Reborn: nuclear energy prepares for a second chance

The CBI wants it. The unions want it. Even some environmentalists want it. But is this power source still too radioactive to be economic? Tim Webb investigates

At a private dinner organised by the nuclear industry at a Pall Mall Hotel in September, some of the industry's most senior executives did not quite know what to make of their new-found popularity. The Government-rescued British Energy and loss-making BNFL, operator of Sellafield, are used to being pilloried for their record on pollution, safety and honesty (not to mention for their dreadful financial performance). That had begun to change when Professor James Lovelock, a prominent environmentalist, publicly came out last May in favour of nuclear power as the only realistic way to curb global warming (nuclear power stations do not emit the greenhouse gas carbon dioxide). It was a bit of surprise, partly because environmentalists tend to be nuclear power's most vehement critics, seizing on scandals such as BNFL's falsification of nuclear fuel records in 1999 as evidence that the industry cannot be trusted, but also because the Government's energy White Paper last year - which was supposed to frame polic

At a private dinner organised by the nuclear industry at a Pall Mall Hotel in September, some of the industry's most senior executives did not quite know what to make of their new-found popularity. The Government-rescued British Energy and loss-making BNFL, operator of Sellafield, are used to being pilloried for their record on pollution, safety and honesty (not to mention for their dreadful financial performance). That had begun to change when Professor James Lovelock, a prominent environmentalist, publicly came out last May in favour of nuclear power as the only realistic way to curb global warming (nuclear power stations do not emit the greenhouse gas carbon dioxide). It was a bit of surprise, partly because environmentalists tend to be nuclear power's most vehement critics, seizing on scandals such as BNFL's falsification of nuclear fuel records in 1999 as evidence that the industry cannot be trusted, but also because the Government's energy White Paper last year - which was supposed to frame policy for the next 25 years - favoured renewable forms of energy, such as wind, over nuclear.

More was to come. Tony Blair told MPs in the summer that "you cannot remove [nuclear power] from the agenda if you are serious about the issue of climate change". Digby Jones, the head of the Confederation of British Industry, got in on the act by suggesting that six reactors should be built over the next decade. The Amicus trade union has also voiced concern about the effect that closing the UK's reactors would have on security of supply and electricity prices. The nuclear industry has not had so much good publicity for years, one nuclear industry executive at the September dinner remarked. "We're happy to let them all promote nuclear. It's far more effective coming from them. If we did it, the response would be, 'Well, they would say that wouldn't they.'"

So why is nuclear cool again?

The UK gets around a quarter of its electricity from nuclear power stations. Over the next 15 years, most will be taken out of service. The question is how to fill the gap, without jeopardising the UK's carbon emission reduction targets set out in the Kyoto Protocol. The current answer, outlined in the White Paper, is renewable energy. Helped by Government subsidies, over 10 per cent of the UK's electricity is supposed to come from wind farms by 2010. The target is to hit 20 per cent by 2020, with more offshore wind farms and newer renewable technologies such as wave power and biomass generation. No plans were made to build new nuclear reactors to replace those being decommissioned. The environmentalists hailed the White Paper as a great triumph. The nuclear industry blamed it on the financial meltdown of privatised British Energy.

Since then, the nuclear industry has licked its wounds and bided its time. Sure enough, the old doubts about renewables and security of supply have resurfaced. This year, soaring gas, coal and oil prices have raised the cost of fossil fuel generation. Next year, Britain will become a net importer of gas for the first time since the North Sea bonanza began. The UK will have to rely on importing gas from unstable regions such as Kazakhstan in the future, making gas-fired generation less attractive. What happens if Kazakh gas stops flowing and the wind doesn't blow? And who wants to gaze out to sea (or over the hills) and see hundreds of wind turbines dotting the horizon?

The Energy minister, Mike O'Brien, says the Government is not partisan about nuclear energy. After the Nuclear Industry Association/British Nuclear Energy Society annual conference on Thursday, he said the market, not the Government, must decide whether we need more generation capacity, and what kind. "There has been much debate about whether the Government is keeping the nuclear option open," Mr O'Brien said. "But at the moment there is no commercial proposition on the table. We are always getting people saying 'We could do something.' But when we check it there is nothing there. If we thought that a [nuclear] project was a commercially serious proposition we would look at it.

"There's a lot of passion for nuclear in there," he said, indicating the auditorium. "But passion on its own isn't enough. We are waiting for the market to come forward. We want to see how the private sector would do it. But at the moment, business people are coming up with gas and coal." Clearly, the Government will not get out its cheque book to bankroll another generation of nuclear power stations.

With National Grid Transco forecasting 20 per cent spare generation capacity this winter, the need for more power stations to be built is not immediate. As power stations close, electricity prices will rise, encouraging energy companies to build new stations, he says. "In the medium term, we expect the market to indicate whether new plant is viable."

So if new nuclear is to be built, the private sector must come up with the cash (over £1bn for each reactor). As things stand, this is unlikely to be forthcoming. To date, all the UK's reactors have been built with government money, while no bank will touch the sector without decommissioning costs being capped. Keith Parker, the chief executive of the NIA, admits: "The industry is working hard to produce economic justification for new build. Part of the problem is that people look at [the industry's] past performance." He points to last year's approval for a private sector initiative to build a new reactor in Finland, the first new one ordered in the European Union for over a decade - and without government financing. Crucially, its decommissioning liabilities will be covered, a commitment the British Government has yet to make.

To make nuclear power economic, the Government might not need to make this commitment. The carbon emissions trading scheme, which will be introduced across the EU next month, could prove to be the nuclear industry's Trojan horse, letting it sneak back into the market to provide new generation. By penalising suppliers which emit carbon, the system will give nuclear power stations a huge financial advantage; fossil-fuel generators will be forced to buy carbon certificates from them to comply with the scheme. "The economies of generation will change in the coming decade," says Mr O'Brien. "The new gold will be certificates. They will be worth a lot of money."

Because of relatively low electricity prices, it is not economical to build any form of non-renewable generation now. But recent research from energy consultancy Wood MacKenzie estimates that from 2015, for the first time, it could be cheaper to build new nuclear power stations than coal or gas, even including decommissioning costs. There are many caveats: the estimate assumes further rises in gas prices, a high cost of carbon under the carbon trading scheme, that optimistic estimates for nuclear costs can be realised and that uneconomic reprocessing of spent nuclear fuel is discontinued. Stewart Gray, the vice-president of gas and power at Wood MacKenzie, says: "The key problem nuclear has in the UK is that the market is particularly unfavourable for such a capital-intensive, front-loaded technology like nuclear because it is fragmented and competitive. We also have a poor track record for cost and construction time overruns."

Mr O'Brien concedes no decision will be made on nuclear until after the general election. A decision to build new nuclear reactors would have to be proposed by another energy White Paper with all the consultation that entails. But he's looking further ahead than that. He has a vision; in 2024, each house would have solar panels on the roof, with a micro-generator inside and a mini wind turbine in the garden. "I really believe this is possible," he says. Whether a nuclear reactor will feature in the background is another question.

IF NOT NUCLEAR, THEN WHAT?

Biomass

This involves the burning of crops such as willow and eucalyptus with coal in coal-fired power stations. "Co-firing" is seen as carbon neutral as the carbon released when the crops are burnt had been absorbed from the atmosphere. Not used in many coal power stations, but growing.

Wind

The Government is pining its hopes of meeting its 10 per cent renewable target by 2010 on wind. Electricity suppliers must buy a growing proportion of electricity from renewable sources under the Renewable Obligation Certificate (ROC) scheme. This guarantees a market for wind, which has costs more than twice as much as coal and gas generators.

Wave

A long way behind wind as a renewable form of energy and much more expensive to generate. Companies such as Wavegen and OPT want the Government to introduce renewable obligation certificate specifically for wave generators, dubbed wet "ROCs". It is estimated that 10 per cent of the UK's electricity could come from waves, but not for more than a decade. The Government has promised £50m funding for the next three years.

Combined Heat and Power

These are conventional mini generators which siphon off the steam that is created to provide heat to buildings on site. Highly efficient, but only belatedly afforded renewable status by the Government.

Fusion

The holy grail of the nuclear industry, it is a form of nuclear energy which powers the sun and other stars. Talked about for years, but John Large, nuclear consultant, says it won't have a commercial future in electricity generation for another 40 years at least.