Examination of Witnesses (Questions 440-444)
MR ROBERT
ARMOUR, MR
PAUL SPENCE
AND MR
CHRIS ANASTASI
NOVEMBER 2005
Q440 Mr Chaytor: The follow-up question,
therefore, is do you believe that the effect of the internalisation
of the cost of carbon on other forms of generation will be sufficient
to avoid the need for direct public subsidy, or fiscal incentives,
for nuclear?
Mr Spence: I think the reality
of the position today is that we see, with the Emission Trading
Scheme, as Chris said, a very successful first step but it does
not provide a long-term signal of the price of carbon or the targets.
It runs, first stage, 2008; second stage, 2012. As we have already
discussed, the sort of technologies we are talking about today
and the sort of investments that we are talking about, whether
it is nuclear or any other, will be there over a much longer life
than that, so the question is "What comes after?"
Mr Armour: If I was building a
new conventional power station today I would be coming along and
seeking an allocation from the new-entrant reserve for credits
to allow me to run and emit carbon from a coal or a gas station
at this point in time, and I would get that as a new entrant.
Q441 Mr Chaytor: Given the timescales
involved, it is interesting that your estimates of the timescale
are more conservative than BNFL, and they are quite gung-ho about
ten years. My recollection is you have talked about 12-15 years.
If, on your assertion, the lead-in time is 12-15 years, and if
the decision is taken in 2008, we are then talking about sometime
between 2020 and 2025 before the first AP1000—
Mr Anastasi: If I can just correct
something, the memorandum actually says that to build what the
Committee asked for, which was eight nuclear power stations, would
take 12-15 years but we actually say that the first plant could
be built within ten years.
Q442 Mr Chaytor: I am sorry, that is
my misunderstanding. You agree with BNFL that 10 years is the
minimum but up to 15 years for a fleet?
Mr Anastasi: That is right.
Mr Armour: If you look at the
French programme in the mid-80s where they built 50 GW of capacity
within a decade, if there is the willpower it is possible to do
it. The other thing worth thinking about is that the decisions
we make now or in ten years' time are going to determine the plants
that allow us to fulfil or not fulfil the Government's aspirations,
not just in 2020 but in 2060. If we are actually going to have
a carbon reduction of 50/60% in 2060 it is difficult to see how
we can do that without a nuclear component making a substantial
contribution.
Q443 Mr Chaytor: My question is, I suppose,
given these huge timescales and given that, again, according to
an earlier witness, by 2030 we may be having a fourth generation,
is it likely that City investors are going to be able to make
a judgment as to the likely rate of return in 2025? Who knows
what the circumstances are going to be in 2025? Almost as soon
as the full fleet of AP1000s, or whatever, is up and running the
fourth generation ones will be coming; they will be obsolete almost
as soon as they are commissioned. Is it possible to make financial
judgments over these long time-spans? What do you think a reasonable
rate of return ought to be for someone thinking of investing in
a new fleet of nuclear power stations?
Mr Spence: If I can take the first
part of that, that is an investment challenge that faces not just
the nuclear industry or the generation industry in total; it faces
all capital intensive industries about forming a view about what
is going to happen in the intermediate future. We are all talking
about things that are very long-lived assets. The way the market
does that at the moment is by pricing some of that into the rate
of return that it seeks to achieve.
Mr Chaytor: In most industries the risks
are measurable, are they not? In your industry the risks cannot
be measured because we do not yet know what the cost of waste
disposal is.
Q444 Chairman: It is horrible to leave
it hanging in the air. Have you got a two-sentence answer?
Mr Spence: Let me have a go at
a two-sentence answer, which is that we believe, as I think the
previous witness said, that the costs of waste streams are conservatively
allowed for in the generation estimates that are provided. There
is a degree of uncertainty but it is not material—
Chairman: It is not just the waste stream,
though, that creates this uncertainty; there are a whole lot of
other factors—which we will have to pursue with you in writing
since I rather suspect this is a division quite a lot of us would
not want to miss. Thank you very much indeed.
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