EU: Energy Infrastructure (EUC Report)

Lord Cameron of Dillington Excerpts

Monday 29th July 2013 Grand Committee

[Lord Cameron of Dillington]

My Lords, I, too, served on Sub-Committee D during the formulation of this report. I have a declared interest of being a farmer with energy-producing resources on my land.

We are a European committee and I believe that the EU now has a major role to play in the trilemma of energy—the intricate balance between security, affordability and decarbonisation—which has already been spoken about. I might repeat what I said at Second Reading of the Energy Bill: I believe that the greatest of these three is security of supply. None of others matter unless we keep the lights on.

As the noble Lord, Lord Maclennan, said, the EU came to this role late in the day, only since the treaty of Lisbon in 2007, but energy should now be a major trans-boundary issue on a par with the environment, international biodiversity, fisheries, cross-border water management, international crime and the like. The EU now has a major role to play in helping provide the lead and the infrastructure for cheap, non-polluting and, above all, reliable energy for the whole continent.

Clearly, certain issues remain the responsibility of member states; for example, the direction of travel and the speed of travel in terms of sources of power generation. Keeping the lights on will indeed remain a national responsibility. On the other hand, issues such as the emissions performance standards can affect the quality of life across Europe and should remain the prerogative of the EU.

There is so much more that the EU can do than mere regulation and controls, the most important of which is interconnection. We had a good go at this when debating the Energy Bill last week and I repeat that with the advent of high-voltage direct current—HVDC—electricity can now be transported across Europe, to Romania from Portugal and to Sweden from Sicily, although north Africa is probably a better example because it has huge solar potential. Soon it should be possible to make connecting electricity from a windmill in Galway Bay to a house in Bulgaria as easy as it now is to talk between those two sites on the telephone. I am sure that noble Lords will remember the difficulty of making that telephone call only a few decades ago. Energy transmission will be the same as telephone transmission.

To create a pan-European electricity grid now would be to borrow at historically low interest rates and would create a huge number of jobs at a time when they are most needed. A pan-European grid would allow intermittent renewables to complement each other: when it is not windy in Germany, it might be sunny in Italy; when it is windy in Portugal in the middle of the night, the power can go to Poland where they are just waking up. Such interconnection could bring a whole new justification to renewables yet to be built. For instance—this is a favourite of mine—a Severn barrage producing the equivalent of three or four nuclear power stations would cost less than HS2. Although it would probably need a strike price nearly the equivalent to nuclear or offshore wind for its first 30 years, for the next 100 years after that, the electricity produced would cost only about 2p to 3p per kilowatt. Even if it is being produced in the middle of the night, it, too, can go to Greece or the like—and at that price they may even be able to afford it.

European interconnection will not only help keep the lights on but should also ensure that our economy and industrial output has access to the cheapest electricity available. That is not to say that we do not also need our UK capacity mechanism to help us keep the lights on in the mean time, as the noble Lord, Lord Whitty, said, because there is a long way to go before we achieve such continental connectivity and there is much work to be done. Not only must the European Commission inject the funds necessary; the €9.2 billion available for energy under the Connecting Europe Facility is, frankly, laughable when you consider that it also includes gas storage and pipelines across Europe. It is certainly not enough when we are told that before 2022 we are going to need €104 billion for grid connections, including €23 billion for subsea cables alone. The Commission must raise both its own funding and European Central Bank funding, and permit and encourage massive joint funding from the private sector. It has also got to clear the questions of differing regulatory regimes that exist across Europe, as well as the specification for the interconnectors and who is going to own and manage the infrastructure in the future. In other words, in order to secure private investors, the Commission has to help decide, but perhaps not dictate, how those investors are going to get a return on their money. It should also stick to the plan, unlike some member states have done recently. Politicians must resist the temptation to see energy companies making large profits and think that this is somehow wrong. If these generating companies are going to have to raise billions of pounds—€3 trillion, as the noble Lord, Lord Whitty, says—I am afraid that, certainly in the early days, they have to have huge profits in order to pay the investors. If the investors get a sniff of the fact that some politicians are going to step in and start taxing them, this investment is not going to happen.

I agree with the noble Lord, Lord Whitty, that we must try to avoid any obfuscation on behalf of these companies. Everyone should be up front, including the politicians, about the fact that we have to raise the money and that therefore the profits are going to follow, as night follows day. There has to be full clarity across the board. Everyone has to be clear in advance about what is going to happen because we have to stick to the plan; otherwise, we will not get the investment.

Another area that all parliaments have to engage in, including the European Parliament, is pressing the case publicly for interconnection and helping to overcome public antipathy to the means of connection; that is, pylons. I am afraid that in order to get the connection we have to have the pylons.

Moving on from the problems of interconnection—I suspect that we probably had enough of that last week—the two other important roles for the EU here are: to get the EU Emissions Trading Scheme working effectively and to put more money into R&D. I will not expand on the EU Emissions Trading Scheme—ETS—because I think our report does that effectively. But we need notice now of a floor price to come in, say, 2020—and, yes, if necessary, a ceiling price if that makes the politics easier—and we need an increase in the annual rate of reduction of allowances after 2020, so that everyone knows that the cost of carbon emissions is going to go up between 2020 and 2030 and they should start planning and investing for that now.

Getting the EU ETS right should be part of a larger strategy. There is a view that the ETS is now a busted flush and decarbonisation is better achieved by regulation, targets or even specific carbon taxes. I sympathise with that view but I would prefer to give the ETS one last push to see if it can work. From our conversation with the Secretary of State, I gather that that is also the Government’s position. We need to work very hard on this because it is going to be very difficult. Nevertheless, as I said, the ETS should be part of a larger strategy of ensuring that the 2030 roadmap gives the clearest, most certain and irrevocable signals for pan-European investment in energy up to 2030, because the programme for investment during that decade is just about to begin.

Turning to R&D, I note that the recent EU financial framework has increased the overall research budget from €55 billion to €80 billion. But is this enough on a continent whose economic future depends on being at the cutting edge of technology in so many different fields? You have to ask how much of this will find its way into the energy sector. During our investigations I was very struck by how many of our witnesses reckoned that with the current windmills and PV panels we are really only floundering at the edges of renewable power generation, and how we have yet to make those important breakthroughs that will achieve zero-carbon power emissions. We do not know what the future will hold but, as sure as goodness, we need to spend a lot of time and effort trying to find a way to a better future. We need to considerably increase our R&D spend.

That brings me to carbon capture and storage. This is not so much of European importance but is of crucial importance to the world. World electricity usage is estimated to rise by 84% between 2008 and 2033, and well over 50% of that new power will come from coal. Already China’s annual increase in coal-powered electricity equals the whole annual electricity demand of the UK. That is billions of tonnes of CO₂ escaping into the atmosphere. But if we could pilot and promote an effective and practical system of CCS, we would be doing something hugely important to save the world. It would take most, or all, of the sting out of coal and gas-driven energy. However, it became obvious during our investigations that the rest of Europe seems to have turned its back on CCS, so once again it is up to us, the UK, to keep our nerve and push on with our CCS projects.

I left my remarks on CCS to the end because I think they are the most important. Europe uses 10% of the world’s electricity so what we do and how we do it is not very important in the overall scheme of things except to our own economy. But CCS is important and if we can come up with a viable solution here, not only will we have a technology that we can sell but one for which the world will—or certainly should—be eternally grateful.