Memorandum submitted by The British Nuclear
The British Nuclear Industry Forum (BNIF) welcomes
this opportunity to submit its views to the Trade and Industry
Committee's inquiry on "Energy PolicySecurity of Supply".
BNIF has been actively involved in the PIU Energy Policy Review,
having submitted an industry-wide written submission and organised
in collaboration with PIU a workshop on nuclear issues that was
designed to further the debate on the future role of nuclear energy
within the context of the UK's energy policy for the next 50 years.
BNIF's responses to the Committee specific questions are derived
in large part from our submission to the PIU review. A copy of
the full BNIF's submission is attached.
BNIF is the trade association and representative
organisation for over 60 companies involved in the UK civil nuclear
industry, including the operators of the nuclear power stations,
engineering and construction firms, nuclear equipment suppliers,
the nuclear research facilities and companies engaged in decommissioning,
waste management, nuclear liabilities management and all aspects
of the nuclear fuel cycle. BNIF also acts as the UK industry's
representative and liaison point in relations with nuclear industries
and organisations abroad, and is therefore able to bring an international
dimension to its activities and information.
THE UK ON
THE UK MAINTAIN
After just over a decade in which energy policy
has concentrated on creating a competitive market in electricity
the UK has benefited from the emergence of a "balanced"
energy supply derived from indigenous sources. The UK has been
favoured by its emergence as a major oil producer and net exporter
from 1980 onwards and its tripling of natural gas production over
the same period. During the 1990s as the electricity market was
liberalised, gas emerged as the major new competitive source of
Meanwhile, improvements in nuclear performance
in the 90's were dramatic. Output increased by 49 per cent from
1990 to 1999, and combined with the gas entry this enabled the
UK to improve its environmental performance and become one of
the few countries likely to meet its Kyoto targets for reducing
greenhouse gas emissions to counteract the impact of climate change.
However, indications have been provided by government
that the UK's period of oil and gas abundance will not prevail
and that Britain will become a major importer over the next decade
or two of both oil and gas, and as early as 2010 it seems likely
that continental developments will determine UK gasand
Further increased dependence on imported gasGovernment
projections indicate that between 55 per cent-90 per cent of total
consumption could be imported by 2020will only exacerbate
this effect. This exposes the UK to considerable risk, particularly
when it is borne in mind that about 38 per cent of world reserves
are in the Former Soviet Union and a further 35 per cent in the
Middle East, neither of which regions has histories of political
stability. In addition, the history of hydrocarbon prices over
the past three decades has been one of extreme instability at
a world and even UK level. Just in the past year European gas
prices have risen by 59 per cent, North American gas prices by
81 per cent and world oil prices by 60 per cent in real terms.
Such fluctuations should encourage a cautious view of trends in
hydrocarbon prices over a 50 year horizon.
Meanwhile, over the next 20 years almost all
of Britain's presently operating nuclear power stations will have
closed, half of existing plant capacity in the next 10 years.
This removes from the generating mix a reliable and carbon-free
source of about a quarter of the UK's current electricity needs.
These factors in combination have implications for the security
and diversity of the UK's future energy supplies, and with continued
reliance on market forces, (but omitting the "polluter pays"
principal)the nation is heading for a degree of reliance
on external sources of electricity fuel that has never existed
Against this background of increasing risk to
the nation's future energy diversity and security, as well as
its environmental policies, the Government's hitherto tacit acceptance
of an inevitable decline in the contribution of nuclear energy
needs to be urgently re-assessed since the potential loss of the
UK nuclear option is a critical factor in determining the scale
and severity of the policy risks the Government will face in the
next half century.
BNIF believes that any overall policy that can
realistically be expected to address all the competing challenges
must support and encourage the transition to a low carbon energy
economy, and has to include a continued long-term significant
contribution of nuclear electricity generation to energy supply
in the UK, perhaps at the same sort of levelaround 25 per
centas at present. BNIF supports British Energy's proposal
of a policy of "replacing nuclear with nuclear" when
today's plants retire.
Nuclear energy is one of a raft of technologies
and measures that are either available or could be developed to
fulfil the Government's strategic energy policy and environmental
objectives. While BNIF cautions against placing undue reliance
on or confidence in the claims made for alternative technologies,
we fully support measures to encourage the development of other
low and non carbon emitting energy sources such as renewables,
as well as the creation of emissions trading schemes and/or the
introduction of fiscal measures to reduce emissions.
Nuclear energy currently safely supplies around
a quarter of the electricity in the UK, contributing to security
and diversity of supply with negligible emissions of greenhouse
gases, and avoids the emission of around 12 to 24 million tonnes
of carbon (43 to 86 MtCO2) a year, depending on which fossil fuel
is assumed to have been replaced. Nuclear stations do not emit
the oxides of sulphur and nitrogen that cause acid rain and urban
smog. In terms of lifecycle emissions associated with the construction,
operation and decommissioning of various energy technologies,
nuclear power emissions are lower even than some renewable technologies
such as solar energy, and significantly lower than either gas
or coal. Nuclear energy is therefore the only technology capable
of providing secure large-scale electricity supply while at the
same time contributing to the achievement of environmental objectives.
BNIF supports measures to encourage the transition
towards a low carbon energy economy and believes that renewables
and high efficiency, relatively low carbon technologies such as
CHP have a role to play in that transition. However, BNIF cautions
against placing undue reliance on the potential contribution of
as yet unproven technologies. Moreover, BNIF has serious concerns
and reservations about the ways in which market pressures under
NETA in fact disadvantage low and carbon-free sources of electricity
generation. In addition, some of the fiscal measures that have
been introduced, such as the Climate Change Levy (CCL), discriminate
illogically against nuclear energy and large-scale hydroelectric
schemes, thus failing to recognise and reward their carbon-free
qualities. Large, long-term investments are particularly disadvantaged
by regulatory uncertainty and changing market conditions. NETA
represented a major shift from the Pool arrangements of the previous
10 years, and it must be assumed that further radical changes
will accompany wider European energy market integration.
The UK Government has to resolve the conflicts
between these interacting policies in the lowest risk manner.
In some quarters it is envisaged to meet the challenge with as
yet unproven technologies: clean coal, micro gas-turbines, hydrogen,
some renewables, and energy efficiency technologies that have
been mainstays of energy policy for decades and have been shown
to have their own limitations. (Of these, only renewables have
the potential for carbon-free generation, but in general without
reliability of supply). Meanwhile, the future contribution of
nuclear energythe only proven technology capable of producing
large-scale, continuous and reliable sources of electricity with
negligible emissions of carbon dioxideis frequently discounted,
often for ideological reasons.
BNIF accepts that there is significant scope
for further improvements in energy efficiency and conservation
through such measures as domestic insulation and the development
and effective marketing of energy efficiency appliances. The challenge
is to persuade consumersdomestic, commercial and industrialto
use less energy when energy costs as a proportion of overall household
and industrial costs are historically very low.
Energy policy measures that are designed to
meet strategic security of supply and environmental objectives,
rather than being driven simply by a short-term imperative to
reduce prices to consumers, are likely to lead to an increase
in prices. The risks to industrial competitiveness and to social
policy objectives relating to the abolition of fuel poverty need
to be weighed against the arguably much larger risks to society
of an insecure electricity supply resulting in power cuts.
Government needs to consider whether fuel poverty
is most appropriately tackled through energy policy measures or
is more suited to targeted social or fiscal policy.
Government also needs to consider whether policies
under NETA designed to deliver lower electricity prices, and which
penalise low and non-carbon emitting sources such as renewables,
hydro and nuclear energy as well as inhibiting investment in replacement
capacity, are compatible with strategic objectives relating to
security of supply and environmental protection.
Although the logic of liberalised markets is
for Government to withdraw from decision-making, the important
strategic, economic, environmental and social impacts of energy
markets mean that Governments retain certain regulatory and strategic
responsibilities in relation to issues such as diversity, security,
safety and environmental protection, in addition to creating and
monitoring market structures that ensure competition and deliver
affordable energy to consumers. BNIF argues that free market mechanisms
alone will not deliver the energy policy objectives of security,
diversity, and sustainability. Nor do they incorporate the "polluter
pays" principle that each major political party supports.
Government should therefore consider what form and scale of other
market solutions are required to deliver its objectives. BNIF
believes that economic instruments set at the correct level and
giving proper market value to the strategic benefits of low carbon
energy sources would encourage investment in R&D and production
in those energy sources without the need for potentially costly
and distorting administered interventions.
Government should balance the pursuit of competition,
competitive prices and consumer choice through market liberalisation
with a judicious mix of regulation and economic instruments to
deliver a secure, diverse and sustainable long-term energy policy.
The strategy should incorporate objectives relating to:
security and diversity of supply;
promotion of competition;
protection of consumer interests;
development of low carbon energy
sources and encouragement of energy efficiency;
environmental and sustainable development
It should also take account of the consequences
of further European energy market integration to ensure that UK
market structures are not left isolated.
Market value should be placed on low carbon
technologies, including nuclear energy, that contribute to environmental
objectives to mitigate the threat of global climate change. To
ensure a balance between potentially conflicting sets of interestsfor
example the commercial instincts of electricity generators to
take advantage of the relatively low fossil fuel costs (notably
natural gas) to switch to gas at the expense of other, more sustainable
and less environmentally damaging fuels and sources which the
Government is keen to encouragepolicy-makers may consider
some degree of intervention to be necessary. BNIF recommends that
Government examine appropriate market-based fiscal measures to
encourage the transition towards a low carbon energy economy.
Such measures might include:
availability of special taxation
featuresallowances etcfor low carbon electricity
embodiment in the market of rewards
for low carbon electricity production;
tradable permits schemes providing
a market mechanism for carbon dioxide reduction;
Government supported loans for R&D
into low carbon energy sources.
BNIF believes that the combination of measures
to remove uncertainty and reward environmental benefits would
create the market conditions in which the option to build replacement
nuclear capacity became commercially attractive. The prospect
of replacement nuclear build will inspire the British nuclear
industry to provide the capability and attract the financial investment
to make the prospect a reality.