Mind the Gaps – Hinkley is more like Trident

Extract from BBC Reality Check

The claim: The cost of Hinkley Point C to bill payers has risen from £6bn to about £30bn.

Reality Check verdict: The projected cost of guaranteeing the amount paid for electricity from Hinkley C has risen considerably because the government forecast for the wholesale price of electricity has fallen.

Another figure that is given in 2012 pounds is the government’s estimate that the cost of Hinkley C will add £10 per year to each household’s bill…. It’s a figure that Andrea Leadsom gave to a parliamentary committee in May. But the National Audit Office says that figure for project cost has risen to £29.7bn, and if you calculate that per household per year then you get to £25 per household per year.

The ‘Certaintists’ are certainly wrong

Sorry Andrea Leadsom, National Audit Office and BBC Reality check (‘Certaintists’) you are all WRONG.

We can all agree that the cost of Hinkley (and any CFD supported power plant) is calculated based on the difference between the strike price and the price of electrons in a wholesale market. We know the strike price £92.50 increased by inflation from 2012, we do not know the wholesale price of energy over the next 35 years. As with many energy projects the problems are in the assumptions.

The Certaintists have assumed that the Government is a good source of forecasting for power prices as if it is was the Government that sets them. Experience shows that forecasts of power prices over the long term are always wrong in a material way. No we have gaps and issues and I can summaries them here. Firstly here are some issues to consider;

  • No one (and I mean no one) has any idea what the future price of gas and oil will be
  • The only capacity being added to the power system today is sponsored through a subsidy provided by Government and has a zero or very low marginal cost and so can displace any other generator when it is available to generate
  • No one knows if we will desire to meet our stated aims in the Fifth Carbon Budget that legally (in theory) binds the UK to reduce pollutants
  • No one currently has a credible plan for how we will meet our stated aims of pollutant reduction in heat and transport but most agree that these will be significantly supported by substitution by power systems.

If a power system is in receipt of subsidised low marginal cost plant the price of power will not increase it will decrease and so therefore the fact that we wish to reduce pollutants in the next 35 years means that the cost as defined as the difference in price as above will rise if you use these fundamentally flawed assumptions.

Mind the Gaps

There are gaps in the approach to reducing levels of pollutants;

  • Enforcement gap; In the UK we have air quality standards but we do not meet them in many parts of London, if we have a change in heart sponsored by a public outcry to meet our pollutant targets led by informed younger people that might then apply to ALL pollutants and drive up the price of fossil fuels through carbon tax
  • Global Warming gap; There is a gap between predicted global warming if we all globally achieve our Paris pledges and the required path to 2 degrees or less of global warming.  That warming gap is as wide as say a gap of two meters between the tube and the platform, which is for most too wide to jump. If we committed in the next 10 years to actually make the gap say a mere 50 cm then the investment needed in power assets would be huge and non-fossil
  • Energy storage gap; we need to store the increasing levels of renewable power and industry is still working on these technologies and as yet we do not know what they cost

We need to reconcile these issues and gaps if we are to talk sensibly as society about how we transition to a low carbon economy, figures such as £10/customer etc. simply do not help and have so many assumptions attached as to be certainly wrong and more importantly worthless as a source of information for society.

A better way but unfortunately not quantified[1] would be to say; Government invests in Trident as it has determined that it is in the nation’s security interest, Government invests in Hinkley as it has determined that it is in the nation’s energy supply interest.

 

 

 

 

 

[1] The road to a quantifiable answer is only achieved once we have a global price for the pollutants as well as a limit on their use

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