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Nuclear Industry

I want to congratulate my hon. Friend the Member for Mid-Worcestershire (Peter Luff), the Chairman of the Select Committee, on an excellent report and on achieving consensus in his Committee on what is always a controversial and emotive subject. He made a speech today that shows that he is a real master of the subject. So, there is not very much that I want or need to add. I only want to make two points. On my first point, I may be nuancing myself slightly from the position of my hon. Friend. He rightly said—here I agree with both him and the Government—that there is no need for, and it would be undesirable to have to resort to, some special form of subsidy in order to build new nuclear power stations. As my hon. Friend said, it is not the view of the industry that that is at all necessary. However, that does not mean that we should simply sit back and wait and see what the market delivers. It is important for the state—Government and Parliament—to be a little more decisive and to be prepared to take a number of strategic decisions about what eventual outcomes the country needs. There are several reasons for this. The first reason is that there is a co-ordination problem in energy; it is very important for anyone planning one particular increase in capacity—whether through renewables, burning hydrocarbons or nuclear—to know what others are doing. The economics of any one project will be affected by the existence or non-existence of other potential sources of energy. The lead times in this are such that one cannot launch down an investment that may involve 10 years before making any kind of return with the danger that the looked-for cash flows will not be available because of some intervening new investment, which one had not anticipated. A real co-ordination problem can mean market failures. There is a need for state action. The second reason is that an enormous number of the costs involved in building nuclear generating capacity are imposed by the state. As my hon. Friend said, those costs could be in licensing or the delays—any delay is very costly—in licensing and in the planning process. I think that I am right in saying that Sizewell B’s planning inquiry took eight years. We should all be aware of that terrible example and try to avoid similar situations in future. We must also consider the costs imposed by the state in its role as regulator. We might be talking about the state in the form of the British Government, the nuclear installations inspectorate, the European Commission or the agency in Vienna—whatever it is called—that establishes norms for nuclear safety. Real uncertainties are involved. These costs are controlled by the state and could not possibly be within the control of the private sector. In so far as the state is in the position of determining a large number of costs, it must be in a position to give some assurance on their extent; otherwise, it cannot possibly expect the market to take account of what are uncertainties for the private sector but matters directly and explicitly under the state’s control. The third reason why the state has a natural role to play, which would not normally be the case were one to be building a chocolate factory, a shoe button factory or something of that kind, is that there are enormous externalities in energy. The benefits of building a nuclear power station—this would apply in the case of any power station—are greater than those that are captured in the cash flow available to the company that owns and operates the station and sells electricity. Equally, there are negative externalities to consider: the negative costs of an economy running into energy shortages or sudden supply shocks, or of an undue dependence on natural gas being imported from unstable places such as Russia, have an enormous external effect on the economy of a negative kind. In other words, the losses to the economy as a whole are a vast multiple of the losses to the power station or generating company that is dependent on that natural gas. Those are reasons why we should not adopt a laissez-faire policy; we should not just sit back and say, ““We will do lots of studies and so forth, but we cannot control the outcome because it is all left to the market.? Given the three factors that I have mentioned, the state must accept the responsibility of establishing a clear, explicit strategy and it must be prepared to take such measures as are necessary to ensure that it can be achieved.