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22 Oct 2002 : Column 221—continued

Mr. Andrew Stunell (Hazel Grove): Does the hon. Gentleman's last point mean that he believes that it would be right for the Government to take British Energy back into public ownership?

Mr. Yeo: No, I do not believe that that would be right. I do not see that it would help the current problems in any way. Whether the company is owned privately or publicly would not alter the fact that the costs of production are higher than the prices that it can receive. There is no advantage to be found in taking the business back into public ownership.

Will the Minister also clear up doubts that have surfaced recently about the Government's intentions with regard to the creation of the Liabilities Management Authority? Recent press reports have suggested that the Bill to create that authority may not appear in next month's Queen's Speech, and it would be helpful if those doubts could be set aside. If that Bill does not appear, it will raise further questions about the Government's attitude to the industry.

Looking ahead, the Opposition support the Government's target that 10 per cent. of electricity should be generated from renewable sources by 2010, although we realise that achieving that target now looks a challenging task. We support the mechanism—the renewables obligation—that the Government have chosen to achieve the target, and we are sympathetic to

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the suggestion in the PIU report that a further, higher target could be set in the longer term, perhaps for 2020. However, Britain will struggle to meet its climate change obligations if the portion of electricity currently generated by nuclear power is generated in future exclusively by fossil fuels. In my view, it would be folly to rule out nuclear power today. A responsible Government would want to keep that option open.

Future generating capacity will have to meet economic and environmental objectives. The environmental costs and benefits of nuclear power would have to be reflected properly in future electricity markets, and the value placed on the instruments will change as our understanding of the scale of the threat from climate change develops and our appreciation of the true cost of the nuclear legacy is refined.

We have the opportunity—but it is only brief—to take advantage of a lull in the development of new non-renewable generating capacity to improve our knowledge and to develop policy instruments that will reflect those costs and benefits fairly in a free market. A future Conservative Government would not take a decision to replace nuclear with nuclear; nor would they rule out new nuclear-generated electricity if, with the legacy costs provided for and the associated risk accounted for, it proved to be the most economic way of continuing to meet the global requirement of addressing climate change.

Gregory Barker: Does my hon. Friend think it telling that in the greatest free market in the world, the United States, there is no nuclear generator under construction, nor is there ever likely to be, because of the fundamental economics that are recognised there? To do so would require private finance.

Mr. Yeo: I think that the circumstances in the United States market are not always the same as those in ours. However, I am clear that we should allow the market to be the primary determinant of where we generate our electricity from. If there are ways of generating it more cheaply from other sources, we should use them. I believe that we will face more onerous obligations because of the greater recognition of the climate change threat. So the need to be able to generate power from sources that do not make the climate change problem worse is likely to grow. Any future Government will have to bear that factor in mind.

Mr. Chaytor: Will the hon. Gentleman give way?

Mr. Yeo: No, I am about to finish, because I want other right hon. and hon. Members to be able to take part.

There are many other issues on which I hope we can touch on other occasions, including the need to work harder to promote energy efficiency and to avoid unnecessary delays in making grants available for the construction of offshore wind farms.

In conclusion, I hope that the Government's White Paper will not be subject to further delays. I hope that its explanation of Government energy policy will be clear enough to remove the uncertainties that plague the industry. Some matters, however, need not wait until the White Paper comes out next year. The problems facing

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British Energy, which have led to taxpayers' money being lent to the company, could be significantly reduced by an announcement this evening or in the very near future of a recognition by the Government that their policies have contributed to the company's difficulties. I regret that the Minister has not yet made such an announcement, and I think that the effect of his failure to do so and the continuing delay in deciding how to resolve the problem will be felt by energy consumers—that is, every man, woman and child in the country. The price of the Government's delay will be paid by the people of Britain, and for that reason the Opposition support neither the motion before the House nor the Government's amendment.

9.2 pm

Mr. Geoffrey Robinson (Coventry, North-West): Although I welcome the fact that Liberal Democrat Members have taken the opportunity to initiate this debate, Government and Conservative Members alike can only deplore the lack of seriousness with which they have addressed it. We are dealing not with a single crisis in the nuclear industry but with the entire energy policy for the United Kingdom, not just now but for the next 50 years. Energy policy supremely transcends the time scale in terms of which each of us is naturally inclined to think—the time scale that takes us up to the next election. I thought that the hon. Member for Twickenham (Dr. Cable) had a great opportunity, living in the nether world of non-office, to say that the Liberal Democrats would take a stand, make their policy clear and overcome their natural tendency to try to exploit the Government's immediate crisis.

I wanted to speak in the debate this evening—I am grateful for being chosen, Madam Deputy Speaker—because I suppose that I bear some responsibility for the change from the pool arrangements for pricing energy to the present new electricity trading arrangements or NETA. Under the old pool arrangements, nuclear energy, including French nuclear—we did not even know whether it was French nuclear; it could have been any energy from France—was guaranteed baseload under any circumstances. All the gas that came in was on baseload as well. All such energy was guaranteed, not at the competitive market price, as was often erroneously thought, but at the intervention price—the price at which the marginal producer, coal, quoted for the production that the others on baseload could not meet. The effect was a very high price, which was rightly paid not to the marginal producer during the short period when marginal total production was required but to everyone—to all those guaranteed baseload. The system was not only anti-competitive but clearly anti-coal. On that basis, in the Treasury, it unfortunately—or perhaps in some ways fortunately, as I welcomed the challenge—fell to me to say that that was no argument for closing down coal-fired energy production or for closing down our pits. It was simply a rigged market that worked in one direction.

I was not there when the new arrangements were entered into. Clearly, since then there has been a switch in the whole bias away from the anti-competitive anti-coal situation to an anti-competitive anti-nuclear situation. The entire drop that was required in the cost

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of energy has been borne by the generators and not by the retail operators, as yet. Those generators—in particular, nuclear—that have not been able to control their retail outlet and offset the 40 per cent. reduction in the price paid for the generation of electricity have come badly unstuck—none more so than British Energy.

British Energy has behaved very responsibly—unlike Railtrack, if I may say so. It explained its problems to the Government and said that it wanted to be responsible, but that there was no way that it could meet off its own bat a 40 per cent. reduction in a matter of a year or two in the price paid to it for a production cost that it had until then been guaranteed under the old pool arrangements. It took the problem to the Government, saying that it was at least in part of their making. This Government and I personally must accept that element of responsibility for it, even though we were not responsible for setting up the arrangements that preceded that.

That is why my hon. Friend the Minister for Industry and Energy has done a very good job tonight in a brilliant response to a good Opposition-day debate that was marred by the vacuity that the Liberal Democrat party brought to it. My hon. Friend has not tried to evade responsibility for the #600 million plus—it may well turn out to be more—that that policy is going to cost us. Nor, as yet, has he pre-empted the options that are open to him to deal with it.

We can always attribute blame, but rather than looking back we must look forward to find out how we can deal with this problem. I shall devote a few remarks to that subject. First, hon. Members on both sides of the House—even the Liberals with their fantastical imaginations—must accept that the three dominant criteria that must be met in British energy policy are security of supply, diversity and an environmentally acceptable means of delivery. The idea that is implicit—I hate to say this, but at one point one can almost see the drafting hand of the Treasury in it—in the performance and innovation unit report is that those three criteria can be reconciled in a market-oriented policy, but that is just not realistic.

Energy affects the whole country and is vital to our existence—as we have said, the development of a supply can easily extend over 50 years—and it cannot be left to the vagaries of an oil price that might double or treble from one year to the next, or a gas price that could do the same. What company could possibly price its products against that background? What private sector company is going to invest against the background of those criteria, not knowing from one day or one year to the next whether it may face a 100 per cent. change in its gross and net margins? It is for those reasons that, like it or not, the Government have to be involved in energy policy.

The Government will always be involved; they can try to avoid the problem and say, XThese are hideous things and we want to leave them to the market". They could try to do what the Tories did, which was to dismember the sector and liberalise it; but at the end of the day, as we have all seen, all those problems come back to the Government. I certainly saw that when I was faced, in 1997–98, with the imminent collapse of the coal industry, just as the present Minister faces the imminent collapse of our private sector nuclear industry. We must face the problems.

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Instead of facing the problems, the Liberal party gave us a trivial contribution, although I hate to say it, from the normally distinguished hon. Member for Twickenham. If we are to face the problems, we have to reconcile those three key criteria. If we are to have diversity, we must accept that gas will become more predominant; it is the cheapest and, to some extent, the cleanest fuel. We need nuclear energy. Where else will the 20 per cent. come from? There must be a continuing role for coal for as long as the supply lasts, for as long as there are reserves and mines are sunk and miners are willing to work them. There must be an increasing role for renewables. I am sure that the whole House will agree about that.


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