Examination of Witnesses (Questions 20-39)|
TUESDAY 13 NOVEMBER 2001
20. In both your submissions to this Committee
and to the PIU, you do not suggest in any way at present that
there is an economic case persisting in nuclear power. You also
acknowledge that nuclear power will not be viable for the foreseeable
future without the support of government, both in terms of mitigating
market forces and in terms of taxpayers' support for dealing with
the problems of waste. You also accept that there is over-capacity
in the general fuel market in your evidence, but you argue that
it is vital to underpin the nuclear power industry in order to
achieve both diversity and to meet the Government's environmental
commitments. Why do you think that there are no cheaper solutions?
(Mr Ham) I think it is a matter of what appears to
be available in the market at present and I believe that your
Committee, Mr Chairman, will be interviewing people representing
some other forms of generation who may also be making comments
about current market conditions. It just is a fact that the market
price for forward contracts for electricity collapsed over the
past 15 months or so and that, at current market prices, it is
very difficult to see a justification for setting up a new construction
programme not just for nuclear but a number of other types of
generation too. We are talking at a strategic level. Clearly we
are an industry which produces power around the clock: base load:
and, as you know, has lifetimes which are fairly predictable in
engineering terms. We are saying that strategic decisions because
of the long lives involved have to be taken nowand we are
talking about strategic, not practical decisionsif the
country desires to have the degree of security of supply in the
future that nuclear gives and if it wishes to guarantee the CO2
free nature of a large chunk of base load production. We believe
that that cannot be provided by renewables as they appear at the
moment. So, it is not a matter of us coming and saying, "Nuclear
is an absolutely special case for special treatment in the market",
it is a case of us saying, "At the moment, the market does
not recognise the benefits of CO2 free generation from nuclear
power" but, in our view, it does not fully recognise them
from some other forms of power as well and clearly that is not
rational. If you have an overall strategic view that polluters
should pay, and CO2 is certainly a form of pollution, the polluter
does pay in general for CO2, that must be rectified if the power
in the country in the future is going to deliver CO2 free electricity
which we believe it should do.
21. So security of supply is what you are talking
about in essence
(Mr Ham) And the environmental imperative.
22. It is purely related to the CO2 element.
(Mr Ham) No. There are two issues. One is security
of supply. You could say, let us depend entirely on French nuclear
power. After all, they export 60 terawatt hours to other parts
of Europe at the moment. Incidentally, every country thinks it
imports the non-nuclear bit, but never mind. We could increase
the size of the interconnector considerably/massively, and you
would have to massively increase it, and be reliant for a quarter
of the country's power on France. I have not heard anyone argue
that case, but I imagine somebody could argue it and I should
think EDF would be very interested to talk about it, but it does
not seem to me to be a sensible case looking at it as, if you
like, an energy professional.
23. We have been talking about security in terms
of security of supply. The evidence that you submitted to the
Committee was dated October, but there is another aspect of security
which has not in any way been covered in your submission.
(Mr Ham) That is correct.
24. And, in view of the happenings of 11 September,
I would be interested in any comment you might have on the integrity
of power stations in the event of terrorist attack.
(Mr Ham) You raise a very important issue in this
Committee. We take the issue of terrorism very seriously. The
grave and tragic events of 11 September have been taken extremely
seriously in our industry. Any industry which deals with hazardous
material, whether it be petrol, oil, gas or nuclear, must take
such incidents very seriously and we know that it is a matter
of great public concern. It has been under appraisal with the
major agencies inside government responsible for security at sites
and a very significant amount of work has been done. However,
we in the industry feel that to go into fine detail of security
of any sites is something which we are unable to do and we suggest
to the Committee that you would also understand why that would
be unhelpful from a national interest point of view.
25. My interest in that question is in relation
to the cost. Presumably it would also add to costs when you have
made the point in your evidence that at present there is no economic
reason. Presumably the measures you have to takeand I understand
your reasons for not wishing to disclose thosewould have
a further cost implication?
(Mr Ham) I believe our assessments have suggested
that the cost implications considering the 30 year lifetime of
potential new nuclear plant would not be a significant factor
in the lifetime average costs of such plant. We do not see any
reason to change that view because the capital costs of plant
such as ours are considerable anyway and the modifications necessary
are not in our view major factors which will change the overall
views of the lifetime costs of nuclear plant
26. At the moment, we have some 15 stations
in the two fleets if I recall correctly. Have you made any assessment
of what it would cost to make them secure for the varying lifetimes
that they still have?
(Mr Ham) May I just make an overall comment. There
is an independent nuclear inspectorate, the NII, and they do assess
constantly and review, just as the companies themselves do, the
safety of that site and, if either of the companies believed that
it would be safer not to run plant for any reason, whatever it
is, or the NII take the same view, they would order them to be
closed. So, we do not believe that the sites are unsafe at the
27. Given the heightened awareness of what are
to all intents and purposes kamikaze style attacks, we have nuclear
repositories and, although they might no longer generate, they
are highly radioactive. Were they to be the subject of detonation,
the dispersal of materials into the atmosphere would obviously
have quite tragic consequences. So, we have already potential
targets. We are not talking about targets which may come in the
future, planning permission being granted and the economic circumstances
being favourable. Have you done any assessment of what it would
cost? Have you been in discussions with the NII about the security
related problems that the nuclear industry has to now take account
of post 11 September?
(Mr Ham) We in the industry have been carrying out
intensive discussions with the various government agencies responsible
for the nation's security and discussions have also taken place
with the NII along those lines. I wonder if either of my colleagues
want to add anything to that.
(Mr Kirwan) Just in terms of the cost for one specific
company, British Energy, as you know we have nuclear power stations
in Canada and the US and in all cases we have been going through
similar discussions and making similar improvements and enhancements
in facilities, and we in fact announced at our half-year results
announcement last week that we expect the annual cost to be about
£10 million covering all three countries where we have nuclear
power stations, so it is a manageable cost.
(Mr Ham) Which includes Canada and the US.
(Mr Mayson) I do not have anything to add.
28. If I could take you to back to your answer
to Mrs Lawrence's first question, if I understood what you were
saying correctly, you were saying that long-term strategy should
take precedence over short-term commercial considerations. If
I am right and that is what you were saying, could I just ask
you to give a little more detail on your view on nuclear fusion
because in the evidence put to the PIU study by BNFL, it did say
that it did not seem logical that large funds should be directed
towards fusion which is so far from commercialisation even though
it promises much, when it says that fission is being starved of
essential investment now. If you consider the issue of long-term
thinking to fission, why can you not apply it to fusion?
(Mr Ham) Fusion has looked promising for a long time
and I am sure that it is still promising. However, more promising
from the point of view of economics of, if you like, nuclear power
internationally is greater standardisation of design and international
licensability of design. In other words, perfecting and standardising
across countries a more limited number of designs. This seems
to be, from the industry's point of view, where the promising
lines of development for the economics of nuclear power within
the next two decades lie. Beyond the next two decades, clearly
we enter a much more speculative area and it would be very regrettable
if research in fusion were to stop on the grounds that that is
a long term question. We do know that, in other countries, their
view of the long term is much further ahead. A discussion that
we had with representatives from the embassies of Russia and Ukraine
the other day during one of the party conferences suggested that
their view of long term is 80 years. The Russians are concerned
about possible shortages of gas which, given that they sit on
one-third of the world's known reserves, is fairly amazing, but
they clearly take a different view of the long term than us. From
our point of view, we feel that the focus has to be the period
when we are facing retirement of nuclear plant within a relatively
short period of time. We are talking about retirement only in
a couple of decades in most of the plants that exist, that seems
to us to be a big priority now in terms of getting the strategy
29. Are you suggesting that there should be
a switch of international R&D funds away from fusion towards
(Mr Ham) No, I do not think we are suggesting that
(Mr Mayson) I think it is important that the UK does
contribute to long term research and development programmes. The
fusion one is clearly very much for the longer term, two to three
30. Is it not the case that one of the casualties
of privatisation has been the sizeable research project that we
used to have in electricity and power generation generally?
(Mr Ham) Yes, I think that is perfectly true and that
is unfortunate and maybe that is one example where you cannot
rely on the market for everything. We do believe that the events
of the past decade have shown that. You cannot rely on the market
for everything although it is very, very powerful and, certainly
in terms of long term research, that certainly is an area where
Government clearly has a major role.
31. Going back to terrorism, presumably there
has been a study as to the potential problems that could arise
from terrorism activity. Things have been mentioned but I am not
quite sure what is implied. If the New York type attack happens
at a power station, what would the effect of it be and, if we
were to build new power stations, could design improvements be
made that would stop the problem? Could it be put underground,
for example? Secondly, going back again to Mrs Lawrence's point,
just moving the point forward slightly, what would be your preferred
mechanisms for achieving a revitalised role in the energy market?
(Mr Ham) You asked two very important questions. On
the issue of terrorism, I hope it is understood by the Committee
that what can be said in public about the detailed aspects of
possible terrorist attacks of any hypothetical kind whatsoever
is very limited. What we can reassure the Committee on is that
there is no way in which the industry would ignore tragic events
like 11 September and not consider in full how those affect the
safety of the industry and its sites and those have been taken
very seriously in conjunction with the major responsible organs
of security of the state because of course we could get into an
area where the nation itself has major responsibilities for protecting
the industry and the lifelines of energy supply. Those things
have been thought about very thoroughly indeed. We really cannot
go into fine detail here. We are unable to do that. I hope the
Committee sees and understands that, in public session, this might
be unhelpful. On your second question, which is also very important,
what we are really saying is that I believe all parties agreed
over the past decade that `polluter pays' principle should apply
and when you see the Royal Commission recommending a 60 per cent
cut in CO2 emissions by the middle of the century, to sacrifice
the savings of between 12 and 24 million tonnes of contained carbon,
as the nuclear industry currently saves, which is incidentally
the emission level of half the passenger cars of Britain, over
the next two decades seems regrettable simply because there is
no mechanism inside the market which reflects the benefits of
CO2 free supply. We are not saying, "Just do something for
nuclear." We feel it is important that all forms of CO2 free
electricity supply should be encouraged, so we are asking for
an even-handed approach which does not exist under current arrangements
and that is what we would like to see inside the electricity market.
With regard to the issues of finance, clearly that depends on
a dependable and long term stable market existing and stable arrangements.
We have had one major upheaval in the British market quite recently
with NETA as you will know and I am sure that you will be talking
about NETA on other occasions. There is also the issue of European
integration and it seems to me that one might expect, say, the
Germans to accept adopting the British rules developed for Britain
of NETA just as happily as they decide to drive on the left-hand
side of the road. I would say that the industry is expecting that,
at that stage, there will be another potentially significant upheaval
in terms of market arrangements. This is not a happy situation
for any form of very long term generation and that applies for
major capital intensive renewable projects just as much as it
applies to nuclear.
Sir Robert Smith
32. Just to emphasise following up on that point
that, if there were a regime that recognised more accurately the
problems of carbon emission and there had been a more stable long
term planning horizon, do you think that the renewables would
be in a much fitter and stronger place if they had that kind of
market to actually fill some of the gap that the nuclear will
(Mr Ham) From what I read of newspaper reports, a
number of renewables have considerable difficulties with current
NETA arrangements and we think that is regrettable because our
view overall is that we are talking about a replacement build
of nuclear to take up 25 per cent of electricity supply. We are
not talking about somehow nuclear going up to French levels of
80 per cent or so. Therefore, there must be a major role for renewables.
We would like to see many more renewable sites playing a role
in this market. We think they would benefit from that kind of
stability just as much as the nuclear industry itself.
33. In your submissions to the PIU, you quite
rightly say that the economics of nuclear power is complex and
that it depends on assumptions about price scenarios, it depends
on how you deal with externalities and so on. Yet, after a mere
two sides of A4, you conclude that nuclear generations costs can
be competitive in the future without, it seems to me, any clear
indication of what assumptions you are making about prices etc.
Is your submission not essentially anecdotal? Have you used any
more rigorous appraisal of the economics?
(Mr Ham) Firstly, such economic analysis of the economics
of future supply has been carried out in the industry a number
of times before and the industry has carried out quite a lot of
scenario work and certainly there are scenarios of the development
of fossil fuel prices in which nuclear would be attractive, so
a great deal of, if you like, number crunching has gone on in
the industry over the past decade. We are currently carrying out
an exercise to analyse the economic significance of an important
renewed replacement nuclear programme and the results of that
will be available at the end of this month, but I would not regard
our submission as entirely anecdotal or really partially anecdotal,
but energy is a complex business as the Committee is well aware
and we have to talk about a number of key issues and I believe
our submission majored on the fact that you cannot get away, however
much you model, from the fact that Britain is about to lose over
two decades 25 per cent of its electricity capacity which is currently
carbon dioxide free. How is that replaced? That may be anecdotal
but it is a fact.
34. That is not anecdotal, that is a fact and
it is an important part of the argument. It does not however address
the issue of costs as compared to alternative fuels. Let me raise
a couple of specific questions. At present, nuclear generation
costs are significantly higher than the gas fired generation.
In your submission to PIU, you suggest that the cost for new reactors
may be as low as 2p to 3p per kWh. Could you just clarify the
main reasons why you estimate these decreased costs?
(Mr Ham) One of my colleagues would like to come in
on that, but I just wonder if you can say what gas price you were
assuming in your comment about gas generation before Richard comes
35. Before the gas price rises, it would be
about 2p, would it not?
(Mr Ham) How many pence per therm? What is the gas
price you are basing that comment on?
36. You are giving evidence, why do you not
tell me. Could I have your estimate of the current cost of nuclear
generation as compared with the current cost of gas. That would
be very helpful.
(Mr Mayson) I would like to pick up on your point
37. With the greatest of respect, do you mean
that you do not know or that you are not telling?
(Mr Mayson) I think British Energy would like to pick
up the current costs.
38. You are the people who should know more
about the facts and the costs than I do.
(Mr Ham) I know that Mike is dying to come in on this
one, but the current costs of, say, CCG generation depend on exactly
what sort of gas contract people have signed. Gas contract prices
vary enormously and gas at the margin is rarely between 10p a
therm and more than 20p a therm just in the last 15 months and,
I am sorry, I must ask the Committee's forgive for posing a question
but of course when one talks about generation costs, one has to
know all the basic background assumptions. Mike wants to come
in on the cost issue.
(Mr Kirwan) The operating cost of British Energy's
existing nuclear power stations is about 1.8p per kWh and that
is actually going down as we are improving the output at stations
and reducing costs. We set ourselves a public target of 1.6p per
kWh. So, in terms of the operating costs of existing power stations,
British Energy stations are competitive with existing gas fired
power stations. I think the issue as far as the energy policy
review is about the cost of new build nuclear stations against
new build gas stations and that is what our evidence covered.
New build gas stations depend very heavily on the cost of gas,
but if you assume gas at about 20p per therm, which is roughly
current market prices, gas stations are expected to cost around
2.3p per kWh which compares with the current market price of 1.8p.
So what is quite clear is that nobody is going to build a new
power station of any sort at all at the moment and everything
will be uneconomic but, as prices rise, as they will do when the
current capacity surplus reduces, the most economic in the short
term is the one that will be built. That is gas. The costs that
are estimated, particularly by BNFL and I am sure that Richard
Mayson would like to say some words about the basis of that, are
that new designs of stations currently being licensed in the UK
and available to be built in the timescale that we are talking
about for commissioning in 10 years' time can generate, over lifetime,
at between 2.2p and 3p per kWh though the prices vary depending
on whether you are building one single power station when all
the first of the kind costs are borne by that station or a series
build, five or six, when you will be seeing costs towards the
bottom end of that range.
39. The assumptions are crucial, are they not?
What assumptions are you making about the cost of waste management?
(Mr Kirwan) The assumption is it will cost in line
with the experience in the US where similar stations are already
operating. There the price charged on a fixed fee by government
is $1 per mWh. The government agency, the Department of Energy,
have just conducted a review within the last 12 months of whether
that properly reflects the true cost of storing and disposing
of fuel from PWR reactors and they have confirmed that that is
a correct cost, so there is no increase in that fixed levy paid
by all generators in the US and our belief is that that would
be a comparable cost in the UK, so we have built that cost in;
it is 0.7p per kWh.