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SECTOR DEAL BETWEEN GOVERNMENT AND THE NUCLEAR INDUSTRY—KEY MESSAGES

This article was first published on Lexis®PSL Energy on 18 July 2018. Click for a free trial of Lexis®PSL.                                                                                                                                                                                            Energy analysis: Rupert Cowen, senior commercial and nuclear energy lawyer at Prospect Law, highlights some of the key messages of the sector deal between the UK government and the nuclear industry

Original news

£200m nuclear deal to secure UK energy mix, LNB News 28/06/2018 94

The Department for Business, Energy & Industrial Strategy (BEIS) has announced a £200m deal with the nuclear sector to secure the UK’s diverse energy mix and drive down nuclear energy costs. The deal includes £32m to kick-start a new advanced manufacturing programme to develop potential world-leading nuclear technologies like advanced modular reactors, and a commitment to increasing gender diversity in the civil nuclear workforce, with a target of 40% women in the sector by 2030.

What are the key messages and conclusions of the sector deal? Is there anything unexpected or new?

 To those of us old enough to remember the 1970’s, when the government of the day offered support to ‘the white-hot heat of technology’, the new industrial strategy is back to the future with its ‘grand challenges’ to put the UK at the forefront of the industries of the future.

Although the strategy promises government support in many sectors, it is a moot point whether nuclear can be said to be an industry of the future. Although, it is clear that some in this government believe that if the price of constructing generating capacity can be reduced, it does have a future in the UK.

As a mark of the confusion which reigns within the government authorities seeking to assist industry, even before the ink is dry on the nuclear sector deal, the National Infrastructure Council’s National Infrastructure Assessment cautions against a rush to agree government support for multiple new nuclear power stations, and proposes that after Hinkley Point C in Somerset, the government should agree support for only one more nuclear plant before 2025. This following on from the government’s refusal to support the Severn barrage.

Among the hyperbole of the nuclear sector deal, is the promise to ‘transform our future’. The deal does at least make good on the promise of financial support with confirmation of £56m for R&D in advanced modular reactors (AMRs), £85m to replace the funding Culham lost because of the withdrawal from Euratom; and other promises include £40m toward a facility to develop advanced nuclear technologies together with support for an advanced manufacturing program and a national supply chain programme.

The stand out point is that, although there will be government support for AMRs, that support does not extend to the small modular reactors (SMRs). Despite its disappointment, Rolls Royce—who would have been the main beneficiary of government support for SMRs—said that it continued to believe that ‘UK SMR can be a significant contributor to providing low cost, low carbon electricity’.

Nuclear energy supporters see AMR’s as a lower cost alternative to traditional reactors which are struggling to compete with the rapidly falling cost of renewables.

The other stand out points were:

  • acknowledgement of the need for direct government advanced financial support to reduce the cost of construction of the existing planned nuclear development in the UK
  • the new facility to develop advanced nuclear technologies is possibly going to be located at Trawsfynydd with support from the Advanced Manufacturing Research Centre (AMRC)

In return, those members of the industry who canvassed the Nuclear Industry Council have made a commitment to:

  • reduce the cost of new nuclear build projects by 30% over the next 12 years
  • reduce the cost of decommissioning old nuclear sites by 20%—reference is made to the current debate on the proper end state for legacy nuclear sites and the BEIS consultation on funding decommissioning

To the more cynical reader, the relationship between end state and cost reduction will not be lost.

This announcement comes only days after EDF announced that the cost of constructing Hinkley Point C had increased by a further £1.5bn to over £20bn.

Are there any remaining unanswered questions?

The government has indicated in a vague and unsubstantiated way that in the case of Wylfa Newydd, it might consider attaching taxpayer funds to the construction of the site, but with the ambition of achieving a strike price for the electricity that will be about £15/MWh cheaper than for Hinkley. Such a strike price would be about £77.50/MWh. This price is still higher than the £57.50/MWh allocated for UK offshore wind contracts in September 2017.

Are there any other important points worth mentioning?

The sector deal does not help with the biggest own goal for the nuclear industry in the UK and ensuring it is not affected by Britain leaving the European Union, and to aim for continuity with Euratom arrangements to enable the nuclear industry to continue operating after 29 March 2019.

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Rupert Cowen has worked in various countries on nuclear projects and has drafted for and provided ongoing guidance to those creating or revising national legal regulatory frameworks. He is recognised as a leading expert in international nuclear law and regulation; he lectures on a frequent basis around the world and has published papers on various aspects of nuclear regulation, particularly nuclear waste strategies.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

Prospect Law Ltd, July 2018

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THE EUROPEAN COURT OF JUSTICE REJECTS AUSTRIA’S CHALLENGE TO HINKLEY POINT C

The Austrian Government’s challenge to the EC’s approval of state aid to support the development of the nuclear power station at Hinkley Point in the UK was last week rejected by the ECJ.

Austria and Nuclear Energy

Despite being home to the International Atomic Energy Agency (IAEA), an international organisation which “seeks to promote the safe, secure and peaceful use of nuclear technologies“, Austria has a strong anti-nuclear policy that stems from the country’s venture into nuclear energy in the 1970’s. A 700 MW(e) NPP was constructed at Zwentdorf and completed in 1978, but never commissioned. Despite the then government being in favour of nuclear power, there were many large anti-nuclear demonstrations which led to a 20-year ban on nuclear energy in the country; in 1997 this ban was extended indefinitely.

Not only does Austria’s anti-nuclear policy apply to its own generation of electricity, but also to electricity bought from other countries – in 2015 it passed a law banning the importation of nuclear generated electricity (insofar as it is possible to differentiate between the two when drawing from the grid in real time).

Neighbouring Countries:

Austria also has a history of trying to stop the development of nuclear power in neighbouring countries, having previously raised objections to the Temelin NPP in the Czech Republic and Mochovce NPP in Slovakia. In February 2018, Austria launched a lawsuit against the European Commission (EC) for its approval of Hungarian state subsidies for the construction of two reactors at the Paks nuclear site in Hungary – the outcome of this is awaited.

Austria’s concern about Temelin caused IAEA Director General, Mohammed ElBaradei to comment in 2007:

six out of seven of Austria’s neighbour countries have nuclear power plants. I would advise the Austrians not to concentrate on the fact that power plants exist, but rather on their safety”, and;

ultimately, it makes no difference whether the nuclear power plants are in Austria or on its borders. We at the IAEA ensure that the best possible safety standards are applied. I want to guarantee to all Austrians that the reactors surrounding Austria have nothing to do with Chernobyl. Of course, there can never be a 100% guarantee. It is just like flying: very safe, but with a residual risk. But I am not in the least concerned about Temelin. I can say that with a clear conscience, since I too live here in Austria”.

Hinkley Point C:

But Austria takes an anti-nuclear stance beyond its neighbours. In October 2014 it brought a case against the EC for its approval of the UK government’s state aid for Hinkley Point C, which the Commission argued was compatible with the internal market and that the construction of the plant was in the British public’s interest.

Hinkley Point C comprises two 1600 MW(e) EPR reactors and is being constructed by EDF Energy’s subsidiary NNB Generation next to the shutdown Hinkley Point A and operating Hinkley Point B stations in Somerset.

Austria sought to challenge the EC’s decision through the filing of a lawsuit with the European Court in July 2015, supported by Luxembourg. On the other side, the UK, Czech Republic, France, Hungary, Poland, Romania and Slovakia supported the EC’s case. The challenge drew the wrath of Agneta Rising, Director General of the World Nuclear Association, who said in a statement issued at the time:

It is one thing to have an opinion, it is quite another to try and force your opinion on someone else. The UK public, indeed people in all countries, have the right to choose nuclear to meet their energy needs and to help address climate concerns if they so wish. It is a pity that the Austrian government has decided not to respect that right”.

Ruling against Austria:

In its ruling of 12 July, the European Union’s General Court stated:

the Commission did not err in taking the view that the UK was entitled to define the development of nuclear energy as being a public-interest objective, even though that objective is not shared by all of the Member States“.

 It added that “the objective of promoting nuclear power, and, more specifically, of promoting the creation of new nuclear energy production capacities, is related to the Euratom Community’s goal of facilitating investment in the nuclear field“. It also said that each Member State has the right to choose from among the different energy sources those which it prefers.

The court also said that Austria had failed to invalidate the EC’s findings that it was “unrealistic” to expect a comparable amount of wind generating capacity could be built over the same timeframe as constructing Hinkley Point C “given the intermittent nature of that source of renewable energy“.

Austria can appeal to the European Court of Justice within the next two months.

Although Austria does not have an operating commercial NPP, it does have TRIGA research reactor at the Atominstitut (ATI) in Vienna. It is therefore by definition a generator of radioactive waste, and under the requirements of the EU’s radioactive waste Directive should have a long-term policy for dealing with it. It is a signatory to the Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management, and a signatory to the Convention on Nuclear Safety.

Conclusion

So Austria does take its nuclear responsibilities seriously and has declared its international commitment to improving nuclear safety, for example as reflected in its latest report to the Convention on Nuclear Safety saying that it “attaches utmost importance to international efforts to harmonise and steadily increase nuclear safety”.

Regarding its relationship with the IAEA however, the Austrian government saysAustria’s interests regarding the IAEA are primarily nuclear safety and radiation protection as well as safeguards against the proliferation of nuclear weapons. Austria ascribes considerable importance to the Convention on Nuclear Safety, and expressly supports the Agency’s integrated monitoring system”.

At first sight, Austria appears to be a thorn in the side of the nuclear industry, bringing challenge after challenge to nuclear developments throughout Europe. However, each of these challenges has been dealt with robustly and summarily dismissed. Should Austria stop its opposition to nuclear?  Perhaps ironically for Austria its challenges to date have had positive outcomes for the industry, but one could argue that its stance has the benefit of allowing arguments for and against to be discussed.

About the Author:

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector.

The firm is made up of lawyers, engineers, surveyors and finance experts. This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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UK GOVERNMENT PUBLISHES DRAFT NUCLEAR SAFEGUARDS REGULATIONS

On 9 July 2018 the UK government published a consultation on draft Nuclear Safeguards Regulations (see link). The draft Regulations are the next essential piece in the framework being introduced in the UK following the decision to leave the Euratom Treaty in parallel to the decision announced to leave the European Union. These are important Regulations with wide implications for all nuclear operators and those in the nuclear supply chain.

The consultation runs to 14 September 2018 and covers all parts of the UK. Consultation workshops will take place in London on 2 August 2018 and in Manchester on 15 August 2018, and others may be announced later.

Following the triggering of Article 50, Treaty for European Union, the UK government concluded that leaving the European Union had the consequence of the UK being required to leave the Euratom Treaty, and it gave notice of that intention at the same time [see earlier Prospect Law briefings in June 2017 and March 2018, parts 1-3].

In order to avoid any actual or potential gaps in the coverage of nuclear safeguards, and to ensure its continued firm commitment to both the international system of nuclear non-proliferation and uninterrupted support for civil nuclear developments, the UK government has had to go to considerable lengths.

On 26 June 2018 the Nuclear Safeguards Act 2018 received Royal Assent, introducing a new and enhanced framework for the Office for Nuclear Regulation ‘ONR’ to apply safeguards outside of Euratom. The Nuclear Safeguards Act 2018 will amend relevant provisions of the Energy Act 2013.   Publication of the draft Nuclear Safeguards Regulations on 9 July 2018 is the next step in addressing the detailed regulatory requirements of this process.

The Regulations will aim to deliver an equivalent regime to that applying under Euratom from Day One of the UK’s exit from the European Union and Euratom, by whatever route that now takes. As expected, most of the new day to day responsibilities will fall on the ONR.

The UK Department for Business, Energy and Industrial Strategy ‘BEIS’ has also set up a working group with those with like responsibilities in Scotland, Wales and Northern Ireland, and this has been considering related issues such as the shipment and treatment of radioactive waste.

In addition, the UK has prioritised development of bilateral Nuclear Cooperation Agreements with four jurisdictions with their own particular legislation controlling nuclear trade and cooperation, namely Australia, Canada, Japan and the USA, and a UK-USA Nuclear Cooperation Agreement was signed on 4 May 2018.

The Regulations will contain important definitions such as those of “fissionable material” and “relevant international agreement”. It is intended that on Brexit, key Euratom regulations will become “retained EU law” under the European Union (Withdrawal) Act 2018, and then be repealed when the draft Nuclear Safeguards Regulations come into force.

If the draft Withdrawal Agreement between the EU and UK, on which political agreement was reached in March 2018, takes effect, then the Euratom regime will last through to 31 December 2020. However, if the UK leaves the EU on 31 March 2019 without being able to conclude a Withdrawal Agreement, the legislative framework of which these Regulations are part aims to ensure continuity.

About the Author:

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For further information or for assistance from the Prospect Law nuclear team in assessing the impact of these Regulations for your operations, or in preparing input to the consultation process, please contact Edward de la Billiere on +44 (0)7824 506022 or by e-mail on edlb@prospectlaw.co.uk.

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THE IAEA AND WHETHER IRAN IS TELLING THE WHOLE TRUTH

We continue to watch and assess the Iranian nuclear situation. Over the last week or so Israeli Prime Minister Netanyahu has been lobbying the leaders of Germany, France and the UK to accept his, and President Trump’s, assertion that Iran is already developing nuclear weapons. He backed this up by sharing with them many thousands of Iranian secret files. He says he’s not out to persuade the Europeans to withdraw from the Joint Comprehensive Plan of Action (JCPOA), stating in a recent BBC Newsnight interview that the nuclear deal is “already dead”.

Iran’s reaction to recent events was to announce that it will increase its uranium enrichment capacity, which will, in itself, not violate the terms of the JCPOA as long as it stays within certain limits. What does “uranium enrichment” mean and what are the implications of Iran’s announcements?

Uranium Enrichment

To explain this its worth looking at some basic physics and chemistry.

The chemical element uranium (symbol U) in nature comes in two main forms, or isotopes. Isotopes are atoms of the same element having the same numbers of protons and thus the same chemical properties, but different numbers of neutrons and different physical properties. The main isotopes of uranium are U-238 and U-235. On average, in nature, natural uranium contains ~0.7% U-235 and ~ 99.3% of the heavier U-238; there’s also a very small amount of U-234. U-235 is the important isotope as far as civil nuclear power stations and nuclear weapons are concerned because it can “fission” (split in two) and release energy.

Some nuclear reactor designs, including the UK’s Magnox and the Canadian CANDU designs, ran on natural uranium fuel. However, modern reactors and nuclear weapons require larger proportions of U-235 in the mix, achieved primarily through using centrifuges. A centrifuge is a spinning cylinder (not unlike a spin-dryer) in which uranium hexafluoride gas is fed into the spinning chamber and the heavier molecules of gas containing U-238 migrate towards the outside and the lighter gas molecules with U-235 towards the centre. The lighter gas will still contain much U-238, and so the process is repeated many thousands of times until the required concentration of U-235 is achieved.

Modern light water reactors need fuel which is between 3% and 5% enriched uranium, research and medical application reactors sometimes go up to 20% enrichment, and nuclear weapons require about 90% enrichment. Under the JCPOA, Iran had to give up its 20% enriched uranium and limit its enrichment programme to 3.67%, and its number of centrifuges to 5060.

Developments in Iran

In announcing its intent to increase enrichment capacity, Iran showed off some new, more efficient designs of centrifuge, which under the JCPOA it is not allowed to use, and it is this that is worrying to some. What this means is that it would need fewer centrifuges to produce weapons-grade material. Fewer units can be more easily hidden from the eyes of the outside world and the IAEA’s inspectors.

Iran doesn’t need to produce more enriched uranium for civil nuclear purposes, but with these announcements is demonstrating that it can, and possibly will, step up its campaign for higher enrichments in retaliation to the stance of the US and Israel in particular.

In his address to the IAEA Board of Governors on 4th June, IAEA Director General Yukiya Amano stated “the Agency continues to verify the non-diversion of nuclear material declared by Iran under its Safeguards Agreement. Evaluations regarding the absence of undeclared nuclear material and activities in Iran continue.” Previous statements by the Agency have given comfort to the first sentence of this extract. The second sentence however is causing some people to question whether the IAEA believes that Iran is in fact providing the “whole truth” about its programme

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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IRAN NUCLEAR DEAL – HAS TRUMP GOT IT RIGHT?

Is President Donald Trump alone in his criticism of the “Iran nuclear deal”? And was his decision to withdraw from it a wise one, based on facts rather than conjecture? This “deal”, officially known as the Joint Comprehensive Plan of Action (JCPOA) was signed in July 2015 by Iran, the five permanent members of the Security Council (China, France, Russia, UK and US), Germany and the European Union. Of course, the US signed it under the Obama administration and President Trump made no secret of his opposition to it during his election campaign; as with “Obamacare”, was his main reason for withdrawing from the deal because it was implemented under the previous administration?

HISTORY

What do people say is wrong with the deal? Ironically, Iran’s civil nuclear development programme started in the 1970’s with assistance from the US under the Atoms for Peace programme. Under this, the US deployed many nuclear research reactors around the world and supplied the associated nuclear fuel.

Since those early days, Iran’s nuclear programme has gone through many changes, but to many, in recent years, it was pursuing what appeared to be its own nuclear weapons development programme. Like any country signed up to the Non-Proliferation Treaty (NPT), which Iran became party to in 1970, it has a right to undertake research into the production of nuclear energy for peaceful purposes. Iran protests that its research was purely related to power generation was not helped when the existence of previously unknown uranium conversion and enrichment facilities, which could be related to nuclear weapons research, were revealed in the early 2000’s. For a chronology of key events in Iran’s nuclear history see here.

Attempts to curb Iran’s nuclear research through diplomatic means, various international agreements and the imposition of sanctions through UN resolutions seemed to be having some effect, but there were indications that weapons research had not stopped – In 2006, Iran was found to have a heavy water production plant but had not notified the International Atomic Energy Agency (IAEA). Heavy water can have a “dual use” purpose in either nuclear weapons production or for power production. To make matters worse, Iran did not permit full inspection of its facilities by the IAEA, something which all countries signed up to the NPT must allow.

Iran’s stance towards the international community changed somewhat in 2013 with the election of president Rouhani, thought to be more moderate than his predecessor Ahmadinejad. He requested the start of new negotiations with the international community, and even had direct talks with President Obama.

THE JCPOA

These new negotiations laid the foundation for the JCPOA and an interim agreement came into effect at the start of 2014 which allowed for increased inspections by the IAEA and the suspension of certain parts of its programme in return for relief from some sanctions. The IAEA issued a statement that Iran had complied with terms of the interim agreement which was reinforced by a statement on 5 March 2018 from the IAEA’s Director General, Yukio Amana, to the IAEA’s Board of Governors: “As of today, I can state that Iran is implementing its nuclear-related commitments …”; a conclusion supported by the Agency’s inspectors who spend some 3000 calendar days per year on the ground in Iran.

The JCPOA is quite a complex agreement, under which Iran has to reduce its stockpile of enriched uranium, limit any future enrichment to values not capable of producing nuclear weapons, limit uranium enrichment to one site, not build any new heavy water reactors, and adapt its existing one for peaceful purposes. Iran will also sign up to the Additional Protocol and submit to a comprehensive inspections regime by the IAEA which will involve some 150 inspectors. So long as Iran complies with the terms of the JCPOA, then various sanctions will be eased or lifted altogether.

The signing of the JCPOA was welcomed by virtually every country and international institution, although Israel remained critical. Iran’s fellow Middle East states saw it as bringing stability to the region. So what does President Trump have to be concerned about?

PRESIDENT TRUMP’S VIEW

Under US law the JCPOA is a non-binding agreement and has to have the approval of Congress following certification by the President. In his statement of 8th May 2018, President Trump said “It is clear to me that we cannot prevent an Iranian nuclear bomb under the decaying and rotten structure of the current agreement” and the deal is “defective at its core”. He further believes that Iran is a “sponsor of terror” and that there is a “very real threat of Iran’s nuclear breakout”; moreover, he linked Iran’s missile and other defence activities to the deal, something it was not designed to do. He is particularly concerned that much of the agreement is time-limited – around a decade or so for many of its provisions, but he wants it to be permanent.

INTERNATIONAL REACTION

Ahead of the 8th May statement, the position of the JCPOA’s counter signatories was that they remained committed to the deal, but their powers of persuasion were obviously non-existent. The UK Foreign Secretary, Boris Johnson said President Trump would be “throwing the baby out with the bathwater” if he went ahead with his decision; French President Macron Tweeted after the statement “France, Germany and the United Kingdom regret the US decision to get out of the Iranian nuclear deal …the international regime against nuclear proliferation is at stake.” UN Secretary General Antonio Guterres says he is “deeply concerned by the US decision to withdraw from Iran nuclear deal”, and calls on all other parties to fully abide by deal’s commitments.

THE US SCIENTISTS’ VIEWS

More criticism of the President’s position came from 90 American scientists in a letter published in October 2017 asking Congress to remain party to the agreement. They noted also that non-nuclear activities, not covered by the JCPOA, could be addressed separately and acknowledged Iran’s willingness to hold separate talks on its ballistic missile program. They point out that the IAEA’s system of safeguards under the Additional Protocol is the “strongest set … implemented by the IAEA”. They go on to say that additional “real-time” verification measures would be beneficial, not only in Iran, but in all non-nuclear weapon states where there is doubt about product use and that multinational control of enrichment plants would provide an extra level of security, citing the arrangements that URENCO, the European enrichment company.

FORMER GOVERNMENT OFFICIALS AND EXPERTS’ COUNTER VIEWS

A counter statement by the Foundation for Defense of Democracies (FDD) was also given in October 2017 which supported President Trump’s stance. It was signed by some 20 “former Government officials and experts” and included former IAEA Deputy Director General Olli Heinonen. It described the JCPOA “as one of the most highly deficient arms control accords in the history of American arms control diplomacy”. It went on to say that “We hope that the White House and Congress can come together to fix a fundamentally flawed agreement, curb Iran’s illicit activities, and end the nuclear blackmail imposed by the current JCPOA”.

WHAT NEXT?

Some observers believe that the US withdrawing from the JCPOA will mean Iran will continue to develop a nuclear weapons’ programme, however, technically, the JCPOA remains in force. Will it trigger a nuclear arms race in the Middle East? Although not officially recognised, it is well believed that Israel possesses over 40 nuclear warheads, on a par with India and Pakistan. Netanyahu fully supports President Trump’s decision, of course, giving his own assessment of Iran’s nuclear programme, saying “Iran lied”.

In March 2018 on a visit to the US Saudi Arabia’s Crown Prince Mohammed bin Salman said “… if Iran developed a nuclear bomb, we will follow suit as soon as possible”.

There will be plenty of commentary over the coming days and month. Decisions such as this have a tendency to implement the “law of unintended consequences”. We will monitor the situation and post further blogs on the issue.

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Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.
This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.
This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk

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BREXIT, EURATOM AND NUCLEAR LIABILITIES: PROSPECT LAW AT THE WM SYMPOSIA 2018 IN PHOENIX, ARIZONA PART III:

The following series of articles is written further to Jonathan Leech’s attendance at the Waste Management Symposia 2018 in Phoenix, Arizona, on 22nd March, and examines the UK’s impending exit from EURATOM and responsibility for international nuclear safeguards.

See link to Jonathan Leech’s presenter profileList of exhibitors and Conference Program

The third part of this series examines the nuclear cooperation agreements the UK has entered into over the past fifty years.

Nuclear cooperation agreements

Nuclear trade between the UK and other Euratom members relies on cooperation provisions within the Euratom treaty and common Euratom safeguarding arrangements.

Nuclear trade between the UK and other countries relies on either Euratom nuclear cooperation agreements, or bilateral nuclear cooperation agreements, the majority of which are predicated on continued UK participation in Euratom safeguards.

Of the circa 50 bilateral nuclear cooperation agreements the UK has entered since 1956, over 30 specifically recite and rely upon UK participation in Euratom safeguards. Without demonstrably adequate safeguards and replacement nuclear cooperation agreements key countries will, where their domestic law or policies require, cease trade with the UK in nuclear materials, components, technology and know-how. The relationship with the US is well understood. Absence of a ‘Section 123 Agreement’ would prevent supply of key components for both the planned Hitachi-GE ABWR and Westinghouse AP1000 reactors, and would disrupt supply of components and equipment required by Sellafield. Absence of a nuclear cooperation agreement with Australia would cut off a key source of uranium imports.

The UK Government has identified development of replacement nuclear cooperation agreements with USA, Canada, Australia and Japan as key milestones within the Euratom exit programme, including negotiation up to Q4 of 2018 and finalisation in Q1 of 2019 “to enter into force on Day 1 of Exit”. Notably there is no mention of South Korea. Written evidence from Sellafield to the BEIS Committee also identifies Kazakhstan and China as key counterparties.

Establishing the UK safeguarding regime to be in place on Euratom exit will be a pre-condition to finalising any new nuclear cooperation agreement. In each case the acceptability of any new regime will be a matter for each counterparty. As noted above, the current Safeguards Bill is merely a first step in enabling development of a domestic safeguarding regime. Whilst there are relatively few states that require nuclear cooperation agreements as a strict legal or policy requirement, for those that do the need to finalise a safeguarding regime first will add to the challenge presented by the timetable. For example, taking into account the minimum 90-day Congressional review period for a new Section 123 Agreement, any replacement UK safeguarding regime will need to be established by the end of 2018 at the latest if the agreement is to take effect immediately on the current Euratom exit date.

Update on nuclear liabilities conventions

The global nuclear liabilities landscape is changing. The last 3 years have seen significant developments, with the Convention on Supplementary Compensation finally entering into force on 15 April 2015 and significant progress towards ratification of the 2004 Protocols to the Paris and Brussels Conventions. These changes are to be welcomed as beneficial to international cooperation, but also bring changes to liabilities risks associated with the international movement of nuclear materials.

The attached global nuclear liabilities map shows the current geographic extent of the Paris Convention, Brussels Supplementary Convention, Vienna Convention, Joint Protocol and Convention on Supplementary Compensation.

Convention on Supplementary Compensation

The latest change is to the status of Canada. Following major revisions to domestic nuclear liabilities legislation, Canada ratified the Convention on Supplementary Compensation on 6 June 2017 and the convention took effect in Canada on 4 September 2017. This ensures consistent allocation of jurisdiction between the US and Canada in the event of a nuclear incident.

Paris / Brussels Conventions: Ratification of 2004 Protocols

Ratification of the 2004 Protocols by EU member states (including the UK) is now expected to take place around the middle of 2019 at the earliest.

The changes will substantially reduce risks of nuclear liabilities within Paris / Brussels jurisdictions falling outside the convention regime. Limited risks of cross-border liabilities in non-Paris / Brussels jurisdictions remain.

The UK Nuclear Installations (Liability for Damage) Order 2016 sets out extensive changes to the Nuclear Installations Act 1965. Those changes will take effect when the UK ratifies the 2004 Protocols and the Protocols enter into force.

This article is not intended to constitute legal advice and Prospect Law and Prospect Energy accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

Jonathan Leech is a solicitor specialising in project and infrastructure work, with particular emphasis on the energy, nuclear and utility sectors. His work includes advising on legal and contracting strategies and regulatory issues associated with major nuclear development, decommissioning, waste and reprocessing projects, energy infrastructure and other utility and infrastructure related projects.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech on 020 7947 5354 or by email on: jrl@prospectlaw.co.uk.

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PUBLIC BILL COMMITTEE: 31 OCTOBER 2017 OUTLINE OF VIEWS ON NUCLEAR SAFEGUARDS BILL

The Nuclear Safeguards Bill (https://services.parliament.uk/bills/2017-19/nuclearsafeguards.html) represents an important but limited step in the process of withdrawal from Euratom, and this article focuses on the context and effects of that step.

Background

If the UK is to maintain involvement in the international nuclear community, it must have in place an internationally acceptable safeguards regime. Detailed regulations and adequate resource within the Office for Nuclear Regulation will be needed to operate and enforce that regime.

An acceptable safeguards regime is the first step towards replacement of the existing Euratom and bilateral nuclear cooperation agreements (NCAs) on which the UK relies. It will not be possible to conclude or even make meaningful progress with the negotiation of replacement NCAs until the UK can demonstrate that it will have an acceptable replacement safeguards regime in place on withdrawal from Euratom.

In context of the challenging withdrawal timetable, the replacement UK safeguards regime will need to be such that no reasonable counterparty to any NCA negotiation can delay or disagree on the basis of inadequate safeguarding. To avoid any perceived competitive advantage and to facilitate agreement of replacement NCAs, the new regime is likely to need to carry forward the full scope of the Euratom safeguards regime, which goes beyond the current UK Voluntary Offer Safeguards Agreement (VOSA) and Additional Protocol.

To maintain international acceptance, the UK will also need to conclude negotiations with the IAEA on a replacement VOSA and Additional Protocol, both of which are currently predicated on Euratom membership. The new UK domestic safeguarding regime must then fulfil those agreements.

Purpose of Nuclear Safeguards Bill

Within its limited ambit, the Nuclear Safeguards Bill is broadly an effective but small step towards implementation of an internationally acceptable safeguards regime (https://publications.parliament.uk/pa/bills/cbill/2017-2019/0109/18109.pdf).

The Bill is limited to the creation of enabling powers for subsequent safeguards regulations. To avoid a disruptive hiatus in international nuclear cooperation, primary focus should already be on:

  • Preparation of those regulations;
  • Ensuring that ONR has sufficient resources to take over full responsibility for safeguards in 2019; and
  • Detailed proposals and assurances surrounding negotiations with Euratom and IAEA, and with states with which the UK will need to enter into replacement NCAs.

Crucially, the Nuclear Safeguards Bill cannot be regarded as a “contingency” (as stated by Greg Clark in the second reading debate https://hansard.parliament.uk/commons/2017-10-16/debates/84828D23-EAA6-4855-99D0-4C47BD5D3633/NuclearSafeguardsBill) to be used only if the UK is not able to conclude a satisfactory agreement with Euratom.

  • Unless the UK remains a full member of Euratom (whether permanently or during any transitional phase following exit from the EU), the legislative powers and additional ONR responsibilities set out in the Bill are required as a matter of urgency. Any delay in relation to the above tasks on the basis that the Bill may not be required would be an extremely high-risk strategy (hansard.parliament.uk/commons/2017-10-16/debates/84828D23-EAA6-4855-99D0-4C47BD5D3633/NuclearSafeguardsBill)
  • In the absence of full Euratom membership, continued reliance on Euratom safeguarding arrangements would entail acceptance and payment for full application of relevant treaty obligations, regulations (including Commission Regulation (Euratom) 302/2005), inspections, enforcement powers and ECJ jurisdiction. Even then, it is likely that the UK could continue to operate within Euratom NCAs only with the agreement of each state counterparty to those NCAs. The UK would still need to replace the IAEA VOSA and Additional Protocol to reflect the UK’s changed status in relation to Euratom, so amendments to Section 93 of the Energy Act and other legislation referred to in the Bill would remain necessary.

If in referring to the Nuclear Safeguards Bill as a “contingency”, government is indicating a desire to continue full Euratom membership, at least during a transitional phase, this is to be welcomed (although unnecessary express reference to Euratom in the UK’s notification of withdrawal under Article 50 will not have assisted in achieving this).

Contrary to the government’s stated position, there are good legal arguments against any necessity to exit Euratom at the same time as exiting the EU. The Commission statement in its recommendation for a European Council decision authorising opening of negotiations on UK withdrawal simply acknowledges that Article 50 applies to Euratom. This is correct, but does not address the question as to what application of Article 50 means in context of the Euratom Treaty.

Jonathan Leech & Rupert Cowen, 6 November 2017

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Jonathan Leech or Rupert Cowen on 020 7947 5354 or by email on: rcc@prospectlaw.co.uk and jrl@prospectlaw.co.uk.

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A NEW NUCLEAR SAFEGUARDS REGIME: A NEW CHALLENGE FOR THE UK

Keen “Brexatom” watchers will recently have picked up on remarks made by the Secretary of State for Business, Energy and Industrial Strategy, Greg Clark, on the setting up of a domestic “nuclear safeguards regime”.

As a result of our withdrawal from Euratom we will no longer fall within Euratom’s safeguards regime, and with nothing else in place the UK’s relationship with its nuclear trading partners could be seriously affected. It could, for example, have an impact on the ability of potential nuclear new build organisations in France, Japan, the US, China and Korea being able to export reactor designs and physical nuclear power plant components to the UK.

What is a nuclear safeguards regime?

The safeguards regime is administered by the International Atomic Energy Agency (IAEA) and ensures through physical inspection that:

  • those countries which are signed up to the 1970 Treaty on the Non-Proliferation of Nuclear Weapons (NPT) do not manufacture or acquire nuclear weapons, and;
  • the five defined nuclear weapons states (China, Russia, UK, France and the US) do not assist other countries to acquire nuclear weapons. The regime is not mandatory for the nuclear weapons states, but each has entered into equivalent voluntary arrangements.

The application of safeguards in the UK is more than a little complicated because of the UK’s status as both a nuclear weapons state and a Member State of the EU, and the fact it did enter into a voluntary arrangement with both organisations in 1978.

Euratom, which is administered by the European Commission, has established its own similar system of safeguards additional to the NPT requirements which require Member States to have high standards of materials accountancy and to make their nuclear facilities available for inspection as part of ensuring nuclear material is not diverted. Such inspections are usually done through both installed cameras and visits to facilities. Sellafield, with its large quantities of separated plutonium, is inspected about three times a month. Annually over 200 inspections are carried out in more than 100 UK facilities.

Why is the announcement important?

When the UK leaves Euratom, unless alternative arrangements are in place, only the voluntary arrangement with the IAEA will apply; the stricter Euratom requirements will not. This will be a cause for upset amongst our trading partners, with whom we will have to enter into bilateral Nuclear Co-operation Agreements instead.

Mr Clark’s announcement included the vital importance that the new domestic nuclear safeguards regime, to be run by the Office for Nuclear Regulation (ONR), is as comprehensive and robust as that currently provided by Euratom, and that it should exceed the standard that the international community would require from the UK as a member of the IAEA.

International oversight will be a key part of the future regime. The UK is currently seeking to conclude new agreements with the IAEA that follow the same principles as the current ones. These will ensure that the IAEA retains its right to inspect all civil nuclear facilities, and receive all current safeguards reporting, ensuring that international verification of our safeguards activity continues to be robust.

The ONR is currently assessing what this might mean for them and it is highly likely they will need to recruit additional resources to build the necessary in-house capability. They will need not only additional people but also equipment, infrastructure and processes. In evidence to the BEIS Parliamentary Committee, ONR said this will be “very challenging” and that only a basic system could be in place within the two years. The immediate question therefore is whether having only a basic system in place will be enough to satisfy our trading partners. If not it is highly possible that the UK’s ability to build new nuclear power stations will fall further behind schedule, and that the UK’s world leading civil nuclear sector will no longer be able to operate and generate income in the way it currently does.

About The Author

Edward de la Billiere is a Solicitor and co-founder of Prospect Law. He trained at the leading Middle East firm Trowers and Hamlins, working in both their London and Dubai offices, predominantly in the oil sector. On qualification, Edward moved to Magnox Electric, which was taken over by the nuclear operator BNFL. He has retained a strong interest in infrastructure and, in particular, energy related projects and has advised recently in respect of energy projects for corporate, local authority and private clients across the UK and internationally.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts who provide a complete service for clients.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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DECOMMISSIONING LARGE SCALE ENERGY PLANTS: DISCHARGING LIABILITIES SAFELY AND COST EFFECTIVELY

PART II: THE DECOMMISSIONING PLAN

In the first article of this series we pointed out the desirability of having a robust and appropriately underpinned plan to discharge any liabilities arising from the operation of a facility, whether it be nuclear, conventionally hazardous, or physically complex, and the importance of a rigorous risk and uncertainty analysis, and the advisability of having independent verification of the plan. This article looks at the other key elements contributing to a robust plan.

Any plan has to be technically sound and should be developed against appropriate base case assumptions. The assumptions should be clearly stated and justified. Current good or accepted and internationally benchmarked practice need applying to the proposed decommissioning technologies and techniques. Quantities and metrics must be stated and justified, eg with regard to waste arisings.

Scope must be adequately defined with bounding assumptions and exclusions clearly stated. All work necessary to successfully deliver the proposed end state needs explaining and justifying. In particular the scope of work must be fully understood, with plan describing ‘how’ it will be carried out and not ‘what’ is required – its surprising how often this aspect is overlooked. A programmatic approach should normally be adopted pulling together inter-related elements of scope and allowing work packages or projects to be expressed in the context of an overall end state objective.

Schedules must be logically linked and reflect all the scope and assumptions needed to successfully deliver the plan: durations are reasonable, and there is a clearly described critical path through to the proposed end state. Interdependencies and milestones should be clear and realistic and schedules need to tie in with risk mitigation measures (see part 1 of this article).

Cost estimates must be as robust as possible at that stage of the plans maturity and must reflect the totality of the scope required, being phased according to scope and schedule. The techniques used to estimate cost and uncertainty should be appropriate and reflect good international practice. Cost and quantity data sets must be appropriately robust and wherever possible benchmarked. Where uncertainty exists, eg with regard to waste disposal, this should be made clear and appropriate contingency values applied.

It is important to fully consult regulators with consent milestones clearly articulated and demonstrably deliverable. In the latter regard adequate allowance in terms of time and effort should be made for developing appropriate cases and the iteration of these with the regulator before consent is granted. Stakeholders are also an important part of this process and should be engaged during the development of the decommissioning plan, and where appropriate their responses captured in the plan.

The above is of course predicated on the operator having a mature quality management system in place to provide oversight and governance during development of the plan and this should also be documented in the plan. Many operators back this up with independent verification of the plan’s quality during and after its drafting, with the operator documenting how the verifier’s findings have been incorporated into the finished product. Such verification is particularly valued if the operator is dealing with highly politicised or heavily regulated decommissioning programmes, providing authorities and the public with assurance that the programme is being or will be delivered safely, cost effectively and in an environmentally responsible manner.

Funding the plan is a separate but very important matter and clearly the two are closely inter-related, for which several models exist. These will be discussed in a future article.

Prospect Law and Prospect Advisory provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.       

Chris Kaye is a nuclear specialist and senior commercial executive with over 40 years experience in negotiating, managing, and assuring the performance of multi-billion pound strategically and technically complex contracts, to Board and Ministerial level, within Government and private sectors. From 2006 and prior to joining Prospect Group in 2017 Chris was a function head of a major UK Non-Departmental Public Body. There he was responsible for assurance and oversight of all the UK private sector nuclear operators’ decommissioning strategies, plans and costings on behalf of the UK Government where a third party or the taxpayer has an interest in funding and risk.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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US AND KOREAN NUCLEAR PLANT CANCELLATIONS: IMPLICATIONS FOR UK NEW NUCLEAR BUILD

The US currently has 100 nuclear power plants in operation supplying about 20% of its power needs. A further four were under construction, two each in Georgia and South Carolina, until the owners of the South Carolina plants recently announced the cancellation of construction of its two Westinghouse AP1000 units, Summer 2 and 3.

Summer 2 and 3 had been under construction since 2013, with original operational dates of late 2019 and late 2020.  However, due to construction delays and cost overruns, these were later revised to December 2022 for Summer 2 and March 2024 for Summer 3.  The finances were a key factor in the decision to cancel construction, with the original estimate of $11.5 bn having more than doubling to $25 bn. The reasons behind this are no doubt complex, but as the US has not constructed a new reactor since the 1970s, the loss of nuclear expertise must be a factor.

Summer 2 and 3 were intended to showcase advanced nuclear technology and pave the way, along with the Georgia plants – also Westinghouse AP1000s, for a nuclear renaissance in the US.  A further four AP1000s and 12 SMRs (Small Modular Reactors) are currently proposed and several more are in the early stages of planning. The fate of these and the two Georgia plants remains to be seen.

The economics of nuclear have always been the subject of much debate, but what seems to have swayed the South Carolina decision to cut losses is the availability cheap natural gas, enabled by the more liberal attitude to fracking in the US, and a flat energy demand due to improved energy efficiency. Ironically, the cancellation of Summer 2 and 3 will mean South Carolina’s coal plants will need to run for longer, whereas they were originally intended to be shutdowns upon the nuclear units coming online. A decision to proceed or not with the Georgia plants is expected soon.

The Westinghouse bankruptcy has also complicated the picture in the US, with its AP1000 design being used for the South Carolina and Georgia projects and its role being reduced to a vendor supporting the EPC. Their situation has also had an effect in the UK, with Toshiba’s stake in Nu-Gen now being considered by KEPCO. Rather than utilise the Westinghouse design, which was approved by the UK nuclear regulator, ONR, in March this year, KEPCO wants to use its own technology, which will cause a delay in construction of the Moorside plant while the necessary regulatory design assessment is undertaken.

The South Korean nuclear industry is also in difficulty, with the new anti-nuclear government suspending construction of the Shin Kori 5 and 6 nuclear plants for several months while it undertakes a public consultation on their future. This decision has generated much debate in the country and is seen as a threat to its nuclear exports, and KEPCO’s future Nu-Gen.

Decisions to be taken in the next few months will be crucial for the future of nuclear in the US and Korea. The Korean decision in particular will have an impact on the Moorside project in the UK, and may put the government’s climate change targets in jeopardy. Unlike the US, it is doubtful that the supply of natural gas from fracking will be a welcome alternative.

Prospect Law and Prospect Advisory provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.       

Edward de la Billiere is a Solicitor and co-founder of Prospect Law. He was educated at Newcastle University and trained at the leading Middle East firm Trowers and Hamlins, working in both their London and Dubai offices, predominantly in the oil sector. On qualification, Edward moved to Magnox Electric, which was taken over by the nuclear operator BNFL. He has retained a strong interest in infrastructure and, in particular, energy related projects and has advised recently in respect of energy and waste projects for corporate, local authority and private clients across the UK and internationally.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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