Monday, 26 September 2016

Ofgem action against small generators threatens to destabilise capacity market

In pursuit of a complete failure to understand the problems with its own 'capacity market' Ofgem seems about to make things a whole lot worse by reducing capacity margins - by taking away the incentives to a lot of small scale generators whose existence helps to keep the electricity sector running.

Ofgem runs on a piece of fantasy theory that the capacity market will work better if the 'distorting' benefits to so-called 'embedded;' generators are taken away. In fact the opposite it the case. Ofgem's concern that proposed big gas power stations cannot win bids at sufficiently low prices to put them into business partly because of the small generators is total nonsense. Without the small generators the price at which the required capacity will be supplied by the big power stations will increase not fall. The problem has to do with the principles and practice of the capacity market, and has nothing to do with the small generators who currently provide a valuable service. Ofgem's actions  are akin to destroying a table leg in order to save the table.

The central problem is that future prices for electricity that the power stations could sell on the wholesale power markets are very uncertain, and quite likely to fall. Given this it will require very high capacity market prices (which will put consumer energy bills up by large amounts) to evince the capacity that Ofgem wants from gas fired power stations.

A big part of the problem of course is that increasing parts of electricity supply are being paid for outside of the wholesale power markets, through the Renewables Obligation or contracts for difference. This will only increase in the future, especially if Hinkley C comes on line (whenever that may be). Note: this has nothing to do with so-called renewables 'intermittency' , it is to do with 'liquidity' being siphoned away from the wholeslae power markets to pay for low carbon energy sources - which has to be done of course, otherwise they will not come on line.

The answer to all of this is to offer new generators firm long term contracts so that they can have income guarantees in the future - this may involve some sort of 'take or pay' scheme for all generators at least, in the form of a contracts for difference arrangement as applied to the generators.   - But this approach is bound to end up being a lot cheaper than the Government's current approach which consists on the one hand of giving the capacity payments to every generator and on the other hand (in these proposals) of driving the small generators out of business by taking away the income they need to provide capacity to the whole of the system.

The problem has a lot to do with ideology. Ofgem and civil servants seriously believe that somehow in a world of decarbonisation you can run wholesale power markets according to some imaginary free market trading arrangement. People must learn to be more pragmatic and tear themselves away from economic models that have little bearing on the real world.
For the story on Ofgem's proposals see http://www.telegraph.co.uk/business/2016/09/24/industry-faces-160m-energy-hit-under-overhaul-of-power-plant-rul/

Tuesday, 20 September 2016

All green energy supporters should shun the Tories and join a Progressive Alliance

The Green Party and Jonathon Porritt have been organising campaigns to unite people to form a 'Progressive Alliance' that would co-ordinate efforts to defeat the Conservatives. There is hardly an area for which this is not more necessary than green energy. That means renewable energy and energy conservation.

Tories who oppose support for renewable energy are getting their way despite the fact that green energy is much more popular than nuclear power or fracking which is their preferred means of deriving energy. This is despite the fact that both of these options are much more difficult to deliver compared to renewables or energy efficiency.

Behind the spectacle of Hinkley C Point being, in reality, postponed again (until at least 2026) because of the inability of the nuclear industry to deliver, the Government refuses to offer contracts to several thousand MW of onshore wind that are in the planning system, or solar farms that could be quickly put together. It has postponed the issuing of contracts for new offshore windfarms. Targets for zero net energy housing have been abandoned. Local authorities have been stripped of their powers to make developers build buildings to a higher energy efficiency standard than the minimum requirements. As the UK leaves the EU the right wing will be straining at the leash to cut down the environmental protection rules, including EU inspired energy efficiency standards for machines and buildings. I could go on.......

All the Government seems likely to do now is to oversee the ramping up of incentives for fossil fuel power plant under the capacity mechanism and think of crazy schemes to fund nuclear power through back-door blank cheques.

Of course the predominantly anti-green Brexiteers hold green energy to ransom. Despite the fact that green energy is very popular the anti-green faction hides behind a front of xenophobia to push through policies that the public really does not want. It's classic right wing politics of course.

So it seems nothing will change until we get rid of the Tories. Divided the centre and left will fall. Together we can win.

See Jonathan Porrit's blog for some general further thoughts: http://www.jonathonporritt.com/blog/progressive-alliance-laying-foundations

Wednesday, 7 September 2016

‘The newest windfarm in Aberdeenshire – a good omen for renewable energy?’

‘The newest windfarm in Aberdeenshire – a good omen for renewable energy?’
Roger McMichael from the company ENGIE who are building the Cairnborrow windfarm in north west Aberdeenshire will be coming along to talk on Friday September 16th at noon in room New Kings (NK) 3 at the Kings College, University of Aberdeen. He will talk about renewable energy policy as well as the windfarm that is currently under construction. You can see some details of the windfarm at http://www.westcoastenergy.co.uk/…/work-begins-on-10mw-cai…/
You can see the position of New Kings Building at:http://www.abdn.ac.uk/about/campus/maps/view/36/
All are invited to this meeting.

Saturday, 3 September 2016

EDF leaders get desperate over Hinkley C

EDF leaders are now in such a state of panic over their Hinkley C proposals that desperate messages were being sent out to tell the British Government that they need to take a £6 billion equity share in the proposal. Signals are coming from Downing Street that the Government wants to decouple Hinkley C from the 'deal' with China allowing them to build their own nuclear power plant at Bradwell. The Chinese have responded that they would no longer be interested in funding their (approx one third) share of Hinkley C.

A Chinese response of withdrawing from the Hinkley C deal would be entirely logical from their point of view since the only point of taking a huge risk of funding Hinkley C would be the possibility (in their imagination at least) of opening up a western market for their own nuclear power stations. The 'deal' with China was always a bizarre arrangement compared to the normalities of building power plant and really reflects earlier desperate attempts by EDF and some pro-nuclear allies in the UK to prop up what had become, by 2012, a project of increasingly dubious commercial realities.

I know that some people still occasionally produce projections that on the basis of the now notorious 35 year contract to pay EDF £92.5 per MWh in 2012 prices (now worth about £97 per MWh) EDF can still make a profit on a rate of return of around 7 per cent. But, and this is a VERY important 'But' without a) the ability to finance the bulk of this from bank loans as opposed to equity capital which needs to be serviced by much higher returns and b) any reasonable certainty that the project would be delivered relatively close to projected cost and timescale, then the scheme is something that no sane boardroom in the private sector could possibly ever contemplate taking on.

The Treasury has quietly edged away from offering the sort of guarantees that would have allowed EDF to take out bank loans to finance the deal - fearing quite rightly that the guarantees would most likely be transformed in the fullness of time to a state funded blank cheque. Meanwhile the construction disasters for the Hinkley-style EPR models in Finland and France have  made the achievement of cost and timescale delivery projections look like, as they say these days, a 'heroic' ambition.

So it is no surprise that there would be no private sector takers for the Hinkley C investment. Centrica withdrew their plans to invest in Hinkley C in 2012, and remember that the previous year the other privately owned big electricity companies had walked away from the British nuclear programme. But a foreign Government with their own techno-political agenda, China, then decided, in effect that Hinkley C might act as a 'loss leader' for their ambitions to be major nuclear exporters. I think this hope is much misplaced and that China should stick to exporting the solar panels, but I shall reserve that story for another time.

Of course if one country has a political agenda in investing in another, then it is hardly a surprise if the host country (in this case the UK) considers its own political agenda, as we read in the papers. But the point here is that this issue (China's involvement) only arises simply because the Hinkley deal is commercially inferior to the various other clean energy options that the UK has at its disposal, none of which will have any major problems in delivery or financing. The only problem here is that the Government does not want to offer any long term contracts for them - and is even (now) delaying offering contracts for some more offshore windfarms.

People can often be heard to say that nuclear power is needed to provide energy security. Yet what is remotely secure about the technology which you don't know whether or when it will be delivered? Indeed, this produces the opposite - insecurity!

EDF's desperate plea that the British Government take over the Chinese share in Hinkley C is unlikely to be welcomed by Treasury officials who would (or at least should) see that as tantamout to locking in the British state to shovelling money down a black hole, with a lot more inevitably following the first £6 billion equity.

See FT report: https://www.ft.com/content/0b80e672-70ea-11e6-a0c9-1365ce54b926#axzz4Io1bYUFm

Thursday, 1 September 2016

Labour 's 'choose a policy' approach to nuclear power looks like chaos

With Labour trying to face several ways at once it looks more like chaos as the front bench tries to please everybody and fails to satisfy anybody at the same time.

Jeremy Corbyn is quoted (quite rightly in my view) as saying that 'Tories have just put up the cost of your electricity by giving a blank cheque to EDF for a power station that doesn’t work' See: https://dwpexamination.wordpress.com/2016/07/31/jeremy-corbyn-facing-backlash-from-unions-momentum-activist-and-shadow-business-minister-over-hinkley-c-nuclear-opposition-huffington-post/

On the other hand, Labour's energy spokesperson Barry Gardiner is said to be in favour of the Hinkley C power station but at a lower cost to the consumer. See Ian Fairlie's piece at:
http://www.theecologist.org/News/news_analysis/2988060/if_its_jobs_they_want_labour_and_the_unions_must_back_renewables_not_hinkley_c.html

How to reconcile these two views? Well, you could say that Labour wants to pay a slightly lower price for a power station 'that doesn't work'. Alternatively, you can just choose the particular policy that comes closest to your particular taste. That's one way of running a political party I suppose, though even (nay, I say, ESPECIALLY) the Green Party has somewhat more coherent policy responses than Labour!

As for the trade unions, well that depends on whether you are a French union or a British one. The British trade union position is that it's ok if somebody else pays for Hinkley C, and of course the French unions are opposing the deal because they know that they will end up paying a lot of money (and jobs) for it!

Of course, as Ian Fairlie argues, there's plenty of jobs in alternative clean energy sources to Hinkley. One estwhile Momentum supporter has attacked Corbyn as being an 'anarchist' for his position on Hinkley. Well, I'd more see the Labour position as being much closer to chaos! There's a big difference!

Monday, 1 August 2016

How British research academics will be encouraged to emigrate by new research rules

The just published 'Stern Review' on how research outputs of UK academics are going to be valued is likely to seriously blight the careers of British academics and lead to a 'brain drain' as they seek to advance their careers abroad.  A change in the arcane rules of the 'Research Excellence Framework' (REF) will mean that the work of British academics is now likely to be of much higher value to foreign universities than British ones.

Under the practices of academia every 6 years British university departments are assessed for the quality of their research output, and this exercise, now known as the 'Research Excellence Framework' (REF). The original purpose of this exercise was to have some rational basis for distributing monies for research time and resources between university institutions, although the amount of money at stake has diminished as austerity measures have taken their toll.

One of the criticisms of the process has been, as the Stern Review, says, that 'smaller institutions with strong teams in particular areas which have previously been potential targets for ‘poaching’(para 99 point iv). Under the existing system if somebody if doing well then they would have good prospects in applying for a job with another university since the academic would carry with them their research output. Either the host university would have to give an offer of promotion to the academic to keep them, or the academic would most likely leave to take up the new post at a different university. However this had the side-effect that people could be poached by departments who either had greater prestige in a particular area or at least had resources to offer people more money.

But now under the Stern review recommendations if British academics switch from one department in one university to a different university then they will no longer take the value of their research outputs. This could lead to some odd effects. One effect could be that towards the end of each cycle there would be a sort of vague 'transfer window' during which academics who had amassed good records and who could blag themselves about their future could get jobs in other universities. However, another, rather more perverse effect is that in between such times staff would most likely find themselves like beached whales who could not get promotion in other British universities since their research output could no longer be transferred.

Note that I say, promotion to 'British' universities, because the same rules would not apply abroad. British academics would be welcome in other countries since these foreign universities would in no way be bound by the UK REF rules and would be able to use the value of their research in the international league tables of universities without suffering any financial penalty. Indeed in some ways the British university who has 'lost' the staff would actually benefit. Why? well they would retain any research output made by that academic while they were working there whilst the university would no longer have to pay for it! More bizarrely of course, universities could actually dismiss people, make them redundant, and still report their work to the REF!

Of course there are lots of gremlins waiting to crawl out of this piece of do-goodery by Lord Stern, but I would emphasise the particularly irksome gremlin that it is highly likely that lots of British academics will move abroad to further their careers. Really, all Lord Stern's attempt to stop 'poaching' is doing is creating a different, arguably much greater problem. At least with the current problem of poaching it was British universities who were getting the benefit. Now it will be the foreign universities who will be doing the poaching and getting the benefit. And, post Brexit, many academics are just looking for good excuses to emigate anyway!

See:
Building on Success and Learning from Experience
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/541338/ind-16-9-ref-stern-review.pdf

Sunday, 31 July 2016

Why UK Government will be signing a blank cheque for Hinkley and Bradwell in one go

Theresa May may have gained short term kudos for 'stamping' her authority on the Hinkley decision by delaying it until the Autumn. But in reality all she may have done in the long term is emphasised the fact that she sanctioned a decision that resulted in the biggest industrial disaster to have affected the country in modern times. Once the Government signs the project it will be committed to footing the bill for a long running engineering construction foul-up, whatever the terms of the Government's contract may actually say.

It should be obvious from the problem that EDF has had with its attempts to build the two reactors at Okiluoto in Finland and Flamanville in Normandy that there is a very high chance that the project will end in disaster, organised by a company whose leaders ignore commercial logics in pursuit of a discredited piece of technology - the hallmark of a nationalised industry that controls the state. But now EDF say they will go ahead, in 2019, with 'pouring concrete' (ie starting building proper) once Flamanville has 'proved' itself. Yet even this timetable may not happen, pushing EDF further into its financial crisis and producing even more handouts from the french state to EDF.

The UK Government, for its part claims that it will be under no legal obligation to pay for any cost overruns. True, we understand that the contract that awaits signature says that the Hinkley C power plant must start generating by 2033 if the premium price  payments of £92.50 in 2012 prices (£97 per MWh in today's prices) are to be paid. But that is a legal nicety that obscures the political blank cheque that the UK Government will be signing this Autumn.

Imagine the situation in ten years time. It is 2026, and EDF, is beset by generally unfavourable market conditions, having in any case to pay increasing amounts of money to refurbish its own French nuclear fleet. It is facing mounting construction cost overruns on the still far from completed Hinkley C construction and EDF tells the French and UK Governments that it cannot complete the project without further financial injections. We then have the spectacle (as we did in the case of Sizewell B in 1990) of a half-built nuclear power project with no money to finish it. There will then be a political demand that it must be completed. The terms of the contract between EDF and the UK Government will then become irrelevant, and the UK Government will have to pay untold extra billions to finish the project, and fund it thereafter, the only limits being what cost-sharing it can achieve with the French Government itself.

Of course Theresa May, who is said to be reluctant to agree to the Chinese demand on behalf of CGN to be given the right to build a 'Huang' Chinese power plant at Bradwell in Essex, may seek to alter the terms of this agreement. The Chinese have agreed to invest in Hinkley C on the basis that the Bradwell project will be allowed. Indeed the Chinese are responsible for a third of the equity in the project. But the controversies and issues around this Chinese project are likely to considerable.

Apart from controversies over 'security' issues (about which I do not know enough to comment) there are going to be arguments about validation of the safety protocols for the plant. In China there have been complaints that the safety criteria have not been rigorous enough for nuclear power stations. The problem from the point of view of the British Government is that if the Chinese have put money into the Hinkley project, then the British Government will be under great pressure not be seen to be too choosey with the approval of the power plant. Will Bradwell be built according to British or Chinese safety standards? Then there is the issue with the financing and power price for the Bradwell project. Again, the Government will be under great pressure to give the project good terms, or be accused by the Chinese of having reneged by other means on the Hinkley agreement.

If Theresa May says that she will agree to Hinkley C but will not agree to the Bradwell project, then it is likely that the Chinese will walk away from Hinkley, thus ending the project - unless the French Government came up with even more money and risk-taking.  But of course if Theresa May now does give approval for the present scheme, give or take some public relations concessions, then it is May that will go down in history as having personally approved not just a Hinkley disaster but a political and industrial crisis over the Chinese nuclear power project at Bradwell.

Of course by 2030 under this scenario we will still probably have no power from the new nuclear power plant, but otherwise we would have been able, by then, to have put on line maybe another 20 per cent of our power from renewable energy from the money. That is, just using the money that we would be committing to non-existent nuclear power stations, and not including any other renewables we would have put on line anyway.