§ Mr. Malcolm Moss (Cambridgeshire, North-East)
Had I been here at this early hour 20 years ago, I would have been making a very different speech about energy. It would have been along the lines of the lectures that I used to give to my geography A-level students in those days. Twenty years ago, a different set of challenges and priorities were on the agenda. For instance, I probably would have spoken about the problems of Britain's huge and relatively uncompetitive coal mining industry, employing at that time over 250,000 people. Today the mining industry is leaner and fitter. A staggering increase in productivity has been achieved, and credit must go to the management and work force for that.
I would never have dreamed 20 years ago how important private enterprise would become in Britain's energy production and distribution. Gas has been successfully privatised; private enterprise is booming in the North sea, with a record number of jobs in the offshore industry, and record investment; and shortly the electricity supply industry will be in the private sector, where it belongs.
Perhaps most striking of all, until recently, nobody, least of all me 20 years ago, had any inkling of the connection between the environment and energy generation. Now, in the 1990s—thanks in part to the efforts of the Prime Minister and others—the protection of the environment is at the top of the political agenda. That is crucial, not only to those in the energy industry but to the future of the planet.
Issues such as the protection of the ozone layer and the need to reduce gases such as sulphur dioxide, which cause acid rain, and carbon dioxide, which contributes to global warming and the greenhouse effect, are now matters of great urgency. There are many ways to mitigate the influence of energy production and consumption on the environment, and one thinks of the impact of renewable energy. Energy efficiency and conservation will become increasingly important in the next decade.
We also have a contribution from the nuclear industry. Nuclear power has three clear advantages. First, it produces no sulphur dioxide or nitrous oxide, which contribute to acid rain; it produces no carbon dioxide, which is a major contributor to global warming; and it produces no gases which harm the ozone layer.
Secondly, nuclear power enhances the security of supply against abrupt changes in fuel availability and fuel prices, or disruption of indigenous supplies by the action of unions. We recall the great impact in recent years of the miners' strike.
Thirdly, nuclear power promotes, along with renewables, a diversity of supply. Nuclear is the only proven long-term alternative to fossil fuel power stations. At issue is not only the environment: we are also considering the future of the world's population and the ever-increasing demand for energy.
At present, 90 per cent. of the world's needs are supplied by fossil fuel. Clearly, the global geochemical system is incapable of accommodating fossil fuel combustion products at the current rate of production. To stabilise carbon dioxide levels in the atmosphere, it will be necessary to reduce emissions by about 20 per cent. by the year 2005, the Toronto target that was agreed not long 406 ago. Given that scenario, it would seem irresponsible and short-sighted to rule out the contribution of nuclear power.
Despite its obvious advantages, nuclear power is at the moment a beleaguered industry and the subject of much vilification. Much of it is emotional—understandably, in the wake of Chernobyl. However, nuclear power is increasingly under attack on the economic front. As my hon. Friend the Minister will understand, many of the misunderstandings concerning nuclear power at present arise from uncertainty over the Government's position on it and its role after the privatisation of the electricity supply industry.
The Government's courageous decision to withdraw all the Central Electricity Generating Board's nuclear power stations from the privatisation process has been seen in some quarters—especially by the Opposition—as a sign that the Government have abandoned nuclear power. To put the record straight, I should welcome my hon. Friend's assurance that the Government remain committed to a continuing nuclear programme.
Nuclear Electric plc is the company which will inherit on Saturday, its vesting day, all the nuclear power stations of the CEGB. That must mean a commitment by Nuclear Electric to complete Sizewell B. I seek an assurance from my hon. Friend about that commitment, as I believe that it is vital to the morale of the new company. I say that despite the real problems surrounding Sizewell, not the least of which seems to be the escalating costs, which require the closest scrutiny by the new company and by the Department of Energy. Sizewell B is needed to maintain the status quo in nuclear power generation as the Magnox stations are closed down and decommissioned. By the time of Sizewell's completion in 1994, we shall be in a far better position to review the whole nuclear industry and its future. The successful completion of Sizewell, coming in at cost without great overruns—and, at the time of switching on, its proving the engineers and the scientists in the nuclear industry correct in their design of this unique pressurised water reactor—will enhance the future for the nuclear industry.
The other area of criticism to which I alluded was cost. At present, nuclear-generated electricity is undoubtedly more expensive than that generated by conventional fuels, but everything is relative. Nuclear power may be more expensive now than fossil fuel sources, but it would take a brave man to predict future movements in the price of energy and of world fuels.
Privatisation has, for the first time, exposed the real back-end costs of nuclear power, by which I mean the costs of fuel reprocessing and decommissioning. Fossil fuel generation does not, at present, have those extra costs to bear, but around the corner is the high cost of flue gas desulphurisation to remove the sulphur dioxide from the emissions from our coal-fired power stations. One of the problems is that much of our indigenous coal has a high sulphur content. If we are to meet the agreed European targets on the reduction of emissions, much work will need to be done. It is estimated that 6,000 MW to 8,000 MW of coal-fired generation will need to be fitted with flue gas desulphurisation processes.
The supporters of coal-fired generation are simply ignoring reality if they believe that a carbon tax of some description can be postponed idefinitely. It is, after all, from coal-fired generation that the bulk of the carbon dioxide that is pumped into our atmosphere comes. The 407 options for the future could be greater research and development into means of removing carbon dioxide from the emissions. There obviously are technologies, albeit small scale at the moment, that could be adopted—fluidised bed technology, for instance, which does reduce some of the emissions. But as a solution to the problem in the short term, I do not believe that these will offer anything like the scale of change that is necessary.
A second option will be to switch from coal-fired generation to gas, particularly combined cycle gas, which emits far less carbon dioxide per unit of energy than coal-fired.
Thirdly—this has nothing to do with what we want in this country but comes out of the European dimension or a worldwide dimension—in an effort to reduce carbon dioxide emissions, there may well be a tax on carbon, coal-fired and oil-fired generation of electricity. Each of these options will add significantly to the cost in the future of electricity generated from fossil fuels.
Despite the current higher costs of nuclear power, I believe that the nuclear programme must be secured. This means, under privatisation. the introduction of the non-fossil fuel obligation and of the fossil fuel levy.
The obligation will oblige the new supply companies to contract for some 8,000 MW of nuclear-generated electricity over the period 1990–98, and to spread this addition fairly over all electricity suppliers there will need to be the fossil fuel levy. This levy must not, of course, be an extra cost for customers to bear. After all, the costs of nuclear power are already included in our electricity bills. One of the great benefits of the privatisation process, I believe, is that it has made these costs transparent for the first time. It would be helpful if my hon. Friend would confirm that the levy will reduce over the eight-year period of the initial sales contracts.
Another series of myths is growing up—stoked by Opposition Members—about the decommissioning costs of nuclear power and therefore the long-term financial position of Nuclear Electric. Of course nuclear power has its decommissioning costs. Unlike coal, it has to clear up after itself, and that is an expensive process. One of the benefits of privatisation is that it has shown up these costs and presented the industry with a fresh set of challenges, but it does place Nuclear Electric in something of a special position with regard to long-term debts and liabilities. I should be most grateful if my hon. Friend could make it clear this morning what action the Government will be taking to ensure that, when the full decommissioning costs of nuclear are drawn up and included in Nuclear Electric's balance sheet, the new company will remain solvent in the early years of trading.
I believe that the privatisation of electricity has revealed many challenges, to which the nuclear industry must respond positively and effectively. This is not an uncritical apology for the nuclear industry—many mistakes have been made in the past, not least by politicians—but the continuation of nuclear power in this country is vital, first in keeping our options open for the future; secondly in protecting our security of supply; and thirdly in assisting in the battle to preserve the global environment. It would be a significant contribution, on the present scenario, to world energy needs right into the middle of the next century.
As the world's population increases at an ever-expanding rate, the demand for energy is going up and up. 408 The countries of the Third world, the southern hemisphere, have no prospect of building nuclear on any scale. They will turn for their energy needs to fossil fuel.
Our contribution internationally to world energy needs could be to take the strain off the fossil fuel problem by going over more to nuclear. Of course, nuclear is an important component in energy production for many of our EC partners—in France particularly, but also in Germany and in Belgium.
Privatisation has put the nuclear industry under greater scrutiny than ever before. There will no longer be a blank cheque. The industry must become more commercial and competitive. I am confident that Nuclear Electric will rise to the challenge, and I wish its management and work force every success.
§ Madam Deputy Speaker (Miss Betty Boothroyd)
Order. the hon. Gentleman will require the leave of the House.
§ Mr. Barron
With the leave of the House, I do not know whether to congratulate the hon. Member for Cambridgeshire, North-East (Mr. Moss) on being lucky enough to get a spot in the Consolidated Fund Bill debate at 5.10 am so that he could discuss the nuclear industry. On behalf of the Opposition I wish to comment on some issues that he brought up in his speech.
The hon. Gentleman talked about the role that the Prime Minister has played in the debate on the environment. I do not want to rehearse recent debates in the House, but I would have been happier with the Prime Minister's stance on the environment if she had stuck to her promises and especially to the commitment that she gave to the international community last year about the reduction in sulphur dioxide emissions from coal-fired power stations. In recent weeks she seems to have been back-tracking on that.
§ Mr. Barron
The hon. Gentleman shakes his head, but in his own words he agreed with it because, after he had mentioned the Prime Minister, he talked about the necessity to retrofit between 6 GW and 8 GW of electricity production with flue gas desulphurisation. The Prime Minister and other Ministers were talking about 12,000 MW of retrofit only last year.
§ Mr. Moss
The most important point is the commitment given by the Government to reduce sulphur dioxide emissions in accord with the agreements in Europe. How that is achieved is not crucial. The most important point is that those reductions will be achieved. If it is done by a transfer under privatisation to more gas-fired generation, that of itself will take out some of the sulphur dioxide emissions. The hon. Gentleman cannot have it both ways. The commitment is there to reduce the sulphur dioxide levels. It will involve flue gas desulphurisation retrofitting, but the level will have to be determined after privatisation by the companies.
§ Mr. Barron
I am grateful for that intervention. It enables me to say to the hon. Member and to the Minister that the Government were able to negotiate lower levels of sulphur emissions from power stations and electricity generators in Britain at that time on the basis of the case that they put forward to the Commission; they said that they wanted lower levels because of the sulphur content of British coal and the necessity to protect the British coal industry. The hon. Member for Cambridgeshire, North-East will have to take my word for that although we are seeking the records that were made at the time. Over the last few weeks the Government have talked about low-sulphur coal imports. I believe that those imports will create even more problems with our balance of payments which is in deficit on energy already.
Although I do not want to go too deeply into such matters, I refute the idea that gas or the importing of coal with a lower sulphur content will help us to meet those targets. As with many other things in the game of poker of electricity privatisation, on the retrofitting of flue gas desulphurisation, John Baker has won once again and has got away from the commitment of a £2 billion programme that the two new generators would have to make to retrofit FGD to power stations. I refer to that simply to illustrate that things are not settled and that because the Government are tied into a tight timetable with a general election in the next two years or so, they cannot afford any more slippages. The two new generators have been able to get off the hook over the retrofitting of FGD only at great cost to the nation.
The major point of the hon. Member for Cambridgeshire, North-East related to the nuclear industry. He is right to say that Opposition Members and the Labour party are not the nuclear industry's biggest supporters. I have no problem in admitting the truth of that analysis. However, if the hon. Gentleman were to talk to those in the nuclear industry or in Nuclear Electric and to ask them who their biggest enemy has been in this country, they would not refer to the Opposition, but to those who have spoken from the Government Dispatch Box over the past six months. I refer especially to what the hon. Gentleman described as the "courageous" decision to withdraw Nuclear Electric from the privatisation of the electricity supply industry.
I am pleased that the hon. Gentleman paid tribute to the British coal industry and to its productivity increases. One of his next comments was to say how surprised he is about the extent to which private enterprise has become important to the British energy industry over the past 20 years. That has certainly been the case with North sea oil and gas, but a fundamental problem facing the nuclear industry is the lack of commitment from the Government who did not think that the industry was sustainable enough to be put into the framework into which the Government appear to be prepared to put all the other energy industries that are currently in the public sector.
It is true that the nuclear industry is beleaguered. I refer now to a comment made today at the annual British nuclear forum for Members of Parliament—
§ Mr. Barron
The hon. Gentleman says that it was yesterday. That is generally correct, but as far as Parliament is concerned, today is still Tuesday.
410 Our annual British nuclear forum for Members of Parliament was delayed because of the Government's statement last November. Indeed, Mr. John Collier called the Secretary of State's statement a "setback" for the industry. There can be no question about that—it was more like a wake than the annual British nuclear forum for Members of Parliament. It is recognised that the present position is not sustainable in the short term.
What will happen at Sizewell B in the not-too-distant future has been a matter of some concern. Obviously, the forum is concerned that it should be built and brought on stream, but we must recognise that the costs of building Sizewell B have escalated by 10 per cent. I do not know whether the hon. Member for Cambridgeshire, North-East knows that an announcement is to be made within a month about the extra cost of Sizewell B. There will not be the replication that people had believed would occur when the other three pressurised water reactors were expected to follow straight on. In the nuclear programme, from Magnox to AGRs, the lack of replication meant that, perhaps not in the short term but in the long term, nuclear costs were far outside that of any fossil fuels for electricity generation. The total cost to the nation of Sizewell B has not yet been settled.
As we have found throughout the nuclear industry, much of the capital cost of building the nuclear power station, was found to be, although not small, not as big as we had thought. The costs of decommissioning and reprocessing were the significant factor.
The hon. Member for Cambridgeshire, North-East suggested that the costs of reprocessing have been exaggerated by Opposition Members. Decommissioning time scales and the costs of the different forms of decommissioning, while still not fully settled, have massively increased. It is not Opposition Members who have given those costs but BNFL.
One issue that worries BNFL—to some extent I agree with it, as do many people in energy management and planning—is that with the privatisation of electricity the Government have introduced a new commercial framework that does not bode well for the building of new generator plants, nuclear or other. BNFL is worried that generator plant that is built does not have a life-term contract. I went to the United States a couple of years ago and spoke to people who have privatised the industries over the years. The idea of building generator plants that do not have life-term contracts for the supply of electricity to area boards or state-run companies is not on there. America does not work like that. People are more likely to buy the fuel source—whether a coal mine or anything else —and the site for the plant so that they know that although the plant will not pay the same price for years, it will have longer-term contracts than we have here. As the hon. Gentleman knows, the flotation of the electricity industry has caused chaos in the British energy market.
§ Mr. Moss
I hear what the hon. Gentleman says. How does he square that with the fact that there is no shortage of companies coming forward to build new plant, even given the scenario of the length of contracts to which he refers? Plenty of schemes are coming on to the books, from combined cycle gas through to renewables.
§ Mr. Barron
Plans for combined cycle gas and other plants have been submitted. Clearly everyone wants to build small plants that will be environment friendly. The 411 nuclear industry, the coal industry and the gas industry want to do that. If all definite plans are put together, they would amount to about 7GW of generation of electricity. Combined cycle gas is wasteful. Gas is not a long-term resource for this country. Two planned large coal-fired plants have been cancelled just in the lifetime of this Government. Along with PWRs, that does not come anywhere near the cancellation that might take place.
At this stage we may he able to take stock of generation to see what capabilities we have to generate electricity in this country. That does not get away from the fact that the new framework that has been created with the privatisation of electricity supply industry means, as the nuclear industry and everyone else agrees, that the lack of long-term contracts is not good for expenditure or the building of new generators.
Because of the short-term commercial outlook that people have been forced to adopt they must seek to recover the capital cost of building generating plant in 25 years rather than 35 years. That is extremely damaging not only to the nuclear industry, but to many others
Many of us believe that the privatisation of the electricity supply industry is fundamentally wrong as it does not take into account the need for any long-term planning for our needs. The market will be unable to supply a coherent framework of generators capable of providing our electricity in the coming decades.
I accept that mistakes were made with central planning in the past—they are there for all to see—but the framework provided by the privatisation of electricity is not a coherent one by which the country will be able to make proper strategic judgments and planning decisions to ensure the supply of electricity to our communities and industries in the future.
Obviously we could go on and on debating the issue, but the hon. Member for Cambridgeshire, North-East should be aware that many people in the nuclear industry are unhappy about what has happened in the past two years. Many others unconnected with the industry are unhappy with the headlong rush to privatise the electricity supply industry which is similar to an ideological crusade. Privatisation has not taken into account the need for strategic planning or its knock-on effects on the nuclear and other energy industries.
§ The Parliamentary Under-Secretary of State for Energy (Mr. Tony Baldry)
At this early hour it requires an interesting debate on an important topic to retain the attention of even the insomniacs among us. I am glad to say that this debate, although comparatively short, has been interesting. No one doubts the importance of the nuclear industries to the United Kingdom.
I congratulate my hon. Friend the Member for Cambridgeshire, North-East (Mr. Moss) on initiating the debate—I know that he is a distinguished member of the Select Committee on Energy. Before I seek to answer the points raised by my hon. Friend and those of the hon. Member for Rother Valley (Mr. Barron), I wish to put the debate into context.
In less than 36 hours from now, the United Kingdom electricity industry will be totally different from the one that we have had for the past 40 years. The Central Electricity Generating Board, the 12 area electricity boards and the two existing Scottish boards will cease 412 trading. At midnight on 31 March, all the assets of those major companies will pass to 19 new public limited companies which will form the electricity industry in the United Kingdom from then on.
Within the next 36 hours, a unique spot market in electricity will begin to operate, ensuring that the demand of millions of customers is met and that power stations are turned on and off so that the electricity is generated at least cost. Right now, the owners of generating stations are considering the prices to bid into the sophisticated computer model which will set prices and match supply and demand half hour by half hour.
This is clearly a major reorganisation of an industry on which every person in this country relies. Competition, which has been kept out of the industry for the past 40 years, will be released. Experience all over the world shows that that will benefit the consumer by keeping downward pressure on costs and encouraging greater efficiency. Electricity consumers will also enjoy customer rights for the first time ever.
At the same time, the standards of security of supply and safety that we have come to expect from the industry will be maintained and the operation of the integrated national grid will continue largely as before. The Director General of Electricity Supply will watch over the industry, regulate the parts which are natural monopolies and protect consumers' interests.
I know that many Members on both sides of the House have a strong interest in environmental matters, particularly energy efficiency. A number of points on this have been made today. We all accept that the electricity industry has a large role to play in helping to control the effect of man's activities on the natural environment. The reorganisation of the industry therefore includes specific duties on electricity suppliers to meet set standards in promoting energy efficiency. The renewable sources of power are being given a considerable boost by including them in the non-fossil fuel obligation. More importantly, perhaps, because the market rather than a Whitehall bureaucrat will determine investment decisions, both consumers and producers of energy will have the right signals to use energy in the least wasteful way.
This reorganisation will be a major step towards the most radical privatisation ever undertaken anywhere in the world. Within a year and a half, subject to the right market conditions, we shall have offered for sale the shares of all the area distribution companies in England and Wales, and of the fossil fuel generating companies which will come out of the CEGB.
We are, therefore, at a new dawn in more ways than one this morning. The electricity industry is moving into a new era in which it will go from strength to strength.
No one can doubt the importance that the Government place on the role of nuclear power in the electricity industry. We stated our commitment to nuclear power in the 1987 manifesto on which we were elected as a Government. Since then, preparation for privatisation has revealed many of the costs of nuclear power which were previously hidden, but our aim has not altered. Nuclear power has always made an important strategic contribution towards diversity of supply. We intend to retain the continuing benefit of this option.
As my hon. Friend the Member for Cambridgeshire, North-East said, nuclear stations also bring considerable environmental benefits. Each gigawatt of nuclear power saves about 6 million tonnes of CO2 emissions per year. 413 Nuclear power does not contribute to acid rain. Those are important benefits which it would have been wrong to allow to be lost under the new competitive industry structure.
The non-fossil fuel obligation will ensure that nuclear power continues to play its important strategic role in electricity generation. The order setting the non-fossil fuel obligation was laid before Parliament on 16 February. It requires the public electricity supply companies in England and Wales to contract for roughly 8 GW of power from nuclear stations over an eight-year period. The figure drops slightly in the early years as some of the old Magnox stations retire, but rises again towards the end as Sizewell B comes on stream. That obligation will ensure that all existing nuclear capacity in England and Wales is contracted for well into the next decade, and that the construction of Sizewell B is completed and its output contracted for. I hope that that reassures my hon. Friend the Member for Cambridgeshire, North-East.
Having set a non-fossil fuel obligation, it would have been quite wrong to fail to take account of the extra costs that the public electricity suppliers will face as a consequence. To ignore that would have put them at a considerable competitive disadvantage in what has already become a highly competitive market. All electricity customers benefit from the environmental and strategic benefit that our nuclear stations offer. Indeed, customers are paying for nuclear power in their bills at present. The fossil fuel levy for the first time identifies this element and ensures that the extra costs of non-fossil power are fairly shared out. The levy regulations were also laid before Parliament on 16 February. They set down in great detail—clearly, more detail than some Members feel that they can manage—the method by which the levy rate will be calculated and the levy collected by the director general. The Secretary of State announced on 12 February that the initial levy rate would be set at 10.6 per cent., but that it was expected to fall significantly over the next eight years.
The Electricity Act 1989 also contains a provision to permit the Secretary of State to pay grants for reprocessing, waste management and decommissioning of power stations. I shall return to that issue because there is confusion about it.
Those three main elements—the non-fossil obligation, the fossil fuel levy, and grants for nuclear back—end costs—complete the regime which is being put in place to ensure that nuclear continues to play its important strategic role. But there is an important point to understand here. All those measures would have been needed whether the nuclear stations were in the public or the private sector. All those measures were conceived and included in the Act before the premium that the financial markets would demand before investing in nuclear became clear. Certainly the fossil fuel levy is lower as a result of the decision to keep all the nuclear stations in the public sector, but a non-fossil obligation and a levy would have been required come what may.
I now turn briefly to the future of nuclear power in the United Kingdom. I was concerned about the slight pessimism reported by the hon. Member for Rother Valley. Since we took our decision last November to remove nuclear from the privatisation, some commentators have said that the nuclear industry has been 414 abandoned. The hon. Gentleman said that it had been referred to as a setback. Let me spell out the Government's position on nuclear once and for all.
§ Mr. Barron
When I described it as a setback, I was using the word that Mr. John Collier used at the British nuclear forum yesterday. As the Minister knows, Mr. Collier takes over Nuclear Electric this weekend.
§ Mr. Baldry
I understand that to be the context in which the hon. Gentleman reported it.
I will spell out the Government's position on nuclear once and for all. We are committed to a continuing nuclear programme. That commitment is being made manifest in solid concrete through Sizewell B, which will be completed by a substantial public sector company employing 14,000 people, running 12 nuclear stations and contributing up to 20 per cent. of our electricity needs.
Nuclear power was withdrawn from privatisation for two reasons. So far as the Magnox stations were concerned, the earlier estimates for decommissioning and waste management were simply not high enough, and it would have been quite wrong to expect future electricity consumers to pay for those past costs. Those costs are much lower per unit of output for AGR and PWR stations. The second decision, taken by my right hon. Friend the Secretary of State last November, to withdraw PWR and AGR from the sale reflected the private sector's different perception of the financial risks associated with nuclear power.
The private sector's solution to the high prices that it required to cover those risks was Government guarantees against virtually all commercial risks in the future. We were simply not prepared to underwrite such commercial risks in that way. Our solution was the fairest to both taxpayer and consumer.
§ Mr. Barron
Is not that precisely what the Government are doing now with the nuclear industry? They are keeping it in the public sector so that they can make grants towards all its costs, including its back-end costs.
§ Mr. Baldry
By ensuring that the nuclear industry remains within the public sector the Government are in a much better position to observe its costs. I shall have something to say about the costs and the financial position of Nuclear Electric. There has been some misunderstanding about those matters.
The separate decision to postpone immediate construction of PWRs beyond Sizewell B came about partly because of our success in stimulating diversity and competition in the electricity market. We recognise that the NFFO necessarily distorts the market to safeguard diversity and security of supply. Given that the prospect of a competitive, privatised market has attracted independent generators burning gas and renewables projects, and has encouraged own generation, there is no need to include new nuclear stations beyond Sizewell B in the NFFO for the present. Life extension of the Magnox stations, where economic and subject to the requirements of the nuclear installations inspectorate, will provide a continuing nuclear contribution and the Government will make justifiable investment available to Nuclear Electric for this purpose.
Those were our reasons for the policy decisions on nuclear power. They were not taken because nuclear power is inherently uneconomic, whatever that means. In 415 recent years, economic conditions, such as the low price of oil and the increased cost of capital, have not favoured nuclear's adoption on strict cost terms, but those conditions can, and probably will, change again. Should fossil prices climb, perhaps because of a recognition of the environmental cost of burning them, nuclear power should again become much more attractive.
Those are all strong reasons for maintaining the nuclear option, and that is why we have placed the portfolio of nuclear stations, together with the PWR under construction at Sizewell B, in the new public sector company, Nuclear Electric. The management and staff of the new company, drawn primarily from the CEGB, have worked tremendously hard to set up their new company in the short time available. I know that the skill and dedication that they have shown during this exercise over the past few months and, indeed, throughout the excellent generation record of the CEGB, will continue in the new company. John Collier, Nuclear Electric's chairman is determined to prove nuclear as the generating source of the future, and my right hon. Friend the Secretary of State and I have every confidence that he and his staff will succeed. He has set the company the challenging goals of increased nuclear generation and a progressive reduction of the levy, getting the best out of the Magnox and AGR stations.
Sizewell B will be completed to time and cost to maintain the PWR option, and Nuclear Electric will be looking at the possibilities for fusion and small reactors, as well as assessing its priorities in research and development. As the inheritor of the CEGB's acknowledged nuclear safety expertise, Mr. Collier and his company will ensure that safety remains the No. 1 priority in running nuclear stations. The nuclear installations inspectorate continues as the ultimate independent guarantor of stringent safety at Nuclear Electric's nuclear power stations.
One of John Collier's other stated goals is to increase public confidence in nuclear power. I do not deny that our unavoidable policy decisions on the industry have not made his task any easier, but one of the benefits of privatisation has been to make clear to the consumer for the first time the actual cost of nuclear electricity. We know the rate of the fossil levy, and consumers will be able to watch it decline over the next eight years as Nuclear Electric continues to improve the efficiency of its plant.
Nuclear Electric will be publishing audited accounts in which the costs of nuclear power will be open to scrutiny rather than subsumed in the bulk supply tariff. That should help to overcome much of the uncertainty over costs that has dogged the nuclear industry, and which has come into sharp focus recently. The arguments over the costs of nuclear power can then be based on hard facts, rather than on supposition and conjecture. It is a hard fact, for example, that the price of nuclear power under the primary nuclear contract will be about 5p per kWh; this price, which we fully recognise is higher than that for fossil power, buys diversity, security of supply and a cleaner environment. I believe that they are well worth the cost, and John Collier has set himself the task of making the bargain even better.
These tasks are quite enough to be getting on with, and Nuclear Electric will not be building any new nuclear stations before 1994, when the Government will review the prospects for nuclear power. By 1994 Sizewell B will be ready to come on stream, and Nuclear Electric will have a breathing space in which to get its existing stations running well and the chance to reassess the costs of nuclear power; 416 the new competitive electricity market will be maturing, with independents established and the larger generators investigating new sources of power; the world's considered response to the greenhouse effect may have been more clearly set out. It will be a new world, and the ideal time to look again at nuclear power. I am confident that our nuclear expertise will be maintained over the next few years, with the prospect of a wide-ranging review in 1994.
The Government were keen to secure a future for nuclear power in reaching our decisions last November and I think that we have achieved the right balance. We very much hope that the industry will make the most of its new opportunity, as I am sure it will.
I should now like to say a few words about. Nuclear Electric's financial position to clarify a number of points that have clearly been misunderstood recently.
Nuclear Electric has been set up as a public limited company, although all its shares will be owned by the Government. However, my right hon. Friend the Secretary of State intends that the company will, in one crucial respect, be no different from the private sector companies that, together with Nuclear Electric, will constitute the new electricity supply industry following privatisation. I mean, of course, that he will expect Nuclear Electric to operate commercially, effectively and efficiently. By the separation of Nuclear Electric from the other companies, and through the structure and arrangements for privatisation, Parliament and the public at large will for the first time be able to see how efficient and economic are the company's operations.
The generating licence requires the company to publish separate accounts in respect of its nuclear business. The costs of nuclear power will be transparent. My right hon. Friend made clear to the House, in his statement of 9 November 1989, that the company will not be given capital expenditure approval for any new power stations until after the review of the nuclear industry in 1994. A major aim of the chairman of the new company is to ensure that, by the time of the 1994 review, nuclear power generation will have been demonstrated to be an economic proposition.
None the less, immediate financial circumstances have required the Government to take special action. The balance sheet that the CEGB published in its 1988–89 report and accounts showed vastly increased provisions to cover the cost of decommissioning nuclear generating stations. Nuclear Electric has inherited these huge liabilities. A great deal of work is now in hand on the company's accounting policies, and we shall not he able to form a definitive view on the company's assets and liabilities until its opening report and accounts are published in the summer. However, it is clear that Nuclear Electric will require an assurance that the Government will stand behind the company to ensure that it remains able to meet the tests of solvency under the Insolvency Act 1986.
This is a matter of simple necessity, in order to assure the company's trading partners that it will be able to meet its debts as they fall due. It also serves to reassure the directors that their company will not be allowed to slip into fraudulent or wrongful trading.
My right hon. Friend has therefore been granted powers under schedule 12 to the Electricity Act 1989 to provide Nuclear Electric with financial assistance, once he has obtained Treasury approval, in respect of qualifying expenditure. This qualifying expenditure is defined in schedule 12, but I should say that, in general terms, it 417 refers to the costs of reprocessing spent fuel and decommissioning. Schedule 12 limits the assistance that may be given to an aggregate of £1 billion.
If, in the fullness of time, it should prove necessary to increase this amount of support, schedule 12 explicitly permits the Secretary of State to seek Parliament's approval to do so, to an upper limit of £2.5 billion. Expenditure under schedule 12 must be voted through the normal Supply Estimates procedure. Hon. Members will be well aware of this provision, as schedule 12 was fully debated in the House during the passage of the Electricity Act 1989.
More recently, my right hon. Friend made clear, in a departmental minute that he laid before the House on 6 March this year, that it was his intention to provide Nuclear Electric with a letter of assurance. The letter simply notifies the House of the Government's intention to assure the directors that a grant would be available to the company under schedule 12 to the Electricity Act to enable it to meet its obligations.
I should take this opportunity to allay some of the misconceptions that some hon. Members clearly hold on this issue. The Government's obligation under schedule 12 will not involve a cash payment in the foreseeable future. It is an assurance, not a grant, and it will result in a cash payment only if the point is reached where Nuclear Electric cannot fund its own liabilities.
As I pointed out earlier in the debate, the Government will employ the necessary controls to ensure that Nuclear Electric operates on a commercial and competitive basis. Indeed, my right hon. Friend has told the House that the company will remain cash positive. Moreover, hon. Members should not confuse schedule 12 with the fossil fuel levy. The fossil fuel levy is an entirely separate matter on which regulations have been laid. It is important to remember that any money that may eventually need to be spent under schedule 12 will be provided by the Government, not by the consumer, and will not increase prices.
We have, of course, obtained the necessary approval of the European Commission for the progress we have made so far. Should any longer-term support prove to be necessary, it will, of course, be subject to any appropriate further approval from the European Commission. No assistance will be granted unless such approval is forthcoming.
I welcome the opportunity that the debate has afforded to clarify some issues relating to nuclear power and to the Government's commitment to nuclear power and nuclear energy, and some misunderstandings that have arisen in recent days. I hope that this has been a useful debate.