22 April 2016

How to save UK electricity consumers £ 720 million per year for 35 years.

New nuclear power in the UK comes at a high price. Is it justified to pay such a high premium for low carbon electricity which is reliable and does not depend on the weather? Hinkley Point C, the first new nuclear power plant for decades which would generate 3,200 MW throughout the year (7 per cent of the UK’s demand), requires a price guarantee from the UK government for 35 years at £100.68/MWh in today’s money (£92.50/MWh in 2012 money). At the same time, the wholesale price for electricity is currently below £35/MWh.

Supporters of Hinkley Point C correctly argue that wind and solar produce variable amount of electricity whereas Hinkley Point would produce a steady baseload. Their argument for Hinkley Point C is that despite the higher cost, it is needed because cheaper forms of low carbon electricity generation are less reliable, and that other forms of baseload power (such as gas or coal) are less green. We analyse whether one could replicate the electricity generation of Hinkley Point C with a cheaper, equally low carbon combination of a) solar farms, b) wind farms, c) energy storage and d) backup gas generation at costs that would allow their deployment today.

Our analysis shows it is possible at a price of only £75/MWh, 25 per cent less than for Hinkley Point C. This would save Britain’s consumers £720 million per year (or £25 billion in today’s money over the 35 year contract term).

Transforming weather-dependent solar and wind into a stable generator is possible because the weather variations between wind turbines and solar panels largely cancel each other out. Any remaining variation is managed with energy storage (charging batteries when generation exceeds demand and vice versa) and with backup natural gas generators. Gas generators are the only technology emitting carbon dioxide, but as they are rarely used, the average carbon intensity is still 80 per cent lower than today’s average of electricity from the grid. At a carbon intensity of only 100gCO2/kWh our “renewable Hinkley Point” would meet the UK’s 2030 target already today. We also show a cost effective way to reduce the carbon intensity further.

The analysis shows that politicians and civil servants should not pick winners but rather create a level playing field between all different technologies. This will stimulate innovation and bring forward substantial cost savings to consumers. We encourage the Department of Energy and Climate Change (DECC) to negotiate with Green Hedge and other low carbon firms to put in place the contracts to deliver the same results as Hinkley Point but faster and cheaper.

The full report is available for free on the Green Hedge website (www.green-hedge.com) or by clicking on this download link. We invite feedback and comments (info@green-hedge.com).