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Mr. Robert Hughes (Aberdeen, North) : The Secretary of State began with the astonishing assertion that the publicly owned electricity industry had failed to satisfy the ideals of its founders, but he produced not a shred of evidence in support of that. The contrary is the case. The publicly owned electricity industry has been an outstanding success. It has brought benefits to millions of people who, had they depended on private industry, would not have had an electricity supply. The problem with electricity, as with other nationalised industries, is that when the price was held down to protect the customer it was branded as inefficient. Equally, when prices were increased to generate capital, that was branded as inefficient.
The Secretary of State's speech was one of the most unconvincing that I have heard in the introduction of such a major Bill. His only justification for the Bill was that private enterprise is good but public enterprise is bad. All that he wants to do is to sell the industry to his friends in the City. As Prince Philip might have said, there is little difference between a pimp and the Secretary of State. Each is interested only in selling a service, irrespective of the morality of the position or the effect on the individual. At least during this debate the Secretary of State has said little about the need to spread share ownership. He genuflected gently in that direction when he said that he hoped that some employees would buy shares. He is modest about the aims of share ownership because he knows what happened with other privatisations, including British Aerospace and Jaguar.
Shortly after British Aerospace was floated in 1981, only one shareholder owned more than 1 million shares. By January 1982, a total of 13 shareholders had more than 1 million shares. The latest company accounts, to 31 December 1987, show that 40, or 0.04 per cent. of, shareholders own 41.78 per cent. of the shares. For the next bracket down, which is between 100,000 and 999,999 shares, 334, or 0.32 per cent. of, shareholders own 37.02 per cent. of the shares. Therefore, 374 people, or 0.36 per cent. of shareholders, own 78.8 per cent. of British Aerospace. How is that for concentration of ownership?
When Jaguar was privatised, very few people had large shareholdings. Astonishingly, within six months of flotation the number of shareholders had halved. In May 1985, a total of 207 shareholders owned 76 per cent. of the shares. What is the position now? The number of shareholders has decreased to one third of the original number, with 187, or 0.44 per cent. of, shareholders owning 78.18 per cent. of the shares. Eighteen
Column 710shareholders own 51.42 per cent. of the shares, which is a controlling interest. How is that for a concentration of ownership? As for employee share ownership in Jaguar, although the employee share scheme has more than 3 million shares, that represents only 1.8 per cent. of all shares. Only 320 employees own 164,493 shares, which is 0.09 per cent. of the shareholding. How is that for concentration of share ownership? What price the employees in that industry having an influence on their destiny?
The Secretary of State is anxious only to get rid of the shares. The problem is that there is no device in the Bill to stop big G taking over little G or little G taking over big G. There will be a predatory monopoly supplier that the Secretary of State believes will provide competition, but which I believe will be a paper-thin charade.
I want to spend a couple of minutes talking about the problems of Dounreay atomic energy research establishment. The fast breeder research programme has been an outstanding success. The decision to cease that research was both precipitate and wrong in principle ; it should be continued. Many other countries are continuing their research, notably Japan, and I suspect that, with its increasing potential and expenditure, within a decade we will be buying Japanese technology. The decision to cease funding research was first taken by Lord Marshall out of pique because he did not get his way on the future structure of the industry, and the Secretary of State then reacted out of equal pique because he did not want Lord Marshall to get away with that. Therefore, funds for research are not being made available.
There is a severe unemployment problem in the area. I have never said that any industry must continue, despite the risk, but we will live to regret the rundown of Dounreay. The decision is disastrous for Caithness, whose people certainly cannot look to this Government for relief. Since the Government have been in office, there has been an end to regional policy, the disappearance of the pulp mill at Corpach and the disappearance of the aluminium smelter at Invergordon. The smelter might well have been saved if the electricity industry had given it a cheaper electricity price. The great fear is that, because future technological research in the fast breeder programme is being stripped away without proper consultation or discussion, Caithness will become the dumping ground for nuclear waste. That could be much more dangerous than the fast breeder technology research.
I intervened in the Secretary of State's speech to ask about standing charges, and he said that they would continue. Standing charges are extremely regressive and bear much more heavily on the poor and the pensioners than on the well off. The Secretary of State dissembled when he spoke of second homes. He said, "Do we want to remove standing charges for people who have second homes?" To use the Prime Minister's expression, he was talking about the tiny, tiny little minority of people who own second homes. It would have been more equitable had the current standing charges been put into the general account and paid for by the customer, per unit of electricity consumed. That is by far the best way to deal with that.
The Secretary of State is abandoning house insulation and conservation of energy. He said nothing about the costs to industries, especially those with large energy needs. I wish that I had time to go into detail about the
Column 711complaints of the paper industry, which is a heavy user of electricity. It believes that it has been unfairly penalised because a cheaper electricity price is not available.
The Secretary of State did not justify his privatisation plans. Indeed, the game was given away by the hon. Member for Birmingham, Northfield (Mr. King), who said in an intervention that we should be worried about the privatisation of electricity. We are, because it means £20 billion going into the Conservative party kitty for the next general election. That is what privatisation is about. It will raise money to finance future tax cuts. It has nothing to do with rationale, sense or objectivity--it is purely a means to finance future tax cuts. How could we expect objectivity from this Government? The Prime Minister and the Secretary of State have a curious relationship--headmistress and teacher's pet--which does not lead to objectivity. The tragedy is that the public will suffer. 7.34 pm
Mr. Michael Alison (Selby) : I wish briefly to refer to a unique feature in my constituency that is relevant to this debate on the Electricity Bill. In my constituency is the largest and most productive single coalfield in western Europe, and sitting on top of that coalfield are two of the largest and most significant power stations in Britain, at Drax and at Eggborough.
I warmly welcome the Bill because it will be advantageous both to consumers and to producers of electricity in my constituency. It stands to reason that the proposed new structure, with its injection of the ingredients of competition, will, to quote the White Paper "create downward pressure on generating costs, which last year accounted for some three-quarters of total operating costs." I cannot follow the argument of the hon. Member for Sedgefield (Mr. Blair), who suggested that there was no prospect of competition under the Bill. The four separate new avenues of competition outlined in paragraph 41 of the White Paper speak for themselves. They all relate to the new distribution companies and it is significant that their predecessor companies, the area boards, warmly welcome the proposed changeover. They know that they will be let off the CEGB's leash and will enjoy a great deal more freedom. If that is the position while the industry is still nationalised, how much more will it be true under the new arrangements--and I am leaving out the prospects of competition resulting from the fact that larger users can also buy electricity direct from generators. There will be more competition.
It is nonsense for the hon. Member for Sedgefield to suggest that because there is a natural monopoly in the provision of electricity to the household consumer, the household consumer will not benefit from real competition in the generating sector. There is an analogy with the gas industry. Although there is a natural monopoly in the piping of gas into homes, the domestic consumer has benefited immeasurably from changes in the productive end of the gas industry. I believe that the same will happen in the electricity industry. I wish to cite a constituency example of how competition will help industrial users. I know of one substantial manufacturing company in Selby that cannot wait for Royal Assent because it has been denied a fair deal under the existing arrangements. It introduced a combined heat and power scheme, but before doing so took the trouble to contact its local electricity board to discover the
Column 712basis upon which the board would supply the input electricity for the scheme and then buy back the regenerated electricity. The company was told that the electricity board would pay for regenerated electricity at the rate of 80 per cent. of what it charged for supplying electricity to the combined heat and power scheme. Within two years of installation, the local electricity board moved the goal posts and, without warning or discussion, implemented what amounted to a 17 per cent. drop in the price that it was prepared to pay for the regenerated electricity from the scheme, but with no change in the charge for the input of electricity. That completely upended the computations and reasonable calculations made by the industrial company in exploring the scheme. That is one scenario that will not be repeated in the new competitive environment, when there will be the opportunity for companies to shop around and to buy electricity from different sources.
Those who work on the supply side of the industry--especially the work force in the Selby coalfields--will not be disadvantaged. British Coal's productivity improvements have been quite staggering. There has been a 75 per cent. increase in productivity in the three and a half years since March 1985. It is difficult to imagine any supplier in the world being able to get coal to the Drax or Eggborough power stations more cheaply than the coal which is now being supplied on a merry-go-round basis in trains from Selby, a run of just a few miles. The daily run delivers 38,000 tonnes of coal to Drax alone. It was encouraging to hear Lord Marshall speak at the opening ceremony for the Drax B power station in May of this year. He referred to the local coal and electricity industries in Selby as "inextricably linked", and he prophesied a bright future for British Coal. If there is a continuation of the amazing productivity improvements that British Coal has been able to make, no foreign buyer or supplier will be able to challenge British Coal in supplying products to Drax and Eggborough.
Will my hon. Friend the Minister of State, Scottish Office confirm that the Bill effectively provides for the facility referred to in the White Paper-- I referred to paragraph 42--under which large electricity users would be able to purchase electricity directly from generators and to move power to their sites via the national transmission network, under a system of common tariffs? In its briefing, the Chemical Industries Association Ltd. states that the Bill makes no reference to that matter. I would be glad to have some assurance that that facility is provided for in the Bill. Will my hon. Friend say something further about the cost implications of fitting FGD-- the so-called fluid gas desulphurisation equipment--in power stations? Drax has recently started the costly procedure of installing FGD. It is a little difficult to see how, in future, it will be properly protected in terms of cost. The Department's briefing document stated that FGD costs will be taken into account in future and some sort of compensation made available, as it is likely to be obligatory for existing and new coal-fired power stations to install FGD equipment. There is an analogy with the cost implications of the non-fossil fuel requirement. I hope that my hon. Friend will be able to give us some assurance about FGD costs. On the basis of the underlying realities and facts in the industry and what is provided in the Bill, I warmly welcome the legislation on behalf of producers and consumers of electricity in my constituency.
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Mr. Geoffrey Lofthouse (Pontefract and Castleford) : I shall base my remarks purely and simply on the findings of the Energy Committee. It has been referred to several times in the debate. The Energy Committee reported in July of this year--much to the embarrassment of the Secretary of State. He did not want the Committee to take evidence and to report. Pressure was placed on Committee members not to do so. Unfortunately, Conservative Members on the Committee did not get their act together. One or two of them failed to turn up. It was decided to investigate and to take evidence. If that had not happened, we would not have had a Committee report to assist and guide us throughout the passage of the legislation on the privatisation of the electricity industry.
It is always a pleasure to follow the right hon. Member for Selby (Mr. Alison). I shall refer to some of his remarks about Selby later.
In general, the Committee's criticisms remain valid and largely unanswered. The Secretary of State's response to the report avoided most issues. The Committee's unanimous conclusion was that the privatisation timetable is much too tight. It stated :
"If the Government is intent on introducing a Bill--or Bills--in November 1988, it is faced by a frightfully tight timetable. If at the same time it is discovering new problems, it runs the risk of producing ill-considered, spatchcock legislation. Electricity is too important an industry for the country to gamble that everything will come out right."
That seems to be the Secretary of State's wish and intention. The Committee said :
"There is still time for a fuller process of consultation, even if the result is to defer the privatisation legislation."
The main criticism in the report is that sufficient time has not been allowed and that the White Paper and the Bill were ill-conceived. That opinion is shared by the electricity supply trade unions. Their evidence strongly supported the Committee's strictures on the proposed time scale. A longer time schedule for legislation would have had three clear advantages. First, it would have allowed the Department to consult widely with all interested parties on the details of the legislation, licences and regulatory regime. Secondly, it would have provided an opportunity for the establishment of the regulatory arrangements well before privatisation, as recommended by the Committee. Thirdly, it would have enabled the management of the proposed shadow companies and the new regulator to gain experience before privatisation.
The Committee was privileged to listen to expert evidence from witnesses and to be guided by expertise. At no time was any hon. Member reluctant to support the contents of the report. The Committee stated :
"The privatised structure is likely to remain for at least a generation It must be right from the start. Nothing is served by the secrecy or haste in which the process of consultation has been conducted."
The Committee was particularly critical of the proposed structure for generation, which it believes has been devised to accommodate the Government's preoccupation with sustaining nuclear generation. The trade unions share that view. The Committee formed no firm opinion on the effect on prices, and called on the Government to make a detailed assessment. It stated :
"We have no evidence on which to reach any firm conclusion on one central issue : whether or not a privatised ESI is likely in aggregate to have lower costs, and hence be able to offer its consumers lower prices, than would be the case if the industry remained in public ownership."
Column 714The Committee clearly said that there is no evidence that the consumer would benefit from privatisation.
The Committee was critical of the Government for promising lower prices but providing no evidence that that will be the case. It called on the Government to publish a detailed assessment of the factors that they believe will lead to lower prices. Several hon. Members have referred to that matter. I doubt whether any assurances will be forthcoming.
Several hon. Members have referred to the problems of regulation, which the Select Committee examined in detail. It said :
"The way the industry is regulated will affect competition, efficiency, prices and the validity of service for many years into the future. We believe that the regulator will need to be in place well in advance of privatisation to ensure that he is able to have some influence on the regulatory framework which he will be operating."
I hope that the Secretary of State will at least give serious consideration to that recommendation which, once again, was supported by the electrical trade unions and other witnesses.
The Committee quotes with approval the statement of John Lyons, general secretary of the Engineers and Managers Association and the Electrical Power Engineers Association, that the sort of detailed regulation which would offer the maximum direct protection to the customer is incompa-tible with the management freedom necessary for an efficient industry. The Committee generally comes down in favour of a much heavier style of regulation. The Committee expressed concern and failed to understand what was meant by light regulation compared with heavy regulation. We would have been in a much better position to make a judgment if what that meant had been spelt out. The Committee is strongly critical of the Government's proposed nuclear quota :
"We also find it difficult to reconcile the 20 per cent. non-fossil fuel requirement--effectively a bunkering of the nuclear industry--with the best interests of consumers."
The Committee is worried about the cost of nuclear power and believes that at commercial discount rates and realistic coal prices, private companies will be unlikely to invest in nuclear power. Power from that source will be more expensive than that from fossil-fuelled stations. That has been expressed repeatedly in the debate. I can well understand the right hon. Member for Selby being so enthusiastic about coal mining as the jewel of the coal mining industry is Selby coalfield, but I wonder whether he would have the same enthusiasm if he represented an area where mining has been wiped out. Some 11,000 jobs have been lost in my constituency and we are facing a great threat. No Conservative Member has ever denied that there will be job losses in the mining industry as a result of this privatisation. The average age in the industry is 35, so young men will lose jobs without the prospects of the attractive and generous redundancy terms which were previously enjoyed. Since 1984 no jobs have been replaced. Therefore, would the right hon. Gentleman be so enthusiastic if he represented such an area?
Mr. John Hannam (Exeter) : For those of us who have been involved in energy matters over the years, today's debate represents a major step in the Government's progress towards the restoration of a truly free enterprise
Column 715society. As a strong believer in private ownership, as distinct from state control, I apply the simple principle that it is a question of justifying not why an industry should be privatised, but why it should remain in state ownership. If strong reasons can be given for an industry having to be owned by Government, so be it, but on the record of the nationalised industries, with their higher than average job losses and price increases, especially under Labour Governments, I see no doctinaire ideology in our wanting to put them back into the more competitive and efficient private sector.
For those reasons I welcome my right hon. Friend's determination to take our electricity supply industry into private ownership, albeit with an extensive regulatory regime for the obvious reasons of safety, consumer protection and security of supply of a vital commodity. The electricity supply industry operated without real competition for 30 years and that resulted in huge distortions of supply capacity, as we swung from cut-offs in the 1950s and 1960s to vast over-capacity in the 1970s and 1980s. From being a pioneer in nuclear technology, we have swapped and changed our reactor systems so often that overseas markets have been lost and our generating costs have suffered. All that time, the accent was on size with bigger and bigger generating stations, operating at less and less energy efficiency and running counter to all the environmental and conservation requirements of today's world.
The radical restructuring of electricity will lead our energy industries down a new path towards greater diversity of supply, better consumer involvement and, most important, a downward pressure on prices. This is where the Labour party is getting it all wrong. With the changeover on the Front Bench from the hon. Member for Kingston upon Hull, East (Mr. Prescott) to the hon. Member for Sedgefield (Mr. Blair), pessimism has been replaced by innumeracy. The hon. Gentleman's forecast of a 25 per cent. rise in electricity prices is wholly irresponsible and based on misconceptions. First, the hon. Gentleman's assumption that the non-fossil fuel levy represents a new charge on the consumer to cover future nuclear power costs is wrong. Present prices include charges for nuclear power and future decommissioning, and with current cost accounting in the nationalised industries, that is precisely what the consumer is paying for.
In his desire to scare the public, the hon. Gentleman also ignored the basic realities of competition which drives down costs. He fell into the old ideological Socialist trap of assuming that any increase in profits must come from increased prices. If he looks at British Telecom, he will see that it is making record profits, despite a decrease in telephone charges of 12 per cent. in real terms since privatisation. In any event, no Labour Member can talk about price increases when, between 1974 and 1979, electricity prices rose by 180 per cent., or 30 per cent. above inflation.
The factor that will reduce future costs is diversity of supply. For several years, there have been repeated complaints from area boards, industrial companies, independent electricity producers, energy efficiency and
Column 716combined heat and power organisations that the huge monolithic supply industry was preventing more efficient electricity production. My hon. Friend the Member for Erewash (Mr. Rost) and I have repeatedly brought these frustrations to the attention of the House, especially my hon. Friend, through his work on the Select Committee. The first official recognition of the energy efficiency case came with the Drax coal-fired power station which harnesses the waste heat for local tomato growing. That was the first occasion when a major power station has tried to use that excessive heat.
Mr. Hannam : One per cent. of it, as my hon. Friend says. Then the 1983 Act appeared to offer more scope for individual generation, but in reality the monopoly supplier has been more interested in large-scale stations, so smaller generators have not been allowed in on the act. Combined heat and power was completely neglected until recent years, but the new community heating schemes in Sheffield, Leicester, Birmingham, Newcastle and south London are a hopeful sign for the future. Nevertheless, we must remember that the original Government study on combined heat and power identified a further 34 urban areas where combined heat and power and community heating could be developed.
It is not only in the context of getting 60 per cent. rather than 30 per cent. energy efficiency that we should develop these schemes. My right hon. Friend the Prime Minister in her "green" speech in September recognised the urgent need to reduce harmful emissions into the atmosphere and referred specifically to "energy production" and "fuel efficiency".
The main ingredient in global warming is carbon dioxide and in a reply to a parliamentary question recently we were told that our present annual coal burn produces some 235 million tonnes of CO . The use of new combined heat and power combined cycle coal plant would reduce that CO output by about 150,000 tonnes a year from a single installation, so that must be desirable. In the context of this Bill and my right hon. Friend's "least cost" basis for future investment, combined heat and power combined cycle schemes satisfy our requirements.
I am more confident than ever before that these small 150 to 300 MW plants will flourish in the new era. However, it is in the context of the controversial 20 per cent. non-fossil option that CHP could have a role. I shall come to the nuclear aspects in a moment, but should like to ask for specific attention to be given to the use of coal and gas CHP schemes within that option.
The Government have made it clear that not only nuclear electricity is included in the non-fossil category, and that they are including the various renewable and "energy from waste" technologies that displace fossil fuels. The Government's energy paper No. 53 identified inner-city CHP as able to displace a fossil fuel burn of 12 million tonnes of coal equivalent. I welcome the inclusion of waste-tip electricity generation schemes in the Bill, but ask my right hon. Friend the Secretary of State to consider whether other CHP fossil fuel replacement schemes could be encouraged within the 20 per cent. option.
From my discussions with the area boards and representatives of the independent electricity producers, I am confident that a wide range of new generation will now
Column 717come on to the market. If all goes well, those smaller, more efficient stations will contribute to a cleaner lower- cost system, but still fit into our balanced energy supply structure, using coal, gas and nuclear.
We are debating the general principles of this privatisation Bill. There is no doubt that it is essentially an enabling Bill, with a great deal of detail yet to come in the regulatory and licence systems.
The controversial element is obviously the nuclear non-fossil requirement, and there will be a continuing debate about whether, given a need to maintain our nuclear industry, the Bill contains the best method of doing so. I believe strongly that in the next century nuclear power will provide the bulk of the world's electricity. At present, 16 per cent. is provided by nuclear power, but, as the International Atomic Energy Agency pointed out in a recent survey of 100 nations ranging from Argentina to Zambia, the overall picture is of increasing electricity demand, shortage of fuels and worries about the environmental damage caused by fossil fuels.
Belgium has reported that sulphur dioxide emissions were reduced by 60 per cent. per kilowatt hour between 1973 and 1983 because of nuclear power. Finland also reported a reduction in harmful emissions by using nuclear power. Kenya, Malaysia, Morocco, Pakistan, India, Poland and Spain--and most of the other 100 countries--are all planning peaceful nuclear power development.
Here in the United Kingdom, due to the juxtaposition of falling coal prices and a comparatively high cost nuclear station programme--the advanced gas- cooled reactors--we are temporarily at a point where there is no clear cost advantage in nuclear power. However, on environmental and safety grounds, I believe that nuclear power is still well ahead. The Government are right to maintain the nuclear option for all the different reasons given. In my view, it will not be long before the so-called levy becomes a refund as the crossover occurs again when oil, gas and coal prices rise higher than nuclear prices.
My right hon. Friend has shown great determination and bravery in his approach to this privatisation. There is still a lot of detail to come, but I congratulate him on his vision and support the Second Reading.
Mr. Jack Thompson (Wansbeck) : Listening carefully to the Secretary of State's presentation of the Bill on its Second Reading today, I felt that he lacked conviction and commitment. It will be interesting tomorrow to see in cold print in Hansard the detail of his comments because I am sure that the public outside will see only the comments in the newspapers, and not the Secretary of State's full presentation.
Up to this point the input from Conservative Members has not touched on one point. There has been severe criticism by the Secretary of State and other Conservative Members of the Central Electricity Generating Board, the grid system, the distribution boards, and the industry's lack of efficiency and lethargic attitude. However, what has not been mentioned is that the Secretary of State and his predecessors for the past nine years could have influenced anything that happened in the electricity industry because it was state-owned and the direct responsibility of the Secretary of State for Energy.
Column 718To understand fully the changes advocated in the Bill, which are designed to dismantle an efficient and integrated service, it is necessary to examine the reasons for the industry being taken into public ownership in the first place some 40 years ago and to relate those reasons to the position now. The policy of public ownership, which was pursued by all political parties at that time, is still valid in the 1980s and will be even more valid in the future. It cannot be claimed that the propositions enshrined in the Bill will take us back to Victorian times, although much of the legislation introduced by this Government has taken us back to Victorian times. However, electricity is somewhat different, because in Victorian times it was in its infancy. The Secretary of State's proposals lead me to believe that the industry will suffer from some of the problems that it faced in the mid-1920s when the Weir report set the pattern for our present complex integrated system. Faraday announced his discovery of electro-magnetic induction in 1831 ; after his subsequent development of more efficient generating sets and the invention of the incandescent lamp, the House passed the Electric Lighting Act 1882 which, incidentally, was framed in such a way that it protected the public against private monopoly--exactly the opposite of what is suggested now. The Bill also limited maximum prices and allowed for the purchase by local authorities of private companies established under the Act. That arrangement was to allow for a write-down value after 21 years. In the context of its time, that was a sensible suggestion. Hon. Members may not be aware that the sponsor of that Bill was Joseph Chamberlain, who was a more sensible and more enlightened Tory than those sponsoring this Bill, the proposals of which will create a new private monopoly and put profit before people.
From the turn of this century, the industry flourished and expanded, mainly organised and funded by municipalities, the objective of which was to provide a public utility, geared to the benefit of their communities. It became more and more evident that large-scale integrated distribution systems were vital to the future of the industry. In the north-east of England, much pioneering work was done both on improving generating techniques, aided by Charles Parson and his turbines, and on the distribution of electricity on a standardised system. The north-east network was the biggest integrated power system in Europe at the time. It was the forerunner of what was to expand into the present grid system.
That brings me to one of my main criticisms of the Bill. Responsibility for regulating and balancing distribution via the grid is to be taken from the generating side of the industry. I am sure that the House would be interested to learn the source of the advice given to the Secretary of State which encouraged him to include this preposterous proposition in his plans. I would hazard a guess that it was not engineers with any intimate knowledge of the grid. The grid has a crucial role in balancing load factors throughout the country, as well as in ensuring the most economic regulation between production and consumption. It can perform its functions effectively only by being linked directly to the generating side of the industry.
On 26 October, New Scientist announced :
"The CEGB are already considering breaking up its research and development team into three parts, one to be allocated to big G, one to little G and the other to the grid system."
Column 719That is a retrograde step. In such an industry, research and development must be integrated, just as the service itself must be integrated.
I have experience as an electricial engineer. I also have the benefit of being a fellow of the Parliamentary Trust and visiting the North Western electricity board two or three years ago. It was an invaluable experience because I saw the industry from all sides. The people there were very helpful to me while I gained that experience, which reinforced my belief that breaking up the generating industry and taking control of the grid from the generators is absolute folly.
The industry will suffer from a conglomeration of private companies controlling the grid ; each demanding satisfaction for its regional monopoly and seeking improvements and expansion of the grid facility in its own area. That is a recipe for chaos and confusion. I am sure that the Bill will have a rough passage through Committee on the technical aspects of this proposal.
There is another point that is not explained in the Bill, but was raised by the hon. Member for Exeter (Mr. Hannam), and that concerns the large consumer. If the large consumer has the opportunity to receive its supply directly from the generator, it must be fed through the grid system, which is owned by the distribution companies, and, somewhere along the line, that will be an added complication. If I was involved in the distribution companies, I would seek compensation for the use of the grid.
Another criticism of the proposals is the lack of regulation and coal imports. In fact, there is positive encouragement to expand imports, which will not only cause economic problems for our coal industry, but, without regulation, will seriously damage the balance of payments which, on recent evidence, is in a difficult enough position.
The rundown of the coal industry--significantly accelerating in the past two years--will continue. Social and economic effects of further closures will increase the hidden burden of job losses, redundancy payments and the social deprivation that follows, and the abandoning of huge coal reserves some of which will never be recoverable. For example, in my area the coal is under the North Sea. If those coal reserves are abandoned, there will be little chance of getting back to them again. There will be an increased dependency on foreign coal, which will increase in price as the power stations in Britain become more dependent on imports, so removing the short -term advantage of subsidised supplies. We are too dependent on coal produced by low-paid workers in near-slave conditions. The consumption of electricity produced, for instance, by burning South African coal, should weigh heavily on the conscience of the British consumer. Clause 88 and schedule 12 are diametrically opposed to Tory policies of a free market and is a distortion of fair and even competition. There is already considerable public discontent at the expansion of nuclear plant; the public perception of the conduct of the Sizewell inquiry did not enhance the case for further nuclear expansion. That is evidenced, too, in the strong opposition at the Hinkley Point inquiry.
There is a campaign in the north-east opposing the building of a PWR in the constituency of the hon. Member for Berwick-upon-Tweed (Mr. Beith)--my parliamentary neighbour. Although he and I are from different political parties, we have campaigned during the past 10 years on
Column 720the platform that a reasoned alternative to a nuclear power station or PWR would be a coal-fired station which could be run economically. However, that alternative will be distorted by the propositions in the Bill.
Of course, at that time the opposition to the nuclear power station at Druridge bay was supported by the Tory candidates in the 1983 election. They stood there on the sand dunes and said, "We do not want a nuclear power station here." That may have been because they were candidates in the election, and they may have changed their views by now. I shall watch carefully to see whether one of them who is now a Member of the House makes a contribution to the debate. Many hon. Members, although they were supporters of the nuclear industry, see no justice in clause 88.
The Secretary of State and the Government are so obsessed with nuclear power and attempts to destroy the mining industry that the clause distorts the future of power generation. It is nothing more than a subsidy for nuclear power. It is a facility which is not offered on the same scale to the coal mining industry. I shall be interested to see whether the Secretary of State, when discussing the proposals for the privatisation of the coal industry, will talk of a coal tax in the same way as he has talked of a nuclear tax. The industry would have been in a far healthier shape than it has been in the past few years, and the best thing to do with the industry is to leave it alone--
I shall just make a little recommendation to the Secretary of State. I recommend that over Christmas he reads two books, both by the same author, Lesley Hannah, "Electricity before Nationalisation", a study up to 1948 and "Engineers, Managers and Politicians", a study of the electrical industry up until 1979. He will find them both enlightening and useful.
Mr. Peter Rost (Erewash) : The hon. Member for Sedgefield (Mr. Blair), who opened on behalf of the Opposition with an elegant but badly researched speech, challenged the Government to say what benefits would come from privatisation. I have some news for the House--certainly not for my right hon. Friend the Secretary of State, because I am sure he will know it already. We have evidence that there is already pressure for downward prices from the new independent producers and from industry proposing to generate its own.
I have some difficulty in spelling out the details of that, because I must declare an interest as a consultant to the Major Energy Users Council, many of whose members are large industrial firms, which are fed up with uncompetitive electricity prices and the monopoly abuse, and are only too anxious to generate more of their own electricity. After all, we are bottom of the European league in industry producing its own processed heat and electricity, because of the abuse of the CEGB monopoly. I have difficulty, too, because I must declare an interest as an adviser to independent electricity producers interested in proving
Column 721what they have not been allowed to prove before, which is that there are cheaper ways of generating electricity from which the consumer can benefit.
All I may tell the House, without disclosing what is obviously still sensitive commercial information on contracts which are in the process of being negotiated, is about a number of projects which have already been referred to in the debate, especially schemes of district heating and combined heat and power at Leicester, the gas turbine project at Corby, the district heating scheme that is going ahead in Sheffield, the Thameside scheme and many others. The price at which they are offering their electricity to area boards is between 2.5p and 2.9p per kilowat hour. That compares with more than 3p per kilowatt hour, which the CEGB presently charges area boards. Therefore, there is evidence that the new producers can make a profit and offer electricity to area boards at lower prices than the area boards must now buy it from their monopoly producer, the CEGB. The estimates of how much of that electricity can come forward in time for privatisation vary, of course. However, they will be fairly limited, because privatisation is only two years away. Only those schemes already under production will be able to sign up for contracts on vesting day. It is estimated that the potential during the next five years is probably nearly 10,000 MW of capacity. A lot of that will come from industry wishing to put up its own plant, from city consortia developing combined heat and power district heating, and from new dependent producers putting up power stations, using the new technology which the CEGB has preferred to ignore.
Of course, some of that technology will be combined cycle gas turbine and some of it will be the new generation of smaller coal-fired power stations, using the fluidised bed technology which, incidentally, is going ahead in the east midlands in partnership with British Coal to produce cheaper electricity than the large, conventional, traditional coal-fired power stations, as well as producing far less pollution.
The other technology, which the CEGB has again preferred to ignore, is the use of municipal refuse as a fuel. That is the cheapest fuel and it is a clean burn technology. If the Swedes can do it in the centres of their cities, we can certainly do it with our pollution. It produces cheaper electricity, of course, where the heat is also marketed. The private sector is going ahead with such technology. The evidence already exists. I can prove it and I have it on paper, but, unfortunately, it is difficult for me to show it because it is still commercially sensitive. Area boards are shopping around and at the moment they are negotiating contracts for cheaper electricity than that which they presently must buy from the CEGB. One cannot have more proof than that. Competition will put pressure on prices. Unfortunately, things cannot happen overnight because most of the existing capacity is still with the CEGB. Area boards also have an obligation to supply, so they must sign the contracts. If my right hon. Friend wants competition to develop further, I urge him to allow area boards to sign short-term contracts. They are anxious to do so, but, of course, the successor CEGB companies want to sign long-term contracts.
Column 722Area boards are aware that, within four or five years, much more privately produced electricity will be offered to them at a cheaper price than that at which they will have to buy from the successor companies of the CEGB. If the new capacity are cheaper electricity and not to be squeezed out and pre-empted by the successor CEGB companies, it is most important that short-term contracts are encouraged.
If my right hon. Friend genuinely wants to encourage competition, he must ensure that the redundant power station sites that the CEGB has been hoarding for years and has tried to develop rather than allow private enterprise to refurbish them for lower cost electricity production, are sold to the private sector if the successor CEGB companies are not prepared to develop them. There will be a problem about obtaining planning permission for new power stations even if they are the small type that are likely to be built. Therefore, the available sites that are presently held by the CEGB must be redeveloped by private enterprise if the CEGB successor companies are not prepared to refurbish them to enable more efficient electricity production. Those sites must be auctioned in some way so that the new independent producers who are anxious to get going will at least have some sites on which to do so.
I wholeheartedly support the excellent comments of my hon. Friend the Member for Exeter (Mr. Hannam). We could have cheaper electricity, combined with heat production which would also provide cheaper heat for our communities, if the CEGB monopoly had not rejected that offer. The arguments in favour of the city district heating and industrial co- generation have been recognised and developed within the rest of Europe, where some 3,000 towns and cities have cheap heat and cheaper electricity as a result of the two processes working together. The environmental advantages are, of course, enormous because it saves fossil-fuel burning if one can obtain 80 per cent. efficiency out of the fuel burn rather than the present level of 35 per cent. derived from our coal-fired power stations. They generate electricity only and throw out the other two thirds of the fuel in the form of cooling water.
If the arguments in favour of combined heat and power production was environmental alone, I might have second thoughts, but such production is also competitive. The estimated cost of electricity produced in co- generation or combined with heat production is lower than that of electricity produced from coal-fired power stations. Therefore, on the grounds of energy efficiency and the environment, I would strongly urge my right hon. Friend to consider seriously allowing the combined heat and power option to be included in the non-fossil fuel category with nuclear and renewable sources of energy even if it does burn fossil fuels. That can be done because combined heat and power displaces fossil-fuel burn because of its increased efficiency. Therefore, it is justifiably a non-fossil fuel source because it displaces other fossil fuel that would otherwise have to be burnt.
I welcome this long overdue restructuring of our industry leading to privatisation. I congratulate my right hon. Friend on a courageous proposal and on a radical policy.
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Mr. Alan W. Williams (Carmarthen) : One of the reasons why the Labour party opposes privatisation of electricity is that it will lead to higher prices, and that is what most consumers fear. Comment has already been made about prices. It should be noted that, between 1982 and 1987, electricity prices fell by 19 per cent. in real terms. Since the privatisation of the industry has been mooted, we have already had an increase of between 8 and 9 per cent. and a further 6 per cent. increase is on the way. Once the industry is privatised, shareholders will want their dividend, and in the future we will also be faced with indeterminate nuclear bills to pay. It strikes me that a minimum estimate of the cost of privatisation to the consumer in terms of price increases is 20 per cent.
The Labour party is also opposed to the privatisation because there will be no competition and therefore no help to the consumer. I also doubt whether there will be much competition within the generating end of the industry. The Bill has nothing to do with competition. My main argument against the privatisation is the double standards that the Government have adopted in their treatment of coal as opposed to nuclear power. The coal industry is being exposed to the harsh realities of the international market, but the nuclear industry is essentially protected from them.
In the past four years in south Wales, 18 of the 29 coal mines have disappeared--now there are just 11. Two weeks ago it was announced that Cynheidre colliery, just outside my constituency, would be closed. I am delighted that the miners have decided to fight that closure and to take that case to review. The size of the losses that have been incurred by that colliery and by Marine colliery in south Wales are small in comparison to the subsidies given to the coal industries of France, Germany and Belgium.
It is a terrible contradiction that, as we approach 1992 and the single European market, which should create fair competition for energy resources, our coal industry is treated in a completely different way from that in France, Germany and mainland Europe. If Cynheidre was situated anywhere on mainland Europe there would have been no question of its closure because it would be judged a highly successful coal mine. The Government, however, believe in closing anything that is slightly uneconomic in the coal industry, even if loss has been incurred over a short time.
Privatisation of electricity will also allow increased imports of coal. It is obvious that the world price of coal moves up and down as does the value of the pound. If interest rates are to be at 13 per cent., it is clear that we will have an over-valued pound, which will make imported coal temporarily cheaper. We all know, however, that just around the corner, the value of the pound will drop. When that happens, cheap coal imports will disappear. If we were substantially dependent on the world market for the supply of our coal, prices would soon escalate because that market is so small. The importation of coal is the wrong way to plan for our long-term energy supply. British Coal can offer long-term supply contracts. Over the next 10 years, it will hold its price to the retail prices index. What other industry in Britain could offer such a contract? British Coal offers us security of supply, at an economic price, within a long-term deal. It is now conceded that, compared with coal-produced electricity, nuclear electricity is uneconomic.