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Atherton on Hinkley Point

Peter Atherton of Liberum Capital has written another devastating takedown of coalition energy policy, this time focused on the Hinkley point deal.

Although we have yet to see the full terms of the contract (and we may never do so), based on the disclosure so far this looks likely to be an outstanding deal for Edf and it s partners. Once again, the UK government is taking a massive bet that fossil fuel prices will be extremely high in the future. If that bet proves to be wrong then this contract will look economically insane when HPC commissions. We are frankly staggered that the UK government thinks it is appropriate to take such a bet and under-write the economics of any power station that costs £5m per MW and takes 9 years to build.


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Reader Comments (28)

I have no objection to nukes, but this is a bad plan as well as a bad deal. Incidentally, I have no real objection to wind or solar either, where the economics are right. Which they never are.

I have to conclude, reluctantly, that the possibility of high funding and/or subsidy distorts the market and corrupts the policy-makers to such an extent that all sense flies out of the window. The only people who can even think straight about this are those who aren't making cash out of it. Nobody else can be trusted.

Oct 30, 2013 at 9:38 AM | Unregistered Commenterrhoda

As I have said before, the Department of Energy & Climate Change (DECC) ought to have a motto. The most appropriate would be, with apologies to Carlsberg:

Probably the Stupidest Energy Policy in the World.

Oct 30, 2013 at 9:41 AM | Unregistered CommenterRoy

Will anyone ever forgive the LibDems? No they will find themselves vilified by future generations. Ed Davey in particular will wish that he had not risen so far above his level of incompetence.

Oct 30, 2013 at 9:50 AM | Unregistered CommenterIan W

Given this report, I'd quite like to invest my pension fund into this project. Anyone know how I'd do that?

Oct 30, 2013 at 9:56 AM | Unregistered Commentersteveta_uk

Ian W
Davey is only partly to blame.
The damage was initiated by Ed Miliband and concreted in by Crimbo Huhne. Remember there was a time when the only people who were allowed through the front door at DECC were eco-activist groups and renewable energy enthusiasts which was (according to some) one of the reasons why the major oil and gas companies chose to act on the "if you can't beat 'em you may as well join 'em" principle.
Like most ministers Davey relies on his civil servants because he has to. They are virtually all paid-up greenies and those that aren't know to keep their heads down if they want to keep their jobs and since their minister is a Lib-Dem they start off with the built-in advantage when it comes to pouring these noxious policies into his ear.
A properly-run seminar under Chatham House Rule where qualified scientists in all the relevant disciplines and with no dog in the climate change fight were able to spend a weekend explaining the whole thing to ministers and senior civil servants is the only way that I can see that will bring a vestige of sanity back to the UK's energy policies.

Oct 30, 2013 at 10:07 AM | Registered CommenterMike Jackson

I am not only staggered at the Hinkley deal, but angry. As I read on a comment here the other day, an overlooked issue here is that the deal is another one of the PFI/PPP types, where taxpayers will end up paying about 5 times the capital cost. So rather than just stump up the £20 billion needed, Cameron and Clegg have committed us to paying nearly £100 billion for this plant (and have guaranteed a higher price for all future energy in the process). At the same time, the idiots appear determined to spend at least £45billion on HS2, which will reduce London to Birmingham journey times by all of 20 minutes.

Given the precarious position the National Grid is now in, I recognise the urgent need for some baseload, but I am not keen on Uranium nuclear. I would much rather that we were fracking the shale gas and building some new CCGT stations, (and some new coal plants), which would hopefully help keep the lights on until commercial Thorium reactors become available.

Oct 30, 2013 at 10:13 AM | Registered Commenterlapogus

Here in the US, there was a bit of a nuclear revival about 5-7 years ago. The revival was short lived and most new projects never got past the planning stages when the price of natural gas dropped 75%. Low cost, abundant natural gas made nuclear non-competitive. The irony is the green movement's obstacles thrown in the way of fracking are giving a window of opportunity to this project.

Oct 30, 2013 at 10:23 AM | Unregistered CommenterSean

Peter Atherton wrote:

Once again, the UK government is taking a massive bet that fossil fuel prices will be extremely high in the future. If that bet proves to be wrong then this contract will look economically insane when HPC commissions.

A self reinforcing folly. The high strike prices for wind, solar and now Hinkley Point C are reason enough to maintain the upward pressure on fossil fuel prices - to avoid egg on political faces.

Oct 30, 2013 at 10:25 AM | Unregistered CommenterGareth

It certainly puts into perspective any thoughts of returning to the UK even though I currently pay in the region of £150 / month for electricity.

I pay that for a TV, a computer + peripherals I use all day at least three days a week, a hob/oven not used in summer because I mostly live in the garden, a fridge and for lighting (one room at a time), and don't get me started on the ridiculous cost of light-bulbs (15 Euros a shot for LEDs from Intermarche which is not exactly renowned for its high prices.

God knows what I'd be paying if I had a family.

Oct 30, 2013 at 10:33 AM | Unregistered CommenterSwiss Bob

The price of hydrocarbon fuels, by the time the new station comes on line will, surely, depend on the success, or otherwise of exploiting shale gas and oil. Government has sole control on exploiting this new, local energy source. For pity's sake get fracking.

Oct 30, 2013 at 11:26 AM | Unregistered CommenterPeter Stroud

Gordon Brown must be given his share of the blame. If he hadn't sold off westinghouse for a song, we could have had a decent reactor.

Oct 30, 2013 at 11:50 AM | Registered CommenterPhillip Bratby

"We are frankly staggered that the UK government thinks it is appropriate to take such a bet and under-write the economics of any power station that costs £5m per MW and takes 9 years to build."

Why are they staggered? The deal is in line with whatever has passed for energy policy in this country for years, which can be summed up as follows, "fuck the consumer, they can pay".

Oct 30, 2013 at 12:28 PM | Unregistered CommenterJeremy Poynton

What all of us have to remember is that the Oxford PPE cohort who now infest both front benches were indoctrinated into eco-fascism by people like 'Eugenicist' Porritt. This group, of which Tickell and Letwin appear to be members, want to make energy unaffordable for the proletariat thereby to reduce the population.

Therefore, we are controlled by what is called an 'ineptocracy'**. You can see it now in PMQs where these people talk about energy price control, a panicky response to he Public realising they are led by incompetents. Price control is a sheer impossibility, admitted by Miliband because you cannot control gas prices. Also, yesterday, Lord Donaghue stated that the effect of the Labour-backed plan to increase carbon reduction would lead to significant power price increases.

**A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers. (Urban Dictionary).

Oct 30, 2013 at 12:30 PM | Unregistered CommenterAlecM

Can we please get the spelling correct?

Hinckley is a market town in southwest Leicestershire, England. It is administered by Hinckley and Bosworth Borough Council. Hinckley is the second largest town in the administrative county of Leicestershire, after Loughborough.

Hinkley Point is on the coast of Somerset. It has two separate power stations on the site with a third planned:
Hinkley Point A (Magnox, now closed down)
Hinkley Point B (AGR, currently expected to close in 2023)
Hinkley Point C (EPR - European Pressurised Reactor - an updated version of the PWR as used at Sizewell B. Currently planned to start operating in 2023 and to operate for 60 years)

Thank you!

[Thanks. Now corrected 1pm. BH]

Oct 30, 2013 at 12:39 PM | Unregistered CommenterAlan Bates

Alan: I was just going to point out the spelling of Hinkley C.

Oct 30, 2013 at 12:50 PM | Registered CommenterPhillip Bratby

I think the most constructive thing Miller could do is watch Matt Ridley's speech on the HOL amendment debate this week.

Maybe if Matt is reading this he could have a word personally.

His demolition of May and the CC Committee was eloquent and absolute.

Oct 30, 2013 at 12:53 PM | Registered CommenterFoxgoose

If there is a choice of spending a huge amount of money on wind turbines or a nuclear reactor, give the reactor any time. If Brown hadn't sold off Westinghouse, we could have built it ourselves at a lower cost.

As an alternative, could we please frack?

Oct 30, 2013 at 2:13 PM | Unregistered CommenterRC Saumarez

@ Ray 12:41am

"Probably" is redundant

Oct 30, 2013 at 2:18 PM | Unregistered CommenterDavid Chappell

Even at that price, the new Hinkley Point reactor is still cheaper than wind, solar, biomass, tidal or any other "green" technology you want to name.

Oct 30, 2013 at 2:29 PM | Unregistered CommenterThinkingScientist

I sometimes sit quietly in a darkened room and consider why I seem to be swimming against the flow on Climate Change and energy policy. - obviously one impinges on the other and vice versa.

BUT even if you fully accept AGW (hardly anyone accepts CAGW), even if I don't, the energy policy developed in the UK and most of Europe makes absolutely no sense to me at all.

I like rhoda's comment at the top

"The only people who can even think straight about this are those who aren't making cash out of it. Nobody else can be trusted."

Totally correct - follow the money.

O/T - Someone is determined to give me a "free" gas boiler - three international calls in the last 45 minutes.

Oct 30, 2013 at 2:30 PM | Registered Commenterretireddave

The day the contract for Hinkley Point is signed the technology is obsolete. Thorium is in the final stages of commercial development with many, many advantages and as Chris Booker wrote so interestingly a couple of weeks the yanks are about ready with "packaged" nuclear technology at a fraction of the price (I don't think he said what the fuel is though). Or is it really all about the plutonium by-product?

Oct 30, 2013 at 3:59 PM | Unregistered CommenterVernon E

@Peter Stroud.

Nota bene on fracking. The EU are going to do their damnedest to so ensnare it in red tape and regulation that fracking in the UK will become completely uneconomical.

Oct 30, 2013 at 4:02 PM | Unregistered CommenterJeremy Poynton

Well it came down to blackmail didn't it? Unless "clean" coal comes to save the day we can expect more deals like this with the Japanese and perhaps even the Russians. I use "clean" in quotes because it used to mean minimising soot and CO which meant in turn maximising CO2 output.

Oct 30, 2013 at 5:14 PM | Unregistered CommenterJamesG

fossil fuel prices will be extremely high in the future.

In July 2008 the cost of heating oil was approx. 62 pence per litre, at the end of 2010 it reached 70 pence, the average heating oil price for Wednesday 30th October 2013 (normally one of the most expensive times of the year to buy oil), is 56.32 pence per litre, might change from gas to oil.

Oct 30, 2013 at 8:35 PM | Unregistered CommenterRob

ote UKIP!

Oct 31, 2013 at 2:17 AM | Unregistered Commenterclive

Vote UKIP.There fixed.Fingers faster than the brain.

Oct 31, 2013 at 2:29 AM | Unregistered Commenterclive

I think this deal - in which a long-lived power station that produces extremely cheap electricity on the margin - maybe a British penny/kWh - but needs, evidently, 9.2 pennies/kWh over thirty years to pay off the capital - shows that the UK has thrown up its hands with competitive markets and is going back, full stop, to regulated power. So yes, build the plant, but start fracking, and also reverse the ridiculous decision to substitute US wood pellets for coal at Drax, and then reliability might be assured.

Oct 31, 2013 at 3:30 PM | Unregistered CommenterPierre Charles

I do not know if you contributors realise it, but many of you (I surmise the younger ones) have swallowed part of the green anti-nuclear propaganda pill. This shows through when people say e.g. we do not like nuclear in its present form, we should wait for thorium reactors. That's an advocacy message, not a science one.
Mark my word, in decades to come you will be bloody thankful for the proven, no nonsense, reliable output from a big nuke with its negligible fuel supply cost & relative freedom from being held to ransom over fuel.
If nuclear is good for France, does it not follow that more of it could be good for UK?
You should be diverting your verbal thrusts towards education, so your children and theirs escape the green pill.
As to the cost of Hinkley, thank the greens again for the added burden of questionable social & compliance costs. These are not in the same category as the hard, fundamental economic costs of actual production of electricity from a nuclear plant.

Nov 1, 2013 at 5:08 AM | Unregistered CommenterGeoff Sherrington

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