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Energy Supply: EUC Report

– in the House of Lords at 6:14 pm on 23rd April 2002.

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Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour 6:14 pm, 23rd April 2002

rose to move, That this House takes note of the report of the European Union Committee on Energy Supply: how secure are we? (14th Report, HL Paper 82).

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

My Lords, this is a timely report. Energy is again high on the political agenda. I thank all those who contributed to the inquiry and to the production of our report. If I can be forgiven for being selective, in particular I thank our specialist adviser, Malcolm Keay. We could not have wished for better advice or assistance from an adviser. He seemed to know the answers to all our questions even before we had concluded asking them. As ever, our thanks go to Patrick Wogan, our worthy clerk. Finally, I thank our industrious and enthusiastic secretary, Kate Denhard, who was undertaking her first European Union inquiry with us.

I am grateful to the Minister for having responded so quickly to the recommendations in our report. I am pleased to see that the Government appear to have accepted the validity of our arguments in almost every case. I do not intend to address the recommendations one by one but rather to highlight what I think are the major themes of the report.

First, why supply and not demand? The European Commission's Green Paper, the Cabinet Office PIU review and the recent House of Commons trade and industry report all deal with energy policy in a comprehensive way; that is to say, they combine an examination of supply-side policies, demand-side policies and the application of energy to transportation. We deliberately chose not to follow that path. Demand-side policies are important because they lead to a more cost-effective use of assets; in particular, non-renewable fossil fuels. There are compelling arguments for every government to apply themselves to getting right these policies. However, in our view there is not a causal link between supply-side policies and demand-side policies, though the two may interact.

The Commission's Green Paper was prompted by the fear that the decline of fossil fuels and the threat of interruption might erode the continuing level of energy supply needed to feed Europe's growing economies. We thought it right, therefore, to concentrate on that and to determine whether or not Europe and the UK in particular should be concerned. We asked the question: is supply secure? We came to the conclusion that we do need to be worried.

We heard evidence which ranged between those who pointed out that not only were fossil fuels limited but that we had or were about to pass the peak in the global exploitation of oil and gas. That was a view put to us forcefully by the Oil Depletion Analysis Centre. Most of our witnesses, however, suggested that, while the ultimate decline of such resources was not in question, there were differences about how much time we had left. Whether oil and gas resources last 50 years or 100 years is an important consideration in the medium-term. But given the need for massive cultural and industrial adjustment to a world without a plentiful supply of affordable fossil fuel, it is not too early for all of us to begin to think the unthinkable.

The first question we addressed was: how should we respond to the growing threat to security of supply? Should we seek to be self-sufficient or seek to manage risk? We doubt whether it would be practicable for Europe to try to achieve self-sufficiency. In any case it would be prohibitively expensive. We shall inevitably be reliant on world markets, but world energy trade is beneficial to producers and consumers alike and should be welcomed, not feared. Such reliance, however, is not risk-free. The aim of energy security policy should be to understand, reduce and mitigate such risk. In our opinion, the way to do that is to go for diversity, flexibility and back-up. Diversity and flexibility are characteristics of competitive markets.

As regards oil, in the European and increasingly the United Kingdom perspective, the supply of oil is conditioned primarily by a global market that up to now has delivered and is confident it can go on delivering in the medium-term. There are standby arrangements administered by the International Energy Agency but, like most contingency reserves, the problem is always deciding when they might be used and what impact they might have on markets. Because the oil market is a global market, we concluded that it was not subject to a specific security threat, although undoubtedly regional political problems could impact upon that. We have seen recently, in relation to events in the Middle East, both Iraq and Libya announce short-term suspension of deliveries. That affected prices for a short period but the balance of supply and demand has remained stable.

I turn to gas. Although the gas market is becoming more of a global market, it is still dependent upon a costly and relatively inflexible infrastructure which tends to inhibit the growth of a flexible global market that would provide our best security. In the United Kingdom we have been shielded because of the proximity of oil and gas fields in the North Sea. But the North Sea is in decline and we are rapidly moving towards a position where the United Kingdom will become a net importer of gas, probably as early as 2006. This is not a problem in itself, although there are problems which flow from it—physical delivery via an infrastructure that has not yet caught up with the market; and the organisation of gas deliveries into Europe via very long-term contracts from a limited number of suppliers.

Our gas infrastructure is not at the moment capable of rapid expansion which would allow us to import large quantities of gas from the continental system. Gas enters the United Kingdom at two points— St Fergus and Bacton through the compressor in Zeebrugge in Belgium. Both facilities, it is true, are being upgraded, but there is a period until 2005 when we shall be sailing very close indeed to the wind. We heard evidence that on one or two occasions over the past year the gas distribution companies in the United Kingdom were a step away from real trouble. We note with satisfaction that the Government are now looking into that issue. Can the Minister tell us when we can expect to hear results from the working group which was established to try to ensure that we do not encounter problems in that arena?

As regards longer-term gas contracts, gas for the European Union comes primarily from Russia and Algeria. At first sight, both sources might give cause for concern. Both have had severe economic and political problems. However, the historical record demonstrates that neither Russia nor Algeria have ever failed to deliver to contract.

Those deliveries have been underwritten largely by long-term "pay-or-take" contracts, usually between 25 and 30 years. We heard evidence from Gazprom of Russia, from Ruhrgas and from EdF and others that they consider these long-term contracts to be essential because they provide the necessary comfort to the financial institutions that underwrite the enormous investment required in bringing gas into Europe. There is much to be said for those arguments. Long-term contracts will no doubt continue to play a part in the provision of energy for Europe. But there is no doubt that long-term contracts impede the development of a flexible market and thus reduce our options.

We were also worried about the Russian ability to fulfil those long-term contracts. Shortly after the inquiry finished, I had occasion to meet the former Russian Deputy Prime Minister, Boris Federov, who is now a director of Gazprom. He was worried about the need to find the enormous sums of money necessary to pay for the new Russian infrastructure—after all the system was laid down 40 years ago—but also to meet the increasing domestic demand. The Russian economy is coming out of the chaos that followed the collapse of communism. Domestic demand there is growing rapidly. The Russian energy suppliers will not be able to ignore domestic demand in order to earn hard currency through exports, as they used to.

So what we are looking at is not only a requirement for Russia to replace and renew existing infrastructure to enable it to maintain its existing contractual obligations to European companies, but increasingly we shall see the need for even greater investment to meet rising domestic demand. Under those circumstances, it is difficult to share the confidence of Ruhrgas and Gazprom that the long-term "pay-or-take" contract brings any real security to Europe in 20, 25 or 30 years' time.

We have already seen, too, what happens when a flexible market meets a semi-rigid market. Gas prices in the United Kingdom over the past year have shot up not because we are any less efficient, but simply because we have no choice but to import the far more expensive gas from the continent to make up our shortfalls. This gas is expensive largely because of the way in which it has been paid for. We therefore concluded that it was important for the European Community to find ways to increase the flexibility of the energy markets.

I turn to liberalisation. That leads me to the main conclusion we drew about the question of security of supply. Here I am talking about long-term security of supply, as opposed to short-term threats to the security of supply, with which I shall deal later. The European Commission is wedded to liberal markets. We heard evidence from the Commissioner herself. We were heartened by the importance that she attaches to persuading all member states to move towards more fully liberalised markets. Fully liberalised markets would not only sweat existing assets more efficiently and thus be better value for money for European consumers, but would also lead to greater security of supply. The Commission has brought forward directives governing both electricity and gas, but these do not of themselves require member states to liberalise completely. The French were fully prepared to liberalise commercial and industrial markets, but not to go all the way to the domestic consumer. In the view of the French authorities, the French domestic consumer needed the protection of the state. Barcelona has not really changed that position.

German witnesses, on the other hand, claimed that Germany had achieved 100 per cent liberalisation. But it is an odd sort of liberalisation where the market is dominated by three major German integrated groups and where there is no regulator other than the suppliers themselves to determine how the market should operate.

There are other member states similar to the UK which have already moved to fully liberalised markets. Their consumers have already seen the benefits of efficient and flexible markets. We hope very much that all European consumers will see that it is in their interests that constraints on the markets should be removed. But flexible markets also need regulation to prevent monopolies from restricting competition. Can the Minister tell us when we can expect to see regulators introduced throughout the whole of Europe, and certainly when we can expect to see regulators introduced in Germany?

During the course of our inquiry we witnessed the outrages of 11th September. The question of security threats to the existing energy infrastructures has since been taken very seriously after those tragic events. From the evidence we received, however, attacks on the energy infrastructure, although possibly devastating in a particular locality, would by and large not seriously affect the overall supply of energy to Europe and to the United Kingdom. We have no doubt that all stakeholders in the energy industries have revised their contingency plans and that the range of possible threats to be considered has been greatly widened as a result of the events of 11th September.

As to nuclear power—and other committee members will speak more about the role of renewables and the role of nuclear power—we came to the conclusion that for the United Kingdom in particular, and possibly for the EU collectively, it was difficult to see how the 30 per cent of energy currently supplied by nuclear power could be easily replaced from other sources without an unacceptable increase in carbon dioxide emissions.

In the short term, however, we believe very strongly that the Government can no longer delay decisions on the future of the UK nuclear industry, any more than the EU collectively can wish it away. We talk about a global village. There is not much point in giving up something in one's own garden if one's neighbour is doing exactly the opposite in his. The French nuclear industry is likely to remain the major generator of power in France. We buy their power already. Parts of the United Kingdom lie close to the French nuclear power stations. Nuclear-free parishes are unreal in a global village.

I turn to coal. Already in the United Kingdom the high price of continental gas has caused some power generators to bring back coal-fired power stations and to mothball the cleaner gas-fired power stations. We are not surprised: coal remains the most secure and competitive of all energy sources throughout the world. It is found all over the world and global resources can be measured in centuries in the future. Its drawback is the high level of CO 2 emissions. If we accept the current fashionable assumption that the increase in CO 2 emissions is the trigger for climate change, then clearly we must do something to make coal more socially and politically acceptable. But that is not impossible—or even especially difficult—to achieve. It requires us to divert resources to clean coal technologies and to measures such as CO 2 sequestration.

On renewables, the committee examined the case for renewable energy in its 12th report in 1999 and concluded that aspiration and delivery were far apart. We then expressed scepticism whether the UK and EU would be able to meet their Kyoto targets. We have seen little to change that view, although we fully accept the importance that renewables may play in helping to reduce our dependence on fossil fuels and in limiting C0 2 emissions.

To sum up, there is increasing risk to the security of supply of energy in the UK and the EU. We should learn to manage that risk, not pursue dreams of self-sufficiency. Fully liberalised European markets operating within a global energy market are the best way to achieve security of supply.

We urge the Government and the European Commission to persevere in persuading our European partners of the validity of those assumptions. European consumers are currently paying more than they need because not all markets are operating as they should. The Government and the EU need to be realistic about the role of the nuclear industry. It currently supplies 30 per cent of the EU's energy needs. In our view, it cannot rapidly be replaced by any combination of windmills, tidal barrages or biomass. Hard decisions are needed now. Nor should we forget the important role that coal will continue to play as we collectively learn to manage the long-term decline of oil and gas.

Moved, That this House takes note of the report of the European Union Committee on Energy Supply: how secure are we? (14th Report, HL Paper 82).—(Lord Brooke of Alverthorpe.)

Photo of Lord Ezra Lord Ezra Liberal Democrat 6:31 pm, 23rd April 2002

My Lords, I wish first to declare that for many years I have been actively involved in the energy sector and am currently chairman of Micropower, which seeks to promote the small-scale generation of electricity. I pay tribute to the committee for its wide-ranging report and to the noble Lord, Lord Brooke of Alverthorpe, for so clearly identifying the issues that it considered. I am sure that that will lead to a constructive debate.

As the noble Lord said, a spate of reports has recently been issued on the subject—not only the European Commission's Green Paper, which is the subject of the Select Committee report, but the Select Committee on Trade and Industry in another place and the wide-ranging Performance and Innovation Unit energy review issued in February. There have been a number of other reports. They all demonstrate the importance now attached to the issue of energy security.

Hitherto, the environment has been regarded as the most important aspect of energy. It remains important, but security of supply—both short-term and long-term—is now equally if not more important. Of course, we cannot be sure when or how short-term risk will arise—whether motivated by politics or terrorism—but we must ensure that we are fully prepared for such risks. However, in the case of longer-term risk, we are in a better position to act because we are fairly clear what is likely to happen: namely, increased dependence on imports.

The EU is at present 40 per cent dependent on imports. It is estimated that on current trends that is likely to rise to at least 70 per cent by 2020. In Britain, we shall in all likelihood move from total self-sufficiency to net import dependency from 2005-06 onwards, leading to substantial import dependency in gas by 2020. So we share a common problem with the rest of the EU and I am glad that we are jointly considering the issue. The committee clearly recognises the problem—the noble Lord has just told us of the importance that it attaches to it and has given us a clear analysis of its findings.

I should like to refer to the emphasis placed by the report and the noble Lord on what is described as "risk management" to deal with the problem of increasing import dependence. That term was used by the Department of Trade and Industry in its evidence to the committee in October. It implies that we should wait for problems to arise and then deal with them, whereas I should have thought that as it is clear that we shall become increasingly dependent on imports, more specific action could be suggested. A system of risk management appears to mean that we prepare ourselves for possible eventualities.

The problem is that, especially in the case of gas, we shall become dependent on increasingly distant supplies and will be at the end of the European pipeline, with all the risks that that implies—a point mentioned by the noble Lord, Lord Haslam, in his evidence to the committee last December. I should have thought it desirable that, while preparing to deal with possible future risks, we should be more clear how we intend to mitigate the problem. For the first time in our long industrial history, we shall face the prospect of largely importing our main source of energy. We had coal from the start of the industrial revolution—gradually supplanted by gas and oil, which in recent years has been supplied from the North Sea. All that will substantially change.

So we should seriously consider alternative energy sources in a determined manner. Indeed, the report and the noble Lord's speech referred to those alternatives. Perhaps I may speak about some of them.

Concerning oil—of which we shall once again become a net importer—more determined efforts need to be made to substitute other forms of energy in the transport sector. While much encouragement is being given to research and development, more decisive action is needed. For example, there are now well-tried alternatives to the use of petroleum products in motor transport. Why could we not make a start by converting all public transport to one or other of those alternatives and providing fiscal incentives, similar to those offered for unleaded petrol, to the private motorist? That would at least be a positive start.

In the case of gas, as the noble Lord said, the main alternative energy sources are nuclear power, coal and renewables. In the case of nuclear energy, the committee is right to state that the three main issues that must be resolved before present nuclear plant can be replaced are its economic viability, perceived safety and waste disposal. On the last matter, there has been a long delay in reaching conclusions. There has been a whole succession of reports and consultations but no conclusions. Until we reach a decision on waste disposal, it will be difficult to reach a conclusion on any replacement nuclear plant.

The committee is also right—as was the noble Lord—to criticise the EU report for being too dismissive about coal. The EU and the UK have abundant coal reserves and skills to develop them. As the noble Lord rightly pointed out, although coal presents environmental difficulties when burnt conventionally, there is now the clear prospect of developing clean coal technology—as it has been in other parts of the world, where plant is working—to overcome that problem. Unfortunately, at present, there is no working plant in the UK. If we develop clean coal technology associated with carbon sequestration, we can make coal thoroughly environmentally acceptable.

As the noble Lord said, much reliance has been placed on renewables. However, expectations have always been somewhat in advance of achievement. Although it is important to develop renewable sources, we must accept that it will be a long time before a major contribution will come from that source. So, we must consider other possibilities, some of which could be provided by developing the small-scale generation of electricity—distributed generation, as it is now called. I have already declared my interest in the subject.

In this country, much of the energy that we lose is from the waste heat from conventional power stations. If that waste heat could be productively used, we could substantially reduce our overall energy requirement. Electricity generated on a smaller scale can make use of the waste heat that large-scale generators cannot. The prospects for small-scale generation making full use of the waste heat are well advanced and could make a big contribution to the energy security problem if the present regulatory obstacles were removed.

In the present system of electricity generation in Britain, the electricity moves only one way: from the major power stations, through the distributive systems to the ultimate consumer. By introducing small-scale generation, we can have electricity that moves two ways. That will mean changes in the regulatory system and in the way in which the distribution system works, particularly at local level. Those issues must be resolved quickly, if we are to take advantage of such prospects.

I wish to raise two issues arising from the operation of the new electricity trading arrangement (NETA). The first is the pressure for wholesale electricity prices to be reduced to the point that plant is now being taken out of production. That raises the important issue of the margin of security of electricity supply. In the old days, it was clear who was responsible for making sure that there was an adequate margin for the security of electricity supply—the CEGB. Now, it is not entirely clear who is responsible. It does not appear to be Ofgem, which seems to regard it as its main task to reduce the price of electricity through the operation of market forces. That is a laudable objective, as long as it does not lead, on the other hand, to a threat to long-term supply and capacity. That matter should be carefully examined.

My second point relates to NETA's adverse impact on the supply of small-scale generators with variable outputs. That is a well known issue and has frequently been mentioned in debates in the House. The settlements procedure under NETA means that small generators with variable output—in particular, renewables and CHP plants—suffer. The Government wish to encourage the development of those plants, but that aspect of the new electricity arrangement operates against them.

In the recent Budget, the Government gave added support to combined heat and power by exempting it entirely from the climate change levy. That is highly welcome and desirable. They have also done it for electricity generation from coalmine methane. Those are important steps in the right direction, but there is more to be done.

A great deal of energy is wasted in the domestic sector. One reason for that is that there have been abundant supplies of energy, in whatever form, and downward pressure on prices. The PIU report correctly draws attention to the need to stimulate greater efficiency in that market. I was a little disappointed in the view expressed in the Select Committee's report about the effect of energy efficiency. The committee concluded that,

"the European Union should continue to promote energy efficiency but without assuming that it will lead to greater security of supply".

I found that a surprising statement. There is no doubt in my mind that greater energy efficiency can substantially lessen the need for imports if directed in the right way. A strong fiscal incentive in the domestic sector could lead to much energy saving that could, combined with a move towards small-scale electricity generation, substantially diminish overall energy needs.

To conclude, my Lords, the Select Committee on the European Union was right to examine the important Green Paper prepared by the European Commission. Security of supply is an issue of major importance not only to the EU as a whole but, increasingly, to the UK. The defect that I have found in many reports on the subject is that they recite options without recommending specific action. Short-term terrorist or political threats cannot be forecast, so a general state of preparedness is required. However, the longer-term trend towards growing dependence on imports is more predictable. We do not need more reports or consultation periods: we need clearly defined action to diversify energy sources and reduce energy demand through greater efficiency.

Photo of Lord Wilson of Tillyorn Lord Wilson of Tillyorn Crossbench 6:47 pm, 23rd April 2002

My Lords, it is a great pleasure to follow the noble Lord, Lord Ezra, who has such long experience of energy matters. He gave powerful evidence to the committee when the report was in preparation. It was also a great pleasure to serve on Sub-Committee B, which worked on the report under the benign chairmanship of the noble Lord, Lord Brooke of Alverthorpe. As the noble Lord said, the report covered a huge amount of ground. It was instructive to be involved in the work of the committee.

I shall concentrate, if I may, on the role of renewable sources of energy, with particular reference to the experience that we have had in the United Kingdom. That is one part of the subject with which the committee dealt. The report used one of those splendid, sonorous committee phrases to refer to renewable energy, saying that it was,

"important not to let a justifiable enthusiasm . . . lead to an unrealistic expectation".

There is an even more powerful expression in Chinese that, roughly translated, describes someone as behaving as though their "eyes were eating ice cream"; in other words, they are looking at some delectable object and getting slightly over-enthusiastic about it.

During the committee's work, it became clear that there was a great deal of justified enthusiasm for renewable sources of energy and many high expectations for it—possibly, even probably, too high. The European Commission has set a target for all energy of 12 per cent from renewable sources by 2010. That doubles a previous target. It was clear from the evidence given to the committee that many people were pressing for higher targets. In the UK, expectations are also high. A target of 10 per cent by 2010 has been set for electricity from renewable sources.

That implies building new sources of electricity generation at a rate of four to five times the rate they have been built during the past decade. That is a substantial increase. The latest energy review by the Cabinet Office, the PIU, talks of the need to double that target by 2010, to 20 per cent of all electricity used in the UK. That is a high target. The evidence which came before the committee from most, but by no means all, of the witnesses suggested that the targets were unrealistic. People tended to use the nicer phrase, "over optimistic".

Before going further with the subject, perhaps I should declare an expired interest, if one is meant to do that. Until some 18 months ago, I was chairman of an energy company which produces the largest amount of electricity from renewable sources in this country. Partly as a result of that experience, but both before and since, I have felt a passionate attachment to the whole history of the development of renewable energy particularly from hydro-electric sources in the UK.

I also feel a huge respect for people such as the great Tom Johnston, the Labour Secretary of State for Scotland in the war-time coalition government and then Secretary of State again after the war, who during that period did a huge amount to develop hydro electricity in Scotland against deep-rooted opposition. I hope that all this will not be seen as unduly colouring my approach to the issues.

I believe that, as suggested in the committee's report, we must be realistic and practical. We must recognise, first, that new generation from renewable sources is expensive. For instance, I am told that, on rough calculation, the cost of generation from a modern gas-fired power station is roughly £21 per megawatt hour, or just over 2p per kilowatt hour. The average cost of generation from a wind farm is about £34 per megawatt hour; that is nearly 3.5p per kilowatt hour. It is very expensive.

I suggest that it is good to encourage the use of renewables; but we need to be aware of the additional cost. Furthermore, we need to ensure that those who consume the electricity and who pay the bills are also aware of the additional cost. After all, if the Government state that X amount of electricity must come from a new renewable source—for instance, wind turbines—and that this must be bought in by the electricity suppliers at an inflated price, that is, in effect, a tax. It would seem right that the people who pay that tax—the consumers of electricity—should know what they are paying. In other words, on a bill you should be able to see that X is the additional amount you are paying because the electricity is coming from a new renewable source. Everyone will then be clear about what is being done.

Then there is the question of what kind of renewable energy one should try to use and develop. Sadly, we have lagged behind on the development of wind turbines. Perhaps that is because everyone concerned was all too well aware of the fact that, although the wind blows strongly, it does not blow all the time. I remember visiting an experimental wind generator in Shetland. I arrived one evening when the plane could hardly land because the wind was blowing a gale. The wind generator had had to be furled so that it would not be blown over. The next morning, when I visited the site, there was no wind and the wind generator was not working. Even in the Shetland Islands, the wind does not blow all the time; it is spasmodic.

However, we in the UK have growing experience of wave generation. It is probably correct to say that we are at the forefront of that. Whereas we buy our new wind turbines essentially from Denmark and Germany, in wave generation the picture is rather different. For example, I remember visiting the island of Islay off the west coast of Scotland where there was being developed a small wave generation power station by a company called Wavegen. As one approached it, one saw nothing—only level ground. Only when one was right on top of it could one see that anything was happening. The wave power is, unlike wind power, constant. One might say that we in the UK have some of the best waves in Europe. Perhaps we should use them more because we are at the forefront of that development.

Moreover, if we are to make full and proper use of renewable sources of energy, we need to ensure that the various parts of the official machinery get together. The noble Lord, Lord Ezra, referred to the new energy trading arrangements (NETA), which are being put out by the regulator, Ofgen. They discriminate against small generators such as wind generators. They also discriminate against generation which is distant from the source of use. But the reality is that, in the UK, the renewable sources of generation tend to be in the North and North West, whereas the major users tend to be in the South or in the Midlands. The NETA arrangements tend to discriminate against bringing power from a distant point and therefore potentially against renewable sources of generation.

If we are to capitalise on our potential renewable generation such as wave and wind power, we need a good North/South link. That will not come cheaply. I have seen an estimate showing that, in order to fulfil the Government's commitment to the use of renewable energy in the UK, it will cost approximately £1 billion in establishing a transmission network. One would hope that those costs would not fall on the area or the consumers where the renewable energy is being generated but throughout the whole of the UK where the energy is to be used.

Finally on that point, one needs to ensure that, as we develop renewable generation, the pricing structure from a system such as NETA does not so operate that it encourages the use of, say, an old coal-fired power station (not one of the clean coal technologies to which the noble Lord, Lord Ezra, referred), thus encouraging the use of that kind of power station at the expense of more efficient but more distant power stations, either more modern or those using renewable sources of energy. The trouble with all this, as the noble Lord, Lord Ezra, implied, is that the remit of the regulator, Ofgem, does not run in that kind of direction. It runs entirely in the direction of cost effectiveness. There is no joined-up government.

If we are to use our renewable sources properly, I suggest that we make full use of our substantial sources of hydro electricity. It amounts to about 50 per cent of all the renewables we have in this country. At one point, the Government ruled out existing large-scale hydro stations from qualifying under their various schemes to encourage the use of renewable energy. Happily, that policy has now changed and present government policy allows hydro electricity, even if it has existed for some time, to be counted for the so-called "green ticket" and for the new Renewables Obligation, provided that it is the result of recent refurbishment and only up to a limit of 20 megawatts.

Many may feel that the 20-megawatt limit is somewhat parsimonious, given that a large hydro station—for instance, Sloy power station on Loch Lomond—is 160 megawatts. Clunie power station, near Pitlochry, is 62 megawatts. If we are really to make use of all our renewable sources of energy, it would seem sensible that government policy should join up and should encourage the use of that energy too.

I have deliberately concentrated on experience in the United Kingdom because that is an area in which we can do something. It is also part of our contribution to what is done throughout the whole of the European Union towards diversity and security of supply. In making use of our own renewable energy resources, we need to be realistic. We should neither expect more, nor set targets for more, than can realistically be achieved. We need to recognise the true cost and to have overall policies that enable renewables to play their full role in diversity, security of supply and being environmentally friendly. If we act in those ways, renewables will take their proper place in the pantheon of energy providers.

Photo of Baroness Cohen of Pimlico Baroness Cohen of Pimlico Labour 7:00 pm, 23rd April 2002

My Lords, I am a member of Sub-Committee B of the Select Committee on the European Union and had a hand in writing the report under the guidance of its excellent chairman, my noble friend Lord Brooke of Alverthorpe. I want to address the issue of nuclear power generation, which currently provides 25 per cent of the United Kingdom's needs.

The UK has 16 nuclear power stations—6 Magnox operated by British Nuclear Fuels and 10 of other designs owned and operated by British Energy plc. The last nuclear power station built in the UK was Sizewell B, which came on stream in 1994. The bulk of those plants are ageing. The Magnox stations will all reach their 40th anniversary within the next 10 to 15 years. Calder Hall, which is still in operation, dates from 1956. The majority of the 10 British Energy plants will reach 40 years of age in the next 15 to 20 years, leaving the UK with limited generating capacity by 2020.

Those nuclear plants provide some 25 per cent of the UK's generating capacity and about 10 per cent of that of the European Union. By 2020 they will be providing less than 3 per cent of UK capacity and about 1 per cent of Europe's—assuming that Electricité de France continues to produce about 70 per cent of the power consumed by France using nuclear sources.

We all assume that the fall in nuclear generation will be made up by increased gas and, to a lesser extent, oil generation. My noble friend Lord Brooke spoke about the potential limitations of gas and oil generation. The noble Lord, Lord Wilson, referred to the contribution to be made by renewable resources; and the noble Lord, Lord Ezra, to that which coal could make. Whichever way you slice it, the implication is that by 2020, Europe will be hugely dependent on geographically distant sources of gas and oil, transported by an ageing distribution network that may still be inadequately financed.

The UK, being at the wrong end of that network, could be particularly adversely affected. Even if those problems did not exist—if gas supplies were closer and distribution more reliable—using carbon sources so heavily undermines the ability of Europe and the UK individually to meet the environmental targets agreed at Kyoto. We agreed to a major reduction of carbon emissions by 2010. So did our European colleagues. It is practically impossible to see how those targets can be reached unless the UK retains something like its current nuclear capacity. The report is primarily about security of supply rather than environmental matters, it is clear that environmental concern contributed to the final, somewhat limp recommendation that

"the nuclear option must be kept open".

I was strongly reminded of the observation in Kipling's poem that

"gardens are not made

By singing:—'Oh, how beautiful!' And sitting in the shade". By the same token, the nuclear power option cannot be kept open by people seriously saying that it should be. Active steps must be taken to make those words approach reality. I welcome the PIU, which at least recommends that the Government take positive steps to keep the nuclear option open.

Members of Sub-Committee B, being conscientious people, discussed those steps in detail. All are difficult but all need tackling now. I put the priorities in reverse order to the noble Lord, Lord Ezra. For me, the first step is dealing with radioactive waste. A report from the Select Committee on Technology in 2001 observed that if we never build another nuclear power station, the problem would still be with us. Defence uses nuclear power. All our submarines are powered by nuclear reactors because that is the only form of propulsion that enables a submarine to operate undetected. Waste is already accumulated from existing stations and decommissioning will add more. The problem will not go away and solutions must be found. We all hope that work will gain impetus when the liabilities management authority is established and operational.

Secondly, it is clear that the industry needs government decisions on the planning and siting of replacement plants. That cannot be left to the normal planning processes, as if we were talking about supermarkets. They are considerations of national importance. Clear policy, unambiguously stated, is required. We should accept the solution urged by British Energy—that planning consent should be available for replacement plants on existing sites. Neither British Energy nor anyone else involved in the UK debate is suggesting that we do more than replace existing capacity. That can be done with fewer and much smaller modern plants, so not all existing sites would necessarily be used.

Thirdly, and critically, the public need the opportunity and the information necessary to enable them to think about nuclear power generation and to form a balanced view. The debate about security of supply has not surfaced since the mid-1980s and is not well understood—not surprising in view of the past 15 years, which have seen cheap and abundant supplies of carbon-based generation.

Nuclear generation has received an undeservedly bad press. For far too long—and in the teeth of the laws of physics, as well as the UK's admirable safety record—public perception has been that a nuclear generating plant remains intrinsically dangerous. There are valid arguments, some of them new, about the dangers of terrorism but the construction of new plants would take such issues into account. They could be rendered reasonably safe with a combination of physical defences and the ability to shut down quickly. There is a lack of logic also in objections. Elements of the public oppose new nuclear generation in any area that is close to them geographically, yet ignore the presence of nuclear plants closer still, in France. All those aspects need addressing to gain public consent for a nuclear plant building programme, which will not be easy.

Fourthly, there is considerable dispute and uncertainty as to the real costs of nuclear power. Some figures suggest that it is not much more expensive than current prices for gas. Figures given to the committee suggested that nuclear power could be generated at 2.2 pence per kilowatt hour. Because the private sector will not build a new power station without assurances about the prices at which its output could be sold, consideration may have to be given to some form of carbon tax—which would also enable the UK to meet the terms of the Kyoto agreement. However, that is by no means clear and the real costs need further exploration.

I hope to see a real sense of urgency in the nuclear debate. The response of Ministers so far to the PIU and to our report has not been unencouraging—just not very dynamic. There is a strand of feeling that it will be all right on the night; that either a way will be found to extract more fuel from somewhere or that some wondrous invention just around the corner will save all our bets. I do not doubt that the private sector will display its usual resource in sweating assets and exploiting to the full world reserves of oil and gas. But what then of our obligations to Kyoto? In my 40-year working life, only one new invention capable of saving all our bets in this field has emerged. It is called nuclear power.

Ministers have promised to take the first steps towards ensuring that the option is kept alive with a White Paper to be published "later in the year". I would be most grateful if, when he comes to respond to the debate, my noble friend on the Front Bench could tell us how much later in the year. Similarly, the setting up of a liabilities management authority has been announced, but primary legislation will be required to fund it and make it operational. Again, I hope that my noble friend will be able to give the House some assurance that the relevant legislation will be brought forward during the next Session to bring this much-needed authority into operation.

Time closes all options. To paraphrase the well-known saying, all that is required for the death of nuclear generation in this country is for Ministers to do not a great deal rather slowly. If we do not take the critical steps towards enabling a programme of replacement for our existing nuclear power plants soon, then we shall lose finally the necessary lead times and the skills of the people needed to build and operate them. Without nuclear generation capacity and the means to renew it, I believe that we shall be putting at risk the ability of the United Kingdom to provide secure generating power for the economic and domestic needs of our citizens in the not too distant future.

Photo of The Earl of Mar and Kellie The Earl of Mar and Kellie Liberal Democrat 7:11 pm, 23rd April 2002

My Lords, following the noble Baroness, Lady Cohen of Pimlico, reminds me that in Scotland, some 44 per cent of our electricity is generated by nuclear power. Furthermore, two out of our three nuclear power stations are due to close in the medium term. Clearly, in Scotland, we shall have to decide what to do about power generation when we reach that point of replacement.

I intervene in this debate at a slight tangent because I have an increasing interest in new forms of energy, in particular the use of non-fossil road fuels and the re-use of waste as road fuels. I note that the report considers renewables to be an agreeable and morally virtuous side-show which may have potential in the future, but on which we should not rely in the near or medium term. I fully accept that many of the renewables are still in the development phase and that they represent only a tiny percentage of the volume of energy required across the United Kingdom.

I wish to declare the following minor interests. I own woodlands in Clackmannanshire and as a consequence sell timber and firewood. I also have to clear up a great deal of rubbish resulting from fly-tipping. I resent that task less when the rubbish is combustible in the stoves at home, thus heating our water. I shall be speaking about alternative road fuels, but I have no interests to declare in that industry, except perhaps to say that at home I have two diesel road vehicles, a Peugeot 306 and Ford Ranger pick-up.

We have an embryonic alternative fuels industry in the United Kingdom which is in need of greater fiscal breaks than those recently offered in the Budget. The road fuels to which I refer are diesel fuels derived from oilseed rape and waste cooking oil. The former is an organic fuel, planted in the spring, harvested in the autumn, processed and used within the year. It is thus a highly renewable fuel. The limited tonnage of oilseed rape diesel fuel could be increased by allowing the crop to be grown during agricultural set-aside or, indeed, as an alternative to set-aside.

The second fuel to take my fancy is diesel fuel derived from waste cooking oil. This is a green fuel, but it is not a renewable one. It is of course a sustainable waste product, which might be seen as being even more virtuous. The source of such waste derives mostly from chip shops, which generally have a problem with regard to its disposal. Recently it has been used as an additive in animal feed, but that is supposed to have come to an end. Where waste cooking oil is so collected, the chip shops change their oil more often, which benefits their chips. That is in itself a useful consequence beyond the use of the old oil as a road fuel.

These industries must develop themselves. The Government could help, but they are not doing so at present. Recently the Chancellor announced fuel duty rebates of 20p per litre on the 46p duty for so-called biodiesel. This will help the producers of biodiesel, which has a small bioderived content and is largely fossil-derived diesel. That barely qualifies it as a renewable or organic fuel.

The duty derogation needs to be increased above the level of 20p in order to bring pure biodiesel and diesel fuel derived from waste on to the forecourts at a competitive price. Their production processes do cost more, in particular in the earlier stages of their development. The Chancellor could help here by introducing a further duty derogation.

Then there is the problem, for which the Government are not responsible, of vehicle warranties. Most manufacturers will allow the use of only fossil-derived diesel fuels, or an owner faces invalidating the warranty. This morning I contacted the agents for both of the vehicles I mentioned earlier in my remarks. Both agents confirmed that the use of non-fossil-derived diesel fuels was out of the question. That is largely a matter of conservatism on the part of the motor engineering industry.

It is a perverse fact that the Chancellor's much-favoured ultra low sulphur diesel fuel may well be causing increased engine wear as it may not be a good upper cylinder lubricant and could be wearing out injector pumps. But then the Chancellor seems to be more interested in acting on vehicle emission reduction than on reducing the use of fossil-derived road fuels. He is right to be interested in reducing greenhouse gases, but he should take a greater interest in promoting the use of non-fossil fuels. They are largely carbon neutral and in the main are presently an untapped source of energy.

I wish to make two further points. First, I believe that the duty on non-fossil fuels is a case of mistaken interpretation of the EU rules. Germany does not impose any duty on biofuels; nor does Poland. Poland is an EU accession country and it will be interesting to see whether the Poles are required to impose a duty on their non-fossil-derived diesel fuel as a part of the accession process.

In a Written Answer published yesterday, the noble Lord, Lord McIntosh of Haringey, stated that when non-fossil fuels are used as road fuels, they require to be taxed at the same rate as the fuel for which they have been substituted. Perhaps it is only raw government policy rather than a misinterpretation. I suspect that the policy could be changed at will.

My second and final point concerns the apparent inability to sell non-fossil fuels as "red diesel". One supplier in North Wales has told me that the local Customs and Excise officials insist that all his non-fossil fuel is subject to the full duty of 46p, even if that fuel is then used in vehicles which qualify for red diesel. There are organisations which would like to use a green diesel in the red diesel context, but that seems to be impossible at present. Will any action be taken to remedy that?

I conclude with the belief that these domestically produced embryonic fuels can contribute to the security of fuel supplies in future, albeit in a small way. That is especially so if their development can be unshackled by fiscal measures.

Photo of Lord Cooke of Islandreagh Lord Cooke of Islandreagh Crossbench 7:20 pm, 23rd April 2002

My Lords, I must congratulate the Select Committee on its report. I found it unusually good bedtime reading. It kept me awake much longer than anything else. I believed that the noble Lord, Lord Brooke of Alverthorpe, and others, would discuss and debate the main issues of the report. I have picked up a few things which might be described as "sidelines".

I was surprised, but not too surprised, to find that European countries have done little to improve security by interconnecting and co-ordinating their electrical power networks and pipelines. Perhaps they do not have the inter-country trust that is needed. But it means that we cannot depend on gas supplies via continental pipelines to the extent we might have expected.

The Select Committee's executive report sets out all the main issues very well. I found myself in agreement with the recommendations on each, particularly the last urging government to maintain nuclear power generation to at least 20 per cent of the total. I believe that it is vital that we keep in touch with nuclear power development and waste disposal. I entirely agree with the noble Baroness, Lady Cohen of Pimlico, that we must not let time pass, but get to the matter now and move things on quickly otherwise it will be too late.

I found the submissions to the Select Committee and the examination of witnesses to be of particular interest. They were very relevant and gave real body to the report. I wish to comment on some of them. I heard Dr Dieter Helm, one of the witnesses, speak at a recent meeting. I noted that he had a thorough grasp of all the issues. His evidence includes his thoughts about an energy agency comprising knowledgeable people with relevant expertise who would advise government, but be independent.

Unfortunately, the Government have declared the intention to use the ministerial sub-committee on energy policy to carry out that work. Their reports will have a political slant which is inappropriate for a report of this nature. We are moving into a new world of problems which will require expertise which is scarce at present in the view of Dr Helm: I agree. I believe that his proposal is an important one and should be supported so that we could separate technical advice from politics.

The Select Committee interviewed many interesting witnesses including, of course, the noble Lord, Lord Ezra. From his written submission I took particular note of his request that,

"the emphasis on increased competition and reduced prices needs to be replaced with emphasis on energy conservation and efficiency".

I believe that we are paying too much attention to price alone.

The new electricity trading arrangements have not made for efficient operation of the power stations. The noble Lord pointed out that very cheap electrical power did not encourage either manufacturers or householders to save energy. In the comments of the noble Lord, Lord Ezra, and in many other interviews, there was more good sense shown about energy matters than much of what I have read in official sources recently. The PIU submission, The Energy Review, published in February, is a good example of the latter. There are nine pages listing the names of those consulted. Unfortunately, the benefit of their advice is not obvious. For instance, the review sets up arbitrary targets and proposes that there should be an examination later on how to achieve them. That seems an odd way to deal with the matter. Does it make sense?

One of the many recommendations in the report is that,

"Government should set up a cross-cutting unit to oversee the future direction of energy policy; to implement the findings of the PIU review and to provide an enhanced analytical capability".

That made me wonder whether the members of the unit will be given chain saws to enhance their analytical capability.

The noble Lord, Lord Ezra, spoke with feeling on the reduction of energy in buildings, a matter which has not been attended to by the authorities. I simply do not understand why. It is also a subject which is close to my heart. I must declare a past interest. For many years I was involved in the promotion and building of low-energy houses and other buildings. They cost one-half or less to heat than houses built to the building regulations of the time. Building was faster and the cost less than 10 per cent more than ordinary houses. To the best of my knowledge, we had no complaints. We have never had any complaints from the owners or tenants of very comfortable houses.

I cannot resist mentioning the evidence given by Mr Andrew Warren of EuroACE. He believed that if we concentrated on the insulation of the existing housing stock we could reduce the energy required by 30 per cent or 40 per cent, which amounts to about 12 per cent of the national demand for energy. But the building trade does not like fiddling around with work which requires care and judgment. It charges very high prices for such work. It prefers to build houses quickly with bricks and blocks. I am afraid that vested interests would resist change in building materials or methods.

I believe that we should be working nationally to reduce the energy used in existing houses. It has been achieved. We should look to Denmark which has achieved much in a similar climate. I wonder whether the Select Committee would like to move on to study how the demand for energy, particularly for housing, could be reduced. If it is feeling energetic it might include industry and other buildings.

I finish by congratulating the members of the Select Committee of the European Union on their painstaking work. I hope that it will receive widespread attention.

Photo of Lord Shutt of Greetland Lord Shutt of Greetland Liberal Democrat 7:28 pm, 23rd April 2002

My Lords, I also rise as a Member of Sub-Committee B. Until yesterday I thought I would come along and take note. I now find that it is a double act of both speaking and winding up. It is my first experience of being on a committee, preparing a substantial report and being thoroughly involved. I endeavoured to attend most of the meetings.

It has been somewhat difficult to get used to some of the language that was used, but I believe that ultimately we coped. Three matters really stuck in my mind as regards the report. The first point struck me six months ago yesterday at one of our earliest meetings. In response to the noble Baroness, Lady O'Cathain, one of our witnesses, Professor Paul Stevens, stated at page 23 of the evidence:

"In the countries of the Middle East for a long time now there has been a growing disconnect between the rulers and the ruled. The ruled, by and large, regard their ruling elite as incompetent, corrupt, un-Islamic and propped up by the United States".

That remark has stayed with me. It is very important because it suggests that many of the issues surrounding the security of supply concern politics and diplomacy. We must not forget that.

My second point relates to the many discussions that there have been about renewables. The suggestion that 12 per cent of our energy will come from renewables by 2010 arises more from hope than expectation. I wonder whether there should be more encouragement across Europe for renewable sources of energy.

The third point to stay with me relates to the nuclear option and the concerns about safety and nuclear waste should that come very much into the reckoning. Those issues will have to be considered thoroughly.

So those are the three areas that one should keep in mind—the security of supply of oil, renewables and, if the nuclear option has to be looked at, safety and nuclear waste.

I, too, pay tribute to the noble Lord, Lord Brooke of Alverthorpe, for giving a full account and a clear summary of the report. It is interesting that, with the exception of my noble friend Lord Ezra, who referred particularly to coal and energy efficiency, most noble Lords homed in on two issues. The noble Baroness, Lady Cohen of Pimlico, made a vibrant case for the nuclear option to be kept open, a matter also referred to by the noble Lord, Lord Cooke; and the noble Lord, Lord Wilson, and my noble friend Lord Mar and Kellie referred to renewables. It is obvious from the debate that your Lordships believe that, however difficult it may be, the renewable option needs to be encouraged and pursued to ensure security of supply.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative 7:34 pm, 23rd April 2002

My Lords, I, too, congratulate the noble Lord, Lord Brooke of Alverthorpe, and his committee on their excellent work. I also thank him for securing the time for this important debate. It is important but it is not novel because, in one way or another, we have debated energy supply and its future at frequent intervals without, as far as I can see, any solutions appearing even on the distant horizon. It is important also because the Government have not yet provided the time for a debate on the review in both Houses, as was promised in European Standing Committee C by the Minister for Industry and Energy last year.

It is right that the House should continue to raise the matter in order to concentrate the Government's mind—and, it is to be hoped, the minds of other governments, especially those in the EU and the United States—on the need for action now, rather than to leave matters until severe damage is done not only to our economy and the lives of our citizens, but to the rest of the world as well.

There are several sources of energy available to the United Kingdom, but different problems attach to each—problems which, in the case of a loss or restriction of the supply of each of them, could cause severe disruption to the lives of our citizens and the whole of our industry, and which would certainly compromise our security as regards our energy supply.

The Select Committee stated that,

"the focus should be on risk management and . . . the main tools should be diversity, flexibility and the availability back up".

Thus far I entirely agree with the committee; but the sentence concludes, "not . . . self sufficiency".

Safety in any field of supply of goods or services is greatest when one does not have to depend on the performance or good will of others—in this case, foreign governments who may have political axes to grind or even local problems to solve. One has to look only at the various attempts at oil embargoes or the virtual absence of a free and open market in the price of oil, which is manipulated by a supranational cartel, to see what I mean. As for local problems, can it be said that the former Soviet Union, with its massive resources of oil and gas, is a dependable source of supply upon which anyone could place long term reliance? The noble Lord, Lord Brooke of Alverthorpe, made a very similar point.

In its energy review, the Government's Performance and Innovation Unit stated that,

"energy security should be addressed by a variety of means . . . however, there appears to be no pressing problems connected with the increased dependence on gas, including gas imported from overseas".

That is short-termism. Leaving aside the fact that large parts of our supplies have to be paid for out of our foreign currency earnings, dependency on others—even in what the PIU calls the "liberalised European gas market"—still makes us vulnerable to forces over which we have no control. Proven gas reserves in the United Kingdom, Norway and the Netherlands are less than the United Kingdom's gas requirements for the next 50 years. Russia and the Middle East hold more than 60 per cent of the world's gas supplies, and geographically the United Kingdom is at the far end of a trans-European gas pipeline, as the noble Lord, Lord Ezra, pointed out.

The PIU refers to,

"continued attention to long term incentives".

In my view, "long term" includes making sure that we have sufficient alternative supplies of energy—especially ones where we are not dependent on international factors—so that even if for the moment, "We're all right, Jack", we will not have put so many eggs into the one basket of overseas supplies of gas that our grandchildren could be in trouble half-way through this new century.

It is unnecessary for me to remind your Lordships—but I shall do so nevertheless—that the supplies of all kinds of fossil fuel, especially oil and gas, are not inexhaustible, and that while the world continues to consume them at the rate it is doing, we are bringing closer the day when future generations, starting with the one after next, will have to find some alternative forms of energy.

Gas is a clean fuel. It avoids the problems of both coal and oil and, to that extent, its use should be encouraged. It is beyond argument that burning fossil fuels causes major problems to the environment.

As I reminded your Lordships in the debate on cleaner coal last year, a United States Senate Committee on air quality reported as long ago as 1975 that every coal-burning plant produces 25 deaths and 60,000 cases of respiratory disease as a result of the pollutants it emits, and that is quite apart from the property and environmental damage that those pollutants cause.

Almost four years ago, the Minister for Science and Technology told the other place that the Government support the development of clean coal technology. But by the following year the United Kingdom's leading share in this technology in the world market had fallen from 12.5 per cent to 11 per cent. When the Government came to power, they said that they would provide £60 million for research into this field.

In November 2000, the Minister for Competitiveness in Europe told another place:

"We are conducting an analysis [into cleaner coal] and will do so in even more detail as we proceed with examining the technology".—[Official Report, Commons, 22/11/00; col. 405.]

Without engaging in a similar piece of waffle, perhaps the Minister will tell us precisely what the Government are doing and what incentives they are providing for this vital project, which, if successful—and before the coal-mining industry is lost for ever—will provide a great deal of energy independence to the United Kingdom.

On the subject of abating carbon emissions, the PIU also stated in its report:

"There would be no sense for the UK to incur large abatement costs, harming its international competitiveness, if other countries were not doing the same".

If that is truly the Government's policy, it not only negates their claim of supporting cleaner coal research; it means that they cannot complain about the United States' deplorable renunciation of the Kyoto agreement.

Renewable sources of energy are a vital topic in any debate about the independence of this country's energy supplies. Unfortunately, the ability of the United Kingdom to establish these resources is severely limited, for several reasons. First, we do not have the climate to enable solar cells to be used with any degree of reliability. We do not have the physical geography that would enable us to obtain substantial supplies from hydro-electricity—such as those available to Switzerland and France. Wind, wave and tidal sources, even where technically feasible, are mostly best sited in Scotland, far from areas of dense population, which causes problems in the economics of getting the resultant supplies to the consumer. There are parts of the United Kingdom where wind farms could be sited, but, as in Scotland, Yorkshire people do not want projects like these near their home or in their local beauty spots.

Nevertheless, apart from the political and technical difficulties involved, the Government have to support the development of a substantial percentage of our energy needs from renewable sources as part of the process of achieving a degree of independence of foreign supplies. That includes resolving the problem that, in the short term, renewable sources are more expensive and less economic than simply burning large quantities of a rapidly diminishing natural resource. The extra costs of conservation by using renewable sources has to be regarded as an investment for the future benefit of our descendants. I was interested to see that the noble Lord, Lord Wilson of Tillyorn, majored on this particular source of energy.

Will the Minister tell the House what resources the Government are making available to encourage research and development in this vital field—in actual cash subsidies, the procurement of funds from the EC, or tax incentives?

All I know about the Government's plans regarding renewable energy sources is what the President of the Board of Trade said to the other place on 28th June 1998. Perhaps I may quote her remarks:

"I am sure that he will be gratified to learn that we already have an application to build a suitable station, which we shall, of course, be considering with interest".—[Official Report, Commons, 25/6/98; col. 1175.]

Perhaps I have missed something amidst the snowstorm of paper that passes over my desk every day, but I should be glad if the Minister could tell us the result of that four-year exercise in consideration.

That brings me to the all-important topic of nuclear energy. I was interested to hear what the noble Baroness, Lady Cohen of Pimlico, had to say on the subject. Fuel supplies are abundant and secure. They come from Canada and Australia, which are stable and friendly countries. The volume of supplies is reliable and continuous and can be assured by the retention of strategic reserves, and only about 250 million tonnes per annum would meet an appreciable proportion of the United Kingdom's energy needs.

I accept that many people have sincere reservations about the use of nuclear fuel and nuclear power stations. With no disrespect to them, a great part of those fears are unfounded and are caused in some cases by ignorance and perhaps even by deliberate misinformation from the less responsible elements in the ecology lobby. Again, I was interested to hear the points made so well by the noble Baroness, Lady Cohen of Pimlico.

In saying that in the past, I have had two well-publicised incidents quoted at me; namely, the accidents at Three Mile Island and Chernobyl. Without going into detail, I believe that modern reactors are not prone to such disasters. Despite dramatic demonstrations by pressure groups, I believe that this type of energy is as safe as any other. I find it surprising that those who campaign against nuclear fuel are often the very same people who campaign against global warming and acid rain, both of which are caused by fossil fuels. An average coal-burning power station produces about a quarter of a tonne of ash in an hour. The waste generated by a nuclear power station in a year would easily fit under a card table and, despite propaganda to the contrary, is technically easy to contain and store safely. The cost of the necessary storage of such waste and the decommissioning of obsolete nuclear stations does add substantially to the cost of nuclear power, and that is unavoidable.

In anticipation of today's debate, the Clerk to your Lordships' Science and Technology Committee sent me a copy of the committee's report on managing radioactive waste dated last November. He highlighted three paragraphs of the report, which concluded:

"the view is often expressed that it would be irresponsible to make further commitments to nuclear power without settling the problem of waste".

I was pleased to receive the report in the interests of presenting a balanced argument. However, I believe—I hope that I am right—that the problem of disposal could be, or is already, solvable using methods and technology currently available. But again, the question of waste has to be seen as part of the whole picture as regards nuclear energy.

The additional disposal and decommissioning cost is, of course, spread among the other sources of supply by what is called "pool pricing", which evens out the cost to the consumer irrespective of the source of the supply received.

The important fact that presses on us with ever-increasing urgency is that 50 per cent of Scottish electricity is from nuclear sources and in the rest of the United Kingdom the figure is 25 per cent. However, the existing stations will, sooner rather than later, have to close, and the lost power will have to be replaced. A decision about what types of power station are to replace the existing ones cannot be deferred much longer. It is, therefore, essential that the pros and cons on the use of nuclear energy are carefully considered and that the question of whether or not to use it is finally decided once and for all. It is difficult to see what would happen in Scotland, and what other sources of energy it would have. The Government's coyness about holding a debate on the energy review may simply be due to the fact that they have not arrived at a conclusion, and they may be concerned about their Back-Benchers in another place. However, the debate must come to a conclusion.

Our debate today does not relate directly to the ecological aspects of energy use, although the topic is inescapable. What solution is offered by the Government in their PIU report? I quote:

"The Government should create a new cost-cutting Sustainable Energy Policy Unit to draw together all dimensions of energy policy in the UK".

It seems to me that the Government are simply intending to set up yet another quango.

In conclusion, perhaps I may make five points. First, a robust consensus on energy must be taken on the facts—for example, on climate change and on reliable energy projections and forecasts. Secondly, there is a compelling importance to supporting and planning ahead the development of renewable sources, especially for the United Kingdom, in view of the potential depletion of gas and oil supplies available to the United Kingdom within the next 20 to 50 years. Thirdly, current political short-term considerations and loyalties should not cloud the necessity of planning for the long-term needs relating to climate change, biodiversity and the use of all available resources. Fourthly, the Government must do more to gain the support of the public for the needs of conservation of supplies by symbolic exercises in the use of energy-efficient public buildings. I note what the noble Lord, Lord Cooke, said about his involvement in making energy-saving houses. The use of low or zero-emission vehicles is also important. Fifthly, the issue of nuclear energy must be resolved. New power stations take time to design, build and to bring on stream. Time is marching on and a decision has to be made before there is a breakdown in supply and we suffer major power cuts of the sort that recently paralysed California.

The responsibility for providing resources and tax for research and development rests with the Government. The responsibility for leading the world and Europe by example rests with the Government. The responsibility for putting the United Kingdom's present and future energy needs first rests with the Government. We currently import about 50 per cent of our energy needs. As many noble Lords have pointed out, within the next 20 years that could rise to 70 per cent. I look forward to hearing from the Minister how the Government intend to meet their responsibilities and reduce the UK's potential dependence on imports.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation) 7:51 pm, 23rd April 2002

My Lords, the Government welcome the committee's thorough and comprehensive examination of the issues arising from the Green Paper, under the chairmanship of the noble Lord, Lord Brooke. The events of 11th September and the recent escalation of tension in the Middle East have brought the issues relating to the security of supply into sharper focus. However, the core issues remain fundamentally the same. The UK and the EU are facing increasing energy dependence. I agree with the noble Lord, Lord Brooke, that we should be concerned about that. However, there is no single simple solution or silver bullet. We need to move forward on a number of fronts if this country is to achieve the energy security that we must have.

The committee identified a wide range of important issues, on all of which the Government are broadly in agreement. I shall put my remarks in the context of six of those: liberalisation, nuclear power, coal, renewables, energy efficiency and research and development.

I very much agree with the noble Lord, Lord Brooke, that we should be concerned with risk management rather than with self-sufficiency. To respond to the noble Lord, Lord Ezra, a belief in risk management does not mean that one should not take steps for mitigation. The argument is between risk management and some kind of central planning. The most obvious aspect of the energy scene is the simple impossibility of planning for the future, because one has no idea what the sources of supply or their costs will be.

The DTI was recently considering whether we should go on supporting the world programme on fusion energy. We had a helpful contribution from the economists, who said that they could tell us the answer if we could tell them what the cost of fusion energy would be in 50 years, what the cost of the other energy sources would be and what the demand would be. We cannot make that prediction six months ahead, let alone 50 years. If we could make the prediction 50 years ahead, we would not need economists to tell us the right answer.

Flexibility is one of the key issues in energy. That flexibility comes with a process of liberalisation, which is the most important of the issues. The UK's liberalised energy markets are widely seen as a success. We see market systems as central to future energy policy domestically and internationally.

In response to the noble Baroness, Lady Miller, the option of self-sufficiency is not a possibility in any of the scenarios. In formulating any energy policy, the three considerations of energy security, cost and environmental objectives must all be borne in mind. Self-sufficiency is not possible if you are trying to meet all three of those.

We firmly agree with the Select Committee's views on the link between a fully liberalised, integrated, competitive EU energy market and security of supply. However, I do not agree with the noble Lord, Lord Brooke, that no progress was made at Barcelona. The conclusions at the recent Barcelona summit gave a welcome push towards liberalisation of the EU's electricity and gas markets and set out the key principles needed for effective competition: network separation, published tariffs, a regulatory authority in each member state and cross-border trading mechanisms. It was also agreed that industrial and commercial customers must be able to choose their suppliers by 2004 and that agreement should be reached by spring 2003 on further measures—in other words, the opening up of the domestic sector.

However, in answer to the noble Lord, Lord Brooke, I cannot say precisely when there will be a regulatory authority in Germany. There is still much to be done on that front, but at least we are now moving in the right direction.

As the committee noted, liberalisation is not in itself sufficient for an effective single EU energy market. Key missing infrastructure links need addressing. There was progress on that, too, at Barcelona, with agreement that the revised trans-European network—TEN—energy guidelines be adopted by December 2002. By making financial assistance available for important projects where the market cannot deliver on its own, this will help the development of a well connected energy infrastructure throughout the EU.

The importance of liberalisation for security of supply applies also to countries outside the EU, particularly since, as the committee noted, the sources on which we have become dependent are uncertain. For example, the noble Baroness, Lady Miller, sees the EU's dependency on Russian gas as a cause for alarm. We do not see it that way. Russia has proved a reliable supplier and needs gas revenue as much as the EU needs her gas. Russia also needs foreign investment to realise her export potential.

At the same time, it is important that the European Commission continues to press for economic liberalisation, competitive market conditions and a stable investment climate in all supplier countries. Negotiations in the World Trade Organisation, the International Energy Agency and the Energy Charter Treaty provide the means to do so. I very much agree with the noble Lord, Lord Shutt, that diplomacy has a key part to play in that aspect.

There are various sources of supply. Diverse sources of energy are no less important for security than diverse countries of supply. I agree with the noble Baroness, Lady Cohen, that we need to think hard about the future of nuclear power. It will clearly be very difficult to achieve our environmental goals without nuclear power. If we ran down the 25 per cent of our energy supply that comes from nuclear power, it would be very difficult to replace it with renewables. That is why the Government are launching a public consultation on the PIU recommendations, which will lead to a White Paper later this year.

It has always seemed to me that one of the great values of the PIU report was to get the facts on the table about the energy situation so that there can be a major public debate. The PIU report was essentially independent, which was one of its great values. It recommended that the Government take positive steps to keep the nuclear option open and to stimulate open and transparent debate on waste and other areas of nuclear policy. Nuclear stations will continue to contribute to the UK's energy requirements, provided they do so to the high safety and environmental standards currently observed.

The Government already support research into innovative reactor systems for the longer term which could provide competitively priced electricity supplies while addressing the public concerns of safety, waste and proliferation. The noble Lord, Lord Ezra, raised the issue of radioactive waste. The Government's September 2001 consultation paper Managing Radioactive Waste Safely seeks views on the management of radioactive waste over the longer term and ways of ensuring public confidence in the decisions to be taken. I think that the sector is also increasingly seen as a major subject for R and D. If we can apply R and D to it and come up with solutions, the overall nuclear power issue will be transformed.

In the European Union context, it is for member states to decide whether nuclear generation should be part of their fuel mix. However, we strongly support the Green Paper's assertion that nuclear energy makes a major contribution to security of supply and greenhouse gas emission reduction.

The Government agree that coal has a future in helping to secure energy supplies. Its advantages include the geopolitical diversity of supply sources, the ease with which it can be stockpiled, and the flexibility of coal-fired generation in meeting peak demand or covering for supply difficulties in other fuels. Although there are serious environmental considerations, those issues can, as the noble Lord, Lord Brooke, said, be tackled. Nevertheless, if we want to continue using significant amounts of coal in electricity generation, we must adopt technological advances to address the remaining potential environmental impacts.

The noble Lord, Lord Ezra, mentioned the need for a clean coal generation demonstration plant in the United Kingdom. Cleaner coal technologies are well established in larger plants and we do not need further development in that regard. However, in answer to the noble Baroness, Lady Miller, the Department of Trade and Industry is broadening its R and D programme to enable it to support small-scale cleaner-coal technology demonstration activities and to allow it to cover technical and economic studies in carbon capture and storage. The department will also encourage research and development teams to look for sources of European support for that work.

The Government believe that renewables have an important contribution to make both to energy security and to emissions reduction. At the same time, however, we recognise that contributions from other sources will be needed. Renewables will play an increasingly important role in our energy use, but their future contribution will be even harder to quantify than that for other energy forms. We have to push very hard on the issue on a number of different fronts. However, I agree with the noble Lord, Lord Wilson, that we must be realistic about what can be achieved. Nevertheless, the situation is not static and the cost of renewables is, as one would expect, declining under the impact of scale increases and the input of R and D.

I also tell the noble Lord, Lord Wilson, that the United Kingdom's slowness in developing a wind industry is in no way due to an insufficient quantity or quality of wind. The United Kingdom is actually very well placed in terms of wind. However, he was quite right in his comments. In a recent report on energy research, the Chief Scientific Adviser has highlighted wave and tidal power as critical research areas in which we can expect a step change in performance. The main point on hydro-electric power is that we are already using almost all of our capacity. Consequently, the sector will not be able to contribute a great deal more in future. The sector also contributes a very high proportion of what is described as renewable energy, in some senses making the position look more optimistic than it is.

We are putting a lot of money into renewables by means of a series of mechanisms including the Carbon Trust. We have also recently increased the money provided through the Sixth Framework Programme from 600 million euros to 810 million euros. That is a substantial sum for research.

I heard the various points on taxation issues made by the noble Earl, Lord Mar and Kellie. However, he should appreciate that, as important as those sources are, none of them—particularly waste cooking oil—will make a huge dent in this major problem. In developing renewable energy, it is necessary to focus on a few significant issues that will have an impact on the national scene.

The Government note the committee's comment that energy efficiency will not necessarily lead to greater security of supply. Nevertheless, energy efficiency does bring huge environmental benefits. It is also important to realise that energy efficiency has increased substantially in recent years. Since 1970, the UK economy has grown by more than 90 per cent, but energy consumption by only 10 per cent. We are doing quite a bit on the issue although there is more to be done in the domestic sector. The Government's new energy efficiency commitment started at the beginning of this month and will require energy suppliers to meet targets for improving energy efficiency by offering help and advice to domestic consumers. It will focus particularly on low-income customers.

Research and development is another key area, and the Chief Scientific Adviser has just conducted a review of all our energy R and D activity. International data show that UK government spending on energy research, development and demonstration declined dramatically from the mid-1980s to the mid-1990s such that spending in 1995 was roughly one tenth of that in 1984. We are reversing the situation, and the Chief Scientific Adviser's report suggested that we should focus on the six key spheres—sub-carbon sequestration, energy efficiency, hydrogen, nuclear, solar voltaics and wave and tidal power—in which a step change is most likely.

The noble Lord, Lord Brooke, asked about the joint committee on security of energy supplies and when its report will be available. I can confirm that the committee, working under the auspices of the DTI and Ofgem, is examining issues such as the future adequacy of our infrastructure including our gas import infrastructure. Although I cannot make a specific commitment, I hope and expect that the committee's first report will be published soon, within about the next month.

The noble Lord, Lord Ezra, drew attention to the potential contribution of small-scale electricity generation including combined heat and power. The Government have been very active in this sector. Ofgem has been considering the impact of NETA on embedded generation, and, as the noble Lord acknowledged, my right honourable friend the Chancellor proposes to exempt good-quality CHP from the climate change levy subject to EU state aids approval. The noble Lord also raised the key issue of who is responsible for ensuring a long-term electricity supply. Responsibility lies firmly with Ofgem, which is responsible for protecting the interests of consumers, including current and future consumers. That duty also includes ensuring appropriate conditions for market-related arrangements to safeguard long-term electricity and gas supplies. There was also a question about when the White Paper will be produced. I can only say that it will be produced towards the end of the year.

I have attempted to cover the key issues identified in the Committee's valuable report. We are broadly in agreement with the Committee's views and appreciate its useful contribution to what must be one of the most important debates in this country. The Committee has produced a very helpful report which will be extremely productive in furthering an informed public debate on these issues. We need such a debate so that people from all types of background can express their concerns. There are no simple solutions, but the Government welcome the debate. The United Kingdom's energy policy will have to continue to strike a balance between the often conflicting priorities of energy security, environmental protection and consumer interests.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour 8:10 pm, 23rd April 2002

My Lords, once again we have had an interesting debate on a report of the European Union Committee. I am grateful to all noble Lords who contributed to it. I am also grateful to the Minister for what I hope everyone will agree was a full response to the points that were made. As he said at the beginning of his response, there is not that much between what we said and the Government's response.

However, I ask the Minister to reconsider our recommendation on one matter and to reconsider my remarks in opening the debate. I refer to Russia. There is no question that Russia has delivered so far and appears to be able to deliver in the near to middle term. However, we have expressed concern about the longer term, 20 to 25 years ahead, and about the dangers that we foresee may arise. I ask the Minister to reflect on our comments on that issue as his response appeared—to put it kindly—somewhat complacent.

I trust that all the contributions this evening and those in our written submission will help in the development of energy policy and the security of energy at EU level and in particular in the UK. We look forward to the debates which will take place later this year on a whole variety of topics concerning energy policy. We look forward even more to some tough decisions being taken on some of the important issues we pointed up in our report.

On Question, Motion agreed to.