MPs want to give preference to nuclear over renewables

In a report riddled with pro-nuclear fantasy hopes and statements, the Select Committee of MPs which scrutnises the Department of Energy and Climate Change has called upon the Government to give much better terms to nuclear power than will be offered to renewable energy. This mixture of pro-nuclear fantasy and preference for nuclear over renewables is highlighted when, on the one hand, the Committee calls for new nuclear build to be given no higher strike price than offshore wind, but then says that nuclear power should have its costs 'guaranteed' by the Treasury:

'The UK Guarantees scheme may help to bring forward investment in Hinkley Point

C, but it is not clear whether support will still be available for nuclear new build

projects that are further away from making a final investment decision (such as the

NuGen and Horizon projects).

Given the important role for nuclear generation in the

UK’s future energy mix, the Government should extend this support to all nuclear new

build projects, which may require increasing the amount of available assistance to more

than £50 billion. (We note that the UK Guarantees scheme does not involve expenditure,

as long as the guarantees are not called in.) - page 17 in the report 'Building nuclear - the challenges ahead' http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/news/building-new-nuclear-the-challenges-ahead/

The assumption that the Treasury has much money to guarantee anything, let alone nuclear power plant, is one part of the fantasy - another seems to be that it is okay to give an effective blank cheque to nuclear but not to renewable energy. Note the fantasy statement 'the UK Guarantee scheme does not involve expenditure as long as the guarantees are not called in'. Well, yes, but what nuclear power station has ever been built according to original cost estmates?

Earlier on the Select Committee report says that nuclear power should not be given more than the £100 per MWh that offshore wind is likely to receive in the future. However, this PR attempt at 'fairness' gratuitously misses the fact that EDF is demanding a 35-40 year contract while the offshore wind developers will only receive their premium prices for 15 years.  That fact, and the wish of the Committee to extend a blank cheque 'guarantee' to nuclear power, makes this into a blatant piece of policy preference for nuclear power over renewable energy. Renewable energy schemes, of course, will not be receiving Treasury guarantees.

The Committee entertains a host of fantasies including the apparent 'solution' of building 'small' nuclear power stations. They certainly will not be any cheaper in cost per KWh (probably a lot more expensive), but it seems the Committee hope that the smaller number of billions of pounds for each one might be easier to smuggle through the nations accounts!

The £100 per MWh 'strike price' claimed by EDF is itself a bit of public relations to hide the fact that, given the same terms, nuclear is much more expensive than all but the most experimental renewable energy sources. EDF say that £100 per MWh (over 40 years!) will give them a 10 per cent internal rate of return (IRR). What they do not say is that nobody, and I mean nobody, will offer them the cash on these terms. The banks will not lend the money because they know they are not likely to get it back, hence the diplomatically worded call for a blank cheque ('guarantee'). EDF would not spend the money on these terms (even if they had it, which they do not). But a state-backed blank cheque 'guarantee' scheme would allow the facade of a '10 per cent' IRR whilst in reality the whole project is guaranteed by the state. Without state guarantees the market rate for investing in Hinkley C would be at least 15 per cent IRR meaning that the 'cost' of Hinkley C is over £150 per MWh.

But the government are supposed to be running a competitive regime to produce the best value low carbon outcomes for the consumer. This is as opposed to returning to the days of the nationalised industry where the engineering establishment could choose their preferred power plant on the basis of a whim and pass on the cost of their mistakes to the consumer. Nuclear power has clearly lost the competition to supply non-fossil fuel power, but that is something the DECC Select Committee do not want to understand.

 

EDF boss set to quit as new nuclear talks falter

According to the Times EDF's boss in Britain, Chief Executive Vincent de Rivaz, is set to quit his job as talks with the Government about subsidies for new nuclear power stations falter. See the Times report at:

http://www.thetimes.co.uk/tto/business/industries/utilities/article3756956.ece?CMP=OTH-gnws-standard-2013_05_05]<br /><span style=

This will be a disappointing end for an energy company executive who has focussed much effort over the last decade on building a framework to give guaranteed minimum prices for new nuclear power. In fact he succeeeded in this - and in getting the Government to deny that the framework, through electricity market reform (EMR), was a 'subsidy' to nuclear power. The thing that let him down was the technology, nuclear power, that he sort to promote. The latest reactor design, touted as being cheaper than deisgns such as that for Sizewell B nuclear reactor (completed in 1995), has proved to be no cheaper after all. To many of us this was not an unexpected result. Civil nuclear power's 60 year history has been one long story of 'jam tomorrow', replete with myths about the 'cheapness' of the French programme (state funded, and it has got more expensive, not cheaper, as time has gone on). Nuclear advocates seem to have fallen in to the trap of believing their own propaganda. That, and a belief that the Government would eventually come around to doing what was really needed to get nuclear power stations built - give them a state backed blank cheque.

But blank cheques are not on offer. There are at least two reasons for this. First, it runs exactly counter to a basic premise of liberalised markets in that competition is supposed to obtain cost reductions, something that cannot happen if the costs are guaranteed like in a nationalised industry. The second is that nuclear power has technological competitors including renewable energy. How can the Government justify in a democratic polity giving a blank cheque to nuclear power when it does not do the same for more popular renewable energy and energy conservation technologies? Why should nuclear be preferred over renewables and energy efficiency?

One could list other institutional obstacles of course, for example the politics of obtaining consent under EU state aid rules. Indeed the new nuclear build programme looks more and more implausible the more one delves into the detail. In fact the headlines in the newspapers about EDF demands for £100 strike prices and 35-40 year contracts only tell part of the story. The irony is that nuclear is so uncompetitive that even these terms would be unlikely to lead to Hinkley C being built. The headline figures can be viewed as a public relations exercise that obscures an even deeper financial failure. That is because in addition to the £100 per MWh and ultra-long term contract EDF would also request loan gurarantees (which will amount, in the end, to a government awarded 'blank cheque'). Otherwise EDF will not raise the money needed to build the project. Offshore wind, as argued in previous posts on this blog, really is cheaper than new nuclear power if you compare it using private sector, market based, business criteria. Onshore wind, of course undercuts nuclear power by a very large stretch indeed. In fact the Treasury seem to be basing their preferred strike price for nuclear power (£80 per MWh) on a plausible rate for onshore wind for a 15 year contract.

Last year in one of its more prescient features, the Economist magazine heralded 'The End of the Nuclear Dream'. They are right, it is just that a lot of nuclear advocates are taking a long time to wake up.

Give consumers not 'Big Brother' control over demand response

Consumers can and surely will control when their dishwashers, washing machines and electric cars will be able to run under proposals for 'demand response', not 'big brother' as reported in today's press. However, plans to achieve this have not been thought out properly yet by the powers that be at both UK and EU level.

The idea behind proposals to fit sensors to various types of electrical appliances is to increase the ability of the Natonal Grid to respond ('demand response') to fluctuating supplies of wind power, solar power and other renewable energy sources. Electricity-using equipment at the industrial, commercial and domestic levels can and will be enrolled in a system to match electricity supply with demand, without loss of service to the consumer.

The plans are in response to legislation going through the EU legislative machinery that have been proposed by the recently established 'European Network Transmission System Operator' for Electricity (ENTSO-E). They are now the subject of public consultation. But the demand response system needs to be designed so that, in the domestic sector at least, consumers have control over when they can use appliances like washing equipment, when their heaters can give out heat and when they can drive their cars. People should have a choice, through pre-set automated preferences, over the sort of trade-offs they want between time of use and price paid for energy.

It is quite possible to fit the right meters to ensure that consumers can set machines automatically. Hence they can use them according to their preferences, which will include them automaticaly running (or charging car batteries) when the electricity prices are low (when there is plenty of renewable power), and using them less when electricity prices are high (when renewable power is scarce).

But, as I explained in a previous blog current regulatory arrangements will only allow a 'top-down' system of controlling demand response. The sort of 'smart meters' being rolled out at the moment are the wrong sort that will not allow consumer control of demand response. In addition the way the electricity supply is currently regulated creates perverse incentives that creates barriers for a 'bottom-up' system of consumer control. It will be both cheaper and also much more consumer-friendly if the right types of meters are installed and the right sort of electricity regulation is established.   David Hirst has described the right type of meters as 'flow-cost' meters. See my earlier blog for more on this at
http://realfeed-intariffs.blogspot.co.uk/2013/03/how-electricity-balancing-mechanism-is.html

At the moment the usual 'top down' attitude of the British industrial 'we know best' establishment says this is not possible. This is the same estblishment whose experts brought us they idea of 'cheap' nuclear power - until it collided with reality of course. Well, a bottom-up system of control of demand response is very possible. Indeed California, which is more advanced in establishing demand response systems than we are, is discussing precisely such a 'bottom-up' consumer controlled demand response system at the moment. See the website of the California Public Utility Commission at:
http://www.cpuc.ca.gov/PUC/energy/Demand+Response/benefits.htm

Some fantasy figures of costs of doing this have been passed around, but really a microchip in new electrical appliances will cost very little extra, and there is no reason to suppose that the right type of smart meter will cost any more than the smart meters that are being rolled out at the moment.

The point here is that to maximise the amount of demand shifting you need to have the consumer making these decisions for some appliances at least (not fridges, though, which are in use all of the time) - otherwise electricity use will continue to be used more at sub-optimal times out of sync with the availability of renewable energy. There will be a financial incentive here for the consumer in that if they can do this, then they will be able to reduce their bills by scheduling use of appliances (eg washing equipment) when the electricity prices are lower - this will be when there is more renewable energy available, and so it will help make us of more renewable energy - it will also to the opposite and take consumption away from times when there is little renewable energy, so reducing the need for so-called 'back up' power stations. Currently the meters do not allow this and there is going to be nothing more than a basic night time rate which itself does not necessaily correlate with the availability of variable renewable energy supplies. As can be seen above in the link to California PUC, California is consulting about such a system at the moment.

renewable targets will make solar and offshore wind much cheaper

The Leonardo Energy Institute has published a report arguing that carbon emissions will be reduced much more cheaply with post 2020 mandatory targets for renewable energy rather than relying on a decarbonisation target on its own. This is because short term promotion of natural gas will delay cost reductions in renewable energy technologies leading to a higher cost of emission reduction later on. You can see the report on:

http://www.leonardo-energy.org/sites/leonardo-energy/files/documents-and-links/Cu0186-restargets.pdf

Indeed much of the logic behind this position is fairly obvious. Solar pv prices have tumbled in recent years because of the creation of larger and larger markets around the world. It has been estimated that for every doubling of production of pv cells there will be a 20 per cent costs reduction, and this theory seems to be borne out by the evidence.

Much the same argument can be applied to offshore wind. Indeed, cost reductions will be in the offing for succeeding generations of offshore wind farms even if the cost of wind turbines did not come down at all (which they are likely to anyway). This is because the offshore windfarms being installed in the future include the costs of the infrastructure (foundation, electrical connections) that can be used by turbines that replace existing ones when they wear out. The costs of the infrastructure makes up around 40 per cent of the total 'levelised' cost of the offshore wind projects. See for example, the report by UKERC at: http://www.ukerc.ac.uk/support/Great+Expectations%3A+The+cost+of+offshore+wind+in+UK+waters
 There is a good argument that offshore wind developers should be paid extra now so that the infrastructure that is built is built larger than what is needed for the initial turbines so that future 'repowering' can be done with much bigger machines that are likely to be cost-effectively developed in the future.

Of course this discussion also highlights the folly of giving in to EDF's demands for 35 or 40 year contracts since options to repower existing offshore wind installations after the initial premium price contracts of 15 years will squeezed as large volumes of subsidies continue to prop up the proposed Hinkley C and other nuclear developments. Offshore wind is already cheaper than nuclear power since it will not need 35 year contracts and its costs 'underwritten' by the Government. Offshore wind will be clearly be cheaper after the first 15 years simply because opportunities for 'repowering' emerge at much lower prices than the initial wind turbines.

Indeed, when these wind turbines are needed (and when the number of offshore windfarms is expanded still further) the price of the turbines themselves are likely to be much lower than at present. A recent study by the Lawrence Berkely Laboratory in the US has indicated how wind turbines are once again becoming cheaper through improved design and better efficiencies. Spiking steel prices interupted this process for a while, but the underlying downward trend has been regained since 2009. See http://eetd.lbl.gov/ea/ems/reports/wind-energy-costs-2-2012.pdf

Those who argue for the promotion of natural gas ahead of renewable energy are very short-sighted. With nuclear power proving too expensive to build, without renewables a higher and higher proportion of electricity supplies will come from natural gas. The UK clearly needs much greater diversity than this scenario, in the short term never mind the long term, even before the pressing issue of carbon dioxide reduction comes into play. In short there is an urgent case to be made for specific renewable energy targets. We should be supporting the adoption of a post 2020 EU Renewables target as well as binding targets for member states.

We need a renewables target not a carbon floor price

The vultures are circling above the Treasury's plan to increase the carbon floor price - and a good thing too. We should be demanding that the money be precisely targeted at renewable energy and energy efficiency instead. The carbon floor price gives revenue to the Treasury (that's the best argument for it!) but is unlikely to lead to ANY new investment in either renewable energy or energy efficiency, or, indeed, nuclear power. If they are to risk their money investors and banks are going to need a lot more than tenuous government commitments to keep up and continue raising taxation levels. Investors in green energy need legally binding contracts. Instead, under a carbon floor price, a large part of the increase in energy prices that the carbon floor price generates goes straight into the pockets of EDF who run the (old) nuclear power stations in the UK.

The carbon floor price is currently being targeted by an anti-green energy subsidy lobby along with money being spent to support renewable energy and energy efficiency schemes. They want these things scrapped, or reduced. We must defend the renewable energy and energy efficiency support schemes, but let's hang loose on the carbon floor price. Not only is it hardly worth saving, but the increase in prices that it generates would be much, much, better spent on direct support for renewable energy and energy efficiency schemes. Let us put our efforts into demanding targets to be set for the achievement of specific objectives - renewable energy and energy efficiency - not see consumers money frittered away into corners that do little or nothing to advance green energy objectives.

A now much quoted critique of the carbon floor price is Reg Platt's report published by the IPPR: 'Hot Air: The carbon price floor in the UK', see http://www.ippr.org/publications/55/7629/hot-air-the-carbon-price-floor-in-the-uk . Indeed, I wrote to the Guardian on this theme in June 2010 when the proposals were being mooted: http://www.guardian.co.uk/environment/2010/jun/17/true-costs-nuclear-power?INTCMP=SRCH

Ironically, in their pre-election energy policy statement, the Conservatives said, of their carbon floor price proposals,

'We intend that this reform should provide incentives primarily for

future generating capacity, rather than penalise existing

capacity (page 16).

See http://www.conservatives.com/~/media/Files/Green%20Papers/Rebuilding-Security.ashx

So why are the Government persisting with this device? Well, partly it is because the carbon floor price is a revenue generator for the Treasury. It does appear that the conservative establishment  at DECC effectively did a deal with the Treasury at the time of the General Election that the Treasury could have the carbon price tax revenue so long as DECC could have nuclear power subsidies through the ‘contracts for differences’ (CfD) arrangements. The carbon floor price would be a good cover for nuclear power which would, in effect,(or so they thought)  require no net subsidies from the CfD arrangements. This was to be the justification for the Government’s story that there would be no ‘subsidy’ for nuclear power. However, this story has, as we know, become unstuck.

 The expectation, I have been told, was that nuclear power would be no more expensive than the wholesale electricity price produced after the imposition of the full level of the carbon floor price. Only renewable schemes which were cheaper than nuclear power (not very many, they thought) would be, in effect, allowed. Of course the establishment were drunk on their own perennially over-optimistic hopes of finding the elusive holy grail of ‘cheap’ nuclear power. Now we know, of course, that most forms of renewable energy are actually cheaper than nuclear power.

 Green campaigners have recently been focussing their efforts on getting the Government to build in a decarbonisation target to the Energy Bill. Now, I support such efforts, but I doubt if they are substitutes for specific targets for renewable energy and energy efficiency. The UK is reducing its carbon consumption anyway with use of more natural gas and (in current and recent times) non-existent economic growth (to be maintained in future, no doubt, by oil price spikes). So if we are going to see increases in installation of real green energy equipment, such as wind power or solar power or external wall insulation, or more fuel efficient motor vehicles, new low energy buildings etc etc we need specific targets, regulations  and funding programmes to achieve improvements over and above what otherwise will be made.

 The EU is discussing setting a EU-wide renewable energy target of 30 per cent by 2030. We ought to be supporting such plans. Currently there is no renewable energy target for the UK beyond 2020. Farcically, many of our leading scientists and institutions are still clinging to the idea that after 2020 nuclear power will provide the main increase in low carbon energy supplies. It is time that the green movement fight off this nonsense and campaigned for renewable energy targets instead of the carbon price support mechanism.

Government admits nuclear power is a dead loss

The Government has issued its policy document 'Long Term Nuclear Energy Strategy' today. Here I 'translate' some key passages to connect it up with reality and to emphasise how, reading between the lines, the Government more or less says that nuclear power is a dead loss. Please note that my translation is in italics.

page 5
'the future of nuclear power will depend on it being able to compete effectively against other forms of low carbon electricity generation'. Translation: ' At the moment nuclear new build seems very unlikely. EDF is demanding some jaw-droppingly expensive terms and conditions for building Hinkley C which are way over and above what any government could stomach, let alone one that is cash-strapped and containing Liberal Democrats.

page 6
'the size of the nuclear programme will depend on the effectiveness of developers initially being able to build to time and budget, and subsequently being able progressively to reduce costs through experience and economies of scale.' Translation: The nuclear power industry seems incapable of building in anything like the time or costs originally projected, and all the experience so far has proved that the industry is prone to monumental catastophes which have more than neutralised any scope for cost reduction.

page17
'Government challenges the nuclear industry to reduce the levelised costs of new nuclear generation and will work with the Nuclear Industry council and the R&D community to do this'. Translation: The industry had better reduce its costs dramatically, because at the moment it has not got a snowball's chance in hell of doing any building. There's very little chance of doing this really, but to keep the nuclear industry happy and off our backs we will throw them a few nice juicy sops of taxpayers money for R&D and so on. George will let us spend this provided we don't rock the boat too much.

page 18
'Nuclear is cost competitive with other generation technologies and in the future it is expected to be the cheapest low-carbon source of electricity, so it can keep bills down and the lights on'. Translation: Nuclear might just about be cost-competitive at the moment with wave power, but very little else, and it is quite possible that even wave power will be more cost-effective that nuclear power in a few years time. But compared to sources like onshore and also offshore wind, and increasingly solar photovoltaics, nuclear is a dead loss. Lots of us at the Department of Energy and Climate Change have been saying that nuclear is the cheapest low-carbon source of energy in the past, but all of these statements are now 'inoperative'. However, we still want to be a bunch of wishful thinkers who firmly believe in the future of nuclear power because we learned this at school and clever people like David Mackay and David King keep telling us that this fairy story will one day come true.

The actual document can be read at:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/168047/bis-13-630-long-term-nuclear-energy-strategy.pdf

EU state aid challenge follows Treasury 'hint' at nuclear underwriting

A leading EU lawyer, backed by the Vice Chair of the European Group of Green MEPs, has declared the British plan to subsidise nuclear power as 'illegal'.
See:

http://uk.reuters.com/article/2013/03/21/uk-eu-uk-nuclear-idUKBRE92K0WL20130321

This challenge follows 'hints' in the Treasury's budget statement that nuclear power could receive underwriting of its costs under the Treasury Infrastructure Finance programme. This presages a battle over whether the European Commission will give state aid clearance to the British plans to subsidise nuclear power. Under existing EU law, while renewable energy has a state aid exemption on the basis that it is an environmental measure, nuclear power does not.

The UK Government has so far justified its 'contracts for difference' (CfD) proposals on the basis that these are open to all 'low carbon' generators and thus not a subsidy. However the grossly uneconomic nature of nuclear power (in reality) has meant that the Government is being pressed by EDF's well-resourced media machine and civil service supporters in DECC to grant much higher subsidies to nuclear power than will be offered to most renewable energy sources. Now, a new watershed has been breached with the suggestion, in the Treasury Budget statement, that nuclear schemes such as the proposed nuclear plants at Hinkley, Sizewell and Wylfa may have at least part of their costs 'underwritten'. These power stations have been included in a map of candidate 'infrastructure' projects. See
http://cdn.hm-treasury.gov.uk/budget2013_complete.pdf See map on page 37

The Daily Telegraph has been enthusing about this prospect. See
http://www.telegraph.co.uk/finance/budget/9944695/Budget-2013-40bn-infrastructure-scheme-could-help-underwrite-nuclear-projects.html


Yet, as late as last Tuesday, 19th March, in answer to a point made by Paul Flynn MP, Ed Davey said:

'The hon. Gentleman is right to say that my concerns on nuclear power for some time have related to the price, because the history of nuclear power in this country and elsewhere is that it has turned out to be expensive. That is why this coalition Government—and, indeed, the previous Labour Government—have gone about the third generation of nuclear power stations very differently from how Government’s went about things in the past to ensure that the consumer, business and the taxpayer are protected. That is why the coalition agreement says that there will be no public subsidy'

How much credence should we place on anything the Secretary of State says in view of the prospect of his agreeing to EDF's terms? We have seen, to use Tom Burke's words a process of 'salami slicing' demands, so that bit by bit EDF moves towards enjoying what would be (I suspect) ultimately a full blown blank cheque (full underwriting of construction risk) passed on by the Government with British taxpayers as the donors.

'Partial' underwriting', given the (apparent) application to the Treasury Infrastructure fund would involve the Treasury agreeing to accept an proportion of debt risk. So, the
Treasury would agree to guarantee the repayment of loans to the value of, say, £2 billion (out of a total £14 billion estimated cost of Hinkley C). Hence, whatever happened the lenders would get their £2bn repaid, as and when the loan and interest repayments fell due. The trouble with this, of course, is that EDF could conceivably go ahead and build £2bn worth of plant (which would have to be funded by the Treasury) and then say: Err, sorry, but we can't do any more without more underwriting.... Then the Government would be faced with a partially built nuclear plant with people saying 'why can't this be completed?', and, the Government may then be induced to underwrite the lot (whatever it will end up costing)  to ensure construction and avoid the embarrassment of having a
part completed white elephant on their hands.

This scenario actually is not totally dissimilar to what actually happened to Sizewell B which was half built when privatisation took place in 1990 and the electricity companies said thet they could not finance completion. So the 'non-fossil fuel obligation' and the 'fossil fuel levy' was invented, essentially to finish construction of Sizewell B. The 'blank cheque' was issued by the Government.

A much touted advantage of the Treasury programme of guarantees for infrastructure projects is that it will not cost the taxpayer anything - I am sure that will be the case in usual cases, but nuclear, my friends, is not usual. It is an industry that stealthily, over a period of years, draws the state into a series of increasing concessions when first it promised to be so cheap (in 2006). There will assuredly be no end to this process until the state has issued a blank cheque upon which will ultimately be written truly enormous sums of money that could be much more cost-effectively be spent on renewable energy and energy efficiency.........or indeed, schools, hospitals etc etc etc.

Even not counting underwriting, EDF's (desired) subsidies will look gargantuan compared to what premium subsidies will be offered to both onshore and ofshore wind under the CfD arrangements. Onshore wind will get no more than around £80 per MWh for a 15 year contract, so EDF's payment of, say, £95 per MWh for 35 years would mean that they would get well in excess of twice the subsidy paid to onshore wind. Offshore wind may get offered around £100 a year according to Government plans, but only for a 15 year contract. So EDF will be getting around twice the subsidy for Hinkley C compared even to offshore wind! And they would still need the taxpayer to 'underwrite' their construction costs! Who can seriously justify this? Well, according to what evidence we see at the moment, the Government may actually be heading in this direction.

But even if the British body politic remains supine before the blandishments of the nuclear-civil service complex  the nuclear industry may be assured of resistance at the level of the European Union. This resistance has already begun.