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.