Saturday, 9 March 2013

Feeding Frenzy at the Subsidy Trough

The EDF nuclear subsidy game rumbles on with another batch of orchestrated leaks.  The stakes could hardly be higher.

And haven't the lobbyists and briefers been busy !  How convenient that the Telegraph can always be persuaded to publish their radioactive releases.  From the EDF camp, we learn that unless HMG comes up with the readies (well, forces electricity bill-payers to come up with the readies), not only will there be no EDF nukes for the UK, the Japs will pull out too - along with every potential developer of UK infrastructure ! 'No big infrastructure investor will ever trust the Government again' if that happens, is the bleak verdict of one industry insider" - quoth the ever-helpful Telegraph.  The whippers-in have indeed been out in force.  Every b*****d wants a monster subsidy: who'd have guessed ?  

So stick that in your pipe, David Cameron.  And not just lots of readies are required, mind - it must be a 40-year deal, and government under-writing for the capital costs, and indemnity for EDF on cost over-runs.  And to think all they wanted just a couple of short years ago was a carbon-price floor (already long-since delivered and banked, of course).

The government side wants it to be known that, err, they are prepared to walk away if they can't get a 'good deal' - such tough negotiators, eh ? - and will certainly keep the nameplate price lower than £100/MWh.  But we all know this is fairly arbitrary when 40-year indexed-linked games are being played, and so much is on offer by way of guarantees. 

"The truth is likely to become much clearer in the next few weeks", opines the Telegraph.  How very trusting.

Whatever we get to know about the dirty deal, it will go straight into the long grass of an EC State Aid review, and there will be no binding commitment from EDF for, oooh, 18 months minimum.  So - no start-up until 2022 earliest ?  Which means in turn that all the practical problems of keeping the lights on post the LCPD shut-downs will have to be solved without new nukes.  Which means ...

It was not always thus.  A mere decade ago there was a parallel issue in UK natural gas: North Sea gas production was forecast to decline to the extent that new import sources would be needed from around 2005.  The UK government had played a clever strategic hand several years earlier, but otherwise stood back and let the market work.  Sure enough, the companies that make up the UK gas industry invested in sufficient new import pipelines and LNG import facilities to replace the declining North Sea production entirely, if needed (which it won't be for several years yet).  InvestedTheir own money, with no subsidies !

They did so because (a) there was a clear business case, and (b) there was no hint that subsidies might be forthcoming if they just held back a bit. Happy days.



Sackerson said...

EDF = EGBDF without the Good Boy.

Budgie said...

I really cannot work it out, ND. You welcome the takeover of our electricity supply by Jonny Foreigner, and then rail against him when he puts his interests above ours.

The French and German power companies, and the EU, now decide what shall be done in the UK. Inevitably our desires come a dismal second at best.

Nick Drew said...

Easy, Budgie: I don't blame EDF! Any company in the current situation - where free money is being advertised by HMG - is right to hold out for whatever it can get

DJK said...

So CU: what is your alternative to the subsidy-fest? Should we return to the days of the CEGB, when the government builds and operates nukes directly (makes sense to me, given the length and uncertainty of the liabilities). Or do we tell the EU to get stuffed and keep the coal fired stations open?

rwendland said...

ND & DJK, I see that EDF's (+Areva ?) talks with the Chinese CGNPC over jointly developing a new (cheaper) reactor design are likely "reach a conclusion" in the next few months. This will probably be a merger of the 1100 MW French Atmea paper design and the similar sized now operating Chinese CPR-1000 design. This has the prospect of creating a design with the possibility of a decent number of sales worldwide, hence much more economic.

Even from an (economically rational) pro-nuclear standpoint, isn't the sensible thing now to tell EDF to take a hike with the current over-expensive EPR proposal, and wait a few years to see if Hitachi come out with a more reasonably priced offer with the cheaper ABWR once it passes its ONR assessment? By then EDF may have this cheaper French+Chinese reactor on the books, and can make another offer competitive to Hitachi.

If we go for the crazily priced EDF EPR offer now, it will tarnish nuclear economics for decades and remove the headroom to possibly go for better priced nuclear in a few years time.

While the anti-nuclear lobby will still stand against the Fukushima-heritage ABWR in a few years time, at least the leccy has a chance of being cheaper to produce than offshore wind.

rwendland said...

ND, just been skim reading the recent Energy and Climate Change
Committee "Building New Nuclear" report. A very unimpressive report, with very little that is new.

The one good thing I spotted was a very nice 5-page precis on financing new nuclear given as written evidence by a chap from "Energy & Infrastructure Project Finance". Highly recommended to anyone who wants to read up on this topic.

Any idea who this chap is ND? He worked for KB 74-85 and then Director, Power & Energy Utilities at EBRD 91–95, involved with nuclear finance at both places. Now a consultant.

Anonymous said...

Can't we just reactivate the CEGB and spend the next batch of printed money on a crash program of thorium reactor research starting asap?

Anonymous said...

rwendland - that 5-page precis is absolutely damning.

"Meanwhile, notwithstanding many EU demands, etc, most of the mainland European power generation markets remained closed to non-national companies, which in turn led to the increased corporate power in those markets for a few large utilities, suppliers and contractors. The cost-of-entry into those markets for new players became prohibitive, whereas the UK represented an “open” market to investors, suppliers and contractors."

"Globalisation In One Country"

"Overall, during the period 1985–2000 the UK lost the capability to build and complete major power plants, and that situation persists today."


Nick Drew said...

Thanks for the links, Mr W; shall read with interest

should wait until I've done so ... but, anon.2, I don't think I shall be agreeing with UK lost the capability to build and complete major power plants, and that situation persists today

nukes, maybe, but not CCGTs

anon.1 - never got to grips with the great Thorium enthusiasm (but it's persistent, I'll say that)

what is your alternative to the subsidy-fest? - well, DJK, the pass has been sold for now: but I don't buy either keeping Old Coal going (explained here in para 3) or the CEGB, which would be to forget the lessons of history in favour of the fuzzy impression of a golden age that never existed

if you want a bold single stroke (which, in a few years time, we will actually need), the answer is of course to eliminate all subsidies (which ensures the business case for new non-renewables is certain) and increase the EPS to allow unabated ultra-efficient coal technology, which opens the door to both CCGT and new coal, and of course any new nukes whose developers actually believe their own rhetoric about future gas prices (sorry; being facetious there)

the current CfD thrust is so pernicious because when signed, they will be contracts and hence very difficult to reverse, even by a sovereign govt

Blue Eyes said...

We need to slash barriers to new entry and do green policy with a carbon tax/price rather than by regulation.

You know things are going South when people get wistful about Central Boards.

alan said...

I hope there is a reasonable cancellation clause in the contract.

Advanced fusion is a lot closer than most people realise......
(lockheed martin skunkworks fusion R&D)

Nick Drew said...

Have read the 5-page doc, Mr W: some interesting stuff ...

(a) dunno who that chap is but (b) I think he may be a bit errr, superannuated

(c) his comments on NETA (e.g.), if meant to be understood literally (& given his stance as an expert giving evidence, I think they must - how could he expect his audience to make their own adjustments?) are Just Plain Wrong

that's the sort of thing that (d) always makes me worry about the rest !

Anonymous said...

ND - "never got to grips with the great Thorium enthusiasm"

I think the USP is that the waste products have a relatively short half life - tens of years rather than hundreds of thousands.


rwendland said...

ND, the chap is Martin Blaiklock. The Commons webpage has been changed to say that, correcting a mistake.

My understanding of NETA is surprisingly superficial. I guess the bit he has wrong is "NETA outlawed the long-term contractual relationships" - I cannot see why parties could not come to a loger-term overarching agreement.

Nick Drew said...

correct, Mr W, there is nothing within NETA that remotely outlaws, or even conflicts with, long term agreements

power purchase agreements, or 'PPAs' as they are known, large and small, are to be found all over the UK market - often of 10- or 15-year tenor

if he doesn't know this, I'm not sure what to say about the rest of his views

Agence communication said...

really when i read this great article i find so many ideas on it .... so for this what i can say is just to make this ideas on my mind all the time "" So stick that in your pipe, David Cameron. And not just lots of readies are required, mind - it must be a 40-year deal, and government under-writing for the capital costs, and indemnity for EDF on cost over-runs. And to think all they wanted just a couple of short years ago was a carbon-price floor (already long-since delivered and banked, of course).""