Hinkley C - no progress in two years

The only successful thing about the Hinkley C project is the management of the news to imply that there has been progress in the project. In fact there has been absolutely no progress, certainly not in the financial terms, and in many ways things have got worse. That is compared to two years ago when the UK Government's much criticised terms, for paying EDF £94 per MWh (2015 prices) for 35 years underpinned by a 60 per cent loan guarantee by the Treasury, were given state aid clearance by the EU Commission.

Two years ago it was being reported that Chinese companies were to take between a 30 an 40 per cent equity stake in Hinkley C. It was reported that a 'final investment decision' would be taken by April 2014 and the project would be completed by 2023.

Now we hear blazoned across the media the 'new' breakthrough of a deal between EDF and the Chinese nuclear companies whereby the Chinese will take a one third equity stake in the project. The story goes that a final investment decision will soon be made and the expected completion date is now 2025. So what has changed over the last two years? Well, not the signing of a contract between the British Government and EDF, that is for sure, since no such thing exists. All that has changed, in substance it seems, in 2 years, is that the suggested completion date has been put back by....wait for it....2 years!
If you don't believe me, read for example the latter sections of the article in New Civil Engineer of October 22nd 2013 at http://www.nce.co.uk/news/energy/french-and-chinese-set-to-dominate-hinkley-c/8654517.article
Of course we have so many announcements of an imminent final investment decision over the past three years that their value has now depreciated to vanishing point.

But while nothing of substance has changed on the status of the commercial terms, there has been a major deterioration in technical and financial context of the European Pressurised Reactor (EPR) programme. The reactors being built in Finland and France, which were already overshooting their delivery dates in 2013 are still not finished, and not expected to be finished for some time yet. Major safety flaws have been found in the reactor, which is currently being investigated by the French nuclear regulators.

AREVA, the French state owned nuclear constructor collapsed and is being absorbed into EDF. Incredibly EDF is now reported to be selling off several billion pounds of assets to absorb the consequential liabilities and to fund Hinkley C. Now why would the French state want to take the very high risk of another disastrous project at Hinkley C with the same EPR design and end up shelling out billions of pounds of euros in losses to build a nuclear power station for another country (UK)? I don't know. It sounds mad to me. It is certainly a terrible advert for state ownership of electricity companies. Moody's are warning of a credit ratings downgrade for EDF if they go ahead with Hinkley C.

My own guess is that the British Government is only keeping the PR for the project positive because it hopes to provide a smooth passage for other financial deals it is doing with China, and to preserve at least the appearance of keeping alive the British nuclear power programme.

Supporters of nuclear power like to be charitable and say that if only the Treasury lent the project low interest loans (without insurance,presumably,to make the taxpayer doubly liable!) then the project would get built relatively cheaply. Well, no it wouldn't. For one very simple reason. The Treasury would not know how much to lend. This is  because, despite all the figures bandied around in analyses by the EU Commission and many others, nobody has a good idea of how much the project will cost. The Treasury, to their favour, is not prepared to write EDF a blank cheque. Long may this remain so.

Government heading for electricity capacity price crisis in 2019

As Conservatives gear up for the next election they could be hit by a electricity crisis as the costs of subsidies for new gas power stations escalate in 2019. This is because of a triple failure of policy; its failure to realise that its nuclear power objectives are undeliverable, the failings of its 'capacity mechanism' which beckon an escalation in costs in 2019, and a failure to promote decentralised energy solutions that would avoid these problems. To cap it all, as the Conservatives implement their ending of incentives for most renewables, they end the development of low carbon solutions that will decrease electricity prices in the medium and long term.

Let's go through this carefully. First, we have discussed in this blog at length how the notion that nuclear power could be delivered at a price cheaper than even offshore wind is now is a myth. The nuclear programme will certainly not be delivered at anything like the time or scale envisioned. To boot we now rely on a huge loss making French nationalised industry (EDF soon to be merged with AREVA) to decide to make another very likely huge loss on another EPR at Hinkley C even then involving British consumers paying the incentives until at least around 2060.

Second, to make up for the shortfall in capacity the UK may experience through this failure of nuclear policy we have a market based 'capacity mechanism' through which plant are ordered, and are paid standby fees, for their ability to provide capacity when demanded by the National Grid. This system is supposed to make up for the fact that increasingly wholesale power prices are being depressed by the increasing quantities of renewable energy, thus making it unviable for power station investors to recoup their investments from sales on the wholesale power markets.
 The prices of the standby fees payable under the capacity mechanism are determined at annual auctions for contracts to supply the capacity in 4 years time (the first of which was held earlier in this year for 2018/9). The Government sets a total firm capacity figure that should be supplied through the capacity mechanism and the Government will pay the price (through electricity consumer bills), at the highest margin bid to meet the total capacity required by the Government in the future. The problem is that as old coal fired power stations retire by 2023 there is very probably going to be a tremendous 'spike' in the size of capacity payments awarded in the auctions in and around 2019.

In fact the capacity mechanism is just as much a 'subsidy' or 'incentive' as anything earmarked for renewables or nuclear, and in 2019 the size of this is set to soar. The problem for the Government, and the electricity consumer is that it is not just the new plant that receives the subsidy, it is all generation capacity except, in practice, renewable energy. Even old nuclear power plant, which are going to be kept online anyway as much as possible for technical and economic reasons, receive this subsidy. The problem will erupt around 2019 when a lot of new capacity will be needed. Various companies with plans for combined cycle gas turbines (CCGTs) are now lining up in eager anticipation to put in bids through which they will receive large payments to induce them build the new capacity. Not only will there be large capacity payments, but ALL existing generators (except renewable ones) will receive the payments. This will make the power actually supplied by the  new CCGTs, in practice, very expensive.

Against this background it is no exaggeration to  say that onshore wind is now the cheapest widely available option for new generation. From 2019 onwards it seems unlikely that once you count in the costs of paying all generators enough through the capacity mechanism to get new CCGTs built that the cost of the CCGTs will be much, if anything, less than £70 per MWh. CCGTs have been costed by Policy Exchange at around £60 per MWh, but for them to be delivered in practice a lot of money will have to be paid to the other suppliers of (old capacity). This jerks up the effective price to much higher than £60 per MWh.

But none of this will help new wind power or solar power projects. They need something known in the trade as long term power purchase agreements (PPAs) that will pay them, say, £70 per MWh over 15-20 years. But none of the electricity companies will pay them this. Moreover the Government has decided to ban even the many windfarms that now having planning consent from gaining PPAs by competing for 'contracts for difference' (CfD). These CfDs, of course are available for Hinkley C and other nuclear power proposals.

Of course there are alternatives to the Government's policy. The potential shortage of flexible capacity could be solved through a combination of, first, increasing (rather than as the government is doing, decreasing) regulations favouring energy efficiency in buildings, and secondly by encouraging through planning law and incentives the deployment of combined heat and power plant (CHP). This is an organic process that will not involve the spikes in capacity mechanism that will result from what Kevin Anderson of Scottish Power has called (last week) a 'new dash for gas'. This system works well in Denmark. Indeed the CHP plant which would be best associated with district heating systems could be converted to using, or used in conjunction with, industrial sized heat pumps, the latter which could make good use of excess quantities of renewable energy. Government estimates put the potential for CHP at massive quantities

Interestingly, the party policy that currently seems to be closest to this notion is that of the 'new left' Labour Party, whose policy, is I understand, now influenced by former MP Alan Simpson who campaigned to get the feed-in tariff system legislated in 2008. However, even if a Corbyn Government were to get elected in 2020, it will be too late to avert the coming electricity gas capacity price spikes.


For some relevant references and commentary, see:

http://www.ft.com/cms/s/0/aa73555e-6c35-11e5-8171-ba1968cf791a.html#axzz3oACYB1mw

http://www.policyexchange.org.uk/media-centre/blogs/category/item/what-exactly-is-subsidy-free-onshore-wind

http://www.timera-energy.com/pricing-dynamics-in-the-new-uk-capacity-market/

http://www.parliament.uk/business/committees/committees-a-z/lords-select/science-and-technology-committee/news/resilience-electrcity-system-report/

https://www.gov.uk/government/news/the-first-ever-capacity-market-auction-official-results-have-been-released-today

http://www.telegraph.co.uk/news/earth/energy/11925444/UK-energy-crisis-Trafford-gas-plant-in-doubt.html
http://taylorkeogh.com/news/press-release/decc-capacity-market-auction-trafford-power-gas-fired-power-project/

The notion that nuclear is cheaper somewhere else is a myth

The British attitude to the notion that nuclear power is not cheap after all is a bit like a child who first hears that Father Christmas does not, after all, exist. Disbelief, and in this case a belief that if only Father Christmas is nationalised, then it will still be true. The psychologists call this cognitive dissonance, in other words if a fact is uncomfortable to you, you believe that the fact is wrong.

The belief that somehow nuclear power will be cheaper if somehow it is done differently here has been stoked by a recent IEA Report which says that British nuclear power, in the shape of the proposed contract for Hinkley C, is the most expensive in the world. In fact the IEA report is heavily reliant on a limited number of projections of costs, which in the world of nuclear power is a fantasy world in itself. However what is more apparent is that it is not so much that nuclear power is more expensive in the UK so much that it is only in the UK that something vaguely approaching a estimate of nuclear costs on the same basis as other energy technologies has been attempted. This is because of the need to make nuclear at least look like it was fitting into the contours of what passes for a competitive electricity generation market in the UK.

Of course nuclear power looks expensive if you do it that way. because it is! (assuming you want to treat nuclear power on the same costing basis as other energy sources). Even this (Hinkley C) comparison is somewhat biased towards nuclear because other technologies don't get 35 year contracts, and they don't get a Government offer to underwrite 60 per cent of the projected construction costs. So, the Government's declared price for Hinkley C is, in reality an underestimate of nuclear power costs compared to other energy sources. This is even more the case since the plant hasn't even started construction yet.

I'm scratching my head as to how the IEA could have come to the conclusion it did. The French EPR is now several years behind schedule in its construction and is said to now cost three times more than its original estimate (already!). As for the Finnish EPR, well, that cost just goes off the scale.

Even if you look at other reactors being built in the West, the high costs are also much in evidence. The AP1000 reactors being buult in the USA are as expensive as the EPR. See my earlier analysis at:
http://realfeed-intariffs.blogspot.co.uk/2014/01/is-toshibas-nuclear-project-really.html

And the claims circulating about how the proposed Hitachi project will go better than Hinkley C are more exercises in fantasy. I commented about this earlier as well. See:
http://realfeed-intariffs.blogspot.co.uk/2012/10/hitachi-bid-more-fantasy-nuclear-power.html

There's a lot of stories about how much cheaper nuclear power is in China. Well, I don't know whether anybody has noticed this, but easily analysable information on costs of nuclear construction in China is about as scarce as it was from the old British CEGB on a bad day (and it was, apart from the occasional leak, usually a very bad day).

But recent commentary of the Chinese nuclear programme is not especially encouraging: Take for example from the Global Times, whose news items seem to run in parallel with the priorities of the Chinese Government:

'Since 2004, China has been approving projects using advanced nuclear power reactors, including US-based Westinghouse's AP1000 and France-based Areva's EPR (Evolutionary Power Reactor), many of which are now under construction. Dubbed generation III reactors, they are designed to withstand the crisis that damaged the Japanese nuclear plant.

Construction of these projects has not been smooth. Sanmen Nuclear Power Station in Zhejiang Province was expected to be the first nuclear power plant in the world that uses AP1000 technology. The first of the two reactors was scheduled to finish construction and start operation in November 2013, but construction is now over 18 months behind schedule. The plant won't start operation until 2016 at the earliest, an official from China's State Nuclear Power Technology, the company building the power plant, said in January.'

http://www.globaltimes.cn/content/927146.shtml

Of course the Chinese Government has some grandiose plans for nuclear power construction. So did the UK Government back in 2010!

So where is the British flight into 'nuclear power is cheap somewhere' fantasy leading us? Well, to nationalisation, of course, a charge led by the IPPR, a centre-left think tank, which I suppose, is a more plausible vehicle for this than, say, a right leaning think tank such as Policy Exchange (who, incidentally, have recently discovered that onshore wind power is reasonable cheap after all and should be offered some contracts).

Nationalisation won't make nuclear power any cheaper. The claims that somehow the 'cheaper' money from the state will make the technology less expensive ignore some relevant facts. First, the Hinkley C deal already has access to state backed finance through the agency of the state owned (French and Chinese) companies that are building the plant and the state guaranteed loan offered by the UK Treasury. Setting up a state body to compete with others in the electricity market will also generate a further (interesting) EU state aid application. But really the talk of cheap state money, is not the key point that the nuclear people are aiming at.

What the pro-nuclear lobby now wants is for limitless sums of money to be siphoned off from public spending on education, health and whatever else and spent on building nuclear power stations. The money will be notionally borrowed, a contract that will be concocted that will claim that the electricity consumer will pay the money back at a later date, and the balance will be paid for by, well, less schools, hospitals etc. Meanwhile a story will be manufactured about how all of this is cheap. Cognitive dissonance will prevent people asking why if it is ok to fund nuclear power this way, then why isn't it ok to fund offshore winfarms and other things.

Of course, even this isn't 'the crack' as a Liverpudlian friend of mine used to put it. The 'crack' is that the state will end up giving the whole project a blank cheque so that the disastrous construction process can be bankrolled entirely from a bottomless pit of state finances. Talk about allegedly 'cheap' money from the Government is just a cover for what the nuclear people are really aiming for. A cost-plus contract, spend however much you want contact, a blank cheque. The road towards this will no doubt be littered with pretend signposts, like they'll be a tender process etc, but at the end of the day nothing will happen until the blank cheque has been sent. I have been pleasantly surprised to see that the UK Government has not signed such a thing. The Treasury has not been pushed into accepting this (one thing that me and George Osborne agree about). Yet.

So which countries will take care of the likely ruinous debts for Hinkley C?

As widespread incredulity spreads about the UK Government's insistence that the plan to build Hinkley C nuclear power station is still on track, we must wonder which country and which companies will take the hit in the event of the near certain financial catastrophe that will befall the project. It is near certain given that the first three reactor projects, in Finland, France and China, have all suffered delays and thus heinous cost overruns. Indeed the failure of the European Pressurised reactor (EPR) design, produced by the French state owned nuclear constructors, AREVA has so far ruined AREVA. This company is now being merged with EDF who are already set to fork out billions to plug the financial holes in the company.

The UK Government is insisting that it will not pay for any cost overruns suffered by the Hinkley C project, which is due (on the latest word) to start construction in 2016. Quite how that squares with the £10 billion worth of loan guarantees to be offered by the UK Government is not clear. However, if the British Government will not pay for the cost overruns then who will? The Chinese nuclear companies involved in the deal? That sounds odd given that Chinese companies, whilst they are state owned, are incentivised to make money. There managers will not do well if they make large losses. Of course western state owned companies can continue making loss after loss, as typified by British and French nuclear operations, and expect to be continuously bailed out by the state.

So, is the French state effectively going to underwrite the whole project through a merged EDF-AREVA? Certainly British electricity consumers will be paying out large sums over a very long period for any electricity generated by the project (for 35 years after generation starts), sums that will  increase with inflation. I wish people would not keep quoting the agreed 2012 figure of £92.50 per MWh. It is now over £94 per MWh. Meanwhile of course the Government has stopped the scheme that pays for wind power to be paid just £80 per MWh for just 15 years (and no loan guarantees).

But it seems that EDF-AREVA could end up carrying the can for cost overruns on top of the £25 billion price tag already estimated. This could do serious financial damage to EDF. Ultimately the French electricity consumer would end up paying a high price to install a failed nuclear power design in the UK. Does the French public understand this? They ought to be acquainted with what they are taking on.

Andy Blowers, having read this post, sent me the following comment:
'More importantly, on whom will the debts fall? Given the financial provisions on pricing and on decommissioning, clean up and repository costs, part of the burden will be levied on future generations.  The intergenerational equity aspect of new nuclear policy gets scant attention. Presumably something will turn up.'

Solar Power is too cheap to meter! - so says Keith Barnham in 'The Burning Answer'

Making a parody of claims attributed to nuclear power in the 1950s as being 'too cheap to meter', as Keith Barnham does, may seem a cheap shot to some - but it is a reality even now. That is the claim made by Keith Barnham in his book, now available in paperback, 'The Burning Answer - A user's guide to the Solar revolution'. Much hay is made by critics of solar power (and Keith talks mainly about solar photovotaics) by saying it only produces electricity when the sun shines. But in fact a manifest advantage is rarely mentioned - it's operating costs are more or less zero. The capital costs have been, and are, falling rapidly.

So much solar energy will produced when it is sunny that it can be stored. Even in places like Italy there is a lot of 'free' energy is being generated, surplus to electricity requirements,so that it can be easily stored. Yes that's right, easily stored. Of course we know about the tumbling costs of batteries from factories established by Elon Musk and also the latest developments in sodium ion batteries that will undercut the costs of lithium batteries. But one of the things that Keith tells us about are the existing types of heat pumps. The fact that solar pv is electric doesn't matter if it can be converted, using heat pumps, into water. Yes, I'm talking about solar pv, electricity here, NOT solar thermal to generate the energy that will be turned into heat.

Of course buildings are becoming more energy efficient (despite the best efforts of UK Government to slow the process), so much so that new buildings should be 'zero carbon' in energy consumption - but we still need hot water for older buildings and also to provide for cleaning purposes. That's where heat pumps come in - often they work best linked to district heating systems. Heat pumps can be super efficient in that they use energy from the air or water to generate a lot more heat energy than the electricical energy that is used by the heat pump. So, solar power will provide a lot of electricity, but they will also provide a lot of our heat requirements as well.

By this point Keith will be annoyed with me for leading on the storage issue. Grinding his teeth probably. But........

Keith Barnham is at pains to point out that a lot of storage is not required to supply more or less 100 per cent of electricity from renewable energy. He highlights the Kombikraftwerk project, run by a German research institute, which demonstrates how a 100 per cent renewable energy system could provide electricity to Germany with little need for storage systems. You can see some coverage of this also on http://www.renewablesinternational.net/100-percent-renewable-power-investigated/150/537/81175/ where there is an online hour by hour demonstration.

Storage is best for creating hot water out of the surplus electricity. Of course. Not to mention making electric cars work. Of course. Coming soon near you, powered by solar pv.

Besides making these (well the comments about making electric cars noisy are mine) and other crucial points Keith's book is an excellent guide to the history and technical aspects of solar electricity - all written in language that the average Daily Mail reader can understand. Order it now  - it's an absolute steal for just a few quid. The book is published by Weidenfield and Nicolson.

NOTE: in an earlier version of this post I made some uninformed comments about the need to make electric cars 'noisy' to help visually impaired people. Paul Gipe then wrote me a message saying:

'we have a 2015 nissan leaf. the warning sound only operates up to a speed of about 16 mph (probably a limit in kph) then it turns off. above that the noise of the tires on pavement is enough to alert people. that's the same with all cars ICE or EV'.

I suppose this ignorance of mine exposes the fact that I don't have an electric car (yet). I'll try and get one soon!

Why EDF is a good example of why we don't need public ownership of electricity generation in the UK

Jeremy Corbyn has just announced that he favours public ownership of the electricity industry in the UK. Does that mean a return to the days when electricity generation was one big nationalised monopoly as in the days of the CEGB? That would be a bad idea. We need innovation in electricity in the UK. Monopolies (nationalised or private) generally mean that the incumbent industrial interest groups merely perpetuate their existing technologies, which is certainly something we don't need in electricity at the moment. Admittedly privatised, liberalised, markets need various types of intervention - but nationalisation is definitely the wrong direction. Corbyn mentions nationalisation  sometimes, and then talks about decentralisation - confusing.

I appreciate that Jeremy Corbyn is opposed to new nuclear power plant, but nationalisation is more likely to to generate this outcome than present arrangements. The CEGB could only ever think of centralised larger and larger power stations, including a nuclear build programme which was stopped in its tracks by the fact that the newly privatised industry realised that nuclear power was a financial black hole. It is no coincidence that the only companies that will consider investing in nuclear power in the UK are themselves state owned - in France or China.

EDF, still owned by the French state, is quite a good example of what can go wrong with nationalised electricity industries. EDF works hand in glove (and indeed is soon to be formally amalgamated) with the state-owned nuclear constructors AREVA. The fact that nuclear power was becoming more expensive, its construction costs uncertain and that it was being overtaken by a range of other generation technologies has passed this state complex by completely. How can dinosaurs change?  This insistence on ploughing ahead with nuclear power technology has produced a terrible financial mess so far for AREVA along with the failure of the 'new' power station design, the European Pressurised Reactor (EPR). The French electricity consumer and taxpayer is paying large sums for this failure.

But instead of changing, this complex is still lurching in the same loss-making direction. EDF-AREVA seems poised to guarantee to pay the construction cost overruns of the already ill-fated Hinkley C. That is, at least, the only way that Hinkley C will go ahead now that the British Government appears to be saying  (that's the current story) that it will not offer a blank cheque for new nuclear power in the UK. But if EDF does underwrite the cost overruns (and large cost overruns seem a racing certainty, even on top of £25 billion already projected), then further financial disaster will beckon for the EDF-AREVA conglommerate.

The dinosaurs went extinct.

What would be good is if there was grass roots campaigning to start up local energy companies - that is useful decentralisation - and this can be supported by legislation to allow independent energy companies easier terms to set up as suppliers. But this is not to be confused with 'nationalisation', and it requires people and companies at the grass roots to do the organising.

EU is becoming laggard in world renewable energy deployment

The EU, much famed in previous years for its promotion of global climate change abatement treaties and its installation of renewable energy, is heading for 'laggard' status in the global drive for clean energy.

Until a few years ago the bulk of renewable energy installed in the world was sited in the EU. But now the proportion is falling quickly. In 2014 only a quarter of new wind power capacity and only a fifth of new solar pv capacity was installed in the EU. That proportion seems certain to fall significantly in the next two years. The UK's renewable programme is being mostly abolished, in Spain windfarms have already stopped being installed and Germany has decided to strangle its once impressive solar pv programme.

The EU no longer has credibility in claiming to lead the fight to reduce carbon emissions. It's efforts prior to Paris will be marginal at best, and the main action will be negotiations between the U.S. and emerging economies, particularly China.

One can point to industrial influences for this change - the increases in renewable energy has occurred against a backdrop of stagnant or, in some countries, falling electricity demand exacerbating the overcapacity of electricity generation. The climate friendly solution of course is therefore to cut back on fossil fuel production, particularly coal, and continue renewables expansion and energy efficiency initiatives. Yet in Germany policy is focussing on curbing the expansion of renewable energy in order to prop up the coal industry. Incentives have been taken away from renewables but preserved for coal - indeed new subsidies for coal plant are being discussed just as an annual cap on wind power expansion is to be put in place and all but a dribble of new solar pv capacity stopped.

Dave Elliott writes to me to point out that some lignite plant are being taken offline; fair comment. However, to me this looks like a bit of a grubby compromise given that more incentives will be spent to preserve some of that capacity as occasional reserve, power when it is plain the renewables industry believes that if reserve power is needed then much cheaper, lower carbon and much more efficient gas fired power plant should be built.

Energiewende is a busted flush, in reality - that's not because the nuclear phase-out is impractical so much as because Germany has, in effect, decided to give priority to coal over renewables.

The problem is EU wide, and it has been given a supposed 'rational' facade by the European Commission in its policy decision made two years ago to ask for 'auctions' for renewable energy schemes as means of awarding feed-in tariff contracts. This is billed as a cost-saving device, but the reality is that the costs are saved through not installing renewable energy plant rather than installing them more cheaply. Finally the big energy companies who have sought a means of protecting their centralised power plant from the threat of renewables have found a new weapon. Results of, for example, the UK's recent auction for renewable energy contracts are touted as proof that the policy works. But the price reductions recorded are either the consequence of falling renewable energy costs anyway because of technological improvements or the result of silly bids for uneconomic projects. People's attention has been diverted by this conjuring trick away from the fact that the volume of new renewable energy projects is being severely rationed.

Of course the renewable energy trade associations are currently are complaining about this, but alas, the owners of the big power stations have regained the whip hand.

But there's still hope in the case of China, and hopefully, in the future, India. For Europe, alas, their glory, like so many things now, is in the past.