Examination of Witnesses (Questions 472
- 479)
TUESDAY 15 JULY 2008
Malcolm Wicks, Mr Simon Virley and Ms Tera Allas
Q472 Chairman:
Welcome, Minister, and your officials. Thank you very much for
spending some time with us this afternoon to answer our questions.
Thank you, too, for your written submission that came earlier.
I believe you would like to say a few words before we start, and
we would be very happy if you do just that.
Malcolm Wicks: If I could just spend
a couple of minutes on that, my Lord. May I thank the Committee
for giving us the opportunity to talk to you and discuss with
you the topical issue about the cost of renewable energy. May
I introduce my two colleagues who are with me: Simon Virley is
the Head of Renewable Energy and Innovation Unit in the Department
for Business and Enterprise, and Tera Allas is our Chief Economist
in the Energy Group. Over the last few weeks this issue of renewable
energy has become headline news, as we have just published the
consultation on a UK Renewable Energy Strategy. We are seeking
views on a wide range of measures that will enable the UK to meet
our legal commitment to the EU's target that 20 per cent of Europe's
energy should come from renewable sources by 2020. Our proposed
share of this target is likely to be 15 per cent, and I know the
Committee Members are aware that this is a challenging and certainly
ambitious target, but it is a target that the UK was instrumental
in designing and we are committed to meeting. No doubt you will
have seen the newspaper reports that accompanied the publication
of the consultation. We have not tried to hide the fact that meeting
this target will require additional investment from the private
sector to the tune of, over time, £100 billion. While it
is unlikely to impact energy bills before 2010, in 2020 both gas
and electricity bills will be higher due to the cost of renewable
energy, and it is important to recognise that. That said, we remain
committed to meeting the target and significantly increasing the
use of renewable energy in the UK over the next twelve years.
Underpinning this strategy will be the aim to achieve this step-change
in the most cost effective way. Decisions on renewable energy
cannot be made merely on the basis of cost in the short term;
it is about tackling climate change and securing energy supplies
for the future. The Stern Review into the economics of climate
change was absolutely clear that we needed to invest now or else
pay a higher price later. We are clear that we will need renewables
but they will not be the only solution; we also need a range of
other technologies including nuclear and including carbon capture
and storage if we are to decarbonise the power sector by 2050
and meet our CO2 reduction targets. While renewable energy can
reduce our dependence on fossil fuels we also believe it will
create thousands of business and employment opportunities, developing
cutting-edge, innovative green-collar industries. We are committed
to ensuring that as many of these benefits and jobs are created
here in the United Kingdom. Thank you.
Q473 Chairman:
Thank you very much. Perhaps I could open the questions and ask
you, would not a more robust and higher carbon price remove the
need for the cumbersome support mechanisms that currently exist
for renewable energy? That would be the route, I suppose, of least
intervention by the Government in the market and, by extension,
would give the greatest opportunity for the market to respond
in an efficient way in reducing CO2 emissions.
Malcolm Wicks: We do not believe that
they are alternatives; we think they are complementary. Certainly,
we are supporters of the European Union's Emissions Trading Scheme
and we are ambitious about its development, not least in Phase
3. Even if you look ahead to Phase 3, people are projecting a
price for a tonne of carbon dioxide at, say, about €35, whereas
probably to develop renewables alone through this mechanism might
require a carbon price of somewhere between €100 to €200
[per tonne of carbon dioxide]. We feel that, in addition to the
ETS, the carbon price mechanism, we do need to support renewables
in other ways, and principally, of course, through the development
of our existing Renewables Obligation.
Q474 Chairman:
Do you think, therefore, if there is a substantial gap between
the prospective carbon price under the trading system and what
would be required to encourage renewables to the pace that you
would wish, that is a failure somehow in the mechanism of the
trading system?
Malcolm Wicks: I think the trading system,
the ETS, is still a fairly new creature, and certainly in the
early phase, or so, it was very much trying to move forward—sometimes
tumbling over, sometimes staggering. However, I think as we see
the development towards Phase 3 we start to see the development
of a more robust mechanism where there will be a significant amount
of auctioning, for example, and as the price increases we can
start to build into it aviation, which is very important. I hope
it will become a means of helping but not fully supporting carbon
capture and storage as well as renewable technologies. So carbon
trading is very, very important but, to repeat the point, we do
not feel that for the foreseeable future it will help fully fund
renewables; we do need other mechanisms.
Q475 Chairman:
I guess, if the difference between the prices is not a measure
of the weakness of the trading system then it certainly indicates
that renewables will be a very high cost means of achieving reductions
in CO2 emissions.
Malcolm Wicks: Yes, and I said in my
opening statement that there are significant costs attached. Although
the different technologies have different histories and some are
better developed than others, they are new technologies still
and, like any new technology, they are relatively expensive. Over
time we would hope that the unit costs would come down. I think
that is not an unreasonable expectation: if you look forward to,
say, the costs of photovoltaics, we will see quite a steep decline
in price. I cannot quite predict when but when you see the extra
manufacturing coming on in places like China, at the moment, of
course, PV (photovoltaics) are really expensive. We are reforming
the renewables obligation through the Energy Bill, which is now
before your House—it has been in the Commons—so that
it can become a rather more sophisticated instrument, more sensitive,
to the costs of some of the newer renewable technologies. So we
will be supporting offshore wind more than onshore wind; we will
be supporting even more the marine technologies of tidal and wave.
Q476 Lord MacDonald of Tradeston:
Nuclear power cuts carbon emissions without the intermittency
problems of renewables, and recently Sir David King argued that
nuclear power should account for 40 per cent of maximum electricity
demand. What is your view?
Malcolm Wicks: My view is that diversity
should be the name of the game when it comes to our energy strategy
and our strategy for tackling global warming. This Government
has been through a process of, first, deciding whether or not
civil nuclear power should have a role to play going into the
future. We decided, following the Energy Review, that the answer
to that question should be yes, that we would authorise the private
sector to come forward with proposals for new nuclear reactors.
We need a suite of policies. Not that you were saying so, my Lord,
but I know that some would like to see this as a battle, a tussle,
between renewables on one side and nuclear on the other. I think
that is a naive analysis. We need a range of things, both for
the nation's energy security and to tackle global warming. I would
not put a percentage on nuclear; at the moment, about a fifth
of our electricity (probably 18 or 19 per cent) comes from nuclear.
Those reactors are old, they will need to be decommissioned and
we probably will not see the first nuclear reactor built in this
country and operational until 2018, probably, being optimistic
(some might say more realistically 2020). I personally would hope
we would then get a significant proportion of our electricity
from nuclear, for the reasons that you gave: that it is clean
and green and it helps us in terms of our energy security. However
I think it is difficult to put a proportion on that.
Q477 Lord Turner of Ecchinswell:
Can I ask a follow-up to that? Would you have any concerns if
nuclear did grow as Sir David King has suggested to 40 per cent—ie
if, over the next 20 years, pre-market operators bring forward
proposals that would take it to 40 per cent of our electricity?
Do you think there is any reason why there should be a policy
concern about that, or is that a completely acceptable result,
if it was to occur?
Malcolm Wicks: I think it is perfectly
acceptable, should it occur. I am just trying to think whether
I need to qualify that in any technical way. My colleagues might
want to come in on that. I do not think so. As I say, we do not
set a target, we do not set a proportion, we do not talk about
the number of nuclear reactors that should be built, but I think
for reasons of climate science and energy security a significant
proportion coming from nuclear alongside the renewables would
be very, very important. I should say to this Committee that I
worry greatly about climate change and global warming, although
I think, with one or two exceptions, we are winning the argument
on that one—with one or two important exceptions I think
we are winning the argument on that one—but I worry more
about energy security and national security. When you look around
the world at where the energy resources are concentrated, they
are not always in places best associated with human rights and
democracy, and the more energy we can produce for ourselves in
a troubled world, I think, the better. The only thing, if I may
add, is that I think that, both for reasons of diversity but,
also, for the operation of the Grid and the network, we also need
fossil fuel generation to give us the flexibility; it can come
on stream faster, as I understand it, than nuclear, and therefore
we will need fossil fuel power stations—hopefully, as soon
as possible, with CCS.
Q478 Lord Lawson of Blaby:
As a follow-up to my Lord the Lord Chairman's question, and on
the little sort of aside that the Minister made, I would make
another aside that I think it is a matter, on your side, of assertion
rather than argument, and that is not what we are about in this
Committee.
Malcolm Wicks: No.
Q479 Lord Lawson of Blaby:
What we are about in this Committee is seeing what the economics
of renewable energy are and, also, how they compare with the needs
of achieving the objectives that the Government has stated. I
am slightly puzzled: you say you are even-handed as between nuclear
and renewables. That is the impression you gave. However, in fact,
in your own written evidence you have said that the costs of generating
electricity from renewables are, in general, currently higher
than their conventional fossil fuel and nuclear counterparts.
In other words, you say very clearly that nuclear, in your opinion,
is cheaper. So that might suggest that it is sensible because
(we are a wealthy economy but not all that wealthy) we will be
looking to find the best buy. So if you did have a bias it should
be in favour of nuclear, but, in fact, you have a pronounced bias
in favour of renewables. The support for renewables (and you say
in your written evidence that you are going to need further support)
is far greater than the support for nuclear, which I suppose,
to some extent will include—I do not know what it will be—the
disposal of nuclear waste, or storage. Anyhow, it is far higher
for renewables, which does not seem to me to be even-handed at
all. What is the reason for that?
Malcolm Wicks: I must check the record
but I do not think I used the term "even-handed". I
hope the impression I was giving earlier on was that I did not
see this as some kind of battle and contest between renewables
in one corner and nukes in the other corner; I think we need both,
for different reasons, which I have touched on. I understand what
you are saying, Lord Lawson, because it certainly is the case
that whereas we have made it clear that public spending will not
subsidise or support in any way nuclear going forward, we are
in different ways, partly through public spending on R&D and
partly by the provision of the renewables obligation, subsidising
renewables. I think the reason we are doing that is these are
a range of relatively new technologies. Like many technologies,
they need support in the early stages of their history. So you
are right to point out that in that financial sense we are not
being even-handed; we are giving more support to renewables compared
to nuclear, which we are not directly supporting at all.
|
