Last year, the Conservatve government under PM Cameron and Chancellor Osborne, announced a series of economic initiatives with China which was said to have started a "golden era" between the two countries. But new PM May's government, surprised everyone recently when they put on hold final approval for a new nuclear power station at Hinkley Point, in South-West England, so they could review it. The new French-built power station, was set to receive some US8bn in Chinese investment for the project.
It has been said that PM May is reviewing it principally because of security concerns with China's role in the project. That this is the reason, is based on a blog post from her chief of staff and comments from former government (but Liberal-Democrat) Vince Cable. In any case such fears are probably overblown given that security checks are rigorous, that China's role is purely on the money side and that any attempt of China to compromise our national security would damage China's reputation and ability to work on infrastructure investments in the West again.
In any case, there are far more important reasons to cancel this project. John Maynard Keynes, the greatest economist of the 20th century, is purported to have said, "that when the facts change, I change my mind. What do you do sir?" Well the facts have changed since the original decision to back the project was made in 2010. As the Economist magazine reported on August 6th the project now looks "extraordinarily bad value for money". The UK has promised to pay some £92.50 per megawatt hour for Hinkley's output compared with wholesale prices of some £40 today, and perhaps lower in 2025 when it due to open. Furthermore we have promised to pay this for 35 years! Yet the government has reduced the forecast cost of producing electricity from various renewables in 2025 by a third for onshore wind and by nearly two-thirds for solar power - both well below the £92. They will only come down further after 2025. Renewables are the future, and big new nuclear power stations like Hinkley (which would fulfil some 7% of our needs) have no real future and certainly with such price guarantees. In the short-run we will need more electricity, but these should be from gas-powered plants, that can be built quickly, run cheaply and turned on and off quickly to offset fluctuations in renewable supply.
What of the relationship with China? Well the Chinese are clearly not happy. And it is not great timing, when we have a Brexit to implement, when we are emphasising trade deals and being open to the rest of the world and when our economic relationship was already lagging Germany and France's relationship with the Middle Kingdom. However, it should be made clear that the decision to not go ahead with Hinkley is purely a financial one. There may be a short-term impact on the relationship but I am confident it can flourish. There is a lot more than nuclear power out there. However, there is a final point. At this time of a possible economic downturn and virtually 0% gilt yields, there is no reason why the UK cannot fund far more infrastructural projects itself!
ReplyDeleteAcross all the recent coverage on Hinkley Point C (HPC) there has been no dispute about the need to replace 21.4GW of generation capacity which has gone offline (or about to) since 2010 with secure and reliable power.
The question is, as ever, how best to do so, using the optimum mix of available and developing technologies. While some noisily assert a commitment to intermittent only generation combined with energy efficiency will be enough, detailed projections from National Grid, amongst others, suggest otherwise.
Utility Week’s striking photograph of the There is a continuing need for a balanced generation mix and, as the only viable high density but low carbon baseload provider, for nuclear to be part of that mix.
Comparisons to the current wholesale power price, which have been a frequent feature of recent commentary, are hardly a reputable guide in assessing the value of the prospective prices paid for power from 2025. New infrastructure costs money – and with only one CCGT power station being built, as developers await incentives while the gas price is low, and when a large offshore wind project is granted an index-linked strike price of £140MW/h, the comparison points on cost alone are less simplistic than recent headlines.
If anybody could be certain what the price of gas will be for the next 50 years, they would not be reading this column. What is certain are the targets we have to reduce our emissions, and the scale of that challenge in power generation, let alone heat and transport. And we can be sure importing power from whatever source, and whatever carbon intensity, does nothing to improve energy security.
Storage technology and demand side measures, as they develop, will help make baseload power, as well as intermittent sources of generation, more reliable. It is an obvious, but nevertheless important, point that to store power, first we need to be able to generate it.
Of course, circular and endless technology vs technology debates are a comfortable place for staunch advocates to bury their heads. But they do precious little to either recognise or communicate the scale and urgency of the UK’s energy challenge. The energy industry needs to help set the lead in developing the optimum lower carbon mix of how we generate, use, store and save energy for the future.
Interesting points Richard
DeleteInteresting points Richard
DeleteThis is all because we sold our energy to foreign countries that now have a firm grip on our dangley bits. We need a new power station. But not run by the French and financed by the Chinese.
ReplyDeleteWe can easily raise the money from central gov, just a bit of lateral thinking is required.
The gov issues bonds with 50% to small private investors paying a lower rate than Chinese loan and millions of savers will put up the money, the other half funds to big investors. For small investors say £100 lots.
Then we purchase the smaller, cheaper, more efficient, tried and tested Korean reactors.
This is all because we sold our energy to foreign countries that now have a firm grip on our dangley bits. We need a new power station. But not run by the French and financed by the Chinese.
ReplyDeleteWe can easily raise the money from central gov, just a bit of lateral thinking is required.
The gov issues bonds with 50% to small private investors paying a lower rate than Chinese loan and millions of savers will put up the money, the other half funds to big investors. For small investors say £100 lots.
Then we purchase the smaller, cheaper, more efficient, tried and tested Korean reactors.
Rick
ReplyDeleteWhy restrict the sale of bonds to small investors. I am 6ft 4ins, so will I be excluded?
Heightism rules. Wife is under 5foot so we qualify😁
DeleteHeightism rules. Wife is under 5foot so we qualify😁
DeleteMy first wife was 4' 10"
DeleteMy first wife was 4' 10"
Delete