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on Jul 29, 16 • posted by rhoggett •

New Thinking: Giving control back to the people – why the Government should ditch HPC

Giving control back to the people – why the Government should ditch HPC

Catherine Mitchell, IGov Team, 29th July 2016

EDF has just given the go-ahead to investment in Hinkley Point C (HPC, a new build nuclear power plant). However, the GB Government has announced that it is going to ‘think carefully’ and will announce its decision in the Autumn. This is a good decision for multiple reasons (see past blogs, here, here and here).

In her inaugural speech, our new Prime Minister Theresa May said: ‘’We will do everything we can to give you more control over your lives. When we take the big calls, we’ll think not of the powerful, but you.’’ And then a few days later, she set out the principles of her Government’s economic policy, one dimension of which is support for an industrial policy: ‘“We need to reform the economy to allow more people to share in the country’s prosperity. We need to put people back in control of their lives. We need to give more people more opportunity’’.

The decision to go ahead with HPC would do the complete opposite of giving people more control over their lives; it would be a continuation of David Cameron’s policy which supported big business interests over society’s (and individual) interests; and it would be a blow to GB innovation .

Momentum within global energy systems is towards decentralisation of technologies and towards operating energy systems in a ‘smarter’ and more flexible and integrated way. For once, energy policy goals – of decarbonising the energy system; making energy affordable to customers; and maintaining security – is all better met within this decentralised system, and technology has developed to enable its practice. If we want to decarbonise our energy system we have to move beyond electricity to also include heat, capture the demand side, and start to use storage that electric vehicles (and other possibilities) offer. This integration is best done locally. Total infrastructure costs should be lower; customer bills will be lower the more energy efficient the system; customers can be paid for any demand side response services they provide to the system; and the local energy expenditure can be maintained in the area for the benefit of local customers. It needs a local co-ordinating actor to make it happen, and this could be distribution service providers (DSPs) – something which IGov has championed.

DSPs are effectively distribution network operators regulated in a different way. New York is going down the DSP route in which they coordinate their areas so that local energy (supply and demand and storage; heat and electricity) is system optimised; and so that it is a customer-focused system (i.e. provide services that customers want). NY has the intention to localise markets and pay customers for the services they provide to the system, so people become part of the energy system. This is giving control of their energy choices back to the people; giving control of markets back to the people; keeping the profits in the local area / GB; bringing in new entrants; and providing desired customer services, and not just by reducing people’s bills etc.

HPC maintains control of the electricity system in the hands of a few big companies rather than the more decentralised, democratic electricity systems which are emerging in other countries. HPC with its specialist security guards and its inflexible output drives the relationship with customers and the way the energy system has to be run, and that overrides the new ICT based ‘smart’, integrated, flexible energy system. This of course is the opposite of people / customer control; it is bad for customer affordability; does not retain the energy economy in the local area; makes it even harder to connect customers to their energy use; and maintains the traditional, centralised system and the dominance of the Big6.

Withdrawing support for HPC would be a good start to the new Government’s industrial policy: nuclear power is an expensive, divisive technology which undermines the development of a ‘smart’ energy system and infrastructure – argued for in so many recent reports (ECC; NIC; EnergyUK; IEA).

HPC will be subsidised through a 35 year Contract for Difference (CfDs), which is index-linked and set at £92.50/MWh, more than twice the current wholesale price of electricity (~£45/MWh). Moreover, according to calculations by the National Audit Office, the cost to consumers of the CfD subsidy has risen from £6.1bn to £29.7bn since the CFDs were agreed in 2013. The terms of the CfD are all in the favour of EDF. If for any reason, GB pulls out of the project or closes the plant down, GB consumers still have to make the payments to EDF. As well as paying for HPC’s subsidy through electricity bills, if the project goes ahead UK taxpayers are also facing the possibility that they will have to pay for any cost overruns in nuclear waste management and decommissioning from the plant. In addition, the Government has provided loan guarantees worth £2bn.

However, it is not just GB customers that are concerned. The NAO shows that construction costs have risen from the original estimates and now stand at around £24.5bn if financing costs are included. Given that GB customers are going to hand over nearly £30bn one might think that the £5bn gap between the two figures is good news for France. However, the experience of building two identical reactors to HPC at Olkiluoto in Finland and Flamanville in France show the huge potential for the project costs to escalate even more, and for the construction process to overrun by years. In this situation, unless a deal we don’t know about has been made with the GB government, it would be France (whether shareholders or general tax payers or electricity users) that have to pay for costs above the £30 bn. Even despite the underwriting and guarantees provided by the UK Government, EDF’s own workers are trying to stop construction of the plant because of the financial risks it poses for the company.

The power plant is expected online, at best, in 2025. However, onshore wind and large scale solar are already competitive against nuclear, and increasingly so against gas. Offshore wind would also be cheaper than nuclear if they received a 35 year contract like HPC, rather than their own 15 years. And Dong has announced a price of 72.7 Euros/MWh (about £60/MWh (depending on exchange rate)) for their Dutch offshore wind farm. Small scale photovoltaic solar is also becoming competitive, hence the huge uptake in small scale solar PV in GB. Furthermore, the demand side would be even cheaper if included in markets on an equal basis with supply. Using the £30bn for a rolling German kfW-type energy efficiency scheme would permanently bring down total energy demand; bring down customer bills, and make customer homes more comfortable. Decarbonising GB and the world is cheaper and easier (because less gases will have been emitted), the quicker we start. Waiting until 2025 for HPC at best, when all these other options would be quicker and cheaper, does not make obvious policy sense.

So EDF’s decision to support it is not good news for those who want a sustainable secure and affordable energy system; for those who argue that customer involvement is essential for the move to a sustainable energy system; for those who want more control over their lives; and for those who genuinely want prosperity spread through Britain.

However, the Government’s decision to think carefully about it is good news – particularly if it comes to the conclusion that a green industrial policy which encourages a ‘virtuous’ economic cycle for the GB economy would not be one which supported HPC.