Energy Generation and the Economy

HL Deb 09 March 1988 vol 494 cc700-53

2.58 p.m.

Lord Beloff rose to call attention to the role of energy generation in sustaining the growth and expansion of the British economy; and to move for Papers.

The noble Lord said: My Lords, perhaps I may begin by thanking all noble Lords who have put their names down for the debate this afternoon. They represent a varied range of interests. The only thing which I can find that they have in common is that they all know a great deal more about the subject than I do. However, in the course of the afternoon I hope to profit by their collective wisdom. I should like in particular to welcome the noble Viscount, Lord Weir, who is to make his maiden speech on the subject.

I begin by making it clear that the idea of a debate on the subject of energy and the needs of industry was arrived at before the publication of the White Paper on privatisation of the electricity industry. It is not my intention, and, I believe, not the intention of other noble Lords, to make that document the centrepiece of the debate this afternoon. At least that will relieve my noble friend on the Front Bench of any anxiety that he might have to conclude the afternoon by engaging in fisticuffs with the noble Lord, Lord Peston. We do things differently in this House.

The subject to which I wish to call your Lordships' attention is one that in principle receives general agreement. No one denies that a regular, and probably now increasing, supply of energy is the condition of all industrial advance. Our concern is how that is to be assured and to identify the technical and economic components of a policy in that direction. It is a fashionable subject but not a new one.

Since the beginnings of modern industry there have always been close relations between the development of new forms of energy and the changing pattern of industry, going back to the water mills and windmills of the Middle Ages and their role in the basic industries of that time. Some people, listening to the enthusiast for renewable forms of energy, might think that we are going from windmills and water back to windmills and water.

In the past couple of hundred years things have changed with the development of coal, gas, electricity and oil in their various forms and applications making possible the major industries of our time. Looking back on those 200 years of history I think that two factors are relevant to our current decisions. First, it has never been possible accurately to forecast where the next technological advance would come. The changes have probably become more frequent, and recourse to new forms of energy or the exploitation in different ways of old forms appears to develop even more rapidly than in the past. Therefore, one has to be very careful not to confine oneself to extrapolating the present situation and saying that we are likely to have the same but more of it.

The second factor is that, as in other branches of the economy, a great deal will depend upon price, the relation of the price of particular forms of energy to the uses that are made of them, and the extent to which profitable use can be made of them. If we look at more recent decades, how difficult it is to be certain of the relative movement of prices between different forms of energy. At one time, there seemed to be a glut of oil, which looked like making almost all other forms of energy production irrelevant. Those who installed central heating in their homes a couple of decades ago will remember that period. Then events in the Middle East resulted in a major rise in oil prices which for some years much affected for the worse our own economy and the economies of most of the industrial world. Since then, we have had a rather surprising relapse or reaction towards a relatively cheap and abundant supply of oil.

It is even difficult to forecast how particular events, political as well as industrial or technological, will affect this ratio. I think that, if noble Lords had been told seven years ago that there would be an important and continuing conflict in the region of the Persian Gulf and that nevertheless oil supplies at relatively low prices would somehow continue to flow in the world markets, they would have expressed some incredulity. We all thought that we were in for a repetition of 1973–1974 but it did not come about.

Therefore, it seems to me that on the basis of those two considerations—technological change and its variety and the difficulty of adequately forecasting price ratios—we must try to bet on as many horses as possible. A sound energy policy is one which is based on variety and which avoids dependence upon a single source of energy. I think that this is particularly important because of one fact, which is partly technological and partly economic. In the earlier stages of, for instance, our own Industrial Revolution access to energy was very largely geographically determined. While our mediaeval industries had to be located on a stream, industries in the steam engine age were normally placed close to pits. Nowadays, the transport or movement of energy in its various forms has become international. We already receive a considerable flow of electrical energy from France. I am told that the possibilities of new methods of moving coal in liquid or gasified form may make the coal industry even more of a world-wide trading network than it is at present. For those reasons, we shall find it difficult to make the kind of decisions which would be easier in a more enclosed environment.

Finally, we must not, as our industrialists and our authorities on energy tell us, make allowances only for a demand for energy which is likely to grow in the next 10 or 15 years whatever progress we may make—and we should be able to make further progress in energy saving through insulation and other developments We have to expect competition from other countries, for the sources of energy which are presently available to us, notably from countries in the third world where there is likely to be rapid industrial growth in some cases. They will show an increasing interest in access to the sources of energy. Therefore we are working in a rather difficult sphere.

New or alternative sources of energy seem to me to fall into two main divisions. One is the new organisation of the application of existing technologies, in which some people would say that this country is rather backward; that is to say, rather smaller power stations than those that feed our national grid, available for supplying combined energy and heating to urban conglomerations, which is a method more widely practised in some other countries than it is here. The other division comprises the new sources of energy themselves.

Although the literature or at least the polemics on this topic do not always reflect it, to some extent these sources are still geographically based. Twenty or 30 years ago we heard a great deal about the potentiality of directly harnessing the energy of the sun, for instance for domestic heating. That has largely proved to a be a mirage. In a climate such as ours the economic potential is not altogether favourable. On the other hand, living by the sea as I do, I am obviously impelled to admire the power of the waves and to wonder whether there is much to be gained from the research being undertaken into the harnessing of wave power. I am told that the experiments made so far do not appear to be very hopeful.

What is clearly hopeful—the matter was discussed quite recently by your Lordships—is the use of tidal power in the possible barrages of the Severn and the Mersey. There is no fairly general agreement that those projects—particularly the Severn barrage—possess very considerable economic potentialities. However, we have to face the fact that they are likely to be environmentally disturbing to a much greater extent than almost any other alternative form of power. That is a point to which I shall return.

There are also what one might call the relatively minor contributions that can be made in particular localities by windmills. If one lives on a small and windy island, there is nothing to stop the production of a certain amount of locally generated electricity. However, most people think that this is not capable of very considerable extension. In even more extraordinary conditions—for instance, in Cornwall, which has always claimed to be "out" of things but which now appears to be "in" things—there are geothermal energy sources. If the Cornish people ever win their national independence (and the way things are going, why should there not be independence for Cornwall too?) they might be able to supply some of their energy requirements in that rather new way.

Finally, there are other possible ways of directly tapping the energy of the sun through solar cells. That is something which the Japanese have developed with a direct input into various consumer goods which require electrical current. There is some talk that if one could have a whole field, an acre or whatever, of solar cells, in a very sunny climate one might be able to generate a good deal of electricity in that way. Again, that is something which might relieve the pressure upon energy resources in certain third world countries. Unless there is a dramatic change in our own climate, I doubt whether there is much of a future for it here.

Basically, we are left with the current distribution of our major sources of power, which, as noble Lords will know, is roughly one-third coal, one-third oil, one-quarter gas and the remainder nuclear and hydro-electric. The question then arises as to whether we envisage that those proportions should remain or whether there will still be important shifts from one to another. So far as concerns oil and natural gas on the one hand and coal on the other, one is dealing with fossil fuels. There has always been considerable argument as to the likely period before these resources run out both nationally and globally.

Although nuclear power represents only 6 per cent. of our total power requirements, it comprises some 18 per cent. of our current production of electricity. There are questions with which noble Lords will be familiar about environmental and other problems which arise from that technology. When one comes to discuss those problems, and no doubt your Lordships will wish to face them this afternoon, the difficulty is that, quite apart from what might be called the scientific or logical approach of the technologist or the economist, there are considerable human passions involved.

The first and most natural human passion is that which derives from the fact that all these industries employ large numbers of people, sometimes from a closely knit community as in the case of the deep-mining industry. Sometimes they take up a very important proportion of our engineering resources —for instance, power stations and nuclear developments. At stake are people's careers, their futures and the future of the communities in which they live. Naturally those people are extremely concerned about how the arithmetic works out.

As I have mentioned, there is also the question of the relative damage to the environment caused by particular forms of energy seeking. It is a question that has been much to the fore in people's minds in the past 10 or 20 years. It is a universal problem. There is no form of energy, other than possibly solar cells, which does not have an impact upon the environment. In fact, the most deadly impact on the environment comes from the simplest action: the cutting down of forests by relatively primitive peoples in the search for fuel for their immediate domestic needs.

However, in this country there is first of all the problem of the coal industry itself, which has left a legacy of damage to the landscape with which one is now coping. In whatever direction it is extended, the coal industry is bound to produce environmental problems. When the economic factor is brought in, there is the immediate appeal of opencast mining which at any rate temporarily, and in some cases permanently, is bound to scar the countryside.

Therefore, in considering the alternatives, we should attempt, at least for the time being, to limit the degree to which we allow the natural environment to be damaged and keep such resources as reserves. In the course of history, we may one day need them.

The case of nuclear power is rather different. It seems to me that one faces not merely the kind of human reservations to which I have referred but also a very considerable degree of ignorance, misinformation, prejudice and even supernatural fears. I happened to see on television the councillors of Somersetshire County Council expounding their case for preventing the building of a new nuclear plant at Hinkley Point. They were not arguing so much about the practicalities; they were obsessed with a kind of fear of the unknown. The word "radiation" meant to them something akin to what the word "witchcraft" may have meant to their ancestors. It is important to know how representative they were. So far as I know these councillors were all peculiar Democrats to a man or woman. I hope that the noble spokesman for the Alliance parties can tell us whether that represents their national policy.

The only point on which I hope to hear from the Opposition—from the Labour Party—this afternoon, and from those who speak from within the trade union movement, is this. We have some difficulty understanding what their policy is. The latest pronouncement from the Trades Union Congress appears to be that they would not dismantle what we have but they would not allow the building of any more nuclear stations. That is a way of saying that nuclear stations will disappear after a time. I understand that this was put forward following an examination of security in collaboration with the Russians after Chernobyl. It is rather remarkable that although the disaster occurred in Russia, it is in Russia that there is a steady expansion of the use of nuclear power. Whether that means that superstition has been eradicated by communism whereas religion has not is a matter for speculation beyond the bounds of our consideration this afternoon.

Those, then, are—to use the jargon word of today —the parameters of the argument into which we are entering. I now sit down hoping to be enlightened upon these topics. I beg to move my Motion for Papers.

3.22 p.m.

Baroness Nicol

My Lords, we are indeed grateful to the noble Lord, Lord Beloff, for this afternoon's debate which he has opened in an unusually thoughtful and wide-ranging way that allows all of us to take up our particular interests on the subject of energy. He has reminded us at an appropriate time that there is more to the discussion on energy than discussion about who owns it. I therefore do not propose to talk about privatisation this afternoon although obviously it exists as a factor in our discussions. I should like to say at this stage how much I, too, look forward to the maiden speech of the noble Viscount, Lord Weir. I do not know his expertise on this matter, and I look forward to hearing what he has to say.

I wish to concentrate on the arguments surrounding the need for a strategy for energy as a whole irrespective of who owns it. It seems to me that attempts to formalise energy policy within successive governments have not been particularly successful. One of the first post-war attempts in this country was the 1951 Ridley Committee which petered out after only a very few years. Then the Energy Advisory Council was set up in 1965. Despite a brave beginning and its influence on the production of one or two important White Papers, it, too, died quietly.

In the 1970s we had the National Energy Conference and the Energy Commission. Both ran into short-term problems which needed quick solutions at a time when there seemed to be a general lack of interest in the need for a comprehensive approach.

Perhaps more useful contributions to the general energy debate have come, strangely enough, from the Royal Commission on Environment Pollution and from Select Committees. For example, our own Select Committee on the European Communities dealt in its 10th report with Community coal policy. And its 18th report is on nuclear power. Each of these excellent reports approached the subject with a general look at the energy scene which should be of great value in future decision making.

Important contributions are also made by public inquiries. Dare I mention Sizewell B? Despite the length and the difficulties of this inquiry, it produced a wealth of very useful information. Together with monopolies commission reports and various academic exercises there is no shortage of knowledge available to anyone who wishes to produce a strategy for energy.

Government policy has to take account of economic objectives, it is true, but also of social implications and environmental objectives. Environmental objectives are becoming imperative, as the noble Lord, Lord Beloff, rightly pointed out at some length. They are becoming increasingly important as scientific evidence accumulates and as public perceptions of environmental hazards are sharpened. I cannot comment on whether feelings about radiation are akin to those on witchcraft but they are very real. People are frightened, and if we are to overcome that it needs more than reassuring words based on nothing more, it seems, at the moment than rather limited research. A carefully planned policy objective can be badly displaced by events such as Chernobyl which has caused even greater distrust of nuclear power. We have new fears about the greenhouse effect which is causing revulsion against the so-called dirty power stations fired by coal. If we do not succeed in controlling the greenhouse effect, all other decisions may well become irrelevant.

I should like to be assured that the Government are taking this threat seriously. What research is being undertaken in the United Kingdom on the greenhouse effect? Was the report in the Daily Telegraph on 1st March correct? I shall quote from it. It related to a press conference given by the chairman of the Natural Environment Research Council. The report said: There is a shortfall for research into global warming—the 'greenhouse effect'—and into North Sea pollution, seismology affecting the stability of nuclear power stations and into deep geological surveying, which could find fuel resources worth billions". We need to know whether it is true that the cuts for NERC are having a direct effect on those areas of research. If so, it is very serious indeed.

Thirty years ago, as the noble Lord, Lord Beloff, made clear, it was assumed that oil would replace coal as the main energy source and that eventually nuclear energy would replace oil. It seemed at the time a reasonable assumption. Then came the oil price shock of 1973–74 when still only a small percentage of our power was being provided by nuclear means. Coal, therefore, made a comeback because stocks were available locally and imported coal was cheap.

Nuclear planning was also stepped up in the general need to provide alternatives to oil. World inflation, it is true, subsequently secured a drop in oil prices in real terms but that was overcome by a doubling of prices again in 1980. There seem to be very few certainties in the energy business except the certainty of continuing need. Most informed opinion calls for a government strategy. It is therefore very disappointing to read the remarks of the noble Viscount, Lord Davidson, in a speech on 8th July last year during a debate in this House on the generation of energy for power and industry. The noble Viscount, in the Official Report, at col. 722, said: The Government's approach is one of sensible management, not of grandoise plans across all the industries carrying vast contingencies but carefully and painstakingly bringing major reorganisations such as privatisation to fruition". Is this still the Government's policy? If it is, it seems to go against all informed opinion which calls, not for government interference in management planning of the industries, but for a government strategy for energy as a whole. Any energy policy must recognise that the prime needs are security of supply and reasonable costs—I think that everyone is agreed on that—and then energy conservation. Efficient energy use is absolutely vital. Fashions in fuel choice may come and go, but we know that the earth's resources of raw materials are not infinite and we know now that the earth's capacity to absorb waste products is also finite. No amount of juggling with the best economic arrangements for today will alter those two facts. So we must pursue the best possible use of resources with the least harmful effects on the health of the planet, as the noble Lord, Lord Beloff, said.

No doubt many alternative energy solutions, in addition to those of which we have already heard, will be offered today. I want to mention just one. Combined heat and power is an obvious candidate. We learn, for example, that in Vesterase in Sweden combined heat and power has increased the efficiency of their coal-fired power station to 90 per cent.; that is against 30 per cent. for most of our coal-fired stations, with greatly reduced SO₂ emissions. The entire city is heated by previously wasted heat from the power station and there are no individual domestic boilers. That must be a matter for congratulation all round unless one happens to own shares in Pottertons or one of the other boiler-producing companies when perhaps one would not be quite so happy about it. What research is in progress in the United Kingdom on combined heat and power?

Decisions on future supplies are urgent. The lead time for bringing power stations into production is quoted as between six and 12 years, depending upon the particular circumstances of the station under discussion. But to create an energy policy choices must be made. Only government can take the overview necessary to establish national criteria and only government can legislate in pursuit of national objectives. Professor Richard Eden and Mr. R. Bending of the Cambridge Energy Research Group in their book UK Energy suggest that any strategy must be based on consensus if it is to succeed. I quote from page 278 of their excellent book. In talking about the existing situation in the United Kingdom, (which at that time was only two years ago), they say: More could be done by way of departmental publications, or seminars, stating the problems and options that are under discussion—not the solutions in White Papers, nor the suggested solutions in Green Papers, but the problems and possibilities, presented at a stage where public opinion may still be effective, or expressions of government concern may be educational". That last is an important point.

Consensus therefore will involve compromise and it will take time. Professor Eden and Mr. Bending go on to develop at some length the influence which government decisions in other areas can have on national trends in energy demand. While not suggesting that the Government should seek to intervene excessively in the energy market, they insist that: Energy policy should not be determined by default—at the very least government should be aware of the energy implications of other policies". In this case I believe that they are referring to matters such as building regulations, the way in which new buildings are constructed with a view to energy conservation, and everything of that kind, all of which are policies which affect energy demand. More generally energy policy should seek to promote actions that will increase national benefits in relation to energy costs. The implications for energy demand should be a recognised dimension in national planning". The validity of these views is surely self-evident and we on these Benches certainly subscribe to them.

Had we but world enough and time", we could take a more relaxed view of the Government's seemingly negative approach to strategy and consumption, but sadly we believe that we are running out of both.

3.35 p.m.

Lord Ezra

My Lords, we are all particularly indebted to the noble Lord, Lord Beloff, for venturing into the energy field, which I believe is a new one for him, in his usual logical and rational way. He has introduced a debate which enables us to review energy policy, which we do from time to time. As he rightly said, in the terms of the Motion, energy plays a key part in the economy of the country. I think it is right therefore that we should come to it from time to time. This is the basis on which the noble Baroness, Lady Nicol, also made her contribution.

As I understand it, this is not the occasion for speaking in any depth about the recent White Paper on electricity privatisation. I hope that when the noble Viscount, Lord Davidson, replies he will confirm that at some later date we shall be able to have a debate on that subject, because I am sure that many of us have views that we should like to express on it, but I am refraining from doing so in the light of what the noble Lord, Lord Beloff, and the noble Baroness said.

Thus I shall treat this with the broad view with which they have done. I should like to say that from my experience in the energy industry, I think there are two basic considerations to be borne in mind in approaching the whole question of a strategy for energy. The first is security: making sure that we have the energy. I believe that this is far and away the most important issue, because we have seen what can happen when there is a deprivation of energy, whether it be on a temporary basis or on a longer term basis. That is the first matter that we have to take into account.

The second matter is to make sure that we have energy supplies on a competitive and as low a cost basis as possible. In my opinion the skill of the game is to reconcile these two objectives. So I should like to consider the position in the United Kingdom from those two points of view: to consider what our present policies appear to be, or what they might be if we were to try this basic reconciliation between security on the one hand and low cost competitive supplies on the other.

I begin by saying that I believe that the United Kingdom is unique among West European countries. First, we were the first country in history to realise the great benefits of harnessing energy resources for industrial purposes. Secondly, in more recent times, we are the one large country in Western Europe which has at its disposal virtually the whole range of known energy resources from the point of view of the substances themselves and the skills to work them. We have coal in abundance. We have oil and gas in the North Sea. We have nuclear expertise, electricity-generating expertise and expertise which we are developing also in the renewable resources to which the noble Lord, Lord Beloff, referred. So we start with a great advantage. The challenge to us is to make sure that we transform that advantage to the benefit not only of the generation in which we live, but to the benefit of future generations.

However, there is one problem in doing that, to which the noble Lord, Lord Beloff, referred; namely, that if there is one form of forecasting which is bound to be wrong it is what will happen in energy. I have been involved in the business of energy for nearly 40 years. I must admit straightaway that I was among those—the majority in this country—who never forecast the major changes which have occurred since the war. When I originally joined the coal industry in the post-war period our projections were for an ever-increasing demand for coal. Then suddenly the oil appeared and the forecasts then made were for ever increasing low cost supplies of oil. Then the oil crisis of 1973 occurred. At that time the projection was for ever-increasing oil prices. Then the collapse in the oil market occurred in 1985. What is the projection now? The projection can only be that we do not know.

However, the nature of the energy business is such that long-term decisions must be made. Investment must be made and research and training must be undertaken. We must make up our minds as to the best decisions to be taken in the circumstances, knowing all along that there is uncertainty. I agree entirely with the noble Lord, Lord Beloff, that we must have various options at our disposal but nevertheless we must commit ourselves to firm views on investment, research and training. If we do not do so we shall not have the energy in any event.

Let us consider the position in which we are in those circumstances. I begin with what I believe to be Britain's prime energy industry: coal. I know that the noble Lord, Lord Mason, will fully support me in saying that. Coal has served the nation well. For a variety of reasons, which I shall not mention but with which noble Lords are familiar, coal is going through a difficult time at the moment.

As regards government policy, I am disturbed by the fact that they do not appear to be committed to retraining a major coal resource for supplying a large part of our energy needs in the future. If I may say so, there is a large degree of ambivalence. On the one hand, the Government are putting a great deal of money into the coal industry; there is no argument about that. On the other hand—and here I regret that I must refer to the electricity privatisation measure—they are giving no support to the indigenous coal industry, even though special provisions are made for supporting the indigenous nuclear power industry. That appears to me to be a somewhat unbalanced position.

I believe that it is in our national interest to have some fall-back position for our indigenous resources, particularly coal. I am prepared to agree that we should also ensure the retention of nuclear expertise. I am slightly dismayed by the fact that the fall-back position has been erected in the nuclear power industry but that no such position has been erected for our own indigenous coal industry. I should be delighted if the noble Viscount would comment on that aspect of the situation.

I believe that there is an enormous future in our coal industry. We have substantial reserves and great skills in our mining engineers and mineworkers. We also have great skills among the manufacturers of mining machinery. I speak from personal experience of all those matters. Coal is a national resource which we should nurture and develop and I hope that that will be taken fully into account in any future discussions and debates on energy strategy.

The nuclear power industry poses certain problems. I am not opposed to nuclear power and I believe that the safety record that has been developed in this country in particular is second to none. I believe that we should develop that technology. However, I am most concerned about the economic case at the present time. There has been a massive reduction in fossil fuel prices. Apart from France, where the nuclear industry is wholly statecontrolled—and which, in the case of the British nuclear industry, the Government propose to give up—no country is substantially investing in new nuclear plant at the present time. Indeed, the private sector in the United States has not ordered a nuclear plant for the past 10 to 15 years. I believe that we should accept that nuclear power is not a competitive proposition at the present time. We should work in developing our expertise but we should not be committing large resources to that particular form of energy until it is needed.

I should now like to turn to oil and gas. With all the experienced people in the oil industry we have done a wonderful job in exploiting the North Sea. I believe that one of the most remarkable technological achievements of the present time is the exploitation of oil from the North Sea with its difficult physical conditions. We must make absolutely sure that from the fiscal point of view, and from the point of view of government intervention, every conceivable encouragement is given to further exploration and development. It is a risk that from time to time government fiscal policies could inhibit those efforts. Therefore I believe that we should explore the whole of that sector as fully as possible with every support.

There is a problem as regards gas because that industry was privatised as a monopoly. I must indicate that I am chairman of an energy firm which is seeking to compete with the gas monopoly. I am a great disbeliever in private monopolies. If we cannot have legislation to correct those monopolies, I believe that it is up to all of us to try to do so by other means. I believe that that is precisely the response which the Government would like to see.

I am a full supporter of the technology of the gas industry and its great skills. It is wrong that it should be in the dominant position in which it has been placed by recent legislation. I believe that that should be reviewed in the near future in the light of some of the measures which the Government have introduced in connection with the forthcoming privatisation of electricity; namely, to encourage a degree of competitiveness.

As regards electricity, a number of things can be said about the proposed measures but I shall refrain from commenting for the reasons given earlier. I shall say only that, to my mind, two major issues remain in the case of electricity as they have in respect of all other forms of energy. On the one hand we must retain security of supply; on the other hand, we must obtain the best deal for the consumer. Whatever measures are eventually taken to deal with that problem, I believe that those two issues should be kept firmly in mind.

I should like to deal next with the renewable question. I am delighted that the noble Lord, Lord Beloff, referred to that matter because I believe that we must experiment and develop alternative sources. I should, first, like to include in this category the reference made by the noble Baroness to combined heat and power. I believe that in this respect we in Britain are lagging behind. That is because of the very half-hearted way in which the Energy Act 1983 provided for private generation and particularly for combined heat and power.

I was personally involved in the discussions on the Energy Bill at that time and I know that the noble Lord, Lord Stoddart, was also involved. We considered that the provisions of the Bill would not lead to much private generation or combined heat and power and we were proved to be right. The acknowledgement of that is in the Government's White Paper on electricity privatisation. They accept that the 1983 Act never achieved the purposes for which it was designed but it could well have achieved those purposes. I am a great believer in diversifying the forms of electricity generation. We could have had a great diversity of electricity generation if the 1983 Act had been more firmly drawn in that direction. Therefore, we could have avoided the massive turmoil which is now envisaged in the White Paper to achieve that very thing. I put this point to the noble Viscount and I ask him, without trespassing too much on the White Paper, whether it is the Government's intention, pending the fairly long period before there is a change in the organisation of the electricity industry, to bring back the 1983 Act so that it could be amended to stimulate combined heat and power and private generation in the meantime.

I also believe that we should be giving a fair wind—and that is an appropriate word—to wind power and tidal energy on which great efforts have been expended and to which the noble Lord, Lord Beloff referred.

I conclude with one other form of energy to which I attach perhaps the greatest importance, which is efficiency in the use of energy. I think that in any strategy, in any objectives, we must give pride of place to efficiency. This country has been notorious for its inefficient use of energy and it is not hard to see why. The reason is that we have always had plentiful supplies. I think that we are beaten only by the Americans who are even more wasteful than we are. However, among European countries, taking any standard you like, we are the most wasteful.

The Government have taken a great interest in energy efficiency but they should be reviewing further measures which could be taken. Now that we are entering a totally new phase with the privatisation of two basic sectors of energy supply, I should say that the question of efficiency becomes all the more important.

Therefore, I have been delighted to follow on the example set by the two previous speakers by roaming fairly widely over the issues of energy. I hope that we shall be able to concentrate on the future of the electricity industry at some early date in the future, but in the meantime I recommend to your Lordships that we keep the general issue of energy policy under regular review.

3.52 p.m.

Viscount Weir

My Lords, in the days when there was still some romance left in industry, the boiler in my company's power house had a Victorian plaque on the front of it which depicted a naked savage staring intently into a fire above which hung a pot of boiling water. Beneath that scene there was the splendid slogan: The Ancient did not dream of the power of steam". Those words, which I suppose were penned by Ruskin or someone like that, seem to me to summarise exactly what today's Motion is about—the dramatic way in which the contribution of energy to our well-being and our economic progress has evolved in the last century through the direct application of the power of steam and today through electricity generation. I suppose that the Industrial Revolution could just as accurately have been called the Energy Revolution.

The recent White Papers on privatisation have projected right into the political arena the way in which in future power generation will be owned and managed. However, I shall of course follow your Lordships's excellent precept that maiden speeches should not be clouded by controversy and I shall not say a word either for or against the proposals. Instead I shall try to touch on some of the ways in which energy generation has an impact on different parts of our economy.

Understandably we hear a lot about the role of the consumer of electricity. However, there is a reverse side to that coin. It is a fact that energy generation in itself is a major customer of the electrical equipment industry. I should mention that I have an interest in that.

To remind ourselves of the importance of that industry to the economy, the members of its trade association, BEAMA, between them have an annual turnover of over £25 billion of which something like £10 billion a year is exported. Today these equipment suppliers enjoy two significant advantages in their relationship with the electricity industry. The first is access to a large home market where consistent specifications and technical requirements for their equipment currently prevail. That gives the basis which is essential to support a sustained and successful export effort.

A second benefit to many suppliers derives from the far-sighted attitude of the CEGB towards product development. This has enabled firms to pursue programmes which would otherwise be far beyond their individual resources and at the same time has given them operating references for their products which are vital to them in export markets. Of course that has cost the CEGB money, but in return it has better equipment available to it, and in terms of our national profit and loss account I know that the expenditure it has made has been paid back many times over through exports. I sincerely hope that, however the electricity industry is reorganised in the future, we shall find arrangements which will enable these benefits to the economy to continue.

I now turn to the balance of payments. Historically there has been very little significant relationship between energy generation and that aspect of our economy. In the past, imports of primary fuel or equipment, or even of electricity itself, from across the Channel have been rather modest. In the future I believe that that will change dramatically. For example, our equipment-makers will have to face much wider foreign competition by 1992, to say nothing of the possibility of importing cheap coal or indeed greater quantities of French power.

All these factors will affect our economy, whether in mining or manufacture, and we shall have to think carefully about the trade-off between the lower costs we may be able to obtain from abroad and the adverse effect on our balance of payments. Indeed, I believe that we would have to take a very sanguine view about our long-term export prospects to neglect this issue entirely.

Again, when we change the structure of the generating industry, there may be some other effects on the economy. One possibility with clear regional implications for industry could be the emergence of differentials in the price of power between various parts of the country. We might also see different policies on pricing in particular areas as between the industrial and domestic consumer. If there is going to be real competition in the industry I suppose that must be so. However, for the moment these matters are still rather obscure, but I suspect that they could become important issues in the future, and they are most certainly economic ones.

Finally, perhaps I could also remind your Lordships that coal and oil are dirty. They foul our atmosphere. I do not mention that because it is National No-Smoking Day today, nor shall I venture into the quagmire of environmental politics. Although I might be welcomed for wanting cleaner air and less acid rain, doubtless I would be equally unpopular with other environmentalists for wanting to achieve those goals through nuclear power. Instead I hope that we tackle the obvious problems of pollution with more resources and with more speed.

I know that the CEGB is spending £600 million on retrofitting some of its existing power stations in order to reduce sulphur emission; its new stations will incorporate just such equipment. Thay may seem a lot of money, but it is pretty modest compared with more than £1.5 billion which one German utility company, the RWE, has already spent in this area. The Japanese also are very far ahead of us in this respect. Moreover, little has been said and less done about the parallel and equally important problem, the emission of oxides of nitrogen.

We are not discussing environmental matters today, but I think that it is perfectly relevant to raise this issue because it will have a considerable economic effect both through the massive investment programme that will be required and also through the increase in the price of power in the future which we will need to pay to have a cleaner environment.

Your Lordships rightly ask that maiden speeches should be short so I will resume my seat, but not without first thanking the noble Lord, Lord Beloff, for giving us the opportunity of discussing this most interesting subject.

4.2 p.m.

Lord Mason of Barnsley

My Lords, on behalf of the whole House I happily congratulate the noble Viscount on his impeccable maiden speech. He never breached the conventions of the House: he was brief, non-controversial and informative. No doubt with the background of his knowledge of banking and industry he will certainly prove to be a worthy Member and obviously make many more knowledgeable contributions to this House in future. His speech showed both quality and depth. Though I shall never rival him and will be constantly at a disadvantage on those topics, I let him know that when he indulges in his hobby I shall be ready to stand by his side, cast a fly and compete with him.

In considering the role of energy generation in sustaining the growth and expansion of the British economy, it is also necessary to examine the future of supply and whether it is going to be adequate, for without that there cannot be any planned sustenance of economic growth. Coincidentally, if privatisation of the electricity industry goes ahead as planned I am concerned at what will be the likely consequences for the British coal industry when its major outlets have been privatised.

There is no doubt that coal, from whatever source, is going to be our main fuel provider for many years to come, but the threat from the numerous cheaper fuel alternatives will seriously further reduce the number of coal mines and coal miners. It will also reduce the number of industries that support the coal mining industry and their workers, nearly all of whom are in the traditional mining communities of Scotland, Wales and Northern England.

Your Lordships know as well as I do that the social consequences of past pit closures have been severe. Since the miners strike of 1984–85, 68 pits have closed and 82,000 men have been declared redundant. There has been a wave of misery, unhappiness, unemployment and depression and the outlook, as I see it, will mean much of the same.

At present the make-up of our fuel use is comprised of British coal (about 86 million tonnes), nuclear power (18 million tonnes of coal equivalent), oil (8.5 million tonnes of coal equivalent) and a hydro-electricity (1.7 million tonnes). We produce 15.7 million tonnes of opencast coal. We import French generated power via a 2000 megawatt link, and when in full stream that is equivalent to importing 5 million tonnes of coal per year Then, what will in the end prove to be disastrous for British Coal, we import 9.7 million tonnes of cheap coal from Colombia, China, South Africa, Australia, Poland and the USA. That is opencast coal. It is quarried. Those countries can mine it, transport it half way round the world and unload it in Britain cheaper than we can produce our own deep mined coal. In many of those coal exporting countries the mining operations are based on cheap, non-unionised labour—especially in China, Colombia, and South Africa.

I am afraid that there is going to be a growing dependence on cheap coal imports for many years ahead. Keen competition among the foreign coal exporters will ensure cheapness for the United Kingdom industrial market. Moreover, I believe that the privatisation of electricity will mean that few, if any, pressurised water nuclear reactor power stations will be built after Sizewell B, for who will be prepared at present and in the foreseeable future, with such an abundance of cheap alternative fuels available, to invest in new PWRs, bearing in mind the length and the cost of public inquiries, the time to build of 12 to 15 years and the doubtful competitive generating costs? I believe that it is more likely that coal and dual coal and oil fired power stations will be built.

Coal will still be our basic fuel, but how much of it will be British coal? I am aware of the vast investment in the British coal industry, most of which has been designed to slim the industry as fast as possible in the drive to make British Coal break even in 1988–89, irrespective of the heartrending social consequences in the coalfields. Of course always hovering on the horizon is a profitable, much smaller coal industry based on coal mining complexes of multiple units ripe and ready for privatisation.

Therefore energy generation to sustain the growth and expansion of the British economy will depend upon a base of British coal, albeit much smaller than today, plus the increasing and severe competition from the alternatives, most of which will be from foreign sources. Much depends upon what economic growth is achieved or is foreseen as to the demands that will be made on power generation. Even on a modest expansion of the economy, the CEGB will require at least 75 million tonnes of British coal in the year 2000—about the same as last year, 1987. The demand for coal could rise much higher to an estimated 93 million tonnes, if only Sizewell B is built and nuclear power is not to fill the gap.

Output from British mines last year was 88 million tonnes. Another 13 million tonnes could be added when Selby and Asfordby—those big new mining complexes—are on full stream. However, one must take into account the inevitable attrition of the coal industry: pits worked out, the problem of high cost, unprofitable pits and British Coal's declaration that the objective must be £1.65 per gigajoule its new measurement for the heat content of coal (in layman's terms, £42 per tonne) as "an absolute limit of acceptable cost". There are a number of pits which cannot achieve that level of costing; there were 24 at the last count. I estimate that British Coal will close between 3 million and 5 million tonnes of coal capacity in that bracket. Also the average exhaustion rate of collieries is around 2 million tonnes a year, so by the year 2000 nearly 30 million tonnes of present production will cease.

These factors—namely unprofitability, natural exhaustion and the severity of overseas competition—will mean that between 40 and 50 more pits are likely to close by the year 2000. There is bound to be a major gap between the total energy requirements of the CEGB—particularly its requirement for coal —and what British Coal can produce annually. There are some new pits in the offing; for example, Thorne in Yorkshire and Margam in Wales. They could help to maintain an added provision for the CEGB, but the go ahead is unlikely unless new working practices are agreed beforehand with the unions. Only on that basis would it have any chance at all to compete with its energy rivals.

The trend for coal is clear. In 1983–84 there were 170 pits, with 181,000 men. The output then was 90 million tonnes. Last month there were 102 pits, with 99,300 men and an output of 71 million tonnes. On Monday of this week the chairman of British Coal made a speech in which he said that the new pit figure has now been lowered to 96. By the year 2000 no more than 50 pits are likely to survive. As one who was born and bred into coal mining, represented it in Parliament for nearly 35 years and who has also been the Minister of Power, I must say it is really an absolute national disgrace. The noble Lord, Lord Ezra, was bordering on this criticism—namely, the way in which this Government have abandoned the coal industry, its workforce and all the families with the consequent ruination of our coalfield communities.

The investment in coal (the Government's excuse) is a sham. It was planned for the demise of coal and not its survival. The protection that this national basic industry needs is now going and with it a great national asset whose worth may well be missed by the turn of the century.

I have to face the facts as regards what will happen to coal while this Government are in office. Those pits with high productivity, having benefited from the investment by British Coal, may survive. Although based on the gigajoule criteria of £42 per tonne, they will still have great difficulty in matching the foreign imports of coal.

Changes in working practices are inevitable if these pits are to survive. Wild announcements by union leaders of pit closures have never helped. As it is an extracting industry, pit closures are inevitable and a dog in the manger attitude by the unions has not helped. It has given the Government the opportunity to close pits faster than was planned. In these new, quite alarming and changed circumstances that face British Coal and the coal mining unions, if a relatively large and basic rump of the coal industry is going to survive, a more enlightened attitude by the mining unions to their own industry and the future of their workforce is an absolute necessity bearing in mind that such vast quantities of cheap power station coal are available from many continents of the world for example, Australia, Africa, Latin America and China. In addition the private utilities will make contracts—and long-term contracts too—for many years to come. This is obvious from the plans that are being laid for the expansion of dock and port facilities for receiving and unloading.

These factors could well sound the death knell for British Coal. As happened during the major coal strike we cannot expect support from the other unions involved—that is, the dockers and the transport unions—for their jobs too are at stake. So one can readily see that by the year 2000, even on a modest growth in the economy fuel and power for our industrial growth will still demand coal. It will be an unquantifiable tonnage, and as a past Minister of Power, I know that it is foolish to try to determine the percentages of the variables in fuel supply. But it is obvious that coal will be required.

British Coal is going to struggle to maintain its market. The security of supply will still concern us, but I admit that with so many cheap sources of energy available and competing with each other to establish firm toeholds in our market, security of supply may not be threatened or on the horizon but some years to come. The world is awash with cheap coal. But I warn the Government not to pursue this course too far and too fast. I ask whether we really want our electricity supplies to be in foreign hands. Of course we do not.

The supplies of North Sea oil and gas will run down, which has been prophesied many times, foolishly and mostly by politicians scoring political points. Eventually that will happen; it is inevitable. It may coincide with the rundown of our coal industry, which will then be unable to satisfy all our needs which is the situation today. With the loss of the balance of payments benefits of North Sea oil in particular and the commitment to millions of tonnes of coal imports a balance of payments problem will surely arise.

In the light of this analysis I say that the continuing battle between the major coalmining unions and British Coal will have to cease. There will have to be a coming together and this means British Coal too if the coal industry is to be saved. It now has a greater imperative to save it for the nation. Its high-handed management manners will have to cease too because the writing is on the wall. Being realistic, I believe that this Government will continue apace on this policy of electricity privatisation while they have the parliamentary majority. The die will be cast before the next general election. Once the private utilities have contracted vast millions of tonnes of coal imports it will be difficult to turn back the clock.

There is no longer any time for fractionalising or short-sighted industrial conflicts. Men and management, mining unions and British Coal must now work out a strategy and stand together to safeguard as much of the British coal industry as they can.

In conclusion I say to the noble Viscount who is to wind up this debate that we need seriously to consider the chief industry of all, which is coal. That is the industry which we shall depend on in future generations, by the year 2000 or 2010. I want assurances from Her Majesty's Government about the future of our coal industry. I want assurances about the security of supply and the growing concern about the balance of payments problem which looms ahead, bad even as that is today, under this Government.

4.20 p.m.

The Earl of Lauderdale

My Lords, like the noble Lord, Lord Mason of Barnsley, I once represented a mining constituency and I have much sympathy with all that he said about coal. I should like to underline his particular reference to the fact that this is an extractive industry and that therefore sooner or later mines have to close. The problem is how to make the best use of what will remain and how best to turn coal to the best economic advantage. It is perhaps worth mentioning that the recent redundancies have been accomplished voluntarily, which warrants tribute to the common sense of both sides of the industry.

I do not go along with the noble Lord's great fear about cheap coal imports. If British industry were to try to import the quantities of coal which the CEGB now takes from British Coal, the world coal price would shoot up and the situation would come back into balance. I recognise that there will be some imports but the threat of imports on a large scale is bound to put up the world price and restore the balance almost automatically.

We are all in the debt of my noble friend Lord Beloff for opening this debate in the philosophical, knowledgeable and (may I add?) humble way that we have come to expect from him. I should like to join in congratulating the noble Viscount, Lord Weir, on a striking maiden speech in which he drew attention to the Central Electricity Generating Board's commitment to and support of research and development in the energy field which has been of incalculable benefit. This contribution does not seem to have been taken sufficient care of in the White Paper, to which we are not of course properly referring in this debate today.

I am sorry that the noble Baroness, Lady Nicol, is not in her place. I shall still say something nice even though she is not here to cheer me on. She produced a lovely maiden speech from the Dispatch Box and demonstrated assiduous prep. I have much sympathy for her natural plea for an energy strategy. I have voiced that plea on and off for 20 years only to discover that all energy projections are wrong and, moreover, that they usually become wrong within the period of time that it takes to build a new power station—about 15 years or the time between two or three general elections. That is why governments have on the whole not hitherto carried the can for their energy decisions, which is one reason why—and here I have a plug to make and an interest to declare—some years ago some of us set up the All-Party Parliamentary Group for Energy Studies of both Houses of Parliament to try to develop a consensus approach to energy problems.

When I was preparing for this debate some weeks ago and before the White Paper appeared I looked up the figures for gross national product over the past six or seven years. To my surprise I found that measured by GNP, growth has been of the order of 4 per cent. per annum, although of course economists would make various corrections for such a crude deduction. It is in the context of a steadily expanding economy that the Government now recognise (what in one of these debates more than four years ago they were warned about) that we are in for a shortage of generating capacity and that we need to increase its availability at the rate of about 3½ per cent. a year in the coming years. This in turn means making sure that when older power stations have been phased out we shall have 13 gigawatts—13,000 kilowatts—of new capacity by the year 2000. I should like to say to the Government whom I have gently chastised from time to time on this subject—my noble friend on the Front Bench turns his head as if in recognition—that there is more joy in heaven over one sinner who repents than over 99 just men; so let us not gloat.

The first question I ask is whether we shall get all this new capacity by the year 2000. Experience shows that the minimum period for bringing a new power station of 1,000 kilowatts into operation is at least 10 years. On paper the figure is 10½ years and sometimes it stretches to 12 years: that is from the planning stage right through to commissioning. At the present time three new power stations are being planned —Fawley, West Burton and Sizewell. Fawley and West Burton will be coal-fired power stations and Sizewell nuclear. Nine more are in what embryologists would call the pre-embryo stage. Three will be coal and six will be nuclear. Two or three of those are on coastal sites. Those nine are not yet into planning. Unless something happens very quickly this year, the year 2000 will be upon us inside of 12 years and we shall not get the 13 gigawatts that we need.

At the same time it is important to stress that it is mistaken for the coal industry to be too alarmed about the fact that several of the planned stations will be on coastal sites. Enormous capital investment is required to bring in coal on the scale that might be envisaged. There is the whole effect on the world price of a sudden new British demand for coal from abroad. I believe that the balance will right itself by the price mechanism. The real question I ask is whether the privatisation of the electricity supply industry will make this stiff investment development target of about £45 billion easier or harder to achieve. That is a mattter for later debates but it is legitimate to ask now whether the effect of upsetting or (shall we say?) rearranging the structure of the industry and bringing into being entrepreneurs with no generating track record will be to make available the funds needed or whether everything will be delayed as a result.

Have we any solace from some of the renewables? In his catholic survey of the situation the noble Lord, Lord Beloff, referred to wind power. We read in Government-sponsored publications that wind could make a "substantial"—I quote the word "substantial"—contribution. I believe that that is quite misleading. A wind farm that matched the ordinary scale of a generating station of 1,000 kilowatts would cover—wait for it, my Lords—400 square miles. That is the scale of site wind power requires. There is one in California and there are many smaller sites around the world. However, if one is going to compete in scale with the generating capacity of a normal coal, oil, gas-fired or nuclear power station, one will need a site of approximately 400 square miles. The comparable figure of a thermal or nuclear station might well be 400 acres.

People have one or two sites in mind to take account of that and they are offshore. Some thought is being given now to siting an offshore wind farm in or off the Wash. Carmarthen Bay is also being spoken of. However, just think of the protests of fishing interests and shipping interests. If one were to plant these things in the highlands, in Wales or on Exmoor there would be an outcry from the environmentalists. However useful windpower may be in certain local areas like Orkney and here and there for small areas of distribution, it is not an answer to the main problem we face.

What then can be said about hot rocks—geothermal? My noble friend Lord Beloff has referred to the work of the Camborne School of Mines. Hot rocks are only to be found in very special places. It is not just ordinary granite that you need; it has to be a special kind of granite which is to some degree radioactive. (I was hoping that the West of Scotland, which is built on granite, would be suitable but apparently it will not be). There is this geological situation in the South-West of England and there the Camborne School of Mines is investigating hot rocks generation.

However, two difficulties have emerged. First, the longer one generates heat from hot rocks the cooler they become. That may sound extraordinary but it is true. Whether that process is due to the wearing out of the heat or to wastage and leakage, I believe that no one yet knows. At any rate, the contribution of hot rocks and geothermal in the UK is bound to be minimal.

Tidal power is another concept altogether, but I believe it is coming nearer into the focus of possibility, subject of course to the survival of a company big and strong enough to raise the necessary finance. The Severn Tidal Barrage scheme is, at the very least, of the scale of the Channel Tunnel. Is that something that the so-called G1—the larger chunk of the CEGB—will have the muscle to undertake when the time comes? We shall see. However, it is fair to raise the question. Or has this privatisation scheme simply knocked that possibility on the head? The Mersey scheme is a smaller one and may stand a better chance.

One point that has emerged from the Government's commissioned research into tidal possibilties is that there are many places around the country which might possibly have something to contribute. I was most interested in a site situated in the North West Highlands called Kylesku where there is a very narrow entrance to a sea loch, which has two fingers to it, as it were, with a tidal range of 4 metres. As an amateur I have always supposed that that site might be a good possibility.

It is worth giving the House the benefit of some material which was sent to me originating in the studies by Messrs. Binnie and Partners undertaken for the Government and which says this about small tidal schemes: The energy output of a tidal energy barrage is proportional to the square of the tidal range. Hence the unit cost of tidal electricity generation is in inverse proportion to the square of the tidal range. Unfortunately, the tides along most of the Scottish coastline are relatively small with a mean spring tidal range of typically three or four metres. This compares with the much higher ranges to be found along the Western coasts of England and Wales. For example, Kylesku"— that is the place I refer to— has a mean spring tidal range of only four metres, compared with eight metres for the Mersey at Liverpool and 11 metres for the Severn at Cardiff. This factor"— that is, the tidal range— outweighs the apparent attractiveness of many Scottish lochs resulting from their relatively narrow entrances enclosing substantial volumes of water". The material I have been supplied with mentions that there is a formula, which Binnie and Partners have worked out, taking as a critical parameter—to use the in-word for today—in these studies the area of the water to be enclosed by a barrage. I ask my noble friend whether perhaps later on he could write to me—of course I do not expect an off-the-cuff answer to this question today—when he has had a chance to check up on the matter. My question is whether the algebraic formula used by Binnie and Partners, to summarise its own measurement of the different opportunities, is correct in considering only the area of water enclosed and not the volume. However, whatever the case may be, if the Severn Barrage could go ahead that would provide us with seven of the 13 gigawatts we require; but it may be that the financing of that project is going to prove very difficult indeed under the new arrangements.

I turn now inevitably to the Continental Shelf and to the onshore search for oil and gas. Onshore fields require planning consent and most of those that have so far been identified are pretty small. However, if they are near the coast and can be worked by deviated or horizontal drilling from off shore—such as, for instance, the Wytch Farm extension—there may be greater possibilities. But generally the onshore fields, whether of oil or of gas, are small and raise hideous environmental obstacles.

As regards offshore possibilities, we have a different situation. There is still plenty of oil and gas on the Continental Shelf to go for, but at a price. Seventeen dollars a barrel today is not the 30 dollars a barrel of the boom years that we remember so well. If peace were to break out in the Gulf war the price might well fall even lower. On the other hand, if the Iranians were to take Basra, the repercussions throughout the Middle East might well send oil prices right up again. There is enormous uncertainty and volatility in oil pricing and a consequential hesitation in going for relatively small fields.

On the whole, the new fields that are being found in the North Sea are complicated. They are small in size; they very often stretch across several licensed blocks, which in turn involves the developers, if they are going to go ahead with it, in very complicated unitisation negotiations with one another, to say nothing of the necessary sharing both in transportation pipelines, processing and terminals at the end. Therefore there are heavier on-costs relative to the small fields now being discovered in the North Sea though they would be countered somewhat should the oil price recover.

The other consideration is that on the whole the relatively shallow waters of the North Sea have now been pretty thoroughly explored— of course there is always room for more—but generally speaking they have been thoroughly explored and what remain are the deeper waters. Those deeper waters are much more expensive to drill in, let alone develop. Of course there have been technical advances in the platform design—notably a construction called "the tension leg platform" which happily can be moved and does not have to be destroyed when the field is brought to an end. Indeed one of the on-costs with which the oil fields of the past 10 years are now beginning to wrestle with financially is that of removing such platforms. That is a difficult incubus on the industry.

The marginal fields are smaller and trickier and they require joint transportation and terminal facilities, with very complicated and difficult negotiations to share them out. As I have said, unitisation agreements of great complexity are needed. Therefore, unless the oil price increases there is not a great deal of joy to be found on the Continental Shelf as regards oil and gas supplies.

To return to previous surveys of energy documents, the noble Baroness, Lady Nicol, had a jolly good reference library of material. I hope that she has not attempted and will not try to read it all, but at any rate she knows where to find material with the aid of a good index and a research assistant. I think that what the Government are now saying is merely that which has been said by all governments since the war: because of the uncertainties in energy pricing and the uncertainties in the costs of getting energy, getting it up or getting it harnessed, one simply has to keep all the options open.

If my memory serves me right, a White Paper was published in the days of the Government of the noble Lord, Lord Wilson, or it may have been earlier still. It was a Labour Government White Paper which became ridiculed, for a very silly reason which I never understood, as the "four fuels" White Paper. That is the basis of the matter. There are four fuels available. The trick is to balance them and to decide now what will be the right balance 10 or 15 years hence when new generators have been constructed. Nobody but an astrologer can really answer that, and we have to hope for the best.

Having said that, I must say that I have some reservations about some of the recent remarks of the Government. When the CBI met the Secretary of State for Energy about energy pricing it was told, as was everybody else that energy costs were only 0.2 per cent. of industry's average costs. We know that that is the average, but what about chemicals, what about paper-making, what about the capital-intensive industries? They have energy costs which may rise to 30, 40, 50 or 60 per cent. of their running costs. They are the industries which are rightly concerned about the threat of rising energy prices.

We have been told that the Government believe in the free market principle for the energy industry. That is all well and good. Apparently it is acceptable to import French electricity, so why not be equally free with the export of gas from the UK Continental Shelf? I believe that we are at fault in this country in not regarding our energy situation in the light of what I would call the energy geopolitics of the western world in general and of Western Europe in particular. Enormous supplies of gas are coming right across Europe from Russia. Is there anything wrong with Russian gas? Does it smell worse? If there is to be a war they will cut it off anyway. The idea of taking gas from the Continent is not a stupid one; equally the idea of selling our gas to the Continent makes sense. One of the failures in our current energy policy is that of failing to think in European and Western European terms.

We are told that privatising the electricity supply industry will produce a more efficient industry. Well, we shall see. The best of British luck is all I can say about that. It certainly will not be more efficient (in terms of the merit order operated now by joint ownership of this grid), when that is replaced by a spot market between rival producers who must either collude and pool to have surplus capacity ready, or have wasteful surplus capacity on their own.

Following the confusions of the past few weeks—of which I think there is no doubt, the Government having said that they did not know a fortnight or three weeks ago whether or not they would produce a White Paper, and then they suddenly produced one—we should all shed a tear of sympathy for my noble friend Lord Davidson. He has to speak for the department in this House on a very difficult and complicated subject, and speak for a department of which he is not an integrated member. Of course he is part of a team and he has access when he wants it, but he must have time to use that access. I believe it should be said again, as I have said more than once, that the spokesman for energy in this House should really be in the department. I wish my noble friend the best of British luck. I think that he is going to need it.

4.45 p.m.

Lord Taylor of Gryfe

My Lords, from these Benches congratulations are in order to two noble Lords. One is the noble Viscount, Lord Weir. I join in congratulating the noble Viscount on what was a model maiden speech. I congratulate him also on another count. He is the head of a large engineering company in the West of Scotland. In that area there has been a rapid decline of engineering and heavy industry, but Weirs of Cathcart have shown something which is relevant to the discussion in the House today. They have adjusted and adapted to the changing market in which they operate. As a result Weirs of Cathcart contribute greatly to the survival of heavy industry in the West of Scotland. On that account also the noble Viscount deserves congratulations.

The other congratulations are due to the noble Lord, Lord Beloff, who introduced the debate. I can say with much more honesty than the noble Lord that I am not an expert on this subject. His broad-range review set the agenda for a very interesting and informative debate. I was tempted to speak only because of the events of the last few weeks in the Scottish courts when two nationalised industries have fought on the question of the price of coal and the right to import. I accept the constraints that have been put on our discussion with regard to nationalisation. I reserve comment on the White Paper until a later date.

There are however, two things I should like to say. I notice from the report of the debate in the other place that the exercise of the monopoly is extremely dangerous. British Gas, in the first nine months of 1987, had 35 per cent. more disconnections than in the previous year. There is an extreme danger that when you give a private organisation a monopoly in the market, this can be abused. The matter will certainly be looked at when we consider the White Paper.

The other comment I should like to make which has some implications for the nationalisation issue is the attitude of the South of Scotland Electricity Board. It has a management I much admire. The board is operating within the remit that it has to produce electricity as efficiently and as cheaply as possible. In exercising that managerial duty, it proposes to import a million tonnes of cheap coal from abroad. I should like to add my voice to that of the noble Lord, Lord Mason of Barnsley, in connection with the importance of retaining a healthy coal industry. The trouble is that if you create, as in the White Paper, a private monopoly in electricity generation, then it will be compelled to take the action that has been exercised by the SSEB. Its prime duty to the shareholders will be to maximise profit without consideration of the consequences on the mining community, the national interest and the balance of payments. In fact, if the policy of the SSEB is pursued, 3,500 jobs could be lost in the Scottish mining industry. This would cost about £60 million in redundancy payments. So other factors than simply the price of imported coal should be taken into account when these about-to-be-privatised monopolies operate.

I was delighted—I say this in the presence of the Minister of State at the Scottish Office, the noble Lord, Lord Sanderson—to read in the Glasgow Herald today that the two parties are now coming round the table. I hope that there will be a reasonable and balanced solution to a very difficult problem. In fact, I would commend the statement made by the SSEB before the Monopolies Commission in 1987: Although the Board will continue to monitor the price of imported coal it is not considered to be in the long-term interest of the Board's customers to import foreign coal in present circumstances". I hope that a more reasoned view will be taken of the long-term supply situation by the SSEB. I am delighted to have said this without raising passions or creating physical danger for the Minister of State following my contribution. I accept that the SSEB and other industrial consumers have a substantial interest in a reasonable price for coal.

I was encouraged to participate in today's debate after having attended the all-party minerals group in the House last week. We were addressed by representatives of the opencast division of British Coal. I should like to offer one or two comments. More than 50 per cent. of the total production of coal in Scotland is now opencast. The opencast sector of British Coal now produces, at a profit, something like 12 million tonnes a year. A total of £200 million profit was thrown back into the pool of British Coal from opencast production to assist in the subsidy of less economic pits. The operating costs suggest that opencast coal can be produced at something like £26.8 per tonne against the current imported price of approximately £30 per tonne. Thus, opencast coal produced in this country is competitive with imported coal. Compared to deep-mined, which is £1.60 per gigajoule, opencast is about £1 per gigajoule.

People hold up their hands in horror at the suggestion of opencast coal. But it is important to the economy of the mining industry and there are regional implications. A good deal of opencast development is in areas of high unemployment where coalminers have become redundant. It is estimated that 15,000 employees are now employed in those areas. A subsidy of £200 million is given to the deep mining industry. A good deal of the deep-mined coal would be totally unusable if it were not blended with opencast. Opencast coal therefore makes a contribution to the deep mining industry and should riot be regarded as a competitor to deep-mined coal. It is supplementary and complementary.

There is unfortunately the same deep resistance to any change in the landscape which I encountered when I was chairman of the Forestry Commission. While this is not always justified, sometimes it is. I can see deep resistance to change outweighing some of the economic advantages that can be gained from an expansion of opencast mining. I have seen examples of what has been done by the opencast division of British Coal in the restoration of sites that were formally derelict. After three or four years, it has built golf courses and community centres and has carried out landscaping so that trees now grow in areas that had no trees previously. After four or five years of activity, it has restored a good deal of the landscape to a much more acceptable and better condition than that in which it found it.

Nobody likes an opencast development on his doorstep. The planning laws are such that, in order to carry out the necessary development, one has to apply to the local planning committee. That committee, being the conscientious and socially responsible body that it is, is dominated frequently by local miners, members of the NUM, who are not always sympathetic. Sometimes, on a very narrow-minded and short-term basis, they have no great enthusiasm for it. Opencast mining is carried out by the Transport and General Workers' Union. There has therefore been a good deal of frustration in seeking planning permission. Between the process of examining the site and the granting of planning permission, a period of five years can elapse before one is able to proceed with the development, on the assumption that planning permission is ultimately received.

Because of the pressure of environmental interests, some of which may be well intended and justified, the number of decisions in favour of opencast mining from March 1984 to August 1986 represented 52 million tonnes. That figure dropped to 11 million tonnes last year. The rate of success of applications to develop opencast was 40 per cent. in 1984–86. The figure has now dropped to 10 per cent. There is a balance to be struck. The opencast division of British Coal should consider the extent to which it can compensate communities for environmental disruption in areas where it intends to develop and should encourage the local communities to work with it. Greater publicity should be given to the achievements and social objectives in restoring and enhancing sites after opencast has been pursued for three or four years.

Unless a reasonable balance can be achieved in planning, an important national resource will die and imported coal will come in. Opencast production can produce coal at a competitive price. I ask the Government to face what is a real dilemma, namely, how they can resist the total decline of the industry due to planning restraints and so enable coal to be a competitive fuel.

4.58 p.m.

Viscount Torrington

My Lords, I too thank the noble Lord, Lord Beloff, for introducing this interesting topic. I add my congratulations to those of other noble Lords to the noble Viscount, Lord Weir, on an excellent maiden speech. I am sad that he is not present to hear my welcome.

Whenever I speak on energy topics in the House there seems to be some kind of ghost around. Last time the Sizewell inquiry report was imminently awaited, and we were not allowed to mention it. Today the ghost is in the form of the privatisation White Paper. I shall follow the tradition that we have established and refer to it no more than necessary.

The noble Baroness, Lady Nicol, spoke of the need for an energy strategy. I have often thought that the only thing that energy strategies are useful for in the long term is as historical documents to compare with the revised energy strategies later on.

One thing is clear. As the noble Earl, Lord Lauderdale, so ably set out, we shall need much more generation capacity in the near future whether under the private sector or from the CEGB as it is now. One of the problems of electricity generation is that it is mostly best done on a mega or, dare I say, giga scale in large coal-fired or nuclear power stations. I suppose, at the same time, one could advance respectable arguments that security of supply comes from diversity and that a large number of small generating units could offer greater security in the long term than a relatively small number of giant power stations.

Of course, the problem is that economics always militate against cottage industry power generation since small scale means high cost. Hence, such security could only be achieved if electricity prices to the consumer were, on the face of it, very much higher than they are today. There are perhaps some exceptions to this rule in that small generating units could usefully contribute directly to the regional or local grids on a cost-effective basis either for peak sharing or perhaps even base load.

Much attention has been given to energy savings since the oil price shocks of the 1970s. I have often felt that it is rather like asking a poacher to turn gamekeeper to expect the CEGB as a seller of electricity to press the case for energy conservation. However, the next stage beyond energy conservation is to try and collect the energy which could be generated by small units and harness what would otherwise go to waste.

The CEGB's record in encouraging smaller and unusual sources of power generation since the 1983 Act has not been particuarly good, as the noble Lord, Lord Ezra, noted. Indeed, by all accounts, the CEGB has been at pains to discourage small suppliers of electricity through the price mechanism and with arguments such as, "Small generators cannot guarantee long term supplies of constant quantity and quality". That has always seemed to me a slightly spurious argument. Obviously, while individuals may not be able to do so, groups of small generators can probably collectively guarantee a reasonable average contribution to base load. Perhaps they could even get together in small associations.

I can think of one example where there exists the possibility for small generating units to supply relatively constant good quality supplies of electric power directly into local distribution networks at a competitive price. In recent years, a number of small onshore gas discoveries have been made but many remain shut as uneconomic for the purposes of commercial production in conventional terms. Either the calorific content of the gas is too low or there are insufficient quantities to justify the capital costs of gathering, treating, compressing and conveying them into the BGC pipelines.

However, at the micro end of the scale, a conventional car engine can be modified quite easily to take natural gas straight out of a wellhead and harnessed to a small generator will run for long periods with rests only for maintenance. If adequate volumes of gas are present—and the determination of that is pretty easy for petroleum engineers—then larger generating capacity can be placed right at the wellhead to produce a megawatt or more through unobtrusive quiet, portable, even perhaps skid-mounted equipment—a sort of crocodile clip on to the local grid. When the gas runs out, that can be moved elsewhere. In this way, otherwise unusable reserves of gas can be effectively utilised for power generation and oil and gas exploration companies can get a return on the capital investment which they would otherwise probably have had to write off.

I believe that an EC directive has been in existence for some time restricting the use of gas for the purposes of electricity generation. But, according to an article in The Times of 29th February this year, that directive is, I believe, to be deleted or amended shortly. I hope that perhaps the noble Viscount can confirm this in his reply.

Small gas-fired generators are perhaps one example of alternative sources of low volume but potential base load electricity supply which could be encouraged to contribute to our national security of supply. Given some real encouragement, I am sure that the private sector can come up with a number of other examples outside the ambit of the conventional electricity generating industry. I hope that in the context of privatisation the privatised area boards will not just have the right to purchase electricity otherwise than from the grid but that they will be given an incentive and perhaps a duty to encourage potential local generators outside the conventional electricity industry to come forward and offer supplies and that those latter contributors will be greeted with a pricing policy that gives them a fair living.

5.5 p.m.

Lord Renwick

My Lords, I, too, would like to add my congratulations to the noble Viscount, Lord Weir, in his absence, for a maiden speech of remarkable quality. I am sure that we shall hear more from him in the future. I thank my noble friend Lord Beloff for an opportunity to air not exactly my expertise but at least my enthusiasm for this subject. I was almost brought up with the generation of electricity. My grandfather built Barking power station. My father ran it and developed a private utility company or group of companies which supplied most of London and, I think, about two-thirds of the southern counties with electricity up until 1946 and nationalisation.

I was a little young at the time but I remember being very conscious of the pride with which a service was given to both private individuals and to industry. It may interest noble Lords. I remember when I went into the City in 1960 there were still jobbers—sadly, they have now disappeared—who were market makers in the shares of my father's and my grandfather's company. It was called the County of London Electricity Supply Company. I have looked at the records of the company since 1896. There was a graph showing the pre-tax profits and the megawatts produced per year. It was a remarkable and very consistent growth record through times of real difficulty in the 1930s, not to mention two world wars in which this country was much involved. There was a very consistent record of growth. I say that knowing that we are not discussing the privatisation of the CEGB but just to show that there was a precept for private generation and a responsible one at that.

I must declare another interest in this subject. I am a director of a firm of technology consultants. We have as one of our main interests energy, energy conservation, sources of energy and so on. Although I would not be one of the technical people involved, some of the thinking and work rubs off on me, which maintains my interest in this area. We have heard a great deal about the problems of the fossil reserves in this country, the need to maintain employment and the need also to conserve fossil materials for future generations in the next 100 or 1,000 years. I would differ perhaps from previous speakers in looking not 10 or 20 years ahead but 1,000 or 2,000 years ahead. The fossil materials of this planet must be considered in finite terms. We should look upon quite a bulk of those which have been discovered and those which are as yet to be discovered as a legacy for the inhabitants of this planet who will come after us. I also think that we have a real responsibility for the environment in which those people will live. We must be very conscious of the potential damage that the burning of wood and fossil fuels can cause unless safeguards are implemented.

My plea is that there should be very real concern on the part of the Government that the quality of research should be maintained and increased to make sure that emissions are not damaging, that there is research into how damaging they really are and in which direction they travel. I believe that there is a real case for more work to be done, for more research to be carried out and for more finance to be provided for research in that area.

I hope that the energy requirements of countries, including this country, will grow and with it their economies. The noble Lord, Lord Beloff, quite rightly said that that was the subject of the debate and that we must prepare for the future. If we are going to maintain a proper supply to industry, and to people, of course we must look possibly to other forms of electricity generation.

Some research is being done. I believe that we spend something in the order of £16 million a year looking into renewables, whereas the sum spent on nuclear research is something of the order of £250 million. I wonder whether that is perhaps the right ratio in view of the importance of the industrial activities which are involved in researching into renewable forms of energy generation being successful.

There is the obvious concept of addition to the grid which is an argument for promoting renewables. There is also the fact that some forms of electricity generation which we enjoy in this country are not possible in other parts of the world. Expertise generated in this country in wind power or tidal power, for example, or other forms of power could be exported to countries where it is not possible to use our forms of energy generation.

Most forms of renewables have been mentioned this evening and I do not want to take up your Lordships' time in repeating them; but I think that two which have not been mentioned before this evening are worth mentioning. There is a case for renewables in that usually the material involved is free: for example, the wind or the tide. But there is one form of alternative energy where one could be paid to take it away. I am talking about refuse-derived fuel. There is a form of pelletising refuse which produces pellets with about 60 per cent. of the energy content of coal. There is a considerable amount of activity going on in this country in connection with that fuel.

As my noble friend Lord Torrington was saying, one of the problems about producing renewable forms of energy is access to the grid. I ask my noble friend Lord Davidson to address himself to the question of whether there are problems in various areas of getting access to the grid in financial terms which make sense and are truly competitive when compared with the coal powered or the nuclear generating stations.

I feel that in some cases there may be discrimination as regards the rateable value of some generating stations. That seems unfair. Wind generation has flourished in places such as California where a local grid has guaranteed or made an offer at a fair price for the electricity so generated.

Another source of energy of which there is an enormous volume is hydrogen. In fact, it is one of the most prolific substances on earth. Work initiatives are going on in Germany conducted by industrial companies to look into the use of hydrogen as a form of energy production. The production of hydrogen involves water and electric energy is needed to create it. But off-peak water energy could be used to produce hydrogen which in itself could then be used to create energy. That seems to be an area where I do not believe that much research is going on in this country. I ask the noble Viscount if he can advise me on that subject.

I feel that we are at a time of low oil prices. We have perhaps been lulled into a false sense of security as regards our national energy scene, especially with our massive coal stocks. But things can change very quickly in this world, and we should act responsibly in being more diligent in our encouragement of private and public sector funding for alternative forms of energy.

5.19 p.m.

Lord Stoddart of Swindon

My Lords, I too should like to thank the noble Lord, Lord Beloff, for introducing this debate and for introducing it in so philosophical a way. He has certainly given us all food for thought; and indeed the debate so far has taken up a number of the points that he raised.

I also wish to congratulate the noble Viscount, Lord Weir, on his maiden speech. I trust that we shall hear many more speeches from him. I was particularly struck not only by his kind and correct references to the CEGB in relation to equipment suppliers, but also by the point he made that one of the consequences of privatisation may mean differential pricing in various parts of the country. That is virtually the only reference which I shall make to privatisation. However, it is a point to be borne in mind. I hope that the Government, and the noble Viscount who is to reply in this debate, will take that into account.

I should also like to congratulate my noble friend Baroness Nicol who has taken my place very ably on the Front Bench. I congratulate her on an apt speech which was well-delivered and also on getting to the central point of the argument. That point is that we need, one way or another, an energy strategy. In my view, such a strategy must ensure two things. The first is security of supply which will mean ensuring a proper balance of fuels at a reasonable price which will give good energy supplies to all who need them, whether they be domestic consumers or industrial and commercial consumers. That is a matter which we shall have to consider very carefully indeed.

So far, the strategy of the Government (if it can be called that) has been based simply on market forces and intervening in the price structure as a means of conservation. Frankly, I do not think that that is good enough. No doubt the Government will be thinking about their strategy over the next few months and we shall hear more of it in what I hope will be a proper and long debate about privatisation. Perhaps we shall have that debate later on in the year.

We have also heard a good deal in this debate about energy projections. I believe that in another place only this morning the Secretary of State was castigating the CEGB to the Select Committee on Energy. I do not know what he said so I cannot comment upon it. But I know from my own experience that energy projections can go very wrong indeed.

When I worked at a power station in the electricity supply industry, we were told in the 1960s that the great new fuel must be oil. As the noble Lord, Lord Beloff, has pointed out, there has been a great glut of oil at times, as there is presently. We were told that in future we must switch over to the generation of electricity from oil. We were told with a great wave of enthusiasm—the noble Lord, Lord Ezra, and my noble friend Lord Mason will remember it—that we must build many power stations which were fired by oil. And we did so.

We built about 10,000 megawatts-worth of oil-fired power stations. Later (and indeed at the present time) those had to be mothballed because the cost of running them was so huge that it could not be sustained. In any event, oil supplies had become very short. I remember that ordinary shopfloor workers at my power station and at others warned the Government of the day that it was bad policy which would rebound later on. And so it proved.

I also remember that the CEGB made a projection of demand for electricity which would have meant consuming 200 million tonnes of coal a year. I remember speaking in another place and suggesting that if those projections were realised, and if we did burn 200 million tonnes of coal a year it would affect the weather. I suggested that the weather patterns of our island would be affected. I do not think that people took me seriously at the time. But perhaps they would do so now because it is beginning to be realised that heat and CO₂ emissions have a serious effect on our environment. Energy projections are difficult to make and they often go dangerously wrong.

Perhaps I may now refer to coal. The noble Lord, Lord Ezra, and my noble friend Lord Mason dealt with that subject so well that perhaps nothing more needs to be said. However, I should like to add one or two more points. If the Government do not maintain a strong indigenous coal industry, then at some time in the future we shall have such a crisis of both electricity and power supply as we have never known before. It must be emphasised that a pit closed cannot be opened easily, if at all. A pit which has not been sunk cannot be brought into production for another 10 years. That is the problem we have. That is why it would be an enormous mistake to allow the amount of imported coal to increase to a substantial degree.

What is more, if we allow a substantial amount of coal to be bought on the world market, not only will we put our coal and electricity supply at the mercy and whim of foreign countries, shipowners and so on, but we shall affect the price structure worldwide as well. Therefore, we must be careful what we allow in the matter of importation of coal.

There is an argument going on in Scotland. It was referred to by the noble Lord, Lord Taylor of Gryfe. It is an important argument, and what he said should be noted by the Government. He said that there were 3,000 jobs at stake which would cost the Goverment £60 million. The Secretary of State for Scotland, Mr. Malcolm Rifkind, has said that that is merely a trading matter, and that he does not wish to intervene in a trading matter between the SSEB and the Coal Board.

Have we come to a situation in which the chairman of the South of Scotland Electricity Board or any other board should make the policy of the Government? That is what is happening and that is what he is doing. If he has his way, undoubtedly the coal industry in Scotland will be badly hit. Pits will be closed and the Government will have to fork out a lot of money in redundancy payments and in unemployment pay. Therefore, the Secretary of State ought to intervene and see that a proper balance is struck.

I noted when I was a member of the Select Committee on Energy in another place that in Scotland there is a surplus capacity of some 130 per cent. Scotland has a capacity to generate 130 per cent. more electricity than is needed there. One of the values of an integrated supply industry ought to be that the South of Scotland Electricity Board should be able to export a good deal more of its product to the South of England than it does at the present time. If they did that, there would be an outlet for every tonne of coal that could be produced in Scotland, and what is more there would be a saving in capital expenditure in building power stations in England and Wales. That is a policy which I believe the Government ought to consider.

I shall now turn from coal to oil. As the noble Lord, Lord Beloff, said, it is true that there is a glut of oil at the present time. The glut may become worse; on the other hand, the Middle East is in such a seemingly permanent turmoil that that glut could be turned into a shortage at any time. We have to bear in mind that, with the best will in the world and on the best series of estimates, we shall lose all our exportable surplus of oil by the mid-1990s and we shall probably have lost self sufficiency by quite a considerable amount by the year 2000. Therefore it is necessary to conserve our oil supplies and to ensure that at the same time as we have a depleting oil supply we have not closed down our coal capacity. As I mentioned previously, 10,000 megawatts of oil-fired power stations are not being fully utilised at present; and I think that consideration should be given to converting some of those oil-fired stations to coal firing. We should start to do so at an early stage.

Most of the points that I wish to make have probably already been made; but I wish to draw attention—and particularly the noble Viscount's attention—to the necessity for conservation and efficiency. As has been mentioned by a number of noble Lords this afternoon, one of the best ways to conserve fuel is to institute combined heat and power projects. Such projects will give very good returns. At the present time, we are building power stations—2,000 megawatt, 660 megawatt sets—and we produce only electricity from them. We also heat the atmosphere for no good reason or pump hot water into rivers, which is wasteful. The power stations provide an overall thermal efficiency of about 38 per cent. As my noble friend Lady Nicol mentioned, it is possible to obtain overall thermal efficiencies of up to 90 per cent. from combined heat and power stations.

Clearly, even though we have coal, oil, and nuclear power, we should be conserving the energy that we have. In this respect, I believe that the plans for building new power stations at Fawley and West Burton should be reviewed. To build a further two 2,000 megawatt power stations (perhaps with 900 megawatt or 660 megawatt sets) would be wrong. For load balancing reasons, I understand and appreciate the need for power stations to be situated in the South. But there is absolutely no reason why four 500 megawatt power stations should not be built near conurbations. They could provide electricity to the grid and perhaps also to the local area; but, most importantly, they could also supply heat to the local area. In that way, we would obtain the best possible efficiency from those power stations.

There is much more that I should like to say, particularly about nuclear energy. However, my time is up and I do not wish to go beyond the 15 minutes recommended in your Lordships' report. In conclusion I urge the Government and the noble Viscount to take great heed of what has been said in this debate, even though it is understood that the Government, before very long, want to divest themselves of all responsibility for electricity generation and indeed the whole of energy policy itself.

5.35 p.m.

Viscount Hood

My Lords, I should like to add my thanks to the noble Lord, Lord Beloff, for initiating a topical and important debate. Conforming with other speakers, I shall try to keep to the narrow path and not touch on privatisation as a framework for the future, attractive as that might be. I can talk briefly about the present plans for increased generating capacity, which is so necessary if the security of power of which the noble Lord, Lord Ezra, spoke is to be achieved. Those plans are CEGB plans. As far as I can see they have been adopted in toto in the Government's privatisation plans and in that way are quite uncontroversial.

As your Lordships know, it is proposed that electricity generation should be broadly divided between nuclear and coal—six nuclear stations and four rather larger coal stations. Whether those can be financed and built on time are topics on which I should like to touch in a moment. I am a convinced supporter of the nuclear part of the programme allowing for the phasing out of the Magnox stations by the end of the century. That will leave the division of power broadly as it is now—80:20, or something of that order.

There is much argument about the cost of nuclear power. One tends to adopt the conclusion which is most attractive to one's argument. The difficulty about comparing the cost of coal and nuclear power is that the composition is so different. The CEGB estimates for Sizewell show that the capital ingredient of nuclear power is nearly two-thirds of the cost; in the case of coal-fired stations fuel represents over 70 per cent. of the cost. The conclusion one reaches depends on the assumptions that one makes about the financing of the nuclear stations or the price of coal in 20 years' time. In the Government's calculations a discount rate of 5 per cent. was used, which I think on the whole is low. On the other hand, it was assumed that the price of coal would not change by the end of the century—an assumption which I think is hazardous.

It remains true that the Layfield Report concluded positively that nuclear power was cheaper than coal. Certainly our European partners in the Community are very much of that opinion. As your Lordships know, the French are 70 per cent. dependent on nuclear energy, and that percentage is moving upward. They can offer us power in bulk at a lower price than any of our existing power stations. That is an argument for its cheapness.

The main argument is surely that we must have an alternative to coal. Nobody argues that coal will not be the main fuel for power stations at the end of the century and well beyond, but there must be an alternative and from what I have heard and seen, I do not think that the renewable fuels can realistically be expected to be usable in this generation of power station.

The noble Earl, Lord Lauderdale, mentioned the acreage required for a substantial wind station. I think that his figure was low and that the acreage required for the equivalent of a main nuclear station is nearer 400 square miles. However, surely either figure would be acceptable. I am sure that offshore is too costly. Oil is attractive, with the price of oil tending to come down, but the current price of oil is almost immaterial. The question is: what will be its price over the average life of a power station—that is to say, 30 years on? As the noble Lord, Lord Stoddart, said, by that time many things could have happened in the Middle East and the price could be totally different. I think therefore that the alternatives are coal and nuclear and I should have thought that the balance between those two sources was probably about right.

To touch on a slightly controversial point, perhaps I may mention finance. The figure for the return on capital of the CEGB which was quoted by my right honourable friend in another place last week was 2.45 per cent. I do not believe that any industry can produce expansion for the future on that kind of return. I am quite certain that a very different picture would be required in any privatisation scheme. It seems to me that that is ample justification for the increase in price, whatever happens, because we need the power.

As regards privatisation, which is perhaps an awkward subject, the amount of capital required for the new stations will be equivalent to that required for between three and four Channel tunnels, which is large. If the cost of privatisation is added, the total bill will be about the same as for nine Channel tunnels. I cannot but wonder whether those sums will be available for the period of which we are talking.

Perhaps I may say one last word about planning permission, following up something that was said by the noble Earl, Lord Lauderdale. If the planning permissions cannot be speeded up, we shall not have any power stations at all. We need 10 of them and so far planning permission has been obtained for one—Sizewell B. It is very understandable. In my own little village the parish council was foolish enough to ask the residents where they thought some additional housing should be built and every answer said in so many words, "Not near me". That is the way any locality feels when it is faced with the prospect of a neighbouring power station, whether it be coal or nuclear.

My only constructive suggestion is that the Government, if they can, should restrict the discussions to local subjects. At Hinkley Point, which I know very well, there are problems of local roads and the construction of housing which are eminently suitable subjects for discussions about planning, whereas the overall justification for nuclear power is not, given the fact that the power station will be identical with Sizewell B. I end by repeating my earlier words: security of power is essential.

5.43 p.m.

Viscount Hanworth

My Lords, I do not intend to deal at any length with the White Paper, despite the fact that I know that the Minister believed that some noble Lords would do so. I had the opportunity of putting forward some general criticisms when we discussed the enabling legislation. I shall therefore follow the convention that has been established today and make only one remark; namely, that the six principles seem to me to be nothing more than a political statement and a pious hope, without any real foundation for their realisation.

For some years—in fact for so long as we can foresee—we shall have to depend to a great extent on electrical generation by coal. To put coal and nuclear power in perspective, it is worth being reminded that coal is not the clean fuel that some people would like us to think it is. In the flue gases it produces as much radioactivity as the sum of all our nuclear stations and related processing activities. In addition, the coal-fired stations spew out large quantities of toxic heavy metals. More important, of course, is the acid rain from not only sulphur but also nitrous oxides. The latter will be reduced in new power stations only by about 30 per cent.

What is truly worrying is the increase in carbon dioxide and the consequent greenhouse effect. This is likely to have most disastrous consequences for the world's climate some time in the future. Of course that is not certain, but it is a strong possibility. It will happen when the icecaps start to melt and produce a devastating increase in sea levels. Furthermore, in 1984 in our own coal mining industry there were around 400 new cases diagnosed of pneumoconiosis, a chest disease of miners. It is probably much less prevalent today. But if the figure is projected on a European scale, in one year it is likely to produce as many potentially early deaths as the effects of Chernobyl. I conclude that until other means of generation such as renewables can provide a substantial means of power we must continue to rely on nuclear and coal generation.

That situation must lead to greater emphasis on the alternatives. The first and potentially most important is conservation and the efficient use of energy for which there is great scope in industry. To their credit, the Government are doing a great deal to promote it. For some reason, however, their efforts in the domestic private sector, which consumes about 30 per cent. of our total energy, seem feeble, to say the least. The Government decline to help in the construction of energy-saving houses by promoting an energy audit of houses for sale, as is done in Denmark. In spite of the interest of the EC in this matter, they prefer to do nothing until the EC's legislation is produced in the long distant future.

In a series of Questions for Written Answer, I have pointed out that if the Government were to pay for at least the loft insulation of existing housing stock, there could be an energy saving equivalent to that provided by one modern power station; that is to say, a sum of about £1.5 billion. That calculation takes into account the possibility that most people will use some of the savings for increased comfort rather than energy conservation.

Because of the remote risks inherent in nuclear generation and the objections to coal which I have mentioned, so far as is reasonably possible we should press forward with the other alternatives apart from energy conservation. We could and should start to build wind turbine farms. However, unless they are put out to sea and therefore become uneconomic, their contribution will be limited by environmental considerations. For my part, I believe that they could not contribute much more than 5 per cent. of our energy requirements. Some people have quoted a figure of 10 per cent. We shall only know when we have the public's reaction to the environmental effects of wind farms.

Moreover, wind farms can only provide an intermittent and lower output than their rated capacity. Even with 3 megawatt turbines, at least 800 units are needed in windy sites to match the output of one 1200 megawatt power station, and they would occupy an area of some 400 square miles.

In this context we must be quite clear that there is a limit to how far power can be shipped through the grid. First, there are the direct losses incurred in doing so, amounting to around one half of 1 per cent. for 100 miles. Secondly, unless you convert to direct current, the inductive properties of the grid transmission put the alternating voltage and current out of phase and destabilise the network. These considerations limit effective competition between distant power stations.

There are two other areas where a non-polluting source could provide a substantial contribution on a national scale. The first is the Severn barrage scheme. Accountancy and economic assessment is, to say the least, always suspect because of the assumptions that have to be made with many unknown variables. It appears, however, that the Severn barrage could well produce power at competitive rates. Most certainly, it would do so over an anticipated life of 100 years.

Most of us think that the real cost of energy will inevitably rise, probably faster than the Government's projection. The real problem is in financing the scheme. By privatisation the Government have made this much more difficult. Some government finance has always seemed necessary. Surely, the Government should provide for this and other similar purposes out of the proceeds from selling off the assets in the electric supply industry. The Government must surely realise that private industry and the market place are primarily concerned with relatively short-term financial gain. The Severn barrage is a very long-term project.

I shall make a plea on much the same grounds for combined heat and power and government financial help in launching a demonstration scheme in one of the 10 major cities which Atkins and Partners thought could be viable. Such schemes are common on the Continent. Our difficulty is that we do not have any large district heating schemes to which connection can be made. It follows that any such scheme here has a long lead time before it becomes profitable. There is the uncertainty of how many consumers would change their existing heating arrangements for connection to a heat main and the need to dig up streets to lay the heat mains. For these reasons, I believe that large district heating schemes supplied from combined heat and power will simply not get off the ground unless the Government are prepared to some extent to underwrite the cost.

I must emphasise that I also support other alternative energy projects such as heat from bore holes, landfill gas, waste utilisation, inshore wave generation, and so on. However, protagonists must realise that they can provide only a small, though useful, proportion of our energy needs.

Finally, let me say this on privatisation. It is incredible to me that, without any substantial change in the surrounding circumstances, the Government seem to veer from one extreme doctrine to another. Yes, let us have privatisation where there is a prima facie case for it. However, do not let us forget a previous view expressed as the unacceptable face of capitalism with its short-term financial objectives. It never pays to uproot an existing organisation unless there is a very strong case for doing so. It takes a long time to realise any possible potential benefit and sometimes such benefits do not exist.

5.54 p.m.

Lord Ironside

My Lords, I should like to apologise sincerely to the House for not being present at the beginning of the debate, and in particular to my noble friend Lord Beloff for not being there to hear what I understand was his very philosophical speech.

I do not apologise for talking about electricity because it is very much on our minds at the moment. In electricity, generation is at the heart of supply and it is encouraging to see all the public sector supply industries getting back into the private sector again and joining their manufacturing counterparts. Services such as piped water, gas, cable communication, broadcasting and power supply are all engines of growth with customers in front of them and manufacturers behind them.

I wish to look at electricity in particular because I am employed by one of the British heavy electrical manufacturers. There is only one other, and my noble friend Lord Prior will know exactly which one that is. I have supported electricity as an alternative energy source in transport. I have researched it and I support its privatisation.

In England, the first lights were put on in 1880 by a private company in Godalming and I expect that my noble friend Lord Renwick knows all about that because his family have been very much involved in private generation. I hope that the new distribution companies will keep them on all over the country in the 1990s. Nationalised service has had a short lifespan in this industry. In human terms it has been ashes to ashes—in electrical terms, earth to earth—in something less than 50 years. We are reminded today of this by the name of our maiden speaker, whose grandfather, as I understand it, opened the way to integrated supply in 1925. I should like to congratulate him on the relevant points that he made in his short and excellent speech.

The White Paper covers generation, transmission, control and distribution, so everybody will know their place, but absolutely nothing is said about research and development. The noble Earl, Lord Lauderdale, mentioned the subject in his speech. It is a very significant part of the equation which at the moment sits plum in the middle of the CEGB. If, as we are told in the CEGB report, the R&D spend in 1986–87 was £162 million, I believe that we cannot afford to forget it. Of this, 55 per cent. is spent extramurally; and on top of it all government departments and the Commission in Brussels put more money in. What will happen to this valuable, and most invisible, resource? We must ensure that it is properly mobilised to meet the privatisation challenge.

Technical backup is needed for four different nuclear fuel cycles and for the fast reactor if we look into the future. Further ahead there comes fusion, so there is a fifth cycle to deal with. In addition technical backup is needed for all the non-nuclear areas such as fossil firing and pollution—and this includes prevention and cure.

An interesting point was made by my noble friend Lord Weir about the foreign competition that we shall face. Because we let all the sulphur dioxide go up the spout, no development work has taken place on flue gas desulphurisation. The result is that we shall have to rely on foreign companies—probably from Japan in particular—to supply the equipment under licence to put into effect the £600 million programme for the retrofitting of the power stations here.

My noble friend also mentioned prevention. A lot of technical work is being done on prevention looking at fluidised bed combustion and also Lownox burners and that kind of thing. This means that we shall be able to rely on British manufacturers to supply in the future in this area. We need technical backup for renewals, the grids, alternative uses, advanced generation and electrical storage. It does not all happen by magic. R&D depends on people, and in order to deal with all the processes that I have mentioned a lot of qualified manpower is needed.

The lead times in power engineering are long and, where people are concerned, any sudden change such as we are now going to face can be disruptive. It takes time for people to adjust and to know how to work the new system. Meanwhile a temporary vacuum is created. The danger is that foreign competitors can move in and capture some of the ground before we have the time to pick ourselves up and face the situation, as perhaps they have already done with flue gas desulphurisation.

We must not let that happen. I implore the Government and my noble friend's right honourable friend to make absolutely certain that in going private we do not lose the essentials of the R&D resource. There must be no squabbling between Big G and Little G over who gets what. The right intramural/extramural balance must be established and the Secretary of State must make sure that he can still sponsor vital R&D work which would not otherwise be done by the new companies.

I am reliably told that the shock of having to compete in generation now means that the technical planning and research divisions of the CEGB will have to start looking at the options from scratch. In effect, all the hard work now has to begin on finding out how best to deploy all the R&D resources in the most effective way for the future. Although it might appear to be a straightforward exercise I think that that is very far from being the case when one looks at the way it is all scrambled together at the moment. For example, the Electricity Council has a controlling share in Chloride Silent Power, which has brought the new sodium sulphur batteries near to commercialisation after absorbing the General Electric research efforts in the field.

What is to happen to that initiative? What is to happen to British Electricity International, the consultative arm of the supply industry, which engineers systems for overseas customers based on British practice and hardware developments and tries to introduce British innovations into overseas power networks? In whose hands will the responsibility lie for securing EC research support for power generation, whether it be nuclear, tidal, wind, superconducting or fossil-fired? What will happen to the collaborative research panels set up by the CEGB to discuss R&D requirements and programmes with the manufacturing companies in the main plant areas? These have only just been set up to replace the Power Engineering Standing Committee, which provided up-front money for future prospects.

Who, by the way, is to supply the JET experiment at Culham with its pulsing power? Is it to be Big G or Little G or the distribution companies? If I were the director of the JET project, I should shop around for the cheapest. My noble friend Lord Weir has already mentioned that there are likely to be many differing tariffs available. The Director is French, so he might try to get his supplies from EDF via some part of the network. Who is to support UKAEA projects, BNFL projects, new combustion techniques, combined heat and power developments? I shall not go any further, because the list is endless, but the point I want to make is that R&D work in energy must be co-ordinated.

I should like now to consider the various options that we have. The first, and perhaps the worst, is that the new companies should be left to sort themselves out, which means squabbling over the resources. Some is bound to get trodden on and may disappear. I do not favour dealing in this way. Secondly, the Secretary of State can seek professional advice and referee the carve-up to make sure that none of the essentials becomes lost. That is much better, I think. Thirdly, I should like to propose that the Secretary of State draws on the resources in the heavy electrical industry to ensure that the momentum of energy growth is maintained in the power engineering field: that it drives economic growth, not the other way round. This means, too, getting science out of the universities and on to the shop floor. That is not easy, but the contract research organisations built up in this country from research associations and independent institutes have shown how to bridge the gap between the two.

I should like to propose that serious thought should be given to forming an electrical power research institute in one of the regions such as the North-East where power engineering is already strong right across the board from generation through to application. The creation of a private sector centre of excellence to serve our energy needs would be invigorating, and I hope that the Secretary of State will consider that option seriously.

In the electricity industry, we are faced with converting a primary fuel into a secondary fuel. My noble friend Lord Renwick talked about hydrogen. That is another case of converting a primary fuel into a secondary fuel. At the moment much waste heat goes up the chimney, but we must remember that other premium uses for coal may come along—liquefaction in transport, chemical feedstocks and that kind of thing. We must therefore bring some synergy into the power engineering R&D sector. What better way to do that than by creating a private sector centre of excellence in the North East which already has produced world class innovators such as Armstrong, Parsons and Swan. Edison did not get his patent on the filament lamp. It was a Swan-Edison patent. The power generation system for the SDI kinetic energy weapons comes from Newcastle. We have a shortage of power engineers in the UK. In energy-conscious countries such as France, Germany and Japan, R&D programmes in the power engineering field are highly co-ordinated and often 100 per cent. funded by their governments.

We must make sure that R&D gains ground on privatisation, that we avoid duplication and that our efforts in the shorter-term development needed for such projects as the 900 megawatt coal-fired stations match the longer-term efforts aimed at the distant prospects.

6.7 p.m.

Lord Peston

My Lords, we are indebted to the noble Lord, Lord Beloff, for introducing this important topic. Let me say to him apropos his opening remarks—or perhaps I should say it to the noble Viscount, Lord Davidson—that there is no danger of fisticuffs, verbal or otherwise, this evening. Indeed given this lovely spring day my mind turns to quite other subjects.

The debate was introduced by pointing out that we must not simply extrapolate from the present circumstances into the future. We must take the long view and the long position is extremely hard to forecast. Indeed, I stand second to nobody in your Lordships' House for making errors in forecasting. At best I hope that my forecasts are about as good as random, but I sometimes fear that they are worse than random. However that is by the way.

We must bear in mind how difficult it is to forecast, but, given the nature of the topic, it seems to me that some degree of forward looking is unavoidable. Therefore essentially built round the debate must be the paradox that it is hard to look forward, but it is extremely important to do precisely that. What is vital to be borne in mind is that what we observe at the moment need bear no relationship to what we shall see in the future. Because at present there does not seem to be an energy constraint on economic performance, and because we do not observe anything like that at the moment, we should not assume that in due course such a constraint will not appear. The difficulty is that we must look not merely into the future but a long way into the future. I am rather frightened by the literature that I read in the sense that it talks of energy shortages in the year 2020 when few of us will be here. That is a subject to which I shall return in due course.

The lead times are quite enormous. Curiously enough the general public has little idea of how long the lead times are. We are indebted to several noble Lords for reminding the House that the lead times are long with regard to coal mines in particular. One does not simply decide that one needs more coal tomorrow and start to dig. One must take as much a forward look with respect to coal as with almost any other relevant energy technologies.

While we agree that we must be efficient and economical—which are themes on which I shall have more to say—it would be a mistake to assume that the economy can grow without a growth in the demand for energy; in particular without a growth in the demand for electricity. In other words, I do not think that the argument that there is an easy way out as regards efficiency stands up for one moment. That does not mean that we should allow the efficiency argument to fall by the wayside. It means that we should be grown-up, sensible and realise that this country will require a great deal more energy input over the period with which we are concerned.

As regards economic considerations, it is obvious that we need energy which is produced as efficiently as possible—that is, technically efficient—but we also mean economically efficient in the least cost sense. However, the price that is paid for energy must represent a proper return for the resources now being put in and it must also generate a return to justify the research and investment for the future. In particular, if one is concerned with coal it must be economic to produce coal and therefore the price must be such as to justify that. With respect to oil, it must certainly be the case that we must not take our oil decisions on a price so low that it does not remotely pay companies to explore for oil in the future. We should like to have the price instantaneously as low as possible but it would be a great mistake if the system worked so that it was so low as to produce no return to justify investment for the future.

Many noble Lords, including the noble Lord, Lord Beloff, in his introduction, referred to security of supply. Security does not come for nothing; it must be paid for. It may well be that the public disproportionately wants security and that they are slightly irrational. I can remember that on the day of the great storm last year my power was cut off for approximately 12 hours. I became incredibly miserable, as did many other people, but it was for only 12 hours. I would have paid a large sum of money not to have been cut off even for 12 hours, but that is being rather irrational. Nonetheless, we have a great desire to have the power available, particularly electricity. We shall debate that in due course when discussing privatisation, but it means that there must be sufficient capacity in the system to meet the maximum demand and no less than that. However, that is not a subject for today.

Another aspect of security of supply which has been raised is imports. It is clear that the ability to buy any of the goods that we need from abroad is always advantageous. It always provides us with a buffer stop which makes life easier. It may concern the occasional import of coal or the transmission of electric power across the Channel link, and I am certain that in due course we shall be re-importing natural gas. My view on security is that it would be foolish for us to base our energy policies on external supplies. We must be as near to being self-sufficient in the production of energy as we possibly can be. I shall have a little more to say on coal in a moment but I believe that it is vital to support our coal industry and not say that it is another item that we can buy from abroad and that there is no need to fuss about it. I believe that to be an entirely mistaken view. Security of supply is important and the easiest and most sensible way to achieve it is on the basis of domestic production.

Before speaking about the possibility of energy scarcity, the energy gap and the future of coal and nuclear power, I should like to say that, as an economist, I take a rather dim view on the question of the environment. The obvious point to make is that, while a good environment is ipso facto desirable, it does not come cheaply and one cannot have something for nothing. I believe that the notion that there exists somewhere a magical supply or source of energy which is not environmentally damaging is completely preposterous. I have not yet come across one which does not have an environmental disadvantage here, there or somewhere. All the sources which seem so nice, including windmills, have certain unattractive environmental qualities. I understand that the Severn Barrage is not without its environmental impact.

That is not to under-value the importance of the environment but to say that if one wishes to have a good environment it will be expensive and one may have to pay for it in terms of more expensive processes of energy generation. It is a question of the choice people wish to make. It is important to point out that a good environment is not available for nothing.

I should now like to deal with coal. The noble Lord, Lord Mason, gave the House a rather doom laden view and uttered certain words of warning. I do not think that he was mistaken in uttering those warnings, which the noble Lord, Lord Stoddart, also mentioned. They are not mistaken in saying that there is at least one scenario for the coal industry which would lead one to be pessimistic.

However, if one carries out any kind of analysis of the likely demand for a basic fossil fuel in electricity generation, one sees that the demand for coal will start well before the end of the century and will rise rapidly. Looking at the potential supply of coal in this country, I believe that there is no reason whatever why it cannot be produced here at economic prices. What is required is a policy starting today preparing for the digging of appropriate coal mines on a large scale.

It is all very well for everyone to blame the National Union of Mineworkers for the difficulty. I do not believe that it is either right or fair to single out the NUM as the reason for us not moving ahead with coal production. The finger could be pointed elsewhere. I do not wish to become involved in such a rowing but I point out that there is no reason whatever why the coal industry cannot have a first-class future and why the demand for coal will not rise quite rapidly before the end of this century. That time is not so far away and if the demand is to be met there are things which we must do now.

I should now like to turn from coal to nuclear power and declare the reverse of an interest in saying that I speak for myself on this subject. The subject of nuclear power is fraught with controversy and one dare not commit anyone else on it. I regard the question of nuclear power as being technical: what is the least cost way of producing electricity? My difficulty is that to which several noble Lords have alluded. It goes back to the years when I advised the Select Committee on Nationalised Industries when the noble Lord, Lord Stodart, was a member. I believed then, as I believe now, that there is no one in this field whom one can trust to give genuine data from which one can calculate what is of least cost. My answer in respect of nuclear power is that such stations provide the cheapest electricity. Other things being equal, I have no doctrinaire objection to producing nuclear electricity. My worry is: who will tell me the truth about what is the actual cost?

One other matter with respect to nuclear power which has already been mentioned is the very high discount rates—and the noble Viscount, Lord Hood, mentioned the relevant rate of interest—and nuclear power ceases to be economic very rapidly indeed, which is a great pity. No industry, or very few, that I can think of would benefit more from lower discount rates than the nuclear power industry. I emphasise that from the point of view of power generation the question one asks is: what is the cheapest way in terms of long-running costs to produce this?

Perhaps I may return to one of the matters introduced by the noble Lord, Lord Beloff, because I believe that we can then infer from that what is the correct policy. He emphasised how difficult it is to forecast the future and that we have a range of options. What follows from that is that quite clearly our technical processes of production should be a mixture. Indeed, as with almost any decision of a portfolio kind, if one does not know what is going to happen for certain, then various options are chosen—a mixture of methods of production—which will minimise the risks. My view would be that we require an energy policy which sees coal, oil, gas—which we have not said much about—nuclear power and renewable sources as all parts of the relevant strategy. I introduce a slight word of controversy. The difficulty as I see it from my side is that we do not seem to have an energy policy in the first place. We ought to have this mixture, but who will take responsibility for seeing that we have it? Nonetheless, whichever way we approach the matter, a mixture seems to me of great importance and indeed is the correct way to do things.

Several noble Lords—the noble Earl, Lord Lauderdale, the noble Lord, Lord Renwick, the noble Lord, Lord Ironside—referred to research and development. I suppose those of us who press this point are always accused of riding our hobby horses, but I cannot think of any aspect of the problem which is more important than the need to reinforce research and development right across this sphere.

Perhaps I may refer to the Department of Energy. It engages in research and development, but reading the document on the subject I believe that it has a slightly grudging attitude. That may be matter of tone, and I should like it to be more encouraging, but the department does not write about research and development as if it really believes in it; that is the difficulty.

One aspect with which I totally agree is that there is already a great deal of available technology which we do not use in this country and the Department of Energy believes that one of its roles is to persuade industry to use it more broadly. There I agree. But the future of our country requires a great deal more than that in terms of research and development. At this point I shall not rise to the fly cast by the noble Lord, Lord Ironside, on privatisation. I shall save that until we debate privatisation. However, I should have thought that privatisation will fall as a case because it cannot meet the R&D test. However, I withdraw that remark because I do not wish to argue about it at the present.

Before making one or two economic comments let me say this. Several noble Lords referred to tax concessions as a way to encourage R&D, to encourage efficient use of energy and indeed to encourage more general conservation. The Government should look again at the tax side of this. As several noble Lords pointed out, it is in the national interest that we use energy economically. Therefore it is worth considering whether changes in tax structure will help in that direction. I do not put it any stronger than that.

I referred to energy gaps. Until now I have not congratulated the noble Viscount, Lord Weir, on his maiden speech. The reason I delayed is that in his excellent speech he introduced certain aspects of the balance of payments side of energy. At the moment the position is not too bad. There is still an enormous oil surplus which is a tremendously important contribution to the balance of payments over the 10 years from 1975 to 1985. We have moved from zero gross exports of oil and enormous imports to the reverse by the mid-1980s, of enormous oil exports and much less in the way of oil imports. Therefore, we have a net positive balance of payments again from oil.

However, what of the future? Even on fairly optimistic views of what will be available—and I must admit that I tend to be on the more optimistic side—the oil will start to run out by the end of the century or thereabouts and we shall start to move into deficit with respect to the oil account. If we follow what some of us believe to be the wrong path on coal imports we shall also be running into deficit on the coal account. Therefore, far from energy making a positive contribution to the balance of payments, it will begin to make a very important negative contribution. The noble Viscount was right to draw that to our attention. Again it is a matter to which we shall return.

We are indebted to the noble Lord, Lord Beloff, for introducing the debate. The topic is important and has been well worth the time devoted to it. We look forward to the answers to our questions from the noble Viscount, Lord Davidson, My theme is that these are also matters for action and in our opinion the Government have a more active role to play in supporting research, in helping to improve the environment and in preparing for the future. If the Government—and for that matter the rest of us—do not make the right choices in energy it will not only be us who suffer but future generations.

6.28 p.m.

Viscount Davidson

My Lords, this has been a fascinating debate and I start by thanking all noble Lords who have taken part in it. I shall ensure that my right honourable friend the Secretary of State for Energy is fully informed of the feelings and views expressed in your Lordships' House.

It is less than a year ago that the House discussed similar topics in great depth during a debate initiated by my noble friend Lord Lauderdale. Although there may not have been great changes in energy policy or improvements in knowledge in the intervening months, nevertheless I am grateful to my noble friend Lord Beloff for introducing today's debate which has been wide ranging and to which your Lordships have made many interesting and thoughtful contributions.

Apart from the interest that it has generated, the debate gives me the opportunity to congratulate my noble friend Lord Weir on an excellent maiden speech. He brought to the debate a wealth of expertise and experience and we look forward to hearing from him on many occasions in the future. I should also like to take this opportunity to congratulate the noble Baroness, Lady Nicol, on her major maiden speech as the official Opposition spokeswoman on energy. I noted that she had not forgotten to bring her expertise on environmental issues along with her—presumably in her handbag.

My noble friend Lord Beloff introduced the debate in his usual inimitable style. He covered the subject so comprehensively that I wondered whether there would be much left for your Lordships who were to follow him. However, there is such a wealth of knowledge and expertise on energy issues in your Lordhips' House that I need not have worried.

My noble friend Lord Beloff said that this was not an occasion for discussing the recent White Paper on privatisation of the electricity supply industry. Your Lordships were good enough to translate that into an instant convention. Perhaps I could remind your Lordships that when I repeated my right honourable friend's Statement in your Lordships' House a fortnight ago I mentioned, as a matter of courtesy, the fact that there was to be this debate today. However, I also said—and I repeat it emphatically now—that as it now appears certain that your Lordships will wish to have a full debate on the White Paper, this will of course be arranged through the usual channels.

This has been such a wide-ranging and knowledgeable debate that I doubt whether I shall be able to cover all the points raised and questions asked. If, as I suspect, I am not able to do so, I shall of course write to your Lordships where necessary. However, I will do my best.

My noble friend Lord Beloff was right to point to the changes that can occur in energy prices and to the impossibility of forecasting the future of the energy market. The noble Lord, Lord Ezra, also drew attention to that. It is precisely for this reason that the Government recognise the need for diversity in energy supply, as the noble Lord, Lord Peston, said, and to make full use of oil, coal, gas, nuclear energy, the renewables and so on. However, we have seen in the past the mistakes following from government trying to plan our energy economy. We aim to free the market and to allow producers and consumers to make their own judgments and decisions.

The noble Baroness, Lady Nicol, quoted from Hansard our last debate in July to indicate my view that the Government did not believe in an energy strategy. The noble Baroness hoped that I might have changed my view. My noble friend Lord Torrington gave the noble Baroness the short and the precise answer to that. There is only one certainty when it comes to planning for uncertain energy futures; that is, you are bound to be wrong. Trying to plan for energy supplies simply ignores the fact that one cannot determine decisions by consumers and one cannot decide what will happen in the world energy markets.

My noble friend Lord Beloff compared the fear today of possible dangers from nuclear power with the fear of witchcraft in the Middle Ages. I can confirm to my noble friend that nearly 90 per cent. of radiation to which the population of the United Kingdom is exposed comes from natural sources. Of the rest, almost all comes from medical diagnosis and treatment. The United Kingdom nuclear industry contributes much less than 1 per cent. of the total average exposure.

The noble Baroness, Lady Nicol, asked what research and development is in progress on combined heat and power. I believe the noble Lord, Lord Stoddart of Swindon, also mentioned this point. The short answer is that 18 research and development and demonstration projects worth £5.6 million are currently supported to the tune of £1.2 million from Department of Energy funds. The noble Baroness also mentioned the importance of energy efficiency and I welcome her remarks. Energy efficiency is in everyone's interests—producers and consumers alike—and there remains a great deal of scope within our economy for industrial, commercial and domestic users to make economic energy efficiency investments. The Government have played a leading role in establishing awareness of the case for energy efficiency and this has been done successfully, leading to gross annual savings of some £700 million.

The noble Baroness, my noble friend Lord Weir and others referred to the over-riding need to protect the environment. Both sides of the House recognise the need for the protection of the environment. The Government are firmly committed to this aim and the energy industries have an excellent record on the environment which we want to see maintained. Very high standards currently exist to ensure the protection of the environment with respect to both conventional and nuclear power stations.

The United Kingdom has an excellent record in controlling acid emissions. Annual total sulphur dioxide emissions have been reduced by 42 per cent. since 1970. Emissions of nitrogen oxides have remained broadly stable over the same period, while in many countries they are still rising. The CEGB's programme for the installation of emission controls at certain existing and all new coal-fired power stations will further reduce both sulphur dioxide and nitrogen oxide emissions. In addition, radioactive discharges from nuclear power stations have been and will be maintained at extremely low levels—well within the limits set by the environment departments.

I wish now to speak about oil. The noble Lord, Lord Ezra, expressed concern about the United Kingdom Continental Shelf fiscal regime and its possible adverse impact on offshore activity. The fiscal regime is, of course, a matter for my right honourable friend the Chancellor of the Exchequer, but I should point out that the United Kingdom has a good record of flexibility in adjusting the tax rules to reflect changed circumstances, and this is recognised by the industry worldwide. Offshore activity dropped in 1986 following the sudden fall in the oil price but over the last year it has picked up substantially.

My noble friend Lord Lauderdale gave your Lordships much information about renewable forms of energy generation. The noble Lord, Lord Ezra, hoped that the Government would give a fair wind to wind and tidal power. Both wind and tidal power are considered to be the most promising renewable technologies for electricity generation. Government funding of a major research and development programme is aimed at developing cost effective and environmentally acceptable technologies for both wind and tidal power and a wide range of other promising technologies.

Research and development is an essential ingredient in ensuring the continued growth and expansion of the UK economy. No government have done more to support research, particularly on the alternative or renewable sources of energy. The Government are supporting a comprehensive research and development programme aimed at exploiting the significant renewable energy resources in the United Kingdom. Over £121 million has been invested by my department since the inception of the programme and strong support will continue to be provided to ensure that their full commercial potential is realised. The level of expenditure is carefully related to the needs of the technologies. Over the next three years we expect to be spending £50 million on work in this area. United Kingdom industry and the generating boards are playing an active part in the programme, which I very much welcome.

I should reply in a little more detail to the points raised by my noble friend Lord Lauderdale. As regards tidal power, the United Kingdom has access to a substantial tidal resource and a number of sites have potential for tidal power. The Severn estuary is one of the best potential sites in the world due to its exceptionally high tidal range. The Government and the Severn Tidal Power Group have jointly funded a study of the economic viability of a private sector tidal barrage in the estuary.

Support has also been given to a preliminary evaluation of a smaller but nonetheless potentially attractive scheme for a Mersey barrage. The department is contributing to further studies to reduce uncertainties over the Severn and Mersey estuaries as part of a £7.7 million tidal research and development programme, started in July 1986. I could go into more detail but perhaps I should say that the environmental aspect is being considered very carefully.

My noble friend Lord Lauderdale asked whether a formula in a Binnie and Partners report on the potential for tidal energy from small estuaries in the United Kingdom was correct. As my noble friend said that he did not expect an answer from me today, I will of course write to him.

As regards wind, the Government's policy is to support the development of wind energy so long as it continues to look promising and until the technology has improved to the point where its cost effectiveness in UK conditions can be demonstrated, which is unlikely to be before the mid to late 1990s, following which it will be expected to compete with other energy sources without further financial support. The programme is being undertaken in close collaboration with the wind turbine manufacturers and the ESI with whom its funding is being shared.

My noble friends Lord Beloff and Lord Lauderdale both referred to geothermal hot dry rocks. The Government's geothermal hot dry rock research and development programme is working on the very frontiers of science and the Camborne School of Mines research team is to be congratulated on the advances it has made over the past three years. It was only last week that we announced a further £8 million programme of work in this area aimed at developing the technology further to a stage where a full-scale prototype HDR system can be considered.

My noble friend Lord Ironside expressed concern about the future of research and development in a privatised electricity industry. The industry will continue to need to undertake and to buy in R&D. It will be for the industry to decide how to run this aspect of its business, but I agree with my noble friend that it is vitally important.

It may well be that the two new generating companies and other parts of the privatised industry will wish to collaborate on research and development, and there is no reason why they should not do so. Outside research and development contractors will be free to compete for the industry's business. I am sure that the privatised electricity supply industry will continue to value the expertise of outside research bodies. We shall be discussing in detail with the industry over the coming months how the privatised industry can best continue its research and development. Of course, we shall be debating the subject in due course. As regards the future of AEA and BNFL work, privatisation will make no difference.

I come now to coal. The noble Lord, Lord Ezra, the noble Lord, Lord Mason, in his usual forceful style, the noble Lord, Lord Taylor of Gryfe, and the noble Lord, Lord Stoddart of Swindon, all expressed views about the future of the coal industry. Coal will continue to be the major source of fuel for electricity generation well into the next century. I am confident that British Coal can rise to this challenge if it can produce coal competitively and reliably. However, it would be imprudent to rely on a single source of fuel or a narrow group of fuels.

As I have said, we need diversity in our energy supplies to contribute to the security which noble Lords have rightly emphasised. Therefore on privatisation we shall place an obligation on the distribution companies to take a specified minimum proportion of capacity from non-fossil fuel sources. This will be set at a level achievable on privatisation. The companies will be able to contract for nuclear capacity, though renewables such as tidal and wind will have an important part to play. The obligation is aimed at encouraging diversity and security rather than in protecting a particular fuel. It will ensure that the industry takes full account of the broad national interest. I am sure that it would anyway. It is right for the Government to state clearly our strategic priorities.

Her Majesty's Government believe that coal can play a vital role in meeting the long-term energy needs of the nation. The Government have demonstrated by the high levels of investment in the industry (over £2 million every working day) that they are committed to the future of the coal industry.

As regards industrial relations, challenges facing the coal industry over the next few years will need the co-operation of all the workforce and of the mining communities. I do not wish to go into the details of the NUM dispute at this stage.

Regarding investment, the BCC is investing over £2 million every working day; and almost £6 million have been invested in the coal industry since 1979. That alone demonstrates our commitment to the industry and our confidence in its future potential.

The noble Lord, Lord Taylor of Gryfe, and I believe also the noble Lord, Lord Mason, raised the question of opencast coal. The noble Lord, Lord Taylor, referred to the fact that more than 50 per cent. of the coal mined in Scotland is opencast. I agree completely that opencast coal is an important low-cost energy resource that should be exploited. It is a vital national asset against imports and we wish to see the sector develop. It is just as important to the coal industry as deep-mined coal.

The noble Lord, Lord Taylor of Gryfe, also mentioned the subject of the current negotiations between the SSEB and the BCC. There again, all I can say today is that I hope the South of Scotland Electricity Board and British Coal will now resume commercial negotiations with a view to agreeing mutually satisfactory arrangements for coal supplies. Those are commercial matters for the two industries.

My noble friend Lord Weir spoke of his concern for the future of equipment manufacturers under privatisation. My comment upon that is that privatisation will not only provide a challenge for equipment manufacturers; but most importantly, I am sure that it will bring many new opportunities. My noble friend Lord Renwick asked what research the Government are undertaking in hydrogen. As part of our renewables programme, we have carried out a vigorous assessment of all those technologies which offer the promise of making a useful contribution to the energy supply of the United Kingdom. This has included a review of the potential of hydrogen. The review concluded that in the United Kingdom hydrogen is a long-term prospect as an element of energy supply. This remains our view, and we are continuing to maintain a watching brief on activities elsewhere in the world. I shall ensure that a copy of the review is placed in the Library of the House.

My noble friend also asked me about the expenditure on renewables compared to nuclear R&D, and whether it was a fair balance. There is no reason why the expenditure on the renewables R&D should bear a proportional relationship to expenditure on nuclear R&D. Both programmes are regularly reviewed by the Secretary of State for Energy, the Advisory Council for Research and Development and the department's Renewable Energy Advisory Committee. Both committees consider that the size of the present renewables programme is about right. It is an expanding programme with a planned increase of £2 million in 1987–88, which represents an increase of about 15 per cent.

My noble friend also asked about emissions from power stations which I have dealt with to a certain extent. I add to that by saying that we are committed to ensuring that all fossil-fuelled plant is subject to proper emission controls. This will be the case whether the stations are in the public or the private sector. In addition, 6,000 megawatts of existing generation capacity will be retro-fitted over the next decade.

My noble friend Lord Torrington asked about private generation and the problems that might arise. The 1983 Energy Act (to which the noble Lord, Lord Ezra, referred) has to some extent encouraged private generation. There are now twice as many private generators supplying the grid as there were in 1983. The CEGB has enjoyed an effective monopoly of generation. Our privatisation proposals will introduce competition into generation and allow all generators to have equitable access to the grid. Privatisation will therefore encourage small private generators in a very real way.

Lord Ezra

My Lords, perhaps I may ask the noble Viscount if he can say whether meanwhile—as it seems to have been hinted in the White Paper—there could be some modification to the 1983 Act?

Viscount Davidson

My Lords, I took note of the point raised by the noble Lord on that matter, and I had better write to him about it.

The question of rating was also raised by my noble friend Lord Renwick. I agree that private generators should be rated on an equal basis. The Department of the Environment is currently undertaking a major review of the rating system including the statutory formula by which the ESI is assessed. This will be completed in 1990 and it is hoped that equal rating for private generators will then come into effect.

My noble friend Lord Torrington also asked about the status of the EC gas directives, and whether they would continue in force. I understand that within the Community we are discussing the removal of the directive which places an obstacle on the operation of the market. Agreement has not yet been reached. I shall be glad to check the position and write to my noble friend if there is anything I can add.

The noble Viscount, Lord Hanworth, called the six principles set out in the White Paper a pious hope. As I have already said, we shall soon have the opportunity to debate the White Paper in full. In response to the noble Viscount, I say that the principles of our privatisation proposals are very much intended to bring real benefit to the electricity consumer by ensuring that downward pressure is put on cost through competition, and that future decisions about electricity supply are taken with the interests of the consumer in mind rather than being driven by the views of a monopoly producer.

The noble Viscount also asked about the national grid and made some technical points about its operation. I hope he will forgive me if I am unable to respond immediately to them. I assure the noble Viscount that I shall look at the Official Report, and that I shall write to him and give him any information that he might find helpful.

Perhaps I may conclude by emphasising two themes. No doubt the noble Baroness, Lady Nicol, will be quoting part of what I say at some future date. First, energy markets work best when governments get out of the way and allow private enterprise to move in. Secondly, governments, nonetheless, have a strategic role. They have to take a long-term view to ensure continuous security of supply. We want customers to be free to choose the type of energy they want knowing that there are thriving industries able to provide it on competitive terms. We are not in the business of producing state-directed plans laying down how much of each energy should be supplied, by whom, when and on what terms. Whenever and wherever that planned approach has been tried it has been proved to fail. There is surely a moral in the fact that those countries in Europe with the most severe energy problems are those with the most heavily-planned energy policies. I am referring to the countries of the Eastern bloc. It does not follow from that that we do not have a plan or a strategy. We do. For a start, we are committed to enlarging the role of the private sector in the production and distribution of energy. We believe that private enterprise operates more efficiently than state-owned industries. Privatisation can also allow competition to move in on monopoly, and that is good for costs. What is good for costs, is also good for prices.

We have already made substantial progress. When we took office in 1979 only 41 per cent. of energy in the United Kingdom was privately produced. The figure is now 73 per cent. I must not anticipate the debate, but following the privatisation of electricity it should increase to 87 per cent. We also believe that free markets offer the most reliable way of ensuring secure energy supplies at stable prices. The market may not be a perfect system but it is the best there is.

The fact is that government retain duties within a free market economy. As I have already stated, in energy one of them is security of supply. It is our view that diversity is the key to this. Britain is very fortunate in its energy. Nature was generous with fossil fuels. We have rich reserves of coal, oil and gas, and expectations of their extent are rising. We are self-sufficient, and we are determined to follow policies that put all our resources to good use. However, by the end of the next century the world's known finite energy resources will run out. So it would be an act of complete selfishness and recklessness if we did not now provide for other forms of energy to take their place. That is why we must diversify now out of fossil fuels. Future generations would not forgive us if we failed them.

Lord Beloff

My Lords, after a most interesting debate I am sure that your Lordships would not wish to stand further in the way of the noble Lord, Lord Mayhew, in his efforts to bring peace to the Middle East. I shall not endeavour to go over any of the ground that has been covered except to say that, even so, a great deal has not been covered. In regard to energy resources no one has mentioned biologically produced energy. There is, for example, methane from waste, which may become, and in some countries is already, an important energy source. Perhaps most surprising of all no one has mentioned the experiment on nuclear fusion, which has been going on at great expense, only partly covered by this country, at Culham in Oxfordshire. The fact that we could spend the afternoon on energy and not discuss something which if it happened would revolutionise all our thinking on the subject shows what there still would be if we had a further debate.

However, my original purpose in getting your Lordships to contribute to my education has been thoroughly fulfilled. I should like to thank all noble Lords, and in particular the noble Viscount, Lord Weir, for choosing this occasion to make his maiden speech. Having dipped his toe into the water, I hope that he has not found it too cold to come back sometime. With that, and with thanks to the Minister for his attention to all of us, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.