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The second issue is that slightly over a year after introducing a competitive energy marketNETAthe Government have decided to panic at the first sign that the energy market is doing what it was supposed to achieve: identifying the companies that could no longer compete in an environment of excess capacity.
My third concern is that in intervening to bail out one company but not othersa variety of projects that have failed, some in the renewable energy/combined heat and power sectorthe Government have acted in a discriminatory way that may be illegal, although that remains to be tested. They have prejudged fundamentally important issues about long-term energy strategy.
I am partly making debating points, but mainly I am posing questions. It is extremely unfortunate that the Government did not make a statement on the issue. Regardless of how people regard nuclear or other forms of energy, they want to find out what is going on.
Bob Spink (Castle Point): The hon. Gentleman talks about the Government panicking. Far be it from me to defend the Government, but the Minister for Energy and Construction is an excellent Minister, and the Government do not appear to me to be panicking at allin fact, quite the contrary. They realise that if we are to save the planet, we must reduce the amount of CO2, and that we must therefore replace nuclear with nuclear. If we are not brave enough to take that decision
Dr. Cable: I certainly shall. As the hon. Gentleman well knows, there are different ways of reducing carbon emissions, not least by placing far greater emphasis on energy efficiency, energy conservation and new renewables than the Government have placed on them so far.
I recognise that we must pose questions as well as make assertions. I acknowledge that the Government face difficult choicesfor example, thousands of people working in one generator or another being at risk of losing their livelihood is clearly a serious matter. I recognise, too, that the Government have inherited some serious problems in energy policy, not least the privatised company British Energy.
It is important to delve into the past to some extent. The circumstances in which British Energy was privatised were scandalous: it was sold at a price that barely covered the construction costs of one of the eight reactors that were sold off. We saw such rip-offs in Russia in the early days of the post-communist era, but it happened here in this country with British Energy. The people who have subsequently run the company have displayed a mixture of stupidity and greed comparable to that seen in some of the other utilities. In 1999, when severe losses were already accumulating, the company decided to pay out #430 million in an extra dividend to its shareholders. Earlier this year, when the company had already recorded very large losses of more than #500 million, the chief executive was awarded a performance bonus. Those who ran British Energy went around the world making acquisitionsfor example, in north Americabut did not concentrate on the increasing competitive problems within their own industry. That is the company whose shareholders the Government now want to rescue.
There are other factors to be taken into accountfor example, many of the reactors are old. The nuclear power industry has a long and complex history: it started in the 1950s, often inspired by genuine and admirable idealismpeople wanted to convert the dangers of nuclear warfare into creating a form of cheap energy that would last indefinitely. Policy was taken forward in the 1960s by Harold Wilson, Tony Benn and others who believed that big science and state planning could drive the nuclear energy sector. Mrs. Thatcher was a great fanperhaps inspired in part by the fact that it was a form of energy that did not pass through the hands of either Arabs or coal miners. Nuclear power had strong patronage from both sides for a long time, but then came an abundance of reports from the Organisation for Economic Co-Operation and Development and others, including the Brundtland report in the mid-1980s, which shows that not only did the nuclear power sector pose serious environmental problemswaste disposal and so onbut it was not economically competitive. It beggars belief that in introducing an energy market the Government did not anticipate the development that has taken place in the past few months.
Dr. Cable: The logic of my argument is clearly that British Energy should, if necessary, go into administrationthe process that deals with companies that can no longer trade commercially. I shall explain how I think some of the problems surrounding that could be resolved.
Mr. Kevin Hughes (Doncaster, North): No one could ever accuse me of being a supporter of nuclear powerI have never beenbut I recognise that the Government have to have their eye on security of energy supply in this country, and that to maintain that properly they must secure diversity of production, which has to include some element of nuclear power production. Does the hon. Gentleman accept that?
Dr. Cable: I certainly accept that security of supply is an important consideration, but I do not think that that is an issue at the momentthere is vast spare capacity in the industry. Nuclear power may or may not be part of the storywe neither advocate nor oppose it as a matter of principle.
Mr. Andrew Lansley (South Cambridgeshire): The hon. Gentleman refers to the uneconomic character of the introduction of nuclear power generation, but whether it was economically viable at the outset is not so much the issue today as whether the continuing operation of that nuclear plant is economically viable in relation to the current market for electricity. Does he agree that that is the case, and what is his view on economic viability in terms of the marginal costs of operating British Energy's plant?
Dr. Cable: The current market position is as follows. As the hon. Gentleman knows, there has been a fall of 40 per cent. in the wholesale price of electricity in the past three years. British industry has benefited considerably from that reduction to the extent to which it has been passed on. As a result of competition, monopoly profits in the privatised energy generators have been stripped out to a large extent. That has left the nuclear power industry, especially British Energy, selling at a price 20 per cent. below the price at which it could make a profit. That is how fundamentally uncompetitive the industry has become.
The question is, in those circumstances and with a lot of excess capacity in the energy industryestimates vary, but National Grid says that there is 30 per cent. excess capacity, and that figure could well rise if there is a downturn in the economywhy should the Government intervene to assist one company? A series of answers to that question have been given, and I shall work through them.
The first and probably the most important answer cites nuclear safety. Last Thursday, I asked the Leader of the House about this matter. He is clearly a highly intelligent Minister and he is familiar with the arguments, so he did not simply spurt out his answer, which was that the Government had intervened because
What I think is happeningif it is, it is an alarming developmentis that the company is, in effect, blackmailing the Government. The company is saying to the Government, XYou sign the cheques to pay to bail us out; otherwise, we will lock the doors, walk away from our installations and leave you to take the risk of any accidents that occur."