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Funding Provision for Nuclear Waste and Decommissioning

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 when approval for a reactor is given. This effectively caps the cost to the operator of nuclear waste disposal and transfers the risk of cost overruns to the taxpayer. (2) 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. (3)

Draft Framework

A draft framework on how decommissioning and waste costs would be paid for was published for consultation in February 2008, (4) and the Government responded to consultation responses in September 2008. (5)  Companies must produce a detailed funded decommissioning programme (FDP) before new reactors are approved. This will include a commitment to pay into a secure and independently managed fund to cover all the costs of decommissioning, clean up and disposing of the waste.

The Energy Act 2008 contains clauses to ensure funding provision is made by reactor developers for the full cost of decommissioning and their full share of waste management costs. It also establishes a new independent advisory body, the Nuclear Liabilities Financing Assurance Board (NLFAB) to monitor the funds and provide advice to the Government on all aspects of the financial arrangements operators plan to put in place. The NLFAB will be chaired Lady Balfour of Burleigh. The Members of the Board were announced on March 31 2009. (6)

There is huge scepticism about whether the Government will get a new reactor programme off the ground without offering some kind of subsidy and the funding of waste and decommissioning costs, which will occur in the future mostly after nuclear utilities have made their money selling electricity, offers opportunities for the Government to hide subsidies to the industry. For example, The Spectator says there is every risk that the public will end up footing the bill. The Government says in ‘extreme circumstances’ it is prepared to help meet the massive decommissioning and waste costs — knowing full well that such extreme circumstances almost always attend decommissioning and waste disposal. (7)

The Government 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 - 41% of each reactor’s expected £2 billion capital cost - far too expensive, killing the prospects of any new reactors. (8) In other words, new reactors will not be built unless the government fixes the market. (9)
Gordon Mackerron, former chair of the Committee on Radioactive Waste Management (CoRWM) said the system proposed in the Government’s draft framework amounted to a hidden subsidy. He attacked as “frankly not credible” government assurances new reactors would meet the full cost of waste management, because, whilst ministers have agreed to cap reactor operators’ liability, we only have a vague idea of what a nuclear waste repository will cost. (10)
Stephen Thomas of Greenwich University says claims by the government’s adviser Tim Stone this fixed price for disposal of waste was “absolutely not a subsidy” are not credible. And from past experience of the accuracy of nuclear cost estimates, it is one that could prove costly to taxpayers more than 100 years into the future when this waste is actually being disposed of. (11)

The Government’s response to submissions on the consultation document, says the policy of setting a fixed unit price for waste was set out for information only – this part of the document was not being consulted on. (12) It did, however, say it is clear there is a “desire for further opportunity to comment as the Government’s detailed thinking develops”. (13)  It goes on to promise openness and transparency on the cost modelling and the methodology to be used for setting the fixed unit price and subject the cost model to external peer review. (14)

On the question of whether the fixed price represents a subsidy, the Government says it recognizes this is a serious issue, but reiterates it determination that reactors operators should meet their full costs. It says:

“We are confident that the combination of a robust mechanism, tough sanctions in the legislation and safeguards put in place through regulations and guidance will ensure that the risk of costs falling to the UK Government is remote at all times”. (15)

Working out what the fixed cost will be

Following on from the Government’s commitment to ‘openness and transparency’, the Office for Nuclear Development has said it will publish a set of three pre-consultation discussion papers on the development of estimates of the costs of decommissioning and waste management from. Two are already published. These estimates will help the Nuclear Liabilities Financing Assurance Board (NLFAB) assess operators' own estimates.
The first paper is about determining how the fixed costs of building a geological disposal facility should be apportioned to and shared between operators of new reactors. (16) The second is about establishing an indicative fixed unit price for the disposal of intermediate level waste and spent fuel from new reactors. (17) The third will be about “the DECC cost model, with updated estimates for the total cost of waste management, disposal and decommissioning”. A formal consultation is expected to take place in spring 2009 (probably May). (18)

Waste disposal costs

The Government’s policy on waste from new reactors is that “…it would be technically possible and desirable to dispose of both new and legacy waste in the same geological disposal facilities[GDF] and that this should be explored through the Managing Radioactive Waste Safely programme”.

The Government says it will set a fixed unit price for disposal of spent fuel and intermediate-level waste (ILW) based on the operator’s projected full share of waste disposal costs at the time when the approvals for the station are given, prior to construction of the station. This price will be set at a level over and above expected costs and will include a significant risk premium.

This risk premium will cover the possibilities that the GDF costs more than expected, and that it takes longer to build than expected and should help to ensure the operator bears the risks and provide protection for the taxpayer.

A GDF will have fixed costs, unrelated to the volume of waste, and variable costs which depend on the volume of waste to be emplaced. The first pre-consultation discussion paper relates to how new reactors’ contribution to the fixed costs should be determined. The Government says it will assume that a new build operator’s share of the fixed costs should be calculated in proportion to its share of estimated total variable costs. In other words, the fixed costs would be divided by the total volume of waste going into the GDF.

The difficulty with this is the uncertainties involved. For a start we don’t know the cost of a GDF. The NDA’s current estimate is £12.2bn, but this figure covers both the fixed costs of the GDF and the variable costs of the disposal of legacy waste. It does not include any provision for new nuclear waste or a number of other potential wastes, such as plutonium.

And we don’t know the size of the new build fleet. If the number of new reactors turns out to be large it may no longer be feasible to dispose of new build waste in the same GDF as legacy waste.

Payment of a new build operator’s contribution, from the accumulated waste management fund, to the fixed costs incurred by Government in constructing the GDF is likely to be a considerable time after the fixed costs were incurred. The assumption is that payments will be made when the Government takes title and liability for the waste, but the Government wants to minimize the risk that this will happen before the GDF is ready. So there will be inflation and interest on money in the waste management fund (and future stock market crashes) to take into account.

The level of uncertainty around these issues will be an important consideration in determining the level of the risk premium element of a fixed unit price. The risk premium means that the fixed unit price will be set over and above expected costs, to ensure that the operator bears the risk around uncertainty in waste cost and to provide material protection to the taxpayer.

Mackerron lists further factors which add to the uncertainty of the cost of a GDF. Past GDF designs, for example, have been for ILW disposal only. There has been no significant UK design work until very recently on any repository concept that could accommodate the variety of wastes, including vitrified High Level Waste (HLW) and spent fuel that now seem likely to be disposed at a single location. There is no disposal site operating anywhere in the world for HLW.

There is no certainty about when new reactor waste would be emplaced in a GDF. CoRWM recorded the Nirex view that it would take around 65 years after a repository opened to emplace the legacy backlog. In this event, new build wastes would not start to be disposed for around 100 years from now - if all goes well. Consequently some new build waste might need to be stored for 150 years. If wastes have to remain in storage for 100 years and more, there will be some risk that re-packaging prior to final disposal may be needed. It will be difficult for operators to know what kind of packaging to use until they know the characteristics of the GDF.

Waste Volumes

In the second pre-consultation paper, the Government clarifies the purpose of setting a fixed price per unit of waste. It is to ensure the amount operators pay relates to the amount of waste or spent fuel they produce. It is therefore important to be clear about the units to be used for setting a fixed unit price, and for the units to reflect the actual amount it costs to dispose of the waste.

For example, CoRWM estimates that the total volume of waste in a repository would increase by about 8%, if ten new reactors are built, but the total radioactivity in the repository would increase by 300%. So clearly it would not be right to charge operators according to the volume of waste.

Low level waste (LLW) and most intermediate level wastes (ILW) are less radioactive than spent fuel and emit no heat. This means they can be packaged and placed underground in a densely packed vault. Spent fuel and vitrified HLW resulting from reprocessing are both heat-emitting wastes and require a disposal facility which spreads the packaged waste over a much larger area in order to avoid a heat build-up which might accelerate the deterioration of the waste, its packaging, the engineered zone around it and the geological environment. (19) In other words, reactor operators need to be charged according to the area of the repository which their waste takes up, as opposed to the volume of the waste itself.

Research by Hugh Richards suggests that a “repository footprint” of 1 square kilometer would be needed for legacy LLW and ILW; 3km² for legacy HLW, but 10km² for spent fuel from a new reactor programme.

Defining the units

The Government says the fixed unit price for spent fuel will need to take into account more detailed considerations around its disposal route and the impact of various assumptions around, for example, fuel burn-up and heat load. It will be important that the unit for spent fuel reflects the costs of disposal.

The second pre-consultation document discusses different units that might be used as the basis for charging for the disposal of spent fuel or HLW. It might be based on the number of copper canisters which could be placed in individual deposition holes drilled in the repository floor. It could be based on a quantity, such as tonnes of uranium or bundles of spent fuel, but this would not take account of different heat outputs due to, for example higher burn-ups (being left in the reactor for longer) or being stored for longer to cool down. It could be based on heat output, such as pence per kWh or on the level of radioactivity – the number of becquerels. All of these options have advantages and disadvantages. But the unit cost of disposal can only be estimated with reference to the disposal route, which at present is assumed to be the copper canister mentioned earlier. If the disposal route changes then the estimated costs of disposal could change after the fixed unit price has already been set.

Financing Charge

The second pre-consultation document also discusses the idea of a financing charge. Because the assumption is that the fixed unit price will be paid by new nuclear operators when the Government takes title to the waste, this means new build’s contribution to the fixed costs of a GDF is likely to be made some years after the fixed costs of the GDF are incurred. This means that the “real” value of the contribution to Government is lower than it would be if it were paid at the time the costs were incurred. This raises the question of whether there should be some form of “financing charge” applied to reflect this.

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 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.

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.

 

References

(1) From end to beginning, Nuclear Engineering International, August 2007.
(2) The Future will not be Nuclear, by Tom Burke, Prospect Magazine, September 2008.
(3) Pagnamenta, R. Key adviser says that the UK’s new nuclear policy is flawed, Times January 28, 2008. http://business.timesonline.co.uk/tol/business/industry_sectors/utilities/article3261571.ece
(4) Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Station, BERR, February 2008
Also see Eccleston, P. Nuclear power station costs to go to power companies. Telegraph February 22, 2008.
(5) The Government Response to the Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations, BERR September 2008.
(6) Nuclear Liabilities Financing Board.
(7) Stelzer, I. Go nuclear, but keep your hand on your wallet, Spectator, March 12, 2008
(8) Jackson, I. Buried Costs, Nuclear Engineering International, March 27, 2008.
(9) Taxpayers facing nuclear missile, Greenpeace website, March 27, 2008
(10) Eaglesham, J. ‘Subsidy’ for nuclear power attacked, Financial Times, June 11, 2008
Mackerron, G. Response to ‘Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations’, BERR February 2008. Sussex Energy Group, University of Sussex, May 2008
(11) Thomas, S. This nuclear agenda is losing power. Guardian June 12, 2008
(12) The Government Response to the Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations, BERR September 2008. Para 4.1
(13) ibid para 4.4
(14) ibid para 4.6
(15) ibid para 4.9
(16) Pre-consultation discussion paper No.1 on a methodology to determine how the fixed costs of building a geological disposal facility should be apportioned to and shared between operators of new nuclear power stations. Office for Nuclear Development, October 2008.
(17) Pre-consultation discussion paper No.2 on a methodology for establishing an indicative fixed unit price for the disposal of intermediate level waste and spent fuel from new nuclear power stations. Office for Nuclear Development, January 2009.
(18) See Financing Arrangements for Waste and Decommissioning Costs, BERR website
(19) See Richards, H. Deep Repositories for Spent Fuel: Burying the Truth. WANA, March 29, 2008

 

Last Updated 28th March 2009