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Ofgem protects customers of failed supplier Our Power

Ofgem protects customers of failed supplier Our Power

Publication date

25th January 2019
Information types

Policy areas

Our Power, an energy supplier with about 31,000 domestic customers, has ceased to trade.

Under Ofgem’s safety net, the energy supply of Our Power’s customers will continue and pre payment meters can be topped up as normal. The outstanding credit balances of domestic customers will be protected.

Ofgem will choose a new supplier to take on Our Power’s customers as quickly as possible. This supplier will contact these customers shortly after being appointed.

Ofgem’s advice to Our Power’s customers in the meantime is:

  • Do not switch to another energy supplier.
  • Take a meter reading ready for when your new supplier contacts you.

This will make the process of transferring customers over to the chosen supplier, and paying back their outstanding credit balances, as smooth as possible.

Philippa Pickford, Ofgem’s director for future retail markets, said:

“Our message to energy customers with Our Power is there is no need to worry, as under our safety net we will make sure your energy supplies are secure and your credit balance is protected.”

“Ofgem will now choose a new supplier for you, ensuring you get the best deal possible. Whilst we’re doing this our advice is to ‘sit tight’ and don’t switch. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your new tariff.”

“We have seen a number of supplier failures over the last year and our safety net procedures are working as they should to protect customers.”

Updates are available from our website or through our twitter feed @ofgem.

Customers who have questions should visit the FAQs on our website. Or if they need additional support, call Citizens Advice on 03454 04 05 06 or email them via their webform. Alternatively, get in touch through Ofgem’s facebook or twitter feed @ofgem.

Notes to editors

  • Our Power’s customers should take meter readings today and wait until their new supplier contacts them. Once they’ve been contacted, customers can ask to be put on their new supplier’s cheapest deal or shop around for a better deal from another supplier. They won’t be charged exit fees for switching away from their new supplier.
  • Customers with prepayment meters will be able to continue to top up as normal.  Our Power or the new supplier will contact customers to ensure they are informed of any changes to arrangements for pre payment customers.
  • Ofgem’s safety net will make sure customers will always have an energy supply, credit balances are protected and that the process in moving over to the appointed supplier is as smooth and hassle free as possible.

Further information

For media, contact:

Chris Lock: 0207 901 7225

Media out of hours mobile: 07766 511470 (media calls only)

About Ofgem

Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.

For facts, figures and information about Ofgem’s work, see Energy facts and figuresor visit the Ofgem Data Portal.

For energy insights and updates straight to your inbox from Ofgem, please subscribe.


CCWater remains concerned by Bristol Water complaints

Bristol Water has more work to do to reduce the number of complaints it receives from its customers, the Consumer Council for Water (CCWater) has warned.

Bristol Water was one of three suppliers – including Southern Water and Surrey-based SES Water – challenged over their poor performance during 2017/18.

In the first six months of the 2018/19 financial year, Southern Water saw a 32 per cent reduction in written complaints and 34 per cent drop in telephone complaints, while the number of phone complaints to SES Water fell by 15 per cent and written complaints by more than a third.

However, while Bristol Water has also been able to substantially reduce the number of telephone complaints, the number of written complaints rose by just over 1 per cent.

David Heath CBE, western chair for the Consumer Council for Water, said: “As it stands, Bristol Water remains in a poor position when it comes to customer complaints and that needs to change.

“We recognise the company has taken steps to try and improve the way it engages with customers, particularly on social media, but we need to see evidence those changes are reducing complaint numbers.”

In September, CCWater’s annual report revealed that Bristol Water had seen the largest rise in complaints of any water company in England and Wales during 2017/18, and the watchdog has now requested further updates on its complaint handling until significant improvements are made.

Ben Newby, Bristol Water’s chief customer officer, said: “We’re pleased that we have seen an 18 per cent drop in total complaints for this year so far compared to the same period last year.

“We appreciate there is still work for us to do on written complaints. Since last year’s CCWater report, we introduced changes to how we handle customer experience, such as introducing a customer care team and a new delivery model for our streetworks, which has resulted in zero written complaints for these teams.

“We are currently forecasting a 16 per cent drop in written complaints by the end of this year and a 26 per cent reduction in complaints overall. We also note in CC Water’s report that our complaint handling is one of the best in the industry with less than 1 per cent being referred to them.

“We continue to work with CCWater on improving our customer’s experience with us and thank them for their continued scrutiny on this area.”

The watchdog also told Southern Water there is no room for complacency despite its improved showing, although Sir Tony Redmond, CCWater’s London and South East chair, added: “We are cautiously optimistic the company can finally improve its standing in the industry.”

Southern Water’s chief customer officer, Simon Oates, said: “We’re really proud of the improvements we’ve made in customer satisfaction and the reduction in customer complaints that have come on the back of our transformation programme. It’s a programme that’s been focused on, making it easier for customers to contact us when they need to and giving them a broader range of channels, such as online services to make that contact in the first place.

“It’s clear to see that it’s been working, and as a result of the reduction in complaints, customer satisfaction has gone up. When we look at our position among other water companies in our sector, we’ve gone from propping up the industry league tables just two years ago to being middle of the pack this year.

“But we know we need to do more. We submitted our business plan to Ofwat which outlines how we plan to improve the total service we give to our customers across the board while also reducing bills. We want to continue improving so we can deliver the everyday service we know our customers want, expect and deserve.”

Redmond also said that SES Water’s improved figures “give us reason for optimism” but added: “SES Water remains a long way from where we would like it to be compared to rest of the industry.

“We want to see further improvements over the next few months.”

SES Water is currently halfway through a transformation programme to improve the experience its customers receive, which involves fundamental changes to systems and processes and investing heavily in its employees.

Since the programme started last January, SES Water has seen its complaints fall by almost 45 per cent between April 2018 and the previous year and said it is on track to achieve almost a 20 per cent reduction in unwanted contacts by March 2019 compared to the previous year.

Dan Lamb, head of retail services at SES Water, said: “We want the most satisfied customers in the country so providing high-quality service and reducing complaints is very important to us.

“We are now at a three-year low of 9.5 complaints per 10,000 properties and during 2018 we reduced complaints by 39 per cent and saw a 17 per cent reduction in unwanted contacts.

“The improvements we are making have also seen us increase our position in the Service Incentive Mechanism (SIM) league table this year and achieve our highest ever billing score. In our business plan for 2020 to 2025, we aim to go even further and achieve upper quartile C-MeX performance by building on all the good work we’re already doing.”

Author: Robin Hackett, Deputy Editor, WWT and WET News
Topic: Policy & Regulation
Tags: Consumer Council for Water , CCWater , Bristol Water , Southern Water , SES Water , complaints

The sun rises behind electricity pylons near Chester, northern England October 24, 2011. REUTERS/Phil Noble

EDF weighing up retreat from energy market in UK Save

Energy company EDF has rejected claims that it intends to ‘retreat’ from the the UK energy market due to Westminster government energy market policies.

Media reports claimed last week that the French company was “weighing options to distance itself from the British energy market”.

But today, EDF Energy denied the claims, and reiterated its rejection of the reports.

EDF Renewables is a partner in Lewis Wind Power (LWP), the company behind the proposed Stornoway Wind Farm development, and any move to leave the UK energy market could raise concerns over the future of that project.

A statement issued by EDF, said: “EDF is more committed than ever to the UK market and to strengthening its ­existing retail business.”

French company EDF is currently building two new nuclear power reactors at Hinkley Point C in Somerset, and is a retail supplier of gas and electric to UK’s domestic and business markets.

A statement from the Comhairle, which is working with The Stornoway Trust to maximise the community return on LWP’s proposed Stornoway Wind Farm, confirmed that the development was progressing its bid for government funds.

The Comhairle’s statement said: “On 25th January the Department for Business, Energy and Industrial Strategy issued the Draft Allocation Framework for the Third Contracts for Difference (CfD) Allocation Round.

This shows Remote Island Wind as an eligible technology category. Lewis Wind Power, in which EDF is a partner, will be bidding into that CfD auction.”


British taxpayers face £24bn bill for tax relief to oil and gas firms

NAO report reveals cost of removing hundreds of North Sea wells, rigs and pipelines

British taxpayers face a £24bn bill for tax relief awarded to oil and gas companies removing hundreds of North Sea wells, rigs and pipelines, the UK public spending watchdog has said.

The National Audit Office (NAO) said the figure would climb if companies collapse and are unable to pay for cleaning up their operations, leaving the government to pick up the tab.

The industry has contributed more than £300bn in tax revenues to the Treasury since the 1960s. North Sea production peaked in the mid-1980s and the late 1990s, and has been declining ever since.

Tax revenue peaked at about 3% of GDP during the 1980s, but slumped as output from the region declined. A combination of low oil prices and decommissioning costs resulted in the industry becoming a net drain on the government purse for the first time in 2016.

The NAO, in report on the cost of decommissioning the region’s oil and gas fields, said the Treasury faced a £24bn bill because of tax arrangements.

About half of the figure comes from decommissioning reducing companies’ taxable profits, with the rest from tax reliefs based on the large sums of tax paid historically. Those reliefs allow companies to offset decommissioning costs against revenue, cutting the amount of tax they pay on their profits.

The vast majority of the costs will land over the next 20 years, with a small amount falling as late as the 2060s.

However, the watchdog warned the £24bn estimate was “highly uncertain” as it relied on factors that are hard to predict, such as future oil prices.

The bill could also be bigger if oil and gas companies become insolvent, leaving the government liable for clean-up costs.

“Taxpayers are ultimately liable for the total cost of decommissioning assets that operators cannot decommission,” the NAO said.

The report revealed there have already been cases of companies defaulting on their clean-up obligations. The Treasury had to pay out £5.4m in 2016 and £45m in 2017 for decommissioning because of unnamed companies not meeting the costs.

Decommissioning involves everything from plugging old wells to removing the miles of pipelines on the seabed in the region.

The industry has been a set a target of reducing the total costs of decommissioning – pegged at £59.7bn in 2017 – by 35% in three years’ time.

However, decommissioning experts said the target is very ambitious.

The Oil and Gas Authority, the industry regulator, has rejected freedom of information requests by the Guardian seeking to discover how many decommissioning projects are coming in on budget, on the grounds the data is commercially sensitive.

Labour said the government needed to rethink changes last year that allow buyers of oil and gas fields to inherit the seller’s tax relief.

Clive Lewis, the shadow Treasury minister, said: “The obvious issue looming over all of this is the climate emergency. We know we need to urgently be ending the UK’s reliance on fossil fuels, not offering yet more tax breaks for big oil companies.”

Much of the regulation requiring companies to remove oil and gas structures stems from the response to the 1995 proposal by Shell to sink the Brent Sparoil storage platform in the North Sea. The plan was abandoned after widespread protests by environmentalists.

Decommissioning experts said to meet cost targets, more infrastructure may in future need to be left in the North Sea.

“One way of spending 35% less is doing 35% less. If the public purse is getting involved, we owe the public to look at it and not to dismiss it out of hand,” one industry source said.

The trade body Oil and Gas UK said it was “wholly committed” to making decommissioning cost-effective and environmentally responsible.

The government said it was working to reduce costs. “By providing tax relief on decommissioning, we are attracting continued investment into our reserves – supporting jobs, boosting the economy and protecting our energy supply,” a spokesperson said.


Glengorm the biggest UK gas find since Culzean, Woodmac says

Chinese energy firm Cnooc’s discovery at Glengorm is the largest gas find in the UK since Culzean in 2008, an analyst has said.

Kevin Swann, senior analyst at Wood Mackenzie, said: “There is a lot of hype around frontier areas like west of Shetland, where Total discovered the Glendronach field last year.

“But Glengorm is in the central North Sea and this find shows there is still life in some of the more mature UK waters.”

He added: “This was third time lucky for Cnooc at Glengorm. Technical problems saw it try and fail to drill the prospect twice in 2017, so persistence has paid off.

“This is a good start to what could prove to be a pivotal year for UK exploration with several high impact wells in the plan.”

Glengorm continues a spectacular run of high-impact exploration success for both Cnooc and Total, ranked fifth and third in the world respectively, by exploration volumes discovered in 2018.

Andrew Latham, vice president for global exploration, at Woodmac, said: “Cnooc is a 25% partner in the prolific Stabroek Block in Guyana, where 5 billion boe has been found since 2015.

“It has also found over 1.5 billion boe offshore China since 2017.”

He added: “Total has reset its exploration strategy under new leadership since 2015 and it is now seeing much improved results.

“Over the past year, Total operated the large Glendronach gas discovery in the UK west of Shetland and is a partner in the giant Calypso gas discovery, offshore Cyprus, as well as the Ballymore find, a major oil discovery in the US Gulf of Mexico.

“Through its 20% equity in Novatek, Total also holds an indirect stake in the North Obskoye gas find, offshore Russia, the world’s largest discovery in 2018 with reserves of over 11 trillion cubic feet.”

Mr Latham said: “Exploration industry returns averaging 13% in 2018 were the highest in over a decade, driven by lower costs and a focus on drilling prospects with a straightforward route to commercialisation in the event of success. Glengorm fits this revitalised exploration model perfectly. It looks to be a valuable discovery that should help sustain the industry’s profitability into 2019.”


Britain, Brexit, nuclear power and EU energy

The decision to postpone constructing a new nuclear plant in Wales has left a hole in the UK’s post-Brexit, low carbon energy plans.

The decision by Japanese firm Hitachi this month to postpone the Wyfla nuclear power station development in Anglesey, as well as its Oldbury project near Bristol, leaves a substantial gap in future low carbon electricity supply for the UK.

Work has started on Hinkley Point in Somerset, but this is the only one of the six major nuclear projects in the pipeline to progress. Last year Toshiba, another Japanese company, pulled out of developing a power plant at Moorside in Cumbria.

The proposed developments by Chinese firm CGN at Sizewell (Suffolk) and Bradwell (Essex) are politically contentious and yet to be agreed.

More renewables

In 2008, the Labour government set out its strategic vision for a future UK low carbon power sector, which had nuclear at its centre. But in the 20 years since, the economics of nuclear have deteriorated, while the remarkable drop in the cost of renewables and flexible energy sources is threatening the profitability of large, inflexible power stations.

There are currently four high-voltage electricity interconnectors that connect Britain to the Netherlands (BritNed), France (IFA), and the island of Ireland (Moyle and EWIC). A fifth connection, running to Belgium (Nemo), is due to go live at the end of January.

At least another eight are planned to be developed by the late 2020s, nearly trebling the supply capacity that currently exists.

Interconnectors are important for energy and climate change for several reasons. They help decarbonise UK electricity consumption by importing lower carbon power from countries such as France which has lots of nuclear power, and – in future – Norway and Iceland which generate electricity from hydro and geothermal.

They also contribute to decarbonisation by helping to match supply and demand, which in turn allows more renewables and electric vehicles.

Negative consequences

Excess electricity can then be exported during periods of low demand or imported when demand is high – something that helps with security of electricity supply, as imports can complement domestic power generation.

Interconnectors also help reduce electricity prices. The UK has higher wholesale power prices than other EU countries, meaning electricity typically flows to the UK from markets where power is less expensive. Buying this cheaper electricity lowers prices here, which reduces consumer bills.

Even though the current and previous governments have actively encouraged the building of interconnectors, the UK leaving the EU threatens their development and operation.

After Brexit the UK is expected to leave the EU’s internal energy market, as well as key EU market arrangements and trading platforms. These allow electricity trade to happen in the most efficient and cost-effective way and losing access to them could lead to higher bills for consumers.

This would also reduce the system benefits of developing interconnectors as they cannot work at their most effective, which in turn would have negative consequences for future development of renewables. But irrespective of the outcome of Brexit, the UK should build more interconnection as it is a ‘no-regrets’ option for the UK.


Even after leaving the EU, they can still needed to help with the transition to a low carbon energy system, the least-cost pathway to decarbonisation, and fill the capacity gap from the postponed nuclear plants.

The UK and EU will need to continue cooperating on climate change and energy issues post Brexit, because the connected physical space between them means that choices made by one will impact the other.

As the Brexit negotiations move towards discussions on the future relationship, the UK should prioritise interconnectors in discussion on future cooperation and commit to cross-border initiatives in energy markets around the North Sea region.

The rationale to build interconnectors and their contribution to energy and tackling climate change has long been recognised, but there is now an even greater need to construct them.

Despite Brexit, the UK government needs to bolster its support for new interconnectors and maintain high levels of cooperation with the EU and regional partners to ensure they get built and the UK stays on the path to decarbonisation.


Electricity replacement projects reduce carbon dioxide emission

HANGZHOU, Jan. 24 (Xinhua) — East China’s Zhejiang Province launched over 3,700 “electricity replacement projects” in 2018, leading to a sharp reduction of carbon dioxide emission, the State Grid Zhejiang Electric Power Co. Ltd. said Thursday.

A total of 3,714 replacement projects were launched in the province last year, which resulted in the consumption of over 7 billion kilowatt hours of electricity to reduce the consumption of coal and oil equivalent to 2.8 million tons of standard coal, the company said.

The company has been promoting electric power in major fields over the past few years, instead of using coal and oil, so as to slash air pollution and haze.

The major fields cover transportation, residential consumption and industries including tourism, manufacturing industry and agriculture.

So far, 71 tourist attractions in Zhejiang rely entirely on electricity for energy supply. More than 25,000 households in the province have used electricity for heating.


Community energy: a local solution?

Over the years there have been many grass-roots community energy projects in the UK and elsewhere, often with an emphasis on local ownership. This provides an economic reward and incentive for investing in local projects and the opportunity for direct local control as well as wider local economic, social and environmental benefits. Local ownership has also helped to avoid opposition at the local level to wind farms elsewhere, as is evident from Denmark, where most wind projects are locally-owned and usually welcomed and, indeed, sought after. As the Danes say, “your own pigs don’t smell”.

There are, of course, a range of factors shaping how easy it is to move to local ownership, including the availability of suitable support schemes and local orientations. Although there are many constraints, there are also opportunities, and across the EU there are many community energy projects.

Some of these involve local ownership. In addition to the wind co-ops in Denmark, nearly 40% of German renewable capacity is now locally owned, some by household domestic photovoltaic (PV) “prosumers”, some by local co-ops, with many hundreds of village and town-based schemes in place. Some see this as prefiguring a new form of decentralized socio-economic power, with local social entrepreneurship challenging the existing energy market system. Certainly, in some countries, local ownership and self-generation mean that the existing power utilities are losing control of some parts of their market and local ownership clearly opens up a wide range of technical, social and political issues.

Community capacity

The situation in the UK, however, is not quite so dramatic. There is maybe nearly 4 GW of FiT-backed small, privately-owned “prosumer” PV. But in terms of community ownership, although local energy projects have involved a lot of people in local activism and networking — 48,000 according to a recent “State of the Sector” report — in all, there is only around 249 MW of locally-owned/community project capacity so far.

What’s more, the prognosis for the future is mixed. The second edition of the “State of the Sector” review by Community Energy England and Community Energy Wales notes that, while there was 168 MW of locally-owned project capacity in England, Wales and Northern Ireland, only one new community organization was constituted in 2017, with 30 fewer successful projects and 31% less generation capacity installed or acquired than in 2016. The cuts to the Feed-In Tariff (FiT) were a major problem.

The UK government has only made limited commitment to local projects, following the publication of DECC’s Community Energy Strategy report in 2104. The situation in Scotland is better, given its more supportive government, with 666 MW of local power in place. Following the early attainment of the Scottish Government’s 500 MW target for community and locally-owned energy in 2017, Scotland, which has a Community & Renewables Energy Scheme (CARES), set an increased target of 1 GW by 2020. And it seems to be well on the way to reaching that. Although only 81 MW of the 666 MW of local power capacity in place so far was community-owned, it did represent a 12% increase in community-owned renewables capacity between 2016 and 2017 across more than 500 separate installations.

With ideas for smart-grid demand management in development, it could be that local energy projects will at long last come into their own

Dave Elliott

However, while CARES has clearly helped in Scotland, the Feed-Tariff has been a key element in all of this, and with that cut back and soon to go entirely, the prognosis does not look good. The State of the Sector review noted that: “At present it seems likely that the slowdown in the sector will continue into 2018. Despite ongoing innovation, the greater risks and hurdles associated with such projects mean that the number of financially viable projects in 2017 has been low. Communities are calling for better support for renewable energy projects, as well as reduced barriers to project development. Critically, clearer and more supportive government strategy is required, with greater support at the regional and local levels from local authorities.”

External support

The point is that, while self-help is important, there is also a need for external assistance. The State of the Sector review said, “improved policy support must be offered throughout the sector to improve project margins and viability and realize the benefits of local low-carbon projects. Whether through financial interventions — including reviewed subsidies, investment incentives, innovative support and early stage funding — or through greater engagement with the community energy sector (e.g. local authority partnerships), the public sector must play a central role in enabling community energy. Improved strategies and support will allow communities to continue to develop their low-carbon ideas to the benefit of local people and areas, whether through traditional routes or by establishing more innovative paths towards low-carbon community development”.

Nevertheless, looking to the future, the sector review concluded on a hopeful note: “An increasing focus on new business models, including behind-the-meter renewables, direct or local energy supply and a more collaborative approach to community energy, is driving forward a new agenda in the community energy sector”. That might include branching out from power generation via PV solar, which has been the main focus so far. There have also been 1.9 MW of local heat-supply projects and many energy efficiency/demand management projects. With ideas for smart-grid demand management in development, it could be that local energy projects will at long last come into their own. That’s what seems to be happening in some places in Germany, with attempts to move into distribution as well as generation, in some cases via municipal schemes.

In the UK context, some local councils have been exploring local power project options, developing out of the pioneering schemes in place in Nottingham and Bristol and that idea is part of the Labour party’s proposals for “public power”, with municipal projects running alongside community energy co-operatives. The prescription of local cooperative/community ownership does assume there would be demand for this form of involvement. That may not be the case. Most people may be happy just to buy whatever power is offered. Certainly, few people, wherever they lived, have in the past shown much interest in where their energy came from. However, issues relating to the costs, as well as the health and environmental impacts of power generation, as currently organized, have led to political pressures for change, with co-operatives and local ownership, along with other forms of democratic control, being one approach.

The loss of the FiT may make it harder for local projects of any kind to get going but, as I noted in my last post, the government is now proposing a “Smart Export Guarantee” as a replacement for the FiT export tariff, creating a local market for excess electricity. That might help community energy projects. But it’s still some way off, and not everyone will welcome the replacement of the FiT with a competitive market. The proposed new system is based on the power utilities, who run the trades and set the market prices, not on “peer to peer” transactions between prosumers, which some see as a potentially more progressive way ahead, possibly expanded to include community groups.


North Sea rocks could act as large-scale underwater renewable energy stores, study finds

Rocks at the bottom of the North Sea may provide the perfect storage location for renewable energy, according to a new study.

Excess power could be stored in the form of compressed air inside porous formations on the seabed, providing a reservoir that can provide energy on demand.

This pressurised air can be released to drive a turbine, generating a large amount of electricity.

This would allow green energy to be stored in summer and released in winter, when demand is highest.

Along with battery storage and connections linking Britain’s power supply to other European nations, experts hope compressed air energy storage will provide the UK with a constant supply of green energy.

After the Japanese firm Hitachi announced it was withdrawing support for a major nuclear plant, there was speculation about how the government will fill the energy gap left by failed nuclear plans.

Environmental groups say the shortfall can be made up by investing in renewable energy – particularly wind power.

However, critics say the erratic nature of wind and solar energy will not be able to provide the constant supply required to power Britain’s grid.

Building devices that can store green energy for when the wind is not blowing or the sun is not shining would allow the UK to keep the lights on without relying on climate-harming fossil fuels.

In their new analysis, scientists from the universities of Edinburgh and Strathclyde suggested drilling deep wells into North Sea rocks would create sites at which large quantities of air could be injected into sandstone pores.

In their study they used mathematical models to assess the potential of this technique in British waters.

They found geological formations in the North Sea have the potential to store one and a half times the UK’s electricity needs for the months of January and February.

“This method could make it possible to store renewable energy produced in the summer for those chilly winter nights,” said Dr Julien Mouli-Castillo from the University of Edinburgh.

“It can provide a viable, though expensive, option to ensure the UK’s renewable electricity supply is resilient between seasons. More research could help to refine the process and bring costs down.”

One way to save money and make the entire process more efficient would be to place the underwater wells close to large-scale offshore wind projects so energy could be funnelled straight down into the rock.

A similar process in which compressed air is stored in deep salt caverns is already being used at sites in the US and Germany.

These results were published in the journal Nature Energy.


Q&A: Can the UK meet its climate goals without the Wylfa nuclear plant?

The Japanese firm Hitachi has shelved a planned new nuclear plant at the Wylfa site on Anglesey in Wales, leaving a large hole in the UK government’s climate and energy strategy.

The news comes just months after the planned Moorside plant in Cumbria was scrapped by Toshiba, another Japanese conglomerate. Hitachi’s UK subsidiary, Horizon, has also suspended work on a third new nuclear scheme at Oldbury in Gloucestershire.

New nuclear plants were due to replace old reactors as they retire through the 2020s, helping to plug the gap left by coal-fired power stations being phased by 2025. They form a key part of the government’s plans to “keep the lights on” while meeting the UK’s legally binding climate goals.

However, recent analysis from the government’s official advisers the Committee on Climate Change (CCC) shows the UK could meet its power demand and climate goals to 2030 at low cost, without any new nuclear beyond the Hinkley C scheme already being built in Somerset.

This new analysis reflects the dramatic cost reductions seen for renewables in recent years. Greg Clark, the UK’s secretary of state for business, energy and industrial strategy (BEIS), made a similar point last week as he spoke in parliament about the failed Wylfa deal. He told MPs:

“The economics of the energy market have changed significantly in recent years. The cost of renewable technologies such as offshore wind has fallen dramatically…The challenge of financing new nuclear is one of falling costs and greater abundance of alternative technologies, which means that nuclear is being outcompeted.”

The outlook to 2050 is much less certain and, for Clark, nuclear will continue to have an “important role” in the future UK energy mix.

Modelling from the Energy Technologies Institute and Imperial College Londonsuggests new nuclear would help to keep costs down as the UK approaches zero emissions. Work by Aurora Energy Research finds that a highly renewable energy system in 2050, with no new nuclear added after Hinkley C, might have similar overall costs as a high nuclear pathway.

In this in-depth Q&A, Carbon Brief looks at what the Wylfa news means for the UK’s climate goals and what role nuclear might play in future.

What has happened?

The Japanese conglomerate Hitachi has shelved the planned new nuclear plant at Wylfaon Anglesey in Wales. The 2.9 gigawatt (GW) dual-reactor project would have cost a reported £20bn, according to the Financial Times, while others say it would have cost £16bn. [The difference is likely due to whether the figure includes financing costs or not.]

Hitachi will write off £2.1bn already put towards the project. Its UK subsidiary Horizonhas also suspended work on the 2.9GW Oldbury new nuclear plant in Gloucestershire, BBC News says.

The news follows Toshiba’s decision, in November 2018, to wind up its NuGen subsidiary in the UK. NuGen was to have built the 3.3GW Moorside new nuclear plant in Cumbria.

The door remains open to Hitachi resurrecting the schemes, but according to the Japanese newspaper Asahi Shimbun: “Analysts and investors viewed the suspension as an effective withdrawal.”

Why does it matter?

Together, the three planned plants at Wylfa, Moorside and Oldbury would have had a combined capacity of 9.1GW and generated 72 terawatt hours (TWh) of near-zero carbon power per year. This is roughly what the UK’s existing nuclear fleet produces, generating around a fifth of the country’s electricity last year.

Generating this amount of electricity with gas would lead to emissions of roughly 29 million tonnes of CO2 each year (MtCO2), around 8% of overall UK emissions in 2017. This level of emissions would be even more significant in the context of shrinking UK carbon budgets.

There are eight nuclear power stations operating in the UK today, with a total capacity of 8.9GW. With the exception of Sizewell C in Suffolk, these were all built in the 1970s and 1980s.

These older reactors are due to retire during the 2020s and are shown in shades of grey in the chart, below. Sizewell C (black) was built in 1995 and is due to retire in 2035, though operator EDF wants to extend its life by as much as 20 years until 2055.

Some six new nuclear plants had been under development around the UK, totalling 18GW (coloured chunks in the chart). The Hitachi news means three have now been shelved (red).


The government has also pledged to phase out by 2025 the UK’s six remaining large coal plants, totalling nearly 11GW. These continue to play an important role during periods of peak demand, but operate for relatively few hours across the year and generated 17TWh in 2018 (5% of the UK total).

New nuclear formed a key part of government plans to replace retiring reactors and coal. BEIS has some 7GW of new nuclear being built by 2030 in its latest energy and emissions projections. This is equivalent to Hinkley C in Somerset, plus at least three additional reactors at one or more sites.

Published a year ago, these projections scaled back the pace of nuclear new build compared to earlier outlooks, but, nevertheless, included steady growth throughout the 2020s and beyond.

Can the UK still meet its climate goals?

The sheer scale of the now-shelved nuclear schemes leaves a large hole in UK climate plans. But legally binding carbon budgets to 2030 could still be met without any additional new nuclear plants, according to analysis from the CCC.

Last year, the CCC published updated scenarios for the power sector through to 2030. These plot a range of pathways to meeting the UK’s 2030 climate goals, only some of which add new nuclear beyond the Hinkley C plant that is already being built in Somerset.

The chart below compares nuclear’s contribution to UK generation in 2018 (red chunk, left-hand column) with a range of scenarios for 2030 (remaining columns). Each scenario limits power sector carbon intensity in 2030 to 100 grammes of CO2 per kilowatt hour (gCO2/kWh) or below.

The CCC’s “central renewables” and “high renewables” scenarios meet the 2030 carbon target without new nuclear beyond Hinkley C. In these scenarios, nuclear generation in 2030 is 35TWh – the estimated output of Hinkley C plus Sizewell B, each running for 90% of available hours.


Note that each of the 2030 scenarios supplies enough electricity to meet projected demand, meaning the lights would not “go out”. Gas would still supply 20-25% of electricity, most of which would be used to cover peak demand during winter or to fill gaps in variable renewable output.

The CCC scenarios out to 2030 all massively expand renewables, whether or not additional new nuclear plants get built. The renewable share of the mix increases from 33% in 2018 to at least 58% in 2030. Nuclear’s share falls from 18% in 2018 to between 10% and 17% in 2030. At the low end, where no new nuclear is added after Hinkley C, it is renewables that make up the gap.

[The CCC says: “We do not consider [the BEIS 2030] pathway credible.” This pathway sees nuclear’s share hold steady, though, as BEIS notes, this is “not based on [nuclear] developers’ proposed pipeline”. BEIS also assumes imports via electricity interconnectors reach 21% of the total while the CCC assumes net-zero imports, with interconnectors helping balance supply and demand.]

The CCC says expanding wind and solar is a “low-regrets” option as renewables are likely to be cheaper than new gas, with similar costs to running existing gas plants or raising imports, even after accounting for the costs of integrating their variable output onto the grid. The CCC adds:

“If new nuclear projects [beyond Hinkley C] were not to come forward, it is likely that renewables would be able to be deployed on shorter timescales and at lower cost.”

Replacing the output of the shelved new nuclear plants at Wylfa, Moorside and Oldbury with renewables would be 13-33% cheaper, including the costs of balancing variable output, according to quickfire analysis from the Energy and Climate Intelligence Unit.

Note that reductions in per-capita electricity generation have saved the UK the equivalent of four Hinkley Cs of demand since 2005, according to recent Carbon Brief analysis. The CCC assumes continued efficiency improvements to 2030 are offset by demand for electric vehicles and heating.

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What about the UK’s 2050 target?

The route to meeting the UK’s climate goals in 2030 is relatively clear, with or without the likes of the Wylfa new nuclear plant. Looking out to 2050, however, the path becomes much more uncertain – not least because the UK is set to raise its targets in line with the Paris Agreement.

Other reasons for caution around longer-term pathways include fundamental uncertainty about the future, the need for extra electricity to help decarbonise heat and transport, and an expectation of rising costs to integrate variable renewables as their share grows beyond 50 or 60%.

As Clark told MPs:

“The government continue to believe that a diversity of energy sources is the best way of delivering secure supply at the lowest cost and that nuclear has an important role to play in our future energy mix…Having a substantial mix of technologies has an insurance quality. We should recognise that, but there is a limit to what we can pay for the benefit, which is reflected in my statement.”

Several recent analyses have investigated the UK’s electricity mix to 2050, in light of these challenges, uncertainties and the recent renewable cost reductions.

First, there is the modelling from the Energy Technologies Institute (ETI) published in late 2018. This suggests the least-cost path to 2050 includes 7GW of new nuclear by 2030 and 21GW by 2050.

The ETI notes this may not be “realistic”, but still emphasises the need for “low carbon baseload capacity [such as nuclear or CCS] to complement renewable generation”. It adds: “The scale of the requirement will depend on progress in developing storage and demand side flexibility.”

Second, there is the modelling for the CCC carried out by Imperial College London and published in summer 2018. This includes the option to balance seasonal variations in renewable output using “power-to-gas”, where electricity is used to make hydrogen that can be stored for later use.

This modelling suggests nuclear’s role in the future energy mix could be replaced using power-to-gas, with stored hydrogen being used to fill the gaps in variable renewable power output. However, Imperial says this would be around 10% more expensive than a 2050 scenario including nuclear or another source of “firm low-carbon capacity”, meaning one that can be turned on at will.

Aurora’s work includes hourly balancing of modelled supply and demand. It formed the basis for the NIC recommendation that the UK contract for no more than one extra nuclear plant before 2025, in addition to the Hinkley C scheme.

However, its findings come with a number of caveats. The most important is that the modelling assumes a highly flexible electricity system, with plenty of interconnectors to other countries, smart charging of electric vehicles, demand-side response and batteries. Aurora explains:

“In a flexible system, reaching 70-80% renewable production by 2050 is the cost-optimising option, with no new nuclear beyond Hinkley Point C needed to meet carbon targets. In a less flexible system, more than 40% renewable production by 2050 increases the cost to consumers.”

Aurora also cautions that a 90% renewable mix “may be more vulnerable to extreme winter system stress events”. For example, a prolonged windless cold snap. [The “Beast from the East” in March 2018 was cold, but windy.] Such a system would be reliant on imports during stress events, but supplies could also be tight in exporting countries, due to internationally correlated weather.

Another point to note with the Aurora modelling is that it allows for net electricity imports to the UK in 2050, whereas the CCC assumes demand is met purely from domestic resources.

This spring, the CCC will publish its advice on raising the UK’s long-term climate goals in line with Paris. This advice is expected to include pathways to reaching the higher targets.

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How has the media responded?

The news of Hitachi’s Wylfa decision sparked a series of newspaper editorials and opinion pieces.

“New nuclear plants may not be worth the cost,” says the Financial Times leader, adding that the decision “all but sounds the death knell for the UK’s 2013 energy strategy”. It says:

“Hitachi’s decision…should prompt the government to re-examine whether nuclear power is needed and if so whether the inevitable cost to taxpayers is justifiable. A comprehensive, independent and strategic review of energy policy should establish whether the case for nuclear power – based on the intermittency of renewables and the need for a zero carbon base load – survives these recent project failures.”

The FT says this review should also consider the falling cost of renewables and should look for “better incentives”. It adds that more direct government investment in new nuclear might be a “sensible” alternative to Chinese funding, given “legitimate security concerns”.

For the Times editorial, the news leaves the UK with a “headache”. It adds: “Pressing ahead without new nuclear capacity is plausible, but not without a considerable expansion of renewable energy and its storage capabilities.”

The Guardian editorial says current UK energy policies “don’t add up”. It says: “The challenge for all those in the UK who see this as good rather than inconvenient news – because cheap, green energy that doesn’t create toxic waste is what the planet needs – is to explain how demand will be met when existing nuclear power stations have been wound down, at times when there is no sun or wind, until we have the technology we need to store electricity.”

The Daily Mail editorial calls the Wylfa news “deeply worrying”, noting nuclear plants supply a fifth of UK electricity, yet will mostly retire by 2025. “With coal being phased out, no new gas-fired stations under way and fracking unpopular, how on earth will [government] fill this vast energy shortfall,” it asks, saying the UK could become “dangerously dependent” on nuclear built by China or gas from Russia. [The UK currently gets much less than 1% of its gas directly from Russia.]

The Observer editorial says the news leaves the UK’s energy policy “in ruins”. It says: “The nation needs to know, very quickly, how ministers intend to make up for this lost capacity.” Despite higher costs than renewables, the Observer says: “[Government] need[s] to reopen talks with Hitachi and Toshiba to hammer out a sensible electricity pricing mechanism for power from their plants and so allow building work to resume.” It also calls for more investment in renewables and CCS.

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Is there another way to fund new nuclear?

The Wylfa deal collapsed despite a “significant and generous” package of support being offered by government, according to Clark. In a sign of the lack of investor appetite for the deal, Hitachi’s shares jumped 13% on news the project was being shelved, according to Reuters.

The package on offer included a fixed price of up to £75 per megawatt hour (MWh) for Wylfa’s electricity under the Contracts for Difference (CfD) scheme for low-carbon power. It also included the government taking a one-third stake in the project and providing all necessary debt finance.

The key problem with the deal appears to have been the fact that Hitachi would have assumed essentially all of the risk related to building the Wylfa plant on time and to budget. It would not have received any payments until the plant started to operate. Indeed, this was a central selling point of the CfD deal secured for Hinkley C, according to then-secretary of state Ed Davey.

[Some commentators have argued that government preoccupation with Brexit is also putting off potential investors, with Nick Butler in the Financial Times writing: “International business has begun to distrust the UK as a place to invest.”]

In 2017, the National Audit Office (NAO) criticised the Hinkley deal and argued that government taking on a share of construction risk could have resulted in a lower price for consumers:

“Alternative financing models would have exposed consumers and/or taxpayers to the risks of the project running over budget…But our analysis suggests alternative approaches could have reduced the total project cost. The department did not assess whether the reduced cost balanced against the increased exposure to risk would have resulted in better value for money for electricity consumers.”

The NAO’s report explored alternative financing models, including versions of a “regulated asset base” deal (RAB). This model is already used to finance major infrastructure projects, including electricity transmission lines or London’s “supersewer” under the Thames.

Put simply, RAB would see the owners of a new asset (the new nuclear plant) being paid a regulated return on their investment. Crucially, payments would begin during the construction phase of the project, whereas CfDs only start once electricity is being generated.

The government has been exploring RAB for new nuclear since mid-2018 and has the chief financial officer of the supersewer advising it on the matter. The idea has prominent supporters, including Prof Dieter Helm, author of a recent report for government on the costs of energy.

Two new nuclear reactors at the Vogtle plant in Georgia, US, are being built under a RAB. However, the project has been in financial difficulty as a result of cost overrunsand delays.

Interestingly, the then-Department of Energy and Climate Change (DECC) considered, but rejected a RAB model for new nuclear in 2011. At the time, DECC said the idea would “transfer construction risk, which generators are better suited to manage, to the consumer” and called it “high risk”.


source: https://www.carbonbrief.org/qa-can-the-uk-meet-its-climate-goals-without-the-wylfa-nuclear-plant

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