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UK Government Overlooked Lower Costs of Renewables in Hinkley Nuclear Deal

Gerard Wynn's picture

Gerard Wynn is an independent energy finance consultant.

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  • Nov 30, 2017 12:00 pm GMT
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Debate in the House of Commons

Two of the UK’s main public bodies overseeing public spending have now criticised the government’s deal with EDF to support a new nuclear power plant, showing how Britain  (and the United States today?) failed to heed the falling cost of renewables, writes energy finance consultant Gerard Wynn. According to Wynn, the findings should be a warning for other countries planning to build new nuclear power plants. They also raise the question why the UK government has failed to heed similar advice over the past several years. Courtesy Energy and Carbon blog.

The UK Parliament’s Public Accounts Committee (PAC) concludes, in a major new report for the House of Commons that was released on 22 November, that “the economics of nuclear power in the UK have deteriorated” since the decision in 2008 to embark on a new fleet of nuclear power plants, and the decision to proceed with the first new plant, Hinkley Point C (HPC), in 2012.

The HPC project was finally given the green light by the present Prime Minister Teresa May just last year.

The fact is that new nuclear power is at odds with some of the main global trends in power generation today

“Estimated construction costs have increased while alternative low-carbon technologies have become cheaper,” the PAC panel said of the HPC project, which is being built by a consortium in which the French state-owned utility, EDF, has a majority stake. “Over the life of the contract, consumers are left footing the bill and the poorest consumers will be hit hardest.”

Risky and expensive

The PAC report follows a finding by the UK’s National Audit Office(NAO) in June, that HPC was “a risky and expensive project with uncertain strategic and economic benefits”. Both the NAO and PAC have called on the UK government to prepare a Plan B against the risk that EDF ultimately abandons HPC, or demands more cash, given the track record of delays and cost-overruns at similar projects.

The fact is that new nuclear power is at odds with some of the main global trends in power generation today: cheaper renewables (wind and solar), digitalisation (solar, smart grids and demand-side response, not spinning turbines), decentralisation (distributed generation, rather than huge, centralised power plants) and flexibility (where nuclear performs worst, even behind coal).

Delay and/ or cost overruns are real risks at any massive infrastructure project. In the case of HPC, they are entirely certain, given the track record of EDF projects for similar power plants

The Institute for Energy Economics and Financial Analysis (IEEFA) published a report in October arguing that the main lesson from Hinkley Point C is that a major UK new-build nuclear programme now looks untenable, unless developers halve their return expectations. Instead, the government should re-double its efforts to drive alternatives, as outlined in its recently published “Clean Growth Strategy”, including investment in renewables, interconnection, demand response, storage, electric vehicles and energy efficiency.

We also warned that the government should avoid extending a loan guarantee to EDF, as allowed under the HPC deal. If EDF exercised such an option, and then walked away, the government would be boxed into a corner, and potentially an expensive bailout.

In this respect, the PAC report was at odds with our IEEFA briefing, by suggesting that the UK government should consider taking equity stakes in future new-build nuclear projects, to cut the cost of capital. In such an event, if the project failed, the government would then be forced to choose between the lesser of two losses: either to write off its investment, or throw more money to keep it afloat.

Delay and/ or cost overruns are real risks at any massive infrastructure project. In the case of HPC, they are entirely certain, given the track record of EDF projects for similar power plants in China, Finland and France. EDF has already hiked its estimated HPC build cost, by £1.5 billion, to £19.6 billion, this July, less than a year after the final go-ahead.

Further misgivings

There are further lessons from very recent failures in the United States, which the PAC didn’t observe on Wednesday, which give cause for further misgivings.

IEEFA’s briefing last month showed multiple parallels between HPC and the recently failed U.S. nuclear power project at SCANA Corporation’s VC Summer (now shelved), and the last-remaining, struggling, new-build U.S. nuclear power project, at Southern Company’s Vogtle.

Those parallels between U.S. and European new-build nuclear projects included: they all use untested technologies; they have all seen construction delays (of five to nine years so far); they have all seen cost-overruns (of 79% to 250% to date); these delays have caused huge financial distress to the technology vendors Westinghouse-Toshiba and Areva; and internal doubts were voiced by those closest to the projects (including the resignation of EDF Finance Director Thomas Piquemal).

Editor’s Note

Gerard Wynn is an energy finance consultant at IEEFAThis article first appeared on his blog (co-written with Gerard Reid) Energy and Carbon and is republished here with permission.

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Engineer- Poet's picture
Engineer- Poet on Nov 30, 2017

new nuclear power is at odds with some of the main global trends in power generation today:

Which are?

cheaper renewables (wind and solar)

Subsidies and predatory pricing don’t make things cheaper.  They just enrich some at the cost of others.

digitalisation (solar, smart grids and demand-side response, not spinning turbines)

Without the spinning turbines, you MUST have “demand-side response” (consumption constrained to production, meaning users canNOT get power when they need it).  This has both economic and human costs.

decentralisation (distributed generation, rather than huge, centralised power plants)

What’s the value of that, besides ideological?  What does it improve?  A big, centralized power plant stays out of most people’s back yard.  That’s a big positive.  Being in everyone’s face is a negative.

and flexibility (where nuclear performs worst, even behind coal).

Flexibility for what, offsetting the irregular and unreliable production of “renewables” (which are not, since they can’t even power their own production plants)?

Greenism is a romantic ideology which is incompatible with reality.  It will collapse.  The question is whether it will do so before it does irreparable damage to our society and environment.

Nathan Wilson's picture
Nathan Wilson on Nov 30, 2017

Yes, anti-nuclear activists waste no opportunity to tell the world we don’t need nuclear power, but the engineers who keep our power on keep telling policy makers that we do.

To the utility engineers faced with re-building the grid to reduce CO2 emissions, simultaneously adding the additional burden of replacing the 20% of our annual grid energy output that comes from nuclear just comes across as a terrible idea (the US and UK both get about 20% of electricity from nuclear).

Utility experts know that integrating variable renewables to a grid requires flexibility. Renewable advocates will insist that storage and demand response can provide this flexibility, but often forget that they do so at an added cost. In fact, the flexibility as well as the ancillary services that storage vendors boast of are free with dispatchable power, not extra cost items (as Germany has discovered in the case of coal, and NuScale in the case of nuclear, modern dispatchable plants are very flexible).

Granted, fossil gas is a cheaper way to backup variable renewables than coal or nuclear, but that’s not the end of the story. While the US is awash in frac’d gas, in the UK case in particular, gas is becoming more and more of an expensive import, and while coal is the next best choice for economical backup, the UK has a strong commitment to CO2 emissions reduction, which is poorly served by coal.

For decades, activists have argued that we should end use of nuclear energy; in the past they’ve always been proven wrong: the post Three Mile Island slowdown in nuclear construction lead to additional coal use which produced air pollution which has killed millions of people globally already; meanwhile the feared large death toll from nuclear accidents has never materialized. With today’s concern for CO2 emissions reduction, anti-nuclear policies continue to harm the environment.

The only sensible and ethical discussion about nuclear we should be having now is whether we should keep it at 20% (i.e. trust renewables to do the rest) or raise it to 70% (as a hedge against unproven technology), or somewhere in between. In other words, for the UK (who’s nuclear fleet uses a technology which can’t support the plant lifetimes extensions to 80+ years, as can the American fleet), the Hinkley Point expansion (at 7% of UK supply) is not enough; they must build at least 3 times this amount.

Engineer- Poet's picture
Engineer- Poet on Dec 1, 2017

The UK has more than one route open to it to reduce dependence on gas.  An unorthodox one, being investigated by China at the moment, is swimming-pool reactors to generate hot water for district heating.  An unpressurized reactor in a pit can’t lose its coolant and can’t melt down.

If the reactor is operated in boiling mode under 33 feet of water (for gamma shielding), it would actually be under about 15 psi of hydraulic head.  This steam pressure is sufficient to allow vacuum engines to operate pumps for circulating the water, so the system could operate without any external power.

I have no way to profit from this idea, so if it is original to me I hereby place it in the public domain.

Bob Meinetz's picture
Bob Meinetz on Dec 1, 2017

Nukes have zero flexibility for ramping or reserves…

Shash, ramping is what French and German nuclear plants do. All. Day. Long. And reserves? Unlike other non-intermittent source of energy, nuclear plants have fuel for a minimum of eighteen months of operation stored onsite. The “baseload only” myth is one being spread by renewables and natural gas entrepreneurs to guarantee their products a market – nothing more.

That you’re “as pro-nuclear as an engineer can be” is a conclusion with which nuclear engineers I know would take issue. Especially given your comments, worthy of Greenpeace, Sierra Club, Helen Caldicott, Arnie Gundersen, or any of the other anti-science ideologues whose flagship product is fear.

Darius Bentvels's picture
Darius Bentvels on Dec 2, 2017

(wind and solar) … Subsidies and predatory pricing don’t make things cheaper.

They do. In fact it are investments so the mass market created decrease the price greatly as shown e.g. with offshore wind in the North Sea.

Some years ago that offshore wind did cost >$150/MWh.
Last year prices were down towards $60/MWh
This spring the first unsubsidized wind farms (1280MW in total) were contracted.

This December Dutch govt tenders 700MW offshore with the condition that bids which require any guarantee or min. price for produced electricity, will be excluded.
The wind farm has to be operational in 2022. Last year av. Dutch whole sale price was €31/MWh, govt estimated that that price will be €29/MWh in 2035…

In a few years the licenses to operate offshore wind farms may bring substantial income for the countries in NW-Europe!

All thanks to the improvements of wind turbines:
– Size is increasing towards 20MW (largest in production is now 9.5MW)
– With size CF are increasing towards >60%
– Far less maintenance and repair, and much less wear. So longer operational periods surpassing 30years greatly.

Similar developments are ongoing with solar and onshore wind.

… decentralisation … What does it improve?

It improves reliability significant, as Germany experienced in the 2003-2010 period when wind & sun became significant.
USA electricity supply can use significant reliability improvements as it’s now >10times worse than that of Germany. Just compare the SAIDI figures and realize that USA excludes outages due to extreme weather conditions while Germany doesn’t.

Thorkil Soee's picture
Thorkil Soee on Dec 2, 2017

Germany tries to go green.
But it is rather difficult to balance the grid.
Germany is rich in money, manpower and determination.
See about the famous Energiewende on http://wp.me/p1RKWc-11F

Nathan Wilson's picture
Nathan Wilson on Dec 2, 2017

… swimming-pool reactors to generate hot water for district heating.

The Canadian nuclear agency has studied a 10 MWth reactor called the Slowpoke SES-10 for that purpose, and has deployed a similar pool-type research reactor with 20 kW output.

Given that nuclear plants with electrical output have gravitated toward larger (1.2 GW and up) sizes, I’m skeptical that the greater simplicity of these reactors is enough to outweigh the dis-economy of small scale.

For any distribution problem, the “last mile” is the biggest cost issue (for grid power, fiber optic data, or hot water). Once the district heat loads have been aggregated up to 10 MW, transport cost and losses get pretty low, so further aggregation to hundreds of MW probably viable.

Additionally, most everyone who needs heat also needs electricity, and there is an efficiency advantage to combining them, so co-generation of heat and power makes sense.

Steam turbines, which are used to convert heat into mechanical power to turn a generator, normally discharge waste heat at around 40C. If you bypass part of the steam around the final turbine stages, you can make the waste heat come out at, say 100C instead (e.g. for district heat or desalinization). The cost is less electrical power output, but you only lose about a Watt of electrical power for each 10 Watts of usable heat output. This is much better than using the electricity to power heat-pumps, which only provide about 3 Watts of heat for each Watt of electricity. The heat pump has the further disadvantage that on the coldest days, the heat pump is supplemented with resistance heaters, powered by 30% efficient peaking power plants, whereas the district heat network is supplemented by 99% efficient boilers (or waste heat from peaking power plants).

I’m hoping a 600 MWe NuScale plant will be adopted for combined-heat-and-power. Perhaps in wintertime it would switch to 540 MWe and 600 MW of heat.

Leo Klisch's picture
Leo Klisch on Dec 2, 2017

It could be even a tougher sell in large cities that can do efficient district heating. Much easier to locate nuclear plants as remotely from big cities as possible due to political and economic reasons, i.e economically depressed rural areas.

Engineer- Poet's picture
Engineer- Poet on Dec 4, 2017

I’m hoping a 600 MWe NuScale plant will be adopted for combined-heat-and-power.

I thought your position looked familiar, and so it was.

Nathan Wilson's picture
Nathan Wilson on Dec 5, 2017

Much easier to locate nuclear plants as remotely…

A modern grid architecture could have both:
– large standalone plants hanging on the long-distance grid (which can be far from big cities).
– smaller (distributed) SMR plants that are close to demand and the workforce (there is no pollution or risk of explosions like with fossil fuel, and no need for huge land area like renewables).

But fat insulated pipes can allow district heat networks to span tens of miles, so plant citing needn’t be too difficult.

Nathan Wilson's picture
Nathan Wilson on Dec 12, 2017

On second thought, China has announced a new program to build a heat-only reactor to replace coal in district heat networks of northern China. They have opted for a larger 400 MWth size, about the same power as 3 NuScale modules.

Combining a number of such plants in the same service area as one large nuclear electric plant (instead of replacing both with a set of small combined-heat-and-power SMR plants) is more likely to work in China, since their high build rate allows big reactors make much cheaper power than SMRs. Also, the heat-only plant should suffer less of a penalty for small scale, since there are less plant components to penalize.

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