Hinkley Point C, time for a Plan B
Catherine Mitchell, IGov Team, 11 March 2016
Five years ago today, the Fukishima nuclear power plant disaster happened, precipitating closure of all 40 or so nuclear power plants working in Japan at that time, with only one re-opened and working since then.
Just prior to this in 2010, the GB Coalition Government announced details of their Electricity Market Reform (EMR), the intention of which was to put in place a framework suitable to attract investment in new nuclear power plants. Since then, GB has witnessed an unfolding story about the (foretold) difficulties of building a nuclear power plant and the dogged determination by the GB government to overcome all issues it encountered along the way. One of the issues it thought it had overcome was paying a high enough price per MWh to attract investment. In 2013, the Coalition Government announced a 35 year, index linked payment at £92.3/MWh – about twice the average wholesale price at that time – to EDF to build Hinkley Point C nuclear power plant (HPC).
However, this last week saw the resignation of EDF’s Head of Finance. He argued that EDF’s decision to invest in HPC should be put off for another 3 years until they, EDF, better understand the risks of investing in a similar reactor to those they are currently trying to build in Olkilioto in Finland and Flamanville in France; both of which are over-budget and significantly behind schedule. Even with this perfect opt out, the GB Government says that the plant is on track and continues to say that nuclear power is essential for energy security in GB.
The FT recently reported that the Government will not pay penalties if it backs out of the HPC project. If this is true, now is surely the time for a prudent Government (and indeed Opposition) to use the opportunity afforded by the resignation of EDF’s finance director to announce a halt (or even a temporary halt) to HPC and call for a review of UK energy policy in the light of the unprecedented change to the global energy system, which have occurred since the announcement of EMR.
Plan B – five key points (discussed below):
- The global energy system has significantly changed since the decision in 2010 to support nuclear power – this change underpins arguments that global momentum is moving to a higher proportion of decentralised energy – whether electricity, heat or transport
- The understanding of the operational needs of energy systems with high proportions of variable power is far greater, and it is clearly not the case that GB ‘needs’ nuclear power in order to meet its decarbonisation targets or to maintain its security
- HPC is very expensive, and further nuclear power plants can expect similar concerns and difficulties as experienced by HPC. Public money would be far better spent in energy policy areas which lead to an energy system based on renewables and ‘reduce (ie minimum energy use), flatten (ie maximise demand response capabilities so that total infrastructure and market costs are minimised) and flex (ie where the focus is on delivering resources which are flexible so that variable power can be matched and demand side response can be called upon)
- Improving the energy efficiency of our GB energy system is the key priority
- A governance system to match the new system characteristics is necessary: a BAU governance system is an ‘old’ solution to the ‘new’ characteristics of variability and flexibility
The energy system has undergone unprecedented change in the last 5 years
A great many factors have changed in the last 5 years since the decision was taken to support nuclear power and these are increasingly being recognised by the industry within the UK and Internationally. It makes a great deal of sense given these changes for the Government to take stock of global energy system momentum and to ask whether continuing to support an expensive nuclear power plant is the best use of resources for GB plc. The key factors are:
- Fukishima occurred, followed by Germany’s announcement that it would speed up its nuclear phase out. This in turn led to less interest to develop nuclear power in GB by RWE and E.on, both of which had hitherto been interested to invest.
- Information about the delays and cost overruns of constructing the other similar EDF nuclear power plants in Okiluoto and Flamanville has become much more widely known; and increasingly worrying to the financial health of EDF; and Areva, its now bankrupt building company. This has led to widespread questions about the financial sense in building a similar power plant in Britain.
- Security concerns about a lack of gas, which were in place in 2010 and which were part of the argument that GB ‘needed’ nuclear power as a central resource for decarbonisation, (questionable anyway) but dissolved as shale gas took off in the US, displacing coal use in the US which lead to falling global coal prices. Global regional prices for gas remained steady to higher on the back of a new market for gas in Japan (to take up some of the slack of the 40 closed nuclear power plants) but also transformed gas into becoming a more expensive resource relative to coal. Projected gas use is falling in Europe – partly because of its price but also because of renewables displacing gas fuelled electricity at peaks.
- Information and communication technologies (ICT) have come to energy enabling new ‘smart’ energy system operation. This was at the start of its life and more theoretical 5 years ago but which is now in practice, developing rapidly and projected to develop even more rapidly. Variable power renewable energy technologies (wind and solar) have had substantial price falls. Together, these new operational possibilities and new technologies has led to new understandings about efficient energy system operation – with flexibility being recognised as the key no-regret-energy-policy characteristic, an attribute nuclear power does not have unless the operator is prepared to use up its fuel rods more quickly, thereby making it more expensive and leading to more radioactive waste.
- Within GB, take-up of wind and solar has been rapid since 2010, and cheaper than HPC.
- GB is physically part of the European energy system and momentum within this system is towards flexibility and integration between countries and renewable and decentralised energy. This in turn is leading to new network and market rules, more suited to electricity systems with high proportions of variable power, and interconnected gas. This is turn is leading to new business models and new entrants, new ownership, new investors and changing customer preferences.
- Elsewhere in the globe, public policy announcements in support of renewable based, flexible energy systems have become widespread.
- Projections of future costs of certain technologies – such as storage – which are not yet economic but which have valuable characteristics to a flexible system with a high proportion of variable power – have stimulated arguments about ‘game-changers’ and changes to the roles of different actors and institutions within energy systems. This is changing the perception of the future of energy systems globally and causing public policy in some countries and some company investment to ‘pause’ as they try to work out a low risk energy policy. In this situation, a low risk energy policy = a no regrets energy policy = flexibility, and this is not nuclear.
- GB’s support for nuclear power in Europe in 2010 was eccentric but 5 years later it places it in an exclusive, and unwanted club in Europe – other European countries going so far as to take GB to court about the possible infringement of State Aid rules for HPC.
- As decentralised power prices fall, there has been a development of new customer engagement; altering customer preferences; and the development of new entrant non-traditional business models, all of which want a ‘smart’ system which provides choice to customers.
- The NY REV in the US is an example of a Regulator tearing up the old system and creating new value propositions (particularly for a more energy efficient, small infrastructure) via performance based regulation; and placing distribution market facilitators at the heart of the energy system. This is the new regulation to suit to the new system- and again, as understanding of it becomes wider known globally, it is also adding to the ‘pause’ of those who choose to wait and see where the system is going; but it is also providing evidence day by day for the economic sense of a flexible, secure, nuclear phase-out system.
- Given the new technologies, regulation of networks is no longer low risk. The Australian experience has shown that it is possible to over predict Transmission use which in turn leads to higher network costs on customer bills, which in turn provides the economics to buy their own cheaper solar and storage system – further increasing network costs to the customers that remain.
It is clearly not the case that GB ‘needs’ nuclear power in order to meet its decarbonisation targets or to maintain security – quite the opposite
It is time for the GB government (and their civil servants) to understand ‘smart’ energy system operation (and economics). What was not technologically possible or economic a few years ago, is now routine, and is, for example, the basis of the NY REV value settlement. New nuclear power is simply not necessary for GB to decarbonise and meet its targets. Many other countries, and most European countries within the Europe that GB’s energy system is physically part of, are not considering new nuclear as part of their future. Those that are, are doing so because of their historic relationships with Russia, and their current non-diverse energy sources.
New nuclear does not increase security. This is not just from a technical system security perspective – having inflexible nuclear power on the system makes it harder rather than easier for system operation with a high proportion of renewables. Given that GB has variable power renewables, GB wants to develop a system which complements rather than undermines variable power output. Moreover, from a supply chain perspective, nuclear power is more insecure than smart, renewable or decentralised options. There are only a few providers of nuclear power technology and if anything goes wrong with the plant there are long lead times for replacements. This is not the case with decentralised or smart system options, and in this sense non-nuclear decentralisation improves system security. And we do not have to worry about the lights going out without nuclear power. The Government has just had 2 very expensive capacity auctions which have led to 45-49 GW capacity for the next 15 years. We have no idea what is happening within the energy system over the next 5 years, never mind 15. What we absolutely do not want as a country is to tie ourselves into such a long term, inflexible project. What we need is a flexible system so that days of less wind or sun can be covered, and please see the IGov series No Resource is 100% reliable which explains this.
HPC is very expensive and the money could far better be put to other areas to lead to an energy system based on ‘reduce, flatten and flex’
The foundation and building blocks we need to put in place for a credible GB energy policy can be summed up as ‘reduce, flatten and flex’. These are energy efficiency and RE policies; demand side flexibility policies (in part to bring down peak demand); increasing our interconnection; developing storage options; developing and increasing ‘smart’ system operation and management to improve integration between electricity, heat and transport; maintaining fossil fuel flexibility as a short bridge; and the governance to make it happen. The cost of HPC to GB customers over its 35 years is contested but it is in double digit billions. Refocusing this money to improve the efficiency of GB’s building stock would be a far more transformative and pervasive strategy for our energy system.
Improving the energy efficiency of our GB energy system is the key priority
As said above, a cheaper, but transformational, GB measure is to upgrade the energy efficiency of buildings (domestic and commercial) and appliances so that we use as little energy as possible. This can be done via local authorities; companies or individual homeowners using Government bonds and revolving loans to homeowners at 0% interest rates – as based on the kfW model in Germany – and dispersed by local banks.
Establishing transformational governance
We need appropriate governance change to get there. In part this because, if regulation, markets and wider governance developments lag behind technology deployment, innovation may be constrained, energy security risks may increase and the transition to a low carbon energy system may be undermined, delayed and more costly. Also, this is about new ways to capture value within the system. For example, demand side response is expected to become an increasingly importance mechanism to balance supply and demand and help to reduce costly peaks. However, the current market rules and regulations make it hard to value these sorts of services – for the companies that offer them and customers that provide them.
IGov is arguing that a new framework is required to enable that at there will be winners and losers in this, including stranded assets. But as NY REV is arguing: Business as Usual governance cannot meet the challenges of current energy systems. We cannot continue to do as we currently do because we are worried about stranding the assets of the system we are trying to move on from – particularly since we have given the owners of those assets fair notice about the policy to decarbonize.
This is Plan B
GB needs to look around the world and see what other countries are doing. This Plan B is not radical it is simply what the majority of countries are now doing. There is a big difference between countries having some nuclear power plants, and wanting to build more. Yes, a few countries are supporting nuclear but it is minimal compared to the country movements towards this type of Plan B, and even then those countries which have nuclear also support variable renewable energy technologies. For a good understanding of the situation of nuclear power today see the World Nuclear Status Report. Yes, a few companies and countries are ‘pausing’ but they are technologically non-aligned and will go with the world momentum. No country in the world is supporting new nuclear over renewables. Finally, this Plan B benefits energy customers – energy prices and total system costs will be lower, environmental outcomes higher and security will be the same or better.
Support for nuclear power, at root, always used to be that the ultimate need for nuclear was because the economics of low carbon nuclear were better than those of renewables – even with the waste problems – and worries about security issues. But this simply is not the case anymore for either of these issues. It is time for all political parties in GB to interrogate their policies, and ask what is the best for GB plc. This blog argues that the evidence clearly supports a rethink of HPC, and wider GB energy policy.