Hinkley C – On or Off!


Under the Large Combustion Plant Directive, set by the EU in 2002, it was agreed that emissions emitting power stations would be given a timed allowance in hours at the end of which they would shut down while by the end of 2015 all such stations would close.  So, under this agreement, our coal fired power stations have been run in to the ground to coincide with their planned shutdown date.  Minimal investment has been given to them and therefore, in spite of the vulnerable position the UK now finds itself in, in terms of generation capacity, it is too late to revive them.

Fourteen percent of UK capacity is going down while plans for full replacement are nowhere near fruition. With large industrial consumers prepared to reduce consumption in periods of high demand, the system will scrape through this coming winter but potentially there could be a shortfall looking ahead.  One solution to the problem, but in the long term, has been to commission new nuclear power stations to provide sustainable carbon free electricity.  The plans to build a third nuclear powered station at Hinkley, Hinkley C, has been part of that aspiration for at least the last ten years but this will not give a short term solution.

Investment has been the issue, particularly with falling energy commodity prices.  For the consumer, the commodity costs have fallen but the overall cost has risen, primarily due to increased environmental levies and other charges.  The UK fleet of nuclear stations had been run by British Energy but when the company failed in 2008, it was taken over by EDF the French electricity provider.  BE failed when the commodity price fell below £20, a level at which the company could no longer provide a service.  This has been a successful solution for the UK and also giving EDF the opportunity to invest further.

Looking ahead, the UK is vulnerable in terms of its energy supplies.  Much of its gas has been sold off cheaply across the Continent and by 2020 it seems that 80% of gas will need to be imported.  The UK does not buy gas from Russia but in the event of a shortage from Russia, those countries that do, will seek alternative supply sources, such as from Norway, and this is where the UK will be cut short.  Furthermore, the UK’s Continental partners have also made it clear that in times of stress the UK will probably be the last to be supplied by them, as demonstrated back in 2005.

LNG imports are building up primarily from Qatar, the Middle East where oil comes from.  The world is currently awash with oil and gas so supplies are plentiful but this will not be the case for ever.  Renewables are making up a larger element of the generation mix but they are not sustainable – the wind doesn’t blow on cold days.  Small gas fired power stations are being commissioned but gas isn’t so clean, being at least thirty-five percent as dirty as coal.  So, looking ahead to a cleaner, sustainable and long term solution, nuclear is the winner and fortunately this decision does have cross-party support in the UK.

The cost of Hinkley C is estimated to be £18bn and to undertake this massive project, the providers need a guaranteed return.  For this to happen a commodity price of £92.50 has been guaranteed and this may seem high against the £40-50 range in recent times, but this will be in at least ten years’ time and allowing for inflation plus increased environmental costs and a change in the available energy mix, this has to seem reasonable, certainly when compared to other projects like Carbon Capture and Storage and Wave power which want significantly more.  Conversely, we can forget about environmental aspirations and go back to coal and looking across Europe this is exactly what seems to have happened in Germany where renewable usage has soared alongside that of coal.  The benefits of one have been cancelled out by the emissions of the other!

The debate of Hinkley has dragged on for many years and with the new UK Government in place, on 14th. July Philip Hammond, Chancellor of the Exchequer, announced that we have to make sure that the project goes ahead.  However, he was a little short on some of the fundamental facts.  Nevertheless, the statement indicated that the UK Government was still on track to proceed in spite of the change in Government and the vote to leave the EU.  Then, last week on 28 July, EDF finally announced that it was in a position to proceed with the project in co-operation with its Chinese partners, the China General Nuclear Power Generation (CGN) and the UK Government. That should have been the end of it!

So, at the final stage towards contracts being signed between the UK and French Governments for work to commence, on the following day, the UK government decided that it wanted to “review” the situation and would then report back some time in the Autumn!  One finds it difficult to believe that current ministers had no or little understanding as to what the project would entail before their current appointments and Philip Hammond was certainly out of the loop on this one when interviewed a couple of weeks’ ago!

This is a project that will supposedly provide six to seven percent of the UK’s generation requirement and employ around 25,000 people in the South West of the UK.  Furthermore, there will be opportunities for UK companies to supply parts and materials although there will not be any guarantees on this particularly when the developers are themselves non-UK!  Work could commence shortly but the actually start-up of the plant will not be for at least another ten years.  In the meantime, the energy gap will increase.  To proceed would certainly be a positive long-term decision and one hopes that more will follow, but until the UK Government agrees and its partners are still willing when it does, the saga will drag on.

John Hall

John joined Alfa Energy in 2013 as Chairman, where his specific interest is the development of the company’s profile in the areas in which it primarily operates - across the EU and the US. He is Fellow of the Energy Institute, a Member of the Parliamentary Group for Energy Studies, an Associate Member of the Chartered Institute of Purchasing and Supply, and a Member of the Market Research Society. He began his long career in the industry when he set up John Hall Associates in 1973, a company which merged with Energy Quote in 2009 and currently trades as Energy Quote JHA.