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Topic Title: Inflation Indexation of CfD Strike Prices
Topic Summary: Will Nuclear CfD's be affordable?
Created On: 07 August 2013 10:25 PM
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 07 August 2013 10:25 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

"Electricity Market Reform: Contracts for Difference"

https://www.gov.uk/government/publications/electricity-market-reform-contracts-for-difference

"Inflation Indexation
4.21. In the November CfD Heads of Term we indicated that the CfD strike price would be indexed to the Consumer Price Index (CPI), either wholly or partially. In the EMR Spending Review Announcement of June 2013 we confirmed that the CfD strike price would be fully indexed in line with CPI throughout the entire term of the CfD.16

4.22. Whilst some investors indicated a preference for RPI, we consider that there is a clear case for CPI to be used for indexation: it is the preferred government measure of general inflation; is governed by international legislation; and therefore is arguably more robust and durable than alternative indexation measures.

4.23. The indexation of 100% of the CfD strike price, against a well understood general measure of inflation, should also accommodate the requirements of the wide a range of different investors we expect to come forward under the CfD. We believe that this should also be attractive to investors who have not traditionally participated in the financing of low carbon generation in the UK."


If third generation nuclear at any cost gets a strike price set at £100 per MWh how much will the strike price be in 10 years time if it goes online?

at 2.5% CPI inflation strike price will be £128 per MWh in 10 years
at 3.0% CPI inflation strike price will be £134 per MWh in 10 years
at 3.5% CPI inflation strike price will be £141 per MWh in 10 years
at 4.0% CPI inflation strike price will be £148 per MWh in 10 years
at 4.5% CPI inflation strike price will be £155 per MWh in 10 years
at 5.0% CPI inflation strike price will be £163 per MWh in 10 years

The market spot price for electricity at the moment is £45 per MWh
at 2.5% CPI inflation strike price will be £58 per MWh in 10 years
at 3.0% CPI inflation strike price will be £60 per MWh in 10 years
at 3.5% CPI inflation strike price will be £63 per MWh in 10 years
at 4.0% CPI inflation strike price will be £67 per MWh in 10 years
at 4.5% CPI inflation strike price will be £70 per MWh in 10 years
at 5.0% CPI inflation strike price will be £73 per MWh in 10 years

The nuclear strike price levy to pay for the third generation nuclear welfare system.
at 2.5% CPI inflation strike price levy will be £70 per MWh in 10 years
at 3.0% CPI inflation strike price levy will be £74 per MWh in 10 years
at 3.5% CPI inflation strike price levy will be £78 per MWh in 10 years
at 4.0% CPI inflation strike price levy will be £81 per MWh in 10 years
at 4.5% CPI inflation strike price levy will be £85 per MWh in 10 years
at 5.0% CPI inflation strike price levy will be £90 per MWh in 10 years

So in 10 years time the levy element of the strike price could end up at twice the current wholesale spot price for electricity if CPI inflation averages out at 5%. Given how much money has been printed inflation may turn out to be higher than 5% per year for the next 10 years.

So for a nuclear power station the size of Hinkley Point C (3.2 GW), the electricity consumer will be paying between £1.5 billion and £2 billion in subsidies per year (at 80% utilisation). Remember the big large energy hungry companies won't have to pay this as they will be part of the CfD welfare system.

Without uprating for inflation over 40 years this represents between £60 billion and £80 billion total in subsidies just for two 1.6 GW power stations. With another 8 of these (10 in total 16GW) the subsidy charges rise to between £300 billion and £400 billion over 40 years without allowing for inflation. Under current plans most of this money will be spirited out of the country into the bank accounts of foreign investors and could lead to a balance of payments crisis.

Do you see now that there will most likely be a peasant revolution in this country if the Energy Bill gets given Royal Assent later this year?

None of the people in charge of DECC have even the faintest clue about the long term implications or affordability of what they are planning!

I asked parliament to allow the IET amongst others to do an audit of DECC's skills and competences. Noboby has bothered to respond to my request.

Remember I am only asking for £100 million over 4 years to start a molten salt reactor reasearch and development programme.

James Arathoon

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James Arathoon
 08 August 2013 02:40 PM
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jarathoon

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Joined: 05 September 2004

The full lifetime costs of electricity from the two 1.6 GW EPR stations proposed for Hinley point (remember just two out of the 10 the government wants to build)

at 2.0% CPI inflation total 40 year cost of indexed CfD electricity will be £173 billion

at 2.5% CPI inflation total 40 year cost of indexed CfD electricity will be £193 billion

at 5.0% CPI inflation total 40 year cost of indexed CfD electricity will be £347 billion


The cost of borrowing £14 billion for 40 years and paying the capital back at end is (so worst case costs)

at fixed 2.0% interest £31 billion (+ £14 billion capital repayment)
at fixed 2.5% interest £38 billion (+ £14 billion capital repayment)
at fixed 3.0% interest £46 billion (+ £14 billion capital repayment)
at fixed 3.5% interest £55 billion (+ £14 billion capital repayment)
at fixed 4.0% interest £67 billion (+ £14 billion capital repayment)
at fixed 4.5% interest £81 billion (+ £14 billion capital repayment)
at fixed 5.0% interest £99 billion (+ £14 billion capital repayment)

Remember the capital costs are supposed to be the biggest element of the bill for a new nuclear station. Even if you take the worst case senario of an interest only loan, it is clear that they are not under the indexed CfD regime.

If you take the loan costs at 5% interest and take it away from the income at 2% CPI it gives a minimum of £60 billion to cover the 40 years operations and maintenance, waste management and profits.

Now I think EDF may get loans nearer to 2.5% with the government guarantees on offer, and this gives them £121 billion to cover the 40 years operations and maintenance, waste management and profits.

Is one of these right or neither?

You don't have to be an economics professor at the LSE to realise we are about to be royally scammed here by a small group of seriously stupid or seriously corrupt civil servants at DECC and the Treasury. They don't care, as likely as not will get very well paid private sector vanity jobs at the end of their public sector careers as their reward.

If the public is not told the actual infrastruture, running and waste costs of third generation nuclear power, the the stupid or corrupt politicians and civil servants will be free to shaft the public in which ever which way they please.

CfD mask the true infrastructure costs, as so this is perfect cover for corruption or incompetence. If these were small sums I wouldn't be making this fuss; these costs really are country bankrupting costs!

James Arathoon


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James Arathoon
 08 August 2013 04:12 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

I should say the same analysis and unknowns apply to the indexation of CfD's for all renewables. Its just that the time periods for the subsidy calculations are 15 to 20 years, instead of 35 to 40 years for third generation nuclear at any cost.

Clawbacks to prevent corporate profiteering on CfD's for renewables have just been ruled out by government as unworkable.

http://www.telegraph.co.uk/fin...d-farm-windfalls.html

CfD's were created to fund Third Generation Nuclear at any cost, now they will allow unlimited and unregulated profiteering on heavily subsidised renewables as a consequence. The exent to which Nuclear profiteering will be allowed cannot be made clear to the public because that would mean changing the current policy of third generation nuclear at any cost.

The Civil Servants have had four observable goals for the Energy Bill:
1. to hide and cover up the true costs of third generation nuclear and immature renewable technologies.
2. to continue with the policy of hiding and covering up the true costs of nuclear waste management and nuclear decommissioning costs.
3. to hide and cover up the venal self-interest, corruption and incompetence of politicians and civil servants.
4. to create vast numbers of new usless vanity jobs for the boys.

The end result is the Energy Bill volcano with vast magma plumes of complexity including vast and unnecessary new costs and layer upon layer of new red tape (in the form of thousands of pages of government regulation) to cover up and legalise all the new energy generation money making scams.

It is a volcano that hides venal self-interest, incompetence and corruption and it will be erupting and vomiting out unintended consequences for years and years until the whole country is covered by it and suffocated under it.

James Arathoon

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James Arathoon
 09 August 2013 10:04 AM
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acsinuk

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Joined: 30 June 2007

James
The maths seems to indicate a very high cost for a kWh. I pay 16p at present which I suppose is £160 per MWh for peak and £60 per MWh for offpeak. Surely you are not suggesting that the cost per kWh will not increase with CPI index over time?
It is important that we keep the DECC incentives to realistic limits as they normally pass them onto us; the consumers in the end anyway
CliveS
 09 August 2013 10:08 AM
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acsinuk

Posts: 153
Joined: 30 June 2007

James
The maths seems to indicate a very high cost for a kWh. I pay 16p at present which I suppose is £160 per MWh for peak and £60 per MWh for offpeak. Surely you are not suggesting that the cost per kWh will not increase with CPI index over time?
It is important that we keep the DECC incentives to realistic limits as they normally pass them onto us; the consumers in the end anyway
CliveS
 09 August 2013 10:30 AM
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jarathoon

Posts: 1043
Joined: 05 September 2004

Originally posted by: acsinuk

James

The maths seems to indicate a very high cost for a kWh. I pay 16p at present which I suppose is £160 per MWh for peak and £60 per MWh for offpeak. Surely you are not suggesting that the cost per kWh will not increase with CPI index over time?

It is important that we keep the DECC incentives to realistic limits as they normally pass them onto us; the consumers in the end anyway

CliveS


What I am talking about is wholesale prices of electricity.

According to ofgem

http://www.ofgem.gov.uk/Media/...1/household-bills.pdf

Wholesale energy 58%
Distribution charges 16%
Transmission charges 4%
Environmental Charges 11%
VAT 5%
Other costs 5%

Which suggests roughly that the wholesale price based on what you pay lies somewhere between £34.8 per MWh and £92.8 per MWh

To get the rough retail costs you have to multiply the figures I gave by approx 1.7

Therefore

at 2.5% CPI inflation strike price will be £128 per MWh in 10 years
and
retail for this will be 1.7 x £128 per MWh = £217 per MWh retail for nuclear base load electricity

at 5.0% CPI inflation strike price will be £163 per MWh in 10 years
and
retail for this will be 1.7 x £163 per MWh = £277 per MWh retail for nuclear base load electricity




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James Arathoon
 09 August 2013 11:03 AM
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jarathoon

Posts: 1043
Joined: 05 September 2004

oh I forgot that the large energy users will not have for the CfD susidy system so the consumer prices I suggest will be geared up in relation to the percentage of electricty the large energy companies use and the discount say 50% they buy it at.

i.e the 50% discount they get is then spead across everyone elses bills (consumers and SME's)

The higher the proportion that large energy users consume the greater the upwards gearing effect on prices for all other electicity consumers!!!!



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James Arathoon
 16 September 2013 04:17 AM
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AlinaD

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