[Mr David Amess in the Chair] — Energy Supply

Part of the debate – in Westminster Hall at 3:49 pm on 6th September 2012.

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Photo of John Hayes John Hayes The Minister for Universities and Science, The Minister of State, Department for Business, Innovation and Skills, The Minister of State, Department of Energy and Climate Change 3:49 pm, 6th September 2012

As ever, it is a pleasure to serve under your chairmanship, Mr Amess.

Benjamin Disraeli said, “What we expect seldom occurs, but what we least expect generally happens to us.” In that spirit, I stand here as the Minister responding to this important debate. I thank the Committee for drawing the matter to the House’s attention.

Energy security is a vital subject with ramifications and implications of all kinds for our economy and for wider society. In addition, there are implications for employment, skills and many other areas, as the shadow Minister, Tom Greatrex, who I look forward to working with closely, said. That is why energy security is at the heart of the Government’s energy policy.

Time does not permit me to go into the detail that I would like, but I will happily write to hon. Members about any queries that they might have, in particular those arising from the debate or indeed from the Committee’s report, because that is the right thing to do in the circumstances. I also want to take some time to thank my predecessor, as several hon. Members already have. I will of course draw on his experience; I am meeting him for lunch next week—[ Interruption. ] I will be paying. I will also draw on the experience of members of the Committee.

The business of ensuring that we can maintain energy supplies without disruption, and that we have adequate infrastructure investment to do so, is central to our aim. That objective sits alongside and must be delivered with others to which hon. Members have referred. Significant among them is the affordability of energy, but we also have obligations in respect of carbon emissions and renewables. My hon. Friend David Mowat made a powerful point about some of their perhaps contradictory effects, on which I shall ask my officials to brief me thoroughly after the debate.

Fundamentally, the basis of our energy security policy is to ensure that there are competitive market structures that incentivise companies to provide reliable supplies at attractive prices, combined with robust regulation. The arrangements must be made to work in the national interest. Obviously, there have been no major physical interruptions to UK oil supplies in recent history, and electricity capacity margins are currently very high. Our gas market coped admirably with the coldest December for 100 years in 2010 and, more recently, with the cold snap that we had this winter. In addition, in recent years, the gas market has brought forward import infrastructure equivalent to some 150% of annual demand.

My hon. Friend Laura Sandys is nevertheless right to say that we must not be complacent. Politicians, at least in this country, are accustomed to being fired, but not to being fired at, and I hear what she says about that not being true elsewhere. We certainly need to recognise the challenges that we face with a degree of seriousness that affirms that this is an imperative.

The challenges can be summarised as follows. First, over the coming decade, UK production of oil and gas will continue to decline and our dependence on volatile global fossil fuel markets will increase. In the longer term, the pressure on price from increased global demand creates uncertainties—that was mentioned by the Committee Chairman, with the point clarified still further in an intervention—and supply constraints are expected to increase.

Secondly, many of our coal and nuclear power stations will reach the end of their lives over the next decade, as hon. Members know, and we need to ensure that the market brings forward sufficient generating capacity to replace them. I have asked about that already in the Department, and the Committee is familiar with the issue.

Thirdly, the Climate Change Act 2008 committed the UK to reducing our greenhouse gas emissions by at least 80% by 2050. European legislation commits the UK to producing 20% of its energy from renewables. Those are most ambitious goals, which brings me to the fourth challenge: the tough market conditions for energy investors and developers. With typical courtesy and acumen, Barry Gardiner made a salient point about the need to ensure the circumstances in which investment is possible. As the shadow Minister said, we must ensure a degree of certainty and predictability in an extremely volatile set of world circumstances if we are to get the necessary investment. Investment requires such a spirit of certainty, and the Government must help to deliver that, irrespective of world conditions which are, to put it politely, challenging.

In addressing the challenges, we have developed a vision for the future of energy security in which low-carbon technologies, including renewables, nuclear, and fossil fuel generation equipped with carbon capture and storage, compete on price. As several hon. Members said, that diversity of provision is at the heart of our vision. Our aim is a secure energy system with adequate capacity, diverse and reliable energy supplies, and a demand side that is responsive to unexpected changes in supply.

As has been said, the policy response involves huge uncertainties—we are predicting for at least a 40 or 50-year period, which is bound to be full of change. The carbon plan explores a range of plausible scenarios of what the UK might look like in 2050. Our energy mix and energy security challenges will depend on which of those scenarios ultimately comes to pass.

I can deal only with headlines in the time available, but there are key elements of policy; we certainly have to focus on adequate capacity, which raises the issue of the reduction in demand, which was mentioned by the shadow Minister and my hon. Friend the Member for South Thanet. Secondly, we have to look at energy efficiency in business and the public sector—that is critical. The Energy Efficiency Deployment Office will publish the Government’s energy efficiency strategy before the end of the year. As the shadow Minister emphasised, we will certainly be looking closely at electricity market reform, which includes the difficult issue of the capacity market, on which I know there are different views in the House, as well as in the sector, as I found out last night when I met a range of players from it. Nevertheless, that debate needs to take place if we are to get our thinking right about certainty and predictability.