More Government hot air on green energy spending

Today's announcement by the UK Government that it may allow several billion of pounds spending on green energy by 2020 is little more than hot air. There will be practically no new renewable energy projects unless the Government sets a good enough 'strike price', that is a high enough level of guranteed income per each unit of electricity generated. Independent renewable energy generators are likely to be frozen out of the market completely by the 'contract for difference' (CfD) arrangements they propose. The prospect of new nuclear power (which is not green anyway) seems increasingly unlikely.

First let us deal with the nuclear hot air that abounds. I must say it is puzzling that press releases issued by EDF agencies and John Hayes, the Minister of State for Energy, give the impression that a deal with EDF over Hinkley C is imminent. But this is only puzzling if you ignore the tendency of Government, for six years now, to announce the imminent arrival of nuclear power. It is becoming a bit like 'Waiting for Godot'. But on a rational level the propect looks exceedingly unlikely.

As discussed in earlier blogs, nuclear power would need a strike price of over £150 per MWh before Hinkley C even begins to look financeable (even ignoring the fact that the EPR is a design with no generating experience). At a 10 per cent internal rate of return (IRR) Hinkley C might just be financeable at a strike price of around £100 per MWh (the sort of level the Government is rumoured to set). But EDF are going to have to make the investment 'on' balance sheet - that is by holding the debts on their balance sheet- which means deferred dividends for shareholders. This is 'equity' financing from which shareholders will expect a much higher return - 15 per cent IRR being a minimum benchmark. Yet EDF could earn this level putting the money into lots of other projects. This also assumes that EDF has much money to invest, and even this is very doubtful. In fact EDF's share price has fallen considerably in recent months and continues to fall and its debt to earning ratio is rising to worrying levels. See  http://www.bloomberg.com/news/2012-07-31/edf-seeks-partners-to-build-u-k-reactors-as-debt-balloons-1-.html

http://www.businessweek.com/news/2012-11-14/edf-slides-on-profit-outlook-cut-in-output-target-paris-mover

Indeed, just as EDF is reported to be seeking new business partners for its share in new nuclear investments, its partner in Hinkley C, Centrica, is now on the edge of formally ending its 20 per cent option in Hinkley C. Centrica says, in effect, it has much better things to do with its money. See http://www.thisismoney.co.uk/money/markets/article-2234448/Centrica-abandon-nuclear-plants-Britain-energy-giant-switches-investment-US-market.html

The only possibility for salvaging this position would seem to be some sort of Government underwriting or something to that effect. This appears to have been ruled out by the UK Government, and although, in theory, the French Government could do this, this raises the issue of why they would want to do it. AREVA the nuclear constructor (whose holding company is mostly owned by the French Government) underwrote an EPR being built in Finland. Yet AREVA's  financial position is, shall we say, challenged. See http://en.wikipedia.org/wiki/Areva. Given the difficult state of French public finances, effective handouts by the French state to foreign nuclear adventures by state companies look unlikely, and certainly very irrational. Francois Hollande has appeared to rule this out as well.

As if all of this was not bad enough news for nuclear prospects, the Government are also in trouble with in Brussels with its nuclear subsidy plans, with its request under state aid rules for the CfD nuclear arrangements being seriously questioned. See my earlier blog on this. See also Alan Whitehead's blog at
http://alansenergyblog.wordpress.com/2012/11/19/things-arent-quite-what-they-seem-2/

The prospects for renewable energy are a little better than this, although the prospects are hamstrung by the Government proposals, which as discussed in earlier blogs, will as they stand, effectively prevent independent generators from establishing projects. Given that one half of the Government does not want many more onshore windfarms anyway, one must question the Government's will to do much about this. Of course onshore windfarms can be funded with relatively modest subsidies from the consumer. They will need a 'strike price' of about £80 per MWh for a reasonably sized programme if this was funded by a proper feed-in tariff - a so-called 'Fixed' Feed-in tariff that allowed independents to take up power purchase contracts.

But the Government will have to offer more than £100 per MWh if much of the 'Round 3' offshore windfarm programme is to be built. Something in the range £120- £130 per MWh is likely to be required, depending on the success of the cost reduction programme. Solar pv also needs at least this sort of level for the large schemes, and at least £160 per MWh for smaller ones. The costs have come down a lot, but the orders need to keep coming in to maintain this progress. The only surviving Conservative minister with significant green credentials, Greg Barker, appeared to have won a concession for an energy efficiency feed-in tariff, but how much of a real option this will be also remains to be seen. Judging by Ed Davey's answers to Alan Whitehead at the DECC Select Committee on November 20th, that might not amount to very much. Thanks to David Lowry for pointing this out. See

http://www.publications.parliament.uk/pa/cm201213/cmselect/cmenergy/uc749-ii/uc74901.htm

The point about today's announcement about the Energy Bill is that it says absolutely nothing about these details of strike prices and contractual terms. These are not set to be announced until at least February next year, and there are even doubts about the level of transparency about such issues. Quoting large sums for the 'Levy Control framework' (LCF), is pretty meaningless. The LCF is, in any case, merely an artificial Treasury invention designed to give it formal power to control DECC spending commitments.

Unless the right strike prices are set, and unless the right contract terms are given, very little of this sum will actually get spent. Indeed, the advantage (to the Treasury) of announcing a reasonably large figure LCF figure for 2020 (although nothing for beyond that) is that discussion is focussed on the cost to the consumer, whereas in fact under the real Government plans, spending on renewables is likely to be quite thin by comparison - with consumer costs, in reality, being very small indeed. So we should brand this announcement for what it is - a lot of hot air. We still await news of some substance. Indeed we should demand some substance in the way of real feed-in tariffs for real green energy sources: renewable energy, energy efficiency and most certainly not nuclear power.

How gas manipulation scandal could spread to electricity with Electricity Market Reform

Media reports about price opacity in gas trading markets sets a context in which price manipulation can occur. The Government is about to introduce an Energy Bill implementing Electricity Market Reform which will make the precise amount of subsidies paid to nuclear and renewable energy sources very difficult to calculate and handover more control of the the renewables market to the major electricity players. In the process this reform will effectively prevent independent developers from setting up renewable energy projects.

Independent analysts have already warned that the complex and highly opaque system of 'contracts for differences feed-in tariffs' (CfD- FiTs), that is proposed by the Government, will create favourable conditions for major electricity companies to make money out of the complexity. Currently we have a relatively transparent method of calculating how much extra is paid for renewable energy, but this will disappear as the funding for 'low carbon' energy sources is pooled together. What a coincidence it is that we will find it difficult to calculate exactly how much extra (on top of market rates) is paid for nuclear power! Proposals for a much simpler and cheaper 'Fixed FiT' system (used in Germany) have been sidelined. This system would be much more transparent and would also give independent developers good chances of establishing projects.

Under the Government's EMR proposals, there will be no publicly accountable monitoring of subsidies paid to low carbon generators (the government insists they are not subsidies anyway) because the system of paying 'top-ups' will be administered through ELEXON, a private subsidiary of the national Grid. There is no arrangement, at least so far as I can see in the currently constituted Bill, for there to be any publicly available information on subsidy levels or 'top ups'. Payments to individual companies for particular projects will be labelled as 'commercially confidential'. The Government may establish a body to provide backing to the contracts (to provide guarantees of payments) but this does not mean that there would be any monitoring of payments actually made.

Currently, under the Renewables Obligation, OFGEM administers issues of renewable obligation certificates (ROCs), and it is possible to get hold of details of ROCs issued to particular generators from OFGEM. This information is relatively easy to understand and turn into estimates of subsidies paid. However OFGEM is being kept out of direct monitoring of payments made under the CfD arrangements, so this avenue will not be open.

It may be possible to make generalised informed guesses about what levels of support particular technologies are receiving through CfDs by subtracting estimates of power prices from 'strike prices' for the technologies (inasmuch as even these are made public - not certain in the case of EDF and Hinkley C yet), but these will be only informed guesses. Future pressure may require the National Grid to publish details of their own estimates of the power price fluctuations (necessary to make decisions about top-up payments), but even if this happens a) this information will require the help of experts to generate estimates of 'top-ups' paid, and b) even then there will be a level of uncertainty because the power prices estimated by the national Grid will not necessarily be the same as the money that is actually received by the generators. Fears have been expressed that the major electricity companies can manage the complexity to generate extra profits for themselves out of the system.

Because CfDs are only available to companies that trade on electricity markets (which is a very expensive, capital intensive operation usually only open to electricity suppliers and very large companies) this effectively excludes even quite large independent companies from developing renewable projects. It is ironic that at a time of criticism of the 'Big Six' the EMR firmly entrenches control of the renewables market in their favour. A report I have written about this is being published by Friends of the Earth.

Learn more about this controversy. Hear and discuss how propects for renewable energy and independent developers could be improved with the right amendments made under the forthcoming Government Energy Bill. Do all of this at a Conference on January 18th at the University of Birmingham. Details can of the Conference can be found at: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf

Superstorm Sandy deals another blow to nuclear power 'reliability'

US news wires are humming with stories about the biggest nuclear shutdown since Fukushima as over 32 GWe of nuclear power was shut down during 'Superstorm Sandy'. This is another blow to what is the myth of nuclear power as a reliable energy source. As reported in an earlier blog last year, when storms were reported as leading to a wind turbine catching fire, little attention was paid to the much more serious storm-related shutdown of Hunterston B in Scotland. Indeed, British nuclear power stations are prone to unplanned outages which plunge thousands of people into darkness (for example Sizewell B in May 2008). It is ironic that wind power is cast as intermittent when in fact its output is predictable on the basis of increasingly sophisticated advance weather forecasts. But nuclear shutdowns occur instantaeneously with no warning causing massive problems for the electricity system. As posted on the earlier blog about the as-yet-far from completed Hitachi 'deal', Hitachis' preferred reactor type (Advanced Boiling Water Rectors) have a poor record for reliability, with half of them effectively being on line for less than half the time. We do not know about EDF's planned EPR power stations of course since none have actualy started operating yet.

So why are the Government planning to pay nuclear power a lot more subsidies than onshore wind under Electricity Market Reform? It certainly has nothing to do with reliability! It does not have anything to do with the Coalition agreement, either. Did the Lib Dems really agree to give nuclear power around £100 per MWh over 25 year contracts in an electricity market reform strike whilst onshore wind gets only £80 per MWh for 15 years? Isn't it strange that the nuclear industry, the Government and the engineering establishment have been telling us for so long how much cheaper that nuclear power is compared to renewables - all they need is the right 'framework' and it will be 'cheaper' for the consumer! Well it won't, and we should ring-fence the money for renewables, not nuclear!

Learn about policy options for implementing renewable energy by making amendments under the forthcoming Government Energy Bill at a Conference on January 18th at the University of Birmingham: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf

See the Superstorm Sandy report below:

http://www.pennenergy.com/articles/pennenergy/2012/11/superstorm-sandy-behind-largest-nuclear-power-outages-since-fukushima.html?cmpid=EnlDailyPowerNovember52012&hq_e=el&hq_m=16911&hq_l=6&hq_v=z8384cadbd

Superstorm Sandy behind largest nuclear power outage since Fukushima

November 2, 2012

By Dorothy Davis
Online Editor

Superstorm Sandy, which tore through the Northeast United States causing property damage and even numerous deaths, led to three nuclear reactors shutting down and several other plants to reduce operations. Reuters reported the storm caused 32,045 megawatts in nuclear power outages on October 30 - the highest amount since May 2011 when the Fukushima disaster occurred in Japan.

Three reactors experienced shutdowns during the storm. They were Indian Point 3, in Buchanan, N.Y.; Salem Unit 1, in Hancocks Bridge, N.J.; and Nine Mile Point 1, in Scriba, N.Y. Operators reported all safety systems responded as designed.
Three additional nuclear plants in Connecticut, Vermont and Pennsylvania also chose to reduce power due to the storm, Reuters reported. They resumed full power by October 31.
Although Nuclear power plants are built to withstand hurricanes and other natural disasters, safety protocol requires plants to shut down operations when faced with potentially extreme conditions. In the case of Sandy, operators took precautions against hurricane-force winds, power loss and nearby water levels exceeding flood limits.

Thursday, the U.S. Nuclear Regulatory Commission said it was beginning to return to normal inspection coverage for nuclear power plants in the Northeast.  Heightened coverage will continue at Oyster Creek, a plant in Lacey Township, N.J., still in an “Alert” status due to high water levels in its water intake structure.

Are Tories anti 'bourgeois left' or just anti-green?

John Hayes comment that he does not take any notice of 'bourgeois left wing academics' (surely not referring to people like me!) may be a superficial, amusing quip, but it obscures a deeper truth - that the Conservative Party has effectively abandoned the green agenda. Although David Cameron appeared to contain Hayes' anti windfarm comments Cameron in fact said that the issue of capping windfarm development would be reviewed when the windfarm deployment targets are met. In other words a windfarm deployment cap is still very firmly on the Tory agenda. Despite Greg Barker's attempts at greenwash pr, he has presided over a massive cut in support for energy efficiency compared to the programme established by Labour.

When you put that together with the fact that the Conservatives want to pay nuclear power developers a lot more than onshore wind developers (indeed give them a blank cheque if John Hayes could get away with it) you can see that there is very clear blue water now between the Conservatives and the other main parties on green energy. With the exception, of course, of the very anti-windfarm UKIP to which the Conservatives feel they are now heavily beholden!

Yes, Labour led the charge on a supposed nuclear rennaisance from 2006 onwards, but the point is that they never actually did anything that would be crucial to bringing it about. Now I don't want to excuse their weakness in pandering to the nuclear lobby for one minute, but their policy of not offering significant extra payments to new nuclear power did ensure that the superfically pro-nuclear policy remained as just hot air. Yet now the Conservatives, having bullied the Liberal Democrats into accepting a plan to subsidise nuclear power (in all but name), threaten to hand the nuclear industry large quantities of consumers' energy bills to fund nuclear power stations instead of renewables.

The Treasury (led by George Osborne who wants to keep the anti-windfarm lobby from snapping at his heels) are insisting on a strict cap on spending on 'low carbon' sources - called the 'levy control framework'. So any money that nuclear gets will be deducted from the amount available for renewable energy. As argued in the last blog paying nuclear around £100 per MWh is uncompetitive on economic grounds compared to not only onshore wind but also offshore wind and solar pv. Remember even if the headline 'strike prices' are much the same for solar, offshore wind and nuclear, the renewables end up being much cheaper since the nuclear constructors will be given much longer contracts, 25-30 years, compared to renewables which are slated to be given 15 year contracts. So nuclear, at a 30 year contract will cost the electricity consumer TWICE as much as for a renewable source at the same strike price on a 15 year contract. And then there are the decommissioning and nuclear waste charges being funded by the Treasury to be taken into account......

Of course onshore wind, under a feed-in tariff regime (as opposed to the more uncertain Renewables Obligation) will lead to windfarm being given only around £80 per MWh for 15 year contracts under plans being considered. What sort of competition is that when nuclear power gets around £100 a MWh for 25-30 year contracts? In fact the public would much more prefer to pay onshore wind £100 per MWh (and we'd get a lot more windfarms at the higher price) than pay near that level to nuclear power!

But then the Tories are out of step with public opinion. If they listened to public opinion then nuclear would get less of a subsidy than onshore wind power, not more! (preferably none of course). As I have said, the Tories have lost possession of any significant part of the green agenda to Labour, Lib Dems, and of course the Green Party. Note that the Green Party is the only one that is unambiguously pro-wind and solar and anti-nuclear.

And yet the Lib Dems have to get Ed Davey to work harder to retrieve their claim to have a handle on the green agenda themselves. An important start in that process would be to make sure that nuclear do not get offered a higher 'strike price' than onshore wind!

And, a last comment on this post, nuclear power is hardly a 'working class' fuel compared to onshore wind power since the poor people are going to have to pay rather higher bills to support nuclear than onshore wind - according to government plans! So who has 'bourgeois' interests in mind? John Hayes, I am sure.

Government nuclear subsidy plan will breach EU state aid rules

The Government, with their proposals for a 'levy control framework' cap on spending on 'low carbon' electricity sources, are heading for a breach of EU state aid rules. This is because the Treasury are likely to reserve a specific fund to pay subsidies to nuclear power rather than make it available to 'low carbon' sources in general. Otherwise they cannot possibly justify paying more money to nuclear power developers than will be paid to onshore wind developers.

The Treasury appear to be claiming that it is handing out subsidies, through the 'contract for difference' (CfD) framework being set up by the forthcoming Energy Bill, on a 'competitive' basis that is available to all low carbon sources. But if that is the case, then why are the Government proposing to give a higher strike price to nuclear power than onshore wind? Onshore wind is tipped to get no more than around £80 per MWh. The strike price being mooted in Government circles for nuclear power (close to £100 per MWh) is the same sort of level as the government is proposing to pay for large scale solar pv and offshore wind. Moreover nuclear power developers will get this stream of money for a much longer period (25 or 30 years) than renewable developers that, it seems, will be limited to 15 year contracts. So there will be no consumer savings if nuclear power is substituted for renewables. Quite the contrary. In fact the consumer will be out of pocket if nuclear is funded rather than renewables.

The nuclear subsidy scheme has been sold to consumers on the basis that it is a cheaper way of achieving low  carbon objectives compared to renewable energy. Yet that is palpably not the case,  if, as seems now very likely, nuclear power is given more subsidies than onshore wind. In addition, public opinion surveys report renewable energy as being much more popular than nuclear power. So, with the proposed nuclear subsidy scheme, the consumer will simultaneously get both short-changed and given an energy source it least prefers.

The only way that the Government can, and it seems will, avoid this logic (of giving nuclear no more subsidies than are given to onshore wind) is by 'ring fencing' a pot of money under the 'levy control framework' to spend on nuclear. Then it will be privileging spending on nuclear rather than renewables. Yet, if it does this then it is also going to be in breach of its own pitch to the European Union, and also what it has told the British public, that the 'low carbon subsidies' are equally available to all energy sources. They clearly are not going to be available to all low carbon sources. A specific chunk is being reserved to pay nuclear power. A bundle of money has, in effect, been labelled 'to be given to EDF'. EU rules allow an exemption to its 'no state aid' rules when it comes to renewable energy. There is certainly no exemption that allows giving state handouts that are, in effect specifically labelled for EDF!