Nuclear Energy (Financing) Bill — House of Lords, 2022-02-21
Topic: Energy
David Stephen Geoffrey Pollock (Labour, Centre-left): My Lords, the recent history of the nuclear industry is evidence of the failure of the Government’s energy policy. The coalition Government of Clegg and Cameron recognised the need to renew Britain’s fleet of nuclear reactors. In 2010, it was agreed that the construction of eight new nuclear power stations should be called for. Several contactors expressed willingness to undertake the projects but one after another they withdrew. The list includes Scottish and Southern Electricity, the German companies RWE npower and E.ON, and the Japanese companies Hitachi and Toshiba This has left the French company EDF as the sole nuclear contractor, and at one stage it was doubtful whether it would be prepared to proceed with its project, given the difficulty in raising the necessary funds and the paucity of its own resources. The principal difficulty has arisen from the Government’s insistence that infrastructure investment in the nuclear industry should be financed by private capital One is reminded that the construction of our existing nuclear plants was invariably financed by central government. Money borrowed from private lenders is subject to burdensome surcharges comprised within exorbitant rates of interest. These charges consist of a risk premium, a scarcity premium and a discount rate. The discount rate reflects the time preferences of the lenders, whereby future receipts are valued at far less than current receipts. It is a consequence of this short-term perspective that half the cost of constructing a new nuclear power station, which can take as long as 10 years, will be attributable to interest charges. These will eventually constitute a massive transfer payment from the consumers of electricity to the financial sector As a provider of finance, the Government should be expected to take a long-term perspective. It should be one that envisages the consequences of global warming and the need to provide a stable baseload of carbon-free electricity, which only nuclear power can provide. The free market ideology of the Government has resulted in a system of contracts for difference, under which the guaranteed payments are entailed in a so-called strike price. Any returns to the investment that are below the strike price will be supplemented and any returns above it will be taxed This system has been an invention of neoclassical economists. It has accorded perfectly with their theoretical vision of how the economy ought to work, but it is at variance with reality. Among the economic fictions that support this system is a belief in the efficiency of intertemporal financial intermediation, whereby lenders can be prevailed upon to accept future repayments with little in the way of monetary inducements. In reality, it has proved impossible for prospective contractors to acquire the investment funds without incurring a heavy burden of payments to the financial sector The Government’s latest attempt to square the circle is represented by the Nuclear Energy (Financing) Bill. The Bill proposes to provide a stream of revenues to the contractor during the period of construction. The revenue will be derived from a charge levied on existing consumers of electricity. The supposition is that, with a guaranteed revenue stream and the alleviation of some of the risk, the contractors will be able to acquire capital funds from the private sector with greater certainty and at a reduced cost This begs the question of where the funds will come from and whether they will be adequate to cover the costs. The Government have also reserved the right to judge whether a proposed nuclear project will represent value for money and there is a risk that they will declare or decide that it does not. The common understanding is that the capital will come from the pension funds. I believe that this is the Government’s assumption. We have yet to hear any assessment of the likelihood that the funds will be forthcoming. Perhaps the Minister could address this point. To my knowledge, the Government have revealed no plans to meet the eventuality that the funds to sustain the regulated asset base will not be forthcoming from the private sector. Perhaps, in that case, the Government should derive funds by issuing designated nuclear bonds, as has been suggested In January, the Government announced £100 million of funding to support the continued development of the Sizewell C project, in the hope that this would attract further financing from private investors. This is a trivial sum. It might seem odd to describe £100 million as a trivial sum, but it is small in comparison with the £4.3 billion that is reported to have been lost through Covid-related fraud. The cost of the Hinkley Point C power station, which should open in 2026, is estimated to be between £22 billion and £23 billion. The cost of Sizewell C has been estimated at £20 billion. One should be mindful of the fact that, under existing arrangements, at least 50% of these sums will be paid to the financial sector in interest charges. Stripped of interest charges, the true cost of constructing a massive power station at Hinkley Point or Sizewell can be compared with the cost of the 2012 Olympic Games, which is supposed to have been £14.8 billion. These costs seem small when set beside the accumulated profits of banks and the tax paid by the banking sector These figures have been bandied about because I wish to pose a rhetorical question: can we afford to secure our future energy supply and fulfil our carbon reduction ambitions? The Government’s economic philosophy might suggest to them, absurdly, that both of these questions should be answered in the negative and that it will be too expensive to achieve these goals.