Nuclear Energy (Financing) Bill (Second sitting)

Debate between Matthew Pennycook and Alan Whitehead

Committee stage
Tuesday 16th November 2021 Public Bill Committees

[Dr Whitehead]

Thank you.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Q Richard, you have spoken with great insight about the balance between the advantages of the RAB model and the risks that come with it for consumers, and also about how those consumers might be better protected. Will you give the Committee your take on what we have learned from those infrastructure projects that have benefited from a RAB funding model, such as Thames Tideway or Heathrow terminal 5? Was the peak of costs on consumers within the estimated range at the start of the project, leaving aside cost and time overruns? How accurately can you predict the peak cost for consumers and ensure that it comes within a set range, if—as may be the case—amendments to protect consumers are not ultimately adopted? How accurate is the forecasting of the total impact on consumer bills?

Richard Hall: On those two specific projects, Heathrow and Thames Tideway, I cannot give any insight. I am not particularly close to those individual cases. It is fair to note that in both cases the cost of capital brought forward by the model seems to have been low, in particular in the case of Thames Tideway. On nuclear, I simply go back to the point that there is a large base of literature looking at historical cost overruns and the extent to which things come in on budget. That tends to display fairly consistently that these types of projects are very likely to be subject to optimism bias at the time that they are procured—a belief that they will be cheaper than they actually will be.

In addition to the costs and dates I mentioned from the BEIS impact assessment suggesting the average levels of cost overruns, look at a couple of other examples from academia: Sovacool et al. looked at a global example of 180 new nuclear plants and found that 97% of them came in over budget and that the average cost overrun was 117%; and Flyvbjerg et al. found that in a sample of 194 nuclear plants, the median cost overrun was 68% and the median schedule or construction-time overrun was 40%. That is a fairly large sample set of projects, and the analysis tends to suggest considerable optimism bias for new nuclear—it tends to come in late and over budget.