Twenty years after an explosion blew the roof off a reactor at Ukraine’s Chernobyl power plant and took an industry’s reputation with it, nuclear power – in the words of Tony Blair – is “back on the agenda with a vengeance”.
Following a six-month review of energy needs, the prime minister is today due to sanction massive and contentious private investment in a new generation of nuclear reactors, the first to be built since the 1980s.
The decision – unthinkable as recently as three years ago – may change the terms of the debate internationally, as all industrialised countries grapple with the need to meet rising energy demand in an uncertain world.
As eye-catching as the decision itself is the way it is to be implemented. Mr Blair has made clear he expects the market to deliver nuclear power stations without the comfort blanket of subsidies.
The scale of the government’s shift is remarkable. Its last review of energy, in 2003, raised serious doubts about nuclear power’s commercial viability. High costs, and the complexity of planning laws, seemed then to have put paid to the prospect of new plants. Ahead of this week’s summit of Group of Eight industrialised nations in St Petersburg, where energy security will be high on the agenda, today’s announcement will therefore have huge repercussions.
Yet investors will face considerable financial risk, more so than in other countries – which in turn will watch all the more intently the “light touch” approach he intends.
“This will be seen as a very significant change of direction. The decision to open the door to commercial competition will spark a wider discussion across Europe,” says Daniel Yergin, chairman of Cambridge Energy Research Associates.
The UK is not alone in sanctioning fresh investment in nuclear power. After more than two decades of stagnation, it is firmly back on the agenda worldwide. But in an approach that contrasts with the path the UK will tread, other countries – even those that are the very embodiment of the free market – are looking to subsidies or guaranteed prices to help deliver the next generation of nuclear power stations.
US President George W. Bush is extending billions of dollars worth of tax concessions and loans to finance the industry’s commercial development. There are plans for 20 new plants in the US and Washington wants them built as soon as possible.
Australia has meanwhile set up its own taskforce to examine the case for nuclear energy. In all, more than 20 plants are already under construction globally, mainly in the energy-hungry economies of east and south Asia. In Europe, a not-for-profit consortium of Finland’s biggest energy users is building an advanced pressurised water reactor at Olkiluoto. That operation will benefit from long-term supply contracts, with the electricity generated sold at cost price. As with the projects elsewhere, this financial help will be crucial.
But there are no guarantees that Mr Blair’s gamble will pay off – and some experts believe that the private sector may prove a less than willing partner in his endeavour.
For the government, the main argument against a new generation of nuclear power stations was not the fear of another Chernobyl, nor the tricky question of how to dispose of dangerous radioactive waste, nor even the risk of terrorist attack. It was commercial.
Sizeable up-front investment costs and the probable need for state hand-outs meant new nuclear plants were uncompetitive compared with gas-fired electricity generating capacity. Today’s review will turn this argument on its head.
Internal Whitehall analysis, in contrast to a Cabinet Office study ahead of the last white paper, is understood to show nuclear to be as competitive as gas.
Ministers will expect the private sector to bear the costs of construction, operation and clean-up of plants as well as the disposal of waste. Any decision to invest will be left entirely to the market.
Environmental groups, which have long argued against nuclear, feel betrayed and angry. While the government will rule out subsidies for new plants, it will intervene to the extent of shaking up the cumbersome planning regime that industry complains has scuppered big infrastructure projects in the past.
Nuclear, gas and coal-fired stations, large-scale wind farms and power transmission lines are to be marked out as structures of national importance in an effort to speed construction.
The energy review will also include moves to cut electricity use. And, given the growing commercial success of onshore wind farms, the system for subsidising renewable electricity will come to focus on less viable forms of alternative energy such as solar, wave and tidal power.
The prime minister, his critics say, has nevertheless yielded to the persistent lobbying of pro-nuclear officials in government led by Sir David King, his chief scientific adviser, and a vociferous campaign by the nuclear industry itself.
For the world’s power generation and construction companies, the policy being set out today is indeed the approval for which they have so heavily lobbied. If they can make the economics work, constructors and operators are looking at a potential bonanza.
Areva of France and Westinghouse, the former US nuclear plants arm of British Nuclear Fuels now being sold to Japan’s Toshiba, may pitch for design work. Eon, EDF and RWE are all expected to bid for sites to run. As many as 10 reactors could be built, at a cost of about £1.5bn each, although the government will set no target.
To portray the decision as skewing the market in favour of nuclear at the expense of onshore wind, for example, would be inaccurate. But the prospects for nuclear are encouraging to its proponents. Energy analysts back government thinking and believe it can compete successfully without US-style tax breaks and loans or the guaranteed supply contracts that exist in Finland. Seismic changes in energy markets, they argue, as well as geopolitical uncertainty, have combined to make nuclear a more attractive option.
That is in large measure because of the sharp rise in crude oil and natural gas prices. Oil has recently touched a record high of more than $75 a barrel, more than double what it was in 2000. But in addition, British businesses and households have been hit especially hard by the rise in gas prices, which are linked to oil, because of a lack of commercial storage capacity and an apparent failure by suppliers in continental Europe to meet spikes in winter demand.
Fatih Birol, chief economist at the Paris-based International Energy Agency, says that with prices unlikely to fall significantly, western countries are rightly looking to diversify away from gas. Britain, which is already a net gas importer and will soon become a net oil importer as well, could become dependent on imports for as much as 90 per cent of its gas demand by 2020. Security of supply, therefore, is a big concern. And all big consuming nations, he says, are having to rely on fewer and fewer suppliers, some of them politically unstable.
Russia and Iran, which together account for about half the world’s gas reserves, have both given rise to doubts about their reliability as suppliers. Russia, which is chairing this week’s G8 summit, has appeared ready to use its vast energy resources as a political weapon. In a dispute with Ukraine over prices last winter, Gazprom, the Russian energy giant, cut supplies along the main pipeline to western Europe.
Climate change is also altering the economics of nuclear power. Under the European Union’s carbon emissions trading scheme, coal and gas-burning plants are to be penalised for the carbon dioxide they emit. Ministers foresee a tougher emissions regime beyond 2012, raising the price that is levied on carbon.
Investors insist they will not be put off by the lack of hand-outs. They do, however, want public acceptability. And they will be looking for evidence that ministers have listened to complaints about the cumbersome planning regime.
On the first point, a political consensus is emerging in nuclear’s favour. The Conservatives, in the process of redefining themselves under David Cameron, have sought to emphasise their “green” credentials but last week reluctantly backed a subsidy-free expansion of nuclear power.
Public opinion, however, is more divided. A recent poll by MORI showed just over half the respondents might be prepared to accept new nuclear plants if they helped tackle climate change. But far more, some 78 per cent, favoured promoting renewable energy sources and cutting electricity use over nuclear.
Companies including EDF of France and Germany’s Eon, which owns the energy supplier Powergen, have long complained that planning laws mean plants can be held up by battles that can last up to five years, doubling construction times and adding hundreds of millions of pounds to investment costs. Now, however, the government has pledged to cut the time taken for approvals to a few months.
Stephen Machin, head of power and utilities at KPMG, says: “While the government is making the right noises about speeding up the planning and licensing system and putting in place a long-term carbon framework, the devil will be in the detail.”
But others are sceptical that nuclear can thrive on the planning overhaul and carbon price regime alone.
Jim Watson, senior fellow in the Sussex Energy Group at Sussex University, says: “I doubt this will be enough for the power companies and developers to finance new-build. What they are going to need is some kind of certainty, either on the prices they get for their power or that carbon prices will stay at a certain level.
“You might be able to add up the numbers and say nuclear can fly but investors will be looking at periods of 15 years or more.”
A proper assessment of the balance of risks will be possible only when the government publishes detailed proposals at the end of the year. Already, however, there are big uncertainties.
One is the choice of sites. The government favours building on existing sites but many of these are owned by British Energy, the nuclear generator. Whether it will continue to own them or whether they should be sold to the likes of Eon and EDF, and for how much, could prove tricky.
Paul Golby, chief executive of Eon UK, says it is keen to put money into nuclear but warns: “I don’t want to be held to ransom. We will pay an economic price [for the sites] but no more . . . There should be a level playing field.”
Perhaps the biggest question mark for investors will be over waste. The French government is storing thousands of drums of radioactive material in concrete-lined hangars, waiting for the advent of technology that will ensure safe burial.
Britain looks set to adopt a similar approach, but the ultimate liabilities are far from certain.
Burying waste in a bunker deep underground could cost as much as £10bn, approaching the price tag for the fleet of reactors themselves, according to the Committee on Radioactive Waste Management.
The committee backs storage, followed by burial, for tackling the waste from existing plants. However, Gordon MacKerron, its chairman, says: “We do not want our decision to be taken as a green light or a red light to new nuclear build. The political and ethical issues surrounding whether to create new waste are quite different from dealing with legacy waste.”
In other words, the government should be thinking hard about whether it wants to saddle future generations with a dilemma that, some 50 years since the first UK plant opened and a generation after Chernobyl, has still to be resolved.
Mr Blair – and international counterparts equally anxious to ensure plentiful and secure supplies of electricity – may yet find it is easier to will the end than the means.