Examination of Witnesses

Nuclear Energy (Financing) Bill – in a Public Bill Committee at 3:25 pm on 16th November 2021.

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Mycle Schneider, Professor Stephen Thomas and Doug Parr gave evidence.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield 3:59 pm, 16th November 2021

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?

Mycle Schneider:

Hi there. This is Mycle Schneider. I am an independent analyst and consultant on energy and nuclear policy based in Paris. I am the co-ordinator and publisher of the annual World Nuclear Industry Status Report, and it is in that capacity that Members have invited me. Thank you very much for the opportunity.

For people who are not familiar with the World Nuclear Industry Status Report, it is a multi-indicator analysis that is elaborated annually by an international team of interdisciplinary experts that I have co-ordinated since 2007. The 2021 edition had a dozen researchers from a number of quite outstanding think-tanks and research institutions, including the Harvard Kennedy School of Government, Chatham House, the Technical University of Berlin, the University of British Columbia, Nagasaki University and so on—just to give a quick overview.

Photo of Yvonne Fovargue 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?

Professor Thomas:

My name is Stephen Thomas. I am emeritus professor of energy policy at the University of Greenwich in London. For the past 40-plus years, I have been an independent energy policy analyst, first at Sussex University and more recently at Greenwich University.

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

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.

Mycle Schneider:

Thank you for the question. I believe that if we are talking about the climate change emergency, it implies two things: to be able to reduce greenhouse gas emissions as quickly as possible and at the largest rate—that is the combination of effectiveness in terms of quantity and time. If we spend, whether it is a pound, a euro or a dollar, we have to see which options give us results that are large and fast.

If we are looking to nuclear power as an option for reducing greenhouse gas emissions, it is pretty much clear today that the options that are available, whether it is efficiency or non-hydro renewables, are more climate efficient than nuclear. That is not only because, if you look at the cost estimates from institutions such as Lazard bank, about a quarter of the cost is needed to generate electricity by solar and wind, for example, compared with nuclear. It is also about five times slower to implement than other options. Again, I am referring essentially to efficiency and newer renewables. Actually, what we hear about possible investment over the longer term will, if ever, provide these services only in the longer term. That means beyond 2030, and far beyond that for some of the options we are talking about. In my opinion, that is much too slow.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Stephen, do you have any comments on that?

Professor Thomas:

Yes, I would like to pick up on the point about the need for reliable baseload plant. I can see the intuitive logic of that, but the National Grid’s scenarios—I trust the National Grid more than others on what it takes to run a reliable grid—say nothing about reliable baseload plant being needed. It has three scenarios to reach net zero by 2050, and in only one is Sizewell C required; the others do not require it. It seems entirely comfortable with the availability and cost of batteries. If National Grid does not see the need, I am not sure why I would. It is a non-sequitur that you need baseload plants.

Clearly, there is a baseload—in other words, a level of demand that we never go below—but I do not see the reason why we would need a dedicated set of plants to meet that baseload. It is like saying, if you have a factory that operates 24 hours a day, seven days a week, you need a set of workers that will work seven days a week, 24 hours a day. It is simply a non-sequitur.

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

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?

Professor Thomas:

It is not the right technology. Both renewables and nuclear power are not flexible options. Nuclear power only makes any sense—if it makes any sense at all—if it is operated round the clock, with baseload at the maximum level it can work at. If the wind is not blowing, there is nothing you can do with a nuclear power plant to fill in the gap. Clearly, whichever way you go, nuclear or renewables, you will need flexible plants, which will probably be batteries and perhaps some demand-side response, to fill in those gaps. The worst thing of all would be to mix two inflexible sources, because you will get a time when nuclear is not available and renewables are not available, and then you will be in much worse trouble.

Mycle Schneider:

There is this myth about nuclear power providing electricity 24/7. We have done a very detailed analysis of the French nuclear fleet for 2019—the year before covid—and it turned out that, basically, when the operator, EDF, starts an outage for maintenance and refuelling, it entirely loses control over the date and time it restarts. There are cases where there are 40 versions for the restart date and time. That does not really indicate that this is a 24/7 electricity-generating source. On the contrary, it means that even if we stick to the example of 40 revised dates and times, five of those were in the last 24 hours of that period. So not even 24 hours ahead was it possible for EDF to predict when 1,300 MW would be available to the grid or not. On the other hand, I think the whole concept of baseload is flying out of the window. As Stephen has said, what we need is flexibility. If we build up solar and wind massively, it means that a lot of that so-called baseload is already covered by those sources. It therefore becomes a competitive environment for certain times during the year and for certain times during the day. We need to fill in the gaps.

As the court of accounts has shown in its sensitivity analysis of the costs of nuclear power, the highest sensitivity is the productivity of the nuclear power plants. If the production levels go down, you increase costs significantly. We have seen over the past few years in France, but also obviously in the UK, lower production rates and therefore increased costs. That means that these reactors have become much less reliable. We have calculated that the average increase in 2019 over the expected outage time was 44%. It can be a planned outage of a week, and it turns out to be six months. That is not an exaggeration, we have cases like that.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

We have been joined now by Doug Parr. Please introduce yourself.

Doug Parr:

My name Dr Douglas Parr, and I am the policy director for Greenpeace UK. Apologies, I did not see the email that said that this session was starting early.

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

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.

Mycle Schneider:

I think I will pass that one on to my English-based colleagues who are better suited to answer.

Doug Parr:

There are certainly opportunities in tidal energy, and, at a minimum, I would hope that the Government would seek to pursue them in the next renewable auction round. I think there are a variety of technologies, certainly including tidal and geothermal. In terms of the subject of the Bill, nuclear energy is seen to be always on, but the overall competition for the grid is going to be between dispatchable and available power, which ideally should be flexible as well, and the provision of storage from cheap renewable power. In that sense, we are talking about green hydrogen, alongside these other renewable sources; but in terms of my personal preference, yes, I would certainly want to see tidal as part of the mix.

Professor Thomas:

We cannot prejudge whether tidal would be a useful technology until we have tried it out. We can look at nuclear and see that costs have gone up rather than down, and on the other hand we can look at offshore wind, and see that five years ago the cost was £140 a megawatt-hour and now we are down to £40 a megawatt-hour. I think it is an option that we need to test. Whether it will be a success, I do not know; we cannot judge that in advance. If it was a guaranteed certainty, I guess we would have done it, but we must try out all these options.

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 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?

Mycle Schneider:

Yes, I can briefly comment. I think you are referring to the V.C. Summer plant in South Carolina. It had a similar scheme to RAB, which basically allowed it to pass on cost overruns to electricity customers. Construction started in 2013. Westinghouse was the technology provider. The plants were supposed to come online in 2017. By 2017, the cost estimate had increased by 75%, and I believe that there were nine rate increases for ratepayers up to that point. Finally, in July 2017 the construction was abandoned. Obviously, this was one of the consequences of the fact that Westinghouse filed for bankruptcy, and one of the main reasons for that was the V.C. Summer AP1000 project.

It might be interesting for the Committee to spend some time studying this case because it also involved some very problematic criminal activity. The federal grand jury has charged the former senior vice-president of Westinghouse Electric Company, Jeffrey A. Benjamin, for his role in failing to report accurately the status of the construction of these nuclear sites. It is worth noting that he served as senior vice-president for new plans and major projects, and was therefore directly responsible for all new projects worldwide for Westinghouse during the period of the V.C. Summer project. He has been charged in a federal indictment with 16 felony counts,

“including conspiracy, wire fraud, securities fraud, and causing a publicly-traded company to keep a false record.”

That is a quote from the Justice Department. He is only one of four top managers who had criminal charges filed against them in this affair. The former chief executive officer of SCANA, the utility that was building the plant, pleaded guilty to federal felony charges and was sentenced to two years in jail, which will start in December. The case had major implications.

Obviously, the ratepayer is left with the ruins of concrete and steel, and with no kilowatt-hours. Apparently, reportedly this affair is not over. It has cost the ratepayers billions, and reportedly it will cost more over the 20 years to come.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

A number of Members want to ask questions, so could we keep them as short as possible?

Professor Thomas:

I wanted to add that what marked out the Summer project and a similar project in Georgia from those in all other states of the United States was that they were allowed to recover money from consumers before completion of the plant. That is a central feature of the RAB proposal. The Summer experience shows clearly the folly of making consumers pay for a plant before it is complete.

We have to be careful with the idea that we need to take measures to prevent unfinished plants from being abandoned. We have a very good example in Britain in the Dungeness B plant: it took 24 years to get from start of construction to commercial operation, and over its 32 years of operating life, its availability was well below 50%. It is very clear that the plant should have been abandoned before it was completed.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Doug, do you have any comments?

Doug Parr:

I am not sure that I have much to add. I read that the Summer plant added 18% to bill payers’ bills in South Carolina at one point, which is obviously a very considerable amount. I am not saying that those numbers are translatable to the UK context. It chose to expose the consumer to those considerable risks.

The Government really need some kind of independent evidence base for their judgments if they are going to enter bilateral negotiations with a plant builder who, on the basis of the plant builder’s word, can expose consumers to very considerable risks; Dr Schneider alluded to that. We see that with the RAB mechanism, the Government have a bilateral negotiation mechanism, and those do not have a happy history in almost any sector, including for the various networks. I am not quite sure how you establish that.

One thing that has been missing from nuclear policy as it applies to renewables and other mechanisms, such as the capacity mechanism, is the element of competition. The information asymmetry is potentially very strong. It gives a lot of cards to the nuclear seller—the nuclear provider—without giving the Government any backstop with regard to understanding what is going on. When there is competition via a reverse auction of the kind that we find in renewables, you factor those risks out, but consistently over the years—decades, in fact—this kind of discipline has not been applied to nuclear policy. With the RAB-type mechanism, those risks potentially land on the bill payer, not the provider of nuclear stations.

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 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?

Doug Parr:

I am not sure that I am across the detail enough to give a good answer to that one, I’m afraid. I would need to come back to the Committee on that, if that is all right.

Professor Thomas:

I think the problem is not the need for a special administrative regime to rescue things if it all goes badly wrong in the construction phase. I think the problem is the RAB mechanism that is putting consumers’ money at risk, and if we look at the impact assessment, we are looking at a plant that will not be completed until something like 2037 to 2041, so I will be paying into this plant for quite a long time and I probably will not live long enough to see any power from it. The special administrative regime is a way to try to solve a problem that is better solved by simply not using this RAB mechanism.

Photo of Anthony Browne 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.

Doug Parr:

I do not think I have ever made any secret of the fact that there are attendant risks that come with nuclear that do not apply to other forms of zero-carbon and low-carbon generation. What I would ask, in the light of the climate crisis—it is not an insignificant challenge that you have put there—is why UK Governments of all colours have continued to emphasise nuclear policy over and above other ways of cutting emissions. For example, the last time I saw figures on Department for Business, Energy and Industrial Strategy civil servants and where they were working, there were more people working on nuclear than on renewables and clean building heat put together, so when it came to two of the big-ticket items that are going to be absolutely essential—lots of renewable power and lots of clean heat for buildings—there were fewer civil servants working on those than on nuclear.

Nuclear is a bit-part player in this. All sensible, cost-effective models show that nuclear will not be a big piece of the pie, in terms of delivering what we need to deliver, and there are considerable problems with delivering heat, as members of the Committee will know. There are some substantial issues with delivering the amount of renewable power that we need, yet what we have is a Bill for delivering nuclear, and more civil servants working on it than on other things. I emphasise that this is a distortion that has been in place over years, and it is becoming quite problematic, because every time people are working on nuclear and not working on these other things—not putting energy and money into other things—we lose our ability to deliver what we need to deliver.

Photo of Anthony Browne 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?

Mycle Schneider:

The question has to be: if I spend money today, what is the most climate-effective option that is available? There is absolutely no doubt, wherever it is, that it is impossible today to build a new nuclear plant as quickly as many other options, and at a cost that is competitive. Every dollar, euro or pound put into new nuclear is making the climate crisis worse. There is no doubt about that; it is very clear. It is straightforward. Existing nuclear power plants are a bit of another story, because they are there.

Photo of Anthony Browne 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?

Mycle Schneider:

That is their problem. We have a very precise view about what nuclear power has actually delivered. Nuclear power is not a new technology. It was 70 years ago that construction started on the first nuclear power reactor. We have long experience, but the strange thing is that the nuclear industry always claims a “first of its kind” situation. It is surprising because whether it is Olkiluoto—an EPR in Finland—Flamanville in France or Hinkley Point C, every time the industry claims it is the first of a kind. How many times can it do that? We see that each time, costs skyrocket and the nuclear industry does not deliver.

By the way, the nuclear industry is not delivering on existing reactors, either. It is not a coincidence that Standard and Poor’s downrated EDF Energy to junk last year. For me, as an outside observer, that is a strange situation. Basically, the business as it is run by EFD Energy is judged by the credit rating agencies as not investment grade. In fact, the EDF Group has been downgraded as well. It is still investment grade, but only because they get additional notches from extraordinary state support. The RAB scheme suggests bringing down financing costs—making borrowed money cheaper—but the way EDF runs its business is judged to be so bad by credit rating agencies that it is rated non-investment grade.

All of those things have to be taken into account, and the question for me—having listened to much of the industry’s presentations today—is about how incredibly confident it is about what it will deliver in the future, when what it has delivered in the past is way off its own targets.

Photo of Anthony Browne 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.

Mycle Schneider:

Of course that is a substantial part of it, at this point. The problem is that in 2020 the production of nuclear power was the lowest it had been in 17 years, and the share of nuclear power in the French system was at its lowest since 1985. That does not sound like a very reliable source of electricity. Basically, the French reactors were down to zero production for 115 days in 2020. That means that for every two reactors you need one in reserve, because they do not generate power for a big part of the year.

Do not forget that France has created a very distorted energy system. The peak load in the winter is historically more than 100 GW, while the lowest load day is about 30 GW. To give you an idea, Germany is about 80 GW at the peak, but it has 20 million more people. France has distorted the system with electric space heating.

The nuclear sector provides just over 60 GW, and those 60 GW are never all available. So what happens in the winter is that France often imports power from Germany. As we know, quite a bit of that peak power from Germany is coal, so one has to look at the carbon footprint and not only the grand gigawatt-hour.

Photo of Yvonne Fovargue 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?

Photo of Mark Jenkinson 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?

Professor Thomas:

As I said, I do not think there is a case for the need for firm baseload power. If the National Grid Company does not think there is a need for it, who are we to tell it that it does not know how to operate a system reliably?

Photo of Mark Jenkinson 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?

Professor Thomas:

I would trust the National Grid Company over the Climate Change Committee on matters of reliability of the grid.

Photo of Mark Jenkinson 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?

Professor Thomas:

Yes, I am saying that it is wrong. If the National Grid Company does not say that there is a need for firm baseload power, I will trust it. If that means that the Climate Change Committee is wrong, so be it.

Photo of Mark Jenkinson Mark Jenkinson Conservative, Workington

Q Reliability not being baseload, but—Doug wants to come in. Go on, Doug.

Doug Parr:

There is a difference between firm and baseload. We absolutely need firm power because there will be spells when we do not have much wind and solar. That is where there is a need for firm power, and I do not believe that anybody who thinks about it for a moment would dispute that. The question is what forms that. As I hinted earlier, on the question about where nuclear fits in the overall system to deliver a cost-effective and secure system, it is now a race between cost-effective storage of renewable power on the one hand and something like nuclear on the other. We can see that the existing deployment of green hydrogen and the money that is flowing into it will bring that cost down sharply. The Climate Change Committee has already assumed that there will be cost reductions. How fast they will go is still not certain, but we know that those costs will come down pretty quickly.

Photo of Mark Jenkinson 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?

Doug Parr:

No, we are not. We are saying that there needs to be a storable medium for energy, and that is the gas that I would be talking about. There needs to be a firm dispatchable form of power, and that is what it is, because there will be times when there will be an excess of renewable power, which will be convertible. In the first instance, it will be exportable. Then it becomes importable, and usable in the form of stored energy. I take the point about what the committee says is necessary for system security, but as Steve said, the National Grid does not see that as being baseload; it is about something that can be flexible to accommodate the other aspects of the system, and it needs to be looked at as a system.

Photo of Mark Jenkinson Mark Jenkinson Conservative, Workington

It is semantics—baseload or firm power.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Order. I am going to move on. Two more people want to ask questions.

Photo of Mark Jenkinson Mark Jenkinson Conservative, Workington

I just want to pick up on hydrogen specifically, because we heard that it is incredibly inefficient.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Order. Mark, I am going to move on. There are two more people, and you have had a long time. I call Kirsty Blackman.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

Thank you very much, Ms Fovargue. Specifically on what Mycle said earlier in relation to the ways that we can tackle the climate emergency, given that the climate emergency is now are there better uses of money and time than supporting new nuclear?Q

Doug Parr:

I think we need to really get a shift on with deploying renewables as fast as possible. I know it is said that we are already deploying them. Sure, but are we deploying them at the speed we need to? I think the answer is no. We need to get a move on with that. That in itself will not take up a lot of money but, as the previous conversation alluded to, there need to be alterations to the electrical system that allow that to be best accommodated. That is where some of the money goes.

We also need much greater interconnection with the continent, because that allows the flows to be balanced much more easily, and we definitely need a shedload of money going into making our buildings and appliances more efficient, because the best and most secure energy is the stuff that you do not need. Those can all be done at scale in the 2020s, so well before Sizewell will ever get going.

Professor Thomas:

I do not think that you can possibly argue that nuclear is the best option to pursue. As Doug said, energy efficiency can be implemented very quickly, and it has the double pay-off that, whereas expensive new power sources will increase bills, energy efficiency measures will reduce both emissions and bills. It will have a welfare pay-off for low-income consumers as well as reducing our carbon emissions.

Mycle Schneider:

Most of it has been said. We need to schedule priorities by availability and cost. The combination of time and cost together makes climate effectiveness.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

Q A brief question that Stephen touched on, but specifically to Doug. Would you be happy to pay more money on your energy bill in order to fund new nuclear?

Doug Parr:

I would not be, no.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

Q Would you be happy to pay more money on your energy bill in order to fund new renewables, for example?

Doug Parr:

Yes. I have always been very clear that there are particular hazards around new nuclear developments, whether it is waste, the terrorist threat, what to do with them or security issues. That is why I think, as a society, it is worth avoiding those hazards and, if necessary, paying a bit more. In practice, there are models out there by, for example, Imperial College that say that no more new nuclear is on the cost-effective pathway, given the cost of renewables. Theoretically, I can say that. In practice, I am not sure that is the situation we are facing.

Photo of Matthew Pennycook Matthew Pennycook Shadow Minister (Business, Energy and Industrial Strategy)

Q I have a two-part question for the panel, but in particular for Professor Thomas. The Bill is clearly designed to facilitate primarily Sizewell C. I still think there is a lack of clarity about Chinese investment in that project and how that interacts with the Bill’s intentions. What is the panel’s understanding—and specifically Professor Thomas—about what is in the October 2016 strategic investment agreement and what provisions are there in that agreement that would allow the Government to remove CGN from the project? Related to that, we had a number of questions earlier about the £1.7 billion allocated to nuclear in the Budget. The Budget line says that that funding is there:

“to enable a final investment decision for a large-scale nuclear project in this Parliament, and the government remains in active negotiations with EDF over the Sizewell C project.”

What is your understanding of what that means and can you comment on potentially the use of that £1.7 billion as it relates to the RAB funding mechanism? It is a very different two sets of scenarios, if we are talking about whether that £1.7 billion is for a buy-out of the CGN minority stake or potentially put in as part of a pot of money alongside the funds generated from RAB.

Professor Thomas:

If we go back to the 2016 agreement, CGN agreed to take a third of the Hinkley Point C project: the construction and the operation of the plant. It agreed to take 20% of the Sizewell B/C project up to final investment decision. It has an option to take 20% of the construction and operation of the plant if it goes ahead and for Bradwell, there is the 66% of CGN and 33% of EDF. EDF and CGN have spent about £0.5 billion developing the plans to the point they have reached so far. Let us say it is going to take another £0.5 billion to get to final investment decision—that is at the most. So £1.7 billion seems a bit too much for that. The wording of the £1.7 billion is very vague. Some people have assumed it will be an 8.5% stake, or whatever £1.7 billion works out as.

In terms of how you would get CGN out of Sizewell C, I think it is really dependent on what happens to Bradwell B. It is clear that CGN’s presence in the UK is for only two reasons. First, to build the Bradwell B plant, and the price for that is its involvement in Sizewell C and Hinkley Point C. The other is to get the British safety regulator’s endorsement of its technology. If it is not going to be allowed to build Bradwell B, I cannot see why on earth it would be interested in putting money into Sizewell C. It is not CGN’s technology, it would provide nothing and it would not be particularly profitable. So if Bradwell B is abandoned, the Sizewell C CGN problem will solve itself. Can you briefly repeat me the gist of the second part of your question?

Photo of Matthew Pennycook Matthew Pennycook Shadow Minister (Business, Energy and Industrial Strategy)

Q I think you have answered it in part, but it is about your understanding of how that £1.7 billion might potentially be used in a Sizewell C project and how that, in a sense, relates to the RAB funding mechanism set out in the Bill.

Professor Thomas:

The CGN EDF consortium have spent about £0.5 billion so far, and they have some more money to spend to get to the final investment decision. They would then expect to sell that work to the company that actually builds and operates the plants, so they would get their money back. If Sizewell C goes ahead, it is sort of alone. It seems to make more sense to see it as a stake in the plant, which might encourage institutional investors to go in. If they saw Government involvement, they might think that it will probably not be allowed to collapse, but it is up to the Government to provide a bit more clarity about what they expect the £1.7 billion to do.

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

Q I have a question for Stephen Thomas. We heard this morning that the Sizewell C company is looking for a 60-year contract under the RAB funding. Does that mean that, effectively, bill payers will be paying for the asset before it comes into use and can generate electricity, and that they will continue to pay for it once it has reached its end of life? Are there any protections in the Bill? If Sizewell goes ahead and then goes offline early in the way that Dungeness went offline and had to be shut down seven years early, would the bill payer still be stuck paying for that under the RAB model, or is it possible to have recovery mechanisms in order to counteract that?

Professor Thomas:

I think there is a lot of missing detail in the RAB proposal, and one of the biggest elements of missing detail is how much the surcharge for consumers will be during the construction phase. The Government have said that it will be a maximum of about £10 per year per consumer. That makes no sense, because it would yield about £6 billion. In the context of a project that the Government said would cost between £24 billion and £40 billion, plus financing costs, £6 billion is a nice little present, but it will not be much of a game-changer. We need to see much more clarity about what that cost will be, because if it is to make a big change to the cost of power from Sizewell C, it has to be quite a significant surcharge. We also need to include that in the price of power. At the moment, we are talking about £60 per megawatt-hour and completely forgetting the £6 billion, or however much it will be, that consumers will put in during the construction phase.

In terms of what happens if the plant has to close early, there is a big problem with decommissioning. Decommissioning funds work on the basis of discounted cash flow—in other words, a liability that falls due in 50 years. You have to have enough money in place now, plus the interest it would earn for 50 years, to pay off the debt. If the plant closes early, you do not earn all that income and you have to bring forward the process of decommissioning, so there will be a big hole in the decommissioning funds.

I remind members of the Committee that the decommissioning funds that we have in the UK have continually failed. Consumers have paid three or four times over, only for the money to disappear and not be available for decommissioning. Decommissioning is a very serious issue. It appears to disappear because of the belief that you can invest a sum of money at 2.5% or 3%, in real terms, for 100 years. That is not the case, I am afraid—not on the historical evidence.

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

Q Under this current proposal, in effect, the decommissioning risk—some funding is built in, but the actual risk if costs increase or the liabilities kick in early—currently sits with the consumers.

Professor Thomas:

The only people who can pay are taxpayers. If the company goes bust, unless you have powers to pursue the companies back to their parents, and the parents are still there to pay off, you will be left with the taxpayers. We are talking about a process that happens something like 100 or 120 years after the plant starts up. The chances of an entity that owns the plant at the start still being around in 120 years’ time seems to be very slight, so I do not think that you will be able to pursue companies and you will end up with taxpayers having to foot the bill, as is the case with the Magnox plants now—that is being funded entirely by taxpayers.

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

Q Does a 60-year funding model under RAB make sense given that the maximum lifespan of a nuclear power station to date has been 40 years? Why therefore is it a 60-year funding model?

Professor Thomas:

That is a fairly rash decision, to go for 60 years. There are plants that are just about reaching their 50th birthday, but a lot of plants have retired well before that, so 35 years—as for Hinkley Point—is the very maximum I would want to go to.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Doug, did you want to come in on that?

Doug Parr:

Only as a rejoinder to what Stephen said about the risk of underperformance, if not early closure. Remember that the EPR that was constructed in Taishan is offline at the moment, because of a fuel issue. It has been offline for about three months, I think, and that is only three years into its operation. Underperformance, if not early closure, is a tangible issue even with that model of reactor.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

If there are no further questions from Members, I thank the witnesses for their evidence. Thank you very much for attending. That brings us to the end of our oral evidence session today. The Committee will meet again on Thursday to begin line-by-line scrutiny of the Bill, meeting at 11.30 am in Committee Room 11.

Ordered, That further consideration be now adjourned. —(Craig Whittaker.)

Adjourned till Thursday 18 November at half-past Eleven o’clock.

Written evidence reported to the House

NEFB01 Derek Wyatt (former MP 1997-2010)

NEFB02 Maike Windhorst

NEFB03 Urenco Limited

NEFB04 Together Against Sizewell C (TASC)