 House of Commons |
Session 2009 - 10 Publications on the internet Energy Bill |
The Committee consisted of the following Members:Gosia McBride, Committee
Clerk † attended the
Committee Public Bill CommitteeTuesday 19 January 2010(Morning)[Hugh Bayley in the Chair]Energy BillWritten evidence to be reported to the HouseEN
13
Ofgem 10.30
am Simon
Hughes (North Southwark and Bermondsey) (LD): On a point
of order, Mr. Bayley, is it acceptable to take jackets
off?
Clause 16Amendments
of section 4AA of the Gas Act
1986 Charles
Hendry (Wealden) (Con): I beg to move amendment 35, in
clause 16, page 13, line 12, after
‘them’, insert ‘and gas storage for
them’.
The
Chairman: With this it will be convenient to discuss
amendment 33, in
clause 16, page 13, line 18, leave
out ‘or’ and insert
‘,’. Amendment
34, in
clause 16, page 13, line 19, after
‘pipes’, insert ‘or gas
storage’. New
clause 20—Provision of gas storage
facilities— ‘(1)
The Secretary of State may by regulations set a minimum requirement for
an amount of gas to be secured for use
by— (a) suppliers of gas
to domestic and business customers,
and (b) gas-fired generators of
electricity. (2) The Secretary
of State may by regulations establish the eligibility of suppliers and
generators for inclusion in the
requirement.’.
Charles
Hendry: It is a pleasure to serve under your chairmanship
again this morning, Mr. Bayley, as we continue to make good
progress in our consideration of the Bill.
The
amendments link in to new clause 20. We were not sure whether the new
clause would be successfully accepted into the Bill. Therefore, we
tabled the amendments as back-up. Our preferred means is to amend the
Bill through the new clause, which we will consider towards the end of
our proceedings. However, it is appropriate to talk about the
amendments at this stage. With that in mind, I hope that the Minister
will be able to respond positively to the proposed ideas. I recognise
that amendments 35, 33 and 34 are slightly awkward in their phrasing,
but that is because we tried to find a way to build our proposal into
the Bill in the event that the new clause is not agreed
to. Over
the last couple of weeks, we have seen great pressure on gas supplies.
We have come through it, but this is the third time that we have faced
the issue in five
years. It is now four and a bit years since I began this job. One of the
first statements I heard from the then Minister for Energy, the right
hon. Member for Croydon, North (Malcolm Wicks), was that we were awash
with gas, and in a few hours he was explaining why we had almost run
out. That was back in the early winter of 2006. We had a further
problem last winter, when we were down to, perhaps, three days’
gas storage, and we have seen some pressure on it in the last couple of
weeks. Clearly, we do not want to overestimate that. We do not want to
pretend that there was a crisis when there was not, but we are right to
be aware of the pressures and challenges that exist. It is also
reasonable to point out that part of the reason there was not a crisis
on this occasion is demand destruction. Demand for gas has been
significantly down due to the recession—down by 5 per cent.
across the board, and by 15 per cent. among industrial and commercial
users. Therefore, had this been a normal economic cycle without the
recession, the pressure on gas would have been significantly
greater.
We have to
look at the implications of that for the future. We have been helped in
these last couple of weeks by the ability to bring back on stream every
element of coal-fired generation in the country. That will not be the
case in a few years. We will reach a situation where a third of our
coal plant will be closed down by 2016 at the latest, as a result of
the large combustion plant directive, and most of the rest of
the coal will be out of commission as a result of the industrial
emissions directive, if it goes through, as planned, by 2023. We face a
situation where we simply no longer have the ability to call on coal as
back-up. We expect new gas generation capacity in the generating mix. I
would be interested to hear from the Minister how she views that. The
Government’s low-carbon transition plan talks about the role of
gas in the mix falling from 40 per cent. or more today, down to just
29 per cent. in 2020. There are very few people outside her
Department who believe that those figures are realistic. At the same
time Ministers talk about the huge amount— 20
GW—of planned potential new generating capacity, of which 60 per
cent. is actually gas. If that were to happen, it is inconceivable that
we could meet the Government’s target, so it would be useful to
know where the Government really think we are going to end up in this
process.
It is also
important to note that, during this period of pressure, a considerable
amount of electricity, much of it gas-generated, was exported to
France. The interconnector with France has often been working at
capacity, with up to 2 GW sent to France at a time when our own
industrial users of gas have been asked to close down their factories
for a period because of the pressure on gas supplies. There have been a
number of interruptions. It is against that background that we need to
do more to secure the gas storage facilities in the country. We clearly
have many more diverse sources of supply than has been the case
historically. The
LNG facilities have come on stream at South Hook and elsewhere, and
that is an important contribution, which we do not in any way
underestimate. However, the evidence is that an LNG facility does not
mean that the gas can always be used, because the nature of such
facilities is that the gas will often set off around the world without
a destination in mind and then go to
the highest bidders. In the early days of the new LNG facilities, much
the gas was going to America. That has reduced due to the extent to
which shale gas has been found there, and much of the gas was going to
Japan because of the problems that they were having with their nuclear
fleet. Only after those changes did we end up with more gas coming into
the LNG facilities in the UK. Although such facilities make an
important contribution, they cannot alone guarantee our security of gas
supply.
There have
also been new pipelines; for example, the Langeled pipeline to Norway
is an extraordinarily important element. However, in the recent cold
spell, we saw that it could not work at capacity because of structural
and technical problems, so we were not getting as much gas through it
as we needed to replenish our stocks. As a consequence, we ended up
with four balancing alerts in one week. Large business users were asked
if they would mind closing down, and there was a contractual basis for
that to be done so it was a voluntary arrangement. Nevertheless, big
British companies were asked to stop producing and manufacturing to
conserve gas because of the pressure on
supplies.
The
Minister of State, Department of Energy and Climate Change (Joan
Ruddock): The hon. Gentleman may want to reconsider what
he has just said, which was that businesses had to stop manufacturing.
If he checks, he will find that most companies with interruptible
contracts have back-up supplies and alternative fuel. For most, that is
the only way that they would sensibly have taken on an interruptible
contract. One would not expect manufacturing to
cease.
Charles
Hendry: I certainly accept that some of the companies
concerned will have had alternative sources of supply, but that,
inevitably, will be another form of hydrocarbon and is not good for our
carbon emissions. I realise that that is a different point but there
are consequences of such balancing
alerts. As
we look further ahead, we see clear warnings. Last week, Alistair
Buchanan, the very constructive and sensible head of Ofgem, warned the
Financial Times that Britain’s gas markets faced a
“cliff edge” in 2015-16, which could cause supplies to
run short in the latter part of the decade. He focused on the security
of gas supplies from places such as Turkmenistan. The amount that could
come through to Europe and to Britain could be as little as one tenth
or one fifth of what we assume is there.
Joan
Ruddock: Again, I should put it on the record that we do
not accept that analysis. In fact, the number of countries from which
we now have the option of getting supply has dramatically increased. We
do not expect reliance on Turkmenistan.
Charles
Hendry: I was not suggesting that there would be
“reliance on Turkmenistan”, but there has been a
significant assumption concerning the billions of cubic meters of gas
that will be forthcoming from there. Alistair Buchanan’s point,
which we have to take seriously, is that due to structural problems,
delays in pipelines and other issues, we may not get anything like the
amount of gas being forecast to come from Turkmenistan.
An important aspect of the work that Ofgem is doing through Project
Discovery is about looking at the potential sources of supply,
identifying where the pinch points might be, and seeing how realistic
the sources are and to what extent we can truly rely on
them. Last
week the Energy Intensive Users Group and the Engineering Employers
Federation wrote to the Financial Times to express
concern “at
the complacent nature of some of the comments about the UK’s
energy
supply”, and
about gas and gas storage in particular. We have a challenge; I do not
put it more strongly that that. We have seen three challenges in the
past few years and we have to do much more to ensure the security of
gas supply coming into the country, which means that we have to look
more at the availability of gas storage.
We are
critically short of gas storage for different reasons. In France, they
have about 120 days of gas storage, but they are overwhelmingly
dependent on gas imports. In Germany they have 100 days of gas storage.
In the United Kingdom we have perhaps 16 days of gas storage at best. I
realise that historically the North sea has been our gas storage
facility, but as the gas from the North sea has started to be depleted
and as we have become net importers of gas with all the problems that
involves, we have not seen the sort of increase in gas storage that we
need. John
Robertson (Glasgow, North-West) (Lab): Does the hon.
Gentleman not accept that the climate of this country, other than in
the past month, is usually such that we do not quite need the same
storage facilities as other countries in mainland Europe? Would not the
knock-on effect be that we would waste money in storage and he would
complain to the Government about doing that as
well?
Charles
Hendry: That is an extremely valid point. The point I
would make is that we know what we are losing in terms of generation
capacity in the next few years. We know that we lose a third of our
coal, and we cannot replace that with coal with CCS in that time scale
because the technology is not there, even though it is clearly being
developed. We know that we are starting to lose our nuclear fleet and
that all, bar Sizewell B, are due to close by the early 2020s. Some may
get life extension, but that would be a bonus rather than something
that we can count on. We can see a huge amount of plant coming out of
use, and that will have to be made up by something else in the short
term. New nuclear in time may fill it up, but in the short term it will
not be able to do it. Therefore if new gas plant is to be built and we
move from having perhaps 40 per cent. of our generating mix powered by
gas to potentially 60 per cent., which some of the Ofgem scenarios
anticipate, then 80 per cent. of our gas will be imported. So it is
nothing to do with our climate, it is to do with the mix of generating
plant that we
have. The
other aspect, and this goes to the heart of the amendment, is that we
are not saying that this should be Government spending. We do not
advocate Government-funded strategic storage. We are saying that the
companies that will be using gas either to burn it for generation or to
supply it to domestic households must find a way of having certain
amounts of gas storage which would be
specified by the Secretary of State. This is a buffer. It is a security
of supply issue that we think is important in a challenging and
changing
world. Mr.
Tobias Ellwood (Bournemouth, East) (Con): My hon. Friend
is making a powerful argument. Those people who would appreciate extra
storage capability in the UK would be those 100 companies that were
told on 7 January that they would have their supplies cut, even if only
for a short period, because of the type of contract they had. They
would very much like this extra storage as would much of Britain
now.
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