Reasons to be cheerful

Centrica may have exited nuclear new-build in the UK, but plenty of others are willing to take its place, say Dominic Holt and Tim Stone

For all intents and purposes, the UK has been out of the nuclear new-build game for almost a quarter of a century (the last time ground was broken for a reactor in the UK was 1988). Even if we put aside all the construction and development risks that come with building a highly regulated and technical mega project in the energy sector (and those risks are considerable), one of the most obvious repercussions of this long absence from the sector is a lack of experienced professionals capable of executing not just one, but eight or more of these projects over the coming years. The UK is feverishly trying to up-skill workers to fill the looming gap, but it is fairly clear that some expertise will need to be imported or externally recruited if targets are to be met.

Talent can be imported relatively easily, however the creation of a supportive regulatory and policy environment for new nuclear is a home-grown proposition. Nuclear build transcends the remit of any individual government department or agency, and therefore requires significant collaboration and a clear vision to succeed in encouraging private investors and developers to participate.

In regulatory terms, the Energy Bill will deliver a long-standing commitment from government to place the interim Office for Nuclear Regulation (ONR) on to a statutory footing. This will increase clarity and certainty around the nuclear regulator’s remit and resourcing. It is also a strong signal to investors that the government will continue to support new nuclear when many other countries are losing faith.

A single infrastructure authority that could maintain a unified and strategic plan for the country and co-ordinate government activities across the board would be welcome. Had this been in place ten years ago, it is likely the authority – if properly empowered – would have noted the sea change that was coming, been able to respond appropriately by advocating for new regulations and policies on a timely basis, and been alive to the skills issue as it emerged over time.

Without this – or the experience in structuring and tendering nuclear new-build programmes – the government has been forced to develop a regulatory and policy regime that would meet the needs of the nation while also appealing to developers and investors (in part by dramatically reducing the wide array of perceived regulatory and political risk).

On the whole, it has been largely successful. There are developers active in the nuclear market. Each has already invested significant capital (one is thought to have invested more than £1 billion) in planning, design and consultation. Clearly, they would not have taken on this investment unless they though the government could make it all work.

The recent acquisition by Hitachi of Horizon Nuclear Power from its founders, Eon and RWE, was an eye-popping demonstration of the trust placed in the UK government by international investors. Indeed, the Horizon acquisition is part of an increasing body of evidence to suggest the UK will, in fact, be able to achieve its targets using private developers and investors.

However, the journey is far from over. Both on the development sites and within the halls of government, more action will be needed, starting with an attractive strike price for incoming contracts for difference.

Dominic Holt is a director at KPMG and Tim Stone a senior advisor to KPMG. More from KPMG on mega projects can be found at http://bit.ly/X1BZEF

This article first appeared in Utility Week’s print edition of 22nd February 2013.

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