House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 11

Memorandum by British Nuclear Fuels plc

BNFL welcomes the opportunity to comment on these important issues as they are increasingly a focus for public and political attention.

We will be submitting a full response to the Energy Review at the end of March, including a supporting paper looking specifically at nuclear energy issues, and we will copy both the submission and the supporting paper to the Committee at that time.

In this response we focus on the three specific questions raised by the Committee as the topics for its initial attention:

The "particular considerations that should apply to nuclear new build" (Question 3 of the Review).

The "implications of increasing dependence on gas imports" (Question 2 of the Review).

The capacity of microgeneration to meet a substantial proportion of UK electricity demand in the medium- and long-term.

Our responses to these questions are presented in the remainder of this document.

The "particular considerations that should apply to nuclear new build" (Question 3 of the Review)

Three issues need Government consideration and action if new nuclear build is to have a role in helping to meet UK energy policy objectives.

PLANNING AND CONSENTS

Many consents are required before construction and operations of a nuclear power plant can start. Predictable timescales for decision-making at every stage through to operation are needed, coupled with public transparency at each of those stages to give confidence that there has been a robust examination of all relevant issues and that appropriate measures have been put in place.

Granting of key approvals before plant order, with a well-defined scope and timetable for further approvals during construction and commissioning, is vital to avoid scope changes that result in cost escalations and delays to operation.

Therefore an integrated strategy which will involve all regulators, stakeholders and government departments should be developed with the object of achieving efficient and timely delivery of consents and decisions.

This approach builds on work already underway and will ensure the UK is better informed about future reactors and their UK implementation. Design review, strategic environmental assessment and any work on nuclear justification can then start in advance of, or concurrent with, investors coming forward.

WASTE MANAGEMENT POLICY

Identification and delivery of a long-term strategy for the management of radioactive waste is also important. CoRWM will make recommendations to Government in July 2006, on the option(s) for managing UK radioactive wastes that protect people and the environment.

There is extensive UK and international experience of managing reactor wastes and decommissioning nuclear facilities. In other countries long-term solutions are already being implemented safely and effectively.

Modern reactor design means that waste volumes are much less than those from earlier designs. A new fleet of nuclear stations would add less than 10% to the volume of nuclear waste that the UK is already committed to managing.

Various approaches for funding waste management and decommissioning are well established internationally, and private sector organisations have substantial experience of provisioning for long term liabilities. Although such organisations will be prepared to accept financial responsibility for decommissioning and their fair share of waste management costs, they will not be able to accept open-ended liabilities relating to waste and fuel disposal. Government are the ultimate legatee of nuclear wastes and must be prepared to accept title to packaged waste within a decade or two of a plants closure. Private organisations will also need to understand, and agree with Government, what their repository costs are, prior to making investment decisions.

CoRWM have been looking ahead to implementation, and it is vital that this momentum is maintained by Government during this next phase. To this end we encourage Government to respond to CoRWM's recommendations via the Energy Review.

CoRWM's considerations should draw upon the overseas experience of implementation in countries such as Sweden and Finland, but we believe that all important aspects have been identified by CoRWM:

— One or more bodies to oversee and deliver the recommended options.

— An implementation strategy with a statutory basis with clear milestones, monitoring and reporting arrangements and legal instruments to ensure continuity through successive parliaments.

— A site selection process to identify and evaluate the range of relevant scientific, technical, legal, social, economic, environmental and ethical factors that may influence siting.

— Transparent approaches for volunteerism, veto and incentives.

— A modified planning process which ensures that national issues are considered nationally, followed by local consideration of local issues.

— Arrangements for continuing involvement of the public and stakeholders.

We do not have any specific suggestions for Government in these implementation areas. Whichever approach is adopted the key issue is that Government should take decisions quickly—a timely, fit-for-purpose solution is needed which commands public support and will work in practice.

THE ELECTRICITY MARKET

Government action is required in the UK electricity market. Currently low carbon electricity is encouraged by a series of short-term measures, most notably the EU emissions trading scheme. Even the next phase of the ETS however, only runs until 2012, and there is no clarity over allowance levels for this phase, nor over what—if anything—will be the mechanism for incentivising reductions in emissions in the middle of the next decade and beyond.

This timescale is the earliest by which the first of a potential new series of nuclear plants might come into operation. It also has the potential to be a crucial period for the construction of other new low-carbon capacity.

Informed private sector investment decisions on such schemes can only be made if Government provides increased clarity over the provisions for supporting low-carbon generation in the decades beyond 2012. In doing so, it is important that support associated with existing low-carbon projects (such as wind farms already operational or in the development stage) is retained, to ensure their continued viability.

Long-term clarity over the price at which consumers can buy their electricity—and over the price at which a utility can sell the electricity that it generates—is beneficial for both. Price certainty is particularly important for enabling investment in technologies that do not rely on fossil fuels, as their operating costs are not correlated with revenues in a market where fossil fuels set the price.

There are also other specific considerations which feature in the nuclear debate—such as safety and security, public opinion, uranium resources, insurance, and so on. None of these requires specific Government action, as none presents an obstacle to a new programme of UK nuclear generation. A more detailed supporting document will be provided to the Energy Review team at the end of March, alongside BNFL's submission to that review, dealing in some depth with these and other issues relevant to nuclear energy. We will also provide a copy of that supporting paper to the Trade and Industry Committee at that time.

The "implications of increasing dependence on gas imports" (Question 2 of the Review)

We believe there are two main concerns over supply security—increased dependence on gas imports and the projected growth of renewables.

ON GAS IMPORTS

Given the UK's steadily increasing demand for gas, the fact that imports could account for 40% of all UK supplies by 2010, and 90% by 2020[41] is a clear cause for concern. The fact that we are moving so rapidly towards this position, having been a net gas exporter as recently as 2003, heightens this concern.

Increasing reliance on gas imports brings many risks. These can be political (suppliers may refuse to supply), physical (the pipelines, LNG ships or import terminals may not be available or may be damaged) or commercial (the price may be so high as to make the UK uncompetitive).

We note the recent events in Ukraine, Georgia and Armenia[42]—as well as the disruption of supplies to Belarus in February 2004[43]—and as a result conclude that reliance on pipeline supplies for substantial portions of our needs presents a significant and growing risk.

The alternative to pipeline gas—LNG—presents its own risks. The market is growing dramatically, increasing the risks of non-delivery to UK terminals (a situation already seen[44]). Reliance on import terminal infrastructure is high, which also presents risk.

Greenhouse gas emissions from gas-fired generation will also rise as the UK becomes more reliant on imported gas. Transporting gas over long distances by pipeline means that minor leaks are unavoidable, and the longer the pipeline, the greater the quantity of gas that is likely to leak. Natural gas has a much higher global warming potential than CO2[45], so even leakage of a small proportion of the gas can increase the overall greenhouse gas impact significantly. Similarly, both liquefaction and re-gasification of imported LNG are energy-intensive operations that, even if leaks can be avoided, result in additional carbon emissions. It has been reported[46] that these considerations can make the lifecycle greenhouse gas emissions associated with using imported gas from Qatar or Russia 50% higher than those from simply burning gas from the North Sea.

We encourage the development of a co-ordinated approach across the EU to dealing with gas imports—in particular from Russia.

ON RENEWABLES

We support the further development of renewable technology, which increases the diversity of the electricity generation portfolio without the direct emission of CO2. Yet, whilst the output variability associated with the UK's current renewable capacity is readily accommodated, dedicated backup capacity will be needed if penetration is to reach 15% or more as targeted. A recent Oxera study[47] highlighted that for one quarter of the hours in a typical year, the national power demand is over 70% of the overall maximum demand, whilst simultaneously power production from a geographically dispersed set of wind turbines is less than 40% of the rated output.

Recent practical experience of the E.ON Netz wind fleet[48] (the largest in Germany with a combined capacity of over 7,000MW) shows that average output during 2004 was only around 20% of capacity, and the baseload capacity avoided by the output from this fleet was only 8% of its rated capacity. Although the UK has much better wind resources than Germany, this experience raises questions over the impact of renewables growth on supply security.

FURTHER STEPS FOR GOVERNMENT

We welcome the decision to ask HSE to review safety issues of all leading power generation technologies, including LNG and gas storage, carbon capture and storage, renewables and nuclear,[49] recognising that there are new concerns associated with the planned growth in LNG, particularly in relation to transport and storage. The HSE study should ensure that an objective and consistent approach is brought to this important area.

We believe Government should take the following steps:

— Clarify the accountabilities for ensuring security of energy supplies, as well as the interfaces between bodies such as DTI and Ofgem under normal and abnormal situations. We note that historically consideration of such issues has been unnecessary, but the erosion of capacity margin since privatisation, coupled with increased reliance on fuel imports, has increased the potential for supply interruption.

— Ensure that any market mechanisms that are developed to encourage increased security and/or diversity, do not adversely impacting on investment decisions (some of them long term) already made by utilities.

— Consider how to stabilise the investment cycle, avoiding a "boom and bust" approach to investment, which would see a lot of the same technology built quickly, followed by long periods with very little investment.

The capacity of microgeneration to meet a substantial proportion of UK electricity demand in the medium- and long-term

Microgeneration could make a substantial contribution to meeting overall UK demand for electricity (and for other forms of energy) in the coming decades.

We support measures to increase the proportion of cost-effective microgeneration which contributes to power production in the UK. We recognise that it reduces the demand placed on the centralised grid and also that many microgeneration technologies are renewable, and so play a part in helping to reduce UK carbon emissions. However, there are very considerable practical barriers to be overcome if microgeneration is to achieve its full potential. For example it would require marked behavioural change. Large numbers of householders and businesses would need to be persuaded to invest in the technology, and persuading so many separate decision makers will be a major challenge, for several reasons.

ECONOMICS

The cost/benefit argument is unlikely to be persuasive in itself, with long payback periods being the norm.

	Solar PV	Wind Turbines	Solar Thermal Hot Water (in a property heated by electricity)	Solar Thermal Hot Water (in a property heated by gas)
Payback time (Years)	120	29	24	80

Even these pay back calculations have been made on the assumption that a net metering arrangement will be in place, where households will receive a similar credit for the electricity they export as the price of electricity they buy from the grid—assumed to be around 6-7p/kWh (as noted in footnote 34, page 43 of the consultation document). If a lower price were to be received for electricity supplied back to the grid, then payback periods would be even longer. To achieve the full potential of microgeneration in this way, the technology to allow export of power back to the grid (during times of high output from the microgeneration equipment) needs to be developed and deployed in parallel with the equipment itself. New metering equipment and pricing policies will also need to be developed, to allow for the fact that homes and businesses with such equipment will be both customers and suppliers, and to ensure they pay fairly for their use of the public networks.

In summary, it is most unlikely that microgeneration will be attractive to potential investors based on the current economics. Substantial support will be necessary if such technologies are to break into the market on a significant scale, and therefore begin to deliver economies of scale from mass production. The extent to which this hurdle can be overcome remains to be demonstrated.

PRACTICALITIES

Micro-wind is seriously limited for most dwellings by the effect of screening by nearby buildings, trees, higher ground, etc. For such properties, the full benefit would only be achieved by installing the turbine on a tall pole, which would add significantly to the cost, potential structural impact, and visual intrusion, as well as bringing new issues of safety and maintenance.

Solar PV (photovoltaic) technology is limited to those buildings which have a reasonably south-facing roof or wall which is not shadowed.

Micro-scale hydro is restricted to very few locations.

BEHAVIOURAL/CULTURAL

For householders, the technology may not look attractive as an addition to the property, and—at least while the technologies are in their infancy—householders may fear that such a feature would be an obstacle to a future sale.

Those considering investing may also fear that their obligations in respect of care and maintenance will be non-trivial (both in financial terms and in terms of the potential effort involved).

There is no immediate "functional" or "quality of life" benefit. This is in contrast to—for instance—the investment in a satellite TV dish (which also presents a visual impact on the property, as some forms of microgeneration technology would) or investment in double glazing or a property extension.

As the payback period of the investment is decades long, the investor is likely to notice the outlay, but not really to notice the annual benefit.

It is difficult to see a clear way in which a shift to achieve such adoption can be accomplished, but it is likely to require both a major campaign of public awareness (aimed at making microgeneration a "high status" attribute of a home or property) coupled with some substantial form of financial support to the investors in such technology (acting as an incentive to balance the cost/benefit issues noted above).

On present evidence, we support the conclusion reached in the recent report from the Sustainable Development Commission[54], namely:

"Microgeneration seems unlikely to become a major contributor to UK energy or electricity supply for many years, even in the most favourable circumstances, and its capacity to deliver significant carbon savings in average households is not yet proven."

GRID ISSUES

In addition to the barriers to deployment, there are implications for the grid of a notable growth in microgeneration.

The impact of microgeneration on supply security in the rest of the electricity supply sector may not always be helpful. The widespread adoption of microgeneration would tend to reduce the load factors of large generators, which in turn would tend to encourage marginal plant to close and would discourage investment in new capacity. It would also reduce the number of large generators available to the grid system operator for balancing the variations of generation and demand. If the combined output from all the country's microgeneration were well correlated with demand, and did not vary randomly, this would not be a major concern. However some microgeneration is poorly or inversely correlated (for instance PV produces most power during the summer, but much less in winter mornings and evenings, when demand is highest). This will tend to result in reduced plant margins at peak periods, and so may reduce overall security of supply. In addition, having a greater surplus of power capacity at times of low demand means that the system may not represent the most cost-effective overall scenario.

The impact on losses from the transmission and distribution networks also needs to be considered. Many observers have claimed that large power stations lead to huge losses and inefficiencies in transmitting the power over long distances to users, and that small/distributed generation therefore makes a major saving. In fact—although this sounds plausible—the opposite is in fact the case.

Figures from the Digest of UK Energy Statistics[55] show power losses equal to 7.5% of energy generated, of which around 1.5% is lost in the high voltage transmission system, 5.5% is lost in the local distribution systems, and the remaining 0.5% is attributable to theft, fraud and accountancy errors. This illustrates the fact that transmitting high power long distances at high voltage is significantly more efficient than distributing low power short distances at low voltage. Or, to put it another way, in transmitting power from a large distant power station to your home, around half the losses occur in the last couple of miles near your front door. The installation of a lot of distributed or micro generation which reduces power flows on the high voltage transmission system, but increases flows at low voltage, would be unlikely to cause any significant reduction in the losses, and could well see them increase.

This conclusion is supported by a study by the University of Cambridge[56], which showed that distributed generation is environmentally and economically inferior to centralised generation. In fact, in countries such as France where the centralised generation is substantially carbon-free, it would be better to move towards increased centralisation. In this situation it is environmentally far better to stop heating properties using gas-fired central heating and instead to start using electrically-powered heat pumps.