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.
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