Memorandum Submitted by the Institute
of Directors (IoD)
INTRODUCTION
(i) This is the response of the Institute
of Directors (IoD) to the Committee's inquiry into the options
for investment in meeting future requirements for new electricity
generating capacity—"Keeping the Lights on: Nuclear,
Renewables, and Climate Change" (Environmental Audit Committee
Press Release dated 21 July 2005).
(ii) The IoD is an individual membership
organisation made up of some 54,000 directors of business and
other important organisations worldwide, mainly in the United
Kingdom. Members of the IoD are drawn from all sectors, and functions
within organisations.
(iii) The IoD is also involved in scrutinising
United Kingdom Government and European Union (EU) policies. This
includes making responses to public consultations. The IoD gave
written and oral evidence to the House of Commons on the UK's
climate change policy, in 1999. [180]It
also gave evidence to the House of Lords (on EU climate change
policy) in 2004. [181]It
has published policy papers on various environmental issues, including
energy and climate change. [182]The
IoD also advises its members on issues connected with energy use
and environmental practices. One of the most recent was a guide
to directors on issues connected with climate change. [183]This
was produced with the support of the Carbon Trust.
(iv) Aspects of several of the specific
questions posed by the Committee are addressed in this response
under the heading used in the Committee Press Release, as well
as the principal questions posed by the Inquiry.
INQUIRY ISSUES
POSED BY
THE COMMITTEE
A. THE EXTENT
OF THE
"GENERATION GAP"
1. What are the latest estimates of the likely
shortfall in electricity generating capacity caused by the phase-out
of existing nuclear power stations and some older coal plant?
How do these relate to electricity demand forecasts and to the
effectiveness of energy efficiency policies?
(v) According to work by Cambridge Econometrics
published on 16 September 2005 UK demand for all sources of energy
taken as a whole over the years 2005-15 is likely to increase
by between 0.25% and 0.75% per annum. [184]This
was despite a forecast fall in industrial use. It was estimated
that increases in transport, household and commercial use would
offset industrial reduction.
(vi) The Department of Trade and Industry
(DTI) has commented that the reduction in electricity supply from
the planned phase out of existing nuclear power plant will be
made up by an increase from gas-fired power stations and from
renewable energy sources. [185]
(vii) There have been concerns about reliance
on gas for reasons of concern about security of supply from some
parts of the world. Notwithstanding carbon sequestration, for
which to be sure there are plans, the fact of greater reliance
on a source (ie gas-fired power plant) that generates greenhouse
gases is worthy of note. Current UK Government policy means that
this would be occurring at the same time that UK nuclear power
would be being phased out. More seriously, if the Government is
determined about meeting its own commitments on greenhouse gas
emissions then energy mix as such should be put back on the policy
agenda. [186]The
IoD has urged previously that the Government should fulfil its
commitment to initiate a debate about the need for nuclear power.
[187]
(viii) Energy efficiency measures are key
in themselves, yet they are already factored into many energy
forecasts. As the DTI has stated previously a range of measures
is required to tackle problems of energy policy and of atmospheric
greenhouse gas emissions. No single measure can—or should
be expected to—provide a guarantee in either policy area.
B. FINANCIAL
COSTS AND
INVESTMENT CONSIDERATIONS
2. What are the main investment options for
electricity generating capacity? What would be the likely costs
and timescales of different generating technologies?
(ix) In general a stable public policy environment
is desirable for investment in new electricity generating capacity.
It was stated in the 2003 Energy White Paper that "Government
is not equipped to decide the composition of the fuel mix used
to generate electricity".[188]
Yet a policy strand deliberately underlying that White Paper is
that of focusing on greenhouse gases and seeking more application
of renewable energy technology. In this sense the Government has
already intervened in the energy market (and there are instruments
such as the renewables obligation that do just that).
(x) Returning to the topic of nuclear power,
note that Sir Alec Broers, President of the Royal Academy of Engineering,
stated in 2003 that renewable energy would neither prevent global
warming nor power blackouts: "I think we need both [nuclear
and renewable energy]". [189]The
long lead time for construction of nuclear power plant is another
reason for a decision sooner rather than later.[190],
[191]The
construction periods are a decade or more, most likely. For such
investment timescales stability of public policy is certainly
desirable.
(xi) Current Government policy, which relies
heavily on targets for renewable energy, may or may not lead to
real changes. Rather than relying too much on targets for renewables,
economic policies that will encourage innovation seem more likely
to lead to breakthroughs in the required technologies. One thing
is for sure; at present there is no guarantee that any particular
renewable energy source will ensure adequate supply of energy.
It seems quite likely that renewables will come to play a much
bigger role over time. Yet there are other issues to be considered.
Apart from engineering considerations around efficiency and continuity
of energy supply from a range of technologies, from wind to photovoltaics,
there are issues such as land-use planning to think about. Expressions
of public support for more wind (ie renewable) power are not found
to be consistently acceptable when subject to some of the long
delays of the planning process, at least when it comes to onshore
wind power.
(xii) Other factors such as the availability
of trained personnel to design, build and operate some of the
new technologies come to the fore. Such concern for the supply
of sufficiently educated and skilled people is not confined to
the energy or environmental sectors, but it does appear to be
a subset of a national concern over the availability of skills
in science and technology in general. This relates to Government
education and skills policy. The IoD has previously referred to
this in the context of energy policy. [192]
3. What is the attitude of financial institutions
to investment in different forms of generation?
(xiii) The Committee posed a supplementary
question as to the impact of a major programme of investment in
nuclear power on investment in renewables and energy efficiency.
Of course, with a finite amount of investment, a focus on one
technology would deny some resources to others. Yet it may ultimately
prove to be the case that diversity of emphasis and of investment
will be crucial. As referred to in paragraph viii above, a mix
of approaches is needed. If one energy source is interrupted,
we need to be able to rely upon another. Thus it is important
to ensure that there is security of supply that we can control,
and also to invest more in research and development on new technologies
of various sorts.
C. STRATEGIC
BENEFITS
4. If nuclear new build requires Government
financial support, on what basis would such support be justified?
What public good(s) would it deliver?
(xiv) On the nuclear front the Government's
Energy White Paper states that if innovation in low-carbon technologies
did not make enough impact, then costs of cutting carbon emissions
would be higher. It is of significance to note that it also that
they would be higher if improved energy efficiency savings were
not to be made, or if both new nuclear power capacity and carbon
capture and storage did not materialise in the long term. [193]So
the basis of deciding whether or not there were any need for financial
support should lie around considerations of energy demand and
of UK and international policy on the importance of greenhouse
gas reductions. The public goods would include energy supply and
security of energy supply.
5. In respect of these issues [Q 4], how
does the nuclear option compare with a major programme of investment
in renewables, microgeneration, and energy efficiency? How compatible
are the various options with each other and with the strategy
set out in the Energy White Paper?
(xv) The Government's energy White Paper
of 2003 has sought to promote energy efficiency measures and renewable
energy sources as the main means of reducing the UK's carbon dioxide
emissions. Scepticism has been forthcoming, not only from environmental
groups but also from some energy experts. For example, by rejecting
nuclear power and not investing enough in renewable sources some
have said that this will not do enough to move away from reliance
on oil and gas. [194]
(xvi) The strategy set out in the Energy
White Paper already involves potentially conflicting goals (reducing
greenhouse gas emissions; maintaining reliable energy supplies;
promoting competitive markets, raising sustainable economic growth
and improving UK productivity, and ensuring all homes are adequately
and affordably heated). Thus deciding upon the relative allocation
of resources as between nuclear power and other energy technologies
or measures is no different in this respect.
20 September 2005
180 Memorandum by the Institute of Directors (IoD)
(CC8), Environment, Transport and Regional Affairs Committee
UK Climate Change Programme Memoranda relating to the inquiry
submitted to the Committee, House of Commons Session 1998-99,
HC171-II, The Stationery Office (TSO), London, 20 January 1999,
pp 21-25, and Environment, Transport and Regional Affairs Committee
UK Climate Change Programme Minutes of Evidence Wednesday 3 March
1999, Session 1998-99, HC171-ii, TSO, London, 3 March 1999,
pp 40-45. Back
181
Memorandum by Geraint Day, the Institute of Directors (IoD),
The EU and Climate Change Volume II: Evidence, House of
Lords European Union Committee, 30th Report of Session 2003-04,
HL Paper 179-II, TSO, London, pp 248-252. Back
182
See, for example Energy: the policy climate, IoD Policy
Paper, Geraint Day, IoD, London, 2004, and Global Warming-Implications
for Business, IoD Research Paper, Geraint Day, IoD, London,
June 1998. These and others may be found at www.iod.com/policy/papers
under "Transport, Environment & Energy". Back
183
Climate change how UK businesses can benefit by reducing
carbon emissions, IoD and the Carbon Trust, Director Publications,
London, September 2005. Back
184
Cambride Econometrics news release, 16 September 2005: www.camecon.com/whatsnew/releases/uke3/text.htm. Back
185
www.camecon.com/services/samples/UKE3.pdf. Back
186
See for example Memorandum by the Energy Intensive Users Group,
The EU and Climate Change Volume II: Evidence, House of
Lords European Union Committee, 30th Report of Session 2003-04,
HL Paper 179-II, TSO, London, pp 257-260. Back
187
Energy: the policy climate, IoD Policy Paper, Geraint
Day, IoD, London, 2004. Back
188
Our energy future-creating a low carbon economy, DTI,
Department for Transport (DfT) and Department for Environment,
Food and Rural Affairs (DEFRA), Cm 5761, TSO, February 2003, p
87, para 6.47. Back
189
Mark Henderson, "Nuclear power is `critical to Britain's
future'", The Times, 18 August 2003, p 10. Professor
Broers also said that "The view of wind power is over-optimistic-that
we can get to 20% renewable energy by 2020 and that it will be
as straightforward as that. Some forms are far more expensive
than we think they are." The costs of having back-ups to
wind power needed to be factored in, for example. Back
190
"Come clean on your nuclear policy", Financial
Times, 28 August 2003, p 16. Back
191
The Energy White Paper also states that the expectations being
placed on energy efficiency and renewables are not only extremely
ambitious, they are also "uncertain": Our energy
future-creating a low carbon economy, DTI, DfT and DEFRA,
Cm 5761, TSO, February 2003, p 12, para 1.23. Back
192
Energy: the policy climate, IoD Policy Paper, Geraint
Day, IoD, London, 2004, p 36. Back
193
Our energy future-creating a low carbon economy, DTI, DfT
and DEFRA, Cm 5761, TSO, February 2003, p 28, box. Back
194
Natasha McDowell, "Experts cast doubt on Britain's green
energy ambitions", Nature, Vol 421, 27 February 2003,
p 879. Back
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