Nuclear industry 'must expand'

THE NUCLEAR power industry, whose privatisation was confirmed last week, looks healthier than ever. Since Sizewell B came on stream in February, Nuclear Electric and Scottish Nuclear have had 29 per cent of the UK electricity market between them, more than ever before. The new private nuclear company should have no trouble generating profits.

But the industry's bosses are worried about the long run. Unless the company builds new capacity, its share of the UK market will inevitably fall. Excluding the Magnox stations (which are being kept in state ownership), Nuclear Electric and Scottish Nuclear run eight units: one pressurised water reactor station, Sizewell B, and seven advanced gas-cooled reactor stations. The AGRs were built between the early 1970s and the late 1980s, and have a life of 30 to 35 years. That means their decommissioning will start around the turn of the century and, says Bob Hawley, Nuclear Electric's chief executive, "by 2020 we could have only one station, Sizewell B".

Five years ago, no one would have considered building a new nuclear station. In 1989, the Government had to drop its plan to privatise the industry, mainly because the Central Electricity Generating Board - which used to own the stations - had not made any provisions for the costs of decommissioning reactors and reprocessing spent fuel. After frantic calculations, a figure of about £9bn was arrived at - it is this that the nuclear levy, a tax on consumers, is designed to cover.

In addition, Nuclear Electric, formed in 1990 as a state-owned organisation, was far from efficient. It was overmanned and demoralised and, Dr Hawley says, "the AGRs were a laughing stock". In 1990, it lost £1bn on a £2bn turnover. Its managers, knowing that a review in four years' time would give it another chance to be privatised, set about putting the problems right. Performance has rocketed, while staff numbers have fallen from 14,400 to 9,000.

The company says the AGRs started running at a profit last year, and now generate electricity at about 2.5p per unit, against 2p-2.7p for the new-generation gas stations. Sizewell B's power should be even cheaper.

The success of the Sizewell project turned Nuclear Electric's mind to expansion. It has planning consent for a new station at Hinkley Point in Somerset, but what it really wants to build is a twin-reactor Sizewell C.

Will it ever be built? There are a number of obstacles. First, under current rules, the Government would not authorise construction: the Treasury would never approve the £3.5bn cost. That is why Dr Hawley is so keen on privatisation.

Second, where would the money come from? The project would have to be a joint venture: the nuclear group would have to persuade industrial partners.

Third, and most important, would the Government give the go-ahead? The nuclear lobby is trying to convince politicians that the industry should be allowed to maintain a market share of 25 per cent plus. It has been bombarding them with arguments about the volatility of fossil fuel prices and is even trying to turn the environmental tables on gas and coal. "If there was a carbon tax on fossil fuels, we would be competitive overnight," Dr Hawley says.

But the lobby knows its struggle will be an uphill one.

If the new nuclear company fails to get the go-ahead for a new station within the next few years, many of its arguments will fall apart. The Sizewell design will be out of date, and will be overtaken by a new European reactor. That will make it harder to win export work. "In Europe 130 power stations will be coming off line in the next 25 years," Dr Hawley says. But the prospects are at best uncertain. Ironically, the nuclear group's best hopes could lie in a change of spots. It may excoriate gas- powered stations now, but it may one day find it is building them.