The nuclear option: UK's multibillion-pound renaissance moves up a gear

With site auctions set to conclude, the battle is moving up a gear. Sarah Arnott reports

As potential atomic reactor sites go under the hammer this week, the battle for the UK's multibillion-pound nuclear renaissance moves up a gear.

The auction of land for new power stations – expected to last seven days at most – is now into its third week as utilities from across Europe fight for a slice of both the lucrative UK electricity sector and the growing global market. Total bids have topped the £200m mark.

The Nuclear Decommissioning Authority (NDA) is selling land adjacent to existing power stations, and deemed suitable for the next generation of installations, at Wylfa in Anglesey, Bradwell in Essex and Oldbury in Gloucestershire. The auction, which is not over until more than 24 hours has elapsed with no bid on any site, is expected to conclude within days.

There has been no shortage of interest. A consortium of Scottish and Southern Energy, Iberdrola and Suez is bidding for all three sites. EDF has its eye on Bradwell, not least because it already owns a parcel of land right in the middle of the NDA plot. The German partnership of RWE and E.ON is gunning for both Wylfa and Oldbury.

Once vilified, nuclear power is now widely touted as the answer to growing electricity requirements, concerns about energy security, and the need to replace one-third of all generating capacity by 2015. EDF spent £12.5bn buying British Energy (BE) in order to get a foot in the door, and is committed to building four new nuclear reactors by 2025, two at Hinkley Point in Somerset, and two at Sizewell in Suffolk. The first, at Hinkley, could be up and running as early as 2017.

The RWE/E.ON consortium is equally outspoken, with plans for five reactors, or at least two new power stations, over the next 15 years. RWE is not pulling its punches. Not only has it already bought a plot of land, and organised a National Grid connection, alongside the Wylfa site. It also has the option to buy two further sites, with grid connection commitments, near Sellafield – the location of a final NDA lot, to be auctioned this summer.

Notwithstanding the months of grand plans, feverish negotiations and jostling for position, this week's land auctions are new nuclear's biggest milestone so far. Alastair Scrimgeour, a corporate finance partner at Deloitte, said: "The auctions are crucial because it gives the utilities access to sites, which is fundamental for them to take forward their plans."

To meet the Government's timetable, and ensure there is no "energy gap", construction of the first wave of new nuclear power stations needs to start in 2011. With land secured, rhetoric can start to become reality. But a forbidding array of moving parts – many of them in government – needs to align for the plans to stay on track.

Applications close today for locations to be included in the Government's Strategic Site Assessment, which will establish those plots to be included in the National Policy Statement (NPS). The NPS, in turn, will lay out the overall plan and ensure applications can be sped through the Infrastructure Planning Commission (IPC) set up by last year's planning reforms to fast-track submissions of national importance.

Another parallel thread is the "justification" required by Brussels. The consultation on the industry's applications closed last week and is now with Ed Miliband, the Secretary of State. A draft response is expected in the autumn, with another consultation period before a final decision is made early next year.

Meanwhile the Health and Safety Executive is running a "generic design assessment" to sign off the next-generation reactors to be used in the new power stations. The deadline for completion is mid-2011, but progress is slow and insiders are concerned about the regulator's resources. "We are close to halfway through the time, but nowhere near halfway through the work," a source said. "The Health and Safety Executive is boosting pay and recruiting hard, but two years into a four-year process it still either hasn't got enough people or doesn't have them trained up."

The IPC also needs to get up and running to process planning applications in time for a 2011 start. And then there is next year's general election. It is a long-standing joke that what the sector needs is a nuclear facility that can go from green field to electricity production in a single government term. One industry veteran said: "Not only is everything interlinked so if any one bit gets delayed the whole thing goes bad, but if we don't get the justification, the site assessment and the policy statement before a general election, then there'll be a real problem."

Against such a background, the land auctions will be followed by intense commercial discussions. Companies that miss out this week may still have a chance. The NDA's Sellafield auction will start within months, and the terms of the BE takeover deal specify that EDF must sell land at either Dungeness or Heysham – at the behest of the buyer – if it gets planning permission for Hinkley, and land at Bradwell if it gets consent for Sizewell. Losers are likely to join forces with more successful rivals keen for extra finance and expertise. Non-bidders will also look for a role, and the Swedish giant Vattenfall is tipped to be on the look-out for a suitable joint venture.

There are also decisions to be made on reactors. EDF is in an all-French team using Areva's EPR design. So far, RWE is officially technology neutral. But some view its grid connection applications at Sellafield and Wylfa requesting 3,600 megawatt (MW) split into 1,200MW chunks as a lean towards Westinghouse's 1,117MW AP1000 reactor rather than the 1,600MW EPR. Such scrutiny is indicative of the size of the potential prize.

Step away from the reactor: The state sells out

The plan for the fleet of new atomic power stations to be built by the private sector for the first time is not the only revolution in the UK nuclear sector.

The Government is also withdrawing from the clean-up side of the industry, and the commercial arm of the state-owned Atomic Energy Agency (UKAEA Ltd) was put on the market yesterday, with a sale expected by the end of the year.

UKAEA provides waste management services including the decommissioning of obsolete nuclear facilities and environmental remediation. It also offers new-build support services and has contracts in both the UK and abroad.

Lord Mandelson, the Business Secretary, said: "As the UK moves towards an era of nuclear new-build, this sale will increase efficiency, competition and value for money for the taxpayer in the decommissioning and clean-up work of old nuclear power stations."

The state has already taken a massive step out of the once wholly state-owned nuclear sector with the sale of British Energy to EDF for £12.5bn. The Government may retain a stake in UKAEA, but is offering all issued share capital for sale.

Lady Judge, the chairman of the UKAEA, said: "The proposed sale will provide UKAEA Ltd with a new ownership structure to help deliver its strategic plans and greater commercial focus on its operations.

"The UK and international nuclear decommissioning markets represent an exciting opportunity for UKAEA Ltd to build a larger and more broadly based nuclear services company, based on its core skills, track record and brand."