Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by The British Nuclear Industry Forum

INTRODUCTION

  The British Nuclear Industry Forum (BNIF) welcomes this opportunity to submit its views to the Trade and Industry Committee's inquiry on "Energy Policy—Security 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.

BRITISH NUCLEAR INDUSTRY FORUM

  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.

RESPONSE TO TRADE AND INDUSTRY'S COMMITTEE'S SPECIFIC QUESTIONS

GIVEN THE IMMINENT DEPENDENCE OF THE UK ON ENERGY IMPORTS, HOW CAN THE UK MAINTAIN A SECURE ENERGY SUPPLY? WHAT MIX OF FUELS WOULD MAXIMISE SECURITY?

  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 electricity generation.

  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 gas—and therefore electricity—prices.

  Further increased dependence on imported gas—Government projections indicate that between 55 per cent-90 per cent of total consumption could be imported by 2020—will 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 before.

  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 level—around 25 per cent—as 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.

IS THERE A CONFLICT BETWEEN ACHIEVING SECURITY OF SUPPLY AND ENVIRONMENTAL POLICY? WHAT IS THE ROLE FOR RENEWABLES AND COMBINED HEAT AND POWER SCHEMES?

  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 energy—the only proven technology capable of producing large-scale, continuous and reliable sources of electricity with negligible emissions of carbon dioxide—is frequently discounted, often for ideological reasons.

WHAT SCOPE IS THERE FOR FURTHER ENERGY CONSERVATION?

  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 consumers—domestic, commercial and industrial—to use less energy when energy costs as a proportion of overall household and industrial costs are historically very low.


WHAT IMPACT WOULD ANY CHANGES HAVE ON INDUSTRIAL COMPETITIVENESS AND ON EFFORTS TO TACKLE FUEL POVERTY?

  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.

IS ANY CHANGE IN GOVERNMENT POLICY NECESSARY? HOW COULD/SHOULD GOVERNMENT INFLUENCE COMMERCIAL DECISIONS IN ORDER TO ACHIEVE A SECURE AND DIVERSE SUPPLY OF ENERGY?

  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 goals.

  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 interests—for 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 encourage—policy-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 features—allowances etc—for low carbon electricity production;

    —  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.


 
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