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Energy: Electricity Supply

My Lords, I begin by congratulating the noble Lord on his success in securing the debate. Although I am a newcomer in your Lordships’ House, I come to this debate with great enthusiasm, support and a terrific respect for the expertise and experience which the noble Lord brings to these matters. I declare my interests. I am a director of the Serco Group plc, which has some commercial interests in the UK field. I am the chairman of English Partnerships, the national regeneration agency, which has a serious interest in promoting low-carbon new communities and new settlements across England. For information, I was a director of the Gas and Electricity Markets Authority from 2000 to 2004. In addition to those interests, I also confess an attachment—a long-standing personal and family interest in these issues. As a child, my family followed my father's career from Hunterston A and B to Wylfa, to Heysham and to Hinkley Point. My children grew up knowing that their paternal grandfather also had a most distinguished career in the electricity supply industry, latterly alongside the noble Lord, Lord Tombs, in the Electricity Council in its heyday. So I hope that the noble Lord will not be offended if I tell him that in our family when I was growing up he was something of a towering figure in the industry, and it is an absolute pleasure to be participating alongside him today. Post-liberalisation, we have enjoyed a settled and mature situation. We have large successful companies which have now chosen to invest in and supply the market with a much more diverse generating mixthan we had pre-liberalisation. That is a success. Investment levels have been high—indeed, higher post-liberalisation than before—and prices have remained affordable, among the very lowest in Europe. We have a mature regulator which has developed and shown itself capable of acting in a long-term strategic manner—certainly from my experience—and of adapting to change in public policy, especially in embracing social and environmental responsibility and, as we saw in the announcement in January from the European Commission, of showing strong and sustained leadership in Europe in trying to reflect UK liberalisation in European markets. However, I agree with the noble Lord that the past 20 years may prove to have been ““the best of times””. As he said, we have enjoyed the benefit of North Sea gas, but also the benefit of the nuclear fleet in its operating prime. But, towards the back end of last year, the average person in the street might have thought, as I did, that three separate things came together that are worrisome. Many noble Lords may have seen the ““Panorama”” programme which talked about the vulnerability of our gas pipeline. That was a cause for concern. Many people will have been taken with the conclusions of the Stern report and started to think much more deeply about climate change. At the same time as those things were being mulled, people’s gas and, God forbid, electricity bills may have dropped on their door mat. The average man or woman in the street might be forgiven for asking, ““How secure is our supply and what are the Government doing about it?””—in other words, posing exactly the same questions as the noble Lord posed with such erudition this morning. However, when I ask myself those questions, I take heart. My view is different from that expressed by the noble Lord. I believe for two or three clear reasons that a strategic view lies at the heart of the Government’s policy. The Utilities Act 2000 placed a personal and collective responsibility on the Gas and Electricity Markets Authority, alongside the Secretary of State for Trade and Industry, to ensure security of supply in the long term—““a diverse and secure supply””, as the statute puts it. That responsibility does not sit lightly on the shoulders of the 10 members of GEMA or, I am sure, the Secretary of State. I must tell noble Lords that when I was in that position for four years, that responsibility weighed extremely heavily on me. I think that we discharged our responsibilities in exactly a manner that reflected the seriousness of that weight of responsibility. The second reason I take heart is that I believe that in the energy review, the Government faced up in a very timely way to the changing nature of the issues in front of us, which the noble Lord, Lord Tombs, has already set out. Equally, the Stern report provided a more urgent economic and moral imperative at the end of last year. So I do not take the view that no strategic view is being taken of the issues; one certainly is. On a day-to-day level, the DTI and Ofgem participate in the Joint Energy Security of Supply Working Group, so they are keeping the long-term strategic position under review. We have 20 years of strong evidence from companies in the sector that have invested and continue to invest in a diverse generating mix. That is extremely important. Although the strategic role is being exercised differently from the way envisaged by the noble Lord, I think that it is being exercised effectively and appropriately for a market-based system. There is also strong evidence of professional leadership. The recent success that Ofgem has secured in the liberalisation of European markets is a tribute to the leadership of that organisation and its persistence over the past four years with the European Commission. Politically, the Government have not shied away from facing up to the difficult choices in creating a secure and stable generating mix. I do not disagreeat all with the noble Lord about the optimal mix. I believe that we need the sector to produce a predictable base load. We need significant renewables, but we need a mix. I absolutely echo the points that he made about investment in the nuclear sector, although we might have differences of view about the means by which we procure that. The creation of a strategic body directing new investment would not change the fact that the real leadership that is required, particularly if we look at these issues through the prism of climate change, is political. I ask the Minister whether the time has come to reinstate a Secretary of State for Energy, who would be totally focused on these critical issues. Circumstances have changed: the environmental impact is now widely understood; the UK economy’s global competitiveness depends on the quality and price of energy supply; and we, as individuals and households, are now focused on making real changes to the way we live. I do not make that suggestion to my noble friend glibly. This is not about simply reorganising the machinery; it is about the more fundamental point of having a Cabinet post with real focus on these important issues at this time. I will end on a narrower point. My day job is about making sure that, in stewarding the Government’s land portfolio, we create new communities and settlements that conform to the very best design and environmental standards. One of our clear objectives is to create communities that will be, in so far as we can manage it, carbon neutral. If we agree that the recommendations in the Barker report are sensible and that we ought to be moving to something approaching a productivity level in new house build of 200,000 homes a year, there is terrific scope to do more in terms of energy efficiency. I have a request for the Minister. The housebuilders regularly tell me that when they want to do quite modest things, such as introducing combined heat and power plants in new housing developments, they run up against a real obstacle. Once they go over 500 units, the regulator treats them as a commercial supplier of electricity, subject to all the incentive and reward regimes that apply to much larger suppliers. That removes the incentive for those housebuilders and developers to do practical and sensible things that would be good not just for households but for climate change. I wonder whether my noble friend would be kind enough to take up this issue with DTI colleagues to ensure that sustainable or renewable schemes are not lost to us simply because of a lack of co-ordinated policy in this area. Again, I congratulate the noble Lord. I finish by saying what a pleasure it is to be part of what I understand from my research has become an annual event.