Viscount Hanworth
To ask Her Majesty’s Government what is their assessment of the role of nuclear power in helping the United Kingdom to meet its climate change and energy security goals.
Viscount Hanworth
This is a timely debate, which comes some time in advance of the introduction to the House of Lords of the Government’s Energy Bill. We are eager to discover how, in truth, the Government foresee the future provision of electrical power in the UK. We should like to know what steps they intend to take to secure our future supplies of energy if the optimistic scenario that they have depicted in recent documents fails to materialise and if the commercial providers are not forthcoming. I should like to put this question to the Minister.
There is already a plethora of printed information from which one might seek some enlightenment. In March, a flurry of documents emanated from the Department for Business, Innovation and Skills and from the Department of Energy and Climate Change. Some of these documents contain new information, but much of their material is already familiar from previous publications. These documents seem to indicate a strengthened commitment to a nuclear future. Nevertheless, they do nothing to dispel the doubts about this future.
One of the most significant of the recent publications is the so-called Beddington report, A Review of the Civil Nuclear R&D Landscape in the UK. This report, which has been conducted by the Government’s Chief Scientific Adviser, represents an independent appraisal. The Beddington report amounts to an inventory of our existing research facilities. It has revealed some serious lacunae.
Another enlightening document is a report of the Energy and Climate Change Committee of the House of Commons, Building New Nuclear: The Challenges Ahead. Here, one will find a full expression of the doubts and anxieties concerning the nuclear programme and the energy policy of the UK in general. This document, which comes in two volumes, contains the brief and cogent report of the committee, together with a mass of oral and written evidence from numerous parties. It is to this report that one should go to discover the realities of our situation, which are in contrast to the optimistic aspirations of the Government.
The doubts that affect the Government’s programme arise mainly from the fact that it persists in seeking a wholly market-based solution to the energy problem. Their stance implies that they will have a limited control over the outcome, unless there are contingency plans for the eventuality that the markets will fail to deliver what is required. As the Commons report asserted, there is no evidence of any such contingency plans and it is likely that the markets will fail to deliver.
It is also clear that, in the absence of a successful nuclear renaissance, the UK will fail to meet its commitments, proclaimed in the Climate Change Act 2008, to stanch its emissions of carbon dioxide. According to existing plans, which have been influenced by our climate change commitments, the UK will lose in the coming decade about a quarter of its coal-fired power stations. We will lose all of the old oil-burning plant. We will be losing most of the existing nuclear plant, which consists of the eight advanced gas-cooled reactors and the one pressurised-water reactor, Sizewell B. This is the only current reactor that will still be operating after 2023. That is the reality of the energy gap, which the Government are hoping that the private sector can be induced to fill.
What we will be left with, in the absence of new nuclear plant, is an electricity-generating sector dependent almost entirely on gas and wind power. This assumes that the UK would continue to fulfil its climate change commitments. In such circumstances, the UK will be faced with the choice between breaking those commitments or suffering an even more severe dearth of energy supply.
One might look to the obiter dicta of some of the Ministers to discover what the Government really intend. We know that the Chancellor of the Exchequer, George Osborne, has been vocally supportive of the UK’s shale gas industry, arguing that this prospective energy source could be a cheap and secure way of meeting the country’s energy needs, as ageing power stations are decommissioned. However, most experts have doubts regarding the extent of the shale gas in the UK and its accessibility and they point to the environmental damage that would arise from its extraction. If the UK were to depend on gas, it would need to be imported from abroad. The global supplies of gas are limited and are liable to be pre-empted by other nations that have forsworn the use of nuclear energy. The supplies of gas from abroad will be both insecure and expensive.
Another possibility for filling the energy gap, in the absence of nuclear power, would be by burning coal, which nowadays the UK imports in large quantities. Some people have been able to imagine that this would be an acceptable recourse, if it could be accompanied by the as yet unrealised technology of carbon capture and storage. This technology appears to be a fantasy and the prospect of continuing to rely so heavily on coal fills all but the most ardent climate change sceptics with horror.
Finally, there is the suggestion that, in the absence of nuclear power, we could rely on wind power and wave power, on biomass energy and even on energy abstinence. The supply of biomass is limited and its burning is highly polluting. The energies of the wind and the waves are intermittent and they have to be accompanied by other sources of power to meet the base-load requirement. These renewable sources can play only a marginal role. Moreover, when the full costs of renewable energy, including those of the base-load provisions, are taken into account, they are seen to be exorbitant.
Now I must explain why the Government’s intention to achieve a nuclear renaissance by means of free market enterprise seems so improbable. For a start, one can point to the fact that no commercial supplier has yet given a firm commitment to build nuclear plant in the UK. A significant number of prospective suppliers have already withdrawn. One should also note that there are no other examples of nuclear power stations that have been constructed without the major involvement of a national Government. A new nuclear power plant has a life expectancy of 60 years. Ten years can pass from the initiation of a nuclear project, when the first expenses arise, to its completion, when the revenues begin to flow. Seventy years hence is way beyond the horizon of any commercial enterprise.
The logic of commercial project appraisal depends on a rate of discount that is applied to future earnings and diminishes their present value as they recede into the future. The commercial rate of discount obliterates the value of future earnings to the extent that no enterprise would undertake investment in such a long-term project as a nuclear power station unless it was heavily subsidised. Nuclear power is virtually incompatible with private enterprise. At present, the only realistic hope for a new nuclear plant in the UK is one that would be constructed by what is essentially a state-owned enterprise, namely EDF, or Électricité de France. The heavy subsidy that EDF can expect to receive is largely on account of the high cost of the alternative sources of power with which nuclear energy would be competing. Even so, it is unclear that this would offer a sufficient inducement for it to bear the risks of such a project.
What should the Government do in the face of the eventuality that commercial enterprises will not be prepared to undertake the building of the much needed nuclear power stations? The answer is that the Government should commission and finance the projects directly, as has been the case invariably in the past. By financing the projects directly, the exorbitant costs of the risk premia that are demanded by the financial markets would be avoided and the benefits would accrue to the public.
The Government should not allow themselves to be hamstrung by an atavistic free market ideology. Nor should they be obsessed by the totem of their nominal borrowing requirement. If the Government can afford such massive financial quantitative easing as we have witnessed recently, surely they can afford to finance our energy future. I earnestly hope that the Government have a contingency plan and that it is one that is dictated by common sense.
Lord Jenkin of Roding
My Lords, in my three minutes I really only want to make one point. The assumption behind all the documents published last month was that nuclear energy is going to have to play a major role in the low-cost, low-carbon supply of energy to this country. Of all the reports that were published last month, may I express particular enthusiasm for what the noble Viscount has called the Beddington report, namely the report about the response to the Lords report on nuclear research and development? The other report, on strategy, is also extremely positive and forward-looking. With it, we also have the road map reports, something that the Select Committee called for specifically.
Together, these reports should now provide Ministers with all the guidance that they need on how to ensure that the UK nuclear industry can achieve three things. First, nuclear power should play a long-term role over the decades ahead in providing security, which the Question refers to, and a low-carbon source of electricity. Secondly, by expanding focused research on new technologies, the UK should be able to rebuild its leading role in global nuclear development, something which again the Select Committee looked forward to. Thirdly, the reports should enable the UK industry to become a major nuclear exporter to the rest of the world. These things are all spelled out in the documents with great clarity, certainty and force. I do not share the pessimism of the noble Viscount.
With regard to the Ad Hoc Nuclear Research and Development Advisory Board, I give full support for all 12 recommendations. However, I would like to ask my noble friend just two questions. The first concerns the role of the National Nuclear Laboratory, about which we had a great deal of evidence in Select Committee. When will Ministers be able to announce details of the proposed new structure and role of the laboratory and the details of the programme referred to in the report? There is also recognition that extra funding will be needed. We know that this cannot come from DECC, because it does not have any money, but BIS does. It is, in a sense, the research department. Therefore, I hope that we can look forward to the funding necessary to deliver the programme spelled out in the report.
The second question relates to one of the four areas of opportunity set out in the Nuclear Industrial Vision Statement, which refers to “nuclear fuel cycle services”, where the UK,
“could expand its international market share in current fuel supply and spent fuel management”.
There has been a lot of publicity about the future of URENCO, with the suggestion that the Government may be willing to sell their one-third share in it. That is inconsistent with what I have just read out from the report. Could my noble friend give us any further information about that?
Lord Giddens
My Lords, first, I congratulate my noble friend Lord Hanworth on having initiated this debate. Three minutes on nuclear power is not very much, so I am going to limit myself to three questions to the Minister.
First, exactly what lessons have the Government learnt from the notorious examples of the Olkiluoto plant in Finland and the Flamanville plant in France? Both, as everyone here will know, have been subject to horrendous delays and cost overruns. With Olkiluoto, the whole process was initiated in 2000 and the plant was supposed to come into service in 2009. However, the date now given is 2015 and we do not know whether that will be achievable. The project is billions of euros over its original estimated cost and an unseemly squabble has broken out over who will pay the difference. How are the Government setting out the lessons to be learnt so that we can avoid those outcomes?
Secondly, even if built more efficiently, the reactors planned by the Government will take many years to come on stream. The level of technological innovation in the energy sector is now very high—much higher than it was a few years ago. What will prevent the reactors becoming expensive white elephants? The report sent to the Government by their three main scientific advisers proposes the development of fast reactors using nuclear waste as a power source, thorium reactors and perhaps nuclear fusion. I would support all of those, but how will such development be carried out alongside the building programme and who will pay?
Thirdly, what is the Government’s latest position on the convoluted issue of subsidies, which seems to run and run? As I understand it, the Government are no longer sticking to their position that nuclear investment could go ahead only if there were no subsidy. I do not know anyone working in or around the industry who ever thought that that was possible. Does the Minister agree with the calculations of the energy analyst Tom Burke, who has mounted a series of attacks on government policy? According to him, if the strike price at Hinkley Point was just under £100, the constructors would receive something like a £50 billion subsidy from the Government if the contract were for 40 years and the market price averaged £50 to £60. Does the Minister agree with that?
Finally, with nuclear power there is the constant issue of insurance. What insurance scheme do the Government envisage? Will the taxpayer be mainly responsible if there is a nuclear accident where the costs are over £1 billion, which is mentioned in the government analysis? It would be very useful to know just what kind of insurance scheme the Government have in mind, because different countries use different ones and no one has come near to paying the costs of a serious nuclear accident.
Baroness Parminter
I add my thanks to the noble Viscount, Lord Hanworth, for posing this important Question. I would contend that the complexity and, indeed, the continually rising costs involved in building nuclear reactors and in putting in place appropriate safety, waste management and decommissioning arrangements will limit the role that nuclear energy can play in helping the UK to meet its essential climate change and energy security goals. I have three principal concerns, to which my noble friend Lord Giddens referred.
First, I agree with my noble friend about the costs of new build. He referred to the costs of the proposals in Finland and France. I would add to that the costs of dealing with existing waste. Decommissioning of the UK’s civil nuclear facilities—principally Sellafield and Dounreay—is estimated at being in excess of £86 billion and is expected to rise. By contrast, as observed by the Economist in its recent study on nuclear, the costs of many renewable energy technologies are falling fast.
Secondly, there is the issue of waste. Despite 60 years of civil nuclear expertise, there is still no long-term solution for storing high-level radioactive waste.
Thirdly, there is the issue of accidents—again, referred to by my noble friend Lord Giddens. With corporate liability limitations, it is the British taxpayer who is liable for the clean-up of any major nuclear accident. As the total clean-up costs for the Fukushima nuclear accident are likely to top £160 billion, it is clear that if the nuclear industry had to insure itself properly, its electricity would be unaffordable.
The noble Viscount mentioned the recent report of the House of Commons Energy and Climate Change Committee on nuclear power in the UK. It concluded that the failure to deliver nuclear new build does not pose a significant threat to our energy security. A viable and sustainable option to deliver a successful and cost-effective decarbonisation of the UK’s power sector by 2030 is an increased deployment of renewable energy technologies coupled with a greater focus on improving energy efficiency. Increasing the UK’s interconnection with European grids must also be a priority, with gas playing a role as a transitional and system-balancing fuel.
In conclusion, I shall ask the Minister two questions: first, when do the Government expect a decision on whether the current electricity market reform proposals are illegal state aid under EU law, given that tendering for nuclear electricity does not fulfil the requirements of Directive 2009/72, Article 8? Secondly, following the decision of Cumbria County Council, what plans do the Government have for locating an affordable, long-term solution for UK nuclear waste?
Lord Moynihan
My Lords, I am a supporter of nuclear power for the main reason that it will be a critical component in our future security of supply. The main case that needs to be made by government is the economic case for nuclear power. The decision to go ahead with new-build nuclear on existing sites should be driven by government, independent of direct links to the pricing of, say, future projections of renewables or new-build CCGT. New-build nuclear must secure a significant part of our essential base load supplies of energy. These stations require substantial up-front capital requiring low marginal and operating costs. They face, as was pointed out, major decommissioning costs. However, above all, the Government should not carry the risk of escalating construction costs. The industry has, as has been pointed out, a bad track record, with Olkiluoto in Finland and Flamanville in France both late and substantially over budget. Can the Minister confirm that the contractor will bear in full any cost escalation during the construction and operating phases of the project?
The second point I shall raise today relates to the proposed contracts for difference. Will the Minister confirm how the proposed plan to fund nearly all low-carbon generation through CFDs and the prospect that nearly all future generation will effectively be remunerated under a contract determined by government can be consistent with overall European Union aims for a competitive single electricity market? As the noble Baroness, Lady Parminter, pointed out, this would be extraordinarily difficult. As the Oxford Institute for Energy Studies has pointed out, the European Court of Justice’s 2010 judgment in Federutility, concerning regulated electricity tariffs and the presumption of the EU’s internal energy market legislation, that the market mechanism should be allowed to operate, would indicate that the Energy Bill appears to fly in the face of the Commission guidelines.
The Commission says, among other things, that in assessing environmental operating subsidies it will consider the following:
“duration of the aid: If operating aid is granted for a long period, this is more likely to distort competition … gradual decrease of aid: If operating aid is reduced over time, the undertaking will have an incentive to improve efficiency; therefore, the distortion of dynamic incentives will be reduced over time”.
To me, a grandfathered, 40-year plus contract for a nuclear power station would be seen by the Commission as foreclosing a significant part of the market. What we have here is the prospect of a legal challenge between national targets for carbon reduction and nuclear and the promotion of renewable sources on the one hand and the development of a European barrier-free market on the other. Will the Minister inform the Committee of the Government’s view of this discrepancy and place in the Library any copies she may have of the legal advice the Government have sought to reconcile these discrepancies in advance of Second Reading of the Energy Bill in your Lordships’ House?
Lord Whitty
My Lords, my noble friend’s question relates to the contribution that nuclear energy can make to both energy security and climate change. I shall focus mainly on the latter. The answer to the question obviously depends on the timescale and, in a different sense, on the nuclear industry overcoming the legacy to which the noble Lord, Lord Moynihan, referred, of economic overconfidence, not to say mendacity on the part of the economics of nuclear power. I support nuclear power, but I recognise that history. We have to overcome it and the continuous slanging match between those who support renewables, who slag off nuclear power, and those who support nuclear power who slag off the renewables lobby. We have to get over that because both are vital if we are to meet the climate change target. Mutual recrimination only benefits longer-term use of damaging fossil fuels.
In the short term, nuclear power will not make a huge contribution to carbon targets. To meet our carbon trajectory, we will have to rely on increased renewables and a switch from coal to gas. In the medium term, however, it could be different. In the nearest thing to a road map that the Government have come up with—the carbon plan—it is envisaged that at the end of the fourth carbon budget we will have 10 to 14 gigawatts of new nuclear power on stream, potentially rising to 20 gigawatts by 2030. On present form that seems pretty improbable, but it is no more improbable than that, in the same plan, we will also have 35 to 50 gigawatts of renewable energy, which will be equally difficult, even if we have the subject of the next debate on stream and working. It is important to take decisions now to set the guidelines for nuclear investment to ensure that we get somewhere close to the 27 or 30 targets for nuclear contribution.
The immediate prospect before the Government is the Energy Bill, which will be before this House in a couple of months. The test case for contracts for difference is the nuclear investment by EDF in Hinkley Point. It is a terrible dilemma for the Government and a severe test of whether the contract for difference can actually work. It will also determine whether we have a viable means of delivering nuclear investment in this country. Part of the media coverage on this has been misconceived. The Treasury has a stronger hand against EDF than is indicated. There is not a lot of demand for nuclear power in Europe. The state-aid issue, to which the noble Baroness, Lady Parminter, referred, will be an important inhibitor on what the Government can do for EDF in any case. The idea that we all have to roll over to EDF demands to bring Hinkley Point on stream is exaggerated. That is not to say that it will be an easy negotiation or that the precedents set in the outcome of that negotiation will necessarily be tenable for other proposals for investment into other nuclear sites. I urge the Government to play hardball in this respect, and ensure that the deal that is done on Hinkley Point, which I very much support, is one that benefits the British people and the British economy rather than straightforwardly EDF.
The Lord Bishop of Hereford
My Lords, I welcome the debate and congratulate the noble Viscount, Lord Hanworth, on securing it. In the three minutes allotted to me, I shall make four overrushed points. First, I am hugely supportive of us walking the nuclear path. I would love the 85% target for 2050 to be achieved, and I stress that thorium molten salt reactors should be on the medium and long-term radar. There is four times as much thorium in the world as uranium. One tonne of thorium is equivalent to about 200 or more tonnes of uranium, which is equivalent to 3.2 million tonnes of coal, which would produce 8.5 million tonnes of carbon dioxide and 900,000 cubic feet of waste fly ash. That is a no brainer when we are starting to be green and looking to be green. There is no argument about that, apart from one of cost, but it could be turned on its head and we could say, “Can we not afford this? Is there a way to achieve those reductions without it?”. I do not think that there is.
Secondly, research and development are vital. I appreciate very much the steer towards putting a bit more money in. What a shame that since 1995 we have had almost no money in R&D for fission. I understand that at the moment in our universities there are only five PhD students doing R&D in fission and, if noble Lords would like to guess the number of post-docs, it is 0.2 of a researcher. That is desperate, and we are heading for a massive skill shortage unless we do something about this now and step up hugely the amount of money spent on research. It is greatly needed.
Thirdly, the national decommissioning authority must surely be given a remit that is new, fit for purpose and joined up with the rest of the documentation we have here. Instead of the national decommissioning authority working on its own brief to its own agenda and therefore not being able to use its money to help with the research, we need to make sure that we change the mindset so that some of what is regarded as waste can be regarded as fuel. If we have thorium molten salt reactors, that would be possible. We need to recognise that the new generations of reactors have far less wastage and therefore there is ultimately far less to decommission, which is another good reason for walking this path, and we need to cut down the £2.3 billion a year that is being spent, which I understand is 80% of DECC’s annual budget. That seems an outrageously large sum, and we need to close the gap.
My fourth point is that this cannot and will not happen without government putting in the initiative, as the noble Viscount, Lord Hanworth, has made clear. Anything that has a 15 or 20-year, let alone a 60 or 70-year, lead time is hardly going to be commercially attractive. It needs government to do it. We are having such trouble finding anybody to build our reactors at the moment because we have trusted to private enterprise, and things of this scale have to be joined up and have government support. I would like us also to have something that is far more clear, coherent and comprehensive with a commitment from the Government to go for that, and then others would come aboard with university and other research money to follow.
Lord Judd
My Lords, clearly the demands of climate change mean that this issue has to be promoted to a top priority in government consideration and action. We have got to stop dithering and get on with it. If we are going to get on with it, there are several points which have to be addressed. The first is why we are not deliberating our energy policy more seriously than we do with a real drive for energy conservation. Are we just fatalist about the level of energy consumption and therefore trying to meet it, or do we have a policy on energy conservation, and how is that being pursued and resourced? Talking about further education, higher education and skills, how much effort is going into producing the people who can be expert and relevant in this field?
Next comes the issue of real cost. That has been well illustrated in what has been said already. We have to look at the long-term costs. We have to be very certain. I do not believe that there can be any total certainty, but we have to be as certain as we can be about what those real costs will be and stop shadow boxing. In that context, the real costs of the alternatives have to be evaluated. What is the competitive advantage? There are special dimensions to this, and it would be foolish to overlook them. There is safety, of course, and there is also security in an age of international terrorism and the rest. What we need to be clear about in these extra costs is exactly where the responsibility lies. From the outset, we have to be clear about what the taxpayer may be expected to fork out in the future and what the industry itself is expected to meet. There are some huge issues in that sphere, but we have to be clear about them. We cannot just drift into another example, like the banks, of de facto welfare capitalism in which when something goes wrong, taxpayers are expected to fill the bottomless pit with their taxes.
The noble Baroness, Lady Parminter, referred to waste. I simply say that I think it is irresponsible to move into the next generation of nuclear energy before we have demonstrated what we are going to do with the existing stock. This has immense implications for future generations for hundreds of years ahead. I cannot understand why in Britain we do not have a costed, carefully researched list of suitable sites for the storage of nuclear waste across the country as a whole—suitable geologically as well as on security grounds. Of course, voluntarism in this area matters, but voluntarism should come into operation in the context of what is clearly the best place and what are clearly the less good places in which this waste should be stored. I simply do not understand why that is not being done and I believe that it should be done as a matter of urgency.
Lord Davies of Stamford
My Lords, we must have a nuclear programme. Renewables are not a substitute, as the House knows very well, because they are not base load. Carbon capture and storage is not a satisfactory substitute because it is still an unproven technology, and it would be deeply irresponsible to set our future by making a bet on that particular number on the board. The same applies to shale oil. I think that we should seriously pursue shale oil opportunities, but there are very serious environmental concerns about it. There are suggestions that the fracking process could permanently pollute the water table, and that should obviously be taken extremely seriously. However, even if that matter is resolved, combined-cycle gas-fired power stations continue to emit carbon. If we really are serious about reducing our carbon emissions to the greatest possible degree, we must at least try to replace a proportion of our energy with electricity generated through nuclear fission. As has already been said, that is a very tall order because all the stations except for Sizewell B will be decommissioned by 2023 and it takes 10 years to build a nuclear power station. Therefore, we can see the problems that we have got ourselves into.
I do not agree with the noble Baroness, Lady Parminter, or indeed with my noble friend Lord Judd, with whom I normally agree on most things, that the problems of nuclear waste storage should in any way hold us up in taking decisions about investing in a new generation of nuclear power. We have that problem anyway with the existing stations that we are closing, and the problem is much greater with the present nuclear power stations because current technology is much less efficient and much more waste is produced. Therefore, I do not think that that is a very good argument.
I want to take the opportunity, as I think we all do this afternoon, to ask a very simple question of the Government. What the devil are they doing? What do they have to show in this area after nearly three years in office? They have been arguing about contract differences for two years. They would have been in a much better position to come to a deal two years ago, when we had two German groups, as well as EDF, who were extremely keen on getting involved in the nuclear project in this country. Therefore, I fear that the Government may have got themselves into a very unfavourable position simply by not being sufficiently dynamic or focused earlier in this Parliament.
My second question is: what is the fallback position? If the Government cannot come to an agreement with EDF, what do they do? We know that the Government do not have a fallback position on the economy and their economic policies have not worked. They have not thought through that situation properly. They have not thought through the possibility that the initial strategy that they are pursuing might go wrong. That is a very irresponsible way to run any business or any country. What fallback position do the Government have in mind for our energy requirements if they cannot come to an arrangement with the private sector to build new nuclear power stations?
Lord Jay of Ewelme
My Lords, I must declare an interest straight away as a non-executive director of the main Paris board of EDF. Indeed, I am the only non-French member of that board. I should stress that I favour nuclear energy not because I am a member of the EDF board; I was delighted to accept membership of the board because I believe that nuclear energy should be part of our energy mix. I hope very much that the present negotiations between the Government and EDF over Hinkley Point will succeed. A year or so ago, I would have said that they seemed condemned to do so. However, having observed negotiations more recently, albeit indirectly from both Paris and London, I do not think that success is in any way assured. Robert Peston got it right in his FT blog last week, when he talked of both sides proceeding with “cautious pessimism”. I hope that I am being too pessimistic myself. If we do not renew our nuclear capacity over the next 10 or more years, I believe that we will face real problems of energy security as existing nuclear and coal-based plants close, as gas prices rise when, as it is hoped at some point, the economy picks up, with shale gas being less significant inevitably on this side of the Atlantic than on the other side, and as wind power remains expensive and intermittent.
We would also find it much harder without nuclear as part of our energy mix to meet our carbon reduction targets. It is worth remembering that a nuclear power station will emit around five tonnes of CO2 per gigawatt hour of electricity generated, compared with nearly 500 tonnes from gas and 900 tonnes from coal. I add, in case the noble Lord, Lord Lawson, is listening somewhere, that climate change is not the only reason for clean energy. There is also a very strong public health reason for clean energy as anyone who has experienced Beijing smog in recent years will know.
For all those reasons I welcome the Government’s commitment to nuclear power. I also welcome the conclusion of the Government’s nuclear industrial strategy—in particular its review of the nuclear research and development. Nuclear R&D needs to be far more robust than it is at present. That approach is needed if we are to respond to Britain’s needs and, as the noble Lord, Lord Jenkin, said, if we are to exploit the rise of nuclear power elsewhere in the world, which is the real opportunity for us as a society. Finally, like the right reverend Prelate the Bishop of Hereford, I hope that molten salt reactors and thorium fuel will get the attention they deserve in our R & D programmes in the future, in providing the prospect of nuclear power that is safe, provides economic benefits and much more manageable waste disposal.
Lord Foulkes of Cumnock
My Lords, we should be grateful once again to my noble friend Lord Hanworth for drawing our attention to the looming crisis in the electricity supply industry. We raised it in the energy sub-committee of the Cabinet in 2001. To be fair, successive Governments have done nothing about it—I was going to use another phrase there, but nothing about it is more polite. A total of 19% of our electricity now comes from nuclear power and all but one of the existing power stations will close by 2023. What are the Government planning? They hope to build 16 gigawatts of nuclear capacity by 2025, but we have already heard from my noble friend Lord Jay that even he is pessimistic about EDF being able to deliver the only one that is in prospect, which will produce just over six gigawatts. It really is a looming crisis.
As my noble friend Lord Hanworth said, the markets are failing to deliver. In the past, nuclear power stations have either been funded by Governments, and we cannot do that any more because we privatised British Energy and now it is owned by the French—we know we have one person looking after our interests there, but mostly by the French—or were provided on the balance sheets of companies against their other revenue and assets. As the departing chief executive Volker Beckers of RWE nuclear power made clear, balance sheet financing is not now an option. Therefore the only option is to try and find these loans from the market, and they are proving both illusive and expensive. That is why, as the noble Lord, Lord Jenkin, said, they have been pulling out of the option of building. What is the way forward? By contrast to these expensive loans, the cheapest source of funding would be for the Government to build the nuclear power stations and then either sell them to the utility companies or bring companies in to operate them.
I have only one question for the Minister and I will conclude on it. Why is the Government’s ideology stopping this being done? I predict that this is the only way that we will be able to fund this—I see no other way forward. It would be cheaper, easier and quicker for the Government to build their power stations with the option of selling or hiring them to contractors once completed. Is it only ideology that is stopping the Government doing that?
Lord O’Neill of Clackmannan
I thank my noble friend Lord Hanworth for introducing this debate, although when it was first announced I was not sure that we would have much to debate. I thought that we would probably be well on the way to getting a strike price. Secondly, I did not anticipate the European Parliament having the vote that it did, throwing the carbon market up in the slates. The first question that we have to ask the Minister is what the Government propose to do to retrieve the situation so that the price of carbon can be made clear so that potential investors in all forms of generation of a low carbon character, whether renewable or nuclear, have some sort of idea of where we are going in Britain.
If there is a problem, it is not the Government as such; in my view it is the Treasury. In my recent experience of the nuclear industry within the past decade, I remember two occasions. One of them concerned the pay and conditions of the Nuclear Installations Inspectorate, where there was a dramatic leakage of staff because of the skill and expertise of these individuals and because their pay and conditions was of a Civil Service character. It took the Treasury years to come to an appreciation of the fact that these people had to be put into a special employment box, as it were. Thankfully, the Government’s upcoming legislation will deal with that.
Secondly, there was the whole question of the contractorisation of Sellafield and the insurance thresholds that had to be set for that. It took months and months of trying to get the Treasury to appreciate the significance of this insurance question. The insurance question was quite straightforward. There had to be a raising of the threshold whereby the Government would become responsible for any potential difficulty. It was not an issue that was raised by a single company although the one I was associated with at the time, the Washington Group, had been the favourite company to take the Sellafield account. It eventually took the intervention of the shareholder executive from BIS to get the Treasury moving. We know the merits of the case one way or another and it has been described already, but the Treasury is the department causing the problem.
It is fair to say that DECC in these matters is a well-intentioned lightweight spectator. It has to get its act together. There is so much at stake here. We need to get a price and we need to get a signal sent because there are people not only in EDF but other contractors that are prepared to come in and spend money and to use different forms of generation and different reactors, which could widely expand our industrial base. If nothing else, given that we are no longer going to be able to build lean-tos and conservatories, we need something to help the construction industry. Certainly, starting work at Hinkley Point as quickly as possible would be a good signal to all concerned.
Baroness Worthington
My Lords, if you thought it was challenging speaking on nuclear power for three minutes, try summing up this really fantastic debate in three minutes and also questioning the Minister. It has been fantastic and I congratulate my noble friend Lord Hanworth on securing the debate. It shows what great industry there is in the House for energy matters. I am sure that these debates will continue when the Energy Bill reaches us. On balance, most speakers seem to agree that nuclear power has an important role to play in both decarbonising our power systems and in providing more security of supply. But important caveats were put down by speakers today. My noble friend Lord Whitty said that we may want to pay for nuclear power, but not at any price. It must not be at the expense of consumers.
The noble Baroness, Lady Parminter, made very important points about waste. Waste is an issue. We cannot move to 60 or 70 gigawatts of nuclear power with a once-through fuel cycle. It generates far too much high-level waste. We need innovation if we are to be able to solve that waste problem. My noble friend Lord Judd quite rightly said that we cannot in all conscience go forward planning lots of new reactors until we have solved the problem that we already have today and, importantly, worked out what it costs.
There seems to be a common theme that the noble Viscount, Lord Hanworth, started off: what is the contingency plan? If our current proposals to move ahead with these large-scale pressurised water reactors do not happen, and a number of speakers raised the fact that they are very difficult for the private sector to deliver with the timescales and capital costs involved, the contingency plans and the insurance, it is a very difficult issue. A number of noble Lords mentioned that in the past there has always been a fairly high level, if not a complete level, of state involvement. It is not clear that this is going to work out as we might hope, therefore there needs to be a contingency plan. Many noble Lords mentioned the cost overruns of the Flamanville and Finish reactors. We need to learn lessons from them if we are to pursue this course.
I shall make a few suggestions, picking up on something that the right reverend Prelate the Bishop of Hereford mentioned. There is a way for the state to get involved in nuclear R&D at a much higher level than it is at the moment through rethinking our approach to decommissioning. At the moment, a huge proportion of DECC’s budget goes on the NDA and its role in decommissioning our existing reactors. The legislation that created the NDA in 2004 was written at a time when we did not conceive that nuclear would need to have a renaissance or that it would come back to help us tackle climate change, and therefore the NDA was given a very narrow and limited remit just to dispose of the waste. When is waste not waste? It is when it is fuel. Some of those fuels that are currently stored as waste could kick-start a new generation of nuclear reactors, whether fast-breeders or any kind of closed-cycle nuclear system. If we use thorium, which a number of noble Lords mentioned, we can move to much more sustainable nuclear power, so if the Government do not have a contingency plan, I ask that they develop one and base it around the concept that we could bring about quite a high degree of innovation in the nuclear industry and get back to what the UK was very good at.
We have a very good history of innovation in nuclear power. It was only in the 1980s that we started to see a precipitous decline in R&D and the closure of eight of our 12 nuclear research labs. With the Beddington report, I hope that we are starting to turn that cycle. Let us get involved in nuclear fission research again; let us increase the budgets and make sure that we try to help bring the world a much more sustainable nuclear future in which nuclear can compete with carbon capture and storage, renewables and all the other solutions that will be necessary to deliver us from climate change. I do not think it is an either/or, or that it is nuclear or renewables or CCS. They all have to play a role, but we probably need a new type of nuclear, and I would love us to play a part in bringing that to reality.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I thank the noble Viscount, Lord Hanworth, for raising this debate today. I know that he has a long-standing interest in this subject. I agree that this is a very timely debate. I hope that when I go through my speaking notes I will be able to answer some of the questions that have been raised by noble Lords today. Those that I cannot answer in the short period that we have for the debate I will write to noble Lords about and place a copy in the Library.
I do not approach this debate as the noble Viscount, Lord Hanworth, did, with pessimism. My endeavour today will be to lift his spirits a little. Noble Lords have asked searching questions. I may have to give better, detailed responses to many of them, so it would be prudent of me not to give half-baked responses now.
We are aware that one-fifth of our power generation will be coming off within the decade and therefore it is vital for our nation’s energy security that we work towards long-term certainty and investment. That is why I am pleased to say that this Government, in recognising that, have introduced the Energy Bill, which will bring forward the biggest electricity market reform that we have seen for a very long time.
Nuclear power has a part to play in the UK’s energy mix. For more than 50 years it has been part and parcel of a route for electricity supply to this country and it contributes more than 19% of all electricity generated in the UK. We are committed to seeing nuclear as a part of the energy mix, alongside renewable energy and carbon capture and storage from fossil fuels. A new generation of nuclear power stations will help to ensure that we have secure, affordable and low carbon energy.
Towards the end of last year we saw the successful sale of Horizon Nuclear Power to Hitachi, and EDF was granted the first nuclear site licence in 25 years at Hinkley Point C. Regulatory approval of the EPR reactor has been given. This March, the Secretary of State gave planning consent for a multibillion pound project planned at Hinkley Point in Somerset. This project alone could enable the generation of enough low carbon electricity to power around 5 million households, making it one of the largest power stations in the UK. The noble Viscount, Lord Hanworth, specifically focuses his Question on our assessment of how nuclear power will help the UK to meet its climate change goals. As he is aware, we see a new generation of nuclear power stations alongside other low carbon forms of electricity as being the most cost-effective as well as energy-secure way to meet our legally binding carbon targets.
The life cycle of carbon emissions from new nuclear plants will be similar to that of emissions from wind power and, of course, much less than those from fossil-fuelled plants. It is competitive with other generation technologies and is expected to be one of the cheapest sources of low carbon electricity in the future. New nuclear can contribute significantly to our economic growth, creating long-term employment and supply chain opportunities. The Energy Bill currently going through the other place is bringing in some of the largest changes in reforming electricity that the UK has ever seen. The Bill will put into place measures to attract the £110 billion investment that is needed to replace current generating capacity and upgrade the grid by 2020 as we see a rising demand for electricity. The Bill puts into place the certainty that generators have looked for in investing in large projects and, through our capacity market, is also building in a mechanism to ensure energy supply. These measures are intended to try to shield us better from price hikes that occur on the international markets and over which we have little or no control.
Last month we published the Nuclear Industrial Strategy, which provides us with essential bridges between our shorter-term policy for the next tranche of new build and the research and development needed for nuclear to play its part up to 2050 and beyond. The strategy’s key actions are to have a new nuclear council that brings together relevant players from across the nuclear supply chain. The strategy will better co-ordinate research and development and innovation through the new bodies—the Nuclear Innovation and Research Advisory Board and the Nuclear Innovation Research Office. It will ensure a long-term plan to meet skills in the sector and will look at how to reduce costs across the industry.
The strategy was in response to the House of Lords Science and Technology Committee’s insightful 2011 report, when the Government undertook a number of actions, along with the findings and recommendations from Sir John Beddington’s advisory board, which formed the basis of the strategy. Government and industry will be working together to drive economic growth and job creation. As noble Lords are aware, we are currently in negotiations with NNB GenCo regarding the contract for Hinkley Point C. The Government are determined to work for a deal that delivers a fair, affordable and value-for-money deal for consumers. Should an agreement be reached, it will be laid before Parliament, and it will include details of the strike price.
Before concluding, I have a number of questions to which to respond, and I will try to whizz through them as quickly as possible. The noble Viscount, Lord Hanworth, asked about our response to the Energy and Climate Change Select Committee’s report on new nuclear. Of course, we welcome the report. It recognises the important role that new nuclear will play in meeting the UK’s energy security, but we will put forward a proper response to the report some time in the coming days.
My noble friend Lord Jenkin asked about investment. I think I laid out clearly to noble Lords that the Government have announced increased investment. Over £45 million-worth of additional investment is going into nuclear research and development, alongside the publication of the Nuclear Industrial Strategy, which was published in March this year. I could give a breakdown, but if noble Lords would like me to do so, I will write to them about that.
My noble friend also asked about EURENCO. The Nuclear Industrial Vision Statement sets out the industry’s own ambitions for the future. The Government intend to work with our partners in EURENCO to move forward preparations for the sale of all or part of our one-third of the shareholding. It is government policy not to continue to hold shares in companies where the shareholding does not deliver any policy objective.
My noble friend Lady Parminter asked whether current electricity market reform proposals are in line with European state aid rules. We are working with the European Commission to ensure that our policies—particularly contracts for difference and the capacity market—are compliant with state aid rules. It is important to ensure that we have a stable and certain regime that has the confidence of industry and provides best value for consumers.
My noble friend also asked about our long-time approach to the management of nuclear waste, as did the noble Lord, Lord Judd. We remain fixed to the idea of GDF being the best way to ensure that nuclear waste is dealt with properly, but we recognise that we need to have communities that come to the process voluntarily. Therefore, when west Cumbria decided in January this year not to go ahead, we began the process of looking at the lessons to be learnt. We recognise that an approach has to be voluntary because in places where voluntarism was not taken forward the process faulted there too.
My noble friend Lord Jenkin asked about the role and structure of NNL. The Government recently announced changes to the management structure of NNL when the current contract expires. We are working with the company to ensure that it is at the centre of our future programme of research and development through the operation of the Nuclear Innovation Research Office.
The noble Lord, Lord Giddens, asked about subsidies in relation to nuclear. The coalition has agreed that there will be no public subsidy for new nuclear power unless similar support is available more widely for other types of low carbon generation. However, it is for the private sector energy companies to construct, operate and decommission nuclear power stations and for the Government and independent regulators to ensure that appropriate levels of safety, security and environmental regulations are met.
The noble Lord also spoke about the experience in France and China. We are already looking at lessons learnt around the generic design assessment, and mitigating risk by making sure that our requirements are understood and that designs are completed on time. But, again, it is for us to work and engage closely with industry and regulators to ensure that early build programmes applied in the UK are built to the UK context.
Both my noble friend Lady Parminter and the noble Lord, Lord Giddens, asked about electricity market reform proposals in relation to nuclear and, in particular, in relation to the minimum price agreement with EDF. We have not yet come to an agreement. We are still in negotiations. These are commercial negotiations and therefore it would not be right for me to discuss here and now where we are with those negotiations. All we can say is that this Government are determined that, whatever price is agreed, it will allow for fairness and provide value for money for the consumer.
I am rapidly running out of time and I still have quite a number of notes to go through. Therefore, I shall conclude and will write to all noble Lords on the questions to which I have not been able to respond. I thank all noble Lords for their valuable contributions to this important debate. We have made, and will continue to make, great progress in ensuring that new nuclear can contribute as much as possible to the UK’s future energy mix. This Government are fully committed to cost-effective new nuclear power contributing alongside other technologies. This is not about ideology; it is about the need to ensure that the UK has a secure and cost-effective low carbon energy supply.