| Previous Section | Index | Home Page |
27 Jan 2003 : Column 624—continued
7.4 pm
Paddy Tipping (Sherwood): The Bill is both a response to, and a reflection of, an energy sector that is changing massively and quickly. It gives the Department the tools to respond flexibly if we need to restructure British Energy or if it goes into administration. Conceptually, I support the approach, but it is important to view British Energy's problems against the wider energy difficulties, as the hon. Member for Cities of London and Westminster (Mr. Field) said. It is not just British Energy that faces problems. Enron, AES, T"U and even the coal producers, UK Coal, face problems in a rapidly changing energy market.
As a reflection of how quickly the energy market is changing, let me take the Minister back to the performance and innovation unit energy review published last February, less than 12 months ago, in which it said:
- "Because nuclear is a mature technology within a well established global industry, there is no current case for further government support."
To enable us to discuss the Bill, we need to consider the problems arising from British Energy. Hon. Members have referred to the climate change levy, the nature of the contract with BNFL and the effect of NETA on British Energy. It is important to acknowledge that the management of British Energy should shoulder a good deal of the blame.
British Energy has not responded to a changing energy market. It attempted to widen its generating base by buying Eggborough at the cost of about £500 million, which was perhaps not the best of investments.
It acquired and sold SWALEC. When other energy companies were trying to integrate vertically, British Energy was going in a different direction. Over the years, for the majority of its life, British Energy has consistently paid out special dividends. It has been a good earner for shareholders until now. It is important to focus some of our attention on the failure of the management at British Energy. In technical engineering terms, the management have been good, but they have been pretty poor in responding to market signals.
Sir Robert Smith: Surely the great danger is that, if the market is not allowed to take its course with British Energy, people will wonder when the Government will intervene in other sectors.
Paddy Tipping: That is a problem. Hon. Members have different views on British Energy and legitimate arguments to make. The point is that we have an asset with an income stream. It is important to consider how we make best use of that. Some hon. Members argued that it is important to close and decommission the plant as quickly as possible. Others offered a counter-voice and argued that perhaps we could extend the plant safely beyond 2020. The intervention in the market will have consequences that I want to spell out.
The cost to the taxpayer looks immense, with a £650 million loan. I acknowledge that it is only a loan, but whether we will see a return on it is a different matter. The key issue is the commitment in the proposal announced on 28 November of £150 million to £200 million a year for perhaps 10 years for liabilities. Some people will ask whether that immense cost is fair in market terms, and I am not entirely sanguine that the Commission will nod the agreement through. There is a case for it going through, but serious doubts and reservations remain. The Minister will know about some of them, and will have heard voices in the coal industry acknowledging that, while it has received £130 million under the coal operating aid scheme that ended at the end of the year and will receive further help from a new investment aid scheme, those sums are not on the same scale as those received by the nuclear industry. My right hon. Friend the Member for Rother Valley (Mr. Barron) talked about the problems at his colliery in Maltby—there are expectations that the Government should intervene in a big way.
We are about to experience a step change or a conceptual shift in energy policy: we are about to move from a free-market approach to one where we need to set a framework for energy policy. Our discussion of the Bill and British Energy's policy must therefore be set in the context of the White Paper, which draws on the PIU report. That report is good on questions, but not very good on answers. One problem caused by the delayed publication of the White Paper is that we are not sure what the answers will be. However, the introduction of a set of energy proposals is inconceivable without nuclear having a role to play. I guess that our energy proposals will focus on affordability, diversity of supply and environmental aspects. Nuclear clearly has a role in those three propositions, and will continue to play a role.
On security of supply, there has been a just discussion about the amount of generating capacity. There is too much, but it would not be sensible to take nuclear out in one go. It is more sensible to allow it to decline over a period and introduce a series of measures to build renewables.
Mr. Clapham: My hon. Friend suggested letting nuclear energy decline over time. Will he clarify whether "decline" is a euphemism for phasing out?
Paddy Tipping: As things stand, there is no future for nuclear energy. The private sector has never replaced nuclear with nuclear and will not do so until the distant future when we have resolved the issues about decommissioning, disposal and liabilities. There is a strong argument for building a renewables base while nuclear declines. There are great challenges for renewables, as we must achieve a 10 per cent. target by 2010 and one of 20 per cent. by 2020. At the moment, 3 per cent. of our energy comes from renewables, much of it from traditional hydro. Many planning applications for wind farms have been withdrawn. In fact, two thirds do not see the light of day.
Madam Deputy Speaker: Will the hon. Gentleman not stray too far into general energy policy?
Paddy Tipping: I shall ensure that I do not, Madam Deputy Speaker. I am making the point that the Bill is necessary because we need a rescue package for British Energy if nuclear is to develop in future. Our balanced and diverse energy supply should not be dependent on renewables and gas. The PIU report said that 80 per cent. of our energy could come from gas by 2020, and 90 per cent. of that would be imported. If we want a balanced energy policy, it is important that British nuclear energy has a role and that other sources of supply are maintained. Many environmentalists dismiss nuclear as a dirty fuel. There are genuine environmental problems with disposal but, on the plus side, nuclear gives rise to minimal emissions.
My final point relates directly to the Bill and the money that the Government have made available to British Energy. That involves an immense cost, and one of the step changes that we are contemplating may be about moving away from the notion of cheap energy. Wholesale prices have fallen by 40 per cent. but the knock-on benefit for the consumer has not been nearly as great. With the promise of extra money from the Government and taxpayers, should we not reflect on whether the days of the cheapest energy supply are over? The Bill deals with that problem, and I very much hope that we will develop the issue and discuss it again when the White Paper is published.
7.16 pm
Mr. Andrew Lansley (South Cambridgeshire): I am glad of the opportunity to contribute to our debate and follow the hon. Member for Sherwood (Paddy Tipping), who made a useful contribution. Interestingly—I hope that this is still the case when I finish my speech—everyone who has spoken has added to our debate, not least in the form of information and ideas. The hon. Member for Twickenham (Dr. Cable) was generous about me—I suspect that my knowledge of the subject is
not as great as it ought to be—and I shall try to follow that precedent. The hon. Member for Ochil (Mr. O'Neill) and members of the Select Committee have wrestled with aspects of the subject and related matters during the course of our inquiries, including the security of energy supply, so we have something to offer.I shall treat one or two things as read, even if they are the subject of further debate in the House. First, as the hon. Member for Sherwood explained, British Energy contributed to its own downfall, because it did not adjust to market circumstances sufficiently, nor did it secure vertical integration to capture the remaining benefits of consumers' willingness to pay for electricity. It bought and sold SWALEC, and bought Eggborough on a basis that was not as commercially advantageous as it might have hoped. As the Minister said when he appeared before the Select Committee, it did not enter early advantageous long-term contracts, given that it is a base-load supplier of the national grid. It therefore contributed to its own downfall, and I am not seeking to excuse it or bail it out.
I may sometimes go a little further than the Minister, but we may share common ground as I do not blame the new electricity trading arrangements for the problem. If we were to turn the problem round and say, "Fine, let's not have NETA", what would be the consequences? If they were higher prices for consumers, they would have no intrinsic merit. If, in the long term, consumers have to pay higher prices because environmental objectives must be met through the extension of renewables, carbon-free emissions and so on, that would be a rational basis for proceeding. If consumers have to pay higher prices because the way in which the market operates means that the highest-cost producers disappear and the margin between overcapacity and supply is better balanced, that would be acceptable. However, the worst possible reason for changing NETA would be the lack of commercial success of operators who are uneconomic or who have failed to adapt to a market-led system. Intrinsically, we should move towards a liberalised system. The shareholders in British Energy should to that extent have no complaint. The company was privatised into what was intended to become progressively a more liberal marketplace.
The Minister made it clear in reply to me that we will not see the energy White Paper before the Bill passes through this place at least—I do not know about the other place. That is regrettable. It would have been better to have seen it at the same time in order to set it in context. At least the Minister told us that nothing in the White Paper would fundamentally change the economics of nuclear generation, because if there were such a thing it would change the economics of British Energy's generation.
Had the Minister not done so, I would have gone on about the climate change levy and its impact on the economics of British Energy's electricity generation. The Minister knows that the levy could make a difference of 0.4p per kWh—£4 per megawatt-hour. Irritatingly, everybody is talking in pounds per megawatt-hour, but I think in pence per kilowatt-hour. However, I think that we can manage. It is curious that the Minister said that it was illogical that the Government should give financial assistance with one hand and take it away in the form of tax with the other, given that the Government propose financial assistance
on one hand and impose the climate change levy on the other. I do not see what is so logical about applying the climate change levy to nuclear generation, and so illogical about applying tax. They seem almost the same.
| Next Section
| Index | Home Page |