Nuclear Energy (Financing) Bill

Alan Whitehead Excerpts

2nd reading
Wednesday 3rd November 2021 Commons Chamber

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

Labour believes that new nuclear has an important supporting role to play in the energy mix, alongside the decisive shift to renewables that we need to deliver the climate transition and secure our energy security. As set out by the Climate Change Committee, we need all the low-carbon power sources at our disposal to deliver the rapid and fair transition that is required.

I am sorry that the Minister, in presenting the Bill, has chosen the partisan knockabout route, rather than giving it the serious consideration that it deserves. If we want to go down that path, we can reflect on the decade of dither and delay on the Government’s part, with mixed messages from the Conservative Government on new nuclear. The result is that, after 10 years, we have one half-finished nuclear plant, which is funded by a mechanism that, as the Minister himself accepts, is quite disastrous in terms of future prices. The record of this Conservative Government on new nuclear is frankly very poor. At last we have a Bill that might rectify some of that poor performance over the last 10 years. We need to support the need to finance new nuclear. We will scrutinise this Bill to guarantee fairness for bill payers, including protecting consumers against any potential cost overruns, protecting the poorest households, and scrutinising the balance between public spending and bill payers.

It is welcome that at long last we are coming to the key issue in nuclear power, which is how we build the power stations that we seek to place in the mix of low-carbon energy for the future. We know how not to do it, as I mentioned. We have already seen from the passage of building Hinkley C, and the disappearance of many nuclear projects and programmes, that the model that the Government have long stood for—that power stations should be built entirely by the private sector, and that private-sector security can be bought by price mechanisms that grossly inflate the cost of energy to the customer in the end—is highly flawed.

We are facing a last-chance saloon for new nuclear build that requires us to throw away those principles and start again, because most of the programme of new nuclear power stations that the Government have been envisaging over the past 10 years has been washed away. As late as 2018, there were possibly three consortia actively pursuing an interest in building five new nuclear power stations. These have progressively fallen by the wayside. Consortia have fallen apart, companies with an interest in financing projects have pulled out, and we are now left with one proto-consortium—effectively just EDF—building Hinkley C and with active plans to build a new power station at Sizewell. It is not only an active interest. Sizewell is designed to be effectively a clone of the plant that is currently being built so that it can start to build as Hinkley completes its construction phase and the workforce currently undertaking construction at Hinkley can transfer to the building of its clone at Sizewell.

We ought to add two other factors that will have a substantial bearing on how we proceed with building plants—or in this instance, a plant, because that is all we have under consideration right now. First, the consortium proposing to build Sizewell is not exactly champing at the bit to finance it. EDF has effectively mortgaged itself to the hilt in financing 65% of Hinkley C and has stated unequivocally that it is not about to do the same with Sizewell C. Secondly, we still have the arrangement in place concluded by the then Chancellor George Osborne to arrange a fast track into the heart of our nuclear programme for the China National Nuclear Corporation via a Secretary of State’s investment agreement to help fund Hinkley C power station to the tune of 35% of the upfront capital; 20% of the second in the EDF consortium’s programme, Sizewell C; and the big prize for the Chinese—control of the financing, build and running of a third nuclear power station at Bradwell in Essex, which is now unlikely, to the point of impossible, to happen.

It is likely that the Chinese will not be able to get their hands on a real nuclear power station all of their own and they will not be investing into 20% of Sizewell—indeed, the Government seem to have set aside £1.7 billion in the Budget to buy out their interest in Sizewell C. Labour has long warned that the Government are playing a dangerous game when they outsource the funding of critical national infrastructure to foreign Governments. We are now seeing the results of a decade of Conservative Governments doing exactly that, and mostly failing to get anywhere. There we have it in terms of the UK’s nuclear programme for the foreseeable future—only one plant in prospect for a start before the late 2020s.

[John Redwood]

The shadow Minister is very thoughtful on these matters. How much standby capacity does he think we need to back up the wind and solar that will be the majority of our generation in due course?

[Dr Whitehead]

Interestingly, the Climate Change Committee, which has looked into this matter in great depth, considers that in the overall long-term future make-up of our energy mix, about 8 to 10 gigawatts of standby power—therm power—is likely to be required in the shape of new or existing nuclear power stations. That is about the size of the difference with an overwhelmingly renewable but variable economy, with elements of firm power backing it up.

I have mentioned that one plant only that would be included in the suggested 8 GW to 10 GW is in prospect for a start before the late 2020s, because every other proposal has fallen away. However, it is not financed and is probably not financeable by private capital. It is only part financeable by a state financer, with which we do not now want to do business. Let us be clear before we go any further: this Bill is about finding a formula to fund and build Sizewell C power station. Whatever its generic pretensions, that is the issue we should be concentrating on. Even so, getting that plant going would cover most of what the Climate Change Committee considers is the presence in the mix needed.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

Before the hon. Gentleman moves on from discussing the financing for Sizewell C, does he agree that it is important, when we are talking about financing, that the financing is not just in place for the build of the power station itself, but for the necessary infrastructure and mitigation measures for the local communities in the area, who will be suffering from construction traffic and the like for potentially a 12-year period?

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[Dr Whitehead]

The hon. Gentleman is right to say that the build cost and financing of a nuclear power station has to include not just the obvious things that we think are associated with a nuclear power station, but all the other infrastructure around that nuclear power station and contributions to decommissioning costs. That is what we are talking about in terms of an overall financing package, and that is why a financing package has to last over the whole life, effectively, of that nuclear power station. I do not intend to move on from the financing of Sizewell C, because that is essentially what this Bill is all about. It is about all those things that the hon. Gentleman mentions, so far as that particular project is concerned.

This plant, if it goes forward—we hope it will go forward with something like this kind of financing—would cover a substantial part of what the Climate Change Committee considers necessary in the mix of low-carbon energy to drive power towards net zero by 2050. I have mentioned that it thinks about 8 GW to 10 GW of new nuclear power would be needed to complement a predominantly renewable power line-up so that firm power considerations are met, without being in such numbers that it puts the development of renewables into jeopardy. That 8 GW to 10 GW includes new nuclear power, but also the one existing power station that will probably last beyond the 2030s in Sizewell B.

Hinkley and Sizewell C together therefore would go a long way towards meeting that assessment by the end of the decade, with two 3.2 GW power stations with reactors in each, and the remaining Sizewell B power station continuing in action. It is not surprising then that we are talking about nuclear financing, which is pretty much all the Bill covers. Exam question: how do we finance an unfinanceable nuclear plant when we know we have got to do it because there is no other option? Even if we did decide to repeat the frankly disastrous device of providing a CfD for the plant at Hinkley, which is likely to produce power at twice market cost, it still would not work, because that does not solve the problem of getting investors into the plant for the lengthy period before production starts. There are ways in which nuclear finance can be sorted out.

[Jonathan Edwards]

I thank the hon. Gentleman for the very considered manner in which he is presenting his case. Is there anything in his mind that would stop the UK Government using this new financing model for other technologies, such as the tidal lagoon in Swansea, or is it blatantly unfair that one technology has a very favourable financing scheme, while another technology that could provide many of the solutions that he seeks is stuck on contracts for difference?

[Dr Whitehead]

The hon. Member mentions tidal power. Of course, a regulated asset base system can be used for any sort of major infrastructure project—and indeed has been already, as I will come to. I do not see the discussion on that system as being about just nuclear power, but a method of funding a large infrastructure project that has certain requirements that must be met by continuous funding throughout its operation. He is right that infrastructure projects other than nuclear in the energy sector could and should be funded by that system.

The National Audit Office discussed those options when it reviewed the decision making and value for money that the CfD process for Hinkley entailed. The route adopted by the Government, after much internal wrangling and delay, is a regulated asset-based model that is essentially constructed along the lines that it has been used for already in capital projects such as Heathrow terminal 5 and the Thames Tideway project. That is, the whole project is part-funded by the proceeds of a levy on bills. The levy varies in size during different phases of the project and, in the latter phases of production, lowers or even goes negative if the project’s income exceeds the ceiling of allowable costs under RAB.

There are substantial advantages to the RAB model for making the project investable. It provides returns for investors as the project proceeds rather than at the end of it, as does the CfD model, which allows investment to be brought into the frame for the project from sources that might otherwise baulk at the timetable between investment and return. It also reduces the hurdle rate for investment in the project, thereby in theory substantially reducing the overall cost of financing the project and likely resulting in cheaper prices for the energy produced by the plant.

There are also substantial risks with RAB that need to be managed. It places the cost and risk of financing the project on the shoulders of customers, in this instance electricity bill payers, which adds to bill costs through a levy on their bills before anything has materialised. In the event of the plant not being completed, it lumbers them with bill costs without the benefit of the plant for which they have paid producing relatively cheaper electricity.

RAB also adds to the burden of bills unpredictably if the project overruns on cost or time—both of which, as we know, nuclear plant development is rather prone to. The extension of the construction period for a project, when the highest effect is felt on bills, lengthens that higher take period. An increase in cost may also cause revisions to be made to allowable costs ceilings, and hence cause heavier costs on bills.

We are in somewhat uncharted waters with a project such as Sizewell C because of its size, complexity, timescale and investment costs compared with the more modest sums and shorter timescales involved in existing RAB projects. Nuclear power stations elsewhere in the world have been funded along RAB lines, but have simply not been completed, which has left consumers with a huge bill and no benefit.

In short, we need to go into this kind of arrangement with a clear eye about the advantages and risks of a RAB model for nuclear. As far as we can, we should attempt to mitigate the risks and play up the advantages. It is workable, but only if the Government have a serious plan.

The Government have sought to alleviate at least some of the disadvantages by introducing to the Bill a special administrative regime for the project in the event of a failure of the company involved during construction. We will look carefully at those provisions, but they seem to be a useful commitment to ensure the robustness of the overall project, even if its prime developer fails to deliver. We also accept that provisions in the Bill on who may be involved in legacy and decommissioning costs will help to clarify the risks for security trustees and secured creditors.

There is much to agree with in the Bill, given the evident need to secure a mechanism that enables Sizewell C to be developed and come into production at a reasonably early date. There are measures to lower the overall cost of the project so it is investable and less price inefficient than its immediate predecessor, and to ensure that the project stays on track and delivers at the end of it. However, there are still many questions to be answered, particularly on the robustness of the RAB model under circumstances where the inevitable “optimism bias” of project costings—that candid acknowledgement comes from the Bill’s impact assessment—proves to be disadvantageous and costly to consumers who, after all, are supposed to be paying up for a benefit later on. It is important that we look at such matters carefully, with a clear eye on consumer protection, and do not just assume that the mechanism will milk customers for whatever it takes to produce an outcome in the end.

We need much greater clarity about the Government’s intentions on the difficult situation concerning Chinese investment in Sizewell. That may not be central to the Bill and the RAB model, but it is indirectly affected. The project’s overall shape will be affected by whether the Government take over the Chinese share, offer it to other investors or even calculate that RAB is a sufficiently powerful tool to enable investors easily to come in and scoop it up once the Secretary of State’s investment agreement provisions are untangled. We need to know in the Bill’s early stages what the Government will do about that and through what mechanisms.

As the Bill progresses, the Government can expect Labour’s overall support but also a proper, critical eye on aspects of the mechanisms they are adopting and a particular emphasis on protecting the people, who will either stand to benefit from a reliable power station producing needed energy at reasonable cost if it goes right or suffer grievously if it goes wrong. In other words, the customer must be first in our minds in taking such decisions, and we will stand up for them as the Bill progresses.

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[Mr Deputy Speaker (Mr Nigel Evans)]

We now come to the wind-ups, but the shadow Minister is slightly detained.

[Dr Whitehead]

He’s gone to the loo, Mr Deputy Speaker.

[Mr Deputy Speaker]

He has, yes.