House of Commons - Environmental Audit

Select Committee on Environmental Audit Minutes of Evidence

Memorandum submitted by British Nuclear Fuels plc (BNFL)

INTRODUCTION

BNFL welcomes the opportunity to respond to a number of increasingly important issues concerning security of supply. The Energy White Paper of 2003 represented the first comprehensive policy review of UK energy matters for many years, and was a valuable revision of policy in several key areas. The emphasis given to renewable energy and energy efficiency placed the environment firmly centre-stage in policy thinking on energy, and set a pathway for the UK to play a leading role in cutting carbon emissions.

However, much has changed since 2003 (indeed since 2002, when the bulk of the White Paper analysis was carried out), with consequent impact on all the policy objectives of the White Paper. The importance of climate change in policy thinking has increased. This has been heightened both by rising carbon dioxide emissions and by a further increase in the frequency of unusual and sometimes devastating climatic events, most recently the tragic impact of Hurricane Katrina in the Southern USA. Security of supply concerns have grown, as the UK became a net importer of gas earlier than expected. The widespread development of renewable energy is lagging behind the pace needed to hit targets, and progress on energy efficiency is also slow. Finally, energy prices across the board have risen sharply, pushed up by the global oil price, which has broken through a number of symbolic barriers, including the $70 per barrel mark. In the UK alone gas prices have more than doubled since April 2004[14].

We therefore believe that the time is right for a re-examination of UK energy policy, and that such a review should look at the useful role nuclear energy can play as part of a future balanced energy mix for the UK.

Our responses to specific questions raised in this consultation are provided in the remainder of this submission.

A. THE EXTENT OF THE "GENERATION GAP"

1. What are the latest estimates of the likely shortfall in electricity generating capacity caused by the phase-out of existing nuclear power stations and some older coal plant? How do these relate to electricity demand forecasts and to the effectiveness of energy efficiency policies?

The latest projections of UK electricity demand, and the rate at which new capacity will be required as existing stations close, are contained in the Government's Second Progress Report on the White Paper. The following chart[15] illustrates the projected mix, and the proportion of the mix in 2020 that will need to come from new plants:

This chart shows the closure of coal and nuclear plants from the current operating fleets—based on current best projections of when such closures might take place. However, it should be borne in mind that, in each case, these are decisions which utilities will make based on the commercial, technical and regulatory positions at the time, and so could vary—to be either earlier or later.

In terms of the impact of energy efficiency measures, it can be seen that even though government projections indicate a slight fall in overall demand by 2010, this increases again so that by 2020 demand is higher than today. It should be noted that UK electricity consumption has risen steadily over the past several years, at an average of over 1% per year[16].

BNFL feels that fulfilling even these Government projections for energy efficiency will be very challenging, and there is a very real likelihood that electricity demand will continue to grow year on year, as has consistently been the case in the past. We believe that current energy efficiency policies will at best slow the rate of growth, but will not themselves be sufficient to achieve a real drop in demand. This is particularly true if energy prices remain "affordable" which is one of the Government's overriding priorities.

These concerns are shared by other knowledgeable commentators and analysts. For instance the Environmental Audit Committee report "Budget 2004 and Energy"[17] concluded that:

"A more imaginative and radical strategy—in particular for transport and domestic energy efficiency—is needed"

with the Chairman of the Committee commenting at the time:

"It is also disappointing that the Treasury has done so little to promote domestic energy efficiency—despite two consultations on this topic in the last two years. There is an urgent need to look afresh at the scale of the challenges we face and develop an adequate response."

More recently, in July 2005, the House of Lords Science and Technology Select Committee on "Energy Efficiency" noted:

"We have been dismayed in the course of our inquiry by the inconsistency and muddle of much current thinking about energy efficiency."

The Committee concluded:

"No country in the world has succeeded in combining a sustained reduction in energy use with economic growth, and UK energy demand is still rising. Achieving the Government's targets is a huge task, and needs clearer thinking and stronger leadership."

It is very difficult to measure the true effectiveness of energy efficiency measures—since so much depends on a judgement of what the "baseline" demand would otherwise have been. Equally, there is little reliable data on exactly how energy efficiency initiatives have performed over recent years. However, it is abundantly clear that there have been no "step change" improvements.

It is worth noting that planned Government measures to introduce tighter regulations on energy efficiency of buildings were dropped in July, making the task of achieving substantial reductions in demand that much harder.

Looking to the longer term, if we move to a hydrogen economy (using hydrogen fuel cells to replace oil in the transport sector) then the need to produce sufficiently large amounts of hydrogen will inevitably push demand for power up much more strongly. This will have to be factored in to any longer-term projections on meeting that demand.

B. FINANCIAL COSTS AND INVESTMENT CONSIDERATIONS

2. What are the main investment options for electricity generating capacity? What would be the likely costs and timescales of different generating technologies?

At present the leading options for new power generation capacity in the UK are:

Coal (with or without carbon capture technology)

Gas

Nuclear

Renewables (of which the variant most likely to be built in the near future is wind)

Costs of different options are discussed in more detail below.

The lead times for commissioning new generating capacity are long as highlighted by the Public Accounts Committee in their recent report on renewable energy[18]. Both pre-construction activities, as well as the actual construction period, need to be considered when coming to a view on overall likely timescales from inception to commercial operation.

For all options, pre-construction activities will form a significant component of overall timescales. For some technologies these pre-construction activities will be of longer duration than the actual construction period. Examples taking over five years or more are not uncommon, both for fossil plants such as CCGT, where a number of projects (including Partington, Fleetwood, Raventhorpe and Langage) have taken this long[19], and in the renewables sector, where nearly 20% of UK wind farm projects have been more than five years in the planning process[20].

Pre-construction activities include matters such as site selection, environmental impact assessment, design selection, securing development consent, obtaining a connection agreement with National Grid Transco, and even securing investment funds. The overall duration of any of these activities is highly variable, although many of them can and do run concurrently. Nuclear has an additional hurdle associated with securing nuclear specific regulatory consents such as a site licence from the Nuclear Installations Inspectorate, giving an overall pre-construction timescale of around five years.

Other preconstruction activities can be lengthy: for example the Electricity Act 1989 requires developers to seek development consent from the Secretary of State (in England and Wales) or Scottish Ministers (in Scotland) for the construction of electricity generating stations over 50MW. Recent UK experience suggests this process typically takes two to three years (which may include a public inquiry).

Construction periods are much more technology dependent. Typical durations are[21]:

Coal

4 years

Gas

2-3 years

Nuclear

5 years

Wind

1-2 years

What are the likely construction and on-going operating costs of different large-scale technologies (eg nuclear new build, CCGT, clean coal, on-shore wind, off-shore wind, wave and tidal) in terms of the total investment required and in terms of the likely costs of generation (p/kWh)? Over what timescale could they become operational?

There are a large number of comparative studies on the economics of nuclear and other generation sources. These often come to different conclusions, due to nation-specific considerations (such as costs of fossil fuels in different regions, or availability of high quality renewable resources) or due to different financial assumptions (for instance the rate of return required on an investment).

One recent wide-ranging study was carried out by OECD[22] taking data from a large number of different countries around the world. The results of this are summarised in the following chart, and showed that even without any allowance for the future costs associated with carbon emissions, nuclear is extremely competitive with fossil fuels and is much cheaper than the leading renewables:

The OECD study was an international one. The most recent authoritative investigation into UK prices for different forms of power was carried out by the Royal Academy of Engineering (RAE), and published in March 2004[23]. The results of this study are summarised in the following chart:

In this figure, the dark magenta additions to the wind power costs represent an allowance for the backup power generation required due to the variability of wind output. It can be seen that nuclear energy emerged from this assessment as being closely competitive with CCGT gas plants, with these two being the cheapest options. However, it should be recognised that the long-term gas price forecast used in the study was 23 pence per therm, compared to current forward prices for 2006 and 2007, which are in excess of 55 pence per therm[24].

In terms of the breakdown of costs for the various technology options, a good assessment of these can be found in the RAE report, and we do not propose to go into detail here in respect of technologies other than nuclear.

  There are again many studies into the costs of nuclear energy, with some of the most recent ones24, [25], [26], [27], [28], [29], [30], [31] summarised in the following table.

MT

(2003) PIU

(2002) Chicago

(2004) RAE

(2004) DGEMP

(2005) Finland

(2003) OECD (2005)

Generating cost (p/ kWh) 3.9-4.0 3.0-4.0 3.1-3.6 2.26-2.44 2.0 1.7 1.3-1.9 1.8-3.0

Rates of return 11.5% 8% & 15% 12.5% 7.5% 8% 5% 5% 10%

Capital cost $2000/ kW $2000/ kW $1500/ kW $2000/ kW $1413/ kW $1900/ kW $1000-$200/ kW

(£1150/ kW) (£1150/ kW) (£865/ kW) (£1150/ kW) (£990/ kW) (£1330/ kW) (£610-1210/ kW)

Load factor 85% 75-80% 85% >90% >90% >90%   85%

Economic life 15 years 20 years 15 years 25 & 40
years 35-50 years 40 years   40 years

Construction period 5 years Not
identified 5-7 years 5 years 5 5 years   4-6 years

Capital investment in a new nuclear power station would be likely to be in the range £1-2 billion, depending on the exact design selected and its generation capacity. Whilst this is a substantial sum, it is by no means unusual for a major energy infrastructure project. Liquefied Natural Gas (LNG) terminals and oil platforms routinely cost more than this, as can major pipelines. Many studies show "overnight" capital cost per unit output of around $2,000 per kW of installed capacity for a standard international reactor design, which would equate to around £1.2 billion for a 1GW single unit power station (using an exchange rate of £1 = $1.65).

Timeframes for delivery of different forms of generation capacity were addressed earlier in this submission.

With regard to nuclear new build, how realistic and robust are cost estimates in the light of past experience? What are the hidden costs (eg waste, insurance, security) associated with nuclear?

Although the nuclear cost studies outlined above produced a range of different projections for the generation cost of energy from future nuclear stations, there is a consistent picture across the assessments. The main parameters determining generation cost are the "overnight" capital cost and—in particular—the rate of return assumed in the study. The majority of capital cost projections fall in a relatively narrow range ($1,500 to $2,000 per kW), as noted above, and so it is the variations in rate of return assumed in the different studies which accounts for the majority of the difference in generating cost projections. This is illustrated in the following figure, which summarises the cost and rate of return data for the studies noted above:

When considering the overall cost-effectiveness of a future nuclear plant project in the UK, past experience is not a good guide to future performance. Previous nuclear industry projects (like many other similar projects of their era) were characterised by many of the following features:

— They were run by Government in one form or another.

— Virtually every design was markedly different from its predecessors.

— There were delays in the licensing and approvals processes.

— Construction contracts were often of the "cost plus" type, offering no incentive (indeed a counter-incentive) to delivery within time and budget.

— Plants were often re-designed throughout construction, leading to extra costs and delays.

— There was no strong driver to improve operational performance in regulated markets.

— Only the UK chose to build gas cooled reactors, technology that was less cost effective than the light water reactor types chosen by the rest of the world. This decision also meant that most of the world's accumulated nuclear industry experience was not directly relevant for the UK.

Today's deregulated market would bring a very different framework for building new power plants. In addition, the regulatory and approvals processes in place in the past, which allowed delays and re-design to become the norm, would act as a major deterrent to private sector investors. An improved delivery process would be required in future for a nuclear project to become a reality. This is achievable without legislative change but Government leadership is required to provide the necessary resolve. Such a process would retain the rigorous scrutiny and opportunity for democratic participation and challenge, but would have scope and timeframe clearly defined to bring predictability to the overall process. This means that key approvals need to be granted before construction with a well-defined scope and timetable for further approvals during construction and commissioning.

It is likely that any future UK plant would be an internationally recognised standard design, and the approvals process would need to be geared towards implementation of such a design with only those UK-specific modifications which were absolutely essential.

International experience shows that nuclear plant projects can be delivered on time and to budget, and can be the most cost effective means of power generation. There is a strong and impressive track record of series build of modern reactors in South Korea and elsewhere in East Asia. Closer to home, Finland elected to construct a new nuclear plant largely on the basis of the attractive economics and the benefits in terms of reducing CO2 emissions.

To summarise the features of a future nuclear plant project, which give confidence that its construction and operational costs would be predictable:

— Consolidation of nuclear reactor vendors through the 1990s has led to the development of "standardised" internationally recognised advanced designs. As these designs incorporate many years construction and operating experience, utilise proven technology, and robustly address the regulatory issues that were previously of concern, there is much more confidence in construction times and operational performance than hitherto.

— Modern designs incorporate fewer components than older reactor concepts which, together with modern construction techniques such as modular construction, makes today's plants more straightforward to build, as well as being significantly smaller, both of which help to keep down capital costs.

— In the Far East (China, Japan and South Korea), the nuclear industry has demonstrated a good track record of delivering these designs on time and within budget.

— Development of improved materials for construction allow more reliable operation at high levels of output.

— Recent life extensions of operating plant in the US demonstrate that the typical design lifetime for advanced light water reactors of 60 years is realistic.

— Reactors are now designed for improved maintainability which reduces operating costs and increases overall output.

— Modern reactors make much more efficient use of the fuel, and so produce much less waste than earlier designs.

In terms of robustness of generation costs over time, nuclear offers a major benefit compared with fossil fuel alternatives. The cost of uranium accounts for only around 5-10% of the overall generating cost of electricity from nuclear, compared with electricity from gas, where the raw gas cost accounts for over 60% of the overall generation costs. Total nuclear fuel costs (including enrichment and fuel fabrication, as well as the uranium costs) are only around 20% of total generating costs. In the current era of rising fossil fuel prices, with strong links between the price of gas and that of oil, with global increases in demand and with the UK becoming increasingly dependent on imported gas, the independence of nuclear energy from fossil fuel prices is a notable benefit.

The implications of the high dependence of power from gas-fired stations on the costs of gas itself can be seen from a look at the recent trends in UK power prices. The following chart summarises baseload power prices for the last few years[33]:

Uranium itself is a plentiful fuel around the world, and over recent months there have been a series of new developments in the field of uranium mining, indicating that reserves are likely to rise from current levels. The issue of uranium availability is discussed in more detail later, in the context of security of supply.

With regard to the "hidden costs" mentioned in the question, the position is as follows:

Waste

Insurance

700 million and it is expected that this will be enshrined in UK legislation around the end of 2006 or early 2007. The UK insurance industry is confident that they can provide this cover on a commercial basis.

Security

Importantly, the security measures that would be required for any new build programme raise no new issues of principle or policy. Any new stations would, just like the existing reactor fleet, have extremely robust and resistant structures. Security costs for new stations would therefore be at a similar level as for existing stations.

Security costs are paid by the nuclear operators. They are a minor part of overall operational and maintenance costs, typically the operational costs for security measures are about 1.5% of the total operating budget.

How do the waste and decommissioning costs of nuclear new build relate to the costs of dealing with the current nuclear waste legacy, and how confident can we be that the nuclear industry would invest adequately in funds ring-fenced for future waste disposal?

There is significant national and international experience that provides assurance that waste from new reactors can be managed safely and successfully. A distinction needs to be drawn between wastes from new reactors and legacy wastes. New waste arisings, as well as being small in volume, would be well characterised and comparatively simple to manage. In contrast, some of the legacy wastes, in some cases dating back to the 1950's, are chemically and physically more complex and as a result are more difficult to deal with.

These legacy wastes are being retrieved and packaged in a way that makes them suitable for long-term storage or potential disposal and the Government owners of the bulk of these wastes (the Nuclear Decommissioning Authority (NDA)) have clear plans and strategies in place for their management.

When looking at the potential waste arisings from new build, it is important to see these in the context of the existing inventory[34]:

With or without any further reactors, the UK will need a long term management route to be identified for the baseline high and intermediate level waste inventory of 478,000 m3. The Committee on Radioactive Waste Management (CoRWM) will recommend the long term management route(s) for UK waste and spent fuel to Government next July. The work they have published to date suggests that deep disposal or interim surface storage will be the preferred route.

The latest cost estimate from the NDA for management of the legacy is around £56 billion (undiscounted total costs)[35]. It must be recognised that much of this cost relates to the safe and effective retrieval of wastes from their current storage, rather than directly to the treatment and management of the wastes.

International experience has demonstrated that waste management costs from current power generation are a relatively small part of total nuclear fuel cycle costs.[36] There are well-established approaches to funding it in most countries. Funds set aside now, and in the near future, would be expected to earn reasonable rates of interest for many years before significant draw-downs are required (eg for a geological repository, which may not need to be in operation for decades). As a result, the contributions required today can be modest. As examples, the USA levies $0.001/kWh (

0.0008) on nuclear electricity production, whilst Sweden, Japan and the Czech Republic are all similar in the range

0.001 to

0.002 per kWh. The size of the payments are generally kept under review and increased (or decreased) if necessary, based on best estimates of future costs. The money that accumulates is available to pay for the packaging, transport and disposal of spent fuel and Intermediate Level Waste.

Some countries without such levies require the waste producers to set funding aside. For example, Switzerland has a government controlled trust fund. Germany, where the funds already total 25-30 billion Euros, leaves the fund with the power utilities.

As in many other areas of waste management, Sweden offers a useful model for consideration. The Swedish fund (established in 1982) covers spent fuel encapsulation and disposal, nuclear power station decommissioning and waste disposal, along with the R&D necessary to implement all these activities.[37] The fund is invested in the National Debt Office and overseen by a board appointed by the government. The amount of money that each contributor pays from year to year varies, depending on the most recent estimates of future costs and how well the investments made by the fund have performed. Cost estimates are produced by the implementer, SKB, and submitted to the regulatory authority, SKI, for review. Utilities must provide guarantees to compensate for any fees which might not be paid into the fund if reactors are shut down early (as is present Swedish government policy) and if the costs of waste management prove higher, or are needed earlier, than currently expected.

A similar model in the UK might be to require the operators of new nuclear power stations to pay into a central fund, administered (directly or indirectly) by the government. For a single reactor of 1,000 MW output and a life of 60 years, the total fee paid, if the levy was set at 0.1p/kWh, would amount to about £500 million, before accumulation of interest over the life of the fund. With a return on investments of just 2%, this sum would double over the 60 year lifetime of the reactor. It should also be recognised that in specific circumstances it is possible to take out insurance against any shortfall in funds.

For comparison, the estimated cost of the Finnish spent fuel storage and disposal programme, to accommodate the fuel and waste from four nuclear power stations is about £850 million. Sweden estimates[38] that its spent fuel encapsulation plant will cost about £600 million and the spent fuel repository about £1,100 million. This assumes that the 11 operational reactors operate for 40 years. Together with the two reactors that have already closed, Sweden's total nuclear installed capacity amounts to about 10 GWe, a very similar value to that of the UK which totals almost 14 GWe for historic stations and those that continue to operate.

Is there the technical and physical capacity for renewables to deliver the scale of generation required? If there is the capacity, are any policy changes required to enable it to do so?

We support the contribution renewable energy can make, but we share the doubts of other observers over whether enough can be done—in a short enough time—to deliver the benefits hoped for. The House of Lords Science and Technology Select Committee studied this issue in detail recently[39] and reported that they:

"found almost no one outside government who believed that the White Paper targets [on renewables uptake by 2010] were likely to be achieved"

Indeed, Government projections now appear to acknowledge that the 2010 target to have 10% of electricity from renewables is likely to be missed[40]. Confidence in longer-term targets being reached is therefore diminished.

If renewables generation were to deliver 10% of UK electricity needs by 2010, this would equate to around 35 TWh. For comparison, the power generated by renewables in 2004 was 14.2 TWh[41]. Of this, just 1.9 TWh came from wind (both onshore and offshore), which is expected to be the dominant renewable technology over the coming decade or so. Whilst there undoubtedly is enough wind resource around the UK to underpin the 10% target, it is doubtful that this will be achieved by 2010, given the difficulties being experienced in respect of issues such as planning and securing connection to the grid.

To meet this need for additional generation with wind turbines (of a large 2MW design), would require close to 4,000 such turbines to be built between now and 2010[42], corresponding to a rate of over two turbines every day. If the bulk are to be built offshore, that poses a further difficulty, since offshore construction in areas such as the North Sea is not possible year-round. Britain's two largest wind farms (North Hoyle, off the North Wales coast and Scroby Sands, off the Norfolk coast) each have 30 2MW turbines, so the progress needed is equivalent to construction of a wind farm of this size every two weeks. Current rates of construction are far below this figure (around 25MW per month during the first eight months of 2005[43], compared to the 120MW per month needed).

It is clear that—although the penetration of renewables is increasing, a development which is to be warmly welcomed—current policy is not delivering these technologies as quickly as was hoped for. Given this, it seems that any policy changes ought to be addressing to underlying objective of reducing carbon emissions, rather than focusing on one specific means of contributing towards this aim. We would urge the Government to provide encouragement to all low-carbon technologies (renewables, nuclear, carbon capture and storage, and energy efficiency).

What are the relative efficiencies of different generating technologies? In particular, what contribution can micro-generation (micro-CHP, micro-wind, PV) make, and how would it affect investment in large-scale generating capacity?

In terms of efficiency, (net energy output expressed as a percentage of the energy input) figures for a traditional coal-fired power station are typically around 35-38%; a modern gas-fired CCGT around 45-55%; a wind turbine between 20 and 40% (depending on wind speed); a modern Pressurised Water Reactor (PWR) around 35% (taking as "input" the energy given out during fission); a solar panel around 10%; and for a hydro station the mechanical efficiency perhaps 80%. However, simply comparing efficiencies is not really the best way of comparing different generation technologies that use different energy sources (although it can be an appropriate way of comparing different techniques that use the same energy source, such as burning gas). For instance, wind is plentiful and free, whereas conventional fuels have finite reserves and are often in demand for many applications, so optimising their usage may be seen as more important.

An additional way of looking at different technologies is to examine their availability factors (the amount of power they are able to deliver in a year as a proportion of what they would provide if they operated continuously at full rated output). Baseload power generation technologies (fossil fuels and nuclear) typically have availability factors in the 80% to 90% range or even higher. The figures fall short of 100% primarily due to the downtime associated with scheduled maintenance shutdowns. In addition, for some fossil stations (particularly gas) the actual load factor achieved may be much less than the availability factor, due to load-following operation, when the station is available to operate but demand is not high enough to warrant it.

For nuclear power stations around the world, average load factors have risen steadily over the past 15 years from around 80% to well over 85%. In many cases these improvements result from sensible modern approaches to operating and maintenance and to standardisation of fleets. In the US, progress has been much more marked, due to the commercial pressures of operation in increasingly competitive markets. Average levels there have risen over the same timeframe from around 70% to over 90%. Nowadays, the best reactors around the world routinely achieve load factors of well over 90%.

Renewable energy has a vital role to play in helping to reduce emission by producing carbon-free electricity, and by providing sources of power which do not rely on imported fuel. However, in one respect the picture for renewables is somewhat different from other technologies, as the majority of renewable technologies are inherently variable. Although they produce power for most of the time, the amount of power produced varies according to weather conditions. The bulk of future UK renewable generation (at least in the medium term) is forecast to be wind energy, and for wind (both on and offshore) typical load factors achieved are 25% to 30%. These figures are higher than corresponding load factors achieved in other countries, reflecting the fact that the UK has some of the best wind resources anywhere in Europe. For instance—data from Germany[44]—which has more wind capacity than any other country in the world, and a more mature wind fleet than the UK—indicates that the average load factor achieved there by the 6000MW of capacity operated by E.ON during 2003 was just 16%. In 2004 figures were slightly higher[45]—with an average load factor of around 20%, but the figure was still only 14% for half of the year.)

We have responded separately (and in rather more detail) on the issues around micro-generation to the parallel DTI Consultation on "Strategy for the Promotion of Microgeneration and the Low Carbon Buildings Programme".

In summary, we support the concept of micro-generation and the aims behind it, but we have doubts both over its likely rate of uptake and over the effect it will have on the rest of the electricity supply side if it does become a significant component of the mix.

We believe that there needs to be a major cultural change amongst householders and small businesses to underpin a substantial move towards microgeneration in the UK, and that this is only likely to take place slowly. There are currently concerns over the scale of (and payback time for) the investment needed, the responsibilities for care and maintenance of the equipment, and—particularly for householders -the visual impact of the equipment along with the impact on re-sale value of a property. The fact that the outlay is a significant up-front payment, which does not lead to any immediate functional benefit (in contrast with—for instance—a satellite TV dish, which carries similar cost and visual impact issues), yet the benefits are only accrued over a long period is likely to be a particular obstacle for householders.

Before microgeneration can realise its full potential, the technology to allow export of power back to the grid (during times of high output from the microgeneration equipment) needs to be developed and deployed in parallel with the equipment itself. New metering equipment and pricing policies will also need to be developed, to allow for the fact homes and businesses with such equipment will be both customers and suppliers. In addition, when considering micro-CHP, it should be remembered that this technology does still burn gas, and so still leads to the emission of carbon dioxide, albeit in a way which makes more efficient use of the fuel.

In terms of the impact of microgeneration on investment in larger scale capacity, the widespread adoption of microgeneration would tend to reduce the load factors of large generators, which in turn would tend to encourage marginal plant to close and would discourage investment in new capacity. If the microgeneration capacity were well correlated with demand, this would not be a major concern. However some microgeneration is poorly or inversely correlated (for instance PV produces most power in summer, but much less in winter, when demand is highest). This will tend to result in reduced plant margins at peak periods, and so may reduce overall security of supply. In addition, having a greater surplus of power capacity at times of low demand means that the system may not represent the most cost-effective overall scenario.

3. What is the attitude of financial institutions to investment in different forms of generation?

What is the attitude of financial institutions to the risks involved in nuclear new build and the scale of the investment required? How does this compare with attitudes towards investment in CCGT and renewables?

The scale of capital outlay for a nuclear plant is not a major problem in itself for potential investors. As noted earlier, the cost of a new nuclear power plant would typically be in the range £1-2 billion, and such projects—whilst not commonplace—are by no means unique in the energy infrastructure sector. Oil platforms, pipelines and LNG facilities could all cost substantially more.

Investors however recognise two major areas of risk in a potential nuclear plant project, which present real obstacles to prospects for making a suitable return on the investment, and therefore to prospects for such investment being deemed feasible. The first is in respect of planning and regulatory approvals, where the current framework provides little confidence on the predictability of decision-making timescales.

However other power plant projects face many of the same hurdles. Major fossil fuel generating plants often face long delays at the planning stage, and planning difficulties represent one of the major reasons why renewable energy progress has been less dramatic than anticipated. For these reasons, the electricity market has seen little investment in anything other than renewables over the past few years, and the attractiveness of renewables has been largely due to the revenue certainty that the Renewables Obligation provides.

The second area of perceived risk for investors is unique to the nuclear industry. It is in respect of waste policy, where the lack of a clear policy is essentially an uncapped liability for potential investors. This represents a significant deterrent, and will prevent investment coming forward, in spite of the confidence potential investors have in the conservative provisions they would expect to make in respect of long term waste management costs.

It should also be noted that there has been very little investment in any form of baseload generation capacity over the past few years. This is due to a combination of over-capacity in the market (following on from policies in the 1990s to encourage independent power producers), and the relatively low (perhaps unrealistically low) power prices which have prevailed as a result. Under these circumstances, it is primarily renewable projects which have received support and investment, due to the opportunity offered by the Renewables Obligation. Utilities with conventional fossil plant have preferred to "sweat" these assets (and in some cases bring "mothballed" plant back into use) rather than invest in new capacity. We are now approaching the point where capacity is once again needed in order to maintain sufficient margin, and (as noted earlier) market prices have risen sharply. As a result, there are some early signs that investment is once again starting to come forward in baseload plant projects.

How much Government financial support would be required to facilitate private sector investment in nuclear new build? How would such support be provided? How compatible is such support with liberalised energy markets?

Any firm decision to invest in a new nuclear plant will clearly be made under the prevailing market conditions (and projected future conditions) at some time several years into the future. Such a decision would depend on the detailed analysis undertaken by private sector investor(s) of the economics of the project, and on the way in which risk were to be shared between the various participants in such a project.

However, two areas where Government support is essential are already apparent—although the support needed is not financial. Government input is needed to bring confidence to the decision making timescales for the regulatory and planning approvals processes and to set a clear policy framework and implementation strategy for the management of nuclear waste.

A clear indication from Government that it welcomes a new generation of nuclear stations to replace the nuclear contribution to the UK energy mix would provide valuable confidence to investors that these issues would be effectively addressed.

With those two major barriers removed, and with some clearer indication of what the longer term market for carbon dioxide allowances (beyond 2012) might look like, it would be credible for nuclear to be delivered within the UK climate.

In terms of compatibility with competitive markets, it is right and appropriate that liberalised market frameworks are sufficiently inclusive to allow all candidate technologies to compete. Provided that the market framework also encourages delivery of the overall policy objectives, such markets can then be relied upon to deliver lowest cost solutions to achievement of these policy goals.

What impact would a major programme of investment in nuclear have on investment in renewables and energy efficiency?

Provided that nuclear is not "picked" as a winner in itself, but instead is delivered by the market as the lowest cost option to balance CO2 targets and security of supply issues, there should be no conflict with incentives to support other emission reduction approaches such as renewables and energy efficiency. As noted elsewhere, we believe that nuclear is needed alongside renewables and energy efficiency in order to make the necessary savings in carbon emissions in the medium to long term. These options should not be seen simply as alternatives to one another.

However, if nuclear turns out to represent better value to the UK taxpayer in terms of how to assure delivery of policy targets than other options, then inevitably it will tend, to some extent, to displace these options in the generation mix. In that context, it is worth noting that a recent study by Oxera calculated that nuclear represented a much less costly option than renewables for the UK taxpayer in terms of delivering reductions in carbon dioxide[46]. More recently still, the Public Accounts Committee concluded[47] that:

"The Renewables Obligation is currently at least four times more expensive that the other means of reducing carbon dioxide emissions currently used in the United Kingdom"

In any event, any energy saving measures that might still be introduced by businesses and householders will be based on cost-effectiveness, not on consideration of the generation mix that delivers their supplies.

C. STRATEGIC BENEFITS

4. If nuclear new build requires Government financial support, on what basis would such support be justified? What public good(s) would it deliver?

Investment in nuclear, renewables and energy efficiency reduces our reliance on fossil fuels. A recent study[48] has suggested that this gives rise to a substantial hidden economic benefit, in addition to the supply security and environmental benefits discussed in more detail below. This arises because fossil-free investments reduce the demand for, and hence the market prices of, fossil fuels (relative to what they would be without the investment). Fossil fuel price increases have a well-documented tendency to suppress GDP—so investments in non-fossil technologies help to avoid these GDP losses, by putting downward pressure on fossil fuel prices. The study concludes that this effect creates a substantial macroeconomic benefit that is captured neither by the market nor by private investors, and that ought to be taken into account in societal valuation of non-fossil technologies. It estimates in particular that the offset for nuclear is worth almost $800 per kilowatt of installed capacity. This would equate to a benefit of close to £500 million for a single modern nuclear power station, which would typically have a capacity of 1GW or above.

To what extent and over what timeframe would nuclear new build reduce carbon emissions?

The contribution made by nuclear new build would depend on the scale and timeframe of any new build programme. The contribution would also depend on what assumptions are made regarding what type of generation is being displaced by the nuclear generation.

An illustration of what could be achieved is shown in the graph below. This assumes 10 new 1 GWe nuclear power stations are built on a timetable of one new power station per year, with each station operating for 60 years. It has been assumed that the nuclear power stations will displace gas-fired generation, with emissions of 0.4 MtCO2/TWh.

At their peak, for 50 years, these plant would generate 79 TWh annually, avoiding the emission of over 31 MtCO2 each year. Over the entire 70 years period shown in the chart, these nuclear stations would avoid the emission of nearly 1.9 billion tonnes of carbon dioxide.

In comparison total UK carbon dioxide emissions for 2004 (including those from industry, transport and domestic use of gas, etc) were around 580 million tonnes.

Yet, as noted earlier, today we see emission levels rising, when we need to be making cuts. To put the scale of the challenge into context in percentage terms—the UK has a target of cutting carbon dioxide levels to 20% below 1990 levels by 2010. Yet—with just six years to go, in 2004 the reduction in emissions had only reached 4.2%, so more than three quarters of the savings still need to be made. Indeed emission have risen in each of the last two years, and are now higher than at any time since 1996, as illustrated in the following chart[49]. It is clear that additional low carbon generation sources are needed.

To what extent would nuclear new build contribute to security of supply (ie keeping the lights on)?

Firstly, faced with a future electricity mix dominated by gas and renewables, anything else—including nuclear—contributes to increased diversity, which must of itself be helpful in reducing risk. Without new stations, nuclear will be providing just 3% of UK electricity in under 20 years time, compared with around 20% today.

Diversity is also important when considering the potential for simultaneous closure of a whole fleet of generating capacity for some "common mode" reason, for instance a technical or political issue. Having a balanced mix means that the overall system is much more resilient to such an event than if generation were to be dominated by a single fuel type. Although such a move cannot be explicitly ruled out for nuclear generation, it is worth remembering that use of a standardised international design, with a recognised pedigree built on many years of operational experience of the key components ands systems, makes such an event much less likely.

Reliable baseload generation is a key feature of nuclear energy—nuclear stations operate round the clock, day in and day out, irrespective of weather conditions. Apart from a periodic and predictable maintenance shutdown, the stations operate continuously at full power, providing the kind of baseload power a leading 21 century economy demands.

Modern nuclear power stations need to be re-fuelled only at infrequent intervals, typically every 12 to 18 months. Even if a refuelling could not take place as scheduled, the reactor could continue to operate for several months, albeit that the maximum power output would slowly decline. Considerations of fuel availability are therefore very different for a nuclear station than for a coal or gas-fired station, where a continuous supply of new fuel is required in order to generate electricity.

Furthermore, it is highly credible to retain strategic long-term stocks of nuclear fuel, just in case there ever were to be any sustained disruption to supply. The fabricated fuel to supply a fleet of 10 new reactors (enough to supply 20% of UK electricity needs) for a year would occupy only around 100 cubic metres. This fuel could therefore be stored in a building no larger than a very modestly-sized house.

Nevertheless it is still sensible to consider the availability of uranium supplies and to ask whether this represents a realistic risk of interruption that might lead to loss of power production.

The UK government has categorised nuclear energy as effectively an indigenous source of electricity for the UK[50]. Some of the reasons for this are as follows.

Uranium is ubiquitous on the Earth, indeed it is approximately as common as tin or zinc[51]. Uranium ores are found in plentiful quantities in many countries. In particular, Australia and Canada are both major exporters, as well as both having long histories of political stability. Additional reserves are known to exist in Kazakhstan, South Africa, Namibia and Russia. Independent assessment[52] puts the scale of conventional uranium resources which are recoverable for less than $130 per kg (a level which would have little impact on overall nuclear generation costs) at around 11 million tonnes. This is enough to last for around 170 years at current consumption rates (much longer than the corresponding figures for oil and gas). Looking at it another way, this would be enough to provide a lifetime's fuel for all of today's nuclear reactors worldwide, plus all those which might be built as far ahead as 2050, even in a scenario where world nuclear capacity were to triple to 1200 GW by that date.

Uranium ore is imported to the UK and other countries, where it is refined, enriched and converted into finished fuel. The transport of uranium ore does not require specialised ships or import facilities.

The diversity of source countries, the fact that several of these nations have long and stable political histories, the excellent track record of supply reliability, and the fact that there are few infrastructure considerations means that sufficient supplies of uranium to the UK can be considered to be assured.

The quantities of fuel involved for a nuclear plant are much lower than for fossil-fuelled stations. Whilst a coal-fired power station might consume several million tonnes of coal in a year, a modern 1 GW nuclear station will typically require a few tens of tonnes of fabricated fuel for each re-fuelling operation. As noted earlier, this might only take place every 12 or 18 months.

Finally, again as noted earlier, nuclear energy also provides valuable cost stability, as well as supply reliability. This is because the cost of raw uranium ore accounts for only 5-10% of the overall generating cost of electricity from nuclear stations, whereas the cost of gas-fired generation is dominated by the cost of the gas (which accounts for 60% or more of the full generating cost). Increases in global market prices for fuel therefore have a much greater impact on the costs of gas-fired generation than they do on the costs of power from nuclear.

Is nuclear new build compatible with the Government's aims on security and terrorism both within the UK and worldwide?

In today's society there is a wide range of potential terrorist targets and it is important that the Government and organisations alike consider the possible threats, consequences and contingency plans that may prove necessary. The potential targets include many aspects of the nation's activities on which we depend for everyday life to proceed as normal. These therefore include—amongst others—public transport systems, iconic and political targets, and components of the infrastructure that provide important services to the public and industry. This includes the energy and utility industries, in the form of fuel import facilities, pipelines, storage facilities, power stations and transmission systems and in this context, it is appropriate to consider the physical security of nuclear power stations, as one component of the national security assessment.

Government aims to ensure the security of nuclear material, nuclear licensed sites, sensitive nuclear information and those working in the industry. These objectives are overseen by the government's security regulator Office for Civil Nuclear Security. The Director makes an annual report to the Minister on these matters. In his 2005 report[53], the Director continues to affirm confidence in the security provisions of the nuclear industry and that the security measures applied are proportionate to the threats faced.

Nuclear power stations are designed to be amongst the most robust civil structures in the world—primarily in order to assure resilience against earthquakes, and to ensure that the materials contained within are unable to escape in the event of abnormal operation. This robustness also serves as strong protection against external impact (malicious or otherwise), and in addition stations have a multi-layered defence against possible terrorist attacks. They are also subject to rigorous security arrangements that include security vetting of all staff and contractors, identity management and access control. As a result, their potential vulnerability to terrorist or other malicious threats is minimised.

Modern reactors are built with massive reinforced concrete shields and are designed to safely withstand extreme events, both natural and manmade. Their structural resilience to earthquakes and the thickness of the shielding make them extremely robust against possible attack, for instance by hijacked passenger aircraft. Detailed analysis has shown that penetration of the radioactive core by an aircraft under such circumstances would not take place.

In addition to their physical robustness, modern nuclear reactors are protected by extensive safety systems. The extent and number of these systems is such that several systems would need to be damaged, and no action taken by operators or emergency responders, before a significant release of radioactivity to the environment might occur. The design is such that it would be difficult to defeat or damage enough of the systems to bring about a major release of radioactivity. Emergency arrangements are in place to immediately shutdown reactors in the event of a heightened terrorist threat against them. These arrangements are regularly tested.

5. In respect of these issues [Q 4], how does the nuclear option compare with a major programme of investment in renewables, microgeneration, and energy efficiency? How compatible are the various options with each other and with the strategy set out in the Energy White Paper?

There is no more obvious win/win/win generation option than nuclear when looking at reducing carbon dioxide emissions, and improving reliability of supply and electricity affordability, when the scale of the benefits in each area is also considered. Cost effective energy efficiency measures represent the only other approach which can make simultaneous advances in the achievement of all three of these objectives. Yet, as discussed earlier, energy efficiency is unlikely to eliminate the need for new capacity on the GW scale, whereas this is the scale of clean, reliable and affordable supply which nuclear energy can offer.

Likewise there is no conflict with the 2003 Energy White Paper strategy in having a substantial nuclear programme within the future generation mix. Indeed we currently have around 20% nuclear, and many of the other options are being promoted to sit alongside this capacity. A balanced mix of technologies represents a perfectly self-compatible approach and is also compatible with the White Paper strategy. The White Paper was clear that the nuclear option remained open, and recognised the low-carbon benefits of nuclear, therefore nuclear is able to play a role in such a balanced mix, alongside other technologies.

D. OTHER ISSUES

6. How carbon-free is nuclear energy? What level of carbon emissions would be associated with (a) construction and (b) operation of a new nuclear power station? How carbon-intensive is the mining and processing of uranium ore?

Nuclear energy is a very low carbon form of generation. Its lifecycle emissions per kilowatt-hour are similar to those from renewable generation. This is the case even when emissions across the full lifecycle of the nuclear industry are considered.

A comprehensive IAEA study[54] shows both direct and indirect emissions for different generation sources. This concluded that even the "high" end of the range of emissions for nuclear energy is still almost a factor of 20 lower than the best fossil fuelled plant (latest gas-fired technology) and a factor of over 60 lower than older, coal-fired technology. The "low" end of the nuclear range (representative of more modern technology) shows a further improvement by more than a factor of two on even this performance. This assessment takes account of the emissions associated with all aspects of the nuclear cycle globally—including the construction, operation and decommissioning of nuclear power stations, as well as the uranium mining and enrichment, and the manufacture and spent fuel treatment of nuclear fuel.

A significant contribution to the emissions from nuclear power generation is in the carbon content of the energy used in the different processes of the fuel cycle. This is one reason why emissions vary from site to site. For example, the enrichment process is energy intensive (particularly if diffusion technology is used as opposed to centrifuge enrichment). In the US electricity from coal-fired stations is used to power the enrichment plant, whereas in France the electricity used comes from nuclear power plants. Consequently, the lifecycle emissions of nuclear power plants using uranium enriched in France are lower than those from plants using fuel enriched in the US.

The results of this study and two others into the lifecycle emissions of different forms of generation are summarised below. These results show that emissions for nuclear, wind and hydropower are much lower than those of fossil fuels.

Lifecycle Emissions gCO2/kWh

Nuclear Wind Hydro Gas Coal

IAEA[55] 9-21 10-48 4-236 439-688 866-1306

International Journal of Risk Assessment & Management[56] 8.9 15 16 Fossil fuels: 500-1200

Vattenfall[57] 3 10 5 409 696

The Vattenfall study includes a typical breakdown of emissions for the different stages of the nuclear fuel cycle, shown below.

Stage of Nuclear Fuel Cycle Emissions
gCO2/kWh

Extraction/leaching (mining) 1.1

Conversion 0.2

Enrichment 0.1

Fuel Fabrication 0.2

Operation of Nuclear Power Plant (NPP) 0.2

Building & Decommissioning of NPP 0.6

Waste Facility Operation 0.4

Build/Decommissioning of Waste Plant 0.1

7. Should nuclear new build be conditional on the development of scientifically and publicly acceptable solutions to the problems of managing nuclear waste, as recommended in 2000 by the RCEP?

The importance of nuclear waste management, and the need for scientific, political and public acceptance in respect of this issue, should not be underestimated. A key factor in securing such acceptance for any future nuclear build programme in the UK must be confidence in the arrangements for the management of spend fuel and wastes, and for reactor decommissioning. The absence of disposal routes for higher activity radioactive wastes in the UK is often cited as a barrier to such a programme. However, within the nuclear industry waste management and decommissioning have been carried out for over half a century in a safe and effective manner.

Renewed confidence in this respect comes from Sir Anthony Cleaver, Chairman of the Nuclear Decommissioning Authority, who said in a recent radio interview:

"I think one of the first things anybody says when people talk about a new generation is "do we know how to deal with the legacy, do we understand what we're doing with waste?" I think anybody who looks at this [NDA] strategy will see that we really do have a coherent approach to it; we know how to handle it and we have sensible plans that we can execute"

The argument that there should be no new nuclear build in the UK until the waste disposal issue had been "solved" originates from the RCEP report of 1976, under the Chairmanship of Lord Flowers. That report58 concluded:

"There should be no commitment to a large programme of nuclear fission power until it has been demonstrated beyond reasonable doubt that a method exists to ensure the safe containment of long-lived highly radioactive waste for the indefinite future".

Recently however59 Lord Flowers himself has concluded that such a requirement has been achieved, and therefore is no longer an obstacle to new nuclear build:

". . . a method to ensure safe disposal for the indefinite future—namely, underground storage—has been demonstrated beyond reasonable doubt in other countries, especially Finland."

It is also important to recognise the scale of the waste issue as it relates to potential new nuclear capacity. If, for instance, the UK were to build a fleet of 10 modern reactors of around 1GW each (such as the AP1000) and operate these for their full design lifetime of 60 years, the additional waste produced would occupy less than 10% of the volume occupied by wastes already in existence, and being safely managed. A new fleet of power stations on this scale would be sufficient to maintain the UK's share of nuclear generation at 20 to 25% over this period.

In terms of identification of a final route for waste disposal, there is an ongoing process within the UK to recommend and adopt the most appropriate solution to the long-term management of such wastes. This Committee on Radioactive Waste Management (CoRWM) is scheduled to make recommendations to Government in 2006, from a short-list of identified options. Given the depth and quality of the work done to date by CoRWM, and the resulting confidence that it will report as scheduled, it would be appropriate to take steps now on the basis that a solution will have been identified and adopted by the time a final decision comes to be made regarding investment in any future nuclear power plant. If for any reason, this turns out not to be the case, then no firm commitment to build a new plant will be in place, and so the situation can be reassessed at that point.

In summary, taking early steps to encourage new nuclear capacity in the UK should not be contingent on further progress being made on the waste issue.

23 September 2005

58 "Nuclear Power and the Environment"; Royal Commission on Environmental Pollution—Sixth Report (Chairman Sir Brian Flowers—as he then was); 1976.

59 Hansard; 12 January 2005; Column 331.

14 "The Heren Report"; Data: 1 April 2004-24.4 p/therm, 14 September 2005-54.4 p/therm. Back

15 Adapted from "Second Annual Report on the Implementation of the Energy White Paper"; DTI/DEFRA; July 2005. Back

16 Digest of UK Energy Statistics (DUKES)-Table 5.5; DTI; 2005. Back

17 "Budget 2004 and Energy"; Environmental Audit Committee, HC 490; August 2004. Back

18 "The long lead times for commissioning new generating capacity mean that the Department [DTI] now needs to decide urgently which forms of generation to support and in what ways." from "Department of Trade and Industry: Renewable Energy"; House of Commons Committee of Public Accounts HC 413; September 2005. Back

19 "Secretary Of State's First Report To Parliament On Security Of Gas And Electricity Supply In Great Britain"; DTI; July 2005. Back

20 British Wind Energy Association website; http://www.britishwindenergy.co.uk/ukwed/planning.asp Back

21 "Projected costs of generating electricity, 2005 update"; International Energy Agency; 2005. Back

22 "Projected Costs of Generating Electricity"; OECD/NEA/IEA; 2005 [Data converted to sterling based on £1 = $1.65, the rate used in the OECD study. Data also excludes Japan and the Netherlands, for which estimated costs differed significantly from the average.] Back