Unclear power

The future of nuclear power in the UK is a contentious issue and the recent Energy Review has done little to clarify things for lawyers, says Paul Ryan


Over the past two years or so there has been a lot of talk about whether, and how, the UK would embark on a new round of nuclear power station building. Lawyers have been readying themselves to play their part. It was expected that the Government’s Energy Review would signal a policy to build new nuclear power stations in the UK, and in a sense the review published in early July has met expectations.

However, it is also clear that the Government is inclined to do less to bring about new nuclear power stations than many in the industry would like, leaving more legal and regulatory issues to be resolved than perhaps might have been hoped.

In many ways the review (both for nuclear and more generally) is not so much a set of conclusions as a framework to allow further conclusions to be reached and actions taken.

At the other end of the lifespan of nuclear plants, the Nuclear Decommissioning Authority (NDA) took over responsibility for the cleaning and decommissioning of all the British Nuclear Fuels (BNFL) and UK Atomic Energy Authority (UKAEA) sites in 2005 and is now nearing completion of its work.

For lawyers working on nuclear electricity, what happens next?

Planning

The Barker Review, also published in early July, deals with general planning issues, principally in the context of housing need. It does deal with some wider development issues, but the detail of planning change that might affect new nuclear power stations is in the Energy Review.

The Government is consulting on proposals relating to public inquiries for major infrastructure, including all large power stations. The thrust of the proposals is that strategic or national policy issues and matters subject to regulatory oversight (such as safety) will be presumed to have been dealt with elsewhere, leaving only local issues to be dealt with in the context of relevant local plans.

The Government would issue a Statement of Need, saying that the UK needs nuclear power, and the Health and Safety Executive (HSE) and the Environment Agency would issue nuclear site licences separately and discharge consents on the basis of processes involving public consultation. Additionally, the process of justification, arising under the Basic Safety Directives, will be used as a forum for public consultation on the adoption of new nuclear practices, including new types of power station.

Once legislative proposals come forward, lawyers and clients will be interested to understand exactly where the lines between different types of consideration have been drawn. Industry participants in many sectors, including new nuclear, will be keen to see new streamlined planning processes in legislation being used as quickly as possible. Equally, those less committed to nuclear generation will be waiting to understand whether public inquiries will, in fact, no longer be a useful forum for them.

Should they move their focus to seeking a judicial review of some of the decisions leading up to the new type of inquiries, the formulation of national policy and consideration of safety issues? It could be said that the Government’s track record so far in streamlining the decision-making process in planning means that the outcome cannot be judged now.

Regulatory

Nuclear safety is regulated by the Nuclear Directorate within the HSE, which has committed itself to moving to type approvals of reactor designs, as happens elsewhere in the world. Its current proposals were set out in its expert submission to the Energy Review and the Government has asked it to have them ready to use next year.

The details of these approval processes and their precise relationship to other permitting processes will be scrutinised keenly. The HSE may find that the energy and commitment that led to the very long enquiry for Sizewell B is focused on its process with the attendant requirement to have resource in place to receive and consider all submissions.

Alongside the HSE, the Environment Agency and the Scottish Environmental Protection Agency are responsible for granting discharge consents to air and water. For lawyers, the increased emphasis on regulatory approvals to deal with public interest issues can be expected to lead to greater client focus on what has perhaps been a relatively low-key area up to now.

Carbon pricing

Part of what makes nuclear generation attractive is that it is a low-carbon method of generation. It should therefore be possible for it to be competitive with higher-carbon technologies that bear a cost for their emissions. Something the Government has committed to in the Energy Review is to work with the UK’s European partners to develop the Emissions Trading Scheme, and any successor, so as to provide a transparent, predictable and long-term mechanism for carbon pricing that gives nuclear a fair chance.

Given that carbon pricing is very much in the thinking both of the current Government and the opposition, nuclear market participants and their funders will be keen to understand how fair long-term carbon pricing will be ensured, in light of the point stressed by the review that the current regime is a European one that the UK does not control, and as a means of implementing Kyoto it has a global dimension too.

Investors may be reluctant to commit to projects with a 20 to 30-year paybacks and high fixed costs without appropriate certainty that the economics of the project will remain stable enough over that timeframe. In any event, it looks as though certainty as to the actual mechanisms is some way off and there have been no carbon contracts or contracts for differences to give the necessary price certainty. Depending on the appetite for new nuclear, the public sector may consider, or be asked to consider, some form of soft commitment to the existence of a satisfactory regime in due course.

Sponsors and funders will no doubt continue their work on adapting models from elsewhere for the financing of new nuclear building to the UK environment, and perhaps their assumptions will be slightly firmer following the review. Linked to this is the high-profile question of waste management: what mechanism will be used to fund future waste management? (There is a hint of a running levy in one of the annexes to the review.) Where will risk lie? How, in fact, will any fund accumulate? These are all important questions on the legal aspect.

NDA competitions

The NDA has kicked off its programme of site competition with the low-level waste repository at Drigg, near Sellafield. Bidders will be looking to their lawyers to help them understand a new area and the regulatory and contractual environment that NDA sites operate in. The NDA’s current model is most analogous to railway franchising among established markets.

The Energy Review makes clear that existing sites, including some of those for which the NDA is responsible, would at least be candidates for new-generation nuclear power. There will be keen interest in how the NDA’s clear mission to decommission and clean up may be married with the idea of new nuclear on NDA sites.

All in all, the legal landscape for new nuclear remains much as it was before the Energy Review, with the prospect of further change ahead. Specific legal developments will emerge over the coming months and preparation by market participants and their lawyers will begin in earnest as the landscape becomes clearer.