Scottish Energy in the 21st Century

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Mr. Alistair Carmichael (Orkney and Shetland): I welcome what the right hon. Lady says about bringing renewables in from the fringes to the main stream. What we heard this morning from the Minister for Industry and Energy about the interconnector cable and the sub-sea and land cables will be crucial.

The right hon. Lady will be aware that if sub-sea cables are to be used, the question of paying rents to the Crown Estate Commissioners arises. One of the more useful functions of her office is the power under the Crown Estate Act 1961 to direct the commissioners in the discharge of their responsibilities. Will she give the necessary instructions to the commissioners to ensure that we avoid the nonsense of Government moneys being invested to lay the cables only to have it coming out and going into the Treasury coffers at the same time via the Crown Estate?

Mrs. Liddell: The hon. Gentleman makes an important point. It is the subject of continuing work, so I cannot provide a definitive answer at this stage. I will, however, take up some of the arguments about renewables mentioned by the hon. Member for Gordon, although I do not want to upstage my hon. Friend the Minister of State.

One of the key responsibilities of an Energy Minister—I speak with some regret that I cannot pontificate longer on this subject, because I was previously the Minister for Energy and I find the subject fascinating—is to keep the lights on. It is a simple issue. Maintaining the security of supply requires diversity of supply. The hon. Member for Gordon and I are of a similar vintage: we remember

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the 1970s, when the energy balance was out of kilter. The six-day war had disturbed the balance of energy supply; we never want to return to that position.

The hon. Member for Gordon mentioned a study that referred to 59 GW of renewable energy capacity in Scotland. As he said, capacity alone does not necessarily make it viable to generate such an amount. Storage of renewable energy is important. Security of supply is bound up with the ability to store renewable energy, particularly for wind farms. I had the privilege of opening the world's biggest offshore wind farm at Blyth in Northumberland. With impeccable timing, I did so on a day with no wind, which rather overshadowed the official opening. Someone produced a model that could be blown on to show what a wind farm would look like in action.

Fuel cells are also important in this regard. During the previous Administration in the United States, some interesting work was done to examine small-scale wind farm development. They are called ''farms'' because the wind is a crop and a resource. Work in California linked wind turbines with fuel cells, which dealt effectively with storage.

The hon. Gentleman is right to mention Ministry of Defence objections to wind farming and other energy developments. I have spoken to colleagues at the Ministry of Defence about that matter and my hon. Friend the Minister of State is meeting Ross Finnie some time next month to discuss the issues further. Defence Ministers have genuine anxieties, as the hon. Member for Gordon recognised, but we want to ensure that those do not impede the expansion of renewable energy sources.

To return to market-led solutions, the operation of the electricity market in the UK was badly skewed prior to our election, which is why we introduced the new electricity trading arrangements. As the Minister of State pointed out, it is important to move on in relation to BETTA and to integrate Scottish energy into the electricity trading arrangements. Our future competitiveness as a country will depend on the availability of low-cost energy. The European Union remains way out of kilter with the United States on energy prices. As constituency Members of Parliament our instinct is necessarily directed towards domestic consumers—the people who elect us—but we must acknowledge that lowering electricity prices is also crucial for the commercial energy sector and our international competitiveness.

People are amused because I am learning French, but one reason for doing so is that it will enable me to argue with the French Government about energy liberalisation. Unless the French liberalise their energy markets, they will keep European energy prices unsustainably high and damage the operation of our markets. I hope that everyone who attends the Scotland-France rugby match will take the opportunity to mention that to French supporters.

The hon. Member for Gordon talked about combined heat and power, which the Government are very keen on. We were aware that problems would emerge with the development of NETA, and we are anxious to find solutions. I was an Energy Minister, so

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I know of the hon. Gentleman's interest in CHP and there are some positive developments. We retain the commitment to our target of installing 10, 000 MW of CHP by 2010. My colleagues in the Department for Environment, Food and Rural Affairs will shortly publish a consultation document on a draft strategy for CHP. There have been some recent successes: Conoco announced that it will go ahead with the CHP plant at South Killingholme and last April the Government announced a £50 million boost for CHP at community level. I am interested in the development at Insch, especially the use of biomass or timber waste.

The hon. Gentleman referred to the nuclear industry and I repeat what my hon. Friend the Minister for Industry and Energy said about the Government's commitment to a free market: it will be up to the nuclear generators to make proposals. At present, proposals for nuclear generation are prohibitively expensive. However, I note from the Financial Times that in Finland, because of the concern about a reduction in the availability of biomass, the Government are considering further nuclear generation, which was considered and rejected 10 years ago. As an example of joined-up government in respect of renewables, my colleagues in agriculture are anxious to support biomass crops; it is an area of renewable energy that may boost rural economies.

Scotland has several peculiar and distinctive characteristics relating to energy: it has coal, gas and nuclear generation and, I hope, it will have a substantial increase in renewable generation over and above hydro. It is a good test bed for new technologies and some excellent work is being done in the universities on renewable energy. Heriot-Watt and Glasgow universities have excellent projects on renewables that receive research council funding.

My hon. Friend the Member for Midlothian (David Hamilton) referred to the coal industry. We must never forget that Scotland has the last deep-mined coal. As it is a fossil fuel, the secret of the future success of the coal industry will be clean-coal technology and we should not underestimate its importance.

I appreciate the opportunity that the debate provides and I hope that it will not be the last of its kind. The distinctive nature of the Scottish energy market means that there is a role for all Scottish Members of Parliament in debating the performance and innovation unit report, although it will not be produced very quickly as the subject is not easy to turn around. We are looking at the first 50 years of a century and the future prospects for industry.

The hon. Member for Gordon has long experience of the oil and gas industry and recognises its importance to the Scottish economy. However, sometimes we forget that it is a global industry too. A key development in PILOT was the recognition of our international expertise in mature, difficult-to-access fields, which we can market very effectively.

When I visit places such as China and Malaysia, I meet Scottish oil and gas workers for the big companies and those in the supply chain who show

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that the standard of technology available from Scotland is second to none. We have a great opportunity to market that asset and to cope with the third age of development in the UK continental shelf by globalising much more. I pay tribute to those in the oil and gas industry who have recognised that fact, but it will involve skills. We suffered when the oil price went down to $10 a barrel, because many young people started to regard the industry as insecure. It is not. Our future depends on high-quality engineering skills. We have the capacity in Scotland and we must do everything possible to ensure that the industry has a sustainable future.

11.40 am

Mr. Michael Weir (Angus): The object of an energy policy must be to deliver energy at a reasonable cost using secure, diverse and environmentally sustainable sources. The policy must promote economic efficiency, affordable access, environmental sustainability and diversity and security of supply. In Scotland, all that is to some extent in place. Indeed, Scotland is already a net exporter of electricity. We generate on average 26 per cent. more electricity than we need at peak capacity.

We have diversity of supply, with ample resources of coal, gas, oil, hydro and, increasingly, wind power. Even excluding nuclear power, we are still well within our operating parameters, with almost twice the generating capacity required at peak demand times.

The Minister for Industry and Energy said earlier that some 50 per cent. of Scotland's energy was nuclear. The latest Library figures suggest that the figure is 44 per cent., but nevertheless that is undoubtedly substantial. He also said that any future nuclear development will depend on the market. I draw hon. Members' attention to the evidence given by British Nuclear Fuels plc to the recent Select Committee on Trade and Industry and the report on that evidence. It said:

    ''What was required was some sort of financial assistance to bridge that gap, preferably one that would provide a subsidy of about 1p per kWh.''

Nuclear energy is clearly not viable in its own terms. However, Scotland still relies on nuclear power, and it is worth reflecting on how we reached that position. The energy industry in Scotland has always been skewed towards nuclear energy. Previous Governments forced us down the nuclear route, even though it is clear that the cost of generating nuclear power is greater than it is for other forms of energy.

In 1990, the then Government gave financial incentives to English energy boards to construct a new plant in the north-east of England rather than use the gas that came ashore at the terminal in Aberdeenshire. The great gas robbery, as it was known, meant that Scotland was denied the right to energy generated by that new plant—[Interruption.] It was well known in Scotland. Hon. Members must remember it.

The Scottish electricity industry was forced to buy power from nuclear stations whose generating costs were much greater. Had that Government invested in the St. Fergus plant, Scotland would have had a

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combination of gas, hydro and coal that would have given us the cheapest energy base in the European Union. Instead they invested, through a guarantee, £170 million in a new gas pipeline in the north-east of England.

At the time, many people wondered why the Government chose to meet those costs rather than spend half that amount on strengthening the electricity interconnector, which would have allowed electricity generated in Scotland to be sold for a fair price across the border. From recent revelations, we now know that Enron US gave financial guarantees for the project. We have to wonder how much those guarantees are worth now, and ask how much public money was poured into the project, which subjected Scotland to nuclear options. The Energy Secretary at the time was Lord Wakeham. I understand from the radio this morning that he has now resigned from the board of Enron. I am not sure what there is left to resign from.

In the 1980s and 1990s the Tories were accused of going for the dash for gas, although from recent revelations it would appear that the present Government went straight to the dash for cash. Between them the previous Governments have saddled Scotland with the huge advance gas nuclear reactor stations, which generate electricity at an increased price. That is before we got on to the problem of dealing with nuclear waste.

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Prepared 13 February 2002