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Dr. Howells: I am very much enjoying the hon. Gentleman's challenging speech. As he will know, I was involved with the legislation that introduced NETA. Does he recall that hon. Members on both sides of the House expressed worries about the fact that, under the old pool arrangements, there were serious allegations of high price setting, especially by major generators, and that there was general agreement that something had to be done to try to introduce some fairness and transparency for customers, including industrial customers and the public sector, as well as domestic consumers? Fine judgments have to be made, but the current system at least has greater transparency and even some predictability in some cases than what preceded it.
Richard Ottaway: The Minister is spot on. The pool arrangements came in after privatisation, and, after moving from a state-owned monolith, liquidity was needed in the sector. The previous Government should not therefore apologise for that. We did not quarrel with the introduction of NETA, however, which seemed to be at the right stage having introduced liquidity into the market. What has gone wrong is that it has overshot, and there is now not enough liquidity in the market. I was comforted that, in the Minister's opening speech, he said that Ofgem's price review will look at ways to encourage investment. I thought that that was probably the most important part of the speech, because without it there will be insufficient funding for investment. Currently, NETA is not producing sufficient liquidity for investment. Building a new power station has a lead-up of three to five years just for implementation, and a payback period of 20 to 30 years. No one in the private sector will invest £1 billion to build a new power station if they do not have some idea of what the price curve will look like during that 10, 20 or 30-year payback period. That is the problem, which is why I welcome the Minister's point about looking at ways to bring in extra investment. That will result in a reform of NETA in a way that I and, I suspect, most people would welcome.
The performance and innovation unit report and the energy White Paper were very important in talking about the trade-offs that had to be made. The bombshell, however, was that there was no commitment whatever in relation to the nuclear industry. How can a
White Paper be published that says that it is a blueprint for the next 50 years but leave open the question of the most important part of energy policy? That is beyond me. In truth, the White Paper is already beginning to look dated after just a few months, let alone in the first of its 50 years.A decision must be made about nuclear energy. If we want to have clean energy in this country, the country may have to be prepared to pay for it. In the long term, looking hundreds of years ahead, we will run out of fossil fuels, gas and oil, and the future will be nuclear energy. The challenge must be how to make it safe so that we do not have another Chernobyl, which I am sure can be done through modern technology and efficient regulation—and we will have to bite the bullet to a degree on cost. Nuclear energy has been a bedrock of the post-war years in this country and I think that it will be the bedrock in the years to come. The White Paper put heavy emphasis on the future of renewable energy. My hon. Friend the Member for South Suffolk spoke about the scepticism as to whether those targets can be achieved. They are dramatic targets and I am sceptical about whether they can be met. Without nuclear energy, the mind boggles as to how the environmental targets that the Government have bravely set will ever be achieved in the long term.
That, of course, brings me to the ugly duckling of the sector—coal-fired generation. The Government have consistently supported coal production because, as the hon. Member for Crewe and Nantwich said, we are sitting on the most tremendous natural resource, which would in one stroke remove the questions that are being posed to the Government about security of supply. There is no question, however, of having coal in its present form. It must be clean coal, and I welcome the clean coal technology papers that the Government have published. I know that they are looking at how to introduce more investment in clean coal technology, but more must be done. Much bigger investment and commitment from the Government to clean coal technology is required if we are to produce the sort of reductions that we need. The Minister will know that the large combustion plant directive starts to bite in 2006, and the present generation of coal-fired generators will have to start shutting down between 2006 and 2015. Unless he has the answers to clean coal technology he will very quickly have a large gap in his diversified energy supplies, which will make the Opposition resolution pertinent, not in the long term but in the medium term.
In my intervention, I raised the diplomatic and political risks involved in making our energy policy totally dependent on imports from Russia, which was described by Churchill as, I think, an enigma wrapped in a riddle. We have no idea of the political future in Russia or of how stable a country it is. President Putin seems to be a solid guy who is building up a coalition around him, and democracy seems to be catching on big time. The Liberal Democrat spokesman said that there was not a problem because Russia needs the money. However, I do not think that we can put our trust in that—we must have alternative, back-up supplies.
We can all remember the pressure and concern in the run-up to the debate on Iraq. Russia and France were being very difficult in the United Nations Security Council and refused to give their support. Tremendous
leverage could have been used with the United Kingdom if Russia could say that it was free to turn off our energy supply overnight. We saw that in the oil crisis of the early 1970s. Russia might not cut us off completely, but it might gently reduce supply by 10 per cent., which would push up prices and start to hurt the British economy. It could be a very powerful tool, so it would be folly to be dependent for 70 per cent. of our gas supply on Russia.
Dr. Howells: I have an interesting question for the hon. Gentleman—[Interruption.] His Whip is now telling him off for speaking for too long.
The difference between this country's ability to react in the 1970s to the oil price shocks and the more limited choice that we have now is that, in the 1970s, we still had a considerable coal industry. In the late 1970s and 1980s, it disappeared. A lot of the coal reserves to which the hon. Gentleman refers, and about which he knows a great deal, are now effectively sterilised—we cannot get at them—and trying to access an opencast coal mine is a planning nightmare. From where does he think we will get this coal? I agree that far more diversified coal supplies are available in terms of world trade than gas supplies, but it will still not be easy and the coal will still come from some very politically unstable areas in the world.
Richard Ottaway: The Minister makes a good point. I remember that when I was Parliamentary Private Secretary to Lord Heseltine—when he was, I think, energy spokesman during debates on the coal industry in the early 1990s—those were just the points being made when we were sitting on the other side of the Chamber. I do not think that we can depend totally on the UK. Most of the coal mines in the UK are uneconomic, but a huge variety of coal is available for import. As most people will know, coal can be imported from, say, South Africa more cheaply than it can be extracted from the coal mines of this country. That was the problem that we had in those debates in the 1990s.
I have made my points. I conclude by recommending to the Minister the NERA economic consulting paper, entitled, "Persuading the Private Sector to Meet the Aims of Energy Policy". It calls for a strategy to introduce more investment in the energy sector. If there were more investment in electricity generation in this country, the questions that we are discussing could be addressed provided that we do not remain wholly dependent on supplies from foreign countries.
2.40 pm
Mrs. Claire Curtis-Thomas (Crosby): In addition to being the proud Member for Crosby, I am also a chartered engineer. I am a fellow of both the Institution of Electrical Engineers and the Institution of Mechanical Engineers and I have produced some of the information that I shall provide today in conjunction with my colleagues from those institutions.
The Minister for Energy, E-Commerce and Postal Services talked about the history of the power supply for London Underground. The history is important because it demonstrates clearly some of the problems that have faced this country's large electricity consumers during the past century. A legal requirement was placed
on London Underground to provide its own electrical supply, but that choice became less attractive as the industry developed. The necessary equipment was introduced at Lots road in Chelsea and Greenwich in the 1970s but it became more expensive to maintain. The start of the discussion about electricity privatisation caused London Underground to look again at its capacity and make decisions about whether it wished to retain it. As the Minister said, the capacity had failed on numerous occasions for several minutes at a time, although I stress that there had not been a catastrophic failure such as that on 28 August.At the time of privatisation of the electrical supply, the great cost benefit of switching from self-generation to using a local energy supplier could not be ignored. London Electricity approached London Underground with a deal that it could not resist. The deal was to provide London Underground with its electrical supplies at half the cost of generating its own capacity, so it was a lucrative option. It decided to take advantage of services supplied by London Electricity but retained the capacity to produce some 40 MW of energy itself. I am acutely conscious that 300 or 400 MW does not mean much to a layperson, but the energy that London Underground consumes each day is the amount required to power 200,000 homes or a small city. It is a huge amount of energy and that fact allows us to understand the complex and intensive structure that is required to underpin such capacity.
When London Underground chose to opt out of supplying its own energy, it entered a world in which it would be only one part of a chain that invariably started with National Grid Transco, which supplied power to local electricity companies that supplied it to the end market. It has been established today, although it needs repeating, that the failure in London had nothing to do with lack of capacity. There was sufficient capacity in the grid but the transmission of the capacity to the end user failed.
National Grid has a regular maintenance programme, which is undertaken during the summer because the demand on the system is less than at any other time of the year. The system is already geared to accommodate two major failures such as a complete transformer going down and a pylon falling over. Such huge failures have been planned for and considered but have never arisen thus far. However, the failure of a contractor had not been planned for. We have heard that London's catastrophic power failure happened because a contractor who was working for an opted-out company had installed the wrong fuse.
The failure of the system was one thing, but I shall now talk about the relevant parties' response to it. London Underground put in place its emergency plan. I am not terribly sure about the plan—I have not seen it—but I assume that it includes a scenario in which there was a complete power failure to the underground. Although I have made that assumption, I want reassurances that such a plan has been developed. How was the plan disseminated and communicated to the operatives in London Underground?
I worked for Shell Chemicals for several years and was responsible for the transport of all its products throughout the UK. The products included some pretty
awful stuff. We discussed what would happen if one of our tankers fell over at the junction of the M6 and M5 in Birmingham because we would have had to notify the emergency authorities that the evacuation area had to be 12 miles. Hon. Members can imagine that we were talking about a pretty serious product and a serious emergency incident if a tanker containing 20 tonnes of product required an evacuation area of 12 miles.We had difficulty mocking up such a huge exercise because it required turning a tanker on its side, bringing all emergency services into play at the same time to get the tanker back up and getting the place managed in a safe and orderly fashion. The hon. Member for Newark (Patrick Mercer) asked whether the lessons learned from 28 August had been incorporated into the recent emergency planning exercise in London. I must ask a similar question. When does London Underground have the opportunity to instigate such an emergency exercise? We can all appreciate that it would be highly desirable for such time to be available but the exercise would be conducted at substantial cost. The problem for London Underground and suppliers of energy to the arena is how to accommodate such an exercise without huge disruption and cost.
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