Third quarter of 2002
Reprocessing burden too heavy for British Energy, faced with insolvency
Labour MPs’ supported SERA urges the Government for stopping BNFL contractsWISE-Paris, 6 August 2002
[Posted 06/09/2002]
Bad time for the British nuclear industry. After the new Japanese scandal on falsified safety reports which could become a major blow for British Nuclear Fuel (BNFL) MOX industry (1), the Government has now to find a way to save British Energy (BE) from bankruptcy. The company that was privatized in 1996 saw its share price halve in August 2002, and its shares were suspended on 5 September after it warned of imminent insolvency.
In a press release of 5 September 2002, BE Executive Chairman Robin Jeffrey points out: «having reviewed the longer term prospects for the business, the Board has concluded that we had no alternative other than to seek Government support.» Hence BE announces that «it has initiated discussions with the UK Government with a view to seeking immediate financial support and to enable a longer term restructuring to take place.» (2) And warns that «if these discussions are not successful, the company may be unable to meet its financial obligations (…) and may have to take appropriate insolvency proceedings.»
British Energy, which generates more than 20% of the country’s electricity, is Britain’s biggest nuclear generator. It operates 15 reactors, totalling 10 GWe of gross capacity. As is stated on its website, «British Energy’s core business is nuclear generation.» Once an economic advantage when fossil fuel prices were high and fluctuant, high fixed costs bound to nuclear reactors operation have turn into a burden that weighs heavily on the company’s financial results.
Following the opening of the electricity market to competition, prices have fallen from over 3p per kWh three years ago to less than 2p. According to a Daily Telegraph report, «British Energy is losing 0.4p on every kWh it generates.» (3)
Most analysts point BE’s waste management is first to blame. The company is legally bound to reprocessing contracts signed with BNFL before privatization. The heavy cost that BE has to pay BNFL for the reprocessing of its nuclear fuel – an index-linked fee currently £300 million a year – has for years been identified as one of the main expenditures that put a strain on the power company’s budget. BE has started in May 2002 commercial negociations with BNFL, and the Government pushed for BNFL to accept a cut of one third, or £100 million, in the annual price. (4) BE’s press release of 5 September 2002 reveals that BNFL delivered the day before «its formal proposals to BE and the terms offered by BNFL fell short of those which BE requires.»
The next step could be as simple as to stop the reprocessing contracts. If Tony Blair’s Government is not prepared to consider this as an option to adjust BE’s finances, some voices raise in the Labour Party to support such a move.
In a letter to Patricia Hewitt, dated 3 September 2002 (5), the Secretary of State to the Trade and Industry, the Socialist Environment and Resources Association (SERA) (find the letter hereunder) which claims support from more than 100 Labour Members of Parliament, urges the Government to «allow BE to be released from the costs associated with the unnecessary chemical reprocessing of its spent nuclear fuel». According to SERA, stepping out of reprocessing would save BE operating costs by £200 to £250 million per year. This would correspond to approximately 10% of the company’s annual revenue.
Moreover, SERA claims the move would «reduce the detrimental impacts of reprocessing generally». Separated plutonium extracted from the annually discharged spent fuel of the six Advanced Gas-cooled Reactors (AGR) sites (for 14 reactors) of BE finds no future use. The British stock of separated plutonium continues to grow every year (6) while it is not re-used in the fabrication MOX fuel, since this option has already been ruled out by BE on economical grounds (7). Spent fuel of BE Sizewell-B Pressurized Water Reactor (PWR) which started industrial operation in October 1995, is already put into dry storage, and SERA is asking for older AGR stations to turn to dry storage too.
- See WISE-Paris Others’ News, «New nuclear scandal in Japan threatens viability of Sellafield», Independent, 31 August, 2002, http://www.wise-paris.org/english/othersnews/year_2002/othersnews020902.html
- British Energy, «Discussions with Government, Statement Regarding Financial Position», Press release, 5 September, 2002, http://www.british-energy.com/media/press/items/item131.html
- Daily Telegraph, «Labour’s deep fear of pressing the nuclear button», 31 August 2002
- The Observer, «Ministers push for £100m BE line», 1 September 2002
- See WISE-Paris Others’ News, «Call to aid generator by ending nuclear contracts», Financial Times, September 4, 2002
http://www.wise-paris.org/english/othersnews/year_2002/othersnews020906a.html- See WISE-Paris Our News, “UK civilian plutonium stockpile still on the uphill”, 27 August 2002,
http://www.wise-paris.org/english/ournews/year_2002/ournews020828.html- See WISE-Paris Others’ News, «British Energy to End Reprocessing at Sellafield», 12 November 2001,
http://www.wise-paris.org/english/othersnews/year_2001/othersnews011112.html
3 September 2002Secretary of State Rt Hon Patricia Hewitt MP
Department for Trade & Industry
1 Victoria Street
LONDON SW1H 0ET
By fax and post.
Dear Secretary of State,
BRITISH ENERGY RESCUE PLANS
The recent reporting of the Government's contingency measures to assist British Energy (BE) has so far failed to explore or understand properly two important options that SERA believes should be considered by Ministers before any decisions are taken. These are the issue of reprocessing versus storage of spent nuclear fuel and the adequacy of the segregated decommissioning fund.
On the first issue, SERA urges you to allow BE to be released from the costs associated with the unnecessary chemical reprocessing of its spent nuclear fuel (by BNFL at Sellafield) and that the used fuel rods are instead put into dry storage. To do so would reduce the company's operating costs by approximately £200-£250 million per year. This sum is approximately 10% of its annual revenue. Such a move would clearly make a substantial difference in its current financial results and reduce the detrimental impacts of reprocessing generally.
Spent fuel from BE's newest plant, the PWR at Sizewell B, has already been successfully put into dry storage since the plant started operating in 1995. From a technical and operational point of view, the reprocessing of spent fuel rods from BE's seven AGR type stations is entirely unnecessary. Moreover, from an environmental point of view, there would be lower environmental discharges and lower arisings of difficult and dangerous wastes, including plutonium, to be dealt with further down the line.
British Energy itself has called for the dry storage option to be adopted. However, BNFL at Sellafield has so far refused to agree any substantial change to the existing contractual arrangements. SERA calls on your Department, as the sole and therefore controlling shareholder in BNFL, to order the company's management to urgently renegotiate these contracts in order that the dry storage option replaces reprocessing as soon as possible.
In 1997, SERA has produced a report on financial and environment benefits of dry storage over reprocessing. I enclose two copies with the mailed version of this letter for your information. Secondly, SERA believes there is a pressing need to review the adequacy of provisions for all future BE liabilities, including the segregated liabilities fund intended to cover decommissioning costs of reactors after they close. There remains significant doubt that the fund will have sufficient resources to fulfil its task, in part (but not entirely) due to the recent falls in financial markets. There also remains concern that not all categories of BE liabilities, for example the management of plutonium residues, will be covered by the fund and that substantial additional sums will be required, falling to either the company or the taxpayer.
However, there may be an opportunity by considering the two issues covered in this letter together. It is possible, following the rearrangement of spent fuel management, that the significant savings from the end of reprocessing would create the opportunity to order an increase in allocations that are required to be made into the segregated fund. This option needs to be explored fully in order to protect taxpayers from the possible need for additional financial support in the future.
Thank you for considering these important matters.
Yours sincerely,Bill Eyres
Chair, SERA Executive Committee
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