Cleaning Up Episode 92 Edited Highlights – Simon Morrish
ML Can you give us a thumbnail of Xlinks?
SM The whole idea is about harnessing the sun and the wind in North Africa and bringing it to the UK and other parts of Northern Europe. We have secured 1500 square kilometres of desert in Morocco and we are putting 10 and a half gigawatts of solar and wind on that site. We are then running four HVDC cables back to the UK to meet 8% of the UK's electricity requirement.
ML Acronym klaxon! What is HVDC?
SM So HVDC is high voltage direct current. Transferring direct current versus alternating current reduces losses significantly. By running an HVDC cable back from Morocco to the UK, which is 3800 kilometres, we reduce losses to 13%. It means that the cost of the renewables coming back into the country is really, really low.
ML Why are you putting the batteries in Morocco? Why not put them in the UK?
SM The reason for that is half the overall cost is the actual cable. By putting battery storage at the Moroccan end you're smoothing out the supply of energy. It means that the battery storage is much cheaper because you're increasing the capacity factor of the cable. What you're actually delivering to the UK is equivalent to a firm, flexible baseload power that many in the energy system have confirmed is more valuable to the grid than nuclear power is.
ML In non-engineering terms, that way you effectively keep the cable full of electricity?
SM Correct. What’s really interesting about the site is we get 360 plus days of really good sunshine a year, but what we also get is the wind picking up every afternoon. That means it's almost a perfect hedge to solar. The capacity factor on the wind resource is 54% at our site, compared to 31% in the UK. As a solution, its highly complementary to offshore wind. I think National Grid said we need something like 35 gigawatts of baseload by the end of this decade. We're really, really struggling to know where that's going to come from, because offshore wind doesn't provide that. Three weeks in April and September last year, capacity factors never went above 20%, for the whole of the UK for wind. The cost of renewables now is lower than fossil fuels in almost all parts of the world - the problem they have is their intermittency. So, you have two pillars to be able to solve that intermittency. One is short term battery storage, but that really only solves intraday issues. The other part of that solution is either long term storage like hydro, which is geographically constrained and is quite expensive, or you have long distance interconnectors, moving power between regions to match supply and demand. Do those two things and it solves the whole problem of intermittency for renewables.
ML I get asked a lot whether it would be better if you just brought that electricity across the much shorter Straits of Ceuta into Spain, without having to build all this high voltage DC undersea cable.
SM There are a number of really important reasons why that doesn't work. The electricity system in Europe is already capacity constrained so simply putting it into Spain doesn't mean to say it comes all the way back to UK. The other reason is, the UK's requirements for this kind of shape or profile of power is way more than Spain.
ML What capacity factor will you reach? And most importantly, what price do you need to get for this all to make sense?
SM Effectively, 97% of days, we will be able to provide a full 3.6 gigawatts for eight hours during the eight-hour peak provision in the UK. And for 99% of days, we will be able to provide four hours. The CFD will be at £48 per megawatt hour. Just by way of comparison, the CFD that Hinkley have negotiated is £92.50. We’re having conversations with the government, because at £48, our argument is that this is not a subsidy; this is so far below what is the expected market price for the next 25 years that effectively, we are paying into the government. If we had been live the last six months, we would have paid into the government £1.5 billion.
ML In terms of competition, what do you think about green hydrogen?
SM Obviously, hydrogen is one of the alternatives. You’ve made clear though that using hydrogen for electricity generation is financially unsound. Hydrogen has much, much better uses. With the round-trip efficiency for hydrogen, you will never get anywhere near a price of £48 per megawatt hour, for something that Xlinks is able to do. I think round-trip efficiency is around about between 30% and 40% on that, whereas we're at 85%. Without solutions like Xlinks, we will need a much more hydrogen long term storage to make the whole electricity grid work.
ML You’ve had a few major hires whom you probably want to talk about?
SM Sir Dave Lewis, who's the ex-CEO of Tesco has joined as my executive chairman. Another person is Sir Ian Davis, who was global managing partner at McKinsey, Chairman of Rolls Royce, on the board of BP. We've also got Nigel Williams, who is building out our cable for us. He was the project director of North Sea Link, which is today the world's longest subsea cable that's connecting between the UK and Norway
ML Sir Ian was my mentor when I was at McKinsey, he's been an enormous force in my life. I want to get on to talking about the cable. You’re having to build your own cable factories?
SM There are barriers in terms of supply chain for this project. There are three main HVDC cable manufacturers in Europe, and their combined capacity is around about 2000 kilometres a year. Well, we need 15,000 kilometres…. We wouldn't even have been able to get our first bit of cable delivered for at least four years. The lovely thing about our factory is we're building it right next to Hunterston A nuclear power plant, which is shutting down at the moment with a loss of 700 jobs. We'll be creating 900.
ML How are you thinking about raising the rest of the money you need? Because 16 billion, I don't know how much you've already secured, but it's going to be a relatively small piece compared to that
SM We need around about £50 million of development capital to get to financial close. We're fine in terms of that funding to get to financial close, and we’re still inviting other people to come in. At financial close, that's when we're going to need the £16 billion on there, plus some contingency and financing costs on there. XLCC, Xlinks’ cable company, we've funded that all the way up to development. The complexity here is we're looking to fund that prior to Xlinks hitting financial close because there is such a demand for cable. We're actually building capacity into a highly capacity-constrained environment.
ML I want to finish with one topic, which is this interface between entrepreneurship and government. Who leads on a project like this? Is this fundamentally a government project, and you're now just the vessel that has been chosen?
SM It's a symbiosis of a number of things. Entrepreneurs, businesses, they can't exist without proper laws and frameworks and government assistance to a certain extent. Government's job is to give the incentives and the frameworks to allow these things to happen. I wish it was moving a little bit faster. I have been impressed with just how fast Morocco has moved. They have real intention to be a global exporter of renewable energy.
ML How do you make sure that Morocco benefits appropriately?
SM Morocco is a very forward thinking country; it's already leading the way in terms of renewables. We actually don't need to help Morocco in that respect, because it's actually already doing an enormous amount itself. Of the 8 billion that we'd be spending in Morocco, we're ensuring that at least 40% is going to be procured and built in Morocco. We will be employing 10,000 people. And we've got our corporate social responsibility, through which we're going to be providing desalination and water supplies to the local community, additional schooling, and a whole bunch of other things. We really want to be good citizens in terms of what we do.