British nuclear supporters issue surrender notice

Supporters of British nuclear power have effectively surrendered in their efforts to secure a new programme of building nuclear power stations. Sir William McAlpine, a member of the McAlpine family which founded the major construction company of that name, has written to the British Chancellor, George Osborne, to ask that Government proposals to subsidise nuclear power should, in effect, be abandoned. He has written as the Chair of the 'Supporters of Nuclear Energy' (SONE) group, which provides much of the lobbying inspiration for nuclear power in the UK. This is also a very significant move since the McAlpine group are among the companies who are most likely to benefit from contracts given to build new nuclear power stations.

The Daily Telegraph says that:
'Sir Williams tells the Chancellor that neither the consumer nor businesses “should have to pay through the nose” for a subsidy system “which seems to have very little justification.” '

This is in reference to what is reported to be EDF's demands for a high 'strike price' that would be well above £100 per MWh (as reported previously in this blog). It seems SONE are advocating direct financing the construction of the nuclear power stations by Government. Direct financial support from Government, involving also, as this logically means, the 'underwriting of construction costs' is not going to happen outside of re-nationalisation of at least a part of the electricity industry. This is very, very, unlikely. Hence nuclear industry supporters are, in effect, running up the white flag in the struggle to get a new fleet of nuclear power stations built. This looks like an attempt to organise a dignified withdrawal in the face of overwhelming odds. However, really, the effect is surrender under cover of an attempt to save face.

The fact is that the Government set up a price competition between nuclear, various forms of renewable energy, and carbon capture and storage,  for who could offer the lower strike price at which each unit of 'low carbon' electricity production would be sold. Nuclear power has lost this battle, as discussed in earlier blogs. Its supporters have reverted to advocating the only historical precedent for building nuclear power stations - namely that somebody (other than private investors) has to guarantee to pay the construction costs. That is why SONE wants their power stations to be directly funded by the Government. But this is politically, and in very practical business terms, impossible in the UK and the EU's increasingly liberalised energy markets.

It would certainly look bizarre if the Government's plans to reduce subsidies for wind and solar pv were implemented at the same time as a much higher strike price for nuclear power - very bizarre in view of the fact that nuclear power is much, much, less popular as reported in opinion polls compared to the renewable fuels. Government plans to reduce subsidies for both onshore wind and solar pv farms by 2013-2015 to around £95 per MWh  have already been announced, with the likelihood that under the Government's plans for its own version of feed-in tariffs onshore wind will not be given more than around £80 per MWh from 2017. Even offshore wind's costs for 15-20 year contracts have, according to Government aspirations, to be brought down to £100 per MWh by 2020. So what political hope is there for EDF to be given a lot more than £100 per MWh for a contract of 25 or 30 or even 50 years in length? None whatsoever!

It is not surprising that SONE have now recognised political reality.

However, the effective demise of the British nuclear construction programme will probably not be recognised by the Government itself in its public relations output. This is partly because it wants to help keep a few consultants in their jobs for a bit longer. However, this refusal to admit the collapse of the nuclear programme  is also because the Government would have to admit that either it has to massively increase investment in renewable energy and energy efficiency or abandon any remaining chance of getting at all close to the UK's carbon reduction plan.

For its part, EDF has something of an interest in continuing to maintain that its nuclear plans are still viable. One interest is that if there is little chance of new nuclear power stations, then this questions the Government's commitments to a floor price for carbon. In fact this floor price does very little to encourage new low carbon capacity (because there is no guarantee that the price will continue for long enough) but it does give a lot of money to EDF's subsidiary, British Energy, who own Britain's old nuclear power stations - and the Government has announced that these power stations are likely to have their operational lives extended. The other gainer from the carbon floor price is the Government itself. Perversely, the more gas is used to generate electricity, and the less renewable energy is generated, then the more the Treasury receives in tax revenue under the Government's carbon floor price scheme. The Treasury, of course, is these days enthusiastically promoting natural gas power stations to the extent that it is giving large tax breaks to oil and gas companies to encourage more rapid depletion of British gasfields and is backing proposals to give 'capacity credit' subsidies to gas power station operators in the Government's Energy Bill.

Oh yes, the Government's Energy Bill.....this is coming to Parliament soon. Watch this space.

See the press report on :
http://www.telegraph.co.uk/finance/newsbysector/energy/9543057/No-nuclear-power-at-any-price-says-lobby-group.html

EDF implies cost of Hinkley C could be higher than £100 per MWh

It was good news for offshore wind as EDF, in an article in the Daily Telegraph, 'suggested that....costs for Hinkley Point..... could be higher' than £100 per MWh. This was in an article in which the CEO of EDF said that they would be asking for less than £140 per MWh for the power plant at Hinkley C.


See the paragraph : 'Mr de Rivaz suggested the "most credible" cost estimates were those by the Committee on Climate Change (CCC), which last year estimated new nuclear costs at up to £100/MWh. But an EDF Energy spokesman stressed that things had "moved on" since the CCC's report, and suggested costs for Hinkley Point, as the first plant of its kind in the UK, could be higher.':
http://www.telegraph.co.uk/finance/newsbysector/energy/9471193/EDF-Energy-puts-price-cap-on-Hinkley-Point-nuclear-plant.html

The reason that this is good news for offshore wind is that whatever the Government did decide to offer as a strike price for nuclear power plants would also have to be offered to offshore wind, if the policy was to stand up politically. The Government has set an aspiration of bringing offshore wind down to a cost of £100 per MWh, so if Hinkley C were to get the over £100 MWh that EDF wants, then offshore wind would have to get at least the same - and remember that EDF is likely to wants a longer contract length than offshore wind developers are likely to get. So £100 per MWh for a 15 year contract for offshore wind is really worth a fair bit less than £100 per MWh for a nuclear contract of 25-30 years. And of course onshore wind is likely to get around £80 per MWh for 15 years, or less if the anti-windfarm Tories get their way.

Can the Government really offer nuclear power more than £100 per MWh?....I doubt it.....it would certainly be highly interesting (for offshore wind in particular) if they did! Of course if I was EDF I might also, for public relations reasons, deny that the company could ask for more than £140 per MWh, because the Government cannot really offer them that much anyway.

Will Chinese companies invest in British nuclear power?

The papers are now almost swimming with stories that leading Chinese nuclear companies are about to step in and buy up concessions for building nuclear power plant abandoned by the German companies RWE and E.ON in Anglesey and Gloucestershire. See for example http://www.businessgreen.com/bg/news/2193381/china-in-talks-to-build-uk-nuclear-power-plants
This makes interesting coverage of course, something bound to distract attention from the near-impossibility of funding new nuclear power under British liberalised electricity markets - without, that is, somebody agreeing to write a blank cheque to the nuclear developers. Attention thus shifts from the incredible stories of nuclear needing over £160 per MWh for 25-30 years to debates about the ethics and security issues surrounding Chinese control of our forthcoming nuclear power stations.

Chinese companies (Russian, or whoever) may or may not buy up concessions for nuclear sites, but they are no more likely than E.ON, RWE, GDF Suez or EDF to actually build on them. As has been pointed out elsewhere financial markets are global (they have been for a long time actually) and the rate of return required by Chinese investors will be no less than anybody else. Chinese citizens and electricity consumers have even less of an incentive to give very very large subsidies to build nuclear power stations in Britain than, well, British people. The Chinese are busy trying to raise money for their own nuclear power programme, see
http://online.wsj.com/article/SB10001424052702303665904577449784005256706.html

However, in China they do not have liberalised electricity markets. There the state, the electricity consumer, or a mixture of the two, will be guaranteed to pick up the tab for power station construction. Not so in the UK.
In the UK any company is going to have to take a lot of debts onto its balance sheets to pay for new nuclear power stations, with no guarantee of paying back these debts. Banks, including Chinese ones are only going to risk their money on nuclear power in a conventional 'project financing'  operation where the debts are kept of company balance sheets. But the banks will not touch such an arrangements. Developers will have to raise the money to do this, and it will linger mightily on their balance sheets traising the alram of the credit rating agencies. Of course the Chinese can riase money through bond issues - so can EDF, relatively cheaply. That is not the problem. The problem is that the resulting debts will be borne by the equity investors, the shareholders.

So any developing company is going to have to invest equity and that means deferring profits and dividends in order to repay the debts with interest. In the case of nuclear power stations this means building up very large debts to build the plant without any prospects of getting any money back for several years. The costs and build-times for the plants are highly uncertain. Rates of return to equity have to be high to avoid profits, dividends and share prices from tumbling.

So if you mix togather the spiralling construction costs of nuclear power plant and the high rates of return to equity, you get the incredibly high prices that British electricity consumers would have to pay for new nuclear power. Offshore wind is a breeze by comparison.

Will the Chinese actually build any nuclear power plant in the UK? No, they won't. Essentially this is another of a contimuing (and for the forseeable future) never-ending stream of hopeful stories pushed out by a nuclear industry and struggling nuclear-dominated Department of Energy and Climate Change designed to persuade us all that nuclear power is till a going concern. It is not. Not without givernment agreeing to underwrite the construction costs. But this is also very unlikely.

Some rumours suggest that Treasury guaranteed money will come from the 'infrastructure funds'. But the design of the scheme, to put it briefly, will not help nuclear power. But the nuclear industry are ever hopeful. 'Nuclear before homes' is what they cry. But the most anybody is likely to get is around 10 per cent of the funds guaranteed. Nuclear needs more like 100 per cent! Ed Davey has said that nuclear will not get a blank cheque. and the Tories have specifically promised not to underwrite nuclear construction costs in an energy policy document issued just before the 2010 General Election. In an answer to a Parliamentary Question ministers have said they have not discussed loan guarantees with EDF. See

http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120716/text/120716w0003.htm#12071634001439

The latest news from unidentified spokespersons (probably within DECC), according to the Financial Times of July 23rd, is that the Government will set a 'strike price' of £100 per MWh for nuclear power.It could hardly set it any higher considering that this is the figure the Treasury wants offshore wind power to come down to, and it is a lot more than offshore windfarms are going to be paid.

Yet even this is a soft landing for a policy retreat. The Government may say that £100 per MWh is profitable for nuclear power, but it is unlikely to lead to any being built. Lots of rumours, hopeful stories, yes, because the British Government (and the nuclear industry) does not want to admit that nuclear power is a dead duck - this would threaten lots of nuclear interests who want money from the Government and hopeful punts from Chinese and other interests to keep them in some sort of buisness. Indeed, without the appearance of the possibility of nuclear power the Government might be pushed into investing more in wind power and solar power! Just at a time when the Treasury prefers to subsidise gas fired power stations.

It's official - nuclear power IS more expensive than offshore wind

See the story in the Times that EDF wants to be paid £165 per MWh (198  euros per MWh) for its proposed 3.2 GWe reactor and Hinkley C in Somerset, UK. In the story below they (EDF) claim this is still cheaper than offshore wind. In fact currently, under the UK Renewables Obligation offshore windfarms that have been recently and are now being installed are being paid around £135 per MWh (2xs £42.00 per MWh renewable obligation certificate value plus wholesale electricity price at £50 per MWh).  EDF has been forced to come clean on nuclear costs, so now it is making dubious claims about offshore wind.

In the UK solar pv is now being paid £160 per MWh and onshore wind £92 per MWh – and wind power prices are inflated by the inefficiencies of the Renewables Obligation (compared to the ‘feed-in tariff’ system price that is quoted as the basis for EDF nuclear power). In addition, of course, the consumer will be locked into paying for nuclear for 25 years under the EDF plan, whereas the renewable energy support only lasts for 15 years.

Will the British Treasury sign off on this plan to increase average British electricity prices by 8 per cent for 25 years to produce 6 per cent of UK electricity from nuclear power? I don’t think so. See earlier blog 'Why it is impossible for the Government to fund Hinkley C' for more details and comment.

http://www.thetimes.co.uk/tto/business/industries/utilities/article3476326.ece

French demand high price for ‘rescuing’ nuclear industry with two new reactors

Tim Webb

Last updated at 9:00PM, July 15 2012

Families and businesses are being asked to find an extra £2.8 billion a year for the next 25 years by EDF Energy as the price of rescuing Britain’s faltering nuclear power programme.

The Times has learnt that the French state-backed energy giant will not build two new reactors in Somerset without huge subsidies, paid for through fixed levies on the electricity bills of consumers and businesses for decades to come.

The company has begun talks with the Department of Energy and Climate Change about its planned £14 billion Hinkley Point nuclear plant and intends to decide at the end of the year whether to go ahead.

Under the Government’s electricity market reforms, low-carbon generators will earn more than the market rate for electricity to make it economic to build nuclear plants and offshore wind farms.

According to well-placed industry sources, EDF Energy has told officials that it needs about £165 per megawatt hour, almost four times the existing wholesale price of electricity, if it is to go ahead with Hinkley Point.

City analysts said that the additional cost of building these two reactors at such a heavily subsidised rate, rather than, for example, cheaper gas-fired plants, would be £68 billion over 25 years, or an average of about £50 extra a year on every household bill. Businesses would be face an even bigger charge.

John Sauven, the executive director of Greenpeace UK, said: “Anyone who is able to turn on a calculator can now see that the nuclear industry has been misleading us for years. The Government’s energy policy is based on the fiction that nuclear power would be cheap. At these prices, it would be a very costly mistake that would see consumers paying billions of pounds in subsidy for decades to come.”

The Government has warned EDF Energy, and its junior partner Centrica, that nuclear power subsidies must be lower than offshore wind power to ensure public acceptance. The company argues that the total costs of the giant new offshore wind projects planned for the North Sea will be £180 per mw/h, making nuclear slightly cheaper.

Spiralling nuclear costs could force the Government to abandon or reduce its nuclear new-build programme. The Times revealed in June that the cost of the Hinkley Point project had soared by 40 per cent to a mid-range estimate of £14 billion. EDF Energy wants to build at least four reactors in the UK.

A spokesman for EDF Energy denied that it would negotiate with the Government for a £165 per mw/h subsidy, claiming that it was “too early to talk about specifics”. A source close to the company did say, however, that it had begun modelling different scenarios for the level of subsidy required.

One senior City analyst said: “I wouldn’t be surprised they want to keep that number out of the public domain.”

The Government will offer special subsidies to EDF Energy because its package of electricity market reforms will not be ready for several years. Last week, the coalition appointed the accountant KPMG to represent it when formal negotiations begin.

EDF Energy said that the subsidy for nuclear “will represent a fair and balanced deal for customers. It will show the cost competitiveness of nuclear new build. The process will be transparent — and the details published in due course.”

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

END

 

Why the EU should say ‘no’ to Tory blackmail

The EU should say ‘no’ to the ‘renegotiation’ of British terms of EU membership – even if it means the UK leaves the EU. The English Conservatives are gearing up to demand ‘renegotiated’ terms of UK membership of the EU, but the EU should firmly reject such ideas on grounds of democracy, EU coherence,  social equity, and to protect the EU's green energy strategies. Of course a key part of EU legislation that the English euroskeptics would want to jettison are environmental laws and Directives such as the Renewable Energy Directive and other green energy initiatives.  The UK is constantly dragging its feet on these things.

The background to this is that the Conservatives are under pressure from the United Kingdom Independence Party (UKIP) who are competing for right wing nationalist support with the Conservatives. The Conservative right do not like a lot of EU social and environmental  legislation anyway. However, the business community is in favour of continued UK membership on economic grounds – they want access to EU markets on the same terms as the businesses from the other member states.  Hence the Conservative leadership is looking for a compromise. They want to negotiate away social and environmental legislation and stay in the EU, also retaining their voice on matters related to the ‘Single Market’ of the EU, something which Mrs Thatcher agreed to join in the mid-1980s. As David Cameron said earlier this week: 'Whole swathes of legislation covering social issues, working time and home affairs should, in my view, be scrapped.'

http://www.telegraph.co.uk/news/politics/david-cameron/9367479/David-Cameron-We-need-to-be-clear-about-the-best-way-of-getting-what-is-best-for-Britain.html

Last autumn former Conservative cabinet minister John Redwood commented on his blog:

‘In areas like energy, environment and business we are effectively governed from Brussels for much of the time’ http://johnredwoodsdiary.com/2011/10/15/the-balance-of-the-cabinet/

There is some logic in all of this from a Tory point of view. The euroskeptics may well be aware that if the UK leaves the EU then the UK will have, in any case, to adopt laws and regulations to enable the UK enter and compete in EU markets. So, if we leave the EU the UK will be worse off (in the Tory sense) in that the UK will still have to adopt lots of EU rules, it is just that the UK will no longer have any say in what the rules are. The UK Government will be unable to promote the positions that British industry and commerce wants to see adopted in EU policy. A cliche comes into mind. They (the Conservatives) want to have their cake and eat it!

However, from thereon the logic begins to develop holes. In particular, why on earth should the EU allow the UK, retrospectively, to opt out of ‘whole swathes’ of EU legislation? Indeed, short of a wholesale restructuring of the EU as a whole, this is analogous to what Trotsky once called ‘a transitional demand’. It is a demand that the system (in this case the EU) cannot possibly deliver. It would strike at the very point of the EU of having a democratic union where states agree to pool their sovereignty over commonly agreed areas of policy. This does not allow for member states to pick and choose which laws to go along with. Of course countries get derogations, usually on a temporary basis, but these have to be negotiated at the time the laws are made, not agreed retrospectively on the basis of political blackmail.

Of course, the constitutional strengthening of the bonds between Eurozone countries could, in theory, leave space for the EU countries outside the Eurozone to ask for a sort of ‘outer EU’ status with a looser set of arrangements than exist now. But this assumes that the other (now 11) non-Eurozone EU states actually want this. This seems unlikely. We may be left in a position where, after some ’re-negotiation’, the UK gets some very superficial (note the word ‘very’) face-saving changes in new agreements being  negotiated. Of course it is now almost certain that there will be a vote on UK relations with,  and/or membership of, the EU. It seems likely that the UK will be asked to vote on new Treaty changes. However, it is very unlikely that the EU will let Britain secede from ‘swathes’ of EU legislation. I for one, would very much urge the EU not to let any British Government get away with this, especially if environmental and energy legislation is up for grabs. Clearly the Conservatives do not like being told to try and achieve strict targets for renewable energy deployment and so on, but that is part of the bargain about getting some of your priorities in exchange for letting other people have theirs.

I am very much in favour of the UK staying in the EU which has authority over energy, environmental and social affairs, but what I am very much against is the prospect of the Conservatives having their cake and eat it. That is maintaining a say on the things they would have to adopt anyway, whilst opting out of laws that might improve the environment or social equity. The whole point of democracy is that everybody has a right to have a say in laws, but not on the basis of choosing what laws they should or should not be bound by.

Indeed, if such a ‘have your Tory cake and eat it’ proposition was negotiated, then I would probably vote ‘no’ in any referendum for the UK to stay in the EU. There would no longer be any progressive point in British membership. EU laws would be better without the often reactionary input of our own government, and the laws that we would be influencing would be ones that we would have to adopt anyway for trade reasons. Without the UK the EU would be more coherent and be able to adopt more progressive rules in the economic sphere. In short, the EU, the UK, and the world will be better off without the British being EU members if the British actually achieve a ‘renegotiated’ membership on Tory terms.

Renewables heading for brick wall despite success

The success of the Renewables Obligation (RO) is underlined by the latest set of figures from DECC, but at the same time news from developers in the field suggest that renewables growth is about to hit a brick wall because of the Government's Electricity Market Reforms. Renewable electricity generated 11 per cent of UK power in the first quarter of 2012, continuing an increase since the RO was introduced in 2003. Yet renewables developers are facing stagnation in the face of uncertainty surrounding the Electricity Market Reform (EMR) proposals. A representative of one independent renewable developer told me that they had been told by a leading electricity supplier that no power purchase agreements were available for independent developers after 2014.

EMR is supposed to take effect in 2017, but before then is a 'transitional' period and the various caps that the Treasury are imposing threaten to cut back renewable development as early as 2014. The EMR effectively restricts development opportunities to the 'Big Six' since in order to qualify for the so-called 'contracts for differences' (CfD) developers have to trade on electricity markets - an option which is effectively open only to the electricity suppliers themselves. EMR restricts competition by freezing out the independents, whether they are large companies or small community windfarms.

The most cost-effective system for the consumer, and one that works very well for all developers, is the German-style 'fixed' feed-in tariff system, promoted elsewhere in this blog. This option, once again, seems to have been overlooked in the scramble to try to launder subsidies for (what look like increasingly unlikely) new nuclear power stations.

However, given the brick wall facing renewable developers the next best thing would clearly be an extension of the Renewables Obligation beyond its closure date date for many independents of 2014. This could be easily achieved. If the Government retains even a shred of seriousness about the green energy agenda, then it should urgently issue an extension to the RO until it has sorted out the mess that is represented by the EMR proposals - and install a 'fixed' feed-in tariff in the long term.

The Treasury is obsessed with impacts on consumer prices, to the exclusion of the advantage of renewable energy in stabilising energy prices. It is not much good having more natural gas instead of renewables if the energy prices for the consumers fluctuate wildly with volatile gas prices. Robert Gross of the United Kingdom Energy Centre (UKERC) has done some good work on the impact of renewable energy on consumer bills. He points out the flaws in right wing attacks on renewable energy funding - which seem to influence Treasury thinking these days (see earlier post on Treasury support for cuts to onshore wind ROCs). See:

https://owa.bham.ac.uk/owa/redir.aspx?C=0bfd5da6b6804f19a01007e399db0d9e&URL=http%3a%2f%2fblogs.lse.ac.uk%2fpoliticsandpolicy%2f2012%2f04%2f24%2fcarbon-pricing-gross%2f

https://owa.bham.ac.uk/owa/redir.aspx?C=0bfd5da6b6804f19a01007e399db0d9e&URL=https%3a%2f%2fworkspace.imperial.ac.uk%2ficept%2fPublic%2fPolicies%2520and%2520consumer%2520bills%2520-%2520investigating%2520PX.pdf%23

Government 'may' give details of strike price for nuclear contracts

In answer to questions from Lib Dem MP Martin Horwood the Government said it 'may' give details of the price paid for electricity generated by Hinkley C. The implication, however, is that it may not give details! Despite this the Government insist that  it will give full details of terms and conditions of the contracts to EDF. This rather vague response on this crucial detail does not satisfy those wanting to see full transparency regarding deals made with EDF. There is still no guarantee that we will get to hear the vital detail of what price is paid to EDF for electricity generated at Hinkley C. We need this detail if we are to calculate the impact on consumer bills and compare the level of support given to nuclear power and other renewable energy sources such as onshore wind, offshore wind and solar power.

Charles Hendry said:

'The Department has not provided EDF Energy or NNB Generation Company Ltd with any indications regarding the strike price that could be received for electricity produced at Hinkley Point C.
Under the Final Investment Decision Enabling Project set out in the Technical Update on Electricity Market Reform published in December 2011, the Government may provide information on strike prices for low carbon generation projects that need to make final investment decisions before legislation implementing EMR takes effect. The terms of any investment instrument or contract for difference issued for electricity produced at Hinkley Point C will be subject to negotiation focusing on delivering a fair deal which is affordable, provides clear value for money, and is consistent with the Government's policy on no public subsidy for new nuclear. There will be full transparency over the terms agreed for any investment instruments or contracts for difference that are issued.'

Ed Davey has told the DECC Select Committee enquiry that nuclear power would not get higher prices than renewable energy sources. But does this include wave power, which as a very new technology, will receive premium support? And would this take account of special deals made with EDF, for example if, as some nuclear supporters have argued, EDF got state backed loan guarantees that would bring down the interest rates it is paid and therefore the strike price it needs?

Of course, as the previous blog post argues, it is impossible to see how Hinkley C is going to be financed in practice. The actions (as opposed to public relations output) of EDF also lend support to this since they have postponed their decision about whether to build Hinkley C.

You can see the responses to Martin Horwood's questions on:

http://www.theyworkforyou.com/wrans/?id=2012-06-18c.112042.h&s=strike+speaker%3A11494#g112042.q0

http://www.theyworkforyou.com/wrans/?id=2012-06-18c.112581.h&s=strike+speaker%3A11494#g112581.q0

http://www.theyworkforyou.com/wrans/?id=2012-06-14a.111055.h&s=strike+speaker%3A11494#g111055.q0