On Hinckley Point Bart'at.

[danieldwilliam]

I doubt that Hinckley Point C will ever generate a megawatthour of electricity.

I'm not saying that it definately won't happen but my money is on it not happening.

It's a risky project. Building nuclear power stations is difficult and fraught with technical and political risk. They are vast, difficult and very regulated construction projects with plenty of scope for things to go wrong. They are also subject to risk of legal challenge or outright civil disobedience actions from opponents.

It's expensive in interesting ways. At a budgeted £18bn for construction it puts a lot of money at risk for EDF and any of the investors. Which include both the French and Chinese state. They should be looking at the project execution risk and worrying whether £18bn will buy them a working power station. My view is that they won't get a working power station for £18bn and might not be able to get a working power station at any money.

It's also expensive in terms of the price for any electricity produced. £92.50 / MWH in the 2012 market was expensive. That strike price is index linked and estimated to be £120 / MWH. You can buy onshore wind today for about £60 / MWH. The price of that is falling. As is the cost of solar PV.

Now there is some value in having a diversified energy supply. What would we do if we discovered that all our new wind turbines had a latent defect or that solar PV caused cancer? I'm not sure it's worth paying double the going rate for electricity.

So, it's a difficult project that represents a financial risk to its investors and a bad deal for consumers.

And it won't be finished for ten years, probably longer.

By which time technology and the economics that go with that technology will have moved on. Solar PV will be cheaper, wind will be cheaper, I'd expect storage to be cheaper. All available in small increments. The oil price looks like it won't get much above the value implied by the long term cost of US fracking - so about $80 a barrel. In 2012 oil was above $100 a barrel.

if you can't build the project unless you can sell the power at £92.50 plus then I don't see how you can build the project.

This was true in 2012. I mean that had the plant gone ahead when first planned we would be looking at a one third complete power station that had started as expensive and was now out of the money but we'd have been committed to it. We now have four more years of information about the likely trajectory of energy prices. By the time the UK government conducts its review we'll have another year, perhaps two of information.

If my major premise about energy prices (that over the coming decades they are capped by the cost of fraking and then the cost of solar PV) is correct then Hinckley Point will look like a worse idea with every quarter that passes.

Comments

[andrewducker]

What are efficiency levels like? High enough that we can actually generate enough energy from solar/wind without covering the whole country in them?

[danieldwilliam.livejournal.com]

At current technology / cost levels probably not.

I think if the UK (or the island of Great Britain) is to be net self-sufficient in renewable energy the key will be very large wind turbines in relatively deep water.

And those are currently too expensive / difficult. People are getting better,  slowly, at putting the footings in deeper water. Tower heights and turbine blade lengths are going up. But it will be some time before the levelised cost per mwh is competitive. Perhaps never.

But we're not energy self-sufficient at the moment. We import coal, gas, uranium and electricity  (and energy dense manufactured products).

The main point about the downward pressure on energy prices from renewables or shale gas isn't particularly that the UK could self supply energy if the cost were low. It's that countries with more readily harvestable renewable resources will build out renewables,  displacing gas, lowering its price and we'll burn that instead. Or we'll connect more interconnectors. Probably both.

I think the shambles of OPEC keeps energy prices down for two years. Fracking will keep prices down for five more and then cheap renewables start kicking in.

If I'm right then at no point does Hinckley Point C wash its face. It represents a tax paid by British tax payers to the French and Chinese governments.

[andrewducker]

That makes a lot of sense - thank you!

[widgetfox.livejournal.com]

What do your theories about the future of energy imply for the economic health of Scotland as an independent country?

[danieldwilliam.livejournal.com]

As always, difficult to tell and depends on how things turn out. Overall, I think it's marginally good news unless you think the most likely alternative scenario is that oil hits $200 a barrel.

There are a couple of factors to consider.

How do my theories interact with what the Scottish economy currently does?

How do my theories affect the Scottish government's fiscal position?

How do my theories affect the general economic performance of Scotland?

What is it like to live in Scotland if I'm right?

Depressed oil prices don't help an independent Scotland's oil tax revenues. But given that the North Sea doesn't have huge reserves of super-profitable oil left even with oil at $100 a barrel you probably have to build a fiscal case without much in the way of super-taxes regardless of the oil price (unless you are mulling over oil at above $200.)

One of the most important economic components of oil in the Scottish economy are the jobs. Mostly in Aberdeen, mostly very well paid. It's clear that the severe reduction in oil price has hurt employment and wages in Aberdeen and that this is affecting the broader Scottish economy. Having a bunch of formerly well paid oil workers on the dole, not paying taxes is not good news for either the Scotitsh economy or the Scottish government's fiscal position.

Looking further ahead what I think Aberdeen is good at is extracting difficult-to-get-at oil and doing so for a reducing cost. So, assuming that the oil price doesn't fall much further for much longer and there remains a global offshore oil industry then Aberdeen has a market to sell to. This market may be larger in the future than it has been in the past. I mean that there might be more offshore work to do around the world than has already been done in the North Sea and the Gulf of Mexico. If extracting offshore oil is currently profitable at, say $45, and the oil price is $40 that means there is money to be made researching how to cut the cost of extracting oil and a premium to be paid for technology and services that whilst expensive per unit significantly reduce the overall cost of oil production. There are some signs that the Scottish off-shore industry is begining to head in that direction. With oil at $50, $60, $70 a barrel then there is a clear demand for Aberdeen's goods and services but probably not a bonanza.

Alternatively the cost of solar PV and wind fall much faster than I expect, batteries become super-cheap and everyone buys electric cars and there is no oil industry anywhere. This is not good for Aberdeen's oil industry.

[danieldwilliam.livejournal.com]

Wind being cost competative helps the Scottish economic position. We have lots of wind. We have many people who are good at putting up wind turbines. Offshore we have literally more wind than we know what to do with and even more people who are good at putting up offshore structures. That ought to mean good employment opportunites. Fiscally, it implies good income tax revenue, lower welfare transfers, good revenues from other taxes. Being able to export the power probably helps the balance of trade. I think a factor in how economically beneficial on-shore wind is how many of the projects have a decent local community involvement and how well the local communities are able to use any revenues to develop other long-term economic activities in their communities.

That said - I think fracking and solar PV probably have a delaying impact on wind. I think the price of solar PV in excellent conditions will fall faster than wind. Scotland is not an excellent place for solar PV. Places with good solar PV potential are often developing economies with better growth rates than Scotland. So I think there is a model where capital investment in energy tends to flow to solar PV projects closer to the equator and wind doesn't get built out as fast.

Or putting solar panels in dangerous places like North Africa become unfashionable and Europe decides to become more energy self-sufficient and that means more wind. At the moment, if you could guaranteed that Morocco, Tunisia, Algeria and Egypt would remain stable places you could do long term business with the enery answer in the 2030's for Europe is probably to carpet the Sahara with solar panels and connect the European grid to North Africa. I would like that to happen but I'm not sure I see North Africa as a dependable energy partner at the moment.

Or all the things you have to do to make solar PV work also help wind. Storage and grid interconnection help wind capture better prices and counter-act the intermitency issues.

More broadly, Scottish industries are not particularly energy intensive but living in Scotland is relatively energy intensive because we are often a cold, dark, windy place with old, leaky housing. Relatively low and steadily falling energy prices probably don't affect the profitability of our industries much. They do have a beneficial effect on our standard of living, fuel poverty, domestic consumption and inequality. Poor people in Scotland tend to spend a large proportion of their income on energy. Lower energy prices are good for them, and given their marginal propensity to consume, good for local business. Lower energy prices probably imply lower levels of transfer payments and therefore either lower taxes or better public services.

Low energy prices are correlated with economic growth. High energy prices act like a tax or a break on economic activity. As economic activity picks up more energy is required, supply bottlenecks are hit and the price goes up. It may be that a move to more modular more capital intensive model of energy production changes the way that works. In any case lower and steadily falling global energy prices probably help the Scottish economy (excluding oil extraction) overall in that instead of paying for expensive petrol and electricity people are more likely to want to buy our whisky, food, tartan, hotels, computer games, pensions and general ambience.

It would be different if this were the 70's and there was still a huge amount of relatively cheap oil left that might end up not being recovered or if Scotland still had many people employed in coal mining.

It would be more helpful if the current government hadn't pulled the renewables support quite as quickly as it has. More wind-turbines in Scotland is probably a good thing and I think if they are not built between now and 2020 they are probably going to affected by the longer-term cost of shale gas and solar PV. I'm more confident of my ability to predict whether solar PV will be significantly cheaper in 2030 than 2016 than I am about my abilty to predict how wind performs.

[widgetfox.livejournal.com]

Thank you.

[danieldwilliam.livejournal.com]

You are welcome - although I'm not sure my answer adds to much beyond "Dunno - tricky ain't it?"

[momentsmusicaux.livejournal.com]

But wouldn't politicians have to be seen to do a U-turn, and mightn't they be likely to forge on ahead regardless because of that?

I do hope you're right though.

[danieldwilliam.livejournal.com]

I think that might be what May is positioning herself for.

But regardless of the political will so far none of this class of reactor has been completed.

[gonzo21.livejournal.com]

This whole project has always felt like a gigantic bribe being paid to keep the Chinese happy.

Strike Price of Hinckley Point C

[nojay.livejournal.com]

If the EPRs get built they will run since operating costs are minor compared to the capital cost of building the reactors. However there's something wrong with the EPR construction process, I'm not sure what but all four current EPR builds (France, Finland and two in China) are still not complete and operational and they should have been working by now. There's an element of prototype build in this delay but that's not the whole story.

As for the strike price it slightly undercuts the legally-mandated buy-in price for grid wind in the UK (on-shore wind pricing is £95.50 per MWhr, off-shore is £149.50 per MWhr) on the basis that it's carbon-free like wind so it should receive the price supports wind does. In addition the amount of power delivered will not vary depending on weather conditions unlike wind -- I've seen the UK's grid wind output reported to be as low as 50 MW during a very still day and that's from a dataplate installation of about 8GW of turbines.

I think the aim of the high strike price being asked for Hinckley Point C is to boost the initial return on investment in the first few decades of operation. Remember though that these reactors will be in operation for at least 60 years, possibly more so the large investment in the build is actually not that much considering the amount of electricity the reactors will produce during their lifespan.

Re: Strike Price of Hinckley Point C

[danieldwilliam.livejournal.com]

I think the Spartan answer to this is..

If.

Those EPR's aren't just late. The Finnish one is about a decade behind schedule. Flammenville 3 is eight years late with further defects found. The Taishan ones are about three years late.

If actually built and put in to operation then it clearly makes sense to run the plant. Between 90-95% of the levelised cost of electricty from a nuclear plant is in the construction and financing process - so having incurred the cost and assuming the thing works then one definately runs it for as long as possible. 50, 60, 100 years. I'm just sceptical that EDF can get the plant built, at all, but also before politicians, investors and the general public come to believe that the long-term economics have moved firmly against them and move to can the project.


Is that on-shore wind strike price of £95.50 the 2016 price? If so then the £92.50 Hinckley Point C price isn't the correct comparative. Depending on your inflation assumptions you're looking at a price of closer to £98 today for HPC and a price of £120 by the time the plant is in operation.

The costs of on-shore wind are falling. I think a price of £120 / mwh compared against a current market price of £50 / mwh and a price of £96 and falling is expensive. By the time the plant sees operation it will probably be significantly more expensive than off-shore wind (assuming they hit their target cost of £100 / mwh for 2020 projects.) At 7% of UK electricity production what is the impact on market prices when Hinckely Point C goes off for maintenance or re-fuelling?

£18bn buys you a lot of wind turbines. At about £1m a MW of installed capacity, if you spent half the Hinckley Point C budget of £18bn on 4,500 2MW wind turbines with a capacity factor of 35% get approximately the same capacity factor adjusted output as Hinckley Point C with enough money left over to buy something like 18 BritNed sized interconnectors allowing you to import or export 9 GW of power. And that leaves you between 10% and 200% of the construction budget in avoided over runs to spend on R&D on battery and other storage technology. Now finding somewhere to put that number of wind turbines is difficult. We'd need to go off-shore

(A better use of the £18bn might be to build more houses to Passive House standards and make a dent in the the UK's housing problem and reduce our overall energy needs.)

And yes, clearly the higher than warranted strike price is a deliberate inducement to build a project that isn't otherwise economical. The reactors might be in operation for 60 years. One would hope to get 60 years operational life out of it or more. One might easily get much less if the construction is done badly or someone decides to start flying jumbo jets in to nuclear reactors or any of a host of what-ifs that you have to consider in a different way to the way you have to do risk assessments of thousands of wind turbines or solar PV installations.

I think for me the persuasive factor is that the renewables industry has credibility when it says it can deliver projects on time and on budget and for a steadily reducing cost and the nuclear industry doesn't.

Re: Strike Price of Hinckley Point C

[nojay.livejournal.com]

The number one problem with renewables such as wind is their unreliability. There are occasional days when the wind doesn't blow over a very large area of the United Kingdom. As I said earlier, we have about 8GW of dataplate grid wind generating capacity, more than we have nuclear power capability. The average output is about 2GW annually from wind but that's an annual figure. I've seen the figure go as high as 5GW in stormy conditions and fall to as low as 50MW or 0.04% of the dataplate figure. Either we pay large amounts for backup generating capacity to fill that sort of a hole and burn fossil carbon like there's no tomorrow on those days or we freeze to death in the dark.

(Just had a look -- the grid wind total today right now is 310MW or about 2.5% of dataplate installation and about 1% of demand. We're buying in 2GW of French nuclear electricity as usual and burning fossil carbon gas like crazy but it's cheap.)

Storage isn't going to get much cheaper, not by factors of ten or a hundred as it would need to to make renewables a predictable and safe primary energy source. There is no miracle physics we can exploit to store large amounts of energy and recover it when we need it without paying for it in large amounts of cash (and land area for the cheapest options such as pumped storage). If there was a cheap storage option the wind generating companies would be deploying it today but they free-wheel on the grid using the nuclear baseload and the assorted CCGT carbon-burning generators (I presume we can agree burning wood pellets shipped across the Atlantic is not truly a renewable energy source...) to cover their downtimes when the wind doesn't blow. We really REALLY need to stop burning fossil carbon, like a decade ago and gas is only slightly better than coal, not a magical not-really-fossil-carbon fuel.

As for nuclear power plants shutting down for refuelling and refurbishment this is a scheduled operation done at a time when other nuclear plants, CCGT and some hydro can cover for the drop-outs. The nuclear industry has gotten very good at minimising the time for such operations to the point where modern reactors have an uptime of over 80% (see for example the operating record of Sizewell B, the only PWR in the British fleet).

http://www.world-nuclear.org/reactor/default.aspx/SIZEWELL%20B

Note that this single GenIIa reactor produces about 50% of the entire existing British wind annual generating capacity by itself.

The planned EPRs are expected to operate for 18 months or even longer between outages. Both reactors at Hinckley Point C won't be down at the same time so the 7% dropout you envisage won't happen and, in a better world, there would be overcapacity of nuclear to cover such individual or group dropouts anyway. The French schedule their nuclear refuelling operations for the summer when electricity demand is lower and even shut a few reactors down at that time since the Italians, Swiss, Germans, Britons and other export markets don't take enough electricity from their generating system.

Myself I find the idea of building a range of different reactor designs to be puzzling; I'd be tempted to go for something like the APR1000/Hualong 1 GenIIa design which the Chinese are building on a six-year timescale for about £5 billion each and reap the savings in design, licencing, mass manufacture of components, operations, fuel cycle etc. but nobody asked my opinion.

As for cost, remember that spending £18 billion on wind turbines today means spending another £18 billion in 20 years time when they wear out and need to be replaced, and another £18 billion twenty years after that. The reactors being built today will still be working at rated capacity sixty years from now, possibly longer. The Russians are building VVER1200 reactor vessels they expect to last for a century in operation.

Re: Strike Price of Hinckley Point C

[danieldwilliam.livejournal.com]

(Just had a look -- the grid wind total today right now is 310MW or about 2.5% of dataplate installation and about 1% of demand. We're buying in 2GW of French nuclear electricity as usual and burning fossil carbon gas like crazy but it's cheap.)

This in a nutshell is why I'm sceptical about Hinckley Point C specifically. In the long term it might be necessary to build some new nuclear capacity in the UK. I, personally, think we won't need to. I don't think it's Hinckley Point C right now.

May's decision is either to approve the Hinckley Point C deal with prices currently at about £100 / mwh and rising or let the market stick on wind whenever it can and burn cheap gas like crazy. Add a few more big interconnectors to improve the market conditions for wind and counter the intermittency issue. Jobs a good 'un.

May won't be Prime Minister in 2050 when Hinckley Point C is (perhaps) belting out carbon free electricity with all the financing paid off. She will be Prime Minister through 2017-2020 when Greenpeace occupy the site, the pressure vessels experience their first delay, the lowest ever UK price for wind power is achieved and then bettered.

Interconnectors, wind turbines and CCGT's take a few years to stick up. If you are May you can avoid committing to Hinckley Point C for years and still add generating or transmission capacty if needed in a few years time for a lower price with less technical risk.

I think the British public's willingness to commit to spending significantly more than the current electricity price to avoid climate change is limited. Especially when there is the alternative of burning cheap gas when the free wind isn't blowing. I definately think the Conservative Party is less fussed about burning cheap gas than the average Brit.

I *think* gas stays cheap for the next decade as OPEC, then fracking and then global supply of solar PV and wind keep the price down.

If as you suggest the offer was for a couple or three APR1000 Hualongs at $5bn each and they could offer the electricity for a price of £70 / mwh or less then I'd be less sceptical.

But I think the question isn't about whether we need to solve the entire island of Great Britain's electricity industy in order to for May or EDF to not proceed with Hinckely Point C. It's about wheher the certainty of paying more than the current going rate coupled with the project risk of actually building the thing is more or less of a headache then waiting to see how many CCGT's, wind turbines and interconnectors get build over the next ten years.