Robert Kennedy College, University of Cumbria

Energy market reform contribution

to decarbonisation in the UK

Name: Anton Gerassimov, Student ID: 1551274

Supervisor: Dr John Luffrum
Date: 02/02/2020

Dissertation submission for Master of Business

Administration in Energy and Sustainability

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Abstract
Climate change and global warming have been familiar terms since the end of the 20 th
century. The risks posed by a destabilised global climate system are regularly
discussed in various United Nations committees and forums and excess greenhouse
gases are widely accepted to have a significant contribution to the problem.

The United Kingdom has legal obligations to reduce its carbon footprint. The current
target is for emissions to be reduced 100% below the 1990 baseline by 2050.

Energy generation makes up 27% of the country’s total emissions [ CITATION

Dep162 \l 2057 ]. In 2010, the Department of Energy and Climate Change published a
series of papers outlining an Energy Market Reform, aimed at providing feed-in tariffs
for new low-carbon electricity generation projects.

In 2019, the Committee on Climate Change, reported to Parliament that the UK is not
going to meet planned greenhouse gas emissions reduction targets [ CITATION Com19
\l 2057 ].

This dissertation looks at the extent to which decarbonisation is given weight in the
methodology used to make funding decisions as part of the feed-in tariff policy. This is
contrasted with a focused inclusion of carbon emissions cost into existing calculations.

Data from two case studies is analysed to understand existing evaluation methodology
for funding. A Carbon Cost impact model is then developed based on current cost
calculations to evaluate the impact of directly including emissions costs.

Research in this dissertation indicates that the UK government takes a largely cost
based approach to funding decisions for low-carbon energy generators and emissions
amounts are not factored into the assessment model. The deviation in the available
emissions data is significant, with five to six-fold increase in carbon emissions from
best to worst scenarios for the case studies.

Including direct carbon costs for all lifetime phases of the case studies using the
Carbon Cost Impact model produces minimal impact on existing cost data. The
methodology follows existing levelised cost philosophy and does not produce a
representative deviation in cost to the deviation in emission amounts.

The assessment methodology used by the UK government to fund low-carbon energy

generators could be a contributing factor to decarbonisation targets not being met, as
it does not take emission amounts into consideration.

Further research is required into quality and standards of emissions data, which would
allow the development of assessment models for funding that would give due
consideration to emission amounts.

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DECLARATION OF ORIGINALITY OF WORK
I affirm that the attached work is entirely my own, except where the words or ideas of
other writers are specifically acknowledged according to accepted citation
conventions. This assignment has not been submitted for any other course at Robert
Kennedy College or any other institution. I have revised, edited and proof-read this
paper, which is the final version for submission.

The word count of this dissertation is 13,570.

Signed: Anton Gerassimov, Student ID 1551274. Date: 05/04/2020

Table of Contents
1. Introduction..............................................................................................................7
1.1. Background........................................................................................................7
1.2. Research Hypothesis..........................................................................................9
2. Literature review.....................................................................................................12
2.1. Value for Money assessment...........................................................................12
2.1.1. Test 2a and Levelised Cost of Energy (LCOE)...........................................12
2.1.2. Test 2b and Net social impact..................................................................15
2.2. Life Cycle Assessment (LCA).............................................................................16
2.3. Data sources....................................................................................................18
2.3.1. General approach.....................................................................................18
2.3.2. Levelised Cost of Energy Data..................................................................18
2.3.3. Life Cycle Assessment Data......................................................................19
3. Methodology...........................................................................................................22
3.1. Strategy............................................................................................................22
3.2. Data collection considerations........................................................................22
3.3. Common data and units of measure...............................................................23
3.4. Methodology for adding direct emissions cost...............................................24
3.5. Case studies.....................................................................................................28
3.5.1. Case study 1 - Swansea Bay Tidal Lagoon (SBTL).....................................28
3.5.2. Case study 2 - Hinkley Point C (HPC)........................................................32
4. Findings...................................................................................................................38

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 4.1. Case Study 1 - Swansea Bay Tidal Lagoon (SBTL)............................................38
4.1.1. Results analysis for SBTL...........................................................................40
4.2. Case Study 2 – Hinkley Point C (HPC)..............................................................40
4.2.1. Results analysis for HPC............................................................................42
4.3. Summary of results..........................................................................................43
4.4. Model sensitivity & data uncertainty..............................................................43
5. Conclusions.............................................................................................................46
6. References and bibliography..................................................................................51
7. Annex A – Extended carbon valuation figures........................................................57

List of Tables
Table 3-1: Common LCOE data.......................................................................................24
Table 3-2: Common LCA data.........................................................................................24
Table 3-3: Units of measure conversion table...............................................................26
Table 3-4: LCOE Swansea Bay Tidal Lagoon...................................................................30
Table 3-5: SBTL Life cycle stage emissions.....................................................................32
Table 3-6: LCA Swansea Bay Tidal lagoon......................................................................32
Table 3-7: LCOE Hinkley Point C.....................................................................................34
Table 3-8: LCA Hinkley Point C.......................................................................................36
Table 3-9: Nuclear power generation life cycle stage emissions...................................36
Table 3-10: Uranium ore grade effect on nuclear LCA...................................................37
Table 4-1: SBTL Base data...............................................................................................38
Table 4-2: SBTL total carbon cost...................................................................................39
Table 4-3: SBTL Levelised cost of carbon (Carbon cost impact).....................................39
Table 4-4: HPC Base data................................................................................................40
Table 4-5: HPC phase apportioned emissions................................................................41
Table 4-6: HPC total carbon cost....................................................................................41
Table 4-7: HPC Levelised cost of carbon (Carbon cost impact)......................................42
Table 4-8: Results summary...........................................................................................43
Table 7-1: Projected carbon values to 2150...................................................................56

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List of Figures
Figure 2-1: Levelised cost calculation diagram..............................................................15
Figure 2-2: Life cycle analysis phases.............................................................................17
Figure 3-1: Total carbon cost calculation.......................................................................27
Figure 3-2: Levelised Cost of Carbon in Electricity generation......................................28
Figure 3-3: Carbon Cost Impact model – calculation steps diagram.............................28
Figure 4-1: Carbon Cost Impact model sensitivity.........................................................43

List of Equations
Equation 2-1: Net Present Value (NPV) of Total Cost....................................................13
Equation 2-2: Net Present Value (NPV) of Electricity Generation.................................13
Equation 2-3: Levelised Cost of Electricity Generation..................................................13
Equation 3-1: Combined Cost of Energy........................................................................25
Equation 3-2: Net Present Value (NPV) of Total Carbon Cost........................................26
Equation 3-3: Levelised Cost of Carbon in Electricity Generation.................................27

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Glossary
Abbreviation Description
BEIS Department for Business, Energy and Industrial Strategy
Capex Capital expenditure
CCC Committee on Climate Change
CfD Contract for Difference
CGN China General Nuclear Power Group
COP Conference of Parties
DDM Dynamic Dispatch Model
DECC Department of Energy and Climate Change
EDF Électricité de France
EMR Electricity Market Reform
EPR European Pressurized Reactor
FOAK First of a kind
GHG Greenhouse gas
HPC Hinkley Point C
IPCC Intergovernmental Panel on Climate Change
ISO International Organisation for Standardisation
LCA Life Cycle Assessment
LCOE Levelised Cost of Energy
NPV Net Present Value
Opex Operating costs
POST Parliamentary Office of Science and Technology
SBTL Swansea Bay Tidal Lagoon
SETAC Society of Environmental Toxicology and Chemistry
TLP Tidal Lagoon Power Ltd.
UNEP United Nations Environment Program
UNFCCC United Nations Framework Convention on Climate Change
VfM Value for Money methodology

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1. Introduction
1.1. Background
On the 9th of May 1992, the United Nations adopted the United Nations Framework
Convention on Climate Change (UNFCCC). It was the culmination of almost a century
of scientific research into the interconnected nature of the planet’s climate system
and the by-products of human industrial activity. More specifically, the effects of the
excess greenhouse gases (GHGs), defined by the Intergovernmental Panel on Climate
Change (IPCC) as “gases that absorb and emit infrared radiation in the wavelength
range emitted by the Earth” [ CITATION IPC14 \l 2057 ].

These gases (carbon dioxide, methane, water vapour and smaller proportions of many
others) warm the atmosphere of the planet by emitting back the energy they absorb.
This is called the “greenhouse effect” – term first coined by Nils Gustaf Ekholm, a
Swedish meteorologist who used it to describe the phenomenon [ CITATION Nil01 \l
2057 ]. A balanced greenhouse effect is vital to maintain the conditions favourable to
life on the planet as it keeps the average temperature of the planet at around 15˚C,
rather than the -18˚C we would have without GHGs [ CITATION Tho03 \l 2057 ].

In 1960, Charles David Keeling published data showing strong seasonal variation in the
levels of carbon dioxide (CO2) in the atmosphere, but also an increase in the overall
levels [CITATION Cha60 \l 2057 ]. This became known as the Keeling curve and is
measured to this day at the Mauna Loa observatory where the first measurements
were taken. This trend is not only holding but accelerating. Scientific studies of ice
cores have proven that the rise in levels of CO2 started increasing sharply since the
early 19th century [ CITATION ANe85 \l 2057 ]. This coincides with the beginning of the
first industrial revolution and the use of fossil fuels as a source of energy for transport,
lighting and production.

In 1967, taking advantage of the increasing power of early computers to create

climate models, scientists found that a two-fold increase in “carbon dioxide from the
current level would result in approximately 2°C increase in global temperature”
[CITATION Syu67 \l 2057 ].

Further evidence continued emerging and, in a more sophisticated climate model,

Manabe and Wetherald confirmed the correlation of increasing levels of CO2 and
global temperature [CITATION Man75 \l 2057 ].

In parallel, ice cores drilled in Antarctica provided evidence that carbon dioxide and
global temperature have tracked each other on a geological time scale [CITATION
Lor85 \l 2057 ]. This provided empirical and independent confirmation of the
computer model findings.

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It was also increasingly recognised at the time that a global temperature increase
trend (known now as global warming) can lead to a destabilisation of current climate
systems and patterns [CITATION Han81 \l 2057 ].

In response to mounting concern over these developments, in 1988 the IPCC was
established by the United Nations Environment Program and the World
Meteorological Organisation to “provide policymakers with regular scientific
assessments on climate change, its implications and potential future risks, as well as to
put forward adaptation and mitigation options” [CITATION IPC20 \l 2057 ].

In 1994, the UNFCCC came into force as an international environmental treaty, having
been ratified by sufficient number of countries. Article 2 states that the objective of
the treaty is the “stabilization of greenhouse gas concentrations in the atmosphere at
a level that would prevent dangerous anthropogenic interference with the climate
system” [CITATION UNF92 \l 2057 ]. It recognises that developed countries bare more
responsibility for GHG emissions both historically and currently, as well as having
more capability and resources to reduce those emissions. The treaty therefore sets
targets individually per country taking a range of factors into account. These targets
are non-binding and further agreements need to be negotiated on actions toward the
set objectives. The signatories to the treaty started having annual meetings in 1995 to
check on progress and agree further actions. They are called conferences of the
parties (COP).

The Kyoto Protocol, signed in 1997 at COP3, took the first step towards legally binding
targets. The treaty came into force in 2005 (the time it took the minimum required
number of countries to ratify the agreement). The protocol sets individual emission
reduction targets per country based on their capability and level of economic
development.

The Parliament of the UK passed the Climate Change act in 2008 setting a target for all
6 gases monitored under the Kyoto protocol to be reduced to at least 80% lower than
the 1990 baseline by the year 2050. In 2019, this target was amended to 100%
[ CITATION UKG08 \l 2057 ].

In compliance with the Kyoto protocol overall targets, the European Union (EU),
issued the Renewable Energy Directive 2009/28/EC which deals with the share of
renewable energy in the power generation mix of its member countries. In annex I, for
the United Kingdom the target for the share of energy from renewable sources in
gross final consumption by 2020 is set at 15% [ CITATION Off09 \l 2057 ].

According to figures from the Department of Energy and Climate Change (now part of
the BEIS) from 2016, energy generation in UK accounted for 27% of total GHG
emissions – the largest proportion of any other sector (transport being the next at
24%) [ CITATION Dep162 \l 2057 ].

For the UK to reduce emissions in line with its obligations, emissions have to be
reduced in all sectors. Clearly, the energy sector has a significant role to play on that

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journey. According to the Committee on Climate Change (an independent, statutory
body established under the Climate Change Act 2008) in order to meet the
government targets, “by 2030 all electricity should be generated with less than 50
grams of carbon dioxide equivalent emitted for each kilowatt-hour (50 gCO2/kWh).
This target is set primarily to stop new coal burning power stations to be built.“
[CITATION Com12 \l 2057 ].

Other sectors, especially transport as the next biggest polluter, are under pressure to
diversify away from fossil fuels, which means in part, more electricity consumption.

This “dual challenge”, as it is sometimes called [ CITATION Nat19 \l 2057 ] - raising

energy demand and the need for decarbonisation, have to be met by replacing carbon
or other polluting ageing energy generating capacity with renewable or low-carbon
power providers.

In real terms, the challenge for the UK government is to have a balanced framework of
emissions control and funding policy that would compel and encourage the energy
market to provide the necessary generating capacity to meet rising demand and old
power plant closures, while at the same time achieving its legally binding GHG
reduction targets.

This is a complex challenge which requires methodologies that allow the government
to compare the cost of choosing alternative projects and balance that against the
impact they have on the environment.

Corporations have been developing tools to assess environmental impacts of a

product or a service since the 1970s. Originating mainly in the packaging industry
[ CITATION Jol16 \l 2057 ], these methodologies look to follow all raw materials and
energy going into the production of a product or provision of a service and estimate
environmental damage. In 1993, the Society of Environmental Toxicology and
Chemistry (SETAC) published a guide to Life Cycle Assessment (LCA) and eventually
partnered with the International Organisation for Standardisation (ISO) and the United
Nations Environment Program (UNEP) to standardise the LCA methodology. This
methodology is increasingly being used in corporate strategy and funding decisions, as
well as research and development [ CITATION Coo08 \l 2057 ].

1.2. Research Hypothesis

In 2010, the government of the United Kingdom published a series of papers outlining
a broad Electricity Market Reform (EMR) designed to address:

1. Security of supply
2. Decarbonisation
3. Affordability

In a white paper published in 2011 [CITATION Dep11 \l 2057 ], the government

recognises several factors, namely:

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  In the competitive market established in the 1980s after privatisation of the
major utilities, electricity prices are dominated by established fossil fuel
generators who have overall much lower costs than nuclear or wind power
generators, for example.
 New low-carbon energy producers can face high upfront construction costs
and smaller independent generators struggle to find buyers for their energy.
 The market energy prices do not fully reflect the environmental and social cost
of carbon.
 The level of finance required to achieve the decarbonisation goals is unlikely to
be provided purely by market forces.

One of the main pillars of the EMR policy designed to address this market failure is the
introduction of feed-in tariffs through Contracts for Difference (CfD) for low-carbon
energy generators.

These are contracts where a strike price is agreed (a price reflecting levels of
investment and a fair level of return) in the early stages of the project for energy
produced for a set period of time.

When energy production starts, the generator is payed the difference between the
strike price and the current market price for energy for the agreed term (contracts
typically also provide for the opposite scenario, where the market price exceeds the
strike price, in which case the generator pays back the difference).

This mechanism gives assurance to investors in the early stages of a project and
removes regulatory and political uncertainties for the operator.

The Department for Business, Energy and Industrial Strategy (BEIS) conducts a Value
for Money (VfM) assessment on applications received for government funding under
the CfD framework, to inform its funding decisions on low-carbon electricity
generators.

Aim
This dissertation looks at the extent to which the VfM model used by the UK
government to fund low-carbon energy generation supports its GHG reduction
objectives.

Objectives
The following questions need to be answered to achieve the aim:

1. What is the methodology used by the BEIS for including carbon emissions in
the VfM?
2. How does the BEIS methodology compare to the Life Cycle Assessment (LCA)
method used specifically for GHG emissions?

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 3. What impact would the inclusion of LCA into VfM assessments of Case Study 1
(Swansea Bay Tidal Lagoon hydroelectric plant) and Case Study 2 (Hinkley Point
C nuclear plant) have on VfM assessment results?
4. To what extent does the inclusion of LCA in question 3 support the GHG
reduction objectives of UK government policy?

Achieving the Objectives

 Chapter 2 – Literature review, will look at documentation and sources on
economic and environmental accounting theory and how those principles are
applied by the BEIS, as well as a scan, discussion and selection of data sources.
 Building on this foundation, Chapter 3 – Methodology, will apply the theory to
two case studies, establish a set of figures from the sources relevant to the
case studies and discuss methods of assessing the impact of Life Cycle
Assessment results.
 Chapter 4 - Findings, will present the results of applying the methodology.
 Finally, Chapter 5 – Conclusions, will analyse the findings in support of the Aim
of the dissertation and discuss opportunities for further research.

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2. Literature review
This section looks at available sources to answer the first two questions from the
Objectives section above in the following order:

1. Government documents explaining the VfM assessment method

2. Available government and other sources on more general methodology used
within the VfM, such as Levelised Cost of Energy (LCOE) and Net Social Impact
3. Sources and documents on Life Cycle Assessment theory
4. Review of data sources available for the different components of the
methodologies above.

2.1. Value for Money assessment

The assessment applied to requests for funding through the CfD framework applies
four separate tests to establish value [ CITATION Dep161 \l 2057 ]:

 Test 1 - Does the CfD package offer a fair return to investors without
overcompensation?
 Test 2a - Is the proposed strike price competitive with alternative low-carbon
technologies capable of delivering similar capacity?
 Test 2b - Does the electricity cost reduction overall bring net social benefits?
 Test 3 - Is the strike price affordable to electricity consumers?

Tests one and three are purely financial and are not concerned with carbon emissions,
so the focus is on tests 2a and 2b:

2.1.1. Test 2a and Levelised Cost of Energy (LCOE)

Test 2a looks at the cost of other alternative low-carbon generation projects that
could deliver at the same scale. This is achieved by comparing a levelised unit cost of
electricity generation to the proposed CfD price.

A like-for-like comparison of different technologies is a complex task due to the large

number of variables that could be specific to a particular technology. To overcome this
issue, a technique called Levelised Cost of Energy (LCOE) is used, which looks at a
“discounted lifetime cost of ownership and use of a generation asset, converted into
an equivalent unit of cost of generation in £/MWh” (Department for Business, Energy
and Industrial Strategy, 2016).

In a paper entitled Electricity Generation Costs, published in 2016, the BEIS sets out
methodology definitions for LCOE and supporting information on model application
and potential limitations to how the data used in the model is estimated.

The costs are calculated for a generic plant of a particular technology (e.g. nuclear)
and include all costs borne by the owner of the asset (any other costs – such as

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connection to grid, transmission, etc. are specifically excluded). Calculations are done
on both capital and operating costs over the expected lifetime of the plant. LCOE is
then expressed as the discounted ratio of these costs to the total amount of electricity
produced over the same time period [ CITATION Dep16 \l 2057 ].

A diagram from the same publication illustrates this for easier understanding and is
recreated in Figure 2-1 below:

Step 1: Gather plant data and assumptions

Capital Costs (Capex)
 Pre-development
 Construction *
 Infrastructure *
* adjusted over time for
learning
Operating Costs (Opex) Expected Generation Data
 Fixed opex *  Capacity of plant
 Variable opex  Expected availability
 Insurance  Expected efficiency
 Connection  Expected load factor
 Carbon transport & (all assumed baseload)
storage
 Decommissioning
fund
 Heat revenues
 Fuel prices
 Carbon costs

Step 2: Sum the net present value of total expected costs for each year
total capex∧opex costsn
NPV of total costs=∑ n
( 1+discount rate )n
Equation 2-1: Net Present Value (NPV) of Total Cost
Step 3: Sum the net present value of expected generation for each year
net electricity generation n
NPV of Electricity Generation=∑ n
( 1+discount rate )n
Equation 2-2: Net Present Value (NPV) of Electricity Generation
Step 4: Divide total costs by net generation
NPV of Total Cost
Levelised Cost of Electricity Generation Estimate=
NPV of Electricity Generation
Equation 2-3: Levelised Cost of Electricity Generation
Figure 2-1: Levelised cost calculation diagram. Source: (Department for Business,
Energy and Industrial Strategy, 2016) n = time period

For clarity, some of the terms used in the calculations above (see steps 2 and 3)
require further definition:

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 Load Factor
In simple terms, this is a measure of an estimated actual energy produced as a
proportion of the maximum possible production. A more precise, technical
explanation is not required here, as the figures are taken as calculated from
available sources.

Discount Rate
The discount rate is a percentage, which presents a diminishing value of
money over time. It can also be thought of as a rate of return – this is because
a sum of money today is more valuable than the same sum of money in a
week’s time. Today’s money can be invested. Next week’s money cannot.
[ CITATION Ber18 \l 2057 ]

This discount rate (also called a hurdle rate) is a concept from the world of
finance and the value it is set to can depend on the purpose of the calculation.
It can be used to represent a desired (or minimum viable) rate of return, and
factor in a number of variables like risk, inflation, opportunity cost of not
making other investments, etc. [ CITATION Par07 \l 2057 ]. In addition, this
percentage can be fixed or variable over time – depending on the reason for
application.

The discount rate historically set by the BEIS had been 10% [ CITATION
Dep16 \l 2057 ]. In acknowledgement that the abovementioned factors can
vary by project and by technology, the 2016 edition of Electricity Generation
Costs applies hurdle rates by technology, representing minimum internal
(excluding external factors [CITATION Mia11 \l 2057 ]) rates of return.

Net Present Value

As per the LCOE definition, the total costs (Capex + Opex) and the totality of
electricity to be generated are expressed as discounted values. These are
called Net Present Values (NPV) and account for the effect time has over
money, as explained above for the discount rate.

As can be seen in Step 1 in Figure 2-1 above, LCOE accounts for carbon emissions in
the Opex summary. This means that any carbon emissions incurred during
construction or depending on the technology, fuel production (like nuclear fuel for
example) or decommissioning are excluded.

The Levelised Cost of Energy methodology is not without criticism. In a draft

discussion paper, the MIT professor Dr Paul Joskow talks about two main issues not
considered in LCOE when comparing traditional electricity generation (coal, gas, etc.)
to new renewable generation sources like wind and solar:

1. Dispatchability – this is the ability of an electricity generating plant

to ramp up or down quickly to follow demand for electricity (such
as peak times daily, or seasonal)

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 2. Availability - does the availability profile of the generating plant
match or conflict with demand?

The reasoning is that wind or solar generation is unpredictable – therefore, to keep

steady supply and sell at market prices, the generators or the grid operators might
have to invest into electricity storage or alternative balancing capacity. This cost is not
considered by LCOE and might not be negligible [ CITATION Jos11 \l 2057 ].

Another aspect of energy generation which is not factored into the LCOE model is the
external cost of energy generation. A study commissioned by the European Union
called Externalities of Energy, considers the wider impact of energy generation on
society and the environment [ CITATION Dir05 \l 2057 ]. The VfM assessment tries to
take these into account in Test 2b.

2.1.2. Test 2b and Net social impact

Test 2b of the VfM evaluates net social impact to the UK society as a whole of
alternative scenarios versus the reference case of a proposed project to account for
some of the deficiencies of LCOE outlined above.

To test alternative scenarios, the government uses a Dynamic Dispatch Model (DDM).
It is a “comprehensive fully integrated power market model covering the GB power
market over the medium to long-term” [CITATION Dep12 \l 2057 ]. It allows the
simulation of electricity power supply and demand on a half-hourly basis and can
incorporate many variables, such as policy decisions, fuel and carbon costs, security of
supply, risk and others. The purpose of the model is to provide a cost-benefit analysis
to inform investment decisions.

The cost of carbon (or the price of mitigating the environmental and social damage
caused by a net increase in GHG emissions) is considered as a cumulative figure which
is part of the algorithm of the DDM. As such, it is a function of the sensitivity of the
model to variable data inputs and the weight assigned to them. In practice this means
that there is a chance that this carbon price can become statistically insignificant in
the model results.

There seems to be an acknowledgement of the data issue described above in another

government paper called “Carbon valuation in UK policy appraisal: A revised
approach”. It suggests that accounting for the social cost of carbon as described by the
Stern Review (a seminal report on the effect of climate change on the global economy
commissioned by the UK government) might not be sufficient to achieve the GHG
reduction targets set by the UK. The paper sets out a revised approach to be taken
when making policy decisions which explicitly evaluates the contribution of proposed
policies to achieving decarbonisation targets [ CITATION Dep09 \l 2057 ].

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 2.2. Life Cycle Assessment (LCA)
As discussed in Chapter 1, LCA methodology considers a summary of inputs and
outputs of a process, a product or a service to assess environmental impact of a single
system – meaning a product or a service, as opposed to the system wide assessments
described above for Net Social Impact.

To describe the principles and application guidelines to this method, the International
Organisation for Standardisation (ISO) has developed ISO 14040:2006 (Environmental
management — Life cycle assessment — Principles and framework) and
ISO14044:2006 (Environmental management — Life cycle assessment —
Requirements and guidelines).

The LCA method consists of four stages as defined by ISO 14040:2006 in Figure 2-2
below:

1. Goal and scope

definition

2. Inventory analysis 4. Interpretation

3. Impact assessment

Figure 2-2: Life Cycle Assessment phases. Source: International Organisation for
Standardisation (ISO 14040:2006)

A brief description of the phases from the ISO standard and from a book by Jolliet and
collaborators [ CITATION Jol16 \l 2057 ]:

1. Goal and scope definition – describes the function system to be studied, units
of emissions and system boundaries.

The first phase is in many ways the most important one. Life cycle studies
involve a large number of inputs and can be partial or full – meaning they
either follow the flow of materials from ‘gate to gate’ in a company, for
example, or in the latter case, they can follow the materials for a specific
product from their primary extraction from the ground all the way to disposal

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 and return to the most achievable primary state. In that sense, defining the
function to be studied and identifying the boundaries sets the expectations
and work to be done.

According to section 4.2.2 of ISO 14044, in defining the goal of an LCA, the
following items shall be unambiguously stated [ CITATION Jol16 \l 2057 ]:

 The intended application,

 The reasons for carrying out the study,
 The intended audience i.e., to whom the results of the study are
intended to be communicated, and
 Whether the results are intended to be used in comparative assertions
intended to be disclosed to the public.

2. Inventory analysis – quantifies the raw materials and the air, water and soil
polluting emissions they can generate at extraction, processing, transportation,
etc. There are two methods generally used for compiling and calculating the
inventory flows – process-based and Input/Output-based approach based on
the study subject and available information. Hybrid studies are also sometimes
conducted.

The process-based approach considers the physical flows crossing the system
boundary. This approach has the benefit of easy definition of the energy,
matter and pollutants going over the system boundary, but the drawback of a
quantitative approach and therefore difficulties in gathering precise data.

The Input/Output-based approach is more qualitative and relies on definition

of the economic data of demand, supply and economic system impact.

3. Impact assessment – evaluates the environmental impact of the emissions. All

the inventory entries identified in the previous phase are now assigned to
‘midpoint categories’, which are then assigned to ‘damage categories’. These
two steps are complex as the inventory items and the impact they have might
not be comparable. An additional step might be added to normalise and
further group some elements to allow comparison.

4. Interpretation – results and uncertainties of inputs discussed. This step should

provide clear information to the audience identified in step one and identify
opportunities over the life cycle where intervention can provide a material
reduction to environmental impact.

GHG emissions include gases other than CO2 and environmental impact assessments
consider other water and air pollutants. However, as CO2 is the main polluting gas, all
other measured impacts are converted and expressed as CO2 equivalents.

Life cycle studies present their findings in grams of CO2 equivalent emitted per unit of
energy produced, levelled over the lifetime of a project (gCO2/kWh).

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The fact that emissions are levelised is important to consider when using the final
figure in policy or funding decisions. The level of emissions is going to vary through the
lifetime of the energy producing asset depending on the technology used. This
importance will become evident later in Chapter 4, where the increasing value of
carbon equivalent emissions is discussed in relation to the two case studies and the
time the emissions are created.

Like LCOE, LCA has been criticised not for the methodology itself, but for the accuracy
of its application. In an article for the Resources, Conservation and Recycling, Robert
Ayres argues that most early LCA studies used unpublished source data and that the
second stage of the analysis compares different, non-comparable environmental
impacts [ CITATION Ayr95 \l 2057 ]. In acknowledgment of this issue, this dissertation
will discuss specifically the data sources for the LCA and LCOE in the case studies.

2.3. Data sources

2.3.1. General approach
The data used by the BEIS for Test 2a of the VfM assessment is readily available from
published government data. As such, it is listed here to explain its source and discuss
the reasons for variations, if there are any.

Net Social Impact data is not so readily available as the results of the DDM model
simulations (see section 2.1.2) are not published, however the current carbon value
and projected carbon value data will be used here in conjunction with data from LCA
studies.

LCA study results are available from published scientific sources. Because of the
considerable number of studies and variability of results, meta-analysis (a study
looking into the results of several other primary LCA studies) studies will be examined.

The technologies for the case studies are nuclear and tidal (more information is given
in Chapter 3 when the case studies are introduced). Where technology specific data is
not available from government sources and other data is available, this is mentioned
in the relevant section for the case studies.

2.3.2. Levelised Cost of Energy Data

Discount rate data source
The values for the technology specific hurdle rates used by BEIS are taken from a
study published in 2015 by NERA (a global economic consultancy) for the then
Department of Energy and Climate Change as an independent assessment of “the
minimum Internal Rate of Return (“IRR”) at which investors would be willing to
commit capital to a project” [ CITATION NER15 \l 2057 ].

NERA produced a set of low and high range values for both renewable and non-
renewable energy generating technologies for 2015 (based on the variables and

Page 18 of 59
uncertainty of base data in their model), and a reference value based on a factual
survey and existing investment data.

A projection is also made out to 2030 for hurdle rates per technology in three risk
categories – low, medium and high, reflecting stability of policy and market
conditions. All values in the presented results are for projects at appraisal stage – i.e.
before Final Investment Decision (FID) is made [ CITATION NER15 \l 2057 ].

Cost figures data source

The capex and opex costs in the BEIS model for renewable technologies are taken
from a 2016 study published on their request by ARUP – another consultancy firm.

Arup gathered the cost information through industry stakeholder surveys, third party
reports from other consultancies and agencies and from their own internal data
[ CITATION Ove16 \l 2057 ].

The report covers 16 different renewable electricity generating technologies and

presents a detailed breakdown of technical assumptions and costs. It then compares
Arup’s LCOE calculations to those of the BEIS.

For nuclear energy generation, the source data comes from a 2010 report published
by Mott MacDonald (a large engineering and management consultancy), where a
detailed assessment of technologies is presented together with estimates of levelised
cost. The consultant acknowledges in the report the difficulties of providing a like-for-
like comparison of established technologies and the additional complexity of
evaluating “first of a kind” generator costs for new and emerging technologies.
Nuclear is amongst those, as there is no experience in the UK with building power
plants using the latest generation EPR reactors of the kind proposed in existing
projects [CITATION Mot10 \l 2057 ].

Both Mott MacDonald and Arup, as well as BEIS, stress in their publications that the
data is an estimation from available sources. That is why there are low, medium and
high ranges and risk ratings – the data estimation includes assumptions.

It is important to acknowledge that the BEIS report on energy production costs does
mention carbon prices – they are factored into Opex and mentioned as a factor in the
LCOE model sensitivity. However, both for nuclear and tidal, the Opex breakdown lists
zero as carbon cost.

2.3.3. Life Cycle Assessment Data

LCA studies are by definition technology specific, as they are concerned with
individual projects. Because of this, the discussion of available sources will be split into
nuclear and tidal.

Page 19 of 59
Life Cycle Assessment Data - Nuclear
Nuclear energy is typically produced by the extraction of naturally occurring
radioactive ore, processing and enrichment of the ore to produce nuclear fuel, which
is then used in reactors specially built to sustain a nuclear fission reaction that
produces heat. The heat is fed to gas turbines which in turn produce electricity.

It is clear from the above definition that GHG emissions for a nuclear plant are
produced both during construction of the plant, and during its fuel life cycle.

An article by B. Sovacool in the journal Energy Policy looks at 103 different LCA studies
to arrive at a mean average result of 66 gCO2e/kWh.

A report prepared by HATCH for the Canadian Nuclear Association in 2014 conducts a
meta-analysis of available LCAs in Canada and provides an average result of 18.5
gCO2e/kWh [ CITATION HAT14 \l 2057 ].

The IPCC, in its 2014 Fifth Assessment report, published figures for GHG emissions for
nuclear as Minimum, Median and Maximum – 3.7, 12 and 110 gCO 2e/kWh
respectively [ CITATION IPC14 \l 2057 ].

In an online article for the Ecologist, Keith Barnham - Emeritus Professor of Physics at
Imperial College London, looks at two different meta-analysis studies of nuclear
energy LCAs (including the Sovacool study mentioned above). Both studies looked at
over a hundred LCAs and presented results ranging from 3 to 220 gCO2e/kWh. After
selecting the most rigorous studies based on criteria he developed, the author
concludes that the variability of results is down to the sensitivity of the model to
nuclear fuel production, dismantling and waste disposal figures [ CITATION Bur15 \l
2057 ].

The grade of uranium (the relative content of uranium in the ore mined) is an
important parameter as the ore has to be milled, then processed, then enriched. In a
study published in 2017, Storm van Leeuwen shows the function between uranium
grade and emissions to be exponential. As the energy for processing typically comes
from fossil fuels, the GHG emissions can rise sharply if the uranium grade is low
[ CITATION van17 \l 2057 ].

Dismantling of nuclear power stations and decommissioning, and nuclear fuel and
waste disposal are areas where there is not enough information and a lot of studies
do not include these stages. An article in the International Journal of LCA from 2013
for the UK nuclear industry, deals with assessing those stages specifically in
acknowledgment of the fact that very few nuclear power stations have been
decommissioned and there is no government policy for long term spent nuclear fuel
storage or disposal. The authors conclude that depending on where the fuel is stored,
the additional emissions from decommissioning can be between 1 and 7 gCO2e/kWh
rising to between 4 and 23 gCO2e/kWh if Sellafield nuclear power station and storage
facility – currently the only such facility in the UK- is used for fuel storage [ CITATION
Wal131 \l 2057 ].

Page 20 of 59
Life Cycle Assessment Data - Tidal
For tidal energy, there is less information available, as this technology is in its infancy.
Nevertheless, some studies have been conducted and published about tidal energy
production and assessed using the LCA methodology.

Tidal lagoons aim to produce energy by trapping a large body of water from an
incoming tide behind an artificially created wall by letting the incoming water into the
lagoon, then when the tide is at its highest, closing the lagoon to the ocean outside.
When the tide is out, the water is released through specially created channels in the
lagoon wall containing power generating turbines, which are mechanically turned by
the escaping water. This can be done four times a day with bi-directional turbines. The
United Kingdom has the second highest tide differential in the world after Canada
[ CITATION Cha16 \l 2057 ].

In general, hydro-power generation facilities incur most of their CO2 emissions in the
construction phase. Once up and running, there is little CO2 emission. For projects
where a large body of vegetation has been submerged, there could be a significant
accumulation of methane emissions due to decomposition [CITATION Tid \l 2057 ].

In an article published in the Journal of Engineering for the Maritime Environment,

four tidal energy generating devices are compared using LCA and resulting in a range
of 18 to 35 gCO2e/kWh [ CITATION How13 \l 2057 ].

A more recent article for the Journal of Marine Science and Engineering, also
compares different wave and tidal energy generating technologies. The central figure
for tidal lagoon is 10 gCO2e/kWh [ CITATION Gua19 \l 2057 ]

Page 21 of 59
3. Methodology
3.1. Strategy
Research theory, strategy and design provide a conceptual and systematic basis on
which to build the types of questions a research project seeks to answer.

The conceptual methodology of research in this dissertation is deduction. That is, a

hypothesis is deduced based on known theory about energy production cost
estimations, which is then subject to empirical scrutiny. This is in opposition to
inductive research methodology where a phenomenon is observed, questioned and a
theory formed based on the outcome of the research [CITATION Placeholder1 \l
2057 ].

The way this applies to the subject of the dissertation is that the theory behind the
VfM assessment and LCA methodology is examined leading to the hypothesis question
of the extent to which the VfM model contributes to decarbonisation targets. Two
case studies are used to gather empirical data and the findings analysed.

The quantitative method of research is typically associated with the deductive

methodology described above, where a theory is tested by gathering and interpreting
numerical data [CITATION Placeholder1 \l 2057 ]. This is in contrast to the qualitative
methodology, normally associated with inductive research, where a phenomenon is
studied in its entirety, gathering as much contextual (non-numeric) information to
construct a theory [CITATION Ste05 \l 2057 ].

The way this is implemented in this paper is to use multiple independent sources of
data when discussing the assumptions and sources for cost elements in the models
used for VfM and LCA. As already mentioned, it is recognised that it will not be
possible to prove absolute factuality of data in any one source.

Having established the theoretical framework for the VfM assessment methodology
used by the UK government and the Life Cycle Assessments used to measure
environmental impact in Chapter 2, an introduction of the two case studies and a
calculation model follows, which will be used to answer question number three from
the Objectives section:

What impact would the inclusion of LCA into VfM assessments of Case Study 1
(Hinkley Point C nuclear plant) and Case Study 2 (Swansea Bay Tidal Lagoon
hydroelectric plant) have on VfM assessment results?

The aim of this research is to measure a margin – in other words, it is not an exact,
binary answer.

Page 22 of 59
 3.2. Data collection considerations
The only available data on VfM assessments is from published UK government
assessments on specific projects. For this reason, the data is gathered through case
studies.

The two studies chosen are from the same part of the UK (the south east) and if built,
are likely to start producing in a similar timeframe. From time perspective, this makes
net present value assumptions easier to level between the two projects as it removes
potential differences in the real term cost data. The geographic proximity might not
potentially be as significant, however cost assumptions by the same suppliers for
some of the base construction data also remove uncertainties.

Both projects compete for funding under the Contract for Difference government
scheme and both would be a “first of a kind” [ CITATION Dep13 \l 2057 ] project for
the UK. This presents a good opportunity to examine available data and its potential
impact on government policy.

Data to be used for the different components of both methodologies is chosen from
the data sources identified in Chapter 2 based on the following order of preference,
where a subsequent set of data is only used if data from preceding preference sets is
not available:

1. Project specific data

2. UK government data
3. Technology specific data

For each case study, three data scenarios are established where the data variance is
available:

1. Low - Best case data which is most beneficial to project cost is selected
2. Central - Mid-range data is selected
3. High - Worst case data with most negative impact on project cost is selected

Finally, for each case study a Carbon Cost Impact model is developed to be used in
conjunction with the three scenarios above.

3.3. Common data and units of measure

For each of the case studies, the following data and units of measure will be used:

Table 3-1: Common LCOE data

Discount (hurdle) rate LCOE

% £/MWh
Table 3-2: Common LCA data

Page 23 of 59
 Emissions per unit Load factor Design Lifetime Lifetime
energy produced energy
production
gCO2e/kWh % Years TWh
Carbon Values
Carbon and carbon values (prices) referred to in this dissertation are used as
shorthand for all the greenhouse gases monitored under the Kyoto agreement.

As mentioned in section 2.1.2., in 2009 the UK government published a revised

approach to valuing carbon in policy appraisal in order to support its legally binding
objectives of GHG emission reductions [ CITATION Dep09 \l 2057 ].

These carbon prices are used in the VfM Test 2b modelling to assess Net Social impact
of proposed projects. These carbon values will be applied to each case study emission
values to assess a price impact.

For near term planning (pre-2030), there are two carbon values – for EU traded and
for non-traded industry sectors. The government assumes that by 2030 there will be a
global carbon trading market with one price [ CITATION Dep09 \l 2057 ].

As both case study projects (neither of which has been built) would, if built, be
generating power close to 2030, for simplicity, long term post-2030 prices are taken
and extended using the same linear progression to cover the lifetime of both case
study projects to 2150:

 In 2030, a value of £70 per tonne of CO2 equivalent will be used, with a range
of +/- £35 (i.e. £70 central value, £105 high sensitivity and £35 low sensitivity).
 In 2150, a value of £850 per tonne of CO2 equivalent will be used, with a range
of +/- £450 (i.e. £850 central value, £1300 high sensitivity and £400 low
sensitivity).

Annex A has the full breakdown of year-by-year prices.

3.4. Methodology for adding direct emissions cost

As discussed in Chapter 2, the VfM assessment is concerned primarily with cost.
Carbon emissions cost is built into Tests 2a and 2b as part of Opex and as part of the
Net Social Impact respectively. This does not take broader lifetime emissions from
other phases such as construction and decommissioning into consideration.

Life Cycle Assessment studies, on the other hand, look at all the possible emissions
within the system and boundary of the studied subject and express those as an
average cost per unit of energy produced over the lifetime of the subject.

In order to assess the impact of lifetime emissions on the levelised cost of energy
production, carbon emissions have to be assigned a value.

Page 24 of 59
Theoretically, this can be done by adding the price of carbon derived from Section 3.3
above to every unit of energy produced.

Table 3-3 below gives some standardised units of measure so that an equation can be
constructed to express the theoretical concept.

Table 3-3: Units of measure conversion table

Measurement Standard Unit of Converted unit of Equation

measure measure representation
Levelised Cost 1 £/MWh 1000 £/kWh C (cost)
Carbon Price 1 £/tCO2e 0.001 £/gCO2e P (price)
Levelised emissions 1 gCO2/kWh 1 gCO2/kWh E (emissions)
Combined Cost of 1 £/kWh 1 £/kWh CCOE
Energy (CCOE)
The equation taking the above conversions into account would be:

CCOE = (E * (P*0.001)) + C / 1000) Equation 3-4: Combined Cost of Energy

The above equation is an important starting point. There are two further
considerations to take into account:

1. The price of carbon is set to raise steadily from 2030 onwards, assuming a
world carbon market is established. The government then thinks this will
happen in a linear fashion raising from the currently assumed central figure of
70 £/tCO2e to 200 £/tCO2e in 2050 [ CITATION Dep09 \l 2057 ]. This would have
to be factored into Equation 3-1 by projecting the linear increase to the
lifetime of the asset and averaging the carbon price from the resulting
sequence.
2. In addition, the carbon price averaging technique above would miss a very
important point – the time when the emissions are actually created. Emissions
created in the construction phase would have to be accounted for using the
lower, earlier carbon price, whereas emissions in the decommissioning phase
would have to be priced at the top end of the sequence.

To factor in the differing amounts of emissions, it is necessary to go back a step in the

LCA studies and get the total amount of emissions for the project. Then, rather than
levelling those out over the lifetime, they can be assigned much more precisely to
years of emissions for different stages in the life cycle at the corresponding price.

The following diagram explains this approach visually with simple, hypothetical
numbers:

Page 25 of 59
Figure 3-3: Total carbon cost calculation – illustration diagram of a hypothetical 5
year project assuming a linear £2 price increase per year and equal emissions per year
within phases.

Now that the carbon cost is accounted for based on the emissions profile, a modified
version of the LCOE calculation can be applied to level this total carbon cost across the
lifetime of the project and apply discount to get net present value as shown in Figure
3-2 below:

Step 1: Gather carbon costs and generation data

Total Carbon Cost Expected Generation Data
Calculate total carbon cost based on Figure  Capacity of plant
3-1 above  Expected availability
 Expected efficiency
 Expected load factor
(all assumed baseload)

Step 2: Sum the net present value of total carbon costs for each year
total carbon costsn
NPV of total carbon cost=∑ n
( 1+discount rate )n
Equation 3-5: Net Present Value (NPV) of Total Carbon Cost
Step 3: Sum the net present value of expected generation for each year
net electricity generation n
NPV of Electricity Generation=∑ n
( 1+discount rate )n

Page 26 of 59
 Unchanged Equation 2-2: NPV of Electricity Generation

Step 4: Divide total costs by net generation

NPV of Total CarbonCost
Levelised Cost of Carbon∈ Electricity Generation=
NPV of Electricity Generation
Equation 3-6: Levelised Cost of Carbon in Electricity Generation
Figure 3-4: Levelised Cost of Carbon in Electricity generation. Source: modified from [
CITATION Dep16 \l 2057 ]. n = time period

To summarise, the methodology applied to the data available for the two case studies
is presented in Figure 3-3 below:

Page 27 of 59
Figure 3-5: Carbon Cost Impact model – Calculation steps diagram. The data inputs
where Low, Central and High figures are available are indicated with the green, yellow
and red colours respectively.

3.5. Case studies

Two case studies have been selected to evaluate the impact of carbon cost on the VfM
model results used by the UK government to support low-carbon generation funding
decisions.

3.5.1. Case study 1 - Swansea Bay Tidal Lagoon (SBTL)

The SBTL is a proposed tidal lagoon power plant to be built in Wales. Its design
capacity is for 320 MW and would be a first of a kind project in tidal lagoon power

Page 28 of 59
generation. Tidal Lagoon Power – the company behind the project - has plans for
further five much bigger tidal power stations to be built on the west coast of the UK,
should SBTL succeed [CITATION Tid20 \l 2057 ].

As the project is a first of a kind, the government commissioned an independent

report to assess the technology and its viability. Produced by the former energy
minister, Charles Hendry, the report provides some of the best independent data for
this project.

The Hendry review, as it is known, recommended that SBTL should be built as a “no
regrets policy” [ CITATION Cha16 \l 2057 ], acknowledging the fact that SBTL is
designed as a path finder project – one where the technology, financing, construction,
load factors and many other parameters would be proven in practice before the
larger, much more cost effective lagoons can be built. Hendry also acknowledges in
the review that the CfD framework might not be the most appropriate funding vehicle
for SBTL.

Almost 18 months after the Hendry review, the UK Government announced in 2018
that it will not be financing SBTL under CfD because it does not pass the Value for
Money tests on cost and affordability [ CITATION Dep181 \l 2057 ].

TLP is currently looking for other alternative methods of financing the project and still
hopes to be able to proceed with construction.

This case study was chosen as it attempts to establish a whole new industry in
renewable power generation. As can be seen in Section 2, some of the general data
sources lack any information about this technology.

Swansea Bay Tidal Lagoon (SBTL) specific Data

Levelised Cost of Energy (LCOE)

The main source for levelised costs for the proposed tidal lagoon is a report by Pöyry
(an international consulting and engineering company) prepared for Tidal Lagoon
Power (TLP) and submitted as part of the planning application for Swansea Bay Tidal
Lagoon.

It must be noted that there are figures for levelised costs available in the DECC 2013
and 2016 Energy Generation Costs reports, however neither has specific figures for
tidal lagoons. There are cost estimations for tidal range and tidal stream, which have
different construction methods and could be misleading. The Pöyry report suggests
that the 2013 figures from the DECC for tidal range and tidal stream might be based
on tidal barrage figures, which is a different type of construction altogether
[ CITATION Pöy14 \l 2057 ]. On this basis, only the Pöyry figures will be used as they
relate specifically to SBTL and represent a first-choice data source.

The cost inputs used by Pöyry come from data supplied by TLP and from bids for
tenders submitted to TLP by other suppliers. The report states that “TLP has added a

Page 29 of 59
contingency to these estimates and considers the central values provided to be
conservative in nature” [ CITATION Pöy14 \l 2057 ].

The Pöyry report provides a low, central and high ranges for the levelised costs
presented in real term 2012 prices in £/MWh. The range is based on the key sensitivity
of the LCOE model used, which is stated as:

 Capital cost
 Construction time
 Discount rate

The capital cost estimation includes a 20% contingency by TLP. The build time for the
SBTL is estimated to be 3 years.

The LCOE model is sensitive to large capital expenditure variations early in the project
lifetime because of the way these variations are weighted in the Net Present Value
calculation (Fig. 2-1).

The discount rate used is 6.5% based on TLP’s financial model, which is comparable to
the 6.4% used by DECC in their 2013 report [ CITATION Pöy14 \l 2057 ].

The central estimation given by Pöyry is of a levelised cost of 150£/MWh. The Capex
variation is between 130£/MWh and 160£/MWh, while the opex and discount rate
variations give a wider 105£/MWh to 205£/MWh range [ CITATION Pöy14 \l 2057 ].

Using the definition for best and worst cases from section 3.2, the figures from Pöyry
can be summarised as follows:

Table 3-4: LCOE Swansea Bay Tidal Lagoon. Source: [ CITATION Pöy14 \l 2057 ]

Case Discount (hurdle) rate LCOE

Low 6.5 % 105 £/MWh
Central 6.5 % 150 £/MWh
High 6.5 % 205 £/MWh

Life Cycle Analysis (LCA)

The SBTL has not been built and there are no comparable installations anywhere in
the world. The Swansea project has some unique features based on its location,
proposed technology and selected partners. As mentioned above, there are tidal
stream and tidal barrage projects which are producing energy around the world, but it
could be misleading to compare cost or emission figures from those.

TLP have submitted a Carbon Balance report as part of their planning application. The
report presents a partial LCA, which states the following inventory items are not

Page 30 of 59
considered in the study, as their cost is not known yet - taken verbatim from
[CITATION Tid \l 2057 ]:

 The marine turbine type and number (which, in turn, affects the location of the
supplier amongst many other aspects).
 The fabrication of large items such as the sluice gates and turbine elements in
the locale of the Project.
 The finalised detailed design of the Lagoon seawalls and the coffer dam and
the materials to be used in their construction.
 The complete breakdown of materials to be used and their supply route.
 The complete breakdown of emissions resulting from electrical equipment
maintenance and replacement (such as generators, batteries, transformers
etc.) during the operational phase.
 The vessels to be used to construct and decommission the facilities; and
 The transport arrangements for the workforce to site

The report compares full cycle LCA results for large hydro-electric and run-of-river
projects as a reference to the figures calculated by the partial LCA.

The figures quoted in the report for run-of-river projects are <5 gCO2e/kWh, and for
larger projects a range between 10 and 30 gCO2e/kWh, based on surveyed literature.

The TLP Carbon Balance report states that with an estimated output of 400GWh
annually, and a projected lifetime of 120 years (giving a total of 48 TWh of energy
produced), the carbon footprint of Swansea Bay is 14 gCO2e/kWh [CITATION Tid \l
2057 ].

The independent Charles Hendry review, through its appointed technical advisers, has
verified this figure, assuming a 25% load factor. Since the submission of their planning
documents, TLP have announced a change in how they plan to construct their sea wall
– where instead of using so called geo-tubes which were considered a low-carbon
option, they will use conventional rock and aggregate methods. Even with this change,
Charles Hendry states the 14 gCO2e/kWh figure is “achievable and comparable to
other studies examined by the review” [ CITATION Cha16 \l 2057 ].

Decommissioning costs for the SBTL are not included in the partial LCA. The TLP study
acknowledges this, but states, that because of the long 120 year lifetime design of the
project “In all probability, if it is decided not to extend the life of the Project through
refurbishment and upgrade of the turbines, they will be removed together with the
sluices and the Lagoon left open to the sea to serve as a marina or tidal defence. The
turbine and sluice materials will be sent for recycling, thus balancing any carbon
footprint involved in the removal” [CITATION Tid \l 2057 ].

The Hendry Review is in agreement with the above assumption, stating that despite
the government guidelines that decommissioning should aspire to remove any
structures, the review has seen submitted evidence from respondents suggesting that
after 120 years, the removal of a marine wall might be “more damaging to the marine

Page 31 of 59
environment than leaving it in place, as marine ecosystems would have developed
around the seawall over its years of operation. I therefore believe it is better to leave
the wall in place, but to remove the turbines and other operating parts, and possibly
remove some Sections of the wall if necessary for environmental, navigational or
other purposes” [ CITATION Cha16 \l 2057 ]. As explained later in Section 3.5, it is
important to acknowledge the life cycle stages of the project and the proportion of
GHG emissions assigned to each.

Available data for SBTL from the planning permission submission by the developer
gives the following table (reproduced verbatim):

Table 3-5: SBTL Life cycle stage emissions. The figures have been derived using the
Environmental Agency’s carbon calculators. Source: [ CITATION Tid \l 2057 ]

Element Emissions Percentage of Total

Turbines 23, 550 tCO2 3.66 %
Permanent Seawall 339, 220 tCO2 52.80 %
Temporary Bund 26, 830 tCO2 4.17 %
Concrete Works, sluices, 104, 620 tCO2 16.29 %
roadways, personnel
Contingency (visitor 148, 270 tCO2 23.08 %
centres, grid connection,
etc.)
Total 642, 490 tCO2 100 %

These figures are by no means accurate – this is obvious by the inclusion of the 23%
contingency to allow for unforeseen or inaccurate project estimations. The data
proportions, however, are unlikely to change and all relate to construction, which is by
far the biggest contributor to GHG emissions for this type of project.

A tidal system will not have any significant emissions during operations, as there is no
requirement for fuel production or transportation and the emissions from staff
transport and equipment maintenance are negligible.

To summarise, the accepted figures for SBTL lifetime emissions are:

Table 3-6: LCA Swansea Bay Tidal lagoon. Source: [ CITATION Tid \l 2057 ]

Emissions per Load factor Design Lifetime

unit energy Lifetime energy
produced production
Low 5 gCO2e/kWh 25% 120 Years 48TWh

Page 32 of 59
 Central 14 gCO2e/kWh 25% 120 Years 48TWh
High 30 gCO2e/kWh 25% 120 Years 48TWh

3.5.2. Case study 2 - Hinkley Point C (HPC)

Hinkley Point C is a nuclear power generating plant currently under construction in
Somerset, England. The project aims to build two EPR reactors (third generation
pressurised water reactor) with a combined capacity of 3200 MWs [ CITATION
EDF20 \l 2057 ].

Planning permission was granted in 2013 following the 2008 “agreement in principle”
(a term usually used when two parties sign up to a broad agreement to hold further,
more detailed negotiations) between the UK and France to build new nuclear power
stations. The construction phase is to be financed by EDF, a French largely state-
owned company and CGN – a Chinese state-owned company [ CITATION EDF20 \l
2057 ].

A strike price of £92.50 has been agreed under the CfD framework with the developer
and construction has started. In 2019, EDF announced that construction costs had
increased between £1.9bn and £2.9bn from its original estimates and there is going to
be a delay to energy production start to at least 2027 (the original completion target
was 2025) [ CITATION Jil19 \l 2057 ].

This case study was selected as it introduces a new reactor design to a mature market
for nuclear energy. This brings many uncertainties – both in the construction and in
the decommissioning phase.

Hinkley Point C (HPC) specific data

Generating electricity from nuclear power is a much more established technology than
tidal power. There is a wider choice of studies both, for LCOE and for LCA, that can be
used. However, the HPC project is going to use 3rd generation EPR reactors. There are
currently only two in operation in China [ CITATION EDF18 \l 2057 ], and another
several in various stages of construction in Europe (Finland, France and the UK). The
3rd generation reactors are designed to be safer and more efficient, using approx. 17%
less uranium than current 2nd generation reactors [ CITATION For09 \l 2057 ].

Levelised Cost of Energy (LCOE)

It has not been possible to obtain specific project data on LCOE for Hinkley Point C. UK
Government data sources of levelised costs for nuclear production come from the
most up to date (2016) UK government report on electricity generation costs from the
BEIS. However, as all the figures in the report are expressed in real term 2014 prices,
for the sake of comparison the previous version of the report from 2013 is used, so
that equal comparison can be done with the LCOE data of the Pöyry report on SBTL.
Both sources express figures in 2012 real term prices.

Page 33 of 59
The Energy Generation Costs report from the DECC draws on several sources to get
cost data. For nuclear energy, it relies on a government commissioned report by
Parsons Brinckerhoff [ CITATION Dep13 \l 2057 ].

The report provides figures for projects in technology groups starting in specific years.
The base assumption is of a 10% discount rate or at a technology specific hurdle rate.
For nuclear, these are set at 9.5%. The Hinkley Point C project is under construction
and is assumed to commission in 2025.

Figures based on technology specific hurdle rates for projects commissioning in 2025
are given with a low, central and high estimates, based on capital cost sensitivity. For
nuclear they are:

 Low: 75 £/MWh
 Central: 86 £/MWh
 High: 101 £/MWh

The DECC report includes a premium for what it calls “First of a Kind” (FOAK) for
nuclear projects using the 3rd generation EPR reactors. This is done to factor in the
contingencies that the supply chain builds into its own estimates for unproven
technology to offset potential design changes and unforeseen construction challenges
[ CITATION Dep13 \l 2057 ].

Another source of levelised cost projections is a Mott MacDonald report

commissioned and produced in 2010 for the DECC. The report considers similar FOAK
premiums for nuclear as the DECC report above. It does also specifically address the
fact that nuclear projects in France and Finland for the same reactors have
significantly increased capital costs from first estimates and build a median estimation
of that into its model [ CITATION Mot10 \l 2057 ].

The reason for including an older study is that the Mott MacDonald report includes a
variation on the discount rate. It presents a base case of project start in 2013 at a 10%
discount rate: 94.6 £/MWh. And another case, where the discount rate is at 7.5% with
all other assumptions the same: 76.1 £/MWh

This is a good illustration of the effect the price of credit can have on a large project. In
an interview to the BBC, Prof. Dieter Helm from the University of Oxford said “Hinkley
Point C would have been roughly half the cost if the government had been borrowing
the money to build it at 2%, rather than EDF's cost of capital, which was 9%”
[CITATION Sim18 \l 2057 ].

To summarise this section, the figures for Levelised Cost of Energy from the DECC
report will be used as the closest comparison as follows:

Table 3-7: LCOE Hinkley Point C. Source: [ CITATION Dep13 \l 2057 ]

Discount (hurdle) rate LCOE

Page 34 of 59
 Low 9.5 % 75 £/MWh
Central 9.5 % 86 £/MWh
High 9.5 % 101 £/MWh

Life Cycle Analysis (LCA)

Hinkley Point C is under construction and is not producing energy yet. No LCA by the
developer EDF or commissioned by EDF has been found in available sources.

As discussed in Chapter 1, the CCC has set a threshold of maximum 50 gCO2e/kWh

emissions for any new power generating capacity built in the UK. The data sources
considered in section 2.3 give a wide variety of emission figures, with some outliers
significantly above this threshold. It follows that the UK government does not consider
these outliers credible because if it did, new nuclear power stations would not be
built. These outliers will not be considered below for that reason; however, it is
important to acknowledge that there is no scientific consensus on LCA study results
for nuclear power generation emissions.

The IPCC median figure of 12 gCO2e/kWh is close to what is generally accepted in UK

government publications. A POST (Parliamentary Office of Science & Technology) Note
publication to the UK parliament cites accepted research giving values of less than 26
gCO2e/kWh, while acknowledging that there are outliers with much higher figures
[ CITATION POS11 \l 2057 ].

Looking at the corporate plan of Sellafield Ltd (owned by the UK Nuclear

Decommissioning Authority), it is still the preferred storage facility for UK nuclear
waste [ CITATION Sel16 \l 2057 ]

That means the UK specific decommissioning average from the study into the Magnox
reactors decommissioning [ CITATION Wal131 \l 2057 ] applies as 4 to 23 gCO2e/kWh
additional decommissioning emissions.

Adding the IPCC median figure to the above average decommissioning figure gives
25.5 gCO2e/kWh as average lifetime emissions for UK nuclear energy per unit of
energy produced (12 gCO2e/kWh plus 13.5 gCO2e/kWh).

EDF, the developer of Hinkley Point C, has published a much lower figure of 5
gCO2e/kWh [CITATION EDF15 \l 2057 ]. This is at the extreme low end of any available
literature. EDF state that contributing factors are the new design of the reactor which
uses less uranium in a more efficient way. No further data has been found in available
sources to support this claim, no actual LCA is available for any EPR reactors.

It is difficult to reconcile the EDF figure and the Magnox study emission results (i.e. 5
gCO2e/kWh for the whole life cycle according to EDF against 4 to 23 gCO 2e/kWh only

Page 35 of 59
for decommissioning). This uncertainty will be discussed in later chapters. There is
little choice but to assume that EDF have the data to support their emissions figures.

The annual energy production of Hinkley Point C is estimated to be 26.1TWh

[ CITATION Dep18 \l 2057 ] which, over its 60 year design, will equate to 1566 TWh of
energy produced with a load factor - actual level of production out of total possible
production - of 77% [ CITATION Dep17 \l 2057 ].

To summarise, based on available relevant literature Hinkley Point C energy lifetime

emissions are estimated as:

Table 3-8: LCA Hinkley Point C. Source: Low - [ CITATION EDF15 \l 2057 ], Central -
[ CITATION IPC14 \l 2057 ], High – [ CITATION IPC20 \l 2057 ] and[ CITATION Wal131 \l
2057 ].

Emissions per Load factor Design Lifetime

unit energy Lifetime energy
produced production
Low 5 gCO2e/kWh 77 % 60 Years 1566 TWh
Central 12 gCO2e/kWh 77 % 60 Years 1566 TWh
High 25.5 gCO2e/kWh 77 % 60 Years 1566 TWh

It was shown in Section 2.3, that the data for emissions of nuclear power generation in
the literature is very varied. What is not so varied is the proportion of where in the life
cycle these emissions are generated.

Nuclear power generation contains two intersecting life cycles [ CITATION HAT14 \l
2057 ]:

1. Plant life cycle - construction, operation and decommissioning

2. Fuel life cycle – Mining, conversion, enrichment and fuel fabrication, then after
use – short term waste storage, long term storage and final disposal

This means that emissions are generated both during construction and
decommissioning of the plant, as well as upstream and downstream in the fuel cycle
(i.e. during operation of the plant).

According to the meta-analysis of the Canadian nuclear industry cited earlier, the
percentage contributions of these life cycle stages are as follows:

Table 3-9: Nuclear power generation life cycle stage emissions. Source: [ CITATION
HAT14 \l 2057 ]

Element Percentage of Total

Page 36 of 59
 Plant Construction 16 %
Plant Decommissioning 4%
Fuel Upstream supply chain 60 %
Operation 12 %
Waste management 8%

Emissions in the fuel supply chain are highly dependent on the grade of the ore, i.e.
the concentration of uranium in the deposit. For ore grades below 0.2%, the emissions
increase by an order of magnitude, so the Hatch report did not consider those
[ CITATION HAT14 \l 2057 ]. Even so, the 60% emissions attributed to the upstream
fuel chain production (from extraction to the production of nuclear fuel ready for use)
are going to be emitted throughout the 60-year lifespan of the facility.

A report prepared for the Australian government by Dr Manfred Lenzen on nuclear

GHG emissions, gives two variations of table 3-9 above with values calculated on two
different grades of uranium ore:

Table 3-10: Uranium ore grade effect on nuclear LCA. Source: [CITATION Len081 \l
2057 ]

Element Ore grade 0.15% - Ore grade 0.01% -

Percentage of Total Percentage of Total
Plant Construction 23.6 % 9.5 %
Plant Decommissioning 23.6 % 9.5 %
Fuel Upstream supply chain 23.1 % 69 %
Operation 14.7 % 5.9 %
Waste management 14.9 % 6%

The figures in table 3-9 confirm the findings by Hatch and clearly show the effect of
ore grade on emissions in nuclear power generation.

A final point in the discussion of the effect of uranium grade is raised by Professor
Keith Burnham in an article in the Ecologist, who states “According to figures van
Leeuwen has compiled from the WISE Uranium Project, around 37% of the identified
uranium reserves have an ore grade below 0.05%”. He further states in the article that
nuclear power plants operating beyond 2090 are much more likely to use an ore grade
below 0.005% because higher grade ore is easier to discover and mine and therefore,
by then it will have already been used [ CITATION Bur15 \l 2057 ].

Page 37 of 59
4. Findings
In this chapter the figures and methodology described above will be applied to the
two case studies in order to illustrate the impact of adding the levelised carbon costs
to the already known cost figures. This will be done for all three sets of figures – low,
central and high, where they are available.

For each study, the following data is required to calculate estimated impact:

1. Levelised cost of energy (LCOE)

2. Discount rate used for the LCOE
3. Lifetime of the project
4. Levelised lifetime GHG emissions from the Life Cycle Assessment
5. The estimated lifetime energy production
6. Lifetime actual emissions and their time profile (which phase of the project
they are emitted in)

For both case studies, it is assumed for simplicity that their construction will start in
2030. This is because carbon values are split into trading and non-trading for previous
years in government carbon accounting. The corresponding low, central or high figure
for carbon cost is used from Annex A in total carbon cost calculations.

4.1. Case Study 1 - Swansea Bay Tidal Lagoon (SBTL)

Below is a summary of the data gathered for SBTL:

Table 4-11: SBTL Base data. Source: [ CITATION Tid \l 2057 ] and [ CITATION Pöy14 \l
2057 ]. Lifetime emissions are calculated based on the values of levelised emissions
and lifetime energy production.

Model element Low Central High Unit of

measure
LCOE 105 150 205 £/MWh
Discount rate 6.5 6.5 6.5 %
Lifetime of project 120 120 120 Years
Lifetime levelised 5 14 30 gCO2e/kWh
emissions
Lifetime energy 48 48 48 TWh
production
Lifetime emissions 240,000 642, 490 1,440,000 tCO2e

Page 38 of 59
In the following steps 1 and 2 from the Carbon Cost Impact model (Figure 3-3), the
data from the above table 4-1 is used to calculate impact.

Step 1 - Total Carbon cost

The first step is to calculate the total carbon cost for SBTL. The lifetime emissions for
SBTL are assumed to occur in the construction phase evenly distributed in the first 3
years.

Using table 7-1 in Annex A, the following calculation gives the value for total carbon
cost:

Table 4-12: SBTL total carbon cost. Source: Carbon price from Table 7-1, Annex A,
emissions from Table 4-1, Lifetime emissions divided by 3 for each year.

Year Carbon costs

  Low Central High
2030 £35 x 80,000 tCO2e £70 x 214,163 tCO2e £105 x 480,000 tCO2e
2031 £38 x 80,000 tCO2e £77 x 214,163 tCO2e £115 x 480,000 tCO2e
2032 £42 x 80,000 tCO2e £83 x 214,163 tCO2e £125 x 480,000 tCO2e
Total carbon
cost £9,200,000 £49,257,490 £165,600,000

Step 2 – Levelised cost of carbon

Next, the values from table 4-2 need to be levelised across the lifetime of the project
to allow comparison against the LCOE data:

Equation 3-2 looks like this for SBTL:

total carbon cost
NPV of total carbon cost=
( 1+0.65 )

And Equation 2-2 like this:

48 TWh
NPV of Electricity Generation=
( 1+ 0.65 )

These calculations give the following values for the three scenarios:

Table 4-13: SBTL Levelised cost of carbon (Carbon cost impact). Source: calculated
values from equations in Step 2 above.

Levelised cost of carbon (Carbon cost impact)

Low Central High
NPV Total Carbon £5,575,757 £29,853,024 £100,636,363
NPV Total Energy 29,000,000 MWh 29,000,000 MWh 29,000,000 MWh
Levelised Cost 0.2 £/MWh 1 £/MWh 3.5 £/MWh

Page 39 of 59
 4.1.1. Results analysis for SBTL
The results in table 4-3 show that the addition of levelised cost of carbon has a
minimal effect on the overall levelised costs for Swansea Bay Tidal Lagoon.

Table 4-1 shows that the difference between the best case and worse case scenarios
in terms of cost are two-fold (105 £/MWh to 205 £/MWh). Based on potential
underestimation of construction budget and time, the worst-case scenario would also
see a six-fold increase of GHG emissions (from 240,000 tCO 2e to 1,440,000 tCO2e).
While this increase does not translate into an increase in price, the emissions
difference is significant.

The main contributing factors to the differences between the base data figures for
SBTL in table 4-1 are uncertainties over construction costs which explain the levelised
cost spread and the lack of reliable data on lifetime emissions for this new type of
technology.

The low impact of carbon cost on the overall costs for the project is due to the design
intent of the plant operating for at least 120 years and the fact that emissions are
mostly emitted in the relatively short construction phase of the project. Swansea Bay
Tidal Lagoon is a pilot project for larger lagoons and its generating capacity is relatively
low at 48TWh (compared to HPC’s 1566TWh). An increased capacity would further
decrease the carbon cost impact.

4.2. Case Study 2 – Hinkley Point C (HPC)

Below is a summary table of the base data used for the calculations in the carbon cost
impact model for HPC:

Table 4-14: HPC Base data. Source: [ CITATION Dep13 \l 2057 ] for LCOE and discount
rate, other data (Low – [ CITATION EDF15 \l 2057 ], Central – [ CITATION IPC14 \l 2057
], High – [ CITATION IPC20 \l 2057 ] and[ CITATION Wal131 \l 2057 ]. Lifetime
emissions are calculated based on the values of levelised emissions and lifetime
energy production.

Model element Low Central High Unit of

measure
LCOE 75 86 101 £/MWh
Discount rate 9.5 9.5 9.5 %
Lifetime of 60 60 60 Years
project
Lifetime 5 12 25.6 gCO2e/kWh
levelised
emissions
Lifetime energy 1566 1566 1566 TWh

Page 40 of 59
 production
Lifetime 7,830,000 18,792,000 40, 089, 600 tCO2e
emissions

Step 1 – Total Carbon cost

The first step is to calculate the total carbon cost for HPC.

These emissions have to be apportioned according to the percentages in Table 3-9,

where combining the plant and fuel cycle gives the following breakdown:

Table 4-15: HPC phase apportioned emissions. Source: Percentage of lifetime

[ CITATION HAT14 \l 2057 ], years calculated based on 60 years production and Hatch
percentages. Total phase emissions calculated by distributing lifetime emissions over
the phase years.

Phase Percentage Years Total phase emissions (tCO2e) Emissions per phase year (tCO2e)
of lifetime
Low Central High Low Central High
Construction 16% 14 1252800 3006720 6414336 89486 214766 458167
Operation 72% 60 5637600 13530240 28864512 93960 225504 481075
and Fuel cycle
Waste 12% 10 939600 2255040 4810752 93960 225504 481075
disposal &
decommissio
ning

The total carbon cost is given in the following table. The 14 years of construction will
be accounted for based on 2030 carbon prices.

Table 4-16: HPC total carbon cost. Source: calculated values based on Table 4-5
emissions per phase year multiplied by carbon prices for that year from Table 7-1 in
Annex A and summed up to a phase level.

Year Carbon costs

  Low Central High
Construction
2030 £43,848,140 £210,470,680 £673,505,490
Operation and Fuel cycle
2031-2091 £743,035,680 £3,663,763,488 £11,815,202,000
Waste Disposal & Decommissioning
2092-2101 £225,034,200 £1,133,157,600 £3,680,223,750
Total carbon cost £1,011,918,020 £5,007,391,768 £16,168,931,240

Page 41 of 59
Step 2 – Levelised cost of carbon
The total carbon cost gathered in Step 1 now needs to be levelised across the lifetime
of the project to allow comparison against the LCOE data:

Equation 3-2 looks like this for HPC:

total carbon cost
NPV of total carbon cost=
( 1+0.95 )

And Equation 2-2 like this:

1566TWh
NPV of Electricity Generation=
( 1+0.95 )

These calculations give the following values for the three scenarios:

Table 4-17: HPC Levelised cost of carbon (Carbon cost impact). Source: calculated
values from equations in Step 2 above

Levelised cost of carbon (Carbon cost impact)

Low Central High
NPV Total Carbon £518,932,318 £2,567,893,214 £8,291,759,610
NPV Total Energy 803,000,000 MWh 803,000,000 MWh 803,000,000 MWh
Levelised Cost 0.7 £/MWh 3.2 £/MWh 10.4 £/MWh

4.2.1. Results analysis for HPC

Hinkley Point C nuclear power plant is a large and complex project. The construction is
set to last over a decade and the technologies employed in the two 3 rd generation
reactors to be installed in the plant are at the cutting edge of the nuclear power
generation industry.

Yet, despite the 32-time larger generating capacity and 30 times larger emissions
footprint, while designed to generate for 60 years rather than 120 compared to SBTL,
the addition of carbon costs has proven to be of very low impact to the overall
levelised costs of the HPC project.

Only in the worst-case scenario do we see an approximately 10% increase of LCOE

from 101 £/MWh to 111 £/MWh. There is a corresponding five-fold increase of GHG
emissions in this scenario, which go up from 7 mtCO2e to 40 mtCO2e.

This low impact can be explained by the large generating capacity of the two reactors
together with the 60 years of production the costs are spread across. This holds true
even considering the seven-fold increase in carbon price in the worst-case scenario
from 2030 to 2090 from £105/tCO2e to £700/tCO2e.

Page 42 of 59
An important point to make is that the worst-case emissions for HPC were taken at
the accepted UK range of 26 gCO2e/kWh. As discussed in Chapter 2, there are studies
where this value is significantly higher. The IPCC high value is 110 gCO2e/kWh. Values
of this magnitude would have a significant impact on the results.

Finally, it is not known what ore grade was used in the respective LCA studies for the
emission figures. A decreasing ore grade through the lifetime of HPC would also have
a significant impact on results as per section 3.5.2.

4.3. Summary of results

The findings for both case studies are summarised in the table 4-8 below for clarity:

Table 4-18: Results summary. Source: LCOE and Lifetime emissions - Tables 4-1 and 4-
4, Carbon cost impact – Tables 4-3 and 4-7

Swansea Bay Tidal Lagoon Hinkley Point C

Low Central High Low Central High
LCOE 105 150 205 75 86 101 £/MWh
(£/MWh) £/MWh £/MWh £/MWh £/MWh £/MWh
Lifetime 240,000 642, 490 1,440,000 7,830,000 18,792,000 40, 089, 600
emissions tCO2e tCO2e tCO2e tCO2e tCO2e tCO2e

Carbon 0.2 1 3.5 0.7 3.2 10.4

cost £/MWh £/MWh £/MWh £/MWh £/MWh £/MWh
impact

4.4. Model sensitivity & data uncertainty

The model used to calculate the combined cost of energy production in the sections
above is displayed graphically in Figure 4-1:

Page 43 of 59
Figure 4-6: Carbon Cost Impact model sensitivity. NPV – Net Present Value, blue
boxes represent cost models. Elements with the highest impact on the final results are
numbered one to four.

This is a complex model with a significant number of variables. Both blue elements
from Figure 4-1 are models in their own right and, as discussed in their introduction
(see Chapter 2), are considered highly sensitive – i.e. variations in input result in high
variability of the end result. This makes the calculation of a Combined Cost of Energy
also very susceptible to those inputs.

The underlying elements with the highest impact on the final results are numbered
one to four in Figure 4-1. This is not to say that the other elements at the bottom of
the figure are not impactful, but that their values have less uncertainty: the numbers
on capacity, availability and efficiency, as well as the capex and opex spend are
obtainable with a degree of certainty, because they are prerequisites for engineering
design and project financing.

Discount rate (1)

The first high impact variable of the model is the discount rate (the desired or
minimum viable rate of return, see section 2.1.1.). Its weight is made obvious in Figure
4-1 by its contribution to three elements (i.e. Net Present Values of cost, carbon cost
and electricity generation).

The significant impact this variable can have can be seen in section 3.1.1 above, where
a Mott MacDonald report shows that a reduction of the discount rate by 2.5% (from
10% to 7.5%), reduced the Levelised Cost of Energy for nuclear power by 20% - from

Page 44 of 59
94.6 £/MWh to 76.1 £/MWh [ CITATION Mot10 \l 2057 ]. This level of impact would
hold for all 3 elements and hence for the overall result of the model.

Load factor (2)

The next variable to consider is the Load Factor of power generating facilities which
feeds into both cost models in Figure 4-1. This is a measure of an estimated actual
energy produced as a proportion of the maximum possible production. They key word
here is “estimated”. For established technologies like nuclear, these factors are more
or less well known. However, the 3rd generation reactors in construction at Hinkley
Point C are new for the UK and for Europe and hence it is quite possible that due to
the different regulatory regime, some design decisions will be taken that make them
different from their counterparts in China.

For tidal lagoons the uncertainty is even bigger and so the 25% load factor assumption
from the Hendry review is based on “typical tidal range turbine load factors”
[ CITATION Cha16 \l 2057 ], although it is not clear from the review where this figure
comes from.

For the two case studies in this dissertation, variation in one direction in the load
factor has the opposite effect.

For tidal power, an increase in the load factor would reduce the cost of carbon, and
hence reduce the total output of the model, because there are no emissions during
the operational phase of the project.

The opposite might be true for nuclear power generation, because the fuel production
and utilisation cycle create emissions in the operations phase of the project. An
increase in the load factor could increase the impact of carbon cost on the total cost.

LCA Studies (3)

As already discussed, the main uncertainties in LCA are the decommissioning costs
and the grade of uranium (and its diminishing quality over time) that will be used to
produce the nuclear fuel for Hinkley Point C. Both case study projects have relatively
long lifetimes at 60 and 120 years.

It is difficult to predict the regulatory climate that will set the prices of carbon or the
rules for decommissioning after a certain time horizon. This makes estimations for
long lifetime projects like the ones in the case studies difficult.

The uranium supply chain security or availability is even less predictable.

The variability of these inputs makes the results of LCA studies less reliable. The use of
meta-analysis studies alleviates this uncertainty to some extent.

Carbon value (4)

The last variable in the sensitivity discussion is the cost of carbon. At the time the
government carbon cost figures were published, the UK was still a member of the

Page 45 of 59
European Union and a party in the carbon trading agreements of the block. At the
time of writing this dissertation, that is no longer the case and trade negotiations
between the UK and the EU have only just started.

As noted in Annex A, the UK government assumes that by 2030 there will be a world
carbon trading market and there will be one dynamic value for carbon which will be
on an increasing trajectory in a linear fashion to at least 2050. Both case study
projects have a lifespan beyond 2050 and reliable predictions of carbon value have a
low probability of accuracy. Yet, the impact to the model outcome is significant
because of the assumed increase in value from 2030 onwards. This makes the model
favourable towards projects with front loaded emissions (like tidal) as opposed to
others, where the emissions are spread throughout the project lifetime (like nuclear).

For the reasons outlined in this section, the Carbon Cost Impact model cannot be used
to calculate absolute values. Rather, it can be used to create comparisons between
policy or funding decision scenarios, or to test outcomes by changing one or more
variables for the same project.

Page 46 of 59
5. Conclusions
The aim of the research in this dissertation was to evaluate the extent to which the
assessment model the UK Government employs in its funding decisions for electricity
generation, supports the legally binding objectives of decarbonization the UK has
signed up to.

Four questions were defined in Chapter 1 in support of this aim and we examine their
answers in turn.

Question 1: What is the methodology used by the BEIS for including carbon emissions
in the VfM?
The VfM model was examined in detail in Chapter 2, where it was found from
available government publications that the amount of carbon emissions a project is
likely to generate are considered to an extent.

Firstly, carbon emitted during the operation phase of a power plant is added as part of
Opex costs in the Levelised Cost of Energy calculation. Secondly, the carbon emissions
are considered in the Net social impact as damage cost born by society as a whole.

Both considerations are expressed as a cost figure. The first one is levelised and
expressed as money per unit of energy produced. The net social impact is also a cost
that is rolled up in a country wide energy modeling system.

The literature review in section 2.3.2 shows that for low-carbon (nuclear) and
renewable (tidal) energy sources the Opex carbon emission costs are considered zero
by the government. This means that both the LCOE and the Net social impact values
for projects using these technologies, do not consider carbon emission costs to be
significant.

Furthermore, as shown in the figures in Table 4-8, neither the low-carbon nor the
renewable alternative are carbon emissions free. Nuclear is considered low-carbon
only as an alternative to traditional more polluting power generating technologies like
coal, but has large emissions of its own during its whole life cycle. And the
construction of the SBTL lagoon wall will produce some carbon emissions, before
using the renewable, zero carbon energy of the ocean. The VfM does not look at any
of these emissions.

Based on the methodology used, the cost of carbon emissions might not be
significant. However, the VfM does not account for emission amounts or show the
difference of actual emissions between projects.

Question 2: How does the BEIS methodology compare to the Life Cycle Assessment
(LCA) method used specifically for GHG emissions?

Page 47 of 59
The LCA was included as a consideration in opposition to the VfM model because it is
an internationally recognised methodology for emission assessments. It measures
amounts of emissions in the different stages of a project in tonnes of CO 2 equivalent,
and as such, gives a much clearer statement of greenhouse gas emissions.

Unfortunately, this does not translate into a consistent set of results. The outcomes
vary based on the availability and quality of data for the project or technology
examined, as well as the depth of research and set of elements in the study. Even
taking median values from a set of meta-analysis studies produces a wide range of
results with distant outliers for a particular technology.

Question 3: What impact would the inclusion of LCA into VfM assessments of Case
Study 1 (Swansea Bay Tidal Lagoon hydroelectric plant) and Case Study 2 (Hinkley
Point C nuclear plant) have on VfM assessment results?
In Chapter 3, a model is developed to calculate a like-for-like value from available
emissions data from LCA studies to evaluate impact on the VfM assessments for the
two case studies.

The calculations in Chapter 4, based on this Carbon Cost Impact model produce results
showing impact is minimal. To summarise the reasons for this result:

Case study 1, SBTL: The amount of carbon emissions is relatively low and only in the
construction stage, which is levelised over 120 years of a small power output without
any emissions. This results in a negligible cost impact due to the long operating life
and low amount of emissions.

Case study 2, HPC: Two big generation capacity reactors produce a significant amount
of electricity over 60 years, where the high emissions during construction and
operation are levelised which also results in a negligible cost impact, but in this case
due to the large amount of energy produced and the 60-year lifetime.

Question 4: To what extent does the inclusion of LCA in question 3 support the GHG
reduction objectives of UK government policy?
As the cost impact of the LCA data on the VfM assessments is negligible for both case
studies, the answer is that the inclusion would not materially change the VfM
assessment results and hence is unlikely to change the funding decisions that are, or
will be made based on those results.

Dissertation objective question: To what extent does the VfM support

decarbonisation?
As mentioned in Chapter 1, the UK government has a difficult balance to strike
between controlling and reducing emissions, keeping electricity supply secure and
doing it in a way that is affordable to consumers.

The research in the preceding chapters shows that the VfM is good at controlling costs
and keeping electricity supply secure through the grid modelling.

Page 48 of 59
The main enabler for the UK Energy Market Reform is Contracts for Difference. They
are designed to overcome the market failure to provide adequate financing to
projects which would contribute to decarbonisation and are awarded to low-carbon or
renewable energy generating projects to make financing and market entry smoother.

However, the criteria for inclusion in the CfD scheme do not specifically look at carbon
emissions. Funding through the CfD does reduce the overall carbon footprint of the
UK energy system, but a measurement of what this reduction is per project does not
seem to be part of the decision process.

This approach will achieve decarbonisation eventually - on a long enough scale, but
will it do so in the time that the government legally has?

Data published by the independent Committee on Climate Change (CCC) set up to

monitor the decarbonisation progress, reported to the UK Parliament in 2019 that the
UK has fallen behind its targets, saying that “Current policies and plans are insufficient
to meet the fourth and fifth carbon budgets” [ CITATION Com19 \l 2057 ]. The carbon
budgets are five-year plans that are supposed to get the UK to its stated goal of
becoming a net-zero economy by 2050 (the fourth and fifth covering 2023-2027 and
2028-2032 respectively).

Considering that energy generation is nearly a third of the total carbon emission mix
for the country [ CITATION Dep162 \l 2057 ], the Value for Money Framework does
not provide as much support to the decarbonisation goals of the UK Government as it
potentially could.

Model and data limitation

The Carbon Cost Impact model developed in Chapter 3 was used to estimate impact in
the same levelised manner as other costs are considered in the VfM model and closely
followed the LCOE methodology. The fact that the impact is so low compared with the
very different amounts of carbon emissions generated by the case study projects,
suggests that the way carbon emissions are accounted for is not representative of
their amounts.

Even if the above issue was not present, the quality of available emissions data would
be insufficient to achieve conclusive results. Most of the data presented in
government publications comes from specialist consultancies, who gather data in a
variety of ways which are inconsistent and therefore difficult to use in comparative
ways.

Further research
The first issue that requires further research is emissions data. As shown here,
variation in existing sources is too wide for the data to be useful in further research
and modelling.

The LCA model could be extended with requirements for the type of data and units of
measurement that should be submitted with planning permissions for future projects.

Page 49 of 59
There are new and emerging technologies that could potentially be employed to help
verify the integrity of the data like blockchain, or similar distributed ledgers. The
requirement can be extended all along the supply chain to primary resources. This
might help standardise a kind of ‘carbon accounting’ mechanism as the primary
resource suppliers will inevitably bid for multiple energy projects.

With more reliable and consistent emissions data, research is required on the precise
methodology of inclusion into the Value for Money framework. In order to measure
precise impact, both the Carbon Cost Impact model developed here, and the cost of
carbon need further research to assess fitness for purpose.

It is possible that including carbon emissions data in this way might prove impractical
or that accounting for emissions through cost is not the most beneficial method in
support of decarbonisation.

Based on that, future research might suggest that carbon emissions have to be
evaluated entirely separately and included as a separate test when making funding
decisions for energy generation projects.

This should help avoid the failure of the current model where the same weight might
be given in considerations for Contracts for Difference of projects with very different
emission profiles when other variables like generating capacity and longevity are lined
up.

Future research of carbon emissions potential should also consider the risk of
unaccounted emissions as a probability and measure the potential impact. This is
exemplified by the construction overrun of the Hinkley Point C project, where the
already considerable build time is extended, and energy production will happen
further into the future with higher carbon costs. Emissions could also be impacted by
different ore grade supplies and so on.

Final conclusion
The research in this dissertation highlights one of the possible contributing factors for
the UK falling behind its legal decarbonisation targets. The cost accounting model
used to make funding decisions in the energy industry, which is a major contributor to
greenhouse gases, does not take emission amounts directly into consideration.
Furthermore, the methodology for such inclusion is not well developed, as using the
current model to account for carbon emissions does not produce materially different
results for cases producing very different amounts of emissions.

It is acknowledged that grid balancing and affordability are also factors which must be
considered. However, the balance is currently towards cost. Further research is
required to obtain and develop more precise data and models to evaluate this
possible gap.

Page 50 of 59
The issues in this chapter are further highlighted by the nature of the projects in the
case studies – both represent new technologies or new technology segments. There is
even less data available for the existing models for these types of projects.

Yet producing energy using new truly low-carbon technologies is precisely what is
needed to achieve the UK decarbonisation targets. New science is required to make
sure projects using these technologies are evaluated fairly and with the right balance
of targets.

Page 51 of 59
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7. Annex A – Extended carbon valuation figures
Table 7-19: Projected carbon values to 2150. Source: extended carbon cost values
based on [ CITATION Dep09 \l 2057 ]. The low value increases by £3 every year after
2030, the central value by £7 and £6 on alternating years and the high value by £10
every year.
Year Carbon values (£/tCO2e) Year Carbon values (£/tCO2e) Year Carbon values (£/tCO2e)
  Low Central High   Low Central High   Low Central High
2030 35 70 105 2071 163 337 510 2111 283 597 910
2031 38 77 115 2072 166 343 520 2112 286 603 920
2032 42 83 125 2073 169 350 530 2113 289 610 930
2033 45 90 134 2074 172 356 540 2114 292 616 940
2034 48 96 144 2075 175 363 550 2115 295 623 950
2035 51 103 154 2076 178 369 560 2116 298 629 960
2036 55 109 164 2077 181 376 570 2117 301 636 970
2037 58 116 173 2078 184 382 580 2118 304 642 980
2038 61 122 183 2079 187 389 590 2119 307 649 990
2039 64 129 193 2080 190 395 600 2120 310 655 1000
2040 68 135 203 2081 193 402 610 2121 313 662 1010
2041 71 142 212 2082 196 408 620 2122 316 668 1020
2042 74 148 222 2083 199 415 630 2123 319 675 1030
2043 77 155 232 2084 202 421 640 2124 322 681 1040
2044 81 161 242 2085 205 428 650 2125 325 688 1050
2045 84 168 251 2086 208 434 660 2126 328 694 1060
2046 87 174 261 2087 211 441 670 2127 331 701 1070
2047 90 181 271 2088 214 447 680 2128 334 707 1080
2048 94 187 281 2089 217 454 690 2129 337 714 1090
2049 97 194 290 2090 220 460 700 2130 340 720 1100
2050 100 200 300 2091 223 467 710 2131 343 727 1110
2051 103 207 310 2092 226 473 720 2132 346 733 1120
2052 106 213 320 2093 229 480 730 2133 349 740 1130
2053 109 220 330 2094 232 486 740 2134 352 746 1140
2054 112 226 340 2095 235 493 750 2135 355 753 1150
2055 115 233 350 2096 238 499 760 2136 358 759 1160
2056 118 239 360 2097 241 506 770 2137 361 766 1170
2057 121 246 370 2098 244 512 780 2138 364 772 1180
2058 124 252 380 2099 247 519 790 2139 367 779 1190
2059 127 259 390 2100 250 525 800 2140 370 785 1200
2060 130 265 400 2101 253 532 810 2141 373 792 1210
2061 133 272 410 2102 256 538 820 2142 376 798 1220
2062 136 278 420 2103 259 545 830 2143 379 805 1230
2063 139 285 430 2104 262 551 840 2144 382 811 1240
2064 142 291 440 2105 265 558 850 2145 385 818 1250
2065 145 298 450 2106 268 564 860 2146 388 824 1260
2066 148 304 460 2107 271 571 870 2147 391 831 1270
2067 151 311 470 2108 274 577 880 2148 394 837 1280
2068 154 317 480 2109 277 584 890 2149 397 844 1290
2069 157 324 490 2110 280 590 900 2150 400 850 1300

Page 58 of 59
Page 59 of 59