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We also need a frank discussion on renewable energy targets, a point made by the noble Lord, Lord Birt. Renewable energy currently accounts for 2 per cent of the UK generating capacity. There have been great strides in this area. Yet the 20 per cent target by 2020, agreed under the German presidency, looks quite frankly unrealisable, even with a reduced target of 15 per cent for the UK. A seven or eight times increase in renewable energy in the UK between now and 2020 is frankly not achievable. The Government need to take this on board and come up with a workable solution, one based on more than just pure aspiration. Buying carbon credits abroad will be a costly cop-out. They should reconsider their opposition to feed-in tariffs. I agree with the noble Lord, Lord Redesdale, on this matter.
From the excellent speeches we have already heard and those that will surely come later, a picture will emerge. We do not want to be looking over our shoulder in 20 years’ time unsure of our energy supplies. Equally, we do not want the next generation of decision-makers to blame our current leaders for failing to reduce our carbon footprint. We have a clear choice: develop a diverse energy portfolio drawn from clean, affordable and low-carbon energy sources, or sleepwalk into an energy crunch. It will be with us soon enough if we fail to act. For some countries such as South Africa, energy shortages and
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There is a fashionable phrase doing the rounds in Europe at the moment: act today to save tomorrow. From the Bill before us today and the broader legislative package that the Government have proposed, we are witnessing a significant gear-change that tries to achieve just that. The Government do not yet have all the answers but taken together this Bill sows the seeds for a low carbon economy while working to ensure security of supply. For that, Her Majesty’s Government should be commended.
4.43 pm
Lord Jenkin of Roding: My Lords, most speakers hitherto have ranged a little wider than the provisions of the Bill—quite properly because, as everyone has said, the Bill deals only with some of the matters which we need as a country to address. The Bill as it stands is a mixed bag and so will be my speech. I am following other noble Lords in that. The measures outlined by the noble Lord, Lord Jones of Birmingham, in Parts 1 to 4 of the Bill, about gas and CO2 storage, renewable obligation certificates and decommissioning are all much as expected. All are urgently necessary and essential for the development of these sources of energy.
Before I turn to the Bill—there are some provisions that I particularly want to look at—I shall talk about what I have called the new kid on the block. When, last year, the Nuclear Decommissioning Authority awarded a substantial decommissioning contract to a company called Energy Solutions, of Salt Lake City, Utah, in the United States, I am sure I was not the only one to be taken by surprise. Indeed, I tabled a Question, which I showed last week to the managing director of that company, and he laughed.
Since then, I have made it my business to learn about the company. I am quite satisfied that its presence in the UK and its remarkable record, particularly on decommissioning and dealing with waste, is enormously important and gives rise to two issues of fundamental importance to our immediate energy policy.
First, as recently as the nuclear White Paper last January, there seemed to be a widespread assumption that we were talking about replacing our decommissioned nuclear stations and that we might not therefore be planning for more than about four or five new nuclear reactors. Further, because of the need to avoid what I call the AGR mistakes—seven different designs for seven different stations—there was a widespread view that we needed to go for one design and replicate it to get all the benefits of scale. EDF—Électricité de France—and British Energy, perhaps in partnership with E.ON of Germany, have been seen as strong contenders for this. Their project would be based on the EPR reactor designed by Areva.
Since then, however, we have had a very important speech by John Hutton, the Secretary of State, on 26 March. He said:
“I don’t want to see just a like for like replacement of nuclear capacity in the UK ... But energy security and climate change should provide the push for a significant expansion of nuclear in the UK in the coming decades”.
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He went on to offer the promise that this could lead to 100,000 new skilled jobs. Many people have interpreted this, quite rightly, as meaning not only four or five new nuclear power stations but if anything, eight, 10 or possibly 12. This is why the arrival of Energy Solutions is now very important. It has publicly announced its intention—and that of its partners, RWE Power International of Germany, and Westinghouse, which we still regard as American, although it is Japanese-owned—to enter the market with a series of AP1000 reactors, which is the Westinghouse design. They may use not British Energy sites but sites that are being cleared by the NDA. They have mentioned Wylfa in Anglesey, Hinkley Point and even possibly Bradwell. There may be others.
If there had been only one competitor in the UK market, I would have envisaged every prospect of a competition investigation, perhaps by the OFT, by the EU, or both. Ofgem will be able to offer initial advice, but it has told me that such a process could not take less than six to nine months. We cannot afford that delay. Now with the prospect of two entrants into the market, however, there will be competition. Although we do not expect Ministers to comment at all on the present negotiations, which are clearly highly market-sensitive, can they say whether having two entrants, with different partners with different reactor designs and based on different sites, obviates the need for any competition investigation? That is the first point.
My second point about Energy Solutions relates to the contribution that it could make to managing our waste. I am told that it has been having detailed discussions with government departments, the NDA, the Environment Agency and the other regulators—the HSE and the Nuclear Installations Inspectorate—which hold out a real possibility of a step change in the plans which have hitherto been projected by Ministers, as approved by CoRWM, for dealing with our waste. Energy Solutions has told me that, while spent fuel and the waste from fuel reprocessing must go into a deep repository in this country, much of the so-called intermediate waste does not need to be managed in that way but can be either recycled for use in new nuclear build or transported to Energy Solutions’ own disposal facility, called Clive, in the Utah desert. I have no means of ascertaining this, but it claims that this could lead to substantially lower costs with a significantly smaller repository for new-build waste and so save us a great deal of money.
I should like to ask the Minister a detailed question on the Bill. Of course we cannot decide; we have not even got the White Paper yet on waste. But Clause 45 in Chapter 1 of Part 3 of the Bill—this is the chapter which includes the funding of decommissioning and waste that many noble Lords have talked about—allows for the modification of an approved programme for funding and disposal. If the regulators approve a significantly less costly process of decommissioning and waste disposal, which is the offer held out by this company, will that clause allow the Government to modify an existing approval so as to allow the companies to reduce significantly the amount of money that they have to set aside for funding the obligation? I totally
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I turn to the other end of the energy scale—
Lord O'Neill of Clackmannan: My Lords, I have been following the noble Lord’s novel argument with some interest. My only concern is that the proposal that he is referring to will have to be the subject of a fairly rigorous competitive process, organised by the NDA at least, following on from what the NDA is presently doing. Is the noble Lord not putting too much emphasis on one company’s option which is to be the subject of very rigorous competitive analysis and adversarial attacks by other companies as well? It seems that he is embracing the first one that comes along.
Lord Jenkin of Roding: My Lords, the noble Lord makes a very sound point, but as I think we will see when we get the White Paper on waste, which we have been promised before the end of this month, it is a very long-term programme. It will be a long time before we are able to embark one way or the other on a waste programme. Of course these things will need to be rigorously examined by the competition authorities, if that is relevant, and certainly by all the regulators and by the Government. I would not expect anything less. All I am saying is that on the information which I have, there seems to be something here of which the Government should take careful note. I know they are being apprised of this because I have been told that.
Noble Lords will not be surprised by my next point if they remember the debates we had in January on the arrangements for reducing emissions from domestic properties—the so-called CERT programme. In our debates on that, one of the key provisions was for the energy companies, in seeking to reduce the emissions from domestic properties, to provide 40 per cent of their savings from the target group, which includes everyone on benefits, tax credits, housing benefit and so on, and, rather surprisingly, pensioners; and I declared an interest. Those present in the House when we debated that order will know that I felt that it was entirely wrong that the companies could not be told who was in the target audience. When asked who the people are and where the households are, the answer given was that the information is protected by data protection.
At the end of April, a very important fuel poverty summit discussed many issues, including not only the social tariffs mentioned by the noble Lord, Lord Redesdale, but also the CERT programme and prepayment meters. There was clear recognition that there has to be a system for identifying the households. I have received a letter from Sir John Mogg, chairman of Ofgem, who, shortly, will join this House, which is admirable. He said:
“Our remit and the focus of the Summit was on how to target and make more productive the help available by suppliers to the vulnerable and fuel poor”.
I warmly welcome that. Recently, when I asked the noble Lord, Lord McKenzie of Luton, when that would be, he said that it would be very soon. I hope
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An issue which appears to be in dispute between members of the Government is whether this will require further legislation—for instance, an amendment of the Data Protection Act. If further legislation is needed, why cannot that be done in this Bill? Do we have to wait until the next Session of Parliament before we can have a Bill to deal with that? I really would like an answer to that.
Transparency is another issue that I have pursued on every Bill we have had on energy. Why cannot the extra costs imposed by climate change legislation be shown on customers’ bills so they can know what that is? Again, I am told by Ofgem that a typical domestic customer has within his annual bill £31 a year for the emissions trading scheme; £38 a year for the CERT programme; and £10 a year for the renewables obligation, which of course falls on the customer and not on the Government. Together, that amounts to £79 a year, which goes straight on the customers’ bills, including those of the fuel poor. Is not the first step to make that clear, so that people know what they are paying for all that? I should warn the noble Lord that I shall pursue that too in Committee.
I would say more about the Ofgem remit but have run out of time and will have to come back to that in Committee. It has been approached the wrong way around. The right way would be to impose clear statutory duties on the suppliers and then to get that properly regulated.
Finally, much has been said about the price of carbon as being essential for new investment, which, again, I have referred to on previous occasions. Last week, a paragraph in the Wall Street Journal, said:
“Luckily for Euro utilities, the British government is mulling an energy bill that would set a minimum price for carbon”.
It is not in this Bill. Can the Minister tell us whether the Government are mulling the possibility of putting a floor price under carbon? I am sure that the industry would be very interested to know the answer to that, and so would I.
4.59 pm
The Lord Bishop of Chester: My Lords, energy policy is a sensitive subject and a difficult one, too, because it is not easy to foresee what the future will bring, although the actual decisions in the policy areas are generally long term in nature. A key plank of government policy for many years now has been to look for market-driven solutions and to seek to direct the market by various degrees of regulation, but keeping these to a necessary minimum. Certain aspects of commercial energy projects can be developed only in direct response to government policy, of course, and that takes us to the heart of this Bill: its provisions to encourage CCS initiatives, an expanding range of renewable technologies and a renewed investment in nuclear energy. I wish to make brief comments on each of those areas and then move on to an issue that was discussed in some detail in the White Paper but which has not featured in the current Bill.
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One’s view of CCS will be heavily determined by the view that is taken of global warming and, more specifically, the separate question of the contribution that rising CO2 levels are making to global warming. In previous debates in your Lordships’ House the scientifically best-qualified noble Lords among us, including the noble Lord, Lord Oxburgh, who is to speak next, have argued that the case is essentially proven, and the Government seem to have accepted that. In a previous incarnation I was a scientist, and from the very modest foothills of my own scientific judgment—at the end of the day we all have to exercise a judgment that is amateurish in character—I regard the question as in some respects still open.
There does seem to be a greater consensus among scientists from other disciplines than among climate scientists themselves that CO2 levels are the key determinant of rising temperatures. But climate science is a notoriously imprecise and poorly understood area of science. That is because the phenomena under investigation are so large: the whole of the earth’s surface, the whole of the earth’s atmosphere, and the sun itself. That makes precision difficult to achieve. The history of science is littered with scientific consensuses that have come to be overturned one way or another.
The fact that there has been a degree—somewhat less than one degree—of global warming over the past century does seem to be fairly clearly established. Its correlation with CO2 emissions is less so in my view, although there may be—and we should probably say, “probably is”—a link. But it is still, I think, in the realms of probability. That means that it is right to test out CCS technology on a commercial scale. This will be a hugely expensive operation. As we heard at Question Time, the cost simply of a demonstration site, much smaller than a commercial power station, will be £1 billion. That is for only one out of a range of possible technologies which could be put into place.
Given the rate at which India and China and other countries are building coal-fired power stations, more than one a week, without CCS, we need to be sure that the cost of fitting CCS is going to be realistic in the future and will not be disproportionate. One way or another it seems likely that global warming will continue come what may and for whatever reason. There have been trends over the centuries of the coming and going of global temperatures. There is a movement up and that global warming is going to produce consequences, particularly among some of the poorer in the world. Alongside the proper attention to CCS technology, there needs to be an equal attention to alleviating the consequences by flood defences and so forth. We need a mixed economy in these two areas; otherwise we could end up having very expensive CCS technology, which is something like tilting at the windmills of CO2 increases. Be that as it may; history will tell.
Turning briefly to renewable technologies, I welcome the changes to the renewable obligations scheme which are envisaged. It does all seem late in the day as we chase the target of 10 per cent of our energy generation by 2010 and 20 per cent by 2020. It would be good to hear from the Minister whether the 20 per cent target by 2020 is still regarded as realistic.
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Picking up on noble Lords’ earlier comments on the present arrangements, it seems to me that the renewables obligation process is really targeted at large-scale suppliers of energy. I think that we need a mixed economy of taking that approach while encouraging microgeneration, which needs a feed-in tariff to complement it. Encouraging microgeneration would help to change the culture in this country, which is still shifting towards a properly responsible approach to energy conservation. So there is a case for feed-in tariffs, particularly in relation to small-scale projects. Some churches with photovoltaic and other schemes are finding it difficult to set up connections to the grid for the contribution they may make.
There is also the question of whether the encouragement of energy crops, as envisaged in the White Paper, is now slightly out of date. There is quite a bias in the proposed differential renewable obligations tariffs towards encouraging energy crops, but given the recent changes in the area of food production and the rise in food prices, I wonder whether that remains the wisest course.
Turning to nuclear energy, I welcome the prospect of a new generation of nuclear power stations. The Bill seeks to set up a framework within which the Government can regulate new nuclear stations, and particularly in relation to the storage of radioactive waste. As I understand it, a company which owns and operates a nuclear power station will need to set aside money to pay for the storage of waste and the eventual cost of decommissioning the station and the site. In his opening speech the Minister said that operators would meet the full costs, but given that the full costs of storage potentially stretch over thousands of years and not just over the lifetime of the nuclear plant, it would be helpful to have some confirmation of what the term “full costs” means. Does it extend to the full costs incurred over the long period of storage that is envisaged?
My own view is that the present arrangements may end up slightly discouraging investment in nuclear energy, which would be regrettable. Because of the more or less equally beneficial carbon footprints of both renewable technologies and nuclear, I would prefer to have a slightly more level playing field for the two areas. We await the detailed proposals for the permanent underground storage of nuclear waste. It is difficult to see how these costs can be assessed with any confidence until we know about the actual plans—a point also made by the noble Lord, Lord Jenkin, and others. Can the Minister give us any idea of when he expects a permanent underground site to become operational? Given the subsidy which is provided for renewable generation, it would be a pity
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The issue which I feel should have been addressed in the Bill is that of fuel poverty. The White Paper, on page 77, gives estimates of households in fuel poverty, and the modelling was based on fuel prices in 2006. Could the Minister provide updated projections in the light of recent and projected rises in the price of oil, gas and electricity? The table showed a prospect of 3 million households in fuel poverty by 2015 on the least optimistic assumptions which were in place in 2006. How do those least optimistic projections in 2006 relate to the reality of intervening price rises for oil, gas and electricity? Fuel poverty, I suspect, will become a very significant factor in the coming years.
The White Paper sets out the schemes which the Government have in place to assist households in countering fuel poverty, including targeted improvements in insulation and energy efficiency. Although the White Paper sets out some options that require energy companies to have adequate programmes to support their most vulnerable customers, I feel that the problem will be sufficiently serious to suggest that a more formal regulatory environment should be provided in this area to address the needs of those who are most vulnerable. It has always seemed odd that the winter fuel payment is made indiscriminately to everybody, however wealthy or poor they are. There is much more to be done in targeting those who are in greatest fuel poverty.
Finally, I offer a general comment on the direction of government energy policy and, to a degree, on the absence of overall policies in recent years. One of the difficulties is that Governments have an immediate electoral horizon of five years. Within that time they are subjected to ever more intrusive and critical investigation by other political parties, the media and external commentators. That can result in a tendency to take short-term decisions and to put off unpopular ones. That has affected both the development of renewable energy in this country and the question of replacing our nuclear capacity. Energy policy needs a horizon of at least 50 years, not five. The Bill illustrates grappling with delays in developing long-term strategies. For example, the “dash for gas” was essentially a short-term provision, which future generations may look back on to see our generation as burning a valuable national resource in a short time, meeting a short-term Kyoto obligation but ending up by importing—probably—at least 80 per cent of our gas by 2020. Other examples of the tendency to look at implications in the shorter term could be given.
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