Lord Tombs
To ask Her Majesty’s Government what steps they are taking in response to the recent projection by Ofgem of a fall in the generating plant margin from 14% at present to 4% in the next four years.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, Ofgem’s capacity assessment emphasises the importance of action to ensure that we continue to enjoy electricity security in the medium and long term. That is why the Government are taking decisive steps to secure our supplies, including reforming the electricity market to drive the investment that we need and consulting later this year on options to reduce demand for electricity. Recent announcements on investment in a new gas power station at Carrington and from Hitachi on nuclear investment demonstrate that the Government’s approach to securing investment is having real impacts.
Lord Tombs
My Lords, as the Minister will expect, I found that Answer wholly unsatisfactory. We are in the early stages of a major crisis. At present, a lot of our supply comes from nuclear and coal stations, which provide about 40% of our national demand, with the rest coming from gas. Much of this plant is 40 years old and quite a lot of it is 50 years old—well beyond the date by which one would have expected it to have been retired. The task of replacing it is enormous and will take a long time. We ought not to feel complacent at all, because estimating the date of the necessary retirement of this plant is not easy. Can she assure me that the dates and programmes for the retirement of 40 or 50 year-old plant are clearly specified, together with plans for replacing it?
Baroness Verma
My Lords, I should like first to reassure the noble Lord that this Government are not being complacent. That is why we are taking action to ensure that the UK economy continues to enjoy high levels of security of electricity supply. Our comprehensive proposals for electricity market reform will drive investment, ensuring that we have a diverse mix of energy sources. This includes legislating for the capacity market, which I am sure the noble Lord will be pleased to hear. We have sufficient reliable capacity in the system for the long term, but we need to build a stronger framework, which we are doing. We are investing in renewables and maximising the recovery of oil and gas from the UK continental shelf. There is a lot to do—I agree with the noble Lord—and we are doing it.
Lord Jenkin of Roding
My Lords, is my noble friend completely satisfied that the Ofgem forecast is not being a bit cautious, particularly—to pick up the point made by the noble Lord, Lord Tombs—with regard to extending the lives of the AGR nuclear power stations? Is she aware that some of us heard a very compelling address to the Parliamentary and Scientific Committee by one of the research experts in this field saying that science now shows that extending those lives is distinctly feasible, perhaps up to the end of the decade and even beyond? If that happens, would that not significantly improve the figures that the noble Lord’s Question has quoted?
Baroness Verma
My Lords, I recognise and pay tribute to my noble friend’s expertise on this; having been in post for only eight weeks, I am sure that there is much that I can take away from him. However, I emphasise that the report has been prepared independently by Ofgem. It is important to acknowledge that the projections of future electricity capacity are dependent on a range of assumptions. I hear clearly what the noble Lord says about the nuclear power stations having extended life. All I can say to reassure him is that there are a lot of discussions going on and much of that will be relevant to what he has raised.
Lord Kennedy of Southwark
My Lords, could the Minister give the House some figures, please? What is the total installed generation capacity required to meet our peak demand and what is she going to do about it?
Lord Kennedy of Southwark
Could the Minister give the House some figures, please? What does she think is the total installed generation capacity needed to ensure that we meet our peak demand?
Baroness Verma
My Lords, I reassure the noble Lord and the House that we have enough capacity to ensure that the lights do not go out. We have been in this place before. As noble Lords will know, in the last decade we had a similar prediction that we would have a drop in supply, but of course the lights remained on. We are working with all our efforts to ensure that, through renewables, gas and coal, those lights stay on.
The Lord Bishop of Chester
My Lords, could the Minister tell the House to what extent we already depend on the interconnectors with France and the Netherlands? What potential is there to go cap in hand to our European friends for more supplies in the years to come?
Baroness Verma
The right reverend Prelate raises a point of which I am sure noble Lords are aware, which is that we have a very good relationship with our European friends, particularly with Norway. We are focused on ensuring that our renewable marketplace will assist us to be self-sufficient and have our own security of energy. We will do that through our energy Bill. However, these issues are of long standing. This Government have taken a very proactive, positive step to ensure that we address these issues.
Lord Teverson
My Lords, the Government’s national policy statement for energy says that there is currently 85 gigawatts of total generating capacity in the UK, while the average demand across the year is only half that, so there is a 50% margin. Will the Minister tell us how the Government intend to reduce the peaks in demand, which could save us billions of pounds on investment, and how this might be brought into new energy legislation to ensure that we reduce the demand side as well as put up the supply side?
Baroness Verma
My noble friend is absolutely right. Of course the Government recognise that we need to make sure that we are reducing demand. We are also making sure, through our energy Bill, that our capacity mechanism will be able to bring down prices, which is something that we all want to see.
Baroness Worthington
My Lords, a careful reading of the Ofgem report will show that, although we will reach low levels in 2015-16, capacity will pick up again in 2016-17. That is partly because of an increased contribution from renewables, chiefly biomass and wind. Given that, will the Minister reconsider the fact that the renewables obligation is set to close in 2017, because there might be a hiatus as a result?
Baroness Verma
My Lords, the noble Baroness raises an important point. She is absolutely right that the report is not all doom and gloom. Our work towards ensuring that renewables account for 30% of the electricity that we generate is part of a big mix. I am sure that, when we come to consider the energy Bill, the noble Baroness and I will have further discussions on how to improve our security of supply.