HC Deb 20 July 1989 vol 157 cc612-7

Lords amendment: No. 59 in page 35, line 33, leave out from "activities" to second "and " in line 34 and insert to which this subsection applies

Mr. Michael Spicer

I beg to move, That this House doth agree with the Lords in the said amendment.

Madam Deputy Speaker

With this it will be convenient to take Lords amendments Nos. 60 and 61.

Mr. Spicer

The effect of Lords amendments Nos. 59 to 61 is to ensure that, in keeping under review activities connected with the generation, transmission and supply of electricity, the director general should also keep under review, in particular, activities connected with combined heat and power. This will help him in carrying out his other duties under the Bill, such as the duty in new clause 3 to promote competition in the generation and supply of electricity.

Placing the interests of combined heat and power in the Bill must be seen in the context of what the Government are also doing for combined heat and power. We are funding a number of research projects up to £750,000 in total and are giving statutory undertaker powers to CHP operators comparable with other forms of electricity generation. We are putting the rating of CAP on the same level as others. Above all, the Bill is making fundamental changes, taking away the grid from a single generator and giving CHP free and fair access to the system.

The Bill is doing a tremendous amount for CHP, but, to underscore that, we thought that we would accept the Lords amendments. I ask the House to accept them.

Mr. Barron

I do not intend to prolong the debate, but we should discuss these amendments for a few minutes. The Opposition are pleased that these provisions are to be included in the Bill. There were lengthy debates in the House, in Committee and on Report about the future of combined heat and power. I was fascinated also to see how the constitution could be so elastic in terms of the ability of the other place to carry on debating changes in our legislation.

Although we do not have combined heat and power in the Bill specifically, as Lord Ezra wanted, I am pleased that there is a reference to cogeneration: heat produced in association with electricity and steam produced from and air and water heated by such heat". That is exactly what has happened in this cycle. I do not want to go into the technicalities, but it is important to note that the Government are moving in the direction sought for many years by people working in the industry.

It will be one of the general functions under clause 45 that the director should "keep under review" the development of combined heat and power. That takes us no further forward than we have been since the Energy Act 1983, when the Government decided to review the development of combined heat and power. Any advance since then has been despite the Government and not because of them.

9.30 pm

The amendment will not alter the position. I do not share the Minister's confidence that combined heat and power projects will have wide opportunities of getting into the system and being able to take part in the so-called "competition" that we have at present. CHP developments are at a critical stage, yet the Government still take little action. Despite their professed support for CHP, they have not taken the opportunity presented by the Bill to remove the blockages that exist and they have even invented new ones, such as the problem of CHP projects in getting electricity into the system. The electricity boards have failed to negotiate adequate purchase prices for combined heat and power schemes and the Government show no signs of taking effective action to ensure that the blockage is removed.

On Report, the Minister told us how much money was spent on the Leicester combined heat and power scheme, yet the Government have not removed the blockage that could threaten the existence of the CHP scheme in Leicester. The other major threat to CHP from the privatisation of electricity is through the Government-sanctioned secrecy currently surrounding the contracts working party, which looks set to form a cartel. Many people in the Combined Heat and Power Association and people who have been working on CHP schemes for years believe that it will be designed to keep them out, as cartels were designed to keep them out after the 1983 Act had said that we would have the development of CHP schemes in Britain.

The Government's failure to make their intentions clear for CHP is not surprising. In the debates on CHP during the passage of the Bill, I have not been convinced that the Minister understands the issues involved. On Report, the Minister said: 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 sources. Therefore, if CHP is the most economic source, that duty will take effect. I am pleased to see that the hon. Member for Erewash (Mr. Rost) is in his place. During the debate, he brought up the point that had been argued for many years by people trying to get combined heat and power into the market place. He argued that the case for CHP was made not on the basis that it would generate electricity cheaply, but that: 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."—[Official Report, 6 April 1989; Vol. 150, c. 443–46.] That argument is right, but we must recognise that the hot water is normally taken away from the generation before it would have been if one was just generating electricity. On that basis, the generation of electricity is likely to be more expensive than it would be from conventional plant. That is where the problems lie for CHP in breaking into a competitive market which does not understand the uniqueness of the technology we are proposing to use. As the hon. Member for Erewash rightly said, CHP has an effect on the environment as well. By the more efficient use of energy, it can go some way to help us in dealing with environmental problems.

The Energy Select Committee's recent report on the greenhouse effect highlighted the benefits that efficient power generation by combined heat and power could bring. According to the CEGB, some CHP plants could reduce greenhouse emissions by up to 60 per cent. British Coal is already showing the way forward. The planned circulating fluidised bed CHP schemes at Slouth Estates is a pathfinder. That commitment is far in advance of anything that the electricity supply industry seems prepared even to discuss.

Not too many years ago, I had discussions with the chairman of the CEGB on this unique method of using energy in our communities. I shall never forget his remark that if British Gas were taken out of a place like Leicester, he would go in because he could sell not only electricity but water for space heating and domestic use. For years CHP has had problems getting a foothold in the market. Until we understand that and make special provisions for CHP schemes, we shall have problems developing it.

It is a great shame that the Government have failed to take the opportunity presented by this massive change in the electricity supply industry to give CHP the boost that it needs. I urge the Minister to turn his professed support into practical action in the not-too-distant future. The Bill says nothing more about this technology than was said in the Energy Act 1983. I hope that a future Secretary of State or director general will look seriously at CHP and find a place for it in the market so that it can develop as the amendment proposes.

Mr. Rost

I am grateful to the hon. Member for Rother Valley (Mr. Barron) for his references to my contribution to debates on this Electricity Bill, and in previous years.

The hon. Gentleman referred to the Leicester combined heat and power schemes. He may not be aware that this afternoon I received by fax—telecommunications technology seems to be moving even into this place—the most alarming news that work on the Leicester project has been suspended. The 110 MW scheme by Leicester Energy has been the showpiece of CHP development. Apart from the Sheffield scheme, it is the only scheme going ahead. It involves a private enterprise consortium of six major companies and I declare an interest as a consultant to one of them. The project has progressed for the past 16 months and negotiations have now come to a conclusion. The talks have collapsed and work on the project has ceased because of the uncertainties surrounding the privatisation of the electricity industry, particularly the contract for the sale of electricity.

I shall not bore the House with the technical details of why the negotiations have broken down, but I use this example to compare what is happening in this country with developments in towns and cities in western Europe. Over 300 already have CHP district heating schemes and many others are being developed. Such schemes have made a huge contribution to reducing fuel consumption and global greenhouse warming. Thermal efficiency has, been doubled by using the hot water as well as the electricity from combined production.

I hope that my hon. Friend the Minister will look at the letter that he will have received a couple of days ago from the Leicester combined heat and power company explaining the difficulties that it is having in getting this project further progressed because of the uncertainties of the electricity contract. I hope that he will use this as a reason for giving further thought to the amendment that my hon. Friends on the Front Bench have proposed to the Bill. I welcome the amendment because it at least opens the door and obliges the director general to monitor progress on combined heat and power. However, monitoring will not be enough when one of the two major projects has come to a halt. What will he monitor? We need a stronger amendment. I regret that none of the three efforts of the other place to change the Bill in this respect have been accepted by the Government. I regret, with a personal interest, that the amendment that I moved on Report was not accepted either.

The Government will have to come back to this, simply because the contribution that the more efficient generation of electricity can make to electricity prices and the environment will oblige them to assist in solving the major problems affecting large-scale city combined heat and power projects. These projects are marginaly economic, but they are more economic than nuclear power. Nuclear power is getting a special and open-ended subsidy in the Government's strategic policy, as is renewable energy. I do not complain about the special help to these two sources of energy, but, like energy efficiency, combined heat and power can make an important contribution not just to strategic diversity of supply but to the relief of environmental pollution and the greenhouse effect, as it is doing increasingly in other countries. It should have been given a more important promotional opportunity in this legislation, as it needs Government help to help it to overcome the high up-front infrastructure costs of laying district heat mains.

Industrial combined heat and power projects are going ahead fast, and all the projects that were held up previously are suddenly taking off. The Government deserve full credit for that because it would not have happened without the privatisation of electricity. This is giving industry the power to set up its own combined heat and power generation by allowing it to get a fairer price for the surplus electricity. These projects are going ahead with a pay-back period on the investment of about three years.

There are still enormous problems with the larger scale schemes, and I hope that the Government will either take note now, or accept that these problems will have to be solved with their help if we are to make a contribution to energy efficiency and the global warming effect.

While I welcome the Lords amendment, it would have been more beneficial if the Government had gone a little further and accepted one of the three amendments that the other place tried to introduce, as they would have given more power to the promotion of this most important technology, which other countries have adopted, which is economic and cost effective and which needs a stronger market stimulus than it is getting at the moment.

9.45 pm
Mr. Michael Spicer

My hon. Friend the Member for Erewash (Mr. Rost) has been persistent and effective in arguing the case for combined heat and power. Perhaps my hon. Friend was temporarily away from his place when I explained why the Government wished to accept the amendment which will introduce into the Bill the interests of combined heat and power. That is an important addition.

My hon. Friend mentioned the Leicester scheme. The Government invested £250,000 of taxpayers' money in the initial preparations for that scheme but it would appear that the scheme is not now to go ahead because the contracting parties find that they cannot contract at an economic level. There is nothing much that the Government can do about that.

We certainly believe that—the hon. Member for Rother Valley (Mr. Barron) quoted me correctly—combined heat and power should compete fairly with other forms of electricity production. At the beginning of my opening speech I listed the things that the Government have done to ensure that CHP can compete fairly, which it could not do hitherto because of rating, statutory undertaker arrangements and the way in which the industry was structured to inhibit new entrants such as CHP.

Part of the case for CHP must be that it is competitive and economic. That is why it has been so successful in industry, and why it currently produces 2 GW of electricity. We know of a number of schemes for the industrial use of combined heat and power which may result in its producing twice that amount in future.

CHP ought to be able to compete freely and fairly and stand on its own feet——

Mr. Rost

My hon. Friend referred to the Leicester scheme and suggested that work had been suspended because the economics were not proving as good as had been expected. I assure my hon. Friend that that is not the case. The brief sent to his Department by Leicester Energy will confirm that. The problem is not that the econonics are not robust but that Leicester Energy needs a long-term contract to make the scheme bankable. The area board is not prepared to offer a long-term contract based upon an escalation clause in respect of the price of gas, although it is a gas turbine scheme. The problem arises from the lack of a long-term contract.

Mr. Spicer

My hon. Friend has made the point that I sought to make. The contractual arrangements and negotiations have broken down on the basis of the price that was being requested. The area board took the view that the price was unacceptable. That must be a matter for the contracting parties. If the Government went along with every single proposal put to the area board successor companies, ultimately they would increase the price to the consumer, and the Opposition would be the first to groan and complain and, in this case, they would be right to do so. The industry must take into account the economics of producing energy.

Mr. Barron

Will the Minister tell us why he is prepared to ringfence electricity and to guarantee billions of pounds of taxpayers' money, not just in the flotation but in years to come, to clean up the mess that it creates, but he is not prepared to help protect the Government's investment in the combined heat and power scheme in Leicester? The Minister must know that the cost of electricity on a CHP scheme is more expensive than if the industry were just using steam turbines to generate electricity per see. Does he not understand the technology?

Mr. Spicer

It is precisely for the same reason that we ringfenced coal at the cost of £10 billion over the past few years. We believe that nuclear power is a fundamental addition to the range of energy supplies which we wish the country to have in order to ensure that the consumers' interests will not be put at risk, as they have been on previous occasions through disruptions in the coal industry——

Mr. Barron

Arthur Scargill.

Mr. Spicer

The hon. Gentleman made the point himself—Arthur Scargill. I was not going to mention him today to save the hon. Gentleman's blushes. As he has said that, I am quite happy to agree with him when he says that Arthur Scargill is part of the history of the matter, as are some of the disruptions to our oil supplies and the price of those supplies from other countries.

The question of the security of energy supply in this country is fundamentally a different question. That is why we have protected the coal industry so heavily for so many years and why, as a result of protecting it and putting so much money into the industry, it is now, for the first time, able to face competition with some confidence. That is good and something that we have achieved for the coal industry.

I understand the points made by my hon. Friend the Member for Erewash. He has made them coherently and cogently over many months and years. His labours have borne fruit because the Bill has on its face the recognition of the importance of CHP, not to mention the panoply of actions that we have taken to ensure that CHP competes fairly in the future in a way that may not have happened up to now. I hope that my hon. Friend and others will accept these Lords amendments.

Question put and agreed to.

Lords amendments Nos. 60 and 61 agreed to.

Mr. Speaker

I understand that it is the desire of the House to take Lords amendments grouping No. 66 to the grouping No. 163 formally. Is that correct?

Mr. Hardy

Would you give me some advice, Mr. Speaker? You were kind enough to select my amendment to Lords amendment No. 155. I would like to say a word or two about that.

Mr. Speaker

In that case it would be convenient if we took Lords amendments Nos. 66 to 77 formally.

Lords amendments Nos. 66 to 77, 144 to 153 and 174 agreed to.

Forward to