Select Committee on Trade and Industry Written Evidence


APPENDIX 5

Memorandum by British Energy Group plc

1.  SUMMARY

On the question of nuclear new build

  1.  Nuclear generation has proved it can deliver large quantities of secure baseload electricity and it can be cost-competitive with other forms of generation.

  2.  On a life-cycle basis CO2 emissions associated with nuclear generation are insignificant when compared with operational emissions from coal and gas generation.

  3.  A clear and long-term Government commitment to reducing emissions from the electricity sector would provide greater investor certainty that the low carbon benefits of nuclear could be realised.

  4.  Nuclear new build should be based on accepted international designs with a proven track record.

  5.  There should be greater clarity to investors on the processes to licence and consent new build, regulation throughout the life of the assets, and the arrangements for handling longer term liabilities.

  6.  There are changes to the current licensing arrangements that could provide increased investor confidence without reducing regulator and public confidence.

  7.  It is important that a clear signal is given from government on the national need case for replacement nuclear, and that this is not re-evaluated at the local level every time there is a planning application.

  8.  There should be an early statement of Government policy on radioactive waste management following the CoRWM Report.

  9.  There is a wealth of skills and experience within the UK nuclear industry—the absence of a replacement programme could lead to an erosion of this skills base making it more difficult to maximise the contribution from the existing plants.

  10.  The most recent MORI poll shows 65% agree that Britain needs a mix of energy sources to ensure a reliable supply of electricity, including nuclear power and renewable energy sources.

On delivering reliable energy supplies

  11.  Projections suggest that in the absence of new initiatives supplies that can be considered "secure" will decline markedly over the next two decades, from close to 100% today to about 35% in 2025. The government needs to consider which technologies can provide the secure supplies the UK needs.

  12.  The closure of many coal and nuclear stations in the period to 2025 means the UK will require significant investment in new plant. Provided the right framework is established, the market can deliver an efficient response in terms of generation capacity.

  13.  Efficient use should be made of the existing transmission networks by replacing generating plant which is retired with plant of a broadly similar scale, and in the same locations.

  14.  The Government should consider the security of industrial and intellectual "infrastructure" to support the UK's long term energy needs.

On the potential of micro-generation

  15.  Micro-generation can make a long-term contribution towards meeting the UK's energy needs. At this time there are significant technical, practical and financial barriers for these technologies which will likely limit their contribution in the next 10-20 years.

  16.  Growth of embedded generation will require additional infrastructure and more active management of distribution networks and the cost of these will likely be borne by the consumer.

  17.  Growth in micro-generation will complement the centralised supply system. It is important that the UK government gives clear signals to stimulate investment in all forms of generation to meet the country's future needs.

2.  DETAILED RESPONSE

The Energy White Paper left open the option of nuclear new build. Are there particular considerations that should apply to nuclear as the government re-examines the issues bearing on new build, including long-term liabilities and waste management? If so, what are these, and how should the government address them?

Benefits of nuclear

  1.  A balanced mix of options will be required to deliver UK energy policy goals. Nuclear generation has proved it can deliver large quantities of baseload electricity and as such a replacement nuclear build programme must be part of the electricity mix.

  2.  Nuclear power provides a stable and secure means of electricity generation, both currently and looking to the future. This because uranium fuel is readily available from stable countries such as Canada and Australia, uranium and fabricated nuclear fuel can be stored, and estimated conventional uranium resources are equivalent to over 200 years at current consumption. Also, nuclear fuel costs are only a small part of the overall costs which make them insensitive to volatile international markets.

  3.  When assessed on a complete life-cycle basis the CO2 emissions associated with nuclear generation are similar to those from renewable sources and are insignificant when compared with operational emissions from coal and gas generation, as shown in Figure 1.

  4.  Significant sulphur and nitrogen oxide emissions associated with fossil fuel generation, as well as carbon dioxide emissions, are also avoided by nuclear generation.

  5.  In addition to helping the UK to meet its emissions reduction targets, valuable natural gas resources are preserved to service other key sectors, such as the domestic and industrial sectors, and potentially the transport sector in the long-term.


  6.  A replacement nuclear build programme would safeguard these benefits but it requires the Government to give a clear and early signal that it wishes to see an ongoing, long-term role for nuclear.

  7.  We are at a seminal point for the UK nuclear industry. There is a resurgence of interest in nuclear generation in a number of major countries around the world which could present opportunities for the UK. Strategically, this Energy Review could determine whether the UK, a significant player in the nuclear power industry for the past 50 years, remains a credible contributor to this important industry.

Long-term liabilities and waste management

  8.  There is currently no final disposal route for intermediate and high level radioactive waste in the UK. However, the existing waste from all sources is managed safely in accordance with international standards.

  9.  Before any new nuclear plant is commissioned there must be public trust and confidence that an agreed technical solution exists to deliver a final disposal route for the new waste generated.

  10.  The science of nuclear waste repositories is well understood. Collaborative research programmes have been developed in Europe and geological disposal is widely seen as an acceptable, technically viable solution; studies have confirmed this conclusion applies to UK geology.

  11.  The importance of gaining public trust has been recognised in the approaches to waste disposal in other countries, such as Sweden, Finland, Switzerland and Canada, and has played a major part in their development of a solution. In the UK, the Committee for Radioactive Waste Management (CoRWM), has a similar remit and is due to report in July 2006.

  12.  There should be an early statement of Government policy on radioactive waste management following the CoRWM Report. Crucially there should be a clear implementation process with a nominated organisation accountable for delivering the policy.

  13.  The investment community will want to know the economic arrangements for waste management and long-term liabilities so that these costs can be factored into the economics of new build projects.

Safety and security

  14.  There are established reactor designs, licensed elsewhere, that would operate to a high level of safety and environmental protection.

  15.  The security of nuclear installations is closely regulated by the OCNS. The risks to nuclear power plant are extremely low due to the robust nature of the plant and its protection systems, and the rigorous security precautions in place.

Economics and investment

  16.  There have been many studies showing that nuclear can be cost competitive with other forms of baseload generation, illustrated in Figure 2. The conclusions depend on assumptions made on such factors as fossil fuel prices and cost of carbon for the fossil generators and standby costs for wind generation.


  17.  The economics of nuclear generation are influenced by the cost of carbon, since nuclear power (like all low carbon technologies) receives a benefit as long as the cost of carbon is factored into the costs of fossil generation and subsequently recovered as a component of electricity prices. A clear and long-term Government commitment to reducing emissions from the electricity sector would provide greater investor certainty that the low carbon benefits of nuclear will be realised.

  18.  The risks associated with different forms of generation must be clear and measurable for investors. Under such circumstances financial institutions have shown themselves willing to invest in all forms of generation around the world.

  19.  The UK must maintain a regime that affords robust scrutiny of proposals but must do so in a way that gives greater clarity to investors on the processes to licence and consent this infrastructure, regulation throughout the life of the assets, and the arrangements for handling longer term liabilities.

Development timescales, planning and consents

  20.  A fleet approach to replacement build, with a common design, makes sense from a safety, technical, regulatory and economic standpoint.

  21.  Replacement nuclear build should be based on accepted international designs with a proven track record.

  22.  If the Government wishes the private sector to construct new nuclear power stations, there will need to be a high level of confidence in the timescale and outcome of the consent process.

  23.  Given the long duration of the consent process and subsequent construction, it will be particularly important that there is stable and enduring Government policy with regard to new nuclear construction.

  24.  Public confidence in the safety of nuclear plants depends on a thorough and independent licensing process and it is important that the integrity of the current UK process is maintained. Nevertheless, there are changes to the current arrangements that could provide increased investor confidence without in any way reducing the degree of rigour. For example, early examination of a plant design by the NII could provide some confidence of ultimate licensability in the UK.

  25.  Past UK experience suggests that five years or so would be needed for planning and licensing of a new plant. This introduces significant risks for nuclear projects with their high capital investment and long lead times from commitment to first generation. It is important that a clear signal is given from government on the national need case, and that this is not re-evaluated at the local level every time there is an application.

  26.  The ability to secure all necessary consents prior to the start of construction would contribute greatly to reducing the risk of delays and cost increases during construction.

Nuclear skills "infrastructure"

  27.  There is a wealth of skills and experience within the UK nuclear industry, which must be fully utilised as part of any replacement build programme; the absence of such a programme could lead to an erosion of this skills base making it more challenging to maximise the contribution from the existing plants. However, the Government has a role in encouraging the further development and continuation of the national skills base.

  28.  British Energy has the potential to help develop the skills base with the in-depth knowledge and experience necessary to operate new nuclear power stations in the UK.

Public perception

  29.  A poll by MORI in November 2005 confirms a trend of growing support for nuclear to be retained, particularly if it is to replace the existing plant that will be retired, as shown in Figure 3.

  30.  The most recent MORI poll for a Tyndall Centre Study on nuclear energy shows 65% agree that Britain needs a mix of energy sources to ensure a reliable supply of electricity, including nuclear power and renewable energy sources.



With the UK becoming a net energy importer and with big investments to be made over the next 20 years in generating capacity and networks, what further steps, if any, should the government take to develop our market framework for delivering reliable energy supplies? In particular, we invite views on the implications of increased dependence on gas imports.

The "energy gap"

  31.  The closure of many coal and nuclear stations in the period to 2025 means the UK will require significant investment in new plant. Over this timescale up to 30GW of new plant may be required to replace these stations and to satisfy increasing demand.

  32.  In the absence of new policy initiatives the Government's baseline projections suggest an electricity sector increasingly dominated by gas technology, as shown in Figure 4, even assuming successful renewables and energy efficiency programmes. This is because of the closure of many of the older nuclear and coal plants which have formed the backbone of the sector in the past will close over the next two decades.


  33.  The country is therefore embarking upon a major transition requiring huge investment in both plant and network infrastructure. Energy policy decisions made today will be crucial to the UK's security of supply, climate change response and competitiveness for decades to come.

  34.  Economic stability and growth is underpinned by electricity supply. Supply interruptions, as well as high and volatile energy costs, are very costly and damaging for the economy in general, and companies in particular.

  35.  Whilst more diverse infrastructure will be coming on stream (eg LNG terminals and enhanced pipeline links to continental Europe and Scandanavia), transportation infrastructure links of themselves do not guarantee that the gas will actually be available for use. The Government therefore needs to ensure that UK has adequate "secure" supplies, including nuclear, renewables and "clean" coal (ie coal with carbon capture and sequestration), to provide adequate security of supply.

  36.  There are significant implications of the future electricity mix as projected in Figure 4. The sum of coal, North Sea gas, nuclear and renewables (all of which can be considered "secure" supply) declines markedly from almost 100% in 2000 to about 35% of the total by 2025, as shown in Figure 5. A replacement nuclear build programme would provide an additional measure of security of supply for the UK and help mitigate the risk of costly supply disruptions that might otherwise occur.

  37.  An increased reliance on imported gas, particularly from less stable countries, exposes UK industry and domestic users to fluctuations in international markets, clearly evident in recent years; this will impact competitiveness and discourage inward investment. The UK government should minimise this risk by encouraging a diverse mix of fuel supplies and ensure "secure" technologies contribute to the mix.


  38.  As well as security of supply and reliance on imported primary energy, the Government should consider the security of industrial and intellectual "infrastructure" to support the UK's long term energy needs, and to grow the scientific, technical and engineering employment base of the country.

  39.  The skills "infrastructure" and industrial capability to support the UK's long-term energy needs must be key considerations for Government.

Role of Government in encouraging investment

  40.  Investment in new generating capacity and network infrastructure must be delivered in a timely way. However, there is uncertainty over whether market signals alone are strong enough to deliver this capacity as required.

  41.  Provided the right framework is established, the market can deliver an efficient response in terms of generation capacity. For networks, Ofgem needs to strike the right balance between allowing appropriate investment through regulated price controls to accommodate new capacity and ensuring that the networks remain efficient (eg minimise excess capacity/stranded assets and so on).

  42.  Furthermore, market regulation must be consistent and stable to allow markets to function properly. Regulatory uncertainty will deter participants from entering the market and result in economic inefficiency.

  43.  Generation assets have potentially significant planning horizons and long operational lives. It is therefore essential that the market framework and regulation are consistent and stable over such timeframes to allow the markets to function properly and provide the appropriate long-term signals for new investment.

  44.  The economic life-cycle of all generating plant is long; therefore long-term stability in energy policy (and mechanisms such as EUETS) is needed to encourage investment.

  45.  There is a huge challenge to the industry in seeking to deliver the energy infrastructure the UK needs on the timescale required. Government should address a number of significant uncertainties in the planning process and regulatory framework.

  46.  Intervention in the market should be kept to the minimum necessary in order to preserve security of supply and incentivise new investment. If changes to the market framework are required in order to promote this new investment, this must be achieved without jeopardising the value of existing assets.

Transmission and Distribution

  47.  It is important that the high reliability and security of the UK transmission network is maintained as the demands on the system increase.

  48.  The existing transmission and distribution networks have evolved over a long period of time and involved major cost to the consumer. Given the difficulties in obtaining consents for new overhead line routes it is important that best use is made of the existing high voltage networks for as long as possible. This is best achieved by replacing generating plant which is retired with similar plant of a broadly similar scale and in the same locations.

  49.  Growth of embedded generation (wind, micro CHP etc) will require additional infrastructure and more active management of distribution networks, with the cost borne by the consumer. All generators should face consistent charges, irrespective of the voltage at which they are connected to the system, to avoid perverse incentives to connect at the distribution level rather than to the high voltage network.

  50.  The current regime for obtaining access to the network has worked well in the past but is now in need of reform to meet new challenges brought about, for example, by the growth in embedded generation.

  51.  The cost of providing the transmission and distribution network is likely to rise and close regulatory scrutiny of investment plans will be required to ensure that the costs which will ultimately be borne by consumers are justified.

European context

  52.  The lack of progress in liberalising international markets has inhibited the extent to which gas supplies are available to the UK at competitive prices. The UK Government should continue in its efforts to encourage liberalisation in international markets as part of an overall strategy that also reduces our reliance on imported fossil fuels and encourages the use of "secure" supply.

  53.  The UK Government should continue to take a lead in Europe, arguing for consistent application of the European Directives in the energy and environment areas.

  54.  The Government should consider UK competitiveness compared with other countries (both in the European Union and worldwide) when developing energy or environmental policy measures that impact on the gas and electricity markets.

  55.  The EU's Green Paper on energy identifies the same priorities as those of the UK Energy Review. It suggests a minimum level of the overall EU mix to come from secure and low carbon energy sources, with Member States free to choose between different energy sources.

[What is] the capacity of microgeneration to meet a substantial proportion of UK electricity demand in the medium and long-term?

  56.  Micro-generation can make a long-term contribution towards meeting the UK's energy needs. At this time there are significant technical, practical and financial barriers for these technologies which will likely limit their contribution in the next 10-20 years.

  57.  The National Grid's seven year statement estimates that in the period to 2012 demand for electricity will grow by an average of 1.3% per annum. However, when embedded generation is taken into account demand on the grid will grow at an average of 0.8%. This reflects a modest contribution from small and medium CHP and embedded renewables, but demonstrates that the requirement for a centralised generating system will continue to increase.

  58.  The benefits that micro-generation bring depend on the technology deployed:

    —  Non-thermal renewables such as wind and PV are essentially carbon free, but are inherently intermittent and need to be coupled with a centralised grid system.

    —  Biomass offer greater flexibility but require the development of a supply chain, and will be limited by the UK's capacity to produce fuel.

    —  Micro-CHP offers a more efficient means of utilising fossil fuels (than conventional plant) and can contribute to mitigating CO2 emissions and reliance on imported fuel. However, it does emit CO2 and for gas generation will rely on imports, therefore is less effective in meeting energy objectives than electricity generation from renewables or nuclear power.

  59.  The UK must pursue the least cost approach to meeting future energy needs. The development of micro-generation involves additional costs that will likely be borne by the consumer, and which will limit the potential of this type of generation:

    —  Certain technologies, such as PV, have high generation costs. Large scale deployment is necessary to help to bring costs down, but the current high costs are themselves barriers to deployment.

    —  Growth of embedded generation (wind, micro CHP etc) will require additional infrastructure and more active management of distribution networks.

    —  A greater reliance on non-thermal renewables will increase the need for standby generation, with associated costs.

  60.  The current regime for obtaining access to the network has worked well in the past but is now in need of reform to meet new challenges brought about by the growth in embedded generation.

  61.  The existing grid transmission and distribution system is a national asset of considerable value and must be maintained and fully utilised in the future. New large-scale generation can take advantage of this system without requiring additional infrastructure costs.

  62.  Growth in micro-generation will complement the centralised supply system. It is important that the UK government gives clear signals to stimulate investment in all forms of generation to meet the country's future needs.





 
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