Tim Yeo, Chairman of NNWE Gives a Keynote Speech at the 4th European Nuclear Power Briefing 2016

img_zfmberI have been invited to address three themes this morning. Firstly the role of nuclear in meeting the 2008 Climate Change Act (“CCA”). Secondly the impact of Brexit and what this means for the future of the European nuclear industry. Thirdly the question of whether the prospect of foreign ownership is a cause for concern?

Taking these in turn, the 2008 CCA requires Britain to set legally binding carbon budgets which establish limits on the level of carbon emissions in a series of 5 year periods. One of the final actions of David Cameron’s government, and one of the most benign, was to secure Parliamentary approval of the Fifth Carbon Budget (“5CB”) just days before the Brexit referendum.

Most opponents of action to address climate change were at that time engaged in the Brexit campaign so the carbon budget was approved without challenge from the usual suspects.

This 5CB covers the period 2028/2032 and requires a cut in emissions of 57% compared to 1990 levels. That’s a cut of about 1/3 from 2014 levels. To meet that target will need a faster rate of reduction than has been achieved since 1990. The scale of this task is underlined by the fact that the fall in emissions since 1990 was boosted initially by the dash for gas and latterly by a severe economic slowdown.

Earlier this month BEIS admitted that on current trends emissions will exceed the 4CB limit by 10% and the 5CB by 18%. Action to address these overshoot is promised in a new emissions reduction plan.

The Climate Change Committee (“CCC”) has pointed out that achieving this 57% cut requires a reduction in the carbon intensity of the power sector from the current level of 450 gCO/kWh to below 100 gCO/kWh. That is because the 5CB assumes a big switch to electric vehicles and to low carbon heat. Those switches will only reduce emissions if they are accompanied by a simultaneous cut in the carbon intensity of power.

Clearly the welcome growth of the renewable energy industry will help to achieve this but in the absence of large scale flexible and affordable electricity storage there is a limit on how far a modern economy can rely on intermittent sources of electricity generation.

The need for reliable baseload power therefore remains. As fossil fuels are phased out this means a substantial element of nuclear capacity must be maintained. Nuclear power is integral to meeting the legally binding obligations of the 2008 CCA. This should be acknowledged by Government in its new emissions reduction plan.

This is the context for decisions about investment in new nuclear plant. Since almost half the UK’s reactors are due to be retired by 2025 even to maintain nuclear’s current market share requires substantial investment is new plant.

Unfortunately years of dithering over nuclear, notably in the middle period of the Blair government, means that no new nuclear plant will come on stream before the mid 2020s. Even meeting this timetable depends on EDF overcoming technical challenges with its EPR technology and on timely progress by the Horizon and Moorside projects. Both these projects still need investors and must pass the scrutiny of the ONR.

Despite the imperative need for new capacity much public debate is, perhaps understandably, focused on cost. In the absence of a meaningful carbon price the economic playing field is tilted against generators of low carbon electricity and in favour of fossil fuel consumption.

Nuclear faces the additional challenge of continued falls in the price of some renewable energy technologies. To respond effectively the industry must drive down its costs. This is not easy to do in the face of extremely rigorous safety standards, which are more stringent than those applied elsewhere in the energy industry and consequently impose higher costs on nuclear.

There are however some hopeful signs. The civil nuclear industry in both Korea and Russia has already demonstrated the ability to develop new nuclear plant on time and at a cost which is highly competitive. It is likely that China will also do so before long. I do not believe that Britain or indeed of the rest of Europe, can ignore what is happening in these countries.

Mention of Europe leads on to the question of the impact of Brexit on the future of the European nuclear industry. I won’t dwell on Brexit itself except to say that prioritising lower immigration over future economic growth is in my view a terrible mistake which will make the people of Britain poorer for decades to come. The Brexit campaign concealed or simply denied the dire economic consequences of leaving the EU and its supporters continue to do this even though the collapse in the pound shows what international investors think of Britain’s prospects outside the EU.

Now would seem to be the ideal time to promote debate about this possibility which could be called the “Organisation for Nuclear Development and Cooperation in Europe” (ONDCE).

As far as the nuclear industry is concerned, Brexit does present a serious challenge. It removes from the EU’s deliberations one of the strongest pro-nuclear voices. I was reminded during the European Nuclear Energy Forum in Bratislava earlier this month about the extent of the opposition to nuclear from within the EU. Entrenched anti-nuclear countries like Austria, alongside those like Germany whose hostility to nuclear is politically driven, will have much greater sway once Britain is no longer sitting at the table. Already some Green Party campaigners in continental Europe have seized on Brexit as a chance to allow other countries to break up Euratom,

What these anti-nuclear voices fail to explain is how can Europe meet its own challenging climate targets at the same time as maintaining secure energy supplies unless there is a significant continuing contribution from nuclear. Brexit therefore means the nuclear industry must work harder both in Brussels and among member states to make its case. In this respect, as in so many others, Brexit  is taking us into uncharted territory.

So the question is, can the debate which Brexit has triggered inside the EU, in the case of nuclear at least, be turned to an advantage? As it happens, a smaller and less pro-nuclear EU will have around its geographical borders several neighbours which are contemplating or have already commenced new nuclear development.

Maybe the time has therefore come to explore whether a new architecture is needed for international nuclear cooperation? Would the twin aims of greater energy security 
and a clearer path to a low carbon future be served by creating a pro-nuclear club of countries comprising both EU member state and countries outside?

Allowing the EU 27 to collaborate with pro-nuclear neighbouring countries like Britain, Turkey, Belarus and Ukraine might be a positive way forward. Now would seem to be the ideal time to promote debate about this possibility which could be called the 
“Organisation for Nuclear Development and Cooperation in Europe” (ONDCE).

Consideration could even be given to including Russia. Despite the obvious political obstacles to this Russia’s share of the US enriched uranium market shows that foreign and other policy disagreement are not always a barrier to commercial collaboration.

An ONDCE would reflect the reality that a large element of common interest binds pro-nuclear countries in and around Europe. It could help to promote common safety standards and greater transparency thereby even providing reassurance to countries which reject the nuclear option themselves.

Finally, is foreign ownership of nuclear infrastructure a cause for concern? My view is that, provided certain safeguards are in place, it is not.

The first and most important of those safeguards is the obviously the existence of a trusted and independent regulator like Britain’s Office of Nuclear Regulation (ONR). This ensures that any nuclear technology which is approved for use meets the most rigorous safety standards.

The second safeguard is for all new nuclear developments to incorporate from the outset fully funded plans for decommissioning and waste disposal. This is now pretty much common ground in the industry.

The third safeguard is for national governments to retain a veto over any transfer of ownership control of a nuclear power station. Investment in nuclear plant should not be regarded as a short term exercise. Unlike some renewable energy assets such as wind farms, which may legitimately change hands several times during the course of development and operation it is reasonable to expect investors in nuclear power to take a long-term view.

I fully support the conditions recently proposed by the British government on the sale of controlling interests in nuclear plant in future. No genuine nuclear developer can object to these conditions. Indeed there is no sign that any of the likely foreign investors in UK nuclear infrastructure has been deterred by this proposal.

The fourth safeguard is to require any foreign owner to source as much as possible of the supply chain work in the country which hosts the new plant. This helps to ensure that new nuclear investment produces tangible economic benefit.

With these conditions in place there should be no anxiety about foreign investors. During the recent debate about Hinkley Point C, and about Bradwell, no opponent of Chinese involvement explained why it would be in China’s interest or in the interest of any foreign investor in British nuclear infrastructure, to interfere in the smooth running of a nuclear power station. Indeed it would be highly detrimental to the interests of any foreign investor in essential energy infrastructure to interrupt the generation of electricity at a time when there was demand for it on anything other than safety considerations

Investors in nuclear have a particularly strong interest in the smooth running of any plant they have funded. The huge upfront capital costs of nuclear plant can only be recovered by successful long term electricity generation. Voluntarily ending that income stream would spell financial disaster.

Equally seriously, if China or any other potential infrastructure investor permitted or instigated, any politically motivated interference in the operation of a power station would swiftly discover that opportunities for future investment had suddenly evaporated. The alarmist concerns about electricity generation being halted by Beijing in pursuit of some foreign policy objective which were raised recently in Britain by some people who ought to know better can be dismissed.

More real are the worries about cyber security and espionage. These should be dealt with by rigorous contractual provisions which, if breached, would allow nationalisation of the plant at below cost.

Finally there are legitimate anxieties about how big a share of the supply chain work might, in the case for example of a Chinese technology vendor return home to China rather than leading to the employment of large numbers of UK based employees. Again these issues should be dealt with contractually during negotiations.

So, in conclusion I believe firstly that nuclear is essential for Britain to meet the requirements of the CCA; secondly that Brexit is a challenge for the industry but might just be an opportunity to open the door to wider collaboration between nuclear supporting countries; and thirdly that, with the right safeguards foreign investment in nuclear infrastructure is not a cause for concern.