News and views

At Centrica we believe that nuclear power is an important element of the UK's future energy security.

In November 2009, we entered into a joint venture with EDF Energy and acquired a 20% equity interest in British Energy¹, the UK's largest electricity generator with eight nuclear power stations in the UK. This provides us with access to 20% of the uncontracted power from the existing nuclear fleet, and an additional 18 terawatt hours (TWh) of power from EDF over five years from 2011. Centrica do not operate any of the nuclear facilities – this remains the responsibility of EDF Energy who are world leaders in nuclear generation.

Our joint venture also provided us with the option to participate in EDF Energy's UK new nuclear build (NNB) programme and with our joint venture partner we undertook the pre-development activities for a planned NNB of four European Pressurised Reactors (EPR) that will have a capacity of about 1,600MW, enough to supply 2m homes for up to 60 years².

On 4 February 2013 we announced our decision not to participate in UK NNB. We believe that nuclear generation has a valuable role to play in a balanced UK energy mix. But with pre-development expenditure on the project approaching the agreed £1 billion cap, our decision not to proceed follows a detailed appraisal of the project. There has been progress in a number of key project areas, particularly design and planning but there remains uncertainty about overall project costs and the construction schedule. These factors, in particular the lengthening time frame for a return on the capital invested in a project of this scale, have led us to conclude that participation is not right for Centrica.

The addition of nuclear into our power generation mix means our business model is now better balanced with a higher proportion of power being sourced from our own lower carbon sources.

¹ In July 2011 British Energy was renamed EDF Energy Nuclear Generation
² Source: http://www.decc.gov.uk/en/content/cms/meeting_energy/nuclear/nuclear.aspx

The UK faces an energy gap in the future, coupled with the global need to ensure energy contributes less to climate change. Nuclear energy is a source of generation that can address both of these challenges.

In 2003, the UK was self-sufficient in gas and able to export any surplus we produced. Today the UK imports around 50% of its gas needs and that proportion is expected to rise up to 75% by 2020. The UK also uses a higher percentage of gas to generate its power and heat its homes than most other European countries. Gas has become a global commodity, so the UK must compete for supplies.

The power sector is also facing challenging times ahead as ageing coal and nuclear power stations are approaching the end of their operating lives. All but one of the UK's existing nuclear plants is due to be shut down by 2023 and nearly a third of the coal generation fleet will close by the end of 2015 due to new environmental standards.

In addition, to achieve the Government's carbon emissions reduction target the UK needs to invest a total of £200bn by 2020 to decarbonise its power industry and ensure that the lights stay on. This more than doubles the rate of investment seen over the last 10 years. We strongly support the Electricity Market Reform Programme being introduced by the Government. This package of reforms, including strengthening the carbon price signal and introducing a new form of Feed-in Tariff aim to ensure that investments can take place in all low carbon generation. Together they are intended to provide investors with sufficient confidence in the economics and market arrangements for low carbon generation so that they can make the significant and long-term investment decisions needed.

Power generation capacity needs to be replaced, ideally with low carbon sources that have stable running costs and realistically, we cannot provide secure, low carbon energy from wind power alone.

New nuclear power stations require significant capital investment upfront but due to their low marginal cost of operations, they tend to operate at maximum output at all times. This makes nuclear power the cheapest form of low carbon energy and a good baseload source. Its role as the bedrock of a low carbon energy system has been explicitly recognised by the UK's Climate Change Committee, the official body which advises the Government on how best to meet its carbon reduction targets.

Coal and gas are also good sources of baseload power but are the opposite of nuclear plants, they require less initial capital but their ongoing running costs are significant and unpredictable due to the commodity prices of coal and gas.

While renewable generation such as wind is crucial to helping the UK reduce its carbon emissions, wind power cannot provide a constant source of power because of variable wind patterns. A combination of nuclear, with its very low carbon intensity, and wind in the generation mix will be required to secure dependable sources of low carbon power generation and will be critical in helping the UK meet its climate change targets.

The existing fleet of nuclear reactors is ageing, Sizewell B, the only Pressured Water Reactor (PWR) has the longest life with a closure date of 2035. The remaining reactors are all the Advanced Gas Reactor (AGR) design.

As the fleet ages we are exposed to potential losses of production as a consequence of emergent technical issues, component failure, outage over-runs or other operational considerations. In addition, stations may close earlier than expected due to technical problems.

There is now an expectation of seven year life extensions to the existing AGR nuclear fleet, rather than the five years previously assumed and 20 years at Sizewell B, if it is technically and financially viable to do so and, subject to the safety case and regulatory approval. Following Parliamentary approval in July 2011, the Government brought in new arrangements for building infrastructure of critical national importance. The six energy-focused National Policy Statements, one of which is dedicated to nuclear, will ensure the planning system is rapid, predictable and accountable. We will also incorporate any lessons required from the report of HM Chief Inspector of Nuclear Installations Dr Mike Weightman (see Responsible nuclear below).

Climate change

• Find our more about our commitment to climate change

Harnessing the power of nuclear energy does not come without risks. That is why in the nuclear industry, and at Centrica, the health and safety of employees, communities and the environment is absolutely paramount.

Our 20% stake in British Energy, involves specific safety challenges at the existing nuclear power stations. While we do not operate any of the nuclear facilities, we have a responsibility as a minority shareholder and as a member of the board of British Energy Group plc to monitor and oversee safety performance. EDF Energy has a strong safety record and for more detailed information on the health and safety performance of the existing fleet of nuclear power stations, please see www.edfenergy.com/sustainability.

The earthquake and Tsunami in Japan was a terrible human tragedy and the subsequent nuclear disaster at Fukushima, in March 2011, was a significant test of the industry’s ability to deal with a crisis; a reminder that we can never be complacent about health, safety and the environment.

Following these events HM Chief Inspector of Nuclear Installations Dr Mike Weightman was asked to produce a report on the UK nuclear industry. In September 2011, the UK Government published his report which is positive for the UK nuclear industry, giving a clear endorsement of the safety culture and current performance. We have pledged, with our partner EDF Energy to proactively implement the 26 recommendations in Dr Weightman's report.

In June 2011, Ipsos Mori published a Nuclear Response, an update on GB attitudes to nuclear energy in the wake of Fukushima incident. One of the key findings was that while globally only 31% of people support continuation of nuclear builds, this number is significantly higher in Great Britain at 43% with widespread acceptance that the country needs nuclear energy for the future.

Safety

The radioactivity associated with nuclear power generation introduces additional risks relative to conventional sources of power generation. Radiation is emitted and radioactive waste is produced during power generation which must be contained and handled in a safe way.

The UK's civil nuclear programme has an outstanding safety record with a high degree of public transparency. To ensure the safety of nuclear power facilities, the nuclear industry is heavily regulated both at the design and operations stages with legislation governing safety and security. Plant operators must implement a number of procedures to ensure legislative requirements are met and to successfully secure and maintain a licence to operate.

Each power station is governed by a Nuclear Site Licence, which is issued under the Nuclear Installations Act. The Nuclear Installations Act is enforced by the Office of Nuclear Regulation, which is in turn part of the Health and Safety Executive (HSE). The ONR monitors compliance of nuclear power stations and has the power to shut down a plant.

For more information on the safe operation of nuclear power plants, please visit the HSE Nuclear Directorate.

Safety – after Fukushima

Nuclear reactors are built with redundant safety systems to help prevent the spread of radioactivity when a cataclysmic event occurs. However, the events at Fukushima have shown that some catastrophes can overwhelm even this meticulous planning. This has understandably raised questions about the safety of reactors and of nuclear technology in general.

We recognise with our partner EDF Energy that we have a huge responsibility as operators of high hazard energy infrastructure to ensure their safe operation. In the design, construction and operation of nuclear and other facilities, safety must be at the forefront of our minds, to ensure our plant are robust to even the most extreme natural disasters and that our operations personnel are ready to take control in the event of a disaster. All existing nuclear fleet and the new build plants we plan to construct with EDF are designed to withstand an earthquake and all the plants are protected against credible storm surge and tsunami events for the UK¹.

After the accident, and in parallel to the UK regulator's review and report, the EU called for a programme of 'Stress Tests' across the member countries with each nuclear operator submitting details of its safety assessments to its nuclear regulators. Centrica's nuclear partner, EDF Energy conducted stress tests at all eight operating stations and the full reports are available to read on their website.

The reality is that earthquakes on the scale of what happened in Japan are not possible in the UK. The largest earthquake in the UK that can be calculated or reliably estimated occurred in 1931 and measured 6.1 on the Richter scale. The energy from this UK earthquake (that was 130,000 times smaller than the earthquake which hit Fukushima in Japan), caused minor damage along the east coast of England to chimneys and roofs. Despite this, there will be much the nuclear industry can learn from the events in Japan. We are committed to ensuring that lessons learnt from this tragedy are applied to UK nuclear power stations.

¹ Even if they were hit by the worst storm, tsunami or flood that could be expected in 10,000 years, our plants would be safe. The levels are different for each plant because of the range of geographical conditions at each. For Sizewell, as an example, the worst case scenario for a high tide and tsunami combining is 5.9m. The worst case storm event at high tide is waves reaching 7.6m. The station is designed to withstand a wave of 10m. We have applied similar standards to all the sites, reflecting the local conditions.

Security

The impact of a radiation breach or theft of nuclear fuel is potentially so great that securing the UK's nuclear sites is very important. Nuclear power plants must be protected against acts of terrorism, severe weather and criminal offences.

The Office for Civil Nuclear Security (OCNS) is the security regulator of the civil nuclear industry and is part of the Office of Nuclear Regulation, (ONR). The OCNS monitors and enforces compliance of security at nuclear power plants and reviews applications to sensitive nuclear material or information. A dedicated armed force called the Civil Nuclear Constabulary protects nuclear power stations. The ONR also oversees the transportation of nuclear materials.

The Nuclear Industries Security Regulations (NISR) 2003 governs the security requirements for civil nuclear operators. The NISR requires operators to put detailed security plans in place, which include protection of sites, nuclear materials and sensitive information, as well as arrangements for physical protections such as fencing, CCTV, access controls, intruder alarms and roles of security guards and the Civil Nuclear Constabulary.

For more information on security in the nuclear industry, please visit the Office for Civil Nuclear Security.

Environment

Nuclear power benefits the environment by generating large amounts of power without emitting greenhouse gases that contribute to climate change. Nuclear fission does produce radioactive nuclear waste that must be carefully managed to ensure safe containment. However, unlike carbon emissions, this waste can be contained and controlled.

Nuclear waste is classified in three ways depending on the concentration of radioactivity: low, intermediate and high. Spent fuel is also an output from nuclear generation.

Low level waste is lightly contaminated waste such as paper, cloth, nuts and bolts, and old components and equipment. Low level waste makes up approximately 90% of nuclear waste. Intermediate level waste includes resins from treatment of radioactive liquids, shielding or other containment materials. It is a higher level of radioactivity and is therefore encased in cement inside steel drums and stored securely on site pending a long-term disposal solution. High level waste comes from reprocessing spent nuclear fuel at Sellafield. It is not produced at British Energy stations and represents only 0.1% of waste produced by volume and accounts for 95% of the radioactivity from waste.

Each level of waste is treated and disposed of as required by regulation. Low level waste is disposed of at Low Level Waste Repository facility in Drigg, Cumbria, while intermediate level waste is often housed onsite pending permanent disposal in a Geological Disposal Facility (GDF). High level waste is not produced by civil nuclear reactors.

How nuclear works

Nuclear energy is already an important component of the UK's energy portfolio.

Nuclear power is low carbon, affordable, dependable, safe and capable of increasing diversity of energy supply. The current nuclear power stations already provide the UK with a steady baseload power supply and new nuclear power stations would not only continue to do this but help the UK address the twin challenges of climate change and security of energy supply¹.

The Government's Annual Energy Statement to Parliament in July 2010 confirmed nuclear would play an important role alongside renewable energy in the future energy mix.

¹ Source: http://www.decc.gov.uk/en/content/cms/meeting_energy/nuclear/new/new.aspx

UK nuclear power plant sites

The UK has 19 operating reactors at 10 sites – EDF Energy owns 15 of the reactors at eight sites. The UK's reactors generate one-fifth of the country's electricity.

The scheduled accounting lifetime closure dates for each station are as follows:

• Hartlepool – 2019 (extended by five years to 2019 in 2010)
• Heysham 1 – 2019 (extended by five years to 2019 in 2010)
• Hinkley Point B – 2016 (extended by seven years to 2023 in 2012)
• Hunterston B – 2016 (extended by seven years to 2023 in 2012)
• Dungeness B – 2018
• Heysham 2 – 2023
• Torness – 2023
• Sizewell B – 2035

There is now an expectation of seven year life extensions to the existing AGR nuclear fleet, rather than the five years previously assumed. There is also an expectation of a 20 year life extension at Sizewell B. At Hartlepool and Heysham 1 five year extensions have already been announced.

Power generation

A nuclear power plant is a steam power plant fuelled by a radioactive element, such as uranium. The fuel is placed in a reactor and the individual atoms are allowed to split apart, a process known as fission, which releases a great amount of energy. This energy is used to heat water until it turns to steam. The reactions in a nuclear power plant release energy at a controlled rate enabling engineers to provide as much power as required.

From here, the mechanics of a steam power plant take over. The steam pushes on turbines, which turns a shaft connected to coils of wire, which then interacts with a magnetic field to generate an electric current.

New nuclear build

A typical nuclear power station takes about five years to build and according to the Department of Energy and Climate Change there are currently plans to build 16GW of new nuclear capacity in the UK at a cost of £40bn¹ (estimates can vary widely, depending on assumptions and what is included in the estimate).

We are currently undertaking pre-development activities with our joint venture partner EDF Energy with the intention of constructing, operating and decommissioning four European Pressurised Reactors (EPR) equal to 6.4GW of the current planned total of 16GW.

We have committed to fund the project pre-development costs up to a maximum of £200 million. Each new EPR will have a capacity of about 1,630MW, enough to supply 2m homes for up to 60 years¹.

The preferred location for our four new reactors in the UK is for two each adjacent to current nuclear sites at Hinkley Point, Somerset and Sizewell, Suffolk. Location alongside existing facilities minimises environmental and social impacts, for example by reducing the need for new transmission infrastructure.

Site investigation works have now been completed at Hinkley Point and planning permission for some preparatory works has been received. Key contracts have been put out to tender, including the main civil engineering works. Subject to the necessary approvals and the outcome of the Government's Electricity Market Reform consultation, a final investment decision is expected in 2012 for Hinkley Point.

The Weightman report is positive for the nuclear industry in maintaining trust in nuclear technology and we are reassured by the conclusion that nuclear power stations in the UK are safe and well protected, and that the need for new ones has not changed.

However, a number of key planning and consenting issues, consultations and environmental impact assessments remain. Whilst we welcome the recent publication of the Electricity Market Reform, and carbon floor for consultation, there remains a risk that the Electricity Market Reform will not deliver the required support to enable new build.

¹ Source http://www.decc.gov.uk/en/content/cms/meeting_energy/nuclear/nuclear.aspx

Decommissioning and waste management

Nuclear power plants produce radioactive waste that must be managed for very long periods of time. The UK government created the Nuclear Decommissioning Authority (NDA) to provide strategic focus on the handling of radioactive waste and carry out the decommissioning of nuclear power plants.

The NDA's work includes the development of a long term solution for storing radioactive waste in deep underground sites called geological disposal. For more information on geological disposal, please see the NDA's website.

The developers of new nuclear facilities will also be responsible for the cost of decommissioning such facilities and must set aside sufficient funds to cover waste disposal costs incurred by the government.

In March 2010, the Government published a Consultation on a methodology for determining a Fixed Unit Price for waste disposal and updated cost estimates for nuclear decommissioning, waste management and waste disposal.

The consultation document set out:

• Changes to the framework for setting a Fixed Unit Price as a result of feedback from stakeholders.
• The proposed methodology to determine a Fixed Unit Price.
• The Government's updated estimates of the costs for decommissioning, waste management and waste disposal.

Nuclear power across the world

As of February 2011, there were 440 operating nuclear power plants around the world and, together, they provided about 14% of the world's electricity².

A total of 30 countries use nuclear power. France has the highest percentage of its total electricity coming from nuclear power at about 74% from 58 reactors. Slovakia at just under 52% and Belgium at just over 51% are the next highest for percentage of their total electricity from nuclear generation. The United States has the most nuclear power plants at 104, which accounts for around 20% of their overall electricity generation³.

Reaction to the incident at Fukushima around the world has varied. France, Russia, Poland and others have reaffirmed their commitment to nuclear but by contrast, the German government has closed down its older nuclear power plants, replacing the output from these stations by running coal stations harder. Switzerland has recently announced that they will phase out nuclear power in the coming decades.

China, which gets about 2% of its electricity from nuclear power, has suspended approval for new nuclear plants pending a review. In Italy the Prime Minister had wanted to restart a nuclear programme abandoned in the 1980s but in a referendum in June 2011 a 57% turnout voted by more than 94% to oppose the government's plans to resume nuclear power generation.

The effects in Japan will be long lasting as 10 nuclear stations are currently closed and some will never come back on line.

² Source: http://www.world-nuclear.org/info/inf01.html
³ Source: http://www.world-nuclear.org/info/reactors.html