Lord Jenkin of Roding
Main Page: Lord Jenkin of Roding (Conservative - Life peer)Energy Bill
Lord Jenkin of Roding Excerpts
Lord Jenkin of Roding (Con)
My noble friend Lord Roper has spelt out very clearly the purpose that lies behind this group of amendments. The Government have allowed themselves to get into some difficulty on this. A very good point that may have been made during the discussion of the previous group of amendments concerns a feeling on the part of the independent generators that, although they welcome the addition of four clauses to provide for these power purchase agreements that represent the offtake of last resort, there is considerable scepticism within the industry as to whether they are actually going to be operated. As I mentioned at some length a week ago when I moved the amendment about more competition in the industry, there is a feeling that the oligopoly of the big six larger operators—they account for 92% of the electricity supply to domestic and commercial users in this country—is not going to allow this to work.
Some of the reactions from Ministers have to some extent been contradictory. This is what creates the uncertainty, and in some quarters a degree of scepticism, about whether this is in fact intended. In private, my noble friend’s ministerial colleague, my right honourable friend the Minister for Energy Michael Fallon, was reported as saying:
“I confirm that we intend to have the OLR mechanism in place around the time that the first CfDs are allocated, and Baroness Verma will also confirm this at an appropriate opportunity during the Energy Bill’s passage”.
We have not had that yet. These matters were discussed briefly at Second Reading. More importantly, there were some considerable debates in Grand Committee. Any statement of that kind was conspicuous by its absence. As my noble friend Lord Roper said a few moments ago, before the Bill leaves this House we must have a clear statement from my noble friend that that will happen. As he said in the previous debate, this is not just something to be enabled as a last resort; it has to be seen as an integral part of the new system. That is how it was presented but not how it has actually been drafted. The reluctance of Ministers to say on the Floor of the House what they have said privately to the industry is, quite frankly, disturbing.
It is not the first time we have seen that. Last Monday, I moved an amendment about competition in the capacity mechanism system that is being introduced, which my noble friend was quite firm in resisting. She has since written a letter saying that she is prepared to go on negotiating with the independent generators concerned, which is very welcome, but that was quite different from what Michael Fallon said before the Bill reached this House. He made it clear that he was expecting amendments seeking to promote more competition and to make it a very clear duty on the Government, and that he would not quarrel with that. I know that my noble friend was under some pressure last Monday because the Leader of the House was waiting to make a Statement on the European Council, but none the less she refused to do that. I felt it right to withdraw the amendment rather than spend more time dividing the House, and it was not at all clear that there were enough noble Lords in the House at that stage who would have supported it. Still, the fact of the matter is that we were faced with a contradiction between what the Minister for Energy said and what my noble friend has so far been able to say, no doubt under legal advice from her department.
With the greatest of respect to her, that is not good enough. If this offtaker of last resort is to mean anything at all, it must be perfectly clear that it will be able to operate where necessary and on the terms that my noble friend Lord Roper has already indicated. If my noble friend is unable to give that undertaking today, I ask that she goes back to her department and discusses the issue with her colleague, perhaps when he has returned from the Middle East, where he is at the moment. We should get a very clear statement on this when we reach Third Reading on 19 November.
I cannot stress too strongly the degree of unhappiness that exists in substantial sections of the independent industry, which feel that they are being messed about. One reads in the article in the Telegraph today about the difficulty in getting the investment going—as the Telegraph says, a large amount is simply waiting on the drawing board. To a large extent, that is due to a sense of uncertainty about the intention of this legislation. It is open to my noble friend, now or at Third Reading, to clear up some of these uncertainties, particularly those relating to hire-purchase agreements and the offtaker of last resort, on the lines of the amendments to which my noble friend has spoken, so that the companies and the funds that will be providing finance for them will know where they stand and can go ahead. At the moment, they do not feel that; I really must stress that very hard indeed.
Lord Jenkin of Roding
My Lords, if no one else wants to stand up at this stage, perhaps I may just say a few words. I have found this a very difficult question. I have received a good deal of representations in favour of my noble friend’s amendment, and others sounding a warning note. I have said to them all that I will want to listen to the full debate, particularly to what my noble friend on the Front Bench has to say.
As I see it—I may be wrong, and I am open to be corrected—the Government face something of a dilemma. The noble Lord, Lord Teverson, quoted the figures on the existing volume of coal-fired electricity generation in this country. I think he said that it is now about 44%, despite the significant closures of some of our biggest coal-fired power stations which have taken place in the past 12 months. The Government clearly recognise that there must be no power cuts and that the impact of such cuts on the country’s business and, indeed, on the Government’s reputation would be quite devastating. Therefore, as the Prime Minister said to me and a number of my noble friends back in July, there must be no power cuts and we will have to do whatever we have to do to make sure that we keep the lights on. As the Minister who presided over the three-day week back in 1974 I have every sympathy with that, because it is not a comfortable position for any Government or Minister to be in. That is the first priority of which the Government have to take account.
On the other hand, if the Government want to make it possible for coal-fired power stations to continue, there will be a severe impact on the incentive to build new power stations. The gas-fired power stations have much lower emissions; a modern station may have as little as one-third the emissions of a coal-fired station. Given that we have spent a lot of time during our consideration of the Bill discussing the need for a proper financial structure for the new generators, many of which would want to build gas-fired stations, one can see the Government’s dilemma. I am not entirely sure that I can see the matter as clearly as my noble friend Lord Teverson has, and I will want to hear the argument.
I, too, have a copy of the Daily Telegraph article. My noble friend left out rather a significant sentence and was very kind to my noble friend on the Front Bench. The article said that the problem was due to the Government’s “dithering”. We have heard a certain amount about that—it is what the Telegraph said and what my noble friend left out. As has been said many times, there is no doubt that there is a considerable hiatus in the investment in new generating capacity, a consequence of which has been the oft-repeated and increasingly serious Ofgem warnings about the narrowing of the margin between capacity and demand. The Government, therefore, simply cannot go on risking that hiatus. So what is to be done?
I have read an interesting report in a paper that was prepared for the European Climate Foundation by Simon Skillings of Trilemma UK. I found it a helpful analysis of the whole problem. One of the things that Mr Skillings said—and I am following some of the argument of my noble friend—is that:
“Perversely, the decision of large amounts of coal-fired generation to opt-in to the IED”—
the European directive—
“presents a greater threat to security of supply. This is because opted-in coal plant would be able to operate at higher load factors, presenting a significant risk to investors in new gas-fired plant and owners of existing gas-fired plant that may currently be mothballed”.
I have drawn attention, both on Second Reading and subsequently in Committee, to the substantial amount of gas-fired plant which is currently being mothballed, and which would take varying lengths of time to bring back into production. Mr Skillings continues:
“New plant is, therefore, less likely to be built, and mothballed plant is more likely to be closed, under these circumstances”.
That seems a considerable dilemma. I have to confess, having studied both sides of the argument and tried to understand all the evidence, that I am still unclear as to what is the right course.
As I said at the beginning of my speech, I have been replying to those who have been making representations to me about this group of amendments by saying, “I will want to listen to both sides of the argument before finally making up my mind”. I do not know whether my noble friend will want to press the amendment to a Division; we shall have to wait and see. Other noble Lords who have signed other amendments in this group may wish to come in and I will listen to them with equal attention. However, I find this a difficult dilemma. We have got existing coal power stations, they are producing energy and they are helping to close the gap between demand and capacity. Therefore, to countenance a significant reduction from that source and assume that it will be made up with generating capacity by new investment seems to be taking a considerable risk.
My noble friend has advisers who follow this a great deal more closely than I can, and I shall be interested to hear what she has to say. I have to confess that, for me, it is a difficult issue.
Lord Stern of Brentford (CB)
Coal is the dirtiest of fuels: it emits around twice as much carbon dioxide per kilowatt hour as gas; it is responsible for more than 40% of world energy greenhouse gas emissions, and for more than 25% of UK greenhouse gas emissions. Amendment 74 will encourage the switch from coal to gas; delaying that switch could substantially increase the cost of meeting our climate change targets. Gas itself has emissions which, if unabated, are far too high for the medium or longer term but may provide a useful bridge in the shorter to medium term—that is, until around 2030 or so. After that, gas or coal would have to be abated or replaced with renewables or nuclear if we are to meet our targets. Unless the world acts to phase out or abate via carbon capture and storage, in the next few decades coal will be very likely to take the world into very dangerous levels of greenhouse gas concentrations.
If we could be confident of a strong carbon price then Amendment 74 might not be necessary. That would be a clear way of addressing the colossal market failure associated with greenhouse gas emissions. Such a strong carbon price would likely make renewables and nuclear more than competitive with gas and coal in the next one or two decades. However, with apparent quarrelling within the Government, and possible backtracking and “reviewing” constantly in the air, who could be confident about such a strong carbon price?
Work as an academic economist, as chief economist of the EBRD, as chief economist of the World Bank and as head of the Government Economic Service in the UK has made it clear to me that government-induced policy risk is a major deterrent—perhaps the major deterrent—to investment around the world. That is indeed why energy investment in the UK has been so inhibited and it is why we need the clarity that this amendment brings. Clarity can unleash investment; confusion, on the other hand, risks both the lights going out and a world of dangerous climate change.
The Government have been working towards a clearer strategy in the Bill, and many, including me, welcome that, but they have allowed uncertainty and vacillation to creep back in. This amendment would go far to overcome the doubts on policy that the Government themselves have created. It would essentially drive out unabated coal from the UK by 2030 other than in a back-up role. That is exactly what we have to do to achieve our targets and to make our contribution. How can we ask others to stop treating the atmosphere as a dump if we are not prepared to move strongly to do so ourselves?
China, where I have been working for 25 years, India, where I have been working for 40 years, and many other countries look to Europe and the US for leadership. If we do not show that leadership, they will conclude that the rich world is not serious on this subject. Let us recognise that China—the largest economy in the developing world and the biggest emitter in the world—is changing. Targets in the 12th five-year plan were strong. A peak in emissions in 2025 is now being discussed in relation to the 13th five-year plan. I have been involved in a number of those discussions and, before now, dates earlier than 2030 have not been mentioned. In addition, a peak in coal consumption in China within a decade is under open discussion. However, China is looking at others, including us. We should not delude ourselves that because we are small our example does not count.
By accepting the amendment, we can provide the clarity that will unleash investment, reduce our emissions, manage effectively the costs of so doing and have a real influence on others. That is why I support Amendment 74 in the name of the noble Lord, Lord Teverson.
Lord Whitty (Lab)
My Lords, in moving Amendment 76A, I shall speak also to Amendment 76B which is grouped with it.
We now come to the central part of this Bill which takes up 60 pages of the main Bill; it comes to something like 60 clauses and a large chunk—two-thirds—of the schedules. It has received relatively little attention in the course of the Bill’s proceedings, and virtually none in another place. We gave it reasonable consideration in Committee and we reached a degree of consensus. There are some things I still have queries about, but I am grateful to the Minister for explaining aspects of that and also to her officials who explained some of the aspects even further.
It still remains, however, that this is part of the Bill which has received very little public and wider attention. Yet it is one of the most important parts of the Bill because it regulates the nuclear industry. The policy of the Government, and to a large extent the policy of all parties now, is that of a significant shift towards nuclear power within our energy mix. We know the history of nuclear power is controversial, not only in the past here, but also worldwide. It is therefore essential that we get the system of regulation in this area right and the balance right. The Government have, to a large extent, done that. It has been quite a long gestation period taking what will be the ONR out of the Health and Safety Executive, giving it certain additional powers and clarifying in one piece of statute what its role is. I commend that. While it makes for a rather lopsided Bill, it is an important achievement. My amendments, therefore, are not attempting to upset the main thrust of the provisions within these sections, but they are trying to clarify some aspects of it. I hope that the Minister can give me some satisfaction on that.
One of the main roles of the ONR, and one of the most important public roles, will be the approval of designs for new reactors and the construction process that goes with it. Yet in all those pages there is very little mention of that role. It is mentioned here in Clause 60 and it is mentioned specifically under nuclear safety. The reason that it is so important is that both those who argue strongly in favour of nuclear power and those who argue strongly against it are concerned about the nature of the design of the reactor. It has been an issue in relation to the Hinkley Point approval that this reactor may not be the most appropriate reactor for the future—it may not be the most cost-effective and it may not be the best in terms of the contribution to the environment. Whether those criticisms are true or not, the Government rightly had a very heavy assessment, verification and approval process before they gave the go-ahead to the Hinkley Point project. The ONR in its shadow form and the Environment Agency both had a role in looking at that design. They looked at the design itself, its engineering, its safety requirements, its operational requirements, its effect on the ecology and the environment and of course they looked at its economics. They gave approval following a pretty long process and managed to rationalise the number of planning and other approvals that were needed.
I declare an interest in that until the end of last year I was a member of the board of the Environment Agency and I took a particular interest in the nuclear dimension of its activities. Both on the ONR/HSE side and on the Environment Agency side that was a very effective process. It was, however, an ad hoc process. It was a process that the Government invented when we were talking about several different designs that were possible and several different sites a couple of years earlier. It is still true that there has been some criticism of the choice of design being what some people refer to as an old design for what is a 35-year project. I do not want to enter into an argument about the merits of those criticisms myself, but it is important that the Government and the regulatory system have a robust system of ensuring that the design has been through the most rigorous appraisal system.
There are of course other designs that will be coming along. We have other sites that are capable and have been already designated by the Government as potential nuclear sites. There are other designs out there which are already operational or nearly operational: the CANDU system, a boiling water system, a PRISM system and there are companies and consortia that are promoting those here and elsewhere in the world. It is therefore highly possible that a different consortium from the one that is operating at Hinkley Point will come up with a different design which will need to be subject to an equally rigorous process. In that process it is vital that part of the responsibility of the ONR is to be at the cutting edge of nuclear technology and all the sub-technologies that go to make up the design. It is also important that it is cost-efficient.
The other criticism of the Hinkley Point deal is that we are paying too much for it. I again make no point on that at this stage. It is clearly right, however, that it is done on the most cost-effective basis, both for public acceptability and for the importance to the economy of moving to a greater share of nuclear power through the 2020s. It is also important that maximum safety is built in and, more generally, the protection of the environment.
Reading these sections of the Bill, one would not immediately deduce that this is, in a sense, the central role of the ONR. The approval of new systems, the new reactor designs and the appropriateness in the timescale is an important part of our ability to meet our carbon targets and to ensure that there is no detrimental effect either to the economy or to the environment. It deserves at least underlining—which is all my amendment does—that the role of the ONR in this respect is crucial and comprehensive, and that it is not only to do with safety but all these other matters as well.
Amendment 76A makes it clear that it is not only the safety of persons that is relevant but the safety of, and impact on, the environment. For that reason it is also important that there is specific reference in the Bill to the role of the Environment Agency. That agency played an equal role in the Hinkley Point case. The Environment Agency clearly has powers under the environment Acts but what we discussing is a joint responsibility. The ONR is not taking over that responsibility from the Environment Agency, which presumably could have been an option when the ONR concept was delivered.
Amendment 78B underlines what I have been talking about and makes it clear that in approving a design, and the construction plans that go with it, there is an absolute obligation on the ONR to ensure that they are of the very highest quality. The amendment also covers issues of cost-effectiveness, safety and security. This is central to the task of the ONR, as I have argued. The safety dimension is central to the safety of the population and of the environment. It is also important in a political sense. The public’s acceptance of the shift to nuclear power is fragile. It is significant but fragile, as we saw in Germany and other countries following the events at Fukushima. Therefore, it is important that the regulator we put in control of this system is seen as having a comprehensive and robust responsibility to deliver on all those elements when approving a major new reactor design. On every occasion we need to go through a very detailed process. It is important that it is written in large letters that this is one of the ONR’s central functions.
The Minister may say that this amendment is superfluous but in terms of reassuring the public it is important. The Government’s policy on this issue may be sufficient but the issue of the certification and approval of design must be an important part of the Bill. I hope that my few words on these two amendments will take it some way in that direction. I beg to move.
Lord Jenkin of Roding
My Lords, the House is very much indebted to the noble Lord, Lord Whitty, for the amount of time and the expertise that he has brought to bear on this important part of the Bill, as he rightly said. It has been a very long time in gestation. It was recognised two, even three, years ago that the difficulties which the ONR—it was then the nuclear inspectorate—faced in recruiting people to do the very specific task that is required when approving nuclear designs meant that they had to be sui generis so far as the terms of the employment were concerned. They could not be subject to the normal standard Civil Service rules. That is the primary aim of this part of the Bill: namely, to take the ONR out of the standard Civil Service terms of contract for the people it employs. It takes anything up to 20 years before an inspector becomes fully qualified to carry out the extremely expert work that is necessary to approve the designs of nuclear power stations and they are difficult people to come by. One needs to be competitive in this regard. The Select Committee on Science and Technology heard evidence from the former chief inspector, Dr Mike Weightman, who was very clear about this and, indeed, was glad that the issue was at last coming forward in this Bill. He made it clear that he had had to wait rather a long time for this to be done. The Government are very much to be congratulated on including the issue in the Bill.
Amendment 76A, in the name of the noble Lord, Lord Whitty, and others, seeks to add the words “and the environment”. As a former board member of the Environment Agency, the noble Lord has had much more experience of this issue than I have. As he rightly said, the regulation of this area is done by both bodies—the inspectorate, now the Office for Nuclear Regulation, and the Environment Agency. Their roles may overlap but they are most emphatically not the same. Nuclear science and technology is essentially the area of expertise of the ONR whereas the Environment Agency has the broader role of looking at the impact of a nuclear plant on the surrounding environment and at atmospheric pollution and so on. These roles are not the same. I will be interested to hear what my noble friend has to say on this. However, if I may say so, to add “and the environment” would confuse the issue. This part of the Bill does not deal with the Environment Agency, which continues to do exactly what it did when the noble Lord was a member of its board. I would be interested to know the reaction of the Environment Agency to the amendment. I think it would say, “It is not for them, it is for us”, meaning the agency. As I say, I shall be interested to hear what my noble friend has to say but it raises a question.
As regards Amendment 78B, we need to pay greater attention to cost-effectiveness. I do not know how many noble Lords have read the very interesting article by my noble friend Lord Ridley published a few weeks ago in which he talked about the cost pressures of the nuclear inspectorate on the price of a nuclear power station. I do not have the article in front of me but I remember he said that the inspectorate is taking a very, very safe system and insisting that it will be a very, very, very safe system. The question is: what will that cost? I would be interested to know to what extent it is the inspectorate’s role to consider the cost of the additional requirements that it may impose on the design of a plant.
I am absolutely satisfied that the public will expect the inspectorate to have very high standards. Indeed, I spent some years as the honorary president of the Energy Industries Council, which represents some 650 companies in the supply chain for all the energy industries. One of the things I find myself saying over and over again is that if firms are going to sell to the nuclear industry they must get used to nuclear standards which, for the most part, are considerably higher than general engineering standards, and rightly so. However, is it the role of the ONR to look to the question of cost? It has to consider the design of the plant that is put before it. As the noble Lord rightly said, there will be several. It is already looking at the advanced boiling water reactor put forward by Horizon Nuclear Power, which is now owned by Hitachi. It is not yet looking at either CANDU or PRISM—the other two items the noble Lord mentioned—which are still being examined by the Nuclear Decommissioning Authority and the department. However, if a design is put forward for either of those two items, the inspectorate will have to look at those as well. Should it be concerned about the cost? The only cost with which it ought to be concerned is whether we are expecting too high a standard at too great a cost, and whether this is absolutely essential. I suspect there is a temptation to say that anything which makes an installation safe—even if it has to be very, very, very safe—should be done even if it costs a lot. I do not agree with that. There must be a role here for looking at the particular cost for the particular requirement that the inspectorate is asked to look at.
As I say, I shall be interested to hear what my noble friend says about that but I think there may be greater merit in this amendment than in Amendment 76A.
Lord Jenkin of Roding
My Lords, the noble Lord’s amendments go too far. We are talking about only five non-executive members who are going to be appointed by the Secretary of State. One must have regard to the main purpose of non-executive directors of a board, which is, broadly, to hold the executive to account. I have been a chairman of a board, although only part-time, in a totally different environment, and found the non-executive members of that board extremely useful. They assisted me in holding the executive members of the board to account—not because of their expertise in a particular area in which an executive director would be operating, but because they had wider experience and could look at the activity of the executive in a wider context.
That is obvious in the provision in the Bill for at least one non-executive member to have responsibility for the security aspects of the ONR’s job. I do not know whether this is the Government’s intention but it seems to me that what is wanted is not somebody who is expert in nuclear security, but who has wider experience of the whole of the national security position and can bring that background knowledge and perspective to the particular issues that arise in the nuclear field.
If that is right, it is entirely understandable that the Government should want to see that in the schedule. On the question of safety, however, I do not understand what, exactly, a non-executive member’s role would be. This is essentially a management matter. A non-executive director would want to be sure that the right procedures were being followed, particularly when it is a question of appointing someone who will have some executive responsibility in this. You want somebody with the experience of being able to do it, but to have a specific safety non-executive person would be very difficult. I am not sure where it leaves the professional management. Is it constantly being second-guessed? That is not what you want from a non-executive board. It should not second-guess the management but satisfy itself that the management is approaching the problem in the right way and has made sensible decisions.
To some extent, that is equally true of labour, staff relations and so forth. I would not expect a non-executive director who had come straight from a human resources job to say, “I’m going to tell the human resources director exactly how to do his job”. That is not the way in which non-executive members of the board should be expected to operate.
The amendments mistake the purpose of having non-executive directors. The Bill has the right approach because having someone with a wider experience of national security could be extremely useful, and nuclear security could be looked at in that context. However, I would not want to take it further and I would be very much opposed to the amendments proposed by the noble Lord.
Lord Judd
My Lords, with great respect, I do not follow the arguments of the noble Lord, Lord Jenkin. We are not talking about a chocolate factory or even a motorcar manufacturer: we are talking about highly sophisticated, advanced, cutting-edge science. It has the potential to adversely affect staff and the wider public acutely. It is not either/or; it is a matter of having people with wider experience. The noble Lord is right: that is the purpose of a non-executive director. However, there must be people on the board who know what they are talking about, if they talk about it, when we come to the specific issues of this special, advanced and potentially very dangerous new form of energy generation.
This is not, incidentally, just limited to the nuclear sphere. I remember very vividly many hours toiling home to the north-west finding myself isolated on Preston station in the small hours. Railtrack had built up a great record of property development and all the rest, but it was suddenly realised after Hatfield that it had neglected the very special knowledge about how to run the railways and what that is about. It is not just any industry: it is about having the knowledge and background to ask whether management is taking this or that into account. It is not an either/or.
In the case of the railways, with that awful Hatfield incident, we had reached a stage where virtually nobody knew where the danger spots were on the track across the country. If we take those experiences seriously, it is a matter of getting the right combination of knowledge and expertise. I realise that when you use the word “expertise” you are beginning to go down a questionable road, but there has to be enough real knowledge of the special tasks and hazards, together with the wider experience to which the noble Lord rightly referred.