|
UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 584-viii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENTAL AUDIT COMMITTEE
KEEPING THE LIGHTS ON: NUCLEAR, RENEWABLES AND CLIMATE CHANGE
WEDNEsday 23 November 2005 RT HON ALAN JOHNSON MP, MR PAUL McINTYRE, MR HENRY DERWENT and MR RICHARD ABEL Evidence heard in Public Questions 626 - 719
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environmental Audit Committee on Wednesday 23 November 2005 Members present Mr Peter Ainsworth, in the Chair Ms Celia Barlow Mr Martin Caton Mr Colin Challen Mr David Chaytor David Howarth Mr Nick Hurd Mark Pritchard Mrs Linda Riordan Mrs Theresa Villiers Joan Walley ________________ Memorandum submitted by Department of Trade and Industry and Department for Environment, Food and Rural Affairs
Examination of Witnesses
Witnesses: Rt Hon Alan Johnson, a Member of the House, Secretary of State for Trade and Industry, Mr Paul McIntyre, Head of Energy Review Team, Mr Richard Abel, Director, Domestic Energy, Energy Markets Unit, Department of Trade and Industry, and Mr Henry Derwent, Director of Climate, Energy and Environmental Risk, Department for Environment, Food and Rural Affairs, examined. Q626 Chairman: Good morning, Secretary of State. Thank you very much for coming. I understand that you would like to make some introductory remarks briefly? Mr Johnson: Yes, and they will be brief, Chairman. In 2003, we published a White Paper that produced the first comprehensive forward-looking statement of energy policy for over 20 years, based on the widest and most significant consultation ever undertaken in the United Kingdom. It took in the views of over 6,500 individuals and groups. That White Paper brought together, for the first time, environmental concerns and the need to deliver secure, competitive and affordable sources of energy. This liberalised market-based approach is working. We have competitive prices. Domestic electricity prices are 10 per cent lower in real terms compared to 1997 and the fourth lowest in the EU. Four million households have been lifted out of fuel poverty since 1997; ₤10 billion worth of private sector investment is underway in our gas infrastructure; we have record investment in renewables with more coming on stream last year than ever before; we have reduced carbon emissions on our way to meeting our Kyoto target. We have also been clear that we will keep our policy under review and update and amend it in the light of experience, technological developments and global events. This is exactly what the Government will do as we bring forward proposals on energy policy next year. The terms of reference for that work will be published shortly. The challenges we face today are starker than ever. Climate change is a reality that no country can now ignore. For the first time, we include a price for carbon in the energy we use. North Sea gas production has declined more quickly than expected and the UK is now a net importer of gas. By 2020, the UK is likely to see the decommissioning of coal and nuclear plants that contribute about 25 per cent of our generating capacity. Global fossil fuel price increases have fed through to the price we pay for energy in our homes and businesses. All of this means we need a hard-headed look at the way forward, not just for next winter but for the next few decades. As the Prime Minister has made clear, we need to take decisions in this parliament if we are to ensure we have the energy generation and associated technologies we need to meet the challenges of tomorrow. We are genuinely open-minded and there is no pre‑determined outcome of this work. We will, of course, examine the question of civil nuclear power as well as emerging technologies like carbon capture and storage, wave and tidal energy and many other aspects. This is not a nuclear review; it is an energy review. The review will be objective and thorough, and I very much look forward to committed help and advice in securing a long-term and lasting energy sector. Q627 Chairman: Thank you. That is a very helpful introduction. We will have questions relating to some of the things that you have already said. Can I begin by referring to the story in today's newspapers about the current issue? This committee's inquiry is really to do with the medium term, the sort of issues that you have just addressed. We have an immediate problem, do we not, with the price of gas, the problems that industry is facing, the reports that industry is beginning, in Digby Jones's words, to throw the switch because they are having some difficulty about paying for the current gas rise. How has this situation come about? I notice that Malcolm Wicks is quoted as saying that it is highly unsatisfactory. Would you agree with that and what are you doing to resolve it? Mr Johnson: The first point to make is that this is difficult for a particular group of energy‑intensive companies. That does not detract from the problems that we face, but we need to get this into perspective. It is energy-intensive users who are buying on the spot market rather than the forward market. For those individuals, yes, today we will probably see a record price of 165p. Three years ago we had the lowest ever price recorded. On average over the last few years it has been about 26p a therm on the spot market. In terms of the effect, no less profound for those who are affected, these peaks are difficult for these companies but we estimate it is only true for about two-thirds of large, industrial energy users; that is only 0.2 per cent of companies that use gas; and that is 0.05 per cent of UK companies altogether. So the first thing is to get that into perspective. Secondly, how did it come about? This is a market. We have introduced a market here. I do not think anybody who comes, or very few people, before this committee would suggest that we ought to interfere with that market. Indeed, there was a good example from Ontario a couple of years ago that may well suggest that those that do think interference is the way forward may like to think again. But in this market situation, as I have just alluded to it, the market has not adjusted quickly enough to what was I think a decline in North Sea gas that very few people predicted; it has declined more quickly than expected. For this winter we have a combination of, firstly, a problem in terms of the amount of supply and storage that is around. It will only be a really difficult problem if it is one in 50 winter, but nevertheless, after this year, things get better. Indeed, a number of measures that have been taken running up to this winter, like the Isle of Grain L&G store that was opened yesterday, like the extra capacity we brought on stream at Didcot for coal, at Grain for oil, at Killingworth for CCGT. That is all on stream for this winter. Nevertheless, I think the market would have liked to be in a better place for supply and storage. There is a second problem in terms of our having a liberalised market in the UK but in the EU they have not put their policy into practice, and that is a very serious problem that we are seeking to assist with, particularly at the Energy Council on 1 December when this will be top of the agenda. We also have the problem of cold weather. It is a cold week. Whilst it will not be a one in 50 winter, the Met Office are predicting it may well be a one in 10 winter, which is still pretty cold. All of those factors together are what is creating this particular situation at the moment. There is a whole range of measures now to suggest that the market will actually deal with that successfully. Q628 Chairman: Briefly, can I ask you whether you are satisfied that the Bacton Zeebrugge interconnector is working properly and if that is not part of the problem as well? Mr Johnson: No, it is not working properly. It is part of the problem and that is part of liberalisation. There is not the flow coming this way that there should be because of the lack of a liberalised market in the rest of the EU. Q629 Chairman: The situation we have at the moment in summary is not a foretaste of what we can look forward to when we become more dependent on imported gas? Mr Johnson: No, it is not because we have £10 billion worth of investment going into new storage and supply facilities that will be coming on stream over the next few years. I think this is the winter when myself and my energy minister will be getting up every morning, looking out the window and, if there is a frost, we will worry. I think in future winters we will not be quite so worried. Q630 Joan Walley: Secretary of State, it would be remiss of me, given what you have just said, not to flag up the problems that there are for intensive energy users as a result of the liberalised market that we have in this country and the unliberalised market in Europe. For the short term, I do ask you to look very carefully at the issue in terms of intensive users of energy. In terms of the evidence that you have given to this committee, can I ask you how seriously you take the work of this committee? It has been very easy, I think, for many commentators to scoff at the work that we have done but our previous inquiry did really set out the problem and warned that emissions from the generating sector were rising. That was very much in marked contrast to the predictions that were contained in the DTI paper only two years earlier. I wonder why it took your department and Defra took so long to accept that the evidence that this committee found is actually what is happening. Why did it take you so long to understand what was happening to the emissions forecasts? Mr Johnson: The first point to make is that I take your point about intensive users. We talk to them all the time; set up a specific working group; and we are discussing these problems with them, even as we speak. The second point is that I have not heard anybody scoff at this committee's work. "Scoff" is not a word I associate with this committee. Q631 Joan Walley: I was relating that to a press interview over the weekend. Mr Johnson: Also, I would find it difficult to chart the course of action that took place since your prediction and the DTI paper that you mention. As far as emissions are concerned, we have taken a very realistic and hard-headed approach here. Yes, we have set a stretching of target, a 60 per cent reduction in CO2 emissions by 2050. We have been well aware that CO2 emissions have been rising over the last couple of years for a variety of factors, not least that the price of oil has meant that people are switching to coal from gas because of this strange link between gas prices and oil prices, which is something that may need to be addressed on a wider international basis at some stage, and also because of the problems of a growing economy. You find when there is growth and high levels of employment that people are travelling to work and it is a lot more difficult to tackle CO2 emissions than when there are high levels of unemployment. I do not suggest that as a policy to deal with CO2 emissions. For all of these reasons, we have taken a realistic view. We have made an enormous amount of progress, again by stretching targets and having a hard-headed approach to how we tackle this issue. If there was any disparity and this committee were more far-sighted than Defra or DTI at the time, I am willing to give brownie points all round to this committee. Joan Walley: I am very pleased to hear that. Q632 Mark Pritchard: Secretary of State, you mention being fearful perhaps of frost in the morning. We have had quite a few frosts recently. The Energy Minister in the House a couple of weeks ago suggested that energy supplies might be interrupted if we have a one in 50 winter. We heard from Ofgem only last week that if we have a one in 10 winter, we might have interruptions to energy supplies. What is your view in the context of Ofgem's comments? Mr Johnson: Ofgem have a central role to play here, and so have the Met Office, and the Met Office are not predicting a one in 50 winter. Even if we had a one in 50 winter, domestic customers would not be affected and it would be major energy-intensive users with interruptible contracts who may see an effect. In terms of what Ofgem said about a one in 10 winter, we cannot be complacent here. Once again, it is not domestic customers. I think the concern of this committee has certainly not been excitable about all this, but some have. I note the title of your inquiry is "Keeping the lights on", and that is fine as a medium term and long term issue, but those that predicted that the lights might go off this winter in the media and had front page stories saying "black out" unnecessarily worried some very vulnerable and elderly people. That is just not going to happen under any scenario whatsoever. I think what Ofgem are saying is that we need to ensure we have transparency of information throughout this winter and we need to be in close touch with energy-intensive users. We want British industry to competitive. We are competitive and we have a competitive energy market but we need to ensure that we do not take our eye off the ball through this winter. Q633 Joan Walley: Returning to how adequate the DTI energy emissions forecasts actually are, the upward revisions of the UK emissions cap in the National Allocation Plan are a bit of a shambles, are they not? Do you feel that you have competence and modelling systems you need to be able to forecast future energy demands? Mr Johnson: I am not going to go near the words "scoff" or "shambles". I do not know whether one of my colleagues here wants to help on this. From everything I see, our analysis is in good order, but whether it has always been in good order, I am not so sure. Q634 Joan Walley: The upward revisions of the emissions cap in the National Allocation Plan were all over the place at that time. Mr Johnson: You mean in phase 1. We have just won a court case on that this morning, by the way, which is good news to us. I do not think it was chaotic. Q635 Chairman: The numbers kept changing. You won the court case against the European Commission: is that correct? Mr Johnson: Yes, which means the European Commission now have to reconsider the allocation under phase 1. Q636 Joan Walley: What that leaves us with is the importance of all the modelling that is coming out of the DTI taking adequate account of the rise in carbon emissions in the last three years. Would you see now that you need to bring up to date the assumptions on which you base this modelling? Obviously the price of oil has changed and the carbon emissions have risen more than you anticipated. Are you intending to revise that basis for your modelling? Mr Johnson: We keep it under review all the time. Mr McIntyre: This is an important issue. I can say something first about phase 1. We issued a consultation with Defra about the National Allocation Plan for phase one. It is the case that the numbers changed as a result of that exercise. I suppose part of the point of consultation was to get a better basis for the numbers. A great deal of work was done and a great deal of consultation was undertaken to try to get those numbers as accurate as possible. As far as where we are now is concerned, work is being done, in association with the review that has been ongoing, on the climate change programme. In association with that, revised projections will be produced, so further work is going on. Q637 Joan Walley: When will we see those final projections? Mr McIntyre: They will be published, as I say, in association with the climate change programme review. That is the exercise to which that revision is linked. Q638 Mr Caton: Moving on to the liberalised market that you have just recommitted the Government to again this morning, Ofgem has told us they are confident the liberalised market would ensure security of supply without Government intervention. Are they right? Mr Johnson: Yes. Q639 Mr Caton: Other witnesses, on the other hand, have suggested that the current UK liberalised market is very short term, characterised by a boom and bust approach and the possibility of dramatic price spikes, which we have already referred to this morning. Would you like to see any changes in the structure of the liberalised market to provide investors and power companies with more long-term certainty? Mr Johnson: They certainly need that long-term certainty but there is no doubt in my mind that the market can provide that. There is no doubt in my mind that we would never be able to get together the ₤10 billion worth of investment that is going to go into new pipelines with Norway and the Netherlands and the new storage facility in Milford Haven. There is a market reaction here that could not be replicated in the private sector. I also think the market is looking medium to long term here. There is a role for our Energy Review here because they want to know the Government's view on renewables, whether there is a 2020 target and what happens beyond that if you are thinking long term. They want to know what is happening with nuclear. We left the door ajar in 2003. Are we going to close it or open it? Certainly there is a role for Government there. The other point I would make is this. There is something about interruptible contracts that we have just mentioned. What businesses want is a system where they are not subject to interference by Government. If you look at what happened earlier this year in France, Italy and Spain, they did not have interruptible contracts; their contracts were interrupted by the Government. The Government stepped in and interrupted their supplies. In this country that would only happen in the most dire emergencies. If you look at prices, the other issue, eight years pre-1997 and then eight years post-1997, domestic electricity prices are down 22 per cent; domestic gas prices are down 15 per cent; industrial electricity is down 30 per cent; industrial gas is down 23 per cent. For a whole host of reasons, I think the market is working short term, medium term, long term. I certainly think that once we get the same liberalised market in the rest of the EU, we will resolve a lot of those problems we are experiencing this winter. Q640 Mr Caton: Are you saying that the structure of the market can be part of the subject of the Energy Review? Mr Johnson: Not the structure of the market so much as the mix; we are looking across the whole range of renewables, clean coal technologies and nuclear. We are looking at every aspect of energy policy. There has been movement from 2003. It seems quite a long time ago in many respects, particularly in terms of the new technology coming on stream. The market is looking at the signals from Government as to whether their policy will change on nuclear vis-à-vis 2003. It is for that reason that they have been urging for a review and a final decision on this question of nuclear within this Parliament. Q641 Mr Caton: Power companies have told us that they will not receive further investment until the Government clarifies the policy and regulatory framework by setting up, for example, the allocation for phase 2 of the EU emissions trading system and clarifying the UK interpretation of the large combustion plant directive. Can you see their problem? Mr Johnson: Yes, I can. As far the ETC scheme, on phase 1, the UK Government rushed in pretty early. We were showing some leadership. We thought this was a serious issue and that we ought to be in the lead. We are not rushing in quite so quickly on phase 2, which means business has to wait before we go through the consultation. Q642 Mr Caton: Can you give us an idea when you will be publishing that? Mr Johnson: I think June is the deadline for the EU, which means we have to publish before June. Q643 Mr Caton: When can we expect the interpretation of the large combusting plant directive? Mr Johnson: Very shortly, and that is a good civil service answer. Mr Caton: If you could harden up on that and let us have that in writing, that would be useful. Q644 Chairman: Before we move on to the question of nuclear, which is exciting, can I ask you another quick question about the market? Ofgem told us that they had expected a long‑term futures market to energy in energy. It has not happened. Is there any particular reason for that and is it a problem that the UK market is so short term? Mr Johnson: I think some of the reason for this not developing yet is that there has been a bit of uncertainty about what is going to happen in the rest of the EU. Once we get policy translated into practice, that will ease. It is not something that we are tearing our hair out over, but it is something I think that will develop naturally over the course of the next few years. Q645 Mr Challen: We have had witnesses from both sides of the nuclear debate telling us that for new nuclear to happen, assurances and guarantees will be needed from the Government. Do you think the Government would be prepared to consider guarantees: for example, a cap on the waste costs of new nuclear, or sharing initial planning costs, or even guaranteeing the price of the energy produced from nuclear? Mr Johnson: I would be very surprised if we issued that kind of guarantee. The one thing I am clear about is that when we look at nuclear, we have to look at cost, safety and waste. Those are the three big issues that were around in 2003 and they are the big issues now. I expect new plant to be built and run by the private sector. There is a market here. In terms of what happened before, Sizewell B for instance had a cost overrun of around 35 per cent, and there has been an awful lot of public money invested there. I think with everyone who comes before your committee, and I think I saw some evidence from the private sector, there is no expectation. First of all, and I know this is not the precise question you are asking, there is no expectation of taxpayers' money being thrown into this. It is down to the private sector. I would be very surprised, given that that is the case, if the Government was looking for guarantees, except that we want to be sure, of course, that safety continues to be dealt with as well as it is now. The Office for Civil Nuclear Security is responsible for this. We have safe, secure arrangements for nuclear now, particularly in terms of their resistance to terrorist attack. That would have to be the case in the future. On waste, of course we are waiting for the Committee on Radioactive Waste Management to report next summer. That report will be an important part of our decision-making process during this review. Q646 Mr Challen: You would really scorn any such interventions in what we have now, the liberalised market, to assist nuclear in that way and obviously avoid this picking winners approach? Mr Johnson: "Scorn" is another "s" word. We have a list of them now. I do not want to pre‑empt what will be a very thorough and intensive review taking into account the views of others. In terms of the Government issuing guarantees, I do not think there is going to be an awful lot of that emerging at the other end of this review. Q647 Chairman: What is the industry waiting for? We have had real trouble getting to the bottom of this. They are all sitting around saying, "We are waiting for a steer from Government; we are waiting for a green light, for a sign". Do you know what sign they are waiting for? Mr Johnson: It is best to ask them. Q648 Chairman: We have and it is entirely unclear. Mr Johnson: You might remember that when I took over this job the private briefing from my private office was helpfully reported on the front page of two Sunday newspapers. My predecessor, Patricia Hewett, told me that when she took over there was not a queue of entrepreneurs at her door waiting to build nuclear. When you talk to the private sector, they say, "The door was left ajar in 2003. We were not sure whether that meant you were going to go down the German route or the French route, whether you would replicate Finland or whatever". I think there is a fair argument that they are waiting to see what the political temperature is and what the Government's approach is going to be before they make hard and fasts players. That is the best sign I can give you. Q649 Chairman: The Prime Minister was talking yesterday about nuclear and saying they are going to have to make a decision. What would a decision involve? Mr Johnson: What would a Government decision be? Q650 Chairman: What would a Government decision on nuclear power generation be? What form would it take? Mr Johnson: That is exactly the purpose of the review. It would need to look at cost, safety and waste. I am genuinely neutral on this. I promise you that you will not find a word anywhere in a pretty long career in one form or another in public life where I have said I am pro or anti nuclear. I have no ideological approach. Chairman: I am really interested to know what, if any, policy change will be involved in any statement made by the Government about the future of energy supply which "gave the green light" to nuclear, other than to say, "We have looked at the cost and safety issues" and so on? Q651 Joan Walley: Is there anything that would be different from the previous report the Government did, the previous strategy two years ago? Mr Johnson: I think the sign would be, if it went this way, and I am being very careful here, and if we looked at all of these issues and decided that nuclear was to be a major part here, on the basis of saying, "Because we are going to lose around 25 per cent of carbon-free emissions via nuclear and renewables will be at a level of 20 per cent or beyond between 2020 and 2030, we would expect, encourage and hope for a nuclear new build programme that will help us meet our climate change objectives". If Government said that, business would say that there was the prospect and the possibility of Government closing that door. I take your point. The Government is not going to say there is tons of cash here and you can all come and get it for nuclear. We are not and I can absolutely guarantee that. If you ask what Government has to do, I think we have to more than we did in the Energy White Paper in 2003 where we absolutely remorselessly concentrated on renewables and energy efficiency and left nuclear to one side. Q652 Chairman: The issue then and now I suspect is that nuclear was really unfinanceable. If all the Government does is issue a piece of paper saying it is encouraging and it does not actually put in place any practical measures, whatever those might involve, nothing is going to change the unfinanceability of nuclear, is it? Mr Johnson: There might be some practical measures. Q653 Mr Chaytor: To clarify this figure of 25 per cent or slightly less than 25 per cent, this is the figure representing nuclear's contribution to electricity generation and not to total annual carbon emissions. Am I right in thinking that nuclear's contribution to total energy output is in the order of 7 to 8 per cent? Mr Johnson: Yes. Q654 Mr Chaytor: If we are talking about the contribution to the total national carbon emissions, we are talking of 7 per cent or thereabout? Mr Johnson: Yes, I think that is right. I said in my opening statement "25 per cent of our generating capacity". Q655 Mark Pritchard: Secretary of State, as to the review or perhaps the review of the review, is it likely that the House will have an opportunity to discuss a new energy bill and is that the sort of context and framework that perhaps industry is looking for, to have a clear run at new nuclear build? Are we looking at a new bill before Parliament? Mr Johnson: I cannot predict whether that will necessitate legislation. Coming back to your previous question, I think what we said in 2003 was that if we did decide to go down the nuclear route, whether with encouragement, practical considerations or some practical help, then we would require a White Paper and a further consultation. We have not had the terms of reference published yet, but the Prime Minister said at our party conference that the idea is that next year we will produce some proposals that would then fit into another round of consultation that might end up with a bill but would certainly point to the long-term future for energy policy in this country, looking at those three aspects: security of supply, affordability and carbon emissions. Q656 Mr Hurd: Secretary of State, in his evidence to us Sir David King expressed a personal view that any energy review should be short and sharp. The process you are outlining seems to be quite protracted. Do you accept that there is a risk in that in relation to investor confidence and investor sentiment towards renewables? Mr Johnson: I do not think the Energy Review will be a long, protracted review. What I am pointing out is that after that has been published, there is a process to go through. The Energy Review itself will not take a long time. If there is an energy review that comes up with proposals and the view of Government is that we need to do all this very quickly, then it would not be the kind of review we are envisaging, which is to look at the long‑term future of energy in this country. I think that would be a necessary process after that, but that does not mean the review will take a long time. You have to wait for the terms of reference to see how long we envisage this taking but we are not thinking about a long time. Q657 Mr Hurd: Do you accept that there may be a negative impact on investor sentiment towards renewables just at a time when there is a very real concern about hitting the renewable target because of the uncertainly about the direction of Government policy? Mr Johnson: No, I do not think so. We are being very clear here about our renewables obligation. We have a target for 2010 and an aspiration for 2020. It is about getting that positive climate where you get renewables to a level where there is no going back. We are almost at that. I know there is a lot of renewable energy still to be developed. If you look at what happened last week, last year, with onshore wind, where we had a record year which will be outstripped this year, there is a real momentum now on renewables. I do not think there will be any going back from that. Q658 Joan Walley: Could I press you a bit more on that? Is it not the position that case that could be made for nuclear is directly linked to the amount of time that it will take for that momentum for renewables to get underway? I would have much preferred the Government, back at 2003 and in the work it has done subsequently, to have dealt with all those issues of uncertainty as far as renewables are concerned because it take so much time in the short term to get the investment right, the technology and manufacturing and public awareness right. You have not really given renewables the time to get that whole momentum going before you now start to look at whether or not that uncertainty could be ended and you could have that case for nuclear. Mr Johnson: With a 60 per cent CO2 reduction target by 2050, the argument around nuclear in relation to CO2 is, as I understand it, that we are running to stand still. We are making progress with renewables but, as we close nuclear power stations, we just make the problem worse in terms of CO2 emissions. I cannot see any scenario that will not have renewables as a major part of it. Q659 Joan Walley: The issue is about nuclear, whether or not you can get more from the other sources without giving those messages about nuclear. Mr Johnson: That will be one of the questions to look at on cost and how the market will work in the future. I do not agree with the suggestion or inference that we not put an awful lot of effort in and done all we can to get the renewables market up and running. We are doing it even as we speak and there has been £500 million of investment so far. Here is a clear case of Government intervention on the renewables obligation. In terms of the transmission problems, we have also announced a package to try to solve that problem as well. It will be an ongoing debate. I do not see this as being renewables versus nuclear. It is looking at our total energy policy right across the range. Q660 Chairman: You have mentioned a couple of times that you might think of putting in place some practical measures to assist the nuclear people to make the investment if they want to go that way. What sort of practical measures might those be? Mr Johnson: I genuinely do not know. We are not that far into the review. The very suggestions that have been made to your committee, as I understand it, about what Government could do in terms of practical help, in terms of changes to the legislation, et cetera, some of that will emerge from our review. Q661 Mr Challen: Professor Sir David King told us a week ago that it would be more sensible for us to consider an 80 per cent carbon reduction target rather than 60 per cent because the science seems to be pointing in that direction. Does that not mean that the task now for new technologies is even more urgent and that we cannot afford to wait 10 or 15 years for something else to emerge; we need to have something in the short term that is really going to start filling the gap? Mr Johnson: On the clean coal technologies? Q662 Mr Challen: On anything that can deliver in three, four or five years, rather than waiting 10 or 15 years? Mr Johnson: In terms of the technology that is emerging now, carbon capture and storage is probably the most exciting, not just for this country but also for China and India where we are working to share the technology. We have the project under way that will probably determine the capability of this, which is BP Miller project out in the North Sea. You cannot do these things quickly. There is not the ability to just take clean coal technology, for instance, and apply it immediately. You have to go through this stage of ensuring that you have some rigorous analysis and you are developing the results that have been envisaged. Yes, we need to work very quickly on wind energy, wave power and micro generation (which we are doing and that should make a contribution, though not huge). We have the Climate Change Programme Review that will be published before the end of the year to ensure we are on course with our 10 per cent reduction. There is a whole series of measures going on to use the new technology that is available as quickly as possible. Yes, we are constantly not just looking just to the long term; we are looking to the short to medium term as well. Q663 Mr Challen: The Westinghouse AP1000 reactor design has been touted as an off-the-shelf and economic way forward for new nuclear but it is predicated on the idea that maybe you could build 10 at the same time. Given our past experience, do you think that would be a possible way forward, given that nobody else has built one anywhere else in the word? Do you think that we could perhaps do it in that way or would it have to be phased? It would start with one, and then see if it works, and then have another nine afterwards. Mr Johnson: You are taking me into a territory that I do not want to go! We have no decision yet. If we decide to go down the nuclear route, obviously those are questions we would have to consider. Q664 Mr Challen: Finally, the British Energy effective bankruptcy that we saw a few years ago meant a bail out from the Government. What is there in place to prevent that from happening again? Mr Johnson: I think it is impossible to put something in place that will say that in all circumstances this kind of thing would never happen again. It is an awful shock to the system. I think that would ensure that no-one ever wants to go through that again. Q665 Mr Challen: Does that mean that one particular generating form has a gun to the Government's head then and none of the others really do because none of the others have the same technology which is so capital-intensive and so expensive to run? Mr McIntyre: May I add something about British Energy? I think the purpose of the rescue and the restructuring was precisely to put the company on a viable basis in the longer term and, in return for that, the taxpayer has got a claim for two-thirds of British energy's future surplus cash. That was the way in which the taxpayer's interest was protected. Q666 David Howarth: Can I ask another question about cost? I want to get back to the question of a sign and practical measures. Just a detailed question on costs first: nuclear is unique in one way, which is that it is the only form of energy that requires some police force, its own security measures. You mentioned the terrorist risk. Do you think that the cost of those arrangements should be borne by the state or the taxpayer or by the industry? Mr Johnson: I think instinctively it ought to be borne by the industry. Q667 David Howarth: Professor King thought that it should in effect be counted as already having been paid for with existing arrangements and therefore new build should not bear any of that cost. Is that your view too? Mr Johnson: I think I would need to take a considered view on that. Professor King is deeply interested in this subject, but my instinctive view is that there should not be taxpayers' money in any dimension here. If you look at what is happening around the world and at the new technology now that will mean that we are not replicating the first generation of nuclear power stations, there is a much more advanced system now, I think it is very difficult to think of an argument for the taxpayer to make a contribution. If, during the course of a review, you see that that is the only solution to some of those problems, then it beggars the question about whether that money from the taxpayer spent in that way would be better spent in other areas like renewables. It comes back to those three issues: cost, safety and waste. Q668 David Howarth: I am grateful for that. Can we now go back to the possibility of practical measures or a sign? It has been put to us that one of the problems with nuclear as a security of supply question is that it takes so long for nuclear to come on line that by 2015 there will be other answers to the security of supply question. Part of that timing question is the issue of licensing and planning. I was wondering whether you had in mind any changes to the licensing regime or to the planning issue. Mr Johnson: As I understand it, you could get moving with pre-licensing pretty quickly and save about three years on the timescale if you were going down this route. On planning, the natural reaction would be to build on sites where there are already nuclear power stations, which does not end the problem but think it makes it much easier. These are concerns. I think the time is around 17 years between a decision and an actual plant being built. Mr McIntyre: I think there is some uncertainty about that. To repeat what was said earlier, this is just the kind of issue the review needs to look at. Q669 David Howarth: What is the present estimate of how long it takes to go from where we are to building a nuclear plant? Mr Johnson: Between 15 and 17 years or 17 years. Q670 David Howarth: Can I put another point to you that has come up quite strongly in the evidence that has been given, which is the question of giving an example to the world and the relationship between civil nuclear power and the proliferation issues? Do you think it is dangerous, for example, that Iran is in the process of trying to give itself a civil nuclear capacity? Mr Johnson: No; that is what they are seeking to do. As I understand it, the UN supports that and that is not a problem. It is the switch across to military use that is the concern. Q671 David Howarth: Is not the problem that people see the only the reason for Iran to do that, to give itself a civil capacity, is something do to with the military spin, as it was of course in this country with the origins of nuclear power? Mr Johnson: You can separate the two. The process that the UN undertook to help Iran to build a civil nuclear capacity was very strict and subject to inspection. There is no necessity that if you are going down that route then it must be a switch-over to military nuclear. Q672 David Howarth: So you have no problem with the idea that if we were to go down the nuclear route, we would have no standing to say to other countries that they should not follow a similar plan? Mr Johnson: On civil nuclear power that is a matter for countries to decide for the same reasons that we need to, in terms of security of supply, CO2 emissions, et cetera. That is perfectly valid. Q673 Ms Barlow: I hope you will accept that there has been considerable concern within the nuclear industry about the likely availability of uranium after 2015. I quote from the conclusions of the World Nuclear Association's latest market report in September: ".... fuel supply is potentially short beyond 2015, unless the lower demand scenario occurs. .... future uranium supply is now a big issue. Actually, the uranium market has been concerned about it for some time and accordingly, the price has been increasing for the last couple of years. ....One of our concerns is that uncertainties about fuel security in the future may depress possible investors' confidence in the nuclear power industry. This could potentially delay or cancel the nuclear programmes, currently set." Would you not accept that the truth of the matter is that the likely supply of uranium will not be sufficient for a great global expansion in the future? Mr Johnson: That is a matter to be tackled within the Energy Review. I feel a bit like I am opposing nuclear new build and defending a decision that has not been made. That is absolutely a genuine issue of concern that we would need to look at. Q674 Ms Barlow: How far along have those investigations gone in terms of the supply of uranium? Is that issue being tackled now? Mr Johnson: I am not aware of initiatives that we are involved with on that. Mr McIntyre: It is something that we will need to look at in the review. Q675 Chairman: I am amazed that you have not looked at that already, given what the Prime Minister has been saying about nuclear, the hints, nudges, nods and winks that have been going on. I am astonished that you have not looked at the supply of uranium issue yet. Mr Johnson: I do not know whether there have been nods and winks. Q676 Chairman: We have been on the receiving end. Mr Johnson: There have been stories in the newspapers. I am very clear about what the Prime Minister wants from this review. He wants an objective review to see what the mix is going to be across the whole range. He has not made a decision on nuclear new build - I am absolutely confident on that - and neither have I and neither has my Energy Minister. If some newspaper correspondent thinks we have, they are wrong. Q677 Ms Barlow: Continuing on along the lines of research and likely research, if lower grade uranium ore is used, there is evidence that nuclear is far from being as carbon-free as one might have expected. Are you also going to be undertaking research into the emissions associated with nuclear energy, if a decision is made, before any decision is made, and, if so, have those investigations started? Mr Johnson: That will definitely be a part of the Energy Review. Just like the White Paper, it will be based on security of supply, affordability and carbon emissions. Carbon emissions are central to his review. My understanding is that nuclear is CO2 free. The point you make about uranium and the CO2 emissions that come from building nuclear plants is another factor that would need to be considered. Chairman: If uranium supplies are short and you have to use lower grade uranium, the science suggests that CO2 emissions from nuclear energy go up quite significantly. You have given us an incredibly convincing impression of a minister who is genuinely open-minded. May I suggest that that is another issue, when and if you come to review these matters, you include in the mix. Q678 Joan Walley: On that point, if, as you say this is going to be part of the review, there must be some work in progress that your department is doing in respect of the supply and the link to carbon emissions relating to that supply of uranium. It would be very helpful, for the purpose of our inquiry, if you could let us have a copy of what work in progress is taking place. Mr Johnson: I will find out. We have not published the terms of reference yet. We have not set up the review. No-one is working on the review yet. I will see whether any preliminary work has been going on here and let the committee know. Q679 Mark Pritchard: Secretary of State, do you agree with the noble Lord Sainsbury in another place who is allegedly reported in one of the broadsheets to have suggested that new nuclear build is now the new green energy? Mr Johnson: He said it is a renewable. It shares characteristics with renewables, providing it is not low‑grade uranium in that it is CO2 free. The technical answer, and I would never disagree with my honourable friend, is that it is finite and therefore it cannot be renewable. Q680 Mark Pritchard: Would you regard it as green? Mr Johnson: In relation to CO2 emissions, I suppose so, but I have never really thought about whether it is green or not. Q681 Mrs Villiers: I would like to ask you about the Renewables Obligation. A number of the witnesses that have come to the committee have expressed concern about the inflexibility of the Renewables Obligation. Would you accept that it effectively picks winners by incentivising the most commercially competitive technology, without offering a great deal of support to technology which is less developed and further from the market? Mr Johnson: I would like to look at those criticisms. I think the Energy Review should be looking at that. We have tried not to pick winners. We have tired very hard to ensure that all these emerging technologies where we do have a natural advantage because we are an island nation have properly been explored. I would be interested in evidence to the contrary. A very important part about how we take this review forward is to look at our experiences since the Renewables Obligations was set. Q682 Mrs Villiers: Do you have any ideas that the department may be considering or that the review will consider which could add flexibility and give more encouragement to these less developed technologies like tidal power, et cetera, rather than focusing on the current Renewables Obligation, which tends to focus on things like wind power? Mr Johnson: With tidal power and wave power, one of the problems has been planning consents, transmission, getting it into the grid. I was talking to a company in my constituency that was thinking of going somewhere else in the world rather than the UK. That is because of the delay in getting the technology tried and tested. Those problems about infrastructure and grid capacity, the market framework, and all of that, are very real problems that we are seeking to tackle. The review might find different ways to tackle them. They are important considerations. Q683 Mrs Villiers: Are there any ways you can consider tackling them which would not add too much to the complexity of the current situation, which is already very complex? Can we try to improve the Renewables Obligation system without making it even more complex than it is at present? Mr Johnson: We should but whether we can is something we have to look at. We are looking for a simple system, as transparent and as clear as possible. I am not saying we are perfect at this and I am not saying there are things we cannot do. We are committed to helping the kind of people who have obviously spoken to this committee to get round the problems and we do that on a regular basis. Q684 Mrs Villiers: One suggestion was made simply to auction contracts for long-term, low carbon generation. Is that something that you have considered? Mr McIntyre: Yes, those ideas have been floated. That is the kind of idea we can look at in the review. Q685 Colin Challen: In 2001 the Government said it wanted to be a credible player in PV development. In comparison to the Germans, who have a 100,000 solar roof programme, and the Japanese, who have a 70,000 roof programme, we have managed to get to 3,500 in our programme and now the programme has been abandoned. Why have we done so badly? Alan Johnson: First of all, it has not been abandoned. Blue Skies, which did the first project, had a two-year life span. Now we have transferred it over to a new project with more money. We have put £30 million into photovoltaics. Yes, we are behind some other countries. We are ahead of some countries in some areas. But we started late on wind generation, for instance. So that has not been abandoned and we think it is a very important part of the renewables mix. I am sorry this has not been explained clearly. Perhaps we will do you a note about this. When we issued our press release we were very clear that one scheme was coming to an end and a new scheme was beginning on PV, and the new scheme is now up and running. Chairman: We would very much appreciate a note on this whole area. Q686 Colin Challen: And that new scheme promises more money than the schemes that are now being wrapped up in the new scheme. Mr McIntyre: It is called the Low Carbon Buildings Programme and it has a budget of £30 million. Q687 Colin Challen: How does that compare with the previous programmes which it replaces? Mr McIntyre: There were a number of different programmes in place before. The main point about this is we are trying to move away from a number of different schemes targeting particular technologies to a programme which is, if you like, technology neutral, so instead of focusing entirely ----- Q688 Chairman: I am sorry, the question was about the funding. How does the money allocated to the new programme compare with the money that was allocated to the previous programme? Mr McIntyre: For this programme, the £30 million is less than the total that was applied for the various schemes that were in place before. Q689 Chairman: By how much? Mr McIntyre: I am afraid I cannot be ----- Q690 Chairman: Perhaps when you write your note to us you can let us know that as well. Mr McIntyre: Yes. Q691 Colin Challen: Does this not rather contradict your earlier answer on the questions I posed about the need and the urgency to invest in what we have available now in technological terms over the next three, four, five years? The Low Carbon Buildings Programme, which was originally stated to last for six years is now only going to run for three years. It does seem as if we are resiling from our commitment to these technologies. Alan Johnson: We are not. There might be a problem, as we have put in our note to you, about how we set our budgets. There is always a finite amount of money that we are looking to spread around. We have just announced £40 million investment into clean coal technologies and some other initiatives. There is some seed-corn funding there to get these ideas up and running and then we expect other people to step in rather than the tax payer. So there are always those issues. I think on photovoltaics we have a good story to tell, we just cannot recall it all in front of this Committee now. But we will put it in the note. There is a misapprehension. There was a report in the FT, that we had dropped photovoltaics, but we have not. As Paul says, there might be less money, but that is not always the benchmark of whether what we are doing is right or not. It is not how much money we spend on it; it is whether it is focused. The problem before was that there were a number of different schemes, and we are now bringing it together - we think, into a much more effective arrangement. Q692 Colin Challen: There seems to be a bit of a stop-start approach though. There was an eight month gap between the ending of one or two of these previous programmes and the start of the new programme next year. I am aware that some people in the industry are very concerned, more than concerned, about that approach. Do you not think that this sort of approach does damage investor confidence? Alan Johnson: I hope not. I did not think there was an eight-month gap. Mr McIntyre: Perhaps I may put that into a little bit of perspective. I think under the old programmes there was typically a four-month gap in any case between the calls for bids, as it were, to spend the money. So, even if there is a bit of a gap now between the end of the old programmes and the beginning of the new one, I think there always has been in practice a gap which has existed. Q693 Chairman: How big is the gap? Can you confirm? Mr McIntyre: I think it has typically been four months between calls for applications. Q694 Chairman: Yes, but between the old scheme and the new scheme, how big is that gap? Mr McIntyre: My recollection is that it is five months. It is not very different from the gap between the calls under the old scheme and this. Q695 Colin Challen: Do you guarantee that the allocation - and I think it was £10 million originally under Clear Skies - will all be spent by the end of the financial year or committed and that none of that will be rolled over and described as new money in the low carbon buildings programme? Mr McIntyre: I am afraid that is a detail that will need to go in the note. Q696 Chairman: Would you include that in your note as well. Mr McIntyre: Forgive me. Chairman: The key issue here is not just the funding levels which appear to be going down - which I think you have confirmed indeed are going down, which sends a message to the market - but also the discontinuity in the approach of government towards the support it is providing towards these new technologies. That in itself is a major impediment to investor confidence. I offer that to you on the basis of conversations I have had with people in this industry. It is a serious problem for the Secretary of State and I hope that in your note you will also tackle the problem of discontinuity. Q697 David Howarth: Why is it that bids could not be carried over to the new programmes to overcome this gap? It sounds as though you are ceasing to take applications and then starting the whole new system, requiring people to start from scratch. Would it not be better to have some sort of holdover system? Alan Johnson: It would be, I agree. There is probably a stunningly effective reason why we have done this, but it will have to wait for the note. Q698 Mr Chaytor: Is the real driver behind this Energy Review coming three years after the previous White Paper, the need to replace seven per cent of low carbon energy output? Has the Department conducted a cost-benefit analysis of the alternative ways of achieving that seven per cent replacement? Alan Johnson: No, but I think that is precisely what the review will be about. It will be about that kind of cost-benefit analysis. Q699 Mr Chaytor: Within the review documentation there will be such a cost-benefit analysis, examining all the alternative ways of achieving that seven per cent, of closing that seven per cent gap. Alan Johnson: I cannot guarantee what is going to be in the document we publish but I would find it very strange, given what this review is about, if we did not do that kind of analysis. I think it is very important. Q700 Mr Chaytor: Several times this morning, you have used the words, "if the Government goes down the nuclear route." Does that not imply a level of intervention that is absolutely incompatible with the concept of a liberalised energy market? Should it not be the market that is deciding the route and not the Government? Alan Johnson: Yes, it should, but it goes back to our earlier exchanges. I think the fear of the market would be that in 2003 we left that door ajar and we did not tackle whether we felt as a government there was a benefit in having nuclear new build, whether we were just going to let decommissioning take place over the next 20 years, or the next 30 years if you look at Sizewell B. They felt that was something that still needed to be addressed. In terms of how we tackle this in the review, it is very much the market that needs to respond here. It is very much the market. You could make an argument that, irrespective of what happens in this review, if there is a market there for nuclear then it should be used. But that has not happened so far. Q701 Mr Chaytor: But you have not used the term "if the Government decides to go down the micro-generation route" for example, which implies a hidden bias in your thinking. Alan Johnson: David, for your purpose, I will say, if the Government does decide to go down the micro-generation route then we would obviously look for the market to respond. I am saying nuclear route because micro-generation is not the big controversial issue that nuclear is. Q702 Mr Chaytor: But it could be a contribution to the seven per cent gap, Alan Johnson: Yes. Q703 Mr Chaytor: And it could be cheaper than ---- Alan Johnson: Absolutely. I take that point entirely. Q704 Mr Chaytor: The detail has been very slow on working up its micro-generation strategy. Will this now be part of the review? If it is not, how can you then say that you are trying to create a level playing field? Mr McIntyre: On the timetable, I think I am right in saying that the Energy Act 2004 requires the Government to produce a micro-generation strategy in the first part of 2006, and that is a timetable we would aim to stick to. We have been given a direction, as it were, by Parliament on the timetable for that. Q705 Mr Chaytor: Could I ask one other thing, and it goes back to the concept of security of supply. Much is made of the dangers of our dependency on importing gas from Russia, for example. What is the difference between importing gas from Russia and importing uranium from Kazakhstan in the context of security of supply? Alan Johnson: That is a good question. As security of supply is one of the main factors we will be looking at, that would be something to be addressed. You are rehearing your arguments, David, in advance of what might come out of the review - which is fine. Q706 Mr Chaytor: Secretary of State, we are trying to flush out a little more from you than you are prepared to give us this morning, I think. Alan Johnson: Well, I hope you fail. Q707 Chairman: Thank you for being so frank. We hope that our eventual report stemming from this inquiry will be a useful contribution to your thinking ----- Alan Johnson: Absolutely. Q708 Chairman: -- as you take the review forward. Alan Johnson: That is exactly what I said. Q709 Mr Hurd: I have questions on micro-CHP. The Micropower Council have pointed out that if only a quarter of the central heating boilers due to be replaced over the next 15 years were replaced with micro-CHP, we would have five giga-watts of distributed generating capacity - half the total current generating capacity of the nuclear fleet. They are arguing that this could make a substantial contribution. But the likely payback period for micro-CHP is around 10 years, which is arguably too long in the context of people moving houses so quickly. Do you accept that far shorter payback periods are needed for such technologies? Do they require government subsidies to kick-start that process? Alan Johnson: I think this has specifically been looked at in the Climate Change Programme Review at the moment. Mr McIntyre: Yes, and in the context of the micro-generation strategy too. Q710 Mr Hurd: So wait for the review. Alan Johnson: Yes - not the Energy Review, the Climate Change Programme Review at the end of the year. Q711 Mr Hurd: Fine. Jonathon Porritt on Monday suggested that there might be less money available for micro-generation in the future than there is now and the Renewable Power Association has similar concerns. Is that right? Alan Johnson: There might be less money available in all kinds of areas in terms of whether public finances are healthier or worse off than before, but I have not heard a particular argument as to why we should reduce the amount of money there. It is very important. Micro-generation and combined heat and power as part of that has been a major point that Defra, ODPM and other government departments have been concentrating on in the Climate Change Review Programme. I have picked up no signs that people think it is a waste of money. It is a very important part of our investment programme. Q712 Mrs Villiers: Electricity demand is forecast to increase steadily. Do you think we should be looking towards moving to absolute reductions in energy consumption as a policy goal, as their Lordships recently recommended in their report on energy efficiency? Alan Johnson: I certainly think we could be doing more about absolute energy usage. There is more we could be doing on energy efficiency. There is more we could be doing right across the range here. There is a very important initiative that the International Energy Agency have taken which is fairly low key. It is called "The One Watt Plan". It makes the point about all of these things which are on remote control and which are left switched on - the television, for instance, but there is a whole range of other appliances - and the amount of energy this uses. If you were to reduce that standby power to below one watt - which is perfectly achievable - it would save between five to ten per cent of total energy use, and, across the world, one per cent of CO2 emissions. So there is an awful lot we could be doing here. There are an awful lot of initiatives that could be taken in this area. I do think it is an important aspect. Q713 Mrs Villiers: Could I ask why you are not doing them already? Alan Johnson: You can indeed, and there will be a stunningly cogent argument coming back. It is not just in our departments, it is split between different parts of government - and maybe we look to Defra here. Mr Derwent: Everything we do has to be examined from the perspective of costs and benefits. Just saying that it would be very simple to require all electric appliances with a standby mode to be down at one watt level would produce less than total enthusiasm from those manufactures at the margin of profitability, at the edge of competitiveness with other manufacturers who are trying to reduce their costs to the consumer down to the absolute minimum. We have to talk to them, to try to establish a basis for a voluntary initiative. If there is a need for regulation, we have to go through that on the basis that means everybody understands why we are doing it. These things, unfortunately, are not cost less. It is a question of making sure that, where the Government takes action, it is clear that the benefits justify that. Q714 Mrs Villiers: Have you considered a ban, for example, on standby buttons, so that people have to get up to switch their TVs off? Alan Johnson: No, I think is the answer. Q715 Chairman: There is a cost to having standby on all the time anyway, and the cost of not tackling climate change ought to be factored into your economic analysis of the impact on competitiveness. It just seems to me that there is so much more you could be doing. Alan Johnson: It is probably true there is so much more we could be doing. But Henry raises an important point that certainly is important to us at DTI. Businesses are by and large with us on the need for climate change, they are looking for certainty for tackling climate change, but they are very concerned if we move at a pace and a rate that means they become uncompetitive. So there is a need really, for instance, with the one watt idea, that it is adopted throughout Europe and that it is not too burdensome. Thinking just off the top of my head, forcing people to stand up, walk over and turn their television off might seem a bit too draconian. Chairman: The Department of Health would be keen on that I should think! There is an opportunity for joined-up government. Q716 Mr Hurd: It has been put to us in various statements that the Government could do more to promote the idea of smart metering, with the possibility of variable tariffs, which would make consumers more focused on reducing unnecessary consumption. Could you confirm that the Energy Review will have something to say on that and will look at this issue? Alan Johnson: The Energy Review will certainly be looking at smart metering. Q717 David Howarth: Could I come back on the cost-benefit analysis that was being discussed by the representative from Defra, just to confirm that climate change costs are included in any cost-benefit analysis that is done on imposed regulation. Is that right and, if so, how much? Mr Derwent: Yes. It is not a straightforward issue but for a wide variety of government decisions in this area we make use of something called "Social Cost of Carbon" which is an attempt to examine what actually is the benefit to climate change policy and to the earth's atmosphere of an incremental decision, small as it may be, in terms of the overall global impact. If we say that we want to do something for a climate change purpose, and we get into, as I have said we must, issues of cost and benefit, we need to have some numbers to help us address that - though often the numbers will peter out just at the point where we want to take the decision and we have to bring in policy issues as well. Q718 David Howarth: If the numbers peter out, does that mean that it is not in the cost-benefit analysis and you look at climate change separately? Or it is in the numbers as much as you can get it in? Mr Derwent: For example, whenever we have to do a regulatory impact analysis, something which is intended to have possibly an impact on climate change we would be bound to bring into the overall analysis. Q719 David Howarth: But external to the model rather than within the model is what you are saying. Is it a constraint that is considered separately or is it something that is inside the cost-benefit analysis itself? Mr Derwent: No, I think it is very much an important feature of the benefit side of any equation. Chairman: I see from the screen that you have to go and answer an urgent question on gas supply. Whoever put that down should have come to our meeting. They would have heard you answer here first. Thank you very much indeed, Secretary of State, and also to your officials for your time and help with our inquiry. |