EU: Energy Governance (EUC Report)

Lord Howell of Guildford Excerpts

Monday 13th June 2016 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I declare my interests as in the register on energy connections and matters, and I congratulate the noble Baroness, Lady Scott, on her very interesting report. I was not a member of the team, but I read it with the greatest of interest. I am sorry that she has been rotated off. I hope that she is rotated on to something else fairly soon by the mysterious forces that do the rotating. As my qualification, I spent the war years as a child in Suffolk. I seem to remember that we relied on old-fashioned windmills to survive at all in those days.

The report raises so many interesting questions and I have confined myself to two observations. First, this is one of the fascinating areas where we need a lot more Europe and a lot less Europe at the same time. That is a complicated thought and it does not fit in at all with the current Brexit debate, which reduces everything to polarised simplicities, but then hardly anything fits into the current Brexit debate that is of a serious and real kind. The “more”, as noble Lords have rightly perceived and as the report fully recognises, is in the area of physical interconnectors, gas and electricity and the appropriate grid systems, and the regulations, which are immensely complex, needed for the transmission of power or the travelling of gas across borders. We could then have a genuine competitive market in Europe, in which gas and electricity can be priced in a competitive way. We are very far from that. The funding and the organisation of that can only be a pan-continental system, including the UK. We do not have that yet and we have to move towards that to achieve all kinds of objectives in Europe, certainly that meet the trilemmas of reliability, affordability—which we do not have at present—and lower carbon.

The “less” part is more controversial. It is that the EU’s detailed direction in the past—which was even more detailed than now—about how each country should decarbonise and resolve the dilemma has been far too extensive and intrusive and has had very perverse consequences. The report rightly recognises this, but one could be even more frank and point for instance to the German situation. It is the worst example of excessive attempts to meet low carbon leading to higher carbon, to lignite being burnt on massive scales and more coal stations being built, which is the very reverse of what was intended. It is a classic example of good intentions paving the way to we know where. Indeed, the latest figures for CO₂ show that German CO₂ is actually rising again after all its efforts. That is a special situation, I know, because Mrs Merkel decided to close down nuclear power, which would have been one of the contributions to a low-carbon future for Germany.

In this country we have done somewhat better, although at a much bigger cost than some of the optimists forecast when they said that energy transformation would be quite cheap. It will not be quite cheap: it is proving and will prove colossally expensive. It has also raised the shadow of power shortages and narrow safety margins, as is mentioned by almost every paper every day, including this morning. As to the CO₂ side of things, on the production front we have done rather well and there has been a significant UK reduction of CO₂, but that excludes all the leakage effect of the carbon that is included in our vast import and consumption-based emissions. That is one comment I wanted to make about the more and less.

The interconnectors themselves are very important not only to the whole of Europe and the competitive market but particularly to this island. I had the opportunity when I had responsibility as Energy Secretary 40 years ago to be in office when the French connector, which was operative from the 1970s, was enlarged and strengthened. I now read that we are to go for a second, which is extremely good news and very much part of our future capacity. It will indeed help to save us from very severe challenges to the reliability of our power supplies and the danger of the lights going out, as was mentioned insistently by Ministers in their evidence to the committee.

It is not the only one. The Danish connector Viking system is under way. The link with Belgium is under way. The possibilities are there for a much longer link with Norway, which will be particularly attractive because it would not be intermittent, spare electricity. As a result of Norway’s hydropower and storage capacities, it would be electricity on demand, as needed at any time. The Danish one would be very intermittent because the Danes have a huge surplus of wind power and are anxious to transmit it whenever it would otherwise upset their entire grid balance. Then there is Iceland, where we could draw on volcanic energy, which would be extremely green and attractive but would again require a considerably long connector system and complicated switching stations either end. But all in all, for Britain alone, we can draw on a minimum of 7 gigawatts extra of electricity, which will be a blessing when one thinks of the dangers of the narrowness of the margins in our own system in the near future, which I will comment on a little more in a moment.

My second observation is that the report talks about energy and climate national plans. The noble Lord, Lord Teverson, has a mastery of these things and said that he welcomed them. My difficulty is that I cannot see that here in the UK we have an energy plan. We have an energy hope that we will muddle through to 2018-19, and that is largely thanks to the brilliance and ingenuity of National Grid, which has set out the ways in which somehow, by hook or by crook, it will manage supply by particular arrangements and incentives, all of which I should say are extremely costly, and by manipulating demand through entering into contracts where demand can be interrupted. In these ways it hopes to get through the next three years without a power crisis. That is the plan. But of course beyond 2019-20 we simply have to build new gas turbines for the simple reason that we have seen 11 major closures of coal-fired stations in line with the policy of both the previous and the present Government. If we are to cover supplies through the early 2020s and have an adequate margin instead of the very narrow one that we are heading for now, and until nuclear kicks in—we hope—in the late 2020s or early 2030s, we need enormous skill on the part of National Grid and we will need more gas turbines.

The hope, not the plan, is that this will be done by greatly increased energy efficiency—the noble Lord, Lord Teverson, rightly says that that is absolutely the key—by reduced energy intensity which is necessary to help with the low-carbon aims, and by much more local generation and a whole range of new technologies, some of which we cannot even foresee at the moment, although we will need them within the next five or six years. It is also going to be done through better capacity arrangements that we have now because so far they have not produced any of the new-build combined-cycle gas turbines we need. I hope—again it is only a hope; talking to the would-be investors it is very much a hope—that the new arrangements will encourage them to come forward and invest.

The reality is different. So far the gas turbines have not been built and instead old plants have been subsided and even diesel has been boosted. Moreover, as the noble Viscount, Lord Hanworth, rightly reminded us, the nuclear future lying at the end of the 2020s is looking extremely wobbly. I have hopes that it will survive and that we shall get through the period, but the very name Hinkley Point C produces frowns on many faces. It is hard to see how all that work is going to be completed in line with the wishes of the French and British Governments unless they take the obvious route of halving the size of it and building a single reactor as at Flamanville, and thus halve the enormous capital costs. I suspect, although it is only a guess, that that is where they will come to in the end.

What the EU should be doing in terms of governance is rather different from what it is doing now. The energy union is mentioned in the report. It was a document of immense length and I know that there were good intentions behind it. It sought partly to increase the security of the Gazprom-threatened eastern and central Europeans, which in the case of two or three countries has been very serious because they were 90% to 100% reliant on Gazprom. It was a progress policy, and in part it was to continue the anti fossil fuel policy by encouraging the move away from dependence on fossil fuels generally in Europe. Of course, as is often the case with these sorts of attempts, it did not please either side. It took up a great deal of print and to this day people are still arguing about what it really means and where it is going to lead. But that is not where the real need lies. It lies in giving maximum encouragement to new technologies and reduced renewable costs; that is, new technologies in all fields, including the cleaner burning of existing fossil fuels and of course going for physical connectors, as I have said.

European Union governance should also be giving maximum encouragement to the storage technologies already mentioned by noble Lords. There may be a breakthrough quite soon, which will be very exciting and will transform many prospects. There is the issue of CCS which we have talked about again and again: how do we get the costs down? The present situation has left one feeling that the whole technology is still too expensive to be brought into the commercial range. I urge those in charge of EU governance to do something that may surprise your Lordships, and that is to look at what the Indians are doing. They are building hundreds of new coal-fired stations, but they are not unaware of their responsibilities—the Paris commitments and what the world requires of them. They cannot afford CCS and must have cheap power for the hundreds of millions of Indians with neither electricity nor water, so it is desperately needed for development. They say that if they can work with off-the-shelf technology for ultra-supercritical boilers, they can achieve a 45% efficiency increase in their coal-burning capacity; that is, they can get 45% more electricity out of the system for every tonne of coal burned. That would have a distinct impact, perhaps not a welcome one to purists, in lowering carbon emissions.

The third area, aside from CCS, that needs much more attention is at the refinery end. We have too many refineries that are higher carbon than necessary, and of course we are importing a lot of fuel into Europe from areas where the refineries operate with substantial carbon emissions—far higher than some European refineries, which find themselves in great economic difficulty. It is a completely messed-up situation and it needs to be reorganised.

We all know in the end that Asia is the epicentre of climate disasters and that, if we are serious about combating climate change, the answer really lies in diverting India and China from cheap coal. There is a long way to go. We are making some progress and last year world carbon intensity actually fell by 2.8%, which is extremely good news. But the fact is that it needs to fall by 5.5% every year for the next 20 years to get anywhere near the Paris goals. Our contribution here in Europe is bound to be mainly by example and by what we can do by putting our shoulder to our resources and all our firepower into new technology. On those we are not doing well enough. EU governance should be supporting us with new priorities instead of pursuing overly prescriptive energy policies. That needs a new mindset in Brussels—a move into the digital age of less centralisation and standardisation to more individualisation, if you like. It is about the progressive nationalisation of energy policies which the digital age allows for but was not conceived of at the beginning of the European Coal and Steel Community, EURATOM or the foundations of the modern European Community. We need the kind of fundamental EU reform that many of us hope for and for which the United Kingdom should be pushing. We are left with the thought that we can do that, unless of course by some awful error we are not there, in which case we will not be able to do anything at all.