Wylfa Nuclear Power Project: Taxpayer Liability for Safety

Alan Whitehead Excerpts

Tuesday 24th July 2018 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I thought I would break with convention and attempt, this afternoon, to address my remarks to the debate whose title we have before us. The debate is about taxpayer liability for safety at the Wylfa nuclear power project. The matter has been dealt with in passing by the hon. Member for Inverclyde (Ronnie Cowan) and my hon. Friend the Member for Glasgow North East (Mr Sweeney), as it featured in the wider canvas of what they said about nuclear power in general and about what is, I am afraid, an attitude of dislike for nuclear in any way, shape or form. Analytically, the proposed Wylfa plant comes into that overall definition and, therefore, it needed to be treated in that particular way.

That is in contrast, of course, to my hon. Friend the Member for Ynys Môn (Albert Owen). I have known him, and we have fought many energy battles side by side, for many years. I can attest to his strong support for and deep understanding of the role that renewable energy plays in our energy mix, alongside his support for nuclear power and, indeed, the potential nuclear power station in his constituency. He spoke eloquently on both those issues.

In responding to the debate, I want to concentrate on what one might say is a narrower issue, but which gets to the heart of what we are talking about in terms of new nuclear over the next period. I want to distinguish between support for new nuclear in principle, and sober, detailed analysis of what deals and arrangements might result from resetting the button, so to speak, or pushing the button for new nuclear deals. What is under that button when we push it?

The problem with the proposed new Wylfa plant is not that a terrible deal will necessarily lie ahead; it is that we just do not know at the moment what that deal might consist of. There are, however, indications from the Japanese press, which I of course must read in translation, although I am sure the translations are reasonably accurate. They tell us quite a few things about what a new deal for Wylfa might mean, including that it is possible that the UK Government have already signed a memorandum of understanding with Hitachi, and possibly the Japanese Government, on how a deal might proceed. They also talk about possible investment by the UK Government in a new Wylfa deal, and—this also appeared recently in the UK press—about what Hitachi says it may or may not do in relation to liability for safety incidents and nuclear accidents at the proposed plant: whether it will seek, as part of the deal to go ahead with the plant, to water down, or remove itself from, some of the liabilities it would otherwise expect to be subject to for nuclear accidents and nuclear safety matters.

I emphasise that those issues are suppositions in reports that are coming out. On 4 June, when the Secretary of State made a statement about the in-principle negotiations that were being entered into, and my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) asked whether

“Hitachi is seeking to ‘reduce or eliminate’ its financial responsibility for accidents”—[Official Report, 4 June 2018; Vol. 642, c. 78.]

he had nothing to say in response. Nor, indeed, had he anything to say about whether any deals had been entered into already, in principle or otherwise, and what the deals might look like. At the moment, we appear to have taken a step forward in agreeing to look at further activity in developing Wylfa, but what that would entail is shrouded in mystery. To my mind, that is not a good way to proceed with such arrangements. We need transparency from the word go, clear understandings of what is proposed, and the ability to analyse and look into the proposals as they proceed, not least for two reasons, which I shall put forward in a moment.

We are in a strange position, talking about an issue that we should, but do not, know quite a lot about—although the Government could tell us, but apparently will not at the moment. That may sometimes be for reasons of confidentiality, or because some of the reports are not accurate, or because the Government simply have not decided yet which way they will go. As to liability for safety in relation to the Wylfa nuclear project—the subject of the debate—it is certainly worrying that, if the reports are true, Hitachi may be seeking to downplay its possible liabilities as a way to continue with the negotiations, and might be looking to the UK Government to loosen the conditions on liability for nuclear accidents and nuclear safety as part of the process.

The reason that is particularly worrying is that, as the hon. Member for Kilmarnock and Loudoun (Alan Brown) mentioned in his opening comments, liability for nuclear accidents and nuclear safety is not something set out on a piece of paper in a box somewhere that can easily be negotiated away. It is actually defined by the Paris convention of 1960 and the Brussels convention of 1963. Those are updated by protocols through the EU, but the conventions are international, as such, and they provide some pretty clear lines about who is responsible for what, as far as safety and nuclear accidents are concerned. They place a strict liability on the operator—that is liability without having to prove fault, with exclusive liability of the operator. They limit the operator’s liability with respect to amount, time and the type of damage that is subject to compensation, and they place an obligation on the operator to cover that operator’s liability by insurance or other financial security.

Those principles have been drawn into UK law, most recently through some wonderful statutory instruments with which the Minister and I have become very familiar. A series of statutory instruments has been passed between 2016 and 2018, and a key one was passed in 2016. Essentially, that legislation was on bringing those protocols into UK law, together with the increased liability that doing that entailed.

I will not go into detail, but the 2016 secondary legislation essentially means that a substantial liability should be insurable, subject to liabilities over a certain level essentially being socialised through Government intervention if they exceed that total. There is a culmination principle of substantial liability and expected liability—underpinned not just by UK legislation, but by international convention—that applies to any nuclear power plant operating in this country.

That is perhaps the nub of this potential problem. If the UK Government were to discuss with Hitachi what could be done in loosening its liabilities for nuclear safety and nuclear accidents at the Wylfa plant, they could not do that by providing a little wayleave for Wylfa power station, and expect all other power station operators to continue according to the Paris and Brussels protocols. They would have to breach those protocols, and replace UK legislation in so doing, and would then need to make all liabilities for all nuclear power stations of a lower order. That seems to me very significant, given what the reports coming out of Japan say about what Hitachi will and will not do as far as nuclear accidents and nuclear safety are concerned.

I would be interested to hear whether the Minister thinks that the analysis I have presented is essentially where we should go regarding nuclear safety and nuclear accidents. If she does think that, and if she agrees that such action would reduce liability for nuclear power stations across the board, the suggestion that there should be any negotiation with Hitachi on liability for safety and nuclear accidents separate from everybody else should set serious alarm bells ringing.

Has Hitachi made any suggestions that it will not pay by way of insurance for nuclear accidents and safety at the Wylfa plant? What has the UK Government’s reaction been to that? How do the Government see those suggestions —if indeed they are real suggestions—folding into wider discussions about the plant in general?

I should not turn down the opportunity to mention some wider issues regarding the negotiations. As the hon. Member for Kilmarnock and Loudoun also said in his opening remarks, we need to be careful of simply assuming that if a deal for the Wylfa power plant comes forward and produces—apparently—a lower strike price than Hinkley, everyone will be out of the woods and that will be the end of the matter. That depends entirely on what other deals are brokered as to other aspects of investment and underpinning the project’s capital, and on any agreements about the nature of those capital assets that may be entered into as the project moves forward.

We heard in the Secretary of State’s statement that the Government are considering putting assets on a regulated asset base arrangement, possibly in the context of Wylfa or of other nuclear plants. We do not know exactly what the British Government have signed us up to or will sign us up to regarding investment in the new Wylfa plant, but let me explain my understanding of regulated assets as they relate to nuclear power stations—this is a possible model that could be carried out for successors to Hinkley C. Placing assets on a regulated asset basis would effectively mean that the taxpayer—the customer—would have the risk transferred to them before the plant was built. They would be paying an amount of money, which would be taken out of bills, to underwrite that risk as the plant developed.

Under the current arrangement, a strike price would be agreed after the plant had started production and the customer would then pay. We have argued, as have many others, that the amount the customer will pay in relation to Hinkley C will be about twice the prevailing price for electricity over the period, because of those strike price arrangements. If the strike price is reduced, but the customer then has another liability while the plant is being built, not only does that add up roughly to the original position, but the customer will be paying up front before any power has been produced. If there are cost overruns or delays in production, the customer will continue to pay for that while the plant is finalised.

The Government’s stated position is that they will not undertake any more levy liabilities before 2025—the new doctrine produced in the Treasury recently. Customers may well pay that money before 2025, if this power station goes ahead in the way suggested, and therefore incur levies in breach of the Government’s stated position.

There is a lot to think about regarding what might be the terms of these negotiations, and as I have said consistently in this debate and elsewhere, we are still substantially in the dark as to what those negotiations might be. We need not to be in the dark so that we can discuss those implications and between us ensure that, should there be a deal for Wylfa, it is not just a good deal that gets Wylfa online, but a good deal that gets Anglesey online, with its power plant and all the things that go with that. That point was mentioned by my hon. Friend the Member for Ynys Môn. It must also be a good deal that Members of the House can frank on the grounds that it is good for customers, good for safety and good for the future of the nuclear power industry. At present, we are a very long way from that, and we need a lot more light shone on this arrangement before we can be sure that we will get the deal that we need.

--- Later in debate ---

[Claire Perry]

The hon. Gentleman is right, but we should start from where we are on energy policy. There is a role for further decarbonising gas to keep it in the mix, which is why I am keen to investigate, using excellent environmental standards, the potential contribution of onshore shale gas. [Interruption.] He is chuntering; he may not agree.

We have an independent regulator, the Office for Nuclear Regulation, which has scrutinised the proposed reactor design for Wylfa. The design has received design acceptance, which means that all regulators are satisfied that the reactor meets the regulatory expectations on safety, security and environmental protection at this stage of the process.

The hon. Member for Southampton, Test invited me to talk about the media reports—he is doing better than I am if he is reading the Japanese newspapers. I reassure him that any operator in the UK is required to obtain insurance to fulfil their financial responsibilities in the event of an accident, and as he referenced, international treaties, such as the Paris and Brussels conventions, provide the framework for the management of nuclear liability in the UK.

This deal will be no different. I emphasise that we are still going into negotiations and having conversations—we have not done the deal yet—but we are absolutely clear about the commitment to insurance for any form of accident. Not putting decommissioning liabilities on the taxpayer, as the hon. Member for Ynys Môn pointed out, is also part of those calculations. I agree with him that we did not think hard enough about that in the past; successive Governments had not worked out how to include those liabilities. We have learned, however, and we are moving forward with that.

Before the reactor can be built and operated, it will need a nuclear site licence. Wylfa will also always be subject to environmental permitting through Natural Resources Wales. A development consent order process that will run under the Planning Act 2008 will scrutinise the construction and operation proposals for the project.

The Energy Act 2008, passed by the Labour Government, introduced the funded decommissioning programme that moved the dial on who pays for decommissioning liabilities. It is now the case that all operators of new nuclear power stations are legally required to have secure financing arrangements in place to meet their full share of the costs of decommissioning and of waste management and disposal. We are absolutely committed to managing radioactive waste safely, responsibly and cost-effectively for the long term, but also to looking at other opportunities to reprocess some of that waste, as the hon. Member for Glasgow North East said. We will not repeat past mistakes where the taxpayer had to foot the bill for decommissioning.

There were some questions about liability in the event of an accident. I am happy to say that the last significant incident was the Windscale fire in 1957, and we are light years away from that plant in terms of nuclear operating technology and the safety regime that we operate. The Nuclear Installations Act 1965 makes the insurance that I mentioned a requirement, without which operators cannot operate. As the hon. Member for Southampton, Test mentioned, we also have legislation based on the Paris and Brussels conventions. If the total cost of claims ever exceeded €1.2 billion, a further €300 million would be provided by all contracting parties to the Brussels supplementary convention. Any further claims above that total would be met at Parliament’s discretion.

The only liability-based agreement with Hinkley Point relates to insurance failure, and the Government will provide an insurance product in the event that one cannot be obtained on the market. I am not in a position to comment on what might be the case with Wylfa, but I emphasise that the operator of the plant at Wylfa will have the same obligations as all other nuclear power stations and installations in the UK, and will be required to fulfil those obligations in the event of an incident.

Hon. Members have asked about what happens with the Brexit negotiations. Nuclear safety is and always will be our top priority. We will continue to apply the international standards on nuclear safety specified by the International Atomic Energy Agency irrespective of our future relationship with Euratom. I emphasise that we want a close association with Euratom: a new relationship that is broader and more comprehensive than any existing agreement between Euratom and a third country. The Nuclear Safeguards Act 2018 provides the reassurance of a backstop in the very unlikely event of any changes.

Alongside that, the UK is negotiating nuclear co-operation agreements to add to those already in place. On 4 May, we signed a bilateral NCA with the United States, and we have further arrangements with Japan, Canada and Australia that are also on track. Those relationships facilitate the sharing of best practice in terms of nuclear operations and liability management. As I said, we are considered to be a proud leader internationally in the field of nuclear safety and regulation.

Further investment will bring huge benefits through innovation. My right hon. Friend the Secretary of State travelled to Wales to launch the nuclear sector deal on 28 June, which was a fitting setting to underline how the nuclear industry provides economic opportunities across the UK, particularly in more remote areas, as we have heard from many hon. Members. The nuclear sector deal is worth more than £200 million. It focuses on innovation and skills, which we can then use to export, and by striking it we aim to ensure substantial cost reductions across the nuclear sector, to ensure that the sector can remain competitive with other low-carbon technologies, because I constantly have to balance all investments with the potential pressure on consumers’ bills.

[Dr Whitehead]

It would be really helpful if the Minister were able to indicate, either today or very shortly, when she will be able to place on the record the shape of the negotiations on Wylfa—the main components of the negotiations, what has already been agreed in principle and what remains to be discussed. I do not know whether she can do that in the near future, but it would be helpful if she could indicate at an early stage when it might be possible.

[Claire Perry]

I appreciate the hon. Gentleman’s desire for transparency, but obviously I cannot do that, because doing so would prejudice negotiations that are ongoing. He will know, based on his long experience, that there is an interplay of costs, of contracts for difference numbers, and of potential asks from the UK Government and from shareholders, and these negotiations are long and complicated.

Part of the challenge, if you like, with large-scale nuclear is that a very large, up-front cost is associated with it; it is a very capital-intensive investment, although one that we want to make for the reasons I have mentioned. However, the conversation that we had earlier was about small modular reactors, which require less up-front investment, have more flexibility and allow us to invest in multiple sites, which are reasons why such reactors are so attractive; they allow us to spread those up-front costs much more widely.

In conclusion, this debate has been a very good opportunity to emphasise again the value of nuclear in our energy mix; to reassure people in this House and elsewhere that the UK Government will not make energy policy based on ideology but will soberly assess the cost, the innovation, the carbon and the security as we go forward; to celebrate the fact that we have one of the most robust nuclear safety regimes in the world, including world-leading independent regulation; to note the fact that people are hungry to see the details of the Wylfa deal and I will make sure that my right hon. Friend the Secretary of State, who is of course conducting those negotiations on our behalf, is aware of that; and, essentially, to reassure the House and others that—as is the case with all other nuclear generation in the UK—Wylfa will be a safe source of energy and one that minimises any form of liability being borne by the taxpayer.