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Security of Supply

My hon. Friend brings me to the next part of my speech, which is about the energy review. As I have emphasised before, this is a review with no pre-determined outcome. It embraces all sources of energy; it is not a review of nuclear energy alone. On 23 January, we will publish the review consultation document, which, I hope, will draw out the breadth of opinion on these complex issues. Ahead of that review, in today’s speech I want to focus on the security of our gas supply, which has understandably been the cause of greatest concern in recent weeks. Gas generates around 40 per cent. of the UK’s electricity, and approximately 35 per cent. of final UK gas consumption is used in our homes. Because of the decline in North sea production, we knew that this winter was going to be tighter than in the past. Combined with an early cold spell, that caused the problems that we witnessed in November. Gas storage was drawn down earlier than usual and prices rose to historically high levels, despite the fact that there was actually enough gas to meet demand. The price increase meant that many power generators reduced their gas use by switching to other forms of generation, which substantially reduced demand and helped to balance the market. For some major industrial energy users, these abnormally high prices created significant problems. Looking back, ahead of the winter we had worked closely with the industry and others to try to ease the effects of high gas prices through the gas prices working group, and through the report on, and seminars on, the forward gas market. Last year, new gas import and storage capacity came on stream, including the new liquefied natural gas terminal at the Isle of Grain, which has received eight shipments since it opened in November. The interconnector doubled its capacity and has been importing at record levels recently. Moreover, new storage capacity came on line at Humbly Grove, in Hampshire. So, today, storage and import capacity is up, gas supply has met demand each day this winter, and storage levels are healthy. However, I am not satisfied with the under-use of some of our import infrastructure. Although the interconnector has been importing at new highs and has responded to price signals, it still has not delivered gas to the UK at full capacity. The lack of liberalisation of EU energy markets, which was mentioned in an intervention, is at the heart of the problem. Ofgem has asked the European Commission to investigate urgently the interconnector’s operation, and I am pleased to say that this work is now well under way. We know that a tension exists between the liberalised energy markets in Britain and the largely unliberalised energy markets in Europe.