Energy Security

Iain Wright Excerpts

Thursday 8th July 2010 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

I am grateful to you, Miss Begg, for calling me to open this important debate on a subject fundamental to our country’s future. Energy security is a high priority on the Government’s political and economic agenda. Our view is that energy security and climate change go hand in hand and must be addressed together. At the moment, we need particularly to secure new investment in the United Kingdom’s energy generating capacity in order to compensate for facilities that will soon be decommissioned.

We have inherited a situation in which, although there were many targets, it was not always clear how those targets would be met. We intend and are determined to secure our energy supplies by increasing diversity and being competitive and energy-efficient, but we must recognise that we face one of the most significant energy challenges in Europe.

Over the next 10 to 15 years, we must secure about £200 billion in new investment in our energy infrastructure, a figure estimated by Ernst and Young and supported by Ofgem and others. By 2018, 16 power stations generating more than 18 GW of capacity will close, representing about one quarter of British electricity. We will lose a third of our coal plant by 2016 as a result of the large combustion plant directive, and much of the rest as a result of the industrial emissions directive. Our remaining oil capacity will be extracted at the same time, and most of our nuclear programme, apart from Sizewell B, is due to close by the early 2020s. Global oil demand could rise by a quarter in the next 20 years, and global gas demand could increase by 40% by 2030. Some £5 trillion in investment is needed to meet those future demands.

In addition to that challenge, we face climate change. We must build a different kind of economy that cuts our carbon emissions in order to tackle climate change, and that makes our energy secure in a way that can endure volatility.

[Mr Iain Wright (Hartlepool) (Lab)]

The Minister said that the Government have made the green economy and energy security priorities, which I welcome. I suspect, though, that they tend to focus more on climate change and the green economy than on energy security. May I press him on the remarks made in the coalition programme about energy security, particularly the three bullet points?

[Miss Anne Begg (in the Chair)]

Order. I know that the hon. Gentleman simply wanted to make an intervention, but that sounds more like a speech. Perhaps he can make a brief point now, and then catch my eye later and make his other points in a speech.

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[Mr Wright]

I appreciate your ruling, Miss Begg. Will the Minister concentrate on the energy security elements of the coalition programme? How will he reform energy markets to achieve those aims?

[Charles Hendry]

I am grateful to the hon. Gentleman. We will have to wait with bated breath for the three bullet points to which he was going to refer. I look forward to hearing them in due course.

Energy security is at the heart of the matter. We must rebuild this country’s energy infrastructure, and a whole raft of technologies exist that we want to bring into play. Part of the problem we face is that, considering the extent to which plant is being decommissioned, more concrete should be being poured and more bricks and mortar put in place now. A lot of work has received consent, but much of it is still on hold pending building. Greater urgency is required to secure construction.

Turning to the specific technologies, we believe that nuclear should be part of the mix as long as it can be built without subsidy; we broadly agree with the former Labour Government in that respect. According to the coalition agreement, if it can be built without subsidy, it will be part of the mix. We are clear that that means the private sector should be responsible for the building, running, decommissioning and long-term waste disposal costs of any new nuclear power stations. The Government must be involved in the effort to remove barriers to investment—the work of the Office for Nuclear Development has been important in that respect—and ensure that the appropriate safety, security and environmental regulations are in place. We see nuclear as part of the mix, but realistically, even if everything goes according to the most optimistic plans, it will be 2017 or 2018 before new plant can be constructed.

Coal has an important part to play as well. We have an abundance of coal; this country has hundreds of years’ supply of coal left. We should be leading the world in coal using carbon capture. We are determined to move from our current position—we are not as far ahead as we should be—and take that global opportunity. In addition to our coal reserves, we need to rebuild our coal-fired power stations. We have unique sequestration facilities at sea where CO₂ can be stored, and people with the right skills to carry out that work are working in extremely hazardous conditions in the North sea. We are absolutely committed to taking work forward in that area.

Today we launched a market sounding exercise to encourage the industry to present schemes for consideration for subsequent projects. One pilot project is under discussion, and three others might be considered. We want industry to help us frame the competition in the way that suits it best in order to bring technologies together, share skills and understanding and make it happen.

We also announced today that we are setting up a carbon capture and storage development forum to focus specifically on removing the obstacles to investment in CCS. It will consider the nuts and bolts, just as the nuclear development forum does. We will also make headway on a road map so that people can hold us to account on our ambition. Ambition is important, but without a road map, targets have little benefit or meaning.

We want renewables to be part of the mix too. That is one of the most uncomfortable issues for us in the United Kingdom. Of the 27 members of the European Union, we are second worst regarding the extent to which renewables contribute to our electricity generation. Yet we have resources. We have some of the strongest winds in Europe, the highest tidal flows and some of the strongest potential for wave technology. We have let the rest of Europe move ahead of us in deployment, skills and, critically, the supply chain. We must ensure that we begin to take a lead on renewables. We will need more onshore and offshore wind power, a massive increase in energy from waste and faster development of marine energy such as wave and tidal. We wish to drive all those technologies further forward.

Undoubtedly, the renewables obligation has encouraged significant investment in onshore wind, but that has not been without problems in the communities where it operates. In order to drive further development, we want a different relationship, considering what aspects of council tax and business rates can be kept local to communities and how communities that host facilities of wider regional or national significance can share in the benefits that they bring. That way, we hope to give wind farms greater public legitimacy than has sometimes been the case when investment has been sought in such important systems.

We are now the world leaders in offshore wind power, with 14 operational offshore wind farms generating more than 1 GW of electricity, and a further 1.5 GW worth of construction under way. However, we also need to consider what more can be done to drive work further forward. The round 3 applications are substantial, with billions of pounds of potential investment needed. We know that we have a shortage of skills, ships, cranes and technology. Again, therefore, we must focus on how to provide solutions if companies headquartered overseas seek to invest in Britain. That is one of the challenges we face. In the current market, we are seeking to attract investment not just from British companies, which might be predisposed to invest here, but from companies around the world. That will be a key objective for this new Administration.

Although wind and biomass, as large technologies, will be central to meeting our 2020 targets, we need to see the targets in perspective. Too often, there is a tendency to see them as a finishing post—a line over which we will fall, struggling and gasping, having got there by 2020. In reality, we should see them as a staging post and as part of the process towards even more ambitious and challenging objectives further down the line. If we start to see them in that way, it gives us the ability to drive forward investment in new technologies, such as the marine and tidal sectors. On Friday, I had a meeting in Bristol with some of the key players involved with that technology, who are keen to invest and move Britain forward. However, we do not yet have the structures in place to make that happen.

We are considering how we can make marine energy parks work. A system could be put in place whereby there is not just a grid connection point but, critically, onshore facilities and people with the relevant engineering, academic and business skills. We hope to attract people from around the world to invest in Britain to develop those marine and tidal technologies, so that Britain will be the natural place for them to be deployed. We undoubtedly have the natural resources here to make that happen. However, rather worryingly, some of the key players are looking elsewhere for the best financial support mechanisms—for example, Portugal or the United States. We have to make it absolutely clear to the key players that we are determined to drive this forward in the United Kingdom.

In addition to putting a new generating capacity in place, we face the challenge of rebuilding the grid infrastructure—not just the existing grid, which is rather old, but connecting up the new facilities. Last year, the Electricity Networks Strategy Group published its report, setting out the onshore transmission investments needed to meet the challenges in our generating mix between now and 2020. That group estimates that about £4.7 billion of new investment in the grid is required over the next decade. We will shortly publish our decisions on the best systems for driving forward that absolutely fundamental investment.

We have nuclear, clean coal and renewables in the mix but, realistically, they will not produce huge amounts of electrical energy before the latter part of this decade. We are facing a crisis and a challenge here and now. In the shorter term, we recognise that there will be increased reliance on gas. Although imports are not themselves a problem, our growing dependence on them means that we need to increase the security of our gas supplies.

The Government will set out measures to improve our gas security, as promised in the coalition document. We need more gas storage capacity, more gas import capacity and greater assurances that our market will deliver gas when it is needed. Our gas market arrangements must therefore have a sharper focus on increased flexibility and resilience. We will work internationally to try to address some of those issues and to deal with the physical constraints in the system. The disputes between Russia and Ukraine in the past, and between Russia and Belarus more recently, show that new routes to market for gas must be found. Additional pipeline infrastructures to the north and south of Europe would remove some of those blockages but, again, they will take some time to put in place.

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[Mr Iain Wright]

Will the Minister tell hon. Members how many days of gas capacity we have? I heard that we have eight days at the moment, which does not seem a lot. In the middle of summer, I can understand how that figure is workable, but it would cause a real problem in the height of a very cold, severe winter. What steps is the Minister taking to ensure that we increase gas storage capacity?

[Charles Hendry]

I think the hon. Gentleman has been reading my speeches from before the election. In two months, we have not completely transformed the availability of gas security and storage in this country. However, we recognise that we have at best about 16 days’ capacity, which compares with about 100 days in Germany and a bit more than that in France. We need to secure more capacity, but we also need to recognise the totality of the picture. The Langeled pipeline from Norway is one of our most important channels, and there are liquefied natural gas facilities in the Thames and in south Wales. Those are areas where we can bring gas into the United Kingdom. That is part of the overall gas security picture. We need more gas storage, but we also need to be absolutely clear—this is what the coalition agreement states—that the people who are supplying gas are certain that they have access to adequate supplies. That could relate to storage, to long-term contracts through pipelines or to more interruptible contracts.

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[Mr Iain Wright (Hartlepool) (Lab)]

May I say that it is a pleasure to serve under your chairmanship, Miss Begg, especially given the lead that you have provided on energy policy and the fantastic work that you have done in your role as a first-class constituency Member of Parliament? May I also say that it is a huge surprise to catch your eye? I had not intended to speak at length—I wanted to make a couple of interventions—but I am pleased to participate in an increasingly vital part of public policy, which we will need to consider in the 20 to 30-year period as we move towards a decarbonised economy.

I am concerned about energy security. Rising demand for energy, caused by emerging markets—the likes of China, India, Brazil and Russia—together with constraints on capacity with regard to supply, mean that we will see markedly rising energy prices in the next 10 to 20 years. We must combat that. Coupled with that is the fact that fossil fuels are a finite resource. Mother earth is not making any more oil and gas.

When we burn fossil fuels we produce negative disruptive repercussions for our climate. The point, as my hon. Friend the Member for Southampton, Test (Dr Whitehead) said, is that we must reduce our reliance on external sources of energy, and try to produce our own as far as possible. In that context, I want to raise four brief points to which I hope the Minister will be able to respond.

The Chamber has waited with bated breath for the three points I am going to make about the coalition programme. I do not doubt the Minister’s personal commitment to energy security, but from what I have read in the coalition programme, I do not have the feeling that the entire Government share that commitment. The three bullet points in the programme that mention energy security are scant on detail. They state:

“We will reform energy markets to deliver security of supply and investment in low carbon energy, and ensure fair competition including a review of the role of Ofgem.

We will instruct Ofgem to establish a security guarantee of energy supplies.

We will give an Annual Energy Statement to Parliament to set strategic energy policy and guide investment.”

Will the Minister put a bit more meat on the bones to explain what that means? I know that we may discuss it on Second Reading of the Energy Security and Green Economy Bill, but the matter is vital and to provide some reassurance and good, clear direction of travel, it would be useful to have a bit more information. On the final bullet point—an annual energy statement to Parliament—it would be helpful if the Minister confirmed that that is the case, and gave a pledge that a big part of that statement will be the way in which the Government will ensure energy security.

My next point was alluded to by my hon. Friend the Member for Southampton, Test, and it exercises me because it will be a big factor in the next 10 or 20 years. It concerns our capacity as a country to obtain natural resources, particularly for energy and particularly when emerging powers, such as China, India and Brazil, are engaged in a 21st-century equivalent of the scramble for Africa. My hon. Friend rightly mentioned the fact that China is locking in long-term contracts with African nations, such as Angola and Sudan. An important tangent is that it is imposing no conditions regarding good governance or transparency in financial transactions. That impacts on our international development policy. Given that, and given what my hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), the Opposition spokesperson, said about not leaving the matter to the vagaries of the market, what reassurance can the Minister give, in view both of the emerging markets, and of what China is doing to ensure that it has access to energy supply in the next 20 to 30 years, about what our Government are doing to ensure that we have the same access?

Since the industrial revolution, we have had an energy market with big powerhouses that have supplied and sourced energy and pushed it out into communities and industry. During the next half century, we will continue to need that. The area that I represent has the largest concentration of chemical engineering anywhere in western Europe. To ensure that we are an economically vital nation and can produce manufacturing that we can export to the rest of the world, we will continue to need that macro-generation power grid.

The Labour Government started to put in train huge opportunities for microgeneration, domestic consumers and, importantly, community groups to produce their own indigenous, domestically derived energy, and in the process to derive resources and revenue supplies, which may be useful for individual and community needs. Many community groups in my constituency would benefit from solar panels—for example, on a community hall—and from being able to use the revenue for community needs and objectives.

The Government have begun to restrict the opportunities to allow communities and domestic consumers to put in place domestic microgeneration. Will the Minister explain what incentives he could put in place? The feed-in tariffs are very welcome, but some of the initial set-up costs are restrictive and even prohibitive. The average cost of putting solar panels on a roof in my constituency is about £12,000, which prevents the vast majority of people from even considering it. What further steps can the Minister take forward to ensure that we have an exciting new generation of domestically derived energy production in our country?

I mentioned my final point in another debate in this Chamber on nuclear power, and I give notice to the Minister that I will keep banging on and on about the role of the north-east in energy production and supply. We have all the ingredients in place for my region to be the great powerhouse, not only for this country, but for Europe and, arguably, the world in ensuring that we have a diverse source of energy production and supply. What can the Minister do to ensure that potential? Narec in Blyth is a centre of excellence for renewable energy. Given where we are in terms of marine technology and our proximity to the North sea, all the different sources of energy—oil, gas, renewables and nuclear in my constituency—can provide the 21st century, modern economy that the north-east demands.

We have great things in place. The developments at Narec, the Centre for Process Innovation in the Tees Valley, and Renew Tees Valley, were being led by the regional development agency, One NorthEast, which was adding value by ensuring that we could have a low-carbon economy and energy policy, but confusion over the Government’s contradictory advice on RDAs has inhibited progress. We have huge potential in the north-east. What steps will the Minister take to ensure that we fulfil it? I have invited him to the Tees valley to look at the potential there, and I do so again. The role of the north-east in the future share of the British economy and energy policy is incredibly exciting.

My hon. Friend the Member for Islington South and Finsbury said that we must not leave the matter to the vagaries of the market, and she is absolutely right. We need big government on energy security in the 21st century, and we need strong leadership. I know that the Minister is up for that, but I question whether his Government as a whole are up for it. I hope to be reassured by his response.

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[Charles Hendry]

We are considering a whole range of things to which the previous Government were committed. Many were laudable, worthwhile projects, but we have to accept that we have run out of money. That was the fundamental problem. There was nothing about the nuclear industry, the locus of her original charge; we had to consider major areas of expenditure, and commitments that had been made that could not be funded. It is a good company and a good project, and we want it to happen, but we have to decide whether public money should be contributed, given that we are trying to reduce some of the pressures and burdens on taxpayers. I assure the hon. Lady that the decision was based on the fact that the money was not available; it was no reflection on the company’s workmanship, which is outstanding, or the nature of the project itself.

The hon. Member for Hartlepool spoke about the north-east and the contribution that it can make, as he has done before. I asked whether I could visit the area rather than him inviting me, but my offer to visit is still there. I shall have to be slightly careful about those nuclear plants that are going through the planning process, as I may subsequently be involved in some of those decisions. However, I am particularly keen to see some of the supply chain opportunities and the industries that ride on the back of them. I recognise the fantastic opportunities and potential of the north-east, and of those elsewhere.

What is exciting at the moment is that many parts of the country are looking at their energy potential. Cumbria is calling itself the energy coast, and Anglesey calling itself the energy island. Many see it as a key point in selling their areas to potential investors. The skills base of the north-east and the extraordinary depth of experience in the engineering and technical sectors must be an incredible attraction to industry. People looking to come to the United Kingdom will undoubtedly consider the north-east to be a priority area. I would very much welcome the opportunity to see some of that potential with the hon. Gentleman.

[Mr Iain Wright]

Before the Minister moves on from the economy of the north-east, will he comment on the prospect of One NorthEast and the regional development agencies in providing such leadership to potential investors on the energy potential of my region?

[Charles Hendry]

I am sorry, but I should already have done so, as the hon. Gentleman raised the matter earlier.

We believe that some of the things that the regional development agencies have done were truly strategic, but that others were slightly artificial. People’s view of RDAs is different in the various parts of the country. Having been to see One NorthEast, it is clear that the area had a better sense of regional identity than in my region of the south-east. There is not an enormous amount binding the western end of Oxfordshire with eastern Kent; people have different perceptions in different parts of the country. However, there must be rationality.

Most coastal RDAs say that they are the No. 1 place in the United Kingdom to develop offshore wind facilities, but they cannot all be No. 1. If we are trying to attract big international investors, there may be a case for considering the wider national interest rather than breaking things down further. However, RDAs have undoubtedly done some exceptional work. For example, Yorkshire Forward has been considering how to put a carbon capture and storage infrastructure in place; it is ahead of anything else in England. I hope that some of that work will be continued, even if RDAs are not part of that future—they may be in some parts of the country—but local authorities, which are responsible for business development, might see it as a particular advantage for their communities, and be keen to ensure that it is part of the mix. Again, I am happy to visit the north-east to talk to those in the RDA about how we can build on the work that has already been done.

The hon. Member for Islington South and Finsbury spoke about carbon capture and storage. I shall answer directly some of her questions. She asked whether every new plant built after 2020 would be required to have full CCS. The position is as it was under the Labour Government, which is that they will be required to have CCS or that it should be retrofitted in due course. An important aspect of the levy is that it can be used for retrofitting in plants used in the pilot projects.

The hon. Lady asked whether the four plants would all be coal or whether one would be gas. We are considering the recommendations of the Committee on Climate Change, which said that we should be doing a pilot project on gas. We need to consider the balance, deciding whether one of the four should be gas or whether the first four should be coal. There is no doubt in our minds that coal is the imperative. Coal is the greater polluter; it is where the technology is closer to the market. The focus is very much on coal, but we were pleased that the levy was changed under the Energy Act 2010 to allow it to be used also for developing gas and biomass technologies. The hon. Lady also asked about the emissions performance standard. We are indeed committed to putting in place an emissions performance standard, and in the near future we will be setting out our thinking and how we intend taking it forward.

The hon. Member for Southampton, Test always brings a huge amount of wisdom and experience to such debates, for which I am grateful. He spoke about the oil sector. I agree with him on the subject of peak oil. Realistically, we will not know when peak oil has happened until some time afterwards. However, Nobuo Tanaka of the International Energy Agency spoke earlier this week about the need to bring down demand ahead of the peak in supply. If we can get the peak in demand to come earlier, consumers will benefit because the price of oil will drop dramatically. If the peak in demand happens after the peak in supply, the oil companies will benefit because they will be able to ramp up their prices. For me, that shows the imperative to decarbonise society and to move ahead more quickly.

We have talked of energy efficiency today; that will clearly be part of the solution. We shall need to decarbonise ground transportation, but we also need more low-carbon methods of electricity generation. In looking at the way forward, we need long-term vision. We must decide what steps should be taken now in order to pre-empt the inevitable; the situation will become more challenging over time, and we must try to ensure that society and the nation decarbonise.

I pick up on what the hon. Gentleman said about international reliance. I was intrigued by some of his comments. It appears that he is willing to accept it in some areas but less so in others. For example, we get most of our coal from imports, Russia being the single largest market from which we buy, and we will become increasingly dependent on imported gas from Norway and Qatar. I am not sure whether he wants to see the closure of the LNG facilities, but picking out nuclear and uranium as being something that we import was slightly perverse in the wider context. Diversity is as important as our domestic resources. We enhance our security of supply by having a range of methods of electricity generation and different sources of supply.