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The Minister of State, Department of Energy and Climate Change (Charles Hendry)
I am grateful to you, Miss Begg, for calling me to open this important debate on a subject fundamental to our country’s future. Energy security is a high priority on the Government’s political and economic agenda. Our view is that energy security and climate change go hand in hand and must be addressed together. At the moment, we need particularly to secure new investment in the United Kingdom’s energy generating capacity in order to compensate for facilities that will soon be decommissioned.
We have inherited a situation in which, although there were many targets, it was not always clear how those targets would be met. We intend and are determined to secure our energy supplies by increasing diversity and being competitive and energy-efficient, but we must recognise that we face one of the most significant energy challenges in Europe.
Over the next 10 to 15 years, we must secure about £200 billion in new investment in our energy infrastructure, a figure estimated by Ernst and Young and supported by Ofgem and others. By 2018, 16 power stations generating more than 18 GW of capacity will close, representing about one quarter of British electricity. We will lose a third of our coal plant by 2016 as a result of the large combustion plant directive, and much of the rest as a result of the industrial emissions directive. Our remaining oil capacity will be extracted at the same time, and most of our nuclear programme, apart from Sizewell B, is due to close by the early 2020s. Global oil demand could rise by a quarter in the next 20 years, and global gas demand could increase by 40% by 2030. Some £5 trillion in investment is needed to meet those future demands.
In addition to that challenge, we face climate change. We must build a different kind of economy that cuts our carbon emissions in order to tackle climate change, and that makes our energy secure in a way that can endure volatility.
Mr Iain Wright (Hartlepool) (Lab)
The Minister said that the Government have made the green economy and energy security priorities, which I welcome. I suspect, though, that they tend to focus more on climate change and the green economy than on energy security. May I press him on the remarks made in the coalition programme about energy security, particularly the three bullet points?
Miss Anne Begg (in the Chair)
Order. I know that the hon. Gentleman simply wanted to make an intervention, but that sounds more like a speech. Perhaps he can make a brief point now, and then catch my eye later and make his other points in a speech.
Charles Hendry
I am grateful to the hon. Gentleman. We will have to wait with bated breath for the three bullet points to which he was going to refer. I look forward to hearing them in due course.
Energy security is at the heart of the matter. We must rebuild this country’s energy infrastructure, and a whole raft of technologies exist that we want to bring into play. Part of the problem we face is that, considering the extent to which plant is being decommissioned, more concrete should be being poured and more bricks and mortar put in place now. A lot of work has received consent, but much of it is still on hold pending building. Greater urgency is required to secure construction.
Turning to the specific technologies, we believe that nuclear should be part of the mix as long as it can be built without subsidy; we broadly agree with the former Labour Government in that respect. According to the coalition agreement, if it can be built without subsidy, it will be part of the mix. We are clear that that means the private sector should be responsible for the building, running, decommissioning and long-term waste disposal costs of any new nuclear power stations. The Government must be involved in the effort to remove barriers to investment—the work of the Office for Nuclear Development has been important in that respect—and ensure that the appropriate safety, security and environmental regulations are in place. We see nuclear as part of the mix, but realistically, even if everything goes according to the most optimistic plans, it will be 2017 or 2018 before new plant can be constructed.
Coal has an important part to play as well. We have an abundance of coal; this country has hundreds of years’ supply of coal left. We should be leading the world in coal using carbon capture. We are determined to move from our current position—we are not as far ahead as we should be—and take that global opportunity. In addition to our coal reserves, we need to rebuild our coal-fired power stations. We have unique sequestration facilities at sea where CO2 can be stored, and people with the right skills to carry out that work are working in extremely hazardous conditions in the North sea. We are absolutely committed to taking work forward in that area.
Today we launched a market sounding exercise to encourage the industry to present schemes for consideration for subsequent projects. One pilot project is under discussion, and three others might be considered. We want industry to help us frame the competition in the way that suits it best in order to bring technologies together, share skills and understanding and make it happen.
We also announced today that we are setting up a carbon capture and storage development forum to focus specifically on removing the obstacles to investment in CCS. It will consider the nuts and bolts, just as the nuclear development forum does. We will also make headway on a road map so that people can hold us to account on our ambition. Ambition is important, but without a road map, targets have little benefit or meaning.
We want renewables to be part of the mix too. That is one of the most uncomfortable issues for us in the United Kingdom. Of the 27 members of the European Union, we are second worst regarding the extent to which renewables contribute to our electricity generation. Yet we have resources. We have some of the strongest winds in Europe, the highest tidal flows and some of the strongest potential for wave technology. We have let the rest of Europe move ahead of us in deployment, skills and, critically, the supply chain. We must ensure that we begin to take a lead on renewables. We will need more onshore and offshore wind power, a massive increase in energy from waste and faster development of marine energy such as wave and tidal. We wish to drive all those technologies further forward.
Undoubtedly, the renewables obligation has encouraged significant investment in onshore wind, but that has not been without problems in the communities where it operates. In order to drive further development, we want a different relationship, considering what aspects of council tax and business rates can be kept local to communities and how communities that host facilities of wider regional or national significance can share in the benefits that they bring. That way, we hope to give wind farms greater public legitimacy than has sometimes been the case when investment has been sought in such important systems.
We are now the world leaders in offshore wind power, with 14 operational offshore wind farms generating more than 1 GW of electricity, and a further 1.5 GW worth of construction under way. However, we also need to consider what more can be done to drive work further forward. The round 3 applications are substantial, with billions of pounds of potential investment needed. We know that we have a shortage of skills, ships, cranes and technology. Again, therefore, we must focus on how to provide solutions if companies headquartered overseas seek to invest in Britain. That is one of the challenges we face. In the current market, we are seeking to attract investment not just from British companies, which might be predisposed to invest here, but from companies around the world. That will be a key objective for this new Administration.
Although wind and biomass, as large technologies, will be central to meeting our 2020 targets, we need to see the targets in perspective. Too often, there is a tendency to see them as a finishing post—a line over which we will fall, struggling and gasping, having got there by 2020. In reality, we should see them as a staging post and as part of the process towards even more ambitious and challenging objectives further down the line. If we start to see them in that way, it gives us the ability to drive forward investment in new technologies, such as the marine and tidal sectors. On Friday, I had a meeting in Bristol with some of the key players involved with that technology, who are keen to invest and move Britain forward. However, we do not yet have the structures in place to make that happen.
We are considering how we can make marine energy parks work. A system could be put in place whereby there is not just a grid connection point but, critically, onshore facilities and people with the relevant engineering, academic and business skills. We hope to attract people from around the world to invest in Britain to develop those marine and tidal technologies, so that Britain will be the natural place for them to be deployed. We undoubtedly have the natural resources here to make that happen. However, rather worryingly, some of the key players are looking elsewhere for the best financial support mechanisms—for example, Portugal or the United States. We have to make it absolutely clear to the key players that we are determined to drive this forward in the United Kingdom.
In addition to putting a new generating capacity in place, we face the challenge of rebuilding the grid infrastructure—not just the existing grid, which is rather old, but connecting up the new facilities. Last year, the Electricity Networks Strategy Group published its report, setting out the onshore transmission investments needed to meet the challenges in our generating mix between now and 2020. That group estimates that about £4.7 billion of new investment in the grid is required over the next decade. We will shortly publish our decisions on the best systems for driving forward that absolutely fundamental investment.
We have nuclear, clean coal and renewables in the mix but, realistically, they will not produce huge amounts of electrical energy before the latter part of this decade. We are facing a crisis and a challenge here and now. In the shorter term, we recognise that there will be increased reliance on gas. Although imports are not themselves a problem, our growing dependence on them means that we need to increase the security of our gas supplies.
The Government will set out measures to improve our gas security, as promised in the coalition document. We need more gas storage capacity, more gas import capacity and greater assurances that our market will deliver gas when it is needed. Our gas market arrangements must therefore have a sharper focus on increased flexibility and resilience. We will work internationally to try to address some of those issues and to deal with the physical constraints in the system. The disputes between Russia and Ukraine in the past, and between Russia and Belarus more recently, show that new routes to market for gas must be found. Additional pipeline infrastructures to the north and south of Europe would remove some of those blockages but, again, they will take some time to put in place.
Emily Thornberry (Islington South and Finsbury) (Lab)
I am happy to be corrected if I am wrong but, in Britain, dependence on Russian gas is nothing like as large as it is in any other European country. In fact, is it not right that we have been getting gas from many other European countries over the past few years?
Charles Hendry
The hon. Lady is absolutely right in her assessment. We get virtually no gas—1% or 2%—from Russia. However, during the Russia-Ukraine dispute last year, when there was a huge problem in central Europe, gas was being pumped out of the United Kingdom just as we were coming out of our coldest winter for 18 years, which put our gas storage supplies under pressure. We must recognise that we live in an interdependent world in terms of energy security and we have to put measures in place to ensure that we are protected against those sorts of international issues, which pose unpredictable, international challenges to the resilience of our system. In three of the past four winters, we have come under pressure. Fortunately, we have been on the right side of such problems in the end, but we must recognise that it will not necessarily be a UK challenge that will put us under pressure; there could be pressures from many hundreds of miles away.
Mr Iain Wright
Will the Minister tell hon. Members how many days of gas capacity we have? I heard that we have eight days at the moment, which does not seem a lot. In the middle of summer, I can understand how that figure is workable, but it would cause a real problem in the height of a very cold, severe winter. What steps is the Minister taking to ensure that we increase gas storage capacity?
Charles Hendry
I think the hon. Gentleman has been reading my speeches from before the election. In two months, we have not completely transformed the availability of gas security and storage in this country. However, we recognise that we have at best about 16 days’ capacity, which compares with about 100 days in Germany and a bit more than that in France. We need to secure more capacity, but we also need to recognise the totality of the picture. The Langeled pipeline from Norway is one of our most important channels, and there are liquefied natural gas facilities in the Thames and in south Wales. Those are areas where we can bring gas into the United Kingdom. That is part of the overall gas security picture. We need more gas storage, but we also need to be absolutely clear—this is what the coalition agreement states—that the people who are supplying gas are certain that they have access to adequate supplies. That could relate to storage, to long-term contracts through pipelines or to more interruptible contracts.
Emily Thornberry
I have heard many of the hon. Gentleman’s speeches about the importance of increasing our gas supply. Given the Conservative preoccupation with the number of days of gas supply we have in storage, perhaps he can tell us, now he is in government, how many days supply he would be comfortable with us having in the winter.
Charles Hendry
We have always said that gas storage is part of the mix. If we have long-term contracts, under which we know gas is not being bought on the stock market, and it cannot simply be delivered and put through the pipeline, gas storage is part of enhancing energy security. We are keen for more of those facilities to be brought to fruition. There have been significant blockages caused by past planning constraints and the changes the previous Government made. We are enhancing arrangements, which will help to address some of those issues. There are continuing problems with the rate at which cushion gas—the gas that goes into the bottom of the storage facilities and is never actually taken out—is taxed. There are non-financial challenges as well. Gas storage is part of the picture, but there is a wider picture, too.
Dr Alan Whitehead (Southampton, Test) (Lab)
I believe that the figures for UK gas storage are about 4% of average annual consumption, compared with 21% in Germany and 24% in France. However, the UK is still a very substantial producer of gas—there is effectively gas storage waiting to be tapped. Furthermore, Britain now has two liquefied natural gas terminals installed and working. Taking those factors into account, although it is certainly necessary to increase gas storage, does the Minister accept that the picture is not remotely as was set out before and immediately after the election as far as long-term threats to gas storage and gas storage itself are concerned?
Charles Hendry
The threat to the resilience of our system was exactly as we set it out. In three of the past four winters, issues that could not have been predicted put us under pressure. In the winter just past, the Langeled pipeline froze up, which meant it was not working at anything like full capacity. The year before, the Russia-Ukraine dispute took place, and a couple of years before that there was a fire in our largest storage facility—the Rough storage facility. All those factors brought pressures that could not have been anticipated.
There is a significant difference between us and the previous Administration regarding the role of gas. We expect gas to be of growing importance in the short to medium term, whereas the previous Government believed it would be declining. If one considers where the investment is going, 60% of the new generating capacity—12 out of 20 GW of consented plant—will be gas. That means we will move much more rapidly to a system of significant dependence on imports. We are not talking about the figure of well under half that the previous Government mentioned, but potentially 70% or 80% by 2020.
It is our responsibility to face that challenge and ensure that we put the measures in place that will enhance security of supply. Gas storage and long-term contracts are part of that mix; additional sources of supply—perhaps new LNG facilities—are another. We need to be certain that people who depend on gas as part of the generating mix or who depend on supplying it to domestic customers have secured the way in which they will obtain the fuel as and when they need it.
The comments of the hon. Member for Southampton, Test (Dr Whitehead) bring me to another crucial point. In the foreseeable years ahead, there will still be a significant contribution from the North sea to our energy security. We believe that it is clearly in the nation’s interest that we develop those resources to get the best from them that we possible can, as that will enhance our energy security. We should be keen to develop those resources further.
I find the continued and significant international interest in investing in the North sea encouraging. The 26th offshore oil round, which is now in progress, has produced applications for 356 blocks, the largest number of applications since the first round in 1964. We will continue to encourage industry to invest in developing those facilities in the North sea while, at the same time, maintaining high standards of management and minimising environmental impacts. We recognise that those companies are international and have a choice in where they go. If we do not create a stable and attractive regime, they will undoubtedly go elsewhere.
Clearly, the Deepwater Horizon tragedy in the United States has been in our minds, and we must consider the implications for the UK as we continue to develop in the North sea, particularly in the deeper waters west of Shetland. We must continue to increase our vigilance. We have the most robust regime in the world for environmental protection and safety protection for the rigs involved in drilling operations in the North sea. All installations must have an approved plan to deal with any spills and we have doubled the number of inspections carried out by the Department and increased by half the number of inspectors. We believe that we have responded effectively to the challenges. Unlike the United States, we have always had a clear division between the licensing operations, which are carried out by the Department of Energy and Climate Change, and the health and safety regime, which is the responsibility of the Health and Safety Executive. That separation of responsibilities has been important in securing the safety and environmental standards that operate in the North sea.
We will, of course, learn from any further lessons that emerge from the investigations on the tragedy in the gulf of Mexico, three of which are now under way. I offer Members an absolute assurance that we will take no risks where environmental safety is concerned. Partly in response to that disaster, and with the industry, the new Oil Spill Prevention and Response Advisory Group has been set up to investigate whether any additional measures should be taken.
I have so far focused my remarks on the need to generate new capacity and secure supplies, but there are several other matters that it is right to refer to in the debate, and the first is energy efficiency—we should never talk about energy security without talking about energy efficiency. Energy efficiency is the low-hanging fruit—the area in which we can make the most significant savings. We must recognise that the money that does not need to be spent on wasted energy is one of the most efficient investments we can make. The UK probably has the least energy-efficient homes in Europe, which is a serious concern. That is an accident of geography; were we further north, we would have had to develop much greater energy efficiency, as Scandinavian countries have done, and were we further south, that would not have been so necessary in the winters.
Therefore, we have a massive amount of catching up to do, which is why we will be legislating this Session by introducing an energy bill as part of the green deal, enabling energy efficiency measures to be rolled out across the nation’s housing stock. We discussed how those measures might work at length while the Energy Act 2010 was going through Parliament. The critical point is that the savings should be greater than the costs. The savings would start to be made immediately after the measures are put in place, and the costs will be claimed back over a period of 20 to 25 years through a small increase in the bills for the people whose properties have been improved. We think that that will start to bring our stock—houses, businesses and public buildings—up to the necessary standard. We should be in no doubt that that is a national emergency. We have lagged too far behind for too long and there is now a real determination to put it right.
A related point concerns the roll-out of smart meters, which are crucial to enabling people to choose the tariff that is the most reasonable for them. They are crucial to encouraging people to go down the route of micro-generation and start generating electricity in their homes and properties. They are also crucial in dealing with fuel poverty. In Northern Ireland, for example, people on prepayment meters pay less than the normal tariff. Smart meters have many benefits, so we have put in place the work to bring forward their roll-out by several years. We were always convinced that 2020 was not ambitious enough and are determined to achieve the overwhelming majority of the roll-out long before that date.
I will now address the points made by the hon. Member for Hartlepool (Mr Wright) on the fundamental market reform measures. We recognise that the measures that we are trying to take to encourage investment will not be sufficient on their own; other elements of market reform will be necessary to help drive forward new investment in the sector. As part of that process, we should have a meaningful carbon price so that people know what the price will be for every tonne of carbon emitted. That will be set on a clear trajectory and will be a clear indicator for those investing in low-carbon technologies. It will benefit all low-carbon technologies.
We are also exploring how capacity payments would work, because we recognise that, as we move into an era of inevitably more fluctuating generation supplies, both from onshore and offshore wind power, there is a need for back-up capacity that can work part of the time, but not 24/7. We must find the right way of setting in place a capacity market to encourage people to invest in that technology and find new ways of taking demand out of the system by smoothing the peaks and troughs of demand. We need to look at both increasing supply and managing demand more effectively. We believe that those electricity market reform measures can help to create a much more robust system in the UK, which will help to secure investment.
This debate is important because it gives us an opportunity to discuss many of the issues at the heart of our energy security. We need an unparalleled amount of new investment in capacity if we are to achieve the energy security that we believe is essential. About £200 billion of new investment has to be secured. We believe that clean coal with carbon capture will be part of that mix, as will nuclear energy, so long as it is without subsidy. The full range of renewables will also be part of the mix, and there will be an enhanced role for gas, but it must be accompanied by extra measures to enhance our gas security. Lip service has been paid to those matters for far too long, so we are determined to act to put in place the necessary energy security. It is only by having energy security that we can genuinely move towards a low-carbon society and keep prices affordable for consumers.
Emily Thornberry (Islington South and Finsbury) (Lab)
It is a pleasure to serve under your chairmanship, Miss Begg. To keep the lights on, the country needs both adequate levels of storage and security of supply, and that cannot be left to the vagaries of the market. The new Government have to give a strong and clear lead. Our concern is that, although they begin from a good place, they are showing early signs of not understanding the enormity of the task and not necessarily being up to it.
In the last few months of the Labour Government, the Conservatives stepped up their criticism of what the Government had been doing to ensure security of supply—the Minister will know this because he was there—including, rather bizarrely, an Opposition day motion on 13 January, just one week after the coldest winter for 30 years. That motion called on the Government to take immediate action to ensure diversity in electricity generating capacity and adequate levels of natural gas storage. That, of course, was exactly what we had done. Labour had ensured diversity in electricity generating capacity. In the past decade the UK has opened up new sources of gas in Norway, the Netherlands, Algeria, Australia, Qatar, Egypt and Trinidad and Tobago. Our country’s gas supplies are not drawn from the likeliest of sources, as has been said. Our gas does not come from Russia and the middle east to the same extent that it does for most countries. We certainly do not need gas from those regions to fulfil two thirds of our needs, as does the rest of the world.
During last year’s winter, when demands on gas supplies were unprecedented, the lights stayed on and homes were kept warm because we had made rapid progress, with almost a third of all supplies coming from sources that did not exist five years ago: the Langeled pipeline from Norway, to which the Minister has already referred; the BBL pipeline from the Netherlands; and the South Hook and Dragon terminals at Milford Haven, which receive liquefied natural gas from Qatar and were opened by my right hon. Friend the Member for Doncaster North (Edward Miliband). So, things had changed, and diversification was happening. We got through this very cold winter—the lights did not go out.
The Tories’ second charge was that we did not have an adequate level of natural gas storage, and that is why I asked questions of the Minister earlier. While the Tories were in opposition they made a great deal of noise about the inadequate levels of gas storage, but perhaps now they are in government there has been a change of heart. As has already been said, the UK has far more of its own gas resources than other countries, and as my hon. Friend the Member for Southampton, Test (Dr Whitehead) has pointed out—and as we all know—we have a great deal of gas storage available to us because, luckily, we have gas in the North sea. Parallels made with countries such as Germany are simply wrong, misleading comparisons. I am glad to see that, now the Minister is in government, he will not be doing that again.
The figures for natural gas supply imported by European countries are: France 96.5%, Germany 80%, Italy 87%, Spain 99% and the Czech Republic 93.7%. The figure for the UK is only 20.3%. Our level of dependence on natural gas imports is far lower than that of comparable countries. Of the 27 EU countries, we are the second least import-dependent. In National Grid’s most recent review of gas supply, “Transporting Britain’s Energy”, which the Minister might have been able to read, it stated that potential supply from UK power stations is 28% above demand, and it forecast that that excess would continue through to 2016 and beyond. Labour expanded our gas import capacity by 500% during the past decade. During last year’s winter, Steve Holliday, chief executive of National Grid, claimed that,
“we’ve seen the benefits of the investment of the last five years where the UK can now import 30 per cent. of its gas internationally that it couldn’t five years ago”.
DECC’s last assessment under Labour of gas supply resilience showed that we could withstand a large number of problems. We could withstand the loss of the UK’s largest gas storage facility, including in a severe winter, and the lights would stay on. We could withstand the loss of the UK’s largest gas import terminal in a severe winter, and the lights would stay on. We could withstand the loss of the UK’s largest source of imports for a whole year, including in a severe winter, and the lights would stay on. In fact, we could withstand a combination of any two of those losses for a year. When the Conservatives were in opposition their criticism of our lack of resilience simply did not meet the facts. For example, we could lose gas supplied by Russia through Ukraine and also lose the Bacton terminal, but still avoid blackouts in a cold winter.
During the 2009-10 winter, when cold weather placed unprecedented demand on supplies and four of our Norwegian fields stopped supplying gas, the lights nevertheless stayed on and homes remained warm. The right hon. Member for Tunbridge Wells (Greg Clark), the Minister’s previous boss, made great play of the fact that the UK had just eight days’ gas storage remaining. The Minister might remember the Conservatives being somewhat alarmist about that. That figure ignored the amount of gas being imported and the fact that half of UK demand is met by the North sea production. At the time, the hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is now a member of a party supporting the coalition, sought an apology from the right hon. Member for Tunbridge Wells and called his claims
“unnecessary, alarmist, inaccurate and misleading”.—[Official Report, 13 January 2010; Vol. 503, c. 756.]
That could not have been better put.
National Grid stated that the eight days of gas storage remaining was a meaningless number, and now that the Conservative party is in power it seems to have changed its tune. Lord Marland, the Under-Secretary of State, had talked about the eight days’ supply but said in a debate in the House of Lords on 29 June:
“we feel confident that we can sustain the supply required.”—[Official Report, House of Lords, 29 June 2010; Vol. 719, c. 1659.]
Does the Minister agree with Lord Marland? If he does, will he take this opportunity to apologise on behalf of the Conservative party for being unnecessarily alarmist, given all the circumstances?
As the Minister said, it is of course not just a matter of what we will do in the short term; we also need a long-term policy. In those circumstances, therefore, the importance of renewables cannot be overstated. We have a very challenging target for the amount of energy demand that we want to fulfil through renewables, and Labour made a good start. Renewable energy has doubled in the past five years and, as the Minister has been kind enough to point out, we introduced the renewables obligation in 2002, which has enabled a huge expansion of onshore wind and made us one of the biggest producers of offshore wind in the world. I welcome the Secretary of State’s decision to confirm the £5 million grant offered by the previous Government to Siemens Wind Power. However, without a robust planning system we will not get enough wind turbines here:
“One of the reasons Britain’s green industrial revolution is yet to take off is the lack of domestic demand for wind turbines, and a key reason for that has been the attitude of many Conservative councils”.
The Minister might recognise that as a quote from John Sauven of Greenpeace, from The Guardian on 27 July 2009.
How, therefore, will the Government meet increased renewables targets, while across the country Conservative MPs and councillors campaign to block onshore wind farms? Some of the sketchy outline the Minister gave us on how he will encourage onshore wind was interesting, but we have yet to see any detail, and that is what will be important. We do not quite understand how it is that local communities will get some benefit from onshore wind projects being built near them. Will it simply be onshore wind? What if, for example, gas storage capacity is built near a village? Would it get some sort of benefit from that? Who will pay for it? Will it be paid for out of the public or the private purse, and how much money are we talking about? It is a very interesting idea in theory, but we need to understand what it means in practice. While it remains sketchy it gives no certainty to the industry, and the industry needs certainty. The public also need certainty, and we need to get a move on with renewables. I agree with the Minister that we need more onshore, but we cannot go on as we are at the moment.
The feed-in tariffs encouraged small-scale renewables, and I am glad that the Government will promote that policy. A revolution is under way in electricity production, but we need one for heat. I therefore again ask the Minister if he will guarantee the introduction of the renewable heat incentive. We have yet to hear clear proposals from the Government, and the industry is holding its breath while waiting for an understanding of where we are going.
I have to say that many of the Government’s proposals, such as the green investment bank and smart meters, look familiar, as does their dependence on what I think my right hon. Friend the Member for Doncaster North called the “triumvirate” of nuclear carbon capture and storage for coal and renewables. We await the implementation of those proposals with care, however.
The Minister has for a long time been a supporter of nuclear power, but the Government are unable to give clear leadership on the issue because they do not have a position—they have a large number of positions. They are notionally in favour of nuclear power, but the Lib Dem representative will speak against it, the Lib Dem party will refuse to vote on it, and I have yet to get my head around what the Secretary of State’s position is. Frankly, the industry needs to know and to have clear leadership.
Charles Hendry
The heads of all the nuclear companies have said that they are entirely comfortable with our position and understand it precisely. Will the hon. Lady not accept their assurance that our position is rational, sensible and realistic, rather than creating scares that do not exist?
Emily Thornberry
As Christine Keeler said, “They would say that, wouldn’t they?” The point is that the nuclear industry needs to know what the Government are doing. The industry will not pick a fight with the Government at such a crucial stage, but it needs to know where they are going. The Government have a number of positions, and it is not easy for the industry in those circumstances. Of course, the industry will not come out publicly and criticise the Government—that is our job in opposition. However, we are confident that it does not help the nuclear industry for the Government to hold four positions at the same time on the future of nuclear power.
Charles Hendry
There is one position, which is that nuclear will be part of the mix if it can be built without subsidy, and that is it—one position, complete clarity.
Emily Thornberry
That sounds simple and understandable, but we then need to look at how these things are implemented. For example, is the cancelled loan to Sheffield Forgemasters the first casualty of the uncertainty over Government policy on nuclear? There are a number of questions relating to that. Did the Lib Dems’ prejudice against nuclear power have a role in the decision to cancel the loan? Was the decision made because of the coalition’s policy of having no public subsidy for nuclear? Did that impact on Sheffield Forgemasters or not? Was it right for the Government to give Nissan a grant to make electric cars—a proposal that we support—but not to provide a commercial loan to help a British company be at the centre of an indigenous nuclear supply chain? How do these things fit in?
What we see are the Government’s confusion and the refusal to grant a commercial loan to a company worth £40 million. The loan would need to be £80 million, and it would be difficult to get that money from a bank. The refusal to grant the loan means that Sheffield Forgemasters is unable to build the sort of kit we need to build nuclear power stations in Britain. We are not necessarily talking about a subsidy from the public purse. We need a Government who are prepared to look to the future and to decide that the triumvirate includes nuclear, that we are serious about these issues and that we will give such assistance as is necessary. The current situation is very unfortunate, and we have a number of questions as a result.
That is one casualty, but there is another. Will the Minister confirm whether there will be cuts to the Nuclear Decommissioning Authority? If there are to be cuts, when will they be and what will they be? More importantly, will they have an impact on the future of Britain’s nuclear power industry? The issue of the public purse paying for cleaning up after nuclear has always been part of the arguments about whether nuclear power is being subsidised, so what will happen? Are we talking about a subsidy or not? Where does that fit with the coalition agreement on nuclear power? We need to know, and the industry definitely needs to know. Publicly, the industry might not be critical, but the Opposition are being critical because a confused picture is being put out.
The expansion of Sheffield Forgemasters represented an opportunity for Britain to make key components for the nuclear industry, which will now have to be sourced from places such as Japan and Taiwan. That is very unfortunate for green jobs and the economy. The Government have tried to defend their position by suggesting that Sheffield Forgemasters should obtain funds from the financial markets. Once again, we see actions motivated by free market ideas that are completely misplaced.
Before the Conservatives made their deal with the Lib Dems, they were highly exercised by the gap between the end of the life of the current fleet of nuclear power stations and the earliest date by which we might get some new nuclear power stations. Why are the Conservatives now so relaxed about that? There seems to have been a change. The Government should be taking up the long-term challenge of decarbonising the economy and the job market, rather than just embracing short-termism, but some of the decisions that have been made are simply short-termist.
The Government share our view that the nuclear industry should not receive a direct subsidy from the public purse, but the industry needs clarity and reassurances, not obstacles. In the words of Richard Nourse, managing partner of renewable energy fund novusmodus,
“Nuclear is a long journey and developers need confidence to keep travelling.”
Can the Minister provide that confidence? What percentage of our electricity does he expect nuclear to contribute in the next 10 years? Without that confidence, we will surely see delays, which will increase our dependence on gas.
The Labour Government made a huge commitment to investment in carbon capture and storage technology for four coal-fired power stations. Through that technology, we intended drastically to decarbonise our energy supply. Can the Minister perhaps give us a little more detail on whether he intends to go ahead with the four coal demonstration projects? Can he give me some information on the Government’s thinking about the locations of those projects and the bidders? Will he confirm that the coalition plan is that CCS will be deployed more widely in 2020, and that any new coal plant constructed after that will be fully fitted with CCS? One hears rumours that the Government are thinking again about whether there will be four coal-fired CCS plants or whether one will be gas. Is there any truth in those rumours? Before the election, the Minister was much exercised by emissions performance standards for CCS. Will he tell us when or whether he is introducing proposals for such standards?
In every debate and every piece of thinking on security of supply, we must not overlook the role of energy efficiency, as the Minister said. I have 14 questions outstanding from our previous debate on energy efficiency, and I certainly hope we will get an answer to them soon; indeed, we might be tabling written questions to get answers to some of them. More importantly, however, there will need to be some huge building projects, involving gas storage facilities, onshore wind or nuclear plant, if we are to move to a low-carbon economy. We will be relying on the markets to do the heavy lifting, but at the very same moment, coalition policies have caused great uncertainty about planning.
Hon. Members should not just take my word for that. On 2 July, the director of policy at the British Chambers of Commerce said that the coalition’s abolition of the Infrastructure Planning Commission
“puts politics back into the planning system at a time when an overwhelming majority of businesses say that they want key infrastructure schemes decided by experts, not politicians”.
There is great concern about that, and it does not come just from the Opposition and the British Chambers of Commerce. Concern is also voiced on page 53 of the second progress report to Parliament from the Committee on Climate Change, which says that key actions for the future include
“Ensuring that the proposed replacement of the Infrastructure Planning Commission does not prevent projects—renewables, or low-carbon infrastructure more generally—progressing in a timely manner through the planning process.”
There is therefore great concern about the fact that politics is being put back into planning, and that planning will be held up at a time when we need to show direction and leadership.
This is a crucial time, when we need to be able to move to a low-carbon economy. We need a Government who are confident and who do the right thing. As I said at the outset, the current Government have the advantage of coming from a good place, because the Labour Government laid the ground well. However, it is of great concern that Ministers are now floundering around, particularly on planning and nuclear. Perhaps the biggest concern, however, is the statement in the coalition agreement that the parties concerned
“share a conviction that the days of big government are over”.
In the Minister’s Department, big government and leadership are necessary. Without them, we will not move to the low-carbon economy that we need.
Dr Alan Whitehead (Southampton, Test) (Lab)
The debate is about energy security. As the Minister emphasised, the debate on what we do with energy policy over not only the next five years but the next 30 or 40 years is essential. In that context, I am rather sad that such a small but select gathering is here to debate the issue. Energy security should be at the heart of all the decisions that we make on energy policy in the narrowest sense. However, in the wider sense, it should also be at the heart of how we plan our resource use, the energy efficiency mentioned by my hon. Friend the Member for Islington South and Finsbury (Emily Thornberry) and the deployment of our transport resources. All those matters relate one way or another to the question of how secure our energy supplies will be and how we will deploy our resources to ensure that the lights go on, transport moves, industry is secure, the country remains economically prosperous and we remain secure in our homes. Energy security is as central as that to our way of life in the future.
As far as energy security is concerned, we live in a very uncertain world. We have challenging and serious commitments to meet to ensure our energy security in the context of the rapid decarbonisation of our economy. We need to make sure that our supplies and our energy production are secure in the context of moving from a high-carbon to a low-carbon economy in a short time. In talking about the path from here to 2050, we should reflect that in the past 40 to 50 years we have in any event rapidly changed the mix of our energy economy. We have moved from dependence of about 90% on coal for energy to a figure of about 12% to 15% in 40 years or so. I anticipate that there will be similar rapid change in the next 40 years. The question is whether that change can be accomplished in accordance with the energy security considerations that I have set out.
As to some of the assumptions that continue to be made in some quarters about how energy supplies in this country will go, I fear that the answer may be a distinct question mark. For example, to take as a starting point our continued dependence on oil, world oil resources are presently set at about 42 years. That is on the basis not of all the oil reserves in the world, but of all those that it will be reasonably possible to exploit, and that there is a reasonable likelihood of our knowing about in the not-too-distant future.
There is at the same time a dash to secure oil supplies. Recently China has been rapidly attempting to exploit and secure oil reserves in Africa, and other world economies are pursuing the same tactics. Therefore, the idea that there will be a ready supply of oil at a reasonable price—a price that can sustain our economy—while our North sea oil reserves are reducing is at the least an interesting one. I am not a peak oil alarmist but the very interesting recent report by my right hon. Friend the Member for Croydon North (Malcolm Wicks) on energy security in a changing world went into the question of peak oil and the point at which, although reserves will exist for a longer period, production relative to demand will be decreasing. It is suggested that that will happen from about 2030.
Emily Thornberry
Does my hon. Friend agree that although our oil production from the North sea will decline at a rate of between 6% and 10%, it will nevertheless continue to play a vital role in our energy mix in the next 10 to 20 years?
Dr Whitehead
Indeed, it will continue to play that role, and the fact that we have indigenous sources of oil, as it were, will be something of a proof against increasing vicissitudes in the rest of the world. Nevertheless, that continued oil production is not divorced from peak oil considerations—it is an essential part of them. The likelihood, therefore, that by 2050 oil will, because of its scarcity, have to be used primarily for non-vehicular purposes such as making plastics and other chemical necessities, should be taken into consideration in our long-term thoughts on energy security.
The likely scenario in the next few years, should that analysis be even remotely correct, is that the world will continue, among other things, to attempt to defend its oil interests by covert or overt military means. Indeed, a little while ago Dan Plesch of the Foreign Policy Centre estimated in a paper that the cost, indirectly or directly, of defending oil interests from a military point of view came to about $150 billion a year. If we consider the areas of the world—mainly in the middle east—that have been defended in that way, and the likely reserves in those countries, that comes to about $20 per recoverable barrel. That is an interesting reflection on what is likely to be the increasing additional cost of oil in the next few years.
In the context of climate change and our ambition to reach the targets we have set, it is absolutely right that energy efficiency will play a substantial role. Indeed, if EU energy efficiency targets of even 20% are met by 2020, that will result in something like a 13% reduction in electricity use in the EU. That underlines the key role of energy efficiency. I am completely with the Minister as to the key role it must have in our energy security—another example of protection of the home front in energy matters. However, the changes in our energy economy that will result from a far lower dependence on oil in the long term will almost certainly mean a much higher dependence on electricity for, among other things, transport, particularly with the rise of electric vehicles. At least part of the energy efficiency gain will be offset by increased demand for electricity as electric transport becomes increasingly the norm.
My hon. Friend the Member for Islington South and Finsbury has already dismissed some of the scares and myths about gas. It is true that the short-term alarms about energy security that have recently been raised in relation to gas are largely unfounded, for the reasons we have heard today. However, there is another reason, which has not sunk widely into our consciousness but is nevertheless important. Part of our gas energy security has been derived not only through interconnectors—which, as has been observed, can work both ways, and did during our cold winter, with movement out of the UK as well as into it—but by ensuring, pretty much as a deliberate act of policy by the previous Government, that there was sufficient liquid natural gas landing capacity. There was a substantial increase in that capacity. Of course, liquid natural gas is a world-traded commodity and one might ask how secure it is likely to be. One reason why it is likely to be far more secure in the not-too-distant future is the rise of shale gas, particularly in the United States. Gas is extracted from shale beds in a way that was not technically possible a few years ago. Its exploitation in the past few years has, among other things, added about 25% to estimates of United States gas reserves.
I might add that gas is not a particularly benign fuel for the environment. It is not as intense, in relation to CO2 emissions, as coal, but it is very intense nevertheless, and was the subject of a recent letter from the Committee on Climate Change recommending that future gas-fired power stations, as well as existing and future coal-fired plants, should be CCS-adapted. We should not for a moment believe that gas is the alternative or the answer to the end of the oil economy or the diminution of the coal economy. Nevertheless, shale gas in the US and elsewhere has transformed the picture in recent years of likely gas reserves. Indeed, the liquid gas receipt terminals in the United States built for the same reason as those that were built in the UK are, in effect, standing idle because of the change in the gas economy that has resulted from the emergence of shale gas.
Incidentally, shale gas poses an additional problem, as it is no more environmentally friendly than any other form of gas—it is, in essence, the same stuff—and the technology of fracturing rocks to extract it results in substantial emissions of methane into the atmosphere. Indeed, the chemicals that are used in its extraction are particularly climate-unfriendly, so it is not a panacea. I merely note that as an addition to the debate on where we are on gas security.
All things considered, even with the increase in reserves in particular countries, it is likely that gas has perhaps a 60 to 70-year exploitation against production life ahead of it. For two of the key elements of our energy economy, we are living on borrowed time, and we need fundamentally to recognise and understand the consequences for our own energy security that the post-peak world oil economy and, to a lesser extent, gas economy will introduce—this country will either have to scramble for those resources or go in a different direction—and how those scenarios will play out over the next 40 years.
I have not mentioned coal. This country has some 200 years of coal reserves, and there is a similar level of likely reserves against production around the world. Indeed, in looking at how our future energy economy might best be fashioned, it seems inconceivable that we would ignore the role of coal—with, I trust, carbon capture and storage firmly attached to it, because of our carbon abatement commitments. Nevertheless, using coal as a substantial part of our base-load energy economy over the next few years is not just a good idea for balance in the energy economy but an important part of our energy security considerations.
The starting point for energy security probably has to be a common-sense view. Politicians always feel that people should be wary of common-sense views—on occasion, that means they come up with views that are precisely the opposite—but, in the case of our energy security over the next 40 years, a common-sense starting point ought to be that if we should produce as much of the energy required in this country from sources that we control, and that we do not set too much store by sources that we do not control.
That is a common-sense absolute which, of course, is mediated by a great many factors, not least the interconnection and balancing of supplies, and the role of the European Union in how supplies work, but in a world with all the dangers, concerns and scarcities that I have mentioned, a common-sense starting point ought to tackle the issue of how we deploy our energy resources over the next 40 years. The question that then arises is whether the UK can be energy self-sufficient in the way that it has been in the past. If that common-sense principle were applied to our future energy security, we would be talking about an energy economy in which, yes, oil and gas—particularly North sea gas—will have a role, but, increasingly, biogas produced from our own indigenous natural resources could be injected into the grid and take the place of mineral gas coming from the North sea to a surprisingly large extent.
I am not sure that setting an enormous amount of store by a technology that relies on a fuel of which we produce not one ounce in this country is a common-sense view. Setting aside any of the questions at the front of our minds about build scale, commissioning, public subsidy and other aspects of nuclear power, we must remember that, because nuclear is not renewable, it is reasonable to ask questions about the security of supply of uranium for reactors, should we build them in this country. This is not necessarily to take a side on the nuclear debate but simply to ask that question.
Given the likely reserves of uranium—on the present supply against production—its life is roughly that of oil: 40-odd years. However, if there were a large number of nuclear builds over the next 20 years, the amount would come down dramatically. On present figures, it appears that uranium could become scarce during the lifetime of a future nuclear reactor built in this country. That ought to raise a question mark about energy security, and about the role that nuclear may play in future considerations for the UK.
Indeed, given our concerns about our carbon dioxide emissions and footprint, new supplies of uranium would need to be found. Otherwise, existing supplies would be depleted, and the richness of uranium per tonne of rock mined would be so low that the carbon footprint would eventually equate to that of a gas-fired power station. That would not follow the low-carbon footprint route for our energy supplies in the long term. The figures relate to Australian and, to some extent, Canadian supplies of uranium. There are richer supplies in places such as Kyrgyzstan, but they raise the same questions for energy security in an uncertain world set against supplies of oil and gas.
Ironically, we could increase our supply of uranium by sequestering supplies that are kept for military purposes and translating them to domestic nuclear purposes. If we did so in this country, we could double the life of our uranium supplies without taking uranium from elsewhere, which raises the interesting question of developing a domestic nuclear power programme to thwart a military nuclear programme, but perhaps that is a debate for another day.
I asked whether the UK could be energy self-sufficient in future. The answer is yes, but the best energy security in this changing world will probably come from forms of collective energy security which, at the very least in Europe, ought to be at the forefront of our minds. We have heard some bad stories about connectors, but the more connectors this country has with Europe, the better off we will be not just in terms of our own energy security but in terms of Europe’s as well, for reasons that I shall come to in a moment.
We should also consider new connections. The programme ought to be imaginative in terms of the connections within Europe and making the most of Europe’s energy supply resources. We should, among other things, go further forward from having point-to-point connections for future wind farms in the North sea, for example, and connect those supplies across Europe in what is called the supergrid—it is, in fact, a sensible addition of connectors with nodal hubs, particularly in the North sea—to ensure that the transferability of energy supplies is complete. Of course, we have a gas supergrid in Europe and there is, effectively, the beginnings of an electricity supergrid. An essential part of our future energy security is a supergrid for renewables.
The things that I have just mentioned are just part of the answer to the question, “Can we be self-sufficient in our energy supplies over the next 40 years?” The facile answer to that question, which we occasionally hear, is, “Why, oh why, can’t we be self-sufficient in our energy supplies, because we are the windiest country in Europe, with the biggest tidal range and the biggest effective waves in Europe? We must be able to be energy self-sufficient, mustn’t we?” It is true that we have the biggest wind supply and the greatest tidal range of any country in Europe and we have the largest range of facility of any country in Europe, but that in itself does not answer our question. The analysis in a recent report by the offshore valuation group entitled, “The Offshore Valuation: A valuation of the UK’s offshore renewable energy resource”, is increasingly providing an answer.
The group eschewed the idea of going for the big picture or saying, “We’ve got all the resources, therefore it must work”, and instead did a sober analysis, area by area, of this country’s renewable offshore resource, looking at where the constraints were in landing, or depth of offshore water, and considering what proportion of our theoretical resource could be landed, assuming the investment was there to make the landing possible.
The group assumed a relatively modest proportion of the total practical resource, setting aside those areas where constraints were likely to be insufficient to render exploitation practical. It suggested that only about 29% of the practical resource would be harnessed by 2050. On looking at that resource, it found that the full practical resource of 2,131 terawatt-years exceeded UK electricity demand six times over. The practical landed resource would, on that basis, not only easily be able to deal with the UK’s practical demand, but would make the UK a substantial net electricity exporter. Incidentally, that figure would be likely to encompass the spike in electricity demand—and the difference that that would make to our energy economy—from electric vehicles.
The group included a number of scenarios in its report. The middle range of scenarios, under which there would be 29% of resource utilisation, would mean an install capacity offshore of about 169 GW, capital expenditure of just over £400 billion over the period to 2050, and annual revenue of £62 billion, and thus a substantial income-generating capacity for the UK. The UK would also be a net electricity exporter, after all the demands here were taken into account. That brings the connectors into context. We have always assumed that connectors are based on the idea of balancing the UK system, so that energy comes in from abroad when the UK does not have sufficient resource of its own. The prospect of the UK systematically exporting from its connectors is a secure foundation for our energy security considerations in future.
The report also considers a matter that a number of people have considered: whether the UK energy economy can stand the penetration of renewables in a scenario such as the one that I have just mentioned, which suggests that a penetration of renewables of some 50% would be the consequence of such practical exploitation of UK offshore facilities. It also adds floating wind and tide and wave to fixed offshore wind, as technologies that would be deployed in respect of that outcome. That scenario suggests that it is necessary for the energy economy to have a reserve of some 34 GW, which is getting on for 50% of the present total capacity of our electricity supply, to balance the 50% renewables penetration. The report is also clear about the changes that are taking place, as the Minister mentioned, in respect of the smart grid, energy efficiency considerations, storage, the continuing use of inter-country connectors and the role that small-scale generation plays in the energy economy, all of which would have a substantial hand in ensuring that the balance was possible under that level of penetration.
The long-term answer to the question, “Should we, from a common-sense point of view, source as much of our energy as possible from indigenous resources?” is yes. The answer to the question, “Can we source as much energy as possible from indigenous resources?” is also yes, but neither of those answers is based on fanciful assumptions about how our energy economy might develop. There are realistic scenarios for the next 40 years, showing a change in the relationship between our energy supply and our energy use, and a change in the make-up of that relationship in such a way that our energy economy is fully secure by 2050, against what we know will be increasingly violent vicissitudes in the world energy economy. If we can achieve that starting on this Government’s watch—great progress was made on the previous Government’s watch—not only will we secure our energy supplies for the future, but we will secure our carbon commitments at the same time, which is the other key element.
Mr Iain Wright (Hartlepool) (Lab)
May I say that it is a pleasure to serve under your chairmanship, Miss Begg, especially given the lead that you have provided on energy policy and the fantastic work that you have done in your role as a first-class constituency Member of Parliament? May I also say that it is a huge surprise to catch your eye? I had not intended to speak at length—I wanted to make a couple of interventions—but I am pleased to participate in an increasingly vital part of public policy, which we will need to consider in the 20 to 30-year period as we move towards a decarbonised economy.
I am concerned about energy security. Rising demand for energy, caused by emerging markets—the likes of China, India, Brazil and Russia—together with constraints on capacity with regard to supply, mean that we will see markedly rising energy prices in the next 10 to 20 years. We must combat that. Coupled with that is the fact that fossil fuels are a finite resource. Mother earth is not making any more oil and gas.
When we burn fossil fuels we produce negative disruptive repercussions for our climate. The point, as my hon. Friend the Member for Southampton, Test (Dr Whitehead) said, is that we must reduce our reliance on external sources of energy, and try to produce our own as far as possible. In that context, I want to raise four brief points to which I hope the Minister will be able to respond.
The Chamber has waited with bated breath for the three points I am going to make about the coalition programme. I do not doubt the Minister’s personal commitment to energy security, but from what I have read in the coalition programme, I do not have the feeling that the entire Government share that commitment. The three bullet points in the programme that mention energy security are scant on detail. They state:
“We will reform energy markets to deliver security of supply and investment in low carbon energy, and ensure fair competition including a review of the role of Ofgem.
We will instruct Ofgem to establish a security guarantee of energy supplies.
We will give an Annual Energy Statement to Parliament to set strategic energy policy and guide investment.”
Will the Minister put a bit more meat on the bones to explain what that means? I know that we may discuss it on Second Reading of the Energy Security and Green Economy Bill, but the matter is vital and to provide some reassurance and good, clear direction of travel, it would be useful to have a bit more information. On the final bullet point—an annual energy statement to Parliament—it would be helpful if the Minister confirmed that that is the case, and gave a pledge that a big part of that statement will be the way in which the Government will ensure energy security.
My next point was alluded to by my hon. Friend the Member for Southampton, Test, and it exercises me because it will be a big factor in the next 10 or 20 years. It concerns our capacity as a country to obtain natural resources, particularly for energy and particularly when emerging powers, such as China, India and Brazil, are engaged in a 21st-century equivalent of the scramble for Africa. My hon. Friend rightly mentioned the fact that China is locking in long-term contracts with African nations, such as Angola and Sudan. An important tangent is that it is imposing no conditions regarding good governance or transparency in financial transactions. That impacts on our international development policy. Given that, and given what my hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), the Opposition spokesperson, said about not leaving the matter to the vagaries of the market, what reassurance can the Minister give, in view both of the emerging markets, and of what China is doing to ensure that it has access to energy supply in the next 20 to 30 years, about what our Government are doing to ensure that we have the same access?
Since the industrial revolution, we have had an energy market with big powerhouses that have supplied and sourced energy and pushed it out into communities and industry. During the next half century, we will continue to need that. The area that I represent has the largest concentration of chemical engineering anywhere in western Europe. To ensure that we are an economically vital nation and can produce manufacturing that we can export to the rest of the world, we will continue to need that macro-generation power grid.
The Labour Government started to put in train huge opportunities for microgeneration, domestic consumers and, importantly, community groups to produce their own indigenous, domestically derived energy, and in the process to derive resources and revenue supplies, which may be useful for individual and community needs. Many community groups in my constituency would benefit from solar panels—for example, on a community hall—and from being able to use the revenue for community needs and objectives.
The Government have begun to restrict the opportunities to allow communities and domestic consumers to put in place domestic microgeneration. Will the Minister explain what incentives he could put in place? The feed-in tariffs are very welcome, but some of the initial set-up costs are restrictive and even prohibitive. The average cost of putting solar panels on a roof in my constituency is about £12,000, which prevents the vast majority of people from even considering it. What further steps can the Minister take forward to ensure that we have an exciting new generation of domestically derived energy production in our country?
I mentioned my final point in another debate in this Chamber on nuclear power, and I give notice to the Minister that I will keep banging on and on about the role of the north-east in energy production and supply. We have all the ingredients in place for my region to be the great powerhouse, not only for this country, but for Europe and, arguably, the world in ensuring that we have a diverse source of energy production and supply. What can the Minister do to ensure that potential? Narec in Blyth is a centre of excellence for renewable energy. Given where we are in terms of marine technology and our proximity to the North sea, all the different sources of energy—oil, gas, renewables and nuclear in my constituency—can provide the 21st century, modern economy that the north-east demands.
We have great things in place. The developments at Narec, the Centre for Process Innovation in the Tees Valley, and Renew Tees Valley, were being led by the regional development agency, One NorthEast, which was adding value by ensuring that we could have a low-carbon economy and energy policy, but confusion over the Government’s contradictory advice on RDAs has inhibited progress. We have huge potential in the north-east. What steps will the Minister take to ensure that we fulfil it? I have invited him to the Tees valley to look at the potential there, and I do so again. The role of the north-east in the future share of the British economy and energy policy is incredibly exciting.
My hon. Friend the Member for Islington South and Finsbury said that we must not leave the matter to the vagaries of the market, and she is absolutely right. We need big government on energy security in the 21st century, and we need strong leadership. I know that the Minister is up for that, but I question whether his Government as a whole are up for it. I hope to be reassured by his response.
Charles Hendry
It is a continuing pleasure to serve under your chairmanship, Miss Begg. We have had a high-quality debate. Our numbers may have been limited, but we have touched on many of the key issues that go to the heart of the debate on energy security, and some of the big structural issues, as well as some of the more localised policy issues that go with that. During the next two hours, I hope to go through those in significant detail.
The hon. Member for Islington South and Finsbury, who speaks for the Opposition on these matters, started by talking about big government. She asked whether we need big government in this area, and said that we cannot leave such matters to the vagaries of the market. We are in no doubt that the Government must provide leadership in such matters. The old Lawsonian approach of leaving them to the market worked when we were awash with our own oil and gas, and companies throughout the world wanted to invest in the United Kingdom, but we must now climb an extraordinary mountain of new investment, and we must appeal to companies headquartered in France, Germany and elsewhere around the world, so we need greater Government leadership and engagement. But we are also a party committed to decentralisation. Setting a policy framework to stimulate investment is not incompatible with allowing decentralisation of power. We are genuinely committed to allowing communities to decide what is right for the development of their areas, and to empower them to make those decisions.
Clearly, above a certain level—the 50 MW threshold—such things will become nationally significant infrastructure projects and decisions will be taken centrally. I will come on to those planning issues later, but we are committed to the principle of decentralisation.
That is also true for electricity generation more generally, and the roll-out of microgeneration. We inherited a target of 2% of electricity to be provided by microgeneration by 2020. That is unambitious, and I agree with the hon. Member for Hartlepool (Mr Wright) when he said that we now have a real opportunity. As he said, not just for individual households, but for community groups, schools and groups of houses, microgeneration will often be a more attractive way of achieving economies of scale and the best possible investment. Within that framework, we must look at which technologies will be right for different parts of the country. There is no doubt that the generation capacity of solar power is greater in the south than it is further north. We cannot necessarily have a variable rate of feed-in tariffs for different parts of the country, but there will be other areas where biomass or small wind energy systems or whatever will be more appropriate. We must make sensible choices about how best to use the resources available.
The hon. Gentleman spoke about the role of the Government and how we can develop long-term contracts, and he mentioned the work of the Chinese and others. We are committed to that, and the Prime Minister has said that he wants Ministers to help secure such long-term contracts. In the past, if there was a new big gas deal to be signed, we tended to find that the French would send President Sarkozy, the Germans would send Chancellor Merkel, and we would send the British high commissioner, who is no doubt a fine man or woman, but they do not have quite the same clout and sense of national significance. We are determined to raise the profile of the Government when trying to secure such agreements. Of course, there will be differences of approach between us and the Chinese in such matters, but we must show those countries with whom we would like to be strategic partners the importance that we attach to such a relationship. There should be no doubt about that.
The hon. Gentleman also asked about elements of the coalition agreement. We have said that we will reform the regulator, and in general we believe that any regulatory activity is crucial and must be independent. It should be carried out within a framework set by the Government. Part of our anxiety has been that the excellent work of Project Discovery carried out by Ofgem should have been done by the Government. The Government should have stated their priorities and explained where the balance between low-carbon energy and security of supply lay. We must take the policy framework back within Government so that the regulator can be responsible for regulating within that framework. The hon. Gentleman also mentioned ensuring the security of supply. Again, the regulator should be charged with finding the best way of ensuring that people, particularly those who are using gas in the mix, have ways of meeting demand. There will still be flexibility in how that is achieved, and that should be a further additional role for the regulator.
The hon. Gentleman asked about the annual statement that will come before the House shortly. It is intended as a forward look. It is not supposed to be a meaningless selection of warm words, but rather an annual hard look at the challenges that we face and the progress we are making towards meeting those challenges. Normally, we would expect it to include a winter outlook, but given the time of the year in which we are doing it, it might be a bit early for that. However, we certainly want to give hon. Members the chance to question us robustly in the House about the security arrangements for forthcoming winters.
I hope that that reassures the hon. Gentleman about the underlying principles. I also want to reassure him that for me, energy security lies at the heart of any energy policy. As I said in my opening remarks, if we do not get energy security right, the low-carbon agenda will become much more difficult and the issue of affordability will go out of the window. Energy security is a core part of our policy.
The hon. Member for Islington South and Finsbury rather implied that everything in the garden had been perfect until 6 May, when it suddenly went catastrophically wrong. In the spirit of coalition politics, I am willing to say that the last Government made some moves in the right direction, but there were other things that they should have done and failed to do, or did not do until it was too late. Had we not had a five-year moratorium on nuclear power, those decisions would now be well in hand and we would have concrete going into the ground and the process would be under way. Had we not had countless Green Papers, White Papers, policy reviews, new Acts of Parliament and 16 Ministers in 13 years, we might have had greater focus on some of the challenges that we face. We are trying to respond to the challenges that we have inherited, and I will list the ones mentioned by the hon. Lady.
Gas storage is a particularly important matter and the concerns that we expressed earlier in the year were well founded. However, those concerns must be seen in context. Although they were raised during the winter, they looked ahead not just to that winter but to the outlook that we imagine will develop in the years ahead. The Government’s low carbon transition plan painted a picture that suggested that the volume of imports would not change over the next decade, and that the use of gas was supposed to come down sufficiently fast that imports could be maintained at the same level. Nobody in the real world believes that. Many people, including key industry observers and analysts, believe that 70% or 80% of our gas will be imported by 2020. If we do not start to take action now to ensure our security of supply with that level of imports, we will reach such a situation and it will be critical and unachievable. We recognise that at the moment, the short-term outlook is relatively benign for a range of reasons. We must take steps now to address the situation.
I recognise the crucial contribution that Langeled and the liquefied natural gas facilities have made. As the hon. Member for Southampton, Test (Dr Whitehead) said, just because we have a facility does not mean that it will be used. The LNG facilities are often on tankers that set off around the world without a particular market in place, and they will go to the highest bidder. That is not the cheapest way of getting gas, but we can get it if we are prepared to pay more than anybody else.
Dr Whitehead
My point about the current idleness of United States LNG terminals, and the changes in the US gas market as a result of shale gas, means that the LNG market is substantially changed regarding the destination of those supplies to countries other than the US. Therefore, on a worldwide basis, the LNG arrangements have begun to be altered by that factor over the past few years. My point was about the role of LNG in our energy security considerations, and the extent to which, should there be issues of gas supply in the UK, LNG now appears to be a better option than has been the case over the past few years.
Charles Hendry
There is no doubt that the situation has become more benign as a result of the discoveries of shale gas. We are still trying to establish how substantial we believe shale gas to be, and at what cost it can be extracted in the United Kingdom and over what time scale. It is a game changer in the United States and, as the hon. Gentleman suggests, it has virtually wiped out its LNG imports. We think that it will be significant in China and may change the dynamics of new pipeline connections within central Asia. We think that it will be large in places such as Poland, but we do not yet have a full grasp of the implications for the United Kingdom. It has undoubtedly meant that more gas is available for our LNG facilities than there would otherwise have been. As a precautionary approach, we must look long-term at our vulnerabilities and our exposure to imports, and ensure that measures to protect security of supply are in place through storage and long-term contracts. Those areas were all set out in our policy paper ahead of the election, and a range of issues will be used to address the existing challenges.
The hon. Member for Islington South and Finsbury spoke about how the last Government had doubled the amount of renewable energy. She managed to get the UK to No. 26 in the European Union, which was undoubtedly an enormous triumph. I think that we are just ahead of Malta, but have slipped behind Luxembourg, which is obviously a desperate blow. Frankly, it is not a good place to be and we need a sevenfold increase over the next decade to get us where we need to be. That is a massive challenge and more must be done across the spectrum.
There is an issue about winning public support. We believe that renewable energy should not be imposed on communities, but should have popular support within communities. The previous Secretary of State, the right hon. Member for Doncaster North (Edward Miliband)—now shadow Energy Minister before he moves on to his new job—has spoken of different techniques. First, he said that people should have wind farms because it would be good for everybody. That did not really win people’s hearts and minds. He then said that people should have a wind farm because it would be bad if they did not—a bit like somebody who drives across a zebra crossing without stopping—but that did not win hearts and minds.
We think that a new approach is necessary that will actively engage communities in ensuring that they see what the benefits will be. They will keep business rates locally. We will find ways of encouraging community ownership. The income stream from one of the turbines perhaps goes directly into the community, so it can see that it is hosting something on behalf of the wider region or the national interest and that a real benefit comes back to it for hosting the facility.
I agree with some of the comments from the hon. Member for Southampton, Test. Because of the inherent flexibilities in the system, one has to consider how one manages that. One has to have back-up systems or use what I hope will become a particularly exciting area of policy—storage technologies. Those can involve compressed air, pumped storage, hydrogen and batteries. The pace at which global technologies are moving forward in that area is very exciting. It offers us eventually the great prize of renewable energy from wind being available when people want it, rather than simply when the wind provides it. I think that that will be an important part of policy.
The hon. Gentleman also talked about the smart grid. That is the great prize of smart metering—the ability to manage demand much more effectively and to try to ensure that we can shave off demand at the top and have a sensible structure for managing the system.
Let me move on to some of the other technologies that were raised. The hon. Member for Islington South and Finsbury rightly spoke about nuclear. We would be further ahead had it not been for the moratorium, but the position of the Government now is absolutely clear. Nuclear will be part of the mix if it can be built without subsidy. There are no ifs or buts; that is an absolutely clear position.
I hope that the hon. Lady will work with us, because in opposition, I was very happy to work with the Government to reassure potential investors, to the extent that I was asked to go to the investors forum a couple of years ago so that investors could be told that the potential new Minister, if there was a change of Government, was attending and could give that continuity of policy. Investors attach enormous importance to that political stability. I hope that, given that the position is absolutely clear, the hon. Lady will decide that she wants to be a serious contributor to the debate, rather than making political comments from the sidelines, because that will do more to undermine the case for new investment than anything happening elsewhere. There are communities up and down the country that want to see parties working together on this issue. We have a clear position, which is essentially the same position as that of the previous Administration, and I urge her to work with us.
An important point about the changes that we are making is that we have said that the national policy statements will be voted on on the Floor of the House. That will send a clear message to investors that there is massive cross-party support for the national policy statements when they are put forward. I hope that that will be the outcome of that process. It is not just a political party saying, “This is our position,” but the House as a whole expressing its view on the national policy statements. That makes the process more robust, reduces the risk of judicial review and enhances the prospect of making progress.
Emily Thornberry
The problem with the changes to the planning system is not just who will make the national policy statements and how they will be decided, but how they will be implemented and the fact that a Minister will be implementing the decisions. That is the reason why many people and organisations are concerned that there will be delay. That is a vital issue in respect of the development of our infrastructure.
Charles Hendry
Let me seek to reassure the hon. Lady. The discussions that we have had with industry have reassured it about the changes that we are making. Our concern about the Infrastructure Planning Commission was that it had no democratic accountability. Decisions on nationally significant issues were being made with no prospect of contributions from Members of Parliament and without the opportunity for parliamentary scrutiny. We believed that that was not just democratically wrong, but enhanced the risk of judicial review, so the change that we have made is that the back-office function—the work of analysing the individual planning applications—will go ahead as originally planned but within the planning inspectorate, and the recommendation will then be made to the Secretary of State, who will have three months to make a decision. That is exactly the same time scale as would have been the case under the IPC, but there will be less chance of judicial review and there will be greater parliamentary accountability. Also, transitional arrangements will be in place so that whichever system an application starts under, it will complete under it. There will be no risk, when the system changes, of an application that was two thirds of the way through having to start again. Whichever jurisdiction it starts under, it will continue under.
The process provides the speed that is necessary and that industry is keen to have. It provides greater scrutiny, greater acceptability and less risk of judicial review, which might delay the whole process by six or 12 months. Those are the reasons why we have made the changes, but we have been extremely conscious throughout of the need to maintain investor confidence, and the work that we have carried out with the investors reassures us that we have got the balance right.
Emily Thornberry
I am very interested to hear what the hon. Gentleman is saying, and it is clarifying a number of issues, but there is the additional residual problem. He talks about the national policy statements being agreed on the Floor of the House and party politics therefore being taken out of it. Nevertheless, if an individual Minister will in the end make the decision, surely party politics comes straight back in again.
Charles Hendry
The hon. Lady is absolutely wrong. The Minister is acting in a quasi-judicial capacity. He is acting not as a party politician, but as someone who has a legal responsibility. A recommendation will be put to him through the planning inspectorate as to whether to accept or decline an application. He will not be able to say, “That’s a little bit close to a Conservative seat”—or a Labour seat—“so I won’t give it the go-ahead.” He must decide on the basis of the argument put to him and must explain why he has either accepted or declined the application. The process is intended to maintain political impartiality.
I can tell the hon. Lady that I do not believe that in any decision I am making, there is a political imperative about where a national grid connection, a nuclear power plant or a new gas-fired plant goes. My job is to look after the national interest and to ensure that applications are made in line with planning law. To me, this is not a party political issue, as I hope the hon. Lady will accept. We are deciding on projects of national significance and trying to get the right outcome as far as the country is concerned.
Emily Thornberry
The hon. Gentleman talks about political impartiality and a quasi-judicial function, but surely a Minister has choice. If a Minister is to act in a judicial fashion, he or she simply has to step out of the arena and make a quasi-judicial decision. I do not understand, if someone is to make a decision in some sort of judicial capacity, how that is democratically accountable. Either they are allowed to use their political brain and make a decision, which is then democratically accountable, or they use a judicial one, which steps outside the arena and outside politics.
Charles Hendry
The fundamental difference is that a Minister sits in Parliament. A Minister can be questioned by Members of Parliament. They can be called before Select Committees much more readily. There can be debates in Westminster Hall or Adjournment debates in the main Chamber. There is a range of areas where the Minister can be subject to scrutiny on the decision made. It is a quasi-judicial role, but we believe that it provides a degree of democratic accountability that is simply missing within the IPC. We may simply have to disagree. We believe that the process maintains the speed and the important elements of the IPC—changes that the previous Government put in place—but it rectifies the democratic deficit.
The hon. Lady raised additional matters relating to the nuclear sector. She asked about the work of the Nuclear Decommissioning Authority. We take very seriously the legacy issues, but we separate out the legacy responsibilities from new build. There is no doubt that clearing up the old legacy issues, which are a combination of civil and military nuclear issues, is something for which the nation, the taxpayer, the Government have to be responsible. The previous Government addressed putting that right with a degree of seriousness that had been missing historically, for which I give them credit, but much is guided by independent legal assessment. The Government are not at liberty to decide which bits they want to do themselves. They are required by law to carry out certain actions now in respect of the clear-up, and that work is central to the work of the Department.
The hon. Lady will be aware that the NDA’s budget is about half the entire departmental budget, so if there are areas that are not absolutely necessary and there are areas where we can gain additional resources and revenue, we will, rightly, consider those as well, but I ask her to be in no doubt whatever about the moral imperative that we attach to addressing the legacy issues.
The hon. Lady also asked about Sheffield Forgemasters. I repeat the assurance given by the Secretary of State in the Chamber last week during oral questions. He said that it was purely about costs, and that the nation could not afford many of the projects that had been approved—it was on those grounds rather than because it was related to the nuclear industry. He also highlighted the fact that had the directors involved been willing to dilute their shareholding it would have been easier to get a commercial loan. Is it the Government’s job to put public money into a private company to enable directors to maintain their shareholdings if commercial arrangements could have enabled them to secure that loan elsewhere? The directors now say that they will seek to carry this forward through other mechanisms, seeking loans and support elsewhere. We believe that that is right. At the end of the day, however, it is not about nuclear; it is money that the Government simply do not have. We have run out of money, as the former Chief Secretary told us.
Emily Thornberry
The problem with the Minister’s explanation is that he was talking of a commercial loan. Given that the company is worth £40 million and the loan was for £80 million, it was not a question of selling shares to raise money; the company was not worth the amount of the loan. That is the problem. That is why we need a forward-thinking Government, that has ambition but which understands the importance of moving to a low-carbon economy. The Secretary of State for Business, Innovation and Skills often criticised the banks for not being forward-looking enough when he was in opposition; now, in government, it would seem that he is falling into exactly the same trap with the banks that he used so readily to criticise.
Charles Hendry
We are considering a whole range of things to which the previous Government were committed. Many were laudable, worthwhile projects, but we have to accept that we have run out of money. That was the fundamental problem. There was nothing about the nuclear industry, the locus of her original charge; we had to consider major areas of expenditure, and commitments that had been made that could not be funded. It is a good company and a good project, and we want it to happen, but we have to decide whether public money should be contributed, given that we are trying to reduce some of the pressures and burdens on taxpayers. I assure the hon. Lady that the decision was based on the fact that the money was not available; it was no reflection on the company’s workmanship, which is outstanding, or the nature of the project itself.
The hon. Member for Hartlepool spoke about the north-east and the contribution that it can make, as he has done before. I asked whether I could visit the area rather than him inviting me, but my offer to visit is still there. I shall have to be slightly careful about those nuclear plants that are going through the planning process, as I may subsequently be involved in some of those decisions. However, I am particularly keen to see some of the supply chain opportunities and the industries that ride on the back of them. I recognise the fantastic opportunities and potential of the north-east, and of those elsewhere.
What is exciting at the moment is that many parts of the country are looking at their energy potential. Cumbria is calling itself the energy coast, and Anglesey calling itself the energy island. Many see it as a key point in selling their areas to potential investors. The skills base of the north-east and the extraordinary depth of experience in the engineering and technical sectors must be an incredible attraction to industry. People looking to come to the United Kingdom will undoubtedly consider the north-east to be a priority area. I would very much welcome the opportunity to see some of that potential with the hon. Gentleman.
Mr Iain Wright
Before the Minister moves on from the economy of the north-east, will he comment on the prospect of One NorthEast and the regional development agencies in providing such leadership to potential investors on the energy potential of my region?
Charles Hendry
I am sorry, but I should already have done so, as the hon. Gentleman raised the matter earlier.
We believe that some of the things that the regional development agencies have done were truly strategic, but that others were slightly artificial. People’s view of RDAs is different in the various parts of the country. Having been to see One NorthEast, it is clear that the area had a better sense of regional identity than in my region of the south-east. There is not an enormous amount binding the western end of Oxfordshire with eastern Kent; people have different perceptions in different parts of the country. However, there must be rationality.
Most coastal RDAs say that they are the No. 1 place in the United Kingdom to develop offshore wind facilities, but they cannot all be No. 1. If we are trying to attract big international investors, there may be a case for considering the wider national interest rather than breaking things down further. However, RDAs have undoubtedly done some exceptional work. For example, Yorkshire Forward has been considering how to put a carbon capture and storage infrastructure in place; it is ahead of anything else in England. I hope that some of that work will be continued, even if RDAs are not part of that future—they may be in some parts of the country—but local authorities, which are responsible for business development, might see it as a particular advantage for their communities, and be keen to ensure that it is part of the mix. Again, I am happy to visit the north-east to talk to those in the RDA about how we can build on the work that has already been done.
The hon. Member for Islington South and Finsbury spoke about carbon capture and storage. I shall answer directly some of her questions. She asked whether every new plant built after 2020 would be required to have full CCS. The position is as it was under the Labour Government, which is that they will be required to have CCS or that it should be retrofitted in due course. An important aspect of the levy is that it can be used for retrofitting in plants used in the pilot projects.
The hon. Lady asked whether the four plants would all be coal or whether one would be gas. We are considering the recommendations of the Committee on Climate Change, which said that we should be doing a pilot project on gas. We need to consider the balance, deciding whether one of the four should be gas or whether the first four should be coal. There is no doubt in our minds that coal is the imperative. Coal is the greater polluter; it is where the technology is closer to the market. The focus is very much on coal, but we were pleased that the levy was changed under the Energy Act 2010 to allow it to be used also for developing gas and biomass technologies. The hon. Lady also asked about the emissions performance standard. We are indeed committed to putting in place an emissions performance standard, and in the near future we will be setting out our thinking and how we intend taking it forward.
The hon. Member for Southampton, Test always brings a huge amount of wisdom and experience to such debates, for which I am grateful. He spoke about the oil sector. I agree with him on the subject of peak oil. Realistically, we will not know when peak oil has happened until some time afterwards. However, Nobuo Tanaka of the International Energy Agency spoke earlier this week about the need to bring down demand ahead of the peak in supply. If we can get the peak in demand to come earlier, consumers will benefit because the price of oil will drop dramatically. If the peak in demand happens after the peak in supply, the oil companies will benefit because they will be able to ramp up their prices. For me, that shows the imperative to decarbonise society and to move ahead more quickly.
We have talked of energy efficiency today; that will clearly be part of the solution. We shall need to decarbonise ground transportation, but we also need more low-carbon methods of electricity generation. In looking at the way forward, we need long-term vision. We must decide what steps should be taken now in order to pre-empt the inevitable; the situation will become more challenging over time, and we must try to ensure that society and the nation decarbonise.
I pick up on what the hon. Gentleman said about international reliance. I was intrigued by some of his comments. It appears that he is willing to accept it in some areas but less so in others. For example, we get most of our coal from imports, Russia being the single largest market from which we buy, and we will become increasingly dependent on imported gas from Norway and Qatar. I am not sure whether he wants to see the closure of the LNG facilities, but picking out nuclear and uranium as being something that we import was slightly perverse in the wider context. Diversity is as important as our domestic resources. We enhance our security of supply by having a range of methods of electricity generation and different sources of supply.
Dr Whitehead
The hon. Gentleman is right to emphasise the fact that the aim of being as energy self-sufficient as possible does not necessarily mean that we should cut off all other sources of energy supply to achieve that goal. Indeed, a 50% reliance on renewables means that we are 50% reliant on non-renewables, which may be sourced from places outside the UK. My point about uranium was not to question the supply sources, but to bring into view the idea that there may well be a peak uranium issue in the same way in which there is a peak oil issue and whether we ought to factor that into our considerations of the long-term supply of that particular source.
Charles Hendry
We undoubtedly have to factor in such a consideration. There is 40 years’ supply of ground-based uranium, but there could be 1,000 years of supply of water-sourced uranium. We may also need to consider other technologies such as thorium power, which clearly does not have the same weapons risks, to see what role they might play in the future.
Let me finish on an area of common ground. The hon. Member for Southampton, Test discussed international grids and connections on the electricity side. That is a very important aspect of our security, and it means that we can consider how to address some of these challenges on an international basis rather than seeing ourselves purely as an island in which we have to generate all our own electricity and all our sources of energy domestically. Moreover, it means that there are parts of the world that will inevitably benefit greatly from that. Potentially, we could have hydropower coming in from Scandinavia, geothermal energy from Iceland going to the southern part of the European grid, and electricity coming from concentrated solar power in the Sahara. That is what makes this such an exciting brief. The opportunities are utterly different from anything that has existed before, but we must have the mindset to succeed. We need a long-term vision that goes beyond 2020 to 2040 and 2050, and we have to consider building all the facts into a map so that we can see where all the potential sources may arise. The underlying principle has to be that energy security is the driving force of our policy in this area. If we can get energy security right—and we have touched on so many of the issues in the course of the debate today, for which I am truly grateful to the hon. Lady and hon. Gentlemen—we will put in place a system that will pass the test of time, move us to a genuinely low-carbon society and keep the affordability issue right at the top of our minds as well.
Miss Begg, we are grateful to you for chairing our discussions this afternoon. I hope that I have answered some of the questions that have been raised during the course of this debate.
Question put and agreed to.