Dave Toke says a nuclear black hole could deal a knock-out blow to Labour’s renewable targets in Government
Much of Labour’s manifesto commitments for clean energy, a state owned ‘Great British Energy’ company to promote new technologies and funds to support buildings-based insulation and low carbon measures, have been widely flagged already. But there is not much attention being given to two big, interlinked, threats to Labour’s clean energy strategy. One is the looming financial black hole that the incoming Labour Government will trigger as it gives the financial go-ahead for Sizewell C. The second is the problem of organising a much more rapid build-up of renewable energy than the Conservatives have managed to achieve.
The central problem is that the cost of Sizewell C could sink the prospects of the renewables target. It is not difficult to see the problem. The costs of building Hinkley C, the sister plant of Sizewell C, have been growing and growing, and the plant has a long way to go before it is finished. The costs have reached an astonishing £33 billion for just 3.2 GW, and few independent analysts can be found who would bet against this cost increasing a lot further. But unlike Hinkley C, Sizewell C is, to cut a longer story short, mostly going to have to be financed by the taxpayer or energy consumers – and both these costs will increase the numbers for the Public Sector Borrowing Requirement.
EDF is responsible for the costs of building Hinkley C. However, it has refused to take responsibility for financing more than a small portion of Sizewell C. Moreover, it is proving very difficult to get any private investors to take responsibility for paying the costs of Sizewell C (no surprises there!). Essentially that means the Government is going to have to take responsibility for paying for the large bulk of the projects, and large cost overruns are all but inevitable. A lot of billions worth of red ink is going to have to be written into Treasury estimates if Sizewell C is be given the financial go-ahead.
Offshore wind, onshore and solar farms will be a lot cheaper for the consumer than nuclear power from Sizewell C. Nevertheless, if the Treasury allows tens of billions to be allocated to underwrite the costs of Sizewell C then this could blow a huge hole in any efforts to get Labour’s renewable energy programme funded. To meet the Labour manifesto declared target of quadrupling offshore wind capacity by 2030 the Government will need to get lots and lots of contracts and offshore wind project contracts and leases issued quickly. That is as well as contracting lots of onshore wind and solar farms which are likely to be cheaper than offshore wind for the next few years at least.
The offshore wind commitment (for around 45 GW of new capacity) is going to require some funds to be underwritten by the Treasury. Renewable energy is much more popular with the public compared to nuclear power. But big energy corporations, not to mention the GMB union are going to be piling in to try and make sure that approval of Sizewell C is given priority ahead of Labour’s apparently ambitious renewable energy commitment. That could mean that the bold offshore wind target is going to be quietly thrown in the waste bin.
A third threat
A third threat to Labour’s clean energy strategy is that the privatised, liberalised electricity retail market is not fit for purpose to do the job of incentivising consumers to shift their demand around from one period to another. So-called demand-side flexibility is needed to help balance fluctuating renewable energy production. But this “demand flexibility” is a national interest, and not especially in the interest of the competing energy suppliers, at least not that much, give or take some niche activity by Octopus Energy Company.
Energy suppliers will not be interested in doing any more that satisfies their interests. They will not be interested in giving extra incentives to make demand more flexible to fit in with the interests of national energy security. That means reducing costs for the entire electricity system.
Strong national action is vitally needed to promote more balancing in the electricity market. However, it seems that instead of achieving this, more gas-fired power plants will be built. These will have the tendency to burn more fossil fuels even when they are not needed to balance the system.
Getting an effective electricity balancing system can be done after nationalising the energy retail supply system. Nationalisation of energy supply is a very cheap thing to do since the energy supply sector (as opposed to generation, transmission and distribution) has few, if any, net tangible assets. However, nationalisation of energy supply is not currently on Labour’s agenda.