Energy Policy

House of Commons

Peter Luff (Mid-Worcestershire) (Con): It is a pleasure to follow the wise and good-natured speech of the hon. Member for Waveney (Mr. Blizzard), and I was pleased that he put emphasis on carbon capture and storage. Perhaps I am a little puzzled that the Treasury is conducting a review, and not the Minister for Energy and the Department of Trade and Industry, but we look forward to the publication of the pre-Budget report, when it will appear.

As Members have said, this is an apposite day on which to discuss energy, as the Stern review has been published. I wish to take this opportunity to make a public apology to the witnesses who were due to come to the Trade and Industry Committee this afternoon—the Energy Networks Association and the Energy Savings Trust—to discuss local generation. We postponed their meeting until tomorrow to enable Committee members to participate in this debate. That means that a knock-on apology is required to the council in Woking, where we were due to go tomorrow morning to look at the excellent work that council does on encouraging micro-generation.

I am a bit constrained in what I can say, as I am Chairman of the Committee, as we are in the middle of producing a couple of reports: one on micro-generation, which I hope will reach a conclusion shortly; and another on security of gas and coal supplies, which we will be reporting on shortly. Nevertheless, I am delighted that we are having this debate and that the Secretary of State indicated that there will be more such debates to come. Like my hon. Friend the Member for Wealden (Charles Hendry), I feel that it would have been good to have a full day’s debate, because this is one of the most important issues facing our country.

Two policies—competitiveness and energy—lie at the heart of the Department of Trade and Industry’s agenda. The current Minister for Energy has had responsibility for both energy and pensions in his time, and both are absolutely key issues. They are both hot potatoes, and I should say in a spirit of consensus that energy is currently in very good hands.

When it eventually appeared in July, the review document—not the precursor consultation document on which it was based—which had the flavour of a Green Paper, was broadly very good. Although it promises a lot more consultation on various issues, it was, on the whole, a very readable and engaging document. I read it through at one sitting, which must make me some kind of sad anorak. However, I should appreciate it if the Minister explained pages 180 to 181, which deal with the consultation and the policy for new nuclear build:

“On some sets of assumptions, the nuclear case is positive; in others, negative, so a judgement has to be made about the relative weight to be given to the various scenarios. In making such a judgement, it is important to note that probabilities associated with many of the various states of the world are endogenous rather than exogenous, and depend on policy decisions.”

So there you have it, Mr. Deputy Speaker—as clear as mud.

The flavour of our debate should be one of urgency because there are urgent questions to address—relating not just to climate change, but to keeping the lights on—but there is no need for panic. I am glad that the Secretary of State is taking a little longer to get the White Paper out. March is a good deadline, which probably means June in parliamentary language; let us hope that the Department sticks to March. When the Minister came before my Committee, he was a little reluctant to tie himself down to a date. I was glad that, last week, the Secretary of State did and that he repeated that date today. So we will pencil March into our diaries.

One of my key messages is indeed that we really do not need to panic. Following a seminar two weeks ago on energy and the environment, the director of the Ditchley Foundation, with the help of a group of extremely distinguished experts from around the world and this country—including, I am glad to say, my hon. Friend the shadow Secretary of State—and many others besides, produced a very good summary of the situation. It states:

“Most participants agreed that there was no particular problem about the supply of energy if the world remained reasonably organised.”

It proceeded to discuss the individual sources, saying:

“Renewable energy sources would make a contribution, though in the medium term not a huge one”.

That is realistic. It continued:

“Nuclear energy, while unlikely to become the environmental answer because of its other downsides”— that is an interesting conclusion —
“would form an increasingly important part of the mix if improved technology on safety and efficiency was taken into account. Demand would rise, but in theory there was no shortage of supply. In other words, it was all about reducing carbon.”

There is a lot of sense in that, but in the UK context the challenge is not just to reduce carbon but to ensure investment in new power station capacity in time, as other power stations—not just nuclear, but coal—go off-line.

In addition to not panicking, three other key messages have come through in other speeches this evening. The spreading of risk is always a good maxim and is absolutely central to the debate about energy supply. However, too much of our policy on carbon emission and the contribution of electricity generation to it has focused on industry. Industry has been made to bear an awful lot of the pain associated with carbon reduction in the last few years, which has an effect on UK competitiveness. Not enough has been done on households and transport—two other key areas for carbon reduction. I hope that, as the Government follow through the conclusions of the Stern report, the burden will be shared rather more equitably than it has been in the past.

There are two policy instruments that matter and that have already been highlighted in this debate. Whether we are talking about renewables or nuclear, the two key issues are carbon trading—getting a good, predictable price for carbon in the medium term—and planning. Those are the two big games in town in developing an energy policy that will actually survive.

I had intended to spend some time looking at the gas sector’s capacity, but that issue has already been covered quite well in this debate. The bottom line must be that this winter is again challenging, although probably not as challenging as last. After that, the new capacity coming on line—import infrastructure and gas storage—should give us considerable comfort. In the next year or so, such new capacity will include Langeled South, Statfjord Late Life, BBL, South Hook LNG, Dragon LNG, and the expansion of the interconnector and of the Isle of Grain. Also under consideration are Teesside LNG and Canvey Island LNG, which were mentioned earlier, so a lot of import capacity is coming on.

Of course, we in this country are not used tobeing gas importers—it is a new phenomenon for us. Much of the world has become accustomed to that, however. The run-down of the North sea may have happened a little faster than we expected, but we always knew that it was going to happen. My view is that we should be reasonably relaxed about our dependence on imported gas.

I turn to some of the major long-term issues arising from last December’s report on the security of gas supply. Unsurprisingly, liberalisation of the gas market in Europe has featured very prominently in this debate. I share the view—expressed, I think, by the Secretary of State—that the Commission is working very hard indeed to liberalise the market, but we should not hold our breath for any short-term gains in that regard. There will be a huge struggle between the Commission and the member states, who will want to hang on to their long-term contracts. To hope for some kind of quick fix is to delude ourselves.

We need to be more honest about the UK market itself, which is not in fact that functional. It is insufficiently liquid because no one is willing to risk selling short. Producers have been scared off by Enron, for example, and professional risk takers such as hedge funds are not interested in a market that is so small. So the UK market is not working very well and will not do so until the European markets have been liberalised.

I want to say a brief word about the consequences of rising energy prices in the UK. Historically, they have been low, and the recent catch-up is perhaps not that surprising, but painful for many people living at the economic margin. The Government have focused their attention on the impact on pensioners through the winter fuel payment, but the Committee has repeatedly drawn the Government’s attention to the fact that other, non-elderly vulnerable groups also need help in dealing with rising fuel prices. I hope that they will have more to say about that.

In turning to the main issues arising from the Committee’s evidence, I return to my point about the spreading of risk. We are being repeatedly told that diversity is security, and that message is very clear. However, the market just will not deliver such diversity without the two changes to which I have already referred: a predictable planning system and a more predictable long-term market structure for carbon pricing. I do not like to add to the embarrassment that I caused my hon. Friend the Member for Wealden during my earlier intervention on him, but I genuinely believe that my own party’s proposals on carbon pricing—I am trying to be objective here, as Chairman of the Select Committee—are rather more robust than the Government’s. I am delighted that the Government are holding out the prospect of going further. To rely on the multilateral mechanism of the EU emissions trading scheme is a little over-optimistic.

The Committee recently concluded its work on nuclear power, and the Government responded to its report. I am not sure whether the report has been published, but it is certainly authorised for publication. The Government’s response to it is constructive and helpful, even when it disagrees with the Committee. I used to be quite enthusiastic about nuclear, but during our Committee’s inquiry I became a little more cautious, although I remain convinced that, broadly speaking, we need to replace our current nuclear capacity.

I caution against a too heavy dependence on nuclear, however. As has been said, it is comparatively inflexible. It provides base load electricity, and therefore is a price-taker, rather than a price-setter, and, because of large plant size, significant reserve capacity and grid reinforcement is required if the temporary loss of a nuclear plant is not to cause major disruption. That is not mere theory; such disruption has happened. For example, a serious outage affected 4 million people in southern Sweden and eastern Denmark, and blacked out Copenhagen, on 23 September 2003. That was precipitated by the failure of a nuclear generating plant because of a cooling system problem, and it caused subsequent problems for another nuclear plant. In addition, a collapse of the transmission system in the north-east of the USA and southern Ontario in August 2003 required the shutdown of all nuclear plants in the system. There are problems to do with over-dependence, particularly on the larger, more powerful new generation of nuclear power stations that might be introduced.

I tend to take issue with my party’s Front-Bench spokesmen on the subject of our dependence on imported gas. There has been a lot of talk about Russia and I can understand why, but gas from Russia currently provides a very small percentage of the supply to the UK—it is a maximum of 4 per cent. We should bear in mind the other countries that we take gas from; Norway, for example, is not exactly politically unstable. In addition, the North sea will have lots of gas for a considerable time yet. Although it cannot meet our needs—we cannot export gas—there is a lot there, and the point is that it needs to be sold. The diversity of the current import infrastructure, which involves sources from around the world, gives me considerable confidence, and we can be reasonably sure of a continuing supply of gas. I am pushing my luck a bit, because we have not actually considered our report on the subject yet, although we will do so shortly.

People say, “The pipelines will have to come all the way from Siberia”, but it does not work like that. In a particularly interesting evidence session, Gazprom made it clear to our Committee that the gas that it would import to the UK is likely to come in the form of swaps with other gas producers, such as liquefied natural gas cargoes. That is how the system works. For those reasons, I am reasonably optimistic about gas. Norway wants to recoup its investment by sending gas through the Langeled pipeline. The Qatar Government have invested heavily in the facility at Milford Haven, and will want to use it. Gasunie has committed to a 10-year contract supplying gas to Centrica through the Balgzand to Bacton pipeline. All of that does not necessarily mean that there will be no problems this winter, but it does mean that, in the medium term, gas is a reasonably secure source of supply. I would have liked to discuss coal, but in view of the time and the number of colleagues who wish to speak, I will not, except to say that I welcome the steps that the Government are taking to try to explore what is inhibiting the development of the UK deep coal mine industry.

The Committee is currently investigating the issue of microgeneration, or whatever we want to call it. The term “microgeneration” is curiously unhelpful, because it conveys a sense of producing electricity, and that is only part of what local energy production does. In fact, I think that the most low-hanging fruit is to be gained — apart, of course, from improved energy efficiency, which is the single biggest way in which we can improve our security of supply and meet our carbon dioxide targets; but that is a given, so I will not labour the point—by exploring the issue of heat. I made that point to the Minister when he gave evidence to our Committee. The driver is not the fact that people want to behave in a saintly way and save the planet, much as they may want to, but the rising price of gas, which is forcing people to consider how they can use domestic fuel sources more efficiently.

Like the hon. Member for Waveney (Mr. Blizzard), I am having a condensing boiler installed at home, and work began on it today. That is because I need to save a lot of money on my gas bill, and although a condensing boiler is an expensive upfront cost, there are significant long-term paybacks. Solar water heating presents much greater opportunities than people realise, and I think that the Government’s documentation of the payback periods for that are rather pessimistic. There are the mysterious-sounding ground source heat pumps, too. For a long time, I thought that they had to do with thermal energy coming up from rocks underground. I now discover that they work by making a garden into one big solar panel, and as long as the garden is at a temperature above absolute zero, heat will be produced for households. Ground source heat pumps have a particular place in new social housing schemes. Where they are used, pensioners would not have any energy bills for large periods of the year, or possibly at all.

Too many of our discussions are either/or debates—one has to be in favour or nuclear or microgeneration, and in favour of distributed or centralised systems. That is nonsense. The hon. Member for Cambridge (David Howarth) made it clear in his substantial contribution that it will probably be 30 to 40 years before microgeneration can achieve its potential—we will test the Energy Saving Trust on that tomorrow—so we need to replace the current grid and distribute energy from those more conventional power stations. It is not an either/or debate—we want to spread our risk and do everything else that we can.

Finally, I am tempted to enter the debate on fusion, about which the Committee is reasonably optimistic. As has been said, optimism is the fuel of much of this debate, but fusion is a serious prospect, providing almost unlimited supplies of energy that can be used to produce hydrogen for the transport sector and so on. Leaving fusion aside, decentralised energy has been described by hon. Members as the 21st-century energy solution. We often reinvent the wheel because, in fact, it is the 19th-century energy solution. We are simply rediscovering our roots—the Minister will be familiar with the parallel, because I suggested it to him when he appeared before the Committee. I live in Worcester, and in 1894 Worcester city council transformed Powick mills on the Teme, adjacent to the bridge where the first battle of the civil war was fought, into a combined steam and water-driven hydro-electric facility. The experimental design was the first of its kind, and electricity from that source provided about half the city’s needs until 1902, when Worcester’s coal-fired power station came on-stream. Powick—a micro-hydro scheme—continued to generate energy until the 1950s. If I have one criticism of the Government’s micro-generation strategy it is the fact that it plays down the potential of micro-hydro schemes in England.They can work there, just as they can in Scotland and in Wales.

I have spoken for too long. I apologise for detaining the House, as other hon. Members wish to contribute. I welcome our debate, and I hope that there are many more such debates in future on this very important subject.

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