Government Invites New Nuclear into Energy Mix

Business Secretary, John Hutton, invited energy companies to submit plans for construction and operation of new nuclear power stations in a statement made in the House of Commons today. The statement was accompanied by the publication of the White Paper on Nuclear Power and the Energy Bill.

Factors Favouring Nuclear

The White Paper is the Government’s formal response to the nuclear consultation that took place last year. In it, the Government concludes that nuclear power is a safe and low carbon source of electricity generation and the economics of nuclear power are affordable. The Government sees a role for nuclear power in increasing diversity and reducing the UK’s dependence on any one technology or country for the UK’s energy needs. The Government’s policy is that there will be no cap on the proportion of the UK's energy that could be generated by nuclear power, but there will be no subsidy for operators.

Facilitative Steps Outlined by Government

The Government identified a number of “facilitative steps” to open the way for companies to invest in new nuclear power stations to help meet the challenges of climate change and energy security, including:

• introducing legislation to impose a duty on operators of new nuclear power stations to meet “the full costs of decommissioning and their full share of waste management and disposal costs";
• making use of the Planning Bill to ensure that nuclear new build projects are treated like other critical infrastructure projects and dealt with effectively through the use of a National Policy Statement;
• running a Strategic Siting Assessment (SSA) to develop criteria for determining the suitability of sites for new nuclear power stations combined with taking further the consideration of the high-level environmental impacts of new nuclear through a formal Strategic Environmental Assessment (SEA). The Government’s aim is to limit the need to consider during the planning process (subject to certain European laws) whether other sites are more suitable for development and high-level environmental impacts;
• running a process of Justification to meet the requirement of European law that the economic, social or other benefits of specific new nuclear power technologies outweigh any health detriments;
• strengthening the resources of regulators, especially at the Nuclear Installation Inspectorate (NII), and assisting regulators to pursue new build design proposals through a process of Generic Design Assessment to complement the existing site-specific licensing process; and
• strengthening the EU Emissions Trading Scheme (EU ETS) so that investors have confidence in a “long-term multilateral price signal”. The Government is also keeping open the option of further measures to reinforce the operation of EU ETS in the UK if this is necessary to provide greater certainty for investors.

An indicative timetable for these steps is set out in the White Paper. The Government believes this timetable will enable operators to make site specific applications in 2010 with construction beginning from 2013/2014 onwards.

Financial planning for decommissioning and waste management costs

An interesting aspect of the White Paper is the Government’s policy on the financing of decommissioning and waste management costs (effectively a requirement to internalise the externalities).

The Government is publishing for public consultation two sets of draft guidance in conjunction with the Energy Bill to assist operators to meet their obligations under the Energy Bill of funding their own decommissioning and waste management costs. The first set of guidance relates to an approvable methodology for costing decommissioning and waste management activities. The second set of guidance relates to accumulation of an independent fund to meet the costs forecast by the operator. To this end, the Government will establish a Nuclear Liabilities Financing Assurance Board (NFLAB) to provide independent scrutiny of the suitability of decommissioning programmes submitted by new operators. The Government states that operators will be required to ensure that they have an “adequate financial safeguard mechanism” in place to top up an insufficient fund where, for example, an operator is insolvent, the power station closes early or, during decommissioning, the fund proves inadequate.

The Government continues to view geological disposal as technologically possible and states that it would be desirable to dispose of existing waste and waste from any new build nuclear power stations in the same facilities. This will be explored through the Managing Radioactive Waste Safely programme.

A key concern for potential operators is clarity on the maximum amount that they would be expected to pay to dispose of their future waste in such a geological disposal facility. Having cost certainty on this issue would enable them to make investment decisions.

The Government is intending to model the financial impact of adding waste from new nuclear power stations into a geological disposal facility to ensure that new operators pay their “full share” of costs. The Government has confirmed that it will use the modelling exercise to set a fixed price or upper limit for waste disposal (including a risk premium to provide the tax payer with protection).

CMS Cameron McKenna LLP has a nuclear sector team which advises clients on nuclear new build and decommissioning in the UK and throughout Central and Eastern Europe.