Without Hinkley Point C, the potential to have a real and considered debate about the future shape of the electricity system has loomed into view, writes Bridget Woodman, Course Director, MSc Energy Policy, at the University of Exeter. According to Woodman, the UK government’s decision to delay a final go-ahead on the project makes it possible to start debating the sorts of options being considered widely around the world, with measures to encourage more flexible, smaller-scale, renewable systems incorporating demand-side measures and new technologies such as storage. Courtesy of The Conversation.
These are extraordinary times for energy policy in the UK. After years of resigned acceptance that the Hinkley Point C nuclear power station would be built no matter how much of a basketcase it was, the government has surprised everyone by calling a halt to the process until the autumn.
The proposed Hinkley Point C would have two European Pressurised Reactors (EPRs), providing around 3GW of electricity or about 7% of the UK’s total usage. The construction would be paid for by French energy firm EDF and Chinese nuclear companies, but the expense of building it would be underpinned by long-term supply contracts with the UK government, as well as a series of other financial undertakings designed to reduce the financial risks for the developers.
Few people argue that Hinkley Point C makes sense. The project’s budget has grown from original estimates of £16 billion to £24.5 billion today. Even this might be an underestimate given the experience of cost overruns similar reactors under construction in Finland, France and China.
The long-term supply contracts – known as Contracts for Difference (CfDs) – are designed to guarantee a set income of £92.50 per MegaWatt hour of output, regardless of the actual price of electricity in the market. Since the contracts were agreed, the wholesale price of electricity has fallen, meaning that the estimated subsidy for the lifetime of the project has risen from £6.1 billion to £29.7 billion, a huge burden for UK electricity consumers.
Pretty much every major policy design has been geared towards creating a perfect environment for Hinkley Point C. That’s why it’s such a surprise to see the government has now stepped back from the brink
And the CfD subsidy is complemented by a suite of other UK taxpayer subsidies and guarantees designed to mitigate investment risks for the French and Chinese investors and to guarantee costs for dealing with nuclear waste or paying compensation for nuclear accidents.
Putting all of these subsidies in place has required the UK government to essentially redesign the electricity market over the past few years in an effort to create a situation where investment in a new plant looked attractive. Pretty much every major policy design has been geared towards creating a perfect environment for Hinkley Point C. That’s why it’s such a surprise to see the government has now stepped back – a bit – from the brink.
The get-out clauses?
The contracts to put many of the subsidy structures are not yet signed – that was meant to happen today [July 29], as part of the official approval process – so the government could still pull out. Obviously that wouldn’t please the French and Chinese, but risking their short-term displeasure could avoid locking the UK into the extortionate project for decades to come. Once the contracts are signed the legal and financial ramifications are so high that the project will go ahead, whatever the evidence against it.
In a post-Brexit world the government is worried about the level of overseas ownership of UK electricity assets
The UK has form on this, notably the THORP nuclear fuel reprocessing plant at Sellafield, which began operation despite the case for it collapsing on every front. But without those contracts in place the project can still falter at the last hurdle.
So why the delay? There is all sorts of speculation going round: the new Theresa May administration is not ideologically linked to new nuclear plants in the way that Cameron’s administration was – and therefore has had an attack of common sense about the costs of the project. The government also has security concerns over allowing significant Chinese investment in the UK electricity system – in a post-Brexit world the government is worried about the level of overseas ownership of UK electricity assets – most are owned by European rather than British companies. Then there was the less than ringing endorsement of the EDF board (which reportedly voted only 10-7 in favour of going ahead, following a couple of high-profile resignations) which has rung alarm bells in both the UK and French governments.
Suddenly UK energy policy has become very exciting indeed
The real reason behind the decision may emerge over the next few weeks as the government mulls over the pros and cons of the project. That will be fascinating. Equally fascinating, though, will be the debate that must take place at the same time about what an alternative might look like. What might the UK energy landscape look like without the project that has shaped it for so many years?
Energy policy is often seen as a bit of a backwater – little tweaks to existing approaches tend to be preferred to massive shifts in strategy. The latest decision has the potential to change that. Without Hinkley Point C, the potential to have a real and considered debate about the future shape of the electricity system has loomed into view. Now is the time to start considering the sorts of options being considered widely around the world, with measures to encourage more flexible, smaller-scale, renewable systems incorporating demand-side measures and new technologies such as storage. A system that is the absolute antithesis of what Hinkley Point C represents. Suddenly UK energy policy has become very exciting indeed.
Editor’s Note
Bridget Woodman is course director for the MSc Energy Policy course and a member of the Energy Policy Group in the School of Geography, University of Exeter. Previously she worked at Warwick Business School as a UKERC Research Fellow in its Infrastructure and Supply theme. Prior to that she undertook her DPhil on Renewables and Distributed Generation at SPRU, University of Sussex. The majority of Dr Woodman’s work is focused on the policy and regulatory aspects of a transition to sustainable energy systems and her publications reflect this area she has developed.
This article was first published on The Conversation and is republished here with permission.
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Mike Parr says
Mrs Woodman makes many fair points. From an economic point of view, the Hinkley investment is brainless. She suggests that it was driven by ideology, possibly. One question not answered in the many critiques written of the project is: who gains?
By this question I do not mean the obvious organisations, French & Chinese governments – but who else?. Fact: UK construction companies such as Costains, McAlpines etc etc will all enjoy a piece of the Hinkley pie if it goes ahead. Fact: the Tory party obtains funding from three main industries/sectors: finance/banksters (hence the light regulation), oil & gas (hence the subsidies to this sector) and construction. A guy called McAlpine was Tory party chairman at one point – guess which company his family owns.
Thus Hinkley Point needs to be seen in the context of the funding needs of the Tory party and the need for its donors for revenue. The fact that UK subjects will pay over the odds for the project for the next 35 years is irrelevant (in the eyes of the Tory party/gov’). Given this, I’d suggest that current tory-gov’ discussions are along the lines of “how can we sugar coat this so that the UK population swallows it and we secure more “contributions” from our donors”.
Similar comments apply to (over priced) UK off-shore wind. A nice little earner for the UK finance sector, with a Tory gov’ paying lip service to cost reductions whilst ignoring the most obvious, auctions of shovel ready projects.
It has been my view for more than 3 decades that the UK/its institutions is amongst the most corrupt of countries on planet earth. It knows it is corrupt and has zero intention of changing – because it likes it that way. I might be wrong, but my reading is that the Tories want Hinkley to go ahead because it will help with their funders & thus tory party finances.
riccardo gallottini says
The alternative to HP can’t be only renewable and new technologies such as storage. The future rise of uk gas price for a falls of domestic production should be resolve with a mix of solutions. First renewable, but also other base load (small nuclear?coal?). I agree with the huge problems of HP but the issue it’s impossible to resolve only with closing the projet. It’s a crucial point for the future energy scenario. Energy policy risks to cost for consumers more expensive than EP if Government don’t take right and quick solutions.
Bas Gresnigt says
Good article, Only small mistake:
The CfD guarantees ÂŁ92.50/MWh in 2012 pounds with an inflation correction mechanisms, which implies that the CFD price is now (2016): ÂŁ100/MWh.
With an inflation of 1.5%/a the price will be £114/MWh (=€130/MWh) in 2025 when the NPP would start.
In 2042, halfway the 35yrs CfD: ÂŁ147/MWh (=€170/MWh)…