The Nuclear Industry Association (NIA) welcomes the chance to respond to the Government’s Update to Green Finance Strategy call for evidence, jointly ran by the Department for Business, Energy & Industrial Strategy, Department for Environment, Food & Rural Affairs, and HM Treasury.
The NIA is the trade association and representative body for the civil nuclear industry in the UK. We represent around 250 companies operating across all aspects of the nuclear fuel cycle, including the current and prospective operators of nuclear power stations, the international designers, and vendors of nuclear power stations, and those engaged in decommissioning, waste management and nuclear liabilities management. Members also include nuclear equipment suppliers, engineering and construction firms, nuclear research organisations, and legal, financial and consultancy companies.
Our members may choose to make their own, detailed response to this consultation. The focus of this submission is therefore on high-level, industry-wide matters.
How can the UK support a financial system that leverages private investment to meet the objectives of the British Energy Security Strategy, including in areas such as nuclear, hydrogen, carbon capture and storage and domestic oil and gas production, to reduce our reliance on imported fossil fuels as part of a smooth energy transition?
What barriers are there to unlocking private investment to support the UK’s energy security, climate and environmental objectives?
Nuclear is essential to the UK’s decarbonised electricity mix, currently supplying 20% of electricity demand and nearly a half of our low-carbon electricity. The current fleet has saved more than 1 billion tonnes of carbon emissions over its lifetime. During the challenging circumstances caused by the events of covid-19 pandemic, last year’s energy crisis and the fallout from the invasion of Ukraine, nuclear has proven its consistency in keeping the lights on even during adverse events and has showcased its ability to be flexible when necessary.
However, all but one of the current six nuclear power stations will cease operating by 2028. This is excluding Hunterston B which closed on 7 January 2022 after 46 years of operation, and Dungeness, which closed in 2021. In total, we will lose more than 5.2GW of clean power from the grid.
In the recent Energy Security Strategy, the Government put forward a plan to replace this capacity by commissioning eight new reactors by 2030 and increasing its nuclear output to 24GW by 2050. This is a significant task, and the build rate for new reactors cannot be achieved without the correct policy, regulatory and financial mechanisms in place.
The successful progression of the Nuclear Energy (Financing) Act through Parliament was essential to establish the Regulated Asset Base (RAB) model, which will enable the low-cost financing of projects such as Sizewell C, and beyond. RAB financing would save consumers around £30bn on bills over the lifetime of each project, around £10 per year off the typical bill, according to official BEIS estimates. This is compared to the CfD mechanism used for Hinkley Point C.
From the NIA’s own analysis, a large-scale nuclear project such as Sizewell C would also save CO2 emissions worth £526m per year at today’s carbon prices, or £18 per year for every UK household. As the UK heads towards Net Zero the carbon price is only projected to rise steadily.
As we iron out the details for the use of the RAB mechanism on Sizewell C, attention now must also be given to how the model can be used to fund other types of nuclear technologies, such as Small Modular Reactors, to provide confidence to investors and unlock private investment.
The suspension of new nuclear projects at Wylfa and Moorside should also act as a reminder to Government of what happens when delays occur in key decision making, particularly around financing. Sizewell C repeatedly delayed its estimation of a Final Investment Decision (FID) due to delays in the progress of the Nuclear Energy (Financing) Bill. It is therefore essential that the Government works with industry and SMR vendors on the use of the RAB mechanism in parallel with their work on siting and regulatory changes in time for deployment before 2030.
We also hope the UK’s upcoming Taxonomy will help provide a level playing field for investment for low carbon technologies. The NIA welcomed the Government’s intention to consult on the criteria for nuclear power to be included in the UK Taxonomy and the formation of the Energy Working Group to look at the role of nuclear power. We believe it is clear that nuclear technologies would make a substantial contribution to the Taxonomy’s objective of climate change mitigation, and these actions are a move in the right direction.
In June 2021, HM Treasury published the Green Financing Framework which sets out how the UK Government will finance expenditures related to tackling climate change through the issuance of green gilts and Green Savings Bonds via NS&I. The Framework is intended to be aligned to the upcoming UK Taxonomy.
Nuclear power was specifically excluded from the Framework, with HMT stating that in consideration of the ‘many sustainable investors [that] have exclusionary criteria in place around nuclear energy, the UK Government will not finance any nuclear energy-related expenditures under the Framework’.
In consequent answers to numerous Parliamentary Questions, Economic Secretary John Glen said that the Framework followed current international market standards for sovereign green bonds and does not wholly represent what the Government considers to be ‘green’. Government has reiterated its stance that nuclear power has an important part to play in Net Zero by 2050 and financing for the technology will be considered as part of its development of the UK Taxonomy.
Since this decision was made, the Bank of Montreal has raised C$500 million in green bonds, specifically for Bruce Power to refurbish several nuclear reactors, with the issuance six times oversubscribed. This should be evidence to the Government that including nuclear energy in its Green Financing Framework will not affect the popularity of its bonds.
Enabling nuclear power’s role in Net Zero is intrinsically linked to trust and confidence in the policy agenda, particularly amongst the finance community, where we are aware of significant interest in investing in nuclear projects.
Addressing the current lack of clarity over the government’s position on including nuclear in the UK Taxonomy and reconsidering the eligibility of nuclear to future rounds of the Green Financing Framework would be a significant step towards achieving the government’s recently stated intention for a secure, reliable and clean power mix for the future.
South Korea has openly admitted that its turnaround on nuclear power – the country previously wanted to reduce its nuclear output from 25 to 10% in favour of importing energy from China and Russia instead – was heavily influenced by the UK and France’s confidence in nuclear power through their respective new nuclear construction programmes and targets.
The Framework will be reviewed on a regular basis, so there may be a time when nuclear is included in the future. While the Framework will not prevent private investors from investing in nuclear, its exclusion has sent a signal to the finance community that the Government does not see nuclear power as ‘green’ enough.
This must be rectified through nuclear’s inclusion in the UK Taxonomy if Government want to show they are confident in nuclear power. The positive recognition of nuclear in the Taxonomy would help attract investors into nuclear.
Beyond these specific policy mechanisms, the Government needs to work with the nuclear industry on communicating the low carbon credentials and wider benefits of nuclear energy to the finance community.
A lack of understanding has led to inconsistency in nuclears inclusion across Environmental, Social and Governance (ESG) frameworks, which in turn can confuse and/or put off investors from financing new nuclear projects.
Given the Government’s new target of eight new reactors by 2030 and 24GW of nuclear by 2050, significant investment is needed in the nuclear industry in the next few decades. The ability to raise the capital needed will be hampered by the inconsistency of advice given to investors.
Therefore, it is in the Government’s best interests to help educate the finance community on its ambitions and the role of nuclear power in a Net Zero system.
Ensuring a level-playing field across low carbon technologies will also be essential in the development of nascent sectors, such as hydrogen. The Government has said that there is no one ‘silver bullet’ technology that will achieve Net Zero, but a mix. This should be reflected in the Government’s strategy for enabling the UK hydrogen sector, of which the nuclear sector will hopefully be a part of as early as 2030 through an electrolyser at Sizewell C, and later from other large-scale projects, SMRs and AMRs.
How can the UK government assess and measure progress toward financing the UK’s energy security, climate and environmental objectives?
The NIA believes the key priorities for Government when assessing technologies against these objectives should be:
- Will the technology get the UK to Net Zero and what are its emissions?
- Does the technology bolster UK energy security?
- Does the technology provide value for money to the consumer?
- Does the technology provide green jobs and level up the nations and regions of the UK?
- Will the technology improve UK exports?
We believe nuclear meets all of the above criteria. Firstly, nuclear energy has the lowest lifecycle carbon intensity of any electricity source, as referred to in an earlier answer in our response. A recent report by EDF Energy also showed that emissions from generating electricity are likely to be around 5.5g CO2e eq/kWh for both Hinkley Point C and Sizewell C, in line with UNECE findings.
Nuclear also has the highest load factor of all the available low-carbon technologies, averaging 80.3% in 2020. It can provide low-carbon, firm power when the wind doesn’t blow and the sun doesn’t shine.
The successful passing of the Nuclear Energy (Financing) Act will enable the low-cost financing of projects such as Sizewell C, and beyond, using the Regulated Asset Base model. RAB financing would save consumers around £30bn on bills over the lifetime of each project, according to official BEIS estimates. This is compared to the CfD mechanism used for Hinkley Point C.
A large-scale nuclear project financed using RAB would add a small levy to bills of no more than a few pounds during the early phase of construction and less than £1 per month over the course of a project. The income generated would allow project developers to finance the project at cheaper rates, which would substantially cut the ultimate cost to consumers and provide better value for money.
The industry currently provides around 65,000 direct jobs, extending to 160,000 when further job creation in the wider supply chain is included. In the NIA’s Forty by ‘50 report, we estimated that by 2050, this could increase to 300,000 highly paid, highly skilled green jobs.
In the 2019 Green Finance Strategy, one of the methods the Government referenced to drive clean growth and environmental performance was the use of Sector Deals. The intent was to “ensure that investors and the Government had a shared plan to deliver the investment and skills needed to maximise UK opportunity” in that sector.
The Nuclear Sector Deal – published in 2018 – had four headline commitments, which were:
- 30% reduction in the cost of new build projects by 2030
- Savings of 20 per cent in the cost of decommissioning compared with current estimates by 2030
- 40% women in nuclear by 2030
- Up to £2bn domestic and international contract wins by 2030
While Sector Deals and the Industrial Strategy are policies from the past, the NIA believes that many of the commitments are still relevant today (and are still being worked on by industry) and can contribute to measuring energy security, climate and environmental objectives and Government should take learnings from these Deals to inform the future Green Finance Strategy.