A fission of the future

Posted on 19 Feb 2008 by The Manufacturer

Following last month’s Government green light for nuclear energy, Colin Chinery looks at the potential for British manufacturing on the road ahead

I n-party political paternity suits can be messy affairs, hence business secretary John Hutton’s dexterous insistence that he is not ‘mandating the use of nuclear power’. For all that, a new generation of nuclear power stations moved towards the delivery room last month when the Government declared nuclear to be a ‘safe and affordable’ way to secure future energy supplies. But only, says Hutton, as a part of a ‘future energy mix’. Unsurprisingly, manufacturing, which has long made the same assertion with the same ‘broad mix’ proviso, welcomes a move that could see the first new station on stream well before 2020.“The right conclusion about nuclear’s role in meeting the twin challenges of climate change and energy security,” said CBI’s Richard Lambert, while EEF chairman Martin Temple says his organisation is “pleased that the debate has moved on from whether we need nuclear or not, and the talking has now got to stop.”

And while Hutton concedes that no nuclear plant has been built anywhere in the world without public money, he insists there will be no Government subsidies. In theory there has been nothing to stop a private proposal to build a nuclear station. But given the scale of investment needed, the sector has insisted on the kind of explicit ministerial support that has now been delivered.

The Government says it will identify the best sites, set up an independent body to monitor clean-up costs, and streamline planning for major infrastructure projects such as nuclear plants. No public subsidies, but the sector is unfazed.“New nuclear units will be funded entirely by the private sector, will be cost-effective, built tointernational standards and help the UK maintain a diverse and secure portfolio of energy supplies,” says Lord O’Neill, chairman of the Nuclear Industry Association (NIA), the UK’s trade body representing over 130 nuclear companies.

Existing nuclear stations – providing 20 per cent of UK electricity – are scheduled to close over the next 20 years. And until recently government policy on both this fact and the implications recall the old music hall song; ‘She wouldn’t say yes, she wouldn’t say no, she wouldn’t say stop, she wouldn’t say go.’ Mark Spellman, global head of strategy at Accenture consultancy, cites ‘the failed’ 2003 Energy White Paper which ‘over-emphasised renewables and under-emphasised the whole nuclear and gas issue’. Last month’s green light, he says, is the inevitable conclusion of a strategy that has to be based around diversification. “There isn’t a silver bullet in energy; you have to have a diversified mix.“Given the pace at which the old nuclear stations are coming off line and you have a significant energy gap in 2015. Nuclear does not plug that gap – the problem is only going to get worse – but it has to be part of that mix, not least because, as we are seeing, an increasing dependence on gas through the middle of the next decade means ever more dependence on Russia. The Government has bowed to the inevitable.”

But while British manufacturing will gain as a nuclear customer, what will be its share of the massive investment in the nuclear build? Long years in the political wilderness have created a skills crisis, with experienced nuclear engineers approaching retirement amid an acute shortage of replacement graduates. “How do you backfill that knowledge? It’s a big challenge,” says British Energy’s head of training, David Barber.

Even so, two years ago an NIA report showed UK sector companies have the capability to provide over 80 per cent of the scope of new nuclear power station projects, demonstrating, said chief executive Keith Parker, the strength and depth of the manufacturing, engineering and construction capability in the British nuclear industry.

“It reveals, too, the significant improvements in project delivery that have occurred in recent years. We are confident that a new nuclear build programme can be delivered effectively, and would provide huge commercial opportunities for companies in the British nuclear industry.” So how much of the new nuclear build, I asked the NIA’s Tristram Denton, might be British-sourced? “There will be a huge benefit to the supply chain. In terms of percentage, that depends on who ends up building. At present we have four reactor vendors with a design before the Nuclear Installations Inspectorate for approval, and each one will have different policy on buying things in.

“Some of the equipment will have to come from outside the UK – for example there are only two factories in the world which can produce the large reactor vessels, and neither is in Britain. “There will be a significant element of work that will be done abroad, but how much, and how much in Britain – and of that done here how much by British companies and workers – will really depend on which reactor vendor and which utility ends up building. So the answer to your question is; yes there will be benefit but as to how much we are not quite there yet.”The four reactor vendors are Areva, AECL, GE and Westinghouse – the world-leading nuclear technology company owned by the British Government and sold by Gordon Brown to Toshiba in 2006. And while Mark Spellman believes the British share of the prize could be substantial, he raises doubts over capacity to deliver.“The construction industry is booming, so if you take the Olympics, Cross Rail and the nuclear power build programmes, our biggest issue is can we gear up enough engineering and construction skills fast enough to move multiple projects forward?

“EDF has talked about potentially building four plants, but I think that’s hugely ambitious. You look at the problems we have had building the new Wembley and things like that. In my view the key question is going to be a supply constraint. Overall it’s pretty good news, but we’ve got to make sure we’ve got the infrastructure capability. While the UK is embarking on this programme, other countries will be doing the same and there will be a tussle for capacity and specialist skills.” Meantime, the global explosion in demand for wind power has left some companies struggling to fulfil orders. Danish-based Vestas Wind Systems, the world’s biggest turbine builder with 28 per cent of market share, says it is taking up to 15 months to source vital equipment because of low manufacturing capacity. It expects the problem to persist for years.Spellman believes the ‘no subsidies’ condition is manageable. “The big issues for the companies were that they didn’t want 10 year planning enquiries, nor open-ended commitments around waste. Providing it’s a closed loop, I think it will work.”

Although modern nuclear plants produce only 15 per cent of the waste generated by an older generation, waste is arguably the biggest and most sensitive operational and PR issue. The Government believes it can continue to be stored above ground in temporary facilities at Sellafield on the Cumbrian coast, until a suitable site for an underground bunker can be found.

But Rene De Sousa, senior procurement specialist at the Chartered Institute of Purchasing and Supply – which backs nuclear as part of a broad mix – says more details are needed on the waste issue. “The private sector is not going to invest where it has total liability for risk.” For Roger Salomone, energy advisor at the EEF, the skills shortage and climate change levy are other government grey areas. “We are disappointed that there was no announcement about this issue, an old chestnut but still true in sending out the right signal.

“We should be moving towards assessing energy sources on the basis of their carbon intensity. No one has asked for any subsidy. Although in the United States, for example, there are tax credits for every unit of nuclear energy generated. This is not what the UK industry is looking for, but it would certainly be a positive step if it was treated on the same terms of energy taxation.”

Meantime, British industry faces the challenge of the long pre-new-build energy gap. “I don’t think we are necessarily at a major disadvantage compared with, say, the Germans,” says Mark Spellman, “though the French have obviously got nuclear power, which helps them significantly. But I think we are slightly more vulnerable on gas, so what’s important is the building of the LNG terminals which gives us more flexibility going forward.”

For Salomone, the downside of being in a relatively liberalised market like the UK shows up in a seasonal paradox. “When supplies are tight in winter, the prices here tend to be higher than in the less liberalised markets on the continent, while the potential upside is that when supplies are more plentiful and demand is lower Britain should benefit from lower prices. “But last summer we saw quite high prices, reflecting concern both about where commodity prices are going and the state of liberalisation in the rest of Europe.”

Rising energy costs present British manufacturing with an opportunity, says Rene de Sousa. “Energy now accounts for a greater percentage of expenditure. Some companies will be able to move to a low carbon economy and will be better placed within the EU to meet the environmental legislation coming through. Overall, firms should be examining their supply chain, getting trained people in to look at what are the drivers of their energy costs and where there can be greater efficiencies.”