Brexit: Energy Security (European Union Committee Report)

Viscount Hanworth Excerpts

Wednesday 6th June 2018 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, I will deal with only one or two aspects of energy security. The present state of the electricity supply industry in the UK has been determined by two major and virtually contemporaneous events: the discovery and exploitation of North Sea gas, and the privatisation of the industry. These events have determined both the predominant technology of the electricity supply industry and the means by which it markets its output.

Prior to privatisation, generating capacity was provided predominantly by large coal-fired power stations. The last of these to be constructed was the massive Drax power station, which was commissioned in 1987. This was shortly before the passage of the Electricity Act 1989, which prepared for the privatisation of the electricity industry in Great Britain. The privatised industry was no longer capable of large capital investments on the scale of the Drax power station, nor was there any possibility of the industry pursuing nuclear power generation; instead, the new generating capacity was provided, almost exclusively, by combined-cycle gas turbine plants fuelled by North Sea gas.

The fact that private enterprise was able to provide the new infrastructure of our electricity generating industry seemed to confirm the opinion of Conservative Governments that the private sector could be relied upon to provide much of the social and industrial infrastructure that had hitherto been the responsibility of central government. Latterly, that opinion seems to have been confirmed by the manner in which private industry has financed and constructed most of the renewable generating capacity in this country. However, by relying on private enterprise to provide the infrastructure, we have allowed both a dearth and an imbalance to affect our generating capacity.

Soon we shall be facing a severe shortfall in our capacity for baseload generation, which is a necessary adjunct to our increasing reliance on intermittent renewable generation. To provide for our electricity in the future while pursuing a policy of decarbonisation, we need to build new nuclear power plants. So far, the only nuclear power station under construction in the UK is at Hinkley Point in Somerset. The Government have been unwilling to provide the necessary funding. It has therefore incurred the exorbitant costs of private finance, at a time when the interest rates associated with government borrowing have been at an all-time low.

In consequence of the privatisation of the industry, the UK has led the way in devising flexible and innovative ways of marketing electricity via a system of futures markets. This is relied upon to equate the supply with a demand that varies in annual, weekly and daily cycles. Our system of energy markets has been adopted by the European Union. It is ironic that, in pursuing the Brexit agenda, we will be divorcing ourselves from a European internal energy market—IEM—that has been largely a product of our own endeavours. Our committee’s report makes it clear that there will be significant disadvantages if we cannot remain part of the IEM. It instances the circumstances of Norway and Switzerland, which are constrained to abide by the rules of the IEM without having any influence over its policies.

I turn to some issues that have arisen out of what has been described as one of the most outstanding of the self-inflicted injuries of Brexit: the decision to withdraw from the European Atomic Energy Community —Euratom, as it is commonly called. The decision to withdraw has given rise to the Nuclear Safeguards Bill. Euratom has provided much more for us than an inspection regime for ensuring that radioactive material does not fall into the wrong hands. It governs the supply of fuel and all the nuclear engineering materials and equipment that come to us from abroad. It facilitates international exchanges of personnel trained in nuclear technology. It governs the acquisition and supply of medical radioactive isotopes. It funds an extensive nuclear research and development programme, including the programme for nuclear fusion.

Euratom, which predates the Common Market, was established in 1957, and exists largely independently of the European Union. However, in a speech of 17 January 2017, Theresa May declared that she would not countenance,

“anything that leaves us half-in, half-out”,

of the European Union. Since the European Court of Justice plays a marginal role in its affairs, Euratom was judged to be half-in, half-out of the European Union and, therefore, an organisation that the UK was bound to leave.

On leaving Euratom, the functions of nuclear safeguarding will have to be assumed by the Office for Nuclear Regulation—ONR—which is the UK’s nuclear regulatory agency. To have all the necessary facilities in place by March 2019 will be impossible, and it is doubtful whether other nuclear nations would be convinced of the adequacy of our provisions, as they must be if we are to continue to co-operate with them. There have been fears on the part of the nuclear industry that unless the status of the ONR as a viable safeguarding authority can be ratified by the date of our formal departure from the EU, and unless all the necessary nuclear co-operation agreements with overseas suppliers of nuclear fuel and materials are in place, we shall have to close down our nuclear power plants. However, today we have passed an amendment to the Nuclear Safeguards Bill that will enable the Government to approach the European Council with a plea to be allowed to remain under the auspices of Euratom if the necessary arrangements are not in place in good time. The Government have simply reworded a Lords amendment that was passed on Report on that Bill in the face of their opposition.

I turn to the matter of our access to the skilled labour that will be required for the various nuclear infrastructure projects that are either mooted or already under way. It is vital that these projects should proceed in a timely manner if we are to have an electricity supply industry that meets our needs while fulfilling the objectives of decarbonisation. I am told that the Government are carefully considering a range of options for the future immigration system and will set out initial plans in the coming months. This is where the difficulty lies. We have no idea as yet of the sorts of allowances that will be offered to the industry in respect of the EU and non-EU nationals whom they might wish to recruit.

I am aware that the Government have received strong representations from some of the companies involved in projects for new nuclear power stations. The most prominent of these is EDF, which has repeatedly reminded the Government of the skills shortages that it will face in connection with the construction of the Hinkley Point C nuclear power station. The limitation in the supply of civil engineering workers, including welders, steel fixers and concrete pourers, is a particular concern of EDF. These are the kinds of workers who are liable to be excluded by an immigration policy that gives priority to so-called tier 1 immigrants of “exceptional talent” who possess high-level professional or academic qualifications.

I should also mention the concerns of Rolls-Royce, which is engaged in a project for the construction of small modular nuclear reactors. It continues to await a long-delayed decision from the Government regarding the outcome of a competition to identify the reactor of best value for the UK. There may come a point soon when the company can no longer sustain its project in the face of the continuing uncertainties. Rolls-Royce is committed to training a native nuclear workforce but should it walk away from this project, which is quite likely, Britain will lose much of its nuclear engineering competence.