§ 3.2 p.m.
§ LORD HAWKE rose to ask Her Majesty's Government: What are their policies in regard to future investment in the generation and distribution of electricity, gas and atomic energy and to call attention to the annual reports of the Electricity Council, Gas Board and Atomic Energy Authority; and to move for Papers. The noble Lord said: My Lords, a recent article in the Statist concluded with words to the effect that no one expects to guess the future pattern of energy needs. History is littered with erroneous predictions. Certainly the history of the last twenty years is littered with unfortunate prognostications. Nevertheless, somebody has to assume the rôle of Old Moore; otherwise there will be no power in the future. It is easy to scoff at the planners, but both in Government and in private industry someone has to plan for the years ahead.
§ Power represents the investment of big money, and the decisions involved are possibly second only to those involved in Defence programme estimates. It is unlikely that plans will turn out to be right. One can only hope that they will not turn out to be too wrong. At the moment the future of power is most intriguing, for we have many horses in the race and the most exciting of them all is a very recent entry. In 1963 we used about 283 million tons of coal equivalent energy, of which coal represented 190 million tons, oil 90 million tons, and others 3 million tons. As to the future there are two problems to speculate about: first, the total energy needs, and, secondly, the pattern within that total.
§ We talk to-day about a national growth figure of 4 per cent. annual increase, though many people think that 3 per cent. would be a more realistic figure. The consumption of energy tends to go up at a rather slower rate than the national income. Based on a 3 per cent. national growth rate and an energy growth figure of rather less than 3 per cent., I suggest that the energy figure for 1975 should be in the neighbourhood of 360 million tons of coal equivalent, as against 283 million tons to-day. If one accepts this 15 360 million tons as a basis for discussion, then the problem is to guess what will be the pattern within that total having regard to economic, social, strategic and other considerations. On that pattern we have to base our investment plans for the next ten years. The Government have got to take the lead, but in the private sector, too, important and expensive decisions have to be made.
§ First let me take a glance at the various runners. I think that in my Motion I should have referred specifically to the National Coal Board, because one cannot ignore coal when discussing future energy. At the moment the coal industry seems hard pressed to find markets for 200 million tons of coal of which about 190 million tons are for the home market. They are producing a large quantity of coal at a profit and a small quantity at a loss. They make quite clear in their annual report that any reduction in the total quantity produced would lead to an immediate increase in their overhead charges per ton. But, at the same time, they go on to say that they could increase production quite considerably at a proportionately smaller increase in overheads.
§ The high cost production is in parts of Scotland, Durham, Wales and Kent. The first question is how far this high cost to the Coal Board is offset by lower transport charges, because it is ultimately the price in the grate which matters rather than the price at the pithead. How far is this losing production required to meet specific requirements, and if it is why do not the requirers pay the cost price for it? If the answers to these questions are unsatisfactory, then the production from these losing pits must be for social reasons. In that case, is it right that the whole coal market should be saddled with the cost of coal won at a loss for social reasons? In the short term I suggest it may be tolerable, but in the long term it would clearly be intolerable.
§ I now turn to electricity generated from coal, oil, uranium and water power. The Central Electricity Generating Board just managed to get through our horrible winter two years 16 ago on a capacity of 32 million kilowatts, with a good deal of voltage cutting but no major power cuts. Last March the installed capacity was nearly 36 million kilowatts, and during this calendar year another 4 million was due to come into production.
§ THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE, HOME OFFICE (LORD STONHAM)My Lords, I want to be quite clear. Did the noble Lord say that last year installed capacity was 36 million kilowatts?
LORD HAWKELast March it was nearly 36 million kilowatts, and 4 million are due to come in this year—4 million in 1965 and 1966 and 6 million in 1967 and 1968, making some 55 million at the end of 1968 (after allowing for some withdrawal of older plant) which is nearly three times the capacity which existed ten years ago; while by 1970 the Board expect to have a capacity of about 67 million kilowatts in action, after withdrawal of some older plants. I do not know what the plans are beyond 1970, but there is talk of 5 million kilowatts of an atomic plant, and if conventional plant were to continue to come in at about the same 5 million kilowatts a year we could have a capacity of over 90 million kilowatts in 1975.
Capital costs have been coming down, and are now about £40, per kilowatt for conventional stations. But people do not think that there is much more margin for a fall, because we have reached practically the maximum temperatures and pressures. Fuel consumption is running at about 60 million tons of coal, and measured in coal equivalent, oil, 4½ million tons, hydro and atomic, 5 million. This brings me to the generation of electricity by atomic power. The existing programme started in 1955, and provided for 5 million kilowatts by 1969. Those stations are included in the rough figures I have already given for electricity generation. These stations are all the Magnox type, using carbon dioxide gas to transfer the heat from the uranium, moderated by graphite. Berkeley and Bradwell cost about £180 in capital per kilowatt; Size-well is expected to cost only £107 per. kilowatt, and Wylfa £100 per kilowatt. In that case, Wylfa would be generating at about two-thirds of a penny per unit, against ½ d. for a conventional station.
17 I wonder how far these figures will prove realistic? I have been told that our costs are based on a twenty-year life and an availability of 75 per cent. Many people think that thirty years for the life would be nearer the mark, and I understand that at Bradwell the availability has been over 90 per cent. I should like to know what are the costs of generation, actual and estimated, at our latest Magnox stations; on what life and availability they are based; and what would be the difference if we took the thirty-year life and a 90 per cent. availability as a basis. I have mentioned these questions to the noble Lord who is going to reply.
A new generation of atomic power stations is in prospect at which lower costs are anticipated. Can Her Majesty's Government say whether any particular system has been chosen at the moment? As your Lordships are aware, the great feature of atomic energy is that the costs are about two-thirds capital and one-third running, whereas for conventional power precisely the reverse is the case. Can we be certain that inflation will not so put up running costs that in twenty years' time the high capital and low running costs of atomic stations will not have the advantage over the low capital and high running costs of the conventional station? I emphasise that the capital costs of the atomic stations are fixed to-day. when they are built. This, I suggest, might be particularly relevant if the 4 per cent. gross target should in practice be achieved partially by inflation.
I now turn for a moment to gas, which up to date has been rather a slow runner, but recently has received such a pep pill that it may run away from the field. Gas was always a good fuel for cooking and certain industrial purposes in urban areas, but was rather expensive for space and water heating. To-day, the outlook is completely altered by reason of two important developments: the ability to make gas from oil, and the import of natural gas. All this has been made still more exciting by the fact that in Holland there has been discovered what may prove to be the second largest natural gas field in the world. North Sea exploration is busily developing, and there is quite reasonable hope, I am told, that we may wake up one day and find that we have natural gas within our own curtilage.
18 The Dutch are working hard to export their gas to Germany and to Belgium, and I understand they have made an offer to us. If we found our own gas, this offer might well prove to be superfluous, but if we did not it could be most advantageous. Presumably it would need a pipe-line under the North Sea. I presume that such a pipe-line will be required in any case, either to import the Dutch gas or for us to be able to export our own gas if we find it in large quantities.
With such exciting possibilities for the future as these, the existing gas figures are rather prosaic and academic. But the Gas Board use about 22 million tons of coal, 2 million tons of oil in coal equivalent, and they buy about 3½ million tons of coal equivalent of gas from refineries and coke ovens, to send out about 3,000 million therms of gas. In some of these new processes from oil, gas can be sent out within 90 seconds of manufacture—a most important point in regard to meeting a peak load. Gas can be stored.
The capital cost of adding to gas production is not so great as with electricity, but it needs expensive buried mains for distribution; and to expand fast, a great deal of money will have to be sunk under the ground in mains. At the moment, gas is connected to about 12 million consumers, whereas electricity goes to 17 million consumers. One major snag on the horizon is that the Dutch gas is double-strength gas. The result is that it cannot be burned in their existing appliances. If it could be mixed with an appropriate quantity of leaner gas, of course it could be burnt in existing appliances: but if you are going to rely to a large extent on this particular sort of gas you will not want to make a lot of leaner gas to mix with it. The Dutch are hastily changing all their appliances. That is a problem that might face us here one day.
Gas and electricity, then, are obviously going to play an increasing rôle in our energy pattern. The problem is, how much? To-day, with the same 33 million kilowatts of electric capacity, we are using some 70 million tons of coal equivalent. If, in 1975, we were to go up to 90 million kilowatts, as I said was possible, and use it to the same intensity, it seems that we could be using 19 something of the order of 180 million tons of coal equivalent, or half the total energy figure I suggested as appropriate for 1975; while gas, which might well double over this period, would then be using 15 per cent. of our energy. Transport is expected to take about 12 per cent.
The sum of these figures, my Lords, would be 77 per cent., leaving only 23 per cent. of the total energy field for all industrial and domestic uses other than electricity, gas and transport. This figure seems obviously too high, if not absurd. The calculation is, of course, disputable on several grounds; but, even so, it seems that either total energy requirements for 1975 are under-stated at 360 million tons of coal equivalent, or we could be over-invested in electricity by that year if we go on building generating plants at the present rate.
Based on the figures I have described, our 1975 fuel consumption could look something like this. Coal, 190 million tons; oil, 140 million tons of coal equivalent; others (that is, atomic energy and water), 30 million tons. The figure of 140 million tons of coal equivalent of oil represents something like 90 million tons of oil, which is an awful lot. If our figure of 360 million is too low, the oil might well have to go up still higher.
Is the oil position secure? The world reserves of oil are ample for the foreseeable future, but some are situated in politically unstable parts of the world. As against this, the reserves are very diversified; the production of Canada has hardly been scratched; and, in the last resort, the consumers have the whip-hand because the oil countries get no revenue if they cannot sell their oil. Nevertheless, oil has to be paid for. Oil companies all emphasise that they earn a great deal of foreign exchange for Britain and that they buy much of their equipment here. One feels that we should recognise that oil is the fuel of the future, and see whether we cannot arrange that a still larger proportion of the oil companies' requirements should be bought here in order to help pay for it. If we do not find gas, then we may have to increase coal production from the economic coalfields and put more of our money into atomic energy.
20 We come now to the main object of this exercise, which is to ask Her Majesty's Government how they see the future, taking into account the following considerations. I wonder whether we shall be over-invested in electricity by 1975. Is it economic to make such immense investment in plant which may be required only at peak periods? What can we do to spread the Lord by off-peak consumption? What are the latest developments in that direction? Can we extend the Ffestiniog type of project, which pumps up water at off-peak and generates very quickly at peak-load. If we decide to slow down on generating capacity beyond 1970, will it be a better bet to give preference to the next generation of atomic power over conventional stations? Shall we, in any case, require a North Sea pipe-line? If we find the North Sea gas, and it is the same type as the Dutch gas, how are we going to deal with the question of our burning equipment? If our gas industry turns over almost entirely to oil or natural gas, how are we to supply the substantial but shrinking market for coke? Then, if the gas industry is going to expand at the sort of rate I have indicated, how about the gasfitters of the future? Are we training enough? They are a retiring class on the whole, and since Mr. Hosmer Angel used the gas-fitters' ball for his nefarious purposes, and finally met the horsewhip of Holmes, we have not heard much about gas-fitters in our economy.
Our decisions on investment have to take account of all the decisions which I have mentioned, and others as well. We have to look to the balance of payments without condemning industry to use uneconomic energy. We have to support our suppliers of capital equipment at home at least to the extent that they can expect to secure orders abroad. We have to keep in being our teams of atomic engineers so that they may keep in the forefront of science and at the same time be able to secure export markets. We have to remove as much uncertainty as we can, so that the heavy capital expenditure of the oil industry can be directed to the right projects. My Lords, all these questions are very difficult ones. We must not expect any human agency to give all the right 21 answers. We can only hope that their decisions will not prove to be too wrong. I beg to move for Papers.
§ 3.27 p.m.
§ LORD STONHAMMy Lords, I am not at all certain about the success of the noble Lord, Lord Hawke, in the rôle of Old Moore, but I am quite certain that your Lordships' House is indebted to him for bringing, forward this very important Motion and for the manner in which he has presented his case. I was somewhat relieved to hear him say, almost in his last sentence, that he felt that no human agency could possibly guarantee to answer successfully all the questions he had put. Certainly this particular human agency does not aim at answering all of them, but I will do my best in the course of my speech, if perhaps less fancy-free and more pragmatic, to deal with most of the points which have been raised by the noble Lord.
Her Majesty's Government fully recognise that both our economy and our planned expansion are dependent on the production of power. Our power policy is therefore designed to satisfy, and as far as possible to anticipate, the progressively increasing demand for power—and to satisfy that demand as to quantity, quality and variety in as efficient and economic a manner as possible. The fulfilment of that policy requires investment on a massive and increasing scale.
Last year the gas industry in Great Britain spent over £90 million on capital account; and the nationalised electricity industry in England and Wales (including nuclear power stations) spent nearly £490 million. But with growing demand annual capital expenditure in the electricity industry will increase substantially, and the figure of £673 million has been approved for the next financial year. The Gas Boards, too, have to expand their capacity, but as their new processes are less costly in capital their expanding quantitative investment will not, for the present, cost more than around £100 million a year. At the moment, as your Lordships are aware, the Government are engaged in a review of public expenditure and investment, in the light of our general plans for national economic growth. Until this is completed it is not possible to give, in financial terms, precise forecasts of the gas and electricity industries' longer term level of investment. It is certain, how- 22 ever, that although the £770 million which we shall be investing next year in gas and electricity is a large sum, this, and more, will be necessary in the years ahead if we are to support the growth of the economy and provide for domestic requirements. More power is essential, not only for increasing production but for increasing the efficiency of industry.
The capital requirements of the power industries have to be met from the resources available from public investment as a whole, but we are convinced that they must be granted the highest priority. And, in addition to the industries which the noble Lord, Lord Hawke, mentioned in his Motion, as he very properly said we must take coal and the privately-owned oil industry very fully into account. They have vital parts to play in meeting national energy requirements. The capital needs of coal have to be met out of the total pool. The Government regard it as essential to the proper assessment of priorities to operate a coordinated fuel policy. To this end my right honourable friend the Minister of Power has already begun discussions with the chairmen of the nationalised fuel industries, including, of course, coal. It is as yet too early to go further than that, but when our reassessment is completed Parliament will be informed. Turning to the individual industries and, first of all, to the gas industry—
LORD HAWKEMy Lords, may I ask the noble Lord one question? I imagine that oil is represented in this committee to decide the future, because the oil industry's investment is very big indeed.
§ LORD STONHAMYes, my Lords. I had actually mentioned the privately-owned oil industry a few sentences before, and in any consideration of fuel policy oil must be taken into account.
The gas industry, as the noble Lord mentioned, has recently seen a marked upsurge in its fortunes; indeed, it has taken its place in the forefront of the technological revolution. The confidence expressed in the Gas Council's publication Gas Goes Ahead has certainly been justified. In 1963 the industry's plans provided for an increase in gas sold of 5 per cent. a year. This contrasts with the position in the 1950's when they were hard put to maintain the level of gas sales. It is not easy to forecast with certainty, but now a 5 per cent. annual increase 23 seems much too low. Much of the Gas Boards' new business is for seasonal heating which is very much affected by the weather, but it seems likely that the rate of increase in gas sales, which is now of the order of 7 to 8 per cent. a year—50 per cent. more than expected last year—is likely to continue.
This spectacular resurgence has come about because the public has taken a new view. of gas prospects. The first tanker carrying liquid gas from Algeria arrived on October 12, and a substantial quantity of gas from this source has already been reformed and supplied to consumers. This, the world's first venture in the large-scale transportation of gas beyond the seas, is working smoothly. When fully operational it will supply some 350 million therms, or 10 per cent. of our town gas requirements a year. It is a useful addition, therefore, to our supplies of cheap non-toxic gas which will help to meet the rising demand for gas this winter. In total, however, it amounts to only two years' increase in sales, so it has had no significant effect on the requirements from other sources. But this is an outstanding example of enterprise by a nationalised industry, brought to fruition in co-operation with private concerns and international partnerships. The Gas Council's investment in this project is limited to the £13½ million cost for the grid which carries gas to the eight Area Boards and to the terminal at Canvey. In addition, during the last few years two important Lurgi plants have been brought into operation for the total gasification of coal, and some very economical processes for making gas from light oil have been introduced.
As the noble Lord mentioned, the industry is also participating in the search for natural gas. The Gas Council-Amoco group was awarded five licences in September to drill for oil and natural gas in the North Sea. Extensive survey work has already been completed and drilling will start next year. But as well as its own drilling, our gas industry, with its statutory monopoly of the distribution through pipes of the public supply of gas, has an interest in other potential finds because it will have first option on any natural gas which becomes available for use as fuel. Any money spent on North Sea exploration is being charged to revenue account and, therefore, capital- 24 wise it will not affect the remainder of the industry's programme.
As the noble Lord mentioned, Dutch natural gas affords another very large potential source of supply. Indeed, the natural gas reserves at Groningen have been estimated at 1-1 million million metres—roughly a hundred years of United Kingdom consumption at the present level. Discussions were initiated in June, 1963. between the Gas Council and the company developing the Groningen reserves, but progress has been slow because the project involves a number of difficult economic and technical problems including, as the noble Lord said, the proposal to lay a pipe-line under the North Sea. On this last question there is now hope that the terms for a feasibility study for a pipe-line may be agreed in the reasonably near future. But agreement for a joint study does not imply a commitment to supply or to take gas at any future date, and in any case a scheme for importing Dutch gas would be subject to the approval of my right honourable friend.
Under the stimulus of these new developments gas will play an increasingly important rôle in our economy, in providing fuel supplies at competitive prices, and our investment in this field will unquestionably bring rich benefits. Gas is ideal for many sophisticated heat processes in industry, and in the home it is the most suitable and reliable fuel for meeting the seasonal heating load. We shall need more gas and our planned investment will ensure that it is produced and distributed as economically as possible.
I turn now to the electricity industry. The supply industry in England and Wales is at present planning its investment on the basis that the total sales of units of electricity will increase over the next six years at the rate of 10 per cent. per annum. Translated into calls on generating plant, that means that the demand for electricity around 1972—eight years hence—is likely to be double what it is now. As major production units take some five years from conception to commissioning, we have a very great deal to do if we are to double our capacity in some seven years and thus begin to create reserve capacity. But the most urgent task is to close 25 the present gap between maximum capacity and peak demand, and here I might say a word about electricity supply prospects for this winter. The industry is working on estimates which put the expected peak demand in "average cold spell" weather at 33, 600 megawatts, and the demand in weather of extreme severity at 36, 600 megawatts. The noble Lord quoted his figures on a somewhat different basis. I hope he will not mind if I use this standard which is the one most commonly used.
According to the law of averages, there is a fifty-fifty chance of weather being worse than "average cold", but only one in a hundred of its being worse than "extremely severe". To meet these possible loads—the two extremes, I may call them—the Generating Board expect, by the end of this month, to have a total capacity of 35, 000 megawatts. In recent winters the Board has managed to have about 90 per cent. of its plant available to meet the peak, so that, assuming this figure can be achieved this winter, and that demand and capacity have been correctly estimated, there will be this winter a plant deficit of about 7 per cent. in an average cold weather spell and a deficit of 14 per cent. in extremely severe weather. On these estimates, in an average cold spell the Generating Board expects to be able to cope with the deficit by reducing voltages—I understand that the lights get a little dim: in very severe weather actual disconnection of some consumers may be necessary at peak hours.
These demand estimates were adopted by the Electricity Council in May, but, so far, sales are running somewhat below the forecast. It is now thought, therefore, that demand may not turn out to be higher than 33, 000 megawatts, and, if all possible measures are used to relieve pressure on the system, the deficit in average cold weather could be of the order of 3 per cent., and, in extremely severe weather, 11 per cent.
§ LORD DERWENTMy Lords, I am sorry to interrupt the noble Lord, but I think I have taken these figures wrongly. I thought he said that in normally cold weather 33, 000 megawatts were required, and that we were in fact producing 35, 000 megawatts. That does not seem to me to be a deficit. I did not quite understand the figures.
§ LORD STONHAMMy Lords, what I said was that in an ordinarily cold spell it would be 33, 600 megawatts; in very severe weather it would be 36, 600 megawatts. They are the peak loads. Then I went on to say that by the end of this month the Board hopes to have plant capacity available for 35, 000 megawatts, but that normally they are able, even at peak, to produce at best only 90 per cent. of that capacity in terms of power to be consumed.
§ LORD DERWENTI am much obliged to the noble Lord. I quite understand.
§ LORD STONHAMThat brings us to the point that, if we have the ordinary, "fifty-fifty" winter, during the cold spell of that winter we shall be 7 per cent. short, and, if it is very bad, during that time we shall be 14 per cent. short. I was going on to say, however, that since May, when those estimates were prepared, the level of consumption has been less than anticipated, and we now therefore think that it may well be that, at best, we shall have a 3 per cent. deficit, and, at worst, 11 per cent., and therefore the chances of having to disconnect consumers would be reduced. But, of course, we must not ignore this.
The Generating Board may face additional difficulties in certain areas because of delays in completing important sections of the transmission system. So far as the Area Boards are concerned, they have taken all practical steps to accelerate the reinforcement of their distribution networks, and the chances of local interruption are expected to be less than in recent winters, although they cannot be ruled out. Your Lordships will also be aware that the shortage of generating capacity arises mainly because, under the previous Government, the rate of growth of demand was seriously underestimated. Another important factor has been the serious delays in commissioning new plant this year.
All possible steps are of course being taken to avoid breaks in electricity supplies. The Boards have made special arrangements with owners of private generating plants to operate them for short periods when otherwise Lord shedding might be necessary, and they have secured the co-operation of large industrial consumers to reduce, without serious loss of production, their demands on the 27 system at peak hours. It is expected that the increased investment programme will improve the supply situation in the next two years; and, under the Generating Board's present proposals, we should have an adequate reserve margin of plant by about 1970. That is how the point of a reserve margin applies: we must have more than the peak demand. The Board now aim at a reserve plant margin of 17 per cent. compared with the figure of 14 per cent. formerly thought adequate. The achievement of this target will require maximum effort by the Board and the heavy electrical industry. It will also involve investment totalling £4, 000 million over the next six years.
My Lords, I have at this point reached a stage in my speech at which it might suit the greater convenience of your Lordships if the two important Statements were now made. I could then resume my speech on the nuclear power programme. With your Lordships' agreement, therefore, I will sit down now and allow these two Statements to be made.