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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