Nuclear Update — House of Commons, 2019-01-17
Topic: Energy
Gregory David Clark (Conservative, Centre-right): With permission, Mr Speaker, I would like to make a statement following Hitachi’s announcement this morning that it intends to suspend development of the proposed Wylfa nuclear power project, as well as work relating to Oldbury The economics of the energy market have changed significantly in recent years. The cost of renewable technologies such as offshore wind has fallen dramatically, to the point where they now require very little public subsidy and will soon require none. We have also seen a strengthening in the pipeline of projects coming forward, meaning that renewable energy may now be just as cheap, but also readily available As a result of the developments over the last eight years, we have a well-supplied electricity market. Our electricity margin forecast is more than 11% for this winter, having grown for each of the last five years. While that is good news for consumers as we strive to reduce carbon emissions at the lowest cost, that positive trend has not been true when it comes to new nuclear. Across the world, a combination of factors, including tighter safety regulations, has seen the cost of most new nuclear projects increase as the cost of alternatives has fallen and the cost of construction has risen. That has made the challenge of attracting private finance into projects more difficult than ever, with investors favouring other technologies that are less capital-intensive up front, quicker to build and less exposed to cost overruns As I made clear to the House in June, the Government continue to believe that a diversity of energy sources is the best way of delivering secure supply at the lowest cost and that nuclear has an important role to play in our future energy mix. In my June statement, I therefore reaffirmed the Government’s commitment to nuclear. I also announced that we would be entering into negotiations with Hitachi over its project at Wylfa. Given the financing challenges facing new nuclear projects, I made clear to the House that we would be considering a new approach to supporting Wylfa that included the potential for significant direct investment from the Government As I am sure the House will understand, while negotiations were ongoing the details were commercially sensitive, but following Hitachi’s announcement I can set out in more candid terms the support for the project that the Government were willing to offer. First, they were willing to consider taking a one-third equity stake in it, alongside investment from Hitachi, agencies of the Government of Japan, and other strategic partners. Secondly, they were willing to consider providing all the debt financing required for the completion of construction. Thirdly, they agreed to consider providing a contract for difference, with a strike price expected to be no more than £75 per MWh. I hope the House will agree that that is a significant and generous package of potential support, which goes beyond what any Government have been willing to consider in the past Despite that potential investment, and strong support from the Government of Japan, Hitachi reached the view that the project still posed too great a commercial challenge, particularly given its desire to deconsolidate it from its balance sheet and the likely level of return on its investment The Government continue to believe that nuclear has an important role to play, but, critically, it must represent good value for the taxpayer and the consumer. I believe that the package of support that we were prepared to consider was the limit of what could be justified in this instance. I was not prepared to ask the taxpayer to take on a larger share of the equity, as that would have meant taxpayers’ taking on the majority of construction risk, and the Government’s becoming the largest shareholder with responsibility for the delivery of a nuclear project. I also could not justify a strike price above £75 per MWh for this financing structure, given the declining costs of alternative technologies and the financial support and risk-sharing already on offer from the Government, which were not available for Hinkley Point C Let me reassure the House that Hitachi’s decision to suspend the current negotiations on the project was reached amicably between all parties once it became plain that it was not possible to agree a way forward. Hitachi has made clear that while it is suspending project development at this stage, it wishes to continue discussions with the Government on bringing forward new nuclear projects at both Wylfa and Oldbury, and we intend to work closely with it in the weeks and months ahead. We will also continue to strengthen our long-standing partnership with the Government of Japan on a range of civil nuclear matters; and, importantly, we will continue to champion the nuclear sector in north Wales, which is home to world-leading expertise in areas such as nuclear innovation and decommissioning and which offers ideal sites for the deployment of small modular reactors If new nuclear is to be successful in a more competitive energy market—I very much believe that it can be—it is clear that we need to consider a new approach to financing future projects, including those at Sizewell and Bradwell. Therefore, as I said initially in June, we are reviewing the viability of a regulated asset base model and assessing whether it can offer value for money for consumers and taxpayers. I can confirm that we intend to publish our assessment of that method by the summer at the latest Through our nuclear sector deal, we are exploring the possibility of working with the sector to put the UK at the forefront of various forms of nuclear innovation. We are looking into whether advanced nuclear technologies such as small modular reactors could be an important source of low-carbon energy in the future, and we are considering a proposal from a UK consortium led by Rolls-Royce that would result in a significant joint investment I began my statement by outlining the challenges that the nuclear industry faces as the energy market changes. I will set out a new approach to financing new nuclear in the planned energy White Paper in the summer. I know that the future of the nuclear sector is of great interest to many Members, and I will ensure that those on both sides of the House, and its Select Committees, have an opportunity to consider the proposals I understand the disappointment that the dedicated and expert staff at Wylfa and Oldbury will feel as a result of today’s announcement by Hitachi. New commercial nuclear investments around the world are experiencing the same challenges as new sources of power become cheaper and more abundant. Nuclear has an important role to play as part of a diverse energy mix, but it must be at a price that is fair to electricity bill payers and to taxpayers. We will work closely with Hitachi and the industry to ensure that we find the best means of financing these and other new nuclear projects Our commitment to Anglesey—with its nuclear, renewables and deep expertise, it is a real island of energy—will not be changed by this decision. I will work with the hon. Member for Ynys Môn (Albert Owen), the Welsh Government and the local community to ensure that its renown is supported and strengthened, and I will do the same with my hon. Friend the Member for Thornbury and Yate (Luke Hall) I pay tribute to the staff of Horizon and Hitachi and to my own officials, those in the Department for International Trade and our embassy in Japan, and those of the Government of Japan, who spent many months doing their utmost to support a financing package. I know that they left no stone unturned in seeking a viable commercial model for this investment, and I very much hope that their work and professionalism will lead to a successful partnership following this period of review. I commend this statement to the House.