Craig Lester

Bret Kugelmass [00:00:59] We're here today with Craig Lester, who is the Strategic Development Director at DBD, and one of my favorite Brits from his former time in government. Thank you so much for joining me today in the U.S.

Craig Lester [00:01:10] My pleasure. It's good to be here.

Bret Kugelmass [00:01:13] Before we get into your work today, I'd love to get to know you as an individual. You know, we spent a lot of time together, but I actually don't know your whole story. Where did you grow up?

Craig Lester [00:01:22] So I was born and I grew up in a place called Salford in the northwest of England, which is adjacent to Manchester. But the one thing you mustn't say to anybody from Salford is it's part of Manchester. It's a separate city just over the river. I was born there and lived in a couple of parts of Salford and Manchester, went to school there and then I went off to college in Wales to University College Wales, Aberystwyth, and then got my first job down in London which happened to be in government. It took me a little while to get out of government and into this job.

Bret Kugelmass [00:01:55] So you were in government that whole time?

Craig Lester [00:01:57] From school until like a few months ago, 34 years.

Bret Kugelmass [00:02:01] Wow. And what was that like? When you entered government at that time what was the reputation of just government in general? Was it thought of as an exciting place, as a bureaucratic place? What were your motivations?

Craig Lester [00:02:14] It was one of the top recruiters at the time. I came in on the, what they call the Fast Stream, the government Fast Stream for graduates. It was ultra competitive. You had to sit an entrance exam, to entrance exams, and then two interviews. My final interview was with a panel of seven people, which was quite intimidating for someone who was 21 and hadn't really been out in the world much.

Bret Kugelmass [00:02:35] Yeah, it sounds like what we do here, very intense. Yeah.

Craig Lester [00:02:38] And at the time, lots of my friends went into the public sector. It was considered a good career to go into and some of them went into banking, accounting and finance and things like that. But no, it was recognized as a good place to go.

Bret Kugelmass [00:02:54] Yeah. And what were the technical or what were the skills that you wanted to develop as a young entrant into government?

Craig Lester [00:03:03] Well, there's a story there because at the time I thought I'd do something semi-vocational, so I'd gone to college to do geography, but I did joint honors with international politics. And after a year, the international politics just got me, and I did that full time. So I did the single orders in that. And that had the long title of International Politics and Strategic Studies. So we studied NATO, we started a mix of Western modern history, I studied the plans for nuclear weapons and war and strategy and international systems, and it was fascinating. During the vacations we would visit NATO and some of the EU institutions.

Bret Kugelmass [00:03:52] So you probably have a lot of thoughts on what's going on today.

Craig Lester [00:03:54] We've come full circle. It's a really interesting time for me, and maybe we'll talk a bit more about it. So I came out keen to join either the Foreign Office or the MOD.

Bret Kugelmass [00:04:06] What's MOD, what's that mean?

Craig Lester [00:04:07] Ministry of Defense. So your DOD. And I got through the selection process and they said congratulations, we're sending you to do tax policy. Which at the time I wasn't too worried about because I thought, "What's the worst that can happen? I'll become a tax expert and I'll go off into the private sector."

Bret Kugelmass [00:04:25] So that's how it works in government? They just tell you what to do and you just got to hop around do it?

Craig Lester [00:04:28] Basically, yeah. I mean, you could put some preferences down, but you know, you get what you're given sort of thing on that scale.

Bret Kugelmass [00:04:35] A real servant, like a real government servant.

Craig Lester [00:04:37] But the upside is, you know, in 34 years, I've had maybe 15, 16 jobs. All very, very different.

Bret Kugelmass [00:04:44] That's kind of amazing. I mean, you must you must be very curious. Would you describe yourself as a curious person?

Craig Lester [00:04:50] Yeah, very much so. And I like to learn new things. I don't always master all the technical detail, but then you've got to get on top of a brief. You don't need to be the expert because there's plenty of experts around.

Bret Kugelmass [00:05:03] Do you remember what some of those early... the 15 jobs. What did you do in your twenties?

Craig Lester [00:05:08] So as I said to start with, they sent me to the policy arm in the head office our Inland Revenue, your IRS. At the time, policy was made partly in that head office and partly in the Treasury building down the road there. They were a 20 minute walk apart. I worked in a place called Somerset House, which is now a big arts center in the heart of Covent Garden. So in our twenties it was a great, great place to be surrounded by lots of clever people. I didn't think I'd find tax interesting, but I did. And I did a bit of capital gains tax. I did some taxation of North Sea oil for a couple of years. That was really fascinating.

Bret Kugelmass [00:05:54] As in North Sea oil?

Craig Lester [00:05:55] North Sea oil and gas. So that was very relevant.

Bret Kugelmass [00:05:57] When you guys were still pumping up there, yeah.

Craig Lester [00:05:59] And, you know, I came across windfall taxes way before people were talking about them, you know, when they were introduced. And then I did a lot of personal tax, qnd I did some coordination jobs. So I watch the Chancellor's budget planning really carefully because I worked on 15 budgets the early part of my career. So I watch what comes now and I understand the decision making process, and I generally know how it gets from an idea to a piece of tax legislation and an announcement.

Bret Kugelmass [00:06:32] Cool. What came after tax stuff?

Craig Lester [00:06:35] What came after tax? The last job I did in tax was something called stamp duty. If you've never heard of stamp duty, it's the tax that started the War of Independence.

Bret Kugelmass [00:06:47] Our independence.

Craig Lester [00:06:52] Your independence. Yeah, it's the one. People remember the tea being thrown into the water, but it was the tax on the paperwork that imported the tea.

Bret Kugelmass [00:07:04] That really set them off. Yeah. The rebels.

Craig Lester [00:07:11] Aand actually, I've seen all of the original documents. I've seen the original stamp duty charges that set the War of Independence off.

Bret Kugelmass [00:07:17] Oh my God, I'd love to see that.

Craig Lester [00:07:20] But the reason that's relevant is because I worked a lot with the property industry. And a bit like working with the oil industry, I got to know a sector quite well and I got to start to understand the commerciality of it and how it worked. It was really important because to design tax policy and tax legislation and then to make it work, to implement it, you have to understand what the other guys are thinking.

Bret Kugelmass [00:07:48] Yeah.

Craig Lester [00:07:49] And the bottom line, in most instances, commercial businesses listed companies, tax is just another cost. So when we were looking at it and saying that's an avoidance scheme, they were saying, "No, we're just trying to be efficient and protect our shareholders." So we had some interesting times there. And just before that and just as an aside, I did a lot of personal tax and we were chasing bankers bonuses at one point.

Bret Kugelmass [00:08:17] What was the tax rate for something like that?

Craig Lester [00:08:19] Well, at the time it was probably 50%, maybe something like that.

Bret Kugelmass [00:08:22] 50? Five, zero?

Craig Lester [00:08:28] Yeah, and that was low.

Bret Kugelmass [00:08:29] Our bankers here don't pay anything. It's like 0%.

Craig Lester [00:08:32] Well, these guys weren't paying any tax either sometimes because they started to get paid in cash and then they started to get paid in gold bullion and then when we closed down the gold bullion scheme, they started to get paid in more exotic substances.

Bret Kugelmass [00:08:47] They'd literally get paid in gold.

Craig Lester [00:08:49] No, they got paid in an option to take the gold which they cashed the day they got it. They never saw the gold. The gold was in a bank in Switzerland.

Bret Kugelmass [00:08:59] Okay, it's just some intermediary method of exchanging wealth, yeah.

Craig Lester [00:09:03] Exactly. But then as we closed that loophole down, they got paid in fine wine, Persian rugs, platinum sponge. If you know what platinum sponge is, it's what they make filters for catalytic converters in cars.

Bret Kugelmass [00:09:17] Oh, cool. Yeah, that makes sense, yeah.

Craig Lester [00:09:19] But you got to the point it was absurd. You got to the point where the number of bonuses paid in the City of London in platinum sponge exceeded the world supply of platinum sponge.

Bret Kugelmass [00:09:29] Oh, my God. And when you say City of London, I once heard that the City of London is different than the city of London. Are we talking about the right thing here?

Craig Lester [00:09:39] Well, so there's three different things. So the city, the metropolis of London, is a big city with 9 million people. The geographical city of London is the original old part of London, bounded on four sides by marker posts. So if you've ever heard of Fleet Street, the famous newspaper street in London as well as the first marker post is there and east of of that marker post is the city. And it had different jurisdiction, different rights and sometimes different laws. And then as you get into the city where the banks are, then that's the third city. When we see The City, we mean the banks and the commercial buildings. And ironically, now most of them are not in the City of London, they've moved to the Docklands area so they're just outside they're just down the river.

Bret Kugelmass [00:10:33] But there's some special... the only reason I ask is because like I was told, you know, just through like YouTube videos that the City of London had like carved off for themselves like special tax privileges where the government couldn't go after them.

Craig Lester [00:10:45] That's probably going back a little while. But certainly as a lobby group, they're very influential.

Bret Kugelmass [00:10:52] Yeah, yeah.

Craig Lester [00:10:55] Less so recently because, you know, we have a windfall tax on banks, which is still in operation, I think.

Bret Kugelmass [00:11:00] And what does windfall tax mean?

Craig Lester [00:11:01] Oh, the politicians decide these guys are making far too much money under the normal scheme, and they introduce a new tax that just...

Bret Kugelmass [00:11:09] Just go after them.

Craig Lester [00:11:10] I mean, Ronald Reagan had something similar in the States, I think it was called the minimum tax or something like that. Not the government minimum tax. And it basically said you can get your tax lawyer to reduce your tax bill by however much you like, but if it falls below a certain threshold, you pay that.

Bret Kugelmass [00:11:28] Oh, that's smart. Okay, let's get to energy. When did you first get introduced to energy?

Craig Lester [00:11:34] So because I got a taste for some of the commercial stuff working on property, I was looking for a job with more commercial content, even in government. And I came across a unit called the shareholder executive. I think it was the union government that looked after all of those assets that had a commercial basis to them. Often assets that would be prepped for privatization, or those which were too difficult to privatize but needed a commercial wrap around them.

Bret Kugelmass [00:12:08] This is like the rail system or something?

Craig Lester [00:12:11] There was one rail company in it. The original Channel Tunnel Rail Company was in there, but it had some of the big public sector businesses like the Royal Mail and the Post Office. Channel 4 TV, people don't realize Channel 4 TV was state owned, and a number of really interesting assets, but it also had three or four nuclear assets.

Bret Kugelmass [00:12:36] Wow. Which ones?

Craig Lester [00:12:37] So it had the Nuclear Decommissioning authority. Not because it was...

Bret Kugelmass [00:12:44] Kind of an odd thing to privatize.

Craig Lester [00:12:46] Well, we sort of quasi-privatized it. I mean, as you know, in the UK, the industry was broken up previously and effectively privatized and parts were sold off. But you couldn't privatize the legacy. So the NDA existed.

Bret Kugelmass [00:13:04] But by the legacy you mean the legacy like wastes legacy, liabilities.

Craig Lester [00:13:08] The liabilities and the sides. So the NDA was a really big business, a £3 billion a year business, that needed a lot of governance and a lot of commercial input. And the team I worked on in the Shareholder Executive was the the governance and commercial advisory part to the government. It had the National Nuclear Laboratory.

Bret Kugelmass [00:13:29] Ok, NLL.

Craig Lester [00:13:29] Which we can talk about in a second and Eurenco.

Bret Kugelmass [00:13:36] The enrichment...

Craig Lester [00:13:37] Enrichment company. And it had a separate bunch of liabilities around the current operating estate, but it had a separate pot of money for that. And I saw this job advertised for one year on maternity cover to go and work in this unit. And I thought this would be great. And I knew a guy who worked there and he said, "It's a great place to work." And it was 50% civil servants and 50% commercial people and a really nice mix. And I got there and they interviewed me and they said, "We want you to do the NDA." So I had a crash course in all things nuclear and the legacy, and they pitched me right in there and said, "Go and talk to the Treasury. You need to get these guys 12 billion over the next four years as a servant." It was great from them.

Bret Kugelmass [00:14:29] Yeah. And how many people work on a team that are at that magnitude?

Craig Lester [00:14:35] So the bigger teams were somewhere between six and ten people, but hardly any of us were full time. I mean, the NDA is a full time job.

Bret Kugelmass [00:14:43] Sure.

Craig Lester [00:14:44] But you were encouraged to have a portfolio, which was great because it meant you could have a role in one or two of the smaller assets as well. And it gave you a really good mix. And I did a year on the NDA. The lady I'd replaced, she came back from maternity leave, she took over the bulk of it, but I stayed on and did some work around Sellafield and they moved me onto the the other nuclear portfolio. So I looked after the NLL and something called the Nuclear Liabilities Fund, which was out of the pot of money.

Bret Kugelmass [00:15:18] Cool. Okay. And so then when you start working the NLL, help me understand how that works when something like that is privatized. Because to me, it's still like, I understand now, it kind of like looks structurally like it's run like a private company, but the money, where does it come from? It still comes from government, right?

Craig Lester [00:15:36] Oh, that's an interesting question.

Bret Kugelmass [00:15:38] Or most of it? I don't know. You tell me.

Craig Lester [00:15:40] Most of it for sure. The NLL was one of the parts of the of the industry that didn't get privatized. It was put in a halfway house in something called a GOCO, government owned, contractor operated. And there was still a question when I took it over as to whether it might still be privatized, but incredibly difficult to do so. It operates at the heart of Sellafield. It's got unique facilities and it's a national lab. Now, in the past, the UK has privatized national laboratories, but this one, I think it was the right decision not to privatize it. When I was there, we did a review, we came to that conclusion. But it's worth saying that as you've hinted, the UK NLL is not like the U.S. National Labs, so it isn't funded with a big research grant. It is structured on a commercial basis. It has to cover its own costs and it has a number of big contracts. So it has contracts with the defense side, contracts with the legacy side, contracts with the operating estate, with EDF, and some other interesting customers as well. But it has to pay its own way.

Bret Kugelmass [00:17:03] Yeah, yeah. And it does that by performing scientific research essentially.

Craig Lester [00:17:08] Sure. Yeah. And some of it's at the very "R" end of R&D and some of it's at or beyond the "D" end. So it's very practical. I'm trying to think of an example. If there's a particularly difficult piece of kit that needs to be decommissioned, sometimes the NLL, they have a recall, and engineers will build a life size model of whatever the piece of kit is. So people can be trained to understand how to get around, what the radiation level will be like, where the robots need to go, where the people can go. So that's very practical. I mean, that's not R&D, that's real solution driven.

Bret Kugelmass [00:17:52] Yeah, real prototyping. Yeah, that's amazing. And then, is this under BEIS or did you come into BEIS later?

Craig Lester [00:18:02] So as you probably know, government departments get merged and split, they change the names about on average every three or four years.

Bret Kugelmass [00:18:10] So BEIS which is business, energy, industry, what's the S?

Craig Lester [00:18:16] Science.

Bret Kugelmass [00:18:17] When did that conglomeration get put...

Craig Lester [00:18:21] Around about five years ago. So around around about the time I was leaving the Shareholder Executive and coming back into policy and this time into energy policy. But at the time it was the Department of Energy and Climate Change. But very quickly after I came back, it became BEIS.

Bret Kugelmass [00:18:41] Okay. And what was the mandate? You know, whoever the minister who is on top of BEIS, like, what is he told like, this is what I want to see happen?

Craig Lester [00:18:52] So there's some very big responsibilities, as you might imagine, and particularly so now.

Bret Kugelmass [00:18:57] With climate. And energy security probably.

Craig Lester [00:19:01] So climate change was the driver, but the predecessor departments had been responsible for trade and industry. At times they've been responsible for exports. They've been responsible for the supply chain and they've been responsible for different parts at different times of the R&D industry and the sort of science parts have sort of come in and out and the university funding has come in and out of different departments. So it was a real ragbag at times. The focus now, I would say, is around energy resilience, really important, security of supply. It's around creating the right models for the different sectors to be effective. And there are different models for different sectors we can go into. And it is about ultimately delivering up the UK's very ambitious climate change targets, I mean almost aggressive climate change targets.

Bret Kugelmass [00:20:03] And so how is it doing on that so far? In the five years that you were there, did BEIS make major climate headway? What are the UK emissions like, and where are they along their target pathway? Because the UK has one of the most ambitious targets across the world for climate. I mean, it's like, it's net zero by 2050, right? But for everything, not just electricity. I don't think any other country does that.

Craig Lester [00:20:28] It's right across the board, it's industry as well. And the net word is important because it recognizes that some parts of the system, maybe some parts of industry particularly, you'll never get to zero.

Bret Kugelmass [00:20:40] Sure you need to do some sort of capture system. Everyone has to get used to that idea.

Craig Lester [00:20:45] And the round. So leaving aside the difficult time that we all had with COVID, I think it was doing a reasonable job. I think it was on target. Certainly there were very ambitious plans to expand the renewable sector, offshore wind, solar, biomass, some of the other things.

Bret Kugelmass [00:21:09] Is biomass still part of the agenda? Because biomass has fallen out of favor across the world as like an actual... It's like not actually green if you've got to burn a bunch of forests somewhere.

Craig Lester [00:21:18] It's a really interesting point. I mean, it's there, and I think it did have a target assigned to it, but I think you're right. It has started to fall out of favor. And from a personal point of view, I've never thought biomass would be the solution.

Bret Kugelmass [00:21:32] Yeah. But then that makes it like really hard with renewables because it's like, okay, how do you balance the intermittency? You need something.

Craig Lester [00:21:40] You need something, you know, maybe you need nuclear.

Bret Kugelmass [00:21:43] Well, that's right. I was hoping to lead you there, for our audience.

Craig Lester [00:21:50] I think the honest answer is we had... There was a pathway to 2050, which included what were called carbon budgets, which were sort of shorter five year targets, thereabouts. I think it was probably fair to say that we were just off track on the next carbon target. So we were falling behind the curve a little bit, and in part some of the really ambitious strategies that came out last year are to get us back on, back on the curve.

Bret Kugelmass [00:22:21] But these targets must accelerate because, I mean, it's hard enough to just do electricity by 2050, but to do everything across all the sectors, I mean, they must be projecting adding like, not just, I don't know what, like 15 gigawatts of electricity and then another 20 gigawatts or something to cover everything else, or more? I mean, that's a lot of gigawatts.

Craig Lester [00:22:43] It's a lot of gigawatts, partly because you've got to replace what's there and partly because we expect demand to increase.

Bret Kugelmass [00:22:51] Yeah, we expect demand to increase, we've got to cover a bunch of sectors, you got to replace... I mean, everything is going to be gone by 2050, so you've got to replace the entire... Okay. I think I looked this up. You guys are like 20 gigawatts, you know, baseline. So you've got to add a new 20 gigawatts even covering the renewables that are there right now because all of those will be gone by 2050. And then yeah, and then you've got to decarbon the other sectors. So it's probably more like 80 gigawatts total.

Craig Lester [00:23:16] Oh, more than that, I think, in total. I mean, there was a campaign... It's interesting to reflect the different views about how big a role nuclear should play in this.

Bret Kugelmass [00:23:25] Yeah.

Craig Lester [00:23:26] Because the industry itself briefly had a mantra of 30 by 30, which was 30 gigawatts by 2030.

Bret Kugelmass [00:23:35] 30 gigawatts of what?

Craig Lester [00:23:35] Of nuclear power.

Bret Kugelmass [00:23:37] When did they have that?

Craig Lester [00:23:39] That was maybe five years ago, I think when that was doing the rounds.

Bret Kugelmass [00:23:42] That's not that long ago. And I think that's a great target. I think it's doable, but you've got to get serious about it. It can't just be like, "Oh, we'll figure it out a few years from now." It's like, we've got to start now. We've got to start building 30 gigawatts now.

Craig Lester [00:23:54] Yeah. And I think probably at the time it was predicated on the fact that we had three or even four gigawatt sized power stations in project.

Bret Kugelmass [00:24:04] Planned, yeah. But still that leaves 26. That's a massive fleet.

Craig Lester [00:24:09] No, we probably had more than that because, so Hinkley Sizewell...

Bret Kugelmass [00:24:14] Alright those are more than one gigawatt a piece. I see what you're saying.

Craig Lester [00:24:16] So I say gigawatt because it's scaled, they're all two or three, but yeah you need another 15 to 18.

Bret Kugelmass [00:24:24] But doable, but it would still require like a serious commitment.

Craig Lester [00:24:28] Doable if one or more SMR designs came through were rolled out on a fleet basis and maybe one or two of the AMRs came through.

Bret Kugelmass [00:24:36] Okay, let's talk about that, and what was your role? So at some point you became part of the nuclear directorate at BEIS, because that's where I met you. At what point did SMRs and AMRs, small modular reactors and advanced modular reactors... you know, the AMR ones still seem so new to me... When did that become part of your focus and purview? You've become quite an expert on the topic.

Craig Lester [00:25:04] I'm getting there, I think. I've probably got...

Bret Kugelmass [00:25:06] Don't be too humble. When I met you, you were the expert on that topic.

Craig Lester [00:25:10] I've been doing it. You know, until I moved on, five years or so. Because I arrived in the department when there was a debate as to whether SMRs were a thing. They weren't considered enough of a thing to include in the national policy statements for planning purposes. The received wisdom was SMRs are in the 2030s, AMRs are in the 2040s, fusion's and the 2050s.

Bret Kugelmass [00:25:38] And why not just put it in the policy anyway? Like at least create some structure. I mean that was what we saw as we've kind of navigated how the policy is developed to encourage clean energy technology in the UK, especially through like the CFD auction mechanism, they don't even include nuclear there. They include sewage gas. Sewage gas. They include about ten categories that there aren't enough competitors for the technology to actually deliver projects, but they don't include nuclear.

Craig Lester [00:26:07] No, it's... I think it's a definite lacuna and hopefully it's one that will be addressed when the UK road map comes out in a few months time, we hope. But we'll stick with your original question. I'd been there a year and they asked me to take over a SMRs and it was in a strange place because under George Osborne, when he was chancellor, they got the go ahead to run a competition and there was a sum of money attached to it. And it was going to seek an SMR design. Except it didn't pan out that way. I suppose a criticism is it became a competition without a prize, because everybody got very excited, everybody submitted their designs. There was a big techno economic assessment as I think you know. And what came out of that was a lot of knowledge and a really good picture of the UK and the global landscape. But it didn't then go on and move anything forward. And I arrived in an interesting place where the conclusion and the chancellor moved on and the money wasn't there. My job was effectively to just close that phase down. Now that could have been a really difficult time, but actually I saw an opportunity because in the first five, six weeks of taking over that area, I met just about every SMR and AMR vendor who was serious. So I did 32 meetings I think.

Bret Kugelmass [00:27:39] 32 meetings of SMR or AMR vendors that are interested in the UK, or did you go around the world for this?

Craig Lester [00:27:45] No, interested in the UK.

Bret Kugelmass [00:27:47] Interested in the UK, that seems like a lot. So break up those 30 odd companies into categories of seriousness. How many of them were like, you know, two PhD students versus, like a company that actually had real engineering schematics?

Craig Lester [00:28:03] So in fairness, there were a lot of what we call PowerPoint reactors.

Bret Kugelmass [00:28:10] Such like a nasty term that the nuclear industry uses against itself almost. I mean, I see why. But it makes me feel a little weird saying it sometimes just because we should all be like, cheering each other on and trying to, like, get this to work. But it's like one of those terms.

Craig Lester [00:28:27] Well we learn a lot from those conversations, and I still deal with good dozen of those companies now.

Bret Kugelmass [00:28:33] Yeah.

Craig Lester [00:28:35] All of whom are at different stages of maturity of the proposition. There were also a handful of people who were not technology vendors but had a different take on how you would bring this to fruition.

Bret Kugelmass [00:28:46] Cool.

Craig Lester [00:28:48] And one of the questions that I learned to ask really early on was, "Don't tell me what's sexy about your design, tell me who your customer is going to be.".

Bret Kugelmass [00:29:00] And what was the right answer to that? You know, to get the UK government attention, what answer did you want to hear for who the customer is?

Craig Lester [00:29:08] So in a way, we wanted to see someone who'd done some real research and had some conversations with potential customers, and were working backwards into the design.

Bret Kugelmass [00:29:18] And did customers mean customers, like literally customers for the power that would come from the facility, or did customer mean like an operator, like a utility that you would sell your design to?

Craig Lester [00:29:29] Well, clearly, an operating utility is a really important part of the mix. Where I think laterally we ended up which is the right place is to identify that in a world where it's very unlikely to have a completely vertically integrated owner-operator, developer, tech company, distribution company, whatever, that there are four or five key roles that need to be played and need to be brought together. And the analogy I use laterally was think of it as putting on a stage show because you need you need these five cast members all to come together. Now, one individual actor can play more than one cast role. They can double up, but that role still needs to be played and you need a financier, and you need an audience. But the reason for asking the question about, you know, who is your customer, what is it you think they need, how much are they going to buy, what price are they willing to pay, is it starts to look at the question from the other end of the telescope as opposed to someone saying, "I've got this neat piece of technology. I reckon I can build it for this and it can generate power for this." Which is great, but then you've got to say, "Okay, well who's buying that? And how?"

Bret Kugelmass [00:30:48] How come it took so long, or if it hasn't come out, how come the government doesn't say we can establish a value for clean baseload power delivered to the grid that mitigates the merchant market risk, because you could always just say, "I'm going to take merchant market risk, I'm just going to connect to the grid, I'm going to sell for whatever the price is based on last year's curve." Maybe it'll average this, maybe forward looking, but it's hard to get long term security that's like investible for that. But the government could easily step in and say the power's worth less. But the fact that you're clean, oh, that's worth an extra $10 a megawatt hour. Oh, and the fact that, you know, you're going to be building up our industry or whatever, that's worth another $15, or whatever it is. Like, the government could do that. Why isn't that a simple calculation that the government would just put down, and then you don't have to ask the nuclear developer to find their own customer. The government could just do it.

Craig Lester [00:31:48] There's two main parts to the question. One is that the UK system is different from the U.S. and many other parts of the world. So the government doesn't have the kind of role, the state doesn't have the kind of role in the electricity market as it does in some places. So the government isn't actually the customer in almost all of the instances, all of the sort of commercial structures that you would set up, partly because of previous privatization.

Bret Kugelmass [00:32:14] But it could be for its own power consumption, that's for sure. Like all the government buildings, you could sum up and say that's about a half a gigawatt, so we'll sell that directly. That's one way it could do it, or it could do it as it did with the wind industry where it said, "Okay, we're just going to establish a bilateral CFD for the first few companies, and then after those get built, NEM will establish an auction CFD process."

Craig Lester [00:32:37] So I think the second part of the answer is that government would say, and I'm not defending the past policy mistake because it's not got there yet for nuclear, but it's going in the right direction. It would say that it's not the customer, but it does create the framework.

Bret Kugelmass [00:32:54] Yeah.

Craig Lester [00:32:54] And it's got incentives and disincentives which are built into the system. You know, as you say, we were at the cutting edge, I think with carbon taxes and things like that. And it has incentivized where it's seen a clear business case to do so. I think the point you make is a really good one. It's not been a level playing field between renewables and nuclear.

Bret Kugelmass [00:33:17] Which is crazy because of how ambitious the UK's climate targets are, and how much the UK has a great history with nuclear, and how clearly strategic nuclear is for achieving those climate goals.

Craig Lester [00:33:30] I'm not entirely steeped in the way some of the deals are underpinned in the renewables industry, but I think one of the key differences is there's a sort of simple CFD regime whereby a lot of the commercial risk, other than the volatility of the electricity price is still being taken almost wholly by the developer. Now when you traditionally come to nuclear power stations, that's not the case. So it's not just the CFD.

Bret Kugelmass [00:34:02] But why not? Why not just say, "Well, this is something we've spent a lot of time on." Why not just do the simple CFD for nuclear?

Craig Lester [00:34:09] So I think for SMRs, I think we'll get very, very close to what I call the clean CFD model. I think what people have inevitably been focusing on is how do you make the big gigawatt scale power stations... Where do you find the 20 billion or the 25 billion from? How would you deal with the 10 or 12 years where the costs are starting to accrue as interest? And that's why we've ended up with the RAB model for the potential for the next one.

Bret Kugelmass [00:34:41] What do you think of the RAB model?

Craig Lester [00:34:44] I think it's a neat commercial solution. But as a citizen, it's really saying, "Okay, we don't want to put a project on the government balance sheet where it's a taxpayer liability, but we're happy to put it on the balance sheets of 20 million households and hope you don't notice that line in your bill when we when we do so." And I could see when reality really starts to bite on this. There'll be some interesting political debates about this kind of stuff when if you're a pensioner, you spend the last ten years of your life paying for a power station you'll never see. Now, of course that's the way the tax system works anyway, so. But a more interesting thing for me, I think, is, whether there's a solution for first of a kind SMR and AMR programs that actually needs RAB once but it doesn't need afterwards, or it doesn't need RAB at all and you can get through. Look, there was a lot of criticism around the strike price for Hinkley Point C. But that was a consequence of how much risk we were asking the developer to take. The UK National Audit Office did a report which said if the government had taken more of the risk, that price could have been roughly half.

Bret Kugelmass [00:36:11] And right now, looking at energy prices, it's not even that bad a deal.

Craig Lester [00:36:14] Yeah, look, let's be honest with each other. The last auction round for offshore wind were in the 40s. You have £47 or whatever it was, but we know that most of the electricity that's on the basin has been on the basin for a few years, was stripped north of 100.

Bret Kugelmass [00:36:28] Yeah. 120 and maybe even 200 like the first one or something. It's something really high.

Craig Lester [00:36:31] Biomass was north of... I think there might be a couple on that 150.

Bret Kugelmass [00:36:37] Oh my God.

Craig Lester [00:36:38] But the point is it shows, I think, if you can deal with the other issues, the risk, that you can use a relatively crude instrument like a CFD to drive development forward.

Bret Kugelmass [00:36:51] Yeah. No, it's worked. It's like, it's actually worked across industries already. So it seems like a relatively straightforward process to just apply that to nuclear as well. Worked for biomass, worked for wind, let's make it work for nuclear.

Craig Lester [00:37:04] I think one of the things that, to be honest, that's held the UK back here, it's never been able to make the same clear statements about how much nuclear it wants. It's remained very committed to nuclear, and it's put a serious amount of resource potentially into some of the big projects, but we need that statement. We need that parallel level playing field, clear statement of how much power we need into the grid and how much power we might need for those hard to decarbonize parts of industry, whether that's heat or electricity or a mix of the two. And that needs to be spelt out because that will encourage both. Tech vendors, the developers and the investors.

Bret Kugelmass [00:37:51] It's a great point. Yeah, any more clarity they can offer is great. The way I think about it is like, well it's hard to actually get that commitment unless there's something crazy happening, like a war. Okay, well now there's a war. Like, there's a war. There's like an energy war, and then there's like, you know, a real freaking war going on also. So it's like, have you noticed maybe even in the last couple of weeks that people are willing to just kind of like, all right, blank slate, tabula rasa, we were like hesitant about nuclear before, but no now I've got like the gumption to just say, yes, we are going to make that clear statement like you just advocated for.

Craig Lester [00:38:26] Yeah, I think at first the tide in the UK was going in the right direction when I left the department as recently as Christmas. And there were clear plans to put out this UK road map in the spring of 2022.

Bret Kugelmass [00:38:44] That's coming up.

Craig Lester [00:38:44] That's coming up. That's coming up fast.

Bret Kugelmass [00:38:46] And I know you're out of government now, but were they on track?

Craig Lester [00:38:50] I think so. I hear there's meetings taking place.

Bret Kugelmass [00:38:53] Yeah.

Craig Lester [00:38:54] All the elements that were discussed are being moved forward. There's a future nuclear enabling fund. There's some funding to support fuel. There's some funding to support an AMR demo program however that develops. And I think the pieces are coming together and the road map is the opportunity to make the next set of announcements and to say hopefully something about citing policy as well, which can, you know, they'll be the final pieces of the jigsaw for the UK. It's interesting because we didn't want to use the word road map when we first set off down this journey. The Canadians started to.

Bret Kugelmass [00:39:33] That's what I was going to say you're just going to copy Canada. You copycats.

Craig Lester [00:39:35] But we had all the key elements in place, and I say a little bit of delay around COVID. But they have quietly and slowly come into play now. And I think, you know, we watch this announcement in the spring with real interest.

Bret Kugelmass [00:39:52] Yeah, okay. I'm very excited, too. So I want to hear a little bit more about you personally now and kind of this next chapter of your life. What made you decide to leave government after your whole career there and what have you moved on to?

Craig Lester [00:40:05] So I've thought before about moving on, partly because, as I said, I had worked in different sectors and I'd often felt, "Oh, I like this sector, I'll move across." And I never really took the plunge. And when I got into nuclear, I really, really did enjoy the work and I started on the legacy side, but I never really wanted to go carry on with the legacy. But it was really, I think looking back, it was a really good grounding to understand all of the issues with the legacy before you move into new build, because you know, A, you're up to speed on it, but you also know it's an important part that you've got to factor in the whole lifecycle costs, etc. But nuclear is the one thing that persuaded me. I think I would jump the fence, so to speak. And it was a question of whether or not to try and go with, say, one of the vendors who was trying to become a developer in the UK or whether to try and do a role that gave me the opportunity to still do that portfolio thing that I enjoyed so much. And the DVD option came along, and I had the possibility to continue to sort of work and interface with multiple companies. And it was a small company. It's only 60, 70 people, something like that. And it's a really forward thinking company as well. And it's interested in technology, but it's interested in the systems approach as well. And it's interested in trying to take the conventional approach to projects and honing them so they're optimized, they become as slick as possible, which gives you the confidence that you can say, you know these cost schedules we've got, you can start to believe in them.

Bret Kugelmass [00:41:59] Yeah. And okay, so walk me through like the full suite of services that DVD offers. So in case anyone is out there listening, now's your time to be salesman.

Craig Lester [00:42:08] Oh, I wasn't going to do the sales pitch.

Bret Kugelmass [00:42:10] I'm making you do it.

Craig Lester [00:42:13] I'll talk a little bit about the capabilities, because we've got capability in sort of engineering and design, we've got capability in safety and assurance. Within all of this, we've got sort of pockets of deep capability in things like cost modeling and into safety cases, etc.. And we've got core team, and we've got a good group of associates and contractors who work with us and around us. But in terms of the customer areas, we would do some really interesting work right across the piece, some in defense, which I won't go into a lot of detail about, a lot in decommissioning both over in the UK and and in the U.S. And we're also starting to work on fusion projects now and all of those things, that sort of raft of capabilities and the things that can help these kind of projects individually and collectively, whether they're a new processing plant of some form or a decommissioning plant, you start to see common ground. You start to see common ground. And having started my career watching how difficult it was for the NDA and the parent body organizations and the site licensing companies and the contractors to really work together to sort of optimize projects which might take 20, 30, 40 years, if we can improve efficiency by 5% or 10%, those are big, those are big adjustments on those kind of things. So it's an interesting team. It's only a small team, but I think it's probably fair to say that it looks like we are getting a reputation for some of the niche areas that we work in, as well as starting to act as a project integrator as well. And I'm here in D.C. today because I've spent the week in Phoenix at a waste management conference, where we've been talking to a lot of our U.S. Partners and our U.S. clients.

Bret Kugelmass [00:44:20] Nuclear waste management, or?

Craig Lester [00:44:22] Yeah, nuclear waste management and saying, "Look, what can we do for you?"

Bret Kugelmass [00:44:25] Yeah. And what is the latest and greatest with nuclear waste management? Is everyone still focused on these deep geological repositories?

Craig Lester [00:44:31] Yeah, I think so. I mean, at the end of the process, we almost certainly need several of those.

Bret Kugelmass [00:44:37] Why does it need to be deep? This is the thing I never understood. It's like, it can be shallow, like it doesn't need to be these like huge expensive, "Oh my God. I've got to go hundreds of meters down." Just find the geology you like, dig up a little bit of dirt, put some concrete things in there, drop them in, put the dirt back over it, you're done. Like no one's going to ever run into it, like there's so much land.

Craig Lester [00:45:00] My view on this having sort of watched people struggle with the question is I still think there's some more scope for us thinking about the waste before we get to the stage where it goes in the hole in the ground.

Bret Kugelmass [00:45:10] Sure, I totally agree with that.

Craig Lester [00:45:13] Some of the legacy stuff is difficult, probably beyond redemption, if you like. But in everything we do now, and while we've got a chance with some of the current waste to maybe do a little bit more work on, for example, can some of the Gen. Four technologies start to take some of that waste and put it through again? You know, the molten salt technology is really fascinating stuff. I think we should be spending more money to encourage our really, really bright universities and scientists to say what more can you guys do to transmute waste a little bit? Change the mix, change the half life of what's coming out. And also, just think a little bit more about whether from a holistic and a systems point of view we really get as much out of the of the raw material that we dig out the ground before we put it back in the ground again. My simple analogy, if it's fair or not, is imagine you had a nice coal fire or a log fire at home, but the rule was you could put a log on or a piece of coal on, you could only burn it for 5 minutes then you had to take it off again and throw it away before it extracted all the energy from it. It just feels to me that sometimes that's what we do in the nuclear industry.

Bret Kugelmass [00:46:28] Yeah. My only pushback on that would be like we're already so energy dense to begin with. It's like, let's say we weren't efficient with the fuel at all. Like, all of the the waste on the whole planet, we're talking about like a couple of acres. Okay, so what? If it's two acres or four acres, like, who cares? And nuclear waste is the only thing that's considered, in the whole world, that is considered dangerous and has never hurt a person, place or thing in all of human history.

Craig Lester [00:46:54] Yeah, well, I have a couple of observations about that. One is, I remember talking to a colleague, I think here in the States who pointed out that in contrast, he knew of three industrial injuries from people falling off roofs while fitting solar panels.

Bret Kugelmass [00:47:11] Yeah, exactly.

Craig Lester [00:47:12] You know, in that week. But joking aside, waste has always been the Achilles heel of the nuclear industry. And I think the energy density argument only goes so far. So yeah, let's major on not just the energy density, but the footprint as well. You know, you start to look at some of the solar farms now and you think, is that really a good use of land? I'm not so sure. If the land underneath it is and could be productive, I don't think you should put solar panels on it. On the roofs, sure. Put them in the desert, for sure. But don't put them on good grazing land and good arable land, even if the economics say that's a good investment. Maybe the nuclear industry also just needs to to be a little bit more bullish about the good things that come out of it.

Bret Kugelmass [00:48:03] What's that word?

Craig Lester [00:48:04] Bullish.

Bret Kugelmass [00:48:05] Bullish? I don't know that word, I'm sorry.

Craig Lester [00:48:07] Bullish as in a bull.

Bret Kugelmass [00:48:07] Oh, okay. I wasn't sure if it was a British word. Like the bull versus bear market. Okay. I'm with you, let's be bullish.

Craig Lester [00:48:21] One of the things that I picked up in the margins of doing SMRs and AMRs, because nobody else really, really wanted to take ownership of it, the department was some of the interesting stuff on radiopharma and medical isotopes. And again, some of the feedstock material that you require can come from waves.

Bret Kugelmass [00:48:44] Oh I think we should productize it all.

Craig Lester [00:48:47] It's not just a PR ploy, it's a genuine recognition.

Bret Kugelmass [00:48:50] There's so much cool stuff you can do.

Craig Lester [00:48:52] One of the other trends that I think is really positive is nuclear has now started to creep into the acceptable categories for ESG.

Bret Kugelmass [00:49:03] Oh yeah, sure.

Craig Lester [00:49:04] ...In terms of investment. And we've seen a couple of really good statements on that and a couple of investments started to come together. And I don't think it should just rest on its laurels and set its target to just be deemed acceptable from an investment point of view. If there's more that can be done, do some more. Whether it's about the waste treatment, whether it's about maybe making reuse of materials, but also take credit where credit is due. The number of people I've heard who don't really have an opinion on nuclear but say, "But it's all about waste isn't it, and I'm not sure." You ask them, "You know, do you know anyone who's had cancer? You know anyone who's had treatment for cancer? What do you think that comes from?"

Bret Kugelmass [00:49:45] Yeah, exactly. Oh, yeah, only about a billion lives have been saved through, like, nuclear medicine. Nuclear medicine. That's the other thing, we don't take credit for being nuclear medicine.

Craig Lester [00:49:55] Yeah, we avoid the word nuclear.

Bret Kugelmass [00:49:58] Yeah. Well, you and I are on the same page about this. Okay, we're running out of time, so I want to make sure that we just kind of get to hear muse a little bit about what you think the future should look like, where you think this industry is going. If you were to kind of put on your magic cap, ten years from now and everything goes as you would have it, what does the nuclear world look like?

Craig Lester [00:50:16] Interesting. Going back to five or six years ago when we were reviewing the different technologies that came forward, I made a point of saying, "Look, I start at the other end of the telescope," but actually you couldn't help but look at some of the individual propositions. We used to use a phrase in my team and say, "What's their secret sauce?" So what's different about them that makes them stand out from somebody else? And in most of the propositions that were coming forward, we found something that was interesting and different. And I think for me it's if the industry can really nail the modularization and the factory production and the on-site assembly, and in a sense move the completion of a power station into something that looks and feels more like a logistical exercise that can be project financed. The way the work chemical plants put together, etc.. If we can nail that and maybe make the nuclear part of it as simple as possible, plug it in where we need it and get these things built in 36 months or 48 months. Just get them. Because my own view is we should be throwing the kitchen sink at climate change now. And for various reasons, we're not doing so. In five years time, ten years time, it's going to get really interesting. And if we've got some some plants that have proved you can do this and are capable of roll out, then I think you've got the chance of some sort of global system where you can say, look, we'll license these things. Multiple designs can come through. Let's not have too many designs. You know, we're never going to get the kind of standardization you get on aircraft and on cars. Maybe. I don't see that. I don't see that coming soon. But in the supply chain, we can get a supply chain that can say, "This week we're building parts for you guys, next week we're building parts for you guys. To the same tolerances, at cost, to be delivered when you need it to go in that project." And I really believe that's possible.

Bret Kugelmass [00:52:26] Amazing. Craig Lester, thank you so much for joining us today. It's been a real pleasure getting to know you over this last year and I'm so happy that we get to continue our relationship moving forward.

Craig Lester [00:52:35] Great. Thanks for having me.

Bret Kugelmass [00:52:37] Awesome.