Saturday, 21 June 2008

Renewables: Reality at Last ?

Or still tilting at windmills ?

In today’s Grauniad the government is trailing the headlines of a new ‘renwables strategy document’, and it sounds as though reality is beginning to dawn.

‘The long-awaited renewable energy strategy … will say Britain needs to make a £100bn dash to build up its clean power supply if it is to reach its EU-imposed target of producing 15% of the country's energy from renewable sources by 2020.’

Long-time followers of Drew’s energy ramblings here (Sid & Doris Bonkers) will know that we have long said the scale of costs and efforts required to implement the EU plan will be commensurate with events like mounting a war or, in more peaceable terms, German reunification. £ 100 bn ? Well at least this time they have put roughly the right number of noughts on it.

And in another outbreak of realism:

‘The renewables strategy concedes that the target will only be achievable if there is a completely new approach to generating energy. "We might just possibly reach 15% renewable energy by 2020. It will require maximum build rates and a very rapid response from the supply chain," says the document.’

. . . But more probably, ahem, we won’t reach 15%. Of course we won’t. Some of the required £££ represent investment, but a very large part is pure cost. Remember, this is over and above business-as-usual. OK, 12 years, say £12 bn each year in money-of-the-day (actually it’ll need to be more: inflation in engineering costs is really racing just now), starting right away . . . so where can we see the first few of these annual £12 bn slugs going in ?

We can’t. Because it’s mostly just talk, for the moment. And in the 2-year run-up to the next election, which brave Prime Minister of our acquaintance is going to slap another £24 bn on electricity prices, or general taxation, or whatever ?

Yes, that would take a very brave Prime Minister … ’nuff said.



Mark Wadsworth said...

Nah, telling the EU to get stuffed would take a very brave PM. If they chuck us out, so much the better.

Upping taxes by £24 bn a year is meat and drink to this lot.

rwendland said...

Trouble is we are beginning to get realistic build cost info for nucs, and they don't look too bright either.

South Carolina Electric & Gas Company are looking to buy AP1000s, and they say they'll cost $4.9+ billion a unit. With some back-of-envelope sums that works out as about $4,400/kWe, or £2,250/kWe overnight cost.

That's about double the costs the respected MIT study used in 2003, and that study didn't reckon nucs were economic then. Extrapolating the MIT study gives a generating cost of 7.5p/kWh, which makes the windmills look competitive! And I think mass production has prospects of reducing future windmill costs much more than nucs.

Using speculated Finnish EPR final costs make EPR costs look a little worse than AP1000 (my envelope has £2,500/kWe - the Euro's strength is a killer). I'm very intrigued how EDF can make the sums work, unless it has access to French govt backed finance to reduce cost of capital.

Nick Drew said...

Mark, RWE - none of it makes for a plausible 'narrative', does it ?

Bill Quango MP said...

The BBC is reporting that GB has gone to Saudi Arabia to tell them that we are switching to Nuclear and renewerbles.

"The prime minister wants oil producers to invest in a £100bn drive towards long-term energy projects in Britain, such as wind farms and nuclear power."

So that's where the money is coming from.

Mark Wadsworth said...

I like the way you abbreviated rwendland (the only LabourHomer who is good at maths) to 'RWE'.

rwendland said...

Interesting GB wants Saudis to invest in nucs. Doesn't suggest huge confidence that EDF will deliver on building a fleet of EPRs - though maybe this is just prudence and dual sourcing.

BTW the South Carolina Electric & Gas Company/AP1000 case is interesting - they are applying to levy 2.5% on customers while the nucs are being built (using a Base Load Review Act), to partially fund the capital costs. The U.S. still seems to have much of a regulated generating industry about it, rather than the UK/EU merchant plant approach.

Nick Drew said...

RWE (or RW if preferred) ... the Tories are toying with re-introducing Capacity Payments

which I suppose we must therefore take seriously

Oliver Letwin takes credit for inventing them the first time around (1989) and he's forgotten (and learned) nothing

Old BE said...

Wasn't the US system heavily criticised when the lights went out in California and the East Coast recently?

Anonymous said...

"the scale of costs and efforts required to implement the EU plan will be commensurate with events like mounting a war or, in more peaceable terms, German reunification."

Well except that niether a war nor German reunification had any obvious "payback". More like the Hoover damn and similar infrastucture investments that were used to help dig the USA out of the great depression?

How about doing the honest thing and comparing like with like for a change?

Cost of coal OVER FULL LIFE, compared with cost of WIND over full life? Thus we amortize the initial costs of infrastructure over a say a 50 year period for wind and bear in mind that no fuel at al is needed. I'm tired of seeing these comparisons of up front costs that conveniently kick the issue of rising fuel costs under the carpet.

Anonymous said...

I agree with you somewhat anon.
But we do have to pay for it now.
If the government had started 10 years ago, with a benign economic outlook, rapidly rising stealth taxes etc then maybe, we could be part way there now.
Alas we seem to have spent the money on other things that we can no longer afford.

Anonymous said...

Cost of coal power station build (800MW) = £1.5bn, coal use 2million tonnes per annum.

Total UK capacity 83,000MW, therefore to make up 15% of this using coal would require 16 coal-fired plants. Total up-front cost £24billion.

Cost of coal (1996) about £35 per tonne, i.e. £70million per plant per year. For 16 plants operated over 50 years the total fuel cost would be £56billion.

Total life-time costs of running 16 coal fired plants over 50 years would be £80billion compared to £100billion for the wind farms in your example.

However, the fuel cost for coal is unadjusted for inflation and based on 1996 prices. During 1997 the cost of coal actually doubled - so if you used 1998 prices then wind power would actually be significantly cheaper over the 50 year term. There is, of course, no reason to believe that coal will not simply continue to rise in price as demand outstrips current global production. Bearing in mind the UK trade deficit, the cost could prove too much to bear for UK PLC.

Conclusion: It is really quite wise for the government to ensure it diversifies into wind power for electricity generation, when considered as part of a long term strategy of power generation. However, it is unlikely that the industry itself would take a long term view as it is likely to want to see returns within 7 years at most. Therefore, without considerable government involvement we are likely to find ourselves lumbered with a strategy that is not fit for purpose as far as guaranteeing the long-term stability of supply is required.

Nick Drew said...

Anon - we have long advocated around here that the govt should have a coherent strategy for keeping the lights on, instead of pious aspirations + wishful thinking. (beyond that, opinions differ ...)

while we're chucking large numbers onto the table, here's an extract from a US newsletter on the subject:

Florida Power & Light told the Florida Public Service Commission late last year that the cost for building new units at Turkey Point in south Florida could be up to $8,000 per kilowatt -- or $24 billion for two units. Earlier this year, Progress Energy pegged its cost estimates for two new units on Florida's west coast at about $14 billion plus $3 billion for transmission and distribution. While Progress' estimates are lower than FPL's, they are more than twice as much as the $2,000 per kilowatt that industry contractors promised for new nuclear plants just two years ago.

"There's a lot of sticker shock," says Jim Harding, an energy consultant who helped the Keystone Center develop its June 2007 report, Nuclear Power Joint Fact-Finding. That report concluded that overnight estimates for a new reactor would be $2,950 per kilowatt, or between $3,600 and $4,000 per kilowatt with interest. That estimate, generated with the input of 27 participants, including power companies and nuclear contractors, is already outdated because of the rapidly rising cost of metals, forgings, other materials and labor needed to build a new nuclear unit, Harding says.

Chervil said...

We need to invest in all low carbon technologies immediately - we have left it all too long and now we are up for big investment cost because we have ignored both climate change and the possibility of peak oil. I hate nuclear but it may have to be part of the mix. Coal, however, should be stopped. It is a disaster for our climate.

rwendland said...

ND: Interesting Florida Power & Light info - again they are looking for a $100/customer-year levy to partially finance nucs. Looks like Moody's recent $5,000 to $7,000/kWe overnight cost estimates are about right - about 3 times the industry's 2003 estimates.

Keystone's latest price estimate is "reasonable estimate for levelized cost range ... is 12 to 17 cents per kilowatt hour lifetime" (6.2p to 8.7p/kWe).

American Electric Power CEO says "I'm not convinced we'll see a new nuclear station before probably the 2020 timeline" - they like coal.

Nuclear nirvana seems to be receding fast, unless govt can find some way to subsidise or cheap finance nucs - which is I guess the point of GB's latest Saudi trip.

OTOH windmill and other build costs are also increasing greatly on the back of copper and steel prices. I'd guess all this cost uncertainty, and recession possibility, must be helping the lower capital cost solutions - new gas or extending plant lifetimes.

(BTW RW works for me.)

Nick Drew said...

chervil - on coal, well OK but just take a look at this before finally rejecting it out of hand

rwendland said...

GB's speech this morning is interesting. The immediate meat, including "feed-in tariffs or equivalent", seems to be:

John Hutton will announce the details later this morning, but some of the key elements on which we will consult include:

* one - raising the level of the Renewables Obligation and extending it to 2040;
* two - introducing financial incentives such as feed-in tariffs or equivalent mechanisms to bring on renewable heat, decentralised energy and microgeneration;
* three - removing, without delay, the barriers that currently prevent renewable generators connecting to the national grid;
* four - changing the planning system to speed up renewable applications, requiring regional and local authorities to plan for renewables, and giving local communities a real stake in them;
* and five - reducing delays and objections to new renewable installations from the Ministry of Defence, civil aviation and shipping.

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