Nuclear Energy (Financing) Bill

Baroness Neville-Rolfe Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[Lord Ravensdale (CB)]

My Lords, I will speak to Amendment 12 in my name. I thank the noble Baroness, Lady Neville-Rolfe, for highlighting this issue to me and for working with me to develop this amendment. I also declare my interest as a project director and engineer in the nuclear industry working for Atkins. I apologise to noble Lords for not being able to be present in Grand Committee and thank the noble Lord, Lord McNicol, for his support with the amendment too.

This is a probing amendment designed to highlight a key issue with the way that nuclear projects under the RAB model under the provisions of the Bill are to be financed. The RAB will change the dynamics of capital rates for new nuclear projects by allowing pension funds and other institutional investors to fund large nuclear projects. There are three aspects relating to financing of new nuclear that need to be highlighted here.

First, the focus of Amendment 12 is that investors are constrained by ESG criteria that apply to their funds, as the noble Lord, Lord Howell, referred to earlier. The Government are due to consult on a UK green taxonomy this year, with a target to legislate by the end of the year. Our concern is that nuclear will not be considered sustainable or taxonomy aligned under this scheme. This concern comes from previous positions on nuclear and similar EU schemes, and that the Treasury did not include nuclear within its recent green financing framework.

This all comes back to technology independence. Nuclear is a low-carbon technology, along with many other low-carbon technologies, and the Government should not be picking winners in the race to net zero but enabling a level playing field. If nuclear is not considered as taxonomy aligned under the UK green taxonomy, there is a real risk that Sizewell C will not be viable under the RAB model. ESG alignment is now a key factor in capital raises for pension funds and institutional investors. In this case, a large non-ESG technology simply may not be able to attract capital in a sufficient quantity. I would be most grateful if the Minister could provide some assurance that nuclear will be considered as taxonomy aligned under the UK green taxonomy.

Secondly, I referred earlier to the UK Government Green Financing Framework, which describes how the UK Government plan to finance expenditures through the issuance of green gilts and the retail green savings bond. Currently, this excludes investment in nuclear, but again I urge the Government to reconsider. The Government need to take the lead here in defining what counts as sustainable within their frameworks. This is so important in leading the markets in the right direction and in allowing these schemes to finance future government investment in nuclear.

Thirdly, Solvency II rules govern the amount of illiquid assets which can be held by pension funds and insurance companies. This is another factor which could limit the ability of these market participants to invest in nuclear projects under the RAB model. Given that I understand the EU is undertaking reform in this area, can the Minister say what plans there are to reform Solvency II for the UK to ensure that sufficient capital is available to invest in infrastructure such as nuclear projects under the RAB model?

I note that these proposals on finance for nuclear are one of the five steps needed to make nuclear happen outlined last week by the APPG on Nuclear Energy, of which I am a vice-chair. Having the RAB model in place will be a huge step forward for the industry and is the key that will unlock nuclear new builds. The Government need to consider some more enabling steps within this model to ensure the market is able to provide the required capital and move these critical projects for our future energy system forward.

[Baroness Neville-Rolfe (Con)]

My Lords, I support the noble Lord, Lord Ravensdale, and Amendment 12, which is also in my name. It has been a pleasure to work with him again. I will be brief but, I hope, compelling.

One month has changed the world, and we have found ourselves in an unparalleled period of energy price volatility. The West has realised the dangers of relying on Russia for energy. Energy security is now an even greater priority. This is a sad but welcome change. Energy security has been a major concern of mine since I served as an Energy Minister in 2016 and appreciated the risks inherent in our energy policies of that time, both in terms of keeping the lights on and of inflation when things go wrong. I ploughed a lonely furrow at that time.

We need nuclear investment to replace our ageing fleet and to deal with the ups and downs of solar and wind power, as the noble Baroness, Lady Worthington, mentioned in relation to Amendment 1. I was also delighted and amused to listen to the noble Lord, Lord McNicol of West Kilbride, on the Prime Minister —we often agree across the divide. We need this investment fast, and we need several investments in large reactors and in small modular reactors. Nuclear power stations are long-lasting and, like renewables, have very low carbon emissions, and are therefore helpful in reaching net zero.

This welcome Bill edges things forward, but there is a problem, as the noble Lord, Lord Ravensdale, has highlighted. We need to find investors in new British nuclear installations, to replace the Chinese investment planned at Sizewell, and to attract investment from elsewhere. However—and here is the rub—the conventions on ESG and climate-friendly investments do not allow nuclear to count as green. With so much investment from the City and elsewhere now being directed at green options, this is a real risk to our nuclear ambitions. The rules ought to be changed and we must change them today.

Amendment 12 is a modest but important one. I look forward to a firm promise on green taxonomy from my noble friend the Minister, who is doing so much to make the nuclear revival a reality.