As nulcear power becomes a more attractive option for European countries, planners must consider the decommissioning process before embarking on a wave of costly new builds.
Richard Temple, Hogan & Hartson, UK
Nuclear decommissioning is becoming an important issue for a number of European countries. Indeed, with the Kyoto Protocol and the need for cleaner energy to meet the emission targets, nuclear power provides a possible solution. However, safety issues, cost implications and the need for decommissioning of sites in an environmentally friendly, safe and cost effective manner, at the end of their life means that decommissioning will have a key impact upon decisions regarding the building of new nuclear power stations in Europe.
Having been looking closely at the decommissioning process, the British government set out its policy on how to address the ever spiralling costs and risks from nuclear clean up in the White Paper ‘Managing the Nuclear Legacy – A Strategy for Action’. This policy, which has now been enacted in Part 1 of the Energy Act 2004 that came into force on 27 July 2004, has made radical changes to the civil nuclear industry in the UK.
Figure 1. The proposed contracting structure for the management and operation arrangements
The Energy Act set up a new non-departmental public body, the Nuclear Decommissioning Authority (NDA). The establishment of the NDA on 1 April 2005 was the first time that a single body in the UK had responsibility for all civil nuclear liabilities. The primary function of the NDA is the decommissioning and cleaning up of designated civil nuclear installations and sites. The NDA will not undertake the decommissioning itself, but will instead issue a series of contracts to the private sector for the clean up of the nuclear sites.
In the UK there are 20 sites that will be subject to the decommissioning, clean-up and restoration programme including:
- Nuclear sites and facilities operated by the United Kingdom Atomic Energy Authority (UKAEA) and British Nuclear Fuels plc (BNFL). These were developed in the 1940s, 1950s and 1960s to support the government’s research programme, and the associated wastes and spent fuel.
- Liabilities arising from the Joint European Torus (JET), which supports fusion research at UKAEA’s Culham site.
- The Magnox fleet of nuclear power stations designed and built in the 1960s and 1970s and now operated by BNFL, plus the plant and facilities at Sellafield used for the reprocessing of Magnox fuel.
The challenge for the NDA is to award contracts to secure decommissioning and clean up cost effectively and at the same time in a manner that is safe, secure and protects the environment. With the cost of nuclear clean up in the UK estimated at £50 billion ($89 billion) and the process set to last for 100 years, few industries have so many commercial possibilities.
The opportunities for the private sector will include contracts for the decommissioning of nuclear installations, maintenance and operations contracts pending decommissioning and contracts relating to the treatment, transportation, storage and disposal of nuclear waste and other waste originating in the nuclear industry. Opportunities will also present themselves for the construction and/or operation of waste treatment and storage facilities.
In addition to the tier one contracts detailed above, there will be further tiers of sub-contractors below the tier one sub-contractors offering a variety of opportunities to the private sector. For example, the tier two sub-contractors may undertake the design of a major project such as a new waste storage facility. In addition, there may be opportunities to offer services to the regulators or other public bodies on tasks relating to decommissioning.
Figure 2. In the UK there are 20 sites – ranging from research sites to power stations – that will be subject to decommissioning
The proposed contracting structure is still being finalised. However, for the management and operation arrangements, the structure is likely to be as follows:
- The winning bidder will own all the shares in a Site Licensee Company (SLC), these shares may be held directly or through a holding company that has no management function. The winning bidder seconds key management personnel to the SLC. To ensure continuity, until competitive tenders are run, existing licensees will remain the site licensees in the short term.
- The NDA will enter into the Management and Operations contract with the SLC in an agreement that should be based primarily upon output specifications including key performance indicators with payment and incentives.
- Ownership of the site and assets will remain with the NDA, although the Management and Operations contract will include a grant of a licence/lease/right of use of the site and assets to the SLC for the period of the contract.
- A Parent Company Agreement between the NDA and the winning bidder/holding company will be entered in order to transfer the shares in the SLC to the winning bidder (or a holding company owned by it) with a call option to be exercised by the NDA on termination. It will also include mutual indemnities for the allocation of the SLC’s liabilities and revenues.
Management and operations
The Management and Operations contract is likely to have a number of distinguishing features with the first being the length of its validity. Varying from site to site, the contracts are expected to last between five and ten years with an option to renew on most. Contracts are also likely to be output based using key performance indicators such as increased volume of vitrified waste, improved defuelling activities, early completion of decommissioning milestones and continuing improvements in safety. Other features expected in the Management and Operations contracts include detailed risk sharing provisions, incentives to achieve prescribed targets for efficiency against a fixed requirement for safety, an agreed programme of works on a rolling basis, remuneration for costs with profit depending on performance and direct and rapid link between performance and profit.
Grant funding from the Secretary of State is the principal source of funding for the nuclear clean up operation. Except for the grants, all sums received by the NDA must be paid into a consolidated fund. To permit project financing based on the revenue stream from the assets, it may be possible to agree exceptions. In addition, the NDA may borrow from the Secretary of State and may also borrow temporarily from other parties, but only with the express consent from the Secretary of State and the Treasury.
The amount the NDA may borrow has been set at £2 billion, though there is the possibility that this limit can be amended by the Secretary of State. With the approval of the Treasury, the Secretary of State may also guarantee borrowing by the NDA.
The four primary regulatory bodies are the Nuclear Installations Inspectorate (NII), the Environment Agency (EA), the Office of Civil Nuclear Security (ONCS) and various other government authorities.
As part of the Health and Safety Executive, the NII regulates the nuclear, radiological and industrial safety of nuclear installations in the UK. The EA authorises and controls radioactive discharges of waste disposals to air, water (surface water and ground water) and land and also regulates nuclear sites. The OCNS regulates security arrangements in the civil nuclear industry including security of nuclear material in transit and exercises statutory powers on behalf of the Secretary of State for Trade and Industry. Other government regulators, in particular various local authorities under their statutory planning and environmental health functions, and other central government departments have a variety of roles in nuclear regulation.
The NDA is working closely with the regulators regarding the proposals and the restructuring process. The regulators are also involved with developing and reviewing comprehensive long term plans for the clean up of each nuclear site. These plans will be updated and modified as the clean up programme develops.
The overall regulatory framework and the basis of the statutory relationships between licensees and the regulators will not change.
US experience is the only real precedent worldwide for nuclear decommissioning that can be drawn from. Indeed, the British government’s White Paper expressly refers to the example of Rocky Flats in Colorado, USA, as a good example of a significantly accelerated clean up programme and improved safety procedures.
Private sector clean up and competition as pioneered in the nuclear field in the US is at the centre of the UK’s proposals. Competition is seen as key to increasing innovation and allowing international experience, new technology and best practice to be introduced to the industry.
The bidding process
The NDA will use an open and transparent procurement process enabling both foreign and UK companies to bid for the decommissioning work.
The procurement process will be subject to the usual UK and EU procurement rules and publication of a notice inviting tenders in the Official Journal of the European Communities. Criteria for selection will be developed as part of the bid process and is likely to include safety, innovation, personnel issues, introduction of improved work processes and an estimate of costs.
Whilst only time will tell how successful this initiative is likely to be, the use of competitive private sector contracts taking on board the lessons from elsewhere should provide a strong platform for a successful decommissioning process.