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ANALYSIS - UK Private Sector Raises Doubts on Nuclear Support

Date: 16-Jun-06
Country: UK
Author: By Gerard Wynn

The big problem is no-one knows what the full decommissioning costs will be -- Britain is still consulting on both near-term and permanent waste disposal options at current sites, and research has not begun into such costs at new sites, according to engineering firm AMEC PLC.

"The government needs to tell us what to do with the waste, and that will affect the sums. If the sums don't add up we won't do it," said Jonathan Smith, spokesman at E.ON UK, whose German utility parent E.ON owns nuclear plants in Germany and is a potential investor is Britain's nuclear sector.

All but one of Britain's ageing reactors, which produce a fifth of the UK's electricity, are due to shut by 2020s.

Prime Minister Tony Blair, under pressure to deliver a strategy that will both keep the lights on and cut greenhouse gas emissions, has signalled he will back the construction of a new fleet of reactors in a policy review due out next month.

But Energy Minister Malcolm Wicks this week ruled out a direct subsidy for new reactors -- including decommissioning costs when a plant retires -- while the Department of Trade and Industry would not comment on whether that excluded any public backing.

Likely private-sector players say they would support only limited contributions to uncertain decommissioning costs for new plants, possibly through a levy during the 40 to 60-year lifetime of plants.

"It would not be unpalatable to have a tariff mechanism where at the end of the plant lifetime the tariff takes care of what it can and the NDA (Nuclear Decommissioning Authority) takes over the liability," said Gerry McGill, Managing Director at the nuclear division of AMEC.

The UK's biggest power producer British Energy, another possible new build backer, owns 8 nuclear plants and it contributes 65 percent of its net cash flow to a decommissioning fund -- in a possible model going forward.

AMEC was involved in the design and construction of Britain's existing nuclear power plants and wants a big role in any new build, but says the private sector needs a limited liability guarantee.

"You'd want a reasonably robust contract," said Jim Wright, AMEC Strategy and Development Director.

RISK

The potential costs of decommissioning future nuclear plants represent huge risks for investors.

Britain's Nuclear Decommissioning Authority (NDA) estimates the clean up costs for Britain's 11 oldest nuclear reactors and research sites at 70 billion pounds. That does not include permanent disposal, which would cost in excess of an extra 10 billion pounds, a source close to the NDA said.

British Energy estimates the separate disposal costs at its plants at 5.5 billion pounds, and while the company says its current profitability could cover that entirely, it agrees on the need for clarity.

"Clarity needs to come from the government before investors can come forward. It needs to be clear who is liable," said BE spokesman Martin Pearce.

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