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Hinkley Point C gets go ahead but will it shore up looming UK base-load capacity concerns?

Issues affecting electricity generators and the energy market as a whole.

19th September 2016

After more than 10 years of deliberation and last minute post-Brexit Tory Administration U-Turn, following EDF board go ahead approval in July, it's all systems go for new nuclear in the UK. But is HPC using the wrong technology, and set to deliver energy too late to solve imminent capacity squeeze and at the wrong price? Dunstan Thomas Energy investigates.

It is a decision that has definitely divided the energy world. When Hinkley Point C (HPC) is completed late in 2025 (at the earliest) it will be able to generate 3.2GW, some 7% of UK's energy demand, equivalent to supplying five million homes with all their power needs.

Sensibly, Mrs Theresa May had a good look at the deal and tweaked it before green-lighting it in the last few days. Essentially the key change is that its builder, eventual operator and majority shareholder of the new 18bn plant- EDF- cannot sell any part of its controlling stake in the plant without prior approval by the UK Government. To support this, a new legal framework for future foreign investment in the UK's critical infrastructure, including nuclear energy plants, is being put in place and will apply to HPC.

The natural question is why has this safeguard been applied so late in the day? The answer may lie in Mrs May's reported national security concerns associated with China General Nuclear Power Corporation's (CGN) 33.5% stake in HPC and, potentially, future EDF-led new nuclear developments at Bradwell in Essex and Sizewell in Suffolk.

Her concerns seem well-founded if you look at August's very public charge of nuclear espionage which has been laid at the door of CGN by the US Government. In a 17-page indictment issued last month, the US Government said nuclear engineer Allen Ho, employed by CGN, and the company itself had unlawfully conspired to develop nuclear material in China without US approval and "with the intent to secure an advantage to the People's Republic of China".

It is in the realms of speculation whether Theresa May received assurances that nothing like this would happen on UK soil from Chinese President Xi Jinping when she had talks with him at the G20 Summit earlier this month

So high-level assurances aside, we are moving ahead with new nuclear and in about 10 years' time we will be deriving a chunk of our power from HPC. But at an initial 92.50/MWh strike price linked to inflation, by the time we actually get access to the power it will cost us GBP120/MWh and we are committed to this tariff for 30-years. By anyone's measure this is super-expensive power.

Is the real problem with HPC's approval now been its timing, it has arguably taken far too long to get this one rubber-stamped, so long in fact that in the intervening 10 years we've done so much to find alternative source of base-load energy that it no longer makes sense at the anticipated build and agreed strike price.

For a start its worth looking at the economics. If the obsession is about base-load renewal as existing plant ages and goes out of service, new Combined Cycle Gas Turbine (CCGT) plants are much cheaper and quicker to build and feed in tariffs much lower. Gas-fired power stations cost up to 0.5m/MW to build, whilst new nuclear is in the realm of 6.9m/MW, making new nuclear nearly 14 times more expensive to build and that's assuming they come in on budget which, we have already been told, they don't.

Then there is the fact that the technology on which HPC will be built called European Pressurized Rector (EPR) is completely unproven. Two EPR reactors being built in France and Finland and a further two in China, are all beset with delays, increased budgets and design concerns. The EPR in Flamanville in Normandy recently announced a review amid detection of 'manufacturing anomalies' pushing plans for opening back once again.

During the 10 years between initial agreement to move ahead with HPC and actually starting to build it, a number of key things have happened.
1. We have moved ahead with building offshore wind capacity in a huge way: Danish firm Dong Energy is building the world's largest offshore wind farm to supply UK homes. Called Hornsea Project One, this farm off the Yorkshire coast will deliver 1.2GW of power alone. Overall wind energy generation is rising rapidly so that by 2020 it will reach 28-30GW - nearly 10 times what HPC will provide in 2025-6.
2. We are also rapidly working out ways to store renewable energy so we don't risk losing energy through over-capacity.
3. Influential energy blogger Chris Goodall recently suggested that renewables' share of the UK power mix rose 31% in 2015 alone, so that renewable energy providers produced 18.2% of all UK electricity last year, up from 13.9% in 2014. Wind and solar generation hit a record 40% for a few hours last June and even overtook coal generation during the windy month of December, he added.
4. The figures were nearly as impressive for solar investment. We created 3.7GW of new solar photovoltaic (PV) capacity in 2015, making us the 4th largest investor in this technology in the world last year. Total solar capacity rose 9.1GW by year end, again placing us in 9th place.
5. We also grew our bio-power capacity by 12%, admittedly led by the partial conversion of Drax coal power station to biomass which completed in the last few months. Indeed the UK saw the largest growth in biogas in Europe, no doubt stimulated by the still-intact Feed-in-Tariff (FiT) subsidy; although the Government plans to scrap the FiT for larger anaerobic digestion installations from January 2017 which might put a hole in future development there.
6. In addition to all the new renewables generation that is going on, we are seeing some promising tidal energy projects on the drawing board, most notably the Swansea Bay Tidal Lagoon project which could generate enough power for 120,000 homes. The potential for tidal power energy alone could offer 8% of the UK's total capacity needs. Tidal energy investment seems to come complete with massive inward investment and future wealth generation as undersea turbines for it will be manufactured in south Wales. The only down side is the requested strike price which is exactly the same as HPC at GBP92.50/MWh.
7. Then there is the potential for development of local distribution grids combined with energy storage which enables locally or domestically-generated power, from PV or wind turbines for example, to be stored and provide back to participating households when they need it, lowering the capacity requirement on national infrastructure.
8. Finally, there are calls for an increase in capacity from cross-border interconnectors, with some predicting that capacity from new inter connectors set to be built between the UK and Denmark, France, Norway and Iceland potentially quadrupling our reliance on interconnector-based power from 3% to up to 12% of UK base-load. The Government has already declared backing for 9GW of additional interconnector-based capacity, for example.

Yet despite all this positive (and largely highly green) energy capacity coming on stream, frankly well ahead of HPC-generated energy, the doom-mongers are still saying that we will see an energy capacity squeeze even before HPC is up and running.

The statistics for upcoming capacity being taken out of the market are also quite stark:
1. 15GW of unabated coal capacity is set to go by 2025 (indeed UK Government decarbonisation targets demand it)
2. 7.7GW of 8.9GW of current operational nuclear capacity needs to be shut down by 2030
3. 22GW of gas-generated capacity is set to go by 2025, 13GW of that by 2020.
4. Meanwhile, energy demand is set to rise by 5% each year adding 16TWh of additional demand each year with electrical Vehicles, the electrification of heating combined with population growth adding a total of 42TWh of annual electricity capacity demand within 15 years.

The comprehensive Barclays Research report, which stated last month that a total of GBP215bn needs to be invested in our energy system by 2030 to balance the 'energy capacity books', and provides the above figures, states sagely: "The vast majority of new generation capacity investment will not materialise without subsidy or other 'high confidence' revenue streams."

So we rely very heavily on sensible and fairly rapid centralised decision-making for investment to replace what is described in this report as 'mass obsolescence of (current) base-load capacity' over the next 10 years. And this new investment needs to be aimed specifically at bringing greener sources of energy to market at a price which consumers can afford to pay. The new Department for Business, Energy and Industrial Strategy certainly has its work cut out.

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