EU: Energy Infrastructure (EUC Report)

Earl of Caithness Excerpts

Monday 29th July 2013 Grand Committee

[The Earl of Caithness]

I thank the noble Lord, Lord Carter of Coles, for his excellent chairmanship of the committee. I also thank our clerk, special adviser and secretary for all their hard work and for the mounds of paper that they got to us in good order and on time.

Decarbonisation is hugely important. The most effective areas in which we can decarbonise are electricity, heat and transport. We looked at one of those, electricity, which is important in its own right and increasingly so because more and more heat and transport are becoming electrified, so we were quite right to look at that market. The committee spent a lot of time looking at the common agricultural policy. When we turned to energy we faced a very different scenario, because there was the inherent problem of the single market and member states deciding the energy mix. I agree with the noble Lord, Lord Giddens, who said that that will hamper investment because there is an inherent clash. As the noble Lord, Lord Kerr, just pointed out, there is a limit to what the EU can do—or indeed, in his view, what it should do.

When we looked at the evidence and interviewed witnesses, one thing that struck all of us on the committee was how wrong all the forecasters had been in the previous 10 years. I would put my money on the current forecasters being equally wrong, which makes it a much harder report to write. It also makes it very much harder for the Government and the EU to get it right for the future. The situation is extremely difficult but I firmly believe that the Government are right in going for the broadest possible energy mix. That is the safest way of getting at least some of the right solutions.

Thankfully, much of what I wanted to say has already been said, which will be a relief to the Committee. Yes, the ETS needs an overhaul. Backloading is a short-term sticking plaster, not a solution.

The CCS is a continual problem and I fear that I am very pessimistic about it. I look forward to seeing the results of the research that we are doing, but there should be far more concrete examples of the commercial viability of CCS if it is going to be a power in the future. That is a problem for much of the EU because countries have built CCS into their estimates for meeting their climate change figures, and the UK is particularly noticeable on this. If we do not get CCS, the figures that we are talking about will not be met. There is of course the problem that the powerhouse of Germany is against CCS.

It is important that we have a decarbonisation target for 2030. I ask my noble friend what progress has been made towards the 40%. My niggle and my concern is that if we in Europe go too hard on such targets and growth begins again, what is going to happen to our heavy CO₂ users such as steel and cement producers? Are we just going to import those products? In which case, we will have carbon leakage: we will not be producing it here, but they will be producing it elsewhere in the world and we will just be buying the finished product.

A lot has been said about interconnectivity; indeed, my noble friend Lady Parminter raised it last week. We looked at it but perhaps not in detail, given the time. More could be done with community schemes to try to ease the problem of interconnectivity. Interconnectivity is not the be-all and end-all; far more can be done locally that would reduce the necessity for it.

It is clear that invention and research are the way forward and will help us to sort out the problems. One thing that I think struck all of us was that if someone could invent a sensible, economic way to store electricity, there would be real hope because we could start to manage the problem. I would love to be the person who did that because one would have a worldwide market for that. We need new investment but, again, that is not the only way to tackle this. We need to reduce demand and keep up energy efficiency. Energy efficiency in houses is the best way of reducing one’s energy bill.

New products have been talked about quite a lot today. Have the UK Government or the EU looked into their viability? By that I mean—I am looking at it from a different point of view from most other people—the cost of a new energy as a proportion of the value that we derive from it. It is called the economic return on energy invested. Much depends on where the resource is but, in simple terms, there is no point in producing 100 barrels of oil, or its equivalent in other forms of energy, if 100 barrels or more are consumed in the extraction process. That would not make sense.

Let us stick with oil. Oil was extracted in the 1930s at a rate of more than 100:1, so for one barrel of oil you could produce 100 barrels. That was a very good return and oil companies were very profitable. By the 1970s, that had reduced to 30:1. The new wells today are about 10:1. In stark contrast, nuclear is estimated to be more than 60:1, so on that basis it looks a much better source of energy.

I turn to shale gas. Yes, we might have written the report somewhat differently had we known of the massive reserves just referred to by the noble Lord, Lord Kerr, but we did not have that information when we wrote it. The estimation of the economic return on energy invested for shale gas is only 5:1. That just does not make it economic in Europe. It will not be the quick fix that some of us hope. At a 5:1 ratio, it would absorb one-sixth of GDP, which would make for a very different future. That would have huge implications for the consumer. It is important that the Government and the EU look at the figures. The figures I have been quoting came from a Tullett Prebon report called Perfect Storm: Energy, Finance and the End of Growth.

On the efficiency of existing reserves and how they are utilised, I was interested to read in the newspaper today as I came down on the plane from Scotland that the oil rigs in the North Sea are now standing idle for more than 140 days a year, which is a substantial increase on what was happening 10 years ago. It just goes to prove that, although you can have huge reserves, there remains the question whether you can get those reserves out economically.

Any new development needs public support—the noble Lord, Lord Whitty, touched on this and was absolutely right—and we mention it in paragraphs 176 to178 of our report. Everybody knows that there is a problem, but a lot of people are against every solution that comes forward. We might have shale gas at Balcombe, but it saddened me to see children on the front line with banners. It is their future that we are talking about. We will all be pushing up daisies pretty soon—well, within reason; I still think that I am one of the youngest in the committee—but if young children are protesting against even research into what could be under the ground, let alone the extraction, there could be a problem. We had problems in Scotland where the new transmission lines are going across some lovely country; we have problems with PV panels in Suffolk. It is a huge problem that the whole of Europe has got to get to grips with. The noble Lord, Lord Carter of Coles, reminded us of Germany. It solved the problem; it did not put a high-power transmission system down the centre of its country; it just exported the system through its neighbours to get it from the north into the south. That might work for Germany but it does not work for everyone, and it certainly upset the markets in those countries through which the pylons went.

We now have a constant clash between the generators, people and the environment. It was interesting to read that, after all the windmills that have been built in Scotland, despoiling quite a lot of lovely countryside, the Scottish Government have announced that there will not be any windmills in national parks. Those in Scottish renewables say, “Oh! This could be the end of the renewables era; this is going to set us all back”. You have the big six companies exploiting the situation that we find ourselves in to get the maximum benefit for future contracts. It is not easy for any Government to be in that position where there is so much lobbying and we know that, as we move from one system to another, everyone will try to exploit it.

I move back to the UK to put two concluding questions to my noble friend. First, I heard on the radio this morning that a deal has been struck between the EU and China on PV. Can she say anything to us about that? What implications might it have for the manufacturing of PV in Europe? No one seemed to have an answer or to quite know the figures, so any further information might be helpful.

My second question, again relating to the UK, came from the Energy and Climate Change Committee report, which indicates that £112 goes on our energy bills for social and environmental problems. That is about 9%, and the figure is going to go up to 33% in 2020. In view of the concern of the noble Baroness, Lady Worthington, for the environment and her interest in climate change, and of what she did for climate change, I now call that bit on my energy bill the “Worthington whack”. Now I have personalised it for her, and I can pay it much more happily when I know that. Does the Minister agree with the committee that this should be a tax rather than going on energy bills?