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Mr. McLoughlin: I am disturbed by the Minister's comment that there was no comparison with what happened in the United States. He went on to say that power was restored within 41 minutes. Does he accept that 41 minutes was a long time for people who were travelling on the underground? The power was not returned to the underground within 41 minutes, because the emergency procedures had to be carried out. The Minister's complacent attitude is not acceptable.
Mr. Timms: There will be no complacency in what I have to say to the House. Like the Minister of State, Department for Transport, I shall deal in particular with what happened to the underground. However, to begin with it is important that we focus on the energy issuesspecifically electricity.
Supplies were restored within 41 minutes. Nevertheless, it is essential that maintaining the reliability of energy supplies be at the heart of our energy policy. It was one of the four key goals at the heart of the White Paper published in February. The other goals were: promoting competitive markets; ensuring that every home is adequately and affordably heated; and putting the United Kingdom on a path towards a reduction in CO2 emissions of 60 per cent. below current levels by 2050.
Since the publication of the White Paper, much attention has understandably been placed on the fourth of those goals. However, all four of them need to be achieved in order to deliver our aims. I welcome the opportunity that this debate gives us to focus specifically on electricity reliability and supply security.
Our role is to establish a competitive marketplace, including through good international relations within which liberalised markets will deliver energy reliability. When short-term problems arise, we will, with the Office of Gas and Electricity Markets where appropriate, evaluate what has happened and take action accordingly. At the moment, about 38 per cent. of our electricity is produced from gas. We need flexibility in the gas system to cope with shocks. That is true today while we produce more gas than we consume, and it will be true in the future as we import gas.
Gas storage can help, and so will importing and storing liquefied natural gas and increasing our connections with north-west Europe, where there are large gas storage facilities. There is an encouraging list of major infrastructure projects being implemented by the industry. Growing interdependence means that reliable energy supplies will become an important part of our foreign policy. We need to have diverse sources of supply and a diversity of fuels.
Mr. Kevin Hughes: I agree and accept what the Minister says about diversity of supply, because it is good sense. This island is built on coal and surrounded by natural gas and oil, so why does the White Paper take us towards being a net importer of energy? That bit of the White Paper puzzled me and makes no sense to me at all.
Mr. Timms: Gas and oil production from the North sea is reaching a plateau, and it will not grow in the future at the rate at which demand will grow, so we will need to import those fuels. I can see where my hon. Friend's argument is going. I think there is a role for coal in the future, and I shall refer to some of the issues that we need to address to ensure that coal can play its role. As he well knows, there are some big, technological challenges ahead. For the medium term at least, gas will be dominant in electricity generation.
The White Paper set out a vision of a future in which renewables will contribute 20 per cent. to our energy mix by 2020. That is our aim, and the hon. Member for South Suffolk referred to that. Some renewables, such as wind power, will be intermittent, but not all of them. Diversity in renewable fuel sources, such as in the location of wind farms, will allow us to manage the risk of intermittencyfor example, when the wind does not blow. Technological developments make it likely that the costs of managing that intermittency will fall substantially by 2020. There needs to be a major programme between now and then to achieve the aspiration that we have set.
Mr. Crispin Blunt (Reigate): The Minister made the sweeping statement that new investment in nuclear energy is uneconomic. How can anyone proposing to make that investment possibly know what the cost will be when the Government have not even begun to put a price on the pollution that comes from nuclear-generated electricity set alongside the benefits that should come from electricity that is carbon- free? Until the Government establish that framework, his remark is not testable, and he could not expect anyone to invest in the industry.
Mr. Timms: The hon. Gentleman has helpfully set out the difficulties and uncertainties, not about Government policy but about the issues around nuclear waste that still have to be resolved. For that reason and others, this is not a good climate for people proposing to invest in nuclear energy. Our view is that we need to keep that option open for the longer term, because at some stage it may become clear that we need new nuclear capacity, but that is not the position at the moment.
Richard Ottaway: The Minister referred to the uneconomic nature of the nuclear industry. How does he know whether it is economic or uneconomic? In 10, 15 or 20 years, the price levels could be very different. He must have some projections of prices in the future. All the nuclear options could turn out to be economic in the long term.
Mr. Timms: Those are precisely the uncertainties that face anyone with a proposal for investment in new nuclear capacity at this stage. Some investment is being made, but there is still a great deal of uncertainty about the economics of nuclear energy, particularly given the nuclear waste issue. I therefore do not consider this a good time to look seriously at such investments, although the position may change.
Many people are concerned about the decline in coal-fired generation. As I told my hon. Friend the Member for Doncaster, North (Mr. Hughes), there can be no doubt of the importance of coal in the generation mix, but I know my hon. Friend will agree that coal generation must be low-carbon if it is to have a long-term future. That is why we are investigating in depth the feasibility of carbon capture and storage, and considering the possibilities of international collaboration to support the substantial investment that it will require.
Mr. Timms: I know of my hon. Friend's interest in that project and that technology, and I agree that there is some promising technology ahead of us, but I think it will be some time before we can say that we have the necessary means to deliver the low-carbon coal-fired generation that will in due course be part of our mix.
Forecasts for generating capacity margins are lower for the coming winter. Total generating capacity is currently expected to exceed forecast peak demand by about 18 per cent. this yearas the hon. Member for South Suffolk saidcompared with figures in the low 20s in recent years. There is already evidence, however, that, as would be expected, the markets are responding to the higher price signals. That, and the signals themselves, is why the indicators from the joint energy security of supply working group are so important.
Forward prices for peak power this winter are 60 per cent. higher than they were in early August last year. Higher prices may well encourage some currently mothballed plants to return to the system, and there is plenty of time for that. As the hon. Gentleman said, one generator has already announced the return of a mothballed plant on the Isle of Grain for the coming winter, and there may well be more. I expect the market to deliver adequate generating capacity this winter. With Ofgem, we will continue to monitor the situation closely through the joint energy security of supply working group. The group will ensure that the information is disseminated to the market so that participants can respond appropriately. The hon. Gentleman did not seem to understand the role of the group, but markets need information to function well.
Both the Secretary of State and the regulator, Ofgem, have duties in law to ensure that reasonable demands for electricity and gas are met. Those duties are carried forward into conditions in the licences held by energy providers, and we look to Ofgem to enforce the conditions consistent with its duties. We also need the right regulatory environment to encourage the market to invest in the right infrastructure. The infrastructure will have to change in the years ahead.
National Grid Transco already has an incentive, through its licence conditions, to invest in the transmission network. It has assured me firmly that under-investment was not a cause of the recent power cut, and its report seems to confirm that. Ofgem will work with National Grid and the distribution companies through the forthcoming price control reviews to ensure that companies are given incentives to invest appropriately in our networks, and to invest in a way that will specifically support the more decentralised generation patterns of coming decades.
The industry has a good record. We are committed to maintaining energy security. The failure of 28 August, however, serves as a reminder that risks to such complex systems cannot be entirely eliminated. On 10 September, National Grid Transco published its report on what happened. I am grateful for its speed, and the report is in the Library of the House.
Normal demands of about 1,100 MW are drawn from the national grid by EDF Energy in south London to supply domestic customers, the underground and other large users, including Network Rail. Four national grid sub-stations were involved. On 28 August scheduled maintenance was under way on one circuit between two of them, Wimbledon and New Cross, and on another between the other two, Littlebrook and Hurst. That level of maintenance is usual during the summer, when demand for electricity is generally lower, and the arrangement had been agreed with EDF Energy well in advance, in July last year.
The sequence of events began at 6.11 pm. Engineers at the electricity national control centre received an alarm indicating that a transformer at the Hurst sub-station was in distress and could fail, potentially with significant safety and environmental impacts. It was what is known as a Buchholz alarm, showing that gas had accumulated in the oil inside the equipment, causing the risk of a major failure. National Grid has some 1,000 transformers with associated equipment, and an average of 13 Buchholz alarms are received each year.
The control centre contacted EDF Energy and asked it to disconnect the distribution system from the transformer. As is normal practice, national control initiated a switching sequence to disconnect the transformer from the system. That left supplies temporarily dependent on a single transmission circuit from Wimbledon to New Cross and Hurst. Under national grid procedures, a Buchholz alarm is serious enough to warrant the isolation of equipment, and reduced security is acceptable for what is known as switching timea period of five to 10 minutes during which the transmission system is rearranged by the connection and disconnection of circuits so that the affected equipment can be taken out of service.
The switching sequence to remove the transformer began at 6.20 pm, disconnecting Hurst sub-station from Littlebrook. That enabled the transformer to be shut down safely with the alarm, but left Hurst supplied only from Wimbledon via New Cross. Unexpectedly, a few seconds after the switching, the automatic protection equipment on the number two circuit from Wimbledon to New Cross operated, interpreting the change of power flows due to the switching as a fault.
On the national grid there are some 43,000 pieces of automatic protection equipment, each with its individual settings to meet local requirements. The automatic protection relay disconnected the circuit from Wimbledon to New Cross. That disconnected New Cross, Hurst and part of Wimbledon from the rest of the transmission system, causing the loss of supply. Some 724 MW were lost, about 20 per cent. of London's supplies at the time, and 410,000 of EDF Energy's customers were affected.