Greentech Media, October 06, 2016
by Andy Stone
U.K. Prime Minister Theresa May recently gave the green light to Hinkley Point C, a long-debated nuclear power project backed by French and Chinese capital. Many skeptics believe it is a financial boondoggle in the making.
The project’s lead, French utility EDF, has €37 billion of debt and declining revenues at home. Voices both within and outside EDF have warned that Hinkley C will bankrupt the company. The British have promised to subsidize the £18 billion project through a 35-year contract that will pay EDF twice the wholesale electricity price for the power the plant produces, while passing the bill to British ratepayers through extra electricity costs totaling up to £2 billion annually. (Although because the electricity is sold at a fixed price, that doesn’t mean it will be twice the wholesale price for 35 years.)
But it will also provide a long-term supply of clean electrons representing 7 percent of U.K. energy demand. So how does Hinkley fit into Britain’s decarbonization plans?
The U.K. has committed to reducing its emissions 57 percent below 1990 levels by 2030 to 25 MTCO2e per year, and will be a signatory of the Paris climate agreement. A decade from now, when Hinkley will presumably be on-line and renewable power will be cheaper, more capable, and more likely to be backed by batteries, it’s uncertain whether the country will still have need for large and inflexible (albeit carbon-free) baseload capacity.
The question is larger and more complex than Hinkley itself, and at its heart reflects a complex balancing act involving energy security, diversity and the country’s broader industrial aspirations.
Britain’s carbon reduction goals demand a reshuffling of its generation fleet. By the end of the coming decade the country’s 20 gigawatts of coal-fired generation will retire. An additional 6 gigawatts or so of aging nuclear will also close, eliminating more carbon-free energy than the 3,200-megawatt Hinkley will replace.
“Depending on the degree of renewables deployed, you’ll be adding a level of peaking plants, and alongside that we’re also going to be renewing 20 to 30 gigawatts of gas plants,” said Mark Fitch, an energy and utilities expert in PA Consulting’s energy group in the U.K.
Gas will be the choice to replace lost baseload and also contribute to lowering the U.K.’s greenhouse emissions toward the 2030 goals. Hinkley’s climate contribution, even if accompanied by other nuclear projects in the works, looks comparatively minor.
At the same time, nuclear’s ability to contribute to carbon reduction is increasingly being questioned. The World Nuclear Industry Status Report 2016 warns that nuclear will be of limited help to countries looking to meet their carbon reduction commitments under the 2015 Paris climate agreement:
“While no energy source is without its economic costs and environmental impacts, what has been seen clearly over the past decade, and particularly in the past few years, is that choosing to decarbonize with nuclear turns out [to be] an expensive, slow, risky and potentially hazardous pathway, and one which few countries are pursuing.”
At the same time, the report notes that cheaper renewables are on the rise in the U.K.:
Renewables’ share of electricity generation increased from 19.1 percent in 2014 to 24.7 percent in 2015 overtaking nuclear generation, and British renewable projects continue to demonstrate robustly lower market prices than the price guaranteed for 35 years to the largely French-state-owned owners of Hinkley Point C.”
But PA’s Fitch has a more nuanced view of the potential for renewables to pick up the slack over the next two decades.
“In the U.K., you have to take into account the degree of landmass that’s needed to site renewables. You need to give up space, and that space is at a premium,” said Fitch
“If you look at the long-term requirements the government has put itself under, then nuclear is the only large-scale, scalable source that can take chunks out of emissions without using significant landmass or biomass that raise sustainability questions. The government needs to keep its options open,” he said.
The U.K. has committed to as much as 20 gigawatts of offshore wind development by the 2020s, in part to skirt land-use issues, versus 15 gigawatts of projected new terrestrial wind power.
While the government’s guarantee to EDF of £92.5 per megawatt-hour over 35 years is generous, “the strike price of offshore is higher, and biomass conversion is similar,” said Fitch.
The sum of new wind and solar power won’t meet demand. But what about the potential for battery storage and energy efficiency to collectively enable reliable power from base to peak?
Fitch’s view is that it’ll take the emergence of a viable storage model to make the grid flexible enough so that renewables can underpin the electric system. His bet is that electric vehicles will be the key source of that future storage.
“EV’s cut the peak, since you’d use the car’s charge to power your lighting in the evening. You’d have roughly the same demand peak that you have today, but energy consumption would look massively different,” Fitch said. But he doesn’t see EV’s substantially changing the electricity demand profile until the late 2030s.
In that light, nuclear seems to be the surest bet as the U.K. looks to continue reducing its carbon footprint into the 2030s, which will require the phasing out of much natural-gas-fired generation to reach 80 percent carbon reduction by 2050. At the same time, nuclear guarantees that there will be reliable baseload for British industry, which has aspirations in energy-hungry industries including microelectronics and pharmaceuticals.
Of at least equal importance is nuclear’s ability to help insulate the U.K. from natural-gas supply concerns.
“Effectively, if you’re going to turn all your coal plants off and use natural gas, you have to consider where that gas comes from. Geopolitical considerations mean that relying on a single primary energy source would be risky,” said Fitch.
Last year the British government canceled bidding for a trial carbon-capture and storage project, and is now reconsidering its support of future CCS development. In the interim, the U.K., given its limited grid connection to continental Europe, has the choice of gas or nuclear.
Given that choice, nuclear is an energy security hedge that Downing Street is willing to finance.
That doesn’t mean renewables aren’t a long-term solution with a bright future in the U.K.
The government has offered the renewables industry rate guarantees similar to those it’s promised to Hinkley, though the wind industry has matured to the point where developers now submit auction bids to win 15-year guaranteed power supply contracts. Natural-gas generators have benefited from capacity mechanisms for financial support as electricity prices have fallen.
The British might be counting on an additional benefit from a revived nuclear industry. The West’s aging generation of nuclear experts is fast approaching retirement. In France, 50 percent of nuclear workers will retire within five years.
“From a British perspective, this is quite good news for industry,” said Fitch. “A whole supply chain will grow up here, and we could find ourselves with a good base of experience and knowledge. There aren’t many fresh-faced nuclear engineers knocking about.”