Speaking at the Confederation of British Industry (CBI) annual dinner on 16 May, UK prime minister Tony Blair warned the great and the good of the business world: “There are key long-term decisions facing Britain and they need to be taken now.”
After confirming that the results of the energy review will be published before the parliamentary summer break at the end of July, Blair said that he seen the “first cut” of the review: “The facts are stark. By 2025, if current policy is unchanged, there will be a dramatic gap on our targets to reduce CO2 emissions; we will become heavily dependent on gas; and at the same time move from being 80-90% self-reliant in gas to 80-90% dependent on foreign imports, mostly from the Middle East and Africa and Russia.
Tony Blair: determined to make tough choices in his final term
“These facts put the replacement of nuclear power stations, a big push on renewables and a step-change on energy efficiency, engaging both business and consumers, back on the agenda with a vengeance. If we don’t take these long-term decisions now, we will be committing a serious dereliction of our duty to the future of this country.”
As Blair said at the start of his address: “Hardly a single difficult decision I have taken in government hasn’t resulted in prediction of disaster; shrieks of outrage; and a determined resistance.” And the decision to mention nuclear in that way was no exception: the entire national media focused on it while Green groups wept to sympathetic journalists that this time energy policy might not go in favour of their campaigns as it had in the 2003 energy white paper.
Prime ministers traditionally speak out when addressing CBI events, but Blair’s comments were particularly surprising given the status of the energy review. Submissions were accepted up until 14 April and the government is only five weeks into its 14-week thinking period leading up to publication. Observers – particularly the anti-nuclear ones – said that comments like this from Blair indicate that he had his mind made up to ‘facilitate’ new nuclear all along.
Sir Digby Jones, however, director general of the CBI, agreed with Blair: “The prime minister is absolutely right to put nuclear power firmly on the agenda for the future.”
It has been noted on these pages that the main thing the nuclear industry wants from the UK government is some clarity with respect to the country’s long-term energy framework and the planning process. Once a clear and predictable licensing process is in place, nuclear would be capable of making its own comeback, assuming investors have faith that subsequent governments will maintain similar lines. In that respect, a reasonable political consensus behind clear and explicit support for nuclear energy would be most effective.
But there are some things that the government wants from the nuclear industry, apart from the freedom to use it or abuse it with the movement of political fortunes. Energy minister Malcolm Wicks was the keynote speaker at the European Nuclear Society’s Topical Meeting on New Reactor Systems (Topnux) meeting held in London on 21-23 March. He said: “Today I issue a challenge to the nuclear industry. You are calling for greater certainty over licensing. You are calling for shorter planning processes. You are calling for the scope of planning inquiries to be restricted.
“But my challenge to you then is to show me how this might work in practice. How might you achieve these things while still maintaining the same high levels of scrutiny and safeguards we have now?”
This was a clear appeal from the minister for the right input to plug a hole in energy review submissions, and as such could be taken as a sign that policymakers want to find a way to make new build a possibility. Nevertheless, the question had to be answered and was addressed by David Scoins of E.ON UK in a paper he presented to the Adam Smith Institute’s Nuclear Industry Forum (NIF) on 9-10 May, also held in the UK capital.
Scoins said that the main difficulty would be to have public enquiries limited to site specifics. In order to achieve that a number of positions need to be clear before the start of an enquiry to ensure these topics need not be revisited. In addition to a defined energy policy that has been subject to debate, a defined policy on radioactive waste and a long-term plan to implement it is also required, both of which we must rely on government to deliver over the next year.
He suggested that government should begin a voluntary strategic environmental assessment (SEA) which would give an early opportunity to engage the public as well as gauge the generic impact of a pro-nuclear policy. An SEA would also provide valuable input to subsequent investigations at regional or local level and could even identify potential new sites.
The two main planning hurdles a new project would have to jump are gaining ‘Section 36/37’ consent (required from the secretary of state or Scottish ministers for generators of more than 50MWe or overhead transmission lines, respectively) and planning permission under the Town and Country Planning Act (or Scottish equivalent). Public consultation and an environmental impact assessment are givens for these processes and a public enquiry is most likely.
So, in addition to energy and waste policies, before reaching planning stage a hopeful constructor should have full documentation of the following behind them:
- An SEA should have been produced and its issues incorporated into regional and local plans, with each part subject to public scrutiny.
- There should be official regulatory approval of the proposed plant design, also subjected to public scrutiny.
- Justification must have been granted by the Department of Trade and Industry (DTI), subject also to public scrutiny.
- Lastly, the safety and environmental acceptability of the proposed plant’s discharges must have been assessed by the Environment Agency (or Scottish equivalent), again subject to public scrutiny.
Given this preparation it should be possible for a public enquiry to be focused on local issues. But there are concerns over the Section 36 process, Scoins said. There is a need for strong coordination across government departments of the inputs to different processes. In fact it would be a good idea to appoint managers for the process within the DTI in a section like the 2010 Team which has been pushing through renewable developments.
According to Scoins’ timetable, with the Nuclear Installations Inspectorate beginning pre-licensing activities this year, it could be possible to have everything in place to begin site-specific inquiries in 2010 and have them completed by early 2012, when construction could begin. That timescale assumes that a potential licensee were identified around mid-2009. Getting together a group of firms to propose a project is still one factor that remains mysterious.
SHOW ME THE MONEY
Roger Ewart-Smith, managing director of Rothschilds, told Topnux it is “not true that nuclear is unloved and misunderstood in financial markets.” Although the “formula was no good a few years back,” people in the City are “extremely excited” and interested in the nuclear renaissance. Noting pension funds, he added that there is “lots of money out there happy to find a long-term home.” Even given the huge uncertainties in oil and gas pricing, a standalone plant, in his opinion, would be too risky, but as part of a balanced portfolio of generation, a big utility could invest while mitigating the overall risk.
Big utilities like Electricité de France (EdF), RWE or E.ON that already operate nuclear plants in Europe are known to be very interested in the emerging UK market, but the capital they could each raise would not reach, for example, the £1.6 billion price-tag of a first-of-a-kind UK AP1000. Gareth Davies of Oxera suggested to the NIF that financial firms would only be prepared to stump up the missing cash if the rate of equity return would meet their requirements. However, given the volatility of gas prices – which lead electricity prices – and the huge unknowns in the carbon market it would be very difficult to draw the graphs to show a good enough chance of a healthy enough profit.
One moment later though, at the NIF, Ewart-Smith took the podium. His started his off-the-cuff address by saying: “It’s all very well to calculate now, but nothing’s going to happen towards new build for five years.” Today’s assumptions could be proven “hopelessly flawed” by the time actual investors are required. Although he thought that overall project returns would be more important than equity returns, his view was that power station investment in the UK’s deregulated market has not been a happy one with buyers being burnt by long-term contracts. His view was that banks would not be that willing to invest without long-term contracts, but that consumers would be unwilling to enter into those contracts.
ENCASED IN CARBON
The one thing, it seems, that would clarify the finances of new build is some long-term price signals on carbon from government. Despite the fact that nuclear was considered economic without carbon pricing in 2004, carbon costs became seen as an unknown ‘bonus’ that could only help during 2005, and the sums don’t add up without it in 2006.
Pierre Gadonneix, CEO of EdF told Topnux that if CO2 prices reach €40-60/t then coal power would double in price and that was one reason “the nuclear industry is at a tipping point – it is returning to favour.” Sadly, though, for nuclear, carbon prices are now around the €20/t mark, and reached a low of around €11/t at the end of April. A glut and dramatic price drop was triggered by the announcement by several European countries of actual emissions for 2005 of less than the amount of allowances to the market.
If speakers at Topnux and the NIF are to be believed, carbon pricing is now an important factor in nuclear economics but the uncertainties surrounding it are immense. The Emissions Trading Scheme operating in Europe is only the trial version of the final scheme to operate after 2008. That regime will be linked to Kyoto goals and will expire in 2012 – the 20th anniversary of the Kyoto protocol itself. What happens with carbon markets beyond that is unknown, as is what form any global carbon abatement strategy would take.
This continental condition makes the UK’s predicament even more confusing. The energy gap facing the country as old coal and nuclear units shut down starts to grow in the uncertain time around 2014. Brave investment in the face of uncertainty will be essential for new nuclear.
Vincent de Rivaz of EdF warned the NIF: “There is a real risk of supply failure around 2016. No plans exist now for any new baseload station and margins will tighten further before the market kicks in.” In ten years, he predicted, there will be another dash for gas to meet the energy gap.
The door is just beginning to open for nuclear to re-enter the mainstream, but money moving into gas projects at the wrong time could easily close it again.
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