Don't press nuclear button, begs energy chief The £24bn Hinkley power plant is starting to look like a bad bet as energy prices plummet Danny Fortson 9 August 2015, The Sunday Times IT HAS been nearly two years since Ed Davey sat between a pair of grinning Frenchmen to announce a historic deal to build Britain's first new nuclear power plant in a generation. Davey, then the energy secretary, hailed the £16bn plan for two reactors at Hinkley Point in Somerset as "an excellent deal for Britain and British consumers". Since then, the oil price has plummeted, renewable technologies have bloomed and British energy consumption has fallen. The all-in price for Hinkley has ballooned to £24bn, while troublesome complications to its reactor design have emerged. All of which has prompted more critics to question whether, in a changed world, Hinkley Point makes economic sense. Amid the rumblings, rival energy company bosses have remained conspicuously silent. Until now. Paul Massara, head of RWE Npower, has broken ranks. Hinkley, he said, risks being "an expensive mistake" that will be questioned "by my children and my children's children". Why? Because the famously slow-moving industry is in the middle of rapid and fundamental change that is likely to turn the old utility model on its head. In that context, betting so much on a single project that we will be paying off for the next half-century seems a risk not worth taking, he argued. "The energy industry in 10 years is going to look very, very different because of the pace of technological change," Massara said. "We'll need to release some of those big bets we're making because I think they will turn out to be very expensive for customers." The industry veteran, who has been at Npower for four years and was previously a senior executive at British Gas, is quick to point out that he is not on a crusade against Hinkley Point. Rather, the huge project is simply the most visible, and costly, symptom of a disjointed energy policy. "This is a concern for the UK," he said. He is not alone. Last month HSBC published a 60-page report focusing on several factors, from falling energy demand to soaring imports, that provide "ample reason for the UK government to delay or cancel the project". A quick refresher. In October 2013, Davey, a senior Liberal Democrat, and Vincent de Rivaz, head of the British arm of France's state nuclear giant EDF, agreed the broad contours of the Hinkley deal. EDF and its partners agreed to undertake the 10-year construction project. In exchange, the UK government guaranteed 35 years of artificially high electricity rates. Based on an expected start-up date of 2026, the tariffs would begin at about £120 a megawatt hour - nearly three times the current rate - and rise with inflation until the end of the deal in 2061. EDF has since been locked in talks with two Chinese state power giants that had agreed to shoulder part of the financial burden. Beijing is pushing for rights to build its own reactor on British soil, which has proved a sticking point in the negotiations. In the meantime, Areva, France's state-owned reactor designer, whose European pressurised reactor (EPR) model will be built at Hinkley, has fallen deep into the red. It has not sold a new reactor since 2008 because design problems have pushed its two new plants in France and Finland billions of euros over budget and years behind schedule. EDF agreed last month to take control of Areva's main reactor division in a deal orchestrated by Paris. Despite the mounting challenges, sources close to the talks say the final Hinkley agreement is likely to be signed in October, when the Chinese president Xi Jinping visits Britain. Indeed, the project has such a head of steam that pleas for a "time-out" to rethink its underlying logic appear futile. HSBC's argument, for example, revolves around the growth of Britain's electricity import links to the Continent. Today, there are two undersea interconnectors - one to France and one to the Netherlands. Together they import up to three gigawatts of electricity - enough to power 3m homes. Another half-dozen are in development. On HSBC's most conservative forecasts, interconnection capacity will more than double to 7.4GW by 2020 - equivalent to roughly 1.3 Hinkleys - at a fraction of the cost. The bank wrote: "There is every reason to believe that the UK will become a very substantial net importer." EDF dismissed the HSBC report, claiming that relying on electricity flowing in from the Continent "doesn't solve our need for energy security". The company added: "Nuclear power is still the choice that gives reliable baseload power at the same time as helping Britain meet its carbon emission targets. "When the cost of extra back-up needed for intermittent renewables is included, the cost of nuclear remains competitive with any other technology." What neither the nuclear lobbyists nor its critics can predict with certainty is what our power needs will be in a few decades. Based on current trends, however, it appears that we will need less, not more. Electricity demand is falling by 1% to 2% a year thanks to energy-efficiency programmes. Gas use has dropped at double that rate. Massara said: "Gas demand has fallen by 24% in the past six years. There is huge demand destruction going on here." The other factor is technology. Solar power - for decades a fringe technology that was too expensive and not very good at producing electricity - has exploded. In Germany, panels with 70GW of combined capacity have been installed, a sum greater than the capacity of Britain's entire power plant fleet. There are two reasons for this boom. One is generous subsidies. The other is cost. Mass production in China has driven down panel prices 70% in five years. So much capacity from onshore wind farms and solar panels has come on to the grid that at mid-day, when the sun is at its strongest, and if the wind is blowing, Germany has more power than it needs. Electricity prices regularly go negative. Amber Rudd, the new energy secretary, has grabbed headlines by slashing subsidies, not just for solar installation, but for onshore wind farms as well. The surprise moves were meant to rein in runaway subsidy costs to the Treasury. Energy secretary Amber Rudd has slashed renewables subsidiesEnergy secretary Amber Rudd has slashed renewables subsidies (Mark Thomas/Rex Shutterstock) Yet they are unlikely to stop the revolution in Britain, especially in solar energy. Massara reckons that within three years, solar power will not need any support to be competitive. Peter Atherton, an analyst at Jefferies, reckons that "the UK now seems to be where Germany was in 2011 - when the share of wind and solar generation crossed the critical 10% level in 2014". The British market has already had moments when prices have dipped into negative territory. Atherton said: "While expected, these effects are perhaps happening several years earlier than many anticipated." Massara reckons this is just a taste of things to come. In Germany, RWE has already begun selling rooftop panels together with batteries, allowing homes to store power during the day and draw it down at night. Elon Musk, the billionaire investor behind the Tesla electric car, is developing home batteries that he claims portend an era where houses will no longer rely on far-off megaplants. It is these issues, Massara says, that industry, government and consumers need to be thinking about very hard. His idea? An "Office of Energy", which would be a new, independent entity, like the Office for Budget Responsibility, that assesses whether energy policy is fit for such a rapidly shifting landscape - a landscape in which big, multi-generational bets are ever more laden with risk. No bet is bigger than Hinkley. Massara said: "The industry is at an inflection point, and nobody is looking at the trilemma of cutting carbon, increasing energy security and doing so at the lowest cost. Nobody is pricing it all up. Nobody is having the honest conversation." |
News 2015 >