Further shift of renewable incentives towards nuclear power planned by Government

In what will be a further cut in incentives for renewable energy and shift towards funding of much more expensive nuclear power stations, the Government is preparing to 'auction' contracts for onshore wind and solar power. The auctions work by giving contracts to those bids that will involve the lowest premium prices to be paid for electricity generated.

The 'auctions' for onshore wind are a back-door method of cutting windfarm deployment by at least a half since at least half of windfarms which receive contracts will never be built because they will not be given planning consent. The system is notorious in the wind industry in the UK because it was used in the UK in the 1990s and resulted in no more than 30 per cent of projects that won contracts in the 'auctions' actually being built. Reasons for this low-take up included planning failure but also the tendency for bidders to put in optimistically low bids to obtain contracts which could not be implemented when the project economics became better known.

Far from increasing the number of windfarms (as the anti-windfarm Telegraph coverage implies) history, and logic, suggests that the number of windfarms and solar power projects will be dramatically cut. Unlike the present system of fixed tariffs for each particular technology, the quantity of capacity auctioned is strictly controlled, and no account is made for projects which fail to be built.

This move can also be seen as part of a more general trend towards shifting funding of 'low carbon' energy sources away from renewables and towards nuclear power. Nuclear power, through Hinkley C, is also poised to receive much more generous terms than renewable energy, and this move will exacerbate this trend still further.

Hinkley C is set to receive £92.50 per MWh for a 35 year contract with 65 per cent loan guarantees. Onshore windfarms will receive (from 2018) £90 per MWh but only for a 15 year contract and with no loan guarantees. If windfarms were given just 20 year contracts to receive premium prices (as applies under the Renewables Obligation which is being replaced by Electricity Market Reform) and also 65 per cent loan guarantees then the 'equivalent' price (to £90 per MWh on existing terms) would fall to around £70 per MWh - around a quarter cheaper than Hinkley C.

It is often claimed that windfarms require 'back-up' services. In fact such services are relatively cheap, and a lesser known fact is that considerable reserve capacity also needs to be built (and will be paid for by the system not the developers) to safeguard against system effects of sudden breakdowns of nuclear power stations, not to mention other in-kind incentives for nuclear power (including insurance liability).

You can see a report on this latest Government shift towards nuclear power and away from green energy at:

http://www.telegraph.co.uk/earth/energy/renewableenergy/10517240/Green-energy-cost-cutting-plans-may-lead-to-more-onshore-wind-farms.html
and issues with offshore wind....http://about.bnef.com/press-releases/uk-offshore-wind-build-out-not-certain-despite-price-increase/

Why doesn't Labour criticise nuclear funding deals?

Tom Greatrex, Labour's energy spokesperson, has criticised me and my other academic colleagues for arguing that it is now plausible to talk about Scotland having independent control of electricity policy. See http://www.heraldscotland.com/news/home-news/energy-experts-in-u-turn-on-union.22875552

But as I have told him, in an email message, a big part of the credibility behind a sustained new nuclear build-up (and hence the argument for Scottish electricity independence) is precisely because Labour appears to be giving full backing to continued efforts to roll out nuclear power stations. In its most recent policy document, for example, 'Powering Britain: One Nation Labour's Plans to Reset the Energy Market', Labour talks about continuing the system of contracts for difference for nuclear power. There is no criticism of the cost of the Hinkley C deal, or indication that Labour departs from the Government's desire to continue to give, to future nuclear power plant proposals, loan guarantees, ultra long (35 year) contracts as well as premium prices much the same level as given to Hinkley C (£92.50 per MWh).

I wrote to Tom Greatrex saying the following:

Dear Tom,

I can understand your dismay at seeing a group of academics taking a new line which does not fit in so well with the 'Better Together' campaign. I have not taken this step lightly. A key reason for this (among others), but perhaps the biggest of all, is the policy of giving large premium prices to nuclear power in the shape of Hinkley C and the Government's projections to build three twin reactors by 2030. Now if Labour had cast doubt on this plan and said it would not give anything like the strike price and loan guarantees and contract length to this or other nuclear projects this this Government are doing, then obviously there would be less argument in support of the contention that in the medium and long term very great costs would be incurred by the British consumers - and Scottish consumers of course. There would be more to spend on renewables instead or energy efficiency for the same diversion of consumer and taxpayer resources.

However, Labour appears to be conspicuous in its desire to maintain a consensus position over the projected level of nuclear funding. If it was not then you would be able to reduce the strength of the argument that we present.

The other point I would make is that having Scottish control over clean energy incentives is easily absorbed in what has been called a 'devo-plus' agenda as well as full independence. 

Best Wishes,

David Toke 

Also see an article of mine on the subject of Scotland and electricity independence in 'The Conversation' at

http://theconversation.com/scotland-benefits-by-paying-for-its-energy-not-uks-mistakes-21200

Scottish electricity consumers to get lower prices in an independent electricity system - and meet Scottish renewable energy targets

As the Press release from the University of Aberdeen says:

An analysis of the effect of recent UK government policy decisions on nuclear energy suggests that Scottish consumers could face lower prices in an independent Scottish electricity system. The report is entitled Is an independent Scottish electricity system good for renewable energy and Scotland? 

The full report can be accessed at: http://issuu.com/therobertgordonuniversity/docs/the_dreud_report_2013

A collaboration of five academic experts from different UK universities have studied the effect of two new policy developments at Westminster on the Scottish renewables industry, and the consequent impact on prices for electricity consumers in Scotland as part of the UK, and as an independent Scotland with its own separately managed and financed electricity system.

The Scottish Government is set against nuclear power plant being given planning consent on Scottish soil, and has ambitious targets to supply 100% of electricity consumption in Scotland from renewable energy by 2020.

At the beginning of 2013 the group had published a paper on the prospects for renewable energy in the context of the debate about Scottish independence (Toke et al 2013). The conclusion at that time was that it would likely be rather more expensive to reach the Scottish Government’s renewable energy targets in the case of an independent Scotland as opposed to Scotland remaining within the Union, and this would push up electricity prices for Scottish consumers.

The research project Delivering Renewable Energy Under Devolution (DREUD) was funded by the UK’s Economic and Social Research Council (ESRC) from 2011-2013 and conducted by Cardiff University, University of Birmingham, Queens University Belfast, and Robert Gordon University.

However since the paper was published there have been significant developments in UK energy policy. As a result the authors have changed their conclusions with respect to the prospects for renewables – and consequently prices - in the case of Scottish independence, or ‘devo plus’ circumstances, where Scotland has an independently managed and financed electricity system.

Their new report has looked at the implications of the UK Government’s recent decisions on new nuclear power and Electricity Market Reform for the prospects of renewable energy in Scotland.

Dr David Toke, Senior Lecturer in Energy Politics previously University of Birmingham and now Reader in Energy Politics University of Aberdeen, is lead author of both reports. Dr Toke explains:  “Two new factors radically change the context of our earlier analysis. On October 21, the UK Government announced a ‘deal’ for a new twin nuclear reactor at Hinkley C, and possibly a second twin reactor at Sizewell C. This will increase prices for UK consumers for over 30 years. However this increase would not have to be paid by consumers in an independent Scottish electricity system.

“The second development is that in June 2013 the UK Government announced incentive levels and terms for renewable energy from 2017/18 as part of its Electricity Market Reform (EMR). The level of these incentives seem unlikely to support major deployment of Scottish offshore renewable resources. The incentives for offshore wind and also tidal stream and wave power payable from 2018 under EMR have been significantly reduced, and they are critical for offshore wind schemes in deeper waters. If operating an independent system, Scotland would be free to set its own incentives for development of offshore and onshore renewable schemes. Furthermore the cost of these and other technologies such as solar pv is likely to reduce, while English and Welsh consumers are still paying premium prices to support the new nuclear power stations.

“We previously argued that that, relative to remaining with the Union, Scottish Independence could substantially increase the cost to Scottish consumers of achieving its renewable energy targets. However, having reviewed the impact of the Government’s recent decisions on nuclear power and incentives for renewables, we believe that this is no longer the case. Moreover, the notion of Scotland having its own renewable energy support mechanism (and indeed its own electricity market arrangements) is no longer necessarily detrimental to the prospect of renewable energy in the long term. On the contrary, on the basis of the evidence we have considered, we believe that Scotland’s renewable energy programme would now benefit from having an independent electricity system and support arrangements for supporting non-fossil fuel sources of electricity.”

ENDS

Notes to editors

The full report Is an Independent Scottish Electricity System now a good solution for renewable energy?  is available as a pdf from Communications at University of Aberdeen

Contact Shaunagh Kirby on 01224 273108 s.kirby@abdn.ac.uk

The authors of the report are: David Toke (University of Aberdeen, previously University of Birmingham), Peter Strachan, (Robert Gordon University), Richard Cowell (Cardiff University), Fionnagala Sherry-Brennan (Cardiff University), Geraint Ellis (Queens University Belfast) 

Chinese demand right to build UK power plants as price for Hinkley C

The still tentative nature of the Hinkley C 'deal' is being emphasised by reports that the Chinese government are demanding a cast-iron commitment from the UK Government to let them build Chinese owned power plant in the UK. If the UK Government agree, this will be yet another step down the slippery slope towards paying a higher and higher price for the sake of keeping face on its badly thought-out new nuclear build programme.

See http://blogs.ft.com/nick-butler/2013/12/01/hinkley-point-is-the-new-nuclear-deal-on-or-off/

What could be next? We already know from answers to Parliamentary Questions that the Government have not ruled out altering the strike price, which means that future prices could be increased as costs overrun. We know that the Government will be hooked up to payout on its agreement to give loan guarantees if the plant does not start generating on time and loan repayments fall due with no income stream to pay them.

However we are unlikely to know for sure how much the plant will cost and how much the Government will be paying for many years yet. Indeed the whole project could be delayed for a long time by haggling at the European Commission. Their permission is required for state aid if the Hinkley deal is to go ahead, and that permission could be a long time coming. The EU law says that the UK Government can only formally demand a response after 18 months, after which the Commission is duty-bound to give a ruling within a further two months. In fact the 18 months falls dues around 3 weeks or so before the 2015 General Election. This means that it may well be up to the next Government to take a final decision over Hinkley C. Negotiations at the EU may bring demands for a revision of the deal, something that the UK Government will resist since it is likely to unravel if the terms are made tougher for the developers.

The leadership of the Government, guided I am told through the cabinet office, is determined, despite doubts in the Treasury, to force through the nuclear deal in order to satisfy critics of the Government's credibility on its energy policies. But in reality nuclear power does nothing to stop blackouts. This is because putting more nuclear online simply leads to the same amount of planned gas generating capacity being cancelled. Also it makes balancing the grid with a large proportion of renewable energy more difficult since nuclear power has to be kept running as much of the time as possible. Nuclear power saves carbon emissions, but so do renewables of course, support for which is set to start tapering off from 2017 under the Government plans.

It does seem implausible that the Government would carry on funding a sizable renewable energy programme at the same time as a nuclear one. Otherwise, with three twin reactors planned for 2030, electricity prices will rise by over 10 per cent with both a renewables and a nuclear programme, or just 7 per cent with just new nuclear being funded (with the nuclear prices rises lasting some 35 years, much longer than the incentives for renewables).

So the Government's price for its nuclear programme will include hefty price rises for an increasing size of the UK electricity market being owned by the Chinese Government.