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Lord Triesman: My Lords, I am very grateful that the opportunity has fallen to me to reply to this debate, notwithstanding the difficulties and criticisms that have been raised. It has again shown the depth of experience and expertise in the energy field that resides in this House. It is an experience and expertise which I do not have in the sense that some noble Lords do. I therefore start by thanking the noble Lord, Lord Tombs, for continuing to instigate vital debates on this matter. I was about to say "long may he continue to do so", but he may not want to be doomed to do so very frequently.
I thank enthusiastically all noble Lords who have taken part. The noble Baroness, Lady Miller of Hendon, has asked what we are doing to meet the obligation. I hope that the general tenor of what I have to say, aside from replying to the specific points which have been raised by noble Lords, will give some indication of that.
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I will start by setting out the basis for the Government's present approach and I will then turn to the alternative which has been proposed by the noble Lord, Lord Tombs, vigorously supported by other noble Lords.
It should be stated very simply that ultimate responsibility for security of supply clearly rests with the Secretary of State. Noble Lords will recall the duty, introduced by the Energy Act 2004, to provide for parliamentary consideration an annual report on the security of supply. That responsibility is plain, and the DTI has the lead responsibility. Others have an interest, of course. For example, in this House my noble friend Lord Whitty leads on energy efficiency. Defra has responsibility for environmental concerns. There are issues that concern the devolved administrations. They cannot be taken out of this strategic equation. My right honourable friends Patricia Hewitt and Margaret Beckett jointly chair the ministerial group responsible for the implementation of the strategy in the energy White Paper.
We have established a sustainable energy policy network to implement those parts of the White Paper and this is again co-chaired by the two Secretaries of State, who do have that specific responsibility. As to the manner in which the Secretary of State's responsibility is discharged, we firmly believe that this is best done by leaving the key functions that others must have to those who are best able to deliver them. This, we believe, is the strength of our current regulatory system.
Noble Lords have made a number of specific points, which I will come to. However, I would like to look at the crux of the argument of the noble Lord, Lord Tombs, that the current regulatory system in energy is not an optimal means, and not a strategic means in a strong sense, of delivering the Government's energy policy. Looking at the history of energy supply and the industry since privatisation, I think it fair to say that the market-based policy framework is effective in achieving the goals of an affordable, reliable and sustainable energy supply.
If central planning were omnipotent or omniscient, as perhaps some people might suppose, I have no doubt but that we would have had a very much stronger, centralised, state regulatory system. However, I know that the Official Opposition itself believed that to be a completely unsustainable way of going forward. I simply put this general point to noble Lords about the nature of the political decisions that we have taken in this country, because they reflect where we are. In moving from a state-managed system, a highly centralised system, to a system which was privatised and allowing that to deal with some of the key strategy areas, it is inevitable that, the more we involve the state, the more we take it out of the blend that can be achieved by the market. That is simply a truism of economic performance.
In this respect, it may help if I outline how the current UK regulatory regime works, particularly with regard to securing the UK's energy suppliesan issue
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which this debate has proved continues to be at the top of the agenda for the Government and for your Lordships.
As noble Lords will be aware, under current energy legislation, the DTI and Ofgem, the energy regulator, have complementary roles in maintaining security of the UK's energy supplies, subject, as I have said, to the ultimate responsibility of the Secretary of State. The Government's role is to set the overall policy direction and the environment in which energy industries are regulated.
Some noble Lords, in particular the noble Lords, Lord Tombs and Lord Ezra, have put security as the most important of the elements they have discussed. Very fairly, however, the noble Lord, Lord Dixon-Smith, has said that you cannot step aside from the climate and protection of the climate issues. It is very hard to prioritise one without proper regard for the other.
The energy White Paper set out the direction of energy policy for the next 10 years. In particular, it stated that maintaining reliable supplies of energy is one of the four goals in government energy policy. The other goals are to put ourselves on a path to cut UK carbon dioxide emissionsthe main contributor to global warming, as noble Lords have made clear. The cautionary comments of the noble Lord, Lord Dixon-Smith, about those countries which are very reliant on fossil fuelsIndia, China and the United Stateshave particularly exemplified the point. However, our aim is to cut them by some 60 per cent by about 2050, with real progress by 2020. The second of the additional three elements is to promote competitive markets in the UK and beyond. Also, helping to raise the rate of sustainable economic growth and to improve our productivity, and to try to ensure that every home is adequately and affordably heated.
It also recommitted the Government to a market-based approach in ensuring security of energy supply. In recognition of the fact that if the market is to work, it has to be allowed to work in an environment of regulatory predictability and stability. In that light, the Government undertook not to intervene in the market except in exceptional circumstances; for example, a potential serious risk to safety.
Ofgem also has a role to play in ensuring that the market works, particularly through monitoring the market for signs of anticompetitive behaviour, with the potential to fine transgressors very considerably and to ensure that companies meet their licence conditions. In addition, Ofgem helps to ensure that energy can be delivered by allowing sufficient investment in networks in its price controls.
There is of course an important role for the National Grid Transco in maintaining security, particularly in balancing the system and providing the market with information on demand and supply, the winter operations report and the seven-year statement. The NGT also maintains an operating margin to meet unforeseen events. The market has a role by encouraging cost reflectivity and providing a strong incentive for suppliers to provide electricity for which they have contracted.
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Market signals, and especially prices, will indicate when investment in new build is both needed and economically viable, although I know that that is not the answer that the noble Lord, Lord Tombs, will be looking for. I want to return to some of those strategic issues in a moment. The system is broadly working well. For instance, generation margins are currently 20.3 per cent. No problems have been experienced with the overall demand/supply balance so far.
We also saw evidence of the way that the market is working to deliver secure energy supplies last winter. In the winter of 2003-04, generators brought mothballed plant back into service in response to rising electricity prices and signals from the National Grid Transco that they would like greater capacity going into the winter. As a result, the plant margin for last winter rose from a projected level of just over 16 per cent in July 2003 to 20 per cent by Christmas. Electricity supply was sufficient to meet demand throughout the winter. There is clearly a point in the argument advanced by the noble Lord, Lord Ezra. It is not the same as having a reserve unless mothballing can be reversed quickly so that that plant comes on-stream very rapidly.
Looking further ahead, recent announcements show that the market is thinking about the need for new build to meet future demand even before prices reach levels that would indicate a tightening of supply/demand balance. For example, Centrica proposes to build a new power station in south-west England, and EON recently announced plans for an upgrade of its generating facility on the Isle of Grain.
There are also a number of projects to increase the capacity for gas imports to the United Kingdom, with three planned interconnections from Norway, Belgium and the Netherlandsnot in my list of unstable regimes. There are also three new, liquefied natural gas import terminals plannedtwo at Milford Haven and one at the Isle of Grain. Those projects are expected to become operational between 2005 and 2008. Together, those projects could make a substantial contribution to meeting UK demand in the future. They are all initiatives from the market.
I understand the point that has been made by many noble Lords about the security of supply in relation to unstable regimes. I have mentioned some that are plainly not unstable. But it must be said that, over a period of 20 years, the supplies from some of the regimes in what was the Soviet Unionnow Russiaaround the Caspian, and so on, and in North Africa, have been reliable. I would suggest that that is largely because the economic dependence of those countries on reliability of supply is fundamental to their economies. Of course, that is not an argument for being complacent or disregarding the possibility of risk. But there has been no evidence of it so far.
The Netherlands and Norway, in the formula for import that I have mentioned, have 4 trillion cubic metres of gas reserves. Pipelines to the UK from both countries are now under construction. I repeat: ultimate responsibility for security of energy supply rests with the Secretary of State. It is a responsibility best discharged by
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leaving key functions with those with the expertise and resources to deliver them in a policy framework that provides appropriate incentivisation.
That is the strength of our regulatory system. No system is entirely risk free, but I propose that the British market framework is no riskier in terms of government energy policies than was the case under nationalisation. When the electricity supply industry was notionally under the control of a single authority before 1990, its experiences were not happy ones. Since liberalisation in 1990, however, the British generation market has demonstrated that it can provide adequate supplies under the present regulatory system. There is no inherent reason why it should not continue to do so.
Perhaps I may turn to the specific points that a number of noble Lords have made. I have made the general points about the strategic centre of what we are doing, which I know will not satisfy noble Lords. None the less, they are, at the moment, the central part of the Government's policy.
The noble Lord, Lord Ezra, raised several important points. He advocated, as he has frequently in your Lordships' House, diversity from small-scale generation through to renewable generation. He knows from responses that have been given from this Dispatch Box by a number of my noble friends and, I hope, by myself that we fully support that. We looked just last week at the notion of a CHP obligation. On that occasion, I made the point that it is a very diverse set of resources to bring together under one obligation. I think that other noble Lords made the point that it would probably be very hard to do that in a cost-effective way.
The noble Lord, Lord Bridges, raised a number of important points about the intermittent nature of wind energy. I am told, and I have no reason to disbelieve it, that it is now very much more predictable and models can be drawn together that give greater predictability to that kind of capacity.
The noble Lord, Lord Ezra, mentioned the reserve capacity targets and the capacity payments between 1990 and 2001. The CEGB did target plant margin, but that did not prevent involuntary demand control. Post privatisations, there have not been any incidents of involuntary demand control, despite there being no specific target. Capacity payments were inherently arbitrary and prone to manipulation by the generators. Other countries also have energy-only electricity marketsfor example, Australia.
The noble Lord, Lord Bridges, raised the relationship with the French. Daily flows of electricity depend on differential wholesale prices. We import because of price signalswe also export on that basiswhich are governed by the supply/demand balance. The United Kingdom will not be presented with a bill for the decommissioning of French nuclear reactors. It is a French responsibility. Proposals to build the 1.3 gigawatts interconnector with the Netherlands and the new interconnector with the Irish Republic are also key parts of our policy.
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My noble friend Lord Tomlinson raised a number of points. Soon I shall turn to the fundamental questions of nuclear. But I would just ask him, particularly because he has indicated that he is open to the argument, not to write offeven if he says that he is not, I kind of pick up the flavour that he might bewhat might be done in the renewables field, which is a very new field that shows a huge amount of potential. I shall return to the point that he and others have made about nuclear in a moment.
It is very hard to deal with the question about how long it takes to build a nuclear power station. I understand that the bulk of the time is taken up in the planning rather than the building. Of course, the different technologies would take different amounts of time.
The noble Lord, Lord Dixon-Smith, has made a number of important points. I shall mention just one of them in response to a specific point that he made. It is my understanding that there has been some discussion about whether the Thames barrage might have electricity-generating potentiality. I want to look into that to ensure that my memory is not at fault. I shall write to him about that when I find the information.
The noble Lord, Lord Palmer, asked about the Government's view of policy in relation to biofuels. The Government intend to set an ambitious, but realistic target for biofuel sales by 2010 as soon as possible this year. They will do so once the feasibility study is under way and consultation on a renewable transport fuel obligation has been concluded, and once a decision has been taken on the most appropriate method for promoting biofuels. They are a crucial part of the way forward, and it certainly could not be the case that we did not look at them with seriousness and intent.
The noble Baroness, Lady Miller, asked me to comment on a point in relation to the Question that I answered. I said in my Answer the other day that we had not changed our objectives. Indeed, I have repeated some of those objectives in the United Kingdom. I understand that the United Kingdom Government have not opposed the EU setting longer-term targets for emissions. The Greenpeace allegations are a distortion of the position. However, we have appealed to the EU not to set targets out of thin air. It is essential to make sure that a cost-benefit analysis is being carried out in the light of the latest scientific information. The Commission is undertaking that analysis. The results will be available at the end of January or early February. When that information is available, there is no reason why the 2050 targets for carbon emissions cannot be set on an informed basis. That is why that dialogue took place in Europe.
I turn to perhaps one of the cardinal issues; that is, the nuclear option. Many noble Lords have raised it. There has been a lot of debate about what the Government mean about keeping the option open and what we are doing to keep it open. The Government recognise the central importance of preserving and developing the skills base needed to do so. The Cogent Sector Skills Council was licensed on 2 March last
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year. It is undertaking a strategic view of the nuclear sector, ensuring that the education and training base can meet the nuclear employers' future needs. Cogent will work closely with the Nuclear Decommissioning Authority. The research councils are playing a part as we have discussed at length. A great deal more effort is being put into a co-ordinated approach to nuclear research and energy research more generally. Therefore, we have established the new UK Energy Research Centre to achieve this.
However, the fundamental issues still remain. Keeping the option openand I am an enthusiast for keeping the option open in a robust waymeans that we are going to have to deal with some of the legacy issues more successfully as well. What happens in terms of security? What happens in terms of waste? What gives confidence to people that it is not a dangerous line to go along if the market decides that it wants to do so? We are going to have to resolve the questions about where installations will be built and who the welcoming hosts to new build will be.
We have been faced in today's debate with some fundamental issues. The noble Lord, Lord Tombs, made one appeal to which I shall respond directly, as I respond directly to the appeal that the publicity is properly secured for these matters. I am discussing how to make sure that that is the case with officials in the department. The noble Lord, Lord Tombs, asked that we take some of the ideas away and give them further thought. I give the undertaking that we will do that. I am keen to do so. It is the Government's wish to make sure that the ideas that are raised in debates of this kind and on many other occasions are given that proper ventilation and proper and serious attention. I undertake that we will do that.
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