Examination of Witnesses

Nuclear Energy (Financing) Bill – in a Public Bill Committee at 2:02 pm on 16th November 2021.

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Chris Ball, Dawn James, Cameron Gilmour and Alan Woods gave evidence.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield 2:30 pm, 16th November 2021

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?

Chris Ball:

I am Chris Ball, managing director of the Europe-middle east business at Atkins SNC-Lavalin.

Alan Woods:

I am Alan Woods, director of strategy and business development for Rolls-Royce SMR.

Cameron Gilmour:

Good afternoon. I am Cameron Gilmour, and I run the nuclear business at Doosan Babcock.

Dawn James:

Good afternoon. I am Dawn James, the vice-president responsible for the nuclear power business at Jacobs.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Thank you very much. Are there any questions for these witnesses? I call Virginia Crosbie.

Photo of 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

Chris Ball:

We talk about the RAB model, from the numbers that I have heard, probably putting about £1 on to consumer bills on a monthly pay-in. To put that into the context of some of the price increases that we have seen through the energy sector over recent weeks, we are probably talking about an 80% increase from some of the figures that I have seen. I have been looking at this with elderly relatives as well.

When you look at the RAB model in terms of the impact on consumers, there is a cost associated with that—of course there is. It is very limited compared with many other models, and we have to take the long-term view in the energy sector. That is something that the energy sector has been sadly lacking for many, many years. We have to take that 2050 view. It represents very good value for money in the big scheme of things.

Alan Woods:

We welcome any model that helps the deployment of new nuclear. From a Rolls-Royce SMR perspective, if we were to deliver our power plant under a RAB, we estimate that it would be capable of getting in the order of £35 a megawatt-hour, whereas a CfD mechanism would be in the order of £60 a megawatt-hour. That is the different that we would forecast.

In terms of one against the other, it comes down to a question of risk. Our whole programme is designed to eliminate risk, particularly construction and build risk, and to move away from what we would call a one-off infrastructure project to a factory-repeatable product that means we can build certainty into the design. We believe that we can use the CfD mechanism for our plants. We believe that we can raise the private capital to fund that, and that is something that we will be exploring in the coming weeks and months.

Dawn James:

The way that I look at this, large gigawatt-scale nuclear power stations require a huge up-front investment. Under the CfD model, looking fundamentally at the costs over time, there are a huge number of hidden costs associated with financing these projects, and those costs over time will essentially all be passed on to the consumer.

Under the RAB model, by driving down the uncertainties associated with financing costs because of risk, we are able to actually—

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Ms James, I am afraid your evidence is not very clear. Could you move nearer the microphone?

Dawn James:

I do apologise. I will do that. Is that clearer?

Dawn James:

The costs associated with the CfD model are passed on to the consumer over a much longer period of time. Because the capital investment is so much greater due to financing, ultimately the cost to the consumer is much greater than it would be under the RAB model.

Cameron Gilmour:

I largely echo the points made by all three of my colleagues. When we look at the Hinkley Point C case, the financing cost within the CfD is the largest amount within the rating—over £82.50. The cost of construction at Hinkley is actually a small element—£11—of that CfD price. The more we can introduce a more economical financing model, that is obviously of benefit to the consumer down the line, so we welcome that.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Thank you. Anthony Browne or Virginia, did either of you have a follow-up question?

Photo of Anthony Browne 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 ?

Alan Woods:

We believe we can, yes. It is worth noting that our plant is an order of magnitude different to the larger ones in terms of the capital. It is also different in terms of the time it takes to build and in the fact that we have completely changed the risk profile. As I say, this is a factory-built product and it is something we are used to.

Photo of Anthony Browne Anthony Browne Conservative, South Cambridgeshire

Q Do you not have the construction risk that others have?

Alan Woods:

We have removed a lot of the construction risk. We have what is called our fourth factory, so we actually assemble our modules on site in a controlled factory environment. This allows us to remove and reduce that risk profile. It is a completely different ball game.

In that regard, we believe that we can attract private capital. We spent some time at COP26 last week and there is an appetite in the financial markets for investment in projects that can demonstrate an acceptable risk profile, which we believe we can. It is up to us to demonstrate that and to attract that private finance, but we think that is doable.

Photo of Anthony Browne Anthony Browne Conservative, South Cambridgeshire

Q Is that irrespective of whether you have the CfD model or the RAB model?

Alan Woods:

I am referring there to the CfD model. If we have the CfD, which is essentially providing some certainty of returns, then that certainty of returns, coupled with the fact that the risk profile of our product is completely different, represents an attractive financial investment.

Photo of Anthony Browne 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?

Alan Woods:

Well, look, if RAB is available then RAB is great. If you have got that high-risk profile, it will provide even better value to the consumer. From our perspective, the pace is also important and RAB is not legislated for yet. CfD is an available mechanism that is tried and tested, and we believe we can make it work. Therefore, to operate at pace, our preferred route at the moment would be to move forward with the CfD approach.

Photo of Anthony Browne 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?

Alan Woods:

Yes, sure. There is nothing stopping you.

Alan Woods:

Yes, it is no secret that SMRs work by building a fleet. How you finance each SMR does not mean they all have to be financed the same way. We are also looking at models for the future, looking at the net zero challenge. The scale of energy or electricity generation that we will need to decarbonise things like heat and transport, or for synthetic aviation fuel, hydrogen and so on—it will take an enormous amount of electricity to make those new fuels. We see a world where you might need to do that on energy campuses that operate in an off-grid manner to maximise that value. In that kind of a regime in the future, we may be able to build these under a separate, more simplified PPA model.

Photo of Anthony Browne 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?

Chris Ball:

Yes. I would take it back a step, actually, because we cannot let this conversation become either/or; it has to be both. I say that because, if you look at the future net zero world, the general view is that we should electrify as much as possible and then decarbonise the electricity supply industry. The electrification will probably double our demand on the grid and will probably lead to a tripling of our capacity on the grid, because a large amount of it is intermittent renewables.

There are various studies out there and everyone has a different view, but broadly speaking a quarter of the grid should be—will have to be—firm power, for a host of reasons, not least the storage costs escalating almost exponentially with increased of renewables penetration. We are talking around 50 GW of firm power, or 50 large plants; Hinkley is 3.2 GW. You have two main sources for that. The first is gas with carbon capture and sequestration. By the way, that energy sector has risks; there is no large-scale carbon capture and sequestration plant in the UK, but some of the modelling suggests that we would have to capture and sequester in the UK alone four times the current world capacity of carbon capture and sequestration. The other source is nuclear. This should not become an either/or conversation. This should be a conversation about how we make sure that the CCS market starts moving, the SMR market starts moving, and the large-scale nuclear market starts moving.

For context, we need to build something like 9 GW a year across all technologies—firm power and renewable power—between now and 2050. If you go back over the last 60 years, our peak output is of the order of the construction of 6 GW a year, averaging at 3 GW, so we have to treble the average output every year for the next 30 years, working to the 2050 timescale. This has to be a conversation about all. There is no doubt that, to push large-scale nuclear forward, the RAB model seems to the most appropriate method.

Photo of Anthony Browne 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?

Chris Ball:

This is not really my area of expertise; I suggest you are better off asking other people about that. The big piece for me is the risk allocation within that model—where risk sits. There is a balance there. From listening to some of the earlier evidence, clearly the more risk that is transferred to the developer, the more attractive that might become to some investors. The flipside of that is that you are starting to move to a scenario where risk is priced in through the delivery vehicle. That is a trade-off that I would be very careful of. I will limit my comments to that area.

Photo of Anthony Browne 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?

Dawn James:

I hope you can hear me okay now. I am not an expert in the field of investors, but building on what Chris said, it would certainly bring more developers into the UK. As I think you are all aware, a number of programmes have started then stopped, including at Wylfa and Moorside, and that is largely down to issues around financing. So yes, I believe that the RAB model will definitely attract more investors and developers, which, as you just said, is critical to our meeting our net zero target.

Photo of Anthony Browne 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?

Cameron Gilmour:

Looking at some of the detail and how the Bill has been written, it seems to be designed to encourage that investment. Again, I am not a financial expert, but it is encouraging to see that nuclear is recognised as playing a key part in our journey towards net zero. From an investment perspective, it becomes something that the Government want to invest in and commit to, so you would say that has to be an encouraging sign for any potential investors.

Photo of Anthony Browne 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.

Alan Woods:

I notice I keep getting questions first, so I have less time to think of the answer, but—

Photo of Anthony Browne Anthony Browne Conservative, South Cambridgeshire

I can ask Chris first if you want.

Chris Ball:

No, that’s fine. [Laughter.]

Alan Woods:

Look, clearly there needs to be a regulator, and a regulator is needed to regulate the way RAB is deployed and managed. From our perspective, Ofgem is as good a point to start as anywhere.

Chris Ball:

Clearly this creates a new demand, and there is a need for additional capacity somewhere to oversee the management of the RAB model. I think the question is whether Ofgem is best placed to do that, and the answer is: possibly.

The other piece that I would look at is, ultimately, where our country’s energy system architect is now. Who is defining the way in which our energy system should look and operate in 2050? Is there benefit in establishing a new energy system architect who takes decisions on the future power mix, and actually putting into that system architect the capability to oversee investments in all sectors? I think that is one of the reflections that I would have about the controlling mind in how we reach that 2050 net zero energy system.

Photo of Anthony Browne Anthony Browne Conservative, South Cambridgeshire

Q Would that not be the role of Government—of BEIS?

Chris Ball:

It may well be within Government and BEIS, absolutely. But I think we do need that capability firmly established in one place. I am not suggesting it should necessarily sit outside of Government or BEIS, but we should have a clear collection of people under that title as the controlling mind.

Photo of Anthony Browne Anthony Browne Conservative, South Cambridgeshire

Okay. That is all my questions, thank you.

Photo of Alun Cairns 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.

Alan Woods:

Let me break that down in terms of the proven part. Our design and our plant use proven technology. At the base of the reactor island, there is a pressurised water reactor. It is the same as what Rolls-Royce has designed, built and operated for the past 60 years in the submarine programme. We do not have the same set of requirements as the submarine programme, but it is the same core technology. Is it proven? Yes, it is absolutely proven. We know it works and that we can build it. We are building them today.

The rest of the turbine island plant is designed to use products that are already available in the market today. We are not designing a power plant that requires us to invent a specialist product here or a specialist product there and that has never been made before. It is designed to use products that exist in the market. Even though it is a steam turbine, it is a commodity product we can buy. All the constituent parts at our plant are proven technology. Our civil module approach has been proven by our partner, Laing O’Rourke, which is making modules of this nature today at Worksop. We will expand that facility to replicate and grow that module manufacturing capacity. The constituent parts are all proven. There is no technology innovation at the plant that is questionable as to whether it will reach the right technology-readiness level.

Then we come to our ability to manufacture and join the modules together. Again, this is not a technology challenge. It becomes more of a logistical challenge and there is plenty of evidence in other industries—in fact, inside Rolls-Royce—where we manage those logistics from the supply chain to the module facilities to the delivery to site and to the installation and commissioning of them.

I do not accept that we are not proven technology; we absolutely are. As I said, we have built into the design, intentionally from the outset, technologies and features that remove the risks associated with traditional construction. It is no longer a very large construction project; it is a factory of products. For example, when we build the power plant, we assembly the modules on site where an average of 500 people are assembling the parts. We do that to move those jobs into the module facilities and the supply chain and into the factory environment where we are manufacturing the same products over and over again in a production line environment.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Do any of the other witnesses want to answer the question?

Chris Ball:

There are two aspects to the question. First is the one about proven technology, which Alan has covered. Secondly, there is taking the lessons learned and leveraging the skills and capability within the UK nuclear industry. If we look at Hinkley Point C from unit 1 to unit 2, we see broadly in the order of a 20% reduction in time scales and costs as we take the lessons from unit 1 on to unit 2. Clearly, if we carry on with that same trajectory at Sizewell C, it will be 40%. I am not suggesting that it would necessarily get to 40% but one would assume it would be in excess of 20%. That is a benefit. Going back to the RAB model, leveraging the experience of Hinkley Point C affords good protection against the risks of cost and schedule overrun. Equally, leveraging those lessons into the SMR programme and from the skills and capability that have been built up on existing nuclear programmes is the benefit from all programmes.

My big fear for us as an organisation, which has several thousand engineers in the UK, is that disruption to workflow means that we lose the lessons learned from the industry. That is not to the benefit of the UK, job creation and the cost of our energy.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Dawn, do you wish to comment?

Dawn James:

I merely wish to echo Chris’s point that intelligence replication will drive down risks and costs significantly. I really wish to impress on everyone the need for pace in getting the Bill through. A huge number of jobs are at risk across the whole UK.

Can you not hear me very well?

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Not very well at all, I’m afraid. If you’d like to speak up.

Dawn James:

I have never been accused of this before. I was echoing Chris’s point about the benefit of intelligence replication and how it will reduce risks and therefore drive down costs. I was also pressing the need for pace in moving the Bill through so that we retain the skills and the knowledge as we move from Hinkley to Sizewell. That is where a huge amount of value can be realised.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Cameron, do you have anything to add?

Cameron Gilmour:

I will be brief. The thing to remember is that the Sizewell C project is global European pressurised reactor Nos. 7 and 8, so the core technologies are proven and operational in a civil nuclear power plant right now. The important thing for the industry is that we generated the continuity and recreated our nuclear expertise in the UK when we started on Hinkley Point C. We have learned a huge number of lessons and we have created a lot of energy in the industry and on the programme. I echo the points made about pace and moving forward. If we give people continuity of employment and the long-term horizon, we will retain the skills and the knowledge. Those skills will be there not just for the gigawatt plants that we can build but for SMRs. For me, this is a crossroads not just for the engineering and construction industry but for the nuclear industry. The skills have been hard earned, and the lessons have been hard learned, so we have to capitalise on that and move forward quickly.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change)

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 Woods:

That would depend on a number of factors, including the expected rate of return that the investors were looking for and the value of the CfD itself. In the previous session you were talking about having a requirement for 60 years to pay back on. It would not be that long for an SMR because the capital cost is that much lower and the speed we can build them that much quicker, particularly once we have reached that nth unit and we are rolling them off the production line. The payback period will therefore be a lot quicker, and that will reflect what is available on the CfD. It becomes a balancing act.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change)

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 Woods:

There are two things to say on that. First, it is not just about repetition to get down the costs of SMR; there is a core reduction in the capital cost per megawatt purely driven by that factory approach. Taking jobs off an external site environment and moving them to a factory delivers immediate portable efficiencies anyway in terms of the efficiencies that we get out of the people and the product. The method of manufacture and build reduces the capital cost to start with. What was the second part of the question?

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change)

Q I was asking whether you need a multiple order, and would the contracts be individual or part of a multiple order?

Alan Woods:

We need to have a pipeline of orders, mainly for us to underpin the investment in the factories, and for the supply chain to underpin the investment that it is looking for in its own facilities and capability capacity. They do not all have to be in the UK. Certainly, we are equally looking at export markets to deliver that order book and line of sight to orders.

The other critical point is that to take advantage of the reduced capital of an SMR, it is beneficial to look, in certain circumstances, at an SMR as a single product. If we start grouping them together in chains of four, five or six as a single project, all of a sudden the capital goes higher and you have a similar position, in some respects, to raising large amounts of capital for single projects. There is a benefit to be had from treating SMRs in smaller multiples, but we need line of sight to orders off the back of the first order or two for us to get the confidence to build the factories, and for the supply chain to invest behind us.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change)

Q On what timescale do you think you could have the first SMR constructed and operating?

Alan Woods:

We have a very detailed schedule to get us to the first of the fleet, as we call it, operating by 2031. The first one has a number of activities that are unique to the first unit. For example, we have to go for generic design assessment, which we entered last week. We have to build those factories and the supply chain. That puts more time into building the first unit. Coupled with that, we know that the first unit will take as long, because it is that first one, and that is in our plan.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Q Do any of the other panel members have a comment? Dawn, do you have a comment?

Dawn James:

The only thing that I would add is that, as I think Chris said before, we have an ever-increasing demand for electricity in the UK. Our current suite of nuclear power stations bar Sizewell B will all be off the bars by 2030, so we really need to be investing in those big gigawatts and in SMRs, using whichever models are appropriate.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Q Cameron, I see you nodding. Is there anything you want to add?

Cameron Gilmour:

I am largely in agreement. I will reinforce Alan’s point about the need for certainty, where any developer or investor needs a programme. When we create a programme, whether it is gigawatt-sized or SMRs, we create that confidence, the continuity of resources, and then we start to see the efficiencies flow through in the programme as we deliver them, whether it is factory or site construction.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Business, Energy and Industrial Strategy)

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 Woods:

We actually challenged the IAEA on its definition. The response we got was that, at the time it defined an SMR, that was halfway between what it classed as a medium reactor and a small reactor. There was no set rationale for why it classified, and it was many years ago, that 300 MW. The simple reason that ours is 470 MW is that we set a requirement on the design to be road transportable. Each module has to be transportable to site by road. That gives us maximum site flexibility. It also removes the need for expensive additional infrastructure, such as new port facilities or new roads, to get the parts in.

Having set the size for the biggest module to be road transportable, the biggest limitation across Europe is about a diameter of 4.5 metres for the biggest module. If we set that as the maximum size for our reactor pressure vessel, that gives us an internal diameter and an internal volume for that pressure vessel. Using conventional available fuel that is made today in the UK and elsewhere, that sets the power that we can get out of that pressure vessel, so we need to design around that power.

The objective that we had, which was set by the utility partners we have worked and continue to work with, was that they want the maximum power for the least capital cost. We are therefore delivering that within the constraint of road transportability.

Alan Woods:

Yes; all new plants that come to the UK have to go through the generic design assessment process. We put in our application to enter that process last week.

Alan Woods:

Our next phase of the programme is for the next three and a half to four years, which will get us to the end of GDA step 2. That is the point at which we have completely de-risked it—not that we see any risk to going through the regulation, because as I said, this is proven technology power plant. We have already been working with the regulator for some time. At that point, we move to the final step, which is step 3, and that will take about another 18 months.

Alan Woods:

We would actually start building ahead of that, because the GDA process allows us to prioritise the longer-lead items, the critical items, up front. We validate those with the Office for Nuclear Regulation early, on the basis that we can then get a release to order to accelerate the manufacturing process. We can do some of that activity in parallel by the way that we sequence the assessment through the GDA activity.

Alan Woods:

No, it is eminently possible by the 2030s; it is very doable.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Business, Energy and Industrial Strategy)

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?

Chris Ball:

If we work on the basis that Hinkley C is on line in let’s call it five years from now, we would have an issue if we held back over that time and thought that we then just move across. Naturally, within any project there is a phasing—there is a phasing of skills which means that we need to maintain a continuity almost at a lower level in terms of the breakdown of those skills. In my own organisation we currently have of the order of 600 people mobilised on Hinkley Point C. At this point in time, that is largely connected with civil engineering, civil design, design of structures, and that positions us quite clearly in a good position for future export markets. Those skills start to demobilise 12 months from now. Naturally in any major project such as this, civil engineering design is one of the earlier phases of the project. We will start to demobilise those skills 12 months from now, if not sooner, and you would probably say that we would demobilise three quarters of that skills base over the course of the subsequent 18 months. We are talking of a one year to two and a half year period over which we would be demobilising three quarters of our workforce, and taking skills out of the industry.

We would look at other neighbouring industries that have a demand on common skills bases to ensure that we maintain employment where possible, but it still represents a loss of capability from the industry that we may or may not be able to bring back in at some future point. That 12-month period from now is what is high on our mind.

Photo of Virginia Crosbie 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?

Alan Woods:

Chris made the point earlier that net zero is such an enormous challenge. We often think about decarbonisation in the context of the grid, but the grid in the UK in particular represents about 20% of the total energy we use. The rest of it is heat and transport. As we look to decarbonise heat and transport, there are not that many routes available, certainly in some of them. Hydrogen is one, synthetic fuels is one and of course more electrification, but the common denominator among all of those is that you need more clean electricity. The scale is enormous. We therefore welcome any financing mechanism that will help any industry, not just the nuclear industry, bring forward those clean technologies, because the reality is that we have to have them if we are going to meet net zero.

The implications if we are not innovative with how we approach financing both in nuclear but also in other industries mean that we become dependent on other sources of technologies—imported technologies financed from overseas, which bring with them the whole dependency on other nations for our critical energy infrastructure. Increasing that dependency puts our ability to meet net zero at more and more risk.

Chris Ball:

I will take a step back here. Earlier, I mentioned that there is a need for about 9 GW a year of construction to take place each year for the next 30 years. We need to find a way of building everything we possibly can in a way that is most cost-effective for the consumer. In every single area, there will be challenges for us to overcome.

People talk about offshore wind at £40 per megawatt-hour strike price. Actually, when it comes to the last two offshore wind farms—one up in East Anglia and one in Hornsea—one was at about £120 and one at £140 a megawatt-hour initial strike price. I recognise that offshore wind prices have been coming down; that is because of consistent underpinning Government policy. We have to replicate that in each and every one of these areas.

Just because offshore wind prices have come down, does not mean that they will continue to do that; they will reach a plateau and companies will start to go to deeper waters and floating offshore wind prices will pick up. We are also judging things on an old-fashioned measure of the levelised cost of electricity, but for renewables we need to start building in the cost of energy storage as well. That does not come cheap. There is a lot of talk about hydrogen, but that requires a lot of power. For every electron that goes into generating hydrogen, we might get 0.3 electrons back out again; it is not a one for one. That is quite often lost in the debate. Actually, I am a supporter of all these technologies; what I am saying is that we need to look at how we manage those risks.

Net zero will not be achieved without nuclear. From an engineering perspective, the system requires firm power on the grid. The RAB model is a good way of driving forward large-scale nuclear for the benefit of the consumer. Look at the levelised cost of electricity at, let us say, £40 per megawatt-hour for wind, noting my earlier comment, and add the storage costs; if you compare that with nuclear and the RAB model, the prices are very similar. Obviously, Alan also knows the SMR nuclear market very well and would say that, yes, it is similar there.

It worries me that if we do not find a way of pushing all these technologies forward, including carbon capture and sequestration and the technical challenges around that, the risk of failure for the 2050 net zero system is very high.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Q Dawn, did you want to answer next?

Dawn James:

Yes, please. There is a risk of not having financing models for UK electricity prices. We have seen some evidence of it this year. Earlier this summer, the wind was not blowing—I know it is a trite phrase, but it is so true—and the sun was not shining very much. We were having to fire up gas plants and to bring coal plants back on to meet the needs that we had then and to use our current fleet of nuclear power stations that, as I said before, had come offline.

Not having the financing model so that we have control of our energy supply here in the UK would mean that we would be held hostage by other nations. We have seen what has happened with gas prices. I am sure that you have heard all these arguments from other people; maybe it has even been quite emotional. It is a huge risk to every type of taxpayer in this country if we do not take control of our electricity generation, and not just from a net zero point of view. But actually, we will not achieve what we need to from a net zero point of view without nuclear.

Cameron Gilmour:

I can reinforce that. Our baseload generation comes to the end of its life in this decade; if we do not replace that and add to it, we will not continue our net zero ambitions with the current technologies on the table.

Dawn made a really good point about security of supply. We have seen what has happened to gas prices over the last few months. Baseload nuclear gives us confidence around pricing and supply. It is very complementary with renewables as well, with a mixed system of gigawatts, SMRs and future technologies being very complementary with all the renewables that we have on the grid and planned.

Photo of Virginia Crosbie 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?

Chris Ball:

I would observe that it is about making sure that companies come together as one, and that there is leadership in the industry. If a RAB model supports and encourages that, fantastic. Looking at nuclear nations around the world, those that have been successful in the decades since—the 2000s and ’90s onwards—we tend to find a clear industry lead. Sometimes that is the operator, and sometimes it is a reactor vendor, behind which everyone else is corralled. It is probably that leadership that we used to have in the UK in decades gone by, and behind which everyone corrals, that has aided a successful industry, particularly in overseas exports. That is the piece that is missing at the moment, but that does not mean that industry should not come together and do something about it itself. It probably should, and I include myself in that comment. If RAB encourages that, all the better, but that is an observation that I would make.

Alan Woods:

I would say that for us to be seen as a global leader in nuclear again we need to own the technology as a nation. We need to own the intellectual property; we need to export it; we need to be the country that other countries come to when they are thinking about wanting to deploy and exploit nuclear solutions in their home markets. I think that we will get there. With SMR, we will definitely get there. I think that that is what differentiates us.

You only need to read the news—there is an awful lot of noise around SMRs. There are a lot of vendors out there, and there is a lot of confusion about what is near-term and what are future technologies. I can speak at first hand, as I was in the Czech Republic yesterday, and they said that there is one thing that differentiates us. They believe that we can and will do it—and that is not true for everyone they look at. Having our own technology, coupled with the heritage that we have as a nation, we can and will grow back our position of being seen as a global leader in nuclear technologies around the world, without a doubt.

Dawn James:

I think your question, Virginia, is about the magic key to unlocking or getting back to that fabulous heritage that we have in the nuclear industry. At this moment in time, yes, it is, and we really welcome the legislation that is moving forward. I cannot begin to tell you how excited I am finally to see my industry moving forward at pace. I started in the nuclear industry when Sizewell B was commissioned—at the back end of the construction of the last power station in the UK—yet we still have a really thriving nuclear industry. This is the key to unlocking and creating an industry that will thrive for many years to come.

Cameron Gilmour:

A couple of points. I think that it is probably a question for the developers about gigawatt plants—could they raise the capital required without RAB? Probably the answer is no. There is a bigger issue at stake, which is sustaining the advantages in the ’60s and ’70s that Virginia talked about, and being able to have a new build programme that is both gigawatt and SMRs—EMRs in due course. That helps us to sustain expertise and knowledge, and help people with the careers that Dawn and I have had, for apprentices and for graduates in modern history. Without that funding we do not have a programme, and without a programme we do not have an industry with a future.

Photo of Anthony Browne 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.

Chris Ball:

Again, that is probably not my area of expertise. The way I have looked at this is to look at every technology, and where the challenge is around enabling mass deployment of that technology. With CCS at this point in time, the key issue is not necessarily about the financing but about how the market is going to be structured and the quality of demonstrator projects.

There are different models, of course, but if you believe some of the modelling out there, we would need to capture and sequester within the UK four times the current world capacity. That is not without its challenges. So in answer to your question, I would suspect that, of course, it can be applied to that, but I actually think there are other key focus areas that need some attention to start that market moving—not least the deployment of demonstrator projects in the near term hopefully as well.

Photo of Virginia Crosbie 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?

Chris Ball:

I think that is absolutely right, if you look at the RAB modelling. You have got to look at this from the concept of managing risk. How do we manage risk in the best possible way? You manage that risk through commonality and through ensuring that capability remains within the industry. We might deploy that commonality as pressurised water reactors. It might be a fleet of a couple of different designs, for instance, instead of one. From a risk perspective, it starts to consolidate down to a smaller number of different designs, with a level of commonality, where we can really drive risk and take the lessons from more projects to the next as well.

Alan Woods:

A fleet clearly drives cost benefits. That is absolutely true of SMRs, despite the fact that they are factory produced anyway. We need that throughput in the factories. I would go back to the point I raised at the start. We welcome RAB. It is a mechanism that helps reduce cost of capital, but from our perspective we see there are alternative mechanisms, such as leaning on the CfD mechanism, and pace is important for us. We need to start thinking about delivering this fleet now, and that is what we are doing. Therefore, we have to look at mechanisms that are available for us now. We believe we can do this from a CfD to start with.

Dawn James:

A fleet approach, without a shadow of doubt, drives down costs to the consumer by driving up our ability to replicate and driving in lessons learned from one station to the next. That security of work allows us to develop our workforce and to bring more people in. The more people you bring in at the bottom end, the more you drive down your costs, because you can spread the workforce across a number of different projects. It drives down costs in so many ways that, ultimately, that does get passed on to the consumer.

Cameron Gilmour:

Yes, I agree with that. I will just bring a people angle to this as well. When I talk to some of the amazing, talented young apprentices and people in our business and we talk about this exciting future, there is no question that, without RAB, we will not have that opportunity to create that future for them, which would be a huge waste of talent. RAB is the enabler to getting that certainty and continuity for that next generation.

Photo of Yvonne Fovargue 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.