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Reopening the nuclear case

News feature Energy Review

Nuclear power is dead. Or is it? With a new report on UK energy policy due out in a fortnight, Andrew Mylius reviews the situation.

Nuclear power generation firms will in future be forced to foot the bill for construction and operation of new reactors. They will also have to pay for the treatment, storage and disposal of nuclear waste, and for the eventual decommissioning of reactors, according to a leaked report from the Cabinet Office Policy & Innovations Unit (PIU). But it says there is no way the nuclear industry, which has been subsidised since its inception, can meet such cripplingly high costs. With all but one of the UK's existing reactors due for closure by 2025, nuclear energy - hailed in the early 1960s for its promise of free electricity - is heading for the graveyard.

Government is widely expected to introduce as policy the PIU's recommendation that the nuclear industry should fully meet 'external costs' which for decades have been borne by the tax-payer.

The reality is that the expense of waste management and decommissioning will be impossible for the nuclear energy industry to bear. Electricity generated from the present mix of gas, coal, nuclear and renewables - mainly hydro and onshore wind schemes - sells for between £18 and £20/MWh.

Prices will need to be between £25 and £30/MWh if the costs of building and operating new nuclear plants are to be met.

That is before the cost of waste management and decommissioning has been addressed.

The nuclear industry acknowledges that its future, as mapped out in the PIU's energy review which is expected next week, looks bleak. But it insists that a nuclear future is not out of the question. Alternative sources of energy are either becoming too expensive, or are unlikely to come on stream quick enough to keep up with supply.

That said, a demand for natural gas is growing apace - it generates around 45% of UK energy at present but, if market trends continue, will account for 70% in 25 years. Energy consumption will increase from 310.9TeraWatt hours (TWh) in 2001 to 324.3TWh by 2025. By contrast, nuclear generation from existing plants, which deliver nearly 25% of UK energy, will have all but ceased by 2025.

But, according to the Department of Trade & Industry, UK gas production is near its peak.

Reserves are expected to last well beyond 2030, but by 2020, the UK will be required to import between 55% and 90% of the gas it uses.

The government is worried about this. Supplies from Russia, central Europe, the Middle East, and pipelines snaking across the continent, will be vulnerable to shifting politics and potential conflicts. UK energy prices could soar if gas supplies from overseas are reduced. It is seen as a matter of national importance that the UK retains a significant degree of energy independence.

Meanwhile, output from coal fired power stations is expected to fall from 25% to little over 5% of total electricity generated.

One submission to the PIU review warns that rapid obsolescence of plant could see the energy contribution from coal reduced to nil by 2016. Coal faces further problems - the UK mining industry is now so small it is barely sustainable, while poor rail infrastructure limits scope for increasing imports.

Britain is on track to meet its commitment, made at the Kyoto Earth Summit in 1997, to reduce greenhouse gas emissions by 12.5%, against 1990 levels, by 2008/12.

But the PIU warns that 'on present trends, the UK is unlikely to sustain emissions reductions much beyond 2010 unless further decisive policy action is taken'.

Increasing reliance on gas to replace nuclear power will result in higher emissions of carbon dioxide (CO 2). In the meantime, the government is trying to encourage the use of other less environmentally damaging energy sources and to boost energy efficiency.

Last April, the government sought to curb demand for energy by introducing the climate change levy - an environmental tax on energy used by industry - in a bid to encourage better demand-side efficiency.

This April, it will be extending the climate change levy to domestic consumers. Electricity prices are set to rise by 0.5% a year up to 2010, adding £780M to the UK's annual electricity bill.

In a bid to stimulate development of low carbon or carbonneutral energy generating technologies, April will also see the introduction of the Renewables Obligation. This affects suppliers in England and Wales and demands that by 2010, 10% of energy must be from renewable sources. These include landfill and sewage gas, hydroelectric plants under 20MW, onshore and offshore wind, biomass such as agricultural and forestry residues or energy crops, geothermal power, tidal and tidal stream power and photovoltaics.

Suppliers will be able to claw back cash from energy regulator Ofgem by presenting Renewables Obligation Certificates (ROCs), awarded when they buy green energy. Suppliers that do not meet the renewable energy targets will have the option to buy their way out at a cost of £30/MWh, or be fined.

Though the Renewables Obligation has yet to be put to the test, it is geared at making what are at present relatively expensive zero carbon and carbon neutral energy sources financially competitive with gas - it is a form of subsidy.

The PIU report is expected to call for the Renewables Obligation to be stepped up from 10% by 2010 to 20% by 2020. Debate is still raging, however, over whether renewables - and in particular the front runner, wind, - can deliver.

One major energy generator cited in the PIU report claims enough wind capacity could be built, depending on planning consent, to meet an extra 1% of UK energy demand every year.

But by the PIU's estimate, 'the build rate for all renewable technologies, especially onshore and offshore wind, will need to increase by about two orders of magnitude' - that is, 100-fold - for this to be achieved.

In submissions to the PIU, nuclear generators British Energy and BNFL have argued that, because it emits no CO 2, nuclear power should be included under the 'renewables' umbrella, benefiting from the same environmental subsidy as wind, wave and solar technologies. Replacing nuclear power with gas would release an additional 50Mt of CO 2into the atmosphere every year, with a Renewables Obligation cost of £1.5bn, British Energy claims.

It is unlikely the government will fulfil the nuclear generators' wish, but market forces, new reactor technology, political sympathies and changes in the nuclear industry may come to the rescue.

As coal and old nuclear stations are switched off, what the PIU describes as 'tightening capacity margins' will push electricity retail prices steadily up.

Meanwhile, gas prices are expected to remain high or increase, raising retail prices further.

The Massachusetts Institute of Technology (MIT) calculates that in the US, energy could be generated for the same price as gas, using one of two new, cheaper to decommission nuclear reactor types, known as the pebble bed reactor. The reactors are claimed to produce cheaper electricity than gas fired ones, enabling generators to exploit the price differential to build up a decommissioning surplus from profits.

It puts the capital cost of building a new, factory fabricated, site assembled 1,100MW pebble bed plant at £1.6bn. Modular construction would aid decommissioning in 60 to 80 years' time. Safety systems have been simplified and radically improved, its backers say.

A pebble bed reactor would also produce seven times less waste than an equivalent light water or pressurised water reactor, MIT estimates. Similar claims are made by BNFL owned Westinghouse for its AP600 'modular' reactor.

China and Japan are already running small pebble reactors and South Africa is building a 250MW plant to be commissioned in 2003. The world's nuclear community is watching with bated breath.

What will signal a future for nuclear energy in the UK or consign it to history is the strategy being drawn up for dealing with nuclear waste. The government has started public consultation on this, but the House of Lords expressed fears two years ago that delivery of a workable waste strategy could take up to 80 years.

Until a realistic time scale is drawn up and a strategy agreed, it will be impossible to calculate the final cost of disposing nuclear waste. This in turn will make it difficult to judge the economic case for building future nuclear power stations.

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