Select Committee on Environmental Audit Written Evidence


Memorandum submitted by Prospect

INTRODUCTION

  1.  Prospect is a trade union representing 105,000 scientific, technical, managerial and specialist staff in the Civil Service and related bodies and major companies. In the energy sector, we represent scientists, engineers and other professional specialist staff in the nuclear and radioactive waste management industries, the wider electricity supply industry and, increasingly, also in the gas industry. Our members are engaged in operational and technical management, research and development and the establishment and monitoring of safety standards, environmentally and in the workplace. Other members are directly involved in a range of sectors and functions for which environmental issues are of significant professional concern. We are fortunate in being able to draw on this broad range of knowledge and expertise to inform our views.

  2.  Key points of our response are summarised below, followed by Prospect's answers to the specific questions posed by the Select Committee. Finally, we also highlight particular concerns relating to the future supply of jobs and skills across the energy sector. It is worth emphasising that our responses focus on the energy sector because the Select committee's inquiry does. However, it is clearly the case that an effective climate change strategy requires action on a much more front, and not least in the road and air transport sectors where emissions continue to rise steeply.

SUMMARY OF KEY POINTS

THE EXTENT OF THE GENERATION GAP

    —  The trajectory of UK electricity forecasts exist in the context of an inexorable rise in global demand. The generating capacity to meet this demand continues to undergo significant change with the impending retirement of nuclear and coal plants and the uncertain but policy driven arrival of renewables.

    —  In aggregate around 75% of existing plant of all types will require replacement over the next decade or so. It is important to provide for the capabilities of different generation sources and combinations of sources to meet differing needs.

    —  If renewables or other generation sources do not fill the short fall, and given the expectation of rising demand, then the capacity margin will diminish to level where continuity of supply will become a high profile issue. The adverse social, economic and political consequences of reaching a point where customers face load shedding due to capacity shortfalls should be self evident.

FINANCIAL COSTS AND INVESTMENT CONSIDERATIONS

    —  The 2004 study by the Royal Academy of Engineering into the comparative costs of energy generation found that nuclear was closely competitive with CCGT plants, and cheaper than all other options.

    —  A nuclear new build programme would take around 10 years including licensing, tendering and construction. (There is no reason why the design licensing process could not proceed in parallel with political/national debate about new nuclear build, leaving final approval subject to Parliamentary decision.

    —  Pay back periods for nuclear construction will be longer than for other energy sources. However it is important that costings are done on an equivalent basis, taking account of back end costs and discount factors. Prospect believes that whole-life costs should also take account of environmental and efficiency criteria eg energy units generated and carbon emissions.

    —  Coal-fired generation should be safeguarded in the interests of supply security and for its contribution to environmental objectives*. Realising the full potential of clean coal will require investment in research, development and demonstration.

* In June 2002 the then Energy Minister recognised the importance of clean-coal technology both domestically and in terms of its export potential. "Probably the best thing we could do globally for the environment is to make sure that clean coal is used in countries that are heavily dependent on coal and in most cases on old and dirty technology".

    —  A policy framework must be created whereby market participants are incentivised such that they do not simply choose generation new build options on rate of return considerations and can accommodate shareholder value pressures with broader energy policy aims.

    —  The technologies for nuclear decommissioning are well understood and whole-life costs compare favourably with any other form of generation. Costs would be further reduced if Britain pursued a long-term nuclear programme, like France. New nuclear build is a long-term investment and needs a stable electricity market against which this investment can be judged. The current market and the lack of long-term Government commitment do not provide this.

    —  Crucially compared with the current nuclear waste legacy, 60 years of operation of eight AP1000s would only produce a 10% increase in high and intermediate level waste and a 5% increase in low level waste.[327] However Prospect believes that an upfront, clearly defined resolution of all waste issues, legacy and from a new nuclear fleet, is a prerequisite to assuage public fears that arise on both cost and safety grounds.

    —  Further, to aid a rational consideration of costs between different generation sources comparisons must factor in all aspects of the source being viable. For example the need to hold conventional reserve available to meet the inherent intermittency of wind generation needs to be translated to a unit cost. There are well-researched problems with the ability of wind turbines to replace existing nuclear, coal or gas generation. These are the size of wind farms and their impact on visual amenity; system stability consequences of increased reliance on wind generation and wind farm availability.

    —  Prospect believes that there is a continuing role for both nuclear and renewables and that an even-handed approach must be applied to assessing the costs and benefits of each energy source. The Inter-Departmental Analysts Group report published by the DTI shows this to be essential if the UK is to come anywhere near close to meeting the Royal commission on Environmental Pollution (RCEP) targets for CO2 emissions.

    —  The challenge for any participant is to justify commitment to new generation without a sustained period of higher trading prices. Of course such conditions will draw fire from large users and the domestic market and could weaken faith in market solutions.

    —  Inevitably nuclear new build involves greater initial commitment of capital and returns that are in the longer term. In our opinion apparently unique nuclear risks can be addressed by a combination of a policy framework that values the carbon free generation from nuclear stations, the early adoption of a politically and technically acceptable solution to waste, a long term commitment to a new fleet of stations based on a "standard" design, and a more streamlined planning process. In other words a stable regime in which costs, timescales and returns can be clearly calculated. However we must make the observation that energy shortfall and environmental improvement are strategic questions for the country as a whole and should not depend purely upon the risk perspective of the financial markets. These are issues that the Government has itself recognised through incentivising investment in renewables despite the significant costs of doing so.

    —  It is also worth noting that the greatest challenges for transmission and distribution will arise from any move to large-scale generation from renewable sources. In particular, it is evident that a major expansion of distributed generation would have a dramatic impact requiring solutions to a range of engineering issues associated with distributed generation. There are major implications for construction and may also be environmental implications, especially if power lines are required from remote locations to population centres and grid connections are not local. It is conceivable that transmission issues could be the limiting factor on renewable development in some areas.

STRATEGIC BENEFITS

    —  Despite good early progress, UK carbon dioxide emissions are now higher than they were a decade ago. Eight AP1000 reactors would generate the equivalent of the current 25% nuclear contribution, so by 2020 we could have recovered the situation of 25% of electricity generation being CO2 emission free, reliable, with fuel from stable sources and cost effective. If this is coupled with say, 10-20% from renewables and 20% CCGT generation, plus contributions from micro-generation, energy efficiency measures and changes to transport fuels, we may stand a chance of meeting the Government CO2 emission targets. Nuclear power could also be used to power hydrogen plants to power fuel cells and reduce some of the transport generated CO2 emissions.

    —  Worldwide demand for gas, in common with all fuels and many other commodities, looks set to rise sharply over the medium term. This is largely driven by the fact that major economies such as China and India are experiencing rapid economic growth, with the associated rise in energy demand. UK electricity security is projected to go from being the best in the G8 to the worst within two decades.

    —  The nuclear option should not be considered as an alternative, but as part of a balanced energy mix. All forms of generation have drawbacks. For nuclear public and political acceptability, coupled with long construction times and problems of design changes have been historical burdens. But new technology is available; designs licensed eg in the USA and Finland; efficiency is improved and costs reduced for construction and operation.

OTHER ISSUES

    —  Prospect is concerned that however good the CoRWM process is, proposals may well falter at implementation phase due to lack of public, political or financial support. The key challenges at this stage are societal, not technical, and in Prospect's view responsibility lies with the current generation to take the steps necessary for creating the framework for safe, environmentally sound and publicly acceptable radioactive waste management. We believe that the implementation of a long-term waste management facility should start as soon as possible to minimise the burden put on future generations.

    —  Although of underlying importance to future sustainable energy generation, the implications for jobs and skills are not explicitly addressed in the inquiry questions. For all energy sources investment needs to be assessed both against the positive contribution to achievement of the climate change targets adopted by the Government and a wider range of sustainability principles.

    —  The nuclear industry plays a key role in the UK economy, employing 40,000 directly and supporting many additional jobs. Many of these are skilled jobs in areas where these are scarce, and future nuclear build would offer opportunities to maintain and grow the role played by the industry in this respect.

    —  We are aware of work being undertaken on labour and skills requirements by the Cogent and Energy and Utility Skills Sector Skills Councils, and consider that this should be published for debate and action. Sector skills agreements must be genuinely forward looking, developed in partnership and delivered by means of a joined up approach at local, regional and national level.

    —  Transition to a low carbon economy will also have implications for the wider skills base, in particular to maximise the benefits and minimise the costs of change in energy intensive sectors. The approach taken must be forward looking and provide time and support for adjustment not, as in the past, based on post-hoc packages of assistance to deal with the consequences of regional dislocation. It must also focus strongly on quality of employment. Transitional skills strategies must provide support for well-qualified staff at all organisational levels as well as for lower skilled employees who may lack a portable or adaptable skills base.

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?

  3.  The trajectory of UK electricity forecasts exist in the context of an inexorable rise in global demand, with some commentators suggesting that world demand may rise by 75% over the next two decades.[328] UK demand has risen steadily by 1-2% per year and in our opinion whilst energy efficiency measures may moderate growth rate, demand will continue to rise.

  4.  The generating capacity to meet this demand continues to undergo significant change with the impending retirement of nuclear and coal plants and the uncertain but policy driven arrival of renewables. The DTI analysis is a convenient starting point for an assessment of the consequences of the change in generation pattern[329]

2020 PROJECTIONS OF ELECTRICITY GENERATION, BASE CASE

  Gas: 68%

  Coal: 13%

  Renewables: 11%

  Nuclear: 7%

2020 PROJECTIONS OF ELECTRICITY GENERATION, CARBON SAVINGS MODEL

  Gas: 59%

  Renewables: 25%

  Nuclear: 9%

  Coal: 7%

  5.  Nuclear currently provides about 25%. The prospective rundown of nuclear capacity that may be impacted or accelerated by the NDA is as follows[330]:

  2005    22%

  2008    18%

  2012    13%

  2013    8%

  2023    Less than 3%

  2035    0

  6.  In aggregate around 75% of existing plant of all types will require replacement over the next decade or so. Projections will depend on progress with the introduction of renewables and what decisions are made on replacement capacity for the nuclear power stations that will close once they reach the end of their operating lives. It is important to provide for the capabilities of different generation sources and combinations of sources to meet differing needs. For example CCGT stations give good, fast reaction capacity, including as back up for intermittent renewable sources, whereas nuclear is best suited as base-load generation.

  7.  If renewables or other generation sources do not fill the short fall, and given the expectation of rising demand, then the capacity margin will diminish to level where continuity of supply will become a high profile issue. The adverse social, economic and political consequences of reaching a point where customers face load shedding due to capacity shortfalls should be self evident.

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?

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?

  8.  The 2004 study by the Royal Academy of Engineering into the comparative costs of energy generation found that nuclear was closely competitive with CCGT plants, and cheaper than all other options. However, these conclusions were based on a gas price forecast of 23 pence per therm compared to current forward prices in excess of 55 pence per therm.[331]

  9.  International price forecasts are difficult to interpret on a consistent basis due to nation-specific variables, such as cost of fossil fuels in a particular region or availability of high quality renewable resources. Nuclear does have the advantage in this regard that uranium is both in plentiful and secure supply and constitutes a small proportion of total generating costs.

  10.  For nuclear the "build time" will roughly be:

    —  Three years to licence the design and obtain the regulators endorsement of site and design. (There is no reason why the design licensing process could not proceed in parallel with political/national debate about new nuclear build, leaving final approval subject to Parliamentary decision.

    —  Two years to conduct the tender process, obtain financial backing and place a contract.

    —  Five years for construction.

  This 10-year process assumes that no extensive enquires or policy changes impact timescales to delay the process.

  11.  Pay back periods for nuclear construction will be longer than for other energy sources. However it is important that costings are done on an equivalent basis, taking account of back end costs and discount factors. Prospect believes that whole-life costs should also take account of environmental and efficiency criteria eg energy units generated and carbon emissions.

  12.  Prospect has consistently argued that coal-fired generation should be safeguarded in the interests of supply security and that it also has a contribution to make to environmental objectives[332]. Realising the full potential of clean coal will require a range of measures which, in our view, should include immediate provision within the UK's National Allocation Plan under the EU Emissions Trading Scheme for fitting, and retro-fitting, Supercritical and Flue Gas Desulphurisation (FGD) technologies. Retrofitting allows innovative technologies to be proven in shorter timescales and at less risk and cost than on complete new plants. Looking ahead, expansion of the UK programme of clean coal R&D should facilitate full examination of the range of clean coal technologies, including integrated gasification combined cycle (IGCC), carbon capture and storage and next generation technologies including integrated gasification fuel cells and hydrogen from coal. For example, one of the key issues that needs to be resolved before IGCC technology can be offered commercially is reliability, requiring further work on system integration, gas clean-up and consistent gas turbine performance. It is certainly the case that market risk aversion is currently being compounded by uncertainties surrounding the future of the Large Combustion Plant directive and EU Emissions Trading Scheme. Innovative practice therefore needs to be supported through demonstration of state-of-the-art plant, which in turn provides references for other potential customers at home and abroad. The Advance Power Generation Technology Forum has recommended funding of £10-20 million pa for clean coal research, development and demonstration. We think that this is likely to be at the lower end of support required to make a significant impact.

  13.  In our opinion the UK Government will also need to recognise that reliance on pure market solutions for the generating mix means that achievement of emissions targets is unlikely and supply margins will be increasingly at risk. Government intervention designed to ensure fuel source balance and to stimulate progress on environmental objectives does not require the abandonment of the market in its entirety. But it must mean the creation of a policy framework where market participants are incentivised such that they do not simply choose generation new build options on rate of return considerations and can accommodate shareholder value pressures with broader energy policy aims.

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?

  14.  Prospect believes that there is a continuing role for both nuclear and renewables. Indeed, the report of the Inter-Departmental Analysts' Group published by the DTI shows this to be essential if the UK is to come anywhere near to meeting the RCEP targets for reducing CO2 emissions. An even-handed approach must be applied to assessing the costs and benefits of each energy source.

  15.  It is important to assess the technology as presently understood and at the current stage of development; far too often when comparing technologies the comparison has been done against what may be possible instead of the known situation (a well known statement was "electricity too cheap to meter" at the start of the nuclear age).

  16.  The technologies for nuclear decommissioning are well understood and whole-life costs compare favourably with any other form of generation. Costs would be further reduced if Britain pursued a long-term nuclear programme, like France. New nuclear build is a long-term investment and needs a stable electricity market against which this investment can be judged. The current market and the lack of long-term Government commitment do not provide this. Not surprisingly the Finnish decision to construct the new Olkiluoto-3 plant is cited as an illustration of how a combination of political consensus built on public confidence and proven design can lead to new build as part of a balanced fuel source policy.

  17.  With respect to new nuclear build the robustness of estimates should be sound, and it is unrealistic to make comparisons with past experience. In the past the UK's nuclear fleet has not been built to a standard design, whereas the AP1000 has been approved and licensed in the USA in the past year which should give confidence to recent estimates.

  18.  Additionally the AP1000, compared to conventional PWRs, uses 50% fewer valves, 35% fewer pumps, 80% less pipe and 85% less cable, within an overall seismic building volume of 45% less. This means that construction and commissioning should be far less complicated so, in addition to cost savings on materials and the shortening of time-scales, maintenance will be simplified and reliability increased. Equally a modern reactor will have ease of decommissioning built into the design, unlike previous generations of reactors. The design of the next generation of stations is also allied to improvement in construction techniques using modular approaches that facilitates off site testing prior to assembly at site. Essentially standardisation offers economies not previously available when reengineering and bespoke solutions contributed to cost overruns.

  19.  Crucially compared with the current nuclear waste legacy, 60 years of operation of 8 AP1000s would only produce a 10% increase in high and intermediate level waste and a 5% increase in low level waste.[333] However Prospect believes that an upfront, clearly defined resolution of all waste issues, legacy and from a new nuclear fleet, is a prerequisite to assuage public fears that arise on both cost and safety grounds.

  20.  Whilst supporting a policy that produces a genuine balance between generating sources there are particular "level playing field" issues that currently disadvantage the nuclear industry:

    —  Unlike its carbon-based competitors, the industry has to capture, handle and store all its waste. Thus there are no currently hidden costs associated with nuclear waste. It is totally inappropriate therefore, that attempts to "internalise" the carbon-based "externalities" using taxation and emissions trading should exclude the only large non-CO2 producing technology currently available. This means that the industry will pay for part of the CO2 waste management costs as well as its own.

    —  The industry has a highly disproportionate level of regulatory costs, including the essential and wholly supported costs of safety regulation.

    —  National licensing systems mean that good and properly licensed designs have to be re-licensed at considerable extra cost before they can be re-used.

    —  The current system for planning inquiries means that they can last for very long periods of time, with resultant delays and uncertainties that may discourage investment plans.

    —  The impact of economic regulation on the price of capital is particularly problematic in so highly capital intensive an industry.

  21.  There are in addition a number of emerging nuclear technologies that the energy market is not structured to support:

    —  New generating technologies are emerging that are "intrinsically safe". (The AP1000 already has features which are inherently safe). This means that safety systems depend passively on the physics of the reactor, not actively on the equipment, human designers or operators.

    —  In the longer term, the use of thorium may replace a uranium-based cycle.

  22.  Further, to aid a rational consideration of costs between different generation sources comparisons must factor in all aspects of the source being viable. For example the need to hold conventional reserve available to meet the inherent intermittency of wind generation needs to be translated to a unit cost.

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?

  23.  The CO2 reduction targets set by the Royal Commission on Environmental Pollution (RCEP) pose a major challenge. Most scenarios posed by the RCEP involve a nuclear element and the one most clearly founded on proven technology rests to a very large degree on nuclear capability.

  24. Prospect believes that there is a continuing role for both nuclear and renewables and that an even-handed approach must be applied to assessing the costs and benefits of each energy source. The Inter-Departmental Analysts Group report published by the DTI shows this to be essential if the UK is to come anywhere near close to meeting the RCEP targets for CO2 emissions.

  25.  The Energy Futures Task Force has persuasively argued that the goal should be a system that, as far as is practical, is neutrally designed to be capable of accepting generation close to the points of demand as well as offering opportunities for remote generation from large plants that may have been sited to take advantage of local resources. This though, has significant implications for the development of the transmission network, its protection mechanisms and metering systems to facilitate distributed and diverse generators, ranging from commercial to domestic units. It also has implications for pricing regimes and operating expenditure, particularly for distribution network operators. The regulatory issues arising from this form of generation will also need to be addressed.

  26.  In terms of promoting use of renewable sources, it will be important to establish a clear economic value for environmental benefits and to resolve some of the planning difficulties that currently exist. As the Trade and Industry Select Committee have pointed out, the creation of a large number of small-scale (renewable) plants will have repercussions for the electricity transmission and distribution networks. "A critical feature of most renewables is that they are energy sources and not fuels. The difference lies in availability. Fuels are always available for use when required, albeit at a price determined by the market. Energy sources are usually intermittent, but are free. The problem is most difficult with intermittent energy sources, such as wind energy"[334]. This requires either a significant over-investment in capacity, or "capacity credit", to be sure of peak load generation and/or heavy investment in storage capacity. On the other hand, the supply of renewables such as wind power does not depend on the market and other fuels are not always available for use when required since there is a finite "run up period" for all generating plant and specific generating plant is not always available.

  27.  There is certainly a need for increased research and development in this area, particularly on renewable sources that have not been tackled adequately by the private sector. The development of effective, safe storage systems could also help to smooth out fluctuations in the availability of some renewable sources.

  28.  Prospect representatives working in this field report that there is a current lack of funding for basic research into renewable energy sources and that this is exacerbated by changing remits from funding bodies, though we note from the first annual report on the Government's 10-year framework for science and innovation that increases have recently been agreed to a number of energy R&D programmes. Further, although EU funding regimes appear to offer additional opportunities, there are significant barriers to accessing funding under a regime that emphasises economies of scale and the creation of centres of excellence and operates by means of an application process that is so complex that it is very difficult for small organisations either to resource the bidding process or carry the resultant overheads. Even in larger organisations, the resource required for bidding can prove onerous.

  29.  Tidal streaming and waste bio-fuels are potentially fruitful areas. The current UK research programme into bio-fuels is fragmented and under-funded and suffers from the fact that no single government department takes a lead in this area. To date most R&D on biofuels for electricity generation has focused on the potential for schemes that would supply local or regional needs. Whilst such schemes can never compete with the economies of scale offered by large power stations, the technology does offer an opportunity to meet the needs of isolated communities. For example, marginal agricultural land can be used to grow willow for biomass, which is then harvested annually and chipped for use in adapted boilers. Farm waste can be spread on the same land area, providing both nutrients for the trees and a safe disposal method that protects watercourses and the wider environment. This also offers the potential for an increase in local employment in rural areas. The development of crop-based bio-fuels for transport is at a very much earlier stage, but again there are potential benefits for rural regeneration and diversification. All generation technologies that produce their own fuel are secure and should receive the appropriate credit. Systems that can additionally run without grid connection are even more secure.

  30.  Scotland is an interesting example, both because of the strong political commitment to renewable generation and the potential resource base to deliver it. A recent report by the Forum for Renewable Energy Development in Scotland (FREDS) concluded:

    —  Substantial upgrades will be required to Scotland's electricity transmission system depending on the level of renewable development to be accommodated.

    —  Transmission capacity can only be built on the basis of firm development proposals; it cannot be built in anticipation that the newer or less established technologies will come through at some future date.

    —  The intermittency of wind generation combined with the imbalances that arise from generation breakdowns and demand forecast errors require additional reserves to be held. In the short-term (ie the few hours up to real-time) this is mitigated to some extent by the convenient statistical characteristics of wind, which, due to wind persistence, make generation levels somewhat more predictable.

    —  However, as the output of an intermittent generation portfolio can be expected to be more variable than existing conventional generation, the implications for security of supply must be considered.

    —  In the longer-term, retirement of existing generation within Scotland may change the network priorities. Retirement of some existing Scottish generation will reduce export levels and so make available capacity for new generation. However, if a significant proportion of existing generation should retire then, even with a significant renewables portfolio, it may be necessary to reinforce the import capacity of the network so that when generation output is low balancing supplies can be obtained from the remainder of the GB market.

  31.  The FREDS biomass energy group (BEG)[335] estimated that up to 450 MW of electricity could be generated using Scotland's wood fuel resource. There is also some potential to increase this amount of electrical output through the use of specially grown energy crops. The Group's report noted that biomass plant could act like conventional plant to balance the system. Biomass is a proven technology and BEG believes that significant capacity could be developed within the next five years.

  32.  However, there are currently indications that that the renewable targets for Scotland will be cut from 40% of generating capacity to 40% of demand by 2020. In effect this means the 40% promoted over the past couple of years reduces to 25%. This is probably a realistic reflection of the differential between installed and available capacity.

  33.  Whilst there is discussion of various renewable options the main focus is wind power but there are well-researched problems with the ability of wind turbines to replace existing nuclear, coal or gas generation. These are the size of wind farms and their impact on visual amenity; system stability consequences of increased reliance on wind generation and wind farm availability. We comment on each of these in turn.

  34.  The average 80 m diameter wind turbine has a maximum 2 MW output[336]. By contrast, a PWR station such as Sizewell B has an output of 1,200 MW, an AGR (for example Hartlepool) 1,250 MW and a large coal station (Eggborough), 1,960 MW. Therefore between 600 and 1,000 80m high turbines are required to replace a large power station.

  35.  However it is impracticable to group such a large number of turbines together not least because the ones at the core of the farm would be shielded by those on the perimeter and hence would be unproductive: the largest wind farm in the UK has a capacity of 40MW, the only proposed offshore plant has a capacity of 60MW. So 21 60MW wind farms or 31 40MW wind farms are required to replace an AGR even if they had the same availability but they do not. On an assumption of 30% available capacity, the actual requirement could be three times greater than this.

  36.  Due to the Grid Code, at current levels wind farms are not a threat to system resilience. However this is achieved by a robust Grid Code that constrains system availability, for example wind farms on the East of the Country, Yorkshire and Lincolnshire run at a planned 8% availability due to the lack of wind compared to 30% availability elsewhere. However NG estimates that above 20%, then there are serious problems with system stability that can either be achieved by a yet more robust Grid Code that reduces output (and increases visual intrusion) further. However this figure has not been published. There is conflict between building wind farms in areas of high wind, for example Wales and Western Scotland, and the current configuration of the Grid. Increasing the distance between generation and consumption will increase system losses.

  37.  However for wind generation to be efficient, then grid and distribution reinforcement must proceed in parallel with wind farm construction if the system is to operate effectively. DPCR 4 does not allow DNOs to do this as there is no additional allowance for more construction.

  38.  The British Wind Energy Association estimates availability at 35% compared to 90+% for conventional plant. Also whereas nuclear and coal stations can plan their outages, wind farms cannot plan when the wind will not blow. Comparing nuclear and wind availability, three times the capacity of wind farms are needed if this is to become a viable alternative. For example Sizewell B requires over 1800 80m high wind turbines scattered across 300 sites.

  39.  In practice, E.On have estimated that effective wind availability falls between 10 and 20% requiring 80% of wind capacity to be supported with reserve plant, usually gas or coal.[337] This reserve capacity will be less efficient if it attempts to load follow and quickly respond to drops in wind generation output: also this operating regime will require more frequent maintenance. The basis of payments to generators and carbon emissions entitlements would need to be revised for this to become a practicable alternative.

  40.  International experience is illuminating. Denmark has invested heavily in renewable energy to reduce its reliance on fossil fuels and imported energy with the main source being wind power. Since 1985, about 3,317 MW of mega wind turbine capacity have been installed of which 420 MW are sited offshore.[338] This investment is supported through heavy subsidies and a statutory obligation on Transmission System Operators to buy the wind output. "One consequence is that Danish householders pay almost double the UK price for electricity. Another is that wind stations and district CHP plants have regularly produced surges of surplus power, severely complicating regulation of the grid".339

  41.  Therefore a commitment to wind as the main component of a growth in renewable generation comes at a price that without subsidy may be uneconomic and open to criticism from a UK public that have been accustomed to relatively cheap energy over the last decade. It also requires network solutions that have to be factored into price regimes and then constructed assuming opposition to the visual impact of wind farms is overcome. Numerous policy considerations and adjustments flow from these limitations including review of the Grid Code; network operators funding to reconfigure their networks which need to be physically reinforced and more actively managed and the electricity trading system needs to factor in higher payments for reserve plant if substantial wind generation is to become practical.

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?

  42.  The problem with micro systems is that to be economic they must be locally controlled, such that consumers can use what they want when they require it. However if extra energy is generated or required it must go to or come from the "grid", but we cannot have local systems controlling the grid. To reconfigure existing networks to move from passive to active systems with greater local and potentially intermittent generation is an enormous project that has extensively covered in the deliberations of the Distributed Generation Coordinating Group.

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?

  43.  As we stated above markets are more likely to adopt a longer-term perspective if there is a clear economic and political framework within which to operate. Where policy direction is unclear and/or subject to sudden shifts, markets will undoubtedly work with a short-term focus. The "dash for gas" reflected the preference for near guaranteed returns in a commercial climate where corporate change increased pressure to justify investment following acquisition. The attraction of relatively short construction times, output that was pre-contracted and at the time low gas prices meant that there was no incentive to consider generation mix or long term security issues when deciding investment options. Those conditions are now in the past and the challenge for any participant is to justify commitment to new generation without a sustained period of higher trading prices. Of course such conditions will draw fire from large users and the domestic market and could weaken faith in market solutions.

  44.  Financial institutions evaluate investments for risk against anticipated return. The greater the risk associated with the investment the larger the premia applying to the financing. Inevitably nuclear new build involves greater initial commitment of capital and returns that are in the longer term. In our opinion apparently unique nuclear risks can be addressed by a combination of a policy framework that values the carbon free generation from nuclear stations, the early adoption of a politically and technically acceptable solution to waste, a long term commitment to a new fleet of stations based on a "standard" design, and a more streamlined planning process. In other words a stable regime in which costs, timescales and returns can be clearly calculated.

  45.  However we must make the observation that energy shortfall and environmental improvement are strategic questions for the country as a whole and should not depend purely upon the risk perspective of the financial markets. These are issues that the Government has itself recognised through incentivising investment in renewables despite the significant costs of doing so.[339]

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?

  46.  We agree with the assessment by the Trade and Industry Select Committee that "Even the most enthusiastic advocates of market forces admitted that liberalised competitive markets did not necessarily provide investment in areas like infrastructure, and that state intervention might be necessary".[340]

  47.  Nuclear plants have relatively high capital costs but low marginal operating costs. They run most economically at very high load factors, supplying the demand for "baseload" electricity. A number of recent studies have looked at the relative costs of generating electricity from a variety of different technologies, including nuclear. From these it is possible to draw the conclusion that nuclear competitiveness mainly depends on the capital cost of the plant, which includes the construction time, together with the discount rate used. The industry is confident that new reactors will be fully competitive with other alternatives if "overnight" capital costs can be achieved in the range of $1,300-1,400/kW, assuming construction times of no more than five years and financing available at less than 10% per year. If fossil fuel use is significantly penalised by carbon taxes or emissions trading regimes, the competitiveness of new nuclear plants improves further.

  48.  We are well aware that the Government is not looking to finance new nuclear generation and that if a decision to proceed with new build were to be made the investment would have to be provided by the private sector. That investment can be realised, provided the Government takes action to address uncertainties in the consents and other regulatory processes.

  49.  It is also worth noting that the greatest challenges for transmission and distribution will arise from any move to large-scale generation from renewable sources. In particular, it is evident that a major expansion of distributed generation would have a dramatic impact requiring solutions to a range of engineering issues associated with distributed generation. This includes transforming asynchronous generation into synchronous systems.

  50.  As noted in the supplementary submission from the National Grid to the 2001 Performance and Innovation Unit review of energy policy, there are major implications for construction. NGC drew particular attention to the lead-time involved in transmission reinforcement due to the need to gain planning consents.

  51.  There may also be environmental implications, especially if power lines are required from remote locations to population centres and grid connections are not local. As the Energy Futures Task Force (EFTF) have stated "The goal should be a system that, as far as is practical, is neutrally designed to be capable of accepting generation close to the points of demand as well as offering opportunities for remote generation from large plants that may have been sited to take advantage of local resources".[341] We agree with this. Point of use generation should be encouraged, not least because it avoids the energy and capital overheads required by grid expansion. However, there are also implications for pricing regimes and operating expenditure, particularly for distribution network operators.

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

  52.  Assuming no overall increase in the level of funding available the impact of major investment in nuclear build would not take effect until funding was required, which under current projections would not be until five years after the decision to proceed was made. This time could be shortened but even if it were halved, investment in renewables would not be affected for at least three years. After that the effect would depend on the scale of investment required for new nuclear build, the financing from the private sector and other calls on the public purse. This is best judged by the Government.

  53.  We also consider that policy action is needed to deliver large-scale improvements in energy efficiency. The current approach, in which advice and assistance is made available via a plethora of agencies, relies on the motivation of individuals to seek out support. In addition, consumers who have already invested in domestic energy saving methods have little incentive to take further steps. Yet, by far the more significant challenge is to engage the majority of non-motivated consumers. Every effort must be made to avoid artificial barriers that discourage involvement.

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?

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

  54.  Despite good early progress, UK carbon dioxide emissions are now higher than they were a decade ago. It has already been conceded[342] that the Government target for reducing emissions by 2010 is unlikely to be met. All sectors must play a role in this and it is clear, in particular, that closer scrutiny and early action is required to deal with increasing emissions both from road transport and aviation. As far as energy generation is concerned, it is also increasingly clear that other low carbon technologies, including nuclear, have a role to play alongside renewables if the UK is to keep on a realistic track towards it's longer-term targets and ultimately achieve a 60% cut in emissions by 2050.

  55.  Eight AP1000 reactors would generate the equivalent of the current 25% nuclear contribution, so by 2020 we could have recovered the situation of 25% of electricity generation being CO2 emission free, reliable, with fuel from stable sources and cost effective. If this is coupled with say, 10% from renewables and 20% CCGT generation, plus contributions from micro-generation, energy efficiency measures and changes to transport fuels, we may stand a chance of meeting the Government CO2 emission targets. Nuclear power could also be used to power hydrogen plants to power fuel cells and reduce some of the transport generated CO2 emissions.

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

  56.  Whilst we support measures to mitigate the effects of climate change, it is clear that diversity and flexibility of supply are key features in ensuring security. Yet, our view is that the Government is too relaxed in its assessment of the consequences of growing dependence on imported gas. On most projections of present policies, with a sharply declining nuclear contribution the world will become increasingly dependent on oil and gas supplies from a limited number of producers. By 2006, the UK is likely to be importing up to 15% of gas, and by 2006-07 the UK is also likely to be a net importer of oil. These imports will be from Russia, Iran and Algeria—hardly the most reliable of trade partners.

  57.  Worldwide demand for gas, in common with all fuels and many other commodities, looks set to rise sharply over the medium term. This is largely driven by the fact that major economies such as China and India are experiencing rapid economic growth, with the associated rise in energy demand. UK electricity security is projected to go from being the best in the G8 to the worst within two decades.

  58.  The declining nuclear contribution also makes it increasingly unlikely that climate change objectives will be met. Although Prospect supports the 10% target for electricity generated from renewables by 2010, we have yet to be convinced that this will be achieved. Both annual reports issued since publication of the Energy White Paper make clear that the share of electricity generated from renewables is rising only slowly and, on present trends, the UK will fail to meet its national target of a 20% reduction in carbon dioxide emissions by 2010. Prospect supports a continuing role both for renewables and nuclear, and urges the Government to take immediate action to ensure that both sources maximise their potential.

  59.  Whilst the distribution companies are aware of embedded generation connected to their network and generally know its capabilities, their plans do not generally allow for use of embedded generation to support them in an emergency for a number of reasons: it is not normally under their control, it is location specific and can only provide support for certain incidents, and with the larger sets there may be contractual and dispatch implications. As the report produced by British Power International for the DTI in the wake of the storms in autumn 2002 about the resilience of the electricity transmission and distribution systems puts it, "The expression that companies are all "fishing in the same pond" captures the essence of concern about access to additional resources during a widespread emergency . . . the industry may end up competing for the same, finite resources".

  60.  In summary, nuclear is more secure than renewables, but building anything contributes to closing the gap between demand and supply.

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

  61.  Much is made of the risk of terrorist attacks on nuclear installations. Without being complacent the security in the UK is world class and since many other countries in the world have or are embarking on new nuclear build, it is fair to ask why the UK should be viewed differently. It is important to note that existing robust security arrangements are operated by the Office for Civil Nuclear security under the Nuclear Industries Security Regulations 2003 based on international guidance from the International Atomic Energy Agency (IAEA). Security measures required for new nuclear stations would not therefore raise new issues of principle or policy, and costs would continue to be paid by the nuclear operators.

  62.  The same question needs to be asked of other energy sources. With respect to oil and gas, the issue is not so much one of finite resource, at least in the short term. The real challenge is the effort, investment and underlying political conditions needed to exploit the reserves and, as the annual report recognises, to safeguard them from terrorist and other threats. These include major supply disruptions resulting from natural disasters, including hurricanes. Furthermore, the UK is only slightly ahead of a similar explosion of demand for gas in the rest of Europe and North America. The competition for gas reserves will therefore increase significantly and relying on gas imports in the long-term could be a very costly option.

5.   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?

  63.  The nuclear option should not be considered as an alternative, but as part of a balanced energy mix. All forms of generation have drawbacks. For nuclear public and political acceptability, coupled with long construction times and problems of design changes have been historical burdens. But new technology is available; designs licensed eg in the USA and Finland; efficiency is improved and costs reduced for construction and operation. All this makes nuclear comparable with CCGT, oil and gas generation and cheaper than renewables. The options are compatible as part of a balanced energy mix. To discount any of the options at the cost of others taking a disproportionate share would be an unacceptable risk.

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?

  64.  The only reasonable assumption that can be made is that the current mix/proportion of energy supply (nuclear, coal, gas, renewables) is involved in the manufacture and construction of nuclear power stations—as would be the case for other types of power station—so construction is not carbon-free.

  65.  However, the seismic building volume of an AP1000 is nearly half of that of previous generations of reactors and the numbers of pipes, valves, pumps and cables are greatly reduced, so the CO2 emissions from new nuclear construction will be less than 50% of previous build.

  66.  Nuclear energy generation is almost entirely free from carbon emissions.

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?

  67.  Prospect has submitted separate evidence to the Department for Environment, Food and Rural Affairs (DEFRA) in response to the consultation on the management of radioactive waste. Our evidence highlights the need for:

    —  All potential wastes to be considered in an integrated management policy to ensure visibility from an economic and safety perspective both in the short term and over much longer time periods.

    —  Knowledge and expertise within the nuclear industry to be rebuilt, as much has been dissipated into contracting and sub-contracting organisations.

    —  Development of a long-term management solution that is accepted as legitimate in conjunction with a wide range of stakeholders extending beyond the nuclear industry and national government, and including the general public.

    —  The institutional structure to honour the "polluter pays" principle and also ensure that tensions between economic, short-term safety and long-term consequences for future generations are visible and given due consideration.

  68.  The key challenges at this stage are societal, not technical, and in Prospect's view responsibility lies with the current generation to take the steps necessary for creating the framework for safe, environmentally sound and publicly acceptable radioactive waste management. We believe that the implementation of a long-term waste management facility should start as soon as possible to minimise the burden put on future generations.

  69.  Prospect is concerned that however good the CoRWM process is, proposals may well falter at implementation phase due to lack of public, political or financial support. We believe there needs to be a national debate on the implementation process and criteria and that the process for identifying potential sites and the evaluation criteria for judging between sites should be developed independent from the organisation who will use them.

ADDITIONAL ISSUES: JOBS AND SKILLS

  70.  Although of underlying importance to future sustainable energy generation, the implications for jobs and skills are not explicitly addressed in the inquiry questions.

JOBS

  71.  Prospect believes that for all generation sources:

    —  Investment needs to be assessed both against the positive contribution to achievement of the climate change targets adopted by the Government and a wider range of sustainability principles.

    —  There should be benefits in further developing relatively new technologies and stimulating new British industries, though this is a competitive market.

    —  Employment impact beyond the construction phase depends on the extent of domestically produced inputs. Technology sourced locally would have a considerably higher domestic employment impact than imported technology. Employment generated would also be higher to the extent that UK-based firms were able to export their technology.

    —  Any rigorous analysis would, therefore, need to consider which types of energy production the UK may have a comparative advantage in producing the inputs for, including estimating the future export potential of each, and how policy can appropriately support domestic production.

    —  Additionally the impact of supply chain activity in supporting employment across more remote areas with fragile economies should not be under-estimated.

  72.  The nuclear industry plays a key role in the UK economy, employing 40,000 directly and supporting many additional jobs. Many of these are skilled jobs in areas where these are scarce, and future nuclear build would offer opportunities to maintain and grow the role played by the industry in this respect.

  73.  The majority of all of the UK employment regarding nuclear fuel processing is concentrated in the North West[343]. In the South East and London region (Harwell, Culham and Aldermaston) there is a significant focus on the nuclear industry cluster. The nuclear fusion research centre is based in Culham. Caithness has a large decommissioning task, with the MoD (N) operating a large nuclear shore support base in Western Scotland. Civil and military application of nuclear technologies are separate and, whilst sometimes overlooked, nuclear medicine constitutes both important part of civil use and generates significant demand for appropriate skills.

  74.  A new generation of nuclear stations would benefit the UK in terms of GDP and balance of payments, for instance through reducing gas imports. The benefit in GDP terms of a programme to replace the current nuclear fleet has been assessed in a recent independent study[344] at around £4 billion per year once the stations are all operational. Part of this benefit is due to the reduced need for gas (which increasingly would be imported) if the UK retains a significant nuclear capability.

  75.  From a new build programme consisting of five Twin AP1000 reactors built over a period of 18.5 years, the total direct jobs involved in construction, manufacturing, operation and headquarters has been forecast at over 6,000. In addition to this there would be jobs associated with the fuel cycle infrastructure and also technical support services such as research. Direct full-time jobs also create additional employment in the community, probably in the order of 2,000.

  76.  It is estimated that the UK supply chain could produce virtually all of the manufactured components, except for a few key items. Companies involved in nuclear technical services would also be able to export their capabilities using UK experience to support overseas activities.

  77.  The programme would re-invigorate the UK as a world-leading centre for nuclear technology.

SKILLS

  78.  We share the concerns of the EFTF about the shortfall that is occurring in the number of newly qualified entrants to disciplines of importance to the energy and environment sectors. We welcomed the PIU's proposal that a comprehensive survey of labour and skills requirements in the energy sector should be undertaken. We are aware of work subsequently done, and still in progress, by the Cogent and Energy and Utility Skills Sector Skills Councils, and consider that this should be published for debate and action. Sector skills agreements must be genuinely forward looking, developed in partnership and delivered by means of a joined up approach at local, regional and national level.

  79.  Cogent's Nuclear and Radiological Skills Survey identifies the following areas of skills shortage in the nuclear sector:

    —  Health sub-sector (radiologists and radiographers)

    —  Radiological protection—health physics

    —  Radiochemistry

    —  Regulation

    —  Nuclear education in higher education

    —  Modern apprenticeships

    —  Safety case writing

    —  Critical assessment

    —  Nuclear safety research

    —  Control and instrumentation

    —  Numerate graduates

    —  Project management

    —  Corporate capabilities

  80.  It also notes that within the industry there is not merely a requirement for an increase in new entrants, but for better quality recruits. Aspects of globalisation have increased the need for continuous improvement and cost cutting leading to flatter structures. Thus, at all levels there is a need for high calibre recruits with the right mix of technical and key/core skills.

  81.  Transition to a low carbon economy will also have implications for the wider skills base, in particular to maximise the benefits and minimise the costs of change in energy intensive sectors. The approach taken must be forward looking and provide time and support for adjustment not, as in the past, based on post-hoc packages of assistance to deal with the consequences of regional dislocation. It must also focus strongly on quality of employment. Transitional skills strategies must provide support for well-qualified staff at all organisational levels as well as for lower skilled employees who may lack a portable or adaptable skills base. The Government should lead an objective, forward-looking analysis of the balance between the positive employment impacts of growth in R&D and renewables against possible negative consequences of contraction in other energy sectors. This should also take account of indirect effects, such as employment implications in the UK of the terms of trade for energy imports. It will clear make a difference whether this is for manufactured goods or for services.

  82.  Government must also commit to stable long-term funding and resist the temptation either to switch R&D work on and off or to fragment it to such a degree that scientists and engineers spend their time as fundraisers and managers rather than doing the R&D required. It is not uncommon for good technologies to languish for years before funding is located. Deadlines for funding calls often do not correlate well with the stages of product development. Funding of a linked modular nature would be more useful allowing for testing of a concept which, if successful, would be guaranteed funding to the next stage and so on. This would allow for building momentum on promising projects.

26 September 2005






327   NIREX: Radioactive Wastes in the UK; A summary of the 2001 inventory, October 2002, and supporting documents. Back

328   The Nuclear Communications Network Feature no 12 13/9/05. Back

329   DTI Energy White Paper. Back

330   Derived from British Nuclear Energy Society data. These figures do not take account of the recently announced life extension to Dungeness B power station. Back

331   The Costs of Generating Electricity-Royal Academy of Engineering (2004). Back

332   In June 2002 the then Energy Minister recognised the importance of clean-coal technology both domestically and in terms of its export potential. "Probably the best thing we could do globally for the environment is to make sure that clean coal is used in countries that are heavily dependent on coal and in most cases on old and dirty technology". Back

333   NIREX: Radioactive Wastes in the UK; A summary of the 2001 inventory, October 2002, and supporting documents. Back

334   Resilience of the National Electricity Network, Trade and Industry Select Committee, 2004. Back

335   Forum for Renewable Energy Development in Scotland-Future Generation Sub-Group (2005). Back

336   British Wind Energy Association. Back

337   E.On Wind Report (2004). Back

338   Wind power in West Denmark- Lessons for the UK. Dr V.C. Mason (August 2005). Back

339   Public Accounts Select Committee report "Department of Trade and Industry: renewable energy" (2005), includes conclusion that "The Renewables Obligation is currently at least four times more expensive than the other means of reducing carbon dioxide currently used in the United Kingdom . . . A carbon tax would be a less complex way of reducing carbon emissions". Back

340   Trade and Industry Select Committee, "Resilience of the National Electricity Network" (2004). Back

341   Foresight Energy and Natural Environment Panel-Fuelling the Future (2001). Back

342   "As of where we are now, on the trajectory we are on, we will not meet our domestic target which we set ourselves"; Margaret Beckett, Secretary of State for Environment, Food and Rural Affairs; BBC Radio 4 "Today", 22 April 2005. Back

343   Business Clusters in the UK: A first assessment, DTI (2002). Back

344   "Macroeconomic Analysis of Nuclear Plant Replacement"; Oxford Economic Forecasting (March 2005). Back


 
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