Energy Supply

Debate between Neil Carmichael and Laura Sandys

Thursday 6th September 2012 Westminster Hall

[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.

UK Trade and Investment

Debate between Neil Carmichael and Laura Sandys

Thursday 15th March 2012 Westminster Hall

[Laura Sandys]

One reason why France and particularly Germany have a strong sectoral focus is that their trade associations have a different function and are a lot more proactive than ours. In many ways, they form a sales and marketing operation for the sector and are front runners, helping medium-sized companies that might not be able to spend the time or effort to go to those countries by representing them, almost like agents. It is a potentially interesting model.

[Neil Carmichael]

My hon. Friend is exactly right. Not only do they identify and develop sectors, they have a structure to develop relationships that are thorough and long-lasting. That is the first point that I make to the Minister.

We have all celebrated Lord Green, so let us have another go. I think that he is an excellent Minister of Trade. I welcomed his appointment, and I have heard him speak on several occasions. I last heard him speak on China. He delivered a powerful analysis of where China was going, where the markets were and the development of sectors and so forth. That is the attitude that we want within and throughout UKTI. We must understand properly the countries that we are considering in terms of the economic data, the analysis and the prospects that lie therein. The approach exemplified by Lord Green when I heard him speak on China—I have heard him speak on other subjects, but China is a good example—is the kind that we want to see much more of in UKTI.

That leads me to another point, which I made in a different context in this very room last week. It involves the importance of supply chains, which we sometimes underestimate. A lot of the products that we make in Britain are parts of products that are then developed somewhere else and sold on. In my constituency, for example, we make fuel injectors for large diesel engines. We do not make the engines; they are made in Germany, and they become parts of vehicles that are made elsewhere. That is a lengthy supply chain and a valuable one. That is what we must understand in the context of developing trade links. We must be much more interested in developing links, not just between Britain and another country, but within Britain. I am referring to the firms that should be developing the right links elsewhere. That requires more knowledge. It requires a better understanding of the landscape of opportunities. UKTI needs to get a grip on the question of supply chains, and I urge it to do exactly that.

My hon. Friend the Member for The Cotswolds (Geoffrey Clifton-Brown) mentioned Renishaw, and he was absolutely right. Renishaw is also in my constituency. It is a great firm. It is eager to develop markets and has recently done so successfully, because of the quality of its product, its knowledge of the market that it is going into and its sheer determination to get the engineering right. That is another thing that the Germans tend to do. We need to ensure that all our companies have that determination to achieve excellence, and that excellence needs to be promoted. Again, it seems to me that UKTI needs to develop the right kind of relationships for that to happen. It needs to do so in the right place and through the right channels.

In Gloucestershire and in my constituency in particular, we have had some striking successes with UKTI, so I do not want to be over-critical. For example, Green Fuels— a company that I visited before the general election—has developed businesses in Nevada and Mexico. Both those developments took place with the assistance of UKTI, which is great news.

Another firm from my constituency, Tudor Rose International, has obviously been using UKTI successfully. It has stated:

“As an Export Market Management Company we are delighted with the help and assistance UKTI are giving us in developing new and emerging markets.”

It goes on to develop that theme. The interesting point about that quote is that it refers to “new and emerging markets”. We must be ready to look at the new opportunities, define exactly what they are and stick to them.

Brazil is a very good example. Anyone with an understanding of agriculture would have known that, sooner or later, that country would really start growing in that sector. Some companies—for example, Fiat and New Holland; agricultural machinery firms—observed what was happening and now dominate the manufacture of large agricultural equipment there. That is good, but it is something that perhaps we should have been thinking about ourselves.

My constituency, oddly enough, has many firms that are exporting to the oil and gas industry in an emerging market in an emerging country—Brazil. They are doing surprisingly well. I shall just underline the fact. ARC, for example, is producing products that are desperately needed and of a high quality. It understands the market well and has appreciated that it is a market that will develop. In my view, UKTI needs to produce some analysis that can be easily seen—it must not be hidden behind a locked door until someone comes along with a key to prise it open—to give firms a feel of where the opportunities are and where expansion and development can take place.

I shall conclude by ramming home the point that we need more analysis of the opportunities, and it needs to be much more sophisticated and alert to new and emerging markets. That is the first point. Secondly, UKTI needs to be more transparent, a bit more open and a bit more user-friendly. That was my experience when I was looking at things in Poland, and I still detect it from time to time when I am talking to firms that are using UKTI today. Last but not least is a powerful point that my hon. Friend the Member for Witham (Priti Patel) made about developing links. However, UKTI must be thorough. One trip with a bit of glitz will not do. We need something bigger and more sustained. It must be broader and deeper—more meaningful. That is how our competitors have stolen a march on us. It is what we must start doing, and now is a good time to start.