Queen's Speech

Lord Oxburgh Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Lord Oxburgh]

My Lords, I, too, welcome the noble Baroness and the noble Lord in their new roles on the government Front Bench.

Today, I will continue the energy theme and talk about electricity supply. Unfortunately, the financial crisis is not the only one facing this country. I believe that every informed observer recognises that we have a looming electricity shortage. Older generation plant is being withdrawn from service without a plan for timely replacement of capacity. The problem has been apparent for years. With every passing month the opportunity to make an orderly transition to a modern electricity supply system slips away. We are facing a crisis that is entirely of our own making. The situation has not been helped by 17 changes of energy Minister in the past 10 years. Energy policy requires both understanding and continuity. I declare an interest as a director of Falck Renewables and Blue-NG and as honorary president of the Carbon Capture and Storage Association.

The role of government is to steer a smooth transition from a fossil fuel economy to one that is economically and environmentally more sustainable. Electricity generation is the most complex part of energy policy. It is complex because different methods of generation have quite different characteristics and because electricity demand can vary by a factor of three. Furthermore, it is not clear whether in the long term electricity demand will increase or decrease. It will decrease because of energy-saving measures and greater efficiency but may increase through population increase and, indeed, through increasing electrification of the economy.

Overall, our priorities have to be pretty clear. We need security of fuel supply and electricity supply; environmental security in the form of minimal emissions of particulates and greenhouse gases; and all that at the lowest cost. The Government have to balance these priorities against each other, take a system-wide view of electricity generation and then provide a regulatory and financial framework which aligns the interests of energy companies with the long-term interests of the country. The framework needs to recognise that many of these companies are international and has to be sufficiently clear that it provides business with the confidence to make the 30 to 50-year capital commitment in the UK. Today confidence is lacking. Building this must be one of the highest government priorities.

Security of electricity supply requires a diversity of generation methods and energy sources. Within a decade there will be an increasing role for photovoltaics, tidal generation, biomass, biogas and other technologies. However, today the main ways that we have of generating electricity are wind, nuclear, coal and natural gas, and the near-term strategy will be based on these. But because their characteristics are so different they cannot sensibly be combined in any proportions that happen to be the outcome of short-term market forces or, indeed, the likes or dislikes of particular pressure groups.

In the absence of government steer, and with uncertainty about the future penalties for emitting CO₂, the market would, if left to its own devices, produce a system built entirely on gas. Gas plants are flexible, the least expensive, quick to build, and the gas price risk is carried by the consumer. However, this would not be in the country’s best interests.

Time precludes discussion of the complications of different generation mixes, but as an example, the proportion of wind in the mix has implications for the proportion of nuclear. Both are relatively inflexible and because most of the cost of both is paid at the time of construction there is no saving in not using either to the full when they are available. The proportion of wind also has a major bearing on other aspects of the system; for example, whether to build interconnectors with a view to exporting electricity when generation exceeds demand and importing it when we have a shortfall. Danish experience in this respect is not encouraging but there are obviously other ways of managing wind intermittency. I make these points only to emphasise that there is no single correct answer to the balancing conundrum; but there are numerous wrong ones. Action is urgent because lead times are long.

We have to consider the system as a whole and the interactions, both near-term and long-term, between its parts. That includes the electricity transmission grid, much of which will have to be replaced over the coming decade.

In conclusion, I re-emphasise that we have to consider the system as a whole. There are political decisions, technical decisions and business decisions to be made. I hope that the Government will consult rapidly and widely, and then act decisively. I wish them well.