The government has been quiet about energy policy since the Prime Minister gave her OK to Hinkley C. But lots has been happening which is certainly not good news for the nuclear renaissance policy she inherited. EDF’s problems are not going away (see below). The two other companies proposing new reactors on Anglesey and Sellafield’s border at Moorside both have troubles too. Meanwhile China, investor in Hinkley, prospective 20% stakeholder in Sizewell and 100% “China First” investor at Bradwell in Essex may be worried about Brexit shutting them out of the European energy market.
Time limits for Hinkley
EDF faces two time limits on Hinkley C. First, it apparently gets cancelled if EDF’s own similar EPR reactor at Flammanville in France is not up and working by 2020. Second, although EDF boasts a firm 2019 start date at Hinkley C, the UK government’s £92.50 strike price (subsidy) and £2 billion finance guarantee apparently also cease if the reactor is not up and running by 2033. These dates could change because of Brexit, but renegotiating them would be a big headache and oopen further public debate. Build time? Well, EDF have now lengthened Sizewell’s build time to 10-12 years from 8-10. No-one really believes this. But it suggests that Hinkley could well hit the 2033 buffer if it can’t at least start in 2019.
Industrial Strategy & Energy Policy
A clue to problems with the nuclear renaissance came in the big hooha about a new government industrial strategy over the Xmas period. Looked at closely, the ten ‘pillars” - themes - include energy & nuclear. But all that this chapter says about nuclear energy is that Hinkley C is confirmed and £180 million has beeen set aside to support training up new nuclear engineers because the UK is very short of them. Nothing about the renaissance, nothing much about energy policy, but, if the green paper is to be believed, an implicit energy “review”, stressing a “low carbon” future.
Eversheds, the big London lawyers’ analysis is that it is all about cutting energy costs to consumers and businesses (a routine refrain), backing energy innovation through battery technology, storage, offshore wind and electric vehicles, and energy exports (to whom, given Brexit?). A revised CO2 emissions reduction plan is due this year, and there may be a new energy research body to look at smart grids and storage and batteries. Is this a ‘review” or not?
No mention that the smart meter roll-out will be paid for by customers whether they want one, or not. The new overall strategy is all about the Northern powerhouse, not East Anglia’s future.
Brexit & Nuclear Strategy not joined up?
Before the supreme court judges made their Brexit decision on MPs’ role, we thought that the government would need to stay in Euratom so that we could, in future, trade energy with the EU. Not just energy, but nuclear fuel manufacture and lots else, in a UK nuclear industry employing a total 68,000 workforce and a major fuel processing export industry.
Staying in Euratom would have been quite logical, since the Hinkley subsidy case put to Europe by the government rested on Euratom being in favour of nuclear energy and therefore helping EDF out was legitimate. So what has changed? Has this been forgotten, in the rush to be free of Brussels and subsidize whatever they want, without Brussel’s conditions?
Whatever the aim, what hapened is that the short Brexit parliamentary Bill contained a note to the effect that leaving Europe involves leaving Euratom too. Lots of questions now follow: what about the big European fusion reactor experiment in England’s Berkshire? What about the cash strapped UK Office of Nuclear Regulation? It has been under the wing of Euratom, and will now have to reconnect to the International Atomic Energy Authority. They might prove tougher than Euratom.
And while Europe will be able to export nuclear electricity to us, we might not be able to export it to them. After all, as a former hapless Energy Minister said, “nuclear electricity is different”. How true that was, especially if the rules governing it are different as they will be. Maybe the UK will look for a special deal, but the one done with Switzerland assumes free movement of labour and not much influence in Euratom. The only industry sector deals mentioned so far for Brexit are for the finance and banking sector and the car industries. Doesn’t look like much of a basis for a nuclear renaissance energy policy, does it.
An important note here: the EU passed a new nuclear inspection law in 2014 requiring nuclear inspections to be carried out jointly with two other countries to guarantee better standards. The UK has done nothing about this. Or did they see this coming, and therefore decide to put Euratom exit into the Brexit package? Stranger things have been known. Maybe China and Korea weren’t keen on EU standards? Was that the priority? Watch this space, and remember, it may all be a real muddle and mess.
Renewables get 5 year cash limit and price cuts
If there is a simple bit of energy “policy” it is that renewables - all types - are to get a total subsidy of £730 million front loaded over five years, and reference prices (strike prices) dropping too. This is a reduction, and slows down renewable development. Renewables are however developing very fast, with their guarantee prices already close to Hinkley’s £92.50, which is now worth £100 with infation proofing. Remember, though, that nuclear Hinkley is inflation proofed, and lasts 35 years, while renewables are on old 2012 prices and dropping. The press release by the government (9th Nov.2016) stressed that the UK’s “diverse” energy system includes record investments in renewables but also mentions “the reliable electricity that nuclear power investment will provide”. Maybe they are telling us something here: are they already factoring in new nuclear supports?
Capacity market subsidies
At the same time, the government’s second auction has been held to get energy companies signed up to keep the lights on. Note here: new nuclear is no longer seen as able to do this. It is all just too late.... So old nuclear, some of which has new safety problems, has been counted in with imported coal and lots of gas for a “capacity market”. This works by paying a bonus of £19 per mega unit of electricity to companies willing to hold a reserve in case the grid runs short. The £19 is on top of the going price, of course. And the public pays. Estimates for the period are between £650 million and £1.5 bn. The point is that this is, in reality, the new energy policy: a pumped up old tyre on the energy wagon because new nuclear is still a long way off. And EDF have done very well out of capacity markets too because they own all of the “old” nuclear plants.
Renewables & Supergrids & Big Oil Sell-offs
Renewables are growing and getting cheaper despite government subsidy cuts, and are being spurred by huge developments in batteries at domestic, car-sized and community-grid scales. New supergrids are being developed for long distance surplus elctrcity distribution. China is well ahead and the first European has been agreed for north east Germany to take surplus wind power right across to the south of the country where it is needed.
Meanwhile, the global oil industry is selling off so-called “stranded asssets”, i.e. oil reserves, with no foreseeable market, and adjusting to a long term oil “glut”. This and low gas prices mean a lot of things but one thing is certain: expensive long run nuclear power just doesn’t make it to market as a basic energy source without huge subsidies and serious questions about whether the new 60 year reactor lives will ever see out much more than half their life span. Is that why the Hinkley subsidy, about twice the market rate, runs out at 35 years, not 60 years?
So, to sum it all up, lots of warm words about clean energy, but renewable cuts, smart meters of no use to consumers but fine for the suppliers and paid for us by us, and only just one nuclear paragraph with another round of “capacity market” subsidies including old nuclear which we all pay for. That’s supposed to be an energy policy.
Energy Plan B call
So it’s no surprise that the chattering classes are paying attention to it all. London university energy professor Nick Butler, ex BP oil executive and regular energy commentator has called for a Plan B for energy, pointing out that when the Prime Minister OK’d Hinkley, she also promised a National Security Assessment because of the involvement of Chinese money in UK nuclear plans. Also, linked in, he says that Mr Trump may not like the idea that Toshiba (see below) might now sell off its American technology, the Westinghouse AP1000 PWR reactor. This is a new design, supposed to be safe and economical. It is the rival to EDF/Areva’s EPR reactor. Trump’s concern would be that China might like to buy in again. Another headache for UK nuclear plans, given the Special Relationship with the USA.