Comment: Why the nuclear industry is a risky business

If you thought Professor (Forrest Gump) Stephen Littlechild, the electricity regulator, was a difficult man to predict, wait for the emergence into the public eye of Sam Harbison, the chief inspector of nuclear installations. He may be about to bring a whole new meaning to the term "regulatory risk". Dr Harbison, the man charged with preventing a Chernobyl or Three Mile Island in the UK, has not so far had any influence at all on the fortunes of private investors.

Yet when the nuclear generating companies are privatised he will have power of life and death over their operations; safety is, or should be, paramount. He could, for instance, with little if any warning, decide to shorten the century or more proposed for decommissioning reactors, thus throwing into dissarray present calculations on the cost of provisions. Changing the time-scale would have a dramatic impact on costs.

Another risk is that the inspectorate may demand more frequent plant shutdowns for inspections, reducing revenue. And most catastrophically from the point of view of investors, any serious generic fault emerging in the reactors could lead to an order from the inspectors to reduce output semi-permanently.

Corrosion problems have led the inspectorate to impose long-term output restrictions in the past. The power companies say these were caused by teething problems, but it would be foolish to rule out restrictions for some other reason as plants grow older.

Conventional power stations have safety problems, too, but they are by their nature easier to put right and less catastrophic in their consequences if they occur. For all these reasons, regulatory risk, already highlighted by Professor Littlechild's interventions in electricity pricing, will be well nigh impossible for investors to price into nuclear privatisation.

The issue is not whether there will be a movement a few per cent either way for power sales tariffs but whether there could be large and unforeseen changes in revenue for the company. The prospectus, if we ever get to that stage, is therefore going to make fascinating reading.

Ignoring such problems, the finances of a privatised nuclear company are in fact beginning to look quite respectable, largely because the older Magnox stations will be kept by the Government. Last year, Nuclear Electric lost £434m, before counting the £1.2bn nuclear levy, but £240m of that was because of the Magnox stations and £210m was one-off restructuring costs.

The advanced gas-cooled reactors and the pressurised water reactor at Sizewell in Suffolk pretty well broke even, and as the PWR gets up to full capacity over the next year, the company, excluding the Magnox stations, will begin to look adequately profitable to sell. Nuclear's improving financial position helps to explain why the Government is planning to drop the nuclear levy two years early.

The levy is essentially a tax on consumers to pay decommissioning and particularly the spent fuel treatment costs. Given the new look to the nuclear industry's finances, it is hard to justify continuing it a moment longer.

None of this helps the Government very much in selling nuclear to the City. The risks of another Chernobyl in the UK are certainly tiny; the industry would in any case be largely ring-fenced from the costs of such a disaster. The Government is nonetheless going to have a tough task convincing investors this is anything but a highly risky industry from both a regulatory and technical point of view. The Government will be lucky indeed to get the £3bn the optimists expect for both companies.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test