September 2002
Without aid, the renaissance is off
The Guardian, September 6, 2002
By David Gow and Terry MacalisterOriginal address: http://www.guardian.co.uk/nuclear/article/0,2763,787140,00.html
[Posted 06/09/2002]
Last night's dramatic plea from British Energy, the privatised nuclear power operator, for an immediate government cash bailout to prevent its insolvency is proof that Britain's entire atomic power industry is in deep crisis.
Coming after British Nuclear Fuel's losses of more than £2bn last year, the plea for hundreds of millions of taxpayers' money from BE underlines how far from reality the chairmen of both firms have been in hailing a nuclear renaissance.
There are at least six causes of BE's near-insolvency. First and above all, the wholesale price of electricity has fallen 40% in four years - 20% of which was in the last 18 months. The reasons are clear: there is 30% over-capacity in the generation market, well above the 20% needed to keep the lights on in a national emergency. Other power firms have mothballed or switched off plants; BE cannot, because its eight modern stations need to be working constantly for safety reasons.
Prices have also fallen because new electricity trading arrangements, known as Neta and introduced in March last year, have brought much needed flexibility into the market. BE, which provides baseload power it has to sell whatever the demand, has benefited not a jot.
On the contrary: to make any money it needs prices to be well above the present £16 per megawatt-hour when its own target costs are £16.50. Last year its UK nuclear operations lost £41m, but the losses this year are bound to be substantially higher - and analysts insist that prices will remain low or be forced even lower for several years ahead.
The result is that BE, which exacerbated its problems by overpaying for the Eggborough coal-fired power station and selling its retail business, leaving it unable to offset generating losses, is unable to meet its medium to long term liabilities of £14bn - decommissioning reactors as they are gradually closed between now and 2030.
This basic trading problem has been exaggerated by four other problems. BE has been unable to persuade ministers, let alone Ofgem, to reform trading arrangements in its favour. Moreover, it has had to shut down four of its 15 reactors this year, leaving its output short of target and costing up to £250,000 a day. Robin Jeffrey, BE's chairman and a nuclear veteran, has been trying for more than two years to persuade BNFL to renegotiate the terms of its reprocessing contract under which Sellafield takes BE's radioactive waste.
This costs BE £300m a year in cash and is index-linked; north American-style arrangements would save it £200m. BE has also failed to get a deal with BNFL over taking over the daily operation and management of some, if not all, of BNFL's six Magnox power stations.
Mr Jeffrey, a proponent of the case that nuclear is the greenest power as it emits no greenhouse gases, has also been negotiating unsuccessfully with ministers to exempt it from the climate change levy. This costs it £80m a year.
Finally, BE insists it should pay the same level of business rates on its plants as those applied to gas and coal fired stations. At present it pays about £20m a year more.
But the basic problem is that BE's costs, despite years of cuts, are uneconomic, and will remain so without state aid.
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