Government response
We welcome the Committee's continued interest in
the nuclear decommissioning and clean up field and the very positive
comments on the role of the UKAEA.
The Nuclear Decommissioning Authority (NDA): response
to Recommendations 1, 2 and 5 (on skills).
We note the Committee's concern about the lack of
clarity in the estimates of the total cost of the UK's civil,
public nuclear decommissioning and clean up programme, the fact
each successive estimate has been higher than its predecessors,
and that the final cost of cleaning up the UK's historic nuclear
legacy is not yet known.
A key task for the Nuclear Decommissioning Authority
(NDA) when it assumed responsibility for the management of the
historic nuclear legacy (1 April 2005) was to determine the final
cost of the historic legacy. The NDA are undertaking this task
by means of a management 'tool' known as the Life Time Plan (LTP)
process. (This was previously known as the Life Cycle Baseline
(LCBL) process). The LTP system replaces the earlier varying systems,
which the nuclear operators (BNFL, and UKAEA) used prior to the
setting up of the NDA.
The NDA's LTP process, which is carried out annually,
sets out the complete range of activities that will need to be
undertaken at each of the NDA's sites to bring them to their defined
end states. This is a 'cradle to grave' analysis of the total
undiscounted cost of the NDA's mission—including running
its commercial operations. The NDA is committed to continuous
improvement of the LTP system and is able to respond flexibly
to new information and any significant programme changes should
they occur at sites. The LTP is a powerful tool for analysing
costs. The data from individual sites is combined to provide a
national figure for the historic liability.
The NDA are working to achieving a definitive estimate
of the historic liability in FY 2008/09. In the meanwhile, the
government cannot speculate on what the final figure might be
but we can assure the Committee that the final figure will be
the product of careful analysis.
Ministers have consistently stated that with better
measurement the expectation was that the total undiscounted cost
of the NDA would be likely to rise in the short term. In the longer
term the expectation is that the total cost will be driven down
through increased innovation and efficiencies driven by the NDA
through the competitive process for site clean up programmes.
Current estimates of the historic liability are a
significant improvement on historic estimates. As the Committee
is aware the legacy comprises a number of disparate items:
— nuclear
sites and facilities operated by UKAEA and BNFL developed in 1940s,
1950s, and 1960s as well as the wastes & spent fuels produced;
— the
plant and facilities at Sellafield used for reprocessing Magnox
fuel and associated wastes and materials;
— the
fleet of Magnox power stations designed and operated by CEGB in
the 1960s and 1970s.
These facilities were built without any consideration
at the time for future costs of decommissioning and clean up.
The NDA's estimate of the historic liability based
on 2005/06 LTP assessments and set out in its approved Strategy
is £62.7 billion (£35.4bn discounted). The LTP for 2004/05
was £56bn. This does not represent an increase in the volume
of liabilities, but rather better measurement.
As the Committee has noted (para 13) the treatment
and disposition of plutonium and uranic waste material is not
included in the historic liability estimate. At present it is
categorised as a zero based asset, but if it were at some stage
to be reclassified as waste it would add significantly to the
overall legacy estimate. No such decision is pending and it would
be wrong to speculate on the issue at this stage.
The cost of dealing with the historic legacy has
no bearing at all on the issue of new build. The Government believes
that the historic nuclear legacy will need to be dealt with irrespective
of whatever decision is eventually taken on the need for nuclear
power in the future. It would be against the national interest
not to do so in terms of safety, security and the environment.
And the cost of dealing with the legacy cannot be taken as a benchmark
for the possible future costs of decommissioning any new reactors.
As mentioned the legacy is made up of experimental facilities
created 30 and 40 years ago when no thought was given to eventual
decommissioning.
There are of course civil nuclear liabilities which
do not fall directly to the NDA's LTP process and which are, therefore,
not included. For example the NDA has been charged with the oversight
of BE's fleet of nuclear power stations in terms of decommissioning
proposals and assessing uncontracted liabilities. BE have updated
their decommissioning and uncontracted liabilities plans and the
NDA has approved them. The liabilities are now valued at £4bn—the
last assessment (July 2004) was for £2bn. The increase reflects
an increase in the liabilities following BE's review and a move
from a 3.5% discount rate to a 2.2% discount rate.
The Committee has commented (para 16) that commercial
income derived from THORP and other sources will not contribute
much to the level of funding provided in respect of nuclear clean
up. The Government does not share this view. At present more than
half of the NDA's funding has come from its commercial income.
This proportion will, of course, decline over time as commercial
businesses cease operation. Both the DTI and the NDA are fully
aware of the volatility and risks around the commercial income
of the NDA. These risks are closely monitored and the NDA sets
its budgets in order to take account of these risks.
We note and appreciate the Committee's concern in
respect of the income derived from the THORP plant, but the closure
of the plant has not as yet affected the NDA income stream significantly,
having been offset by higher than expected income from the remaining
operational Magnox stations.
The natures of the contracts which are placed with
THORP by its customers are such that the full extent of any loss
of income will not be known until the plant has restarted. This
is scheduled for the end of the year. The NDA is confident that
contract commitments can still be met by 2010. The incident is
the subject to an insurance claim so we are not able at present
to comment on any financial details.
The NDA's commercial income streams provided an additional
£257m in the financial year 2005/06: this was triggered by
high electricity prices went up and the 'sweating' of assets.
A part of this went towards additional decommissioning work but
they also created a £90m contingency fund (EYF).
The Committee has cautioned (paragraph 25) against
any further restructuring of the organisations involved in the
nuclear industry sector (including the NDA and UKAEA) because
the industry needs to provide stability to retain and attract
skills, and provide confidence to the public. This has been a
matter of concern to government and, as a consequence, the NDA
has a duty under the Energy Act 2004 to provide for the maintenance
of a nuclear skills base. It has set out its proposals for so
doing in its approved Strategy.
As a consequence the NDA considers the nature of
the skills base it requires as part of the LTP process. Each of
the NDA's sites produces a skills strategy which, as a minimum,
covers the following areas: key skills required in the short,
medium, and long term; identification of skills gaps and links
to the migration of the existing workforce; sensitivities relating
to demographic change; recruitment and training strategies; links
with training providers; succession planning; and supply chain
strategies for long-term availability of skills. The sites' skills
strategies are analysed and developed by the NDA to ensure the
appropriate supporting infrastructure is in place, and that any
key issues or skills gaps are identified.
The Government believes that the current skills status
of the nuclear industry is generally sound and there is no immediate
overall nuclear skills shortage. But we are not complacent. We
have assisted with the establishment of Sector Skills Council
to represent the needs of the nuclear industry, with 'Cogent'
the Sector Skills Council taking a strategic view of the nuclear
sector to ensure that the education and training base can meet
the nuclear employers' current and future needs. For its part,
Cogent has established Nuclear Advisory Council to ensure that
it gathers the views of employers and their supply chain. This
will enable it to better estimate demand and scope teaching/education
supply issues. In addition, the industry itself in conjunction
with Cogent is developing a Sector Skills Agreement, which focuses
on actions related to the issues that have emerged from recent
research to address existing and potential skills gaps and shortages.
The UKAEA: response to Recommendations 3, 4 and
5 (UKAEA restructuring)
The Committee's support for the proposed development
of the Harwell Science and Innovation Campus (HSIC) and the "UKAEA's
determination to build on its scientific reputation and that of
the Oxford area in attracting hi-tech companies to the Campus"
and the Committee's observation of the extent of "progress
being made in attracting other organisations onto the site"
is very encouraging.
The Committee's reassuring lack of concerns about
the UKAEA's operation of the industry's pension fund has also
been noted. Indeed, since the Committee's inquiry, UKAEA's Thurso
Pensions Office has won, in rigorous competition, the contract
for the administration of the NDA's new scheme—now known
as the Combined Nuclear Pension Plan (CNPP). This was excellent
news for UKAEA and those employed in Thurso.
Following the Strategic Review of UKAEA approved
by government last year, UKAEA aims to establish a new business
arm within UKAEA (currently called UKAEA Ltd), which will compete
for the management of its own and other sites, and win non-NDA
business in the UK and overseas. UKAEA's strong preference is
for the Pensions Office to become part of the commercial activities
of UKAEA Ltd. The successful bid to the NDA for administration
of the CNPP is seen by UKAEA as the basis for competing for the
administration of other public service pension schemes. UKAEA
understands that competing more widely in this way will trigger
competition for the future administration of its own scheme (the
Combined Pension Scheme, CPS).
As stated by the Committee (at paragraph 13) it is
true that there is still considerable uncertainty attached to
the overall scale of civil nuclear liabilities, especially at
Sellafield. However, the experience at UKAEA sites provides some
grounds for optimism that this issue can be addressed. UKAEA has
been focused on decommissioning since the mid 1990's. Its liabilities
are now well understood, and estimates have steadily decreased
over the past ten years as facilities have been progressively
decommissioned and the associated liabilities eliminated. Working
with the NDA, UKAEA has been able to effect a step change in its
liabilities estimate—a reduction of over £1 billion—through
programme acceleration and greater innovation.
As observed by the Committee, the future is by no
means certain for UKAEA Ltd, but government cannot secure the
advantages of a competitive market without introducing a greater
degree of risk and uncertainty for those involved. Having said
that, the great majority of UKAEA's decommissioning employees
will be transferred in to the Site Licensee Companies (SLCs),
the ownership of which will be granted by the NDA to the successful
bidder or Parent Body Organisation (PBO) for the duration of the
competed contract. They will, of course, be affected by the management
approach of the successful bidder but will not themselves be directly
involved in the development of a commercial business in the competitive
market place, which will involve a relatively small number of
employees.
UKAEA understands that it will be required to compete
in a demanding market, but the first year of UKAEA's decommissioning
operations under contract to the NDA, since 1st April 2005, has
indicated that UKAEA's employees and Board have the capacity to
rise to the challenge of the new competitive environment in which
the business now finds itself. For this reason, UKAEA has commented
that it regrets the continued focus on "uncertainty"
since it believes that this will inevitably erode the confidence
of its employees, for many of whom the creation of a successful
UKAEA Ltd is considered to be the best way to ensure continued,
rewarding careers.
UKAEA Ltd's commercial success will be largely determined
by the outcome of the future competitions for its own sites, and
most significantly the competition for UKAEA's main site at Dounreay.
By the time of competition for Dounreay (2008/09), UKAEA Ltd will
have been operating in 'shadow mode' for a significant period
and when the competitions commence, it will be bidding to the
NDA with its Alliance partners (CH2MHILL and AMEC); hence, UKAEA
Ltd should be in the position to present the NDA with a highly
competitive bid for its sites.
In addition, UKAEA's strategy is not to rely exclusively
on winning the future contracts for its own sites, but to bid
with its Alliance partners for other NDA sites and to develop
new non-NDA business in the UK and overseas. UKAEA's agreements
with its Alliance partners will also help to identify potential
work on a bilateral basis. Already, as the Committee has noted,
UKAEA has signed a Memorandum of Understanding with AMEC and KOPEC,
South Korea's Korean Power Engineering Company, to target low
risk work in nuclear waste management and repository projects,
decommissioning, reactor services and nuclear plants in both Korean
and international markets. Although the MoU does not identify
specific contracts, UKAEA believes that it will open the door
to a number of future opportunities.
It is recognised therefore, that the future for UKAEA
Ltd depends on its sustained good performance as the industry
enters a more commercial environment. UKAEA Ltd must earn enough
through NDA fees and income from new, non-NDA contracts to cover
the costs of implementing its approved business plan. UKAEA's
demonstrated performance in 2005/06 gives increased confidence
that it can do so, although we recognise that it will face the
same uncertainties as any new business starting up in a commercial
market place.
To prepare UKAEA for the competitive environment
in which it will be operating, the UKAEA Board and the government
are fully committed to UKAEA being restructured along the lines
already indicated to the Committee. This restructuring will both
develop and realize the full value of UKAEA's commercial potential
and facilitate the NDA's competition strategy. We would seek to
assure the Committee that it is fully recognized that this restructuring,
which will eventually entail the divestment of UKAEA Ltd, does
constitute a major transformation of UKAEA and that in the course
of achieving it, we need to properly ensure that the highly acclaimed
and important research and development of fusion at Culham is
left unaffected and sustained (as further discussed below).
To enable the NDA to compete the management of sites,
UKAEA must restructure to create "Site Licensee Companies"
which will form separate entities at Dounreay and—possibly—Windscale
(discussed below), and a cluster at Harwell and Winfrith, as envisaged
in the NDA strategy. None of UKAEA's plans for restructuring will
in any way compromise safety, which remains the highest priority
for all its activities. We will not begin to implement the planned
restructuring until the independent regulators are confident that
these changes do not pose any risks to safety or the environment.
The NDA's implementation of its competition strategy
is largely consistent with UKAEA's restructuring plans although
as highlighted by the Committee there has been a debate over the
approach to Windscale. In August, the NDA initiated a discussion
with stakeholders on future options for the Windscale site ranging
from the status quo through integration of the site with Sellafield
with the UKAEA operating the site as a large scale Tier 2 contractor
to BNG, to wholesale integration with Sellafield. It would be
true to say that UKAEA continues to believe that the status quo
represents the best way forward in the light of excellent performance
at Windscale and of innovative plans for accelerated decommissioning
at the site which are currently under development. However, UKAEA
is pleased that the NDA consultation recognised the achievements
of the UKAEA team at Windscale, and it welcomes the opportunity
for dialogue on the implementation of the NDA's finally selected
option.
We welcome the Trade and Industry Committee's recognition
of the potential of commercially viable fusion generation to reduce
carbon emissions, and their support for continued UK participation
in international fusion development. UKAEA believes that its contribution
to the fusion programme will not be adversely affected by current
restructuring plans. The functions which UKAEA carries out directly
for government, primarily the fusion programme and the development
of the Harwell Science and Innovation Campus, will remain in the
public sector within a smaller ongoing UKAEA at Culham as discussed
further below.
Research into Nuclear Fusion: response to Recommendations
6 & 7
The Government strongly supports ITER, the experimental
fusion reactor to be built in Cadarache, France. It recognises
that nuclear fusion has the potential to provide a new major source
of energy using water and lithium, which are abundant and widely
available.
Additionally it notes that a fusion power station
would create no greenhouse gases during its operation and no long-lived
nuclear waste. However, there are many scientific and technological
challenges to overcome before fusion becomes a viable energy source.
The next step towards this is the construction of ITER.
ITER is a global, publicly funded project, and is
driven by the need for secure, sustainable, and environmentally
friendly energy supply. China, EURATOM (European Atomic Energy
Community), India, Japan, Russia, South Korea, and the United
States are collaborating on the €5bn ITER project which is
expected to start operating in 2016. (The European Commission
has conducted negotiations for EURATOM.) The goal of the international
fusion research programme, starting with ITER, is the demonstration
of full-scale power generation in a prototype power plant within
30-35 years.
The EU is hosting ITER and is committed to its construction
and subsequent operation. The EU is contributing 50% for the construction
and the other 6 parties 10% each, allowing for a reserve of 10%
for contingencies.
The EU's contribution to the construction of ITER
(as well as an accompanying programme of fusion research, including
continued funding for the UK's JET facility) will come from the
FP7 EURATOM fusion research budget 2007-2011 of €1947m. (Nuclear
fission and radiation protection research has an allocation of
€287m in the FP7 EURATOM programme.)
In parallel to ITER development, there needs to be
put in place a programme to research, develop, and test the first-wall
materials required for a commercial reactor which will require
the construction of the material testing facility IFMIF.
The ITER Agreement negotiation process has been completed,
and Ministers of the seven international parties (Commissioner
Potocnik for EU) met in Brussels on 24 May this year to initial
the ITER Agreement.
A Proposal for a Council Decision to authorise the
Commission to conclude the ITER Agreement was recently adopted
at the Competitiveness Council on 25 September. Signature of the
Full Agreement is likely to occur later this year (currently planned
for 21 November), with construction likely to start in 2007 after
site construction permits are obtained.
The UK is making a very significant contribution
to fusion research. The UK makes a contribution to the European
fusion programme via its overall contribution to the EU budget.
In addition, the UK invests in fusion research through EPSRC (Engineering
and Physical Sciences Research Council) awards to UKAEA Culham,
and these will amount to around £95m over four years to 2007/08.
The EPSRC funding covers the UK's own national programme of fusion
research and the UK's contributions to the operation of JET (Joint
European Torus). UKAEA operates JET as a research facility for
European scientists and this operation is mainly funded by EURATOM.
It is expected JET will continue to 2010 or even longer.
The amount of funding for fusion research for future
years from EPSRC will be determined following the current Comprehensive
Spending Review.
The restructuring of UKAEA will not affect the operation
of the fusion research programme. Responsibility for fusion research
will remain with the UKAEA NDPB.
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