Nuclear fuel: an important development

Yesterday I met a senior DESNZ type who was a bit miffed that there'd been very little coverage of this announcement from January -  

UK invests in high-tech nuclear fuel to push Putin out of global energy market:   £300 million UK investment to support domestic production of fuel required to power next-generation nuclear reactors. First European country to launch high-assay low enriched uranium (HALEU) programme ... Investment will end Russia’s reign as the only commercial producer of HALEU.   The UK will become the first country in Europe to launch a high-tech HALEU nuclear fuel programme, strengthening supply for new nuclear projects and driving Putin further out of global energy markets.   

That's the DESNZ press release header, incidentally.  Setting aside the Putin-baiting, tabloid-style punchline - they really were trying for media coverage, but that stuff never works - this is one of those very rare beasts, an actually strategic government measure.  

Well, I certainly missed this in Jan.  On further investigation, it turns out the French are doing something similar, and the USA started last year.  Over the past two years we've had the occasional BTL comment on the need for this.  Quite refreshing when governments take logical actions, even if belatedly.  

Now, where's my shopping list ..?

ND 

Centrica: as predicted, more assets on the block

Back to the day job, eh?   In September we wrote this:

And so it comes to pass, according to the WSJ, which reports that Centrica has put its fair-sized global LNG portfolio on the block.  It further reckons that the company "may actually need to pay any potential buyer to take the LNG business off its hands, underscoring the uncertain outlook for gas prices internationally".

Oo-er.  That won't be what Centrica has in mind.  Can we form an independent view on the sales value?

Not readily.  Firstly, in its published reports Centrica wraps up LNG in the results of its trading division, a traditional smokescreen behind which all manner of things can easily be hidden.  Next, it only publishes sketchy info on the individual deals that comprise the portfolio (commercial confidentiality: fair enough).  

Most importantly, however, Centrica very explicitly declines to offer a mark-to-market valuation for its big long-term LNG contracts (page 108 of the 2019 AR), of which it has several.  Its *reasoning* for this omission is that there are as yet no transparent long-term forward curves for global LNG.  That can be argued either way**, so their case can indeed be made.  BUT - the trouble is this excuse has frequently been used disingenuously, nay, culpably, by energy companies in a similar stew to skate lightly over eye-wateringly large negatives (in the billions, in some cases) that, although nobody could calibrate them accurately, are known by everyone in the industry to be very much on the red side of the ledger.  And here?  Who knows: I don't.  But it means that literally nowhere in the accounts does a full valuation lurk - even an estimate, even bundled with other stuff.  Institutional shareholders could easily take fright at that, when they consider what lay behind the scenes in other such cases in the past.

If prospective bidders all put a negative value on the LNG portfolio, I can't imagine a deal being struck.  But what other stand-alone assets does Centrica have to sell next?  And - are they due for a nasty downside surprise in the forthcoming Energy White Paper, which is set to pronounce on the fate of future UK large nukes, probably impacting on the value of Centrica's fateful 20% holding in EDF's UK nuke portfolio.  All rather uncomfortable.

 ND 

___________ 

** I'd argue that a pretty good forward value could be put on the LNG deals out three years.  Further, though I'm not an accountant, doesn't the conservatism principle require that forseeable losses should promptly be disclosed? 

"Energy is Big and Sexy" - BBC. Well, Yes

As you will imagine I have been idly watching the Beeb's Powering Britain, not in the hope of learning much, but rather to see how prime time TV covers - or dodges - some meaty issues.  Needless to say, for the most part the four episodes have been lavishly-photographed tourist guides, our breathless reporter always being gushingly overwhelmed by the scale and sheer sexiness of the whole thing.  Big Engineering always has that effect - if you steer people away from dirty, leaky old kit and fix their gaze firmly on the shiny new stuff.  Helicopter rides are generally quite fun, too (on a day when the weather's ok ...)

All in all, a massive PR opportunity for the firms involved (SSE, Drax, Spirit and EDF) which naturally they've seized with both hands and immense gratitude.  Can't have done the whole industry any harm, either - give folks an idea of the scale of what it all means; romance of engineering & commerce, etc.  Indeed, if a similar series had been run on commercial TV or a newspaper, you'd assume it was paid-for advertorial stuff.   

And not a Green in sight!   Dear me no - we're all quite green enough without letting Swampy or Greta come on with their whingeing and wimpering.

Controversy has barely been acknowledged: just the once, really, over Drax.  The SSE episode was about the world's biggest offshore windfarm and its onshore receiving station - including the merest hint (which probably passed unnoticed to most) about what's fast becoming a cause célèbre, the culpably chaotic business of digging big cable corridors, generally through highly sensitive coastal geography & habitats etc, with no obvious sign of planning / coordination on the part of National Grid.  Otherwise, it was just 100% jaw-dropping Big Kit on display in breathtaking marine vistas.  And no mention of what happens when there's no wind? ...

The Spirit episode featured their huge Morecambe Bay gasfield and its onshore gas processing plant.  (If you haven't heard of Spirit, it is a Centrica spin-off, one of the many new 'end-of-field-life' specialist O&G producers who manage upstream assets when development risk is long since past and the original developers - in this case British Gas - have better uses for their capital.)   Big offshore installations are pretty mind-blowing, so no shortage of gawping to be done here.  What controversy might have been expected?  Well, there are some people for whom even mention of fossil fuels in any other sentence than "we are closing this thing down as fast as humanly possible, ideally tomorrow morning".  But the Spirit PR team had put clever words into the mouth of the plant manager, who simply said that we'll need gas for a few more years on the path to Net Zero Carbon (tacitly answering part of the question left by the SSE programme), and that they were there to do their bit.  The Beeb felt no need to qualify that with any sort of counterpoint voice-over.  

The last episode was on EDF's nukes at Heysham, and the nuclear fuel plant at Springfields down the road.  They didn't explicitly use it to answer another part of the unasked SSE / wind question.  Obviously, they could have filled the entire slot with nothing but controversy (see, for example, the Public Accounts Committee report published today); so they ran with more-or-less none whatsoever.  Fair play, it had to be that way, really: though arguably they might have mentioned the cracks in one of the boilers and some of the fuel bricks ...  So it ended up quite pedestrian to my view.  I was, however, entranced to hear engineers talking in "thousandths of an inch" (it was the same in the Drax episode) which jars a little.  Then again, I imagine they run the plant on Windows 98 or some such.

So what about Drax, then?  Yet again, they didn't use it to answer the SSE / wind question (- it actually contributes to both parts, in fact); but, yes, they really couldn't - and they didn't - fail to mention that burning trees to generate electricity is controversial.  Which it bloody is - an outright scandal, in fact, compounded by the risible official "green" carbon-accounting convention which allows Drax to ignore CO2 emitted at the point of combustion, and hence to qualify for 9-figure sums in annual "renewables" subsidies despite emitting more CO2 than in the days when it was burning coal (and vastly more than if the same electricity was generated instead by gas) with the distant prospect of maybe that CO2 being maybe absorbed by replacement trees (maybe) 50-100 years hence (maybe).

They've got me started now.

Anyhow, all four episodes are labelled "Series 1" so perhaps they'll follow up with more later.  There's no shortage of energy companies with big PR budgets, interesting stories to tell, and photogenic kit to display.  One thing we may predict: there will be a lot of Greens who are furious at the easy, glossy ride the Beeb has given the industry in these programmes, and will be pressing to get more *balance* into any subsequent series.

ND

Centrica: Decline of an Old Friend

 Picture ... thousand words ... etc

I've always had a soft spot for Centrica, ever since they got off on exactly the right foot back in the 1990s when British Gas was triumphantly de-merged.  Maybe it's to do with the mighty relief of the break-up of that ghastly, brutal monopoly.   Newly-liberated Centrica did an awful lot right; and as the years progressed, they were clear-sighted, objective and flexible enough to recalibrate their strategies in the face of changing market circumstances (including cutting their losses decisively when called for).  Not least, they've staved off being gobbled up.

You'll find we've written about them, on and off, for years - and not always in complimentary tones because they haven't been beyond reproach at all.  Worst of all has been their nuclear gamble, when they got hopelessly carried away by their stonking coup of buying a heap of electricity from the old British Energy at the absolute bottom of the market, when Gordon Brown (remember him ...) was engineering a bail-out.  That was very good business (one of several such opportunistic bottom-of-the-market coups - almost as good as John Browne / BP in 1998), but it wasn't to last.  Participating as a more-or-less passive partner (OK, patsy) in EDF's outright purchase of BE in 2009 was crass, and they've regretted it from the day they agreed it, probably even before the ink was dry.  And they've never found a way of severing the ties, despite committing to do so by the end of this year.

Still, it's sad to see them the way they are now, cancellation of dividend and all - even if they are by no means alone among broadly competent energy companies out of favour right now.  Earlier in the year we said there needed to be some meaningful asset sales and that remains the case, IMHO.  But it seems we have to wait for developments on the nuclear front ... 

Centrica still plans to exit both E&P and Nuclear, but divestment programmes have been paused until the financial and commodity markets have settled.  

Yeah, right - doesn't sound much like any time soon.  Which must mean selling something more conventional than a part-share in EDF's mouldering, cracking-up UK nukes (with the associated energy-sapping politics that EDF wages all the time against HMG).  

Still, they remain a competent lot.  How much of that former clear-sightedness and objectivity do they retain?  The sale of Direct Energy (their big North American supply company) is a start, and must be a wrench: they bought it in 2000 as part of their Enron wannabe strategy, and grew it to #2 position in North America.  So maybe they really are up for it.

ND

Centrica's Woes and What They Betoken

From time to time we pass comment on Centrica - partly because energy is one of our themes; and partly because from inception as an Enron-wannabe spin-off out of the old monopoly British Gas, it's been an interesting company on an interesting 'journey' (as we're obliged to say these days).  

You can click on the link below to see our sporadic past comments.  Not all of them have been favourable, because Centrica went through a misguided phase of loud special-pleading for subsidies, which didn't endear them to us - or indeed to the government.  They've taken a few outright false steps over the years, notable among which were the move into "we-can-do-everything" banking & telecomms; and the big stake they took in British Energy nukes alongside EDF.  But they've done clever stuff too: intelligent re-calibration of commercial policy when things weren't working out as intended (these days we must call this 'pivoting'); and a series of adroit asset acquisitions (most notably gas-fired power stations and long-term electricity supply contracts) when prices were rock-bottom.  Their technical skills in the marketplace have always been pretty fair.

All in all, to have stayed independent for nearly 25 years is no mean achievement.

But today they have serious problems to address.  Mrs May's inane price cap has weakened the entire industry, as was widely foreseen; and for a couple of years now insider commentary has not been kind about Centrica's strategic decsion-making, once so laudable.  Share price has reflected these things. They are 're-basing the dividend' and the top man is quitting. 

There doesn't need to be any sentiment in this: but I feel uneasy when good companies can't find a way through.  The residential gas & electricity supply business is of course going through a shocking phase.  May's cap; the plethora of minnows that should never have been given licences (Ofgem's grievous fault) and have been going under at a rate; big players like RWE (Innogy/NPower) and SSE trying to exit ... this is a mess.  And against a backdrop for the entire energy sector of trying to get to grips with whatever the 'decarbonised' future will bring.

Civilisation is energy-intensive, as the great James Lovelock reminds us (he's just turned 100) - and society needs capable energy companies.  In civilised countries, energy should be like water and food: so well managed that the miracle of abundance goes almost unnoticed.  Darwinian processes are fine: but there's no pleasure in seeing a big healthy beast fall sick.  Yes; things can go very wrong if the energy market isn't working well.

ND  

Nuclear Winter

I am on record as musing that there will be no more nukes built in the UK - including, just to make it interesting, Hinkley Point C.  News that Moorside has fallen by the way (*until someone else steps into Toshiba's shoes*, yeah, right) is clearly grist to that mill.  

However, the government's arithmetic on electrification of just about everything forces them down the nuclear road.  So all attention will now be on what they will come up with for the remaining "prospects" (Wylfa, Sizewell, Bradwell) by way of a financial package.  The counter to my negative hypothesis is of course that with enough government money you can indeed suspend the laws of gravity - for a time. 

But one has to suppose the developers will insist it is up-front money next time.  Which brings us back to Hinkley.  EDF has certainly been beavering away - the civil engineering is moving along purposefully.  But, famously, although the French screwed a handsome electricity price out of George Osborne, they don't get to trouser it until the beast is up and running.  And never mind all that dredging, earthmoving and concrete: construction of the Hinkley reactors is nowhere near being started. 

Hinkley Point C: mud, concrete, but not much else

In short, the sunk costs of Hinkley, whilst by now probably a couple of billion (they'd sunk nearly one billion before they started any work at all) would not be ruinous for EDF if they decided it wasn't worth the candle.  Obviously, Plan B would be to steam round to our resolute Prime Minister and demand some cash, threatening that Plan C would be to walk away: seeing how *helpful* she was back in 2016, when Hollande wagged his finger at her.

Still, it's not clear this would succeed a second time, not least because unless they get motoring, the chance to browbeat May could disappear forever.

ND

Nuclear Spring?

This week promises to be quite interesting on the nukes front.  We are promised announcements (belated) on the government's Small Modular Reactor programme, and things have been looking up a bit on the Big Nukes front, too. 

We've looked at SMRs before.  The potential is certainly there, on paper - before the prospect is dashed by the NIMBY reaction, city by city, where they need to be installed in order to secure one of the primary benefits (= highly efficient district heating).  Still, Blair thought the British Public wouldn't stand for any type of nuclear revival back in 2005, and forbad any mention of it before the GE of that year.  Plenty of people, including hereabouts, bitterly resent the Hinkley deal - but mostly on economic grounds (and warm traditional feelings towards the French, of course).  It doesn't seem to be a vote-loser, though.  But that maybe because it is on a brownfield site in a remote Somerset field ...

Needless to say, the would-be developers just want public money to get started.  They'll probably get a bit, actually.

On that large-nuke front, the players who were making UK waves five years ago have more or less melted into the background (excepting EDF, of course) and, unsurprisingly, Centrica would like to be out altogether.  But the government seems to have found replacements for them - Chinese and Koreans - with revived interest in the Horizon and NuGen projects.  On paper (again) you could argue there is still 18 GW of capacity under consideration - that figure includes Hinkley, which is not actually being built yet, they are simply being rather flamboyant in their preliminary civil engineering (the photo they always show is just the concrete-mixing plant).

A week from now we may have a clearer picture.

ND 

Nuclear: The Liars Have Fessed Up At Last

"Nuclear power will bring energy and financial benefits to the UK. The Government confirms that it is not continuing the ‘no public subsidy policy’ of the previous administration"

Department of Energy & Climate Change     First published: 21 October 2015

Well glory be - that second sentence, eh?   Either someone's conscience is pricking - yeah, OK, silly - or the submission to the EC competition authorities requires openness on this point.  All those years of sophistry ... 

But then they go and spoil it all with the first sentence!

ND 

That Superb EC Hinkley Opinion

A week that started with the release of the EC's excellent Hinkley document went from strength to strength with Tim Yeo's deselection.  Huhne, McShane, Yeo, Hinkley - the gods really are sweeping up.  Even the loss to France in Paris on Sunday doesn't take the shine off this.

So - to business.  As noted before, the EC's 70-pager on the State Aid aspects of the intended Hinkley nuclear power contract was sent in mid December, meaning that they were absolutely poised for the task when they received HMG's notification at the end of October.  Indeed, they must almost certainly have got their thinking in order beforehand, given the depth and quality of the argumentation, and the inclusion of specially-commissioned modelling by Imperial College  (no hope of EDF sponsoring any fellowships for them!)  Nobody dashes this stuff off in a month.

So - the first point for HMG and L'équipe de France du nucléaire is that this is no pro forma exercise as Michael Fallon, whistling frantically in the dark, has tried to portray it.  Any hopes that it will end in a cheery verdict of "oh, all right then" have been dashed on the rocks of the hard-as-granite reasoning that characterises the entire opinion.  I am no lawyer, but I know a piece of knock-down logic when I read it.

No, the authors of this work will not be talked out of their positions,  which leads to the second conclusion:  only a political fix will get a ruling HMG and EDF can live with.  Not that this is out of the question - hey, this is the EC we're talking about - but Cameron and 'Helmet' Hollande will need to cash in a mighty stack of political chips to get it.  Now Cameron has indeed scored one significant energy goal in the corridors of Brussels this year - the overturning of the 'let's-regulate-shale-out-of-existence' bandwagon - but I can't see Hinkley being quite so easy.


As to the text, if you're interested there is no substitute for reading it.  The DTel had a worthy crack at summarising some key points on the day it was published - hats off to them, but overall the commentary has, as ever, been thin.  (70 heavyweight pages is, after all, a bit longer than the press releases which is all journos seem to be able to digest these days.)   Our friend Mr Wendland dug out one prize truffle (in the comments here) and I'll offer a couple more. 

"the Commission understands that the EPR technology power plants in Flamanville and Olkiluoto have been undertaken without any support. The Commission cannot at this stage explain why the [Hinkley] project should be fundamentally different from the two EPR plants currently being constructed."

"it would appear to be impossible to determine at this stage whether [EDF / the project] will be overcompensated or not. The terms of the Investment Contract communicated to the Commission do not contain a correction mechanism that would take account of the effect of developments after the end of the CfD in order to ensure that no overcompensation has taken place overall."

"[the contract] does not appear to be aimed at compensating a provider for the obligation to incur higher costs than it would otherwise incur. To the contrary, the measure appears to be aimed at providing incentives for the provider to invest in the project"

Failing a political fix, the most comfort the Hinkley crew can take is that the EC has pointed out what changes to the contract would be needed to have a chance of satisfying the law.   Funnily enough, I'd say EDF could afford to takes those hits and carry on with the project, sadder, wiser and less cosseted.  That's what it should do  Whether it would, I cannot guess.

ND

Saved by the European Commission ? Looks Like It !

A few weeks ago we opined that it may be necessary to look to the EC for our salvation in the matter of the government's enthusiasm for lining EDF's palm with gold for 35 years via its intended exorbitantly-priced electricity contract for the planned Hinkley C nuclear power station.

And lo!  the EC has laboured - extremely quickly (although only released on Friday it's dated mid December) - and brought forth a devastating 70-page masterpiece, damning the dirty deed as illicit state aid.  Only a preliminary opinion mind - but what an opinion !  Too late to offer a summary now, so more next week.

After the years of reading the desperate, mindless pulp and sophistry issuing from DECC and its predecessors every since Miliband's 2008 Energy Act, it is a true pleasure to read such cogent reasoning and plain-speaking.  Here - have a read yourself. 

And a good weekend !  This has started mine brilliantly:   the radioactive turd that is EDF ushered closer to the WC.  And there's another French team to be roughed up this afternoon  ...  Swing Lo !

ND

Nuclear Stand-off Hotting Up

The business pages of the Telegraph are a favourite platform for commercial vested interests.  De Rivaz of EDF has used them before to 'frame' the context of the farcical bluffing contest being conducted over what outrageous guaranteed price (and other ultra-valuable concessions) he can screw out of HMG for getting started on just the first of his 4 'promised' new UK nukes.

And here he is again, the little Gallic tease - 'framing' for all he is worth.  We must assume the 'negotiations' are at a critical juncture. 

"Almost all of the necessary pieces are in place. Our new build project at Hinkley Point is 'shovel ready' and only a few crucial milestones remain to be passed. ... Yet I am still asked – should the UK do it? And if so, do we have the industrial capacity and expertise to pull [it] off?"   

Careful with the 'we', monsieur.

"Just two more pieces need to be put in place. First, we await a final planning decision."  

I think you'll find that's a given, matey: this lot have long since bent over for the shafting.  Or do you perhaps want some sort of new environmental indemnity thrown in for good measure ...?

"Secondly, and, most crucially, there must be a balanced, stable and durable agreement on the price of the electricity generated. To be durable, this price needs to be fair and balanced for both our company and the Government."

 'The Government': how sweet.  What about the people ?!

"I believe we can reach an agreement with the Government which will transparently display the economic viability of new nuclear, and which can underpin a robust business case for investors. EDF is now closer than ever to being able to make a decision."

Ah yes, economic viability.  And while we are at it, tell us again will you, about the security of supply for all that uranium you get from, errrr, Niger.  Surely, a great age of eco-satire is upon us.

ND 

The Farce that is Energy Policy

So the Energy Bill is published, the lights will stay on, everything's gonna be alright ... and then EDF announce they are "delaying" once again their decision on the first of their 'promised' 4 new UK nukes.

Well, there's a surprise.  The timing of the final investment decision for Hinckley C has been 'by the end of the year' annually since 2009: but each year-end comes and goes.  (I was present in the room when the man from EDF assured then-energy minister Charles Hendry to his face that 2011 was the absolute deadline for making the decision.)

Of course we've also recently had a positive development from the same bunch of wasters: they are extending the lives of 2 existing UK nukes - but everyone knew that anyway and it was already factored into the planners' forecasts.  Still, it must have given the EDF PR people an amusing hour or two of grid-planning:  better not announce the delay until after the Bill ... but the Bill keeps slipping, and we've a Contractor's option to decide on ... well, announce the extensions before the delay, in any case ...

Imagine the long faces at the next 'negotiating' session between EDF and DECC, where the size of their guaranteed price for Hinckley's electricity is being thrashed out.  Somehow, with much sucking on teeth, a Frenchman is going to find the courage to let it be understood that the price has just gone up...

ND 

New Nukes, allegedly!

Get well soon Mr Drew.

Sadly for today regular readers will have to put up with my interpretation of events in the world of energy which is somewhat slightly less informed and slightly more strident than our regular poster, Nick Drew.

But the Government is very over-excited today that Horizon, a German vehicle to build nuclear power stations has actually been sold to Hitachi of Japan. They are even paying a £1 billion for the privilege and have signed up Babcocks and Rolls-Royce as partners.

With the UK energy policy in a complete mess, this could be the way out the Government was looking for. What they are not answering though is the really big question - what is the subsidy being bunged at the Japanese?

Now Ed Davey, the rubbish energy minister (he is a sort of living embodiment of a reverse waste to energy process), is happy to tell the ill-informed hacks speaking to him that there is no taxpayer subsidy. Clearly, this is bullshit. What there is to be is an undisclosed massive guarantee around energy pricing which is in effect a tax on all energy users - so that would be everyone then.

Now, Hitachi, desperate as they are given the travails of nuclear in their home market post-Fukushima, are not going to have signed up to this without knowing what their bung is to be. But when will we find out?

The longer we are not told, the worse the news is likely to be. Somehow I doubt the subsidy to shale gas producers would be as big and also the energy would be cheaper, as we can see in the US....