Select Committee on Trade and Industry Written Evidence


APPENDIX 38

Memorandum by the Nuclear Industry Association

  The Nuclear Industry Association (NIA) is the trade association and representative voice of Britain's civil nuclear industry. It represents over 120 companies including the operators of the nuclear power stations, those engaged in decommissioning, waste management, nuclear liabilities management and all aspects of the nuclear fuel cycle, nuclear equipment suppliers, engineering and construction firms, nuclear research organisations, and legal, financial and consultancy companies. Among NIA's members are the principal nuclear power station operators—as well as companies engaged as contractors and manufacturers in the forefront of nuclear technology.

  In our submission to the Government's Energy White Paper consultation in September 2002, the Nuclear Industry Association (NIA) stated that:

    "Britain's energy market is at a cross roads where the path taken will affect the entire economy over the ensuing decades. Two key factors will influence the direction of energy policy—the environment, in particular global warming, and the probability that the UK will soon become a major energy importer. Set against this background is the need to replace a large tranche of existing power stations as many older nuclear and coal stations reach the end of their economic lives... The long lead times of most energy projects and systems means that it is vital that the White Paper establishes a clear, predictable framework which allows energy industries and investors to plan ahead and so ensure that the nation's energy needs are met sustainably, securely and efficiently."

  Over three years later, those statements are still relevant and indeed have attained even greater pertinence. In the intervening three years:

    —  Carbon emissions have risen due to increased coal use while the impacts of climate change have become more apparent and the need for effective action more urgent.

    —  The country has become a net importer of gas sooner than expected, and could be reliant on gas imports for up to 70% of its electricity generation by 2020. Recent geopolitical developments, particularly in Russia and the Middle East, have sharply increased the price of oil and gas and highlighted the potential risks to the security and cost of the UK's future energy supply.

    —  Investment in renewable sources of energy, even though boosted by the availability of Renewables Obligation Certificates (ROCs), has been slow and renewables only account for 4% of the generating mix, short of achieving the Government's target of 10% by 2010.

    —  Volatility in the wholesale electricity market has brought investment in new conventional capacity to a virtual standstill and the country still faces a "generation gap" in the next 10-15 years as the existing coal and nuclear power stations are due for retirement. Around 30% of Britain's electricity generating plant will need to be replaced by 2020.

  Against this background, there remains a compelling need to create the appropriate framework in which the market can operate to deliver the Government's objectives for secure, clean affordable energy for the long-term.

  NIA welcomes the Government's decision to review its energy policy and we are pleased to submit this response to the Committee's inquiry. In this response we will address the question relating to the issues of new nuclear build. We will also provide additional information about the capability of the UK nuclear supply chain to support potential new nuclear build derived from NIA's report, "The UK capability to deliver a new nuclear build programme" (March 2006).

THE "PARTICULAR CONSIDERATIONS THAT SHOULD APPLY TO NUCLEAR" NEW BUILD (QUESTION 3 OF THE ENERGY REVIEW CONSULTATION DOCUMENT)

  This response seeks to highlight the benefits of nuclear energy in terms of its contribution to diversity and security of energy supply, and to the achievement of environmental objectives relating to the mitigation of climate change. There is a compelling case for the UK to put itself on route to a secure, low carbon, affordable energy mix for the long term. Nuclear has a major role to play in that mix, but it can only do so if steps are taken now towards replacing baseload capacity coming to the end of its life by and beyond 2015. In response to this question we will concentrate on what needs to be done to retain the nuclear option so that it can continue to provide those tangible benefits.

The timescale

  Modern nuclear reactors take around five years to construct. However, it would take perhaps an additional five years to get to the point where the industry could start construction. Thorough scrutiny of prospective reactor designs and sites by the safety, environmental and security regulators is required before investment decisions can be made. A suitable regulatory framework must be developed in order to allow this to happen in a timely manner, and to avoid the lengthy delays that occurred, for example, in the planning and approvals processes for Sizewell B which took 14 years in total from initial application to the generation of electricity.


  The industry's best estimate is that it would take about a decade to bring the first of a new generation of nuclear stations on line.

Market reform

  The private sector is fully capable of taking forward replacement nuclear build if there is an appropriate arrangement for sharing risks and returns. However, these do not exist in the current energy market. A number of actions are therefore required from Government if nuclear is to compete for investment with other forms of generation.

  These measures do not involve financial support and should also benefit other large-scale low carbon technologies. Their adoption by Government would clearly not imply any commitment to go ahead with a nuclear new build programme. Indeed it is not for Government to make such a commitment.

Clear Government statement that nuclear is an important strategic component of the UK's energy policy

  No investment in new nuclear (particularly funding for preconstruction activities) will be forthcoming unless Government first confirms that nuclear is a politically acceptable option. Government needs to make clear it sees nuclear as part of the generation mix in the UK's long-term energy policy, and is prepared to take the necessary steps to encourage investment in new build. Government also needs to provide direction on the scope of any potential programme and the timescales required.

Review of the consents and approvals processes to ensure their efficient, timely and predictable delivery of all necessary regulatory clearances

  Delivery of a new nuclear station to budget is crucially dependent on achieving the necessary timescales. Under the current system the time taken in obtaining planning and regulatory approval has had a significant impact on the costs of new capital projects. Government therefore needs to work with industry and regulators to consider what improvements could be made to provide greater clarity on the scope and timing of the regulatory process whilst maintaining its necessary integrity and robustness. The following options could be considered:

    —  Integrating the delivery of consents and approvals. A regulatory process roadmap could set in place the detailed logic of activities to secure all consents and approvals. Two important areas to be covered are the planning and public inquiry process and nuclear safety licensing. Each organisation involved needs to have clear accountability defined for effective and timely decision making in respect of regulatory consents and approvals and appropriate interfaces need to be set up to achieve this.

    —  Initiating early regulatory design review to meet the ten-year programme and to preserve essential skills in the regulators.

    —  Agreeing a process to pre-license reactor technology to facilitate effective delivery of a standard internationally proven design. This should provide assured "once only" review of the plant design and ensure that there is low residual regulatory risk to programme and capital costs at the time of plant order when the major funding commitment is made.

    —  Supporting the timely recruitment and development of regulatory resources to enable a streamlined process to be followed. The appropriate regulators (NII, EA, SEPA and OCNS) should be encouraged to plan for sufficient resources to be available in time to cope with the substantial workload.

Clear policy framework and strategic approach for long term radioactive waste management

  The nuclear industry currently suffers from the absence of clear Government policy on waste management. A common objection to replacement nuclear capacity is the lack of an agreed route for the ultimate disposal of waste, and this affects both public and investor confidence. Developments elsewhere in the world—in, Finland Sweden, and the USA—indicate that publicly acceptable technical solutions are available to deal with the problem. In the UK it is essential that a long-term policy on waste management is established to provide confidence to investors about costs, and to the public that an acceptable solution is available. The Committee on Radioactive Waste Management's (CoRWM) recommendations on management options, due to be delivered to government in July 2006, should contribute substantially towards providing that degree of clarity and assurance, provided that government acts quickly to respond to the committee's findings.

  It must be emphasised that the bulk of the UK's inventory of intermediate and high level waste is part of a "historical legacy" and is not an accurate indicator of future trends of material from civil nuclear electricity generation. Replacement nuclear stations of world standard would generate significantly lower quantities of waste per unit of electricity produced. For example, replacing the current nuclear fleet with light water reactors (LWRs) would add only about one tenth of existing waste volumes for lifetime operation. The establishment of the Nuclear Decommissioning Authority to deal with Britain's historic legacy of nuclear liabilities is a welcome sign of movement on this issue.

  While the nuclear industry is able to manage all the technical aspects of spent fuel there is currently insufficient visibility on the long-term arrangement for dealing with the spent fuel from a new generation of nuclear stations. Government needs to agree and implement a clear policy framework and strategic approach for long-term radioactive waste management.

Financing waste management

  The UK could adapt financial models that have been successfully implemented in other countries (such as the USA, Sweden and Finland). Under this arrangement Government could set a waste disposal "levy" or fee on the basis of nuclear power generated, and charge for this at the time of generation. To determine this fee, the government would make assumptions about the waste disposal cost, when the cost would be incurred, and the return realised on levy monies between the date of receipt and the date of incurring the cost.

  Future costs and fund performance would be reviewed regularly to ensure that the levy remained adequate, but if this were set in a prudent way at the outset then any changes would be marginal. The new nuclear generators would therefore be paying a "fair rate" for their waste management but would have a large measure of up-front certainty. Third party responsibility for packaged waste and fuel would be assumed at an agreed time after reactor closures and would allow the third party full access to the fund at that point in time.

  By acting decisively to implement the sorts of measures recommended here the Government could demonstrate their commitment to tackling some of the barriers to nuclear energy's future contribution to the transition towards a sustainable, low-carbon energy economy.

New reactor types

  In the nearly thirty years since the UK last ordered a new nuclear reactor technology has advanced and the reactor types currently available have many advantages over those built previously. These include:

    —  New, licensable designs, such as the Westinghouse AP 1000 and Areva's European Pressurised Water Reactor (EPR) are available now for introduction into the UK given the right conditions for investment.

    —  Modular design features, coupled with the benefits of standardization and series build of these reactors, would deliver significant construction and generating cost reductions and improved competitiveness.

    —  Passive safety systems based on proven technology enhance the safety, and reduce the complexity and cost of the new generation of reactors.

    —  New generation reactors produce less waste. Replacement of the UK's entire existing nuclear capacity with AP 1000 units, for example, would add only 10% to the country's waste inventory over a 40 year station lifetime.

    —  Nuclear fuel costs represent only a small proportion of overall costs, making nuclear less vulnerable to fluctuations in fuel prices than fossil fuelled alternatives.

    —  New nuclear stations could be built adjacent to existing sites with secure and established grid connections, reusing existing infrastructure and providing continuity of employment for a skilled workforce.

  For these reasons there is high confidence in the cost estimates for the new generation of reactors available to the UK.

The economics of new nuclear build

  Electricity prices have risen significantly in the recent past, largely driven by the global rise in gas prices. It has been shown that the overall generating costs of nuclear energy can be competitive with fossil-fired generation if there are no artificial barriers, such as those currently posed by UK-specific planning risks. Nuclear energy is consistently shown to be much cheaper than the leading renewable alternatives.

OECD analysis of power generating costs for different technologies


Projected costs of nuclear energy from different studies

MIT
(2003)
PIU
(2002)
Chicago
(2004)
RAE
(2004)
DGEMP
(2003)
Finland
(2003)
OECD (2005)
Generating cost
(p/ kWh)
3.9-4.0 3.0-4.03.1-3.62.26-2.44 2.01.71.3-1.9 1.8-3.0
Rates of return11.5%8% & 15% 12.5%7.5%8% 5%5%10%
Capital cost$2,000/ kW
(£1,150/ kW)
$2,000/ kW
(£1,150/ kW)
$1,500/ kW
(£865/ kW)
$2,000/ kW
(£1,150/ kW)
€1,413/ kW
(£990/ kW)
€1,900/ kW
(£1,330/ kW)
  $1,000-$2,000/ kW   (£610-1,210/ kW)
Load Factor85%75-80% 85%>90%>90% >90%    85%
Economic life15 yrs20 yrs 15 yrs25 & 40 yrs 35-50 yrs40 yrs    40 yrs
Construction period 5 yrs Not identified 5-7 yrs5 yrs5 yrs 5 yrs    4-6 yrs


  Nuclear energy is relatively insensitive to changes in the price of the raw uranium fuel, and provides an element of stable cost generation in the generating portfolio, which is helpful in keeping overall prices to consumers low. This contrasts with gas-fired generation, where the cost of raw gas can represent 60% or more of the total generating cost and as we have seen is subject to volatility.

Does the UK have the capability to deliver a new build programme?

  If the energy review were to conclude that new nuclear build is desirable, the UK nuclear supply chain could deliver. A recent study by the NIA has shown that companies operating in the UK nuclear sector have the capability to undertake up to 80% of new nuclear power station projects.

  The specific conclusions of the NIA study are:

    —  Much of the engineering and construction work on a new nuclear power plant is not directly nuclear related, but is similar to work being carried out by many companies on major projects throughout the UK and worldwide.

    —  Advances in programme and project management, construction techniques, and innovative financing arrangements have substantially improved the delivery of major projects in the UK, including nuclear projects. These improvements are characterised by significant attention to the integration and streamlining of preconstruction activities.

    —  The UK nuclear supply chain could currently supply over 70% of a new nuclear plant, and with investment in resources and facilities, this proportion would be increased to over 80%. Contractors would make those investments in facilities, and recruiting and training staff if they were confident that a programme of several stations would proceed without undue delays.

    —  These additional resources could be put in place within the period for project development, planning and licensing (around five years). Even with additional investment in the UK supply chain there would still be some specialised components that will require to be imported, for example reactor pressure vessels.

    —  The requirement for civil engineering resources to build a new nuclear power station would represent only a small proportion, around 2%-3%, of the national capability. Similarly, mechanical and electrical resource requirements are only 4%-5% of the national capacity. Competition for resources from other major projects should not be a problem (for example, any new nuclear build would occur predominantly after construction for the 2012 Olympics).

    —  An assumed programme of five twin reactor power stations constructed over a period of 15-20 years should generate 64,000 man-years of work; a further 22,000 man-years of work would be generated in the community through indirect jobs in the support sector.

    —  An established home market and close associations with international nuclear power station vendors would give UK companies access to business opportunities in many countries around the world where there is significant investment in new nuclear build.

"THE IMPLICATIONS OF INCREASING DEPENDENCE ON GAS IMPORTS" (QUESTION 2 OF THE REVIEW)

  Decisions taken now will affect the security of Britain's energy supply for decades to come. Until recently, reliable electricity supplies in this country could be taken for granted: the UK benefited from a balanced and diverse electricity sector, and the rapid shift towards gas powered generation plant in the 1990s was underpinned by substantial domestic reserves of gas. However, as the UK becomes a significant net gas importer our access to reliable and affordable electricity could be severely compromised if we become over-dependent on one fuel.

Dependency on gas imports

  The consultation paper notes that imports could be meeting up to 40% of total gas energy demand by 2010 and 90% by 2020. Key sources of gas will in the short term include Norway (need to check when these decline—the consultation paper suggests could last for decades) [sic] and in the longer term Russia, Africa and the Middle East. Surface pipelines will pass over very long distances and through many countries en route to the UK, raising concerns over the prospect of interruptions to the supply of gas to the UK, highlighted by Russia's decision to cut off supplies of gas to Ukraine in the New Year.

  Diversity in sources of gas supply, including the expected import of a substantial amount of liquefied natural gas (LNG), and the construction of storage capacity, can help manage these risks. However, in the case of LNG the UK will be competing with other countries which are poised to become LNG importers. The recent diversion of UK bound tankers to the US following Hurricane Katrina shows that the market cannot be relied upon to ensure security of supply.

  More generally, diversity in gas supply cannot protect us against longer-term price movements in the world gas market. Free commodity markets alone will not assure stable prices. The huge gas price increases this winter demonstrate the potential risks.

The electricity generation mix

  Decisions taken now will have a major impact on our future electricity supply. Our transition to a net gas importer comes at a time when a great deal of generating capacity will be retiring from the electricity grid and will need replacement. As the consultation paper recognises much of our coal and nuclear generating capacity faces closure over the next two decades. Coal's contribution to our electricity requirements could shrink from 32% to around 15-20% over the next 10-15 years, with nuclear's share in generation falling from the current level of around 20% to just 7% by 2020 and even less shortly thereafter.

  The UK will therefore need shortly to embark on an unprecedented investment programme to replace up to 20 GW of generation capacity. Since power stations generally have significant lifetimes the fuel types selected for this new build will have a major impact for many years, not only on the UK's security of supply but also on our ability to meet current and future climate change targets. The wrong decisions taken now could lead to high and volatile electricity costs and conceivably to supply interruptions, causing major damage to the economy over many decades.

Our existing energy framework will lead to further gas plant

  Unless changes are made to energy policy and the current regulatory environment the retiring coal and gas plant are likely to be replaced predominantly by CCGT stations. This is because, as Deloitte point out in their report, 2020 Vision: meeting UK power generation objectives in 2020—a strategic insight (February 2006, p 21), "the private sector would build and operate the most efficient plant available, irrespective of the fuel supply, [or] environmental or market issues associated with each available technology... This would imply further investment dominated by CCGT as the technology of choice..."

  Although there will also be some growth in renewables supported by the Renewables Obligation, this will not fill the gap created by the closure of coal and nuclear stations, and the broader impact will be an even greater reliance on imported gas. From the environmental perspective, since plant built now could still be operational in 2050, the UK will also be locked into a high carbon economy for several decades.

Renewables contribution is important but limited

  Renewables produce indigenous and low-carbon electricity and can help fill part of the gap. The Government is right to encourage their development. However there are concerns over the difficulties in accommodating intermittent renewables generation in a reliable electricity supply system if the amount of renewables exceeds the 15% target set for 2015. Because the bulk of renewables over the next two decades will be from wind power the generation provided will be intermittent, and any large-scale development will require backup from fossil fired generation.

  Looking to the future new coal (and gas) plant fitted with carbon capture and storage (CCS) could make a contribution in providing carbon free generation. However the technology is as yet unproven and there are legal and other issues to be resolved. Given its potential, efforts should continue to develop this technology to the point where a decision can be taken on its viability. However we are not currently at the position where a decision could be taken to rely on CCS for meeting our future energy needs.

Nuclear is a secure and competitive energy source

  Currently nuclear energy is the only proven, reliable, large-scale low carbon electricity supplier. Because nuclear's operating costs are much less dependent on fuel costs than either coal or gas plant it provides enhanced security of supply. Uranium is plentiful and comes from politically stable countries and can be stockpiled if necessary. As the energy review paper acknowledges reserves would last for around 50 years at current levels of demand and consumption, with more available from decommissioned plant and weapons. As demand for uranium increases the price is likely to rise, encouraging renewed interest in uranium prospecting for further deposits of economic high grade ores.

  Following the recent rise in electricity prices nuclear generation has become much more competitive—as shown by British Energy's dramatically increased profits over the past year. While gas prices are unlikely to remain at their current historically high levels, informed commentators believe that increasing world demand and the growth of the Chinese and Indian economies means they are unlikely to revert to the low levels we have been used to. Against this background it is likely that, given the right market framework, new nuclear would be competitive with fossil fuel generation. In terms of low carbon generation studies have consistently shown that nuclear energy can be much cheaper than the leading renewable alternatives.

Barriers to nuclear development

  That said there are a number of barriers to nuclear development and economics alone are insufficient to encourage investment in new plant. A number of planning and regulatory conditions will need to be met before such investment will be forthcoming; these are set out in the response to the previous question. In particular the current electricity market contains too many uncertainties to facilitate long-term investment in projects that may take many years to produce positive cashflow. This applies equally to other large-scale low carbon projects, and indeed wind power projects would not have progressed in the absence of support from the Renewables Obligation.

  The private sector can deliver new nuclear build, but only if the market framework provides more predictability for investors. The current energy framework will not deliver the government's Energy White Paper objectives of cutting carbon emissions and maintaining competitive, diverse and reliable supplies.

What steps should the Government take to ensure reliable energy supplies?

  Current Government policy is to allow the market to make decisions within the right regulatory framework. But importantly the Energy White Paper also said that diverse sources, fuel types and trading routes should be promoted to avoid the UK becoming too reliant on too few international sources of oil and gas.

  For the reasons outlined above the NIA believes that the UK needs a balanced energy mix including gas, coal, renewables and nuclear. Replacing our existing nuclear stations with new ones will enable the UK to maintain the current share of nuclear generated electricity in the energy mix, combating global warming and providing the diversity we require to safeguard our future security.

  If the Government wants to encourage investment it needs to consider introducing market mechanisms to recognise the benefits of low carbon generating plant. The aim would be to create a market environment that signals a clear commercial opportunity that would encourage investors to engage in the programme.

Summary

  In a world of rising demand for gas and increasing concerns about the effects of climate change it makes no sense to replace our retiring coal and nuclear stations with gas fired plant alone. The NIA believes that, along with renewables and other low carbon sources, new nuclear plant have a major role to play in ensuring that we have the balanced energy mix we need. Government should take the appropriate steps to create a market framework which would enable nuclear and other low carbon projects to attract the necessary investment.

THE CAPACITY OF MICROGENERATION TO MEET A SUBSTANTIAL PROPORTION OF UK ELECTRICITY DEMAND IN THE MEDIUM AND LONG-TERM

  While the NIA are not experts in the field of microgeneration, many of our members are heavily involved in microgeneration projects. NIA believe that microgeneration technologies in combination with improved energy conservation, and a balanced mix of generation including low carbon sources supplied via the grid, have an important role to play in ensuring security of supply and reducing our carbon emissions. However, microgeneration alone will not solve the security of supply and greenhouse gas emission issues. In particular it will not help in supplying large scale energy intensive industries. It also has to be recognised that small scale generating technologies will require extensive adaptations to the grid infrastructure which will take a considerable time and large scale investment to achieve.

March 2006





 
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