1.  In April 2005, the Nuclear Decommissioning Authority (the Authority) was established to clean-up the UK's first generation of civil public sector nuclear facilities. The Authority is a non-departmental public body. It is sponsored by the Department for Business, Enterprise and Regulatory Reform (The Department) which approves its strategy and plans. Scottish Ministers approve its strategy and plans for Scottish sites. The Authority owns a varied and ageing portfolio of 19 sites (Figure 1).[2] The sites include: eleven nuclear power stations; four research sites, including Dounreay (Caithness); a waste repository near Drigg (Cumbria) and the fuel handling, recycling and production facilities at Sellafield (Cumbria), the UK's largest nuclear site. Current plans envisage that the decommissioning and clearance of most sites will take around 100 years.[3]

Figure 1: Nature and location of the Authority's sites at December 2007

2.  The Authority discharges its decommissioning responsibilities through contracts with licensed operators, who manage each site. These operators are owned by a series of parent bodies. At February 2008, the parent bodies were British Nuclear Group Limited (part of British Nuclear Fuels Limited, wholly owned by government); the United Kingdom Atomic Energy Authority, a non-departmental public body; Reactor Sites Management Company Limited, part of the private company Energy Solutions; and Westinghouse Electric Company, part of Toshiba Group.[4]

3.   Since 2003, the estimated future cost of decommissioning the Authority's sites has risen significantly. The undiscounted cost reached £61 billion in the latest plans prepared by the Authority in 2007, an enormous figure. A further £12 billion[5] is required to cover the cost of running the Authority's four remaining operational facilities to the end of their commercial life (Figure 2).[6]

Figure 2: Growth in estimated remaining lifetime costs of the Authority's sites

4.  Recent increases in the estimates are partly a result of a more structured approach to preparing lifetime plans. Prior to the Authority's establishment, cost estimates had been rudimentary. When it was established, the Authority asked site licensees to prepare lifetime plans on a consistent basis. Each plan sets a schedule of the work required to take a site from its current condition until it reaches its agreed end state, such as a brownfield site, and estimates the cost of undertaking this work. As a result, the Authority has gained a better understanding of what it inherited at each site and how decommissioning work might be scheduled.[7]

5.  Lifetime plans have been refined over five iterations, and will be updated again in 2008. Costs have risen after each revision. For example, between 2005 and 2007, like-for-like costs (after adjusting for inflation and expenditure at the Authority's sites) grew by £11.7 billion (18%).[8]

6.  Rises in cost estimates partly reflect the uncertain nature of work that will not be undertaken for many years. Even when the Authority has established full, robust plans, the estimated cost of decommissioning is likely to be subject to uncertainty. This is particularly true for work likely to be undertaken some decades ahead, with the Authority having to make assumptions about the nature and disposition of wastes, the technology available and the likely regulatory regime.[9]

7.  Elements of cost that might be expected to be more predictable have, however, also risen rapidly. Between 2005 and 2007, estimates of site support costs such as procurement, engineering support and human resources, increased by almost £2 billion (9%). And cost estimates for work expected to be undertaken in the near to medium term (April 2008 to March 2013) rose by 41% over the same period.[10]

8.  The Authority identified two reasons for these increases in cost estimates. Firstly, costs increased as site licensees filled gaps in their plans, changed decommissioning strategies and revised cost estimates. Secondly, inflation in the civil engineering sector and on some raw materials, such as steel, has been higher than in the general economy.[11]

9.  The Authority's scrutiny of site licensees' planned programmes is limited. The Authority specifies procedures that site licenses should follow in drawing up plans. Its review of plans prepared up to and including 2007 focused on ensuring compliance with those procedures rather than challenging the nature or cost of proposed work. The Authority has not had access to benchmark data, nor has it employed independent cost consultants to review site licensees' estimates.[12] The Authority is now planning to increase its scrutiny of the costs themselves. For example, between 2008 and 2011, it is planning to spend £5 million per annum on obtaining independent advice on costs.[13]

10.  The Authority is unable to predict the final cost of decommissioning and clearing sites with any certainty. It expected it to take up to five years to establish a robust plan and is only part way through this programme. It has yet to provide a range within which the final figure might fall.[14]

11.  The Authority cited the United States' experience of decommissioning, which suggests that lifetime costs rise initially, as gaps in plans are removed, and then plateau, before eventually declining as management of the decommissioning process improves. The Authority is confident that this pattern will be repeated in the United Kingdom. For example, it expects that its first competition to run a site, for the low level waste repository near Drigg, will deliver a "double digit" reduction in the cost figures for that facility.[15]

12.  The current lifetime plans omit any estimate for the long-term cost of storing nuclear waste. The arrangements for the long-term storage of high-level waste have not been finalised. In 2007, the Government decided that high-level waste, generated from the reprocessing of nuclear fuel, should be stored in a deep geological repository. The costs of storing waste will depend upon the location and design of that repository. The Government plans to invite communities to volunteer to host the repository and will launch a consultation in May 2008.[16]

13.  In January 2008, the Government published its White Paper "Nuclear Power—Meeting the energy challenge" setting out its decision to allow energy companies the option of investing in new nuclear power stations. The White Paper proposes "that it will be for energy companies to fund, develop and build new nuclear power stations, including meeting the full costs of decommissioning and their full share of waste management costs." Potential new operators will be required to submit a funded decommissioning programme for approval by the Secretary of State for Business, Enterprise and Regulatory Reform setting out:

• the steps operators will take to decommission their installation; clean up the site and manage waste (including spent fuel) produced during its electricity generating life;
• the estimated costs of taking those steps;
• how operators intend to meet those costs; and
• details of the financial security to be put in place to meet the costs identified.[17]

14.  The White Paper proposes that independent funds, outside of the control of nuclear operators, will be created to accumulate and manage payments from operators to meet the cost of decommissioning and waste management. The operator-funded decommissioning plans will be subject to independent review on behalf of the Department by a new Nuclear Liabilities Financing Assurance Board. The Government expects the Board to comprise experts from relevant fields, such as current or former fund managers, pension trustees, actuaries and nuclear engineers.[18]

15.  There are two important lessons for the Department from the current decommissioning programme. Firstly, decommissioning plans should be in place before new facilities are built. The current facilities, some of them dating back to the 1940s and 1950s, were not built with decommissioning in mind and this has complicated the task of cleaning-up sites.[19] Secondly, the Department accepts that there will always be some uncertainty surrounding the likely cost of decommissioning, and hence the amounts needed to be put aside to meet this expenditure. The Department believes that the amounts set aside should be based on a prudent assessment of these costs. The Department will need assurance that these independent funds are being properly and frequently reviewed to assess the likely liability against the accumulated assets.[20]

16.  Ultimately, however, this Committee's past reports on British Energy show that the Department cannot guarantee that decommissioning costs will not revert to the taxpayer. Avoiding such costs would depend on the effectiveness of the protections to be put in place, in particular, the quality of risk monitoring procedures established by the Department.[21]

3   C&AG's Report, paras 1.1, 1.2, 1.7 Back

4   C&AG's Report, para 3 Back

5   The lifetime plan estimate does not reflect the anticipated revenue from commercial sites. Back

6   Qq 2, 3, 44; C&AG's Report, paras 2.6, 2.8 Back

7   Q 3; C&AG's Report, paras 2.2, 2.3 Back

8   Q 4; C&AG's Report, paras 2.6, 2.8 Back

9   C&AG's Report, para 2.5 Back

10   Qq 5, 91; C&AG's Report, para 2.8 Back

11   Qq 83-85 Back

12   Qq 12; C&AG's Report, para 2.11 Back

13   Q 12 Back

14   Qq 3, 10-11; C&AG's Report, para 2.5 Back

15   Qq 10, 71 Back

16   Qq 55, 78, 82; C&AG's Report, para 1.9 Back

17   Q 97; White Paper (Cm 7296) , paras 1, 3.51 Back

18   Q 46; White Paper, para 3.49 and page 154 Back

19   Q 46; C&AG's Report, para 8 Back

20   Qq 46, 97 Back

21   Qq 24, 25; Committee of Public Accounts, Thirty-seventh Report of Session 2003-04, Risk management: the nuclear liabilities of British Energy plc, HC 354, page 4 Back