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Hinkley Point subsidy bill quadruples to £30 billion, as power price forecasts fall

July 15, 2016

By Paul Homewood  




From the Telegraph:


The subsidy bill to be paid by households and businesses for Hinkley Point has more than quadrupled since the agreement for the new nuclear plant was signed in 2013, the National Audit Office has said.

In a report, the NAO set out the stark impact of the plunge in power price forecasts, which has dramatically increased the proportion of Hinkley developer EDF’s income that is likely to come from consumer-funded subsidies.

In October 2013 the Government agreed a deal with the French state-owned energy giant to guarantee it a price of £92.50, index-linked to inflation, for every megawatt-hour of electricity the £18bn nuclear plant would produce over a 35 year period.

The difference between the wholesale price of power and the guaranteed price would be "topped up" through subsidies, paid for through a levy on UK energy bills.

At the time the deal was signed, power price projections had implied a lifetime cost to consumers of £6.1bn for the subsidies, the NAO said.

As of March this year, that had more than quadrupled to £29.7bn due to significant cuts to official power price forecasts.

Electricity price forecasts for 2030 as of 2015 were 22pc lower than they were in 2012, due primarily to lower gas price forecasts, as well as to side-effects of the growth of subsidised wind and solar.

While the total cost to consumers should not change, since they are on the hook for a guaranteed price irrespective, the subsidy model means "consumers benefit less from wholesale price falls", the NAO pointed out.

A final investment decision on Hinkley Point had been due late last year but is now not expected until September at the earliest. There has been speculation that the change of Prime Minister could affect political appetite for the project.

The fall in future price forecasts has also inflated the future cost of subsidies for other green energy projects.

Contracts awarded to wind, solar and biomass projects were estimated in March 2015 to cost consumers £21.6bn over their lifetime. That has now risen to £30.6bn, as of March this year.

The NAO said that of the £9bn increase, £5.6bn related to the fall in future wholesale costs with the rest due to other factors including changes to the estimates of how much energy the new projects would produce.



Even these updated projections assume that wholesale electricity prices rise substantially from their current level of around £40/MWh. (It is not stated by the NAO, but these are all at 2015 prices, as outlined by DECC here).




DECC’s latest assumptions above have a cost of £46.90/MWh for this year. Energy consultants, Catalyst Energy Solutions, however, show that it is only £40.80/MWh. It therefore appears that even the NAO are underestimating the subsidy costs for both Hinkley Point and all the  other CfD contracts awarded already, or in future, for wind, solar and biomass.




The Telegraph state:

The fall in future price forecasts has also inflated the future cost of subsidies for other green energy projects.

Contracts awarded to wind, solar and biomass projects were estimated in March 2015 to cost consumers £21.6bn over their lifetime. That has now risen to £30.6bn, as of March this year.


Just for clarity, this refers to contracts already awarded, which total 6.6 GW.

Under current decarbonisation plans, this figure is due to increase significantly.

  1. DMA permalink
    July 15, 2016 2:16 pm

    The real oversight in this plan is the new plant is right next to the ocean. Everyone knows it will be under water by 2100. Looks like its under water figuratively speaking already.

  2. daveR permalink
    July 15, 2016 2:37 pm

    So predictable I couldn’t get a bet on it. Here we are – not as promised ‘market forces intervention’, but the workings of government-complicit greed. This has nothing – or very little – to do with emissions targets. Fist over barrel politics meets big finance yet foks vote for more…

    Can hear the larrfter and see the bubbles rejoicing in downtown Londres et Peking und Edambourg from here…

  3. July 15, 2016 3:31 pm

    “As of March this year, that had more than quadrupled to £29.7bn due to significant cuts to official power price forecasts.”
    So nothing much has changed except the forecasts, so likewise the quadrupling is just playing with numbers.

    3 future scenarios
    #1 future wholesale elec prices are higher than £92.50/MWh we pay that higher price*
    *( plus retailer costs/profit/taxes)
    #2 If future wholesale elec prices are lower than £92.50, say £40/MWh that’s NOT what we pay
    – a proportion of unsubsidised electricity costs the retailer £40
    – The proportion of subsidised HINKLEY electricty costs the retailer £92.50
    So #2 our actual electricity costs us say £70/MWh

    Bottomline : See how situation #1 costs us more than situation #2
    Now imagine #3 that we break the EDF contract
    So if situation #2 became situation #3 We’d be paying £40/MWh for all our electricity
    that is £30 lower than under situation #3, so we say in situation #2 that £30 is our extra cost

    Now if you imagine
    #4 a situation similar to #2 but where other electricity prices are say 95p lower than £92.50 so the retailer would pay EDF £92.50 and end up charging you say £92.55MW/h, so the EDF subsidy costs you £1/MWh on your bill.
    See in this number game that in situation #2 our £30 subsidy cost is 30 (thirty) times more than the £1 in #4
    and see how tiny rises towards £92.50 for other electricity the retailers buy towards 5p, 1p an ‘exponential’ rise in subsidy proportions

  4. manicbeancounter permalink
    July 16, 2016 11:01 am

    If you look at the principles of the Stern Review – that climate mitigation costs are far less than the likely costs of doing nothing – then Hinkley Point should be rejected. The relevant cost here is the subsidy cost per unit of emissions saved. the guaranteed price per unit of electricity produced means that the subsidy is inversely related to the price of fossil fuels.That relationship is a non-linear one and not controllable.
    It gives a wider consequence. The aim of global policy is to rapidly reduce the use of fossil fuels. If that happens, fossil fuels (where the prices are highly elastic with respect to demand) will fall in price. The implied subsidy for “clean” energy will rise dramatically, as has happened with Hinkley Point. A successful policy will not be worthwhile.
    The more realistic scenario from the Paris Agreement is that proposed emissions reductions policies will make very little difference to future warming. Actual emissions reductions are likely to be much less. Therefore long-term fossil fuel prices will be largely unaffected, so, ceteris paribus, subsidies will be less. But then, assuming that the prophesies of climate catastrophism are true, any money spent on climate mitigation will have made very little difference.
    Climate Mitigation is a game where all participants are losers. Which is why the only way to play is cheat and evade doing anything.

  5. Derek Buxton permalink
    July 16, 2016 1:58 pm

    Well the obvious answer is cancel the contract, EDF have not done as asked so the Contract no longer exists. Or perhaps our political class have not realised just who we were attacking in the referendum? Yes, that is correct, the whole dirty political class who have their fingers in the pie. the DECC has gone now, hasn’t it!

    • manicbeancounter permalink
      July 16, 2016 4:36 pm

      EDF are unlikely to be able to go ahead with the deal due to the financial risks, even with Chinese help. They could do so with some guarantees from the French Government. I think the course of events now will be that the British Government pressurizes EDF. They will make a formal application to the French Government, who will quickly turn it down, on the basis that Britain is leaving the EU. For the Remain supporters & Climate Alarmists this will be proof of the adverse consequences of Brexit. For anyone with a bit of sense it will be an unintended benefit of Brexit.

      • July 17, 2016 9:22 am

        One factor that nobody seems to have mentioned is the big drop in the Sterling/Euro exchange rate, Kevin

        All of a sudden, EDF’s £92.50/MWh is worth 10% less in terms of Euros. Although much of the cost of Hinkley will be paid in pounds, this must still leave a big hole in the finances

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