Draft Nuclear Installations (Liability for Damage) Order 2016

Alan Whitehead Excerpts

Tuesday 15th March 2016 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Owen. It is also a pleasure to see the hon. Member for Southampton, Itchen in his place; as a fellow Member for Southampton, I am sure he is taking as close an interest in these proceedings as I am.

Opposition Members do not propose to divide the Committee on this order. It is a lengthy document that has, as always, been admirably summarised by the Minister. I know that she must have had quite a hard job of digesting all 55 pages of it. She summarised it with admirable precision and got to the heart of the issue: the question of insurance liabilities for nuclear operating companies and how those are changing under the convention and the proposals in this draft statutory instrument. I have one or two questions and thoughts on that particular issue, on which I will be grateful for the Minister’s elucidation and light-shedding.

My first question relates to the expansion of cover from €700 million to €1,200 million for main sites. I note, as the Minister did, that that is above the minimum level that has been required under the convention and above the minimum level applied in a number of other European countries. According to the proposals, it is to be implemented over five years, which, as far as I understand it, means that the initial cover implemented under the order will be €700 million, rising by €100 million per year to €1,200 million five years later.

The explanation for that change in the impact assessment is that

“the wider insurance market is unlikely to have the capacity to meet”

insurance levels of €1,200 million immediately, and therefore a period of five years is required to enable the insurance market to gain that capacity. However, the Minister has this afternoon stated that the market is “willing to provide cover” at new levels, by which I understand that the Department has done the right thing in terms of investigating whether that level of cover will be sustainable for the market. I note the areas she mentioned where that might not be seen as sustainable, and her proposals for Government to act essentially as an insurer of last resort at that point, should it prove necessary.

However, if it is the case that the market is in principle willing to provide cover under those circumstances, it does not seem necessary at first sight to undertake an increase progressively, in stages of €100 million a year up to the €1,200 million level proposed. It seems in principle that straightforward implementation of an increase would be more appropriate. Has the Minister, in her discussions with the insurance market, reflected on that particular issue, and is she minded to make the change immediate rather than stepped, as the statutory instrument suggests?

The second question relates to the other categories that the Minister mentioned were included in the new schedule of insurance cover. Included in those categories are low-risk nuclear and nuclear transportation, which has a cover level of €80 million. What is not stated, however, is exactly what the difference between transportation of high-risk and low-risk nuclear material consists of. It is noted in the documentation here that transportation of high-risk material would be covered at the level of a nuclear site, and that transportation of low-risk material would be covered up to a liability of €80 million. Can she provide a little information about what is defined as low-risk and high-risk transportation, to make the difference in insurance levels clear?

My final question relates to the impact that the changes would have on the operating costs of nuclear installations. I note that during the consultations—although they occurred some while ago, in 2011—a number of nuclear operators indicated that proposals to increase the liability levels might have an impact on their viability and operating costs, particularly the proposal that the cost should be greater than might be found elsewhere in other parts of Europe. My understanding of the operating costs of a nuclear installation is that they would come to something like the equivalent of £1.32 per MWh. That figure is included in the impact assessment to the document, and it is as a proportion of the total operating costs of a nuclear power plant.

That cost is calculated on the basis of a new nuclear plant, and the impact assessment definition of a nuclear plant is the site at Hinkley Point C, which was established as a separate site in 2012, after the consultations had taken place and during a period when the Department, without actually placing an order before the House, was issuing annual updated versions of the order to be placed in the public domain in order to inform the industry in particular of where the order was at that time.

I would imagine that that particular order and its contents may well have been part of the negotiation on the strike price, among other things, that took place between the Government and EDF as far as Hinkley Point C power station is concerned. Under those circumstances, does the Minister consider that the existence of this document itself may have been part of the negotiations, in terms of understanding what the additional operating costs might be for a nuclear power plant as a result of these forthcoming changes, albeit changes that were in draft form at the time and not before a Committee, as they are today? Has that figure of £1.32 per MWh been included in the eventual strike price achieved in the negotiations between the Government and EDF?

The thrust of my question is this: does the Minister consider that the figures in the document we are considering will have contributed in any way to the setting of the strike price, in such a way that the nuclear power company could have passed its additional operating costs on to its customers, or on to the customers of the electricity producer and the power station, as a result of those negotiations, or is she able to say that that had no part in those discussions and that it was therefore not a serious factor to consider in those overall negotiations?

I promised not to give the Minister a particularly hard time this afternoon, so I hope that those questions are not particularly hard.

[Andrea Leadsom]

I will let the hon. Member for Southampton, Test off this time. Just to be kind, I will agree that he has not given me too hard a time.

The hon. Gentleman asked if we should effectively bring in all the additional charges in one big bang rather than having a stepped increase. Our view is that it is better to allow the insurance market to develop the capacity to take on the insurance. He will be aware that different insurance markets among the different signatories to the conventions have differing capacity. We have been in regular contact with the insurance industry in the UK, and this is considered to be the best way to implement the increases on a stepped basis.

The hon. Gentleman asked what the difference is between low-risk and high-risk transportation. I can assure him that the difference between them will be more clearly defined when we come to the other legislation that is due later. However, it tends to be the case that low-risk transportation is the transportation of most of the nuclear material that is transported. The high-risk transportation would be, for example, the transportation of spent fuel or vitrified waste, which are more hazardous materials. Those are some examples, but we will articulate the difference between low-risk and high-risk transportation more clearly in other legislation.

The hon. Gentleman also asked about operating costs. It is not expected that this change will have a significant impact on operating costs. The insurance liability adds around 0.4% to costs, so it is not a significant amount. Of course, with anything like this in all probability the cost will be passed on to the consumer. That is what happens; if costs increase, they are passed on. However, this is not a significant change.

In response to the hon. Gentleman’s point about Hinkley Point C, it will have taken all factors into account in assessing the return to the project and therefore the strike price, which, as the hon. Gentleman will be very aware, will not be incurred by the bill payer until Hinkley Point C is producing electricity, which will be some time in the mid-2020s. It is therefore unlikely that any factors have been left out of the calculation of what the strike price should be.

I thank hon. Members for being here today and for hearing me out. This is a very important piece of legislation. I will just reiterate that the UK has one of the strongest nuclear regulatory regimes in the world, which always seeks to maintain and improve the safety of nuclear licensed sites. As new reactor designs are developed, safety will continue to be of paramount importance. As I said at the start of this debate, the order amends the Nuclear Installations Act 1965.

[Dr Whitehead]

I am sorry to ask the Minister to give way so close to her peroration, but could she just elaborate briefly on the question of the stepped insurance increase over five years, which is set out in this document? Bearing in mind that the market is willing to underwrite such arrangements, can she comment on whether an immediate increase to €1,200 million might not be preferable to a stepped increase over a five-year period?

[Andrea Leadsom]

I did just answer that, but perhaps the hon. Gentleman was looking at his papers. We are in constant, regular contact with the UK insurance industry on this point. The decision we have taken is that it is better to introduce it on a stepped basis, to make sure that the insurance market builds the capacity to take on this additional risk. That is very important.

[Dr Whitehead]

I was just puzzling over the difference between the fact that the Department has clearly consulted the market and the market has stated that it is willing to provide cover. I did hear what the Minister said about stepped capacity, but that, frankly, was a repeat of what is set out in the explanatory notes, rather than further elucidation. I am asking whether, since those particular thoughts had been put into the document, greater elucidation had been found from the market on its willingness to undertake the increased amounts. That is what I heard the Minister indicate this afternoon about the market’s willingness to bear the burden of those additional premiums.

[Andrea Leadsom]

Perhaps I can explain it by saying that the insurance market does have an appetite for providing catastrophic cover, as it has done in the past. As I explained in my opening remarks, we are talking here about widening the cover to include damage to the environment, personal liabilities and so on that go beyond what was there previously. In that regard, as the hon. Gentleman will appreciate, the insurance market has an appetite for risk and we believe that that will change and become more relaxed as time goes by. The problem with pricing insurance in the early days is where there is no track record of claims, and so on. Therefore, we are trying to introduce this on a stepped basis, so as not to put too much pressure on the insurance market all in one day.

We intend this order to ensure adequate and fair compensation for victims, with operators taking responsibility for any failure in safety. It also provides a high degree of uniformity of certain basic rules across signatory countries. I commend the order to the Committee.

Question put and agreed to.