Nuclear inquiry stakes out the battlelines for energy review

Prime Minister Tony Blair has set out the terms of reference for a major review of energy policy to be completed by the summer. An inquiry by the House of Commons Environmental Audit Committee has given a foretaste of the key issues - particularly the role of nuclear power in meeting objectives on climate change and energy security.

Mr Blair announced the terms of reference for the energy review at the CBI annual conference. Noting that CO2 emissions are now rising in the UK, he said "by 2020, the UK is likely to have seen decommissioning of coal and nuclear plants that together generate over 30% of today's electricity supply. Some of this can be replaced by renewables but not all of it can."

The review will "include specifically the question of whether we facilitate the development of a new generation of nuclear power stations," Mr Blair said. It will focus on policy measures to deliver "against the medium and long term goals" set by the 2003 energy White Paper, including the aim of a 60% reduction in the UK's CO2 emissions by 2050 (ENDS Report 338, pp 26-32 ).

The process will be led by energy minister Malcolm Wicks. Alongside a consultation in early 2006 will appear a "statement of current evidence".

The move follows strong lobbying from the nuclear industry (ENDS Report 364, pp 21-24 ), backed by the CBI and the Engineering Employers Federation. Pro-nuclear opinion has been fuelled by concerns over security of energy supplies this winter.

However, many witnesses at the Environmental Audit Committee's inquiry into nuclear, renewables and climate change questioned the need for another energy review less than three years after the energy White Paper. Energy economist Gordon Mackerron said "it is difficult to understand what the particular urgency is on another review" - and said that much of the debate on security of supply is "unduly alarmist".

Jonathon Porritt, chairman of the Government's Sustainable Development Commission, argued that the real problem was "half-hearted" delivery of policies in the White Paper - and said Mr Blair's apparent "pre-positioning" in favour of nuclear power was "a pretty illegitimate process".

Renewable energy expert Catherine Mitchell told MPs that none of the fundamentals had changed since the White Paper - and that reopening the debate was "incredibly damaging" because it would "completely undermine" investment in renewables and microgeneration.

Key strands in the inquiry were:

  • The "energy gap": Much discussion focused on the middle of the next decade, when most nuclear capacity and many old coal-fired plant will shut down.

    Nick Winser, group director of National Grid, said on realistic assumptions on new build of combined cycle gas turbines and renewables, the plant margin - the excess of generating capacity over peak demand - would remain at "around the 20% mark". However, if currently proposed CCGT build does not go ahead - a risk if gas prices remain high - "the plant margin will sink to single figures."

    In contrast, environmental group WWF pointed to a report by Ilex Energy Consulting which concluded that CO2 emissions from the power generating sector could be reduced by 60% by 2020 without new coal or nuclear stations. The key to achieving this was to reduce energy demand by 0.2% per year - compared with the current annual growth of 1.5%.

  • Questions of timing: Witnesses from BNFL and British Energy maintained that it is possible to bring new nuclear capacity on stream "in about 10 years" - although this would require a rapid decision, and streamlined planning and regulatory approval.

    Tom Burke of Imperial College said even on "reasonably optimistic" assumptions - including just one year for a planning inquiry - a new reactor could not be up and running before 2021. Lining up agreement on a series build of up to ten new reactors would also raise numerous practical difficulties.

    Trade Secretary Alan Johnson told the Committee that it would take 15-17 years between a decision and a nuclear plant being commissioned. Moreover, he made clear that next year's policy statement would be followed by another round of consultation - and, if the nuclear route were to be endorsed, a White Paper and potentially primary legislation.

    Vincent de Rivaz, chief executive of EDF, agreed that it was unlikely that a new reactor could be up and running until 2020 - but that in terms of the energy gap, "the critical time is more around 2016 than 2020."

    The timing issue suggests the window of opportunity for nuclear may already have closed. The one factor which may bail the industry out is if British Energy can secure life extensions for its AGR reactors.

  • The nuclear case: Mr de Rivaz of EDF insisted that "the idea that nuclear requires special subsidies, special state financial aid, is an old-fashioned view."

    However, he said that "in the absence of risk mitigation by Government, nuclear will not be built in the current market."

    Professor Mackerron, a leading authority on nuclear economics, said "it is very difficult indeed to give a realistic forecast of either how much a reactor would cost to build or how long it would take to do so." He argued that any investors would want "some cap, some limit, on their liability."

    Alan Johnson insisted that "there is no question of taxpayers' money being thrown into this." He also said that "in terms of the Government issuing guarantees I do not think there is going to be an awful lot of that emerging at the end of the review."

    The Committee's chairman Peter Ainsworth said that it remained "entirely unclear" what the nuclear industry was looking for when it asked for a "steer" or "green light" from the Government.

    Tony White of Climate Change Capital said financial support would not be necessary - "apart from underwriting the back-end fuel costs and the decommissioning, maybe underwriting the first projects" - provided the industry could sign long-term contracts.

    However, he went on, "I do not think we are going to get a market in long-term contracts developing at prices which would remunerate capital." Mr White argued that the current structure of the liberalised electricity market is "unpalatable" and called for some form of capacity payment to ensure investment comes forward in time to fill the energy gap.

    Dieter Helm of economic consultants Oxera proposed a long-term, technology-blind carbon contract. Developers would bid for each tonne of carbon saved and the Government would sell the contract in to the EU emissions trading scheme. MPs were unconvinced, pointing to problems with bankruptcy and over-bidding.

    All parties agreed that the EU ETS does not currently provide a significant driver for low-carbon investment, and merely encourages fuel switching at the margin.

    Tony White said although prices are currently E20-25 per tonne of CO2, "any investment is being done on the basis of a cost of maybe E5."

  • Radioactive waste: One key question is the degree to which finding a "solution" to the nuclear waste problem should be a pre-condition for any new nuclear capacity. The Government's Committee on Radioactive Waste Management is expected to recommend an option by July 2006 (ENDS Report 363, pp 53-54 ).

    In a statement issued in mid-December, chair Gordon Mackerron said "we do not want our report to be used to give a green light or red light to more nuclear reactors."

    Professor Mackerron noted that ethical issues around existing waste are seen as "very different" from those relating to the creation of new waste. "Although waste from new reactors can technically be accommodated by the options we are considering," he said, "we want a decision about managing new waste to be subject to its own review."

    CoRWM says a fleet of 10 new reactors would increase the total waste stock by about 10%. However, the volume of highly radioactive spent fuel would increase five-fold.

    One key issue is that if CoRWM recommends new waste facilities, the hugely controversial process of site selection could follow over the next decade - overlapping with, and muddying the waters for, planning inquiries for any new reactors.

  • Uranium reserves and proliferation: The MPs also heard some evidence that uranium reserves are finite, and good quality reserves could be used up well before 2050 if global nuclear capacity increases significantly.

    Paul Rogers, Professor of Peace Studies at Bradford University, argued that this would force wide use of reprocessing and a move to "a global plutonium economy" - with worrying consequences for nuclear weapons proliferation.

    Sir David King, the Government's chief scientist, argued that existing plutonium stockpiles are a valuable resource that should be used in MOX fuel. But nuclear consultant Frank Barnaby told MPs that widespread use of MOX would lead to a "really very high" probability that terrorist groups would obtain materials to allow nuclear weapons manufacture.

    MPs on the Committee also drew attention to a recent report by the World Nuclear Association, which concluded that "fuel supply is potentially short beyond 2015, unless the lower demand scenario occurs...Uncertainties about fuel security in the future may depress possible investors' confidence in the nuclear power industry. This could potentially delay or cancel the nuclear programmes, currently set."

  • Renewables: Marcus Rand, chief executive of the British Wind Energy Association said meeting the Government's 10% renewables target for 2010 would require 4GW of onshore and 3GW of offshore capacity.

    He was "pretty confident" about the onshore contribution - but saw a "big question mark" over offshore wind. Costs have not come down as quickly as hoped, and issues over grid connection and capital grants for the second round of development have still to be resolved.

    The BWEA argued that a 30% market share for renewables by 2030 and 40% by 2040 are "highly credible targets". But it maintained that it was "agnostic" on nuclear, provided existing renewables targets are protected.

    Dave Sowden of the Micropower Council argued that installing micro-CHP units in half of the UK's households would generate more than the present nuclear capacity, with output likely to match the winter peak demand.

    Indeed, a report to the DTI by the Energy Saving Trust, issued as ENDS went to press, concluded that by 2050 microgeneration could supply 30-40% of the UK's electricity, reducing CO2 emissions by 15% per year.

  • Energy efficiency: Jonathon Porritt said "if we got energy efficiency sorted out and really went for it...then a lot of the concerns that people have about a so-called supply gap would look a great deal less frightening."

    However, the Government's performance in driving forward energy efficiency came in for much criticism. Keith Maclean, head of sustainable development at Scottish and Southern Energy, said that current policies are "unlikely to deliver anything approaching" the carbon savings identified in the White Paper.