The Revised Draft National Policy Statements on Energy










Evidence heard in Public

Questions 124 - 206



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Oral Evidence

Taken before the Energy and Climate Change Committee

on Tuesday 14 December 2010

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Barry Gardiner

Ian Lavery

Dr Philip Lee

Christopher Pincher

John Robertson

Laura Sandys

Sir Robert Smith

Dr Alan Whitehead

Examination of Witnesses

Witnesses: Dustin Benton, Senior Policy Officer, Campaign to Protect Rural England, Simon Bullock, Senior Economy Campaigner, Friends of the Earth, Simon Marsh, Head of Planning and Regional Policy, Royal Society for the Protection of Birds, and Dr Ivan Scrase, Senior Climate Change (Renewable Energy) Policy Officer, RSPB, gave evidence.

Q124 Chair: Good morning, and welcome to the Committee. We’re grateful to you for coming in. We have a fairly tight timetable, so we’ll scoot straight in, if we may.

When we saw the Minister, he said that the new ratification process improves the democratic accountability of National Policy Statements. Do you agree with that?

Simon Marsh: From our perspective it is critical that there should be adequate time for parliamentary scrutiny. That is an issue we raised when we came in in January. We support the proposal that decisions should now be taken by the Secretary of State. We have campaigned for that for a number of years, so we’re pleased to see the transition from the IPC to the Major Infrastructure Projects Unit. It is perhaps worth noting that, when we campaigned together on that three years ago as NGOs, more than 30,000 people wrote in response to the Planning White Paper.

Q125 Chair: You talk about adequate time. I know that you are all as concerned as we are about the urgency of investment in low-carbon electricity generation. Delays in the planning process are undoubtedly one of the factors that increase the cost of any new investment. Is there now a conflict between our objectives? We can ask for more time, but the consequence might be to delay necessary low-carbon investment.

Simon Bullock: I think the Secretary of State will still be making decisions on those applications that come forward. On the democratic accountability point, it seems to us that there is now a three-stage process: currently the IPC makes a recommendation and the Secretary of State takes the decision; when the NPS is designated, the IPC will take the decision; and after the Localism Bill is passed, in 2012 the IPC will be disbanded and replaced by the MIPU, which will make a recommendation and the Secretary of State will take the decision again. There will be an interregnum-roughly a one-year period-in which the Secretary of State won’t be taking decisions, which will instead rest with the IPC.

The Localism Bill had its First Reading yesterday, and the Government made it clear that they feel there has to be democratic accountability. The elected Minister must take the decision, which shouldn’t rest with an unelected quango. We feel that perhaps it would be better if the NPS were ratified at the same time as the Localism Bill is passed. That would serve two purposes: first, it would mean that the Secretary of State would be taking the decisions throughout, so there wouldn’t be a mixed-up, confusing system; and, secondly, the Government have made it very clear that the NPS should reflect energy policy. We’re about to see major reforms to energy policy: emissions performance standards are coming forward; electricity market reforms are coming forward; and the Committee on Climate Change has just issued a huge report on the 2020s and 2030s. It seems to us that, if the NPS were ratified at the same time as the Localism Bill, that would allow the Government to reflect the new changes to energy policy, rather than having them ratified in 2011 and being almost immediately out of date.

Dustin Benton: I think the same is true for the national planning framework, which is also being consulted on at this stage. There is an opportunity to tie those things together.

Q126 Barry Gardiner: I declare my interest as a member of the Royal Society for the Protection of Birds. The Minister also told us that the UK needs four pillars: energy saving, more renewables, new nuclear and clean coal and gas. Do you think it possible to meet our energy needs and our mitigation targets without all four of those pillars?

Simon Bullock: Yes; Friends of the Earth is opposed to new nuclear build. We don’t believe that the case has been made that there are adequate, safe means for disposing of the waste. I can go into that if that would be of interest.

Q127 Barry Gardiner: No, that wasn’t the question I asked you. I asked whether it would be possible to meet our energy needs without them, not whether you thought it was a good technology or not. So don’t tell me about the technology; tell me about whether it is possible to meet our energy needs.

Simon Bullock: We believe that it is possible, yes.

Q128 Barry Gardiner: In that case, tell me how.

Simon Bullock: The Committee on Climate Change’s report has issued a lot of technical data, alongside a very large report from Pöyry Energy Consulting about the possibilities for increases or different ways of meeting the 2030 and 2050 decarbonisation targets. A lot more could be done on renewables generation, on energy storage and on flexibility to ensure that we have security of supply and greener energy. We believe that it is possible for a combination of carbon capture and storage, a lot more effort on energy efficiency, a lot more effort on decentralised energy and offshore wind tidal renewables to deliver the 2030 targets.

Q129 Barry Gardiner: Do you not find that strange-I am sure you followed the transcript of our session with the Minister very carefully-given that the Minister was slightly on the back foot when he had to admit that CCS is an unproven technology, and that quite a bit of reliance was placed on that unproven technology? Why are you so confident that CCS will work, and that it will be able to work in time and at a scale to make the difference to take account of the loss of 16 GW of new nuclear that the Minister suggested was needed by 2025? How can you be so confident that CCS can fill that gap, and how can it do it at 17 grams per kWh? That is what is required if we are to meet the 2030 targets that you support.

Simon Bullock: There are two points there. The first is that I don’t believe the Minister has made a convincing case that we need all this new gas and nuclear. I think the case the Government have set out for need in the NPS is not correct.

Q130 Barry Gardiner: Again, you are not answering my question. My question was about CCS, in the first place. Let’s go from there; let’s take it in order.

Simon Bullock: I accept and agree that it isn’t certain whether CCS will be able to be done or not. I believe, and the Government believe, that it is technically possible to do it and they are putting in place demonstration programmes to try to ensure that it works. Paul Golby from E.ON gave evidence to you last week, and he made the very strong point that CCS really has to work if we are serious about meeting climate change goals globally. There is a very serious issue with China and other developing countries-developed countries as well-using huge amounts of coal.

Q131 Barry Gardiner: Okay, Mr Bullock, rather than repeating what he said let me just drill down on what I am trying to get out of you, which is this. Given that you don’t want nuclear-we haven’t heard from the rest of the panel yet-if CCS were not able within the time scale to operate at such a scale as to produce the 16 GW plus the 2 GW that CCS coal was due to give in that mix according to the Minister, so 18 GW by 2025, do you honestly believe that you can get everything you need out of the alternative renewable technologies that are available?

Simon Bullock: I’ll only repeat that yes, I believe it is possible. I can send you a technical note on it if you would like.

Q132 Barry Gardiner: Without CCS?

Simon Bullock: Yes. I think that there would be five elements to it: more energy efficiency, greater renewables than the Government are saying, greater decentralised energy, a real effort put into storage technologies and interconnectors with Europe to deal with some of the peaking issues, and if CCS were not working there would have to be some role for using unabated gas plant at peak times. So that would be 350 grams, which I think is roughly what the best technology is at the moment, and I think there would have to be some use of that if CCS didn’t work. I am confident that there are no technological barriers, and my opinion, and Friends of the Earth’s opinion, is that it won’t be technological issues that are the barrier to deployment of CCS; it will be cost.

Q133 Barry Gardiner: Thank you. Can you also just tell us whether you think that specifying the generation mix would be ultimately more costly than leaving it to the market?

Simon Bullock: I believe that the Minister, in his evidence, stated that it would be. I don’t see any evidence from him that that would be the case. I think there is a real issue, however, in that the Government are saying they need 33 GW of new renewables to meet the renewables target, and that is a critical element of meeting our climate change targets. They say that we only need 18 GW of non-renewables, which is gas and nuclear. However, the Government’s own figures in the NPS are showing that a vast amount of that 18 GW is already in the pipeline-being built or consented.

In addition to that, there are a further 20 GW of new applications in front of the IPC right now. So we feel that unless there are significant changes to the electricity market, such that new gas wouldn’t come forward-market conditions would make it less attractive-then there will be a new dash for gas. That will swamp, and mean that there will be less investment in new renewables, which is a real concern to us.

Q134 Barry Gardiner: You offered us, in your previous answer, a note on how you would achieve the required energy production without CCS or nuclear, and we would be grateful if you sent that to us.

Simon Bullock: Certainly.

Q135 John Robertson: Is it not a fact that, no matter what is put in front of you, nuclear energy would be written off right away and that your organisation’s hatred of nuclear energy would make you not want to include it under any form of any other energy mix?

Simon Bullock: No. I don’t think that is the case at all.

Q136 John Robertson: So you would accept nuclear energy as part of the mix?

Simon Bullock: No. I don’t, because I don’t believe-

Q137 John Robertson: So I’m right.

Simon Bullock: No. It’s not hatred. I think that was your question, wasn’t it?

Q138 John Robertson: So you like it?

Simon Bullock: I don’t believe, and our organisation does not believe, that the case has been made that there are safe ways of disposing of nuclear waste.

Q139 John Robertson: So it’s only to do with waste; it’s actually nothing to do with nuclear energy.

Simon Bullock: No-

Q140 John Robertson: And yet, for decades, we have safely secured waste without even having a set policy on it. You would accept that, surely.

Simon Bullock: The waste is going to be around for tens of thousands of years. There has to be a safe method of disposing of it. The Government’s NPS is saying that it will dispose of it, and the long-term solution is to put it into geological deep store, which it does not have, and there isn’t one anywhere in the world. It is hoping that it is the same argument as with CCS.

Q141 John Robertson: But other countries have been through this as well, and they are going down the road. It is not an immediate problem. It is not a problem that is going to happen in the next 10 or 20 years. We’re talking 30 years before we need to have a repository. Why does your organisation get so hung up on nuclear energy and waste when there is proven scientific evidence of storage?

Simon Bullock: I will give you one example of this. In the annexes on nuclear in the NPS, it says that they are proposing on-site storage of nuclear waste at Sizewell until 2130, so for 120 years before the new waste can be put into a store. At Sizewell, parts of that site are flood zone 3, so they have a one-in-200 annual chance of sea-storm flooding. A one-in-200 annual chance may not seem a lot, but over 100 years, that is a 40% chance of a sea flood. The Government are saying that at that Sizewell site, where they will be storing nuclear waste, there is a 40% chance of there being a sea storm. That doesn’t feel like an acceptable risk, which is the issue for us. It is about accepting the risk, and what we, as a society, should be prepared to take.

I will quote from what the Government say on this, because it is important. On whether or not that was an acceptable risk, the Government then said, "there are no reasonably available alternatives to this site in a lower Flood Zone or at a lower flood risk and…all sites are needed in order for the Government to meet its objective." On the one hand, the Government are saying, "You can’t argue about need because that’s not something you can talk about in an NPS", but on the other, in this case, with this very decision, they are saying "No, the need for this site is so urgent, and there is no other way of generating that electricity, so we are prepared to accept that risk." We don’t believe that that is the case. There are alternatives to building nuclear power stations that wouldn’t involve such a risk.

Q142 John Robertson: Okay, but your alternatives aren’t necessarily proven, are they? We have talked about CCS, and we’d all love CCS to be a great success, but we don’t know it will be-and yet we can’t keep putting off planning for the future. Are the needs of the nation not important? Lots of your ex-colleagues have come at this from the opposite angle to you, and you know that. My problem is that, as a Member of Parliament, we have to put the needs of the nation first, and it would appear that, in organisations such as your own, you put your dislike of nuclear long before the needs of the nation.

Gentlemen, I want to bring you in, because I feel like I’m picking on Mr Bullock and I don’t mean to. I would like to pick on the rest of you as well, perhaps. Are we putting too much reliance on CCS or, as Mr Bullock has said, does the cost not matter, and do we have to go down that road no matter what? I think his actual words were that this "has to work." What happens if it doesn’t?

Dr Ivan Scrase: As I understand it, there aren’t any strong technical reasons to think that CCS wouldn’t work. It would be very costly-

Q143 John Robertson: They say the same thing about the storage of nuclear waste, of course.

Dr Ivan Scrase: Yes, but you still have a very toxic substance that is going to be around for tens of thousands of years-that is not the case with CCS-and that is our concern.

Q144 Chair: Well, the greenhouse gas emissions from burning coal will be around long enough to do a lot of damage to the climate. They don’t disappear within a few months.

Interestingly, only last week, in one of the only two serious experiments with CCS, the company concerned went into administration. Most of the commercial and financial difficulties that need to be overcome seem to me to be lightly set aside by people, who say, "Well, it’s all going to be fine." Mr Bullock said that we will solve the problem by burning lots more gas-that was the solution as I understood it. However, that gas is emitting, at best, five times more than the amount of emissions that will be acceptable in 20 years’ time, so we will have a huge number of redundant gas plants that will not be capable of being used if we are going to hit our 2030 targets. We all have difficulty understanding why there is this blind faith that somehow, CCS will come on stream in five years’ time at a price that won’t quadruple electricity costs to consumers. What’s your answer to that-any of you?

Dr Ivan Scrase: It’s a very sorry situation that we have come to the point where we need such technology as CCS. I believe that, as Simon has said, it has to work, and there are no reasons to think that it wouldn’t.

Q145 Barry Gardiner: Dr Scrase, we can wring our hands about the past and we can have blind faith because we can’t see an alternative. However, surely the responsible thing to do is neither of those-neither to wring your hands nor to have blind faith in the technology "having to work"-and actually say, "What we have to do is plan along a set of different channels, which will enable us to have a reasonable expectation that, with a minimum level of risk, we can keep the lights on at a price that will be politically acceptable." Does that not seem like common sense to you?

Dr Ivan Scrase: Yes, it does, and if we had some reassurances from the Government about how much, for example, CCS or nuclear we would have, and if we had some indication of where such things would go and what the environmental impacts would be, we would have a lot more confidence.

Q146 Barry Gardiner: With nuclear, we have; we have had 16 GW and we have the locations mapped out-two fewer than there were originally, but they are mapped out.

Dr Ivan Scrase: There is no upper limit on it, and it is only up to a certain date, but yes, there is more clarity on nuclear. In general, outside nuclear, there is a great lack of clarity on how we’re going to keep the lights on. Like everyone else, we would like more certainty on that.

Simon Bullock: I come back to the issue of CCS. It isn’t an unconsidered view, and we are not putting blind faith in CCS at all. It is very important that the Government put a lot more effort in and have much stronger policy certainty and stronger policy leaders in place to bring in all the alternatives, and we have not had strong policy signals on those in the past 10 years. That includes CCS. It also includes energy efficiency and decentralised energy, where some good stuff has happened recently.

It is not all a bad news story. Work on storage interconnectors, as I mentioned, demand-side responses, smart grid-all those things are critical elements of it. I believe that if we go for those technologies in a really strong way-and we need to have much stronger signals from Government to do that-then we will be a very long way down the line by about 2020 or 2022 to meeting those carbon targets. If at that point we have found that CCS either doesn’t work or is prohibitively expensive, then I believe there will still be time to invest in other alternatives, and that might be the time to look at nuclear and say, "Is nuclear now an option because we can’t go down the CCS route?" That is the problem for us. A lot of these options are not perfect. Friends of the Earth and I personally do not want to see nuclear.

Q147 Chair: So Friends of the Earth’s principled objection to nuclear actually depends on whether CCS turns out to be viable or not, and the principles will only change if CCS doesn’t work?

Simon Bullock: No.

Q148 John Robertson: Who pays for this? If we keep waiting and we keep putting things off, if we want to introduce new forms of renewables and so on at a time when every Department is cutting back, who is going to find the money to pay for this?

Simon Bullock: The research that the Climate Change Committee published last week said that some of the things that I have been mentioning around energy storage, interconnectors and decentralised energy will reduce the capital costs. The electricity market reform options that the Climate Change Committee looked at said that doing this will reduce the capital costs of building some of these plants.

Q149 John Robertson: That’s if they work properly and as they should. Unfortunately, the history shows that it doesn’t, so can you get the energy of this nation from unreliable sources?

Dustin Benton: On the question of cost, we should bear in mind that energy saving is almost always cheaper than using energy, and if we are really concerned about costs then that should be the first thing that we do. This is slightly outside the remit of the NPSs, I admit.

Chair: Yes, I think we ought to return to the NPSs, interesting though this debate is. We can cover it on another occasion.

Q150 Sir Robert Smith: We have all preached energy conservation and energy efficiency, but we haven’t yet delivered it in the way that we should, so I just wondered whether, in the interests of speed, Mr Bullock, you could expand on that in your written response.

Simon Bullock: I was preparing for an NPS.

Chair: Laura, on NPSs.

Q151 Laura Sandys: I am not sure you have had a chance to read all of this since yesterday when the Localism Bill was published, but how do you see the NPS and the Localism Bill process working together? As John rightly said, we all have energy security and cost of energy as our core national interest here. Do you think the NPSs and the Localism Bill will deliver that certainty for investment? I appreciate that you are not in the investment sector, but do you feel that that gives everybody the certainty that they need?

Simon Marsh: I think the issue with the Localism Bill and the changes to the planning regime is that there is still a degree of uncertainty about how the NPSs will relate to the rest of the planning system. This was an issue we had earlier in the year. I don’t think the Localism Bill helps us particularly in that respect. We have been promised a national planning framework, which my colleague mentioned earlier. That doesn’t appear in the Bill and our understanding is that that will be a non-statutory plan, but I think it will be very important for that to relate quite closely to the national policy statements. I don’t know whether the intention is to incorporate the national policy statements within that, maybe not straight away. But it seems to us that there continues to be some uncertainty. We would like to see the national planning framework given the statutory basis in the Localism Bill that it doesn’t seem to have at the moment. There is a still a question mark about that which needs to be resolved.

Dustin Benton: One way that we could increase the amount of certainty that the NPSs provide would be to provide a more spatially explicit framework. I am not suggesting that we need to be as spatially explicit as we have been on nuclear, but certainly one way to help companies, and indeed people, who are concerned about delays in the planning process is to be much more explicit about where things should or should not go. The perfect counter-factual example of where it is not working is the Triton Knoll substation. Because there is no strategic guidance on location, the consultation is on the actual substation, not on the 400 kV lines that would be 40 km long, or longer, to connect it up to the grid, and people are crying foul. This is the sort of problem that not having a strategic approach creates, and that is only going to create more delay, which I do not think is in anyone’s interest.

Q152 Laura Sandys: Do you see any conflict between the objectives of the Localism Bill, which intends to give local communities much greater say, and the NPSs, and how that will be arbitrated through the Secretary of State?

Simon Marsh: I think we would recognise that. We would broadly welcome the thrust of localism, giving local people more say in the planning system, but at the same time there is a need to make decisions on nationally important infrastructure at the national level. So we don’t have a problem with that in principle, but it may give rise to some confusion in the public eye. Essentially, you have two planning systems in England, and indeed in Wales as well, and that needs to be carefully explained.

Q153 Laura Sandys: I haven’t declared my interest; I am a patron of the Campaign to Protect Rural England, Kent. But there will be certain moments, particularly with some of your organisations at grass-roots level, when there will be something that has been designated under the NPS that is a very important part of our energy infrastructure. Some of your local groups will question whether the substation should be there, or whether certain power lines should go in this direction or that. Will you work with your local organisations to put that context together, or do you feel that in your organisation’s work the community bodies have more power than the centre? Are you going to have a disconnect in your policies between your grass roots and your policy units?

Simon Marsh: The short answer is that we would seek to work with our local groups to guide them through the planning process and how they can best engage with that, while at the same time trying to influence national policy on these issues as well. I do not think that there is necessarily a disconnect, provided that people properly understand how the planning process works.

Dustin Benton: I think there will always be a challenge about having large, national-scale infrastructure that happens to take place in local areas. People, I think, are reasonable. When things are explained to them, and they feel that they have an opportunity to question and have answers and to see that the decision is made properly, then they will consent to infrastructure. But one of the challenges with how the NPSs are put, particularly in relation to need-although it has been elaborated, which is very welcome, "need" is still, for the purposes of the IPC, considered to be a simple, monolithic "need: yes" or "need: no", and the answer is always yes-is the concern that will cause locally. People will perhaps feel that they do not have the opportunity to make their case in a fair way, because need will simply override what they are saying.

I certainly think that there is a case for taking what the Government have given us in their justification of need, and pull out the fact that there are differences in the way in which need affects what we do. We have need for security of supply reasons, and we have need in relation to decarbonisation. We have need in relation to what is actually built, so if we consent to a lot of infrastructure, that obviously affects need, to any reasonable person. But for the IPC, it is not clear that it will be able to consider that. When local people, who are involved in planning and who are concerned about their area, see this they will feel that it is not particularly just. The Government could very easily take a look at that and incorporate that into how the IPC makes its decisions. That would help to build the good will required to deliver the necessary infrastructure.

Q154 Chair: Do you think that the NPSs should go further to give priority to climate change mitigation?

Simon Bullock: I think what the NPSs do not do at the moment is give a clear enough steer as to what happens in the 2020s and 2030s. A very strong recommendation of the Committee last time was that the NPS should adopt the 2030 decarbonisation target. In my view, the Government ignored that recommendation in their response. That point is made even stronger now, because the Climate Change Committee has formally said in its fourth budgetary report that that level of decarbonisation is essential by 2030, and that is to meet a target that it says is an absolute minimum, as well. I think that a strong thing for the NPS to do would be to make it explicit that the pathway to 2050 is really important. It is the total emissions under the curve over the whole 40 years between now and 2050 that matter, not just the end point. That is particularly important because in their need case the Government are saying that there is a range of different ways in which need can be met. If you don’t have a 2030 target, that basically says that anything goes, and that any way of generating electricity will be okay because, frankly, 2050 is a long way away and we will be all right. 2030 gives a clear steer that we need to be decarbonising really fast through the 2020s and that some generating mixes would not be compatible with that target.

Q155 Chair: So if there was a carbon assessment for an individual project that showed that it was too carbon-intensive, would that be a reason for turning the scheme down?

Simon Bullock: I think there are two things here. We have discussed this with DECC and I think it is fair to say that it would not be reasonable to expect the IPC to make a judgment on whether an individual proposal was compatible with the entire carbon budget process, because loads of things are going on in all sectors. The Committee on Climate Change can take a view, and I think it should annually look at things that are being approved by the IPC and see whether that is generally compatible.

Personally, I think that the best approach would be, if the Government say that we need 18 GW of new, non-renewable capacity-that is what they say we need by 2025-the NPS should be clear about it. It should say, "The IPC should not consent more than that quantity, because it would damage our capacity in relation to renewables." I don’t think that’s a problem. The Government seem to be implying that planning is somehow separate from the rest of policy regulation, but it is not; it is a market regulation like any other. It is important to have that safeguard to ensure that the renewable aspect of the electricity generation mix is not damaged by a rash or glut of new gas projects in the next five years.

Q156 Barry Gardiner: I think that many of us share the concern that run-away on the one should not impair the investment that flows into the other. How would you respond to the argument that, if there was cherry-picking, they would effectively say, "This or that scheme can or can’t proceed, because there is already too much in the area of coal, CCS and so on"? What you are then doing is picking and choosing, in a market situation, which company should be allowed to make those investments and benefit from the returns. Therefore, you would be driving competition out of that sector that might otherwise be to the benefit of people.

Simon Bullock: First, I am not a planner. We have planning experts at our organisation to provide a note on that. If you had a first-come-first-served business for the first 18 GW of renewable capacity, it seems to me that quite a lot of people would be trying to get it. If there is a view that more applications will come forward, we would want to get them forward as fast as possible. They will be competing against each other.

Dustin Benton: Doesn’t a similar situation arise if you allow consent as much as you like, because then you give market operators the opportunity to pick and choose sites from ones they have had consented? That is hugely problematic from the perspective of environmental protection, because if you simply consent a large number of sites, you might as well not have planning if you can’t actually constrain them.

Q157 Barry Gardiner: I don’t think that any of us are countenancing approval willy-nilly. It is a matter of whether you are doing it specifically because we already have too much gas, coal and nuclear, and are therefore not allowing a development because you already have enough of it in your mix. That is what we suggested ought to be done, so it does not fail to look at the other environmental considerations.

Simon Bullock: Why would that be a problem?

Dr Ivan Scrase: I think that the concern you are talking about is Government picking winners. This has obviously been a massive failure in the past. We are not talking about Government choosing specific technologies or companies, although energy companies tend to have a broad portfolio of technologies in which they can invest. Within any sector there are a range of competing technologies, so even within the fossil fuel sector and the renewable sector there are many technologies. None of is suggesting that Government should declare, for example, that a particular design of gas turbine is the Government’s favoured one and go for it. That is the sort of thing that created problems in the 1970s; nobody is suggesting that now. You can, however, have a view on the level of broad classes of technology that are appropriate in an energy mix, which is what the Government are refusing to do.

Q158 Barry Gardiner: Your view, then, would agree with Mr Bullock’s-that the Climate Change Committee should be looking at the consents on an annual basis to ensure they are broadly in line with the mix it has specified.

Dr Ivan Scrase: On carbon grams, they wouldn’t necessarily have to look specifically in great detail at the specific technologies within any class, but yes.

Q159 Barry Gardiner: Have you done any analysis of the detriment to investment in renewables that may result from an over-lax consenting regime for non-renewables?

Simon Bullock: Only to the extent of analysing the figures that the NPS itself produces. It is saying that you need 33 GW of renewables and 26 GW, of which 8 is already built, of non-renewables. So 18 GW of non-renewables is to be built, and it looks from the Government’s figures as though 14 of those are either with consent or in the pre-IPC regime. Then there is another 20 GW in, so already there is almost double what they say is needed. If those have been brought forward because the developers believe they want to build them, the likelihood is that they will build them, and that means that automatically there is less of a demand or need for the 33 GW.

Q160 Barry Gardiner: Good point-not my question, though. I am asking whether you have done any calculations of your own on how the over-supply in non-renewables financially will affect the investment in renewables. It seems to me that the case that is always most winning with Government is the one that clearly shows the figures.

Simon Bullock: At this stage, no. We took the view that the Government might be more convinced by their own figures than by ours.

Q161 Dan Byles: I want to talk briefly about the revised appraisals of sustainability. I understand that your organisations have been critical of some aspects of them. Do you think the revised AOSs indicate that the Government are taking impacts on the landscape seriously?

Dr Ivan Scrase: The revised appraisals in our view are significantly better than they were the previous time. We are still not happy, however, that they are performing the function that they should as strategic environmental assessments, which is to provide information about the impacts on the environment of implementing the policy and of implementing alternatives to that policy.

There are two major problems. The alternatives, as they are, are very unclearly specified. One has to dig around in an annexe and six different sections of the appraisal to find out what might be in them. Nothing is clearly in or out; some of them are said to be definitely in, but then there are policy reasons for not accepting those ingredients. Some of those that are very important, such as energy saving, are said to be likely to be in the alternative we are most interested in, which is a policy to give greater protection to the natural environment. We don’t know whether greater energy saving is in there or not.

When it comes to assessing those effects, we come to a section that asks what the impact of that alternative would be on the natural environment. It simply says that if there were policies that were more positive for the natural environment, that would be positive for the natural environment. That literally gives no information. It is not quantitative and it is not qualitative; it is nothing. It is just a tautology, really. The Government’s own guidance on how these things should be done says that the alternatives must be very, very clear, and if there is a lack of clarity on what the impacts should be, you should go back and reduce that uncertainty.

The Government have said that their view is that this must be a more strategic level assessment, because it’s a strategic kind of document. There is no reason, however, to treat the alternatives in a different way to the plan itself, which is what the Government have done. In doing so, they have ended up giving us no clear indication of exactly how those impacts would differ. We want to know. If it is a genuine alternative under genuine consideration, we want know what sort of impacts it will have.

Q162 Dan Byles: So do you think the alternatives should be gone into in the same level of detail or just a greater level of detail than they have been?

Dr Ivan Scrase: They should be gone into in the same level of detail.

Q163 Dan Byles: Do you not think it would be impractical to try to cover all the alternatives in the same level of detail as the actual proposal?

Dr Ivan Scrase: No. It would involve a fair amount of work, but it wouldn’t be impractical.

Dustin Benton: Can I just make a point on that?

Chair: Yes, but we’re running out of time, so quickly.

Dustin Benton: I will be brief. Outside the AOS, the Government have done some things that, perhaps unintentionally, do affect the landscape quite negatively. The most obvious one is the Holford rules, the wording of which has changed from stating that they form the basis of how you site electricity transmission infrastructure to something that simply needs to be borne in mind. That is a dramatic reduction.

There is a similar point in relation to protection for AONBs and national parks, which are, of course, the most outstanding areas of our country in landscape terms. The introduction of a provision on the importance of the regional economy to potential projects, which is completely new and is not in the relevant NPS, runs the risk of dramatically weakening protection for landscapes. That is not something that I think is picked up in the AOS.

Q164 Chair: On the specifics, one of the consequences of all this investment in renewables is a need for much more transmission capacity. National Grid is stuck in the 1960s and seems to think that the answer to that is lots more overhead pylons everywhere. Is there any aspect, in any of the NPSs, which can offer any comfort to constituents like mine, living in an AONB, that we are not going to see masses more overhead power lines across our most beautiful parts of England, Scotland and Wales?

Dustin Benton: Well, the Holford rules in the previous draft provided some comfort; I think that they provide less comfort in this particular example. There is a wider issue, though, which is that there is a bias in favour of overhead lines. That appears both in the NPSs and in the Planning Act 2008, which specifies above-ground infrastructure as what the IPC can consider. It is certainly worth looking at whether that should be changed to something more neutral about transmission infrastructure, so that when the IPC or MIPU-whoever is deciding the future-takes decisions, they are not constrained simply to looking at overhead lines.

There is, however, a wider point about the way that planning operates for transmission lines. That is because we know we are going to need quite a lot more transmission lines, particularly offshore. But that provides us with an opportunity to reconfigure the network, which is, in a sense, outside of the NPSs. But the NPSs, because of the way they are drawn up, simply promote the 1960s way of looking at transmission, which is a real shame.

Q165 Chair: Would it not be helpful if we put into the NPSs a requirement that alternative underground or undersea transmission methods should be considered in relation to all transmission applications?

Dustin Benton: Absolutely.

Chair: I think we’re going to have to move on to the next set of witnesses. Thank you very much for coming in, and we look forward to another debate on a future occasion.

Examination of Witnesses

Witnesses: Peter Atherton, Investment Advisor, Citibank, Malcolm Chilton, Renewable Energy Association and Managing Director, Covanta Energy Ltd, Peter Haslam, Public Policy Advisor, Nuclear Industry Association, Jane Smith, Planning Adviser, UK Business Council for Sustainable Energy, and Matt Thomson, Head of Policy & Practice, Royal Town Planning Institute, gave evidence.

Q166 Chair: We need to get on. We have a tight timetable. Good morning to you all, and thank you very much indeed for coming in. Some of you will have heard some of the previous exchanges. We have a limited amount of time, and we are grateful to you.

Could you start off by saying whether you think the revised draft NPSs have improved certainty for investors? Will they help to achieve the very high levels of investment needed over the next 10 years?

Malcolm Chilton: Malcolm Chilton, Covanta Energy.

I think NPSs will probably improve matters slightly, but there are many other considerations for investors to take into account. Investors will first be looking at the interim arrangements while the IPC transforms into the new system. Is that going to be carried out properly? There are some applications in the current IPC system, including one of my own-in fact, I think it may be the only application in the system-and if they are dealt with expeditiously, in accordance with the IPC’s rules, that will help to create confidence.

There are many issues affecting investor confidence other than the planning system. Although that is one of the key issues, it is certainly not the only one. The availability of investment for such projects is a much more difficult subject; it is difficult to attract bank funding for renewable projects at the moment. Part of that problem may be to do with things such as the price of carbon or the price of electricity and how they affect renewables. So there are a number of things.

From a planning perspective, yes, this system and the new NPSs are helpful.

Jane Smith: On behalf of the UK Business Council for Sustainable Energy, and indeed a number of the other large energy associations, we believe that the NPSs are absolutely key for providing the stable, long-term policy framework that we all need to attract investment and deliver the sustained, multi-billion pound investment programme that is needed to deliver the Government’s energy policy goals.

Malcolm mentioned the need for a seamless transition from the IPC to the Major Infrastructure Planning Unit. But, if we are to have a new national planning framework, which in principle we support, and a radical rationalisation of planning policy statements, that all creates a further period of uncertainty. So rationalisation and ratification of the NPSs become even more critical to delivering that stable policy framework, particularly in the short term.

Peter Haslam: I’m Peter Haslam from the Nuclear Industry Association.

I endorse what Jane has just said. We’re keen to see the National Policy Statements progress, and we think that the streamlining of the current planning system is vital. The UK needs to get on with building new energy infrastructure, including new nuclear power stations. Therefore we want to see this implemented as soon as possible.

Matt Thomson: Matt Thomson, Royal Town Planning Institute.

From a planning perspective, the question of whether the revised NPSs provide greater certainty for energy investors is debatable. One of the key things that the NPSs need to address, apart from giving energy investors as much certainty as they can, is giving other investors as much certainty as they can about the impacts that energy proposals might have on competing uses for land. That is something we’re looking at very carefully.

One of the key issues is that there is a lot of reliance on the investment decisions that energy infrastructure providers have made in the run-up to making a proposal. Such decisions are based on their own criteria for the appropriate sites to site a wind farm, or whatever. That doesn’t really take into account or give clear guidance on how the decision makers should weigh up those investment criteria with the other criteria that may be important to other sectors of the community or to other investors. That is where the weaknesses are in the NPSs as they stand.

Q167 Laura Sandys: Two Ministers have come to this Committee on several occasions and their position was very clear. The UK was going to be one of the best places to invest in the energy sector. From my understanding of the energy sector, it is highly competitive and a lot of other major countries are looking at the levels of investment that we require. First, do you believe that we are one of the best or most attractive countries to invest in? Secondly, do you think that capital will be invested in the UK, or will the new markets take capital away from us or create a much increased cost of capital?

Peter Atherton: Thank you. I am Peter Atherton. I head up Citigroup’s utility research team. For the sake of my lawyers, I should say that I am speaking here as an analyst, independent of whatever Citigroup’s corporate view may be.

Chair: You sound like a member of the Government.

Peter Atherton: Sorry! We wrote a report recently called The €1 Trillion Decade, which looked at this very point. We wanted to tot up what the utility sector-I am interested in the utility sector-is being asked to spend across Europe over the next decade to do two things: first, to replace, renew and replenish the existing asset base as the assets get old and, secondly, to meet all these environmental targets. The title gives away the outcome of that. We calculated that the total bill is about €960 billion across the five major European markets. The UK’s share of that is about €320 billion. It is by far the biggest. The next biggest is France, which is around €200 billion. Germany is around €180 billion. Several things flow from this. Will that capital be available? Can it be produced at the time that it is being requested, and what allocation questions are being taken on the boards of RWE, E.ON, EDF etc.?

On your specific point about whether the UK is attractive relative to the other European markets at the moment, actually it is, interestingly enough, for two reasons. First, our support mechanisms for renewables etc. are very generous. There is not a lack of incentive to build. Secondly, in a lot of European countries over the summer period, particularly in Germany, Spain and the Czech Republic, you’ve seen a real car crash between the utility sector and their Governments as those Governments have started to pull back very heavily on subsidies for renewables. That has happened in the Czech Republic. It has happened in Spain. You’ve seen the nuclear tax imposed on the German utilities, which has substantially increased the view of political risk in those countries. The UK is in a slightly odd position at the moment as we haven’t built that much. Therefore the utilities are still being encouraged to spend and invest. The incentives are still looking good. However, from the investment community’s perspective, you have to bear in mind that 90% of my institutional clients are pan-European, so what is happening in these other countries very much impacts on their view of political risk and therefore on the cost of capital.

On the sustainability of all these support mechanisms for renewables, with the push to get the utility companies to invest these vast amounts of money, the investment community has become very concerned about whether it is sustainable and whether, when the bills become due, the Governments of the day will stand behind the decisions that were made several years ago. We have seen that in Spain, the Czech Republic and Germany. That has substantially reduced the appetite of investors for providing investment to the utility sector or increasing the cost of capital; you can do it like that. You can see it in the share price performance. The utility sector has been de-rated by around 25% in the last 18 months. What does that mean in practice? It means that share prices are much lower. Investors are requiring much higher yield from the stocks and therefore effectively saying, "We want much more of our investment back in returns now, in terms of dividends, than we do in asset and capital growth." That practically means that the companies have far less investment capacity today than they thought they would have had 18 months ago.

Q168 Laura Sandys: So what you are saying is that it is not a totally pretty picture out there, and that we are going to be in a very competitive market-not within the energy sector, but within other sectors-to raise that capital?

Peter Atherton: There’s an allocation issue between bonds and equities, an allocation issue between investors who have money to invest in equities, and an allocation issue within the sector, absolutely. As I say, the attractiveness of the companies that you are expecting to do the heavy lifting on UK investment on renewables and new nuclear and so on is, at the moment, very poor. The stocks that have been most de-rated and most badly hit are E.ON, RWE, EDF and Iberdrola. Those are stocks that have frankly been hammered, stock-price-wise, in the past 18 months.

Q169 Laura Sandys: To go back to the proper subject of the inquiry, do you feel that the NPSs are a step forward in a positive direction, because planning is often an issue?

Peter Atherton: In truth, I have never had a discussion with an equity investor where NPSs have ever come up. It’s part of the mix, but what matters and what investors are always concerned with is risk-reward. The really big risks that people are looking at are construction risks and power price risks, and then the rewards are offset. I warn you that it is not a question of making the rewards more and more, because the more you make the rewards, the less trust investors will have that those rewards are going to be sustainable.

Q170 Barry Gardiner: Mr Atherton, you have just upped the Government’s estimate by £72 billion.

Dan Byles: No, that was euros.

Barry Gardiner: No, no, I have converted it; Mr Atherton said €320 billion, and I make that about £272 billion or £275 billion.

Peter Atherton: £40 billion of the difference, in sterling, is water. We include water, because we are looking at the total capex requirements, required by the utility sector.

Q171 Barry Gardiner: But is that amount out of your total, or is it out of the bit that you allocate to the UK?

Peter Atherton: We include water across Europe. In sterling, we would be talking about £260 billion, of which £40 billion is water. Our equivalent of Ofgem’s £200 billion is £220 billion.

Q172 Barry Gardiner: So it is only a 10% uplift.

Peter Atherton: Yes. The mix will be somewhat different.

Q173 Barry Gardiner: I think your exchange rate is slightly different from the one I was using.

Peter Atherton: Possibly.

Q174 Barry Gardiner: Can I ask you this? You are an investment adviser, and I come along to you and say, "Look, I’ve got £10 billion or £15 billion. What I want to do is stick it all into CCS." On current evidence, it isn’t attracting a great deal of investment, is it? We have one CCS investor. Are you actually going to say to me, "For God’s sake, don’t do that; if you want to go and invest that sort of money, there are lots of better places that you could be investing it"? As an investment adviser, what advice would you give me?

Peter Atherton: It would be very simple; I would ask you what your risk-reward was. On a CCS project that is entirely at your own risk, what sort of cost of capital would you be looking at, given the scale of the new technology? We are talking about a £1 billion-type project. You are looking at 20% IRR or 20% WACC-type number, and if you can get that, great. If you have a revenue line that you can predict, which will give you that type of return, that is absolutely fine. The problem is that you won’t, unless the Government are willing to stand behind it, or unless there is somebody who will guarantee it-in which case, obviously, your WACC would fall, anyway.

Q175 Barry Gardiner: Let me be more explicit in my question. Why is it that the investment at the moment is not coming forward in the same way for CCS as it is in other areas?

Peter Atherton: If you look at the major utilities around the world, they are doing projects on CCS, but they may not necessarily be doing it in the UK. Whether the UK scheme is badly designed, or whether it requires too big a move from projects of 50 MW to projects of a gigawatt that will cost £1 billion-that might be part of it. But to be honest, I don’t have a strong view on that.

Q176 Barry Gardiner: What you are saying to me and the Committee is: "I don’t have a particular handle on this, but it has to do with the mix between risk and reward."

Peter Atherton: Always.

Q177 Barry Gardiner: And it ain’t there. The risk is too high, or it is perceived to be too high, and the reward is too low, or it is perceived to be too low.

Peter Atherton: That must be the case, or people would be doing it.

Q178 Barry Gardiner: So, in your view, how could the Government go about amending that ratio of risk to reward in CCS?

Peter Atherton: The most straightforward way of doing it would be effectively to create a regulated asset. You could do this with offshore wind as well if you really wanted to change the risk-reward dynamics. You transfer the commercial risk from the developer to the consumer/taxpayer. In that case, the developer is going to be happy with a much lower return, because the cost of capital comes down and he is guaranteed a return. So if you make it a sort of regulated asset; you make it an asset on which the developer is guaranteed a 6 to 8% return for 15 years, or whatever the pay-back period is. That is the most straightforward way to do it.

Q179 Barry Gardiner: So you nationalise some of the risk?

Peter Atherton: You socialise the risk, yes, absolutely.

Q180 John Robertson: Do you feel the NPSs put enough emphasis on investment? Do they encourage investment?

Jane Smith: Perhaps I can chip in there. We think that they do; we think that the most important thing and the reason why investors will invest is because they need a stable policy framework. We believe that the NPSs are a big step forward in providing that certainty. They also provide a lot of valuable information for communities and their representatives, in terms of the likely impacts and the likely mitigation measures that come up with different technologies. That is key. It means that when you get to a planning application consideration, you can focus more on the local impacts. In terms of industry, we are ready and willing to invest-indeed, we already are investing-and the NPSs will be a big step forward in providing that stability and that certainty while all the other reforms take place, not least the electricity markets reforms. Those, of course, provide further opportunities for incentivisation for a low-carbon economy.

Peter Haslam: From the nuclear industry’s perspective, we very much agree with that. It is vital to have a long-term planning process that is streamlined and that will enable projects to go through on time without undue delay. In the past, there have been major delays, particularly on nuclear projects, the last one being Sizewell B. It is very important for the confidence of the utilities that that doesn’t happen again, and that they can see it won’t happen again. We think that the NPSs are a key element in putting together the framework that will enable new nuclear build to take place. The other major part of that framework, of course, is the market reform arrangements, which we are expecting to be announced in the next few days, I believe.

With that as the background, we are already seeing substantial commitment to investment by the major energy companies; for example, EDF bought British Energy, E.ON and RWE set up Horizon, and GDF Suez, Iberdrola and Scottish and Southern Energy have formed NuGen. Those are three consortiums that are very keen to engage in new builds. We think that the industry is recognising what Government are doing to create the right framework, and clearly we need to see this continue. So far, the signs are good.

Malcolm Chilton: It is a prerequisite for investment, but it is not the key investment decision. It may well make the UK a more attractive place to look at those investment decisions. In my own industry, I recall an energy-from-waste plant on the Thames that took eight years to go through its planning process. I think most investors would see that as not really a viable proposition. To be able to go through that process in one to two years clearly is extremely helpful, but it is not the key to an investment decision.

Q181 John Robertson: Mr Atherton, you are obviously an expert in investment. CCS isn’t getting the investment that we’d hoped. Is it likely that it will get investment, if it is not Government money? If it isn’t, where will the investment go?

Peter Atherton: It’s clear from what’s happened with the UK process that it is unattractive to most companies. There is only ScottishPower-Iberdrola-left in, as far as I understand, so something has gone wrong there. I have to say that this is not an area that I have spent a huge amount of time looking at, because relative to the €1 trillion, the CCS bid is de minimis. It is very largely a post-2020 issue, whereas we are much more focused on the next five to 10 years. Is it going to happen? With a lot of these problems, you are dealing with some very, very frontier technologies: offshore wind, new nuclear and CCS. Companies are being asked to do things far, far faster than they would naturally do them. That is causing tremendous tension and difficulties for a lot of the companies. CCS is a really good example of that. Left to its own dynamics, it is a 10-to-15-year research project. As for implementation, "the second half of the next decade" is how the engineers always described it to me. We are asking people at least to go straight to the very big pre-roll-out phase within the next few years, which is a tremendous challenge.

Q182 Ian Lavery: The Government have suggested four demonstration CCS plants. The first one will be awarded in December next year and will cost about £1 billion. The other three CCS plants will hopefully roll out between 2012 and 2014. From what you have said, there is very little appetite for putting any private money into CCS at this point in time-I think you mentioned decades. The Government’s plans for the next three plants are for the next two to four years. Would you agree that the appetite is not there, and that if the private finance is not there, the three remaining CCS demonstration plants will not be built, and will obviously not be put in place? What is your view?

Peter Atherton: There is no evidence that the major, UK-based facilities have any appetite to build those three; that is for sure.

Q183 Ian Lavery: If that is the case and we are losing three plants, even though they will be demonstration plants, there will be a loss of energy production. How will that gap be filled?

Peter Atherton: Sorry, I didn’t really understand.

Ian Lavery: If we’ve got, in the planning stage, three demonstration plants-other than the first one, which will be funded by central Government-and there isn’t the private finance to develop them, there will be a reduction in electricity generation. How will that be filled?

Peter Atherton: Oh, you’re saying that the plants that are going to shut under LCBP by 2015 may have been converted to CCS. Our analysis is that, in terms of megawatts, the UK is fine as regards security supply through the closure of the LCBP plants, by and large, unless you get unlucky with the AGRs. Don’t forget that the UK has built about 7,000 MW; we have under construction about 7,000 MW, of course. We have 11,000 coming off, 7,000 of gas coming on. Then we have the renewables. Don’t forget, the reserve margin is already at 25%. The danger happens under IED as you push into the second half of the decade. Do you start losing some of the AGRs? What is the running regime under IED? How reliable is the wind when it arrives? And so on. You begin to run into some scenarios towards the end of the decade where reserve margins can get pretty tight.

Q184 Ian Lavery: Is that lack of appetite for CCS the same for CCS with coal as it is for CCS with gas?

Peter Atherton: I don’t want to say that there is a lack of appetite for CCS, because E.ON, for example, is doing stuff in various parts of the world, as are other companies. What they are struggling to do is find an economic way of doing it in the UK in the way that the UK Government are asking them to do it.

Q185 Laura Sandys: As a follow-on from that, what better model would there be to encourage investment, if what the UK Government are requesting them to deliver is a little bit more of a barrier than other regimes?

Peter Atherton: As I understand it, some of the big problems with CCS is not just the cost of building the plants, but the impact it has on the output of the plant. If you lose 34% of your electricity, how are you going to compensate the companies for that, as well as the cost of running the plant? I mentioned before that, ultimately, if you want it built, and if there is a public good to be had from doing this, then, frankly, the public is just going to have to pay for it. That’s what it boils down to. Clearly, it isn’t in the commercial interest of the companies themselves to do that. Why would you make your plant massively less efficient and massively more expensive to run unless you get paid for doing it?

Q186 Laura Sandys: I want to broaden things out a little more, specifically on NPSs. From an investment perspective, do you see there being a conflict between the Localism Bill, which gives localities, neighbourhoods and so on a much stronger voice, and the NPSs? Are there issues of judicial review and conflict of objectives?

Jane Smith: Perhaps I could start and others may chip in. Certainly, if you look at the NPSs and the Planning Act 2008 reforms, which the industry fully supported, they already provide enhanced opportunity for communities to engage much earlier in the process by making pre-application consultations statutory. Indeed, communities can engage throughout the process, so there is already a much greater opportunity for communities and statutory consultees to engage and an enhanced role for local planning authorities.

Clearly, the Localism Bill places further emphasis on localism, although I have yet to go through it line by line. We will need to work through that, but we certainly support the concept of localism. Of course that needs to be balanced against the urgent national need for substantial amounts of energy infrastructure. In designing and locating potential sites, we always look at the impact on both the environment and the local communities, and we work closely with them and their representatives. So I do not necessarily see that there is a big conflict.

Matt Thomson: May I chip in? I tried to scan as much of the Bill as I could before I got here. In comparison with what is actually in the Bill, the emphasis on neighbourhood control of planning has perhaps been overstated. From what I have seen so far, and I stand to be corrected, the neighbourhood plans will need to demonstrate that they are in accordance with other, more strategic plans, which presumably include NPSs and proposals that are either already in the pipeline or are already approved. The role for neighbourhood plans is much more about giving the community the power to have, as it were, the things that they need delivered in a way that works for them, rather than stopping things that they need, which might have been agreed in other forums. I think that there is perhaps less of a conflict than we were concerned about, given some of the rhetoric ahead of the Bill’s publication.

Malcolm Chilton: Can I make a comment, too? The new IPC applications require much more public consultation than was normal in the past. To give an example from the only live application at the moment, the public consultation section is a 1,300 page document in its own right. The key is whether negative local issues weigh heavily in the inspector’s final judgment, whether the politics of the situation outweigh the strategic benefits for the country.

We have to wait and see, but if we’re looking at the total of renewables that we need to meet our 2020 targets, we have to remember that much of that will be delivered from facilities providing less than 50 MW, which come under this planning regime. Most renewables are smaller than that; land-based renewables certainly are. Localism may impact on such decisions, and I don’t think that has been properly thought through yet. One of the ways in which that might be helped is by reducing the threshold for infrastructure applications from 50 MW to 25 MW, which should be thought about.

Yes, there is a conflict when you try to build infrastructure. There is always a conflict with local people. I know that as well as anybody, because I do it all the time. I have never tried to develop anything anywhere that didn’t cause local controversy. That comes with the territory. It is very difficult to debate that issue locally and try to get people to see the strategic benefits for the nation and set them against their local interests. It is not something that a developer can do. I don’t think it’s something that local planners do terribly well, which is the reason for what we are now doing. We still have a long way to go.

Q187 Dan Byles: We have talked quite a bit about the investment regime and the impact on investment in CCS. Can we go back to nuclear for a moment? Charles Hendry has said that 16 GW of new nuclear has had some expression of interest or is somehow in the pipeline. What does the investment appetite look like for that? Do we really think, given some of the concerns you have suggested about the problems that the people who are expected to do the heavy lifting on this face in investment terms, that we are going to get 16 GW of new nuclear online in the time frames that the Government are talking about?

Peter Haslam: We believe that we will; but that, of course, is crucial on the NPSs going forward on track and being implemented on time and on the forthcoming market arrangements. As I said in response to an earlier question, there has been a lot of interest, and we now have three new build consortiums that have already spent quite a bit of money on putting together their operations to pursue new build. Although investment decisions have not been taken yet, we are moving towards that, but that will, of course, be crucially dependent on what the market reform arrangements include.

Jane Smith: I think it is also worth saying that to deliver this level of investment is challenging but achievable. It is similar in stature to the nuclear programme in France in the 1970s, when they went from approximately where the UK was at that time with Magnox power stations and delivered a substantial PWR construction programme over 10 to 15 years to get France to 75% reliance on nuclear. So it is doable, but we must have the right economic and regulatory models to go with the robust and timely planning system to make that a reality.

Q188 Dan Byles: Do you think that the NPSs look like they are giving us that?

Jane Smith: I think they are a good step forward. Peter mentioned the electricity markets review, which will clearly have a big part to play, but without the NPSs and that stability, it is a big hurdle to get investors to actively start moving things forward. We risk another hiatus while all the other reforms go through, however worthy they are.

Q189 Dan Byles: Mr Atherton, do you agree?

Peter Atherton: When was the 16 GW meant to be online by?

Dan Byles: The Minister suggested that 2025 is potentially in the pipeline.

Peter Atherton: The straightforward answer is no. It is extraordinarily unlikely and extraordinarily challenging. Equity investment in nuclear in the UK poses tremendous challenges. There are five really big risks: planning, construction, power price, operation and decommissioning. The planning is a work in progress. The reforms will, I hope, condense the planning process and it will be relatively low risk. The real biggies are construction and power price. On construction, it is going to be extraordinarily difficult to get non-recourse debt into new nuclear in the UK. That basically means that it all has to be done on balance sheet.

On the type of risk, if you get a Flamanville or a TVO-type overrunning costs and time, that could wipe out your entire equity investment in the project. There are a lot of clever bankers working on this, so my colleagues in the corporate finance departments will be coming up with all sorts of very innovative ways of trying to deal with those risks. But the construction risk is very profound and real, and somebody is going to have to carry out whether we are going to offload it on to the consumer, the taxpayer or others. Somebody has to carry the risk, so it is a profoundly challenging risk.

You also have power price risk. Nobody has ever built a merchant nuclear station in the world for very good reasons, because nobody is insane enough to do it. The industry has said to the UK Government, "We aren’t going to do it," which is why they are asking for carbon price floors, capacity payments and so on. What is that about? It is transferring risk from the developer to the consumer in that case. They are going to try to offload the prices, so the energy market reforms will obviously be very important. The corporate should take the risk of operation, and decommissioning should be pay as you go. The energy market review may go quite a way towards helping deal with the power price risk. We have taken action on the planning risk. The real big one that is going to be a tremendous challenge to get over will be the construction risk.

EDF is in a slightly different position from everybody else. It is 82% owned by the French state and the French state has an industrial policy which wants to press forward for the EPR. EDF might be willing to take the construction risk on, but the other players will need construction risk help. The Americans give it via federal loans, cheap loan guarantees etc., and their prime nuclear stations are regulated. It is a regulated asset and therefore the consumer takes those risks.

In the UK at the moment, it is still proposed that the private sector takes those risks. Fine, if you’ve got a track record or building two, three, four, five of them elsewhere in Europe and they are all being delivered on time and on budget then perhaps the investment community will take a view that that risk is now manageable and quantifiable. But the only two that are under way at the moment are late and well over budget. So the perception is that that risk is going to be pretty high.

Peter Haslam: Can I just come back on the question of construction risk? Peter is right that the Finnish project at Olkiluoto and Flamanville are slightly behind time and cost. However, that is not the experience worldwide. There are numerous projects under way in China that are progressing both to time and cost.

Q190 Chair: They probably don’t have many planning delays in China, do they?

Peter Haslam: That’s one issue they don’t have. That’s true. The key to this as far as the UK is concerned is that we are planning to use international designs that have already been constructed, so when they deploy them in the UK, they will have had the benefit of the experience in building them in Finland. One of the problems with Olkiluoto was that there were design changes during the construction and that is something that hopefully would not happen here because of the GDA process, which enables the regulator to identify and tackle issues at the first stage before building starts. So hopefully that problem would not occur here. Although construction risk is obviously an issue, I am not sure that it is quite as bad as people suggest.

Peter Atherton: I’m afraid it is what it is. It is that bad. I’d be happy to be shown the error of my ways, but as of today, what is the perception of that risk? What is the price that I’m going to apply to the cost of capital to take account of that risk? I think my description of how debt and equity investors will view that risk is correct. Over time, that will change because you get more experience. How much weight will one place on what is happening in China versus what we can see 20 miles across the channel in Flamanville? Most people will look at Flamanville and TVO, rather than at China, but China will be another data point, for sure.

Q191 Dan Byles: Is there any consensus on the actual cost per kilowatt-hour of new nuclear build going forward, looking at the full lifetime costs, including decommissioning at the end?

Peter Atherton: Which one do you want?

Q192 Dan Byles: And how does it compare with projected CCS and offshore wind?

Peter Atherton: Everybody can do the calculations in their own way. We have done our own.

Q193 Dan Byles: Hence my question: is there consensus?

Peter Atherton: The biggest issue is what cost of capital you use. Let me give you an example. On our calculations using a 10% cost of capital, the required revenue to meet that cost of capital for an EPR would be just under £70 a megawatt-hour. That includes an assumption of pay as you go for nuclear waste. If you use a 15% cost of capital, which is far more realistic, unless these risks of construction and power price have been offloaded on to other people, it would be about £93 a megawatt-hour.

Q194 Dan Byles: How does that compare with offshore wind?

Peter Atherton: The only thing that makes new nuclear look cheap is offshore wind, which is coming in at around £150 a megawatt-hour. Solar is so far off the scale we don’t even both calculating it. CCGT gas-this is based on €30 carbon, $100 oil, and 60p per therm-is £60 per megawatt-hour and you enter in price coal just shy of £80, nuclear in the £90s, using a 15% WAC, onshore wind about £80, offshore wind about £150.

Q195 Barry Gardiner: Could we have that in writing?

Peter Atherton: We have written numerous reports on this that explain all our numbers and things. I’d be very happy to send you an Excel model that allows you to put in all your own assumptions and churns out the number at the end.

Chair: That would be very helpful indeed.

Q196 Dan Byles: Out of interest, do you take a different view?

Peter Haslam: Financial cost for future generations is essentially a matter for the utilities rather than the NIA. We are not experts on this. I noticed from the Government’s evidence that DECC asked Mott MacDonald to produce a report, which looked at generation costs for the main large-scale technologies in the UK, and that showed that, in the short term, gas-fired CCGT was unsurprisingly the least costly. Looking further ahead, it expected nuclear to be the least costly main technology on DECC’s central fuel and carbon assumptions. It has to be said that Mott MacDonald said that there were many different ways of looking at this and that all these things were fairly uncertain, but its conclusion was that nuclear was the least costly long-term option.

Peter Atherton: That sounds like the sort of research that the IEA did recently, but it got to those numbers by using a 5% cost capital for nuclear, which obviously helps.

Chair: We haven’t got a lot of time left, and several colleagues want to come in, so can I appeal for quick questions and quick answers?

Q197 Dr Whitehead: Could I briefly return to the question of the 16 GW of new nuclear online by 2025, which is the projection that was put to this Committee just recently? It is important, because if that is the case, then the majority of the non-renewable 18 GW gap set out in NPS1 is apparently filled largely by new nuclear. That implies one new nuclear plant coming on stream every nine months from 2018 to 2025. The Committee on Climate Change projections from 2009 suggested, at most, one nuclear power plant every 18 months after 2018-assuming the 2018 target was met. What has changed between those two points to cause the assessment to be double the speed than was suggested in 2009?

Peter Haslam: I’m not familiar with the case that you have from 2009, but there are three consortia that are separately taking forward proposals for new builds. Their belief is that they can build new nuclear power stations to enable 16 GW to be available by 2025-assuming that all the other arrangements that we discussed earlier are in place. Utilities think they can do it.

Q198 Dr Whitehead: I find that a little surprising in the light of other estimates, but are there particular things from the past year that have caused a sudden change in estimate of speed of deployment over and above those estimates that were generally thought of as optimistic a year ago?

Peter Haslam: I think the only change is that the utilities have looked carefully at what is required to put this together, and they believe that it will work.

Q199 Christopher Pincher: Following on from that, there seems to be some disagreement as to whether the 16 GW 2025 nuclear capacity can be reached. We had DECC officials at this Committee a few weeks ago, and they said that there is a sufficient skill base in the country to decommission Magnox plants, which is currently going ahead, and also to meet the demands for new builds. Do you concur with that, or do you think that skills will need to be imported from other countries? Will that be factored into the cost price of the build?

Peter Haslam: There is a strong skills base in the UK, which has been undertaking the decommissioning of the first generation of nuclear plants. That will be used in building new plants as well. There will be a transfer of some staff from decommissioning sites to new build sites. There are a lot of Government initiatives under way at the moment to improve the skills base-the National Skills Academy for Nuclear has been set up, for example, and Cogent is doing quite a bit-and there is a recognition that a large skills base is required to undertake all this work. The Government are hoping to ensure that the UK provides as much of that as possible.

Q200 Christopher Pincher: That seems to be a recognition that it is not fully fillable by domestic skill.

Peter Haslam: Well, I think we’ll have to wait and see.

Q201 John Robertson: Investment, we are told, is governed by three things: planning, construction and power price. We have been told today that CCS is really not a good investment, and we have been told that nuclear energy is not great, but the UK is a good country to invest in and it would appear to be being invested in. So, where is this investment going? Is it down to subsidy of new build, or are we going to go down the road of a new dash for gas and we won’t worry about our CO2 commitments? Where is this investment going?

Malcolm Chilton: I can tell you where some of it is going, at least. My company is looking to invest £3 billion. That is not much against the total of £200 billion but it is something in the energy-from-waste sector in the UK, which has a very sound policy base.

Q202 John Robertson: Is it subsidised?

Malcolm Chilton: No; PFI funding may have been a partial subsidy to the industry in the past, although that’s very much in decline now. I wouldn’t say it was subsidised, no.

Q203 Chair: Does it qualify for ROCs?

Malcolm Chilton: Not normally. If certain technologies are used, it can qualify for ROCs, but those technologies are not really developed and there are few examples of anyone trying to do that. It is relatively un-subsidised.

Q204 Sir Robert Smith: Should it qualify for renewable heat?

Malcolm Chilton: I think if it is in CHP mode then it certainly should. Not to qualify would be discriminatory, really. I actually think not qualifying for ROCs to be somewhat discriminatory, but that is the situation.

Q205 Chair: Relatively un-subsidised sounds a bit like slightly pregnant.

Malcolm Chilton: The only subsidy is PFI funding, and those projects that don’t have PFI funding are not subsidised.

Q206 Dr Whitehead: So that comes back, however, to the same improvements in the waste industry as the carbon floor price would be in the energy industry.

Malcolm Chilton: Absolutely, and I think it is a very good example of how a predetermined tax over a period of time can really bring about seismic change in the way an industry behaves. I think a gradually increasing carbon tax-or however you have chosen to do it-over the 10 years between now and 2020 would have a dramatic effect on outcomes, both for renewables and, I suspect, for nuclear as well.

Chair: I think we’re probably reaching the end, unless any of my colleagues has a burning question that they need to ask, because I am aware you have probably got important engagements to go to. Thank you very much for coming; it has been a very, very useful exchange and I am sure we want to keep in touch with all of you.