Energy Supply

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Mr. Wilson: I have to give a health warning which has the virtue of being absolutely true: all matters of taxation are for the Chancellor of the Exchequer and the Treasury. We are not convinced by the suggestion that different levels of energy taxation in member states hamper the operation of a single market, or that a lack of harmonisation in energy taxation would lead to a distortion of competition between member states.

The hon. Gentleman referred to the climate change levy as a tax, but the primary purpose of taxation is to raise the funds necessary for public services. The main objective of the climate change levy is environmental. As I am sure that he knows, all its proceeds are channelled back through national insurance, so I do not accept what he says.

In some ways, harmonisation can be beneficial. For instance, the UK supports the proposed energy products directive in its harmonising intent, subject to the domestic sector being exempt from its provisions. The Government recognise that there are environmental grounds for agreeing minimum energy tax rates for the business use of energy across the EU. I hope that satisfies the hon. Gentleman that, where appropriate, we are not theologically opposed to taking common action across Europe and do not see it as incompatible with our distinctive tax measures on energy issues.

Mr. Anthony D. Wright (Great Yarmouth): I want to return to the subject of renewables. There has been an application for an offshore wind farm in my constituency, but the time taken for permission to be granted for such a scheme seems to be a problem. Will the Minister reassure us that applications for offshore wind farms will be speeded up, as they obviously do not require the necessary planning applications for land-based wind farms?

Mr. Wilson: I will be pleased to come back to my hon. Friend on that case. If he gives me the details, I shall find out what the hold-up is and what the prospects are for resolving it. He is right to say that the issues related to land-based wind farms do not apply, but there are other problems. A range of maritime bodies—fishing interests and so on—have to be consulted about any offshore proposal, but we place a high degree of reliance on offshore wind as a contributor to our renewables target. Offshore wind is one of the major beneficiaries of the £100 million that we have recently announced as an additional tranche of money to encourage renewables, so we share the interest in substantially getting the projects going without undue delays.

Mr. Key: I agree with the Minister about the importance of the trans-European networks. Who regulates the price of the British-Belgian gas interconnector? It cannot be the Office of Gas and Electricity Markets, because its writ stops at the coast. Will the Minister confirm that the regulation of price is the subject of an international agreement between the two Governments that is exempt from standard EU law? Will he explain why, when the pipe is closed for maintenance, the price of gas in the EU stays the same but the price in Britain falls? The oligopolistic ownership of the pipeline may have some bearing on that, and on the high price in Europe.

Mr. Wilson: Coincidentally, I met the Belgian Energy Minister last night, and we discussed the increasing importance of that pipeline in anticipation of Britain becoming a net importer of gas during the next decade. We shall work closely together to facilitate the link being used to bring gas in our direction rather than in the other direction, as has primarily been the case. The pipeline is regulated, but it is privately owned, so although the two countries will co-operate, the UK-Belgian agreement on the gas interconnector does not regulate prices.

The matters raised by the hon. Gentleman are very relevant to security of supply and to gas prices in the UK. We are conducting an investigation into the surge in gas prices during the past year. The price has fallen back now, but it was obviously a major source of concern to industry, and I am keen to get to the bottom of it. We need to understand the forces that pushed prices up so sharply. Although we may think that we know the answers—some, particularly those in industry who were adversely affected by that surge, have their own theories on how and why it happened—it is important for us to listen to the industry and to take whatever steps are necessary to prevent it from happening again.

During the past year, some companies have seen prices excluding the climate change levy rise by about 44 per cent. Those price increases have come from somewhere. We want to know exactly why they happened, and the questions put by the hon. Gentleman can usefully be included in that review.

Richard Younger-Ross: I return to the main document, which gave us all such wonderful night-time reading. The technical section states:

    ``these changes will depend on the power of authorities or regulators to intervene''.

What is the Government's view of such intervention? I understand that they are reluctant to press Ofgem to intervene on NETA to help CHPs. Will the Minister explain the Government's policy on intervention in that context?

Mr. Wilson: Ofgem is independent. Most hon. Members would agree that that is as it should be. If Ofgem were simply an instrument of government, the benefits that we seek, which include a reduction in prices and an increase in competition, would be less likely. In the Utilities Act 2000, we defined the role of Ofgem as regulator, and Ofgem will be left to get on with the job. At the same time, its remit of social and environmental responsibilities has still to be fully defined. I hope that we shall do that in the next few months.

Ofgem is aware of the effect of NETA on renewables and CHPs. Its primary role, however, is not to solve such problems but to foster competition and reduce the price of electricity. A balance must be struck. The role of an independent regulator vis-a-vis the Government raises almost philosophical issues, which we shall not resolve through megaphone diplomacy. It is reasonable for us to make clear in discussions with Ofgem the unintended consequences of NETA and its other policies, and it should take account of that. None the less, it remains an independent regulator and we do not want to challenge its independence, which we so recently created and reinforced.

Mr. Iain Luke (Dundee, East): Much has been said about supply and demand. The question of how we conserve energy efficiency and retain security of supply has not been as prominent as I thought it would be. Does my hon. Friend agree that that is a vital component of any future policy in Britain and Europe?

Mr. Wilson: I strongly agree with my hon. Friend. Energy efficiency has been a Cinderella topic in the UK: everyone pays lip service to the idea, but we have had limited success in achieving it, particularly in the domestic sector. There has been much greater success in the industrial and service sectors, which have a more obvious financial imperative to reduce energy demand. Energy efficiency in the domestic sector has improved by only about 2 per cent. in the past 20 years.

At the same time, we can see the benefits of energy efficiency at a personal level. I was involved in a couple of events last week. We launched our fuel poverty strategy in London under the warm zone scheme, which is a proactive way of targeting people's energy needs to help them improve their energy efficiency. I visited the home of a lady who had had central heating and insulation put in under the scheme. She will not only make her home more energy efficient, but reduce her bills by about £300 in a year, which is a substantial reduction. Last week was also Scottish energy action week and I visited a home in my constituency that was being provided with insulation. Again, it was warmer, less energy was being used and the occupants saved substantially on their electricity bills. When we boil the issue down to the individual level, we find that a lot is going on. Last month alone, 23,000 homes were insulated under the Government's warm homes initiative, and 3,500 central heating units were installed. The measures benefit people by saving energy and lowering bills.

The profile of energy efficiency can be raised and the PIU will deal seriously with that. We have not begun to tap the benefits that come from energy efficiency. It is a vital corollary of the other measures that we are pursuing to reduce demand. We want to make serious inroads into improving energy efficiency.

Dr. Andrew Murrison (Westbury): The documents say something about security of supply of energy and a lot about security of transfer, which is slightly different. Perhaps, however, we should focus on demand, with which the documents deal very little. We touched briefly on wind power and have not mentioned biomass, but a whole raft of issues will be important if we are to satisfy the demands of Kyoto. Does the Minister agree that the focus may be wrong and that, although the debate mentions supply, we need to consider alternative sources of energy? The documents deal little with that question—they are more interested in security of transfer than security of supply.

Mr. Wilson: The hon. Gentleman makes a reasonable point. We must maximise our domestic generation potential. I was interested in his mention of biomass, because that relates back to the point about objections made by the hon. Member for Belfast, South (Rev. Martin Smyth). Last week, I visited some businesses in Ely in Cambridgeshire and the area nearby. The two guys that I met told me that they represented the entire British biomass industry. That is slow progress.

I am interested in the question, because an application has been made for a biomass plant in my constituency, on the Isle of Arran. At the Labour party conference, I shared a debate with the director of Greenpeace, and told him, ``We all know what you are against, would you mind telling us what you are for?'' He said that the organisation's strategy was to cut demand by 2050 by 50 per cent. and that the other 50 per cent. would come from renewables. I told him that that was very interesting but that I would not want to bet my children's future on it. When I asked him which forms of renewables he favoured, he said biomass. I told him, ``That's interesting because when the first commercial biomass plant in Scotland was proposed in my constituency, there was a petition of 800 objections to it. I would bet my bottom dollar that half of those who signed it are members of Greenpeace.'' The conscience must be squared with the intellect and if people say that they are in favour of renewables, they should not try to block proposals when they come along.

The hon. Member for Westbury (Dr. Murrison) is right to say that we should diversify our generation sources. That takes us back to the nuclear question. The trade-offs against imported gas have to be considered, as do the potential sources of imported gas and all that must be put together in such a way as to guarantee us long-term security of generation and supply.

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Prepared 28 November 2001