No review of the Hinkley Point nuclear project of the sort Theresa May’s new government is attempting would be complete without an assessment of its generous economics — and particularly its projected profitability. Assuming the plant can be built — admittedly not a small “if” given the troubled status of two similar projects its sponsor, EDF, has in Europe — the terms of the deal pretty much ensure a juicy payback. They ensure the French utility will receive more than double the present UK wholesale power price, indexed and guaranteed for 35 years. Subsidies are a byproduct of the state not only trying to reduce emissions, but also specifying the power sources to be employed in doing so. And, here, the original sin was committed t10 years ago when then prime minister, Tony Blair, signed up to the EU’s renewable energy directive. This ordained that by 2020, a full 15 per cent of Britain’s energy (or 30 per cent of electricity excluding transport and heating) should come from renewable sources. Concerns that the technologies were immature and delivered power only intermittently were swept aside. Customer-funded stealth taxes were introduced to encourage developers to pump money into wind turbines and solar panels. So, rather than the rational course of applying a neutral carbon levy and letting the market determine the best way to cut emissions, the government tried to pick the technological “winners”. What we do know is that the policy is constraining the supply of new capacity at a time when the supply margin has been falling ominously. Not a single megawatt has been commissioned without a subsidy since 2012. With the Hinkley review, Mrs May has a chance at least to pause the treadmill of escalating interventions. The consequences of doing so may not be clear. But the alternative looks much, much worse.
FT 11th Sept 2016 read more »
Some time later this month the prime minister will make a decision on whether the alleged security concerns raised over Chinese investment in, and technological development of, the planned Hinkley C and Bradwell B new nuclear plants respectively. We know her chief policy advisor, Nick Timothy wrote on the Conservative Homeweb site last October, when working for a conservative think tank: Ironically, at the beginning of the month, the United States Chamber of Commerce issued 116 page report on threats to international free trade in information technology, highlighting the role played by China’s national security laws to exclude US (and others’) companies from selling into the Chinese market.
David Lowry’s Blog 12th Sept 2016 read more »
Letter RCF Martin: The five distinguished members of EDF Energy’s stakeholder panel, in their letter, argue the case for the UK’s supposed need for Hinkley Point C to replace the existing nuclear fleet – as if the method of electricity generation was somehow more important than the cost of the electricity that the UK needs. According to the National Audit Office, UK consumers are expected to pay £29.7bn to EDF and China General Nuclear Power, the owners of Hinkley Point C, in top-up payments to compensate them for the difference between the price that they are guaranteed to receive and the wholesale price of electricity. Instead of being mesmerised by the desire not to upset the French and the Chinese, as we seem to be, it would be sensible to consider the far cheaper alternative of using some of that £29.7bn to subsidise gas-fired combined-cycle gas turbines as an alternative to Hinkley Point C. If this was combined with a linked, concerted effort to commercialise carbon capture and storage, gas-fired electricity generation would not be significantly more carbon-intensive than nuclear electricity. CCS technology has been in existence for decades and is capable of extracting 90 per cent of the carbon dioxide from coal and gas-fired stations. Rather than have consumers pay an additional £10 a year in subsidy for the lifetime of Hinkley Point C, there is a wonderful opportunity for the UK to play a leading role in developing the worldwide decarbonisation of hydrocarbons from traditional power stations. That would have a much greater impact on carbon dioxide reduction than the construction of Hinkley Point C, even if one makes the generous assumption that the technical problems that still beset EDF in Finland and Flamanville in France will be overcome before work commences on Hinkley Point C.
FT 13th Sept 2016 read more »