Select Committee on Environmental Audit Written Evidence

Memorandum submitted by the Institution of Mechanical Engineers


  This response has been prepared by the Institution of Mechanical Engineers (IMechE) on behalf of its membership, comprising over 75,000 professional engineers, of which over 15,000 have a specific interest in the electricity/power sector.

  The views expressed have been collated from IMechE members in senior management positions in companies and utilities operating in the field, academics, and experts in all aspects of renewables, fossil and nuclear power generation. It is therefore hoped that this response is balanced and does not unduly favour one type of power generation technology over the rest.

  Hard challenges are facing the power sector:

    1.  Growth in electricity generated from renewable sources has been slow and will be unable to offset planned retirement of coal-fired and nuclear stations.

    2.  The country has now become a net importer of oil and gas, this endangers security of supplies and exposes consumers to world price volatility.

    3.  Dependence on coal and gas is contributing to overall CO2 emissions growing at 1-2% a year.

  The development of new nuclear generation is therefore important to minimise CO2 emissions and reduce reliance on gas, however, such development should not be at the detriment of renewable or clean coal power generation. All these technologies together have an important role to play in providing fuel diversification and minimising environmental emissions.

  The IMechE strongly supports a balanced approach to the development of new power generation in the UK, recommending the use of renewable, fossil and nuclear sources to a point where the country is not overly reliant on any one option. The resulting mix of generating technologies will minimise technical, fuel supply and financial risks, while retaining competitive electricity prices.


  Increased in consumption and retirement of both existing coal and nuclear plants will result in an estimated shortfall in generation of approximately 120TWh per year, by 2015. The expected decrease in nuclear capacity is shown in the graph below:

  Theoretically there are sufficient renewable resources to provide the UK energy needs, although this may not be the most cost-effective or publicly-acceptable solution. Economic, technical, planning and social factors have constrained the growth of renewable energy, micro generation and energy saving measures to date; it is therefore highly unlikely that these sources, on their own, will be able to meet future shortfalls in generation, for the period under review.

  Even with renewables developed to the fullest practical extent, there will remain a significant need for additional nuclear, gas and clean coal generation. Such a generation mix will minimise over-dependence on a particular technology (and therefore fuel) and would serve the best interests of the UK.


  Independent reports indicate that nuclear electricity is price competitive with gas and clean coal technologies. However it should be noted that the assumptions used to derive costs for nuclear, fossil and renewable generation, are a hotly debated subject, and the findings of such reports should be treated with caution.

  Published costs estimates for nuclear plants are considered realistic and cost overruns are less likely than in the past, as construction contracts will be based on fixed prices with performance penalties, thus shifting construction risks from plant owners to contractors.

  There is sufficient experience to quantify decommissioning and waste disposal costs, however, Government policy on waste management will determine the final cost of waste disposal. Investors will require such costs to be clarified before committing any investment. The introduction of legal requirements for future operators to create financial reserves (based on conservative estimates) to finance these activities is recommended.


  Current estimates indicate that the economics of new nuclear plants are robust and will not require financial support from Government.

  Given the past regulatory UK track record, financiers are nervous to fund additional power infrastructure and nuclear in particular. There is a need for Government to create a stable regulatory and planning environment for the electricity sector, to attract investment and, with regards to nuclear, may in addition be required to underwrite part of the risks associated with construction, insurance and waste disposal of nuclear plants.

  If the financial community were to regain its past confidence in the sector, and if investment opportunities were structured in such a way as to allocate risks to those parties capable of managing them, then there should be sufficient funds to finance fossil, renewable and nuclear projects.


  It is estimated that the first new nuclear plant will not be operational before the middle of the next decade, with almost a further decade to complete the replacement of existing nuclear facilities. Electricity production lost from retiring plants will be partly replaced by renewables, but predominantly by additional gas or clean coal plants. This will therefore result in an increase in CO2 emissions in the short term, followed by a stabilisation in emissions once the nuclear program is underway. Any delays in commencing nuclear construction will result in a further net increase in CO2 emissions from the UK's power generation capacity.

  Nuclear can also contribute to security of supply by providing fuel diversification without over-dependence on gas and by moderating electricity prices volatility.

  Terrorism will remain a concern. This risk is manageable and it is not unique to nuclear plants. The transmission grid is considered to be far more vulnerable.


  Investments in the development of a nuclear program, renewables and clean coal technologies are not incompatible; on the contrary they are complementary and necessary to ensure a diversified generation mix thus ensuring security of supply.


  Quoted CO2 emissions from nuclear plants (including fuel production and reprocessing, construction, operation and decommissioning) are approximately 5 grams of CO2 per kWh for Torness in the UK, and 3.3 grams of CO2 per kWh for Vattenfall PWR in Finland; these figures are similar to emissions produced from renewable sources and considerably less than for fossil plants. The graph below shows CO2 emissions for different technologies.


  Scientifically acceptable solutions to deal with nuclear waste are already available, but it is important to reach public consensus on the approach to be adopted for the UK. The public needs to be engaged to address their concerns through the provision of facts, figures and credible arguments. In addition it is possible that financial institutions will be unwilling to provide finances if their participation in the proposed nuclear program would result in adverse publicity.

  Licensing of new nuclear plants will most likely be required before these issues have been completely resolved. Delays in licensing will threaten the security of supply, potentially de-stabilise energy prices and lead to increased CO2 emissions.

  Finally it is worth noting that replacing all the current UK nuclear capacity with reactors would add, over their lifetime, less than 10% by volume to the UK's nuclear waste inventory.


  The Institution of Mechanical Engineers (IMechE) is a professional body representing over 75,000 professional engineers in the UK and overseas. Of these, over 15,000 have a specific interest in the electricity/power sector.

  Our membership is involved in all aspects of power generation using fossil fuels, renewable sources and nuclear, therefore it is hoped that our response will be balanced and will not unduly favour one type of power generation technology over the rest.

  The IMechE strongly supports a balanced approach to the development of new power generation in the UK, thus recommending the use of renewable, clean fossil and nuclear sources to a point where the country is not overly reliant on any one option. Such a "portfolio" approach will minimise technical, fuel, environmental and financial risks, while retaining competitive electricity prices.

  The remainder of this response is dedicated to answering the specific questions asked by the Select Committee. Any issues requiring a more detailed analysis, are covered in appendices.

  In addition, it is worth noting that the IMechE published a response to the Energy White Paper. Much of the response is relevant to this inquiry. The text can be found at


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 recent defence of the reserve margin, made by the National Grid Company last winter suggests that there is no immediate problem, and the fact that generation was able to meet peak demand during the relatively mild winter of 2004-05 provides limited evidence that their assessments were accurate. However, demand is rising year-on-year, at a greater rate than energy-saving initiatives are able to reduce consumption. Without new plant being brought into service, the only way in which this demand can be satisfied, is by reducing margins. This is not sustainable, requiring only a period of severe weather before power cut measures become necessary.

  Severe weather in winter often results in increased gas consumption, that is co-incident with an increased demand for power. The consequence is that many utility companies with both power and gas businesses have to make a commercial choice between selling gas and producing power. This can result in some gas fired plants being turned down or off, because it is commercially to the utilities' advantage to do so, as they are responding to the power and gas markets pricing signals.

  In addition lead times for the construction of power plants is at least four years and there are uncertainties regarding the ability of the market to respond in a timely manner to supply and demand signals. There is thus the potential for a short-term generation gap.

  In the medium term, existing coal power stations are life-limited by a number of factors:

    1.  The age of existing plants.

    2.  The Large Combustion Plant Directive, reducing coal-fired plant capacity and/or limiting operating hours. However 15 GW of coal fired plant are or will be fitted with FGD/LoNOx and therefore available beyond 2015.

    3.  The EU Emissions Trading Scheme, raising costs and limiting emissions and therefore generation.

    4.  The likelihood of even tighter emissions controls in the future (eg Mercury, which is becoming an important issue in the USA).

  Unless there is a substantial improvement in incentives for micro-generation, it is not expected that this technology will be able to contribute in a meaningful way to energy production, and without similar incentives for energy efficiency measures, electricity demand will continue growing (recent historical data shows a 1.5% increase per year).

  The life of the Magnox stations will not be extended, with the last plant at Wylfa due to close in 2010. The majority of the AGRs are scheduled to shutdown by 2015. The lives of most AGRs have been extended and it is not clear at this time that further substantial life extensions will be possible. By 2015 nuclear plant closures will reduce nuclear generation capacity from the current level of 12,000 MW to less than 4,000 MW, see graph below:

  While it is hoped that the current regulatory framework will enable renewable sources to contribute 15% of electricity production by 2015, the present rate of growth is too slow to meet this target, and the renewable contribution to overall electricity production will be insufficient to meet forecast shortfalls in generation.

  The graph below (produced by the DTI) indicates a need for 120TWh per year of additional electricity production by 2015. This equates to 18-27GW of additional capacity, depending on type of plant and load factor assumptions.

  It is unlikely that any single technology on its own will be able to fulfil the forecast shortfall in generation. Over-dependence on a particular technology (and therefore fuel) would not serve the best interests of the UK.


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?

  It is almost impossible to answer this question with great accuracy and there is a high level of debate within the industry regarding published figures.

  Historically many cost comparisons were based solely on construction and operating costs, but there is now a realisation that other factors have a significant impact. Some of these factors are listed below:

    1.  Method of financing: off or on-balance sheet will significantly affect the cost of capital for the project.

    2.  Financial charges: level of gearing, interest rates and loan duration will change depending on the financial community's perception of construction, technological and operational risks.

    3.  Project required rate of return will change depending on the level of risks perceived by investors.

    4.  Additional infrastructure required such as: grid connections, grid reinforcements, additional roads, gas pipelines and railway lines.

    5.  Avoided cost with embedded generation for additional transmission lines.

    6.  Plant and local issues such as cooling systems, transmission charges and local taxation.

    7.  Estimates of future fuel prices.

    8.  Plant reliability and availability.

    9.  Development costs and timescales associated with bringing the project to the point of construction.

    10.  Back-up for intermittency (if appropriate).

    11.  Costs of carbon emissions trading or carbon capture and CO2 storage.

    12.  Incorporation of full "end-of-life" costs, including decommissioning and "making good" the land utilised.

  Many people are now advocating a true "whole life cycle" (or "cradle-to-grave") analysis for each of the generating technologies, only then can a true cost comparison be made. In sustainability terms (economic, environmental & societal), to consider only construction and operating costs is not considered adequate. Until the market (rather than society) is forced to pay for these additional costs, it will continue to only react to the known costs including regulatory and fiscal. In addition countries and utilities look at a portfolio of plants rather the costs of any technology in isolation, since a portfolio approach will decrease risk.

  Notwithstanding the above, recent published studies demonstrate that nuclear power will generate electricity at a cost comparable with gas or clean coal (fuel costs assumptions for gas and coal greatly impact this analysis). These studies focus primarily on construction and operating costs and, depending on the study, take into consideration some of the factors listed above, therefore the findings of these studies should be treated with considerable caution.

  On the subject of costs, Annex 1 provides a list of recent studies, while Annex 2 provides a critical appraisal of recent reports, as well as a summary of construction and operational costs for different types of plants, as required by the Select Committee.

  With regards to the construction period, the major issues to be considered are:

    1.  Availability of materials; for example delivery times of eight months for certain steels is now commonplace.

    2.  Ability to pre-order major components such as gas turbines.

    3.  Development period required to bring a project from the drawing board to start of construction. This is the principal area of uncertainty and this timeframe is highly dependant on planning and permitting.

  Bearing these issues in mind, the table below provides an estimate of timescales for:

    1.  Project Development: starting from project inception to a firm commitment to build (including all regulatory and planning approvals).

    2.  Construction: starting from the end of the Project Development phase to the production of the first unit of commercial electricity (including detailed, site-specific design, construction and commissioning).

Plant typeProject development ConstructionTotal
MonthsMonths Months
800 MW CCGT24-36 24-3048-66
900 MW coal (with FGD)24-36 30-3654-72
800 MW IGCC36-4830-40 66-88
1,000 MW nuclear PWR55-65 50-60105-125
20 MW wind onshore24-36 1236-48
100 MW wind offshore30-42 18-2448-66

CCGT        = Closed Cycle Gas Turbines
FDG        = Flue Gas Desulphurisation
IGCC        = Integrated Gasification Combined Cycle
PWR        = Pressurised Water Reactor
Note that a reduction in project development timescales may be possible for nuclear and IGCC units following successful approval of the "first of a kind" plant. Though for the former a clear planning and regulatory framework is required.


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? 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?

  The UK track record in the construction of nuclear plants is no longer a yardstick to forecast the future. Previous practices were based on cost-reimbursable construction contracts managed by the CEGB, where the designs often changed as the construction progressed, resulting in cost and time overruns. The current deregulated UK electricity market means that any future plants will be funded largely by the private sector, based on commercial firm price contracts with penalties for non performance, from established international vendors where the design will be fixed before construction starts. Worldwide experience (France, China and Finland) has shown that this strategy produces plants that operate safely and reliably with predictable construction and operating costs.

  Nuclear fuel accounts for 5% of the overall cost of the electricity produced in nuclear power plants, therefore any change in fuel prices have little impact on the overall cost of electricity. Notwithstanding the fact that market prices for nuclear ore have trebled over the last two years, fuel costs are still considered stable compared with natural gas.

  Experts in the field believe that the costs of decommissioning, waste disposal and security are all reasonably understood and conservative provisions for all these activities should be built into the cost projections for new nuclear plants. New plant operators should establish a fund to finance decommissioning and waste disposal, built-up from a proportion of operating revenues, this approach has been adopted in other countries. The creation of financial reserves for decommissioning and waste disposal should be made a legal requirement on all nuclear plant owners.

  Insurance of nuclear facilities is understood, as long as current arrangements continue the insurance of new facilities should be no different from the current facilities.

  Government policy on waste management and the allotment of costs for disposal of existing and newly generated waste will determine the final cost of waste disposal. Investors will require Government policy for nuclear power and its waste management together with the associated costs to be clarified before committing significant investment.


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?

  It has been demonstrated that, in theory, there are sufficient renewable resources to provide the UK energy needs, although this may not be the most cost-effective or publicly-acceptable solution to meeting the energy needs of the nation. The growth of renewable energy to date has been constrained largely by:

  1. Cumbersome planning/permitting procedures.

  2. Economic constraints.

  3. Visual-impact considerations, as well as a "not in my back yard" culture.

  4. Long lead times in the power industry.

  It is not yet clear how much these factors will change in future, it is therefore considered unlikely that renewable sources will be able to supply sufficient electricity to fill the gap created by plant closures and increases in demand, for the period under review.

  From a technical and commercial viewpoint, power generation from hydro-electric, tidal barrages, biomass, waste combustion (using conventional boiler technologies) and landfill gas recovery is very well-proven. Among the newer technologies, only onshore wind and photovoltaics have truly passed the demonstration phase and are now mature technologies exploited commercially. Many other renewable technologies (wave, tidal, marine current, solar Rankine cycles and offshore wind) are at different stages of development and will require time to become commercially viable. Offshore wind technology has now almost reached maturity and is expected to make a significant contribution to meeting Government renewable targets over the next 10 years. It should also be noted that well-proven, non-generating, renewable technologies, such as solar thermal, air, aquifer and ground-source heat pumps, as well as "passive" solar buildings, can significantly reduce the amount of natural gas required for domestic heating.

  Government funding has provided a stimulus in academic research to help exploit some of the renewable energy sources mentioned above, although little support has been provided at the demonstration and implementation stage of renewables and other low carbon technologies. Funding in this area could significantly reduce the long lead times in the industry to bring technologies to the commercial stage and support potential exports.

  A limiting factor to all generating technologies based on large-scale centralised plant, is that a power transmission grid infrastructure is required. As most renewable generation is from relatively small-scale, de-centralised plants, embedded within the distribution grid, this problem is largely alleviated, although other problems are created and are currently being addressed. This problem will however remain as long as power generation remains located remote from consumption, as is sometimes the case for wind power.

  From a regulatory viewpoint, the Renewable Obligation Certificates ("ROCs") system appears to have provided a necessary stimulus to develop renewable generation and needs to be extended to certain other areas to ensure that Government's sustainability and emissions targets are achieved. However, the market discontinuities should the ROC quota ever be achieved (they become worthless) does need to be considered when setting targets.

  The financial incentives supplied by ROCs are expensive, although one could foresee a reduction in subsidies in the future as technologies mature and the true cost of carbon emissions become apparent.

  Support for early stage of technology adoption, upgrading of the grid and streamlining of the permitting process, as well as public re-education programs, are the areas that will provide the greatest stimulus to the growth of the renewable sector. Furthermore efforts to develop viable energy-efficiency measures will maximise the effectiveness of renewable power generation and minimise the impact of alternatives.

  In any event the choice is not between nuclear and renewables technologies, but rather to minimise the effect of ageing fossil-fired plants, so that any additional growth in renewables beyond current forecasts, can be used to cover the shortfall left by retiring fossil fired plant.


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?

  As for generation costs, defining plant efficiencies is complex and open to debate. In addition efficiencies are only an important comparator where fuel costs are a high percentage of total costs. For nuclear plants, where fuel costs are low, or for many renewable technologies where the "fuel" is freely available, efficiency is not relevant. A better parameter to evaluate different types of plants is on their lifetime costs.

  Notwithstanding the above, the table below provides indicative efficiencies for different types of new large scale generation plant, where efficiency is defined as the ratio of output energy over input energy.

Type of new plant Plant efficiency (LHV) Low Heating Value
500 MW CCGT57%-60%
900 MW coal (with FGD)44%-50%
800 MW IGCC42%-50%
1,000 MW PWR33%-35%

  With regards to micro generation:

    1.  Micro-wind typically consists of 1-2kW devices for use typically rated at 12m/s wind speed.

    2.  Photovoltaic in the UK has a typical load factor of around 8% and produces around 750kWh/kWp/year.

    3.  Micro-CHP units are available up to 6kW in size, but a typical domestic unit will be 1-2kW.

  Despite its size, micro-generation has several advantages:

    1.  It can make a significant contribution to an individual building's energy requirement.

    2.  When aggregated across the country's building stock, it would make a large contribution to energy requirements.

    3.  It serves as a potentially useful form of generation to help manage peak load periods, thus reducing the overall large-scale generating capacity required.

    4.  It helps provide diversity of supply and

    5.  It promotes customer engagement which helps to focus customers on their energy usage.

  To date market penetration of micro-generation has been very slow and a large uptake from households will be required to make any contribution to UK generation. Under the current capital grant schemes, micro-generation will not have an impact on the planning of new large-scale generating capacity.

  If the Government were keen to support micro-generation, it would have to consider:

    1.  More attractive grant schemes.

    2.  Availability of "two-way metering" systems for the measurement of power used and power produced.

    3.  Exploiting the DIY/house owning culture in the UK, which will install generation and heating schemes for prestige as well as economy.

  Funding for any of the initiatives proposed above should not be at the expense of developing carbon abatement and renewable technologies.


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?

  Investment decisions by banks, utilities, investors and insurance companies will depend on the perceived balance between risks and financial returns compared not only with similar investments in the electricity sector but also with investments in other sectors of the economy.

  Investors in the power generation sector (nuclear, fossil and renewable plants) will closely analyse the following:

    1.  Market structure and its regulation, to ensure that the investment will provide adequate, predictable and stable cash flow over its lifetime.

    2.  Ability of the plant to repay its debt even under adverse market conditions, and associated level of financial guarantees provided by equity holders/government at different stages of the plant life (construction, operation and de-commissioning).

    3.  Political and regulatory risk. Many organisations consider this to be highly relevant given the recent track record of insolvencies in the sector resulting from regulatory changes.

    4.  Potential environmental liabilities in the event of an accident or at the decommissioning stage.

    5.  Structure of the investment, to ensure that each stakeholder only bears those risks and liabilities that it is capable of managing both from an operational and financial standpoint.

  In comparing the perceived risks associated with nuclear and CCGT plants, there are several differences that do not "favour" nuclear:

    1.  Construction risks: costs overruns, construction delays and performance guarantees

       It is predicted that in future, nuclear and CCGT plants will use similar contract strategies for plant construction, demanding performance guarantees from contractors, thus removing most construction risks from investors. The length of the construction period (approximately five years for nuclear compared with two years for CCGTs) coupled with potential delays (and therefore cost overruns) arising from public interference on a new nuclear plant build will cause investors to exercise a higher level of scrutiny over this aspect. The present banking practices to postpone the commencement of debt repayment until start of commercial operation may also have to be revisited due to the long construction period.

    2.  Decommissioning

       Although decommissioning costs are only a small proportion of overall costs, and companies owning new nuclear facilities will make financial provisions, the risk of decommissioning cost overruns remains.

    3.  Political and regulatory risk

       This issue is particularly relevant for nuclear plants because of the long lead times providing more scope for political intervention, change of Government, etc Changes in environmental/decommissioning laws may also be a significant deterrent to investment.

    4.  Spent fuel and waste disposal costs.

    5.  Terrorist attacks on the plant or its supply chain (although other forms of power generation suffer from the same risk).

    6.  Potential for widespread public resistance (although public attitudes are changing).

    7.  Availability of construction, plant operational and environmental liability insurances.

    8.  Cash flow profile

       Because nuclear fuel costs are low, the majority of expenditure will be disbursed during the construction period, while for fossil plants fuel costs are over 50% of total expenditure and this cost can be financed from electricity sales.

  On a risk spectrum, nuclear plants are going to be perceived as more risky investments than CCGTs or other conventional fossil fuelled power plants for all the reasons discussed above.

  The perceived risks associated with renewable plants very much depend on the technology used. Onshore wind is well proven and perceived as very low risk, offshore wind, wave and tidal are considered more risky but such perception will improve as these technologies demonstrate a successful operational track record. Photo-voltaics, hydro and biomass combustion are also proven and low risk, while biomass gasification is still perceived as risky. ROCs payments for renewable energy help to provide a bankable revenue stream, thus reducing the overall investment risks in these technologies.

  It should be noted that it is impossible to discuss risks in such a generic manner. Risks should be discussed in relation to specific projects, since each project will have a unique risk profile. At the extreme, even the development of a nuclear project could be perceived as relatively low risk by investors, if all the risks are taken by other parties.

  The challenge will therefore be to structure the investment in any new nuclear build, in such a manner that the risks to investors and financial institutions are not substantially greater than present investments in other forms of generation. If this can be achieved, financial institutions will be willing to provide long term debt facilities. Recent experience in Finland could be one of the ways in which a nuclear project in the UK could be financed.

  Finally, the willingness of banks to finance a nuclear programme will also depend on public acceptance of the technology, otherwise their involvement will lead to adverse publicity and damage their retail business.


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?

  Government support can be provided in several ways:

    1.  Direct financial support.

    2.  Absorbing some of the risks that would otherwise be carried by investors.

    3.  Providing a stable environment that will ensure long term regulatory and commercial certainties.

  Current estimates indicate that the economics of new nuclear plants are robust and do not require Government support for construction and operation. However, before commercial companies decide to invest, they will require confidence that the engineering design is going to be acceptable to the regulatory bodies, primarily the NII and EA (or SEPA), and that it is likely to receive a licence to allow construction. The assessment of the potential nuclear power plant designs and their licensability is a pre-licensing activity that will need to be requested by the Government. For this activity to be perceived by the public as a truly independent assessment of the technology, it will require Government funding with minimal involvement from potential owners and vendors.

  Once the technology has been assessed as licensable, it will be up to commercial companies to seek the necessary licenses, finance construction and to put in place electricity trading contracts to assure a return on the investment. Such an approach is entirely compatible with a liberalised energy market.

  Any risks in excess of the risks currently taken by investors in funding CCGTs or projects using established renewable technologies, will have to be borne wholly or in part by government. Depending on the structure of the project, these may include certain aspects of construction, operation, insurance and decommissioning risks that can not be covered by the private sector.

  Any involvement by government, in the development/implementation of a single project, providing investors with a competitive advantage is incompatible with a liberalised energy market, particularly if government were to supply financial support/guarantees to individual private companies, even if such support were in some way "ring fenced".

  However it is the responsibility of governments to set direction, address market failures, and to put in place policies and measures that minimise, for example, the risk of power supply disruptions and to develop regulations to ensure that liberalised markets have adequate incentives to support government policies. An obvious case in point is the current government support for the renewable sector. In this respect providing clear and predictable regulatory and policy framework, to remove uncertainty for potential investors in nuclear power would not be incompatible with a liberalised energy market.


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

  With regards to the issue of capital flows, it is believed that there is sufficient liquidity in the market to finance any project in the power sector, provided that such project has been properly structured and risks have been adequately mitigated.

  Lack of liquidity would only arise if the market were to perceive the electricity sector as more risky than other industrial sectors. It is the responsibility of governments and regulators to ensure that this problem does not develop. The regulatory track record in the UK of frequent legislative changes, uncertainties with carbon emissions, combined with recent energy market price volatility, means that financial institutions will be much more cautious in future in financing any new major development in fossil generation. Financing of renewable projects on the other hand is considered an easier proposition because of the government's regulatory and financial support for the sector, the small size of each individual investment and the comparatively short lead times.

  It is considered that replacing nuclear capacity with nuclear will not in itself have a detrimental influence on renewables and energy efficiency, provided that policies and incentive mechanisms in these areas are adequately maintained. Furthermore, new build is likely to be funded by the private sector/privatised companies, rather than public funds.

  The main effect of new nuclear capacity will be to discourage the construction of additional gas or coal plants.

  In addition, any near-term investment in nuclear is likely to be in construction rather than research and development ("R&D"), as leading contender designs for new nuclear plants have already been approved and licensed in other Western nations, and in some cases new plants are already under construction. Therefore a major investment in nuclear will not affect R&D for renewables, energy efficiency or clean coal technology/carbon sequestration.


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

  The Energy White Paper states that reducing carbon emissions, maintaining a secure electricity supply and providing affordable electricity are important goals for the UK. A nuclear construction programme will contribute to fulfilling these goals. Government should therefore:

    1.  Provide policy support for nuclear power.

    2.  Work towards public acceptance of this technology to ensure its continuing role in a mixed generation portfolio.

    3.  Ensure that the proposed new nuclear plants are safe and environmentally acceptable through regulatory scrutiny.

  If commercial organisations then decide that there is an economic incentive to build such plants then the Government should provide support at a policy level rather than through direct financial support.


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

  Given current regulatory and political timeframes, it is expected that it will take five to six years before building of a new nuclear station could begin. Coupled with a five year build period, the first nuclear plant will not be operational before the middle of the next decade. Assuming a further construction programme of one 1,000 MW unit a year, it will take almost a further decade to replace the nuclear capacity scheduled to close over this period.

  Based on the timeframe forecast above, new nuclear capacity will not be built in time to replace retiring plants. Consequently the power generation "mix" will comprise primarily of fossil and renewables together with a declining proportion of nuclear. It is therefore expected there will be an increase in carbon emissions form the power generation sector over the next 15 years.

  Such a nuclear programme cannot provide short-term emission reduction from the present levels, but it will ensure that emission increases are minimised and, in the long-term, stabilised. The construction of each new nuclear plant will avoid the production of over three million tonnes of CO2 per year by negating the need for new CCGT plants. This figure would be even higher for clean coal or LNG fuelled plants.


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

  Security of supply is determined by several factors:

    1.  Availability of stand-by generating capacity.

    2.  Electricity grid redundancy.

    3.  Availability of fuels.

    4.  Quality of operational staff.

  Nuclear generation contributes to security of supply by reducing fuel supply risks and providing large amounts of reliable base-load generation:

    1.  Plants are relatively immune from fuel shortages and supply disruptions as reactors are refuelled on a bi-annual basis.

    2.  Even if there were to be a problem in replacing fuel, and a scheduled refuelling were missed, a nuclear station would not have to close. Unlike a conventional fossil station, the output power level would decrease steadily over several months.

    3.  Fuel requirements are very low—finished fuel requirements for a fleet of 10 new reactors would be of the order of 100m3 per year—small enough to easily fit into a modest house. It is therefore perfectly feasible to maintain a strategic stock of fuel, in case of interruptions to supply.

    4.  Uranium is estimated to be relatively abundant and available from stable and friendly sources, eg Australia and Canada.

    5.  There are no specialised transport or infrastructure requirements for the import of uranium, unlike gas which requires pipelines, LNG transport vessels, import terminals and specialist storage facilities.

    6.  Increased diversification in fuels and fuel suppliers, thus reducing risk.

    7.  Reducing reliance on gas supplies sourced from politically unstable regions of the world.

  In addition, nuclear plants in the generation mix serve to temper price volatility.

  It is also relevant to note that to ensure reliability and avoidance of accidents, it is important to create an environment where some of our best Engineers are employed in the nuclear industry; where the availability of operational, maintenance and service staff will be fundamental to security of power generation supply. This needs a realistic and supportive training culture to be embedded within the power sector's regulatory structure, to ensure that the operational phase is fully supported. It will not simply happen by itself.


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

  Yes, nonetheless like any strategically important infrastructure facility, there will always be a need to consider the implications of malicious attack on a nuclear plant. However this risk can be reasonably managed because:

    1.  Nuclear power plants are some of the most robust civil structures ever constructed and can withstand massive impacts.

    2.  Safety and security measures built into these plants means that they are relatively protected against sabotage and external attack.

    3.  Civil nuclear power plants are subject to regulation by the Office of Civil Nuclear Security (OCNS) which liases closely with NII. The NII has the specific remit to ensure security of such installations, and the ability to close them if not satisfied that security can be assured.

    4.  The number of plants is limited and each plant is in a single location of limited size, it is therefore much easier to secure than pipelines running across continents. However the security arrangements for the nuclear fuel supply chain from exporting countries will also need to be protected.

    5.  Nuclear fuel is not sourced from politically unstable or hostile countries.

  Given the recent level of terrorist activities, it would be advisable for the UK to review its security measures not only for power plants, but also for the transmission network, because this is the most vulnerable part of the electricity infrastructure.


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

  The IMechE advocates that a balanced approach to the development of new power generation is the best and safest approach to meeting the goals set in the Energy White Paper. Therefore the use of a mix of renewable, fossil and nuclear sources, micro-generation and energy efficiency measures is recommended to a point where the country is not overly reliant on any one option.

  Within the advocated generation mix, new nuclear plants that approximately offset retired nuclear capacity, will offer:

    1.  A secure base-load supply of electricity that complements modulating generation produced from gas and coal.

    2.  Technological and fuel diversification, thus reducing overall generation risks.

    3.  Long-term stabilization in carbon emissions by avoiding the need for additional new coal and gas fired plants to cover the shortfall.

    4.  Electricity production at competitive prices, thus allowing for the provision of financial incentives to further develop renewable energy sources, micro-energy systems and the hydrogen economy.

  Renewables, micro-generation and energy efficiency measures will almost certainly not, on their own, provide sufficient generation to meet demand in the available timescale, even if a major programme of investment were undertaken. Constraints for growth are mainly associated with permitting and public acceptability (although these issues are by no means restricted to renewables). An investment programme will help but not significantly remove these obstacles; diverting resources from nuclear, clean coal technologies and traditional forms of generation could endanger security of supply, carbon reduction goals and could be an extremely risky political and economic strategy.

  Although this Inquiry is focussed primarily on the role of nuclear and renewable technologies, the IMechE believes that developments in industry-related areas such as advanced clean fossil power generation, CO2 capture, storage and Enhanced Oil Recovery technologies, should also be further encouraged to retain fuel diversification and provide potential export opportunities.

  Investments in the development of a nuclear program, renewables and clean coal technologies are not incompatible, on the contrary they are all necessary to ensure a diversified generation mix thus ensuring security of supply.


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?

  As with many issues regarding nuclear power, there is a wide range of numbers available depending on the source.

  The most thorough study of CO2 emissions from nuclear plants has been carried out by Vattenfall in Finland, for its 3 PWRs and their BWR (Boiling Water Reactor). The results were published in their 2004 Environmental Product Declaration publication and show CO2 emissions of 3.3 grams per kWh.

  British Energy carried out a similar independent study for the life-cycle emissions associated with the AGR nuclear power station at Torness, the results are shown graphically below and indicate CO2 emissions of 5.05 grams per kWh:

  When compared with operational emissions of gas and coal fired plants, CO2 emissions / kWh from a nuclear plant through its life-cycle are about a factor of 80 and 180 lower respectively.
  The most comprehensive generic study that compares the amount of greenhouse gases generated by power plant "chains" which include fuel production, construction, operation and decommissioning was undertaken by the IAEA in 2000. The findings are shown in graphical form below:


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?

  Scientifically acceptable solutions to deal with nuclear waste are already available and have been adopted by countries around the world. CoRWM is due to report in 2006 and will make recommendations based on extensive public consultation, it will then be up to DEFRA to adopt and implement these recommendations.

  It is important to reach practical compromises balancing public and media opinion, with cost effective engineering solutions. This will require government, in partnership with industry and professional engineering institutions, to engage the public openly, to address their concerns through the provision of facts and credible arguments.

  While some significant movement towards an acceptable solution is required to provide public confidence in the industry and the technology, it is most likely that licensing of new nuclear plants will be required before these issues have been completely resolved. Delays in licensing will threaten the security of our electricity supply, potentially de-stabilise energy prices and lead to increased carbon emissions. The process of licensing a new nuclear design will take time and it should be started as soon as practical, in the expectation of a successful output from the CoRWM process.

  Finally it is worth noting that additional nuclear reactors will have little impact on the volume of accumulated nuclear waste to date. Replacing all the current UK nuclear capacity with AP1000 reactors would add, over their lifetime, under 10% in volume to the UK's nuclear waste inventory. In addition spent fuel can be safely stored for at least a century on the reactor site, making a new build programme technically independent of a long term waste solution.

Annex 1

Source RefDate AuthorTitle
Eon9 August 2005Fathing Power Technology response
CER26 July 2005Foley Best New Entrant Price 2006
DTI1 June 2005DTI Microgeneration Strategy And Low Carbon Buildings Programme
IEA/OECD/NEA1998NEA Projected Costs of Generating Electricity: 2005 Update
SPRU5 November 2004 Awerbuch & SauterExploiting The Oil-Gdp Effect To Support Renewables Deployment
IMechE1 May 2004IMechE UK Energy Policy—Challenges and Opportunities
APGTF1 May 2004Otter A Vison for clean Fossil Power Generation
Carbon Trust1 April 2004 Mott MacDonaldRenewable Networks Impact Study
BWEA10 March 2004BWEA True Cost of Wind Power
RAE1 March 2004PB Power Cost of Generating Electricity
OXERA1 February 2004 OXERAResults of renewables market modelling
OECD/NEA10 November 2003 OECD/NEANuclear Electricity Generation: What are the External Costs
CCS1 September 2003 DTIReview of the Feasibility of Carbon Dioxide Capture and Storage in the UK
DTI No 41 June 2003 DTI DTI Economics paper No 4 Options for a Low Carbon Future
EWP Annex7 March 2003 FESENERGY WHITE PAPER—Supplementary Annexes
EWP1 February 2003DTI ENERGY WHITE PAPER—Our Energy Future—Creating a Low Carbon Economy
FES1 February 2003FES Options for a Low Carbon Future—Phase 2
Awerbuch1 January 2003 AwerbuchThe True Cost of Fossil-Fired Electricity in the EU: A CAPM-based Approach
ExternE2003EC External Costs: Research results on socio-environmental damages due to electricity and transport
Ilex/UMIST1 October 2002 StrbacQuantifying the System Costs of Additional Renewables in 2020 (SCAR Report)
IEA5 September 2002 Awerbuch & BergerEnergy Diversification and Security in the EU: Mean-Variance Portfolio Analysis of Electricity Generating Mixes and its Implications for Renewables
PIU1 February 2002PIU Performance and Innovation Unit Report, The Energy Review
IEA2001IEA Nuclear power in the OECD
RCEP1 June 2000RCEP Energy the Changing Climate
ExternE1999EC ExternE: Externalities of Energy: National Implementation
Treasury1 November 1998 MarchshallEconomic Instruments and the Business Use of Energy
IMechE1998IMechE 2020 Vision: The Engineering Challenges of Energy
IEA/OECD/NEA1998NEA Projected Costs of Generating Electricity: 1998 Update

Annex 2


  This analysis sets out to collect and summarise electricity generation costs worked out by and reported from four "up to date" and recognised sources, which give international as well as UK coverage. These are:

Royal Academy of Engineering (RAE) Cost of Generating Electricity, March 2004
International Energy Agency Projected Costs of generating Electricity 2005
Enviros Consulting Ltd Costs of Supplying Renewable Energy 2005
Canadian Energy Research Institute (CERI) Economics of Nuclear Power 2005

  The figures given are based purely on "financial" costs and do not take account of the societal and environmental impacts of each of the technologies as would be required by a "sustainability" analysis.

  There are many other papers on this subject but these are often examining one specific generation route only, eg wind-power. Others are directed primarily at intermittency of renewables and carbon saving capability; this analysis does not attempt to address either of these issues. Many of these more specialised papers reference and use data from the above sources.

  The RAE, Enviros and CERI papers provide an established typical plant cost without detail of the various sources. The IEA Report lists all the plants used in their data gathering, column 2 below shows the average of this data. Column 4 gives an average from 1, 2, and 3. The "range" of costs is established from the scope of plants listed by the IEA paper (leaving out non standard extremes) and this range is extended to include overflow of costs from 1 and 3, where this arises.

  It is not claimed that the reported figures below are precise values, there is obviously much variation in plant costs dependent on country, location, financing route and other project details, for instance discount rates ranging from 5% to 10% may be used in calculating production costs. It can also be misleading to try to make direct comparisons between the purely financial costs of a newly-developed, privately-funded technology with that of conventional, often state-funded, technologies. Conversion rate for $/£ varies with time. It is not practical to re-adjust all figures to a common base.


1 2 3 4 5
Plant TypeRAEIEA (average) CERIAverageRange
Coal818781 800799469-937
Gas315375 352347225-626
Nuclear1,1501,093 1,1731,138687-1,562
CHP750 750343-1,060
Wind Onshore740805 805625-1,062
Wind Offshore9201,265 1,093920-1,656
Hydro1,875 1,875937-4,753
Solar2,819 2,8192,026-6,526


1 2 3 4 5 6
Plant TypeRAEIEA(Average) CERIEnvirosAverage Range
Coal3.542.37 (1.75-3.68) 2.952.95 1.75-3.68
Gas3.102.37 (2.6-3.69) 3.753.29 2.68-3.75
Nuclear2.262.03 (1.94-3.25) 3.652.64 1.94-3.65
CHP2.99 (2.19-5.0) 2.99 2.19-5.0
Wind Onshore5.35***5.04* (2.87-9) 4.0-10.05.19 2.87-10
Wind Offshore7.19***5.04* 7.56.57 Up to 10
Biomass6.676.6 (2.7
Hydro4.06 6.7-8.45.8 3.87-9.25
Solar36.1 55.545.8 12.5-117

*     IEA costs for "on and offshore" wind are combined.
**     Cost predicted from prototype data.
***     These figures include highly controversial and contested figures for "back-up" supply costs; without this, the figures are 3.68 (not 5.35) for onshore wind and 5.5 (not 7.19) for offshore.


  The cost range for all technologies is quite wide and indicates that, whereas the basic hardware costs are well established, other project factors, which include discount rate, country economy, location and installation/hook up details etc. strongly influence the final costs. Volatility of fuel prices, waste disposal costs and "end-of-life" plant costs have not been included in these figures. Furthermore, historical cost curves showing technology advances, confidence by financiers with respect to risk and growth in capacity have demonstrated that capital and generation costs of the newer technologies will continue to fall.


  UK costs appear to be at the top end of the range. It should be noted that the coal plants referenced by IEA numbered 27, being mainly PF or FBC, however there were three IGCC plants included, of which two were within the cost range and the third (proposal only), which included carbon capture, was marginally over the cost range for coal at £1,030/kWe and its production cost was reported at 3.7p/kWh.


  The IEA referenced 23 plants, all of which were CCGT except one. On the face of it, gas would seem to be competitive with coal, but it is not thought that any of the reported gas plant performances has taken into account the escalating wholesale gas prices (approximately 40% change over the last year has been stated). If this trend were to continue, gas plant costing will need to be re-assessed, bearing in mind that up to 70% life costs are accounted by fuel. It is worth noting that a major new build of gas fired plants to strengthen the grid was planned in the USA two years ago, but because of high local gas prices, this programme has been replaced with a "coal build" one.


  Plant costs are becoming reasonably established for standardised PWR and BWR, both cost and delivery are being endorsed by various plants recently or currently being built, there are about 16 projects in progress in the far East. The technology is basically competitive but economics are influenced by the more complex long term funding arrangements needed. Besides the reported plant costs, a further costing by MIT in 2004 cited a capital cost of £1,111/kWe and production cost of 3.6p/kWh—just above the range but explained by a higher 12% interest rate. Discount rate (or rate of return) is the biggest influence on nuclear economics.


  There is not yet much useful data on tidal and wave costs to facilitate cost range reporting and reported solar photovoltaic data is also sketchy, which is disappointing as both Germany and Japan have extensive installations. It is clear, however, that none of these technologies is yet near financial competitiveness. Biomass is more financially competitive for co-firing than for dedicated plants, although this does not take account of the benefits that these dedicated plants will have on distributed generation. The main core of large-scale hydropower is longstanding and installation of new landfill gas sites is reaching a limit.

  The most financially competitive source of renewable energy is currently wind power, where much more information on costs is available. It is clear that whereas engineering and hardware costs are well defined, the overall project costs are strongly influenced by other factors including load factor, country, site, grid connection, accessibility and other details, both IEA and Enviros report a wide range of prices. Windpower Monthly Data also reports costs ranging from 2.9p/kWh to 5.0p/kWh onshore and 5.2p to 6.9p offshore. Enviros notes that with the best sites onshore costs of 4p/kWh are likely, but notes that the best sites are rapidly being used up. Over 3,000 MW of new installation has been applied for, much off shore, and about 500 MW of build is thought to be in hand. To date just over 1,000 MW of wind-power is operational and this produced 1,905 GWh in 2004.

  In conclusion, reliance in basing energy planning on typical costs for plant types, related mainly to the hardware costing is questionable, as the project circumstances, location and conditions can vary the final price significantly. Also awareness of probable fuel cost increases is likely to be a much more important ingredient in future pricing.

21 September 2005

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