Select Committee on Environmental Audit Written Evidence

Memorandum submitted by Leslie Mitchell FREng

  Dr Mitchell has spent his career in the electricity industry. Beginning in CEGB Research at Berkeley Nuclear Laboratories, concerned with commissioning problems on Magnox reactors, his interests developed to embrace all aspects of electricity generation. At the time of privatisation of CEGB, he was responsible for all three CEGB headquarters laboratories. Privatisation brought a career change when he took responsibility for business planning in National Power—Nuclear. This was at a particularly interesting time for nuclear power. As Director of Technology for Nuclear Electric and later Magnox Electric, he contributed substantially to the improvements in performance of the UK gas-cooled reactors. He is now a consultant on energy and environmental matters and until it was disbanded was a member of the Government's advisory committee on Radioactive Waste Management.


  1.1  I believe that the Inquiry is timely in view of the increasingly important concerns being expressed publicly regarding the realism and robustness of the current energy policies. Energy is a business with long time horizons. Plant is expensive and designed for lifetimes of up to 40 years. Operators need to be reasonably assured that they can make a return on investments and environmentalists need to satisfy themselves that the potential of plant is realised as a significant contributor to capital cost is the energy used at various stages of construction from mining of materials through fabrication and construction. This is true for all plant. Therefore the main requirement of a policy is that it stands the test of time.

  1.2  It is but 18 months since the Energy White Paper was published in March 2003. While the concept of an energy policy was a welcome change from the previous laissez-faire policies, the importance of the challenges being made to its validity indicates that, in its formulation, too much weight was given to short-term issues and too little to the risks attached to the policy.

  1.3  There appears to be no need to list the many questions that have been raised regarding the policy as the second paragraph of the announcement of the Inquiry lists several of them and, from this, it can be judged that the EAC attaches considerable importance to them. Indeed, they are clearly the main driver behind the Inquiry. Thus I take this as common ground.

  1.4  In my view the EAC Inquiry can make a major contribution to environmental and energy planning if it can introduce a proper balance into the evaluation of the strategic options. To this end, I suggest that the Inquiry should adopt techniques used by businesses to devise and test strategies.

  1.5  Suggestions regarding an approach that could be adopted will form the main thrust of this submission rather than provision of answers to the particular questions. Others are better placed to provide the necessary data.


  2.1  Even with relatively simple problems it is rare for all the factors that need to be taken into account to point in the same direction. It is for this reason that considerable attention has been paid to methods of decision analysis. For determination of appropriate strategies, a commonly used technique is multi-attribute analysis. This requires the construction of a matrix that identifies the available options together with the major factors that could influence the decision. Each option is assessed against each factor and allocated a score based on how well it matches that requirement and, very importantly, a weighting factor reflecting the importance ascribed to the particular factor.

  2.2  As can be deduced from the questions posed in announcement of Inquiry document, the problem that the EAC has posed for itself is multi-faceted and a technique similar to the one described above will be essential to manage the data input and, eventually, to assist in the communication of the reasons that lie behind any decision that emerges.

  2.3  It should go without saying that the process must be objective and this means applying each factor to all options. There are examples in the list of questions where answers are being requested regarding nuclear power when it is silent on the same question for other options. A clear example of this is question 6 regarding whether or not nuclear power is carbon-free. The subsidiary points in that question that mining, construction and operation might all consume energy are valid. But they apply equally to any plant—ore is mined to produce steel, and smelting and fabrication consume energy. Adopting an appropriate methodology would impose a discipline that would prevent such questions being asked of only one option.

  2.4  The factors chosen need to:

    —  Reflect the benefits in, for example, meeting environmental targets or providing security of supply

    —  Define the status of the technology in terms of confidence that it will meet claims for it

    —  Identify any barriers to implementation on the scale or rate supposed

    —  Address relative cost issues

  2.5  Some factors, such as the means of financing a project, have such a wide range of variables, many of which are changeable at the discretion of Government, that it becomes confusing to include them all in the first pass. In this event, it is preferable to separate the development of strategy into two phases; the first considering the desirable goal and the second addressing means by which it could be achieved.

  2.6  To answer the questions posed by the EAC requires access to reliable data. As indicated above, I leave this to others but it also requires judgements on matters such as factors to be included in an assessment and weightings to be applied. The remainder of this submission offers advice on the four points below:

    —  Factors I deem to be important that are not included in the EAC's list of questions

    —  An indication of the relative weighting that I believe to be appropriate for the more important factors

    —  An outline strategy

    —  Suggestions for overcoming barriers to implementation


  3.1  The most obvious omission is an assessment of the value of diversity in the overall energy mix. Clearly, diversity can remove sensitivity to a number of factors outside the control of the UK such as

    —  Availability of non-indigenous primary fuels

    —  Price changes in primary fuels

    —  Failure of one energy source to meet its technical or environmental targets

    —  Failure of one source to meet its target contribution.

  3.2  In considering the importance of diversity it should be noted that the questions being asked of the 2003 strategy relate to shortcomings on at least two of these issues.


  4.1  I have not sought to undertake a comprehensive analysis of the form suggested above, that would be prejudging the outcome of the Inquiry. Therefore, the comments below should not be interpreted as indicating a complete list of factors to be taken into account. Rather, the discussion below addresses only the relative weighting of four of the factors I believe to be the more important. They appear in order of weighting that I judge to be appropriate.

  4.2  Contribution to environmental goals This should have the highest weighting. The Prime Minister has recently identified global warming as the greatest challenge being faced today.

  4.2  Security of supply Following from the comments on diversity of supply above, I perceive that the root cause of the shortcomings in the 2003 strategy were that it failed to address properly the risks unavoidably associated with such a narrowly based policy. The importance of energy to the UK economy is such that it is foolish to gamble on such matters.

  4.3  Contribution to energy saving Clearly, an important objective, but in scoring any factor under this broad heading account should be taken of the value of using fuels that have no alternative use.

  4.4  Cost I would relegate cost to a relatively weak fourth position for two reasons:

    (a)  Cost has always been seen as the major parameter governing choice of fuel. However, an examination of the history of investment in electricity generation plant over the past 50 years would show that various times the primary fuel of choice, on cost grounds, has included coal, nuclear, oil and gas but, rarely, has any preference remained true for a decade. The most spectacular change occurred when the CEGB was constructing five large oil-fired power stations at just the time OPEC formed. Those plants have never been fully utilised. None of these price changes was accurately forecast—all came as a surprise, even the tripling of oil prices on the formation of OPEC. Thus claims regarding the efficiency of the market and advocates of anyone fuel who claim to see the future with clarity should be viewed with scepticism.

    It does not require much imagination to see the parallels between the OPEC event and today's oil and gas market.

    (b)  The differences between the costs of generation from the different fuels are actually fairly small. They can be the difference between profit and loss to an operator in a free market but are not necessarily so important in a macroeconomic sense in relation to the size of the national energy bill. What is demonstrably needed is a little "insurance" to protect against the uncertainty.

    A major deficiency in the electricity market place is that it is all about today's price—a consumer has no way of paying an insurance premium for long-term security even if he/she recognises the need. But would the premium be affordable and how and to whom should it be paid?

    If the premium is used to buy diversity, it is easy to show that any premium that would be required is low. It would be the cost to the consumer of departing from a policy of using only the lowest cost option. As an example, suppose it was decided that 10% of required capacity should be met by plant with generation costs 10% dearer than today's cheapest source. This would add 1% to total generation cost for all electricity. However, because generation is only a fraction of the retail price, it would add only the same fraction of 1% to domestic electricity bills. This would be a remarkably small premium.


  5.1  The arguments presented above lead to an inescapable conclusion that, to deliver what is necessary, the overall objective must be to create a an energy market built on a diversity of fuels that can contribute positively to a reduction in "green house gases." The environmental issues will restrict the range of options available but it will be essential to use any that can contribute and for Government to allocate targets for the capacity of each. To a degree these targets must be subjective but a sensitivity analysis to possible future events would provide a framework for testing the robustness of supply with different assumptions.


  6.1  The operation of the electricity market will be seen as a barrier to implementing the above strategy as it could be seen as inhibiting competition. There will certainly be no change without changes in the market structure.

  6.2  It should be remembered that the present market developed following privatisation of the electricity industry. The Electricity Bill that enabled this initially saw the need to protect two primary sources that were judged unable to survive in an entirely free market, namely, renewables and nuclear. The forms of protection for the two differed and that for nuclear has since lapsed but the protection for renewables remains and, indeed, the 2003 strategy is dependent upon its continuation in some form.

  6.3  Renewables have not entered the market because they are a preferred source on the grounds of cost—they have always been more expensive than other generation sources. To introduce them against market forces, the Electricity Bill created a premium market that required electricity distributors to purchase a defined portion of their electricity capacity from renewable sources. By this means the price paid to renewables sources could be different from that paid in the main market. Bids were invited to fill this capacity and the choice of type of renewable and/or operator based on cost, thereby preserving competition but within this limited market. Operators needed to have a reasonable expectation of a return on their investment and looked for long-term contracts. For these to be possible assurances were provided about the continuity of this premium market into the future.

  6.4  This model appears to have worked well. It delivers a strategic objective whilst maintaining an acceptable level of competition. If it were to be applied to other primary fuels that meet the environmental standards to be included in the strategy, there could be several independent markets. Just as it has for renewables, this would eliminate concerns about the ability to finance different options.

  6.5  It would have the advantage of providing the Government with levers to influence energy strategy to meet their wider goals whilst, at the same time, preserving sufficient competition to ensure value for the consumer.

19 September 2005

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