Identifier
Created
Classification
Origin
08LONDON2027
2008-08-04 16:17:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy London
Cable title:  

U.S. FIRMS WELCOME ENHANCED USG SUPPORT OF UK

Tags:  ENRG TRGY IAEA UK 
pdf how-to read a cable
VZCZCXRO2866
PP RUEHED
DE RUEHLO #2027/01 2171617
ZNR UUUUU ZZH
P 041617Z AUG 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 9385
INFO RUEHMO/AMEMBASSY MOSCOW PRIORITY 2693
RUEHFR/AMEMBASSY PARIS PRIORITY 3262
RUEHED/AMCONSUL EDINBURGH PRIORITY 0957
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEANFA/NRC WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
UNCLAS SECTION 01 OF 06 LONDON 002027 

SENSITIVE
SIPDIS

USDOE FOR INTERNATIONAL
USNRC FOR SKIP YOUNG, CHARLOTTE ABRAMS
COMMERCE FOR JAMIE ESTRADA
STATE FOR FRANK MERMOUD

E.O. 12958: N/A
TAGS: ENRG TRGY IAEA UK
SUBJECT: U.S. FIRMS WELCOME ENHANCED USG SUPPORT OF UK
NUCLEAR RENAISSANCE

UNCLAS SECTION 01 OF 06 LONDON 002027

SENSITIVE
SIPDIS

USDOE FOR INTERNATIONAL
USNRC FOR SKIP YOUNG, CHARLOTTE ABRAMS
COMMERCE FOR JAMIE ESTRADA
STATE FOR FRANK MERMOUD

E.O. 12958: N/A
TAGS: ENRG TRGY IAEA UK
SUBJECT: U.S. FIRMS WELCOME ENHANCED USG SUPPORT OF UK
NUCLEAR RENAISSANCE


1. (U) Summary: State Special Representative for Commercial
Affairs Frank Mermoud and Commerce DAS Jamie Estrada visited
the UK July 17-18 to discuss upcoming events in the UK,s
nuclear industry. HMG is aggressively moving forward with
plans for new nuclear power plants. Government contacts
pointed to progress made on all necessary legislative fronts,
including planning, regulation and waste management. However,
both public and private sector meetings revealed uncertainty
regarding the ability of the regulator, the Nuclear
Inspections Inspectorate (NII),to perform the licensing of
new reactor designs and perform regulatory oversight, given a
lack of funds and qualified staff. Although both public and
private sector seem enthusiastic about the market, twenty
years of underinvestment in the sector has left it short of
skills, which could constrain growth. U.S. firms operating in
the civilian nuclear sector welcome more public USG support
for the UK,s nuclear renaissance. End Summary.


2. (U) On July 17-18 State,s Special Representative for
Commercial Affairs Frank Mermoud and Department of Commerce
Deputy Assistant Secretary for Manufacturing Jamie Estrada
met with government officials and representatives from
American companies that are active in the civilian nuclear
sector in the UK. The purpose of the visit was to discuss new
developments in the sector and to gauge interest in a
potential business development mission this fall to highlight
high-level USG support for the UK,s nuclear renaissance.

Government Support from BERR, Downing St.
--------------


3. (U) Mark Higson, Head of the Nuclear Unit at the
Department for Business, Enterprise and Regulatory Reform
(BERR),outlined the new Office of Nuclear Development to be
formed within (BERR) to specifically focus on new nuclear
reactors. He stated that BERR would like to see more than one
new reactor design so that the new industry is not overly
reliant on a single reactor model. Higson, stressed that the
UK remains an open economy, and is serious about inward
investment and new nuclear reactors. However, he added that
BERR would like to see as much local sourcing as possible,
the enhancement of local supply chains, and local wealth

creation along with any investment. He also noted that the UK
is interested in further regulatory cooperation, especially
after the UK,s past experience with custom designed
reactors. (Note: All but one of the UK,s current and elderly
reactor fleet are an indigenous design called the AGR for
Advanced Gas-Cooled Reactor. Each reactor had a different
design, denying the local industry economies of scale or
shared technical experience with international counterparts.)



4. (U) Higson emphasized that HMG is trying to minimize
regulatory risks by doing a Generic Design Assessment (GDA)
for three reactor designs (the Areva EPR, the Westinghouse
AP-1000 and the GE ESBWR). He hopes that pre-approval &in
accordance with world-wide design8 will reduce risks for the
utilities who will ultimately be paying for the construction.
Higson suggested that since no public money will be
available, the first reactors will likely be funded from the
constructing utility,s balance sheet. (Note: This suggests
that the major international utilities will be the first
movers as they have the strongest balance sheets. The biggest
ones in the UK are EDF of France and RWE and E.ON of Germany.
End note.)


5. (U) Senior Downing St. Policy Advisor Geoffrey Norris went
further, saying that EDF was the favorite to build the first
new nuclear power station in the UK, likely using Areva
technology (EPR, or European Pressurized Reactor). Norris
stressed that there was little political risk in the
development of new nuclear power, as the Conservatives would
support its development. However, he did note that there are
public credibility issues linked to the nuclear industry.
(Note: The nuclear industry in the UK has suffered severe
credibility issues during its lifetime, most recently the
publication of new reports raising the cost to the taxpayer
of decommissioning the existing fleet of power plants from an
estimated 146 to 166 billion USD at current exchange rates.

LONDON 00002027 002 OF 006


End note.) Norris also noted that a clear carbon price will
make nuclear even more attractive.

MP Jamie Reed Supports New Nuclear Build, Full Fuel Cycle
-------------- --------------
and USG Cooperation
--------------


6. (SBU) MP Jamie Reed of Copeland, which houses the UK,s
largest nuclear facility, Sellafield Sites, was open about
the need for more private sector participation in crafting
policies and recognizing opportunities. Reed believes that
solid partnerships between business and government will lead
to more open information sharing, which will help inform good
policy. He also stated that moving quickly now will minimize
policy risk; he does not want the industry to become
domestically politicized. However, Reed admitted that the
UK,s regulatory market is slow-moving, which is why the
Secretary of State for BERR John Hutton has been so keen to
keep engaged with the nuclear industry players.


7. (SBU) Reed stated that taxpayer money will help to
subsidize the nuclear industry in one way or another. He
pointed to the fact that elements of insurance indemnity,
skills training and development, waste disposal and the
enlargement of the NII (Nuclear Installations Inspectorate)
all required public money. Furthermore, the opening of new
national nuclear labs, modeled after the U.S. system, will
cost taxpayer money. However, he also noted that clear carbon
pricing will help the industry.


8. (SBU) Reed is strongly supports the UK having capability
for the full fuel cycle, including fuel fabrication and
domestic reprocessing. He noted that the French have the most
sophisticated skills, as they have continually reprocessed
fuel for their domestic industry. He also pointed out that
the Russians have a renewed interest in the full fuel cycle
as well. He sees reprocessing as a solution to security of
supply issues, as well as a way to make the same amount of
fuel last longer.


9. (U) Reed and Higson were both broadly supportive of
increased international cooperation in the area of
regulation, especially in the licensing of designs. Since the
UK will only be evaluating available commercial designs, all
will be reviewed by other national regulators. Both men would
like to see more cooperation between these national
regulators to reduce the time and resources necessary to
safely license designs.

Nuclear Decommissioning Authority Welcomes Cooperation
-------------- --------------


10. (U) Dr. Adrian Simper, Director of Strategy for the NDA
(Nuclear Decommissioning Authority) also noted that the UK is
not equipped at this time to perform its necessary
decommissioning work alone. He recognized the range of skills
that U.S. companies can bring to the UK. (Note: All four of
the teams that bid on the maintenance and operations (M&O)
contract at Sellafield had American companies as partners.
End note.) He also pointed out that the NDA has been working
with the East Tennessee Environmental Business Association
(ETEBA),which grew up around the Oak Ridge National Labs,
and would like to expand international contacts like these.

11. (U) Simper stressed that the NDA does have sites that are
suitable for new nuclear stations, and said the NDA will be
conducting more decommissioning work. He pointed out that two
maintenance and operations contracts have been let, and that
there may be more in the future, since the NDA controls seven
sites. However, he did not expect the budget to increase in
the next fiscal year from its current 6 billion USD. (Note:
U.S. engineering firm URS is involved in both NDA contracts.
End note.)

Industry Sees Strong Public Acceptance
--------------


12. (U) Keith Parker of the Nuclear Industry Association said
that there would be no political issues, even after the next

LONDON 00002027 003 OF 006


general election, which is scheduled for 2010 at the latest.
He cited polls that indicated between 85-90% of Conservative
back-benchers support new nuclear build. In total, well over
70% of all MP,s support new nuclear build, which represents
a doubling of support over the past five years. The polls
also show that over 50% of the public is in favor, although
he admitted that &it depends on the questions you ask.8 He
pointed out that the public shows anxiety over issues of
waste management and safety, but is supportive of nuclear
power for reasons of climate change and security of supply.


13. (U) Parker admitted that the reputation of the nuclear
industry had been damaged in the UK because of the financial
obligations that had been passed on to taxpayers. However, he
felt that by getting the &facilitative measures8 right,
such as reforming the planning, licensing and siting
requirements, as well as ensuring a robust carbon price, the
industry would be able to function without subsidy. He
emphasized that &it would help if the low carbon benefits of
nuclear were recognized and rewarded.8 Parker also noted
that this measure would help to spur other renewable energy
research, not just act as a hidden subsidy for the nuclear
industry.


14. (U) Parker also stressed the interconnectedness of the
underlying issues, especially waste management. He felt that
it was crucial for the government to have a viable waste
management strategy in place in order for the public to
support new build. He admitted that waste management was the
area most vulnerable to criticism from anti-nuclear groups,
especially Greenpeace. However, he noted that many other
previously anti-nuclear NGO,s were becoming more positive
because of climate change issues. Parker stated that a delay
to the waste management solution would create a &domino
effect,8 rippling through the entire system. He pointed out
that if the UK,s nuclear renaissance was delayed it would
affect the local supply chain.


15. (U) Parker saw multiple areas for US-UK cooperation on
civilian nuclear development. He suggested that a formal
relationship between the Nuclear Inspections Inspectorate
(NII) and the U.S Nuclear Regulatory Commission would help
develop NII skills. He noted that although he also expects
the utilities to finance the first round of nuclear power
stations from their balance sheets, meaning financing the
majority with their own cash and limited bank support, he
expects financial institutions to assist with the next round,
once the risks and rewards have become quantified. However,
Parker stressed that the local supply chain will need
investment to upgrade production facilities.

U.S. Service Providers Enthusiastic About Opportunity, USG
-------------- --------------
Support
--------------


16. (SBU) Robert Mawson, the Business Development Director of
the Nuclear Business Group at engineering firm CH2M Hill
pointed out the strength of the French commercial effort on
behalf of Areva. He suggested that it would be helpful for
U.S. companies to receive the same support internationally.
However, he noted that Areva had not yet lobbied heavily in
India or China, which presented vast opportunities for U.S.
companies involved in the civilian nuclear sector. He
suggested that successful projects in the UK could act as a
jumping off point for countries interested in increasing
their global client base. Mawson pointed to potential
projects in the UAE, Lithuania and Turkey, all of whom have
publicly expressed interested in new nuclear power stations.


17. (SBU) Mawson agreed that the NII would benefit from
closer contacts with the NRC. He also mentioned the
possibility of one of the senior-level staff from CH2M Hill
being seconded to BERR to help with policy development.
(Note: Mark Higson from BERR had mentioned this possibility
as well, although he did not specifically name CH2M Hill. End
note.) Mawson pointed out that it was important for the NII
and BERR to send clear policy signals to the industry. With
lead times of four to five years, Mawson was confident that

LONDON 00002027 004 OF 006


the supply chain weaknesses can be properly addressed, given
the proper incentives.


18. (U) Ian Thomas, Managing Director for Fluor,s UK
operations also agreed that it would be helpful if the NRC
cooperated more closely with the NII. He noted that the NII
was prepared to accept safety cases for the Areva EPR from
the French regulators, and that the NRC might help with the
safety cases for the GE and Westinghouse designs that are
undergoing the GDA. (Note: All three designs that are
undergoing the GDA are also being evaluated in various stages
by the NRC. End note.)


19. (U) Thomas pointed out that Areva already has the
majority of its necessary supply chain intact. However, he
was confident that U.S. and UK manufacturing could cooperate
to create a robust supply chain, but that industry would need
assurances of future opportunity. He noted that the passage
of the Planning and Energy bills currently being debated in
Parliament would provide some of these assurances. Thomas
also emphasized that the decision was straight-forward for
utilities, who need to meet demand. Since gas and coal are
currently cheaper, they need incentives, such as carbon
pricing, to assist with financing and cost recovery.

Complaints About the Procurement Process at the EBRD
-------------- --------------


20. (SBU) Mawson from CH2M Hill also took the opportunity to
lodge a complaint about the current procurement practices at
the European Bank for Reconstruction and Development (EBRD).
He noted that American firms are often locked out of bidding
because they lack the necessary experience in Europe, even if
they have been performing the necessary work in the U.S. for
longer than the required period. Mawson felt that this has
unnecessarily disadvantaged US companies that have
qualifications in decommissioning and clean up.

Westinghouse Sees Major Opportunities
--------------


21. (U) David Powell, Westinghouse,s Regional Vice President
for the UK, stated that the UK is one of their four top tier
countries, or countries with the largest potential for the
company, with the others being the US, China and South
Africa. (Note: This gives Westinghouse a presence on four
continents. End note.) Westinghouse already has commitments
to build eight of its new AP-1000 reactors, including four in
the US and four in China. Powell noted that Westinghouse was
using a &localization approach8 for the Chinese and Korean
markets, involving licensing its technology to local
companies and allowing them to provide everything except the
nuclear island, the area where the nuclear reaction actually
takes place. Westinghouse aims to build four plants a year
for the foreseeable future, although Powell admitted that
Toshiba, Westinghouse,s parent company, would like to build
more.


22. (SBU) Powell noted that altering the original design as
little as possible is the key to a successful roll-out in the
UK. Based on previous bad experience with customized designs
for each site, he hoped that the NII would make only the most
necessary changes this time. He mentioned that the NII has
few resources to execute the GDA. However, he also pointed
out that European utilities such as RWE and EON had helped to
fund the cost of the GDA, with a view that the AP-1000,s
approval in the UK would expedite its approval throughout
Europe. He speculated that RWE and EON were keen to keep a
hand in the nuclear sector in advance of a potential policy
change in Germany. He also noted that while utility companies
had backed Areva,s reactor, none of them did so financially.
Powell does not expect the GE ESBWR (which stands for
Economic Simplified Boiling Water Reactor) to be competitive
in the first round of reactors built in the UK, as its design
is still being finished.


23. (SBU) Powell emphasized Westinghouse,s model of &buy
where you build,8 which would help the UK to revitalize its
civilian nuclear supply chain. He noted that Westinghouse had

LONDON 00002027 005 OF 006


been negotiating possible manufacturing partnerships with
Rolls-Royce and BAE systems. Powell said that Westinghouse is
interested in sites that belong to either British Energy or
the Nuclear Decommissioning Authority, and that the smaller
size of the AP-1000 reactor, at only 1100 mW compared with
over 1600 mW for the EPR and over 1500 mW for the ESBWR,
could fit more easily into smaller existing sites and use
existing grid connections. He also mentioned that
Westinghouse is in negotiations with Sheffield Forgemasters,
a company that could potentially fill a large hole in the
supply chain for large-scale forgings, currently only done by
Japan Steel. Westinghouse has offered to back the necessary
investment into a 15,000 ton press, and is negotiating a
&reservation fee8 for future production. However, he
characterized this as a &defensive8 investment, as Areva
has shown interest in purchasing the company outright.


24. (U) Powell noted that Westinghouse is involved in fuel
fabrication in the UK at the NDA,s Springfields site. Their
contract expires in 2010, and has already been extended
twice. He characterizes the relationship between Westinghouse
and the NDA as excellent. Westinghouse is interested in
investing to expand the capacity of the plant. He believes
that the expanded plant will not only help to feed the
expanding UK market, but could also help feed new plants all
over Europe. Powell mentioned that Westinghouse currently
supplies 30% of EDF,s nuclear fuel needs, partially through
its plant in Sweden.

British Energy: Ready for the Renaissance, Possessing Rare
-------------- --------------
Skills
--------------


25. (U) Paul Spence, Head of Strategy and Business
Development for British Energy (BE) noted that the UK has a
unique opportunity to take the lead in Europe in new nuclear
technology. He estimates that the UK will need 10-15
gigawatts of new nuclear, which would create a robust supply
chain ready to service the rest of Europe. Spence believes
that building and operating the first fleet of new reactors
in the UK, the most competitive, liberalized market in
Europe, will give the utilities &bragging rights8 when they
seek to expand throughout Europe. (Note: This sentiment was
echoed by a number of companies who see the UK as a proving
ground for future European business. End Note.)


26. (U) Spence stressed that it was unclear what the future
of British Energy would be, and that the policy of the
government was to let the market determine how much new
nuclear power generation would be built. However, he noted
that there was enough enthusiasm from the utilities for new
nuclear that more than one or two reactors would likely be
built. He stated that with a need for more than 10 gigawatts,
there would be more than enough scope for at least two
reactor designs. Spence said that BE had a total of six sites
that are currently viable for new nuclear build. (Note: It
has a further two in Scotland, but the devolved Scottish
Parliament is firmly against new nuclear generation. End
note.)


27. (U) In terms of available skills, Spence said that BE was
competing with the City of London for technical workers, and
that BE,s workforce was ageing. However, looking toward the
future, BE is spending more money to train new workers. He
did worry that the &craft skills,8 such as electricians and
welders, were in increasingly short supply, reflecting demand
from the Olympic preparations, military shipyards, and the
Middle East and Asia.


28. (SBU) Spence outlined what he saw as the three biggest
threats to the building of new nuclear reactors in the UK. He
saw the top threat as the inability of the NII to complete
the GDA. He stated that the NII needs help from the
government in terms of more resources and from other national
regulators. The next potential threat is the waste management
issue. Spence believes that a credible solution needs to be
in place for new waste, as well as the legacy waste, before
the industry can proceed. The final major issue he identified

LONDON 00002027 006 OF 006


was the planning process. Spence said that the proposed
Planning Bill will be of some help, but that the industry
still needs more predictability before proceeding with major
investments. He said that more focus needs to be on local
needs and issues, instead of determining national need for
each new station, as was done in the past. Unlike the
previous process, he sees making the same case for national
need for each new station as a waste of precious time.


29. (SBU) Comment: There is ample opportunity for U.S.
companies, both service and technology providers, to make
aggressive inroads into the UK market. With both parties
supportive of new nuclear, and the issues of climate change
and security of supply looming large in the national
conscience, the political situation is right. However, it
remains to be seen how the consultation on deep geological
disposal will proceed. It may be the last hurdle before the
plans for new construction proceed. All of the companies
asked for more muscular commercial diplomacy in the near
future, in an effort to counteract the efforts of the French
government in its support for Areva. Currently, American
companies have an excellent reputation in the UK, with both
Westinghouse and URS/Washington Group holding contracts with
the NDA. All companies see the UK as a proving ground for
future European work. With more countries considering new
nuclear build, and some decommissioning old reactors, it is
crucial that U.S. firms get contracts in the UK.


30. (SBU) Westinghouse has an especially strong case to make
in the UK. With its policy of local purchasing and
willingness to use the UK as a source for its expansion into
Europe, it can offer more local job creation than vertically
integrated Areva. Its possible partnerships with Rolls-Royce
and BAE Systems and the flexibility of its reactor design
only strengthen its position. However, the recent
announcement of a likely sale of British Energy to EDF could
lock Westinghouse out of the best sites for development.


31. (U) Further cooperation between the NRC and the NII would
be welcomed by all players. The NRC has room to play an
impartial role, as all three of the designs undergoing the
GDA are or have been reviewed by the NRC. Any official help
from the USG would help counter the help offered to the NII
by the French regulators, who have no experience with
Westinghouse or GE designs.

Visit London's Classified Website:
http://www.intelink.sgov.gov/wiki/Portal:Unit ed_Kingdom

LeBaron