Nuclear Energy (Financing) Bill

Lord Howell of Guildford Excerpts

2nd reading
Monday 21st February 2022 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I declare an interest, as I am advising a company involved in the power construction sector—Mitsubishi Electric—and a long-standing interest as a former Secretary of State for Energy. That was many decades ago, I am afraid, when I tried to get a nuclear power replacement programme going but failed, which is why we are back at the same issue now.

The Bill has excellent intentions and purposes, so I of course welcome it, as does the noble Lord, Lord Rooker, but some questions must be asked and, if not answered here in Parliament, will be asked again and again by investors. Let us be clear: the basic aim of the Bill is to make future nuclear power projects more widely attractive to private capital, such as pension fund money, of which there is plenty around to invest today. With the regulated asset base model, it is eventually consumers, via the licensed suppliers, who will find themselves bearing more of the risk from the start.

There are two key questions which investors, licensed suppliers and consumers will want answered. First, for how many years can consumers be asked to pay this extra levy on top of everything else and carry the risk of all the delays and vast cost overruns so familiar in this industry to date? Of course, the answer depends on what sort of nuclear plant is being financed and “on offer”. The one immediately before us and mentioned in the Bill is Sizewell C: a very large-scale project billed as a “replica” of the only other one being constructed in the UK, which is at Hinkley Point in Somerset. Is it a replica? Perhaps it is technologically, but definitely not financially. That is the reason we are here looking at a new financing model.

At Hinkley, the returns to the two main investors, Électricité de France and China General Nuclear, are due to come through by requiring that electricity produced, when it finally flows, is purchased by wholesale distributors at what looked at the time of the deal to be an enormously inflated “strike price”—although, ironically, it is not that inflated compared with the current soaring electricity prices which we are now suffering. Why will this so-called replica at Sizewell, or other future projects for that matter, look any better? These big plants take 10 to 15 years to get up and running, and it so happens that the history of Hinkley Point C, the evolutionary power reactor—evolutionary it certainly is—is not at all encouraging in that respect. None of its EPR design predecessors is successfully operating, has stayed anywhere near planned construction time or is anywhere near planned budget. Now at Hinkley Point C there is talk of parts having to be totally redesigned and further delays and costs. The reactor plant being constructed jointly by CGN and EDF at Taishan in China was meant to be the poster—the model—for being on time and working, but even that has now been closed for security reasons. As for the prototypes at Okliuoto in Finland or at Flamanville on the Cherbourg peninsula—which I visited some years ago with the noble Viscount, Lord Hanworth—one hardly dares look at their time overruns: years and years late.

Are investors ever going to wait that long for payback? However guaranteed the cash flow from consumer bills during construction—which may, incidentally, have to be jacked up to cope with construction risks—private money will not find that very attractive. Smaller scale, quicker built models, such as the small modular reactor type, or the advanced smaller reactors, are bound to be far more attractive when they can be built in series with lower waste, fabricated at factory level and begin operating and earning in two or three years. That means a much shorter period of risk for consumers paying up in advance and, of course, capital can be lent at cheaper rates because of a quicker return and less risk. That is obvious.

That is the first key decision, or choice, right now in our nuclear fleet replacement programme which confronts Her Majesty’s Government: a programme which has already had its share of setbacks. Do we plug on with these mammoths at Wylfa, Moorside, Oldbury and Sizewell or turn all our efforts to small and more advanced nuclear power plants? I appreciate that this is a choice the Government would rather not make.

There is a second and really awkward issue to be resolved; namely, how to deal with the Chinese involvement. There is not time in the allocated five minutes to go into detail, but 10 years ago the mood was to welcome everything Chinese and give them a central role in our nuclear replacement programme, and now the mood has swung 180 degrees. There will be little private investment attraction at all at Sizewell until all that is sorted out, even if the EPR design could be assured of working, which none of its predecessors is yet doing.

For this Bill to work and for the RAB model to function, there will have to be a major change of strategy here. Low-carbon nuclear replacement is vital for security, for climate, for cheap green hydrogen and to avoid the kinds of energy bill explosions we are suffering right now. This Bill should help get us back on the right track—eventually—but there are these key decisions to be taken before we can be anything like sure of that.