Nuclear Energy (Financing) Bill (Second sitting)

Alan Brown Excerpts

Committee stage
Tuesday 16th November 2021 Public Bill Committees

[Matthew Pennycook]

Thank you.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Q Richard, following on about costs, you said that Hinkley Point C was estimated at £24 billion. Even if we say that Sizewell is £20 billion, we heard that Rolls-Royce is hoping to build five small modular reactors, which will be about £10 billion. If we look at consumer protection, value for money and achieving net zero—particularly heat decarbonisation—if I gave you £30 billion, would you spend it on nuclear, or would you do something different with such levels of capital?

Richard Hall: It is hard to see a case for this being the most cost-effective way to spend money on generation. A lot of the argument for whether we need new nuclear or not comes down to whether it is perceived as being useful to provide a balanced generation mix, so that it is available when other forms of low-carbon generation are not available. On that point, I note that the Government are more confident on the need for new nuclear than some of their advisers are. The Committee on Climate Change’s sixth carbon budget work from last December shows a range of pathways to net zero by 2050, some of which involve new nuclear. It talks about it being “possibly” needed, not definitely needed.

The National Infrastructure Commission’s 2018 national infrastructure assessment recommended that the Government consider bringing forward one new large-scale nuclear plant in the 2020s—but only one, suggesting that in general terms the cost reductions in renewables were so sharp and likely to continue that a pivot to renewables appeared a better bet than backing nuclear more forcefully.

The case for whether new nuclear is needed is ambiguous at this stage. Could you get better value for money from investing in other things? I think the challenges of making our homes energy-efficient so that we stop spending so much on energy and reduce emissions should be tackled as a priority.

[Alan Brown]

Q We heard this morning from the Sizewell C company that it is looking for a 60-year contract under the regulated asset base model. Do you have concerns about consumers getting locked into a 60-year payback period? Given that the longest operational lifespan of a UK nuclear power station has been 40 years, 60 years is 20 years beyond that maximum. Does the Bill need to address the risk of consumers paying for a nuclear power station that has reached the end of its life and is not generating?

Richard Hall: I certainly think that the risk of it being brought out of service earlier than expected has to be borne by the developers rather than by consumers. There is no way in which consumers can forecast or manage that risk.

On affordability over 60 years, we are talking about a 60-year lifespan, but there may be another 10 years in addition for construction, so we are talking about a payback period that, if we had the decision now, might continue until 2091 or towards the end of the century. It is extremely hard to know what options will be available to consumers 10 or 20 years out, let alone 70 years. It is hard to forecast whether it will offer consumers good value for money over that period.

One can only note that the cost of alternatives—renewables, storage and so on—has fallen rapidly over time. There is some risk of buyer’s regret: an option that looks cost-competitive today might look quite cost-uncompetitive quite rapidly.

[Alan Brown]

Q We also heard this morning that disposal of radioactive waste is built into the up-front cost and becomes part of the 60-year payback. Is there any way of ensuring that the risk stays with the developer? Might the risk transfer to the consumer? If a company became insolvent, who would be responsible for decommissioning and disposal of the waste?

Richard Hall: That is a good question. If the special administration regime were to be used, I understand that effectively it would mean that the special administrator would be taking on that risk. That may mean that it became a public liability. I do not know how a special administrator would sell on that risk to others.

In terms of where it would be borne if the special administration regime were never used, I think that would come down to the terms of the contract agreed between the Government and the developer. In its current form, the Bill basically enables the Government to enter into negotiations with a developer to agree a contract based around the RAB model, but the details of that contract are not contained in the Bill. Earlier, I said that I thought it very important that an independent third-party impact assessment be laid before Parliament after a deal is struck but before it becomes contractually binding. That would provide the opportunity to understand where the liabilities would sit in that type of situation.

[Mark Jenkinson]

Q Obviously, I have heard what you just said about nuclear. Since Hinkley, we have taken an annualised payment from operators to deal with waste and decommissioning. It is not something that we have to deal with later in the special administration regime. I gather you have an anti-nuclear stance. Does the CAB have a preferred route to providing consumers with electricity? You have spoken a lot about renewables and the cost of renewables, but when we factor in constraint payments and various other issues, such as back-up, it becomes a very expensive way of delivering energy to the most vulnerable in society. Does the CAB have a view on a preferred electricity generation route, and if we are to build nuclear, do you have an alternative preferred model to RAB?

Richard Hall: We do not have an anti-nuclear stance; we are technology neutral. In terms of the options between bringing forward new nuclear or leaving catastrophic climate change unchecked, there is no question that nuclear is an option that can help us to reduce our emissions and tackle the climate change crisis. We do not have concerns on the technology itself, and whether it can be done safely and so on. Our concerns are simply around cost. It looks like a costly option compared with others.

On whether we have a preferred approach, because we are technology neutral we do not have a preference for any particular technology over others. I would simply highlight such things as the analysis of the Committee on Climate Change, which showed a range of possible pathways to 2050 that it considered to be affordable. Some of them involved nuclear and some of them did not. It appears that there is a choice to be made.

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[The Chair]

Cameron, do you have anything to add?

Cameron Gilmour: I will be brief. The thing to remember is that the Sizewell C project is global European pressurised reactor Nos. 7 and 8, so the core technologies are proven and operational in a civil nuclear power plant right now. The important thing for the industry is that we generated the continuity and recreated our nuclear expertise in the UK when we started on Hinkley Point C. We have learned a huge number of lessons and we have created a lot of energy in the industry and on the programme. I echo the points made about pace and moving forward. If we give people continuity of employment and the long-term horizon, we will retain the skills and the knowledge. Those skills will be there not just for the gigawatt plants that we can build but for SMRs. For me, this is a crossroads not just for the engineering and construction industry but for the nuclear industry. The skills have been hard earned, and the lessons have been hard learned, so we have to capitalise on that and move forward quickly.

[Alan Brown]

Q Mr Woods, earlier you spoke about possibly delivering SMRs with a contract for difference mechanism. What sort of contractual period would you be looking for? Hinkley, at the moment, is a 35-year CfD.

Alan Woods: That would depend on a number of factors, including the expected rate of return that the investors were looking for and the value of the CfD itself. In the previous session you were talking about having a requirement for 60 years to pay back on. It would not be that long for an SMR because the capital cost is that much lower and the speed we can build them that much quicker, particularly once we have reached that nth unit and we are rolling them off the production line. The payback period will therefore be a lot quicker, and that will reflect what is available on the CfD. It becomes a balancing act.

[Alan Brown]

Q Okay. If I understand the concept of SMRs, it is factory modular production, but the theory seems to be that repetitiveness drives efficiencies as well, so the costs come down. That effectively relies on a multiple order. Would you be looking to get a multiple order or would each contract be negotiated individually, be it RAB or CfD?

Alan Woods: There are two things to say on that. First, it is not just about repetition to get down the costs of SMR; there is a core reduction in the capital cost per megawatt purely driven by that factory approach. Taking jobs off an external site environment and moving them to a factory delivers immediate portable efficiencies anyway in terms of the efficiencies that we get out of the people and the product. The method of manufacture and build reduces the capital cost to start with. What was the second part of the question?

[Alan Brown]

Q I was asking whether you need a multiple order, and would the contracts be individual or part of a multiple order?

Alan Woods: We need to have a pipeline of orders, mainly for us to underpin the investment in the factories, and for the supply chain to underpin the investment that it is looking for in its own facilities and capability capacity. They do not all have to be in the UK. Certainly, we are equally looking at export markets to deliver that order book and line of sight to orders.

The other critical point is that to take advantage of the reduced capital of an SMR, it is beneficial to look, in certain circumstances, at an SMR as a single product. If we start grouping them together in chains of four, five or six as a single project, all of a sudden the capital goes higher and you have a similar position, in some respects, to raising large amounts of capital for single projects. There is a benefit to be had from treating SMRs in smaller multiples, but we need line of sight to orders off the back of the first order or two for us to get the confidence to build the factories, and for the supply chain to invest behind us.

[Alan Brown]

Q On what timescale do you think you could have the first SMR constructed and operating?

Alan Woods: We have a very detailed schedule to get us to the first of the fleet, as we call it, operating by 2031. The first one has a number of activities that are unique to the first unit. For example, we have to go for generic design assessment, which we entered last week. We have to build those factories and the supply chain. That puts more time into building the first unit. Coupled with that, we know that the first unit will take as long, because it is that first one, and that is in our plan.

[The Chair]

Q Do any of the other panel members have a comment? Dawn, do you have a comment?

Dawn James: The only thing that I would add is that, as I think Chris said before, we have an ever-increasing demand for electricity in the UK. Our current suite of nuclear power stations bar Sizewell B will all be off the bars by 2030, so we really need to be investing in those big gigawatts and in SMRs, using whichever models are appropriate.

--- Later in debate ---

[The Chair]

Thank you very much. We can also hear from Professor Stephen Thomas. Doug Parr will join us when he can. Professor Thomas, would you like to introduce yourself?

Professor Thomas: My name is Stephen Thomas. I am emeritus professor of energy policy at the University of Greenwich in London. For the past 40-plus years, I have been an independent energy policy analyst, first at Sussex University and more recently at Greenwich University.

[Alan Brown]

Q We have heard arguments for new nuclear, including that nuclear power is required to provide baseload; that the UK cannot possibly meet net zero without further new nuclear; and that new nuclear will provide certainty and value for money for consumers. Are there any contrary opinions to such agreed views? I will start with Mycle.

Mycle Schneider: Thank you for the question. I believe that if we are talking about the climate change emergency, it implies two things: to be able to reduce greenhouse gas emissions as quickly as possible and at the largest rate—that is the combination of effectiveness in terms of quantity and time. If we spend, whether it is a pound, a euro or a dollar, we have to see which options give us results that are large and fast.

If we are looking to nuclear power as an option for reducing greenhouse gas emissions, it is pretty much clear today that the options that are available, whether it is efficiency or non-hydro renewables, are more climate efficient than nuclear. That is not only because, if you look at the cost estimates from institutions such as Lazard bank, about a quarter of the cost is needed to generate electricity by solar and wind, for example, compared with nuclear. It is also about five times slower to implement than other options. Again, I am referring essentially to efficiency and newer renewables. Actually, what we hear about possible investment over the longer term will, if ever, provide these services only in the longer term. That means beyond 2030, and far beyond that for some of the options we are talking about. In my opinion, that is much too slow.

[The Chair]

Stephen, do you have any comments on that?

Professor Thomas: Yes, I would like to pick up on the point about the need for reliable baseload plant. I can see the intuitive logic of that, but the National Grid’s scenarios—I trust the National Grid more than others on what it takes to run a reliable grid—say nothing about reliable baseload plant being needed. It has three scenarios to reach net zero by 2050, and in only one is Sizewell C required; the others do not require it. It seems entirely comfortable with the availability and cost of batteries. If National Grid does not see the need, I am not sure why I would. It is a non-sequitur that you need baseload plants.

Clearly, there is a baseload—in other words, a level of demand that we never go below—but I do not see the reason why we would need a dedicated set of plants to meet that baseload. It is like saying, if you have a factory that operates 24 hours a day, seven days a week, you need a set of workers that will work seven days a week, 24 hours a day. It is simply a non-sequitur.

[Alan Brown]

Q You say that the baseload argument does not stack up, but another argument is that nuclear is needed to compensate for the intermittency of renewables. How robust is that argument? Is there an argument that nuclear is not the right technology to complement the intermittency of renewables?

Professor Thomas: It is not the right technology. Both renewables and nuclear power are not flexible options. Nuclear power only makes any sense—if it makes any sense at all—if it is operated round the clock, with baseload at the maximum level it can work at. If the wind is not blowing, there is nothing you can do with a nuclear power plant to fill in the gap. Clearly, whichever way you go, nuclear or renewables, you will need flexible plants, which will probably be batteries and perhaps some demand-side response, to fill in those gaps. The worst thing of all would be to mix two inflexible sources, because you will get a time when nuclear is not available and renewables are not available, and then you will be in much worse trouble.

Mycle Schneider: There is this myth about nuclear power providing electricity 24/7. We have done a very detailed analysis of the French nuclear fleet for 2019—the year before covid—and it turned out that, basically, when the operator, EDF, starts an outage for maintenance and refuelling, it entirely loses control over the date and time it restarts. There are cases where there are 40 versions for the restart date and time. That does not really indicate that this is a 24/7 electricity-generating source. On the contrary, it means that even if we stick to the example of 40 revised dates and times, five of those were in the last 24 hours of that period. So not even 24 hours ahead was it possible for EDF to predict when 1,300 MW would be available to the grid or not. On the other hand, I think the whole concept of baseload is flying out of the window. As Stephen has said, what we need is flexibility. If we build up solar and wind massively, it means that a lot of that so-called baseload is already covered by those sources. It therefore becomes a competitive environment for certain times during the year and for certain times during the day. We need to fill in the gaps.

As the court of accounts has shown in its sensitivity analysis of the costs of nuclear power, the highest sensitivity is the productivity of the nuclear power plants. If the production levels go down, you increase costs significantly. We have seen over the past few years in France, but also obviously in the UK, lower production rates and therefore increased costs. That means that these reactors have become much less reliable. We have calculated that the average increase in 2019 over the expected outage time was 44%. It can be a planned outage of a week, and it turns out to be six months. That is not an exaggeration, we have cases like that.

[Chair]

We have been joined now by Doug Parr. Please introduce yourself.

Doug Parr: My name Dr Douglas Parr, and I am the policy director for Greenpeace UK. Apologies, I did not see the email that said that this session was starting early.

[Alan Brown]

Q In terms of alternate technologies, the Royal Society prepared a report that suggests that 11 GW of electricity generation could be provided by tidal stream technologies by 2050. We know that those streams already generate and connect into the grid up in Orkney. How realistic do we think that is, and is that the type of alternate technologies that the Government should be pursuing? I will start with Mycle, followed by Doug Parr and then Professor Thomas, please.

Mycle Schneider: I think I will pass that one on to my English-based colleagues who are better suited to answer.

Doug Parr: There are certainly opportunities in tidal energy, and, at a minimum, I would hope that the Government would seek to pursue them in the next renewable auction round. I think there are a variety of technologies, certainly including tidal and geothermal. In terms of the subject of the Bill, nuclear energy is seen to be always on, but the overall competition for the grid is going to be between dispatchable and available power, which ideally should be flexible as well, and the provision of storage from cheap renewable power. In that sense, we are talking about green hydrogen, alongside these other renewable sources; but in terms of my personal preference, yes, I would certainly want to see tidal as part of the mix.

Professor Thomas: We cannot prejudge whether tidal would be a useful technology until we have tried it out. We can look at nuclear and see that costs have gone up rather than down, and on the other hand we can look at offshore wind, and see that five years ago the cost was £140 a megawatt-hour and now we are down to £40 a megawatt-hour. I think it is an option that we need to test. Whether it will be a success, I do not know; we cannot judge that in advance. If it was a guaranteed certainty, I guess we would have done it, but we must try out all these options.

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[Matthew Pennycook]

Q I think you have answered it in part, but it is about your understanding of how that £1.7 billion might potentially be used in a Sizewell C project and how that, in a sense, relates to the RAB funding mechanism set out in the Bill.

Professor Thomas: The CGN EDF consortium have spent about £0.5 billion so far, and they have some more money to spend to get to the final investment decision. They would then expect to sell that work to the company that actually builds and operates the plants, so they would get their money back. If Sizewell C goes ahead, it is sort of alone. It seems to make more sense to see it as a stake in the plant, which might encourage institutional investors to go in. If they saw Government involvement, they might think that it will probably not be allowed to collapse, but it is up to the Government to provide a bit more clarity about what they expect the £1.7 billion to do.

[Alan Brown]

Q I have a question for Stephen Thomas. We heard this morning that the Sizewell C company is looking for a 60-year contract under the RAB funding. Does that mean that, effectively, bill payers will be paying for the asset before it comes into use and can generate electricity, and that they will continue to pay for it once it has reached its end of life? Are there any protections in the Bill? If Sizewell goes ahead and then goes offline early in the way that Dungeness went offline and had to be shut down seven years early, would the bill payer still be stuck paying for that under the RAB model, or is it possible to have recovery mechanisms in order to counteract that?

Professor Thomas: I think there is a lot of missing detail in the RAB proposal, and one of the biggest elements of missing detail is how much the surcharge for consumers will be during the construction phase. The Government have said that it will be a maximum of about £10 per year per consumer. That makes no sense, because it would yield about £6 billion. In the context of a project that the Government said would cost between £24 billion and £40 billion, plus financing costs, £6 billion is a nice little present, but it will not be much of a game-changer. We need to see much more clarity about what that cost will be, because if it is to make a big change to the cost of power from Sizewell C, it has to be quite a significant surcharge. We also need to include that in the price of power. At the moment, we are talking about £60 per megawatt-hour and completely forgetting the £6 billion, or however much it will be, that consumers will put in during the construction phase.

In terms of what happens if the plant has to close early, there is a big problem with decommissioning. Decommissioning funds work on the basis of discounted cash flow—in other words, a liability that falls due in 50 years. You have to have enough money in place now, plus the interest it would earn for 50 years, to pay off the debt. If the plant closes early, you do not earn all that income and you have to bring forward the process of decommissioning, so there will be a big hole in the decommissioning funds.

I remind members of the Committee that the decommissioning funds that we have in the UK have continually failed. Consumers have paid three or four times over, only for the money to disappear and not be available for decommissioning. Decommissioning is a very serious issue. It appears to disappear because of the belief that you can invest a sum of money at 2.5% or 3%, in real terms, for 100 years. That is not the case, I am afraid—not on the historical evidence.

[Alan Brown]

Q Under this current proposal, in effect, the decommissioning risk—some funding is built in, but the actual risk if costs increase or the liabilities kick in early—currently sits with the consumers.

Professor Thomas: The only people who can pay are taxpayers. If the company goes bust, unless you have powers to pursue the companies back to their parents, and the parents are still there to pay off, you will be left with the taxpayers. We are talking about a process that happens something like 100 or 120 years after the plant starts up. The chances of an entity that owns the plant at the start still being around in 120 years’ time seems to be very slight, so I do not think that you will be able to pursue companies and you will end up with taxpayers having to foot the bill, as is the case with the Magnox plants now—that is being funded entirely by taxpayers.

[Alan Brown]

Q Does a 60-year funding model under RAB make sense given that the maximum lifespan of a nuclear power station to date has been 40 years? Why therefore is it a 60-year funding model?

Professor Thomas: That is a fairly rash decision, to go for 60 years. There are plants that are just about reaching their 50th birthday, but a lot of plants have retired well before that, so 35 years—as for Hinkley Point—is the very maximum I would want to go to.

[The Chair]

Doug, did you want to come in on that?

Doug Parr: Only as a rejoinder to what Stephen said about the risk of underperformance, if not early closure. Remember that the EPR that was constructed in Taishan is offline at the moment, because of a fuel issue. It has been offline for about three months, I think, and that is only three years into its operation. Underperformance, if not early closure, is a tangible issue even with that model of reactor.