Lord Jenkin of Roding
Main Page: Lord Jenkin of Roding (Conservative - Life peer)Energy Bill
Lord Jenkin of Roding Excerpts
Lord Oxburgh
My Lords, I think we can all agree that our energy system is a vital part of our infrastructure. It is a part that is technically and commercially complex, and it is long-term. It is slow to build but, when we have built it, it tends to last for 40, 50 or even 60 years.
Clearly it is for the Government to set objectives for energy infrastructure, but implementation strategy depends on expertise, experience and continuity at a high level within the department. Unfortunately, that is not something that is readily available at present. It is partly because there has been relatively quick changeover of Ministers in the past decade or so. Also, at a high level, among officials in the Civil Service, we have very capable people who move from department to department but are not specialists. This means that others in the department, who are working hard, lack a coherence of view that could come from an expert and experienced top-level group.
The complexity of an energy system is perhaps hard to explain to those who may not be fully familiar with it. However, in my judgment, it is probably more complicated than, for example, designing an aircraft engine. Who would like to fly in an aircraft whose engines had been designed by intelligent people working on the basis of consultants’ reports and public consultations but who had never done it before? This is, in essence, what we are doing with energy policy in general and, I might comment, with this Bill in particular.
I have suggested a solution to this problem. I will not elaborate on the problem, which I did at Second Reading. The solution I put forward may or may not be the right one, but I propose that we have an energy investment advisory board which, above all, brings continuity at a high level to departmental strategy. It would comprise people of commercial and technical experience and, most importantly, it would report to Parliament. This could be a very valuable resource for Ministers. It is the kind of body that could see problems coming ahead of time in a way that typically does not happen today. It could see implications across the system for a decision here and a consequence there. It could look at generation, transmission, interconnectors and energy storage right across the spectrum, not to mention the markets and market interactions. Reporting to Parliament would be extremely important because it would give Parliament confidence that this piece of infrastructure was being properly looked after.
Those who feel unable to support this proposal have three choices. One is to say that there is no problem. In that case, I refer them to Power Politics, the slim volume published in 2011 by the noble Lord, Lord Tombs. In it, he describes decades of struggling with bureaucracy over industrial strategies and the energy industry, and he is trenchant, indeed mordant, in his criticism of the present system. If people do not like that, they might look at the London School of Economics Growth Commission’s report on infrastructure, which comes to very similar conclusions. Alternatively, they might look no further than the pre-legislative scrutiny group of this House, which I had the honour to chair informally and which was extremely critical of the current situation. It is, therefore, hard to make a case for saying there is no problem.
A second option is to say, “Yes, there is a problem but we’re going to deal with it differently”. That would be great, as long as it is actually dealt with. However, it cannot be dealt with in the way that the Minister suggested in her reply to my Second Reading speech, in which she said that in the department there are lots of consultative groups helping the Government with EMR. That is not really what this is about; it is about something much more long-term and strategic.
Finally, it would be possible for the Government to say that they think that this, although perhaps not precisely right, is a possible way forward and that they are prepared to sit down and discuss ways of tackling the problem. Perhaps over the summer or before Report stage, an amendment could be introduced. It would need a degree of cross-party support and, indeed, there is significant expertise in this area—way beyond mine—on the Cross Benches.
This is an important area, and there is now an opportunity to deal with it. I am sure the Government would rather not deal with something such as this at the moment, but in one sense this is both the worst and the best of times, given that we face the problems arising from the lack of a body like this. I beg to move.
Lord Jenkin of Roding
My Lords, the noble Lord, Lord Oxburgh, who moved his amendment with great clarity and force, has discussed this with me, and I was a member of the informal group that he chaired on the draft Energy Bill.
I, too, at Second Reading reflected the increasing anxiety in this country over the security of supply over the next four to five years. Since then, the latest Ofgem capacity assessment report has confirmed the fears that we face several years of very low margins. This has been widely interpreted as posing a distinct risk of interruption to supplies. You need only two major power stations to go out of commission for even a few hours—as happened a few years ago with Sizewell B and Longannet—to create considerable alarm as to whether we have enough. If that happened again in a year or two years’ time, we would be in very serious difficulties.
This is what lies at the heart of the noble Lord’s amendment, to which I was very pleased to add my name: how on earth have we managed to get into such a perilous position? Is it something in the current structure of the electricity industry or in the current attitudes of the departments in charge? As the noble Lord, Lord Oxburgh, suggested, is it to do with the experience and expertise of those whose job it is to advise Ministers? Which of these has led to this difficult situation—or is it all of them?
I will draw a parallel. The noble Lord, Lord Oxburgh, and I were both co-opted on to the Science and Technology Committee to look at the capacity of the nuclear industry in this country for research and development. It is not an overstatement to say that we were dismayed by the very poor level of understanding among DECC Ministers and most of the officials who gave evidence to us. Happily, they appear to have read our report but some of the solutions remain to be worked out. This is not the occasion to go into the details of that but the experience convinced me that something has to change if we are not to face similar failures in the future.
Last month, my attention was caught by an article in the Financial Times by Professor Anthony King, who is, I have to say, a good friend of mine, and for whom I have a great deal of admiration. His sub-headline was:
“British government is no Rolls-Royce. It is barely motorised”.
He went on:
“British government used to be regarded as one of the wonders of the world: intelligent, decisive and sensible, with democratically elected leaders supported by a Rolls-Royce civil service”.
A lot of people think it is still like that, but he said that the only possible response to that attitude is,
“that of John McEnroe addressing a harassed Wimbledon umpire: ‘You cannot be serious’.”.
He then analysed what has happened. The noble Lord, Lord Oxburgh, mentioned some of that. I particularly want to draw attention to what Professor King called,
“the resulting loss of institutional memory”,
which he described as “immense”. It used to be said that the Civil Service is the memory of the Government, in many cases going back not just decades but centuries. I have a horrid feeling that that is no longer so. Perhaps that is why we are where we are.
Turning to the issues before us, tributes have been paid, quite rightly, to my noble friend the Minister and the Bill team for their strenuous efforts to help us to get to grips with this very complex piece of legislation. Without them, we would have been in some difficulty. Thanks to the work of the Delegated Powers and Regulatory Reform Committee, to which my noble friend Lord Roper drew our attention at a previous sitting, we have now been given a glimpse of just how much of a policy that is supposed to be enshrined in the Bill is left to regulations, which are still being drafted or in many cases are still being worked out.
I spent part of the weekend reading the DPRRC memorandum on Part 2 of the Bill. It sets out the position in lurid detail: 60 pages of descriptive material, complex tables of content and timetables, and nine detailed annexes. It filled me with a dreadful sense of foreboding. How can anyone possibly be sure that that will all work or even that it will be ready in time?
My noble friend will no doubt, as she did at Second Reading, give a description—but I hope a fuller one on this occasion—of the plethora of consultants’ reports, advisory groups and expert panels on which the department relies for advice on developing the very complex electricity market reform that is embodied in the Bill. I will certainly listen very carefully to what she has to say but I must warn her that she faces an uphill task in persuading us that Ministers have all the advice that they need and ought to have. I ask again: how is it, after years of taking all this advice from consultants, panels and experts, that over the next two or three years we face the possibility of cuts? To put it crudely, this country is not replacing the generating capacity that is being closed down. I gave a list of the stations that have been closed since only last December when I spoke at Second Reading.
Lord Jenkin of Roding
My Lords, I was happy to add my name to the amendment. I see it more as a vehicle for promoting a short discussion, which I think we shall have, rather than something that ought to be added to the Bill; I think the noble Lord, Lord Oxburgh, has made that clear.
I have in the past debated in successive energy Bills the need for the United Kingdom to increase its storage capacity. We have far less than other countries. I have always been met with the argument, to which the noble Lord, Lord Oxburgh, referred, that we have so many different sources of supply that we do not need the same levels of storage as other countries. The mistake that we have been making, and I certainly plead guilty to this, is that we have seen it in terms of security of supply, whereas—as I think the noble Lord, Lord Oxburgh, makes clear and I would argue—we are really arguing about price, not supply.
If one looks at the UK gas market over the past two years, 2011-12 and 2012-13, it is pretty level for most of the season. The price rises slightly towards the autumn, and then in December, February and March there are sudden spikes and it goes up to sometimes two and a half times the normal rate. That is what happens to world gas markets during the winter: the demand substantially exceeds the supply and the result is that the price goes shooting up—not for long but it does—and the companies have no option but to pay it and immediately pass it on to the consumers in higher prices.
If you had a level of storage whereby you could build up the supplies during the summer and release them during the winter so that you are not dependent on the huge spikes in world gas prices, it would protect consumers. I see this whole question of storage as being much more about protecting the consumer market against sudden spikes in prices, rather than any shortage of supply. I do not see any risk of there being a shortage of supply but it is perfectly clear that we have had very substantial spikes in prices.
I took the advice of somebody who is very much involved in all this. I will quote what he said to me:
“If we had had sufficient gas storage last winter to maintain gas prices close to average winter prices (~70p/therm) rather than seeing prices spike to over £1.50/therm it would have saved costs to the UK economy of between £300-400 million. This is the sort of saving/protection that should be foremost in the Government’s mind”.
This is something that should not be ignored. I am not suggesting that there is any particular solution to this. If the market could be persuaded that this is a proper thing to do—I have heard of a project involving storage in a depleted offshore gas field; I think it is called Deborah—that could provide the vehicle for the kind of storage that we are talking about, which would save consumers the kind of price hikes that they have had to face in the past.
There is another interesting point. A very interesting study was published this morning—there may have been reference to it in the press—by a very well known academic, Nick Pidgeon at Cardiff University, who looked at public attitudes to all this. His synthesis report is called Transforming the UK Energy System: Public Values, Attitudes and Acceptability. It is a long report and I do not propose to read more than one sentence of the executive summary—well, two sentences—but it has relevance to the discussion we are having. The report says:
“While ‘energy security’ as a term was not salient to people, the range of concerns that it encompassed (geopolitical issues, energy shortages, black outs, unaffordable prices) did evoke strong reactions. Energy security is particularly closely linked in public perceptions to affordability because it relates to concerns about personally not being able to access energy services, while concern about national level insecurity in supplies of fossil fuels was seen as a symptom of the problems of fossil fuel dependency”.
In other words, security is not seen primarily as “We are going to run out” but as an issue of affordability. This is spelt out at some length in Nick Pidgeon’s report. It is the product of more than a year’s work by him and a team of academics, and it is something to which we should give some attention.
So, in addition to the general point that the question of storage relates to price rather than to capacity or the question of running out, so it is also associated in the public mind with affordability. That is why, if we can level out the prices by encouraging the industry to invest in more storage, we would find it valuable on both accounts: it would be valuable in terms of reducing cost but also in reconciling public opinion to some of the difficulties that we have faced in the past of sudden spikes in energy prices.
Baroness Worthington
My Lords, I am grateful to the noble Lords, Lord Oxburgh and Lord Jenkin, for tabling this amendment. I confess that this is not an area where I have a great deal of expertise, so really I just have some questions to add to the debate. I am sympathetic to the desire for government oversight to ensure that gas prices can be levelled out. Demand seems to be very seasonal and storage is an obvious way of helping to smooth out prices. I suppose my question is: to what extent has the department done any analysis of why the private sector is not doing this? It should be in its interests to secure cheaper prices, so you would expect there to be an incentive to invest in more storage.
My second question, which is related to that, is: to what degree do the powers of the regulator—our party’s views on the regulator are well known, but this is a genuine question—extend upstream? Does Ofgem have a power to look at fairness of pricing in the supply of gas, meaning before it reaches the distribution network? There is a high degree of vertical integration in the energy sector, and there are some companies that control the extractive processes, the distribution and then the use of the product. When you have that degree of vertical integration, there is the potential for unfair pricing, or self-serving that could lead to less transparent pricing. That is a genuine question. Does the regulator consider the potential for those vertically integrated companies, right the way up to extractive? Does it cover that? If it does not, it should. I look forward to the answer on that.
I am increasingly being exposed to ideas around renewable gas, by which I mean syngas, which is generated from other carbon sources than the hydrocarbons found in natural gas. This area seems to have been overlooked by successive Governments. It would be helpful to hear the latest thinking on renewable gas, particularly its role in helping to hedge against high natural gas prices. My understanding is that gasification technology and pyrolysis in particular are now maturing as technologies and helping to deliver alternative sources of heating gases for the variety of uses that you can use gas for. Those are my questions.
Lord Kerr of Kinlochard
It is comforting to know that the tweets are flowing. The trouble is that CCS has not yet been made to work. I support this amendment. I supported the efforts of the previous Government and the present Government, in partnership with the private sector, to make CCS work. I supported the £1 billion that was on offer from both Governments. I supported the EU competition, which added yet more prizes that no one has managed to win. I was involved with two companies that tried very hard. No one anywhere in the world has yet made CCS work economically.
I understand the point made by the noble Lord, Lord Deben, but I think it is important not to make this a central part of the answer when we do not yet know if we can make it work. We have to find other ways of achieving the objectives that the noble Lord, Lord Deben, has concerns about. Let us hope that this is made to work, and if these amendments increase the chances that it does, then fine. I am certainly not against the amendments and I think it is the answer. In fact, it has been the answer that people have seen coming for a long time, at least 10 to 15 years. I fear that it is still 10 to 15 years away, but by all means let us go on trying.
Lord Jenkin of Roding
I say this with some hesitation and with great respect to the noble Lord who has just spoken. It is not right to say that there is no place in the world where CCS is working. A couple of years ago, some of us paid a visit to the BP research centre at Sunbury, where we were given a very interesting demonstration of their plant in Algeria. BP is extracting gas from very widespread gas deposits, stretching over perhaps 20 to 25 miles in various pockets. There is a substantial refining operation that includes CCS, and the resultant CO2 that is extracted is then pumped straight back into the gas reservoirs from which the gas has been extracted. The gas supplied for the market is then piped to the coast and goes across the Mediterranean. The noble Lord, Lord Kerr, will perhaps be able to explain his gestures. It is a single plant, I accept that, but it has been made to work and it is economic for the company that operates that gas field in Algeria.
BP also made the point that there are CCS plants in the Far East. One does not know what the circumstances are, commercial or otherwise, but there is a lot of work going on internationally on this. I started by being sceptical about the Government’s competition and the £1 billion that they have put up. I have become persuaded that, although it has taken an incredibly long time to get underway, they now have two very firm takers that are going to develop CCS. I think therefore that the noble Lord’s guess of 15 years may be unduly pessimistic.
I absolutely agree with my noble friend Lord Deben that CCS must be an essential part of our armoury if we are going to get anywhere near our 2050 target. Anything that can encourage this must be right, and for that reason I, too, support this amendment.
Lord Cameron of Dillington
My Lords, I support the amendment. CCS is very important. While most of us here—I am happy to note that there have been some notable exceptions in previous Committee sessions—are in favour of decarbonisation and the UK becoming a leader of the world in renewable energy, I think we would all hope that we can become leaders in the world in CCS because, frankly, there are huge economic possibilities if we can pull it off. China is a very good example; contrary to the often-put theories of the noble Lord, Lord Lawson, China is deeply concerned about climate change. The Chinese actually produce a new nuclear power station every week but still have more energy produced by wind than nuclear energy, and they are concerned.
Lord Deben
I should say to my noble friend Lord Teverson that having not perhaps been easy in my comments up to now, on this I say to him that this is a real and very difficult issue that I am sure the Government are thinking about very hard. This is because levels of sustainability differ in different circumstances. The Committee on Climate Change discusses this on a regular basis because it is extremely hard to keep up with the developing circumstances. What we do not want is to think that we have changed to a low-carbon alternative and discover that actually it is nothing of the sort. That is the worry that people have.
There is a second worry, which is that we are facing ever greater shortages of food. The one thing we do not want is to have a situation in which our battle against climate change—climate change itself causes some of the shortages of food—is then seen as a kind of competition with the provision of food. That is of course why biomass in those circumstances is so complex a matter. However, I say to my noble friend that no one has a simple answer to this and I am sure he is not going to give us one today; we would not expect one.
No one has a simple answer because we all started off on the wrong basis. For example, the green movement was very much in favour of biomass. It was therefore almost unquestionably a good thing until they began to recognise the potential downside. That meant there was a huge swing to the opposite direction. If we are not careful, we will find ourselves in extremes rather than finding some sensible place for the pendulum to stop.
It is also true that there are many vested interests in this area. The farming industry saw it as a wonderful way in which it could increase its opportunities of reaching markets because this was a new area that farmers could exploit. Of course, as food prices go up and their returns from food production become greater, it is a real issue for them too. While in the United States, I have to declare that I had a visit from the representatives of the so-called—“so-called” because I cannot prove this, as I will explain shortly—sustainable forestry industry. They came to explain to me, as chair of the Committee on Climate Change, that they were unhappy about what we had said about these issues. I said, “Do you have forests that are independently certified?”. “No,” they said, “but we know it’s all right”. I cannot accept that as a reasonable response. In the world out there, we must be careful about how we change our energy supplies and do not undermine the truth of what we are saying.
So I say to my noble friend: this is a difficult area. None of us expects him to have an easy answer, because no one else has. However, I hope he understands that we will have to look at this during the Bill and to come back to it on Report, simply because things are moving so fast that we need to be sure that we have done everything we can to protect the Government from later assertions that they have encouraged the substitution of one form of emission creation with another form of emission creation. That is what we have to guard against.
Lord Jenkin of Roding
My Lords, I, too, have been following this issue carefully. Before my noble friend Lord Ridley had a very provocative article published in The Times three or four weeks ago, I had quite an argument with him. He told me what he was going to write and I said it was rubbish. He duly wrote his article, and there were letters, including one from my noble friend the Minister, and from a number of other sources, which said that he was talking rubbish.
I am sorry that my noble friend is not here today: perhaps there will be another opportunity for him to defend his view here. However, I do not think I am doing him an injustice when I say that his view is based on the proposition that a biomass that depends on the growing of trees cannot in any way be regarded as a renewable source. I said to him that they grow again and that if forests are properly managed—and many of them are, not least by the Forestry Commission in this country but also in Scandinavia and so on—the turnaround is about 30 years. He said no, it is 90 years. He may well know a great deal more about this than I do. I have so far subscribed to the view that when a biomass source is used as a fuel for energy, if it can reproduce itself over a period—and of course, as they grow, trees reabsorb the carbon dioxide that they emit during combustion—then it is a renewable source.
I was worried at one point about the importation of timber and its threat to the health of our forestry, against the background of ash dieback. I arranged an interview with the head of the trade association in America that exports manufactured wood pellets, a large quantity of which come to this country. I have also talked to the companies that burn them, notably Drax, which is converting part of its coal-burning to biomass, as is Eggborough, a different kind of company but one also in the process of a substantial conversion to biomass. They base it entirely on the import of manufactured wood pellets from reputable sources in America or Scandinavia. I was completely satisfied that the manufacturing process totally eliminates the possibility of the importation of any funguses or other diseases that affect timber here. I have not heard any suggestion that if it is properly handled there is any risk in that direction.