Future Energy Prices: Correspondence with MP & Michael Fallon

Peter Lux: Friday 1 November 2013

Dear Peter Aldous,
I am writing to ask you to explain the reason why the strike price of £92.5/MWh has been agreed by your government for the power from the proposed Hinkley C power station.
I have looked at the DECC data on future energy prices (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240320/Annex-f-price-growth-assumptions-2013.xls)and even in the ‘high price’ scenario the predicted wholesale cost of electricity only exceeds this in the years 2027-2029. In the ‘central’ scenario it never exceeds £81/MWh. Therefore it seems that even with the governments own figures we expect to be paying a massive premium for nuclear generated electricity.
A well respected investment bank (Liberum Capital) are ‘flabbergasted’
at such a bad deal for the UK (http://www.liberumcapital.com/pdf/ULkWtp00.pdf).
I realise that energy prices are expected to go up above the rate of inflation. This is mainly due to expected increased price of gas.
According to the DECC analysis ‘central’ scenario it is expected that electricity prices will go up 32% by 2020. Why has the government chosen to go for nuclear power which may (or may not) come on line in the middle of the next decade instead of taking the German approach and cutting our reliance of fossile fuels by giving more support to renewables now. The German government predict that electricity prices in Germany will only go up 11% by 2020 (http://www.diw.de/sixcms/media.php/73/diw_wr_2011-06.pdf) and despite the higher cost on household bills at present due to the higer support for renewables it is expected that German electricity prices will be lower than in the UK well before 2020.
I have one further question:
First, given that the proposed nuclear plants may never go online or if they do they may fail to reach their predicted capacity factor what is your governments fall-back position? I would like to note that the Advanced Boiling Water reactors built in Japan (and also proposed for a couple of sites in the UK) have capacity factors well below the expected 90%
(http://www.ge-energy.com/products_and_services/products/nuclear_energy/advanced_boiling_water_reactor_abwr.jsp)- in fact several of the Japanese reactors produced no electricity for several years (http://www-pub.iaea.org/MTCD/Publications/PDF/RDS2-32_web.pdf).

Yours sincerely,

Peter Lux

Peter Aldous: 7 November 2013

Dear Mr Lux,

Thank you for contacting me about nuclear power.

As you know, the Government recently reached a commercial agreement with energy company EDF on the key terms that pave the way for the first new nuclear power plant to be built in the UK for a generation.

The Government is committed to securing the necessary private sector investment. We need a lot of new power stations to deal with years of neglect and a legacy of underinvestment under the previous Government. This is the first time a nuclear power station in the UK will have been built without money from the British taxpayer. It will provide a clean source of home-grown energy and power nearly 6 million homes. It will also cut carbon emissions and reduce energy bills for hardworking households by £75 a year by 2030.

To build enough onshore generation to match what the Hinkley Point C power station would generate, it would take around 6,000 onshore wind turbines.
I strongly welcome this Â£16 billion worth of investment which will create 25,000 jobs, bring in billions in corporation tax and could see Â£100 million injected into the local economy every year during peak construction. The Nuclear Industrial Strategy published earlier this year in partnership with industry establishes a long term approach for the sector to stimulate economic growth and create jobs in this country.

The deal is competitive with other large scale clean energy and with gas at a strike price of £89.50 for this first nuclear project compared with a Â£150 strike price for offshore wind, it is cheaper than onshore wind. It will pave the way for a substantial fall in the cost of future nuclear plants as it is a clear signal to investors of our commitment to nuclear energy. The Government will ensure that the operator of Hinkley Point C will be responsible for the full costs of decommissioning and its share of the costs of waste management.

In order to prevent any national security risk, the National Grid will have ultimate control of the plant once it’s operational, not Chinese authorities. China is the world’s leading civil nuclear expert; it has a record of successfully delivering nuclear plants on time and on budget and it has a commercial interest in doing a good job. With regards to safety, an independent report in 2011 by the UK’s Chief Nuclear Inspector, Dr Mike Weightman, concluded that Britain’s safety regime is one of the most robust in the world and is working effectively, and Ministers are continuing to improve on this as much as possible.

Thank you again for taking the time to contact me.

Yours sincerely,

Peter Aldous MP
Member of Parliament for Waveney

Peter Lux: 8 November 2013

Dear Anna
Your response fails to answer the questions that I asked:
First, on what basis was this price set since it is well above the costs predicted by DECC (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240320/Annex-f-price-growth-assumptions-2013.xls).
You have compared the cost of nuclear with onshore and offshore wind.
However the cost of wind is going down. At present onshore wind receives Â£100/MWh but this will drop to Â£95/MWh in 2018/2019 and is likely to get below Â£92.5/MWh by 2023 when Hinkley may come online. Onshore wind is set to get Â£135/MWh but the Offshore Wind Cost Reduction Task Force say they can reach Â£100 by 2020 (https://www.gov.uk/government/policy-advisory-groups/offshore-wind-cost-reduction-task-force).
Wind is doing this without loan guarantees and the price is set for a 15 year period not the 35 year period given to nuclear.
My second unanswered question is what is the governments fall-back position if the nuclear power plants fail to deliver the 90 capacity factor as promised?

Peter Lux

Michael Fallon: 14 January 2014

Peter Lux: 25 January 2014

The letter still fails to answer my question. The DECC price growth assumptions are here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240320/Annex-f-price-growth-assumptions-2013.xls
They do not seem to support the price that EDF are being offered. Is there another report that has not been published?

Pete

Peter Lux: 21 April 2014

Dear Peter Aldous,
I have written to numerous times asking how the strike price for nuclear and have yet to receive a satisfactory answer. I am repeatedly told that the strike price is justified by DECC analysis.

However, I have the DECC price analysis (Updated energy and emissions
projections: 2012, Annex F: Price and growth assumptions, DECC 2012
(https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/240320/Annex-f-price-growth-assumptions-2013.xls)and I would like to know how this justifies the strike price for nuclear.

Yours sincerely,

Peter Lux