House of Commons Hansard Debates for 6 Apr 1989

Mr. Hardy : The hon. Member for Erewash (Mr. Rost) is right to remind the House of his long commitment to the concept of combined heat and power. My commitment to it may not be as long-standing as his, but I recall addressing the annual conference of the Combined Heat and Power Association almost a decade ago. The arguments that were advanced by the hon. Gentleman --he has been advancing them for a long time--were advanced then.

The cause of combined heat and power should by now be more firmly established. Had it not been for the

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Government's dogmatic approach in the 1980s, we would have seen a greater achievement and greater potential for international advance and international trading opportunities than we do now. One wishes the project well, but it is a great pity that the Government had to put dogma before achievement in the early 1980s. I can evisage enormous advantages from combined heat and power associated with fluidised bed combustion.

I am pleased that the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food is present, because it will allow me to trespass for one moment on the environmental effects which may follow the development of combined heat and power.

The Agriculture Minister will know that there are anxieties about the scale of fish farming around our coasts. It is appropriate for the use of combined heat and power to produce hot water, but not merely for warmth and comfort. Many people in our towns and cities desperately need warmth and comfort. We might be able to use some of that hot water to promote inland fish farming. That might save the Ministry of Agriculture, Fisheries and Food from the almost illegal action in which it is involved by allowing or encouraging the importation of manila clams, the farming of which is becoming a serious risk to our coasts and estuarial areas. I hope that the Parliamentary Secretary will save my having to raise that matter in the House on another occasion by examining that grave problem this evening. Combined heat and power has benefits that may go far wider than mere energy or direct environmental interests.

I am grateful to the hon. Gentleman for tabling the amendment, and I hope that if the Government force us into the Lobbies in support of this just and wise cause, some Conservative Members will join the hon. Member for Erewash, who deserves the tribute of the House.

Mr. Malcolm Bruce : I shall speak briefly because I am a signatory to the amendment. I believe that the hon. Member for Erewash (Mr. Rost) has come up with a simple, straightforward and rather ingenious amendment. It simply asks that the net benefit that combined heat and power can achieve should be credited to the non-fossil fuel quota. That seems to be an eminently reasonable proposition. It will probably be required anyway because it is doubtful whether the industry will otherwise be able to achieve a quota of the order that the Government seem to be describing.

The amendment would have definite environmental and efficiency benefits and could lead to the encouragement of combined heat and power which, as the hon. Member for Erewash has rightly pointed out, has considerable potential in the United Kingdom--much of it untapped. His own tireless fight for this cause over many years is appreciated by the House. He has done a service tonight by tabling a useful, constructive and ingenious amendment. I hope that if the Government cannot accept it, they will consider it. It will be of considerable benefit to all if they do so.

Mr. Michael Spicer : It is getting late, so the House will want me to be brief.

I fully agree with my hon. Friend the Member for Erewash (Mr. Rost) and other hon. Members who have made the point that combined heat and power is an important potential source of energy. I also associate myself with what my hon. Friend said about the potential

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beneficial environmental effects. The hon. Member for Gordon (Mr. Bruce) is right to congratulate my hon. Friend on all that he has done over the years to keep this technology in the forefront of people's minds.

I do not fully share my hon. Friend's anxieties about the future. Existing private generation now amounts to 3 GW of electricity and 2 GW of that is represented by combined heat and power plant, which is a substantial figure. I know that my hon. Friend has already made the point that that is industrial plant, and I shall deal with that in a moment. However, if we are looking to the immediate future, there is ample evidence that the very existence of the Bill is already bringing forward much new, independent generation. We know of about 7 GW of new capacity potentially in the pipeline. Of that, about 1.1 GW is of combined heat and power, such as the Leicester energy scheme and the British Sugar scheme at Brigg.

Industry is, therefore, proposing to increase its investment in combined heat and power by more than 50 per cent. and that is just a beginning. We do not think that there is a need, with respect to industry, to subsidise and artificially support combined heat and power. It is not part of this Government's plans to subsidise schemes which are clearly profitable to private industry and which make sound economic sense.

Mr. Rost : If the amendment were accepted, there would be no question of the industrial side being subsidised because industrial combined heat and power produces electricity and processed heat for industry's own purposes. It does not sell it.

Mr. Spicer : I appreciate that my hon. Friend is especially concerned about the domestic side of this technology. Government policy in general and the Bill in several specific ways about which I shall briefly remind the House are addressing the more general problem to which my hon. Friend is referring. We have spent, for example, £750,000 on studies in Leicester, Belfast and Edinburgh, where there are city schemes. We are determined that the rating handicap under which this particular aspect of the industry has suffered should be altered so it is put on to an equal basis. The Bill will not only give those wishing to engage in this form of technology free access to the system, but there will now be a duty on public electricity supply companies to buy from the most economic source. Therefore, if CHP is the most economic source, that duty will take effect. Perhaps most importantly in the context that my hon. Friend the Member for Erewash was discussing under clause 9(3) CHP operators will have statutory undertaker powers comparable to those enjoyed by the present utilities. For city schemes that is a major step forward.

In making this necessarily brief reply to my hon. Friend--given the time of night--and although I recognise entirely that this is an enormous subject, in which he is well versed, I must advise him that as a result of our privatisation proposals the prospects for private investment in CHP are looking very healthy. We are providing fair market conditions in which CHP schemes can compete freely with other forms of generation and heat supply. Their future will depend not on further public funding of subsidy but on their ability to operate competitively. Given its thermal efficiency, which my hon. Friend mentioned, and its versatility, CHP is well placed to do just that. In the light of that explanation, I hope that my hon.

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Friend the Member for Erewash and other hon. Members will feel able to withdraw their amendments, well intended though they are.

Mr. Morgan : I am sorry to have to say that all that the Minister of State has done in his brief reply is to show how very much less he knows about CHP than does his hon. Friend the Member for Erewash (Mr. Rost).

I shall go through what the Minister said about the glowing future that he envisages for CHP after privatisation. He said that 7 GW of new capacity is being promised or discussed with the Department and that 1.1 GW of that is CHP. That may well be true, but as far as we are aware--I shall be interested to know the views of the hon. Member for Erewash on this--the whole of that 1.1 GW falls into two categories. The first is industrial, which is sometimes known as micro-CHP, where the heat grid, led off from the power station, is on land that is within the control of the generator, Slough Estates or Tunnel Refineries. CHP programmes have also been started by Labour local authorities for the specific purpose of carrying out an experiment, which public authorities such as a local authority can do and have done in places such as Leicester, Sheffield and Newcastle. Other schemes have already been referred to by my hon. Friend the Member for Rother Valley (Mr. Barron). However, we are not aware of any breakthrough of the kind that the hon. Member for Erewash and my hon. Friends have been calling for, such as some kind of boost in policy terms--not a subsidy-- that would establish the principle of how CHP should work in the new set- up, outside the property of the generator.

The Minister is right--all hon. Members know that converting one's generators to the CHP mode can be economic in places such as leisure centres with a swimming pool where one wants summer heat, in hospitals or old people's homes where summer heat is needed because of the demands of the elderly and so on, and in premises where there have to be standby generators, such as large telephone exchanges or hospitals. That is micro- CHP and we have already conceded that that is taking off. We know that that will produce a large saving on fossil fuel and that it will contribute to reduced energy costs and to a reduction in the greenhouse gas pollution load.

But that is not the point. The point is that the Bill as presently structured is biased against CHP-- [Interruption.] It is not a question of a subsidy. Without the amendments that the hon. Member for Erewash and we have been proposing, the Bill will be biased against CHP for the simple reason that the duty laid on the Secretary of State and the director is to see that electricity--and only electricity--is generated in the most efficient and economic manner. In the CHP mode of generating electricity, one takes the steam off the turbines at a high temperature. That is not the optimum way of generating electricity because one would be virtually excluded under the Bill from operating an electricity power station in the CHP mode. One would not be generating electricity, taken on its own, in the most economic manner because one would be taking the hot water off before it had gone through the turbines to the maximum possible degree for keeping electricity prices down to the minimum.

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11.15 pm

The point about our amendment, and that of the hon. Member for Erewash, is that it would permit the optimisation of two things at once--the taking off of the heat and the generation of the electricity. If anyone thinks that that is a minor point, he should look at the Government's own document on this subject, Energy Paper 20, in which it is illustrated. It is the Government's own calculation, which no one has contested, that if one supplies heat by generating electricity afresh to heat a room, and this is taken to be one unit of heat provided by electricity, one can do it at less than half that price if one does it by gas ; but if one does it by CHP, by the offtake of the hot water, the cost goes down to one seventh of that of heating the room by freshly generated electricity. That is the kind of point that we need to drill into the Minister tonight. The Bill is biased against CHP. An amendment of this sort is needed if we are to have CHP on a level playing field basis. If the Government want us to take them seriously, if they want us to believe that they are interested in fuel efficiency and in the greenhouse effect, and not just in making speeches at conferences or, as the Secretary of State will do next week, lecturing the Soviet Union on "British is best" in energy technology, they must think very seriously about the Bill and amend it so that it really gives a chance to "British is best" technology, which is there, waiting to be implemented if only there is a level playing field.

We know that we are behind in the application of CHP on other than a micro basis. We know that micro-CHP is taking off in the way that I have described. What we are not satisfied about is that large-scale CHP can take off unless the Government take a serious look at the legislation and at the amendments suggested.

On the grapevine we are told that, provided the Government persuade us and the hon. Member for Erewash not to press this to a vote, the Central Policy Unit, the 10 Downing street think tank, will recommend to the Department that it should support these amendments or something similar. I know that I should not be saying too much this week about 10 Downing street and leaks that have emanated from the staff there, but on the assumption that the information that we have had on the grapevine is even better than that of Sir Leon Brittan, now that he has emigrated temporarily to Europe, we will not press this to the vote. We shall expect to see some action from the Minister of State, taking, if not our advice, at least the advice from 10 Downing street, which is a far more important source Mr. Rost rose--

Mr. Morgan : I give way to the hon. Gentleman.

Mr. Rost : I am sorry, I thought that the hon. Member had sat down.

Mr. Morgan : I am sorry. Was the hon. Member asking me to give way?

Mr. Rost : No.

Mr. Morgan : I am sorry. I do not really want to repeat my last line. I was just going to say that 10 Downing street will, I am sure, tell the Minister to do the right thing.

Mr. Rost rose --

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Mr. Deputy Speaker (Mr. Harold Walker) : Order. The hon. Gentleman has addressed the House once. He cannot speak again. Amendment negatived.

Mr. Deputy Speaker : We now turn to amendment No.

Mr. Rost : On a point of order, Mr. Deputy Speaker. I tabled an amendment and I have not yet withdrawn it. I ask you to--

Mr. Deputy Speaker : Order. The hon. Gentleman's amendment No. 1 was chosen for debate in a group of amendments selected by Mr. Speaker, the lead amendment of which was No. 136 which I have just put to the House and which the House has negatived.

Clause 4

Prohibition on unlicensed supply etc.

Mr. Michael Spicer : I beg to move amendment No. 3, in page 4, line 14, leave out

of high voltage lines and electrical plant'

and insert

which consists (wholly or mainly) of high voltage lines and electrical plant and is'.

Mr. Deputy Speaker : With this it will be convenient to consider the following amendments :

No. 137, in page 4, line 15, after for', insert

the pumped-storage of electricity or'.

Government amendment No. 4.

No. 127, in clause 8, page 7, line 10, after transmission', insert

and generation by pumped storage.'.

Government amendments Nos. 8, 51, 52, 64 and 67.

Mr. Spicer : The Government consider that the amendments are technical or drafting, with the exception of amendments Nos. 51 and 52, which meet one of the matters discussed in Committee. I believe that the hon. Member for Barnsley, Central (Mr. Illsley) raised in Committee the fact that the director general would be under a duty, if these amendments were brought forward, to publish information on performance standards at least once a year. We said that we would look at that matter and we have tabled the amendments in response to that debate.

We cannot accept Opposition amendments Nos. 137 and 127 because we do not see their point. The amendments aim to define pump storage as part of transmission. Transmission and generation, which pump storage is, are different things. Although, of course, pump storage is concerned with system stability, it is not the same as transmission. There is nothing to stop the transmission companies using pump storage in any way they wish, nor, indeed, to stop other pump storage stations coming forward, if they are economic, and are to be treated as generating companies. We may hear some concern to which I have not alluded, but we do not want to confuse, as do the Opposition amendments, transmission with generation. We would oppose amendments Nos. 127 and 137 if they were pressed, although I cannot see why they would be.

Mr. Morgan : I simply wish clearly to establish whether the National Grid Company will have a transmission licence. If not, how will it operate Dinorwig?

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Mr. Spicer : Dinorwig will operate on the basis of generation licences. The National Grid Company will call up Dinorwig in precisely the same way as it calls up any other station. Therefore, there is no problem. It is part of its operations, but there is no problem about the licensing of future companies.

Amendment agreed to .

Clause 5

Exemptions from section

Amendment made : No. 4, in page 4, line 21, leave out so specified' and insert specified in the order'.-- [Mr. Michael Spicer.]

Clause 6

Licences authorising supply etc.

Mr. Giles Radice (Durham, North) : I beg to move amendment No. 138, in page 5, line 3, at beginning insert Subject to sub-section 11 below,'.

Mr. Deputy Speaker : With this it will be convenient to take the following amendments : No. 139, in page 6, line 8, at end add-- (11) no licence to supply electricity shall be extended by virtue of subsection 2(b) above, to cover an area without consultation with the consumers' committee for that area.'.

No. 165, in clause 7, page 6, line 17, at end insert--

(c) conditions requiring any contract between a public electricity supplier and a person authorised to generate electricity which is of more than ten years duration to be referred to the Director prior to the contract being agreed.'.

No. 175, in clause 9, page 7, line 36, at end insert--

(2A) A licence under section 6(1) above shall provide that Schedule 3 to this Act shall not have effect in relation to a license holder if--

(a) the owner of the land affected by a compulsory purchase order or the person whose livelihood would be affected by such an order objects on the grounds that his livelihood would be affected ; (

(b) a member of the public objects on the grounds that the natural environment or wildlife would be damaged.

(2B) Where objections are lodged under (2A) above the licence holder may appeal to the Director General, who shall take into consideration the measures taken by the licence holder to expand capacity by means other than the building or expansion of plant.'. No. 176, in page 8, line 18 at end insert--

(6) Nothing in this section or in the schedules mentioned in this section relating to compulsory purchase shall affect the holding or outcome of a planning inquiry into an application to contruct or expand buildings or installations for the purpose of the generation, transmission or supply of electricity.'.

No. 179, in schedule 3, page 72, line 5 at end insert--

(2A) Such consent may be given :

(a) in an emergency, or where the powers are to be used to comply with a notice given under Section 15 of this Act, only after reasonable notice has been given to the owner and occupier of any land ;

(b) in all other circumstances, only after the consent of the owner and occupier of the land has been obtained, which consent shall not be unreasonably withheld.

(3) Any question whether such consent is or is not unreasonably withheld shall be referred to and determined by the Secretary of State.'

No. 129, in clause 10, page 8, line 21 after second licence', insert

and the consumers committee appropriate to that area.'.

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No. 140, in clause 11, page 9, line 10 at end add--

(c) notwithstanding subsection (i) above the Director must refer to the Monopolies and Mergers commission any modification he proposes to the conditions of a licence, where the holder of one licence under Clause 6(1)(c) above is proposing to acquire another licence holder under that section.'.

No. 141, in page 9, line 10 at end insert--

(d) notwithstanding subsection (i) above the Director must refer to the Monopolies and Mergers commission any modification he proposes to the conditions of a licence, where the holder of a licence is proposed to be acquired by another person.'.

No. 143, in page 9, line 23 at end add

any observations of the consumers' committee for that area on the reference with regard to subsections (1) and (2) above.'.

No. 142, in page 10, line 3 at end add--

(c) any observations of the consumers' committee for that area on the reference with regard to subsections (1) (2) and (3) above.'.

Mr. Radice : The amendments concern the licensing arrangements and contracts which I believe go to the heart of the Bill. The Secretary of State has said that electricity privatisation, unlike other privatisations, creates and enhances competition and produces what is called downward pressure on prices. The problem, of course, for the Secretary of State is that he must create the conditions in which he can successfully sell the industry to private investors and ensure certainty of supply. In the end what the Government have come up with is what is being called the big fix arrangement-- [Interruption.] The Secretary of State appears surprised at the phrase "big fix". I should have thought that he had become very familiar with it, as he invented it.

The big fix regime is a licensing system in which--I quote not from a Labour party document but from a very good publication-- "the interests of the privatised companies are balanced out and protected as far as possible ; where new entrants will, initially at least, find it difficult to enter the market, and where prices are very strongly regulated."

In Committee we had one of the fiercest, the most heated and, I believe, the most revealing debates over licensing and the issue of contracts. My hon. Friend the Member for Sedgefield (Mr. Blair) made one of his most able speeches and demonstrated that the licensing and contract proposals were extremely complicated. One hon. Member had to ask for a blackboard to try to assist other hon. Members to understand the proposals. The Minister also had trouble understanding them.

Mr. Cryer : My hon. Friend says that the Minister also had some trouble. Is he aware that the Minister is not listening to his argument, but is busy consulting the advisers in a great conference in the corner of the Chamber? Presumably he is trying to get some information to answer the debate, but surely it would be better if he listened to my hon. Friend.

Mr. Radice : The Minister had such problems throughout the Committee, that he was almost always consulting non-existent advisers while Opposition Members were speaking--that is par for the course. The licensing arrangements and contracts were specifically designed in the case of electricity supply to rule out competition at the initial stage and to introduce, at best, a limited form of competition only in the future.

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My hon. Friend the Member for Sedgefield also forced the Government to reveal the existence of the "contract working party", which has been established to arrange the big fix. In the so-called initial contracts for existing capacity, which could last for up to 10 years, the big fix ensures that there is no significant competition because the yardsticks do not apply.

In Committee the Government admitted that, in respect of contracts for future capacity, those contracts will be allowed to have take-or-pay clauses. It is unlikely that companies will enter the industry unless such clauses exist. If it is correct that the yardsticks will not apply in the contracts for existing capacity and that contracts for future capacity will contain take-or-pay clauses, it is extremely hard for the Government then to argue that those contracts will promote meaningful competition in the day-to-day operations of the industry.

Our amendment is designed to make the best of a bad job. It would ensure that all long-term contracts come under the specific supervision of the director general. Under our amendment he would be able to call in all long- term contracts prior to their agreement. The amendment is sensible and constructive and a Government who were serious about competition would accept it. I suspect that, despite all the claims by the Secretary of State and the Minister about competition, the Government are more interested in ensuring the successful sale of a public industry. If they reject the amendment it will confirm our case, made so ably by my hon. Friends in Committee, that the Government believe not in competition or in helping the consumer, but only in privatisation, irrespective of the merits of the case.

Mr. Beith : I wish to speak to amendments Nos. 175 and 176, although, at this time of night, it would be more honest to say that it has fallen to me to speak to amendments Nos. 175 and 176. Amendment No. 175 relates to the compulsory purchase powers in the Bill. They have caused a great deal of anxiety to many people, some of whom have, in the past, voted for the Conservative party. They are a little puzzled about why the party which they have long supported has granted such draconian--they would consider them

Socialist--compulsory purchase powers to private companies. The amendment would change the procedure so that, in certain circumstances, it would be the director general's duty, if appealed to, to decide the matter and to take into consideration the alternatives that were available to the company concerned to expand capacity in some other way instead of building the proposed plant or expanding an existing one.

11.30 pm

Two sets of circumstances are envisaged. The first involves the owner of land affected by compulsory purchase whose livelihood would be affected. I quote the National Farmers Union :

"The NFU is opposed in principle to the granting of compulsory purchase powers to private companies. We believe that where PLCs need to acquire rights in land, or land itself, they should pay the open-market rate for those interests. That should include any development value At the very least, the PLCs should have to seek the consent of the owners and occupiers of the land which they wish to acquire."

The NFU is concerned about occupiers whose livelihood will be at stake if land is taken away. It may be the crucial acreage without which a farm ceases to be viable. If that acreage is to be taken away because an

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electricity supply company insists on building a power station when other alternatives are open to it, it is surely right that those alternatives should be examined. A power station project should not be presented at a compulsory purchase inquiry as inevitable and necessary, and as something which by its nature justifies the exercise of compulsory purchase powers. The director general will have the means, the experience and the qualifications to assess whether it might be open to the company to expand its capacity in another way.

The same procedure is envisaged in the amendment where there are public objections on the ground that the natural environment or wildlife would be damaged. Again, one can imagine a compulsory purchase inquiry where the objectors come along to point out that some unique wildlife habitat or noteworthy and well-appreciated environmental feature will be destroyed, but the supply company says, "We have to have this power station. It must be built. We have no alternative." In those circumstances, it is surely reasonable that instead of the inspector dealing with the matter at a compulsory purchase inquiry the director general, who will be qualified in those matters, should be able to consider whether the company could not carry out the expansion it required by some means other than the building of the plant in that particular place.

Amendment No. 176 also seeks to secure the rights available to objectors at planning inquiries in cases where compulsory purchase is involved.

The burden of both amendments is to protect the environment, wildlife and those whose livelihood may be affected by the exercise of draconian compulsory purchase powers by private companies which may not have sufficient regard to the alternatives open to them.

Mr. Michael Spicer : It falls to me to have to answer the hon. Member for Berwick-upon-Tweed (Mr. Beith) and, of course, the hon. Member for Durham, North (Mr. Radice). I shall deal first with the rather technical amendments referred to by the hon. Member for Berwick-upon-Tweed. We do not believe that those amendments are necessary, although we understand the hon. Gentleman's concern. On amendment No. 176, where a proposed project requires the Secretary of State's consent under clauses 33 and 34, and is subject to public inquiry, the practice is for any related applications for compulsory purchase orders--the hon. Gentleman's worry--to be considered together with the planning application. In fact, the inspector will generally be asked to advise the Secretary of State on both matters. So there is no question of an application for a compulsory purchase order being allowed to affect the holding or the outcome of the inquiry.

We also think that amendment No. 175 is unnecessary because the compulsory purchase provisions of schedule 3 would apply only where the licensee wished to purchase land for licence-related activities, that is, activities directly related to the generation, transmission or supply of electricity. Under the Acquisition of Land Act 1981 a public inquiry has to be held if the owner-occupier of the land objects. The hon. Gentleman has fairly raised these matters, but they are covered under present legislation.

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Mr. Beith : Is the Minister satisfied that, at such an inquiry, it would be open to the objector to argue that other options are available to the company, rather than building that particular plant in that place?

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