Queen’s Speech

Lord Crickhowell Excerpts

Tuesday 2nd June 2015 Lords Chamber

[Lord Crickhowell (Con)]

My Lords, on energy security, there was an odd juxtaposition in the gracious Speech which said:

“Measures will be introduced to secure energy security and to control immigration”.

I wish I was more confident that the Government will achieve either objective.

The new Secretary of State will need great skills if she is to extract her department’s policies from the quagmire that has embraced them for far too long. My initial optimism was shaken by reading her blog which appeared on the day of the State Opening. It contained the controversial assertion that the UK,

“is one of the most energy secure countries in the world”.

She argued that healthy margins had been achieved last winter; that the capacity market would ensure that future peak electricity demand would be met; and that,

“we are investing in new Energy infrastructure, new nuclear and renewables, as well as exploring from shale gas”.

A blunt statement of reality would have provided a sounder foundation for the actions that are now needed. The report of the Science and Technology Committee, which was referred to by my noble friend Lord Ridley, on the resilience of the electricity system tells us that around one-fifth of the generation capacity available in 2011 is expected to close by 2020. The report comments:

“Closure of old power stations, combined with insufficient investment in new electricity generation capacity, has resulted in the capacity margin being squeezed ... By October 2014, following a series of power station outages, National Grid reported that the capacity margin for winter 2014/15 would fall to 4.1%”.

It is true that by putting in place short-term measures the capacity margin has been increased. However, the cost and sustainability of those short-term measures is a factor that has to be considered.

The Government are relying on two mechanisms created by the Energy Act 2013: contracts for difference and the capacity market. Contracts for difference are designed to stimulate investment in renewables, carbon capture and storage, and nuclear. The capacity market is designed to offer all providers a steady, predictable revenue stream, in return for which they must produce energy when needed or face penalties. I shall say something later about the problems that are already apparent.

On page 16 of the immensely authoritative report by the House’s Economic Affairs Committee, The Economic Impact on UK Energy Policy of Shale Gas and Oil, in evidence Professor Helm said that,

“by 2015 or 2016, the capacity margin in this country will be very close to zero; in fact, I have done some numbers which suggests that it might be below zero. What is going to fill the gap”?

The committee concluded:

“There is a growing risk of power cuts in the UK as the margin of electricity generating capacity over peak demand shrinks”.

My noble friend Lord Ridley told us about the recently announced closures of coal-fired generating capacity. In just three years our total coal-fired capacity will have fallen from 24 gigawatts to 15 gigawatts. Like Professor Helm, I ask what is going to fill the gap. I wish it was nuclear. In 2011, when I was a member of the Science and Technology Committee, we produced a report on nuclear research and development capabilities and said:

“Some experts suggest that 12 GW of energy generation is the minimum contribution that nuclear could make … up to 2050. However, the weight of evidence indicates that significantly higher contribution … is likely to be required”.

In 2013 the Government published their Long-term Nuclear Energy Strategy, stating:

“The Government believes that nuclear energy has an important role to play in delivering our long term objective of a secure, low carbon, affordable, energy future”.

But here we are in mid-2015 with little prospect of new nuclear stations making a contribution until well after 2020. The coalition Government tried to negotiate a deal with EDF and its partners to build a new station at Hinkley Point. My noble friend Lord Ridley suggested that it was a disastrous selection of the wrong company with the wrong technology. On the original timetable, we would be expecting completion in a couple of years. As it is, no deal has been signed and every so-called deadline has been passed. It seems that private investors are unwilling to take on the risks, even with the guarantees offered by CFDs.

If we are to get a nuclear programme under way, it may be that the Government have to be a major player, as other countries have found, and as was the case with Britain’s original and successful nuclear programme. Ministers talk about the importance of infrastructure investment. Is there any infrastructure investment more important than that which will secure long-term energy security, and is there any action likely to be more effective in meeting the fears and objectives of the noble Lord, Lord Layard, than an effective nuclear programme? These are issues about which Ministers should be thinking pretty hard.

I pose another question. Energy and climate change policies are funded through levies on consumer bills. Some of those levies are managed under the levy control framework and a cap which DECC has agreed with the Treasury. It will rise to £7.6 billion in 2020-21. Analysts suggest that DECC has significantly underestimated the cost of the existing policies. If these analyses are right, DECC may have fully committed the budget available under the levy control framework right out to 2020, leaving nothing available for anything else. The Secretary of State will need to take urgent steps to address this situation and to change some of those policies along the lines suggested by my noble friend Lord Wakeham.

The Economic Affairs Committee has pointed out that substantial volumes of gas will still be needed over several decades for home heating and as a back-up supply for the power sector when supplies from renewable sources such as wind and solar are inevitably intermittent. Even if gas-fired power generation is replaced over time by renewables and nuclear, and that may be a very long time,

“gas is likely to remain the main source of heat in the UK’s economy”.

That is why shale gas is so important.

The new energy Bill announced in the gracious Speech may give a boost to the UK oil and gas offshore industry, but it will be introduced against a background of declining North Sea oil and gas output, down by almost 40% since 2010. As the Economic Affairs Committee observed, the industry response remains uncertain. It also concluded that the development of shale gas in the UK on a significant scale would provide substantial benefits. The depressing thing is that once again we seem to be firmly stuck in a quagmire. There is a great deal of talk and not much effective action. The Economic Affairs Committee concluded that the regulatory framework was dauntingly complex:

“Unless the Government act to streamline the system so that regulation is effective as well as rigorous, the UK will be unable to take full advantage of the economic opportunities offered by shale gas ... The Government must take decisive measures to quicken the pace of exploration and development of the UK’s shale gas resource”.

It listed the measures that are needed. I have seen little evidence so far that decisive measures have been taken. We will want to know very early in this Parliament that they are now being taken. If we do not see drilling starting in the near future, it will be unforgiveable, and I fear that the nation will pay a heavy price.

Finally, I trust that the welcome proposals on wind farms will be discussed fully with the Welsh Assembly so that large wind farms are not just pushed into the beautiful parts of Wales. Welsh people will want locally taken decisions just as much as the English.