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Viewing cable 08LONDON2027, U.S. FIRMS WELCOME ENHANCED USG SUPPORT OF UK

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Reference ID Created Released Classification Origin
08LONDON2027 2008-08-04 16:17 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy London
VZCZCXRO2866
PP RUEHED
DE RUEHLO #2027/01 2171617
ZNR UUUUU ZZH
P 041617Z AUG 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 9385
INFO RUEHMO/AMEMBASSY MOSCOW PRIORITY 2693
RUEHFR/AMEMBASSY PARIS PRIORITY 3262
RUEHED/AMCONSUL EDINBURGH PRIORITY 0957
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEANFA/NRC WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
UNCLAS SECTION 01 OF 06 LONDON 002027 
 
SENSITIVE 
SIPDIS 
 
USDOE FOR INTERNATIONAL 
USNRC FOR SKIP YOUNG, CHARLOTTE ABRAMS 
COMMERCE FOR JAMIE ESTRADA 
STATE FOR FRANK MERMOUD 
 
E.O. 12958: N/A 
TAGS: ENRG TRGY IAEA UK
SUBJECT: U.S. FIRMS WELCOME ENHANCED USG SUPPORT OF UK 
NUCLEAR RENAISSANCE 
 
1. (U) Summary: State Special Representative for Commercial 
Affairs Frank Mermoud and Commerce DAS Jamie Estrada visited 
the UK July 17-18 to discuss upcoming events in the UK,s 
nuclear industry.  HMG is aggressively moving forward with 
plans for new nuclear power plants. Government contacts 
pointed to progress made on all necessary legislative fronts, 
including planning, regulation and waste management. However, 
both public and private sector meetings revealed uncertainty 
regarding the ability of the regulator, the Nuclear 
Inspections Inspectorate (NII), to perform the licensing of 
new reactor designs and perform regulatory oversight, given a 
lack of funds and qualified staff. Although both public and 
private sector seem enthusiastic about the market, twenty 
years of underinvestment in the sector has left it short of 
skills, which could constrain growth. U.S. firms operating in 
the civilian nuclear sector welcome more public USG support 
for the UK,s nuclear renaissance. End Summary. 
 
2. (U) On July 17-18 State,s Special Representative for 
Commercial Affairs Frank Mermoud and Department of Commerce 
Deputy Assistant Secretary for Manufacturing Jamie Estrada 
met with government officials and representatives from 
American companies that are active in the civilian nuclear 
sector in the UK. The purpose of the visit was to discuss new 
developments in the sector and to gauge interest in a 
potential business development mission this fall to highlight 
high-level USG support for the UK,s nuclear renaissance. 
 
Government Support from BERR, Downing St. 
----------------------------------------- 
 
3. (U) Mark Higson, Head of the Nuclear Unit at the 
Department for Business, Enterprise and Regulatory Reform 
(BERR), outlined the new Office of Nuclear Development to be 
formed within (BERR) to specifically focus on new nuclear 
reactors. He stated that BERR would like to see more than one 
new reactor design so that the new industry is not overly 
reliant on a single reactor model. Higson, stressed that the 
UK remains an open economy, and is serious about inward 
investment and new nuclear reactors. However, he added that 
BERR would like to see as much local sourcing as possible, 
the enhancement of local supply chains, and local wealth 
creation along with any investment. He also noted that the UK 
is interested in further regulatory cooperation, especially 
after the UK,s past experience with custom designed 
reactors. (Note: All but one of the UK,s current and elderly 
reactor fleet are an indigenous design called the AGR for 
Advanced Gas-Cooled Reactor. Each reactor had a different 
design, denying the local industry economies of scale or 
shared technical experience with international counterparts.) 
 
 
4. (U) Higson emphasized that HMG is trying to minimize 
regulatory risks by doing a Generic Design Assessment (GDA) 
for three reactor designs (the Areva EPR, the Westinghouse 
AP-1000 and the GE ESBWR). He hopes that pre-approval &in 
accordance with world-wide design8 will reduce risks for the 
utilities who will ultimately be paying for the construction. 
Higson suggested that since no public money will be 
available, the first reactors will likely be funded from the 
constructing utility,s balance sheet. (Note: This suggests 
that the major international utilities will be the first 
movers as they have the strongest balance sheets. The biggest 
ones in the UK are EDF of France and RWE and E.ON of Germany. 
End note.) 
 
5. (U) Senior Downing St. Policy Advisor Geoffrey Norris went 
further, saying that EDF was the favorite to build the first 
new nuclear power station in the UK, likely using Areva 
technology (EPR, or European Pressurized Reactor). Norris 
stressed that there was little political risk in the 
development of new nuclear power, as the Conservatives would 
support its development. However, he did note that there are 
public credibility issues linked to the nuclear industry. 
(Note: The nuclear industry in the UK has suffered severe 
credibility issues during its lifetime, most recently the 
publication of new reports raising the cost to the taxpayer 
of decommissioning the existing fleet of power plants from an 
estimated 146 to 166 billion USD at current exchange rates. 
 
LONDON 00002027  002 OF 006 
 
 
End note.) Norris also noted that a clear carbon price will 
make nuclear even more attractive. 
 
MP Jamie Reed Supports New Nuclear Build, Full Fuel Cycle 
--------------------------------------------- ------------ 
and USG Cooperation 
------------------- 
 
6. (SBU) MP Jamie Reed of Copeland, which houses the UK,s 
largest nuclear facility, Sellafield Sites, was open about 
the need for more private sector participation in crafting 
policies and recognizing opportunities. Reed believes that 
solid partnerships between business and government will lead 
to more open information sharing, which will help inform good 
policy. He also stated that moving quickly now will minimize 
policy risk; he does not want the industry to become 
domestically politicized. However, Reed admitted that the 
UK,s regulatory market is slow-moving, which is why the 
Secretary of State for BERR John Hutton has been so keen to 
keep engaged with the nuclear industry players. 
 
7. (SBU) Reed stated that taxpayer money will help to 
subsidize the nuclear industry in one way or another. He 
pointed to the fact that elements of insurance indemnity, 
skills training and development, waste disposal and the 
enlargement of the NII (Nuclear Installations Inspectorate) 
all required public money. Furthermore, the opening of new 
national nuclear labs, modeled after the U.S. system, will 
cost taxpayer money. However, he also noted that clear carbon 
pricing will help the industry. 
 
8. (SBU) Reed is strongly supports the UK having capability 
for the full fuel cycle, including fuel fabrication and 
domestic reprocessing. He noted that the French have the most 
sophisticated skills, as they have continually reprocessed 
fuel for their domestic industry. He also pointed out that 
the Russians have a renewed interest in the full fuel cycle 
as well. He sees reprocessing as a solution to security of 
supply issues, as well as a way to make the same amount of 
fuel last longer. 
 
9. (U) Reed and Higson were both broadly supportive of 
increased international cooperation in the area of 
regulation, especially in the licensing of designs. Since the 
UK will only be evaluating available commercial designs, all 
will be reviewed by other national regulators. Both men would 
like to see more cooperation between these national 
regulators to reduce the time and resources necessary to 
safely license designs. 
 
Nuclear Decommissioning Authority Welcomes Cooperation 
--------------------------------------------- --------- 
 
10. (U) Dr. Adrian Simper, Director of Strategy for the NDA 
(Nuclear Decommissioning Authority) also noted that the UK is 
not equipped at this time to perform its necessary 
decommissioning work alone. He recognized the range of skills 
that U.S. companies can bring to the UK. (Note: All four of 
the teams that bid on the maintenance and operations (M&O) 
contract at Sellafield had American companies as partners. 
End note.) He also pointed out that the NDA has been working 
with the East Tennessee Environmental Business Association 
(ETEBA), which grew up around the Oak Ridge National Labs, 
and would like to expand international contacts like these. 
11. (U) Simper stressed that the NDA does have sites that are 
suitable for new nuclear stations, and said the NDA will be 
conducting more decommissioning work. He pointed out that two 
maintenance and operations contracts have been let, and that 
there may be more in the future, since the NDA controls seven 
sites. However, he did not expect the budget to increase in 
the next fiscal year from its current 6 billion USD. (Note: 
U.S. engineering firm URS is involved in both NDA contracts. 
End note.) 
 
Industry Sees Strong Public Acceptance 
-------------------------------------- 
 
12. (U) Keith Parker of the Nuclear Industry Association said 
that there would be no political issues, even after the next 
 
LONDON 00002027  003 OF 006 
 
 
general election, which is scheduled for 2010 at the latest. 
He cited polls that indicated between 85-90% of Conservative 
back-benchers support new nuclear build. In total, well over 
70% of all MP,s support new nuclear build, which represents 
a doubling of support over the past five years. The polls 
also show that over 50% of the public is in favor, although 
he admitted that &it depends on the questions you ask.8 He 
pointed out that the public shows anxiety over issues of 
waste management and safety, but is supportive of nuclear 
power for reasons of climate change and security of supply. 
 
13. (U) Parker admitted that the reputation of the nuclear 
industry had been damaged in the UK because of the financial 
obligations that had been passed on to taxpayers. However, he 
felt that by getting the &facilitative measures8 right, 
such as reforming the planning, licensing and siting 
requirements, as well as ensuring a robust carbon price, the 
industry would be able to function without subsidy. He 
emphasized that &it would help if the low carbon benefits of 
nuclear were recognized and rewarded.8 Parker also noted 
that this measure would help to spur other renewable energy 
research, not just act as a hidden subsidy for the nuclear 
industry. 
 
14. (U) Parker also stressed the interconnectedness of the 
underlying issues, especially waste management. He felt that 
it was crucial for the government to have a viable waste 
management strategy in place in order for the public to 
support new build. He admitted that waste management was the 
area most vulnerable to criticism from anti-nuclear groups, 
especially Greenpeace. However, he noted that many other 
previously anti-nuclear NGO,s were becoming more positive 
because of climate change issues. Parker stated that a delay 
to the waste management solution would create a &domino 
effect,8 rippling through the entire system. He pointed out 
that if the UK,s nuclear renaissance was delayed it would 
affect the local supply chain. 
 
15. (U) Parker saw multiple areas for US-UK cooperation on 
civilian nuclear development. He suggested that a formal 
relationship between the Nuclear Inspections Inspectorate 
(NII) and the U.S Nuclear Regulatory Commission would help 
develop NII skills.  He noted that although he also expects 
the utilities to finance the first round of nuclear power 
stations from their balance sheets, meaning financing the 
majority with their own cash and limited bank support, he 
expects financial institutions to assist with the next round, 
once the risks and rewards have become quantified. However, 
Parker stressed that the local supply chain will need 
investment to upgrade production facilities. 
 
U.S. Service Providers Enthusiastic About Opportunity, USG 
--------------------------------------------- ------------- 
Support 
------- 
 
16. (SBU) Robert Mawson, the Business Development Director of 
the Nuclear Business Group at engineering firm CH2M Hill 
pointed out the strength of the French commercial effort on 
behalf of Areva. He suggested that it would be helpful for 
U.S. companies to receive the same support internationally. 
However, he noted that Areva had not yet lobbied heavily in 
India or China, which presented vast opportunities for U.S. 
companies involved in the civilian nuclear sector. He 
suggested that successful projects in the UK could act as a 
jumping off point for countries interested in increasing 
their global client base. Mawson pointed to potential 
projects in the UAE, Lithuania and Turkey, all of whom have 
publicly expressed interested in new nuclear power stations. 
 
17. (SBU) Mawson agreed that the NII would benefit from 
closer contacts with the NRC. He also mentioned the 
possibility of one of the senior-level staff from CH2M Hill 
being seconded to BERR to help with policy development. 
(Note: Mark Higson from BERR had mentioned this possibility 
as well, although he did not specifically name CH2M Hill. End 
note.) Mawson pointed out that it was important for the NII 
and BERR to send clear policy signals to the industry. With 
lead times of four to five years, Mawson was confident that 
 
LONDON 00002027  004 OF 006 
 
 
the supply chain weaknesses can be properly addressed, given 
the proper incentives. 
 
18. (U) Ian Thomas, Managing Director for Fluor,s UK 
operations also agreed that it would be helpful if the NRC 
cooperated more closely with the NII. He noted that the NII 
was prepared to accept safety cases for the Areva EPR from 
the French regulators, and that the NRC might help with the 
safety cases for the GE and Westinghouse designs that are 
undergoing the GDA. (Note: All three designs that are 
undergoing the GDA are also being evaluated in various stages 
by the NRC. End note.) 
 
19. (U) Thomas pointed out that Areva already has the 
majority of its necessary supply chain intact. However, he 
was confident that U.S. and UK manufacturing could cooperate 
to create a robust supply chain, but that industry would need 
assurances of future opportunity. He noted that the passage 
of the Planning and Energy bills currently being debated in 
Parliament would provide some of these assurances. Thomas 
also emphasized that the decision was straight-forward for 
utilities, who need to meet demand. Since gas and coal are 
currently cheaper, they need incentives, such as carbon 
pricing, to assist with financing and cost recovery. 
 
Complaints About the Procurement Process at the EBRD 
--------------------------------------------- ------- 
 
20. (SBU) Mawson from CH2M Hill also took the opportunity to 
lodge a complaint about the current procurement practices at 
the European Bank for Reconstruction and Development (EBRD). 
He noted that American firms are often locked out of bidding 
because they lack the necessary experience in Europe, even if 
they have been performing the necessary work in the U.S. for 
longer than the required period. Mawson felt that this has 
unnecessarily disadvantaged US companies that have 
qualifications in decommissioning and clean up. 
 
Westinghouse Sees Major Opportunities 
------------------------------------- 
 
21. (U) David Powell, Westinghouse,s Regional Vice President 
for the UK, stated that the UK is one of their four top tier 
countries, or countries with the largest potential for the 
company, with the others being the US, China and South 
Africa. (Note: This gives Westinghouse a presence on four 
continents. End note.) Westinghouse already has commitments 
to build eight of its new AP-1000 reactors, including four in 
the US and four in China. Powell noted that Westinghouse was 
using a &localization approach8 for the Chinese and Korean 
markets, involving licensing its technology to local 
companies and allowing them to provide everything except the 
nuclear island, the area where the nuclear reaction actually 
takes place. Westinghouse aims to build four plants a year 
for the foreseeable future, although Powell admitted that 
Toshiba, Westinghouse,s parent company, would like to build 
more. 
 
22. (SBU) Powell noted that altering the original design as 
little as possible is the key to a successful roll-out in the 
UK. Based on previous bad experience with customized designs 
for each site, he hoped that the NII would make only the most 
necessary changes this time. He mentioned that the NII has 
few resources to execute the GDA. However, he also pointed 
out that European utilities such as RWE and EON had helped to 
fund the cost of the GDA, with a view that the AP-1000,s 
approval in the UK would expedite its approval throughout 
Europe.  He speculated that RWE and EON were keen to keep a 
hand in the nuclear sector in advance of a potential policy 
change in Germany. He also noted that while utility companies 
had backed Areva,s reactor, none of them did so financially. 
Powell does not expect the GE ESBWR (which stands for 
Economic Simplified Boiling Water Reactor) to be competitive 
in the first round of reactors built in the UK, as its design 
is still being finished. 
 
23. (SBU) Powell emphasized Westinghouse,s model of &buy 
where you build,8 which would help the UK to revitalize its 
civilian nuclear supply chain. He noted that Westinghouse had 
 
LONDON 00002027  005 OF 006 
 
 
been negotiating possible manufacturing partnerships with 
Rolls-Royce and BAE systems. Powell said that Westinghouse is 
interested in sites that belong to either British Energy or 
the Nuclear Decommissioning Authority, and that the smaller 
size of the AP-1000 reactor, at only 1100 mW compared with 
over 1600 mW for the EPR and over 1500 mW for the ESBWR, 
could fit more easily into smaller existing sites and use 
existing grid connections. He also mentioned that 
Westinghouse is in negotiations with Sheffield Forgemasters, 
a company that could potentially fill a large hole in the 
supply chain for large-scale forgings, currently only done by 
Japan Steel. Westinghouse has offered to back the necessary 
investment into a 15,000 ton press, and is negotiating a 
&reservation fee8 for future production. However, he 
characterized this as a &defensive8 investment, as Areva 
has shown interest in purchasing the company outright. 
 
24. (U) Powell noted that Westinghouse is involved in fuel 
fabrication in the UK at the NDA,s Springfields site. Their 
contract expires in 2010, and has already been extended 
twice. He characterizes the relationship between Westinghouse 
and the NDA as excellent. Westinghouse is interested in 
investing to expand the capacity of the plant. He believes 
that the expanded plant will not only help to feed the 
expanding UK market, but could also help feed new plants all 
over Europe. Powell mentioned that Westinghouse currently 
supplies 30% of EDF,s nuclear fuel needs, partially through 
its plant in Sweden. 
 
British Energy: Ready for the Renaissance, Possessing Rare 
--------------------------------------------- ------------- 
Skills 
------ 
 
25. (U) Paul Spence, Head of Strategy and Business 
Development for British Energy (BE) noted that the UK has a 
unique opportunity to take the lead in Europe in new nuclear 
technology. He estimates that the UK will need 10-15 
gigawatts of new nuclear, which would create a robust supply 
chain ready to service the rest of Europe. Spence believes 
that building and operating the first fleet of new reactors 
in the UK, the most competitive, liberalized market in 
Europe, will give the utilities &bragging rights8 when they 
seek to expand throughout Europe. (Note: This sentiment was 
echoed by a number of companies who see the UK as a proving 
ground for future European business. End Note.) 
 
26. (U) Spence stressed that it was unclear what the future 
of British Energy would be, and that the policy of the 
government was to let the market determine how much new 
nuclear power generation would be built. However, he noted 
that there was enough enthusiasm from the utilities for new 
nuclear that more than one or two reactors would likely be 
built. He stated that with a need for more than 10 gigawatts, 
there would be more than enough scope for at least two 
reactor designs. Spence said that BE had a total of six sites 
that are currently viable for new nuclear build. (Note: It 
has a further two in Scotland, but the devolved Scottish 
Parliament is firmly against new nuclear generation. End 
note.) 
 
27. (U) In terms of available skills, Spence said that BE was 
competing with the City of London for technical workers, and 
that BE,s workforce was ageing. However, looking toward the 
future, BE is spending more money to train new workers. He 
did worry that the &craft skills,8 such as electricians and 
welders, were in increasingly short supply, reflecting demand 
from the Olympic preparations, military shipyards, and the 
Middle East and Asia. 
 
28. (SBU) Spence outlined what he saw as the three biggest 
threats to the building of new nuclear reactors in the UK. He 
saw the top threat as the inability of the NII to complete 
the GDA. He stated that the NII needs help from the 
government in terms of more resources and from other national 
regulators. The next potential threat is the waste management 
issue. Spence believes that a credible solution needs to be 
in place for new waste, as well as the legacy waste, before 
the industry can proceed. The final major issue he identified 
 
LONDON 00002027  006 OF 006 
 
 
was the planning process. Spence said that the proposed 
Planning Bill will be of some help, but that the industry 
still needs more predictability before proceeding with major 
investments. He said that more focus needs to be on local 
needs and issues, instead of determining national need for 
each new station, as was done in the past. Unlike the 
previous process, he sees making the same case for national 
need for each new station as a waste of precious time. 
 
29. (SBU) Comment: There is ample opportunity for U.S. 
companies, both service and technology providers, to make 
aggressive inroads into the UK market. With both parties 
supportive of new nuclear, and the issues of climate change 
and security of supply looming large in the national 
conscience, the political situation is right. However, it 
remains to be seen how the consultation on deep geological 
disposal will proceed.  It may be the last hurdle before the 
plans for new construction proceed. All of the companies 
asked for more muscular commercial diplomacy in the near 
future, in an effort to counteract the efforts of the French 
government in its support for Areva. Currently, American 
companies have an excellent reputation in the UK, with both 
Westinghouse and URS/Washington Group holding contracts with 
the NDA. All companies see the UK as a proving ground for 
future European work. With more countries considering new 
nuclear build, and some decommissioning old reactors, it is 
crucial that U.S. firms get contracts in the UK. 
 
30. (SBU) Westinghouse has an especially strong case to make 
in the UK. With its policy of local purchasing and 
willingness to use the UK as a source for its expansion into 
Europe, it can offer more local job creation than vertically 
integrated Areva. Its possible partnerships with Rolls-Royce 
and BAE Systems and the flexibility of its reactor design 
only strengthen its position. However, the recent 
announcement of a likely sale of British Energy to EDF could 
lock Westinghouse out of the best sites for development. 
 
31. (U) Further cooperation between the NRC and the NII would 
be welcomed by all players. The NRC has room to play an 
impartial role, as all three of the designs undergoing the 
GDA are or have been reviewed by the NRC. Any official help 
from the USG would help counter the help offered to the NII 
by the French regulators, who have no experience with 
Westinghouse or GE designs. 
 
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LeBaron