Board members of the French utility EDF will meet in Paris later today and are “almost certain to approve” the controversial £18 billion Hinkely Point nuclear power plant, according to UK media reports. Construction would then start in mid-2019 to get the first reactor commissioned by 2025 – leaving it to flexible gas power plants to cover demand in the interim.
A positive Final Investment Decision (FID) on Hinkley Point C would allow Greg Clark, the UK’s new business and energy secretary, to sign a 35-year electricity offtake agreement on Friday– dubbed by some critics as a “subsidy deal”. These payouts are set to quintuple to £30 billion, according to projections of Britain’s National Audit Office.
Comparing generation costs
By 2030, a further 35% of the UK power plant fleet or 30 GW will be taken off the grid, with an estimated 43 plants up for closures. National Grid’s policy scenarios suggest that between 2012 and 2020: about 100 GW of new capacity needs to be built. The 20 GW that was built in the ‘1st Dash for Gas’ wave is dwarfed by comparison.
With £92.50/MWh generation costs – compared to £80-114/MWh for new-build gas power stations – EDF promotes Hinkley Point C as the UK’s lead project on new nuclear capacity.
Bridging the capacity gap
Repeated push-backs of EDF’s financial close on the 3,200 MW Hinkely Point C complex has significantly delayed the project timeline. The reactor was meant to start up in 2017 – and provide 7% of the UK’s energy mix – but is now unlikely to produce any electricity before 2025.
In the face of coal retirements, flexible gas power plants might well be called on to bridge the capacity gap. The UK government has for long been trying to promote the capacity market as a tool to avoid any shortfall in available power generation capacity. Yet, it failed to tackle a “legacy of under-investment.”
Financing hard to come by
Critics like Peter Atherton, managing director, Jeffries remarked that in the UK “not a single MW of capacity can now be built without state underpinning its economics.” Even so, capacity auctions did not make any new gas power project forthcoming.
To achieve Britain’s ambitious 2050 carbon reduction targets, the government needs to close oil, coal and eventually gas power stations – making lenders hesitate as whether finance new gas power capacity, even if underpinned by capacity contracts.
Power producers deem the price of the second UK capacity market auction “too low to advance investment in new, large-scale gas power plant projects.” The latest auction, held by National Grid in December, secured 46.345 GW at a clearing price of £18/kW – over £1 cheaper than last year. Yet, investors deem £35/kW to for new-builds.