Thursday, 17 August 2017

UK offshore wind prices predicted to fall to 25 per cent less than Hinkley C - but it could still be done much cheaper!


Offshore wind prices are plunging fast. A leading wind expert says that the next round of UK contracts awarded (next January) for offshore wind projects will undercut the price given to Hinkley C by around 25 per cent. Not only this but the contract length will be only 15 years for the offshore wind projects compared to the 35 years for Hinkley C.  In Germany, meanwhile, the latest round of contracts for onshore wind are being issued at under £40 per MWh, a great deal less than anything a British gas fired power station could set up for. The last Danish offshore wind project at Kriegers Flak was awarded a contract last December for under £44 per MWh (no more than £55 per MWh after taking into account grid connection costs).

Gordon Edge, who served for over a decade as RenewableUK Policy Officer but who now runs an independent consultancy, is predicting that the 'strike price' awarded to offshore wind projects will fall to around £70 per MWh. Not only this, but Edge believes that over 3GW of offshore wind contracts could be issued to fit in with the Government's 'budget' for spending on power from new offshore wind projects. These prices are, however, calculated in 2012 prices as is done with the Hinkley C contract which is worth £92.50 in 2012 prices.

This could mean that in this second round of 'CfD' (contract for differences) allocation (the first was in early 2015) all of the 3GW+ of offshore wind contracts could be in place by 2022/3. This would generate over 4 per cent of UK electricity supply, possibly as much as close to 5 per cent.

Offshore wind contract prices have been plunging at a rapid rate in recent years, as can be seen from the second page graph on the KPMG report at https://home.kpmg.com/content/dam/kpmg/uk/pdf/2016/11/second-cfd-allocation-round.pdf

In general we are seeing a step change in declines in cost of wind power as 'capacity factors' (the average amount of time that a given generation capacity is operating) are rapidly heading upwards. Larger wind turbines with much increased 'swept areas' at greater heights are being deployed which can capture much more energy for a given wind speed per capacity installed. In the case of offshore wind costs are also declining because larger turbines reduce the large costs of installing each turbine, along with other factors such as greater experience in electrical connections and in financing offshore wind which reduces 'risk' and therefore cost.

Bernard Chabot, a wind economist predicts that this process will continue with wind power capacity factors climbing to 60 per cent.

Yet, the UK Government's own method of procuring offshore wind has become the least competitive and most expensive procedure in Europe. Gordon Edge's analysis reveals that in effect there are only three competitors in the race to pick up contracts under the current CfD round.

Competition is limited to a few companies that were granted leases some years ago, with no new leases being issued for several years now. And even in these three cases the companies have been saddled with sorting out planning and site investigation details - details which in other European procurement regimes are dealt with by Government agencies.

This 'laissez faire' process (ironically then micro-managed by Whitehall after contracts are issued) has also led to confrontations with RSPB over some Scottish offshore windfarm projects. On top of this the UK Government is setting onerous rules about how and when the projects that gain contracts should be deployed. All of this is in flagrant contrast to the freedom given to EDF to install Hinkley C. As I commented in my last blog post the Government needs to start the process of identifying new offshore wind sites. I commented in my last blog post that an urgent priority for the Government is that they should:

'Identify new sites for offshore wind deployment as well as quickly bringing forward the issue of power purchase agreements to existing projects with planning consent. The Government should take note of how, in Denmark, the uncertainties and thus the costs of offshore wind have been reduced by the Government taking on the task of researching and consulting on specific sites rather than leaving this to the developers. This only adds to costs which may be part of the reason why UK offshore wind costs are higher than costs in the case of Denmark, The Netherlands and Germany.'


Onshore wind prices, if only the Government awarded any contracts, would be likely even lower than the predicted offshore wind prices. Indeed wind power prices are now challenging prices for contracts for gas fired power plant if only they were awarded on the same basis. But the Government is giving backdoor preference to gas fired power plant over wind through the 'capacity mechanism'.

You can read Gordon Edge's analysis at https://www.linkedin.com/pulse/cfd-ar2-prediction-gordon-edge

Incidentally you can see my talk to the 'No to nuclear power, yes to renewables' conference held by CND in June at https://www.youtube.com/watch?v=1hMCbf_c4DY


Other References:

KPMG
















Monday, 14 August 2017

Six ways in which the energy costs review could reduce consumer costs and deliver green energy

The Government's review of energy costs is obviously a set-up designed to argue against a major emphasis on funding currently commercialised renewables and energy efficiency technologies, so here I critique this viewpoint and suggest some ideas for what a genuinely far-sighted clean energy effort to reduce costs might involve. Ideas which, I suspect, will be comprehensively ignored by the review.

The Government has given its review of energy costs to Dieter Helm whose opinions are hostile to promoting 'current' generation renewables and who is anyway excluded from considering the Hinkley C contract or other issues such as the smart meter roll-out which are pushing up electricity prices.

Last year Dieter Helm argued that:

'new and emerging technologies, rather than international agreements, and the promotion of current generation renewables, will probably bring fossil fuel dominance to a gradual close.  To facilitate decarbonisation, energy policy should be directed at enhancing R&D and next generation renewables, instead of supporting existing ones'. (Helm: The Future of fossil fuels: is it the end http://www.dieterhelm.co.uk/energy/energy/the-future-of-fossil-fuels-is-it-the-end/)

Helm has apparently been oblivious to the fact that the enormous decline in costs that has happened in the case of solar pv and wind power has been driven not by original research (as important as that is) but by the feed-in tariff and other support schemes that have created mass markets in renewable energy technologies. Investment in renewable energy technologies now surpasses combined investment in fossil fuel and nuclear power throughout the world today. (eg see https://www.carbonbrief.org/renewables-growth-breaks-records-again-despite-fall-investment). Even in the UK renewable energy has expanded as a source of electricity from round 3 per cent in 2002 to over 25 per cent in 2015. It is remarkable that some economists can be apparently so oblivious to the fact that technology costs decline as markets for them are expanded.

Helm avoids this fact in favour of his own longstanding antipathy to renewables and he openly favours giving priority to new gas production saying: 'Now the oil and gas is worth more today than tomorrow, and hence it makes sense to maximise production now'

Essentially Dieter Helm seems to want commercial renewables incentives to be curtailed and, in effect, incentives should be largely oriented towards encouraging more natural gas generation. A few crumbs will be doled out to industry to research into 'advanced' renewables. The Paris Agreement is dismissed.

I suspect that, in the energy costs review, there will be little meaningful analysis of the medium to longer term prospect for natural gas prices, which tend towards increasing prices as Norwegian, British and Dutch production declines. This means the UK prices will rise as these countries supplies become further squeezed and prices tend towards the marginal suppliers such as expensive liquified natural gas from Qatar and other places. (see for eg https://www.platts.com/latest-news/natural-gas/london/analysis-doubts-stack-over-norways-gas-export-26390853).

Neither will there be much appreciation of the fact that the costs of renewables such as offshore wind and solar pv have plunged in recent years or that onshore wind has been deployed over the last couple of years through the Renewables Obligation for prices well below the Hinkley C contract (£70-£75 per MWh for onshore wind compared to £100 per MWh for Hinkley C in 2017 prices).

In addition the energy costs review seems likely to be a 'prices' review and not a costs review at all. If it was a genuine costs review it would look at how to reduce consumer bills, not prices, which means looking at how to improve the energy efficiency of the UK's energy system. Hence energy efficiency schemes will no doubt be seen as an addition to costs when in fact they have brought bills down by large amounts, as the Committee on Climate Change has discussed.

So below are six ways that the Government could reduce costs to the consumer, none of which are likely to be recommended by the Helm review.

1. Encourage the French Government to reconsider the Hinkley C project, eg suggest to them that it is not worthwhile putting more French taxpayers money into the project. If Hinkley C is not completed, then this will save UK energy consumers enormous sums of money since they are committed to paying (in 2017 prices) £100 per MWh for 35 years

2. Instead issue power purchase agreements to onshore wind, offshore wind and solar pv for projects in the £60-£80 range, using 15-20 year contracts by the end of which costs of renewables will have fallen further.

3. Abolish stamp duty for houses which incorporate energy efficiency, solar power and storage technologies which involve buildings which can generate more energy than they consume as studied by Swansea University’s Specific Innovation and Knowledge Centre (https://www.solarpowerportal.co.uk/news/solar_and_storage_could_save_homes_600_each_year_new_report_finds?utm_source=rss-feeds&utm_medium=rss&utm_campaign=general)

4. Take the disastrously implemented 'smart energy meter' rollout out of the hands of the electricity suppliers and put it into the hands of the Distribution Network Operators who are now becoming Distribution System Operators.They should use the smart meters as they should be used to ensure that implementation of 'time of use' charging for electricity to match variable renewables with the demand for energy

5. Abolish price competition in the domestic retail sector and replace it with competition between suppliers to supply energy efficiency (eg selling more efficient fridges, washing machines, incentivising different forms of insulation). This will encourage the suppliers to offer services that can reduce bills rather than playing games with contracts for energy prices. Common prices would be set by OFGEM using a tried and tested formula used in the distribution sector. 

6. Identify new sites for offshore wind deployment as well as quickly bringing forward the issue of power purchase agreements to existing projects with planning consent. The Government should take note of how, in Denmark, the uncertainties and thus the costs of offshore wind have been reduced by the Government taking on the task of researching and consulting on specific sites rather than leaving this to the developers. This only adds to costs which may be part of the reason why UK offshore wind costs are higher than costs in the case of Denmark, The Netherlands and Germany. 


https://www.thetimes.co.uk/edition/business/energy-review-to-ignore-price-caps-profits-and-smart-meters-z2q6pdbd2



https://www.solarpowerportal.co.uk/news/solar_and_storage_could_save_homes_600_each_year_new_report_finds?utm_source=rss-feeds&utm_medium=rss&utm_campaign=general

Monday, 24 July 2017

How Brexiteers are undermining their claimed objective of a free trade deal with the EU

British politicians are engaging in what can only be seen as a self-defeating series of postures on Brexit that undermine their self-declared aim of securing a free trade agreement with the EU.

As I commented last November,( http://realfeed-intariffs.blogspot.co.uk/2016/11/why-leaving-eu-is-bit-like-building.html ),
the best that the UK can hope for in the medium term is a Norweigian or Swiss type deal that leaves us in the Single Market with at best a face-saving deal to obscure the continuation of current rules on freedom of movement.

The Government knows that the much-touted 'free trade deal' will take several years to negotiate and that if the UK left the EU without them any government in power would become extremely unpopular because of the border and business chaos that would happen in March 2019. A sense of self-preservation has forced the Government to agree to the notion of a 'transitional' or 'implementation' phase that will last at least two years (more I'm sure). 'Hard Brexit' or the notion 'no deal is better than a bad deal' was never anything more, for the Government, than a phrase used as a party management device.

This  'implementation phase' will involve a Norweigian or Swiss type deal -and that includes free movement of people from the EU to take up jobs in the UK. British politicians debate the extent to which we can choose labour market rules. But it is all farcical. It is not up to them to choose. They can either take the EU's terms - which cannot, for obvious reasons be better than Norway or Switzerland's deal - or suffer the famed 'hard Brexit'. Hence their wish to avoid political disaster by bowing to the inevitable and agreeing to a 'implementation' phase. A comment from the EU on how the UK's wishes to 'cherry pick' the Single Market are unrealistic can be seen at http://www.epc.eu/pub_details.php?cat_id=4&pub_id=7865

The Brexiteers in the Government thus have faced a dilemma - resign or accept the notion of a 'transitional' phase.
But the Brexiteers, if they seriously want a good trade deal with the EU, are their own worst enemy. This is because the last thing the UK needs in negotiating a free trade agreement is a time limit for the talks. This is a set of bargaining that only the UK really wants. The EU would be perfectly satisfied with the status quo - that is the UK continuing to belong to the Single Market. It's only the UK who want what is, in trading terms an inferior  arrangement of a free trade deal which would leave a lot of areas, including access to services, uncovered (see https://www.niesr.ac.uk/blog/services-trade-and-free-movement). The UK only want it because of the illusion that getting rid of free movement of people into the UK will do it any good.

The point is that the EU aren't going to be in a hurry to agree to the inferior position of a 'free trade' deal. So if Britain wants one quick then it will have to accept whatever terms the EU want to offer - it will not have the time to argue about it!

That is the craziness of the Tory Brexiteer vision. Either they destroy their party electorally as they take the blame for a disastrous 'hard Brexit' or they destroy the UK negotiating position for a free trade agreement. Liam Fox may be the first minister in British history to be busy negotiating for international agreements that give the UK a worse economic deal than they have already!

Tuesday, 27 June 2017

Could latest delays in Hinkley C presage bankruptcy of EDF and more British bailouts?

The latest announcement from EDF that Hinkley C will be further delayed and that EDF will be hit with even more cost overruns risks making true the prediction of EDF former Finance Officer that the project will bankrupt the company. This may well lead to increasing pressures on the UK Government to put billions of UK taxpayers money into the project.

Hinkley C, which former EDF boss Vincent de Rivaz said (in 2007) would be generating by the end of  this year (2017) will now, according to EDF, not be generating electricity until 2027. Ten years on and the project is still ten years away! But meanwhile the company has spent massive sums getting not very far towards building the plant. It is now in danger of wasting even the money the French state has pumped into EDF to save the company and build the project in Somerset.
Sixteen months ago EDF Finance Director Thomas Piquemal resigned, after EDF decided to make a 'final investment decision' over Hinkley C, fearing it could put the whole company at risk.

EDF is already facing financial disaster because of the costs of failing reactor designs at Flamanville in France, Okiluoto in Finland and the costs of renovating ageing reactors in France - not to mention falling incomes from its own power plant. If EDF closes plant then it will have to pay steep decommissioning costs. Last year the French Government agreed to put in an extra 3 billion euros to shore up the Hinkley C project. This is part of an equity share offer, a thinly disguised Government subsidy given that 85 per cent of shares are owned by EDF. EDF shares fell further as a result and are now at around half the value that they were in 2012.

Indeed, there has been a lot of comment on these issues in recent months, but what has been rather less discussed are the knock-on implications for British taxpayers if EDF did indeed go bankrupt. UK politicians have been smugly asserting that it doesn't matter how much loss EDF chalks up in funding Hinkley C since EDF is contractually obliged only to receive income from electricity generation. But this is yet another one of the paper pieces of self-delusion that has always accompanied nuclear investments.

But in the event that EDF was declared bankrupt by the French Government the contract that the UK Government signed with EDF would be worthless. The French Government would then turn to the UK and say that if the power plant, no doubt by then half built, was to be completed, then further funds would have to be supplied by the British Government. Indeed, this sort of scenario has happened before when Sizewell B was being constructed. The CEGB, who was building it, ceased to exist when it was privatised in 1990, and the half-built plant had to be supplied with further funds paid for British electricity consumers to ensure that the plant was constructed.

We would, in the case of the 'half'' completion of EDF, be met with the usual chorus of voices about how it was now 'economic' to complete the plant. No doubt it would be stated that half the price of Hinkley C would be competitive with offshore wind (whose costs have fallen rapidly in recent years) and would thus now be 'economic'. The British Treasury or electricity consumer will then be saddled with a bill to pay for the further cost overruns.

Perhaps we are already being softened up for this. The recently issued National Audit Office report indicated how expensive and uncompetitive Hinkley C is, but contained the quite ludicrous assertion that if only Hinkley C was half paid for by the Government then it would cost half as much. Of course this applies to anything: windfarms, solar farms, my next pair of shoes etc etc etc

But perhaps this is an echo of policy before privatisation of electricity when nuclear power appeared to cost very little simply because the Government, through the aegis of the nationalised industry, paid for all of the construction costs, not to mention taking responsibility for 'back-end' decommissioning costs. Then nobody noticed that they, the taxpayer and electricity consumer, were really picking up the bill. The nuclear industry longs to return to these bad old days.

References:

https://www.ft.com/content/c1290164-5eab-3d06-b629-e79a8b1e35a3?mhq5j=e3

http://www.powerengineeringint.com/articles/2017/06/vincent-de-rivaz-to-depart-edf-energy.html

http://www.theecologist.org/essays/2988748/edf_facing_bankruptcy_as_decommissioning_time_for_frances_ageing_nuclear_fleet_nears.html

https://www.ft.com/content/d2cc9f70-5333-11e6-9664-e0bdc13c3bef?mhq5j=e3
http://inflation.stephenmorley.org/

https://www.ft.com/content/04d4d886-e6c2-11e5-bc31-138df2ae9ee6?mhq5j=e3

https://www.ft.com/content/cabdca0a-e47c-11e5-bc31-138df2ae9ee6?mhq5j=e3


Sunday, 18 June 2017

This Parliament is almost a perfect storm that favours Labour

As political scenarios go, the new Parliamentary position is just about as good as it gets for an Opposition. The Government is facing an almost impossible task (securing 'good' Brexit terms), is much too weak to push through much the Opposition doesn't really want, and has seriously lost its political momentum. Crucially, the historical precedents are heavily stacked against the Government surviving anything like its full Parliamentary term.

Let's put it this way. The current Tory Parliamentary position of being just a few seats short of a majority of 322 (that is with Sinn Fein votes subtracted, and they will never turn up) is almost identical to that of the Callaghan Government in March 1979. And that was the moment when they lost their famous vote of confidence! The Labour Government had become a minority one in 1977, having lost its majority of 3 (won in October 1974) in by-elections.

You will search in vain for a Government in the last century that has lasted for much more than 2 years without a single party majority. The 'best' example was the the 1929-1931 Labour Government that was sustained by the Liberals. But then that only seemed to last as long as it did because the then PM, Ramsay Macdonald was offering a real prospect of electoral reform to the Liberals. But the Government collapsed in 1931 in the midst of a national crisis. Remind of you of anything (that's coming)?

The Liberals survived longer after an inconclusive 1910 General election, but only because they had Irish Nationalist support to put through Home Rule legislation (which was ultimately short-circuited by the First World War). The few baubles of things like aviation taxes, infrastructure projects and an indemnity law for soldiers that the current Government can offer to the DUP do not constitute anything that compares anywhere near to that prize. Indeed, this time the complications of Northern Irish Government point in a negative direction!  Once the political tit-bits are passed, the key incentive to support the Government disappears.

Although it is true that on technical grounds the Government can limp on so long as the all the DUP MPs back it in confidence votes until such time as the Government loses several by-elections (4 years?), the arithmetic looks too thin to imagine that Conservative backbenchers can withstand this sort of pummelling for quite that long. The DUP, who don't as a rule, much favour the Tories fiscal priorities anyway, are hardly likely to want to sacrifice themselves for the little that they will be able gain after the first couple of years at most. Because, short of a definite upswing in the UK economy, once the Government have put whatever mainly financial incentives in place for Norther Ireland, and Labour have indicated that they will not disturb them, the DUP will have no incentive to carry on supporting what may become a rather unpopular government.

Perhaps if the DUP agrees a pact to last a defined period, say 18 months as was the Lib-Lab pact of 1977-1978, we shall know when the next General Election will be (ie more or less directly after the end of the pact). A pact of more than 2 years covering 'supply and confidence' , even if it is signed on paper, may lack credibility and deliverability. I am writing this before we know how long the pact with the DUP will last, but I must say the announcement that there will be no Queen's speech after the imminent one until 2019 might be regarded as a giveaway. Another General Election in 2 years? That is, if they last that long......

Meanwhile the Labour Party can ambush the Government at times of their own choosing. They can draw in even DUP MPs to support them on many issues, and leave the Government with the ownership of  an exit deal with the EU involving the UK paying a compensation bill of tens of billions of pounds. No doubt it will be a deal that satisfies nobody very much. Personally, I'd like a referendum on whether it is worth leaving the EU to have to pay that particular bill.
If a political party had to choose a time when it had to be in opposition, this is the perfect time for Labour!

Thursday, 15 June 2017

France to tilt EU energy market towards nuclear power

The French Government's announcement that it will legislate for a carbon floor price of 30 euros per MWh marks a dramatic turn in EU energy markets which will now be shifted to favour nuclear power above renewables. This is because just over half of nuclear power generated in the EU come from reactors in France, whereas less than 10 per cent of EU renewable energy production comes from France. The fact that nuclear power is being given special privileges undermines the policy credibility of the Green Energy Minister Nichals Hulot who has just been appointed by President Macron.

Given that three-quarters of electricity in France comes from nuclear power, and very little from fossil fuels, this measure is a thinly disguised extra incentive for nuclear power, an incentive that the large bulk of renewable generation in the EU will not be able to receive. Only the UK has a carbon floor price, which is around 17 per cent lower than the proposed French one.

A case in point is Germany, which generates a third of the wind power in the EU. German electricity wholesale power prices are relatively low - much lower than in the case of the UK for example, and there are fears that some windfarms will no longer be economic after their feed-in tariff contracts end after 2020. But they would be likely to stay online if they had access to the carbon floor price being set in France. There is no carbon floor price in Germany.

Macron seems, in energy at least, to be continuing 'business as usual' in letting EDF run the French state. The French Government has effectively ploughed several billions into bankrupt nuclear generators AREVA and also injected money to EDF through a 'share flotation' (EDF is 85 per cent owned by the French Government) that seems associated with building Hinkley C power station.
In addition there have been fears that the need to refurbish ageing French reactors means that they might be closed down but for extra money being paid by French electricity consumers to keep them running. The carbon floor price may go at least some way towards keeping them open.

Nicholas Hulot has been associated with a move to shift French electricity generation away from nuclear and towards renewable energy. From where I am sitting it looks like the nuclear establishment at EDF is still very much in control and Hulot will achieve very little in switching France from nuclear to renewables.


See for example:

https://www.theguardian.com/environment/2016/may/17/france-sets-carbon-price-floor?CMP=share_btn_tw

https://www.ft.com/content/9a6752cc-3bc4-11e7-ac89-b01cc67cfeec

http://www.world-nuclear.org/information-library/country-profiles/others/european-union.aspx

Monday, 12 June 2017

Why Greens should stop beating themselves up over the lacklustre general election performance

I suppose it's inevitable that any party will engage in some soul searching and point-settling when it loses votes, but we should consider that in the context of a generally greater focus on the two party contest that it is unlikely that ANY Green Party strategy would have avoided a substantial fall in votes.

The focus on the most Presidential campaign that has been framed in Britain for decades (May versus Corbyn), the relative resurgence of Labour and also the special appeal that Labour made to the youth vote all meant that Green candidates were going to be squeezed. Of course the main exception to this was Caroline Lucas herself, and that is because in her constituency she is not only a formidable reputation but also the most credible embodiment of the forces that propel what we could describe as radical Labour today.
I'm sure now that Green Party meetings will be full of debates about 'progressive alliance' and such forth. But I'm also sure that the Green Party's vote losses in the 2017 election were more caused by the single factor of Labour being perceived as matching Greens on the subject of abolishing tuition fees for students than the strategy of 'Progressive Alliance'.

But what to do?

Really Greens ought to put their efforts into building up their local base, fighting for local social and environmental causes. Indeed, at a national level, we should earnestly fight for and certainly hope for that we get a Labour Government as soon as possible, while at the same time pointing out the shortcomings of Labour's programmes. I know in energy, for example, there is much confusion about objectives (see my earlier post). We need, for example, to have a clear, separate ambitious target for renewable energy. We need bottom up campaigns for ownership of the grid, not some top-down version that benefits only the energy establishment. We need much more radical and locally centred initiatives for energy saving and also a commitment to develop a more flexible, smart, energy system that fits in with the future, not the past.

I'm not suggesting Green candidates should automatically stand aside for Labour - heaven forbid! - but the cruel fact of the political logic at the moment is that until we get a Labour Government there is going to be a strong force behind Labour squeezing Greens in many of those constituencies that Greens hope to win.

Of course, when we do have a Labour Government, things will change in the Greens favour. I am certain about that! Maybe Greens should be a bit more patient and put their energy into positive action rather than slagging each other off.