News October 2013

31 October 2013

Hinkley

Based on the disclosure so far this looks likely to be an outstanding deal for Edf and its partners. On a leveraged basis we expect Edf to earn a Return on Equity (ROE) well in excess of 20% and possibly as high as 35%. We forecast that cash dividends of between £65bn to £80bn should be payable during the life of the Cfd. Note that paying these dividends would still allow Edf to pay off all construction debt within the term of the Cfd. When the station commissions in 2023 the strike price will likely be above £121/MWh. For this to be competitive with fossil fuels, the gas price will need to have increased by at least 130% from today’s levels. Once again, the UK government is taking a massive bet that fossil fuel prices will be extremely high in the future. If that bet proves to be wrong then this contract will look economically insane when HPC commissions. We are frankly staggered that the UK government thinks it is appropriate to take such a bet and under-write the economics of any power station that costs £5m per MW and takes 9 years to build.

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Posted: 31 October 2013

30 October 2013

Hinkley

The Hinkley Point C nuclear power station is, or was, subject to two challenges. The first is from An Taisce, the Irish counterpart to the National Trust, who have challenged on the ground that the Irish government should have been consulted on transboundary effects as part of environmental impact assessment (EIA). This is due to be heard on 5 December in the High Court in London. The United Nations is taking an interest in this as well, because the EIA requirements derive from the international Espoo Convention (Finland’s second city, in case you were wondering). The Espoo Convention Implementation Committee has written to the Irish, Austrian and German governments to ask if they were consulted about the project (I think the answer is no) and whether they think the project is likely to have significant environmental effects in any of those countries (I would hope the answer was also no). They have until 25 November to respond. The second challenge was by Greenpeace, whose ground can be summarised as the government should not have granted consent while there was no viable option for the long-term storage of nuclear waste in play, because they said that they wouldn’t. I have learned that Greenpeace withdrew their challenge last week, though. Presumably the government’s defence was a good one, and Greenpeace have other matters to worry about at the moment.

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Posted: 30 October 2013

29 October 2013

New Nukes

The government has given the green light to building the first new nuclear power plant in a generation. But while many have welcomed the move away from fossil fuels, there remain concerns about cost, safety and ownership of the plants. Columnist Simon Jenkins debates the issue with Craig Bennett, director of policy at Friends of the Earth.

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Posted: 29 October 2013

28 October 2013

Hinkley: A Huge Contribution Towards Yesterday’s Energy Thinking

The Government’s plan to guarantee EDF Energy an index-linked price for electricity from two new nuclear reactors at Hinkley Point C in Somerset at roughly double the current market rate has, unsurprisingly, gone down like a lead balloon. As we head into another winter with rising energy prices already becoming the latest political battleground, we can expect around 24,000 avoidable deaths from cold-related illnesses in England and Wales alone (1) and seven million households plunged into fuel poverty. (2) So for the Government to gamble that wholesale electricity will cost double the present level for 35 years seems at best, bizarre. (3) But after years of half-truths and nuclear spin we can hardly say we are shocked.

In 2006 EDF said its nuclear electricity would cost £28.80 per megawatt hour (£/MWh) in 2013 values. (4) The Coalition Government promised there would be no subsidy for new reactors, and Energy Secretary, Ed Davey, is still insisting that paying £92.50/MWh is not a public subsidy (5) when almost everyone outside of Whitehall and EDF has long since given up on such a pretence. Tom Burke, former advisor to Tory Environment Minister John Gummer, asks why, if there is no public subsidy, the Government needs to apply to Brussels for state aid clearance for this deal? (6) The estimated cost to consumers over the life of the two new reactors will be around £80bn, or roughly £3.5m a day for each reactor at current rates. (7) Meanwhile we are expected to rely on Davey’s optimism that dangerous nuclear waste will be dealt with, despite plans for a disposal site being forced back to the drawing board. (8)

The high cost of building reactors makes them dicey investments, says The Economist. As well as agreeing a premium price for electricity, the Government will guarantee some of the loans needed to build the £16bn twin reactors. Government projections assume that rising fossil-fuel prices will eventually make energy from Hinkley Point look cheap. They also depend on politicians raising Britain’s carbon price, while hoping that energy-saving schemes will hide the rising costs from consumers. The deal at £92.50/MWh might look cheaper than the £155 per megawatt hour which the government promises offshore wind farms (falling to £135 in 2018). But those are 15-year contracts, not a 35 year commitment. Renewable energy is getting cheaper, while nuclear plants have always got more expensive. (9)

The Daily Mail reminded us about the various disastrous attempts to build an EPR reactor around the world. Headlined: “Deaths, chilling safety lapses, lawsuits, huge cost over-runs and delays: Why we can’t trust the French with Britain’s nuclear future”, the story detailed financial mismanagement, industrial chaos, worker deaths and an appalling inability to meet construction deadlines at Flamanville in Normandy. The problems at Flamanville have also been reflected in the Olkiluoto power plant in Finland — the first EPR project. Work started there in August 2005. It was scheduled to start producing power in 2009, but this has now been put back to 2015 at the earliest — ten years after construction began. (10) As a consequence of all these delays, the reactor design is unproven anywhere in the world. (11)
The Telegraph said it’s hard not to have misgivings over the costs and strategic logic of this deal. David Cameron has been banging on about “our determination to embrace new technologies and back new… energy sources”, conveniently forgetting there is zip new about nuclear. It only seems new because we are building our first station in a generation – since Sizewell B in 1995. But the Government has no idea whether technical innovation or the plunging costs, say, of solar power, will make the technology redundant. (12) For anyone that has taken a close interest in what’s going on in Germany the deal is about as sensible as building a chain of red phone boxes across the country. (13)

In Germany the renewables community seems quite pleased with the Hinkley announcement because nuclear prices are now so transparent and so high! Clearly, the rates that will be offered for new nuclear by 2023 in the UK are far above what solar and wind currently cost in Germany and these rates are going down. (14) Hinkley C will be paid more than twice as much as German solar PV arrays. (15)

Mark Turner, a director at the UK’s leading solar power generator Lightsource Renewable Energy, has written to Prime Minister David Cameron to point out that Britain’s solar industry has the capability to deliver the same energy production at Hinkley Point C within 24 months and at comparable cost. Hinkley won’t be able to contribute to reducing dependence on fossil fuels for ten years. Solar power, on the other hand, could provide energy security quickly, reduce electricity bills and protect the environment at the same time. In his letter, Turner describes how solar power will not be the entire solution “but if we supported its deployment then within a couple of years we could have 10% of the UK’s energy mix completely free from the vagaries of the global fossil fuel markets”. (16)

Energy minster Greg Barker says the only way to maximise solar’s contribution to the 2020 renewables target is to “squeeze out subsidy” and to “compete like-for-like with fossil fuels”. But that is not challenge he extends to nuclear power. Ed Davey says the nuclear price “is competitive with projected costs for other plants commissioning in the 2020s”. But this is frankly absurd according to the Solar Trade Association (STA) which has asked for a strike price of £91 in 2018 and expects this to fall to £86 by 2019, falling year on year thereafter, paid over 15 not 35 years and with no nuclear-style small print permitting a possible increase in strike price once those terms are set. (17)

As if all this were not enough the Coalition’s promise to eradicate fuel poverty by 2016 “as far as reasonably practical”, now looks impossible to achieve, and yet David Cameron has announced a review of so-called “green taxes” with the Energy Company Obligation – a government measure requiring energy companies to subsidise home insulation for low-income households being singled out for particular attack in recent weeks. (18)

Thankfully, the nuclear announcement is a long way from being a done deal. EDF will not give the go ahead for contractors to start building until the deal has received state aid clearance from Brussels, which could several months or even a year. EDF says it will make its final investment decision by July 2014, but state aid approval from the European Commission could take up to 12 months to complete, which would push the investment decision back even further. (19) The price of solar power has halved in the last few years, and continues to fall. By the time Hinkley C is operational, probably around 2023-2025, the price of solar will have halved again, maybe twice over, and will no longer need any subsidy at all. With the growth in renewables the entire concept of baseload power is becoming obsolete. Supply from renewables is variable, as is demand by electricity consumers. What is needed to fill the gap between the two is not an inflexible 3.2GW, but power stations whose output can be modulated. For some time to come the best fuel will be gas, which is relatively clean and low carbon, while modern gas power stations are highly efficient and can be ramped up quickly to meet demand. (20) The chances are that by the time Hinkley opens, if it ever does, it will already be obsolete. Indeed by then the very concept of a traditional utility company may be well on its way to becoming obsolete. (21) Former Labour MPAlan Simpson summed up the situation when he told a House of Commons Committee that the Hinkley decision is “a huge public contribution to towards yesterday’s energy thinking”. (22)

(1) Guardian 25th October 2013 
(2) Mirror 22nd October 2013 
(3) FT 21st October 2013 
(4) Guardian 21st October 2013 
(5) Spinwatch 16th September 2013 
(6) Ecologist 26th October 2013 
(7) Guardian 21st October 2013 
(8) See “The Lib Dems and Nuclear Waste” NuClear News September 2013 
(9) Economist 26th October 2013 
(10) Daily Mail 26th October 2013 
(11) Bloomberg 22nd October 2013 
(12) Telegraph 21st October 2013 
(13) Michael Edwards 10th October 2013 
(14) Renewables International 22nd Oct 2013 
(15) Dave Toke’s Blog 27th October 2013 
(16) Nextgen 24th October 2013 
(17) Solar Portal 24th October 2013 
(18) Carbon Brief 23rd Oct 2013 
(19) Building 21st October 2013 
(20) Ecologist 21st October 2013 
(21) See for example this blog.
(22) IB Times 23rd October 2013

Posted: 28 October 2013

28 October 2013

Hinkley

Letters: As Fukushima continues to turn into an ever more serious catastrophe, and as the Germans confirm that they are turning their back on nuclear, Britain decides it will be expanding nuclear power generation, with the Chinese as the driving force.

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Posted: 28 October 2013

27 October 2013

Hinkley

Tom Burke: Mr Davey. If there is no public subsidy for Hinkley C why are you having to make an application to the Brussels for state aid clearance? The most important decision in this issue is EDF’s decision to order the major components for Hinkley. Only when that has happened will it become too expensive not to go ahead. If that has not been done, no deal has actually been made. All that has happened is that the price the British Government will pay for the output from Hinkley has been announced. It is very unlikely that any such order will be made until after state aid clearance has been granted. EDF have already announced that they do not expect the civil engineering work to begin at Hinkley before the middle of 2015. This is an optimistic assumption about how long it might take to get state aids clearance. It has already become clear that there will only be limited scope for British companies to supply the high value components for Hinkley. On the most optimistic assumptions there will be no electricity from Hinkley before 2023. The wholesale price of electricity is the main component of energy bills. In order to set that price he has had to guess the wholesale price of electricity in 2058 since the contract will last until then. This is courageous. It means that if wholesale prices fall, British consumers will lose out substantially. Wholesale prices for electricity in Germany have fallen about 30% in the past 12 months. In short, this, not quite a deal yet, does nothing to reduce energy bills now, will not help to keep the lights on this winter and offers few high-value jobs for Britons.

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Posted: 27 October 2013

26 October 2013

Hinkley

EDF will not give the go ahead for contractors to build its £16bn Hinkley nuclear power plant until the deal it has struck with the government has received state aid clearance from Brussels, which could several months or even a year. EDF announced this week that it had finally reached an agreement with the government for a guaranteed price for its electricity from the plant, with the deal widely seen as opening the door to a new generation of nuclear power plants. But following the announcement on Monday (21 October), Henri Proglio, chair and chief executive of EDF Group, said the French utility would not take a decision on whether to build the plant until “after the Brussels decision” on whether the deal was in line with European Union state aid rules. EDF said it would make its final investment decision by July 2014, but reports last week suggested that state aid approval from the European Commission could take up to 12 months to complete, which would push the investment decision back even further.

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Posted: 26 October 2013

25 October 2013

Hinkley

A director at the UK’s leading solar power generator Lightsource Renewable Energy has written to Prime Minister David Cameron describing how the UK PV sector could match the capacity of the planned nuclear power station at Hinkley within just two years. Operations Director Mark Turner says the nation’s solar industry has the capability to deliver the same energy production at Hinkley Point C within 24 months and at comparable cost.

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Posted: 25 October 2013

24 October 2013

Hinkley

The government’s announcement yesterday of an eye-watering £92.50 strike price is nothing more than ‘grandstanding’ according to campaigners in the south west. Nikki Clark, Stop Hinkley spokesperson said “Yesterday’s announcement was much ado over nothing and despite all the fanfare and visits of the rich and famous to Hinkley, there is no legally binding agreement, nor will there be until the government get their plans past the European Commission which, according to various media outlets, would be summer 2014 at the earliest.”

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Posted: 24 October 2013

23 October 2013

Hinkley

To ensure the future of its nuclear power industry, the U.K. is relying on an unproven reactor design plagued by delays and billions in budget overruns. The government’s deal yesterday with Electricite de France SA to build a $26 billion plant at Hinkley Point in England involves two European Pressurized Reactors. The first EPR project in Finland, led by Areva SA, the French company that designed the technology, is seven years behind schedule and won’t be completed until 2016. The second, an EDF project at Flamanville in northwest France, will cost more than twice as much as expected.

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Posted: 23 October 2013