Why UK Government will be signing a blank cheque for Hinkley and Bradwell in one go

Theresa May may have gained short term kudos for 'stamping' her authority on the Hinkley decision by delaying it until the Autumn. But in reality all she may have done in the long term is emphasised the fact that she sanctioned a decision that resulted in the biggest industrial disaster to have affected the country in modern times. Once the Government signs the project it will be committed to footing the bill for a long running engineering construction foul-up, whatever the terms of the Government's contract may actually say.

It should be obvious from the problem that EDF has had with its attempts to build the two reactors at Okiluoto in Finland and Flamanville in Normandy that there is a very high chance that the project will end in disaster, organised by a company whose leaders ignore commercial logics in pursuit of a discredited piece of technology - the hallmark of a nationalised industry that controls the state. But now EDF say they will go ahead, in 2019, with 'pouring concrete' (ie starting building proper) once Flamanville has 'proved' itself. Yet even this timetable may not happen, pushing EDF further into its financial crisis and producing even more handouts from the french state to EDF.

The UK Government, for its part claims that it will be under no legal obligation to pay for any cost overruns. True, we understand that the contract that awaits signature says that the Hinkley C power plant must start generating by 2033 if the premium price  payments of �92.50 in 2012 prices (�97 per MWh in today's prices) are to be paid. But that is a legal nicety that obscures the political blank cheque that the UK Government will be signing this Autumn.

Imagine the situation in ten years time. It is 2026, and EDF, is beset by generally unfavourable market conditions, having in any case to pay increasing amounts of money to refurbish its own French nuclear fleet. It is facing mounting construction cost overruns on the still far from completed Hinkley C construction and EDF tells the French and UK Governments that it cannot complete the project without further financial injections. We then have the spectacle (as we did in the case of Sizewell B in 1990) of a half-built nuclear power project with no money to finish it. There will then be a political demand that it must be completed. The terms of the contract between EDF and the UK Government will then become irrelevant, and the UK Government will have to pay untold extra billions to finish the project, and fund it thereafter, the only limits being what cost-sharing it can achieve with the French Government itself.

Of course Theresa May, who is said to be reluctant to agree to the Chinese demand on behalf of CGN to be given the right to build a 'Huang' Chinese power plant at Bradwell in Essex, may seek to alter the terms of this agreement. The Chinese have agreed to invest in Hinkley C on the basis that the Bradwell project will be allowed. Indeed the Chinese are responsible for a third of the equity in the project. But the controversies and issues around this Chinese project are likely to considerable.

Apart from controversies over 'security' issues (about which I do not know enough to comment) there are going to be arguments about validation of the safety protocols for the plant. In China there have been complaints that the safety criteria have not been rigorous enough for nuclear power stations. The problem from the point of view of the British Government is that if the Chinese have put money into the Hinkley project, then the British Government will be under great pressure not be seen to be too choosey with the approval of the power plant. Will Bradwell be built according to British or Chinese safety standards? Then there is the issue with the financing and power price for the Bradwell project. Again, the Government will be under great pressure to give the project good terms, or be accused by the Chinese of having reneged by other means on the Hinkley agreement.

If Theresa May says that she will agree to Hinkley C but will not agree to the Bradwell project, then it is likely that the Chinese will walk away from Hinkley, thus ending the project - unless the French Government came up with even more money and risk-taking.  But of course if Theresa May now does give approval for the present scheme, give or take some public relations concessions, then it is May that will go down in history as having personally approved not just a Hinkley disaster but a political and industrial crisis over the Chinese nuclear power project at Bradwell.

Of course by 2030 under this scenario we will still probably have no power from the new nuclear power plant, but otherwise we would have been able, by then, to have put on line maybe another 20 per cent of our power from renewable energy from the money. That is, just using the money that we would be committing to non-existent nuclear power stations, and not including any other renewables we would have put on line anyway.

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Could Trump Deliver U.S. Energy Independence?

Oil Use

Breaking Story (3/13/18): The Financial Times has a story which mirrors the major points of our following blog article -- Go Here.

"We will become and stay totally independent of any need to import energy from the OPEC cartel" -- Donald Trump.

Key Background Points for Today's Blog: In discussing U.S. foreign oil dependency, two measures are used: Gross Imports % -- Total Imports/Total Petroleum Used. Net Imports % -- (Imports minus Exports)/Total Petroleum Used.

What does Energy Independence even mean? In a context of U.S. foreign energy independence, it is oil and only oil that's relevant.

Oil remains the dominant fuel used in the U.S., accounting for ~37% of total energy consumption in 2015. Oil is consumed mostly within the transportation sector, with very little used for electricity generation (~1%).

Metrics Used: Almost always when U.S. foreign oil dependency is discussed in the Media, it will be net imports that is being referenced. Inferring this metric, the EIA states "In 2015, about 24% of the petroleum used by the United States was imported from foreign countries -- the lowest level since 1970".

(Note: EIA data available on-line only goes back to 1973)

But only citing net imports does't tell a whole story. Of the total petroleum used in the U.S. in 2015:

A whopping 49% came from foreign countries (gross imports)¹;

25% was exported (mostly as refined products, e.g. gasoline & diesel);

Resulting in net imports of 24% (49% minus 25%).

⁽¹⁾ About 78% of gross petroleum imports is crude oil.In 2015, the U.S. consumed about 19.4 million barrels per day; imported
~9.4 MMb/d ; exported ~4.8 MMb/d; with resulting net imports of 4.6 MMb/d.

In using Net Imports as the most commonly cited metric, an assumption is thus inferred that Exports must reduce the foreign dependency of Gross Imports. Today, we will explore whether this is an appropriate assumption.

Gross Versus Net: The significance between gross versus net imports is a relatively recent development. For decades prior to the current boom in domestic oil production, yearly U.S. exports were very constant at ~5% of total petroleum used. However, during the past 9 years (breakthroughs in fracking, horizontal drilling), two things have dramatically changed:

1. Field production of oil/other petroleum liquids has more than doubled.²
2. Petroleum exports have increased by 5 times.³
⁽²⁾ From 5.5 million barrels per day (2006) to 12.6 million bpd (Feb. 2016).
⁽³⁾ Primary U.S. petroleum exports are diesel, gasoline, and natural gas liquids.

Percentage of U.S. Petroleum ExportsThus, while it may be technically correct that U.S. dependence on foreign oil (using the metric of net imports) is at the lowest level in 45 years, the composition of this metric is very different today than in 1970.

	1970	2015	Change
Gross Imports:	29%	49%	+20%
Exports	05%	25%	+20%
Net Imports	24%	24%	zero

Looking at the above numbers, one might "conclude" that the U.S. is now just importing more crude, refining it, and then exporting the end-use products of this foreign oil (gasoline, diesel) -- with a "net" of zero.

But the Import/Export paradigm (model) just isn't this simple due to:

1. Configuration/Design of many U.S. Refineries to use heavy oil.
2. U.S. Refineries using financial arbitrage to gain competitive advantages in high value World Gasoline/Diesel Markets.

Foreign Sources of Oil: This metric can also be misleading. While it is emphasized that Canada is the "single" largest foreign country supplier to the U.S. (2.81 million bpd) -- OPEC countries import a comparable amount of oil (2.65 million bpd).⁴

U.S. Petroleum Imports
(2015) Understanding Some Oil Basics: In long-term forecasts through 2040, the EIA projects that U.S. dependency on imported oil (net imports) will continue at an ~25% level.

Historical and Projections of U.S.
Oil Production & Consumption:

So with the U.S. oil boom, why are we still importing so much foreign oil? The answer is found in the fact that not all crude oil is the same. It can have a density ranging from heavy to light, sour (high sulfur content) or sweet; priced internationally (Brent) or priced domestically (West Texas Intermediate).

Type of Oil: In 2015, ~90% of imported crude oil was heavier, with a gravity below 35 degrees API. At the same time, more than 70% of the crude oil produced in the Lower 48 states was light oil or condensate with an API gravity above 35 degrees.

As the below chart illustrates, as U.S. production of light & medium crude has increased, U.S. refineries have reduced their imports of lighter oils.

However, note that imports of foreign heavy crudes have increased.

U.S. Oil Imports by Type The market value of a crude stream reflects its density and sulfur content. Crude oils that are light and sweet (low sulfur content) are priced higher than heavy, sour crudes.

This is because products like gasoline which sell at a significant premium to other products (e.g., residual fuel oil) can be more easily and cheaply produced using lighter, sweeter crude oil in simpler refineries.⁵

Note how close Brent and WTI are in characteristics.

Pricing Benchmarks for Oil: West Texas Intermediate (WTI) is a benchmark at which oils produced in the U.S. trade. Internationally, about two-thirds of all crude contracts reference a Brent benchmark. For various reasons, internationally priced oil (Brent) has traded at a premium to domestic priced crudes (WTI) for the past decade⁶.

Stated another way, domestic U.S. oil has been trading at a discount from Internationally priced Brent Oil.

Spread Between Brent Versus WTI ⁶ Historically, some reasons have included the U.S. export ban on most crudes resulting from the Arab Oil Embargo in the 1970's; excess domestic production and storage.

What the Heck Is Going On? With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news:

1. Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex.
2. However, many U.S. refineries can not use this lighter oil.

Design of U.S. Refineries: Prior to the shale boom, many U.S. Refiners guessed wrong in their planning. They spent billions of dollars to configure plants for heavier and sour foreign oils (the type from Canada and OPEC countries). For example, a high percentage of refineries (especially the Gulf Coast) have coking capacity that can upgrade heavy crude oil into higher-valued lighter products.⁷

⁽⁷⁾ As of January 1, 2014, there were 133 operating refineries with atmospheric crude oil distillation units (ACDU) totaling capacity of 18.9 million barrels per stream day. Heavy capacity denotes refineries with coking capacity; light capacity denotes refineries without coking capacity..

As a result of this infrastructure investment, the U.S. now has more complex Refineries than anywhere else in the world -- as shown in the below graphic which includes the Nelson Complexity Index:

Understanding the U.S. regional (called PADDs) composition of refineries ranging from simpler to complex (catalytic crackers, reformers, cokers) help explain the type of oils primarily used within each region.^8
(8) Recognizing that higher and lower API oils are always blended for specific Refineries to optimize production.

For example, Refineries in PADD 1 (East Coast) are generally not terribly complex and thus will use more lighter oils. In PADD 3 (Gulf Coast), 81% of Refineries have coking capacity -- explaining their use of more heavier oils.

	U.S. Oil Field Production	Primary Source & Type of Crude Used in Refineries9
PADD 1	01%	Domestic Light
PADD 2	20%	Canada Heavy
PADD 3	60%	Heavier Foreign
PADD 4	08%	Canada Heavy & U.S. Light
PADD 5	11%	50% Foreign Heavy
Total	100%

The overwhelming majority of Canadian oil goes to PADD 2. Most of the Middle East imports are received in PADD 3 (e.g., Saudi Arabia owned Motiva Refineries). Heavy crude imports from Mexico and Venezuela also primarily go to PADD 3 (e.g., Venezuela's CITGO Refineries). The majority of African oil is consumed in PADD 1.
⁽⁹⁾ U.S. Department of Energy Report, pages 15, 26.

Arbitrage: But historically, there's been more to understanding U.S. imports and exports other than just Refinery configuration -- something called arbitrage.

Oil Arbitrage: The practice of U.S. Refineries buying lower cost U.S. light oil (pegged to WTI), refining it, and exporting/selling gasoline to World markets that mostly used higher cost oil (pegged to Brent).

Gasoline is an international commodity. A U.S. refiner could as easily sell their product to the international market if that would maximize their profit. According to the U.S. Department of Energy study, "Brent crude oil prices are more important than WTI crude oil prices as a determinant of U.S. gasoline prices".¹⁰

Thus, U.S. Refineries have had two highly significant market advantages in selling high-end products to both the U.S. and World markets (gasoline to Mexico & South America; diesel to Europe):

1. Financial Arbitrage on lighter oils.
2. Ability to use lower cost heavier crudes in complex Refineries.

The impact of these structural advantages are reflected in the below graphic -- where U.S. Refineries can have a profit margin as much as $6/bbl over their international competitors:^10
(10) US refining flexibility sustains export opportunities, profitability.

Nobody Knows Just How Dependent the U.S. is on Foreign Oil?   As previously argued, using a dependency metric of Net Imports would be totally appropriate under a paradigm/model where crude is imported, refined, with the end-product (e.g., gasoline) of this foreign oil exported: But the Import/Export Paradigm isn't this simple as U.S. Refineries also:
(1) Process Domestic lighter crudes into gasoline and diesel fuel for export;
(2) Import heavier foreign crudes for Domestic consumption:

Additional Flows of U.S. Refineries' Imports/Exports Exporting gasoline produced from domestic light crude to China wouldn't
decrease U.S. foreign dependency on heavy crude imports from Saudi Arabia.

Thus in using Net Imports as a dependency metric, it would be important to know its composition. Remember, the basic tenent in using Net Imports is that somehow, Exports decrease U.S. Gross Imports dependency.^11
(11) Gross Imports of 49% minus Exports of 25% equals Net Imports of 24%.

Incredibly though, not even the Energy Information Administration (EIA) can answer this question:

"We cannot determine the exact amount of crude oil produced in the United States that is consumed, as refined products, in the U.S."

In using EIA data though, we can at least frame the "How Much" question of foreign oil dependency -- where of the total Petroleum Consumed, about 50/50 came from Imports and Domestic Production, with 25% Exported:

In using two fictional scenarios, U.S. Dependency on Foreign Petroleum Resources can be "framed" as somewhere between 32% and 65%:

Scenario 1: ALL domestic oil is consumed within the U.S.
Scenario 2: ALL imported oil is consumed within the U.S.

Petroleum in the U.S.:	Low Domestic Use of Imports	High Domestic Use of Imports
Total Processed	100%	100%
Exported	(25%)	(25%)
Consumed Only in U.S.	75%	75%
Produced & Used Only in U.S.	51%	26%
Imported & Used Only in U.S.	24%	49%
Foreign Dependency	32%	65%

Potential Actions: Regardless of what "metric" that one believes is appropriate -- Donald Trump is correct in elevating foreign oil dependence as an important issue in this Presidential election:

While the old GOP mantra of "Drill Baby Drill" and eliminating environmental regulations will assuredly be a Trump meme, will he show depth and breath on this issue? The following are some items that could be proposed:

Refinery Tax Credits: As discussed, a major cause of foreign oil dependency is the configuration of U.S. Refineries to use heavy oil. Without incentives, Refineries are not going to simply walk away from their sunk investment and spend money to reconfigure yet again to primarily light oils. Federal incentives could be an investment tax credit (similar to solar energy) and/or accelerated tax depreciation (e.g., a one year write-off).

Oil Production Tax Credit: Another Federal incentive could be a tax credit (similar to yearly credits given to wind and nuclear) for the domestic production (per barrel) of heavy crudes. The U.S. has vast undeveloped resources of heavy oil in the Alaska North Slope.

Repeal Jones Act on Oil Transportation ; Shipping between U.S. ports costs significantly more than international voyages. This is largely because of a ~100-year-old federal law (Jones Act) which requires domestic cargoes to travel on U.S.built, owned and crewed vessels. A qualifying U.S. tanker currently commands rates from 3 to 4 times more than a non U.S. tanker of the same size.^12,13

The Jones Act explains how importing oil from half way around the world (Middle East OPEC countries of Saudi Arabia, Iraq, etc.) can be cheaper than transporting oil via tanker from the U.S. Gulf Coast area to East and West Coast markets.

Tariffs on Imported Oil: While very much of a long-shot, an oil tariff could get political support from two unlikely bedfellows: the domestic oil industry and the renewable energy industry. The domestic oil industry would love a tariff because it protects the industry from the competition of cheaper OPEC oil imports. Saudi Arabia's current price suppression strategy specifically targets the high-cost hydraulic fracturing or fracking in deep shale deposits that has been largely responsible for the rise in U.S. oil production.

The renewable energy industry might well join the oil industry in supporting such a tariff because a high oil price makes alternatives to oil more attractive.¹⁴

Final Thoughts: When Foreign Oil Dependency is discussed, a metric stated in percentages can lose some of its impact as to a "big picture". The below graphic puts foreign oil dependency in a clearer perspective of dollars. Even using "Net Imports", the trade impact is a whopping deficit/negative $123 billion per year ($246.5 less 62.7 less 60.7).

The Significance of Oil Imports on the U.S. Trade Balance: A recent AP story further illustrates this point as the U.S. Trade Deficit hit a 10 month high ($45 billion) from a big rise in imports of oil and Chinese-made computers, cell phones and clothing.

Facebook:

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Additional Resources:
US refining flexibility sustains export opportunities, profitability (excellent)
Why are U.S. Oil Imports increasing in 2017?
Gas Glut in U.S. and Europe -- Bloomberg
Is Russia Influencing Trump�s Thoughts on Energy? (Texas Monthly)
Summary: Effects of Removing Restrictions on U.S. Crude Oil Exports
The myth of US self-sufficiency in crude oil -- Energy Matters Blog.
Who is Buying U.S. Crude Oil? (Bloomberg)
1st quarter 2016 Refiner Profits Decrease
Oil Rich Venezuela Imports U.S. Crude Oil
IEA warns of ever-growing reliance on Middle Eastern oil supplies
When U.S. President Eisenhauer Restricted Imported Oil
Trump is Wrong on Trade Agreements (Wall St. Journal)

Energy Information Agency (EIA) Analysis:
Effects of Removing Restrictions on U.S. Crude Oil Exports
U.S. Crude Oil Production Forecast Analysis of Crude Types
What Drives U.S. Gasoline Prices
U.S. Crude Oil Production to 2025: Updated Projection of Crude Types

Energy Information Agency Data:

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EDF to postpone Hinkley Construction start to at least mid 2019

The media is full of stories that EDF is about to announce a 'final investment decision' on Hinkley C nuclear power station, whereas the logic of its own press statements suggest that the project is in fact in deep freeze. Once again, EDF's superb public relations is convincing people that its disastrous Hinkley C power plant project is moving ahead, whilst the reality is that it is announcing that the project will not be started until at least 2019. And even this date seems to be associated with the commissioning of the terribly delayed sister project at Flamanville.

I have lost count of the number of times that EDF has sparked speculation that it is about to announce a final investment decision for the project. These 'announcements', given through press briefings about which EDF bristles with annoyance if people question their connection with reality, have occurred several times since 2012.

And yet EDF's own press release in effect says the opposite of the 'final investment decision' press stories that EDF have inspired.The document, released by EDF on July 21st, actually says: 'The first concrete of reactor 1 of HPC, scheduled for mid-2019, would coincide with perfect continuity with the start-up of the EPR at Flamanville, scheduled for the end of 2018'

So, what is actually happening is that, as experts familiar with the saga know only too well, EDF is confirming that Hinkley's construction could not possibly begin until the safety issues surrounding the reactor design have been cleared and the working of the Flamanville project has been demonstrated. This is not going to happen for a minimum of THREE YEARS.
Of course even this possibility defies commercial logic given that the project would bankrupt EDF without massive subsidy from the French state.The UK has agreed in principle to pay EDF (in June 2016 money) 97 per MWh for 35 years of operation for the project, but even this price would not go close to covering the risk that EDF would take with the project. Hence the need for a massive state handout. The French unions and many financiers and managers inside and outside the company regard the whole thing as a politically motivated piece of industrial suicide.

Even the UK Treasury has long since sidled away from the project, effectively cancelling its offer for guaranteeing the bulk of the loans that EDF would hope to take out for the project. Indeed, contrary to what seems to be widely assumed, the UK Government has not even offered EDF a legally binding contract. It beggars belief how seriously one can take a project that has not even got an offer of a contract from the people who are supposed to be paying for it!
But then the project has long since departed from being based on any sense of commercial reality, and linkages with commercial reality have always been tenuous, as they will be with any nuclear power project that has to meet the sort of safety standards demanded in developed countries these days.

Whatever 'decision' will be reached at next week's EDF Board meeting, it will, as EDF clearly state, not lead to the construction of the Hinkley project being started. But it will be just a continuation of the public relations pantomime that we have been witnessing for several years now.

See EDF's press release at:
http://media.edfenergy.com/r/1127/hinkley_point_c__the_board_of_edf_called_to_consider_a

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Government abandons the economy to try to ward off UKIP

Early pronouncements from Philip Hammond and David Davis indicate that the Government is set to abandon hopes of remaining within the Single Market as the price the UK will have to pay for imposing immigration controls on EU citizens. This strategy is clearly aimed at pacifying those who prioritise reduction of immigration within the Tories and also reducing the attacks from the xenophobic right, whose 'respectable' wing resides in UKIP.

Politically this might take the shine off the electoral threat to Conservatives posed by UKIP in the short term, but this threatens to unravel in the longer term and it will be at great cost to the British economy.

It seems that Hammond is fighting a rearguard action to preserve internal market market access for British financial services, but how successful and costly that will be to the British exchequer remains to be seen. But the British economy now faces having nearly half its trade facing not only tariffs in the EU but also falling prey to non-tariff trade barriers as the EU changes its rules to which the UK will not be subject.

In terms of energy our influence in regulations governing energy markets will decline and the automatic upgrading of energy efficiency standards and labels that comes with the EU will cease. Directives on renewable energy and energy efficiency will cease to apply.

There will be a lot of talk about trade agreements with the USA and maybe others, but in reality nothing can be effected until after the UK formally leaves the EU, which, according to David Davis, is likely to be in December 2018. That implies the issue of an article 50 notice in December of this year (2016).

In the longer term (which may not be very long at all!) this attempt to feed the monster of xenophobia is likely to fail as the hard right demand more and more stricter immigration controls. The targets of abuse have already been widened from just perceived EU migrants to muslims, and soon no doubt others.

'The hopes of self-styled 'civilised' Brexiteers such as Daniel Hannan are being dashed. His 'libertarian' eurosceptical views favouring continued free movement and internal market membership outside of the EU have merely ended as being ballast to pave the way for the objectives of the anti-immigration English nationalist lobby.
http://www.independent.co.uk/news/uk/home-news/eu-referendum-tory-campaigner-admits-brexit-immigration-some-control-a7102626.html

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Ways in which Brexit will help the environment

�Always look on the bright side of life�. That was a theme associated with the �Life of Brian� (as is strife within the popular fronts of the Labour Party these days of course, but I won�t go into that now). So what�s good about Brexit? Well, it might be a crushing blow to our British economy and environmental laws, but in other ways it might actually help..... 

One way Brexit will definitely help is that the green interest groups will find it easier to get their way on various environmental issues in EU institutions. The UK won�t be around to perform their usual watering-down role! Take the issue of air pollution. The UK has been an opponent of tightening up EU air pollution regulations. As the Guardian reported on June 3^rd this year; �EU states have agreed to water down a proposed law aimed at halving the number of deaths from air pollution within 15 years, after intense lobbying from the UK that cross-party MEPs have condemned as �appalling�......Some 14,000 people will die prematurely every year across Europe from 2030 as a result, if the weakened proposal is implemented, according to figures cited by the environment commissioner, Karmenu Vella.�

Then there is the issue of chemicals which scientists say are killing bees. The EU banned farmers using neocontinoids in 2014, and bees are said now to be recovering, but the UK dragged its feet at first allowing the NFU to use the chemicals in 2015. In the USA the chemicals are still used widely and bee numbers are declining. In the UK the number of bees declined by 15 per cent in 2015 according to the Beekeepers Association, continuing a trend that has set in for many years.

Under pressure from the NFU the Government has allowed farmers to carry on using these chemicals. Of course, once more over the cliff, our British lemming friends must go!

Then there is the issue of renewable energy targets. The UK, under great pressure, accepted the 2009 EU Renewable target which was set as a mandatory commitment for 2020. We�re now set to get 30 per cent of our electricity from renewable energy by 2020, even if we haven�t met our target from energy as a whole. However the UK Government has strongly resisted a further rigorous target for 2030. Clearly, without the UK, the EU could set a stronger renewable energy and energy efficiency ambition!
Moreover, anti-nuclear greens may be cheered by news that Chinese investors in Hinkley C are spooked by financial instability in the UK and the declining value of the � making it even less likely that the Hinkley C nuclear power development will go ahead ahead.

Now, think about it, under Brexit, the UK will have a bad environment. But at least it will be better in the rest of the EU! Progress in implementing a range of environmental initiatives in the EU will be a lot smoother and more effective! Indeed, if by some miracle the UK does remain inside the internal market, the UK will have to obey the EU environmental laws anyway, but won�t be able to have any say in making them! Ideal, you could say!

But there is one pretty sure way in which the environment is likely to benefit from Brexit, and that is reducing UK energy consumption and thus reducing carbon emissions.  That�s because the Brexit-inspired reduction in economic growth will reduce energy consumption. Indeed, the Government will now find that the need to build new conventional power stations is much reduced or even abolished with Brexit. The UK�s power demand has, in any case, been going down since around 2005. Now it is set to continue to decline with slower economic growth, or even plummet with a recession. Not only will we need less power plant and coal and gas burning but people will not be able to afford to heat their own homes as much. Less energy consumption means lower carbon dioxide emissions! Another environmental winner from Brexit. See a previous post for more details http://realfeed-intariffs.blogspot.co.uk/2016/06/with-brexit-uk-may-not-need-any-more.html

But of course there is the �piece de resistance�, they say, in a language now increasingly banished from English schools. That is Brexit as a means to deter any other country from thinking about quitting the EU! With so much economic and political chaos in the UK, populist politicians who where thinking about asking for referendums about EU or euro membership are now forgetting the idea or having serious second thoughts.

So as the UK descends into political and economic chaos, think about the gains, the supreme sacrifice we are making in saving the EU from the English anti-green menace....not to mention reducing carbon emissions!......

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Dutch tender award for offshore wind plant is 25% cheaper than Hinkley C contract

The Dutch Government has awarded a contract to build two 350 MW Borssele offshore windfarms for 87 euros per MWh (�74 per MWh), some 25 per cent cheaper than the current value of the contract for Hinkley C. The contract has been awarded to DONG, in which the Danish Government has a majority share.

This price for Borssele 1 and Borssele 2 includes transmission costs but, unlike the case of the proposed Hinkley C nuclear power station, the price does not include any offer of loan guarantees from the Government. Hinkley C is routinely reported as being paid �92.50 for a 35 year contract, but this is in 2012 prices. The current (jJune 2016) price is �97 per MWh, which puts it as being a lot more expensive than the Borssele offshore wind project.

Offshore wind prices have been tumbling in the past couple of years compared to earlier contracts awarded in the UK. Last year Vatenfall won a contract with the Danish Government to build the 400 MW Horns Rev plant at 103 euros per MWh (�88 per MWh) although this figure does not include transmission connection costs.

So why have costs for offshore wind been falling so much, and how come the costs appear to be so much lower than the UK's, whose last (2015) auctions revealed prices for offshore wind of around �120 per MWh?

According to DONG, their cost reduction can be ascribed to: 'The reduction of cost of electricity is driven by cross-industry collaboration, ongoing innovation of wind turbines and blades, continuous improvements of foundation design and installation methods, higher cable capacity, a growing and competitive supply chain and not least the synergies from building large-scale capacity sites such as Borssele 1 and 2. In addition, the Dutch sites offer good seabed conditions as well as good and stable wind speeds, which contribute to high output from each turbine.' http://www.dongenergy.com/en/media/newsroom/news/articles/dong-energy-wins-tender-for-dutch-offshore-wind-farms


It should be noted that both the Danish and the Dutch tender processes are much superior to the relatively 'laissez faire' approach of the British, an aloofness that increases uncertainty and thus investment costs. In the Dutch and Danish cases the sites have been carefully evaluated for technical and planning considerations before the tender, and permits have been assured. In the case of the UK, developers are left to bear the risk of these factors.

Although the UK Government has said it wants to give contracts for more offshore wind schemes, timing of this has been thrown into uncertainty by recent political events. It is now far from certain that the (new?) ministers at the Treasury and the Department of Climate Change will adhere to agreements about issue of future 'contracts for differences' (CfDs) that have been made between Osborne and Rudd.
Nevertheless, RenewableUK calculates that offshore wind schemes, including those which already have finance and planning in place for construction, will provide 10 per cent of UK electricity supply by the year 2020. However, the UK Government is refusing to make any contracts available for the cheapest electricity power option, onshore wind, which is currently being installed under the Renewables Obligation for around �70 per MWh.

For further information see also:
thttp://www.climatechangenews.com/2016/07/06/dong-passes-offshore-wind-cost-milestone-three-years-early/
https://www.rvo.nl/sites/default/files/2015/09/33953992.pdf

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