Energy Bill

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Schedule 2

Decommissioning of energy installations
Question proposed, That this schedule be the Second schedule to the Bill.
Malcolm Wicks: Once the new offshore transmission regime goes live—currently expected at the end of 2009—all projects that connect to shore via lines of 132 kV or above will be covered by the new licensing regime. This means that some projects that have already been built or are currently under construction will need to be subject to the new tendering process for offshore transmission licences.
To date, the sub-sea cables and associated equipment that will convey electricity from offshore generating stations to the shore have been developed by generator-developers. Careful consideration has therefore been given to the specific arrangements that will need to be put in place for offshore projects that are already completed, will be completed or will be well developed by the time the new regime goes live. Ofgem will be running a competitive tender process to select the holders of offshore transmission licences in respect of these transmission assets.
For these projects, once an offshore transmission licensee has been selected under the tender exercise, any transmission-related property, rights and liabilities held by the generator-developer or other relevant asset owner must be transferred or made available to the offshore transmission licensee within a reasonable time. This will enable the licensee to perform its licensed and statutory obligations and convey the electricity generated to the onshore network. Schedule 2 enables the authority, in certain circumstances, to make a scheme transferring property, rights and liabilities from the existing owner to the successful bidder for the offshore transmission licence.
We expect that it will be in the relevant parties’ interest to reach a commercial agreement as to the terms of the transfer. In most cases, therefore, we would not expect the authority to be asked to use the powers set out in the schedule to make a property scheme. However, the power to make a property scheme will help to ensure the efficient and timely transfer of property, rights and liabilities from the owner of the assets, usually a generator-developer, to the successful bidder for the offshore transmission licence if they cannot reach an agreement through commercial negotiations. This will provide certainty and reassurance to tender participants for certain transitional projects. It will also help ensure that the parties involved are not placed under undue pressure by a third party seeking unreasonable commercial advantage.
I shall highlight a few key features of the property scheme. The authority may make a scheme only upon application and the scheme provisions must be necessary or expedient for the offshore transmission licence holder to perform its functions. There are also provisions in the schedule covering compensation, protecting third-party interest and an appeals mechanism.
We believe that the compulsory property scheme will be used only in a small number of circumstances, and consider that the existence of the powers will now encourage parties to seek fair commercial negotiations where otherwise they might not do so.
Question put and agreed to.
Schedule 2 agreed to.

Clause 41

Duty to submit a funded decommissioning programme
Malcolm Wicks: I beg to move amendment No. 25, in clause 41, page 37, line 5, at end insert—
‘(c) activities preparatory to the matters mentioned in paragraph (b);’
The Chairman: With this it will be convenient to discuss Government amendment No. 26
Malcolm Wicks: We now turn to a series of clauses that relate to nuclear energy—and I hope, with your permission Mrs. Humble, that before I go into the details of this amendment, the Committee might find it helpful if I briefly set out the context behind this chapter.
The Chairman: Order. The Minister may make a very brief introduction because there are several clauses all on the nuclear programme, but I advise that it is a brief introduction so that it does not generate a wider-ranging debate on the clause. Members will have the opportunity to discuss individual matters in each of the following clauses.
Malcolm Wicks: I will be brief.
We are creating a framework for ensuring that the operator of a new nuclear power station is responsible for, and makes prudent provision to meet, the full costs of decommissioning and their full share of waste management costs. By full decommissioning costs, I mean the costs of dismantling the nuclear power station at the end of its generating life, removing all station buildings and facilities and returning the site to a state agreed with the regulators and the planning authority, and the release from the control of the nuclear site licence. This is likely to be a state similar to greenfield, depending on the state of the site before the construction of the station. By full share of waste management costs, I mean the costs that are directly attributable to disposing of new-build higher activity waste in a geological disposal facility, a contribution towards the fixed costs of constructing such a geological disposal facility, a significant risk premium over and above those costs—to take account of uncertainties around the cost of constructing such a facility and the time when it will be able to accept new-build waste—and the cost of waste pending transfer for disposal.
Amendment No. 25 will ensure that an operator will have to set out, as part of the decommissioning and waste management plan, what activities they would undertake by way of detailed technical and operational planning for the decommissioning and waste management and disposal activities that take place once the station has ceased generating electricity for the final time. It is important that this activity can be regulated as part of the funded decommissioning programme, because it will ensure that the operator starts to think in detail in advance about how those decommissioning activities will take place. As clause 41 is drafted, the operator will be required to set out in its decommissioning and waste management plan how it will account for the decommissioning and waste management and disposal activities throughout the life cycle of the station. By making this amendment, the Government want to ensure that the operator of a new nuclear power station also makes provision for, and sets out, the preparatory activities associated with decommissioning and clean-up of the power station.
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Amendment No. 26 allows the Secretary of State, if needed, to make an order that will mean that the preparatory activities specified in amendment No. 25 can become designated technical matters. A designated technical matter is one that must be provided for in the independent fund for decommissioning and waste management. It is also therefore, by definition, an activity on which an operator can spend resources from the independent fund. The effect of amendment No. 26 is to ensure that not only will preparatory activities to the decommissioning and clean-up of a power station be regulated, but that the operator must make financial provision for those activities when the station is generating electricity. I ask hon. Members to consider these technical amendments.
Dr. Ladyman: I gave my hon. Friend advance notice that when we came to this chapter, I would probe him on the rather draconian attitude that it seems to be taking. Will he explain, either now or later, what the final sentence clause 41(5) means? It states,
“and for the purposes of paragraph (a) a nuclear installation is not to be regarded as being operated at a time when it is being decommissioned.”
As something that is being operated cannot be decommissioned, that seems an unnecessary statement. Does that imply that the decommissioning programme has to include the long-term storage of the waste and the results of decommissioning a power plant, and for how long does the decommissioning programme have to allow for that waste to be stored?
The Chairman: The hon. Gentleman’s intervention seems to relate to a clause stand part debate rather than to the amendment that the Minister has just moved. Perhaps the Minister will consider it as part of the clause stand part debate.
Malcolm Wicks: I am grateful to my hon. Friend for asking that question, and there will be opportunities to give him an appropriate answer.
Amendment agreed to.
Amendment made: No. 26, in clause 41, page 37, line 9, after ‘(5)(a)’ insert ‘or (c)’.—[Malcolm Wicks.]
Question proposed, That the clause, as amended, stand part of the Bill.
Malcolm Wicks: Where a person applies for a nuclear site licence and intends to construct a new nuclear power station—by “person” we mean a corporation as well—that person must give written notification to the Secretary of State of the application. They must also prepare and submit a funded decommissioning programme for approval.
In brief, the clause requires a programme to address three key matters. First, it requires that the funded decommissioning programme must make provision for the technical matters involved in the treatment, storage, transportation and disposal of hazardous material during the operation of a nuclear site and for decommissioning and cleaning up of a site once that station has ceased generating electricity.
Secondly, it requires operators to set out estimates of the costs of taking the steps in relation to “designated technical matters”. These matters are decommissioning, waste management and waste disposal, which take place once the station has been shut down for the last time, plus certain additional decommissioning related activities that are undertaken during the generating life of the station. The Secretary of State may specify the latter category of designated technical matters by affirmative order, which comes under clause 41(6)(a). Designated technical matters must be costed by the operator and paid for from the independent fund.
Thirdly, operators are required to set out details of the security that they will put in place to meet the costs of these designated technical matters—we have just passed an amendment that relates to that. Not all the matters relating to a decommissioning programme will be designated as technical matters. In other words, even though the operator will be expected to provide details of all the steps necessary to decommission the installation and clean up the site, he will not be required to provide cost estimates for all those steps, nor to provide security to meet all those costs.
As regards waste and decommissioning-related activities undertaken during electricity generation but that are not designated, the Secretary of State will expect payments to be made from operating expenditure at the time these expenses are incurred. An example of this could be packaging and disposal of low-level waste during the operation of a power station. At this time, the operator will have ready access to sufficient moneys to meet such costs. These costs will therefore not be subject to regulation, although the activities to which they relate will be. More information on this point is set out in the guidance, and we are currently consulting on that.
In our nuclear White Paper which was published in January, we said that the Government had determined that
“independent funds, outside of the control of nuclear operators, should be created to accumulate and manage payments from the operator to meet the full costs of decommissioning and a full share of waste management costs.”
Mr. Swire: Can the Minister tell the Committee whether this is a new stricture on the operators, or has this always happened in the past when licences have been granted? Can he also tell us how long a new-build nuclear power station is likely to last? Further, in relation to the separate fund he just mentioned, is he talking about a hypothecated fund, a deposit made by those who are granted licences to be put in an escrow account, given the fact that anything might happen over the period of operation?
Malcolm Wicks: I shall return to the hon. Gentleman on the first point. I gave a fantastic answer to his planning question earlier while he was absent, but I cannot immediately give him a fantastic answer to that point. I also want to make sure that I fully understood the question about whether this is a new power. We have not built any nuclear power stations in recent times. Our main concern here is to ensure that the companies pay the full cost—over the whole life cycle of nuclear generation and decommissioning—and that there is a properly protected fund that is separate from the normal accounts of the company and that can be used for this purpose in due course. That is the nature of our policy.
Charles Hendry: Is it not the case that the distinction is that the last nuclear power stations to be built were constructed by the industry when it was nationalised? Therefore, by definition, the Government would have taken on responsibility for the waste at the time those stations were being planned and built. The difference now is that one is looking at the private sector to do that and therefore new obligations on the industry are necessary to make sure that they dispose of its own waste and cover the associated costs.
Malcolm Wicks: I am grateful to the hon. Gentleman—that is the essence of the point. The Government certainly now take on the responsibility of the nuclear legacy—for disposing of that waste and for funding its disposal. It is a different ball game. When it comes to moving forward that will depend on private sector investment.
Dr. Ladyman: Before my hon. Friend moves on—
Malcolm Wicks: I do not think I have moved on, but I am quite happy not to be moved on.
Dr. Ladyman: I think my hon. Friend just moved on. I will just play back to him what I think he said so that he can clarify it to me. I think he said that when one of these new power plants is operated, the person operating it will be making money, so we know that they will have this money to manage the site. We are not too worried about that, but when he turns the plant off, he stops making money. We must therefore ensure that he has some money put aside to cover the long-term costs. The question is how long do we expect him to plan for those long-term costs. We have just been through a chapter dealing with carbon capture and storage and we said that there will come a time when the state takes responsibility for the liability. At what point will the state be liable for radioactive waste? I believe that the state should take responsibility for it at some point.
Malcolm Wicks: I better understand my hon. Friend’s concern. Our principle and endeavour is to ensure that companies pay the full costs of the nuclear energy facility that they have brought into being. That includes their forecasts of final deep geological disposal. We are consulting on where that deep geological disposal might be, but we intend for the operators to pay the full costs. Deep geological disposal will not only be there for the legacy of nuclear waste, which is a state responsibility, but it will have to be bigger to ensure that it can take the new waste too. The operator will pay the full costs of extra space, and it will also be charged to ensure that it also pays for some of the infrastructure of the disposal facility. Once that is done, the responsibility of the company ends and that of the state takes over. Has that helped my hon. Friend?
Dr. Ladyman: It is very helpful. Let me ensure that I understand it. The operator will have paid something towards the cost of creating the depository and the cost of transporting the material and putting it safely there. At the point at which the waste is put in the long-term depository, the liability ends and the state takes over.
Malcolm Wicks: Yes, that is our plan.
The hon. Member for East Devon asked how long a nuclear plant might exist for. Our planning assumption is 40 years. That might be a conservative assumption for the purpose of cost estimates, and it would be open to new-build operators to suggest and make the case for alternative station lifetimes in their funded decommissioning programme. The Secretary of State will consider alternatives on a case-by-case basis. However, the planning assumption is 40 years.
Martin Horwood: In terms of the operation of the site, is not the planning assumption for the current generation of nuclear power stations that the sites will remain contaminated and will effectively still be in the process of final decommissioning for something closer to 100 years?
Malcolm Wicks: I answered the question because I was asked how long the nuclear reactor might be up and running. As I said, our planning assumption is 40 years, and I have explained that there could be some flexibility around that. It might be a conservative assumption. Of course, after that, it will take much longer for the site to return to an original greenfield state—that brings us to a range of technical issues about interim storage and so on. The hon. Gentleman is right to imply that once the generator is switched off, things do not magically return to normal the next day.
Dr. Iddon: The hon. Member for Cheltenham implied that the site would be left contaminated. That is surely not the point; it would not be left contaminated by radioactive waste.
Malcolm Wicks: Of course, it will not be left contaminated, but I was conceding the point that, after 40 or 50 years, there will be a period before the site can safely be returned to greenfield or whatever. That will be for a number of years and there are issues about interim storage and so on However, obviously no one will leave the site contaminated; that would not be allowed. Both the hon. Member for Cheltenham and my hon. Friend were right—I am feeling generous.
I was asked about the new regime. The hon. Member for Wealden helped me to answer the question. The Health and Safety Executive requires operators to make provision for decommissioning activities. This is part of licence condition 35, as the hon. Gentleman knows and as it says here helpfully and in some detail. These new provisions make it a requirement for operators to set aside funds to decommission the plant and manage waste.
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Where the licence holder of a power station changes, the prospective licence holder will have to submit a programme to the Secretary of State for approval. The prospective licence holder must obtain approval before he takes over the operation of the station. This will ensure that there is a funded decommissioning programme covering the station at all times.
Debate adjourned.—[Alison Seabeck]
Adjourned accordingly at one minute past Three o’clock until Tuesday 4 March at half-past Ten o’clock.
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