Analysis: Do the UK government’s sums on Hinkley and climate change add up any more?
Deep in the bowels of the UK Government’s Department for Energy and Climate Change (DECC) are probably some very stressed civil servants.
Those who aren’t currently seeking alternative employment face what may be an even harder task; making the government’s energy sums add up in the face of changes to just about everything from the gas price to the UK’s willingness to build any more wind turbines.
The gas price has fallen – which makes subsidising nuclear (and offshore wind) much more expensive. Cheaper options for cutting emissions – like onshore wind and efficiency measures have, for various reasons, been parked. The spreadsheet must be all over the shop.
When we asked to see the modelling so far for the UK’s flagship Hinkley point C nuclear project we were told we could – but only after the deal was done and dusted.
Previous versions of the UK’s energy modelling have at times strained credulity on the speed of phaseout of coal power, or the construction of new nuclear power , but nonetheless they serve as a possible baseline for what might happen in future.
Now those modellers have some fresh, even tougher challenges. One is to demonstrate how the various policy changes and roll-backs recently announced – such as the end in support for onshore wind and solar power – can be squared with Prime Minister Cameron’s commitment to deliver on carbon budgets and Climate Change Act.
If it follows the publication schedule from last year, updated projections would be expected to come out in September, which if they model the current state of play, would be bad for UK climate credibility in the run-up to key talks on global climate change in Paris this December.
Why are these modelled projections particularly difficult? There are several reasons.
1) The cheap stuff is gone
First there’s policy, especially low carbon policy, which will drive change in the energy world. In UK that’s going through a meltdown which we haven’t previously experienced.
So for example the zero-carbon homes policy was due to produce carbon savings of 4.7million tonnes (p28) in the key period of the UK 4th carbon budget (2023-27). That policy doesn’t exist any more. Other savings in energy efficiency programmes and renewable heat are either on the back burner or already on the scrap-heap. So carbon savings will need to be found somewhere else to keep Cameron’s credibility in tact.
2) Everything about energy has changed (but DECC may not have noticed)
Secondly, from smart-grids to Tesla batteries, there is a wave of change running through energy globally (local examples are here and here) which other countries are relatively aware of, but which doesn’t seem to have had any impact on the policy discussion in UK Government. And so not in DECC modelling either.
These changes have been enough to cause energy giants like Centrica (slide 13 onwards) and EOn to restructure, and RWE to say we need to revamp the approach in UK. Perhaps those few civil servants who remain in post are too busy to read the papers.
3) Does anyone know what is happening with Europe?
Thirdly there’s the UK relationship with Europe. Much of the changes in UK energy and electricity systems have been driven by policy flowing from EU. Efficiency standards in products and buildings and vehicles, the Emissions Trading Scheme, the renewables targets, and now interconnection targets all flow from Brussels.
They have not been unqualified successes but – for those concerned with reducing our use of fossil fuels – they have been an effective force overall. Will that drive still be in place as UK reconsiders its place in EU? If those EU policies don’t apply, what will take their place?
4) Some very dodgy assumptions – especially about the gas price
In that context, the fourth reason those projections are difficult is very relevant – policies and projections which UK has, but few really believe will ever happen. Assumptions, as they say, are the mother of all… mistakes.
One example would be the Carbon Floor Price, the key driver of removing existing coal stations from the electricity mix. In theory it rises to £70 per tonne of CO2 in 2030, but it is frozen at the 2015 level until 2020, with very little real genuine expectation that its rise will continue after that date.
Another example would be the continued build-out of clean energy which requires subsidy to top up the wholesale electricity price that these renewable projects get. But there’s no money on the table post 2020 and no clear timeline for producing it.
In fact there’s considerable lack of clarity on how much money is available pre-2020 as the state of the Levy Control Framework (as this fund is known) seems to have moved from being a bit tight to being in crisis in a few short months.
One reason why the money might be short is the (relatively) low gas price, which makes the clean energy ‘top-up’ more costly.
We don’t know what DECC is estimating for the price of gas in 2020s. In fact, we don’t know a lot about how DECC justifies its actions because a lot of it is kept secret. Especially around another one of those policies which DECC thinks will happen but most people don’t – the 35% of power to be met by proposed nuclear new build programme by 2030, including the proposed new nuclear power station at Hinkley Point.
A lot of modelling was seemingly done by DECC to justify why it was a good deal for the consumer, apparently saving households £75 a year and to justify to EU why it should be getting so much support from bill payers.
Unfortunately our civil servant friends are keeping it all secret, and the Freedom of Information request we submitted to see what modelling justified the investment has been rejected, so the data is being kept secret until the contract is signed.
It is not reassuring to know that when a 35 year contract involving payments of around £80 billion from UK consumers is irrevocably signed, we’ll be able to see the justification. It could be brilliant, of course, or it could be delusional.
The fact that the world is changing and that the government’s economic justification for Hinkley may therefore rest on foundations of sand is one of the reasons that HSBC and energy giant RWE have recently come out against it.
Even the ‘very pro-nuclear’ former energy minister in the government of Margaret Thatcher who gave the go-ahead to the last round of attempted new-build has said it’s ‘one of the worst deals ever’.
The high cost of the new nuclear programme is justified on by Secretary of State Amber Rudd on the basis that it provides reliable supply unlike that from renewables: this is undoubtedly an important additional value provided by nuclear, but because policy appears to be being made up as they go along, there is no underpinning justification to it.
So how valuable is that reliability, and what would the alternatives be to nuclear baseload? The International Renewable Energy Agency have already looked at this (see Fig 2.10 p42) for 30-40% power provided by wind and concluded that, even including all the extra costs of ensuring you can keep the lights on when the wind doesn’t blow, onshore wind is still cheaper than Hinkley. And note that big stations like Hinkley also impose costs on the grid which all consumers have to bear (and are generally much less talked about).
In short, DECC modelling is deeply challenging because there is no coherent or credible policy to model. But it is also behind the curve on technological development, and not taking a system-wide view, and often key material is kept secret.
Which risks leaves poor decisions being justified on the basis of soundbites. And remember, if you’re reading this in the UK, you’re paying.