Examination of Witnesses (Questions 520-539)
MALCOLM WICKS
AND MR
PAUL MCINTYRE
10 OCTOBER 2006
Q520 Chairman: Minister, if you were
a private investor, would you make an investment in a nuclear
power station not knowing how much the Government would charge
for decommissioning and disposal of the waste?
Malcolm Wicks: No, but the investment
decisions may or may not relate to the timetable for the White
Paper. We just have to get this right. We have to do proper work.
We shall be able to give some pretty clear indications by the
time of the White Paper of the direction in which we are moving,
even if we cannot put all the arithmetic.
Q521 Chairman: I am not trying to
score cheap points. These are very important issues for the private
investor.
Malcolm Wicks: I know that there
is immense interest, indeed suspicion, that somehow Government
are really planning to subsidise a new generation of nuclear reactors.
I want to make it absolutely categorically clear that is not our
intention. I have said that there will be no Treasury cheques,
there will be no hidden incentives and there will be no fiscal
regimes special to the nuclear industry, there really will not.
I am absolutely determined, in terms of these issues about eventual
decommissioning and waste, that will not imply hidden subsidies
either. Getting to the arithmetic for that principle statement
is a complex task and that is not an excuse, it is a complex task.
I am absolutely clear that we are not in the business of subsidising
nuclear fullstop.
Chairman: We shall move on, otherwise
we shall be repeating ourselves. We shall turn to some of the
licensing and planning issues now, not just nuclear but also the
other energy technologies as well.
Q522 Rob Marris: Starting on nuclear,
Mike Weir was asking you about political consensus and we have
run that round the block. If we are going to have this love-in,
all lovey-dovey consensus on new nuclear build in England and
Wales perhaps, why, in terms of nuclear, would we need this pre-licensing
and planning reform proposal if we are all going to have our wonderful
consensus about new nuclear power stations?
Malcolm Wicks: We have a problem
in our countries that large projects—sometimes not so large
projects—are just taking too long to deliver, in the case
of power stations years and years and years with the whole circus
of legal costs and the whole theatre around them. There is a determination,
not just across Government but I think many people share this
outside Government, that we should have a more sensible and a
speedier process and that would go for onshore wind, offshore
wind, it would go for nuclear, it would go for a whole range of
infrastructure that we need. By the way, you could have this discussion
about transport and many other things; we happen to be having
it about the important area of energy. What we need to do, given
that Britain, one way or another, needs a huge amount of investment
in our energy structure over the next 10 or 20 years, one way
or another we need a more sensible planning process. I emphasise
that this is not to deny local people and local interest groups—environmental
and others—a proper say about the siting of particular pieces
of kit. That has to be maintained. The idea of pre-licensing is
that you can say here is a wind farm, here is a nuclear reactor
or a gas-powered station let us pre-license it so that the regulators
are satisfied that it is safe and all the other things as a piece
of kit. Then the local inquiry can purely be about local issues
rather than becoming a national or international occasion to re-open
the whole debate about whether windmills or nuclear are desirable.
That is what we are trying to do.
Q523 Rob Marris: What has the reaction
been to that under The Energy Challenge, when you were
talking about streamlining the planning process for energy projects,
because that is what the DTI is about?
Malcolm Wicks: The reaction from
many people in industry, business, trade unions, who know that
we need this infrastructure, is a recognition that at the moment
planning and the time for planning in Britain is a bit of a joke
and we do need to speed it up. I am also sensitive to the fact
that some environmental groups think this is just a cover for
doing nuclear very quickly and it really is not about that. I
repeat that at a local level we need to have the proper procedure
for local people to represent local views.
Q524 Rob Marris: Do you think pre-licensing
just on the nuclear would actually assist in speeding things up,
given, as I understand it, that the design for Sizewell B was
pre-licensed?
Malcolm Wicks: Yes, I do think
pre-licensing for nuclear, maybe for carbon capture and storage
projects, a range of things you could think of, would speed things
up.
Q525 Rob Marris: Would you be quite
happy with a nuclear power station in Croydon?
Malcolm Wicks: Yes ... if there
were a site.
Q526 Mr Weir: I am curious about
what you were saying about pre-licensing and pre-licensing the
station itself. That often still leaves the question with power
and it is the same with wind farms or anything else; it is not
just the station but the power lines towards it, the siting of
the pylons, all these issues which bog down public inquiries in
many ways. Are you looking at doing anything about these? Are
you talking purely about the type of station itself?
Malcolm Wicks: No, we are looking
more widely at that.
Mr McIntyre: We would be looking
at the associated works involved for the transmission network
as well.
Q527 Chairman: We will turn now to
fossil fuels and gas which have been in the news quite a lot recently.
Can I give you an opportunity first of all perhaps to update us
on how you think this winter is going to be?
Malcolm Wicks: This winter is
going to be the last of two or three winters which we are experiencing
where the balance between demand and supply for gas is going to
be quite tight. That is what the arithmetic suggests, it is an
imperfect arithmetic because much depends on the weather; long
may this mild waether continue. I do not know what it looks like
now, but long may yesterday continue. It is going to be tight
and the reason for that is that while on the one hand the good
news is—and we have seen a lot about this in the last week—
the Langeled pipeline for the Norwegian gas fields is now open
and I had better not say that recently we have been awash with
gas because I get into trouble for that sort of language—
Q528 Chairman: Well they seem to
be giving away gas.
Malcolm Wicks: Perhaps in the
last week. There are several other developments, including the
interconnector, which I know is controversial but it has increased
its scale; a number of developments which are good news. There
is Centrica's Rough storage facility which had an accident last
winter at a critical time and which is now more or less full up.
That is all the good news. Against that of course we are seeing
the continued decline of gas from the North Sea and the wider
UK continental shelf, which is more or less making up for the
new supplies. Although I detect rather more confidence and optimism
in the air, we as Government need to keep a very tight grip on
this. We are in regular contact with all the key agencies, all
the key industries in the North Sea, the supply companies, to
make sure we are in the best possible place to get through this
winter. It would be foolish for a mere Minister for Energy to
predict what will happen to price.
Q529 Chairman: The extraordinary
events of the last couple of weeks happened at a time when there
is no high demand level for gas in the UK. You do not read anything
into those negative gas prices in the wholesale market for this
winter.
Malcolm Wicks: No. Although we
have known about Langeled coming on stream at about this time
for a very long time the market has reacted in such a way that
has been atypical and it has been a blip. Occasionally the energy
market operates in a territory between economics and the psychiatrist's
couch and we have been through that era.
Q530 Chairman: You will understand
that the Committee are obviously concerned about domestic fuel
prices. We have written to all the major gas suppliers asking
them to explain their pricing strategy and how they are responding
to changing market prices. Is there anything you would like to
say about domestic gas prices which must be of some considerable
concern?
Malcolm Wicks: They are of serious
concern. Within the whole energy debate about big issues of climate
change we have to make sure our most vulnerable people are warm
enough in the winter, to put it in very simple terms. Obviously
rising prices make it more difficult for us to eradicate fuel
poverty and that cruel correlation between people being old and
being cold. We are very concerned about this. I had noted that
our regulator—and that is what he is there for—has
spoken in tough language about his need and his ability to keep
a close look on what is happening to prices. Alistair Buchanan
has said some very strong words. We fully back the regulator in
that. We have a regulator and I expect with confidence that the
regulator will do his duty.
Q531 Mr Hoyle: Obviously the public
are very interested about whether they are going to be warm this
winter. Whatever happens the question is whether they can afford
to put the heating on. We talk about older people, but there are
people with disabilities and there are also families and those
are the people it is going to hit the hardest. There is great
concern that people are desperate about how they will pay the
energy bills over the winter period; that is if the lights do
not go out and the gas fires go out. If, everything being equal,
the gas continues to flow thoroughly, which we expect, and I recognise
what you are telling us, we should not have a shortage, we should
be fine, but how will people pay the bills? What we have seen
is the price going up and up—yet there is a rumour that
gas prices may come down—people have been so frightened
about the price of gas that they have entered into two-, three-,
four-year agreements that they cannot get out of and yet may not
be able to afford to put the heating on. What is your worry?
Malcolm Wicks: I am worried about
those very same issues. I recognise that it is not just the elderly,
but the elderly in particular always pay their bills and that
fear that they may turn the fires off is a very real one that
we need to overcome. That is why I have said what I have said
about the regulator needing to keep a very close eye on this.
Alistair Buchanan, the chief executive of Ofgem, has spoken very
strongly about this. I have said that we expect the regulator
to do his duty at the appropriate time on this. Meanwhile it is
so important that we make sure that the help is available in England
through Warm Front and the equivalents in Scotland and Wales to
make these homes more energy efficient, which is why we are looking
at the Energy Efficiency Commitment. In the last Pre-Budget Report
£300 million extra was found by the Chancellor for these
kinds of anti fuel poverty programmes. All that is important.
We have £300 for the over-80s' winter fuel payments, £200
for the over-60s. What we are going to be doing with the Department
for Work and Pensions, with whom we do work very closely on this—we
have been discussing this recently—is to try to target some
of the most vulnerable households and really bring to their attention
and enable them to have some of the energy efficiency programmes
which are in being. One of the sad things when you look at housing
data—certainly when I last looked at it—is that very
often the most vulnerable people, not just the old but the old
elderly—inelegant phrase—those over 80, are likely
often to be in the most energy inefficient dwellings, particularly
when they are owner-occupiers or private tenants. We need to target
that group with the help that is available.
Q532 Mr Hoyle: Who do you think has
let the consumer down? Do you think it is the suppliers or do
you think it is lack of government intervention? At what point
do you think the Government will intervene? We both know that
the lack of storage facilities helped increase the gas prices
last time they hit the spike with no spare capacity in storage
and we are still below our European competitors. They have many
more storage facilities. If the companies are not going to do
it, will the Government intervene and build them for them and
then charge them?
Malcolm Wicks: In terms of who
has let the customer down, I explained earlier the circumstances,
the circumstances being that we have a rundown of supplies from
the North Sea, the wider UK Continental Shelf; I am advised the
rundown of gas happened at a faster rate than many of the experts
were predicting several years ago. There is a sense in which the
huge amount of infrastructure which is now coming forward: the
Langeled pipeline in the first quarter of 2008; the LNG, [liquefied
natural gas] coming in from Qatar, which in time will be 20% of
our gas requirement, all that infrastructure is coming into play.
All I would say as Energy Minister for 15 months or whatever it
has been is that I had rather hoped the market would have responded
a year or two earlier than it did. I do not blame anyone; there
is a huge global demand and no-one could have predicted prices.
That is the situation. In terms of the vulnerable customer, to
use that awful phrase, we are where we are and we have to make
sure we target the most vulnerable more effectively with the resources
we have at present, which are quite considerable in terms of home
energy efficiency.
Q533 Mr Hoyle: I totally agree. On
LNG I agree with you that we have the ability now to bring in
LNG, but we had a ship which was on its way to the UK to deliver
some LNG, the Americans put in another bid, the ship was turned
round and it did not arrive in the UK. What guarantees can we
have in the future that the price will not change on its way here
and be redirected?
Malcolm Wicks: Last year essentially
the Isle of Grain terminal performed well for the great bulk of
the time the LNG was coming in from BP and Sonatrach from Algeria.
The Qataris and big companies have invested a huge amount of money
in Milford Haven in an LNG terminal and I do not think you make
that kind of investment if you are not confident the gas is going
to arrive.
Q534 Mr Wright: In terms of the market
forces, Ofgem would argue that it is not a dysfunctional market,
but what we saw last year was obviously very, very close to an
involuntary gas defect in terms of supply to industry at the end
of last year. When you came to give us evidence last time you
predicted that there would not be the associated problems which
were in the press. What we have to look at is what happened in
the last week or two when gas was just flooding the market in
terms of the price; it absolutely collapsed. Surely that pinpoints
the fact that the market forces cannot predict the right amount
of gas at the right time. Surely that indicates that we are at
the mercy of the industry itself. Quite clearly there has been
a massive amount of investment in new lines; you mentioned Langeled,
there is LNG, there is the BBL pipeline, all of these pipelines,
with the price of the commodity not at a high level. Surely that
is going to create a problem for them, therefore market forces
cannot determine getting the gas at the right time.
Malcolm Wicks: It is back to our
earlier conversation and I shall come to your question in a moment.
Let us be absolutely clear that there is no threat in terms of
energy supplies to the British household; I just want to make
that clear and no-one was implying that. Last year some silly
things were said about that. The British domestic customer will
get gas.
Q535 Mr Hoyle: Only if they can afford
to put it on.
Malcolm Wicks: Yes; sure. I just
want to clarify that for those present. One of our numerous consultations
is about the adequacy of supply and within that the issue of storage.
We shall be consulting on that. I personally think that we need
more storage capacity for gas; that is my view. There are in fact
ten projects, I had better not say coming on stream because planning
permissions may interfere with some of them, but the industry
is investing a lot more in storage. Do we need more storage than
we have had in recent years? Yes, we do and we need to talk to
the industry about that. In very simple terms, what has happened
is that there was a time when we could rely on the North Sea as
a natural store: we now have to be slightly smarter than that
because we cannot rely on that historically going forward. We
need more storage capacity and there are other supply issues we
shall be consulting on.
Q536 Mr Wright: Is it not a fact
that the high price we are now paying for the energy costs, at
a time when there is a glut of gas on the market is because the
system is actually not functioning as it should be, therefore
the consumers are paying a high price for what is really a dysfunctional
market?
Malcolm Wicks: Let us remember
that for ten years, that kind of period, the liberalised market
delivered lower prices than in most of Europe both to industry
and the domestic customer. It is only in the last year or so that
we have run into some difficulties. It is still the case—though
I shall check this and clarify it—that our domestic householders
are paying lower costs than the average in Europe. I think that
is the position. Let us put that in context. What is dysfunctional
is the European energy market. There is no doubt about that. It
is the policy of the European Union to have a liberalised market,
in other words proper competition, no monopoly or duopoly situations,
proper competition. We have it in Britain and in many other parts
of continental Europe we do not have it. That is an ongoing thing
that the UK Government is pressing the European Commission on
and our partners in Europe. We have two European Commissioners
who have made strong statements about this; not just statements,
they have had dawn raids against some of the companies, seizing
documents. There is real determination at Commission level to
liberalise the market. That is important because we all know what
happened last year with the poor old Interconnector. The Interconnector
was a perfectly decent project, a feat of engineering, but when
our prices were sky high on the spot market the gas was just not
flowing in through the Interconnector in sufficient quantities.
That was a delinquent market, it was not behaving properly because
of restrictive practices and we are pressing very hard on those
issues.
Q537 Mr Bone: We are going back to
what the Minister was very kindly talking about when he last came
to see us.
Malcolm Wicks: Yes.
Q538 Mr Bone: It was perhaps a little
unfair earlier on when a Member asked whether the problems were
the Government's fault or the industry's fault. I think part of
the problem lies with the EU. You were going to go into battle
on behalf of the country and the Energy Council. How would you
say we are doing out of ten with our challenge to Europe to do
what it is supposed to do? Are we five out of ten, eight out of
ten or one out of ten?
Malcolm Wicks: I am being serious
now and for our commitment on this I would give us modestly ten
out of ten because that is the highest mark I can award on your
points system. Seriously, when we had the Presidency of the European
Union we pressed this, it was top of the agenda in all sorts of
ways.
Q539 Mr Bone: And absolutely nothing
has happened.
Malcolm Wicks: I think we are
seeing results. You have the two Commissioners now who produce
strong reports. I know that you are a fervent European and something
has happened. We have had the dawn raids, they have seized documents.
That is pretty tough from the European Commission. They have seized
documents and they are determined to do this. I am trying to be
honest about all this now.
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