Three reasons why Hinkley Point should be built

I work for Turquoise investing in and raising funds for Energy, Environment and Efficiency companies that in the main are in competition with Nuclear Power. In my previous career, I have never worked on nuclear projects. So why am I making a case for Hinkley?

Let’s start at the beginning. The UK has now adopted the Fifth Carbon Budget, limiting our emissions of pollutants such as CO2 to a level 57% less than that recorded in 1990 en route to a target of 80% reduction by 2050. We have, as the UK (note: not as the EU), made this the law of the land; in theory it would be an illegal act for any Government to fail to deliver on this commitment.

Science tells us that, during this century, we will probably need to stop using any form of fossil fuel in our heating, transport and power systems unless we capture the pollutants and store them.

So far we have met the early carbon targets because we have been lucky, not through any particularly brilliant and consistent energy policy intervention. Gas became cheaper than coal in the 1990’s, we have quietly become more energy efficient and the 2008 crash reduced industrial activity. All of this would have happened with or without a carbon budget. Of course, we have made significant progress in wind power and some other nascent areas but basically we have not really begun the task of decarbonisation in its own right in earnest.

The carbon budgets are for ALL energy use: heat, transport and electrical power. It is clear that in heat so far we have done nothing, in transport practically nothing and in power quite a lot. In most forecasts the power system will be the first (by miles) to become 100% decarbonised and that will be necessary to compensate for the lack of progress in the other two sectors. So, how are we going to do it?

Now we could build gas fired CCGT at a cost of £47/MWh but that assumes they run for 15 years or so and a lot of the time, as above we are not allowed that freedom by the simple fact that the fails in heat and transport require power to do all the heavy lifting. If you try and pay for a new CCGT in say a 5 year period to avoid this conundrum its cost of power goes up in a material way and certainly above the Hinkley price.

I’m Chair of the Energy Research Partnership Steering Group analysing how a utility might look in 2050 (we call it #Utility2050 – genius). If we wish to watch TV and drive our Teslas ‘whenever’ whilst not freezing ‘ever’, we need to balance a growing power demand with a shrinking power supply and to do that every 1/50th of a second (as is the grid requirement). Not an easy thing, so we look to energy storage and demand side management to help.

OK batteries are here and getting cheaper but the long term stated targets are $50/MWh all-in (compared to around $400/MWh for Tesla Powerwall currently) and then you have to add the cost of power itself on top of that so $50/MWh to store and £115/MWh to make (using wind) is an all in costs of say £141/MWh; are we sure it’s not cheaper to just dump abundant renewables if we can’t use them or ship them somewhere that can and use an old coal station converted to biomass use and revamped to cover the gaps? Demand side could make a huge difference but we have to explain that to consumers as it’s probably going to involve giving something up, most likely the ‘whenever’.  What seems clear from the initial #Utility2050 work is that we don’t know a lot more than we do know.

HMG is the buyer of all new capacity in the market, no one invests in what we used to call merchant power, and it is all CfD or Capacity market fed. So if you are the buyer of all new electricity capacity in the market what power would you buy on behalf of the nation?  Well here are three reasons why, given the above, you would buy from Hinkley:

  • Hinkley is cheap: forget all the baloney about the world’s most expensive power station, we are only paying for the power at £92.50/MWh (and if it doesn’t work we don’t pay). Compared to, say, intermittent offshore wind at £115/MWh (which by the way I think as an industry has a massive future, so relax if you’re in wind defence mode) it looks attractive. As mentioned long term and hard running gas CCGT is cheating on our carbon aims.

 

  • Hinkley is baseload: it runs all the time, can be turned up and down more than you think and I, for one, will sit eating a mince pie on December 25th in the mid-2020s at about 16:30 with the TV on hoping it is a dark crisp winter’s night outside and confident that Hinkley Point at least is blasting out electrons full tilt.

 

  • Hinkley is consistent: we have had 14 Energy Ministers since 1996, we have flipped and flopped from Carbon pricing ON/OFF to competition ON/OFF to state buyer models to feed in tariffs ON/OFF and ROCs ON/OFF and I don’t know what else. HMG has spent considerable time attracting investors into Hinkley and changing its mind for no good reason (and there are none) would be a very bad step for meeting the funding needs of an energy system in unprecedented state of transformation. Note that we are not increasing our nuclear fleet in the UK, just replacing old stations (something that good old engineers like me would have quietly done in the past without fanfare).

The energy industry needs to come together to explain to society how we are going to meet our decarbonisation targets in the medium and long term. It’s not Nuclear v Renewables or Low Carbon v Fossil; we will need all concerned working to a common goal to transform the system whilst keeping the lights on at a cost we can live with in 2050.

Hinkley should proceed with confidence from investors, owners and customers that it is a useful part of the bigger and harder-to-solve jigsaw puzzle. Politicians should man (or woman) up and say so.

 

Universal Prepayment – In the National Interest

Universal Prepayment – in the National Interest

This proposal recommends a radical redesign of the GB retail gas and power market.  The redesign has a number of material affects that are in the public interest and should be considered by Government;

  • Consumer engagement would be enhanced
  • Margins in retail energy could fall from 5% to 3% making energy cheaper
  • Consumers are able to purchase energy at any time from any licenced supplier
  • Consumers can make payment in any way they wish
  • there would be no differential price for the payment method chosen
  • Instantaneously the number of retail suppliers could increase in a material way

The redesign is actually a relatively minor change in the current smart meter roll out plans and does not require the existing legacy systems to be altered in fact the entire technical functionality could probably be delivered by the Data and Communications Company. The proposal would be rolled out with smart meters. The Big 6 may not be unsupportive of this proposal and this would need to be tested in the evaluation.

Proposal in detail

The current smart meter roll out envisages meters operating in prepayment and credit mode.  The specification should be modified to only operate in prepayment mode (“Universal Prepayment”) and each prepayment converted at a single price to a number of kWh of fuel delivered by any licenced supplier. The first point is straight forward the second two points are a radical departure from current market design.  All three parts are required for the operation of a Universal Prepayment system.

Each prepayment made by a consumer can be considered as a bag of sugar on a supermarket shelf this Energy Delivery can be supplied by any licenced supplier; independently of which supplier is responsible for the meter point within settlement. The Energy Delivery can have clearly defined characteristics of time of use and renewable, local, nuclear supply etc.  There would be no confusion and billing would be trivial, no different to a bag of sugar in a supermarket and indeed we would expect Energy Deliveries to be sold by many retail outlets including supermarkets.

The stock of energy would be visible on the In Home Display and smart meters as a residual store of kWh of energy as currently planned.  A web and mobile platform would be made available by Energy Delivery suppliers to show purchase history and any auto top ups etc.; not dissimilar to the Oyster Card system.

There is no public interest benefit in allowing the release of energy at the point of sale for free; credit deliveries should be eliminated in any case. Meters that were designed in an age of energy being ‘practically too cheap to meter’ are not suitable for an age where 4.5 million households (and rising) are in fuel poverty; energy is cash.  Operating in credit mode where energy is effectively freely released at the point of use, energy debts rise causing a natural tension between industry and the consumer. Short lettings, student accommodation, even at the extreme cannabis growers, all demonstrate how the supplier model is at a major disadvantage from the requirement to ‘find’ a customer after the product has been delivered.  Universal Prepayment would reduce supplier costs through eliminating bad debt, simpler supplier back office; a single Universal Prepayment process.

Energy Deliveries will enable consumers to purchase energy in a fixed quantity in advance, these Energy Deliveries can be purchased from a fully liquid market where a switching process is unnecessary; vastly increasing the competitive market in itself.  Each Energy Delivery would be bar coded with the supplier identity. Like petrol, suppliers will attract customers to take deliveries from them on a variety of offers around a fully transparent and RMR compliant price offer. Unit Rate energy would be in Energy Deliveries and the meter point supplier would bill for Standing Charges. Wholesale liquidity will be transformed as no supplier would own a customer and volumes will be fluid causing active and inclusive trading in the wholesale market; a very useful backdrop to the setting of CfD strike prices.

Universal Prepayment does not affect the payment method of choice in a smart world.  Receiving energy supplies form a Universal Prepayment smart meter would not preclude customers from paying by monthly Direct Debit or quarterly by cash and cheque but it would require such payment to be in advance of delivery.  Customers would need to manage their energy purchasing as they do with sugar and petrol; unlike sugar but as with petrol, technology can feed back to them when their stocks are low. Failure to purchase energy in advance, as for a motorist, results in service failure. Rather than a bad thing this is seen as a good discipline; typically motorists do not run out of fuel and we should expect the same in energy supply. By requiring a consumer to pay for energy in advance the energy efficiency behaviour changes in an obvious and meaningful way. The consumer has yet to consume the prepaid energy and so is in a position to become more efficient with its use.  A credit mode customer has consumed the energy and simply has the pain of paying for it. In a tightly constrained market where demand response is needed a Universal Prepayment system would be very handy.

The energy settlement systems operated by XOserve and Elexon would operate in the same way as they do now.  The new design would create an intra-supplier market where aggregated Energy Deliveries would be matched with supplier offers for delivery of the same volume of energy to the same meter points.  This clearing system would require suppliers that wished to balance (say half hourly electricity demand) to bid for groups of meter points that would be ‘switched’ to them to balance.  They would bid for these aggregated meter points in a quantity that matched their generation or PPA abilities alongside their strength in balancing and trading, no different to today.  This bidding process would enable a market to develop in Energy Deliveries. New entrants may or may not choose to participate in the Energy Deliveries clearing system.

Another way to consider the redesign of the market is that in effect it is a universal collective switching initiative where consumers exercise their right to purchase all the time.

Some £1-4 bn of cash (depending on consumer choice and season etc.) would be paid in advance by consumers and this needs to be put to good use.  The Green Investment Bank (or repalcememt) would be able to take ownership of this (or some other regulated body) and consumers would get an interest rate benefit from the aggregated sums.  There is a rationale for new suppliers having access to this credit source as they all have to purchase energy in advance of delivery and currently this is the most significant barrier to new entrants. Under a regulated system new entrants could be incubated into the market and allowed access to the consumer credit to meet their initial wholesale Mark-to-Market and credit support terms offered by the energy wholesale markets.   Careful structuring around the Supplier of Last Resort mechanism would protect consumers from any loss far better than the current systems do.

A Universal Prepayment world can operate in confidence for a consumer, they buy in advance and it’s up to them when they consume the delivery; if they want total anonymity in this they can have it.  Experience with prepayment customers is that they like their prepayment meters; in Northern Ireland they even write poetry about them. There is time for this design to be assessed within the smart meter programme and this proposal can only work alongside the roll out of smart meters. A Universal Prepayment can only be delivered by Government (not by new entrants) and would transform our industry.  Recent events show again that we have to be more innovative and ambitious if we are to reverse the cycle of mis-trust generated by displays of misunderstanding between legislators, companies and consumers, held in a public forum.

Consumers will benefit from lower costs, a transformation in competition with energy being fought over Energy Delivery by Energy Delivery (as with petrol and food) as well as the original objective of the 1998 laws to stimulate an active and diverse set of energy suppliers of all sizes.

I propose that a think tank session is established to review the pros and cons of this proposal ASAP and I am happy to do what I can to support that exercise.

 

 

David Casale

CEO and Founder, Open4Energy Limited

To you the Brexiter: Have you been asked the wrong question?

Here are some better questions for you to see if you can answer and still vote OUT with a conscience.

Until the Conservative Party decided to put the referendum question to you would you have been actively pursuing an exit from Europe today? If NO then read on, if YES then you have probably made up your mind. I would guess that over 66% of my connections on social media would answer ‘No they would not have been bothered by the European Union on 23rd June this year’, possibly over 90%.

So you have been asked to answer a question IN or OUT (Black or White), this is quite clearly the wrong question. Neither side has been able to make a crystal clear case for/or against as the issues are very complex and require a much more careful analysis.

A downturn affects the poorest first; have you considered the Country or your own situation regarding the economy?  With immigration are you sure it’s not a different point, the Orlando bomber was a US citizen not a migrant etc., we have millions of second and third generation migrants that are 100% British (like me)? Does the essential nature of our sovereignty really change because we are in Europe?  Are you sure that Westminster is such a great law maker? We have clean beaches now thanks to EU law FYI. Can you name a single European Law that is not fair? Have you really taken the time to consider all the other bits and bobs? Does Scotland leave the British Union? What visa requirements will I need to pop across the channel? What Health care rights will I have in the EU? Without the UK what kind of Europe will our neighbours become?

So I put it to you that you have the following backdrop to being asked this dangerous an ill-conceived question;

  1. On 23rd of June had the Conservatives not placed this in their manifesto would you be bothered by the European Union on 23rd June 2016? In reality would you have been doing something else quite happily?
  2. Are you being led astray by some half-baked careerist politicians who are playing on deep routed suspicions about the role of immigration in the development of our fantastic tolerant community and the idea of a ‘Little Britain’ telling the World what to do?
  3. This is in any case the wrong question a more realistic question would be; ‘We have listened to the demands of the British people and we have documented them in the ‘Why we are Leaving Europe Manifesto’ that outlines in detail the issues we need resolving and how we will deal with the same issues when we leave’ this cross party manifesto needs yous support; Do you support the Leave Manifesto? That is a question (given a year’s preparation) you could answer.

You have three choices on 23rd June IN/OUT/NO VOTE I put it to you that a NO VOTE is the same as a OUT vote (as you are currently IN the EU and the only outturn that results in a change is an OUT result). So you must vote and you must pick IN or OUT Black or White.

For me to make my mind up I have reduced the issues down to four points that I believe have equal weight, I put it to you that unless you are 100% sure you can vote OUT against MORE than two of these points then you should Vote IN=REMAIN.  We are IN Europe now a vote to change that should be much more than a 50%/50% voting maths in the referendum for me it should be 60%/40%. This in itself would probably answer the question with an IN=REMAIN. Here are my takes and the four issues;

  1. Economy – It seems clear that an OUT vote is a leap into the dark
  2. Immigration – Genuine and justifiable concern led by death from small boats, Calais, terror etc. However, the problem is much more complex and doesn’t change much with an OUT vote, 3/7ths of net migration is from outside the EU in any case
  3. Sovereignty – Each of Italy, Germany, Ireland, France, Spain, Netherlands etc. are all independent sovereign states that choose to pool some issues to gain better global traction, that’s good for them and good for us. It’s two sides of the same coin independent and interdependent.
  4. Bits and Bobs – There is a long list of side shows and not so side shows e.g. will Scotland leave GB, will we need visas?, what about health care when in Europe?

If you believe in democracy and can place you hand on your heart and say that 3 or all of these issues leads you to vote OUT then go ahead, because I believe in democracy too, but if its only 2 of them then you should do your duty to your Country and vote IN= REMAIN and join me in taking a much more active stance on this issue in future.

We need a new energy Trilemma … like a hole in the head! (Part 2)

Having dispatched Trilemma1 to Room 101 let me now try and place a finger in the dyke of Trilemma2 recently proposed by Mr Marchant before it is taken seriously by anyone and a dam wall breaks flooding regulators with confusion and obfuscation that is not required.

Trilemma2 has raised three related but simple issues;

  • Flexibility (… time of use in old money)
  • Meeting of needs
  • Affordability (… price in old money).

Let me dismantle these one by one. Flexibility, and the need for the energy system to turn up and down to meet customer demand, has been with us for years, works fine and has been a spectacular feat of engineering … at least cost.  Yes, in the future, we may all own solar panels and electric vehicles but it is not going to happen overnight and the system can support a great deal of this already.

Ask yourself the question what happens if the industry doesn’t meet customers’ needs?’ and you have my problem with this second suggestion. The industry by and large meets current customer needs; some may want more tech and control in their lives but are being offered this already. The market is responding.

At last we arrive at the key issue of price. Customers, quite understandably, believe they are getting a raw deal. Regulators are dispatched on 5 yearly cycles to investigate, and come back with the same answer: they are not getting a raw deal on price. However any industry that languishes 43rd-45th out of 45 home services rated and purchased by Joe Voter is likely to be bashed and so it is. What the industry has failed to do is publish the value in the products of gas and power, i.e. how good we are at keeping lights on and delivering least cost energy system that, almost without the customer noticing, is transitioning to a low carbon world. The industry is also failing to provide an infrastructure that allows an ‘internet of energy’ to develop. Just compare your meter/bill and your smartphone … notice any difference? I’m afraid the new smart meter roll out is only going 1/10th of the distance needed.

Here is a new plan:

  • Agree as society, absent political yo-yoing, what our carbon budget is and transmit that to the world to get their OK (whilst also noting what everyone else is doing)
  • Interconnect like there is no tomorrow
  • Plan to develop an energy system through some form of Energy System Architect (Central Bank of Energy, if you will) at LEAST COST
  • Allow Tech City folk to educate the old brigade at the not-so-smart-meter-central what they could do if they could only get access to the meter cupboard.
  • Enjoy the smiling faces of the customers as they bathe in an abundant, low cost and transitioning energy system.

I’ll get my coat…

 

We need a new energy trilemma

We need a new energy trilemma … like a hole in the head!

Ian Marchant, ex CEO of SSE and ex IE President, has suggested we need a second Trilemma (see below). However, as the first Trilemma achieved nothing, the second is surely a step in the wrong direction.

The first trilemma was a brain teaser that the power industry created where it was befuddled into doing very little as it had three problems it needed to solve and couldn’t. They were (in case somehow you managed to avoid them):

  • Security of supply
  • Decarbonisation
  • Affordability (price…. in old money)

If I had a penny for every CEO of the major energy companies who has a slide with these three issues on it, I would retire.

The trilemma came to an abrupt end some 10 years after its birth when HM Treasury slapped a Levy Control Framework on the industry – in effect a cap on spending, or in economic terms a price limit.  The Treasury’s realisation was that we can only do what we can afford to do., Planning to achieve something other than that should be a crime (alongside banking crime).

The lost billions as the industry sent itself around the trilemma merry-go-round could have been usefully aimed at the problem which is, and always has been, delivering power at the least possible cost.

Least Cost Energy Planning (as it was known prior to when the fated trilemma invention took hold) is a lost art. It does not take place without the other two key issues and never has done. Environmental limits have been part of the power industry challenge since the dawn of time. The fact that they are now more stringent is no surprise.

Security of supply has also always been part of the industry. Until recently, we’ve paid for it with a capacity charge – a concept now belatedly making a comeback as the Capacity Mechanism –  and in gas, a bigger pipe.

Let’s take Hinkley Point C. This is a new nuclear station that, when built, will replace an old nuclear station or two  – no trilemma here, just a least cost planning need. Let’s take a less well publicised topic  – interconnectors with Europe. Brexit or not the drive to interconnect has and always will be strong as it’s cheap. As gas and power interconnection capacity grows, so does security of supply. Approximately 7,000 MW of new interconnection is planned in the UK, twice as much as Hickley Point C – by the way, as yet, this is hardly mentioned in the press.

We need a referendum on carbon, which in my view poses a much simpler question than the Brexit issue.   Possible topics include :Do you think that the United Kingdom should deliver on its commitment (to the world) to decarbonise our energy system by 80% by 2050?

The Intended Nationally Determined Contributions (INDCs) agreed in Paris are the sign that, referendum or not, the world is moving towards carbon budgets. Our INDC (either inside or outside of the EU) will be discussed with us by our global trade partners such as USA, India, South Korea and China (amongst others). They may take a dim view of anything other than a plan to deliver.

So we have a carbon budget (no, we do), we are energy secure as it is abundant (check the oil price) and why should we pay more? Our industry needs to bury trilemma1, man up and get back to some good old fashioned least cost energy planning.

 

In part 2 I commit the second demand side trilemma to room 101.

 

 

We need a new energy trilemma

The Heat is On

Apart from being one of Gloria Gaynor’s better known hits, it also signifies that, as of today (Friday 15 October), the heat in our home will be on. Many of you will have had your heat on since the cold snap in September or so National Grid tells us from daily demand for gas. This evening, my wife will raise a glass to the start of our heating season, picked to match the Soviet Union (more of that later…).

To quote Ed Davey (who? Energy Minister in 2014):

‘… there has been a historic failure to get to grips with one enormous part of the energy jigsaw; the supply of low carbon heat… We have, however, inherited a big hole where there should be policy for finding alternatives to fossil fuel for the supply of heat. In a country like ours, and for obvious reasons, we require a lot of heat: a consequence of our geography, our housing stock and the scale of our industrial activity. As a country, we spend £32 billion a year on heating. It accounts for around a third of our greenhouse gas emissions. Without changing the way we produce and consume heat, we will not meet our long-term climate change target. To get there, we are going to have to change the way we generate, distribute and use heat in buildings and industry. And we are going to need those changes to take place in an orderly, cost-effective way that ensures a vibrant, low carbon economy and a supply of affordable energy for all consumers.’

Very well said, sir!

Now how are we going to do that? This was a topic for debate at yesterday’s Energy Research Partnership (ERP) event in London. There are currently three runners and riders and each has strong benefits but equally significant challenges:

  • Air source heat pumps
  • District heat networks
  • Hydrogen economy.

These are three exciting prospects if you are, as I am, an engineer who likes to help fund innovative companies. However, they are going to be very expensive, take a great deal of planning, need talented people from a wide range of disciplines and take a decade or two to deliver.

Air source heat pumps

Let’s just say heat pumps in any form, as they can also work on sunshine, river water and Earth amongst other heat sources. These devices are measured on a coefficient of performance of around 2.5 to 3.0 (so three units of heat out for each unit of power in). They are not totally decarbonised as the input power usually comes from the grid. They have the advantage of being hung on the side of houses but that creates issues for blocks of flats. There is also a concern about noise and a question as to whether in the depths of winter they can produce enough heat for our leaky homes…

 

District heat networks

90% of the former Soviet Union uses surplus heat from power generation to fuel a massive hot water distribution system for domestic heating. These systems are normally activated on 15 October each year. However, in terms of applicability elsewhere, consider the well-known joke about a tourist in Ireland who asks one of the locals for directions to Dublin. The Irishman replies: ‘Well sir, if I were you, I wouldn’t start from here’. Soviet cities are designed around their heat systems, whereas we will need to design our heat systems around our cities. Where we build new towns there is an obvious opportunity, one that we are only partly taking up.

Hydrogen economy

OK, I would not have included this in my list before attending the excellent ERP workshop. Hydrogen could be the answer, if for no other reason than it can be done. As you will have seen from walking down the road, we are replacing all of our low pressure cast iron gas mains with bright yellow plastic pipes. It turns out that these pipes can carry H2, so we can supply slightly modified boilers that run on natural gas or hydrogen. All we need is a lot of H2 and a good PR department. If that sounds far-fetched, remember that, 60 years ago, Town Gas was 52% hydrogen. I for one will be getting up to speed on low cost hydrogen production; essentially it’s power and water which doesn’t sound too bad …

So, next time you place your hand on a warm radiator, ask yourself:

  • Should this be on? (If it’s past 15 October, when the Soviets turn the heat on, then you’re ok)
  • How will we do this in 2050?

 

Enjoy the heating season !