Memorandum submitted by Westinghouse |
Westinghouse Electric Company, a group company of
Toshiba Corporation, is the world's pioneering nuclear power company
and is a leading supplier of nuclear plant products and technologies
to utilities throughout the world. Westinghouse supplied the world's
first Pressurised Water Reactor in 1957 in Shippingport, Pennsylvania.
Today, Westinghouse technology is the basis for approximately
half of the world's operating nuclear plants.
Westinghouse is headquartered in Pittsburgh Pennsylvania
and employs around 15,000 people around the world - around 30%
of them in Europe. The company has three core business areas -
nuclear fuel, nuclear reactor services and nuclear power plants.
Four Westinghouse AP1000 reactors are currently under
construction in China - two on the Sanmen site and two on the
Haiyang site. Construction on all four plants is on schedule and
the first of these plants, at Sanmen, will send its first electricity
to the Chinese grid in late 2013. Additionally, six AP1000 plants
have already been ordered by customers in the US, with more in
the planning stage.
UK regulators are currently in the closing stages
of assessing the Westinghouse AP1000 in detail to determine if
it meets the UK's safety and environmental requirements.
Westinghouse has recently moved to a Regional organisation,
reflecting the growing importance of business outside the US.
One of the three regions is Europe, Middle East and Africa, and
within that region, the UK is a key market. In the UK Westinghouse
runs the Springfields site in Preston, Lancashire (where around
1650 people are employed), and the company recently agreed a 150
year lease to operate the site on behalf of the Nuclear Decommissioning
Authority. The vast majority of the UK's nuclear fuel has been
made at Springfields, over a period of more than 50 years.
1. What should the main objective of the Electricity
Market Reform project be?
The electricity market reform should be designed
to deliver an electricity market which balances reliable supplies,
low carbon emissions (throughout the full lifecycle of generation)
and affordable electricity prices - both for domestic and commercial
In practice, this means giving clear signals to potential
investors that selecting options which are low-carbon and/ or
capable of providing reliable supplies will be rewarded in the
future market framework.
The mechanism adopted must recognise that many potential
investments are long-term in nature (for instance nuclear projects
will not generate electricity for 8-10 years, and then will operate
for 60 years or more). They therefore need to offer policy stability
over a period of decades. However it is not necessary to have
specific detail on the exact level of market incentives out this
far ahead - simply the confidence that the market framework itself
will prevail and an indication of the levels of incentive being
A market-based approach within these constraints
is important - so that whilst low carbon generation is prescribed
by the market, it should then be left for the alternative low-carbon
options to compete as far as practicable. In this way the technologies
selected should represent the most cost-effective means of achieving
the desired outcomes.
2. Do capacity mechanisms offer a realistic
way of achieving energy security, low-carbon investment and fair
Capacity mechanisms are certainly helpful in delivering
electricity security, which itself is an important component of
the wider energy security objective. It is ultimately the level
of payments made under such a scheme, coupled with the balance
between capacity mechanisms and other market features, which will
determine whether the overall approach can deliver the combined
objectives of security, low-carbon and affordability.
3. What is the most appropriate kind of capacity
mechanisms for the UK?
We have no strong views on this matter - except that
the mechanism adopted must be sufficient (along with others) to
give confidence to investors that the benefits of large-scale,
low carbon generation will be recognised and rewarded.
4. Should the system of Feed-in Tariffs be
focused on particular technologies or maintain a wider technology-based
We have no strong views on this matter - but we believe
that UK interests are best served by having a balanced mix of
low-carbon technologies, and so the system should not preclude
the development of any low-carbon technology which could - in
time - become a cost-effective part of such a mix.
5. Will it be feasible to deliver EMR in one
go, or will regulations and implementation be spread over time?
We have no strong views on this matter. However the
approach taken must be sufficiently clear that investors may have
the necessary confidence in the future shape of the market to
proceed in the short term with development plans and, in due course,
investments to bring forward suitable generation capacity. In
many cases - where the plants will not themselves be on the grid
for 8-10 years, the actual timing of market mechanisms themselves
is less important than the strong signalling of their future existence.
6. Will market reform increase political risk
for investors or create certainty?
We believe that electricity market reform, if carefully
planned and developed with cross-party input, is an important
cornerstone of the work to deliver a 21st century energy
market in the UK, which balances secure supplies, affordable prices
and substantial reductions in carbon emissions.
If developed in this way, we believe that it will
provide a strong level of confidence to potential investors, which
in turn will help them to make the right investment decisions
to bring forward that outcome.
With that in mind, we welcome the ECC Select Committee's
work to bring cross-party insights to this important issue.
7. Will the Government's proposed package
of carbon price floor, EPS, FITs and capacity mechanism provide
sufficient transformation to achieve goals on climate change,
security of supply and affordability?
The mechanisms are all important, and will all be
helpful in allowing potential investors to have confidence that
reliable, low-carbon generation will be rewarded in the future.
The extent to which the mechanisms are sufficient to impact on
decision making will depend not just on the shape of the mechanisms
but on the associated numerical values. A carbon floor price,
for instance, is largely worthless if the price itself is trivial.
That said, we note that these mechanisms are all
typical of the suggestions which potential utility investors have
discussed as being helpful, so we have confidence that the direction
being mapped out is sensible.
We also note that some utilities have talked of a
reformed Renewables Obligation - to become a "low carbon
obligation", and again we can see value in such an approach
if carefully implemented to ensure that a good number of renewable
projects are still brought forward. For instance a "Low-Carbon
Obligation" within which some segment was "ring-fenced
"for renewables only, and some of which was opened up to
any low-carbon technology, would be an option.
8. What synergies and conflicts will there
be between proposed mechanisms and policies already in place?
We believe that it is possible to implement the proposed
measures without undue conflict with existing ones. In this respect,
there are two important areas:
Firstly - care must be taken in bringing forward
the carbon floor price to ensure a smooth fit with the existing
European Emission Trading Scheme. It is important neither to destabilise
the ETS, nor to render the UK an unattractive location for investment.
Secondly - existing power generation projects, and
those which are already well advanced, must not find themselves
"stranded" in the move to a new regime. Such a situation
would not be conducive to inspiring confidence in future investments
(particularly those with long timescales for payback).
We believe both of these issues can be managed if
9. Will a carbon floor price be feasible in
the context of EMR and at what level should it be set?
Westinghouse are not aware of any reason why a carbon
floor price should not be feasible in the context of EMR, if carefully
implemented. The level of such a price - and how the price will
vary over time for years to come - is a matter for Government,
having due regard to the insights of the utilities and other market