The government has entered into new arrangements to decommission seven AGR nuclear power stations. While the arrangements could deliver savings, their success will ultimately depend on the relevant parties working collaboratively to overcome risks, according to the National Audit Office (NAO).
The UK has eight second generation nuclear power stations, accounting for around 16% of UK electricity generation in 2020. Seven of the eight stations are Advanced Gas-cooled Reactors (AGRs), which are all due to stop generating electricity by 2028.1
The Nuclear Liabilities Fund (the Fund) was established to meet the costs of decommissioning these eight stations, but significant additional taxpayer support has been required with more likely to be necessary. The UK government has provided a guarantee to underwrite the Fund in the event that its assets are insufficient to meet the total costs of decommissioning. In 2020, government contributed £5.1 billion to strengthen the Fund’s position and the Fund has recently requested a further £5.6 billion. The Fund’s assets were valued at £14.8 billion at the end of March 2021. The aim is that growth in the Fund’s investments will be sufficient to meet the long-term costs of decommissioning (£23.5 billion). However, cost estimates have doubled in real terms since 2004-05. If this upward trend is maintained and investment growth is not sufficient, there is a risk that the taxpayer will have to make further contributions.
In June 2021, the AGR stations’ owner EDF Energy (EDFE) agreed to defuel each of the stations in an arrangement that the Department for Business Energy & Industrial Strategy (the Department) estimates could save the taxpayer around £1 billion.2 Once defueling is completed, ownership of the stations will transfer to the government’s Nuclear Decommissioning Authority (NDA) for its subsidiary Magnox Ltd to complete the rest of the decommissioning process, which is likely to take several decades.
In 2015, a government review had highlighted concerns about the ability of the existing arrangements with EDFE to incentivise efficient decommissioning of AGR stations. The Department’s revised agreement with EDFE in 2021 provides the company with greater clarity about its role, and a commercial incentive to accelerate defueling and transfer stations to Magnox Ltd. EDFE could now earn up to £100 million, or potentially incur penalties up to £100 million, based primarily on performance during defueling.
The rate at which stations can be defueled will impact on overall costs. The estimated cost of defueling could be between £3.1 billion and £8.0 billion. A bottleneck at any point between EDFE removing fuel, and the NDA transporting the fuel to safely store at Sellafield, could have repercussions across the programme. The costs to be borne by the Fund are therefore dependent on how quickly defueling begins once a station stops generating electricity, as well as the rate of defueling. Early unexpected closures of stations may increase costs.
The Department, EDFE and the NDA have taken steps to establish joint arrangements to plan and oversee defueling, which the NAO considers sensible. These arrangements will be tested once defueling accelerates and all parties operate under the revised decommissioning agreements.
Once defueling is complete, the details of exactly what EDFE will transfer to the NDA and Magnox Ltd, when and how, are still to be agreed. There is a history of transfers in the nuclear sector taking longer than expected,3 and similar risks will need to be managed for the transfer of AGR stations.
The long-term benefits of taking the AGR stations back into public ownership will depend on the ability of Magnox Ltd to deliver efficiencies from combining the AGR stations with its existing portfolio of nuclear stations. There is potential for Magnox Ltd to realise some of these efficiencies from deconstruction work in the years immediately after transfer of the stations. NDA’s ability to deliver benefits from combining Magnox and AGR sites will depend on the quality of the plans developed in the years prior to transfer.
“By providing clarity over the future decommissioning of second-generation nuclear power stations, the government has created incentives to deliver a safe and efficient clean-up. However, many financial risks remain, and if poorly managed costs could escalate. Success will only be achieved if all parties work effectively together.
“Government needs to maintain a clear view of how the nuclear decommissioning programme is performing as a whole, and given the large amounts of public money at stake it must act decisively should performance begin to lag.”Gareth Davies, head of the NAO
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Notes for editors
- The seven AGR stations are the UK’s second generation of nuclear power stations; the first being the 11 Magnox reactors. They were designed and built between the 1960s and 1980s. Nuclear decommissioning is the process of returning nuclear power stations no longer generating electricity to a state in which the land can be reused. For the AGR stations, this process is envisaged to take just over 100 years under current plans. This process starts with the defueling of stations, with waste fuel taken to Sellafield for interim storage, before the preliminary deconstruction of the station. The reactor is then left in a safe state to allow residual radioactive material to decay further (over some decades) before completion of the decommissioning process.
- The agreement reached with EDFE does not include Sizewell B, which uses a different technology and will continue operating until 2035.
- The Nuclear Decommissioning Authority’s Magnox contract – National Audit Office (2017)
- Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
About the NAO
The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. It helps Parliament hold government to account and it uses its insights to help people who manage and govern public bodies improve public services.
The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The NAO audits the financial accounts of departments and other public bodies. It also examines and report on the value for money of how public money has been spent.
In 2020, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £926 million.