Hinkley C: A Secret blank cheque is in the post (update)

Update - well, I wrote this under the expectation that the Government would soon formally agree a contract with EDF, they would go ahead, and later on EDF would come back for more money as the project exceeded its budget with the usual construction delays.

But as Mark Johnson has kept reminding us, the contract has never been signed. It is just a proposal, and a proposal which even if issued would only partially underwrite the deal. Perhaps this is not enough for EDF and their Chinese allies. Certainly it appears that the Chinese interests want some government to underwrite the deal, whether it be the French or British Government - to issue a water-tight bank cheque. But the Treasury is saying at least that they don't want this.  But what is the case is that there is a widespread belief that this is a project that should not go ahead even among many nuclear supporters. So, as yet no blank cheque has actually been received by EDF for Hinkley C!

But, here's the bad news - Labour think tank IPPR and, it seems, the Labour Energy Team now want to offer them a blank cheque for real! See my June 2015 posting 'Pressure Grows for blank cheque for Hinkley C'

This is the version I wrote in 2013:

The Government's hoo-hah over the Hinkley C nuclear deal hides what should be regarded as a decision by the British state - after denying it for years - to give a blank cheque for the power plant. In that sense, the headline price, whether £90 or £93 per MWh over 35-40 years does not really mean very much. All it means is that the owners of the power plant will get the returns they want (provided the plant actually works) no matter how much the plant actually costs or how long it takes to build and how much interest charge is racked up in the process. The state will take the losses, and given the history of nuclear power, this is all but assured. Never mind the fact that all of the competitor renewable energy plant have to take and pay for their own risks, nuclear is to be given a special, state-bankrolled place in the firmament, with a price tag attached as a bit of window-dressing. The cost of Hinkley C, when calculated on the same basis as other generation technologies, is more like £150 per MWh or higher, depending on the assumed contract length.


The consumer is now to be locked in to a deal which will shut out what are now, and what will assuredly be even more so in the decades to come, much cheaper alternatives, and be committed to pay extra for the near certainty of extra costs in future years on top of the declared 'strike price' of £90 or so per MWh. That is a key thing to remember. The fact that this deal breaks the key Government  commitments to financial competitiveness and previous refusal to 'underwrite' nuclear costs is interesting, but secondary to this point. We are to be kept in the dark about the extent of the Government's commitments to EDF in this deal. The details will leak out in the years to come, of course, and people will ask, how can this happen? How indeed! Not only will we witness in the unfolding years the very high probability of the usual nuclear saga of cost overruns, lengthening construction schedules, and blaming of this Government by future Governments, but once again the state will have paid heavily for this technology not just as it is being built, but ultimately to dismember it and take care of its nuclear waste products for decades and centuries to come.

I have observed in the past that Hinkley C would not be built without a blank cheque - indeed I assumed that since the Government kept denying that it would agree to this, the natural assumption was that Hinkley C would not be built. But now it seems the pass has been well and truly sold. All that remains now is for us to wait for the European Commission to take its time to approve the deal, and then the tragic comedy show of what could well be one of the last (if not the last) nuclear power station(s) built in the West will begin.

There is a lot of coverage of this, but of course, see


http://www.telegraph.co.uk/finance/newsbysector/energy/10384745/Chinese-companies-to-buy-big-stake-in-next-generation-of-British-nuclear-power.html

and of course the key passage:

'Treasury negotiators are said to have made concessions on power prices, profit sharing and construction guarantees to achieve a breakthrough in talks that have teetered on the brink of collapse'

Does the deal with EDF mean the Government is handing EDF a blank cheque now?

There are reports in today’s Times of a deal between Government and EDF involving a strike price of £93 per MWh over 40 years for the Hinkley C project. This obviously involves an enormous public commitment, but how enormous is this? The terms matter very much, including,

1. What agreement is there about ‘underwriting’ the construction risk of the Hinkley C project

2. What are the terms of the £10 billion guaranteed loan 

3. Is this strike price to be 'inflation' uprated in line with CPI or RPI? (the renewable incentives are being uprated in line with the inferior CPI)

4. Are there any provisions for altering the ‘strike’ price in future in an upwards direction? 

5. Is it not the case that the ‘deal’ will allow EDF to part-complete Hinkley C having overrun costs and exhaust the £10 billion Treasury loan and then demand more money from the taxpayer/electricity consumer to complete the project?

 All of this is important in the public knowing what the extent of the liabilities to which the electricity consumer and the taxpayer is being committed. Certainly, just on the basis of the strike price payments, without any of the public risk undertakings being included, this means that the public would be committed to paying around £100 bn to EDF for the electricity generated.  Assuming a wholesale electricity price of £50/MWh (roughly what it has been recently), this means a public ‘excess’ payment of at least over £40 billion over this period over and above what is likely to be needed to get the energy from other sources – and even this £40 billion plus excludes the costs of the risk of the project which is being supported by the taxpayer through loan guarantees. The project is said to cost £14 billion.

The prospect of a public underwriting of £10 billion loan guarantee could potentially mean that the nuclear power station could be part-built, that the project costs could overrun, and that the taxpayer would then have to come up with even more funds to complete the project under a further funding regime, much as what happened with Sizewell B.

That is what could happen if EDF gets what could well be (depending on the detail) a blank cheque for the project. The question is will we get to know about the extent of our commitments, or will we, as usual with nuclear power, only find out some of the extent much later on? Remember, just before the 2010 election the Conservatives said that they would not agree to the costs of nuclear power being underwritten by the Government. 

What is certain is that when all added together, the costs of getting energy by paying for electricity from Hinkley C are more than what it would cost people to get the same amount of electricity from renewable energy sources such as wind power and solar power, not to mention various energy efficiency possibilities.

Why the Government's planned renewables programme is mostly fantasy

Publicists at DECC and the Treasury deserve credit for convincing people that renewable energy will continue to build up at much the same rate as at present, because close inspection of the plans reveals that behind the smoke and mirrors the incentives for renewable energy planned under Electricity Market Reform (EMR) are being severely cut back. Indeed the Government plans really do deserve the description of fantasy since the public debate about the alleged impact of so-called renewable 'subsidies' on energy prices has very little real connection to what Government policies will actually produce.

The bulk of the incentives that are alleged to help new 'green energy' will be bound up with the 'carbon floor price' mechanism, which, since it is really a carbon tax, will serve as a revenue raising device for the Treasury and a cash cow for EDF's old nuclear power stations, but will have no discernable impact on developing new renewable energy schemes. The rest of the incentives will only be spent at a low level since they are set at such a puny level that little development will take place. The Government's 'green deal' for energy efficiency is practically a joke (with a miniscule uptake) whilst the incentives for renewable energy will be sharply reduced compared to the incentives currently available under the 'RenewablesObligation' (RO). On top of this the Government continues with a pantomime presentation about how 'community renewable' schemes will be given extra support whilst the reality is that the incentives on offer amount to much less than schemes organised by the Big Six and, incidentally, barely half the headline rate that has been suggested that nuclear power should receive (with nuclear power getting loan guarantees and much longer contracts to boot).

You might ask how the Government is able to get away with this. I wonder too. The renewable trade associations are the obvious candidates to shake the tree about what is happening (or not happening) on the renewables front, but they are probably worried that a more aggressive stance will lead to the disappearance of even the meagre incentives that are already on the table. Certainly some of them are funded through membership subscriptions by companies associated with the Big Six who are anxious to hang on to the excess profits they make from onshore wind power under the Renewables Obligation. They may see it as compensation for losing the income from their power stations that results from having more renewables online.   But it is notable that the quiescence of the renewable trade associations stands in contrast to the aggressive and well-resourced campaigns by EDF to push their case for ever-more types of support for the proposal at Hinkley C.

As I commented in the previous blog post, the proposals under EMR will mean that renewable energy subsidies are cut by around 15 per cent under the guise of having more cost-effective contractual arrangements using a feed-in tariff. The headline figures for the incentives are much the same as in the case of the RO, but the terms are very inferior, with less allowance for inflation and the contract length during which the premium prices will be paid reduced from 20 years under the RO to 15 years under EMR.

But as explained in the previous blog post, this will simply mean that the onshore wind developers, who are beholden to the Big Six to get power purchase agreements, will get their income stream reduced by large amounts compared to what happens under the RO. The point is that the RO implicitly gives the Big Six  a substantial 'creamed off' incentive to give contracts to supply electricity to the actual renewable developers. The Big Six will still want their cut under EMR, so, in effect, the developers will get their real income stream considerably reduced. This will mean a lot fewer projects going ahead even onshore, and there are unlikely to be many (if any) offshore wind projects going ahead. The Big Six seem to work within tighter margins in the offshore sector, so reductions in support there simply mean that very little development will take place under the incentives available under EMR.

The only way that the feed-in structure could work, for onshore schemes, given the incentive levels offered, would be to offer the contracts directly to the independent renewable developers (including the community projects). But Ed Davey has flagrantly failed to come up with a scheme to do this. Instead he appears to be allowing a system that will continue to allow the Big Six to cream off their excess, unearned, 'economic rent' from the onshore wind sector. The feed-in tariff scheme is effectively only available to the major electricity companies. It amounts to a cruel political joke to compare this contorted so-called feed-in tariff to the German feed-in tariff mechanism scheme when the whole point of the German scheme is to give rights to independent developers rather than the utilities. The ugly British version does the precise opposite! We should call the system something else. I shall call it the 'Big Six Utility tariff'. I encourage all readers to follow suit.

The Government is currently pushing proposals to expand the remit of the small feed-in tariff schemes up from 5 MW to 10 MW, in doing so giving the impression that all is well with community renewable interests. But this is an even worse piece of fantasy than the claim to be funding larger scale renewables. Under the current scheme the rates set for schemes larger than 1.5 MW are so derisory that nobody would ever bother using this mechanism for a project of this size. Extending the remit of the small feed-in tariff scheme is nothing but a smokescreen for a complete failure to incentivise the community renewables sector on a commercial basis.

At the end of this blog post I paste below some links to the tariff structures for pv and non-pv feed-in tariff rates to demonstrate what I mean.

Perhaps the scale of the Government deception is obscured partly because, under the RO, wind power deployment has been booming over the last 2 years. But that fact is itself largely explained by the knowledge among the industry that the good times are coming to and end. EMR will be phased in from next year until 2017, and advance power purchase agreements available for developers are becoming scarce even during the phase-in period. But whereas some renewable energy development has been growing at over 2 GW a year in the recent period, it is difficult to see how development will be more than 500 MW per year after 2014.

We do hear tales of tidal schemes being given planning consent in the Pentland Firth. But there is a lot more fantasy here, because the banks are unwilling to lend to these still innovative projects without loan guarantees. So unless they get the same sort of 'underwriting' loan guarantees that Hinkley C will need to go ahead, none of the substantial wave or tidal schemes will go ahead.

When David Cameron implies that renewable incentives can be cut, far from overstating the case he is actually understating it. The incentives are being cut back drastically, and the Lib Dems are proving to be little more than alibis to provide cover for this reality.


https://www.ofgem.gov.uk/ofgem-publications/58940/fit-tariff-table-1-april-2013-non-pv-only.pdf

https://www.ofgem.gov.uk/publications-and-updates/feed-tariff-scheme-tariff-table-1-october-2013-31-december-2013-pv-only

Will somebody tell the Lib Dems that the Tories have ALREADY cut renewable subsidies

Liberal Democrat ministers are anxious to say that they will stop Tory plans to cut renewable energy subsidies, but this is undermined by the fact that the premium prices paid for renewable energy have already been sharply reduced as a result of Electricity Market Reform (EMR). According to the Lib Dems the Tories cannot cut the rates payable to wind power and other renewables because they are being set in law under the EMR legislation and regulations. See http://www.theguardian.com/environment/2013/oct/07/lib-dems-tory-renewable-energy-subsidies

Well, that makes much less difference than it seems. The Lib Dem claims ignore the fact that the rates payable for wind and solar power are being slashed by large amounts under the EMR settlement - that is compared to what is paid (currently, and until 2017) under the Renewables Obligation (RO).

Under the RO the total income stream payable for onshore wind is around £95 per MWh and £135 per MWh for offshore wind, both payable for 20 years and at inflation adjusted rates according to the Retail Price Index (CPI). Although the EMR rates from 2018, at £90 per MWh for onshore wind and £135 for offshore wind look superficially similar to this they are undermined by three important factors.

The effect of these factors is to reduce the equivalent value to what is now paid through the RO to around £82 per MWh for onshore wind and around £117 per MWh for offshore wind (according to my spreadsheet calculations).

There are two principal reasons for this (about 13 per cent) reduction in the value of the income stream under EMR compared to the RO. First, the length of the period during which the premium price is payable is reduced from 20 years under the RO to 15 years under EMR. Second a different form of inflation adjustment is being used to calculate the future premium levels. The Consumer Price Index (CPI) is being used for EMP uprating which, because of its mode of calculation, fails to keep pace with price increases in the real world. The more accurate RPI is used under the RO.

Then there is the third factor. The story put about in defence of these reductions is that because of the 'firm'contracts available under the EMR, as opposed to the relatively greater uncertainty about future income streams under the RO, means that the EMR payments reduce 'risks' and therefore investment costs. So, it is claimed, the costs of developing projects are reduced.

But in reality this will not happen because of other elements of EMR. You have to remember that the RO has worked on the basis of giving a big cash handout to the Big Six electricity suppliers to give contracts (power purchase agreements) to renewable generators to supply them with electricity. In doing so the Big Six electricity majors could cream off a lot of the income stream under the argument that they were giving firm contracts to the generators (often owned in alliance with the Big Six themselves) and taking the 'risk' themselves. The renewable generators themselves would only get a portion of the total income stream available for renewable projects.

So what the Government has done, in effect, is to remove the 'cream' that was being absorbed by the Big Six. But the Big Six will still want to earn their own cut, but will do so by giving the renewable generators rather less than they were receiving before.

Of course if we had a 'fixed' feed-in tariff this problem would be reduced since independent renewable generators could access the premium price contracts directly, so avoiding having to pay the ''cream to the Big Six. But they cannot do this under EMR because the 'contracts for difference' (CfD) can only be accessed by major electricity companies. See earlier blog posts about all of this.

So, in effect, either the Big Six are expected to give contracts (power purchase agreements) to independent renewable generators and forgo the creamed-off-profits they are used to under the RO, or they will cut the value of the 'firm' contracts that they give to the independents. The outcome is likely to be that the Big Six will just cut the value of the PPAs that they give out to the renewable generators. This means that the annual rate of renewable energy deployment will fall considerably. Many projects that would be built under the RO  will now be uneconomic

Of course Ed Davey could have fought harder to ensure that the independent generators had a better mechanism for gaining PPAs, whether through a fixed feed-in tariff mechanism or through the 'green power auction market' (GPAM) proposal. But he has not done this. He has, after various signals suggesting he could do otherwise, come out with a proposal that will allow the Big Six to carry on making their unearned income out of renewable energy project. In effect, he has well and truly sold the pass while claiming to do otherwise.

Ed Davey, by the way, has been claiming that he will not agree to 'underwrite' investment costs Hinkley C. According to press reports, he is about to sell the pass on that one too. If he does will have the ugly prospect of a hamstrung renewables programme whilst a blank cheque being given for new nuclear power. But whatever happens, if Lib Dems claim to be able to stop Tory cuts to renewable funding, they are wrong. They have already not only sanctioned it but connived to see this change hidden behind Treasury smoke-and-mirrors.

Labour price freeze pledge will mean cancelling carbon tax increase

Ed Miliband's headline grabbing pledge to freeze energy prices unti 2017 must mean the cancellation of the planned increase in the 'carbon floor price' brought in by the Coalition Government.

The carbon floor price is set to increase sharply. The carbon floor price, a Treasury tax that keeps up carbon prices in the UK, effectively pushes up electricity prices because the increased price of carbon allowances (associated with the EU's Emissions Trading System (ETS) makes electricity from gas and especially coal more expensive. According to the Government's plans it will increase prices significantly by the likely general election date in 2015. But it is set to increase thereafter as well. If Ed wants to freeze electricity prices he will have little alternative but to cancel the proposed increase. See details of the projected price rises at:

http://www.hmrc.gov.uk/budget2013/tiin-1006.pdf

But what is in doubt also is that George Osborne will be able to sustain the increase until then anyway. A fall in energy prices may make this politically possible, but otherwise pressure will mount against what is really a carbon tax. The majority of the proceeds go to the Treasury. You may ask why I, as a green energy supporter, might not be too upset that this increase is cancelled. Well, the truth is that the carbon floor price does next to nothing to encourage new green energy investments because of the uncertainty about the future levels of the tax. All the carbon floor price does is, for the most part, keep old nuclear power stations running and give EDF a financial boost.

Offshore wind, energy efficiency, solar pv  loses out in favour of more tax receipts

Really it would be much better to have a smaller tax and target it to be spent on energy efficiency, offshore windfarms and solar pv. See Transform UK for their programme on energy efficiency and the failings of Treasury policies at http://www.transformuk.org/en/articles/932/budget-chancellor-gives-no-help-to-households-to-bring-down-/

Feed-in tariffs for offshore windfarms are set to fall to £135 per MWh after 2018. This sounds a lot, but the small print on the Government's EMR programme is that the government's version of feed-in tariffs aren't anything like as high as they appear when compared to the effective payments available under the existing Renewables Obligation (RO). That is because the Government's terms for the new feed-in tariff are very inferior to the RO. For a start the premium prices will only run for 15 years as opposed to 20 under the RO. Secondly there will only be a partial inflation adjustment since the 'consumer price index' (CPI) will be used which simply fails to keep pace with inflation that is more accurately measured by the Retail Price Index (used to uprate inflation under the RO). So £135 per MWh is more like £115 per MWh when compared on the same terms as the RO.

The Government are using smoke and mirrors to engineer a policy that claims to deliver green energy but in fact delivers little but higher tax income and more  money for EDF.

Can Ed think of a better policy than this? I hope so, because for offshore wind after 2015, and solar pv and energy efficiency even now,  it could not be much worse under current Government plans

Eurosolar co-operative prizewinner to speak at event discussing what makes for success in community renewable energy schemes

How can community renewable energy schemes be successful?

A half day seminar at Aberdeen University – sponsored by the School of Social Science, University of Aberdeen

This seminar will look into factors that affect the success of community renewable energy schemes, and innovative means of achieving this. Attendance is free of charge. Henning Davidsen, organiser of the prizewinning 'Hvide Sande' cooperative wind power project will be among the speakers.

Date and time: Wednesday November 20^th, 12-5pm, University of Aberdeen, King St, in room NK14, New  Kings College Building on the main University (Kings College) campus. If you want to attend,  register with David Toke by sending an email to d.toke@abdn.ac.uk and you will receive further details.

Schedule and Speakers:

12.10-12.30 – tea and coffee

12.30 – 12.50  -Dr David Toke, Reader in Energy Politics, University of Aberdeen

‘An overview –accounting for success in renewable energy cooperatives’

12.50 – 1.30 - Felix Wright, Policy and Innovation Manager, Community Energy Scotland,  – ‘Reflections on Community Renewables programmes in Scotland’

1.30- 2.10pm-  Henning Davidsen – Coordinator of the Holmsland Tourism Association in Hvide Sande, Denmark, which acted to establish a 9 MW wind power project using an innovative Trust Fund mechanism to underpin a cooperative. The project has been awarded the European Solar Prize by Eurosolar 2013. -

'How Hvide Sande got its windmills through a cooperative effort'

2.10- 2.35 Dr Richard Cowell – Reader in Environmental Policy and Planning, University of Cardiff, 'Community Renewables in Wales and Beyond'

2.35-3.15 Professor Frede Hvelplund - Aalborg University, Denmark,  'How community renewable energy schemes help integrate fluctuating renewable energy sources into the grid'

3.15-3.30 coffee break

3.30 –  3.55 Dr Claire Haggett, Lecturer in Sociology of Sustainability, University of Edinburgh  ‘Social factors that influence the success (or not) or community energy projects’

3.55 – 4.20 Professor Peter Strachan, Aberdeen Business School, Robert Gordon University, ‘How can the mainstream industry help renewable energy cooperatives?’

4.20 – 4.45pm Community Energy in Aberdeen 

4.20-4.30 - Laurie Robertson (PhD student, Department of Scoiology), Aberdeen University 'Pitmedden Community Wind Turbine - how did it come about?'

4.30-4.45 - Nick Carroll, farmer and wind power planning consultant (recently gained consent for a 800 KW machine on his land): 'Farmers and Wind Power'.

4.45 – 5pm – Discussion and close

For a report of this seminar, see http://blogs.scotland.gov.uk/coastal-monitoring/2013/12/19/community-renewable-energy-schemes-in-scotland/

Greens now only anti-nuclear party as Lib Dems go radioactive

So now the only anti-nuclear British political party is the Green Party, or two to be precise since the Scottish Green Party and the Green Party of England and Wales are separate. The Lib Dems leadership, in making an issue of this topic is clearly placing what it sees as a priority of looking like a 'centre party' ahead of appealing to radical interest groups, including the anti-nuclear movement. It is ironic that the Lib Dems are doing this at a time when the chances of any new nuclear power stations have receded into near oblivion. The only possibility for them being built is for the Government to put the interests of nuclear power before all other energy interests (including renewable energy and energy efficiency) and re-nationalise the building of new nuclear power stations (why not nationalise funding of offshore windfarms and solar farms instead?). Even the Tories don't seem keen on this, so why does the Lib Dem leadership seem so keen on advertising its backwardness on this issue?

The Guardian editorial made some good points on this:

 http://www.theguardian.com/commentisfree/2013/sep/15/nuclear-power-limits-compromise-editorial

 But this is good news for the Green Party(ies). They can now campaign on the basis that they are the only party with a future-looking sustainable energy strategy. As Caroline Lucas said after planning consent was given for Hinkley C:

 "Nuclear is a dangerous distraction from the truly ambitious energy policy we need – one which focuses on renewable energy and energy efficiency, and which would deliver more jobs, faster carbon reductions and a fundamentally more democratic energy system fit for the future."

 See: http://www.carolinelucas.com/media.html/2013/03/19/nuclear-green-light-for-hinkley-is-bad-news-for-the-taxpayer-and-bad-news-for-our-energy-future/

 What continues to be odd is how the mainstream press continue to describe nuclear power as a 'green' option in the context of nuclear power being opposed by the policies of the main green NGOs (FOE, Greenpeace, RSPB etc) and the Green Party itself. I think that green activists ought to be shouting that nuclear is the very ungreen 'dirty-expensive-industry-as-usual' option that is supported by the ungreen political establishment. The Conference decision by the Lib Dems to back nuclear only emphasises this cleavage between the green movement and the establishment parties on this issue and makes the continued efforts by the political and industrial establishment to call nuclear a 'green' option banal.

So let us write in and object when newspapers call nuclear power green. How can nuclear power be called 'green' since they are not 'green' in a political sense since they are completely at odds with what the representatives of green movement organisations are actually saying?

 The Green Party clearly has the only green policy which embraces clean energy sources and opposes dirty energy such as nuclear power, and of course the Government’s promotion of fracking for methane. It certainly gets my vote. Why not yours?