§ Mr. IllsleyI beg to move amendment No. 134, in page 2, line 40, leave out
'able to finance the carrying on'and insert'financially and technically competent of undertaking'.
§ Madam Deputy SpeakerWith this it will be convenient to consider the following: Amendment No. 135, in page 2, line 43, after '(2)', insert '(3 and 4)'.
§ Government amendments Nos. 79 and 80, and the following amendments:
§ No. 131, in page 3, line 10, leave out 'thereby'.
§ No. 132, in page 3, line 12, leave out 'to such premises'.
§ No. 133, in page 3, line 24, after 'efficient', insert 'and economic'.
§
No. 104, in page 3, line 28, leave out subsection (4) and insert—
'(4) In carrying out all their duties the Secretary of State and the Director General shall take into account, in particular, the needs of the low paid, those who are disabled and of pensionable age.'.
§
No. 146, in page 3, line 30, at end add—
'and in respect of subsection (3)(a)(ii) above, those who are medically dependent on electricity supply, and in respect of subsection (3)(a)(i) above, those on lower incomes.'.
§ Mr. IllsleyAmendments Nos. 134 and 135 have been tabled in the name of my hon. Friend the Member for Sedgefield (Mr. Blair) and others. Amendment No. 134 relates to the duties laid upon the director in relation to licence holders. Among those duties, the director must ensure that a licence holder is able to finance the carrying on of the activities for which he is licensed. Our amendment seeks to introduce a requirement for technical competence as well as financial ability.
In view of recent events in the latter part of 1988 when a business man purchased a power station in South Wales, perhaps the clause itself could do with further strengthening when it comes to the character of the people who want to buy such stations and involve themselves in the industry. In an industry such as electricity generation, distribution and supply, there is an obvious need for the very highest standards of technical competence, not only on the part of the scientists and operatives employed in the industry but on the part of those who will be directly involved in making the financial, investment and planning decisions on behalf of the industry.
431 A phrase which was bandied about in Committee talked of the responsibility of "keeping the lights on", but there is a little more at stake than that. We have hospitals, schools, offices, factories, foundries, warehouses, mines and any form of building which houses an industry or an enterprise: all rely on a secure supply of electricity. It would be an act of the utmost criminal folly if the supply of electricity to any of these or the supply of electricity in general, together with the future planning and investment requirements of the supply industry, were to be jeopardised by the poor performance of the director in deciding on the financial or technical competence of those who were allowed to invest or take part in the industry.
Yet, as the Bill stands, anyone who can afford to set up in the industry can apply for a licence to do so. There are clauses, particularly clause 7, which impose conditions, but those conditions will be formulated by the director in conjunction with the Secretary of State. It is quite unthinkable that anyone without technical competence would attempt even to consider setting up in the industry, but towards the end of last year it appears that someone actually did so. A Mr. Casfikis purchased a power station in south Wales with the intention of running it. When further investigations were made into the purchase it was found that the gentleman was a man of straw.
If there are profits to be made from the industry, however, the profitable companies will be bought out by others. There will be mergers and takeovers. We have seen this week what can happen when a company decides that it will buy out another company. A major finance house carries out an inquiry into the bona fides of a particular company and a firm of City lawyers advises on the legal aspects. If it is anything like what happened with the House of Fraser, all hell breaks loose. If anything illustrates the dangers of clause 3 as it stands, with the director making the decisions on financial and technical competence, it is the fiasco of the sale of the House of Fraser.
In that case the investigations were undertaken by a City firm of financiers. What chance has the Director General of Electricity Supply in trying to judge the financial and technical competence of a company that wishes to come into the electricity supply industry when the City of London cannot do it? Obviously, in those circumstances a large responsibility is being placed on the shoulders of the director general.
In the private sector, the industry will be subject to takeovers and mergers. They will involve major companies without the slightest interest in electricity, let alone in the security or obligation of supply. The larger companies will consider a generating company as simply another part of their portfolios.
We can expect, too, takeovers from abroad. We can well understand, because of its financial situation, that Electricité de France would very much like to invest in our power companies. Obviously, it will be looking long and hard at what happens after privatisation. There will be indications of overseas takeovers by companies that this country finds, perhaps, offensive or unwanted. What remedy will there be? Those takeovers will take place. There will be nothing to stop them, other than such bodies as the Monopolies and Mergers Commission and the Office of Fair Trading. However, if those takeovers comply with the regulations, there will be nothing to stop them. I shall cite two examples of such takeovers in the 432 past year in my area. There was the takeover of Rowntree by Nestlé and, in my constituency, the takeover of the Redfearn glass firm by a Swedish company.
The electricity supply industry has 12 area boards and each area board covers a considerable area with a considerable number of consumers. Once those boards begin to be swallowed up by larger companies, obviously there will be a much smaller industry and there will be a move back towards the monopoly.
The structure, as it has been outlined in the White Paper and the Bill, might be put at jeopardy because of takeovers and mergers. Set out in the Bill is a horizontal structure with the separation of generation, distribution and supply. However, in future what will there be to stop the larger companies buying into other aspects of the industry—the supply and distribution sectors—or the suppliers coming back into generation to tie up the loose ends and moving us back into a system of vertical integration?
The area boards or the public electricity suppliers, as they will be known, will have power to have their own generation capabilities. We will therefore start from a small amount of vertical integration which could be increased by mergers of the area boards. We could also see —perish the thought—British Coal, if it is privatised, being bought by the electricity companies. We could see major consumers of electricity being purchased, which will again bring into question coal imports.
What prospects are there for the area boards? They will either be strong enough, or have the financial muscle, to stand alone after privatisation, or, if they have a large industrial customer base, they will stand threatened by the introduction of independent investors who will take away those large industrial customers and leave them at the mercy of the predators, the larger companies within the industry.
If, as we are led to believe, there are upwards of 20 companies ready and waiting to come into the industry, that threat is already there. We have yet to have names put to the 20 companies that have been talked about during the past three months. However, we will obviously take the Minister at his word and believe that the threat from those companies exists.
I shall cite two examples. There is the Yorkshire electricity board, which is my board, and the north eastern board, both of which have a large base of industrial consumers. If we compare those boards with the south eastern electricity board, the reverse is true. That board has a large domestic consumer base and obviously the new boards in the south-east will set off as being more attractive to investors. They will start off with a financial advantage because they will have locked-in customers—the domestic consumer, unlike the industrial consumer, cannot opt out and look to the private generator.
It is important to consider that 49.5 per cent. of the north-eastern board's customers are industrial and that industrial customers account for 52 per cent. of the Yorkshire electricity board's market. The one customer common to both those boards is the coal industry, which is a major consumer of electricity.
10.15 pm
With the introduction of coal and oil imports after privatisation, both aimed at taking away British Coal's share of the market, there will be a further knock-on effect in our areas. The area boards will lose their custom as we face further colliery closures.
433 The Government should reconsider clause 3, especially the duties of the director regarding the financial and technical competence of entrants into the industry. They should tighten the Bill to enable companies or area boards, such as Yorkshire and north-eastern, to fend off the takeover bids with which they are bound to be faced after privatisation.
§ Dr. Kim HowellsIt is important to draw attention to the implications of those parts of the Bill that test the probability that licence holders will seek to secure their hold on particular parts of the market by expanding their operations, as my hon. Friend the Member for Barnsley, Central (Mr. Illsley) has said, beyond the straightforward business of marketing and selling electricity. We are talking about area boards—licence holders—six of which have annual turnovers of more than £1 billion. Even the smallest, the south Wales board, has an annual turnover of £500,000.
The diversification of the boards is mainly discussed in terms of electricity generation, but I am sure that the Minister is well aware that several boards have been hyperactive in putting together generating projects and, in some cases, joint ventures for power production.
I echo the concern expressed by my hon. Friend. Is the Minister aware that there is a great deal of talk about generating boards buying back into their supplying companies in the future? It has even been suggested that they might buy coal mines as well as other sources of fuel. What implications will that have in terms of the creation of new, future monopolies?
§ Mr. Michael SpicerThe hon. Member for Barnsley, Central (Mr. Illsey) has focused on amendment No. 134. I understand the purpose of his introductory remarks, and I listened with great care to what he said.
We believe that the present wording of the Bill is more embracing than amendment No. 134. The present wording enables the director to do what he wants to do—to check the financial credentials of a potential new entrant and to bear in mind that entrant's future viability when considering such matters as pricing formula and his other duties. The present wording meets the concerns expressed by the hon. Gentleman, especially in relation to clause 3(1)(b), and offers other advantages.
The hon. Member for Pontypridd (Dr. Howells) was concerned about anti-competitive practices. So would we be, if there were the kind of anti-competitive practices that he has in mind. The normal anti-competitive rules and laws will apply. The Bill makes specific provision for the operation of the Monopolies and Mergers Commission and deals with the interrelationship between the powers of the director general to protect competition and the more general powers of the MMC.
While we would not want to restrict any reasonable diversification or development by any company, we agree that there should be consideration of anti-competitive practices. We think that the current institutions and laws for protecting the industry from the predatory behaviour that the hon. Gentleman has in mind are adequate.
On the basis of that explanation, I hope that the hon. Member for Barnsley, Central will withdraw his amendment. Certainly we would not accept any of the amendments, and particularly those which, contrary to 434 what the hon. Member for Pontypridd was concerned about, are aimed at restricting competition and competitive pressures.
§ Mr. IllsleyIn view of the speech of my hon. Friend the Member for Pontypridd (Dr. Howells) and the points that I made in my contribution, we still feel that the Bill needs strengthening, particularly as regards financial mergers and takeovers. As the Minister is not willing to accept amendments on the point, we will divide the House.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 60, Noes 160.
436| Division No. 145] | [10.21 pm |
| AYES | |
| Banks, Tony (Newham NW) | Hoyle, Doug |
| Barnes, Harry (Derbyshire NE) | Hughes, John (Coventry NE) |
| Barron, Kevin | Illsley, Eric |
| Beith, A. J. | Kennedy, Charles |
| Bennett, A. F. (D'nt'n & R'dish) | Lambie, David |
| Bermingham, Gerald | Livsey, Richard |
| Blair, Tony | McAllion, John |
| Bruce, Malcolm (Gordon) | McAvoy, Thomas |
| Buckley, George J. | McFall, John |
| Campbell, Menzies (Fife NE) | Maxton, John |
| Cohen, Harry | Meale, Alan |
| Cox, Tom | Mitchell, Austin (G't Grimsby) |
| Crowther, Stan | Molyneaux, Rt Hon James |
| Cryer, Bob | Morgan, Rhodri |
| Dalyell, Tam | Pike, Peter L. |
| Dewar, Donald | Powell, Ray (Ogmore) |
| Dixon, Don | Radice, Giles |
| Doran, Frank | Robertson, George |
| Dunnachie, Jimmy | Ruddock, Joan |
| Eadie, Alexander | Skinner, Dennis |
| Ewing, Harry (Falkirk E) | Soley, Clive |
| Ewing, Mrs Margaret (Moray) | Spearing, Nigel |
| Foster, Derek | Taylor, Matthew (Truro) |
| Foulkes, George | Wallace, James |
| Fyfe, Maria | Wareing, Robert N. |
| Garrett, John (Norwich South) | Welsh, Andrew (Angus E) |
| Hardy, Peter | Welsh, Michael (Doncaster N) |
| Haynes, Frank | Williams, Alan W. (Carm'then) |
| Hogg, N. (C'nauld & Kilsyth) | |
| Home Robertson, John | Tellers for the Ayes: |
| Hood, Jimmy | Mr. Nigel Griffiths and Mr. Allen McKay. |
| Howells, Dr. Kim (Pontypridd) |
| NOES | |
| Adley, Robert | Cash, William |
| Alison, Rt Hon Michael | Chapman, Sydney |
| Amess, David | Chope, Christopher |
| Amos, Alan | Conway, Derek |
| Arnold, Jacques (Gravesham) | Coombs, Anthony (Wyre F'rest) |
| Ashby, David | Coombs, Simon (Swindon) |
| Atkinson, David | Cran, James |
| Baker, Nicholas (Dorset N) | Davies, Q. (Stamf'd & Spald'g) |
| Baldry, Tony | Davis, David (Boothferry) |
| Batiste, Spencer | Day, Stephen |
| Blackburn, Dr John G. | Dorrell, Stephen |
| Blaker, Rt Hon Sir Peter | Douglas-Hamilton, Lord James |
| Boswell, Tim | Dover, Den |
| Bottomley, Peter | Durant, Tony |
| Bottomley, Mrs Virginia | Dykes, Hugh |
| Braine, Rt Hon Sir Bernard | Fallon, Michael |
| Brazier, Julian | Favell, Tony |
| Bright, Graham | Fenner, Dame Peggy |
| Brooke, Rt Hon Peter | Fishburn, John Dudley |
| Brown, Michael (Brigg & Cl't's) | Forman, Nigel |
| Browne, John (Winchester) | Forsyth, Michael (Stirling) |
| Buck, Sir Antony | Fox, Sir Marcus |
| Burns, Simon | Franks, Cecil |
| Burt, Alistair | Freeman, Roger |
| Butterfill, John | Gale, Roger |
| Carlisle, John, (Luton N) | Garel-Jones, Tristan |
| Carlisle, Kenneth (Lincoln) | Gill, Christopher |
| Carrington, Matthew | Goodlad, Alastair |
| Carttiss, Michael | Goodson-Wickes, Dr Charles |
| Greenway, John (Ryedale) | Lloyd, Peter (Fareham) |
| Gregory, Conal | Lord, Michael |
| Griffiths, Peter (Portsmouth N) | Lyell, Sir Nicholas |
| Grist, Ian | Macfarlane, Sir Neil |
| Gummer, Rt Hon John Selwyn | Maclean, David |
| Hague, William | Malins, Humfrey |
| Hamilton, Hon Archie (Epsom) | Mans, Keith |
| Hamilton, Neil (Tatton) | Maples, John |
| Hanley, Jeremy | Martin, David (Portsmouth S) |
| Harris, David | Maude, Hon Francis |
| Howarth, Alan (Strat'd-on-A) | Maxwell-Hyslop, Robin |
| Howarth, G. (Cannock & B'wd) | Meyer, Sir Anthony |
| Hughes, Robert G. (Harrow W) | Miller, Sir Hal |
| Hunt, David (Wirral W) | Mills, Iain |
| Irvine, Michael | Mitchell, Andrew (Gedling) |
| Jack, Michael | Mitchell, Sir David |
| King, Roger (B'ham N'thfield) | Morris, M (N'hampton S) |
| Kirkhope, Timothy | Morrison, Sir Charles |
| Knapman, Roger | Morrison, Rt Hon P (Chester) |
| Knight. Greg (Derby North) | Neale, Gerrard |
| Knowles, Michael | Needham, Richard |
| Lamont, Rt Hon Norman | Neubert, Michael |
| Lang, Ian | Nicholls, Patrick |
| Lawrence, Ivan | Nicholson, David (Taunton) |
| Lee, John (Pendle) | Norris, Steve |
| Lester, Jim (Broxtowe) | Paice, James |
| Lilley, Peter | Patnick, Irvine |
| Patten, Chris (Bath) | Stradling Thomas, Sir John |
| Pattie, Rt Hon Sir Geoffrey | Summerson, Hugo |
| Peacock, Mrs Elizabeth | Taylor, Ian (Esher) |
| Porter, David (Waveney) | Taylor, John M (Solihull) |
| Rathbone, Tim | Taylor, Teddy (S'end E) |
| Redwood, John | Thompson, D. (Calder Valley) |
| Rifkind, Rt Hon Malcolm | Thompson, Patrick (Norwich N) |
| Roe, Mrs Marion | Thurnham, Peter |
| Rost, Peter | Tredinnick, David |
| Ryder, Richard | Trippier, David |
| Sackville, Hon Tom | Trotter, Neville |
| Sainsbury, Hon Tim | Twinn, Dr Ian |
| Shaw, David (Dover) | Waddington, Rt Hon David |
| Shaw, Sir Giles (Pudsey) | Waller, Gary |
| Shaw, Sir Michael (Scarb') | Wardle, Charles (Bexhill) |
| Shelton, Sir William | Warren, Kenneth |
| Shepherd, Colin (Hereford) | Watts, John |
| Shersby, Michael | Wells, Bowen |
| Smith, Tim (Beaconsfield) | Widdecombe, Ann |
| Soames, Hon Nicholas | Wilkinson, John |
| Speller, Tony | Wilshire, David |
| Spicer, Sir Jim (Dorset W) | Wood, Timothy |
| Spicer, Michael (S Worcs) | |
| Squire, Robin | Tellers for the Noes: |
| Stevens, Lewis | Mr. David Lightbown and Mr. David Heathcoat-Amory. |
| Stewart, Allan (Eastwood) |
§ Question accordingly negatived.
437§ Amendments made: No. 79, in page 3, line 4, after 'charged', insert 'to tariff customers'.
§ No. 80, in page 3, line 5, leave out 'by them'.
§
No. 2, in page 3, line 24, after 'them', insert—
'(bb) to protect the public from dangers arising from the generation, transmission or supply of electricity;'. —[Mr. Michael Spicer.]
§ Mr. BarronI beg to move amendment No. 136, in page 3, line 27, at end insert —
'(d) to promote the efficient and economic use of heat co-generated with electricity in combined heat and power plants or stations.'.
§ Madam Deputy SpeakerWith this it will be convenient to take the following amendments: No. 1, in clause 30, page 24, line 43, at end add —
'(4A) That electricity generated in a combined heat and power plant shall be treated for the purposes of subsection (4)(a) above as generated by a non-fossil fuel generating station for the proportion of the electricity produced that is equivalent to the measured quantity of heat distributed at a temperature greater than 60°C or more from the power station.'.
§
No. 149, in clause 30, page 25, line 17, at end add
'; and electricity generated in a combined heat and power plant shall be deemed to be generated by non-fossil fuel'.
§ Mr. BarronClause 3 relates to the general duties of the Secretary of State and the Director General of Electricity Supply after privatisation. That is a crucial matter which we debated with great interest in Committee and should like to discuss again on Report.
The amendment seeks to give the Secretary of State and the director the duty
to promote the efficient and economic use of heat co-generated with electricity in combined heat and power plants or stations.It does not say exactly what type of plant that should be, and I do not want to go into that in great detail. However, I ought to give the reasons for the amendment.Like many others, we believe that combined heat and power has not been treated properly. That form of co-generation has been in use in this country for a very long time, and we believe that there is a case for treating it effectively under the new regimes that are to take over from the Central Electricity Generating Board. Most people have no doubt that combined heat and power can make an important contribution. Indeed, larger schemes could make a dramatic contribution to the reduction of greenhouse gases—an issue which the Cabinet, and in particular the Prime Minister, has brought up. Over the last few months the Government have been saying that they are deeply concerned about the situation. The larger CHP schemes in this country could reduce emissions by at least 3 per cent.—and in some cases are doing so.
The Government tell us about the plans that are in the pipeline for smaller generators throughout the country after privatisation of the electricity supply industry. Experts predict that small-scale combined heat and power schemes, together with the larger ones, could cut greenhouse gas emission by up to 10 per cent. It is recognised that the wider use of waste heat for electricity generation would also result in savings for industry and for national and local government.
Let me mention briefly one or two of the current schemes which demonstrate the way in which many areas benefit, not just in the generation of electricity. The wider application of combined heat and power schemes in urban areas would stimulate urban regeneration, particularly in 438 inner cities. For a number of years—certainly since the last general election—this has been a major theme of the Prime Minister. She has said that she will take effective action in the inner cities. We do not see much effective action being taken by the Government on CHP, despite the fact that such action could make an important contribution to urban regeneration. If the Government were to accept amendment No. 136, they would be going some way towards finding ways of doing that.
Two papers were published recently by the Government. I understand that one of them shows that up to 4,000 sites in this country could benefit from combined heat and power. The other, which I think was produced by the Energy Efficiency Office, says that up to 1,500 major industries could be using combined heat and power. Perhaps the Minister will mention that in his intervention. So this is not a small matter; the system could be applied widely and quite flexibly.
Our amendments, particularly No. 136, would enable the opportunities to be grasped. They would put combined heat and power on at least an equal footing with the generating options that are being promoted in the Bill. I do not intend to return to yesterday's debate, but I remind the House that the Government are making sure that we will have nuclear generation for a considerable time. The same could be done for combined heat and power.
There is an amendment in the name of the hon. Member for Erewash (Mr. Rost) about giving some form of protection that was offered by the Secretary of State yesterday. The Secretary of State talked about a new tranche of capacity in non-fossil fuels being reserved exclusively for renewables. We shall see what the Secretary of State does about an amendment that could result in a combined heat and power tranche. If he undertook to consider that proposal, he would probably have the support of the whole House.
Successful combined heat and power schemes are being organised despite, rather than with, the assistance of the Government, mostly in areas controlled by Labour authorities. For example, Labour-controlled Waltham Forest council has won a major award from British Gas for its pioneering scheme which, among other things, is helping to keep the elderly of that Greater London area warm.
In Sheffield, the Labour-controlled city council has created the first European-based joint venture to develop a combined heat and power scheme, and in the first stage of that scheme local tenants are receiving heat from an incinerator burning domestic waste. It will be a privilege for me tomorrow to visit the area and observe that scheme.
The Labour city council of Leicester is actively supporting a joint venture with the private sector to introduce a major combined heat and power scheme. Newcastle, another Labour-controlled area, is continuing to work with the local business community and the electricity industry to create a combined scheme for the area.
In south London, the Labour councils of Greenwich, Southwark and Lewisham are working with a few private sector companies to initiate a combined heat and power scheme based on energy from waste. The hon. Member for Erewash and others will be aware of the amount of heat that is wasted in power stations. Let us harness that energy and send it out into the community to heat hospitals and domestic dwellings and thereby contribute to the nation's energy resources.
439 In a BBC television interview on 15 January, the Secretary of State said that he supported the idea of combined heat and power schemes, and he claimed that CHP would be encouraged by, and CHP technology would gain from, privatisation. There is no evidence of the Government turning those fine words into deeds.
On Second Reading, I referred to the way in which the Energy Act 1983 had failed to provide openings for new and diverse forms of energy generation. The CEGB and other generating companies have made it impossible for those interested in combined heat and power schemes to get into the market and sell electricity. Nothing has been said by the Government in these debates to encourage those who are trying to promote combined heat and power schemes that this legislation will prove more helpful to them than the 1983 Act. The Government should accept the amendment and show their willingness to move forward on combined heat and power in. the interests of the environment and the economy. There are many benefits to be had from combined heat and power.
Earlier in the debate the Grimethorpe fluidised bed project in south Yorkshire was mentioned. That is a way of enabling small generators to use coal cleanly and it avoids much of the air pollution that arises from the burning of fossil fuels, especially coal. I thought that the Minister would say that the Government would fill the gap that British Coal has encountered with that project. That project on fluidised bed combustion leads the world, and if we do not make sure that the final phase, the topping phase, is funded other countries will take the lead.
10.45 pm
Just before the Easter recess I was in Japan where fluidised bed combustion is being developed. We must not let our project fall at the end of the year. When it is commercialised in perhaps one or two years it could well fit into combined heat and power schemes. If we let the project lapse. I have no doubt that in 10 to 15 years the Government will buy Japanese technology on fluidised bed combustion, just as we are currently buying Japanese technology on flue gas desulphurisation, a technology which has been working in Japan for over a decade in coal-fired power stations. This year we have had to buy it for our big coal burners and have had to start a programme using Japanese technology.
The Opposition are in favour of developing British technology. The Minister spoke about the Grimethorpe fluidised bed project and said that he would probably be able to make a statement about it, but wanted more commitment from industry. That is like approaching a potential car buyer and saying to him, "I want you to invest in a new car. However, we have not quite finished the engine technology and we don't know exactly how it will work." No car salesman, not even the Arthur Daleys among Conservative Members, would try to sell such cars on the high streets of Britain.
We need to prove the technology that will fit in well with combined heat and power and Britain's technologists must be allowed to continue their development. The project needs about £11 million, but it has not been offered that in the debate. That money is required over three years and it is a mere pittance compared to the amount that the Bill is writing off in the nuclear industry. Not hundreds of millions but thousands of millions of pounds of taxpayers' money will be set against the excessive costs of the nuclear industry in the years ahead.
440 Month in and month out we have had to fight and argue with the Government in an attempt to get a commitment from them to follow private money into Grimethorpe to make sure that the technology is proved and that we are world leaders in the clean combustion of coal. Amendment No. 136 would commit the Secretary of State and the Director General of Electricity Supply to take seriously combined heat and power and all its benefits. I hope that the Government will say that they are at least prepared to look further at the matter. If they do not give that commitment, we may consider testing the amendment in a Division.
§ Mr. Peter Rost (Erewash)I should like to speak to amendment No. 1. In 1973 I made my first speech in the House on energy efficiency and at that time hardly anybody had heard of combined heat and power. Over the past 15 years I have continued the campaign. As a result, I have an interest to declare because I have recently become a consultant to Associated Heat Services plc, the major company involved in the management of combined heat and power systems.
The arguments developed over many years in favour of energy efficiency were intended primarily to conserve a finite resource, to use it and to produce it less wastefully. The argument now has additional force for environmental reasons. If the Government are right in the assumption that they have expressed again this evening that world and United Kingdom electricity demand is going to grow, there is little hope for the planet. If the greenhouse effect is shown to be caused by global warming as a result of burning fossil fuels, there is little hope for the planet if we continue to produce our electricity in the present wasteful way.
At the moment, we throw away two thirds of the fuel that we put into a power station by cooling water. That creates two or three times as much carbon dioxide—greenhouse gases—than is necessary. We could convert the cooling water into useful energy.
I maintain that amendment No. 1 is modest. I suggest that electricity produced combined with hot water should be classed as a non-fossil fuel, but only that proportion of electricity which displaces fossil fuel which would otherwise have to be burnt if the hot water from the combined heat and power plant was not being distributed and used for space heating. As a combined heat and power plant produces a thermal efficiency of about 70 per cent. —or twice as much as an electricity-only plant—and as nearly half the fuel is converted into useful hot water, that must displace other fossil fuel which would otherwise have to be burnt to provide space heating. We are really burning twice as much fossil fuel in this country than is necessary and we are doing twice over—once in our power stations and throwing it all away and then again to provide space heating.
When electricity is produced in a CHP plant, fossil fuel is saved. The proportion of saved fossil fuel which is sold as useful heat for heating water should be entitled to be categorised within the non-fossil fuel band in the Bill.
I have no doubt that my hon. Friend the Minister will give this amendment serious consideration because this is such a modest proposal. From our electricity production, we throw away about 60 million tonnes of coal-equivalent and we must bear in mind that that produces a considerable amount of CO2-type greenhouse gas. We 441 burn the same quantity of fossil fuel all over again to provide our space heating. Therefore, CHP can make an important contribution to reducing CO2.
Yesterday in this debate my right hon. Friend the Secretary of State conceded that there will be a special slot for renewable energy categorised as non-fossil fuel. Why did he do that? He justified it on the grounds that we need diversity and security of energy supply and also because we want to do something to alleviate the environment threat.
The arguments in favour of this amendment are the same as those espoused by my right hon. Friend the Secretary of State. By using hot water from electricity production instead of throwing it away, we create more diversity, more energy efficiency and we reduce the greenhouse effect.
In recent years there has been increasing pressure from the EC, which will undoubtedly lead to a firm directive that we use energy more efficiently, less wastefully, and environmentally more acceptably. Combined heat and power is one of the EC's strongest recommendations. It is important that it is made to Britain, because we are bottom of the European league. Millions of citizens elsewhere in Europe already benefit from cheap heating in their buildings, which comes from power stations combined with electricity production. We have a lot to do to catch up.
Government studies over recent years identified and confirmed the enormous potential for CHP in the United Kingdom. I strongly support the remarks of the hon. Member for Rother Valley (Mr. Barron), but I believe that if the Government cannot go as far as the Opposition amendment goes they should at least seriously consider my modest proposal.
Combined heat and power is the only technology that can reduce fossil fuel burn and at the same time provide new electrical generating capacity—which are both urgent priorities for the future. I challenge my hon. Friend the Minister and other right hon. and hon. Members to name any other energy technology that can do the same. Combined heat and power is the only technology also to offer the biggest potential for greater energy efficiency. The Combined Heat and Power Association, which supports my amendment and helped me to present it, has for many years argued that the benefits of CHP are far wider than those that I described. They include urban renewal, better housing, better health, and the reduction of fuel poverty.
The Select Committee on Energy is currently conducting an inquiry into the greenhouse effect. The evidence already received from many authoritative sources confirms that combined heat and power will reduce greenhouse gases to a greater extent, and more economically, than any alternative. There are several ways of reducing CO2, including the use of nuclear and renewable fuels and energy conservation. However, they all involve a higher economic penalty than CHP, which is the least-cost option for reducing CO2 in the atmosphere.
If or when a consensus is reached by scientists internationally—which they have made a move towards reaching at Toronto—that, if we want to save life on earth, we are obliged to reduce fossil fuel burn, or at least greenhouse gases, then the Government will be able to congratulate themselves if, tonight, they supported my amendment. By doing so, they will be recognising that 442 there are very long lead times in making changes to our energy patterns and in developing from the present inefficient method of electricity production to the more efficient system of combined heat and power.
Rather than defer action now and be forced to take crash measures to meet international standards—which will prove far more costly—the Government should consider more seriously at this stage what will undoubtedly need to be done in future years. My hon. Friend the Minister will undoubtedly acknowledge that combined heat and power is already economic. He may ask why it should need an extra stimulus. Industrial coal generation is taking off in this country—it needs to, as we are bottom of that league also—because of electricity privatisation. For the first time, it is offering a level playing field.
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Large scale city combined heat and power has more self-financing problems. Its rates of return are much more marginal. Schemes in Sheffield, Leicester and Newcastle will have difficulty in making more than a marginal commercial rate of return because of the large up-front capital investment required to lay the infrastructure for hot water mains pipes. When we have them, we will have cheap heat for ever more, but the up-front capital investment is large. That is why there is an argument for this modest incentive.
The Government's case for supporting the nuclear industry and renewals is justified for reasons of diversity, security, the environment, and energy efficiency. But they will be costly. If combined heat and power can be given the modest incentive suggested by the amendment, we will achieve the same objectives, but without the same economic penalty. The marginal increase in the cost of electricity that would result from this amendment will help to provide the necessary capital for developing heat nodes in our cities.
The case for the special slot is overwhelming. For once, the Government could be seen to lead the European Community in providing an incentive, even if we are at the bottom of the league in the development of combined heat and power. By giving that incentive, the Government will also encourage the new technologies that the hon. Member for Rother Valley mentioned. The clean burn coal technologies for the fluidised bed which is adopted by combined heat and power will be helped by the amendment. The major encouragement which that would give to greater energy efficiency and the help that it would provide for a more effective and economic contribution to reducing the greenhouse gases for future generations is overwhelming. I hope that my hon. Friend will respond constructively by accepting the amendment, or at least by saying that he will give the matter further consideration.
§ Mr. HardyThe hon. Member for Erewash (Mr. Rost) is right to remind the House of his long commitment to the concept of combined heat and power. My commitment to it may not be as long-standing as his, but I recall addressing the annual conference of the Combined Heat and Power Association almost a decade ago. The arguments that were advanced by the hon. Gentleman—he has been advancing them for a long time—were advanced then.
The cause of combined heat and power should by now be more firmly established. Had it not been for the 443 Government's dogmatic approach in the 1980s, we would have seen a greater achievement and greater potential for international advance and international trading opportunities than we do now. One wishes the project well, but it is a great pity that the Government had to put dogma before achievement in the early 1980s. I can evisage enormous advantages from combined heat and power associated with fluidised bed combustion.
I am pleased that the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food is present, because it will allow me to trespass for one moment on the environmental effects which may follow the development of combined heat and power.
The Agriculture Minister will know that there are anxieties about the scale of fish farming around our coasts. It is appropriate for the use of combined heat and power to produce hot water, but not merely for warmth and comfort. Many people in our towns and cities desperately need warmth and comfort. We might be able to use some of that hot water to promote inland fish farming. That might save the Ministry of Agriculture, Fisheries and Food from the almost illegal action in which it is involved by allowing or encouraging the importation of manila clams, the farming of which is becoming a serious risk to our coasts and estuarial areas. I hope that the Parliamentary Secretary will save my having to raise that matter in the House on another occasion by examining that grave problem this evening. Combined heat and power has benefits that may go far wider than mere energy or direct environmental interests.
I am grateful to the hon. Gentleman for tabling the amendment, and I hope that if the Government force us into the Lobbies in support of this just and wise cause, some Conservative Members will join the hon. Member for Erewash, who deserves the tribute of the House.
§ Mr. Malcolm BruceI shall speak briefly because I am a signatory to the amendment. I believe that the hon. Member for Erewash (Mr. Rost) has come up with a simple, straightforward and rather ingenious amendment. It simply asks that the net benefit that combined heat and power can achieve should be credited to the non-fossil fuel quota. That seems to be an eminently reasonable proposition. It will probably be required anyway because it is doubtful whether the industry will otherwise be able to achieve a quota of the order that the Government seem to be describing.
The amendment would have definite environmental and efficiency benefits and could lead to the encouragement of combined heat and power which, as the hon. Member for Erewash has rightly pointed out, has considerable potential in the United Kingdom—much of it untapped. His own tireless fight for this cause over many years is appreciated by the House. He has done a service tonight by tabling a useful, constructive and ingenious amendment. I hope that if the Government cannot accept it, they will consider it. It will be of considerable benefit to all if they do so.
§ Mr. Michael SpicerIt is getting late, so the House will want me to be brief.
I fully agree with my hon. Friend the Member for Erewash (Mr. Rost) and other hon. Members who have made the point that combined heat and power is an important potential source of energy. I also associate myself with what my hon. Friend said about the potential 444 beneficial environmental effects. The hon. Member for Gordon (Mr. Bruce) is right to congratulate my lion. Friend on all that he has done over the years to keep this technology in the forefront of people's minds.
I do not fully share my hon. Friend's anxieties about the future. Existing private generation now amounts to 3 GW of electricity and 2 GW of that is represented by combined heat and power plant, which is a substantial figure. I know that my hon. Friend has already made the point that that is industrial plant, and I shall deal with that in a moment. However, if we are looking to the immediate future, there is ample evidence that the very existence of the Bill is already bringing forward much new, independent generation. We know of about 7 GW of new capacity potentially in the pipeline. Of that, about 1.1 GW is of combined heat and power, such as the Leicester energy scheme and the British Sugar scheme at Brigg.
Industry is, therefore, proposing to increase its investment in combined heat and power by more than 50 per cent. and that is just a beginning. We do not think that there is a need, with respect to industry, to subsidise and artificially support combined heat and power. It is not part of this Government's plans to subsidise schemes which are clearly profitable to private industry and which make sound economic sense.
§ Mr. RostIf the amendment were accepted, there would be no question of the industrial side being subsidised because industrial combined heat and power produces electricity and processed heat for industry's own purposes. It does not sell it.
§ Mr. SpicerI appreciate that my hon. Friend is especially concerned about the domestic side of this technology. Government policy in general and the Bill in several specific ways about which I shall briefly remind t he House are addressing the more general problem to which my hon. Friend is referring. We have spent, for example, £750,000 on studies in Leicester, Belfast and Edinburgh, where there are city schemes. We are determined that the rating handicap under which this particular aspect of the industry has suffered should be altered so it is put on to an equal basis.
The Bill will not only give those wishing to engage in this form of technology free access to the system, but there will now be a duty on public electricity supply companies to buy from the most economic source. Therefore, if CHP is the most economic source, that duty will take effect. Perhaps most importantly in the context that my hon. Friend the Member for Erewash was discussing under clause 9(3) CHP operators will have statutory undertaker powers comparable to those enjoyed by the present utilities. For city schemes that is a major step forward.
In making this necessarily brief reply to my hon. Friend —given the time of night—and although I recognise entirely that this is an enormous subject, in which he is well versed, I must advise him that as a result of our privatisation proposals the prospects for private investment in CHP are looking very healthy. We are providing fair market conditions in which CHP schemes can compete freely with other forms of generation and heat supply. Their future will depend not on further public funding of subsidy but on their ability to operate competitively. Given its thermal efficiency, which my hon. Friend mentioned, and its versatility, CHP is well placed to do just that. In the light of that explanation, I hope that my hon. 445 Friend the Member for Erewash and other hon. Members will feel able to withdraw their amendments, well intended though they are.
§ Mr. MorganI am sorry to have to say that all that the Minister of State has done in his brief reply is to show how very much less he knows about CHP than does his hon. Friend the Member for Erewash (Mr. Rost).
I shall go through what the Minister said about the glowing future that he envisages for CHP after privatisation. He said that 7 GW of new capacity is being promised or discussed with the Department and that 1.1 GW of that is CHP. That may well be true, but as far as we are aware—I shall be interested to know the views of the hon. Member for Erewash on this—the whole of that 1.1 GW falls into two categories. The first is industrial, which is sometimes known as micro-CHP, where the heat grid, led off from the power station, is on land that is within the control of the generator, Slough Estates or Tunnel Refineries. CHP programmes have also been started by Labour local authorities for the specific purpose of carrying out an experiment, which public authorities such as a local authority can do and have done in places such as Leicester, Sheffield and Newcastle. Other schemes have already been referred to by my hon. Friend the Member for Rother Valley (Mr. Barron). However, we are not aware of any breakthrough of the kind that the hon. Member for Erewash and my hon. Friends have been calling for, such as some kind of boost in policy terms —not a subsidy—that would establish the principle of how CHP should work in the new set-up, outside the property of the generator.
The Minister is right—all hon. Members know that converting one's generators to the CHP mode can be economic in places such as leisure centres with a swimming pool where one wants summer heat, in hospitals or old people's homes where summer heat is needed because of the demands of the elderly and so on, and in premises where there have to be standby generators, such as large telephone exchanges or hospitals. That is micro-CHP and we have already conceded that that is taking off. We know that that will produce a large saving on fossil fuel and that it will contribute to reduced energy costs and to a reduction in the greenhouse gas pollution load.
But that is not the point. The point is that the Bill as presently structured is biased against CHP [Interruption.] It is not a question of a subsidy. Without the amendments that the hon. Member for Erewash and we have been proposing, the Bill will be biased against CHP for the simple reason that the duty laid on the Secretary of State and the director is to see that electricity —and only electricity—is generated in the most efficient and economic manner. In the CHP mode of generating electricity, one takes the steam off the turbines at a high temperature. That is not the optimum way of generating electricity because one would be virtually excluded under the Bill from operating an electricity power station in the CHP mode. One would not be generating electricity, taken on its own, in the most economic manner because one would be taking the hot water off before it had gone through the turbines to the maximum possible degree for keeping electricity prices down to the minimum.
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The point about our amendment, and that of the hon. Member for Erewash, is that it would permit the optimisation of two things at once—the taking off of the heat and the generation of the electricity. If anyone thinks that that is a minor point, he should look at the Government's own document on this subject, Energy Paper 20, in which it is illustrated. It is the Government's own calculation, which no one has contested, that if one supplies heat by generating electricity afresh to heat a room, and this is taken to be one unit of heat provided by electricity, one can do it at less than half that price if one does it by gas; but if one does it by CHP, by the offtake of the hot water, the cost goes down to one seventh of that of heating the room by freshly generated electricity.
That is the kind of point that we need to drill into the Minister tonight. The Bill is biased against CHP. An amendment of this sort is needed if we are to have CHP on a level playing field basis. If the Government want us to take them seriously, if they want us to believe that they are interested in fuel efficiency and in the greenhouse effect, and not just in making speeches at conferences or, as the Secretary of State will do next week, lecturing the Soviet Union on "British is best" in energy technology, they must think very seriously about the Bill and amend it so that it really gives a chance to "British is best" technology, which is there, waiting to be implemented if only there is a level playing field.
We know that we are behind in the application of CHP on other than a micro basis. We know that micro-CHP is taking off in the way that I have described. What we are not satisfied about is that large-scale CHP can take off unless the Government take a serious look at the legislation and at the amendments suggested.
On the grapevine we are told that, provided the Government persuade us and the hon. Member for Erewash not to press this to a vote, the Central Policy Unit, the 10 Downing street think tank, will recommend to the Department that it should support these amendments or something similar. I know that I should not be saying too much this week about 10 Downing street and leaks that have emanated from the staff there, but on the assumption that the information that we have had on the grapevine is even better than that of Sir Leon Brittan, now that he has emigrated temporarily to Europe, we will not press this to the vote. We shall expect to see some action from the Minister of State, taking, if not our advice, at least the advice from 10 Downing street, which is a far more important source
§ Mr. MorganI give way to the hon. Gentleman.
§ Mr. MorganI am sorry. Was the hon. Member asking me to give way?
§ Mr. MorganI am sorry. I do not really want to repeat my last line. I was just going to say that 10 Downing street will, I am sure, tell the Minister to do the right thing.
§ Mr. Deputy Speaker (Mr. Harold Walker)Order. The hon. Gentleman has addressed the House once. He cannot speak again.
§ Amendment negatived.
§ Mr. RostOn a point of order, Mr. Deputy Speaker. I tabled an amendment and I have not yet withdrawn it. I ask you to—
§ Mr. Deputy SpeakerOrder. The hon. Gentleman's amendment No. 1 was chosen for debate in a group of amendments selected by Mr. Speaker, the lead amendment of which was No. 136 which I have just put to the House and which the House has negatived.