Nuclear Energy (Financing) Bill (Second sitting)

Virginia Crosbie Excerpts

Committee stage
Tuesday 16th November 2021 Public Bill Committees

[The Chair]

Thank you very much. Are there any questions for these witnesses? I call Virginia Crosbie.

[Virginia Crosbie (Ynys Môn) (Con)]

Q I welcome our witnesses. There has been a lot of talk about the impact on consumers of CfD versus the RAB financing model, particularly with respect to large nuclear projects, which often face construction delays and overruns. What is the difference between the impacts of RAB financing and of CfD on consumers?

Chris Ball: We talk about the RAB model, from the numbers that I have heard, probably putting about £1 on to consumer bills on a monthly pay-in. To put that into the context of some of the price increases that we have seen through the energy sector over recent weeks, we are probably talking about an 80% increase from some of the figures that I have seen. I have been looking at this with elderly relatives as well.

When you look at the RAB model in terms of the impact on consumers, there is a cost associated with that—of course there is. It is very limited compared with many other models, and we have to take the long-term view in the energy sector. That is something that the energy sector has been sadly lacking for many, many years. We have to take that 2050 view. It represents very good value for money in the big scheme of things.

Alan Woods: We welcome any model that helps the deployment of new nuclear. From a Rolls-Royce SMR perspective, if we were to deliver our power plant under a RAB, we estimate that it would be capable of getting in the order of £35 a megawatt-hour, whereas a CfD mechanism would be in the order of £60 a megawatt-hour. That is the different that we would forecast.

In terms of one against the other, it comes down to a question of risk. Our whole programme is designed to eliminate risk, particularly construction and build risk, and to move away from what we would call a one-off infrastructure project to a factory-repeatable product that means we can build certainty into the design. We believe that we can use the CfD mechanism for our plants. We believe that we can raise the private capital to fund that, and that is something that we will be exploring in the coming weeks and months.

Dawn James: The way that I look at this, large gigawatt-scale nuclear power stations require a huge up-front investment. Under the CfD model, looking fundamentally at the costs over time, there are a huge number of hidden costs associated with financing these projects, and those costs over time will essentially all be passed on to the consumer.

Under the RAB model, by driving down the uncertainties associated with financing costs because of risk, we are able to actually—

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[Dr Whitehead]

So that is the window, essentially?

Chris Ball: Yes.

[Virginia Crosbie]

Q If there was no RAB nuclear financing model, what would that mean for our energy security, delivering net zero by 2050 and our dependence on overseas investment?

Alan Woods: Chris made the point earlier that net zero is such an enormous challenge. We often think about decarbonisation in the context of the grid, but the grid in the UK in particular represents about 20% of the total energy we use. The rest of it is heat and transport. As we look to decarbonise heat and transport, there are not that many routes available, certainly in some of them. Hydrogen is one, synthetic fuels is one and of course more electrification, but the common denominator among all of those is that you need more clean electricity. The scale is enormous. We therefore welcome any financing mechanism that will help any industry, not just the nuclear industry, bring forward those clean technologies, because the reality is that we have to have them if we are going to meet net zero.

The implications if we are not innovative with how we approach financing both in nuclear but also in other industries mean that we become dependent on other sources of technologies—imported technologies financed from overseas, which bring with them the whole dependency on other nations for our critical energy infrastructure. Increasing that dependency puts our ability to meet net zero at more and more risk.

Chris Ball: I will take a step back here. Earlier, I mentioned that there is a need for about 9 GW a year of construction to take place each year for the next 30 years. We need to find a way of building everything we possibly can in a way that is most cost-effective for the consumer. In every single area, there will be challenges for us to overcome.

People talk about offshore wind at £40 per megawatt-hour strike price. Actually, when it comes to the last two offshore wind farms—one up in East Anglia and one in Hornsea—one was at about £120 and one at £140 a megawatt-hour initial strike price. I recognise that offshore wind prices have been coming down; that is because of consistent underpinning Government policy. We have to replicate that in each and every one of these areas.

Just because offshore wind prices have come down, does not mean that they will continue to do that; they will reach a plateau and companies will start to go to deeper waters and floating offshore wind prices will pick up. We are also judging things on an old-fashioned measure of the levelised cost of electricity, but for renewables we need to start building in the cost of energy storage as well. That does not come cheap. There is a lot of talk about hydrogen, but that requires a lot of power. For every electron that goes into generating hydrogen, we might get 0.3 electrons back out again; it is not a one for one. That is quite often lost in the debate. Actually, I am a supporter of all these technologies; what I am saying is that we need to look at how we manage those risks.

Net zero will not be achieved without nuclear. From an engineering perspective, the system requires firm power on the grid. The RAB model is a good way of driving forward large-scale nuclear for the benefit of the consumer. Look at the levelised cost of electricity at, let us say, £40 per megawatt-hour for wind, noting my earlier comment, and add the storage costs; if you compare that with nuclear and the RAB model, the prices are very similar. Obviously, Alan also knows the SMR nuclear market very well and would say that, yes, it is similar there.

It worries me that if we do not find a way of pushing all these technologies forward, including carbon capture and sequestration and the technical challenges around that, the risk of failure for the 2050 net zero system is very high.

[The Chair]

Q Dawn, did you want to answer next?

Dawn James: Yes, please. There is a risk of not having financing models for UK electricity prices. We have seen some evidence of it this year. Earlier this summer, the wind was not blowing—I know it is a trite phrase, but it is so true—and the sun was not shining very much. We were having to fire up gas plants and to bring coal plants back on to meet the needs that we had then and to use our current fleet of nuclear power stations that, as I said before, had come offline.

Not having the financing model so that we have control of our energy supply here in the UK would mean that we would be held hostage by other nations. We have seen what has happened with gas prices. I am sure that you have heard all these arguments from other people; maybe it has even been quite emotional. It is a huge risk to every type of taxpayer in this country if we do not take control of our electricity generation, and not just from a net zero point of view. But actually, we will not achieve what we need to from a net zero point of view without nuclear.

Cameron Gilmour: I can reinforce that. Our baseload generation comes to the end of its life in this decade; if we do not replace that and add to it, we will not continue our net zero ambitions with the current technologies on the table.

Dawn made a really good point about security of supply. We have seen what has happened to gas prices over the last few months. Baseload nuclear gives us confidence around pricing and supply. It is very complementary with renewables as well, with a mixed system of gigawatts, SMRs and future technologies being very complementary with all the renewables that we have on the grid and planned.

[Virginia Crosbie]

Q In the 1950s and ’60s, the UK used to lead the nuclear sector on the global stage. When people across the world look at us they say that we have all the pieces of the jigsaw: we have the fuel; we have the large reactors; we have decommissioning; we have the supply chain. They are looking at us to put all those pieces of the jigsaw together to make that jigsaw puzzle. Is the RAB nuclear financing model the one piece of the puzzle that is missing so that we in the UK can once again compete on the global nuclear stage?

Chris Ball: I would observe that it is about making sure that companies come together as one, and that there is leadership in the industry. If a RAB model supports and encourages that, fantastic. Looking at nuclear nations around the world, those that have been successful in the decades since—the 2000s and ’90s onwards—we tend to find a clear industry lead. Sometimes that is the operator, and sometimes it is a reactor vendor, behind which everyone else is corralled. It is probably that leadership that we used to have in the UK in decades gone by, and behind which everyone corrals, that has aided a successful industry, particularly in overseas exports. That is the piece that is missing at the moment, but that does not mean that industry should not come together and do something about it itself. It probably should, and I include myself in that comment. If RAB encourages that, all the better, but that is an observation that I would make.

Alan Woods: I would say that for us to be seen as a global leader in nuclear again we need to own the technology as a nation. We need to own the intellectual property; we need to export it; we need to be the country that other countries come to when they are thinking about wanting to deploy and exploit nuclear solutions in their home markets. I think that we will get there. With SMR, we will definitely get there. I think that that is what differentiates us.

You only need to read the news—there is an awful lot of noise around SMRs. There are a lot of vendors out there, and there is a lot of confusion about what is near-term and what are future technologies. I can speak at first hand, as I was in the Czech Republic yesterday, and they said that there is one thing that differentiates us. They believe that we can and will do it—and that is not true for everyone they look at. Having our own technology, coupled with the heritage that we have as a nation, we can and will grow back our position of being seen as a global leader in nuclear technologies around the world, without a doubt.

Dawn James: I think your question, Virginia, is about the magic key to unlocking or getting back to that fabulous heritage that we have in the nuclear industry. At this moment in time, yes, it is, and we really welcome the legislation that is moving forward. I cannot begin to tell you how excited I am finally to see my industry moving forward at pace. I started in the nuclear industry when Sizewell B was commissioned—at the back end of the construction of the last power station in the UK—yet we still have a really thriving nuclear industry. This is the key to unlocking and creating an industry that will thrive for many years to come.

Cameron Gilmour: A couple of points. I think that it is probably a question for the developers about gigawatt plants—could they raise the capital required without RAB? Probably the answer is no. There is a bigger issue at stake, which is sustaining the advantages in the ’60s and ’70s that Virginia talked about, and being able to have a new build programme that is both gigawatt and SMRs—EMRs in due course. That helps us to sustain expertise and knowledge, and help people with the careers that Dawn and I have had, for apprentices and for graduates in modern history. Without that funding we do not have a programme, and without a programme we do not have an industry with a future.

[Anthony Browne]

Q Chris, I want to pick up on something that you said earlier. You talked about needing—my words, not yours—every tool in the tool box, or every weapon in the armoury, to get to net zero. You have mentioned carbon capture and storage a couple of times. That is not within the scope of the Bill, but I wondered whether you thought that the RAB model would be suitable for carbon capture and storage, and whether the Bill could possibly be widened so that it applied to things other than nuclear.

Chris Ball: Again, that is probably not my area of expertise. The way I have looked at this is to look at every technology, and where the challenge is around enabling mass deployment of that technology. With CCS at this point in time, the key issue is not necessarily about the financing but about how the market is going to be structured and the quality of demonstrator projects.

There are different models, of course, but if you believe some of the modelling out there, we would need to capture and sequester within the UK four times the current world capacity. That is not without its challenges. So in answer to your question, I would suspect that, of course, it can be applied to that, but I actually think there are other key focus areas that need some attention to start that market moving—not least the deployment of demonstrator projects in the near term hopefully as well.

[Virginia Crosbie]

Q There has rightly been a lot of talk today about the cost to consumers and the nuclear fleet mentality. Is the reality not that RAB will facilitate a fleet of nuclear, which will in turn be good news for the consumer?

Chris Ball: I think that is absolutely right, if you look at the RAB modelling. You have got to look at this from the concept of managing risk. How do we manage risk in the best possible way? You manage that risk through commonality and through ensuring that capability remains within the industry. We might deploy that commonality as pressurised water reactors. It might be a fleet of a couple of different designs, for instance, instead of one. From a risk perspective, it starts to consolidate down to a smaller number of different designs, with a level of commonality, where we can really drive risk and take the lessons from more projects to the next as well.

Alan Woods: A fleet clearly drives cost benefits. That is absolutely true of SMRs, despite the fact that they are factory produced anyway. We need that throughput in the factories. I would go back to the point I raised at the start. We welcome RAB. It is a mechanism that helps reduce cost of capital, but from our perspective we see there are alternative mechanisms, such as leaning on the CfD mechanism, and pace is important for us. We need to start thinking about delivering this fleet now, and that is what we are doing. Therefore, we have to look at mechanisms that are available for us now. We believe we can do this from a CfD to start with.

Dawn James: A fleet approach, without a shadow of doubt, drives down costs to the consumer by driving up our ability to replicate and driving in lessons learned from one station to the next. That security of work allows us to develop our workforce and to bring more people in. The more people you bring in at the bottom end, the more you drive down your costs, because you can spread the workforce across a number of different projects. It drives down costs in so many ways that, ultimately, that does get passed on to the consumer.

Cameron Gilmour: Yes, I agree with that. I will just bring a people angle to this as well. When I talk to some of the amazing, talented young apprentices and people in our business and we talk about this exciting future, there is no question that, without RAB, we will not have that opportunity to create that future for them, which would be a huge waste of talent. RAB is the enabler to getting that certainty and continuity for that next generation.

[The Chair]

Thank you. If there are no further questions from Members, I thank the witnesses for their evidence. I am sorry about some of the technical issues that we have had—that happens. We can move on to the next panel.

Examination of witnesses

Tom Thackeray, Tom Greatrex and Rebecca Groundwater gave evidence.

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[Matthew Pennycook]

Q My second question is on the total amount of nuclear capacity we require going forward. I am quite clear in my own mind that the Bill is primarily about Sizewell C, but we have had talk of nuclear fleets, SMRs and what might come forward in years and decades to come. Do any of you challenge the Climate Change Committee’s central scenario of its balance pathway, which is that we need 10 GW total nuclear capacity by 2035, and 8 GW of new build. If you take Sizewell B and C and Hinkley, we are talking about a remaining gap of 1.6 GW to 2.5 GW. Do you work on that assumption? Do you think it should be higher or lower? I am trying to get the sense, beyond Sizewell C, of what this funding model might be used for.

Tom Thackeray: I think we are comfortable that the Climate Change Committee’s analysis in the balance pathway is a reasonable assumption. We think nuclear will be a strong part of the energy mix in the years ahead. Obviously, we will need a much bigger electricity capacity up to 2050. As we learn more about the process and the cost of technology starts to drop, there might be slight adjusting of those assumptions in years ahead, but at the moment we do not diverge markedly from what the CCC has said.

Rebecca Groundwater: We are aligned with the CCC report. I have nothing further to add.

Tom Greatrex: It is important to underline that the CCC scenario is for 2035 and towards the sixth carbon budget. I think it is broadly in the right area. The 2050 net zero modelling that was published alongside the energy White Paper has a broader range to 2050. We have to bear in mind, looking beyond 2035 towards 2050 and net zero overall, that the overall proportion of our energy that will come from electricity will be high. It is reasonable to assume that we will be beyond 10 GW by 2050, although 10 GW by 2035 is probably the right ballpark figure.

[Virginia Crosbie]

Q What more do you need to see from the UK Government to get us back into leading in this critical sector on the global stage? We have had the energy White Paper, the Prime Minister’s 10-point plan and the net zero strategy announced by the energy Secretary a few years ago. We have the RAB nuclear financing model and we had a good presence from nuclear at COP26 in Glasgow. What more do we need?

Rebecca Groundwater: I would go back to that stability and the pipeline of opportunities that are viable. The supply chain is ready and equipped with the people, skills and capability. It is world class. We have a brilliant energy sector here in the UK. In the market forces piece, it is unclear which one will take the lead out of all the technologies. It has caused uncertainty, and that is not what the supply chain needs. When we talk about the supply chain, we are talking about the breadth of it. Each organisation has different needs, but they need that investment piece; they need to know where to upskill and when; they need to know the timescales.

That is why this legislation going through quite quickly is helpful, because it showcases that decisions can be made now to drive forward investment in what is needed. That ongoing dialogue and conversation—the message, “This is serious, and we’re taking it forward,”—will give that stability and the ability to the financial markets to come in. We know they are talking about the sustainability goals and we know that parts of the supply chain are struggling with how to implement them and what that will mean for them, depending on their size. That wider conversation now needs to start to break down a little, so that we are looking at how that impacts each of the different sectors. That way, we can drive it forward and bring it all together.

Tom Greatrex: All the things you mentioned have been important, significant and welcome for the sector over the last period. This legislation is key, as I mentioned previously. As for what else we need, we know that development of the taxonomy is ongoing—the Treasury has an expert group leading on that. It is important that the taxonomy is objective and avoids some of the mess the Europe-level taxonomy has managed to get into, in terms of setting a framework for investment in infrastructure that will contribute to a low-carbon future and to net zero. The requirement will be to pace delivery of agreements, to enable projects to go forward—for example, negotiations are ongoing between EDF and Government on Sizewell C, although that goes beyond the scope of the Bill, and with others on the SMR programme; last week’s announcement was very welcome. A number of things are in the purview of Government to deliver—siting, for example. We need all those things to happen. If I were to characterise what is needed in one phrase, it would be: an appropriate sense of urgency, given the urgent situation of our current and future power mix requirements.

Tom Thackeray: I would echo many of the points the others made: detailing objective, sustainable finance taxonomy for the UK including nuclear will be really important over the next few years. More holistically, there is the extent to which the Government can build out their export and skills strategy, taking advantage of the technology developments we are making in a lot of the clean areas. I have a slight concern, not in the nuclear sector but potentially in other green economy areas, that there will be a squeeze on the labour market, with multiple industries going after the same labour pools, which will probably put a brake on our capacity. We need to think really strategically about some of that stuff.

You invited general comments about the 10-point plan. In some areas, there is a need to detail the routes to market for things like the hydrogen economy. That goes back the points the other Tom made about pace of delivery and urgency. However, having just come back from Glasgow, I think it really hit home how far advanced the UK is in some of these plans compared with others. We can always ask for more, but I think we are genuinely world leading in a lot of these areas.

[Virginia Crosbie]

Q There has been a lot of talk today about our domestic energy market, but Tom Thackeray and Rebecca both mentioned export. What does the RAB model mean for our ability to export our technology? What would that mean for the steel sector in the UK, for example?

Tom Thackeray: I think it will be a huge opportunity, particularly if we generate those fleet opportunities in the year ahead. One of the great risks of not moving ahead with the RAB model straightaway is that you lose supply chain capacity, you lose innovation, and you lose the skills you have in the supply chain. There is a fantastic opportunity to build out an industrial strategy approach around the supply chain that we built up through Hinkley and will continue through Sizewell C, and to look at how we can use that in international markets as well. In addition to that, we have the exciting developments around small modular reactors, where UK-developed technology is exciting clients around the world. That will obviously be a huge part of the UK’s potential in the years ahead.

Rebecca Groundwater: I agree. I think this helps to anchor the UK as a model on which the expert piece really comes into play. We have been mapping where the proposed capacity is coming from, looking at new build projects from 2021 to 2080. With the RAB model, if this goes ahead and everything falls into place, we will be one of the top investors in nuclear. That allows us to then export that to the other countries that are coming up behind us. If you want, I can pass on the data that we have from our members on the international market piece.

Tom Greatrex: I underline the point that this mechanism will enable projects to happen. When projects happen, you have a supply chain that is engaged. Just think about some of the announcements made in the run-up to and in Glasgow over the last couple of weeks from other places—France, Canada, the USA and Japan—in terms of restarting. There is a whole load of potential opportunities there. If the UK is ahead on developing and delivering through its supply chain, those export opportunities become real. I echo the point that the other Tom made: if we leave it and do not do it, the danger is that those opportunities will be lost.

[Virginia Crosbie]

Q May I ask one more question? In terms of the RAB model, what does this mean for our dependence on overseas investment? We are dependent on EDF and the French, and on CGN and China. What does RAB mean in terms of us being much more financially independent here in the UK?

Tom Greatrex: There is a distinction to be made between the technology. Sizewell C is obviously effectively a Franco-German technology by origin, and the amount of UK content in the supply chain at Hinkley is about 65%. That is likely to increase if Sizewell goes ahead. One of the opportunities that a RAB model opens up is interest from a greater pool of investors because of the way in which the returns will accrue. People will have mentioned, I am sure, long-term infrastructure investors, pension funds and various others, who use and have used RAB models in other infrastructure that they have been investors in, and have made it clear that they are interested in potentially doing that with nuclear. It broadens the scope of investment, which may then have some impact in terms of where some of the other financial stakeholders that you alluded to in your question are.

Rebecca Groundwater: Some of our members feel that the RAB model provides more opportunity for the UK supply chain content to increase. With investment coming in, there may be greater options for the supply chain.

Tom Thackeray: I echo the points already made, and note that we have a great history of private investment in infrastructure. Deployment of the RAB in other infrastructure assets has been hugely successful, and the examples are well known. That means that we have a mature investor base here in the UK, who are looking at other opportunities to spend their money. The opportunity to invest in environmental, social and governance is growing. Providing that opportunity in nuclear through the RAB model is a welcome next step.