Does Caroline Flint need lessons in arithmetic over nuclear and renewable costs?

In a remarkable piece of double-think Caroline Flint, Labour's energy spokesperson, has declared that nuclear power in the shape of Hinkley C is 'cheaper than other forms of renewable energy'. This assertion flies in the face of the numbers. She rules out the possibility of a Labour Government renegotiating the Hinkley C contract.

See http://www.theguardian.com/business/2014/feb/23/labour-edf-nuclear-power-deal-hinkley?CMP=twt_fd

For the moment, let us leave a critique of the extremely tendentious re-designation of nuclear power as a 'renewable' source of energy for another time. Let us look at the numbers. The simple mathematics of government incentives for nuclear and other renewables demonstrates that Caroline Flint's logic flies in the face of reality.

Hinkley C has a contract for 35 years, with loan guarantees for the bulk of the investment, at a strike price of £92.50. This price will be increased in line with the the CPI measure of inflation so that by the time Hinkley C starts generating (they say in 2023) the strike price will be well over £100 per MWh. Meanwhile onshore wind is actually being given a lower strike price than this from 2016 (£90 per MWh) with only a 15 year year contract and no loan guarantees. If Hinkley C didn't receive the loan guarantees, the required strike price for nuclear would be guargantuan, and if wind power got the loan guarantees and a longer contract during which the strike price is payable for units of electricity generated then the amount of money required for the wind power would be a lot less than £90 per MWh. And in reality the cost of offshore wind would be competitive with nuclear as well if these other support measures are taken into account.

Then there is solar power, which will receive £100 per MWh from 2018, and this will be less than Hinkley C, especially when the longer contract and loan guarantee support for Hinkley C (which solar doesn't get) are taken into account. Indeed the Solar Trade Association asked for £91 per MWh from 2018 for large solar arrays on account of continued falling prices. Continued falling prices, note, not continued upward prices as in the case of nuclear power!

See See http://www.businessgreen.com/bg/analysis/2317001/renewable-energy-strike-prices-to-deliver-gbp40bn-of-new-investment

UK welfare state gives poor little more purchasing power than the US welfare program

I don't know about you, but I grew up under a belief that the British welfare state protected its population from the worst excesses of poverty, especially hunger, much better than the less caring US state. But the figures now suggest that this just ain't so true anymore. Moreover as hunger stalks major sections of the US population this scourge increasingly penetrates more and more sections of British society. Essentially this means that the poor in the UK will, in terms of per capita welfare spending, only have around 14 per cent less purchasing power than a poor person in the USA. This calculation excludes spending on pensions.

But things are threatening to become a whole lot worse in the UK for the poor. The Conservatives are pledging to roll back welfare budgets by further massive amounts. See George Osborne's 'pledges' on
http://www.telegraph.co.uk/news/politics/10513658/George-Osborne-Tories-will-slash-welfare-state-by-billions.html

This means the UK is surging towards a race to the bottom on protecting the poor from starvation with the USA. And things are pretty bad there already. According to Wikmipedia : 'Research from the United States Department of Agriculture found that 14.9% of American households were food insecure during 2011 'By 2011, a survey found that among 20 economies recognized as advanced by the International Monetary Fund and for which comparative rankings for food security were available, the U.S. was joint worst' http://en.wikipedia.org/wiki/Hunger_in_the_United_States


Meanwhile, the better off in the UK (and the USA) don't want to pay higher taxes. Do they prefer people to starve?

You arrive at the comparison between US and UK spending if you compare US and UK per capita welfare spending (minus pensions) and convert the British figure into a measure of its actual purchasing power using OECD Purchasing Power Parity data. See links to data tables below. Population figures used to derive per capita figures were based on 2011 estimates of population.

2014 UK spending on welfare items: family and children, unemployment, housing and social exclusion, £81.5 billion, in $PPP equivalent, $117.5, divided by 63.2 million population gives $1860 per person

2014 US spending on welfare items: family and children, unemployment, housing and social exclusion, $497.4 billion, divided by 312 million gives $1594 per person



http://stats.oecd.org/Index.aspx?datasetcode=SNA_TABLE4

http://www.usgovernmentspending.com/us_welfare_spending_40.html

https://docs.google.com/spreadsheet/ccc?key=0AonYZs4MzlZbdHNXNW4yTlNMZllOZmRSOTRWTDNwWXc#gid=11

For an insight into some facts that popular prejudices about welfare spending obscures, see an article in the Guardian:
http://www.theguardian.com/politics/2013/apr/06/welfare-britain-facts-myths

Will Miliband's price freeze backfire?

Politicians feel driven to ride populist tigers, but the simplistic solutions that such adventures often involve lead nowhere at best - or worse. The same may be the case with Labour's apparently bold energy policy to freeze energy prices and reform the electricity market. Now I don't want to impugn on Ed Miliband's motives here - indeed his motives whilst Secretary of State for Climate Change (2008-2010) were as close as it gets for Government (not that close!) to the policies preferred in this blog. He pushed through the proposals for the small feed-in tariff, and contrary to what usually happens, rejected a lot of the blandishments of the Big Six who wanted to limit the scheme as much as possible. He also tried to reform the market rules to increase competition to help energy consumers. But, as has tended to happen to most if not all of the efforts to change the electricity markets since privatisation, the Big Six have always managed to use changes, or secure compromises, in the legislative proposals to buttress their position.

Now independent consultants (who work in the independent sector) are warning that Ed Miliband's proposed prize freeze, as popular as it may be, will do no good in practice, and may backfire especially for the independent suppliers that presumably this drive is supposed to benefit in the name of increasing competition. Put simply, the Big Six are in a better position to manage the situation. See
http://www.cornwallenergy.com/News/Press-releases/Independent-suppliers-face-friendly-fire-danger-from-energy-price-freeze

Labour's proposals to separate the energy supply and energy generation markets are good in theory. In theory this could help to give an incentive to electricity suppliers to help balance renewable energy suppliers by offering incentives to consumers to consume when there is a lot of wind and solar power and consume less fossil fuels at other times. Those incentives do not exist in a market where the suppliers, as at present, are run by the generators and so will want to supply more energy from their power stations rather than encourage consumers to consume less at certain times. But in practice, as in the past, when it comes to shaping the new rules, the Big Six will quite probably squeeze through 'concessions' to allow them to carry on promoting power station production in preference to balancing, or energy efficiency for that matter.

Indeed, Labour's proposals seem to reduce most things to what passes as populism for the elites - promoting neoliberal soundbites about how it is that lack of competition is the problem. But pure competition is an elusive property guarded jealously by economists and their squiggles in a fantasy world, and in the real world 'competition' is something that is dominated and defined by existing institutions of myriad sorts. The Big Six who know how their businesses work are able to use and get the rules that favour their interests and their notion of competition will favour them. They will intervene with the civil servants and politicians (who do not, as a rule, know the business very well, especially its arcane complexity) to ensure that any proposals are tempered so as to maintain their interests in one way or another.

So when it comes to solving problems that can be solved (as opposed to making gas supplies cheap, which is almost solely dependent on international factors), Labour's narrative relies on the usual notions of improving 'competition'. Its solution to the problem of independent generators not having more contracts is to make the electricity markets more transparent and 'competitive'. In other words, the end result will be to allow the Big companies to continue to use the rules to their advantage.

A truly simple solution would be for the Government to ensure that independent generators had access to feed-in tariffs, much on the same basis as the small feed-in tariff operates, or some model as has been proposed like the 'Green Power Auction Market' (GPAM) suggested last year. That means taking action that increases the institutional clout of the independents so that they get contracts as of right, not proposing more competition that ends up being hijacked in the interests of the establishment.

So what is the solution? Well of course legislation is important, but as the campaign about small feed-in tariffs in 2007-2008 demonstrated, it is bottom up action by the grass roots to get alternative energy schemes going that will force the politicians to support their interests. So what should we do? Well if you are a councillor, use what powers you can to make developers build to the highest standards according to the 'Code for Sustainable Homes', get your company/organisation to build houses according to the 'Passivhaus' standard, start a community renewable scheme, put a solar panel on your roof etc. The political power of green activists, when they get their act together and ally with nascent or actual existing new energy interests and environmental NGOs such as Friends of the Earth is potentially considerable; in practice rather stronger than the leverage of independent suppliers or generators on their own.

But for the moment we are stuck with populism, whether promises of price freezes to encourage the masses or pleas for more competition to satisfy the elites.

You can read Labour's policy here, which, sadly, offers little hope that the diversion of funds from renewables to nuclear under EMR will be changed.
 http://www.yourbritain.org.uk/agenda-2015/policy-review/policy-review/energy-green-paper?download=true

Government to let energy bills soar by cutting back on energy efficiency requirements

Hot on the heels of Government tax breaks for unsustainable fracked gas supplies and loan guarantees and 35 year contracts for nuclear power stations the Government is planning to scrap rules that allow local Councils to plan for energy efficient houses.

Moving under the cover of scrapping regulations on industry the Government, in flagrant breach of its claims to have low energy bills at the heart of its concern, is planning to scrap the 'Code for Sustainable Homes'. This was introduced by the Labour Government to allow 'bottom-up' action by local councils to require developers to build houses that will result in lower energy consumption by being more energy efficient. Not only will generations to come be saddled with the consequences of exhausting natural gas supplies, having to carry on paying until 2058 for Hinkley C (assuming it actually starts in 2023 as planned), but they will now be saddled with increased energy bills associated with living in homes that will require more energy as a result of the Government's policy.

Of course the Government does not like local people being given power to protect the planet. The Government's priorities, by contrast, are to give increased powers and increase regulations and incentives to allow multinational corporations to increase energy supplies.

You can see below a statement from last November by the Environmental Audit Committee on the Code for Sustainable Homes including a call to the Government not to scrap it, and you can see a report in yesterday's Business Green about the government's latest step in its campaign against green policies.

http://www.businessgreen.com/bg/news/2325156/green-building-council-slams-camerons-poisonous-attack-on-green-regulations

http://www.parliament.uk/business/committees/committees-a-z/commons-select/environmental-audit-committee/news/code-for-sustainable-homes-report-published/

Easy ways to make offshore wind appear a lot cheaper which are being ignored by the Government

The Government are busy saying that offshore wind can only be implemented in the future if its costs come down - yet some very simple ways of reducing the headline prices that consumers will have to pay can be implemented, but are being ignored, by the Government.

A very simple way of reducing their headline costs is simply to extend the length of the power purchase agreement from 15 years to at least 20 years (under the Renewables Obligation the agreements last for 20 years, so why not under Electricity Market reform?). That would reduce the headline price needed for a given scheme by around 8 per cent. In addition to this the Government could also offer loan guarantees to offshore windfarms similar to that offered for Hinkley C. That would reduce costs by around a further 15 per cent.

Currently the loan guarantees on offer for low carbon energy sources seem to be focused on Hinkley C (for 65 per cent of the investment) and some biomass power plant, led by what would still be a 50 per cent coal fired Drax power station. Only one offshore project, Neart Na Gaoithe, off Fife in Scotland, has been put on the 'prequalified' list for loan guarantees for the purposes of building the turbines and bases themselves, and this windfarm has been spectacularly ignored by the Government when it issued its list of projects that will receive 'investment contracts'. See http://news.scotland.gov.uk/News/Offshore-wind-decision-must-be-reversed-7a3.aspx

Of course a more imaginative scheme for offshore wind might give them 35 year contracts (the same length offered for Hinkley C). This would reduce the headline price for offshore wind even further. Indeed, state-backed companies such as DONG (Denmark) could play a similar role performed by the putative (state owned) French and Chinese backers of Hinkley C and take a longer view on investment returns than that which appeals to privately owned companies. Certainly, in the case of offshore wind there is plenty of scope for long term thinking since after 15 or 20 years the blades and perhaps other parts can be replaced with what will be by then more updated models, whilst utilising the base infrastructure that will have been installed and paid for (a 'sunk' investment in more ways than one).

The Government has already indicated that future proposed nuclear projects will be considered for loan guarantees. Indeed we know that they cannot be built without them. So why is it not practice to extend loan guarantees to offshore wind projects as a matter of course? Or is it just that the Government prefers to see offshore wind look, in headline terms as though it will cost the consumer more than nuclear power?

You can see the list of the Government's 'pre-qualified' projects at:
https://www.gov.uk/government/publications/uk-guarantees-scheme-prequalified-projects/uk-guarantees-scheme-table-of-prequalified-projects

Is Toshiba's nuclear project really cheaper than Hinkley C?

Evidence from the USA casts a lot of doubt on hopes that the AP1000 design promoted by Toshiba for the planned 3.4 GW development in Cumbria will be cheaper than Hinkley C. Toshiba, the majority owners of the NuGen franchise, and hopeful developers of the plant say they will ask for a lower price than the £92.50 given for Hinkley C. Well, good luck to Toshiba in finding investors, even though, no doubt they will (like Hinkley C but unlike renewable energy schemes) be offered a very valuable amount of loan guarantees from the UK Treasury and extra long premium price power purchase agreements that last 35 years.

Cost overruns for the first nuclear power plant being started in 30 years in the USA, in Georgia, are already mounting, and the project, now well over $14 billion for the 2.2 GWe development, hardly looks cheaper than  than Hinkley C. Indeed, given that the projected costs of building Hinkley C (not including the money already spent) is around £3.9 billion per GWe you could argue that the equivalent cost of the AP1000 Vogtle project in Georgia is already more expensive than Hinkley C, GWe for GWe!

In Georgia there is a retail monopoly and state regulations allow consumers to be charged money while the plant is actually being built - a form of automatic cost recovery. The developers get paid even though no revenue is actually generated!

There are efforts to build nuclear a nuclear plant in North Carolina (with consumers being asked to pay extra in advance as in the case of Georgia), but the much hyped nuclear renaissance is just not happening in the USA. Indeed, nuclear generation is actually falling in the US. The reasons given for all of this is that natural gas prices have fallen, dishing plans for new nuclear reactors. However the decline in natural gas prices in the USA does not seem to have stopped the continued expansion of building of wind power and solar pv across the USA. Georgia appears to be the only place in the USA that is clearly bucking the trend, and that may have something to do with the fact that wind and solar developers in the state cannot get hold of power purchase agreements at practically any price whilst nuclear developers get paid without producing any electricity at all!

Toshiba appear very confident about their NuGen development, but they will need investors, which may be hard to find, unless the UK Government gives a virtual 100 per cent blank cheque through a loan guarantee as opposed to the 65 per cent guarantee offered for Hinkley C. Investment from British electricity companies seems unlikely, although maybe, like EDF, Toshiba can fix up an agreement with Chinese companies........hmmmm, there's some interesting politics there that may make it a long shot! But even then, with a project that may (especially after more experience building the project in Georgia) not be plausible with a much reduced price compared to Hinkley C, this looks quite shaky.

See extended version of this article on http://www.theecologist.org/blogs_and_comments/commentators/2240101/toshibas_nuclear_project_cheaper_than_hinkley_c.html

You can see coverage of these issues on the following sources:

http://www.thetimes.co.uk/tto/business/industries/utilities/article3975584.ece

http://southeast.construction.com/southeast_construction_projects/2013/0821-builders-of-vogtle-nuclear-plant-face-growing-costs-concerns.asp

http://www.post-gazette.com/businessnews/2013/10/20/Westinghouse-clashes-with-Georgia-Power-over-nuclear-plant-cost-overruns/stories/201310200290

http://www.nytimes.com/2013/06/12/business/energy-environment/nuclear-powers-future-may-hinge-on-georgia-project.html?_r=0&adxnnl=1&pagewanted=all&adxnnlx=1389784183-GAJTxttz5oFTS/1NeXu//w

http://cleantechnica.com/2013/06/06/1-billion-dollar-nuclear-plant-dropped-in-iowa/

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/