Examination of Witnesses (Questions 223-239)
E.ON UK AND EDF ENERGY
6 JUNE 2006
Q223 Chairman: Gentlemen, welcome. I
am sorry that we begin a few minutes late. We need to finish at
one o'clock, so I hope that we can put our questions in as brisk
a manner as is commensurate with getting detailed answers. I begin
as always by welcoming the witnesses to the Committee and asking
them to introduce themselves for the record.
Mr de Rivaz: My name is Vincent
de Rivaz, chief executive of EDF Energy. I am very pleased and
honoured to be invited to talk to the Committee.
Mr Linford: I am Denis Linford,
director of regulation, EDF Energy.
Dr Golby: I am Paul Golby, chief
executive of E.ON UK, probably better known to most people as
Powergen.
Mr Scoins: I am Colin Scoins,
director of new business, energy wholesale, E.ON UK.
Q224 Judy Mallaber: In both of your
submissions you argue strongly for the role of nuclear in contributing
to the Government's climate change objective, but on current evidence
if we are to avoid irreparable damage to the environment we have
to act to control emissions now. Given that new nuclear build
cannot possibly come online until the end of the next decade,
can we still make a case for it?
Dr Golby: I would argue that we
can. I think that if we are to deal with the issue of security
of supply and the environment we need all the tools in the toolkit.
We need to deploy all of the technologies. It is quite right that
new nuclear will probably not start to make a contribution until
the middle part of the decade, perhaps in 2017 or something like
that, given an efficient planning decision, but that means we
will be deploying other technologies meanwhile. For example, my
company has two gas-fired stations subject to planning and also
a demonstration clean coal plant. We will be moving with other
technologies of which nuclear is just one, but it will start to
make a contribution from the middle of the decade onwards.
Mr de Rivaz: We have to be completely
clear about the challenges that we face and their time horizons.
Between now and 2016-17 we have to fix the power crunch which
will occur at that time if we do not build new capacities in this
country. It is obvious that for various reasons this gap will
not be filled before 2016 by new build nuclear. The likelihood
is that it will be filled mainly by gas. There is a high probability
that there will be a dash for gas in the coming years which will
create a situation where we are even more reliant than today on
imported gas. In that situation we will not contribute, if it
continues like that, to reductions in CO2 emissions. Our second
big challenge is to deal with the situation if it worsens beyond
2017. Added to the power crunch is the CO2 emissions crunch, and
that is why it is very important that we now take the decisions
to enable the industry to make the investment in nuclear new build
given the time horizon when that emissions crunch may happen.
Q225 Judy Mallaber: It has been suggested
that new nuclear build may reduce UK emissions by only 4%. We
also hear of huge uncertainties about all the figures. At every
session we appear to have more rather than less uncertainty. Does
that not minimise the reasons for spending all our time talking
about whether or not we should now have new nuclear build? Is
that the answer to the problems that we are talking about?
Dr Golby: I do not think that
we are spending all of our time talking about nuclear. Certainly,
from an industry point of view we are talking about a diversity
of technologies. All of these will make a contribution to security
of supply and emission reductions. There is no silver bullet and
we will need all the technologies—gas, clean coal, renewables,
energy efficiency and also nuclear—if we are to solve the
problem of both security of supply and carbon emissions. Whether
or not the 4% you mention is right I think that it is a contribution,
just as some of these other technologies will make a contribution.
We need a lot of slices of contribution to achieve our objectives.
Q226 Judy Mallaber: You refer in
your evidence to studies by the Energy Saving Trust which suggest
that microgeneration could contribute up to 20 to 30% of UK electricity
supply. Do you have any ideas what we should be doing to encourage
further development of those types of technology and what mechanisms
we could use for that?
Dr Golby: I believe that those
technologies are coming through and some may need additional help.
I co-chair the Energy Research Partnership with Sir David King.
We are looking at ways of bringing through some new technologies.
But all of our companies are bringing forward some distributed
technologies. How far they will get and what proportion of the
mix they will make I do not know. They will make a contribution
but I am not going to make a guess before the Committee today
what that contribution might be. I return to my point that we
need the whole range of tools to take forward the UK. There is
not a single or "either/or" solution.
Mr de Rivaz: We all advocate a
diverse mix of energy and believe that there is a role for renewables,
as long as they are realistic, or for clean coal as long as we
find a technology that is commercially viable. There is a role
for gas as long as we do not over-rely on imported gas with all
the geopolitical and price risk associated with that. There is
a role for energy efficiency which we need to boost. But the fact
is that at the horizon we are talking about existing nuclear power
plants, with a capacity of 10,000 megawatts, are being gradually
closed. The question is: with what technology will we replace
the existing nuclear fleet? If we replace it by coal or gas it
is clear that the targets for CO2 emissions will not be achieved.
In my view, it is a contribution to low-carbon and to secure and
affordable energy for the long term, along with other elements
of the diverse mix. It is very important to understand how a clear
statement of energy policy can recognise this role and how, once
the politicians have made that clear statement, it will enable
the industry to make its choice on how it delivers low-carbon
and secure and affordable energy for the long term.
Q227 Judy Mallaber: I shall be asking
questions about planning and the development of the regime for
potential new nuclear build. At the moment are there sufficient
incentives in the other potential forms of low-carbon technologies
for you as companies to wish to invest in them? Are there other
areas where you would like to see changes that would encourage
you to develop other forms of energy production?
Dr Golby: Broadly, incentives
exist. Basically, we want a level playing field but maybe some
additional incentive for newer and emerging technologies. While
this is not the subject of the Committee's hearing, I heard this
morning that our application for the London Array—a wind
farm off the Thames estuary which would supply a quarter of Greater
London's needs—has been rejected by Swale Borough Council,
despite the recommendations of its officers. There are a number
of non-financial incentives that need to be resolved because they
are the issues that stop us moving forward.
Q228 Mr Hoyle: I turn to decommissioning.
How much of your plant is due to be decommissioned in the coming
year and with what are you currently planning to replace it?
Mr de Rivaz: The nuclear plants
in the UK?
Q229 Mr Hoyle: All generating capacity
that is being decommissioned?
Dr Golby: My company is currently
closing coal plant in the foreseeable future. This is old coal
plant which is no longer effective. We do not operate nuclear.
Q230 Mr Hoyle: You do not operate
nuclear plants; it is purely coal?
Dr Golby: No. I have a mix of
power plants which currently does not include nuclear. Coal would
be the plants that we would close initially and we will look to
build plants with a range of technologies, including nuclear if
the right environment and framework exist. We are looking at the
whole spectrum from wind through to gas, clean coal and nuclear.
Mr de Rivaz: I think that all
of the industries mirror the power crunch that I described. Something
like 30,000 megawatts of capacity will be missing in 10 years
or so. That is the consequence of coal-fired plant being closed
and nuclear power plants being progressively closed. We have made
investments in our coal-fired plant to reduce dramatically their
impact on the environment in terms of NOx emissions and we have
invested approximately £240 million to prolong the lifetime
of these plants. But the whole industry faces the duty to contribute
to filling the capacity gap in this country. The question for
us—we are responsible for making investments amounting to
billions—is whether we have a clear framework in which we
can deliver.
Q231 Mr Hoyle: Nuclear power generation
comes from France. Are you decommissioning any plants there?
Mr de Rivaz: I do not want to
spend too much time on the French situation.
Q232 Mr Hoyle: You are selling us
electricity.
Mr de Rivaz: You are aware that
France and EDF are the worldwide leaders in nuclear. In France
we have 63,000 megawatts coming from nuclear. To give you a perspective,
the average installed capacity per operator in the world is below
10,000 megawatts, so we have more than six times the average.
The second one, Japan, is 17,000 megawatts. Many other European
companies like E.ON, RWE and British Energy are in the range of
6,000 to 10,000 megawatts. On average we have a track record of
20 years' operation of nuclear and that represents more than 11
centuries of operation in a safe and economical way. We are working
to expand the lives of our plants. The first decommissioning of
the current generation is not planned to occur before 2017, but
the costs of decommissioning and the know-how to deconstruct are
well known. It is very important to understand that to deconstruct
is more or less the same job in terms of skills as construction
and the cost is well known. That cost is part of the price per
kilowatt produced in France, which is competitive.
Q233 Mr Hoyle: Obviously, uranium
has to be sourced from around the world. EDF's evidence is that
this is not an issue or worry for the purposes of new build, yet
when we look around we see that there are 85 years' worth of known
reserves. If you scratch around the world you may get 270 years'
worth of uranium, but some of these countries are rather unstable.
The question is whether the uranium will be available as and when
one needs it? Is it or is it not an issue?
Mr de Rivaz: First, we have to
remind ourselves that in the overall cost of nuclear the fuel
element is less than 10%.
Q234 Mr Hoyle: I am not interested
in its cost but its availability.
Mr de Rivaz: But that is important
because the price risk is linked to the level of reliance on the
cost of fuel. The more one is reliant on it the more it affects
one's price risk and the overall cost and competitiveness of one's
generation. As to the resources available throughout the world
we have given the numbers in our submission. It is clear that
today compared with oil and gas reserves uranium has a much longer
life expectancy with current technologies. If one goes beyond
that, there are probably three centuries of availability of these
resources which come from countries which, if you allow me to
say so, are more friendly than the countries from which we shall
import our gas or oil, for example. Australia, Canada and countries
like that can be seen geopolitically as probably more friendly
than other countries that I shall not name.
Dr Golby: In excess of 50% of
the reserves are in OECD countries, so I agree with Mr Rivaz's
comment.
Q235 Mr Hoyle: Therefore, what is
the life expectancy of uranium supplies from OECD countries—50
years?
Dr Golby: It is somewhat more
than that, certainly sufficient uranium to provide beyond the
lifetime of any reactors that would be built in the UK as the
next generation.
Q236 Mr Hoyle: What is being said
is that a fleet of nuclear reactors is being built around the
world which increases the demand for uranium. There is a finite
amount of uranium available. Does it mean that we would then look
at fourth generation fast-breeder reactors to overcome the future
lack of uranium?
Mr de Rivaz: In the short term
we do not need to rely on the fourth generation of reactors that
you mention. If it was available it would extend these periods
to thousands of years. It is likely that the fourth generation
would be available in the next 20 to 30 years, but in the meantime
there is strong evidence that there is no issue regarding fuel
availability. The fact that it plays a much lower role in the
overall cost is very important in mitigating the price risks associated
with availability.
Q237 Mr Hoyle: How much high quality
uranium is actually available?
Dr Golby: I would need to come
back to the Committee with a precise answer.
Q238 Mr Clapham: To revert to what
was said earlier about the environment necessary to encourage
investment in new nuclear build, you referred to gas in the energy
economy mix. Given that we are likely to see more gas on-stream
from Norway in the next 18 months and that 40% of our electricity
generation is from gas, is it your view that the Government should
consider capping the amount of gas in the energy economy at 40%,
or do you believe that the market should reign?
Dr Golby: I do not believe that
the Government should intervene in that way. In the short term
we need to build more gas because that is the only short-term
technology which will be available to us over the next few years.
We need to build gas in the short term. I believe that the market
will make the right decisions here. If we have a level playing
field and a regime and framework that value carbon we have a range
of technologies to deploy. I do not think that we need the Government
to determine the energy mix in that way.
Q239 Miss Kirkbride: You mentioned
a short while ago that you were having problems in getting planning
permission for the Thames estuary project. Do you think that it
will be easier to get planning permission for nuclear reactors
than for wind farms, especially on land?
Dr Golby: The first point I make
is that planning is an issue. As we see increasingly, energy is
quite a strategic issue in the UK as our own natural gas resources
reduce. Planning is an issue which hopefully the energy review
will address. Moving on to the specifics of planning and licensing
for nuclear, what my company wants is a clear statement from the
Government acknowledging the contribution that nuclear can make.
Then I see planning in three areas: first, an environmental assessment
by the Government which looks at nuclear generically. Therefore,
do we want nuclear? As a nation, what are the issues generically?
That might lead to some early views on potential sites. Second,
we need to look at the licensing of a number of potential international
reactor designs so we have some options to choose from. There
are various designs available and deployed internationally. Thirdly,
I think that we move to the site-specific issues with which local
inquiries have to deal. I would not like to see a repeat, for
example, of the Sizewell B inquiry where all of the issues are
open at local level rather than being dealt with strategically
at national level and decisions affecting the local community
are taken subsequently.
Mr de Rivaz: I totally concur
with that point. I simply add that we should not cut corners about
the issues that public opinion wishes to address. Public acceptance
is a condition precedent for all potential investors to make their
decisions. What we propose with this streamlined process is not
to weaken the debate or cut corners but the opposite; it is to
reinforce public confidence and acceptance at the end of the process.
A process which is flawed, not robust or predictable and will
end in an unknown number of years is not one that is capable of
creating public confidence. I think that the interests of investors
and the industry in a robust process match the expectations of
public opinion in having a clear understanding of the decisions
that are taken at the global level, nationally or, as Dr Golby
has just said, at a local level where the population is directly
impacted. This clarification and predictability is well understood
as a condition precedent for investors to make their choices.
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