Nuclear Energy (Financing) Bill (Third sitting)

Debate between Alan Brown and Matthew Pennycook

Committee stage
Thursday 18th November 2021 Public Bill Committees

[Matthew Pennycook]

It is a pleasure to serve with you in the Chair, Ms Fovargue. The amendments you have grouped stand in my name and that of my hon. Friend the Member for Southampton, Test.

Taken together, the purpose of amendments 1 and 2 is to ensure that in enabling nuclear companies to benefit from the RAB model and for the Government thereby to bring a large-scale nuclear project to a final investment decision by the end of this Parliament, as they are committed to do, the Bill nevertheless makes it clear what kind of companies it would be inappropriate for the Secretary of State to designate for that purpose. In moving the amendment, my assumption—Government Members may correct me if I am mistaken—is that the Committee as a whole would accept that it would be inadvisable to allow some nuclear companies to own and/or operate a nuclear reactor on British soil. That is because civil nuclear power is, without question, critical national infrastructure, the compromise of which would have real implications for national security, given that any company owning and/or controlling such infrastructure would have direct access to the national grid.

Conservative Members, or indeed the Minister when he responds, may argue that the amendments are unnecessary, because no Secretary of State would choose to designate a nuclear company to benefit from the RAB model that posed any threat to national security. Yet it is precisely because previous Secretaries of State have been content to allow companies that the Opposition would argue should never have been given the opportunity to own and operate UK nuclear plants that we believe we need such additional safeguards in the Bill.

Put simply, we want to ensure that the legislation is amended so that this Government, or any future Government who might wish to use the RAB model for new nuclear, cannot make the kind of error that was without doubt made in recent years. Namely, a company owned and directly controlled by a foreign state—a state that the integrated review is clear poses a systemic challenge to our security, prosperity and values—was given the opportunity to own and access critical national infrastructure.

I will touch on the way in which the Government might, if they were minded to accept our amendments or table modified versions of their own on Report, differentiate companies owned and directly controlled by a foreign power and those in which a state merely has a majority financial stake. Before that, I will examine the error that I have mentioned and the lessons we might draw from it to improve the Bill.

On Second Reading, we made it clear that our strong view is that although the Bill has the appearance of a general piece of enabling legislation, it is in practice concerned solely with the future of Sizewell C, as the last potential nuclear project that could conceivably begin to generate by the end of the decade.

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

I note that the hon. Gentleman was choosing his words carefully. We all know that it is about the China General Nuclear Power Corporation; many people have concerns about its involvement in the nuclear sector, which I echo. He talked about when a state is a majority shareholder, which includes EDF in France, but surely the amendment says

“not wholly or in part”.

As France is a majority shareholder in EDF, would that not eliminate EDF from participating in the RAB exercise for Sizewell C?

[Matthew Pennycook]

The hon. Gentleman pre-empts what I will come on to say. We are keenly aware of the need to differentiate different types of companies, which is why, thankfully, the Chair has allowed me to group this amendment with amendment 1, which clearly defines what we mean by “owned by a foreign power”. It is not just owned by in terms of a majority stake, but directly controlled by in the way that I would argue EDF is not.

To return to the involvement of the China General Nuclear Power Corporation in UK nuclear more widely, we believe that the case of Sizewell C illustrates precisely why amendments 1 and 2 are required. Driven by an almost embarrassing enthusiasm for Chinese investment, which was shared and arguably surpassed by the coalition Government that preceded it, the Cameron Government eagerly embraced Chinese involvement in UK civil nuclear energy. As a result, Hinkley Point C, while largely financed by EDF, is underpinned by effectively foreign Government part-financing in the form of a 33.5% interest on the part of China General Nuclear Power Corporation.

When the final investment decision for Hinkley Point C was approved, associated heads of terms were agreed for CGN to take a 20% stake in Sizewell C and to secure majority ownership, complete control of planning and financing, and unfettered operation of the nuclear plant at Bradwell-on-Sea in Essex that would incorporate, subject to generic design approval, a Chinese-designed Generation III Hualong One reactor. Bradwell B was always the ultimate prize for CGN and why it was willing to take a significant stake in the Hinkley plant and a minority stake in the development work to progress Sizewell C toward a final investment decision.

As far as we can ascertain, although the present Conservative Administration have never said as much—I invite the Minister to remedy that if he wishes—there is now a general acceptance that acquiescing in the construction of a piece of critical national infrastructure at Bradwell that would be designed, planned, owned and operated by a subsidiary company of a Chinese state-owned enterprise, and, as all SOEs are in China, controlled ultimately by the Chinese Communist party, was perhaps not the wisest decision that the Cameron Government made.

Furthermore—I do not believe a Minister has said this explicitly, so I urge the Minister to provide greater clarity to the Committee when he responds—I take it as read that the present Government now take the view that such an arrangement is no longer tenable, and that it is their intention to remove the influence of the People’s Republic of China from the Sizewell C project entirely, and, should any new nuclear view on that project prove necessary, the future UK nuclear programme more widely.

The press release accompanying the publication of the Bill stated:

“The RAB model will reduce the UK’s reliance on overseas developers for financing new nuclear projects”.

The Committee will appreciate that that statement is not a clear declaration of intent when it comes to rolling out foreign Government part-financing, ownership and control of civil nuclear power in this country. If it is the Government’s intention to end foreign Government part-financing and ownership of new nuclear projects, the Committee should be told what that means in practice for the October 2016 Sizewell C strategic investment agreement, as well as what the Government’s reneging on that deal would mean for CGN’s 33.5% stake in Hinkley Point C. More specifically, it is right that the Committee is also given a sense of how, assuming it has been determined, the Government intend to remove the CGN minority stake from the Sizewell C company, or, if it has not, the various options being considered.

That brings me to the £1.7 billion committed to nuclear in the recent Budget, the purpose of which, according to the Red Book, is

“to enable a final investment decision for a large-scale nuclear project in this Parliament”—

the very same intention that we are told is the purpose of the Bill. As I am sure Members will appreciate, that statement contained in the Red Book is wilfully obscure. Given that Sizewell C is, as I have said, the last potential nuclear project that could conceivably begin to generate by the end of this decade, and the fact that this Bill creates the funding model that will almost certainly enable a final investment decision on it to be made, the Minister needs to be more transparent with the Committee about the future of the CGN minority stake, because the answer could have real implications for the applicability of the funding model set out in this legislation, and, as a result, the bills that consumers in all our constituencies will pay in the years ahead.

We heard from Professor Stephen Thomas in our evidence session on Tuesday that the cost of buying out the CGN minority stake in Sizewell C is likely to be a tiny fraction of the £1.7 billion allocated to nuclear in the Budget, so what will the rest of that public funding be used for? Will it in whole or in part be used to finance Sizewell C beyond financial closure? If so, how do the Government intend to require the consortium to allow them to participate, and will the investment of direct public funding, if made, have any impact on the amount of RAB financing that will be required for Sizewell C to proceed?

Whatever the £1.7 billion committed to in the Budget is ultimately used for, the involvement of CGN in UK nuclear power over recent years illustrates the risks associated with foreign states, particularly ones of an authoritarian nature, financing and operating critical national infrastructure. We should not only learn the lessons of that, but ensure that clauses 1 and 2 are tightened so that the Bill cannot be used to facilitate such involvement in the future. That is the purpose of amendments 1 and 2. Taken together—this follows on from the point made in the intervention earlier—they would ensure that the Secretary of State cannot designate a given company to benefit from the RAB model provided for in the Bill if the company in question was owned and directly controlled by a foreign power. Their combined effect would not be to prevent the coming together of consortia that are not UK majority-owned. That would almost certainly render future projects unviable or more costly, but the amendments’ incorporation in the Bill would ensure that consortia drawing upon the RAB model could not include investors owned and controlled by a foreign state.

The use of the word “controlled”, as per amendment 1, is critical. This follows on from the point I made in response to the hon. Member for Kilmarnock and Loudoun. We are acutely aware that in attempting to amend the Bill to prevent a company such as CGN from benefiting from the RAB model, we would not wish to prevent all companies in which states have a majority interest—EDF is the most obvious example—from doing so. That is why amendment 1 specifically defines “owned by a foreign power” as one owned and controlled by a foreign state.

I hope the Minister responds to the amendments in the constructive spirit in which they have been tabled and that the Government will see the value of incorporating them into the legislation.

Nuclear Energy (Financing) Bill (Second sitting)

Debate between Alan Brown and Matthew Pennycook

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.

--- Later in debate ---

[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.

Nuclear Energy (Financing) Bill

Debate between Alan Brown and Matthew Pennycook

2nd reading
Wednesday 3rd November 2021 Commons Chamber

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

My apologies, Mr Deputy Speaker; I thought that another contributor was waiting to speak before me.

It is a pleasure to wind up the Second Reading debate for the Opposition. Notwithstanding the somewhat overly partisan opening from the Minister of State, who came along, as he often does, with a set of pre-scripted remarks that were in danger of being as old as some of the nuclear plants that are presently being decommissioned, it has been a considered and well-informed debate in the main. I thank each right hon. or hon. Member who has taken part.

I will pick up on three points that have featured prominently. First, as my hon. Friend the Member for Southampton, Test (Dr Whitehead) argued convincingly, although the Bill has the appearance of a general piece of enabling legislation, it is in practice concerned solely with the future of Sizewell C; I believe that the hon. Member for Bury North (James Daly) has just conceded that. Sizewell C is a project that EDF has no intention of financing from its own balance sheet and that we know has failed to entice the necessary private investors, as the right hon. Member for Kingswood (Chris Skidmore) mentioned in relation to Moorside and the fact that the current funding model is not fit for purpose.

It is vital that we bear that point in mind as the Bill progresses, because unfortunately for some, and much as the spin might suggest otherwise, it does not herald the dawn of a new nuclear fleet. It is simply a necessary means of resolving the issue of whether Sizewell, the last potential nuclear project that could conceivably begin to generate by the end of this decade, is constructed or not, and—this was referred to by the hon. Member for Morecambe and Lunesdale (David Morris) and, in an intervention, by the hon. Member for Gloucester (Richard Graham)—the issue of whether the cost reductions that will flow from the plant being a clone of Hinkley Point C, and its ability to draw on the skills and workforce associated with that site, are secured.

Several Members, including the hon. Members for Kilmarnock and Loudoun (Alan Brown) and for Richmond Park (Sarah Olney), argued that nuclear should not form any part of the UK’s future low-carbon energy mix. We on this side of the House respect their strongly held views on the subject, but we take the view, as does the Committee on Climate Change, that a limited amount of new nuclear is required to achieve the decarbonisation of the UK’s electricity system within the next 14 years, and to meet our longer-term net zero target. Since Sizewell C is the only power station that can now feasibly come online within that timeframe, we want to ensure that it does, in order to provide the necessary amount of firm power to support a predominantly renewable energy mix.

[Alan Brown]

As I pointed out earlier—and the hon. Gentleman is well aware of this—much of the existing nuclear fleet is going offline before Hinkley even comes online. Does that not indicate that the grid could operate safely and we could have energy security without relying on a new nuclear station?

[Matthew Pennycook]

I listened carefully, as I always do, to what the hon. Gentleman said in his speech. I think what he misses is the fact that the demand for electricity will double, so I do not think that his argument about the amount of baseload or firm power that is required necessarily follows.

Financial Assistance to Industry

Debate between Alan Brown and Matthew Pennycook

Monday 7th December 2020 General Committees

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Pritchard.

Let me say at the outset, for the purposes of clarity, that the Opposition support the objective that underpins this motion—namely, the need to minimise the risk of carbon leakage by taking steps to ensure that energy-intensive industries are not put at a competitive disadvantage as a consequence of the cumulative impact of carbon pricing on industrial electricity prices.  

It is obviously important that UK manufacturing should be able to remain competitive during the transition to a low-carbon economy, and we recognise that there is a need to continue to provide compensation for the indirect emissions cost of whatever carbon pricing policy replaces the EU emissions trading system.  For that reason, we will not be opposing the motion this afternoon.  

I would, however, like to take the opportunity to raise with the Minister two important questions that relate directly to the motion under consideration. The is about what carbon pricing policy will replace the EU emissions trading system. To put it another way: in respect of what arrangement do the energy-intensive industries that we are discussing require compensation during the next financial year? 

As I have said to the Minister on previous occasions, we cannot run the risk of a dysfunctional carbon pricing system in the year we host the critical COP26 UN climate summit.  As the Committee will know, only 24 days—eight sitting days—of this parliamentary term now remain until the transition period ends, and with it the UK’s participation in the EU ETS. Yet the Government have still not announced whether a stand-alone UK ETS or a carbon emissions tax will operate from 1 January should a linking agreement with the EU ETS not be negotiated and put in place by that date.  Surely, the Minister cannot believe it is fair that the emitters in question still have no idea what arrangements they will be operating under in just three and a half weeks’ time. My understanding is that a decision has been on the Prime Minister’s desk since late last month. If that is the case, what on earth is stopping the Government making clear to those affected what fall-back carbon pricing arrangement will operate in the UK from 1 January should the linked UK-EU scheme not materialise from the negotiations in the coming days and weeks?

In all candour, I have no expectation of getting an answer today from the Minister, but I would be grateful if she could at least acknowledge that the Government recognise that they owe those operators clarity on this issue as a matter of some urgency. I would also be grateful if she could clarify how her Department has been able to estimate that the compensation budget for the next financial year will stand at £140.6 million. Although we know that we have a carbon price floor in place from 1 January, we still have absolutely no confirmation of what will replace the EU ETS.

The second issue I want to raise concerns the long- term arrangements for addressing carbon leakage and ensuring that our energy-intensive industries remain competitive as we accelerate the pace of emissions reduction. We accept that compensation of the kind we are authorising today is necessary, but to avoid the cost of such compensation spiralling over the long term, as the price of carbon is increased, there must be sufficient long-term support to green the industries in question. After all, as the Minister will know, many if not all of the energy-intensive industries covered by the motion will not only benefit from compensation for the indirect emissions cost of carbon pricing, but will continue to benefit from reduced costs in respect of climate levies. They are, in short, in a relatively privileged position relative to other less energy-intensive industries. Therefore, as we accelerate efforts to achieve net zero, there will have to be greater use of conditionality to ensure that the financial support provided to compensate these industries is balanced by measures to ensure that their carbon intensity is steadily reduced.

I note that a review and a consultation in early 2021 in relation to the compensation scheme have been mentioned, and the Minister touched on that in her remarks, but I would be grateful if she could reassure the Committee that the Government recognise the limits of the compensation mechanism in question over the long term as the price of carbon rises, and that they accept that more will need to be done beyond the schemes she touched on to accelerate the pace of decarbonisation in these industries, not least to manage the costs of the current scheme going forward.

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

rose—