U.K. Government Gives Green Light for New Nuclear Power Plants

A Decision Three Years in the Making

Following three years of proposals, consultations, appeals, and debate, the U.K. government hasat last officially confirmed what has been widely suspected for some time: it will allow a new generation of nuclear power plants to be constructed in the country.

The decision, announced yesterday by Energy Minister John Hutton, represents a complete turnaround from the position of the same Labour government in 2003. At that time, with low power prices calling into question the economics of nuclear generation, the government labelled new nuclear plants an "unattractive" option and effectively imposed a temporary moratorium on such investments. However, a changing energy environment—including a decline in domestic gas production, higher international energy prices, and greater pressure to reduce fossil fuel-generated carbon emissions—have rapidly transformed the perceived attractiveness of nuclear generation, and the United Kingdom, along with many other countries, is now looking once again to nuclear to address its energy challenges.

Drawing on this rationale for new nuclear investment, Hutton, in announcing the decision, said: "Set against the challenges of climate change and security of supply, the evidence in support of new nuclear power stations is compelling." In the first step of what will undoubtedly be a challenging bid to win public support for the proposal, he commented: "Giving the go ahead today that new nuclear power should play a role in providing the United Kingdom with clean, secure, and affordable energy is in our country's vital long-term interest."

The decision is already attracting heated debate. Among the greatest opponents is environmental group Greenpeace, whose successful appeal against the adequacy of the government's original consultation process was the reason for the final decision being delayed until this year. Greenpeace has indicated it will lodge a further appeal against the decision, although, with the government having taken great care to run a thorough second consultation on the issue, the odds of success—this time around—look to be slim.

Moving Forward

Following the announcement, the government is now rapidly moving to establish a process that will allow new nuclear plants to be built. It has released legislative proposals that will ensure that adequate funding provision is made by potential nuclear developers for the full costs of decommissioning plants and for their full share of waste management costs. A consultation on the details of these requirements will be carried out over the next few months.

In March, the government will issue a call for "justification applications", a European Union compliance process that requires investors to demonstrate that the benefits of nuclear plant investment outweigh any possible health detriment. Around the same time, a consultation will be launched on the government's draft Strategic Siting Assessment, which establishes a framework for assessing the suitability of proposed sites for new plants.

By spring, the government hopes to have launched the next stage of its Generic Design Assessment (GDA), its process for selecting reactor designs. The government will also further strengthen the Nuclear Installations Inspectorate to enable it to meet a growing workload and scope the formation of a new body to provide advice on the financing of waste management and decommissioning.

Energy companies, having anticipated this decision for some time, are already quite advanced in their preparations to take advantage of the new opportunity. EDF Energy, which operates 58 nuclear power stations in France, has indicated it hopes to construct four plants in the United Kingdom, with the first coming online in 2017. Centrica, E.ON, and RWE have all also expressed their interest in such projects. British Energy, as the operator of most of the United Kingdom's existing nuclear stations and the owner of the most likely sites for new plants, will also be a key partner in any projects. As per a previous government announcement, it will be up to these private-sector companies to fund, develop, and build new nuclear power stations in the United Kingdom, with the government's role restricted to establishing an appropriate regulatory framework.

Energy Bill

At the same time as announcing its decision on new nuclear investment, the government set out details of a new Energy Bill that will implement proposals put forward in its Energy White Paper in May 2007. As well as including clauses on the funding of nuclear decommissioning and waste management, the Bill includes provisions in the following areas:

• Carbon capture and storage (CCS): the Bill establishes a regulatory framework to enable private-sector investment in CCS projects.
• Renewable energy: the Bill seeks to strengthen the government's existing Renewable Obligation mechanism, including introducing greater support for new and emerging technologies.
• Offshore gas-supply infrastructure: the Bill simplifies the regulatory regime for private-sector investment in offshore gas-supply projects such as offshore storage and LNG infrastructure.
• Offshore oil and gas decommissioning: the Bill adapts the current regime to ensure its suitability for smaller North Sea oil and gas operators.
• Offshore renewables decommissioning: the Bill introduces taxpayer-protection measures, ensuring that renewable operators have adequate decommissioning funds.

Gas-Market Implications

The newly announced simplification for building offshore gas-storage facilities and offshore LNG infrastructure should help reduce delays in storage projects, which cost the United Kingdom dear in terms of annual demand for gas. The government said yesterday without new storage and import infrastructure "there will be increased risk of a tight gas supply demand balance, potentially resulting in higher gas prices and an increased risk of interruptions to supply." Gas companies such as Centrica have long argued for a streamlining of the planning process to avoid delays. The government said the new licence, created as part of the regime overhaul, would "simplify the consenting process" and "create greater clarity and certainty for investors".

In terms of outlook for gas demand, Global Insight's annual European Natural Gas Supply & Demand Report for 2007 assumes the retention of the nuclear portfolio. The outlook is subdued in the medium term after 2007, leading to a degree of decline in gas demand in the later years of the forecast until 2030. The retention of the nuclear portfolio will be a barrier to gas growth, although the government's move on storage is promising to ensure a continuity of supply.

Outlook and Implications

The government's decision to allow a new generation of nuclear plants to be built is an important step towards ensuring the United Kingdom's energy security. The country faces significant challenges in terms of securing sufficient supplies to meet growing demand while fulfilling its ambitions to make considerable cuts to carbon emissions from the energy sector. Such challenges would become even more stark—if not insurmountable—if the country's existing nuclear facilities, which provide almost 20% of total generation, are allowed to expire without new nuclear generation coming onstream.

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