Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 3

Memorandum by British Energy

INTRODUCTION

  British Energy welcomes the opportunity to provide evidence to the Trade and Industry Committee's inquiry. We have already submitted our views to the PIU Energy Review, and copies of our various submissions are attached. The following responses to the Committee's specific questions are drawn from that material.

BRITISH ENERGY

  British Energy is the UK's largest electricity generator operating eight nuclear power stations and a coal-fired generating station at Eggborough. The Company also operates three nuclear plants in the United States through a 50/50 joint venture project with Exelon, and the Bruce nuclear power plant in Ontario, Canada. British Energy is the largest private sector nuclear generator in the world and in the process of developing a significant long term renewables portfolio.

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?

  The UK's current generation mix shows a healthy balance with coal, gas and carbon free nuclear all making major contributions, and an emerging renewable energy sector providing additional carbon free generation. However these benefits, which the UK has largely taken for granted, are set to disappear in the next two decades as coal and nuclear all but disappear from the mix. The result will be an overwhelming dependence on imported gas sourced from Russia, the Maghreb or the Middle East. Since the UK will be at the end of a long supply chain traversing areas of political instability, there will be serious risks to supply security, price stability and our ability to deliver the long-term reductions in greenhouse gas emissions needed to combat climate change.

  Against this background BE believes that the UK requires an energy policy which would establish a framework which balances security, diversity and care of the environment with price stability and competitiveness. Under such a framework we would envisage that no fuel source should exceed 40 per cent of the total mix; at least 50 per cent of fuel should come from indigenous or reliable sources; and coal capacity should be retained. Environmentally, around 50 per cent should come from carbon-free generation sources such as renewables, hydro or nuclear. British Energy has suggested for example that a mix of around 15 per cent coal, 40 per cent gas, 20 per cent renewables and 25 per cent nuclear by 2025 could deliver the right balance.

  Since on current assumption by 2025 all existing nuclear stations except Sizewell B will have closed, our submission proposes a policy of "replacing nuclear with nuclear" which would see the construction of replacement nuclear capacity when today's plants retire.

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 power is the only large scale energy source which addresses both environmental and security of supply concerns.

  In our view security is the critical issue as it facilitates all other objectives. Without security of supply the other energy policy drivers, such as minimising the environmental impact and providing affordable energy, are unlikely to be addressed adequately. However, whilst security should be seen as a priority, it needs to be tackled without compromising environmental objectives. In this context, nuclear generation is the only large-scale technology which provides enhanced security whilst helping to meet environmental objectives.

  The challenge for policy makers is to find a means of achieving a balance in the energy mix which safeguards supply security whilst enabling environmental objectives to be met. British Energy has suggested for example that a mix of around 15 per cent coal, 40 per cent gas, 20 per cent renewables and 25 per cent nuclear by 2025 could deliver the right balance between these competing objectives; that is 45 per cent carbon-free generation and a diverse and relatively secure energy supply.

  British Energy sees a growing role for renewables (and indeed is investing in renewable projects), although their intermittent availability and small scale seem likely to put a limit on the contribution they can make in the short to medium term. Likewise CHP has something to offer, although it is clear that it has experienced difficulty in reaching existing targets with certainty.

What scope is there for further energy conservation?

  There has been considerable focus on the potential for energy conservation for some time.

  Clearly, a great deal of work is already being done—in particular the insulation of homes and the arrival and marketing of more energy efficient appliances—but it remains challenging for governments to persuade the general public and industry to use less power against a background of new, must-have technologies and cheaper electricity. However energy conservation will continue to develop as the barriers to achieving gains are better understood and addressed.

What impact would any changes have on industrial competitiveness and on efforts to tackle fuel poverty?

  Any energy policy designed to achieve specific security of supply and environmental objectives is likely to have an impact on the price of electricity. It is likely that such a policy will not necessarily result in the cheapest short-term energy mix options. However the risks from an actual security of supply failure or the perception that energy supply was not secure could be catastrophic to our competitiveness and would damage inward investment.

  The proposed nuclear replacement programme described in our PIU submission envisages new plant viable at an estimated £25-30pMWh, leading to an economic gap compared to the current post-NETA price levels of £18-20/MWh. Whilst the cost of bridging this would need to be reflected in electricity prices, the premium of £10 mwh envisaged in the proposed Carbon Free Obligation Scheme would cost significantly less than the equivalent quantity of renewables.

  This might lead to a modest increase in electricity prices. The Government needs to consider whether specific policies should be put in place to protect those suffering from fuel poverty.

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?

  Yes, we need to move to a policy in which diversity and security of supply as well as delivering on our environmental objectives is a priority of UK energy policy.

  In the energy supply industry, based on DTI projections, indigenous supply will fall from close to 100 per cent today to around 20 per cent by 2020. British Energy therefore believes that the UK requires an energy framework that balances security, diversity, and care of the environment, with price stability and competitiveness.

  As set out in our PIU submission we would propose an energy mix including a 25 per cent nuclear component, which would be achieved by replacing our existing plant as they retire. This would require 10 new stations by 2025 which could be funded by the private sector if the necessary enabling actions were taken by Government. In particular these could include a Carbon Free obligation to include nuclear; changes to the climate change levy; the introduction of US style "pay as you go" spent fuel arrangements whereby nuclear generators pay a fixed amount of $1MWh (equivalent to £0.7(MWh) for the electricity generated; and the taking back of £3bn historic liabilities which cover spent fuel from electricity generated by Government-owned nuclear before privatisation. In return for this, BE would raise the £10bn required from the private sector to finance 10 replacement nuclear stations on existing sites over the coming decades.

26 October 2001


 
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