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CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 117-iii
House of commons
TAKEN BEFORE THE
Energy and Climate Change Committee
Building New Nuclear: The ChallengEs Ahead
Tuesday 23 October 2012
Vincent de Rivaz, Humphrey Cadoux-Hudson, Rupert Steele obe and Chris Anastasi
Sir Bernard Ingham and Sir William McAlpine
Richard George and Nick Butler
Evidence heard in Public Questions 193 - 360
USE OF THE TRANSCRIPT
This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
The transcript is an approved formal record of these proceedings. It will be printed in due course.
Taken before the Energy and Climate Change Committee
on Tuesday 23 October 2012
Sir Robert Smith (Chair)
Dr Phillip Lee
Examination of Witnesses
Witnesses: Mr Vincent de Rivaz, Chief Executive, EDF, Mr Humphrey Cadoux-Hudson, Managing Director, Nuclear New Build, EDF, Mr Rupert Steele, Director of Regulation, Scottish Power/Iberdrola, and Dr Chris Anastasi, Head of Government Affairs, Policy and Regulation, International Power, GDF Suez, gave evidence.
Q193 Chair: Welcome to the third of four sessions on building new nuclear: the challenges ahead. It would be helpful when witnesses are speaking for the first time if you could introduce yourselves. I understand EDF wanted to make a statement, just to set a little bit of the scene. Is it Mr Steele or Dr Anastasi?
Chris Anastasi: I would like to make a few comments, if I may, following EDF’s statement.
Vincent de Rivaz: Good morning, I am Vincent de Rivaz, the Chief Executive Officer for EDF Energy. Thank you very much for giving us the opportunity to set the scene briefly.
Today we face major and far-reaching decisions and we must take them in a difficult economic context, but the need for investment in our energy infrastructure is as real it has ever been, as Ofgem has recently made clear. We know that gas will have a continuing role to play in meeting our energy needs-indeed, in recent months, we have overseen the construction of a 1,300 megawatt combined cycle gas station in Nottinghamshire-but the reality is that North Sea gas is depleting and the UK is now increasingly dependent on imports from Norway and Russia. While shale gas should be investigated, it will not be a cheap and easy ride. Even BP has said that useable shale gas resources in Europe are limited. So our challenge remains the same: we need a balanced energy mix which delivers security of supply, affordability and decarbonisation. New nuclear has a vital role to play as part of the mix alongside renewables, and gas and coal fitted with carbon capture and storage.
Just as we need to be realistic about energy mix, we also must be realistic about long-term prices. We have to pay for very significant investments in our energy infrastructure. While electricity demand today is 25 terawatt hours, or 7% below the 2008 peak, this will not remain the case forever. We must be honest, just as Ofgem has been: with investment going in and the demand rising we must expect the unit price of electricity to increase over the coming decades.
I want now to turn briefly to the progress of our project in Somerset. We have taken considerable strides forward in terms of planning; in taking forward generic design assessment; in developing a new industrial covenant with our union partners and contractors; in identifying the right partners for key parts of our project, including the main civil works, and both the conventional and nuclear island; and in submitting to Government our proposal for a funded decommissioning programme. Our project team now numbers some 800 people. We are creating a world class team, including individuals who have worked successfully on delivering major projects such as the London 2012 Olympics. By the end of this year, the project will be ready for a final investment decision.
We are shovel ready; we are on the brink of delivering an infrastructure project similar in scale to the London Olympics. We are poised to deliver immense benefits in terms of jobs, skills and economic goals, locally and nationally-but, like all investors in capital intensive infrastructure projects we need to have a compelling business case. In this respect, our final investment decision requires more progress to be made. The Secretary of State has made it clear publicly that he is committed to making progress with the second reading of the Energy Bill before Christmas, and the Energy Minister told me last week of his determination and his confidence that this team has the mandate it needs. Progress requires, above all, the agreement of a Contract for Difference, including the strike price, duration, indexation and the conditions for review. We are engaged with DECC in an intensive process to review our costs, the project risks and delivery arrangements, and to define transitional arrangements.
The CfD will reveal the cost competitiveness of nuclear with all other low carbon technologies. Nuclear is the best low carbon choice for consumers. The CfD will be a simple, transparent and proven instrument. It will deliver a fair and balanced outcome for investors and customers. The transitional arrangement will give legally robust foundations well in advance of Royal Assent to the Energy Bill for the certainty we and our partners need to decide to invest.
So the reality is clear: we have workers with high visibility jackets standing ready to go to work on our site. The responsibility now is on the Government and us to deliver the CfD and transitional arrangements, the framework to make it possible for our project to move to the next stage around the end of the year
Q194 Chair: Thank you very much. Dr Anastasi, you wanted to make a comment.
Chris Anastasi: Yes. I am Chris Anastasi from GDF Suez. I am mindful of the fact that this is the first time either of these two companies have come to this forum and I just wanted to make sure that we frame our questions with a few comments. We are a joint venture between Iberdrola and GDF Suez. NuGen was formed in 2009, so we have been going for two or three years. The two companies are major international companies with interest in nuclear operations in Europe already. We have about 18,000 people in total working here in the UK, so we are serious actors in the energy game, but conscious that we are slightly behind the EDF project. We have only just begun our site assessment work and hope to complete that within the year as part of a programme of work leading to a final investment decision in 2015. That is our current status.
Q195 Chair: Thank you very much. We have quite a tight session so if answers could be succinct, we will try and make questions succinct as well.
We have already done an inquiry into electricity market reform and the Energy Bill, and we are waiting for the Government’s response. In this inquiry, we are looking at some of the other barriers to nuclear as well, and some of the other challenges facing nuclear. It has been put to us that while the Contract for Difference deals with the revenue risk, the construction risk is still going to hold back the investment that is needed to deliver the Government’s declared aim on nuclear. Do you think something more needs to be done to take on board the construction risk?
Vincent de Rivaz: There are two aspects to the construction risk. The first and most important one is to reduce those risks from the start, and that is the job that we have to do as the leader of the construction of these nuclear power plants. It is a job we do by having put in place a world class team, which is very clear about what it means to reduce the construction risk: to have a stabilised design before starting; to carry out detailed engineering studies before we start construction; and to have robust project management organisation with the role for engineering, the role for construction planning, the role for project managers, the role for commercial directors, the role for quality assurance, and the role for safety control. We also need to have a one team approach with all the main contractors civil, conventional island, nuclear island-working as one team with the same goal and the same purpose. We need to be clear that we will not start before we are ready, but when we start we will not stop. That is in a context where, I repeat, the key issue is to have a stabilised design before we start the construction, and it is all that we are doing. So the first response to the question of construction risks is to reduce them, to mitigate them, to control them as a competent and efficient company.
Now, regarding the investors’ views on this construction risk, the first thing is to give them this clear answer to the question: are we set up to succeed? Secondly, we have never been asked for the construction risk, for instance, to be taken within the Contract for Difference by the consumers. It is not our plan, we are not asking for that.
Rupert Steele: I am Rupert Steele, Director of Regulation at Scottish Power, looking after Iberdrola’s regulatory interests in the United Kingdom. Our perception is broadly similar, in that the starting point is to clarify the project and mitigate and reduce construction risks to the greatest extent possible. We are less definitive as to the best way to manage the residual risks that will continue to exist. These are large projects, which are working with relatively new designs that Europe has a relatively limited track record in building, to the extent that there is uncertainty. It will either be necessary to allow for that in the strike price or to have some kind of adjustment mechanism. Our view at the moment is that it is too early to tell which of those two routes has the better outcome for consumers and investors, but that is an issue we will address as we put our business case together later on in the development of our programme.
Q196 Chair: Presumably the first one is going to set the agenda for investors. If the first one comes in successfully on the construction risk, it will reduce that, but if it doesn’t then the hurdle for getting the next round of investment is going to be much higher?
Vincent de Rivaz: We are conscious of our responsibility being the first, leading the way, paving the way, and we are very clear that it is only when the first project has been kicked off after the final investment decision that we, with other developers, will be in a better position to talk about what should be-has to be-the vision for the country, which is how to deliver a programme in this country for the good of the customers.
Q197 Dan Byles: Can I briefly raise the issue of supply chain, and in particular UK supply chain? There have been some estimates that as much as 70% to 80% of the build could be provided from local supply chain companies, but the Institution of Mechanical Engineers is very concerned. They said what we might end up with is a very sharp spike in demand and then a sudden tailing off, rather than a consistent demand that might help lead us to a sustainable supply chain. What is your view on this, particularly in terms of supply chain bottlenecks? Are there any specific bottlenecks in the supply chain that could cause a delay to the overall build programme?
Vincent de Rivaz: It is a matter of great importance for us because we cannot succeed in delivering this project or in operating it for 60 years without a strong, competent, dedicated supply chain. That is why over the last three years we have organised a series of events to inform, to engage and to mobilise the UK supply chain, in the view that they take a significant role in the delivery of our project. I am confident that it will be the case. It is probably not appropriate to give any specific number, but our ambition is clearly that more than half the value of our project will be sourced from the UK. We will create through this project, something that has great importance for UK supply chain. This will be the first English speaking supply chain able not only to deliver in Britain, but to deliver projects of this kind in other parts of the world. That is our ambition,
Q198 Dan Byles: Do you think the fact that neither Areva nor Westinghouse are UK companies will be a limiting factor on this, in terms of their particular reacting times?
Vincent de Rivaz: Taking the example of the main civil works, it is a joint venture that we have selected as preferred bidder, made up of Laing O’Rourke and Bouygues. It is a 50/50 joint venture, and I am very confident that in terms of jobs, in terms of headcount working on the project, the huge majority will come from the British side of this joint venture.
Talking about Areva, it is true that the reactor itself of the EPR has to be provided by Areva, and Areva has a policy, as we have, to involve, to engage and to develop more and more subcontractors here in Britain. It is in their interest, in our interest, and it is our vision of this project.
Those projects will be always be sourced partly from abroad and significantly from UK, together in joint ventures. At the moment there are many companies in France and in Britain discussing the creation of joint ventures to deliver their contribution to the project, so we need to have far-reaching views of these. I don’t expect bottlenecks or difficulties of that sort. We have been engaging with the supply chain for the last three years, so things have not been done overnight, and will not. That is also one of the reasons why I am confident that we will deliver this project on cost and on budget, because the supply chain is part of the solution.
Q199 Dan Byles: Some people have suggested that in order to avoid bottlenecks, the UK needs to remain ahead of the game, because a lot of other countries are also considering significant new nuclear builds. Do you think a delay in us actually starting our new nuclear build could lead to more bottlenecks than if we get on with it, because suddenly other people start catching up and start fishing in the same supply pool?
Vincent de Rivaz: No, the delay is more a fundamental problem than this specific one. This country needs to deliver.
Q200 Dan Byles: I don’t disagree with you there.
Vincent de Rivaz: Everybody I speak to is expecting us to go ahead, and I say, "Well, we are working for that. There is still something to do." As I said earlier, Government has to do its part through the discussion we have on the Contract for Difference. So the main issue now is to get on with the Energy Bill and to have a clear process leading to the final investment decision in the next few months.
Q201 Dan Byles: Have you had much sight of the Government’s nuclear supply chain of a skills action plan, which is under development? Is there anything in particular you think Government need to put in that to make this work?
Humphrey Cadoux-Hudson: I am Humphrey Cadoux-Hudson, the Managing Director for the new build. Yes, we have engaged with Government on the action plan around the supply chain. Our focus has been to develop the UK supply chain as much as we can, as Vincent said, by being open and transparent about our requirements and giving the companies plenty of notice about the opportunities available to them to enable them to develop and get in the right place. The supply chain programme for Government is really looking longer term at the programme as the follow-on from the actions that we undertake in developing Hinkley Point.
Vincent de Rivaz: Part of the supply chain point you are raising is how we are going to engage with the productive workforce during the construction of our project. I am pleased to say, without entering into too many details, that this new covenant we want to have is now making significant progress. We are involving the unions and we expect to be able, in the next few weeks, to have this framework agreement in place-a tripartite agreement, with us as the client, the main contractors would be the civil works companies, the provider of the equipment for the conventional or the nuclear island, and the unions. That is part of the vision, we cannot engage in such a project without having clear vision of all the key factors to make it a success, and that is what we are doing.
Chris Anastasi: Could I make some general comments on the supply chain, although we are, as I said, slightly behind EDF in this context. I think the supply chain is pretty strong in the UK, and if you look at some of the nuclear operations that have happened over the last decade within the existing fleet, there is no doubt that the supply chain has been instrumental in maintaining the productivity of these plants. So there is terrific bedrock there, in our opinion, on which to build.
The second thing is that this issue was highlighted several years ago, I think, as a potential bottleneck, as you call it, and the Government, along with the industry of course, has done a tremendous amount in raising awareness of the need, identifying the gaps where possible, and trying to bring forward opportunities for the supply chain, and I think that is probably right. It is unrealistic to think that we can do another Sizewell B at 90% plus of local content and, indeed, an IBM study just a few years ago suggested maybe 70% was a more accurate number. I think probably, as Vincent has indicated, we hope that the majority will be from the UK.
Finally, from our own personal perspective, our Moorside site is, of course, in Cumbria and it is a terrific area for this, with excellent engineering and technical support in the area as a going concern facility. We are hoping that we will lever off that as much as we can with our project, of course. Equally, if we go ahead with the project, and we hope we do, we will be supporting this chain for many decades to come.
Q202 Chair: Can I return to the financing? Have either of the companies looked at the Treasury’s UK guarantee scheme to see if that would fit or help in any way take some of the construction risk out of the project?
Vincent de Rivaz: I wish to be clear about the construction risk: we are not asking the consumers to take the construction risks.
Humphrey Cadoux-Hudson: The guarantee scheme is set up to deliver the financing that a normal commercial lender would look at, so we need to see it in that context. Clearly, as we look forward through the process of financing this project, it could be a very important element of the financing, but the purpose of it is not to go and take construction risk, we will need to be able to show that there is adequate credit protection for credit headroom above the debt financing element, in order to protect the debt financing. So however we look at it, these projects will require a very large slice of equity funding.
Rupert Steele: From our point of view, the project obviously is at an earlier stage. We have a big work programme to work our way through before we are at the stage of being able to take a final investment decision and putting the finance together. When we get to that stage, around 2015, then the Government’s guarantee scheme will no doubt be one of the things that we will look at along with other options.
Vincent de Rivaz: There are many comments about the financeability of our projects. Many of these comments are based on the fact that people, and this is normal, do not know the details of the Contract for Difference. They do not know the certainty that we will get from this Contract for Difference in terms of the revenue stream in the long-term, and I do believe that with the mandate that the Government still has to work out with us-the various elements of this Contract for Difference-we will reach a situation where when people see it they will believe that it is a solution, and it will address many of the concerns that people have. The problem we have at the moment is that because we are in the stage of doing it, it is impossible to give the end product and to present it. But when it is there-and that is the purpose of what we are doing-it will be a convincing response to the people who are, rightly, asking for certainty on the long-term revenues. It is a big long-term investment, something that is very rare in this country, and asking for this certainty on the revenue stream for the Contract for Difference is simply the right thing to have asked for.
We will see what the Contract for Difference will be all about. It will have the strike price; it will have duration; it will have some formulas to take into account the consequence of inflation, for instance, during the construction and during the operation-it will have a series of elements that at the end will have to convince the investors that they can invest in this project because they will have a fair reward for the investments they are making, and they have to convince the consumers that they will be better off with this contract than without this contract. We will have to reveal the competitiveness of nuclear compared to other low carbon technologies. The strike price and the Contract for Difference will not be the problem; it will be the solution.
Q203 Dr Lee: If you were designing a way of funding nuclear energy, would you have done it this way, with Contracts for Difference?
Vincent de Rivaz: I think the world is watching Britain and will clearly see that the electricity market reform in general, and the Contract for Difference in particular, which is one of the elements, is indeed in the current world the optimal solution to get the funding for these type of project. I don’t think there is any better alternative.
Q204 Dr Lee: So you think it is the best approach?
Vincent de Rivaz: Yes.
Q205 Dr Lee: There was a recent article in which the strike price went down significantly if there was direct state funding of nuclear power construction-it went from about 140 down to 90. That is quite significant-
Chair: Phillip, I think we are coming to that later.
Q206 Ian Lavery: Looking at the construction of the new power station and the new reactors, I think there was a general consensus that a large workforce would be required to build them, but there were also great concerns about the lack of skills in terms of what would be required to build the reactors. Do you think the UK has in place the right programmes to ensure that the right skills will be available to build the others?
Humphrey Cadoux-Hudson: We have in the UK a significant, highly skilled workforce but, of course, we need to look forward to the future and look through the demands that the project will make. On our side, we have put a lot of investment and effort into building the skills up, we have invested in the energy centre at Bridgwater College and at the West Somerset Community College. In construction skills and other skills, we are looking at methods to enable people to move from one industry to another-for instance, out of the defence industry into nuclear construction. In all of those areas, we are looking to make sure that there are skills programmes set up and ready to enable the workforce to be developed, I think that sits alongside what Vincent mentioned to you-our engagement with unions to make sure that we have full agreement and that we set up sites that are fit for and give respect to the individuals that come on to our sites and, as a result of that, deliver the productivity that we need. All of that comes together. We currently have about 2,500 people running through the skills centre, building the skills up, particularly locally. There is a very strong interest that Somerset are seen to and do benefit from the construction programme when it comes through. So it is a very big area of focus for us.
Vincent de Rivaz: I was in Birmingham last week at a company event where I had the privilege to give accreditation to 48 apprentices who joined the company four years ago; they are now at the end of their cycle and getting this accreditation. We have recruited 70 new apprentices every year in the last years, and the number will go up. I can tell you that when there is a vision, when there is this magnet of something to achieve, we can make great things. With the apprentices, the young apprentices, we have formidable people, ready to spend their career in this industry with passion and skills. With the new graduates, we are getting more experienced people that have joined the project. We have recruited for our project key people who have been working on the Olympics, which is a formidable example of something that has been a great success, on time and on budget. We are also recruiting people from outside Britain, as well, to put together a world class team that will deliver. The skills will be blossoming in this context.
Q207 Ian Lavery: Is it fair to say that the panel believe that we do have the right skills to construct these power stations?
Humphrey Cadoux-Hudson: We need, as a country, to develop the skills. There are some very specialist skills-for instance, to do with welding the primary circuit-where it would be very difficult to qualify the welders for the first time around. We need to make sure that we bring people on and train them alongside the more experienced people that we may have to bring in, but it is not by any means a significant portion of the workforce doing this-it is just very small areas. For the rest, the country has the skills. They are either in the construction sector at the moment, or they are in other industries where they have skills, or they are the young people that we are bringing forward. I think by having, as a country, a clear strategy and plan as to the number of skilled people required by a programme, we can start training for the longer term. For our project, the Hinkley Point project, we have put in place ourselves the facilities and the programmes that we need.
Vincent de Rivaz: We should not be too downbeat about Britain’s ability to deliver. We have all learned from the stunning success of the Olympics that Britain can deliver something formidable. In a sense, our own Olympics will be in Somerset.
Q208 Ian Lavery: With respect to that, I am not sure if anybody has been downbeat, but I think people are really concerned because of the submissions that this Committee has received on whether we do have the correct skills in which to build these reactors, operate the reactors, and regulate the reactors. There are varying views and opinions on how many people will be required to construct these power stations and reactors, some say up to 50,000 people will be employed in the construction phases. How many will be from the UK?
Humphrey Cadoux-Hudson: We will employ as many as we possibly can from the UK. We are training people. If you talk about operations, we have already taken on over 80 graduates and we are taking on apprentices already, and this is a project that has not actually started. We have a programme that will build our operational workforce up from now through to going live for the station. As part of starting that training, we have sent some 40 graduates to France to work alongside the engineering teams in France and learn those skills and bring them back to the UK. We have an equivalent number of people-around 50 people-from France working with the team in the UK, building the skills up. For the operations, we will build up the skilled teams and train them, and they will be ready for when we run the operation.
Q209 Ian Lavery: How many will be from the UK? Say that 50,000 people are employed in the construction phase: how many will be from the UK? The real problem is that there are people suggesting that there is a skills shortage and there appears to be a reluctance from the panel to accept that. Does that mean that you are bringing people in from abroad, therefore it doesn’t matter whether we have got the right skills in the UK or not? Is that the reality of it?
Humphrey Cadoux-Hudson: You have quoted a figure of 50,000. Our construction sites will run to a maximum workforce of a bit over 5,500 people at any one point in time, but clearly we have different trades coming through at different stages through the construction. We estimate that about 25,000 will come through, be trained and inducted over the construction phase. The core number we are looking at at any time is, let’s say, 5,500, and as I say, we believe we will be able to find, together with our supply chain, those people. We will also be training people coming through, so we have discussions with our supply chain on the apprentice programme and we expect to engage around 400 plus apprentices on the construction side and around 200 on the operations side. Together with our supply chain and with the Government agencies that are involved in skills training, we will mobilise the workforce that we need in the UK.
Vincent de Rivaz: If I could just conclude on this point. We are investing in a £15 million world class training centre in Somerset, just to address this.
Q210 Ian Lavery: Is that the Bridgwater College?
Vincent de Rivaz: Yes.
Q211 Ian Lavery: Can you say at this stage how many students have actually graduated from courses?
Humphrey Cadoux-Hudson: It has just started. We have around 2,500 people running through those courses at the moment. We expect that to rise to about 5,000 next year. This is a very substantial effort on our part, very early on. We are still looking for the financial approval of the project, but we recognise our duty to make sure that the UK is ready and we are putting in place those steps. We did this very early because our engagement in the Bridgwater College, both on our energy centre and construction skills, and with the West Somerset College, has been done very early exactly to meet the point that you raised: because we have a responsibility, both for the country and for the local community, to make sure that this huge opportunity that we are proposing to push through is taken as much advantage of as possible.
Q212 Christopher Pincher: You mentioned the role of community engagement. As I think we all know, there is broad public support for the nuclear programme, and in those areas where the nuclear facilities are or are to be built there is much greater support, but the sense seems to me that public support is fragile, so I wonder what you are doing to deal with those potential concerns head on. What are the actions that you are taking to identify public concern about nuclear, and what are you doing about it?
Vincent de Rivaz: I often say that one key aspect accompanying the business case is the public acceptance case to make it possible. I am pleased to say that the reality is the following: all the polls are showing a national support for nuclear-to the question whether it has to be part of the energy mix in this country, the national support for nuclear stands at 66%. It faced a slight dip in spring 2011, after the Fukushima events, and everybody can understand that. Today, at the national level, the net support in favour of nuclear is higher than it was before Fukushima.
At local level, I said in my opening statement that we have made stunning progress for our application part of the planning process and are expecting, before Christmas, the planning inspectorate conclusions. I am very optimistic. Why? Because we have-it was in August- a section 106 deal from the three local councils. It has been three years of hard work, consultation, dialogue. It has been extensive-around 3,500 people took part in the three stages of the formal consultation; we held 39 exhibitions and 68 meetings, and there were around 2,000 formal responses and 33,000 comments. Only 5% of the comments we received were specifically about the nuclear issues, which means that the local people have understood what the local consultation was all about-not to challenge the national policy statement that has been voted by your Parliament in July 2011, but to address local issues: transport, housing, training, impact on the environment, and so on. We got this deal with the three local authorities; they have signed a joint letter saying, "For us it is a done deal."
Who would have expected that just two years or three years ago, when we had all the noises about the planning and all the problems? The largest infrastructure project ever in Britain in the new regime is going smoothly. I am not saying it is done easily and overnight, it requires a lot of effort. So I am confident, yes, that we have the support at a national level and we have the support at the local level.
Is it fragile? I would not say that. It is something we need to care about permanently. For me, the cross-party support we have for nuclear is absolutely essential for giving investors confidence. The public opinion support is absolutely essential, and we need to work day in, day out on that. First, as a nuclear operator in this country we have a huge responsibility to operate safely our 15 reactors, and we do it, as the safety regulator said. We have to be open and transparent. I have decided that we will reopen visitor centres on all our sites, which had been closed after 9/11. We opened the first one in Hunterston in Scotland in the presence of the Energy Minister of the Scottish Government, and I will open two others-one in Hinkley and one in Sizewell-on this side of the new year, and the rest in the first quarter of 2013. That is our policy: openness and transparency.
I can tell you the appetite of the local people to understand what we are doing, the trust they are putting in us, is remarkable and encouraging. So, again, we should be confident that if we do the right thing we will get the results.
Q213 Christopher Pincher: Can I ask you one very practical question? Sedgemoor Council has said that it would like to see retention of the local business rate where nuclear facilities are being built. Do you think that is only something that local councils want and it is not something that the local community, which may not see the benefit of that retention, want. Would they like to see a much more specific on the ground compensation for any disruption there might be?
Vincent de Rivaz: It is a fair requirement.
Humphrey Cadoux-Hudson: We can’t ignore that national infrastructure has to be built in local communities, and I think there is an issue of fairness, as Vincent said, to ensure that there is a balance between the disruption caused to people’s lives and the benefits that they get. Clearly, when we are operational the plant will deliver a large amount of rates, corporation tax, national insurance and PAYE, and all the rest to Central Government. I think it is only fair that a small proportion of that stays with the local community. We have voiced as strongly as we can the fact that it is a policy that should be pursued, and I believe that there is a strong interest now in Government in seeing that. As we look forward to the large amount of infrastructure that needs to be built in the country over the next decades, it is a wise investment in creating that balance between national and local needs.
Q214 Christopher Pincher: But how do you make sure that that retained business rate gets down to the local community and is not simply put away in savings by the local council? What, in concrete terms, can you do on the ground to make sure that local people living on the doorstep of a nuclear facility feel that they are getting some bang for their buck?
Humphrey Cadoux-Hudson: It has been explored in other countries. In France there is a grand chantier mechanism that has been directed exactly at doing that. So I would say let’s not learn from scratch; go and look at what has been done in other countries and other communities, but it is obviously possible that you can make sure that the local communities benefit from such an allocation of business rates.
Rupert Steele: It is also in the gift of local electors, if they feel that the local council is not assisting them properly with the windfall, to take action of their own.
Christopher Pincher: A manifesto commitment?
Q215 Barry Gardiner: I want to turn to financial security, decommissioning and other long-term liabilities. Both EDF and NuGen have said that you support the funded decommissioning programme. What further details do you require from Government about that? Can you just list them-we are very short of time because you have taken so much time answering at length and we need to get through a lot of questions.
Humphrey Cadoux-Hudson: Well, on the funded decommissioning and dealing with the spent fuel over the life of the project, we have had long discussions with DECC and departments and have submitted a funded decommissioning plan to DECC that effectively sets up from day one a fund that will grow through the life of the project as we deliver energy and we consume fuel. Step by step we will build up a fund that is adequate in a protected fund, segregated and separated from the company. It will deliver, well before the end of the commercial life of the project, a fund that is-
Q216 Barry Gardiner: Sorry, with respect, Mr Cadoux-Hudson, I know this. What I am asking you for is the additional necessary detail that you have requested from Government. What is that additional detail? We know what the shape of the independent fund will look like, but what is the additional detail you require from Government?
Humphrey Cadoux-Hudson: I am not sure I understand the question.
Q217 Barry Gardiner: Both you and NuGen have said that more detail is needed about the funded decommissioning programme from Government. I am asking you, what is that further detail?
Humphrey Cadoux-Hudson: It is a detailed negotiation with DECC, and we have put in a plan. The critical issue that remains that we need to be sure about is that the scheme-the agreement-we enter into will stay in its form commercially over the life of the project. It is not possible for us to invest and discover one or two years later that the deal has been materially changed. The most significant issue is stability-long-term stability-that allows a financial investment decision to be taken today and stay as a reasonable decision over the life of the plant.
Q218 Barry Gardiner: That seems perfectly fair. Let me probe further your own statement, which did not seem to me perfectly fair. It says, "We fully support the principle in the FDP that the operator of a new nuclear power station must pay for the full costs of decommissioning" but then you go on to say, and draw a distinction, "and its full share of waste management costs". Is that full share less than 100%, if so, why and how do you propose that share should be made?
Vincent de Rivaz: There is no mystery in this. The decommissioning of our plant is going to be fully borne by us.
Q219 Barry Gardiner: In the independent fund?
Vincent de Rivaz: The scheme in general will welcome waste from other operators and what we are saying is that we are going to take the full share of the waste coming from our plants in this funding.
Q220 Barry Gardiner: So it is 100% of your waste and everybody else will pay 100% for their waste, but there is no suggestion here, in the distinction that you have drawn, that the taxpayer will be paying any part of the share?
Vincent de Rivaz: Your understanding is absolutely correct.
Barry Gardiner: Thank you.
Humphrey Cadoux-Hudson: There is a fixed cost for a deep depository and the allocation of that fixed cost to the users of the deep depository is a matter for more detailed discussion. The principle is that we will pay.
Q221 Barry Gardiner: That is the next question that I wanted to ask you. Thank you for that clarity. The next problem of course is that the Government has said it will not set the waste transfer price until the early to mid-2040s, so it appears that you will not have the sort of clarity that you seek on that waste transfer price for quite some time. What impact is that going to have on your investment profile, your cost of capital and your investment decisions?
Humphrey Cadoux-Hudson: The discussions on the waste transfer is that the price will be determined later, but it will be capped. There will be a maximum price. That has been set at a level with a quite a degree of margin, I should say, but for us it is important that that cap is set at a level that we can understand financially and is set at a time when we can take reliance on it.
Q222 Barry Gardiner: That is the £370 million figure for the power station?
Humphrey Cadoux-Hudson: Sorry, that cap is in terms of the quantity of fuel, so it is per quantity of fuel produced, as opposed to-
Q223 Barry Gardiner: Sorry, where does £370 million figure come from then for waste disposal? Indicative figures published by the department suggest that it would create a maximum liability on one station of about £370 million. Is that the figure-
Humphrey Cadoux-Hudson: That is an estimate, but the actual cap written into the contract would be based on the quantity of fuel.
Barry Gardiner: Thank you very much.
Q224 Albert Owen: If I could move on to political leadership, a question for all of you is: is there a supportive political framework for new nuclear in the United Kingdom?
Vincent de Rivaz: The answer is yes.
Albert Owen: Good. Let’s hear some other voices for a bit, if we may.
Vincent de Rivaz: Okay, very good.
Chris Anastasi: I don’t think there is any doubt that the UK political parties have supported the new nuclear build. I think it has been terrific that over successive Parliaments there has been strong political support, and even post-Fukushima polls suggest it is in the mid-80s in terms of support.
How has that manifested itself? We are seeing progress in a number of the key elements associated with the new nuclear build, whether it is the generic design assessment, the planning protocols or EMR-all of these have been necessary to bring forward new nuclear build. It is fair to say that that was driven with political will. It just remains now for that last step: to deliver the EMR framework.
Q225 Albert Owen: Again, you are happy with the political support you have had thus far, but can I ask Mr Steele and others: do you feel if EMR had been done sooner, then you would have had spades in the ground now and things would have been moving forward? Has the political process held this back? Because you said yourself, with regards to EDF, that it is up to Government-you mentioned that a few times in your opening statement: it is up to Government. Has Government been dragging its heels? Should we be now further ahead in building of new nuclear power and has the political process or Government held you back?
Rupert Steele: From our point of view, we are very happy with the timetable for EMR. It is important that it is kept to because there are a number of investments-not only nuclear but renewables as well-that depend on it, but it is a complicated process that needs a lot of thought and it is incumbent on the industry to work hard with the Government to make sure that everybody understands those issues and to deliver a functional framework that works for consumers and for investors.
Q226 Albert Owen: Mr Steele, very few, with the exception of one or two, of those who gave evidence during our scrutiny of the Bill were happy with the framework. They were concerned about delays. You are now saying that you don’t have those concerns or there was nothing holding us back?
Rupert Steele: I am saying the timetable that the Government has set out is fine. It would be a big problem if it slipped further. We are working very hard with the Government to try to help get it delivered and get it right because that is important as well.
Q227 Albert Owen: The reason I raise this question-and I will obviously allow more than a one word answer from EDF here-is that Friends of Nuclear Power are saying that there is no clarity and that they have concerns about whether the Government want nuclear power or not. That has been submitted to us in the evidence. Could you comment on that?
Vincent de Rivaz: We have no concern about it. I have no concern, because when I read what the Secretary of State said last week about the Energy Bill getting second reading before Christmas, what he said to the CBI-
Q228 Albert Owen: Which Christmas?
Vincent de Rivaz: Do you believe that as a company we would have invested as much as we have done pre-decision if we did not expect the Government of Great Britain to be serious? It was a policy put in place by the Labour Government, which has been maintained by the current Coalition Government. I remember in the days after the Fukushima events there was a debate in the House when the Prime Minister said clearly that the policy is unchanged, and the Leader of the Opposition stood to up to say, "We don’t want to delay important progress. We need to make new nuclear power in this country." So there is a cross-party political consensus. The Energy Bill will be presented early November, second reading before Christmas 2012. We hold this Government to account and we believe they will deliver.
People say there was no clarity. When they say that, they just recognise the fact that we don’t yet know what will be the result of the discussion on the CfD, which is precisely about bringing this clarity. Of course we cannot give the results before we have them, but when we have them there will be clarity. If we have no clarity we will not invest. So that is pretty simple. We have to trust ourselves. It is not a negotiation between us and the Government-it is not us trying to twist the arm of the Government and, through the Government, the arm of the consumers of this country in the long-term; it is just the opposite. It is just about building the solutions together, win-win solutions. As investors, it is a big investment, a long-term investment, a major investment, so we need clarity about the returns. It has to be fair for the investors, and consumers have to be clear that they will not pay more than otherwise. I have heard so many things about the strike price of nuclear. People are making noises about things they ignore-
Q229 Albert Owen: With respect, I don’t want a statement again. I am very clear and very positive about nuclear power but others are not, and what they are saying is that major investors are pulling out and that has happened in recent months. The question I was asking was, does that have anything to do with the political process and the delays at a political level in your opinion? You don’t think so?
Vincent de Rivaz: It is for those who have put it off to answer.
Albert Owen: Sorry, I missed that bit.
Vincent de Rivaz: It is for those who have put it off to answer to the question why they have done that. I just refer to what the German companies said in this Committee a few months ago: they said very clearly, publicly, that it was nothing to do with the framework in this country; it was all to do with the financial situation and other political issues that they have; it is a choice between various priorities. Frankly speaking, when we look at the situation worldwide, we have in the UK the country that is ready to put in place the framework allowing nuclear to happen. It is not yet done, that is for sure, but why is there this feeling of impatience or uncertainty? To be honest, the discussion is going on and we are co-building with the Government the solutions about the Contract for Difference. It is a big issue. I am confident we will get there, I am confident that the negotiation team has a mandate to go ahead, and I am confident that when the Chancellor says what he says, when the Prime Minister says what he says, when the Secretary of State says what he says, we can hold them to account.
Albert Owen: That is our job and we tried to do that with the Energy Bill, but I think we have had the answers that I wanted.
Q230 Dan Byles: We are very short of time so if we could try to keep this fairly tight. Surely, ultimately, whether or not new nuclear is a cost effective way of generating power going forwards is going to come down to what this strike price is?
Vincent de Rivaz: Yes.
Q231 Dan Byles: So when EDF sit down in a dark room with beer and sandwiches with DECC to work out a bilateral price some time later this year, we are all watching very carefully. Where is going to be, ballpark figure? I know you can’t give us a firm figure. Is it going to be cheaper than offshore winds £100 per megawatt hour that they are trying to get down to?
Vincent de Rivaz: It is not a dark and smoked filled room.
Q232 Dan Byles: Is it going to be a clear and transparent process?
Vincent de Rivaz: You have been-
Dan Byles: I am being slightly deliberately-
Vincent de Rivaz: Smoking is forbidden and the light is on so it is not dark.
Q233 Dan Byles: But the process doesn’t seem very transparent.
Vincent de Rivaz: It is transparent. We are in the process of cost discovery, which will be totally transparent.
Q234 Dan Byles: Will it be widely published?
Vincent de Rivaz: We know that it has to be auditable, that we need to face the scrutiny of Parliament and other public opinion, and we are ready for that.
Dan Byles: We are very pleased to hear that.
Vincent de Rivaz: We relish the challenge to have the Contract for Difference revealing the competitiveness of nuclear. There is a cost discovery process going on. We have put on the table for DECC all our costs. There is a risk analysis which has been done in common, and we need to discuss how to mitigate those risks, and so on. That is the work we are doing. Then the result of it will be public. I am sorry, there is a commercial discussion at the moment, and if I give you a number without the context it will unhelpful in all aspects.
Q235 Dan Byles: But without giving us an actual number, do you accept that for it to be cost effective going forward, new nuclear has to be able to stand on its own two feet against the falling cost of offshore wind and the lower cost of onshore wind? Early figures are talking in the 70s in terms of pounds per megawatt hour, and I am now reading figures of about £140, which worries me.
Vincent de Rivaz: Utterly rubbish.
Q236 Dan Byles: Good, I am pleased to hear that. So you can comment on something.
Vincent de Rivaz: I am disappointed this number is still flying around because I have emphatically denied it.
Q237 Dan Byles: The £140 figure?
Vincent de Rivaz: Of course.
Dan Byles: Good, good.
Vincent de Rivaz: People are writing long articles in newspapers based on this flawed assumption. It is rubbish.
Q238 Dan Byles: So you can comment on some figures. Can you comment on £100?
Vincent de Rivaz: No, because I respect DECC and Treasury and I respect the process that is going on. I am not cutting corners, it is too important. We all have to be patient. If we are cutting corners we are going to derail the process. What I have said is that the Contract for Difference, the strike price, will reveal the competitiveness compared to other low carbon technologies. I believe that nuclear is the best low carbon technology available in this country at the moment. That is what we are going to demonstrate through a transparent, open process that is going on, which requires that everybody bears with us positively.
Q239 Dan Byles: Are you expecting to have a price by the end of the year?
Vincent de Rivaz: The purpose of the project is to be ready and we are going to work as project for a figure at the end of the year. Now, the Government has to do its part and I think they will. The Energy Bill will have its second reading before Christmas. We need to have the transitional arrangement in place, and all that will entail. Many months will pass between the moment the CfD is agreed and the Royal Assent to the Bill. We need to have something in place that robustly legally protects us during this period. That is the level of certainty that we need to have. That is the discussion we are having at the moment.
Q240 Dan Byles: Do you think DECC have the capacity, capability and knowledge to able to sit on the other side of the table and robustly discuss this with you?
Vincent de Rivaz: Yes.
Q241 Dan Byles: You do?
Humphrey Cadoux-Hudson: Yes, they have engaged companies to help them-KPMG, Jacobs, and so on-and it is an issue that is involving Treasury and other departments of Government, so I am sure that Government in the round is able to deal with the issues in front of them.
Q242 Barry Gardiner: I’d never seen you say yes so quickly. It is the first one word answer we have been able to get out of you, which means that the answer is clearly no. It is not in your interest to say that they are completely incompetent and can’t negotiate with you.
Vincent de Rivaz: No, you asked me to make short answers.
Q243 Barry Gardiner: Very good, I appreciate that. Let’s go for another short answer then. If you were to increase the estimate of the cost of your reactors at Hinkley Point by 40%, what would that do to the negotiations on the strike price?
Vincent de Rivaz: 40% of what?
Q244 Barry Gardiner: You will have seen the letter from Sir William McAlpine to the Chairman-
Vincent de Rivaz: A letter about what? About the cost of Hinkley? What does he know about it?
Barry Gardiner: Okay, shall I finish asking the question and then perhaps you would care to answer it?
Vincent de Rivaz: Yes, yes, yes.
Barry Gardiner: In your usual curt fashion.
Vincent de Rivaz: I don’t know what you are asking but I can tell you he does not know anything about the cost of Hinkley, so everything he can say is just-
Barry Gardiner: I do not wish to infer in your personal attack on the gentleman.
Vincent de Rivaz: No, no, no, it is not personal.
Q245 Barry Gardiner: All I wish to do is to ask the question, Mr de Rivaz. If you would allow me to ask you the question, we are very limited in time and you have done a wonderful job of filibustering this session out, but let us now proceed to the question.
In his letter, Sir William says, "Our problem is that the strike price negotiation is anything but transparent. We have no idea why EDF, seeking to build two new reactors at Hinkley Point, suddenly increased its estimated cost of each reactor by 40% to £14 billion in total. Nor do we have any reliable estimates of the annual cost today of operating such large reactors". I don’t want to go on to that point. My question to you is: is that statement about the rise in the estimated cost of the reactor true? Was there a rise in the estimated cost of the reactor? Is the estimated cost of the reactors now being quoted, £14 billion, correct? If so, what would that do to your negotiations about a strike price?
Vincent de Rivaz: I hope that after having listened to what I have said, Mr McAlpine no longer thinks what he said in his letter, because I have said just the opposite about the openness of the process and so on and I don’t want to repeat myself. When he says he does not know, he is right-he does not know and he has no reason to know. We, the companies that are part of the project, like Laing O’Rourke, know more than his company, because they are in the project.
Q246 Barry Gardiner: Let’s not answer this in an epistemological way about what he can possibly know; let’s answer it by what you do know. My question is to you, not to what you think about him. What I am asking you is has there been an increase in your estimate to DECC about the cost of those reactors?
Vincent de Rivaz: No. We have-
Q247 Barry Gardiner: So you haven’t increased the costs in your estimate?
Vincent de Rivaz: We have been in a process of cost discovery, which is based on what the design is. We are now finishing the process of having a stable design with the safety authority-generic design assessment. The good news, again, is that the safety authority has said that they have every confidence that at the end of the year, we will have fixed all the problems, we will have a stable design. That is big input. We are discussing with many contractors many civil works, conventional island, nuclear island, to bring with them the cost elements. We have been adding all of these elements and we are now in a position to, and we have done it, give DECC the numbers that we feel at the moment are the most likely to be the cost of the construction.
Q248 Barry Gardiner: Excellent. Are those numbers larger or smaller than the numbers that you first gave them, and if so, by how much?
Vincent de Rivaz: I have no reference. I have started this process recently so there is no comparison to be made with other numbers. It is a process that I started at the right time with the elements that we had, and at the end what matters is, first, that we are able to deliver on cost and on time; and, secondly, that the strike price, which will obviously be commensurate with the cost, is seen as fair for the investors and for the consumers. So do not create a problem that does not exist. We cannot compare with something that did not exist in the past; we are starting a new first of a kind project in Somerset, taking into account all the elements that we have to take into account-what the safety authority is asking for, the regulations that you have in this country and the site specifications. The project in Somerset is not the same project as elsewhere. It is a process, and we are now in a position to be ready to say what costs and timeframe will be for the construction. That is an input that is in the data room at DECC, and with this input they can run their model to see what the strike price is.
Q249 Barry Gardiner: Mr de Rivaz, you have said that the strike price will in part be determined by the costs of the project?
Vincent de Rivaz: Yes.
Q250 Barry Gardiner: Does that imply that there is a perverse incentive at this stage for you to estimate a higher cost for the project, in order to be able to negotiate a higher strike price?
Vincent de Rivaz: We are not having any perverse behaviour in this.
Q251 Barry Gardiner: I didn’t say behaviour-no, no, I am not accusing you of anything, I am saying that there is a perverse incentive built into this process.
Vincent de Rivaz: No. Why?
Q252 Barry Gardiner: Because you yourself have said that the cost of the scheme is going to then influence the strike price that you are able to negotiate. Therefore, the higher the cost of the scheme, the higher the cost of the strike price that you can get. That is a perverse incentive in anybody’s dictionary.
Vincent de Rivaz: No, absolutely not. We are in a virtuous process, which is all about having a balanced deal. I am sorry to repeat myself. I don’t want to sign a deal that is not balanced, because if it is not balanced it will not be stable, not durable. We are in the long-term business, it would be a folly to try to cheat; there would be an immediate backlash. It will not happen. I am not ready to sign a contract based on flawed assumptions.
Q253 Barry Gardiner: Okay, I accept that.
Vincent de Rivaz: No, it is serious-
Q254 Barry Gardiner: Mr de Rivaz, you don’t need to go on because I accept that.
Vincent de Rivaz: If I was increasing the cost to get a strike price that would not be competitive, I would be saying that nuclear is not competitive, that is not my job, I am in the job to demonstrate that nuclear is competitive.
Q255 Barry Gardiner: That is a very good answer and I accept it. Take yes for answer, okay?
Now, in equal fashion, in exactly the same way as you have talked about the importance of balance there, do you not acknowledge the importance of balance in relation to Mr Byles’ question, which was about the need to ensure that this still looks good when the price of onshore and offshore wind has come down, and it still looks competitive going forward, for exactly the same reason as Mr Cadoux-Hudson said earlier was so important to you and that is stability in the regulatory process?
Vincent de Rivaz: Yes.
Q256 Barry Gardiner: You don’t want a Government later on to come in here and say, "Look, we can’t go on with the situation where we are paying less than £100 per megawatt for wind, but we are paying you over those odds," and yet you refuse to answer Mr Byles’ question. Do you not accept that now, by exactly the same logic, that you have put to-
Vincent de Rivaz: I have answered the question. I have. I agree with you. We are not seeking a deal that will not be sustainable. So that is the main point.
Q257 Barry Gardiner: So it must be sustainable against the future price of wind?
Humphrey Cadoux-Hudson: In as much as we know what the future of the price of wind will be.
Q258 Barry Gardiner: Indeed, of course.
Vincent de Rivaz: You have made an assumption that the offshore price will go down.
Q259 Barry Gardiner: It is DECC’s assumption, actually, it is not ours.
Vincent de Rivaz: Fine. Okay, we will see.
Q260 Dr Lee: It is a straightforward question. Would you have designed it like this? If you were the British Government, would you have designed a Contract for Difference model to fund new nuclear build? Is it the cheapest way of doing it?
Humphrey Cadoux-Hudson: The problem is not to fund nuclear build, it is to fund low carbon energy.
Q261 Dr Lee: No, I am separating it. I take nuclear out of this. If you were funding nuclear, would you have done it this way?
Vincent de Rivaz: I believe so.
Q262 Dr Lee: Why?
Vincent de Rivaz: Because it brings the certainty in the long term that the investors-the funders-are legitimately asking for.
Q263 Dr Lee: But the problem with nuclear is the upfront initial capital costs are the challenge.
Vincent de Rivaz: Yes.
Q264 Dr Lee: The on-going running cost in comparison to others, are marginal.
Vincent de Rivaz: Yes, true.
Q265 Dr Lee: If you are going to guarantee a price floor, that is perverse-it is the wrong way round, is it not?
Vincent de Rivaz: No, because the return that you have is on the whole duration.
Q266 Dr Lee: No, the return for you is on the duration. It looks like it is structured to pay an annuity to the French taxpayer for the next 40 years.
Vincent de Rivaz: Sorry, we should avoid any sort of jingoism on this matter.
Q267 Dr Lee: No, I do not think we should, because it is a state owned company. It is not about being jingoistic; it is about being factual.
Vincent de Rivaz: Okay. We have shareholders. One of them is the French state and the others are in the public, and they are all looking for clear financial discipline, which implies we have a fair return on the investment we are making, and at the same time that requires that there is a fair deal for the consumers, and the EMR is all about bringing certainty in a world that requires certainty, and in so doing reducing the cost of capital to allow the deal to be made.
Q268 Dr Lee: But if the Government borrows the money, they will pay less interest on it than if we incentivise you to go and borrow the money. That is true, yes? Yes or no, sir?
Vincent de Rivaz: Okay, but you are assuming the Government wants to invest in the project.
Q269 Dr Lee: No, I am asking you a simple question: is it cheaper for Government to borrow the money and build, or is it cheaper for me to borrow it to incentivise you to borrow the money?
Humphrey Cadoux-Hudson: I think it needs to put a price against the cost of-
Q270 Dr Lee: It is not a complicated question.
Humphrey Cadoux-Hudson: I am sorry, but it is a complicated question.
Q271 Dr Lee: No, it is not. Can Government borrow money cheaper than you, yes or no?
Humphrey Cadoux-Hudson: The question is the equity cost, not the borrowing cost.
Q272 Dr Lee: No, it is a simple question: can a Government borrow the money cheaper than EDF?
Vincent de Rivaz: And so what?
Q273 Dr Lee: Sorry?
Vincent de Rivaz: And so what?
Q274 Dr Lee: Yes or no? I don’t think this is a complicated question.
Vincent de Rivaz: If the answer is yes, so what? Do you suggest the Government invests in the project?
Q275 Dr Lee: If the answer is yes, I would suggest to you that, in view of the fact that the initial outlay in nuclear is significant and that the on-going costs are marginal, then Contracts for Difference by definition is not the cheapest way of doing it. That is the point.
Vincent de Rivaz: Because you are assuming the Government want to invest in nuclear projects directly.
Q276 Dr Lee: I am saying that if the capital cost outlay is the significant part of nuclear energy, which you agreed that it is at the start.
Vincent de Rivaz: Yes.
Q277 Dr Lee: If you are borrowing that money at a higher interest rate, by definition it is costing more than it should.
Vincent de Rivaz: But you are comparing one scenario to a scenario where the Government invest directly in the project.
Q278 Dr Lee: No. This is simple, do not try to make it complex just because it-
Vincent de Rivaz: No. I am trying to understand what is behind your question. If you suggesting that the Government invest in the project, that is a different story.
Q279 Dr Lee: I am asking your opinion. The problem I see with this is there is one person in negotiation with the Government. It is a great position to be in, particularly when we have legally binding CO2 emissions targets.
Vincent de Rivaz: Sorry?
Humphrey Cadoux-Hudson: Legally binding CO2 targets.
Q280 Dr Lee: Is that not the case? EDF is in a very good position here-congratulations-because we have legally binding CO2 emission targets and the only way we are going to hit them is by building nuclear power stations.
Vincent de Rivaz: We are in a very good position-what does that mean? Do you mean that we are in a position to twist the arm of the UK-
Q281 Dr Lee: Anyway, I will move on. One final question.
Vincent de Rivaz: I do not accept-
Q282 Dr Lee: I am moving on, sir. Sir, I am moving on.
Vincent de Rivaz: I do not accept the idea that the-
Q283 Dr Lee: When you are in discussions about cost discovery-
Vincent de Rivaz: We invest in the long term. We are in the business-
Q284 Dr Lee: Sir, I have asked you politely-
Vincent de Rivaz: Twisting the arms of the UK Government, it is not the job I am in.
Q285 Dr Lee: When you are in discussions on a cost discovery-an interesting phrase-how on earth do you arrive at a price, a strike price, when you do not know what the cost of copper and concrete is going to be in five or 10 years’ time, which is the sort of construction period we are talking about? When all of this is about construction cost and we are bundling it into the strike price negotiation, how on earth do you arrive at a strike price when you have absolutely no idea what the cost of copper and concrete is going to be in eight years’ time? You do not know.
Humphrey Cadoux-Hudson: That is not true. Those are issues that we need to look at on a risk register and work out who is best to take the risk, but copper has a futures market, for instance. You cannot make sweeping comments like that. It is not correct.
Q286 Dr Lee: I am not making a sweeping statement. I am just saying you cannot predict what the cost of commodities is going to be.
Humphrey Cadoux-Hudson: That is the whole point about our open book approach with DECC. They have access to all of the information that we have on the cost of construction and the bids that we have. The process that we have been running through will be completely open and transparent, and at the end of that we will come to a decision as to who bears the risk. As Vincent said, we are going to take the construction risk. That is all part of the discussion and negotiation that we are running through.
Q287 Chair: At that point we will bring this session to a close. If there is anything you wanted to say, but did not manage to get across, please write to us afterwards. If there is anything we have not put questions on, we will come back to you.
Vincent de Rivaz: I am very thankful for having a bit of extra time. Thank you for all the questions. Just to let you know, we are on the verge of making a big decision. The decision is not yet taken because we need to progress with the discussions, and the Government has its role to play. I am confident that for Britain, sooner rather than later, there will be good news-good news for the security of supply, good news for the affordability of electricity in this country-
Chair: We do need to move on.
Vincent de Rivaz: -good news for decarbonisation, good news for jobs, good news for growth, and good news for the role of Britain in the world. Thank you.
Chair: Thank you very much.
Examination of Witnesses
Witnesses: Sir Bernard Ingham, Secretary, Supporters of Nuclear Energy, and Sir William McAlpine, Chairman, Supporters of Nuclear Energy, gave evidence.
Q288 Chair: Thank you very much for agreeing to give evidence before the Committee. You obviously heard the first session, so you have a fair idea of where the Committee is coming from. We have been asking, for the record, if you could introduce yourselves and give your name and organisation the first time you speak. I will start off with the first question.
You have put in your written evidence that you want to see a stronger focus on nuclear energy as part of the UK mix. By "a stronger focus" do you mean there should be a greater proportion of nuclear, or just more emphasis on delivering the proportion that is supposedly on offer?
Sir William McAlpine: Sir William McAlpine, Supporters of Nuclear Energy. Yes, I think ideally we ought to have 40% baseload nuclear, and we should have had it for some time, but, to answer another question, you cannot get there without wholehearted support from the Government. Although the Government is now supportive, it is not absolutely wholehearted headline stuff, and I think it needs to be. There is a feeling in the country, and some people we meet say, "Nuclear-no way." We do not get the debate. We have tried in the past to get a debate on what the actual costs are. The Government tell us-the Ministry of Energy tells us-that nuclear is the cheapest, that wind is fairly well up there and that gas is the next one and so on and so forth, but one of the reasons we believe that nuclear is the right thing to have is because of security of supply; it does not depend on imports from an unstable world, unlike gas and oil. Once you have built the thing it sits there humming away for 40 to 60 years.
Q289 Chair: Its fuel is imported of course.
Sir William McAlpine: The fuel, yes, but in our researches there is no shortage of fuel and it is in friendly countries too.
Q290 Chair: So your main concern about a failure to deliver new nuclear is on security of supply?
Sir William McAlpine: I go back to the Government, and I think about the Government saying, "We have to have nuclear" like we did when we started in the 1950s, and the intention then was to have a large proportion of nuclear as baseload. It did not happen, and every station we built was a prototype. It all went reasonably well, and when we talk about finishing on time, I have no doubt that new stations can be finished on time. I have no doubt that if the thing is set up properly, then it can be done on time. Sir Donald Miller in evidence says Torness was finished on time and to budget. I know that is true because I was there. If a project is properly thought out-and listening to them they obviously are properly thinking it out, how you do it, how you get training, how you get all the resources in place and so on-it can be done on time and on budget. They did it for the Olympics.
Q291 Chair: When do you think energy security will become an issue if we fail to deliver on new nuclear? Is it a short term, medium term or long term risk?
Sir William McAlpine: I think we will probably muddle through for a number of years but it will not be too long before the crunch comes.
Sir Bernard Ingham: I think there is a short term and a longer term problem there. In the short term, if things look tricky then they will go for gas-they are already going for gas now, regardless of where it comes from or what its price is-but they will need it if they keep going down the wind route, so that is the first point. I think the second point is they will keep existing nuclear power stations going for as long as they can. They will try to get the EU to lift the closure of coal fired power stations-perfectly understandable-and they will have another great drive for energy conservation, which will not yield much but it will sound good nonetheless. In that way they may muddle through. Longer term, I think we are into serious difficulties if you pursue wind.
Chair: Having mentioned gas, I should remind the Committee of my entries in the Register of Members’ Interests in the oil and gas industry and, in particular, a shareholding of Shell.
Q292 Christopher Pincher: Can I just come back on to something Sir William said about energy security, which is of course very important to us. There is something like 87 tonnes worth of plutonium stored in Sellafield at the moment, and there is technology out there to reuse that plutonium. Do you think that technology ought to be explored because that is a way of buttressing our energy security?
Sir Bernard Ingham: Yes, it should be used.
Sir William McAlpine: It should be used, definitely.
Sir Bernard Ingham: It would be absolutely criminal to bury it, as some people want.
Sir William McAlpine: They call it waste, we regard it as spent fuel.
Sir Bernard Ingham: It is probably worth-we are told-about £80 million in terms of the value of the electricity it could produce, and on top of that there is another stockpile of depleted uranium that could be used. Yes, of course it should be. Now the question is how do you do it? Some people want to build a fast reactor. Others want to build another Mox plant that works. The question is how do you do it? One thing is absolutely clear: it would be criminally wasteful not to use it.
Sir William McAlpine: You have to think of the future too. Our grandchildren are going to be a great deal cleverer than we are, and there is no reason they cannot use the so-called waste and turn it into something else or neutralise it or whatever. We should not just bury it and throw it away.
Q293 Barry Gardiner: Sir William, you were in the room, I think, during our earlier exchange with Vincent de Rivaz.
Sir William McAlpine: Yes.
Q294 Barry Gardiner: I wonder whether you would care to comment on those negotiations on the strike price and the idea of what I put to him is a perverse incentive to increase the cost of the project in order to negotiate up the strike price. What you considered was-if I can put it this way-a walk away price-that the Government should consider that if it is above a certain level it just should say no.
Sir William McAlpine: I do not think we are in a position to do that. It is absolutely true, I do not know what that figure is. It was reported speech, and published, and so we thought, if that is true, the subsidy that the Government are currently giving to nuclear seemed to be excessive, and could be excessive going on and on because the nuclear is all front loaded. You spend all your money now and then you spend minimally, but the subsidy will go on and on and on, so it could come up to enormous figures, but the fact is not that I have said it but somebody else is going to say it. The Government negotiator is going to say this because it is so apparent. We just thought it ought to have a little bit more air.
Q295 Barry Gardiner: You are in a position where you are supporters of nuclear-as indeed, in general, this Committee is-as part of the mix for the UK going forward, but you have raised what many of us consider to be important points about clarity and transparency. If there is not that transparency going forward, then it is difficult to know whether the public is or is not getting a good deal, isn’t it?
Sir Bernard Ingham: It would be up to the Government to justify-
Barry Gardiner: Sorry, Sir Bernard, I was asking Sir William and for you to come in after.
Sir Bernard Ingham: Sorry.
Sir William McAlpine: Can I ask Sir Bernard to answer it?
Barry Gardiner: I did not know it was a double act. You have known each other that long, have you?
Sir Bernard Ingham: We have, very long. Look, it will be up to the Government to justify the outcome of this negotiation. Our concern is that, in the process, nuclear may well lose its cheapest tag. The reason is that nobody in their right mind, in our view, would start from here. Why on earth, in a negotiation for any subsidy, should you lump nuclear, which has been consistently found to be one of the cheapest sources of generating electricity, with the most expensive-and, if I may say, totally useless-source, which is wind power, especially offshore wind?
Q296 Barry Gardiner: Sir Bernard, I do not want to get into a conflict with you over wind power today.
Sir Bernard Ingham: Oh good.
Barry Gardiner: I would love to do so on another occasion, but to this point we need to focus on nuclear.
Sir William McAlpine: One of the things we have been trying to do is to get proper debate-the Government and everybody taking the total costs of everything. Nuclear has extra costs, wind has lots of back up costs, but nobody really sits down and says in an open forum, "This is the answer."
Q297 Barry Gardiner: In fairness, Sir William, the Government has estimated the cost of onshore wind at between £90 per megawatt hour for farms large than 5 megawatt, and £105 for farms smaller than 5 megawatt, so we have a very clear price per megawatt hour for onshore wind. They believe that in the future-and this is in the future-offshore wind may come down to around about £100 per megawatt hour, but at the moment we have a pretty good estimate as to what the cost of onshore wind is. The point that you are making, from a position of support for the nuclear industry, is one that actually can rebound against the nuclear industry, and that is that if the strike price is negotiated too high it will not reflect what you claim to be the much lower cost of nuclear generation.
Sir Bernard Ingham: Well, it might.
Q298 Barry Gardiner: The importance then, of making sure that the strike price is comparable with the strike price for onshore wind is really very important to you as a supporter of nuclear.
Sir Bernard Ingham: It would be if, indeed, you included the cost of standby generation for 70% of the time, and you do not.
Q299 Barry Gardiner: Or if you included the costs of decommissioning?
Sir Bernard Ingham: No. The costs of decommissioning are included in these estimates of nuclear power, have no doubt about that. Now, it must be a notional cost.
Q300 Barry Gardiner: We will not know until 2042, at the earliest, what the waste disposal costs are.
Sir Bernard Ingham: But there has been a provision for it.
Q301 Barry Gardiner: Yes. There has been a cap put on it.
Sir Bernard Ingham: Yes.
Q302 Chair: What do you think the consequences are for our low carbon agenda if we fail to deliver nuclear?
Sir Bernard Ingham: It is already bust, isn’t it? But if you do not get nuclear you are in the mire.
Sir William McAlpine: Yes, I do not think the 20% is achievable.
Sir Bernard Ingham: I do not think it is achievable now, but without nuclear longer term you can forget it.
Sir William McAlpine: You regard nuclear as non-carbon, but it is-
Q303 Chair: Or low carbon.
Sir William McAlpine: Low carbon, yes.
Q304 Albert Owen: I just want follow my first line of inquiry with the other panel, who seemed to be saying the Government is doing a fantastic job and is crystal clear on its direction on nuclear power. Can I ask you, tongue in cheek, what you have against this Government’s policy on it? What is it not doing? Am I being too cynical by saying that there is a political difference within the Coalition that is holding back part of that Coalition so they cannot be as pro-nuclear as they want to be?
Sir William McAlpine: It does seem like that. As far as EDF are concerned, yes, they are satisfied because they are getting support; it is there and we think that is wonderful. If we get one nuclear station, as far as we are concerned it is not enough by a long way, but if you get one and they have the chance to prove it can be built on time and on budget, that would be great.
Q305 Albert Owen: To go back to the political leadership, because you have been very critical in your written submissions about lack of clarity, you heard what the other panel said-and they are the people, with respect, who are going to invest in the future of nuclear. They are saying there is sufficient clarity there for them to make those decisions. It was not just EDF today that said that; it was the other consortia as well. So why do not you take them at their word and accept that they and their potential investors are happy enough to move forward because they think there is political stability?
Sir William McAlpine: Because they are getting what they want. It is right and proper that we should build nuclear stations, and they are getting that sort of support, but what we do not get is the full support of all parties saying, "What we need, the answer to this country’s fuel problems, is nuclear"-if they believe it. There seems to be this terrible feeling that it is not popular in the country and there are no votes in it-this is me being cynical-and therefore it is not worth pushing it. There are certain people who do not want it anyway.
Sir Bernard Ingham: Could I approach your question slightly differently and say that I don’t think that we have any complaint against the Government for trying to close the circuit to secure nuclear power? I do not think that we have any criticism whatsoever of even an anti-nuclear Secretary of State, Chris Huhne, who behaved very responsibly post-Fukushima. There is no argument about that at all. But in our position, we spend our time getting letters from MPs, who say that they are in favour of nuclear power, and we say, "Cheers" and then we say, "When are you going to do something about it?" Having transferred that from MPs to Government, what we are saying is that Governments in recent years-indeed, in recent memory-have not stood up and said, "We need nuclear power for security, low carbon and reasonable costs." They have never stood up. You name me a speech that a senior Minister has made in which he said, "We must have nuclear power."
Q306 Albert Owen: I have been in a minority within the Labour Party for many years being very pro-nuclear, and I think we have changed minds. I think there has been a change of mind is for the reasons that you have set out: that we need that baseload electricity in the future if we are going to get energy security and meet our environmental goals. I think there has been a change of mind within Parliament, and each of the parties-with the exception of the Liberal Democrats, who are in the Coalition-have said that they are pro-nuclear. What I am asking is what more can we do, as parliamentarians? I am having a debate tomorrow. Sir Bernard, you will not like this, but I am pro-nuclear and pro-renewables; I think we need both. I think we need wind as well because it is intermittent and there are times when our demand is so low that we need to switch things off, unless we get interconnectors and we sell the surplus. What more can parliamentarians do in your opinion,? Should we be calling for debates and saying to the wider public that we are giving that leadership, which is not there now. Is that what you are saying?
Sir Bernard Ingham: I do not think there is any lead to the public from Government at all. For a long time nuclear power has been an optional extra: "We will have it if somebody else will pay for it." Then suddenly they have discovered that the market is not working, so they are having to rig it.
Q307 Albert Owen: Isn’t that a problem that goes back many years, including to privatisation? That was botched in many ways when it comes to nuclear, was it not?
Sir Bernard Ingham: Initially, but then they sorted it out, yes.
Q308 Albert Owen: They sorted it out? I do not think they did, with respect. I think they parked it up and left it and went ahead with gas and coal, and all the other elements, and now we have to come back with it. The big issue was decommissioning and no Government, of whatever colour, really dealt with that, but now we are dealing with it. We have the Nuclear Decommissioning Authority, so we are moving forward. I am with you on this, but I am going to push this and ask again-maybe Sir William will help you out on this one-what more can parliamentarians do to sell the policy of all the major Governments of the last four or five years, who have said, "We are pro-nuclear and we want the industry to succeed"?
Sir William McAlpine: There has been a big change, I agree with you; but I think all you can do is shout it from the rooftops. If we have two or three bad winters, we are going to be cold; the lights will go out. You know it does get very close to that.
Q309 Albert Owen: Okay. Follow my speech tomorrow morning in Westminster Hall at 9.30.
Sir Bernard Ingham: Thank you very much.
Q310 Dr Lee: I am really pro-nuclear. If it was up to me I would make the decision to have a fleet tomorrow. My concern, though, is that if the first reactor we purchase, the first of a kind, is too expensive because we have borrowed money expensively-we have basically been in negotiations with a monopoly provider, essentially, so we all know which way that is going to go-it is going to be so expensive that the politics will come in and people will say, "Well, we cannot do that again because look at what happened last time round." I presume you heard my exchange. That is my concern. Monsieur EDF is extremely happy at the moment because he knows he is going to get the contract. Would you agree with that assessment?
Sir William McAlpine: I think they are. Yes, they are happy and I think they probably should have it. In fact, I am sure they should have it.
Q311 Dr Lee: But not at any cost, though. That is my concern.
Sir William McAlpine: No, not at any cost. I think that is the thing. But when they come up with the costs-and we do not know what that is-hopefully, they are going to add all the little bits together, come up with a total, add the contingency and say, "That is the figure." Presumably that will be transparent-they said it would be transparent-so the Government can look at it and say, "Well, you have too much in" or whatever.
Sir Bernard Ingham: You are quite right that we did not know what the costs of nuclear were. Therefore we thought we would look at it from the other end and ask: what would be the revenue? All this was an attempt to protect the brand nuclear, the only route to secure low carbon electricity at affordable cost. What we are seeking to do is to protect that reputation and, we agree: there may be a problem as a result of the strike price negotiations.
Q312 Dr Lee: If you were coming at this afresh, would you agree with me that taking nuclear out of this Energy Bill and treating it differently would be a good idea? Secondly, in doing that, would you also agree with me that if you set up a business-maybe we bought out EDF or we bought out Centrica’s share of what was British Energy-and had a state-owned or a majority shareholder ownership of a company that was tasked with building a fleet of reactors, with underwriting from the Government, that would actually be a better way forward, in terms of managing costs? So leave the market to bear down the cost of construction, innovation, all those sort of things, but actually the capital cost and, indeed, the construction risk, and so on, are on the books of the State. Would you agree with that as a better model than what we are contemplating?
Sir William McAlpine: This is how it started, wasn’t it? It started with the Government wanting nuclear stations. They gave it to the CEGB to set up. The CEGB organised four groups of industrialists to get together and put in competitive bids, and that was the way it went. Unfortunately, we do not have any competitive bids at the moment. EDF are the only kid on the block.
Sir Bernard Ingham: I think what you are really asking is whether, if we were starting, we would start from here. But we are where we are, and therefore, if we are serious about getting nuclear power reasonably soon, we have to take a decision. There are several ways in which you could finance nuclear, though. For example, the Government could simply say, "We will find a way of handling the high upfront costs and we will recover them when you are generating electricity." I do not see much objection to that, but there may be a political objection.
Q313 Chair: It is still a form of financial subsidy, isn’t it? If the Government takes the risk if the market is not willing to, by definition there is an element of subsidy.
Sir Bernard Ingham: By definition, there would not be a subsidy if it were paid back, would it?
Q314 Albert Owen: I think that is an important one. Let us deal with the subsidies. Some people think that is a dirty word, but every energy source has a subsidy, does it not? Look at "King Coal" and gas. When it first started, it was 100% owned by the taxpayer and we bore the losses as taxpayers. I want to explore this further. Do you think we should be honest and open and say that, yes, they all do need subsidies, and stop playing this political game about whether it is a public subsidy or it is disguised as such? Shall we just be honest and say, "If we want to keep the lights on, if we want the consumer to have affordable electricity and heat in the future then we need subsidise our energy"?
Sir William McAlpine: We have always believed, from all the figures that we have, that nuclear did not need a subsidy. It maybe that costs have gone up, things have changed or something, or it is actually necessary to get the things started to give some kind of a subsidy.
Q315 Albert Owen: Do you still believe it needs a subsidy?
Sir William McAlpine: Until we know all the costs we cannot really, can we? We do not know what EDF are quoting.
Q316 Albert Owen: Okay. But you in your research think it can be done without a subsidy? That is what you are saying.
Sir William McAlpine: All the Government figures that we have been given, taking everything into account, it is the cheapest form for producing electricity.
Sir Bernard Ingham: As distinct from some assistance with the high initial investment, which could be repaid.
Q317 Albert Owen: Those were very direct answers, in contrast to the other panel we had.
Sir William McAlpine: We are totally independent, we are not subsidised. All our money comes from our members.
Q318 Albert Owen: Sir William, can I give you an opportunity to put it clearly on the record that you do know a bit about construction, and you do know a bit about the nuclear programme and huge projects in the future and what we need to be doing. Do you think we have the necessary skills in this country, and do you think we can build these large energy projects on budget?
Sir William McAlpine: Yes, I do. When we started in 1957, the first contract, it was all British, but nobody had done it before. There was a bit at Sellafield and we built Calder Hall, but before that there was no industry. I think the only difference now is that there was a heavy engineering industry in this country-our group came from Newcastle, and we had Parsons, Clarke Chapman, Reyrolle's, Head Wrightson, and all these big engineering people-and they turned round and did it. I do not see a problem with that and I do not see a problem with training or any of those things. Initially, EDF will build the thing but the concrete is going to come from this country, the steel will come from this country, the welders will be here. I never see a problem, in over 50 years of experience of buildings. People say, "Oh my God, you are building a big project. There are going to be people on that, so you have to have three new schools." Well it turns out that actually you do not need any new schools. People come here and they work for six months; they do their job and they go away. You have a large travelling population, and very few people start at the beginning of the project and go to the end.
Q319 Albert Owen: Does the Government have a role in making nuclear sound more sexy than it is, because many people in the universities are telling us that many people who graduate as engineers go into the City, for instance, and they make a few bucks. Is there anything Government needs to do, do you think, to attract them to this agenda for the future and building big nuclear projects?
Sir William McAlpine: You are quite right: engineering is out of fashion in schools, and until recently nobody actually ran a university course in nuclear engineering. I believe there are some now. But things do change, and if there is a demand the supply jumps.
Q320 Albert Owen: There is continuity of employment that you do not get in the City, and various things.
Sir William McAlpine: With employment, it is very difficult to know the numbers. They talked about 50,000, but it could be because you get down to the fellow who supplies the overalls, and the guy that washes them, and that kind of thing. All the bits and pieces add up tremendously-the spread around the particular project and the catchment area is enormous.
Q321 Albert Owen: But the ones that are operable, the nuclear engineers, can have jobs for life?
Sir William McAlpine: Well of course afterwards, once the thing is built, then you have a job for life, but, no, you go from project to project-hopefully, it will not be the last nuclear station, so there will be a ready supply of labour to go on to the next one.
Sir Bernard Ingham: The other important point about developing nuclear, of course, is that we do get back on the leading edge of high technology and that we do actually provide a substantial economy for remote parts of this country like Wylfa, for example. They are very considerable. You say we make it sexy, but we cannot get it sexier than having a decent economy in Anglesey or in West Cumbria. That is why people locally are very much in favour of it-they know which side their bread is buttered.
Q322 Albert Owen: We pay more for our electricity because of transmission costs-but anyway we will not go down that route. We produce the electricity and we pay more for it.
Chair: Thank you very much for your evidence, and if there is anything you think still needs to be followed up we are quite happy to take further submissions in writing and we will be back in touch if there is anything you feel we have missed out. But thanks again for your time.
Examination of Witnesses
Witnesses: Richard George, Climate and Energy Campaigner, Greenpeace UK, and Nick Butler, visiting professor of Public Policy at King’s College, London, and a contributor to the FT on energy issues, gave evidence.
Q323 Chair: Thank you very much for waiting. I think you heard the direction that the evidence session has taken so far. When you first answer, if you could give your name and position that would be helpful for the record.
The question we are grappling with is: do you think we can decarbonise our electricity power system without nuclear?
Richard George: Richard George from Greenpeace. I think it is entirely possible for us to do so. There are several scenarios out there, which I can run through in a second, but I think the only way that it is likely to happen is if the Government accepts that we are not going to get 16 gigawatts of new reactors by 2025, which we have been talking about since the early 2000s. The four fundamental cornerstones to any nuclear free energy scenario, would need to be demand reduction in the power sector, which we have spent a criminally insignificant amount of time working towards; some massive and sustained investment in renewable electricity and a wide variety of different types; flexibility via interconnectors, thermal storage and pump storage; and finally, greater integration of heat and power policies, particularly in the industrial sector.
I can talk about some of the different scenarios that exist at the moment, but in terms of demand reduction first: we know the McKinsey study, commissioned for the Department over the summer, forecast by 2030 a potential reduction in electricity demand of 40%, translating into annual savings of £10 billion. We also know the Committee on Climate Change’s modelling for 2030 has 40% of our generating capacity coming from nuclear. I am not saying we need to get a full 40% demand reduction to do without nuclear, but there are certainly some major savings that we could make if we combine that with ramping up renewable capacity. There is anything up to, I believe, 88% in one scenario, in terawatt hours, so incorporating the intermittency and the variability of renewables, it is entirely possible. It will only happen if we move heaven and earth, as we have been trying to do with nuclear over almost a decade now and so far failed to deliver.
Q324 Chair: Do you not think that if nuclear was not part of the mix you would end up with more gas on the system to keep the lights on?
Richard George: I do not think we need to. Let me run through a couple of the various scenarios that exist at the moment, because they are very interesting, and what I think we are in a position to do now is to pick and choose slightly the future that we need.
I believe Garrad Hassan did some modelling last year for the World Wildlife Fund. They foresaw 61% of electricity demand being met by renewables by 2030. In order to do that, one option had a high amount of gas capacity, which you are using very little of-you are using it at about 30% of its utilisation rate-and the vast majority of that was carbon capture and storage.
Q325 Barry Gardiner: What is the cost of its capacity? What capacity payments would you actually be paying and adding to consumers’ bills in order to do that?
Richard George: The other thing you would need to do if you wanted to deliver a no nuclear scenario, is tear the Energy Bill up and begin again. There is absolutely no way that any renewable utility provider would want a Contract for Difference, would design a renewable system-
Q326 Barry Gardiner: Answer my question. You can well say you would not be starting from here, but we are starting from here, so now answer the question.
Richard George: What the capacity payment cost would be?
Barry Gardiner: Yes.
Richard George: That I do not know. It would depend on what your base level of demand was. If we implemented even some of the recommendations-
Q327 Barry Gardiner: If you are saying that 40% of your supply would have to come from outwith renewables and you would have a large element of gas but only using it very sparingly, it implies that you are going to have a very, very high cost of capacity payment, so if you have not done any modelling on that, then the model is not really helping us much, is it?
Richard George: Firstly, that is not my model. It is a scenario that is out there; secondly, I do not think it is the best one. I am starting to run through a selection of different scenarios. None of these factor in any level of demand reduction on the scale of what McKinsey say is possible. Another scenario would have a much higher level of interconnectors and a very low level of gas, which you use more of and you have more carbon capture and storage.
What I am saying is there are different scenarios out there. What we think needs to happen is that, because we are not going to get the 16 gigawatts of nuclear that the Government has assumed up until this day will happen, we should sit down and have a proper investigation. I understand the Committee on Climate Change is beginning to look at this, because they have also recognised that we are not going to get the level of nuclear that has so far been assumed to be coming on grid by 2025. We think this is entirely right and proper. We are going to have to have this discussion, because there is going to be an energy gap of about 16 gigwatts, maybe slightly less, in the mid-2020s, because we have been trying to make nuclear work for so long. I think we need to pick and choose from the different scenarios and have this conversation, and then we will know what the various costs will be.
Q328 Chair: Do you have a view?
Nick Butler: Yes. I am Nick Butler, Visiting Professor of Public Policy at King’s College, London, and a contributor to the FT on energy issues. Within the framework that the Climate Committee has set out, we probably could not meet those targets without some nuclear. My concern is that the way we are going and the way it is being negotiated, we are going to end up with a very costly solution for customers. I think some of the questioning earlier on was very pertinent and could have gone further. As I read it, the costs of this design are going up not down. Flamanville, which is EDF’s flagship station in France, has just been put back another two years. The next station that they were going to build, which is on hold because of French Government policy, is over budget and the costs are going up not down. Therefore, I think we need real transparency in what they are asking for in terms of support prices and where that is going to feed through to consumers. I think this should be an open discussion, rather than done in what somebody said was a smoke filled room. It should be an open exchange of what the data is and who is going to take the risks if the costs are higher.
Chair: That takes us to Dan’s question.
Q329 Dan Byles: Yes, absolutely, which is about financing for nuclear new build. Obviously we discussed this a lot and kicked it around with some of the earlier panels. What do you think are the real barriers to raising finance for new nuclear?
Nick Butler: I think EDF have financial challenges of their own: they have significant debt, and they also have quite a bill now for bringing existing stations up to the new standards that Europe is imposing. This is why they-and other people-have sought to bring in overseas funders from outside Europe to cover the cost. The real uncertainty for investors is that there is still no regime against which you can put in a lot of money-and it is a lot of money. I would say it is closer to £14 billion than £10 billion. It was £8 billion or £10 billion when I was working for the last Government and it has certainly gone up, and I think that investors will only put in that sort of money if they can see the framework under which that investment is going to be repaid.
Somebody asked whether there had been delay over the last three years. I think there has been delay; I cannot understand why we are still at the stage of having open ended negotiations and why this is not settled.
Q330 Dan Byles: Obviously we are hoping we are going to see what the strike price is before too long, but in terms of the actual policy of the Contract for Difference and possibly the Treasury’s UK guarantee scheme, do you think that if they get the right strike price within that framework, it is a framework that could deliver? We heard EDF earlier-were you here for EDF?
Nick Butler: Yes, I was.
Dan Byles: We heard EDF saying they are very happy with the Contract for Difference and it is basically what they would have come up with if they had a blank sheet. That seemed to be what they were saying.
Nick Butler: If I were running a widget factory and had a Contract for Difference that just paid me to have the capacity, I would be pretty happy too. I do not think it is an ideal system, but as Sir Bernard said, we are where we are, so I think we have to look at what the strike price should be, and not be prepared to pay too much.
Q331 Dan Byles: Do you have a view on what too much would look like?
Nick Butler: £100 would be the absolute top band I think.
Q332 Dan Byles: So if it comes to more than £100, then it is basically not going to stack up against other alternatives?
Nick Butler: Yes. This is probably going beyond the scope of your inquiry, but I also think I do not think we should get rigidly fixed on the Climate Change Committee’s model of how we achieve the long term targets. I think it would be much better to invest money in real research on energy advances, which could be used outside this country as well as in it, because if we meet all our targets, and no other country achieves anything, we have not advanced very far; we have just made ourselves less competitive. I would love to see real research on the next generation of the grid, which I think could change the economics, and also on energy storage that could be applied everywhere around the world.
Q333 Dan Byles: It has been suggested to us by some of the financiers that the whole of Europe is taking a €3 trillion punt on the future cost of fossil fuels, and that if we fall on the wrong side of that, we might have problems.
Nick Butler: Yes, you can say that. Actually I would say we are going to have a lot of fossil fuels. It does not help the climate agenda, but I think I can see the gas price coming down quite a lot, and even the oil price.
Q334 Dan Byles: Because of unconventional sources, and so on?
Nick Butler: And technology that is extending the recovery rates from existing fields, such as people moving into deep water for exploration and development activity-costs generally coming down.
Q335 Dan Byles: Mr George, on the Contract for Difference, what is your view on the regime? You have already said one option would be to tear up the Energy Bill, stop nuclear and start again, but given that we are where we are, could you see the current system that is being put in place, despite the gaps still in terms of what the strike price will be, and so on, delivering new nuclear?
Richard George: It may deliver one or two plants. We generally think of a barrier in terms of a new competitor coming into a field or a new technology, but when we talk about nuclear, there are inherent reasons why nuclear is not cost competitive. Investors were choosing not to invest in nuclear before the disaster that struck Fukushima, but also-even more so-afterwards, because every time they have tried to build one of these reactors, it has gone over budget and been delayed by several years. That is true of the two in Western Europe at least: we were meant to be seeing the Finland plant up and running I think about 2009, and Flamanville this year, and neither is showing any signs of being ready. That is what is putting the investment community off.
I think EDF could probably get a decent strike price for one of its plants. DECC is so committed to delivering this now, that I think they will sign almost anything in order to deliver at least one plant. I really do not think we will see 16 gigawatt of reactors.
Q336 Dan Byles: It has been suggested to us that one option for reducing the construction risk and the risk of cost overruns, would be using escalators in Contracts for Difference, so that if the construction costs do overrun, the price paid could cover those additional costs.
Richard George: But then you are effectively incentivising-not incentivising; giving the perverse incentive that Mr Gardiner spoke of.
Q337 Dan Byles: It comes back to Barry’s point, yes.
Richard George: If you say to a contractor, "Look, if you run out of budget we will just pay you some extra," then-
Q338 Dan Byles: It becomes a cost-plus contract, effectively, doesn’t it?
Richard George: Yes. But they tried the reverse in Finland. They had a turnkey contract where the TVO were paying Areva and Siemens, I believe, €3 billion for the reactor-you know, "Give us the key on a certain date, and we will start generating." There are no signs of finishing. They are in extensive contractual civil litigation at the moment, because they have failed to deliver there. I am not sure that encouraging people by picking up the tab, whether it is taxpayers or investors or bill payers, is a good thing to do.
Q339 Barry Gardiner: On the question of on balance sheet or project financing models, if there were cost overruns or delays to building the first nuclear stations, do you think that would affect the ability to raise project financing for subsequent plants?
Nick Butler: Yes, unless someone like the UK Government or the UK taxpayer was underwriting it.
Q340 Chair: But if the taxpayer is underwriting it, that in itself is a subsidy, is it not?
Nick Butler: It is, but I think the question was that if you cover all the costs and all the overruns, then investors will say, "That’s fine," because someone else is taking all the risk.
Q341 Chair: Yes. Did you think, Mr George, that there was any argument from EDF about how they were slightly constrained in putting in the highest possible price by a desire to be able to come back and get some more money in the future, and therefore did not want to kill the goose?
Richard George: I know Ian Marchant of SSE has talked of smoke filled rooms, which obviously Mr de Rivaz today denied-
Chair: He denied the smoke.
Richard George: He denied the smoke, not the rooms. I think the way that the Government is going about negotiating these contracts is a real problem. Something that we would particularly like to see is some honesty in this debate about what the costs of the various technologies will be. We are looking at the moment at EDF attempting to demonstrate that they will be cost competitive with the cost of onshore wind now, for a reactor that has no chance of generating before 2022, so by the time this reactor comes on grid, the cost of offshore wind is already expected to be possibly £100 per megawatt hour. They are denying £140, but somebody is putting these rumours in The Times and elsewhere as to what the electricity prices will be. I would really like to have an honest debate, including decommissioning costs, including grid connection, and including the variability costs of onshore wind, which I believe are about £10 per megawatt hour. Then we could have an informed debate about what sorts of energy we want and how we can meet the climate targets. At the moment EDF has the Government over a barrel, and I think they are enjoying it.
Q342 Albert Owen: Just now you compared nuclear to offshore wind and onshore wind, but is that not the wrong argument? We really do need both. We need the baseload, which you acknowledge. You suggest that we could reduce our demand significantly so we do not need the baseload, but there will be times in peak winter cold periods where there is very little wind, very little sunshine, and we are going to have to rely on either imported gas or even, I dare say, if we have an interconnector, imported nuclear energy from France. These are one of the real scenarios. We had it last winter when we had a situation where most of the wind farms were off. I am pro-wind as I am pro-nuclear. We have to stop polarising between these technologies. If we are going to look at a rich energy mix, then it has to be. I presume you and your organisation come to this argument ideologically opposed to nuclear in many ways. Is that not part of the problem if we are looking for the solution that we need to really look at them all?
Richard George: First, we are not ideologically opposed to nuclear. We believe there are ongoing concerns about waste, proliferation, the potential risks from terrorism or whichever else, and plant, and the cost factors. In terms of baseload, what we need is a flexible grid that has storage capacity involved and the interconnectors we are hearing about-possibly interconnectors to Ireland for their wind and to Norway or to Iceland for geothermal. There are all sorts of possibilities, but if you designed a grid for wind and for renewables, it would look very different from one designed for nuclear. So I think they are incompatible because the technologies do not really work together. You cannot power up a nuclear plant and then power it down when the wind is or is not blowing. Also, if we integrate with the industrial heat sector-
Q343 Albert Owen: We do now. With respect, we do now-we do power up and down with regards to the elements.
Richard George: With gas. We do not power up nuclear because nuclear has-
Q344 Albert Owen: It is stable, yes.
Richard George: When nuclear falls over, as increasingly the ageing plant we have has been doing, that causes far greater problems than when the wind isn’t blowing, because we can predict when the wind will or will not blow.
Q345 Albert Owen: Sorry to cut across. I do not mean to do that, but we do have outages on the nuclear that you can predict, like maintenance, so you can have off peak periods where you can do the maintenance, as you can with wind. When the wind isn’t blowing you can do the maintenance, so the arguments are the same to both ends. I do not think we are having this debate that you are talking about rationally. I know you want to contribute to it, but I do believe that Greenpeace is ideological. I used to be a member and they were ideologically opposed to it.
Barry Gardiner: I agree with you, Albert. It always has been.
Albert Owen: Yes, that is the case. So if you are going to have a broad argument, perhaps you should drop that ideological approach if you want to be taken seriously in many ways. I get it from both sides: I get it from the wind lobby and I get it from the nuclear lobby. The nuclear lobby say to me I am too pro-wind and the wind lobby say I am too nuclear, but I am trying to get a solution to this problem and I think the Government is, too. We have to be serious about it, so in any debate in the future, I think you have got to look at them all and, yes, look at the cost elements, but not be diametrically opposed to one or the other.
Richard George: I do not think it is ideological to say we still do not have a solution to nuclear waste, and continuing to build new waste when we have no solution to the waste we have at the moment is a legacy we should not be leaving our children.
Q346 Albert Owen: But, with respect, it is safe. I live very close to it-I do not know how far away from it you live-and I do not worry about nuclear waste being safely stored in my area, and the community around me do not.
Richard George: There is also a big difference between the existing legacy waste and the new build waste in terms of the radioactive heat and the storage solutions. We should at least solve that problem before we move on to building any new reactors.
In terms of the grid, I really think that you would design a very different grid. Given that we are going to have to have this discussion about how we fill the energy gap when we do not get the number of nuclear plants that we have been forecasting, we should therefore be talking about what the grid would look like and what the interconnector potentials are. One thing you can do when there is excess wind is either sell it abroad or you can sell it to the industrial heat sector. They can then run smelters and the industrial heat processes off the excess wind when it is below market cost, because you have too much of it. You can come up with pump storage, thermal storage. We are not going to research or deliver any of that while we keep thinking that nuclear will work, and I really wish we could get beyond this barrier to energy that the existence of nuclear brings up.
Nick Butler: I do not think we should have a religious view either for or against any of these forms of energy. I think we should look at the most effective way of doing it, and what the costs are. What worries me about the current debate is that the costs are all fuzzy, behind the curtain, and we cannot quite see what this negotiating process is actually doing. Someone asked about DECC, I do not think they have the detailed capability to do this. I wish they did.
Q347 Dr Lee: With regards to the costs, Mr Butler, if you were still advising at No. 10, would you be advising the current Prime Minister to finance it in the way that it is being financed nuclear new build and, if not, why not?
Nick Butler: I thought your question earlier as to whether to do it with direct Government funding, which must be cheaper than doing it through a corporate vehicle, either debt or equity, is interesting, but we are not at that point. I would be encouraging them to put all these figures out on the table and to show why we are going for the mix that we are going for-to come to a decision on what balance of energy supply we want, what part nuclear or anything else has in it, and to justify it openly, rather than suddenly presenting us, at the end of the year or whenever, with a solution.
Q348 Dr Lee: So that is a no, you would not be doing it like this, but because of where we are-is that what you are saying?
Nick Butler: I do not want to get into politics but I think it should have been done two years ago, and I think it should have been done much more openly and upfront, so that people can see what they are getting and what they are going to pay for it.
Q349 Dr Lee: Also, forgive me, we have not actually signed on the dotted line yet, have we?
Nick Butler: No.
Q350 Dr Lee: In which case where we are is where we choose to be, is that right?
Nick Butler: Clearly, where we are is a Government decision not to have closed the debate off yet, and of course EDF would say that they have not come to a decision yet; they have to take it to their board and to get investment approval.
Q351 Dr Lee: My point is that if the Prime Minister had to sign on the dotted line, you would be advising him not to, if you think it is not necessarily the most cost effective way of delivering nuclear new build?
Nick Butler: Yes, that is right. I agree. I would not sign with the degree of uncertainty that there is now.
Q352 Barry Gardiner: Sorry, but is that absolutely true? Surely one of the factors that you would have to consider was on whose balance sheet it would fall. I am sympathetic to what Phillip is saying here, but it strikes me that the key objection will be one from Treasury that says, "If we take this on to our balance sheet, there are other things that we cannot do and we do not have the flexibility in the Treasury." The key objection, therefore, to going down the road of Government funding this construction up front and then recovering those costs is precisely a balance sheet objection, is it not?
Nick Butler: I was not arguing that the Government should fund it. What I am arguing is that we should have all the figures in front of us. I do not see how this Committee can do its work properly without that solid data. If you saw the figures it may be that a Government involvement through guarantees, carefully structured so that it was not creating perverse incentives, might be right.
Q353 Barry Gardiner: Just picking up on the perverse incentive discussed when we had the interaction with EDF earlier, do you believe that the current way of structuring the negotiations around the strike price, and having the costs of the construction met and reflected in that strike price, does constitute a perverse incentive to escalate those costs?
Nick Butler: I do not know enough about the state of those negotiations to know whether that is true at the moment. In any such negotiations you have to allocate exactly where the risks are going to fall between the company-i.e. the French Government-and Britain and the taxpayers and the consumers. I have not seen the detail of that and so it is impossible to say whether there is that. There is the potential for perverse incentives.
Q354 Barry Gardiner: Yes. A perverse incentive presumably either is there or is not, whether somebody takes advantage of it is another matter.
Nick Butler: Sure, yes.
Q355 Ian Lavery: Following very swiftly on to the security issues from investment of foreign companies in the industry. Mr Butler, you have written one or two-possibly more-blogs for The Financial Times expressing some concern about the security indications of Chinese ownership of UK power stations. Can you tell me what you believe are the risks in that?
Nick Butler: Yes. I think in most countries foreign investors would not be encouraged to own key elements of national infrastructure, and that is clearly what this is. I was in France and asked somebody who is very influential in the nuclear industry whether the Chinese would be allowed to invest in France in this way; he simply laughed at me. In Germany it is not permitted. In America, it would not be permitted, as you saw from the debate last night, the doubts about Chinese investment are very high. So I am sceptical of it on those grounds. I do think that we should keep an open economy and if we are going to keep it open, we should do it on the basis of reciprocity. I think the greatest cost that the Chinese are imposing on the UK, big business and Government now, is through cyber-attacks. I think that if they want to invest here, as part of a Government to Government negotiation around this, they should be encouraged to stick to some proper rules on that. If we could do that, I think we would all advance.
Q356 Ian Lavery: Your thoughts on security, does that apply to, for example, the Japanese and Canadian companies who potentially will buy the Horizon project? Do you have the same view in terms of security risk with these companies?
Nick Butler: It is slightly less, because I do not think either of those Governments are tolerating the sort of cyber-conflicts that we see from the Chinese, according to the speeches from the security services and other people. But I think in general that we should take a view that key national infrastructure should be nationally controlled, and I was surprised that both the French companies involved wanted to bring in such extensive foreign investment. If they think it is such a good project, why are they not doing it themselves?
Q357 Ian Lavery: With regard to foreign ownership of UK power stations, do you think that if the public were aware that the future could be the stations owned by the Chinese, the Japanese, the Canadians, or whoever, that would have an impact on public attitudes towards new nuclear?
Nick Butler: I think it is perfectly reasonable for them to have minority stakes and to be financial investors at 10%, 20%, 30%. I do not think that is a problem. As I understood it, however, in this case the idea was that they would be involved in the operations, and certainly on the Horizon project, because Areva is not an operator, the idea was that the Chinese company would be the operator. That was as reported.
Q358 Ian Lavery: Regardless of that do you think that would have an impact on public attitudes towards new nuclear power stations?
Nick Butler: I do not think it helps, but I have not seen any polling data on that issue.
Q359 Ian Lavery: What about EDF? It is a big company; it is a French owned company. That has not affected any local views?
Nick Butler: No, I think EDF have done a tremendous job in changing public attitudes on nuclear power over the last five or 10 years. They have become part of the community. Somebody the other day asked me if I thought EDF was the only British company with a French chief executive. I think they have done well, and I think they would do even better now if they put all the numbers on the table and showed what they were asking for.
Q360 Ian Lavery: Do you think that people would mainly be happy if the companies involved were European companies, from European nations and with European investment, but would be relatively unhappy if they were non-European? Is that basically your thoughts?
Nick Butler: You are closer to public opinion than I am. My thought is that, as a country, we should not do these things without reciprocity. That is to me the key issue. I cannot speak for the public.
Chair: Again, if there is anything you think, "Oh I wish I had said that" please put it in writing and we will be happy to receive it. Thank you for your evidence and for your time.