UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 293-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

BUSINESS, ENTERPRISE AND REGULATORY REFORM COMMITTEE

 

 

ENERGY PRICES

 

 

Thursday 31 January 2008

MALCOLM WICKS MP and DR NICK PALMER MP

Evidence heard in Public Questions 1 - 174

 

 

USE OF THE TRANSCRIPT

1.	This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Oral Evidence

Taken before the Business, Enterprise and Regulatory Reform Committee

on Thursday 31 January 2008

Members present

Peter Luff, in the Chair

Mr Adrian Bailey

Roger Berry

Mr Michael Clapham

Mr Lindsay Hoyle

Mark Hunter

Miss Julie Kirkbride

Mr Mike Weir

Mr Anthony Wright

________________

Witnesses: Malcolm Wicks, MP, Minister of State for Energy, and Dr Nick Palmer, MP, Department of Business, Enterprise and Regulatory Reform, gave evidence.

Q1 Chairman: Minister, welcome. I normally begin by asking witnesses to introduce themselves, and any officials they have with them, for the record but it seems a little otiose today, so I will dispense with that part unless you particularly want to introduce yourself.

Malcolm Wicks: Malcolm Wicks. I am the Minister of State for Energy.

Chairman: Thank you. I understand you might be joined by your PPS later on. This session will be in two halves. We will look at energy prices, fuel poverty and the structure of the market in the first half, and then we will turn to supply issues, security of supply, generating capacity and so on in the second half of the session. We will begin with the price issues.

Q2 Mark Hunter: Minister, good afternoon to you. You will be aware, of course, that you join us today on the very day that Shell have declared record UK profits. I would like to start with a couple of questions about energy price rises. You may feel there is some connection between these matters and I would like to explore your views. Could you tell us what you think are the underlying reasons for several energy suppliers deciding to increase the price for gas and electricity in the past month?

Malcolm Wicks: I think there is one major reason and there might be one or two others that are also important. The major reason is the huge global demand for energy which, by definition, we are seeing around the world which is leading to a huge increase in energy costs, including the wholesale prices that the supply companies themselves have to pay. The reason for the global demand is, I think, familiar territory. It is about the great emerging economies. China perhaps comes to mind first, but also India, but many other economies are growing too, South Africa and South America, et cetera, as well as the continued demand for energy in the developed world. Perhaps I could give you some figures for wholesale gas forward prices since January 2007. These are the prices that the supply companies have to pay. Since January last year, in other words over last year, gas forward prices have increased by 50% and coal forward prices by some 85%. Whilst one does not welcome it, one should not be surprised that the retail price to our constituents and to business customers has increased. I think that is the major factor. If I could just give you a little bit more information, I am advised that wholesale prices make up around half of the increases that we are now seeing in the domestic electricity and gas sectors, whereas, when it comes to the industrial users, wholesale prices are making up more like 70% and 91% of those prices increase. I think that is the major factor. Another point I would make through you, Chairman, to Mr Hunter, which I think this is only just being understood is that, as we seek to tackle the great challenge of climate change and global warming, and we put in place mechanisms here in the UK such as the renewables obligation and across Europe we put in place the emissions trading scheme, these factors themselves raise the price of energy, because at the moment many of these technologies, renewables, are expensive compared with producing our electricity in the conventional way, from coal and gas, and that is also now being reflected in prices. There is an inevitability about that. The lesson is that saving the planet does not come on the cheap.

Q3 Mark Hunter: I would accept that entirely. I was going to ask a supplementary about climate change policies, which you have partially answered already. In the light of the profits of the energy suppliers in the UK and also the reference I made earlier to people like Shell and so on, do you not have any concerns that this is a difficult argument/debate to win with the public about the cost of climate change policies, when the consumer sees suppliers apparently profiteering at their expense?

Malcolm Wicks: I think it is a difficult argument to win actually.

Q4 Mark Hunter: What is your view on it?

Malcolm Wicks: To say there are rip-offs going on, there is no proper competition, the customer is the victim - that story - through numerous press notices, is, as it were, around the media before what I think is a slightly calmer analysis gets out of the starting blocks. I just think that is inevitable. I am not complacent about the competitive market. I want to see the market competitive and I ask questions almost every day in my department about this.

Q5 Chairman: We will come on to the competitive elements a bit later on.

Malcolm Wicks: So you do not want me to pursue that?

Q6 Chairman: Not at too great a length. We will come on to competition elements later.

Malcolm Wicks: Okay. I must not disrupt the order, as it were. There are issues about competition. In terms of climate - which was your question - that is the fact of the matter. If you look at the renewables obligation, which is, I suppose, our major way in which we bring forward investment in renewables technology, by simply saying to supply companies, "You will source so much of your energy from renewables" is costing £1 billion by 2010 and inevitably that gets passed on to the customer. I think we have to get used to this idea that tackling climate change does increase energy costs at the moment, given the state of the technologies.

Q7 Mark Hunter: As I said earlier, I do not think there would be any disagreement between us about the fact the climate change policies rightly are needed and do come with a price tag attached to them, but I am just interested - and I will ask one last time before we move on - about whether or not you see there is a role for government in trying to have a more constructive dialogue with the energy suppliers in this country about the speed and regularity with which they pass on price rises directly to the consumer - very substantial price rises now - which are directly and adversely affecting people on fixed incomes in particular.

Malcolm Wicks: The main thing I worry about now is what we currently call fuel poverty: the impact on our most vulnerable constituents. That is the thing I most worry about at the moment.

Q8 Chairman: We will give you an opportunity to talk about that as well, Minister.

Malcolm Wicks: I am sorry.

Q9 Chairman: Do not apologise. I am trying to help.

Malcolm Wicks: We frequently meet with the supply companies on a whole range of issues. In terms of the competitive issue - which we will return to later, I am told - it is for Ofgem, the regulator, to make sure that proper competition takes place. I think they are convinced at the moment that that is the case. From the evidence I see, I think that is the case, although, I repeat, I am not complacent, and we can get on to some of the issues there.

Q10 Mark Hunter: But you think they are listening? You referred to regular meeting with the suppliers, and you think they are listening?

Malcolm Wicks: We are coming to fuel poverty later, I understand, and I can say something about the meetings I have personally had with the supply companies on that very important issue.

Q11 Mark Hunter: You touched on the wholesale prices earlier. How much of the rise in the wholesale price of gas can be accounted for by gas price increases on the Continent, in your view, as opposed to the more UK-specific factors, such as the delays at Milford Haven?

Malcolm Wicks: I have mentioned what I think is the key background fact, the global prices, wholesale prices, and I have cited figures of how they have increased. We now have to be aware that the energy market is increasingly becoming global. Gone are the days, frankly, for good or ill, when, in a sense, you could talk about a national energy market related to the costs of exploitation of the North Sea oil and gas and how that would impact. Increasingly now, certainly, there is a European market, albeit an extremely imperfect one - and we can talk about market liberalisation at the appropriate point.

Q12 Chairman: And we will.

Malcolm Wicks: If necessary. That is something else I have anticipated!

Q13 Chairman: Everything is connected to everything, Minister. We are just trying to keep it as distinct as we can.

Malcolm Wicks: I wonder if I might just be quiet for 20 minutes.

Q14 Chairman: No, you are doing very well.

Malcolm Wicks: My point being that, with interconnections now with the European market and without needing to import gas and, yes, from time to time our exporting of gas in the summer, inevitably I think we are going to see an increasing connect between prices here in the UK and prices on the Continent.

Q15 Mark Hunter: The delay at Milford Haven? A small factor? A big factor?

Malcolm Wicks: I think it has only been a small factor. That would be my judgment. I am disappointed, there has been a delay, but I think it is only a delay by .... I had better not say off the top of my head. Six months to a year is what I have in mind, but we can try to verify that sort of figure with you. I think I am more enthused - and I have been to both ends of it, as it were, I have seen it in Qatar - by the fact that Qatari liquefied natural gas will be flowing from Milford Haven really quite soon, alongside the gas from Langeled, the Norwegian pipeline is going to be a huge bonus to us in the future.

Q16 Mr Wright: Specifically what you have said on the interconnector, and that we export a lot of gas in the summer months, when obviously demand is at its lowest, and presumably at that time when demand is at its lowest the price of the commodity is at its lowest, is not one of the problems that the capacity we have to store gas during the summer months is less than they have on the Continent? Instead of exporting gas at a low price, we could build our storage capacity so that we could maintain those levels at the lower price.

Malcolm Wicks: There are two things there you have asked about. Given that this is a competitive market-place, where private companies, as it were, like any other companies, seek to sell the commodity at the highest price, storage itself would not stop them selling at a better price in the summer than they might get here in Britain. But I think you have touched on a very important and strategic issue about our need to develop more gas storage in the future. Until recently we could say, I think with some security rather than complacency, "Our natural store has been the North Sea." It is on our doorsteps, we have had storage. Centrica's Rough storage has been very, very important to us, but we now need to store more gas for a number of obvious reasons. That is an objective of our energy strategy and it is one of the reasons, but only one reason, why we need to streamline planning in this country so that that can come about. Where are we now? These are rough figures, but let us say 20% of our gas at the moment is imported - and we have only just become an importer of gas really because of all the riches of the North Sea. If you roll forward to 2020, and that is really quite soon, our gas being imported could be somewhere between 50% and - as some even say - 80%. That in itself raises challenges, but one of those challenges is to have more gas storage.

Q17 Mr Wright: You mention that as one of the plans or proposals, but surely to goodness we should be looking at the median rather than planning for the future, because, when 2020 comes and we are relying on 80% importation of gas, it is too late. Our ability to use our own gas on our own continental shelf has gone because we have exported it all to mainland Europe, they have stored it to use for their own customers at a much cheaper price. Surely we are missing the trick here.

Malcolm Wicks: We are not going to delay until 2020. There are already some proposals in - no pun intended - the pipeline in terms of gas storage. Sometimes they hit planning impediments. We always have to maintain the right of people to object to a particular proposal but we do need gas storage and I think we are on course to have more gas storage.

Q18 Mr Wright: Would you give a time scale as to when the proportion would increase? Is it increasing already? Are we relying on LNG?

Malcolm Wicks: Chairman, I like to be accurate about these things, as it were, rather than speculating. Perhaps I could write to try to give you a timeline on some of this. It is a little awkward, of course, when it does come down to planning authorities saying yea or nay to some of these things, but as an aspect of - and I would use the word - "national" security, we need a greater capacity to store gas in the future.

Q19 Mr Weir: Following on from that and without treading too much on the differences between the continental European market and our own market, one of the allegations made about the interconnector is that continental companies often buy gas when it is cheaper in the UK for use on the Continent and that is one of the reasons why prices in the UK have pushed up. Is there any evidence for that? Is there any investigation by your department into whether that is happening?

Malcolm Wicks: Yes, we have looked at that. Ofgem themselves have looked at that. I have discussed it with the company that runs the interconnector and the companies that supply the interconnector. My particular concern, certainly two winters ago when things were relatively tight - although, contrary to the pessimists' view, the lights stayed on - and when spot gas prices here were extraordinarily high, the gas should have been gushing towards us through the interconnector and it was not. That is the thing that concerns me and I think there is still an issue. The interconnector has not been such a big feature this winter because of the relatively mild weather and because of greater gas supplies from elsewhere. But it is evidence to me of the fact that we do not have in continental Europe a liberalised energy market. Otherwise, those companies, to make money in that winter two years ago would have been selling us lots and lots of gas. That is the issue that does concern me.

Mr Weir: We had this debate in the house about the Lisbon Treaty. What is your feeling about if and when we are ever going to get a liberalised market?

Chairman: No, we will do that later. Good try Mike.

Q20 Mr Hoyle: What seems to be apparent is that good old UK public are the losers, are they not? We export cheaply when we have plenty of gas around in summer. It is stored in Europe. Presumably some of it is exported back to us and we import more expensively. We are the loser in both ways. If we had the storage capacity, I know you say they would not but there would be an ability to store our spare capacity in summer, use it in winter, just like the rest of the Continent does. The only people who are the losers are business and the public that they represent. We keep coming around to this conversation - we had it last time you were here Minister - that we have to make these companies take seriously storage capacity. We can say it is about planning permission but the fact is we have not seen an increase like we should have been seeing and we have had a lot of promises. How do we turn those promises into factual storage?

Malcolm Wicks: That is the question. I think the answer is that a number of companies have plans for storage. We cannot just do it overnight. There are planning regulations. I repeat: it is one of the drivers, only one of the drivers, behind the planning bill that is currently before this Parliament. Mr Hoyle, perhaps I could, through the Chairman, ask you to look at this picture.

Q21 Chairman: Could I ask Mr Hunter to ask his question and then we will look at the picture. You will see how relevant it is, if I have understood your comments correctly. I think it help and it will save the Committee time.

Malcolm Wicks: All right.

Q22 Mark Hunter: Thank you, Chairman. I was going to acknowledge the department's assistance in helping us understand these issues, because we have had the picture, as you put it, circulated twice: one in black and white and one in glorious Technicolor, just to make sure that we got the message.

Malcolm Wicks: Excellent.

Q23 Mark Hunter: It is quite helpful.

Malcolm Wicks: I wanted you to get the message at least twice.

Q24 Mark Hunter: Absolutely. We talked earlier on and you made your views clear about the factors behind price rises. If I were to put to you the feeling about wholesale price increases being passed on to the consumer rather more quickly than reductions in price are passed on to the consumer when the reduction in energy itself is coming through to the companies, would you feel that was a fair criticism of the energy suppliers themselves?

Malcolm Wicks: No, I do not think it is. Certainly last year, 2007, as the graph shows when the yellow line goes down at the bottom - these are retail prices for gas - prices were going down at that stage.

Q25 Chairman: Would it be helpful to explain to the wider audience what the graph shows.

Malcolm Wicks: The black and white copies will become the rarity items - so hang on to those! I suppose in an ideal world it would be nice to be able to give the Committee, maybe through my officials, a more detailed presentation on some occasion, because there are a number of graphs and there are complexities about this and it is always awkward doing this. Let us be clear that this is about retail prices - in other words, to our constituents, the domestic consumer - for gas. There is another picture for electricity which we can send you later. During the period since July 1998 - which is when this graph starts and I should be accurate in saying this is comparing the EU of 15 States, because of the time series, I guess - our domestic gas prices have been consistently lower than the European average. As you can see, Germany is in red and France is in dark blue, and we have always been lower than both Germany and France for the domestic customer. I was thinking of that when Mr Hoyle was questioning me. He raises an interesting point but his point would be a stronger one, I think, if our gas prices were higher than Germany and France because of all this wheeling and dealing, whereas they are still lower. I am also advised that in 2007 it was in Britain and not continental Europe that gas prices went down, when wholesale prices were going down.

Chairman: Roger Berry, a statistician, wants to make a point here.

Roger Berry: This document is headed "Only UK saw retail prices come down substantially in 2007." As the Minister will acknowledge, these graphs show nothing of the kind. They give us the information for Germany, France and the UK and the EU 15 median. They do not. We have a departmental document here with a headline for data which the data cannot support.

Chairman: There may be additional data which supports the headline, of course.

Roger Berry: The data does not support the headline and you might have a word with whoever did that. It is a bit naughty.

Mark Hunter: It is a bit crude,

Q26 Roger Berry: No, it is inaccurate. If it was GCSE stats, for example, you would be in real trouble on this one. Not you personally, Minister, but the person who did it.

Malcolm Wicks: I will send you more information. I suppose I was mainly using the graph to show the yellow line as being consistently below the other line. I did say to the Chairman that in an ideal world we would be able to give you a more detailed presentation.

Q27 Roger Berry: I hate to labour this but I am not saying it is the detail; I am pointing out that a departmental document is inaccurate in its labelling, which I think is unfortunate.

Malcolm Wicks: Okay. I am sure, nevertheless, that Mr Berry would agree it does show that UK gas prices have been lower than the European ----

Q28 Roger Berry: You have described it correctly. Your department's document does not.

Malcolm Wicks: Okay.

Roger Berry: That is the fourth time.

Q29 Chairman: That is a useful clarification which I do not think we will labour at too great a length.

Malcolm Wicks: It was my mistake in trying to be helpful to the Committee.

Chairman: You are being very helpful.

Q30 Mark Hunter: To come back to the point I was making, that was not about the prices relative to that of other countries, it was about the speed with which energy suppliers in the UK are perceived to pass on price rises and the slowness with which they are perceived to pass on price reductions. I was asking the Minister's view on that, not the relativity of our prices in the UK to those of other European partners.

Malcolm Wicks: I think Ofgem have looked at that and they are satisfied there has been no skulduggery.

Q31 Mark Hunter: Your view is the same, is it?

Malcolm Wicks: I have not seen evidence to the contrary. At the moment, when clearly we are in the middle of a series of price rises being announced by supply companies, nevertheless one company, Scottish and Southern, despite the wholesale price movements have said that they are not going to look at price rises until April at the earliest. Arguably that shows competition in the market - and I note that that is a company that in recent times has gained market share, perhaps because of that kind of strategy.

Mark Hunter: I think we will come on to points about structure later on.

Q32 Mr Hoyle: Minister, you wanted to mention your graph, but you are missing the main point. France and Germany do not have the gas fields. We in the UK have the gas fields. That is why the public are disappointed. That is why we are disappointed. That is why you would expect to see gas prices higher in France and Germany. That is why we should expect to see lower gas prices and we should not see the spike which it shows in January 2007 as being at its highest. All I am saying is that we should do better and the reason we do not is because of lack of storage facilities.

Malcolm Wicks: I am not sure that is the case. If we operated just as one nation, if we were not a member of the European single market, then no doubt we could run our economy not just in terms of gas but all sorts of things where we would do it only on a national basis. But in a European energy market I do not think you can stop companies selling gas to the highest bidder.

Mr Hoyle: Except they have not liberalised their market - and I do not want to go into that.

Chairman: We are doing liberalisation later.

Q33 Mr Bailey: I am just trying to disaggregate the different issues here. Gas market, domestic consumers. In terms of domestic, is this just residential or is it business as well? Is domestic in this interpretation just consumers located in this country?

Malcolm Wicks: It is the householder.

Q34 Mr Bailey: It is just the householder.

Malcolm Wicks: Yes.

Q35 Mr Bailey: No reference at all to business users.

Malcolm Wicks: No. That is my understanding of the graph. We could supply other graphs on business users. We have data on businesses.

Q36 Mr Bailey: It might be helpful if we could have that.

Malcolm Wicks: Yes.

Q37 Miss Kirkbride: We have been talking about rising energy prices - Mr Hunter mentioned that very briefly - and of course most people notice rising energy prices when they go to fill their car up at the pump and they have to take out a mortgage to pay the bill at the end of it. Today Shell announced the biggest profit ever made from a British company, ever in the history of time. That is a bit unfortunate, that the two should come together like that.

Malcolm Wicks: Things like that come together, do they not, in politics? I do not think it is right for me to comment on the profits of any one company. It is an international company. I am sure they would argue that they themselves need to make massive investments, that they are making massive investments. I am not going to get into the business - you would not want me to, would you? - of trying to regulate the profits of different companies.

Miss Kirkbride: When I heard the story on the BBC this morning, it said that they had made this massive profit -----

Mark Hunter: Record profit.

Q38 Miss Kirkbride: Thank you - record profit - and that was because of rising oil prices. That seemed to me even more unfortunate because, basically, we are paying at the pump - and we have very little choice - for huge prices on which they then run the biggest profit ever.

Malcolm Wicks: Surely it should not be altogether a surprise that when prices are rising people make more profits, when they are decreasing they make lower profits. Is that not the nature of the market?

Q39 Miss Kirkbride: I would have thought that if prices are going up wholesale, they are paying more money to whoever is supplying them and, therefore, there does not necessarily need to be an increase in profit. It depends where the supply is coming from.

Malcolm Wicks: I do not think it is helpful for a government Minister to get involved in a detailed discussion about the profits of any one company. Chairman, perhaps I might say - and it may be a bit later down the agenda - that there is a need for massive investment in energy infrastructure in this country. Given the reliance on fossil fuels in the future, there is a need for massive investment in the exploration of fossil fuels. No doubt committees of this kind and ministers like me would be the first to criticise if that investment was not coming forward. I guess high profits helped that investment come forward.

Q40 Chairman: That is what Shell have said, I believe, in their statement today, so I think we will leave it there for that. Before we move on to the next session of questions, could I check two things. The graph here - which Dr Berry helpfully pointed out did not entirely justify the claim made for it - nevertheless does show that British prices have been consistently below the EU average and fell last year uniquely, or not necessarily uniquely - I am corrected immediately - but fell compared to the EU average last year. Nevertheless British Gas gave us evidence - and we are grateful to the energy companies, all of which have produced evidence for today, and the regulator and the watchdogs and so on - in which they said, "Average UK electricity prices including taxes are the fifth lowest among the EU 15." So electricity is the fifth lowest. "Britain's gas bills are also still amongst the cheapest with the UK average gas price the second lowest in the EU 15." That means we are the most liberalised market in Europe - and we will come back to liberalisation issues later - and we still do not enjoy the lowest prices, if those claims are right from British Gas.

Malcolm Wicks: We need to compare and contrast evidence. My evidence shows that compared with the EU 15 over that long period, domestic customers enjoyed the lowest prices. It is more mixed when it comes to business customers.

Q41 Chairman: Which is the point Mr Bailey was making. There is some evidence -and we will come to this again later - of mis-functioning of the market, if, given that we are the most liberal market, we do not enjoy the lowest prices. That may be the European markets. We will come to that later. As a matter of record, before we move on, Mark Hunter was asking about climate change costs to consumers not of their fuel bills. We have had very good evidence from Scottish and Southern who say - and I would like to know if this order of magnitude sounds right to you - "The total costs to customers in delivering network infrastructure and environmental policies" - both and not just the environment - "have risen by almost 50% in the last 4 years and almost £170 on electricity and gas bills in 2004 to almost £250 in 2008." That is £250 on the average consumer's gas bill for network infrastructure and climate change considerations. Would that seem an order of magnitude that is right to you?

Malcolm Wicks: I am not surprised about the very significant increases. But I do not want to commit myself to that figure. I have no reason to doubt it.

Q42 Chairman: But the order of magnitude does not seem intrinsically wrong to you anyhow.

Malcolm Wicks: Not intrinsically wrong, no, because I mentioned myself earlier that climate change does not come on the cheap. Part of the investment we are needing and we are seeing is in terms of the grid infrastructure et cetera.

Q43 Chairman: We have at least three factors driving prices: the markets, infrastructure requirements and climate change.

Malcolm Wicks: Yes.

Q44 Chairman: At least three. Good. Could I ask you a question about your old boss, now Chancellor.

Malcolm Wicks: I have had several old bosses. Which one can I tell you about?

Q45 Chairman: In the words of the old song, "You're still there anyhow," after a brief interlude somewhere else.

Malcolm Wicks: Okay.

Q46 Chairman: The Chancellor of the Exchequer was at the DTI - the beloved DTI - and he was in charge of energy policy. He gave evidence to this committee: very convincing, very good, very powerful, very competent evidence, as you would expect from a man of his intellectual abilities. Why did he need to talk to Ofgem earlier this month about how markets work? Surely he knew.

Malcolm Wicks: I think it is not unreasonable, given public and parliamentary concern, as we are seeing today, about the impact of rising prices on the vulnerable, in particular, that the Chancellor wanted to reassure himself that Ofgem were looking at this critically and wanted to hear Ofgem's own analysis of the relationship between wholesale and retail prices.

Q47 Chairman: I have the letter here that he wrote, and it is a pretty harmless letter - I mean, one can get too excited about it. "I am particularly interested in your views on the relationship between wholesale price movements and feed-through to domestic retail prices" and so on. If he wrote that kind of letter to the Governor of the Bank of England about interest rates, all hell would break lose in the international currency markets. Was it an appropriate intervention by the Chancellor of the Exchequer?

Malcolm Wicks: Yes. For the reasons I have given, really. It clearly would not be sensible for chancellors or their ministers of state to somehow write to Ofgem every day, as it were, but I think this is a critical issue. We are seeing prices rise at very considerable levels. There is a great deal of criticism reflected in this Committee understandably about the relationship between all this stuff, wholesale and retail, particular worries about the impact on the vulnerable. It is perfectly proper, in my view, that the Chancellor should want to reassure himself.

Q48 Chairman: He was only minister of the issue six months ago at DTI. He would know all this stuff. What has happened tangibly, as a result of that meeting that flowed from the letter?

Malcolm Wicks: There has been a meeting now between the Chancellor and Ofgem where Ofgem put forward their analysis and sought to reassure the Chancellor - I think he was reassured - that, regrettable as it is, there is a proper relationship going on between the different factors, including wholesale and retail.

Q49 Chairman: What is interesting about this is that the media, the lobby were very heavily briefed about the significance of this intervention by the Chancellor. You tell me he was just doing it for information: a sort of tutorial in gas prices to satisfy himself. But they were briefed rather to the contrary. It looked like action the Government was taking. Surely the only action that is possible is interference with the independence of the regulator.

Malcolm Wicks: No. I am sorry, I am now repeating myself. It was the Chancellor wanting to reassure himself and therefore the Government that Ofgem were satisfied that there was no wrongdoing going on, that the competitive market was working, and that there was a reasonable relationship between wholesale and retail.

Q50 Chairman: I hold you in high regard, Minister. You know that. That is your job. Were you at the meeting?

Malcolm Wicks: No.

Q51 Chairman: Should you not have been? Should you not have been able to provide the Chancellor that reassurance without giving the appearance that the regulator was being interfered with?

Malcolm Wicks: I do not think he was being "interfered with" to use your term.

Q52 Chairman: A slightly unfortunate turn of phrase, I agree!

Malcolm Wicks: I think it was perfectly proper that the Chancellor of the Exchequer, among other things, concerned about inflation and all those issues, should reassure himself about this vital sector at a time when prices are rising, and not unreasonable that the public and parliament should, as it were, know about that meeting. I think it was perfectly proper.

Q53 Chairman: But nothing happened as a result. There was no tangible outcome from that meeting.

Malcolm Wicks: The tangible outcome is Ofgem having their opportunity to present their analysis to the Chancellor and, out of that, a reassurance that, despite what others may say, the market is working as well as it can and at a time of some difficulty in terms of global demand.

Q54 Chairman: So the Government have no plans to change the remit of Ofgem or to encourage it to work in a different way?

Malcolm Wicks: No. I mean, there is nothing in the Energy Bill about that. It is important, of course, that alongside Ofgem's primary objective, which is about competition, that there is also an emphasis on secondary objectives, which are about sustainability and, if you like, the social policy around vulnerability. I am very keen that Ofgem should focus on all three.

Q55 Chairman: Do you understand why the cynical might regard the whole exercise as more of a publicity stunt than a serious contribution to the debate about energy prices?

Malcolm Wicks: I cannot understand that at all.

Chairman: I thought you probably would not be able to.

Q56 Mr Clapham: Can we go back to the market. As we have just been talking ----

Malcolm Wicks: I think we went back to the market a few decades ago.

Q57 Mr Clapham: Well, here we are to examine what we went back to. We have companies that have interests in the wholesale side of the market, and they also have interests in the retail side. Do you think that has been a development that has been helpful to competition in the energy market?

Malcolm Wicks: I think that is an interesting and good question and one that I have asked colleagues. I am often told - and there may be an opportunity one day for the Committee to ask the companies themselves - that quite often there is little profit on the retail side. The margins are quite tight from time to time, and without that integration with the wholesale market it might be difficult to run retail businesses. That is what I am told.

Q58 Mr Clapham: Nevertheless, given that there are six companies that virtually dominate the market, and bearing in mind that it is only a matter of weeks ago that the Sunday papers were reporting meetings between the six that were allegedly to ensure that all their prices kept in step, given that we have this sort of vertical integration, that we have companies meeting to ensure that they are keeping step on prices, surely that is not helpful for competition. In fact, it is not a competitive market, is it?

Malcolm Wicks: Do the companies meet together? Yes, they do. They discuss a range of matters and sometimes with me. Indeed, I have a meeting with the CEOs of all six companies later this afternoon - to which I will refer later - and they have an association through the Energy Retail Association, where they meet. I am sure it is just an allegation that they use those meetings to fix prices. I am assured by the companies that for reasons of "commercial in confidence" they do not discuss prices and they never would.

Q59 Mr Clapham: They could never say they did, could they?

Malcolm Wicks: Actually I believe them. I believe them. It is easy to write the story or make the speech but if people have proof they should come forward to Ofgem with it. I do not believe that happens; I really do not.

Q60 Mr Clapham: Is it something you are likely to raise with them when you meet them this afternoon?

Malcolm Wicks: Off the back of that story, I was certainly reassured by one of them that it is just nonsense. I do think it is nonsense, but, if I am wrong, let people bring forward the evidence.

Q61 Mr Clapham: Given the fact that there are just six companies, there is no room in the market for new companies to come in. Again, there are great restrictions on competition. When the market was privatised we were told there were going to be numbers of companies that would be competing with each other; that this would lead to much lower prices. But the market has developed in such a way that new companies cannot get into it. That cannot be good for competition.

Malcolm Wicks: My own view about this is that, where you have markets, they have to operate as markets. I can readily understand that, in the supply business, which is what we are discussing, you probably would never have 100 companies competing because of the investments needed and so on. However, there is an interesting issue as to whether six companies is enough competition. I am interested in that question. I would be even more interested in it if it was not six, it was fewer than that. I think it is an interesting question: What is the difference between a market and an oligopoly? I am not saying that it behaves oligopolistically but I am concerned about that. I am particularly interested in whether there are barriers to new entrants which should not be there. In a competitive market like this at the moment, where wholesale prices are going up, when there are new forms of energy coming into the system from renewables, when there are new ideas about decentralised energy systems, combined heat and power, and all of that, when that is going on I would rather like to see more competition in the market. I would rather like to see new entrants - and some of them could be relatively small, at local or regional level. I want to discuss that further, without interfering with their great independence with the regulator. I think that is a serious, interesting question when we do have just the six supply companies.

Q62 Mr Clapham: Which is one of the reasons we want to avoid a centralised energy market, but we will leave that for a later time. Do you feel that if we had liberalised our market in the UK in step with what is happening in Europe, that the competition may have been more protected, rather than going ahead, as we did, and then seeing a European energy market that is not liberalised and may take a decade to liberalise?

Malcolm Wicks: We are pressing, as the UK, for the liberalisation of the energy market. That is what a single market is meant to be about after all. We have been, I think it is fair to say, the major voice in the European Union on that.

Chairman: I do not want to get too far into liberalisation of the European energy market at this stage. We will come back to that at some length later.

Q63 Mr Clapham: In order to be able to take advantages and opportunities within the market, domestic customers need to be well informed. It would appear from the way the market has developed that that information just is not there. We know that half of domestic customers have not switched and the third who have switched have switched to a higher tariff, so it is clear that there is not the information there for customers. Is that something that troubles you? If it does, are you looking at ways of making more information available to domestic customers?

Malcolm Wicks: Yes, I am. It does trouble me, to be blunt. I do not buy the line that switching is universally the way in which our constituents always benefit from competition. I do not buy the line on that. I do recognise that the evidence suggests that when most people switch, they switch to a better deal. One could cite some figures on that. I am also aware, however, that some of our more vulnerable constituents can be subject to mis-selling, and I want to satisfy myself that the codes in place on that are rigorous enough. I am going to talk to the supply companies about that. A final point - and I think this is the most important point - is that those who are more confident about switching as a key solution here are people who take for granted that everyone has access to a flat-screen computer, can go to the different sites and get the best deal, and has the wherewithal to then revisit and re-switch in x months' time. You know as well as I do that many of our constituents are nowhere near a computer and have so many issues on their mind that they are not readily able to make use of switching. Indeed, I was looking at survey evidence this morning and the evidence I am shown is, not surprisingly, that many of the most vulnerable, in the lower income groups, are the least likely to have switched. I do not want as an egalitarian switching to depend on the wherewithal and the access to technologies which our constituents do not have. As to where you go from that, I do not have all the answers, but it is a debate that I think we should open up and I am pleased to have this discussion with the Committee. It is a discussion I am having with the companies and, without interfering with them, it is a discussion I will have quite rigorously with our good colleagues in Ofgem.

Q64 Mr Wright: Is not one of the problems, as well, that the most vulnerable in society cannot switch because they are on a prepayment meter, which is a bigger cost and so they are stuck.

Malcolm Wicks: That is an aspect of it. Some people have reassured me that you can switch with a prepayment meter. Whether there are particular complications where that person might have a history of debt, I want to look at that. Yes, I understand that issue. I also understand the concern you are touching on that the costs for prepayment meter customers have got higher than paying in the ways in which probably most of us in this room pay for our energy. I am concerned about that. That is another aspect of the dialogue I am having with the supply companies.

Q65 Mr Wright: Of course they pay for it in advance, whereas we pay for it as we have used it.

Malcolm Wicks: Yes.

Q66 Mark Hunter: Minister, I wonder whether or not you would agree that the whole issue about switching is over-hyped in terms of the benefit it brings to the consumer because for those who do switch and find themselves on a lower tariff as a consequence it tends to be only a short-term advantage before things change again. According to figures supplied to us by Energywatch, not only, as Michael Clapham has just said, have half of energy consumers never switched supplier at all, but they tell us that 65% of pensioners have never switched supplier, six million people on prepayment cannot switch supplier, and two million people cannot switch because they are in debt to their supplier. Do you not accept that the whole business of switching to get more competitive rates is as much to do with marketing advantage rather than it is real benefit to the consumer.

Malcolm Wicks: I would not go there. I think the ability to switch is an important part of the market because it is a way of bringing competition to you and me and to our constituents. I think that is very, very important. I have also said, because I want to get the balance right here, that I am sure for many people switching is something they are getting used to and from which they have benefited - particularly if they do not just switch once but revisit, as it were. I have also made the point, and I think colleagues are agreeing, that the people about whom we should be most concerned at the moment, when prices are rising, is whether switching is working for the most vulnerable. As a generalisation, though many will have benefited -----

Q67 Mark Hunter: Many of them cannot switch.

Malcolm Wicks: -- the answer is no at the moment.

Q68 Mr Weir: Whatever the pros and cons of switching, if it provides evidence of competition that is only on the retail side of the market. One of the problems with new entrants, perhaps, is in the wholesale market and obtaining supplies in the first instance. What evidence do you have there is effective competition in the wholesale markets regarding electricity?

Malcolm Wicks: I think there is evidence that there is competition. I recognise that from time to time Members of Parliament on behalf of constituents will write to me with contrary evidence and I do my best to take those issues up with the regulator. It is a rather different market there. But if you feel there are barriers, if you feel that effectively there is not competition, I would like to see that evidence and I will pursue it.

Q69 Mr Weir: Given that most of the energy companies have long-term contracts with their own electricity generating capacity, can you give us an estimate of the amount of electricity that is traded within the market and the level of liquidity that is in the market?

Malcolm Wicks: I can give you some things about the liquidity in the wholesale market. I think the evidence suggests that it is highly competitive. I have some figures here for the Financial Services Authority which report that between the financial year 2005-06 and 2006‑07 the volume of wholesale electricity traded in the UK increased by 52%, which prima facie would suggest quite a lot of liquidity in the market.

Q70 Mr Weir: Given there has been a lot of publicity recently about the energy market, calls for it to be referred to the Competition Commission, have you ever given any consideration to doing that?

Malcolm Wicks: No, not at the present time, and that is not the view of Ofgem either. Not that you are, Mr Weir, but it is easier to assert wrongdoing, as it were, than to have the reasonable, balanced, evidence-based argument about it. I am really not an apologist for the companies. I ask these questions myself, but at the moment it seems to me that competition is working. I have cited Scottish and Southern not increasing their prices. I have cited - albeit with a controversial headline - that for the domestic customer our price is a bit lower than the EU 15 median and lower than in France and Germany, but I do appreciate, at the moment, that when I argue this way very few people will believe me because the contrary story is a more colourful one. I do think we need opportunities of inquiring into this very carefully.

Q71 Mr Weir: Is that not the whole point about a reference? You talk about price being lower than the median. Perhaps that is true, but it is the relative price that affects consumers. Consumers see a situation where one company will stick its head above the parapet and raise prices, a couple of weeks later another one will follow suit and another, and you will have similar price rises. The whole point about the investigation is to find out whether it is happening but it certainly gives the impression that they are not all acting independently.

Malcolm Wicks: I think it does give that impression. It is a challenge for me as Minister for Energy; it is a challenge for those companies; it is a challenge for the regulator. Because, as I have implied, that is a strong impression which is gaining currency, and I think one has to balance that against whatever evidence we have. At the beginning of this session, Mr Weir, I was citing wholesale gas forward prices going up by 50% in one year, coal forward prices going up by 85% in January 2007. When you look at that, then, as it were, the alternative hypothesis that it should not be so surprising that retail prices are increasing, is at least worth considering.

Q72 Mr Weir: I do not think anybody is arguing that retail price would not increase in these circumstances. What is arousing suspicion is that all the companies are having similar increases within a very short time. One could argue that that is because that is a reflection of the increase, but at the same time you could also say in a true competition surely some of the companies would be seeking to take advantage and gain market share in that situation.

Malcolm Wicks: Mr Weir, I said to you Scottish and Southern. With respect, should you not take that on board in your critique? An important Scottish company have decided they are not going to follow the others and they have said they will not consider price increases until April, which brings comfort to their customers in the winter and some might say is quite smart commerce because they are the company, as I said, that are gaining market share at the moment. Is that not evidence of at least some competition here?

Q73 Mr Weir: I should declare an interest as a customer of Scottish and Southern.

Malcolm Wicks: There are worse scandals!

Q74 Mr Weir: There is still some suspicion there. Indeed, the Chairman of the Competition Commission has stated concern at the lack of regulated sectors being referred to it. How do you respond to that? That is coming from the Competition Commission not from politicians or customers.

Malcolm Wicks: I have not seen that comment. If it is not getting enough business that might be because all is well, in some senses.

Q75 Mark Hunter: That is why people do not vote!

Malcolm Wicks: I am sure they will find ways of keeping busy.

Q76 Chairman: I do not necessarily think you can answer this question. It is a factual question now. You used a measure of the increased electricity being traded in the wholesale markets earlier on and said that is up by 52% - although I cannot remember the period you said now. That is an interesting figure, but 52% of not much is still not very much. Do you know what percentage of electricity in total is traded on the wholesale market? There is no reason you should know that off the top of your head.

Malcolm Wicks: No, I do not think I do.

Q77 Chairman: I think that is a much more important measure.

Malcolm Wicks: We will let you have that.

Q78 Chairman: I should declare an interest here because I have in my constituency the seventh largest energy supply company in the country, BizzEnergy, who have 1% roughly of the SME market. They say in evidence to our committee: "As a matter of practice, vertically integrated suppliers are likely to contract with their own generation before trading in the market, thus removing vital liquidity from the energy market. This has a direct impact on independent energy suppliers such as BizzEnergy and its potential new customers." Of course, if they are contracting their own generating capacity, one does not know at what price they are contracting either, so there is invisibility as well as a lack of competition. Is that a concern that you could understand?

Malcolm Wicks: It is a concern I would like to explore, yes. I am certainly aware that in general terms it goes back to Mr Weir's line of questioning. I was arguing that if the wholesale price going up you should not be that surprised. But of course supply companies make their own deals. It is a speculative market in terms of when you buy forward and so on. I am certainly, as it were, aware that some do that rather well, and some seem to have done that rather badly, I am advised in confidence.

Q79 Chairman: What is interesting is former Ofgem executives, two senior executives, left recently. I am sure they can be identified quite easily but they were quoted in the Sunday Times last weekend as saying: "The wholesale prices don't represent what the energy companies are actually paying. There is a problem in the wholesale markets which Ofgem have failed to get to grips with." That is two quite senior and well-placed people making that criticism of the wholesale markets.

Malcolm Wicks: I do not think I could comment on that. I am not sure who they are.

Q80 Chairman: But you do have at least intellectual curiosity about the way the wholesale markets are working.

Malcolm Wicks: I do have an intellectual and political curiosity about it. On two aspects I have said there are things that I particularly want to pursue. One is whether there are barriers to new entrants. I am not saying there are, but whether there are. I would like to see more new entrants and I have indicated that around decentralised energy you would think in principle there should be opportunity. I have also indicated that in terms of the impact on our most vulnerable constituents, I want to investigate quite rigorously how switching can be of benefit to all and not just to some.

Q81 Chairman: I want to move on to the liberalisation of European energy markets, but I note in passing that Energywatch, in their very interesting evidence to this Committee, say they do not believe there is collusion in the market. They do not believe the Sunday Times reports of people in a dark room, (if they are still allowed to smoke) a smoke-filled room, agreeing the prices. The market is so imperfect they do not need to collude. It just happens automatically because of the imperfections in the market.

Malcolm Wicks: Yes.

Q82 Chairman: That is a plausible explanation.

Malcolm Wicks: Yes. I would urge them to bring forward evidence.

Chairman: We might well find ourselves doing that.

Q83 Mr Bailey: We have almost strayed into the issue of the so-called level of liberalisation of Europe's energy market or, appropriately perhaps, the sclerotic nature of the European energy market, and you yourself conceded earlier that, at a time when you would have expected gas to have been flowing from Europe to this country, it was not so. Basically, what are you doing to improve matters and what progress do you think is being made?

Malcolm Wicks: As I indicated earlier, I think we can say with some satisfaction that we led the charge in the European Union on the need for a liberalised energy market. We have discussed whether there are imperfections, but we have liberalised. Other countries have been slow to do so. It is a matter of policy that we should do this. It is an aspect of the single market, after all. It is what the Common Market in part is meant to be about. We raise this regularly at European level. I am on the Energy Council of Ministers. It is a standard thing that I and my colleagues talk about. We feel there is progress being made. You have now got strong commissioners. The Competition Commissioner, Neelie Kroes, is very, very strong on this. Indeed, there have been dawn raids on energy companies, I understand, to take away documentary evidence. She is a very tough lady and is acting very toughly on this and we are in the middle of negotiations across the Member States about this. This is not just something we want to do in principle and, although this is our primary concern, it is not just something which would benefit the UK and get that gas flowing through the interconnector, et cetera, when we need it, actually it would also be of benefit to German businesses and German customers who are paying too much for their energy at the moment compared with what we are paying in Britain.

Q84 Mr Bailey: There are two issues arising. I suppose one of the counter arguments is that, under the current system, because we have a highly liberalised market in this country and Europe does not, they get the best of both worlds. They can buy from this country when ours is cheap and we cannot buy from them when theirs is cheaper than ours. That is one issue I would like your views on. The second point is that you mentioned the European Commission's commitment to liberalising the market, and I think that is welcome, but to a certain extent should there not be an initiative or pressure from the respective national governments to do the same? Is that not rather lacking at the moment?

Malcolm Wicks: National governments to do what?

Q85 Mr Bailey: To liberalise the energy market in Europe.

Malcolm Wicks: They should. You say "the best of both worlds". Germany and France are not getting the best of both worlds, because their people are paying more for their energy than they would do if there was a liberalised market. I had better not go back to my controversial chart and arouse the fury of Mr Berry again, but that is what it shows. The domestic customer is paying less in Britain than in France and Germany - I think that is what that shows - so the key people in those countries are not benefiting from it. But, no, I agree, we are absolutely committed to pushing forward the liberalisation agenda in Europe. The European Commission agrees with us and we are in the middle of discussions about that.

Q86 Mr Bailey: Can I pursue this point a bit more. Certainly, on the surface of what you say, if the consumers are getting a bad deal---

Malcolm Wicks: The national governments, yes.

Mr Bailey: ---you would expect there to be a stronger response from the national government in response to consumer pressure, but it does not seem to be happening.

Q87 Chairman: Can I add before you answer, Bill Cash, when we were debating the Lisbon Treaty, said something interesting. He said he thought the French and Germans were making some kind of public announcement about their policy in opposition to liberalisation. Have you heard any rumours to that effect?

Malcolm Wicks: A great European, Mr Cash. Obviously the national governments are represented around the table of the Council of Ministers. It is not for me, I do not want to say what they should be saying, but you would hope, would you not, that democratically elected politicians would represent the needs of their constituents and their businesses and not vested interests. This is quite a battle we are having and we are in the middle of it.

Q88 Mr Bailey: Getting to the point that I was pursuing, there do seem to be some very powerful vested interests that work against the consumer both in this country and in the rest of Europe. That leads me on to the next question. Four out of the six major players in the UK are owned by big European companies. Are you concerned by this domination of our energy market - I appreciate this has been touched on - by a few large companies but also the fact that they are not, by and large, British companies?

Malcolm Wicks: No, I am not concerned about that. I understand the anxieties. Obviously I can understand the question in all sorts of ways, but we have been champions of free trade and removing trade barriers and we have been champions of a new Europe and I think we are relaxed about foreign ownership. I am not a Liverpool supporter, so I cannot talk to you generally, but I think we should be relaxed about foreign ownership of companies as long as those foreign companies, as it were, behave properly and do not try to erect barriers and operate in a liberal and competitive way, and so I am relaxed about European companies being key players in this country. What I am less relaxed about is that because of the timing, because we liberalised earlier than the rest, I am frustrated by the fact that, given the illiberalism of energy markets in Continental Europe, great British companies, good British companies like Centrica, like Scottish and Southern, have not had a fair chance to compete and invest in other European countries. I am irked by that. One of reasons why we have got to drive forward liberalisation is so that those very good companies can have a level playing field in which to operate.

Q89 Mr Bailey: I am trying to recall my undergraduate economics course, which was an awfully long time ago, but even in a free market there is a tendency for oligopolies to emerge to exploit it against the interests of the consumer. Would you accept that this could be one of the reasons why it is so slow to develop - a liberalised market that is - in Europe?

Malcolm Wicks: Yes. There are some very powerful companies with quite close connections with government, and that is one of the major barriers to liberalisation in Europe, yes.

Q90 Mr Bailey: You feel that is what we need to tackle?

Malcolm Wicks: Yes, and we are.

Chairman: Thank you.

Q91 Mr Weir: Following on from that point, is that not one of the main problems with trying to liberalise the European market, in that France Germany in particular have a totally different attitude to energy security in the market and have built up their national champions. In the French case, in fact, I believe the French Government is a major stakeholder in EDF and I understand, as the Chairman said yesterday, in the debate the EDF are now trying to takeover Iberdrola of Spain, which owns in turn Scottish Power. While the UK Government, quite rightly, is trying to liberalise the market, there is a procedure going in the other direction, if you like, with state companies with a large state impact trying to consolidate on the Continent. I ask the question I tried to ask earlier: what is the timescale for liberalising the European market, if there is one?

Malcolm Wicks: It is certainly a fair point to say. There is clearly a great argument going on at the moment in Europe and other parts of the world between the proponents of a competitive market and the proponents of national champions. That to some extent is what this is all about. I cannot give you a precise timescale, all I can say is that we are now in the middle of a great argument in the European Union about moving towards a proper market in energy. I think both France and Germany do recognise the fact the tide has turned and, indeed, I understand that both France and Germany, working together, are going to come forward with proposals for a different approach to liberalisation in Europe. I have not seen those proposals yet but that is happening.

Q92 Chairman: Before we move on to Roger Berry and the impact of fuel prices on those who can least afford the increases, we have agreed on four separate areas that drive energy prices: failing to liberalise the European energy market, the overall wholesale markets, network investment and climate change, and levies, taxes, measures and things like the Renewables Obligation, and so on.

Malcolm Wicks: If they do not appear magically from behind me on climate change, there are figures on---

Q93 Chairman: Exactly. I have got Ofgem's figures for 2008. The climate change staff was about £22, £21.50, which is not very much, actually to be fair - about three pounds - but a wholesale price of £193; but what we are agreed is, given the average fuel bill is now in the order of £1,000 for a household, give or take, a small change in UK conditions that could be brought about by regulatory intervention here could have significant beneficial impacts on domestic consumers. So, imperfections in the UK market, nuclear regulation, if put right, could actually bring real benefits notwithstanding the rises in wholesale prices on international markets?

Malcolm Wicks: If you are saying, Chairman, that there is a need for Ofgem to be ever vigilant, then, I would agree, yes.

Chairman: I think we will leave that topic.

Q94 Roger Berry: Minister, you said earlier that fuel poverty is the problem that you worry most about, and I appreciate that. Could you give us your latest estimates of the number of households or, indeed, the number of individuals who are currently defined as being fuel poor? What are the latest estimates that we have for this?

Malcolm Wicks: Yes, I can. Always our difficulty is the time lag, of course, in data.

Q95 Roger Berry: Sure.

Malcolm Wicks: Let me point out before you or your colleagues do that, of course, at the moment the thing is moving rapidly---

Q96 Roger Berry: Exactly. That was going to be my next question. You are always ahead of Committee.

Malcolm Wicks: ---in the wrong direction. From the most recent published figures for the United Kingdom, but they go back to 2005, there were around 2.5 million, two and a half million households living in fuel poverty. It may help the Committee, Chairman, if I say that by "fuel poverty" we mean people who have to spend over ten per cent of their income on energy. This is a precise statistical definition. I have got more recent figures for England, if Mr Weir will forgive me. Estimates for households living in fuel poverty in England in 2006 indicate an increase from 1.5 million in 2005 to 2.4 million in 2006. The UK figures for 2006 will be finalised later this year, but, of course, these are out of date figures, I recognise that. Because of the price increases that we have been discussing, the numbers in fuel poverty will now be increasing quite significantly.

Q97 Roger Berry: Do you have any best estimates of what the current figure might be following the recent price increases?

Malcolm Wicks: No, I do not, but if, in writing, I can help the Committee on that, I will do so.

Q98 Roger Berry: Thank you.

Malcolm Wicks: Can I say (and I would like to add this), this picture of increasing numbers in fuel poverty, of course, follows a number of years where we saw quite a dramatic decline because prices were relatively low, because of home energy efficiency schemes and because of the different social security measures we were taking and high levels of employment, et cetera.

Q99 Roger Berry: I entirely agree, but given Defra's target is to eliminate fuel poverty in vulnerable households by 2010, which is two years away, and given that in recent times the number of people in fuel poverty has increased quite significantly, is there any chance of meeting that target and, if so, how?

Malcolm Wicks: I am not giving up on the target, but I am being realistic. I am recognising the difficult global circumstances of rising energy prices. Would it be helpful if I say something about the different instruments we have to tackle fuel poverty?

Q100 Roger Berry: Everyone is agreed that there are three things that determine the number of people in fuel poverty. One is prices, then it is housing conditions and then it is income. You cannot control prices, so it is presumably what the Government is doing in relation to energy efficiency in people's homes where Warm Front and other things are happening, of course, but also people's incomes, fundamentally. What is the Government going to do over the two areas, the two instruments, it can have some influence on?

Malcolm Wicks: Let us recognise that, the statistical target, which is an important one because if people are having to spending too much, often on quite low incomes, on energy, that is problematic for them - of course it is - but I think other indicators show a great deal of process. I think we should all be proud of the fact that across the United Kingdom some two million households have benefited from the range of different energy efficiency schemes that we have and, as colleagues will know from visiting these homes during Warm Homes Week, when you see someone benefiting from better loft insulation, a more efficient boiler, decent heating systems, it is a real gain for that individual, and some of us have seen the human faces behind that two million figure, and that is important.

Q101 Roger Berry: With respect, I think they are important, I think they are very significant, but despite all of that, where we are today - you have just described the extent, we are talking about a few million people whatever figure we take - for the UK as a whole we are probably talking about three million, I guess, people in fuel poverty. The question is what, over the next two, or three, or four years, is the Government going to do - what further measures - to address that problem? Why, for example, did you decide not to mandate the implementation of social tariffs by energy companies? That would have been one way.

Malcolm Wicks: I will come to that. One thing, of course, is that there will be an extension of home energy efficiency schemes through the successor to EEC (the Energy Efficiency Commitment) and that, together with the programmes like Warm Front and the equivalent in the other nations of the United Kingdom, will mean more people benefiting from energy efficiency schemes in the future. That is a very, very important and lasting investment and I put a lot of store on that. You will understand, Mr Berry, that in terms of other social security benefits, levels of winter fuel payments, I have to do the customary thing and say, "That is a matter for the Chancellor". The third area which you mention, social tariffs: the judgment at the moment, but I emphasise "at the moment", is that we do not need to legislate to require companies to develop their social tariffs. All companies have social programmes of different kinds. I have met with each of the chief executive officers of the six supply companies on a one-to-one basis, by which I mean not collectively, we have had individual meetings with them, to urge them to do more and to review their programmes. As a result of that the help available has increased from £40 million - this is for this coming winter, the one we are in, 2007/2008 - to £56 million and that will benefit some 700,000 households.

Q102 Roger Berry: But Energy Watch is saying that only one in 15 fuel poor energy accounts are being reached by the current schemes offered by the big six. That does not suggest that they are a very significant instrument.

Malcolm Wicks: One in fifteen of the fuel poor households, is that?

Q103 Roger Berry: Yes, one in 15 of the fuel poor.

Malcolm Wicks: Yes, sure.

Q104 Roger Berry: For 14 of the 15 these schemes mean nothing. It is not much of a strategy, is it, really?

Malcolm Wicks: I am meeting, after this meeting (and the timing is purely coincidental), all the CEOs, or their representatives - I hope they are all coming - to discuss this very issue, the very issue being that because of widespread parliamentary and public concern can they do more, are they doing enough, where are we on a range of issues, including pre-payment meters? That is my main meeting this afternoon after this one.

Q105 Roger Berry: May be the view will be expressed to you, as Npower expressed to Ofgem, that the interests of the fuel poor is best served by a mandatory social tariff and this is the only means by which the Government's 2010 and 2016 objectives can be achieved. Npower believes that. Why does not the Government?

Malcolm Wicks: We are not convinced. My Secretary of State, John Hutton, has made it clear in the House of Commons that we are looking at this and if we feel in the future it is necessary to do it, we will do it. We are not convinced at the moment (a) because we are seeing some movement in the right direction in terms of social tariffs and (b) because there is, I think, a very serious concern that there could well be a situation, if you mandate social tariffs, that that simply becomes the minimum that they all do and that there would be no competition between them. Where would be the incentive to do more? They would come up to the minimum and they would think they have done that. I think that is a very real danger, Mr Berry.

Q106 Roger Berry: You raised winter fuel payments, which was interesting, I think, because winter fuel payments are allocated not on the basis of people's need for financial support to pay winter fuel bills, they are a non-taxable supplement to the basic state pension. Notwithstanding the fact that other arms of government may have different views in terms of the fuel poverty strategy, do you accept there is a case for having winter fuel payments that are addressed towards those who have extra need for paying their fuel bills: for example severely disabled people under the age of 60 who at the moment are not entitled to a winter fuel payment?

Malcolm Wicks: Can I make one point, before I answer that, about winter fuel payments? It sounds a rather technical point, but the way in which we have drawn up our target that fuel poverty is about paying more than ten per cent of your income, we are not going to revisit this but it is worth pointing out that the winter fuel payment at the moment, which after all, by definition, is to help with your winter fuel, is actually counted---

Q107 Roger Berry: Initially it is available for people over 60, whatever their winter fuel position might be.

Malcolm Wicks: It is counted as income when you do the analysis, rather than, as it were, knocked off one's expenditure on fuel. I make that point because that has always struck me personally as rather curious, given that the intention is to help with winter fuel. It would slightly change the fuel poverty statistics if you said against the expenditure (someone said nearer £1,000 now) we can knock off the £300 for the over eighties. If you add £300 simply to the income, then statistically it makes life more difficult in reaching the target. It is just useful to point out that statistic.

Q108 Roger Berry: Your statistic, of course, is that disabled people and their families are twice as likely to be in fuel poverty as non-disabled people and their families. Your department's figures show, twice as likely to be in fuel poverty. That is the critical statistic.

Malcolm Wicks: I am coming to your point, but occasionally I have this desire to be fair to myself in terms of the statistical presentations and weakness. We have discussed this before actually on different occasions, and I understand the point, but the winter fuel payment is there to help elderly people - the £200, the £300 for the over eighties. It is worth citing the statistic, Chairman. I think I am right in saying it is some two billion pounds public expenditure every year which the former Chancellor, or the Prime Minister, has committed ourselves to for this Parliament.

Q109 Roger Berry: With respect, that is not the question. I support that. Of course, I do. I am asking why is it that the people in fuel poverty under 60 who have particular needs for warmer homes do not get a penny from what is a "winter fuel payment scheme"?

Malcolm Wicks: Because of the concern about the particular vulnerability of elderly people, and, obviously, for people with disabilities of different kinds, there is a range of other benefits, disability living allowances, which are looking at their needs, but it is a perfectly reasonable argument for you to present to the Chancellor.

Q110 Roger Berry: Does your department have an estimate of the number of disabled people under 60 who are living in fuel poverty?

Malcolm Wicks: I do not certainly have that in my head. If we have that kind of data, I will send it to you.

Q111 Roger Berry: I would be grateful if you would inform us if you keep that data. A final question.

Malcolm Wicks: I certainly recognise the issue. A lot of people with specific disabilities and in general, as a generalisation, people with disabilities, spend more time living at home than the rest of us and these issues are not just about some magic cut-off point of over 60 or over 80, they affect other people. How one addresses that is, I guess, a more interesting and controversial issue.

Q112 Roger Berry: Part of the answer, clearly, in terms of fuel poverty, is if we accept the fact that what the Government can do relates to the conditions of home energy efficiency on the one hand and people's incomes on the other, then, as in one of your many publications on the Welfare State that I have read, the benefit system is actually quite important, is it not, and so I look forward to an answer too. I hope the Government can continue to keep this under review. A final question, because colleagues have other questions. Ofgem, interestingly, has come up with a windfall tax proposal, you will be well aware of, that you should take some nine billion windfall from the UK energy companies that they are set to receive from the free allocation of permits under Phase II of the EU Emissions Trading Scheme and use this to help those in fuel poverty. A windfall tax seems to me very commensurate with New Labour policy. It was there at the very beginning. Is it worth going back to consider it, do you think?

Malcolm Wicks: If it is, it is a matter for the Chancellor of the Exchequer.

Q113 Roger Berry: You appreciate the frustration we have here, in the sense that the key issue in terms of raising resources to tackle fuel poverty you are very reluctant to explore other than to say we should contact the Chancellor.

Malcolm Wicks: I do not think it would entirely help the Chancellor if I speculated wildly---

Q114 Roger Berry: It would help us, though, when you are giving evidence to this Committee?

Malcolm Wicks: ---about what we should do. I am bound to say, Chairman, reflecting on Mr Berry's comments, you will forgive me as Energy Minister, but I do want the energy companies to have money to build power stations as well and wind farms.

Q115 Roger Berry: You were the one who said - this is my final comment and I simply remind you, with respect, I believe this, I know it is your view - that fuel poverty is the issue you worry most about. That is what you said and I believe that and I just put that back on the record.

Malcolm Wicks: I worry most about it because it remains a disgrace that in a civilised society there are some people who are cold when many of us at a macro level are worried about global warming. Of course I worry about that. I am pleased with the progress that we have been making in recent years in home energy efficiency schemes and social security measures; I am distressed that we are now being knocked off course because of global factors contributing to rising energy costs and I, in my own way, am going to do what I can to try to move us back in the right direction. I am very concerned about these matters.

Q116 Chairman: Your answer just then very usefully links us from the section on energy prices to the section on security of supply. I have heard it said quite often actually by various industries that, for example, the nine billion windfall that the companies have received you are very happy with because it will help give them the money to build nuclear power stations. You sort of endorsed that in your answer just then.

Malcolm Wicks: I suddenly realise it would not be parliamentary language to say, "Steady on" to a Chairman of a select committee, but I think that is a little leap.

Q117 Chairman: You did say it was good for them to have money to build power stations though.

Malcolm Wicks: Maybe we are coming on to this.

Q118 Chairman: We are.

Malcolm Wicks: But we are going to need a great deal of investment in our power infrastructure.

Chairman: Let us talk about that. Tony Wright.

Q119 Mr Wright: Let us move on to the nuclear issue.

Malcolm Wicks: Less controversial. Thank goodness!

Q120 Mr Wright: At the beginning! In 2006 following that, the High Court ruled in favour of Greenpeace. Are you confident that you will not face another High Court challenge from Greenpeace?

Malcolm Wicks: That is up to them and their members' money, is it not? It is not up to me. I cannot foretell these things. We were challenged by Greenpeace; the judge did find, as it were, in favour of Greenpeace. We then did an extremely full consultation, I think, as someone interested in political science, probably the fullest public consultation on a major policy issue we have ever had in this country. It was not just getting evidence from the usual suspects - that was very helpful - but random samples of electors were drawn from the registers, we talked through the issues in an objective way at arm's length via an independent company with over a thousand people in major city centres across this country. I sat in on one in London; I thought it was a fascinating exercise. Then, as governments have to do, we made a judgment, and the judgment was that there should be a place for new civil nuclear. I would rather these things be settled, as it were, within the Parliament and in government rather than in other ambits, but let us see.

Q121 Mr Wright: I would tend to agree.

Malcolm Wicks: I think the argument has moved on. A lot more people are interested in the arguments about civil nuclear power - they are concerned about climate change, they are concerned about energy security - and I think we have had a much more reasoned debate that probably would not have been possible ten or 20 years ago about nuclear.

Q122 Mr Wright: Do you think it has been quite helpful in trying to change public opinion towards new nuclear and achieving political consensus in that in as much as the previous submission from the High Court judge was saying that the consultation process has been misleading, seriously flawed and procedurally unfair? Are you confident that since 2006 we have moved on and the public are more tuned in to the debate on the nuclear question?

Malcolm Wicks: I am very confident we had the fullest possible public consultation. I thought it was a very successful and, indeed, interesting exercise. A little bit of me is pleased we were enabled to do that. There is, as I say, a much more reasoned debate out there. There are still those who are fiercely opposed to nuclear, and I have a great deal of respect for the position. There are big issues around waste, security and safety. Equally, there are vociferous proponents of nuclear - some were in the middle on this issue wanting to look at the arguments - and, as I say, the Government has now made its judgment.

Q123 Mr Wright: One of the concerns certainly from my point of view and, I know, of other members of the Committee is not the question of building power stations, it is the decommissioning and obviously the question of the waste management. What you have said there is that they will meet the full costs of decommissioning and their full share of waste management costs. What do you mean by "the full share of waste management costs"?

Malcolm Wicks: I mean 100 per cent. That is what I mean. This is a feature of the Energy Bill, and the only feature of the Energy Bill which is about nuclear is setting up arrangements to make sure that our principle that they should meet the full share is put into practice. It is not just their full share of building the reactors and all the construction costs and the running costs, but, as you imply, it is the full share also of the eventual decommissioning of those nuclear reactors safely and the full share of their disposal of the waste.

Q124 Mr Wright: I suppose it was in the terminology, because, I repeat, what you said at the time was "meet the full costs of decommissioning and the full share of waste management". What you meant to say was "the full costs of decommissioning and the full costs of waste management"?

Malcolm Wicks: Certainly that is what it means, and it includes, for example, a contribution towards the fixed costs of constructing the geological disposal facility, because, after all, that disposal facility would have to be somewhat larger than simply what we need to dispose of the legacy of nuclear waste. It involves that. We are going to put in place arrangements whereby from the moment that the nuclear reactor is built and is up and running from year one the company has to set aside money for the eventual decommissioning and disposal of the waste into a separate fund altogether different from the company's own funds, and we are going to set up an independent board, which will include, I guess, people like accountants and others, to advise us on how we determine those costs over time.

Q125 Mr Wright: Are you still confident that from the beginning there will be no government subsidy from the construction of the nuclear sites right the way through to the nuclear waste: no government subsidy whatsoever?

Malcolm Wicks: There will be no government subsidy, no. Indeed, in terms of developing the costs that they will have to pay, there will be a premium put on it. In other words, we are going to ask them for rather more money than probably we think is needed, just to safeguard the taxpayer on this one.

Q126 Mr Clapham: Minister, just a couple of quick questions. On the one hand we talk in terms of building nuclear and a little earlier, when we were discussing the market, you recognised that there was a need for a decentralised energy market, but here we are likely to see the development of nuclear power, and once the rods are in that reactor and the electricity is flowing, it has to flow. Consequently, we get centralisation, which is going to prevent the kind of energy market developing for the future that you would like to see, a much more decentralised one, one where communities can actually have an input. Secondly, are discussions taking place with EDF? EDF, a French electricity company, a nationalised company, has shown an interest in wanting to build a nuclear power station. Are we likely to see them drawing a profit from that electricity provided by their nuclear station but leaving us with the decommissioning costs? Are negotiations taking place with the company?

Malcolm Wicks: That is the policy. In no way are we going to allow someone to build the thing and then let the taxpayer clear up the waste and pick up the considerable bills. The whole purpose of our strategy is to state that principle very clearly, that they will pay 100 per cent of the costs, and the Energy Bill sets up a framework to start to move from principle to practice over time. We are absolutely committed to that, it is very, very vital, and I am confident that actually it will happen. On your earlier point, although you have proponents of both sides, I myself feel it is perfectly sensible in the future to think that alongside a National Grid, which I am sure will be there for decades to come, based on big power station like coal or gas or nuclear, you start to see the development in different localities of decentralised energy systems. I visited one recently in Barkantine on the Isle of Dogs. It was owned and run very well by EDF but this was a relatively small power station in the community, it combined heat and power, which was a particularly important feature, serving the local community and providing heat to several hundreds of local dwellings and the local school that I visited and soon the local community centre that I visited. That struck me as an extraordinarily interesting model of what we could see in the future and linking it in to where the housing ministry is, Department of Communities and Local Government. There we have set ourselves as a government an extraordinarily radical objective that by 2016 we will only build in this country low carbon housing. That is interesting because, apart from anything else (and I am on the committee with the Housing Minister on this as we think this through), what that means is we have got to connect up our thinking about housing and the design of that kind of housing, very firmly efficient and so on, with all this talk about decentralised energy and renewables and micro-generation, and I think that is an extremely exciting project. Why do I mention that? Because that will itself, I think, bring forward decentralised energy systems which will be very different from the big power station, National Grid model that we have at moment, and it is one of the reasons why I am interested in new entrants to the market, because I do not think they all need in the future to be a big player; some of them could be relatively small serving local communities and maybe in part owned by local communities.

Q127 Mr Hoyle: It is obviously very interesting what you have said, but the truth of the matter is you cannot manage without the National Grid. That is the reason why the lights go out, is it not? If you are reliant on the local source and something goes wrong, you have no other choice. The other thing is, if they have got spare capacity, you need to put it into the National Grid. What we have got to say is we do not want to get rid of the National Grid, we want to work with the National Grid for the future.

Malcolm Wicks: I agree with that.

Q128 Mr Hoyle: That is a good start. The cynics are saying that the Government is more than happy to watch energy prices rise, Ofcom are happy to sit back as well, in order to allow profits to be made and justification for nuclear. Is that fair or have the cynics got it completely wrong?

Malcolm Wicks: Cynics are normally cynical. I do not think that relates to the truth at all. I am reflecting on what you have said. I think one grain of truth in that is that we are going to be in a world of high energy costs and, just as that raises particular challenges in terms of tackling the fuel poverty issue - Mr Berry was leading on that - it is also an encouragement to energy conservation and energy efficiency. This is one of the dilemmas we have got now. If we were simply people looking at global warming, you might welcome rising energy costs. If you are looking at the social policy thing, you are in some difficulty about it. The challenge for us all now in an era of high energy costs, when, perfectly properly, to tackle climate change, we will adding to those energy costs as we bring forward renewables and carbon capture and storage and clean coal technologies and all of those things, is how do we then redouble our efforts to protect the poorest? It is a dilemma, it is something I think we can move our way through, but it needs quite radical thinking.

Q129 Chairman: Filling in the sandwich between nuclear - we can ask you a lot more about that but there will be other opportunities I am sure - and renewables, which Julie Kirkbride will ask you about, one of the common features here is the need for these national policy statements which are part of the Planning Bill's proposals to speed major infrastructure investments, which is the National Grid as well and, because we believe the Government thinks there is a role for Parliament in scrutinising these statements, there are a few questions I would like to ask you, which I have told your officials about, to make sure we understand exactly what is involved. We do not really know even how many of these policy statements there are going to be, so the first question is: is it correct that there will be a single over-arching national policy statement on energy, with subsidiary statements on specific energy technologies beneath that? Is that the way it will be done?

Malcolm Wicks: Yes. That is the simple answer to that question. We will certainly have an over-arching national policy statement on energy, for all sorts of obvious reasons. We need to bring these things together. We are expecting that that will be published sometime, I cannot say exactly when, next year, in 2009, but also under that we need to see the need for a number of other statements on renewables, obviously, and on nuclear. Exactly how they will fit together, the big statement will come first, but whether these other statements will be technical appendices or whether they will be separate documents coming later I do not think at the moment we know, to be blunt, and I do not think that is unreasonable at this stage.

Q130 Chairman: Would you expect there to be more than one policy statement on the renewable sector, because there are different technologies involved?

Malcolm Wicks: We certainly see the need for additional statements or, as I say, annexes - I would not worry too much about the detail - on fossil fuel generated electricity, on renewable energy, on gas storage and transportation, obviously on nuclear, and actually a kind of cross-cutting one on electricity networks, which is very important too.

Q131 Chairman: So that is at least one overarching statement and five subsidiary statement annexes?

Malcolm Wicks: Yes, but I do not want to say it will never be six.

Q132 Chairman: No. The difficulty we have is that we have got to make decisions very soon, while the Planning Bill is going through, as to how Parliament can best cope with these statements. We do not really know what is involved. We do not know how long they are going to be, how much detail they are going to go into. For example, a particularly important question for parliamentary scrutiny will be: will there be site specificity in these statements? Will the nuclear ones say, "The Government wishes to see X nuclear power stations and they will be on these, X, sites", because that will have big implications?

Malcolm Wicks: That is our expectation.

Q133 Chairman: Because, in that case, it will become more like the Crossrail Bill, a Private Bill Committee. Rather than a scrupulous policy statement, it becomes a much more detailed scrutiny process?

Malcolm Wicks: Yes.

Q134 Chairman: You expect currently that the---

Malcolm Wicks: I do not know where I will be then, but I will not have time to be on that committee.

Q135 Chairman: That is rather my concern, Minister. I do not think the Government has quite thought through how much scrutiny these documents might need if they go into that level of detail. You think it will not just say, "We believe in new nuclear power stations to help the UK meet its objectives", it will actually say, "We think need a new Sizewell C or a new Dungeness B", or whatever it is?

Malcolm Wicks: Yes. Obviously Parliament has to scrutinise---

Q136 Chairman: These are not catch questions. I am giving you all the information.

Malcolm Wicks: ---the national policy statements, yes. It will be for the planning process, as hopefully reformed by the Planning Bill, to decide on the specific issues about specific sites.

Q137 Chairman: It does sound as if you are eventually, after consultation initially, picking the number of nuclear power stations you will actually want built at some stage. If they are going to be site-specific, you have got to have a national policy statement which encompasses the sites.

Malcolm Wicks: We are not going to be in the business of saying there should X nuclear power stations.

Q138 Chairman: You just said you would in answer to my question.

Malcolm Wicks: No, I said that to be helpful to Parliament and the public, we would want to talk about siting. We are not going to talk about how many there would be on this site or that site.

Chairman: You are not. I am not quite sure where that leaves me. We may need some further private dialogue on this, because these are very important issues for the conduct of energy policy and the way Parliament scrutinises energy policy.

Q139 Roger Berry: Part of the issue, of course, is that the Government has said it is not its job to pick winners and so it will set an environment in which the energy companies will decide whether or not to say, "We want to build a nuclear power station here, or here, or here." So, as I understand it, the Government is not planning a strategy, the Government does not actually have a strategy as such for nuclear energy, it will have a benign climate, it will have incentives, it will have an infrastructure that you believe will encourage companies to want to come forward and do it, and so in that sense you leave it to the market to say how many nuclear power stations there will be and where they want to go. Is that my understanding? Is that not what this is all about?

Malcolm Wicks: It is a combination of, yes, the market, the companies coming forward with proposals for nuclear power stations, but government, through the different agencies, establishing criteria about what sites are appropriate.

Q140 Roger Berry: That I understand.

Malcolm Wicks: And, by definition, what sites are inappropriate.

Q141 Chairman: Indeed, some of the off-shore wind proposals, which are sometimes controversial in this area. What you are saying is, "We will say this list of sites appears to us to be suitable. It is up to the industry to decide how many of those it wants to take forward." Is that the position?

Malcolm Wicks: Yes. The expectation is that this statement will include agreed site and criteria and a list of sites that meet the criteria.

Q142 Chairman: I think I probably falsely put words into your mouth by the way I asked the question earlier. You are not mandating a specific number of sites or a specific number of power stations?

Malcolm Wicks: No. According to the criteria, site X might be okay against the criteria; it does not mean someone will come forward with a proposal. I have been reminded, as they say on these occasions, that there is a certain timescale of the process, but I think it would be tedious if I, as it were, read out my note. Would it be appropriate if I sent that to you?

Q143 Chairman: Yes. If you could send it to us before we have our meeting with the Leader of the House next week to discuss in more detail how this matter is conducted.

Malcolm Wicks: Yes. On the parliamentary process, obviously it will be for Parliament to determine, but I think there has been a suggestion that the joint expertise of four select committees might come to bear on this matter and I also understand that John Healey is seeking with the Leader of the House to meet the Chairs of the committees to discuss this.

Q144 Chairman: We are actually seeking a meeting with him and her, but we have got it now.

Malcolm Wicks: Whatever. There will be a meeting of minds anyway, I hope, on 7 February.

Q145 Chairman: Indeed. We do not want to labour this point, this is a rather tedious parliamentary point, but we were rather concerned when the Government announced as part of the Planning Bill that there would be a new joint committee of the four select committees, which we think is a possible way forward. I must say, we are strongly in support of these national policy statements, they are a very good idea, but some of us have reservations about what happens after that when we instruct a planning commission. They will help the nuclear sector, the renewable sector, the National Grid and others bring forward proposals in a much more efficient way, but we are anxious to make sure scrutiny is done well and effectively and uses our resources effectively and actually serves the Government's purpose, because we share the Government's objectives entirely. I think that is probably all we need to discuss on that for the time being. Thank you very much, Minister, for those answers, which are genuinely helpful in helping you meet your objectives.

Malcolm Wicks: Chairman, thank you very much.

Q146 Miss Kirkbride: Moving on to another issue.

Malcolm Wicks: I thought we had finished. No?

Q147 Chairman: We have got a few more yet.

Malcolm Wicks: Such effusive thanks from the Chairman!

Chairman: I was softening you up for the killer blow, Minister!

Q148 Miss Kirkbride: The EU's renewable energy targets are clearly very demanding. I would like you to have a few words on how you see it being possible and if you could also specifically, in giving your answer, say how much you expect of that renewable energy target to come from electricity?

Malcolm Wicks: First and foremost, we are fully signed up and in agreement with the objective for the European Union to have 20 per cent of all of its energy from renewables by 2020, and the key words there are "all of its energy", because in the past many countries, certainly the UK, have set targets for only electricity. This is all energy across the piece, including the stuff we put in our motor cars and fuel industry with and so on. Let us recognise that that is an extremely demanding target. We have now received documentation from the European Commissioner, Andris Piebalgs, where, as part of a broader range of proposals about British contribution on the Directive, he is suggesting that the UK target should be 15 per cent. We, alongside many other Member States, are now negotiating about all of that, and that is a perfectly proper process, but whatever our target will end up being, it is going to be huge. It is going to be, whatever, a seven-fold increase, or something, on where we are now. Where we are now is that, whilst four or five per cent of our electricity comes from renewables, I think slightly less than two per cent of our total energy comes from renewables, so you can see, Miss Kirkbride, this is a hugely demanding target for us. Did I miss one aspect of your question there in my answer?

Q149 Miss Kirkbride: You raised quite a number of things there. When we discuss this in the European Commission what figure are we asking them to put in instead of 15 per cent?

Malcolm Wicks: I am sorry.

Q150 Miss Kirkbride: You say we are discussing this with the European Commission, so what figure is the British Government plugging for if it is, presumably, less than 15 per cent?

Malcolm Wicks: We are discussing this. I do not want to reveal our negotiating hand. One of the things we have pointed out to the Commission is that when you look at our share here, our share of the costs (because costs are quite considerable in Britain) will be really very high compared with other Member States, and I think it is perfectly proper that we feed that into the equation.

Q151 Miss Kirkbride: So, whatever the figure is, somewhere around the 15 per cent mark, the assumption is that we will have to get most of that renewable target out of electricity production rather than the wider energy market?

Malcolm Wicks: Yes.

Q152 Miss Kirkbride: Do you have a figure for what that might be?

Malcolm Wicks: Yes. I do not want to predict this, it is not becoming a target before we have agreed the other target, but some suggest that this could mean a contribution of over 40 per cent renewable energy.

Q153 Miss Kirkbride: Renewable electricity.

Malcolm Wicks: Sorry, what did I say?

Q154 Miss Kirkbride: You just said renewable energy.

Malcolm Wicks: I stand subject to correction, but this could mean say 30, 40 per cent. I am suddenly reminded I should be more general, 35 to 45 per cent of our electricity.

Q155 Miss Kirkbride: Is that the average?

Malcolm Wicks: It is encouraging. The lights are still on and I can read my notes!

Q156 Chairman: This is a serious point.

Malcolm Wicks: It is a very serious point.

Q157 Chairman: Because it is a huge figure.

Malcolm Wicks: Obviously, this reflects the fact that suddenly having more renewable fuel in our cars is a more demanding objective in this time period than seeing more electricity from renewables. It reflects that. I will not be committed to that figure, but I want to be helpful, as ever, and this could be the kind of range, and it is a huge proportion, of course it is, given that, as I said earlier, only four or five per cent of our electricity at the moment is from renewables. This is a revolution.

Q158 Miss Kirkbride: It certainly is. On the subject of being helpful, can you answer some of the speculation there has been when Tony Blair went to discuss these very demanding targets with the European Commissioner, the European Union, that he had not quite twigged the difference between renewable energy targets and electricity renewable energy targets?

Malcolm Wicks: That is nonsense.

Q159 Miss Kirkbride: He did not mind signing us up to something that is going to be jolly tricky do.

Malcolm Wicks: He fully understood the difference and, indeed, was a leading proponent that we should be ambitious, given climate change, to set a demanding renewable target for the European Union. I really can assure you, I do not have to curry favour, not that I ever would.

Q160 Miss Kirkbride: It is fine to tell us the truth.

Malcolm Wicks: There is another guy now, I think, at Number 10, but the reality of the matter is that when I led the energy review for the Prime Minister, Tony Blair, this man knows his energy, he really does. He has expertise in this area. I think that expertise includes knowing the difference between just electricity and all energy, really.

Q161 Miss Kirkbride: Given other outside electricity, what are you going to do to make that step change difference?

Malcolm Wicks: Some of the things we have announced already. The Secretary of State, John Hutton, announced some weeks ago in terms of the new licensing around what will be a very considerable expansion of off-shore wind turbines: because one of our obvious renewable sources in this country, and it varies from country to country depending of geography, terrain, rivers, all that stuff, is wind, and I think much of the expansion of wind power is going to be off-shore and we are in the process of enabling that to happen. That is one answer. I should say that next year we overtake Denmark in being the leading world nation in terms of off-shore wind, the London Array outside the Thames Estuary will be, I think, the world's largest off-shore wind farm, but we do not want to go just for wind. We have announced recently at Port Talbot what, again, I think will be the world's largest biomass plant, and you know about the feasibility study on Severn Barrage. All these things are pretty ambitious, but will they take us to X per cent by 2020? No, they will not on their own, and, therefore, we have now got a review going on and we are going to publish a consultation document in the coming months, I think, on the next stages on renewables. We are not complacent. This is a revolution - I say this as a gradualist - this is a revolution in terms of renewables, and, therefore, Chairman, through you, a huge opportunity for British industry, following the Nick Stern analysis, about the economic opportunities to get in the right place in terms of these new cleaner, green energy industries that we need to see in Britain.

Q162 Miss Kirkbride: That is an optimistic scenario. It could also be a huge cost to the British industry when it is forced to go further and faster than is realistically possible. Therefore, is it likely that the Government is going to have to buy-out some of its share because it is simply not going to be doable on the present forecast?

Malcolm Wicks: The proposals as they stand at the moment do involve some training, I suppose is the word, across European nations, if it is felt to be less expensive to develop our share, and a small part of that is in another European country - all that is being discussed - but I certainly see for the great bulk of this the British commitment being in Britain, and that is important for reasons of energy security as well as climate change. I think that more and more parts of British industry now, instead of just seeing the costs, which, I think, was where it was five years ago, are now seeing the economic opportunities of moving towards a low-carbon economy. We will see that in housing, we will see that in renewables, we will see it in terms of carbon capture and storage and in many other parts of life. If anything, it will sometimes be the companies urging government on rather than the other way round.

Q163 Miss Kirkbride: Are you happy to sell to the electorate in the future the idea of being taxed by Europe for our dirty energy?

Malcolm Wicks: I do not understand the reference there.

Q164 Miss Kirkbride: At the end of the day, whatever you want to call it, there is essentially a tax if we do not meet these energy requirements. If it ends up being 15 per cent and we do not meet it, the buying-out amounts to money that the British public will be giving to other countries in Europe because it has not met those targets. Do you think that is going to be terribly popular with the electorate?

Malcolm Wicks: I think the British public are increasingly becoming concerned about global warming and climate and, if anything, they will be frustrated if we do not take radical action. I think that is where the pressure comes from, and it is a pressure I welcome, but we are not gung-ho about this, we have to, obviously, be aware of prices and competitiveness and develop renewable energy with more than half a eye to the costs involved - of course we do - which is why the issue about training is something that may seem sensible.

Chairman: There is the possibility of a vote shortly, we are informed. I think we have ten or 12 minutes ideally of questioning to do. If colleagues ask their questions quite snappily I think we might be able to get through and not have to come back.

Q165 Roger Berry: Some cynics are suggesting that the Government might redefine renewables to include nuclear. Can you dispel that myth?

Malcolm Wicks: No, nonsense, because it is not a renewable. It has many of the features, but uranium is not renewable, as I understand it.

Q166 Roger Berry: Thank you. We very much welcome, in terms of reference, the feasibility study into tidal power, nominating the Severn, whether it is a barrage or two or three little barrages or tidal lagoons, whatever. Do you think this can all happen fast enough so that tidal power in the Severn will contribute to the 15 per cent renewable target by 2020? Can things happen over 12 years and, if so, how much will it contribute to that target?

Malcolm Wicks: I think we would be lucky for the Severn Barrage to be up and running by 2020. First of all, we do not know yet whether we are going to build it, the environmental considerations are very important in terms of feasibility, the unique eco-system there. We have got to take that very seriously. It is just possible that it could be up and running by then and help us with the target, but one of the things we are discussing with the Commission is urging them to be sensible. If you have a unique infrastructure project taking many years to build and develop and it just slightly goes over the 2020, we hope those looking at the arithmetic of targets will be sensitive to that kind of factor. One of the answers to your question - no, it is not really. I was going to say you know it. It could be four or five per cent of our electricity. Your question was more about---

Q167 Roger Berry: That is probably about two per cent of the target. Again, as indeed the Secretary of State did in the House, you have focused on the barrage as if that is the only---

Malcolm Wicks: Well, it could be tidal lagoons.

Q168 Roger Berry: That is right. The issue here, of course, is that the percentage tidal power is so great that if we are serious about any tidal power in the UK something will have to be done in the Severn. It may not be the Severn Barrage, in which case it may it not have the environmental impacts that you have referred to.

Malcolm Wicks: No.

Q169 Roger Berry: That it what feasibility study is all about?

Malcolm Wicks: As I understand it, the barrage would probably be the big gain in terms of electricity and CO₂.

Q170 Mr Weir: The Committee has sometimes been calling for action on space heating, which is responsible for almost half of carbon emissions. Given that we are talking about a renewable energy target, is it your intention to bring forward proposals, such as a Renewable Heat Obligation, to address issues of space heating?

Malcolm Wicks: Heating is absolutely crucial to this and it is sometimes the kind of Cinderella. Cinders is going to come to the ball, as it were, in terms of climate change and energy. Heat, I think, is some 47 per cent of CO₂ emissions, from memory, not just the heat to keep us warm in our homes and our offices but also the heat used for industrial processes of different kinds, and so it is a very considerable part of the situation. The relatively new Office of Climate Change, which has been established as a new unit across government, has done important work on this and only today we have published details of a consultation that we want to launch on this. We have got to take it very, very seriously, and, as I indicated earlier, I recently visited a combined heat and power plant on the Isle of Dogs, I have been to Denmark and looked at it as well, I am very committed to looking at this very carefully because it is part of the equation which, frankly, has not been there in the recent past and it should be.

Q171 Mr Weir: But no specific Renewable Heat Obligation in the mean time.

Malcolm Wicks: I do not think in the mean time---. I do not think that is where we are at the moment, but clearly we need to think how we would bring this forward.

Q172 Chairman: Because it was ten pages in the White Paper last year out of 300, so I am encouraged by your newfound enthusiasm, Minister.

Malcolm Wicks: But all the other ten pages were vital too.

Chairman: The other 290 pages were very important, yes. Briefly, carbon capture and storage.

Q173 Mr Clapham: If we are going to impact on CO₂ over the next 50 years, we have got to have technology that we can transfer and carbon capture and storage is one of those technologies. For obvious reasons, such as proliferation, we are not going to be able to transfer nuclear. When are we likely to see a fully operational demonstration plan?

Malcolm Wicks: I am proud of the fact that the UK government is going to fund and facilitate a demonstration project. The competition has now been launched and it is up to different companies to come forward with proposals around a coal power station to have a post-combustion technology. I think it is difficult to predict the timescale on that, but I am proud of the fact that we are a leading nation on that with huge potential to help climate change, not only in the UK but also in China.

Chairman: Minister, there are a few more things we want to ask you, there is not really time and it is not worth coming back after the division to ask those questions. We will break off there, consider what you have said and decide how to take forward the matters we have been debating today. Thank you very much indeed.

Q174 Mr Hoyle: Can we have your draft as well?

Malcolm Wicks: I will send you another draft, yes, but I will check the headline on it first!

Chairman: Meeting closed.