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Richard Ottaway (Croydon, South) (Con):
I declare an interest as an adviser to the South Hook LNG terminal, which has featured in this debate today. It is a
hugely significant development, and it comes as no surprise that it was opened by Her Majesty the Queen and his excellency the Emir of Qatar earlier this year.
We have to put this debate into context. We are going through the worst winter in decades, and in the past few days, leaving aside the debate about storage, there have been shortages. As the Secretary of State said, there have been problems with the Troll field, and demand has soared at the same time. The fact that the lights are still on is due to the investment in LNG, not just at Milford Haven, but with the British Gas terminal on the Isle of Grain. That is why things are still going ahead. Those two terminals are now supplying 10 per cent. of the UK's gas. Without that storage and capacity, the lights would be off, we would be on a three-day week and the Labour party would be at 20 per cent. in the opinion polls.
The Secretary of State said that the Government had been proactive in that development. Of course they have. They have been good about it. However, the initial decision was a financial one made about seven or eight years ago. Investors did not do that just because they were concerned about the UK's energy position; they did it because they wanted to make money. The price signals at the time looked good, but now they do not look so attractive. That is why the Opposition motion's call for a new framework to attract the necessary investment is so necessary. I am astonished that the Government do not accept that part of the motion in their amendment.
We have to look at this debate in a global context, and in that respect there are four statistics that are very relevant indeed. The first is that oil and gas will remain the primary source of energy and that, together with coal, they will supply 85 per cent. of global energy needs in 2030. Secondly, by 2020, energy consumption by the developing world will overtake consumption by the industrialised world. Thirdly, natural gas is the fastest growing primary energy source. Fourthly-this is a statistic on which I differ from my constituency neighbour, the right hon. Member for Croydon, North (Malcolm Wicks)-global growth in electricity demand will grow by 55 per cent. by 2030, which raises the question whether low-carbon policies can match that growth.
The key issue to arise from all that is that in the years to come, there will be a seller's market. There will be greater competition for equipment and skills, which will cause serious problems for electricity producers. The key questions for policy makers are these. Will the investment meet the growth in demand? Is nuclear power part of the answer? There is a consensus that the answer to that is yes. Should we bet the house on renewables? Probably. Will the grid cope? Perhaps. Who will pay for that? A lot of uncertainty is caused by those factors, and that influences the debate.
On infrastructure, there remains the issue raised by the hon. Member for Angus (Mr. Weir), the spokesman for the Scottish National party, about the grid connections. We need financial incentives. Planning is now resolved, but where are the policies on tariff structures, renewable credits, CO2 pricing, construction capacity, and fuel and site availability? All that produces a huge amount of uncertainty, which explains why so little new generating capacity has been produced over the past five years. There is now just 6.8 GW of capacity under construction,
5 GW of which will come from gas. We have planned, in the pipeline between now and 2016, consent to build 11 GW of capacity, of which 8 GW will come from gas.
With 15 GW of generating capacity dropping out in 2015, I would say that we need all that capacity. There will be a large dip in capacity, so my advice to whoever forms the next Government would be to ensure that creating that extra capacity becomes their No. 1 policy priority. There is a huge amount going on, but if the market does not respond, the Government will have to become far more interventionist than they have been so far.
6.28 pm
Mr. Mark Hendrick (Preston) (Lab/Co-op): The world is facing a resource crisis. The global population is expected to increase to 9 billion by 2050. Not only is the world increasing in population; it is becoming richer. As nations such as India and China enjoy economic growth, their citizens want and can afford to consume like we do. In China, for instance, the number of cars will increase from 4 million in 2000 to 130 million by 2020. However, as demand increases our resources are becoming even scarcer. Oil and gas supplies are becoming more costly to extract. The price of oil might have dropped from the eye-watering peaks of 2008, but it has risen again quickly, to approximately $80 a barrel today.
The European Union's dependence on foreign fuel is also rising. Europe is now the world's biggest importer of energy and the second largest consumer. Europe depends on just three countries-Russia, Norway and Algeria-for nearly half its supply of gas. As has been said in this debate, there have been concerns in recent years that Russia would use that control for political purposes.
In addition, we face the constant threat of global terrorism. Al-Qaeda has threatened to attack what Osama bin Laden calls the "hinges" of the world economy, of which energy is the most crucial. The resource crisis means that the main production sites are the sources of rising tensions. About a third of the world's civil wars are in oil-producing states. Economic power is also shifting to oil and gas-rich states and the elites within them. As Thomas Friedman has argued, soaring oil prices strengthen anti-democratic regimes.
We know that energy production is a major contributor to climate change. It is therefore impossible to discuss energy without referring to the impact on our environment, and ultimately on human welfare. As it is such a huge part of the climate change problem, energy must be at the heart of any solution.
Mr. Crabb: The hon. Gentleman has been making some quite alarmist comments about imported energy sources. Does he recognise that the real stresses on the UK energy system in recent years have come from problems such as the Buncefield explosion, the fire at the Rough gas storage facility and, in recent days, ice in the pipelines that connect us to the Norwegian gas field? Those kinds of problems are the immediate challenges to UK energy security, not the threats from terrorists that he is talking about.
Mr. Hendrick: I remind the hon. Gentleman of the comment of a Conservative Front Bencher: we should expect the unexpected.
To address the twin challenges of energy security and climate change, the UK must implement various measures. Energy must be used more efficiently and we should have a diverse supply of low and zero-carbon energy sources. It is reported that International Energy Agency analysis suggests that serious action on climate change requires a
"complete transformation of the energy sector...in all countries".
It is important that we should act as part of a united Europe. It is in the interests of all major consumers to have a predictable and rules-based approach to managing energy security and climate change. It is only through co-ordinated action with our European neighbours that we can achieve that. For example, Russia is dependant on Europe as a consumer market, with 80 per cent. of its oil exports and 60 per cent. of its gas exports coming into the EU. It is essential that Europe acts collectively to maximise that consumer influence. Similarly, Europe will have the weight to negotiate with China, India, Japan and the USA only if it is a united Europe. Indeed, we recently saw action of that kind at Copenhagen.
Energy has been at the heart of the European Union since its conception, and it remains there today. In 2007, EU leaders recognised the twin challenges of climate change and energy security, and agreed to some laudable goals on energy usage, renewable energy and reducing emissions. Europe also co-operates on investments, technology transfer, mutual access to markets and predictability in commercial relations, particularly with countries such as Russia and others in northern Africa, the Gulf region and central Asia. The UK has played a central role in shaping that European action and is at the heart of international agreements. I join other hon. Members in welcoming the plans to develop a European supergrid.
A great deal of progress and development is required on clean coal and on carbon capture and storage. I know that energy efficiency is high on the Government's priority list, but we have to do a great deal more to make homes more efficient. I welcomed the Warm Front programme, which did a lot to insulate homes. In my constituency, 8,000 homes received loft insulation, double glazing and other measures to improve energy efficiency.
It will not be easy to switch to being a low-carbon economy. That change will force nations to co-operate and will require unprecedented development and use of existing and new technologies. Renewables, nuclear power and carbon capture and storage will all come into the equation. All that will cost about £10.5 trillion globally between now and 2030, but those costs will be vastly outweighed by what we will reap in environmental and energy security.
6.34 pm
Mr. Mike Weir (Angus) (SNP): Several speakers have talked about the oil and gas industry in the North sea, but I would caution Members about writing it off. The Energy and Climate Change Committee report shows that this industry still has a future, not only because there is a large amount of oil and gas in the North sea, but because there is an opportunity to use the skills developed in the North sea to move forward into renewables industries, particularly offshore wind and tidal and wave power, which could be the key to much of our energy for the future.
I agree with what the right hon. Member for Croydon, North (Malcolm Wicks) said about the dash for gas. Generating electricity might well not be the best use of our gas reserves, but the fact is that gas is a major part of our electricity generation at the moment. Under current proposals, 33 gas plants have received planning permission but are not yet in operation and another nine are under consideration, totalling about 15 MW already planned to come on stream. They will play a considerable part in our energy provision for the foreseeable future.
In Committee, I proposed an amendment to the Energy Bill to try to get the Government to look at gas combined capture and storage. The Government opposed and defeated it. I entirely understand the Government's wish to concentrate on coal in the first instance, and I understand, as do all members of the Committee, the need to get CCS for coal, but I do not understand the refusal even to consider gas for the near future. Given the amount of gas that we still use in generation, it seems to me that it is going to be part of our energy mix for the foreseeable future, so we are going to have to decarbonise gas as well. Even at this late stage, I ask the Government to think again.
In the remaining few minutes, I want to concentrate on the vital issue of transmission charges, which I raised in an intervention. If renewables are going to play a major part in our energy mix, we will have to deal with this matter. The Government have rightly announced ambitious plans for offshore wind farms, but that energy has to come ashore, get into the national grid and be transmitted to the areas where it will be used.
The current transmission regime was developed for a grid where power came from big coal, gas and probably nuclear stations, which were often located near the main centres of population, but it is not fit for a new century of renewables, when energy sources are in much more remote areas and there are greater difficulties in getting that energy into the national grid.
The locational charging methodology used by Ofgem levies higher charges on generators furthest from the main centres of demand, which generally favours those in the southern part of the UK over those in Scotland. Indeed, it has been calculated that transmission charges are £21.58 per kilowatt-hour in the north of Scotland compared to an effective subsidy of £6.90 per kilowatt-hour in London. That is a lunatic system when we are looking to develop renewables. As a result, Scottish generators produce 12 per cent. of UK generation but account for 40 per cent. of the transmission costs-about £100 million a year more than their fair share.
Wind is not the only issue here. For example, there are huge opportunities in the Pentland firth for tidal power, but we need the infrastructure to bring that power into the grid. It is not a case of putting the cost on the developer; the matter should be part of a national plan for renewables. Only last weekend, a considerable amount of controversy arose over suggestions that National Grid might be thinking of doubling or tripling charges to the islands, although it has been denied.
Will the Minister look seriously at instructing Ofgem and National Grid to undertake an objective and open analysis of the impact of locational charging, broken down by each part of the UK and by type of generation for both current and future generation mix scenarios. That should address the key question of how much
more productive or competitive a renewable project in Scotland has to be to offset the impact of a locational charge. Alternative models of charging should be considered, particularly the post stamp model, which would be in the national interest as well as in the interests of generators in Scotland. If we do not get this right, I greatly fear that we will end up-
6.39 pm
Charles Hendry (Wealden) (Con): This debate has been all too short, but we have had some absolutely excellent contributions. They have been thoughtful, constructive and well informed, showing the House at its best in terms of the expertise that it can bring to incredibly important and relevant debates such as this. The only sadness is that, as a result of its timing, we have not been able to hear from more right hon. and hon. Members. However, the contributions that we have heard have been constructive and relevant.
The right hon. Member for Croydon, North (Malcolm Wicks), a former Minister, spoke with his usual authority. So he should do: he was Energy Minister No. 7 and No. 10 of the 15 whom there have been since the Government came to power in 1997; and based on his speech he could be Minister No. 16, too. He brought to bear his global view and understanding of the issues in a constructive and helpful speech, and he was justifiably frustrated by the fact that we have not seen the report that the Government should have published in response to his helpful and constructive paper. I hope that that response will be forthcoming.
My right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) showed his expertise and understanding of the issues, and he delivered a clear wake-up call when he talked about the areas where progress is not fast enough. They include smart metering, smart grids and the drive to renewables and energy efficiency. I assure him that, although we recognise that in the European Union energy is a retained power, we totally understand the need to co-operate and work with our European partners to ensure the energy security that is necessary in a changing and challenging world.
The right hon. Member for Scunthorpe (Mr. Morley) talked about the need for diversity and rightly reminded us of the importance of fuel poverty in this debate, because there is a direct link between the security of supply and fuel poverty. Security of supply challenges do not necessarily just lead to power cuts; first, they lead to price spikes, which are damaging for consumers, and particularly for businesses.
My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) also put the matter into a global context and talked about the international challenges that we face, including population growth. However, he reminded us clearly of the wasted opportunities and the lost years-the years when things could have been done to prepare us for the situation that we face today. Those opportunities were missed.
Mr. David Anderson: Will the hon. Gentleman give way?
Charles Hendry:
I hope to be forgiven if I do not give way, because we have been very short of time in this debate. If there is time towards the end of my contribution,
I most certainly will give way, because I know that the hon. Gentleman has been here, waiting very patiently, throughout the debate. In fact, as he has been here so patiently throughout, I shall give way.
Mr. Anderson: The hon. Gentleman talks about the lost years, but what about the lost years of the 1980s, when the Conservative party devastated the coal industry, privatised the utilities and left us with the mess that we are in now?
Charles Hendry: I knew that my instincts were right: I should not have given way to the hon. Gentleman. In the 1980s, we set the market framework that delivered the cheapest energy prices in Europe for the next 20 years. The model has worked, and it has been pretty robust up to now.
We heard from the hon. Member for Nottingham, South (Alan Simpson), who will be a great loss to this Chamber when he steps down as a Member. He made a very thoughtful and visionary speech on themes that he has made his own during his time in the House, and he described his concern to ensure that feed-in tariffs are set at the right level. We share his concern, because we had to work very hard to put those tariffs on to the statute book, and it would be a tragedy if they were set at a level that did not deliver the benefits that we hoped for.
My hon. Friend the Member for Croydon, South (Richard Ottaway) rightly focused on the investment that has been made and the vital contribution that liquefied natural gas terminals have made to our energy security. We heard a very thoughtful speech from the hon. Member for Preston (Mr. Hendrick), and the hon. Member for Angus (Mr. Weir) brought us back to gas when he talked about carbon capture and storage. We supported him in a Division on the issue in the Energy Bill Committee yesterday, and I am sorry that we could not persuade the Government to take a broader view on CCS and help Britain take a big step forward in that area.
Much of this debate has, understandably, focused on gas storage. The Secretary of State talked about the issue, saying that we have the lowest prices in Europe, but if there were more gas storage, there would be greater price benefits to our consumers. Gas could be bought in the summer, when it is cheaper, and sold without big price spikes in the winter. There is a link between storage and pricing.
The Secretary of State also referred to the recently published national policy statement, as if that will put right gas storage. We have done a quick check, and of the 675 pages of policy statement that the Energy and Climate Change Committee is going through, seven-1 per cent. of them-relate to gas storage. That is not quite the commitment that we are looking for.
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