Lord Moynihan
Main Page: Lord Moynihan (Conservative - Excepted Hereditary)
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?