongoing innovation of wind turbines and blades, continuous improvements of foundation design and installation methods, higher cable capacity, a growing and competitive supply chain and not least the synergies from building large-scale capacity sites such as Borssele 1 and 2. In addition, the Dutch sites offer good seabed conditions as well as good and stable wind speeds, which contribute to high output from each turbine.'

It should be noted that both the Danish and the Dutch tender processes are much superior to the relatively 'laissez faire' approach of the British, an aloofness that increases uncertainty and thus investment costs. In the Dutch and Danish cases the sites have been carefully evaluated for technical and planning considerations before the tender, and permits have been assured. In the case of the UK, developers are left to bear the risk of these factors.

Although the UK Government has said it wants to give contracts for more offshore wind schemes, timing of this has been thrown into uncertainty by recent political events. It is now far from certain that the (new?) ministers at the Treasury and the Department of Climate Change will adhere to agreements about issue of future 'contracts for differences' (CfDs) that have been made between Osborne and Rudd.
Nevertheless, RenewableUK calculates that offshore wind schemes, including those which already have finance and planning in place for construction, will provide 10 per cent of UK electricity supply by the year 2020. However, the UK Government is refusing to make any contracts available for the cheapest electricity power option, onshore wind, which is currently being installed under the Renewables Obligation for around £70 per MWh.

For further information see also: