At one level, the UK’s exit from the EU should have very little impact on the energy business. The price of oil, gas and coal is set by international markets not by the institutions in Brussels. The EU has never had the authority to determine the energy mix of individual member states and even under the latest plans for an “energy union” different countries would retain in full the ability to choose whether they want to develop shale gas or to eliminate nuclear power. The proposed energy union is much more focused on developing common infrastructure and in ensuring that there is an open market across Europe. Presumably we will not now be part of that, although participation remains an option, for instance, in developing an advanced power grid across the North Sea if relations remain amicable. The member states of the Union manage to trade easily and successfully with Norway, which remains a non-member. There is no reason to think that the interconnection and trading links which already exist on straightforward commercial terms will not continue regardless of a UK exit from the European institutions. On climate change, the EU has set targets for reductions in the emissions and the use of renewables but it is worth remembering that the policy and the targets were not imposed on a reluctant Britain. On the contrary, the UK led the way on environmental legislation and proposed many of the steps that Europe subsequently adopted. Many issues remain to be resolved in Britain and in other European countries but Brexit in itself would have very little effect. The impact of Brexit will be felt less in terms of British interaction with Europe than within the UK itself. The crucial issue is the shape and composition of the next government following the departure of Prime Minister David Cameron. George Osborne has been a powerful supporter of new nuclear, starting with the long-promised development at Hinkley Point. He has tolerated both a sharp rise in costs since 2010, even at a time when the price of every other form of energy has been falling, and successive delays that leave the project years behind schedule and billions of pounds over budget. On the assumption that he joins Mr Cameron in retiring in three months time, his successor may take a tougher line and pursue different options. That new chancellor may also be less accommodating to the Chinese who want to own, build and operate their own nuclear station at Bradwell in Essex. A new UK government could well join every other major country in feeling that while some investment from Beijing is welcome, handing over a key piece of critical national infrastructure to Chinese control is a security risk that cannot be justifi ed. Many of those associated with the Brexit campaign have been openly critical of the Mr Osborne’s policies on both Hinkley and Bradwell.
FT 27th June 2016 read more »
The economic impacts of the Brexit vote will very soon make themselves felt to British consumers, writes Chris Goodall – kicking off with higher fuel bills and pump prices. The good news is that nuclear power is now looking increasingly unaffordable. But renewables and green energy research are also likely to suffer, especially if under a right-wing Brexit government. The large devaluation of the last few days will have significant effects on UK energy, from electricity to motor fuels. Other changes are also likely to slow decarbonisation of the economy. Hinkley Point C is even less likely to be built. As at the point of writing, the pound is down about 16% against both the dollar and the Euro compared to twelve months ago. That means that all the components for the power station purchased outside the UK will be 16% more expensive. EdF has indicated in the past that “up to 57%” of the cost of Hinkley will be spent on UK goods and services. Let’s be a little sceptical and say that only half the cost of the new nuclear plant will be incurred in the UK. The last estimate we saw was that constructing Hinkley was going to absorb £18bn. If half of that cost is derived from imported components and other charges the exchange rate decline over the last year has added over £1.4bn to the bill. Much of that has been in the last few days. The electricity that Hinkley generates will be no more valuable to EdF than before. The strike price of £92.50 a megawatt hour does not rise in the event of a UK devaluation. So the prospective financial return to EdF and the Chinese shareholders has fallen sharply. Perhaps as importantly, the position may get worse if the decline in the value of the pound continues but nobody can know this in advance, nor can it be fully hedged against. The same argument applies to all other prospective nuclear construction in the UK. Put at its simplest, the components for nuclear power stations will largely be shipped into the UK and then assembled here. The rapid devaluation that is going on has made all future projects more expensive. Nuclear fuel (costing about $5 for a megawatt hour’s worth of uranium) will also become more costly.
Ecologist 28th June 2016 read more »
One largely unintended consequence of ‘Brexit’ is that the economic uncertainty and reduced economic growth are likely to produce a further fall in electricity demand which may mean we do not need any more big power stations other than those already being built. Lost behind the usual blizzard of insistence that blackouts will result if we don’t build more gas and nuclear power plant is the fact that electricity demand has fallen over the last decade. According to Government figures (see DECC energy statistics) electricity demand fell from 406 TWh in 2005 to 359 TWh in 2015. Even since the economy began to grow again after the crash consumption fell from 384 TWh in 2010. The reasons for the decline are threefold. First electricity prices have remained high. A lot of this is because we are having to import increasing quantities of natural gas from abroad, and that gas is more expensive than what we have enjoyed coming from the now depleting North Sea fields. Second, energy efficiency policies (including energy efficiency standards introduced by the EU) have repressed demand, and thirdly economic growth these days is much less energy intensive than it used to be (even in the 1980s) because of a switch from industrial production to services. I disagree with arguments suggesting that the alternative to Hinkley C is gas fired power plant in the quest for decarbonisation of our electricity supply. It is not. It is renewable energy, and the Government is ignoring vast resources of cheap onshore wind and solar power, in addition to the resources of offshore wind. All of these options are going to be a lot cleaner, cheaper and certainly much more deliverable than new nuclear power.
Dave Toke’s Blog 28th June 2016 read more »
The UK’s challenge to build a clean, secure and affordable energy system has become significantly harder amid the political and economic turmoil following the nation’s vote to leave the European Union. Higher customer bills and delayed or cancelled projects are expected by experts, the most pessimistic of whom warn of the lights going out. The optimists argue that the global rush towards clean energy and strong domestic UK climate change targets can keep the transition to clean, green energy moving forward. However, the leading Brexiters, such as climate change doubter and likely next prime minister Boris Johnson, will play a critical role. If the deal they negotiate with the EU means close ties – and crucially access, like Norway, to Europe’s internal energy market (IEM) – the long-term dent to the UK’s energy prospects may be reduced. But a more decisive break with the world’s biggest single market would leave the UK out in the cold. National Grid has issued a warning that energy bills would rise and energy security would fall if, like Switzerland, the UK was excluded from Europe’s IEM. he flight risk is particularly high for the energy sector, in which many major players are foreign companies. The most high-profile is French company EDF, which wants to build a huge, heavily subsidised and highly controversial nuclear power plant at Hinkley Point in Somerset. The plant is an important part of the UK government’s plan to keep the lights on and emissions down, but is at high risk from a change of leadership, said energy analyst Nick Butler: “Osborne has been a powerful supporter of new nuclear. He has tolerated both a sharp rise in costs, even at a time when the price of every other form of energy has been falling, and successive delays that leave the project years behind schedule and billions of pounds over budget. On the assumption that he joins David Cameron in retiring in three months time, his successor may take a tougher line and pursue different options.”
Edie 28th June 2016 read more »