POSITIVE OUTLOOK FOR UK NUCLEAR ENERGY EXPANSION

UNCLAS SECTION 01 OF 03 LONDON 003199

SENSITIVE
SIPDIS

STATE: MHUMPHREY, T BUREAU; COMMERCE:SLOPP

E.O. 12958: N/A
TAGS: ENRG TRGY BEXP BTIO UK
SUBJECT: POSITIVE OUTLOOK FOR UK NUCLEAR ENERGY EXPANSION

REF: A. SECSTATE 127468

B. LONDON 808

C. LONDON 2989


1. (SBU) Summary. HMG announced a long-term nuclear energy
strategy in January 2008, setting it on a path for tremendous
growth over the next ten years. This strategy addresses the
UK's energy security concerns and EU commitments for
clean/renewable energy. The UK hopes to increase the
proportion of nuclear energy from the current 15-18 percent
level to 30 percent. The Government is also tackling the
concerns of an "aging" workforce through various
public-private sector training initiatives related to
nuclear. U.S. companies involved in the UK nuclear energy
market -- Westinghouse, CH2M Hill, Fluor, URS, and others --
are positioned to benefit from the expansion of the nuclear
sector. Market dynamics, however, are very dependent on
French-owned Electricite de France (EDF's) 12.4 billion GBP
purchase of British Energy (BE) and BE's eight nuclear sites.
The European Commission (EC) approved the acquisition on
December 22, subject to conditions that include divesting two
power plants, concessions on new build, and other agreements
related to the wholesale of electricity and the national
grid. It is too early to assess whether EDF's competitors
agree whether this "remedy package" goes far enough in
opening the market to competition. End Summary.

Overall Expansion Plans
--------------


2. (SBU) In January 2008, HMG produced a white paper on its
long-term policy on nuclear energy, stating new nuclear power
stations should have a role to play in the UK's future energy
mix. The Government also announced it would launch the
application process for investment in new nuclear power
stations. Overall objectives include helping the UK meet the
challenges of climate change and addressing energy security
concerns due to limitations of oil and gas. According to the
Office of Nuclear Development (OND),which is part of the new
Department of Energy and Climate Change, there are ten
existing nuclear power stations. Eight of these nuclear
power stations are owned by BE and two by the Nuclear
Decommissioning Authority (NDA). French-owned EDF bid in
September 2008 to buy BE, pending approval by the EC. The EC
issued its approval of the acquisition on December 22,
pending conditions. These include commitments by EDF to
divest the power generation plant at Sutton Bridge (owned by
EDF) and at Eggborough (owned by BE),to sell certain volumes
of electricity in the British wholesale market, to divest a
site suitable for nuclear new build either at Dungeness or
Heysham sites, and to end one grid connection agreement with
National Grid at Hinkley Point.


3. (SBU) According to OND, there is not a specific number
of new sites planned over the next ten years. The current
timeline calls for site assessment/licensing and other
planning between 2009 and 2013, and new plants are to become
operational by 2018. Nuclear energy comprises approximately
15-18 percent of the UK's current energy mix, and OND expects
this percentage to increase to 30 percent long-term. Many
existing nuclear sites are expected to be decommissioned by

2025. The UK Government expects many of the new nuclear
stations will be built on (or near) decommissioned sites
since the infrastructure and workforce are already in place
in these locations.

The Government's Role: No Subsidies
--------------


4. (SBU) The UK Government does not provide any financial
incentives to the civil nuclear industry; the "new build"
market will be completely paid by the private sector. OND
plays a role by facilitating the site assessment, the design
process, and overall policy development. While members of
industry comment on the positive support from the UK
Government, they also contend the licensing and site
assessment processes are cumbersome. The Foreign
Commonwealth Office (FCO) plays a diplomatic role in
facilitating the shipment of spent fuel and in handling
concerns raised by UK neighboring countries. According to
one FCO representative, both Sweden and Ireland have raised
concerns in the past regarding nuclear safety of plants near
their borders.


5. (SBU) While the UK Government currently owns 36 percent of
BE, its ownership will decrease substantially now that the EC
has approved the acquisition by EDF. The UK Government
stands to receive close to 5 billion GBP from the sale of BE.

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OND notes the UK Government supports the EDF deal, but would
like to see a diverse energy market. There are also no
automatic "guarantees" that the sites EDF purchased from BE
will meet OND's established site criteria.

Regulatory Authorities
--------------


6. (SBU) The Nuclear Installations Inspectorate (NII),which
is part of the Health and Safety Executive (HSE),is the
primary nuclear regulatory authority. The NII consists of
six divisions and focuses on nuclear safety and security
standards. A site license by the NII can take 2-3 years.
OND requires site assessments from businesses interested in
developing nuclear sites, but also looks at threats of
terrorism and nuclear non-proliferation. The Nuclear
Decommissioning Authority (NDA) is responsible for the
decommissioning of old or "legacy" nuclear sites. The
Department of Environment, Food and Rural Affairs (DEFRA)
plays a small role in regulating overall environmental
protection.

Liability Regime/Laws
--------------


7. (SBU) The UK does not have a domestic nuclear liability
law. However, it is signature to the Joint Protocol Relating
to the Application of the Vienna Convention and the Paris
Convention (September 21, 1988),as well as the Convention on
Nuclear Safety (September 20, 1994). It is also signature to
the Joint Convention on the Safety of Spent Fuel Management
and on the Safety of Radioactive Waste Management (September
29, 1997). The UK also established the Nuclear Liability
Financing Assurance Board, which scrutinizes the site plans
of companies and requires both financing and plans for
dealing with nuclear incidents, as well as funding for the
decommissioning of a nuclear plant at the end of its life
cycle. The UK is also a partner to the Nuclear
Non-Proliferation Treaty. All IAEA safeguards are applied on
all civil nuclear activities.

Manufacturing and Workforce Base
--------------


8. (SBU) The UK has a strong manufacturing base to support
the UK nuclear industry. Nuclear plants are big businesses
generating significant revenue and workforce. Figures
provided by the Nuclear Industry Association (NIA) indicate
that approximately 40,000 jobs in the UK are directly
attributable to the nuclear energy sector. The largest
employers include the Sellafield site (11,000),British
Energy (5,400),and the Magnox site (3,600). One concern,
however, is that there is a dearth of "new blood" with
technical expertise and that most of the workforce is nearing
retirement. To address this challenge, the UK Government and
industry have formed partnerships to support investment in
skills and training as well as nuclear energy research. The
National Skills Academy for Nuclear works with universities,
technical institutes, and trade unions to provide funding for
training initiatives. Sellafield also runs its own nuclear
engineering training program (ref B). In addition, the
University of Manchester Dalton Labs has a specialized
program focused on nuclear research.

Opportunities and Concerns for US Industry
--------------


9. (SBU) U.S. companies, such as Westinghouse, CH2M Hill, and
Fluor are very active in the UK nuclear industry sector.
Westinghouse is currently one of the producers of the newest
technologies, the AP1000 nuclear reactor, and hopes to
partner with a UK or foreign electricity provider for the
nuclear new build. Most of Westinghouse's current business
is in recycling and exporting spent fuel and uranium to other
European countries and Japan. CH2M Hill is focusing right
now on decommissioning work, but hopes to partner with other
companies for the nuclear new build. URS is part of a
consortium which received a contract in November 2008 to
manage the Sellafield nuclear waste reprocessing facility.
Fluor is also very involved in the UK nuclear energy sector.

Foreign Competitors and Cooperation
--------------


10. (SBU) French-owned EDF and Areva are the biggest foreign
players in the UK market. EDF's acquisition of BE is of
concern to US businesses. It remains to be seen whether the
remedy package approved by the EC goes far enough. Besides

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EDF, other foreign utilities include E.On (Germany),
Iberdrola (Spain),RWE (Germany),Endessa (Spain),Suez
(France),Union Fenosa (Spain),and Vattenfall (Sweden). The
UK gets most of its uranium (fuel) from Canada and Australia,
and OND says this arrangement should not change significantly
with the EDF purchase of BE. The UK is active in the
international community in cooperating on nuclear energy
issues, and is a member of the European Atomic Energy
Community (EURATOM),the Global Nuclear Energy Partnership
(GNEP),and the IAEA Safeguards Agreement.

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