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

[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.