Energy Bill

John Redwood Excerpts

Wednesday 4th December 2013 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Michael Fallon)]

I beg to move, That this House disagrees with Lords amendment 105.

The amendment would give the Secretary of State power to apply the emissions performance standard—EPS—to any existing fossil fuel power station that fits the pollution clean-up equipment that is needed to meet the tighter limits, set by the industrial emissions directive from January 2016, on emissions of oxides of sulphur and nitrogen. Under that directive, plants that do not fit clean-up equipment will from January 2016 be subject to a 17,500-hour limit on their operation, after which they must close, or, from mid-2020 be limited to just 1,500 hours of operation a year. The intention behind the amendment is to use the EPS as a regulatory tool for limiting carbon emissions from any existing coal-fired power station that is not otherwise forced to close and/or have its operation limited under the directive.

First, the Government do not consider that power to be necessary. Secondly, the measure risks deterring any investment in equipment needed to comply with the directive, the consequences of which could be detrimental to consumers. I remind the House that the EPS is intended to support the planning requirement that any new coal-fired power station must be equipped with carbon capture and storage. The EPS is, therefore, about ensuring no new unabated coal, and is a clear and unambiguous regulatory measure that signals our commitment to decarbonisation.

[Mr John Redwood (Wokingham) (Con)]

Will the Minister confirm that eight plants are closing under the EU directive already, and if any more plants had to close the lights would go out?

[Michael Fallon]

I was coming on to the list of stations that have closed. My right hon. Friend is absolutely right that we need urgently to replace the capacity that is coming off the system. Coal, as he will know, currently accounts for around a quarter of our reliable generating capacity, but that is set to decline rapidly over the coming years. Last year, Kingsnorth closed, this year we have seen the closures of Cockenzie, Didcot A and Tilbury, and we expect Ferrybridge C and Ironbridge to follow suit.

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[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

It is a pleasure to take part in the debate this afternoon, which may be the long-awaited final part of our deliberations on the Energy Bill—or maybe not. The House will not need reminding that we have had long, and at times detailed, discussions on this Bill. Indeed, I noticed while listening to the Minister’s opening remarks that the hon. Member for Wealden (Charles Hendry) is present, which reminded me that when the Bill was first published and subjected to pre-legislative scrutiny, it was in his hands, and it has since passed through the hands of the right hon. Member for South Holland and The Deepings (Mr Hayes) before his promotion to the heart of the Prime Minister’s office, and then on to the current Minister. We have been addressing this Bill for some time, therefore, and a couple of weeks ago we debated extending its time limit. During that debate, we made it clear that the Opposition do not wish to delay the Bill unduly because it is an important piece of proposed legislation, but although the extended deadline of the end of the year is fast approaching, we think there are some issues before us today that merit further serious consideration.

Indeed, these issues are before us today only because of consideration of the Bill in another place and, as the Secretary of State made clear when asked about his attitude to this particular measure, it is not necessarily as simple as sometimes portrayed by Members on the Government Benches. There have been a number of improvements to the Bill in relation to nuclear transparency, community energy and other areas, and much of that still needs to be done through secondary legislation and regulation, which will undoubtedly follow. In part those improvements have been prompted by amendment and debate instigated from both sides of the House and in both Houses, and it is in that context that I believe we should also give due cognisance to amendment 105 passed in another place.

Many of the Members present have faithfully stuck with this Bill through all its stages, and they will have heard me make the point that it is my personal belief that confession is good for the soul. I therefore wish to begin with a confession: I remain somewhat confused by the attitude of Liberal Democrats Members on this issue. A number of Liberal Democrat Members have taken part in our proceedings on the Bill, and have demonstrated their desire to see an improvement in our energy infrastructure and a commitment to decarbonisation. Indeed, if one refers to the speech made by the mover of this amendment in the other place, those were exactly the concerns expressed. Lord Teverson, the Liberal Democrat’s energy spokesman in the other place, is a conscientious and diligent contributor to discussions on energy policy, but I understand that the distasteful realities of coalition mean that Ministers are constrained.

The attitude displayed by the Minister today suggests that on this matter he has won the battle with his coalition colleagues in recompense for other measures we have heard about in the recent past. I wonder, however, whether this, like the 2030 decarbonisation target, is a Liberal Democrat policy that Liberal Democrat Back Benchers feel unable to vote for, or a Liberal Democrat tactic to keep those in the other place distracted. If they vote with the Government against Lords amendment 105, do they intend to vote for it again in the other place? If that is the case, the rest of us could simply leave it to the Liberal Democrats to decide between themselves, and between both Houses, which way they wish to face, or whether they wish to face both ways.

[Mr Redwood]

Given Labour’s long tradition of strong support of the coal industry, is the hon. Gentleman worried that the Bill will lead to a rapid collapse in coal demand and output in this country?

[Tom Greatrex]

No, I do not accept that and I will go on to explain why during the remainder of my remarks.

We have heard, and I anticipate we will hear more in the time available, about coal generation. Some in this House are hostile to coal-fired power. Indeed, a number of those who are most enthusiastic for unconventional gas cite its ability to use less coal as part of their case for shale. There are others who are supportive of the remaining indigenous coalfields and have strong constituency associations with coal-fired generation. A number have previously worked in that industry and I have a huge amount of respect for their knowledge and expertise. For my part, I think that coal-fired generation remains an important part of our generation mix. We are currently using, as my hon. Friend the Member for Wansbeck (Ian Lavery) pointed out, a significant amount of coal generation, particularly in the winter months. Earlier this week, the UK achieved a new generation record for wind, but coal is currently the predominant part of our generation mix.

My support for coal as part of that mix is not born of any historical romanticism about the industry so much as the positive opportunity presented by carbon capture and storage for a bright future for clean coal. That important point has been recognised by the joint industry and trade union clean coal group, which has expressed many of the concerns I have about the limited and slow progress on CCS in the past three years. That is an important point when we take comparisons into account. If Members have not had the opportunity to do so, I would ask them to consider the significant progress made in Canada on CCS. My hon. Friend, a member of the Select Committee on Energy and Climate Change, has drawn attention to the tantalising and real prospect of a commercially scaled CCS project being up and running in the early part of next year. That shows what can be done with a sense of purpose and real intent.

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[Dr Whitehead]

Yes, indeed. If the Department is to reach its 2030 decarbonisation target, it is very likely that carbon capture and storage must be applied to gas as well as coal during the intervening period.

[Mr Redwood]

Given the hon. Gentleman’s knowledge of the industry, can he tell us when he expects to see a decent-sized coal-fired power station with carbon capture and storage up and running in the United Kingdom?

[Dr Whitehead]

The Saskatchewan power plant that I mentioned is not a new coal-fired power station, but an existing one that has been refurbished to take on carbon capture and storage. The right hon. Gentleman’s question should have been the other way around: he should have asked me when I might expect to see an existing coal-fired power station with carbon capture and storage attached to it in the United Kingdom if the amendment is passed. My answer is that if the amendment is not passed, it will be far less likely that existing coal-fired plants, which are effectively given a derogation by the Bill, will take on carbon capture and storage, although they know that they must do so sooner or later for the sake of future investment. They will do it in the end, but there will be uncertainty for some time before they do.

My answer to the right hon. Gentleman’s question is that I expect an existing coal-fired power station to start to address itself partly or wholly to carbon capture and storage much earlier if the amendment is passed than it would otherwise. That would put that station bang in line with the Department’s long-term decarbonisation aims.

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Those were the words of the Prime Minister barely three years ago, so I hope that the Government will remember those wiser remarks, accept this small but positive change to the EPS and withdraw their opposition to this very sensible amendment.

[Mr Redwood]

I agree with my right hon. Friend the Minister that the House would be wise to reject amendment 105. I will not rehearse the arguments that he or my hon. Friend the Member for Poole (Mr Syms) eloquently put, but I would take issue with one thing that my hon. Friend said. He gave the impression that although he thought that the late Baroness Thatcher’s energy reforms, which were very radical, were broadly good, they created a problem in not leading to substantial investment. As the person who advised her on those reforms and worked with the very good energy Ministers at that time, I assure him that that system not only transformed our energy mix in a way that cut CO₂ on a scale that even the hon. Member for Brighton, Pavilion (Caroline Lucas) might approve of, but it drove prices down by encouraging huge investment in the so-called “dash for gas”. It has been the most successful policy that any party or Government have ever followed both to give us cheaper energy and to drive down CO_2. It also gave us a much better capacity margin than we have today.

In the few minutes available to me, I wish to stress that a big crisis is brewing, thanks to the dear energy and scarce energy policies of the European Union, egged on by the Green party. I do not think they care about the difficulty people are already finding with their power bills. The main reason those bills are surging is that we are deliberately changing over from relatively cheap energy generation to dear energy generation—that is the whole point of the policy. The policy is cruelly deciding that it wishes to decarbonise at the expense of the poor and of our industry. The deindustrialisation facing Britain and wider Europe is now intense. We are losing our aluminium industry, our petrochemical industry and many of the high-energy-burning industries, which, of course, are going to the United States of America or to Asia, because those places do not have the same artificial constraints on them that the European Union and the previous Government’s energy policies have imposed on us.

[Caroline Lucas]

Will the right hon. Gentleman give way?

[Mr Redwood]

I am afraid that I do not have time to do so, as the hon. Lady spoke for some time and the debate is very limited.

We need to deal with both price and capacity. Price is the most immediate issue. Although things can be done on green levies, and I welcome that, the main driver of higher prices, which will continue over the years ahead, particularly if the amendment is passed, is the forced closure of cheaper stations and their substitution with much dearer, interruptible renewable sources of energy, which will be with us for some time to come, whatever policies are now followed.

Even worse is the way in which we are jeopardising capacity. Not only are we closing many stations without building new ones, but we are replacing base load stations with stations that produce interruptible energy only when the wind blows, so we are doubly vulnerable. Our stated capacity often is not genuine capacity because there is no wind, and the margin is far smaller. I do not wish to live in a country like that. I do not want to live in a country where every winter we fear that the lights might go out in places, and where, at times when people most need heating, there is not enough power left. It is a grave folly of the European Union and the former Government—I hope our Government are not going to perpetuate this—that we close the plants before anybody has built replacement plants. What kind of person would sensibly recommend doing that? We have heard from the Minister that six plants are already being closed, and we know that several others are at risk of closure under European directives. Please can we not close plants until we have the replacement capacity?

The investment incentive problem did not lie with the late Baroness Thatcher’s policy, which provided plenty of incentive, cheaper energy and big investment; the problem of incentive lies today with the muddle, confusion, high cost and deliberate obfuscation of the European-driven system, which means that our country, along with many others in the European Union, faces deindustrialisation on a big scale, cold winters without a guarantee that enough power is available and ever higher energy prices, thanks to these ridiculous policies.

[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.

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[Mr Redwood]

Has my hon. Friend noticed that the big industrial powers that are serious about industry—Germany and China—are adding coal capacity, and America is going for shale gas? They will take the industry, and we will lose it.

[Mark Reckless]

My right hon. Friend is correct. We have learned that the industry at Grangemouth, which the friends and funders of the Opposition—the unions—almost shut down, might stay open and even possibly make money, but that would only be on the basis of importing shale gas from the United States. We have this preposterous arrangement in which we have put an extraordinarily long moratorium on the development of shale gas because there were a couple of tiny tremors near Blackpool. If we, as a country, are serious about pushing ahead economically, we must generate better energy more cheaply and more quickly. Instead, we were involved in a Dutch auction between the parties and doing completely the reverse.

Lords amendment 105 is a case in point. We have the European Union closing down most of our coal plants, with the parties going along with it. Additionally, we are unilaterally indulging in this self-flagellation, through the emissions performance standard—which we have decided to impose as a unilateral burden on UK business while the Germans allow the construction of new coal—by preventing new coal-fired power stations being constructed. Of course countries outside the European Union produce power more cheaply.

What we see today is an attempt by the Opposition and the other place to make the situation even worse. The EU is shutting many of our existing plants. We are banning the construction of new ones, and the Opposition want to bring in a third deleterious measure to extend that ban on coal to part of the plants that the EU would allow to remain open if people spend vast amounts of money to comply with the industrial emissions directive. Labour and the other place would effectively be saying, “Ah, well, if you spend that money, we will put in place this additional burden after which you will then fit this pie-in-the-sky CCS, which is nowhere near to sensible commercial development in the UK, or, in reality, we will force you to close down, and drive up the price of electricity even further.”

The hon. Member for Rutherglen and Hamilton West (Tom Greatrex) suggested that electricity pricing depended on gas prices. I take that point to a degree. As an economist, I understand that in a competitive market, which I fear that this increasingly is not, marginal cost tends to equal price. There is a difference between the gas that is already there, where the development costs and capital costs are sunk—which, in terms of marginal costs being set to price, should be discounted for a rational person in a competitive market—and new gas, which is not coming on stream. It is partly not coming on stream because the Minister has said, “If you bring it on stream, we will give you a great subsidy as long as you wait for a few years and do not bring it on now.” Even Chris Huhne, who was at least an economist, thought that was madness.

Now, we are pushing that approach forward in the capacity market, stopping capacity coming on stream for that key period of a few years. It is a key period, because we are looking at an increasing crunch. DECC tells us that it has run the scenarios with Ofgem and has considered what will happen if the demand for electricity is a little greater than assumed. DECC assumes that energy demand will fall and so, to cover sensitivity, it has run a scenario in which it does not fall. All that does, however, is keep demand flat. What happens if—due to the success of the policies of this coalition, what the Chancellor is doing and the resurgence of growth in the British economy—energy demand increases? I dread to think, because of the lack of preparations that have been made—or, when preparations are being made, because of their extraordinary expensiveness. At the same time, we are proposing to cut the coal-fired plants, many of which are completely depreciated in capital and are producing electricity reasonably and cheaply. We are banning them either nationally and unilaterally or through our acquiescence in what the European Union is doing.

The hon. Member for Rutherglen and Hamilton West identified three sets of coal plants. If I understood him correctly, he missed out a fourth category—that is, those coal plants where the issue is not the industrial emissions directive but the large combustion plant directive. The power stations might be “hours expired” under that directive, but the plants are still there and could potentially be brought back on stream to generate cheap and reliable electricity for our constituents. However, the Opposition will not let them. Government Members will not let them, either. Not even the European Union will, even though the directive contains article 3(4), which provides for a member state to provide for a derogation, particularly when its plans to arrange for sufficient capacity in the energy market are not working as it had hoped. What better case could there be for doing that?

I am not saying that we should keep the plants open for ever. I go around Kingsnorth in my constituency, and it is a very old plant, but it can still work. This year, E.ON UK has a team of about 20 people in the plant, taking the stored energy out of springs and many other mechanisms throughout, making it safe for demolition by the contractor from early next year. We still have time if we apply for the derogation and tell the European Union, “We have a problem. We are running out of capacity because we have not put the sensible plans in place for electricity that we should have done. We used to have the most competitive electricity in the world, but we have messed the whole thing up on a totally cross-party basis. Can we keep these plants open for just a few more years?”

All I ask is for the parties in the coalition to get together and go cap in hand to the European Commission, to ask whether we can keep the plants open for a few more years. That might just allow our constituents to have slightly cheaper electricity, as old coal can be used rather than new gas, for which the capital costs will have to be paid as well as the marginal costs of the gas supply. That might just help us get through the electricity crunch a bit more safely, particularly if the economy is growing strongly, and it might do something to keep down the cost of electricity—that is preferable to the three parties competing to drive it up while pretending that they are doing the opposite.

The Labour party in the Lords would like us to make things even worse by ensuring that even more coal plants close even earlier. We should make things a bit better by trying to keep a few of the oldest coal plants open for a bit longer, to hold down electricity bills and keep the lights on.