He may not have such a pretty face as Amber Rudd, but George Osborne is the real energy secretary these days. However he's proving himself unable to put together a coherent energy policy. Photo: British High Commission, New Delhi (CC BY-NC-ND).
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Nuclear madness: £2 billion for Hinkley C. Why the Treasury must get its hands off energy
21st September 2015
Today's announcement of a £2 billion government guarantee for Hinkley C confirms that Chancellor George Osborne and his Treasury cannot be trusted to run the UK's energy policy - which is precisely what they are doing. On top of decimating the renewables industry, now they're risking billions on a failed nuclear design owned by failing companies. It's time to stop the madness.
The Treasury and its Chancellor are grossly unfit to be in charge of energy. Yet that is exactly what they are. According to a very senior and absolutely impeccable source, the Treasury is now running DECC lock, stock and barrel.
The Chancellor George Osborne today gave the green light to a £2 billion "initial government guarantee" for the planned Hinkley C nuclear power station in Somerset.
The announcement, made during Osborne's five-day tour of China, is intended to "pave the way for a final investment decision by energy company EDF, supported by China General Nuclear Corporation and China National Nuclear Corporation, later this year, and with further amounts potentially available in the longer-term."
Osborne said: "Nuclear power is cost competitive with other low carbon technology and is a crucial part of our energy mix, along with new sources of power such as shale gas. So I am delighted to announce this guarantee for Hinkley Point today and to be in China to discuss their investments in Britain's nuclear industry."
However the Treasury's press release failed to say when the actual guarantees would be issued. Nor did it state the specific risks that would be guaranteed against - that is, the precise circumstances in which taxpayers would become liable for the company's losses.
The Treasury has now confirmed that its guarantees will be subject to an annual 2.95% charge. Under EU rules on state aid these must be offered at a market cost representing the actual risks the project faces. And as Ecologist readers know, these risks are numerous and include:
- further funding to complete the project may not be forthcoming from investors;
- legal challenges to the Hinkley C project, which allege that the generous support planned for Hinkley C represents unlawful state aid, may succeed;
- construction costs may greatly exceed expectations, as observed at the EPR (European Pressurised Reactor) sites at Flamanville in France and Olkiluoto in Finland, running about three times more expensive than originally contracted for;
- the reactors may, in fact, never be completed owing to technical and construction difficulties;
- a future government may decide to abandon the project altogether owing to cost and time overruns.
Nuclear power 'competitive' with renewables? Surely some mistake?
The Ecologist has requested answers from the Treasury's press office to clarify these points and is expecting answers tomorrow (Tuesday) on the risks that woud be covered by the guarantee.
We are also awaiting an explanation of Osborne's claim that nuclear is "cost competitive with other low carbon technology" - given that it's certainly not competitive with field scale solar, nor with onshore wind, even at today's prices - and that all renewable energy costs are expected to decline markedly by 2025 or so, when Hinkley C might actually be producing power.
IRENA, the International Renewable Energy Agency, has done a UK-specific calculation on this (see Fig 2.10 p42) which finds the cost of onshore wind is well under £80 per MWh even after all the costs of managing intermittency are included. In addition onshore wind and ground-based solar projects have bid and been awarded UK Government contracts at a price of around £80 per MWh - with no government guarantees at all.
We were seeking clarification on a serious error in the press release, one that hugely overstates the importance of the Hinkley C project to the UK economy and energy supply. The release states:
"The new plant is expected to produce enough energy to supply seven per cent of the country’s needs, powering around six million homes."
This is a palpable (if accidental) falsehood. Hinkley C would, in fact, supply around 2% of the UK's energy needs. The 7% figure refers only to electricity. This question of the systematic overstatement of the contribution of nuclear power was recently examined in detail by Neil Crumpton on The Ecologist.
A DECC spokesman contacted The Ecologist today to confirm our intepretation - but not before the figure was misquoted across UK media.
What does this tell us? Clearly so important a press release as this one would have been subject to checks by senior Treasury civil servants and, indeed, by the Chancellor himself since these were his own words being reported.
And so the fact so so elementary and egregious an error should see the light of day indicates a profound ignorance about energy from top to bottom of the department.
Not for the first time ... this Chancellor has form
It's not the first such howler to emerge from the Treasury and its Chancellor. Two weeks ago George Osborne said that nuclear power is the cheapest form of low-carbon generation available - cheaper even than onshore wind.
He made the claim as he appeared in front of the House of Lords Economic Affairs Committee in their 'annual evidence session', asserting that the agreed 'strike price' of £92.50 per MWh (in 2012 money, now worth £96.24) is "substantially cheaper than other low-carbon technology like offshore wind or onshore wind."
Osborne also suggested that the UK taxpayer doesn't bear any of the risk should the EPR reactor design planned by EDF for Hinkley C not work. "I'm not bearing the construction risk or the design risk", he insisted.
In fact, the agreement between the UK government and EDF includes a total of £17 billion of construction finance guarantees - of which the £2 billion anounced today is presumably (this is not in fact stated in the Treasury's statement) a first instalment.
The Treasury later clarified the position when The Ecologist asked if they would like to correct the Chancellor's untruthful testimony: "Nuclear energy is an important part of the UK’s energy mix as we move towards a low carbon future. It is also the cheapest low carbon technology that can reliably generate electricity at such a large scale."
However now the Chancellor seems to have backtracked to his earlier, untenable position with his statement today that nuclear power is "cost competitive with other low carbon technology."
But even the Treasury's more qualified statement is highly disputable. As shown today in a report for Greenpeace, combinations of renewable technologies (solar, onshore wind, offshore wind, tidal), deployed over wide geographical areas, combined with energy storage systems such as batteries and pumped hydro, energy efficiency and 'dynamic demand' (adjusting demand to the supply of power available at any point in time) with rarely-used fossil fuel backup can achieve a high level of reliability.
Moreover the key test for a power generation system is to match power supply and demand. And nuclear power does this very poorly, since it keeps on generating at a more or less constant rate day and night completely independent of demand. So it's very bad at meeting peak demand, as it's unable to ramp up. And it provides masses of unwanted power (but still at very high guaranteed prices) at night when demand drops off.
The Treasury must get its filthy mitts off energy!
What all this shows us, above all, is that the Treasury and its Chancellor are grossly unfit to be in charge of energy, lacking the most basic technical competence and understanding of costs.
Yet in charge of energy policy is exactly what they are. According to a very senior and absolutely impeccable source who spoke exclusively to The Ecologist, the Treasury is now running DECC lock, stock and barrel.
Is it just a question of the normal oversight of departmental expenditure, we asked. "No it is not. The Treasury is in charge of DECC." Even down to matters of fine detail? "Yes, in the finest detail. DECC is no longer an independent department. It has to do exactly what the Treasury tells it to. It's micro-management."
So where does that leave Amber Rudd, DECC's secretary of state. "She's secretary of state in name only. She can go off to Paris and talk about climate as much as she likes, but that's about all she can do. As far as UK energy policy is concerned, she might as well not be there."
So she's just a pretty face to front up the Chancellor's policies? "That's it, yes, just a pretty face. Or not as the case may be (laughs). But yes, her role is just to present policy. Pure PR. She doesn't decide a thing."
Do we have a problem with that? Not as such. But what is essential that the UK's energy policy is determined by people who actually understand energy, and who are capable of integrating energy policy with climate change objectives and commitments on renewable energy.
George Osborne and the Treasury have made it abundantly clear from their gaffes, untruths and the extraordinarily inept policies they have thrust upon DECC that they are entirely unfit for this role.
If one thing is clear in the incoherent mess that is UK energy policy today - which is set to to saddle UK taxpayers and energy users with a disastrous combination of high prices, massively subsidised nuclear power, rising carbon emissions as fossil fuels are forced to plug the gaps in both nuclear and renewable power delivery, and a growing likelihood of blackouts - it is this:
George Osborne and his Treasury department must get their hands off DECC. Amber Rudd - a former Parliamentary Private Secretary to Osborne - must give way to a new and independent secretary of state, free to put in place rational, coherent and consistent policies on energy and climate change.
Oliver Tickell edits The Ecologist.
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