Examination of Witnesses (Questions 60-79)
NUCLEAR INDUSTRY
ASSOCIATION AND
BRITISH ENERGY
16 MAY 2006
Q60 Roger Berry: Have previous studies
on the cost of nuclear energy been fairly accurate in relation
to predicting capital cost and the cost of waste disposal and
decommissioning?
Mr Spence: To be quite honest,
the track record is mixed.
Q61 Roger Berry: I would like you
to be quite honest, please!
Mr Spence: One can find plenty
of studies out there which have under-estimated the costs associated
both with generation and the back-end. All we can say is that
we believe the studies we have quoted are based on sensible and
conservative projections which take account of the best real world
knowledge, not simply what might happen in the future.
Q62 Roger Berry: You have talked
about the importance of long-term stability. If you are to plan
for the future obviously it is helpful to have some stability
in terms of expectations and so on. But over what period of time
do you expect government to be able reasonably to maintain a consistent
incentive structure and price for carbon emissions, and so on?
What are you looking for?
Mr Spence: In an ideal world one
would love a regime that endured for the full life of the plant,
which, as you heard earlier, would be about 60 years. We recognise
that it is not an ideal world. It should be for as long as possible.
I recommend a 15 to 20-year forward look as the sort of period
that the private sector would have regard to when considering
assurance for the funding of any plant, whether it is nuclear
or coal.
Q63 Roger Berry: How credible do
you think that is given that governments could change every four
years or less?
Mr Spence: Industry deals with
that uncertainty all the time. All the time the oil and utility
industries have to make a judgment about the likelihood that the
world will change with a switch in political regime. All one can
do is deal with what is there at the moment and the degree of
apparent support for that particular arrangement.
Roger Berry: But those other industries
are investing in new plant; you are not.
Q64 Chairman: My understanding is
that the German Government is giving precisely these long-term
guarantees to the new coal plants being established in that country,
irrespective of whether theoretically ETS allows them to do that.
Is that your understanding?
Mr Spence: I have heard that about
Germany. I do not have the details.
Mr Armour: Clearly, in the current
situation where the carbon market has lost two-thirds of its value
in the past three weeks there is uncertainty as to what limits
will be set in 2008. There is no scheme or arrangement beyond
2012, so there is a disconnect in the context of the need for
an energy policy that gives the right mix by 2050 and investment
that is looking at a 20, 30 or 60-year horizon.
Q65 Roger Berry: Another problem
is the volatility of the electricity market in terms of prices.
Do you think that the current electricity trading regime is sympathetic
to UK new build, or do you believe that the balance between the
long-term needs and short-term adjustments to the market necessitates
a change in the electricity trading regime?
Mr Spence: We would preface our
views on this by saying that NETA was clearly set up in a world
somewhat different from today's. It was a world of over-capacity,
relatively abundant fossil fuel and low fossil fuel prices. Today's
reality is different on a number of fronts. We need to find a
regime that will encourage timely investment in any sort of generating
technology. This is not a nuclear-specific point. We would question
whether or not that means looking at the fit of the arrangements.
I do not know whether a long-term carbon signal on its own is
sufficient to do that or whether it needs a more fundamental look
at the total electricity market. However, my experience both within
British Energy and, previously, as a consultant to the utility
and oil industries is that very few, if any, companies make decisions
about their investments on the basis of the short-term spot market;
they decide on the basis of a longer-term view of the fundamental
dynamics, whatever the market. Whilst, therefore, we see a lot
of volatility with NETA I believe that the backdrop to the decisions
that the private sector will make is the question of long-run
carbon and fossil fuel prices.
Q66 Roger Berry: There are market
fluctuations certainly in this area. You say either that you will
leave this to the market and judgments will have to be made by
potential investors, who will have to adopt a view about long-term
values, variables et cetera, or that you believe in the free market
but it is so anarchic out there that you want government to lay
down price signals and affect the market arrangements. Which is
it? You were suggesting, I think, that it could be left to investors
to adopt their own views about what happens in the long term.
Is that the case?
Mr Spence: Our view is that government
needs to set a framework that sends a signal about what policy
outcomes it wishes to achieve, whether those are low carbon, security
of supply or perhaps diversity of generation. If those are the
things that government wishes to achieve we recommend that it
tests the existing market against those objectives and decides
whether the market will deliver those to them, and at the moment
I am not sure that it would.
Mr Parker: I should like to reinforce
that point. Clearly, there is no planned investment in generating
capacity in the current market, but there is an urgent need for
that investment to come forward quickly, because we face a generating
gap within the next 10 to 20 years as existing coal and nuclear
stations come off the system. At the moment, nothing is coming
forward to replace them, so we face potential energy supply interruptions
in 10 or 15 years' time.
Q67 Roger Berry: What kind of signal
do you want? Do you want a signal from government which says,
"We are nuclear neutral. If you want to do new nuclear build,
fine; we have no problem with that, but you go and do it. You
observe the market. You are entrepreneurs, so just go out there
and do the business. We will not block it"? Alternatively,
do you want that plus a signal from government which says, "We
will give you some planning directions on the kind of mix we want.
We will start to give you target prices and change the electricity
trading regime to provide greater security"? I am not clear
what you think is the role of government in all this?
Mr Parker: I repeat what Mr Spence
said. It is a matter of creating the framework.
Q68 Roger Berry: What is the framework?
Mr Parker: It is the identification
of the desirable outcomes of the energy policy, and the Government
has already said quite clearly that future security of energy
supply and reduced carbon emissions are desirable outcomes of
energy policy. What I am saying is that the current policy or
market does not necessarily deliver those outcomes, so it is perhaps
for government to create the framework in which there is some
certainty, for example about the long-term value for carbon which
would have the effect of reducing emissions.
Mr Armour: NETA was very focused
on the economics of generation. If government wants to achieve
diversity in terms of a balanced mix which gives us robustness
against shocks and a low carbon outcome the signals must be factored
into it. Something like the carbon trading scheme was a way of
factoring in the low carbon issue.
Q69 Mr Hoyle: Obviously, I want to
talk about getting the timing right. People say that unless we
have nuclear power the lights will go out, but the big issue is
that we know it could be five years before you get the go-ahead
for a new nuclear plant. Is there anything that you believe could
be done to streamline applications? We must also ensure that the
public has the right to object and is not compromised. Do you
have any solution?
Mr Parker: You are right about
the timing. We heard earlier about the length of time taken by
the Sizewell B inquiry. Issues about policy, need, economics and
safety, as well as local impact and environmental matters, were
discussed at great length. Two years later one had the Hinckley
Point C public inquiry. Although it was shorter it considered
a good number of the same issues: policy, need, economics and
safety. Our view is that there is scope for streamlining some
of those decisions. Policy, for example, should not in our view
be decided at a public inquiry. It is not the function of a public
inquiry to debate it; it is for the Government and Parliament
to decide policy. I think that there was a misapprehension among
a number of people who participated in those inquiries that they
were having some influence on government policy whereas they were
just to advise the Secretary of State on the issues.
Mr Spence: There is a potential
for a five-year process upfront for the planning and licensing
of design. As Mr Parker said, the first thing we recommend is
that any process has a sensible upfront debate about national
policy but once that is formed it should not be re-debated repeatedly
in any subsequent local inquiries. Our second recommendation is
that licensing and the process for assuring the safety of any
particular design should take place, again with proper scrutiny,
by a regulator with public involvement, but that it should take
place once and should not be re-debated in any local inquiries.
We recommend that the local component of inquiry focuses on the
issues specific to a particular potential site and the impact
on the communities in those locales. As part of that, the Government
has a number of proposals under the major infrastructure planning
regulations that could be put into force and help to make this
happen in a more efficient and streamlined fashion without undermining
the ability of the public to play a role.
Q70 Mr Hoyle: Obviously, regulatory
bodies—the Health and Safety Executive and so on—must
have an input. Do you believe there is a way of reforming, or
possibly merging, those views in order to speed up the process,
or would it compromise the rights of the people who live in an
area where the proposed project may go ahead?
Mr Spence: Again, we have not
made suggestions about the best way for government to choose to
organise itself.
Q71 Mr Hoyle: Some would argue that
the Environment Agency and Health and Safety Executive are part
of the government. They are agencies that protect the public.
I do not quite see them as being "the government"; otherwise,
they could end up being the voice of government?
Mr Spence: We would recommend
that the Environment Agency and the Health and Safety Executive
agree the protocol to cover the specific issues and one of them
takes the lead in an area and does the work needed to cover both
needs so we are not faced with a situation in which both feel
the need to examine the same issue from subtly different angles
in series and thus prolong the time and increase the cost for
the same outcome.
Q72 Mr Hoyle: If we said that with
the existing process it could take up to five years, how long
do you believe would be the right timescale? Would it be two years,
three years or four years? What do you expect it to be?
Mr James: I am not sure it is
helpful to time-limit it.
Q73 Mr Hoyle: What do you think is
a fair assessment of the time needed?
Mr James: One of the problems
lies in merging into what are essentially three different areas
that need public examination. The first issue is national policy.
Second, is the generic reactor type safe? Thirdly, is it safe
on that site and is it acceptable to public opinion? To try to
curtail artificially any of those debates would be unhelpful because
it would not give the public a sense that they are confident in
the process. What we should try to avoid is circulating those
arguments so that every time we look at a local issue we are looking
again at all the national issues. For instance, if one is looking
at safety systems in a reactor core, those will be the same regardless
of the site on which the reactor is situated. To look at the same
systems again would be very unhelpful. To try to put a time limit
on it would probably be unhelpful, but to look at these matters
in parallel as separate issues would be particularly helpful both
to allow these stations to be built but also to create greater
public confidence that these are safe systems and it is the right
way forward.
Q74 Mr Hoyle: We started off by saying
that in the past these inquiries had taken five years. Surely,
you are not saying that in future you would expect to see it taking
five years. Therefore, you would expect it to be shorter. You
must have some timescale in mind; otherwise, we could end up with
no electricity in the country?
Mr Parker: In a way, five years
is our best estimate. In the past it has sometimes been considerably
longer than that, and that is what we are trying to avoid. If
new nuclear is needed or is regarded as being desirable in terms
of its contribution to diversity and the reduction of emissions
we need a degree of streamlining to ensure that projects can progress
at a reasonable rate. If there is not a degree of certainty or
predictability in planning and licensing what will happen is that
investors simply will not put their money into new nuclear, which
in our view would be unfortunate.
Mr Armour: The Committee might
find it interesting to note the French timescales. The French
have announced that they are to build a new reactor at Flamanville.
They have been through a public consultation process and have
now announced the timescales for the planning process. These are
expedited compared with the UK. We do not suggest that you adopt
those processes, but they are much more defined and disposed to
try to achieve an outcome and build something than we have here.
Major infrastructure projects generally, whether it be grid lines,
nuclear stations or whatever, do find a major barrier in getting
over the planning hurdle in a sensible fashion. That is something
which the review needs to look at.
Q75 Mr Hoyle: If there is a site
where emissions already occur would you choose to build there
with the existing permission where the public might not be allowed
to have an input into that new build?
Mr Armour: I think we would require
new permissions for a new site. Clearly, there are certain issues
that go into the choice of sites, whether they be grid connection,
land suitability, seismic capability or whatever. Many of the
existing sites were chosen because they were favourable for that
purpose, but for any station we would have to go through a new
process.
Q76 Chairman: Typically, do you find
that where you are on an existing site the local community is
better or less well disposed towards nuclear?
Mr Parker: Generally, they are
better disposed towards nuclear; it is part of their local environment
and it provides economic benefits, and the closer people are to
nuclear the more well disposed towards it they seem to be.
Q77 Mr Binley: My personal background
is business, particularly entrepreneurial business. I may be misreading
this, but I gain the impression that the industry is on the defensive;
it has lost some confidence and has not got it back. Let us assume
that you have total confidence today. What would be your choice
of reactor technology for the new series of nuclear power stations?
Why would you choose them? How would the sector react to the Government
choosing a preferred design to give economies of scale, bearing
in mind what we were told earlier about the four different designs
and the difference between evolutionary and new stuff and so forth?
Mr Parker: I do not think that
it is for government to choose which design is built in the UK.
I agree with what our predecessors said this morning. The most
likely ones will be evolutionary-type generation III designs which
have evolved from existing well-tried technology, perhaps based
on PWR designs or the CANDU, or the boiling water reactor. We
have built a PWR in the UK and so we have operational experience
of it. There are evolutionary PWR designs which will be available
to us.
Q78 Mr Binley: Can you comment on
the question of confidence? It seems to me that the times they
are a-changing. Do you agree? Do you believe that it is time to
go on the front foot a bit more?
Mr Armour: If we have conveyed
lack of confidence it is an attempt not to create the impression
of arrogance, of which we have in the past sometimes been accused.
We are trying at this point to be somewhat more measured and balanced
in that sense.
Mr Spence: I should like to expand
on the points made by Mr Parker about particular reactor designs.
There are a number of very strong candidates among internationally
accepted designs. Our view is that the important consideration
is that the UK finds a way to be able to adopt those international
designs and to be connected with the operating and industrial
experience that will come from having stations similar to those
being used elsewhere in the world rather than being in a technological
cul-de-sac, which is arguably where we are with the AGR and Magnox
fleet today.
Q79 Mr Binley: I do advise you not
to be quite so downbeat. I think that you have a better story
to tell. To what extent will the UK have to rely on foreign technology
for the construction of a new series of nuclear power stations?
What risk might that pose? You might also comment—this is
totally outside my sphere but I am being cheeky—on what
the Government might be able to do to help you about the length
of time taken, should the decision be made to proceed with a new
series?
Mr Parker: As to the degree to
which we have been reliant on foreign designs, it was pointed
out this morning that we would not be building a UK-designed reactor.
I think that is quite clear. Therefore, we shall have to look
for overseas designs to source our choice. There are a number
of acceptable designs available to us. It is interesting to consider
the extent to which the UK industry will be involved. We have
looked at the existing capability within the UK industry and are
confident that a very large amount of the work, say 70 to 80%,
required to build the new reactors can be done on the basis of
existing capability. Given the lead times for new reactors, that
capability can be enhanced. As you heard this morning, there are
some pinch points where we no longer have the manufacturing capability,
for example in relation to reactor pressure vessels, steam generators,
large turbines and large forgings. As Professor Grimes has said
and a number of companies in the industry have indicated, if there
is confidence in the developing international and domestic markets
for new nuclear power stations the capability to build some of
these large items can be revived. In many cases the facilities
still exist, because we did have this capability a few years ago.
They could be revived with sufficient investment but also with
sufficient confidence in the future.
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