Low Carbon Energy Generation

Debate between Tim Yeo and Albert Owen

Thursday 26th February 2015 Westminster Hall

[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.

[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.

Energy Price Freeze

Debate between Tim Yeo and Albert Owen

Wednesday 2nd April 2014 Commons Chamber

[Mr Yeo]

My hon. Friend is right in what he says. I was going to deal with that point in response to the hon. Member for East Lothian (Fiona O'Donnell), but I will bring it forward. One of the other damaging effects of a proposed price freeze is shown exactly by SSE’s actions in its voluntary price freeze—it introduced that having raised its prices to a level it thought would be acceptable for the next two years. It actually brought forward a price increase, at the expense of consumers, in order to be able to announce this headline-grabbing freeze, and at the same time, as my hon. Friend mentioned, it announced that it was pulling out of three very substantial low-carbon investments. The freeze that SSE announced had two directly damaging effects.

[Albert Owen]

The hon. Gentleman is making an interesting observation. He is saying that a Government price freeze may deter investment in the future, but he slightly contradicts himself by saying that it is already being deterred—I agree with him on that. Tellingly, the chief executive officer of Centrica said he believed that a long review of energy markets would also cause disinvestment by companies. Is the hon. Gentleman concerned about that? Does he think the reference and the whole process could be speeded up so that investment is not put on hold?

[Mr Yeo]

The hon. Gentleman, another valued member of my Select Committee, raises a point that I was just going to come to. The consequences of the delay that will be imposed are themselves damaging in some respects.

The second aim of energy policy, which is affordability, is also harmed. As I have pointed out, if companies believe that prices will be frozen in May 2015, they will inevitably seek opportunities to raise their prices in the intervening period. Announcing a price freeze 20 months in advance has the perverse consequence of raising prices for consumers during that 20-month stretch faster than they would otherwise have risen.

The Leader of the Opposition, who certainly grabbed the headlines in his party conference speech last September, did not, I am afraid, do a great deal more than that. It is not a serious policy to announce a price freeze 20 months in advance. If this were an Opposition who were genuinely concerned about keeping consumer prices down, they would not announce the freeze until the day after they took office. There is an honourable and admirable precedent for that sort of approach, which was taken by the last Labour Prime Minister. When he was Chancellor of the Exchequer in 1997, he took the world by surprise a weekend after the election by announcing the formation of the Monetary Policy Committee at the Bank of England and transferring the power to control interest rates away from Ministers and the Treasury to an independent committee. An Opposition who were really concerned about consumer prices would have said, “We have this brilliant idea, but it can only work if we don’t say anything about it until we are in a position to implement it.”