Waste and Decommissioning Financing Arrangements

Introduction

The Government has pledged not to subsidise new reactors, and to “make sure that the full costs of new nuclear waste are paid by the market”. But the industry needs certainty about how much waste management and decommissioning costs will cost them. Although they will be incurred far in the future – reducing their apparent value today – they are potentially very significant costs with considerable uncertainty about the final figure.1

Consequently, the pledge about new reactors meeting their full waste and decommissioning costs has mutated into the more nuanced “fixed unit price” for waste ‘disposal’ which the Government will set. This effectively caps the cost to the operator of nuclear waste disposal and transfers the risk of cost overruns to the taxpayer. Dieter Helm, Professor of Energy Policy at New College, Oxford, says this effectively means utilities will pay the state to absorb the risks of handling nuclear waste.2

Draft Framework

The Government legislated in the Energy Act 2008 supposedly to ensure that operators of new reactors will have secure financing arrangements in place to meet “the full costs of decommissioning and their full share of waste management and disposal costs”. Before construction begins, an operator of a new nuclear power station will have to submit a Funded Decommissioning Programme (FDP) for approval by the Secretary of State. The independent Nuclear Liabilities Financing Assurance Board was established to provide impartial scrutiny and advice on the suitability of FDPs.3

A consultation on a draft Funded Decommissioning Programme Guidance was launched in February 2008, with a Government response published in September 2008.4 The Guidance was then revised and consulted on again almost three years later! A finalised Funded Decommissioning Programme Guidance for New Nuclear Power Stations was published on 8th December 2011.5 The Government says this new Guidance will enable new nuclear operators to come forward with clear plans to deal with decommissioning and radioactive waste management for approval by the Secretary of State.6

One of the main bones of contention with regard to the FDP was that although the draft Guidance listed a series of Guidance Factors to be considered before the Secretary of State can approve or agree to modifications, the list does not include any mention of public consultation or parliamentary oversight. In its response the Government says the Guidance sets out that the Secretary of State would expect the Operator to publish as much of the FDP as possible except for material of a sensitive nature. The Secretary of State also expects Annual Reports and Quinquennial Reports to be published by the Operator taking into account, as appropriate, commercial confidentiality and security considerations. However the FDP is expected to be a complex document with substantial technical and legal content. The Government does not consider that it would be an appropriate document on which to seek views through a consultation. And it does not consider that it would be appropriate to seek views on proposed Modifications in a public consultation.7

Alongside the approval of an operator‘s FDP, the Government will expect to enter into a contract with the operator regarding the terms on which the Government will take title to and liability for the operator‘s higher activity radioactive wastes. The Government expects to dispose of spent fuel and intermediate level waste from new nuclear power stations in the same Geological Disposal Facility that will be constructed for the disposal of legacy waste. In particular this contract will need to set out how the price that will be charged for this waste transfer will be determined.

On 8th Dec 2011 the Government confirmed how it will calculate the price operators will pay for the disposal of nuclear waste in a geological disposal facility.8 Again the Government consulted on this twice, firstly between 25th March and 18th June 2010.9 Then it consulted on an updated Waste Transfer Pricing Methodology between 7th October 2010 and 8th March 2011.10

Originally the Labour government had planned to charge the industry a high risk premium as part of a fixed, disposal levy tied to the amount of nuclear waste it produced, and had told the industry that responsibility for the waste should be transferred to the state only once the waste had been disposed of, which couldn‘t happen before 2130 at the earliest. Both proposals were deeply unpopular with the industry. In March 2010, the Labour government published proposals that made significant concessions on both issues. Now the Government is expected to give operators a lower “expected price” – with the fixed price being set later when a site has been selected for a deep geological repository, and the final price will be subject to a cap in return for a risk fee. In addition the Government will take title to the waste much earlier, so that it is aligned with the operators decommissioning programme rather than waiting for the geological disposal facility to be ready.11

The Final Price will be set after a deferral period of 30 years ie. around 2048. But new build spent waste fuel will probably not be emplaced in the GDF until 2130, some 82 years later. Because payment will be made by the operator earlier than the waste will be emplaced, the Government says it is necessary to adjust the payment made by the operator to reflect this early payment. This will be done through the application of an appropriate discount rate to the Final Price to reflect the time difference. Independent nuclear expert Ian Jackson says this means that basically the stock market is being expected to pay up to 70% of the cost of waste disposal. It is quite possible that the stock market fails to make the returns expected, in which case the taxpayer will be lumbered. The only way to guarantee utilities pay the full costs of disposal is to charge them the actual cost without applying a discount rate.

The Government continues to insist that taking title to radioactive waste, including spent fuel, for a fixed price is not a subsidy to new reactors, provided that the price properly reflects any financial risks or liabilities assumed by the state. It has indicated the ‘fair share’ for waste ‘disposal’ will be calculated as the proportion of space nuclear operators’ radioactive waste takes up in any repository. Nuclear Economist Ian Jackson says foreign utility companies with Sellafield reprocessing contracts appear to be paying about £201,000/m3 for the ‘disposal’ of intermediate-level waste. Commercially speaking it would be hard to justify charging British utilities a lower price and would risk accusations of illegal state aid. The problem is that if UK utilities are forced to pay this fully commercial price it would cost around £820 million per reactor – far too expensive, killing the prospects of any new reactors.12 In other words, new reactors will not be built unless the government fixes the market.13

Conclusions

Clearly there are large difficulties involved in estimating what waste costs will be. Even if it is assumed that there will be political consent for a geological repository to contain new-build waste, as Former CoRWM chair Gordon Mackerron says, we have only the haziest idea of what a repository would cost, and an even hazier idea of what the unit cost for waste disposal would be.14

These very large uncertainties mean private investors will find investment in new nuclear power much more attractive if they have upfront certainty about the price they will need to pay for waste disposal. Mackerron says the fixed unit prices are intended to make the expected cost (risk-adjusted) of nuclear investment lower than if private firms had to pay for the full costs of waste disposal directly so the proposal effectively amounts to a subsidy.

State Aid

According to Platts in February 2014 the UK’s back-end nuclear waste management plans for new-build reactors have yet to be notified to the European Commission for State Aid clearance. It said the UK government is preparing another notification to the EC of how it intends to share the costs for managing and disposing of nuclear waste from Hinkley Point C and other new nuclear power plants. “The nuclear waste transfer contract (which is wider than just Hinkley) is a separate notification [to the October 2013 Hinkley submission],” a DECC spokeswoman said.15

According to Greenpeace’s submission, dated 7th April 2014, to the European Competition Commissioner on the UK’s nuclear deal with EDF for Hinkley Point C (HPC), although EDF Energy has submitted a draft “Funded Decommissioning Programme” (FDP) covering the management of the waste produced by the HPC, the UK government has not yet approved the programme. Greenpeace called on the Commission not to take any decision on whether or not the HPC deal represents illegal state aid before investigating whether the regime for the management of waste in the UK complies with the applicable Euratom rules, and whether the regime provides EDF Energy with additional state aid.16

On 27th October 2014 The Independent reported that the Chancellor George Osborne had been criticised by the European Commission for failing to reveal all the costs associated with building Hinkley Point C.17 A Treasury spokesman said: “With respect to the decommissioning and storage costs the situation is that [EDF subsidiary] NNBG are responsible for these long-term costs (through their investment in a Funded Decommissioning Plan), and these costs are all included in the agreed strike price. As well as being responsible for their costs in cleaning up of the site, NNBG will pay HM Government for the radioactive waste transferred to HM Government for long-term storage.”

In December 2014 the Government stated that it is “…talking to the European Commission about its examination of the waste transfer methodology – the method for calculating  how much to charge companies (not just EDF in relation to Hinkley Point C) to dispose of their waste – and we hope to receive a decision on the case in due course. However, it is important to repeat that the costs for waste and decommissioning are already accounted for in the Strike Price for Hinkley Point C and are in the region of £2-3/MWh.” This means the costs of Intermediate Level Waste (ILW) and spent fuel disposal; as well as ILW and spent fuel storage and conditioning prior to disposal and decommissioning are all already accounted for in the Strike Price.18

References

1. From end to beginning, Nuclear Engineering International, 24th July 2007.
2. Pagnamenta, R. Key adviser says that the UK’s new nuclear policy is flawed, Times January 28, 2008.
3. Waste and Decommissioning Financing Arrangements, DECC website, accessed 18th October 2012.
4. Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations, Dept for Business Innovation and Skills Archive, accessed 18th October 2012.
5. Funded Decommissioning Programme Guidance for New Nuclear Power Stations, DECC, December 2011.
6. DECC Press Release, 8th Dec 2011.
7. The Government Response to the Consultation on Revised Funded Decommissioning Programme Guidance for new nuclear power stations , DECC,2011
8. Waste Transfer Pricing Methodology for the Disposal of Higher Activity Waste from new nuclear power stations, DECC, December 2011.
9. See DECC website, accessed 18th October 2012.
10. See DECC website, accessed 18th October 2012.
11. For more information see nuClear News No.27.
12. Jackson, I. Buried Costs, Nuclear Engineering International, March 27, 2008.
13. Taxpayers facing nuclear missile, Greenpeace website, March 27, 2008.
14. Eaglesham, J. Subsidy for Nuclear Power Attacked, Financial Times 10th June 2008.
15. Platts 6th February 2014
16. Comments on the Investment Contract for the Hinkley Point C Nuclear Power Station, Greenpeace 7th April 2014.
17. Leftly, M. Treasury rebuked by EU over hidden nuclear costs, The Independent, 27th October 2014.
18. Letter from Nicola Robinson at DECC to Jean McSorley 1st April 2015. See also Hansard 21 Oct 2013, Column 24-25

 

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Published: 7 April 2009
Last updated: 3 September 2015