EDF is angling to get the UK Government to commit to pay what could be tens of billions of pounds for cost overruns on the proposed Sizewell C nuclear power project. This is part of the so-called 'Regulated Asset Base' (RAB) formula it wants the Government to adopt to fund the double plant power station. RAB is usually used for purposes where cost overruns occur much less frequently than they do with nuclear power stations. Usually they do not involve any commitment by the Government to pay for cost overruns.
Under this (RAB) system nuclear power is to be given a privileged postion (certainly not afforded to renewable energy plant) whereby its costs are guaranteed to be paid by the electricity consumer before the plant even starts generating any energy. But not only that, EDF wants the Government to effectively guarantee that anything above cost overruns of 30% are borne by the Government (with the electricity consumer or taxpayer footing the bill). The system is claimed to save consumers' money by allowing the project to be financed by the consumer (none of which have been asked of course). In reality, if applied to building new nuclear power plant, it is likely to do exactly the opposite and blow a great hole either in Treasury budgets, electricity consumer pockets, or both.
This means that we will be paying out increasing amounts once the construction period overruns by more than around 20 months. It should be borne in mind that construction of a similar reactor to that planned for Sizewell C (and also Hinkley C), at Flamanville in France, has already taken getting on for 12 years to build, far longer than the original plan to complete in 5 years. Flamanville already has cost overruns of over 200% compared to the original budget.
It is not too difficult to calculate the approximate minimum impact of construction overruns. This is because, on a rule of thumb basis, construction costs are akin to a multiple of the time taken to build them, plus additions to cover the cost of borrowing money to finance costs already incurred. Essentially, you have to employ a team (very large one in this case) of workers to do the job, and the longer you have to hire them the longer you have to carry on paying them.
Let's assume that EDF choose a slightly less implausible time to build the project at Sizewell C project than they did for Flamanville. Say they chose 7 years. In that case (still implausible compared to what they usually take in the West), then it would take less than 2 years of costs overruns before the Government would be expected to start carrying the can for the cost overruns.
It's going to be a very big can. Especially if, as I suspect, that EDF is projecting an implausibly short construction period. I have heard suggestions that Sizewell C's cost are going to be reduced by 25% compared to Hinkley C. How is that going to happen? It's the same design with the same highly specialised materials and parts that do not come off a production line. The only explanation is that they expect Sizewell C to be built in a short time compared to Hinkley C (whose real construction has hardly started). Another stab at doing it in 5 years? You must be joking! If they are planning on 5 years build time then the consumer will start paying for the cost overruns in under 6.5 years after the plant was started to be built.
I've been predicting for a long time that the Government would end up underwriting the costs of building nuclear power plant. It's likely to happen by stealth with Hinkley C anyway as costs mount, but in the case of Sizewell C, EDF seem to be going to get it written into the contract from the start. That could mean the state passing onto the electricity consumer tens of billions of pounds of costs for construction cost overruns.
Sunday, 23 June 2019
Wednesday, 19 June 2019
As offshore wind technology fully blooms as its own distinct mass industrial technology producing power at low prices, and as the prospect of floating wind turbines comes closer, the potential for the technology threatens to eclipse everything else - at least in countries with a large waterline, such as the UK.
In reality solar pv technology costs are coming down at least as quickly, so that what is likely to happen in the coming years is that these two technologies will compete with each other (and onshore wind of course) for market share. Indeed such is the rate of cost reductions that some are now suggesting that the way to approach 100 per cent renewables targets is to minimise the use of batteries and other storage techniques, and simply to build gross overcapacity in wind and solar. That of course ushers in the possibility of uses for excess production, such as conversion to hydrogen, but that is another story.
The story here is that on its own the economic potential offshore wind available could generate over five times the anticipated total energy requirements for the UK in a 'net zero carbon' scenario. That is, based upon the Committee on Climate Change estimate that conversion to an all-electric economy supplied from low catbon sources would require 615 TWh of power generation in 2050. It could do this as the cheapest electricity source available - apart from solar power of course, with which the competition will probably be intense in the future.
BVG Associates, in collaboration with Wind Europe did a study two years ago of offshore wind potential in North Europe alone. It concluded that just on the basis of the North European exlusive economic zones (EEZ) (excluding Norway's EEZ) offshore wind could generate over 10,000 TWh a year - that's actually rather more than three times the current total of EU electricity consumption.
The development of floating wind turbines would be important to realise this for approaching half this potential - they are not yet as developed as the monopole or jacket based 'fixed' machines that are mostly used at the moment. But even here optimisation is being acheived quickly, with Equinor recently announcing a project near the Canaries with a capital cost that has dropped quickly, traveling towards the levels at which fixed offshore is at the moment. Rapid advances in improving turbine efficiency mean that even the criteria used by BVG Associates is being surpassed with the latest machines such as the 12 MW GE machine which, says GE, boasts a capacity factor of 63%.
Costs for the fixed offshore windfarms continues to plunge downwards, with the latest contact prices dropping well below below £50 per MWh for the Dunkirk offshore windfarm granted by the French authorities. These prices are very competitive with even power from gas fired power plant. Sceptics who say that such prices should be taken with a pinch of salt are being coinfounded by preparation for the commissioning of such projects, the first of these approx £50 per MWh schemes being the Danish Kriegers Flak scheme which is being installed as we speak (contract awarded in 2016). The latest British offshore wind auction, taking place now, is also expected to produce contracts with prices lower that the £57.50 per MWh (2012 prieces) issued in 2017.
Of course, the onward march of the offshore windfarms won't happen very quickly unless Government issues enough long term power purchase agreements, which they call 'contracts for difference' (CfDs)
Dunkirk offshore wind https://renewablesnow.com/news/edf-led-group-wins-600-mw-dunkirk-offshore-wind-tender-in-france-658075/
http://www.vivideconomics.com/wp-content/uploads/2019/05/20190522-CCC-Accelerated-Electrification-final-report.pdf - offshore wind potential pages 48-49 up to 642 GW (inc 352 fixed)
BVG Associates offshore wind regime Europe https://windeurope.org/wp-content/uploads/files/about-wind/reports/Unleashing-Europes-offshore-wind-potential.pdf
gross potential of 10,000 GW and over 50,000 TWh page 27
Committee on Climate Change(CCC) (2019) ‘Net Zero Technical Report’
Saturday, 15 June 2019
Labour and energy nationalisation. Why power should be given to local councils, not the pro-nuclear GMB
Labour’s proposals to take the national and regional energy grid back into public ownership may give a boost to workers’ interests over shareholder profits, but the way the proposals are set out produces an increased risk of nuclear power being given priority over renewable energy. Put simply that is because the way the proposals are structured means more power to the GMB in particular, a body which is very pro-nuclear and which is relatively hostile to renewable energy and a smart energy network.
Labour announced the plan, in May, to take the transmission and distribution energy structure into public ownership, as well as plans to set up a ‘National Energy Agency’ (to run the National Grid), Regional Energy Agencies (to run regional distribution), and give opportunities for municipal ownership of distribution on a local basis.
This plan can achieve traditional Labour Movement objectives, but its impact on pushing forward a green agenda is doubtful. Put bluntly, the more that power is given to bodies that will be influenced by organisations like the GMB (who favour centralised power station solutions), the less useful will be the outcome. The proposals make a gesture in favour of municipalisation, but for most places the reality will be central control.
A good case can be made out that the privatisation of the energy infrastructure monopolies (the electricity and gas grids) did not lower consumer bills; it merely transferred money from the labour force (by reducing its numbers and pay) to the private owners/shareholders. Piketty has written much about how income has been transferred from labour to capital, and monopoly energy infrastructure might make a good example of this trend. Public ownership could reverse this in this sector, albeit in the context of an argument about how much compensation the private shareholders should be paid.
However, if the (currently) putative national and regional energy agencies are set up, and as the Labour plan says, they oversee decarbonising targets, there is little doubt in which direction policy on this topic will shift – towards nuclear power and away from a decentralised renewable energy system. Currently the National Grid Company has been making noises in the direction of a more flexible, renewable energy, based system.
Yet under a centrally controlled energy network, under Labour plans, policy power would pass to a quango which could be much more easily influenced by trade unions. That, of course, as a matter of principle, is not bad. The problem is that the most important union in this sector (the GMB) has shown explicit hostility towards renewable energy and the ‘smart’ energy systems needed to integrate it.
For example, in 2016 Justin Bowden, the National Secretary of the GMB, described National Grid’s promotion of a ‘smart energy revolution’ as ‘fanciful nonsense’. Instead he promoted new nuclear power plants. Earlier this year Justin Bowden was again attacking National Grid plans for more electricity interconnectors, and in the same press release the GMB attacked the performance of solar power and wind power.
The GMB has consistently urged the Government to shore up plans for nuclear power stations with state money. This is despite the fact that the nuclear power plant are taking decades to deliver at very high costs for the energy consumer and almost certainly also the public finances.
Of course the GMB is guided by its members, and many of them work in nuclear power stations. Fair enough. But why should this fact dominate UK energy policy? Yet Labour’s centralist dominated proposals seem destined to achieve just this. Of course there is mention about how local authorities will have an option to take over their local grids, but the usual practice will be centralised ownership. Clearly the Labour plans are wrong.
Control over the grid should be given to local authorities as a matter of course, perhaps in consortia (certainly at a national, transmission, level). Local authorities are influenced by the local electorate and local citizen groups. They will be sympathetic to green energy priorities. On the other hand centrally owned quangos will be insulated from such democratic input and will be under the thumb of the existing industrial establishment. Innovation will go out of the window.
People forget that in 1948 the electricity industry was not taken into public ownership. It was already largely owned by local authorities. It was nationalised, yes, but this was primarily an act of centralisation, not public ownership. What we need today is more decentralisation, not control by the dead hand of the fading industrial establishment.