Monday 20 May 2013

MPs want to give preference to nuclear over renewables

In a report riddled with pro-nuclear fantasy hopes and statements, the Select Committee of MPs which scrutnises the Department of Energy and Climate Change has called upon the Government to give much better terms to nuclear power than will be offered to renewable energy. This mixture of pro-nuclear fantasy and preference for nuclear over renewables is highlighted when, on the one hand, the Committee calls for new nuclear build to be given no higher strike price than offshore wind, but then says that nuclear power should have its costs 'guaranteed' by the Treasury:



'The UK Guarantees scheme may help to bring forward investment in Hinkley Point

C, but it is not clear whether support will still be available for nuclear new build

projects that are further away from making a final investment decision (such as the

NuGen and Horizon projects).

Given the important role for nuclear generation in the


UK’s future energy mix, the Government should extend this support to all nuclear new

build projects, which may require increasing the amount of available assistance to more

than £50 billion. (We note that the UK Guarantees scheme does not involve expenditure,

as long as the guarantees are not called in.) - page 17 in the report 'Building nuclear - the challenges ahead' http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/news/building-new-nuclear-the-challenges-ahead/

The assumption that the Treasury has much money to guarantee anything, let alone nuclear power plant, is one part of the fantasy - another seems to be that it is okay to give an effective blank cheque to nuclear but not to renewable energy. Note the fantasy statement 'the UK Guarantee scheme does not involve expenditure as long as the guarantees are not called in'. Well, yes, but what nuclear power station has ever been built according to original cost estmates?

Earlier on the Select Committee report says that nuclear power should not be given more than the £100 per MWh that offshore wind is likely to receive in the future. However, this PR attempt at 'fairness' gratuitously misses the fact that EDF is demanding a 35-40 year contract while the offshore wind developers will only receive their premium prices for 15 years.  That fact, and the wish of the Committee to extend a blank cheque 'guarantee' to nuclear power, makes this into a blatant piece of policy preference for nuclear power over renewable energy. Renewable energy schemes, of course, will not be receiving Treasury guarantees.

The Committee entertains a host of fantasies including the apparent 'solution' of building 'small' nuclear power stations. They certainly will not be any cheaper in cost per KWh (probably a lot more expensive), but it seems the Committee hope that the smaller number of billions of pounds for each one might be easier to smuggle through the nations accounts!

The £100 per MWh 'strike price' claimed by EDF is itself a bit of public relations to hide the fact that, given the same terms, nuclear is much more expensive than all but the most experimental renewable energy sources. EDF say that £100 per MWh (over 40 years!) will give them a 10 per cent internal rate of return (IRR). What they do not say is that nobody, and I mean nobody, will offer them the cash on these terms. The banks will not lend the money because they know they are not likely to get it back, hence the diplomatically worded call for a blank cheque ('guarantee'). EDF would not spend the money on these terms (even if they had it, which they do not). But a state-backed blank cheque 'guarantee' scheme would allow the facade of a '10 per cent' IRR whilst in reality the whole project is guaranteed by the state. Without state guarantees the market rate for investing in Hinkley C would be at least 15 per cent IRR meaning that the 'cost' of Hinkley C is over £150 per MWh.

But the government are supposed to be running a competitive regime to produce the best value low carbon outcomes for the consumer. This is as opposed to returning to the days of the nationalised industry where the engineering establishment could choose their preferred power plant on the basis of a whim and pass on the cost of their mistakes to the consumer. Nuclear power has clearly lost the competition to supply non-fossil fuel power, but that is something the DECC Select Committee do not want to understand.

 


2 comments:

  1. David
    Thanks again for your thoughts.
    It seems astonishing that 'anybody' can ask for guarantees for anything for 35 - 40 years. Though I seem to remember we were still paying back American wartime loans into the late 90s?

    Jerome Guillet (wind financier) has been banging on for years how any projects with large upfront costs like wind or nuclear can only get costs down if they can borrow at rates similar to those that can be obtained by 'low-risk' government. Otherwise they are always at a disadvantage compared with lower capital cost plant even if the latter has much higher prospective fuel costs.

    There seems to be a lot of 'rent-seeking' going on where 'capital' is looking to tie-in whole populations paying for services guaranteed by government and in this case services essentially provided by oligopoly. (New NHS could be another example?)

    Any further thoughts on this?

    best wishes
    Phil H

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  2. A further thought about timelines and company solvency in relation to matters nuclear.
    You have probably seen the discussion in Germany over "Herculean" task of decommissioning. Here is der Spiegel.
    http://www.spiegel.de/international/germany/germany-faces-tough-decisions-as-it-dismantles-nuclear-plants-a-899063.html
    best
    Phil H

    ReplyDelete