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Diego Garcia

3.10 p.m.

Lord Wallace of Saltaire asked Her Majesty's Government:

The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Amos): My Lords, yes.

Lord Wallace of Saltaire: My Lords, can the Minister assure us that the Government are fully briefed on the conditions under which the United States is keeping prisoners from the Taliban on Diego Garcia in view of the serious allegations made in the Washington Post and the Herald Tribune on 27th December? The United States is, at the very least, steering close to the wind as regards the Geneva Convention and other aspects of international law. This is sovereign British territory and therefore, as I understand it and as the Minister has confirmed, the British Government are responsible for ensuring that international law is fully observed.

Baroness Amos: My Lords, I am aware of the stories in the press. Those stories are entirely without

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foundation. The United States Government would need to ask for our permission to bring any suspects to Diego Garcia. They have not done so and no suspected terrorists are being held on Diego Garcia.

Lord Judd: My Lords, will my noble friend take this opportunity to reaffirm the Government's position that, in everything we are doing in pursuing Al'Qaeda, the way we do so manifests the kind of society that we are trying to protect against international terrorism? Will she also reaffirm that abuse of prisoners and torture have no place anywhere within such a strategy?

Baroness Amos: My Lords, I am pleased to agree with my noble friend. We as a government have made it absolutely clear that we shall do everything we can to fight international terrorism. We have also made it absolutely clear that we shall apply all the relevant rules of international law.

Lord Campbell of Alloway: My Lords, having declared an interest in the International Criminal Court Act—and I thank the noble Baroness for the assurance that the reports in certain American papers are not well-founded—what human rights are accorded to terrorists and to prisoners of war on Diego Garcia and how is such distinction drawn, as the United States has declined to ratify the statute?

Baroness Amos: My Lords, I repeat that the stories which have appeared in the press are completely without foundation. The Unites States Government would need to ask our permission to bring suspects to Diego Garcia and they have not done so. No suspected terrorists are being held on Diego Garcia and, under current British Indian Ocean Territory law, there would be no authority for the detention of Al'Qaeda suspects in the territory.

Lord Lea of Crondall: My Lords, is my noble friend aware that there was a recent parliamentary delegation to Mauritius? There is tension between Mauritius and Her Majesty's Government over the Chagos Islands of which Diego Garcia is part. The Chagos islanders are not able to visit the graves of their relatives, even though we suggested that the Americans could use their helicopters to fly them in, including to Diego Garcia, without any security risks. Is it not important that we are seen to be like Caesar's wife on this issue, or there will be other consequences?

Baroness Amos: My Lords, I am of course aware of the concerns of the Chagos islanders and their wish to go back to Diego Garcia. I have been involved in discussions on that matter. We have consulted the United States, as we have a responsibility to do so under the treaties we have signed with the US. The US has not given agreement to this but we have agreed that there could be a return. We chartered a vessel but, unfortunately, it was not made available. We are happy to reinstate any such visit but it would not include Diego Garcia because of the reluctance of the US Government.

Lord Wallace of Saltaire: My Lords, will the Minister confirm whether the United States holds

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prisoners of any kind on Diego Garcia? Perhaps I may ask a related question. Do the Government continue to make representations to the United States about the number of British citizens held under similar conditions in Guantanamo Bay?

Baroness Amos: My Lords, I can confirm that we continue to make representations with respect to Guantanamo Bay. My right honourable friend the Foreign Secretary has spoken on a number of occasions to Secretary of State Powell about that issue. I am not aware of any requests having been made to the British Government about any prisoners being held on Diego Garcia, and I am not aware of any prisoners being held on Diego Garcia.

Electricity Supply Industry

3.14 p.m.

Lord Tombs rose to call attention to the problems in the electricity supply industry created by the absence of a strategic decision mechanism; and to move for Papers.

The noble Lord said: My Lords, it is clear that the electricity supply industry is experiencing some severe problems at present. Some well-publicised examples are the financial problems of British Energy and other generators such as TXU, AES and PowerGen. At the other end of the spectrum lie the delays in restoring electricity supplies disrupted by bad weather.

But these problems, serious as they are to those involved, are only symptomatic of the deeper problem which I want to examine today: a problem which threatens the long-term reliability of electricity supply in this country and hence our prosperity and standard of living.

Let me explain my reasons for doing so. I have spent much of my life in the electricity supply industry, joining the City of Birmingham Electricity Supply Department in 1946 as a graduate trainee. The industry was nationalised in the following year, the better to meet the huge construction programme required to remedy the non-investment of the war years and to provide the basis for post-war industrial recovery.

The British Electricity Authority was formed in 1947 to take over the activities of more than 600 separate electricity undertakings, municipal and private. In 1956, almost 10 years later, the Herbert committee, set up by the government to review the organisation, concluded that it was over-centralised and recommended the separation of distribution activities into 12 statutory area boards, but retention of centralised generation in the Central Electricity Generating Board. A recommendation to establish a central authority with responsibilities for the industry as a whole was not accepted. Instead, the Electricity Council was created with a rather Utopian view that within it,

    "the generation and distribution sides of the industry can resolve their problems under independent guidance".

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This was to be the first of a number of occasions on which the government of the day rejected expert advice on the management of the industry with unfortunate, though predictable, results.

Fortunately, and largely for political reasons, the organisation in Scotland took the form of two boards: the South of Scotland Electricity Board and the North of Scotland Electricity Board, each of which combined generation and distribution operations and were not part of the Electricity Council for England and Wales, reporting to the Secretary of State for Scotland instead of the Secretary of State for Energy. Henceforth, the industry in Scotland was to be more coherently managed, with great benefits to staff, consumers and plant manufacturers.

In 1976, the Plowden committee was set up to examine the industry organisation in England and Wales and recommended integration of generation and distribution activities in a new Electricity Corporation. This was accepted by the government of the day, a draft Bill was published in the form of a White Paper, and the measure appeared in two Addresses from the Throne, but the Bill was not presented to Parliament for a variety of political reasons.

At this point, I should return to my own career in the industry. After working in grid control in the power stations, I was asked to start a commissioning and trouble-shooting department for GEC power plant division, where I later became divisional manager. I then joined the South of Scotland Electricity Board in 1968 as director of engineering and became chairman in 1974. In 1977 I was asked to become chairman of the Electricity Council for England and Wales and chairman-designate of the proposed Electricity Corporation. Three years later, in 1980, I resigned in protest at the failure to bring about changes which I considered essential to the health of the industry.

Things continued in that way until 1989 when the industry was privatised. This was done on the basis that the distribution boards, which had been formed on the basis of management delegation, were capable of becoming viable private companies. During the intervening years they have all become subsidiaries of foreign electricity companies, in one case a nationalised one, and ownership of them has changed hands on a number of occasions.

But the attempt to create competition in the generating side of the industry ran into even more trouble. For some years, generators were not allowed to acquire distributors. Recently this has changed so that there is now a motley collection of pure generators, pure distributors and hybrid combinations of the two, all of them served by a single trading system—and this for a product which, by its nature, cannot be stored, so that theoretically instantaneous pricing must be attempted at the margin.

The latest attempt to produce such a mechanism—the new electricity trading system (NETA)—has produced the present chaos, in which the wholesale price of a kilowatt hour has fallen by almost 40 per cent

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over two years while the retail domestic price has remained substantially constant. The beneficiaries have been some large industrial consumers, opportunist retailers as diverse as British Gas and the Royal Society for the Protection of Birds, and some others notorious for pressure selling techniques, and, importantly, those vertically integrated companies fortunate enough to be well balanced.

Regulation since privatisation has concerned itself with short-term issues and not with the long-term health of the industry. Generating companies are in serious difficulty and are mothballing plant, and nowhere is the future shape of the industry being seriously addressed. Government is quite low on the learning curve of dealing with an essential long-term industry subject to short-term market forces.

The latest lesson comes with British Energy, which is receiving short-term state aid and a change of management. Investors there have seen their assets vanish, and the prospect of renewed investment in companies subject to capricious government actions must be remote. For, in addition to the adverse effects of NETA, British Energy output is subject to the same climate change levy as that of fossil fuel generators, despite the fact that nuclear power does not produce carbon dioxide and so does not contribute to climate change. The adverse effect of this particular aberration on British Energy is some 80 million per year.

Additionally, the rating burden on nuclear power stations is 50 per cent higher than that on fossil fuel stations and 200 per cent higher than that for wind power. Even further, British Energy has been constrained to maintain expensive reprocessing of used fuel as part of a plan to privatise BNFL. The only common factor in these various decisions is damage to the long-term future of the industry.

Future planning for the electricity supply industry is complicated because of the long time-scales involved and the complexity of many of the technical issues. For example, the price and security of supply of competing fuels in the future are major uncertainties. It is estimated that in 2020 some 80 per cent of our electricity requirements may be met by gas imported thousands of miles from areas such as Russia and North Africa. Optimists will tell us that governments in those areas are stable and have good commercial reputations. But 20 years is a long time in politics and in international trade, and the vulnerability of the UK to political pressures, price instability and terrorist action would be very great.

Problems of secure fuel supply have featured prominently in the past in the planning of the electricity industry, which had to deal with miners' strikes and the Yom Kippur war. In both cases, disruption resulted but was manageable. I emphasise that that planning originated within the industry. There is no possibility of a similar strategy emerging from the present fragmented and fragile industry. Instead, as nature abhors a vacuum, we have seen the emergence of countless government policy reviews and procrastination as a wholly unsatisfactory substitute.

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Such reviews are unlikely to contribute to the long-term problems of developing an industry to face the changing challenges of fuel supply and environmental pollution, partly because they are usually conducted without an appreciation of the technical challenges involved but also because political issues pre-empt the objective examination which is necessary.

In my experience, the classical political answer to difficult problems is to avoid decision for as long as possible and, in the meantime, to do a number of limited things to mollify vocal groups. A current example is the present reliance on wind power, heavily subsidised, to make a contribution to the national electricity demand, which is likely to be substantial but will be of little value to the industry's major problems.

The essential problem is to reconcile the short-term demands of the market with the long-term investment and planning needs of the industry. Future plans have to cope with many uncertainties—for example, technical problems, construction delays, planning delays—any of which can imperil or delay the financial return on the project. Such a project, in isolation, is unlikely to appeal to investors but can be undertaken by an established industry within which the project uncertainties can be accommodated. Examples of this, of which I have first-hand knowledge, are electricity supply itself (properly organised), oil exploration and aero engines.

The last of these provides an interesting example. Following receivership in 1971, Rolls-Royce became a small player in the world market for aero engines because it could not support from its own performance the investment needed to keep pace with international competition. Of course, the Treasury was unable to contemplate investment on the scale needed. The solution lay in privatisation after 17 largely wasted years in government ownership. Extensive new investment took place—largely funded by releasing working capital—and within six years Rolls-Royce was again a major player on the world scene, a position which has since been consolidated and extended.

So it is evident that privatisation of a long-term capital-intensive business is not impossible if the management structure and determination exist. The essential problem lies in establishing a relationship between the industry and the public interest as represented by government and its regulatory mechanisms. This is the key problem in the electricity industry today.

Here, history can offer some pointers, although it is necessary to go back some 60 to 80 years to find them. After the First World War, the emerging electricity supply industry was very fragmented, with municipal and private companies operating in a generally isolated way. The solution proposed by the Williamson committee of 1918 was to establish electricity commissioners to oversee the operation and development of the industry. It had powers to approve reorganisations and give consent for building new power stations. It was described by the Weir committee of 1926—which led to the establishment of the National Grid—as,

    "an expert committee carrying out a continuous investigation".

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That committee commanded the respect of the multifarious companies then operating.

It is interesting to note that at the time of nationalisation, as I said earlier, there were more than 600 undertakings in existence under the general control of the electricity commissioners, with the National Grid, set up in 1926, operating the interconnections and trading arrangements. Unless some such system to organise and direct the present fragmented industry can be established, I fear that the present short-term approach will inevitably lead to power failures on a large scale, imperilling our national prosperity and standard of life. Present efforts to deal with this problem are too short term and diffuse to offer a satisfactory solution.

The industry has been well served by periodic reviews of its structure and problems. The Williamson committee of 1918, the Weir committee of 1926, the Herbert committee of 1956 and the Plowden committee of 1976 are all constructive examples which identified structural problems and went on to propose solutions.

It is interesting to note that, in general, while the proposals of committees before the Second World War were generally accepted and implemented, those after the war were generally not. In my view, today's problems largely stem from that post-war desire to interfere on a political basis with solutions proposed as a result of careful and expert analysis. This tendency can be seen in other activities and perhaps reflects an over-valuation of the possible contribution of politics to complex industrial problems.

The history of the electricity supply industry since nationalisation in 1947 has been marred by intervention for political reasons. I hope that a similar tendency will not mar today's discussions. That would be highly undesirable in discussing an issue of great national significance which should transcend party political interests. In my view, all three parties share responsibility for the present chaotic state of the industry and all parties should be prepared to recognise the problem and contribute to a solution.

I suggest that the way forward is for the Government to set up an independent expert committee to report to them on the problems facing the industry and to recommend remedial steps. The matter is one of considerable urgency and I hope—although I can give no assurance—that there remains time for order to be restored and a reliable electricity supply system to be established. The present situation—ad hoc responses to successive crises—will simply not do. It damages confidence and morale both within and without the industry, and sows the seed for further difficulties.

I raise this issue because of its importance, and because I believe that I am able, by virtue of independence and experience, to identify and describe the problems. My Lords, I beg to move for Papers.

3.30 p.m.

Lord Jenkin of Roding: My Lords, we have heard an extremely powerful and experienced speech from the

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noble Lord, Lord Tombs. He has been kind enough to remind us—and some of us may have needed reminding—of his long experience in the industry. He speaks with enormous authority. I had the pleasure of his chairmanship when I sat on the Select Committee on nuclear waste—whose report remains one of the major guidelines for government in dealing with a current problem facing the industry.

In the light of the noble Lord's recounting of the history—which will make interesting reading in Hansard—I can understand his wish to see some "strategic decision mechanism", as spelt out in his Motion. He indicated that he preferred a committee to review the position rather than a straight move to a strategic decision mechanism. For my part, I approach the suggestion of a strategic decision mechanism with some caution. Had the Motion called for "a coherent policy framework" to be provided by government, I should have been much happier. However, I understand that it is not the custom in such debates as this to table amendments to Motions. I should certainly have hesitated to table one to a Motion from so knowledgeable a noble Lord.

It is the word "decision" that worries me. Since the electricity industry was privatised, I have found that there has been a great deal of support for the concept of a competitive market for electricity. Yes, it must be properly regulated, of course; and I shall have something to say about that shortly. But the major decisions—to invest, to enter into contracts, to merge or de-merge, to buy and sell commercially—are all decisions to be made by the players, not by the Government or by some government appointed mechanism.

I should find it possible to support such a market-based system were it allowed to operate properly. But the present system is not being allowed to work properly, for reasons which become clear to anyone who has taken the trouble to read the DTI document headed: Energy White Paper: Responses to Stakeholder Consultation on Key Energy Policy Issues. It is no more than 37 pages: a closely typed, summarised account of some 2½ thousand responses to the Government's consultation document published in May last year.

Of course, there are areas where a government decision is crucial—for instance, in getting on with the business of dealing with nuclear waste. The noble Lord's Select Committee report appeared nearly four years ago, and so far we have heard nothing, other than about further consultation on how to consult—which is in effect all that DEFRA has done. I heard Mr Michael Meacher declare to a meeting that I chaired that he wants to go down in history as the Minister who solved the problem of nuclear waste. I do not know how much longer he thinks he will remain a Minister, but at the present rate, it will have to be a very long time. Here is an issue where government do have to take the lead and make absolutely clear where they stand.

Returning to the document to which I referred, most respondents recognised that we are in an electricity market which is not just in the UK but which is

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becoming EU-wide. This support for the market resonated in last year's report from the Trade and Industry Select Committee in another place. Perhaps I may quote one paragraph from the committee's report, Security of Energy Supply (HC 364-I), to illustrate what I mean. Paragraph (j), on page 60, states:

    "We agree with the view that it should not be the role of Government to dictate the appropriate mix of fuels for electricity generation, although that need not prevent intervention by the Government and the Regulator to ensure that long-term security of supply is maintained".

The report contains many other paragraphs—with, of course, a Labour majority—making the same point. It is for the industry and not for the Government to make these decisions.

So what we are discussing today is a market where most of the decisions, strategic as well as operational, are rightly taken by the market. Why is it not working? I entirely agree with the noble Lord, Lord Tombs, that there is a great deal wrong with the present system—it is not working. The phrase that I used as an alternative to a "decision-making" institution was "a coherent framework". I am afraid that I detect very little evidence that we have such a framework for the electricity industry.

What I do see—and here I entirely agree with the noble Lord—is a whole raft of constantly changing interventions, more and more mechanisms to interfere with the market, more and more targets announced, many of them only to be abandoned, sending out conflicting signals and conflicting policies, all of which serve to confuse and de-stabilise what could be a proper working market.

There are many examples, but time allows me to mention only a few. Everyone recognises that the policy framework has to reconcile at least three conflicting objectives: security and diversity of supply—with security being exceedingly important; the need to reduce the environmental impacts of electricity production, particularly with regard to global warming but also with regard to sulphur dioxides and nitrogen oxides; and, thirdly, addressing the problem of fuel poverty. It is difficult but by no means impossible, with the right policy framework, to work towards the achievement of all three objectives.

My first example refers to the regulatory system. When this House debated the Utilities Act 2000, many concerns were voiced that undue weight was being placed on the third of those objectives, the question of fuel poverty, and the overriding need to keep down the price of electricity to the consumer, even at the expense of the other two. The new electricity trading arrangements set up under the Act, policed by the new regulator—which eventually adopted the name of the old one, Ofgem—have demonstrated that the fears voiced in this House at the time were justified.

At the last moment this House accepted two amendments which I proposed, aimed at broadening Ofgem's objectives to add a further objective:

    "to secure a diverse and viable long-term energy supply".

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It had to apply to both electricity and gas, therefore it appeared twice: in Sections 9 and 13 of the Act. That was fiercely opposed by the Government, but, with the help of parties in all parts of the House, it was carried against them by three votes. I subsequently had a letter from the noble Lord, Lord McIntosh of Haringey, to say that the Government were not going to reverse the amendments in another place.

But what has happened? Last year I attended a seminar at the Institute of Economic Affairs addressed by Mr Callum McCarthy, the director general of Ofgem, the regulator. I asked him how he was giving effect to the clauses written into the Bill by Parliament to form part of the Act. His reply startled me and others present. We were given the firm impression that he had been given guidance that the Government did not want the clauses and that he should not pay too much attention to them.

I subsequently drew attention to that remarkable state of affairs in a letter published in The Times last year. I was mildly surprised that nobody sought to challenge my statement. So, I was even more surprised to read in the responses to the consultation document, which I referred to a few moments ago, that the regulator regarded "diversity and security" as being at the heart of his obligations. He could have said that in response to my letter to The Times. At some stage somebody decided not to do that. The statement is extremely difficult to accept, when one looks at what is happening on the ground.

As a result of Ofgem's price regulation regime, wholesale electricity prices have fallen by 40 per cent in the past three years, as the noble Lord, Lord Tombs, said. I do not believe that I am alone in not having noticed any such change in my domestic electricity bills. But what has been the impact of the 40 per cent cut in wholesale prices on the generators?

The noble Lord mentioned British Energy. I shall add only that the effect of the price cuts has been to price nuclear energy out of the market. That required, therefore, short-term financial support from the Government, because British Energy faced serious problems. The most extraordinary of the Government's policies on nuclear energy is what I can only describe as their pig-headed refusal to recognise that, if ever an industry should be exempted from the climate-change levy, it is the nuclear industry. It generates no carbon; it contributes nothing to global warming and climate change. Yet, because some Ministers are deeply hostile to the nuclear industry, that has not been done. I give that as a clear example of the conflicting policies to which I referred.

Let me give another example. Last month I had an agonising cri de coeur from the Combined Heat and Power Association. No doubt, the noble Lord, Lord Ezra, will have something to say about it, too. I shall be very brief. The association pointed out that at the last election, the Labour manifesto said:

    "Labour is committed to a secure, diverse and sustainable supply of energy at competitive prices . . . a doubling of combined heat and power by 2010."

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The paper from the association continued:

    "But what has happened? According to the Government's annual digest of UK energy statistics in 2001:

    Additions of new CHP capacity have fallen by 95% in a year;

    The output of existing CHP schemes has fallen by at least 17%

    The capacity of operating CHP plant has effectively fallen by 800 MWe since 2001.

    This means that:

    1 bn of investment in consented CHP schemes is now currently stalled.

    Not surprisingly, UK emissions of carbon dioxide from the power sector have risen by 13%".

The industry has been priced out of the market. It is unable to contribute to the reduction of global warming. We now read that it is almost certain that the target of doubling the output by 2010 is yet another one that will have to be abandoned.

The last example I shall give, which the noble Lord also mentioned, is the Drax coal-fired power station run by AES Drax Power Limited. This is the only large coal-fired power station to have fitted a flue gas desulphurisation plant to limit emissions of nitrogen oxide and sulphur dioxide. It cost nearly 700 million to install. The annual running cost is about 30 million. Falling wholesale electricity prices are leading buyers to switch to lower-cost non-abating coal-fired generators. As a result, more coal is being burned by the higher polluters and less by Drax, which is saddled with the cost of its flue gas desulphurisation pollution abatement plant. I could give figures, but I should bring my remarks to a close.

How can that possibly make sense? What does it say about the Government's commitment to environmental improvement? What does it say about Ofgem's professed commitment to diversity? I hope I have said enough to demonstrate that, so far from having a coherent framework within which a competitive market could work, the Government's energy policy is a shambles. They have no lack of wise advice. Much of it forms part of the response to the consultation paper. I shall quote only one more extract from it. There are pages of it, much of which is extremely sensible advice. Paragraph 7, under the heading of "Transmission, Distribution and Trading" asks:

    "What more can be done to provide a stable framework for investing in these sectors?"

Paragraph 7.1 states:

    "There was support from across the energy industry and unions for a clear economic and political framework for energy".

That is what we will be looking for in the White Paper, which the Government are to publish within a month or two. And, by God, we need it.

3.48 p.m.

Lord Ezra: My Lords, I declare an interest. Like the noble Lord, Lord Tombs, I have been involved in the energy sector for many years. I am currently chairman of Micropower, which exists for the promotion of small-scale electricity generation. I am delighted to participate in this debate, which was so ably introduced by the noble Lord, Lord Tombs. I was closely associated with him, particularly when he was

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chairman of the Electricity Council and I was chairman of the Coal Board. We had not only good personal relations but good trading relations. At that time, I am glad to say, the electricity industry was taking large quantities of coal, so we met in a celebratory frame of mind, unlike the present situation, where unfortunately the amount of coal, particularly British coal, being used to generate electricity is dwindling.

The noble Lord is very lucky to have won the ballot for this debate because it is extremely timely in view of the proposed White Paper, as both his speech and that of the noble Lord, Lord Jenkin of Roding, made clear. As that document seems to have been a little delayed, perhaps the Minister can tell the House when it is likely to appear. The latest date that I have heard about is March, but we originally expected it to be published at the end of last year. I should appreciate some enlightenment on the subject.

The debate is not only timely because of the White Paper that is due to appear; it is also timely because of the considerable amount of disarray in the electricity market at present, to which both noble Lords referred. It is unfortunate that a number of the leading companies involved in electricity generation should have been so adversely affected by the dramatic collapse in the wholesale price, which, as the noble Lord, Lord Jenkin, pointed out, has certainly not been passed on to the domestic sector and, therefore, has caused a great deal of harm to those who have generated as opposed to those who both generate and supply. That is an aspect of the development of which I believe the Government were not particularly in favour. They wanted to separate these various activities.

Not only have the large operators been adversely affected in the present situation. Smaller ones have also been involved. This covers both renewables and CHP, to which the noble Lord, Lord Jenkin, referred. The discrepancy between the gas price on the one hand, which has remained relatively high, and, on the other hand, the wholesale electricity price, which as become very low, has caused real problems for CHP operators. The Balancing and Settlement Code of NETA that discriminates against intermittent suppliers, which renewables and CHP inevitably are, has added to the problems. Some corrections have been introduced into that code, and it is possible that more are contemplated. Perhaps the Minister could also refer to that possibility.

There is no doubt that electricity is absolutely crucial, not only in the consideration of energy policy but also in the affairs of the nation as a whole. The drastic effects of possible power cuts, or of major variations in the price of electricity, are situations to be avoided. I hope that the White Paper will deal with the problem of electricity in all its ramifications, and propose the sort of framework to which both noble Lords have referred. In documents dealing with energy policy, it has all too often been the practice to treat primary sources of energy as being of major importance, while leaving electricity as a follower-on because it is a secondary source. However, it has now

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become the most important element in energy policy. I hope, therefore, that in the forthcoming White Paper there will be a comprehensive chapter devoted to electricity.

The White Paper should consider the problem in ways that subdivide themselves quite easily under the headings mentioned by both noble Lords; namely, security, diversity, and efficiency. The latter, of course, has an impact on climate change. I should like to say a few words under each of those headings.

Security of supply is absolutely vital. Hitherto, there has been a substantial surplus of capacity, but that has been eroded by a number of plant closures, two of which were announced just a few days ago, and by plant being mothballed. Even though I was told in answer to questions that I have raised on the subject that the mothballing of plants was a form of security, that is not entirely so. It takes several months for a mothballed plant to be brought back into action, which means that it cannot deal with an immediate situation. There must be at least 15 to 20 per cent surplus capacity, which, under the previous regime, the CEGB made sure was always available. The present regime does not allow for that; and, therefore, there should be a modification in the regulatory arrangements to ensure that there is an incentive to generators to maintain that degree of surplus capacity.

The other possible security risk could arise from terrorism. I have no doubt that suitable measures have been put in hand to safeguard major power stations, especially nuclear stations. But in the longer term, a further safeguard could be achieved by decentralising the way in which electricity is generated.

I turn to diversity. Since the dash for gas in the 1990s, the gas generation of electricity has built up from virtually nil to over 40 per cent. It could raise to 60 or 70 per cent on a business-as-usual basis, as defined in the PIU report, as mentioned by the noble Lord, Lord Tombs. At that stage, something like 90 per cent of the gas used in the United Kingdom would have to be imported. That strikes me as being a disturbing and very serious prospect, but it did not seem to be treated as such in the PIU report; indeed, the report seemed rather detached about it and suggested that the situation should continue to be monitored. I do not know what "monitoring" really means. What happens if, in the process of monitoring, it is found that a serious situation is arising? How, at the drop of a hat, could one deal with the problem of the massive dependence for the generation of electricity on gas and on the imports of gas? Something more positive than just monitoring must be introduced.

We need to consider other ways in which electricity could be generated. Serious consideration should be given to such alternatives. It will be no surprise to noble Lords if I start with coal, which could have a major part to play in the future generation of electricity. Clean coal technology has now been developed to the point at which it can be fully effective. Such plants are operating in the United States, and in

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other European countries. It can also be associated with carbon extraction, which is also another valid and proven process.

Two projects have been put forward in the United Kingdom for such plants—one at Hatfield in Yorkshire, and another at Onllwyn in South Wales. I very much hope that the Minister will be referring to those pioneering efforts and that he will indicate ways in which the Government could help them to come to fruition. After that start we could have many more such plants, and begin to see some diversification in the way in which electricity is produced in the future.

Mention has already been made of the nuclear sector. It really is time—indeed, the time has almost passed—for a decision to be reached on the future of the nuclear industry. We all know that there will have to be a progressive withdrawal over the next 10 to 15 years of most of the nuclear plant operating at present, and that the time-scale for new nuclear plant, if such should be decided, is very long for planning and capital expenditure reasons. Therefore, more than a pointer needs to be given in the White Paper about this. But, if such a pointer is to be provided, it will be necessary to take into account all the issues relating to nuclear waste in which the noble Lord, Lord Tombs, was very much involved.

I remember reading the report that appeared nearly four years ago. It seemed to me to make a very sensible suggestion as to how nuclear waste might be dealt with, and yet the problem is not yet resolved. Perhaps the White Paper will show how it is to be resolved. There is also the problem of special security for nuclear stations, as well as the question of the capital cost and the role that it is to play in climate change—a matter to which the noble Lord, Lord Jenkin, referred.

We also need to consider renewables. The Government have rightly said that they consider renewables to be of great importance; indeed, they have given the matter much support. But, at present, renewables are mainly limited to wind power, and particularly on-shore wind. There is an increasing amount of resistance on visible environmental grounds to the extension of on-shore wind. Therefore, the Government need seriously to consider ways in which the concept of renewables can be widened. I should prefer a term such as "clean energy" to replace that of "renewables", which could include such processes as methane recovery from disused coal mines, in which the noble Lord, Lord Jenkin, has been much involved, clean coal technology and combined heat and power.

This brings me to the issue of efficiency, because combined heat and power means that the output of large scale power stations that currently produce only about half the heat content of the primary energy put into them will be virtually doubled, resulting in up to 80 or 90 per cent efficiency. The trouble with large scale power stations is that the waste heat cannot be used. With smaller scale power stations it can be because you can site combined heat and power stations near consuming points and therefore make use of the waste

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heat. That doubles the efficiency with which energy can be produced and used and helps to deal with the problem of climate change.

The noble Lord, Lord Jenkin, drew attention to the doldrums through which combined heat and power is passing. It is important that the White Paper indicates what will be done to correct this serious situation if the Government want to achieve their climate change objectives.

I am involved, as I have indicated, with micro-CHP: combined heat and power in domestic households. It has been developed technically; products will be on the market in about a year's time and that could revolutionise the way in which the electricity distribution system works. Hitherto it has worked one way; namely, through the progressive flow of power from the main power stations to the consumer. If we have a wide spread of CHP plant and go into the household so that every household effectively becomes a power station we will need a new distribution system. I am glad that Ofgem have recognised this and have talked about the "rewiring" of Britain.

There will be a dramatic change in the electricity industry. It is necessary for this "rewiring" to take place quickly. When these products come on to the market they will be like a domestic boiler but will produce both heat and power; consumers will have all the electricity they require and they will need to sell surplus electricity into the grid. That is why changing the distribution arrangements is necessary.

It is important that there should be a carefully thought-out strategy for the electricity sector. The Government have an opportunity in the White Paper to achieve that. The issues of security, diversity and efficiency need to be clearly tackled and the new and developing technologies such as micro-CHP should be given a helping hand so as to change the electricity system in Britain for the better.

4.3 p.m.

Lord Stoddart of Swindon: My Lords, I too thank the noble Lord, Lord Tombs, for introducing this discussion. It is timely because day after day we read in our newspapers of the problems facing the electricity industry. In today's Financial Times there is an article headlined,

    "US group hit by wholesale electricity price falls".

It reads,

    "NRG Energy, the struggling US electricity group, is in talks with banks",

to reschedule its finances. Even today as the debate takes place we see that the electricity industry is struggling.

It is rather daunting to follow such a distinguished group of speakers: a former Secretary of State for Energy; a former chairman of the National Coal Board; and the noble Lord, Lord Tombs, himself, who was chairman of the Electricity Council. I cannot match that in any way, although I was employed in a humble capacity in the electricity supply industry at a power station. The noble Lord, Lord Tombs, and I met on the Electricity Council when I was a member of

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the National Joint Council for the Electricity Supply Industry trying to earn a crust for my fellow trade unionists at low levels in the industry. I do not know whether I succeeded but at least I tried; that is the best one can do.

The noble Lord, Lord Tombs, gave proper recognition to the nationalisation of the electricity supply industry. Indeed, for a time it served the nation extremely well. I like to think that public ownership might be the way by which we could bring order into a chaotic industry but I fear that towards the end nationalisation did not serve the country well. I shall explain why. The reorganisation that began in 1956 eventually led to the formation of the Central Electricity Generating Board which became too big and too powerful. The CEGB dominated the industry and fixed prices to suit itself. The regional boards had virtually no say over prices or policy which meant no say for the consumer either.

The CEGB, in other words, grew too big for its boots and failed to respond to the market. It continued to build power stations to meet an exponential annual increase in demand of 10 per cent when mass demand had fallen to 2.5 per cent or less. As a consequence we had a large surplus of capacity—over 100 per cent in Scotland and over 50 per cent in this country—with dire consequences for the consumer. That should not have happened. The board's insistence on retaining current cost accounting when inflation was falling added further to the consumer burden.

When I was in the other place I was a member of the House of Commons Select Committee on Energy. I came up against the CEGB, which was impervious to any criticism and unresponsive to any ideas to improve its performance. It was not averse to concealing the truth, especially about the true cost of nuclear energy. The Department of Energy seemed to have no influence and was mesmerised into impotence by self-serving experts on the CEGB. I was worried when full-scale denationalisation of the industry was decided on, but we could not return to such a system. It corrupted public ownership and brought it into disrepute, which I regret.

The noble Lord, Lord Tombs, is correct, as are the other speakers. Electricity is so vital to every part of everyone's life and to the soul of this nation that it cannot be allowed to slip into neglect and chaos and become the plaything of private owners, particularly foreign owners whose only interest is making as much profit as possible and who pull out when it suits them.

Government policy, if it can be discerned at all, is not helpful. Their laissez faire approach deprives the industry of the leadership that it needs and the direction it should take. The policy of the regulator, which has already been mentioned, in driving down prices to unsustainable levels seems to conflict with the Government's other policy of reducing energy consumption on environmental grounds. How can one reduce energy consumption by constantly making it more easily and cheaply available to the general public who use it? It is not a reasonable and well thought out policy. It also does nothing to conserve indigenous gas

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supplies. This country will soon be completely dependent on foreign sources of supply. That cannot be good. It will again create difficulties for the whole industry.

The United States group, which I mentioned, bought Killingholme power station for 400 million. It is now worth 200 million. Such losses are unsustainable. What will happen to the industry if there are large-scale bankruptcies of various owners? Who will pick up the tab? If they can no longer afford to generate the needed electricity, who on earth will take over? There can be only one source—the state. If that is to be avoided, it is vital to ensure that the existing arrangements can operate properly, profitably and to the benefit of the consumer.

As I said, it is clear that the current system is not working and that a crisis in security of supply could be looming. The noble Lord, Lord Ezra, is right: we have mothballed plant, both oil and coal. However, it would take months, perhaps years, to bring those power stations back on line, and they would pollute the atmosphere, which is also against government policy. It is the Government's duty to prevent that crisis happening.

Wind power has been mentioned. However, it is the most inefficient and most environmentally damaging way of dealing with alternative energy sources. The noble Lord, Lord Ezra, mentioned combined heat and power and measures to save electricity. All of those were discussed by the Select Committee on Energy; again, however, they were obstructed by the CEGB. Nevertheless, those measures are far better than building wind farms which produce electricity at about three times the cost of gas and cause environmental damage at the same time.

It is difficult for me to give the Government any advice on how to proceed on a macro basis. However, it may be that, while not bringing the industry back entirely into public ownership, they may well have to go back to the Weir report and consider having the national grid under public ownership. That may well be a way of providing leadership to an industry that is currently fragmented and, unfortunately, failing.

The noble Lord, Lord Tombs, was right to put forward his idea of setting up an expert committee to examine the current situation and make recommendations to achieve better cohesion and to ensure that this vital industry and vital commodity are under protection. Other than food, there are two essentials in this country: water and electricity. Without electricity, civilisation collapses. Therefore, the Government do indeed have a grave responsibility. I hope that they will meet it.

4.16 p.m.

Lord Patten: My Lords, I am very glad to follow the noble Lord, Lord Stoddart of Swindon. I think that he perhaps undervalued and devalued his own experience as someone at the sharp end in the industry, on the Electricity Council and on the Select Committee in another place, where we served together. I enjoyed his contribution, as I enjoyed greatly the speech by the

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noble Lord, Lord Tombs—to whom we are very grateful for initiating this debate. There was much cause for thought in his comments.

Following the remarks of my noble friend Lord Jenkin of Roding, however, I feel that the need is perhaps less for a new mechanism and rather more for quicker and better decision-taking by government. To illustrate those themes, I shall concentrate my remarks on just two spheres. The first is nuclear, which might be considered as the tough end of the electricity generating spectrum. The second is renewable energy, which for many commentators and politicians is at the softer, more politically correct and fashionable end of the spectrum.

Although I have an interest to draw to the attention of the House, having been a non-executive director of a renewable energy company since about the time that I came to your Lordships' House in 1997, I make it clear at the outset that I support both forms of electricity generation: nuclear and renewables. If I may have the temerity to correct the noble Lord, Lord Ezra, however, I should add in passing that there is a bit more to the renewables industry than wind power. There are many plants generating electricity from other sources of renewable energy.

I certainly want to tell the House that I do not belong for one moment to the "nuclear power is evil, wind power is wonderful" school of thought. Nor, however, do I belong to the "burning of biomass is an environmentalist cop-out, while nuclear is the only way, truth and light" tendency. There is no ideal form of electricity generation; all have their problems, costs, inefficiencies and environmental impacts. However, in a balanced and integrated energy generation policy, each has its place, and each should be considered in any strategic decision-making process, for which the noble Lord, Lord Tombs, called, and in any joined-up thinking by government of whatever political colour, Tory or Labour.

I turn first to nuclear power. Having been invented in the 20th century, nuclear power cannot be disinvented. I believe that it should be a component part of any joined-up, 21st century UK energy policy. Without its contribution to diversity and certainty of supply, future availability and continuity of electric power will not be guaranteed, particularly in the face, as other noble Lords have pointed out, of apparent growing over-dependence on potentially volatile imported gas supplies from the Middle East, North Africa, Central Asia and elsewhere.

I believe that any decision on new generation nuclear capacity does, of course, fall into the "acutely difficult" box for any government; there is no denying that. I also believe—although I do not want to shock my own Front Bench—that we have a far-sighted and courageous energy Minister in Mr Brian Wilson. He understands these issues and he wishes to catch this particular falling knife. I mean what I say: I do not seek to damage Mr Wilson in any way at all with these warm comments from the Tory Back Benches. I wish to reassure the Labour Front Benchers about that.

However, my prediction for the New Year is that, following the much-spun forthcoming White Paper, the Government will fudge the nuclear issue. They will

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take no decision on nuclear power before the next general election. Thus uncertainty will reign and growing insecurity of supply will follow in a sector which, by any standards, has exceptionally long lead times.

I have made these points about nuclear power as an entirely disinterested observer. As regards renewables, I have a long and very direct set of experiences, as I declared to the House earlier, as a director of Energy Power Resources Limited, which is a company with a portfolio of plants from wind to those burning biomass, making it easily the largest generator of electricity from alternative sources in the United Kingdom. Indeed, I am told that it now accounts for about one quarter of all the electricity generated from biomass in the whole of western Europe. But companies such as these are still very much in the foothills of development, as is probably the company of the noble Lord, Lord Ezra.

Governments of both political colours have recognised that and have encouraged the growth of alternative energy. I do not doubt for one moment the good intentions of this Government. I can see a slight nervousness coming over the face of the Minister in that more praise is going in the Government's direction from these Benches. I believe that the Government have had very good intentions. However, in promoting the principle and practice of renewable energy, it is not to decry those good intentions to say that in my judgment progress is so slow that the UK has absolutely no chance whatever, on present trends, of meeting the Government's targets in the matter of the generation of electricity from renewable sources, whether for the middle of this decade, for 2010 or for 2020. If the Minister who is to reply to this debate disputes that, I hope that he will set out exactly when and how these targets are going to be met. I believe that the Minister understands the science of all this very well indeed and better than most of us. He knows the figures and the trends derived from them as well as I do.

In the interests of realism, which suits all of us concerned in these matters and which certainly suits the national need, perhaps the Minister might add another spot of what I understand to be called in polite No. 10 circles these days "target revision". I understand that that is what it is called in polite spinning circles. The Minister might add a little target revision in this area to the plethora of government target dumping which has so noisily been falling around us since the turn of the year: from targets about the misuse of drugs to those about participation rates in higher education, all of which have been thudding to the floor as they have been dumped by the Government.

In the face of the looming shortfall, probably the biggest waste of taxpayers' funds would be for the Government and the department to conjure up lots of fancy new grants for new plants in this area of renewables. There is certainly no special pleading from me on and for that: indeed, to the contrary. Present regimes need watching very carefully indeed. Perhaps I may give a couple of small examples. There is the bio-energy capital grants scheme, which currently sets out

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a requirement that renewable energy plants of over 20 megawatts capacity should use about 25 per cent of energy crops by the third year of their construction, and 50 per cent by the sixth year of operation.

Those are exceptionally unlikely targets to be met; they are impractical expectations. Targets are a good discipline for all of us privately; but pragmatically and practically they should be realistic. Politically they can be very damaging to the Government's health if they are not realistic. Policy-makers should beware of grasping at straws in this area. Probably the best way of killing stone dead at a stroke, as we used to say, the nascent renewables generating industry would be to allow the co-firing of renewable fuels—such as straw, wood residue, miscanthus among the energy crops or coppiced willow—with coal.

We have heard from the noble Lord, Lord Ezra, that there are many large, mothballed old plants waiting to come back to life. If even 10 per cent of the fuel burnt in them with 90 per cent coal was allowed to qualify for renewable purposes, that would overwhelm the small plants which are fuelled 100 per cent by renewable sources. It would also encourage a fresh surge in the burning of fossil fuels like coal as well, which many people concerned environmentally would not wish to see. I can well understand why the directors of these companies considering co-firing wish to see it occur because they have mothballed coal plants in their portfolios and wish to breathe new life into old assets. I see the fearsome figure of the noble Lord, Lord Ezra, rising to his feet.

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