Energy Bill

Lord Redesdale Excerpts

Tuesday 18th June 2013 Lords Chamber

[Lord Redesdale]

My Lords, I am very honoured to take part in this debate because it shows how unique the House of Lords is. I do a lot of discussions about energy and climate change and I have not been in a debate recently where the fundamental basis of climate change has been questioned. Almost everybody believes that climate change is taking place. We had more than 200% of our normal rainfall last year. We are facing climate change and its consequences. How do we deal with that and how do we deal with energy generation, which is one of the biggest emitters of greenhouse gases?

We are acting as if the Energy Bill will solve the problem. It does not matter how well drafted this Bill is, it will not solve the problem. We have not built enough generating capacity for a long time. I was trying to explain this to a business audience. Politicians will not bite the bullet and build generating capacity because a power station lasts 50 years. The decision has to be made, the money has to be found and planning permission has to be obtained. It has to be built, it is used and then it is decommissioned. A Government with a maximum life of five years have to make that decision. They have to explain it to a press running a 24-hour news cycle, which has to explain to its readers, who are worried about last month’s bill not next year’s.

The culmination of that is that we have not built any power stations. There has been great talk about it but we are going to face a generating gap. Brownouts and blackouts are round the corner, as has been mentioned by a number of noble Lords. I declare an interest as chief executive of the Energy Managers’ Association. My interests are set out in the register. At a recent conference I put up a slide and asked whether people thought there would be an energy brownout in 2015, 2016 or 2017. We all had those clickers and more than 80% answered 2015. British business is beginning to get very worried about our ability to supply power and investors in British industry see it as a major financial risk.

There is no panacea. Many noble Lords have raised the issue of fracking as if it is going to solve our energy needs. The original estimate for our reserves of shale gas was that, if we used it all, we would be energy independent for a whole six months. Recently a report re-estimated the amount of shale gas at between seven and 10 years’ worth. It is an estimate, so let us take the lower figure. If we use fracking and get shale gas, that is fantastic. We are independent until 2020 for gas, after which it might all be gone. We just do not know.

In Poland, where the Government have not been so worried about the environmental constraints, they have been looking at pushing ahead with fracking but they have found that the gas is unrecoverable economically in the form it is in. America has an enormous amount of shale gas but it is in geological fields above shale oil. It was previously seen as a waste product and the difficulty of getting the oil out was that the gas was in the way. Now they are going after the gas. We do not have the same geology and we cannot claim that we are going to have a sudden bonanza. There may well be shale gas but in its present form it is more expensive to get out than would be economic at the moment.

It might be the panacea for the future but it probably will not be. To get the shale gas out we have to drill 140 test wells and we do not have the planning permission to do that. To recover the gas we need to drill 1,000 wells in the north-west. Members of Greenpeace will have a field day at all those planning permission hearings unless we change the law on planning permission.

This is the reality of what we are facing. We are very dependent on our generating capacity at the moment. Many noble Lords said that Europe is going to close down our coal-fired power stations. That is not the case. We have not built any for a very long time. The existing ones are very old, they are at the end of their run cycle and, in fact, we are increasing the rate at which they are shutting. The price of American coal has fallen as it has been displaced by shale gas so we have been firing up a lot of coal-fired power stations to run that generating capacity cheaply. This reduces the life-cycle of the coal-fired power stations we had in reserve in moth balls.

We will be reliant on natural gas. That is why I have an issue about decarbonising the electricity grid, because if you are doing it through natural gas, 70% of the energy is being thrown up the chimney of the power stations producing electricity. It is far better to put it in the grid and burn it in condensing boilers, which are about 94% efficient and are at the point of use. There is only about a 0.5% loss on the gas grid compared with the transmission loss on the electricity wires.

I am not certain that contract for difference will even work. I know that that probably puts me in a minority on this side of the House, where we are saying that it will work. Before everyone gets excited, I remember discussing the EMR years ago. The policy started before this Government were in power. That is the problem with energy policy. Even though it might not work, it is still coming through. I know that there are a number of reservations.

I do not think that anyone will object to the Bill as we need to push forward with the investment and the regulatory framework that means that people will invest in generating capacity. It has been the constant call of those who want to invest enormous amounts of money in the industry that we have a secure regulatory framework and security for investment.

The Bill must address the difference that we are facing in society today. The concept is that energy prices will remain at the historic low of the past 20 years. That will probably not be the case. We will probably go back to a position where energy is a far greater proportion of take-home pay than it has been in recent times. An opportunity arises from the rise in energy prices. A recent report stated that 44% of all energy used in this country is wasted. The simplest way to reduce the cost of energy is not efficiency but demand management at every level. We need to change the way that we view energy and instead of saying that we need to provide more and more energy at ever cheaper prices, we should start to pay realistic prices. It does not matter that there may be more finds of gas. Our problem is that China and India are starting to consider converting their coal-fired power stations to gas, and they are closer to the gas fields than we are.

I am secretary of the All-Party Qatar Group, and had a meeting with the Emir. I am not saying that just to drop names, although I am a very important person, of course. This was a while back. As I went in, he had a smile on his face because a Japanese delegation was leaving. He said, “Do you know what is really amusing? You are coming to talk to me about gas, but they just wanted to try to steal all your gas”. That was after Fukushima and the Japanese delegation was trying to get as much LNG as it could because they had to run their power stations. He was laughing. I found that quite scary, because it sent the price of gas up. Many areas will be looking for large supplies. There are not enormous supplies of gas out there that we can go to buy easily without political consequences.

The Bill is important. An important aspect of it should not be overlooked. The Government have said that they will be tabling amendments to address electricity demand reduction. Instead of just talking about one pilot, we should be looking at how we get the whole of the population to start changing the way that they use electricity. The place to start is business. The organisation that I run will start by introducing a concept called low-energy companies, where it trains a proportion of all staff up to energy management level 1 or 2, which involves the awareness of energy managers, and then starts to introduce energy managers. The importance of that is that very few businesses have energy managers. The last time we started hiring energy managers was in the 1970s, when the oil shock hit and prices were rising. We can create vast numbers of energy managers who can massively reduce the amount of energy that we use in British industry. That is very attractive to large companies, and we are launching it in London Zoo, in front of the penguin pool. We are launching it there because the penguin pool has a problem, which is that the penguins tend to defecate in the water. There are 100,000 litres of water in the penguin pool. The pool has to be filtered three times a day, which has a massive energy cost. You have to understand how to keep the animals fit and healthy, but if you are running a business, you also have to understand where the cost of the energy is. That is quite an interesting one.

We are bringing companies with more than 2 million employees who want to do it with their employers and they want then to push it on to their supply companies. The very real reason is financial risk. A number of these companies have been told by their suppliers that energy prices will probably rise by 20% a year for the next four years. That is quite a frightening statistic. Most people are talking about much smaller rises, but the energy companies have started to say that these larger price rises are coming down the line. If that is the case, British industry is going to have to do a vast amount more to make itself efficient, or it is going to go out of business. However, the other aspect of this is, of course, that it is not just a British problem. Other countries around the world are facing rising energy prices. Companies that think they can get cheap offshore energy prices are in for a shock in the future.

I hope this Bill is a success. I obviously believe that it will not be held up a great deal as there are incredibly important elements in it. I very much hope that we do not lose sight of making sure that one of the biggest gains in reducing energy prices is by not using energy in the first place.