Labour’s ambitious target for offshore wind could be quietly shelved to make way for the giant funding commitment to pay for Sizewell C nuclear power plant
Much of Labour’s manifesto commitments for clean energy, a state-owned ‘Great British Energy’ company to promote new technologies and funds to support buildings-based insulation and low carbon measures, have been widely flagged already. But there’s not much attention being given to two big, interlinked, threats to Labour’s clean energy strategy. One is the looming black financial hole that the incoming Labour Government will trigger as it gives the financial go-ahead for Sizewell C. The second is the problem of organising a much more rapid build-up of renewable energy than the Conservatives have managed to achieve. Both will involve the Treasury having to commit themselves to supporting forward spending, and we know that money is tight!
The central problem is that the cost of Sizewell C could sink the prospects of the renewables target. It is not difficult to see the problem. The costs of building Hinkley C, the sister plant of Sizewell C, have been growing and growing, and the plant has a long way to go before it is finished. The costs have reached an astonishing £33 billion for just 3.2 GW. Few independent analysts can be found who would bet against this cost increasing a lot further.
Unlike Hinkley C, Sizewell C is, to cut a longer story short, mostly going to have to be financed by the taxpayer or energy consumers. These costs will increase the numbers for the Public Sector Borrowing Requirement. The Treasury will have serious indigestion over this.
EDF is responsible for the costs of building Hinkley C. However it has refused to take responsibility for financing more than a small portion of Sizewell C. Moreover, it is proving very difficult to get any private investors to take responsibility for paying the costs of Sizewell C (no surprises there!). Essentially that means the Government are going to have to take responsibility for paying for the large bulk of the projects, and large cost overruns are all but inevitable. A lot of billions worth of red ink is going to have to be written into Treasury estimates if Sizewell C is to be given the financial go-ahead.
Offshore wind, onshore and solar farms will be a lot cheaper for the consumer than nuclear power from Sizewell C. Nevertheless, if the Treasury allows tens of billions to be allocated to underwrite the costs of Sizewell C then this could blow a huge hole in any efforts to get Labour’s renewable energy programme funded. To meet Labour’s manifesto target of quadrupling offshore wind capacity by 2030 then the Government will need to get lots and lots of contracts and offshore wind project contracts and leases issued pretty damn quick. That is as well as contracting lots of onshore wind and solar farms which are likely to be cheaper than offshore wind for the next few years at least.
The offshore wind commitment (for around 45 GW of new capacity by 2030) is going to require some funds to be underwritten by the Treasury. How much depends on what the Treasury chooses as the future price, say in 2030, of power from natural gas-fired power plant. This is because energy consumers will fund the difference between the guaranteed contract prices to be paid for offshore wind power production and the wholesale power price.
Since we do not know the price of gas in 2030 now, since we do not know what the global price of natural gas (in the form of LNG) will be, the Treasury has to make a choice. This choice, of course, is heavily laced with political implications. But at the moment the Treasury has chosen quite a low number for the future cost of natural gas. This makes offshore wind look relatively expensive to fund. I discussed this in a post I did in March, see here: How the Government is gaslighting us about the cost of offshore wind.
Renewable energy is much more popular with the public compared to nuclear power. But big energy corporations, not to mention the GMB union, are going to be piling in to try and make sure that approval of Sizewell C is given priority ahead of Labour’s apparently ambitious renewable energy commitment. That could mean that the bold offshore wind target is going to be quietly thrown in the waste bin.
By David Toke…reproduced from his ‘Energy Revolutions’ substack blog at https://davidtoke.substack.com/