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Energy Policy
3.31 pm
The Secretary of State for Trade and Industry (Mr. Stephen Byers): With permission, Madam Speaker, I would like to make a statement to the House on energy policy.
The central objective of the Government's energy policy is to ensure secure, diverse and sustainable supplies of energy at competitive prices.
In 1998 the Government published a White Paper on energy sources for electricity generation. The White Paper identified significant distortions in the operation of the electricity market. In particular, there were distortions in the operation of the electricity trading pool. These distortions had artificially encouraged a rash of new investment in gas-fired generation, mainly at the expense of existing coal-fired plant. There was also inadequate competition in the electricity market, particularly in the coal-fired generation sector. These distortions in the market meant that electricity prices were higher than necessary. The White Paper set out a programme of reform to remove the distortions and create a competitive market that could operate more vigorously and effectively.
While the reforms identified were being implemented, the Government decided to apply a stricter consents policy for gas-fired stations. We made it clear at the time that this policy was a short-term, temporary measure, aimed at protecting diversity and security of supply while the distortions in the market were removed.
This policy has been in place since October 1998. It created a temporary presumption against the approval of any new gas-fired power stations. It was a tough policy, but one that we felt was justified.
Under the application of the policy proposals, 15 gas-fired power stations were refused clearance. As I know from the representations received from a number of hon. Members, those decisions often meant that employment opportunities were denied and economic regeneration was not created. The White Paper set out a radical reform programme that would need to be implemented before we lifted the stricter gas consents policy. The main elements of the programme were, first, reform of the trading arrangements in England and Wales; secondly, seeking practical opportunities for the sale of generating capacity by the major coal-fired generators; and thirdly, pressing ahead with competition in electricity supply for all customers, including domestic customers
Good progress on the reform programme has been made. We have opened the domestic market to competition, giving choice to all consumers, and there has been a substantial degree of divestment of coal-fired generating plant, increasing the number of coal-fired generators. Our programme for reforming the trading arrangements is well under way. There are already signs that the electricity market is becoming more competitive, and that wholesale electricity prices are considerably lower than they were at the time of the White Paper.
In the White Paper, we made it clear that we expected to lift the stricter gas consents policy as soon as we concluded, on the basis of advice from the Director General of Gas and Electricity Markets, that the reform programme had been implemented, and that the market distortions had been removed.
Last Thursday, the director general reported to me that, in his view, substantial progress had been made in the areas of reform outlined in the White Paper. I have placed a copy of his report in the Libraries of the House and in the Vote Office. In short, his report concludes that the reform programme is almost complete. The sole remaining element are the new electricity trading arrangements. I expect them to be in place by October this year. As soon as that has been achieved, I intend to lift the stricter consents policy.
Lifting the stricter consents policy will represent an important step forward in the Government's energy policy. It will provide for full competition in the electricity market by allowing new entrants to challenge existing players. That will ensure that electricity prices remain as low as possible to the benefit of all consumers, including businesses, who need low electricity prices to compete internationally.
It will also enable new power station developments to go ahead if they are viable in the reformed market, thus providing new job opportunities, especially through the creation of new energy parks, which have been proposed by some potential developers.
Today's announcement will be welcomed by the offshore oil and gas industry and its contractors. It will also allow new gas stations that are genuinely competitive, especially combined heat and power stations, to contribute to the enhancement of the United Kingdom's energy efficiency and carbon saving.
Lifting the stricter gas consents policy will mean that the existing presumption against new gas-fired generation will no longer apply. The new initiative for proposals for power stations will remain for private sector companies to consider, to meet the evolving needs of the energy market. That market will be influenced by measures such as exemption from the climate change levy for combined heat and power and enhanced capital allowances.
The Government strongly support CHP and we will expect developers to be able to show that they have explored opportunities to use it. We shall discuss with developers information that needs to be submitted as part of notifications under section 14 of the Energy Act 1976 and applications under section 36 of the Electricity Act 1989.
I have given careful consideration to the impact of lifting the stricter consents policy on the coal industry. From 1985 through to the early 1990s, the coal industry suffered a steep decline, with employment falling from 270,000 people to fewer than 20,000. That was a severe blow to workers and their families. It had a devastating impact on many small--and in some cases isolated--communities. The Government have put in place a major regeneration programme for those coalfield areas. My right hon. Friend the Deputy Prime Minister announced in December last year that some £354 million would be invested over three years in coalfield regeneration. That was in addition to the more than £1 billion that is devoted each year to regeneration of local authority areas containing coalfields.
Our coal industry is by far the most efficient in Europe. Germany, which has the largest coal industry in the Community, produces about 20 per cent. more coal than us with nearly ten times our labour force. The German industry benefits from massive Government subsidies, as do the French and Spanish coal industries.
Our coal industry faces stiff competition not only from gas generation but also from imported coal. The Government's policy remains that it is for the coal industry to find its own place in a competitive energy market. However, we recognise that ending the stricter consents policy will create a new market and new challenges for the coal industry.
We cannot block international competition. Indeed, we do not wish to do that. However, it is the task of Government to lead people through the process of change, to create a framework which enables the coal industry to move forward, to help it manage change rather than be submerged by it and to respond positively to the challenges ahead.
In those circumstances, the Government have been discussing with the European Commission the potential for state aid to the coal industry. Any proposal to pay aid will, of course, be subject in advance to approval from the European Commission. Any aid would be temporary--during the transitional period--and would end with the termination of the European Coal and Steel Community agreement in 2002.
Of course, the Government cannot give absolute guarantees about the future shape of the industry. It will be for the owners to determine the future of any individual pit. Although it is too soon to give an indication of the total cost of any aid over the two years before we have spoken to all the parties and had further discussions with the Commission, we need to identify eligible mines that might be entitled to aid. The cost would also be affected by movements in world coal prices. There has been speculation that the total aid to the coal industry could be as high as £100 million. I am not ruling out the possibility of expenditure at that level.
Our arrangements will treat coal producers in a fair and non-discriminatory way. My Department is developing an appropriate scheme of state aids for the coal industry in discussion with the European Commission. We will consult the coal industry and other interested parties and invite interested parties to make their views known to my Department.
In relation to the continued development of our policy for energy, we faced a choice: uncontrolled change, forced by markets and commercial pressures, or a process of reform that delivers economic efficiency and social justice so that individuals and the communities in which they live can be partners in change. The Government have chosen the latter approach.
Lifting the stricter gas consents policy, coupled with the new trading arrangements, will complete our reforms of the electricity market, provide cheaper electricity and lead to economic regeneration and job creation. Today's announcement will allow the coal industry to compete in the new markets that we are creating. It is a vital part of our programme of modernisation and reform and will be good news for hard-working people and their families and communities. I commend it to the House.
Mrs. Angela Browning (Tiverton and Honiton): In three years, the Government have failed to produce a coherent energy strategy, and nothing that we have heard today suggests a long-term strategy. They introduced the moratorium on gas-fired power stations, but were quick
to make an exception for south Wales when the Welsh Assembly elections were looming. The Secretary of State's rationale in his 1998 energy White Paper was bogus, because no one believed that companies would invest in new power stations based on a temporary hike in electricity prices.We welcome the Secretary of State's U-turn on gas-fired power stations, but his policy was wrong in the first place. On coal, the former Secretary of State, the right hon. Member for Derby, South (Mrs. Beckett), said:
- Our aim is to put all fuels on a level playing field, and not give priority to any one. We do not propose to subsidise any part of the UK coal industry. Coal producers themselves have asked for fairness, not favours.--[Official Report, 25 June 1998; Vol. 314, c. 1171.]
What approaches has the Secretary of State made to the Commission to date? He mentioned that he is speaking to the Commission, but will the aid be approved swiftly or will we be treated to another fiasco like Rover? Is it true, as reported in The Guardian today, that he removed two civil servants from key posts because of their opposition to the Government's energy policy?
How does today's announcement fit into an overall energy strategy? What plans has the Secretary of State made to achieve a reduction in nuclear components by 2020, and then to meet environmental targets? Surely an energy strategy must cover the whole energy mix.
Is not the announcement contingent on the separation of distribution and supply of electricity for which the Utilities Bill provides, together with the new electricity trading arrangements in the Bill--a Bill whose drafting and passage have been handled with unprecedented incompetence?
As the Secretary of State has now clearly indicated that the Government intend to subsidise the coal industry, may we hear from him the broader strategy for subsidising industry in general? Will he explain why one sector is deemed to be eligible for subsidy, while others are not? What is the rationale behind subsidising coal and not, for example, shipbuilding? It is important for the House to understand what the overall strategy is.
This Secretary of State runs a Department that works on a piecemeal basis, producing policy on the hoof. Given what we have heard today, energy is included in that piecemeal approach.
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