Recommendations & Conclusions
13 items
2
Recommendation
Third Report - The future of the Advanc…
Accepted
The estimated cost of decommissioning has nearly doubled since 2004–05 and there remains a significant risk that the costs will rise further. The estimated cost of decommissioning the AGR stations, plus the PWR at Sizewell B, has increased from £12.6 billion in 2004–05 to £23.5 billion in 2020–21 in real …
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The estimated cost of decommissioning has nearly doubled since 2004–05 and there remains a significant risk that the costs will rise further. The estimated cost of decommissioning the AGR stations, plus the PWR at Sizewell B, has increased from £12.6 billion in 2004–05 to £23.5 billion in 2020–21 in real terms. There remain significant uncertainties that will need to be managed to prevent further increases in costs and ease pressures on the Fund. The cost of defueling will depend on the stations not closing significantly earlier than planned and how quickly they can be defueled once electricity generation ceases. EDFE’s latest decommissioning cost estimate excludes the early and unplanned closure of Dungeness B in June 2021, which could increase costs further by up to £1 billion. We have previously reported on the decommissioning of the Magnox stations, the first generation of nuclear stations, where uncertainty over the condition of the sites and how to approach 6 The future of the Advanced Gas-cooled Reactors the decommissioning task led to increases in estimated costs worth billions of pounds. However, we were informed that the Magnox stations have all now been defueled, furthermore Bradwell is the first Magnox station to enter the care and maintenance stage of the decommissioning process. The Department accepts that the circumstances of the AGR stations may change and therefore so would the estimates of the costs of decommissioning them. Recommendation: As part of the 2022 revaluation of the decommissioning liabilities, the Department, working with the trustees of the Fund, should ensure the estimates make explicit allowance for the risk of optimism bias. The Department should report back to the Committee on the new estimates when they are available.
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Government response AI summary
The Department, working with the trustees of the Fund, should ensure the estimates make explicit allowance for the risk of optimism bias and report back to the Committee on the new estimates when they are available. They will reflect the revised costs for defueling/deconstruction and …
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HM Treasury
3
Recommendation
Third Report - The future of the Advanc…
Accepted
The terms of the 2009 sale of the nuclear stations agreed by the Department with EDFE placed a disproportionate amount of risk for meeting future decommissioning costs on the taxpayer. The negotiations surrounding the sale of the stations to EDFE in 2009 were focused on maintaining operations, with less attention …
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The terms of the 2009 sale of the nuclear stations agreed by the Department with EDFE placed a disproportionate amount of risk for meeting future decommissioning costs on the taxpayer. The negotiations surrounding the sale of the stations to EDFE in 2009 were focused on maintaining operations, with less attention paid to meeting the costs of decommissioning. Although EDFE successfully extended the lives of all the AGR stations, which bolstered the UK’s capacity to generate electricity, there was no requirement to extend the contributions made by the operator to the Fund despite increasing decommissioning costs. The history of the AGR stations and the operation of the Fund provides important learning for government for planning and funding the decommissioning of new nuclear stations. For example, around the need for planning for decommissioning from the beginning of a new nuclear programme and having mechanisms in place to adjust operator contributions to any decommissioning fund in line with changes to the estimated costs of decommissioning. The Department expects the financial risk associated with decommissioning future nuclear power stations to be lower than that experienced with the Magnox and AGR programmes as the need for decommissioning will have been built into the design from the start. Recommendation: As proposals for building new nuclear stations are firmed up, the Department needs to learn lessons from AGR decommissioning for how the decommissioning of new nuclear stations will be funded, for example linking contributions more closely to reliable estimates of liabilities, and building in mechanisms for adjusting contributions from operators should estimates of liabilities increase. In addition, the Department should report to the Committee within three months about what decommissioning improvements have been built into Hinkley Point C and what proposals there are for the proposed new small modular reactors.
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Government response AI summary
The department agrees to respond by August 2022, but states that FDP policies for new nuclear stations already build upon lessons learned from the AGR stations, highlighting the Energy Act 2008 requirements and periodic reviews of sufficiency.
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HM Treasury
5
Recommendation
Third Report - The future of the Advanc…
Accepted
We are not convinced the Department has struck the right balance in incentivising the NDA and EDFE to deliver safe and efficient defueling of the AGR stations on time while reducing costs. The Department has introduced financial incentives to encourage cost-efficient defueling and station transfer with EDFE potentially earning or …
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We are not convinced the Department has struck the right balance in incentivising the NDA and EDFE to deliver safe and efficient defueling of the AGR stations on time while reducing costs. The Department has introduced financial incentives to encourage cost-efficient defueling and station transfer with EDFE potentially earning or paying out £100 million depending on its performance. EDFE estimates the costs of defueling could be between £3.1 billion and £8.0 billion. The speed at which it can be undertaken safely will dictate the final costs. Successful defueling will depend on all parties being ready and working together, including the NDA being ready to receive and dismantle the volume of fuel arriving at Sellafield. Any delays in the defueling process could result in costs increasing substantially. Key to successful delivery is that stations close as planned, as premature closure of a station would mean that it would not be ready to start accelerated defueling. Making provision for a station to do so early could disrupt existing plans for decommissioning the rest of the AGR fleet. The early and unplanned closure of Dungeness B in 2021 has increased the estimated defueling costs by between £0.5 billion and £1.0 billion. There are significant risks to be managed and we are not convinced the Department’s financial incentive for EDFE to earn or lose up to £100 million, primarily directed at accelerated defueling, is sufficient to fully incentivise cost efficiency. The Department asserts that it has other measures it can use to direct EDFE but does not believe it will have to use them. Recommendation: The Department should write to the Committee within six months outlining how it will assure itself that the incentives are working and setting out the actions it will take if the incentives are not working.
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Government response AI summary
The government agrees to write to the Committee by November 2022 outlining the governance and oversight for monitoring the impact of the incentive on delivery and how that indicates effectiveness of the mechanism.
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HM Treasury
6
Recommendation
Third Report - The future of the Advanc…
Accepted
Arrangements for transferring nuclear stations to NDA are worryingly under- developed, and there is a risk that transfer negotiations between EDFE and NDA could drag on and increase the costs to the taxpayer. The first of the stations could transfer to the NDA as early as 2026. The NDA and …
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Arrangements for transferring nuclear stations to NDA are worryingly under- developed, and there is a risk that transfer negotiations between EDFE and NDA could drag on and increase the costs to the taxpayer. The first of the stations could transfer to the NDA as early as 2026. The NDA and EDFE believe there is sufficient time to prepare for the transfer of the sites. However, the negotiations between the Department and EDFE over the new decommissioning agreements did not provide clarity about what will be transferred to the NDA, when or how. Discussions between 8 The future of the Advanced Gas-cooled Reactors EDFE and the NDA to agree on the details only started in 2021. There is a risk that the costs associated with transfer to the NDA could increase. The issue of what happens to pension liabilities, for example, has yet to be worked through as are the precise details of the land and buildings to be transferred at each site. At the same as tying down these details, the NDA will need to develop its understanding of the sites and determine its preferred decommissioning strategy post-transfer. EDFE and NDA are currently working to identify and prioritise planning work for the transfer, but this is not yet complete. Recommendation: Within the next six months the Department, following discussions with NDA and EDFE, should write to the Committee with a detailed plan and timetable for how the transfers will take place. This plan should cover all the major aspects of the transfer including land and people, and it should identify where uncertainties remain, how those uncertainties might affect costs, and when they are likely to be resolved.
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Government response AI summary
The government agrees to provide a detailed transfer plan for Hunterston B by May 2023 and will share it with the committee, along with a summary of progress for other stations.
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HM Treasury
10
Conclusion
Third Report - The future of the Advanc…
Accepted
There remain significant uncertainties which if managed poorly could increase decommissioning costs further. The estimated cost of defueling the seven stations, for example, ranges between £3.1 billion and £8 billion depending upon how quickly they can be defueled and how soon defueling starts once a station closes after stopping electricity …
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There remain significant uncertainties which if managed poorly could increase decommissioning costs further. The estimated cost of defueling the seven stations, for example, ranges between £3.1 billion and £8 billion depending upon how quickly they can be defueled and how soon defueling starts once a station closes after stopping electricity generation. We asked the Department how certain it was about the expected costs and if either the worst case or best case scenarios were more likely than the other. The Department told us that its current estimate range for defueling was “deliberately built to be a balanced assessment” and that while costs could change over time, it was “not skewed towards either one at this moment”. The NDA explained that it and EDFE were “absolutely dedicated” to minimising costs. It explained that it was working with EDFE to defuel the stations safely and as quickly as possible.15 It recognised, however, that delays in the process would increase costs. For example, the estimated annual cost of an AGR station once it has been defueled is between £25 million and £35 million compared with £140 million if the station still has fuel in it. The NDA explained that the defueling process could also be impacted by the timing of station closures, as closures earlier than planned would increase pressure on the defueling programme.16
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Government response AI summary
The government agrees with the recommendation to ensure estimates make explicit allowance for the risk of optimism bias as part of the 2022 revaluation. The department will respond by July 2023.
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HM Treasury
11
Recommendation
Third Report - The future of the Advanc…
Accepted
EDFE has recently brought forward the closure date for five out of the seven AGR stations. EDFE told us it expects the stations to stop operating at their current closure dates but acknowledged that early closure was always a risk. Dungeness B was due to close in 2028 but due …
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EDFE has recently brought forward the closure date for five out of the seven AGR stations. EDFE told us it expects the stations to stop operating at their current closure dates but acknowledged that early closure was always a risk. Dungeness B was due to close in 2028 but due to technical reasons shut in 2021. EDFE estimates that this early and unplanned closure will cost an additional £0.5 billion to £1.0 billion to defuel. The impact of this early closure was not included in the estimate of decommissioning costs of £23.5 billion reported at the end of 202–21. The Department confirmed that it expected the impact of the closure to be reflected in the next revision to the decommissioning estimates.17 13 Committee of Public Accounts, The Nuclear Decommissioning Authority’s management of the Magnox contract, Twenty-Eighth Report of Session 2019–21, HC 653, 27 November 2020 14 Qq 12, 64 15 Qq 12, 31–32; C&AG’s Report paras 10, 15 16 Qq 34, 85; C&AG’s report para 10 17 Qq 6–8, 38–39; C&AG’s report paras 6, 10, 2.7, 3.13 12 The future of the Advanced Gas-cooled Reactors Financial incentives for decommissioning
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Government response AI summary
The government agrees to ensure the 2022 revaluation of decommissioning liabilities makes explicit allowance for the risk of optimism bias and will report back to the Committee on the new estimates by July 2023.
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HM Treasury
12
Conclusion
Third Report - The future of the Advanc…
Accepted
In 2015, the then Shareholder Executive, on behalf of the Department undertook a review of the arrangements with EDFE for decommissioning the AGR stations. It concluded that the existing agreements did not incentivise EDFE to look at more innovative or cost- effective ways to minimise decommissioning costs. Between late 2017 …
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In 2015, the then Shareholder Executive, on behalf of the Department undertook a review of the arrangements with EDFE for decommissioning the AGR stations. It concluded that the existing agreements did not incentivise EDFE to look at more innovative or cost- effective ways to minimise decommissioning costs. Between late 2017 and June 2021, the Department negotiated new arrangements with EDFE which included a new incentive arrangement focused on defueling.18 Under the revised arrangements agreed between the Department and EDFE that govern the decommissioning of the AGR stations, the company can now earn a fee of up to £100 million for good performance, or it could lose up to £100 million for poor performance. Most of the financial incentive is devoted to incentivising accelerated defueling with the remainder for delivering a smooth transfer.19
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Government response AI summary
The government agrees with the Committee’s recommendation and will respond to the Committee by November 2022, outlining the governance and oversight for monitoring the impact of the incentive on delivery and how that indicates effectiveness of the mechanism.
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HM Treasury
13
Conclusion
Third Report - The future of the Advanc…
Accepted
A review commissioned by the Department during the negotiations suggested that the £100 million potential fee might not be enough incentive for EDFE to place greater focus on the AGR stations given the potential value of its other UK interests.20 We therefore queried whether the £100 million financial incentive was …
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A review commissioned by the Department during the negotiations suggested that the £100 million potential fee might not be enough incentive for EDFE to place greater focus on the AGR stations given the potential value of its other UK interests.20 We therefore queried whether the £100 million financial incentive was sufficient to incentivise EDFE, in particular to facilitate smooth station transfers where a maximum of £14 million is available.21 The Department told us that the £100 million incentive was a meaningful financial risk for EDFE. It acknowledged that the incentive might not be large compared to the billions of pounds at stake, but argued it was reasonable in incentivising station- level performance. The Department explained that it had split the £100 million incentive with £30 million for overall fleet performance and £70 million for individual stations, which followed advice it had received from its independent review which suggested that a substantial proportion of the incentive be directed at delivering station-level targets.22
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Government response AI summary
The government agrees with the Committee’s recommendation and will respond to the Committee by November 2022, outlining the governance and oversight for monitoring the impact of the incentive on delivery and how that indicates effectiveness of the mechanism.
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HM Treasury
14
Recommendation
Third Report - The future of the Advanc…
Accepted
The Department told us it did have other rights to direct EDFE, for example it has the power to change decommissioning plans. If the Department, for example, identified material cost saving opportunities of more than £5 million it told us it could instruct EDFE to do things in a different …
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The Department told us it did have other rights to direct EDFE, for example it has the power to change decommissioning plans. If the Department, for example, identified material cost saving opportunities of more than £5 million it told us it could instruct EDFE to do things in a different way. It did not, however, expect to use these rights and it did not think there was anything to indicate that it would be required to as NDA and EDFE had been working cooperatively so far.23 Ultimately, how quickly and efficiently the AGR stations can be defueled is dependent upon EDFE and NDA working together seamlessly. The NDA will, for example, have to be ready to transport AGR fuel and store it at Sellafield. The witnesses were positive about the joint working so far between EDFE, NDA and the Department to address potential bottlenecks in the defueling process.24 Lessons for new nuclear stations – balance of risk
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Government response AI summary
The government refers to its response to recommendation 5, stating it needs to assure itself that the incentives are working and will act accordingly.
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HM Treasury
16
Conclusion
Third Report - The future of the Advanc…
Accepted
We asked why, given the amount of uncertainty surrounding the costs, and concerns about the adequacy of the Fund to cover this, the risks of decommissioning were being entirely borne by the taxpayer. The Department said that the £100 million agreed with EDFE was a meaningful financial incentive to manage, …
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We asked why, given the amount of uncertainty surrounding the costs, and concerns about the adequacy of the Fund to cover this, the risks of decommissioning were being entirely borne by the taxpayer. The Department said that the £100 million agreed with EDFE was a meaningful financial incentive to manage, for example, the risks of defueling. It also argued that some of the issues were due to agreements made “decades and decades ago” and that it would structure these differently in future as part of the planning for new nuclear power stations to ensure that the risk falls much more strongly with the operator.27
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Government response AI summary
The government refers to its response to recommendation 3, stating that the terms of the 2009 sale placed a disproportionate amount of risk on the taxpayer.
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HM Treasury
17
Conclusion
Third Report - The future of the Advanc…
Accepted
The Department emphasised that it was applying significant learning from the experience of decommissioning the Magnox and AGR stations. For new nuclear stations a funded decommissioning plan has to be in place before construction begins. The Department told us that it was “building from the start with decommissioning in mind” …
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The Department emphasised that it was applying significant learning from the experience of decommissioning the Magnox and AGR stations. For new nuclear stations a funded decommissioning plan has to be in place before construction begins. The Department told us that it was “building from the start with decommissioning in mind” and that this should mean that when the new nuclear stations cease operation there will be sufficient funds in place to carry out decommissioning.28 It also explained that new legislation also included provisions to enable provider contributions to be adjusted during the life of assets. The Department also expected that new technologies would mean that the proportion of whole-life costs accounted for by decommissioning would reduce for the new generation of nuclear reactors.29 25 Qq 59, 60; C&AG’s Report paras 1.9, 2.3 26 Q 5; C&AG’s report para 2.2 27 Qq 60–61 28 Q 29 29 Qq 29, 64 14 The future of the Advanced Gas-cooled Reactors 2 Defueling and decommissioning the AGR stations Impact of closures on generating capacity
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Government response AI summary
The department agrees with the committee’s recommendation and will respond by August 2022 and states that the funded decommissioning plan (FDP) policies in place to support the development of new nuclear stations already build upon what was learnt from the AGR stations. It highlights aspects …
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HM Treasury
18
Conclusion
Third Report - The future of the Advanc…
Accepted
Nuclear power contributed around 16% of the UK’s electricity in 2020. As at January 2022, five of the seven AGR stations and the Pressurised Water Reactor at Sizewell B are the only nuclear power stations in the UK currently generating electricity; two of the AGRs, Dungeness B and Hunterston B, …
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Nuclear power contributed around 16% of the UK’s electricity in 2020. As at January 2022, five of the seven AGR stations and the Pressurised Water Reactor at Sizewell B are the only nuclear power stations in the UK currently generating electricity; two of the AGRs, Dungeness B and Hunterston B, closed in June 2021 and January 2022 respectively. A further station is expected to close in 2022, two more in 2024 and the remaining two in 2028. All of the AGR stations will close by 2028, with only Sizewell B and the new station at Hinkley Point C expected to be operating nuclear power stations at that point.30 We inquired whether the lives of the operational AGR stations could be extended as we wait for new generating capacity to come online. EDFE told us that when it bought the AGR stations in 2009 it invested a further £6 billion into extending their operating lives. It explained that it was working closely with the regulator to decide how much longer stations could operate to produce as much electricity as possible from the stations. But it noted that the stations were reaching the technical limits of running safely, having extended the original design life of these stations from 25 to over 40 years. It explained that it had “put in absolutely as much money as they [the stations] can usefully use in terms of the technical limitation” and it was confident that no further investment would allow the stations to be used for longer.31
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Government response AI summary
The government refers to its response to recommendation 3, stating that the FDP policies in place to support the development of new nuclear stations already build upon what was learnt from the AGR stations.
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HM Treasury
21
Recommendation
Third Report - The future of the Advanc…
Accepted
After the AGR stations are defueled EDFE will transfer the stations to NDA who will be responsible for completing the rest of the decommissioning process. The first 30 Qq 3, 7; C&AG’s Report para 1.2–1.3 31 Qq 3–5 32 Q 7 33 Qq 78–79, 82–83 The future of the Advanced …
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After the AGR stations are defueled EDFE will transfer the stations to NDA who will be responsible for completing the rest of the decommissioning process. The first 30 Qq 3, 7; C&AG’s Report para 1.2–1.3 31 Qq 3–5 32 Q 7 33 Qq 78–79, 82–83 The future of the Advanced Gas-cooled Reactors 15 station could transfer as early as 2026. The NAO found there is a risk that transfer timings do not allow NDA to fully understand and assess the transferring liabilities. The NAO also highlighted the importance that the NDA does not rush the station transfer process exposing it unduly to liabilities. Aspects such as land, people, assets and contracts will need to be transferred over to NDA to enable its subsidiary, Magnox Ltd, to gain licence approval from the nuclear regulator to allow it to decommission the sites.34
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Government response AI summary
The government agrees to complete a feasibility study within 12 months and report back to the Committee regarding the future use of nuclear land.
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HM Treasury