The Chinese nuclear fairy gets set to wave her wand…..?

According to the papers, we are finally going to get financial sign off for the first of what are supposed to be a new fleet of nuclear power stations in the autumn – albeit laced with a huge slug of state funded finance from the Chinese government: so to sum up, Hinkley C power plant, which will of course be built, it is claimed without any public subsidy or state finance (except the credibility busting sum of  EDF being awarded £92.5 per megawatt hour of electricity produced  for the next 35 years– about twice the current price of electricity currently) will be constructed largely with state finance from China and run by a state financed French energy company.

Amber Rudd, our new Energy Secretary of State, appears to be rather more openly on the side of the ‘subsidy admitters’ than her predecessors were  – she told me two weeks ago in In an energy Select committee hearing that

‘We have to have secure baseload, so you should not be surprised…that we are prepared to pay more for that in order to make sure nuclear is part of the mix’

An admission that sounds to me very like confirming a conscious decision to subsidise new nuclear, which is of course the subject of a challenge to the EU from the Austrian Government – that the UKs nuclear programme contravenes EU state Aid rules. It quite flagrantly does, I think we will quietly have to agree, and it really now depends on whether there is a ‘policy fix’ on state aid shortly, or whether the challenge, which is by no means ‘weak’ as the Government dismissively tells us (see here for an appraisal of the Austrian challenge) is allowed to run through a proper process of examination.

So to sum up (2) – the Chinese and French state sponsored new nuclear reactor propelled towards financial close by lavish state underwriting of its eventual output may well go ahead providing it is deemed not to contravene EU state aid rules: and will simply collapse if the challenge succeeds.

So that’s our new nuclear programme sorted out, subject to these small matters? Well not really, because it is worth remembering that Hinkley C is supposed to be a part – the first part- of that new nuclear programme, the importance of which was underlined very recently in a largely unnoticed update of the Government’s ‘Low Carbon Technologies’ plans.

According to this document, ‘most nuclear power stations are due to close by 2023’, so a new fleet is needed to maintain the nuclear mix (nuclear currently supplies about 19% of electricity) It is going to be OK, however, because, as the document says, ‘Industry plans 16Gw of new nuclear power’, on five of the eight sites agreed to be suitable, and effectively given free up front planning permission, by the 2011 Nuclear National Planning document. Those would be the sites that were appraised by the planning statement as being able to be developed by 2025 –because, as we were sternly warned by the report ‘failure to develop new nuclear power stations significantly earlier than the end of 2025 would increase the risk of the UK being locked into a higher carbon energy mix for a longer period of time than is consistent with the governments ambitions to decarbonise electricity supply’.

Right then: we’ve got to get a new fleet built by 2025 to have any chance of keeping nuclear in the mix and replacing those that will inevitably close before then- and the next question, is how are we doing?

Well here’s something else worth remembering: Hinkley C was, when the nuclear policy Paper was written, supposed to be producing electricity by the spring of 2018 – planned, permissioned financed and constructed by that date. The new planning document staunchly stands by that fairytale date, more or less – ‘the aim’ it says, ‘is to have the first new nuclear power stations generating electricity from around 2019’ . That is not what ministers now say, however – in DECC questions three weeks ago, Andrea Leadson the new energy minister, told us all that ‘ we are committed to the next wave of new nuclear projects…and we hope to be able to be able to meet 35% of power needs from nuclear by 2028’  That’ll be the ‘plans’ the  industry has coming to fruition by then, I would imagine –  but  not quite what I received as a written answer from DECC a week later when I asked about the new nuclear timetable – ‘ we expect ..these new power stations to come into operation during the 20’s and early 30’s’ signed off as answered, I might add by one Andrea Leadsom.

So to sum up (3) Hinkley C is now delayed by more than five years, and will probably be delayed further. Even assuming everything on the remaining permissions and the build goes very speedily, it is probably asking a lot for power to come out of the plant before 2025. – the date by which all the new fleet was supposed to be in place. And then, if 35% of power is to be supplied from nuclear by 2028, magically, all the other sites will have to be completed  by then (which means all will have to be approved, financially closed, and commenced with building by about 2017).

So I guess we will need to hold tight and wait for the flurry of announcements about definite build programmes on Wylfa, Sizewell, Oldbury etc. over the next eighteen months.

And then finally summing up (4) not a snowballs chance in hell that all this will happen. Instead of a complete nuclear programme by 2025, the likelihood is that there will be one plant, or maybe not even that operational at that point. (The estimable  Prof. Catherine Mitchell, from Exeter University has produced a highly recommended blog piece on this and other energy planning issues by the way.)

Time, you might think, for a plan B. what about filling in now almost certain low carbon generation gap, at the very least, with much more easily deployable, speedily buildable, better financeable, lower subsdisable real renewables? Oh, we’ve just taken most of those programmes out and shot them. Bit of a mess then, really.

On Pyhrrus and his campaigns

Well that went well, didn’t it? At least Ed Davey thinks so. I’m referring here to the results of the first capacity auction, the final results of which were posted earlier in the month. Here’s Ed responding to an intervention on the subject that I made during the recent Energy Prices debate in the house:

 

‘The results of the capacity auction were far better than we had predicted. The closing price – the clearing price – was significantly lower than we predicted, so there will be a lower impact on consumer bills.’

Hmm I’m not sure crowing about the low clearing price of the auction as a mechanism for protecting consumer bills (when that was nowhere in the specification of the auction) is a wise, long-term line to take. A bit like a general reporting that ‘our invasion force failed to land on the beaches and we were repulsed with huge losses. But we only sent ten ships, a far lower number than we had anticipated, so there’s a considerable saving to the taxpayer to take into account in evaluating the success of the operation’.

So were the results any good overall? Let’s start with what DECC thought the auctions were about when they set them up. Here’s what they say in the capacity auctions section of their website:

‘The Capacity Market will ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. This will encourage the investment we need to replace older power stations and provide backup for more intermittent and inflexible low carbon generation sources.’

And we also need to know that the idea of launching an auction for implementation in 2019 was primarily so that new power stations would have some investment security when they come on stream.

Well, yes, payments have gone out in the first auction to some generators, which one supposes will mean that they don’t switch off their generating capacity when it might be needed. Except to say that almost a fifth of the cleared capacity is coal plant which DECC is supposed to be running off the system in a few years, and extraordinarily, 7.8GW of nuclear power (which can’t be switched off without long term consequences even if the owners (EDF) go into a sulk) so that aspect of the ‘auction’ most certainly is free money with no gain in supply security. Most of the rest is money to existing gas plants, some of which arguably might have decided to mothball themselves if they hadn’t got a payment from the auction.  On the other hand, almost 4GW of gas plant didn’t succeed in clearing the auction, being displaced both by coal and (haha) nuclear. One might think that this will now INCREASE the likelihood that this plant will be mothballed in the not too distant future, decreasing overall energy security rather than making it more robust.

But leaving that all aside, what about the other aspect of what DECC thought they were doing with the auction – ‘encouraging the investment we need to replace older power stations etc.’? Well here the news is uniformly bad. Let’s remember that the same Department projects in its gas strategy that some 26GW of new capacity will be needed to provide that backup by about 2030. One power station (Trafford) that appeared to be in the process of commissioning anyway got a fifteen year capacity contract. The other station being currently commissioned (Carrington) did not.

So, to sum up, nuclear and coal did well, existing gas got shedloads of money, new gas got virtually nothing – oh, and demand side response measures got about 1% of share out. More fiasco then triumph, I think.

 But it is the central aspect of investment in new plant that is squarely in the ‘fiasco’ bracket. Let’s suppose, as they are scheduled to do, the Department tries again next year with another auction, which may procure some more I year contracts. Where does that leave new plant? It is, I concede, something of a paradox that the Government is bringing forward mechanisms to pay developers of gas fired power stations to run at relatively low levels of output, in order to balance the system that, by 2030, will be predominantly populated by non-gas generation. This is for the very good reason that if it does not, then we will forever be locked not just into high carbon generation, but generation at levels that by themselves will bust any targets on overall CO2 emissions we might set for the country.  We will need this backup, but it is beginning to be evident that capacity auctions are perhaps not the best method of ensuring that it is there. Maybe the drop in oil prices and the following (partial) drop in gas prices will come to the rescue of new development, in which case capacity auctions aren’t likely to be needed.

I wonder if longer term, new gas plant will need to be publicly built and then rented out to operators. At least then we’d know the plants were there, and by the way, that when we didn’t need them, they could be removed in an orderly fashion. Or we could (heaven forefend) revisit the idea of a strategic reserve of gas plants.

As for doing things in the present way the phrase ‘one more victory such as this and I am ruined’ springs to mind. He lost in the end (Pyhrrus, that is.)

No news here – EDF doesn’t pay for something again

Something a bit odd is happening in Somerset, and I don’t mean that a new series of Midsomer Murders has been commissioned (I rather think it is set in Somerset, but I’m not sure…). No, the oddness relates to the community bounty promised upon the eventual arrival of Hinkley C nuclear power station in West Somerset.

You will recall, no doubt, the excited announcement by Michael Fallon last year; residents of the local authorities around the plant would be receiving, in addition to retention of the business rate, around £1000 per megawatt hour for up to forty years once the plant was producing power. That might amount to some £128 million all in, which is not bad going at all for cash-strapped local authorities. The previous year, EDF had announced that they would be lavishing some £64 million on local communities to get the project going. So, presumably, like the £5000 per installed megawatt that onshore wind developers are committed to provide for communities (provided that nice Mr Pickles lets them build any) and the 1% of revenues fracking well companies will have to donate to communities if they consent to a well and it actually produces anything, nuclear developers will also be supporting local communities.

Well, not exactly, as it turns out. Pretty much all the money that EDF have provided so far has gone on things that benefit…er…EDF – like widening access roads and so on. And, so I understand, the company has flatly refused to have anything to do with developer benefits subsequently. And following the strong hand DECC played in the negotiations throughout, flat refusal was indeed how it turned out. Only someone had to stump up the community benefit money after Michael Fallon’s possibly injudicious announcement. I am also told that further negotiations with Treasury have proved fruitless.

There have been some suggestions that the lucky authorities who might otherwise benefit from the community payout will share the undoubted bounty of the promised business rate remission. But since the plant itself will be built entirely within the West Somerset district boundary, it is this local authority who will get the whole lot. Other authorities will get nothing, even though they will get a lot of the effects coming their way. West Somerset is understandably reluctant to pass up the equivalent of a large lottery rollover win, so that avenue looks to be closed. The Treasury has now apparently told DECC that they are on their own and that any community benefit will have to be paid out of departmental funds, unless they can get EDF to cough up, which of course they can’t.

So there we are: cash strapped DECC likely to be paying out £128 million for the developer (who will pay virtually nothing in community benefit) over forty years, and local authorities in the area still left a little unclear about how this will all happen. The only good part of this sorry story is there is quite a long time to go before they will have to pay anything out. And perhaps someone will have found some money under a stone by then.