Only a week after the Hinkley Point C nuclear power station contract has been signed with the French, power provision is back in the news. First it is that summary of failures, which are highlighted in the New Statesman article.
In more detail, there are the following bits of information:
First of all the FT this week exposed the scandal surrounding a £436m government subsidy for diesel power generated electricity, similar to the electricity provisions in much of the 3rd world. (Unfortunately the FT does not explain when exactly the diesel generating capacity is expected to be used.)
And a day later we have, due to failures of power generation plant, a power emergency in Britain, which leads to temporary price rise for electricity to 40 times the normal level for wholesale electricity for the last few percent of electricity which are required to keep the power on in Britain, ie the National Grid in action. That is £2.40 per kwH instead of 6 pence which is usually paid to prevent the lights going out!
That record price was paid, as well as the National Grid asking some of UK industry to turn on some of their back-up generators and take their power requirements from these generators, rather than from the national grid.
Clearly, electricity production and demand management is a complex issue, but to make some sense and compare these issues, please look at the following table.
We have also included an alternative which should of course be considered, the provision of electricity storage, to meet the peak demands for five hours each day, which are generally between around 4pm and 9pm.
Hinkley Point C:
To recap the Hinkley C deal, it will produce 22TWH of electricity a year, of potentially dangerous nuclear power. Once completed the power station will add to the much needed base load of electricity.
My main point of concern is this: If the UK were to finance the power station itself, rather than the French/Chinese builders financing it, it would cost a lot less. At the moment the UK is contracted to pay 10 pence per kWH of electricity produced, to ensure a return of capital of more than 10% to the French/Chinese.
Let us say the UK government would finance it, all £18bn, and pay for the cost of running it and maintaining it. If we were to allow for £100m per year each for fuel costs, staff costs (1,000 at £100,000 per year) and maintenance costs, that will come to an estimated £300m a year. We then add that to the financing costs (reducing £18bn mortgage payment at 0.5% interest a year over 35 years = £560m/year) the total costs would be £860 per year.
Instead we will be paying £2.2bn for electricity a year for the 22 TWh of electricity to be produced each year for 35 years, 2.5 times the costs of financing and running the project ourselves.
Costs of electricity will increase in line with inflation.
We are assuming here that the diesel generator capacity of 1.5GW of electricity is entirely financed by the taxpayer. Should the deal go ahead, as set out in the FT, the taxpayer will pretty much buy the generators for the electricity producers. The cost of a small generator at a builders’ merchant is 30 pence per watt power output. Assuming the same cost for big industrial plant, we come to a total bill for buying diesel generators of £450m for the 1.5GW output, which is approximately the £436m which the government has set aside as a subsidy.
We do not know how long the generators are expected to run each day, if at all. So we assume we only run them at peak time each day for 5 hours, when electricity demand is highest, similar to pumped hydro plants, which run only for a few hours each day.
Running the generators is expensive, approximately 30 pence per kWh, based on current diesel prices. If they were to run for 5 hours a day, to meet peak demand between 4 pm and 9 pm , just the fuel costs would be £820m a year to produce 2.7 TWh of electricity a year.
Costs of running the diesel generators will increase in line with the cost of diesel fuel.
We could, if we needed electricity each day for only 5 peak hours each day, invest in a a big and snazzy battery. That would then give us the 7.5 GWh of storage capacity, which we would need to produce the same amount of electricity for 5 hours a day as the diesel generators.
The cost of this would be only one third of using the diesel generators, and at an approximate cost of 9 pence per kwH for peak power demands, which would be lower than the nuclear energy which will be delivered at base load.
The cost of electricity will increase with inflation, but the cost of storage are likely to fall further.
The three major points to make
1) Hinkley Point C is expensive, because the finance-and-operate deal based on guaranteed prices will make it the most expensive PFI contract in the world. If the UK government was to finance it at very cheap finance rates, and run it, it would come in at about 40% of the costs. That would mean a kwH of electricity would cost only 4 pence rather than the 10 pence as agreed in the contract.
2) Diesel power generation at 30 cents per kwH is uncompetitive, so we do not want to run it in the UK ever, other than in dire emergencies! If we need back up diesel generation capacity, the capital costs of the diesel generators are so cheap, there should be no need for the government to provide a subsidy. Instead, the government could ask the main suppliers of electricity to provide a 10% reserve of their normal generation capacity which they can call on at any time. That would not cost the government anything, the cost would be borne by the supplier.
The subsidy for diesel generators is simply mad.
3) The analysis above shows that storage of off-peak electricity is already a viable option for dealing with peak demand.
The conclusion is these government choices are bad for the consumer providing high costs (Hinkley) and high carbon solutions (diesel generators).
It is a scandal that the government provides subsidies for industry which amounts to essentially buying all the diesel generators for electricity producers to provide 1.5GW power, which they should buy themselves through mandatory government regulations.
The government should invest in electricity storage solutions, which, as the above calculations have shown, have the potential (if recharged by low price off-peak electricity) to be already cheaper than the Hinkley nuclear power station. They do not have the radiation risks of nuclear power. And storage costs are likely to fall further.
These are of course issues the Labour opposition (or any government opponent) should repeat: that the current government wastes about £1bn a year for 35 years on Hinkley Point C and that it provides a subsidy for almost £0.5bn for the electricy generators to buy diesel generators.
While at the same time not investing in new technology, such as battery storage solutions, which are already viable alternatives for peak power needs.
Sources and Assumptions:
all electricty prices are wholesale prices
Hinkley Point C:
10 pence per kWh electricity for Hinkley is based on 9.25p of 2012 figures + inflation since then. The price will go up in line with inflation before the plant comes on-line.
100m each for staff costs, fuel costs, and maintenance costs per year, toatalling £300m per year are my estimates.
Cost of generator: 30 pence per Watt of power- expected life time 10 years
Fuel costs 30 pence per KWh:
Battery costs: $3,500 (£2,400) per 10KWh storage
Battery recharging costs:
Wholesale off-peak electricity prices on average about 4 pence per kWh:
Battery life time about 5,000 charging cycles, about 14 years.