Hinkley decision secondary to maintaining confidence and investment
SSE's Chief Executive writes that the Hinkley Point C decision is less significant than ensuring UK energy market confidence continues as well as investment in alternatives such as new gas and offshore wind.
I have absolutely no idea what will happen to Hinkley Point C and whether it will be taken forward or not. For me though, its significance to the UK’s needs for secure, modern supplies of electricity has been repeatedly overplayed. Whilst it is undoubtedly true that we need new, cleaner technology to replace the older power stations coming off the system, there are enough credible alternatives out there which can be built in time to deliver the balanced energy mix we need, and a policy framework which can deliver the necessary investment.
Slowly but surely the UK Government has been putting the policy framework in place to achieve a balanced energy mix. It has three tools, all of which are vital. It has a price for carbon (introduced in 2013) to help to clean our electricity system by providing a price advantage to lower carbon emitting plants over dirtier ones. It then has specific low carbon contracts (introduced in 2014) to provide a stable return for new large-scale low carbon generation like nuclear or offshore wind. To complete the package it runs an annual generation capacity auction (also introduced in 2014) whereby power stations receive a payment to be available when they are most needed to keep the lights on.
Sounds complicated? It is, but energy is not a simple business, and elsewhere in the world these mechanisms are being replicated and together they are a strong package. The Government has been pragmatic in fixing any design flaws as it has gone along - most recently when it made welcome changes to the annual generation capacity auction which I think will help to deliver new gas stations - so companies are beginning to trust the framework. For example, at SSE we have just started building the Beatrice Offshore Wind Farm in the Moray Firth, which has a low carbon contract, and we will be seeking to enter two new gas-fired power stations (Keadby in Lincolnshire and Abernedd in South Wales) into the next annual capacity auction.
Today there is now nearly twice as much generating capacity from new gas-fired power stations and offshore wind potentially waiting to come on to the country’s electricity system by 2025 as there is old coal and nuclear coming off. There are also other new nuclear projects being developed around the country. And there are other options to be thought about: wind power in the remote Scottish islands and perhaps even some repowering of old wind farms without subsidy, as well as emerging technologies like small modular reactors or Demand-Side-Response and storage. So, if Hinkley doesn’t progress there is plenty to fill the gap.
And the alternatives are not necessarily more expensive. The state of the art 7MW turbine blades used in our Beatrice wind farm will be manufactured at Siemens new manufacturing plant in Hull, helping to develop a UK supply chain to allow this technology to go toe-to-toe with nuclear on cost by 2025. This is an opportunity to seriously build part of a UK industrial strategy around.
So, whatever is decided on Hinkley is, for me, a second order issue. The focus should be on maintaining confidence in the three main policies I have described and using the powerful levers that they provide to ensure that alternatives such as new gas and offshore wind can fill the gap if necessary. This would ensure that the UK has secure and affordable electricity, and is still on track to meet climate change targets.