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Electricity Supply

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, I first welcome those loyal followers of what has become an annual debate for their attendance today during Easter week, which is for many a time of holiday with children and grandchildren. Unfortunately, the element of chance in obtaining a balloted debate has finally interrupted a steady flow of more convenient dates which I have had the good fortune to obtain. Nevertheless, the problems remain and I intend, in this fifth debate in the series, to address them again and to examine, in more detail than hitherto, the absence of strategic planning which has led us to the array of problems that face us today. Since privatisation of the electricity supply industry the organisation has been without leadership. It has been totally reactive to external stimuli, masquerading as the discipline of a free market. It began life with a rich endowment of coal, oil and nuclear power stations and has since invested only in gas turbine stations and wind generators. The first of these was influenced by the attractions of cheap gas, low capital cost and short construction times. The second was influenced by huge subsidies, making the investment rewarding and virtually risk free. As a result, diversity continued to be provided only by the ageing inheritance of coal and nuclear stations. In the past couple of years the fault lines in the manipulated market forces have become apparent. The promise of wind power is being met to a lesser extent than planned—and even that at increased cost. Opposition to land-based wind has grown and the costs of offshore wind have risen beyond expectations. The vulnerability of gas supplies, quite apart from their price, has become patent to the most obdurate proponent during the past year and nuclear power has somewhat hurriedly been restored to active consideration after decades of neglect. All of these developments were foreseeable. They have formed part of our regular debates on this and other energy matters. The future of our economy depends heavily upon reliable and competitive supplies of energy and electricity supply plays a pivotal part in that equation. The use of a diversity of primary fuels has served us and other countries well, and its abandonment in favour of ill-conceived alternative policies has resulted from the actions of politicians and regulators mistakenly based on a wholly unrealistic belief that competitive short-term market forces would achieve satisfactory long-term results. The absence of any industry-wide management has abdicated responsibility to pressure groups with little knowledge of the technical or economic factors involved. They are too numerous to enumerate, but Friends of the Earth and Greenpeace surely merit acknowledgement, as does Defra support, of course. Then, in addition, academic economists have had a field day and, one hopes, have learnt some practical lessons to illuminate their future activities. Overall, the management vacuum in the industry has been filled by a variety of bodies seeking to promulgate their vision of a desirable energy mix, without regard to cost, and usually with inadequate knowledge of the limitations of their proposed solutions. Thus, for example, we have the Council for Sustainable Development being apparently unaware of the intermittent nature of wind energy, but convinced that nuclear energy is not an acceptable solution. Its view is apparently shared by the Select Committee for Environmental Audit in another place, which has advanced the breathtaking proposition that nuclear power will be incapable of contributing to impending electricity shortages within the necessary timescale, apparently quite unaware that the problems we face are not confined to the next 10 or even 20 years, and in ignorance of the scale of the problem and the limitations of renewable sources. Not for nothing are environmentalists sometimes described as ““green””—green in this case relating to naivety. There is a profound need for an authoritative and objective examination, much of it requiring an ability to use simple arithmetic. It is to be hoped that the current energy review will meet that need. But the need to avoid filling the management vacuum with ephemeral Ministers and peripatetic civil servants has been well demonstrated by the events of the past decade. I again urge Ministers to look to the example of the Electricity Commission, which served the country well for the 25 years preceding the Second World War in 1939. That body also had to deal with a fragmented industry during a period of rapid growth. It brought to its deliberations a deep and practical understanding of the technical issues, which has been absent from so much of government policy. Your Lordships will know that I am convinced of the need for nuclear power as an important factor in the solution to our present need to tackle climate change while still remaining industrially competitive. That view is increasingly voiced in many quarters. The offer of lectricité de France—now a major force on our energy scene—to build and operate a nuclear power station is an interesting one. It is well equipped to do this. At a time when the Government seem to be hell-bent on dismantling our own nuclear build capability, it merits serious consideration. The other major player in our electricity market, RWE of Germany, has also urged the construction of new nuclear plant. These are welcome signs of an industry undergoing consolidation and gaining confidence in a market organisation quite different from that envisaged at privatisation and from that encouraged by the first directors of Ofgem. They reward my confidence, expressed at that time, that the market would finally overcome the misconceptions of politicians and produce a rationalised industry. Although there are welcome signs of an industry policy emerging, they are fragile and tentative. Let me turn now to the more general question of renewable energy, a cult with some devoted disciples. There is plenty of energy available on our planet, but much of it in renewable form is widely dispersed, making its use expensive and environmentally demanding. Add to this the fact that the sources of much renewable energy are intermittent, requiring the expensive support of fossil fuel plant, and the contribution of renewable energy can become less attractive than it seems at first sight. We see these factors at work in the wind energy sector, but they are also apparent in most of the emerging renewable technologies. For example, the apparent attractions of biomass can be substantially offset by the carbon demands of reaping and transporting the crop. Wave power, after 50 years of development here and abroad, is still only at an early pilot stage, and big problems of scale in a very hostile environment have yet to be faced and solved. Tidal barrages involve substantial environmental problems and high cost but may prove attractive at some point. Most renewable technologies now being promoted by their individual lobbies are likely to be both expensive and intermittent. The current fashion in this uncertain field seems to be microgeneration, which aims to provide individual households with their own mini-power station, optionally providing central heating. It is argued that they would use gas much more efficiently than large power stations. In principle that is likely to be true, but we rapidly encounter two practical considerations which complicate the issue. The equipment will presumably be designed for the peak demand of the household. If not, a standby connection will be required to top up the domestic installation. Of course, demand for both electricity and heating are less in summer than in winter, so the plant would then have to operate inefficiently at light loads, or be shut down, again requiring a standby mains connection. Since the units taken from the system would be fewer, unit cost would have to be higher in order to recoup the system equipment and operating costs. Add to these uncertainties the capital investment required and the need for adequate servicing arrangements, and the case seems to be somewhat more complicated than is being suggested by its many eager supporters. The fact that something can be done is not a sufficient reason to argue that it should be done. Unfortunately, many enthusiasts for the new technologies find this difficult to accept and hope that someone, somewhere, will pick up the tab for their ambitions. My intention here is not to denigrate the examination of new and renewable technologies but to urge that their advantages and disadvantages be properly examined at an early stage. The worst of all worlds would be one in which an essentially unattractive technology is pursued only because of unconstrained enthusiasm. An interesting example of this clash of ideology and practicality can be seen in the current approach of green lobbies to the grid, which, it is argued, exists only as a means of building large power stations that have no place in our new, small scale world of energy supply. The real reason for the grid is to deliver large quantities of power to large conurbations. The construction of large power stations certainly took advantage of that primary need to obtain economies of scale. But the ambitions of the wind lobby require the construction of large arrays of windmills onshore and offshore, most in locations remote from demand. Hence, they would require not only the present grid but substantial additions to it. Similar arguments would apply to tidal barrages and wave power installations. I have no doubt that renewable power has an important part to play in tackling the problem of climate change and the necessary reduction in carbon dioxide emissions, but at present there is such a widespread belief that renewable power must, by its nature, be economically attractive that minds are all too often closed to the realities. Dreams are necessary in any society, but they provide a negative contribution if they prove to be incapable of achievement and are sold on a false prospectus. For me, the problem is that the present system of government intervention does not provide the necessary technical expertise to strike the balance between dream and reality. For me, the rocks of our future energy policy have to be reliability and affordability. They will be achieved by a combination of renewable sources and base-load generation. The inevitable increased costs will themselves ensure energy savings, not without pain. The essential framework for such a solution will rest upon a mechanism providing a technologically based framework, capable of putting the dreams of environmentalists into perspective, That, I believe, is the real challenge of the energy review now being undertaken. It will pose problems that are likely to prove uncomfortable for politicians of all parties, but the resolution of those problems will determine the standard of living and industrial competitiveness that lie at the heart of a modern Western economy. I fervently hope that a correct balance will be struck. I beg to move for Papers.