Nuclear Energy (Financing) Bill
Public Bill Committee, 16 November 2021.
(Morning)
James Gray (Conservative, North Wiltshire)
Before we begin, I will start with a few parish notices. You all know the points about social distancing and the wearing of masks, which Mr Speaker has asked us to do when we can. We will consider the Bill point by point and the rules of behaviour in this Committee are really identical to the rules of behaviour in the main Chamber.
We first agree the programme motion in private. This is a rather strange piece of procedure, which allows the Chair to ask the witnesses to leave and then to ask them back in again. I overrule that. As a member of the Procedure Committee, I keep meaning to tell us to change that properly. We now come to the programme motion, about which we met yesterday to agree. I call the Minister to move the motion formally.
James Gray (Conservative, North Wiltshire)
Copies of written evidence which the Committee receives will be circulated to Members by email and also made available in the Committee room on each day that we meet.
Examination of Witnesses
James Gray (Conservative, North Wiltshire)
Welcome to our three witnesses. Before I call on them to give evidence, I remind all members of the Committee that the questions that we ask today and, indeed, the contributions that we make during the detailed discussion of the Bill from Thursday onwards must be strictly on what is written down in the Bill and may not be on anything else. They may not be about things that you wish were in the Bill but are not; they must be simply about those things that are in the Bill, and nothing beyond that. The other thing is that we must stick to the timings given in the programme motion, which the Committee has agreed. That means that when we get to 10.25 am, no matter who may be speaking, I will require you to stop speaking and the first witnesses to leave. That may seem harsh, but we stick firmly to the timings agreed in the programme motion. No discourtesy is meant to any of you.
Will any member of the Committee who has an interest to declare please do so?
Mark Jenkinson (Conservative, Workington)
I would like to draw attention to my entry in the Register of Members’ Financial Interests. It is a matter of public record that I was employed in the nuclear sector prior to my election.
James Gray (Conservative, North Wiltshire)
Thank you. I will now call the first panel of witnesses, all of whom are appearing here in person, I am glad to say. We have Julia Pyke, director of financing at the Sizewell C company; David Powell, vice-president of nuclear power plant sales and head of UK business development at GE Hitachi Nuclear Energy; and Michael Waite, director of new plant market development at Westinghouse Electric Company. I thank all three of you very much for taking the time and trouble to be here. Could you briefly introduce yourselves?
James Gray (Conservative, North Wiltshire)
Before I ask the Committee for relevant questions, are there things that the witnesses would particularly like to say about the Bill? Have you particular views about the Bill that you would like to get across, or are you content simply to answer questions that may be put to you?
James Gray (Conservative, North Wiltshire)
Shall we stick with the Q and A?
James Gray (Conservative, North Wiltshire)
In that case, let us start with Her Majesty’s official Opposition, represented by Alan Whitehead.
Alan Whitehead (Labour, Southampton, Test)
Good morning. Could I start with the Sizewell C company, and could you let me know, from the point of view of the company that has been set up for the purpose of developing Sizewell C, how you view the emergence of the RAB—regulated asset base—model as a way of funding the project at Sizewell C in particularQ ?
Alan Whitehead (Labour, Southampton, Test)
Q Mr Powell, Hitachi was very much involved with the Horizon consortium that pulled out of other nuclear plants a little while ago, which I believe was on the grounds that they could not sort out the financing of those projects. If the consortium had been offered in effect a RAB model to develop those projects, would you have had a different view?
Alan Whitehead (Labour, Southampton, Test)
Q Mr Waite, Westinghouse is the owner of Springfields Fuels.
Alan Whitehead (Labour, Southampton, Test)
Q I think Springfields has a series of difficulties in the continuation of its nuclear fuel and nuclear rods business. What difference would the construction of Sizewell C make to its viability as a future supplier of nuclear fuel rods and associated activities for the UK market and, indeed, the international market?
Anthony Browne (Conservative, South Cambridgeshire)
I am interested in the allocation of risk between companies and consumers. Obviously, one of the problems with the contracts for difference model is that you bear the construction risk, the political risk and so on, whereas with the RAB model you do not. If there are cost overruns, is there a risk that the consumer ends up paying for it rather than you and that you do not have the right incentives to control costsQ ?
Anthony Browne (Conservative, South Cambridgeshire)
Q To press home that point, how do you make sure that the right incentive for the companies for Sizewell C also ensures the costs remain under control, rather than simply being passed on to consumers?
Anthony Browne (Conservative, South Cambridgeshire)
Q David, do you think the balance is right, in terms of shared risks between consumers and the companies?
Anthony Browne (Conservative, South Cambridgeshire)
Q Obviously you want to manage the projects well and guard your reputation, but big infrastructure projects such as nuclear power stations have in the past been subject to cost overruns. How do you manage that risk? Julia said it is shared between consumers and the companies, but in what way would it be shared? Is it 50:50? If you have a project that risks running out of control, how do you manage the risk to make sure there is as much benefit to the consumer as possible, or at least as little disbenefit, and what is the process for that?
Anthony Browne (Conservative, South Cambridgeshire)
Q You will be applying for a licence to have the RAB model, and I am interested in your thoughts on the designation regime and whether the Secretary of State should have the power, or the regulator. It will obviously be a long process to apply for it and get the rights. In your business plans, that will be a huge part of the whole process.
Anthony Browne (Conservative, South Cambridgeshire)
Q On the question about who should do the designation, Julia made the point earlier that—
James Gray (Conservative, North Wiltshire)
I am sorry. Maybe I am just getting old, but I cannot hear what you are saying. Could you speak up a bit?
Anthony Browne (Conservative, South Cambridgeshire)
Sorry. I am also interested in the point about who should actually do the designation. Julia, you made the point earlier that you would have a system that responds to need, as it were. Could you see this becoming just an ordinary function of the regulator, or should it always be the Secretary of State who does it?
Anthony Browne (Conservative, South Cambridgeshire)
Q David, do you have any thoughts on the designation?
Anthony Browne (Conservative, South Cambridgeshire)
Q My last question is this: obviously, one of the purposes of the regulated asset base is to open up investment opportunities for UK pension funds and so on to invest in nuclear, and they obviously want reasonably reliable long-term returns. What criteria are needed from the RAB model to make it an investable proposition for UK funds? If you draw the criteria far too tightly, it would not be very attractive, but if you made it too generous it would not be good value for the consumer, so I am just wondering what you, as people out to encourage investment, are actually looking for. What do you think is needed? I do not know who is in the best position to answer that one.
Anthony Browne (Conservative, South Cambridgeshire)
I know, but you have relations with the investors and you know what they are looking for.
Anthony Browne (Conservative, South Cambridgeshire)
Q But are you looking for particular things about the RAB model that will help your conversations with investors while providing value for consumers?
Anthony Browne (Conservative, South Cambridgeshire)
Q I agree with the levelling-up point, although that is more a political thing rather than—
James Gray (Conservative, North Wiltshire)
I am sorry, Anthony, I can’t hear what you are saying; you are mumbling.
Anthony Browne (Conservative, South Cambridgeshire)
I do not know whether the microphone is working. I agree with the levelling-up point, although that is more a political thing rather than, presumably, one of the criteria that the investors would use.
Anthony Browne (Conservative, South Cambridgeshire)
That is the whole purpose of the RAB model. That is all my questions. Thank you.
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Good morning. I will direct my initial questions to Julia.Q
Ideally, the Bill is supposed to facilitate Sizewell C going ahead. Julia, you said that you view Sizewell C as units 3 and 4 of Hinkley Point C. Given that we are consistently told that the learning from the design of Hinkley Point C went on to Sizewell, why has the taxpayer committed £1.7 billion in the Budget to take Sizewell C to a final investment decision?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q The Chancellor has put that in the Red Book, so can I just check that there has been no discussions with the Sizewell C company about the front money needed to get to the final investment decision, even though that £1.7 billion was explicitly referenced in the Budget?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Okay. So if the Bill goes through and we have the right regulated asset base model, would you still be expecting up-front money from the taxpayers to get that final investment decision, even though the design has already been undertaken?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q This is probably something that I am just not clear on myself, but in terms of the regulated asset base model that the Bill facilitates, what kind of contractual period are you looking for in terms of payback? What would you expect the Government to enter into in terms of the length of contract for revenue payments?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q What about decommissioning and the disposal of radioactive waste after that? Would that be at your company’s risk or would there be some sort of revenue payment for that as well beyond the 60-year lifespan?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q It is priced into a 60-year contract?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q The regulated asset base model is clearly separate from contracts for difference, but in terms of the 60-year payback, you are looking for a lifetime asset. Would you also expect to agree a strike rate for the sale of electricity, what with the electricity generation price aspect? Would that be a risk that goes with the company?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q But would the price fluctuation on wholesale electricity prices sit with yourselves, or would you expect that minimum floor price to minimise risk?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Okay. The Government estimate that using the regulated asset base model will save consumers between £30 billion and £80 billion. How realistic are those projected savings?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Have yourselves or GE Hitachi had discussions with the Government about this—“Here is what the cost of borrowing is, so we predict that these are the savings that will accrue if we go to a regulated asset base model”? Thirty billion pounds is a huge saving—£80 billion even more so.
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q But, of course, that was by implementing a 60-year payback contract.
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Sorry, but we are talking about looking forward for yourselves.
You are hoping that RAB will facilitate the small modular reactors as well. Would that be a 60-year operational contract you would be looking for?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Going back to you, Julia, the Secretary of State determines value for money, as per the Bill, in terms of entering into a contract and signing off. How does someone like me, in Opposition, get to understand the figures, particularly the in-built cost of disposal of radioactive waste? How do I understand what is built into the figures that the Secretary of State can sign off under the Bill?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q How many permanent jobs would Sizewell C create?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Thanks.
Virginia Crosbie (Conservative, Ynys Môn)
Welcome. My first question is to Michael. Is the consumer more exposed to overruns and construction delays under CfD or the RAB financing modelQ ?
Virginia Crosbie (Conservative, Ynys Môn)
Q Thank you. David, what is the impact on the consumer of a RAB model versus a CfD financing model?
Virginia Crosbie (Conservative, Ynys Môn)
Q Thank you. Julia, is there a yes/no answer to this question?
Virginia Crosbie (Conservative, Ynys Môn)
Q You mentioned the fleet effect. All but one of our nuclear reactors are coming offline over the next decade, and we are going headlong towards 2050. The Government have a net zero carbon ambition. Can we achieve that fleet effect without the RAB model?
Virginia Crosbie (Conservative, Ynys Môn)
Q Michael?
Virginia Crosbie (Conservative, Ynys Môn)
Q Thank you for mentioning Wylfa. David?
Virginia Crosbie (Conservative, Ynys Môn)
Q We had some great news regarding SMRs last week, in terms of Government support and attracting private capital. What do you think the RAB model will do in terms of reducing our reliance on overseas investment?
Virginia Crosbie (Conservative, Ynys Môn)
Q Thank you. Julia, on the impact of RAB on our dependence on overseas investment, you know the Chinese very well through China General Nuclear.
Virginia Crosbie (Conservative, Ynys Môn)
I have a last question if I may.
James Gray (Conservative, North Wiltshire)
Quickly. I am keen to move on swiftly because we have quite a lot to cover.
Virginia Crosbie (Conservative, Ynys Môn)
Q Michael, what have you learned from your experiences of other countries’ financing, and how can you relate that to the RAB model?
Matthew Pennycook (Labour, Greenwich and Woolwich)
I have a series of questions relating to—
James Gray (Conservative, North Wiltshire)
Before you start, Mr Pennycook, I should say that we have five people asking questions and 12 or 13 minutes left, so can everyone be swift in their questions and answers?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Q I will try and rattle through this. I have a series of questions relating to clause 1. Forgive me, Ms Pyke, but I think they will be directed mainly at you. It is quite clear in my mind that Sizewell C is the last project that can conceivably begin to generate by the end of this decade, so the Bill is very much about its effect on Sizewell C. Consumers in particular, but also Members of the House, will want to know whether the Bill is sufficiently discerning about which kinds of companies are designated, and who the RAB will ultimately go to. Could you detail precisely the interest in Sizewell C of China General Nuclear, or its subsidiaries or shell companies?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Q I do not want to get into the £1.7 billion—if I heard you correctly, you said that there were no express discussions, but that is really a question for the Minister rather than for you. Leaving the £1.7 billion aside, is it the company’s understanding that the Government’s intention is, as has been widely reported in the media, to divest themselves of that minority CGN stake? What options do you think are being considered in that regard?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Q Just to be very clear, because I think this has implications for the funding model, do you not think that that minority stake, and the potential force-out divestment by the Government, has any implications for the RAB funding model for Sizewell C?
Alun Cairns (Conservative, Vale of Glamorgan)
As we have highlighted, the benefits of the RAB model are that it reduces the cost of finance and provides financial certainty for any project—those are two key inhibitors in the development of new nuclear fleet. However, the construction of nuclear power stations is inherently uncertain because of the risk associated with it, and costing that risk is extremely difficult. Are you satisfied that the Bill gives the Minister the opportunity to assess the cost of that risk effectively? The alternative would be the failure of the RAB model, which would undermine the fleet generation that we would like to seeQ .
Alun Cairns (Conservative, Vale of Glamorgan)
Q Mr Waite, in asking you the same question, may I add a supplementary to gain greater context? Is the RAB model’s success dependent on an in-principle Government commitment to a fleet of nuclear power stations rather than just one or two?
Alun Cairns (Conservative, Vale of Glamorgan)
Thank you.
Alan Whitehead (Labour, Southampton, Test)
Q Ms Pyke, you mentioned that you are basically responsible for getting the money in for Sizewell C. What hurdle rate do you anticipate that the investments will come in at as a result of RAB?
Alan Whitehead (Labour, Southampton, Test)
Q You have absolutely correctly drawn attention to the impact assessment, which as you know projects a number of hurdle rates that could transpire below the 9% that is effectively the implied rate for Hinkley C. The calculations for the difference between what would have happened with a CfD as opposed to RAB depend on what hurdle rate comes out as a result of that. I wonder if you are able to give us any better indication of the area the hurdle rate is likely to fall to as a result of RAB being applied to the investments you are seeking?
Alan Whitehead (Labour, Southampton, Test)
Q Which is what?
Alan Whitehead (Labour, Southampton, Test)
Q Yes, but they have used that with what the impact assessment calls an “optimism bias assumption” behind it. What is your view of the optimism bias assumptions that you might have to make about the hurdle rate you are going to get? I am sorry you are not able to give even a range of percentages this morning.
Alan Whitehead (Labour, Southampton, Test)
Q No. I take it from the impact assessment that they are trying to price in, if at all possible, what they regard as the almost inevitable optimism bias in terms of initial figures. I am afraid it is a staple of nuclear calculations that there is usually a pretty optimistic bias in the initial calculations that the project will run exactly on cost calculations and exactly on time.
Alan Whitehead (Labour, Southampton, Test)
Q But you would perhaps conclude that at least you can go to a 6% hurdle rate, if not better?
Alan Whitehead (Labour, Southampton, Test)
Q I think you would appreciate that the whole question of what RAB saves over a period of time depends on that hurdle rate?
Alan Whitehead (Labour, Southampton, Test)
But you are not able to help us this morning.
Alan Whitehead (Labour, Southampton, Test)
Q But we do not know how much?
James Gray (Conservative, North Wiltshire)
Unless any other of our colleagues have a one-minute question, we are at 10.24 am and that very neatly brings us to the end of our time. [Interruption.] I am afraid we only have one minute, Alan; one yes or no question, perhaps?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q If Sizewell C gets the go-ahead, how long do you think it will take to get to the commissioning stage and generate electricity in the grid?
James Gray (Conservative, North Wiltshire)
Thank you very much. I thank all three of our witnesses, who have had a gruelling session. It has been very useful; a lot of information has been gleaned from your evidence and we are most grateful to you for taking the time to come and speak to us. Thank you very much indeed. Would you mind vacating the hot seat? You will be replaced by only one person in the room. Incidentally, you are more than welcome to stay and listen to the subsequent session. I invite the next panel to join us.
Examination of witnesses
James Gray (Conservative, North Wiltshire)
I welcome all three of our witnesses to this evidence session of the Bill Committee. Rather than me introducing you, it might be more sensible if you introduce yourselves in a moment. We have until 11.25 am for this session, and at 11.25, even if you are speaking, I will close the session at that moment, through no discourtesy but because the rules of the House state that we must stop at precisely 11.25. Starting with Mr Coop, as he is here, will you kindly all introduce yourselves? And if you have any introductory remarks about the Bill, that is always very helpful.
James Gray (Conservative, North Wiltshire)
Thank you all very much for being here. We will start with Her Majesty’s loyal Opposition and Dr Whitehead.
Alan Whitehead (Labour, Southampton, Test)
Q Good morning, everybody. I would like to start with Sue. As you will know, we have had quite a lot of dialogue about Springfields nuclear fuels, the role that Springfields nuclear fuels has played in providing fuel for the UK nuclear industry, and the role that it might play in the future. Could you briefly take us through, first, the problems that Springfields nuclear fuels has at the moment and, secondly, what role you consider it might play should the Sizewell C project go ahead?
Alan Whitehead (Labour, Southampton, Test)
Q Charlotte and Simon, you have been very involved in union representation at Hinkley Point C, and in the discussions on the transfer of skills and labour from Hinkley Point C, as it progresses, to the development of Sizewell C, as it progresses in its earlier stages. What is your view on the soundness of those possible arrangements, and what sort of saving to the project as a whole might arise from that doubling up of the workforce and skills between the two nuclear plants, and indeed the cloning of one nuclear plant with another in the Sizewell C model?
Alan Whitehead (Labour, Southampton, Test)
Q Is it your view that the present workforce in Hinkley understand that possible process, and that they have, in principle, a willingness to relocate should that sort of model go ahead in the development of Sizewell C?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q My question is to Ms Childs. I got a letter from GMB Scotland asking me as a Scottish Member of Parliament to support new nuclear projects because of the jobs that they create. I certainly understand the value of jobs because I come from a constituency where we welcome new jobs, but does the £20 billion for Sizewell C give a good enough return on the jobs created? I would argue that that money could be used to create a manufacturing process or more jobs around the UK rather than that £20 billion being spent at one location. Have those types of discussions happened within the union?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Could that baseload not be created by tidal streams or other alternates that balance better with intermittent renewables?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Thanks. I agree with you about offshore being a missed opportunity for manufacturing in the UK, but tidal stream actually provides that opportunity. Ms Ferns, did you want to come in on that?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
I have seen that—I know some of it is up for debate. It is also about operational jobs. I will happily discuss that further.
James Gray (Conservative, North Wiltshire)
Great. Unless there are any further questions from Members or our witnesses have anything particular to say that they have not said—I see no indication that that is the case—I thank our three witnesses very much indeed for their time before the Committee. Their evidence will be useful in our deliberations over the next couple of weeks, when we will consider the detail of the Bill. I call the Whip to move the motion to adjourn.
Craig Whittaker (Conservative, Calder Valley)
I beg to move—[Interruption.]
James Gray (Conservative, North Wiltshire)
Q I am sorry to interrupt—it is a very dangerous thing to interrupt a Whip—but Ms Childs has one more comment to make.
James Gray (Conservative, North Wiltshire)
Q Thank you for that; that is very useful, and I am sure it will provide inspiration for those seeking to table amendments to the Bill. Mr Coop?
James Gray (Conservative, North Wiltshire)
Thank you very much.
Yvonne Fovargue (Labour, Makerfield)
Can I ask if there are any declarations of interest?
Mark Jenkinson (Conservative, Workington)
Chair, I would like to bring to the Committee’s attention my entry in the Register of Members’ Financial Interests. It is a matter of public record that I worked in the nuclear industry prior to my election.
Yvonne Fovargue (Labour, Makerfield)
Thank you.
Examination of witness
Yvonne Fovargue (Labour, Makerfield)
We will now hear from Richard Hall, chief energy economist, Citizens Advice, who is appearing via video link. We have until 2.30 pm for this session. Welcome, Mr Hall. Would you like to introduce yourself?
Yvonne Fovargue (Labour, Makerfield)
Thank you very much. Dr Alan Whitehead would like to ask a question.
Alan Whitehead (Labour, Southampton, Test)
Good afternoon, Richard. I will start the questioning by asking you to reflect on your consumer protection role at Citizens Advice and how you feel that the regulated asset base arrangement protects, or otherwise, consumers and their bills. For example, I know that you made a submission to the RAB consultation when it was under way, which made a number of points about how the customer might be best protected in a RAB situation of the size of Sizewell C and about the risks that might be run as a result of dealing with a project that has so many uncertainties in cost and timing. Could you expand on that for us?Q60
Alan Whitehead (Labour, Southampton, Test)
Q Thanks very much for that. I am sure you understand, having looked at the Bill, that the mechanism that is in place at the moment for the sort of overruns you mentioned is a revision of the allowable costs. That would be at the Secretary of State’s discretion to reformulate as far as RAB was concerned. That would then follow on into additional calculated costs for consumers as the RAB was re-costed according to the overruns. Do you have any thoughts about whether that is a good enough system for the protection of overall consumer interests, or are there ways that you might want to modify that to make sure that the allowable costs ceiling that was initially set out was, indeed, either shared by developers and consumers in future or might be considered for different methods of financing should it be breached?
Alan Whitehead (Labour, Southampton, Test)
Thank you.
Matthew Pennycook (Labour, Greenwich and Woolwich)
RichardQ , you have spoken with great insight about the balance between the advantages of the RAB model and the risks that come with it for consumers, and also about how those consumers might be better protected. Will you give the Committee your take on what we have learned from those infrastructure projects that have benefited from a RAB funding model, such as Thames Tideway or Heathrow terminal 5? Was the peak of costs on consumers within the estimated range at the start of the project, leaving aside cost and time overruns? How accurately can you predict the peak cost for consumers and ensure that it comes within a set range, if—as may be the case—amendments to protect consumers are not ultimately adopted? How accurate is the forecasting of the total impact on consumer bills?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Q I have one follow-up question. Leaving aside the particular problem historically in nuclear projects with overruns, will you elaborate on how the order of magnitude with this particular RAB—or a RAB that the Bill would facilitate for something like Sizewell—increases the amount of risk for consumers vis-à-vis those RABs that have been used on other infrastructure problems, which are smaller? Does the order of magnitude of the potential RAB we are talking about—independent of the dynamics around nuclear—inherently increase the risk significantly, just because it is so much bigger?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Thank you.
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Richard, following on about costs, you said that Hinkley Point C was estimated at £24 billion. Even if we say that Sizewell is £20 billion, we heard that Rolls-Royce is hoping to build five small modular reactors, which will be about £10 billion. If we look at consumer protection, value for money and achieving net zero—particularly heat decarbonisation—if I gave you £30 billion, would you spend it on nuclear, or would you do something different with such levels of capitalQ ?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q We heard this morning from the Sizewell C company that it is looking for a 60-year contract under the regulated asset base model. Do you have concerns about consumers getting locked into a 60-year payback period? Given that the longest operational lifespan of a UK nuclear power station has been 40 years, 60 years is 20 years beyond that maximum. Does the Bill need to address the risk of consumers paying for a nuclear power station that has reached the end of its life and is not generating?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q We also heard this morning that disposal of radioactive waste is built into the up-front cost and becomes part of the 60-year payback. Is there any way of ensuring that the risk stays with the developer? Might the risk transfer to the consumer? If a company became insolvent, who would be responsible for decommissioning and disposal of the waste?
Mark Jenkinson (Conservative, Workington)
Q Obviously, I have heard what you just said about nuclear. Since Hinkley, we have taken an annualised payment from operators to deal with waste and decommissioning. It is not something that we have to deal with later in the special administration regime. I gather you have an anti-nuclear stance. Does the CAB have a preferred route to providing consumers with electricity? You have spoken a lot about renewables and the cost of renewables, but when we factor in constraint payments and various other issues, such as back-up, it becomes a very expensive way of delivering energy to the most vulnerable in society. Does the CAB have a view on a preferred electricity generation route, and if we are to build nuclear, do you have an alternative preferred model to RAB?
Yvonne Fovargue (Labour, Makerfield)
I think this will be the last question to the witness.
Alan Whitehead (Labour, Southampton, Test)
Q Richard, you said earlier that under a CfD model, consumers do not pay anything regardless of overruns other than what they committed to pay through the CfD strike price, whereas in a RAB model, as we have discussed, they are committed to paying throughout the process and may well incur additional costs under a cost ceiling increase. In the impact assessment, it appears that the difference in the cost under a CfD model and under a RAB model was calculated on the basis of consumers paying in full for overruns through a CfD model. Do you agree that that is perhaps not an accurate way of putting it? If so, what sort of difference will that make to the suggestions of the savings between the two models put forward in the impact assessment?
Yvonne Fovargue (Labour, Makerfield)
Order. I am afraid that that brings us to the end of the time allotted for the Committee to ask questions. On behalf of the Committee, I thank you very much, Mr Hall.
Examination of Witnesses
Yvonne Fovargue (Labour, Makerfield)
We will now hear from Chris Ball, managing director of EMEA nuclear at SNC-Lavalin, and Alan Woods, director for strategy and business development at Rolls-Royce, both of whom are giving evidence in person. We will also hear from Dawn James, vice-president of nuclear at Jacobs Engineering Group, and Cameron Gilmour, vice-president of nuclear at Doosan Babcock, who are both giving evidence via video link.
We have until 3.30 pm for this session. Could the witnesses please introduce themselves for the record?
Yvonne Fovargue (Labour, Makerfield)
Thank you very much. Are there any questions for these witnesses? I call Virginia Crosbie.
Virginia Crosbie (Conservative, Ynys Môn)
I welcome our witnesses. There has been a lot of talk about the impact on consumers of CfD versus the RAB financing model, particularly with respect to large nuclear projects, which often face construction delays and overruns. What is the difference between the impacts of RAB financing and of CfD on consumers?Q
Yvonne Fovargue (Labour, Makerfield)
Ms James, I am afraid your evidence is not very clear. Could you move nearer the microphone?
Yvonne Fovargue (Labour, Makerfield)
Thank you.
Yvonne Fovargue (Labour, Makerfield)
Thank you. Anthony Browne or Virginia, did either of you have a follow-up question?
Anthony Browne (Conservative, South Cambridgeshire)
Yes, thank you, Chair. I just want to clarify something. Mr Woods, did I hear you correctly when you said you could finance your smaller reactors from contracts for difference as well as a RAB modelQ ?
Anthony Browne (Conservative, South Cambridgeshire)
Q Do you not have the construction risk that others have?
Anthony Browne (Conservative, South Cambridgeshire)
Q Is that irrespective of whether you have the CfD model or the RAB model?
Anthony Browne (Conservative, South Cambridgeshire)
Q From what you are saying, if you had the option between CfD and RAB, it sounds as if you would choose CfD?
Anthony Browne (Conservative, South Cambridgeshire)
Q If you moved ahead with the CfD approach, would you be able to switch to the other approach when it is legislated for?
Anthony Browne (Conservative, South Cambridgeshire)
Change horses.
Anthony Browne (Conservative, South Cambridgeshire)
Q I am interested in similar questions to the others. Chris, do you think the RAB model will be sufficient to encourage enough private capital to build a new generation of nuclear power stations, separate from the Rolls-Royce plant?
Anthony Browne (Conservative, South Cambridgeshire)
Q That is very interesting context. To come back to my question, will the RAB model be enough to attract sufficient capital, particularly from UK investors, to fund the building of the capacity you say is needed?
Anthony Browne (Conservative, South Cambridgeshire)
Q Dawn, do you think the RAB model is sufficient to encourage the investment into the nuclear industry that we need to build the capacity to get to net zero?
Anthony Browne (Conservative, South Cambridgeshire)
Q Cameron, the same question. Do you think the RAB model will be sufficient to attract enough capital to build the nuclear power stations we need?
Anthony Browne (Conservative, South Cambridgeshire)
Q Do you have any particular view about the role of Ofgem as set out in this Bill? Does Ofgem have the capability to regulate a RAB model in nuclear power? Obviously it is whole new area of interest and expertise for it.
Anthony Browne (Conservative, South Cambridgeshire)
I can ask Chris first if you want.
Anthony Browne (Conservative, South Cambridgeshire)
Q Would that not be the role of Government—of BEIS?
Anthony Browne (Conservative, South Cambridgeshire)
Okay. That is all my questions, thank you.
Alun Cairns (Conservative, Vale of Glamorgan)
This is a question just for Mr Woods—sorry—because of the small modular reactor interest. The benefits of RAB for the industry and for traditional build are quite obvious, but there are still risks. There is a risk in construction, and therefore costing that risk and building it into the RAB financing is a challenge. We were given evidence this morning by those who believe that a fleet will mean that things de-risk as we go along. There is, at least, a concept, and there is a proven record of design that works, but that is not necessarily the case with SMR. I am playing devil’s advocate. I can see that RAB would be extremely attractive to SMR going forward, but we are still at the concept stage, rather than having proof that it works in the way that we all hopeQ it will.
Alun Cairns (Conservative, Vale of Glamorgan)
Thank you.
Yvonne Fovargue (Labour, Makerfield)
Do any of the other witnesses want to answer the question?
Yvonne Fovargue (Labour, Makerfield)
Dawn, do you wish to comment?
Yvonne Fovargue (Labour, Makerfield)
Not very well at all, I’m afraid. If you’d like to speak up.
Yvonne Fovargue (Labour, Makerfield)
Cameron, do you have anything to add?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Mr Woods, earlier you spoke about possibly delivering SMRs with a contract for difference mechanism. What sort of contractual period would you be looking for? Hinkley, at the moment, is a 35-year CfD.
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q Okay. If I understand the concept of SMRs, it is factory modular production, but the theory seems to be that repetitiveness drives efficiencies as well, so the costs come down. That effectively relies on a multiple order. Would you be looking to get a multiple order or would each contract be negotiated individually, be it RAB or CfD?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q I was asking whether you need a multiple order, and would the contracts be individual or part of a multiple order?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q On what timescale do you think you could have the first SMR constructed and operating?
Yvonne Fovargue (Labour, Makerfield)
Q Do any of the other panel members have a comment? Dawn, do you have a comment?
Yvonne Fovargue (Labour, Makerfield)
Q Cameron, I see you nodding. Is there anything you want to add?
Alan Whitehead (Labour, Southampton, Test)
Q Mr Woods, you mentioned your timescale for the delivery of the first of their kind of SMRs, which I presume will be the 470 MW Rolls-Royce SMR. That, as a matter of interest, is well above the International Atomic Energy Agency definition of an SMR. Why did you chose that particular size to develop?
Alan Whitehead (Labour, Southampton, Test)
Q Does the new reactor that that would involve have to go through the generic testing and approval process?
Alan Whitehead (Labour, Southampton, Test)
Q How long do you estimate that process will take?
Alan Whitehead (Labour, Southampton, Test)
Q That means your actual construction period at the end of that will be about four years.
Alan Whitehead (Labour, Southampton, Test)
Q So it is just about possible by the early 2030s if all these things work together.
Alan Whitehead (Labour, Southampton, Test)
Q Mr Ball, you mentioned the availability of engineers and the possibility of transferring skills and expertise between sites to save costs and time. What timetable is likely to be best for that transition to take place in the best way between Hinkley C and Sizewell C? We have heard talk already about a window in which that needs to be done, so that you have the maximum engineering skills and capacity coming in at certain stages in the Sizewell C plant, and coming off the Hinkley C plant as it develops its own stages. What risk does that entail along the way if there is a delay in getting the latter stages of Hinkley C together? What overall window would that represent?
Alan Whitehead (Labour, Southampton, Test)
So that is the window, essentially?
Virginia Crosbie (Conservative, Ynys Môn)
Q If there was no RAB nuclear financing model, what would that mean for our energy security, delivering net zero by 2050 and our dependence on overseas investment?
Yvonne Fovargue (Labour, Makerfield)
Q Dawn, did you want to answer next?
Virginia Crosbie (Conservative, Ynys Môn)
Q In the 1950s and ’60s, the UK used to lead the nuclear sector on the global stage. When people across the world look at us they say that we have all the pieces of the jigsaw: we have the fuel; we have the large reactors; we have decommissioning; we have the supply chain. They are looking at us to put all those pieces of the jigsaw together to make that jigsaw puzzle. Is the RAB nuclear financing model the one piece of the puzzle that is missing so that we in the UK can once again compete on the global nuclear stage?
Anthony Browne (Conservative, South Cambridgeshire)
Q Chris, I want to pick up on something that you said earlier. You talked about needing—my words, not yours—every tool in the tool box, or every weapon in the armoury, to get to net zero. You have mentioned carbon capture and storage a couple of times. That is not within the scope of the Bill, but I wondered whether you thought that the RAB model would be suitable for carbon capture and storage, and whether the Bill could possibly be widened so that it applied to things other than nuclear.
Virginia Crosbie (Conservative, Ynys Môn)
Q There has rightly been a lot of talk today about the cost to consumers and the nuclear fleet mentality. Is the reality not that RAB will facilitate a fleet of nuclear, which will in turn be good news for the consumer?
Yvonne Fovargue (Labour, Makerfield)
Thank you. If there are no further questions from Members, I thank the witnesses for their evidence. I am sorry about some of the technical issues that we have had—that happens. We can move on to the next panel.
Examination of witnesses
Yvonne Fovargue (Labour, Makerfield)
We will now hear from Tom Thackeray, director for decarbonisation, Confederation of British Industry; Tom Greatrex, chief executive officer, Nuclear Industry Association; and Rebecca Groundwater, director of external relations, Energy Industries Council, all of whom are giving evidence by video link. We have until 4.15 pm for this session. Could the witnesses please introduce themselves for the record?
Yvonne Fovargue (Labour, Makerfield)
Thank you very much for attending, all of you. Could Members please indicate to me whether they have any questions to the panel? Dr Alan Whitehead.
Alan Whitehead (Labour, Southampton, Test)
Q Good afternoon, ladies and gentlemen. Good afternoon, Tom—I ought to explain that I have known Tom Greatrex for a very long time, and we go back a long way on a number of these issues. What was your reaction to the proposals that came forward about Chinese involvement in the nuclear programme, particularly in Sizewell C, and what views does the Nuclear Industry Association have about their continued involvement and its effect on Sizewell C funding overall?
Alan Whitehead (Labour, Southampton, Test)
Yes, basically.
Alan Whitehead (Labour, Southampton, Test)
Q I presume the Nuclear Industry Association has been informed of the decisions that were reached in the recent Budget about funding that has been put aside in the Red Book—£1.7 billion for works leading to a financial closure of the Sizewell C plant. Did you have any input into the procurement of that £1.7 billion and what is your understanding of its purpose?
Alan Whitehead (Labour, Southampton, Test)
Q Forgive me for being a little surprised, but the Nuclear Industry Association does not know any more than the rest of us about what this funding is supposed to be for. Is that right?
Alan Whitehead (Labour, Southampton, Test)
Q Not a happy state of affairs, is it?
Anthony Browne (Conservative, South Cambridgeshire)
I have a simple, open question for all three of you. You all run trade associations, effectively, and you will have gone through the Bill in detail and looked at what you like and do not like. Are there any gaps in it? Are there any things you think should be in there that are not in there? We heard earlier, for example, about how, if there are overruns, you allocate the risk between consumers and investors and construction companies. That is obviously not covered in this Bill, but what gaps do you think there are?Q
Anthony Browne (Conservative, South Cambridgeshire)
Tom Thackeray, are there any gaps or things you would want changed?Q
Anthony Browne (Conservative, South Cambridgeshire)
You do not think it needs to be in primary legislation. It is better to be secondary legislation.Q
Anthony Browne (Conservative, South Cambridgeshire)
Q Rebecca, does the Energy Industries Council have any particular concerns? Are there any gaps in the legislation? Are there any things that are not there that you would like to see included?
Anthony Browne (Conservative, South Cambridgeshire)
Q That is reassuring to hear from the three trade associations. I have one other question. This is obviously about the nuclear industry, but there are other forms of energy out there. Wind power famously gets contracts for difference, but things like tidal power are also coming on. Carbon capture and storage is not a form of energy, but it is part of the battle to net zero that we were talking about earlier. Are you concerned that having this regime just for nuclear will favour one form of energy versus another and disadvantage other sectors, and that we will end up without the optimum different types of energy supply? Do you think that we might choose something different if we had a controlling mind of the energy supply, as it were? Are you concerned that this will end up distorting the sources of energy that we have? It is difficult for Tom Greatrex to answer that because he represents just one sector, but the others represent all the different sectors.
Anthony Browne (Conservative, South Cambridgeshire)
Q My last question is one that we touched on in a previous evidence session, which you probably did not hear. In the 1950s and 1960s the UK led the world on nuclear power. Then we hesitated, shall we say, and we have ended up with an industry in which most of our power stations are on their way out. The Government is now pro nuclear power, as I am, and I assume you all are. Do you think the RAB model is enough to get us back on the front foot with nuclear power and build the capacity and industry that we need, or is something else also needed?
Anthony Browne (Conservative, South Cambridgeshire)
Q Rebecca, do you think this is enough to get the UK back on the front foot in nuclear power, or do you think other things are needed?
Anthony Browne (Conservative, South Cambridgeshire)
Q Tom Thackeray, from the CBI’s point of view, is this what is needed to get the nuclear industry going again, or are there other parts of the jigsaw that we need to put in place?
Anthony Browne (Conservative, South Cambridgeshire)
Those are all my questions. Thank you.
Yvonne Fovargue (Labour, Makerfield)
Are there any other questions from Members?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Q I have two open questions for the panel. The first is on clause 1 of the Bill, which I hope you have had a chance to look at, on designating a nuclear company. In previous evidence sessions, some of the witnesses who attended suggested there might be a lack of detail. What are your thoughts on whether there is sufficient detail in the Bill, both on who designates a company and how you designate an appropriate company?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Sorry, Tom. From what you have seen, is there enough detail and clarity in the Bill about who designates a nuclear company and whether that is appropriate, and is there enough in there to be clear about whether we are designating the appropriate type of company?
Matthew Pennycook (Labour, Greenwich and Woolwich)
Q My second question is on the total amount of nuclear capacity we require going forward. I am quite clear in my own mind that the Bill is primarily about Sizewell C, but we have had talk of nuclear fleets, SMRs and what might come forward in years and decades to come. Do any of you challenge the Climate Change Committee’s central scenario of its balance pathway, which is that we need 10 GW total nuclear capacity by 2035, and 8 GW of new build. If you take Sizewell B and C and Hinkley, we are talking about a remaining gap of 1.6 GW to 2.5 GW. Do you work on that assumption? Do you think it should be higher or lower? I am trying to get the sense, beyond Sizewell C, of what this funding model might be used for.
Virginia Crosbie (Conservative, Ynys Môn)
Q What more do you need to see from the UK Government to get us back into leading in this critical sector on the global stage? We have had the energy White Paper, the Prime Minister’s 10-point plan and the net zero strategy announced by the energy Secretary a few years ago. We have the RAB nuclear financing model and we had a good presence from nuclear at COP26 in Glasgow. What more do we need?
Virginia Crosbie (Conservative, Ynys Môn)
Q There has been a lot of talk today about our domestic energy market, but Tom Thackeray and Rebecca both mentioned export. What does the RAB model mean for our ability to export our technology? What would that mean for the steel sector in the UK, for example?
Virginia Crosbie (Conservative, Ynys Môn)
Q May I ask one more question? In terms of the RAB model, what does this mean for our dependence on overseas investment? We are dependent on EDF and the French, and on CGN and China. What does RAB mean in terms of us being much more financially independent here in the UK?
Yvonne Fovargue (Labour, Makerfield)
If there are no further questions from Members, I thank the witnesses for their evidence.
Examination of Witnesses
Yvonne Fovargue (Labour, Makerfield)
Q We will now hear from Mycle Schneider from the World Nuclear Industry Status Report; Professor Stephen Thomas, emeritus professor of energy policy at Greenwich University; and Doug Parr, policy director and chief scientist, Greenpeace UK. They will all give evidence via the video link. We have until 5 o’clock for this session. Can the witnesses who are available introduce themselves for the record, please?
Yvonne Fovargue (Labour, Makerfield)
Thank you very much. We can also hear from Professor Stephen Thomas. Doug Parr will join us when he can. Professor Thomas, would you like to introduce yourself?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q We have heard arguments for new nuclear, including that nuclear power is required to provide baseload; that the UK cannot possibly meet net zero without further new nuclear; and that new nuclear will provide certainty and value for money for consumers. Are there any contrary opinions to such agreed views? I will start with Mycle.
Yvonne Fovargue (Labour, Makerfield)
Stephen, do you have any comments on that?
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q You say that the baseload argument does not stack up, but another argument is that nuclear is needed to compensate for the intermittency of renewables. How robust is that argument? Is there an argument that nuclear is not the right technology to complement the intermittency of renewables?
Yvonne Fovargue (Labour, Makerfield)
We have been joined now by Doug Parr. Please introduce yourself.
Alan Brown (Scottish National Party, Kilmarnock and Loudoun)
Q In terms of alternate technologies, the Royal Society prepared a report that suggests that 11 GW of electricity generation could be provided by tidal stream technologies by 2050. We know that those streams already generate and connect into the grid up in Orkney. How realistic do we think that is, and is that the type of alternate technologies that the Government should be pursuing? I will start with Mycle, followed by Doug Parr and then Professor Thomas, please.
Alan Whitehead (Labour, Southampton, Test)
Q Mr Schneider, are you able to tell us anything about the experience in the United States of using RAB arrangements for nuclear plant development? I am thinking in particular of the two plants in South Carolina that were abandoned a little while ago but which I understand were funded partly through the RAB process, by consumers in South Carolina. Would you advocate measures to ensure that nuclear plants actually get finished and do not dump on the customer, who has already put in their money, a load of the cost that is never realised because there is no output?
Yvonne Fovargue (Labour, Makerfield)
A number of Members want to ask questions, so could we keep them as short as possible?
Yvonne Fovargue (Labour, Makerfield)
Doug, do you have any comments?
Alan Whitehead (Labour, Southampton, Test)
Q This question is for Stephen and Doug. In the Bill, there is a mechanism to put a special administration regime in place if the constructor of the project defaults or is unable to complete it at any stage. Is that mechanism sufficient to enable us to overcome the sort of issues that we have heard about with the American nuclear plants, or are there other things that need to be done, particularly in the light of what Doug said about the lack of independent assessment, at particular stages, of what ought to be done next, and how progress ought to be made?
Alan Whitehead (Labour, Southampton, Test)
Q Stephen, do you have any views on that?
Anthony Browne (Conservative, South Cambridgeshire)
Q If we are in an existential crisis of climate change—if it is the biggest threat that we face as a species—should we not use every tool in the toolbox to combat it? Why would you rule one of them out? That is a question for Doug Parr first, and then Mycle Schneider.
Anthony Browne (Conservative, South Cambridgeshire)
Q The Government are obviously doing a lot of other things; most obviously, there is wind power, which has increased dramatically and now produces far more electricity than nuclear. Mycle, if we are in a climate crisis, why rule out one of the tools in the toolbox, which could be one of the most effective or most scalable?
Anthony Browne (Conservative, South Cambridgeshire)
Q When wind power was in its early days—I used to be environment editor of The Observer, 20 years ago—obviously, the environment movement was very pro-wind power. It never worried about the cost of it, which was incredibly great then; it was an incredibly cost-ineffective form of energy, but because we invested in it, the prices came down. As Professor Thomas said, it has become a far more cost-effective form of power, so why are you so worried about the cost of nuclear now when people were not worried about the cost of wind power 20 years ago?
Anthony Browne (Conservative, South Cambridgeshire)
You are based in Paris and 70% of France’s electricity comes from nuclear. France has consistently lower carbon dioxide emissions per capita than the UK. Presumably you agree that that is because of the size of its nuclear sector.
Yvonne Fovargue (Labour, Makerfield)
Order. We are drifting a little from the scope of the Bill. Can we get back to questions that relate to the Bill, please?
Mark Jenkinson (Conservative, Workington)
Q This question is particularly for Stephen. I want to go back to comments on baseload. The Climate Change Committee says that we need 37% firm power—we can call that what we like; we can change its name from baseload to firm power—which most of our renewables do not provide. You talked about CfDs being better for consumers than RAB. At the time, I thought we were mad to strike at £92.50 at Hinkley, which is probably 800% of construction costs, because of the cost of capital being all back-loaded, which RAB will obviously do away with. What is an acceptable level to force on the poorest in our society for energy per megawatt-hour? We have heard today that we can probably produce energy at £60 per megawatt-hour, possibly a bit less. The update in levelised cost of energy for 2020 for one of the UK’s biggest wind farms, which continues to be extended in Walney, was £136 per megawatt-hour. That is before we take into account constraint payments and all the other inefficiencies in wind power. You talked about tidal and how it is not on the radar, but is far off in the future, and of course into three figures per megawatt-hour. What is acceptable? What is the answer for that 37% firm power?
Mark Jenkinson (Conservative, Workington)
Q That is the Climate Change Committee’s sixth carbon budget. Are we saying that the Climate Change Committee is wrong?
Mark Jenkinson (Conservative, Workington)
Q That was not the question. Are we saying that the Climate Change Committee is wrong to say that we need 37% firm power?
Mark Jenkinson (Conservative, Workington)
Q Reliability not being baseload, but—Doug wants to come in. Go on, Doug.
Mark Jenkinson (Conservative, Workington)
Q Back to the definition of firm power, we have energy requirements of up to 50-something gigawatt-hours. Thirty of that is a constant. The figure does not drop much below 30 or the late 20s. We can dress it up however we like, but that is a firm requirement that is likely only to increase. The Climate Change Committee defined firm power very specifically as nuclear or gas with carbon capture and storage. Are we saying that we should ignore its proposals in favour of intermittent renewables?
Mark Jenkinson (Conservative, Workington)
It is semantics—baseload or firm power.
Yvonne Fovargue (Labour, Makerfield)
Order. I am going to move on. Two more people want to ask questions.
Mark Jenkinson (Conservative, Workington)
I just want to pick up on hydrogen specifically, because we heard that it is incredibly inefficient.