The Government gave the green light yesterday for the construction of the first new generation of nuclear power stations in the UK for more than two decades. The move sparked howls of protest from opponents of the controversial energy source, but also set in mot-ion a fresh round of frenetic deal-making between companies which now hope to cash in on the multibillion-pound initiative. In a speech to the Commons yesterday, John Hutton, the Secretary of State for Business, Enterprise and Regulatory Reform, used hot-button issues like our dependence on foreign gas and global warming to explain the Government's new Energy Bill that puts nuclear power at its heart.
He said: "Set against the challenges of climate change and security of supply, the evidence in support of new nuclear power stations is compelling. We should positively embrace the opportunity of delivering this important part of our energy policy." He invited companies to submit proposals for the construction of new reactors and said that he hopes the first of the new reactors will enter service "well before 2020." All but one of the UK's 19 reactors, responsible for about a fifth of the country's electricity, will be out of service by 2023.
The announcement, the most significant sign of support for new nuclear by a European government for years, will accelerate partnership talks that have been held between a wide array of UK and international companies in anticipation of the decision. It is also a triumph of a concerted, industry-wide lobbying effort – facilitated by highly paid public relations firms and a raft of new hires of politically connected executives by power companies – that has helped to rehabilitate nuclear's image from a forgotten technology to a safe, environmentally-friendly and reliable alternative power source. The last power station built in Britain was Sizewell B, construction of which began in 1988.
Vincent de Rivaz, chief executive of Electricité de France and one of the industry's most high profile boosters, called the move a "crucial step towards a secure, low carbon future and heralds the arrival of a new era of energy policy, placing the UK at the vanguard of the nuclear revival in Europe".
EDF, which has formed an alliance with its compatriot Areva, the world's largest nuclear company, and Amec, the UK engineering group, said it would now push ahead with a plan to build four new reactors, with the first to be completed by 2017. Bill Coley, the chief executive of British Energy, operator of eight nuclear power stations, said he expects to unveil his chosen partners to build new reactors at four of the company's sites by March. Areva is one of four reactor builders that have already requested that their designs be considered by the Government. The others are Canada's AECL, American giant General Electric, and Westinghouse, which is owned by Japan's Toshiba.
Since the Government first signalled its interest in a new wave of reactors, which can cost £2bn to £3bn and take five years to build, the builders have been in talks with power companies keen to operate the plants once they come into operation. No less than 11 power companies, including all of the UK's big six power companies plus European rivals with no current operations in the country, including Endesa and Union Fenosa of Spain, Sweden's Vattenfall and the French giant Suez, are looking to join forces to put forward proposals to the Government. With the clear blessing of the Government now secured, companies are expected to finalise their alliances and submit their initial proposals in the coming months.
Yet several niggling issues still hang over the massive initiative. Principally, what to do with the vast amounts of nuclear waste that a new fleet of reactors would create. The Government suggests that a "deep geological disposal facility" would be the most appropriate way to store it, though it is unclear where such a site for radioactive material would be located and how much it would cost.
Companies would probably finance the waste disposal costs, as they do in America, by paying a few pence per kilowatt levy into a fund, most likely under the Government's Nuclear Decommissioning Authority.
However, critics point out that the taxpayer could be on the hook for the clean-up if estimates undershoot the true costs or a nuclear operator goes bust. Indeed, in the Nuclear White Paper, published in conjunction with the Energy Bill yesterday, the Government admits: "If the protections we are putting in place through the Energy Bill prove insufficient, in extreme circumstances the Government may be called upon to meet the costs of ensuring the protection of the public and the environment."
Sources within the industry also said a fresh legal challenge from Greenpeace could be forthcoming. The environmental group criticised the Government's decision. Its executive director John Sauven called the policy a "dog's breakfast" that was "bad news for Britain's energy security and bad news for our efforts to beat climate change". Andrew Simms of the new Economics Foundation called it "perfectly irrational."
Another great unknown is the price of carbon. Before investing £2bn upfront to build a plant that will take decades to recoup, companies want some certainty that carbon emissions will continue as a cost of operation for pollution-spewing producers and that, ideally, it will continue to rise. Under the European Trading Scheme (ETS), forward carbon credits for 2008 are trading at about €23 per tonne. As the price goes up, it makes other forms of electricity generation – like gas and especially coal, the single biggest source for UK power generation – more expensive to operate, pushing up electricity prices and making nuclear that much more competitive.
Mr Coley at British Energy said that if carbon hits €25 per tonne, "nuclear becomes the lowest cost alternative for base load electricity."
Of critical importance to the economic viability of new nuclear then is Phase Three of the ETS. The EU will publish its initial draft directives for the third phase of the scheme on 23 January. Nuclear companies are understood to have leaned hard on the UK government to push for a robust system, possibly one in which all credits are auctioned rather than given away free, as most are today, to ensure that that carbon price will keep going up. Because it is being carried out at a European level, the carbon issue is the one over which the UK has the least control. But it is one of the most crucial pieces that will determine whether the economics of new nuclear will work or not in the UK, especially as the plants will be built without Government support or subsidy.
Dr William Nuttal, senior lecturer of technology policy at the Judge Business School at the University of Cambridge, said: "It is often said that a nuclear power station has never been built from scratch anywhere without subsidy and at some level that might be true, but that logic misses a key point. There is no reason Britain could not be the first to do it. For instance, the UK was the first major country to break up monopoly and to move to a competitive market in electricity generation. We are in a special position to lead the way in financing new build."
Foreign firms bidding to set up in UK
Union Fenosa is a minnow in its home market of Spain, a distant third to giants Endesa and Iberdrola. But that hasn't kept it from joining a clutch of foreign companies who, despite having no operations in the UK, are desperately trying to elbow their way into the coming nuclear building bonanza. Aside from the Spanish trio, the other foreign groups hoping to partner international companies bidding to build the new reactors are France's Suez and Vattenfall of Sweden. The UK is seen as a major opportunity. An insider at one of the bidders called the Government's move the "first real European policy change towards renewing nuclear on a national scale". Other European countries, such as Turkey and Portugal, are expected to follow suit. The UK is thus seen as a springboard to new markets, where companies with little or no nuclear expertise can prove their atomic mettle before bidding on new projects elsewhere.
Nuclear players hoping for a share of the action
Owned by the French government and the world's largest nuclear company, it is one of the favourites to win Government approval for its reactor design. The company said yesterday that it hopes to build up to six new reactors in the country.
The other candidate seen as a frontrunner in the Government's beauty parade of reactor designs, the company was sold by British Nuclear Fuels to Toshiba of Japan last year. Last August, Toshiba sold a 10 per cent stake in the business to Kazatomprom, Kazakhstan's national uranium group.
Canada's state-owned nuclear group is an active exporter of its Candureactor technology and has built stations in India, Romania and China. The group has its origins in 1942, when the British and Canadians founded a joint nuclear research laboratory in Montreal.
The American behemoth that makes everything from toaster ovens to jet engines has also been making nuclear reactors for five decades under its GE Energy subsidiary. It is the most broad-based of the bidders, working on alternative energies such as solar power and clean coal.
Producer of about a sixth of the UK's energy, all of which is generated by nuclear power, the company is in the driver's seat for the new build programme. The Government hopes to build new reactors on the sites of the current nuclear fleet. British Energy owns and operates eight.