Monday 10 February 2020

Centrica: Tough Times, Hanging In

Centrica is a company we perennially find interesting, for a couple of reasons.  They've successfully remained UK-owned, which many of their energy-sector peers haven't;  their strategies have generally been noteworthy, indeed often quite smart - which kinda relates to the first point;  and it's rarely been plain sailing for them - which comes with the territory.

They're yet again at an awkward juncture,  needing a new CEO and some substantial asset sales, both to manage their debt and, frankly, to exit from a couple of increasingly difficult sectors - upstream oil & gas production and nuclear power, neither of which are flavour of the month for investors.

Nuclear?  Yes, it's easy to forget they took a 20% stake in the old British Energy nuke fleet from EDF back in 2009, which didn't look so clever a short while later - so much so, they've never been able to shift it.  Why did they do it?  A couple of ostensible reasons: it was a package deal in which they offloaded some unwanted Belgian assets; and they thought of the nuclear electricity as both green(ish) and "a hedge against the vagaries of global commodity prices".  There was another (unstated) reason, too: in the 2000's they had very fairly made a bit of a name for opportunistically picking up big assets at distressed prices - several gas-fired power plants, a big gas storage facility and a huge tranche of electricity from BE - judging the bottom of the market very adroitly.  By 2009 they were just too pleased with themselves, and thought they could do no wrong.

Seems a long time ago now.  But they've stuck to their core strategy - excelling (well, doing OK) at retail energy as that sector gets more and more difficult, on a last-man-standing thesis.  Seeing weak hands all around them amongst both the Big 6 and the plethora of failing minnows we've talked about recently, they probably still reckon they made the correct bet there.  Even the burgeoning Ovos and Octopuses of this world aren't finding everything quite as straightforward as they hoped.  With the threat of asset-seizure under a Labour Government gone, and nobody likely to object about an energy retailer doing a steady job (Big-6 or not), Centrica will probably stick with this.

They still need those asset sales, though.  Nuclear is a mug's game - particularly being strapped to EDF, whom we'll look at in another post.



andrew said...

I think there was an interesting piece in the last private eye on EDF's problems and how they are trying to offload all the risk of hinckley point onto the govt (bj having none of it) and also possibly pulling the plug on Sizewell.

(and the french govt putting off approval of the new nuke stations until after the next presidential election).

indeed it is clear that nukes - if you must - must be a govt game.

On a slightly different topic there was also an article elsewhere on making solar power at night by catching the thermal emissions from the ground as the air is cooler than the ground.

Anonymous said...

Somehow or other, nuclear has to be made profitable. Its big problem is that almost all the costs come during construction, so you are spending 70 years of outlay before seeing any income.

Wind farms look cheap at first, but have to be reconstructed after a couple of decades. And their output is irregular.

As for "solar power at night", the ground isn't warm in January when you need electricity most (in Britain). Solar power is a waste of money in Britain -- it can perhaps be useful in Africa.

Possibly the economics for Small Modular Reactors will be better than for large power stations such as Hinckley.

Meanwhile, gas works well.

Don Cox

Nessimmersion said...

What proportion of the nuclear costs are for regulatory compliance, i.e. small modular reactors could be run with the same compliance regime as the subs. There is a 50+year track record indicating adequacy.
In terms of "safety" I have heard that wind turbines kill more people per Kw than reliables, during construction maintenance.

GridBot said...


You might be inadvertently spreading fake news with respect to death rates per TWh of energy produced:*4GBxvEWJr4TTa6V1605hVA.jpeg

Or you have an axe to grind about un-reliables?

Matt said...

@ GridBot

What's the context around those figures? Is the coal one made up numbers for people dying of smog (for example)?

rwendland said...

Don, the trouble with the "the [possible improved] economics for Small Modular Reactors" is that the Rolls Royce SMR (aka "UK SMR") that we would get isn't really an SMR, but a small 440 MWe PWR with shiny funky exterior cladding. It isn't how SMRs were envisaged: prepare the site, 10-20 lorries arrive, bolt the modules together in a few weeks and you are a ready to start testing a ~50MWe reactor. Nor is it anything like Rolls Royce submarine reactors (which use bomb-grade HEU as fuel so a non-starter for civilian SMR).

If you take a look at the diagram of the internals on page 2 of the link below, it looks just like a 3-loop PWR. It's big claim is that it is "close-coupled", but I see welded pipes joining everything together just like a PWR.

That 440 MWe "UK SMR" is a lot more more powerful than all the Magnox reactors we had except the last design at Wylfa. And not that much smaller than our currently operating AGR reactors which are around 650MWe. (Remember Magnox and AGR stations had/have 2 reactors.) So the "small" argument is weak.

I cannot see anything that would make staffing smaller than for a regular PWR, eg the same 18-24 month refueling interval. The only economic win is they have a target of building it in 1.5 years (+ site prep time), so could have a cost-of-capital saving. However it goes against the previous economic wisdom of going bigger so similar staffing costs work out lower per MWh, which probably negates the cost-of-capital saving.

The document below says they estimate costs as "£75/MWh for the initial plant and levels of around £60-70/MWh for mature implementations", which is about the same as the Chinese Hualong One's proposed for Bradwell, but with higher risk. And these costs probably don't include the development costs Rolls Royce wants the govt to stump up for.

Not convinced so far. I'd like to understand what the secondary containment is, as it is not the traditional concrete dome, and they don't really discuss that in the docs I've seen, except to say the shiny exterior is a "hazard shield".

Here is the doc I refer to above:

Nick Drew said...

Possibly an even bigger problem is the NIMBY / political angle

the government knows the location of the best 50 sites for SMRs in the UK, but they are all very near, or relatively near towns (rather than with big nukes, out on the coast in relatively rural areas, except Hartlepool). That's the whole point of SMRs

And so, this list is Secret!

Anonymous said...

You don't need nuclear "relatively near towns". You can have them as far away as you want as long as you swallow the transmission losses.

We have an interconnect that brings nuclear from other countries after all.

Why would you claim to be able to site them in someone's backyard? Seems an odd sales point

Nick Drew said...

OK anon, but you start to lose the economic benefits - at which point there is no point

to recap: the point about SMRs is to avoid construction fifty miles from anywhere; avoid having to bus in (and accommodate on site) a massive workforce; having a brownfield site for the plant; mass-producing the modules in a factory where all the skills are concentrated; and sticking the modules on a truck ...

these are the gains (i.e. huge cost reductions) of modular construction that transformed the offshore oil & gas industry. It is fair to say that without them, there would have been no more offshore construction after the Piper Alpha disaster, and the greatly increased safety-related costs that followed

rwendland said...

ND, I don't think that list of 50 would be much good for the Rolls Royce SMR. At 1.3GW thermal it will need serious cooling, like seawater or a cooling tower - the publicity image has it right by the sea. And at 440 MWe it would need a real grid connection like an old Magnox station, whereas a single real SMR at ~50MWe could hook into the regional distribution network.

Not to mention the security requirement. Small SMRs are hoping going underground or in a small tough building means they don't need cops with machine-guns permanently there. Not so Rolls Royce SMR.

GridBot said...

@ Matt, good question.

Disclosure - I don't know for sure. It is after all a graph that looks like it came from a kindergarten group.

However, the full article implies that negative externalities are factored in, as well as death from coal mining/hydrocarbon exploration activities, the data would include death from coal pollution and death from nuclear incidents.

full article:

And this is where the source data came from (comes under the heading of TLDR)

The key point however - renewable sources of energy, and nuclear energy, are generally quite safe. Safety - is not an argument that should be used against either. reliability and cost on the other hand being different arguments all together.


rwendland said...

I agree that in terms of direct and close indirect injuries and deaths nuclear has been very safe. But there is also safety to property and homes to consider, and the costs of the 2 large power station accidents.

After Fukushima about 150,000 people were long-term evacuated, and there are quite large estimates of early deaths of the elderly from that disruption. You can argue that the evacuation was excessive, but I bet if such an accident happened in the UK we'd evacuate even more, or there would be a self-evacuation (unless wind blew immediately off-shore). I don't know what the latest cost estimate of Fukushima is, but in 2016 the Japanese government estimated $187 billion, not to mention the capital write-off from the premature closure of most of their existing nuclear fleet. If Chernobyl was half that, we have around $300 billion from the two accidents. This accident cost is not usually factored into the average costs of nuclear.

Remember about 1% of power reactors ever built in the world have failed catastrophically. For me that is way too high, and we should let the current reactor numbers dwindle away through 40 year end-of-life (generally original design life) until we have a much better and cheaper technology like fusion.

Matt said...

@ Gridbot

Thanks for the link. Even though I accept that estimating deaths due to specific causes is difficult, the links provided mostly reference unreliable sources that have specific agendas (like the WHO).

In any case, from it seems the Lancet published figures that estimate 231 deaths per GW-year from coal globally.

If my maths is correct, that'd be ~27 deaths per TWh. Now that's still quite high but it's not as bad as the kids graph makes out.

Anonymous said...


Having being involved in making safety systems for nuclear power, the issue of safety is paramount in everyone's mind. And living close to a unit with our systems in doesn't worry me as I know the effort that has been put in.

Fusion? Won't be here long enough to see it and neither will my grandchildren.

The "potential" deaths argument looks like it is being skewed. For example, you could argue that the main risk of future "potential" deaths are antibiotics as their widespread use (or misuse) contributes to a weakening of resistance. Should we therefore allow the use of antibiotics to wither or seek innovation and improvement.