§ 3.10 p.m
§ The Earl of Lauderdale rose to call attention to the problems of energy generation and to the need to secure a cheap and abundant supply of power for industry; and to move for Papers.
§ The noble Earl said: My Lords, at the start of a new Parliament the aim of this Motion is to elicit a clear definition of the Government's aims and priorities in energy policy. During the past four years we have for ever been presented with a tantalising dance of the seven veils, and we hope for better things now. There is not very much at present to go on. On this matter the gracious Speech was altogether silent. The Conservative Party manifesto, which went down so well in the country, has not very much to say, less than one page—that is about one-eightieth of the wordage. It offered the familiar generalities, one might almost say cliches, about coal, about renewable energy, about nuclear power and about pollution. There was nothing new in any of that.
§ But in another context altogether we were told in two pregnant lines about this Parliament's biggest energy controversy to come, about the privatisation of the "electricity industry". We were not told or given any hint as to what that term means. Does it mean the transmitters of energy, does it mean the generators of energy, does it mean the constructors, the energy producers, or does it mean the lot? We are therefore left guessing about the real problems of energy policy, and this is indeed a dance of the seven veils.
Little wonder then that the International Energy Agency, which was set up by OECD in 1974 to watch, one might even say to match, OPEC (the
Organisation of Petroleum Exporting Countries) and to exchange information has now intervened. The LEA offers some tart observations in its annual report just out last month. I quote:
The [British] Government's energy policy is not set out in a comprehensive document, but is rather articulated on a case-by-case basis".
Noble Lords will recognise a certain touch of diplomacy in the way things are drafted at the IEA. I continue my quotation:
The Government should consider issuing a general statement of policy which would [both] explain its reliance on market forces and"—
this is the critical passage
define the proper role of … Government in this area".
The report goes on:
that is a strong term—
to publish up-to-date projections … [it] fails to recognise that its views on the possible future course of markets could be a valuable aid for decision-makers, especially those outside the UK".
Here then is a seeming vacuum.
§ It is in that context that I am sure your Lordships will join with me in wishing to welcome a completely new ministerial team to the Department of Energy. Members of the new trio are politically experienced. Without question they are adroit, but—I have to say this in all frankness but I hope in the nicest possible way—they are not known to have any previous interest in energy as a subject save for one of their number who sat on the board of a boiler-making company.
§ Likewise I am sure that noble Lords on both sides of the House will wish to welcome my noble friend Lord Davidson who is to reply. This is not an unfamiliar role for him and I hope it is no more uncomfortable for him today than it must have been on other occasions. But I note—this is a critical point that I wish to stress—that he is not part of the Department of Energy team. That is a sore point with all of us, on whichever side of the House we sit, who are concerned with energy matters. This House embraces in its membership top calibre experts who are recognised as such outside yet we continue to be denied an energy Minister on our Front Bench here to replace the late and very much lamented friend of us all, Lord Avon.
§ The cutting edge of my Motion is intended to help the new team, when it responds to the recommendations of the International Energy Agency, to define the Government's role and indeed in doing so to state the Government's priorities and objectives. The new Secretary of State, who brings great skill and knowledge of the world and of accountancy to his very testing post, has said that he is in favour of what he calls "efficiently" low energy prices. I hope that in saying what will be said in this debate we shall find that we are pushing at an open door.
§ But let us look at the burdens which at present lie on the British export industry, thanks in my view to the shortcomings of our energy policy hitherto. It is the International Energy Agency, which after all is not partisan in this matter, which reminds us that the 680 Central Electricity Generating Board is forced—I repeat the word forced—to buy 95 per cent. of its coal from British sources and to do so at more than £40 per tonne as against a price ruling at Rotterdam of between £27 and £30, which is the price to which Continental utilities relate their energy pricing. It is hardly surprising that on standard electrical rates Britain is no better than about midway in the European bracket on electricity pricing and in load management terms Britain is by no means the best.
§ But let us consider British Gas, about which Mr. Parkinson spoke so proudly a few days ago. He spoke with reasonable pride. First, the falling oil price has had considerably less effect on the gas price in Britain than in Europe. Next, the weighted average price of gas to all firm users in Europe is of the order of 20p a therm—that applies certainly to France, West Germany, Holland and Italy—as against not less than 30p a therm from British Gas. Here—and the International Energy Agency draws attention to this—is a cost disadvantage of some 50 per cent. On firm gas supplies, British industry pays the highest rates in Europe. On interruptible contracts Britain is only a little better than the lowest, but those which benefit from such interruptible contracts need to provide for standby supplies at a higher cost.
§ Another aspect is the cost of heavy oil imports. The import duty on heavy fuel oils in this country runs approximately 5 per cent. higher than it does anywhere else in Europe, so our imported heavy fuel oil costs are that much worse. It is true that a scheme known as QICS for short—the Qualifying Industrial Consumer Scheme—has brought some help to some firms. It is an easement which amounts to about 7½ per cent. but it applies to some 200 sites only. It is limited to those plants using more than 25 million kilowatt hours in a year at more than a 50 per cent. load factor, so it is relatively limited in its effect.
Before leaving British Gas, perhaps I may say that Ofgas, the watchdog organisation, does not seem to share the Secretary of State's enthusiasm for this 4.5 per cent. price reduction to consumers announced the other day. Ofgas says that after,
weeks of pressure [British Gas] still have not explained exactly how they set prices".
With the Ofgas experience and protest still ringing in our ears, it is now time to ask whether the privatisation of electricity will make energy either cheaper or more abundant. Let us consider abundance first of all. The Central Electricity Generating Board has made it clear that by the year 2000 it needs to have in place approximately 12 gigawatts of fresh generating capacity which means approximately six new power stations in addition to those already announced. But from the time the decision is taken to build a power station to the day it is commissioned is a period normally of 12 years. So a deadline of the end of the century is a starting line for next year, 1988. These decisions will be needed very soon. The companies that are involved in building power stations are anxious for a rolling programme that would start now. They need to get their workforces and their design teams together and to have the thing rolling along.
§ Privatisation of the electricity industry has not even been proposed for this Session; so next Session 681 is the earliest we can expect it. That means that starting some time in 1988 it may not be through until 1989. Yet the decisions are urgent, and I have to say—I have said it from this Bench more than once before—that the Government have been warned again and again, not only by me but by others who are responsible and whose opinions carry weight, that unless decisions are taken soon there could well be actual shortages of power generation towards the end of the century and even—some people mock the idea—actual blackouts.
§ What shape is electricity privatisation to take? It is not a day too soon to put the questions because we are led to believe from an Answer in another place that consultations will take place shortly with all interested parties. It is time to put down markers about it now. First, will the privatised electricity industry still be forced to buy from British Coal at a premium of 30 per cent.? This is fundamental. Then, what is to be privatised? Is the whole entity to be privatised like British Gas, turning a public monopoly into a shareholders' monopoly? Will the grid be privatised separately'? Will it be done power station by power station? What will happen to stations that are linked to collieries? Will they be privatised too'? What about the collieries? It is a complex proposition and a good deal of consultation will be needed. In that respect it is only fair that the Government should have the good will of this House in conducting those consultations, but they have a lot of work to do.
§ Under the new set-up who will build nuclear power stations? Who will own them? Who will operate them? These are all serious questions. Is it not the case that unless there arc real assurances that the new electricity industry as privatised will be free to buy coal at world market rates there will be no incentive for the investment needed on the Humber, the Thames, the Severn and the Mersey for the infrastructure to handle extensive coal imports?
§ There are more general questions which arise. Is the Government's purpose weighted in favour of industry's use and needs or is it weighted in favour of the wailing chorus of the environmental litany; or again is it weighted in favour of the simple claims of traditional local employment at whatever cost? These are fundamental questions and we look for clarification. Above all, with regard to privatisation, will the Government aim primarily at a maximum distribution of shares to the public, laudable as that is, or will they look first for a competitive structure for competitive pricing?
I turn now to the Continental Shelf. Here I have an interest to declare in that for some years now I have been a director of a company active in that field. The International Energy Agency again has something pretty tart to say. It urges the Government:
to ensure that fiscal and other policies continue to encourage the steady development of the Continental Shelf".
So are the Government at last willing to accept the short-term revenue loss that would be involved for the sake of encouraging more investment in what is known in the trade as EOR (enhanced oil recovery)? Are they willing to consider treating incremental investment as a new field? These are real questions on which we have not had real answers hitherto.
§ Then on the question of advance PRT, known as APRT, the Secretary of State proudly reminded an audience the other day that some £300 million of advance PRT was being returned to the smaller companies to assist in their cash flow. There will be noble Lords present who joined with me in debating the Bill authorising this when it went through your Lordships' House. But advance PRT was burglary, sheer burglary. All I am saying is that the burglars still have only disgorged less than half the swag. In fact the swag was £800 million and the Bill that went through this House authorised the return of £300 million. That was a gunpoint loan that was interest free, extracted like teeth in a dentist's chair.
§ Again on the Continental Shelf referring to gas it is easy to understand the Treasury's anxieties on account of the future balance of payments in regard to long-term contracts for importing gas from the Sleipner or Troll fields off the coast of Norway. But is it really wise to deplete UK assets which are currently thought to be only enough perhaps to last us through the 1990s—the reserves that have been established seem to be of that order— when we could buy from elsewhere?
I ask your Lordships, and indeed the Government, to listen again to the International Energy Agency. It says:
The international gas trade should be liberalised [for] exports as well as imports".
Noble Lords will be aware that those companies producing gas from the Continental Shelf are not only compelled to land their gas in the UK but they are not allowed to export it without special permission, which is seldom given. The IEA says:
The international gas trade should be liberalised [for] exports as well as imports. [The British Government] should recognise the benefits of integration into the wider European market … and let commercial international trade options in natural gas develop freely and effectively".
§ What is the Government's policy on that? They have been asked over and over again in the past and the answers have been pretty negative.
§ There are many other questions that will be raised. One is perhaps worth mentioning—and I concede in advance to my noble friend that it is perhaps a little unfair—but what is the rationale in energy terms for risking British ships and lives in the Gulf? I do not know. It is really a question for the Foreign Office, but it is germane to the energy issue and that is why I mention it now. I have made it clear, I hope, that I do not expect any comment on that from my noble friend when he replies.
§ There will of course be questions about CHP—combined heat and power—and about the future of the fast breeder reactor; about research into the development of fusion, which has made considerable advances at Culham but which as I understand it requires further funding; and about the renewable sources of energy. I have heard whispers which caused me to lick my lips in anticipation of an interesting and encouraging announcement when my noble friend replies, but the subject of renewable sources of energy will come up in this debate and so also will research and development.
The questions that I have set down are simply markers for the future, but I submit that they are
entirely relevant to the Secretary of State's own declared view that energy is "fundamental to growth and prosperity", and I hope when he says "energy" that he means "cheap and abundant energy", as we say in this Motion. Likewise I submit that my questions are wholly relevant to the Secretary of State's declared belief in,
decentralised decision-taking by individual organisations competing with each other for finance, resources and markets".
It may be thought that I have been somewhat critical in the questions I have asked. We are entitled to ask critical questions at the beginning of a new Parliament in the first debate in either House on this subject. I still hope that in these matters we are pushing at an open door. But I must repeat my genuine sympathy for my noble friend in having to reply without belonging to the department concerned.
I have the permission of the noble Lord, Lord Zuckerman, to recall to the House a comment that he made at the end of an energy debate when the party opposite was in office. On that occasion it too could not produce an energy Minister so it produced a lawyer. Lord Zuckerman's comment at the end was:
Now we know he can read".
I wish my noble friend sincerely well in his reading. I have no doubt that he will read well. I beg to move for Papers.
§ 3.37 p.m.
§ Lord Peston
My Lords, happily I am the first to congratulate the noble Earl, Lord Lauderdale, on introducing this subject to your Lordships' House. I must thank him for doing so. In the remarks that I am about to make I shall make one or two of possibly a controversial nature with which he may disagree, but I hope that he accepts my reassurance that this is not meant to detract from the enormous importance of the subject, with which I agree entirely.
I should also like to join him in wishing the new ministerial team well. I am quite certain that the noble Lords speaking from the Front Benches will also do extremely well in dealing with this matter this afternoon, but I should like to emphasise that the subject of energy is so important that I hope that it can be dealt with and debated in terms of national policy and national interest, and that we shall not be confined to a toing and froing of doctrinaire matters, many of which I believe are largely irrelevant.
In considering the Motion in the terms in which it is put there are a couple of remarks I should like to make. I think that we all wish to see energy produced cheaply, but we must also bear in mind the other side of that equation which is that energy policy must also be directed at energy being used efficiently. Energy resources are far too precious to be wasted. An energy policy that would unnecessarily subsidise energy for no good reason would, in the long run, be wasteful.
My second comment on the criteria that we ought to apply in assessing this matter concerns the precise wording of the Motion, which refers to industry. My view—and I suppose that this is typical of 684 economists—is that we must remind ourselves that ultimately all assessment of these matters must pay full attention to the interests of households. We should never forget that industry exists for the sake of households or the consumers and not the other way round. In so far as we wish to see energy made available cheaply to industry, it is not for industry's sake. Equally none of us would wish to see energy made available cheaply to industry if this were at an excessive cost directly to households.
In that connection, and following one of the themes that the noble Earl introduced, it is vitally important that we approach the subject of energy at least partly in terms of the need for competition. Of course I was not a Member of your Lordships' House when we privatised the gas industry, but I am certain that I would have voted against that privatisation. The key point that I would make is that I would have voted, a fortiori, against a privatisation that produced a private monopoly, especially when that private monopoly was quite unnecessary. There were many imaginative solutions to the privatisation approach, if one insists upon it in the first place, that would have avoided that monopoly and the deplorable consequences of it. We shall in due course have ample time to argue or even row about electricity, but there too one must look askance at the dangers of creating yet another massive and, in my view, uncontrollable private monopoly.
Nonetheless, it seems to me that whatever one's view of this matter, in the energy field market forces, even encouraged in the most efficient way possible, cannot complete the whole job. There is a need for a national energy policy. There is a major role for government and there is therefore an important role for the Department of Energy in this field. In particular that applies to interpreting the national interest and to dealing more generally with the question of what is least cost.
In that connection I perhaps do not go as far as the noble Earl. I believe that in this area there are important social costs which must be taken into account and that there are environmental aspects of the problem that cannot be ignored. In that respect, quite clearly the Department of Energy must take due note.
On the other hand, in saying that those matters cannot be ignored I do not join the environmental lobby in suggesting that somehow environmental matters must dominate discussion in this field. On the contrary, they must be taken into account in the proper way but costs, in the ordinary sense of the term, must be uppermost in everybody's mind in evaluating the matter. In that connection, looking at electricity generation, for example, we must remind ourselves of the relevant variables. First, there are basic fuel costs which need to be forecast. There are capital costs, and in particular construction costs. For 20 years I have been alarmed by the length of time that it takes us in this country to build a power station; how expensive a power station is to build; and how much more expensive power stations turn out to be compared with the story that one is given at the start when the analysis is first put forward. Indeed, if it now takes 12 years to build a power 685 station, the time horizon has become even longer than the last time I looked into this matter. That certainly is a serious side
§ The Earl of Lauderdale
My Lords, if the noble Lord will forgive me, that time includes the planning consents and so on.
§ Lord Peston
My Lords, nonetheless I think that the noble Earl will agree that the shorter the construction period, the better from every point of view.
Thirdly—and this is an investment decision problem—the discount rate is absolutely fundamental and the related point is the length of the time horizon over which the discounted cash flow analysis is done. Lastly, in the case of electricity generation, we have our old friend the merit order: all the computer systems showing where the different forms of power stations will be over their lifetimes, and the fun and games that one can have with all kinds of computer modelling of this subject.
I mention all these aspects in order to emphasise the point that in this area decision-making is immensely difficult and is fraught with great risks. That means two things. First, in taking those decisions one must make due allowance for risks. Secondly, in solving the problem efficiently or optimally—to use one of the economists' favourite words—it is pretty certain that we shall end up with a balanced system and not choose only one form of electricity generation as opposed to another. I think that that is worth bearing in mind.
One matter in this field which concerns me most, and it has done so ever since I first started to look at it 20 years ago, is the fact that there are not merely the ordinary difficulties of analysing the problem and forecasting the risks; much of the relevant data is in the hands of interested parties. Therefore all of us on the outside who take an interest in these matters, particularly the Department of Energy, have the problem of asking themselves: who is speaking the truth? In my view, given any possible set-up, the interested parties can adapt the data to make it come out in the way in which they would like it. That is a very worrying issue. Whether it is the oil companies, the National Coal Board, the nuclear power industry or even the CEGB itself, they like to see the world as they think it ought to be. As it is the CEGB, or that kind of body, which must take the decision, the further problem is that it is subject to enormous pressures.
The key question that I ask myself, and which in some ways I am asking the Minister, is whether nowadays the Department of Energy has the relevant expertise to deal with these matters at all in the public interest. In the old days 20 odd years ago the old Ministry of Power certainly did not but there were some of us in the Treasury who did. I do not know whether nowadays the Treasury retains that kind of expertise, but I am extremely worried that decisions in this area would be taken as a result of the effect of pressure groups rather than by correct analysis.
I should like to devote my remaining time to saying a few words about nuclear power. They are more 686 judgmental than I should normally like them to be. In almost all matters I tend to favour what one might call the technocratic approach to problems of all kinds. By that I do not mean a blinkered approach based on a narrow definition of costs or solely on a narrow conception of accounting costs. I certainly do not mean that. Nor do I mean giving in to the engineers and scientists who always want to build according to the state of the art, no matter how unproven is the latest technology. What I mean when I speak of approaching this matter technocratically is that we always need a careful quantitative assessment taking all factors into account, but notably taking into account the margin of error and therefore having a good view of the risks we are taking. That would be my normal approach to this matter.
As regards nuclear power, I go further and say that I do not side with the irrationalists and mystics who see it as being somehow uniquely dangerous in our society. They are entitled to their views but as they are not open to argument there is no point in arguing with them. Unhappily, they seem to be opposed by a pro-nuclear lobby which is almost equally closed in its mind and equally not open to argument. For those of us in between what matters is an assessment of costs and risks. Our difficulty is that we must ask ourselves: who can we believe? We must also ask ourselves: do the Government have the expertise so that at least we can believe what they say on our behalf?
That leads me to my main and concluding point. I was profoundly shocked by the Chernobyl disaster. I say that as a technocrat because I feel that to some extent over-competent technocrats were partly responsible for that disaster. I must add that I was almost equally shocked by the rapidity of the assurances that were given to us by the pro-nuclear lobby and the Government. They were too quick to tell us that everything in our own nuclear power system was perfectly all right and would continue to be. In my view, they spoke with too much confidence in an area fraught with risks. Their complacency was such that it may have reassured the man in the street but I have to tell you that it frightened the life out of me.
I say rather regretfully that my judgment is that at the moment in nuclear power generation we ought to pause a little while longer. In my view—and here again I take issue with the noble Earl—there is no absolute urgency to decide this matter now; certainly not if we compare the cost differences with the risks involved. I take full account of the efficiency aspect of the problem and I certainly should not commission another nuclear power station at this precise moment.
I have no doubt whatever that such stations will be built in this country, perhaps in the not-too-distant future. However, nothing I know about the demand for power and the likely development of the gross domestic product over the next few years or of the alternative costs of supply suggests that we should be paying any significant economic cost, if any cost at all, if we exercised some prudence and made sure that all the sums were checked just once more, preferably by a body of independent assessors, before we finally go down this line.
§ 3.50 p.m.
§ Lord Ezra
My Lords, I am delighted to be taking part in this debate initiated by the noble Earl, Lord Lauderdale. In fact, I wanted to put down a similar Motion myself but it would have taken me longer. The noble Earl seems to have got there first and therefore I should very much like to support him.
I agree entirely with his opening remarks that it is about time, particularly at the start of a new Government, that we had a clear statement of our energy objectives. Of course all of us who have been involved in the energy field know that you cannot be certain about the future of energy prices, of demand, supply or anything else. On the other hand, it is by its very nature a long-term industry. Investments have to be made, prices have to be determined and consumers have to make up their minds into which sort of installation they put their money. So in spite of all the difficulties, we need to have a view of the future.
I believe that the Government have a serious responsibility to give their view in broad terms of what the future is. What I have found extremely disturbing is that the only statement of any practical import that the Government have made about the future of energy in this new Parliament is that they wish to privatise the electricity industry. There has been no other practical statement made that I am aware of. Whether this is particularly relevant to the future issues of energy is something one could seriously debate. Indeed, I intend to raise a few questions on it, as did the noble Earl himself.
First, however, because the electricity industry is at the centre of this debate and because I happen to have had connections with that industry in a regular way since 1947 and know something about it from the outside, although I have not had the privilege of serving within it, I should like to make some comments on it as to where I think it stands today.
I must say that my comments are of a positive nature. When I regard the electricity industry of Britain I see an industry which is highly efficient. It has increased its thermal efficiency substantially over the years. It is a safe industry. It is an industry which is now highly profitable and it is one which I believe, having carefully studied the latest CBI statement on price comparisons with the Continent—this is a report issued in April of this year—is now providing electricity in Britain on a pretty good competitive basis compared with Continental countries.
When you consider the domestic tariffs to start with, we really lead the way on the figures that are included in this report, and when you come to industrial tariffs it is obvious there has been a substantial improvement over the last few years. We are now better than the average. A specific reference is made in the report to the trend in the last few years in which French prices for electricity were consistently the lowest. They say that that period has now ended.
I have looked into this comparison of the British and French systems of electricity, because we are often told that the French produce much cheaper electricity and that it is due to their nuclear and hydro component, which is greater than ours. However, 688 there is another element which is often forgotten: that is the financial element.
I have looked very carefully into this and if you study the financial make-up of the Electricity Council—I will take the Electricity Council and leave Scotland because, although highly efficient, its industry is another subject and no doubt we shall deal with it on another occasion—in its generation and distribution sectors in England and Wales it is today wholly self-financing. It has to show, under government direction, a rate of return equivalent to 15 per cent. on a historic cost basis. In addition to that, it is paying the Government back every year something like £1 billion in cash, according to this negative EFL concept, which the ever-innovative Treasury has dredged up in order to get some additional indirect tax out of the consumer of electricity. So they pay that back.
As I say, today they are providing electricity at prices which are reasonably consistent with those of the French. Let us look at the French financial system. The EDF, the Electricity de France, is only 50 per cent. self-financed. It has simply to show a break-even in historic terms, and until recently it was recording substantial losses. Over the years the French electricity industry has benefited from major capital reconstructions, converting loans to grants, providing interest "holidays" and deferring repayments of capital. Therefore the least one can say is that it is a much more relaxed system, and as a result of that its prices to the consumer can be relatively lower.
If we had that relaxed system in Britain there would be substantial reductions in electricity prices. It is a great tribute to the electricity industry here that in spite of the stringent financial objectives set it, it has achieved what it has achieved. So one could well ask, in view of this efficient industry that we now have, why is it that the Government have said that their prime objective of energy policy in the years ahead is to privatise it? That is a question which is worth a little bit of consideration. As regards the Government's motives, we must leave it to the noble Viscount to enlighten us; but we from these Benches can at least examine some of the implications, as indeed the noble Earl did in his introductory speech.
One thing is certain. If the Government intend to pursue the question of privatising the electricity industry of Britain they cannot do it on the basis on which it is presently organised. This is totally impossible. Indeed, one could question whether there should not be a reorganisation of it even if it were to remain in the public sector. The noble Lord, Lord Plowden, assisted by my noble friend Lady Seear and many other Peers, produced a valuable report, which was published in 1976 and which recommended a major restructuring of the electricity industry.
So one conclusion one can come to—and I am glad to note that this is a conclusion which seems to have been reached by the Secretary of State for Industry —is that if this industry is to be privatised it cannot be privatised on its existing basis. It requires a major restructuring, and it will take time. As the noble Earl rightly said, it could be argued that the main objective of the electricity industry in Britain is to provide the electricity that we need in the required 689 quantity and on the most efficient basis. If many months if not years are to pass in debates about how the industry should be restructured for privatisation, then less time will be spent working out how to make provision for the electricity needs of the future.
Having said that, and since we shall be consulted and this is an opportunity to give our views to government, I should say that that reorganisation would have to be very fundamental before one could conceivably consider privatisation. We have had the experience of telecommunications and gas and the transfer of existing public utility monopolies into the private sector being rushed through. There is currently a big argument going on about the service offered by British Telecom. I do not wish to enter into that debate but merely to note that there is an argument over whether its prime concern is to increase profits and ignore the service that is rendered to the customer. That may or may not be true but it is the impression that has been created.
British Gas is in an even stronger monopoly position. Although it has passed on some of its profits to the domestic consumer according to the rules laid down, as an industrial consumer of gas I can say that I am extremely worried about the attitude of British Gas towards industrial users. It is a myth to say that because gas is one of the alternative energy sources, should one not be satisfied with gas one can turn to something else. There are many consumers who cannot avoid using gas and who have no option but to go to the large private monopoly that the Government have created.
We have already heard from the noble Earl about the substantial differences in firm gas prices in the industrial market. He mentioned that there was a difference of something like 50 per cent. between our prices and those on the Continent. He said that things were better on the interruptible market, but I can tell him that they are not. I am a potential user of interruptible gas. I happen to be the chairman of a company that is very keen to follow what the Government strongly advised should be done under the Energy Act 1983; namely, to stimulate the development of combined heat and power.
I happen to be involved in trying to get certain projects which are based on gas off the ground simply because gas turbines are available. When we turned to the gas industry for supplies we found that, whereas it was normally supplying gas for interruptible purposes at about 17p a therm, we were given an indication that it would be 25p a therm, which totally ruled those projects out of court. In the normal, commercially competitive world we would have gone somewhere else for the gas, but to suggest that we could have switched to some other fuel is laughable because we have the gas turbines and could not have invested in anything else. So I believe that the Government will have to be careful before they repeat that experience of privatising public utility monopolies.
If they intend to break up the electricity industry, which is not something I advocate but which follows from their desire to privatise, they will have to recognise that the industry falls into three parts—the 690 generating part, the transmission part and the distribution and retail part—and it is inevitable that the three parts should be segregated. If the Government intend to go ahead with that plan, I should prefer there to be a publicly operated transmission system in order to make the use of that system available to all those who generate electricity, be they public or private bodies, or whatever.
I also believe that the generating organisation will then have to be broken up. It is a very large operation, which has acted extremely effectively under public ownership, but under private ownership there would have to be competition and in my opinion it would therefore have to be broken up. Equally the distribution side, which is already divided between the 12 area boards—I am speaking of England and Wales—will have to be sold off in its divided form. I also think that there ought to be freedom given to anybody else in the country who wishes to distribute or generate electricity.
That raises all kinds of questions about the co-ordination of investment and dealing with difficult situations, about the co-ordination of the purchasing of primary sources of energy such as coal, oil and so on, and about safety and the question of nuclear energy to which the noble Lord, Lord Peston, referred. I can only say to the Government that if they wish to pursue the privatisation of electricity it will take a very long time to bring about. If they are to do what seems to be implied by the preliminary statement of the Secretary of State for Energy, namely, to break up the industry in some way, then in my opinion it is inevitable that they will have to go back to gas. It would be impossible for a privatised electricity industry on a segregated regional basis (if that were to be the outcome) to face up to a completely monopolistic gas industry. So that process would have to be repeated.
I can see many problems ahead. It worries me that in this country, which is so rich in energy resources and skills, at this time we should not be concentrating on making better use of them rather than juggling with the question of ownership, which seems to me to be a relatively insignificant issue. We should be working out ways in which we can make vastly greater and better use of the energy resources that we possess.
This morning I listened to the "Today" programme on the question of total energy systems. Some of your Lordships may also have heard the broadcast. At the present time a conference is taking place in Torquay which has been organised by the Combined Heat and Power Association. On the "Today" programme a former Minister for Energy in Denmark was being interviewed. Denmark has gone into total energy systems in a big way and he said that it had cut its energy costs by one-third over a period of 10 years or so. Denmark has a population of 5 million; we are a country with over 50 million people. Think of the enormous savings. The former Minister spoke of savings of 10 billion kroner a year, which is equivalent to roughly £1 billion. In our terms that would represent £50 billion a year.
To come back to the Motion proposed by the noble Earl, we ought to be getting our sense of priorities right. I doubt very much whether today the real 691 priority in the energy policy of Britain is to privatise the electricity industry. I should have thought that the real priority was to make the best use of the human skill and natural resources that we possess and to set down a framework for the future.
§ 4.10 p.m
The Earl of Halsbury
My Lords, I am grateful to the noble Earl for introducing the subject, on which I have addressed your Lordships on many occasions in the past and on which I shall probably address your Lordships again on many occasions in the future. We have had characteristically impressive contributions from the noble Earl and the noble Lord, Lord Ezra. My noble friend Lord Marshall with his customary discretion is sitting and smiling, but has not inscribed his name to speak.
I have said so often that we must keep our eye on the ball. The future of base load power in the country is the right blend of thermal nuclear power stations and fast nuclear power stations. The immediate requirement is to get on with the commercial development of the fast reactor. Each of these two components of the future system assists the economics of the other, and it is believed that the system as a whole will be cheaper than either of them taken separately.
I can comfort the noble Lord, Lord Peston, in one respect. There is an interesting article in the current number of the Journal of Medical Psychology. It emanates from a group in Manchester which is studying the human error in man-made disasters at Flixborough, the recent trouble in India and, of course, Chernobyl. The Chernobyl pattern conforms exactly to the standard pattern. I shall be happy to send the noble Lord a photocopy of that article because there is nothing very exceptional about it. Human errors will always fall more or less into the same pattern. The paper should be compulsory reading for everybody with an interest in the subject.
What I want to say concerns those factors that might take our eye off the ball. I wish to speak about the problem of renewables and alternative sources of energy. These can be divided into three groups: those that are fitful such as wind and waves; those that are cyclic, such as tides; and those that are constant, such as geothermal energy. I have seen most of these at one time or another. In 1951 I went and had a look at geothermal power in New Zealand's Rotorua and, in 1953, I was at Laderello in Italy. I recently made a trip to Bergen to look at the two wave power generators which have been installed in Norway.
The common-sense economics of the matter are fairly simple. When one is dealing with fitful power, there has to be standby plant. To within a factor of two or so, the capital cost of a kilowatt is about the same, so broadly speaking one would double the capital cost to get a proportion of the running cost for free.
I can give your Lordships an illustration of this from a trip that I made again in 1953 to the wind power research station up at Costa Head on Orkney. It was then run by the Electrical Research Association. The economics were as follows. Provided that the wind lay between 20 miles an hour 692 and 60 miles an hour for 80 per cent. of the time, one reached a break-even point at which it paid to have a wind power station on the one hand and stand-by diesel on the other. Why was it necessary for the wind to lie between those limits? That is a ratio between the slowest speed and the fastest speed of three.
The power capacity of the wind is proportional to the cube of the velocity. With a velocity ratio of three, therefore, one has a power ratio of 27 to 1. It is not easy to design something to stand up to those conditions. Either it will not go round in low winds or its is blown to pieces in high winds, and so on.
What may be true of the break-even point at one geographical site may be quite different at another geographical site. It is perfectly possible that an island chain which can easily be connected with causeways, as is done in Norway, can co-operate with what I refer to as a loudspeaker in reverse. This concentrates the wave energy, spills it over into an artificial lake and then runs it back through a turbine. I was very interested to see that system. As a small boy I used to be regularly punished for slopping water over the back of the bath by swilling it to and fro.
A little while ago I thought to myself, could we not rationalise that? I accordingly did a little mathematical thinking. I built a model, which I took up to Dr. Salter in the wave tank in Edinburgh, and tried it out; it worked very well. That is what the Norwegians have built. It is quite impressive. Any of your Lordships who have the opportunity to see a film of this should watch a wave coming into this reverse old-style gramophone loudspeaker, so to speak—exponential horns, they are sometimes called in acoustics—and building itself up and up; it then suddenly spills over into this artificial lake and runs back through the turbine. It is an attractive design. Inside the artificial lake there is calm water. The problems of maintenance are much easier. In the case of Dr. Salter's ducks, the problem of maintaining them 20 or 30 miles out to sea in regular swells would be very difficult. If they were in inshore waters, this would be hazardous to local shipping. All these factors have to be thought about. I have dealt with the wind power and the wave power.
Geothermal energy is of course absolutely steady. Provided that one has hot rocks, one can pump water down cold and get it up again hot; but of course hot water reacts with rocks. All rock is to some extent soluble in water; it is only a question of degree. What is soluble at one temperature precipitates out at another. All the little channels that one hopes to crack in the rocks by lowering down explosives will gradually block themselves up again with deposited calcium sulphate just as a hot water supply does regularly. Technologically it is not all that easy.
With regard to tidal power, we are dealing with it regionally. There are a few places—the Bay of Fundy, the Bristol Channel and the Channel Islands—where the tides get concentrated. If one can somehow combine the ideas of pumped storage off-peak with the generation of power on peak, one might get an ideal compromise. I believe that this is under consideration for the Severn Barrage, which seems an interesting project that we might readily take very seriously.
693 All these are secondary to the main proposition before us. Franklin Roosevelt used to say, "What is proposition one? The rest don't matter". My proposition one—and I see my noble friend Lord Marshall smiling—is that the future of base load power in the country is the right blend of thermal nuclear and fast nuclear reactors.
For the rest, when it comes to power cycling, coal is very much more convenient. I am personally very jealous of gas, having been a member of the North Thames Gas Board for many years. Our gas reserves are the ideal means of cooking for the housewife. Every housewife likes gas—it is "user-friendly", as they say. I feel rather jealous of the usage of gas to serve power stations other than in gas turbines where it may be very user-friendly again in dealing with peak on peak. I should like to repressurise the wells and keep the gas for the housewife in years to come.
In a sense the matters about which I have been talking are marginal. I think that I have said what I want within the scope of the 10 minutes to which we are asked to keep. I end with the words with which I started: we must learn to keep our eye on the ball.
§ 4.18 p.m.
§ Lord Gray of Contin
My Lords, it is a pleasure to follow the noble Earl, Lord Halsbury. His wealth of knowledge on the subject we always enjoy.
I join with others in thanking my noble friend Lord Lauderdale for giving us an opportunity to discuss this important subject. I congratulate him on the wide-ranging nature of his speech. In view of the wording of the Motion, I waited with great interest to see how he would manage to introduce the Continental Shelf into the discussion at some point. I did not have to wait long, because sure enough he found a convenient slot and brought the subject to bear at that time.
I did not agree with all he had to say in connection with the Continental Shelf. In particular, I did not agree with him in his criticism of the last government over their introduction of APRT. The noble Earl will recall that at the time APRT was introduced the oil companies were doing very well and it was not unreasonable for the Government to call upon them to make a contribution in advance to help with other things. Indeed, the Government, in the shape of the Chancellor of the Exchequer, responded by agreeing to a repayment of APRT at a time when the oil companies were up against it to quite an extent. So I did not agree entirely with what he had to say there.
Nevertheless, I congratulate him on the great amount of research which he has done on the subject of power generation and the very interesting thoughts which he has presented to the Government, to which I am sure my noble friend will respond in due course.
It is wholly appropriate that minds should be concentrated in the direction of power generation at this time, in view of the fact that the Government have confirmed to us, although not yet in a gracious Speech, that it is the intention to privatise the electricity industry. Such proposals will have far-reaching effects and offer a wonderful opportunity for power generation to play a major part in the 694 rejuvenation of many of our industries presently in decline, and to bolster with economy of energy pricing the industries which are already successful but which could be that much more successful if energy was available to them at more competitive rates.
I am delighted that the new Secretary of State for Energy, Mr. Cecil Parkinson, whose recall to government I warmly applaud, together with his young Under-Secretary who will be assisting him, have decided not to rush ahead too quickly with their proposals but have made it known that they will consult widely. Indeed, I understand that Mr. Spicer will travel far and wide to discuss with those directly involved with the industry, and some perhaps not so directly involved, their experiences and learn at first hand the benefits of the energy industry in the private sector.
I am sure that there will be an abundance of technical, financial and academic advice thrust upon those new Ministers. But I think we are fortunate indeed that from his professional training as a chartered accountant, and in his very discerning method of being able to select from ideas which have been put to him in other ministries in the past, we have a Secretary of State who will decide upon an acceptable formula.
Thousands of words have been written and spoken over the past year about generation of power and different methods of achieving such generation, and I do not propose to go over that old ground again. Decisions have been taken and I think that in the nuclear industry it would be a great pity if, at a time when we have everything to play for, we wasted any of that time by engaging at any great length in the argument between the relative merits of the advanced gas-cooled reactor and the PWR. I believe that the decision which has been taken is the correct decision and I just want to see us now get ahead with the projects which are so necessary to the future power generation in this country.
I think we have to accept that power generation must be led by the nuclear industry and that all other industries connected with power generation must inevitably play a supplementary role. I take the view that privatisation proposals must not exclude those areas of the nuclear industry directly concerned with power generation, for I believe that to do so would be like sponsoring the Olympics without athletes.
I was particularly interested in an article in the Daily Telegraph on 6th July, which suggested that a major change in the method of privatisation envisaged for the electricity industry, with emphasis on competition and the possibility of a series of flotations rather than disposal in a single entity, was very much on the cards. I agree with the point made by the noble Lord, Lord Ezra, when he suggested that if the industry was to be privatised it certainly could not be privatised in its present form. I agree with that, although I am afraid I agree with little else of what the noble Lord had to say.
Such a decision would in my view be highly desirable, and in this connection I should like to suggest that the Government select as one of those entities the privatisation of the North of Scotland Hydro-Electric Board and the South of Scotland 695 Electricity Board as one package. The southern board is probably the most efficient user of nuclear power in the world after France and the amount of power generated in Scotland by nuclear power, largely through our advanced gas-cooled reactors, is now 48 per cent. This will rise to a massive 63 per cent. with the phasing in of the new Torness power station over approximately 18 months from now. A further 10 per cent. of Scottish generation comes from hydro-electricity produced by the North of Scotland board, and it is interesting to note that of all electricity produced by the North of Scotland board 10 per cent. is nuclear power which comes from Dounreay.
My proposal is that there be created a Scottish electricity holding company which would contain both boards. This would be in my view highly desirable and, I suspect, financially attractive. I hope that the Government will take seriously what I say and investigate the potential which such a move would have. Each board would retain its own identity and the special position of the North of Scotland Hydro-Electric Board should in my view be acknowledged in the legislation in so far as concerns its social responsibilities.
Your Lordships may not be aware that the North of Scotland Hydro-Electric Board was set up by separate legislation, and because of the unique geographical formation of the area which it serves and the many island communities involved there is within the Act an obligation put upon the board regarding the provision and pricing of electricity within its area. The board takes this obligation very seriously indeed and during the past year it has spent £25 million honouring its commitment and has still managed to produce a very satisfactory set of accounts. I pay tribute to both the North of Scotland Hydro-Electric Board and the South of Scotland Electricity Board and I congratulate them on the very good relationship which they enjoy with the public in their respective areas of operation.
Power generation is responsible for creating and maintaining many thousands of jobs in Britain. The nuclear industry alone employs about 100,000 people, many in areas of high unemployment. In order for our industries to be competitive cheap power is essential, and the best use of our different methods of power generation and their integration wherever possible is highly important. The coal industry still has a considerable potential and within the industry now I detect a sense of reality which recognises that uneconomic pits are a liability and should be closed, while co-operation between the Coal Board and the unions, with all parties looking to the future, accepting change and forgetting past disagreements, can bring rich rewards for that industry.
It seems to me, however, that if the Scargill factor is to remain prominent in the National Union of Mineworkers it can only have the effect in the long term of bringing that union to its knees and putting at risk some wonderful opportunities for the coal industry. Frankly, I hope that it will not be too long before the coal industry will have an opportunity to benefit from the advantages of the private sector.
696 So far as I am aware the Government do not have any plans—at least not immediately—for the coal industry as such to be privatised. But with the privatisation of the electricity industry great opportunities for the supply of coal will emerge. It would be tragic if the necessary investment which would enable those opportunities to be seized were to be denied through the intransigence, shortsightedness and, yes, I am afraid, the political motivation of the Scargill element.
There is no doubt that the presence of government within the electricity industry has been an inhibiting factor. I was most interested to hear the remarks of the noble Lord, Lord Ezra, but I found it difficult to agree with some of his remarks about the funding and ownership of our power industries. It would seem that chairmen of nationalised industries were always perfectly happy with the funding arrangements proposed and offered by successive governments. It would appear that they never disagreed with the external financial limits which were placed upon them. I am afraid that my experience in the Department of Energy did not always bear out those views. I recall that frequently chairmen of nationalised industries and chairmen of boards of one kind or another vigorously advocated a relaxation in the financial restraints which government put upon them.
I see privatisation of the electricity industry as a release for the industry from those restraints. Employees of the North of Scotland Hydro-Electric Board, which is situated in the area where I live, have told me on more than one occasion that the board had to choose between a number of extremely worthwhile projects for the simple reason that because of Treasury control it was unable to obtain the borrowing powers which would have enabled it to proceed as it would wish.
§ Lord Ezra
My Lords, I thank the noble Lord for allowing me to intervene. I wish to point out to him that the burden of my remarks about the electricity industry was that I paid tribute to its very considerable achievements at the present time. I asked whether the long process of restructuring before privatisation would result in something which is better and more efficient than we have now. That is a perfectly fair question to put.
§ Lord Gray of Contin
My Lords, I am grateful to the noble Lord for clarifying the position and I am happy to accept that he made that point in the form of a question. I should hope that the answer would be in the affirmative and that the privatisation of the industry would lead to the kind of improvement which both I and the noble Lord would like to see.
Apart altogether from the challenge and the potential which privatisation of the electricity industry offers to the nuclear industry and to the coal industry, I believe it also offers a potential to some of our alternative energy sources, always bearing in mind that wind power or indeed any of the other alternative sources are never likely to be a replacement but only a supplementary source of energy. That is not to suggest that they have not a 697 valuable contribution to make; it is merly to highlight that that contribution must be seen in a realistic perspective.
At the end of the day it is the consumer who will judge the success or otherwise of a private sector electricity industry, and I hope that the Government will have that very much in mind in their thinking in the future. I commend them for the line of consultation which they are following, and we shall await with great interest the result of their deliberations in the form of a Bill in due course.
§ 4.35 p.m.
§ Lord Kirkhill
My Lords, 1 too join with those who have contributed to the discussion thus far in congratulating the noble Earl, Lord Lauderdale, on initiating this timely debate. The question posed by the heading of the debate is relevant and I agreed with the remarks of the noble Earl when he said that it was an absolutely appropriate time in the life of the new Parliament for us in this House to discuss the question of energy and its abundance and cheapness or relative cheapness. No doubt this subject will subsequently be discussed in another place.
Today we live in an energy-hungry world in which the whole prosperity and lifestyle of the industrialised nations, not to mention the future prospects of the third world, depend largely upon reliable, adequate and reasonably priced sources of energy. I am sure that that is a source of common agreement among us all, no matter where we sit in the house. Therefore in my view it follows that if we are to compete successfully in world markets and maintain our standard of living we must ensure that we have sufficient means of generating energy to secure a cheap and abundant supply of power for industry. That was the very point and emphasis which the noble Earl, Lord Lauderdale, asked us to consider.
Of course in this country we are fortunate in having significant reserves of coal, gas and oil in addition to our potential for nuclear power generation. That potential is not totally realised, nor perhaps should it ever be totally realised, but I agree with those who say that we must increasingly give some reliance to a development of nuclear power. Certainly that is inevitable if we want to maintain a standard of relative cheapness of power supply.
After many years of being a net importer of energy we are now in the unique position of being self-sufficient and for the next few years at any rate domestic production should be large enough to ensure that we have a net energy surplus. Therefore the immediate future looks bright but in my view we must guard against complacency, bearing in mind that the full benefits of North Sea oil will not last forever. Indeed present expectations are that, before the end of the century, we shall again become a net importer of fuel as indigenous production of oil and natural gas begins to taper off.
In previous debates which came under the general heading of energy but which did not deal with the specific point raised today, I have mentioned that we have now reached the stage when we need a positive policy for the development and conservation of the nation's energy resources. It has always struck me as 698 odd that there has never been a national energy policy for such an important commodity. In my view we should be planning now against the day when domestic production of oil and gas will be falling off and when those fuels will become so valuable that developed and available alternatives make good economic sense.
Energy demand and supply forecasts are necessarily uncertain so it is essential to plan a flexible response to future events. The prospect of a temporary abundance of fuels over the next five or 10 years means that we need to retain our strategic options for the longer term and to allow ourselves future flexibility against the uncertainties which undoubtedly lie ahead. This can be done by making the most efficient and sensible use of our coal, oil, gas and nuclear energy resources, and by looking closely at the future, and as yet unproven, potential of the now so-called alternative energy sources.
One of the main requirements for a national energy policy is the creation of a climate which is favourable to sensible future investment decisions. This means a sound approach to energy pricing and clear specification of the return at which the energy industry should aim on the massive investments they need to make.
Noble Lords may remember that after I had completed my stint as a Minister at the Scottish Office I spent some years as the Chairman of the North of Scotland Hydro-Electric Board. So, I hope noble Lords will bear with me while I direct my next remarks to the state of the electricity industry—an industry with which I have at least some familiarity. Of course, I cannot forbear to say (and I do so without the slightest hint of partisan spirit) that, when the noble Lord, Lord Gray of Contin, was a Member in another place and I was chairman of the Hydro Board, he wrote to me quite frequently. I am sure from time to time I wrote back to him and said that, because of constrictions placed upon the board and competing demands, we could not quite agree with his proposition—whatever the proposition of the day was. I have to say that the noble Lord, Lord Gray, as he now is, wrote to me most compellingly about every single, individual instance that had been brought to his attention. Therefore, looking back, I am quite sure my answer was often a holding reply. If I was guilty of that, retrospectively I apologise to him.
It is fair to say that, in all the technically advanced nations of the world, public electricity supply dominates the industrial scene in the scale of its capital investment requirements; in the huge quantities of primary fuel it consumes and in its demand for large, complex and technically sophisticated plant and equipment. This dominance transcends differences in national economic systems and political ideologies.
In this country electricity supply has grown from nothing a century ago, to an industry investing capital at the rate of nearly £3.5 million a day, with assets approaching £40 billion and an annual turnover exceeding £10 billion. It is an industry in which the value of a single major power station rivals the total assets of many of the country's industrial giants. In addition, it is worth keeping in mind that 699 electricity is not just another fuel. It is a highly refined form of energy which enables industry and commerce to make the best possible use of manpower, raw materials and energy resources. In industry generally, technological progress and profitability depend in large measures upon the increasing use of electrical processing methods and equipment. Indeed, electricity permeates the whole of industry.
There is hardly any industrial activity which does not depend on this form of energy and its importance can be judged from the fact that in England and Wales—at the moment I do not have the figures for Scotland—industry is buying nearly £3 billion-worth of electricity per year from the electricity boards. It is against that sort of background that one has to mention the word "privatisation". It would be a nonsense at this particular time and in this debate if one did not do so. The remarks made earlier by the noble Lord, Lord Ezra, were wise, and in my view, balanced. I hope that the Government will give very serious consideration to a number of pertinent points raised by the noble Lord and placed before the Government for their serious consideration.
As a former chairman of the Hydro Board, I can say that the electricity industry has always striven to increase its efficiency and competitiveness and has undergone continuous change to improve service to its customers. When I say that, I do not mean that I would argue that there is no room for improvement in the industry's performance—I think there is. However, I would stress that the decisions on privatisation should be taken objectively and not on the basis of some of the misleading, inaccurate and tendentious statements which have appeared in the press over recent months. For example, it has been suggested that the industry is inefficient and overstaffed. The truth is that in the last 25 years electricity sales have increased by 122 per cent. and the number of customers has increased from 15.8 million to 21.5 million. At the same time, the number of employees has fallen from approximately 190,000 to approximately 131,000, without, I may add, the concomitant, labour and industrial relations difficulties which have beset other industries.
Therefore, if the electricity supply industry, in the guise of privatisation subsequently, were to go down the road of British Gas or British Telecom—that is moving from the domain of the public utility to the domain of the private monopoly—I believe that that would be regressive. Unlike the noble Lord, Lord Gray of Contin, I cannot see that as an improvement to one of the core industries of our nation today.
It is on that point I should like to emphasise that the electricity supply industry really is at the core of the ability to produce power in abundance for industry, and in its ability to produce at the appropriate rate. What that appropriate rate should be can be determined only if we have a national energy policy. We do not have such a policy at the moment and I believe the Government should now set their mind to that end.
§ 4.48 p.m.
§ The Duke of Portland
My Lords, I rise to draw your Lordships' attention to an unnecessary delay which hinders progress of our nuclear power.
700 Six years and one month elapsed between the application made by the Central Electricity Generating Board for consent to build Sizewell B and the grant of this consent. If all future consent applications take this long it will not be possible to construct new capacity fast enough to meet the growing demand there will be a risk of shortfalls in supplies by the mid-1990s.
The future plans for nuclear power stations are built on the assumption that for new nuclear power stations the Central Electricity Generating Board should be able to halve this lead time of more than six years to a three-year period from application to consent. I think noble Lords will agree that, even this, is a very long and costly period. If the Central Electricity Generating Board had been able to achieve consent for Sizewell B within this timescale, the total saving would have been some £200 million.
I would agree that there was good cause for the scope of the Sizewell B public inquiry to be all-embracing. A new nuclear option was being introduced to the country ahead of actual capacity need. For subsequent PWR applications the picture will, however, be quite different. The design, which now has the approval of Sir Frank Layfield, the Secretary of State and the Nuclear Industry Inspectorate, will be replicated and the stations ordered to meet actual capacity needs.
In these circumstances I trust that your Lordships will agree that the scope for future public inquiries should be narrower and should focus principally on local issues. After all, this is the proper function of local planning inquiries. It is also essential that some notion of timescale is included in the framework for future public inquiries. The Central Electricity Generating Board is properly accountable for its success or failure in building power stations to time and cost. The planning inquiry period adds considerably to both, and it is important that both the Inspector and the Secretary of State should be subject to some discipline in this respect if resources are not be wasted.
The Central Electricity Generating Board will be submitting with its future consent applications for all nuclear power stations a full "environmental statement" designed to identify and describe all the environmental impacts of a proposed power station together with the board's proposals for addressing these impacts and, where appropriate, ameliorating them.
It is of great importance that there should be a full dialogue with the local community on all local environmental issues, and I am assured that the Central Electricity Generating Board will do everything possible to bring these issues forward in time to ensure that there is a full opportunity for debate.
However, the proper place to debate and decide national issues surrounding nuclear power and nuclear safety is Parliament. New power stations provide considerable benefit in terms of employment, both local and nationally. These are not "boom and bust" jobs because we are talking of 50 years between the first planning of a new, large power station and its eventual decommissioning.
701 Since, in future, the Central Electricity Generating Board will, to an increasing degree, be re-planting existing sites, the employment benefits should have an even greater degree of long-term continuity. Although the peak of direct labour on site of course occurs during the early construction period and the jobs in station operation are fewer, the indirect local jobs created by the power station through its operating like in its demands on goods and services are substantial. In addition to these employment benefits, the board does a great deal through such resources as road improvements and landscaping to preserve and, where possible, improve local amenities.
The power plant industry needs orders soon and regularly if its strength and competitiveness is to be maintained. Long public inquiries create uncertainty and disruption in industry and may prevent the board from securing the cost savings which arise from repeat orders and a steady programme.
As regards the framework of new planning inquiries, the White Paper published by the Government last December was a useful start, but it is essential that a firm grip and discipline is exercised on inquiries. It is in everyone's interest that answers to planning applications should be given quickly. More than one observer has described the Sizewell experience as "paralysis in decision-taking". Let this not be repeated.
§ 4.55 p.m.
§ Viscount Hanworth
My Lords, I do not wish to repeat all I said in my speech on this subject on 2nd March 1987 but I must emphasise some points which I then made. First, although I support all work on renewable sources of energy, it must be accepted that for a very long time they cannot possibly do more than provide a small addition to our primary energy requirements. We have to rely in the main for the foreseeable future on coal and nuclear generation.
People have become highly emotional on the nuclear issue and do not seem to realise that coal, of which some of the constituents are radioactive, releases just as much radioactivity from our coal-fired power stations as do our nuclear reactors. Not only that, we also have the acid rain problem, which is certainly a cause of the sterilisation of the lakes in Scandinavia and in my view at least a contributory factor to the death of forest trees.
Far more grave is the carbon dioxide build-up, with its greenhouse effect and the possibly devastating results of partially melting the polar ice caps. If those scientists who believe this is likely are right, Chernobyl will be regarded as a very minor incident indeed. Already carbon dioxide levels have increased by 30 per cent. in the last century. There is also the incidence of, and the resulting early deaths from, pneumoconiosis due to coal-mining, amounting in Britain alone in 1983 to 400 cases. Scaled up for Europe, this compares the likely early deaths from the Chernobyl incident. Let us see nuclear risks in comparison with others—55,000 deaths on the roads in one year in Europe, to say nothing of 12 times this figure of grievious injuries, often permanent.
702 I want to make it quite clear that in listing the disadvantages of coal-fired energy I do not do so to knock coal but only to try to redress the balance between nuclear and coal generation. Both at present are essential to provide the electricity we need.
Questions are now being raised about the security of plutonium stock piles. This is important but such stocks are in the main not of weapon grade plutonium, though they could be used for an unpleasant fizzle bomb. The real danger is from uncontrolled new reactors. A 500 megawatt rector, if dedicated to making weapon grade plutonium, could produce 20 atomic bombs in just one year. People must urge the Government (who in turn must obtain international support) that we should have inspection and control of reactors. It is already the eleventh hour for doing this. Such action would have the support of almost everyone in this country if they knew the facts. I of course support all that Sellafield is doing. It is a major foreign currency earner and any cancellation of its activities would be unjustified and should be unthinkable.
I should like once again to mention briefly combined heat and power (CHP) for the heat needs of large or medium sized cities. By raising the temperature of the cooling water from a steam power station, its overall efficiency can be increased from 35 per cent. to around 80 per cent. Such schemes are common in Europe but in Britain we do not have the district heating schemes to which a connection can be made. This means digging up the roads to lay the new heat mains and the adaptation of domestic heating arrangements. It would therefore be several years before a scheme could become fully profitable.
What is needed now is a demonstration scheme in one of our larger cities. I am convinced that none of the schemes in the nine cities considered in the Atkins Report will materialise without government help. Pump priming in the shape of small grants for detailed studies is not enough. The proposed CHP scheme in Leicester is sometimes mentioned as a demonstration scheme, but it is only a small scheme, with a largely commercial heat load, and it is planned to use gas in gas turbines. It is different from a steam generated plant. Although it is desirable, it is irrelevant in this context.
To my mind, the Severn barrage offers the best large-scale alternative energy prospect for the future, as it could provide 6 per cent. of the nation's electricity requirements probably at economic prices. Obviously it would have some environmental effect but so does every large project. Although further detailed study is needed, I should be surprised if there were any major difficulties from silting or other side effects. Once again, although some private capital is likely to be forthcoming, the scheme will never be implemented without government help.
I almost forgot to declare an interest in that I am a consultant to the EMA. However, what I shall say is not affected in any way by that. I should like to turn to the Government's intention to privatise the electrical generating and distribution industry. I am not against some privatisation where appropriate, but it now seems clear that, like the sportsman who shot at anything which moved, the Government want 703 to privatise anything which trades. The reasons which the Government choose to give the public for their policies are thin indeed, and I believe have little to do with their real thinking. That is highly regrettable in a democratic society.
In the case, for example, of gas or water, competition is not possible and improved efficiency largely a chimera. Moreover, if the consumer is to be adequately protected, and in the case of gas diminishing resources protected, market forces do not operate to any useful extent. The most that can be said is that it frees the industry from the dead hand of the Treasury, but the Government could easily do that in other ways. Share ownership by the public or by employees in a large organisation is an irrelevancy, even less valid than Labour's previous doctrine that nationalisation conferred ownership on the public. The only merit is a slight decrease in the control and power of the pension fund, the unit trust, other large investors and foreign powers.
I suggest that the real reasons, apart from dogma, are, first, that the extra funds made available by privatisation avoid the Government's having to make more drastic financial control of other heads of expenditure such as education and national health. Secondly, it potentially reduces the possibility of a strike affecting the whole industry. But the unions concerned in the electrical industry have a good record. Thirdly, massive privatisation makes it almost impossible for a future government to reverse the process to any great degree.
The electrical generating and distribution industry is an integrated system. The efficiency of generation depends upon bringing into use the most efficient power stations to balance a changing load. One must bear in mind other factors such as the distribution losses incurred in shipping current any considerable distance. It seems to me inconceivable that a privatised company could construct and operate a large power station which, taking into account the overall needs of the network, could operate on those terms more efficiently than under the aegis of the CEGB.
It seems also to me highly irresponsible to envisage, with the safety of nuclear reactors being of paramount consideration, that they should be handed over to private enterprise. The nuclear inspectorate is not a certain guarantee, as has been proved at Sellafield, where its representatives apparently went native. Its members would probably become unduly restrictive as a safeguard against possible criticism or mistakes which are inherent in privatisation. Already under existing legislation there is nothing to prevent a private company generating electricity for the grid, though I must admit that the terms of payment given by the CEGB do not encourage such effort. But do your Lordships really suppose that with the complications I have already mentioned true competition with the CEGB is possible? Accountancy in this case would be simply based on a series of dubious assumptions with a fudge and mudge either way.
In looking at this question, we ought to consider the experience of other countries, notably America, 704 but before I do so it should be pointed out that our electricity has always been subject to competition from gas, and still is. Critics of the CEGB like to say that it is too large a monolithic body and compares unfavourably with Scottish generation and distribution. There may be just a grain of truth in this, but the major reason for its cheaper prices is the higher proportion of nuclear and hydro-electric generating power stations.
The Electrical and Managers' Association, with of course an axe to grind, has nevertheless produced a first-class and in my view unbiased report of the privatised electricity industry in America. In that country, it has been found necessary to have a very strong federal and state regulatory control over the privately owned utilities. For example, capital available to a utility and the interest charged on it are regulated; so is the price charged for electricity. For any major construction of generating plant a certificate of need and convenience is required. With this very tight regulation, the extent to which private utilities are free to manage is very limited. For this reason there is concern as to how far incentives for success and penalties for failure are effective.
It is said that in operation the system tends to be short-sighted and inflexible, with a real danger that future needs for generating capacity will not be met in time. The majority view from the top people concerned in America was summed up in the report as follows:If you were starting to organise your system from scratch, we'd have a darned good try at selling you our way of doing things with regulated investor owned monopoly utilities. But if you've got a good system that works efficiently—and we think you have—then don't mess it about".I leave your Lordships with the thought that we are facing in this instance a Government who are dishonest in stating their motives and whose proposals are simply not justified even in their own undeclared terms.
§ 5.9 p.m.
§ Viscount Mersey
My Lords, I should like to thank my noble friend Lord Lauderdale for introducing the debate. I was interested to note that my noble friend concentrated on the cost aspect whereas the noble Lord, Lord Peston, concentrated on the safety aspect of the subject. I should like to try to balance cost and safety with regard to Sizewell B. To simplify matters, I propose to use the old, simple belt and braces analogy.
To start, I cannot do better than to quote paragraph 2.13 of the Layfield Report, as that puts the whole problem in a nutshell. Layfield writes:The technical possibilities of increasing safety are almost limitless, but safety is normally expensive. If the station is to be worth building, a balance must be found between expenditure on safety and on ensuring that the station fulfils its primary function of producing electricity reliably and economically".He continues:However, no such balance can completely remove the possibility of an accident. The need to balance safety and economy is not unique to nuclear power, but in principle characterises all activities which involve risk".I therefore come to the belt and braces analogy and in particular to the thorough tables by Mr. G. B. Woffinden called the Trouser Tables. Mr. Woffinden 705 is the chief regional scientific adviser for the South West. He has worked out the risk of trouser drop mathematically and in great detail, and I believe his tables are most useful. They are just as useful as the comparison that the noble Lord, Lord Marshall of Goring, makes between radiation dose and cigarette smoking. To quantify risk one must make assumptions. Sir Frank Layfield has made one. He states:A level of risk of death in the order of once in a million years is broadly tolerable.Mr. Woffinden, doubtless aware that trouser drop is not as serious, gives as his assumption that one trouser drop every five years is broadly tolerable. Moreover, he assumes also that each pair of braces and each belt will last for 10 years before failure. He then progresses to the hypothetical case of each and every man in this country wearing both belt and braces. This is the original definition of a pessimist. I mention it only because it is interesting to see how close together Woffinden and Layfield are in theory because they are both studies in probabilistic risk analysis.
At paragraph 2.65 Layfield says:I find the CEGB's argument that its analysis is pessimistic to be generally sound".At paragraph 2.36 he says:The local planning authorities eventually accepted that the estimated disruptive failure probability of once in 400 million years was pessimistic".He uses the same word.
Therefore, applying inbuilt pessimism to belt and braces one must ask how often will both fail together. Assuming that both are worn for 16 hours each day, the answer is that the average man is wearing a broken belt or braces for eight hours every 10 years, further assuming that he fails to detect the breakage until he removes his trousers at the end of the day. Woffinden labels this failure to detect breakage as his fractional dead time, or FDT. It can be quantified. It is 8 over 16 times 1 over 10 times 1 over 365 which comes to 0.000137.
The chance of the second protective device failing while the first one is dead is given by the hazard rate which equals the demand rate multiplied by FDT which is 2 times 1 over 10 times 0.000137 which equals 2.75 times 10 to the minus fifth per year, or trouser failure once in 36,500 years per man.
Layfield has similar tables. For instance, paragraph 47.1.1 lists the estimated maximum individual risks to members of the public from Sizewell. In normal operation it is 30 times 10 to the minus 8th; in design base accidents it is 4 times 10 to the minus 8th; and in beyond design base accidents it is 0.2 times 10 to the minus 8th. This totals 34 times 10 to the minus 8th which means one chance in 3 million. Layfield finds that acceptable.
However, Woffinden has this to say about a belt and braces failure every 36,500 years:At the individual level this risk is acceptable. However, there are 25 million men in Great Britain, so that, even if all of them did wear belt and braces, 685 men would lose their trousers every year. It is not aceeptable at National Level that so many men should be so embarrassed".706 This broadens the argument considerably and makes me realise that it is not sensible to talk of Sizewell B in isolation. Chernobyl has shown that nuclear radiation was no respecter of frontiers.
This is the list of PWRs world wide: South Africa, two; Belgium, six with two being built; Brazil, one with four under construction; Bulgaria, four with two being built; Korea, three with five being built; Cuba, two under construction; Spain, four with six being built, the United States, 56 with 41 being built; Finland, two; France 34, with eight under construction; Hungary, two; Italy, one; Japan, 14 with two being built; the Netherlands, one; the Philippines, one in the course of construction; Poland, two being built; West Germany, nine with four under construction, and East Germany, five with nine being built; Sweden, three; Taiwan, one with one under construction; Czechoslovakia three with six being built; Russia 17 with 15 under construction; and Yugoslavia one. That is 172 PWRs built and 110 in the course of construction. Thus it is necessary to multiply the risk factor for Sizewell B by a minimum of 282 although 500 or even a thousandfold might be safer.
To meet the hugely increased risk Woffinden recommends a third protective device: to whit, a second pair of braces reversed with one mooring point forward and two aft, as opposed to the conventional arrangement. This reduces the individual risk of failure from once every 36,500 years to once every 133 million years. That, applied to all 25 million men, would result in one trouser drop every five years only. Woffinden considers this as acceptable particularly where one bears in mind that trouser drops are not invariably embarrassing. Trouser failure in the privacy of a bedroom is no more than a nuisance. It is trouser failure in a public place—perhaps in your Lordships' House—that results in maximum embarrassment. It is not the accident that is important, Woffinden states but the consequences that flow from it.
Layfield says the same thing. It is not the explosion that is disastrous. It is the damage caused by the explosion. Moreover, Layfield states the case for a belt and braces at paragraph 21.153. He says:The use of two independent organisations to provide assurance that ultrasonic inspections are adequate is an invaluable reinforcement for reactor pressure vessel integrity".As I said, the two arguments are the same as they are both studies of risk analysis. Pursuing Woffinden to his conclusion he points out that buying a belt and two pairs of braces is very expensive; and the donning of all three safety systems horrendously inconvenient.
The same applies to nuclear power. A superfluity of safety systems would raise the cost of electricity to the consumer and would make normal running of a power station so inconvenient that operators might be tempted to bypass the safety systems. Indeed, they have in the past.
Woffinden's only alternative is to reduce fractional dead time. If a belt-and-braced man inspected his devices every two hours as opposed to the postulated 16 hours then FDT is cut by a factor of eight. Thus frequent inspection of safety systems at Sizewell B is of prime importance.
707 I am not speaking either for or against Sizewell B. That has already been done by Sir Frank Layfield and his report is reinforced by 80 volumes of evidence. All I have sought to do is to clarify the field of probable risk analysis whose waters are further muddied when one enters the field of nuclear radiation.
However, by any criterion one thing must by now be blindingly obvious: that old belts and braces are more dangerous then new belts and braces. Therefore the chief danger in Suffolk is not Sizewell B at all: it is the old magnox Station, Sizewell A. Meanwhile, I cannot do better than to end by commending to noble Lords, the tables of G. B. Woffinden.
§ 5.20 p.m.
§ Viscount Hood
My Lords, I add my word of thanks to my noble friend Lord Lauderdale for initiating this debate. It is an immensely important subject with a picture which is continually changing.
When we debated energy on the last two occasions Sizewell B was the focal point. That at least is decided, but the programme is not one station but four to five stations, three of which are needed to replace the power when the magnox stations are phased out. There are two problems, one of which my noble friend the Duke of Portland has already discussed—that of planning. The other concerns Hinkley Point C, which I understand is identical to Sizewell B. It would seem essential that our planning should be restricted to matters in Somerset which are different from those in Suffolk and should not cover the whole area of safety, which took such an excessively long time in the Layfield Report.
There is also a very real problem in the Government's plans for privatisation. The plans are still very indeterminate, but privatisation must be achieved, if it is to be achieved, in a way which will permit the nuclear stations to be built. They are all very large, as we all know; they cost £1 billion or more each. They arouse emotional and political issues. Clearly to a private company requiring to raise private finance these are very difficult areas. This would perhaps point to privatisation in very large units or even one single unit about which certain things have already been said. But it is a problem which I hope my noble friend the Minister will perhaps deal with when he rises a little later.
Coal must continue to be the major source of fuel for power generation. It is indeed true that there are vast coal resources in the United Kingdom now, but these are covered by the basic principle of minerals that minerals are valuable only if their cost of production and transportation to market is less than the market price. This is clearly not the case for a very large amount of the coal reserves of this country. I am sure it is true that today a number of the mines being operated are being operated only for social and political reasons in the localities where they are.
The noble Earl, Lord Lauderdale, referred to the average price of coal to the CEGB covering 95 per cent. of its requirements at £42 a tonne. This includes a large segment of coal bought at £47 a tonne, another segment at less than £42 and a smaller segment at the market. I believe that it would be 708 possible for the CEGB to buy 30 million tonnes in the open market without raising excessively or even at all the price in world markets. That is 40 per cent. of needs and the price would be about £30 a tonne.
One of the coal stations which I understand is planned is at Fawley. Fawley presents deep-water berths and coal—be it from Australia, Colombia or the west coast of the United States—could probably be brought in at £24 a tonne, which is just over half the base cost of the present arrangements of the CEGB. One is only too conscious of the practical and social problems in a number of the old areas of coal production. But the fact remains that if the objectives in this debate are to be achieved there will have to be a transfer of load from the marginal uneconomic coal mines to imports. It is readily calculated that if it were possible to replace 30 million tonnes of imported coal against the £47 a tonne of the least efficient coal production in this country one is talking of a saving of £500 million a year. These matters cannot be ignored and they are bound to arise when privatisation takes effect, if it does.
I press for two things: first, that nothing shall happen which will disturb the nuclear power programme between now and the end of the century and beyond; and, secondly, with all prudence and sense, that the shift of load from uneconomic coal to the world markets shall be achieved, as it is being achieved in all the countries in Europe.
§ 5.25 p.m.
§ Lord Rea
My Lords, I too am most grateful to the noble Earl, Lord Lauderdale, for choosing this subject. It will always be of crucial importance and should be and is debated frequently in both Houses. In fact there is seldom a day in which one or more aspects of energy policy or energy production are not discussed in the quality newspapers. However, I find myself a little out of step with the position of the noble Earl and the very words in the title of the debate "cheap and abundant"; I think that both need to be scrutinised quite carefully. I should like to substitute two other words "harmless" and "clean" or, perhaps your Lordships would prefer the phrase, "environmentally harmonious".
Energy is or should be for the benefit of all of us. To provide cheap and abundant power for industry might help industry to be profitable in the short term, but what will it have gained for us if in the process more cancer occurs, if we are constantly under the threat of our trousers falling down from lack of belt and braces (in other words the possibility of nuclear accident) or if our forests are damaged or lakes become lifeless?
I should like to speak briefly about four areas: the need to concentrate on and think about the cleaning up of fossil fuel burning; a few aspects of nuclear power production; energy conservation; and I want to say something about the prospects for renewable energy. That is rather a mouthful and I shall try not to keep your Lordships for too long. I hope very much not to sound as if I am singing in a "wailing chorus of environmental litany", which I think is rather a derogatory description of some of the people who are raising a voice which I think needs to be heard on this issue.
709 There is little doubt now that acid rain comes from industry and the generation of electricity. A recent report has shown that our forests are much more badly affected than had hitherto been realised. I have seen the effect of the acidification of the lakes and rivers of Cumbria in my own "parish" of Eskdale. The River Esk, once a wonderful sea trout river, contains few trout now. Fishing was still quite good when the farmers were subsidised to put lime on their fields, but since this was stopped the acidity of the water has risen and there are not very many trout in the river now. I consider that we are still dragging our feet in this country on cleaning up our act here. A survey carried out by MORI earlier this year has shown that some 80 per cent. of people would actually tolerate some increase in tax—for example on petrol or a slight increase in the price of electricity—if they knew that the extra money was paying for efficient scrubbing of our power station emissions. The rest of Europe would certainly give a sigh of relief if we paid serious attention to the problem. We are much the worst offender in Europe. We produce more sulphur than any other country. Nor should we skimp in the choice of the type of scrubbing or de-sulphurising equipment. A slightly more costly plant, the Wellman-Lord system, can be more efficient in clearing up pollution from emissions. It also recovers useful sulphur, in the form of sulphuric acid, thus saving on imports, and it uses up less of our handsome limestone hills than the cheapest method. This is a matter which the United Kingdom could surely now contemplate as our economic fortunes, or so we are told, are taking an upturn.
If we are no longer the sick man of Europe, surely we can afford to stop being the dirty old man of Europe. In the first instance we should join the 30 per cent. club to which other countries in Europe belong; they have agreed to reduce their emissions by 30 per cent. by the year 1993; that should not be an impossible task for us. There are many ways in which the Government could provide incentives and/or penalties to industry. I always think carrots are better than sticks. I hope that the noble Viscount who is to reply will tell us of an accelerating programme to deal with this problem. The present situation is a national disgrace. We must also think of the "greenhouse" effect which was so well described by the noble Viscount, Lord Hanworth.
Nuclear energy is certainly clean, quiet and impressive, as anyone who has visited a nuclear plant will agree. Far fewer people have been injured in the nuclear industry than in the coal industry but it is worth remembering that coal still provides 32 per cent. of our energy—and used to provide nearly all of it—while nuclear power produces rather less than 7 per cent.
In my mind there are three serious objections to nuclear power on health grounds. In the first place, nuclear energy cannot avoid, even with the most stringent safety measures and no major mishaps, adding some additional radioactivity to the environment. This is even more so when considering reprocessing. Radiation, even naturally occurring background radiation of low intensity, can damage cell nuclei so that they undergo malignant 710 change—that is, they become cancerous. A small proportion of naturally occurring cancer, if you can use that phrase, is caused by radiation from the earth's crust or from the sun's rays. There is no threshold for the causation of cancer through radiation so all extra radioactive material reaching the environment—particularly if it enters the food chain, which much of it does—provides a calculable extra risk of cancer which may take years to make a clinical appearance.
Some of the radioactive by-products of nuclear power have extremely long half-lives and are particularly liable to cause malignant change—for example, plutonium which does not occur in nature, some 250 kilos of which have now been discharged into the Irish Sea. The disposal problems of radioactive waste, particularly following reprocessing, are so well known that I shall not go into them—I nearly said "in depth". This remains a major headache for any government. No local population wants these products for reasons which may sometimes seem irrational but which may in fact be instinctively wise. The problem, however, remains, and the best solution for the time being seems to be to retain the waste products in safe concrete encasements at the site. But for how long can this continue?
The very possibility of an accident, even if one does not occur, is an unpleasant fact with which to live, especially for those living near a nuclear reactor. We have been assured that Chernobyl is unlikely to happen here. I believe that our plants are better designed and that disciplinary arrangements for operating our nuclear reactors are probably higher than they were in the USSR. I very much hope that their operators will read the article quoted by the noble Earl, Lord Halsbury. However, there must always be a possibility of mechanical failure or of human error—the breakage of belt or braces, as the noble Viscount, Lord Mersey, explained to us in such an amusing way.
One calculation that is taken very seriously is that there is a possibility of one serious accident per 10,000 years of operation for the average nuclear power station in Western Europe. Not a very high risk, you might think, but when it is realised that there are 211 reactors in Western Europe, let alone in the USSR and Japan, the risk of a major accident is increased to one every 47.6 years. We know that all Europe can be affected by an accident in one reactor. Today I noticed in the paper that the movement of sheep in the southern uplands of Dumfries and Galloway in Scotland has again been restricted because of the late effects of the Chernobyl accident.
In the present situation the potential dangers to human health are so great that in the future more expenditure on safety measures—containment, further disciplinary measures and training—than has been thought necessary in the past must be made, and this will tend to make nuclear power not such a cheap option, as the noble Viscount, Lord Mersey, pointed out to us. But industry would not close down if no more nuclear power stations were built. In fact it could manage quite well if the present ones were phased out gradually over the next decade. The key to this is energy conservation, which few noble Lords 711 have mentioned so far. There is still an enormous scope for saving energy, most of which is used in the production of heat, either deliberately or as a by-product of industrial processes. The technical knowledge to conserve energy is there. The Government could do much more to encourage its widespread application.
The American experience is relevant here. In California the Pacific Gas and Electrical Company, a private corporation, offers customers conservation and alternative energy options. It is actually more profitable for it to do so than to invest in new plant, (something about which a newly privatised electricity industry might be thinking). Mr. Donald Hodel, who was the United States Energy Secretary, said:Energy conservation ought to be viewed by policy makers, producers and consumers as a significant input to energy resources; a set of actions which are cost effective alternatives to new supply development".We can and should husband our resources more wisely. That is why I should like to qualify the word "abundant" in the Motion. The subject is of such importance that I suggest that the Government should set up a permanent advisory panel on conservation to serve within the Department of Energy.
In the not too distant future—perhaps some time in the early 21st century—we should be progressing, as other noble Lords have suggested, to a much greater use of renewable energy. The problems mentioned by the noble Earl, Lord Halsbury, are there. Certainly there are difficulties to be overcome but we are an ingenious nation. Out scientists and engineers are as inventive and innovative as they have ever been. They should be given a full chance to overcome these problems. Everyone will agree that, although at the moment renewable energy cannot provide more than a small proportion of our energy needs, it is safe, quiet and clean. It also provides a greater number of employment opportunities than nuclear energy. (I give full credit though to the remarks of the noble Duke, the Duke of Portland.) At present renewable sources cannot supply more than a small proportion of our total energy needs. When the Government curtailed some promising lines of research in this field a few years ago we were beginning to show useful progress in a number of areas of alternative energy. I think that it was rather premature of the Government to economise on this research which was not very costly and promised important dividends in the not too distant future.
We have heard how tidal power is almost with us. The technology is there, it requires the investment. I hope that the Minister will be able to tell us what has been decided about the Severn Barrage, which many people view as an exciting and useful project.
One type of renewable energy which was dismissed completely was wave power, which to many workers in this field was surprising in view of the large potential rewards which could have resulted from its successful use. It is interesting that in this context the Government announced just last week that they have decided to fund the building of an oscillating column wave power unit on Islay, and I think perhaps the noble Viscount will tell us a little more about this. 712 This followed the success of the Norwegian venture, to which some of us drew attention about two years ago.
Workers in wave power research will be delighted at this belated recognition of the value of this technology in small, isolated sites, but they are not very delighted that other research lines which they felt promised equally cost-effective results were cut off just as the work appeared to be bearing fruit. The Energy Technology Support Unit—ETSU—based at Harwell costed the harnessing of wave power in such a way that it appeared an unfavourable investment. This costing has been disputed by a number of workers involved in wave energy research. I would refer the Minister here to an article written by Mr. Anthony Tucker in the Guardian of 20th December 1985.
In conclusion, still regarding wave energy, I would ask the Minister, as it is a method which is at least theoretically capable of making an important contribution to our power resources, that perhaps funding should again be made available for research in this area. Could a full-scale pilot unit be set up of a type which would harness open-sea wave energy as well as the cliff-edge unit to be built at Islay?
I wonder whether the Minister could ask his right honourable friend to look again at the whole question of funding of renewable energy research, and in particular have a further look at the costing methods that were used with regard to wave energy utilisation.
§ 5.42 p.m.
§ Viscount Torrington
My Lords, I suppose it is inevitable when one speaks twelfth in a debate of this nature that most of the ground will have been fairly well trodden over. Indeed, my noble friend Lord Lauderdale trod on most of my lawn in his opening remarks and asked most of the questions I should like to have asked the Government, perhaps in a slightly more forceful way than I would have done.
Therefore, I shall talk about housing policy instead, if your Lordships will forgive me. It seems to me that the subject of security of tenure for tenants versus landlords' rights is one of the typical pingpong balls of adversarial party politics. Other examples are things like trade union rights, taxation of higher incomes, private health and education and not least nuclear deterrence.
If these are the ping-pong balls and the adversarial items, it is always a shame when something on which a prior consensus existed for many years becomes yet another of those ping-pong balls. There used to be prior consensus on nuclear power. In fact in the days when things were called "atomic" we had an atom bomb, and most people thought it was rather a good idea for the defence of the country. We had atomic power stations and everybody thought that they were a rather good idea. As soon as the word "nuclear" crept in, I am afraid that the consensus seemed to fall apart. I find this strange.
However, I suppose it was inevitable that the "pong"—forgive the pun—of Chernobyl should cause some party to embrace an anti-nuclear stance. I am afraid that seemed to be exactly what the party 713 opposite did. I seem to remember vaguely warning the noble Lord, Lord Stoddart of Swindon, that this might have, as an electoral advantage, a rather short shelf life. I cannot for a moment suggest that the pro-nuclear stance of the Conservative Party won it the election, but I do not think that the anti-nuclear stance of the Labour Party, or the anti-nuclear power stance of the Labour Party, was particularly helpful to it either.
Therefore, I hope today that we can do the decent thing and look in the other direction while the Labour Party gets rid of the somewhat anti-nuclear stance that it took up after Chernobyl and once again have some kind of consensus on this industry which will allow us to go ahead, to order and build the nuclear plants which will be needed towards the end of this century and to get the benefits of series ordering of one particular type, hopefully, as the noble Duke said, with the benefit of something in the way of a reduced planning procedure.
If we can come back to this consensus, it is still no cause for complacency. I for one greatly value the protesters, those concerned and serious persons who are against nuclear power. Indeed, if their numbers were to dwindle too much I should recommend subsidising their very existence. It is the very open debate that we are able to have in this country which is the guarantee of nuclear safety. Had there been a similar open debate in the Soviet Union, I do not think there would ever have been a Chernobyl. Let us hope that glasnost, at least in the nuclear industry, is going to be reality.
Many noble Lords have already asked about the method by which the electricity industry will be privatised. I find myself musing on perhaps just one aspect of it. No doubt we are going to have another of these horrific formulas which applied to other industries that have previously been privatised. In the real world I suspect that the variables in this formula ought to be such things as the forcefulness of the noble Lord, Lord Marshall, or the number of members of the National Union of Mineworkers.
But in fact this formula ought to produce a price for electricity to the consumer which is not too far distant from the price of French electricity landed at Dover and its transmission cost to a central point in this country. If it produces a much higher charge than that in a free environment, if privatisation of the electricity industry also means liberalisation of the electricity industry, if we have to pay too much for electricity in Ashby-de-la-Zouche, we should be able to buy French power and require the CEGB to act as a common carrier to get it to us or rather employ its privatised components. On that note, I have little more to say and I shall lay down my ping-pong bat.
§ 5.48 p.m.
§ Lord Clitheroe
My Lords, I should like to thank my noble friend Lord Lauderdale for the opportunity to discuss this important issue this afternoon. I should also like to say that batting No. 13 is an extraordinarily unlucky position and likely to be either very boring for all noble Lords here or alternatively repetitious and boring. However, there 714 are two or three points that I want to make to underline some of the things that I have heard said much more sweetly by other noble Lords.
The important issue of energy supplies to British industry was proven and underlined in 1973 and it is just as relevant today. In the absence of a clear policy, the variety of energy sources available to this country makes industry's decisions more difficult rather than less so. This creates an uncertainty, and uncertainty is a great disincentive to investment.
This is self-evident, but while industry is used to making choices which depend on judgments about the future behaviour of markets, it cannot do much about choices which force it to judge what governments will do, unless of course the governments provide help. In the context of energy the significant point is that the Government are not only a large consumer in their own right but they still retain large supply interests, including the coal industry, electrical supply and the regulatory responsibility for gas. At a time when government are engaged in adjusting these interests, industry is in a particularly uncertain frame of mind.
Thinking back for a moment about the privatisation of the gas industry, it is impossible to imagine an industry born and developed in the private sector which could have resulted in a single company and which was at the same time one of the largest producers and suppliers of gas the overwhelmingly dominant buyer and the sole owner of a national network for distributing gas. That was British Gas and it could only have been created within the public sector. There is nothing like it anywhere in the private sector, nor I believe anywhere in the world.
That is not the least of the reasons why so many of us applauded the Government's decisions to privatise nationalised energy leviathans and return some power to the people and to the market. However, British Gas was not only raised as a leviathan; it was privatised as one. It remains to be seen whether the arrangements made to bridle and regulate it will work well enough in practice.
Representatives of companies in industries which depend heavily on energy have recently been complaining fairly widely that British Gas has insufficient regard for the effect of its prices on the competitiveness of our national manufacturers within Europe. The director general of the Chemical Industries Association voiced the same complaint publicly a few days ago, the same day on which the noble Lord, Lord Ezra, wrote to the newspapers.
If I may say so, regulatory arrangements for British Gas are mysterious. While the 1986 Gas Act appears to have given powers to Ofgas to protect all customers, it seems that both the office and British Gas interpret their responsibilities to cover only the protection of domestic and not of industrial consumers. I am informed that problems from industry must go to the Gas Consumers Council; from there they may possibly be sent to the Director General of Fair Trading; and from there they may be discussed further with Ofgas. That seems to be a somewhat circular and complicated procedure, and I fear that it is not working very well.
715 Reverting to the problem of our electrical supply industry and the fact that privatisation is not to be taken within the present Parliament, I believe that that is a good sign because it shows the Government's appreciation of the complexity of the issue and the lessons that are still being learnt from analysis of the difficulties that have been recognised in relation to gas supplies. However, privatisation has already been stated as the goal and large users of electricity in industry cannot afford to wait too long before taking decisions about future energy supplies.
The form that privatisation is likely to take will make a considerable difference to the future attractiveness of electricity. One reads in the press, and today one hears suggestions in this House, that the intentions are to separate generation, transmission and distribution from each other. Any industrial planner trying to make intelligent choices must be likely to prefer this type of solution to the alternative which leaves a large and powerful monopoly of generation, transmission and distribution in the hands of one company. There is of course an argument that less money could be raised if the monopoly is broken up before it is sold. However, for obvious reasons monopolies always tend to be valued at a premium. These reasons are not necessarily in the best interests of the market or the consumers.
There is further argument that it is more troublesome to break down a large package and sell it as components. Seriously, I hope that the Government will not be tempted to follow this path of least resistance.
It is the Government alone who must make these choices and decisions. The sooner that they can make them the happier industry will be and it will then be possible for industry to make its decisions. For their part industrial energy users must be willing to plan in an unsheltered, competitive environment and at the end of the day be ready to negotiate commercially for the energy that they want to use.
The Motion before your Lordships' House speaks of cheap and abundant supplies of power. I am confident that the British manufacturing industry can be relied upon to plan sensibly and strike good competitive bargains to that end with its privatised suppliers; but only if the Government first play their part in making sure that the rules of the game are published in reasonably good time and that the dice are not loaded.
§ 5.55 p.m.
§ Lord Stoddart of Swindon
My Lords, I should like to add my congratulations to the noble Earl, Lord Lauderdale, on raising this most important issue. The fact that we have had such a good debate justifies his tabling of the Motion.
However, when I heard the noble Earl's opening speech I thought that we had a convert, because from the quotations that he was making it seemed that he had been converted to the view that the present Government were dealing with their energy policies in isolation and bit by bit, whereas he seemed to prefer an integrated and planned solution. I hope that the noble Earl will continue along that line because he 716 is an influential man. The Government listen to him with greater respect than they listen to noble Lords from this side of the Chamber. I therefore hope that he will carry on with the criticisms and constructive suggestions which he made to the Government this evening.
Since the general election we all have been interested in the formation of Her Majesty's Government. Those of us who are interested in energy matters were particularly concerned to see that the Prime Minister had decided on a clean sweep of energy Ministers. I do not know whether there is any significance in the fact that we now have only three Ministers instead of four in the department. Perhaps the Prime Minister is keeping one in reserve in order to meet the request of the noble Earl, Lord Lauderdale, to place a Minister in this House. I absolutely agree that there should be an energy Minister in this House who can listen to the expert views and advice that can be given.
However, I am not displeased with the personnel in the Department of Energy. I have worked with the right honourable gentleman, Cecil Parkinson, when he was a Whip in the other place. I always found him to be courteous, likeable, honest and, above all, honourable. Whenever he made a commitment to me he always kept it. I believe that that says a great deal for Mr. Parkinson and I sincerely hope that he will follow that in his new-found job. His juniors too are nice people and it is odd that such a personable team has been sent to the Department of Energy with the major objective of privatising the electricity supply industry. I shall return to that point later.
The Motion before us is to call attention to the problems of energy generation and the need to secure a cheap and abundant supply of power for industry. While nobody would disagree that there are some problems of energy generation, surely we must all recognise that the electricity supply industry in Britain has given us an efficient, secure supply of power to industrial, commercial and domestic consumers alike. There can be no doubt of that. Indeed, the integrated system in this country is the envy of the world and without it consumers of all kinds would be very much worse off.
My noble friend Lord Kirkhill quoted some of the achievements of the electricity supply industry. He said that in the past 25 years electricity sales have increased by 122 per cent. and the number of customers has increased from 15.8 billion to 21.5 billion. The industry is also very profitable. I do not know whether the noble Lord, Lord Ezra, mentioned the figure, but I believe that last year the electricity supply industry provided the Government with no less than £1,400 million in the Exchequer. Not only did that help the Chancellor of the Exchequer to cut income tax to 27p in the pound but it ensured that consumers paid a lot more than they would have needed to do had the Government decided to allow the industry to operate as the leaders of the industry wished.
The noble Lord, Lord Ezra, pointed to the fact that prices in this country are very competitive with those in Europe and the United States, but I do not know that he quoted any figures. Let us look at some of 717 them. In England and Wales, the standard domestic tariff is 6.28 pence per unit. The standard industrial tariff is 3.89 pence. In France—the country held up as the most efficient generator of electricity—the standard domestic tariff is between 7.66 pence and 8.28 pence, and the industrial tariff is even higher at 4.15 pence. I shall not quote all the other figures. The fact is that we are competitive not only with France but with West Germany, Italy, Japan and indeed the United States. Thus the industry and commercial and domestic consumers are already getting a very good service and a secure supply of electricity at some of the cheapest rates in the world. I think we should take that into account.
As I have said, the electricity supply industry is, and has been, a consistently profitable and efficient industry. In those circumstances, it is difficult to know why on earth the Government wish to privatise. Why indeed do they wish to privatise this industry, which has been so successful and profitable and has given consumers a good deal? There can be no good, reasonable, rational reason. It can only be that they wish to sell off the industry in order to get the Treasury accounts right over a period of time. However, as has already been mentioned by so many other noble Lords, the difficulties of privatising the industry are enormous. I believe that it can do nothing but harm to the industry and will lead eventually to a worse, not better, service to the customer.
We already have the example of British Telecom. We know that complaints to British Telecom have increased by 55 per cent. since it was privatised. Indeed, it could not even keep the telephones going in the Palace of Westminster yesterday; they all went down. I believe that it will be bad for the electricity supply industry to be privatised.
Let us look at history, which is very important, and the reasons why electricity was nationalised in the first place. It was a fragmented industry owned half by private firms and half by local authorities. There was a lack of investment because of that fragmentation. The widely differing tariffs throughout the country caused dissatisfaction among all consumers. The national grid was set up to try to equalise supply and price, and eventually, when that proved to be insufficient, the industry was nationalised and integrated. Do the Government wish to return to that? One suggestion is that the industry should once again be fragmented, but if it is the consumer will rue the day.
The Government have made this commitment. They have said that there will be a Bill in the next Session, but they do not know how they will privatise the industry. They say merely that they want to do something, and then it comes about. However, as we saw in the case of gas, when a Bill is not properly prepared there are many defects. One defect mentioned by the noble Lord, Lord Clithero, is that there were no provisions in the Bill for industry to be protected and for it to complain. The industry does not want that kind of Bill again.
At this stage the Government do not know how they will proceed. We hear that Mr. Spicer, one of the 718 new Ministers, is off on a tour of Germany, the United States and Denmark to find out how they do it there. If he looks deeply enough, he will probably find that those who know about the generation of electricity have a deep respect for our industry and a yearning for many aspects of it to be applied in their countries. I am afraid that he will not delve deeply enough.
There are to be technical consultations also, and the inevitable employment of merchant bankers, so beloved of modern Tory governments, to advise on breaking up the electricity supply industry into competitive units. The problems of privatisation will be appalling. First, the scale of the operation itself makes the mind boggle. The electricity supply industry, unlike the gas industry, which was valued at £17,000 million, is valued at £43 billion. For the City and the institutions to find that kind of money in any circumstances will be very difficult, to say the least.
What about the grid? What about the merit order list? It is the merit order list—the bringing in of power stations according to their efficiency—which keeps the price of electricity low, uses fuel efficiently and gives the people of the country a secure and cheap supply of electricity. How is that to be dealt with? Is it to be operated privately? Will it be operated through a group of companies or is it to be retained in public ownership? We do not know. We ought to have known before the Government even mentioned privatisation what was going to happen to the grid.
What about nuclear power? Is that to be transferred to private ownership as well? The nuclear inspectorate warned recently of difficulties when it gave evidence to the Commons Select Committee on Energy. It said that a nuclear industry under private ownership would be much more difficult to monitor than one that was under public control. What I should also like to know—the Government will have to tell us—is who will make decisions in regard to the building and siting of new nuclear power stations. Are the Government going to say to the privatised industry, "You must continue with the programme set by the Lord Marshall"? I see that the noble Lord has been sitting patiently listening to this debate. Are the privatised boards to be told that they have to adhere to the programme which has been laid down or will they be told that they must re-examine the whole matter and do what they like?
After all, if a privatised industry looks at nuclear power and decides to apply different parameters to its calculations—if, for example, it decides that the Government are no longer going to pay for research and development and if it believes that the CEGB has not put sufficient money in its estimates for decommissioning costs—it may decide that nuclear power is no longer viable and does not compete with coal. What happens in those circumstances to the nuclear industry and what happens to Sellafield? The mind boggles—does it not?—when we talk about privatisation in these circumstances.
I should like to talk rather more about privatisation but I shall not. It is going to be a long haul. The noble Viscount, Lord Davidson, will spend many long nights, I am sure, when the Bill comes before us, if he is still there—one hopes perhaps as the 719 Minister—when we thrash things out and deal with some of the matters I have mentioned.
However, I should like to talk about coal. In spite of what has been said, coal will continue to be the major fuel for electricity generation for the foreseeable future. It is therefore necessary to work out a long-term strategy for the British coal industry. It simply must be done in concert, not in conflict, with the miners. I say to the noble Viscount and to his honourable and right honourable friends in the Department of Energy that we should not try to push the miners—the miners of the NUM I am talking about—into a corner just at a time when they are showing signs themselves of dealing with the weaknesses and absurdities of their present leadership. We should be understanding and we should be helping the miners to deal with the problems that have come up over the last few years. We should help them in dealing with those problems and not push them into a corner. Threats about freeing the CEGB and the privatised industry from constraints over foreign coal are likely to be counterproductive. They will cause bitterness among ordinary miners; it will cause them to support outdated ideas and to resist new ones which would be good for the health of the industry.
On this side of the House we know perfectly well—as does every Member who has spoken in this debate—that we need to go forward in the coal industry. New ideas and new methods must be brought in; but it is up to the Government to try to help them along by consultation and not by threatening large-scale importation of South African coal, which has probably been won by slave labour. That is no way to do it, and I urge the Government to watch what they are doing and—
§ The Earl of Lauderdale
My Lords, will the noble Lord allow me to intervene? He is talking about imported South African coal being won by slave labour, but has he thought about the importation of Australian coal, which does not involve any slave labour at all?
§ Lord Stoddart of Swindon
Indeed, my Lords, I was just going to mention that Australian coal was of course subsidised very heavily by the government there, and I am sure the noble Earl would not—
§ The Earl of Lauderdale
My Lords, I am sorry to interrupt again, but Queensland coal is private enterprise.
§ Lord Stoddart of Swindon
Yes, my Lords; but it is helped by the Government in various ways, I think the noble Earl will find. However, we shall argue that out some other time. Nevertheless, it is no way to treat our coal industry to threaten the miners with large-scale imports largely from South Africa, as I say. It is an insult to the miners and to the rest of us that this should be so.
In any event it is impossible. We really could not allow our coal supplies to be dependent upon foreign suppliers. After all, if you rely too heavily on imports mines will be closed, never to be reopened, and mines which have taken about 10 years to provide coal will 720 not be there if the foreigners either decide to up their prices or there is some conflagration so that we cannot import the coal. So it is too simplistic merely to threaten the miners and the people of this country with large-scale coal imports. We get back to planning and to reasonableness again. We get back to consultation and not to confrontation. I believe that if we have patience we can have a coal industry which we can all support and of which we shall all be proud. A few years in the context of a great industry is not very long, and we ought to be co-operating for the future.
The noble Viscount, Lord Torrington, challenged me on nuclear power. He must understand that I have been around in politics for a long time. Indeed he will be interested to know that I used to go on the Aldermaston march under the great banner of "Atoms for Peace". I have never forgotten that, but at the same time things do move on. We must take note of the risks from catastrophic nuclear accident. We have been talking about risks—one in a million years, belt and braces, one accident in 10,000 years and so on—but the first nuclear power station in the world was started in this country in 1956. We were the first people to put in a civil nuclear reactor. I believe that work commenced in 1956. That was 31 years ago, and during that period we have had two nuclear accidents. That is not one nuclear accident every 10,000 years: it is one nuclear accident every 15½ years. We must take that into account when we are talking about the provision of nuclear energy.
The fact is, as the noble Viscount said, that we have just had a general election. That I understand, and I think probably the Labour Party generally understands it as well. We understand that by the time the next election comes Sizewell will almost be running up for testing. Under those circumstances it will be incumbent on the Labour Party at least to consider that policy. I am sure that it will do so during the next two or three years.
I should have liked to speak about renewables and many other things but I am afraid that my time has run out. I merely return to the recommendation that my party and, indeed, I myself have always put forward. Energy is a great and vital issue which cannot be left to the exigencies of the market. Therefore, as the noble Earl mentioned in his opening remarks, we need a rational and planned approach to the energy industries, and that is not what the Government have been producing. I hope that in the light of this debate they will reconsider their attitude.
§ 6.20 p.m.
§ Viscount Davidson
My Lords, I am sure that the whole House will be grateful to my noble friend Lord Lauderdale for initiating this debate on energy policy so soon after the debate on the gracious Speech. Your Lordships will recall that the last time we had a major debate on energy was on the day after the debate on the gracious Speech last November, when your Lordships discussed the Report of Select Committee F on Nuclear Power in Europe. Taken together, I would suggest that it is no coincidence that the timing of those two debates reflects the importance which your Lordships attach to the subject of energy.
721 I should also like to welcome back to his place on the Front Bench the noble Lord, Lord Stoddart of Swindon, after an enforced absence. I can see that he has now returned to full health.
As this is the beginning of a new Parliament, the Motion that we are debating clearly calls for a general review of the Government's current and future policy for the generation of energy. With your Lordships' permission I should like very briefly to recall what progress the Government achieved during the last Session of the last Parliament.
First of all, British Gas was successfully handed over to private control. Secondly, six years after the application to build the PWR reactor at Sizewell and after careful study of the recommendations of Sir Frank Layfield, the decision was made to press ahead with its construction. My right honourable friend Mr. Peter Walker, who was at the time Secretary of State for Energy, was responsible for these achievements, arid I should like to pay tribute to him not only for those successes but also for the determination with which he pursued other positive and successful policies, particularly in the field of energy efficiency during his term of office as Secretary of State.
In addition to these, we saw the cross-Channel link between the CEGB and Electricite de France come fully into operation. This enables the CEGB to import electricity from the mainly nuclear-powered French electricity supply up to 20 per cent. more cheaply than the board can generate it itself. Also in your Lordships' House, we have at various times discussed other aspects of energy generation which I hope I shall now be able to develop to a greater extent than is possible at Question Time.
Your Lordships have also approved a Bill providing for fair employee representation on the management of the mineworkers' pension scheme and the coal industry social welfare organisation; and also a Bill which anticipates the problems involved in removing offshore oil platforms when their productive life comes to an end.
So much for immediate past achievements. I shall now try to outline the Government's energy policies during the present Parliament and at the same time I shall do my best to answer the questions raised by noble Lords during the course of this interesting debate. However, I should first like to clarify one point that was raised by my noble friend Lord Lauderdale, who expressed his regret that I was not part of the energy ministerial team. Although I am not a Minister I consider myself to be one of the team in that I am the communicator between your Lordships' House and the department, and vice versa. I attend meetings of Ministers on a regular basis and I can tell the House that in the short time that I have been spokesman for energy I have stood on top of a nuclear reactor and I have spent a day on a North Sea oil rig platform. I do my best in the time that is available to me. I rather doubt whether my noble friend really expects me to perform the dance of the seven veils. It would not be a very attractive sight.
Britain is indeed fortunate in having a wealth of energy resources compared with other 722 manufacturing countries. We enjoy substantial reserves of high quality coal. We have oil and gas reserves which make us one of the most important oil and gas producers in the industrialised world; we have sophisticated systems of gas and electricity distribution; and we have long experience of civil nuclear power. The overriding objective for Britain must be to ensure that this vitally important energy sector functions as efficiently and effectively as possible within the context of wider economic policy.
The noble Lord, Lord Kirkhill, made a plea for a detailed energy plan—a rigid blueprint devised at a desk by bureaucrats who would not be directly affected by the consequences of their decisions and mistakes. However, we know that central planning for energy does not work. It takes away from management the responsibility for making their own decisions and encourages them to hide behind plan failures as an excuse for their own management failures.
My noble friend Lord Lauderdale asked for a clear statement of objectives and priorities for energy. Our objectives and priorities are very clear. Since 1979, the fundamental objective of energy policy has been to ensure that adequate, efficient and secure supplies of energy are available to the people of Britain, in the forms that they want and at the lowest practicable long-term cost. To this end energy has to be produced, supplied and used efficiently and economically. The Government have sought to achieve this by encouraging competition, efficiency, the privatisation of publicly-owned activities and the application of financial disciplines to those nationalised industries that for the time being cannot be privatised.
The policy is practical and simple. It is to keep options open and active, to be flexible, and to give priority to promoting the discipline of the marketplace. This is the most efficient way of distributing resources and handling uncertainties associated with long lead times.
The Government's approach is one of sensible management, not of grandiose plans across all the industries carrying vast contingencies but carefully and painstakingly bringing major reorganisations such as privatisation to fruition. The Government's emphasis on market forces has important consequences. Among them is that correct pricing has a crucial role to play.
Much has been said today about energy prices. The Motion refers to cheap and abundant supplies of energy. But the Government do not believe in unrealistically low prices or indeed artificially high ones. Since energy supplies involve very large projects and long lead times, it is important that prices should give a signal to producers and consumers alike about the true long-term costs of supply. Of course the Government do not set energy prices. But they recognise the importance of competitive and stable prices.
My noble friend Lord Lauderdale spoke at some length about the price of gas and electricity, but energy prices in this country have generally compared well with the ranges found among our European competitors in recent years. I accept that 723 there have been one or two exceptions. For example, some large intensive users on the Continent have benefited from special contracts and France has benefited from nuclear and hydro power. The United Kingdom cannot therefore attempt to match by subsidy the lowest fuel price that may be found in any given country.
The noble Lord, Lord Ezra, spoke about gas prices to industry and the lack of competition, but I should like to remind noble Lords that British Gas sells to its industrial customers against fierce competition from other fields, particularly oil, coal, and, in some specialised applications, electricity. British Gas has competed effectively in this market, winning some 35 per cent. of the sales. Its customers have generally done well over the years both through the actual level of prices and through their stability.
The industrial market for gas is subject to competition law and the oversight of the OFT and the Monopolies and Mergers Commission in the normal way. In addition to those safeguards, if the Monopolies and Mergers Commission found in an investigation that competition had been thwarted, provisions exist for amending the authorisation of British Gas to extend the area of regulation.
My noble friend Lord Gray of Contin gave his views about the future of the coal industry, with which I warmly agree. Thanks to determined efforts by men and management to bring output into line with economic demand, the prospect of a fully viable coal industry is now within our grasp.
A major factor in the coal industry's rapidly changing outlook has been the massive government investment in recent years. Since 1979 we have spent over £8 billion—that is more than £1 billion every year—on the coal industry. We have supported a massive investment programme of over £2 million every working day. This year will see further investment of over £650 million. Only a government committed to the future of coal would have provided money on this scale.
But investment on this scale is not enough by itself. A modern coal industry needs modern working practices which are flexible, which benefit the miners and which make the best use of modern machinery. The Government welcome British Coal's efforts to find ways of improving the industry's competitiveness. Pressure on coal from other fuels will not disappear. There must be continued efforts to reduce costs. British Coal's objective is a reduction of at least 20 per cent. by 1989–90 compared with 1985–86. Cheaper coal means cheaper energy for British industry. Cheaper energy cuts costs and wins markets. Bigger markets mean bigger demand for coal. The future of the coal industry and the future of its customers are bound up together.
I now turn to the electricity supply industry which unlike the coal industry, has a duty to ensure that there will be sufficient plant available to meet the top end of the range of likely demand requirements. It is therefore for the industry to make as thorough and realistic an appraisal of future demand as possible, and to meet demand as economically as it can, bearing in mind the need to ensure security of supply.
724 The energy crises of the past 15 years have shown the danger of over-dependence on any fuel and the wisdom of a sensible degree of diversity of supply. It is therefore the Government's view that coal-fired and thermal nuclear power stations are currently the only available and economic options for new, secure, baseload generating capacity.
So far as concerns safety, I can assure the noble Lord, Lord Peston, that the Government have not been, and are not, complacent about the consequences of Chernobyl. To suggest that the Government reacted too soon and to criticise them for over-complacency is, in my view, absurd. The safety record of our nuclear industry is excellent. We believe that we have a superior safety culture which is reflected in the very high standard of safety which has been maintained for well over a quarter of a century. We do not intend to relax our vigilance and our rigorous system of safety control.
The noble Lord, Lord Peston, called for a further pause before new nuclear stations are ordered. I would remind him that six years passed between the time when the CEGB first applied for consent for Sizewell B and the then Secretary of State's decision earlier this year. That included the longest and one of the most thorough public inquiries ever held into a proposed project.
At the end of that inquiry the Inspector, Sir Frank Layfield, concluded that the station was likely to be the least-cost choice for new generating capacity in the UK, and after careful consideration of all the issues the then Secretary of State agreed with this conclusion. I wonder how much longer than this the noble Lord would have taken to reach a decision.
My noble friend the Duke of Portland raised the question of shortening the planning inquiry process. I know he has strong views about this, but I am afraid that I cannot comment on possible future inquiries in the absence of any specific applications. I think all your Lordships enjoyed the speech of my noble friend Lord Mersey on belts and braces; but I confess that I shall have to read it carefully in Hansard tomorrow in order to make sure that I understood what he said.
The Government gave a commitment in their manifesto that they would bring forward proposals for privatising the electricity supply industry, subject to proper regulation. The manifesto also gave a clear commitment to the future development of nuclear power stations and recognised that coal-fired power stations will continue to meet much of the demand for electricity. I can assure noble Lords that the implications of privatisation for both the nuclear industry and the coal industry will be considered very carefully indeed.
The Government are working to secure a very successful future for the electricity supply industry in the private sector. We are urgently tackling the important issues involved, and consulting widely, and will bring forward proposals as soon as this work is complete. I can certainly assure noble Lords that the Government will have the interests of both the customers and employees of the industry very much in mind during this period.
The Government are convinced that privatisation will give a boost to improving efficiency in the 725 industry, to the benefit of consumers. It should free the industry's management from political and bureaucratic interference. Employees will be given the chance to acquire a stake in the industry for which they work.
I was particularly interested to hear the views of noble Lords on the subject of privatisation—notably my noble friends Lord Lauderdale and Lord Gray of Contin, and the noble Lords, Lord Ezra and Lord Kirkhill—which will be a useful contribution to our study of the subject. My noble friend Lord Gray of Contin made some interesting proposals about the two Scottish electricity boards, and I shall certainly ensure that these are drawn to the attention of Ministers at the Scottish Office. My noble friend Lord Lauderdale made some interesting comments about the oil industry and in this connection one not very complimentary one about the Government.
The Government have consistently adopted a free market approach to the development of North Seal oil. The development of oil in the hostile conditions of the North Sea has been a major success of the private sector. The price of North Seal oil is determined not by Government fiat but by market forces. While Government have powers to control oil depletion we have not sought to use them.
Development in the North Sea involves heavy front end loading of investment which in turn requires confidence in the long-term stability of the oil production regime. Any intervention by government would damage the confidence and hence prospects for new investments. The Government therefore do not interfere with the day-to-day business decisions of the oil industry, except to ensure that standards of good oilfield practice are maintained. The North Sea fiscal regime, likewise, is carefully tailored so as not to distort decision-making there.
Of course the sudden fall in oil prices did cause difficulties for some parts of the oil and gas and offshore supplies industries. But the industry have accepted that most of the actions that need to be taken to secure the future of these industries lie in their hands. And there are already signs that they are shouldering this responsibility.
I now turn for a brief moment to gas. In contrast to oil, UK gas production is increasing and imports are falling. In November 1986, some 4.5 million applications were made in the British Gas share offer, raising a total of some £8 billion for the Exchequer. Many who took part were buying shares for the first time, and the gas offer was a significant further step toward a share owning democracy. British Gas will no longer be subjected to political and bureaucratic interference in its work.
My noble friend Lord Clitheroe complained about the role of Ofgas. It may be helpful to noble Lords if I say a few words about that. The Office of Gas Supplies is responsible for enforcing the conditions of the authorisation under which British Gas acts as a public gas supplier. In particular, it enforces a price formula which governs the maximum average price that British Gas can charge its tariff customers, as well as ensuring that standing charges do not rise faster than the rate of inflation. The formula operates 726 according to the price at which British Gas purchases the gas and an efficiency target of 2 per cent. less than inflation. At the end of each year British Gas must report the relevant details to Ofgas so that its adherence to the formula can be monitored.
My noble friend will I am sure be aware of the advantages of an objective system of price control set by a formula. It would not be practicable to have competition between domestic gas suppliers with several companies breaking up streets and so forth.
The noble Earl, Lord Halsbury, made some pertinent remarks about renewable sources of energy. With diversity in mind, it would indeed be foolish as well as shortsighted if the Government did not keep an eye on alternative forms of energy. I know that the noble Lord, Lord Rea, will be interested to hear what I have to say on these matters.
Renewable energy has an important part in the Government's energy strategy and we are determined that the different technologies will make the maximum contributions of which they are economically capable. Our broad aims are to encourage the uptake of commercially attractive technologies and to increase understanding of those that are promising. That is why the Government are supporting a major research and development programme on which over £100 million has been spent since 1979.
Substantial progress has been made. Some technologies have been brought to the stage of being economically attractive now—passive solar design, the combustion of industrial and domestic wastes and landfill gas extraction. Major advances have been made on other technologies and some have the promise of becoming economic in the future—wind, tidal energy and geothermal hot dry rocks. The programme is directed towards reducing costs and improving performance to a point where we hope that it will be possible to exploit them commercially in the next century. It is on these technologies that expenditure is now concentrated.
The wind programme concentrates on the development of large wind turbines for UK grid operation. There are three major projects. A 25 metre vertical axis machine was commissioned last November at Carmarthen Bay and its progress is now being monitored. A 3 megawatt horizontal axis machine on Orkney is expected to become operational this summer. Design work is also under way for a 1 megawatt horizontal machine for Richborough in Kent.
In the geothermal hot dry rocks programme, experiments are being conducted on an artifically created reservoir in Cornwall granite at two kilometres depth. A review will be held later this year to decide whether the costs of this technology and our understanding of it make it advisable to move on to eventual commercial exploitation at a greater depth.
The noble Lord, Lord Rea, asked particularly what was happening about the Severn barrage. Major research contracts relating to tidal barrages across the Severn and Mersey estuaries have been signed. A detailed programme of work for the latest phase of the Severn estuary studies has now been agreed by the three funding bodies and a consultation 727 document has been published, together with proposals for liaison throughout the study with various interested organisations.
We are also maintaining a credible expertise in those technologies which are not quite so promising, such as wave power and active solar heating. Only last week my honourable friend the Under-Secretary of State for Energy announced government support of £230,000 for the construction of a new experimental inshore wave energy device in the Hebrides by Queen's University, Belfast.
One of the hitherto unpublished works of the noble Earl, Lord Halsbury, states that no amount of engineer's ingenuity can extract power from wind that is not blowing or waves that are not rolling. There must be standby plant, which costs money.
Before I finish I wish to say a few words about the continuing importance of energy efficiency. Efforts to ensure maximum efficiency in the energy sector would not be complete without concern about the efficient use of energy. Various studies in the early 1980s indicated that the UK potential for cost-effective improvements in energy efficiency was about 20 per cent. Over the last four years the Government have aimed to encourage the nation to realise that potential, primarily through programmes taken forward by the Energy Efficiency Office in the Department of Energy. Those programmes have been very successful. Resources will continue to be targeted on those sectors where they offer the most cost-effective returns.
In conclusion I should like to thank all noble Lords who have contributed to this most interesting and wide-ranging debate. If I have not been able to comment on all the points that have been raised I shall certainly write to the noble Lords concerned. I can at any rate assure the House that my right honourable friend the Secretary of State for Energy will read the debate in Hansard with considerable interest.
Inevitably there has been reference to problems, but let us not forget how fortunate we are to have such a wealth of energy resources. Resources are not problems; they are assets. The Government's priorities will be to continue to work hard at improving the working of the market, at encouraging competition and efficiency and at creating opportunities in the energy market place. But also the Government are and must be responsive to the necessity of protecting human safety and the environment. It is the dual emphasis on market mechanisms and individual choice, and those wider considerations, which constitute a responsible approach to energy matters. It is the Government's achievements which convince me that that approach is the right one for Britain today.
§ The Earl of Lauderdale
My Lords, it only remains for me to express my thanks to all those noble Lords who have taken part in the debate, in a number of cases at considerable inconvenience to themselves, and in every case it is obvious after a great deal of preparation and study.
Noble Lords would probably agree that one of the merits of debating this subject in this House is that we largely debate it in non-partisan terms. When we debate energy we are more like a council of state than when we debate some of the other subjects which tear us apart. I am very grateful to all noble Lords who have joined in the debate this afternoon. I particularly thank my noble friend Lord Davidson—I think your Lordships will agree that what I have to say is not sarcasm—for a valiant effort in a very difficult situation.
We heard the kind of generalisations which I must say I have come to expect not from my noble friend's pen but from the pen of others whose work he is required to read. Down the years we have heard such cliches as "options open" and so on from the Department of Energy, whichever government were in power. I asked about 15 questions and although some could not be answered today, I was disappointed that only a relatively few were answered. In particular I was disappointed that there was no answer to the tart but serious comments of the International Energy Agency.
Noble Lords will join with me in being able quite easily to distinguish two sources in my noble friend's reply. There were the parts that came from the department and the parts which my noble friend had prepared himself and which took him as far as the department would let him go. We are very grateful to him for his efforts and we wish him well in continuing a valiant struggle. I use the term "struggle" advisedly as regards his effort to keep inside the department, learn what is going on and defend the interests of this House as well as he is permitted to do.
Listening to some of the points made from my noble friend's brief, I was reminded that there is an epigram for every dilemma. I could not help feeling that veil after veil will lift but there will be veil upon veil behind. Nevertheless we are all greatly in my noble friend's debt for the trouble he took in his reply. He has assured us that the debate will be read by the Secretary of State, and I am sure that it will. It only remains for me now to ask your Lordships' permission to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.