My Lords, between October 2013 and September 2014, electricity imported into the United Kingdom was 7% of total electricity consumption. Electricity interconnection strengthens our security of supply and can lead to lower bills. Its flexibility supports renewable electricity generation. Greater interconnection means we can export excess power and import at times of stress.
I thank the noble Baroness for that reply, although 7% seems quite a large figure. What assumptions are made for the availability of imported electricity to meet our peak demand? What contractual agreements are in place to undergird the availability of that supply?
My Lords, the right reverend Prelate raises an important issue about making sure that we have supply available all the time. The investment framework we have introduced means that we are getting on board two new interconnectors. They will make their final investment decisions this March. We realise that we need to do much more and that is why we have looked at the interconnectors as part of a programme that enables energy supply when it is needed most.
My Lords, so far as indigenous energy resources are concerned, can my noble friend the Minister confirm that it is the Government’s policy to encourage the most rapid, practicable exploration of our UK shale gas resources? In that context, will she join me in deploring the unreasonable delays currently imposed by Lancashire County Council?
My Lords, my noble friend is of course a great advocate of shale gas, which offers huge potential for adding to the UK’s energy source but we need a diverse mix of energy supply. As a Government, we have tried to remove many barriers that get in the way of exploration but we have to work very closely with local communities to ensure that they come on board.
My Lords, further to that point about shale gas, one of the main reasons for the interconnector clicking into the UK direction is the rather dodgy state of our generation capacity at the moment. Given the glut of oil and the impact on oil prices, which knocks on to gas prices, what discussions have the Government had with the major generators about their long-term projections now and their choices for sources of generation? That impacts on shale gas and shale oil because the cost of exploration and production is not cheap.
My Lords, the noble Baroness’s point is well intended. As she rightly says, we need to look at the long term. While we have a drive-down of prices today, we need to see how the longer-term picture will encapsulate all energy supplies. That is why I am really pleased that this Government at least took the decision to make a greater diversity of energy supply available through the Energy Act 2013. That enabled the renewables sector to come and work on a par with traditional fuels. However, we have to make sure that whatever we do and whichever source we try to promote—in this case, shale offers huge potential—we support all supplies that make us less dependent on imported energy.
My Lords, I congratulate the Minister and the Government on revitalising the interconnector debate. Given that this is a way to reduce the cost of a decarbonised electricity system in the UK, what is happening specifically about negotiations with the Government of Iceland, where a huge amount of geothermal and hydro power is available? I understand that there are difficulties with European regulations in allowing the interconnector market to go ahead. What are the Government doing to renegotiate some of those rather unhelpful single market rules?
My noble friend is absolutely right: Iceland has vast geothermal, hydro and wind resources. We stand ready to liaise further with the Icelandic Government to determine the potential for interconnection in future that will benefit both countries.
My Lords, the Government of Latvia have announced the formation of an energy union within the European Union as one of their priorities for their term in the presidency. Can we have an assurance in this House that that will be fully supported by Her Majesty’s Government in the United Kingdom?
My Lords, this Government have been supportive of making sure that the UK is well managed within its own production at home, but of course we need to ensure that our European partners are also rising to the game. We are working very hard with our European partners to make sure that they are as ambitious as we are.
My Lords, the Minister will know that this country is now the largest external supplier of electricity to Germany through the interconnectors. At times of high pressure on electricity supplies in Europe, how and by whom is it decided in which direction the electricity flows down the interconnectors? Is that simply a matter of market forces and, if the prices are higher in Germany, do the lights go out in the UK?
We have enough capacity here. As the noble Lord is fully aware, Ofgem has worked very hard to ensure that the balanced reserves are in absolutely the right place. Yes, our margins have tightened somewhat, but that is not unusual; it has happened in the past. We currently have four gigawatts of interconnection. We are looking, through the least regret scenario, to introduce another five gigawatts of interconnection. Noble Lords should be reassured that this Government are taking that very seriously.
My Lords, the Minister is correct to say that the lights are not in imminent danger of going out. Interconnectors are increasing and delivering, demand for electricity is going down and gas prices are softening, so there is no imminent danger. However, we now find ourselves in a strange situation where we are paying old polluting coal stations to stay open at the same time as paying to close them. When will the Government address that anomaly?
My Lords, the noble Baroness is absolutely aware that we need to ensure that we are also being cost-sensitive to the consumer. Consumers cannot be bearing the brunt of us closing plants down and putting the prices up.
My Lords, I declare an interest as an adviser to Mitsubishi Electric. My noble friend mentioned interconnectors; does she agree that it is not just a question of the Iceland possibility? We could get electricity from Norway and Denmark, wind electricity from Ireland, or via other interconnectors from France and Belgium. Does she agree that all these prospects are there and could contribute vastly to our electricity supply, and will she confirm that the Government are encouraging all of them?
I am extremely grateful for my noble friend’s intervention. Yes, of course those countries are very important to us and, through the cap and floor regime introduced by Ofgem, we have seen five interconnector projects in its first application. There is a lot of good work going on with the interconnectors.