Energy Bill [Lords]

Debate between David Mowat and Alan Whitehead

Monday 14th March 2016 Commons Chamber

[David Mowat]

A few moments ago, the shadow Secretary of State appeared unhappy that the capacity auction announced by the Government two weeks ago had been brought forward. Is the Labour Front-Bench position that the auction should not be brought forward?

[Dr Whitehead]

The question of whether the capacity auction should have been brought forward is secondary to the extent to which the Government believe that the auction will actually produce new capacity, as I am sure the hon. Gentleman is fully aware. Like the levy control framework, capacity auctions warrant a much deeper reorganisation than the rather tepid arrangement undertaken by the Government. Simply bringing an auction forward by a year, using roughly the same parameters about the likely clearance price and the distance between the clearance price and the likely price necessary to secure any new investment over a 15-year period for new gas-fired power stations, does not strike me as the smartest way to procure longer-term capacity in the capacity market. A deeper reorganisation of capacity auctions is required to secure that aim over the next period.

Before that intervention, I was briefly thinking about the subject of my amendments 23 and 52, to which I wish to draw the House’s attention. If the Government were serious about the proposals in their manifesto—that schemes that have local support should proceed—they should immediately adopt these amendments. They are about schemes where all the right moves in getting local agreement to the plans have been undertaken, all inquiries, concerns and planning arrangements have been dealt with, the schemes are on the cusp of getting agreement at planning and local authority level, and they have the support of local communities, but the Government have just pulled the plug on them and they now cannot proceed. The Government ought to adopt these amendments if they were, in principle, serious about their own principle that local areas should decide on local schemes and that those local schemes could be supported where local communities support them. Conversely, I fear that if clause 80 remains in the Bill, as amended, we will have in store a programme of onshore wind execution and not the execution of an onshore wind programme.

Labour’s vision is for a locally supported, appropriate programme of onshore wind deployment, complementing other renewables such as solar, biomass, offshore wind and tidal in reaching renewable targets, not because we have to, but because it is the right thing to do in ensuring that we have a balanced, low-carbon energy mix for the future. This clause points us squarely in the opposite direction and I urge hon. Members to support amendments that put us back on track again.

[John Redwood]

I rise to support the Government and to urge the rejection of amendments that would delay getting rid of the subsidies for wind power. Our country desperately needs more electrical power to be available, and I am pleased that the Government are now taking action, with capacity auctions, to try to get some more power available. We need more affordable power. We need to tackle fuel poverty and have power at prices that households can afford. We also need to have affordable power for extra industry, which is one of the Chancellor’s aims. We need reliable power; we want to know that the power is there whether the wind is blowing or not, and whether the sun is shining or not. People expect continuous power, in order to light and power their homes, and industry needs continuous power for its processes. On all those grounds, wind does not cut the mustard, and I am glad that we now have a Government who recognise that.

When the history of the past 15 or 20 years comes to be written, what the European Union is doing and what the previous Labour Government did on energy policy will go down as one of the catastrophic failures. It will be at least as big as the exchange rate mechanism, which destroyed so much activity, jobs and prosperity in our country. It may not be as big as the disaster of the euro, but it will be one of the big, classic disasters of the European Union that Europe as a whole is becoming an area of too little energy and very high-cost energy, driving industry out of the European Union area and into Asia and America, where more plentiful and affordable energy is available. Far from sparing the planet extra carbon dioxide, all this mad policy is doing is making sure that the carbon dioxide is produced somewhere else, rather than within the European Union itself.

Germany has much more wind power than we do and many Opposition Members admire it in this respect, but what happens when the wind does not blow? I will tell them what happens: Germany relies on a large number of extremely dirty coal power stations to churn out the electricity, producing more carbon dioxide than it would if it had opted for a fleet of modern gas stations in the first place. On average, that would have been better than this strange mixture of intermittent wind, which is very good on carbon dioxide when the wind blows, and back-up power, which in Germany and elsewhere in Europe is often generated from coal, and is extremely bad on carbon dioxide when the wind does not blow.

--- Later in debate ---

[David Mowat]

The hon. Gentleman’s position strikes me as rather odd. I agree with him that the ETS status is important, that dumping is important, and that business rates are important, but, as is made clear in report after report—there is one from the aluminium industry in my office now—so are energy prices.

I do not think that I am making a massively controversial point. I am merely saying that in an industry that uses significant amounts of electricity, it is not a competitive advantage if our electricity costs more than other people’s. I agree with the hon. Gentleman that Chinese dumping is probably more significant, but we are talking about economics, and in economics everything happens at the margin. The stuff that I am talking about matters to our manufacturing industry. My central point is that if we are intending to have a march of the makers that involves a rebalancing of industry predicated on high electricity prices, it is going to be tough.

As I was saying before the hon. Gentleman’s interventions, the cross-European Paris INDC submission is about 50% less onerous than the requirements of our own Climate Change Act. When I first saw that statistic, I thought it odd. Why had we allowed this to happen? Given that we have a stringent, rigorous and, in many respects, very good process involving carbon budgets driving down emissions, and all that goes with that, why did we become involved, at a big world summit, in a European submission that was so feeble? Although the requirements of the European submission are so much lower than those of the UK, in terms of the Climate Change Act, it is not allocated by country, even now. I believe that that process will start this year, or perhaps next year.

My second point relates to the European emissions trading system itself. New clause 10 was deemed necessary because it was felt that the system was not acting as enough of a brake on carbon emissions. The European price of carbon—which is implicit within the system—is too low: it is about €5 a tonne, as opposed to the €23 a tonne or so that we are paying. In 2013, precisely that point was debated in the European Parliament. It was proposed, in an amendment, that the emissions trading system should be “re-baselined” in a way that would have made it meaningful. The amendment might have prevented the need for a carbon price floor in the UK, and created a carbon price that properly reflected where the market needs to be in order to drive actions. However, the European Parliament did not pass it, probably in response to the vested interests of big manufacturers in a number of big countries in Europe. I think that that was a pity.

As a consequence, here we are now, saying that the ETS is not fit for purpose, that the accounting that it implies—which was intended, in the Climate Change Act, to serve as a way of controlling generated power—does not work, and that therefore we are doing something different. However, the right answer is not to turn our back on the European system. I am a Conservative. I may be an “inner”, but only just. It is odd that those in the Opposition parties who are deeply committed to the European ideal should turn their backs on this European solution.

My third point is that there is no country-based reporting or control of emissions in Europe. Since 1990, Austria has increased its emissions by 13%, Ireland has increased its emissions by 7%, and Holland has kept its emissions static. During the same period, the United Kingdom has reduced its emissions by some 28%. If the European Union were serious about getting to grips with emissions, and getting to grips with individual countries that are tackling the problem, it would have addressed that fact.

My final point is that we are seeing dysfunctional member state behaviour. Germany and Holland are building brand-new coal-powered stations—lignite-burning stations. I believe that those countries not only do not engage in carbon capture and storage, but have made it illegal, which does not suggest that they understand the challenge that must be faced.

I have just been given a note saying that I should wrap up. Let me end by saying that, while there is no doubt that we all agree that climate change is a clear and present danger, we must bring the rest of the world with us, and by turning our back on arrangements such as the European emissions trading system and allowing the EU to put a submission to the Paris COP talks that is frankly feeble, we are doing the opposite. We will not solve the problem of global warming by fixing our 1.5% of total global emissions.

[Dr Whitehead]

I want to speak about new clauses that relate to a number of aspects of the Bill, and to the position in which we find ourselves in relation to a low-carbon economy for the future.

New clause 7 is very similar to new clause 3, and concerns an issue about which I think both Opposition parties feel very strongly: the need to develop a systematic strategy for carbon capture and storage. We have heard several references to what the Conservative manifesto at the last general election did or did not say, but the Government mentioned CCS in that manifesto. They also mentioned the least-cost routes to decarbonisation. Clearly—this is certainly the advice of the Committee on Climate Change—they will have to think carefully about CCS when they respond on the fifth carbon budget this summer, because CCS, among other things, represents a substantial implementation of least-cost routes to decarbonisation in the long term. The shameful pulling of the two CCS pilot projects mentioned by the hon. Member for Aberdeen South (Callum McCaig), in essence on the grounds of cost, represents a missed investment opportunity that could have reduced the cost of decarbonisation at a later date. That cost is an important element of our approach to a future CCS strategy. It is important to be clear that the cancellation of the projects does not and should not mean the end of CCS in this country.

UK Energy Market

Debate between David Mowat and Alan Whitehead

Wednesday 9th March 2016 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I congratulate the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) on securing the debate, which is so timely, given that it is within 14 hours of the Competition and Markets Authority’s report on its findings coming out. Unfortunately, it is taking place 14 hours before the findings come out, but it is pretty closely targeted on the important development that we are about to witness. For this afternoon’s debate, we have the CMA’s provisional findings, which I guess will inform the report that will come out shortly. The hon. Gentleman directed his very thoughtful points about the whole question of competition in the energy market to a number of those.

This is a conundrum with many layers—exactly how competition works, how it can best work, how it can be better enhanced and how it can work for those customers who could benefit most from better competitive arrangements in the energy market. In many instances, those customers appear at present to be stuck in a non-competitive mode with energy companies. Energy companies almost regard those sticky customers as assets that they can use to make additional resources, as the hon. Gentleman mentioned, with which they can finance special offers and various other things, which, to some extent, rely on the knowledge that those sticky customers will remain with the company—perhaps that is part of the conundrum—apparently very much against their better economic interests and despite longer term concerns. I will perhaps return to that thought in a moment.

The hon. Gentleman also made the very important point that we are discussing one part of that energy trilemma, in that we have embarked on—and I hope we will continue to be solidly embarked on—a process of decarbonisation of our energy system. Clearly, that has to be achieved, but under the circumstances of two additional imperatives: first, that there should be security of supply, among other things to make sure that the lights stay on, which is perhaps a rather important part of the customer experience of electricity prices and the market; and secondly, that prices should be fair, reasonable and equitable, as far as customers are concerned.

I am not sure that it would too far outside this debate just to reflect on the first part of that energy trilemma. I gently ask whether the Minister has any sort of plan B in the light of the difficulties that we are having with capacity, the recent reports concerning the possible development of Hinkley Point C power station and the apparent inability of the capacity market as it stands to develop any contracts for new long-term building, particularly of gas-fired power stations. Does she wish to share any thoughts with us on how that particular leg of the trilemma might best be supported over the next period? That seems relevant to the other two legs, and particularly to the leg that we are discussing this afternoon.

As for the question of how prices can be as fair and competitive as possible to customers, we need perhaps refer to what is happening with the CMA. It was interesting last summer to see the CMA’s report on provisional remedies. As the hon. Member for Central Suffolk and North Ipswich outlined, it concluded that a number of features of the market gave rise to the finding of an AEC—an “adverse effect on competition”. The report stated that that arose through

“weak customer response, which, in turn, gives suppliers a position of unilateral market power concerning their inactive customer base”,

which they are able to exploit through their pricing policies or otherwise. That refers particularly to sticky customers, but I was slightly surprised at the brief consideration that the CMA’s interim report gave to a number of other factors that seemed to contribute to that, such as vertical integration in energy companies. That may not have a direct impact on competition, but it may have an indirect impact for a variety of complex reasons that may have a hand in the process.

Perhaps part of the answer to the conundrum that has been presented in this Chamber this afternoon about where the money goes when energy companies are apparently posting substantial losses is a better understanding of how vertical integration works. It is not just within the UK power generation and retail market. It has been suggested that companies that buy and sell to themselves create an opportunity to shift sums around considerably.

There is increasing vertical integration outside the UK. Some companies are reporting what is happening in the UK, but also in the context of what is happening outside the UK, such as company structures. The extent to which those companies are able to post profits or losses in particular countries in which they are working does not necessarily reflect entirely what is going on across the board in other countries of operation. That should be examined at least.

[David Mowat]

I am interested in the hon. Gentleman’s comments about vertical integration, because the interim report looked at that and theory of harm 3a and 3b. My reading of it was that the CMA did not regard vertical integration as a major issue. I looked at it quite carefully.

On the point about moving profits around, which is the issue regarding vertical integration, the share price of Centrica, the owners of British Gas and the biggest player in all this, has gone down by around 40% in the last five or six years. I have no truck with these oil companies and big players, but if they are running a cartel, it is one of the worst I have ever seen.

[Dr Whitehead]

The hon. Gentleman makes an important point. This issue is like an onion. It has many layers that must be unpeeled before anyone can get anywhere need the essence of it. Part of the process is that some companies are losing customers with insurgent companies coming into the market, and some are setting up good companies and bad companies to bifurcate the process of where their investments go and where their profit centres are. That clouds the picture. Obviously, there is the effect of energy prices, particularly who has bought what, where and when, and what those prices now mean in terms of strategies that took place two, three or four years down the line.

--- Later in debate ---

[David Mowat]

People can move profits around and have good companies and bad companies. What I am saying is that Centrica, which owns British Gas, has somehow turned the cartel that it is apparently operating —we will find out tomorrow so we are speculating—into a 40% reduction in its share price in the last five years. That is not a good performance in running a cartel.

[Dr Whitehead]

Indeed. As the hon. Gentleman underlines, that may be a factor of other processes at work in those companies and what investors think is their long-term security and future in the light of rapidly changing energy conditions. A whole series of factors is at work, and I hope that, in the report that the CMA will publish tomorrow, it has paid due attention to the complexity of those factors. I fear that some of that complexity was not fully reflected in its initial proposals.

A second complexity is transparency: who is buying what at what point round the curve, how companies are hedging their trading processes and whether they are trading with themselves and hedging advantageously compared with other companies down the line. One might argue that that is good practice or bad practice, but we do not know that because the market is not transparent at the moment.

Biomass Energy

Debate between David Mowat and Alan Whitehead

Wednesday 24th February 2016 Westminster Hall

[Dr Whitehead]

I thank the hon. Gentleman for that clarification, but perhaps I can also make a little clarification for him. He mentioned the NERA and Imperial College London report about system integration costs. That is an important report, but he should also know that a similar report from NERA and Imperial College London was produced about three months before the report that he mentioned. It so happened that the client for the other report was the Committee on Climate Change, as opposed to Drax. The questions that were asked in the two reports, which had identical authors at almost identical times, were slightly different and therefore produced fairly different results for overall system integration costs. Essentially, one looked at how biomass would relate to the system as it stands; the other looked at how it might relate to system changes.

One thing I am sure the hon. Gentleman would endorse is the extent to which system changes have to take place to ensure that those changes in the mix are integrated into the system as a whole—so, the periods over which energy is sourced, and what happens with transmission charges and how they may be levied in future for a particular location.

[David Mowat]

I hear what the hon. Gentleman is saying. Does he not accept, though, that it is a fact that intermittent forms of energy require back-up and that there is an associated cost that is not reflected in the CfD structure at the moment, which I think is the point that was being made?

[Dr Whitehead]

The hon. Gentleman is absolutely correct. There are system integration cost differentials between different forms of renewable energy. My point is that, depending on which report people read, those are not the same as they might appear to be between renewables. Indeed, what is undertaken in how the system works as a whole can substantially mitigate the different costs, so that, as we evolve the system, we can be in a much better position to ensure that the suite of different renewables—which, as my hon. Friend the Member for Ynys Môn mentioned, is so important for future low-carbon deployment—can properly be deployed happily alongside one another, as a suite of measures to ensure that we move towards a decarbonised economy.

I recognise that we have limited time this morning, so I want to turn briefly to the point the hon. Member for Selby and Ainsty made about the level playing field that is necessary for biomass. It is undoubtedly the case, given the measures that are in place at the moment for the enhancement of renewable energy, that there is not a level playing field. There is an overall problem with that suite of measures because of the levy control framework and the extent to which hardly anybody is likely to get a contract for difference for their project over the next period. Indeed, the hon. Gentleman will be aware that some biomass plants got contracts under the early investment decisions, prior to the new form of CfDs coming into being. However, when it comes to the efficiency of biomass, allying that with CHP schemes to ensure that biomass can get 15-year contracts under the CfD arrangements, even if the heat source is not there for 15 years, is an important change that would need to be made to CfD arrangements for the future.

As for the renewable heat incentive, the fact that there are no guarantees for tariffs between commencement and completion of a project if a biomass plant is trying to go for RHI seems to be an omission for the future that should be rectified as far as their admission to those arrangements—

Shale Gas

Debate between David Mowat and Alan Whitehead

Tuesday 30th June 2015 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I congratulate the hon. Member for Thirsk and Malton (Kevin Hollinrake) on obtaining this debate. It is important because it goes to the heart of the distinction between what it is to drill an exploratory well and what it is to have a fracking industry in any particular part of the country. He clearly set out the safeguards that are needed as an absolute baseline for any fracking at all to take place, as well as the cumulative effects of fracking and the extraction of shale gas on particular areas and what impact that has on the community in the longer term, as well as the impact on the consequential things needed to keep that industry in place—whether that is the disposal of wastewater, consideration of the intensity of various fracking pads, or a range of other issues.

I shall concentrate for a moment on thinking about what fracking as an industry might look like in this country, as opposed to what an occasional exploratory well might look like. The proposition in front of us is not for occasional bits of exploration; it is “Go for it. Let’s have a substantial fracking industry. Let’s change the nature of how we obtain our gas supplies.” The argument in favour of fracking is that it is a substantial addition to our national security. Some of the further reaches of the argument relate to bringing prices down, but that is quite wrong and misunderstands the nature of gas trading in Europe. There would not actually be any great difference in gas prices unless the whole of Europe decided that it would frack everywhere in Europe.

The argument that a substantial fracking industry might be good for national security is the main argument put forward for it.

[David Mowat (Warrington South) (Con)]

It is true that there is no reason to believe that prices in Europe will come down by a factor of four, as they have in the United States, but it is also true that if we have more of something, the price is likely to come down. Increasingly, our strategy is to buy gas from Russia and liquefied natural gas from Qatar. That is not a viable way forward.

[Dr Whitehead]

The hon. Gentleman is right to say that we buy some LNG from Qatar, but only about 0.5% of the UK supply comes directly from Russia. Buying gas from Russia is really not an issue for this country, although it is for some other parts of Europe. My point was that the international trading arrangements for gas have three nodes across the world—the far east node, the north American node and the European node—and gas is traded and pipelined within those nodes. The product of shale gas in this country would simply go into one of those nodes and be traded across them, and the price would even out. That is my point about whether a shale gas industry would mean a substantial reduction in price.

I want to concentrate on what a shale gas industry in this country would look like. We have only one serious document sponsored by the Department of Energy and Climate Change that looks at the consequences of a serious industry. My concern is that that document, a strategic assessment produced by AMEC a little while ago, estimates the output from shale gas wells to be 3.2 billion cubic feet per well over 20 years. As an average output for wells in the UK, that would equate to the best level ever obtained in any well in north America. Conditions for shale gas in the UK are very different from those in the United States, and the likelihood is that the output per well would be far lower than the very best output in the US. On top of that, the current average US well output is about 0.8 billion cubic feet—far lower than the best ever output—and, more to the point, there is a rapid rate of depletion per well.

In fact, a shale gas industry in the UK would see relatively low gas output per well, with a fairly rapid depletion rate and the necessity for re-fracking, probably once every seven or eight years, were the well to be retained in production over 20 years. It is not a question of a well pad being drilled and then the equivalent of “nodding donkeys”, such as we have at Wytch Farm, nodding away quietly in the countryside. The process of trucks, waste water and re-fracking would have to be repeated every few years on that well pad in order to keep it going. Even then, the depletion rate is more rapid after the second re-fracking, after which the well goes out of business.

[Dr Whitehead]

The hon. Gentleman is absolutely right: the location of various wells would require either that the gas was stored in tanks near the well and then transported or that new pipelines be constructed to take it away. A pipeline could not be organised in the same way as for the North sea.

On the basis of the scenario I have outlined for what a shale gas industry would look like in this country, the estimates are that, in order to divert, let us say, 10% of our gas supply from conventional gas into shale gas and remove part of the need to have gas from Qatar or Russia—10% is a modest diversion—we would need to drill somewhere between 10,000 and 18,000 wells, and they would have to be re-drilled over a period. Of course, those wells would not be evenly distributed throughout the country—Members would not have around two wells per constituency; wells would be concentrated in the two areas of the UK where there are reasonable shale plays. Those shale plays are geologically faulted and difficult to get at; nevertheless, they are the main areas: Bowland shale in the north-east of England and across the weald in the south.

We are looking at 10,000 to 18,000 wells concentrated in two parts of the country. As the hon. Member for Thirsk and Malton said, that would probably result in the very intensive geographical concentration of fracking in those areas, with a substantial geographical concentration of take-off facilities and of the need to remove waste water, 7 million gallons of which per well will have to be removed and disposed of fairly safely as hazardous waste. We do not currently have the ability to do that in this country. We can do it for the occasional well, but we would not be able to do it very easily without substantial new facilities for such a concentration of hazardous waste, which would be repeated as the wells were re-fracked.

We need to ask whether all that is a realistic prospect compared with the gain that might come from extracting the additional gas. It seems to me that, if that is what we want for our energy strategy, there will be a very high price to pay throughout the country for a marginal gain. Are we really, seriously committing ourselves to that? Recent events in Lancashire demonstrate that it is rather difficult to get two wells into the ground, let alone 18,000 over a longer period. I am worried that we are setting ourselves up by assuming that some of our future energy supplies are going to be pencilled in for this particular route, when either there are unacceptable costs to reaching that goal or, to make the industry work, we will have to build a whole lot of infrastructure on the back of what we already have.

Having considered at how a UK shale gas industry might look, it might be interesting to look briefly at an alternative industry: green gas, which is the production of gas by anaerobic digestion plants and associated methods. It has been projected that, by using most of the available feedstock that could go into anaerobic digestion plants, we could probably divert between 5% and 10% of our domestic gas supply requirements. When I say “divert”, I mean literally divert, because green gas AD plants can now inject gas directly into the mains.

There are eight green gas plants currently operating in the UK. I recently visited one in Poundbury, which, at certain times of the year, injects gas into the mains grid. People living between, roughly speaking, Lyndhurst and Weymouth will receive green gas from the Poundbury anaerobic digestion plant at various times of the year. There is direct substitution of the existing gas going into the mains. An AD plant would probably produce some 6 million cubic metres over 20 years. A well could produce rather more at some 20 million cubic metres, but it would have to be re-fracked several times. After that, the well would be capped and the operators would walk away. Because plants and animals continue to produce feedstock, AD green gas plants would simply continue. If we are considering changing from gas imports to domestic production for national security purposes, it might be a better idea to build a large number of AD plants and have one at the end of every lane.

[David Mowat]

I support green gas and anaerobic digestion. The hon. Gentleman said that the gas could be injected directly into the mains gas system. Is he implying that the characteristics of shale gas or other unconventional gas mean that they cannot be put directly into the grid? I do not follow.

[Dr Whitehead]

I am sorry if I unintentionally misled the hon. Gentleman. Shale gas can of course be injected directly into the grid. AD-produced gas has a slightly different calorific value, but with minimal treatment it can actually go directly into the grid in the same way as shale gas, so there is a direct comparison in production and in end use between the two processes. I suggest that if we want an industry that diverts substantial amounts of gas from import, building up AD plants and injecting green gas into the system might be a more environmentally sound and less intrusive way of doing so which might be more acceptable to the communities affected by any potential intensive fracking.

I appreciate that a farm AD plant at the end of a lane is not exactly the prettiest sight in the world, but it produces gas at a near zero overall net carbon cost, because it simply recycles what has captured carbon in the first place, and produces a different pattern of use. In the long term, it is potentially—

Energy Company Licence Revocation

Debate between David Mowat and Alan Whitehead

Wednesday 3rd September 2014 Commons Chamber

[Dr Whitehead]

My hon. Friend makes an interesting point. Given where the regulations stand now, it is quite possible that the introduction of the regulation that my right hon. Friend the Member for Don Valley (Caroline Flint) suggests, would lead to several other regulations being removed, so therefore would meet the golden rule of one in, two out. It is something that I can recommend right now to those on the Government Front Bench as a way of earning additional deregulation brownie points.

I mentioned the Secretary of State’s circumlocutions and made considerable play of the fact that, because the regulator can undertake a final order, that is the nuclear option. The Secretary of State will be aware—he has received legal advice to this effect, although I do wonder whether the legal advisers did this during their lunch hour to assist him—that clause 25(1) of the Electricity Act 1989, from which the final order derives, before Ofgem was introduced but the powers were incorporated into its powers, states that

“where the Director is satisfied that a licence holder is contravening, or is likely to contravene, any relevant condition or requirement, he shall by a final order make such provision as is requisite for the purpose of securing compliance with that condition or requirement.”

According to that piece of legislation, one is required to find out what any relevant condition or requirement is. In order to do that, it is necessary to refer to schedule 2 with the imposing title “Revocation”. We may want to look there to find out how nuclear that final order is. The final order not only has to relate to the relevant conditions or requirements, it has to stick to the relevant conditions or requirements. That is what it says in the legislation.

As the Secretary of State has said, there are a number of circumstances under which the licence can be revoked. Where someone has not paid their fine and it remains unpaid, a final order can be issued. If a final order is issued and the licensee fails to comply with that final order, which is something of a tautology, that licence can be revoked. But in order not to comply with the final order the licensee has not to comply with something within the revocation schedule in the first instance. If the licensee refuses to pay the financial penalty, that triggers a final order. Various orders were made under the Competition Act 1998 relating to unfair competition. If the licensee does not supply any electricity within a year or has stopped supplying electricity to a property, a final order can be levied against it. If the licensee is unable to pay its debts according to the Insolvency Act 1986 or has an administration order, or a receiver has been appointed, the licensee may have a final order levied against it. Obviously, if it is insolvent and has ceased trading, it is hardly likely to comply with the final order so its licence would be revoked.

The revocation schedule, upon which the Secretary of State’s magnificent argument about the final order rests, simply states, as has already been rehearsed, that various things could lead to revocation if they are not put right. That seems to be the central point that is being addressed this afternoon. These are all things that might be levied against a company and could be put right, and if they are not put right a nuclear option of revocation can be undertaken. But if those things are put right, case by case by case, section by section by section, that final order cannot be used. So the entire basis of the Secretary of State’s argument, that that really exists to enable Ofgem to revoke a licence for the sort of cumulative issues that we have been discussing this afternoon, simply falls down. We must accept that there simply is no such power in reality, by implication, in legislation or by regulation.

That makes the case fairly simple. Yes, it is true that with regard to competition, the problem of losing a number of customers may cause an energy company to think again about certain of its actions. The possibility of losing all of one’s customers might make one think rather more seriously about the problems being faced and how to deal with them, in addition to the fact that some customers may be lost through competition.

There we have it, in terms of the difference between the present position and a significant change in what Ofgem would be required to do under the proposals set out this afternoon. They require Ofgem to take account of cumulative bad behaviour—of a company getting away with it, not putting right things required under legislation, and living to fight another day and do it again.

[David Mowat]

I am listening carefully to the hon. Gentleman and I think he is right about this being an additional power. The question that therefore arises is: what problem are we trying to solve with the additional power? In the 20 or 30 years since privatisation, when companies have apparently been running amok, in which instances would he have liked the power to be deployed? In particular, would it be appropriate for npower no longer to have a licence?

[Dr Whitehead]

The existence of a power in legislation, and of a regulation attached to it, provides a framework that companies subject to it must address. It is academic for the hon. Gentleman to ask whether a company would have had its licence removed when it was not subject to the conditions and when the framework did not exist—it is just a debating point and not a real challenge at all.

[David Mowat]

There is a logical error in what the hon. Gentleman says. In the absence of the power, when all the energy companies have apparently been running amok, surely we would have expected them to exhibit the egregious behaviour that would cause the power to be used. Can he give me an example of that?

[Dr Whitehead]

The hon. Gentleman will understand that saying “enough is enough” when there is not enough in the first place is a logical impossibility. The power provided under the proposal would enable Ofgem to say “enough is enough”. I cannot look into a crystal ball to say what enough might consist of, but a power to deal with repeated abuses of licence arrangements and repeated failures to learn from transgressions that had been put right but had not led to a sanction being levied would in the long term have more effect on energy companies’ operations.

[David Mowat]

Let us be clear: these are repeated abuses—which, as the hon. Gentleman rightly says, the power takes into account—of a type that we have not seen in the past 30 years. Otherwise, he would be able to give examples of when the power should have been deployed.

[Dr Whitehead]

The hon. Gentleman misses my central point—that it is difficult to say there has been cumulative abuse of a licence when the licence contains no means of judging that. Without such means, it is difficult to make those judgments. Members across the Chamber will agree that if a company that flagrantly and repeatedly abused its licence conditions faced the ultimate sanction of having its licence removed, it would think long and hard before sailing too close to that circumstance.

I questioned whether the Secretary of State’s heart is in the debate. I do not know whether his brief for the debate was one of specificity or one of principle. Did it say, “In the circumstances where it appears we might have the power, you can walk around the issue by talking about a final notice”, or, “Under no circumstances should the regulatory system for utilities or associated bodies enable the removal of licences, so defend the fact that the licence cannot be removed under existing regulations”?

I wish to draw attention to another note on compliance and ultimate sanctions, which states that

“licence holders must also, at all times, satisfy the four authorisation criteria. . . insurance, financial fitness, good repute and professional competence. If we have serious doubts about whether you comply with any of these criteria, we may make further enquiries.”

It concludes:

“If you do not comply with your licensing obligations we will consider enforcement action. This may ultimately result in the suspension or revocation of your authorisation.”

That guidance is issued not by Ofgem but by the Office of the Rail Regulator, so there is a regulatory arrangement—presumably agreed and authorised by the Government—that enables the ultimate sanction of a licence being revoked. Did the Secretary of State defend the lack of such an ultimate sanction on the grounds that it is a bad thing? If so, such a sanction already exists. However badly the railways are regulated, at least regulations are in place that allow for that ultimate sanction.

Energy Markets (Competition)

Debate between David Mowat and Alan Whitehead

Wednesday 26th March 2014 Westminster Hall

[David Mowat]

Certainly the second part of my remarks will be brief, Sir Roger.

The issue before us is serious. Everyone at this debate is concerned about fuel poverty in their constituencies and high fuel prices. Most of us, I think, are concerned about energy intensive industries, particularly in the north-west and the north-east. Some 900,000 people work in industries where the price of energy is a significant determinant of profitability, and it behoves us all to take the issue seriously. We are where we are because issues have been raised on the market fairness and market effectiveness of the energy industry in the UK, and it is right that we look at that. The Secretary of State has talked about referring the industry to the competition authorities, and I support that.

It is important—the opening remarks did not do this—to distinguish between gas and electricity, because they are different markets. I want to talk a little bit differently about each of them. There are suggestions that the industry is some kind of cartel and “the big six” is, frankly, often used in this House almost like a swear word. We hear that the big six do this and do that. I have heard the shadow Secretary of State use the phrases “price fixing” and “secret deals”. If the Opposition have evidence of cartels or price fixing, that is extremely serious. If it exists, directors of public companies will go to prison. Fines can be levied that are several times the turnover of those companies. It is important that the Opposition bring that evidence forward, if it exists.

When words like “cartel” and phrases like “secret deals” and “price fixing” are being used, be aware of what is being suggested and be willing to take that forward and give that evidence to the competition authorities in the European Union and the UK and to the police. If such evidence does not exist, it might behove the Opposition to use more moderate language, which they were doing in their opening remarks in this debate, at least.

I want to make some comments on how the UK market compares with the EU market. One way to find out whether there is price fixing, cartels or other problems is to see how our market compares in structure and outcome with the rest of the EU. I have done a little analysis on that, under three headings. The first is out-turn prices for gas and electricity in the UK compared with other EU countries. The second is market structure. People say that we broadly have the big six in gas and electricity, and other countries in Europe do not have that structure. The third is the profitability of those energy retailers in the UK versus other places. I report that the answer is different for gas and electricity.

On gas, we have to distinguish between taxed and untaxed prices. In this country, we tax gas very little, while the EU taxes it much more heavily. It can appear that prices are higher there, so it is only fair to look at untaxed prices; on that basis, our gas prices are the second lowest in the EU, although it is true that they are significantly more than in some other countries. They are triple the prices in the United States of America, but we know that that is to do with shale gas and all that goes around that. Our gas prices are the second lowest in the EU, yet broadly speaking we have an EU energy market for gas, and some comparability would be expected. If a cartel is operating in the gas market, it is hard to see that it is being very effective.

On electricity, our retail prices are among the lowest in the EU. When we look at the position without tax, it is a little more nuanced. According to the EU portal, our untaxed electricity prices are slightly higher than those in Germany, Holland and France, although not by very much—5% or 6% higher. That is a lot of money, however, by the time that all works through. On the face of it, there might be a more significant issue with electricity than there is with gas. I would be interested to know whether Opposition Members are talking about the need for a price freeze for both industries or just for electricity.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Does the hon. Gentleman accept that the production of electricity using gas means that there is a substantial link between gas and electricity? Investors in new gas-fired power stations claim that the relationship between gas and electricity prices means that they are currently not particularly willing to invest. The hon. Gentleman’s decoupling of the two markets is a bit over-precise and ought to bear that fact in mind.

[David Mowat]

That is a fair point. It is true that no gas power stations are currently being built in this country, but the principal reason is that shale gas in the United States has meant that coal has become cheap on the world market. We will therefore be burning coal in this country at a great rate—even more so in Europe—until we are stopped.

I accept the hon. Gentleman’s point that the markets are not entirely distinct, but my point was simpler than that. I have looked at what we are paying in this country for gas, which is a separate market, and it is the second lowest price in the EU. Members should bear that in mind when making comments later in the debate.

I was about to come on to market structure. I have always thought it a little odd that having six participants was regarded as a monopoly. Looking elsewhere in EU, Germany has two retailers in electricity and three in gas, Holland has three in each and Italy has five in gas and two in electricity. France is a little different because of nuclear power. In terms of market concentration, the report I used for this is the—I do not have it here—

Energy Company Obligation

Debate between David Mowat and Alan Whitehead

Tuesday 11th March 2014 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

The starting point for the debate must be the notorious Prime Minister’s Question Time at the end of November, half way through which he announced that there would be a green levy review. Sure enough, there was one; only, because it appeared that the review was thought of about two minutes before Prime Minister’s Question Time, the green levies were not reviewed but stayed roughly as they were. ECO was reviewed instead, and the result is that we are where we are now.

The document put out by the Department said:

“One of the major challenges for the ECO and Green Deal is the changing nature of the types of measures that need to be delivered. CERT, by focusing on delivering low-cost measures, has been very successful at installing simple loft and cavity wall insulation. From 2012 Green Deal finance will offer a route to deliver the remaining low cost loft and cavity wall opportunities at no upfront cost and without need for subsidy. However to meet our carbon budgets cost effectively, we will need to go far beyond just lofts and cavity walls, and move towards the next most cost effective measures.

However, some 7 million of the most difficult to treat homes require some form of solid wall insulation. The Committee on Climate Change recommended in their 2009 Report, ‘Meeting Carbon Budgets – the need for a step change’ that 2.3 million solid wall homes will need to have taken up solid wall insulation by 2022 in order for the UK to be on track to achieve carbon budgets. ECO support for these properties will help drive this market, and the supply chain to fulfil it, enabling us to unlock the resulting carbon savings more cost effectively.”

That was the prospectus that people bought into when they started doing work on ECO. In that context, the process of the review has been interesting, because it effectively boiled down to ECO having to take the bullet. In quick order, it was announced on 2 December that there would be substantial changes in how ECO would work, without an impact assessment. Only now has a consultation paper been released. It says that a number of the proposals have already been announced or foreshadowed in the Government’s announcement on 2 December. I am reminded a little of the referendum in Crimea, where first the outcome is announced, then a consultation is held on what the announcement should be. The measures in the 2 December announcement, which essentially stretch out like a lump of pizza dough the annual overall commitment of some £1.3 billion from two years to four years—however it may be wrapped up in decisions to borrow from some parts of the ECO programme to maintain others—starve elements of ECO of resources, particularly the carbon emissions reduction obligation.

That announcement, however, was wrapped up in something of a complication, because ECO finances are predicated on the achievement by obligated energy companies of a carbon obligation—that is, the obligation is discharged by the amount of carbon saved by the measures undertaken—and the estimated overall finances relate essentially to what it will cost, collectively, for that overall obligation to be discharged. Treatment costs for each hard-to-treat property, for example, add up to a cost per tonne of carbon saved, and if the companies have to discharge that obligation within a set period—initially for ECO, that is 2015—the price paid for each tonne saved will logically be higher than if the same level of obligation was over a more extended period.

Another issue is the extent to which the programme admits of access to measures, which, by their nature, allow for savings to be made at a lower cost per tonne of carbon dioxide saved. Those measures, however are supposed by and large to be covered by the green deal, whereby the cost of loans for measures is recovered from bills. As the original Department of Energy and Climate Change document says, ECO should be concerned only about the measures that go beyond those treatments. However, if such measures are allowed to count for ECO’s purposes instead of green deal purposes, inevitably a carbon obligation can be discharged by concentrating on those measures, rather than on the hard-to-treat homes specified in the original DECC document on ECO.

Indeed, the consultative document published last week recognises that. On page 28, it states:

“Taken together, the proposals are likely to see a greater focus on cheaper, easier measures and a correspondingly diminished role for Solid Wall Insulation in ECO delivery.”

It continues:

“However, the Government is clear that SWI represents a major challenge for the nation’s housing stock, with nearly eight million households of solid wall construction, of which only 3% per cent have wall insulation.”

The Government set a sub-target for solid-wall insulation that is about half the estimated target in the original ECO plans.

Of course, no one told the dozens of local authorities, housing associations, and insulating companies that that was in store. Trusting the word of the Department, they did exactly the right thing in getting the best result possible from the areas that ECO was supposed to concentrate on, namely the uplifting, area by area, of those hard-to-treat homes, using their local skills and considerable efforts in developing partnerships to do so. After all, we know that area uplift worked well under the community energy saving programme and the carbon emissions reduction target. There were better results overall in value per treatment—a large chunk of the target was reached area by area—than by searching randomly for individual properties to uplift.

I will add our local programme in Southampton to the pot. In November 2013, the council announced a £30 million programme to make energy improvements to more than 2,000 council properties in Southampton over the next 18 months. It included cladding of high-rise buildings, cladding of system built non-cavity homes, and a district heating scheme alongside. That would, by the way, create between 600 and 900 jobs, as well as safeguarding 300 jobs locally. That was a partnership between the city council, a property services company and an obligated energy company. That was all very rosy, except that as soon as the Government announcement was made and it rapidly became apparent to energy companies that the obligations as previously constructed were being thrown out of the window, they drew back from progressing the scheme. It may be that some of the programme can be saved, but the prospects of thousands of residents of Southampton having possibly life-changing reductions in their energy bills in the near future, of some of the worst insulated properties in the city being transformed and of carbon efficiency in buildings in the city taking a leap forward are possibly wholly and at least largely off the agenda right now. It is the same in many other places across the country.

[David Mowat (Warrington South) (Con)]

I am listening carefully to what the hon. Gentleman is saying, and he is making some good points. He is talking as though the ECO—or the CERO part of the ECO, which I think is the thrust of his comments—has been totally revoked. What has happened, however, is that it has been extended by two years. The fact is that we were at 7% completion after 67% of the time period. In a sense, are the Government not just reflecting what is happening on the ground in a sensible way and allowing things to happen a little more slowly? That could be called a failure, but it is sensible, notwithstanding what we heard about Nottingham. I did not follow what was said on ECO versus the green deal. I also do not understand the thrust of the hon. Gentleman’s comments.

[Dr Whitehead]

The hon. Gentleman misses the point about the carbon content of ECO and how that is stretched out over the time period. Energy companies can therefore decide that they do not need to undertake the obligation in the way they did previously. That is the crux of the matter and that is why the target has gone down from having 180,000 solid-wall homes by 2015 to having 100,000 by 2017. Even with those changes, it would have been possible to keep that carbon content by not invading the green deal with the changes to the proposals and by having a front-loaded system, which the Department could have worked out.

[David Mowat]

I did understand that. The part of ECO that has been extended and strengthened is the part that looks at those in particular fuel poverty. The middle section, the carbon saving community obligation, has been strengthened. The hon. Gentleman is right that the CERO has been weakened, but that just reflects reality.

[Dr Whitehead]

The CSCO has not been strengthened. It has been stretched out at the same level over a longer time at the expense of the CERO, which has had to fund most of the money to enable the CSCO to remain even at its previous level. I do not understand whether the Department understood what it was doing when it made these changes. If it understood, stood by and did not put any remedial measures into the consultative document, it wilfully let a large section of ECO fly out the window, along with all the previous targets. If the Department did not understand what it was doing, that is possibly an even worse prospect. Either way, the programme could have been saved with a slightly different way of revising the ECO programme, but the Department allowed a large proportion of the work on solid-wall insulation and hard-to-treat cavity homes—we all know that they are an absolute imperative target for the country over the next period—simply to go to waste.

I hope that a number of these programmes can be retrieved in one way or another, but the fact is that we now have an ECO that is a shadow of its former self. In the process, it has left large numbers of people in hard-to-treat homes. Local authorities, housing associations, companies and people who thought they would get jobs are all bewildered as to what will happen. That cannot be a good outcome, when the review was supposed to ensure that affordable energy would be coupled with even more affordable energy through the insulation programmes. The final, savage irony is that a programme to save people a lot of money on their energy bills has been thrown out of the window by a green levies review that was supposed to save some people money on their energy bills. I hope we will not forget that when we debate this issue. I hope that the Minister can explain exactly what his Department was doing when it undertook the change and whether he will contemplate undoing some of these changes, so that the programmes can at least partly go ahead to do what they were originally intended to do.

Energy Bill

Debate between David Mowat and Alan Whitehead

Wednesday 4th December 2013 Commons Chamber

[Dr Whitehead]

Indeed. There is the question of what happens to the carbon dioxide subsequently and how it is injected. In Canada, it is injected into additionally drilled wells on land; there is a different process of injection offshore. At the Saskatchewan power station, the process involves the use of carbon dioxide for enhanced oil recovery, although most of it stays on the ground after the process in any event.

[David Mowat]

I am listening carefully to the hon. Gentleman’s argument about the acceleration of CCS as a consequence of accepting the amendment. Notwithstanding the Saskatchewan case, CCS is still an unproven technology in this country. For clarity, is he saying that the amendment would result in those stations being converted to CCS in time to prevent them from being switched off? It was implied from the Front Bench earlier that they would be replaced by gas power. Which of those two options does the hon. Gentleman consider to be more likely?

[Dr Whitehead]

Some of those plants could well be replaced by gas, and some could well close down. Indeed, some could well close down whether the amendment were passed or not. The problem for capacity in the market is that the signals being sent out at the moment are so varied and uncertain that a number of people who might otherwise invest in plant are holding back until, for example, the capacity market comes on stream or until there is more certainty about CCS or about coal generation. As we have seen already, there is a possibility that plants will close down by accident rather than by design. They could end up being mothballed because of market circumstances, rather than because of long-term planning based on capacity.

The amendment would improve that certainty tremendously by making it absolutely clear what was expected of coal-fired power in the future. Coal-fired power would not cease to exist; it would be able to run at certain levels per year, and any existing coal-fired power station that wished to run continuously after the early 2020s would have to have CCS attached to it. The amendment would send a simple, straightforward message.

--- Later in debate ---

[David Mowat]

I, too, oppose the amendment. I will make three points: on cost; on security of supply; and on how this country’s approach to tackling the issue increasingly departs from that of other countries in the world, not just in Asia and the US but in parts of Europe.

First, let us frame the problem. We have 23 GW of coal right now. I think we can all accept that about 8 GW of that will be turned off because of the large combustion plant directive, leaving potentially 15 GW subject to the amendment. I asked the shadow Minister what his figure was and although it may well turn out to be a little lower than that, it is of that order. We are talking about a huge amount of power to be replaced, yet we are doing this at the same time as our nuclear stations are coming off stream. Let us put this into context. Replacing 15 GW with wind power, which I guess is the direction that the hon. Member for Brighton, Pavilion (Caroline Lucas) would take, would require about five times as much wind generation as we currently have commissioned—onshore and offshore—leaving aside the intermittency issue, which I do not think we will be able to address.

[Dr Whitehead]

rose—

[David Mowat]

I will not take the intervention, as I want to finish as quickly as I can to allow time for the other speaker.

We have a security of supply issue. To be clear, the debate is not about pollution, nitrous oxide or sulphur dioxide control, or even about the long-term plan to phase out coal. We intend to be at 3% by 2030. Our European partners, by contrast, do not have such an ambition. The debate is not about the Kyoto targets, which we have not met, but about the need to replace a vast amount of capacity, and to accelerate such replacement. We are unique in that our nuclear stations and our coal are so old. We also intend to use more electricity as we decarbonise the transport sector. If we are to meet the climate change budget targets, it will be about not just electricity generation but transportation. We are talking about more electric cars, which means yet more electricity. The task is absolutely enormous, and we are currently sitting here with a capacity surplus of around 4% or 5%. To accelerate that further would be folly.

Members have mentioned that we are talking about replacing possibly one of the cheapest methods of energy generation—the relatively old stations that are depreciated, and all that goes with that—with some other technology. In relation to today’s infrastructure plan statement, offshore wind, even with the new CFD numbers, is about three times the cost of those coal stations that are currently burning.

If we are seriously thinking of replacing about 15 GW of capacity with offshore wind and even gas, which is more expensive, it is hard to see how that would not put up energy prices. Of course it would put up energy prices both for our energy-intensive users and our consumers. Those Members who think that fuel poverty matters should give some thought about how they will vote this afternoon.

Finally, let us look at how we are dealing with the issue compared with many other countries. I have one statistic to put to the House. Renewables went up a great deal last year. Across the world, they went up by about 30 million barrels of oil equivalent, which is a high percentage. The use of coal across the world went up by three times as much to 100 million barrels of oil equivalent. Such increases are not just happening in Asia and China. Germany and Holland are moving ahead with brand new unabated coal power stations that will run for 20 or 30 years. In this country, we already have among the lowest carbon emissions per head and per unit of GDP of any EU country. The only major country that performs better is France, which has so much nuclear power, although our green lobby thinks that that is wrong as well.

I have not covered in any detail the havoc that would be wrought on what is left of the UK coal industry. The fact that Members are justifying voting for the amendment because it will bring forward investment in CCS, which is still unproven at the scale that would be needed to work in this country, is, frankly, almost vandalism.

Energy Price Freeze

Debate between David Mowat and Alan Whitehead

Wednesday 6th November 2013 Commons Chamber

[David Mowat]

No, I cannot, because I am not an expert on the market. I am merely trying to establish whether the absolute prices that we are paying vis-à-vis our European competitors indicate the existence of a cartel, as has been claimed on many occasions. That does not appear to me to be the case, but someone can always intervene on me—actually, they cannot, because that would be the third intervention and I would not be given extra time, but someone could always discuss the point with me in future.

The fact remains that we have the 26th highest gas prices out of 27 in Europe and we need to be clear about what problem we are trying to solve. The problem that we should be trying to solve is the problem of our housing stock, whose standards need to be raised to the level of the standards in the rest of Europe. Germany’s gas prices are 40% higher than ours, but its gas bills are lower than ours. Why? Because its housing is better insulated and better built.

I have five points to make. My first point is that whatever we decide to do on the basis of the various reviews, we should not reverse the thrust of our policy on insulation. We should not give up on the energy company obligation, the green deal and smart meters. I do not agree with the hon. Member for Brighton, Pavilion (Caroline Lucas) on many issues, but I do agree that far and away the most effective way of making progress on energy in general is to ensure that there is better conservation and more efficiency.

Secondly, we need to make the market work better—

[Dr Whitehead]

Will the hon. Gentleman give way?

[David Mowat]

No, I will not, because I have already given way twice.

I welcome the proposal for a competition review: it would clear the air. If there is indeed no cartel, surely everyone should welcome it. I also welcome the proposal for 24-hour switching, although, having reflected on why I might not switch as often as I should, I concluded that it was still too difficult. I have just moved house, and it took a long time for me to manage to speak to those guys on the phone. I suggest to Members on both Front Benches that we should introduce a fining system. If it takes more than 10 or 12 rings for any of the big six to answer the phone and transfer callers to someone who can deal with their query, that company should be fined. I bet that if we introduced such a system, we would find that the energy companies hired more people and dealt with calls more efficiently, and switching—whether in 24 hours or not—would be much easier.

Of course we need more new entrants to the market, but I have a further, serious criticism to make of the big six. They have described a margin of 4% or 5% as reasonable, which is an entirely spurious observation. I have no idea whether such a margin is reasonable, but the point is that we should evaluate them on the basis of their return on capital employed. A margin of 4% is a huge margin for a foreign exchange dealer and for a petrol retailer, but a very small margin for any other retailer. When someone asks if £7 million a day is too much profit or too little, that is a very hard question to answer. The big six are entitled to a reasonable return on their capital employed. We should focus on that, and they should focus on it too when they are telling us how reasonable they are.

UK Shale Gas

Debate between David Mowat and Alan Whitehead

Thursday 18th July 2013 Westminster Hall

[Dr Whitehead]

Well, those are entirely different points. At a particular point we could meet a larger supply, but what I am talking about is the overall question of supply over a period of time that would be possible to underwrite as a result of that sort of level of shale gas production—two different points.

The additional point that needs to be borne in mind about shale gas wells is that they do not last very long. Research from the US demonstrates that the average life of a shale gas well is about seven years or so. That is because shale gas wells produce a lot of gas to start with, but they deplete very rapidly. So, after about seven years they are producing negligible amounts, even—as has happened in a number of instances—on the basis of refracking. Refracking of a well produces a little increase, but the well still dries over a fairly short period. Therefore, to maintain that sort of level of production over a longer period, one would need to redrill a number of those wells. That is the sort of scenario that we would set for ourselves if we were to introduce a level of shale gas production that would support the sort of intervention in the gas market that I have mentioned.

My second concern is this: would shale gas production actually reduce prices for everybody, if we went for it to that extent? The clear answer is no. The intervention of the shale gas itself would not reduce prices because of the way that gas is traded on the international markets, particularly in this country. There are three international markets for gas trading. Gas is not particularly transportable, except through vessels such as liquefied natural gas carriers, which make a marginal difference in terms of supply; gas is largely transported by pipelines. Gas is traded on the European market, the far east market and the north American market. The north American market has seen substantial price decreases because of the concentration of shale gas within that one particular market. We would need to have a similar amount of shale gas produced throughout Europe in order for the European traded gas market to come down significantly in price compared with what it is currently, notwithstanding LNG imports coming into the European market overall. So shale gas might make a marginal difference over a period of time, but probably not—for the reasons I have given—unless there were fundamental changes in gas trading.

[David Mowat]

I am trying to understand the point that the hon. Gentleman has just made. Is it that because there is not enough shale gas in Europe potentially, it will not have enough of an impact on the European gas price vis-à-vis what has happened in the US? Is that the point?

[Dr Whitehead]

If every country in Europe produced the same amount of shale gas that is being produced in the US, yes, that is possible, in terms of the trading in the European market, but that probably is not going to be the case. Therefore we have to look at the relevant prices of gas within the markets. It is a question of trading in a market, not a question of the gas being plugged into someone’s home and therefore creating a reduction in price there.

[David Mowat]

rose—

[Dr Whitehead]

I am sorry, but I cannot give way any more; I would lose the rest of my time.

What happens with those large numbers of wells in terms of the fracking process? That process involves the use of between 2 million and 7 million gallons of water, and 5,000 gallons of chemicals, per frack; whether we know what is in the chemicals or not, that is the sort of volume of chemicals needed. As has been said, that water cannot be injected into seams deeper than the fracking itself, as is the case in America, but would have to be disposed of by other means. Also, unless the fracking companies brought the water with them, water would have to be taken from the water table within the area where the fracking was taking place, which has implications for the integrity of the water tables in those particular parts of the country. That is an important but largely forgotten point.

The final thing that I want to say, given the short amount of time I have, is about the policy implications of going for a large amount of fracking. If we went for a large amount of fracking, as I have said we could perhaps supply—over a period—10% of overall UK gas supplies. If we went for a large programme of anaerobic digestion, we could provide 10% of the domestic gas supply. A farm-sized anaerobic digestion plant costs about £2 million to build—

UN Framework Convention on Climate Change

Debate between David Mowat and Alan Whitehead

Thursday 18th April 2013 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I, too, will try to be brief, because I know that an important debate on China and the low-carbon economy will follow. That debate may shed light on some of our interesting diversions in this debate.

Fundamentally, we have been invited this afternoon to justify why the COP process is important. There are those who say that it is all a complete waste of time—we will burn all the fossil fuel that we can get our hands on—and ask why we are concerning ourselves with the process. Most simply, the Earth is very good at storing stuff and does not need over million of years to balance how it works as a planet. Humans, with the great gift of consciousness, are also very good at finding all that stuff, digging it up and burning it within a few hundred years, compared with the millions of years that the Earth has taken to store and balance it in the first place. I assume that the right hon. Member for Hitchin and Harpenden (Mr Lilley) also agrees with this, but if, over the next 100 years or so, clever humans find and burn all the fossil fuel, the outlook for the world would be very poor indeed.

The world simply cannot do that over the next 100 or 150 years. That seems to me to be a fairly self-evident fact, assuming that people agree that there is some relation between what we do—burning fossil fuels in particular, and human activity in general—and the state of the world’s atmosphere and the extent to which the Earth will warm up as result. Someone who thinks that there is no connection whatever would presumably not be concerned about finding all the fossil fuel in the world and burning it all. Someone who thinks that there is a connection, and an urgent one, would presumably wish to do something about it fairly urgently. Since climate change and, in particular, the results of the burning of fossil fuels know no boundaries, the only way that we can do something about the situation over the medium term is through interaction and discussion between states throughout the world about achieving an outcome that is not as disastrous as it would be if every country went its own way individually.

That seems to be the basic point about the COP process, and although I shall come to a caveat in a moment, that cannot be replicated by people doing what they feel like individually in different countries around the world, partly for the reasons that have been rehearsed this afternoon: people want to go their own way in how to develop their economies. Realising the extent to which that is not an option for any of us over the next 100 years or so is part of the process of recognition that international agreements are important. Indeed, under certain circumstances some consequences have been turned back by international agreements. The Montreal protocol and the action on chlorofluorocarbons was a global agreement to the disadvantage of certain places resulting in a substantial change; what would otherwise have been a difficult outcome for at least parts of our climate has apparently been substantially mitigated and possibly reversed. The COP process is important in that respect.

For the record, one of the immediate consequences of deciding to go off in a different direction can be seen in the 2013 Budget: the carbon floor price is a unilateral tax introduced in the UK, the operation of which does not directly save a single tonne of carbon. It was supposed to be introduced on the basis of a £1 rider on the EU ETS—an inter-country co-operation on carbon cap and trade—but that turned into a £4.94 rider on the ETS when it comes in this year. From next year, it will be £9.55 on top and, in 2015, £18.08 on top, compared with what would have been £7.28 and £9.86, respectively, under the original proposals. That is not mission creep but mission gallop, and often in an entirely different direction. The result is an £18 differential between a power station introducing energy to the UK from the Netherlands and a power station producing energy within the UK. A power station developer might now think, “I will go and put one up in The Hague now because, for my power station developments, that will save me £18 per tonne of CO₂ over the next few years.”

As my hon. Friend the Member for Brent North (Barry Gardiner) outlined, the free money—not for new nuclear, but for existing nuclear—turns out to be not only for all the nuclear power stations in place, but for the two extensions agreed last year and this year. Calculations based on what the carbon floor price would have been when it was first introduced make that £44 billion over the life of the extensions for the four power stations; the new figures are about 30% more. Frankly, I will be surprised if EDF does not go ahead with a new power station on the back of that free money, although I know those are two slightly different things. My point is about the distorting effects of a one-country go at such a scheme, even if that was the intention, rather than its being a dash for money by the Treasury. That illustrates, as other things might not immediately, how important it is to go ahead with international negotiations and to get collective action. Everyone would then be in the same place and on the same level playing field.

[David Mowat]

The hon. Gentleman makes the argument for the money being used as a cross-subsidy. Unfortunately, EDF will not look at it that way; I would be happier if it did, because that would mean getting Hinkley Point, but I am concerned that that will not happen.

[Dr Whitehead]

The hon. Gentleman is absolutely right. EDF will probably use the money to shore up its dodgy international finances, rather than to develop new nuclear power stations. Nevertheless, the effect is there: a substantial subsidy, merely for continuing to do what it did, as a result of an instrument in one country alone. That is my point, not how EDF will use the money.

That is why the international COP process and, contributing to it, joint targets backed up by individual country targets are important. My hon. Friend the Member for Brent North mentioned the extent to which, almost under the radar internationally, countries are beginning to take the sort of action that we in this country have already taken with climate change legislation. One of the ongoing processes recorded in the Select Committee report is that countries, even those that might be advantaged by global warming, are undertaking their own climate change legislation.

It is vital the UK does everything that it can over the next few years to support countries to develop their own climate change targets and to join us in ours, so that progress towards a level playing field can be considerably advantaged as the negotiations take place. One thing that we should resolve today not to do is to indulge in any tinkering with our climate change targets, as we try to move towards international agreement on other people’s climate change targets, given that that would send a very bad signal indeed to other countries, some of which are beginning to take their climate change legislation directly from what we have done in the UK.

That is a call not for action, but for us to defend what this country has done. Our actions have not just made a contribution to what will subsequently be the international level playing field, but are a beacon that shows how these things can be done. Our duty now is not just to say, “We’ve done it, so you should do it, too,” but to stick with what we have done and to ensure that the process that we are working to is not revised away, wished away, downgraded or put in a cupboard by others, while some take what we consider a more appropriate direction on international agreements.

Of course, there is a whole range of other issues regarding COP 18 and beyond, but what I have just described is among the important emerging issues; indeed, it featured substantially at the Doha discussions. It may be a mark of our contribution over future years that the steps that I have described are among those that we take to move discussions forward in a way that produces international agreements, which are vital to any hope of ensuring that our planet lasts in a fit state for the next few hundred years. Of course, it will last, but perhaps not in a fit state for us, although it might be in a fit state for somebody else. Whether our planet will be in a fit state for us over the next few hundred years, however, will be very much determined by whether people from around the world gather to discuss these issues. The issue is whether we make the planet fit for purpose, fit for us and fit for the future; that is what we have to concentrate our minds on.

Shale Gas

Debate between David Mowat and Alan Whitehead

Thursday 3rd November 2011 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I took part in the Energy and Climate Change Committee inquiry into shale gas, and in the course of that inquiry, I took part in a number of visits, not just to the one site in the UK that is currently being drilled, but to areas where intensive drilling was going on, has been completed, is producing or—in many instances—has been abandoned. What I found particularly useful about those examinations of existing practice was that they not only helped us to consider the overall theoretical picture, but enabled us to see what a shale gas producing economy might look like in the UK, based on what we now know about the in-principle availability of shale gas in the various plays in the UK.

I want to concentrate my remarks on these questions: if we were to proceed with the extraction of a sizeable amount of gas from the reserves that we currently know of, what would be the best, safest and most environmentally prudent way of doing so? If we consider that to be a minimum starting point for extracting shale gas, what will that make the UK’s shale gas market look like? What effect will that have on the overall availability of gas?

Looking at the matter from another end, a number of people have recently made quite wild claims about what the existence of the shale gas reserves means. Some people, in pursuit of particular agendas, have gone so far as to say that all we need to do is extract as much shale gas as possible, run the economy on that gas, and not worry about renewables any more. They say that that would lead to an age of plenty for gas; gas prices would rocket downwards, we would have energy security for the foreseeable future, and we could abandon expensive alternative energy sources forthwith. Some of those statements are partially true; most are not fully true; and some, in my view, are completely off-beam.

On the starting point for shale gas extraction in the UK, the regime under which extraction takes place must be such that the free-for-all drilling taking place in parts of the United States cannot and will not be allowed here. The US’s experience is not comparable, and can never be compared, to what might happen in the UK, for a number of reasons. First, in the areas that the Select Committee looked at, the regulation of mineral rights is entirely separated from the regulation of property rights. One can literally fetch up in a truck outside someone’s front garden and say to them, “I own the mineral rights to the land behind your back garden as far as the eye can see, and I am going to start drilling in your back garden. There is nothing you can do about it. I might give you some money to compensate you, but that will be it.” Consequently, certain plays in the United States, called sweet spots, have gone ahead with intensive drilling. In certain parts of the US, areas literally look like Swiss cheeses, with lots of drilling sites pockmarking the surrounding area. They even extend to urban areas and literally to people’s back gardens.

There is not only intensive drilling, but intensive drilling that goes horizontally out from the pads, which are the size of two football pitches; those are the typical starting points for shale gas drilling. There can perhaps be 16 to 20 wells per pad—intensive drilling indeed. As a result, a large amount of shale gas is produced, but wells continuously deplete, which means that each well is not producing an enormous amount of shale gas. The issue of depletion rates for shale gas wells is addressed in the Select Committee’s report. It is the cumulative effect of a large amount of drilling for multiple wells in particular places that produces the overall volume.

Plays in Texas, Pennsylvania and other parts of the US are infinitely easier—perhaps twice as easy—to extract from than is ever likely to be the case in the UK. We therefore need to treat the reports of overall reserves under the soil in the UK with some caution, because in practice, perhaps not more than 10% to 15% of the gas that is theoretically there will be extractable, even over a long time and with repeated fracking in particular wells.

I completely concur with the caution expressed—caution is the watchword in the Select Committee’s report—regarding the conditions under which drilling may take place. Under a regime with conditions, I think that a substantial amount of shale gas can be extracted over a long time, but probably not a volume that will be the price-reducing game changer that some people talk about. A recent report by Bloomberg looking at, among other things, the likely future effects of shale gas on UK prices suggested that there would not be a significant effect on prices. There may well be a significant effect on energy security; we would replace at least a proportion of the nearly 40% of gas that is imported with gas produced in the UK. That is potentially important, but it seems unlikely to be a price-reducing game changer.

The conditions are important because in the UK it will be necessary to obtain proper licences, maintain the right safety procedures in all wells, and ensure that wells are correctly sheathed, so that there is no danger of the contents of particular geological levels permeating and contaminating other levels. It will also be necessary to be careful about the use, disposal and—I hope—recycling of the large volumes of water that are used in shale gas extraction. That subject is another feature of the Select Committee’s report. There is considerable tension about water in certain parts of the country, so even the use of 1%, 2% or 3% of the water supply could put substantial and increasing pressure on the amount of water available. Keeping a close monitoring eye on the use of water will be important.

[David Mowat (Warrington South) (Con)]

I am listening carefully to the thrust of the hon. Gentleman’s remarks. I think he will concede that there has been a significant price differential in the US on the Henry hub, for whatever reason. Gas prices have fallen by about 50%, and that has been attributed to shale. I have listened to the logic of his remarks, but I have not heard the specific reason why he does not think that that will happen, not in the UK—the UK is not where the issue is—but in Europe; that is where the issue is.

[Dr Whitehead]

I think that the reason why that will probably not happen is that the US, as recently as five or six years ago, was in the process of building substantial quantities of liquefied natural gas delivery depots, which were anticipated to take up a substantial shortfall in gas in the US; that shortfall was even greater in the US than in the UK. The US economy was therefore in a position where, as a result of the anticipated introduction of that large amount of LNG, prices reflected the situation regarding indigenous gas in the US, imported gas, investment prospects, and the likely prospect of a need to procure further large amounts of LNG for the US, at a time when there was increased worldwide demand for LNG in various other economies.

Since five or six years ago, that particular metric has been entirely flipped over. The United States is now exporting, rather than importing, LNG. That has had a substantial flip-over effect on prices in the USA. I am not an expert in these matters, but that is my understanding of the situation. The position is not comparable with that in Europe or the United Kingdom. As I say, the production of shale gas will perhaps have some effect on the stabilisation of prices over a period of time, and some effect on the requirement for a secure gas supply within the UK, rather than us importing it through interconnectors or through LNG. We have, of course, fairly efficient gas interconnectors between the UK and the rest of Europe, although whether gas flows down them is another matter. However, the two propositions are entirely different in their likely effect on prices.

The two propositions are similar, however, to the extent that there will be a significant effect on what one might term the energy security front—on what would otherwise be the question of where the UK will source its gas supplies from in future—although the UK interconnectors are pretty secure; they mainly go to Norway and other European destinations. Sourcing that gas from within Europe arguably brings us close to the energy security that we would have if we had an entirely indigenous supply. That is my take on why the price effect will not take off in the way that some people think it will.

I want to emphasise and underline that point, as the Committee’s conclusion is that there is not a case for banning or stopping the exploitation of that shale gas resource through drilling, but that there is a case for ensuring that there are careful, secure environmental guidelines to ensure that it is done in the best way for the protection of the environment. There is also a case for ensuring that, unlike the USA, we have careful continued regulation of not only the drilling but the capture of the gas, and regulation covering the fate of wells as they deplete and go out of commission.

The point about multiple wells is that they do not have long productive lives compared with more conventional forms of drilling. One of the issues in the United States has been that in a number of areas, because wells have often been drilled in a speculative and unorganised way, there are large numbers of abandoned wells scattered across the landscape, some of them well capped, some not capped and some not very well capped. Indeed, the magnificently named Texas Railroad Commission, which regulates the whole business in Texas, is in the process of finding where those abandoned wells are and putting in place a programme for capping them. That is a regime that we cannot afford to have in the UK, because of the implications of gas leakage and the danger of those uncapped and untreated wells from an environmental point of view.

The overall picture is that, with careful regulation, a reasonable contribution can be made to UK energy supplies from shale gas over the next period. We should not, however, run away with the idea that it will solve everything or that it should not be properly and fully environmentally regulated, to ensure that some of the things that we have heard about elsewhere in the world do not, by accident or by negligence, take place in a UK energy environment. I believe that that is a balanced view, and that the Committee has taken a balanced view on the future of shale gas. It is important for future debates on the energy economy that we keep that balanced view of what various elements of the UK energy mix can contribute to the overall welfare of our future energy supplies.

--- Later in debate ---

[David Mowat (Warrington South) (Con)]

Thank you, Mr Gale, for calling me to speak.

In several contributions, the term “balanced” has been used, both about the Select Committee’s report and the tone of the speeches. My remarks might be a little less balanced, because I think that shale gas production is a very positive development and that we could be on the verge of something significant.

I apologise in advance for using the term “shale gas” interchangeably with “unconventional gas”. The report does that and several Members have also done it in their contributions. In my constituency, we have a fair bit of coal gas. IGas has found coal gas in Warrington.

I will not talk further about the environmental issues around shale gas production; they are genuine and they need to be sorted out. A number of Members have already spoken well about them. I will just say that there is no form of energy—and no choice that we have for sorting out energy—that does not have some kind of environmental issue. We have to make choices.

I want to talk for a minute or so about gas in general, before I get into shale gas in particular. I want to put into context where we are in our decarbonisation targets. In 2010, 2.5% of the UK’s energy came from renewables and 90% came from fossil fuels. Of that 90%, the majority is still coming from what we would call the “dirty” fossil fuels, which are coal and oil. We have a long way to go. There was a debate on this subject recently and it was pointed out that the UK is 25th out of 27 countries in the EU in uptake of renewables. It is my judgment that gas has a role to play in decarbonising the economy. We may debate the matter later, but I believe that we have wrongly placed some efforts by confusing “decarbonisation” with “renewables”. Decarbonisation is necessary and it is a legal requirement. Some of the renewables targets might not always lead to us making the right decisions about how we decarbonise, and at what rate.

Right now, 50% of the UK’s energy still comes from oil and coal, and although it would not be easy to replace them with gas because that would mean transport being sorted out, if we did so we would have a carbon reduction of 30% or 40%, depending on the precise ratio used.

I have mentioned the decarbonisation of transport, and there is a lot of emphasis on electrification and the need for electric cars. That market is moving ahead in a way that this country might not have noticed, with well in excess of 10 million gas-powered cars in the world. Interestingly, the leading countries are some of the developing ones, such as Pakistan, which is making a big effort to decarbonise.

Probably the single most important observation about shale gas—unconventional gas—is that we do not have much of it in the UK compared with other types of energy. I heard the remarks of my hon. Friend the Member for South Suffolk (Mr Yeo), and I agree that it is a fluid thing. I have here a report by the United States Energy Information Administration, which states that the UK has something like one tenth of 1% of the total technically recoverable reserves of unconventional gas. Although the UK might have a lot—the numbers are significant—it is the impact on the gas market in the world around us that will affect us.

We have talked a little about the US experience. The hon. Member for Southampton, Test (Dr Whitehead) said that five or 10 years ago the US was building liquefied natural gas terminals to import the gas, and it is now talking about applying for licences to change them into export terminals. That is because of shale gas; we have already mentioned that unconventional gas prices in the US are now 50% of gas prices in Europe. There is a great phrase in the Select Committee report: “The tyranny of distance”. Gas prices are regionally based, and what happens in the US does not have to happen in Europe or Asia.

It is worth my giving my perspective on what really drives gas prices. I worked in the industry for a large part of my life and I never wholly understood how gas got priced. Gas used to just come off when the oil came off and was then burnt and sold. The truth is that gas has historically been priced under long-term contracts as a percentage of oil price, which is why the gas and the oil prices are linked in the various regions. Oil has gone up and therefore gas has gone up with it. That relationship needs to be decoupled and, notwithstanding the comments that we heard earlier, I postulate that shale gas provides the opportunity for that to occur, whether or not we exploit the gas in the UK. If such decoupling does occur, there will be a set of impacts. We are at the end of the Russian gas pipeline. Poland and France are the big places for shale gas in Europe, apparently with many times the reserves that we have.

[Dr Whitehead]

Does the hon. Gentleman accept that notwithstanding what he properly identifies as the relationship between gas and oil prices, and the possibility of decoupling, shale gas—unconventional gas—is a relatively expensive part of the gas extraction spectrum, and will remain so regardless of what its plentifulness suggests? Therefore, if gas prices decouple and go below a certain point, the gas becomes uneconomical to extract and regulates itself to some extent on the basis of its unconventionality.

[David Mowat]

I certainly accept that the market will determine gas prices and that if the price drops to a point at which it is not viable to take the gas out, it cannot be done. It appears possible, however, for the US to exploit and develop shale gas for $4 per million cubic feet, compared with $10 here. That is the market price, because people are obviously making a profit at that level. I can see absolutely no reason why that would not happen in France and Poland, and indeed in Russia. The report interestingly misses out South Africa—it might just be that things are moving very quickly. The Department of Energy and Climate Change figures for worldwide unconventional gas show that South Africa has one of the larger residues.

The thrust of what I am saying is that we have to be careful with all these environmental issues, and we must, of course, bring people with us. The market will happen anyway, and it could be a significant game changer and a big assistance to the decarbonisation effort that we must make in the shorter—and potentially the longer—term. One reason why unconventional gas has perhaps had a slightly weaker profile than it might otherwise have done is that it has a lot of natural enemies. The green lobby does not like it because it is a fossil fuel, and it is worried that it will take our attention away from renewables, and big oil does not like it because it is not at the forefront of this as it has been west of Shetland, for example. I used to work in the industry, but had not heard of Cuadrilla until a couple of years ago—Cuadrilla and IGas are new companies.

Shale gas is not a panacea—nothing is. But it could make a bigger contribution than is perhaps implied by the tone of the Select Committee report and the remarks that we have heard today. I was taken by a line in paragraph 76 of the report, which sums things up rather well:

“we can’t make the perfect the enemy of the good”.

National Policy Statements

Debate between David Mowat and Alan Whitehead

Wednesday 1st December 2010 Commons Chamber

[Dr Whitehead]

The hon. Lady is absolutely right. In response to the Energy and Climate Change Committee report examining the previous national policy statements the Government have accepted they need to undertake some sort of spatial planning arrangement which will look at the cumulative impacts between various arrangements as they progress. She is also absolutely right that in this NPS that question of decarbonisation of supply needs to be part of the process, not anterior to it. The current level of emissions of our energy supply means that if we are to get to that position, gas at about 450 grams per kWh unabated probably will have no part to play in the energy economy by 2030—when abated, it comes in at about 100 grams per kWh.

What are we planning? What are we looking for in these overarching documents? According to EN-1, we are planning to require a capacity of about 113 GW of installed power sources by 2025, which is a substantial increase on 2010 levels because of the penetration of wind, in particular. According to the scenario of that capacity projection, wind needs greater capacity to balance its variability. So the 113 GW, which is an increase on the about 80 GW of installed capacity that we have at the moment, will need to be installed by that point. However, 22 GW are expected to go offline, including most nuclear plants and a number of power plants, under the large plant directive and the industrial emissions directive. So 59 GW of new power will need to be built between now and 2025, one way or another.

If we reach the renewables targets for wind, and we probably will, given the amount of wind power already in planning, we will have about 33 GW of wind power on the grid. That means that we will need 26 GW of new build non-renewables or non-wind. Of whatever type, they will, for the reasons I have outlined, need to be low-carbon or lowish-carbon. Some 8 GW are under construction and almost all that construction relates to gas. That leaves a balance of 18 GW. Some 9 GW is not under construction but has planning permission. The Government dismiss that as uncertain, but 5 GW of that relates to gas; plans for a further 7 GW are under consideration, most of which also relates to gas. So it appears that most of the current gap is set to be made up by gas. As the Select Committee has been told by the Committee on Climate Change, more gas is in the pipeline in terms of planning, permissions or build than we need for that future decarbonisation strategy to work.

The NPS says that

“it would be for industry to determine the exact mix of the remaining 26 GW of required new electricity capacity, acting within the strategic framework set by the Government”.

If industry decides as it appears to be deciding, it will choose gas. If it is to be gas and that gas is unabated or only partially abated, the decarbonisation of our electricity supply will not happen.

[David Mowat (Warrington South) (Con)]

rose—

[Dr Whitehead]

I am sorry but I have to make progress because I will not get injury time for the second intervention I take.

[Dr Whitehead]

Okay, then I will take the intervention.

[David Mowat]

Thank you for your help on that matter, Mr Deputy Speaker. I agree with the hon. Gentleman’s point about decarbonisation, but it prompts the question: how much cost penalty would he advocate as reasonable in order for us to go down the route of a totally carbon-free mix in the way he is suggesting? Each household in the country already pays about £50 for the renewables obligation. The implication of his remarks is that the sum should be very much higher. I wonder whether he has thought about that.

[Dr Whitehead]

Indeed I have. I think we will find out considerably more about that in the material that will come out on energy market reform, particularly the details on what a carbon floor price will look like and what capacity payments will look like to keep the energy balance more decarbonised in future. Yes, that will add costs to the system and there need to be circumstances in which those can be abated for the public, but that is a particular issue for the energy market reform material to address.

When the Minister was asked in the recent Energy and Climate Change Committee sitting about the gap that I have mentioned he said that it is possible that 16 GW of the 18 GW gap could be new nuclear. That represents 10 new nuclear power stations by 2025, and although that would solve the gap problem it has the unfortunate downside of being inherently implausible. The Minister may want to rectify what he said in the light of that implausibility at a future date.

The Committee on Climate Change’s estimate for the nuclear roll-out, produced in 2009, said that there would be a maximum of three nuclear power stations online by 2020, even based on optimistic build and planning time scenarios. Indeed, as we have seen, the timing of the justification process has already slipped.

That leaves a gap that is not filled by nuclear. It is clear at the moment that there is an apparent contradiction in our national planning statements. We want to decarbonise our supply, but for 2025 we are pushing towards having a majority of gas as opposed to a small amount of peripheral gas at peaking periods, which is what our future energy supply should be based on.

That is compounded by NPS EN-5, which attempts to collate permissions for plant and line. It will therefore replicate the question of providing grid capacity for plants as they stand and not provide new grid capacity for plants that are not yet completed and that will be needed for a decentralised and decarbonised future energy supply.

I do not have time to go into the matter of electricity storage, but I hope that the NPSs will pay some attention to that question. It is not true that electricity cannot be stored, as NPS EN-1 says. It can be stored and storage must be a future part of our increased capacity, as the Minister mentioned in the Select Committee yesterday. I hope that the Minister will reflect on that.