Examination of Witnesses (Questions 104-119)
PROFESSOR GORDON
MACKERRON,
DR JIM
WATSON AND
DR ALISTER
SCOTT
26 OCTOBER 2005
Q104 Chairman: Welcome, thank you very
much for coming and also for your memorandum. May I begin by asking
a question which I have asked other witnesses in this inquiry,
which is about the need for another review of energy policy, coming,
as it does, so soon after the PIU report, which, I think, Professor
MacKerron, you were involved in and the Energy White Paper? What
has changed to necessitate another review at this stage?
Professor MacKerron: Thank you.
Good afternoon everybody. Let me just briefly say that Dr Watson
and Dr Scott are people I will bring as necessary to answer your
questions. Dr Awerbuch, unfortunately, cannot be here today and
sends his apologies. It is actually quite difficult. We have also
read, at least briefly, the unedited transcript of your last week's
proceedings, so we have some familiarity with your questioning
there. It is quite difficult to understand what the particular
urgency is on another review when the one initiated through the
PIU and culminating in the White Paper 2003 appeared to be of
a long-term and fairly comprehensive nature. The speculation I
would make is that, for a variety of reasons, the nuclear power
issue has climbed up the political agenda. It is now much more
prominent than it was at time of the White Paper and that is one
possible motivation, but I have no inside knowledge and it is
not entirely clear to me. I would, though, perhaps similarly to
Tom Burke last week, suggest that too regular a reopening of big
questions of this kind is not helpful for investor confidence
in any of the technologies which the Government relies upon entirely
in the private sector to do the main work now; so I think there
is that significant drawback and there need to be compensating
advantages that would overcome that.
Q105 Chairman: You say that the nuclear
issue has risen up the political agenda, and in your memorandum
you refer to the decision by Finland to invest in a new nuclear
capacity. Is that really enough to put it back on the political
agenda, or do you think there are other forces at work?
Professor MacKerron: Clearly the
positive decision of the Finns to build a reactor does send a
particular signal. No-one has tried to build a new reactor in
any part of Europe or North America for well over a decade, and
experience elsewhere, especially in Asia, I think is not terribly
relevant to our own, so I think that matters quite a lot. It is
clearly not the only thing. I think there is a perception, rightly
or wrongly, that some of the other technologies and policies designed
to deliver low carbon are not always working as well as some people
thought they would, and that naturally leads to a search for new
technological approaches. It is perhaps noticeable that carbon
capture and storage has also risen up the agenda and may well
be a contributor to this apparent need for a new review as well.
I think that is probably a material factor, but I am in the realms
of speculation. I do not have any authoritative view.
Q106 Chairman: Do you think, given the
relatively slow progress towards meeting the targets set out in
the Energy White Paper, there is a very serious problem about
reconciling CO2 reduction targets with security of supply?
Professor MacKerron: I do not
think that is a major problem. One does not want to be complacent
about the security of supply, but a good deal of what one hears
in much public debate about security of supply seems to me unduly
alarmist and it moves too quickly from the suggestion that we
will soon become significantly dependent on Russian supplies to
some notion that we are therefore going to be in some very deeply
dependent and vulnerable position. Clearly, there are issues about
being dominated by any one supplier, but I do not think the security
of supply issue is significantly more serious than it was a couple
of years ago, and I do not think that its interactions with climate
change are much more troubling than they ever were. It does not
seem to me to explain a great deal.
Q107 Chairman: Again on the question
of the White Paper, and if you have read the transcript of last
week's evidence you will have seen that I asked this one before
as well, do you think the problem with it has been that the objectives
and targets were simply too challenging, or that the political
will behind meeting the challenges set down in the White Paper
was insufficient?
Professor MacKerron: I am not
sure I would support either of those views. I think the things
to which we are committed under the Kyoto protocol have not been
particularly challenging. The 20% domestic CO2 target was always
going to be quite difficult to meet. As for political will, I
am not sure. The real difficulty about changing direction in energy
strategy is that with very long-term objectives, like the 60%
reduction by 2050, it takes time to build momentum, and it perhaps
was never realistic to suppose that we would move very quickly
in the early years, because very large things have to change,
including patterns of investment: because investment is so long-lived
in the energy sector, you perhaps do not realistically expect
to move very rapidly towards targets like that, at least not in
a kind of linear way. On the other hand, you have to be careful
that you are moving in the right direction. I am not really clear
about political will. I think in political will terms the most
difficult problem is that of transport. The great advance in the
White Paper was that for the first time ever there was a chapter
on transport in an energy White Paper, and one should not underestimate
the significance of that. The fact it did not say very much and
did not have many targets in it is perhaps secondary, but at least
it has brought transport into the agenda. I think it is widely
agreed that politically effective action to curb carbon dioxide
emissions from transport is exceptionally difficult. I would have
thought that political will there is probably still fairly limited,
and it is difficult for all developed countries that have a significant
transport problem.
Q108 Chairman: This is an unhappy situation,
is it not? The PIU Report was widely acclaimed, the Energy White
Paper received support from most quarters, the agenda seemed clear
and now we are in a situation where apparently it is likely to
be torn up and replaced by something else. Is there not a danger
that, if what emerges from another review of energy next year
is significantly different from the course that was charted in
the last White Paper, it will fail to command the support of stakeholders,
the public and politicians?
Professor MacKerron: I think there
is a very real risk. If it is as extreme as you suggest—the
old White Paper gets torn up and replaced by something entirely
new—then that would be certainly true.
Q109 Chairman: But if it is not entirely
new, then the whole thing is a waste of time at a point in time
when we do not have much of that commodity?
Professor MacKerron: I share some
of your difficulties in quite knowing a way through that.
Q110 Dr Turner: Your memorandum contains
a rather nice under-statement that construction costs and timescales
in new nuclear build are uncertain. Why do you think this is?
There have been, and are still on-going, significant programmes
in Japan, South Korea, China, okay not in Europe or the States.
Why do you think this is?
Professor MacKerron: The uncertainty
derives from a number of things. Let me just point to a few of
them. First of all, every country continues to feel the need to
have its own safety regulatory system for nuclear power, so that,
although we may at some point decide to adopt an apparently ready-made,
off-the-shelf design, it has to go through our own regulatory
system. The last time that happened at Sizewell the design significantly
changed as a consequence of specifically British licensing requirements
with significant cost impacts, and the time that might take will
be significant. Second, the experience in other countries of current
nuclear programmes I do not believe to be very relevant to the
UK. There are something like 24 reactors currently at least nominally
under construction around the world of which about a third are
Russian designs and about a third are Indian designs, which clearly
have no chance whatever of competing in UK conditions. It is only
the Finish reactor, the so-called EPR (European Pressurised Water
Reactor) that I would regard as a serious candidate if the UK
should choose to take the nuclear road. Further, the kinds of
industrial and labour conditions which you get in countries like
Korea, which has been held out, some say rightly, as a successful
example of a recent nuclear programme, are different very, very
different to those we have here. There is an institutional industrial
structure that really does not resemble our own, and, given this
lack of experience and the fact that any of the designs we might
choose are basically novel and are not being built anywhere in
the world, and given the regulatory uncertainty and some of the
political uncertainties, it is very difficult indeed to give a
realistic forecast of either how much a reactor would cost to
build or how long it would take to do so.
Q111 Dr Turner: To what extent do you
think the fact that these programmes are helped, facilitated,
by government subsidies and by the fact that they do not have
a transparent or liberalised energy market?
Professor MacKerron: I think you
are right, if I take the implication correctly, that there are
very large amounts of government involvement, often monopoly utility
structures, of a kind very different from our own. The apparent
exception is Finland, which is subject to some of the same liberalisation
directives as we are, but, as you may know, the Finish situation
is quite exceptional in that the utility that has ordered the
reactor is owned by those companies mainly some local municipalities,
that are going to buy the electricity at cost with contracts that
we understand will run for 30 years into the future. The notion
that one could sign a 30-year contract for electricity sales in
the UK at the moment is clearly way off the agenda and quite contrary
to the evolution of the market, which has been rather painfully
constructed in its present competitive form, so it is not a very
good analogy either.
Q112 Dr Turner: You suggest that the
work of new nuclear build without considerable government subsidy,
and we all know the arguments behind that . . . Can you put a
figure on the scale of the subsidy that might be involved?
Professor MacKerron: I do not
think subsidy is quite the right way of putting it. It is pretty
clear, I think, that Government is very unlikely to put any of
its own money into the actual construction costs of reactors.
It may have to give a range of different kinds of guarantees that
might cost it money in the future.
Q113 Dr Turner: It was put at a dinner
I was at last night that either it needed subsidy or the market
rigged?
Professor MacKerron: "Rigging"
is, of course, an emotive term. It would need to be radically
changed. I do not believe there would be very large up-front subsidies.
I think there might be guarantees against certain kinds of political
risk that would affect construction costs or times, there might
be an attempt to extend the current renewables obligation to some
other kind of non-fossil obligation that would require the signing
of long-term contracts for offtake—and that is a very important
one—and there might need to be some capping of companies'
liabilities for waste and decommissioning, and this might all
kick in at different points at which government would actually
have to pay out sums of cash, and they might be significant. My
own view is that what would be more significant would be the very
large knock-on effects, especially on the way in which we organise
markets, and the fact, of course, that there will almost certainly
be references under state aid provisions to the European Commission.
I am mindful of the fact that recently the BFNL reference in relation
to the Nuclear Decommissioning Authority—where, in my view,
the infractions of competition were small—has taken at least
18 months, which suggests to me that any such reference in the
future would be substantially longer and would be another of the
ways in which one could not anticipate how quickly it would be
possible to get new nuclear capacity onto the British system.
Q114 Dr Turner: Nuclear industry has
always argued that it should be exempt from climate change levy.
What effect do you think that would have on the economics of nuclear
power?
Professor MacKerron: It would
help, but it would not be enough. It seems to me that the economics
of nuclear power are not just about numbers and bringing relatively
high numbers down to lower numbers, although that is, of course,
important. It is to do with a pretty wide range of risk and uncertainty
which exemption from a particular tax would not do a great deal
to alleviate.
Q115 Dr Turner: Given the timescales
that have been put on the completion and operation of a putative
nuclear build in this country, do you think it is going to be
relevant in terms of dealing with our carbon emissions in the
next 15 or 20 years? Do you think that, for instance, the Emissions
Trading Scheme or further increases in the price of oil are going
to change this scenario at all?
Professor MacKerron: I think if
you formulate the question in terms of carbon emissions in the
next 15 to 20 years, the answer has to be that the effect will
be minimal. Tom Burke last week told you he thought it would be
unlikely that any new unit of electricity from nuclear could come
on stream before about 2021. I do not think it is useful to put
a special date on it, but I think that is roughly in the right
order of things if you add up the planning time, the licensing
time, the construction time, and so on and so forth. On the other
hand, if you are interested in carbon emission reductions going
forward to mid-century, you would still want to be interested
in a wide range of potential technologies for the longer term.
If you are interested, for example, in carbon capture and storage,
you would have to be interested again over a timescale that was
15 to 20 years plus. I do not think that the fact it does not
make a contribution in that timescale means that we should ignore
it; we just have to be realistic that it is other things that
will make the contribution up to 2020, and neither nuclear power
nor, in my opinion, carbon capture and storage will make any significant
impact until beyond that time.
Q116 Dr Turner: Part of the reason for
that, do you think, is a lack of economic incentive to bring them
forward because the cost of carbon is not high enough at the moment?
Professor MacKerron: I think the
problem is not that the cost of carbon is not high enough—as
you may know, it has recently been quite high in the market—but,
again, it is not something against which people who are planning
long-term investments can be sure. You need to know something
like a floor (minimum) price for carbon over quite a long period.
The fact that the market may produce a relatively high price for
a number of short-term market reasons is not very helpful, so
it is really a question of stability and the long-term, rather
than a specific price at any given moment.
Q117 Mr Hurd: I wanted to confirm that
you accept the vendor argument that, if the British Government
was to go down the nuclear route, it is only worth going down
if you go for scale. I think your memorandum mentions 10 gigawatts,
20% of demand.
Professor MacKerron: Yes.
Q118 Mr Hurd: Can I just be clear that
you accept that argument?
Professor MacKerron: I do, and
the history is important, it is not imprisoned by it but it is
useful, because when we thought we would build initially 10 and
then four pressurised water reactors, which turned out to be one
at Sizewell B, the industry legitimately argued that a significant
part of the very high cost were `first of a kind' costs which
they had hoped to spread over many other units. The industry's
own figures, and, of course, you can expect the industry legitimately
to be relatively optimistic—all developers in new technology
will tend to be—had argued that just building one or two
would almost certainly not be worthwhile because it would be very
expensive. There has been a recent industry argument that if there
were to be a programme of up to ten gigawatts or eight or ten
reactors this might be shared, in some sense, with other interested
countries perhaps elsewhere in Europe, but the commercial, political
and regulatory difficulties in coordinating a 10 reactor programme
across many countries sounds to me like we are moving from 2021
to a few years beyond that, to be frank. We have never done anything
like that before. It would be one way of trying to make the investment
more digestible within any one economy, but I think you would
dissipate some of the scale benefits that you would otherwise
get from building eight or ten reactors.
Q119 Dr Turner: Finally, if there was
a situation in which, in the absence of subsidies and guarantees
in any shape or form, a combination of investors and power companies
came forward with proposals to build a nuclear plant in the UK,
would you welcome that or not?
Professor MacKerron: I think it
is a legitimate thing for people to do. If they can persuade regulators,
licensing authorities and communities that this is a good way
forward, then you have to say that it is an important way of reducing
carbon emissions. There are, of course, questions still, which
I am intimately connected with wearing another hat chairing the
Committee on Radioactive Waste Management, about what the acceptability
would be of new nuclear construction until or unless some resolution
is found to the waste issue, and that clearly is a major issue,
but, subject to resolution of that, it seems to me that it would
be a perfectly legitimate way forward and it would have in the
long-term—I stress "the long-term"—potentially
quite a significant effect on carbon emissions.
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