Electricity System Resilience (S&T Committee Report)
Debate between Viscount Ridley and Lord O'Neill of Clackmannan(8 years, 6 months ago)
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Lord O'Neill of Clackmannan (Lab)
My Lords, I have interests in the electricity industry, and I have declared them in the register. First, I congratulate the noble Earl on this report. He and I have served as colleagues on the committee for many years, and I was more than delighted when he assumed the chair. He has already acquitted himself with great distinction today and in the production of the report.
When we embarked on this inquiry, I do not think we anticipated that we would be debating it at such a significant time of year. About now there is usually a meteorological Cassandra forecasting the coldest winter in living memory and concluding that we are all doomed to months of freezing darkness. Although I would not want to adopt a Panglossian view of the prospect for the next few months, I think that some cautious optimism is called for, at least for 2015-16.
National Grid, the system operator, has forecast a loss of load expectation of 5.1% de-rated capacity margin, which will be met by 2.43 gigawatts of additional balancing services. At the time we were given the evidence, I could probably have explained all that to your Lordships in very simple terms, but I will not trouble the House this evening by going into great detail. Suffice it to say that a major element will be demand-side management.
When we were taking evidence, we were told, as I said, that we could be confident that in 2015-16 the lights would not go out. National Grid has a reasonably sound track record in that area. The question remains: what of subsequent winters? It is perhaps easy to say that the margins are getting ever narrower and that we should have dealt with the anticipated problem earlier. I have been participating in debates in the other place and here for nearly 40 years, and I have always heard people saying that we must have a long-term strategy.
I came into Westminster in the 1970s, when, like the welfare state, the coal industry was big. It was something that we took pride in. Within about five years, the coal industry was to be destroyed. After 1989, we embraced gas because we could start burning the gas in the North Sea to keep our houses warm. There was a major change in European policy, and we embraced gas-fired power stations at the expense of everything else. We abandoned nuclear. Then we discovered that it might be a wee bit dangerous if we were to be completely in thrall to gas, because we did not always know where it was going to come from. The somewhat hyper-enthusiasm for gas of the noble Viscount, Lord Ridley, this afternoon suggests that he has forgotten where a lot of the gas that we depend on comes from. We might not want to be overdependent on some of the sources of supply.
Nuclear was out; gas was going to be the answer. Then, people began to wake up to the fact that we were going to be shutting down our nuclear power stations, which in those days accounted for about 25% of our power. Even if we kept just a few coal-fired power stations and imported the gas, European diktats were going to require us to start closing them down as well.
So I am very cautious when people tell us that what we need is a long-term strategy, because most long-term strategies last about seven or eight years, maximum. At the same time, if we are investing in nuclear power, it is very expensive at the beginning but has a very long life. It is therefore possible to pay it back over time. Nevertheless, it is a major expense. We know at the moment that it is very difficult to attract investors to it.
We have been looking at the closure of power stations, the reduction in our capacity quickly to replace them and, at the same time, our dependence on renewables. The dependence is on plants that are too small and, invariably, interruptible. Therefore, while we can look forward with some confidence to Hinkley, it is not quite in the fusion category, yet it is taking rather longer than we had anticipated. It is not that many years ago when we thought the Christmas turkeys of 2017 or 2018 might be being roasted with nuclear-generated electricity; it might be more realistic to talk in terms of 2027. Certainly, the French record of building nuclear power stations is none too encouraging, although one would hope that, having had two test runs in Finland and France, they might be able to make a better job of Hinkley than they have hitherto. One thing that is certain is that the electricity that will come out of Hinkley will not be cheap, because unfortunately the first-generation kit being constructed in the UK is the most expensive, and takes the longest and is the most difficult to build. Some might say that we could get new nuclear from other sources almost as quickly as we get it from Hinkley—but that is another issue.
Demand management, which is really the self-imposed reduction in demand by major consumers, is seen by National Grid as an important contributor. It will ensure that there will be no enforced blackouts in the foreseeable future, but this will have to be achieved in the context of emerging electricity markets, which are in the process of being reformed. The committee expressed concern about the quality of information on which many judgments are being made, particularly the appropriateness of the reliability standard. The Government are required by law to monitor that every five years. They would be well advised to produce annual reports to let us see what the thinking is, rather than dashing to get the information in place in the last nine months before the end of the five-year period.
As has already been said, it is not all about indigenous generated power, because we have interconnection. However, the situation is not very clear, as the information we received on back-up generation and interconnection was somewhat less than satisfactory. It would be interesting to hear from the Minister whether that information has been updated. Certainly, we would want reassurance regarding the scaremongering that often provides the headlines, fills the space between the adverts in social media and feeds the paranoia of the bedsit conspiracy theorists; we need better information to dampen those anxieties at source. It is fair to say that we were impressed by the awareness of the appropriate authorities of the dangers of cyberattacks on the system and terrorist threats generally. There was a reassuring absence of complacency; they certainly seemed to anticipate what the bad guys would be trying to do. In that sense, we have some degree of consolation. Nevertheless, eternal vigilance is required in this area, as in so many others; we underestimate the dangers of cyberattacks and other attacks on our system.
We must be cautious. People say that we will have smart meters and better integrated grids, and that all kinds of technical possibilities will be realised, such as storage batteries, carbon capture and storage, electrical vehicles and electrification of the transport system. All those technologies will come at a cost; many are still immature and cannot really be depended on with any degree of certainty. We have to strike a somewhat cautious note, but it is a bit frustrating for Select Committees when the report has been produced and we have what we think is the most up-to-date information, yet we get very cautious responses. I draw some consolation from my experience in Select Committees, which goes back quite a while. I am reminded of what George Bernard Shaw said—that when he was 18 he was convinced that his father was one of the most ignorant men he had ever met; yet, by the time he was 21, he was surprised how much his father had learned. We often find that, within a very short time— before the dust has settled on Select Committee recommendations—civil servants, the machinery of government and eventually Ministers change their tune. It will be unfortunate if that does not happen here, because this excellent report can be ignored only for so long. We ignore it any longer at the peril of our economy and our quality of life.
Viscount Ridley
The noble Lord says that he is concerned about where the gas is going to come from, but we are more dependent on imported coal than on imported gas, in that 85% of our coal comes from abroad and 40% of it comes from Russia.
Lord O'Neill of Clackmannan
I am not sure whether I am supposed to respond to that. My point is that there are a number of uncertain sources of gas. I think we would all agree that the nature of our dependence on coal is essentially temporary. The long-term requirements of a section of our fossil fuel demand will be met by gas, which will still come from areas that will be unpredictable politically and socially, to say the least.
Energy Bill [HL]
Debate between Viscount Ridley and Lord O'Neill of Clackmannan(8 years, 6 months ago)
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Lord O'Neill of Clackmannan
It is a bit rich, this casting aside of planning legislation and saying that what local authorities’ planning committees come to decisions on are somehow an affront to democracy. Equally rich is the Panglossian view that has just been expressed—or perhaps it is the reverse of Pangloss—that any windmill will be an offence to the eye and should not be allowed. There are a number of windmills, of the 10,000 that we have already spoken of today, which help the businesses on whose land they are located. These are not big landowners—I realise that Members on the other side of the House probably have closer knowledge of those individuals than do the ex-peasants on this side. In a number of instances, particularly in Scotland and particularly for hill farmers, were it not for the presence of the so-called subsidy to get the kit running, such farms would not be able to survive. In my own former constituency, in the Ochil hills, there is a big debate about windmills and their subsidisation, but the quality of the walking there, the attractiveness of the hills and the husbandry of those areas are down to the hill farmers. They depend on other subsidies, but they are never sufficient for them to make anything like a reasonable living. It has been said it is only the big, fat-cat landowners who benefit. Obviously, they will get their share and that is reprehensible; there might be other means of dealing with them in the future—Corbyn notwithstanding, I hasten to add. But it is a very one-sided argument to say that we should cast aside local democracy and ignore the economic benefit to vulnerable businesses engaged in agrarian activities.
Viscount Ridley
I thought that my noble friend Lord Cormack was saying the opposite: that we should not cast aside local democracy and should allow it to prevail without appeal.
Lord O’Neill of Clackmannan
The existing system may not be perfect and it is a source of frustration for many people, but it is tried and tested and it is seen to be fair. The implication of this legislation is that it is going to be set aside.
Energy Bill
Debate between Viscount Ridley and Lord O'Neill of Clackmannan
Lord O'Neill of Clackmannan
If this plant were to become necessary, the price would rise—but the “if” involved in the “were” of this plant becoming necessary is still open to doubt. The noble Lord has taken the worst possible scenario and tried to build the case on it for something that will be extremely attractive and very convenient for the companies that have been lobbying him. It might suit their purposes but it might not suit everybody else’s—and it may not even be necessary in the first place. That is why I have doubts about this sort of stuff, which is almost built on the back of Daily Express scaremongering. We know that there is going to be a terrible winter next year, as there is going to be every year—and, we are told, there are going to be blackouts. Well, we have had terrible winters and, so far, we have not had any blackouts. It is getting worse because the generating capacity is diminishing, but it is not yet diminishing at the rate that would necessarily require us to do what the noble Lord asks us to do.
Viscount Ridley
I had not intended to intervene on this point, but I would like to make a similar point to the noble Lord, Lord O’Neill, although coming at it from a rather different direction. I agree with him that what we will see in terms of the capacity squeeze are price spikes, and, therefore, capacity coming back into use. In that context, it is very well worth noting that, at the cost end of the spectrum for the generators, there is an increasing view among markets—not a consensus, which would be the wrong word—that gas prices are likely to fall over the next few years. I do not know whether anybody saw the FT blog from Nick Butler yesterday, but he made the point that for four reasons gas prices are likely to fall. Not one of those reasons included shale gas; he was saying that, even outside the effect of shale gas, we are likely to see huge new resources coming on stream in the Mediterranean and East Africa and offshore in the Americas, that the LNG market will produce a much more globalised market in gas and that the Japanese uptick in gas demand following the closure of the Fukushima nuclear plant is coming to an end. Combine that with falling demand in India and China, and it is quite possible that we will see falling gas prices. It is quite possible that, as the noble Lord, Lord O’Neill, said, we will be able to see this mothballed plant come back into operation because of rising prices for electricity and falling prices for gas without having to, as it were, bribe them. It is important that we are not in the business of making life easy for producers but in that of making life as easy as possible for consumers of energy.
Energy Bill
Debate between Viscount Ridley and Lord O'Neill of Clackmannan
Viscount Ridley
My Lords, I, too, rise to oppose the amendment moved by the noble Lord, Lord Oxburgh—although I greatly appreciate some of the points that he has made—and, to some extent, to echo what the noble Lord, Lord Dixon-Smith, said. We have heard a lot about the importance of jobs, prosperity and giving certainty to companies—usually ones with Japanese and Scandinavian names, I notice. In response to the noble Lord, Lord Deben, I would say that we do not build power stations for the people who work in them and run them, we build them for the people who use the electricity that comes from them.
Last week, we heard that the Government have decided on a strike price for offshore wind of £155 per megawatt hour. A few years ago, the Government said they had the ambition of getting this down to £100 per megawatt hour. That now seems to have been abandoned, as the number has come down, with inflation taken into account, to only £135 in 2015, I think it is. These are extremely high numbers—three times the going rate for energy at the moment. What will happen to the people in the chemical, cement, steel, aluminium and heavy engineering industries? We know the answer to that. There is an industrial renaissance going on in the United States—a huge resurgence of manufacturing industry—because of shale gas and the effect it has had on energy prices.
Lord O'Neill of Clackmannan
The industries the noble Viscount has cited are wholly dependent on baseload generation. However, he is talking about interruptible generation. He is talking about two different sources. The industries will not be dependent on interruptible generation because they will require continuous baseload generation, 24/7, to conduct their industrial activities.
Viscount Ridley
My Lords, in the United States, shale gas has displaced coal. I should, by the way, declare my interest in coal even though, once again, I am speaking against it and in favour of its greatest competitor, gas. There has been a massive displacement of coal by shale gas, which brings me on to the next point. The effect of displacing coal with shale gas in the United States has been to cause the fastest drop in CO2 emissions of any western country. They are down to the levels they were at 30 years ago and down to the per capita levels they were at 50 years ago. These are extraordinary achievements and suggest that we have, in shale gas, a technology for short-term reduction in carbon dioxide emissions—not all the way down to 50 grams or anything like that but a good chunk of the way—that could be achieved and combined with affordability. The counterfactual to building a huge amount of offshore wind capacity and other industries is to allow the development of gas in this country. We know that the numbers would be much lower in terms of the cost to the consumer—it would be much more feasible and much more affordable. To throw away the flexibility of going for that possibility would be a potential mistake.