Canada: Brexit - What Now For The Future Of Nuclear In The UK?

Leave won the day. Some say it may be many years (and not just two) before Brexit is fully embedded. What will the impact be on the UK nuclear sector, our nuclear export potential and our nuclear safety and security framework?

1. Investment

UK new nuclear build investment has for some time presented a challenge.  This has led to false starts and an elongation of the original programme at Hinkley Point C (HPC). The changing relationship between the UK and France, and the impact of Brexit on both economies, may test the French Government's commitment to HPC. 

Another key factor is that life extension of EDF Energy's existing nuclear fleet has been a significant contribution to the UK's plant margin. Maintaining commitment to life extension if the electricity price remains low, and perhaps encouraging life extension of coal assets, is likely in a world where uncertainty of market arrangements could impact interconnector planning.

Going forward, Brexit is likely to increase the focus on security of energy supply and the need to  deliver new nuclear generation. However, in the short term, the leadership election, ministerial changes and currency instability could potentially set back discussions on future projects or imminent approvals by developers and investors.

For operators and developers, the fall in sterling may make the UK more attractive as a supplier but add to the cost of imported components. Notably, the majority of generation plant is sourced outwith the UK.

2. Skills

UK new build projects working towards construction which would have benefited from the free movement of skilled EU labour will need to consider how to supplement an ageing and diminishing workforce. There has been much discussion about the possible introduction of an Australian points-based system or access to the UK for skilled workers. But with new nuclear in the UK largely being developed by foreign-owned projects, free movement restrictions will be another issue to address. 

3. Construction cost

If skilled labour is allowed to become scarce, there could be an increase in the cost of local labour driving an overall increase in the cost of nuclear construction. Already, the bunching of new nuclear projects combined with ambitious decommissioning plans by the Nuclear Decommissioning Authority (NDA) is creating the prospect of pressure on specialist skills. This is currently eased by the downturn in the oil and gas sector but, as it starts to focus on decommissioning, the sector may see prices firming. 

Materials imported from the EU previously tariff-free will be vulnerable both to tariffs and a weak pound while the renegotiation of trade agreements worldwide adds complexity. The lack of a customs union with the EU will also affect costs if our negotiations do not maintain the existing access to the single market.

However, the UK is traditionally a nation of traders reaching out to all corners of the world. Through its links with its Commonwealth partners, trading routes are already understood and available and in time can be built up. The family of nuclear nations is a known quantity well placed to adapt quickly to new trading opportunities.

4. Exporting nuclear know how

The immediate effect on the export economy today is that the UK is more cost-competitive than it was a week ago.

The UK has been presented with the opportunity to re-launch its national brand and, over time, new trading arrangements independent of Europe may be beneficial to export. The smaller independent nature of our offering in comparison to that of the EU block and its effect on the tariffs agreed will of course need to be overcome, but new international alliances will no doubt be forged.

5. Nuclear regulation and Euratom - will we leave this Treaty too?

Nuclear regulation is founded in International Conventions, nuclear community peer groups and policy. This is overseen by the inter-governmental International Atomic Energy Agency, part of the United Nations family. Our participation in this is unlikely to waiver.

That is probably not the case with the Euratom Treaty, signed in 1957 at the same time as the Treaty of Rome. This was intended both as a tenet of peaceful coexistence and to allow civil use of nuclear for the generation of electricity. The Euratom Treaty administration is integrated with the European Commission.

Pre-referendum indications were that the UK will exit all EU Treaties. Assuming the UK's tie-in through EU membership will come to an end, a new atomic co-operation treaty between the UK and the Euratom community will need to be agreed. An exit from Euratom will also trigger the need to join the queue to agree a Section 123 of the United States Atomic Energy Act of 1954 agreement as a prerequisite for nuclear deals between the US and the UK.

6. State aid and EU Competition and Procurement Rules

On first sight, one might assume Brexit means freedom from EU State Aid rules and the challenges which have beset HPC. The hope would be that this could ease a UK Government decision to take a more active investment role in new build long called for by the industry, potentially a game changer for new build in the UK.

Regardless though of which model is adopted, be it a baseline outcome where no agreement is reached, throwing us back on to our World Trade Organisation (WTO) relationship, or akin to that of Norway, or the slightly nuanced Swiss model, or the transatlantic trade and investment partnership model, state aid rules will continue to apply up to Brexit, and potentially to an extent beyond, if we seek to maintain access to the single market. Even the WTO treaties contain effective trade defence mechanisms, which would limit the UK's freedom to use public funds to underpin UK industry alone.

The trading model adopted may affect procurement. For instance, decommissioning tenders subject to public procurement may in future benefit from shorter, less costly procedures. However it should be borne in mind that the underlying principles of public procurement are in essence good business practice.

7. Nuclear liability/insurance

As a signatory to the Paris Convention on third party nuclear liability, the UK needs to give effect to the additional largely environmental forms of damage for which victims of a nuclear incident may be able to claim. It is likely that the long process of ratification of the Draft Nuclear Installations (Liability for Damage) Order 2016 by EU member states will take place within the two year Brexit period. As such, Brexit is unlikely to have much of an effect on the regulation of nuclear liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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