Energy Supply

Neil Carmichael Excerpts

Thursday 6th September 2012 Westminster Hall

[Mr Yeo]

I am sure that the Committee is encouraged by the fact that the Minister keeps quoting from our reports. He could not have a better textbook from which to embark on his learning curve. The signal that we would like to see of a strong and stable carbon price is one that has been conspicuously absent from the EU emissions trading system, for a variety of reasons. First, the cap was originally set much too high in phase one, and phase two was scuppered by the recession. It will probably be the latter part of this decade, at the earliest, before we see that strong, stable carbon price emerging, but we will see it eventually. I would be surprised if, by the 2020s, we do not see a stable carbon price. Moreover, if more countries, including some large ones, adopt emissions trading as one of their instruments to address climate change, I suspect that the prospects for that strong and stable carbon price will be greatly increased.

[Neil Carmichael (Stroud) (Con)]

I am listening with great interest to my hon. Friend. My question is about energy storage, to which he has referred a few times. Are the members of the Energy and Climate Change Committee, and indeed the Minister, thinking about energy storage and the technologies involved, including, for example, liquid air? If so, are they considering studying the effect of energy storage on investment and how the impact of energy storage might be calibrated?

[Mr Yeo]

I am hoping that the Minister can enlighten us about that, if not this afternoon then before long. One thing that we as a Committee recognise is that the present system—the market—is not giving enough incentive to companies to invest in energy storage. That is why no investment is taking place. There are a variety of ways in which that could be remedied. However, at the moment the ball is probably in the Department’s court on energy storage, and we look forward to hearing what it has to say in due course.

I will try to make some progress, because I am conscious that my colleagues need to speak in this debate. I will just reiterate the point that I was making before the Minister last intervened. Uncertainty or last-minute unplanned policy changes on which consultation has not taken place—I am happy to point out that such changes might not necessarily come from the Minister’s Department but from the Treasury, as we saw in Budget 2011, which contained changes to the tax regime for oil and gas that had not been consulted upon—are simply killers for investment.

Our Committee’s report urged that there should be diversity in energy supplies. Of course, the size of the role that gas can play in that regard will depend significantly on progress being made on carbon capture and storage. If that facility becomes available, there is a much bigger opportunity for gas. Therefore, we should focus our efforts on CCS as much—possibly more so now—on gas as on oil. Alongside that, however, we also need nuclear. Many of us regard it as a clean and safe technology. We have some anxieties about the progress on new nuclear power stations. EDF appears to be on the brink of making the decision in that regard, but it is not quite over the line yet. The future of the Horizon consortium is still unclear. I say to the Minister that if the only way to get nuclear power stations built in Britain soon is to accept investment from abroad, even from China, with the right safeguards, that is perfectly acceptable. The aim is to get these things under way.

Even if that alternative—investment from abroad—fails, I wonder whether the time is approaching when we should consider another model, in which the Government take the construction risk for nuclear power stations and use their own balance sheet and excellent credit rating, which I pay tribute to the Chancellor of the Exchequer for achieving, to finance the construction stage of a nuclear power station. Then, when it is completed, the power station can be handed over for operation; we can sell it to one of the nuclear power companies. I am just anxious that we may reach next year and find that no one will build under the present policy. I hope that it will not come to that.

Let me turn briefly to renewables. I am encouraged by the price falls that we have seen in technologies such as solar power. I am also encouraged by the further innovation taking place in a range of technologies, including some waste-to-energy technologies, and by the British leadership in non-wind marine technology, such as tidal power and wave power; the Committee has also reported on that technology.

However, I urge the Department to take an evidence-based approach, which the Committee itself has adopted. We must do what we can to protect consumers by rigorously insisting on value for money from renewables. I would love to think that we could get huge amounts of base load power from tidal power, but in practice it is much too expensive at the moment for it to be a big factor.

We must face the facts, however uncomfortable they are to the population. Whenever I mention the subject of onshore wind turbines, I am assailed by hundreds, possibly even thousands, of e-mails, some of which are quite irrational or even offensively pornographic, but never mind. I will not read them out to Members here in Westminster Hall; it would involve using some unparliamentary language. Nevertheless, we cannot avoid the arithmetical fact that at present it is cheaper to generate electricity from an onshore wind turbine than from an offshore wind turbine—or from tidal power or wave power—and it is likely to be so for some years to come. I cannot wish that fact away.

However, I do not suggest that we should impose wind power from wind turbines on any community that does not want them. Any community is perfectly entitled to say that on visual or noise grounds the turbines are too intrusive to be accepted; that view is fine. None the less, we cannot alter the fact that if we ruled out onshore wind turbines completely, the absolutely certain consequence would be to raise the price of electricity for consumers.

Just as we need clarity and stability about policy on generating capacity, we need clarity and stability in the transition process from renewables obligation certificates to feed-in tariffs. We also need clarity about the levy control framework and about what would happen in the event that there is a clash between meeting the requirements of the Treasury, in terms of the framework, and meeting the requirements of the Government as a whole, in meeting the carbon budgets to which they are committed. All of those issues will have to be answered when the House considers the energy Bill in the next few months. We look forward to being given some clues about the Minister’s attitude towards these issues.

I was going to say a bit more about energy efficiency, but I hope that everybody takes it as read that for our Committee that is the first and foremost priority. It is the one area where the needs of security, affordability and reduced emissions all come together; greater energy efficiency achieves all those objectives.

I am keen that the Minister should have plenty of time to give us the first clue about his thinking on these issues, so I will conclude my remarks now and just say that I hope my colleagues will deal with the other parts of the report that I did not have time to deal with myself.

[Laura Sandys (South Thanet) (Con)]

It is a great privilege to follow my hon. Friend the Member for South Suffolk (Mr Yeo), the Chairman of our Select Committee. As he rightly said, we have been involved in producing a wide range of reports. Subjects such as energy can be quite dry, but every 10 or 15 years, they become the most exciting portfolio across all Government Departments.

I welcome the new Minister to his post, which he takes at a time when energy is perhaps one of the most important and interesting issues that the country faces, with energy security absolutely at the heart of that. I look forward to his first appointment with the Committee, which I am sure will be in the near future.

I also follow my hon. Friend the Member for South Suffolk in recognising the extraordinary work and success of the Minister’s predecessor, my hon. Friend the Member for Wealden (Charles Hendry), who was an exemplary Minister with a reputation both here and abroad. I am sure that the new Minister realises that his post is, in many ways, a sales job. It is about knocking on doors around the world to try to ensure that we find the investment we need, which is close to £200 billion. I am sure that fellow members of the Committee will join me in hoping that my hon. Friend the Member for Wealden has an interesting future beyond the portfolio that he has left.

Energy security involves two competing issues, in that we face a significant increase in energy consumption but, at the same time, a decline in UK production. I do not want to make too much of a political point, but that situation did not arise only yesterday—we have faced it for the past 15 or 20 years, so it has been straightforward to predict. It is unfortunate that we are now racing to try to achieve some policy certainty and reinvestment in the energy sector when it has been quite obvious that we have been facing this problem for many years.

Globally, some would say that the last century was dominated by the politics of ideas. This century will be about the politics of resources. That is what makes the energy security debate so important, because it is about much more than the energy sector. It is also about our future industrial growth, our competitiveness and keeping the lights on, and in a much less benign environment than before. There is demand for energy, food and water from domestic audiences, whether they are in the UK, China, Russia, or even countries where democracy is not necessarily the watchword. For the UK and all these other countries, access to resources will be absolutely crucial and will determine their economic success.

No one is proposing energy independence, but I have a personal experience that illustrates why I am particularly sensitive to the issue of energy security. I worked in the energy sector for about 15 to 20 years. Before I came to this place, I worked for the Georgian Government in the Caucasus, advising them on the Baku-Jehan pipeline. The second time I was in Tbilisi, I came out of my hotel room and saw a man who was not much further away from me than my hon. Friend the Member for South Suffolk is now. Somebody then went up to that man and shot him in the head. That was related to a large energy deal that was being proposed by a Russian company. The Georgian businessman had turned down the deal, and instead of a shareholder meeting, a P45 or any form of renegotiation, there was a murder in the main street of Tbilisi. That might sound unusual to people in Whitehall, but it is not necessarily unusual in parts of the world where energy is politics.

In addition, when I was sitting having a nice meal in Georgia, the lights went out for 20 minutes. It was apparently a message from the President of Russia to the President of Georgia—“Please will you give me a ring?” He gives him a ring, and 20 minutes later the lights go on. The Georgians then turn around to each other and say, “So, we have lost a bit more of our sovereignty.”

Those examples might seem extreme, but this is where politics and resources come together. Although we might not be exposed to the politicisation of energy, the international market will be, and we must clearly understand that the world of benign energy trading might become a bit more difficult.

Unlike for many countries, it will be not the insecurity of supply that we have to address, but the cost of the supply. The cost of volatility in our energy sector will greatly affect the desirability for inward investment into this country. In India, the electricity went down for three or four days, and that was a massive blow to the country’s attractiveness as an investment market. We might not have the actual lights out, but we will have a problem when it comes to cost, and the cost to our industrial base is crucial. As a result, we should be looking for consistency and predictability to the same extent as considering the lowest cost at which we can deliver energy.

What does a secure energy environment look like? I agree with the Chairman of our Committee that it looks like a truly mixed energy economy, because that will deliver us the greatest resilience. We need to consider increased domestic production, because international volatility will be one of the most destructive economic factors for British business. Our domestic production will, of course, include nuclear—I am a great proponent of nuclear, but we need to get the investment profile and environment right—wind, gas with carbon capture and storage, and coal.

[Neil Carmichael]

My hon. Friend makes some interesting points about threats and volatilities. Does she agree that the European single market is a tool that we could extend into energy and thus assist in that area?

[Laura Sandys]

I had an interesting experience with my right hon. Friend the Member for North Somerset (Dr Fox), who has never been known to be a great proponent of Europe. He said in a Chatham House speech before the election—perhaps in 2008 or 2009—that European Union member states should become a co-ordinated and active consumer of energy when it comes to Russia and certain parts of central Asia. I therefore agree with my hon. Friend the Member for Stroud (Neil Carmichael).

To return to the question of a mixed energy economy, new technologies must also play a part in the resilient energy mix, but anyone who thinks that any of the energy generation sources are pain-free is misguided. Planning applications for shale gas, which I have had in my area, make onshore wind farms look like a walk in the park. The cost of nuclear, including de-risking, will be a lot more than the Government think. In many ways, that reiterates what the Committee Chairman said about considering taking on responsibility for build costs.

The wind sector needs to become much more efficient and to understand how to better engage communities. We must recognise that no energy solution comes without some pain. We must not necessarily look to pick winners and losers, but consider how the mixed energy economy needs to be addressed. We all need to appreciate that opportunities are not simple and straightforward.

The Minister faces an interesting in-tray. Energy security will be achieved through a range of Government policies, although sometimes the policies are so complex that they might create competing behaviours. There are capacity mechanisms, increasing market liquidity, which is crucial, storage policies, which were mentioned by my hon. Friend the Member for Stroud, distributed energy incentives, which have not had sufficient profile and enough focus placed on them by the Department, and smart technologies. A range of interactive measures can help to reduce wastage, increase productivity and hedge costs. If energy security means anything, we must ensure that we closely consider demand reduction. Our Committee was a bit concerned and rather disappointed that the Department did not include in the draft Bill a significant set of policies on demand reduction. That can be a very exciting win for the UK when it comes to competitiveness and to building a resilient and modern economic base.

In conclusion, I want to highlight a significant problem with the country’s energy security. This reflects something that the Committee Chair said, and I hope that the Minister will be able to resolve it. The issue is policy certainty. Companies are much less worried—strangely enough—about what incentives there are, or about exactly what they feel they will get out of choosing one energy source or another. However, we currently have rhetoric and we have reality. We have a fast track on the low-carbon economy with one measure, and the brakes appear to be put on with another. We have an opportunity to build a really strong economy around our need for energy investment, but we sometimes confuse the investment community about our intentions. Certainty and clarity of direction will offer the Minister the greatest opportunity for success when he travels the world’s energy company boardrooms, selling the UK as one of the most predictable and reliable investment locations in the world.