Select Committee on Business and Enterprise Minutes of Evidence


Examination of Witnesses (Quesitons 80-99)

RT HON JOHN HUTTON MP

20 NOVEMBER 2007

  Q80  Roger Berry: Part of the problem, as the report points out, is that the main policy levers currently used include benefits and tax credits, winter fuel payments and so on but these are primarily the responsibility of other government departments. You have said that yours is the department that speaks up for business, and a good thing too, but it looks as though a lot of vulnerable households will remain in fuel poverty and that the target will not be met unless you say to your colleagues, not least to the Department for Work and Pensions, which you know very well, that this is an issue to which they ought to give greater attention. Can we assume that you are doing that?

  Mr Hutton: We are looking to make further progress. We know there is a difficulty because of the very substantial increase in energy prices which will require a proportionate government response that certainly involves a number of different departments including DWP, Defra, my own department, HMRC and others. We are trying to do a solid, focused piece of work on how we can progress this issue but it is difficult. What I do not want to do is make interventions that will be ineffective and have perverse or negative ripple effects.

  Q81  Roger Berry: Could you remind me again when this piece of work will be in the public domain?

  Mr Hutton: I believe it is the end of this month, so we shall soon publish some figures with more detail coming out of the spending review and what actions are to be taken and so on.

  Chairman: I should like to move to public service agreement target 4.2 which is the shortest and possibly the most succinct in the whole document: maintain the reliability of energy supplies.

  Q82  Mr Wright: In the recent publication by your department Energy Markets Outlook it states that "there are significant opportunities for the construction of new generation capacity." What it really means is that we have a bit of a problem in that 20 gigawatts of electricity will disappear over the next 10 years and currently there are only 14 gigawatts of replacement in the pipeline. How do you intend to bridge that gap?

  Mr Hutton: We have come to a moment where we shall see a lot of our existing power generation plant and capacity retired because of its age. The 20 gigawatt capacity figure that you mention is due to close by 2020 and the 14 gigawatts cover only conventional plant, coal and gas; it does not take into account renewables; nor does it take into account plant that is already well advanced in the planning and development process. Some of that is already under construction. If you look at the National Grid seven-year statement which is updated annually—I believe that is the key issue here—it shows plans for some 38 gigawatts of new generating capacity: nearly 18 gigawatts of gas, 9 gigawatts of coal and 9 gigawatts for renewables. There will be up to 2.5 extra gigawatts through new interconnectors with Northern Ireland and the Republic of Ireland. That is a total of over 30 gigawatts that the National Grid says will be available in the relevant timescale. We should not be complacent but confident that there is enough planning and preparation in the system for the phasing-out of existing plant.

  Q83  Mr Wright: What you are saying is that we do not need to build any more power stations beyond the ones already in the planning process?

  Mr Hutton: I think we need constantly to keep a close eye on how much plant is in the process of development. Depending on the decision that we make on nuclear, those figures also do not take into account any potential generation that may come from new nuclear plant. The argument that we do not need new plant is not right. Remember that the 38 gigawatt capacity that I have been talking about is the sum total of the new capacity that is planned. There is a significant amount of new power generation capacity being developed. We always need to provide a margin in relation to electricity in particular, so I think we have basically the right approach and plans here.

  Q84  Mr Wright: But is it not the case that in the medium term perhaps we shall probably look more towards gas-fired power stations rather than nuclear because of the long lead-in times? Will there not be too much reliance on that? I understand that we now have the Langeled pipeline in order to gas from Norway and there is LNG coming from Qatar. Will there not be too much reliance on gas in the medium term rather than looking at other options for the future?

  Mr Hutton: Approximately half of the 38 gigawatts of new capacity is represented by gas. There is also a significant chunk of coal and renewable in the mix as well. I think that is a broadly balanced portfolio going forward. The lead-in times for building, constructing and operating this type of equipment is very different: it is five years for a combined cycle gas turbine power station, seven for a coal-fired station, including planning consents, and, given the precedents, significantly longer for nuclear. Without getting into the issue of planning reform, which I believe is a very important pillar of any type of sensible energy policy going forward, we certainly need to speed up the decision-making process if we are to ensure we have the right sort of energy on stream at the right time. We believe we have the right mix in the system and it is capable of being flexed and changed if that is necessary.

  Q85  Mr Wright: You mentioned the long lead-in time in terms of planning. One of the decisions that must be made to which you alluded is that relating to nuclear. When do you expect to make the final decision on this?

  Mr Hutton: As the Prime Minister said yesterday, we expect to make the final decision very early in the new year, so we shall have that decision in the next few weeks.

  Q86  Mr Wright: Once the decision is taken what would be the next steps? Will it be out to tender? We have already heard from previous ministers that there will be no subsidy for nuclear build, and we have also heard from the industry that it will be very difficult to make it competitive without subsidy.

  Mr Hutton: We have made clear our position that there should not be any subsidy and it is on that basis that we have conducted the consultation and on that basis that we make final decisions. If we confirm the decision there will need to be legislation properly to enshrine the agreements and mechanism that need to be in place to ensure there is no taxpayer subsidy for waste and decommissioning. There will be an energy bill in the session and that will be the appropriate place in which to take forward that type of provision. We have alluded in public to the pre-licensing of potential new reactor designs. We need to do some work around strategic site assessment. Subject to progress of the planning bill, there will be a need to prepare a national policy statement in relation to energy, specifically nuclear energy. A significant amount of work needs to be done and if the decision is confirmed we must be in a position to get on with it as quickly as possible. We are prepared for that scenario.

  Q87  Mr Hoyle: How many gigawatts of power from nuclear plants do you expect to come on stream if the go-ahead is given? What is the presumption about how much power will come from nuclear plants?

  Mr Hutton: Obviously, the answer to that question must be put in context: first, confirmation of the decision to go ahead with the nuclear option. We have not yet made that decision. Second, any assumption about quantum will be driven by a range of factors: ETS, carbon pricing and other investment decisions that energy companies can and will make here and in other parts of the world. There are issues of capacity. How quickly can we have the first nuclear plant on line if we confirm the decision?

  Q88  Mr Hoyle: Therefore, there is no estimate of how many gigawatts will come from nuclear plants?

  Mr Hutton: I do not want to give a figure.

  Q89  Mr Hoyle: The key is that, quite rightly, we are losing 20 gigawatts and proposing 30 gigawatts. On top of that nuclear could bring in another 20 gigawatts. Where will all this energy go?

  Mr Hutton: The likely substantial contribution by new nuclear will be outside the 2020 planning framework to which I have just referred. Depending on whom you talk to, some people are confident that if we confirm the decision there could be new nuclear plant in the UK operating ahead of 2020; some think that the principal contribution will probably come beyond 2020. Some people have used that in itself as an argument for saying that nuclear is irrelevant. That rather assumes that we solve all of the climate change challenges that we face by 2020. I do not think that is likely; the challenge will be an ongoing one. Remember we have targets looking ahead to 2050 for CO2 reductions. We should be thinking long term, not short term. I do not think it would be sensible to try to get out a slide rule and work out exactly how much capacity of this sort and that sort is going forward. Those are discussions that we must have, but it is always worth reminding ourselves that nuclear is a low-carbon source.

  Q90  Chairman: I should like to raise just one matter before Mr Wright pursues that issue. You mentioned briefly the price of carbon. The energy interests that are considering building nuclear power stations are still very concerned about the inadequacy of the EU emission trading scheme and they are making a series of practical suggestions to you for ways in which you could implement the pledge made by your predecessor that you would look at ways of strengthening it if there was not a sufficiently stable mechanism to predict the price of carbon as a result of the EU negotiations. Does Defra understand the importance of this issue in terms of delivering what we all want not just in relation to nuclear power stations but also more expensive renewable energy solutions?

  Mr Hutton: I am sure they do, and that has been made very clear to me when I have discussed these matters with the secretary of state. It is a pivotal issue for our climate change and energy objectives. We have recognised and made clear in the European Council the primacy of the emissions trading scheme because we believe it is an effective way of delivering the most cost-effective solutions.

  Q91  Chairman: But industry is losing confidence in the ability of government to deliver. It could be the killer blow to new nuclear build and also the more expensive tidal barrage in the Severn.

  Mr Hutton: We have to make sure that the emission trading scheme works in order to deliver the right policy outcomes for us and the European Union. I strongly contest that industry does not believe the emissions trading scheme can be made an effective instrument.

  Q92  Chairman: It can be; the question is whether it will be in the time necessary to get these crucial decisions made.

  Mr Hutton: I agree that is the issue. What it usually comes down to is a specific request for us to put a floor on the price of carbon in the UK. We are looking at this. We must have an effective emissions trading scheme; it is fundamental to ensuring that we make the right calls and produce the right regulatory environment. I am much more sympathetic towards regulation that is based effectively on how markets work than a load of statutes, law reports and all the rest of it that could be the alternative. We should avoid that like the plague. I think that ETS is the significant instrument. We will ensure that we can provide the right level of investor confidence, not just in relation to nuclear, should we confirm that decision, but really in relation to the whole cross-section of power generation investments of companies because it clearly affects gas and goal.

  Q93  Chairman: I just think that if you are to meet your PSA objectives this is an issue that you must look at with increasing urgency because the industry is losing confidence in the ETS to deliver in the timeframe required to assure reliability of supply.

  Mr Hutton: The second phase will produce a much more robust price, that is, about €22 for carbon which is heading in the right direction. Obviously, we keep this under very careful review.

  Q94  Mr Wright: The NII has already begun the public consultation on possible nuclear reactor designs, albeit it on a contingent basis. Does this not really fall in line with the view of the general public that you put in place the design of nuclear reactors before a decision has been taken on whether or not to go down that particular route?

  Mr Hutton: No. I think this is sensible contingency planning. We have not pre-empted the decision and I strongly rebut that suggestion. But we have to make this decision in the context of the problem we are trying to solve which is climate change and energy security. Quite simply, we have to get on with it and we have never pretended otherwise. It is perfectly sensible to plan things concurrently rather than consecutively if you are serious about making timely progress, and that is what we are trying to do. We are not trying to pre-empt decisions, but I do not think anyone would welcome a sequence of events, assuming the Government does confirm its decision, where we had to spend three years doing this, three years doing that and four years on something else before we could think about building such a power plant. If we think it is important, as we do—that was our preliminary view—that power companies should have the opportunity to invest in this form of power generation we should get on with it and not construct a whole series of subsequent time-consuming exercises that must be done before we can proceed. We have to do as much as we can concurrently which has always been our approach. I think that is the right thing to do.

  Q95  Mr Wright: I would probably agree with that approach. On the other side of the coin, what contingency work is being put in place by the department if the decision is not to build nuclear reactors?

  Mr Hutton: We have looked at all these scenarios. When we publish our response to the consultation I want that document to be as open and clear about all these options as possible, including why, if we do confirm the decision to go for new nuclear, we have done that. That will have to involve a discussion of what the alternatives would look like. Essentially, that is what you must do to set out the case for this decision, if that is what you want to do. This work is being done. We are looking at all the alternatives, including the option that power companies should not have the opportunity to invest in new nuclear. I would say that is the right way to plan for all eventualities. We are still sifting the several thousand responses we have received. I think the consultation ended only four or five weeks ago, so there is a lot of material to sift through. We are looking for new evidence that contradicts our preliminary view. That is what this exercise is designed to do.

  Q96  Mr Wright: Do you consider that the NII has sufficient staff to handle the consultation on reactor design and other work that arises from new nuclear build?

  Mr Hutton: Obviously, this is a matter that ministers have been looking at very carefully. The Health and Safety Executive, which is the host body for NII, is the responsibility of the Secretary of State for Work and Pensions. He and I and the Chief Secretary to the Treasury have been discussing all of these matters. It is very important that NII have the people they need to do some of the pre-licensing work. We have to make sure that they have the resources available to do that. We have been looking at this very carefully, and again some announcements in relation to this are imminent.

  Q97  Chairman: That is encouraging. Effectively, you are saying that it does not have enough people at present and you will make sure they have more. That will assure the industry no end because it is concerned about it. According to some reports, five people are responsible for this at present.

  Mr Hutton: That is a fair reflection of what I have just said.

  Q98  Mr Binley: The system of regulatory and safety controls is recognised by the industry generally to be a very bureaucratic one. That is not surprising because the last new build was about 20 years ago. As part of your contingency planning for nuclear energy, what are you doing to upgrade that and, in particular, to bring in a system of prioritised risk management which would help enormously in this respect?

  Mr Hutton: We are looking at that.

  Q99  Miss Kirkbride: It is a very antiquated industry. Are you looking to do something like we do now in the North Sea, namely to have an overarching inspectorate but then private, charitable companies doing the spade work to make sure things are compatible with health and safety?

  Mr Hutton: I do not think we are looking at that option, but we are looking at the overall regulatory and safety framework, as you would expect us to do.



 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 21 May 2008