My Lords, the Bill establishes a new funding model for new nuclear projects, known as a regulated asset base—RAB—model. This funding model would allow a company to receive funding from consumers through their energy suppliers in relation to the design, construction, commissioning and operation of a new nuclear project. By using a RAB model, a company’s investors share some of a project’s risks with consumers. This can lower the cost of finance for funding new nuclear plants, which is the main driver of project cost. This could deliver nuclear plants at a lower overall cost to consumers than if we relied on existing funding mechanisms alone.
As the National Audit Office observed in its 2017 report on Hinkley Point C, by using a model such as a RAB, which shares more project risk while providing the developer with a revenue stream, the required return to investors could be lower, resulting in lower project costs overall. As well as introducing a RAB model for nuclear, the Bill takes steps to remove barriers to private investment to further incentivise the development of new nuclear projects in the United Kingdom. These measures will reduce the UK’s reliance on overseas developers for finance and deliver better value for money for consumers. This legislation is vital in getting new nuclear projects off the ground and will help the UK meet its decarbonisation targets. As well as contributing to achieving our net-zero commitments, new nuclear will complement renewable energy to ensure that the UK has a resilient, low-cost, low-carbon electricity system for the long term.
With all but one of the UK’s current nuclear reactors scheduled to close by 2028, representing 85% of our existing nuclear capacity, the need for new nuclear projects is more urgent than ever. The UK was the first country in the world to establish a civil nuclear programme and the sector has a proud history of innovation and of creating high-skilled jobs across the length and breadth of the country. The Bill is an opportunity to boost this vital sector and its supply chain by getting projects off the ground, while supporting the Government’s recent levelling-up White Paper.
With construction of Hinkley Point C under way, the Government are aiming to bring at least one large-scale nuclear project to a final investment decision by the end of this Parliament, subject to value for money and all relevant approvals. The recent spending review provided up to £1.7 billion of direct government funding to support this objective. The Government have also provided further funding to support the development of future nuclear projects, including small modular reactors, led by Rolls-Royce.
This funding has been made available to develop and mature prospective projects. In addition, we need a new funding model that unlocks cost-effective nuclear power. This is the main objective of the legislation before us today. We must harness the potential of private capital to be partners in our nuclear sector and widen the pool of available finance for new projects. This will naturally take us away from reliance on single developers financing new projects at their own risk, something which has contributed to the cancellation of recent projects at Wylfa and Moorside. The effectiveness of the RAB model has been seen in the successful financing of other complex and large infrastructure projects, including the Thames Tideway tunnel and Heathrow terminal 5. With nuclear projects, the RAB model has the potential to bring in new sources of capital at a value for money cost to consumers.
In terms of international comparisons, it is important to stress that there are key differences between the RAB model and projects in the US that used the early cost recovery model. At projects such as those in South Carolina and Georgia, the economic regulatory approach taken was driven by unique company ownership models, which had implications for how costs were passed on to consumers. Other differences include the level of regulatory oversight and how incentives were established for projects to be delivered to cost and on schedule.
There were also several project-specific issues, including the maturity of design work at the start of major construction, the experience of the project supply chain, and the structures in place to manage the project. All potential nuclear projects in the UK will be subject to very rigorous due diligence, including the designation process set out in the Bill, which would mitigate against such issues arising in this country.
The Bill consists of four parts. Two of these establish the RAB model. The others take additional steps to incentivise investment and protect the interests of consumers. The first part of the legislation creates a framework for the implementation of an economic regulatory regime for the RAB model. The regime will be designed to share risk in a way that reduces the cost of financing projects, while incentivising investors to manage project costs and schedules.
This part of the Bill will allow the Secretary of State to designate a nuclear company for the purposes of the RAB model, as long as it meets specific criteria and relevant persons are consulted. The designation criteria require the Secretary of State to be of the opinion that the development of the relevant project is sufficiently advanced to benefit from the RAB model and that designation is likely to result in value for money. Once designation has occurred, the Secretary of State will be able to amend the nuclear company’s electricity generation licence, allowing it to receive a regulated revenue stream to support the design, construction, commissioning and, of course, the eventual operation of the nuclear project.
The second part of the Bill covers how funding will flow to a nuclear company that has been given access to RAB funding. This mechanism draws on the contract for difference model. Ofgem will calculate the nuclear company’s allowed revenue for a given period in accordance with its modified generation licence and how much will need to be collected from electricity suppliers. Suppliers will then pay their appropriate share of this to a counterparty, which will be responsible for passing the total amount on to the nuclear company. This will enable a steady flow of funding between domestic and non-domestic consumers and a nuclear company.
The third part of the Bill introduces a special administration regime, which will come into effect in the unlikely event of a project company’s insolvency. Unlike an ordinary administration, a special administrator must prioritise the commencement or continuation of electricity generation from a nuclear power plant which is benefiting from a RAB model. This seeks to ensure that consumers benefit from the investment they have made through RAB payments in the form of the electricity generation that the project will ultimately provide.
The fourth part of the Bill makes technical clarifications to the regime of funded decommissioning programmes in the Energy Act 2008. The Bill clarifies that entities such as security trustees and secured creditors will not be bodies “associated” with nuclear site operators simply by virtue of holding or exercising certain rights relating to the enforcement of security. This will facilitate these bodies’ involvement in the financing of nuclear projects. This part of the Bill also contains a financial provision that provides an indication to Parliament of the spending that may be incurred under the Bill’s provisions.
Finally, the commencement clause sets out the limited number of provisions in the Bill which are subject to early commencement. This is crucial in ensuring that the Government can bring at least one large-scale nuclear project to final investment decision in this Parliament, subject, as I said earlier, to value for money and all relevant approvals.
I have already touched on a number of the benefits that the Bill provides. As mentioned earlier, this legislation could significantly reduce the cost of financing new nuclear projects and reduce the UK’s reliance on overseas developers for financing new nuclear, while providing low-carbon, reliable energy. Consumers will therefore benefit from lower system costs than if the UK relied solely on intermittent power sources.
More broadly, this legislation also represents a significant opportunity for UK businesses. As Hinkley Point C proves, new nuclear build projects create jobs locally and nationally to support the supply chain and boost economic recovery. The nuclear sector employs approximately 60,000 people, which includes a significant proportion of highly skilled jobs, and the nuclear RAB model will help create thousands more.
In terms of the devolved Administrations, the nuclear RAB regime would extend to England, Wales and Scotland only. We understand that the Scottish Government do not share our position on the need for new nuclear projects. However, this Bill does not alter the current planning approval process for new nuclear projects. In addition, the Secretary of State would need to consult with Scottish Ministers before designating a nuclear company whose proposed project was wholly or partly in Scotland.
I was pleased to see the support expressed for this Bill by numerous MPs from all sides in the House of Commons representing constituencies in Wales. We will continue to work closely with the Welsh Government on options for a future nuclear project at Wylfa, and a RAB model remains an option for financing a nuclear project at this site. I was pleased also to see the support that the Bill got from Her Majesty’s Official Opposition as it passed through the other place. I look forward to further constructive engagement—indeed, we have already commenced it—and co-operation as the Bill proceeds through your Lordships’ House.
At Committee and Report stages in the Commons, there were broadly three key areas of debate. One of the issues raised was the role of foreign investment in the UK’s civil nuclear projects. The Government welcome investment but never at the expense of our national security. We recognise the importance of having appropriate protections and scrutiny in place to ensure that any investment aligns with our core interests. The National Security and Investment Act gives the Government significant oversight of acquisitions of control in a nuclear project. It is also important to note that national security considerations will form part of the wider approvals process.
Another issue raised in the Commons was costs to consumers. We recognise that the rise in global gas prices has increased the cost of energy for households. However, in the medium to long term the Government are clear that new nuclear is crucial to providing consumers with reliable, low-carbon and affordable energy.
The Bill also contains measures that will allow the Government to incentivise project developers to avoid cost overruns, providing protection to consumers prior to the approval of a project, as well as during its construction and operation. Ensuring that a project has matured to a suitable point of development will be a central criterion for approving a project under the RAB model. The Government will submit project proposals to a thorough business case process, and intensive due diligence will take place throughout project negotiations. This due diligence will allow the Government to produce a robust estimate of a project’s cost. Developers will then be incentivised to manage costs and timings effectively, overseen by the economic regulator.
Finally, the other place also had constructive debates around transparency. The Government fully recognise the importance of transparency, which is why the Bill places clear requirements on the Secretary of State to publish information and consult key stakeholders at each stage of the project.
The Government are clear that nuclear energy has a vital role in reducing our reliance on fossil fuels, thereby protecting us from volatile global gas prices. Nuclear power will need to play a significant role in the UK’s future energy mix to ensure reliable, low-cost, low-carbon power as we transition towards net zero. I hope that noble Lords will recognise the exciting opportunity that this Bill represents to further develop the UK’s civil nuclear sector, while stimulating economic growth and job creation in support of the Government’s levelling-up strategies. I beg to move.
My Lords, I strongly support the Bill. I recall some years ago being on a boat on the Thames with Thames Tideway and being briefed about the massive new tunnel. When the financing was explained, I was not alone in asking whether it had been used for any other big infrastructure projects as, frankly, it seemed too good to be true. That sounds simplistic, but the fact is that I was sold, as were others, on the system of finance. An operational nuclear power station is not the same as a tunnel taking sewage away from London, but the cost, infrastructure and quality-of-life implications are very similar. At the end of the day, of course, the consumer will pay. You cannot hide that fact and nobody seeks to do so. But over the next 30 years, the use of electricity in the United Kingdom will double compared to the 2019 figure. The overall use of energy will go down, and we will use a smaller proportion of oil and gas, and, of course, introduce renewables and hydrogen. This this makes electricity absolutely fundamental. We will always need a baseload, and nuclear is the best form.
I do not think you can be taken seriously as a political party in 2022 if you are not in favour of civil nuclear power: it is as simple as that. I do not want to disparage people, but I am reminded of the brown bread and sandals brigade attacking nuclear not on a scientific basis but on an almost mythical, quasi-anti-religious basis, yet it is clean, green and cheap to operate. We know from our regulatory information powers that it is safe. We started it—we invented it—and we used it to make electricity. We cannot do nothing, given that our older Magnox stations will be phased out in a few years. We have to prove that we have learned the lessons from Hinkley Point C. The National Audit Office has given its approval for the use of alternative financing models, hence this Bill.
I want to be brief, and I have just two key points to make. One relates, as the Minister very fairly pointed out, to customers. The Government have to ensure that customers do not pay more than twice. They will pay twice for this, of course—that is the system; it is split—but they do not need to pay three times. Paying for construction and operation is one thing, but they should not pay for aborted projects or massive cost overruns. There has to be something which gives a degree of confidence. The Government have to prove that they have customers’ interests as a top priority, as energy policy requires that customers change their behaviour. We are asking the citizens of this country to massively change their behaviour, and they have to understand why. We know from the pandemic that behaviour will change if people understand why. We have to be transparent and open about this.
My second point concerns security. There is no reason at all why the UK, along with other democratic states, cannot ensure security and stability of nuclear technology and get control of it itself. My view is that there should be no finance from China or Russia at all. They cannot be trusted with commercial contracts these days. I remember someone once telling me, many years ago, that the Soviet Union had never reneged on a commercial contract. We do not have the Soviet Union now; we have Russia, and it is reneging on commercial contracts. Leave the security bit aside, if you will—I am worried about that as well—but it cannot be trusted on commercial contracts, and we are talking here about very long-term commercial contracts.
We started the process. Okay, it never came about that electricity was so cheap that it was not worth recording, but we are in a different age. We will not have coal and gas to fall back on for a quickie. Nuclear is going to take on an importance beyond keeping the lights on, whether it is the small modular reactors or new build.
I do not want to turn the clock back—it was never the “good old days”—but when I left school, you could get an apprenticeship with the Central Electricity Generating Board. What I cannot see today among the 20 or more different organisations is the replacement for that, so that we can upskill and give careers and a future to the people of this country. We have lost that. I would like to believe that this Bill could be one of the most important that the Government introduce. It could actually be a factor in restoring that from a bygone age.
My Lords, first, I declare my interest as a director of Aldustria Ltd, which is an energy storage company. I thought the noble Lord, Lord Rooker—who I have huge regard for—was back into Corbynism there for just a moment. I knew someone who worked for the Central Electricity Generating Board. It was a great time in history.
The Minister mentioned both value for money and zero carbon, and I want to come back to both. One of the basic things about zero carbon is the circular economy, and one of the first questions on the decision tree of circular economy is whether you need something or not. I will go down that route in a minute. I have always been favourable to nuclear power but, over the last decade, facts have changed. That is why I am sceptical about the need for this type of nuclear development altogether. Let me say why.
First, we still have not solved the nuclear waste issue—and it is a real issue. Conversations with local authorities and communities are going on throughout the UK about finding a way forward but, even if we do, those facilities will not be ready for many decades, as we have seen from previous experience in Finland. Secondly, I come to the area of baseload because this is, if you like, a 1990s argument. One thing about nuclear power—particularly with Hinkley C, which I have visited, and Sizewell C—is that, for it to be effective, it needs to operate consistently: it does not go up and it does not go down. If we have large renewables in this country, nuclear must go up and down from hour to hour, day to day, week to week. It is not a technology suited to that. It becomes inefficient. It is inefficient not only operationally but in terms of what the Bill is trying to do, which is minimise capital costs. I know from my experience in industry that, when you have capital, you work it day and night as long as you can: you sweat the assets. With a large renewable input into our electricity system, that becomes not possible with nuclear power after a certain threshold.
Also, you come to costs, and this is where facts come in: the cost curve for nuclear has gone up while the cost curve on renewables has come down significantly, as we know. I congratulate the Government on part of their work in making sure that is the case. In terms of value for money, which was the Minister’s caveat on this nuclear project, it seems to clearly fail. The trend is going that way, but we have the largest energy cost crisis that we have had in many years at the moment, and we are told that it is not going away any time soon. Yet the Bill actually adds costs to consumers, when we have a cost-of-living crisis—fuelled by energy—that is more of a problem than it has been for some time. If I was an adviser to the Government—which I never have been or will be—and I wanted to use nuclear power, I would probably go down the Korean route: you build a fleet of 20, you get your economies of scale and you finance it through the public purse, which has minimum interest cost. What do you have? You have a much cheaper capital cost, zero carbon and greater efficiency. The Government are not going down that route, but that has been shown as probably the only way that you can make nuclear power successful in the modern world.
There is an alternative—and, strangely enough, it is not renewables. It is that boring thing called energy efficiency. The Minister shakes his head, but every government publication with comparisons says that energy efficiency shows the highest return in terms of capital investment that there is. For the £20 billion that this will cost—probably more at the end of the day—it is my rough calculation that you can retrofit 2 million to 3 million homes; those would be some of the worst ones to bring up. This is important for social fuel poverty but also means that energy costs for consumers go down—whereas the Bill makes them go up. Page 55 of the 2019 Conservative manifesto says:
“We will help lower energy bills”—
“by investing £9.2 billion in the energy efficiency of homes, schools and hospitals.”
Fantastic, but it is not enough. Here, twice that could be put towards it. I ask the Minister: how much of that £9.2 billion has already been spent, half way through the Parliament?
My Lords, I declare an interest, as I am advising a company involved in the power construction sector—Mitsubishi Electric—and a long-standing interest as a former Secretary of State for Energy. That was many decades ago, I am afraid, when I tried to get a nuclear power replacement programme going but failed, which is why we are back at the same issue now.
The Bill has excellent intentions and purposes, so I of course welcome it, as does the noble Lord, Lord Rooker, but some questions must be asked and, if not answered here in Parliament, will be asked again and again by investors. Let us be clear: the basic aim of the Bill is to make future nuclear power projects more widely attractive to private capital, such as pension fund money, of which there is plenty around to invest today. With the regulated asset base model, it is eventually consumers, via the licensed suppliers, who will find themselves bearing more of the risk from the start.
There are two key questions which investors, licensed suppliers and consumers will want answered. First, for how many years can consumers be asked to pay this extra levy on top of everything else and carry the risk of all the delays and vast cost overruns so familiar in this industry to date? Of course, the answer depends on what sort of nuclear plant is being financed and “on offer”. The one immediately before us and mentioned in the Bill is Sizewell C: a very large-scale project billed as a “replica” of the only other one being constructed in the UK, which is at Hinkley Point in Somerset. Is it a replica? Perhaps it is technologically, but definitely not financially. That is the reason we are here looking at a new financing model.
At Hinkley, the returns to the two main investors, Électricité de France and China General Nuclear, are due to come through by requiring that electricity produced, when it finally flows, is purchased by wholesale distributors at what looked at the time of the deal to be an enormously inflated “strike price”—although, ironically, it is not that inflated compared with the current soaring electricity prices which we are now suffering. Why will this so-called replica at Sizewell, or other future projects for that matter, look any better? These big plants take 10 to 15 years to get up and running, and it so happens that the history of Hinkley Point C, the evolutionary power reactor—evolutionary it certainly is—is not at all encouraging in that respect. None of its EPR design predecessors is successfully operating, has stayed anywhere near planned construction time or is anywhere near planned budget. Now at Hinkley Point C there is talk of parts having to be totally redesigned and further delays and costs. The reactor plant being constructed jointly by CGN and EDF at Taishan in China was meant to be the poster—the model—for being on time and working, but even that has now been closed for security reasons. As for the prototypes at Okliuoto in Finland or at Flamanville on the Cherbourg peninsula—which I visited some years ago with the noble Viscount, Lord Hanworth—one hardly dares look at their time overruns: years and years late.
Are investors ever going to wait that long for payback? However guaranteed the cash flow from consumer bills during construction—which may, incidentally, have to be jacked up to cope with construction risks—private money will not find that very attractive. Smaller scale, quicker built models, such as the small modular reactor type, or the advanced smaller reactors, are bound to be far more attractive when they can be built in series with lower waste, fabricated at factory level and begin operating and earning in two or three years. That means a much shorter period of risk for consumers paying up in advance and, of course, capital can be lent at cheaper rates because of a quicker return and less risk. That is obvious.
That is the first key decision, or choice, right now in our nuclear fleet replacement programme which confronts Her Majesty’s Government: a programme which has already had its share of setbacks. Do we plug on with these mammoths at Wylfa, Moorside, Oldbury and Sizewell or turn all our efforts to small and more advanced nuclear power plants? I appreciate that this is a choice the Government would rather not make.
There is a second and really awkward issue to be resolved; namely, how to deal with the Chinese involvement. There is not time in the allocated five minutes to go into detail, but 10 years ago the mood was to welcome everything Chinese and give them a central role in our nuclear replacement programme, and now the mood has swung 180 degrees. There will be little private investment attraction at all at Sizewell until all that is sorted out, even if the EPR design could be assured of working, which none of its predecessors is yet doing.
For this Bill to work and for the RAB model to function, there will have to be a major change of strategy here. Low-carbon nuclear replacement is vital for security, for climate, for cheap green hydrogen and to avoid the kinds of energy bill explosions we are suffering right now. This Bill should help get us back on the right track—eventually—but there are these key decisions to be taken before we can be anything like sure of that.
My Lords, I broadly support the principle of this Bill and the mechanism proposed, but with some reservations and with the need to put this decision and decisions on nuclear policy in general in a wider context. I have long been a supporter of nuclear power, ever since, as a very young man, I worked at Harwell and was infected by the evangelical commitment of scientists to that alternative energy source. I did not entirely buy it, even then. I never really thought we were going to get completely free electricity; nor did I believe our colleagues down the road at Culham that fusion technology was only five years around the corner. Nevertheless, I think—much more so now than all that time ago, because we now need rapidly to move to a carbon-free energy system—that we do need nuclear power.
The problem has been that despite the investment in research and in earlier generations of nuclear power, for 30 years successive Governments have shied away from key decisions. The noble Lord, Lord Howell, mentioned examples during his time. There was a piece of evidence produced for us in a briefing for this debate that rather chilled me because it said the best time for nuclear investment is 20 years ago. That shook me, because 20 years ago, the Labour Government decided not to proceed with a new nuclear plant, just as their predecessors had. I was a junior Minister at Defra at the time and was party to that decision. It was taken largely because of the cost, which was then envisaged as being entirely on the taxpayer—whereas this puts the cost on the consumer and on business—but also because the enormous success of North Sea gas meant that we were going to have relatively cheap power for a long time and we did not need to take a decision at that time. The position of that Government was that we did not absolutely oppose nuclear power and that there would be new stations. We did not completely adopt the more extreme green agenda, although we did take it into account. We left it on the table, as it were.
We also made a number of provisos. I remember saying in the course of making that decision that while we may have not needed nuclear power at that time, we might eventually, and that even if the UK did not need nuclear power, the world would. So, we had to ensure that we retained the UK’s capability in industry and research, which was at that point—to use a phrase that is current now—still world leading. It had already been run down fairly substantially but we had a strong nuclear capability. The other provisos were that we needed to continue to identify potential nuclear sites, which we have started to do, continue to find options for dealing with nuclear waste, which the noble Lord, Lord Teverson referred to, and reduce the eventual cost of decommissioning, which has distorted our energy cost programme and the Government’s contribution to it over the last few years. These were important caveats but regrettably successive Governments ignored those caveats.
The research and operational expertise have been run down and dispersed, and we are almost entirely dependent on overseas technology, whether it is French, Japanese, Korean or, indeed, Chinese. Not enough new sites have been identified, and the public in those areas have not been fully consulted. Decommissioning costs of the AGRs, and now the Magnox, have soared, and we are still not clear on waste disposal. Instead of cost considerations reducing the upfront cost of nuclear projects, which is now met entirely by private capital, those costs have continued to escalate with the delays in the various schemes here and elsewhere in the world. Some of this is a worldwide issue, and some of it reflects non-decisions by previous Governments, as I say. But whatever form of finance that we adopt now has to be accompanied by addressing those other dimensions.
The Bill does not sufficiently protect consumers or small businesses. Interestingly, the impact assessment says that there will be no cost to small business. That is not true; there will be costs, and, particularly in the current climate, we will have to explain the fact that we are asking consumers and businesses to meet costs the benefits of which they will not see for many years.
So I am in favour of the Bill, but it needs to be extended and the Government need to surround it with some broader commitments. For example, if we are to have big nuclear sites such as Sizewell, we ought to require them to meet other objectives, such as attaching to such sites major provision for the production of hydrogen. There are other possibilities: CCS and storage. Some equivalent of Section 106, as was, needs to be applied to any nuclear projects, because other aspects of energy provision need to be addressed as we approve the provisions within the Bill.
My Lords, I support the Bill because it is both urgent and important. It is urgent because, as the history of Wylfa recently demonstrated, the lack of ability to provide funding for new nuclear energy has become a serious obstacle in the way of new building. That applies whether it is a big site or project or SMRs and AGRs.
We need the Bill because, as the Minister has said, it provides an alternative funding method that, as the noble Lord, Lord Rooker, pointed out, has been used for other utilities—it is not quite the same, but nevertheless there has been good experience. We need to get it on the statute book as soon as we can, with early commencement, so that the detailed work on financial flows via the RAB model can go ahead, with some prospect of Sizewell and other possible nuclear sites coming on stream in a reasonable timescale. It is not too much to say that, absent a Bill like this or the funding method that it would give us, it will be very difficult to support and fund Sizewell. So the stakes are high.
I am not an expert on funding mechanisms and will not compete with those who are more competent than I am in discussing them, but I will make a couple of points. As the Minister said, the RAB model enables private sector capital to be brought in, reducing the burden on the taxpayer. As has also been pointed out, we do this by getting a contribution from the consumer—this reduces the loan element and drives down the overall cost. There has been comment on this aspect both in this Chamber and in the other place, and I share the concern that the consumer should not be taken for a ride. The experience in South Carolina was cited, certainly in the other place. It is fair to say that any method of finance can be discredited by poor management and, indeed, fraud.
But the concern for protecting the consumer is legitimate, and I hope that the Minister can assure us that there will be due diligence on the project costing so that we are not faced subsequently with unprovided cost overruns. I hope that he can also tell us that incentives will be placed on the builders to keep costs down and that they will be real and effective.
I said that I thought the Bill was important as well as urgent. The truth is that this country is not going to achieve its statutorily embedded climate change goals of net zero by 2050, nor the decarbonisation of electricity production by 2035, without a contribution from nuclear energy generation, which, as has also been said, is at the moment declining. We need that base power when renewables are not performing. I know there is a big divide on this issue, but it is not just the Government who say we need it; so does the Climate Change Committee. We need the contribution of nuclear-generated power. Frankly, Parliament cannot deny the means to the end that it has ordained.
We need to bear in mind something else that is often forgotten. In a data world, we need a much greater quantum of electricity, above all, to power the world that we are going into, which is going to be so desirable and green. If we want the greenness, we need to provide the means to get there.
I also strongly suspect that, for the foreseeable future, which is quite some time, the era of cheap energy is over and that people will take a different view of what the appropriate strike price is likely to be in an upwards direction.
Lastly, I have a couple of thoughts on safety and security. The UK’s record on nuclear safety is of the highest order and we can have confidence in it. I do not come to the same conclusion as the noble Lord, Lord Teverson, who legitimately mentioned this issue. We already have sound methods for dealing with nuclear waste, but it is absolutely true that we must find a permanent solution. I hope the Minister will confirm that finding that solution remains a high priority. It is important for future generations to be able to cope with the outcome of nuclear power.
On security, if ever the world needed a demonstration that high dependence on international energy markets carries a considerable risk to the economy, Mr Putin is giving us a masterclass. Do we really need more persuasion that we must exploit our undoubted ability to become more self-reliant in energy? Secondly, as discussed in the other place, there is the participation of foreign state money in funding nuclear energy plants. I am not in favour of a blanket ban on this, but I am sure the Government need to be vigilant on the issue and use, if necessary, the power of the special share and the terms of the recently passed foreign investment Act. That is what those bits of legislation are there for. I hope the Minister can assure us that, if we are going to counter it, this would be the case.
My Lords, I first declare my interests as an engineer and project director in the nuclear industry, working for Atkins. I welcome the Bill, and given that finance and costs dominated the £92.50 per megawatt hour strike price agreed for Hinkley C—approximately two-thirds of that price—it is clear that the proven RAB mechanism will be transformative in reducing the costs of new nuclear. It will reduce the weighted average cost of capital in new nuclear and, as the Minister said, bring a new range of investors, including pension funds and other institutional investors.
It is worth reiterating why we need new nuclear. I have taken part in many debates in my time in Parliament on the need for nuclear in our energy system. I have always been struck by how often the argument is reduced to nuclear versus renewables, so I would like to say a few words on the economic case for new nuclear, to counter what the noble Lord, Lord Teverson, said.
I started my career a long time ago, as a systems engineer, using systems thinking to design, integrate and manage complex systems. Applying that thinking to the energy system shows that we cannot consider elements of the system in isolation. For example, renewables are achieving competitive costs of power at the generator, in levelised cost of electricity—or LCOE—terms. But as the percentage of renewables on the system increases, so, too, does the cost of system modification and back-up to cover those periods of low renewable outputs. At high penetration, when there are high percentages of renewables on the system, the marginal cost of renewables, measured on a whole-system basis, will be far higher than the reported LCOE. We should therefore be comparing costs on a whole-system basis, rather than on a simplistic comparison of levelised costs of electricity between technologies, and investigating the system architecture that minimises the costs of electricity to the consumer. A multitude of studies confirms that having reliable firm power on the grid, such as that provided by nuclear, working together with renewables—that is the important point—makes the system cheaper. With the further cost reductions provided by the RAB model, not to mention fleet build, which, it must be emphasised, led to the great cost reductions that we have talked about in renewables, nuclear will be a vital part of the 2050 energy system.
The Bill is critical for the future of the energy system, helping to ensure that it is low carbon, secure and cost effective. But I suggest to the Minister an opportunity that could be taken with the Bill, involving another aspect of the net-zero system—hydrogen production, to build on what the noble Lord, Lord Whitty, mentioned. The Minister may recall that in July last year I asked him to consider whether hydrogen produced from nuclear energy should be eligible for the renewable transport fuel obligation, or RTFO, alongside other low-carbon sources. He replied that the Government’s aim was to remain technology neutral but that energy change to RTFO sources would require primary legislation. Now we have an ideal vehicle, in the shape of the Bill, to undertake this change. Now that we have left the EU, we are free to determine our own definitions for clean, non-emitting sources of energy. I am sure that the Minister would agree that the Government’s strategy should be technology-neutral across all sectors, and that opening policies such as the RTFO to a wider range of eligible solutions would create more resilience and cost-effective outcomes.
I know that there are ambitious plans to use the construction of Sizewell C as a world-leading example of UK hydrogen-powered construction, using hydrogen buses, diggers and other construction equipment. The early large-scale use of these vehicles will help drive down manufacturing costs and increase hydrogen demand, helping UK companies to get ahead and invest in long-term job creation. A simple change, adding nuclear-derived hydrogen to the list of zero-emissions sources defined by the Energy Act 2004, could unlock millions of pounds of private investment into hydrogen production in the UK and accelerate the Government’s hydrogen production targets, while also supporting the nuclear industry. I would welcome the Minister’s thoughts on this and look forward to discussing further with him and his officials.
Finally, I support what the noble Lord, Lord Rooker, said—although maybe without wishing for the return of the Central Electricity Generating Board. However, I mentioned the system architect. Who defines the overall system architecture? It is not clear at the moment who that is. I agree with the noble Lord that that is something to which the Government need to give serious thought.
My Lords, I am delighted to follow the noble Lord, Lord Ravensdale. I agree very much with what he said, particularly his reference to hydrogen. I also wanted to comment on the speech by the noble Lord, Lord Rooker, who was spot on, not only in his content but in the passion with which he put forward his points.
I speak in a personal capacity, as Plaid Cymru, like most parties, has a spectrum of views on nuclear matters. Plaid MPs did not oppose Second Reading and the two local authorities, Gwynedd and Ynys Môn, which cover the nuclear power sites of Trawsfynydd and Wylfa, are both Plaid-led. Both councils support re-establishing nuclear energy generation on those sites, subject to safety, environmental, employment and community provisions. Indeed, we were moving towards securing Wylfa Newydd when Horizon proposals faltered on financial issues and Hitachi pulled out, so the Bill is very relevant. There is particular support for SMRs at these sites and, while I appreciate that the Bill is a facilitating measure, not tied to specific technologies, I hope that the Minister can indicate greater urgency by the Government for the SMR programme and for securing from the Nuclear Decommissioning Authority a freeing up of land at Trawsfynydd for Cwmni Egino, the site development company created by the Welsh Government, to facilitate an SMR demonstrator plant and develop medical radioisotope production there.
The main purpose of today’s Bill is to speed up investment in a new generation of nuclear power plants. I support the Government’s aim of fully decarbonising the generation of electricity by 2050, but will the benefits of this Bill be felt in time to meet the 2035 interim target of a 78% reduction in carbon emissions compared to 1990?
I accept that nuclear has a key role in guaranteeing electricity supplies for everyone in these islands when full decarbonisation is reached. This is implicitly part of the energy decarbonisation contract between government and the people.
We do not know what the constitutional relationships within these islands will be by 2050, but I believe that all four nations will be part of an integrated European electricity network through which the sale of low-carbon electricity will offer substantial financial returns.
Writing recently in Social Europe, Sarah Brown of the Ember think tank, warned:
“Europe is still in denial about fossil gas.”
She stated that there is an overwhelming consensus that limiting global warming to 1.5 degrees requires
“the rapid and complete decarbonisation of the power sector”.
A United Nations Economic Commission for Europe report, published in October, showed that for each kilowatt hour of electricity generated the grams of carbon dioxide released into the atmosphere are, for coal, 1,000 grams; for gas, 430 grams; for solar, 37 grams; for wind, 14 grams; and for nuclear, 5 grams. These full-life cycle figures include the carbon implications of mining, construction, operation and decommissioning of relevant plant.
We need a complete end to the use of coal, oil and gas for generating electricity and their replacement by dependable low-carbon sources of energy. There is an important role for renewables—solar power, wind generators and tidal and estuarial energy such as the Severn barrage—but they cannot generate all our electricity on the consistent, reliable, 24/7 basis necessary to meet in a timely fashion the needs of each household and place of work. Developments in hydrogen technology and battery capacity will play a role, but the basic challenge remains. Eventually, we may see a renewable, fully decarbonised electricity generation sector if we have the political will, but the clock is ticking towards a global warming profile in which human life on this planet will be snuffed out. Our present trajectory is unsustainable.
Over time, we shall see new clean sources becoming available. We have long awaited fusion as a better source than nuclear fission; recent developments at the Joint European Torus facility at Oxford are encouraging. I hope this Bill might facilitate nuclear fusion investment in due course, but we cannot base our 2050 target on the assumption that fusion will be in place. We have a period of perhaps half a century when the gap between low-carbon supply and demand must be met from a dependable source. Over that timescale, nuclear electricity is an essential part of the clean energy mix.
There are valid questions about the cost of nuclear power. If we are going to support nuclear with this type of financial intervention, how do we ensure that we maximise the UK’s industrial opportunities with technologies and manufacturing capabilities that can be exported as well as used for our own clean energy needs? With the UK taxpayer funding nuclear in this way, we must ensure that the UK economy benefits fully from the opportunity this affords. One major issue of concern relates to the cost of clearing up nuclear power sites; this must be factored into the equation.
I also want assurance that the Bill can cover a variety of sources of nuclear generation, including SMRs and eventually nuclear fusion. We must ensure that the model which has been developed can benefit other developers, and should not be seen as one customised solution for the benefit of EDF at Sizewell C. What commitment can the Minister give that other technologies and potential projects can benefit from this Bill?
I shall also be seeking greater clarity on the role of devolved Governments in designation, licence modification, consultation, transfer schemes and decommissioning.
Because of the pressing need for a new generation of safe, clean, low-carbon nuclear generation facility to underpin our carbon footprint commitments, I am content for this Bill to have a Second Reading.
My Lords, it is a great pleasure to follow the noble Lord, Lord Wigley. I remember with great pleasure visiting Trawsfynydd and Wylfa in his former constituency when I was a junior Minister of energy, almost four decades ago. I was pleased to hear from my noble friend the Minister that further investment up there is now envisaged.
I strongly support the Bill. We have no prospect of achieving a goal of net-zero carbon emissions by 2050 without new nuclear power. All but one of our current reactors are due to close and we urgently need to make up for lost time and get on with building their replacements, faced as we are with the doubling of electricity demand over the next 30 years.
We have discussed today the other sources—wind and solar power, which the Government have very successfully promoted and will continue to promote—but as we have seen, they are very much victims of the weather from time to time. Oil and gas currently provide a very large proportion of our electricity and will continue to do so, on a diminishing basis. I entirely agree that they should be sourced locally and domestically, rather than being imported, so far as is possible; I only wish more of my compatriots north of the border saw it that way. The Government are rightly supporting investment in small modular reactors—good luck to Rolls-Royce—but that is down the line, as are hydrogen and fusion, which are well down the line.
Increased energy efficiency—which we have heard about from the noble Lord, Lord Teverson—both domestic and industrial, has to my knowledge been a theme of government for at least four decades. That remains a work in progress; much low-hanging fruit has already been gathered, but there will always be room for new carrots and sticks. The Government have made commitments in that direction, which my noble friend the Minister may wish to comment on.
If we are to avoid electricity rationing as demand doubles, we do not have the luxury of time. We need the certainty of new baseload nuclear electricity very soon. That is what this Bill, through the proposed new financial arrangements, will enable, showing the project costs for consumers, investors and developers. The impact assessment has shown that the RAB model for building a large-scale plant is hugely cheaper than the alternative, and for that reason the Government are quite right to choose it.
In the debate on civil nuclear power in your Lordships’ House on 9 December, it was suggested in a most brilliant speech that alternatives to the present proposals could include the issuing of designated bonds backed by the security of the Government, or creating
“a supply of funds to enable the projects to pre-empt the necessary resources by increasing the supply of money.”—[Official Report, 9/12/21; col. 2078.]
Since the Government can borrow money more cheaply than anybody else, it is clear that there is some attraction in this. The noble Lord, Lord Teverson, referred to it as the North Korean model.
South Korean! I beg his pardon. My hearing aid has been letting me down. The South Korean model. Well, that may be so, but that is not the way the Chancellor of the Exchequer sees it, faced as he is with an enormous borrowing requirement already, and that is not the proposal before us.
One of the lamentable side effects of the lack of investment in nuclear power in recent decades has been the serious reduction in this country’s relevant skills and expertise. Sizewell C, following Hinkley Point C, will be essential in keeping in existence this expertise. It is salutary to remember the role of British expertise in the construction of the pressurised water reactor at Daya Bay in China, the first nuclear reactor. How the world has changed, but we are where we are, and I hope that we can yet again lead the world in nuclear technology if we show the will to do so, as we can.
I hope that this Bill will enjoy a relatively swift passage through this House, as it did through the other place, with the encouragement of the noble Lord, Lord Rooker, who spoke as eloquently as ever in its support. I hope also that work can be carried out with the urgency that the situation requires.
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.
My Lords, the recent history of the nuclear industry is evidence of the failure of the Government’s energy policy. The coalition Government of Clegg and Cameron recognised the need to renew Britain’s fleet of nuclear reactors. In 2010, it was agreed that the construction of eight new nuclear power stations should be called for. Several contactors expressed willingness to undertake the projects but one after another they withdrew. The list includes Scottish and Southern Electricity, the German companies RWE npower and E.ON, and the Japanese companies Hitachi and Toshiba.
This has left the French company EDF as the sole nuclear contractor, and at one stage it was doubtful whether it would be prepared to proceed with its project, given the difficulty in raising the necessary funds and the paucity of its own resources. The principal difficulty has arisen from the Government’s insistence that infrastructure investment in the nuclear industry should be financed by private capital.
One is reminded that the construction of our existing nuclear plants was invariably financed by central government. Money borrowed from private lenders is subject to burdensome surcharges comprised within exorbitant rates of interest. These charges consist of a risk premium, a scarcity premium and a discount rate. The discount rate reflects the time preferences of the lenders, whereby future receipts are valued at far less than current receipts. It is a consequence of this short-term perspective that half the cost of constructing a new nuclear power station, which can take as long as 10 years, will be attributable to interest charges. These will eventually constitute a massive transfer payment from the consumers of electricity to the financial sector.
As a provider of finance, the Government should be expected to take a long-term perspective. It should be one that envisages the consequences of global warming and the need to provide a stable baseload of carbon-free electricity, which only nuclear power can provide. The free market ideology of the Government has resulted in a system of contracts for difference, under which the guaranteed payments are entailed in a so-called strike price. Any returns to the investment that are below the strike price will be supplemented and any returns above it will be taxed.
This system has been an invention of neoclassical economists. It has accorded perfectly with their theoretical vision of how the economy ought to work, but it is at variance with reality. Among the economic fictions that support this system is a belief in the efficiency of intertemporal financial intermediation, whereby lenders can be prevailed upon to accept future repayments with little in the way of monetary inducements. In reality, it has proved impossible for prospective contractors to acquire the investment funds without incurring a heavy burden of payments to the financial sector.
The Government’s latest attempt to square the circle is represented by the Nuclear Energy (Financing) Bill. The Bill proposes to provide a stream of revenues to the contractor during the period of construction. The revenue will be derived from a charge levied on existing consumers of electricity. The supposition is that, with a guaranteed revenue stream and the alleviation of some of the risk, the contractors will be able to acquire capital funds from the private sector with greater certainty and at a reduced cost.
This begs the question of where the funds will come from and whether they will be adequate to cover the costs. The Government have also reserved the right to judge whether a proposed nuclear project will represent value for money and there is a risk that they will declare or decide that it does not. The common understanding is that the capital will come from the pension funds. I believe that this is the Government’s assumption. We have yet to hear any assessment of the likelihood that the funds will be forthcoming. Perhaps the Minister could address this point. To my knowledge, the Government have revealed no plans to meet the eventuality that the funds to sustain the regulated asset base will not be forthcoming from the private sector. Perhaps, in that case, the Government should derive funds by issuing designated nuclear bonds, as has been suggested.
In January, the Government announced £100 million of funding to support the continued development of the Sizewell C project, in the hope that this would attract further financing from private investors. This is a trivial sum. It might seem odd to describe £100 million as a trivial sum, but it is small in comparison with the £4.3 billion that is reported to have been lost through Covid-related fraud. The cost of the Hinkley Point C power station, which should open in 2026, is estimated to be between £22 billion and £23 billion. The cost of Sizewell C has been estimated at £20 billion. One should be mindful of the fact that, under existing arrangements, at least 50% of these sums will be paid to the financial sector in interest charges. Stripped of interest charges, the true cost of constructing a massive power station at Hinkley Point or Sizewell can be compared with the cost of the 2012 Olympic Games, which is supposed to have been £14.8 billion. These costs seem small when set beside the accumulated profits of banks and the tax paid by the banking sector.
These figures have been bandied about because I wish to pose a rhetorical question: can we afford to secure our future energy supply and fulfil our carbon reduction ambitions? The Government’s economic philosophy might suggest to them, absurdly, that both of these questions should be answered in the negative and that it will be too expensive to achieve these goals.
My Lords, it is a pleasure to follow the noble Viscount, Lord Hanworth, with his arguments about the financial sector, although I would make the point that we of course cannot afford the cost of not having a liveable planet—there are no jobs on a dead planet. I feel I have to begin by restating the Green Party’s long-term opposition to new nuclear power, but I will focus today on particular elements of this Bill in the short time available to me. I am particularly opposed to the point made by the noble Lord, Lord Teverson, about forcibly adding to the debt burden of energy users—the same people who are already going to be made to pay for the Government’s cost of living “rescue” package.
I do not have time today to go into detail about all the excellent reasons why local campaigners are so vehemently opposed to a new nuclear plant in Suffolk or to revisit all the arguments about why new nuclear is a terrible idea. Top of the list is that it is way too slow to deal with our climate emergency, together with the demonstrable fact that it crowds out the investment and attention needed on renewables and energy conservation—a point that I will come back to. I will not list the woes of EDF: its shares down almost half in the last three years; its French reactors expected to produce 10% less energy than forecast this year; and its regulatory and safety problems.
Instead, I will focus on two short cautionary tales. One comes from South Carolina. The story starts in 2008 with a decision to build two new nuclear power plants commissioned from Westinghouse Electric Company, owned by Toshiba. I could go through a long and sorry tale, but I will cut it short and get to the final cost—$9 billion, which consumers in South Carolina will be paying for over 20 years; and, for that, they have got a hole in the ground that has now been filled back in. Commenting on the project, former US Nuclear Regulatory Commissioner Gregory Jaczko said:
“It used to be that you didn’t start charging for a plant unless it was done and operating. Whether it was a nuclear plant, or a coal plant”.
That is particularly relevant to our debate on this Bill because the former commissioner was talking about a time before the costs and risks were socialised and the profits were privatised—those profits going very much to the financial sector, as the noble Viscount said. It was interesting that the Minister acknowledged in his introduction that RAB shares risk and said, with an interesting use of the word, that it “could” deliver at lower overall cost.
I come secondly to a cautionary tale somewhat closer to home, to which a number of noble Lords have already referred: the filthy, incredibly dangerous UK former nuclear sites, which the Nuclear Decommissioning Authority acknowledges it still does not even fully understand. The Public Accounts Committee estimates the cost of the clean-up at £132 billion, a sum it has rightly described as “astronomical”. Other noble Lords have referred to the private contract to clean up the Magnox site. In 2018, four years after it had been let, the Government had to take it back; the cost of that alone was £140 million. It is interesting that we have not worked out what to do with the waste, and that we can have no idea of the final cost that will be charged to the public because we do not know how we will get rid of the waste—and that is part of the whole project.
Back in 2012, I attended a fascinating meeting of the local group in Cumbria opposed to deep nuclear waste disposal, chaired as I recall by the former Conservative head of the county council. I say “fascinating” because it was perhaps the most politically diverse meeting I have ever been at, ranging from representatives from the Allerdale and Copeland Green Party to fervent advocates of new nuclear power, but all were opposed to a nuclear disposal facility in Cumbria—and, of course, Cumbria, through its county council, said no. In the other place, the Minister said that they were looking to accelerate dealing with this problem. Well, you cannot accelerate something that is absolutely stationary; or not without an awful lot of force.
I come back to the point I started with, about nuclear crowding out other opportunities and ways of dealing with our climate emergency and poverty crisis. There is a sure bet for the future for people and planet: renewables and—as the noble Lord, Lord Teverson, said—energy efficiency. I note that the Office for National Statistics has just reported that these green industries have essentially flatlined between 2012 and 2020. While the Government have been focusing on their approach, they have utterly neglected the proven, certain practices that would deliver jobs in every community up and down the land.
What we should have is a “Green New Deal (Financing) Bill”, perhaps funded by those who could afford it, such as the private landlords who the Green Party proposed last autumn should face a one-off land value tax to help deal with our energy issues. That would be a Bill fit for our climate and poverty emergencies. Instead, we have a Bill trying to resurrect a failed, expensive, outdated industry—benefiting the few while we all pay the price.
My Lords, I strongly support the Bill and agree very much with the things that were said by my noble friend Lord Rooker. There is no doubt that an energy crisis is looming, as we move towards net zero. Indeed, it could be argued that the energy crisis is already here. The amount of electricity used in this country will at least double, as my noble friend Lord Rooker says, if not increase by even more. The noble Lord, Lord Teverson, mentioned insulation, and I agree that it is very important. However, it is not that easy and straightforward. I have just visited one of my sisters in the West Country and she has had made her house amazingly well insulated. She had to basically demolish the house, almost rebuild it and put everything back together. It is now fantastically energy efficient. If we were to think that millions of people in this country could easily do that, we would have to be in cloud-cuckoo-land. When we are all driving around in electric vehicles, there will be that additional demand and those vehicles cannot be insulated.
Why are we in this position? It is because of the failure of successive Governments—as has been mentioned. It is a national disgrace, actually. We have gone from being the world leaders in civil nuclear—we made masses of money exporting this stuff to Japan—to a position where we cannot build even one of these large reactors ourselves. That is appalling. Reliance on the Chinese, for example, as has been mentioned by a number of speakers, is extremely dangerous and not good. In terms of Sizewell C, could the Minister let us know exactly what the Chinese involvement in finance will be with the new scheme? Will they still be involved in that? I presume so. Will he let us know whether there is any thought about Bradwell going ahead? I imagine that it cannot, because it is too dangerous in terms of our security.
Some people have said that nuclear should not be used because it is not safe. Let us not kid ourselves—more people die every year in the petrochemical and other energy industries around the world than have died in all the nuclear reactor accidents put together. This is nonsense; we have very strict regulations and do this very well. As regards—
The noble Lord is quite right. What I am raising is: why have we got to this position? It is partly because parties such as the Greens are so anti this, and one of the things they threw around casually was how dangerous this is. I do agree that, in terms of waste and its disposal, we are currently able to do it quite safely on a temporary basis—but there is a need to resolve the long-term issue. The noble Baroness, Lady Neville-Jones, is absolutely right, and I hope the Minister will say that this will be pushed forward. From what I have seen, it seems that we are moving down that route very quickly.
Basically, we need to pull our finger out and get going on this. Sizewell C and Hinkley Point C are absolutely necessary. Looking to the future, we absolutely have to go for SMRs, AMRs and the use of hydrogen. This can all be encapsulated somehow in this. I think we would all agree with that.
I ask the Minister: will the problems at the Taishan plant, mentioned by the noble Lord, Lord Howell, have an impact on Hinkley Point C or have those problems been resolved?
Finally, when I had responsibility for more than 20 nuclear reactors two decades ago, only the Navy was training people and awarding nuclear degrees, which universities in this country had stopped doing. I know that they have restarted, but a number of noble Lords have made the point that this is an opportunity for us to get apprentices and to start training people. I am not sure about a CEGB—but I must say that we need something like it. This sort of training is needed because, at the moment, they are nicking all the people we trained in the Navy to go and do these jobs, and that is not a good way to go ahead.
My Lords, I declare my interest as the chair of the advisory committee of Weber Shandwick UK. I am very pleased to follow the noble Lord, Lord West, and to take part in what has been a very interesting and informative debate. It follows on from a debate we had just before Christmas where I found myself the only person on one side of the argument. I see a little bit more support here today.
The Liberal Democrats are opposed to the provisions of this Bill on two principal grounds. The first is that we believe that new nuclear power generation is neither feasible nor a desirable means of reaching our net-zero targets. Secondly, we believe that, even if new nuclear projects were a feasible mechanism for reaching our decarbonisation requirements, this Bill, and the regulated asset base funding model for new nuclear that it establishes, are fundamentally flawed. The Bill imposes a double whammy on consumers, hitting them both with the upfront cost of construction and then with the huge, uncompetitive cost of nuclear generation. It takes no account of the ability of consumers to pay. Costs will fall equally on the richest and the poorest; those already struggling with the massive spike in the energy price cap will feel the charges most acutely.
The Bill is completely opaque in relation to the assumptions and models used to arrive at the estimated RAB charges. In the discussions that we had ahead of the Bill, the Minister’s own department described some of this as “a little bit arbitrary.” It gives the Secretary of State unacceptable powers to prevent publication of relevant material simply on the grounds that it might prejudice a commercial interest, regardless of the public interest in such disclosure. We hope that the Minister will recognise the need for far greater transparency in these matters than is currently proposed.
The Bill takes no account of willingness to pay. Some consumers have contracted explicitly with electricity suppliers that they do not receive nuclear-generated power, but they will be just as compelled to pay as anyone else. It proposes a funding model that has been used for new nuclear only in the United States, where, as we have heard from the noble Baroness, Lady Bennett, it was an unmitigated disaster. It cost consumers billions of dollars, with not a single new plant coming online as a result. The Minister tells us that the circumstances for the RAB are different because of different company structures and a different regulatory approach, but at the heart of both is the fact that risk is being transferred from an unwilling private sector to the consumers, who will not be given a choice. These are just some of the flaws in the Bill that we will attempt to correct in Committee.
Liberal Democrats, for a number of reasons, have a more in-principle objection to new nuclear projects. The noble Lord, Lord Wigley, quite rightly pointed out that we need to rapidly decarbonise our energy sector, but the new projects envisaged in the Bill cannot feasibly come online in time to meet the target to decarbonise our electricity supply by 2035, which the Government themselves say is necessary if we are to hit our 2050 net-zero target. The noble Lord, Lord Howell, underlined the huge difficulties that face these large-scale reactor projects. Even the notoriously optimistic EDF does not believe that Sizewell C could start generating before 2034 at the earliest. Given that it was wrong by a factor of 12 years for Finland’s Olkiluoto EPR, and that in January of this year EDF announced yet another delay to its Flamanville 3 EPR, which is already running a decade late and at quadruple the cost of its first estimate, I hope the Minister can agree with me—on this, if on nothing else—that EDF’s predictions are not ones on which to bank our net-zero plans.
Nuclear is not a feasible global strategy for meeting net-zero targets. We cannot possibly envisage nuclear power being the solution across the world. It is just not going to happen, so we need to find other ways. Nuclear is also, as we heard from my noble friend Lord Teverson, a particularly bad technology for complementing renewables. It is designed for baseload generation and, despite the ability of PWRs to load-follow, it is limited. As my noble friend said, the astronomical costs of construction mean that it does not make economic sense to run these plants at less than full capacity.
However, we also have to take into account the fact that delayed completion and outages can leave huge holes in supply. When Hinkley Point C finally comes online, should it suffer further delay or an outage once operational, we would lose 7% of all UK power, so we have to have an ability to backfill that. We should be aware that at this present moment, 10 of the French reactors are currently offline—nearly 20% of their fleet.
Thirdly, new nuclear is a costly distraction from the urgent need to radically rethink our energy system. As the noble Baroness, Lady Bennett, said, with the Bill we will be crowding out capital that is vitally needed for rethinking and reshaping that energy system through demand reduction, demand repositioning, and energy storage and release. The Bill is stuck in outmoded thinking.
As we heard from my noble friend Lord Teverson, the most cost-effective way to reduce CO2 emissions—I think I saw the Minister nodding his head in agreement—is to reduce energy use. For the amount that Hinkley Point C will cost we could retrofit enough homes to save all the energy it will produce.
I mentioned that with regard to this sort of work that is very easily said, but the complexity of doing it is immense when you are talking about people packed into tower blocks and all the different houses. It is not easy and straightforward. It is very important, but it will not resolve that problem, in exactly the same way that over the last weekend renewables did not provide us with that much energy. Luckily—I suppose—power lines went down so people were not demanding it that way, but my goodness me, renewables were not providing it.
A huge amount of work could be done. Huge numbers of homes that are in very poor housing stock and in very poor condition could easily be brought up to speed. That is the urgent thing that needs to be done now instead of becoming obsessed with huge power plants which are immensely expensive, highly complex and cannot possibly come online in time to meet the targets that the Government have set themselves.
I am grateful to the noble Baroness. I am sure that the noble Lord, Lord West, is very familiar with Portsmouth and that he will take the opportunity to visit such projects.
As we know, electrical use is highly cyclical, both in terms of daily peaks and troughs and annual swings. Therefore, we have to show much greater urgency about how we use smart pricing to reposition demand rather than simply piling on more production to meet peak load. We also have to invest in energy storage and integrate it into grid planning through batteries, green hydrogen production, pumped hydro, compressed gas storage and other solutions.
Finally, nuclear power generation produces high-level nuclear waste which is deadly for longer than any human civilisation has ever survived. It is notable how few noble Lords who contributed as nuclear proponents to this debate addressed that fundamental issue.
The Minister was keen to tell us, as other noble Lords were, how the UK was the first country in the world to begin a civil nuclear programme, yet decades after that and after promising that a solution to this problem is just around the corner, the Government and industry have still failed to supply one. It is our contention that, quite apart from the other powerful arguments against nuclear, it is morally unjustifiable to build new nuclear stations until we first have a geological disposal facility in operation for the long term to deal with the existing high-level waste we have produced. That is key.
In our view, the case for new nuclear generation projects falls down at every hurdle. They cannot contribute to our 2035 electricity decarbonisation target, they cannot effectively complement renewables, and they cannot even clean up the mess they have already created. So laden are these projects with risk, so staggeringly unable are they to keep to time or budget, and so eye-wateringly expensive is the electricity they generate that the only way to finance them is by passing the risks and costs to consumers and taxpayers who are given no choice over whether to accept them.
It is hard to improve such a fundamentally flawed project, but in Committee we will do our best to bring forward amendments to deal with the specific flaws in the Bill that I identified earlier. We look forward to working with noble Lords across all parties in the House to at least make the best of a bad job.
If the noble Viscount had listened to my speech, I set out a range of areas in which we need to completely rethink our energy system, including significant investment in energy storage that we can bring online, demand repositioning and demand reduction. Those are the solutions, but I am happy to discuss them further with the noble Viscount outside the Chamber.
My Lords, I thank the Minister for his introduction and all noble Lords who have spoken in today’s short debate.
I start by declaring an interest—not a financial one, like many other noble Lords, but a personal one. I grew up in Thirdpart, west Kilbride, on a small holding about one mile from Hunterston nuclear power station. My dad, Iain McNicol, worked at the power station as an operator for 17 years in the 1980s and 1990s, so my experience is far more on a personal level.
I do not think there is a contradiction between encouraging and driving new nuclear build, investing in and expanding renewables, and retrofitting and insulating. All the different parts of creating a future energy system and the better use of energy can be complementary and fit together.
This Bill is about finance as much as it is about nuclear power. As my noble friend Lord Rooker said, Labour believes that new nuclear has an important supporting role to play in the future energy mix, alongside the decisive shift towards renewables that is needed to deliver the climate transition and secure our energy security. As my noble friend Lord West touched on, energy security for the future is critical.
If we are going to build new nuclear power stations—which we agree with—the fundamental question is: how are we going to fund them? We could use the Hinkley Point CfD model, but, as my noble friend Lord Rooker said earlier, if not discredited, the CfD model has at least had its value for money questioned and challenged. We saw that in the NAO 2016 and 2017 Hinkley Point review.
As the noble Lord, Lord Teverson, and my noble friend Lord Hanworth, said, we could fund it by direct government financing, which I am not opposed to. On the impact assessment, when the different funding models were considered, was direct government funding considered as one of them? If not, why not?
In front of us we have the system of the regulated asset base—RAB—model. As I said, Labour supports the building of new nuclear power stations for a number of reasons. Nuclear energy is the only proven technology that can supply low-carbon baseload electricity at scale, notwithstanding the comments and points made by the noble Lord, Lord Teverson. We heard that when Hinkley Point C comes on stream, it will provide 7% of the UK’s energy at any one time—that is from one station.
This is at a time when we face a global climate crisis. The further rolling out of nuclear energy will play a crucial role in the UK meeting its climate targets. Nuclear energy will help ensure that the UK has control over the transition to net zero, due to its small land footprint and it being a low-carbon generating technology, as the noble Lord, Lord Wigley, said.
Rebalancing—it is rebalancing—the use of nuclear energy could also see the further use of hydrogen, as my noble friend Lord Whitty and the noble Lords, Lord Ravensdale and Lord Wigley, mentioned. More specifically, the production of green hydrogen is another key to decarbonising our electricity economy. Hydrogen can be used, without any carbon emissions, as a vehicle fuel and industrial or domestic heat source, if produced using renewable or nuclear energy sources. Although there may be issues around the baseload and the effect of the use of energy across the grid, you can use both renewable sources and nuclear, through electrolysis, to change the hydrogen and create hydrogen that can be stored for use when required.
Although some renewable energy sources, such as solar and wind, are dependent on weather conditions, as we have just heard, nuclear energy has no such constraint: it does not matter if the wind is not blowing or if it is cloudy. Nuclear power plants are essentially unaffected by external climatic factors and can create predictable and steady energy output. Come 2028, Hinkley Point C—if it is constructed on time—and the existing Sizewell B station in Suffolk will be the only nuclear plants generating power in the UK.
We have not even touched on the energy security issues or the socioeconomic and financial reasons for the UK to continue the use of nuclear energy. Nuclear power stations sustain thousands of well-paid and highly skilled jobs, most of which are outside the south-east of England. They also support thousands of supply-chain jobs across the country.
As we have heard, the regulated asset base model is tried and tested. When delivered reliably, it can help to save on capital infrastructure costs, especially those encountered in the CFD model. We will scrutinise the Bill to guarantee fairness for bill payers, including protecting consumers against any potential cost overruns, protecting the poorest households and scrutinising the balance between public spending and the bill payers.
Sizewell C will supply 6 million homes with low-carbon energy for up to 60 years. It will bolster Britain’s network supply chain, providing up to 70,000 jobs and 1,500 apprenticeships. It can reduce Britain’s reliance on energy imports, which is critical for our energy future.
We of course need to proceed with caution in anything as costly and crucial as this. We must learn the lessons from Hinkley; some have been learned in the move from the CFD to the RAB model. But we always need to ensure that consumers are the ones who benefit from these projects in the long run.
This is why Labour had previously proposed amendments around foreign state control, which would mandate nuclear stations to use UK-manufactured fuel and stick to UK consumer charges. As the Bill progresses, the Government can expect Labour’s overall support but also a proper critical eye on aspects of the mechanisms they are adopting and an emphasis on protecting people.
I agree with the noble Lord, Lord Oates, on one point: transparency. We are debating transparency in the Subsidy Control Bill and there will be further such discussions on this Bill. The Government and the country will only benefit from wider and greater transparency. There is no time to waste. Nuclear and low-carbon energy projects are crucial for the future of our environment, economy and energy security. It is therefore critical that we act now.
I start by thanking all noble Lords who contributed to this excellent debate. I was encouraged by the widespread support for the Bill across the House, with the honourable exception of the Liberal Democrats and the Green Party. I particularly welcome the support of Her Majesty’s Official Opposition. These are long-term projects and it is good that the only two serious parties of government support the Bill and the need for new nuclear power.
Before I address the questions raised, I remind noble Lords of the importance of the Bill. The legislation will create a new funding model for future nuclear projects, which can reduce the cost of nuclear power stations when compared to existing funding mechanisms. This will substantially widen the pool of private investors in nuclear projects and, in turn, reduce the UK’s reliance on overseas developers for finance. The lack of a funding model has been the biggest barrier to nuclear projects getting off the ground in recent years and the Bill will help to resolve this issue.
The RAB model will help ensure a cost-effective approach to new nuclear projects, which will play a critical role in the UK’s future energy mix in support of intermittent renewables, such as wind and solar. That is the key point missed by contributions from the Liberal Democrats and the noble Baroness, Lady Bennett. Of course, we want to encourage renewables; they are good thing. We have some of the largest renewable capacity in the world but, by their very nature, renewables are intermittent and we need stable baseload power to keep the lights on. It is no good telling people that they cannot run their car or cook their dinner because the wind is not blowing in the North Sea. This is an unrealistic way to finance the future energy mix. I think this is the key point that the noble Baroness misses.
I also agree with noble Lords on the importance of home insulation schemes. The noble Baroness mentioned the figure herself; we are spending £9 billion on insulation schemes. I will come to that later. These are all important things that we need to do—and in fact are doing—but they are not either/or approaches; we need to do both.
I start by welcoming the support of the noble Lord, Lord Rooker. He does not often support my Bills, so I am pleased that he is doing so on this occasion. I am delighted that he agrees that the funding model will be of benefit to consumers and that he recognises the opportunities for new apprenticeships. As the noble Lord, Lord McNicol, remarked, Hinkley Point C has already trained 800 apprentices and it is on track to meet the EDF target of 1,000 apprenticeships during the construction phase of the project.
The noble Lord also raised some important questions, to which other noble Lords added, about protections for consumers under a regulated asset base model—a point also made by my noble friend Lord Howell and the noble Lord, Lord Whitty. My noble friend Lady Neville-Jones was particularly keen that the Government should adopt a rigorous commitment to value for money in their approach. Of course, that is a point I completely agree with.
The Government totally agree with noble Lords that consumers should be protected. Recognising the unique risks of nuclear construction projects, our proposals for the RAB model include multiple mechanisms for ensuring that consumers are protected from unacceptable costs. This includes undertaking robust due diligence before a final investment decision so as to ensure that the project will be effectively managed. As well as satisfying the requirements of the RAB designation process, for a project to reach a final investment decision it will need to undertake a successful capital raise, complete a government business case and satisfy all other relevant approvals from Her Majesty’s Government. I reassure my noble friend Lady Neville-Jones that any decision to commit taxpayer or consumer funding to a nuclear project will be subject to negotiations with staged approvals and value-for-money tests in line with the Treasury Green Book. Also, during construction a project will be incentivised to deliver to time and to estimated costs through an incentives regime overseen by the economic regulator. I hope that the assurances I have been able to give will provide some comfort to noble Lords that we are very much on the case.
The noble Lord, Lord Whitty, referred to the Bill’s impact on small businesses, which is indeed an important point. We addressed that in the impact assessment accompanying the Bill, which stated that, if a nuclear RAB model is implemented on a new nuclear power plant in future, it would impact small and micro-businesses by creating jobs in a supply chain and would indirectly impact them as a result of any costs or cost savings passed through to electricity suppliers and then to consumers. The illustrative analysis in the impact assessment shows that society as a whole, including small businesses, could save significantly on the cost of a generic large-scale nuclear power plant, using an RAB as opposed to existing fundamental mechanisms.
The noble Lord, Lord Rooker, asked me about the role of foreign financing in future projects, an issue also raised by the noble Lord, Lord West, and my noble friends Lord Howell and Lady Neville-Jones. It is important to point out that we welcome overseas investment in the UK’s nuclear sector. We value the important role that international partners have in our current nuclear programmes and potential new projects. Let me emphasise that this will not and should not come at the cost of our national security. The RAB model will help us to attract the significant amount of investment needed for new nuclear power plants, including from British pension funds and institutional investors, as well as from our closest international partners. In doing so, it will reduce our reliance on overseas developers for finance, and open opportunities for British companies and investors to work with our closest international allies to develop projects across the United Kingdom.
Investment involving critical nuclear infrastructure is subject to thorough scrutiny and needs to satisfy our robust national security and other legal and regulatory requirements. In particular, as my noble friend Lady Neville-Jones highlighted, the recent National Security and Investment Act 2021 allows the Government to scrutinise and, if necessary, intervene in qualifying acquisitions that pose risks to the UK’s national security. As well as that Act, the independent Office for Nuclear Regulation, the ONR, applies a range of strict regulatory requirements to all organisations seeking to operate nuclear sites in the UK. That includes assessments of the organisation’s capability, organisation and resources to manage nuclear material safely and securely.
My noble friend Lord Howell mentioned the history of EPR reactor constructions. The projects he highlighted, at Olkiluoto and Flamanville, are first-of-a-kind builds in each of those countries. This brings unique risks and challenges with the construction process. Developers have learned lessons from these projects and several EPR reactors are now under construction or in operation around the world, including, of course, at Hinkley Point C.
The noble Lord, Lord Teverson, made a number of points about the underlying economic case for new nuclear capacity. He asked specifically about the Government’s action on investment in energy efficiency. As I said earlier, I agree with the noble Lord. The Government recognise the importance of increasing the energy efficiency of homes. It is a difficult and complicated task, as the noble Lord, Lord West, pointed out, but we are spending considerable sums of money on insulating the country’s homes, particularly those of low-income families, both to reach our decarbonisation targets and to tackle fuel poverty in the longer term. That is why we have introduced, among many schemes, the energy company obligation, the value of which we have just increased, to provide energy-efficiency and heating measures for fuel-poor households. In the next iteration, which will run from April this year to 2026, the funding will go up to £1 billion a year.
We have also released today the results of the sustainable warmth competition. If I remember the figures correctly, another £980 million of investment will be delivered through local authorities to insulate homes up and down the country. A number of other schemes are contributing to the £9.2 billion insulation scheme that the noble Baroness, Lady Bennett of Manor Castle, mentioned. So these are not either/or decisions. We need to do both, and, indeed, we are.
The noble Lord, my noble friend Lady Neville-Jones and the noble Lord, Lord Oates, raised the important issue of the long-term solution for nuclear waste. It is important to remember that around 94% of the waste arising from nuclear power stations and other sectors is low in radioactivity and is disposed of safely every day in existing facilities such as the UK’s Low Level Waste Repository. The remaining higher activity waste is currently stored safely and securely in facilities around the UK. We have a process in place to identify a suitable location for a geological disposal facility to permanently dispose of higher activity waste. We are making good progress on four areas in discussions with the developer, Nuclear Waste Services, which is a division of the NDA. The vast majority of the higher activity radioactive waste to be disposed of in a geological disposal facility is waste that already exists.
When we have announcements to make on those areas, I am sure the noble Baroness will be here to question me, but I am not in a position to release the names at the moment.
The noble Lords, Lord Whitty, Lord Wigley and Lord Ravensdale, all made important points about nuclear projects’ potential for the cogeneration of hydrogen. As the noble Lord, Lord Ravensdale, said, the Sizewell C project is in the initial phase of exploring the potential of using electricity and low-carbon heat for a range of cogeneration applications such as the production of low-carbon hydrogen and direct air capture of CO2 for carbon capture. While these cogeneration opportunities are currently outside the scope of consumer funding through the RAB model, they could provide benefits to consumers by enabling Sizewell C to be utilised as a more flexible asset. I look forward to exploring that further with the noble Lord. This could provide greater flexibility for the energy system, thereby facilitating a greater number of potential pathways to meet the net zero target by 2050. If used in this way, Sizewell C could become the first nuclear low-carbon heat source, setting an example that we can emulate at other future nuclear power plants.
The noble Lord, Lord Wigley, and my noble friends Lord Howell and Lord Trenchard asked about the application of legislation to small and advanced nuclear modular reactors, for which we see a vital role moving forward. The Prime Minister’s 10-point plan for a green industrial revolution highlighted that SMR technologies have the potential to be operational by the early 2030s in the UK. The recently published net-zero strategy committed to take measures to inform investment decisions during the next Parliament on further nuclear projects as we work to reach our net-zero target. This will of course include consideration of large-scale and advanced nuclear technologies, including SMRs and, potentially, AMRs. As part of this, the net-zero strategy announced a new £120 million future nuclear enabling fund to provide targeted support to barriers to entry. Let me reassure noble Lords that the Bill is not product-specific and could apply to all civil nuclear technologies, and we will make decisions on appropriate investment portfolios on a case-by-case basis when presented with specific project proposals.
The noble Lord, Lord Wigley, as he always does, asked me about the role of devolved Administrations in the process of designating a project company to benefit from the RAB model. Although the ultimate decision to designate a nuclear company for the purposes of the RAB model will sit with the Secretary of State, given that nuclear energy and electricity are not devolved matters for Scotland or Wales, the Bill takes steps to ensure there is both strong transparency in decision-making and involvement of the devolved Governments. The Secretary of State will need to consult the relevant devolved Government before designating a nuclear company where any part of the site of the relevant nuclear project is in Scotland or Wales. It is important to make the point that the Bill will not alter the current planning approval process for new nuclear or the responsibilities of the devolved Governments in the planning process. Nothing in the Bill will change the fact that devolved Ministers are responsible for approving applications for large-scale onshore electricity generation stations within their own territories.
To move on to address some of the points made by the noble Lord, Lord Oates—I addressed some earlier—renewables represent an important and ever-growing source of electricity, but it is important that we have a diverse mix of sources to ensure a resilient electricity system in which the lights do not go off. Just as consumers paid for the previous generation of nuclear power plants, which, according to EDF, have generated enough electricity to power all Britain’s homes for 20 years and saved something like 700 million tonnes of greenhouse gas emissions, it is right that all consumers should share the costs of these projects to help realise their overall longevity and ensure that future generators bear the cost of the low-carbon infrastructure that we need to reach our net-zero goals.
The noble Lord, Lord West—and, I think, the noble Lord, Lord McNicol—asked me about Chinese involvement. In a 2016 Statement to Parliament, the then Secretary of State, Greg Clark, set out Her Majesty’s Government’s intention to
“take a special share in all future nuclear new build projects.”—[Official Report, Commons, 15/9/16; col. 1066.]
This policy has not changed; as such, we intend to take a special share in the Sizewell C project at the suitable time and, of course, subject to negotiation.
These matters are subject to future negotiations. I will come back to the noble Lord on that.
I have addressed most of the points made in the debate. I am encouraged by the general support for the Bill across your Lordships’ House and I look forward to continuing the constructive engagement with all sides as it progresses. I therefore commend the Bill to the House.
Bill read a second time and committed to a Grand Committee.