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The Government have told us that renewable energy sources will satisfy our need for diversity. However, it looks increasingly unlikely that their target of 20 per
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cent. of energy from renewables by 2020 will be achieved. Even if it is met, it has been estimated that by then 60 per cent. of electricity generation would come from gas. That would constitute a large increase in our dependence on gas, which, with its volatile price, undermines the energy stability that we all want. In addition, due to the depletion of North sea gas reserves it has been estimated that 80 per cent. of our gas would be imported, so considering the gas element alone, it means that we would be dependent on imports for nearly half our electricity.
Unfortunately, the current raft of measures designed to encourage diversity is failing; for example, the costs imposed on generating companies by the Government's renewables obligation are passed on to consumers, who will end up subsidising renewable energy by as much as £1 billion a year by 2010 and £1.5 billion by 2015. However, although the renewables obligation provides enough subsidy to make onshore wind profitable, it does not do enough for any of the other technologies, and a viable and significant renewables sector depends on a range of renewable generation technologies.
Those technologies face the gap between the grant funding available for early stage development and the price support available through the renewables obligation. Until the gap is bridged, offshore wind, biomass, wave, tidal and solar power will be largely or wholly confined to demonstration projects, unable to complement and compete with onshore wind. It is reasonable to be highly concerned that the Government are creating perverse incentives for onshore wind, which is a controversial and visually intrusive technology, while disincentivising other renewable energy technologies, which are less so. The result is that far from increasing our diversity, we are shutting it down. So I say again, gas power accounts for 40 per cent. of the electricity supplied in the UKapproximately double the reliance of 10 years ago and the diversity we want is not marching forward as it should, and could.
There has been too much delay already regarding energy policy. We need to see emphasis on the efficient use of energy, perhaps in many places following the Woking model, greater security of energy supply and a more technologically diverse approach to energy sources. Perverse incentives that act to make it less likely that renewable energy sources will be developed need to be reformed and made to work. We look forward to constructive proposals to deal with the key issues and a firm commitment from the Government not to hesitate further in working to secure our energy supplies for the future.
Mr. Nicholas Brown (Newcastle upon Tyne, East and Wallsend) (Lab):
The context of today's debate must be global warmingthe most important single problem that this country faces. It is an international problem. Our contribution to its solution will not alone solve the
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whole problem, but as a nation state we have a duty to set a lead. We must punch above our weight, and we must play our full part as a country in international efforts to find a solution. It therefore logically follows that there should be no solution to the question of security of energy supply that exacerbates the problem of global warming. Indeed, the solutions that we find must bear down on that problem.
As the Secretary of State made clear in his introductory remarks, the energy issues that face our country are not immediate, but they are marching remorselessly towards us and the lead times for any solution are, of necessity, long. The key features of the issue are well understoodthe declining output of existing nuclear stations and the reduction in output from coal-fired power stations by about half over the next 15 years. Thus, there is a need to replace existing capacity and to meet future and, we would all accept, rising demand.
The implication of all that is increased reliance on the international energy market. Other countries are in that positionI do not accept that it is unreasonablebut we must understand that, if we take the same approach, we will compete with those countries against a background of clear and steadily rising demand. We must face up to the fact that the international energy market is not the free market that we would like it to be. Indeed, even in the European Union, the energy market is not the free market that we would like it to be. I commend the Secretary of State's efforts to liberalise that market, but we are not there yet.
We must also recognise that there is an increasing tendency for national Governments in exporting countries to intervene in industry issues for reasons that are unrelated to the gas or oil market. In other words, they view their possession of a desirable resource as an extension of foreign policy, as well as something to sell to people who want to buy. We must take that into account when we consider our own nation state's security of supply.
A modern, post-industrial economy is inter-reliant and fundamentally reliant on electricity. Issues such as the just-in-time delivery of foodstuffs and other goods, the running of the transport network, modern communications and modern information technology all rely on electricity. I suppose that that is stating the obvious, but that does not make it any the less important.
The Secretary of State was straightforward enough to say that price rises, which cynics might say could be a conservation measure, seem inevitable. Again, we must accept that, if price rises come, they will impact on the elderly, the vulnerable and our industrial competitiveness.
How should we respond? I do not believe that conservation and considering new methods of generation are rival policies. I strongly agree with the Secretary of State's point on the importance of diversity of supply and we should continue the good work being done on home insulation and driving up energy efficiency standards in building regulations, for example. Much has been done, but much remains to be done.
There are good ideas in the industry. I wish to draw the Government's attention to a recent project in which Siemens, located in Heaton in my constituency, and
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Alcan, which runs an aluminium smelter on the Northumbrian coast, secured significant energy efficiencies simply by refurbishing the turbines in an existing power plant. I commend that approach to the Government and the House.
The North sea is a mature oil and gas field, but it still has reserves and we should encourage the use of new technologies to maximise the extraction potential and get the maximum benefit from it. Now is not the time to engage in a technical debate on the working of the North sea tax regime, but there is a strong case for the Government and the industry to work in partnership on ensuring that we maximise the gain from the North sea fields.
Significant losses occur in electricity transmission between generators and end users, but developments in conduits have the potential to reduce that loss and to increase efficiency. We should take an interest in those developments, and if new investment is required, so be it. In addition, if our aim is to reduce the losses that occur during transmission between generator and consumer, it is logical to locate power plants closer to consumers of power. There is a north-south divide in this country, with generating capacity located predominantly in the north and demandcertainly increasing demandtending to be in the south. There would be consequential issues arising from such a policy, but if we are serious about reducing inefficiencies in electricity supply, we have to face up to that divide. I urge the Government to do that.
There are potential contributions from other sources: wind farms and other renewables have been mentioned and I think a case can be made for reconsideration of hydroelectric schemes, but I urge Ministers to give particular consideration to carbon sinks and clean coal technology. Output from conventional coal-fired power stations will decline; if it is possibleeconomically possibleto invest in clean-coal technology and new methods of carbon capture, we should do so. Having said all that
I welcome the chance to debate security of energy supply. In a sense, the point at which the right hon. Member for Newcastle upon Tyne, East and Wallsend (Mr. Brown) finished is the point at which I begin. Like the hon. Member for Rutland and Melton (Mr. Duncan), I think that the crucial first step in achieving security of supply is to ensure the efficient use of existing supply. The better we use what we have, the less we need to worry about imports and finding new sources of generation.
Much remains to be done. On Tuesday, European Standing Committee C is to debate Europe-wide energy efficiency measures. It is estimated that efficiency could be improved by at least 20 per cent. across the European Union.
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Provided that they are applied effectively, it makes sense to work through building regulations for new build and for extensions, but we have to deal with existing buildings as well because our housing stock will not be replaced quickly. Many people who face fuel poverty will not necessarily move into new housing stock, so it is crucial that we tackle the energy efficiency of the existing housing stock. We have relied on low fuel prices and improved incomes to tackle fuel poverty. However, someone's income can vary according to their circumstances, and if we can tackle the energy efficiency of our housing stock we will reduce people's dependency on energy so that they are less likely to find themselves in fuel poverty. We still face a major hurdle in improving consumer confidence so that people accept the new technologies, install them and understand what can be done to maximise the energy efficiency of their home. There is a problem, too, with marketing and presentation, as people do not see that the increased investment in their house can be offset against its improved value and long-term savings in energy bills. We need to find innovative ways of enabling people to measure energy conservation in their home and in their energy bills. A complete household energy package will demonstrate the benefits of conservation over time in reduced bills, thus enabling people to see more clearly the equation between conservation and investment.
Given the current high prices, it is a good time for the Government to press the case for energy conservation, and to use public information to convey both its importance and the opportunities available for conservation. Energy conservation and increased security of supply are important and do not just affect heating and electricity. Transport is a major contributor to carbon emissions, as well as a major consumer of energy. Replacing crude fuel taxes with road user charges would be a more effective way of ensuring more efficient use of fuel while ensuring that people who live in communities where road transport is the only available form of transport are not penalised. Replacing the climate change levy with a carbon tax will focus the economic signals on the importance of saving and conserving energy.
Our debate has touched on the important benefits that can be derived from improvements in the distribution of energy and the way in which we can bring energy generation closer to consumers' homes. Every year, 1 million or so gas boilers are replaced, and it would be beneficial if people had the confidence to replace them with a mini combined heat and power plant to generate electricity in their home and provide heat at the same time. Again, that would reduce demand and the need for large distribution systems, thus leading to a more efficient market.
In many ways, this debate has been triggered by the high prices this winter. The Secretary of State said that there is a problem partly because world energy prices are high. As has been said, the international oil market sets the price of oil around the world. Gas remains a much more regional market, although it is becoming more connected as more liquefied natural gas is processed and gas is shifted from one market to another. We have seen an extreme example of what can happen in an isolated part of the regional market. The UK is in transition from its status as a supplier that meets its own energy needs to one as an importer, and has experienced
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problems in coming to terms with new gas imports. The transition to the new market arrangement coincided with forecasts of cold weather, which did not improve confidence in a thinly traded market. What guidance is given to the Met Office on the way in which it makes its predictions? Is more caution creeping into its predictions and, to avoid accusations of omitting predictions of bad weather, has it over-predicted bad weather? Do the Government monitor the Met Office's predictions, which have a major impact on the market.
Clearly, for many years, domestic users and energy users with normal contract supplies have benefited from the market. However, as has been said, the transition investment will be made later and, as can be expected simply by relying on the market to send the signal, there are spikes in the market. Both as a nation and as individual energy users, we must decide whether the benefits of the good years, when we do not need investment, are worth the price of uncertainty and upheaval in the transition years. Other markets have probably paid over the odds in past years, but they have not experienced upheaval in times of transition and new investment. There may not be power cuts and loss of energy, as the Secretary of State and the Minister have often assured us, but self-disconnection because of fuel poverty is a serious problem for people on prepayment meters. Self-disconnection by large industry is a major problem for the economy. A large business may be geared up to disconnecting from supply and not operating during high peak times, but the supply chain is affected and that hidden way of balancing energy supply has a knock-on effect on the economy.
The Secretary of State said that the pipes are coming and the LNG shipment terminals are being built, connecting us to new supplies. However, as he has also said, the pipes have not always been full and the ships have not always turned up. With winter projection models of the stability and balancing of the UK energy market, more awareness is needed of the interaction with markets beyond our borders. The pipe is not an adequate solution unless there is fuel flowing though it. As the Secretary of State said, we must consider the liberalisation of the market and ensure that both ends of the pipe are operating in the same market. That will bring more stability to supplies and more confidence and predictability to prices.
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