Nuclear Energy (Financing) Bill (Third sitting)

Alan Whitehead Excerpts

Committee stage
Thursday 18th November 2021 Public Bill Committees

[The Chair]

I have a few preliminary reminders for the Committee. Please will you switch all your electronic devices to silent? No food or drink is permitted during sittings of the Committee, except for the water provided. I encourage Members to wear masks when they are not speaking. That is in line with Government guidance and that of the House of Commons Commission. Please give each other and members of staff space when seated, and when entering and leaving the room. Hansard colleagues will be grateful if Members could email their speaking notes to [e-mail].

We now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and it shows how selected amendments have been grouped together for the debate—there is one change. Amendments grouped together are generally on the same or a similar issue. Please note that decisions on amendments do not take place in the order in which they are debated, but in the order they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates. Decisions on new clauses will be taken once we have completed consideration of the existing clauses of the Bill. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking to it that they wish to do so.

We will start with amendment 1 to clause 1, but first, Dr Whitehead, did you wish to talk about the change to the selection list?

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

Thank you, Ms Fovargue. It is a pleasure to serve under your chairmanship. I want to say two things before we go into detailed line-by-line discussion: one is on the order in which we are debating the Bill—clause 1, clause 2 and so on. The other is to say to the Committee before we start that Her Majesty’s Opposition voted in favour of the Bill on Second Reading and, therefore, we hope that the amendments before us will be seen and discussed in that light, which is that they seek to strengthen the Bill and to address specific concerns that we have about elements, in particular the RAB—regulated asset base—process.

[The Chair]

Order. This should just be about the amendments and groupings; there can be no general statements about the Bill. Is everyone content to group amendments 1 and 2 together?

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[Alan Brown]

It is a pleasure to serve under your chairwomanship, Ms Fovargue. In my intervention, I wondered if the amendments would technically preclude EDF under the RAB scheme. I hoped that the amendments were a stalking horse for Labour to come round to our way of thinking regarding a new nuclear power station, but unfortunately, that does not seem to be the case.

That said, I support the amendments. It is crazy that decisions have not been made before now about excluding China General Nuclear from critical infrastructure. The UK Government probably acted on the back of the United States’s actions to remove Huawei from critical telecoms infrastructure, so it makes no sense that a Chinese state-operated nuclear company is allowed to participate and invest in and possibly, if it gets its way, construct a new power station at Bradwell. That makes no sense. I would like to hear what the Minister has say about that. In principle, I support the amendments, although, ideally, I would rather we were not doing new nuclear.

[Dr Whitehead]

Continuing briefly from my initial remarks, I want to make it clear that the amendments—and all our other amendments—are based on the idea that the Bill should be strengthened, not subverted in any way. I can assure the Committee that the hon. Member for Kilmarnock and Loudoun’s hope that these two amendments are a stalking horse to remove EDF from the project is certainly not the intention. The intention is precisely to ensure that the nuclear programme in this country is sound, robust and integral to our security in all senses of the word.

We do not think the amendments will do anything other than put us in a much better position to ensure that the financing of nuclear is done on a clearer footing and on the basis that we know who is putting money into the project, in this instance Sizewell C. I concur with my hon. Friend the Member for Greenwich and Woolwich that effectively the Bill is pretty much about how Sizewell C gets going, comes to financial closure and gets into its construction period so that it produces electricity in good time for the grid.

It is important that the Committee thinks carefully right at the beginning of its proceedings about how we want to framework that nuclear financing; how we want to framework the arrangements which, after all, will be the umbrella under which we have all our other discussions in Committee. The framework that we have at the moment, particularly for Sizewell C, as my hon. Friend has set out, is a sequence of memorandums and a number of things further to memorandums, which appear to lock our nuclear development into an arrangement with the Chinese General Nuclear Power Corporation, which is very much an instrument of the Chinese state. Although companies have been set up—set up for the purpose of engaging in Hinkley—with one nominated director, given who those nominated directors are and how they go back to China it is very clear that those companies are centrally state-controlled, and are state-controlled vehicles for investment—just as we have stated in our amendment—for the promotion of that particular foreign power’s interests, in this instance in nuclear power.

Given those interests in nuclear power, it is important that we do not lose sight of the overall scheme of things in considering investment or otherwise in Sizewell C. It is important to understand that the deals, as it were, that were made between 2013 and 2016 were very much about that sequence of events leading from investment in a power station with a minority stake, with a reactor that would be built in France, within a framework of a company controlling that, that is a private company but has substantial state connections, but nevertheless is a very different model from what we are faced with regarding the CGN investment.

So there has been a sequence of events that starts with Hinkley C, with a minority stake, a French reactor and a French company with its own investment in the majority of the plant, and then a contract for difference at the end of it for production, moving to the second event in the sequence, which was envisaged at that time to be Sizewell C, with an undefined arrangement at the time for investment elsewhere in the plant, but a clear stake in that plant, beyond financial closure, of the Chinese General Nuclear Power Corporation, coming to 20%. And then would come the prize at the end of the sequence—certainly the prize for the Chinese Government—of the entry into European nuclear development for the first time of a Chinese reactor, the Hualong One. That would be the basis of a Bradwell nuclear plant. That reactor would separately go through a generic commissioning process; the initial moves towards that are being made. That reactor would then be at the core of the Bradwell plant, and Bradwell would be majority-owned, run, controlled and operated by the Chinese state nuclear corporation.

So, leading down the path of that sequence, Sizewell C being a stopping-post in that sequence and the end of it being Bradwell, is obviously the nuclear project that we are discussing at the moment. Therefore, the part-ownership of the nuclear company must be seen as integral to that overall process and that overall agreement; and if we do nothing and say nothing about that involvement, we are effectively condoning that whole sequence of agreements.

Those agreements were initially made in the form of a memorandum of understanding on civil nuclear collaboration in 2013, and effectively those stakes that I mentioned were set out then. George Osborne, the then Chancellor, stated that Chinese companies were taking a stake, including potential future majority stakes, in the development of the next generation of British nuclear power. So, it was pretty explicit, certainly from the UK Government side, what they thought that sequence was going to be about, and it was actually pretty similar to the idea that the Chinese had, as far as their involvement in nuclear was concerned.

That was followed, during Chinese President Xi Jinping’s state visit to the UK in 2015, by a “Statement of Cooperation in the Field of Civil Nuclear Energy”, which welcomed the minority investment and the proposal for a Chinese-led project at Bradwell B in Essex. What is less well known is that that was followed by a very lengthy document, “Secretary of State Investor Agreement”, which was primarily about investment by a number of parties, including CGN, in Hinkley but which also related to the whole sequence. It is arguable, therefore, that there is a substantial lock-on of Chinese involvement not just in 20% of Sizewell but in the whole sequence, as laid out in the various memorandums of understanding and the investment agreements undertaken between 2013 and 2016.

The question is: what are we going to do about it? The proposal is for a RAB scheme to cover the project’s investment costs. A decision will have to be made about how the RAB scheme will work and we will discuss the detail later, including how Ofgem will set out the allowable costs that form the backbone of a RAB agreement. Ofgem will have to assess the overall allowable ceiling for the project costs, particularly in its construction phase but also during its production phase. That will form the basis on which the money to meet those costs will be taken in from the general bill-paying public. The ceiling for those allowable costs will be determined to a considerable extent by how much investment is likely to be required and, therefore, how much of it will have to be underpinned by the RAB arrangement at the Sizewell plant. If a substantial part of the plant is to be financed by the China General Nuclear Power Corporation, then logically the allowable costs would relate to the rest of the required investment, rather than all of it. Crucially, the decisions and discussions that this Committee is going to enter into will be determined by what that 20% consists of.

The Red Book offers a tantalising clue as to what that might be. As my hon. Friend the Member for Greenwich and Woolwich said, a total of three lines focus on the £1.7 billion of new direct Government funding being made available, essentially for the Sizewell C project. He said that the Red Book is possibly wilfully obscure; it is certainly obscure, and for a number of reasons. All the Budget and spending review document has to say about the £1.7 billion Government funding is that it is being provided

“to take a final investment decision this Parliament, subject to value for money and approvals.”

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[Greg Hands]

To be fair, I also listened carefully to Sizewell C’s evidence, and the company will be as aware as we are that this is an active negotiation. I was not in any way surprised that Sizewell C’s representative did not wish to be drawn on the question of exactly where the £1.7 billion would be deployed. We have outlined in the Budget document the sorts of areas that would be in scope. None the less, this is an active financial negotiation.

[Dr Whitehead]

Does that mean that the evidence that was given to us in our session with Sizewell C was not correct, or was ill-informed? Or was it informed, but matters have moved on since then? Or was it—

[Mark Fletcher (Bolsover) (Con)]

Diplomatic.

[Dr Whitehead]

Was it, indeed, as the hon. Member for Bolsover suggests from a sedentary position, diplomatic? If so, was that diplomatic answer given after any sort of instigation from the Government, or was it just diplomatic on the basis that Sizewell C did not want to tell us?

[Greg Hands]

I do not think the hon. Gentleman is correct. It is not fair to conclude that the evidence from Sizewell C was incorrect, or that it was ill-informed in any other way. This is an active commercial negotiation. We have laid out the parameters of the £1.7 billion, and is in no way surprising that our negotiation partners may not wish to comment on what they think it is likely to be spent on. After all, it is taxpayers’ money, which will be deployed by this Government to move forward a nuclear project.

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[Greg Hands]

As I have made clear, we think that the Bill adequately addresses these issues, particularly in combination with the National Security and Investment Act, so I do not see it as necessary for us to make any further clarification. Ultimately, the Bill is about bringing in more financial options for future nuclear power, not cutting them.

The hon. Member asked about Bradwell. To reiterate, that is not a decision for now. CGN does not have regulatory approval for its reactor, nor has it submitted any applications to build a nuclear plant in Essex. We are in negotiations for Sizewell C, as the most advanced nuclear project in the UK.

[Dr Whitehead]

I am afraid the Minister cannot have it both ways. Either the Bill is about financing Sizewell C or it is about financing nuclear power more generally, in which case Bradwell surely has to come into the equation. We could be committing today to a RAB model that could, in principle, help to fund Bradwell, if it goes ahead. It is part of the linked sequence that has already been agreed in heads of terms by the UK Government and the Chinese Government, effectively. He says that it is not a discussion for today, but that is true only if the Bill is just about Sizewell C, in which case his statement that the Bill is potentially about other things is not correct. Which is it?

Although the Bill is effectively about financing Sizewell C, it has implications elsewhere. The Minister says that it is not relevant because the Hualong reactor does not yet have generic approval. That is not a question of making a decision about the involvement of foreign powers or anything like that; whether the reactor gets generic approval for use in UK nuclear markets is just a technical issue. I presume that he would want the nuclear authority to take that line and to give approval, or not, on the technical merits of the Hualong reactor, not on who is running it. That is the issue, however, concerning Bradwell. It has nothing to do with generic commissioning or otherwise; it is a much bigger issue, and he needs to recognise that.

[Greg Hands]

The hon. Member is correct that this is about future nuclear projects, but I stress two things. The original question from the hon. Member for Greenwich and Woolwich was about the future of Bradwell. I am reflecting on the specifics in relation to Bradwell. Of course, nuclear projects going forward are what the Bill is all about, but I will not comment on specific projects potentially going into a RAB process, because that, as we will discover later, is a properly defined process, set out with approvals from the Secretary of State after consultations. The Secretary of State will make essentially two determinations: will the project provide value for money, and is it sufficiently advanced? It would not be proper to comment on whether a specific project that we discuss today will have the ability in future to meet the two most important criteria laid out in the Bill.

Let me say a few extra things about amendment 2. The legislation gives the Secretary of State the power to designate a nuclear company and to modify the company’s licence subsequently to include RAB conditions. The Bill requires the Secretary of State to consider the two criteria that I just mentioned when deciding whether to designate a nuclear project. The two criteria are that the development of a project is sufficiently advanced to justify the designation and that the project is likely to result in value for money.

The amendments seek to include additional criteria for the Secretary of State to consider before designating a project. As I said, amendment 2 requires that a nuclear company may not be owned by a foreign power. I have already raised concerns about the unintended consequences of that for our ability to pursue new nuclear projects in this country.

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Division 1

Ayes: 5

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Labour: 4
Scottish National Party: 1

Noes: 8

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Conservative: 8

[Dr Whitehead]

I beg to move amendment 3, in clause 2, page 2, line 14, at end insert—

“(c) the Secretary of State is of the opinion that the nuclear company is able to complete the nuclear project.”

This amendment requires the Secretary of State to give a view that a designated nuclear company is able to complete the project for which it is designated.

I am grateful to you, Ms Fovargue, for grouping amendment 3 on its own so that we can talk about it in its own right. Like the previous amendment, it seeks to add into the clause the designation of a nuclear company. We have not talked about the designation process, although I am sure we will.

The designation process is where a nuclear company that appears to have an interest in a plant, and has at least taken some steps to develop it beyond the conceptual state, is then given a preferential initial contract and a window—again, we will discuss the timescale of the window later—where it goes through the various processes of modifications of its licence to set itself up to take part in a RAB. It agrees to various things relating to the counterparty in the RAB process and agrees the initial ceiling for allowable costs for the project, which it has at the time of designation brought to a position where work can start to proceed. It is therefore on a track, but not in the RAB process at that point.

We attempted to put a third designation criterion in the clause a moment ago, which states that the designation criteria are that

“the development of the nuclear project is sufficiently advanced to justify the designation of the nuclear company”.

In other words, the project is more than just a drawing board idea. As I am sure the Minister will be painfully aware, we have had a plethora of nuclear projects in this country at various stages of advancement that have fallen by the wayside for various reasons. Some of them were relatively advanced and some were just concepts, but they were all reflected in the original planning documentation in, I think, 2011 in terms of consortia and sites and various other things that were given an overall green light in the planning process. The sites were not designated in the sense we are considering here, for nuclear development, but it is certainly true that a number of the projects suggested for those sites would not have passed the designation test before us today on the work having been done to advance the project.

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[Alan Brown]

I understand where the hon. Gentleman is going, but where is the fall-back?. The Secretary of State is desperate to get a nuclear deal signed off, so he just signs it off: “Yes, I am of the opinion that this project will be completed.” Ten years down the line, it all falls apart and the project cannot be completed, a bit like the Californian example. What protection would the amendment introduce? It seems that the Secretary of State can just sign this off based on his opinion. If there are repercussions down the line, they do not come back on that Secretary of State.

[Dr Whitehead]

The hon. Member makes an important point, at least part of which we will discuss when we come to the procedures under which a potentially failed project might be rescued or transferred to other undertakings so that it can be delivered and completed, or if already operating, can continue to operate.

[Dr Jamie Wallis (Bridgend) (Con)]

In what circumstances is it conceivable that a nuclear project would be deemed not to have a realistic prospect of completion but at the same time to be value for money?

[Dr Whitehead]

It is quite possible that the Secretary of State could deem the first two criteria on the basis of work that the company had done to approach designation. However, unless the Secretary of State has in mind the whole picture at the point of designation—in the previous group of amendments, we touched on some of the things concerning the whole picture—it would be possible for him to conclude that, yes, on the basis of the work done so far, the particular mechanisms looked like they might produce, say, value-for-money electricity at a rate per kilowatt-hour that was compatible with market levels of electricity at that point or in the future or with value for money as far as other electricity production is concerned, but he might still not have a handle on whether the undertaking that the nuclear company was about to engage in was sound in the overall, as far as completion was concerned.

The hon. Member for Kilmarnock and Loudoun touched on an important lesson in that respect, which ought to be put before the Committee. He mentioned a case in California—it was not quite in California; it was a little way a way, although it began with the same letter. I am talking about the experience of a nuclear power plant in South Carolina in the United States. When I say the experience of a nuclear power plant in South Carolina, I do not mean that—because there is no nuclear plant in South Carolina; there are a bunch of a concrete foundings, walls and various other things that look like a nuclear power station, but it does not operate, it has never produced a single kilowatt of electricity and it remains abandoned.

More significantly, that project not only was abandoned but was commissioned precisely on the sort of criteria that are contained in the Bill. All those things were gone through by the South Carolina legislature, which put in place something remarkably similar to a RAB. Indeed, the bill payers of South Carolina were required to stump up money for the project as it progressed, and I am sure hon. Members will be interested to know just how much money went from the bill payers of South Carolina to that project and how much they got out of it as a result of introducing a RAB model in South Carolina. The answer is nothing. Some £9 billion of customers’ money went into the project, and they will continue to pay for that lump of concrete for the next 20 years in their bills because of the way in which the thing was constructed, all on the basis of agreements that looked pretty similar to what is in the Bill.

What South Carolina did not do was ask serious questions about the resilience of the various partners and companies involved in the project in the light of changing circumstances in terms of the construction of the project and the health of the companies involved. Among other things, costs went through the roof, the timescale increased substantially and one of the companies that was in charge of the project effectively went bust—it called for chapter 11 protection and was therefore unable to continue with the project. All those things could have been foreseen by the South Carolina legislature, but were not. The project went ahead, with the customers footing the bill, as various reviews subsequent to the collapse of the nuclear programme said, on the basis of something that was extremely unlikely to ever come to fruition as a nuclear power plant, not only because of the dodgy nature of the financing of the project but because it had completely unrealistic timescales—those involved expected to produce electricity within six years from the start of production and so on, none of which was properly overseen.

[Alan Brown]

I appreciate the hon. Gentleman giving way once more; I am starting to feel like I am on a mission to annoy each contributor—apologies. He makes valid points, and I understand his concerns and what he is trying to do, but I still do not understand how the amendment would preclude such a scenario. Surely, as well as the amendment, the Secretary of State would need to look at a list of criteria, with their sign-off verifying what factors have been considered to reach the opinion that the project is viable. Otherwise, the Secretary of State could just say, “I think this project will be completed—let’s move on.”

[Dr Whitehead]

Yes, indeed. The hon. Gentleman is right, to the extent that the amendment does not actually guarantee the success of a project as a result of its placement in the designation clauses. Of course, it is not possible to do that, because changing circumstances can mean that projects cannot come to fruition. The difference the amendment would make is that the Secretary of State would be required to look at all those sorts of things in the overall scheme of things as far as the company and the prospects for success of a particular project are concerned, in such a way that he could form an opinion, which he would undoubtedly have to publish, that he was as satisfied as he could be, having done all that work, that the project had a very high prospect of being completed, and he would have to underwrite that.

One thing I did not say about the South Carolina project is that a lot of it is now the subject of legal action, and various state officials are being hauled up before the courts for their lack of diligence in actually looking at the overall circumstances of the project when they gave the go-ahead on a similar basis to that which we are discussing. If the Secretary of State had to sign off, on the basis of the amendment being in the Bill, that it was all okay and could go ahead, and it turned out that it was not okay and could not go ahead, under circumstances that could have been foreseen, he would then be liable. That is potentially quite an important concentration of the mind, ensuring that the work had been done, as much as it could be done—I accept that it would not be a perfect operation—to ensure that there was a reasonable or good prospect that the company involved could complete the project. That is all the amendment says. It would be an important addition to the designation process.

We need to be clear that, as much as we can do the work, we have done the work in getting the designation clearly marked on the basis that the company really can deliver a nuclear plant and produce electricity for customers. As I have said, we are engaged in a RAB process, which ultimately lands on the customers. We absolutely do not want to ever land the customers of the United Kingdom in the same position that the customers of South Carolina are in today, so far as a nuclear power plant is concerned.

Ordered, That the debate be now adjourned.—(Mark Fletcher.)