ELECTRICITY (BORROWING POWERS)

HC Deb 26 July 1974 vol 877 cc2131-52

5.57 p.m.

The Under-Secretary of State for Energy (Mr. Alex Eadie)

I beg to move, That the Electricity (Borrowing Powers) Order 1974, a draft of which was laid before this House on 4th July, be approved. The draft order now before the House would raise the limit on the borrowing powers of the Electricity Council and the electricity boards in England and Wales from its present level of £5,200 million to the maximum of £6,500 million provided for in Section 15(5) of the Electricity Act 1957, as amended. Provision to raise the limit to this amount by such an order was made by Section 1 of the Electricity Act 1972.

With minor exceptions, the statutory limit applies to the industry's total outstanding borrowings at any one time, including any borrowings from abroad and any temporary borrowings. The present limit of £5,200 million was itself established by the Electricity Act 1972. In moving the Second Reading of the Bill on 1st February 1972, the then Minister for Industry—the right hon. Member for Bournemouth, West (Sir J. Eden)—indicated that on estimates at that time it was expected that the House might be asked to approve a further increase above the present limit in about two years or so.

It was recognised in 1972 that inevitably a number of uncertainties affect forecasts of borrowing requirements in any large industry, and this element of unavoidable uncertainty has continued. Thus, there have been differences between the 1972 estimates and the actual results on the detailed components of the earlier forecast, but overall judgment and expectation then that the House would have to be asked to raise the limits at about this time have proved accurate. Although borrowing has in fact hitherto been somewhat lower than had previously been expected, mainly because capital spending in the last three years to 1973–74 inclusive proved to be lower than had been anticipated, the industry's capital expenditure has been rising from its low point of £400 million in 1970–71 and will continue to do so.

It is also necessary, as the limits also govern temporary borrowing requirements, to have regard, in addition to rising capital expenditure, to short-time movements in the industry's cash flows. Bearing in mind also this question of the industry's day-to-day financing requirements, it is now reasonably clear that the industry could well be within £25 million or so of its total borrowing limit of £5,200 million by mid-October. This industry has current annual revenues around £2,000 million, whilst its annual outgoings on revenue and capital account together are currently some £2,400 million. I think that the House, knowing the unavoidable imprecisions attaching to any estimates of cash flows, will agree that an estimated margin of only £25 million below the overall borrowing limit cannot prudently be regarded as adequate against the possibility of the industry finding itself in a position where it cannot finance its day-to-day activities. That is the reason why the Government consider it essential to have this debate now and to raise the limit on borrowings before the House rises. We cannot take any risk of a situation arising where this great industry, which plays such a central and essential rôle in the nation's economic activities, would find itself unable to conduct its ongoing commercial activities and finance its continued development.

It has been the practice of the House to use occasions such as this to take stock of the industry's progress and prospects. It may be helpful, therefore, if I now sketch out some of the main changes in the picture since we last discussed the borrowing limit early in 1972.

At the end of March 1974 the industry in England and Wales served 19.1 million consumers. Between 1970–71 and 1973–74 the industry's income from sales of electricity alone rose from around £1,400 million to nearly £1,800 million, giving it a total revenue in 1973–74 of almost £2,000 million after including other revenues, mainly £188 million from sales of appliances and its contracting activities. Over the same period since 1970–71, and despite the overall fall in unit sales last year due to the power emergency, the total number of units of electricity sold rose by nearly 9 per cent. whilst the number of employees was reduced similarly by about 9 per cent.—from just over 188,000 until, as it is now, just over 171,000.

The number of power stations has continued to be reduced as old, small stations have been taken out of service to be replaced by smaller numbers of larger stations. At March 1974, there were 169 stations in service. Out of the 47 500-megawatt sets ordered between 1961 and 1965, 45 are now commissioned at full or interim rating, and the remaining two sets are expected to be synchronised in 1974. In addition to the original 47, two more 500-megawatt sets have been ordered for Ince B power station. And at Drax—Yorkshire—the board's first two 660-megawatt units were synchronised in November and December 1973.

But the industry now faces new problems and new opportunities.

A few days ago, the Government's decision was announced to go ahead as rapidly as circumstances permit with the development of nuclear power generation. All the implications of that decision will have to be examined in continuing detailed discussions between the Government and the industry. But, in the time scale of the next two or three years, I do not expect the decision about the SGHWR programme to make much difference to the estimates of capital expenditure which the industry submitted to the Government in its 1974 capital investment programme and which is now being examined in the usual way as part of the annual review of public expenditure. The industry's latest estimates are that capital expenditure in the three years 1974–75 to 1976–77, inclusive, should amount to about £2,400 million.

Of course, there are many uncertainties in estimating the actual costs of the capital programme. There are also uncertainties in estimating the future level of electricity demand which governs a large part of the capital programme—though differences of judgment on this point should not have much impact on capital expenditure until after 1976–77 due to the long lead-time involved in the provision of new power stations—but on the whole we accept the industry's estimate of its likely capital requirements over the next three years as broadly of the right order of magnitude.

On this basis, and having regard also to the major uncertainties attaching to all the industry's costs and its own prices, the industry estimates that the proposed new borrowing limit of £6,500 million could be reached in 1976–77. Bearing in mind that its revenue receipts are traditionally low in the autumn it could well be that this limit would be reached as early as October 1976—and if, nearer the time, that looks likely, it could be that a new Bill will have to be introduced in the first half of 1976 to authorise a further increase in the borrowing power.

In all the circumstances, the Government regard the industry's projections as not unreasonable, and as demonstrating the need now to raise the borrowing limit to its permitted maximum. This will then provide the necessary framework for flexibility—giving both the industry and the Government the necessary room for manoeuvre in meeting the industry's legitimate ongoing requirements for finance.

There is, of course, no question now of committing further capital expenditure by the industry—just as there is no question of the Government's seeking to commit themselves or the House now to the future level of electricity prices and the precise degree of financing which should be met from that source rather than from borrowing. All these questions must continue to be decided in the usual way—on the best judgment we can make in balancing the many different considerations as they appear from time to time, but it is clear that the industry must have the means to finance its operations, and I consider it right, now, to make appropriate provision to ensure that it can do so for the next two years or so.

I therefore ask the House to approve the draft order.

6.10 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

I estimate that the Under-Secretary of State spoke for about 13 minutes. The order is to authorise borrowing by the Central Electricity Generating Board and the area boards of £1,300 million, so I reckon that his speech has cost the taxpayer about £100 million a minute.

When I suggested that an order of this magnitude should not be taken in Standing Committee but should he debated on the Floor of the House I little imagined that we should be discussing it after 6 o'clock on a Friday afternoon, and, as I look about the Chamber, I realise that hon. Members' constituents are more important to them than these large sums of money. I shall, therefore, make a short speech, but, in view of the importance of the order and the size of the sums involved, I hope that it will be thought right if I make a few points of substance about the electricity generating industry.

I shall raise my questions under two broad headings: first, the ordering programme of the CEGB; and second, some of the implications for the future development of nuclear policy of the Secretary of State's announcement earlier this month. However, before coming to those matters. I put one short question. Can the Under-Secretary tell us when his right hon. Friend will make the promised statement about off-peak electricity charges? The whole country—or certainly a large body of consumers—wants to know the outcome of the discussions with the Electricity Council.

First, the future ordering programme. This must depend crucially on the energy demand forecasts made by the industry. These are notoriously difficult to make, and they have often been wrong in the past for reasons which one well understands. They must now be more difficult than ever, if only because we are in a wholly new situation when it is exceedingly hard to estimate the effect on the rate of growth of consumption of the higher prices now being paid by both industry and the domestic consumer.

However. I understand that the Electricity Council has now estimated the average cold-spell conditions off-take in 1979–80 at 56 gigawatts, which, if one assumes a continuation of the 20 per cent. margin, gives one a requirement of installed capacity at 67 to 68 gigawatts in 1979–80. That implies a smaller ordering programme than was previously estimated, but it still leaves open the question of what is to be the mix of new power stations ordered as between fossil fuel and nuclear fuel, and within the fossil fuels as between oil and coal.

The central factor here is that nuclear power is now a little over half the cost of fossil fuel power—between 40 and 50 per cent. cheaper. It is worth giving the figures. Taking the cost per kilowatt smut out, a coal-fired power station now costs 0.95p per kilowatt. An oil-fired power station now costs 0.93p per kilowatt. Nuclear power, on the other hand—this is the figure for modern nuclear stations—is estimated at between 0.46p and 0.51p per kilowatt. Nuclear power is now significantly cheaper than power based on coal or oil.

Apart from the AGR stations still in the course of construction—and with their unhappy history one must hope that they will indeed be completed—there are no nuclear stations that can now be ordered and can be on stream before 1981–82. I noted what the Minister said about the £1.300 million not being spent—or at least very little of it—on the SGHWR programme.

For supplies into the 1980s two things are now self-evident. First, it must now be right to order as much nuclear capacity as the British nuclear industry is capable of building. This has been the decision of the United States, France, Germany, Japan and of almost every developed country. To build fossil fuel stations now as a deliberate preference to nuclear stations is simply to saddle consumers in the 1980s with much bigger electricity bills than they would otherwise have. The second self-evident fact is that the smaller the total of the new programme the less scope there is for changing the balance between fossil fuel and nuclear stations, and therefore the more important it is to have all the new nuclear orders that are possible.

It cannot be right at this time deliberately to order fossil fuel stations instead of nuclear. There will have to be some, and we would all concede that, simply because of the difficulties of timing in getting the nuclear programme under way, but deliberate', to hold back on nuclear power in order to boost the consumption of coal or oil is perverse. Is it or is it not the Government's policy deliberately to hold back nuclear ordering in order to protect the coal industry?

This brings me to the announcement of the Secretary of State that he is proposing to authorise 4,000 megawatts of nuclear power for the next four year. Many people welcomed the decision to go for United Kingdom technology, but, nevertheless, there was widespread disappointment at the small size of the nuclear programme. Of course we realise that caution is necessary in scaling up from the single prototype model at Winfrith Heath—the only one of its kind in the world and a relatively small plant.

The second question, therefore, is whether this 4,000 megawatt programme is what the Government believe to be the optimum size of nuclear ordering, or whether that size is dictated by the need to go cautiously with SGHWR. In other words, would the Government have preferred a larger nuclear ordering programme had they dared to do so with the new technology?

I have spoken to a large number of supporters of SGHWR, and to a man they all seem convinced that there is little risk of a repetition of the problems the board has experienced with the AGR, and that the Secretary of State could safely go for a significantly bigger programme now.

However, this is obviously a highly technical matter and one in which the generating board might have strong views. If it is not the case, however, that it would be safe to go for more than 4,000 megawatts, and if the choice of technology has dictated a much smaller ordering programme than the Government would have wanted, they owe it to the country to say what is the cost of that decision in terms of higher electricity charges in the 1980s.

For instance, the CEGB's estimate, as given in Mr. Hawkins's evidence to the Select Committee a few days ago, was that this would give rise to cumulative additional costs for consumers between 1981 and 1990 of between £3,000 million and £5,000 million at 1973 prices. If the Government do not accept that estimate, perhaps they will tell us their own estimate. That is a large burden, which could add 20 per cent. or 30 per cent. to electricity bills in the next decade. We are entitled to look at these figures with some alarm.

I turn to the second part of the question. If there is now to be a bigger fossil fuel programme than would otherwise have been needed, is the fuel to be coal or oil? That is a difficult question. The figures I quoted earlier show that there is little to choose between them now. Coal and oil are fully competitive at existing prices, but when we have the oil from the Continental Shelf there will be a huge difference in resource costs, although the value may be the same. It is now clear that Continental Shelf oil will flow on to world markets at the world price. The price will be little different, but the resource cost will be very different. The margin of value over costs for that oil will be enormous. That is why we are all agreed on substantial taxation of the oil profits.

Therefore, it may be that in the short term, perhaps during the 1980s, there is a strong case for letting the future fossil fuel power stations be based on oil. Those stations will last 30 to 40 years. What will be the position towards the end of that period? We have oil that will last us for some decades, but we have coal that will last for centuries. Even now the CEGB cannot get all the coal it wants—the difference is about 15 million tons a year—and it is talking of having to import. Perhaps the Under-Secretary will tell us something about the Government's thinking on this.

These two questions, the problem of how much nuclear, and the division between coal and oil for electricity generation, go to the heart of the energy problem confronting the country. The House is entitled to clear answers.

In speaking about my second point, concerning nuclear technology, I should like to say something that I hope the whole House will support. A decision has been made in favour of SGHWR. Whether or not one agrees with that decision, it seems to me that all the resources of the manufacturing industry, construction industry and the generating industry should throw themselves behind the project to make it a success. If any one part of the industry is not wholly committed, heart and soul, to making it a success, I fear that it will not be successful. That would be the worst disaster of all. A decision has been made. We must all get behind it to see that it works.

I should like to look a little further and say something about future reactors—the high-temperature reactors and the breeder reactors. I am still convinced that high-temperature reactors have great potential, that the European nuclear industry must have a strong position and that the United Kingdom should be very much part of that.

Will it be possible to establish a consortium of the National Nuclear Corporation, the French CEA and perhaps the Germans, through Brown Boveri, to make arrangements with General Atomic to establish a capacity to make high-temperature reactors in Europe, to do development work on the GA process and perhaps place a demonstration order for a commercial plant in Europe? What the Secretary of State said in his statement suggested that was not now of a high priority for the United Kingdom. That would be a great pity. There is enormous potential. I hope that we can hear a little more about the matter.

I turn to breeder reactors. Here I can give an unreserved welcome to what the Secretary of State said about international collaboration. I have long believed it possible. I made the point in the debate on 2nd May. It seems to me absolutely essential. Breeder reactors have a 50 times greater efficiency in fuel usage than thermal reactors and must be the basis in the long term of power generation till the more distant possibilities become a reality.

I had the privilege recently of visiting France. I saw the Rapsodie and the Phénix reactors. They are experimental reactors which have been built by the French. Next Wednesday I am visiting Dounreay to see our own PFR. France and Britain are now five years ahead of Germany and seven years ahead of the United States. That is a tremendous lead. It gives us tremendous opportunities for Anglo-French collaboration on what must be the main reactor technology of the future.

I am aware that talks have been proceeding for some months, somewhat inconclusively, on the possibility of collaboration on breeder technology. What is now needed is an agreement on the joint design of a commercial fast reactor and on the joint testing of components, which is an extremely expensive business. The value of sharing costs in that technology would be very great. Equally important is a decision on the sequence ordering of demonstration models.

France is ready to go ahead with its commercial fast reactor within the next year or so. That is Super Phénix. France has established what seems to be a useful kind of agreement between the utilities which will order them and the construction consortium which will build them. Cannot the British electricity industry come to a similar arrangement for the British commercial fast reactor?

It is now essential to get ahead. Europe has a chance to be in the van of reactor development in the future and to establish for the United Kingdom and for France the same kind of pre-eminence in breeder technology which the United States has established to its great advantage in light water technology. But this will require drive, imagination and courage, and the generating boards must play their part. I have heard encouraging rumours that the CEGB now recognises that it has a major part to play in this development. I hope that that is true.

If we as a nation fluff the chance that is offered to us by fast breeder reactors, it would be a confession that there is no branch of advanced technology in which we can hope to compete with the Americans. That I do not believe. This is an area in which we must develop our preeminence. We must not allow the United States to overtake us in this technology.

The energy crisis is bringing great agonies to the world, both to industrial and to developing countries. We have the scientific and engineering resources that for the next few years will help to steer us out of the crisis and lead us on to a brighter future. It is a matter of the highest priority that we should grasp firmly the opportunities which our pre-eminence in breeder technology has given us. I hope that in the course of passing this order—I do not dispute its need—we may give those concerned a valuable shove. This is a matter on which the whole House should unite.

6.28 p.m.

Mr. Arthur Palmer (Bristol, North-East)

I begin by making a personal declaration of interest. I think that the House understands my fairly close connections with the electricity supply industry through my union, the Electrical Power Engineers' Association. I agree with the right hon. Member for Wan-stead and Woodford (Mr. Jenkin) that the order gives the House an opportunity to debate the affairs of the electricity supply industry, an industry which is fundamental not only to our industrial life but to the whole life of the nation in every way.

As the right hon. Member said, it is right that, even under these unusual Friday circumstances, we should examine the affairs of the industry closely because of the great sums of money which the House has to vote for the industry to borrow—£13,000 million. Even if we speak of it as £13 million it is still a great deal of money. It is a pity that we cannot give time to discuss the distribution side of the industry, but many of the biggest problems are on the generation side and I shall confine my remarks to that.

There has been a reference to the figures for advance load growth. We should, I think, try to get some kind of explanation from the remarkable divergence which appears to exist between the estimates of the Central Electricity Generating Board and the Department. The Select Committee on Science and Technology at its public hearing last week did its best to probe into this divergence and made a little progress.

It is no light matter. If we do not get the estimates roughly right, on the one hand there may be too little capacity, with much load shedding, or, on the other hand, there may be too much capacity, which is financially wasteful in interest charges, apart from labour and materials. The total sums involved are enormous.

On 2nd May the Secretary of State in the House said that the figure could be taken between 3 per cent. and 6 per cent. but he seemed to come down on an average at 3.6 per cent. which was later supported by a declaration from the Ministry outside the House. Mr. Arthur Hawkins, Chairman of the CEGB, in his evidence to the Select Committee said that it would prefer to work on an average figure for the comparable period of 5.1 per cent. per annum. That is not a difference of estimating which can be shrugged off as something which time will put right. It has not been our experience in the past.

Surely a much greater effort could be made by the Department and the industry to reconcile their figures. This would give more confidence all round. The Select Committee is bothered about it, and all being well, if electrical events do not inconveniently take place in the country, a few of us will be visiting the United States fairly soon with the money nowadays provided by the Treasury for Select Committees to examine American forecasting techniques. We intend to talk not only to public authorities but to one or two private authorities concerned with this, such as the Ford Foundation. In due course the information which we obtain will be available to the House and to my hon. Friend's Department.

I wish to refer now to a point stressed in the report recently made by the Central Policy Review Staff—the so-called "think tank"—headed until a few days ago by Lord Rothschild. I have already said in the House, and it seemed to cause a little flutter of surprise that I thought the report was a little eccentric in some directions. Nevertheless there are one or two important and interesting parts, particularly that referring to the amount of new plant, nearly all 500 megawatt generating sets, constructed but not yet in normal commercial use because of the faults which have come to light when the plant was tried out. According to the report, about 8,000 megawatts of new plant is non-available because of delayed commissioning and running delays since formal commissioning took place. That in itself represents a capacity of about twice the proposed new nuclear programme.

If this backlog could be eliminated, in my judgment and that of any fair critic, the termal efficiency of the industry would rise by about 3 per cent., which according to the report by Lord Rothschild's investigating team would amount to a saving of 10 million tons of coal equivalent per annum. I calculate that that would wipe out entirely any deficit that the industry is likely to experience this year, and it would probably make any further Government subsidisation unnecessary. I ask my hon. Friend the Under-Secretary to have this matter examined closely. It is a serious point, which the industry and the Department should take seriously.

Mr. Patrick Jenkin

Before the hon. Gentleman, who knows a great deal about these matters, leaves that point, does he draw any conclusions from this about the dangers of the concentration of technology in a single organisation as large and as powerful as the CEGB?

Mr. Palmer

I have been reading the right hon. Gentleman's recent remarks in one of the industry's papers, the Electrical Times. There are some dangers, I agree, but there is not much time now to go into detail. I shall be referring again to his remarks in a few moments.

We are concerned here with an issue which should be looked at closely to see what efforts are being made to ensure that in future there is much greater reliability from and availability of these large machines. I appreciate the problems involved. The Select Committee went into the matter some years ago. We were then promised progress but unfortunately it has not taken place to the extent hoped for.

I turn to another point which has some bearing on the divergence in estimates of load growth between the Department and the CEGB. The CEGB is apparently preparing for the future a margin of installed capacity over anticipated demand of 20 per cent. In the past the CEGB has worked on 17 per cent. We must ask whether it is necessary with an inter-connected system, the largest in the world, to work towards such a large margin. Mr. Hawkins, the Chairman of the CEGB, gave the explanation to the Select Committee that it was not possible to be certain of these new machines, and that they were bound to be somewhat unreliable. He also seemed to think that the weather was certain to be had in future, because it had been good in the past.

I appreciate the problems of the CEGB, bearing in mind that it has a statutory responsibility for maintaining continuity of supply. But in the end this country may have to come to the position that other advanced industrial countries have come to, that is, to balance the advantages of absolute 24-hour 365 day availability of supply against the vast capital expenditure which this can involve. Occasionally, it is necessary to take a risk of reducing voltage or even to load-shed to get through difficult periods of bad weather. That is a controversial issue, hut it should be seriously looked at.

The right hon. Member for Wanstead and Woodford spoke about the balance of primary fuel use. My views on this are fairly close to his. Until well into the 1980s the bulk of electricity will cone from fossil fuel stations. That is inevitable. But there is a temptation to the CEGB to over-use the oil that the North Sea will provide. It is a temptation that the CEGB ought to resist it might be better to use that oil in order to help our balance of payments and in other economic directions.

What is certain, and here I think that the right hon. Gentleman was perfectly correct, is that the nuclear component in our generating capacity should be much larger for the future. I believe, as I think the House as a whole believes, that the decision to use the heavy water reactor and not the American light water reactor as suggested by the CEGB, /vas correct. The safety risks of a large light water reactor are far too great in an overcrowded island such as Britain, and the construction times are not good, as American experience has shown. It is a great pity that the CEGB did not bring the British heavy water reactor into commercial use before.

The decision is now made and I was glad to have the assurance of the hon. Member for Wanstead and Woodford that he now approves of that decision—I must confess that at one time I was not too certain that he approved. Continuity in these matters between Governments is absolutely essential, I suggest.

Mr. Patrick Jenkin

I want to make it absolutely clear that I have not expressed a view. We have not seen the report of the Nuclear Power Advisory Board. It is exceedingly difficult when seeking to balance these arguments to approve or disapprove a particular choice—I have always found it extremely difficult—but one has to come to a firm conclusion. What I said was that, the Secretary of State having had that report and having made that decision, it was now up to everyone to make a success of it.

Mr. Palmer

But the right hon. Gentleman will agree with me that it would be a great pity if the CEGB thought that it could await the result of the next General Election, when there might be a different or a new decision. That was the point I was anxious to make and I was very glad to hear what the right hon. Gentleman said.

The question of the size of the programme should be separated from that of reactor choice. The CEGB programme for nuclear construction originally was fantastically much too large. Equally, the present proposals by my right hon. Friend the Secretary of State are too small. The heavy water steam generating reactor is such in design that we could as well construct five new stations as construct three. It is a valid point—and the right hon. Gentleman made it—that the British nuclear programme should not be significantly smaller than that of France, West Germany or Japan, because they are comparable industrial countries in size of economy.

I come to pricing policy. I said at the time, and I repeat, that one of the biggest of the many blunders made by the Conservative Party in office was the decision to subsidise energy prices two or three years ago, because that resulted in a great distortion in pricing from which it will take the electricity supply industry and the country a long time to recover. In any case, I do not think that the Chancellor of the Exchequer is the right man to decide energy policy. If the Treasury has too much to say in these matters for social or political reasons, there is created a distortion that is not acceptable in the long run if we want energy efficiency.

There are two possible energy policies. One is to revert to the so-called market pricing, or as near as one can get, and the other is to have conscious priority pricing, operated by the Ministry of Energy, to encourage one fuel or discourage another. This is one of the matters that we shall look at, as I say, when the Select Committee on Science and Technology goes to the United States. But an energy policy operated by the Treasury is the worst of all energy policies, I am sure.

Finally, I turn to a matter which interests me and which I know certainly interests the right hon. Member for Wanstead and Woodford since he gave an interview on this topic to the Electrical Times. I refer to the structure of the industry. That structure needs to be rethought and a fresh look should be taken at the situation in the light of experience. What is sometimes over- looked is that we have had two nationalisation Acts in respect of electricity supply. The first was in 1947 and the second in 1958. That further legislation brought in major reorganisation of the nationalised industry's original structure. It is no good the Conservative Party saying that the CEGB is far too remote from the consumer, because that party was responsible 16 years ago for the structure that brought that remoteness about.

I noted the right hon. Gentleman's remarks in the Electrical Times about separate power boards for combined generating, transmission and distribution. There can be, separate administrative bodies of that kind, whether nationalised or otherwise. One can adopt that system and at the same time retain central daily planning of the running of power stations, load flows, and so on—in other words, one can operate a grid without having one centralised administrative organisation. That I agree. On the other hand, when one has set up an organisation such as the CEGB and where there is a good staff used to working together, we should not talk too lightly about breaking it up.

I am anxious to help the right hon. Member for Wanstead and Woodford in one respect. In the interview to which I referred he said that one sound reason for breaking up the large generating concentration would be to avoid centralisation in labour negotiations. That is an old-fashioned argument and is inapplicable in any case to the electricity supply industry. There has been for 50 years centralisation of wage and salary negotiation—in fact it existed long before nationalisation and goes back to the 1920s. This applies not only to the Electricity Council's boards but also involves the North of Scotland Board, the South of Scotland Board and to a great extent the Northern Ireland electricity organisation. It is beyond belief that the trade unions in the electricity supply industry would agree to throw away an advantage which they gained as far back as 1920. Therefore that is a poor argument and the right hon. Gentleman should not use it as a man of perception.

Indeed, I would not go any further with him than to agree that it would be sensible to have a moderate charge. I believe that the CEGB should act as a service board or enterprise for the distribution part of the industry. In other words, the area electricity boards should decide the policy of their own generating enterprise. If that were done it would retain many of the historical technological advances made by the CEGB. We should retain the advantages of the grid and at the same time enable the industry to embark on commercial policies over which the area boards could decide. At present the CEGB can decide what price it charges to area boards for electricity, yet the area boards are tied customers, they cannot escape. These were faults that some of us saw in 1958. The way forward now is to bring the CEGB more to commercial reality, but not to break it up ruthlessly.

Finally, the House should perhaps pay tribute to those who work in this industry, those who lead it and all employees at every level. From time to time the industry is criticised by hon. Members—it is necessary to have much criticism in a democratic society. But on the whole—and I say this with pride, having spent a lifetime close to the industry—the British electricity supply industry is still one of the finest and efficient in the world and renders great service to the people of this country, in every way, great and small.

6.50 p.m.

Mr. Eadie

With your permission, Mr. Speaker, I shall deal with some of the comments which have been made in this interesting and important debate.

One of the most important and difficult problems is forecasting electricity demand for some years ahead so that sensible decisions can be made at the right time. The industry and the Department have given this a lot of thought.

Projections take account of many factors, including availability of fossil fuels and the introduction of new nuclear reactors. The current range of forecasts indicates that to meet peak electricity demand in the mid-1980s will require a total ordering programme for the CEGB of between 7 gigawatts and 15 gigawatts of new power stations by the end of 1977. These projections mean that a substantial programme of power-station ordering must be maintained in the coming years to meet expected public demand. This will require a major investment pro- gramme to provide the capacity essential to fulfil the economic goals of the country.

Decisions on individual power stations will in the future, as in the past, be taken progressively as the requirement for new capacity indicates that they are needed. The choice of fuel will be made in the light of estimates of future fossil fuel price and availability prevailing at that time. But, as my right hon. Friend the Secretary of State has stated on a number of occasions, the second part of Drax has a firm place in the programme.

As I mentioned in my opening remarks, the industry continues to replace old, small stations by larger ones. I shall not deny that delays in bringing new generating plant into service are a cause for concern. The CEGB has been going through a difficult period because of problems with the AGRs and the introduction of the large 500-megawatt generating sets. We expect, as does the board, to see these delays reduced significantly in the next few years. We intend, however, to keep a close watch on the position and see what more can reasonably be done, following the recommendations of the Wilson Committee which have largely been put into effect, to reduce delays to a minimum.

The problems associated with the construction and commissioning of the AGR power station have been, and continue to be, the source of major concern and have resulted in serious cost overruns. The current cost of each monthly delay is estimated to be about £25 million. It is expected, however, that the first reactor to be completed at Hinckley Point B—and I have been there—will come on power this year, and that in due course the AGR power stations will more than double the nuclear electricity generating capacity of the country.

Despite such problems—to the solution of which the industry continues to devote much skill and effort—the overall picture remains one of technical advance. The thermal efficiency of plant in the CEGB has shown a steady rise in recent years, moving from 28.3 per cent. in 1968–69 to 29.8 per cent. in 1973–74.

The right hon. Gentleman referred to off-peak electricity charges and the proposed adjustment to them. My right hon. Friend has been having discussions with the electricity industry. Inevitably it takes time to sort out all the implications of such a complex matter, and I cannot go into the details now. But my right hon. Friend promised to make a further statement before the House rose, and lie hopes to do so early next week.

Despite current difficulties, the restoration of the industry's financial viability, when circumstances allow, remains our aim. For the present, we have to continue to make the best judgment we can in striking the balance between the industry's need for further tariff increases and the need to contain inflation, as well as the social implications of energy prices and the need to keep the burden on the Exchequer within acceptable limits. These are matters which will be dealt with in the review of policy for energy prices announced by my right hon. Friend in the debate on 20th June.

I now deal with the costs for electricity production of the nuclear reactor choice. The potential cost for electricity production of the Government's decision to adopt the steam generating heavy water reactor for the next series of nuclear power station orders has recently received considerable publicity. The right hon. Gentleman referred to this and said that it deserved a reply. I must tell him that such estimates of the additional costs of the SGHWR programme are based on hypothetical assumptions of an alternative rapid build-up of a pressurised water reactor programme and, in consequence, a relatively lower future use of fossil fuels. The Government cannot accept that forecasts of this type are valid because they assume an immediate go-ahead with PWRs, which is unacceptable, and because they take inadequate account of future options which will become available to us. In three or four years, when we have gained some experience of constructing SGHWRs, we shall be able to consider stepping up the SGHWR programme.

We have taken a responsible decision which we believe to be in the best interests of the country and which is publicly acceptable. More important than the discussion of hypothetical costs is the fact that all concerned in implementing the decision are eager to make it a success. I appreciated greatly what the right hon. Gentleman said about this. It is best that we should all concentrate in doing that.

As I said in my opening remarks, I do not accept this decision about the nuclear programme to make much difference to the likely total level of the industry's capital expenditure over the next two years.

The right hon. Gentleman spoke about the coal industry. I want to refute entirely what he said. I was glad that he raised the issue, however. I could reply in greater detail, but, in view of the time factor, I shall reply, so to speak, in shorthand. The future policy on coal was outlined in the interim report, which the nation can see. We hope to publish the full report some time in September or October so that the House can read and examine it. Therefore, I take this opportunity of refuting the point that was made on that aspect.

I think that I have already dealt with the size of the SGHWR programme. I welcome what the right hon. Gentleman said about the HTR breeder reactor programme. The tenor of his remarks was that it was time we stopped knocking this country and British technology.

I was pleased to hear that the right hon. Gentleman was proposing to visit Dounreay. I think that he is aware that I took an early opportunity of visiting Dounreay and of seeing the prototype breeder reactor. He was accurate, when describing this technology, when he said that we are as advanced as, if not more advanced than, any other country in the world. I hope that when he visits Dounreay he will see the breeder reactor and note the dedication of the staff on the site, where over 2,000 people are employed. Standing on that site he will see the necessary transmission lines constructed by the hydro-electric board which will bring back £400 million in revenue from the electricity that this breeder reactor station will generate, starting some time this year.

The right hon. Gentleman said that there should be collaboration between us and other countries. The only country that appears to be anything like us is France. We know that the Americans and the Russians are well behind us. The right hon. Gentleman said that an opportunity for collaboration is available to us. I do not think that the Government would disagree with that. My right hon. Friend, when outlining his choice of reactor, mentioned collaboration in his statement. There are aspects for collaboration over the HTR. I trust that the right hon. Gentleman will accept that the almost rushed way in which I have made these points does not mean that they are not important. Indeed, they are, and they should be brought out in the debate.

My hon. Friend the Member for Bristol, North-East (Mr. Palmer), as usual, made a worthwhile contribution. I have noted four points that he made to which I want to reply quickly.

The first concerned electricity prices. The restoration of the industry's financial viability, when circumstances allow, remains our aim. For the present we must continue to make the best judgment that we can in striking the balance between the industry's need for further tariff increases, the need to contain inflation, the social implications of energy prices, and the need to keep the burden on the Exchequer within acceptable limits.

My hon. Friend mentioned the criticism that has been made of the organisation and structure of the electricity industry. The Department and my right hon. Friend are well aware of the criticisms which have been levelled against the present structure of the industry. Such issues include achieving a balance between central control—with the advantages this brings in the form, for example, of economies of scale in generation—and decentralisation, with its benefits in terms of fostering local initiative and an awareness of local circumstances. Moreover, any fundamental reorganisation will determine the shape of the industry for a long time to come. The timing and the form of any reorganisation will require the most careful consideration.

I think that my hon. Friend was entitled to seek information about demand forecasts, because this has been the subject of some debate and controversy. The Electricity Council recently agreed an estimate of demand in 1979–80 of 56.5 gigawatts. This is within the range of the Department's estimates of 55.1 gigawatts to 58.3 gigawatts. The council does not attempt to forecast beyond that.

The CEGB has produced forecasts for the 1980s, and these are consistently higher than those produced by my Department. The Department would regard as a reasonable estimate at the upper end of the range a figure of 60.2 giga watts in 1980–81 to 73.1 gigawatts in 1985–86, followed by 93.8 gigawatts in 1990–91. At the lower end of the range the figures are as follows: in 1980–81, 56.7; in 1985–86, 67.3; and in 1990–91, 84.1. Those figures are equivalent to an annual rate of growth of maximum demand for the period 1974–75 to 1990–91 of 4.3 per cent. in the high case and 3.6 per cent. in the lower case. I apologise to my hon. Friend for rushing this.

After all that has been said, we are left with the fact that the increase in the borrowing limit for the industry in England and Wales is necessary now. We recognise the many uncertainties affecting estimates of the future, but one thing that is clear is that this essential industry must have adequate room for manoeuvre to meet its on-going requirement, both for its day-to-day operations and for its continuing development.

Question put and agreed to.

Resolved, That the Electricity (Borrowing Powers) Order 1974, a draft of which was laid before this House on 4th July, be approved.