Energy: Long-term Strategy

HL Deb 16 May 1984 vol 451 cc1407-17

3 p.m.

Lord Ezra rose to call attention to the need to consider a long-term energy strategy for the United Kingdom; and to move for Papers.

The noble Lord said: My Lords, it is many years since an attempt has been made to define an energy strategy for the United Kingdom and we on these Benches believe that the time has now come to do so, despite all the difficulties and the problems of making such an attempt. In support of that contention I should like to deploy a number of general arguments and a number of specific ones.

First, as to the general arguments, there is not the slightest doubt about the importance of energy in the economy, in the home and the factory. There is equally no doubt that, if we wish satisfactorily to develop our energy resources, decisions have to be taken which require years to mature whether it be in the field of research and development or of investment. So inevitably, in order to take those decisions, some view has to be formed of the future and of interrelationship of one form of energy with another.

Secondly, there is equally no doubt, particularly in recent years, about the wider economic and financial implications of the energy scene; the way in which the oil from the North Sea in particular has contributed so massively to our financial wellbeing. How long is that going to continue? How effectively are those additional financial resources being used? These are also issues of energy policy. Then there are social issues, sadly brought home by the present dispute in the mining industry, and in relation to those social issues also it seems to me that a broad energy strategy is necessary.

Finally, there is the international dimension. We are members of the European Community. We are members of the OECD. We have participated in many international discussions and operations in the energy field. Coincidentally, and very happily so, the Select Committee on the European Communities have only recently issued their very important report on the European Community's energy strategy and objectives, which ties in very well with the subject of this Motion.

When we consider the question of an energy strategy for the United Kingdom we start from a position of strength. We in the United Kingdom have a particularly favourable energy position with our reserves of coal, oil and gas. the nuclear expertise and the general technological advances that we have achieved in the usage of energy; but, in my opinion, far from diminishing the need for an effective energy strategy, that strengthens it, so that we can make the very best use of what nature and what effective achievement have favoured us with.

But apart from these general grounds, there are a number of specific grounds. I believe that the time is coming when a number of very important issues in regard to particular energy sources have to be decided. I would crave your Lordships' indulgence to be able to mention some of these in regard to the particular sectors.

Coal is the area with which we must obviously start. It happens to provide the largest indigenous reserve of fossil fuel in the country and, unfortunately, is very much in the news at present because of the dispute going on in that industry. I should like to ask whether, among the various factors that have led to this dispute, there could not have been a feeling of uncertainty about the future of the coal industry. This to my mind calls not only for a clear declaration of what that future might be, but of that future in relation to the total energy scene. Perhaps the noble Earl, Lord Avon, when he comes to reply, will make some reference to this.

Obviously we all wish this present dispute to be settled as quickly as possible, and this is of particular importance if the coal industry is to benefit from the great potential advantages that lie ahead of it. The fact is that we have, on the supply side of coal, massive reserves—45 billion tonnes of readily mineable coal which could last us for more than 300 years at present rates of extraction. We have very highly skilled mining engineers and mineworkers, and we have great technology both in the extraction of solid fuel and in its usage. The combination of these things makes for a strong potential supply situation.

On the demand side, despite the decline in the use for energy in recent years, coal is in a strong position to compete with oil and the progressive replacement of oil firing with coal firing is something which holds out great prospects for the coal mining industry. In the longer term, as the Select Committee's report to which I have just referred makes mention, there is the prospect of growth in coal demand in the whole of Western Europe, which of course is going to be partly satisfied from more far-distant sources but is an open invitation to the British mining industry also to compete. Then, looking even further ahead, we have the situation in which coal represents the largest reserve of fossil fuel not only in this country but in the world, and fossil fuels are going to be needed for particular uses as far ahead as we can see, whatever other fuels may be developed. So it follows from all this that the sooner the present dispute can be settled the better, the sooner will the coal industry in Britain be able to realise its great potential for the future.

The oil industry also raises questions. Recently the Government published the latest indications of the reserves in the North Sea and these were very promising. They showed an increase over last year's estimates. Policy issues are raised here; are we making the best use of this resource; are we making the best use of the financial benefits that this resource confers on us? In the case of oil we have got to see that we really do provide the right sort of fiscal framework within which the reserves available in the North Sea are exploited, and we have to ensure that it is used to best advantage both at home and abroad and in effective relationship with other sources of energy.

With gas we have a different sort of problem because we are presently using 25 per cent. more natural gas than we actually produce, so we are importing it, mainly from Norway. The problem of being dependent on a single external supplier is that there are from time to time arguments, as there are at the moment, about the price of additional supplies, and the question of the Sleipner field is still under debate. But there is, as the Select Committee's report mentions, the question of a linkage with the Continent, which would provide access for the British gas industry to the whole European market, and would provide an outlet for any surpluses which we might have from time to time. So these are big policy issues which call for comment and decision.

When we come to the nuclear area, there too we have the problem of deciding exactly where we need to go in relation to other forms of energy. We could ask straight away, particularly in the light of the extra oil that we have discovered, whether we really need to go ahead at this stage with a further development of nuclear energy. We need further to ask the question, to which the Select Committee addressed themselves, of whether we are right to put so much emphasis on the PWR system. They have drawn attention to the fact, rightly in my opinion, that we were the pioneers of the AGR system. We have finally brought it after many years of difficulty to a successful conclusion. It is a British system and it seems a bit odd that, at the moment of success with one system, we then turn to another one for what may be a relatively short period because, at the same time, we are making progress with the fast breeder. So I think all this needs to be looked at not only in relation to the future prospects of the nuclear industry as such but in relation to other sources of energy available to us.

When we come to the electricity industry we have first of all the question of its capacity. There is more capacity now available for the generation of electricity than we need. That is a very fortunate thing. I am not one of those who have ever criticised the electricity industry for having surplus capacity, because that gives you a strong fall-back position in case of need when there are difficulties such as arise all too frequently in these uncertain times. But the question arises as to whether at the moment we should be extending that capacity, particularly in regard to large new installations such as the Sizewell B station. The Government have said that they are strongly in favour of combined heat and power, and, indeed, legislation was introduced last year to facilitate this.

However, the point is that the progress towards the realisation of combined heat and power has been relatively slow, and it needs more than the recent statement from the Government that they would support a number of feasibility projects. It needs much more support for the first major scheme; and I believe that the first such scheme should be associated with one of the smaller power stations which the CEGB have decided to cease to use for normal electricity generation, converting that to a CHP scheme.

With electricity, of course, there is the question of pricing, and unfortunately that whole question seems to be in confusion. We are all awaiting with interest what the Government have to say about the report from another place: the Energy Committee Report of 27th February on electricity pricing. I do not believe that I have ever read a more critical view on an aspect of energy policy than I read in that document, which said that the proposed price increases for electricity were "not justified either on the grounds of the industry's financial target or of the Government's economic pricing policy". That suggests that we need to sort out this question of pricing. On what basis are we seeking to price the energy which we have at our disposal and which we need?

Let me turn next to the question of renewables. I asked a Question of the noble Earl, Lord Avon, on the 26th April: what was the Government's expenditure on renewables? I was told that it was £11 million in 1983–84 and £14 million in 1984–85. To my mind, that is clearly inadequate; and I was again interested to see that the Select Committee said in relation to the European Community that due to the change in the supply and demand position of energy there had been an unfortunate falling back of interest in this field.

In spite of the small expenditure in this country on renewables, a number of quite significant research achievements have been attained. Dr. Challis, the former chief scientist of the Department of Energy, indicated to the all-party group for energy studies in October 1983 that if we were to take advantage of what we have already achieved in this field, even on this restricted budget, the successor programmes beyond 1985 would need to be funded at between £100 million and £200 million a year. So here is a matter of major policy on which I believe we would be interested to hear what the Government have to say.

When we come to the question of conservation—which is effectively an additional source of energy—everybody agrees that although many energy savings have been made so far there are many still to be achieved. Twenty per cent. of the energy consumed is wasted, according to the right honourable gentleman Mr. Peter Walker. That would amount to something like a £7 billion a year saving. These are the Ministry's own estimates. An energy efficiency office has been set up, and it is working hard. I, personally, have been in contact with it. However, the question is: is this effort enough, bearing in mind the enormous potential savings that can be achieved; and how are these savings going to be monitored year by year? How long is it going to take us to achieve even half the massive figure that is mentioned? These are all things that we should like to know more about.

Finally, there is the question of the environmental issues: acid rain, the "greenhouse effect", and nuclear radiation. The Select Committee's report made it clear that they thought a much more concerted effort needed to be made within the European Community, including ourselves, to try to resolve these questions once and for all and on a sensible basis.

I conclude by saying that both on general grounds and on specific grounds I believe that the time has come for a broad review of energy strategy. I do not think it is too much to ask that such a review should take place at approximately five-yearly intervals. It was in 1978 that the last Green Paper on this subject was published. We are now in 1984, and I believe that the time has come when all these issues need to be seen in relation to a broad strategy, which itself would have to be flexible, of course, but which would nevertheless be there as a yardstick to enable the right specific decisions to be taken. My Lords, I beg to move for Papers.

3.17 p.m.

Lord Campbell of Croy

My Lords, I am sure the whole House would wish to thank the noble Lord, Lord Ezra, for having raised this subject and for introducing it in the way he has. I believe he has attempted the almost impossible, and has, I suggest, succeeded: that is to say, he has spoken on the subject of long-term strategy in a short-term debate. We are fortunate that, besides his immense knowledge and experience of the coal industry, he has had wider interests in industry as a whole over many years, and we are grateful to him for the very able way in which he has opened the debate.

In the time allotted, I propose to present two or three propositions only; but first I must again declare an interest. For nine years, since going out of government, my main businesss activity has been working with a major oil company which is the operator of one of the largest fields in the North Sea. To illustrate the scale of that operation, the company produced from that field during 1983 about one-fifth of the total petroleum requirement of this country. I hope therefore that the strength of my convictions regarding the course which this country should take will be recognised when most of what I am to say now will be advocating the enhancement of the coal and nuclear industries.

The reason for this is that oil will diminish and eventually come to an end. On this I should like to make some comments about our own reserves in the continental shelf and perhaps onshore. There have been serious misunderstandings in the media. There has been confusion between the time when the annual rate of production of our oil reaches its peak and the time when oil from our continental shelf will run out. I have heard remarks, for example, on television and radio—there have also been press reports—to the effect of, "when our oil runs out in 10 years' time." Of course, that is nonsense. There is a very high annual rate of production at the moment: considerably more than self-sufficiency. Within the next five years the annual rate of production may start to fall and then there is likely to be a gradual decline, but that does not mean there will be no oil from our continental shelf in 10 or 20 years' time. The report which came out last month from the Department of Energy brings that out again. I confidently expect, as I have told your Lordships before, that, provided the incentives are there, oil will still be produced from our continental shelf in 40 years' time though in smaller quantities.

The people who are most concerned, of course, are the Treasury. Declining revenue means that they are getting a maximum now but will be getting less and less per year.

Before I leave the subject of indigenous oil and gas, may I say a word about those incentives? There is a great difference between exploration on the one hand and development on the other. There is a great difference in cost. The drilling of dry holes for the discovery of oil costs a few millions each time, but the decision to develop a field when it has been discovered, which means committing huge quantities of money and an investment for a period of usually 20 to 25 years, is a quite different matter. The banks and other financial institutions have to be convinced as well as the companies.

Once a field is on stream, expenditure continues. More wells have to be drilled from the platforms, usually in the less likely places. Perhaps the expression "on stream" is misleading. Oil does not continue to flow automatically once it has been initially tapped. Therefore, the whole future of an oilfield has to be visualised when these very expensive decisions are being taken about whether or not an oilfield should be developed. There are very long lead times and each field has its own characteristics and problems. Of course, I agree with the noble Lord, Lord Ezra, that the fiscal regime of this country must take all this into account.

The noble Lord spoke of a long-term strategy and he also pointed out that it had to be a broad strategy. I would emphasise that it has to have great flexibility. It cannot be a hard and fast plan. Few, if any, predictions of 10 years or more in the field of world energy have proved to be anywhere near correct. Unforeseen events can completely change the national and the international situation. For example, the conflict in the Middle East in 1973 caused so rapid a rise in oil prices that within a short time they were four to five times higher than they had been. In contrast to that, who could have foreseen that the war between Iran and Iraq, carrying on for about three years, should also have been accompanied for most of that time by a situation in which there was more oil in the world than was needed? Of course, the recession played a part in that, too. In the United Kingdom, we are fortunate in having options and we should aim for diversity.

I turn to coal. Like the noble Lord, Lord Ezra, I, too, have been on the sub-committee which prepared the report on the coal industry in the context of the EEC, and also the report on energy strategy which came out a few days ago. That report will no doubt be discussed on another day. We must keep our coal competitive and saleable. We are the largest producers of coal in the EEC, and there is no doubt that we have valuable and economic seams which can be used when oil is becoming scarce and which will continue to be used when all the oil that can reasonably be obtained has been extracted. Furthermore, oil should be husbanded in the next century, because it has special applications for transport and will still be needed particularly for aircraft. Coal must, I suggest, be made competitive. I understand that the electricity industry's costs at the moment are about 50 per cent. from the cost of coal, and about 80 per cent. of its fuel costs are due to the cost of coal.

Then another vital option for this country is the nuclear one. We have great expertise collected over many years. Here, again, there are very long lead times and we cannot postpone decisions for too long. There are opponents of generation by nuclear energy. Some of them contend that it is much more expensive than other forms of energy, but that I utterly refute. If you take the initial costs and the running costs together, you will find that energy from nuclear sources is as cheap as we can get it. I am reminded of the Hunterston A station. I attended its commissioning almost exactly 20 years ago in my capacity as a junior Minister, and over those 20 years it has been efficiently producing electricity at a very good price.

Then there are those who oppose nuclear energy because of safety anxieties. Of course, nuclear energy must gain public acceptability if we are to embark on a major programme, but the safety record of this industry has been outstanding. I should like to make a comparison with France, a country which does not have indigenous oil and gas and which decided some years ago to embark upon a major nuclear programme using, in the main, adapted PWRs. As a result, electricity is now being produced in France at a rate considerably lower than we can produce it here, and that is very attractive for incoming industry, particularly American industry.

I should like to ask my noble friend the Minister whether, with the cross-Channel link in electricity, the time has come, or is expected to come soon, when we shall be offered by France electricity, largely from nuclear generation, at a price considerably less than the price obtaining in this country. I would ask him further what our response will be when that happens. That is an example, in France, of a programme being embarked upon with very much less in the way of objection from Greens, environmentalists and others than elsewhere. Consequently, France has this great advantage of a considerable amount of nuclear generation.

Those who oppose nuclear energy, for reasons of emotion or quite irrationally, are doing a great disservice to this country. But, of course, safety and all the conditions must be looked into most carefully, as is happening now at the inquiry at Sizewell. I close, therefore, by urging the Government to give very high priority to further progress with our nuclear programme. We must be ready for enough generation in the next century for it to play an important part—which I am sure it will have to do—in the production of energy.

3.27 p.m.

The Earl of Halsbury

My Lords, like the noble Lord, Lord Campbell of Croy, who preceded me, I should like to thank the noble Lord, Lord Ezra, for giving us an opportunity to debate this subject this afternoon. There are few better qualified than he to take a lead in this subject, and it is a great pleasure to me personally to see so well-known an industrialist, if I may so refer to him, sitting on the Front Bench of his own party so soon after taking his seat in your Lordships' House—a decoration to which I feel his party is also entitled.

I should like to make a passing reference to the report of the Select Committee on which the noble Lords, Lord Campbell of Croy and Lord Ezra, myself and others have sat. I wish to pick up only four points from it before embarking on the burden of what I want to say. First, in the Summary of Conclusions, conclusion (b) states that we, should step up … monitoring of … pricing practices. I do not believe that you can have a viable energy policy without transparent prices. There was a letter in The Times two days ago recommending that Her Majesty's Government should subsidise electrical power in order to enable the CEGB to buy coal at uneconomic prices. That is exactly the expedient which the French have adopted, and for which they have been criticised in quite adverse terms by the commission, with whose views your own Select Committee entirely agrees. There should be no question of doing anything like that.

Secondly, conclusion (d) states: Profitable home coal production must … be encouraged. Among the illusions from which Mr. Scargill suffers is the illusion that Her Majesty's Government are trying to extinguish the coal industry. I do not know how he dreams up these illusions, but they have no support whatsoever from the proceedings of your Lordships' Select Committee or in my own mind. I am quite convinced that the base load power of this country for a long, long time to come must and should be based upon coal. All we need is economic coal at economic prices.

Thirdly, conclusion (h) reads: The Community should debate the case for a variety of reactor designs, not confined to water-cooled technology". Associated with conclusion (h) is paragraph 26: A closely related issue is the future of the European nuclear construction industry. Without a continuing design and building programme, it faces serious contraction. Its future must be safeguarded. Otherwise the Community could find itself deprived of European contractors when a full nuclear programme is wanted". It is on that point that I wish to concentrate what I have to say. I cannot offer your Lordships a formula which can be assented to, yes or no. I can only offer difficult decisions connected with policy making, the resolution of which must be an act of judgment.

First, nuclear technology is growing, It would therefore be a mistake to make an over-investment in any one nuclear design, for in due course we should be landed with too high a proportion of obsolete designs. That is one extreme to be avoided by an act of judgment. Secondly, there must be sufficient investment in any one design to obtain the cost advantages of serial ordering, because the prototype is always many times more expensive than its copies. After the trouble shooting on the prototype has taken place, there is an enormous advantage to be gained from the serial ordering of trouble-free copies. Thirdly, there must be no under-investment in new designs, or the engineering industry responsible for them will be extinguished.

This is exactly what happened—I believe I have said this before—in the sphere of blast furnace design. We so over-invested in new blast furnaces after the Second World War that a full 10 years elapsed before any new blast furnace was built. When the time came to commission a new blast furnace there was not a single engineering team in the country which had built one before. The "oldsters" had all retired and the youngsters had no experience. We had to go to Japan for a licence to build up-to-date blast furnaces. We do not want that to happen in the sphere of nuclear technology.

I am the last person in the world who would want to "knock" my own country. We have many good qualities, but with those qualities go certain defects. I do not believe that it is "knocking" Britain to draw attention to our national shortcomings and try to face up to them and correct them, where we can. In my view, in almost every context we have too many cooks stirring every brew, too many fingers in every pie, too many irons in every fire, and too much bread always spread with too little butter overall. That is one shortcoming that we must face up to in this context.

The second is too great an avoidance of clear-cut decisions and a preference for compromises which are not decisions on their own but means of avoiding decisions. If I take those two factors and apply them to the history of the pressurised water reactor, what is its history? Some 10 years ago there was a gross overestimate of the number of nuclear power stations which would be required by the end of the century. It was postulated that 36 nuclear power stations would need to be bought by the end of the century, and there was no possibility of doing so unless we bought an off-the-shelf design from somebody else. The Magnox reactors were out of date and the AGRs were not coming forward at the speed which had been hoped. The target of 36 nuclear reactors, to be bought off-the-shelf to somebody else's design, was a will-o'-the-wisp which hypnotised the fortune hunters of big industry and which hypnotised the CEGB as the only means of meeting its targets. It proceeded to act as a will-o'-the-wisp which from that time on lured everybody into wrong decisions.

At the moment that that target was mentioned I uttered a warning on the Floor of your Lordships' House. I said that there were too many of these PWRs in too many unskilled hands and that sooner or later there would be an incident which would cast a shadow of doubt on the basic safety of the PWR reactor. Within 15 months my prophesy had come true. The Three Mile Island incident had occurred, and all over the world people cancelled orders for PWRs or stopped building them.

At that point we decided to ask Sir Walter Marshall at Harwell to re-engineer the PWR to English safety requirements. He did so, and I expect that he made a very good job of it. But that does not mean that we ought to go ahead now with a reactor that has no future because, as the noble Lord. Lord Ezra, said, the future is with the fast commercial reactor, either the breeder reactor or the incinerator reactor. If we build the PWR now we shall be deserting the AGR, which is now trouble-free, in order to invest in a new design. Too many irons in the fire; too many cooks having a finger in the pie; never finalising anything; no sooner getting something trouble-free than, instead of obtaining the benefit of serial ordering, which I postulated as one of my conditions, we go on flirting with new design. It simply does not make sense.

We have had our initial teething troubles with the AGRs. Dungeness B was a disaster, due to entrusting the construction to an inexperienced sydicate. There were troubles at Hartlepool and Heysham I, but Hinkley B, which was started in 1967 and commissioned in 1976, together with Hunterston B, have put up splendid performances in their latter years. And Torness and Heysham II, which are the next two of the quartet, are now under construction. They are within target estimates for construction and have every prospect of being a credit to the industry. That is what we ought to be building at Sizewell B, if there is to be a station there at all. Naturally, I do not want to pre-empt the findings of the inquiry as to whether we ought to have a station at Sizewell B, but, if so, it ought, in my view, to be an AGR.

Before I resume my seat, may I quote a few figures comparing a modern, up-to-date AGR with a slightly older coal-fired power station. Let me compare Hunterston B with Longannet close by, where the coal is mined by modern methods and comes straight up out of the mine and into the power station. Electricity is generated at Longannet at 2.4 pence per kilowatt hour, whereas Hunterston B is generating it at 1.74 pence per kilowatt hour. The comparison is 2.4 versus 1.74 and that is what we can hope for. The most we could get out of the PWR on serial ordering, when all the "bugs" have been ironed out of it, might be a few per cent. less. But, my Lords, if you have the option of something which becomes dangerous after a minute, an hour, or a day, which would you choose? You would choose something which gave you the option of an hour in which to do something rather than a minute. You cannot have a day, because that is the fast reactor, but you will have it later.