Energy Bill

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Q 4Martin Horwood: Do you think that the Bill ought to address that?
Philip Pearson: We think that the Bill ought to address the carbon pricing issue much more comprehensively.
Q 5Dr. Stephen Ladyman (South Thanet) (Lab): The Bill is intended in many ways to implement what is in the energy White Paper so can I first ask both organisations to comment on how you see the energy White Paper. Are you broadly supportive? Do you think that it has deficiencies?
Paul Noon: Yes, we are broadly supportive. The TUC certainly supports the objective set out in the Bill of sustainable and secure policies; it reflects the evidence that we have been submitting for a time. One of our concerns, however, is whether the market mechanisms that it would put in place would deliver the required mix of low-carbon energy production and how it will operate.
Stephen Radley: What we were looking for from the Bill was for the Government to put something in place that would encourage and facilitate the growth of secure, reliable, competitive low-carbon forms of energy. Largely, it does that. It does some sensible things in terms of the consenting regime for offshore gas, and for storage in liquefied natural gas facilities. There is now a sensible legislative framework for carbon capture and storage and for nuclear power. There are some areas, which we can probably explore in our evidence, where the Bill could go further, particularly in encouraging the development of carbon capture and storage and some of the emerging forms of technology in the renewable energy area. Overall, we broadly support the Bill.
Q 6Dr. Ladyman: One of the biggest areas of controversy is going to be the mix of power sources that are proposed and, in particular, the inclusion of nuclear power in that mix. How does each of the organisations feel about that? Does nuclear need to be in there?
Paul Noon: At its annual congress, the TUC has carried motions in favour of a balanced energy policy, including a nuclear component. I cannot guarantee that every single affiliate or member of the TUC congress is absolutely sold on that idea: unions have their own views. However, the balance at the TUC has been in favour of all low CO2 generation capacity, including replacement nuclear. That is the policy. We do not, however, see the question of competition between nuclear and renewables in the same way as there might have been adverse competition between nuclear and coal in the 1970s. We have certainly not wanted to replicate that, and so we are in favour of new nuclear build, but also in favour of a big emphasis on renewables. We need as many low CO2 energy sources as we can get, coupled with energy efficiency as well.
Stephen Radley: We would agree with a lot of that. We see nuclear power as playing a very important part in a very balanced energy mix. It would be unwise to rely on renewable power and clean coal alone to deliver reductions in the carbon intensity of our energy. Similarly, we have great hopes for carbon capture and storage, but that is unproven and is some time away. We are looking for the Government not to prescribe in any way what share nuclear should have; nor do we see nuclear as being in competition with renewable power. The Government’s role in this is to set the framework, provide leadership and send some price signals out to potential investors. Beyond that, it is up to nuclear power to prove it is competitive with other forms of energy.
Q 7Dr. Ladyman: Is that conclusion based on the fact that you perceive it to be sensible to have a mix of power sources for energy security purposes, or have you come to the conclusion that nuclear needs to be part of the mix because you have predicted how much energy we need and you cannot see how we can deliver those needs without nuclear power? Which of those is it?
Roger Salomone: I think that it is a combination of several factors: one is helping us to meet our emissions targets, which are quite ambitious and quite close. It would contribute to the security of supply. It would also contribute to the affordability of supply in a world where fossil fuel prices are rising.
Q 8Dr. Ladyman: And in estimating how much energy we are going to need in the future, do you think the White Paper has got it right? What is your view of how the economy is going to grow over the next 20 to 50 years, and how will energy supply change with it?
Stephen Radley: In terms of economic growth, I think that we in this country face greater challenges than many of our partners in the European Union. Our economy has tended to grow faster than theirs, and all the reliable projections suggest that we are going to have faster population growth. The sensible starting point is that economic growth will continue at about the same rate that it has done over the last 20 or 30 years, with some allowance for population growth. Although it is a big stretch, we need to factor in assumptions that we will see a significant improvement in energy efficiency, both in business and in the home. Those are the factors that are driving the projections of our energy needs, which are set out in the energy Bill and which we would largely concur with.
Paul Noon: From our point of view, looking at the energy requirements of the future, we have been very conscious of the capacity that will be lost through the closure of the old Magnox stations—the closure of all but one of the existing nuclear power stations, plus the coal-fired stations, which will also be closed. I am concerned that the new generating capacity, which has been put in place to meet this, should be both environmentally-friendly and secure. That is one of the reasons that brings us to the conclusion that nuclear should be a component, but we also strongly support coal and CCS.
Q 9Dr. Ladyman: One final question, if I may. Clearly, the Bill has to be even-handed. We believe in fair trade and there can be nothing in the Bill that particularly benefits British industry, but is there anything in it that you might think could be a barrier to British industry providing our energy supplies, as opposed to overseas suppliers?
Philip Pearson: This is almost the $64,000 question: what are the advantages to UK industry of the energy strategy? I did notice that the Secretary of State referred to the green industrial opportunities in his speech on Second Reading, to which the TUC would say, “Absolutely.” But the question obviously is what procurement mechanisms could secure a stronger green future for UK manufacturing? I think that the Committee would need to address that; I do not think that there are any simple answers. The Government had a sustainable procurement task force looking into this very question and it has been urging Government Departments to undertake a kind of UK-favoured procurement strategy, consistent with the EU rules. The TUC has argued elsewhere that we think that this is possible and should certainly find expression through the energy strategy.
It is a huge challenge, and we think that, in the next 10 to 15 years, some of the key issues are the growth of renewables; carbon capture and storage, which is crucially important; and getting the mix right between coal and gas. We think that the mix is wrong at the moment: there is far too much emphasis on the emergence of gas-fired power. We have coal resources and, subject to clean coal technology, that is a direction that we should be going in. All of these options should bring major industrial opportunities, but it needs a lot more thought to secure those advantages.
Roger Salomone: From our perspective, new nuclear-fired capacity and new renewable-fired capacity provide major business opportunities, and a number of reports stress that they do. It really comes down to this: does the Bill provide an attractive environment compared to other jurisdictions for investment in those areas? Is the renewables obligation an attractive regime and is the framework that we put in place for nuclear an attractive regime? It is mainly tied up with that.
Q 10John Robertson (Glasgow, North-West) (Lab): Mr. Radley, in your answer to my colleague’s first question, you said there were some sensible things in the White Paper, which—being an old cynic—would suggest to me that some things in that document were not so sensible. Perhaps you and your colleagues could tell us what they are.
Stephen Radley: I do not think that it was so much the case that there were things in the white paper that were not sensible. It is more the case that some things in there need looking at. In particular, if we look at our renewable energy, we need to look at whether—especially for some forms of it—other mechanisms might be more appropriate. We might look at the greater certainty and simplicity provided by feed-in tariffs. We are particularly thinking about this in terms of some of the more emerging forms of renewable energy, such as marine renewables, where we have made very little progress at the moment and there have been very few applications to take things forward.
What we are conscious of is that we need to look very carefully at this, and what we do not want to do is switch from an existing mechanism to another one and actually end up with greater costs, because we have not looked at the numbers properly. What we also do not want to do is introduce uncertainty for investors by actually signalling that the regime may change at a time when they are coming forward to make investments. It is perhaps a little disappointing that the Bill has not looked at creating enabling powers for alternative mechanisms for encouraging the development of new forms of renewable power.
Q 11John Robertson: So I take it that your suggestion is that the Government have invested money in one of two types of renewables, when they should have been more diverse in how they were looking at renewables?
Stephen Radley: It might have been sensible to look at onshore wind to start with, because that was clearly the one that was closest to the market. We have now got to the stage, particularly now that we have these extremely stretching targets for renewable energy from the European Union, where we need to look more actively at some of the other forms of renewables; now is the time to start doing that.
Roger Salomone: To add to that, I think that going from the existing renewables regime to the banding is definitely a step in the right direction—looking at technologies more specifically in terms of what their individual needs and deployment characteristics are. Steve mentioned something about marine renewables. We think that, in that case, it might be worth looking at alternatives to the renewables obligation, because one drawback of the RO is that it is a little uncertain; it is not that easy to predict the value of ROCs, or renewables obligation certificates, going forward. In the specific case of marine renewables, where the costs are very unpredictable, if the potential value of investments is also very unpredictable, it might be worth looking at alternatives.
Philip Pearson: To come back on that, we would support that line of argument; the banding of ROCs is obviously an important next step, as was flagged up in the White Paper. We think that that leaves a gap in the promotion of small-scale renewables. We are aware of the arguments against that position—the Energy Minister has indicated concern over interference in the energy market—but the present system is not delivering the pace and scale of renewable growth that this country needs. That was clearly set out in yesterday’s front-page story in the Financial Times.
There is a piece missing in the jigsaw, and that is to assign a portion of electricity to securing a feed-in tariff in the way that has happened in Germany and Denmark— particularly in Germany, where it has been enormously successful with approaching 200,000 jobs in renewables, driven by a support mechanism that we do not have. That could fit in, to drive that part of the renewables market, and it could be made available in the Bill as an enabling power—perhaps time-limited, but available subject to consultation—rather than having to return to Parliament and go through the whole process of a new Bill and so forth. Time is too short. Every year that goes by these targets escape us and the CO2 emissions keep increasing. We think that there is a serious opportunity regarding the feed-in tariff as one of the issues that is perhaps missing from the Bill. We do have one or two other ideas, but that one is particularly important.
Q 12Martin Horwood: The witnesses have almost answered my questions. To be absolutely clear, are both of you saying that we should amend the Bill to provide enabling powers to introduce feed-in tariffs and that that should specifically address marine renewables and microgeneration in the first instance but allow the option for a feed-in tariff scheme to gradually replace the renewables obligation?
Philip Pearson: My thought would simply be that I do not know whether you would specify marine renewables. I think that making the mechanism available is the key issue.
Q 13Martin Horwood: But your intention would be that, in particular, microgeneration and marine renewables are appropriate early candidates for feed-in tariffs.
Philip Pearson: Absolutely, yes.
Roger Salomone: That would strengthen the Bill, but it would obviously not specify what they were. We probably think that, when you reviewed it, those two might emerge as likely candidates for a different type of support.
Q 14Martin Horwood: And do you think that that could operate in specific sectors, such as marine renewables and microgeneration, alongside the renewables obligation working in other sectors of the energy market? Do you think that that is feasible?
Roger Salomone: I think that it is feasible, because we had a situation before—did we not?—with the non-fossil fuel obligation working alongside the RO. They dovetailed at the beginning. In some ways, I do not think that it is ideal; you would like to have one mechanism for everything, but it might not be working for certain sectors. Those technologies are not really part of the RO; there is no commercial wind or tidal farm in the RO, for example. You might want to revisit the obligation levels of the RO. That might be part of the review as well.
Q 15Paddy Tipping (Sherwood) (Lab): I wanted to talk about carbon capture and storage and clean coal technology. Before that, can we return to carbon pricing for a moment and talk to colleagues from the TUC about this? It is clear—is it not?—that for new investment in generation, there has to be a high and stable price of carbon in the future? Mr. Pearson, I think, told us that that could be done through the EU emissions trading scheme, the third phase of which will begin in 2012. If we want to make progress on nuclear, however, we have to make some decisions about carbon pricing before that. The nuclear White Paper talks about the European scheme, but it also speculates about the notion of a UK-only scheme before then. How do you think that that would work?
Philip Pearson: A UK-only scheme is not something that we have done any work on. We have moved from a UK-only scheme to a European scheme and have done no thinking at all about reverting to a UK-based scheme. My instinct would be that we are within a European framework and that is where policy needs to be made, especially given that, for phase 3, the European Commission is more likely to allocate by industrial sector than by national targets.
Paul Noon: As Philip says, all our thinking has been done on the basis of bringing forward and strengthening the mechanism at European level and, indeed, about the strong case for doing it internationally, rather than domestically.
Stephen Radley: For us, the focus has to be on what we can achieve from phase 3 and beyond. Nuclear power plants have a very long lifetime, and that is what investors will look at, as well as the likely price of carbon over the next 20, 30, 40 years and beyond. The primary focus must be on getting ETS right, making it more transparent, getting everybody harmonised and working under the same laws, and ultimately developing something that the rest of the world can buy into. We see that very much as the primary focus and anything UK-specific as a fall-back if we fail to achieve the progress we hope to.
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Prepared 6 February 2008