Martin Horwood
Main Page: Martin Horwood (Liberal Democrat - Cheltenham)(11 years, 3 months ago)
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Martin Horwood (Cheltenham) (LD)
I beg to move,
That this House notes that both the Coalition Agreement and numerous ministerial statements have committed the Government to provide no public subsidy to new nuclear; further notes that negotiations are currently ongoing between the Department of Energy and Climate Change and new nuclear suppliers to fix the strike price in advance of the legislation on energy market reform; is concerned by wider issues of subsidy and transparency and in particular that this process pre-empts the legislation; is further concerned that new evidence suggests that this constitutes an unjustifiable subsidy to a mature industry; and therefore calls on the Government to pause the process so that the Public Accounts Committee can examine whether the contract for difference being offered for new nuclear power generation offers genuine value for money.
I thank the Backbench Business Committee for generously allowing time for this debate. This motion is not about whether nuclear power is a good thing in principle; nor is it about whether the Government’s whole energy policy is on the right track. For the record, I think it is. My right hon. Friend the Secretary of State—he has just taken his seat—should be congratulated on the green deal, the world’s first green investment bank, the carbon floor price and most of the energy market reforms contained in the Energy Bill, as should his predecessor. It may be a bit optimistic to say this now, but I hope that Chris Huhne’s time in this House will be remembered for the great work he did in shaping a greener future for the UK.
The Department has chosen a particular method for locking in green investment: the contract for difference. Contracts for difference are normally a kind of bet on future asset prices that might be expected to carry some kind of health warning, to the effect that those participating in them could lose a significant amount of money. In this case, of course, the potential loss is to British energy bill payers, as the contracts for difference will effectively guarantee a certain price for energy generated from particular sources even if the market price falls lower than that price. The difference will not then be paid by us as taxpayers, but as energy consumers through our electricity bills.
I would still say, so far, so good. There are a number of justifications for contracts for difference—for taking that risk on behalf of energy consumers—in the case of renewables and carbon capture and storage, and not just because they are low carbon. First, these are new technologies, at least at scale, that represent a significant risk to investors precisely because they are new and still emerging. Investors in such a market need significant reassurance and reduced risk, and contracts for difference can do just that by promising predictable revenue streams which will in turn make it easier and cheaper for energy generators or CCS developers to secure finance. In the longer run, encouraging renewables will also help consumers, because the cost of renewable generation is on an historic downward trend, unlike fossil fuels or nuclear. Once established, renewables and CCS should provide a cheaper and more diverse range of energy supplies that will make British energy supply much more resilient in the face of fluctuating global energy prices.
The second reason why renewables and CCS need this kind of price-based support is that they include many new and diverse technologies: from good old hydroelectric to onshore and offshore wind; from geothermal to heat exchangers in the air and in the oceans; from photovoltaics to concentrated solar power; from tidal flow turbines to barrages, tidal fences, tidal lagoons and wave power; from biogas and biomass to anaerobic digestion and more exotic forms of energy from waste, such as gas plasma. We might even one day be able to add artificial photosynthesis and who knows what else to that list. Government should not pick winners from among these myriad emerging technologies, let alone the various suppliers and developers. Price-based contracts for difference, properly negotiated, offer a means by which technologies and developers can be supported, but still be incentivised to keep on reducing costs and become more competitive.
David Mowat (Warrington South) (Con)
I am listening very carefully to my hon. Friend’s argument as to why contracts for difference should apply to those technologies and not nuclear. He says that Government should not be choosing winners and losers, and I agree. Does he therefore think that the contract for difference price—the strike price—should be the same for all the technologies he has just listed?
Martin Horwood
Clearly not, because in the case of onshore wind, for example, there are many competitive developers developing different varieties of technology. It is a competitive market still, in a way that nuclear, as I shall explain, is not.
The goal, of course, is to provide clean, sustainable and cheap energy while meeting challenging but critically important greenhouse gas reduction targets. Do these contracts for difference represent a subsidy? Well, as the Treasury has confirmed to me in a written answer, yes, of course they do. Every energy bill payer is a taxpayer in their time off; but subsidy is justified for renewables, for all the reasons I have given. However, would it not be extraordinary if into this exciting, young, diverse and competitive energy market, a 56-year-old freeloader—a tailgater, a leftover from another era—tried to slip unnoticed and pick up all the same kinds of advantages and support? Would it not be even more extraordinary if that old freeloader was not even represented by a diversity of competitive companies, but just one or two; and more extraordinary still if the most significant of those turned out to be the state-nationalised energy supplier of another country, already subsidised by its own taxpayers?
That is precisely what is happening with the nuclear industry, and what is more, the level of support—the precise contract for difference and the strike price for specific energy sources—is being negotiated behind closed doors as we speak, before the relevant legislation has even passed through this House. The details are set to be revealed to us only after the event—after the deal has been sealed.
Martin Horwood
I first give way to my hon. Friend the Member for Richmond Park (Zac Goldsmith).
Zac Goldsmith
I hate to jump in front of the Chair of the Environmental Audit Committee, but I am pleased to be allowed to intervene. Only a couple of days ago, EDF issued a warning, effectively, to the Government that unless they guaranteed it profitability—or words to that effect—it would follow Centrica’s lead and abandon nuclear in the UK altogether. If that is not a request for a subsidy, it is hard to imagine what is.
Martin Horwood
The hon. Gentleman is exactly right. In fact, the energy chief executive of Electricité de France, Vincent de Rivaz, told the Financial Times:
“the only thing missing is the contract for difference. Once we have that, we’ll have a compelling investment case to attract partners into the project”.
In other words, “If you don’t subsidise us, there is no business case.” Even with the prospect of subsidy, the business case is not that compelling. On Monday, Centrica pulled out of its partnership with EDF, writing off a cool £200 million and launching a share buy-back scheme to return another £500 million of unused capital to its investors. Like RWE and E.ON before it, and like any sane investor in my view, it has decided that it is not going to touch these new nuclear plans with a bargepole.
Joan Walley
I am most grateful to the hon. Gentleman for bringing this debate to the House this afternoon. Let us consider things in the light of what the House decided last week on the importance of the Liaison Committee and the scrutiny that there should be of all Government policies. This is a cross-cutting issue that affects the Public Accounts Committee, the Environmental Audit Committee and the Select Committee on Energy and Climate Change. Given all that, if we are really going to get transparency about what is going into the contracts for difference, so that we can determine whether there is or is not a subsidy, should there not be proper scrutiny by one Select Committee or a combination of Select Committees of this House? That transparency is what the hon. Gentleman is asking for in bringing this issue to the House this afternoon.
Martin Horwood
The signatories to the motion have included the Public Accounts Committee in it, but the hon. Lady makes a good case for perhaps extending that level of scrutiny to her own Committee. Of course because there is commercial sensitivity about some of these negotiations, it would be possible for those Committees to meet in private, as other Committees of this House do when dealing with sensitive subjects.
As I was saying, like RWE and E.ON before it, Centrica has decided that it is not going to touch these new nuclear plans with a bargepole—and it is not hard to see why. I do not know of a nuclear power station anywhere in the world that has been completed on time, on budget and without public subsidy. The new third-generation pressurised water reactors planned for the UK—sometimes called European pressurised reactors or EPRs—are already in deep trouble elsewhere. The Olkiluoto plant in Finland was begun in 2005 and should have gone on line in 2009. The latest estimate is that it will not be generating power before 2015, at least six years late. The first cost estimate was €3.7 billion, but now that has risen to €8 billion. Construction in Flamanville in France began in 2007. The Flamanville facility is now four years late and counting, while the costs have escalated even further and faster than those in Finland, from an original guess of €3.3 billion, according to Le Monde, to the €8.5 billion announced just in December. One French commentator said that this latest announcement undermined the credibility of EPRs as a technology export, and Centrica was obviously listening.
Will anyone take Centrica’s place? EDF is apparently talking to partners it has worked with in China, but I would just warn the Secretary of State that, according to the recent Nuclear Materials Security Index report, China ranks 29th among the group of 32 nuclear nations on nuclear security and materials transparency. Given wider security—
Martin Horwood
I am sorry but I cannot give way because of the time limit.
Given wider security and international relations concerns, it would seem to be worth thinking twice, just as the Americans have recently done, about allowing Chinese companies to take a major stake in any strategically important British energy supply projects.
Hitachi stepped in to replace E.ON and RWE on the other projected new nuclear plants, but Hitachi has only taken an option on UK new build. Its proposed advanced boiling water reactor design is still perhaps some four years from regulatory approval and Hitachi, too, is waiting on the strike price negotiations.
More and more research is questioning the cost-effectiveness of nuclear. The Energy Fair group of energy consultants and academics has stripped out all subsidies and says that the real cost of nuclear power is at least £200 per MWh, which is much more than the cost of offshore wind power at £140 per MWh or that of onshore wind power at less than £90 MWh. If EDF has done similar sums—there have been rumours in the industry of asks as high as £165 per MWh for the strike price—that raises the extraordinary possibility that nuclear power, a mature and not very competitive industry started in 1956, might be asking for a strike price comparable with or even higher than that of the newly emerging wind industry. Frustratingly, even Parliament does not know whether that is the case.
Finally, I come to the rather obvious point that nuclear is a fossil-fuel technology. If the worldwide investment in nuclear continues in China and elsewhere, despite all these risks, the price of uranium also will inevitably rise, making nuclear here even more uneconomic. Nuclear sceptics may have a very unlikely ally in this debate. The Treasury’s levy control framework, which caps the costs that can be added to consumers’ bills, currently specifies a figure of £2.6 billion a year. Tom Burke, writing in The Guardian, cites estimates that the cap would have to rise to £12.5 billion or more to provide 16 GW of nuclear power by 2025. As he says:
“Anyone who thinks that the Treasury will agree to a levy cap this large is dreaming.”
The risk, of course, is that support for nuclear will therefore squeeze out possible support for renewables.
Let me remind hon. Members on both sides of the House that the coalition agreement in May 2010 promised
“the replacement of existing nuclear power stations provided... that they receive no public subsidy.”
Agreed coalition policy was restated by the former Secretary of State in the annual energy statement a few months later:
“new nuclear can go ahead so long as there is no public subsidy.”—[Official Report, 27 July 2010; Vol. 514, c. 868.]
He did not say, “no unfair subsidy” or, “no unjustified subsidy”; he said, “no subsidy whatsoever”.
Liberal Democrats and Greens have long opposed nuclear power. But Conservative Members, with their strong commitment to sound finance and their horror of unjustified subsidies, should be alarmed too, even if they reject Électricité de France’s accusation of jingoism against the hon. Member for Bracknell (Dr Lee), who dared to question the cost-efficiency of adding our own subsidy to that of the French taxpayer. And Labour MPs should remember the mantra that their Government maintained throughout many long hours of debate on their last Energy Bill, which I remember because I was a shadow environment spokesperson; again, the line was, “No public subsidy”.
The request in this motion is modest. It seeks not the instant abandonment—
Margaret Hodge (Barking) (Lab)
I am sorry to intervene on the hon. Gentleman, and I congratulate him on raising very important issues. For the Public Accounts Committee, issues of transparency and subsidy are hugely important. However, the PAC’s remit is to look at contracts after they have been signed; we cannot take away the job of the Government, which is to decide. We will hold contracts rigorously to account, and we are already ready to examine this contract once it has been signed. Will he accept that our role is in ensuring value for money after the Government have decided? We would hope that our inquiry would also inform future Government contracts in relation to nuclear power.
Martin Horwood
The difficulty is that this one may be the main contract for nuclear power, so the suggestion from many non-governmental organisations—not only what we might call the usual suspects, but organisations such as the Consumers Association—is that an independent panel of experts should be convened. That might be an alternative, as the Chair of the PAC has made some reasonable points.
As I said, the request in the motion is modest. It seeks not the instant abandonment of nuclear power, nor the overturning of Government energy policy—far from it. It merely seeks a pause and a referral of the strike price negotiation to the Public Accounts Committee, other Select Committees or an independent panel of experts—such approaches would be equally acceptable. The body can sit in private if issues of commercial sensitivity are involved.
On the face of it, Électricité de France is trying to pull a fast one on British energy bill payers, taking a subsidy designed for clean, green, new, emerging, competitive technologies with falling prices, and claiming it for a 56-year-old industry with precious little competition and a continuing history of spectacular cost overruns, for which we stand to pick up the bill. I ask hon. Members to support the motion.
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.
Paul Flynn
That is a very limited view of the history of the matter, which I will come to. As recently as 2007, however, my party took the view that nuclear was economically unattractive. That was in one of our manifestos. But an event took place in Downing street where there was a PowerPoint presentation to the then Prime Minister that said, “Mr Blair, there’s going to be a gap in our electricity supply because the advanced gas-cooled reactors are going to become obsolete and that will create a problem in a number of years that will have to be solved.” Within a year of the Labour Government changing their policy on nuclear power, having decided that what had been economically unattractive was okay, the life of the AGRs was lengthened and the gap had disappeared. The spin had taken place, and we were seduced into the view that nuclear was inevitable.
All parties, I believe, went into the last election with the promise that nuclear was acceptable if there were no subsidies, but where are we now? There are enormous subsidies. In 2008, I heard a debate in this House about the insurance costs for the Government of nuclear power. The most recent figure that we have for the cost of a nuclear accident is £200 billion for Chernobyl, and the taxpayer would have to pay that.
Martin Horwood
I agree with much of what the hon. Gentleman says, but I must correct him on one thing. He said that all the parties went into the last election supporting nuclear power. The Liberal Democrats did not—we were opposed.
Paul Flynn
I am delighted to be reminded of that. However, I could spend the rest of my speech quoting what the Secretary of State and many other Liberal Democrat Members have said about this. Why has their position changed? As the hon. Gentleman rightly said, they were not in favour of nuclear power; I was suggesting that they went into the election promising no subsidies. The Secretary of State has been attracted by the red boxes or by other considerations, and he has had some kind of ministerial lobotomy whereby he can no longer see what is obvious—that nuclear power, which he never believed in until only two years ago, is a false trail.
Martin Horwood
Obviously I cannot speak on behalf of the Secretary of State, but I remind the hon. Gentleman that when the national policy statement passed through this Chamber, not even Liberal Democrat Ministers voted for it. Under the terms of the coalition agreement—I think we might have had to strike a similar deal with his party—we abstained at that time.
Paul Flynn
I have some hope that the Liberal Democrat party will return to the paths of virtue.
A few hours ago in this Chamber, I asked the Business Secretary a question in which I praised him for what he has done with Greencoat UK by investing money in wind power and urged him to do the same in relation to tidal power. Let me say a few words about tidal power, because it is ignored.
Dr Coffey
I will not give way further on that matter. It would not surprise me if Germany is burning more coal and importing electricity from Poland in the short term.
I welcome the contracts for difference mechanism introduced by the Government. Such contracts will not be exclusive to nuclear but will include all the large-scale, low-carbon elements such as renewables and carbon capture and storage that we require for a reliable mix of energy supplies. I often refer to my constituency not simply as Suffolk Coastal but as the green coast. We have offshore wind at Greater Gabbard and at Galloper, and we will have the East Anglia offshore array. It has been suggested that those wind farms in my constituency could produce 8.2 GW for the country. If that is combined with Sizewell B and the proposed Sizewell C, it is possible that my little bit of Suffolk will generate about a quarter of the nation’s electricity needs. We are truly fizzing in that part of East Anglia.
Crucially, once the Government agree a strike price with the generator that is fair and sustainable, whatever the source of energy might be, the contract will provide stability for consumers and operators alike. The market price will be topped up when below the strike price, but when it is above that level—people do not think that that will happen, but I can see it happening—the generator will have to pay back the difference. The Library suggests that that two-way relationship is a “key advantage” of the Government’s policy. We should recognise that it means the Government can strike a fair deal that runs both ways.
The motion states that there is “new evidence” proving that CFDs amount to a subsidy, but the supposed exposés in the press in recent months are hollow claims. It has been suggested that the Government will secretly funnel money to operators, but they have been clear on their intention to publish the contracts, except where there is a need for commercially sensitive information to be kept private on a very narrow range of points. The Government do not negotiate in public when they are spending money in other areas, and we should not expect them to do so in this case.
Martin Horwood
Does the hon. Lady remember any other occasion on which the House was asked to agree to the Government committing up to £30 billion of taxpayers’ money without public scrutiny?
Dr Coffey
That figure has been mentioned several times, but I do not recognise it. My expectation is that the money is included within the Department of Energy and Climate Change budget or that it has been set aside by the Treasury. I am therefore not sure I agree with the hon. Gentleman’s point. The Government certainly do not get involve in commercial negotiations on similar matters.
Dr Coffey
I will make more progress, but I will give way to the hon. Gentleman if I have time later.
In my view, despite those claims, support for new nuclear is not about subsidy, but about stability. A stable and open regulatory regime is vital to unlocking the potential benefits that energy investment, and particularly nuclear, can bring.
The first-round consultation for Sizewell C closed yesterday in my constituency. If it goes ahead, it will be immensely important for the local economy. It is estimated that new nuclear projects such as Sizewell C could boost our gross domestic product by up to £5 billion and create more than 30,000 jobs. Those will be highly skilled, well paid and high-value jobs. For example, an electrician working in the nuclear industry can probably earn the best part of £40,000 to £50,000, if not £60,000. That is not too different from MPs’ salaries.
Martin Horwood
This has been a tremendous debate and we have aired some important issues about the phenomenal subsidy that might be on the point of being given to Électricité de France. The hon. Member for Hartlepool (Mr Wright) made some important points. We do not agree on much on nuclear policy, but at least he was honest in making a straightforward request for public subsidy. The hon. Member for Newport West (Paul Flynn) and my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) made a powerful case about the sheer scale of the subsidy. We could be talking about £30 billion being transferred over 30 years to Électricité de France, not from the Department, as the hon. Member for Suffolk Coastal (Dr Coffey) seemed to think, but from British householders and businesses. That is an extraordinary level of transfer to be committing to without any real scrutiny.
The Chair of the Public Accounts Committee, the right hon. Member for Barking (Margaret Hodge), and the Chair of the Environmental Audit Committee, the hon. Member for Stoke-on-Trent North (Joan Walley), also made a powerful case for greater scrutiny of that process. I think that those on the Labour Front Bench were going in that direction, although the request that details of the deal should be laid within three days of the event is not much of an improvement on their being laid months later. A miss is as good as a mile, I am afraid.
The hon. Member for Hove (Mike Weatherley) talked about the other hidden subsidies as well as the contracts for difference. They include the unknown liabilities relating to geological storage and disposal, and the £1.2 billion cap on the liability for nuclear accidents when the actual cost of the Fukushima nuclear accident was $250 billion or more. We can say that we have a very good safety record and that we have never had a nuclear accident, but that is what Japan could have said, the day before Fukushima, and it is one of the most technologically advanced countries on the planet.
In the light of some of the technical issues raised by the Chair of the Public Accounts Committee relating to the motion, and of the interest in the next debate on emergency medicine—which I share, as my own emergency department is at some risk—I am content to ask leave to withdraw the motion. I would like to put on record my gratitude for the support of the hon. Members for Hove, for Brighton, Pavilion (Caroline Lucas) and for Newport West, my hon. Friend the Member for Wells (Tessa Munt), my right hon. Friends the Members for Bermondsey and Old Southwark and for Hazel Grove (Andrew Stunell), my hon. Friend the Member for St Ives (Andrew George) and other hon. Members who could not be here today. There will be opportunities as the Energy Bill progresses to revisit these important issues relating to the public subsidy of nuclear power, which have not received sufficient scrutiny and attention, but we have made enormous progress on that front today. I beg to ask leave to withdraw the motion.
Motion, by leave, withdrawn.