Nuclear Update

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.

I thank the Secretary of State for his statement, but he must recognise that the Government’s new nuclear strategy, adopted by the Conservatives and spearheaded by their Liberal Democrat coalition partners in 2013, is now in complete meltdown. The Government have reacted far too slowly to ongoing concerns from nuclear partners, such as Hitachi’s UK nuclear arm Horizon, which have been raising concerns over funding mechanisms since purchasing the project from RWE and E.ON back in 2012. Today’s decision to withdraw from the Wylfa nuclear power plant lays a significant blow on our economy.

The company’s statement reads:

“Horizon Nuclear Power has today announced that it will suspend its UK nuclear development programme”.

That sounds very much like not only is Wylfa on the chopping block, but so, perhaps, are plans for Hitachi’s other nuclear project—the Oldbury nuclear power plant in Gloucestershire. The Secretary of State has stated that Hitachi wants to work on new projects at Wylfa and Oldbury. What does that mean in the light of the clear statement Horizon has made this morning?

Only two months ago, the Government’s lack of clarity over funding for new nuclear led Toshiba to withdraw from its new nuclear project in Moorside. With the three reactors expected at Moorside and two each in Wylfa and Oldbury, that makes a total of 9.2 GW of new nuclear energy that will not now be built. Can the Secretary of State tell us where he will find this power—not only through the next winter, but over the next 10 years?

The long-term coherence of the UK capacity arrangements is now significantly disrupted. With the capacity market also falling foul of legal challenge, these elements add up to a strategic energy sector that is now being grossly mishandled by this Government. Now that their nuclear plan has gone up in smoke what plan can the Secretary of State spell out to us for finding new backers for these projects? Given the apparent capacity constraint, is he intending to uprate the coming contracts for difference auction, removing the caps on capacity and funding that he has imposed to provide further opportunity to build new renewable energy capacity to replace what has been lost?

I will respond to the hon. Gentleman’s points, but I will start by saying one thing about nuclear investment. I have been clear in maintaining my support and that of the Government for new nuclear, but, for investments of over 60 years, a degree of cross-party support is required for those commercial investments, which, as we have seen, are difficult to secure.

The hon. Gentleman expressed disappointment that the investment was being suspended, but he himself has said we do not need nuclear power. The Leader of the Opposition has said he is passionately opposed to nuclear power and nuclear weapons in equal measure, the shadow Chancellor said he would end nuclear power within the first 100 days of a Labour Government, and the new Welsh First Minister said:

“I think the attitude to nuclear power we have here in Wales is to be sceptical about it”.

If we in this House want to encourage international investors to invest in new projects, it behoves us to express solidarity and consistency of purpose.

I have been very clear about why Hitachi made this decision. We understand it. It is was commercial decision. The hon. Gentleman did not say whether he would have gone further than we were willing to go. Is he proposing that we take more than one third of the equity—in effect, take Government control and all the risk attached to such an investment? He did not say whether we should be providing a contract for more than £75 per MWh, which would go straight to the bills of customers—both industrial and residential. It is hard to say how we can go beyond financing all the debts. I think, then, that fair-minded Members would accept that we have made a substantial and generous offer, but unfortunately it has not been possible to achieve the outcome that all sides wanted.

The hon. Gentleman asks how we can continue discussions and why the company has suspended, rather than cancelled, the proposals. It is for the reasons I have said. We are going to look at new financing models, including the regulatory asset base model recommended by the Public Accounts Committee. I think it makes sense to do that.

I thank my right hon. Friend for his statement and for the extraordinary lengths that he was willing to go to in trying to create the right conditions for this important north Wales project to happen. However, given Hitachi’s decision, given the decision on Moorside and, in fact, given the failure of a whole swathe of Japanese nuclear projects around the world, are the days of relying on mammoth nuclear power stations that make huge demands of taxpayers’ cash over? Should we not be putting more energy into examining smaller nuclear reactor technology?

My right hon. Friend is right that small modular reactors have significant potential. The nuclear sector deal that we agreed with the sector and published last year contains a substantial commitment to small modular reactors, many of which would be deployable on the sites of existing and recently decommissioned nuclear reactors. However, even large new nuclear reactors can make a useful contribution. There is a challenge in every country, and this is by no means just a feature of Japanese investors. I have described clearly and, I hope, candidly the challenges that exist given the abundant availability and falling prices of alternatives. That is why we will take forward a serious assessment of whether a different financing model might make the economics more competitive. Again, the sector deal that we struck contains a programme to reduce the build costs of new nuclear, which would of course also help its financeability.

This statement confirms that the UK Government’s nuclear programme is in tatters, yet the Secretary of State comes to the House, commends this statement, and says that he will carry on regardless, which makes absolutely no sense whatsoever. The National Audit Office confirmed that the Hinkley Point C strike rate of £92.50 per MWh was a bad deal. We know that offshore wind is currently £57.50 per MWh, but that is based on a 15-year concession, as opposed to a 35-year concession for the nuclear deal.

The Secretary of State has confirmed that the Government were so desperate for Wylfa that they would take something like a £6 billion stake and provide £9 billion of debt financing, yet he pretends that they were being prudent by limiting the 35-year contract to £75 per MWh. His use of the word “generous” in the statement could not be more appropriate. When Toshiba pulled out of Moorside with the loss of £100 million, its share price increased. At the time, the Secretary of State said, “Don’t worry. The circumstances are unique.” With this latest setback from Hitachi, the UK Government need a proper re-evaluation of their nuclear policy; they should not look just at alternative funding mechanisms.

Four existing nuclear power stations are due to close by 2024, taking more than 4 GW of capacity out of the grid, so what is the Government’s plan for replacing that capacity? New nuclear power stations are clearly not an option that could be completed by 2024. When will we know how much money is going to be thrown at Rolls-Royce for the small modular reactors that the Secretary of State mentioned? Why are the Government still blocking onshore wind in Scotland when it is clearly the cheapest mode of generation? When is the cut-off date for the ongoing discussions with Hitachi? When will the plug finally be pulled? When did the Government first find out about Hitachi pulling out? It was already being reported in the press, so how long before coming to the House to make this statement did the Secretary of State find out? When will nuclear power be properly benchmarked against onshore and offshore wind? When will the Government wake up and end their ideological obsession with nuclear?

Given the hon. Gentleman’s suggestion that the strike price for Hinkley Point C was excessive, I would have thought he would welcome and approve of my statement, which sets a limit on what it is possible to provide to finance a private investment. He asks when the decision was made by Hitachi. My understanding is that it was made in Japan at 9 o’clock this morning, and I hope he would accept that I have come to the House as soon as possible.

The hon. Gentleman is critical of the nuclear industry, but I would have thought that he might want to pay tribute to Scotland’s proud tradition in the nuclear sector and to the people that have worked and contributed to our energy supply and still do. Chapelcross, Dounreay, Hunterston and Torness have for decades provided good jobs and employment both directly and in the supply chain across Scotland and continue to do so today. My determination to continue our tradition of being a nuclear nation offers continuing opportunities to Scotland, and I would have thought that he would welcome that.

Far from being at the expense of renewable energy, our energy policies have supported Scotland to become a world leader in securing energy from renewable sources. In fact, we heard earlier this month from WWF Scotland that wind output in Scotland has broken through the barrier of 100% of demand for the first time. That comes as a result of the policies that this Government have put in place to bring down the costs of wind, which is highly competitive. As a result, that is causing some competitive challenges for other technologies, including nuclear, but I would have thought that the hon. Gentleman would welcome the progress that has been made on renewables.

This announcement, although widely anticipated, will be greeted with dismay in north Wales, where Wylfa was and remains an important part of the vision for the future of the north Wales economy, as expressed in the north Wales growth bid. My right hon. Friend will know that the all-party parliamentary group on Mersey Dee North Wales has been working closely with both central and local government in connection with the growth bid. Will he or one of his Ministers be prepared to meet the group to discuss Wylfa, its future and the potential for other means of energy generation in north Wales?

I pay tribute to the role that my right hon. Friend played in the earlier stages of discussions for the Wylfa site. As is evident, such matters are complex and difficult to secure, but he laid the groundwork for some of the progress that has been made, and I hope that the process might ultimately be successful. Of course, I have complete commitment to the north Wales growth deal, and I would be delighted to have a meeting with him and my ministerial colleagues. The Secretary of State for Wales will be in Anglesey tomorrow and will be meeting members of the local community.

As I said in my statement, we regard Anglesey and north Wales as having exceptional strengths in our energy future. Bangor University, for example, contributes exceptional world-leading innovation, and we have backed that in the sector deal. Colleagues across Government and I will work closely with colleagues in north Wales to ensure that that potential is realised.

I thank the Secretary of State for coming to the House at the earliest opportunity to give this statement. He will know the importance of this matter to my local community, to the Welsh and UK economies and, indeed, to the Government’s nuclear policy. With 10 years of planning, a lot of work has gone into this project, as he rightly acknowledges. It started off under the Labour Government and was continued by the coalition Government and, indeed, the current Government. Wylfa is the best site in the United Kingdom for a new nuclear build, but Hitachi’s announcement puts the jobs of 400 people at risk, many of whom are my constituents. There is the potential for some 8,000 to 10,000 construction jobs, hundreds of operational jobs and, importantly, 33 apprenticeships, so I hope that we can work to ensure that we save as much of that as possible. The supply chain and small and medium-sized enterprises are important as well, and they have been planning for this for years.

So I ask the Secretary of State: can we work together to keep this project alive and ensure that we create the momentum so that it can be ready for a future developer, or indeed this developer, with the right mechanism? We need a better mechanism for financing, not just in the nuclear sector but for all large energy construction, including the tidal lagoon. I pay tribute to my hon. Friend the Member for Southampton, Test (Dr Whitehead) in this regard, because I feel that an opportunity for innovation has been lost with the tidal lagoon, and the Welsh economy needs it. We know that £16 billion has been taken out of the Welsh economy as a result of that announcement, and we need to redistribute that.

I echo the right hon. Member for Clwyd West (Mr Jones) in saying that we need extra help and extra resources to plug the gap following this announcement today. We have a mechanism through the north Wales growth deal whereby the Welsh Government work with the UK Government to create jobs, and I urge the Secretary of State to work with the new First Minister and the Economy Minister on this. The north Wales growth bid can be successful. I will be meeting the Secretary of State for Wales as well, but I want to ask the Secretary of State to work closely with us on this. Will he host a delegation involving myself, key stakeholders and his officials to look at a funding mechanism for the future that will work not just for new nuclear but for all large projects? North Wales is a centre of excellence for low carbon, nuclear, renewables and marine energy. It has the potential; let us work together to make this happen.

I repeat my commendation of the hon. Gentleman. He has been a consistent and passionate campaigner not only for the interests of his constituents but for the excellence of the industry in north Wales, and in Anglesey in particular. I can give him that wholehearted commitment. My officials will certainly meet him, but they will also come with me and my nuclear Minister and we will work together in a completely open-book way on all the options. The hon. Gentleman serves with distinction on the Select Committee, which I think will also want to scrutinise the options and the potential for financing. I repeat the commitment I gave to my right hon. Friend the Member for Clwyd West (Mr Jones) that we continue to regard the north Wales growth deal as an excellent base to reinforce the strengths of the area, and I will work very closely with him on this.

The hon. Gentleman also mentioned marine energy, which is one of the opportunities that we have in his constituency and around north Wales. Far from having closed the door to marine technologies, we want to continue to invest in innovation. When it comes to deployment, the technologies need to demonstrate value for money, but we will work with them, as we did with the offshore wind sector, to bring costs down so that they can win at auction alongside other technologies.

Does my right hon. Friend agree that it remains highly desirable to have a diversity of providers and technologies in civil nuclear generation? Will he therefore confirm, particularly in the light of recent concerns expressed about some Chinese investments, that the Government will remain fully supportive of the proposal from China General Nuclear to invest in a new power station at Bradwell-on-Sea in my constituency, subject of course to a generic design assessment and other permissions being obtained?

As my right hon. Friend knows, CGN is an investor in the Hinkley Point C nuclear power station, which is being built as we speak. That is proceeding at pace. When it comes to Bradwell, CGN is again making successful strides through the approval process. All investment is subject to that process, but I can confirm that it has our full support as it goes through the regulatory approvals.

I, too, thank the right hon. Gentleman for coming to the House today to deliver his statement. I also thank him for his openness to meeting north Wales Members on the issue of Wylfa Newydd. In his statement, he said that central Government were now relying more on renewables. May I put the north Wales picture to him? I can tell him that 1,500 wind turbines—sea turbines—were planned for the Rhiannon field off the coast of north Wales, but those plans have been cancelled by the private sector. The tidal lagoons for Wales were key to the development of the Welsh economy, yet the Government pulled their support for the Swansea Bay tidal lagoon. That had a knock-on effect for the huge lagoon planned for off the coast of north Wales, and we have heard today about the cancellation of a £16 billion investment in the north Wales economy. This will devastate the north Wales economy. The people of north Wales need to know that the Prime Minister is batting for them and for the UK. Will the right hon. Gentleman ask the Prime Minister to place in the House of Commons Library the minutes of her meeting with the Prime Minister of Japan, to ensure that we know that that is what she has been doing on behalf of the people of north Wales?

The Prime Minister has repeatedly discussed nuclear investment with the Prime Minister of Japan, as have I with my opposite number there. In fact, in November, I flew to Tokyo to discuss the negotiations going on here, given the difficulties that the investor was having, and I met my opposite number at the Japanese Ministry of Economy, Trade and Industry. This has been a substantial, and cordial, Government-to-Government relationship, and the hon. Gentleman has my assurance that we will continue that. I mentioned in my statement the work of our embassy in Tokyo, which has been an excellent and expert source of advice. That will continue to be available.

When it comes to investment in renewables, the hon. Gentleman will know that Wales is a substantial and proud leader in renewable energy. I think Gwynt y Môr is the second largest wind farm already deployed in Europe. I mentioned in my statement the rising availability of alternative technologies. To put this in context, in 2017 we procured more than 3 GW of offshore wind in a single contract for difference auction at £57.50 per MWh. That is more in a single auction than this plant was going to provide. As I have said, the challenge is the competition coming from other technologies, and Wales is a beneficiary of some aspects of that.