Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 375-379)

DR ELLIOT FINER, MR KEN GREEN, MR KEITH WEY AND MR NICK STURGEON

TUESDAY 20 NOVEMBER 2001

Chairman

  375. Maybe we could start, Dr Finer, and could you maybe introduce your colleagues, and then we will begin?

  (Dr Finer) Thank you, Chairman. On my left is Keith Wey, who is the Chief Economist to the CIA, the Chemical Industries Association. On my immediate right is Ken Green, who is from the company Ineos Chlor, but is also the Chairman of CIA's Utilities Committee. And on my far right is Nick Sturgeon, who is the Manager of a subsidiary company we have, called CIA Broking and Trading Agents, which has the shorter name CIABATA, if you work that out, which we think would appeal to a certain sort of politician, at least; and that is a company that we created to manage the Climate Change Levy Negotiated Agreement with Government, so Nick is a fount of knowledge on that.

  376. Fine; well, if we may, let us start. We have read your evidence. On the question of security of supply, this is quite critical to the business of your members, how confident are you that, under the present arrangements, security of supply of energy is a given for all the businesses which come under the umbrella of the CIA?
  (Dr Finer) We think that security of supply is a term which encompasses quite a number of issues. First of all, what we need is energy supplies which are reliable but also are competitively priced, and those two elements are interconnected, in the sense that you could imagine a world in which you paid huge quantities for energy and then they would be totally secure in every sense, but, of course, that would be uncompetitive and we would not want that. What one has to do, I think, is look at the different risks that are involved, like the political risks of energy supplies from different parts of the world, the risks of an accident. Perhaps more in the control of authorities at the moment, and one where we think there is a real problem, is undercapacity in, for example, the transmission capacity for gas. So there are a number of different risks, but overall we think we are in a pretty reasonable situation, as long as the dependence on gas does not get too high.

  377. I am glad you raised this point, because it does come up in your document, about this potential overdependence on gas. Is that because you, as chemists, or people involved in the chemical industry, feel that the worst thing you can do with gas is actually burn it and generate electricity, or is it because you feel that we are using too much of it for that purpose at the present moment, i.e. the generation of electricity, and to continue to expand it would involve us becoming dependent on imports?
  (Dr Finer) The first point may have influenced our subconscious, but I do not think it was the reason we made that statement in the written evidence. What we are worried about is that the risk, for example, of something happening in the market that suddenly jacks up the price of gas, as indeed happened when the Interconnector was opened, we are worried about that sort of risk affecting our ability to do business competitively. I do not know if, Keith, you want to add to that.
  (Mr Wey) Mr Chairman, it is important to have a diversity of supply, so that we are not totally dependent on one source of fuel. You are right, that the chemical industry is a very important user of gas as a feedstock, as well as for energy purposes; but we certainly want to make sure that we have our ability to tap into any imports of gas when our own gas runs out. So we are very concerned, for example, we have the adequate capacity to land Norwegian gas, or indeed Russian gas, but, at the same time, we feel it is important to have a range of fuels so that we are not totally dependent on one.

  378. This brings me on to my next question. You are a wee bit coy as to how you are going to actually achieve this range of fuels; there are different ways of doing it. For example, the Government has said that it wants to have 10 per cent of energy generated by renewals by 2010, and will do it by some form of Renewables Obligation where penalties would be charged if targets are not met. But what would you set as the figures for nuclear or renewables, if these were to be part of the equation; do you want Government intervention, do you want market forces, given that sometimes different energy sources take different periods to exploit, because of planning, or technology, or whatever? How would you see Government, if they have a role in this, assuming that role and assuming that responsibility?
  (Mr Wey) I think there are a number of factors that need to be taken into consideration. Yes, certainly, we feel that there is a role for market forces, but we feel that it is very difficult for market forces to determine every aspect. I think that is illustrated by the present PIU review, which is bringing in environmental considerations, long-term climate change considerations, for example. I think one of the concerns that we have is that an overdependence on the market can suddenly be upset by, for example, the introduction of the Renewables Obligation; so there needs to be, we feel, some consistency. And we feel that it is very important to have a market situation which is competitive, we need to make a drive for competitive markets, but recognising, at the same time, that there are natural monopoly elements of the system, such as the transmission networks, and we were a little bit concerned that perhaps the regulator is going too far to try to introduce market mechanisms into these areas, where they introduce greater complexity and may actually distort the market rather than make it fully competitive.
  (Mr Green) Could I add that I think the market needs to be given the primary role here. We do have to recognise though that all markets can never be perfect, and, for instance, if the planning process is slow and it does not allow the market to catch up then there are going to be problems. So there is a need for some sort of overview and some sort of monitoring.
  (Dr Finer) We have not got a set of numbers at the moment which we can give you, you know, that nuclear should be Y per cent and renewables X, and so on, we think it will be an evolving situation. What we do believe is that there needs to be some sort of overall body, some sort of strategic energy authority, or something like that, or at least this should be considered, which, unlike the PIU, which is doing an excellent job, but will then disband, continues in operation for ever, as it were, and sets the overall strategy and sets the framework within which an economic regulator would operate. And the task of that authority would be to represent not only the economic arm of sustainable development but also the social and environmental arms as well.

  379. It used to be called the Department of Energy, did it not?
  (Dr Finer) Indeed. I think, in those days, the Department of Energy did not have the environmental remit that you would now see; but, yes, something like that.


 
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