Monday 28 January 2013

Nuclear Endgame - and a Rogue We Will Miss

Looks as though the nuclear strike-price endgame is in prospect.  EDF had softened us up with mention of £140/MWh for their Hinkley output; I had predicted £119.95: DECC seems to be trying to keep it under the hundred, "whatever that means", as the Inde's writer justly puts it.

Because whatever the notional outcome, bear in mind that (a) it will be index-linked, and the electrons will not be in action until 2021; and more significantly  (b) there are so many valuable concessions EDF can be given under the table by way of capped liabilities etc, the headline figure needs to be very heavily qualified - except we probably won't find out in our lifetimes.  (I remember selling diesel fuel to the old GLC / LTE: they would do anything to keep down the nameplate price - the only thing that was reported to the politicians at County Hall - including offering 12 months' interest-free pre-payment !  Easy when you know how.)

Anyhow, we may be sure it will be trumpeted from the rooftops as a great triumph for all concerned - double (prices) all round !
Marchant: Rogue CEO
With impeccable timing, the industry figure who has done most to highlight the outrageousness of all this has jacked his hand in, and we will miss him greatly.  Ian Marchant, the unlikely CEO of Scottish and Southern - only SSE and Centrica of the Big 6 remain as independent British companies - is calling it quits.  I'm guessing not many C@W readers will have met Fat-boy Marchant, but suffice to say he is not a typical FTSE100 boss. His irreverent, flamboyant speeches, and more importantly his plain-speaking comments on the electricity market 'reforms' in general, and the nuclear nonsense in particular, have been a delight over the years.  

Hopefully he will still be around in some capacity or other, and we hope for even more uninhibited outbursts from that ample quarter.



Mark Wadsworth said...

Go on then, what do you think a fair price is for nuclear electricity?

£50? £100? What? (glossing over the fact that the price flucutuates wildly during the day).

Blue Eyes said...

MW, the sensible response is that the government should not be in the business of guaranteeing the price of anything!

If we are genuinely concerned about carbon emissions and unsure of the most efficient way of minimising them then all we have to do is tax the emission of carbon at a suitable rate. Let the free market work its magic.

Mark Wadsworth said...

BE, yes obviously, but that does not answer the question. I did not ask "which price should the government guarantee" I asked what is [currently] a fair price, i.e. what sort of price do nuclear companies need to make a reasonable profit.

e.g. a fair price for a music CD appears to be between £5 and £10, that doesn;t mean the govt. guarantees a minimum or sets a maximum price for music CDs.

Blue Eyes said...

I can exclusively reveal that I have asked ND this question before and the answer I got was "well, it depends".

It's a bit like asking what the fair price for a CD is. To me more than £3 is a bit much because I'll wait until it's on offer. To you it might be £20 because you need the Limited Edition with free poster NOW!

Given that nuclear tends to be based-load generation what you are really asking is what is the cost of producing the electricity, on average.

Mark Wadsworth said...

BE, "what you are really asking is what is the cost of producing the electricity, on average."

Yes, that's exactly what I'm asking. Maybe I phrased it badly.

Blue Eyes said...

I got confused by the term "fair price"...

As for cost of production, the real winner here is that the government makes it considerably more expensive to produce electricity (by any means) than it really should be. So now they've made it so expensive they have to give the producers the right to shaft the consumers.

Off switch said...

Put that man in charge of the Ministry of Energy by this weekend!!

rwendland said...

Using the Indie's £95-£99.50/MWh leak, here's an update of my back-of-envelope lifetime CfD support costs (subsidy) estimate for one EPR reactor that I did in December:

Around £600 million/year CfD support, at current prices. As ND says, this will be inflated upwards to whenever they get built. £2.4 billion-ish per year for the four EPR reactors the govt claims it would like EDF to build. Electricity customers, just domestic/small-business not industrial I understand, will pay this, not taxpayers.

Here are my sums:

1650 * 24 * 365.25 * 0.9 * (97.25-51) = £602 million

This assumes:

* CfD price of £97.25/MWh - midpoint of Indie £95-£99.50/MWh leak
* Average ordinary wholesale price of £51/MWh (probably a bit out-of-date now)
* 1650 MWe reactor running sweetly at 90% Load Average

It's actually worse than this I think, as it looks like night time prices will lower as more nuc and wind comes on-line, which will negatively affect the economics of both of them.

My £51/MWh average electricity price estimate is very dated now. I've seen both £60 and £45 used in some estimates, but dunno which is more sound.

rwendland said...

... forgot to add £2.4 billion-ish per year to support 4 EPRs is about £100 per household per year. If Hitachi/Horizon build ABWRs beyond that, even more, maybe double.

This increase on leccy will make using gas for home heating even more attractive. But the excess nightime leccy generation capacity from more nuc & wind should cause Economy 7 nightime rates to fall considerably. Maybe we should be planning into our new housing optional heat stores that could use this cheap nightime leccy. The current fad for instant gas boilers will make the use of heat stores trickier.

rwendland said...

.... and I've still forgotten the "lifetime" aspect. For 4 EPRs at £2.4 billion/year over 40 years, that would be a £96 billion subsidy commitment. If Hitachi/Horizon build ABWRs beyond that, perhaps in the order of £200 billion. That's a lot more than the lifetime costs of the Trident nuke deterrent costs (variously estimated in the £60-£100 billion range).

I don't know what the proposed CfD contract duration is. Anyone? I'm assuming a 40 year CfD contract here - EPRs have a 60 year design life, but I'm assuming the last 20 years are left to unsubsidised economics - from past experience a pretty profitable time for operators with capital written off. A 25 year CfD contract could be reasonable, as most nuc financiers want their capitals costs/risks fully recovered by then, if not 20 or 15 years.

Nick Drew said...

I can't add any numbers to what Mr W offers

what I would say is that if you are going to insist on having some nukes in your fleet, the only way you can justify intervening is if you can put a price on security of supply - it brings no other benefits - and as a prelude to that you need to tell us where the 100% secure uranium source might be: if you say 'Niger' or 'Mali' (which is EDF's answer) you will forgive me if I laugh out loud

Blue Eyes said...

Don't we have some kind of arrangement with the Aussies?

There was a reason that the popularity of nuclear collapsed in the 1990s.

If we were that bothered about "security of supply" we wouldn't be buying so much off the French. As a consumer I am only interested in price, price and price.

rwendland said...

ND, I'm not convinced a large nuc capacity adds a lot to security of supply. Just look at Japan's experience, one accident and all 54 of Japan's nucs are switched off, regardless of type, due to overwhelming public demand. Or a major engineering problem like abnormal head corrosion, leads to widespread rolling shutdowns for 4 months each to replace major components. Nuclear turns a breakdown risk you might accept as a financial risk elsewhere, into a major safety issue.

Nick Drew said...

agreed - you might introduce a bit of diversification (EPR + ABWR) but that's the best you can do against systemic nuke risk

as you know, I'm a hi-tech gas + coal man

with plenty of diversification of sources, natch; and max efficiency etc

(and trade / foreign / defence policies fit for purpose)