Hinkley Point C Reactor

George Kerevan Excerpts

Tuesday 8th March 2016 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

We have just had a good debate on International Women’s Day and we are about to discuss nuclear power, so I would like in one sentence to remember Marie Curie, who did all the basic work on radioactivity, Lise Meitner, who discovered uranium fission, and a lady who hon. Members probably have not heard of, Leona Woods Marshall Libby, who was the first person in charge of building a large-scale nuclear reactor. Unfortunately she had to wear baggy clothes to hide her pregnancy in case she got fired.

I am interested in the Hinkley Point C reactor partly because I have an EDF nuclear plant at Torness in my constituency, and nothing that I say tonight should be taken as anything other than deep respect on my part for the management and staff at that plant. I am also interested in this subject because I am a sometime energy economist. This debate is not about arguments for and against nuclear power; it is about the fact that the Government have been keeping Parliament in the dark—I use that word advisedly—on the crisis in the EDF board. I heard the Minister of State speaking on the radio this morning. She gave the usual line that it will be all right on the night, but it will not.

[Ms Margaret Ritchie (South Down) (SDLP)]

I congratulate the hon. Gentleman on securing this important debate. Is he aware—perhaps he will refer to this—that the project and finance directors for the Hinkley Point C project have stood down in the last month, and one stood down earlier this week? There is no working model in western Europe for the Hinkley Point nuclear reactor.

[George Kerevan]

I am aware that two senior members of EDF have quit their jobs. More to the point, I have been in touch with members of the EDF board in France—I trust the Government have too—and as we speak, at least one third of that board are in favour of a moratorium on a decision to go ahead with the Hinkley Point C reactor until at least 2019.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

As my hon. Friend will know, part of the EDF board is made up from trade unions. It was pointed out to me earlier today at a lunch for stakeholders in the energy industry, that it is ironic that a UK Tory Government are being lectured by French trade unions on financial responsibility at Hinkley.

[George Kerevan]

If my hon. Friend has been reading the French media over the past few days he will know that it is not just the French unions. Practically the entire French media are now referring to Hinkley Point and the EPR reactor as the “English threat” to EDF.

Hinkley is the biggest power project we have ever seen, at £25 billion and rising. Under our current energy plan we are dependent on it to deliver 7% of the UK’s generation capacity, at a moment when our capacity margins are close to zero. Having mortgaged the UK’s energy future to Hinkley C, the Government have failed consistently to keep Parliament informed about the crisis on the EDF board, up to and including last weekend when the person in charge of the company’s finances—the chief financial officer—was in effect forced to resign because of his resistance to going ahead with this project.

If a major UK engineering company had a contract with the Government, and its chief financial officer was opposed to that contract and was fired, imagine the scandal there would be. However, the Government are happy to stay quiet while the senior management of EDF are removed in order for the project to go ahead.

[James Heappey (Wells) (Con)]

Will the hon. Gentleman concede that the chief executive of EDF, both in the UK and France, has been consistently committed to the project, as indeed have the UK and French Governments? I am not quite sure what else it is we might like to know in this House, given that that commitment has been unanimous and unstinting.

[George Kerevan]

I am aware of that—that is the problem. Why is there a revolt on the board? It is not just the trade union members. It is true that a third of the EDF board is allocated to union members, union representatives and staff representatives. They are in favour of nuclear power, but they are worried about the impact on the company’s future. Why is there a vote? Why was the chief financial officer against this? EDF has a negative cash flow. Its debts are twice its company valuation. Its share price has halved in the past 12 months. How is it paying its dividend? It is doing so by issuing more shares and giving them to the shareholders. Imagine how insane that is.

[David Mowat (Warrington South) (Con)]

Every point the hon. Gentleman has made is right, but insofar as the company is underwritten by its main shareholder, the French Government, the issues he raises are peripheral.

[George Kerevan]

I think the hon. Gentleman has summed up the incredible state we have got ourselves into. Somehow, it will be all right on the night. Somehow, the French Government are going to bail out the United Kingdom’s energy policy. I can assure Conservative Members that that is not going to happen. What is going to happen is the following: at some point, I suspect with pressure from the British Government, what is left of EDF’s board and senior management will override the resistance of the minority on the board and green light construction. They will green light construction at a point where EDF cannot guarantee it has the funds to complete building the reactor. At some point, there will be a crisis and who is going to pick up the pieces? I can assure the House that it will be the United Kingdom taxpayer, not the French taxpayer.

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

Having previously worked in the industry, like the hon. Member for Warrington South (David Mowat), in contracts management, I looked at Hinkley C online. While forms of agreement have been agreed as far back as October 2015, they are just a vehicle for project delivery. The design phase determines the project. As we appear to be about to enter the detailed design phase, this stage gate requires a more robust estimate to assuage investor concerns. Clearly, that has not happened. Does my hon. Friend agree that, given the very public challenges the project faces if it ever starts, the forecast practical completion date of somewhere between 2023 and 2025 is highly unlikely?

[George Kerevan]

I could not agree more with my hon. Friend. Originally, the two Hinkley C reactors were designed to be off-the-shelf copies of the reactor being built by EDF in Normandy. That has not happened. There have been significant changes. In fact, the way the EPR reactor has to be built—on site, piece by piece; it will be unique—leaves massive margins of error for cost overrun. Who is underwriting any cost overruns? The Chancellor of the Exchequer has given a partial capital guarantee that if there is any problem in the construction phase, the British taxpayer will start to pick up the bill.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

Does my hon. Friend accept that of EDF’s two reactors underway in Europe, there have been huge cost overruns in Finland where the reactor is nine years late, while the one in Normandy is four years late?

[George Kerevan]

Yes, that is entirely true. That is the point. If we look at who is actually responsible for having got us into this financial hole, do I detect yet again that it is the Chancellor of the Exchequer? We are here not out of an energy policy issue, but because the Chancellor wanted to keep the construction costs of £25 billion and rising off the national book. He wanted to keep it off the debt. For the first time ever in the UK, we are trying to build a new reactor with a new reactor design by putting all the risk on to the private sector. This project is too large and the technology is too unproven for that to work. The Chancellor is digging himself a big hole to protect his rickety plan to keep down the deficit and pay down the national debt, but it will not work. At some point in the next 10 years, we will be back here discussing a bail-out.

That is what I am trying to get across. A significant number of EDF board members know that the project cannot be financed through private capital. Even if EDF could raise the £12 billion or £18 billion—its share for building the Hinkley C reactor—it would need four, five or six times that to complete its programme of reactor life extensions in France. The sum total is colossal for a company already dripping with debt. Unless the French taxpayer is prepared to underwrite all of that, which is highly unlikely, something will have to give, and let me assure the House that it will be not EDF’s reactors in France but this project. It will disappear into the wide blue yonder.

The problem is that by 2025, when the two reactors are not on-stream, we will have closed down the 10 coal- fired stations that the Government announced would be closed last November, just before the Paris climate change conference, and suddenly we will have a huge gap in the 2020s—even worse than now—in our capacity to generate electricity. That will all be because we have mortgaged ourselves to an outdated approach to energy, which is to build gargantuan nuclear reactors that cost the earth—literally and financially—and which cannot be underwritten by the private sector because of the risk. The Government have manifestly been trying to pretend otherwise, and that is ultimately why they are refusing to come back regularly to the House to explain what is going on. They are hoping for the best.

I want the Minister to tell us what discussions have been going on with the board, when we might see the decision to go ahead with construction and what will happen if we do not get a timely agreement to go ahead. What happens if the board delays and delays until 2019? Is there a plan B?

[Philip Boswell]

Will my hon. Friend also ask the Minister whether, given the current constraints and pressures in the industry, she foresees the current negotiated strike price of £92.50 being renegotiated—the only way being up?

[George Kerevan]

Of course, the strike price is subject to certain qualifications. Were EDF to build the reactors and make a vast profit—the strike price is more than twice the current cost of electricity and there is an increment for inflation—there would be a clawback. If it makes a profit beyond what was originally envisaged, some of the money would come back to the British taxpayer. The clawback was insisted upon and enlarged by the European Commission, so it was interesting listening to the Minister this morning on the radio, given her position on the UK leaving the EU. It was in fact the Commission that tried to stand up for the British consumer. That is one reason I will be voting to stay in the EU.

I have made the basic point, so I shall draw to a close.

[David Mowat]

The hon. Gentleman is making the case that the EDF board, which, with others, produces 70% of France’s electricity from nuclear power, is incompetent. Is it his position that the board of Hitachi is equally incompetent, given that it is also planning to build nuclear power stations in Britain, or has it not got as far as the SNP in its analysis of the practicality of the whole thing?

[George Kerevan]

I cavil at the word “incompetent”. The board’s decision has become politically charged. That is the point. The UK Government are desperate to continue with the project because everything is hitched to it and because it keeps the cost of building Hinkley C theoretically off the books—although it cannot remain so in the long run—and the French Government are committed to it because EDF is in a major financial crisis and they want to protect its reputation and give it a chance to grow out of its problems. If we make such decisions political, however, we make bad decisions—that is my point. It is strange that I have to lecture the Conservative Government on that.

Some of the senior management of EDF, knowing the difficulties, want to delay and want to get the funding in place. It was because the chief officer wanted the funding in place that they got rid of him. How can that be so? Aside from politics and differences on nuclear power, cannot the Government and the Department of Energy and Climate Change see the problems that they are getting themselves into? All they come back with is “It will be all right on the night”.

[Ms Ritchie]

What does the hon. Gentleman think of the fact that the French project in Flamanville and the Norwegian projects have hit construction problems?

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[George Kerevan]

Both the Flamanville reactor and the reactor in Finland have run into trouble. The EPR reactor was designed to be super safe, but it involved loading technology on top of technology, with the result that it has to be built in situ. It cannot be built, as other reactor models can, in the factory with bits getting moved in. Building in situ means that each and every single EPR has been different and that the economies of scale that were meant to make the projects cost-effective have gone. That is why it is becoming very difficult for EDF to raise the money commercially to do the funding. The technology is questionable, the funding is questionable and there is Government interference.

All I am saying ultimately is that this Parliament needs regular updating in an honest and serious way so that we know where we are. We also need a plan B because this antediluvian and obsolete method of approaching how to fund large-scale and huge energy projects by putting all the eggs in one basket runs a risk. Perhaps because the Government are frightened to own up to that risk, they hide—and if they hide, it just means that the problem will be even greater in the future.