The economic and moral bankruptcy of UK energy policy

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fracking protest (photo Beth Granter)

fracking protest (photo Beth Granter)

With its choice for Hinkley Point C – a £100 billion boondoggle – its enthusiastic support for expensive and environmentally harmful fracking, and its relentless attack on renewable energy, the UK government’s energy policy is both morally and economically bankrupt, write Peter Strachan, Professor of Energy Policy at the Robert Gordon University, and Alex Russell, Professor and Chair of the Oil Industry Finance Committee. Westminster must reconsider this folly, which will be a disaster for the Conservative party, and embrace the renewable energy transition that can lead us into a clean and economically healthy future.

As Prime Minister Theresa May and EDF prepare to sign the Hinkley Point C contract, and Scotland sees the first shipment of fracking gas from the United States, it is perhaps timely to reflect on recent developments in UK energy policy. Both new nuclear build and UK onshore shale gas and oil extraction fail key environmental, safety and economic tests.

Nuclear-powered dreams

The UK has recently committed to a nuclear renaissance, with Greg Clark, the Secretary of State for Business, Energy and Industrial Strategy (BEIS) at Westminster, describing the “dawning of a new age of nuclear”. But by commissioning French and Chinese companies to build the first UK nuclear power station in a generation, the Hinkley Point C deal has come in for almost universal condemnation.

This project will prove to be a public relations disaster for the Conservative Party, and every future Westminster government

Theresa May clearly buckled under economic pressure from China and has backed nuclear power as the panacea to combat the electricity crunch that we face. Her questionable decision means the UK is committed to a long-term very expensive project that comes with national security and many other concerns.

Empty promises

In 2007 the Chief Executive of EDF’s UK arm effectively cooked his own goose by claiming that Brits would be cooking their Christmas turkeys using nuclear power generated from Hinkley Point C by 2017. Now EDF are claiming that they won’t go over budget, when the new power plant is delivered some time in 2025.

If ongoing experience in France and Finland is anything to go by, and with apparently few financial penalties in place for late delivery, there are serious doubts that the project can be completed in the revised timescale and on budget.

Money Pits

Turning to the financials, the costs of the project are just enormous. Some have claimed that Hinkley Point C will end up being the most expensive physical object ever built. The project is a £100 billion boondoggle. The construction costs alone are in the region of £18-£25 billion. Then there are the subsidies that will amount to a conservative £1 billion plus per year, for at least 35 years.

The deal penned is inflation linked at more than twice the cost of current wholesale electricity prices. The plant will then operate for a further 30 years. It has a potential life span of around 65 years and it will continue to be a drain on public finances even after the initial lucrative contract has expired.

The world is awash with cheap oil and gas, and it can be shipped from, say the US, at a fraction of the cost that we can produce it here in the UK

Then try to add into the calculus the unstated decommissioning and radioactive waste management costs, and it soon becomes apparent these super-burdensome costs and risks are incalculable. If Sellafield in Cumbria, England, is used as a baseline, such costs are just eye watering. Indeed, bucket loads of money amounting to tens of billions of pounds have already been spent, trying to make safe the UK’s nuclear legacy. Based on the available evidence one can only conclude that cheap and clean nuclear power is a myth.

Fuel poverty for future generations

In terms of what Hinkley Point C will mean for household budgets, it is estimated that it will push up individual electricity bills by around £50 per annum. But this is just the start of such price rises as Hinkley Point C is the first of a number of new nuclear projects.

It is only around 3 GW of a 16 GW plus plan. Electricity bills will spiral out of control, as they did a few years ago when there were regular inflation busting price increases. The new nuclear age described by Greg Clark will surely set us on a path to fuel poverty for decades.

The looming electricity crunch

Even if households and business can afford such future hideous electricity bills, it might be 2030 before we see the plant operational – more than a decade later than was initially planned. Its promise to generate up to 7% of the UK’s electricity demand will be delivered around a decade too late to meet the 2020 electricity crunch that the UK faces.

Scotland has already closed its last coal plant, the behemoth Longannet, and with other coal-fired stations in England having been phased out, by the time Hinkley Point starts generating electricity, the lights might have already gone out, if the Conservative government continue on their current energy path.

Scientists from Arizona State University in the US have now unequivocally shown that shale activity causes earthquakes and these effects can even be seen from Space

In addition, there are significant safety concerns attached to the European Pressurised Reactors (EPRS) that Hinkley Point C will use. No EPRs are operational, anywhere in Europe, with the ongoing builds in France and Finland resembling what charitably can be best described as classic Monty Python. You should not forget that this is a nuclear power station and in the event of an accident there could be significant “radioactive” fallout. Think: Fukushima, Chernobyl, Three Mile Island, and Windscale.

All things considered the decision to commission Hinkley Point C is inexplicable. Hugely expensive, technologically unproven, it will be delivered too late, and the nuclear waste legacy will be a curse on future generations, lasting millennia. This project will prove to be a public relations disaster for the Conservative Party, and every future Westminster government. Theresa May should have bitten the bullet and cancelled the white elephant that is Hinkley Point C, when she had the opportunity to do so.

Glittering prizes or fracking folly?

Another controversial strand of UK energy policy is fracking for onshore shale gas and oil. The Conservative government is clearly very enthusiastic, even to the point of where Theresa May has recently been accused by the Labour Party of planning to bribe households with cash payments in order to silence public opposition.

The former Prime Minister David Cameron and then Chancellor George Osborne appeared almost desperate to replicate the success of the shale boom in the US. David Cameron said in 2014 that his Party was “going all out for shale”.

The continuing vision for the Northern Powerhouse seems to be predominantly based on fracking apart the shale beds of England. The prize is claimed to be: glittering new tax revenue; the transfer of oil jobs from the Jurassic North Sea oil and gas industry to onshore; and, cheaper and more secure gas supplies.

Fanciful promises

However, at the present time, it makes no economic sense to extract high cost onshore shale gas and oil. The world is awash with cheap oil and gas, and it can be shipped from, say the US, at a fraction of the cost that we can produce it here in the UK. In fact Scotland will see its first shipment later this week, and its arrival may well signal the death knell of the North Sea oil industry unless the ludicrousness of such anti-green transportation is trumpeted by Holyrood!

Let us take a Chinese lesson here. Like any buyer’s market, get in first, and buy it up cheap. These assets should be left in the ground until they are needed for energy security reasons, and can guarantee maximum economic return, and tax take. If left in the ground now, it is future money in the bank.

Caring for people and environment

Even if it was economically feasible to frack in the UK, millions of town and countryside dwellers have already seen straight through the nonsensical arguments that the industry will be good for the environment and climate, and public health risks can be regulated.

As we don’t have enough waste treatment plants in the UK that can actually clean up the contaminated water left over, will the industry shortly propose to dump it in the North Sea? 

If our politicians would just spend some time and examine some of the existing evidence from, for example, the United Nations Environmental Programme (UNEP), the British Geological Survey or the Scottish Government Independent Report, they would not dare to make such claims.

Take the issue of earth tremors. Scientists from Arizona State University in the US have now unequivocally shown that shale activity causes earthquakes and these effects can even be seen from Space. Yes, outer Space. Land deformations are visible near the location of the biggest earthquake ever recorded in eastern Texas, the 4.8 Timpson earthquake in 2012, widely blamed on waste water being injected at fracking sites close to the town. Closer to home, in North-West England during 2011, two minor earthquakes may already have occurred as a result of drilling activities.

Thirsty fracking plays

Across the world fresh drinking water is in short supply. Fresh water is increasingly becoming a valuable commodity, due to contamination from agricultural, industrial and other human activity. In terms of drilling, any future UK fracking industry will require hundreds of millions, possibly billions, of gallons of water. Even one fracking play requires up to 5 million gallons of water. Providing evidence from overseas the US Geological Survey for example has estimated that the state of Ohio from 2011-2014 used a total of 4 billion gallons of water to frack wells. Is using water in this way the best use of this valuable resource? A resource that is so precious that all life on the planet depends on it.

Westminster must get back on course and harness the heat of the sun, and the (gale) force of our wind, and the power of our waves and tides

Then there is the clogging of roads, noise and emissions arising from the hundreds of lorry trips, to ship the fresh, then contaminated water, from location to location. As we don’t have enough waste treatment plants in the UK that can actually clean up the contaminated water left over, will the industry shortly propose to dump it in the North Sea? And will Westminster agree?

The fact that there is no social license to frack, and the economic, environmental and public health cases don’t add up, must be of significant concern to Theresa May and her pro-fracking Ministers, as well as key players in the immature UK shale industry.

One must conclude it is not an industry with any long-term future. It can only be described as fracking folly.

Can we have more renewables please?

Most people don’t realise that renewables now supply around 25 per cent of UK electricity and in Scotland it is over 50 per cent. Their market share has grown rapidly in recent years, trebling between 2010 and 2015.

Renewables now supply more electricity to the national grid than nuclear power and coal. They are very popular with the general public, cost-effective, and can be deployed very quickly, compared to the nuclear and shale options just outlined. They are also cleaner energy sources, and given all of these positives should surely be deployed to address the looming electricity crunch that threatens the UK.

An industry under attack

But for the past two years the renewables industry has been under attack by the Conservative government. Changes to financial support mechanisms and the planning regime are now bringing onshore wind to a standstill. Solar support is being killed off. And while there is much rhetoric around offshore wind, it is actually progressing at a snail’s pace. The direct effect of Conservative government policy changes has led to many thousands of green jobs being lost.

The future of humanity depends on an all-encompassing global acceptance of the replacement of fossil fuels and nuclear power by renewables

Another emerging and detrimental effect has been to undermine local community initiatives. In addition to supplying much needed electricity and investment in local assets such as community halls, churches and youth projects, community owned renewable projects encourage energy conservation, and have wider and important public education benefits.

If ever we needed some sign of reprieve for UK renewables, it is now.

A call to action

Westminster must get back on course and harness the heat of the sun, and the (gale) force of our wind, and the power of our waves and tides. It should fully embrace the energy transition from fossil fuels and nuclear power, to a renewable energy future. Germany, Europe’s strongest economy, gets it and is making huge strides with their “Energiewende” strategy. The Scottish Parliament at Holyrood also gets it, and to pinch a phrase from former First Minster Alex Salmond, we have the potential to become the “Saudi Arabia of Renewables”.

The future of humanity depends on an all-encompassing global acceptance of the replacement of fossil fuels and nuclear power by renewables. If there is still a perception that British moral values lead where the world follows then its status is at best precarious. Theresa May and Greg Clark must step up to the plate and nail the renewables flag to the top of UK energy policy. Nuclear power and fossil fuels have no economic or moral right to a long-term place in UK energy policy.

Editor’s Note

Peter Strachan (@ProfStrachan) is Professor of Energy Policy, Robert Gordon University.

Professor Alex Russell is Chair of the Oil Industry Finance Association. 

The opinions expressed in this article are those of the authors and not those of the Robert Gordon University or Affiliates.

Comments

  1. Bas says

    New Hinkley nuclear is not a climate friendly source of electricity!

    As new Hinkley nuclear costs 3-9times more per KWh than wind & solar, it will also emit about 3-9 times more CO2eq/KWh than wind & solar.

    Worse, Hinkley will also insert significant new heat to the atmosphere: ~3 times the produced electricity = ~10GW!
    While renewable (wind, solar, etc) operate without generating new heat.

    • Steve Coltman says

      Where do you get these numbers from? The CO2 emissions from nuclear are typically 11-12gm per Kwh, similar to wind and less than solar. I have heard 40gm/Kwh quoted for solar but it would depend on the technology of the cells and the location. There is nothing that produces lower CO2 levels per unit of electricity produced than nuclear except maybe hydro. It is worth paying a premium for low CO2 emissions.

      • Mark Roest says

        If that can be supported today, it won’t be ‘tomorrow’, with new materials and designs that slash concrete and steel use in construction. And obviously, wind has zero carbon in operation.

      • Bas says

        Steve,
        Two issues with your numbers:
        1. Those come from studies roughly a decade or longer ago. At that time solar was 3-6 times more expensive than nuclear. Since then:

        – the cost of nuclear went up 50%-200% (also due to safety improvements after Fukushima). Hence also its the CO2 emissions.
        – the cost of e.g. solar went down with a factor 3-8, due to efficiency improvements. Hence also its emissions.

        Note that e.g, less labor is also less CO2 as the workers spend their income on CO2 emitting activities or products whose construction did cost CO2). Higher/lower paid workers spend more/less money emitting more/less CO2.
        Similar applies for capital costs, etc. The income of the investor will be spent (e.g. for skiing), generating CO2.

        2. Most of those studies considered the nuclear plant ignoring:
        a. the emissions due to the mining of uranium ore, its cleaning, its transport, its enrichment, it fuel rod fabrication, the waste storage in a guarded store during centuries, etc.

        b. the emissions involved in cleaning etc of the many smaller and few big nuclear accidents..

        Concluding
        Even with equal capital costs per KWh, nuclear emits far more CO2 as:
        – nuclear consumes uranium;
        – nuclear needs a large staff;
        Those costs are in the range of $50/MWh as shown by the new subsidies of NY-state to depreciated nuclear (=$56/MWh guaranteed, necessary to keep them open).
        Hence they imply CO2 emissions accordingly.
        Then we don’t count the substantial costs of the ongoing liability subsidies!

        While operating costs of wind & solar are ~$5/MWh.
        Hence operating wind & solar emit a factor 10 less CO2.

        Calculate also the present lower capital costs of wind & solar (per MWh) compared to e.g. Hinkley (£24.5Billion according to EU accountants).
        So capital costs also imply much less CO2 for wind & solar!

  2. says

    I’m at a loss to understand how shale gas investment impedes renewables. Barry Gardiner made the comment that we shouldn’t be investing in gas when we should be investing in renewables. We need both, but again, the investment in shale today (and it’s important to use 2016 economics, not 2011’s) is essentially the cost to drill a well. That could be paid off within months not years. After that, even after declines (another over emphasised problem which didn’t show up ) well go into the already paid for gas grid with a minimum of intervention, construction – or investment.
    The US example of is wind and solar surging far greater than even the titanic proportions of gas production. If gas isn’t impeding wind in Texas (40%+) or Oklahoma (20%) how would it in the UK?

  3. Lucas says

    I’m so glad that governments, right and left wing, are finally growing up and realizing wind and solar are not in any way a practical, cost effective way of powering an advanced industrial society, no matter how many tantrums their advocates throw. The fact remains that no country on earth has successfully decarbonized electric power without hydro and/or nuclear.

    “The Saudi Arabia of Renewables” is this satire? how can someone be so delusional?

    The sooner politicians start listening to serious engineers and stop listening to the green’s religious fervor for utopian solutions, the faster we will relegate coal to the history books

    • says

      “wind and solar are not in any way a practical, cost effective way of powering an advanced industrial society”. Spain, Portugal, Denmark, Germany – all getting elec from RES that is well north of 40% & growing. On-shore wind in Spain is being built with no subsidy, ditto PV in Portugal (thus addressing your cost effective comment).

      “no country on earth has successfully decarbonized electric power without hydro and/or nuclear” – Denmark uses Nordpool & its hydro – so in that you are correct.

      “The sooner politicians start listening to serious engineers” – I’m an engineer, RES provides a practical solution to de-carb and has zero to do with religion, neither is it utopian (see countries listed above).

      Regarding “The Saudi Arabia of Renewables”, the UK has vast potential for RES, wind (on & off-shore), tidal, wave, even PV, in the south. The Rutherford-Appleton lab has estimated the off-shore wind resource at 600GW. Unlike uranium, wind is driven by weather systems, in turn driven by the sun, I don’t expect this resource to run out any time soon.

      In terms of finance, the most recent Danish off-shore auction will deliver a MWh for 1/3 of the cost of one from Hinkley once it is built/if it is ever finaished. (given the index linked contract it now stands at Euro116 & growing all the time).

      Your post was full of unsubstantiated assertions & smacks of desperation. I give it 2/10.

    • Mark Roest says

      Lucas you are looking in the rearview mirror. You see people paying $1,000/kWh for batteries and dismiss them, without reading somewhere that LG Chem is selling battery cells for $145/kWh, and it and Tesla both say they’ll be under $100/kWh by 2020.
      Today, that’s slow (it will probably be by 2018-2019).
      A new generation of batteries, whether from Stanford Prof. Cui or others, will be the death of fossil fuels as ‘grid flexibility’ or anything else.

  4. says

    I am sorry to say – but with respect to UK nuclear – we (I include myself) have all been barking up the wrong tree. Of course, Hnkley is indefensible in terms of economics. It might not even be finished. All this is irrelevant in the context of the UK and its nuclear needs with respect to an ability to build nuclear-powered subs.

    http://energytransition.de/2016/09/british-bias-towards-expensive-nuclear/

    The article and the embedded document – which is not long – should be required reading for all those critcising UK civil-nuclear policy. What is at stake here is not “build civil nukes or not” but democracy. & before anybody thinks I’m exaggerating – read the conclusions of the report – they are deeply worrying.

  5. Steve Coltman says

    There is much to criticise about UK energy policy but these are not the right criticisms. The cost of nuclear is very much bound up in the cost of capital and the use of commercial capital in Hinkley Point C has made it more expensive than it would have been had it been financed by the government. An EDF manager was quoted as saying lower (government-backed) borrowing costs would drop the strike price to £75/MWh from £92.5. So why doesn’t the government finance nuclear? Partly ideological, partly the budget deficit and partly the Current Account Deficit – the UK has a terrible Balance of payments problem requiring a constant inflow of foreign capital. It is also stupid to build four different kinds of nuclear power station more or less at the same time, destroys all economies of scale. As for the EPR, the Finnish reactor is complete and undergoing commissioning trials, two reactors are more or less finished in China, Flamanville has problems but no reason to write off the whole design. Its just a PWR when all is said and done.

    On the subject of fracking, its a rather nuanced argument, valid points for and against, I refer you to this article:
    http://www.aldes.org.uk/aldes-position-paper-on-shale-gas/

    • Bas says

      … the use of commercial capital in Hinkley Point C has made it more expensive than it would have been…
      Considering the high percentage of failed nuclear power plants projects in the world (compare with e.g. wind or solar), it’s right that the banks add a substantial risk premium when they finance Hinkley.

      UK govt already subsidizes at least £2B via its guarantee program.
      That lowers interest rates with ~10%, hence shifts the risk premium of 10%, ~£200mln/year to the UK tax payer.
      A major subsidy during ~40years..?

      Why start such a project which implies such risks and require such subsidies (the liability limitation subsidies alone count also for £billion) , and produces against a KWh price of >2 times the market price??

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