Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 60-79)



  60. I still do not quite follow from that answer who you actually think is going to pay for—
  (Mr Ham) The industry has to pay for it.
  (Mr Mayson) The polluter pays.
  (Mr Ham) It is absolutely part of our case: the polluter pays, and the industry has to do this but clarity in government policy is required for some of these solutions to be built into execution. The public is a vital player in acceptability and the government's own decision making and considerations. There has to be a view from both government that there is clarity of policy and the public has to perceive the processes as transparent, processes that they are comfortable with. There are a number of issues there and the public's view is a vital part of the case.

Linda Perha

  61. Going back to the financing and investment of the nuclear rebuild in your own submission you do talk about some of the barriers to investment which are very large, up front capital costs, lengthy and uncertain periods of planning and construction, uncertainties about back-end issues like waste management, anxieties about public opinion and regulatory risk, relatively low levels of profitability at present United Kingdom electricity prices and over-capacity in the generating market. Would you not agree that you really do need government support and if you do not get that you are not going to get the financing? People are just not going to look at it and people might say that building more nuclear stations is both expensive and dangerous.
  (Mr Ham) Firstly, thank you very much for that question. The point here is we are not asking for government support in the form of the government directly dipping into its pocket in some way. What is I believe essential for an industry like nuclear is that government must state that it believes there is a future, long run for the nuclear industry in its own policies to have diverse and secure sources of power. A number of consultations we have had on an informal basis with representatives of the City interestingly focus on the need to have clarity in terms of the government view, long run, that nuclear is part of its own secure view for the future and the country as a whole. When we talk about that kind of support, let us distinguish that from what we are asking in terms of a rational market with the market signals, to signal in favour of CO2 free power which is quite a different thing which we have discussed already in this Committee.

  Linda Perham: You have clarified the position. You need the government to come out in support, not necessarily to finance it, but to give the indication that it sees a future for diverse sources of energy.

Dr Kumar

  62. Mr Ham, a few times this morning you have argued a very powerful case for the environmental benefits of nuclear power in terms of gas emissions. At the same time, you have said this has not been recognised by the current regime and you would like that to be reflected. What more would you like to see? This is obviously making a great contribution regarding our Kyoto agreement. I wonder if you would like to say something about the Climate Change Levy which has been a big issue in the last couple of years. Would you be seeking exemption from that or any other idea you might have in recognition of the environmental benefits?
  (Mr Ham) That is a very important question. That alleviation which you are highlighting would be of considerable benefit to the industry, but I believe we are also highlighting the need for coherence of policy over CO2 across the whole electricity scene. In other words, we believe it probably has to be regarded and looked at even more fundamentally than that. We do not feel it is our job to tell government or anybody, "You must go for some sort of a carbon tax", or, "You must go for a tradeable permit of some kind". We feel that is the job of the government itself to work out what is going to be best in the long run strategically, what will fit in with European agreements and with the flow of international negotiations, which are way above our heads. There is a need for coherence. Current arrangements really are very unsatisfactory and strategically it must be rethought. This is our fundamental case here. The scale of premium in terms of current costs has been discussed in the British Energy submission.
  (Mr Kirwan) The requirement in terms of providing the economic incentive in the market for a company like British Energy to replace its assets with new nuclear power stations is one that recognises the gap between a 1.8 pence per kilowatt hour price and a cost of something like 2.5 pence. We have suggested that a premium to reflect the benefits we have been discussing about nuclear of about 1 pence per kilowatt hour would be sufficient to bridge that gap and give confidence to new investors, providing government support is there. That would cost, for all consumers and all consumption, when you spread that over total energy demand, 0.25 of a penny. That is all that would be required to replace 25 per cent nuclear. The government has already embarked on a renewables incentivisation scheme, a renewables obligation. To achieve similar amounts of renewables would cost three-quarters of a penny. The subsidy requirement for renewables which we strongly support as being highly desirable is a much higher cost for the consumer than it would be for nuclear.

Mr Lansley

  63. You used the word "premium". By "premium" in this context, do you mean effectively having some form of levy in order to provide an incentive for nuclear power generation?
  (Mr Kirwan) We are not prescribing a particular mechanism for that recognition to reach nuclear generators. In the case of renewables, the scheme the government is now putting in place, it is a form of additional premium to market price. If it were to be done that way, it would effectively be customers paying marginally extra in their total electricity bill to contribute both to renewables and to nuclear in the same way.

  64. Marginal, but the size of the margin is significant to customers in a context where they have seen stable or reducing energy prices. I understand the point you are making, that there is a difference between your costs and those of alternative producers, particularly gas. One pence per kilowatt hour is broadly speaking the size of that difference by implication, if nuclear is a quarter of all energy, then 0.25 pence per kilowatt hour of all energy consumption will meet that gap. The question is: is the gap met by reducing the cost of nuclear power generation or by increasing the price paid for electricity produced from other forms of generation? I think it matters a great deal. My colleague was asking you about exemption from the Climate Change Levy. What does that contribute because that, by implication, does not impose additional costs on customers through other forms of generation. It would be reducing the cost to you. What benefit from that one pence per kilowatt hour would be offered to you?
  (Mr Kirwan) 0.4 pence. It could be done by a mechanism which alleviates costs that other generators have to pay, in which case the consumer does not pay any extra or it could be achieved through—

  65. It is a significant part?
  (Mr Kirwan) But not quite sufficient.
  (Mr Ham) There are two quite different routes which one can go down in terms of making sure the market signals do point towards CO2 free generation, as I am sure Members of the Committee will know. You can go the tradeable permits route, where the cash flow does not go into the Treasury's pockets; or you can look at a tax type of approach where it does. Clearly, international coordination on climate change will be very important. Some countries—the US might be one of them—are particularly resistant to a route where you are looking at a carbon tax but more receptive to tradeable permits. We are not trying to highlight which mechanism the government can go down. We are highlighting the kinds of figures which we feel would allow nuclear definitely to be considering replacement build over the next two decades.

Sir Robert Smith

  66. On the waste issue, in terms of legacy waste versus current operating waste, if you cast yourself forward 50 years and back 50 years, what would the ratio of the historic waste over the past 50 years be, if you replaced the current generation?
  (Mr Ham) A very useful figure that came out of RWMAC, the independent advisers on these issues, is that a replacement programme for all current nuclear power to fulfil the current electricity capacity generated would add to the existing intermediate level of waste by ten per cent. That is an indicator of the scale of existing legacy waste. It is very large in this country.

  67. Over the lifetime—?
  (Mr Ham) Of that fleet.


  68. Is that because the old stations were dirtier and the new ones are cleaner?
  (Mr Ham) Yes.
  (Mr Mayson) The Magnox stations produce more waste than an AGR and an AGR produces more waste than a modern PWR.

Mr Djanogly

  69. Mr Kirwan mentioned in relation to renewable energy that it has a part to play. Reading the BNIF paper, I thought you were rather dismissive of renewable energy in your own submission. Clearly you think differently but generally, beyond that, to what extent do you think that renewable energy does have a part to play and to what extent could renewable energy have a contribution to security of supply? Also, it would be appropriate to have some consideration of the price differential in relation to renewables.
  (Mr Ham) Climate change is a global problem and we do have to bear in mind that in the period to 2050 world population is expected to double. Demand for primary energy is expected to more than double. These are World Energy Council figures. Electricity is going to play a very big part in that massive increase in demand. It would be astounding for anybody to say that a huge proportion of that increase is going to come from nuclear. Therefore, it seems to me essential that renewables do play a much bigger role in future electricity generation than they do now. It is absolutely vital. In Britain, there are strong cases and good sites for a number of renewables and we expect the economics to improve but I am sorry if we did give this rather dismissive overall tone in our submission. That is now how we feel. We have in our membership, including British Energy, people in the business of renewables. Renewables must play a very much bigger role than they do now. What they can deliver over the next ten years I believe is not perhaps as great as many people would hope but they have to play a bigger role for the global reasons that I have just given you.

  70. You are going to need a lot of windmills to contribute even the ten per cent target—I think one windmill a day for the next ten years. Presumably, a windmill is very much cheaper than building a nuclear power station. Could you give us some idea of the cost differentials?
  (Mr Kirwan) British Energy is also in the renewables business and we are looking at a number of on-shore and off-shore wind projects. Being a Scottish company, many of the wind sites are close to our headquarters and we are looking to be very active. We think it is absolutely right that energy policy should include a substantial amount of renewables. I think everybody recognises that there is a limit to the maximum available quantity of windmills, wind turbines or other sources of renewable power. It is going to be very demanding to even achieve the government ten per cent target by 2010. Nevertheless, we think it is right to aim for that target. Also, it is more expensive; hence, the subsidy arrangements the government has put in place. Our experience of wind power is that most farms are likely to result in costs of between three and four pence per kilowatt hour.
  (Mr Ham) Another point about wind turbines in particular is that it is an intermittent source of power that is produced when the wind is blowing at adequate speeds. It cannot really replace baseload power which is an essential part of the electricity mix.

Mrs Lawrence

  71. In your submission overall, the clear thrust of that is that you want the government to change their stance from taking a neutral attitude toward nuclear power construction to strong support. That is implicit in your submission. That appears to be on the basis that, vis-a"-vis fossil stations, you feel that the non-carbon benefits of nuclear should necessitate that support from government. My question relates to the environmental aspects that are not covered anywhere in your submission. You are relying entirely on comparing fossil fuels, carbon emissions versus nuclear, but there are other considerations arising from nuclear generation and I wondered if you would like to comment on them. One is what are classed as normal, radioactive releases into the atmosphere from such stations and the other one relates to the impact on water through disposals. Would you like to comment, because my fear is that while at the moment it is climate change we are looking at, with the cumulative nature of radioactivity, we may be storing more trouble for the future that has not been addressed and perhaps is not addressed at the moment in terms of the review.
  (Mr Ham) In general, having worked in nuclear companies in different parts of the world, Britain has the toughest, independent examiners of environmental emissions and of nuclear safety standards. We have a very tough regulatory system which looks at just the issues that your Committee Member has just raised in great detail and they are not deflected from that by anything that is happening anywhere else on any other sorts of issues. I do not think that will change. I am not saying that our industry finds that a bad thing because the public know it is there and it is a good thing for the industry.
  (Mr Mayson) Looking at new power stations, the radioactive discharges and waste impact is very much smaller than it has been from the Magnox and AGR fleets. In terms of the environmental effects, we are talking of the order of one per cent of the background radiation levels that we would be seeing incrementally added from the radioactive discharges from a new power station.

  72. I say this as an MP who represents a constituency verging on the Irish Sea which is the cause of my concern. Bearing in mind it is incremental, do you think that sufficient emphasis is being placed on potential for future environmental problems?
  (Mr Mayson) I believe so. We are subject to a very strict regulatory regime that challenges very hard on these issues, such that there is a constant challenge to continuously improve those discharges.


  73. Do you think as BNFL you will ever satisfy the Irish Government, your near neighbours but not real friends?
  (Mr Ham) I think we would hesitate to speculate about what views the Irish Government would take in the future since we are not political experts as you are on this Committee.

  74. A large part of Mr Mayson's activities, I would imagine, would be seeking to diminish the levels of anxiety that exist in the south of Ireland. I wonder if you think you are making progress there, given the stringency of our environmental and nuclear safeguards? We still do not seem to satisfy the Irish.
  (Mr Mayson) It would be nice to think we will be making progress. I hope that the reality and the balanced approach that we believe we take does yield benefit in due course. As regards any specific Irish action at the moment, it would be inappropriate for me to discuss that.

Mr Hoyle

  75. I notice you say that you support renewables but the reality is, if we are going to reach Kyoto agreements, the only way we can do that is not through renewables but through an extension of the nuclear industry and more nuclear reactors. Have you considered appeasement of the Irish Government by suggesting that you build them a new reactor there to see if you can fulfil their needs for the future?
  (Mr Ham) It is a very interesting idea and obviously we will be thinking about it very carefully. We are most grateful for that suggestion!

Mr Lansley

  76. Presumably, if you do not have any disparaging view about the contribution of renewables, one of the options you refer to in your evidence to the government's policy review for the form of fiscal support which you mention would be exclusion from the renewables obligation but that is not something in this context that seems coherent with some of the other arguments you are making about the desirability of pursuing carbon-free sources of generation.
  (Mr Ham) The point I have been trying to make is that there should be a coherent commitment to a long term mechanism which can operate inside the market to encourage new investment and new CO2 free forms of generation. Incidentally, there is another energy factor which has not come up so far which is worth bearing in mind and that is conservation. It does seem to us too that conservation should have more emphasis placed on it in the future. How far you can go with it has to be also recognised, but there are a number of things which could be happening on the conservation side too. We feel that those should be looked at attentively as well because the overall energy coefficient—that is the relative amount of energy that we consume per unit of GDP—has not been going down over the past decade very fast. Unfortunately, because of the big gains in the market in terms of getting prices of electricity down for consumers, this points things in the other direction. People are less interested in conservation when they can see their electricity bills going down. That is another case where the orderly working of the market somehow is not delivering what we all feel would be desirable and that is another area where we believe only the government can take measures.

  77. I am sure that is important but it does not answer my question. My question is: does it make any sense if one of the issues you have been driving at is to try and create an environment in which you can compete directly against gas generation and, on the other hand, to mention as an option a fiscal measure which, if anything, accentuates your advantage competitively against renewables?
  (Mr Kirwan) That is another, alternative mechanism available to government, to exclude the existing nuclear industry from the renewable obligation. That is one of the options that we would advocate should be considered.

  78. It is an option but is it a logical one in this context?
  (Mr Kirwan) I think it is logical because it classifies nuclear in the same camp as carbon-free renewables.

  79. Throughout your submission to the policy review and your evidence to us there are a range of measures which you think the government can take, some of which are on fiscal support, the Climate Change Levy, there could be a carbon tax, there could be some form of involvement in emissions trading and so on. There are non-fiscal measures which are to do with the regulatory environment and planning framework, making the waste management more predictable. If I can characterise them, there is a series of ways of reducing uncertainty. On the other hand, there is a series of ways of reducing the competitive disadvantage that you predict you face against gas generation. Which are the most important: the fiscal measures or the certainty measures? If you had greater certainty around some of these non-fiscal measures, would that be sufficient to offset some of the fiscal disadvantages you otherwise face?
  (Mr Ham) Some of the issues relate to the timeliness of the industry's ability to respond. Smoothing the regulatory procedures would be most helpful but they really should fit together.
  (Mr Mayson) It is a question of both being equally important.

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