Nuclear Energy (Financing) Bill

Lord Callanan Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank all noble Lords who have contributed to the debate. There was a certain element of déjà vu about it from the discussions in Committee. In particular, the noble Baroness, Lady Bennett, rehearsed her well-documented and faintly nonsensical views. She will be pleased to know that I will resist the temptation to tackle them again as we did in Committee, not least because it was done fairly expertly by my noble friends Lord Howell and Lord Trenchard, the noble Baroness, Lady Worthington, and the noble Viscount, Lord Hanworth, who made some very good points. If I would leave her with one word in response it would be “intermittency”, which is the key argument against her point.

Starting with Amendments 1 and 3, I remind noble Lords that designation is only one step in a rigorous process to ensure that a potential nuclear RAB project is sufficiently scrutinised, evaluated and subject to all relevant approvals prior to a final investment decision. As discussed in Committee, we have set out a transparent designation process which requires the Secretary of State, at the point of designation, to be of the opinion that designation is likely to result in value for money. This process requires the Secretary of State to draft reasons for designation and to consult on those reasons with consultees as set out in the Bill. Importantly, as my noble friend Lord Trenchard reminded us, they will include Ofgem, which, as per its principal objective to protect the interests of existing and future consumers, will ensure that consumer impacts are fully considered at the point of designation.

I reassure noble Lords that the Bill requires the final designation notice to be made publicly available. It will include the reasons for designation, which will incorporate details of the value-for-money assessment made to support the designation decision. We would expect that a value-for-money assessment at this stage would consider the potential impact of designation on consumers, using all relevant information available at the time.

However, as per my previous comment, designation is only one of a number of approvals that will mature our understanding of a project’s costs, alongside intensive negotiations. I feel therefore that Amendment 3, tabled by the noble Lords, Lord Oates and Lord Stunell, perhaps comes too prematurely in the overall process of approving a project to receive the benefit of the RAB funding model.

It is important that we retain our flexibility in how we negotiate with different project companies that are designated for the purposes of the RAB model. We can therefore commit that, at the point of directing a revenue collection counterparty to offer to enter into a revenue collection contract with a designated nuclear company, the Secretary of State will publish a value-for-money assessment of the project and its impact on consumers, along with all the appropriate documentation, save for information which the Secretary of State considers would be likely to prejudice someone’s commercial interests or would be contrary to the interests of national security. I can confirm that this would mean that value-for-money considerations would be published at two key points in the approval process: both when designating a project company in its final designation notice, as I outlined previously, and once the outcome of negotiations and market engagement have been reflected in project costs. I am not sure that even two value-for-money assessments would convince the Liberal Democrats of the value of this, but nevertheless I am prepared to give it a go.

On Amendment 10, I will begin by slightly correcting the figures used by the noble Lord, Lord McNicol. I value the noble Lord’s support for the principles of the Bill and Labour’s support for new nuclear. I think that the noble Lord used the figures of £1 to £2 per week for this model. Our estimate is closer to £1 per month. This will obviously depend on the negotiations, but it is not quite as drastic as the noble Lord implied.

I understand and share the desire from noble Lords to protect vulnerable consumers. Of course, we all want to do that. The Government agree on the importance of supporting low-income households, particularly at this time of high energy prices. I will remind noble Lords of the commitments which we have made to supporting households to meet the costs of energy bills. This includes the energy bills rebate scheme, worth a total of £9.1 billion and covering a £150 non-repayable rebate for households in England in council tax bands A to D, as well as an additional £144 million of discretionary funding for billing authorities to support households that are in need but do not meet the council tax criteria. This is in addition to the actions we are taking through the warm homes discount, cold weather payments and the household support fund, which the Chancellor announced yesterday will be doubled to £1 billion from April this year. All of these are aimed at providing immediate support for vulnerable households.

Over the longer term, we are helping to lower energy prices by supporting increases in energy efficiency through the energy company obligation, the sustainable warmth programme, the local authority delivery scheme and the home upgrade grant. I know that the noble Baroness, Lady Bennett, does not want to be reminded of this, but the Government are spending considerable funds, of up to £6.6 billion in this Parliament, on energy efficiency schemes. To that extent, I agree with the noble Baroness that energy efficiency is a good thing to do, and indeed we are doing it. Noble Lords will see from this programme that the Government take the support of low-income households at this time incredibly seriously. However, it is our strong view that this challenge is best tackled holistically.

On the specifics of Amendment 10, as my noble friend Lord Trenchard said, the RAB model charges suppliers rather than consumers. The amendment means that suppliers could be required to pay their full share of the RAB charges but not pass the cost down to consumers on universal credit. Suppliers would be very unlikely to meet those costs themselves. Instead, they would most likely spread the additional charge among other consumers who are not exempt, placing addition burden on, for example, low-income households and those who were not on benefits. The amendment would also create a substantial administrative burden, as suppliers would need to accurately identify and verify benefits recipients—information which could be difficult for them to access. Again, it is likely that they would choose to pass the administrative costs of this on to other consumers, including other vulnerable groups, such as pensioners.

I also have concerns about the compatibility of the amendment with a scheme which, if implemented, could last for many decades over the life of nuclear projects. For instance, the amendment specifically references universal credit and “any legacy benefits”, and it is likely that alternative benefits will be brought forward during this period. Referring to universal credit on the face of the Bill would result in updates to the legislation being needed whenever changes to the existing benefits system were made. I hope that noble Lords will accept that this would clearly be impractical.

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[Lord Oates (LD)]

My Lords, this group addresses the foreign ownership and transparency issues which we have just heard about, and it includes the amendment in my name and that my noble friend Lord Stunell, on transparency issues.

I very much support the compelling arguments made by the noble Lord, Lord Vaux, and I hope that the Minister will be able to address them. I was also pleased in Committee to support the amendment in the name of the noble Lord, Lord McNicol. He has brought back one that addresses the concerns that were raised in Committee, and he will certainly have the support of the Liberal Democrats. I think it fair to say that Peers on all sides of the House are concerned about the foreign ownership issue, so I hope the Minister can give us some comfort on this. However, if he cannot accept the amendment and if the noble Lord, Lord McNicol, chooses to divide the House, he will have our support.

Amendment 9, in my name and that of my noble friend Lord Stunell, deals with transparency. As drafted, Clause 13(2)(a) allows the Secretary of State to withhold any material which they believe would

“prejudice the commercial interests of any person”.

As I said in Committee, this is an enormously wide loophole which does not take any account of the degree of prejudice to the public interest of withholding that disclosure. Surely it is only proper in order to ensure effective public scrutiny that Ministers are not able to hide information behind claims of prejudice to commercial interests through wide loopholes such as this. These projects are being funded by the public and they have the right to know all relevant material, except in exceptional circumstances.

We already know how reluctant the Government and their agencies are to provide information on costs which is overwhelmingly in the public interest, but it goes wider than that. I note that in a reply to a Written Question from the noble Lord, Lord Alton, about meetings between Ministers and the China General Nuclear Power Group, the response was that no minutes were kept of that meeting. I am not clear whether that is within the Ministerial Code, but it goes to show that there is a reluctance to share information here.

The record of transparency in nuclear affairs is poor. This amendment would require the Secretary of State, if he withholds information, to make it clear that it was seriously prejudicial to commercial interest and to set out to Parliament his reasons for withholding it. I hope that the Minister can address those issues in his response.

[Lord Callanan (Con)]

My Lords, I thank all noble Lords for their contributions to the debates. As all the amendments in this group, tabled by the noble Lords, Lord McNicol, Lord Vaux, Lord Oates and Lord Stunell, are linked, I will address them together.

I start with those tabled by the noble Lord, Lord McNicol. As the noble Lord has described, the amendments seek to create an obligation for the Secretary of State to bring forward a list of foreign powers and entities that should not be allowed to invest in nuclear projects, and to use this as the basis for a new designation criteria under the Bill. I appreciate the sentiment behind the amendment but, as the noble Lord will understand, I cannot agree to it for a number of reasons. The amendment is too broad; it does not specify the range of companies that it could cover or the reasons that a foreign power or entity could be included on a list, and the excluded activities are extremely wide—all participation in all projects. This is an extremely broad-brush approach which could severely affect our ability to bring in finance and to deliver new nuclear projects. We would expect the amendment to have a chilling effect on investment, ultimately leading to a higher cost for consumers.

In addition, I am concerned about the further impacts of the amendment. In the noble Lord’s explanation of the amendment, he mentions that the list should act

“in a similar way to the Financial Action Task Force’s list of high-risk countries.”

However, the main focus of that list is to encourage enhanced due diligence in respect of these countries, rather than to provide an outright ban as this amendment seeks to do.

There is also an inconsistency between the amendment to Clause 2 and the proposed new insertion after Clause 3. While Clause 2 is targeted at preventing listed entities from having full or partial ownership of a nuclear company under the RAB model, the proposed new clause discusses barring entities’ involvement in the whole civil nuclear sector. If this wider approach were taken, it could limit our options for international co-operation on this sensitive issue, including obtaining technical advice.

By highlighting these problems, I do not suggest that I disagree with the sentiments behind the amendments. Indeed, as the noble Lord will know from the numerous discussions that I have had with him, the Government know that the protection of our national security must be the top priority. The Government already have strong oversight of foreign ownership in nuclear projects as a result of the NSI Act 2021, as the noble Lord, Lord Vaux, reminded us, which includes the ability to call in for assessment any qualifying acquisition if the Secretary of State reasonably suspects that it may give rise to national security concerns.

Importantly, certain acquisitions of entities operating in the civil nuclear sector require mandatory notification and clearance before the acquisition can be completed. This is set out in Schedule 4 to the notifiable acquisition regulations made under the Act, which specifically include entities which hold, or are in the process of applying for, a nuclear site licence or development consent under the Planning Act 2008 in relation to a nuclear reactor.

To provide an illustrative example, this means that if a new entity wanted to acquire over 25% of the shares in a nuclear project company, this would have to be notified to the Secretary of State and could not be completed until, or if, the Secretary of State agreed it. Indeed, the Secretary of State could require that the transaction was not progressed, assuming the relevant tests in the Act were satisfied. If the acquisition was completed without first being approved by the Secretary of State, or in breach of an order from the Secretary of State, it would be void and not legally effective.

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[Lord Oates (LD)]

My Lords, I am happy to give Amendment 11, in the name of the noble Lord, Lord McNicol, the support of these Benches. It is particularly important given the failures of the early cost recovery model in the United States. Whatever one’s view of nuclear energy, we really do not want to end up spending more than $20 billion, like they did, and getting no new nuclear plants at all. South Carolina in particular spent $9 billion before Westinghouse went bankrupt. If we are to go ahead with this, we certainly need to ensure that it delivers something at the end of it.

On Amendment 12, I will not go into the detailed debate about the taxonomy issue. The one thing I will say, in the context of the amendments from the noble Baroness, Lady Bennett of Manor Castle, is that whether or not nuclear is regarded as a sustainable means of producing energy, it is certainly not clean. It produces significant amounts of waste that have to be dealt with. Nearly 70 years after our first nuclear plant came online, there has been a scandalous failure to provide a permanent solution. We heard from the noble Viscount, Lord Trenchard, that discussions are ongoing about the geological disposal facility. I am sure we will hear more from the Minister on that. This has been going on for years and years and there is no permanent solution.

I note that the noble Baroness, Lady Bennett, is not going to move her amendments. We certainly discussed this in some detail in Committee so I will not dwell on it further, but the nuclear industry’s failure to take its responsibilities seriously in this way is notable. Indeed, until the Nuclear Decommissioning Authority was set up there was no national plan to deal with waste at all. It has done a great job trying to quantify the level of the situation—of course, we have seen bills and disposal costs go up and up year on year—but it is a really important point and I am grateful to the noble Baroness for bringing her amendments to the attention of the House.

[Lord Callanan (Con)]

I thank noble Lords for their contributions to what will hopefully be the final grouping on this Bill. I thank all the hardy souls who have lasted throughout the Committee and Report stages to get to this final stage.

Let me start with Amendment Neville—you can tell it is the final stage; the amendment of the noble Lord, Lord McNicol, is what I should have said. Why did I say that? In my mind, they sounded the same: Lord McNicol and Amendment 11.

Let me state to the noble Lord that I share his ambition to maximise the chances that a nuclear RAB project will commence or continue generation in the unlikely event of an insolvency, therefore preventing sunk consumer costs. It is for this very reason that we have introduced a special administration regime for nuclear RAB projects, with the aim of ensuring that consumers reap the benefits of the low-carbon electricity generated from a nuclear power station which they helped to build. In light of Amendment 11, I consider that it would be helpful to provide the noble Lord with a clear explanation as to the exit routes available to a special administrator under this legislation, and how these would not impinge on the ability to bring a nuclear power station under public control, if that is in the best interests of consumers and taxpayers.

Let me first reaffirm that special administration is a court-administered process and a nuclear administrator would be an officer of the court. It is the nuclear administrator, under the supervision of the court, who would be tasked with exploring all viable options for ensuring that the objectives of the administration are met. This is supported by the Secretary of State, who is able to provide funding and does have options for bringing the administration to an end in certain circumstances, as I will now explain.

The first route available to the administrator is that the company is rescued as a going concern. This is the preferred option for achieving the objective, save in certain circumstances, and would ensure that normal service was resumed and the plant would continue construction or generation. If this is the case and the objective can be achieved, then the Secretary of State, Ofgem or the administrator may then apply to the courts to end the special administration order.

Should this not be feasible, the administrator’s second option would be to seek to transfer the company’s assets and liabilities to a privately or publicly owned company or companies. This is called an energy transfer scheme and is provided for by Schedule 21 to the Energy Act 2004, as applied by Clause 33 of the Bill. While the Secretary of State must approve an energy transfer scheme, the court retains overall responsibility for the process as it appoints the time from which a scheme would take effect.

It is considered that, as the nuclear administrator will need to achieve the objective of the administration order as quickly and efficiently as possible, in practice this may mean that an energy transfer scheme is explored immediately if this is the most viable means to achieve the objective of the administration. This may be supported by the Secretary of State where, amongst other matters, it is in the public interest.

Should neither of the options I mentioned be possible or in the best interests of taxpayers or consumers, Section 40 of the Energy Act 2004 would establish the option of a nuclear transfer scheme. This is subject to approval from Her Majesty’s Treasury and is intended to deal with circumstances where, for example, during the plant’s operational phase, for reasons of public safety or to minimise the costs to the taxpayer, the Nuclear Decommissioning Authority is given responsibility for decommissioning the plant.