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Energy: Electricity Supply

My Lords, the noble Baroness, Lady Ford, brings considerable experience and her family history to these debates. She has rightly congratulated the noble Lord, Lord Tombs, on what I think is now the sixth debate in a series thathe has instituted. I assure him that they have hada considerable impact if not necessarily on the Government directly then on many of those who are concerned with our energy policy. The one person whom we shall miss in today’s debate is my former noble friend Lord Peyton of Yeovil, who, at every one of those debates, gave a very pertinent and punchy commentary on the thesis of the noble Lord, Lord Tombs. I, too, declare an interest. Whereas most noble Lords will be enjoying their Recess after the House rises this evening, I, with other members of the all-party group on nuclear energy, will be making a five-day trip to France, where we will be guests of Areva, which is perhaps better known to the old hands as Framatome, the French nuclear company. In previous debates—indeed, in a debate that I instigated last year—I have laid great stress on the role that nuclear power must play to meet our future needs. I think that this argument is now won. Weare still waiting for the Government’s definitive announcements in the promised White Paper, but it is quite clear that they have come to recognise that new build is now essential. Therefore, I am not going to use my time today to repeat all the arguments that have been deployed in seeking to win this argument. Nothing has happened recently to weaken the arguments. Indeed, the noble Lord, Lord Tombs, mentioned one or two of the problems. The casefor more low-carbon sources of energy is now overwhelming. We have read the Stern report and have had the IPCC report, which have reinforced the arguments for low-carbon sources. Of course, the lifetime cycle of a nuclear plant is very low-carbon indeed; it is roughly equivalent to wind power. We have also become aware of the increasing dangers of relying on imported gas from regimes that are not only unstable but that may become actively hostile. That has been underlined by the palpable readiness of President Putin’s Russia to use energy as a political weapon. I shall say a word or two about this. Last month, Mr Robert Amsterdam, an international lawyer with a huge knowledge of Russian current affairs, addressed the Parliamentary Group for Energy Studies. The picture that he presented to the group was very disturbing. The deliberate use of Gazprom to dominate European energy markets when there is little or no reciprocity in Russian markets, the shameful bullying of Shell over the Sakhalin oil field, and the totally unbalanced negotiations with the European Union—leading in reality, as Mr Amsterdam said, to the humiliation of the EU—are just three examples of the threat that Europe faces. Gazprom is not a normal company, and should not be treated as one. It is entirely controlled by the President’s office in Moscow, and it is blatantly being used as an instrument of Russia’s foreign policy. Gazprom is busily engaged in a co-optation process—lining up UK banks, consultants, and others to help to further its objectives. There have been suggestions that Gazprom should buy Centrica, one of our biggest energy companies that is still largely British-owned. I hope that the Government will be wise enough and tough enough to knock that threat very firmly on the head. In no way could there be reciprocity. The former German Chancellor, Gerhard Schröder, by ending German nuclear power, put his country in hock to Gazprom and Russian gas. He then compounded that huge disservice to his country by taking a job with Gazprom. The noble Lord, Lord Tombs, has emphasised that time is now very short. However, it will take time, and we must do all that we can to extricate ourselves from becoming far too dependent on imported gas. I did not cheer when I read the report of yet another major new investment in a combined-cycle gas turbine, as that merely multiplies the problem. To my mind, the need to avoid dependence on foreign gas is always one of the strongest arguments in favour of ensuring that our mix of nuclear sources—most people recognise that there must be a balanced mix—includes a clear programme of building new nuclear power stations. It is very galling to have to listen to French nuclear experts in this area say that they are prepared to help Britain to deal with the looming energy gap, when we consider that we led the world in civil nuclear power. What do we need? We need a clear political framework. The noble Lord, Lord Tombs, has suggested his own solution for that. The noble Baroness, Lady Ford, believes that we have such a framework already. I am modestly encouraged by what the DTI is doing. The appointment of Mark Higson about six months ago as head of the DTI’s nuclear consultation and liabilities team was a step forward. I am told that Mr Higson sees his role as removing the barriers to nuclear build. There certainly are barriers, not the least of which isthe planning process. His job includes definingthe criteria for siting new reactors, developing the justification for new build—that is required by the EURATOM treaty—developing proposals for public consultation, and regulatory co-ordination between HSE/NII and the Environment Agency and SEPA. So far, so good. However, I am concerned atthe evident overlap between the DTI and Defra.The Nuclear Decommissioning Authority (NDA) currently reports to Defra Ministers, yet I read that Mr Higson at the DTI has been given responsibility for radioactive waste management policy. That cannot be sensible; it is not viable and it must be changed. I do not expect the noble Lord, Lord Truscott, to announce the merger of the DTI and Defra when he responds later today; it will be a matter for the new Prime Minister. Rightly, the Government look to the private sector to invest in new power stations but, for that to happen, several things must be done. Both the noble Lord, Lord Tombs, and the noble Baroness, Lady Ford, have mentioned some of them, but I want to pick on one issue that neither of them mentioned: the need for a carbon price to be operated in a reasonably predictable way. I have given the Minister notice of this point because I would not have expected him to be fully aware of all the arguments about the price of carbon, so he has had a day or two to think about it. The market is well used to judging risks—energy costs, capital costs, financing costs and so on—but trying to work out what the carbon market will produce is a risk of an entirely different order. Those risks are unascertainable at the moment. Present policy is to base it on the European Emissions Trading Scheme, but phase one has had a shaky start, with wide fluctuations in the price of carbon, and phase two, due to begin in 2008, looks little better. Phase three is due to start in 2012, and nobody has the slightest idea what it will be. I have heard 2012 described as ““a cliff-edge”” for the industry. If the ETS is to develop as a real operating market, putting an effective and predictable price on carbon, it is essential that Governments—I refer not just to this Government but to all of them—should set a proper framework. At present, this is all very unclear,with the consequence that the market is working imperfectly. Moreover—this may come as a surprise—as at present operated, the ETS excludes from the scheme carbon free technologies such as carbon sequestration and nuclear power. This must be nonsense and must be addressed. Actually, the situation is even worse than that. I have been given sight of a paper from an industry source. I will read its opening paragraph because I find it extremely disturbing. It states: "““The EU ETS as currently structured is not capable of underwriting the investment needed to reduce CO2 emissions in the electricity sector and move the UK to a low carbon economy. The primary reason for this is that the policy timescales of the EU ETS do not match the investment life cycles of the sector and investors are unwilling to accept the regulatory uncertainty surrounding future CO2 abatement targets. Furthermore, the timescales of policy development must recognise the need to achieve significant carbon dioxide reductions in the next capacity replacement cycle in the electricity sector to deliver the carbon dioxide reductions that Government aspires to””." As it stands, this is not a viable policy. This paper, The Carbon Hedge, which I understand has been discussed with DTI officials, goes on to outline the potential risks faced by investors inlow carbon technologies, which include not only nuclear reactors, but also clean coal and carbon sequestration. I heard only yesterday that the BP plant at Peterhead using the Miller field, which is intended to be low carbon, is entirely dependent on the credit it will get for being a carbon-free source, and it does not know what it is. At the moment, it is a demonstration plant, but it will not work unless the future price of carbon is known. The paper goes on to propose a new mechanism intended to hedge these risks and to provide greater certainty until the EU ETS is developed to the point that it becomes a viable and predictable long-term market in carbon. In that sense, it is a transitional arrangement. It is hoped that it will, "““reinforce the functioning of the EU ETS and enable it to galvanise the early investment in low carbon technologies””." This carbon hedge is one serious proposal put forward by a potential major investor in UK energy supply. There may well be other suggestions. I hope that the Minister will be able to tell the House how this Government intend to address this issue. I can tell him that every potential investor in new energy investment in this country—I have spoken to a great many of them—has stressed the huge importance of getting this carbon problem right. However effective the Mark Higson team may be in providing strong justification and so on, and however swiftly it deals with regulatory co-ordination, it will all come to nothing if the markets cannot see a reasonably clear way ahead on effective carbon pricing. I say to the noble Baroness, Lady Ford, that I find it surprising that in the eight foolscap pages of Ofgem briefing that arrived on my screen late last night—I did not see it until this morning—this carbon issue receives no mention at all. When I spoke to the chairman, Sir John Mogg, a few days ago and asked him whether he was going to play any part in regulating this carbon market, his answer was a very clear ““No, it is for Governments””. So I put that to the Minister, and I look forward to hearing what he has to say about this issue.