Oral evidence: UK New Nuclear: Status Update, HC 176, Tuesday 24 May 2016

Oral evidence, 24 May 2016.

Witnesses

Andrea Leadsom MP, Minister of State, Department of Energy and Climate Change, and Hugo Robson, Chief Negotiator, Department of Energy and Climate Change, gave evidence.

Chair

Thank you, Minister, and thank you, Mr Robson, for coming in. Could I ask you to state you names and your positions for the record, please, as a matter of formality?

Andrea Leadsom

Andrea Leadsom, MP, Minister of State for Energy and Climate Change.

Hugo Robson

Hugo Robson, chief negotiator at the Department of Energy and Climate Change.

Chair

Minister, Amber Rudd wrote to us in April to say that she was fully confident that the Hinkley project would go ahead. Since then, the final investment decision, as we know, has been delayed yet again. Are the Government still fully confident?

Andrea Leadsom

The Government are fully confident that Hinkley Point C will go ahead, yes.

Chair

Okay. Last year you said, “We don’t think that the Austrian challenge has merit and we will be continuing as far as we are possibly able, whilst bearing in mind any risks to consumers. We are formulating our plan right now.” But recently you were quoting as saying that the UK will have to “fight quite hard” to ensure that Hinkley C is not blocked by legal challenge from Austria and that “Being a member of the EU could scupper the deal because of the state aid challenge from Austria.” Which one of these two statements should we follow—this year’s or last year’s? Is the EU a threat to Hinkley?

Andrea Leadsom

No, and I made it very clear at the time that I did not think that the challenge had any merit or that membership of the EU had any bearing on the Hinkley Point C project. Unfortunately, the journalist chose not to mention those points, but just to take the specific comment I made that, theoretically, the EU state aid challenge could have an impact on the project. It was unfortunately an incomplete quote.

Chair

Thank you for that clarity. So you are saying that being a member of the EU would not scupper the deal for Hinkley in any way.

Andrea Leadsom

Absolutely we do not believe that the Austrian state aid challenge has any merit and we are very comfortable that the Hinkley Point C project will go ahead.

Chair

Thank you. At what point do you think UK Government confidence could ever conceivably—perhaps maybe—start to wane in Hinkley Point C? Is there a point at which that could happen?

Andrea Leadsom

That confidence in the project would wane? No, absolutely not. Why would there be?

Chair

If a final investment decision is not taken in September, will that have any effect on confidence?

Andrea Leadsom

When the final investment decision is taken is a commercial decision for EDF. The UK Government have an absolute policy of a diverse source of energy projects. In the UK, we face a 20-year lack of investment in energy infrastructure that this Government are trying to put right. What we are trying to do is build a diverse source of energy projects, and new nuclear is an absolutely core part of that. So, no, we will continue as the UK Government to support new nuclear, which includes Hinkley C.

Chair

If a final investment decision is not taken this year, or even by the end of 2017, will that affect confidence?

Andrea Leadsom

We expect that the final investment decision will be taken soon. It is a commercial matter for EDF, but I am not going to get involved in speculation about how long before—that is just a nonsense line of argument. The UK Government are confident that Hinkley Point C will go ahead and we are also confident that the final investment decision will be in the near future.

Chair

You might call it a nonsense line of argument, but is it not giving a blank cheque time wise to EDF when the UK Government do not seem to blink in confidence in any way, shape or form as time goes on?

Andrea Leadsom

There is no such thing as a blank cheque time wise, as you will know, so, time wise, is the confidence that we have that EDF are fully committed to this project? I have been down to Somerset to see Hinkley Point C and I can tell you I was absolutely overwhelmed by the massive amount of work that is going on down there—millions of pounds are being spent. I had the great pleasure of seeing a brilliant bat house and I have seen hedgehog tunnels and an amazing levelling of the land. A huge amount of work is going on on-site. Those are not the actions of a company that is not planning to move ahead. You have just heard very strong evidence from EDF’s senior people that this project is going ahead.

Chair

It is music to the ears of many civil engineers that such work is going on, but I have to press you again, Minister: there does seem to be a blank cheque if there is no backstop timing when EDF has to be told by the UK Government that they expect a final investment decision to be made.

Andrea Leadsom

There is no blank cheque, as you will know, Chairman. The cost of Hinkley Point C will not be borne by the UK bill payer or taxpayer—

Chair

I meant a blank cheque in regards to timing and confidence.

Andrea Leadsom

As I have said, there is no such thing as a blank cheque in regards to timing. The blank cheque refers to money, and I think that what you are trying to imply is that somehow this will cost the UK—

Chair

I meant a blank cheque as a metaphor for time.

Andrea Leadsom

I want to clarify for the UK bill payer that there is no cost to the UK bill payer until Hinkley C starts producing electricity. Your talk about blank cheques is somehow implying that there is a cost to UK bill payers, and I think that is very misleading for them.

Chair

Just to be certain, the blank cheque referred to timing; the blank cheque was about confidence—it was a metaphor for time. There is nothing from the UK Government saying that they will lose any confidence no matter how time runs. There is no time limit being given to EDF by the UK Government for a final investment decision—is that the case?

Andrea Leadsom

A final investment decision is a commercial matter for EDF, and the UK Government are confident that EDF will reach its final investment decision.

Antoinette Sandbach

Minister, we heard some prevarication today about the delivery date. Even if the investment decision is taken this year—in September or maybe even later in the year—the delivery date for Hinkley Point C may slip beyond 2025. Bearing in mind that Mr de Rivaz originally said that we would be cooking our turkeys with French energy in 2017, are you seriously suggesting that there is no risk to the British bill payer of that loss of supply or that potential failure to deliver the project on time?

Andrea Leadsom

The key thing, when we look at energy security, is that we have always made it absolutely clear that energy security is not negotiable. The point about the support that we give for power generation, is that we never put all our eggs in one basket. We are seeking to plan for the future in a way that previous Governments should have done and didn’t, but all our eggs are not in one basket. It is simply not the case that a few months here and there would mean the lights going out. We will always plan to ensure that we have energy security for the UK consumer.

Antoinette Sandbach

Given the tight margins of error we already have in effect in our supply with national grid, a two-year delay is not a matter of months when a project was supposed to come on line in 2017 and we are now looking at 2025 at the earliest.

Andrea Leadsom

Yes, but as I said, we never leave ourselves in a position where one particular project will make or break the system. The reason we have tight margins is partly the transition to a lower-carbon future, partly low wholesale prices making it difficult for plants to be economic and also, importantly, because the bigger the margin that we have, the more we have to pay, and the more that bill payers have to pay, for that margin. So we choose to run with an adequate margin that gives us enough of a buffer, so that the lights do not go out—as I said, that is absolutely non-negotiable. Equally, in our energy policy we never leave ourselves susceptible to one or another project’s delay meaning that the lights could potentially go out.

Chair

Thank you Minister. Such is your popularity that three members want to come in.

Matthew Pennycook

Thank you for coming this morning, Minister. I want to follow up on that point, if I may. I do not think anyone is suggesting that the lights will go out, but are you saying that there are no implications of measures that might need to be taken through the capacity market—that would have implications for consumer bills—and that there will be no impact should Hinkley not start generating in 2025? That 7% of our electricity generation will exacerbate the looming energy crunch that is approaching. Won’t that have an implication, through the capacity market, on consumer bills?

Andrea Leadsom

I am of course not saying that there is no implication. I am saying that we do not leave all our eggs in one basket. So we will take steps elsewhere, should we need to do so, to ensure that energy security, which is non-negotiable at all times, remains secure. That might be through the capacity market, in encouraging other plants to be available; it might be through greater storage and greater demand-side response, or it might be through greater energy efficiency. Don’t forget that we are talking about 2025—we are now in 2016. All the different choices that are available to our energy mix are employed at all times. The Committee is very helpfully highlighting the complexity of the energy sources that we have the opportunity of bringing into our energy mix, but also the challenge of making sure that if one thing is a bit late, something else can be available. If one bit gets delayed, of course there is an impact, because we need to pull in something from somewhere else. I am not saying there is no impact; I am merely saying that we do not leave ourselves in a position where a delay—

Matthew Pennycook

I appreciate that, but those other things being pulled in—those other measures you might be forced to take—have implications for consumers. Do you accept that?

Andrea Leadsom

Every aspect of power generation has implications for consumers, so in that sense, yes, of course.

Mr Carmichael

Just to be clear about the final investment decision and the Government view on it, without getting bogged down in metaphors: have the United Kingdom Government given EDF a deadline by which you want to see a final investment decision taken?

Andrea Leadsom

We want the final investment decision to be taken as soon as possible, but we recognise that it is a commercial decision for EDF.

Mr Carmichael

The question was, “Have you given them a deadline?”

Andrea Leadsom

And I have just given you the answer I am prepared to give you, which is that it is a commercial decision for EDF and we want it as soon as possible. So the answer to that is no, we haven’t.

Mr Carmichael

You have not given them a deadline. It is an open-ended time commitment, then?

Andrea Leadsom

It is a commercial decision for EDF, and we want it to be as soon as possible.

Mr Carmichael

We all know that it is a commercial decision, but as you very properly told us, you have strategic considerations on behalf of the nation. You are dealing with a difficult situation, which is not of your making; you are dealing with the history of 20 years of difficult decisions not being taken. You can execute your duties as a Minister for a project of that sort by giving them an open-ended commitment in terms of timescale.

Andrea Leadsom

As I have highlighted to you, having recently visited Somerset, there is an incredible amount of work going on. There is no sense—

Mr Carmichael

And I have no doubt that the bats and the hedgehogs are immensely grateful, but—

Andrea Leadsom

It is a very important point, Mr Carmichael. If they were downing tools and waiting for a final investment decision, we would all be concerned, but the point is that they are not. The work is continuing: there is a huge investment and a huge amount of work going on. We believe that the final investment decision will take place as soon as possible, and that is what we want to see.

Mr Carmichael

But you have not given them a deadline. That is your evidence on the record: that the United Kingdom Government have not given EDF a deadline by which time we want to see a final investment decision.

Andrea Leadsom

I will just say it again if you like: it is a commercial decision for EDF—

Mr Carmichael

I know the nature of the decision. I have asked you whether you have given them a deadline.

Andrea Leadsom

It is not for the UK Government to give a deadline.

Mr Carmichael

You take the view that it is not your job. You have no responsibility for giving them a deadline.

Andrea Leadsom

It is a commercial decision for EDF.

Mr Carmichael

If they don’t get that final investment decision, what happens then?

Andrea Leadsom

It is a commercial decision for EDF.

Chair

Thank you. DECC targets are 2025, still. I understand that the CfD term will be reduced if there is a four-year delay, and the CfD term could be cancelled altogether if there is an eight-year delay from 2025. So if this is not up and running by 2033, the UK Government could cancel the CfDs, and EDF could be left holding the baby. The French Government and the French trade unions may be very nervous about that.

Andrea Leadsom

I think, as EDF has just said in their evidence to you, they are undertaking a consultation with their workforce, which they see as very important to their company. It is right that they should do that. The commercial arrangements are a matter of record and EDF is very aware of that, but I am not going to speculate on “If the sky falls in” and all the rest of it. This is a commercial transaction. It is not a state procurement or something; it is a commercial transaction. EDF have signed up to the terms of a commercial transaction, and quite rightly they want to consult their workforce. Mr Robson, do you want to comment on that?

Chair

Mr Robson, the CfDs could be cancelled if this is not up and running by 2033, yes?

Hugo Robson

That’s right. From 2025 to 2029, they get a 35-year CfD. Post-2029, the CfD is shortened one year for every delay up until 2033, and then it would be cancelled. Obviously, they would then be able to get revenues, but they would not be able to get the top-up revenues from the CfD.

James Heappey

I want to ask very quickly about the potential change in the political landscape in Paris. We see with TTIP, for example, that as the political landscape in Washington has changed, that formerly flagship policy looks like it might fall by the wayside. The French primary season is coming in the autumn, and there is clearly not consensus in Paris about Hinkley. In fact, people such as Marine Le Pen are on the record saying that it is a money pit. Does it bother you, Minister, that this decision could be taken amid the French presidential election? As we have seen in Washington, sometimes political will changes.

Andrea Leadsom

President Hollande and Emmanuel Macron, the Finance Minister, have made it very clear on the record that they remain fully committed to this project. EDF in their evidence made it very clear that there is not a political angle to this; it is a commercial decision, and it continues apace. No, I am not concerned.

James Heappey

That is absolutely clear. Mr Macron’s letter to us today is hugely helpful in reassuring us of exactly that.

Andrea Leadsom

Good.

James Heappey

But in the autumn, all bets are off. There will be a primary process in France that could well be quite fruity, and the debate could change. Does it worry you that this decision could be taken amid that?

Andrea Leadsom

No. It couldn’t be clearer that the President, the Finance Minister and EDF are committed to the project, and there is a huge amount of work going on in Somerset. The backdrop to this is that EDF are a commercial organisation. If they were to decide to pull out, that would be an issue for them as a company. I don’t think there is any way in which there would be an incentive for them to decide to pull out. This is a commercial arrangement that they are committed to.

James Heappey

I don’t think EDF’s will is in any way in question, and nor is that of the current Administration in Paris. It is absolutely clear that they are committed. It is simply whether it concerns you in any way that if this decision is taken after, rather than before, the August holiday, it will be done alongside a French presidential election. Who knows where the debate will go there? Surely that must be a cause for concern, even if only in a very small way.

Andrea Leadsom

I think that the President, the Finance Minister and EDF couldn’t be clearer. We can all speculate about what ifs in the future, but I prefer to deal with the facts that we have today.

Antoinette Sandbach

Perhaps I can come on to the facts, Minister, in relation to the letter from Mr Emmanuel Macron. He says that HPC “is a project whose profitability outlook is positive for EDF, provided its construction costs are kept under control and its risks can be controlled.” He accepts that there are risks, but it appears that the British Government just think that it is a commercial risk and are not really concerned about when the decision is going to be taken—certainly not concerned enough to put a time limit on it. What contingency planning are you doing in relation to those risks materialising—for example, because of a negative report in relation to Flamanville?

Andrea Leadsom

I can only reiterate what I’ve said before. Hinkley C is a project that we’re hugely supportive of. We’re really keen to see it happen. It is absolutely key to our nuclear ambitions.

Antoinette Sandbach

I understand all that, but that’s not my question. My question is, what contingency plans are you making in the event that the decision is not taken soon?

Andrea Leadsom

Again, as I have said, new nuclear is a core part of our energy ambitions. As you will be aware, we are also bringing on more offshore wind. We are also doing everything we can to promote new storage. We are looking at new combined cycle gas turbines. I just want to reiterate that we don’t have all our eggs in one basket. We are trying to promote investment in a diverse range of energy sources so that no one project can destabilise the system.

Antoinette Sandbach

I accept that as an answer, but that doesn’t deal with the contingency of a planned—

Andrea Leadsom

Perhaps I am not understanding your question. Contingency in what sense? It is a commercial decision. If it goes ahead, that’s fantastic; it’s what we want. If it doesn’t go ahead, we will not leave the British consumer vulnerable to the lights going out.

Antoinette Sandbach

So you are planning for the position that it could potentially not go ahead?

Andrea Leadsom

Obviously, my Department’s core function is to ensure energy security above all else. Secondly, it is to keep the costs down and, thirdly, it is to decarbonise at the lowest possible price. New nuclear hits all those buttons. We will not leave the UK consumer vulnerable to the lights going out.

Antoinette Sandbach

You say that, but the UN Economic and Social Council has made a finding that the UK has not met its commitments under the UN Convention on Environmental Impact Assessments in a Transboundary Context. What risks do you see in relation to the Austrian challenge and in relation to the finding from the UN Convention?

Andrea Leadsom

First, on the Austrian challenge, as I said at the start, we do not believe it has any merit. We think the EU state aid approval was given and we do not believe that the challenge has any merit. On the Espoo Convention, we recognise that there has been an interim finding that there should have been broader consultation. That will not make its findings clear until 2017. We are now looking at what we can do to make sure that any requirement that they might possibly find in 2017 has been dealt with. We are making sure that any issue that does arise can be dealt with.

Matthew Pennycook

We fully understand your point that it is a commercial decision. There is no timeline in that sense. Could you confirm my understanding of the original agreement that the CfD term could be reduced after a four-year delay? It could be cancelled after an eight-year delay. The option of something going wrong and the Government having the option of cancelling is part of the original contract. Is that right?

Andrea Leadsom

That is what we have just confirmed.

Hugo Robson

Yes, if there is a very significant delay—we are talking about eight years—at that point we are able to cancel the contract, as is the case for all CfDs that are put in place. There is a backstop date which is not intended to be met. There is a backstop date by which, if it is not up and running by 2033, the CfD would be cancelled. But I repeat the point that the project would then be able to get revenues from the market by that stage with a significant amount, no doubt, at some cost.

Matthew Pennycook

So an alternative financing option, a plan B in that sense, has been considered by the Department, or have you not got that far? You would have to think about alternative ways of financing it or alternative projects to cover that 7% of generation, that’s right, isn’t it? Has that thinking gone on in depth?

Andrea Leadsom

You are referring again to our diverse sources of energy. I think I have now said this three times, that we won’t ever leave the UK consumer at risk of the lights going out. As I have just said, we have new gas, new offshore wind, new storage, new demand side response, the technologies that we don’t yet know about, SMRs, new nuclear—those are all part of our absolute assurance that the lights will not go out.

Chair

Minister, that is quite an interesting answer because it tells someone, whether they want to take it positively or negatively, that Hinkley is not needed, because you have other plans.

Andrea Leadsom

No, that is absolutely not the case. We are absolutely committed to Hinkley providing 7% of the UK’s electricity needs.

Chair

I understand your commitment, but your answer a few moments ago indicates that Hinkley is not needed, regardless of your commitment.

Andrea Leadsom

No, Chairman, you can’t have it both ways.

Chair

Well, you want it both ways, Minister, with respect.

Andrea Leadsom

No, Chairman, on the one hand you are saying you’ve got no other alternatives. Now you are saying that you don’t need it, because you do have other alternatives. Which is it?

Chair

Subsequently, you answered the question and said that we do have alternatives. If you have alternatives, then Hinkley is not needed. It may be desired, you may be committed to it, but it is not needed, because you have alternatives. That is the answer you have given me.

Andrea Leadsom

No, what I am actually saying to you and what I am now saying for the fourth time, is that we will always ensure that we have the right level of energy resources to ensure that the lights don’t go out.

Chair

With or without Hinkley?

Andrea Leadsom

We will never leave ourselves exposed as a country to one particular project. That doesn’t mean we don’t need it. It doesn’t mean we don’t want it. It doesn’t mean we are not committed to it.

Chair

And that answer applies with or without Hinkley?

Andrea Leadsom

What answer?

Chair

The answer you have just given that you will not let—

Andrea Leadsom

I have said that we will never leave the UK consumer without access to energy.

Chair

With or without Hinkley?

Andrea Leadsom

We are committed to Hinkley as part of our new nuclear. You are not going to get me to say that we don’t need Hinkley nor are you going to get me to say that without Hinkley there are no alternatives. Of course, both of those things are not true. Let me explain: currently we receive about 16% of our electricity day in day out from our civil nuclear power generation, all, as a matter of fact, run and owned by EDF. What happens with that 16% of electricity is that those plants are all due to come to the end of their lifetime by around 2030. So by the late 2020s, early 2030s, we have to replace 16% of our electricity supply. The beauty of new nuclear is that it is low carbon, despatchable and good value for the consumer. We want to replace that nuclear with more nuclear—new nuclear. Hinkley Point C and the other projects up in Cumbria and Wales are very important parts of new nuclear, as is the potential for the small modular reactors. All of those things form a very important part of that. I say again that we will never leave the UK consumer absolutely stuck with one project when, if it does not happen, the lights will go out. That is just not going to happen.

Chair

Thank you. On a circular point, I would say that implies with or without Hinkley.

Mr Carmichael

I don’t think we will go round that circle any further. You have piqued my interest, Minister, because you have twice referred to the Austrian state aid application or challenge, as being without merit. Is that the advice that you have had?

Andrea Leadsom

Yes.

Mr Carmichael

Have you raised this with the Austrians? Because it seems a quite remarkable state of affairs, doesn’t it, that another member of the EU would raise a state aid challenge that has delay implications, whatever happens with it, without any merit?

Andrea Leadsom

I am not quite sure what you are saying; that we can never disagree with another country that is a member of the EU. Is that your point?

Mr Carmichael

You are portraying a situation where another member of the EU has taken a decision that has implications for a major strategic project in this country, which has no merit and is bound to fail. That makes me wonder why on earth they raised it in the first place.

Andrea Leadsom

You would have to ask the Austrian Government that.

Mr Carmichael

Have you asked them that?

Andrea Leadsom

I would not comment on conversations with other Governments at that level. We do not believe that. Our advice is that the state aid challenge has no merit.

Mr Carmichael

You have just commented on it, in saying that they have raised an application that has no merit.

Andrea Leadsom

Correct. That is what I am saying.

Mr Carmichael

Don’t you think that is something that should be pursued with them? Have you asked them to drop the challenge?

Andrea Leadsom

There has been a huge amount of engagement across the EU on that state aid challenge.

Mr Carmichael

No, the question was: have you asked the Austrians if they will drop their challenge?

Andrea Leadsom

I do not know the answer to that.

Hugo Robson

We have tried to understand from them the basis on which they are challenging. We have had discussions with them.

Mr Carmichael

We all know the basis. The basis is that Austria is allergic to nuclear energy. It had a referendum in 1970 or whenever it was.

Hugo Robson

The basis on which we believe they are challenging is political, rather than anything that has merit.

Mr Carmichael

Political? So you say that it is not a legal challenge.

Hugo Robson

It is a legal challenge and they will firmly say that it is a legal challenge. We believe that the legal challenge is driven by political motives.

Chair

Minister, has DECC had access to EDF’s internal report on what has gone wrong with the construction—

Mr Carmichael

Can I come back?

Chair

Sorry, I will come back to you later. [Interruption.] Sorry, Mr Carmichael, I will honestly come back to you. We have just moved on. Has DECC had access to EDF’s internal report on what has gone wrong with the construction of the EPR reactors in France and Finland?

Andrea Leadsom

We have had a lot of conversations with EDF about issues around the project. That would include the Office for Nuclear Regulation’s review of any issues that are relevant to the generic design assessment here in the UK.

Chair

So you are confident that you understand what has gone wrong in the other two reactors?

Andrea Leadsom

Yes.

Chair

You are confident. Can you set out why you are confident, that lessons have been learned and that similar problems can be avoided at Hinkley?

Andrea Leadsom

What is very true to say is that the Office for Nuclear Regulation is the best in the world in terms of its regulatory regime for new nuclear. It has looked very carefully at the project as proposed for the UK. They have made their own analysis, which is very robust, of what the potential project might involve and they consider that the project for Hinkley Point C is entirely robust.

Chair

So EDF’s reports in general have been useful to the UK Government? Alistair Carmichael, can you finish off your point?

Mr Carmichael

The Minister and the chief negotiator have told us quite openly here that the Austrian Government have submitted an application for a state aid review of this decision, which is political rather than legal. To my mind, that is an abuse of process. I think it would be quite proper, if that is the view of the UK Government, for the Committee to be seeking the views of the Austrian Government, because if the view that the Minister and the chief negotiator have told us today is true, it is quite disgraceful conduct that we should be hearing about.

Chair

We can write to the Austrian Government.

Mr Reed

Thank you for coming today, Minister. It is absolutely critical that projects of this type are held up to scrutiny in the public eye. We have had that from EDF this morning, and we are having that again from you and the Department today. It is clearly the case that we live in a liberalised energy market and have done for over a quarter of a century, so the ability of the Government to call the shots entirely with regard to that is significantly diminished. I wanted to talk a little and ask you questions about the impact of further delay of Hinkley Point, particularly with regard to the trilemma. Can you confirm that, clearly, contingencies are being considered all of the time—that is the job of the Department, that is what you do, that is the day job—but with regard to further delays or, potentially, a cancellation at Hinkley, can you confirm that it is the Government’s intention to utilise the capacity market to bring forward alternative generating capacity?

Andrea Leadsom

I want to be really helpful and constructive in this and I know I have said four times that we have diverse sources of energy. The complication for the Energy Department is that the Committee is slightly suggesting that we have a specific goal—that there is some kind of command and control type of environment that we should have. Of course, the reality is that the energy sector is so fantastically creative. We are now seeing amazing innovation. We have the SMR, so people ask whether the SMRs will overtake the new nuclear. I don’t know. You don’t know. It is a possibility. It’s unlikely, but it is a possibility. Likewise, with demand-side response, as big companies realise the opportunity to be more energy-efficient, every year we are seeing a reduction in energy demand in the UK. That is the cheapest energy, the energy you don’t use. In efficiency, insulation, solar panels, offshore wind and all those things, there are so many innovations. Storage is another industry waiting to take off. I want to be helpful, but it is just not possible for me to say this is exactly what we will do if this particular project doesn’t happen, because it is not like that. It is a big portfolio with enormous choices. In specific answer to your question: yes, ultimately, it is highly likely, because the capacity market is, of course, the insurance policy for energy security. It is highly likely that the specific tool we would use, which might draw in DSR, it might draw in storage, it might draw in interconnector, and it might draw in a CCGT. It might draw in from any of that portfolio of energy sources, but yes, it is quite likely that that would zero in through the capacity market. That would probably be—or most certainly be—where the actual rubber hits the road. That is how we ensure we have got the capacity to meet the next winter or summer’s needs, according to the system operator.

Mr Reed

So a bit like the US Department of Energy, the answer is “all of the above”.

Andrea Leadsom

Yes.

Mr Reed

But with regards, specifically, to the market as it looks going forward and with the wholesale prices for oil and gas being what they are and likely to stay that way for a long time, plus the notion of peak oil and peak gas being, frankly, a redundant fantasy now, wouldn’t it be true to say that the biggest form of generating capacity brought forward would be gas?

Andrea Leadsom

Absolutely. I have a meeting with investors—bank lenders—in the near future to say to them that we want to see this transition to gas, away from coal, to that clean energy future. So yes, we absolutely want to see more combined cycle gas turbine projects coming forward. There is absolutely no doubt about that. That plays its part but, I say again, so too does new nuclear. Just to put it into perspective, at the moment we get about 30% of our electricity from coal-fired power stations and, as I say, 16% from new nuclear. So you could imagine a combination of new gas plus new nuclear making up the replacement for the nuclear that is coming off-stream by the late 2020s, plus the coal-fired power, which, as you know, it is our ambition to bring off by the mid-2020s. That would be the sort of mix but, equally, there is offshore wind—huge investment is going into that in this Parliament. With storage, we just do not know. You cannot pinpoint exactly what the energy future looks like, but we try to—we try to do different scenarios. We do a “going green” scenario, in which we are on only low carbon. We do a sort of interim scenario. We are looking at scenarios the whole time, but it is just not possible to give you what the Committee is asking for, which is an absolutely blow-by-blow account of “if this one doesn’t happen, what are you going to do there?” It just doesn’t work like that.

Mr Reed

Okay, if I might move it on from that, it is undoubtedly the case that the Hinkley Point project is a Christmas tree project. Everyone, everywhere is seemingly trying to hang a grievance on it and there is clearly a dedicated political agenda to try to trip the project up. That is coming from a lot of quarters. Everyone knows that. That is the nature of the nuclear industry. Amber Rudd wrote to us recently, though, about the risks of Hinkley being delayed or cancelled. She said that, if a delay or cancellation emerged after 2021, meeting the shortfall might come at a higher cost and could put our decarbonisation targets at risk. To what extent are the Government staking their ability to meet our carbon targets and to keep the costs down for consumers on the hope that Hinkley goes ahead?

Andrea Leadsom

If storage is a massive success, and if offshore wind comes forward at the rate that we want and with the trajectory we want in terms of the price coming down, it is perfectly possible that we could meet those decarbonisation targets through a different energy source. So it is very hard to be categorical about it. Amber wrote to the Committee because she was very much pressed to explain what is plan B and, of course, as you are hearing from me, it is very difficult to say, “Well, this is what we do,” or “That is what we do”, because of the huge range of possible solutions. In answer to your question, we will go ahead, as you know, only once the final investment decision is taken. The Secretary of State then has to take her final decision on offering the CfD, and that will be subject to value for money so, by definition, if it would be better value for money not to do it that would be a concern. All of our forecasts so far show that it is value for money, because it meets the dispatchable, the low carbon, the reliable and the affordable targets. That remains extremely important to this. Yes, we would be challenged without it, but it would not be impossible to carry on meeting our international obligations, as well as our affordability and energy security.

Mr Reed

One of the elephants in the room with regard to Hinkley—I say this as someone who was involved in the industry for many years before becoming a Member of Parliament—is that there seems to be an understanding in the world at large that all our nuclear ambitions rest upon the success or otherwise of the Hinkley project. I personally want the Hinkley project to work, but the other facilities—the other plans that we have for other nuclear expansion—do not hinge upon Hinkley working, do they?

Andrea Leadsom

No, and I am really glad that you are giving me the chance to make this point. Just last week I was at the national nuclear laboratory and I have been up to Sellafield. The UK is a world expert in things such as advanced nuclear fuels and dealing with radioactive nuclear waste, as you know from your own constituency. We are world-leading in many areas of the nuclear space. When you go down to Somerset, there are masses of jobs being created down there. Today, there are apprenticeships. We have the national nuclear college, which is already in Cumbria and Somerset, looking at building up our capacity in the workforce. These are really serious long-term, really sustainable engineering jobs. It is a huge boost to the UK economy, and it is something that the UK can be a world leader in. I am sure we will come on to SMRs, but that whole space—the entire supply chain—could be British-based and could be exporting to the rest of the world. You are exactly right to say that that does not all rest entirely on Hinkley. We have other new nuclear projects already in the pipeline, and what we want Hinkley—

Antoinette Sandbach

On the other new projects—

Andrea Leadsom

One last point, on Hinkley. What we really hope Hinkley does is to reawaken the nuclear supply chain and build in a downwards trajectory so that future new nuclear will be cheaper. But it is not the only game in town.

Antoinette Sandbach

You mention that it is not the only game in town. What lessons have you learned from Hinkley and how you are applying those to Wylfa Newydd?

Andrea Leadsom

That is a really good question. There are lots of lessons, I suppose, from any new energy project around making projects happen and committing to a date and then missing it. The problem that that gives you is that it knocks confidence. There are issues around what you commit to, because that builds an expectation. I certainly think any future nuclear projects will be probably a bit more diffident about deadlines, because what is difficult for everyone where Hinkley is concerned is constantly being held to this date. It makes it very difficult because, of course, a particular date does not mean that something goes ahead or doesn’t go ahead.

Antoinette Sandbach

But, Minister—

Chair

Just hold it there—sorry. We’ll cover some of this more in the next section. We’ll go back to Jamie Reed. Have you any more questions, Jamie?

Mr Reed

Thank you, Chair. Just one more question, Minister. You have given an answer of, “All of the above.” You have told us that you don’t have a crystal ball, clearly. You have reiterated that we live in a liberalised, market-led energy economy, but we have also agreed that there is a huge body of work, which is the day job of the Department, in looking at contingencies in the event of Hinkley being significantly delayed or not happening at all. So, with regard to the trilemma—energy security, our carbon commitments and consumer prices—the Department must have produced a body of work. Would it be possible for the Department to share that with the Committee not today, but at some time in the future?

Andrea Leadsom

The Department is constantly analysing—there are all sorts of work going on at all times. There is a huge piece of work on whole system costs. There is a huge piece of work on what energy sources might be in future. There is constant assessment of how new nuclear might be financed, for example. Then there is the whole SMR work going on to look at what the best design might be and how you might bring that to production capacity and so on. Work is ongoing the whole time. I will take that away and see if there is some kind of summary that we could produce at some point. Of course, in the context of Hinkley, at the point of final investment decision there will be a number of publications about the value for money, about a number of the decisions that the Secretary of State has taken and why and that sort of thing, so that might be helpful. But the Department is constantly looking in the round at the issues of where the future lies for energy generation. You would probably have to have rooms, if you wanted a copy of everything the Department is doing.

Chair

Minister, before we move on to James Heappey and the areas he wants to cover, what would plan B mean for consumer costs and decarbonisation rules? It has been said by Ministers in your Department that security of supply is non-negotiable. Is meeting the decarbonisation targets non-negotiable? It has been said by some that Hinkley will add £14 to consumer bills, so without Hinkley, do costs to consumers fall? What are the implications of plan B for consumers and decarbonisation? Security of supply has been concentrated on quite firmly. Let’s look from the other two corners.

Andrea Leadsom

Yes, okay. May I say, the costs of the CfD to bill payers are expected to be £10 per bill by 2030?

Chair

£10 in your figures.

Andrea Leadsom

£10 per bill, just to clarify that point. In return, Hinkley will be generating an expected 7% of the UK’s electricity. So that is the sort of scale. Of course, if the project does come in under budget, there is a negotiation—there are sharing arrangements with the UK bill payer, so that CfD could come down.

Chair

Just for clarity, the £10 refers to 2012 prices? Is that right?

Andrea Leadsom

Real prices as at 2012. Yes, that is correct.

Chair

So on the non-negotiability aspect of this, if Hinkley doesn’t go ahead, are bills then £10 cheaper for consumers? Will our decarbonisation targets also be non-negotiable on that? That wouldn’t call for a big renewable and storage effort, as was mentioned by, I think, Dr Simon Taylor, one of the last times we touched on nuclear in this Committee?

Andrea Leadsom

This goes to the heart of it. Our trilemma, by definition, means that we are going to do all three things. We are absolutely keeping the lights on, we are absolutely focused on keeping the bills down and, of course, we will meet our legally-binding climate change targets in the UK Climate Change Act 2008. There is no sense that we will chip away at those things.

Chair

You have told us that bills would be £10 cheaper without Hinkley—

Andrea Leadsom

No, sorry, Chairman, that is absolutely not the case. What I am saying is that the 7% of electricity generated by Hinkley will add £10 to the bill. If it is not generated by Hinkley it does not mean that we will just go without 7% of our electricity needs, does it? What it means is that there will be an alternative source, other than Hinkley, which, as yet, as I keep trying to explain, we cannot know. Would it come from offshore wind plus storage, would it come from an interconnecter, would it come from a CCGT? But it would add to consumer bills as well. The answer that we would not have today is precisely how much it would add to bills, but the whole point about Hinkley C and its value for money is that it is anticipated all the way through this that that £10 per consumer bill will be lower than our best estimate of what the alternative might be for that 7% of electricity. It is not the case that we would simply go without that 7% of electricity.

Chair

On decarbonisation, what is the plan B to meet the decarbonisation targets? We know from plan B that without Hinkley it could be more or less expensive for the consumer, that would depend. What about decarbonisation, before I bring in James Heappey?

Andrea Leadsom

As I have said, it could be offshore wind plus storage, it could be demand-side response, it could be new gas, because gas is much lower carbon than coal, for example. So our decarbonisation targets will be met and we constantly look to evaluate precisely how we will meet them. Let me be clear again, we are looking at electricity for 2025 and we are now in 2016. One thing we can be absolutely certain of is that a lot is going to change in the energy space in that nine-year period. When you look at the period since 2010, 99% of all new solar deployment has taken place in the past six years. So in 2010 there was none, now we have, I believe, 8 or 9 gigawatts of solar generation?

Hugo Robson

Yes.

Andrea Leadsom

Likewise with wind: there is a massive amount relative to what there was in 2010. So in six years we have seen an enormous change from virtually nothing to now around 24% of our electricity being generated by renewables, so a lot changes in that period. So it is really not possible to say which renewable or low-carbon source would be generating the alternative, but I can absolutely assure you that we will meet our decarbonisation targets. Each of the three elements of our energy trilemma is not negotiable.

Chair

Okay. Dr Simon Taylor, who was here from Cambridge University and is a supporter of nuclear, seemed to indicate that nuclear, and the need for somewhere like Hinkley, could be rendered obsolete by the changes that you are indicating could happen by 2030, 2040. But regardless of all that and regardless of Hinkley, you are saying that you will meet your carbon budgets?

Andrea Leadsom

Yes.

James Heappey

I want to wrap up by looking at the wider new nuclear programme and satisfy ourselves that it is hitting the targets that it should. You explained that in the Government’s view new nuclear remains in pole position to assist you in meeting your decarbonisation targets. Will you say briefly why new nuclear remains in pole position compared, for example, to hydro, bioelectricity, storage alongside renewables or whatever else?

Andrea Leadsom

There are different reasons for each technology. As you will be aware, Mr Heappey, a number of the technologies you have just mentioned would be very much more expensive, in contracts for difference terms, than new nuclear. At £92.50 on the CfD by 2025, that is considerably lower than the current offshore wind projects, at £140 and £120, et cetera. That range is coming down but we want to see it coming down much faster. Biomass, off the top of my head, is in the region of £110?

Hugo Robson

It is £100 or £105.

Andrea Leadsom

Yes, £100 or £105. Tidal is still in the order of £350. We have to look at the value for consumers; of course, that is vital. We also have to look at the dispatchability. Of course, hydro-electricity, biomass—those things are dispatchable but more expensive. Nuclear is both dispatchable and cheaper, if we are looking out to 2025. As I said at the beginning, we are looking for a diverse source; we do not want all of our eggs in one basket. What we strive to be in the Energy Department is technology-neutral, so we are looking to the private sector to come forward with ideas. We support a wide range of technologies. We try to support those where the cost trajectory can come down fastest. So our interest in offshore wind is we think, the wind is great offshore, the turbines can be much bigger offshore, so the dispatchability— the load factors—can increase exponentially, and of course the costs, as you do more of it, can come down very fast, so that is a technology that we are committed to.

James Heappey

I am inclined to agree that right now new nuclear should in pole position—the others are more expensive. But they are all on quite impressive innovation curves, some more than others, so there is a reality that over the next decade or so they will actually become very price-competitive. I wonder if I can move you on to look at the timelines for all of the proposed new nuclear stations. I agree with you that squabbling over a month or two, here or there, over the FID, whilst important, is not all that it is about. What matters is when the current fleet of nuclear stations has to be switched off. HPC is supposed to just be the first and we are struggling to get over the first hurdle on that. Sizewell and Bradwell, I think, are still just on paper and are not very advanced. Moorside is supposed to be done by 2026 but, again, the negotiations are well behind HPC. Wylfa is supposed to be operational in the early part of the 2020s and, again, the negotiations are embryonic. Oldbury is supposed to be for 2028 and, again, that is just on paper. How confident are you that, given all that we are going through in terms of the HPC negotiations, all those other stations will be consulted on, agreed to, built and switched on by the end of the 2020s to meet our needs?

Andrea Leadsom

I think there is a simple way to express this, which is the old saying that a bird in the hand is worth two in the bush. We can all say, “Oh, you know, nuclear is going to be obsolete by the time they are built”, but you don’t know that, do you? What we are absolutely determined to do is to ensure we meet those energy security needs.

James Heappey

I am not saying that. I actually think we should be building these. These are the obvious technology and we have to build what makes sense now. Much more my concern is—Wylfa, the early part of the 2020s, so seven to eight years from now?

Andrea Leadsom

It’s our job. That is our job. We need deliver these projects.

James Heappey

You are absolutely confident the new nuclear programme is running on track?

Andrea Leadsom

Absolutely, it is running on track. We are delighted with the progress. Wylfa was with the Welsh Affairs Committee yesterday. They are at the fourth and final stage of their generic design assessment. They have a new group, a delivery term, that they have just announced. All of these projects are massive and in the energy space, as things stand, we look for industry to bring forward projects. As individual projects, they are always subject to the issues around commercial reality. Taking our SMR ambitions, these are massive potential for UK plc. We are at the start of the competition, so I do not want to massively build expectations and have you down my throat in six months, saying “Where is it then?” We are just starting now down this trajectory. What we do at DECC is try to move forwards. SMRs have massive potential to be a huge new industry for the UK, which we could export. They have the beauty of potentially being available to be built on a production line and sent to other countries. These have massive potential and our job is to bring them all forward: new CCGTs, new offshore wind, new demand-side response, new storage, new nuclear. You may ask, “Are they all going to happen?” Of course I cannot tell you “Yes, they are all going to happen”—these are commercial decisions. But what I can tell you is that, on the basis of the old saying, a bird in the hand is worth two in the bush, we will absolutely go for it with Hinkley Point C; we will absolutely go for it with offshore wind, with storage. We are doing everything we can to remain technology-neutral and allow the market to bring forward these projects, but we will never put energy security at risk.

James Heappey

Finally on the SMR programme, I am glad that you brought that up. It is conceivable that, if someone cracks the SMR conundrum relatively quickly, SMRs could come through on the inside track and trump these big new nuclear power stations.

Andrea Leadsom

That is subject to plenty of ifs and buts. Obviously, the Office for Nuclear Regulation and the generic design assessment are absolutely key to this. This isn’t like building a car, a new shop or whatever. These are very serious major projects, and so there is an enormous process to go through before SMRs can reach the point where we could start to look at a production line. We are looking at this as being a number of years away. I am never going to say never, but at the same time it is our expectation that these big nuclear projects would come forward first, as things stand.

Chair

Do any other members of the Committee have any questions they wish to press? On final reflections, a delay is going to be interesting; it will be interesting to see what happens, who will be prepared to build and to fill in the gap, which might be short-term or five years. Also, we do have an answer to the deadline, given what we know about CfDs reducing from 2029 to 2033; they could end completely in 2033. That gives any future Government the option of perhaps leaving Hinkley to one side and leaving EDF to run it fully commercially. Minister, thank you very much for your answers here today and, of course, for your time and for coming along. It is appreciated. We understand that your diary—and all diaries—are crammed, particularly so at the moment, so thank you very much. Before we bring this session to an end, Minister, the Committee has asked me to raise a separate issue with you. There has been a delay by the Government in sending us responses to recent Committee reports and correspondence. A response to our “Future of carbon capture and storage in the UK” report was due six weeks ago. A response to our report “Investor confidence in the UK energy sector” was due three weeks ago, and a response to “Home energy efficiency and demand reduction” was expected almost two weeks ago. The team follow-up to the ministerial evidence sessions on low carbon networks was due two weeks ago. Could we have an assurance of your endeavours to ensure that we will receive these before the purdah period begins ahead of the EU referendum, please?

Andrea Leadsom

My sincere apologies for that, and I will certainly look into it. I am absolutely confident that the Department will be looking very closely at this and making sure that they give you the right response. I am very sorry for the delay.

Chair

Minister, again, many thanks. Thank you all. Oral evidence: UK New Nuclear: Status Update, HC 176 3