Nuclear power is currently an important part of the UK energy mix, representing around 16% of our electricity generation. However, around half of the UK's existing nuclear power stations are due to be decommissioned by 2025. As the UK grapples with how to disentangle itself from dependence on Russian gas, the question of how this gap will be filled is becoming increasingly pressing.
Against this backdrop, on 7 April Government announced the British Energy Security Strategy (the "Strategy") and the development of a Future System Operator ("FSO") has also been announced. The Strategy deals with how the development of oil and gas, renewables, nuclear and hydrogen will increase energy security in the UK while focusing on green targets. The FSO will ensure that the energy system is operated in such a way that pressure on the system is managed.
In particular, the renewed focus on nuclear power is an interesting development as it has the potential to address issues of energy security as well as wider economic concerns. This is particularly so given that nuclear power is a route to decarbonisation, energy security and job creation. Indeed, it is very difficult to see how the UK could achieve net zero without nuclear being a critical part of the mix. Building up to 15 GW by 2035 would save 31 million tonnes of carbon emissions per year compared to gas generation.
As well as this, nuclear power has the potential to fuel the UK jobs market, with Sizewell C estimating that the project would support 70,000 jobs across the UK over construction, as well as jobs in long-term operation and supply chain. In the same vein, Rolls Royce estimates the small modular reactor ("SMR") programme would generate about 6,000 jobs in the next five years, and 40,000 over the next 15, which will involve long-term jobs in manufacturing as well as operation. These jobs would be spread across the UK, with a large proportion of manufacturing taking place outside of London and the South East. Here, we consider what the announcement of the Strategy and the FSO means for nuclear and energy security, and whether it goes far enough to ensure that nuclear power is a commercial proposition for future investors.
Role of nuclear in the Strategy
The paper outlines a number of ways in which the development of new nuclear will be encouraged in the coming years. In particular, the aim is for nuclear to represent up to 25% of the UK's projected energy needs in 2050 (corresponding to up to 24GW of generation capacity). This ambitious target is to be achieved through the following initiatives:
- Two new nuclear projects (including SMRs) will be brought to final investment decision in the next Parliament, building on the previous ambition of one in this Parliament.
- There is also a more general ambition to improve Government's "track record" by delivering the equivalent of one nuclear reactor per year.
- The Strategy also reiterates the Government's £2 billion investment in nuclear which was announced in the Prime Minister's Ten Point Plan, including £100 million to support the development of Sizewell C, and £210 million to bring through SMRs.
In order to deliver this, the Strategy outlines the following schemes:
- As announced in the Comprehensive Spending Review, the £120 million Future Nuclear Enabling Fund will be launched, which is designed to remove barriers to entry to enable the financing and construction of new nuclear projects. Further details on how this fund will be operated are due to be published this year, along with a roadmap for deployment.
- A new body will be set up to oversee the development and construction of new projects known as the 'Great British Nuclear' vehicle. The Strategy states that the Government will "work with industry" to determine the precise scope of this body, but its role may include the selection of sites, oversight and assistance with the planning process and bringing private companies together to run the sites.
- In 2011, a number of National Policy Statements ("NPSs") were designated to deal with nationally important infrastructure. One such NPS dealt with nuclear, and has designated eight sites which are considered suitable for nuclear power. The Strategy states that there will be an "overall siting strategy for the long-term", pointing to the potential for these existing sites to be reconsidered or for further sites to be included in the list.
- The Strategy states that Government will work with regulators to identify any duplication or streamlining potential in the consenting and licensing process of new nuclear power stations, without compromising on their safety, including on the "harmonisation of international regulation".
- Finally, there is an ambition to collaborate with other countries to accelerate work on advanced nuclear technologies, including both SMRs and Advanced Modular Reactors.
Future System Operator
In addition to the Strategy, the Government, alongside Ofgem, has also announced the creation of a new FSO to oversee the UK’s energy system and manage system pressures brought about by decarbonisation. The FSO will require primary legislation and once this has been passed, it will serve to review the UK’s energy system and integrate existing networks with emerging technologies, such as low-carbon hydrogen, carbon capture and storage, and offshore wind networks.
The FSO will be a public corporation but with operational independence from Government, and will be founded on the existing capabilities of the Electricity System Operator ("ESO"), and, where appropriate, National Grid Gas ("NGG"). It will work with energy suppliers and networks to balance the UK’s electricity systems and will provide strategic oversight of the UK gas system by taking on longer-term planning in respect of gas (but not real-time operation, which will remain with NGG). The FSO will play a role in shaping the energy system and facilitating competition, overseeing new projects and integrating them with existing energy supplies, and in doing so will have a duty to facilitate net zero ambitions.
This collaborative, system-level approach may serve to assuage concerns of distribution network operators ("DNOs"), which are keen to see the approval of new investments in the gas grid, as Ofgem has been reluctant to endorse approvals in the past.
Ofgem will undertake a new strategic function to oversee energy companies’ governance codes, ensuring that that the detailed technical and commercial rules which guide energy providers keep pace with the UK’s net zero ambitions and consumers’ needs.
Potential for future policy
There are a number of points set out in the Strategy which need to be developed further, and there will be future consultations and policies to deal with these points. For now, the Government has clearly stated its intention to invest in both large-scale and smaller nuclear power.
However, the financing models which are emerging to enable nuclear projects to get off the ground will involve an element of private investment too. For example, the Nuclear Energy (Financing) Act 2022 makes legislative provision for the use of the regulated asset base ("RAB") model in new nuclear, a model which requires a level of private investment as well as Government funding. To ensure that financial models such as this are a success, there is an argument for the Government to go even further than what was announced last week to ensure that nuclear is a commercial and investable proposition to private institutions. For example, this could be achieved through the inclusion of nuclear in the UK green taxonomy, or its inclusion in green bonds and issues around nuclear insurance.
In addition, the following steps could be taken to ensure the success of nuclear projects in the future:
- Making land, including Nuclear Decommissioning Authority ("NDA") land, available for project development.
- Granting pre-development funding to the Westinghouse-Bechtel project.
- Providing enabling policy support on siting, planning, insurance and licensing for advanced reactors.