Nuclear Energy (Financing) Bill

Viscount Trenchard Excerpts

2nd reading
Monday 21st February 2022 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I declare my interests as a consultant to the Japan Bank for International Cooperation and as a member of the advisory board of Penultimate Power UK Limited.

I welcome this Bill, which adds to the range of financing structures available for nuclear power station projects. Construction of gigawatt-sized nuclear reactors involves enormous investments in excess of £20 billion, with very long periods before revenues begin to accrue. The nuclear sector deal of June 2018 set out an ambition to reduce capital costs by 30% by 2030. This Bill should facilitate a reduction in the cost of capital for such projects. As Humphrey Cadoux-Hudson, managing director of EDF UK, explains, out of Hinkley Point C’s contract-for-difference price of £92.50, only £12 to £13 was the cost of construction. Operation and waste management represented another £25, and the rest is the cost of finance.

The RAB model is already established in the UK as a way of financing large infrastructure projects. There were around £160 billion worth of RAB assets in the country in 2018, such as Thames tideway, a £4.2 billion project whose weighted average cost of capital will be 2.5% until completion of construction and testing. That compares with around 9% for Hinkley Point C, which is borne by consumers.

The RAB model increases the options for financing nuclear projects and supports the Government’s recognition of the essential role that firm baseload nuclear power must play in meeting both our rapidly increasing demand for electricity and our much bigger need for low-carbon industrial energy. Many people are not aware that the two are different and that currently only 20% of our total energy consumption is electricity, while 80% is domestic and industrial heat, transport, and industrial processes, which at present are principally supplied by gas. Renewable energy cannot replace fossil-fuelled industrial heat.

As I mentioned in the excellent debate on nuclear power introduced by my noble friend Lord Howell of Guildford on 9 December 2021, there are many reasons why the Government should prioritise any opportunities to collaborate with Japan on nuclear energy, to mitigate the damage caused by the cancellation of the Horizon project and Toshiba’s NuGen project at Sellafield Moorside.

The Government have committed to provide £385 million towards advanced nuclear research and development. I welcome their decision to support Rolls-Royce’s SMR programme. The 10-point plan committed the remaining £175 million to research and development of AMR technologies. My right honourable friend the Energy Minister confirmed on 2 December that the Government had decided to focus on high-temperature gas-cooled reactors as their technology choice moving forwards, with the objective of building a demonstrator by the early 2030s. I suggest that this is too modest an objective. As my noble friend Lord Goodlad said, we do not have the luxury of time.

The HTGR technology developed by the Japan Atomic Energy Agency is based on an early British design, the Dragon reactor, developed at Winfrith in Dorset in 1965. The 21st century version has been licensed and operating in Japan for more than 10 years. It is inherently safe and would complement Rolls-Royce’s SMRs well as HTGRs produce heat up to 950 degrees centigrade and would serve a different but essential sector of the UK economy, such as replacing fossil fuels in industrial processes, manufacturing and the production of green hydrogen. The reactors are much smaller than the relatively large Rolls-Royce SMRs, producing around 50 megawatts thermal or 22 megawatts electrical, ideal for embedding in industrial clusters.

Does my noble friend not agree that the Government are proceeding much too slowly in seeking only to establish a demonstrator? The Japanese Government and JAEA are keen to commercialise this already proven technology in the UK and would welcome ministerial engagement at an early date to discuss how this might be best achieved. The RAB model enabled by the Bill we are debating today will provide increased opportunities to finance smaller nuclear projects as well as very large ones such as Sizewell C.

However, I have reservations about saddling consumers with too much by way of additional levies on their electricity bill. Does the Minister agree that the allocation of risk must be fair, transparent and robustly regulated to protect the consumer if the burden is to be applied through regressive electricity bills rather than general taxation? I look forward to other noble Lords’ contributions and the Minister’s winding-up speech.

Nuclear Energy (Financing) Bill

Viscount Trenchard Excerpts

Committee stage
Tuesday 8th March 2022 Grand Committee

[Lord Howell of Guildford (Con)]

My Lords, we are getting to the important issue—quite rightly raised by the noble Lord, Lord Vaux—of control, the involvement of foreign companies and, behind them, possibly foreign Governments in this vital part of our energy security. There is one thing that I would like to know before the Minister replies. He will remember, as will most of your Lordships, that my right honourable friend Theresa May, back in 2016 after she became Prime Minister, ordered a review of Hinkley Point C, in particular the involvement of Chinese interests in that vast project, which is now going ahead. Everyone got quite agitated at the time. I remember the Chinese ambassador walking around saying, “Has there been a coup? What’s happened? What’s gone wrong? Was the Chancellor of Exchequer not in Beijing the other day agreeing that this was a new golden area of co-operation between China and the United Kingdom and, in the words of Xi Jinping, that there was going to be ‘unlimited’ partnership in all sorts of investments?” The Chinese, along with EDF and the French, were welcomed with open arms to get the Hinkley Point C project off the ground.

After a while, there was a review, which concluded that Hinkley Point C should go ahead, to the great delight of the Chinese. The whole thing was a very good bargain for them: not only did they get involved in Hinkley Point C, but they had a promise of involvement in Sizewell C and, even better for them, a promise of bringing in Hualong technology and managing their own project at Bradwell-on-Sea. This was a great delight and was going to be the poster boy project for the Chinese, as they moved into massive sales of Chinese technology and development, which would go well beyond a GDA for Bradwell into the possibility of building and managing a nuclear power station right at the middle of our system.

The review that Theresa May authorised was thorough and went into considerable detail into the conditions that there should be on the Chinese going forward. I would like to know from the Minister whether those conditions still prevail or whether they have been modified 10 years later, under further pressures, when the public attitude towards Chinese involvement has changed 180 degrees. We have moved from an age of loving everything Chinese to getting rid of everything Chinese. Has there been a change? It would be helpful if he could describe to what extent we have moved on that and to what extent those review conditions of 2016 still prevail.

[Viscount Trenchard (Con)]

My Lords, I agree with the amendments put forward by the noble Lord, Lord Vaux of Harrowden. The noble Baroness, Lady Wilcox, introduced the amendments in the name of the noble Lord, Lord McNicol, extremely impressively, but I agree with the noble Lord, Lord Vaux, that they go too far by effectively excluding all companies owned by foreign powers.

It is a matter of great regret to me that, in collaborating with Japan on nuclear energy, the projects at Wylfa, Ynys Môn, of Hitachi’s Horizon, and at Moorside, Sellafield, of Toshiba, were both cancelled. Perhaps if the Bill before the Committee had already been on the statute book, there would have been a good chance that either or both might have been rescued. If either project had gone ahead, it was expected that one or both of the state-owned banks in Japan—the Japan Bank for International Cooperation, on which I declare my interest as a consultant to that bank, and the Development Bank of Japan—would have provided both or part of the equity and debt for those projects. On the face of it, if the amendments tabled by the noble Lord, Lord McNicol, were enacted, it would be impossible for those banks to participate, which would have killed the projects by another means.

Nuclear Energy (Financing) Bill

Viscount Trenchard Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I rise to oppose this amendment. It is not that I am out of sympathy with the concerns and motives behind it; I am all for any moves that create a more explicit explanation of the real, full value of modern nuclear power and the way in which it is developing. Nevertheless, I oppose the amendment because, if you are talking about value for money, it is wildly unrealistic and out of touch with reality, as the noble Viscount, Lord Hanworth, rightly indicated.

Let us certainly have a good argument about value, but what is the value, first, of national security? What is the value of building up a large chunk of our electricity power for low-carbon reliability in the future when, although we all want to see more wind and sun and so on in the package, we know that any part of a complex energy system can go down or be disrupted at any time? There has to be diversity and a large block of reliable, low-carbon power from modern nuclear, with full provision for taking care of the difficult problems of waste which we discussed in Committee, and all the rest. But there is a value in the national security of having a large section of our power coming from nuclear, ready to come in—at a cost, yes—when the wind does not blow, when there are interruptions in oil or gas supplies, and all the rest, as we are experiencing now, when prices go crazy, when LNG, the frozen gas on which we rely, is beckoned by higher bids from China and turns away from us.

What on earth is the value of having this provision? What is the value of diversity in our system, in having conserved the system which we have now which, alas, is grossly overconcentrated either on renewables, which can go down occasionally, or on gas? We were never meant to have as much gas in our electricity production as we have now. When I was looking after these matters a long time ago—and I should declare my registered interest on that—1% of British electricity came from gas, and Sir Denis Rooke, the then chairman of British Gas, was very opposed to an increase. Now it has gone to the other, mad extreme: we are now at 45% to 50%, and when gas problems go badly wrong internationally, as they have, and we have a sevenfold increase in the gas price, we are hit directly through our gas and electricity prices. So the case for a large chunk of renewable energy through nuclear increases by the day, particularly now that we may get an acceptance that nuclear electricity is green electricity and is approved under ESG rules and so on.

I put it to our Liberal Democrat friends that they must face the issue that there is a value—yes—but it cannot be put into money, because it has to be measured in terms of security, diversity, back-up for wind when the wind does not blow, hydrogen production and a variety of other things. There must be some realism in the stance of great political parties in addressing this issue: that is all I plead for. Therefore, I think this amendment is unrelated to the real needs of our security and our national prosperity, and to the whole helping of the poorest and the most vulnerable in society in the future. It cannot be the right amendment to make.

[Viscount Trenchard (Con)]

My Lords, as acknowledged by the noble Lord, Lord Oates, Amendment 1 was debated in Committee. And, as acknowledged by the noble Viscount, Lord Hanworth, just now, I also thought that my noble friend Lord Howell explained very well, both in Committee and today, that value for money is totally subjective. The judgments that have to be made will, of course, take account of the financial plans for projects. I thought that the noble Baroness, Lady Worthington, was spot on in referring to Switzerland, whose electricity grid depends almost entirely on hydro and nuclear. It is hard to put a price on the huge value that energy security gives that country.

Amendment 3, in the names of the noble Lords, Lord Oates and Lord Stunell, is unnecessary, because the Secretary of State will clearly consider this point in assessing any applicant company under the designation process. Furthermore, Ofgem is bound to protect consumer interests as part of the consultation process. I recognise that electricity bills are already rising exponentially, and I expressed concern in Committee that payments under the RAB model will further increase the subsidies that consumers are required to pay. The solution here is to reduce the subsidies paid to renewables projects, to provide a more even balance between support for those sectors and support for the nuclear sector, which has been left out in the cold until very recently.

As for Amendment 10, in the name of the noble Lord, Lord Oates, and others, I fear that the costs of administering such a complicated exemption would far outweigh any possible benefits to the particular groups of people concerned. Besides, there are other groups facing difficulty in meeting higher electricity bills, such as pensioners, who are seriously disadvantaged by the suspension of the triple lock. The best way to assist the people whom noble Lords who put their names to this amendment seek to assist is to enable a stable, well-funded energy mix, including a significant amount of nuclear, both large gigawatt plants and smaller, more flexible SMRs and AMRs. On the latter, the Government are trying to reinvent the wheel and are moving much too slowly in the case of JAEA’s HTGR technology, which has been operating for 10 years and is inherently safe.

I hope that the Prime Minister’s much greater enthusiasm for nuclear, revealed in recent weeks, will lead to rapid changes to the very cautious current plans of BEIS, in three phases, merely to establish a demonstration by the early 2030s. We need this technology yesterday, and we should be rolling it out commercially before the end of the decade. The Times reported last week that Ministers are exploring the creation of a state-owned nuclear company that would take stakes in future nuclear projects, to reduce our reliance on foreign energy. That is very welcome. What a pity it is that such a company was not in existence before Hitachi made the decision to cancel the Horizon project in September 2020.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I speak in favour of Amendments 1 and 3 in the name of the noble Lord, Lord Oates, and in favour of Amendment 10, also in his name and to which I have attached my name.

Speaking for the first time on Report on the Bill, I am getting something of a sense of déjà vu. I do not know whether the ministerial Front Bench has brought its snacks this time, but it can sit and watch the show as we see enthusiasm from both Labour and Tory Benches for new nuclear power.

It is interesting to go back to the Explanatory Notes. The policy background that explains the purpose of this Bill is

“a clean energy system that is reliable and affordable for energy consumers”.

These three amendments particularly address that last point—although the comments of the noble Lord, Lord Howell, on reliability were also interesting. The words that he used were interesting: “decentralised”, “security” and “stability”. Why put all your eggs in a few large baskets rather than into an extremely decentralised system of renewables, storage and, particularly, energy conservation? That is a genuinely diverse and secure supply. Ask the Japanese about what happened after Fukushima, and they will tell you that, if nuclear goes wrong, you can lose the lot—and then you have a very large problem, as the Japanese did.

With regard to security and affordability, there is an interesting letter in the Financial Times this morning, headed:

“Arguing for more nuclear power was wrong then too”,


from Andrew Warren, chair of the British Energy Efficiency Federation, in Cambridge. It picks up my point that the cleanest, greenest energy that you can possibly have is the energy you do not use. It also comes to the point about value for money and the argument that new nuclear is essential. Mr Warren says that

“back in 2006, when the then Labour government … committed to a ‘family’ of further nuclear power stations”,

it was on the basis that our usage of electricity was going to go up enormously and therefore we needed new nuclear power stations, which of course did not happen. The letter points out:

“UK electricity consumption has in fact gone down by over 15 per cent since 2006. In other words, all that expectation of demand growth which was used to justify new nuclear power stations was grossly exaggerated … by over 30 per cent.”


As Mr Warren notes,

“no new nuclear power stations have been added to the system. The system hasn’t collapsed, and it’s also far less carbon intensive.”

I can imagine that many noble Lords might say at this point, “Well, yes, but we have to electrify transport and home heating”. However, if—to use a word associated with the Prime Minister—we went gung-ho on energy efficiency and a modal shift to walking, cycling and public transport instead of private cars, we could greatly reduce the kind of assumptions that are made. The policy background suggests that the UK electricity supply will need to double and low-carbon sources quadruple by 2050. If we build a different kind of society that needs less power, that is an extremely cost-effective way forward.

To come back to cost effectiveness, I have looked at some figures on this. The Nuclear Industry Association has suggested that the proposed new nuclear plants at Sizewell, Wylfa and Bradwell could come in at £60 per megawatt hour. We have just seen, in the most recent offshore wind projects selected for round 3 of the contract for difference allocations, strike prices as low as £39.65 per megawatt hour. The noble Viscount, Lord Trenchard, referred to concerns about green subsidies. These do not need subsidies because they are cheaper than any other source of power. That is offshore wind, without even coming to the fact that onshore wind, which I am delighted to see the Government now moving towards, is much cheaper again, as indeed is solar.

Of course there is Hinkley Point C, with a £92.50 contract. The nuclear industry says, “Oh, it will all get better eventually”. It is confident about the £60 figure—and we know how confidence about the cost of nuclear power has worked out in the past—and that over the long term it will eventually get to £40, which is what offshore wind is delivering now.

I particularly want to address Amendment 10, as the noble Lord, Lord Oates, did so effectively in introducing this group, to which I have attached my name, and to look at where we are with fuel poverty. From 1 April, 27% of UK households are expected to be in fuel poverty—and that is a watered-down definition of fuel poverty—so that is 6.3 million households. Each year around 10,000 people die prematurely as a result of cold homes. Again with regard to the policy landscape, if we insulated those homes, those people would not die prematurely. It is interesting that the charity National Energy Action notes that this seems to be within the bounds of some perverse statistical acceptability; we just accept it as being normal and continue to go on as we are.

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I hope the Minister can confirm that the Government will take a close look at this and carefully consider whether there is anything we should do to close these gaps, particularly by looking at the circumstances in which we might wish to have the ability to revoke a nuclear generation licence.

[Viscount Trenchard (Con)]

My Lords, the noble Lord, Lord McNicol, tabled an amendment similar to Amendment 2 in Committee. The Minister could not accept it because it appeared to rule out EDF as an investor in Hinkley Point C or Sizewell. It also attempted to restrict sourcing of nuclear fuel to domestic producers, which the noble Lord has dropped from his revised amendment. My noble friend explained that the Government do not support investment in our critical infrastructure at the expense of national security, which was good to hear. I ask the Minister to tell your Lordships what progress the Government have made on replacing proposed Chinese investment in Hinkley Point C and Sizewell C.

Amendment 2 is an improvement on the version debated in Committee, but the link to Amendment 6 requires the Secretary of State to establish a list of foreign powers or entities that are barred from involvement in the UK’s civil nuclear sector. Amendment 2 covers nuclear companies owned wholly or in part by a power or entity included on this list, but ownership in part could mean just one share. Surely this amendment should restrict only significant shareholdings; perhaps 5% would be an appropriate trigger.

Furthermore, the requirement on the Secretary of State imposed by Amendment 6 would clearly be massively burdensome, if not impossible. It is quite adequate that the Secretary of State should deal with each application separately and assess the shareholders at the time of application.

I said in Committee that I was inclined to support the amendments in the name of the noble Lord, Lord Vaux of Harrowden, who has experience in these matters and always takes a well-considered view. He has persisted in seeking more safeguards in the Bill by bringing back his amendments, but now aligned with the generally accepted definition of “persons of significant control” of UK companies. Those are usually persons holding more than 25% of the shares in a company or having the right to appoint a majority of the board of directors.

The noble Lord, Lord Vaux, is also surely right in his purpose in tabling Amendments 7 and 8 that designated nuclear companies should promptly notify the Secretary of State of any change in persons of significant control. However, I am not sure that it is necessary to state this explicitly in the Bill, and there could well be cases where the Government welcome changes in the shareholding structure of nuclear companies. As my noble friend explained to your Lordships in Committee, the Secretary of State may attach any conditions he deems appropriate to the designation of a nuclear company, and I believe that this will give him the flexibility to make whatever stipulations he needs to with regard to the balance of shareholdings in such a company.

The noble Lord, Lord Vaux, made some further good points today, although I must say that I consider his suggestion that a Chinese company might take a 51% stake in a Japanese company to be very unlikely, based on my experience of working in the Japanese stock exchange. Nevertheless, I look forward to the Minister’s reply to those points.

[Lord Oates (LD)]

My Lords, this group addresses the foreign ownership and transparency issues which we have just heard about, and it includes the amendment in my name and that my noble friend Lord Stunell, on transparency issues.

I very much support the compelling arguments made by the noble Lord, Lord Vaux, and I hope that the Minister will be able to address them. I was also pleased in Committee to support the amendment in the name of the noble Lord, Lord McNicol. He has brought back one that addresses the concerns that were raised in Committee, and he will certainly have the support of the Liberal Democrats. I think it fair to say that Peers on all sides of the House are concerned about the foreign ownership issue, so I hope the Minister can give us some comfort on this. However, if he cannot accept the amendment and if the noble Lord, Lord McNicol, chooses to divide the House, he will have our support.

Amendment 9, in my name and that of my noble friend Lord Stunell, deals with transparency. As drafted, Clause 13(2)(a) allows the Secretary of State to withhold any material which they believe would

“prejudice the commercial interests of any person”.

As I said in Committee, this is an enormously wide loophole which does not take any account of the degree of prejudice to the public interest of withholding that disclosure. Surely it is only proper in order to ensure effective public scrutiny that Ministers are not able to hide information behind claims of prejudice to commercial interests through wide loopholes such as this. These projects are being funded by the public and they have the right to know all relevant material, except in exceptional circumstances.

We already know how reluctant the Government and their agencies are to provide information on costs which is overwhelmingly in the public interest, but it goes wider than that. I note that in a reply to a Written Question from the noble Lord, Lord Alton, about meetings between Ministers and the China General Nuclear Power Group, the response was that no minutes were kept of that meeting. I am not clear whether that is within the Ministerial Code, but it goes to show that there is a reluctance to share information here.

The record of transparency in nuclear affairs is poor. This amendment would require the Secretary of State, if he withholds information, to make it clear that it was seriously prejudicial to commercial interest and to set out to Parliament his reasons for withholding it. I hope that the Minister can address those issues in his response.

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[Viscount Trenchard (Con)]

My Lords, I wish to speak in support of Amendment 12, ably proposed by the noble Lord, Lord Ravensdale, and my noble friend Lady Neville-Rolfe. I tried to put my name to it on Tuesday but, because the Marshalled List was printed on Tuesday, it does not appear.

I do not think I need to repeat the arguments that have already been explained, but I want to ask the Minister how quickly the Government can take action to correct the situation in which nuclear projects are excluded from green financing. It was surprising and deeply disappointing that when the Treasury published the UK Government Green Financing Framework in June last year, nuclear projects were specifically excluded. Page 18 of the document states:

“Recognising that many sustainable investors have exclusionary criteria in place around nuclear energy, the UK Government will not finance any nuclear energy-related expenditures under the Framework.”


Does my noble friend not agree that this exclusion sent entirely the wrong signal to the market? The whole point is that “sustainable investors”, as the paper describes them, take their lead from the Government, which influences their ESG policies. Is it not now a matter of some urgency to withdraw this framework and replace it with one that rightly includes nuclear so that this damaging market distortion is removed?

Even the EU, despite continuing opposition from Germany, introduced a Complementary Climate Delegated Act on 2 February. The objective of the EU taxonomy is to step up the transition away from fossil fuels by drawing on all possible solutions to help the union reach its climate goals. The Commission has acknowledged that there is a role for private investment in gas and nuclear activities in the transition. It still does not acknowledge a continuing significant role for nuclear in a climate-neutral future, which it still maintains will be mostly based on renewable energy sources. The technical screening criteria contained in the EU delegated Act and the equivalent regulation referred to in the amendment are still concerned with transition to net zero rather than what is at least as important: to secure the continued supply of energy and electricity that rely on reliable sources of firm baseload power, such as nuclear, which are not dependent on whether the sun shines or the wind blows.

As for Amendments 13 and 14, the noble Baroness, Lady Bennett, exaggerates the nuclear waste issue. My noble friend Lady Bloomfield explained in Committee that the Energy Act 2008 already requires nuclear projects to have in place a funded decommissioning programme. Besides this, as your Lordships are aware, progress is being made in identifying suitable sites for geological disposal facilities.

I remind the noble Baroness that all the used nuclear fuel ever produced in the world since the 1950s would fit into one football pitch to the height of approximately 10 yards, so I do not think the trains she talked about will have very many wagons. Has she ever expressed any concern about the massive costs and energy requirement that will be incurred in disposing of millions of wind turbines and solar panels when they reach the end of their operational lives? Furthermore, France and some other countries reprocess and recycle nuclear fuel, which can make it even more productive. Some advanced reactor technologies are designed to run on used fuel. Happily, the noble Baroness has said she will not move her Amendments 13 and 14, which is good news, but if she had I would have voted against them.

[Lord Oates (LD)]

My Lords, I am happy to give Amendment 11, in the name of the noble Lord, Lord McNicol, the support of these Benches. It is particularly important given the failures of the early cost recovery model in the United States. Whatever one’s view of nuclear energy, we really do not want to end up spending more than $20 billion, like they did, and getting no new nuclear plants at all. South Carolina in particular spent $9 billion before Westinghouse went bankrupt. If we are to go ahead with this, we certainly need to ensure that it delivers something at the end of it.

On Amendment 12, I will not go into the detailed debate about the taxonomy issue. The one thing I will say, in the context of the amendments from the noble Baroness, Lady Bennett of Manor Castle, is that whether or not nuclear is regarded as a sustainable means of producing energy, it is certainly not clean. It produces significant amounts of waste that have to be dealt with. Nearly 70 years after our first nuclear plant came online, there has been a scandalous failure to provide a permanent solution. We heard from the noble Viscount, Lord Trenchard, that discussions are ongoing about the geological disposal facility. I am sure we will hear more from the Minister on that. This has been going on for years and years and there is no permanent solution.

I note that the noble Baroness, Lady Bennett, is not going to move her amendments. We certainly discussed this in some detail in Committee so I will not dwell on it further, but the nuclear industry’s failure to take its responsibilities seriously in this way is notable. Indeed, until the Nuclear Decommissioning Authority was set up there was no national plan to deal with waste at all. It has done a great job trying to quantify the level of the situation—of course, we have seen bills and disposal costs go up and up year on year—but it is a really important point and I am grateful to the noble Baroness for bringing her amendments to the attention of the House.