* Explanation of awful bilingual pun at end
While my American readers settle down on Tuesday night to enjoy the end of the political ambitions of Ken Cuccinelli at the hands of a Democratic party hack with zero experience in government, I’m settling in for a long comedy serial: Sir Humphrey Appleby vs. European Commission in re Hinkley Point C.
The dying nuclear industry (my take on the economics, politics, mascot) has just scored an extraordinary win in Britain. The government will commission EDF and its Chinese partners to build the £16bn, 3.3Gw, two-reactor Hinkley C plant. It’s a fixed-price contract: but to get this protection from the high construction risks, it has had to guarantee an FIT of £92.50 ($147.9, €109.3) per megawatt-hour for no less than 35 years from the supposed completion date of 2023, indexed for inflation. And EDF will be compensated for any curtailment from wind and solar.
The FIT is double the current British wholesale price, twice the current onshore wind FIT, and considerably higher than current German non-indexed FITs for on-and offshore wind and solar. The price of both wind and solar is bound to fall; the British government accepts this, but it lowballs the trend rates. It thinks the price of solar will only decline by 3% a year, far lower than experience and typical industry forecasts.
Whatever were they thinking of? I thought this was bizarre, but nevertheless a done deal. Not in fact.
Via CleanTechnica, I run into the blog of Dr. Dave Toke, Reader (= professor) in Energy Politics at the University of Aberdeen. Short take: the Hinkley deal is illegal in EU law. Toke:
British policy will be giving a state-aided competitive advantage to nuclear power in this cross border trade over and above renewable energy. This threatens to directly contradict EU competition and internal market policy and law.
This issue will be a prominent factor in the European Commission’s investigations in the UK Government’s application for state aid for Hinkley C (for which it has recently notified the Commission). Renewable generators across the EU will be pointing out how the UK policy may be contravening EU law. Analysts will remember that it took a case at the European Court of Justice (ECJ) to establish the right of the German state to give premium prices to renewable energy. What would the ECJ say about a case where nuclear power was being given priority premiums in the EU electricity market against renewable energy? I can see no basis in law for this ……
The British Government has its plans that the Hinkley C state aid consent will be given by the Commission in a year’s time. Well, nuclear interests may control the British Government so that they can plan how they like, but they do not have quite the same leverage at the EU level. The EU Commission has already rejected an attempt by the UK Government to get EU state aid rules changed to allow state aid for nuclear to be included on the same basis as renewables. …..
The British grid is not isolated. There are 3GW of undersea interconnectors to France and the Netherlands, and 850 MW to Ireland (North and Republic). There are plans for another 500MW to Ireland and 1 GW to Belgium: together more than Hinkley. The complaints of German and Irish generators at being shut out of the British market will have substance.
Toke notes that the Commission has no reason to be nice to David Cameron. That matters less than two other factors.
One is cultural. Britain has, from the beginning, disliked the supranational vision of Jean Monnet. It has tried, with some success, to bend the European Union back into an intergovernmental mode. Cooperation on crime and justice, a recent addition, is largely intergovernmental. At heart, Cameron thinks of the EU in Westphalian terms, as a roomful of kings. If he can get Hollande and Merkel to agree to something, and talk round the lesser princes, the deal is done. But in parts of the EU institutions, the old supranational vision still burns: and this includes the Directorate-General for Competition and the European Court of Justice. For them, the EU is the government-in-waiting of Europe, and in the areas where it has “competence”, already is. They are not joking when they say that European law overrides national law, though the German Constitutional Court in Karlsruhe insists it does not trump the German Constitution.
The competition officials are, and Microsoft can show you the scars, among the few real hardline trust-busters left anywhere. They inherited their culture from the German Cartel Office. Its effectiveness can be traced partly to Erhard’s free-market beliefs, partly to the association of prewar cartels with reactionary politics and support of the Nazis.
The other is German politics. The German generating utilities are suffering badly from the impact of renewables and especially solar, which is taking away their profitable daytime load. The German wholesale electricity market price went negative on June 16th. Exports are a vital lifeline. They will certainly be knocking on doors both in Berlin and Brussels. Their objections to the Hinkley deal will have political as well as legal weight. Angela Merkel took a radical decision in 2011 to phase out nuclear power in Germany on an accelerated timetable, incurring considerable costs. She will have no sympathy with Cameron’s self-imposed problem.
Act II then is likely to be a Commission ruling that the Hinkley state aid is illegal (9 months?). Britain can appeal this to ECJ (6 months?) and probably lose. The ECJ only approved German renewable FITs reluctantly, and they represented a coherent policy.
At that point (Act III) the conflict gets folded into Cameron’s “renegotiation” of British membership. He won’t get more than symbolic concessions, on tabloid-bait like this. Cameron has promised to take the results to the British electorate in a yes/no referendum on continued membership, after the next election. If Labour wins this (they ought to), there won’t be a referendum.
EDF won’t start building Hinkley until the EU issue is settled, which takes us past the next British election in May 2015.
So Act IV is the election. Hinkley will be a pretty manifesto problem for Labour. Do they promise to cancel? For the Tories, Hinkley will also be a problematic exhibit. “The evil Brussels bureaucrats are stopping Her Majesty’s Government from wasting billions of your money for the next 50 years on obsolete technology”: lacks that little something. Alternatively Cameron can just blame the whole fiasco on the Lib Dems, who have provided the current and previous Energy Secretaries. They aren’t ready for prime time politics, and never will be.
The easiest way out for all concerned will be for EDF to discover new cost issues with the project, so they make a demand to renegotiate, which can be turned down without loss of face (or election).
Paddy Power (online bookmakers) should open a book on this.
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Note 1. TINA! This does not wash. Half the countries in the world, including Germany, face the prospect of the energy transition without nuclear. Indeed, Britain has to get through the next 10 (more likely 17) years without Hinkley anyway. You can build lots of wind. Britain has unusually good resources, provided Chelsea Marie Antoinettes can overcome their vapours at the prospect of a working landscape. You can cover every roof with solar; build more interconnectors including to Norway to tap its hydro and even Iceland for geothermal; double pumped storage capacity (none has been added since 1984); research grid batteries and EGS geothermal ready for rollout if needed.
Note 2. Hinkley C has done a notable disservice to the industry, and a service to taxpayers everywhere, by providing a thoroughly considered and up-to-date new benchmark for the real cost of new nuclear capacity. It’s astronomical. Anybody who cites a lower price is saying that the world’s most experienced and successful nuclear operator, EDF, has got its sums wrong. But thorium reactors …. but mass-produced small reactors …. but breeders …. but sparkly ponies. Wall Street lost interest a decade ago.
Note 3. But China! There’s half a point. China is indeed building reactors, 28 of them, which when completed will take its nuclear capacity from 14 Gw to 42Gw. The government has leaked the intention to cut the official 2020 target from 80 Gw operational to 60-70 Gw. More significant is the fact that no new reactor has been ordered since December 2012, and only two since Fukushima. Source for all this: World Nuclear Report 2013, pp 94 ff. Even 60 Gw for 2020 looks out of reach now. China now has the deep pool of reactor-building experience everybody else has lost, but the news from the construction sites and design bureaus and safety inspectors cannot be all good.
Meanwhile China’s targets for wind and solar are raised and raised again. Currently the 2020 ones are 50GW for solar and 200 Gw for wind, comfortably outstripping nuclear in effective capacity. The 2015 solar target was recently raised to 35 Gw, implying 10Gw installation a year, so it would be logical to raise the 2020 one at least in line (>85 Gw).
This is not a difficult choice. Suppose you are one of the seven members of the Chinese Politburo Standing Committee, facing a national air pollution crisis from coal burning. You need serious improvements in under five years or face mass protests. Can a nuclear crash programme help? No.
* Kern is German for core, kernel; also nucleus. Kernkraftwerk = nuclear reactor.
Dr. David Mackay (professor of physics at Cambridge University, Chief Scientific Adviser to Dept Energy and Climate Change, author of the excellent (and free online) book ‘Sustainable Energy without the Hot Air’) is probably what is providing DECC’s scientific firepower for nuclear. Mackay shows in his book that a de carbonized electricity system in the UK is very hard to achieve without nuclear power: the number of wind turbines, and the space they would require, alone.
On the DECC website there is a little applet that allows the user to plan the future UK electric power system. You do wind up, practically, with solutions that have a nuclear component.
The cost seems extreme. It feels as if DECC got outmanoeuvred by EDF. To stay in the reactor business, after the cost/ delay disasters of Finland and Flamanville, the European Power Reactor (EPR) and Areva *need* a successful UK installation.
EDF planning to build 3: Hinckley C and Sizewell C and D (Sizewell B, on the Suffolk (east) coast, is the only Pressurised Water Reactor in the UK- all the others were either graphite moderated (Magnox) an early technology that had the distinguishing feature of creating a vast amount of nuclear waste (they were a direct spinoff of Britain’s atomic bomb programme) or the Advanced Gas Reactors, one of the worst British government financial disasters of the postwar years- I believe ranking ahead of Concorde on cost).
http://www.iea.org.uk/sites/default/files/publications/files/upldbook419pdf.pdf
a history of UK government financial disasters on megaprojects via case studies.
http://www.antipope.org/charlie/blog-static/rants/nothing-like-this-will-be-buil.html
is a tour of an AGR, and explains in part why it was so expensive. The other reason was disastrous management: competing consortia, different designs, no economies of scale or learning.
Thereby losing any learning economies, the other reactors look like they will be the Hitachi-GE Boiling Water Reactors.
It’s hard to see us getting 10 of these things built. Britain will probably build 2-4 and then technology change and costs will lead to the programme being scrapped.
The DECC applet is flawed, as you would expect. It allows you to calculate the shares of various sources in a fixed scenario of primary energy demand - which includes the 60% losses of coal power stations. By convention, solar and wind are always valued as their electricity output, since their energy losses are costless. You need to double the shares of wind and solar to get anything sensible.
Mackay at first sight makes the same mistake. See his online book, on wind, page 33. He gives the power used to drive a car 50km as 40kwh. But an EV uses as third as much energy.
James
Thanks. I was not aware of the problem with the DECC calcuator. Within DECC that book is seen as the bible.
Agree that for nuclear, wind, solar the input is meaningless (Stross makes that point: the Advanced Gas Reactor is significantly more efficient than a light water reactor. Just as a Pressurized Water Reactor is less efficient than a Boiling Water Reactor- but it doesn’t matter. Using uranium more efficiently is just not relevant to the power plant economics).
It worries me that we are planning to use BWRs, given Fukushima was a BWR- and I believe Davis-Besse was also (probably the nearest miss that we have had after Sellafield and Browns Ferry, in nuclear history- at least that we know about). Granted Three Mile Island was a PWR but the design issues raised were about control systems, largely, and addressed.
Chernobyl was an RBMK ie a graphite reactor. That’s got to make the case for ending that technology.
Having looked at this again, I think I was wrong in the above comment. The applet does allow you to change the primary energy demand mix as well as the generation mix. The assumptions on the former are very timid on industry. Under “commercial lighting and appliances”, the maximum reduction you can set is 30% by 2050! You can’t specify any utility solar, of which there is already quite a lot. But yes, it’s much harder to reach ambitious emissions cuts if you rule out nuclear. That isn’t stopping Germany from trying.
James
Thank you.
Ten years ago, there was a decent argument for fission-electric power: global warming, and the implausibility of enough renewable energy at competitive prices. I believed this argument back then, and was a strong supporter of fission-electric power. I had seen several generations of lame anti-nuclear arguments (it kills the fishes! China syndrome! radiation! military!), and wasn’t inclined to give any new set of anti-nuclear arguments much credence.
But times have changed. The renewables argument has been refuted by technology and (to an extent) the availability of natural gas as a near-term load-matcher. Fukushima, economics, and the lack of a viable long-term waste disposal program have done the rest. I can’t see what remains, apart from special interests and tribalism.
I’m still undecided on fusion. It’s been the energy source of the future for the last fifty years, and promises to be the energy source of the future forever. Fusion R&D is very expensive, and getting more so. On the other hand, it does not have a significant waste-disposal problem (short-lived radioactive isotopes), and a limited potential for Fukishimas.
Fusion is the technology for 50 years time, and has been as long as I have been tracking it, ie the last 40 years.
The potential payoff seems so high it is worth pursuing, but by the time we have working commercial fusion, we will either have addressed the global warming problem or have failed so badly at it that we are committed to a vastly warmer world.
Fusion is getting one next-stage big tokamak (ITER), €15bn over 20 years, with costs widely shared among 33 states. Looks about right to me. The US is also spending a bit independently on laser confinement. There will be no need for a decision on the next step beyond ITER until the 2020s.
There is a lot of money going into inertial confinement fusion as well, IIRC. It’s expensive.
Sure, nuclear power works, if you grant it guaranteed, over-priced, subsidized contracts and isolate it from what little real competition there is in the energy sector. It’s like someone trying to sell you a case of 8-track tapes and a player as “the latest high tech music format…everyone’s buying them!”
Fusion is science-fiction for a century or two yet, even under the best of circumstances. Plan on keeping your solar cells clean for now.
“The evil Brussels bureaucrats are stopping Her Majesty’s Government from wasting billions of your money for the next 50 years on obsolete technologyâ€: lacks that little something.
It would of course not be sold this way. Rather, “the Brussels bureaucrats stopped a program that would have delivered many high-wage jobs because Germany and France didn’t want the competition.” Very effective for getting anti-EU votes.
What competition? The jobs argument doesn’t work too well either, against wind (which creates jobs in economically depressed areas, unlike Somerset) and especially solar. The question is whether Labour will be too feeble to make the case.
doesn’t work too well either
It depends what you mean by work well. If you mean it does not work well to corner the RBC-reading voters of the UK, yes. But for the other 99.99% of the electorate, it would work very well. The Sun and The Mail dwarf the circulations of other papers in the UK for a reason, and a thundering claim that the EU has stopped job growth will go over very well with their readers, who outnumber RBC-types by a huge margin.
Cameron’s claim of 25,000 jobs is pretty clearly fiction, or true in the trivial sense that spending £16bn on anything - aircraft carriers, hospitals, reactors, wind turbines, gold statues of Kim Il Sung - will have that sort of economic multiplier. Since the industry is dying worldwide, the more directly related jobs will be dead ends.
The average voter is not a labor economist. Go into depressed areas and tell them you were going to create jobs but the EU stopped you and you win votes, full stop. This is a big win for the anti-EU faction in the eyes of the persuadeables, regardless of what the underlying facts are.
Yeah, voters can be a problem. But show ’em the math. Running those numbers, I come up with a cool £640,000 pounds per job. I rather doubt anyone will be paid that much, except for a few key execs, so that’s one heck of a slush fund depending on who’s hands most of that money actually sticks to. Labour being a lot like the Dems here is unlikely to be able to do much with the facts, even though it looks to me like they ought to.
Show ’em the math…how? The Daily Mail and The Sun will present the math, they are anti-EU and blow away any communication reach of someone with a graduate degree and an Excel chart.
James
You will get quite a few construction jobs. Also building materials like cement. Experience in Finland and Flamanville has shown the workforce is international, and that’s one of the issues in quality control. A sensible nuclear programme would focus on *one* technology to maximize learning economies- skill up on the first one, then move those skills onto the subsequent ones. This was the mistake on the Advanced Gas Reactor (rival consortia) and it will happen with this one (EDF may build 1-2 more European Power Reactors (French PWR) but the Hitachi consortium is going to build Advanced Boil Water Reactors).
The main problem is UK industry is no longer optimized for the supply chain. You may recall just after the election that Vince Cable at BIS (ie DTI) killed the loan guarantee for Sheffield Forgemasters (Nick Clegg’s consituency of Sheffield Hallam) to be able to build the
… Sheffield Forgemasters to be able to build the pressurized vessel- right now they can only be made in Japan or France (in the world). That was a £40m loan guarantee that was chopped by the Coalition as soon as it got into office, perhaps as a sacrificial lamb.
This is an example of the loss of capacity of UK industry to meet the nuclear supply chain. Unlike Concorde or the Advanced Gas Reactor, but like Eurostar and HS2, perhaps, Britain is massively subsidizing infrastructure but its industrial base will reap no benefits.
The Olympic solution was to quadruple the budget from first estimates and then come in ‘under budget’. Perhaps that will work here too? ;-).
James
That bit of Somerset is not in good shape economically. The only reason unemployment is low is because people have moved out (or are retired). The coastal belt of Somerset (along the Bristol Channel) is not an affluent area. The local economic benefits around Hinkley were a big selling point.
I think there’s some confusion between feed in tariffs and strike prices here. The BBC link certainly doesn’t support James’ claims.
Yes, the 92.50 is a strike price, not a feed in tariff. The UK implementation of feed in tariffs pays the tariff in _addition_ to an export tariff (presumably based on wholesale prices) for electricity generated for the grid, so comparing the nuclear strike price with a wind feed in tariff is a gross distortion.
The contract for difference (CFD) will guarantee a price to the producer (the 92.50 or 89.50 if a second reactor is built). If the market price is below that, the government pays the difference to the producer, if the market price is above that, the producer pays the government (in effect, it’s a tax on the whole market).
How is that different in effect from a Feed In Tariff?
As I understand it, CFDs are, going forward, how the UK will remunerate renewable energy producers. This is part of the Electricity Market Reform that is being undertaken.
A feed in tariff is paid in _addition_ to an export tariff when electricity is purchased by the grid (this is certianly true of the onshore wind FIT he mentions - as described in the link in his article)
A strike price is the total cost of electricity purchased by the grid.
James takes a strike price, calls it a “feed in tariff”, and then compares it to other feed in tariff numbers - it’s an apples-to-oranges comparison. He says the FIT for nuclear is twice the FIT for onshore wind, but doesn’t mention that he’s using two different definitions of “FIT” in the same sentence.
At the same time he links to a BBC article clearly showing the nuclear as (currently) cheaper than onshore wind.
I’ve always found the terminology around UK FITs extremely confusing, and I can’t help but think it’s a deliberate choice to disguise the size of the subsidy being paid to green energy generators. (I personally think that the subsidy is useful and necessary.)
Thank you for the explanation.
The BBC site takes apples for oranges. To make it comparable, you’d have to assume the 2023 strike price (adjusted for inflation) is the same as the 2014 renewables prices (adjusted for inflation).
We know the nuclear price will be adjusted for inflation. It is almost certain the renewable price (subsidy) will be cut in real terms between now and then.
My understanding was that Electricity Market Reform (EMR) included the phasing out of the feed in tariff in favour of CFDs, but that seems to be mistaken. That only due to take place after 2018.
Good point, the wind FIT will almost certainly be smaller in real terms by 2023. The wholesale electricity price will almost certainly be higher in real terms by 2023. I suspect the change in the first will be larger, but its’ incredibly hard to project by how much.
I’m perfectly willing to believe that the £92.50 represents a bad deal, but it doesn’t seem to be an _egregiously_ bad deal.
Except it won’t be a FIT in 2023 as you pointed out. Pretend I said “The subsidy for wind power over the wholesale price” 🙂