New Nuclear Power

Iain Wright Excerpts

Thursday 7th February 2013 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

I welcome the Backbench Business Committee’s decision to select this important subject for debate, and I come to the debate from two distinct but somewhat interrelated perspectives. I will speak in a moment about the general economic competitiveness of our nation and a need for nuclear to be part of our energy mix to help with that competitiveness, but the first point I wish to make is a constituency one.

Hartlepool has had a nuclear power station for about 30 years. It is currently operated by EDF Energy and it generates about 2% of Britain’s energy requirements. More than 500 people are employed at the station in my constituency; it provides highly skilled, well-paid jobs, and those wages are then pumped back into the local economy. In the past couple of years, the station has had its operational life extended to 2018-19. There is the scope for Hartlepool to have a replacement power station, but we are in the second wave of such replacements and any replacement would not be expected to be operational until 2025 at the earliest.

I am passionately for the idea of a replacement power station, as the commissioning of such a station would provide a much needed short-term and long-term boost for my local economy. Tees Valley Unlimited has estimated that such a new nuclear build in my constituency would generate 12,000 construction jobs, as well as a net increase of more than 5,000 jobs in operations and 1,000 in manufacturing. Given that Hartlepool has one of the highest levels of unemployment, particularly youth unemployment—one in four young men is not in employment or training—the prospect of a long-term well-paid secure job in building and running a new power station is very attractive for school leavers. The Teesside sub-region has a number of major players in the nuclear supply chain, such as AMEC and Aker Solutions, so the wider north-east economy would also benefit.

I am very concerned—this is my second point—for the economy of my constituency and the general competitiveness of our country. I am concerned that we will see a gap between current stations going offline and their replacements becoming operational. In Hartlepool, we will see a gap of about five or six years at best, meaning that we will find it difficult to avoid power cuts and brownouts. That will not help us in the global economic competitiveness race and it will not help consumers in this country.

In such circumstances, it is vital that our argument is not so much about subsidy as about clarity and stability in policy to provide investors with as much confidence as possible so that they invest in the long term. However, the only thing that seems to be clear is that have we no clear strategy on nuclear energy.

The hon. Member for Cheltenham (Martin Horwood) mentioned Centrica’s decision not to invest in the UK nuclear sector. The company believed that returning half a billion pounds to their shareholders was a better use of its money. I was reading the Lex column in the Financial Times this week and it said that Centrica’s decision

“suggests that developing the next generation of nuclear power is too daunting a task for the private sector”.

Given that, according to the Nuclear Energy Agency, some 60% of the total lifetime costs of a nuclear plant must be allocated to investment and construction, investors will be paying out substantial sums of money without seeing returns for the best part of 12 to 15 years. In such circumstances, it is obvious that construction and investment risk must be mitigated as much as possible and to that end investors need to be reassured that long-term stable agreements will be put in place.

[Martin Horwood]

The explanation that Centrica gave was not that there was insufficient public support—that was expected, as the contract for difference negotiations are ongoing—but that there would be escalating costs and a worsening prospect of a return on investment because of the history of plants going over budget and over time.

[Mr Wright]

The hon. Gentleman mentions contracts for difference and he also did so in his speech. That is my major criticism of the Government, because when people are thinking about investing for 40 or 50 years it is important that we try to mitigate the risks as much as possible. That is presumably the rationale behind contracts for difference.

As I have said, I have a power station in my constituency and want another one, but we still have great uncertainty about how CFDs will operate, including about the length of contracts, how contracts will be allocated or paid for and the process for setting the reference and strike prices. In such circumstances, investors who want to invest for the long term are naturally jittery. In its report on planning for economic infrastructure last month, the National Audit Office identified policy uncertainty as a key risk, concluding that such uncertainty

“could result in project sponsors, lenders and contractors deferring or abandoning UK projects in favour of opportunities elsewhere. Financing charges for projects may rise as investors and lenders perceive policy uncertainty as a risk.”

That certainly seems to have happened in the nuclear sector, with the loss in recent years of E.ON, RWE and SSE, and now Centrica.

I mentioned that I was reading the Lex column in the Financial Times this week, and it concluded:

“low-carbon nuclear must be part of the global energy mix. If governments want to attract private capital, they must be more realistic about pricing, cost and regulation.”

That is as true for the UK sector as it is for the global energy mix.

[David Mowat]

I agree with just about everything the hon. Gentleman has said and would make the point that Hartlepool puts more into the grid than the entire onshore wind sector in this country. He is correct to make his points about up-front investment, but does he agree that the CFD structure, with a strike price lower than that agreed for wind, is the best way of achieving that?

[Mr Wright]

Let me make two points in response. The hon. Member for Cheltenham said that in many respects this is an either/or game and that we choose nuclear or renewables. In my area, which has a long and proud history of engineering, manufacturing and energy production, it is not an either/or game. We can have a fantastic offshore wind-processing facility in my constituency, where we have a great supply chain, as well as having nuclear. We can have a ready supply of school leavers to go into the energy engineering sector. I want the Tees valley to be a centre of excellence for energy.

The second point made by the hon. Member for Warrington South (David Mowat) is valid and goes back to what I was saying earlier. Investors are unclear about what is going on and there is no stability with CFDs. As the investment time scale lasts 40 years with up-front costs, that must be addressed.

The Government must act in a more focused way than they have in the past to provide clarity to investors for the long term. If we do not have that, our competitiveness as a modern economy and our ability to attract large-scale financing for such projects will be undermined still further. We will not be able to keep the lights on and stay competitive as a nation if the Government maintain their current approach and that is why I hope that they will address the risks today.