New Clause 1 - Report on expected costs

Nuclear Energy (Financing) Bill – in a Public Bill Committee am 12:00 pm ar 25 Tachwedd 2021.

Danfonwch hysbysiad imi am ddadleuon fel hyn

“(1) Prior to exercising the power under section 6 (1), the Secretary of State must lay a report before Parliament.

(2) The report must set out—

(a) the expected overall capital cost of the prospective projects;

(b) the expected up-front cost of the prospective projects.” —

This new clause would require the Secretary of State to set out (a) the overall capital cost; and (b) the expected up-front cost of the prospective projects prior to exercising the power under Clause 6 (1).

Brought up, and read the First time.

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

I beg to move, That the clause be read a Second time.

Again, I am trying to rise to the challenge from the Minister to put forward amendments and new clauses to improve the Bill. New clause 1 is about trying to ensure much greater transparency on costs by asking the Secretary of State to lay a report before Parliament. That in itself should not be onerous and it is something that I expect the Minister would easily be able to commit to. All the other new clauses are similar and about trying to establish that transparency, so that parliamentarians and consumers understand the cost of a nuclear project once it is signed off or at different phases following that.

New clause 1 is very modest. Subsection (2)(a) is about the provision of confirmation of the capital cost. Parliamentarians and, more importantly, consumers need to know just how many billions of pounds are committed to each new nuclear project. We hear that Hinkley Point C is now costing around £22 billion, an increase of 25% on the original estimated cost of £18 billion, but we never get these figures confirmed by Government, because it is said that cost increase is a contractor risk. So, we do not ever formally get to understand the true costs of Hinkley Point C.

At the moment, while we assume that Sizewell C will be in at least the same order of magnitude of cost, we are always told that Sizewell C will be cheaper than Hinkley Point C because of lessons learned in the design and construction of the project. Even then, that still means that Sizewell C will be in the order of £20 billion. That is a lot of money being committed for consumers, and consumers have the right to know just how much money is being committed.

We do not even know how that £20 billion estimate is going to pan out because construction costs are soaring post covid and post Brexit. Even if savings are made on Hinkley Point C, they could easily be counterbalanced by natural cost increases in the construction industry.

Subsection (2)(b) calls for all up-front costs to be clarified. If we look at the development of Sizewell C, that would mean confirmation of how much of the £1.7 billion allocated in the budget has been used and what it was used for. We also need to know what other costs are committed to during the anticipated construction period. Under the RAB proposals, consumers will start to pay money as soon as construction begins, but they are actually not committed to the full construction cost because that gets spread out over the rest of the RAB contract period; but I think it is only right to know what costs have been committed to as soon as construction commences.

Looking at the bigger picture—possibly I should have made the new clause more wide-ranging—we need to know what decommissioning costs are committed to within the overall cost envelope. We should also have the full details of RAB payments in terms of anticipated changes going forward, over the six-year period post construction.

I say to the Minister that I do not want to hear commercial confidentiality used as a smokescreen for not providing information. Giving details of the kind that I have highlighted would in no way endanger an operating company’s patent in design, or people being able to work out the costs of individual elements, because we are looking for the big picture costs.

Lastly, we also need to consider any other consequential costs. As part of the Hinkley Point C deal, it was reported, the strike rate of Hinkley Point C would reduce from the extortionate £92.50 per megawatt hour strike rate to £89.50 per megawatt hour if Sizewell was given the go-ahead. However, presumably when that arrangement was agreed it was on the assumption that Sizewell would also be continuing on the contract for difference model. If a RAB funding model is agreed for Sizewell C, will we still see that reduction in strike rate for Hinkley Point C, or is that by default a further hidden cost of the RAB model if taken forward for Sizewell C?

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy 12:15, 25 Tachwedd 2021

As the hon. Gentleman just explained, new clause 1, tabled by himself and the hon. Member for Aberdeen North, seeks to place additional reporting requirements on the Secretary of State. In particular, it will oblige the Secretary of State to lay a report before Parliament outlining expected overall capital and up-front costs of the project, before the licence modification powers are exercised. I want to thank the hon. Member for engaging with the substance of the Bill. He is right that I challenged him on the first day because he had not tabled any amendments; now he duly has, and it is our job to debate and scrutinise those amendments.

While we agree that it is important for the Secretary of State’s decision making with respect to a RAB to be transparent, a requirement to publish details of a negotiated deal prior to the licence modifications could jeopardise our ability to complete a successful capital raise—that is the point here. That could in turn impact our capacity to secure value for money for consumers; at the end of the day, that is what this Bill is all about. I want to reassure the hon. Member—

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

Can the Minister explain more fully why giving detail on what the anticipated capital costs of the project are will somehow endanger the sign-off of that deal?

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy

At the point of the licence modification, we then go into the raising of the capital. Raising the capital may be more difficult, or be jeopardised, if that information has been published. It must be in the best interests overall for the Secretary of State to make the judgment as to how they can best effect best value for money for consumers, and ultimately for the sake of the taxpayers.

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

I am still not clear how putting in the public domain what the capital cost is would make it difficult for somebody to secure private investment. First, they will have already looked at securing investment; and secondly, once the costs are known it would surely be easier for them to secure additional private investment.

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy

The hon. Gentleman may be mixing up what is in the public domain and what is part of the negotiation. You will know, Mr Gray, that it is important for the Secretary of State to be able to, in the negotiation, get the best deal—that is what we are looking for here. That is the whole purpose of the legislation; the purpose of the RAB model is to save consumers money overall. It responds to the National Audit Office report that mentioned Hinkley Point C, and said that there ought to be the ability to save money overall by sharing costs between consumers and taxpayers. That is what the RAB model is seeking to do. What we are debating overall with this legislation is how to best effect a saving for the consumer, which we estimate to be in the region of £30 billion overall. That is a very effective saving for consumers.

I would like to reassure the hon. Member that the allowed revenue for the project will be calculated by the authority throughout the construction period, thus helping to ensure that the company is spending money efficiently and economically. In response to that part of the new clause looking for detail on capital costs, these will be a key input to a project’s value for money assessment as it goes through relevant approvals. As set out in our consultation on RAB, when assessing the value for money of new nuclear projects, the Government would be focused in particular on whether the project was expected to contribute to the target of net zero emissions by 2050 and deliver security of supply at a lower total electricity system cost for consumers than alternatives without the project, so additional considerations do come into play.

In response to the part of the new clause that asks about the up-front costs of a project, we have suggested elsewhere that any initial costs to the project financed under a RAB model would be very small. For example, a project beginning construction in 2023 would cost only a few pounds per dual-fuel household in this Parliament.

The new clause is not necessary, given the steps that we have taken elsewhere in the Bill to ensure that the modification procedure and the designation process that precedes it are as transparent as possible. We believe that sufficient transparency is already embedded in the Bill. The Secretary of State will be obliged to publish the designation statement setting out how they will assess nuclear companies against the designation criteria, including value for money, for a RAB project. The Secretary of State will also need to consult with a list of key independent bodies, including Ofgem as the RAB regulator, the UK’s nuclear and environmental regulators and the devolved Administrations, on their draft reasons for project designation, which will include the Secretary of State’s assessment of the project’s value for money. They will then be obliged to publish these reasons at the point that a project is designated.

The Secretary of State is also required to consult named persons prior to making any licence modifications, which will allow expert voices to input on whether the licence modifications are effective in facilitating investment. Following the consultation, the Secretary of State must then publish the details of any modifications made as soon as reasonably practicable after they are made. This approach—of consultation followed by publication—is well precedented in other licence modification powers.

I turn to a couple of points raised by the hon. Member for Kilmarnock and Loudoun. He asked some questions about potential the savings of Sizewell relative to Hinkley. First, of course we are expecting there to be savings—learnings from the Hinkley process to be transferred to the Sizewell process. Secondly, going back to what I said earlier, we would expect that the RAB model would also lead to savings overall for the consumer over the life of the plant.

The hon. Member then asked about the strike price reduction. Under the RAB model, it is not appropriate to talk about a strike price, because it is a fundamentally different financing construct, without a strike price, which is applicable under a contract for difference regime. It would not be appropriate to use a strike price in this case. It is fundamentally different.

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

My point was that part of the original strike rate deal agreement for Hinkley Point C was that if Sizewell C followed on, there would be a consequential reduction in the strike price for Hinkley. I know this is about a RAB model; but I am asking, will that consequential price decrease in the strike rate nevertheless be made—or, because of the RAB model, does Hinkley remain at £92.50?

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy

The hon. Member raises a very good question. The negotiation is ongoing at the moment with Sizewell. I reiterate the point made by the Secretary of State that the learning process from Hinkley is ultimately transferable to Sizewell. There are also aspects of the supply chain that were established for Hinkley that are transferable to Sizewell. If I understand correctly, there have been savings during the construction of Hinkley, with learnings from the earlier part of the construction going into the later part. We expect those savings to go forward to Sizewell. However, I stress again that comparing a RAB model strike price with the strike price of a contract for difference is not appropriate. There is no strike price with a RAB model.

By following this model and allowing the Secretary of State to lead on negotiations, as is standard for a project of this type, we will be able to achieve the best deal for consumers and taxpayers. I hope that demonstrates to hon. Members the Government’s commitment to transparency in the licence modification and the processes that support it. I hope they will withdraw the amendment.

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

I have listened to the Minister and I am still not convinced in any way that what he outlined will provide the transparency that I am looking for. Again, the argument is, in terms of construction costs, “Well, it is only a few pounds per dual-fuel household per month for the duration of this Parliament.” That is one of the points I keep returning to. “We are talking about just a few pounds per month per consumer” is a way of trying to minimise the actual costs that are being committed, and I do not think it is sufficient. That is why I want to see much more transparency on the actual costs that are committed.

It is also interesting that the Minister made an assessment about security of supply and the whole-system cost, and looking at the value for money of a nuclear power project on that basis. I would like to understand a bit better how the Government actually undertake that. I refer him to the Imperial College report that demonstrated that using pumped storage hydro would save £690 million a year compared with nuclear energy. So, clearly, it is all about how we look at the metrics and which other technologies we consider when looking at the whole system and looking ahead to 2050.

I will not press the new clause to a vote at the moment. We will look at bringing back something on Report to try to encapsulate what we are looking for in terms of that transparency. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.