Nuclear Power Funding Debate
Full Debate: Read Full DebateAlan Whitehead
Main Page: Alan Whitehead (Labour - Southampton, Test)Department Debates - View all Alan Whitehead's debates with the Department for Business, Energy and Industrial Strategy
(2 years, 9 months ago)
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I have been confused in the past with Phillip Whitehead, the MP from some while ago, and also I have been called Alan Whitehouse on a number of occasions, which is a slightly less felicitous comparison.
I am delighted to say a few words on behalf of the Opposition. First, I congratulate the hon. Member for Ynys Môn (Virginia Crosbie) on securing this debate, and on putting her case so well and succinctly. She is a powerful advocate, from the point of view of her constituency, for the future of Wylfa nuclear power station. I share her great concern that what looked like a future for the new Wylfa power station a little while ago was dashed in the way that it was. I had conversations about that with her predecessor, Albert Owen, who was also a strong advocate for Wylfa and the area.
The case the hon. Member makes is essentially about how Government can secure the future of power stations by ensuring that they are financed and organised in the best possible way so that they actually do go ahead. The UK has had a serious problem over the past 10 years or so. Originally a number of consortia were interested in bringing forward a nuclear power station. There was the Horizon consortium, associated with Hitachi, which brought forward the Wylfa proposals. There was NuGen, associated with Toshiba, which brought forward proposals for a power station at Moorside. There was also, of course, the EDF consortium, which at the beginning of the decade brought forward proposals for Hinkley C, which is now being built, for Sizewell C and for Bradwell in Essex.
All of those consortia have, in one way or another, bit the dust. They have suspended their operations. In the case of Wylfa, the Horizon consortium first suspended operations and has now this year finally declared that it no longer has an interest in Wylfa as part of its future nuclear programme. All of that came about essentially because of the Government’s insistence on trying to secure new power stations by means of private sector investment. Wylfa and Moorside were closed down even after discussions with Government about assistance; the consortia did not like the way in which the arrangements would have been structured. There were some quite high-level discussions with the Japanese corporations involved in both of the consortia that I mentioned. A combination of their own balance sheets, their ability to fund those projects themselves and what they thought was on offer from the UK Government led them to decide that the projects should not go ahead.
As the hon. Member for Ynys Môn mentioned, building and financing a nuclear power station is a really hefty commitment. One has to put the money forward and not get any return on it for about 14 years, while the processes of generic agreement for the reactor, planning, construction and so on all proceed. One does not make a penny from the production of electricity from the power station before that. We know that funding new nuclear by private sector means is not a viable way of financing new nuclear. We must put that behind us.
EDF is building Hinkley C power station partly with its own finances, and that has caused a lot of problems for the viability of the company as a whole. However, it is aided in this build by a second form of nuclear financing, which is, effectively, a foreign Government part-financing the operation. In this instance, that is the 35% interest in Hinkley of the China General Nuclear Power Group, which was the result of a deal brokered by the then Chancellor, George Osborne, in 2015. The Chinese state nuclear corporation would have a 35% stake in Hinkley C, a 20% stake in Sizewell C and complete control of the third programme in that consortium’s plans, the Bradwell power station, whereby the China General Nuclear Power Corporation would install its own reactor—known as the Hualong One, I think—and have complete control of the financing, the planning and the operation.
As we have seen, that way of doing things appears to no longer be regarded as tenable. The Government have not said this explicitly—it would be interesting to hear whether the Minister is able to do so this afternoon—but the Bradwell proposal under Chinese control is no longer a reality because of the Government’s desire to remove Chinese influence from the future of the UK nuclear programme. I am sure we will discuss that further when we debate the Nuclear Energy (Financing) Bill over the next few weeks, as mentioned by the hon. Member for Ynys Môn. That second financing option—namely, getting a foreign Government involved—is probably not a good idea. As the hon. Member for Paisley and Renfrewshire North (Gavin Newlands) said, the latest Budget costings include a sum of £1.7 billion, which I understand is to be put towards not only the development of and early works on Sizewell C, but buying the Chinese out of their Sizewell stake. I do not expect the Minister to confirm whether that is the case, but I think it is fairly probable that at least part of that sum will be directed towards removing that 20% stake from Sizewell C.
Further on financing, there is the possibility, as was tried with Hinkley, of funding the end product of the power station—that is, the energy that comes out when the permissions, the planning and the construction are finally complete. In the case of Hinkley, that will happen a long time after the original date of 2026 or 2027. I distinctly remember the then chief executive officer of EDF saying we would be roasting our Christmas turkeys on new nuclear power from Hinkley C in the winter of 2017. That is how far they are behind the original plans. I have on my wall the chart of the original EDF plans for the development process for Hinkley.
As the hon. Member for Paisley and Renfrewshire North said, the contract for difference arrangement for Hinkley was probably one of the worst deals that could be entered into for nuclear funding. Although it was supposed to introduce a back-loaded arrangement to secure the price for production and therefore increase investor confidence that the project would generate income when construction was concluded, the deal struck was disadvantageous for the customer and for this country’s electricity production. The CfD deal is at twice the likely market price for electricity over the period, and we are stuck with that for 35 years down the line. It is very unlikely that such a deal would be repeated, especially since it does not overcome the problem of how investors get any money back from their investment before the plant has started production. Hence the RAB—regulated asset base—arrangement that the Minister and I will discuss over the next few weeks as the Nuclear Energy (Financing) Bill makes its passage through the House.
The RAB arrangement has advantages and risks. An advantage is that it enables investors who might not have put their money into Wylfa or Moorside to invest in a project because they know they will begin to get a return on their capital before production starts. The RAB model, among other things, allows that to happen by setting, as the hon. Member for Ynys Môn mentioned, an allowable cost ceiling, which enables that cost to be distributed throughout the life of the project rather than only at a certain point. It has a substantial advantage from that point of view, but at the same time it has risks. It is a deal that lands on the public consumer’s purse. It effectively puts a levy on energy bills for the whole life of the project––40 years from now for Sizewell C––on consumers’ backs at various levels at various points of the process. There is a high levy during construction and a tail-off as the project proceeds.
Should the project not go well––go over cost or, as at Hinkley, go well over time—there is an increased risk to the consumer. There is an even worse risk if the project does not go ahead, as was the case with a couple of projects in the United States that were built on the RAB model. Consumers then have nothing to show for a large amount of money they have spent in their bills in the expectation that there might be a plant that would give them cheaper electricity in the end. I know that the Government have taken some steps in the Nuclear Energy (Financing) Bill to mitigate that risk and ensure that there are ways out of a company being unable to deliver. Nevertheless, the risk remains. Using RAB repeatedly for new projects simply adds to the cost of consumer bills by aggregating the total levies, making it potentially even worse for the consumer, if that is the model that is proposed.
That leaves one method of financing, which is simply that the Government pay for the construction of a new nuclear power station and then lease it out to the operator at the end of the construction period. I am not suggesting that the Government get together their own workforce to build it. They would put the contract out for bids to build the power station, which would be owned by the public and leased out for operation. That will have to be considered for any further nuclear power stations, rather than these various devices that, to a greater or lesser extent, have either failed or have some risk attached to them.
From our side, as the Minister knows, we gave the Second Reading of the Nuclear Energy (Financing) Bill a clear run and we look forward to Committee discussion when we deal with some of the finer points of RAB. Nevertheless, we will go forward on the basis of a supportive environment for the construction of Sizewell C, since it is the only nuclear power station that could conceivably get under way before 2030, because of all the other withdrawals.
We look forward to our debates in the House and to discussing some of the issues I have raised this afternoon about how best to finance nuclear power for the future. The hon. Member for Ynys Môn made a powerful case for ensuring that Wylfa at least gets noticed in the next phase of discussions, but I suspect that if that happens, it may be under yet another model of financing and different from Sizewell C’s.
Before I ask the Minister to respond, I would appreciate him leaving a few minutes for the hon. Member for Ynys Môn (Virginia Crosbie) to wind up.