Electricity Market Reform - Energy and Climate Change Contents


Additional Submission from WWF-UK, Greenpeace and Friends of the Earth

WWF-UK, Greenpeace and Friends of the Earth wish to make an additional written submission to the Energy and Climate Change Committee regarding the environmental risks and cost uncertainties associated with the construction of new nuclear power stations in the UK. Given timing restrictions, this issue was not discussed at the oral evidence session of 8 February 2011. This submission is supplementary to previous written submissions made by all three organisations.

BACKGROUND

We are concerned that all of the policy options put forward by the Electricity Market Reform consultation are essentially geared towards incentivising the construction of further nuclear power stations and do not intend to support a deployment of renewable energy capacity at a level superior to what could already be achieved under existing policies. This point is made very clearly in chapter 4 of the Redpoint report,[47] which contains the background analysis to the EMR proposals. In particular, pages 52 and 53 of the report show that all of the policy options do not intend to deliver a higher capacity of renewables that could be delivered under existing policies: "Although the level of renewable generation is similar to that under the Baseline, each of the policy options has more new nuclear and CCS, although the proportions of these technologies differ between the options."

We are concerned that whilst the different policy options put forward under the EMR are focussed on mainly incentivising new nuclear power stations, there is no clear analysis in any of the consultation documents regarding the possible environmental and economic risks which a reliance on a new fleet of nuclear power stations could give rise to.

KEY ENVIRONMENTAL RISKS

We are very concerned that relying on new nuclear power stations to decarbonise the UK power sector will essentially replace one environmental problem, that of climate change, with a range of other environmental problems caused in particular by the lack of a long term storage solution for high level radioactive waste and the potentially catastrophic consequences of a nuclear accident. We have set out very briefly below our key environmental concerns:

—  A major environmental concern arising from new nuclear power stations is the generation of radioactive wastes that stay dangerous for over 100,000 years for high level radioactive wastes and which must be contained and actively managed (for instance spent fuel remains dangerous for approximately 200,000 years and plutonium for 250,000 years).

—  Despite 50 years of civil nuclear expertise, there is still no long-term solution for storing radioactive wastes. Despite the suggestion in the 2008 Nuclear White Paper that a long-term geological storage solution will be found in the near future, it is worth pointing out that the latest attempt to find a permanent storage solution in the Yucca Mountain in the United States had to be brought to an end by the Obama administration despite $1 billion spent on a 6,000 page site characterisation plan (see further details in the appendix to this submission). This casts some serious doubts as to whether a long-term storage solution will ever be developed. Creating more radioactive waste with no real solution available for its safe and secure long-term disposal is passing on a serious legacy for future generations to deal with.

—  It is worth noting that the World Nuclear Status Report 2009,[48] commissioned by the Federal German Ministry for the Environment, showed that in the last two decades, the costs of dealing with nuclear waste have increased faster than the cost of the plants themselves (see the appendix to this submission for further details).

—  It is not the volume of radioactive material where the debate should lie but in the toxicity of the waste, as exposure to even the smallest amount of high-level radiation is dangerous.

—  Other safety concerns include radiotoxic emissions from fuel mining and processing, transport, routine releases during use, and the prospect of leaks in accidents (which although estimated to be low risk by manufacturers would have potentially catastrophic consequences if they occurred—the events in Chernobyl in 1986 and Tokimura, Japan in 1999 are good examples).

—  It is also important to note that "because utilities have no operating experience with the new reactors, the probable risk assessments are purely theoretical and not as reliable as years of actual operating data from existing plants".[49]

COST UNCERTAINTIES OF NEW NUCLEAR

We have some serious concerns about the cost uncertainties linked to the building of new nuclear power stations and in particular the suggestion by certain observers that building new nuclear power stations is substantially cheaper than building renewable energy infrastructure. We have attached as an appendix to this submission a short summary of WWF's key findings on available evidence regarding the continued cost increases and uncertainties of building new nuclear power stations. This summary highlights in particular that the cost estimates of new nuclear power stations continue to rise, as currently demonstrated by the latest EPR reactors being built in France and Finland, despite the fact that the nuclear industry is a mature industry. Given the lack of clear analysis in the EMR consultation on the cost consequences of relying on new nuclear power stations, we would urge the Committee to take these findings into account when preparing its conclusions on the EMR.

APPENDIX

ECONOMIC RISKS OF NEW NUCLEAR

MORE OF THE SAME: A PAST HISTORY, AND LIKELY FUTURE, OF SIGNIFICANT COST ESCALATION

There have been numerous recent analyses of the economics of new nuclear power generation, many of which point to a significant underestimation by nuclear proponents of the costs of new nuclear power and related risks to taxpayers and ratepayers.

Cooper draws a close parallel between contemporary low-cost estimates from vendors, governments and academics with the "hope and hype" of the 1960s and 1970sin the US, which helped to create the "great bandwagon market" and fast-paced ordering of new nuclear reactors during the initial wave of investment in nuclear power 50 years ago (Cooper, 2009) (See Figure 1). However, construction delays and cost overruns, as well as regulatory changes (including to restrict the degree to which utilities could pass overruns on to ratepayers) eventually halted that trend. Half of the original 240 orders were eventually cancelled, with abandoned costs in the tens of billions of dollars, while the average cost for those reactors that were completed was seven times as much as original projections. Cooper writes:

In an eerie parallel to the great bandwagon market, a series of startlingly low-cost estimates prepared between 2001 and 2004 by vendors and academics and supported by government officials helped to create what has come to be known as the "nuclear renaissance." However, reflecting the poor track record of the nuclear industry in the U.S., the debate over the economics of the nuclear renaissance is being carried out before substantial sums of money are spent. Unlike the 1960s and 1970s, when the utility industry, reactor vendors and government officials monopolized the preparation of cost analyses, today Wall Street and independent energy analysts have come forward with much higher estimates of the cost of nuclear reactors. (Cooper, 2009.)

Figure 1

OVERNIGHT COST OF COMPLETED NUCLEAR REACTORS COMPARED TO PROJECTED COSTS OF FUTURE REACTORS (COOPER, 2009)


Cost escalation for nuclear power has not been unique to the US market. The 2009 World Nuclear Industry Status Report states:

While many industries experience declining costs as they move out their technological learning curve, the nuclear industry continues to face steadily increasing costs on existing construction and future cost estimates. The May 2009 nuclear investment cost estimate update by the Massachusetts Institute of Technology (MIT) simply doubled an earlier estimate from $2,000 to $4,000 overnight cost (excluding financing) per installed kilowatt. In fact reality has already bypassed projections. The flagship EPR project at Olkiluoto in Finland, managed by the largest nuclear builder in the world, AREVA NP, has turned into a financial fiasco. The project is more than three years behind schedule and at least 55% over budget, reaching a total cost estimate of €5 billion ($7 billion) or close to €3,100 ($4,400) per kilowatt (Schneider et al, 2009).

Even France, considered to be the ultimate success story by nuclear proponents, has experienced significant cost escalation. The overnight costs of building pressurized water reactors (measured in US 2008 dollars) increased from approximately US$ 1000/kilowatt in the early 1970s to US$2-3,000/kilowatt and US$3-5,000 in the 1990s. Cost projections have proven unreliable (Cooper, 2010). For instance, it is worth noting that similarly to the EPR reactor in Finland, EDF announced in July 2010 that the latest EPR reactor being built at Flamanville in France was also going to be €1 billion over budget and delayed by at least two years (http://www.businessweek.com/news/2010-07-29/edf-said-to-raise-flamanville-costs-delay-reactor.html).

In Britain, British Energy collapsed financially in 2002 because income from operation of its eight nuclear power plants barely covered operating costs. Table 1 shows the tremendous increase in the average operating and maintenance costs, including fuel, for the British nuclear fleet. Schneider et al comment: "It is only the good fortune of rapidly rising wholesale prices since 2005 that has prevented British Energy from falling into a much worse position...Now that wholesale electricity prices are falling sharply, British Energy, owned since the end of 2008 by EDF, may well suffer from financial problems again." (Schneider et al, 2009).

Table 1

OPERATING COSTS OF BRITISH ENERGY NUCLEAR POWER PLANTS
(SCHNEIDER ET AL, 2009)
YearOutput
(TWh)
Operating cost
(£/MWh)
Average selling
price (£/MWh)
1997-9866.719.8 26.3
1998-9969.119.9 26.4
1999-200063.019.9 25.7
2000-0163.518.7 21.7
2001-0267.616.7 20.4
2002-0363.818.6 18.3
2003-0465.016.5 16.9
2004-0559.820.5 20.4
2005-0660.422.8 32.0
2006-0751.227.1 44.2
2007-0850.330.0 40.7
2008-09 First half19.2 41.347.2

CALCULATING THE COST OF ELECTRICITY GENERATION FROM NUCLEAR POWER

Calculating and comparing the cost of alternative technologies for electricity generation is a complex exercise, influenced by a number of variable factors. Estimating the future price of electricity generation from nuclear power is particularly difficult because of the large degree of uncertainty attached to the long lead times necessary for plant construction and even longer lifecycle considerations for waste disposal and management and plant decommissioning.

There are also important differences between the various types of cost estimates used in the literature and public debate on the economic viability of nuclear power, particularly overnight costs, all-in costs and busbar costs. Finally, given the complexity of the nuclear reactor cost analysis, Cooper also makes the distinction between direct, consumer pocketbook costs—the direct costs that consumers pay in their bills—and indirect, social costs, which stem from risk, externalities and subsidies. Figure 2 proposes a comprehensive view of direct and indirect costs that should be taken into consideration in both regulatory decisions and policy arenas based on economic grounds.

Within this complex set of factors influencing the cost of nuclear power, there are several key considerations to keep in mind when evaluating nuclear cost estimates and escalation risks:

—  The overnight cost, and how it is treated financially: Capital costs account for approximately 75% of nuclear-generated electricity, so financial parameters—how much investment is in the form of debt and on what terms—have a large effect on final cost (Cooper, 2009). Because the financing costs associated with nuclear are higher than for other energy resources (both because the plants are deemed higher risk, and often take longer to build) comparison across energy options of overnight costs, which by definition exclude capital costs, will overstate the viability of nuclear projects (Schneider et al, 2009).
The particular weight of capital in nuclear investment decisions is a critical element in nuclear power viability. Currently, financial markets deem nuclear power too risky an investment. Moody's for example has labelled nuclear power investment a "bet-the-farm" risk, stating: "...from a credit perspective, the risks of building new nuclear generation are hard to ignore, entailing significantly higher business and operating risk profiles, with construction risk, huge capital costs and continual shifts in national energy policy...History gives us reason to be concerned about possible significant balance-sheet challenges, the lack of tangible efforts today to defend the existing ratings, and the substantial execution risk involved in building new nuclear power facilities" (Moody's 2009).
Tightening commercial credit markets make the availability, or not, of government support a decisive consideration in nuclear power investment. (See below Government Support to Nuclear).

Figure 2

THE COMPLEX STRUCTURE OF NUCLEAR REACTOR COSTS
(COOPER, 2009)


—  Operating costs remain low relative to other forms of electric power, but are often higher than projected by nuclear proponents (Cooper, 2009) and expected to rise significantly should many additional reactors be built (Schneider et al, 2009). Operating costs are also sensitive to the question of how much risk associated with possible accidents and with nuclear waste management is shifted to the public sector, rather than borne by plant owners, and through power charges, by the plant's customers (see below Government Support to Nuclear).

—  Technology risk: Plant characteristics, particularly plant life, capacity and performance (also referred to as availability) affect cost estimations by influencing estimation parameters such as how long a plant is expected run and how close to full capacity it runs. See Thomas, 2008 for a concise history of the significant technological and performance problems experienced with different nuclear technology in the UK.
Inherent characteristics of large, complex nuclear reactors make them more prone to delays and cost overruns. Cooper writes: "Reactor design is complex, site-specific, and non-standardized. In extremely large, complex projects that are dependent on sequential and complementary activities, delays tend to cascade into interruptions. The endemic problems that affect nuclear reactors take on particular importance in an industry in which the supply train is stretched thin. These one of a kind, specialized products have few suppliers, so any increase in demand or disruption in supply sends prices skyrocketing" (Cooper, 2010a).
Although vendors claim that the new Generation III+ generators are less expensive, independent analysts point to the major delays and cost overruns at the Finnish Olkiluoto project—intended to be the test case proving the viability of new nuclear—as evidence that little has changed when it comes to the over-optimism of vendors and other nuclear proponents (Thomas, 2008, Schneider et al 2009, Cooper, 2009).

—  Nuclear waste disposal and facility decommissioning costs: Schneider et al report that waste disposal and decommissioning costs have risen even more rapidly than the costs of the plants themselves in the past two decades (Schneider et al, 2009). In addition, the burden of nuclear waste costs in many countries falls heavily on taxpayers. Since its creation in 2004, for example, the UK's National Decommissioning Agency (NDA), which is responsible for managing 85% of the UK's nuclear legacy (UK DTI, 2003), has been paying for clean-up through a roughly 50/50 mix of direct government grants and funds generated commercially by the NDA. But as commercial funds have not met expectations, and decommissioning costs have far outstripped projections, NDA has increasingly had to rely on direct grants (Pagnamenta, 2008). In addition, the government has proposed that the price utilities pay for waste disposal for any new plants be set on the day construction begins (Schneider et al, 2009). According to one report, under a recent consultation document EDF would only have to pay around a fifth of the eventual cost for dealing with waste, leaving the government and the taxpayer facing the liability after the power station shuts down (Stevenson, 2010). In the US, utilities pay the government a fixed fee of US$1/MWh for disposal of spent fuel regardless of the actual cost of waste management.
Historical costs also cannot be taken as indicative of full costs because no permanent waste storage facilities exist yet. Although the White Paper on Nuclear Power is confident about the technological and economic viability of a geological disposal facility, lessons should be drawn from the on-going legal battle following the Obama administrations move to eliminate support for the Yucca Mountain Project as a long-term waste storage site. Despite a 6000-page plan for characterising the adequacy of the Yucca Mountain site and an expenditure of over one billion US dollars in the 1990s alone on site characterisation, the US is back to square one on long-term waste disposal options, with the associated cost and security concerns of managing high-level waste in interim facilities.

—  Government support to nuclear power generation: A 2009 International Energy Agency report stated that "governments wishing to encourage investment in nuclear may need to remove or mitigate some risks investors are facing, especially for first-of-a-kind nuclear plants and in countries where there is no existing nuclear programme or where there has been no new build for many years" (IEA, 2009). Government support can take the form of direct subsidies, tax credits and loan guarantees, but also include implicit support rarely accounted for in nuclear cost estimations. Schneider et al write:

"Government plays a vital role in making nuclear orders viable by guaranteeing, explicitly or implicitly, some costs. It explicitly provides guarantees by limiting the liability of operators in the event of an accident to sums that are trivial in comparison with the possible actual costs. This has been done through a mixture of international treaties (Brussels and Vienna) and national agreements. In general national limits are in the order of a few hundred million Euro, less than 10% of the cost of building a plant and far less than the cost of the Chernobyl accident. Governments implicitly guarantee the long-term liabilities against the failure of the companies...If a nuclear power plant fails, taxpayers will inevitably have to pick up the bill for any decommissioning and waste disposal for which provisions do not exist. This has happened already in the UK where arrangements for funding decommissioning of civil nuclear facilities have almost entirely failed." (Schneider et al, 2009).

UK TAXPAYER SUPPORT TO NUCLEAR POWER: BRITISH EXPERIENCE IN THE PAST 20 YEARS (Thomas, 2010)

"...The perception that nuclear power is a cheap energy source is still widely held despite all the damning evidence that has emerged in the UK over the past 20 years. This includes:

—  In 1989, in the failed attempt to privatise Britain's nuclear power plants, it emerged that the operating costs alone of Britain's existing plants [were] double the expected wholesale electricity price;

—  In 1995, the Sizewell B nuclear power plant was completed at a cost to electricity consumers of more than £3 billion, yet a year later when the newer nuclear plants were privatised as British Energy, it and seven other nuclear power plants of about the same size were sold for only about half this cost;

—  In 2002, despite acquiring these eight plants for a tiny fraction of their construction cost, British Energy went bankrupt and was saved only by the government committing £10 billion of taxpayers' money to it;

—  In 2004, despite consumers being charged for 25 years by the companies to pay for decommissioning the nuclear plants, it emerged that little of this money remained. This has left future taxpayers with a bill for about £100 billion to pay for decommissioning the existing civil nuclear facilities from which they have derived no benefit."

It is significant that the UK Coalition government has stated that it will provide no (direct) public subsidies to new nuclear investment, which may explain the Liberal Democrat willingness to allow nuclear back on the table. The party's former environment spokesman has said that denying public subsidies to the nuclear industry could make the nuclear renaissance debate academic: "If you look at the economics of nuclear power and the commitment the coalition has made not to subsidise it, and then you reflect on the fact [that] not a single nuclear power station has been built anywhere in the world without public subsidy, maybe, just maybe the issue won't arise." (MP M. Horwood, quoted in Stevenson, 2010) Although recent nuclear project cancellations in the US, despite government loan guarantees, lend support to that belief, any new project proposal should be examined in careful detail to identify indirect support. See above, for example, for an illustration of on-going taxpayer support to the UK nuclear industry. The Areva/Finnish Olkiluoto project also provides important experience. Although presented as the contradiction of conventional wisdom that a competitive energy market and nuclear were incompatible, very special features of this deal (eg loans to a prosperous Western European country backed by export credit guarantees and a cost of borrowing blatantly far below commercial rates) do "not provide any evidence that nuclear orders are feasible in a liberalised market without substantial public subsidies and guarantees. Experience so far reinforces the very high economic risks of cost and time over-runs involved in the construction of a nuclear power plant" (Thomas, 2008).

February 2011

REFERENCES

Cooper, M, 2009. The Economics of Nuclear Reactors: Renaissance or Relapse? Institute for Energy and the Environment, Vermont Law School.

Cooper, M, 2010. Policy Challenges of Nuclear Reactor Construction, Cost Escalation and Crowding out Alternatives: Lessons from the U.S. and France for the Effort to Revive the U.S. Industry with Loan Guarantees and Tax Subsidies, Institute for Energy and the Environment, Vermont Law School. Accessed at http://www.vermontlaw.edu/Documents/IEE/20100909_cooperStudy.pdf.

Cooper, M, 2010a. "Statement on the Economic Advisability of Increasing Loan Guarantees for the Construction of Nuclear Power Plants before the Domestic Policy Subcommittee Committee on Oversight and Government Reform", U.S. House of Representatives, 23 March 2010. Accessed at http://www.vermontlaw.edu/Documents/IEE/20100322_cooperStatement.pdf

IEA, 2009. (International Energy Agency) The Impact of the Financial and Economic Crisis: IEA Background Paper for the G8 Energy Ministers Meeting, 24-25 May 2009.

Moody's Investor Service, 2009, New Nuclear Generation: Ratings Pressure Increasing, Accessed at http://www.scribd.com/doc/18057014 on 8 December 2010.

Pagnamenta, R, 2008. "Government failing to fund UK's nuclear clean-up, say MPs", 7 April 2008, The Times, Accessed at
http://business.timesonline.co.uk/tol/business/industry_sectors/utilities/article3695001.ece on 8 December 2010.

Schneider, M, Thomas, S, Froggatt, A, Koplow, D, 2009. The World Nuclear Industry Status Report 2009, Commissioned by the German Federal Ministry of Environment, Nature Conservation and Reactor Safety.

Stevenson, A. "Lib Dem hopes for 'win-win' nuclear solution", 11 June 2010, Accessed at http://politics.co.uk on 8 December 2010

Thomas, S, 2010. "The future of energy: are competitive markets and nuclear power the answer?" In: Inaugural Professorial Lecture, 4 February 2010, University of Greenwich, Greenwich, London, UK.

Thomas, S, 2008. "Can nuclear power plants be built in Britain without public subsidies and guarantees?" Presentation at a Conference "Commercial Nuclear Energy in an Unstable, Carbon Constrained World", Co-Hosted by the Nonproliferation Policy Education Center and Radio Free Europe/Radio Liberty, 17 and 18 March 2008—Prague, Czech Republic. Accessed at ww.psiru.org/reports/2008-03-E-nuclearsubsidies.doc.

UK DTI, 2003. UK Department of Trade and Industry, Energy White Paper: Our Energy Future—Creating a Low Carbon Economy. Accessed at
http://webarchive.nationalarchives.gov.uk/+/http://www.berr.gov.uk/files/file10719.pdf


47   Electricity Market Reform: Analysis of Policy Options, Redpoint Energy and Trilemma UK, December 2010. Back

48   Schneider, M, Thomas, S, Froggatt, A, Koplow, D, 2009. The World Nuclear Industry Status Report 2009, Commissioned by the German Federal Ministry of Environment, Nature Conservation and Reactor Safety. Back

49   Stranahan, S, 2010. "How safe are the new nuclear reactors?" on the Guardian Environment Network. Accessed at http://www.guardian.co.uk/environment/2010/jun/21/how-safe-new-nuclear-reactors on 4 January 2011. Back


 
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