Electricity System Resilience (S&T Committee Report)

Lord Lawson of Blaby Excerpts

Tuesday 3rd November 2015 Lords Chamber

[Lord Broers (CB)]

My Lords, this was a rigorous inquiry, chaired with consummate skill by the noble Earl, Lord Selborne, and supported with detailed expertise by Professor Jim Watson and highly professional co-ordination by the committee staff, led by Chris Clarke. I join others in congratulating them all and declare my interest as a fellow the Royal Society and the Royal Academy of Engineering, and also the national academies of engineering of the United States, China and Australia, where I have also discussed energy.

I shall discuss only the committee’s recommendation that:

“The Government should ensure that incentives are in place so that all new generation is built in such a way as to maximise its flexibility, whilst ensuring that the costs to consumers are minimised”.

The emphasis is on flexibility, but it is really about costs. I will briefly discuss the recommendation that,

“the Government should also disseminate more comprehensive evidence on the potential costs of low carbon generation and improve communication with the public”.

There has, in fact, been significant progress over the past two years in telling people what is happening. Despite what the noble Lord, Lord O’Neill, has just said, we had been in a worse situation. We now have the full set of strike prices, including that for nuclear power, and it is becoming possible to evaluate the various scenarios open to the country. This is a welcome change from the time when it seemed that no one knew what was possible, or even what was happening. For example, I recall the Government in late 2009 insisting that we would have 8 gigawatts of offshore wind capacity in the North Sea by 2011, which was clearly impossible and revealed a total lack of understanding of the challenges of that technology.

I experienced the new openness in a letter from the noble Lord, Lord Bourne, in answer to a supplementary question I asked earlier this year, and I thank the Minister for his letter and apologise for being so late in doing so. I had asked whether the capacities that he had referred to for various renewables were the gross capacities or the power actually delivered to the grid. He pointed out in his letter that they were the latter, and that the load factors used for onshore wind and solar were 24% to 32% and 9% to 11% respectively—a welcome recognition of reality. Solar PV yields 1/10th of what it says on the label.

It is clear that DECC is getting to grips with the complex and difficult energy trilemma. Five years after we were being told we would have 8 gigawatts of offshore wind in the North Sea, we are at least approaching 4 gigwatts and data are being produced that help us to estimate the real costs of offshore wind, although it will be a long time before we can assess the maintenance costs of these huge machines in the hostile environment of the North Sea. There is also some action, rather than endless talking, on new nuclear, even if, regrettably, we are not going to build it ourselves but will put it in the hands of the French and the Chinese.

Overall, we now have enough data to assess quantitatively different combinations of power generation type. Some of these have been laid out in the Electricity Market Reform Delivery Plan. What becomes clear, however, is that renewable energy generation is extremely expensive. The strike price for offshore wind, for example, has been set at more than three times the cost of electricity today: at £155 per kilowatt hour compared with £50 per kilowatt hour for conventional fossil fuel, which is the reference price. It is also more than 50% higher than the £92 per kilowatt hour projected for nuclear in 2023.

So the high deployment of the offshore wind scenario, in which offshore wind provides about a third of the power, shown in the EMR delivery plan would require the taxpayer to provide a subsidy amounting to two-thirds of the present cost of electricity, which is twice the reference price for about a third of the power generated. In fact, if one relies on the data available today, the high deployment of the nuclear option would seem to provide the lowest cost for meeting our carbon targets, especially as nuclear can be used to back up the intermittent renewables as well as producing little carbon itself. However, this cost will be much higher than the cost of electricity today. The high deployment of the CCS option may emerge as attractive in the future, but there is too little evidence available at this time to evaluate it. The hope is that large cost reductions will be realised as the renewable methods are scaled up, but this is anything but certain.

It is also argued that energy bills are already coming down and that this trend can be continued, but the reductions we have seen recently have nothing to do with progress with low-carbon generation. They have resulted from other factors, and I shall mention some of them. First, there have been significant reductions in the cost of fossil fuels. DECC data show that, between the second quarter of 2013 and the second quarter of 2015, UK energy suppliers paid 20% less for natural gas, 23% less for coal and 40% less for oil—the noble Viscount has mentioned some of this already. Secondly, there is what DECC calls products policy. This is the adoption of Europe-wide standards and energy labels that have increased the efficiency of household appliances. It is a truly excellent initiative. There is also the 80% energy saving that results from the use of LEDs rather than incandescent bulbs, and the increasing use of improved insulation, even if we are not as good at that as the rest of Europe, and the ability better to monitor usage through the use of smart meters.

Realising these gains is very good news, but they are likely to be overwhelmed by the vast increases in renewable generation cost, and taxpayers are going to have to bear the burden imposed upon them when the strike prices are higher than the reference price. It is essential that we continually monitor progress across the spectrum of low-carbon energy generation and adjust the mix to minimise cost, while, of course, meeting our carbon targets. At present the data suggest that this will mean maximising the use of nuclear power despite its higher cost, so I impress upon the Minister the need for the Government to press on with nuclear, and I include the small-scale modular reactors which the noble Earl, Lord Selborne, mentioned.

Before finishing, like others I emphasise the need to increase support for R&D in energy generation and, as stated in chapter 8 of the report, ensure that the objectives of the nuclear industrial strategy recommended by NIRAB are met. I shall also look forward and join the noble Lord, Lord Hennessy, in saying a few words about fusion power. There has been and remains a lot of scepticism about fusion, but there has been recent progress in plasma fusion on three fronts. First, at ITER—the international thermonuclear experimental reactor project in the south of France, where a doughnut-shaped reactor the size of the Arc de Triomphe is being built with the aim of producing half a megawatt of net output some time in the late 2020s—there have been delays and management problems, but in September an important milestone was achieved. A billion-dollar contract was placed to deliver the 200 kilometres of superconducting wires that will produce the magnetic field used to compress and confine the plasma and reach the temperature of 10 times that of the sun needed to produce fusion.

Secondly, here at Culham and at Princeton in the US two new tokamaks are being built to explore a new geometry for the fusion chamber. These are known as spherical tokamaks where the reactor chamber is not a torus, or doughnut, but is spherical, more like a cored apple with a single conductor down the middle. This geometry has been shown to be three times more effective in harnessing the magnetic field, and there are hopes that this may make reactors smaller than ITER feasible.

[Lord Lawson of Blaby (Con)]

My Lords, listening to the fascinating account of developments in fusion given by the noble Lord, Lord Broers, I am brought back to 34 years ago when I was Secretary of State for Energy. All my scientific advisers assured me that fusion would be economic within 25 years at most. Is it not dangerous to engage in wishful thinking?

[Lord Broers]

I thank the noble Lord, Lord Lawson, for that intervention. It is dangerous to be overly optimistic, and people have accused some of the people working on the new types of reactors of overoptimism, but the promise of fusion, as the noble Lord, Lord Hennessy, said earlier in this debate, is great. I am not suggesting that we replace huge quantities of investment elsewhere with work on fusion; I am just suggesting that we continue working on it because of its very great potential. It would be criminal not to continue to pursue it, particularly as we are making advances today. I am not suggesting at this stage that it is going to be tomorrow’s answer. It has always been tomorrow’s technology, but sometimes tomorrow’s technology comes home to roost, sometimes when we least expect it. I shall end on that optimistic note. If we could harness fusion power, we would have a lot of our problems resolved.