Nuclear industry seeks subsidies for new reactor programme

The UK's nuclear generators are urging the Government to provide hefty subsidies and other incentives for a new generation of reactors. Meanwhile, initial results from the Government's energy review suggest that renewable energy offers a cost-effective way of replacing existing nuclear power stations over the next 20 years.

The energy policy review by the Cabinet Office's Performance and Innovation Unit (PIU) is due to report to the Prime Minister by the end of the year (ENDS Report 317, pp 3-4 ). It is grappling with two thorny, but related, issues: the need to ensure a significant long-term reduction in CO2 emissions, and concerns over the security and diversity of energy supplies.

Responses to the review flooded in during September.1 The nuclear industry has seized what may be its last chance to press for a revival in the UK.

The industry is hoping for a sympathetic ear. Energy Minister Brian Wilson - a supporter of nuclear power - is chairing the project's advisory group. ENDS understands that the Department of Trade and Industry initially submitted a strongly pro-nuclear paper to the PIU - but later prepared a more balanced version for public consumption.

British Nuclear Fuels' Magnox reactors, which currently supply 7% of the UK's electricity, will close by 2012 at the latest (ENDS Report 305, p 20 ). British Energy's plants provide 17% of electricity supplies, but its advanced gas-cooled reactors (AGRs) are due to close between 2010 and 2025. Only the Sizewell B pressurised water reactor is likely to be running beyond 2025.

The closure programme threatens to put the UK's CO2 emissions on a rising trend after 2010. The nuclear industry points to DTI forecasts suggesting that 70% of the UK's electricity will come from gas by 2020 - when the UK could be relying on imports for 55-90% of its gas consumption.

Nuclear and renewable energy sources, which both offer the prospect of low-carbon energy and reduced reliance on fossil fuel imports, are locked in a beauty contest. British Energy argues that renewables "cannot be relied upon due to their intermittent availability and limited scale. Most rely on economic support and give rise to extensive land use or planning resistance."

The company urges the Government to ensure that nuclear power continues to supply 25% of the UK's electricity under a policy of "replace nuclear with nuclear". This would entail a £10 billion programme to build around ten 1,000-1,200MW nuclear stations between 2010 and 2025. Sites of existing reactors could be used to reduce infrastructure costs and provide continuity of employment.

The industry claims that new reactor designs offer improved safety and performance with lower construction and operating costs. Even so, both British Energy and BNFL are seeking hefty subsidies.

British Energy claims that new nuclear stations could generate electricity at 2.5-3p/kWh - but only if they are built as part of an ongoing programme, and achieve high load factors and long operating lives. BNFL puts the cost at 2.2-3p/kWh. British Energy claims that new gas-fired and renewables capacity would generate at 2-2.5p/kWh and 2.25-3.9p/kWh, respectively.

Both generators argue that no new capacity of any type will come forward if market prices under the new electricity trading arrangements stay at 1.8-2p/kWh. The exception is renewables, which are supported under a new obligation on supply companies (ENDS Report 319, pp 35-37 ).

British Energy argues that for a new nuclear programme "to become commercially viable, there would need to be a long-term premium recognising nuclear's environmental and other benefits." Options would include exempting nuclear electricity from the climate change levy, introducing a carbon-only tax or allowing the sector to benefit from tradable emission permits.

The company's preferred option is an extension of the renewables obligation to cover nuclear power. It claims that nuclear could meet 10% of electricity demand with an annual subsidy of £340 million, one-third of the maximum cost to meet the same level from renewables.

However, other significant subsidies are hidden in British Energy's figures. First, it ignores "first of a kind" costs of some £300 million associated with new reactor designs.

Secondly, British Energy says it must be freed from £2 billion of liabilities and from its "uncompetitive" spent fuel contracts with BNFL - both inherited by the company at privatisation. These measures could, it claims, reduce its annual spent fuel costs from some £300 million to around £50 million. This would bring its UK business back into the black, allowing it to provide equity towards a new build programme.

The nuclear generators see several other prerequisites for a new programme of reactors. They call for a clear policy on dealing with radioactive wastes, a streamlined planning and approval process and a less stringent policy on reducing radioactive discharges. Finally, British Energy says, investors are likely to adopt a highly risk-averse approach and "will need strong reassurances from Government that it intends to proceed with a new build programme."

The DTI puts the generating cost of new nuclear stations at 2.6-4p/kWh. But a paper by the PIU warns that the costs "could exceed 4p/kWh, since the industry, at least in the UK, has a history of underestimating costs and overestimating performance." The PIU says it is unlikely that any new reactor could be complete before 2010, and perhaps not until 2015.

The PIU also sees a rosy prospect for renewables. Its modelling suggests that a target for renewables to supply 20% of the UK's electricity by 2020 is "feasible" and could be met without raising the price cap under the renewables obligation. It is now assessing the implications of a more ambitious 30% target for 2020 which could "ensure that the projected upturn in emissions from the power sector between 2010 and 2020 does not occur."

According to the PIU, generating prices for onshore wind should be less than 2p/kWh by 2020, while offshore wind should achieve 2-3p/kWh. Photovoltaics, at 10p/kWh, would "still be some way from cost competitiveness in the UK." Plants burning energy crops could generate at 2.5-4p/kWh and wave and tidal power might achieve 4-8p/kWh, although estimates for these technologies are less certain.

In contrast to the nuclear industry, the PIU suggests that "network and 'intermittency' constraints will not have a major impact on the development of renewables for the foreseeable future." Technologies such as energy storage should be prioritised to allow "much larger" contributions from renewables in the longer term.

The Scottish Executive's response deals a further blow to the nuclear sector. British Energy's Hunterston B and Torness reactors currently provide more than half of Scotland's electricity.

The Executive says that "no decisions on policy about the future of nuclear?can be taken" before the results of the Government's consultation process on radioactive waste are available. The process was launched in September, but no meaningful conclusions are expected until 2006 (see pp 41-42 ).

Instead, the Executive feels it "imperative for Scotland to develop its very considerable renewable energy resources to the greatest extent possible." It expresses "some confidence" that the target for renewables to supply 18% of Scotland's electricity by 2010 will be exceeded.

Meanwhile, there are some suggestions that worries about the security of energy supplies have been overplayed by the nuclear and coal lobbies. BP told the PIU that "concerns that the UK's gas reserves will soon be exhausted are misplaced," provided the fiscal and regulatory regime does not affect international competitiveness. Moreover, it says, gas reserves are being developed in many parts of the world, reducing the risk of reliance on imports from potentially volatile regions.

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