Spherical Tokamak for Energy Production: Accounting officer assessment, 2023
Published 31 August 2023
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Project title: Spherical Tokamak for Energy Production
Main scheme project stage:
- Tranche 2a Outline Business Case conditionally approved by DESNZ PIC, May 2023
- Tranche 2a Outline Business Case conditionally approved by MPRG, July 2023
Introduction
It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they measure up to the standards set out in Managing Public Money. From April 2017, the government has committed to make a summary of the key points from these assessments available to Parliament when an Accounting Officer has agreed an assessment of projects within the Government’s Major Projects Portfolio (GMPP).
This Accounting Officer Assessment was made for the Spherical Tokamak for Energy Production (STEP) Programme, following Outline Business Case conditional approval by MPRG, July 2023. I have made this assessment as the Accounting Officer for the UK Atomic Energy Authority (UKAEA).
Background and context
This assessment relates to the Spherical Tokamak for Energy Production (STEP) programme. In 2021, the Government published its Fusion Strategy [footnote 1], outlining how the UK will build on its fusion research leadership to commercialise fusion energy technology. The Fusion Strategy has two overarching goals:
- For the UK to demonstrate the commercial viability of fusion by building a prototype fusion power plant in the UK that puts energy on the grid
- For the UK to build a world-leading fusion industry which can export fusion technology around the world in subsequent decades
At the heart of this strategy is the STEP programme, with the aim to design and build, by 2040, a UK prototype fusion energy plant capable of delivering net-energy to the grid, demonstrating a path to commercial viability and stimulating a UK fusion supply chain.
It is a research-informed delivery programme covering design, manufacture, construction, and operations. The plant will be a non-commercial prototype but will pave the way for subsequent commercial developments of the technology.
STEP is being delivered in phases called tranches. The current tranche, Tranche 1 (2019-2024), is being led by the UK Atomic Energy Authority (UKAEA) with the objective to develop a concept design, select a site, identify a delivery vehicle for subsequent tranches, and develop the regulatory framework for fusion in the UK.
This assessment relates to the Outline Business Case for Tranche 2a of the programme, which will be led by a wholly-owned subsidiary company to UKAEA called UK Industrial Fusion Solutions (UKIFS). Tranche 2a marks a transition from R&D to industrial delivery, partnering with industry to develop and, in Tranche 3, build the prototype plant.
Tranche 2a of the programme has the following objectives:
- mature the STEP plant design
- improve technical confidence through prototyping and testing
- mobilise UKIFS, whole plant partners and wider supply chain
- confirm regulatory compliance and long lead materials path
- maximise value derived from technology developed
- maximise regional economic and levelling up benefits
- mobilise the STEP site and commence site development
Assessment against the Accounting Officer standards
Regularity
The approvals sought do not introduce any regulatory challenges. UKAEA and its subsidiaries have the legal power to undertake this programme of work. UKAEA is a Non-Departmental Public Body (NDPB) that was established by the Atomic Energy Authority Act 1954 (the 1954 Act) as a statutory corporation. Its functions, powers, and duties (and those of its subsidiaries) stem from this Act and were extended through the Atomic Energy Authority Act 1986, and Section 80 (5) of the Energy Act (2004). These provide the legal basis for UKAEA to deliver this programme.
The proposal has legal basis, Parliamentary authority, and Treasury authorisation; and is compatible with the agreed spending budgets.
Conclusion: My assessment is that the accounting officer test is met.
Propriety
The STEP programme is included in the GMPP with quarterly reports being submitted. The programme has received independent assurance reviews from the Infrastructure and Projects Authority (IPA). There are actions in place which address each of the recommendations from these reviews.
The Department for Business, Energy and Industrial Strategy (BEIS) Project Investment Committee (PIC) approved the Full Business Case (FBC) for Tranche 1 of STEP in January 2020, and more recently, the Strategic Outline Case (SOC) for Tranche 2a in April 2022. The Outline Business Case (OBC) for Tranche 2a received conditional approval from the Department for Energy Security and Net Zero (DESNZ) Project Investment Committee (PIC) in May 2023 and conditional approval from the IPA’s Major Project Review Group (MPRG) in July 2023.
Tranche 2a is affordable within allocated budgets through to 2024-2025. Affordability beyond 2024-2025 is dependent on subsequent Spending Reviews.
Conclusion: My assessment is that the accounting officer test is met.
Value for Money
Fusion energy is a concept that could deliver low carbon, secure, continuous, and virtually inexhaustible energy. The UK, as a fusion world-leader, is poised to take advantage of this opportunity. This leadership, arising from over 65 years of developing and operating fusion devices, has delivered fusion world records [footnote 2], and attracted international investment into the UK. Given wider global climate and energy security objectives, the commercialisation of fusion could provide a unique opportunity for the UK to leverage its scientific leadership within an emerging energy sector and subsequently benefit from the associated export market. The Government published its Fusion Strategy [footnote 3] in 2021 which aims to realise the economic benefits of this opportunity. At the heart of this strategy is the STEP programme, to design and build, by 2040, a UK prototype fusion energy plant capable of delivering net-energy to the grid. STEP Tranche 2a present the best Value for Money option to progress towards achieving the UK Fusion Strategy goals.
A critical source of Value for Money from Tranche 2a will be its role in understanding and mitigating design and engineering cost risk. This will serve to reduce delivery costs for the prototype, which, given the technological complexities involved, will be a key contributor to improving outturn Value for Money in later STEP tranches and beyond.
Tranche 2a will maintain and grow a highly skilled workforce, building capacity in the UK labour market to support fusion and other advanced scientific developments. The enhanced skills generated through engagement in the STEP programme will support productivity gains reflected in wage premia given the uniqueness of the design, engineering and scientific activities of STEP.
There is a clear rationale for government intervention in STEP due to market failures arising from first mover disadvantage for companies establishing a new market, in addition to incomplete and asymmetric information. The scale of fusion’s technical challenges and the resulting high fixed costs for an at-scale prototype power plant are too great for individual private actors to tackle, especially when the market is competitive and uncertain, leading to underinvestment.
In the short-term, economic additionality from this tranche of activity, will include:
- increased economic activity, for example through the creation and transfer of skills and expertise as the programme is implemented, with spill over to adjacent sectors and wider UK industry
- an increase in the scale of innovation resulting from the programme through the development of new and novel technologies and IP assets resulting from detailed plant design
- a greater development of UK industrial capacity and capability, facilitated through the creation of significant opportunities for the market
In the longer term, successful development of commercially viable fusion energy and highly improved fusion devices would create an opportunity to capture a UK share of a future fusion industry. It would also have far-reaching impacts beyond those that could be captured by the original developers of the technology. The knowledge and skills developed by the UK companies involved will likely lead to spill overs which will place them and collaborative partners at a significant advantage for other UK and international commercial opportunities.
It is recognised that at this stage there remain uncertainties, particularly those relating to the scaling of immature technologies. However, given the strength of the estimated economic value and targeted plans to resolve outstanding uncertainties as the programme progresses, the use of public funding to achieve the programmes strategic objectives remains justified.
Value for money will continue to be tested at key points throughout programme delivery as the cases for subsequent stages are developed to inform decision making and ensure sound use of public funds.
Conclusion: My assessment is that the accounting officer test is met.
Feasibility
The STEP Programme has been reviewed periodically by an independent and international panel of specialist technical and programmatic experts, the Fusion Technical Advisory Group (FTAG), convened by the then BEIS and continued by DESNZ. In the most recent FTAG review, the members commended the progress made by the programme in the design of the Prototype Power Plant and offered recommendations on areas of focus for subsequent design activities.
Overall, therefore, FTAG considers that the current concept design proposal is evolving on a course towards a CML5 (Concept Maturity Level) which will provide a viable approach to delivery, but with a significant number of design choices retaining high technical risks that will ultimately need to be resolved through R&D.
Resourcing is a concern and pay-related recruitment / retention challenges are recognised as a key corporate risk for the wider UKAEA group, with the latest IPA PAR review formally recognising it as a blocker to the programme. Specific programme mitigations are in place to address this and enable a ramp up of the programme. As part of this, further necessary pay flexibilities are being considered by central government.
It is the programme’s view that the proposed delivery schedule can be implemented effectively and credibly, in line with policy intentions.
Conclusion: My assessment is that the accounting officer test is met.
Conclusion
As the Accounting Officer for UKAEA I considered this assessment of the Spherical Tokamak for Energy Production (STEP) and approved it on 8 August.
I have prepared this summary to set out the key points which informed my decision. If any of these factors change materially during the lifetime of this project, I undertake to prepare a revised summary, setting out my assessment of them.
This summary will be published on the government’s website (GOV.UK). Copies will be deposited in the Library of the House of Commons, and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.
Professor Sir Ian Chapman