Does the UK government's nuclear power White Paper deliver the goods? The government must offer more incentives if the UK is to have a nuclear replacement programme.
Nuclear power is the ultimate polariser of the energy debate. Greens generally hate it. Most engineers love it. And successive British governments have blown hot and cold since the 1960s. What's different this time is that economists, financiers and energy security hawks are coming round to the case for a nuclear renaissance.
The sea change that has occurred in just a few short years is nothing short of extraordinary. No question, concerns over energy security, the rising cost of fossil fuels and high-profile hand-wringing about climate change have put nuclear power firmly back on the agenda.
Perhaps sensing the mood, the UK government chose to change its position with an Energy White Paper published in May 2007, followed by a Nuclear White Paper in January 2008. These papers supposedly gave the green light for the return of nuclear power. As if it were so easy. The truth is, enticing investors to stump up billions of pounds for a 40-year investment horizon is anything but. Little wonder then that, nearly a year later, proposals for a nuclear replacement programme have not been forthcoming.
Today, the nuclear industry is akin to a former lover rejecting the feeble overtures of government suitors, when all it really wants is a committed proposal.
So what has the government offered to date and why is it enough?
The 2003 Energy White Paper - or, "we don't need new nuclear power, just renewables and energy efficiency"
Clearly it does not inspire investor confidence that the same government has changed its mind over nuclear power in just a few years. In 2003, the Energy White Paper said; "Nuclear power is currently an important source of carbon-free electricity. However, its current economics make it an unattractive option for new, carbon-free generating capacity and there are also important issues of nuclear waste to be resolved. These issues include our legacy waste and continued proposals for building new nuclear power stations. However, we do not rule out the possibility if we are to meet our carbon targets. Before any decision to proceed with the building of new nuclear power stations, there will need to be the fullest public consultation and the publication of a further white paper setting out our proposals."
At the time, the price of North Sea gas was very low and no one had heard of Gazprom. Yet, in the face of a projected capacity gap, it was irresponsible not to hedge its bets with a continued role for nuclear power. That's why this paper effectively kicked nuclear power into the long grass.
The 2007 White Paper -mood music, but little meat for the nuclear industry.
The purpose of any government white paper is always the same; to lay out policy and/or propose action on the topic of concern. The paper clearly showed concern by acknowledging that, by 2023, all but one of the UK's nuclear power stations will have closed and, as the white paper says, "… energy markets on their own will not deliver our wider social and environmental objectives, particularly tackling climate change". So, something has to be done to replace the one-third of existing capacity by 2020. As it goes on, "The UK needs a clear and stable regulatory framework to reduce uncertainty for business to help ensure sufficient and timely investment in technologies that contribute to our energy goals".
The idea behind this paper was to prime the public for the next nuclear specific paper which came out in January 2008.
The January 2008 Nuclear White Paper - big on bureaucratic action talk, little on genuine incentive.
This paper sought to outline the "facilitative action" necessary to deliver nuclear power, partic-ularly around planning. A difficult document to read, this white paper really failed to deliver the goods. There was too much emphasis on what government could do to streamline various planning aspects, but nowhere near enough attention to what the private sector would actually want. With this in mind, the Economic Research Council commissioned Nigel Hawkins, a highly respected utility analyst to write 'New Nuclear Build - The Criteria for Delivery'.
Hawkins makes an impassioned case for nuclear power, based on numbers. And to that effect, he makes a clear outline of what the nuclear industry wants in order to encourage investors to step up to the challenge and take on the financial risks.
One could not be making this argument if bids had been made and a nuclear replacement programme was on the way. Sadly, this government seems all to ready to believe that white papers, not private companies, deliver nuclear power. Astonishingly, it is gearing up to sell off British Energy, which will hand monopoly power to any future nuclear bidder because BE owns the sites where new nuclear build will occur. Any budding utility seeking to build nuclear plants in the UK should be putting down a retainer of up to $100m for a forged-steel reactor pressure vessel, the keystone to radiation containment in the reactor itself. None, to date, has done so. Just one company in the world, Japan Steel Works, makes them, and they only produce four a year at a cost of $300m to $350m each. This is the bottleneck in the nuclear industry and it will not be solved quickly.
The government could, if so minded, also move fast to solve the waste disposal problem and identify a site for the long-term geological disposal of nuclear waste. Britain need only copy Sweden, encase its spent nuclear fuel in solid steel, welded inside thick copper canisters and then bury them in rock, 700m below ground, where they will be safe for at least 100,000 years.
Regrettably, the prevarication over nuclear power follows a pattern familiar in UK energy policy. Whichever way you look at it, Britain's looming energy gap has been foreseeable for a number of years. North Sea gas reserves? In decline since 2000. Coal-fired power stations? Will be mostly closed by EU Directive 2001/80/EC unless clean coal makes the enormous leap from theory to commercial practicality. Imported LNG gas or pipeline? The UK is at the wrong end of the supply chain and may not be able to pay high enough prices to outbid Asian-Pacific Nations and the United States. Renewables? Serious limits to the supply impact of intermittent and planning unfriendly windpower. And now nuclear?
Until this government wakes up to the shortfalls of existing policy, don't hold your breath.
Dan Lewis is research director of the Economic Research Council www.ercouncil.org [new window].
What the nuclear industry really wants - a checklist
- Stable politics - Britain's two and a half party system, while delivering unparalleled political stability, has not been consistent in its support for nuclear power. Business Secretary John Hutton, said in late March that he would like to see nuclear power have a much bigger share of generation than today, well over 20 per cent. Yet, just five years ago, a white paper by the same government ruled out a return to nuclear power. Meanwhile, in 2007, the opposition Conservatives called nuclear power a "last resort" but had been fervent supporters when previously in government, even planning to deliver ten Pressurized Water Reactors in 1981. Just two were ever built.
- Long-term fixed carbon prices - One of the key reasons nuclear power has made a comeback is because of its near-zero carbon emissions. As carbon trading takes off, there has been very little development of the market beyond a few years and the price has tended to be on the low side as well as volatile. Some in the nuclear industry would like to see carbon price out into the future as much as 40 years and for there to be a fixed floor price, perhaps as high as €40 per tonne.
- A permanent underground solution for the long-term storage of nuclear waste - During the mid 1980s, four sites were identified as possible repositories of nuclear waste and then, after a major political row, all were rejected. Since then the interim waste solution has been focused on largely uneconomic reprocessing and high security storage above ground pending an agreed site for geological disposal, 200 to 1,000m below ground.
- An easing of planning and consultation constraints - Sizewell B's planning enquiry took a record 340 days. The public enquiry, nearly four years from 1983 - 1985. More recently, in 2007, Greenpeace took the government at its word and successfully challenged the absence of consultation on new nuclear build meaning that the government has to spend even more time consulting as wide as possible. All of this is very expensive and off-putting to nuclear investors, especially by international comparison.
- A streamlined licensing approval from the Nuclear Installations Inspectorate of the five available designs - These are: The Framatome ANP EPR, the Evolutionary Power Reactor; The Westinghouse AP1000; The Atomic Energy of Canada ACR-1000; The General Electric Economic Simplified Boiling Water Reactor (ESBWR); The Eskom Pebble Bed Modular Reactor.The NII is just too small to approve and license all of the nuclear designs in good time and this could delay nuclear a year and a half. To its credit, the government has recognised this, and the January 2008 white paper spoke of a prioritisation exercise. But it should go further. Realistically, the Framatome and Westinghouse are the leading contenders, so it might be a good idea to just to focus on those two first rather than try and approve them all simultaneously. Nevertheless, the 'Generic Design Assessment' is expected to take over three years to complete. So there's plenty of room for improvement there.
- The government must issue a long-term financial indemnity for new build - Network Rail, is able to afford an enormous £40bn of investment in the railways over the next few years because the government has backed it with a financial indeminity. This much lowers the cost of debt raised for Network Rail, allowing it to do more with less. A similar scheme for nuclear power stations, which will cost a great deal less at £1.5bn each would dramatically lower the cost of capital and thus entice nuclear investors.
- Long-term supply contracts - As the up-front, overnight capital costs are so great for nuclear, investors need to know that there will be customers a long way down the road, as much as 40 years, if they are to recoup their funds with some profits. This principle is clearly accepted in the field of Renewables - the Renewable Obligation currently goes out as far as 2027.The government may have therefore to oblige public electricity suppliers via Ofgem to - as part of their licence conditions - to buy a certain percentage of their electricity requirements from nuclear generators. That would be a Nuclear Purchasing Obligation, very like the Renewables Obligation.
- A large utility with the financial strength to do it Irrespective of the precise cost of new nuclear-build in the UK, it is quite clear that only a few international utilities are large enough - in financial terms - to take on the considerable risks of such investment without a seriously negative impact on their share price. These companies are EdF, E.On and RWE.The financing risks of planning delays, construction overruns and of a wilting long-term commitment are simply too great for any other firms to take on their balance sheet. A failure of the government to seduce one of these large players, will force the UK to forego a nuclear replacement programme or even fund it entirely from the public purse.