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Energy: Annual Statement

Volume 720: debated on Tuesday 27 July 2010


My Lords, with the leave of the House, I shall repeat the Statement made in another place by my right honourable friend the Secretary of State for Energy and Climate Change. The Statement is as follows.

“In making this Statement within three months of coming into office, we are signalling the importance of this policy. We are setting out a clear strategy for creating the 21st century energy system that this country urgently needs for an affordable, secure, low-carbon energy future.

We face short-term challenges as a result of the legacy inherited from the previous Government. We have the third lowest share of renewable energy in the European Union of all 27 member states—the same ranking as in 1997. In the longer term, we must meet the challenges of a volatile oil market and increased energy imports. We are taking three big steps: we are creating a market for energy savings through the green deal; we are ensuring a properly functioning electricity market; and we will be strengthening the carbon price.

Our action must be informed by the best information about the future. That is why I am also publishing our work on the 2050 energy pathways. That has been worked up in consultation with industry, scientists, engineers and economists. We are making the data and analysis available and inviting comments over the summer. We want to start a grown-up debate about what the low-carbon future will look like and the best way of achieving it.

Those are possible pathways. We are not claiming to be able to see the future with certainty, but we cannot continue on the current pathway: high-carbon, high dependency on imports and highly volatile fossil fuel prices.

Like the other industrial revolutions, the low-carbon revolution will be driven by entrepreneurs, the private sector, local communities, individuals and businesses, scientists and engineers, not government. However, industry needs stable policy and functioning markets. The role of government is to provide the framework and act as a catalyst for private sector investment. As the 2050 pathways work demonstrates, we need to apply these principles to the challenge of changing fundamentally the way we both produce and consume energy.

The cheapest way of closing the gap between energy demand and energy supply is to cut energy use. We need to address the state of our buildings. We have some of the oldest housing stock in Europe. Our green deal will transform finance for improving the energy efficiency of Britain's homes. It will get its legal underpinning from measures in the first Session energy Bill. We are also accelerating the rollout of smart meters. These provide consumers and suppliers with the information to take control of their energy management. Alongside this Statement, the Government and Ofgem are publishing a prospectus for smart meters which sets out how we will do this.

Openness is important to us, as it is to business and the public. Alongside this Statement, I am publishing an analysis of the impact of energy and climate change policies on both household and business energy bills up to 2020, and I will continue to do so on an annual basis.

At the moment the UK is an economy reliant on fossil fuels. As UK oil and gas production declines, this leaves us more exposed to volatile prices and increasing global competition for the resource. The challenge is to spur the capital investment required for new energy infrastructure. The volatility of fossil fuel prices and continuing uncertainty about the carbon price makes such investment high risk, pushing up costs and slowing development. So the first step is to support the carbon price. In addition, I can announce that we are carrying out a comprehensive review of the electricity market and will issue a consultation document in the autumn. This will include a review of the role of the independent regulator, Ofgem. The Government will also be putting forward detailed proposals on the creation of a green investment bank.

The coalition agreement is clear that new nuclear can go ahead so long as there is no public subsidy. The Government are committed to removing any unnecessary obstacles to investment in new nuclear power. In the memorandum, I have outlined some clear actions to aid this. As a result, I believe that new nuclear will play a part in meeting our energy needs.

In the heating sector, I can confirm our strong commitment to action on renewable heat. The Government are considering responses to the renewable heat incentive consultation and will set out detailed options following the spending review.

The UK is blessed with a wealth of renewable energy resources, both on and off shore. We are committed to overcoming the real challenges in harnessing these resources. We will implement the “connect and manage” regime, and I am today giving the go-ahead to a transitional regime for offshore wind farms. Both these measures will help speed up the connection of new generation to the grid. We remain committed to developing generation from marine energy, biomass and anaerobic digestion. Biomass investors promised help under the renewables obligation will continue to benefit.

We also need incentives for small-scale and community action. We are currently consulting on a new microgeneration strategy. I am today laying an order to allow local authorities to sell renewable electricity to the grid.

Fossil fuels can also have their place in a low-carbon future provided we can capture and store most of their carbon emissions. We will introduce an emissions performance standard, and we intend to launch a formal call for future CCS demonstration projects by the end of the year.

This is a bold vision. We will not be able to deliver it without a 21st century network that can support the 21st century infrastructure. The Statement sets out practical measures that we are taking to improve network access and to begin the building of a truly smart grid.

This vision, however, needs to be grounded in reality. The low-carbon economy must happen, but it will not happen tomorrow. There are potentially 20 billion barrels of oil equivalent remaining in the UK continental shelf, but we must maximise economic production while applying effective environmental and safety regulations. We are doubling inspections of offshore oil and gas rigs and will undertake a full review of the oil and gas environmental regime.

We must also remain mindful of our inherited responsibilities. My department is responsible for managing the country’s nuclear legacy. I am committed to ensuring that these essential duties are carried out with the utmost care and consideration for public safety.

The UK does not stand alone. This Government will work together with our international partners in efforts to promote action on climate change and energy security across the world. We are working hard to put Europe at the front of the race for low-carbon technology. This will help refresh the appetite for action across the world after the disappointment of Copenhagen.

In conclusion, this Statement is about planning ahead, providing clarity and confidence in the policy framework. That is why I am also publishing today my department’s structural reform plan to show how we are carrying out our priorities. Once we have completed the spending review, we will publish a full business plan. At last we have an energy policy with real direction and purpose and a Government willing to take bold steps. I commend this Statement to the House”.

My Lords, I thank the Minister for repeating the Statement with his usual eloquence.

The Government told us that this would be the greenest Government ever—an ambition which we would and should welcome—but what a disappointment today’s Statement was. I turn first to the long-term transition to a low-carbon economy that Britain needs. Contrary to what the Statement said, the previous Government did have a clear plan—the UK Low Carbon Transition Plan, published in the summer of 2009—which was widely applauded around industry, among employers and green organisations. But the current Government seem determined to unpick it.

The Minister talks about the challenges posed by the legacy that the current Government inherited. As the Energy Minister in the previous Government, perhaps I may remind him that that legacy included a massive development of power-generation infrastructure, with more than 20 gigawatts in the pipeline. We paved the way for smart meters and the smart grid. We had bold policies on microgeneration. We reformed the planning system. We also made real progress on renewable energy, including being number one in the world in operational offshore wind farms.

As for renewables, one of the major problems with onshore renewables was the record of Conservative-controlled planning authorities. Why are the Government abandoning the key measures which are essential to achieving the targets for onshore wind set by the previous Government? We are told that the Government want more wind power, so why have they abolished the local and regional targets to make it happen? On 5 July, the Minister himself said in relation to onshore wind that,

“It is our determination that there should be no dramatic increase”.—[Official Report, 5/7/10; col. 5.]

Given their energy strategy, the Government will be deep in trouble if there is not a dramatic increase. Moreover, if we are to see progress on onshore wind, why are the Government proposing to abolish the Infrastructure Planning Commission and bring major infrastructure decisions back to Ministers? I can tell the Minister with absolute confidence that that will lead only to delay and uncertainty for investors.

The previous Government pledged that the renewable heat incentive would come into effect in April 2011. That could help thousands of consumers who are off the gas network to lower their fuel bills and gain a cash reward for greening their heating supply. Micropower Council’s chief executive has warned that the industry faces a confidence crisis if clarity about the renewable heat incentive is not provided soon. We were set to be the first country in the world to have such an incentive. The Government, however, are not prepared to make a decision. They have again postponed making a decision until after the spending review, so the uncertainty in the industry will continue.

Something positive has finally been said about nuclear energy. The trouble is that no one thinks that the Secretary of State’s heart is in it. We had the usual negative briefing about nuclear over the weekend to pave the way, no doubt, and comfort the Minister’s partners in the coalition. I only hope that this really lukewarm attitude will not dampen investment in the future. Nuclear energy is a vital part of our low-carbon energy mix. It can provide crucial balance to the intermittency of much renewable energy, and it could be a source of huge growth in jobs, in the industry and, crucially, in the development of the supply chain in the United Kingdom. I ask the Minister to understand that the ambiguity of the coalition agreement, coupled with the Secretary of State’s at best lukewarm support of the industry, puts this at risk. I remind him that we said in our national policy statement that we believe that new nuclear could be free to contribute as much as 25 gigawatts of new capacity. Does he agree?

Then there is the issue of Sheffield Forgemasters. The Minister may laugh, but the Government’s handling of the cancelled loan to Sheffield Forgemasters has been quite extraordinary. It has included misleading statements by both the Prime Minister and the Deputy Prime Minister in the other place. Why did the Minister’s department not defend the loan? Did the Secretary of State’s prejudice against nuclear power play a part, or was the decision taken because a high-level Conservative donor in Sheffield lobbied the Government against nuclear power?

We had a Written Statement this morning from Mr Vince Cable saying that affordability is the issue, but it is not true that the loan was unaffordable. Money was set aside in the Strategic Investment Fund, which was announced as part of the 2009 Budget. It was passed as value for money by the Industrial Development Advisory Board at Vince Cable’s own department. Why was it right to give Nissan a grant to make electric cars—a proposal that we support—but wrong to provide a commercial loan to help a British company to be at the centre of the nuclear supply chain? Will the Minister assure this House that funds will be made available if, as was said in the Written Statement this morning, the Government are ready to work with the company?

The Written Statement also referred to the potential of the UK continental shelf, and I would be grateful if the noble Lord could expand on what action his Government propose to take to ensure that that happens. He will be aware of the incentives which the previous Government introduced to help to develop small and hard-to-exploit fields, and I hope that the Government will feel able to continue the work in this area.

In the light of this Statement, the picture for positive government intervention looks bleak. The Government cancelled the £1 billion investment in the green investment bank, and there is continuing uncertainty about the incentive for electric cars and about investment in ports for offshore wind manufacturing. This is a tragedy. The transition to a low-carbon economy offered so much to this country, and the Government are at risk of dashing those hopes.

Finally, on fairness, we all accept the huge challenge of fuel poverty amid the green transition. Why have the Government not confirmed that the coalition will go ahead with the plan for compulsory social tariffs to ensure help to those who are less able to pay their bills? All that can be said is that they await the spending review. I ask the Minister what his plans are for tackling fuel poverty. We heard much about this from noble Lords on the Liberal Democrat Benches when they were in opposition, but they appear nowhere in relation to the green deal.

We had hoped for a major Statement on energy policy. Instead, it looks rather like a disappointing set of platitudes that raise more questions than they answer.

My Lords, I will try to avoid getting in any cross-party banter, which the noble Lord thinks is appropriate. After all, energy and energy supply require a broad coalition of all parties to deliver the long-term supply to this country. It is ridiculous to have small cross-party scraps and I do not intend to do that. We have been faced with difficult fiscal circumstances, as would the Labour Party had it been in government. Certain things need dramatic and careful looking at in order to see whether we can afford them. Unfortunately, we have gone from a “yes yes” Government to a “perhaps not” Government. If something does not make sense we will not do it.

I take exception to being quoted out of context by Ed Miliband in the other place and the noble Lord, Lord Hunt, over onshore energy windmills. I was clear that we endorsed the scenario of 14 gigawatts, a scenario that was presented to us by the previous Government. I merely said that going beyond that was not our main focus. Our main focus is to build offshore, nuclear, renewables, et cetera. For those who wish to study it, the 2050 pathway—a very impressive discussion document which I commend to the House—will show clearly that in order to achieve our energy commitments by 2050 we will have to push hard on all fronts. That is why I can say with great confidence, and reiterate what I have said earlier, that we are committed to nuclear. One reason for removing the IPC is to deliver much quicker and much more effective planning decisions without the bureaucracy that has been alluded to. In the past few weeks, we have given seven grants to seven British companies to deliver products for the offshore market, so we are very committed to that.

The noble Lord also knows that we take poverty very seriously, which is why yesterday we had a special instrument to extend the work of the current Government, which we applauded, to embrace more people who are in fuel poverty into the net and to give them support in the future. I disagree with the noble Lord on a number of these subjects.

Sheffield Forgemasters is not a matter for our department. It is a matter for BIS. It has been discussed endlessly through various Question Times. Just because a commercial decision was made, it does not mean that our commitment is not to nuclear. I re-emphasise what my right honourable friend the Secretary of State said. We are committed to nuclear and we are committed to it without a subsidy.

As regards the Statement made by my noble friend on the Front Bench, and perhaps at the risk of being accused of party squabbling, I must say that the party opposite attacking the Government on their nuclear policy takes some beating. The previous Government spent the first 10 years in office believing that they were going to dismantle the entire nuclear industry. It took a lot of argument before they were prepared to change that view.

My noble friend has made a number of important Statements, leading to the Bill and the final Statement in the autumn. It will not be his decision, but will he take note of the fact that this House would very much welcome the opportunity when we resume to debate the Statement that he has made and to express our views on the many issues?

I should like to raise two points. The first is that the Government have inherited a system of support for low-carbon electricity which is in fact fragmented. It is a whole lot of separate systems for different forms of low-carbon energy. Does my noble friend not agree that there is a case not for multiple markets for the different technologies, but a single market for all low-carbon technologies, as was advocated a short while ago in a very authoritative report?

My second point follows up on what my noble friend has said about dealing with nuclear waste. It does not make sense for this very long-term programme, which will stretch over many decades, to be financed on a series of three-year spending programmes. Will the Government take account of that? And when they publish their policy, which I understand will have to be after the comprehensive spending review, there should be a longer term financing structure to fund the Nuclear Decommissioning Authority and the many companies and bodies that work under its authority.

My Lords, the noble Lord, Lord Jenkin, as always, has raised some fundamental questions. I hope very much that we will have a debate on the broader aspects of this subject. We will have assimilated and responded formally to the report of the Committee on Climate Change by 15 October, and that will give us an opportunity to have a major debate, as we did last year. On the low-carbon technologies, one of the important things we have announced in the Statement is that we are addressing the carbon price, which is one of the areas that needs to be fixed. I agree with my noble friend that to have one structure is obviously beneficial to the customer, so we will continue to review this. Lastly, we will have a review of spending, but as I said earlier, that will come after the spending review in the autumn.

My Lords, I apologise for rising, but I thought that the Minister had already answered the question because the Statement included the statements made by the noble Lord. I, too, welcome the commitment to nuclear power, but I wonder whether we will do more than simply build new nuclear plants. Will the science improve sufficiently to lead us to nuclear fusion, because in the long run that is probably the area we need to go into. Are the Government looking at the possibility of researching it?

The Statement says:

“The cheapest way of narrowing the gap between energy demand and supply is to cut energy use. We need to address the state of our buildings. We have some of the oldest housing stock in Europe”.

I am confused. For example, the school rebuilding programme was aimed at addressing some of the worst school buildings, which can waste a lot of energy, but most of the projects that have been cut are those that were most needed. Is there still a commitment to this kind of rebuilding because the condition of some schools is really not good enough? Does the Minister see that the aim of using less energy requires a lot of improvements to be made to our school and other buildings? If so, why have these cuts been made?

Finally, the previous Government were at least committed to ensuring that listed buildings undergoing repairs and being made more energy efficient were able to claim relief on VAT. Some churches and other buildings consume too much energy, so part of helping to address this was to ensure that VAT relief was available. I have not seen anything about that relief in the Statement. Will it continue?

The comments of the most reverend Primate the Archbishop of York are most welcome. The point about our building stock is that it is very old, and indeed one of the oldest in Europe because we are a mature country. The policy we have announced is the green deal, which will accelerate the use of cavity wall insulation, loft lagging and so on, which reduces carbon emissions and the use of electricity. Obviously this will naturally flow through to many schools and government-owned buildings because we are committed to a 10 per cent reduction in carbon emissions in such premises within 12 months. The issue of listed buildings is a significant problem which is outside my scope. However, it is without doubt a problem if you want to put a cavity wall in a listed building.

I thank the Minister and congratulate him on the Statement made on biomass grandfathering rights. I am delighted—

I congratulate the Minister on the Statement on grandfathering rights for dedicated biomass plant. It is very welcome and an important step forward.

Does the noble Lord agree that the support given for offshore wind through the renewable obligation requirements on energy suppliers is an important element in securing investment in offshore wind; that this is reflected in electricity prices and could reasonably be said to avoid a public subsidy? Does he agree that electricity prices reflect support through renewable obligations rather than public subsidy? If so, do he and his coalition partners in the Liberal Democrat Party agree that this is a potential way forward for supporting nuclear power generation?

I thank the noble Lord, Lord Woolmer, for his comments. His knowledge of biomass is well known and I defer to no man with greater knowledge. I am glad that he welcomes the Statement on that subject because, as he well knows, it is important that we have ROCs to incentivise and encourage the 400 megawatts of development that we think we can achieve between now and 2013. That is an important and significant step forward. As I indicated earlier, we are committed to nuclear. We shall help nuclear in terms of planning and so on but it will be without subsidy—and an ROC could be considered a subsidy.

My Lords, the Minister said that he was speaking for a 21st-century energy system. I remind him that in the 20th century the House of Commons Select Committee on Energy recommended a number of things: that we should save energy through the better insulation of houses, factories and public buildings; that we should have more cover from coal generation; and, finally, that we should exploit oil resources in a much slower way. So, basically, we have in the 21st century the same policy as could have been operated in the 20th century if the Government had only listened to the House of Commons Select Committee on Energy. They did not.

Secondly, the noble Lord said that he would welcome comments from all kinds of people in the debate. Can he assure the House that when people say they believe in climate change but do not necessarily believe that it is caused by CO2 emissions from buildings, they will not be called silly names such as “climate change deniers” and that he will have a grown-up discussion with them?

Can the Minister explain why the Government are prepared to subsidise wind power—this point has already been raised—which is the most inefficient kind of renewable power and, at the same time, refuse any subsidy for nuclear power, another renewable source? I am not a great enthusiast of nuclear power but I cannot understand why the Government would want to subsidise an inefficient method and not subsidise a more efficient method.

Let me first assure the noble Lord that we will not be making any derogatory remarks—or I hope that noble Lords do not hear them from me, anyway—about denial. All views are welcome, and I have invited many noble Lords to the department to hear their views during the past week. We have had views ranging from all sides of the House, both political and in terms of climate change. Those views are fed into our 2050 document and will be treated with the respect that they deserve.

I am glad to have a history lesson on what the Commons did or did not do, but I would take issue on the subject of coal, which is a very dirty and not carbon-friendly product. We need to ensure that it is clean, which is why we are having CCS trial cases, on which we will push the button towards the end of this year. I am delighted that we will have a grown-up discussion on that. We are pump-priming offshore wind technology because, as the 2050 pathway document shows, we need to have energy from many sources. Nuclear is a mature source, whereas offshore wind is not as mature. To see whether it has the economic benefits that we think it has, it must be proceeded with.

My Lords, a number of questions have been asked of these Benches about our position on nuclear power. It is clear that, as this Statement was made by my right honourable friend Chris Huhne, this reflects Liberal Democrat and coalition policy. It quite happily states the position that we have always had on nuclear power—that we would support it as long as there was no public subsidy. That was repeated in the Statement. So I do not think that any deviation can be claimed from the policy that we have had for a very long time. I have expressed that to the noble Lord, Lord Hunt, on a number of occasions. Personally, I am a nuclear sceptic, but that is a personal opinion.

I welcome this Statement for a number of reasons, not least because, as chairman of the Anaerobic Digestion and Biogas Association, it leads the way to the grandfathering of double ROCs for anaerobic digestion. That will be a very helpful step in decarbonising the gas grid. I have two questions. First, in the rollout of smart meters, will the Minister consider making it a requirement to have a reprogrammable chip in the smart meter? It would be unfortunate if we put in millions of these smart meters and then decided to change their specification—if we did not put in simple technology that we understand so that it can be reprogrammed from outside rather than our having to insert a new smart meter. Secondly, the Government have talked about a consultation document on the roles of Ofgem. Could the Minister also consider a consultation on the roles of Ofwat, which has acted as a massive hindrance to the decarbonisation of the water industry, which is one of the biggest users of electricity and therefore carbon in the country? Will the Minister consider whether, if Ofgem is to be looked at, Ofwat could be not only looked at but probably abolished?

I shall be brief. I think that the noble Lord’s idea of a chip in a smart meter is a good one, and I shall investigate it. I do not have the answer. I do not recall the smart meter that I have seen having a chip, but it is a very sensible idea.

We are reviewing all the bodies that govern electricity. Ofgem is obviously the primary one, but we have been reviewing all the other bodies to see whether they are fit for purpose and serve the current Government’s requirements.

My Lords, the Minister has already said that there is going to be no possibility of subsidy, but I suggest that he be very careful about offering some kind of nuclear/ROCs arrangement, because 8 per cent of domestic electricity bills are already accounted for by that form of consumer subsidy and it is therefore very dangerous to put any more on it. If he wants to increase investor confidence in the nuclear industry—I speak as the chair of the nuclear industry—he ought to look speedily at the question of a carbon price and a carbon floor. Could he perhaps provide a paper for us, which would enable us to see the relative merits of the various positions on this? Until this question is resolved, the massive investments which will be required to realise the nuclear ambitions of this country are not going to happen. With that and the Forgemasters decision, we have the kind of climate in which we get the uncertainty that frightens off potential investors, and that mood has to be changed quickly.

I totally agree with the point made by the noble Lord, Lord O’Neill, on a carbon price floor. As we have committed to in this document, that is something which we will be reviewing with great urgency. We intend to legislate early in 2011 in the energy Bill, having reviewed it during the Recess. The problem with the carbon price, as he quite rightly identifies, is that it has ranged from €30 per tonne in July 1989 to €16 per tonne in July 2009. It is such a volatile price that it makes planning very difficult, particularly in the noble Lord’s sector, so we will be looking at it.

Do the Government believe that it is actually possible to meet our energy requirements over the next 30 or 40 years without a new generation of nuclear power stations?

Perhaps I might draw the attention of my noble friend Lord Maples to the 2050 pathway document. It quite clearly indicates that the best way forward is a mix that includes nuclear, as I have said earlier, and many other types of electricity generation to fulfil the nation’s requirement, which is expected to double by 2050.

My Lords, I am learning fast what megaphone diplomacy means in this House. First, I take issue with the noble Lord, Lord Jenkin, about the position of the previous Administration on nuclear power. I was one of the Energy Ministers during that first 10 years, and I bow to no one in my support for the nuclear industry. In fact, I was the one who began the process that led to the decision on a new generation of nuclear power.

Can the Minister give some indication of what measures are being taken to reassure the nuclear industry about the new generation of build? It is not enough to say that there will be no subsidisation. The mood music has not been good. In the Statement, the noble Lord referred to the fact that the Government should act as a catalyst for private sector investment but, at the same time, the strongest part of the Statement on nuclear says: “nuclear can go ahead”. If we are to meet our climate change goals, nuclear must go ahead. It will not if the environment towards it is negative. It is a major investment.

The Minister is much more knowledgeable than I am about the climate for investment. However, there are the decisions on Sheffield Forgemasters and the Infrastructure Planning Commission, the coalition with the Lib Dems and the issues around planning—all of us who remember the Sizewell B inquiry know the difficulties around planning for new nuclear. Given that mood music, what reassurance can he give to me and to the House that he will meet with the industry and give powerful signals that will show the scientists—the particle physicists and the engineers who are needed to secure a future for this industry—that it can go ahead?

I congratulate the noble Baroness for her question. I think that it is her first question and I thank her very much. The fact of the matter is: I am not going to say any more than I have. I have said it until I am almost blue in the face, and we have said in writing that we are committed to nuclear. I am not entirely sure that we are inheriting a paragon of all virtue, as she indicated, or that the Labour Party in the previous Government was so committed to new nuclear. I do not see the country awash with new nuclear power stations. The good thing is that we have three consortia who have announced 16 gigawatts of nuclear energy to be built by 2050. The good news is that it will encourage 30,000 jobs.