Energy Security Strategy

Lord Howell of Guildford Excerpts

Thursday 7th April 2022 Lords Chamber

[Lord Callanan (Con)]

I cannot comment on leaks of draft documents to journalists. All government documents go through a long drafting process. As I said, we are supportive of the deployment of onshore wind, but we want to do it in co-operation with and with the agreement of local communities, so we will seek to roll out a number of partnerships to enable us to do that.

[Lord Howell of Guildford (Con)]

My Lords, I declare my energy interests. It is a bit difficult to comment on a paper we have not seen, but by the sound of it, it is going to be full of admirable longer-term proposals, including the nuclear one—although I think that actually, as usual, they are going to get that wrong. Generally, it is in the right direction, as the noble Baroness, Lady Hayman, has rightly emphasised. But is there a recognition of the unavoidable fact that, for the next five to eight years, we are going to remain inextricably embedded in dangerous and volatile global oil and gas markets, and we cannot get out of this? There is only one short-term answer, which is to cut demand—as again the noble Baroness, Lady Hayman, and others, have suggested—and increase supply substantially. What are we doing to get Middle East suppliers, who are supposed to be our friends, to replace Russian exports—which are of course financing Russian atrocities by the day—by pumping much more oil and gas in the short term, which they can easily do? When are we going to get on with that?

[Lord Callanan (Con)]

The noble Lord is right: we will have an ongoing requirement for oil and gas in the transition period. We will seek to obtain as much of that as possible from our own domestic sources and will roll out an additional licensing round for North Sea oil and gas projects this autumn—they will of course all be done in co-operation with our climate compatibility tests—because it is much better to get those resources locally than source from unstable parts of the world. I cannot comment on discussions that have taken place with various regimes in the Middle East.

Energy Storage Capacity

Lord Howell of Guildford Excerpts

Tuesday 5th April 2022 Lords Chamber

[Lord Callanan (Con)]

The noble Lord is right to point out the importance of long-term storage. We are aware that long-duration electricity storage—for example, pumped hydro—can struggle to deploy because of the high capital costs and the lack of forecastable revenues. We are analysing responses to a consultation from last year on a call for evidence on facilitating further deployment of this type of storage. We already have a considerable amount, but he is right that we must do more.

[Lord Howell of Guildford (Con)]

My Lords, I am sure most noble Lords agree that more storage of gas and electricity, and more nuclear power and wind, are desirable in the long term. But, as none of these will have the slightest effect on energy prices now, which are causing suffering and real fear for millions of households, is it not a bit feeble to offer them as the only answer? The real and immediate answer is surely for the world to pump more oil and gas, which OPEC is perfectly capable of doing with its spare capacity. Should we not press further on that? Is it not unwise and despicable of OPEC to refuse to replace Russian gas and oil exports now?

[Lord Callanan (Con)]

I take slight issue with my noble friend, in that I do not think we are offering long-term energy storage as the solution to the current massive price spikes but as something we need to do in the longer term. As we have more intermittent forms of power, it is important to store the power we generate for times when its intermittency means power is lacking. My noble friend also made a point about the importance of ramping up our own production, particularly from the North Sea, to help with security of supply. Unfortunately, it will not affect price, but it will affect security of supply.

COP 26

Lord Howell of Guildford Excerpts

Monday 28th March 2022 Lords Chamber

[Lord Callanan (Con)]

I thank the noble Baroness for her question. I am sure there is always more that can be done but we have made considerable strides in terms of green finances, as I am sure she is aware. We are working closely with the Glasgow Financial Alliance for Net Zero, now representing more than 450 financial firms with £130 trillion in assets, to make sure that private finance goes towards green policies.

[Lord Howell of Guildford (Con)]

My Lords, while all these deals are desirable—as are the main COP 26 aims, the net-zero aims and the Paris targets, if we can get anywhere near them—is not the real need now, the urgent deal, to restore some balance in all energy markets to avoid the kind of super volatility of prices, appalling inflation, considerable suffering for many households and the general economic disruption that we face now and which, if it persists, means that we will never get anywhere near the long-term aim of decarbonisation at all?

[Lord Callanan (Con)]

My noble friend makes a powerful point. We are seeing unprecedented turbulence in the energy markets, with massive rises in the prices of fossil fuels in particular. Ultimately, the best solution to high prices in fossil fuels is to use less of them, which is what we are trying to do.

Nuclear Energy (Financing) Bill

Lord Howell of Guildford Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I rise to oppose this amendment. It is not that I am out of sympathy with the concerns and motives behind it; I am all for any moves that create a more explicit explanation of the real, full value of modern nuclear power and the way in which it is developing. Nevertheless, I oppose the amendment because, if you are talking about value for money, it is wildly unrealistic and out of touch with reality, as the noble Viscount, Lord Hanworth, rightly indicated.

Let us certainly have a good argument about value, but what is the value, first, of national security? What is the value of building up a large chunk of our electricity power for low-carbon reliability in the future when, although we all want to see more wind and sun and so on in the package, we know that any part of a complex energy system can go down or be disrupted at any time? There has to be diversity and a large block of reliable, low-carbon power from modern nuclear, with full provision for taking care of the difficult problems of waste which we discussed in Committee, and all the rest. But there is a value in the national security of having a large section of our power coming from nuclear, ready to come in—at a cost, yes—when the wind does not blow, when there are interruptions in oil or gas supplies, and all the rest, as we are experiencing now, when prices go crazy, when LNG, the frozen gas on which we rely, is beckoned by higher bids from China and turns away from us.

What on earth is the value of having this provision? What is the value of diversity in our system, in having conserved the system which we have now which, alas, is grossly overconcentrated either on renewables, which can go down occasionally, or on gas? We were never meant to have as much gas in our electricity production as we have now. When I was looking after these matters a long time ago—and I should declare my registered interest on that—1% of British electricity came from gas, and Sir Denis Rooke, the then chairman of British Gas, was very opposed to an increase. Now it has gone to the other, mad extreme: we are now at 45% to 50%, and when gas problems go badly wrong internationally, as they have, and we have a sevenfold increase in the gas price, we are hit directly through our gas and electricity prices. So the case for a large chunk of renewable energy through nuclear increases by the day, particularly now that we may get an acceptance that nuclear electricity is green electricity and is approved under ESG rules and so on.

I put it to our Liberal Democrat friends that they must face the issue that there is a value—yes—but it cannot be put into money, because it has to be measured in terms of security, diversity, back-up for wind when the wind does not blow, hydrogen production and a variety of other things. There must be some realism in the stance of great political parties in addressing this issue: that is all I plead for. Therefore, I think this amendment is unrelated to the real needs of our security and our national prosperity, and to the whole helping of the poorest and the most vulnerable in society in the future. It cannot be the right amendment to make.

[Viscount Trenchard (Con)]

My Lords, as acknowledged by the noble Lord, Lord Oates, Amendment 1 was debated in Committee. And, as acknowledged by the noble Viscount, Lord Hanworth, just now, I also thought that my noble friend Lord Howell explained very well, both in Committee and today, that value for money is totally subjective. The judgments that have to be made will, of course, take account of the financial plans for projects. I thought that the noble Baroness, Lady Worthington, was spot on in referring to Switzerland, whose electricity grid depends almost entirely on hydro and nuclear. It is hard to put a price on the huge value that energy security gives that country.

Amendment 3, in the names of the noble Lords, Lord Oates and Lord Stunell, is unnecessary, because the Secretary of State will clearly consider this point in assessing any applicant company under the designation process. Furthermore, Ofgem is bound to protect consumer interests as part of the consultation process. I recognise that electricity bills are already rising exponentially, and I expressed concern in Committee that payments under the RAB model will further increase the subsidies that consumers are required to pay. The solution here is to reduce the subsidies paid to renewables projects, to provide a more even balance between support for those sectors and support for the nuclear sector, which has been left out in the cold until very recently.

As for Amendment 10, in the name of the noble Lord, Lord Oates, and others, I fear that the costs of administering such a complicated exemption would far outweigh any possible benefits to the particular groups of people concerned. Besides, there are other groups facing difficulty in meeting higher electricity bills, such as pensioners, who are seriously disadvantaged by the suspension of the triple lock. The best way to assist the people whom noble Lords who put their names to this amendment seek to assist is to enable a stable, well-funded energy mix, including a significant amount of nuclear, both large gigawatt plants and smaller, more flexible SMRs and AMRs. On the latter, the Government are trying to reinvent the wheel and are moving much too slowly in the case of JAEA’s HTGR technology, which has been operating for 10 years and is inherently safe.

I hope that the Prime Minister’s much greater enthusiasm for nuclear, revealed in recent weeks, will lead to rapid changes to the very cautious current plans of BEIS, in three phases, merely to establish a demonstration by the early 2030s. We need this technology yesterday, and we should be rolling it out commercially before the end of the decade. The Times reported last week that Ministers are exploring the creation of a state-owned nuclear company that would take stakes in future nuclear projects, to reduce our reliance on foreign energy. That is very welcome. What a pity it is that such a company was not in existence before Hitachi made the decision to cancel the Horizon project in September 2020.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, I will speak very briefly to Amendments 11 and 12, and chiefly to Amendments 13 and 14 in my name.

On Amendment 11, the noble Lord, Lord McNicol, perhaps predictably, stole the line I was going to use, so I will just note how this amendment demonstrates the practical reality that the state always ends up the last guarantor—the structure having to pick up the pieces. In so many areas of our economy we have privatised the profits and socialised the costs. This is a reminder that that is ultimately what always has to happen, but it is important that it is in the Bill.

On Amendment 12, it is interesting that the noble Lord, Lord Ravensdale, and I can agree on this. The whole question of whether nuclear can be included in the UK green taxonomy is something that I am sure we will continue to debate on another day, just as I will continue to debate with the Minister about intermittency. However, being aware of the time on a Thursday afternoon, I will spare everyone by not venturing in that direction.

My Amendments 13 and 14 would prevent financing being made available to nuclear companies until a plan exists for the safe treatment and disposal of the nuclear waste generated. In Committee, the noble Baroness, Lady Worthington, suggested that this was a “wrecking amendment”. I would say that it is a precautionary amendment. You do not start something until you know how you will finish it off. That is how we think about our existing and previous nuclear plants: given the huge decommissioning costs that our society is bearing today, we wish that people in the past had applied that principle, but they did not. They did not think about what would happen with decommissioning, and now we bear the costs.

In Committee, the Minister referred to the Energy Act 2008 and its legal requirement that all proposed new nuclear power stations have in place a decommissioning plan, approved by the Secretary of State, before any nuclear-related construction can commence on site. I put it to the Minister—whose comments I am interested to hear—that decommissioning surely must include dealing with the waste. This includes higher-level waste which, as the Minister said in Committee, is the waste which has to be “treated and stored safely” until there is a geological disposal facility available.

We had a considerable discussion about geological disposal facilities in Committee. There, the Minister spoke—and then wrote to me—about the three proposed sites in Cumbria and the one in Lincolnshire. I said extensively in Committee, and I will not repeat it now, just how resistant Cumbria was the last time there was an attempt to put a geological disposal facility there. I have seen no reason to think that there will not be the same reaction this time as there was last time.

It is interesting to look at what has happened at Theddlethorpe, in Lincolnshire. There is a really valuable local report from Lincolnshire Live, which reminds us of the importance of local media in helping people to know what is happening—as an aside, it is tragic that so much of that has been lost. The report, apparently quoting the Nuclear Waste Services, says that

“people would have the final say … in a binding referendum”

before a geological disposal facility goes ahead. So it appears that the people will be given the right to decide.

What timeframe do we have here? The Nuclear Waste Services people say that the feasibility studies which have just started now will take two to three years to complete. After that, if it passes that two or three-year process, we will start drilling more holes to seriously look at the geology. The Nuclear Waste Services is attributed as saying that the “first trainloads of waste” would not roll out

“until the 2040s at the earliest”.

I come back to the requirement under the Energy Act 2008. If we do not have a plan for decommissioning, which must involve geological disposal facilities, and if this is something which is going to take a decade or more, how can we possibly go forward? What we are talking about here is putting the money in. How can we do that without, as it would appear, a legal route forward?

I feel that I should probably say at this point that I am aware of the time on a Thursday afternoon. For anyone who is thinking about their train, I have no intention of moving these amendments this afternoon—for the avoidance of doubt. I am well aware of the position of the largest opposition party, so I know where that vote would end up. However, this is an issue which needs a great deal more exploration and discussion, very clear timelines and an understanding that, if we must have a binding referendum before we have a geological disposal facility, this will be a pretty remote prospect.

[Lord Howell of Guildford (Con)]

My Lords, I support Amendment 12 from the noble Lord, Lord Ravensdale, and my noble friend Lady Neville-Rolfe, because I am really quite keen to know what the Government’s thinking is on this fascinating and key issue.

First, can they tell us what is going on in Brussels, in the European Commission, where there is a great debate about this very subject? Furthermore, can we get some good information about where German official minds are turning on this issue? As we know, there is a thought going around that Germany, and indeed Switzerland as well—I have been talking to the Swiss and they have confirmed this—are going to delay further closure of their nuclear power which they had turned against. Austria is also following them. Now, as members of the EU, they are all discussing whether in fact the status of investment in future nuclear should be changed in this—to me—desirable way: ESG qualified. There is a very interesting and important matter to be clarified here, and it would be good to hear what the Government are thinking.

Secondly, the whole situation reminds us that the gigantic energy transformation which is being attempted across the planet—to decarbonise energy completely—is an entirely international and global issue. It is a vast undertaking. In fact, it is much bigger than the scale of the Industrial Revolution. It is the biggest change, after 200 years of embedded fossil fuels, not only in the energy industry but in the entire social and industrial structure of countless countries. We are moving on to an entirely new situation, and clearly the status of investment, and the taxonomy concerned in investing huge sums of money through the capitalist system, is absolutely central to this.

Green Skills

Lord Howell of Guildford Excerpts

Wednesday 9th March 2022 Lords Chamber

[Lord Callanan (Con)]

That is a very wide-ranging question. There are a number of them, but I can give some examples: the wave 1 and 2 skills bootcamps in green subjects, such as housing retrofit, solar and nuclear energy, vehicle electrification. We have 40-plus apprenticeship standards in digital, STEM, nuclear, forestry, manufacturing et cetera—there are a number of them.

[Lord Howell of Guildford (Con)]

My Lords, the International Energy Agency confirms that global emissions are again rising fast. Sadly, it looks as though even if we achieve the UK net zero aim, which is commendable and something that we all want to see, those emissions will continue to rise fast and take us further and further away from the Paris targets. Is it not necessary to think about not only skills for our own net zero but skills to develop entirely new initiatives both in the production of low-carbon energy and in carbon absorption, which has been rather neglected and can be met on a much bigger scale—not only by trees but by entirely new strategies which are now being discussed?

[Lord Callanan (Con)]

Indeed, my noble friend makes a very good point. The UK is responsible for only 1% of worldwide emissions; it is very much a global problem that we have to work internationally to tackle. There are many exciting new developments in a whole range of industries and technologies that we want to encourage as much as possible. Technology could be our friend here.

Nuclear Energy (Financing) Bill

Lord Howell of Guildford Excerpts

Committee stage
Tuesday 8th March 2022 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, first I should apologise for not being able to take part in the Second Reading of the Bill. I therefore start by stating that I generally support the Bill, for two reasons: first, because I believe that nuclear power will be essential if we are to meet our net-zero goals; and, secondly, because I believe that it is essential that we become more self-sufficient in our energy needs and, in particular, reduce our reliance on other countries that may not share our values—this has been starkly demonstrated in the past couple of weeks.

The three linked amendments in my name in this group, Amendments 11, 22 and 24, are intended to address that last point. In order to ensure that we are not reliant on potentially hostile parties for our energy needs, we must be able to identify the ultimate beneficial owners or controllers of any companies that own a material part of our key energy providers. I hope that that is not a controversial statement. Indeed, the Government are in the process of putting rules in place for the identification of owners of UK property and I would argue that it is much more important for owners of nuclear-generating assets to be identified.

However, I can find nowhere in the legislation where identification of the ultimate beneficial ownership or control is a requirement. The nearest that I could find are the persons of significant control rules, but they do not always apply; they apply only to UK companies, for example, and in any event are easily avoided. These three amendments therefore try to address that shortcoming. I tried to introduce a clause that required all holders of nuclear generation licences to identify their ultimate beneficial owners, but it was not allowed. It was apparently out of scope of the Bill. I think that the Minister might want to consider that. Therefore, I have had to restrict these amendments simply to the designation process.

Amendment 11 ensures that, before a nuclear company can be designated under the Bill, the Secretary of State should be satisfied that the identity of any party that owns or controls, directly or indirectly, more than 10% of a nuclear company has been verified. Amendment 22 then allows the Secretary of State to revoke that designation if at some future point they are no longer satisfied that those identities have been verified. Amendment 24 adds a further duty on the nuclear company to notify the Secretary of State of the identity of any party that later gains ownership or control of more than 10% of it, again directly or indirectly, and allows the Secretary of State to revoke the designation if the nuclear company fails to make such notification or if the Secretary of State considers the new party not to be a fit or proper person to own or control a nuclear company.

I have deliberately not put in any prohibition of ownership in these amendments. I would not, for example, go as far as the noble Lord, Lord McNicol of West Kilbride, or the noble Lord, Lord Oates, in Amendment 9, which would prohibit the designation of a nuclear company that has any foreign power as a shareholder. As we heard, there are plenty of countries—France, for example—where it would be perfectly acceptable for them to own a stake and there are many others where it would clearly not be acceptable.

We should not be looking at state shareholdings only. There are many non-state parties that I would think would not be fit and proper to own nuclear assets. I think that it is appropriate that we look at each case on its merits and allow the Secretary of State to decide if the ownership is acceptable in the particular circumstances. The critical thing is that we should be able to identify the ultimate ownership and control and take appropriate decisions based on that, including the right to revoke the designation.

I am sure that the Minister will point out his statement at Second Reading that the Government intend to take a special share in all future nuclear new-build projects, but that is only an intention and, as the Minister pointed out, is subject to negotiation; no details of the rights attached to such special share have been provided. I therefore think that some safeguard is required in the legislation. While I would be happy to discuss the details of these amendments—for example, whether 10% is the right level—I hope that the Minister can see the attraction of the principles set out in Amendments 11, 22 and 24. I also hope that, as I said, he will consider the wider point that these rights and duties should apply with respect to all nuclear power generation licences, not just those that wish to be designated.

[Lord Howell of Guildford (Con)]

My Lords, we are getting to the important issue—quite rightly raised by the noble Lord, Lord Vaux—of control, the involvement of foreign companies and, behind them, possibly foreign Governments in this vital part of our energy security. There is one thing that I would like to know before the Minister replies. He will remember, as will most of your Lordships, that my right honourable friend Theresa May, back in 2016 after she became Prime Minister, ordered a review of Hinkley Point C, in particular the involvement of Chinese interests in that vast project, which is now going ahead. Everyone got quite agitated at the time. I remember the Chinese ambassador walking around saying, “Has there been a coup? What’s happened? What’s gone wrong? Was the Chancellor of Exchequer not in Beijing the other day agreeing that this was a new golden area of co-operation between China and the United Kingdom and, in the words of Xi Jinping, that there was going to be ‘unlimited’ partnership in all sorts of investments?” The Chinese, along with EDF and the French, were welcomed with open arms to get the Hinkley Point C project off the ground.

After a while, there was a review, which concluded that Hinkley Point C should go ahead, to the great delight of the Chinese. The whole thing was a very good bargain for them: not only did they get involved in Hinkley Point C, but they had a promise of involvement in Sizewell C and, even better for them, a promise of bringing in Hualong technology and managing their own project at Bradwell-on-Sea. This was a great delight and was going to be the poster boy project for the Chinese, as they moved into massive sales of Chinese technology and development, which would go well beyond a GDA for Bradwell into the possibility of building and managing a nuclear power station right at the middle of our system.

The review that Theresa May authorised was thorough and went into considerable detail into the conditions that there should be on the Chinese going forward. I would like to know from the Minister whether those conditions still prevail or whether they have been modified 10 years later, under further pressures, when the public attitude towards Chinese involvement has changed 180 degrees. We have moved from an age of loving everything Chinese to getting rid of everything Chinese. Has there been a change? It would be helpful if he could describe to what extent we have moved on that and to what extent those review conditions of 2016 still prevail.

[Viscount Trenchard (Con)]

My Lords, I agree with the amendments put forward by the noble Lord, Lord Vaux of Harrowden. The noble Baroness, Lady Wilcox, introduced the amendments in the name of the noble Lord, Lord McNicol, extremely impressively, but I agree with the noble Lord, Lord Vaux, that they go too far by effectively excluding all companies owned by foreign powers.

It is a matter of great regret to me that, in collaborating with Japan on nuclear energy, the projects at Wylfa, Ynys Môn, of Hitachi’s Horizon, and at Moorside, Sellafield, of Toshiba, were both cancelled. Perhaps if the Bill before the Committee had already been on the statute book, there would have been a good chance that either or both might have been rescued. If either project had gone ahead, it was expected that one or both of the state-owned banks in Japan—the Japan Bank for International Cooperation, on which I declare my interest as a consultant to that bank, and the Development Bank of Japan—would have provided both or part of the equity and debt for those projects. On the face of it, if the amendments tabled by the noble Lord, Lord McNicol, were enacted, it would be impossible for those banks to participate, which would have killed the projects by another means.

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[Lord Teverson (LD)]

We all agree with the principle that the polluter pays. I believe that we also have a principle in life that we should not pollute if we have no way of solving that pollution during the time for which we are planning. The issues here are complex, but I do not think they are necessarily quite so straight- forward as the noble Viscount describes.

[Lord Howell of Guildford (Con)]

My Lords, I had rather a nice time working with the Liberal Democrats in the Cameron Government, when, in an enlightened way, they were strongly in favour of nuclear power. It appears that they chop and change from time to time, but those were the days.

Before I speak further, my noble friend Lord Trenchard has reminded me that I should have made it absolutely clear that I have an indirect interest to declare, in that I advise Mitsubishi Electric, which is concerned with the power sector and indirectly therefore with nuclear construction. I suppose that I also have a sort of interest in the sense that I was Secretary of State 40 years ago and tried to build nine new reactors, of which only one, Sizewell B, was ever built. I think that I am allowed to reflect to this Committee that things would be much nicer for us if we had got the other eight built as well. They were all low-carbon and would have helped greatly in the present crisis, but that is all history.

On these amendments, it is absolutely true, as the noble Lord, Lord Oates, observed, that the radioactive waste issue requires careful handling and examination, and it must be addressed fully and with all the knowledge that we can bring to bear to establish and meet the many understandable concerns about it.

As for value for money, we will come to that in the next amendment. Of course, there are enormous difficulties in defining what value for what money, but we can debate that in more detail in a moment.

What is not true is to imply that there has been no technical solution to the absolutely safe—nothing is 100% but it is highly safe—burying of high-radioactivity nuclear waste for thousands of years. It is certainly more than 40 years since the late Walter Marshall explained to me that vitrification and burial two or three miles down in a stable geological formation was very nearly foolproof. There was a faint possibility of corrosion of the glass vitrification case around the radioactive material, but otherwise it would be safe for hundreds of thousands of years. He added, rather cynically, that if before then people wanted to dig it up and eat the glass, they may have more problems than radioactive waste. The vitrification option is there; it can be done.

In the great debate going on in America about the Yucca Mountain development as a waste disposal centre, I noticed that the statistics produced—I have the precise figure here—say that all but one in every 10,000 waste packages going into the repository, if it is built, would be secure for more than 150,000 years. So we are talking about the most minute dangers. The danger is there, but it is minute, and has to be weighed against all the other problems—we will come to value in a moment—of abandoning an area of low-carbon electricity which will be reliable, will stop a great deal of the suffering that we have today, and will be not only a stepping-stone to but a crucial adjunct and back-up of the renewable and clean energies that we all want to see dominate when conditions allow.

[Lord Vaux of Harrowden (CB)]

My Lords, my Amendment 42 to Clause 40 is loosely related to decommissioning, which is why it is in this group, but perhaps slightly niche or tangential.

It is important that there is clarity as to who is responsible for decommissioning. As I understand it, Clause 40 is intended to make it easier for nuclear companies to obtain debt finance by removing the risk that a lender might be caught by the definition of being associated and so potentially become liable for the decommissioning costs, which would not be appropriate for a debt provider. That makes perfect sense, and I fully support the clause in principle.

However, it seems to me that as currently drafted there is a risk that the exemption the clause sets out could create a loophole under which a party that should be treated as associated for decommissioning purposes is able to avoid that by doing some creative structuring of their holding using debt. This is often done, for example, by private equity companies, although more commonly for tax purposes, but it would not be hard to reduce a shareholding to just below the threshold of 20% while in fact retaining the ability to take control above 20% because of the rights attached to debt or quasi-debt. If a party has structured their investment to be 19.9%, and is thus not deemed associated and not liable for decommissioning costs, but it then goes over 20% through the exercise of rights arising due to debt holdings, that party should clearly be treated as associated and should not be able to utilise the exemption set out in Clause 40. However, as the clause is written, it would be able to.

It would be highly unusual for a genuinely arm’s-length debt provider such as a bank to own shares in a company as well as providing debt, apart from the share security rights that come with the debt. Amendment 42 would simply restrict the exemption to parties that did not own shares. That should close off the potential loophole while not changing the intended aim of Clause 40 to encourage debt financers to step up. I hope the Minister can accept it.

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I look forward to the Minister’s response and beg to move.

[Lord Howell of Guildford (Con)]

My Lords, I am second to none in my concern for the escalating costs of past nuclear projects—large-scale projects, that is. That is why my hope is that more and more emphasis will be put on returning to smaller modular reactors and new technologies, where the opportunities for vast cost escalation over a long period of time are reduced. One cannot help coming to that conclusion from the experience of Flamanville, where there was a huge cost overrun—the noble Viscount, Lord Hanworth, will remember that because we visited it together—and, of course, that of Olkiluoto, where the cost and time overruns are colossal.

So large scale does not have a good story. The sooner we can face up to that and give full support—even more support than at present—to the development of SMRs, borrowing foreign technology if we have to but hoping that Rolls-Royce has got it right and is on the right lines, the better. In a way, the regulated asset base will work all the better for these smaller and much more financeable projects, which are much more attractive to the private sector than large-scale projects. However, the large-scale project at Sizewell C is already under way, so perhaps my prayers are not going to be answered for that one; I just hope that they are for the future.

My problem with Amendment 4 is the emphasis on the concept of value for money, which is of course something that the Treasury talks a great deal about. Can the noble Lord who moved the amendment enlighten us later on what he means by “value”? Part of the argument all along—it has never been stronger than it is now—for building nuclear is national security, as the noble Baroness, Lady Wilcox, rightly mentioned at the beginning of the day. National security is the case for an element: you cannot go completely for national security on the basis of autarky—that would be absurd—but we do know that events happen, and have happened.

Right now, we face tremendous problems because of not being able to mobilise a system that is less prone to colossal price increases, causing enormous damage, hurt, suffering and danger to the economy, as a result of the more than tripling—the sevenfold increase—in the price of gas. Only yesterday morning, I was listening to the noble Lord, Lord Duncan, say on the radio that, in the two hours before he had come on the radio, the price of gas had risen from being five times as high as last year to nine times as high. It is a crazy situation, arising entirely from a lack of diversity and support because we have let our low-carbon, reliable nuclear sector run right down from the 35% it was in its heyday to something in the mid-20s; it is going to be 7% until we get it started again.

Is national security part of the value? Is there the back-up capacity of having a reliable sector of low carbon when renewables, however much we love them, falter? They do falter, and can fail completely at times. Is that built into the value? Is the fact that this is an enormous future source of clean, green hydrogen built into the value? Is the fact that nuclear itself is low carbon and therefore should be backed, and justifies subsidy in the way that other low-carbon renewable sectors have all received substantial support in their time—although their costs are coming down—included in the value? Unless we are able to get some realisation that value is a disputable, subjective point, and that behind it lie much deeper assessments of the defence of the nation and our national security in the next 30 to 40 years and further ahead, it is impossible to lay down rigid rules about how some kind of assessment of value for money should be reached. That is my problem with this entire amendment.

As I say, although we cannot go for autarky—that would be absurd—we must have reliable electricity for what everyone says is going to be an electric future. We are going to use 12 times as much electricity in the western world in 2050 as we use now, so we must have electric reliability. For that, we must have a nuclear sector that is strong, effective, reliable and, one hopes, more affordable. In the meantime, what is the value? That is my question.

[Lord Foster of Bath (LD)]

I have enormous respect for the noble Lord—indeed, I think that he has asked some very pertinent questions—but he has spent his time criticising the amendment when the Bill that he is perhaps going to support later currently says that

“the Secretary of State is of the opinion that designating the nuclear company in relation to the project is likely to result in value for money.”

So the value for money is already there; my amendment seeks to have it published so that we can see what basis has been used. I think that the noble Lord should be addressing his questions to the Government, not to me.

[Lord Howell of Guildford (Con)]

What I am saying is that, if the Secretary of State decides to publish his value for money assessment, that assessment will of course include the long-term national security concerns of this nation and a variety of other advantages of moving into a proper low-carbon electric age. That kind of value is not one that the noble Lord is going to agree with, so the disagreement will continue. Value is a totally subjective aspect; that is so with many national projects, but particularly with this one.

If I may say to the noble Lord, Lord Stunell, the rather endearing Lib Dem concept that no public subsidy could possibly be involved—that is, nuclear is all right but there must be no public subsidy—is an absurdity. Of course there is going to be public concern about the national security of this nation; public concern is something that will have to be paid for, either through subsidy by the taxpayer or by ordaining the Government to raise the money in some other way. The latter was the proposition for Hinkley C, which was allowed to have a strike price that was at that time almost twice the going rate for electricity kilowatts per hour from coal, oil or anything else, including renewables. Things have changed since then; now that electricity and gas have soared, perhaps the strike price is quite reasonable compared with other fossil fuels. That raises the question of contracts for difference; perhaps it was not quite such a bad prospect as some of us thought.

Anyway, that is beside the point. The main point is that value is utterly subjective and must contain all kinds of assessments by the Secretary of State, his colleagues and the Government about national security and its contribution to our long-term aim of a decarbonised world, as well as a vast range of other considerations—all of which have to be balanced out in taking these difficult political decisions. We can argue until kingdom come but the reality is that judgments have to be made, and they are much bigger than value in the narrow sense.

[Viscount Hanworth (Lab)]

I quite agree with what the noble Lord, Lord Howell, has just said; indeed, I feel somewhat pre-empted. However, before I address the amendment, I shall talk about cost overruns.

The cost overruns have been substantial in Flamanville and Olkiluoto but they are mainly attributable to the fact that there was a long hiatus in the process of constructing nuclear power stations, so the skills that constructed the majority of the French and our own power stations had evaporated. It is worth looking back at the history of our original nuclear programme to recognise both how rapid and effective it was and that it was not accompanied by the kinds of problems we have witnessed on these large power stations.

Be that as it may, Amendment 4 from the Liberal Democrats is predicated on their opposition to nuclear power and the proposal that nuclear power projects should be assessed in terms, as we have heard, of their value for money. I presume that they wish the assessment to be based on commercial accountancy, and that they hope and expect that on that basis the projects will be judged to be too expensive to pursue. The proposers of the amendment should know that when a nuclear project is financed by commercial funds, the likelihood is that more than 50% of the cost of the project will be attributable to interest costs.

In other words, the costs of projects pursued in this manner will comprise a substantial transfer payment by the beneficiaries of the project, who are the consumers of electricity, in favour of the financial sector. Are the Liberal Democrats happy to see major investments in social and economic infrastructure evaluated according to the criteria of commercial accountancy? If so, they are aligning themselves with a political ideology that I would have expected them to reject.

--- Later in debate ---

[Lord Teverson (LD)]

There are all sorts of ways of dealing with intermittency. Interconnectors have been quite effective, and I congratulate the Government on their policy of increasing those. Energy storage has been mentioned, in terms of hydro. On baseload, I agree that there are other ways of doing that in terms of geothermal starting, although I understand that is very young. There is a whole plethora of other strategies that work here.

I purely wanted to suggest that one of the most important matters here to the people outside this Room is the cost of energy and how we deal with fuel poverty in terms of this specific financial model, and to emphasise that the argument is not just around nuclear versus renewables.

[Lord Howell of Guildford (Con)]

My Lords, surely no one is suggesting that these are alternatives, or if they are then that is not what any sensible assessment would allow. Of course the aim for a decarbonised world has to be sought through many forms. All that is being said is that to leave out one of the major areas of decarbonised electricity is asking for trouble, unless one can begin to assess the enormous costs of trying to fill it in in areas where it may not even be available.

The example of Germany is one that the noble Lord should perhaps bear in mind. The rumour is that, having tried to do without nuclear power and got down to its three remaining nuclear stations, there is strong talk that if it is to move into the new world that we are facing now, which has all sorts of implications for the future, a large chunk of reliable low-carbon nuclear capacity must be either retained or developed to add to all the other highly desirable things for net zero and all the other projects, including of course energy efficiency and a far greater use of every kilowatt of electricity for output, which is the secret of considerable improvement without too much electricity. If that is what is being argued, we are all for it, but nuclear electricity is an unavoidable part and to drop it seems a bit odd and very high-cost indeed.

[Baroness Worthington (CB)]

The noble Lord, Lord Teverson, has talked about the cost of energy. I agree with him that it is very important that we take this issue seriously. The reality is that the CfD mechanism, which will still be part of the financing mechanism under the RAB model, will pay back when we see these very high prices—some of those CfD models are paying back to consumers. My question for the Minister is: under the RAB model, if it pays back in future, will that revenue flow back to consumers or will it sit with the Treasury?

One of the criticisms that could be levelled at this idea is that it is regressive. If it were a tax, those who could afford to pay it would pay more while those who could not would pay less. The universal credit amendment is trying to say that the regressive nature of this needs to be thought about. If you exclude someone from the payments then you might be excluding them from the repayments if the CfD provides revenue back, so this needs thinking through. There is a real question here about its regressive nature. If the CfD is paying back in, are we holding that in the Treasury or could it go back to the consumer?

Russian Oil and Gas Imports

Lord Howell of Guildford Excerpts

Monday 7th March 2022 Lords Chamber

[Lord Callanan (Con)]

The answer to the high price of oil, gas and fossil fuels is to use less of them. To that extent I agree with the noble Lord. That is why we are generating as much as we possibly can from renewables. That is why we accelerated the contracts for difference round, why we have one of the largest capacities in the world, and why we need to expand it even further.

[Lord Howell of Guildford (Con)]

Is my noble friend Lord Forsyth not entirely right that some very tough short-term measures will have to be taken to help break the Russian monopoly—one part of the measures we need to put pressure on them? Should we not take this opportunity to develop a solid future energy security strategy? Should not a central part of that be to seize the moment to recommit ourselves to rebuilding a strong, low-carbon nuclear sector, as we once had in this country, to meet all contingencies, particularly when disruptions occur, such as Ukraine, or when the wind does not blow?

[Lord Callanan (Con)]

Indeed. I agree very much with my noble friend, who makes some extremely good points. We need to bear in mind that a relatively small percentage of our supply is from Russia, of both oil and gas; it makes up less than 4%. I totally agree with him regarding nuclear. Indeed, for those noble Lords who are interested, the Nuclear Energy (Financing) Bill is in Grand Committee tomorrow.

Nuclear Energy (Financing) Bill

Lord Howell of Guildford Excerpts

2nd reading
Monday 21st February 2022 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I declare an interest, as I am advising a company involved in the power construction sector—Mitsubishi Electric—and a long-standing interest as a former Secretary of State for Energy. That was many decades ago, I am afraid, when I tried to get a nuclear power replacement programme going but failed, which is why we are back at the same issue now.

The Bill has excellent intentions and purposes, so I of course welcome it, as does the noble Lord, Lord Rooker, but some questions must be asked and, if not answered here in Parliament, will be asked again and again by investors. Let us be clear: the basic aim of the Bill is to make future nuclear power projects more widely attractive to private capital, such as pension fund money, of which there is plenty around to invest today. With the regulated asset base model, it is eventually consumers, via the licensed suppliers, who will find themselves bearing more of the risk from the start.

There are two key questions which investors, licensed suppliers and consumers will want answered. First, for how many years can consumers be asked to pay this extra levy on top of everything else and carry the risk of all the delays and vast cost overruns so familiar in this industry to date? Of course, the answer depends on what sort of nuclear plant is being financed and “on offer”. The one immediately before us and mentioned in the Bill is Sizewell C: a very large-scale project billed as a “replica” of the only other one being constructed in the UK, which is at Hinkley Point in Somerset. Is it a replica? Perhaps it is technologically, but definitely not financially. That is the reason we are here looking at a new financing model.

At Hinkley, the returns to the two main investors, Électricité de France and China General Nuclear, are due to come through by requiring that electricity produced, when it finally flows, is purchased by wholesale distributors at what looked at the time of the deal to be an enormously inflated “strike price”—although, ironically, it is not that inflated compared with the current soaring electricity prices which we are now suffering. Why will this so-called replica at Sizewell, or other future projects for that matter, look any better? These big plants take 10 to 15 years to get up and running, and it so happens that the history of Hinkley Point C, the evolutionary power reactor—evolutionary it certainly is—is not at all encouraging in that respect. None of its EPR design predecessors is successfully operating, has stayed anywhere near planned construction time or is anywhere near planned budget. Now at Hinkley Point C there is talk of parts having to be totally redesigned and further delays and costs. The reactor plant being constructed jointly by CGN and EDF at Taishan in China was meant to be the poster—the model—for being on time and working, but even that has now been closed for security reasons. As for the prototypes at Okliuoto in Finland or at Flamanville on the Cherbourg peninsula—which I visited some years ago with the noble Viscount, Lord Hanworth—one hardly dares look at their time overruns: years and years late.

Are investors ever going to wait that long for payback? However guaranteed the cash flow from consumer bills during construction—which may, incidentally, have to be jacked up to cope with construction risks—private money will not find that very attractive. Smaller scale, quicker built models, such as the small modular reactor type, or the advanced smaller reactors, are bound to be far more attractive when they can be built in series with lower waste, fabricated at factory level and begin operating and earning in two or three years. That means a much shorter period of risk for consumers paying up in advance and, of course, capital can be lent at cheaper rates because of a quicker return and less risk. That is obvious.

That is the first key decision, or choice, right now in our nuclear fleet replacement programme which confronts Her Majesty’s Government: a programme which has already had its share of setbacks. Do we plug on with these mammoths at Wylfa, Moorside, Oldbury and Sizewell or turn all our efforts to small and more advanced nuclear power plants? I appreciate that this is a choice the Government would rather not make.

There is a second and really awkward issue to be resolved; namely, how to deal with the Chinese involvement. There is not time in the allocated five minutes to go into detail, but 10 years ago the mood was to welcome everything Chinese and give them a central role in our nuclear replacement programme, and now the mood has swung 180 degrees. There will be little private investment attraction at all at Sizewell until all that is sorted out, even if the EPR design could be assured of working, which none of its predecessors is yet doing.

For this Bill to work and for the RAB model to function, there will have to be a major change of strategy here. Low-carbon nuclear replacement is vital for security, for climate, for cheap green hydrogen and to avoid the kinds of energy bill explosions we are suffering right now. This Bill should help get us back on the right track—eventually—but there are these key decisions to be taken before we can be anything like sure of that.

North Sea Oil and Gas

Lord Howell of Guildford Excerpts

Thursday 10th February 2022 Lords Chamber

[Lord Callanan (Con)]

First, I agree with the noble Lord that it is much more sensible to use our own domestic resources, rather than LNG. However, the reality is that, throughout this period, the UK remains a net importer of oil and gas. Therefore, it makes no sense to pursue the operations he is proposing. We do not produce enough of our own domestic energy. We are expanding our renewable capacity massively and have the largest developments of offshore wind in the world. We need to go further and faster, but it makes no sense to isolate ourselves from the rest of the world and cut off imports and exports.

[Lord Howell of Guildford (Con)]

My Lords, in running down North Sea oil and gas for climate purposes, is it not vital to ensure that supply does not shrink so fast that it falls behind continued demand, with the resulting price explosions in all the fossil fuels that we see now, which are causing such misery and crisis?

[Lord Callanan (Con)]

I totally agree with my noble friend. I know he speaks with great authority on this matter as a former Energy Minister. As I just said in response to the noble Lord, Lord Fox, we remain a net importer. Production from the North Sea is sadly declining. We need to make sure that we ramp up our renewable capacity as quickly as possible, but it remains a fact that we will still have demand for oil and gas during the transition. If we have that demand, it makes sense to produce this domestically rather than importing it from other, unstable, parts of the world.

Cost of Living

Lord Howell of Guildford Excerpts

Thursday 3rd February 2022 Grand Committee

[Lord Howell of Guildford (Con)]

My Lords, I declare an interest in energy price-related issues, as in the register.

My brief contribution to this superbly timed debate—it really is perfectly timed—will be more about preventing the reoccurrence of this problem, which otherwise will hit us again and again, than the immediate amelioration which is certainly needed. No doubt we shall hear from the Government about what is proposed to prevent widespread suffering and address the real fear in many households, and disruption throughout key parts of industry, when energy prices go super-volatile as they are doing now.

There is a simple—perhaps over-simple—one-word answer to the question of what we can do to prevent recurrence: back-up. We are in the midst of a gigantic energy transformation which is the biggest for over 200 or 300 years, since the Industrial Revolution. It is a fundamental reorganisation of our entire energy system into a new pattern. This is huge, and no system—certainly not this one—will work without the full availability of fall-back energy supplies, 24/7, which can kick in when the inevitable disruptions, breakdowns and crises occur. It does not matter whether we talk about green energy or traditional fossil fuels: there will be, as there has been in the past, occasional and sometimes devastating interruptions, and that is why we must have full back-up facilities in place. Do we have them?

Look at the scene. We have ruled out coal. Obviously, that is the right thing to do but frankly, I am afraid that it will not make any difference to rising emissions worldwide or to climate control, because of course the main coal emitters are roaring ahead. There are 8,200 coal-fired stations in the world, all puffing fumes into the air, and several more are being built despite the Glasgow undertakings that they would not be. So, coal will continue to drive emissions upward, but at least we can demonstrate our good intent by closing it down. So that is that—although I note, slightly cynically, that to keep the lights on in Glasgow and the conference going, they had to open up a couple of coal-fired plants.

Investment in more gas is being strongly discouraged. It is an amazing thought that years and years ago, when this country, or the Government, had the misfortune of having me as their Energy Secretary, 1% of our electricity came from gas, and even that was resented by Sir Denis Rooke and others. Now it is running at roughly 43%, although I note that last week 55% of our electricity was coming from gas. That is dangerously high. I remember when Helmut Schmidt told Mrs Thatcher that Germany was going to rely on Russia for a quarter of its gas—just a quarter—she said, “Helmut, you’re crazy: this is going to lead to terrible trouble”. He replied, “No, don’t worry, communism is a reliable business partner and it will all be all right.” It was not all right.

Obviously, we are discouraging pensions from investing in oil and trying to run down our international oil companies, so we are handing the ball back to OPEC there, and we will feel the rough edge of that as petrol and oil prices go whizzing up.

We had high hopes in my time of building a reliable and solid back-up system through modern nuclear power. That was the plan. We aimed for nine PWRs and only got one built, but the world moved on and oil and gas were cheap, so we managed to get by with the one at Sizewell B. Now we are trying to revive our nuclear replacement programme and I am not at all happy about where we are going. It seems that we are at a Y-fork in the road in the development of civil nuclear: between large-scale repeat such as Hinkley or maybe like Sizewell C, and going for SMRs which, according to Rolls-Royce, could be produced at about the same time.

That is a big choice and I hope that the Government get it right because, if they do not, we will end up with a lot of further disappointments and difficulties and a lack of the back-up that we need. In particular, I have to note that getting out of large-scale nuclear building and attracting private capital, which we will never get into the big-scale stuff, even with the proposed reforms in financing systems, is made 10 times more difficult by the fact that, of course, we are deeply involved with the Chinese. Somehow we will have to get out of the Chinese involvement in Sizewell C, Hinkley Point and other projects, and do that smoothly, if we are not to bring the whole house of cards down.

I am afraid that what I have said is slightly gloomy, but if people just hang on to the word “back-up” they will understand that we can save ourselves from the horrible volatility of prices. Behind the volatility, of course, comes the prospect of actual outages. We must have a resilient and diverse system. That is the big lesson, which I am not sure has yet been learned.