APPENDIX 1
Anglesey Aluminium Metals Limited
INTRODUCTION
1. Anglesey Aluminium Metals Limited (AAM)
welcomes the opportunity to respond to the Trade and Industry
Select Committee's Inquiry into the Work of the Nuclear Decommissioning
Authority (NDA) and the United Kingdom Atomic Energy Authority
(UKAEA).
2. AAM is a company operating an aluminium
smelter in North Wales. Located at Holyhead, the smelter has been
operational since 1971 producing 145,000 tonnes of primary aluminium
annually in the form of extrusion billet, rolling slab and ingot.
Customers for the aluminium are situated throughout the UK and
Europe.
3. To compete in the world market, it is
essential that AAM have access to competitively priced and reliable
supplies of electricity. Electricity is a feedstock into the electrolysis
process and is the largest cost within AAM's cost structure, representing
in excess of 35% of AAM's total costs.
4. Historically AAM has close links with
Wylfa Nuclear Power Station, both facilities started production
in 1971 from their sites on Anglesey at Holyhead and Cemaes Bay
respectively. Wylfa was the last and largest Magnox reactor to
be built and it has announced that it is due to cease operations
and commences decommissioning in 2010.
5. AAM is one of the largest private employers
on the island; the business is key to the Anglesey economy. AAM
and Wylfa account for over 1500 well-paid high quality jobs.
THE NDA DECOMMISSIONING
STRATEGY
Implications for AAM
6. The NDA Draft Strategy proposed that
the Wylfa power station should cease generating in 2010. The case
and timescales for the decommissioning of Wylfa Nuclear Power
Station were outlined prior to the establishment of the NDA in
April 2005. In relation to Wylfa. The NDA's draft strategy stated
that "The closure date for the site is subject to change
by the Government, but the NDA does not plan to recommend any
extension."
7. AAM currently has a contract with Magnox
Electric for the supply of electricity at a fixed price up to
30th September 2009. The contract has significant benefits for
AAM: a guaranteed price for electricity (which accounts for 35%
of AAM inputs) and the direct connection with Wylfa avoids transmissions
user charges (in excess of £4 million pa). Given that AAM's
products are traded on the commodity markets, access to competitively
priced electricity is vital for its continued operation.
8. Electricity prices in the UK are currently
at record highs, and are not anticipated to reduce significantly
until 2008. There is therefore much uncertainty on AAM's future.
However the closure of Wylfa and the subsequent increase in AAM's
cost base due to transmissions charges could make aluminium production
uneconomic.
9. AAM is highly dependent on Wylfa for
energy and has a direct line feed into its site from the power
station. The Holyhead smelter already faces some of the highest
energy costs of aluminium smelters on a worldwide basis and the
decommissioning of Wylfa is likely to lead to an increase in both
the unit cost of electricity for AAM and the transmission user
costs of taking energy from the national grid. Closure of Wylfa
and hence reliance only on the national grid line crossing the
Menai Straights also brings concern on security of supply as the
aluminium smelting process is not tolerant to extended outages
of more than two hours.
Implications for Anglesey
10. AAM has undertaken a feasibility study
for a gas fired combined cycle power station on the Island. The
economics of such a project is highly sensitive to gas and carbon
dioxide prices. Current projections suggest that electricity prices
from such a project would not support an aluminium smelter over
the medium term. This may change by 2012. An extension of Wylfa
by a minimum of two years would enable AAM to fully explore all
available options.
11. Anglesey is one of the most economically
disadvantaged areas of Wales with low levels of economic activity
and very low levels of income per head. The island is losing its
economically active population with young people moving out and
in-movement of older people. In 2002 the Gross Value Added per
head on the Isle of Anglesey area was estimated at £8,133
or 68% of the Welsh average and only 53% of the UK average. Furthermore,
the island area generated the lowest level of GVA per head recorded
by any other region in the whole of the UK[1].
12. The continued operation of Wylfa until
a new nuclear power station was built together with the continued
operation of AAM would provide a robust economic platform for
the island and Government should seriously consider the continued
operation of Wylfa.
Implications for UK Energy Policy
13. The timescale for decommissioning would
have been considered in the context of low electricity prices
and a high level of supply security and with the UK well placed
to meet its Kyoto Greenhouse Gas (GHG) targets. It would have
also been considered without full knowledge of the social-economic
impact of closures on a remote area such as Anglesey. However,
the current climate of high electricity prices, concerns on security
of supply and the potential for the UK to miss its Kyoto targets
must make it highly relevant to reconsider the decommissioning
dates for operational facilities such as Wylfa Nuclear Power Station.
14. The continued operation of Wylfa, which
generates 6.5TWh of electricity annually, would make a valuable
contribution at a national level through:
(a) Generating the same output as Wylfa with
a modern gas-fired power station would consume 450 million therms
of natural gas and produce 2.4 million tonnes of CO2.
(b) Helping security of supply issues and
maintaining a downward pressure on electricity prices through
reduced reliance on natural gas and reduced demand for CO2 credits
under the EU Emissions Trading Scheme.
15. The latest[2]
figures for UK electricity supply in Quarter 3 (Q3) 2005 shows
an increased reliance on nuclear generation, with nuclear supplying
21.4% of UK needs compared with 19.7% in Q3 2004. Wylfa would
make an ideal site for a new 1300MW nuclear power station and
was a proposed site for a PWR alone with Sizewell and Hinkley
Point in the 1980's.
Implications for the NDA
16. The continued operation of Wylfa would
provide an additional income to the NDA's decommissioning budget
through increasing revenue by £162.5million per annum based
on electricity wholesale prices of £25 per MWh.
CONCLUSIONS
17. The NDA's remit in closing productive
nuclear power stations such as Wylfa needs to be reconsidered
in the light of both local and national interests.
18. This is a critical issue for AAM and
the Anglesey economy. AAM submits that the NDA should undertake
a full economic and safety review with the aim of extending the
life of existing operational Magnox Nuclear Power Stations and
that the capability to produce Magnox fuel rods should be retained
at Springfield pending that review.
19. Given the increased reliance on nuclear
power generation and the Energy Review that was announced by the
Government in November 2005, AAM strongly believes that the life
extension of existing operational Magnox Nuclear Power Stations
should be reviewed.
20. Any review to continue operation at
Wylfa will also have implications for the fuel manufacturing facilities
at Springfield and reprocessing activities at Sellafield issues
and the need to reduce radioactive discharges by 2020 in line
with the OSPAR convention.
21. Time is an issue given that elements
within the Magnox fuel manufacturing process at Springfield are
scheduled to be complete by Spring 2006.
20 January 2006
1 Source: Office for National Statistics, Sub-regional
reports, GVA per head 2001. Back
2
Energy Trends Dec 2005, DTI publication. Back
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