Low Carbon Energy Generation

Tim Yeo Excerpts

Thursday 26th February 2015 Westminster Hall

[Mr Tim Yeo (South Suffolk) (Con)]

Welcome to the Chair, Mr Brady. It is a pleasure, indeed it is an honour, to serve under the chairmanship of such a distinguished colleague—and this may be my last opportunity to say that in public. I draw attention to my entry in the Register of Members’ Financial Interests and my interests in the energy sector in particular.

I am delighted to have secured this debate and I am grateful to the Backbench Business Committee for granting it. I am sorry that, despite valiant efforts, we do not have quite as many people here as we had when we made the application. I also warmly welcome my hon. Friend from Lancashire—I am about to say west.

[Mr Ben Wallace (Wyre and Preston North) (Con)]

Wyre and Preston North.

[Mr Yeo]

I apologise. I made the same mistake last time my hon. Friend was responding to such a debate, but I am delighted to see him and I know that he will give us a robust response to any points raised.

I stress that my commitment to low carbon energy goes back more than 20 years. When I served in John Major’s Government as a Minister in what was then the Department for the Environment, among other things I dealt with climate change, which in 1993 was much less understood or even talked about. If someone mentioned climate change at a social occasion, people would look at them as though they were slightly strange. However, it did not take me long to be convinced that climate change was occurring—the scientific evidence was powerful even then—and that the changes we were observing were caused at least in part, and in my view in substantial part, by the increased concentration of greenhouse gases in the atmosphere in the past 200 years, which was a result of man-made activity and the industrial revolution in particular.

As I recall, in the 1990s the scale of the problem was much less certain. Today, the need for substantial cuts in greenhouse gas emissions is widely, even if not universally, accepted. As we approach the Paris conference of parties at the end of the year, the world’s attention will be increasingly focused on how we can achieve a more rapid decarbonisation of our economies.

Last November we had the historic joint announcement in Beijing by President Obama and President Xi of China in which they committed to cut emissions. Such a commitment would have been completely unthinkable even three years ago: for the US President to say what he did and for the Chinese to say that their emissions would peak on a date not later than 2030 simply could not have happened. In my judgment and experience, for the Chinese to say publicly that something will happen not later than 2030 means that they are absolutely certain it will happen well before that. I warmly welcome the greater determination of the US Administration to engage with this issue, which is still extremely controversial in parts of the United States.

Here at home we had an historic announcement this month. The three leaders of the major parties united in a public joint commitment to continue to take action to tackle climate change. I do not recall any other major political issue being addressed in quite the same unanimous way just two months before an election. I welcome both those important political developments.

Equally important is the transformation in business’ attitude. Twenty years ago, much of industry was reluctant to acknowledge the need to engage in finding solutions to climate change. It felt that such demands for reduced dependence on fossil fuels were a threat to their business models. Today, by way of contrast, in many parts of the world business leaders are ahead of policy makers in recognising both the urgency and the scale of the need to move away from models that are dependent on fossil fuel consumption.

I warmly congratulate the Government on confirming the fourth carbon budget for the 2023-27 period. That challenging budget, which was set four years ago, was reviewed last year and, to the coalition’s enormous credit, it confirmed it. I am sure that in private, parts of Whitehall argued strongly for a dilution of those targets, but they were confirmed.

I also warmly congratulate the European Union. That is not something Conservative colleagues frequently do, but its recent, excellent decision, supported by the UK, to adopt a cut in greenhouse gas emissions of 40% for its 2020 target was at the upper end of aspirations. That is good for two reasons. First, it sets a challenging figure that will force businesses and consumers across the EU to think about how they can help achieve it.

Secondly, it is a rational target. By setting an overall target for a cut in emissions, the need for any subsidiary targets is largely removed. I have always been concerned about the artificial imposition of targets for the proportion of energy that comes from renewable sources. They are not the right way forward; it is up to member states to decide how much they want to use renewables and other technologies. The European Union achieved a good outcome.

Achieving the UK domestic target, which is enshrined in law, and the EU target will require in particular substantial decarbonisation of the electricity generation industry. We have the technology that makes that possible; the question is whether we are willing to adopt it. In effect, a transformation must take place in the energy industry in the next 15 to 20 years. Because it has one of the longest investment cycles of any industry, we cannot leave decisions for another five or 10 years.

The decisions we make in the next two or three years—before the end of this decade—will have a huge and material impact on what happens later on. In effect, those decisions will determine at what cost the decarbonisation of UK electricity generation will be achieved. If we get those decisions wrong and we lock ourselves into too much dependence on fossil fuels, we will be forced into making emergency, very expensive changes in the late-2020s and early-2030s.

This debate is about how to decarbonise electricity generation, and I want to start with the nuclear industry. I warmly welcome the fact that, broadly speaking, there is bipartisan political consensus that the UK needs a nuclear component in its energy industry. The latest figures from the Department of Energy and Climate Change show that even now, following the shutdown of a couple of EDF’s reactors, nuclear still provides roughly a fifth of our electricity, so it is a substantial component. Nuclear, as supporters such as me constantly remind people, provides reliable, base load, low carbon power.

I do not want to turn this into too partisan an occasion, but there was a slightly wasted decade under the previous Labour Government during which nothing much happened on nuclear. However, the bullet has now been bitten and the decision to go ahead first with Hinkley Point was supported in all parts of the House—even the Liberal Democrats supported that, which showed a welcome change of heart. Unfortunately, the implementation of the decision to go ahead with Hinkley Point is proving to be tortuous and slow. I therefore commend the Government’s willingness—in fact, they have been positively welcoming—to perhaps have a foreign investor as the minority partner in Hinkley. I trust that the final investment decision on Hinkley will not be delayed much further, and I hope the Minister will give us an update on progress because many of us have been getting concerned. The timetable for this project has already slipped considerably, and it would be a huge relief to many people if we thought that final investment decision would be signed off imminently.

Of course, the future of nuclear is not just about Hinkley. It is the first step, but other projects are within sight, and I believe that gives Britain the chance to lead a European nuclear renaissance. We have huge advantages in this country, such as the political consensus to which I have referred, and the fact that our regulator is probably best in class; it enjoys universal respect. One reason why the accident at Fukushima four years ago did not derail progress on nuclear power in this country was that people trust the Office for Nuclear Regulation. In the wake of Fukushima, Mike Weightman’s report reassured people that such an accident could not occur here and the circumstances of it could not be reproduced here. That has helped to create in the UK a public opinion that is more supportive of nuclear power than that in many other countries. Interestingly, people who live closest to nuclear power stations are often the strongest supporters; they recognise that nuclear is a clean, reliable and safe technology that provides a decent number of well-paid jobs.

The interest that other countries are showing in the UK market reflects those circumstances. We now have interest from the Chinese, South Koreans, Japanese, Americans and Russians; they would all like to be here in the UK nuclear market. Some of them see the UK as a good starting point for the rest of Europe. Many of them will feel that going through and getting approved by the UK’s generic design assessment process is an imprimatur—a mark of approval—that would be useful to their technologies in other markets. Britain should welcome and take advantage of that interest. There is something here we can exploit and perhaps even use to gain a bigger share of the supply chain, with resulting benefits for our economy.

Nuclear clearly ticks the security of supply and cutting carbon emissions boxes, but the industry still has some work to do on the third aim of energy policy: affordability. The questions about cost are a work in progress. I am confident that there are ways of cutting the cost of nuclear. The nuclear industry, rightly, has very demanding safety requirements imposed on it. If the same requirements were applied to some other energies, their impact would be enormous. If the coal industry, for example, had ever had to cope with the safety demands made on the nuclear industry, it would have struggled to survive in the way it has.

However, we must be mindful of the importance of value for money. In this country, we are often supportive of first-of-a-kind technology. It is interesting, because we have a great record and history of innovation and research. However, there is a question mark over whether first-of-a-kind technology will be the cheapest. If nuclear is to roll out extensively, as I hope it will, and continue to supply a significant proportion of UK electricity generation capacity, we have to consider whether technologies that have been tried and tested in other countries first—in a home market—may then be able to offer us something.

[Albert Owen (Ynys Môn) (Lab)]

The hon. Gentleman makes an important point. Hinkley, of course, is going with technology that has yet to be proven. In my constituency, the Hitachi project is using reactors that have worked elsewhere and have been upgraded. That is relatively new to this country, but a rigorous process has been gone through. The fact that we have two different types bodes well for the future; we cannot put all our eggs in one nuclear basket, so to speak.

[Mr Yeo]

I agree with the hon. Gentleman, and I am sure he will enlarge on that point when he speaks in the debate, should he catch your eye, Mr Brady—there does not appear to be overwhelming competition for that. However, it is an important point that we need to bring out in the debate about nuclear. I welcome the fact that there are competing technologies that want to get started in the UK, but in deciding which ones we might “go nap” on, we need to focus on value for money. There will perhaps be an opportunity to choose between a number of them, and those that have been tried and tested elsewhere first may have a cost advantage that we should not be afraid of identifying.

Let me move on to renewables, on which there has been excellent progress since 2010. In stimulating new investment in renewables, the regime established by the electricity market reform process and all the accompanying legislation, which some of us have laboured for many hours to improve, is now one of the best in the world from the point of view of investors. Today’s news about the contracts for difference allocations confirms that. There is a lot of interest in investment in renewables here in the UK, and I warmly welcome the success of the CfD regime.

There is, however, a clearly topical issue in this regard that relates directly to my concerns about value for money. The strike prices announced today remind us—much more clearly than the previous, somewhat opaque renewables obligation certificates system ever did, certainly to the layman—of the relative costs of different renewables technologies. Of course, it is great news for consumers that the cost of solar is falling and the strike price is now significantly lower. The rapid and considerable fall in the cost of solar is partly a reflection of the enormous expansion of the solar industry in China, and that has had direct benefits for British consumers. It is now clear that solar can reach grid parity before long, even in this climate.

I am also delighted that today’s announcement makes it clear that a significant amount of new capacity will be provided by onshore wind. I am aware that it is an extremely controversial technology, particularly among many of my hon. Friends, but as we can see today, the truth is that onshore wind offers good value for money, relatively speaking. Of course, there are some—perhaps many—places in which onshore wind turbines are simply unacceptable, for environmental and other reasons, but I would regret it very much if, as a matter of policy, we turned our back on onshore wind altogether. That would turn out to be an expensive mistake, because even with prices for offshore wind falling—again, I welcome the strike prices announced today—onshore wind remains substantially cheaper.

My anxiety about offshore wind is that I do not see the potential for the huge fall in cost that occurred with solar. A large part of the cost of offshore wind is in the installation process of planting and anchoring a turbine in deep and rough waters. There may be a limited number of days on which the process can even be carried out, and the cost of the equipment needed on site is very high. That places a limit on the potential further reduction in the cost of offshore wind. I hope it will come down somewhat—I am sure it will—but I do not envisage a dramatic collapse in cost.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

I also welcome today’s announcement, particularly in relation to the Neart na Gaoithe wind farm in the firth of Forth. I take the hon. Gentleman’s point about cost, but surely he would agree that only through a substantial increase in the volume of offshore wind will there be any possibility of the price falling. I also take his point about consumption, but savings can be made there as well, through advances in technology. It would be wrong to give the impression that offshore wind will not be an important part of the package in future, particularly given our obvious advantages because of our geographical situation.

[Mr Yeo]

I accept the hon. Gentleman’s point. I am not suggesting that we should rule out offshore wind, but I am suggesting that we should be mindful of the fact that at the moment it requires a much bigger subsidy than some of the other renewable technologies, and we need to be hard-headed about what proportion of our available resource we devote to it.

Britain is of course the leader on offshore wind worldwide, so we have already achieved a great deal. Interestingly, there are some relatively shallow waters in Guangdong province in south-eastern China, and quite a big push is being made on offshore wind there as well. That may help the process of bringing the price down. Offshore wind will remain an important part of the energy mix, but I am concerned to ensure that we do not allocate too much of the resource available through the levy control framework to offshore wind.

Last year, we had an announcement about the final investment decision enabling contracts, which I think were announced last April and used up just over half the available resource under the levy control framework. A large chunk of that was allocated under contracts that were at higher prices than those today. Things are always easier with the benefit of hindsight, but looking back, I think that in our anxiety to get the process under way, we may have gone a bit further than we needed to at that early stage and are locked into some relatively expensive contracts. Be that as it may, the benefits of competition and the continuing fall in costs are reflected in today’s strike prices. I therefore urge the Government to be as technology-blind as possible in the future. They should leave local objections to individual proposals or projects to be resolved through the planning system, and try to help the best value for money technologies to continue to cut costs and to flourish.

I have already mentioned that I think that solar will reach grid parity. I think that onshore wind also has the potential to reach grid parity, and if that happens and a local community are happy to see some turbines in their neighbourhood, why should they not be allowed to construct them?

Let me move on to gas, which is not everyone’s idea of a low carbon technology, although compared with unabated coal, it certainly is a lower carbon technology. The problem for Britain with gas is that our reserves are running down, so we are importing a great deal of gas. Luckily, a lot of it comes from our friendly neighbour, Norway, and we are not dependent to any meaningful extent on Russian gas for our consumption. However, we are importing a lot of liquefied natural gas. Interestingly—this came out in the debate that we had a few weeks ago on what was then the Infrastructure Bill—David MacKay’s report in September 2013 pointed out that net greenhouse gas emissions from imported LNG are actually higher than those from shale gas extracted by fracking, so if we continue to use large amounts of imported LNG instead of exploiting what may be significant domestic reserves in the form of shale gas, using fracking, which my Select Committee has reported on twice and regards as potentially a safe technology, we are locking ourselves into a slightly higher emission pattern.

I believe that, no matter what, in the next 15 to 20 years gas will remain an important part of our energy mix. It is completely unrealistic for people to assume that we can get by without consuming a great deal of gas, so we should now press on with exploiting our shale gas reserves. To do that, or even to determine how great those reserves may be, we need to start drilling. I regret the fact that there appears to be continued delay, caused in part by local opposition, to embracing that opportunity.

Britain could be the leader in Europe on shale gas. If we get on with it now, we could write the European rulebook on shale gas. There would be benefits for contractors, supply chain companies and others. There would be an economic advantage for the UK if we delayed no further and pressed on with shale gas, as other countries would then follow our lead. They would overcome their current caution and follow us down the shale gas route. I therefore hope that we will not miss that opportunity. It is just as unrealistic to assume that we can do without lots of gas in the next 15 years as it is to assume that if we close down all our nuclear power stations, they can be replaced by low carbon renewables.

Of course, the lowest carbon energy of all is the energy that we do not use. In this context, I again urge the Government to promote demand-side response. There is still a great deal of misunderstanding about demand-side response. Many people think that it means imposing power cuts on consumers without notice and against their will. It means nothing of the sort. Demand-side response today involves harnessing the latest technology to facilitate voluntary cuts in consumption at peak periods by consumers who are paid for their ability to switch off their power at very short notice. The prize, if we embrace demand-side response, is enormous. It means that we can cut the total electricity generating capacity that has to be maintained. At the moment, we have to have high levels of capacity available even though it might be used only for a few days in the whole year. That is an incredibly wasteful arrangement. If we have a vibrant demand-side response sector, we will not have to have so much capacity. Every consumer will benefit from that, because at the moment every consumer is subsidising capacity that is scarcely ever used.

[Albert Owen]

The hon. Gentleman makes a very interesting point. Of course, marine technology is underdeveloped. If we had tidal, we could have greater control. In different parts of the country, the tides would be producing different types of electricity. We on the Committee on Energy and Climate Change looked at that, but not in enough detail. The Government need to look seriously at developing not just offshore wind, but the marine technology of tide and wave.

[Mr Yeo]

I agree, and I am glad that Britain is at least a world leader in research on some of the marine technologies. It is welcome that we are also, I believe, going to go ahead with experimental tidal lagoons in the west country. The potential from those is enormous, but it would be greatly facilitated if we embraced more demand-side response. It would also, of course, be greatly enhanced if our research on storage were successful in finding cheaper ways of storing electricity. That is another very urgent and hitherto somewhat overlooked area.

[Mark Lazarowicz]

I was going to make the point that the hon. Gentleman made. As well as the issue of investment in advanced technologies for storage, there is the fact that there are some very tried and tested technologies for storage that are not fully made use of. Does he agree that that also needs to be ramped up by the Government?

[Mr Yeo]

The hon. Gentleman is right. Storage generally, quite apart from new technologies for storage, has been under-emphasised by successive Governments. One of the problems is the mindset. There is a 20th-century mindset, dating back to the old days of the Central Electricity Generating Board. The overriding aim then was to ensure that people never had a power cut, so vast amounts of surplus capacity were maintained at all times. The answer to every anxiety about whether we were going to be short of capacity was, “Let’s build some more power stations.” That was a 20th-century answer; it is not the 21st-century answer. The 21st-century answer is, “Let’s use this more efficiently. Let’s make sure we can avoid the peaks in demand.” We may well not need any net increase in total capacity ever again.

It is therefore, in my view, unfortunate—I put it no more strongly than that—that the Government’s principal adviser on these decisions is a privately owned company whose profits are made for its shareholders by investing in more transmission capacity. The National Grid, in my view, is seriously conflicted in this matter. Quite understandably, it has a regulated UK domestic business, the profits of which are directly increased if Ofgem signs off investment programmes involving more transmission, and more transmission is obviously needed if there are more power stations. Its profits, in the UK market, could go down if we make a sufficient success of demand-side response. We cannot hide from that conflict. I do not cast any aspersion on the integrity of National Grid’s management. They are doing an absolutely straightforward and proper job for their shareholders within the regulatory framework. However, we must not allow that to have an influence on how we see the capacity market develop.

The first round of auctions in the capacity market produced, I have to say, a pitiful allocation to demand-side respondents. This issue is extremely urgent. I know that DECC is looking at it, and a review is taking place of how the auction will work at the end of this year. It is very urgent that we ensure that the next auction has a much more level playing field, so that demand-side respondents are able to bid into this market and get a bigger share of it.

It is a shaming outcome that the principal beneficiaries of the capacity market auction appear to be the most polluting technologies, such as diesel farms and coal-fired power stations. That is exactly what we hoped to avoid. The review of the capacity mechanism is of great importance. Allied to that, we should ensure that as smart meters and other smart technologies are rolled out, they incorporate mechanisms that allow time-of-use pricing to be introduced widely in a way that consumers can easily understand, and that does not penalise poorer consumers. Time-of-use pricing, allied to the demand-side response contribution, has the capacity to cut costs for consumers and reduce the need to maintain excessive amounts of capacity at all times.

Let me give a plug to the importance of the carbon price. The biggest factor, in the long term, in investment decisions favouring low carbon technology will be a significant carbon price, which might be brought about through carbon taxes or through emissions trading. Personally, I have a preference for the latter; a cap-and-trade system has the great merit of making total emissions predictable. If there is a cap, there is a cap. If we rely entirely on carbon taxes, no one can be sure about the elasticity of the market’s response to a particular carbon tax.

I am pleased that the UK Government have been on the side of those arguing for faster and more radical reform of the EU emissions trading system. Unfortunately, it is a work in progress, and there is still a lot to be done to try to make sure that the system is capable of driving a significant carbon price before 2020. A carbon price across the EU ETS will not penalise any one country, because every country will have to face the same imposition. Those who fear that a higher carbon price in the form of a domestic carbon tax would simply drive industry to other countries would not have that fear if the price were driven through the EU ETS.

I hope that the British Government will be among the leaders in the promotion of linkage between the EU ETS and emerging emissions trading systems in other parts of the world. My Committee published a report earlier this month, “Linking emissions trading systems”. We are encouraged, and even impressed, by the progress made over a short space of time by the emissions trading systems in China. We are also encouraged by the establishment of an emissions trading system in California, which is already linked to one of the Canadian provinces.

Emissions trading is an idea that now has critical mass, even though five years ago it seemed to be faltering. If China rolls out a national system during the 13th five-year plan, as I am confident that it will, a third of the world’s population will live in areas covered by emissions trading. If emissions trading spreads in the US, as I think it will, more than half the world’s GDP will come from places where emissions trading operates. The goal—in my view, the wonderful goal—of a global cap-and-trade system starts to come into view. I hope that that will be kept in mind at the Paris COP meeting at the end of the year.

The fifth and most recent assessment report from the Intergovernmental Panel on Climate Change proposed the concept of a maximum level of greenhouse gas emissions that can safely be allowed if the world is to keep within the target of an average rise in temperature of no more than 2° centigrade. A maximum safe level of emissions leads naturally to the idea of a global cap-and-trade system, with that maximum as the cap. Although that dream will not be realised in the next five years, we should keep it in mind. The danger is that we will lock ourselves into systems that are incompatible with the achievement of that goal.

In conclusion, I believe that if Britain decarbonises its electricity generation system, our economy will become more competitive, not less. International concern over climate change will intensify quickly over the next few years. That will lead to a significant carbon price, either from emissions trading or from carbon taxes. Countries, industries, companies and perhaps even households that have taken the lead in decarbonising their economies, business models and patterns of consumption will enjoy greater prosperity, not less. Decarbonising electricity will also promote security of energy supply and accelerate the cutting of greenhouse gas emissions. I hope that Britain will continue to be a leader in that process. In the way in which it achieves that leadership, I hope it will keep clearly in mind the importance of getting the best value for money in each decision that is made to achieve decarbonisation. I emphasise the fact that the decisions we make today have a long-term effect.

I believe that the Government can claim to be the greenest Government ever because of what they have done in the past four and a half years and, importantly, because of their ambitions for the future. The truth is that the benchmark for the accolade of “the greenest Government ever” is not a demanding one, because no previous Government could really claim to have been particularly green. The next five years will, therefore, be judged against a benchmark that is slightly more demanding, and that benchmark will become progressively more demanding in future. I look forward very much to the reply by my hon. Friend the Minister, and I hope that he will indicate that he and the Government share my hopes for the future.

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

It is a pleasure to serve under your chairmanship, Mr Brady. I congratulate the hon. Member for South Suffolk (Mr Yeo) on securing this debate. As he said, it is a shame that there are not more people here taking part. It is a sharp contrast with the debates that we had in the past few weeks during the closing stages of the Infrastructure Bill. Many people who seemed interested in one particular aspect of the Bill applying to energy policy are not here today, nor are Members from some of the smaller parties represented in the House. It is a shame that they are not here to take part in this debate.

In his wide-ranging contribution, the hon. Member for South Suffolk touched on numerous important and significant issues. Apart from some slightly more partisan points that he made, there was quite a lot with which I agreed. He will probably not be surprised by that, as we have debated many of these issues in the past five years. As he said, there is a degree of consensus on them. It is always important that we do not let consensus slip into complacency, but there are good reasons to seek consensus, because the energy and investment decisions that we are discussing will last a lot longer than any of us are likely to be in this House, and longer than any Government last. They are often long-term decisions, and it is important that we debate, discuss and scrutinise them with that in mind.

I am pleased to see the hon. Member for Wyre and Preston North (Mr Wallace) in his place again. The Minister of State, Department of Energy and Climate Change, the right hon. Member for West Suffolk (Matthew Hancock) is not here. I think I might have upset him; whenever we have a debate in this Chamber or on a statutory instrument, the hon. Member for Wyre and Preston North seems to be here in his place. That is a good thing, as he is more than capable of explaining and discussing the Government’s position, and of course the Energy Minister is a busy and important man who probably has busy and important things to do elsewhere. However, he might benefit from coming to some of these debates, because they help illustrate the wide range of issues that come within his Department’s brief and that we seek to discuss.

The hon. Member for South Suffolk started by talking about climate change and the need to tackle it, mentioning the statement from the leaders of the three larger parties within the last week or so. It is important to remember that the reduction in emissions from energy, as my hon. Friend the Member for Ynys Môn (Albert Owen) said, is only part of the challenge in terms of emissions; there are also challenges in relation to transport, heating and industry. However, in energy supply and electricity, significant progress can be made. The hon. Member for South Suffolk, and my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) in an intervention, mentioned today’s announcement on the contracts for difference auctions.

The hon. Member for South Suffolk said that Britain was in the lead on offshore wind. Actually—it gives me no great pleasure to say this—it is England that is in the lead on offshore wind, because there is 20 times more installed capacity in English waters than in Scottish waters, despite the claims that are sometimes made. However, a number of projects in Scotland have been successful in the auctions, including an offshore wind project, which has been referred to. I hope that that gives us in Scotland an opportunity to make some progress. Of course, that is underpinned by the UK-wide system of support that we enjoy, which benefits Scotland hugely in terms of being able to develop renewable technologies, and which benefits everybody in all parts of the UK in terms of the power that is therefore supplied.

The discussion in the past few days on the potential closure of Longannet coal-fired power station in Scotland illustrates that we have an increasing imbalance in the energy supply in Scotland. We have to be careful to ensure that we do not end up having to import energy from England to Scotland, as is now the case for at least part of one day in six, to keep the lights on, particularly at times of high demand and when the wind is not blowing.

Members may not have been where I was between Christmas and new year, but it was very cold. There was no wind at all, and, without power from other parts of the UK coming to Scotland, the lights may have gone out, which would have been serious. That is why I maintain that we need a balanced energy mix, and that is probably the view of everybody taking part in this debate.

There are a range of low carbon technologies. Sometimes people make the mistake of assuming that low carbon equals renewable. Renewables are a significant part of low carbon technology, but not the full suite. We have had some discussion this afternoon on nuclear, which I will say a little more about shortly. There are other potential technologies, including carbon capture and storage if it can be developed, that can help to meet some of the emissions targets as we renew our generation fleet.

The hon. Member for South Suffolk touched on the attitude of business, and said how refreshing it was that in his time as an advocate of low carbon technology, the attitude of business seemed to have changed, which is to be welcomed. He will recall our debates on what is now the Energy Act 2013. We discussed various issues, particularly around longer-term targets for decarbonisation, which was advocated by non-governmental organisations with a particular interest, but a lot of businesses advocated a 2030 decarbonisation target, too. The cross-party amendment that he supported did not make it into the Act, sadly, but it was supported by people in various parties. There is need for a longer-term signal; that is significant.

Issues around the costs of offshore wind are partly to do with scale, and that is partly to do with opportunities for manufacturing and the supply chain, which require a long-term signal to invest. Although I welcome Siemens’ investment in Hull, there could be much more investment if we had a stronger sense of direction and targets that could give the certainty and predictability that Members talked about to enable investment.

The hon. Gentleman talked about lowest-cost decarbonisation. I tend to prefer best-value decarbonisation. There is value in seeking to ensure that various technologies are developed, and that we do not run the risk of missing out on technologies that can help, particularly in relation to renewables that may be less intermittent than those that are currently commercial viable. It is important that we continue, as my hon. Friend the Member for Ynys Môn said, with the research going on at the university in his constituency. Just in the past few months, at the university of Hull, I have seen software development to help cut the costs of installing offshore wind without compromising safety, for example. I have seen the energy research centre at the university of Strathclyde under the leadership of Professor Sir Jim McDonald, and, in Edinburgh, the facility for testing marine technology. Those are all good examples of the great academic and research expertise that should benefit the UK more widely. Economic benefits can come from the inevitable and desirable need to move to a much lower carbon mix for our generation supply.

The hon. Member for South Suffolk celebrated the broad consensus on new nuclear being part of the mix. He may have been slightly churlish in his comments about party political support, because he will know that Brian Wilson, a former Energy Minister and Member of this House, began the process of identifying sites and agreeing the process. It is important to get that right to give the confidence that the hon. Member for South Suffolk spoke about. It is important to maintain confidence following Fukushima, but the process was established at a time when his party leader said that nuclear was a last resort, and the party of the Secretary of State for Energy and Climate Change was implacably opposed to nuclear. I am glad that we have got to a position where there is support for new nuclear as a low carbon-based technology in the lower carbon mix, and I hope that continues.

The hon. Member for South Suffolk was right to make the points about affordability and cost. The European Commission was able to find significant cost savings in its scrutiny of the agreement between the Government and EDF. That indicates the importance of ensuring that a proper eye is kept on costs in the nuclear sector. We do not want to compromise safety, but we want to make sure that things are done effectively and as affordably as possible. If not, we run the risk of seeking technology that seems very expensive compared with alternatives. Although those alternatives do not provide the same broad range of advantages, on paper nuclear will look much more expensive. It is important that the industry takes a role, as well as regulators and the Government, to ensure that that is done in the most efficient way possible.

The hon. Gentleman spoke about the capacity mechanism. Whoever is in government post-May will have to make important decisions in relation to applicability and how the next capacity market auction happens. I still have a degree of doubt as to why existing nuclear power should be included in the capacity market, but his points about demand-side management are well made. It seems a very small amount in the first round, and that should be addressed. I welcome the fact that the Government have moved in relation to interconnection. That is another important and potentially efficient way of being able to meet some of the objectives.

The hon. Gentleman touched on the amount of gas that we need. Members here today will know that 80% of our heating comes from gas. We will continue to need gas for heating for a significant period. We will also need gas as a source of peaking power capacity, so the debate around the sustainability of our gas supplies and where they come from is an important one. I note that the Committee on Climate Change has published new information, following the debates on the Infrastructure Bill, on how shale gas might be a part of the mix, in line with climate objectives.

On the wider debate on shale, it is important to make sure that regulation is properly robust, and that the monitoring is comprehensive, to ensure public confidence before anything takes place. Also, we need to ensure that any exploration or extraction is done in the context of the wider carbon commitments. The hon. Gentleman probably agrees with that. That is how the debate should be taken forward, although I realise that that is sometimes difficult, particularly as we get closer to the general election.

My hon. Friend the Member for Ynys Môn, who is a member of the Select Committee that the hon. Member for South Suffolk chairs, made several important points. He made a point about consensus—considered consensus, as I say, rather than complacency—which is important when we are dealing with long-term policy. It is right that Government policy be properly scrutinised, but we need to do that with an eye to the long-term objective that we want to meet.

My hon. Friend spoke on a number of issues that the Select Committee has touched on recently, including the debate on the generation of low carbon technology and the importance of stability in policy. As I said, stability is important if we are to attract investment and secure the maximum possible economic benefits. He also talked about issues in his area and mentioned Anglesey energy island. The Minister knows that part of the world well, and I have been there. It is a beautiful part of the world and, from what my hon. Friend said, it is a place where there is a huge amount of creativity, and where people are coming up with some potentially good opportunities in terms of energy. It is not just about the nuclear power station; it is about a number of different things, particularly decentralised energy, which he talked about.

Issues around investment and business certainty are important. My hon. Friend was on the Committee considering the Energy Bill, which became the Energy Act 2013, and he will recall that the head of energy finance at RBS gave oral evidence to the Bill Committee, saying that the 2030 decarbonisation target was

“absolutely critical from the conversations I have with potential supply-chain investors because they…point out that it is very difficult for them to take investment to their board if they really only have visibility on three or four years’ worth of work.”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 51, Q154.]

That is where we are, because we have visibility to 2020 through the levy control framework, but not beyond that. Again, that is an important issue for the next Government to address properly when taking forward the levy control framework and considering both its structure and the amounts. It is also important in respect of the longer-term decarbonisation target.

[Mr Yeo]

I omitted to say something: the hon. Gentleman is right to draw attention to the importance of long-term predictability and support. I and my Committee believe it would help if the next Government committed to an annual rolling update of the levy control framework totals, so that it is always set for seven years ahead. That would facilitate investment decisions, and would therefore tend slightly to reduce the cost of investment and consumer prices.

[Tom Greatrex]

The hon. Gentleman makes an important point about the cost of risk and uncertainty. Whoever is in government in a few weeks needs to look quite early on at how the levy control framework will be taken forward—at both the structure of the mechanism and the amounts. It is not just about the amounts of money; it is about the way the mechanism is calibrated and taken forward. Whoever is Energy Minister in 72 days’ time, they should have the report of the hon. Gentleman’s Committee in their in-tray to consider, among other issues.

I have touched on demand-side response. The Select Committee has done important work on that. The exchange of correspondence between the Committee Chair and the Energy Minister was interesting and indicates, I hope, that there is still some opportunity for the Government to take that matter more seriously, going forward. I hope that that is also the case for the next round of capacity market auctions, which will happen towards the end of this calendar year.

The technology that we have not really touched on is carbon capture and storage. No serious modelling of our energy mix in 2030 does not include a role for fossil fuel plants and industrial processes running carbon capture and storage. CCS is a key tool that we need to meet our decarbonisation agenda. We must use it in a way that helps sustain some industrial processes that are important for our wider manufacturing base; we must not just offshore that activity. We sometimes overlook the potential cost savings of meeting carbon targets. Hon. Members will be aware of the Energy Technologies Institute estimate that states that deploying CCS could reduce the cost of meeting UK carbon targets by between £30 billion and £40 billion, or up to 1% of GDP, by 2050. That is an important piece of work.

We in the UK have a degree of academic and expert knowledge in this area. We know that lots of work is going on in places such as Edinburgh. Two projects are currently undergoing front-end engineering design studies. On taking forward the tools and mechanisms for low carbon investment, it is important that the contracts for difference are tweaked as needed so that they are appropriate for CCS development into the future, because it would be remiss of us to have two exemplar projects funded through the competition, and for nothing else to come after that. The key to that is ensuring that the contract for difference is properly applicable to CCS, which is a differently structured investment to new nuclear or many renewable technologies. It would be good for whoever is in government in a few weeks’ time to be clear about their ambition for CCS, and to seek to unblock issues that have caused some delay in the progress of CCS.

I am conscious that there has been a lot of talk about consensus in this debate, particularly with regard to the policy tools for incentivising low carbon investments. Unfortunately, in other debates in this House over the past five years, the consensus on the need for such investment has become a little bit frayed. Having only been here for five years, my sense is that, among some hon. Members, that consensus has deteriorated. It is right that the costs of decarbonisation be properly scrutinised, and that people carefully consider the potential impact of technologies in different places, but we should all resolve the matter for the future—beyond the election, for those of us who might be here. We need to ensure that consensus again, so that we can renew our generation supply in the lowest carbon way possible, and in a way that benefits the UK’s wider economy. I hope, regardless of party political differences on other issues, that this can be taken forward in the new Parliament, because it is far too important not to be.

--- Later in debate ---

[Mr Yeo]

I am sure I carry everyone here with me when I say what an excellent debate this was, with exceptionally high-quality contributions—I do not expect to be challenged on that verdict. The numbers taking part may have been small, but the quality could not have been higher, as one would expect, given that I have debated all these issues with exactly the same hon. Members on more than one occasion.

I thank my hon. Friend the Minister for his generous comments about my Committee’s work and about my personal contribution to discussions on these issues over a number of years—that is very much appreciated. This is likely to be the last time I speak in Westminster Hall, although I cannot say I have great regrets about having only 19 sitting days left. Perhaps I should apologise to my hon. Friend, who is also my Whip, because I may have missed a Division last night, although the opportunity for doing that is diminishing very quickly—this is the first time I have used a debate to acknowledge such things.

It is important, as I think all those who took part said, that we approach these issues in a way that is long term, bipartisan and often consensual, although that does not mean that there cannot be vigorous debate and disagreement. In an industry where the effects of decisions made now will be felt not in 10 years’ time, but in 30, 40, 50 or even 60, we need to work hard to get the right answers. My Committee’s work has been consistently driven by our preference, first, to act constructively and, secondly, to look at the evidence first—it is very much an evidence-driven Committee, and I am sure that will continue in the next Parliament.

It is important that we maintain cross-party consensus about the importance, above all, of tackling climate change. That is the central issue for policy makers in the 21st century, and it will transcend all sorts of existing anxieties on the security front. The truth is that the prosperity of the human species is directly threatened by dangerous and irreversible climate change. Actions that we take will affect generations unborn for centuries to come.

As the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) mentioned, there has been a slight erosion of the consensus on the science of climate change, particularly in the Conservative party. Nevertheless, I celebrate the fact that a vast majority in all the political parties, with the exception of UKIP, still accepts the overriding necessity of tackling climate change. Britain has played a leading role on this, partly because of our strong science base and partly because we take a thoughtful approach to sustainability issues, and I hope that is maintained.

Carbon capture and storage was mentioned, although I omitted to mention it. When I was making a few notes this morning, I was conscious of the fact that I did not want to take up too much time—as it happened, there was no shortage of time. Carbon capture and storage is the one technology the world most urgently needs, and it is the one thing that could transform the economics of fossil fuels, perhaps allowing us to utilise fossil fuel reserves that, at the moment, will never be utilised. It is therefore worth giving it the greatest support.

I am sometimes frustrated that the private sector is not more enthusiastic about carbon capture and storage. Given the resources available to companies in the fossil fuel industry, I would like to see them championing the cause of research on carbon capture and storage more than they are. That should not be left to taxpayers and Governments—I am not saying it is left entirely to them, but they are shouldering a lot of the burden. We should definitely prioritise attempts to achieve economically viable carbon capture and storage. There is also a detailed point of great importance about whether we can tweak the way we support other low carbon technologies directly to incentivise more research into carbon capture and storage.

The future of the levy control framework was mentioned several times, and it is important. It is easy for laymen to overlook the impact of the cost of capital on consumer prices in an industry as capital-intensive as energy. The cost of capital is directly related to the predictability and stability of policy—another reason why achieving a bipartisan consensus as far as possible is important. I am tempted to go down the track—the hon. Member for Rutherglen and Hamilton West already knows what I am going to say before I have said it—of whether an energy price freeze is a good way to reduce the cost of capital. However, I will not—our respective views on that are well known.

I regularly talk to some very big investors, and I am pleased that they acknowledge that the UK regime, which has evolved over time, with a lot of thought from all sides, now offers quite attractive opportunities. It is not just that the rule of law is respected here; we now have a regime that looks capable of sustaining a framework in which long-term investments will be attractive. That will be to the benefit of everyone.

I warmly welcome my hon. Friend the Minister’s responses on a wide range of issues, including the potential for demand-side response measures. I just reiterate one concern. Bringing in back-up generating capacity at short notice is vital to trim the peaks and to enable us to get by with lower overall generation capacity, and an increasing number of people, including some individuals, are ready to provide capacity. However, that is just part of the story. The other part is that, in the long term, there will be an even greater prize if we can facilitate consumption cuts at short notice by building into equipment chips that automatically switch off air conditioning when the energy price rises to a certain level, and so on. That is another helpful aspect, and we are just beginning to scratch the surface of the potential of these things.

My hon. Friend sounded a measured tone about shale gas, and that is welcome. When the Daily Mail heard about shale gas, it thought it was the answer to all our problems. Others, perhaps on the extreme green wing, say that we should under no circumstances contemplate fracking in this country. There is a middle way, and I hope that whoever is in government will take it. There will be a prize for doing these things fairly quickly. There is an opportunity. We are good at designing regulatory systems in this country. If we move ahead, we could shape the whole EU regulatory framework for shale gas during 2015, and other countries might follow, which would give us benefits in the supply chain.

My final message is that, above all, the future has to be low carbon, for reasons we all understand, but it in no way needs to be low growth. Our economy can be—indeed, it is more likely to be—high growth if it is also low carbon. That is the way forward for the UK, the EU and the world.

Question put and agreed to.