Power market developments

Waste fund call

15 March 2007

The International Energy Agency’s review of the UK energy industry has called for a nuclear waste and decommissioning fund to be set up.

The International Energy Agency’s (IEA’s) recently published recently published The United Kingdom 2006 Review, the second of its Energy Policies of IEA Countries series, praised the UK energy market framework but highlighted the need for a nuclear waste policy, covering all types of waste, and called for the establishment of a liabilities fund to pay for decommissioning and waste disposal.

The IEA recommendations to the UK government are:

  • Clarify the UK position regarding nuclear energy and, if applicable, establish a legal and regulatory framework for potential investors to assess with a reasonable degree of confidence the short- and long-term risks and benefits of building a new nuclear unit.
  • Define a national policy covering the disposal of all types of radioactive waste and take steps towards its implementation to allow the industry to assess and fully internalise corresponding costs for existing and, if applicable, future nuclear power plants and fuel cycle facilities.
  • Provide a robust and stable scheme for the accumulation, management and control of a fund for covering future financial liabilities (decommissioning and waste disposal) for existing and, if applicable, future nuclear power plants and fuel cycle facilities.
  • Assess the adequacy of education and training for developing human resources and qualified manpower needed to ensure the safe operation and decommissioning of existing nuclear units and, if applicable, the licensing and operation of new units.
The report also says the UK government should establish a framework for treatment and disposal of waste from existing and new plants, decommissioning of existing and new plants, help site selection of a waste facility, and create a licensing process for new build that is in line with international best practice. In terms of safety, the government should continually monitor operations at all nuclear plants, it says.

The IEA review goes on to say that work done on these roles so far “does not yet include sufficient information on the exact steps the government would take.” It goes on: “While defining the general structure of the government’s role is essential, further work needs to be done to fill in the details. Without such additional work, potential investment in new nuclear generating stations still faces substantial uncertainty which will act as a barrier to new plant.”

It says that any potential new build “must be preceded by a clear plan for legacy issues” (decommissioning and waste treatment) and notes that international experience has shown that a robust disposal policy is necessary for public confidence in nuclear power, in addition to allowing operators to plan sufficiently for full costs at the back end.

“The number of nuclear facilities in operation, or already shut down, in the country calls for a rapid move towards the selection and implementation of a comprehensive national policy for radioactive waste disposal. Given that the amounts needed for decommissioning and waste storage are uncertain, bearing in mind the UK’s recent increase in cleanup estimates, it is best to err on the side of caution.”

The review says it is “essential” that the government puts a scheme in place to adequately cover the costs of disposal of all types of radioactive waste and decommissioning. It continues: “Industry should accumulate the funds according to the polluter pays principle. Funds should be accumulated by the polluter/user of electricity, and the government should monitor the accuracy of estimated costs and the adequacy and management of the funds.”

It says the 2006 Committee on Radioactive Waste Management (CoRWM) report was a “step in the right direction” but must now be supplemented with more concrete work, particularly site selection.

The government’s decision to create the Nuclear Decommissioning Authority (NDA) was commendable but probably should have been taken “much earlier,” the review states, adding: “It is important that the NDA demonstrates its capability to address issues raised by historic liabilities in a safe and cost-effective manner and to create a reliable framework allowing the operators of nuclear facilities in service to plan and finance their eventual decommissioning.”

The report then highlights the need for qualified and experienced workforce to fulfil maintenance and safety requirements in the long term. Nuclear education and research and development policy would benefit from “enhanced coherence and consistency” with the requirements of existing nuclear installations. The report takes this a step further by suggesting that “fundamental” research and development programmes should be designed and implemented due to the number and variety of nuclear facilities in operation in the UK.

Announcing the publication of the report, Claude Mandil, IEA executive director, said: “The UK’s energy industry is working in a well-established framework of market regulation, in which it has sufficient incentives to provide new investment when needed.”

He considered it commendable that the UK government was not just focusing on the supply side, but had also created what he sees as “a robust and simple framework with the Energy Efficiency Commitment, in which energy companies are encouraged by market incentives to deliver energy efficiency improvements.”

“However, there is room for improvement, particularly in the area of gas dependence. The UK government needs to monitor this situation and should keep all options open for potential developers of power stations to use other fuels.

“Furthermore, the planning system under which large infrastructure projects are licensed, permitted and built, is a significant barrier to energy infrastructure developments and can become a risk to security of supply.”

Mandil said that the gas supply crisis of winter 2006 raised serious concerns in the UK. On the other hand, it clearly demonstrated that the UK market worked. It delivered short-term demand reductions in reaction to increased prices due to an unexpectedly fast decline of UK gas production, and spurred new long-term capacity developments to ensure that a repetition of the crisis is unlikely.

One year on, new liquefied natural gas and pipeline capacity is on stream and wholesale gas prices have now fallen to half the level in continental Europe, whilst several increases in power generation capacity have been announced over the past year. This willingness to invest in the UK’s energy market shows that its foundation is sound, Mandil said.

Nevertheless, he said the UK government could become more proactive in providing certainty about future policy directions, as well as improving the availability and transparency of data, particularly on energy supply, but also on demand and pricing, and allowing demand to respond as much as possible to prices and supply constraints. Long-term planning should also take into account the decline of gas production by 2015, and plan for the investment required to replace it.

“The UK government’s energy review is a significant step in the right direction on these matters. The IEA agrees with the UK government that no technology should be ruled out on principle, but that it should be up to market participants to decide on the fuels of their new power stations,” said Mandil.

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