Hinkley outpriced by renewables

Hinkley Point Nuclear Power  Station (Source)

The cost of electricity produced by offshore wind has plummeted.  10 years ago offshore wind PPAs were around £150/MWh (US$200/MWh.)  The most recent contract was signed at £57.50/MWh (US$ 76/MWh).  This compares with the new Hinkley Point Nuclear power station at £92.50/MWh (US$123/MWh).

The winds over the ocean tend to be stronger and more consistent than the winds over land.  (There are some exceptions--the "wind alley" in the US west is an obvious one.)  So everything else being equal, offshore wind farms are preferable to onshore.  But everything isn't equal: construction costs are higher, maintenance is more expensive, and risks are higher.  So offshore wind is still more expensive than onshore, even though the gap is closing.

For countries in high latitudes, where insolation varies so much from winter to summer, wind will play a bigger part in the switch to renewables than it will in regions closer to the equator.  Unless solar gets so cheap we can afford to overbuild solar to make sure we have enough in winter and dump excess power in summer, which seems really wasteful, though.

Hinkley Point C nuclear power station was conceived in the days when offshore wind cost £150 per megawatt hour and a few misguided souls, some of them government ministers, thought a barrel of oil was heading towards $200. 

Successive governments swallowed the line that Hinkley represented a plausible answer to the UK’s threefold energy conundrum – keeping the lights on, reducing carbon emissions and producing the juice at affordable prices for consumers and business. 

Hinkley still scores on reliability and low carbon (if one ignores the effect of spoiling the Somerset countryside with so much concrete), but the extent to which its costs are obscene is now plainer than ever. In Monday’s capacity auction, two big offshore wind farms came in at £57.50 per megawatt hour and a third at £74.75. These “strike prices” – a guaranteed price for the electricity generated - are expressed in 2012 figures, as is Hinkley’s £92.50 so the comparison is fair. 

The dramatic improvement in offshore wind’s competitiveness is easy to explain because it was predicted. The turbines have become bigger and more efficient, installation costs have fallen and operators are able to use existing infrastructure.  

By contrast, nuclear – a technology that has been around for half a century – seems to only become more expensive in a world of tighter safety regulation. Hinkley Point’s construction [cost] tripled between conception and contract, remember. 

As for the argument that we must pay up for reliable baseload supplies, there ought to be limits to how far it can be pushed. A nuclear premium of some level might be justified, but Hinkley lives in a financial world of its own, even before battery technology (possibly) shifts the economics further in favour of renewables. A credible energy strategy would concentrate on wind- and gas-fired stations, and invite nuclear to the game only if it can vaguely compete on price.

The government should draw the obvious conclusion from Monday’s successful auction. One Hinkley is bad enough; a series of follow-on white elephants would be a disgrace.

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Remember also that the decommissioning costs of Hinkley Point haven't been included in the PPA, plus the government has guaranteed the debt of the power station (also not included in the PPA), and the costs of catastrophe insurance are being borne by the government not the power plant itself.

But offshore wind is now competitive with gas, too.  EDF (Électricité de France) says that the cost of firming/storage adds  £10/MWh to the cost of the wind farms.  Other analysts come up with  £10/MWh up to  £22/MWh (an anti-wind campaigner), which is still cheaper than gas.

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