Pension funds shun Sizewell C in major blow to Britain’s nuclear ambitions
Asset managers ‘extremely sceptical’ about nuclear push despite project’s ‘sustainable’ status
ByMatt Oliver and Szu Ping Chan22 April 2023 • 7:00pm
The Government’s push to find investors for the £20bn Sizewell C nuclear power station has suffered a significant blow as Britain’s biggest fund managers have snubbed the scheme.
Jeremy Hunt, the Chancellor, sought to make the project more attractive to green-focused asset managers in his Spring Budget by proposing to give it “sustainable” status under UK financing rules.
Ministers have also reformed the funding model for nuclear plants to hand investors more up-front rewards.
But senior sources in the asset management industry and two of the country’s biggest fund managers have dismissed the changes as irrelevant and insisted it would not persuade them to back Sizewell C.
Nuclear power is seen as vital to Britain’s energy security in the wake of the Ukraine war, with ministers calling for it to generate 25pc of the country’s electricity needs by 2050.
But despite introducing new funding models and classifying it as “green” to attract investors, the Government has struggled to persuade sceptical pension funds and asset managers to get behind Sizewell C.
Legal & General – Britain’s biggest money manager with £1.3 trillion of assets – said Mr Hunt’s announcement will have no bearing on its opposition to large nuclear energy schemes, as it is focused on supporting alternatives such as wind and solar.
A spokesman for Legal & General Capital told The Telegraph: “Our stance hasn’t changed: we are focused on investing in and supporting other innovative, viable, and cost-effective clean energy solutions that are already delivering results.”
Aviva, another major fund manager and Britain’s biggest provider of life insurance, also appeared to snub Mr Hunt’s announcement.
A spokesman said the company had “nothing to add” to a statement last year by chairman George Culmer, who said there was “ongoing debate” over the issue due to environmental concerns around nuclear waste.
Previously, the BT Pension Scheme and NatWest have told campaign group Stop Sizewell C that they will also not back the project.
A senior industry source told the Telegraph that the Government would struggle to find backers for Sizewell C because many asset managers remained “extremely sceptical”.
“Big infrastructure projects of this kind are enormously risky and require a lot of cash up front,” the source added. “They also have a track record for going massively over-budget and over-schedule.
“And whether the Chancellor calls it green or not, people know what they think about nuclear – it is very hard to describe something as sustainable when it involves burying toxic waste in the ground.
“There are other, cheaper ways to generate electricity.”
Mr Hunt has said nuclear power is needed to provide a reliable source of electricity in future, alongside renewables, “because the wind doesn’t always blow and the sun doesn’t always shine”.
But only one nuclear power plant, Hinkley Point C in Somerset, is currently under construction and will not open until 2027 at the earliest, with all but one of Britain’s existing power stations due to have shut by then.
A second scheme, Sizewell C in Suffolk, is also being progressed by Hinkley developer EDF and the Government at an estimated cost of £20bn to £30bn, but the exact split of private and public funding being sought has not been confirmed.
Bosses at Sizewell C have previously claimed the plant will generate “vast amounts of very low-carbon energy” with a small footprint compared to other sources of sustainable energy, while creating thousands of jobs and bringing significant investment into Suffolk.
So far the Government has invested around £800m in the project and shares ownership equally with EDF, but it is hoping to bring in new backers after forcing China General Nuclear out over security concerns.
Ministers hope further financing can be attracted through the newly-introduced regulated asset base (RAB) model.
Funded by a levy on household energy bills, the RAB model would guarantee investors a fixed income from the project during construction, reducing their exposure to risk. The Government has claimed it would only add £1 per month to household bills.
The Government has vowed to take a final investment decision before the end of this parliament.
Barclays has been brought in to run the financing process but this has not yet begun, prompting concerns it could be held up by a potential general election next year.
A Department for Energy Security and Net Zero spokesman said: “New nuclear is key to our long-term energy security – that’s why the Government made a historic £700m investment to help develop Sizewell C and become a project shareholder.
“We are working closely with the project company to attract new finance.
“We know many investors are prepared to support infrastructure delivering energy security and net zero, including new nuclear power, and we are confident that investors will take assurance from the Government’s clear commitment to the nuclear sector.”
The UK’s biggest asset managers have also cast doubt over Jeremy Hunt’s ambition to make pension funds more powerful and profitable by consolidating the sector and boosting investment in fast-growing British businesses.
The Chancellor and City minister Andrew Griffith met bosses at the UK’s biggest fund managers last month to discuss overhauling Britain’s retirement regime.
The roundtable included executives from Schroders, Aviva, L&G and GSK as well as Lord Mayor Nicholas Lyons, who is calling for a £50bn growth fund to provide new investment in fintech, biotech, life sciences and green technology.
Many of the biggest money managers laid out concerns in a separate industry meeting this month that UK pension funds lack the size and scale to be able to match their Canadian and Australian rivals. Others said a shortage of specialist fund managers may thwart plans to catalyse investment into UK science and technology.
Some believe it could take decades to achieve anything like the “true levels of scale” required to invest in high growth companies. Many noted that even the UK’s existing “master trusts” lacked the economies of scale to make better investment in productive assets.
The UK’s 36 biggest funds manage the pensions savings of more than 20 million people, but their combined pool of assets is just £105.3bn. By comparison, the Ontario teachers’ fund alone manages $190bn (£153bn) of assets.
Most of the £550bn invested in defined contribution (DC) pension schemes is spread across around 20,000 micro schemes that have fewer than a dozen members.
Ben Gold, head of investment at XPS Pensions Group which advises 50 DC schemes managing £6bn of assets, added that many funds were unlikely to invest in illiquid investments because most platforms had been set up so that workers can switch their investments on demand.
“All the platforms have been set up to enable members to be able to switch from equities to bonds to infrastructure to whatever they want on a daily basis,” he said. “So there’s a fundamental mismatch between that and the idea of investing in long term assets.”
https://www.telegraph.co.uk/business/2023/04/22/uk-nuclear-ambitions-pension-funds-shun-sizewell-c/
