Examination of Witnesses (Questions 60-79)|
TUESDAY 13 NOVEMBER 2001
60. I still do not quite follow from that answer
who you actually think is going to pay for
(Mr Ham) The industry has to pay for it.
(Mr Mayson) The polluter pays.
(Mr Ham) It is absolutely part of our case: the polluter
pays, and the industry has to do this but clarity in government
policy is required for some of these solutions to be built into
execution. The public is a vital player in acceptability and the
government's own decision making and considerations. There has
to be a view from both government that there is clarity of policy
and the public has to perceive the processes as transparent, processes
that they are comfortable with. There are a number of issues there
and the public's view is a vital part of the case.
61. Going back to the financing and investment
of the nuclear rebuild in your own submission you do talk about
some of the barriers to investment which are very large, up front
capital costs, lengthy and uncertain periods of planning and construction,
uncertainties about back-end issues like waste management, anxieties
about public opinion and regulatory risk, relatively low levels
of profitability at present United Kingdom electricity prices
and over-capacity in the generating market. Would you not agree
that you really do need government support and if you do not get
that you are not going to get the financing? People are just not
going to look at it and people might say that building more nuclear
stations is both expensive and dangerous.
(Mr Ham) Firstly, thank you very much for that question.
The point here is we are not asking for government support in
the form of the government directly dipping into its pocket in
some way. What is I believe essential for an industry like nuclear
is that government must state that it believes there is a future,
long run for the nuclear industry in its own policies to have
diverse and secure sources of power. A number of consultations
we have had on an informal basis with representatives of the City
interestingly focus on the need to have clarity in terms of the
government view, long run, that nuclear is part of its own secure
view for the future and the country as a whole. When we talk about
that kind of support, let us distinguish that from what we are
asking in terms of a rational market with the market signals,
to signal in favour of CO2 free power which is quite a different
thing which we have discussed already in this Committee.
Linda Perham: You have clarified the position.
You need the government to come out in support, not necessarily
to finance it, but to give the indication that it sees a future
for diverse sources of energy.
62. Mr Ham, a few times this morning you have
argued a very powerful case for the environmental benefits of
nuclear power in terms of gas emissions. At the same time, you
have said this has not been recognised by the current regime and
you would like that to be reflected. What more would you like
to see? This is obviously making a great contribution regarding
our Kyoto agreement. I wonder if you would like to say something
about the Climate Change Levy which has been a big issue in the
last couple of years. Would you be seeking exemption from that
or any other idea you might have in recognition of the environmental
(Mr Ham) That is a very important question. That alleviation
which you are highlighting would be of considerable benefit to
the industry, but I believe we are also highlighting the need
for coherence of policy over CO2 across the whole electricity
scene. In other words, we believe it probably has to be regarded
and looked at even more fundamentally than that. We do not feel
it is our job to tell government or anybody, "You must go
for some sort of a carbon tax", or, "You must go for
a tradeable permit of some kind". We feel that is the job
of the government itself to work out what is going to be best
in the long run strategically, what will fit in with European
agreements and with the flow of international negotiations, which
are way above our heads. There is a need for coherence. Current
arrangements really are very unsatisfactory and strategically
it must be rethought. This is our fundamental case here. The scale
of premium in terms of current costs has been discussed in the
British Energy submission.
(Mr Kirwan) The requirement in terms of providing
the economic incentive in the market for a company like British
Energy to replace its assets with new nuclear power stations is
one that recognises the gap between a 1.8 pence per kilowatt hour
price and a cost of something like 2.5 pence. We have suggested
that a premium to reflect the benefits we have been discussing
about nuclear of about 1 pence per kilowatt hour would be sufficient
to bridge that gap and give confidence to new investors, providing
government support is there. That would cost, for all consumers
and all consumption, when you spread that over total energy demand,
0.25 of a penny. That is all that would be required to replace
25 per cent nuclear. The government has already embarked on a
renewables incentivisation scheme, a renewables obligation. To
achieve similar amounts of renewables would cost three-quarters
of a penny. The subsidy requirement for renewables which we strongly
support as being highly desirable is a much higher cost for the
consumer than it would be for nuclear.
63. You used the word "premium". By
"premium" in this context, do you mean effectively having
some form of levy in order to provide an incentive for nuclear
(Mr Kirwan) We are not prescribing a particular mechanism
for that recognition to reach nuclear generators. In the case
of renewables, the scheme the government is now putting in place,
it is a form of additional premium to market price. If it were
to be done that way, it would effectively be customers paying
marginally extra in their total electricity bill to contribute
both to renewables and to nuclear in the same way.
64. Marginal, but the size of the margin is
significant to customers in a context where they have seen stable
or reducing energy prices. I understand the point you are making,
that there is a difference between your costs and those of alternative
producers, particularly gas. One pence per kilowatt hour is broadly
speaking the size of that difference by implication, if nuclear
is a quarter of all energy, then 0.25 pence per kilowatt hour
of all energy consumption will meet that gap. The question is:
is the gap met by reducing the cost of nuclear power generation
or by increasing the price paid for electricity produced from
other forms of generation? I think it matters a great deal. My
colleague was asking you about exemption from the Climate Change
Levy. What does that contribute because that, by implication,
does not impose additional costs on customers through other forms
of generation. It would be reducing the cost to you. What benefit
from that one pence per kilowatt hour would be offered to you?
(Mr Kirwan) 0.4 pence. It could be done by a mechanism
which alleviates costs that other generators have to pay, in which
case the consumer does not pay any extra or it could be achieved
65. It is a significant part?
(Mr Kirwan) But not quite sufficient.
(Mr Ham) There are two quite different routes which
one can go down in terms of making sure the market signals do
point towards CO2 free generation, as I am sure Members of the
Committee will know. You can go the tradeable permits route, where
the cash flow does not go into the Treasury's pockets; or you
can look at a tax type of approach where it does. Clearly, international
coordination on climate change will be very important. Some countriesthe
US might be one of themare particularly resistant to a
route where you are looking at a carbon tax but more receptive
to tradeable permits. We are not trying to highlight which mechanism
the government can go down. We are highlighting the kinds of figures
which we feel would allow nuclear definitely to be considering
replacement build over the next two decades.
Sir Robert Smith
66. On the waste issue, in terms of legacy waste
versus current operating waste, if you cast yourself forward 50
years and back 50 years, what would the ratio of the historic
waste over the past 50 years be, if you replaced the current generation?
(Mr Ham) A very useful figure that came out of RWMAC,
the independent advisers on these issues, is that a replacement
programme for all current nuclear power to fulfil the current
electricity capacity generated would add to the existing intermediate
level of waste by ten per cent. That is an indicator of the scale
of existing legacy waste. It is very large in this country.
67. Over the lifetime?
(Mr Ham) Of that fleet.
68. Is that because the old stations were dirtier
and the new ones are cleaner?
(Mr Ham) Yes.
(Mr Mayson) The Magnox stations produce more waste
than an AGR and an AGR produces more waste than a modern PWR.
69. Mr Kirwan mentioned in relation to renewable
energy that it has a part to play. Reading the BNIF paper, I thought
you were rather dismissive of renewable energy in your own submission.
Clearly you think differently but generally, beyond that, to what
extent do you think that renewable energy does have a part to
play and to what extent could renewable energy have a contribution
to security of supply? Also, it would be appropriate to have some
consideration of the price differential in relation to renewables.
(Mr Ham) Climate change is a global problem and we
do have to bear in mind that in the period to 2050 world population
is expected to double. Demand for primary energy is expected to
more than double. These are World Energy Council figures. Electricity
is going to play a very big part in that massive increase in demand.
It would be astounding for anybody to say that a huge proportion
of that increase is going to come from nuclear. Therefore, it
seems to me essential that renewables do play a much bigger role
in future electricity generation than they do now. It is absolutely
vital. In Britain, there are strong cases and good sites for a
number of renewables and we expect the economics to improve but
I am sorry if we did give this rather dismissive overall tone
in our submission. That is now how we feel. We have in our membership,
including British Energy, people in the business of renewables.
Renewables must play a very much bigger role than they do now.
What they can deliver over the next ten years I believe is not
perhaps as great as many people would hope but they have to play
a bigger role for the global reasons that I have just given you.
70. You are going to need a lot of windmills
to contribute even the ten per cent targetI think one windmill
a day for the next ten years. Presumably, a windmill is very much
cheaper than building a nuclear power station. Could you give
us some idea of the cost differentials?
(Mr Kirwan) British Energy is also in the renewables
business and we are looking at a number of on-shore and off-shore
wind projects. Being a Scottish company, many of the wind sites
are close to our headquarters and we are looking to be very active.
We think it is absolutely right that energy policy should include
a substantial amount of renewables. I think everybody recognises
that there is a limit to the maximum available quantity of windmills,
wind turbines or other sources of renewable power. It is going
to be very demanding to even achieve the government ten per cent
target by 2010. Nevertheless, we think it is right to aim for
that target. Also, it is more expensive; hence, the subsidy arrangements
the government has put in place. Our experience of wind power
is that most farms are likely to result in costs of between three
and four pence per kilowatt hour.
(Mr Ham) Another point about wind turbines in particular
is that it is an intermittent source of power that is produced
when the wind is blowing at adequate speeds. It cannot really
replace baseload power which is an essential part of the electricity
71. In your submission overall, the clear thrust
of that is that you want the government to change their stance
from taking a neutral attitude toward nuclear power construction
to strong support. That is implicit in your submission. That appears
to be on the basis that, vis-a"-vis fossil stations,
you feel that the non-carbon benefits of nuclear should necessitate
that support from government. My question relates to the environmental
aspects that are not covered anywhere in your submission. You
are relying entirely on comparing fossil fuels, carbon emissions
versus nuclear, but there are other considerations arising from
nuclear generation and I wondered if you would like to comment
on them. One is what are classed as normal, radioactive releases
into the atmosphere from such stations and the other one relates
to the impact on water through disposals. Would you like to comment,
because my fear is that while at the moment it is climate change
we are looking at, with the cumulative nature of radioactivity,
we may be storing more trouble for the future that has not been
addressed and perhaps is not addressed at the moment in terms
of the review.
(Mr Ham) In general, having worked in nuclear companies
in different parts of the world, Britain has the toughest, independent
examiners of environmental emissions and of nuclear safety standards.
We have a very tough regulatory system which looks at just the
issues that your Committee Member has just raised in great detail
and they are not deflected from that by anything that is happening
anywhere else on any other sorts of issues. I do not think that
will change. I am not saying that our industry finds that a bad
thing because the public know it is there and it is a good thing
for the industry.
(Mr Mayson) Looking at new power stations, the radioactive
discharges and waste impact is very much smaller than it has been
from the Magnox and AGR fleets. In terms of the environmental
effects, we are talking of the order of one per cent of the background
radiation levels that we would be seeing incrementally added from
the radioactive discharges from a new power station.
72. I say this as an MP who represents a constituency
verging on the Irish Sea which is the cause of my concern. Bearing
in mind it is incremental, do you think that sufficient emphasis
is being placed on potential for future environmental problems?
(Mr Mayson) I believe so. We are subject to a very
strict regulatory regime that challenges very hard on these issues,
such that there is a constant challenge to continuously improve
73. Do you think as BNFL you will ever satisfy
the Irish Government, your near neighbours but not real friends?
(Mr Ham) I think we would hesitate to speculate about
what views the Irish Government would take in the future since
we are not political experts as you are on this Committee.
74. A large part of Mr Mayson's activities,
I would imagine, would be seeking to diminish the levels of anxiety
that exist in the south of Ireland. I wonder if you think you
are making progress there, given the stringency of our environmental
and nuclear safeguards? We still do not seem to satisfy the Irish.
(Mr Mayson) It would be nice to think we will be making
progress. I hope that the reality and the balanced approach that
we believe we take does yield benefit in due course. As regards
any specific Irish action at the moment, it would be inappropriate
for me to discuss that.
75. I notice you say that you support renewables
but the reality is, if we are going to reach Kyoto agreements,
the only way we can do that is not through renewables but through
an extension of the nuclear industry and more nuclear reactors.
Have you considered appeasement of the Irish Government by suggesting
that you build them a new reactor there to see if you can fulfil
their needs for the future?
(Mr Ham) It is a very interesting idea and obviously
we will be thinking about it very carefully. We are most grateful
for that suggestion!
76. Presumably, if you do not have any disparaging
view about the contribution of renewables, one of the options
you refer to in your evidence to the government's policy review
for the form of fiscal support which you mention would be exclusion
from the renewables obligation but that is not something in this
context that seems coherent with some of the other arguments you
are making about the desirability of pursuing carbon-free sources
(Mr Ham) The point I have been trying to make is that
there should be a coherent commitment to a long term mechanism
which can operate inside the market to encourage new investment
and new CO2 free forms of generation. Incidentally, there is another
energy factor which has not come up so far which is worth bearing
in mind and that is conservation. It does seem to us too that
conservation should have more emphasis placed on it in the future.
How far you can go with it has to be also recognised, but there
are a number of things which could be happening on the conservation
side too. We feel that those should be looked at attentively as
well because the overall energy coefficientthat is the
relative amount of energy that we consume per unit of GDPhas
not been going down over the past decade very fast. Unfortunately,
because of the big gains in the market in terms of getting prices
of electricity down for consumers, this points things in the other
direction. People are less interested in conservation when they
can see their electricity bills going down. That is another case
where the orderly working of the market somehow is not delivering
what we all feel would be desirable and that is another area where
we believe only the government can take measures.
77. I am sure that is important but it does
not answer my question. My question is: does it make any sense
if one of the issues you have been driving at is to try and create
an environment in which you can compete directly against gas generation
and, on the other hand, to mention as an option a fiscal measure
which, if anything, accentuates your advantage competitively against
(Mr Kirwan) That is another, alternative mechanism
available to government, to exclude the existing nuclear industry
from the renewable obligation. That is one of the options that
we would advocate should be considered.
78. It is an option but is it a logical one
in this context?
(Mr Kirwan) I think it is logical because it classifies
nuclear in the same camp as carbon-free renewables.
79. Throughout your submission to the policy
review and your evidence to us there are a range of measures which
you think the government can take, some of which are on fiscal
support, the Climate Change Levy, there could be a carbon tax,
there could be some form of involvement in emissions trading and
so on. There are non-fiscal measures which are to do with the
regulatory environment and planning framework, making the waste
management more predictable. If I can characterise them, there
is a series of ways of reducing uncertainty. On the other hand,
there is a series of ways of reducing the competitive disadvantage
that you predict you face against gas generation. Which are the
most important: the fiscal measures or the certainty measures?
If you had greater certainty around some of these non-fiscal measures,
would that be sufficient to offset some of the fiscal disadvantages
you otherwise face?
(Mr Ham) Some of the issues relate to the timeliness
of the industry's ability to respond. Smoothing the regulatory
procedures would be most helpful but they really should fit together.
(Mr Mayson) It is a question of both being equally