Energy Bill
Debate between Charles Hendry and Alan Whitehead(10 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Dr Whitehead
The Saskatchewan power plant that I mentioned is not a new coal-fired power station, but an existing one that has been refurbished to take on carbon capture and storage. The right hon. Gentleman’s question should have been the other way around: he should have asked me when I might expect to see an existing coal-fired power station with carbon capture and storage attached to it in the United Kingdom if the amendment is passed. My answer is that if the amendment is not passed, it will be far less likely that existing coal-fired plants, which are effectively given a derogation by the Bill, will take on carbon capture and storage, although they know that they must do so sooner or later for the sake of future investment. They will do it in the end, but there will be uncertainty for some time before they do.
My answer to the right hon. Gentleman’s question is that I expect an existing coal-fired power station to start to address itself partly or wholly to carbon capture and storage much earlier if the amendment is passed than it would otherwise. That would put that station bang in line with the Department’s long-term decarbonisation aims.
Charles Hendry (Wealden) (Con)
Should we not learn the lesson of the Longannet experience? In that instance, we discovered that the cost of trying to retrofit carbon capture and storage technology to a very old power station that needed many millions of pounds of new investment made it uninvestable. Surely, it is likely that a new plant will be fitted with carbon capture and storage, rather than an old plant’s being retrofitted.
Dr Whitehead
With a relatively small amount of underwriting—far less than is proposed in the UK Government’s competitions—it was possible to undertake the retrofitting of the Saskatchewan plant alongside a refurbishment. The interesting issue was not the progress and, indeed, the completion under budget of the plant’s carbon capture and storage element, but the fact that the retrofitting itself—the upgrading of the coal-fired power station—caused the difficulties. Its operators estimate that future arrangements could cost 20%, 25% or 30% less than the first retrofitting. I do not agree that this is uninvestable; on the contrary, it is an essential part of the process of realigning energy objectives and power output over the coming period.
Dr Whitehead
The question is the extent to which plants can run, and what hours would be attached to them—a process that has already been undertaken under previous directives—during the period up to the early 2020s. The question for those power stations is not the point at which they switch over or at which they stop; it is whether they can continue unabated past the early 2020s. That is the key issue.
I commend the amendment to the House because of its congruity with current departmental policy and the certainty that it would confer. It brings together a number of elements relating to the trajectory for cleaner, lower-carbon energy, and it would send a clear signal to investors. In the medium and long term, that would give us far more certainty of reliable and secure capacity than we have at the moment.
Charles Hendry
I refer hon. Members to my entry in the Register of Members’ Financial Interests.
Like most other Members, I have received many postcards and e-mails from people urging me to support the Lords amendment, but those e-mails seem to have been based on a misunderstanding or a misapprehension, based on misinformation. That has been either wilful or accidental, but it is certainly there. They start by saying that, although the Government said that they would be the greenest ever, we are now burning more coal than we have done for many years. Those two statements need to be examined.
This Government are the greenest ever. We have seen an increase in renewables generation from 5% in 2010 to 16% now. We have seen the biggest investment in nuclear power for a generation, and we hope to see more coming through. We have also seen an added impetus being given to the renewable heat incentive today. All those factors demonstrate our direction of travel.
The suggestion that the Government have somehow been promoting an increased use of coal is fundamentally wrong. We are using more coal than we were just a short time ago. I looked at the figures just before the debate: 39% of the electricity being used in the UK as we sit here today comes from coal. That equates to 18 GW of the 46 GW. That is happening for two reasons. First, the price of coal is historically low compared with that of gas. The shale gas revolution in the United States has meant that the coal that used to go into the US market is now being deposited in the European market at a low price and people are therefore burning it.
Secondly, the owners of the coal-fired plants know that they have only a limited number of operating hours left, and they want to use them while the carbon floor price is lower, rather than as it continues to rise. People should not see this as a fundamental shift to coal; it is a short-term increase in its use and, as we have heard, those plants will be closing down in the near future. Some are closing this year, and more will close throughout the decade. The concern expressed in those e-mails by those who support the amendment has therefore been based on a misunderstanding.
I am concerned about the implications of the amendment for several reasons. The first relates to political risk. This is another measure that would increase the political risk attached to investment in the energy sector. We know that we need many tens of billions of pounds of new investment in the energy sector, right across the electricity spectrum. The people who own the plant that would be closed down by the proposal are the same people who we are asking to build new gas plant, new CCS plant and new renewables plant. If they see the UK becoming more unpredictable, that will make it harder to secure the levels of investment that we need. We must be wary of going down that route and adding further political risk to the issue.
My second concern relates to the coal industry in the United Kingdom. When I was a Minister, I tried hard to increase the proportion in the mix of coal from UK mines. It had been one third, and we got it up to over a half. I suspect that it is now below one third again, and probably falling. If we want to achieve the necessary investment in British mines to enable them to provide coal to the power stations—or indeed to ensure their existence at all—when CCS plant comes on line in due course, the investors will need to know that there is still a reason for them to invest in the sector. The Lords amendment would make it more difficult to secure that investment and therefore more likely that our own deep and shallow coal mining facilities would close down, which is something we would regret. We should not deliberately put ourselves in the position of being more dependent on imports than we need to be.
My final point relates to CCS. We are trying to send a message to people around the world that this country has the aspiration to lead the world into carbon capture and storage, and we have every reason to be positive and confident that we can do that. We have the expertise, and we have the depleted oil and gas reserves in the North sea that can be used for it. We should be going out and saying to all those people around the world who are interested in this technology that the United Kingdom is the place to do it.
However, I disagree with the hon. Member for Southampton, Test (Dr Whitehead) in that I do not think that the amendment would make investment in CCS more likely. I think that it would make it much less likely, because we would be seen as having a general hostility towards coal in the mix and we would therefore struggle to make the case for that investment. Given the challenges that we are facing, do we really want to link ourselves to a policy that would bring forward the closure of plant while doing nothing to speed up the opening of new plant? The amendment would be bound to enhance the energy security challenges facing this country, which would make it more difficult to decarbonise. That, in turn, would push up prices. For those reasons, I hope that the House will reject the Lords amendment.
Oral Answers to Questions
Debate between Charles Hendry and Alan Whitehead
Charles Hendry
I assure my hon. Friend that we are always looking for measures that will simplify the structures, although I would draw attention to comments from EDF, a key investor, which says:
“The Contracts for Difference…which sits at the centre of the Bill, will be key to delivering investment that represents value for money, and protects consumers. It is a simple, transparent and proven instrument.”
Dr Alan Whitehead (Southampton, Test) (Lab)
Does the Minister accept that the contracts for difference impact study was undertaken when the idea was that the state would be the counterparty to the CFD? Now that is no longer the case, will he provide a new impact assessment that compares the relative costs and advantages of CFDs and premium FITs before the proposal is finalised in the energy Bill?
Charles Hendry
I am grateful to the hon. Gentleman for the work that he and his fellow members of the Select Committee on Energy and Climate Change have done on the proposal and on alternative counterparty models. The Government have made one approach clear in the draft Bill, but we have also made it clear that a single counterparty model could work separately. If we propose different models, we will publish a separate impact assessment.
Dr Alan Whitehead (Southampton, Test) (Lab)
Has the Minister spoken with the developers of large-scale wind farms who have difficulties because their development periods straddle the end of the renewables obligation and the start of—if they come to pass—contracts for difference? Does he consider that the end of the RO, if that is necessary, should be in 2020, rather than 2017, in order to accommodate those problems?
Charles Hendry
We are not persuaded by that argument. We think that there needs to be a clear switchover date and are giving a long lead-in time, to 2017, so that there is certainty. Alongside that, we are giving people the choice of whether they go with the existing renewables obligation mechanism or move to the new contract for difference mechanism so that they have the best opportunity to decide what works for them in the longer term.
Oral Answers to Questions
Debate between Charles Hendry and Alan Whitehead
Charles Hendry
Your knowledge, Mr Speaker, is sometimes not so much awesome as scary and I find that you know more about my electoral history than I do.
I can give my hon. Friend that assurance. We believe that the initial role of new plants will be to replace the old plants that are coming out of commission. We do not have a set Government target for delivery, but the industry thinks that it can deliver 16 GW of new nuclear power by 2025. We have identified the eight sites where that will go forward and, taking forward the work of the previous Administration, we have created the most attractive regime anywhere in Europe for new nuclear investment.
Dr Alan Whitehead (Southampton, Test) (Lab)
20. The Minister has mentioned the target of 16 GW by 2025 that the industry states it can provide, but the industry clearly is not in a position to provide that given recent developments. What work has he undertaken to revise his estimate, particularly in relation to the national planning statements, of the number of gigawatts that will be provided over the coming period through nuclear power?
Charles Hendry
I would take the hon. Gentleman to task on this. The two consortia that continue to go forward as planned—the EDF-led one and the one in Cumbria—are looking at 9.7 GW. The Horizon one—I have strong hopes that new investors will come in and take forward that programme—will deliver an additional few gigawatts as well. I firmly believe that, following on from the work of the previous Administration, we have created a very attractive regime for people from around the world to look to be part of the nuclear renaissance in the United Kingdom. We cannot do this without international investment and we recognise that we need to create the right framework for that to come forward.
Oral Answers to Questions
Debate between Charles Hendry and Alan Whitehead
Charles Hendry
Ofgem is already working on this issue. Indeed, its proposals for much greater clarity and for a much simpler range of tariffs are a core part of achieving in this area. In the course of that, it will ensure that consumers find it much less confusing to switch and can see whether they are getting a better deal, and that is a very important part of making this market work properly.
Dr Alan Whitehead (Southampton, Test) (Lab)
Does the Minister have a timetable for the agreement on who will be the counter-party for the contracts for difference under the proposals for electricity market reform? If not, how will he resolve the issue in time for legislation to be put before this House?
Charles Hendry
As the hon. Gentleman knows, we published a technical update for the market reform proposals before Christmas, which set out how we would work with companies that need to make final investment decisions this year to help them identify the strike price under the market reform proposals. We recognise that legislation needs to go through Parliament and we are looking to achieve that in the next Session, but we are also clear about the fact that early decision makers need to have that clarity and we have committed to making sure they have it.
Oral Answers to Questions
Debate between Charles Hendry and Alan Whitehead(13 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text
Dr Alan Whitehead (Southampton, Test) (Lab)
Will the Minister urgently investigate the impediment that his Department is imposing on new entrants in the energy market by back-charging for levy obligations after a company has a certain number of customers in its roster? Will he make proposals to deal with that anomaly so that such entrants are not impeded?
Charles Hendry
The hon. Gentleman makes an important point, and I would be happy to discuss it further with him. We have lifted the threshold at which those obligations start from 50,000 customers to 250,000 customers, which will greatly assist smaller companies to get involved in the sector. If there are barriers about which he wants to talk further, we are keen to remove them and will be happy to engage with him in trying to assist such companies.
Energy Prices
Debate between Charles Hendry and Alan Whitehead(13 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text
Charles Hendry
It will be a combination. That information will be on their bills if it is believed that they could be on a cheaper tariff. We advocated such a measure while in opposition, but it was rejected by the then Government. Also, letters specifically suggesting that someone would benefit from changing will be sent to them when the company believes that they could be on a lower tariff.
In addition, we need to focus on the economic realities. The hon. Member for Ynys Môn (Albert Owen), to whom I respond with the fondness with which he spoke himself, said that he was going to be political, but actually gave one of the most balanced and effective speeches of the debate. He talked about the role of the big six and the fact that we need them for the country’s future electricity and energy security. He and his constituents will know how important the two German companies, RWE and E.ON, are to the building of a new power station. He was right to say that this debate was not about whether we are pro-business and anti-consumer or anti-business and pro-consumer. We need those energy companies to invest in the future of energy generation in this country if prices are not to go through the roof because of insufficient supply.
My hon. Friends the Members for Suffolk Coastal (Dr Coffey) and for Warrington South (David Mowat) drew attention to the massive challenge and the £110 billion that has to be invested this decade in our future energy infrastructure if we are to keep the lights on. The existing energy companies are part of that process. There need to be others, but we cannot achieve that if we drive away the existing players.
The hon. Member for Glasgow North West (John Robertson), who spoke with his usual sincerity on a theme that is familiar to him, almost implied that we would be better off without those companies. However, if we drive them out, who will invest in the nuclear plants that he wants? It will be international companies that choose to make those investments, but if he says that they are not welcome here, the nuclear renaissance that he and I both want simply will not happen. If we reach a point where supply does not meet demand, the first thing that will happen is that prices will go up. His constituents in Scotland—as well as those of the hon. Members for Ynys Môn and for Islwyn (Chris Evans) in Wales—will be the worst affected by that, because they are the ones who use the most electricity, as they are often at home, owing to the conditions that he spoke about, in the coldest climates in our country. They are the people we must bear in mind for the longer term if we want to address the problem properly and effectively.
We have looked at the profits that the companies are making compared with their profits globally. Their profits in the United Kingdom are often a small part of their overall profitability. We need those investors to play a bigger role, just as we need more companies coming forward.
Charles Hendry
I will give way if there is time later, but I want to respond to all the points that have been made.
At the end of a year when we have seen the worst nuclear incident for decades, the worst oil and gas incident and unrest in the middle east, where so much of our oil and gas comes from, it was inevitable that there would be upward pressure on prices. Looking ahead to next winter, the wholesale gas price is 40% more than it was last year, and gas makes up 40% of our generation, which makes a knock-on consequence inevitable. In the face of those global pressures, we should focus on how we—the Government, Parliament, industry, consumer groups and individual Members—can ensure that we support our constituents through this period.
I do not say this to make a political point, but we should recognise that there is a legacy issue that needs to be picked up as well. We need to secure investment in this decade at twice the rate of the last decade. We have to play catch-up, and the market reform process, which was put off for too long, now needs to be addressed. We have acted to prevent consumers from being affected by price increases that would otherwise have happened. The carbon capture and storage levy was going to be included in people’s bills; we have taken it off, saving them an equivalent of £1 billion over time. The previous Administration’s renewable heat incentive would have added an estimated £179 to annual bills by 2020, but we have removed it to ensure that we cut the impact on consumers, while the tough decision that we took on feed-in tariffs will save consumers £3.5 billion to 2020. The Labour party could not have been stronger in opposing that, but we believed that it was right to be on the side of consumers rather than wealthy investors. In the renewable obligation banding review, which we will publish shortly, we will show how we want to use those resources most efficiently and effectively to introduce the low-carbon economy that we want to see.
There has been criticism of the level of green charges—the hon. Member for East Antrim (Sammy Wilson) was one of the people who raised that—but it is sensible to put them in context. Some £20 of a typical gas bill of £600 relates to green or environmental charges, whereas £41 in an electricity bill of £500 relates to environmental charges—well under 10%—with a further £19 relating to energy efficiency programmes in the homes of some of the poorest in our communities, which is work that we should all support. In total, therefore, we are talking not about the figure of £200 that we read in the press—we have challenged the media to say why they have quoted that figure—but about £80 in a bill of £120, which is not the real reason why energy prices are being driven up. We have said clearly that we will look carefully at how those moneys are allocated to ensure that we deliver the best possible growth outcome in this country.
The right hon. Member for Wentworth and Dearne (John Healey) talked about standing charges and rising block tariffs, which the hon. Member for St Ives (Andrew George) also picked up. My concern is that switching the system would not just penalise people in the largest houses, but would hit the people who, because of circumstances beyond their control, are the major energy users. They are people who are older and at home more, and who need more warmth in the winter. They are people who have disabilities and perhaps cannot get out. They might be large families, perhaps on low incomes, or people who are out of work. In making the kinds of change that the right hon. Gentleman advocates, we would have to be very careful that they did not have a perverse consequence, and that the people who, through no fault of their own, have to use more energy—particularly heat—would not be adversely affected in the process. We will look at the ideas that he has put forward, but we need to be aware of the potential consequences.
We could have made progress on this matter earlier. My hon. Friend the Member for East Hampshire (Damian Hinds) called for greater transparency in energy bills. In the 2010 Energy Bill, we tabled new clause 4 on that subject, but it was voted down by the Labour Government. The kind of information that we will now require, proposals for which we are asking Ofgem to take forward, would have been addressed more effectively if that provision had been adopted. We tried even earlier, when we tabled new clause 4 to the 2008 Energy Bill. That dealt with environmental charges and clarity in bills, but it was voted down by the then Government.
We have heard many contributions on energy efficiency. That, too, is an area in which we could have made greater progress. We proposed the green deal in an amendment to the 2010 Energy Bill, but it was blocked by the Labour Government. We could have had 18 months more progress on insulation, on dealing with energy efficiency and on taking a long-term perspective on these issues, rather than trying to deal with them on a small-scale basis.
My hon. Friend the Member for Halesowen and Rowley Regis (James Morris) was absolutely right to highlight the important role that the warm home discount will play, and the help that it will provide. He was also right about the need to speed up the process on smart meters. We pushed for that in the 2010 Energy Bill, and I have been pushing for it since 2006. Only now are we in a position to try to take some of those measures further forward. In all those areas, we are making up for lost time.
Energy Bill [Lords]
Debate between Charles Hendry and Alan Whitehead(13 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text
Dr Whitehead
I want to comment briefly on new clause 11 and, in doing so, echo the remarks of my hon. Friend the Member for Ogmore (Huw Irranca-Davies). With hindsight, it has been recognised that the clause concerned, which was originally pretty flawed, has been substantially strengthened and clarified as a result of its withdrawal, the discussions that followed and its emergence on Report as new clause 11. In Committee, widespread concern was expressed about that flawed clause on the grounds that it sought to replace an arrangement under the Energy Act 2008 that enabled the Secretary of State unilaterally to invoke sections 48 and 49 of the Act for the modification of a decommissioning programme regardless of any agreement made previously.
The original clause would have replaced that provision with an arrangement that appeared to enable the Secretary of State to waive the ability to make programme modifications, if circumstances changed, by making an agreement when the licensing agreement was first adopted binding him or herself in perpetuity regardless of the objective circumstances in place after the original agreement. That was clearly not satisfactory. I accept that, for logical reasons, it is difficult to place the words “unforeseen circumstances” in legislation—clearly we do not know what those would be—but I think that the question of when a programme ceases to become prudent could be better addressed.
I would be grateful if the Minister clarified a couple of issues relating to the wording of the new clause that might be referred to should a modification action be undertaken by people seeking to understand what the clause really means. I appreciate that, as I have mentioned previously, the background to the new clause is similar to the Marx brothers’ form-guide sketch in “A Day at the Races” in which they have to refer to a large number of separate documents to understand where they were in the first place. Nevertheless, I would be grateful if he confirmed that the Secretary of State may act, by him or herself, to point out that a decommissioning programme subject to the new clause had ceased to be prudent and say, “It appears to me that this programme has become imprudent and therefore needs modification.”
What those modifications might consist of would be a matter for negotiation and discussion with the site licensee. If points in the modification programme could not be agreed, a third party could come in, under proposed new subsection (3D), to determine how those points might best be resolved. When the third party—as the Minister emphasised, it would be an independent party—has resolved those previously unresolved issues, the Secretary of State would, under the proposed new subsection, be
“bound by such a determination”.
It is clear, however, that under administrative law the Secretary of State would not be able to undertake an agreement unless he was satisfied that there was adequate provision for the modification of the programme, including the understanding that the site licensee would also be bound by what the third party had determined.
It would not be logical or reasonable for the Secretary of State to undertake a programme that would enable the licensee to escape being bound by the consequences of a determination of modification and therefore simply not undertake any action relating to those modifications, even after they had been agreed. That is my understanding of the new clause. I would be grateful if the Minister confirmed that and placed it on the record that the process would lead to an agreed modification programme that could be instituted by the Secretary of State, but mediated by a third party, after a programme had been judged to be no longer prudent on a different programme of decommissioning.
Charles Hendry
I am grateful to hon. Members for participating in the debate. I was surprised by how many of them paid tribute to the Government for listening so hard and making changes—I almost started to wonder whether we had done too much of it. Nevertheless, we remain firmly of the view that the Bill is better as a result of the changes made. I give particular credit to the hon. Member for Southampton, Test (Dr Whitehead) for his work with the hon. Member for Ogmore (Huw Irranca-Davies), and I thank them both for their constructive engagement in getting us to where we are, which, as I said, is better than where we started. It is perhaps an early birthday present for the hon. Member for Southampton, Test—I believe that his birthday is tomorrow—and the House can celebrate by recognising his contribution.
I am grateful to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) for her comments about the changes that we have made to HECA. Listening to the discussions on the Opposition Benches about how best to address these matters in Scotland, I felt like we were intruding on family grief. However, I have no intention of doing that because they are matters that will properly be resolved by the Scottish Government. Nevertheless, we have to accept that the legislative consent motion is essentially an on/off switch. One either has to have HECA or get rid of it; one cannot have a little bit of HECA or have a different element within it. My understanding from our discussions is that the Scottish Government want to address these issues differently, using different mechanisms. We absolutely respect their right to make those decisions, and the changes in the Bill will simply make that possible.
The bulk of this debate inevitably focused on the nuclear clauses. The hon. Members for Brighton, Pavilion (Caroline Lucas), for Angus (Mr Weir) and I will never agree on the principles of nuclear, but we all want to make sure that if nuclear power stations are built in the United Kingdom, that should be genuinely without subsidy and we should have extremely strict controls on decommissioning, safety and a range of other issues.
National Policy Statements (Energy)
Debate between Charles Hendry and Alan Whitehead
Charles Hendry
The hon. Gentleman is right. We have considered that, and I look forward to giving evidence to him and his colleagues on the Select Committee tomorrow morning.
This is a permissive framework, which involves planning consents. It is not a case of people going ahead and building the plants. A range of other investment decisions need to be made in order for the final decision to be made, but at this stage what is critical is the establishment of a structure so that people understand how the planning system will work.
Dr Alan Whitehead (Southampton, Test) (Lab)
The number of gas-fired power stations that are under way, constructed or at an advanced stage of planning substantially exceeds the figures set out in EN-1. Would the Minister be prepared to table amendments to it, in the light of the reality of actual construction as opposed to what is in the document?
Charles Hendry
I hope I can reassure the hon. Gentleman that that will not be necessary. When the decision is finally made, it will be legitimate to take account of the fact that if the disbenefits were considered to outweigh the benefits, consent would not need to be given. If it were felt that consent was being given to too much higher-carbon generation capacity and therefore that environmental issues—low-carbon issues—were seen to be more important, that would be a material factor to be taken into account. That can already be done through the system. The hon. Gentleman is absolutely right to point out that we have a significant amount of consented gas for which there is not currently construction. That also brings us to part of the problem: at the moment, we are not seeing anything like enough investment and construction work in our energy infrastructure.
Oral Answers to Questions
Debate between Charles Hendry and Alan Whitehead(13 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Charles Hendry
We are not anticipating an energy gap over this winter in electricity generation. I was at National Grid last week, and we are in daily contact. We are looking at the margins of supply, which remain robust. We are looking at the import capacity for gas. We are looking at the role that all those technologies can play. During these very cold periods, all the energy companies understand the need to keep their plant ready to generate, to ensure that demand can be met by supply.
Dr Alan Whitehead (Southampton, Test) (Lab)
In order to maintain capacity margin over the longer period, what investigation is the Minister making of electricity storage as an additional way of ensuring that margins are maintained, and that supply that comes on stream at inconvenient hours is captured and restored at convenient hours?
Charles Hendry
We are looking at a whole range of different technologies. We are looking at the role of battery storage, hydrogen storage and pumped water storage which is already making an important contribution at Electric Mountain in Dinorwig in north Wales. We are also looking at the role that interconnectors can play, using perhaps pumped storage in countries such as Norway, to enhance our energy security. This is a way of ensuring that renewable energy can be used in such a way that it is there when the demand is there, and it will greatly enhance our energy security in the process.
National Policy Statements
Debate between Charles Hendry and Alan Whitehead(13 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Charles Hendry
I would hope that the nature of the Institute of Engineering and Technology, and its track record for independence and fact-based assessment, would be sufficient to assure everyone that a thorough approach will be taken. There is no doubt in any of our minds that if anybody tried to steer its conclusions one way or the other it would publicly require them to go away. I am absolutely satisfied that the process will be independent and robust, but in due course the institute will publish the full report so that it can be peer-reviewed.
Dr Alan Whitehead (Southampton, Test) (Lab)
Before the hon. Gentleman leaves EN-5, will he reflect on the question that he raised previously about investment in new infrastructure through the electricity markets as they stood, and the extent to which that investment stayed in existing equipment to shore up the electricity market? In the new circumstances, where investment in infrastructure will increasingly be required before the replacement of plant, will EN-5 reflect that change fully? If not, could the energy market reforms that he will undertake shortly inform a revision of EN-5 to take those new circumstances into account?
Charles Hendry
We have to see the national policy statements as part of the process. They are an integral part of an improved planning process, but they are not the full package. Electricity market reform will also be a key element in incentivising people to invest. Let me give an example of how things are changing. I was recently with Ofgem launching the second round of offshore grid transmission infrastructure bids. More than 100 different organisations, most of which were new players in this area, were keen to take part in that process, which was started by the previous Administration. A number of new organisations—new financial institutions—want to invest in our energy infrastructure, which is extremely encouraging, but to see the full package of these measures it will be necessary to ensure that they see the planning changes and the funding mechanisms that will drive it forward.
Oral Answers to Questions
Debate between Charles Hendry and Alan Whitehead
Charles Hendry
My hon. Friend is absolutely right. We must put a stop to Green Papers, reviews and consultations. We must draw a line in the sand and say, “This is the time to make decisions, this is the structure and this is basis for getting on with it.” We simply must get on with the investment.
Dr Alan Whitehead (Southampton, Test) (Lab)
Will the Minister consult on the question of capacity payments for energy plant investment and on low and high-carbon markets? Alternatively, does he consider, as is suggested in the coalition document, that simply having a floor price for carbon will be enough to sort the market out for the future?
Charles Hendry
The hon. Gentleman knows a huge amount about these issues. We are consulting on a floor price for carbon, which we believe is essential, and also on other mechanisms that might be necessary to secure investment in low-carbon technologies. We will consult on capacity payments in terms of back-up generation capacity and on other ways of managing demand, which we think is a more efficient way to deal with that problem.
Energy Security
Debate between Charles Hendry and Alan WhiteheadWestminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
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Charles Hendry
We have always said that gas storage is part of the mix. If we have long-term contracts, under which we know gas is not being bought on the stock market, and it cannot simply be delivered and put through the pipeline, gas storage is part of enhancing energy security. We are keen for more of those facilities to be brought to fruition. There have been significant blockages caused by past planning constraints and the changes the previous Government made. We are enhancing arrangements, which will help to address some of those issues. There are continuing problems with the rate at which cushion gas—the gas that goes into the bottom of the storage facilities and is never actually taken out—is taxed. There are non-financial challenges as well. Gas storage is part of the picture, but there is a wider picture, too.
Dr Alan Whitehead (Southampton, Test) (Lab)
I believe that the figures for UK gas storage are about 4% of average annual consumption, compared with 21% in Germany and 24% in France. However, the UK is still a very substantial producer of gas—there is effectively gas storage waiting to be tapped. Furthermore, Britain now has two liquefied natural gas terminals installed and working. Taking those factors into account, although it is certainly necessary to increase gas storage, does the Minister accept that the picture is not remotely as was set out before and immediately after the election as far as long-term threats to gas storage and gas storage itself are concerned?
Charles Hendry
It is a continuing pleasure to serve under your chairmanship, Miss Begg. We have had a high-quality debate. Our numbers may have been limited, but we have touched on many of the key issues that go to the heart of the debate on energy security, and some of the big structural issues, as well as some of the more localised policy issues that go with that. During the next two hours, I hope to go through those in significant detail.
The hon. Member for Islington South and Finsbury, who speaks for the Opposition on these matters, started by talking about big government. She asked whether we need big government in this area, and said that we cannot leave such matters to the vagaries of the market. We are in no doubt that the Government must provide leadership in such matters. The old Lawsonian approach of leaving them to the market worked when we were awash with our own oil and gas, and companies throughout the world wanted to invest in the United Kingdom, but we must now climb an extraordinary mountain of new investment, and we must appeal to companies headquartered in France, Germany and elsewhere around the world, so we need greater Government leadership and engagement. But we are also a party committed to decentralisation. Setting a policy framework to stimulate investment is not incompatible with allowing decentralisation of power. We are genuinely committed to allowing communities to decide what is right for the development of their areas, and to empower them to make those decisions.
Clearly, above a certain level—the 50 MW threshold—such things will become nationally significant infrastructure projects and decisions will be taken centrally. I will come on to those planning issues later, but we are committed to the principle of decentralisation.
That is also true for electricity generation more generally, and the roll-out of microgeneration. We inherited a target of 2% of electricity to be provided by microgeneration by 2020. That is unambitious, and I agree with the hon. Member for Hartlepool (Mr Wright) when he said that we now have a real opportunity. As he said, not just for individual households, but for community groups, schools and groups of houses, microgeneration will often be a more attractive way of achieving economies of scale and the best possible investment. Within that framework, we must look at which technologies will be right for different parts of the country. There is no doubt that the generation capacity of solar power is greater in the south than it is further north. We cannot necessarily have a variable rate of feed-in tariffs for different parts of the country, but there will be other areas where biomass or small wind energy systems or whatever will be more appropriate. We must make sensible choices about how best to use the resources available.
The hon. Gentleman spoke about the role of the Government and how we can develop long-term contracts, and he mentioned the work of the Chinese and others. We are committed to that, and the Prime Minister has said that he wants Ministers to help secure such long-term contracts. In the past, if there was a new big gas deal to be signed, we tended to find that the French would send President Sarkozy, the Germans would send Chancellor Merkel, and we would send the British high commissioner, who is no doubt a fine man or woman, but they do not have quite the same clout and sense of national significance. We are determined to raise the profile of the Government when trying to secure such agreements. Of course, there will be differences of approach between us and the Chinese in such matters, but we must show those countries with whom we would like to be strategic partners the importance that we attach to such a relationship. There should be no doubt about that.
The hon. Gentleman also asked about elements of the coalition agreement. We have said that we will reform the regulator, and in general we believe that any regulatory activity is crucial and must be independent. It should be carried out within a framework set by the Government. Part of our anxiety has been that the excellent work of Project Discovery carried out by Ofgem should have been done by the Government. The Government should have stated their priorities and explained where the balance between low-carbon energy and security of supply lay. We must take the policy framework back within Government so that the regulator can be responsible for regulating within that framework. The hon. Gentleman also mentioned ensuring the security of supply. Again, the regulator should be charged with finding the best way of ensuring that people, particularly those who are using gas in the mix, have ways of meeting demand. There will still be flexibility in how that is achieved, and that should be a further additional role for the regulator.
The hon. Gentleman asked about the annual statement that will come before the House shortly. It is intended as a forward look. It is not supposed to be a meaningless selection of warm words, but rather an annual hard look at the challenges that we face and the progress we are making towards meeting those challenges. Normally, we would expect it to include a winter outlook, but given the time of the year in which we are doing it, it might be a bit early for that. However, we certainly want to give hon. Members the chance to question us robustly in the House about the security arrangements for forthcoming winters.
I hope that that reassures the hon. Gentleman about the underlying principles. I also want to reassure him that for me, energy security lies at the heart of any energy policy. As I said in my opening remarks, if we do not get energy security right, the low-carbon agenda will become much more difficult and the issue of affordability will go out of the window. Energy security is a core part of our policy.
The hon. Member for Islington South and Finsbury rather implied that everything in the garden had been perfect until 6 May, when it suddenly went catastrophically wrong. In the spirit of coalition politics, I am willing to say that the last Government made some moves in the right direction, but there were other things that they should have done and failed to do, or did not do until it was too late. Had we not had a five-year moratorium on nuclear power, those decisions would now be well in hand and we would have concrete going into the ground and the process would be under way. Had we not had countless Green Papers, White Papers, policy reviews, new Acts of Parliament and 16 Ministers in 13 years, we might have had greater focus on some of the challenges that we face. We are trying to respond to the challenges that we have inherited, and I will list the ones mentioned by the hon. Lady.
Gas storage is a particularly important matter and the concerns that we expressed earlier in the year were well founded. However, those concerns must be seen in context. Although they were raised during the winter, they looked ahead not just to that winter but to the outlook that we imagine will develop in the years ahead. The Government’s low carbon transition plan painted a picture that suggested that the volume of imports would not change over the next decade, and that the use of gas was supposed to come down sufficiently fast that imports could be maintained at the same level. Nobody in the real world believes that. Many people, including key industry observers and analysts, believe that 70% or 80% of our gas will be imported by 2020. If we do not start to take action now to ensure our security of supply with that level of imports, we will reach such a situation and it will be critical and unachievable. We recognise that at the moment, the short-term outlook is relatively benign for a range of reasons. We must take steps now to address the situation.
I recognise the crucial contribution that Langeled and the liquefied natural gas facilities have made. As the hon. Member for Southampton, Test (Dr Whitehead) said, just because we have a facility does not mean that it will be used. The LNG facilities are often on tankers that set off around the world without a particular market in place, and they will go to the highest bidder. That is not the cheapest way of getting gas, but we can get it if we are prepared to pay more than anybody else.
Dr Whitehead
My point about the current idleness of United States LNG terminals, and the changes in the US gas market as a result of shale gas, means that the LNG market is substantially changed regarding the destination of those supplies to countries other than the US. Therefore, on a worldwide basis, the LNG arrangements have begun to be altered by that factor over the past few years. My point was about the role of LNG in our energy security considerations, and the extent to which, should there be issues of gas supply in the UK, LNG now appears to be a better option than has been the case over the past few years.
Charles Hendry
There is no doubt that the situation has become more benign as a result of the discoveries of shale gas. We are still trying to establish how substantial we believe shale gas to be, and at what cost it can be extracted in the United Kingdom and over what time scale. It is a game changer in the United States and, as the hon. Gentleman suggests, it has virtually wiped out its LNG imports. We think that it will be significant in China and may change the dynamics of new pipeline connections within central Asia. We think that it will be large in places such as Poland, but we do not yet have a full grasp of the implications for the United Kingdom. It has undoubtedly meant that more gas is available for our LNG facilities than there would otherwise have been. As a precautionary approach, we must look long-term at our vulnerabilities and our exposure to imports, and ensure that measures to protect security of supply are in place through storage and long-term contracts. Those areas were all set out in our policy paper ahead of the election, and a range of issues will be used to address the existing challenges.
The hon. Member for Islington South and Finsbury spoke about how the last Government had doubled the amount of renewable energy. She managed to get the UK to No. 26 in the European Union, which was undoubtedly an enormous triumph. I think that we are just ahead of Malta, but have slipped behind Luxembourg, which is obviously a desperate blow. Frankly, it is not a good place to be and we need a sevenfold increase over the next decade to get us where we need to be. That is a massive challenge and more must be done across the spectrum.
There is an issue about winning public support. We believe that renewable energy should not be imposed on communities, but should have popular support within communities. The previous Secretary of State, the right hon. Member for Doncaster North (Edward Miliband)—now shadow Energy Minister before he moves on to his new job—has spoken of different techniques. First, he said that people should have wind farms because it would be good for everybody. That did not really win people’s hearts and minds. He then said that people should have a wind farm because it would be bad if they did not—a bit like somebody who drives across a zebra crossing without stopping—but that did not win hearts and minds.
We think that a new approach is necessary that will actively engage communities in ensuring that they see what the benefits will be. They will keep business rates locally. We will find ways of encouraging community ownership. The income stream from one of the turbines perhaps goes directly into the community, so it can see that it is hosting something on behalf of the wider region or the national interest and that a real benefit comes back to it for hosting the facility.
I agree with some of the comments from the hon. Member for Southampton, Test. Because of the inherent flexibilities in the system, one has to consider how one manages that. One has to have back-up systems or use what I hope will become a particularly exciting area of policy—storage technologies. Those can involve compressed air, pumped storage, hydrogen and batteries. The pace at which global technologies are moving forward in that area is very exciting. It offers us eventually the great prize of renewable energy from wind being available when people want it, rather than simply when the wind provides it. I think that that will be an important part of policy.
The hon. Gentleman also talked about the smart grid. That is the great prize of smart metering—the ability to manage demand much more effectively and to try to ensure that we can shave off demand at the top and have a sensible structure for managing the system.
Let me move on to some of the other technologies that were raised. The hon. Member for Islington South and Finsbury rightly spoke about nuclear. We would be further ahead had it not been for the moratorium, but the position of the Government now is absolutely clear. Nuclear will be part of the mix if it can be built without subsidy. There are no ifs or buts; that is an absolutely clear position.
I hope that the hon. Lady will work with us, because in opposition, I was very happy to work with the Government to reassure potential investors, to the extent that I was asked to go to the investors forum a couple of years ago so that investors could be told that the potential new Minister, if there was a change of Government, was attending and could give that continuity of policy. Investors attach enormous importance to that political stability. I hope that, given that the position is absolutely clear, the hon. Lady will decide that she wants to be a serious contributor to the debate, rather than making political comments from the sidelines, because that will do more to undermine the case for new investment than anything happening elsewhere. There are communities up and down the country that want to see parties working together on this issue. We have a clear position, which is essentially the same position as that of the previous Administration, and I urge her to work with us.
An important point about the changes that we are making is that we have said that the national policy statements will be voted on on the Floor of the House. That will send a clear message to investors that there is massive cross-party support for the national policy statements when they are put forward. I hope that that will be the outcome of that process. It is not just a political party saying, “This is our position,” but the House as a whole expressing its view on the national policy statements. That makes the process more robust, reduces the risk of judicial review and enhances the prospect of making progress.
Charles Hendry
I am sorry, but I should already have done so, as the hon. Gentleman raised the matter earlier.
We believe that some of the things that the regional development agencies have done were truly strategic, but that others were slightly artificial. People’s view of RDAs is different in the various parts of the country. Having been to see One NorthEast, it is clear that the area had a better sense of regional identity than in my region of the south-east. There is not an enormous amount binding the western end of Oxfordshire with eastern Kent; people have different perceptions in different parts of the country. However, there must be rationality.
Most coastal RDAs say that they are the No. 1 place in the United Kingdom to develop offshore wind facilities, but they cannot all be No. 1. If we are trying to attract big international investors, there may be a case for considering the wider national interest rather than breaking things down further. However, RDAs have undoubtedly done some exceptional work. For example, Yorkshire Forward has been considering how to put a carbon capture and storage infrastructure in place; it is ahead of anything else in England. I hope that some of that work will be continued, even if RDAs are not part of that future—they may be in some parts of the country—but local authorities, which are responsible for business development, might see it as a particular advantage for their communities, and be keen to ensure that it is part of the mix. Again, I am happy to visit the north-east to talk to those in the RDA about how we can build on the work that has already been done.
The hon. Member for Islington South and Finsbury spoke about carbon capture and storage. I shall answer directly some of her questions. She asked whether every new plant built after 2020 would be required to have full CCS. The position is as it was under the Labour Government, which is that they will be required to have CCS or that it should be retrofitted in due course. An important aspect of the levy is that it can be used for retrofitting in plants used in the pilot projects.
The hon. Lady asked whether the four plants would all be coal or whether one would be gas. We are considering the recommendations of the Committee on Climate Change, which said that we should be doing a pilot project on gas. We need to consider the balance, deciding whether one of the four should be gas or whether the first four should be coal. There is no doubt in our minds that coal is the imperative. Coal is the greater polluter; it is where the technology is closer to the market. The focus is very much on coal, but we were pleased that the levy was changed under the Energy Act 2010 to allow it to be used also for developing gas and biomass technologies. The hon. Lady also asked about the emissions performance standard. We are indeed committed to putting in place an emissions performance standard, and in the near future we will be setting out our thinking and how we intend taking it forward.
The hon. Member for Southampton, Test always brings a huge amount of wisdom and experience to such debates, for which I am grateful. He spoke about the oil sector. I agree with him on the subject of peak oil. Realistically, we will not know when peak oil has happened until some time afterwards. However, Nobuo Tanaka of the International Energy Agency spoke earlier this week about the need to bring down demand ahead of the peak in supply. If we can get the peak in demand to come earlier, consumers will benefit because the price of oil will drop dramatically. If the peak in demand happens after the peak in supply, the oil companies will benefit because they will be able to ramp up their prices. For me, that shows the imperative to decarbonise society and to move ahead more quickly.
We have talked of energy efficiency today; that will clearly be part of the solution. We shall need to decarbonise ground transportation, but we also need more low-carbon methods of electricity generation. In looking at the way forward, we need long-term vision. We must decide what steps should be taken now in order to pre-empt the inevitable; the situation will become more challenging over time, and we must try to ensure that society and the nation decarbonise.
I pick up on what the hon. Gentleman said about international reliance. I was intrigued by some of his comments. It appears that he is willing to accept it in some areas but less so in others. For example, we get most of our coal from imports, Russia being the single largest market from which we buy, and we will become increasingly dependent on imported gas from Norway and Qatar. I am not sure whether he wants to see the closure of the LNG facilities, but picking out nuclear and uranium as being something that we import was slightly perverse in the wider context. Diversity is as important as our domestic resources. We enhance our security of supply by having a range of methods of electricity generation and different sources of supply.
Dr Whitehead
The hon. Gentleman is right to emphasise the fact that the aim of being as energy self-sufficient as possible does not necessarily mean that we should cut off all other sources of energy supply to achieve that goal. Indeed, a 50% reliance on renewables means that we are 50% reliant on non-renewables, which may be sourced from places outside the UK. My point about uranium was not to question the supply sources, but to bring into view the idea that there may well be a peak uranium issue in the same way in which there is a peak oil issue and whether we ought to factor that into our considerations of the long-term supply of that particular source.
Charles Hendry
We undoubtedly have to factor in such a consideration. There is 40 years’ supply of ground-based uranium, but there could be 1,000 years of supply of water-sourced uranium. We may also need to consider other technologies such as thorium power, which clearly does not have the same weapons risks, to see what role they might play in the future.
Let me finish on an area of common ground. The hon. Member for Southampton, Test discussed international grids and connections on the electricity side. That is a very important aspect of our security, and it means that we can consider how to address some of these challenges on an international basis rather than seeing ourselves purely as an island in which we have to generate all our own electricity and all our sources of energy domestically. Moreover, it means that there are parts of the world that will inevitably benefit greatly from that. Potentially, we could have hydropower coming in from Scandinavia, geothermal energy from Iceland going to the southern part of the European grid, and electricity coming from concentrated solar power in the Sahara. That is what makes this such an exciting brief. The opportunities are utterly different from anything that has existed before, but we must have the mindset to succeed. We need a long-term vision that goes beyond 2020 to 2040 and 2050, and we have to consider building all the facts into a map so that we can see where all the potential sources may arise. The underlying principle has to be that energy security is the driving force of our policy in this area. If we can get energy security right—and we have touched on so many of the issues in the course of the debate today, for which I am truly grateful to the hon. Lady and hon. Gentlemen—we will put in place a system that will pass the test of time, move us to a genuinely low-carbon society and keep the affordability issue right at the top of our minds as well.
Miss Begg, we are grateful to you for chairing our discussions this afternoon. I hope that I have answered some of the questions that have been raised during the course of this debate.
Question put and agreed to.