UK prepares for new nuclear

[Toimituksen huomio: julkaisemme poikkeuksellisesti syvempää taustoitusta antavan vieraskirjoituksen englanniksi]
The UK government has over the course of 10 years gone from what was essentially a phase out policy, with no support for nuclear, to having what is now the most ambitious new build plans in Europe. All this in order to help meet the country’s pressing climate change and energy security objectives.

As one of the pioneers of nuclear technology the UK has an extensive history in nuclear power, with its first power reactor at Calder Hall beginning operation back in 1956. There are currently three main designs of reactor present on the British Isles, representing three generations of reactor technology:

– Magnox reactors: UK-designed first generation reactor which employs a graphite moderator and carbon dioxide coolant. Runs on un-enriched all metal fuel
– Advanced Gas-cooled Reactors (AGRs): second generation UK-designed reactor which employs a graphite moderator and carbon dioxide coolant. Runs on slightly enriched (2-3%) uranium dioxide fuel
– Pressurised Water Reactor: one 4-loop Westinghouse designed PWR at Sizewell B, which started operation in 1995 

All but three of the Magnox reactors have now shut down, and the 14 operating AGRs are all due to close before 2025 unless life extensions are granted. During the 1990’s nuclear power met about 25% of the country’s electricity needs. In 2010 this figure was just under 16%, with the fall-off largely an effect of reactor closure. Along with restrictions on the future use of coal, this has led the government to realise the potential for a serious energy gap to form by the middle of the next decade.

The 1990’s were turbulent time for nuclear in the UK as privatisation of the electricity sector took away the captive customer base and forced plants to become more competitive. It proved impossible to privatise the Magnox reactor fleet as would-be private owners balked at the decommissioning and back-end costs. The Magnox reactors were eventually placed under the control of the government controlled Nuclear Decommissioning Authority (NDA) – and the money they earned put towards dealing with the UK’s particularly burdensome historic waste legacy[1]. The AGRs and Sizewell B ended up with private company British Energy.

Also during the 90’s the discovery of oil and gas fields in the North Sea along with the development of a new more efficient generating technology (the combined cycle gas turbine, CCGT) and favourable market arrangements, led to a rapid increase in the reliance on natural gas which now provides close to 50% of the country’s electricity. To a large extent this ‘dash for gas’ was responsible for cleaning up British generation of air pollution, which previously had been heavily dependent on coal.

All this led to a fairly widespread negative public perception of nuclear power in the country and plans for a fleet of modern reactors to follow Sizewell B were dropped. It is fair to say that at some time during the 90’s the government considered the energy policy conundrum to largely be solved. Privatisation, along with the new indigenous fuel resource had achieved the desired outcome of driving down electricity costs. New nuclear had no place in this mix, and the government made this plainly known in its 2003 energy strategy document (known as a white paper), which stated that the “current economics” of nuclear power “make new nuclear build an unattractive option and there are important issues of nuclear waste to be resolved.”

By 2006 however, a new white paper whistled to a very different tune, stating that “new nuclear power stations would make a significant contribution to meeting our energy policy goals”. So what had changed?

For one thing the amount of natural gas coming out of the North Sea had been decreasing year on year since the turn of the century, making the UK more dependent on gas imports from mainland of Europe and Russia. For another, the reality of climate change and the scale of the response required for successful decarbonisation was becoming apparent. While the UK ratified the legally binding Kyoto protocol in 2002, this required only very modest targets for the country which, largely due to the abovementioned increased use of gas, it had no trouble in meeting. It took the highly influential Stern review published in October 2006 to stimulate the government to drastic action on climate change. In 2007 the prime minister committed to cutting the UK’s carbon emissions by 60% from the level of 1990 by 2050.  In 2008 this already ambitious target was increased to 80% and enshrined in UK law. This had clear implications for the electricity sector.

Preparing for New Build

Plans for new nuclear power are well advanced with the government having put in place much of the necessary framework to facilitate construction. Policy developments have taken place in: planning; plant siting; design assessment; decommissioning and waste; and electricity market reforms.

Planning

The planning process has been streamlined so that new nuclear units are assessed at the national rather than the regional level. The same applies to other major pieces of infrastructure of national import such as railways, large wind farms, reservoirs, harbours, airports and sewage treatment works. The need for new infrastructure is set out in national policy statements and local impacts are then assessed by an advisory committee – with a final decision made by the Secretary of State.

Plant Siting

The government addressed the issue of where a first round of new nuclear power plants would be sited in a single process. Eleven sites were originally nominated but eight were eventually included in the draft national policy statement – all of which host, or have hosted, nuclear facilities. These eight sites include Hinkley Point, Oldbury, Sellafield, Sizewell and Wylfa, which are the subject of existing proposals (see below); as well as Bradwell, Hartlepool, and Heysham.

Generic Design Assessment

With new expectations for a fleet of reactors, the UK needed to create an expedited licensing process. Similar to what takes place in the USA, licensing is split between design safety and site considerations. The generic design assessment is the process designed to gain in principle approval for a reactor design – independent of site or operator. It is the reactor vendors that are therefore responsible for submitting their designs and winning acceptance from the Office for Nuclear Regulation (ONR). Kicking off in 2007 and originally scheduled to take about three years, the process is still ongoing, though interim approvals were awarded to two designs at the end of 2011 conditional on the resolution on outstanding items and the integration of lessons learned from the Fukushima Daiichi nuclear accident.

Originally four vendors submitted designs: Atomic Energy of Canada Limited (AECL) – ACR 1000; Areva – EPR; GE Hitachi – ESBWR; Westinghouse – AP 1000. However by the end of 2011 only the EPR and AP1000 remained, both of which received their interim acceptance. Full acceptance for the EPR is expected by the end of 2012. Towards the end of 2011 however Westinghouse requested a pause to its design assessment, conditional on finding customers to support its design.

Decommissioning and Waste

For decommissioning, each prospective operator is required to submit a funded decommissioning program (FDP) before construction is allowed to commence. These programs must include provision for the steps necessary to decommission the installation and manage and dispose of hazardous waste. They must also include an estimate of the costs of taking those steps, and details of any security to be provided in relation to those costs.

For waste, referring to spent fuel and intermediate level waste, the government has recognised that it is ultimately responsible for determining how that waste is disposed of, and therefore it is best placed to take title to and liability for nuclear waste. The rationale behind this is rooted in the fact that the government already has much competence here in the Nuclear Decommissioning Authority, which is charged to deal with legacy waste (see footnote 1). Of course this does not come for free. Operators are required to enter into a waste contract with the government, with this contract detailing precisely how the price for the transfer – the waste transfer price – will be determined some 30 years after generation commences. In order to provide operators with a degree of certainty, the price will also be capped before construction starts. The price, cannot go above this cap – however this cap will be set at a very high price to minimise the risk taken on by the taxpayer. This in order to be consistent with the government’s stated aim of ensuring that no subsidies are received by the private nuclear industry.

As yet there are no detailed plans for a final geological repository though moves are now underway to find communities willing to host such a facility.

Electricity Market Reforms

The government released yet another energy white paper in July of 2011, this one suggesting fundamental changes to the way electricity is traded so as to plug the emerging energy gap with a low carbon, stable energy mix.

As with the rest of Europe, renewable electricity sources have seen significant growth in recent years, backed government subsidies and support policies – however renewables have so far proven incapable of making a sizable indent in the country’s carbon emissions and there is now mounting concern over cost escalation. While the government remains committed to renewable energy development, they are also committed to nuclear. Government investigations have clearly shown that nuclear power is among the cheapest low carbon generating option available, and an energy mix consisting of nuclear and renewables is considered the most viable long term low carbon options.

Current market conditions in the UK are challenging for nuclear new build. The long payback times, coupled with price volatility and the absence of any clear reward for carbon mitigation or capacity services currently makes nuclear an unattractive investment for private investors. The government has painted itself in a corner over this as it continues to assert that it will not support any subsidies for the nuclear power industry.

The draft market reforms outlined in 2011 have largely been designed to tackle these problems. However they do not directly reward nuclear generation per se; they do not single out any technology. Rather they reward features of the generators that are considered beneficial to society as a whole.  They are centred around the following mechanisms:

– A carbon floor price.
– A special stabilised feed in tariff that reduces when electricity prices are high, increases when they fall.
– An emission portfolio standard to allow more investment in gas, but prevent coal without CCS.
– A capacity mechanism to ensure that long term security of supply is achieved.

The final reforms are currently slated to take effect in 2014.

Of course the devil is always in the detail – a lot of which is yet to be worked out and it is not yet clear whether the reform will provide enough security for new nuclear investment. Specifically there is nothing to ameliorate the risk of regulatory and political uncertainty, such as what might occur with a change of government or policy[2]. However the consortia vying to build new nuclear power plants in the UK have expressed their support in principle for the new framework.

The consortia and their plans

If targets for renewables are met, the government recognises a shortfall of perhaps as much as 25 Gigawatts (GW) by 2050 which new nuclear could help to meet. Three consortia have emerged as willing to make this a reality. They include EDF, Horizon and Nugen

EDF Energy in cooperation with Areva has firm plans to build up to four EPRs (approx 6.5 GW) by 2025. EDF Energy owns and operates all the existing AGR reactors in the country. They have already committed £50 million for preliminary site works at Hinkley Point and in October 2011 formally applied for a construction and operating licence. Both parent companies are based in France. Areva is the largest integrated nuclear supply company in the world while EDF is the largest nuclear utility.

Horizon is a 50-50 joint venture between RWE UK and E.ON UK formed in 2009. They have not selected a reactor technology as yet. The consortium has plans for 6 GW of new nuclear by 2025. Both companies are owned by parent companies based in Germany, both of which operate nuclear power plants.

Nugen is a 50-50 joint venture between Iberdrola and GDF Suez formed in October 2009. They also have not selected a reactor technology as yet. The consortium has a single site on the West Cumbrian coast and plans for a new station of up to 3.6 GW. GDF Suez is responsible for operating plants in Belgium while Iberdrola has nuclear assets in Spain.

Power reactors planned and proposed

Clearly EDF leads the pack and Hinkley Point C is all but going forward at this stage. However at this stage a final contract has yet to be signed, a site licence has yet to be granted and there is still a long way to go before construction on the first reactor begins.

Much remains uncertain. Where the money will come for the nuclear investments has yet to be established. Arguably things became more interesting on this front last year as the German government turned steadfastly against nuclear power in the wake of the Fukushima nuclear accident and re-instituted a phase out policy in that country. In Belgium too the government has assumed a more anti-nuclear position – trying to dramatically ramp up a nuclear fuel tax introduced as condition of life extension which may make continued operation unviable.  Similarly, political support for nuclear in France now seems contingent on the results of national elections later this year. It is currently uncertain what implications these national political situations will have for the financing of nuclear new build in the UK.

Fundamentally the case for nuclear investment will be determined by the electricity market reforms the government decides on, and given how far the government has come down this path, it seems unlikely they will fall at this last major hurdle. The energy minister Charles Hendry made clear the government’s commitment to new build at a speech at a conservative party conference in September 2011: “…the UK is now the most exciting place in Europe, if not the world, for nuclear new build… So, without public subsidy and with an absolute commitment to safety, this Government is making Britain a serious nuclear nation once again.”