UNITED KINGDOM

1. ENERGY, ECONOMIC AND ELECTRICITY INFORMATION

1.1 General Overview

United Kingdom (UK) is an abbreviated form of United Kingdom of Great Britain and Northern Ireland. The UK consists of England, Northern Ireland, Scotland and Wales and lies in north-western Europe, occupying the major portion of the British Isles. The country's only land boundary is with the Republic of Ireland. The UK is separated from the coast of western Europe by the English Channel to the south and by the North Sea to the east. The northern and western shores are washed by the Atlantic Ocean.

As a result of the relative warmth of the nearby seas, UK has a moderate climate, rarely marked by extremes of heat or cold. The mean annual temperature ranges between 11.1°C in the south and 8.9°C in the north-east. Seasonal temperatures vary between a mean of about 16.1°C during July, the hottest month of the year, and 4.4°C during January, the coldest month. Fogs, mists, and overcast skies are frequent, particularly in the Pennine and inland regions. Precipitation, heaviest during October, averages about 760 mm annually in most of the UK.

During the Industrial Revolution the country became rapidly urbanized, and today more than 70% of the total population of 58.8 millions (1996) is concentrated in cities occupying 10% of the total land area. It has a mean population density of 243.2 persons per square km with an annual growth of 0.3% (1997). The population is highly urbanized, and the United Kingdom is the third most densely populated nation in Europe (after Netherlands and Belgium). The most densely populated part of the United Kingdom is England, with 376 persons per square km; Scotland has a density of 66 per square km; Wales, 141 per square km; and Northern Ireland, 123 per square km. Population in 1998 was 59.1 millions (Table 1) and is expected to grow to 60.3 millions in 2006.

TABLE 1. POPULATION INFORMATION

Source: IAEA Energy and Economic Database.

1.1.1. Economic Indicators

Gross Domestic Product (GDP) increased from US$ 1,240,569 million in 1997 to US$ 1,286,166 million in 1998 (Table 2).

1.1.2. Energy Situation

Extensive coal deposits occur around the eastern and western edges of the Pennines, in South Wales, in the Midlands (Birmingham area), and in the Scottish Central Lowland. Easily accessible coal seams are, however, largely exhausted. Fortunately for the energy-hungry British economy, large deposits of petroleum and natural gas under the North Sea came into commercial production in 1975 and at present the United Kingdom is self-sufficient in petroleum (Table 3).

TABLE 2. GROSS DOMESTIC PRODUCT (GDP)

Source: IAEA Energy and Economic Database.

TABLE 3. ESTIMATED ENERGY RESERVES

Source: IAEA Energy and Economic Database.

TABLE 4. ENERGY STATISTICS(*)

Source: IAEA Energy and Economic Database.

Energy consumption by the industrial sector has fallen dramatically since 1970, with a sharp reduction in the use of coal outweighing the increased consumption of gas and electricity. The greatest growth in energy consumption has been in the transport sector mainly due to the high level of transport activity, but electricity accounts for just under 1% of total energy consumption by this sector and is used only for rail transportation. Table 4 shows the basic energy statistics.

1.2. Energy Policy

The formal aim of the UK Government's energy policy is to ensure secure, diverse, and sustainable supplies of energy in the forms that people and businesses want, and at competitive prices. The Government believes that this aim will best be achieved by means of competitive energy markets working within a stable framework of law and regulation to protect health, safety, and the environment. Government policies also aim to encourage consumers to meet their needs with less energy input, through improved energy efficiency. The key elements of the policy are:

· to encourage competition among producers and choice for consumers, and to establish a legal and regulatory framework to enable markets to work well;
· to ensure that service is provided to customers in a commercial environment in which customers pay the full cost of the energy resources they consume;
· to ensure that the discipline of the capital markets is applied to state owned industries by privatizing them where possible;
· to monitor and improve the performance of the remaining state-owned industries, while minimizing distortion;
· to have regard to the impact of the energy sector on the environment, including adopting policies and taking measures to meet international commitments;
· to promote energy efficiency and renewable sources of energy;
· to safeguard health and safety.

In pursuit of these policies, the UK Government has privatized almost all the former state-owned energy sector (coal, electricity, gas). The only part of the generating sector remaining in public ownership is the newly formed company, Magnox Electric plc, which operates the UK's older Magnox nuclear power stations.

The Government has no direct operational control over any part of the energy sector, which comprises private companies operating on the basis of their own commercial criteria and judgement. This includes such things as what fuels to use for power generation, their source, and the location of facilities (although this remains subject to local planning permissions).

The gas and electricity industries are overseen by independent regulators, appointed by Government, whose role is to promote competition where possible and to protect consumers by providing a proxy for competition in areas of continuing monopoly. The requirement for regulatory intervention will diminish over time, as more sectors of the energy market become open to competition; but there will always be a need for regulation of monopoly infrastructure (the pipes and wires).

The final stage in the liberalization of the electricity supply market was concluded in May 1999 when all remaining public electricity supply monopolies were abolished. All customers may now choose their supplier. By September 1999, some 3.3 million had registered to change supplier and some 2.7 million had actually done so. To make supply competition work, a major programme of work was needed to build systems, commercial arrangements, trading arrangements, and licences which administer the change of supplier process. Following final agreement on the overall design of the arrangements, end to end testing of the systems commenced at the beginning of 1998 and was completed in all areas by the end of the year. Competition was then rolled out between September 1998 and May 1999, area by area according to the postcodes of the customers involved.

A new agreement, the Master Registration Agreement, has been established to oversee developments in the change of supplier process and a new company MRASCo has been established to manage such changes.

In the gas sector, competition first started in the industrial and commercial (non-tariff) market and there are currently 71 shippers competing in it. Domestic competition took longer to develop and was started by the Gas Act 1995. This Act opened up the market by creating three separate licences for Public Gas Transporters who operate the pipelines, shippers who buy gas wholesale from producers and sell it to suppliers who in turn sell it to consumers. The roll-out of domestic competition began in 1996 and was completed in May 1998. So far almost five million domestic customers (roughly a fifth of total domestic gas consumers) have changed supplier.

In January 1999 the Director General of Gas Supply, Callum McCarthy, also assumed the office of the Director General of Electricity Supply. This reflects "convergence" between gas and electricity markets - gas is now used for electricity generation, many companies are now operating in both gas and electricity markets so that consistency of regulation is therefore very important.

The Government remains responsible for establishing the framework of environmental regulation within which the energy sector operates, including permissible levels of emissions and disposal of wastes. But within these broad parameters, it is for companies to decide how best to meet the particular environmental requirements relevant to them.

1.3 The Electricity System 1

1.3.1. Structure of the Electricity Sector

Until 1990, when the institutional reform enacted for England and Wales by the Electricity Act 1989 was put into practice, the United Kingdom's power system had been organised as follows:

England and Wales: power generation and transmission was in the hands of the Central Electricity Generating Board (CEGB) - a power company exerting monopoly rights over these activities, who was responsible for supplying the twelve Regional Electricity Companies (RECs) in charge of distribution. The Electricity Council, an intercompany co-ordination agency, was in charge of assessing demand forecasts, investment and financing needs, and representing the industry.

Scotland: the system was supplied by two vertically integrated companies, the South of Scotland Electricity Board (SSEB) and the North of Scotland Hydro-Electric Board (NSHEB).

Northern Ireland: supplied by a vertically integrated monopolistic company, the Northern Ireland Electricity (NIE).

In 1990, all of the electricity supply industry, except for the nuclear generators, was privatised. The more modern nuclear power stations, the AGRs and the PWR, were subsequently privatised in 1996 under the holding company British Energy plc, formed with two subsidiaries, Nuclear Electric Ltd and Scottish Nuclear Ltd. Restructuring in 1998 led to Scottish Nuclear being renamed as British Energy Generation (UK) Ltd and Nuclear Electric as British Energy Generation Ltd. The older Magnox stations remain in the public sector and are operated as BNFL Magnox Generation.

In England and Wales around 23% of generation is carried out by Independent CCGTs; In respect of individual generators British Energy, Powergen, Innogy, BNFL, EDF, Edison and AES are all active in the market. There are eleven distribution companies and one transmission company, the National Grid Company (NGC). NGC also manages the despatch and administers the market in wholesale power.

The retailing or supply of electricity, formerly a monopoly of the local distribution company for all but the largest consumers, is now completely open to competition. In the case of Scotland two companies, Scottish Power and Scottish and Southern (formerly Scottish Hydro-Electric, but renamed after its merger with the English distribution company Southern Electric in 1998), each generate, transmit, distribute and supply electricity in their own areas. There are also other generators and suppliers.

Regulation of the electricity industry in England, Wales and Scotland is the responsibility of the Chief Executive of the Office of Gas and Electricity Markets (OFGEM). The Chief Executive is appointed by the Government to be an Independent regulator of the industry with statutorily defined duties to protect consumers and promote competition.

In Northern Ireland, generation and distribution were privatised independently. However, unlike theEnglish and Welsh case, no new generating companies were established, and the power plants were sold to already existing companies (Tractebel from Belgium and British Gas).

The wholesale electricity market in England and Wales has recently been reformed. On 27 March 2001, the Electricity Pool was replaced by New Electricity Trading Arrangements (NETA). The Electricity Pool was the trading arrangement in England and Wales by which electricity suppliers and large industrial users purchased electricity from the electricity generators. It was established in 1990 when the electricity industry was privatised, and operated under the Pooling and Settlement Agreement, a commercial arrangement between the generators and public suppliers of electricity. The Pool was used to determine which generating sets were called on to satisfy demand, and the price for wholesale electricity (the Pool price) was set for each half hour by the most expensive generator used during that period. All generators called to run received this price.

Among the long-standing criticisms of the Pool were that it was not open to electricity consumers, its operation was not transparent, it was a price setting mechanism rather than a true market, it facilitated the exercise of market power by generators owning large amounts of capacity, and it distorted the market to the disadvantage of flexible plant, including coal. These concerns led to a programme to replace the Pool with more competitive trading arrangements and this came to fruition in March 2001. The new trading arrangements are much more like those in other commodity markets. They comprise a series of bilateral markets (i.e. genuine two-side markets unlike the Pool) designed to encourage competition and liquidity and to remove distortions in the market.

The key features of NETA are:

· a forwards market where generators are be able to contract with suppliers and large customers for the physical delivery of electricity. Such contracts can be struck close to the time of delivery or a year or more ahead;
· screen-based short-term power exchanges to enable participants to refine their contract positions close to real time in the light of current information (e.g. on the weather). Five power exchanges have either set up or are in the process of being set up;
· a balancing mechanism operating from 3½ hours ahead of real time up to real time, managed by the National Grid Company (NGC). As electricity cannot be stored, NGC needs to manage the grid system on a second-by-second basis and the balancing mechanism is the facility under the new arrangements, which allows it to do this. However, the vast majority of trading takes place in the forward markets rather than in the Balancing Mechanism;
· associated derivatives markets to enable market participants to manage commercial risks; and
· a settlement process to deal with the financial settlement of balancing mechanism trades and to deal with those whose generation or consumption of electricity is out of balance with their contracted position.

OFGEM's review of the first twelve months of NETA found that, since 1998, the proposed reforms had contributed to a reduction in the wholesale price of electricity, which has flowed through into lower final prices. For instance, industrial and commercial electricity prices are down by 20-25%, while domestic electricity prices have declined by an average of 8% for those consumers who have not switched supplier and by 15% for those who have switched.

Whilst NETA has been successful in lowering prices, there remains some concern amongst unlicensed generators (particularly CHP and renewable plants) about the impact of NETA on their businesses. This stems from the fact that a number of unlicensed generators have unpredictable or inflexible output and might therefore be significantly (indirectly) exposed to imbalance prices. Although special arrangements have been developed to enable to such generators to reduce their potential exposure to imbalance, they remain concerned, particularly with current volatility in the Balancing Mechanism.

1.3.2. Decision Making Process

Responsibility for formulating energy policy and for most of the measures to implement it rest with the central government. Within government, lead responsibility on energy matters outside Northern Ireland rested until 12th April 1992, with the Secretary of State for Energy. On 13th April 1992, the Secretary of State's responsibilities were transferred to the Secretary of State for Trade and Industry, except for energy efficiency, which was transferred to the Secretary of State for the Environment. Northern Ireland energy matters are the responsibility of the Secretary of State for Northern Ireland. The Secretary of State for Scotland is responsible for the electricity industry in Scotland. Because of the cross cutting nature of the issues many Ministers are involved particularly on policy for the efficient use of energy and for safety and the environment. Co-ordination between Ministers and Departments is achieved through the Cabinet, Ministerial and official committees and interdepartmental consultation.

The Secretary of State for Trade and Industry appoints the Director General of Electricity Supply who heads the Office of Electricity Regulation which now has over 200 staff including regional offices. The relevant Secretary of State and the Director General are the principal regulators of the industry and have been given specific powers in the new regime. Those of the Secretary of State include licensing and the regulation of certain matters related to the development of the physical electricity supply system, fuel stocking and the quality of the electricity supply. Those of the Director General include economic regulation and general supervision and enforcement of the licence regime (including the issue of new licences).

The building of a new power station with a capacity of over 50 MW requires the consent of the relevant Secretary of State. Environmental assessment is mandatory in most cases and is normally required in all other cases.

1.3.3. Main Indicators

Contrasting with the 60s, since the mid 70s, power consumption growth rate has been moderate (under 1.3% accrued rate). The system was affected by market stagnation during the first five years of the 80s, primarily due to the behaviour of industrial demand which decreased 17% between 1979 and 1983. During the last years demand growth seems to have increased, with rates slightly above 2% per year. In this context, the expansion of public service's installed capacity has been very limited since 1985, and a gradual obsolescence of generating facilities must also be considered. In spite of fluctuations affecting electricity demand, its share in the country's energy requirements has been steadily increasing. In fact, in 1970 electricity accounted for 12% of final energy consumption, though its penetration steadily increased and reached 16% in 1991. The share of electricity was even more important in the industrial sector during the same period, and rose from 11% in 1970 to almost 21% in 1991.

Electricity has increased its share of final energy consumption, which has been steadily rising from 7% in 1960 to 11% in 1970 and 16% in 1991, mainly at the expense of coal and oil, and has been particularly successful in gaining an increased share of the industrial and commercial sectors. Electricity's share of industrial energy consumption has more than doubled since 1970, rising from 10% to 22% in 1991, due to structural changes and technological innovations. Electricity's share over energy consumption in the commercial sector increased significantly over the period from 18% in 1970 to 32% in 1991. The growth in electricity consumption was associated with increased use of air conditioning, growth in Information Technology applications and improvement in the standard of lighting in the commercial sector. Electricity, maintained its share of about 19% of energy consumption in the domestic sector due to the availability of lower priced off-peak electricity, growth in ownership of electrical appliances and more diverse applications.

The total electricity production in 1995 was 332.9 TW·h and the total installed electrical capacity was 69 GW(e). Fossil fuels contributed 74% to the electricity generated and hydro and nuclear 2% and 24%, respectively. Table 5 shows the historical electricity production and installed capacities and Table 6 the energy related ratios.

TABLE 5. ELECTRICITY PRODUCTION AND INSTALLED CAPACITY

Source: IAEA Energy and Economic Database.

Traditionally, the United Kingdom's power system generation structure has relied on domestic coal. It should be pointed out that since the 60s, there has been a mutual dependence between the power and the coal industries. Coal fired plants contributed 60 and 70% to power generation thus becoming the major consumer and supporter of the country's coal industry.
While the power sector was in the hands of the State, its relationship with the coal industry was strongly supported, in spite of the discovery of important gas fields in the Northern Sea at the end of the 60s and of the early development of nuclear power generation, which also started during the 60s.

TABLE 6. ENERGY RELATED RATIOS

Source: IAEA Energy and Economic Database.

2. NUCLEAR POWER SITUATION 1

2.1. Historical Development and current nuclear power organizational structure1

2.1.1. Overview

In 1954 the Atomic Energy Authority Act established the United Kingdom Atomic Energy Authority (UKAEA) with responsibility for the UK nuclear power programme. The programme was to concentrate on the development of gas cooled reactors. The world's first industrial scale nuclear power station to demonstrate the commercial potential of generating electricity through nuclear fission, at Calder Hall in Cumbria, was commissioned by the UKAEA in 1956. Calder Hall was soon followed by a station of similar design, Chapelcross in Scotland; now operated by British Nuclear Fuels plc (BNFL), both these stations continue to generate electricity today after 40 years service.

Calder Hall and Chapelcross were Magnox prototypes, and nine full scale Magnox power stations were subsequently commissioned in the UK between 1962 and 1971. The Magnox stations were so-called from the magnesium alloy used to make the fuel can which contains the natural uranium fuel elements. The reactors use CO2 as coolant. These stations are now owned by BNFL Magnox Generation and four are still in operation, while five are in the process of being decommissioned.

In 1964, it was decided that the UK-developed advanced gas cooled reactor, the AGR, should succeed the Magnox as the principal source of nuclear power in the UK. Seven AGR stations, making use of enriched uranium fuel, were commissioned between 1976 and 1988 and these are now owneed and operated by British Energy.

As part of the reorganization of the UKAEA under the Atomic Energy Authority Act in 1971, BNFL was set up as a private limited company and subsequently transformed into a public limited company. The fuel cycle operations previously undertaken by the UKAEA were transferred to BNFL. BNFL now provides the full range of nuclear fuel cycle services to the UK and international markets and in 1994 it sheared its first irradiated fuel in the Thermal Oxide Reprocessing Plant (THORP), constructed to reprocess domestic and overseas spent oxide fuel.

In 1978 the Government had decided that for future nuclear power station design it would be appropriate to pursue the Pressurized Water Reactor (PWR) option, the most widely used design outside the UK. Subsequently the site at Sizewell in Suffolk was chosen and construction began in 1988 after a lengthy public inquiry. This station, Sizewell B, first supplied electricity to the national grid in February 1995.

UK Nirex Ltd was incorporated in 1985. Its owners are BNFL, BE and the UKAEA. Its development of a deep disposal facility for intermediate and long-lived low level wastes ceased in 1997.

In its 1988 White Paper "Privatising Electricity", the Government announced its intention to privatize the UK electricity supply industry. However, it later removed the nuclear stations from its privatization plans for economic reasons and also because of concerns about the operational performance of AGRs at that time and uncertainties over the financing of any new PWRs. The Government did however recognize that there were advantages to be gained from the continued operation of existing nuclear power stations, in their contribution to security of supply and protection of the environment.

When announcing the Government decision not to privatize nuclear power, the Secretary of State for Energy also announced that there was to be a moratorium on public sector construction of new nuclear stations (the Sizewell B PWR was already being built) until the Government conducted a review of the prospects for nuclear power.

2.1.2. Organizational Chart

A simplified chart of main operations of the United Kingdom nuclear power programme is shown in Figure 1.

FIG. 1. Structure of the main Operations of UK's Nuclear Power Programme

2.2. Nuclear Power Plants: Status and Operations 1

Thirty three nuclear units are in operation in the United Kingdom, representing a total capacity of 11.7 GW(e) and supplying almost 25% of the electricity generated in the country. Table 7 shows the status of the nuclear power plants in the UK, Sizewell B, was connected to the grid in February 1995 and achieved full load in September 1995.

Sizewell B is an modern PWR, built by the UK industry under a licence from the American manufacturer Westinghouse, which incorporates a number of enhanced safety features to meet more stringent safety standards. The unit was completed on schedule and within the provisional budget. All the other nuclear units in operation in the UK are gas-cooled reactors of Magnox and advanced gas cooled (AGR) types. Substantial improvements in the performance of the AGRs have been attained during recent years. The Prototype Fast Breeder at Dounreay, which was commissioned in 1976, is currently under-going decommissioning.

As of April 1998, the national safety authority, Nuclear Installations Inspectorate (NII), has authorized lifetime extension for all the Magnox units, which had reached thirty years of operation. Although the authorizations from NII do not specify the duration of the lifetime extension, the British regulators have indicated that no safety factors have been identified which would limit the operation of the Magnox reactors to less than 40 years and 50 years for Calder Hall and Chapelcross.

NII has accepted that the Periodic Safety Reviews of the AGR have shown that all the stations can be expected to operate safely for at least a further 10 years, subject to satisfactory outcomes from routine inspection activities. The NII's assessment of the Periodic Safety Review Sizewell B is scheduled for completion in. scheduled for completion in

TABLE 7. STATUS OF NUCLEAR POWER PLANTS

Source: IAEA Power Reactor Information System as of 31-Dec-2002. Years between brackets are based on authorized lifetime extension by NII.

TABLE 7. CONTINUED, STATUS OF NUCLEAR POWER PLANTS