danieldwilliam | On Hinckley Point Bart'at.

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.

Current Mood: Sceptical
Current Location: Hinckley Point by Sea
Current Music: Windmills of Your Mind, by Noel Harrison

Flat | Top-Level Comments Only

From:

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?

From:

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.

From:

andrewducker

That makes a lot of sense - thank you!

From:

widgetfox.livejournal.com

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

From:

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.

From:

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.