Examination of Witnesses (Questions 55-59)
NUCLEAR INDUSTRY
ASSOCIATION AND
BRITISH ENERGY
16 MAY 2006
Q55 Chairman: Gentlemen, welcome to this
portion of our evidence session this morning on issues relating
to nuclear new build. As usual, I ask you to begin by introducing
yourselves for the record.
Mr Parker: My name is Keith Parker,
chief executive of the Nuclear Industry Association. On my left
is Simon James, communications manager for NIA. We are accompanied
by colleagues from British Energy.
Mr Armour: My name is Robert Armour,
general counsel for British Energy, and can I introduce Paul Spence
who is head of strategy.
Q56 Chairman: As you heard me say
during the previous evidence session—I think you were in
the room—in this section we want to concentrate on the commercial
issues. I shall turn to my colleague Roger Berry very shortly
to start that process. There are a few issues that I do not think
we have discussed at sufficient length so far on which you may
have views. One in particular is the safety and security issue
which is obviously a matter of great public concern. Your written
evidence did not have a great deal to say about that. You may
want to comment on it now or provide us with further written information.
Policymakers have also been concerned with questions of proliferation.
That is also a matter on which you may have views. There is one
technical issue in particular which I have discussed with Mr Armour
in the past and is a matter of concern to a Member of the Committee
who cannot be here today; namely, what happens if something does
go wrong. Who is the insurer of last resort, because a nuclear
incident can be very expensive? How does the private sector cope
with that? That is a matter on which Mr Armour will want to comment
in addition to the other two issues, either verbally now or in
a later written submission.
Mr Armour: Starting with the issue
of safety and security, I am happy to give you more information
on the industry's record. We start as a very heavily regulated
industry. We are regulated on environmental grounds; we are regulated
by the NII on nuclear safety; and we are regulated on security
by the Office of Civil Nuclear Security. We have about 20 regulators
who overlook our business. The safety record of the industry in
the UK is, I think, second to none in the sector. I think that
the nuclear industry has had a very good record over the period.
The same also applies to the security record in terms of looking
after our sites. You may or may not get evidence from the director
of civil nuclear security who also comments that he believes we
have a sound and effective system in the UK. I could go on in
detail but I think it is easier to put that in the note. As to
insurance, nuclear installations and operators have strict liability
for anything that results from their operations. That is established
by international treaty. The UK is a participant of both the Brussels
and Vienna conventions that regulate and channel that liability.
It also sets different levels of insurance to be borne by the
operator and ultimately, in the event of international issues,
to be channelled and borne by the state. Effectively, the insurance
level is set on the operator, in many cases by the capacity of
the insurance industry out there. There are a variety of insurances
that by statute the operator is required to have in place. Periodically,
that is updated. The UK is contemplating raising the insurance
levels on operators in line with international practice.
Q57 Chairman: The cost of dealing
with a major incident would be beyond the capacity of a private
sector company, or possibly the insurance market?
Mr Armour: In many cases the containment
and design of the station means that we would not expect any consequences
to be other than to the plant on the site. Therefore, for virtually
all of the foreseeable reactor incidents that we are talking about
we believe that the insurance with which we operate will be adequate
to cover that. But, clearly, if one looks at something like Chernobyl,
which was an international incident, there are established mechanisms
for dealing with that internationally.
Mr Parker: On the question of
proliferation, there is an international safeguards regime to
detect and discourage the diversion of nuclear materials to weapons
use. It is administered by the International Atomic Energy Agency
and all UK facilities are subject to that regime. I think there
is confidence that there will not be diversion of nuclear materials
from the UK, but obviously it is a sensitive issue with Iran currently
in the news. The reassurance is that the regime exists and is
robustly administered by the IAEA.
Q58 Roger Berry: Thank you for both
written submissions. I should like to raise the question of cost
and its implications for policy. I notice that, as always, when
it comes to the costs of nuclear power there is a wide range of
estimates. They are very sensitive to capital cost assumptions,
discount rates, the price of fossil fuels and so on. British Energy
in its submission argues that nuclear can be cost-competitive
with other forms of base load generation. One of the issues it
raises is the assumption made about the cost of carbon. To what
extent does your assessment about the cost competitiveness of
nuclear depend on policies about factoring the price of carbon
into energy generation? How important is that particular variable?
Mr Spence: As you say, the cost-competitiveness
of nuclear against any other form of generation depends on the
relative perceived risk of that nuclear project and the upfront
capital costs. Those are the two big determinants of how much
the long-run nuclear power would cost to produce. One then sets
against that the relative cost of the other technologies, which
then comes down to forming a judgment about the likely cost of
the fuel in those other technologies and the potential for the
cost of carbon to be borne by them if they are carbon-emitting
technologies. Given the present regime, we observe very volatile
fossil fuel and carbon prices. That makes it difficult for any
private sector investor to take a decision to invest in heavy
capital plant, be it nuclear or fossil. We recommend and believe
that a stronger long-term signal about the cost and value of carbon
would be a helpful mechanism to reduce the uncertainties that
the private sector would need to deal with and to allow a sensible
decision to be taken.
Mr Armour: That is not just important
for nuclear; it is also important for renewables and all forms
of low carbon electricity production.
Mr Parker: It would also accord
with the Government's objective to reduce carbon emissions. It
seems a desirable mechanism to have a long-term and stable value
for carbon.
Q59 Roger Berry: Various studies
are referred to in your two written submissions when dealing with
the costs of nuclear energy. Do the studies include the cost of
waste disposal and decommissioning?
Mr Spence: All of them include
allowance for the cost of taking down the station and long-run
storage of what comes out the back end.
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