Examination of Witnesses (Questions 60-79)
MR TOM
BURKE CBE
19 OCTOBER 2005
Q60 Joan Walley: Good afternoon. Just
staying with the economics of it for the moment, you say in your
interesting paper of evidence to us that you would need to have
something like eight to ten nuclear power stations all requiring
this huge amount of cooperation if that were to get off the ground.
Is that likely? Do you think that that would be likely, or, if
it were likely, do you think it would make a nonsense of having
any kind of competitive market anyway?
Mr Burke: I think a lot of people,
the EU, OFGEM would raise questions about the degree of collaboration
that would be necessary between the utilities to, as it were,
recreate the CEGB, because in effect they would have to do something
close to that to create the purchase of eight to ten nuclear reactors
in a guaranteed order sequence. Imagine the negotiations that
would then have to go on between the company; you would be creating
a sort of private sector version of the London Transport PPP,
as you decided between all those utilities how they were going
to allocate between themselves the risks of ordering such a massive
programme. So I think there are a lot more difficulties than have
so far been suggested in getting to the point where there are
private sector interests willing to make a bid. Of course if you
ask them are they interested, they are going to say yes; they
do not have to commit anything to say yes to an expression of
interest. And if you ask the City financiers would they be willing
to finance it, of course they see very large fees in doing that
but that is an extremely long way away from actually signing the
cheques and signing contracts. So I think there is going to be
rather more difficulty at the very front end. In other words,
suppose the government does what it says it is going to do and
agrees to make a decision in 2006, then leaving out all of the
other problems I am not sure that you would have anybody willing
to make an order very quickly, and a real live order which would
lead to somebody actually spending 200 million pounds maybe on
designing a nuclear reactor, let alone the whole programme. So
I think there are a lot more difficulties just at that level than
have so far surfaced just in the real world.
Q61 Joan Walley: Presumably what you
are saying is of such significance that it needs to be taken account
of in various reviews that are going on now within different government
departments, so how is that going to be factored in?
Mr Burke: I think that is an extremely
good question to ask in particular the DTI, though I think the
Treasury will be asking them also. It is an extremely good question
to ask the advisers of Number 10, who are particularly keen on
this, the sofa denizens who are undoubtedly playing some part
in influencing the Prime Minister. I think those are particularly
good questions; they have not answered them and there is no place
where they have laid down how they are going to answer them. As
I have laid out in my memorandum, the practical difficulties of
getting to a replacement are very serious. Leave aside the question
of whether you should go down this route, the practical difficulties
of going down that route are very considerable. My underlining
point is that the driver on climate security in particular, though
also on energy security, will punish us very severely if we make
a mistake on this. These are not mistakes that you can easily
remedy. If we do not address the climate security issue fairly
aggressively in the next decade or so everything we are hearing
from the science, from the conference the Prime Minister convened
at the beginning of the year, all the signals coming through are
telling us that we are in a quite urgent situation. You are talking
about very large investments and in order to get the private sector
to play its part you really have to give a lot more confidence
than is currently being given that the government is committed
to a direction forward, and at the moment across the board there
is this feeling that the government keeps flopping around depending
on what the most recent headlines have said.
Q62 Joan Walley: Just assuming that all
of that somehow or another was ironed out and they were built,
then presumably you would need to have government support over
the long-term—not just one parliament but over the long-term.
Mr Burke: Yes.
Q63 Joan Walley: If then energy prices
start to fall presumably they would need to have their energy
prices maintained, would they not?
Mr Burke: We spent half a billion
pounds bailing out British Energy because the government's liberalisation
policy succeeded in driving electricity costs down. That is a
bizarre position in which to find yourself. Why would you want
to repeat it? Can I put it another way? It would be very difficult
for the government to square the circle in saying, "We want
to have a constant downward pressure on electricity prices and
we want to have a big new programme of nuclear power stations."
It is very difficult to square that circle.
Q64 Joan Walley: So that I am clear,
in terms of squaring that circle presumably that circle could
only be squared if the nuclear industry had guarantees on insurance?
Mr Burke: Yes.
Q65 Joan Walley: Had guarantees in respect
of dealing with the waste and how one deals with that, but also
guarantees in respect of price?
Mr Burke: You have to cover the
revenue risk, that is the price. The how?—there are a number
of ways you could do that. But you would have to cover the revenue
risk; you would have to cover the regulatory risk. In other words,
you would in effect have to say that future governments would
not change their mind on some of the questions such as who should
carry the liability for radioactive waste or what proportion of
the insurance burden should the taxpayer cover and so on? So you
have a number of risks that the business investors would have
to be sure that the government was going to carry those risks
through at least two parliaments—at least two parliaments—and
you would need a very high degree of confidence, if you were an
investor, to be betting on that.
Joan Walley: And all party support.
Q66 Dr Turner: I am going to ask you
to comment on the proposition that has been put forward by the
government's own in-house reactor producer, Westinghouse, which
is the AP1000, which is predicated. The price is predicated on
producing ten of them and that low price is also predicated on
stripping out an awful lot of material from the design and, as
I understand it, also leaving out secondary containment as well.
Do you have any credence with their pricing estimate, even if
they could get regulatory approval and licensing? Does it stack
up at all?
Mr Burke: You do not know what
a nuclear reactor is going to cost until you have built it; that
is the reality. So can they give you an estimate of how much they
could lower the capital cost by stripping out—and that is
the exact and correct description—a lot of the valves and
pipes they put there in the first place in order to maintain the
security? What they are stripping out is the redundancy in the
system. As I think Mr Dixon said, the problem is not the design
of reactors, it is the operators. The redundancy is not there
because you think the design will fall apart, it is there to cater
for the fact that human beings are fantastically inventive and
can create fault pathways that you did not think of. That will
clearly lower the capital cost. Even if it does and even if you
can build them on the lowest timeframe—and I have seen five-year
time levels for everything, where planning and construction is
within five years—it still does not compete with onshore
wind. Again, why would you do it?
Q67 Dr Turner: I think you are saying
it is a no-brainer?
Mr Burke: Yes. I would have said
that except that I once saw a very clever man talk about the privatisation
of the Iraqi oil industry and how the people who had come in and
said it was a no-brainer and privatised it, and the man from Shell
who went to pick up the pieces said, "Ah, yes, only somebody
with no brain could have thought that"! So I am slightly
cautious.
Q68 Joan Walley: Could you shed some
light for us on the new nuclear power stations that are being
built currently and the extent to which they are dependent on
state support in other parts of the world?
Mr Burke: I do not think there
is anywhere a nuclear power station being built where it is not
essentially a decision of government supported by government.
The Finnish one is the one that is often cited as an example.
I think if you start to lift up the stones you find that the French
taxpayer is subsidising Finland—again, not just us—and
you find that there is a great deal of government guarantee in
the relationship between the investors and the takers of the electricity,
and there are some particularly unique circumstances about the
bulk supply of the electricity in Finland. So Finland is the only
place I know where the private sector—anything resembling
the private sector—is building a new nuclear power station;
everywhere else it is essentially a place where there is a very
high government intervention. China, the biggest programme, 30
gigawatts, is clearly driven entirely by national government policy.
And I cannot think of anywhere else. Nobody would even begin to
suggest that EDF was not part of the French government, especially
if you are, as I am, a London electricity user and EDF can buy
my provider but I cannot buy EDF, which is very unfair.
Q69 Colin Challen: You said in your submission
to us that the timescale for a fully operational nuclear plant
is at the earliest 2021; is that not a little pessimistic? We
are going to be told that it is much quicker than that to get
these things running.
Mr Burke: Yes. I think you should
examine the proposition in some detail. I have laid out why I
think that the timetable is like that; I think I have been reasonably
optimistic. I have assumed that there will be a relatively short
transition from a government decision in principle to an actual
policy framework of a year. If it requires primary legislation
it might be rather longer than that. If you have to provide the
kind of revenue risk guarantees that might be required it could
take you even longer. I have not mentioned anything about capacity
constraints on the Nuclear Installations Inspectorate (NII). There
is a real question about whether actually they could do the work
in the time I suggested. The AP1000 is in effect a new design;
nobody has built one anywhere. So it is a new design and would
require an unbelievable reversal of British regulatory process—abandonment
of British regulatory process. They call it regulatory "tweaking".
Actually you need to be really careful—it is abandoning
our current regulatory philosophy whereby the NII will not give
a permit to construct a reactor until it has had time to examine
the design. You cannot buy a nuclear design off the shelf; a design
to build a nuclear power station takes you two years—I would
guess—you might shorten it a bit but not much—and
a great deal of money to produce. An engineering design like that
is a very massive production effort. So I think I am being rather
optimistic. I am only assuming a year in my timetable for a planning
inquiry. Even with the government's enthusiasm for stripping out
time from the planning system I may have been a bit optimistic.
So why would you think you can build it faster than five years?
Q70 Colin Challen: I assume that a new
build would be on an existing site, so perhaps that might make
it easier for them to convince us that it is really a simple process.
Mr Burke: I have allowed for that
in my timetable of saying you might only take a year. As I say,
I think I was being optimistic even on that assumption. The Sizewell
Inquiry took four years, I think, and I am assuming you cut that
by 75% to get there. I have not built in what substitute you would
have for that lost examination; in other words, when would there
then be some national level debate that would substitute the need
for a proper—what we would now think of as a full—local
planning inquiry? As I said, I thought I had been optimistic.
Q71 Colin Challen: So your pessimistic
version, which I do not think you gave us in your submission,
could take us up to the decommissioning point of Sizewell B, possibly?
Mr Burke: I do not think it would
go that far.
Q72 Colin Challen: Not as far as that.
It begs the question then, we are going to have this gap, we are
told. Will the market fill that gap?
Mr Burke: Yes, it will. I do not
think the lights are going to go out. The market will fill that
gap and it will fill that gap if we do nothing else.
Q73 Colin Challen: With what?
Mr Burke: Gas. That is what it
would fill it with right now if there were nothing else. There
would be a contribution from more wind largely, I think, in the
renewables. If you just left the market as it now is you would
get a bit more from wind and the other renewables and you would
get a lot more gas and it would fill a gap.
Q74 Colin Challen: That leads to a rise
in emissions, presumably?
Mr Burke: It leads both to a rise
in emissions and to a genuine concern about energy security. There
is some alarmism about the idea of over dependence on Russian
gas. That is all a bit like raising the red menace again. We are
at least as dependent on Middle East oil for our transport, and
we saw in the fuel protest just how vulnerable this country is
to interruptions in its supply of petrol. Even so, you would want
to hedge against that and the proper hedge against that is coal.
Q75 Colin Challen: Just one final question.
You have closed off all the arguments for nuclear but they are
going to come back and say, "Okay, with gas and more renewables
you will be able to fill this gap that is emerging, but we can
still fill another gap and that is creating the hydrogen economy
so that your road transport will be using hydrogen that we create
for you, and no other source can provide enough electricity to
create enough hydrogen to do that task." So how do we deal
with that argument?
Mr Burke: I agree with you that
they are going to say that and it is going to be another example
of the nuclear industry promising jam tomorrow. I think that needs
a lot of examination. If you talk to people in the motor industry
they do not see a simple or straightforward or near time, meaning
20 or 30 years, transition to hydrogen; they see the next step
in the motor industry—and I think, given the numbers on
this, quite interestingly—as in hybrids. I mean getting
the 100, 150 mile per gallon efficiency out of something much
more resembling our current infrastructure and therefore not requiring
the huge investment in new infrastructure. So I think they see
a step by step transition. Eventually you might get to hydrogen,
but if you are talking about those sort of timescales you are
talking about timescales in which the renewables—if you
are looking at just technical capacity—can give you every
bit as much as nuclear. The thing that I have tried to emphasise
in my memorandum is the danger of just looking at technology choices,
as if you were in the toyshop picking which one you could afford
and which one was the cheapest. There are pathways that you have
to look at which have mixes of technology and policy in them,
and you have to choose which pathways best get you to the goal
you want, which also means that you have to specify what that
goal should be. I have specified it in terms of energy and climate
security; you might add poverty alleviation and you could add
other goals, but you then have to say what are the various pathways
you could use and what are the advantages and disadvantages of
each pathway in getting to that goal?
Q76 Mr Ellwood: If I may go back to the
discussion on the nuclear build in the UK. There is a concern
when we are receiving so much information that people will select
bits of evidence which suit their argument. If I may just ask,
on the ability of Britain to build new nuclear power stations
I would suggest that the fact that with all our nuclear power
stations not one of them is actually the same, that each one has
been almost designed and built by design and make; that they have
learned from the old one and moved on to the new one. Industrial
knowledge and nuclear capability has been depleted, and many of
our experts have gone to places like Canada, France and America.
So the costs you are suggesting are because we have to relearn
everything. That would then have an impact on the amount of time
it would take to get a new nuclear reactor into place. There are
off the shelf fourth generation nuclear power stations which will
not take nearly as long and will meet the safety requirements
and so could be installed in the UK much, much faster. The CANDU
reactor systems in Canada and the new fourth generation reactors
that the United States are looking at, could these be an option?
This is something surely that should be looked into, rather than
us having to reinvent the wheel here in the UK, which would take
20 years?
Mr Burke: My timetable is not
dependent on what choice of nuclear technology you make at all.
So it does not matter if you pick an AP1000, an AREVA or whether
you picked a CANDU. CANDU might slow it down a bit because it
would be completely new to the British system so I suspect it
would somewhat extend the time the NII took, as opposed to the
PWR of which we have some experience. I do not think the question
of the engineering or technical capability in Britain makes much
difference; there is a lot of movement of qualified engineers
so in a sense we would bring back people. We have a problem in
Britain generally about the large-scale projects which would apply
to this, but that is a problem which we have found in all kinds
of sectors, not just in this sector. But the specific nuclear
expertise, what we do not have we could import, so I do not see
that as affecting the timetable. It is why I tried to lay out
the timetable in a way that was dependent on the processes not
on the technologies. I do not think it makes much difference which
technology you choose. The AP1000 is a new design and no doubt
people would want to test the safety of that fairly thoroughly,
for obvious reasons. The AREVA is a less new design. Those are
both what are now called generation III. The generation IV technologies,
the pebble-bed and so on, nobody has gone anywhere near doing
one of those, so I think if you went that way it would slow you
down even further in terms of technology deployment. But the real
point is that there is a quite well laid out process for how we
would go about permitting a new reactor of any kind and I have
tried to be quite optimistic in a way in saying how long that
would take, because the timetables here matter. My predominant
concern is with climate security and I do not think you can separate
that from energy security; you cannot have climate security without
energy security. The Prime Minister is right to say that the public
are not going to choose one over the other, so you have to try
to get both together. The climate timetable is very short; the
climate timetable is not one where we can think what is an optimum
solution, what is the lowest cost to reduce emissions by 2050?
I was listening to David King, the government Chief Scientist,
speaking about this last night. We are talking about really serious
transition points in the climate happening in this decade possibly,
but certainly within the next three or four decades, and I am
trying to get some sense of measuring up—
Q77 Mr Ellwood: But that will not happen
because of Britain, that is in China and these other places.
Mr Burke: I could not agree with
you more, that is absolutely right, and if you ask me right now
where should we spend our money to achieve climate security I
would say spend it in China. But in reality the issue is that
we have to go forward together. That is why I said to Mr Challen
that in a way I see our hedge against gas and over-dependence
on gas being the coal option. When you read pretty well all of
the discussion on this in Britain at the moment in public nobody
mentions coal. Coal is an internationally traded commodity; there
is a lot of it about and we have quite a lot of it in this country.
We know how to run coal technologies. We have an issue with sequestration.
I am actually rather more optimistic than the previous witness
about the accessibility of carbon sequestration. We have an industry
in BP that has suddenly spotted the size of the opportunity, which
is why Mr Browne, who does not on the whole try to invest in losers,
has just decided to put up some money to literally start the work
of exploring it in Scotland.
Mr Ellwood: We are still an importer
now of coal now.
Q78 Chairman: We will come on to discuss
coal in a bit more detail in a moment. If we may move on?
Mr Burke: You are not going to
get out of being in the market.
Q79 Mark Pritchard: Just as an aside
as an introduction, it would be quite interesting whether some
environmentalists—and I regard myself as an environmentalist
which is why I am on this Committee—might perhaps eat some
humble pie and learn from the United States on the issue of clean
coal technology, but I am sure other members will comment on that
in a moment. I would like to address the issues of bio-fuels.
Do you think that the role of bio-fuels has been underestimated,
vis-à-vis in the commercial wholesale market there
has been too much notice—perhaps it has only been rhetoric
actually—on the consumer/customer facing side, and that
would address the short timescales that you have brought before
us today, if the government would do far more in bio-fuels?
Mr Burke: I think as one of your
other witnesses pointed out, you have to remember to see this
issue in the context of overall policy not just electricity policy,
and to some extent you buy yourself more room if you can reduce
the carbon burden and the security burden of transport—you
buy yourself more room and more flexibility. So bio-fuels is important
and perhaps a lot more important than we have said to date. I
think there is a real issue of scale with bio-fuels. In other
words, as with everything else it is not going to be a panacea
and you would really need to think very hard about the issue of
bio-fuels when you look at the evidence that was just published
in Nature on the effects of the 2003 heat wave on vegetation,
in a way that surprised pretty well everybody who has followed
this. The threshold by which vegetation sinks, becomes sources,
seem to be much nearer. If you go out to 2050 you at the point
at which we might be seeing a 2003 heat wave every second year.
So there is an issue about scale, there is an issue about the
interaction between the climate problems and whether bio-fuels
really give you all the carbon benefit you think. I do not have
a firm answer on that, I am simply saying that as a warning against
thinking, "Here is another silver bullet; if only we can
fire it, it solves all our problems." I do not think that
is the case. I agree with your underlying premise. I think we
have underestimated it, and my sense, from talking to a lot of
people, is that there is more to be gained even inside the constraints
I have mentioned.
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