Industrial Strategy The Nuclear Sector Deal

Transcription

1 Industrial Strategy The Nuclear Sector Deal

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3 01. Introduction The Industrial Strategy green paper refers to the creation of a Nuclear Sector Deal as one of four potential sector deals and calls upon the nuclear industry to propose potential structures for the Nuclear Sector Deal (referred to hereafter as NSD). This paper briefly presents our view as to what should be the objectives of the NSD and some of the key mechanisms to achieve those objectives. We believe that the NSD must be truly transformational, arresting the decline of the UK s civil nuclear capability and putting the industry on a trajectory to be a world leading nuclear power provider. Whilst the UK has pockets of excellence on which to build and has some high performing growth companies in nuclear we are certain that a strategy of incumbency attempting to address many issues across the sector will have little impact. A New Entrant mentality is required and we argue below that this will be best developed by focussing on a pathfinder approach to meet a clear performance challenge. The UK should strive to once again be a Top Table Nuclear Player. 02. Unifying Vision Our initial premise includes: That current government policy and objectives remain broadly as set out in the Nuclear Industrial Strategy published by government in That the recommendations of the NIRAB final report published this year are broadly accepted by government. The Nuclear Industrial Strategy was an extremely wide ranging view setting out many desired outcomes which, if converted into a project plan would include hundreds if not thousands of deliverables and milestones. The NIRAB report also demonstrates what a complex network of nuclear capabilities exists in the UK and the difficulty of co-ordinating this research. It is also clear that currently no mechanism exists to ensure that we capture the potential economic gains from this research through successful deployment of nuclear technology both domestically and in export markets. The measures and objectives set out in the above documents are often summarised in the belief that the UK should strive to once again be a Top Table Nuclear Player. We acknowledge that there are eminent scientists who believe that the emergence of effective energy storage, combined with renewables and smart grid system optimisation may render nuclear generation unnecessary at some time in the future. However, we also recognise that it is too early to depend on such developments and it is prudent to maintain a nuclear capability focussed on the delivery of more affordable and economically competitive nuclear power. The NSD should we believe be based on the premise that new nuclear generation will form a significant proportion of our national generating capacity as we move to a low carbon economy beyond 2030 and that, based on successful domestic performance, the UK nuclear industry will be a leading exporter of nuclear technology and services. Industrial Strategy - The Nuclear Sector Deal 3

4 03. Nuclear Industry Status The nuclear industry in western economies has very significant performance challenges. These are most graphically demonstrated by the recent Chapter 11 filing by Westinghouse and the effective bankruptcy of Areva; both brought about by performance issues on delivery of new GW class reactors (the AP1000 and the EPR). The challenges of decommissioning past projects are also proving to be greater than anticipated as greater clarity on the extent of work required is gained. Consequently, the nuclear industry needs a restart if it is to regain the trust and confidence of its stakeholders and contribute fully to a decarbonised energy future. In the UK the industry experienced a period of decline after the 1980s. Of the three state monopolies that dominated nuclear (CEGB, BNFL and UKAEA) two are gone and UKAEA has been radically downsized and narrowly refocussed on fusion technology. Until recently there was a period of greatly reduced recruitment leading to the widely-held belief that the industry faced a skills crisis, still today the industry constantly anguishes over skills. Atkins has not been limited by a perceived skills crisis and has aggressively developed its nuclear business. The graphs below show the growth of Atkins nuclear business and the current demographic (UK only). It is a growing business with a young workforce engaged across the civil nuclear sector in the UK and overseas supporting projects in new build, decommissioning, waste management, fusion research and in the UK defence sector. Approx number of UK staff in Atkins with nuclear skills Approx no. of staff in UK with Nuclear skills 4 Industrial Strategy - The Nuclear Sector Deal

5 Approx number of UK staff per age band with nuclear skills (March 2017) Under upwards Approx number of staff per age band with Nuclear skills Atkins believes that the performance of the industry (across all sectors) can be improved by relentless performance management and challenge. However, we also recognise that there is a limit as to the pace and extent of change that can be achieved in large conservative incumbent organisations in a highly regulated environment. Step change to make a breakthrough reduction in the cost of power delivered will not come through continued efforts to deliver existing technology in ever larger units and exhorting the incumbents to try harder. Major cost breakthrough can only come through technological innovation such as SMR and advanced reactors delivered by new entrants. In the long term nuclear fusion remains a hoped for breakthrough and the UK s global leading leading role through UKAEA should also form a part of the nuclear NSD. Industrial Strategy - The Nuclear Sector Deal 5

6 04. Realising our strengths The UK has many nuclear capabilities including pockets that are truly world class such as UKAEA in fusion research and aspects of NNL s fuel cycle capabilities. However, we lack a civil nuclear reactor design capability. Without a civil reactor design, there is no single recognisable UK Product that would lead in the global export market. Also for our future domestic needs the UK will remain a buyer of overseas technology. The NSD must address this fundamental deficiency. 05. The Proposed Nuclear Sector Deal We note particularly the three challenges set out in Greg Clark s introductory comments to the Green paper: 1. Build on our strengths and extend excellence into the future. UK has great nuclear capability but it has been in decline. Nonetheless we are one of very few countries with a 60+ year history of nuclear power and we have had experience of most types of reactor under consideration but we need to focus forward, not backward. 2. Close the gap between best performing companies, industries, places and people and those which are less productive. The Nuclear industry is simply too slow to change in today s world and as a sector appears to accept institutionalised low productivity. To turn around the sector s productivity will require a focussed pathfinder that draws on and impacts many of the incumbents and the supply chain. 3. Make the UK one of the most competitive places in the world to start and grow a business. We note particularly the comments: A fatal flaw of 1970s style industrial strategies was the dominant focus on existing industries and the companies in them and then often the biggest firms. Too often they became strategies of incumbency, also industrial strategy must be about creating the right conditions for new and growing enterprise to thrive, not protecting the position of incumbents. Responding to these challenges we believe that a transformational NSD must achieve the following: A. Investment channelled into UK ideas and products that differentiate the UK s position in the global market; B. Create the right financial frameworks to progress R&D concepts into commercial products and projects that are competitive globally; C. Integrate the fragmented nuclear industry and create of a focal point to facilitate co-ordination of currently dispersed capabilities (success would need a clear objective and delivery focus and it would need to challenge current nuclear sector working practices); D. Bring innovation and crossindustry experience into an industry that is traditionally slow to adopt improvements that can help on competitiveness, safety and performance; E. A sustainable skills base that industry develops as part of normal business and is globally competitive. We believe that successful delivery of these goals will best be achieved by setting a clear Imperative Target. Recognising particularly Greg Clark s third challenge and the inherent conservatism of the nuclear industry, we believe that it is essential to create a New Entrant mentality to drive forward progress to the target. 6 Industrial Strategy - The Nuclear Sector Deal

7 5.1 The Imperative Target We propose that the central feature of the NSD should be a challenge to deploy a first of a kind reactor in the UK meeting the challenge criteria: 60x30x2 This challenge (think of it as the modern day Longitude Challenge) expressed as 60x30x2 has the meaning: An LCOE of less than 60/MWhr (this number to be based on an assessment of international competitiveness). We believe 60 is an absolute upper limit at this time. FOAK plant operating by end of 2030 later than this and the private sector will not step up. Overnight capital cost of less than 2bn. Based on the maximum project size that utilities are willing and able to finance on their balance sheets. We have proposed this challenge as a way of taking forward the Small Modular Reactor (SMR) initiative, which was announced in the 2015 Autumn Statement but has since made slow progress. We do not suggest here that government should get into selecting a technology or picking a winner, rather that the challenge would be open to all technologies, including advanced reactors and that the process of selection of technology should be a well-structured approach driven primarily by the industrial partners who will be expected to invest and take forward the project. Addressing this challenge will give focus to research efforts and create a rallying cry with which industry, stakeholders and new entrants can identify. 5.2 The New Entrant UK Reactor Limited Barriers to entry in nuclear are very high, therefore to expect a true New Entrant to be able to lead such a challenge is unrealistic. However, we believe that it would be possible to create a New Entrant based on a partnership between government and industry that would be the central pillar of the NSD. We therefore propose the creation of a new entity, for now we will refer to it as UK Reactor Limited (UKRL). The mission of UKRL will be to meet the 60x30x2 challenge. UKRL would initially be set up by government as the principal implementation vehicle for the NSD. It would be lead by a Chairman who is independent of the nuclear industry. We believe that the creation of the Francis Crick Institute (including the critical role of Sir David Cooksey) may provide some precedent for the creation of UKRL. Administratively UKRL could initially be established as a wholly owned subsidiary of UKAEA or NNL as a temporary measure to launch it quickly. We believe both UKAEA and NNL must be involved in UKRL as both have relevant skills and provide channels through which government could invest. However, we stress that UKRL must not be viewed as or become a research activity. It must quickly progress to an industry driven product and project development activity. Immediately on appointment of the Chair, government would seek partner investors in UKRL from UK nuclear sector companies. The funding model would initially be a 50/50 model in which government would hold 50% and industrial partners (not more than three) would hold the other 50%. UKRL must challenge the UK nuclear industry, drawing on its dispersed expertise and leading the renaissance of the UK s civil reactor capability working very closely with the supply chain. Its Board and senior management must be selected to combine knowledge of the UK s capabilities (through the industrial partners Board members) and bring knowledge of other successful sectors such as aviation, automotive and finance. Again, in establishing this Board, the principle of being forward looking must prevail. Industrial Strategy - The Nuclear Sector Deal 7

8 05. The Proposed Nuclear Sector Deal (cont) UKRL will be the focal point for discussions with technology providers and should rapidly progress a process of selection based on the assessed ability of different technologies to meet the 60x30x2 target and on the nature of the deal that can be reached to acquire access to technology / IP and the overseas market sharing potential. Within three years of its creation UKRL should be engaged in design of its reactor (almost certainly in partnership with an overseas technology developer) and developing plans for deployment of the FOAK plant in UK. This will include full engagement of the UK supply chain to ensure the designs maximise potential UK content. Government would assure UKRL of the availability of a GDA slot at a time supporting the development schedule and government would also work jointly with UKRL to identify the site for the FOAK plant most likely at a nuclear site currently controlled by government (or perhaps creating a centre of forward looking nuclear excellence in Cumbria if parts of the Moorside site become available). We would suggest that part of the NSD would be government support for the ONR to be engaged early in reviews of design development supporting a more interactive role between ONR and UKRL. 5.3 Funding of UKRL The UKRL mission can be viewed as comprising two streams of activity: Product Development the development and UK licensing of the reactor design and the creation of a consortium of companies that will manufacture and build plants in the UK and contract with overseas partners for delivery in export markets. Project Development the development of the first (and subsequent fleet) of projects for the commercial deployment of the reactor in the UK. Both of these streams will require a public / private partnership in which government supports the early high risk phases of the project, mitigating some of the risk that would otherwise inhibit private sector participation. Over time the balance of funding into UKRL would shift to majority private sector, ultimately government would sell down its shareholding and UKRL would go forward as a UK owned nuclear technology provider, most likely in joint venture with an overseas partner. 8 Industrial Strategy - The Nuclear Sector Deal

9 In the Product Development stream government would co-fund the development of the design and licensing, creating a UK consortium to own the IP, take forward the construction of UK plants and market the plant internationally. Government would sell down its interest as early as possible, perhaps as early as completion of GDA. In Project Development we would anticipate that government would need to support the building of the FOAK plant, most likely with a different set of partners than in the product development activity. The intention would be that government would sell its equity on the FOAK plant to the other partners once the plant is operational. Government s involvement in both product and project development will enable close co-ordination with other strands of industrial and infrastructure policy, maximising the synergies with government funded research programmes, skills and supply chain development and location of plants. 5.4 The UK Offering The successful implementation of this plan would deliver a potentially world beating civil nuclear technology for deployment in the UK and in export markets. This technology could be very effectively packaged with the world class legal and financial expertise in the City of London. An affordable size advanced reactor producing competitive power and supported by the commercial skills we have in the UK backed up by lifetime fuel supply / waste management capability would be a powerful proposition. The goal would be a package that offered: Regulatory support to countries that do not yet have regulatory capability Legal and financial advice and project structuring Turn-key construction of the power plant Operating support, monitoring and maintenance Lifetime fuel and waste management contracts Industrial Strategy - The Nuclear Sector Deal 9

10 06. Conclusions We believe that the actions outlined in this short paper provide an affordable pathway by which the UK can diversify its options for delivery of nuclear power as a component of the long term low carbon energy mix, with potentially large export benefits. Issuing the 60x30x2 challenge will send a strong signal that the UK is serious about nuclear power. about nuclear power but that it is demanding change, the status quo is not acceptable. The NSD will of course include other elements related to wider nuclear sector activities but there is a great danger that a sector deal that is incumbent lead and widely distributed will have little impact in either the short or long term. Greater impact will be achieved by concentration of resource and challenge to the industry. If the NSD is to have a transformative and long term impact in the UK s nuclear sector then the creation of a UK civil reactor design capability, that draws together the branches of industry behind a common unifying vision, must be the central pole of the NSD. This approach would supercede the government s already announced SMR initiative, addressing our most serious nuclear capability deficiency, and positioning UK to participate in a potential global market for affordable and competitive reactors. It is fully compatible with the Nuclear Industrial Strategy of 2013 and key NIRAB recommendations. The already announced funding (from the 2015 Autumn Statement) would support an early announcement and establishment of UKRL. Issuing the 60x30x2 challenge will send a strong signal that the UK is serious The success of UKRL will spill over into other parts of the nuclear sector through its influence on the UK s research activities and supply chain. We would be pleased to further develop these ideas in alignment with the ten pillars of the industrial strategy should government wish to consider a more detailed business case. 10 Industrial Strategy - The Nuclear Sector Deal

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12 Thank you