Hinkley Point C Reactor

– in the House of Commons at 7:03 pm on 8 March 2016.

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Motion made, and Question proposed, That this House do now adjourn.—(Sarah Newton.)

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian 7:04, 8 March 2016

We have just had a good debate on International Women’s Day and we are about to discuss nuclear power, so I would like in one sentence to remember Marie Curie, who did all the basic work on radioactivity, Lise Meitner, who discovered uranium fission, and a lady who hon. Members probably have not heard of, Leona Woods Marshall Libby, who was the first person in charge of building a large-scale nuclear reactor. Unfortunately she had to wear baggy clothes to hide her pregnancy in case she got fired.

I am interested in the Hinkley Point C reactor partly because I have an EDF nuclear plant at Torness in my constituency, and nothing that I say tonight should be taken as anything other than deep respect on my part for the management and staff at that plant. I am also interested in this subject because I am a sometime energy economist. This debate is not about arguments for and against nuclear power; it is about the fact that the Government have been keeping Parliament in the dark—I use that word advisedly—on the crisis in the EDF board. I heard the Minister of State speaking on the radio this morning. She gave the usual line that it will be all right on the night, but it will not.

Photo of Margaret Ritchie Margaret Ritchie Social Democratic and Labour Party, South Down

I congratulate the hon. Gentleman on securing this important debate. Is he aware—perhaps he will refer to this—that the project and finance directors for the Hinkley Point C project have stood down in the last month, and one stood down earlier this week? There is no working model in western Europe for the Hinkley Point nuclear reactor.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

I am aware that two senior members of EDF have quit their jobs. More to the point, I have been in touch with members of the EDF board in France—I trust the Government have too—and as we speak, at least one third of that board are in favour of a moratorium on a decision to go ahead with the Hinkley Point C reactor until at least 2019.

Photo of Angus MacNeil Angus MacNeil Chair, Energy and Climate Change Committee, Chair, Energy and Climate Change Committee

As my hon. Friend will know, part of the EDF board is made up from trade unions. It was pointed out to me earlier today at a lunch for stakeholders in the energy industry, that it is ironic that a UK Tory Government are being lectured by French trade unions on financial responsibility at Hinkley.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

If my hon. Friend has been reading the French media over the past few days he will know that it is not just the French unions. Practically the entire French media are now referring to Hinkley Point and the EPR reactor as the “English threat” to EDF.

Hinkley is the biggest power project we have ever seen, at £25 billion and rising. Under our current energy plan we are dependent on it to deliver 7% of the UK’s generation capacity, at a moment when our capacity margins are close to zero. Having mortgaged the UK’s energy future to Hinkley C, the Government have failed consistently to keep Parliament informed about the crisis on the EDF board, up to and including last weekend when the person in charge of the company’s finances—the chief financial officer—was in effect forced to resign because of his resistance to going ahead with this project.

If a major UK engineering company had a contract with the Government, and its chief financial officer was opposed to that contract and was fired, imagine the scandal there would be. However, the Government are happy to stay quiet while the senior management of EDF are removed in order for the project to go ahead.

Photo of James Heappey James Heappey Conservative, Wells

Will the hon. Gentleman concede that the chief executive of EDF, both in the UK and France, has been consistently committed to the project, as indeed have the UK and French Governments? I am not quite sure what else it is we might like to know in this House, given that that commitment has been unanimous and unstinting.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

I am aware of that—that is the problem. Why is there a revolt on the board? It is not just the trade union members. It is true that a third of the EDF board is allocated to union members, union representatives and staff representatives. They are in favour of nuclear power, but they are worried about the impact on the company’s future. Why is there a vote? Why was the chief financial officer against this? EDF has a negative cash flow. Its debts are twice its company valuation. Its share price has halved in the past 12 months. How is it paying its dividend? It is doing so by issuing more shares and giving them to the shareholders. Imagine how insane that is.

Photo of David Mowat David Mowat Conservative, Warrington South

Every point the hon. Gentleman has made is right, but insofar as the company is underwritten by its main shareholder, the French Government, the issues he raises are peripheral.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

I think the hon. Gentleman has summed up the incredible state we have got ourselves into. Somehow, it will be all right on the night. Somehow, the French Government are going to bail out the United Kingdom’s energy policy. I can assure Conservative Members that that is not going to happen. What is going to happen is the following: at some point, I suspect with pressure from the British Government, what is left of EDF’s board and senior management will override the resistance of the minority on the board and green light construction. They will green light construction at a point where EDF cannot guarantee it has the funds to complete building the reactor. At some point, there will be a crisis and who is going to pick up the pieces? I can assure the House that it will be the United Kingdom taxpayer, not the French taxpayer.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

Having previously worked in the industry, like David Mowat, in contracts management, I looked at Hinkley C online. While forms of agreement have been agreed as far back as October 2015, they are just a vehicle for project delivery. The design phase determines the project. As we appear to be about to enter the detailed design phase, this stage gate requires a more robust estimate to assuage investor concerns. Clearly, that has not happened. Does my hon. Friend agree that, given the very public challenges the project faces if it ever starts, the forecast practical completion date of somewhere between 2023 and 2025 is highly unlikely?

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

I could not agree more with my hon. Friend. Originally, the two Hinkley C reactors were designed to be off-the-shelf copies of the reactor being built by EDF in Normandy. That has not happened. There have been significant changes. In fact, the way the EPR reactor has to be built—on site, piece by piece; it will be unique—leaves massive margins of error for cost overrun. Who is underwriting any cost overruns? The Chancellor of the Exchequer has given a partial capital guarantee that if there is any problem in the construction phase, the British taxpayer will start to pick up the bill.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

Does my hon. Friend accept that of EDF’s two reactors underway in Europe, there have been huge cost overruns in Finland where the reactor is nine years late, while the one in Normandy is four years late?

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

Yes, that is entirely true. That is the point. If we look at who is actually responsible for having got us into this financial hole, do I detect yet again that it is the Chancellor of the Exchequer? We are here not out of an energy policy issue, but because the Chancellor wanted to keep the construction costs of £25 billion and rising off the national book. He wanted to keep it off the debt. For the first time ever in the UK, we are trying to build a new reactor with a new reactor design by putting all the risk on to the private sector. This project is too large and the technology is too unproven for that to work. The Chancellor is digging himself a big hole to protect his rickety plan to keep down the deficit and pay down the national debt, but it will not work. At some point in the next 10 years, we will be back here discussing a bail-out.

That is what I am trying to get across. A significant number of EDF board members know that the project cannot be financed through private capital. Even if EDF could raise the £12 billion or £18 billion—its share for building the Hinkley C reactor—it would need four, five or six times that to complete its programme of reactor life extensions in France. The sum total is colossal for a company already dripping with debt. Unless the French taxpayer is prepared to underwrite all of that, which is highly unlikely, something will have to give, and let me assure the House that it will be not EDF’s reactors in France but this project. It will disappear into the wide blue yonder.

The problem is that by 2025, when the two reactors are not on-stream, we will have closed down the 10 coal- fired stations that the Government announced would be closed last November, just before the Paris climate change conference, and suddenly we will have a huge gap in the 2020s—even worse than now—in our capacity to generate electricity. That will all be because we have mortgaged ourselves to an outdated approach to energy, which is to build gargantuan nuclear reactors that cost the earth—literally and financially—and which cannot be underwritten by the private sector because of the risk. The Government have manifestly been trying to pretend otherwise, and that is ultimately why they are refusing to come back regularly to the House to explain what is going on. They are hoping for the best.

I want the Minister to tell us what discussions have been going on with the board, when we might see the decision to go ahead with construction and what will happen if we do not get a timely agreement to go ahead. What happens if the board delays and delays until 2019? Is there a plan B?

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

Will my hon. Friend also ask the Minister whether, given the current constraints and pressures in the industry, she foresees the current negotiated strike price of £92.50 being renegotiated—the only way being up?

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

Of course, the strike price is subject to certain qualifications. Were EDF to build the reactors and make a vast profit—the strike price is more than twice the current cost of electricity and there is an increment for inflation—there would be a clawback. If it makes a profit beyond what was originally envisaged, some of the money would come back to the British taxpayer. The clawback was insisted upon and enlarged by the European Commission, so it was interesting listening to the Minister this morning on the radio, given her position on the UK leaving the EU. It was in fact the Commission that tried to stand up for the British consumer. That is one reason I will be voting to stay in the EU.

I have made the basic point, so I shall draw to a close.

Photo of David Mowat David Mowat Conservative, Warrington South

The hon. Gentleman is making the case that the EDF board, which, with others, produces 70% of France’s electricity from nuclear power, is incompetent. Is it his position that the board of Hitachi is equally incompetent, given that it is also planning to build nuclear power stations in Britain, or has it not got as far as the SNP in its analysis of the practicality of the whole thing?

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

I cavil at the word “incompetent”. The board’s decision has become politically charged. That is the point. The UK Government are desperate to continue with the project because everything is hitched to it and because it keeps the cost of building Hinkley C theoretically off the books—although it cannot remain so in the long run—and the French Government are committed to it because EDF is in a major financial crisis and they want to protect its reputation and give it a chance to grow out of its problems. If we make such decisions political, however, we make bad decisions—that is my point. It is strange that I have to lecture the Conservative Government on that.

Some of the senior management of EDF, knowing the difficulties, want to delay and want to get the funding in place. It was because the chief officer wanted the funding in place that they got rid of him. How can that be so? Aside from politics and differences on nuclear power, cannot the Government and the Department of Energy and Climate Change see the problems that they are getting themselves into? All they come back with is “It will be all right on the night”.

Photo of Margaret Ritchie Margaret Ritchie Social Democratic and Labour Party, South Down

What does the hon. Gentleman think of the fact that the French project in Flamanville and the Norwegian projects have hit construction problems?

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

Both the Flamanville reactor and the reactor in Finland have run into trouble. The EPR reactor was designed to be super safe, but it involved loading technology on top of technology, with the result that it has to be built in situ. It cannot be built, as other reactor models can, in the factory with bits getting moved in. Building in situ means that each and every single EPR has been different and that the economies of scale that were meant to make the projects cost-effective have gone. That is why it is becoming very difficult for EDF to raise the money commercially to do the funding. The technology is questionable, the funding is questionable and there is Government interference.

All I am saying ultimately is that this Parliament needs regular updating in an honest and serious way so that we know where we are. We also need a plan B because this antediluvian and obsolete method of approaching how to fund large-scale and huge energy projects by putting all the eggs in one basket runs a risk. Perhaps because the Government are frightened to own up to that risk, they hide—and if they hide, it just means that the problem will be even greater in the future.

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change 7:21, 8 March 2016

In the same tone as the hon. Gentleman, I would like to draw attention on International Women’s Day to the fact that Dame Sue Ion was on “Desert Island Discs” as the first woman to be awarded the very prestigious president’s medal by the Royal Academy of Engineering and she is herself a nuclear expert. I am sure that all hon. Members will be delighted to hear that today of all days.

I thank George Kerevan for securing this debate, which gives me the opportunity to put forward the Government’s vision for Hinkley Point C. HPC is a matter of national importance for our energy system, and it is only right that it should be discussed in this House. However, let me point out that we do not put all our eggs in one basket. Far from being the only game in town, as the hon. Gentleman suggested, it is part of a balanced mix of energy sources that includes renewables and fossil fuels. It is absolutely vital that we stick to our plan for energy security and decarbonising at the lowest price to consumers.

Returning to HPC, there are numerous approvals processes for a project like it, many of which have already been completed. These include state aid; the approval of a funded decommissioning programme to cover the costs of managing waste from HPC, which is included in the contract for difference; planning approval; and grid connection. Some other processes will continue up to signature of the documents. Looking ahead, HPC will need to comply with the UK’s robust nuclear regulations—among the most stringent and safest in the world.

However, the key to this project is the funding package that has been negotiated with the developer. It is this, I think, that the hon. Gentleman had in mind when calling for this debate, and I intend to focus my remarks on it. The short answer to the question he raised is that the timing of Government’s final approval of the deal is dependent on EDF being in a position to make a final investment decision. As he is aware, this is ultimately a commercial matter for EDF. In the UK, it is for developers to fund, build and operate new nuclear power stations. I would like to take this opportunity to explain what this Government are doing to expedite the successful conclusion of this landmark deal.

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change

I shall not give way for a while; I am slightly short of time and I have important points to make. I will give way later if there is time.

Let me first remind the House of the reasons why the Government have supported the development of Hinkley Point C, and how we have ensured that this is a good deal for Britain. New nuclear is needed, alongside renewables and fossil fuels, because nuclear is the only non-renewable low-carbon technology that is currently proven and can be deployed on a large scale to provide continuous supply. Most existing nuclear plants, which currently meet about 16% of our energy needs, are due to close by the late 2020s. Without new nuclear build, the share of nuclear generation could dip to 3% in 2030. Britain is a world leader in civil nuclear, through our skills base, our infrastructure and our regulatory regime. Hinkley Point C will keep Britain at the forefront of nuclear development.

Government policy has determined that the new plant should be financed and built by the private sector. The Government have worked closely with new-build vendors and industry to develop a number of initiatives to maximise both the capability and the economic benefits to the UK. That goes far wider than Hinkley Point C—industry has set out proposals to develop 18 GW of new nuclear power in the UK—but the first step in this long-term plan is Hinkley, which will be the first new nuclear power plant to be built in the UK for 20 years, and which will blaze a trail for further nuclear development.

Once it is up and running in 2025, Hinkley will provide 3.2 GW of secure, base-load and low carbon electricity for at least 60 years, meeting 7% of the UK's energy needs. That is enough to power 6 million homes, twice as many as there are in the whole of London. Hinkley will give an enormous boost to both the local and the national economy, providing 25,000 jobs during construction, as well as 1,000 apprenticeships. The plant will provide employment for 900 permanent staff once it is up and running, contributing £40 million a year to the local economy.

Having visited Bridgwater recently, I can tell the House that there is a real sense of excitement about the project. EDF has not been complacent; it is digging away. It has back runs, and the whole site has been levelled. There is big investment in the local community, and local people are very supportive of the project.

EDF believes that at least 60% of the £18 billion value of construction work on Hinkley will go to UK-based businesses. Through our negotiations, we have ensured that consumers will not pay anything for the electricity until the plant is generating, so the risks of construction will be transferred to the developer. At the same time, we have ensured that mechanisms are in place to enable any construction underspends or profits above a certain level to be shared with consumers. If the project comes in under budget, savings will be shared with consumers, but if there are overspends, the developer will bear all the additional costs.

As I have said, we need new nuclear, and Hinkley Point C will pave the way for a new generation of nuclear plants in the UK in a cost-competitive way, thanks to the unique deal that we have negotiated.

Photo of Callum McCaig Callum McCaig Shadow SNP Westminster Group Leader (Energy and Climate Change)

In the context of that “unique deal”, may I ask the Minister, as the final decision approaches, for a cast-iron guarantee from the Government that the strike price of £92.50 will not be increased?

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change

As I have explained, the strike price has been agreed, and we expect a final investment decision in the very near future.

The deal has already been through a number of rigorous approvals processes, both within the Government and within the European Union. In October 2013, the Department of Energy and Climate Change and EDF agreed the strike price for the electricity to be produced by Hinkley Point C. In October 2014, the European Commission approved the Hinkley Point C state aid case, following a lengthy and rigorous investigation by the Commission. Notwithstanding the ongoing opposition of a small minority of member states, we are confident that the decision is legally robust and will stand up to challenges.

In October 2015, EDF and its partner of 30 years, China General Nuclear, signed a strategic investment agreement in London. That commercial agreement set out the terms of EDF's partnership in the UK with CGN, starting with Hinkley Point C. EDF and CGN agreed to take a 66.5% stake and a 33.5% stake in Hinkley respectively. At that point, the final form of the contracts was agreed in substance. My right hon. Friend the Secretary of State made it clear at the time that she would make her final decision on Hinkley once EDF had reached its final investment decision.

The Government’s position has remained unchanged while the final details of the contracts have been ironed out. In November, we set out that we expected to conclude the deal in the coming months, and the Secretary of State made it clear that she was minded to proceed with the contract for difference support package for the deal, subject to any change in circumstances. We remain confident that all parties are firmly behind Hinkley Point C and are working hard towards a final investment decision. We have received assurances from EDF and the French Government—EDF’s largest shareholder—on this point. Hinkley is a large investment for EDF and CGN, so it is only right and proper that they take the necessary time now to ensure that everything is in order so that they can proceed smoothly once they have taken a positive final investment decision.

Photo of James Heappey James Heappey Conservative, Wells

Does the Minister share our impatience, however, at the delay in the decision? Will she perhaps use this opportunity to encourage EDF to make all haste in arriving at that final investment decision?

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change

I hear my hon. Friend, and I can tell him that we are ready and keen to proceed as soon as EDF announces its final investment decision. However, this is a commercial matter, and it is for EDF to finance Hinkley Point C and to deliver that final investment decision. We are aware of the financial issues it is dealing with, and we remain in regular contact with the corporate leadership of EDF and with the French Government. We have been assured by both that they are taking the necessary steps to reach a final investment decision as soon as possible. We are confident that this is a matter of when, not if. Specifically, we have been reassured that the resignation of the EDF finance director will have no impact on the timing of EDF’s final investment decision.

Photo of Ian Liddell-Grainger Ian Liddell-Grainger Conservative, Bridgwater and West Somerset

I just want to correct something that was said earlier. The finance director has always been opposed to this. This is not new or strange. I have spent nine years dealing with this as the MP for the area, and I can tell the House that this has come as no surprise at all. I just wanted to clarify that point for the Minister of State.

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change

I am grateful to my hon. Friend for that clarification.

Last Thursday, 3 March, my right hon. Friend the Prime Minister met President Hollande at the UK-French summit in Amiens, France. The French Government gave a public commitment that EDF is currently working to take a final investment decision in the near future, with the full support of the French Government. We expect that a final investment decision can be achieved within a few weeks. Once EDF announces that it has taken a final investment decision, all parties will be in a position to sign the contracts and detailed investment documents within a matter of weeks. EDF’s chief executive officer, Jean-Bernard Lévy, has also reassured us that EDF is still on track to pour the first concrete at the Hinkley site in 2019 and to start generating electricity in 2025.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

The Minister spoke earlier about safety. At Sellafield, engineers estimate that it will cost about £50 billion over the next 100 years to clear up buildings B30 and B38. Will she tell us how much has been set aside for the decommissioning of the Hinkley Point C project, and where that money is going to come from?

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change

The hon. Gentleman knows that that is a completely different matter. I see him nodding his head—he knows he is being mischievous. He also knows that the full cost of decommissioning Hinkley point C is included in the contract for difference—[Interruption.] It is included. It is a requirement of new nuclear to have a fully costed decommissioning programme included in that way.

The Government remain committed to conducting this deal in an open and transparent manner. We intend to honour the commitment made in this House by the previous Secretary of State to place the contracts—with only the most commercially sensitive data redacted—and the value for money assessment for Hinkley in the House of Commons Library once the documents have been entered into. This is a good deal for the British public, and it is one that the UK Government remain committed to. I thoroughly commend the project to all Members of this House.

Question put and agreed to.

House adjourned.