Electricity Industry: Privatisation

HL Deb 04 December 1989 vol 513 cc679-724

8.32 p.m.

Lord Ezra rose to call attention to the changed situation in the electricity industry following on the Government's decision to retain nuclear power generation in the public sector, and the implications of this on the proposed structure for the privatised sector; and to move for Papers.

The noble Lord said: My Lords, in introducing the debate I should like to give your Lordships some of the reasons for it. Many of us spent a long time on the passage of the Electricity Bill. Since that Bill was enacted, a number of major changes have been introduced, the most important of which was the announcement in a Statement which was read to the House by the noble Lord the Leader of the House on 9th November that the nuclear power stations would be withdrawn from the privatisation process and retained in the public sector.

We were able to have only a limited amount of time to consider that announcement. I therefore went to see the noble Lord the Leader of the House to ask whether further time for debate could be made available before too long. He was sympathetic to that request, and I am glad to say that time has been made available this evening. I am obliged to those noble Lords who have stayed until this late hour to debate the issue.

Before I proceed further, I should like to repeat a declaration of interest which I made during the passage of the Electricity Bill: I am involved in energy companies which aim to develop electricity generating systems mainly on the basis of combined heat and power, and am also interested in the distribution and usage of various forms of energy, including electricity.

I should like to draw attention to three issues. The first is a matter of principle: the extent of the changes which have been made since the Bill was passed; secondly, I should like to consider the structural implications of the changes made; and, thirdly, I want to consider the method of operation which is now apparently emerging but about which there is still a good deal of uncertainty.

I shall turn first to the principle. The withdrawal of the nuclear plants and their retention in the public sector was something for which a number of us pressed strongly in Committee and which was at that stage resisted by the Government. In particular, there was the amendment moved by the noble Earl, Lord Halsbury, which was supported by a number of us on all sides of the House. The Government's subsequent intention to make that change after the Bill's passage prevented us from considering the further implications of the move. Furthermore, there had been a number of other substantial changes, and so the matter of principle that I should like to raise is as follows. Is it entirely desirable that through the normal legislative process both Houses should spend a great deal of time going through measures which are subsequently changed through government action?

When the noble Lord the Leader of the House read the Statement, I asked whether a constitutional issue was involved. He said that there was not, and on looking at the Bill I agree. What the Government have done is strictly in accordance with the letter of the legislation; but it goes wide of what was the apparent intent at the time we were considering the legislation. That is the issue of principle that I wish to raise. It would be an unfortunate precedent if that were to be done too often. It would mean that we could be debating on the basis of certain principles and a proposed structure, and find that after all the legislative deliberations had been concluded an entirely new situation had arisen.

Having stated that point, I should like to move on to the structural implications. The structure which the Government proposed in the White Paper, and which was subsequently carried through in the Bill, was to divide the CEGB into two parts: National Power and Power Gen, the one having 70 per cent. of the capacity and the other 30 per cent. The reason for that was clear. It was that National Power was meant to accommodate the nuclear element, and therefore it had to be sufficiently large to do that. Those of us who disagreed with the nuclear element being in the privatisation process, of course spoke against that proposal; but at least there was some logic behind it.

The question that is now raised, however, having retained nuclear power in the public sector is: is that structure still valid? I should like to quote from our debate on 18th July when we had reached the stage that the Bill do now pass when I said: Had there been a more rational restructuring, with at least four generating companies being the descendants of the CEGB: a separately owned nuclear company, with all its attendant problems; an independently owned grid company, and then the 12 distribution companies, I think that we would have had a basis on which real competition could have developed".—[Official Report, 18/7/89; col. 739.] That was said sometime before the Government decided upon the changes which they made.

As regards the Act, it would be all right for the Government now to rethink the structure. Under Section 6(1), the CEGB's property can be divided into three or more companies so there is a provision for having a review. Furthermore, there was a hint, if I understood him aright, of a possible modification in the Government's attitude contained in a phrase used in another place on 9th November by the Secretary of State for Energy when he said: We have no intention of changing the allocation of assets at this stage". —[Offical Report, Commons, 9/11/89; col. 1178]. Does "at this stage" mean that it might be considered at some future stage or not at all? If it means at some future stage, would it not be wiser to do it now? There is a strong case for reconsidering the structure of the privatised sector of the industry.

The Government should bear in mind what happened in the gas industry where, within a relatively short period of its privatisation, as it stood, it was referred to the MMC and various major changes had to be made. That was an unsatisfactory state of affairs and should be avoided in any future legislation.

One of the consequences of the duopoly which the splitting of the CEGB into two parts has created is the introduction of what are known as contracting limits. These are limits which the Government have agreed should be introduced in competition. As your Lordships well know, for the first four years of privatisation there will be a limit on the amount of competition to those companies taking one megawatt or more. As far as the two generating companies are concerned, they are limited to 15 per cent. of the market. Those proportions are then altered in the next four years and finally removed after eight years. I suggest that these contracting limits, which will impinge on the amount of competition, would not have been necessary had there been a larger number of generating companies from the start.

Finally, I wish to come to the question of how the system is to operate. We have a grid company which will be owned by the 12 distribution companies, itself a bit of an anomaly. I agreed with the removal of the grid company from the generating companies, but on the same grounds I disagreed with it being passed over to the distribution companies. During the Committee stage, after much questioning the Government made it clear that, although it was technically owned by the distribution companies, the grid company would operate pretty independently. If so, perhaps that could have been recognised from the start.

However, I wish to ask how the use of the grid will function under the latest proposals. There have been many ideas about various "pools", as they are called, into which the electricity supplied would fall and then be redistributed. The present arrangement is that there should be what is known as a "unified pool". According to that, the generators will sell at one price and the suppliers will buy at another. It seems to be complex set of arrangements in order to come to the prices. There will also be a factor known as "LOLP", which stands for loss of low probability. As I understand it, that could involve substantial penalties for generators who fail to provide all they offer at periods of strong demand.

I think it is important that we all understand the proposed system. I hope that the noble Viscount will be able to tell us about it. This is not only important for everybody who uses electricity, but it is particularly important for those who want to enter the market. I have already declared my interest; I am one of those who would like to come in to the market. But unless we know how the system will operate, that will be difficult.

In this context when the noble Viscount tells us how the pool arrangement will work, perhaps he will say how the pricing under the pool arrangements can be reconciled with any contracts which are made between generators and their customers. Will there have to be a settling up after the end of each month of the discrepancy between the payments made under the pool system and the contract system or will they be linked together in some other way? To what extent will there be scope for smaller generating companies to set up under the system? Will there not be a temptation on the part of the distribution companies to chance their arm on the pool system and just hope that they can get the best deal on a short-term basis, without any forward contractual obligation? I think that these questions need to be answered.

As regards contracts, I wish to inject a positive note which I feel pleased about in view of my past association with the coal industry. It is that I understand that British Coal has just announced that it has made a three-year supply contract with National Power and Power Gen. That is a desirable situation and I am pleased that it has been achieved even though so much else seems to remain a bit uncertain.

Under the heading of operational functioning of the system I turn to the question of where the obligation to supply will rest. At present it rests with the CEGB. We were told in the White Paper that this obligation to supply would be transferred to the distribution companies. But there have been reports in the technical press to the effect that that has now been modified. I presume it has been modified because, as the market is opened up, the distribution companies would well ask how they can be made responsible for supplying electricity to people who are no longer their customers. If that is the position, I think that we ought to know where we stand on that important issue.

I wish to summarise my remarks and say that much has changed since we debated the Bill. Unfortunately much still remains unclear, or perhaps it is just that it is imperfectly understood. I hope that the noble Viscount will feel that this debate will give him the opportunity of clarifying a number of issues. The electricity industry is one of the most important and basic in the country. It is vital that we should all be clear how it will operate under the new circumstances. My Lords, I beg to move for Papers.

8.46 p.m.

Lord Peyton of Yeovil

My Lords, I feel sure that your Lordships will be grateful to the noble Lord, Lord Ezra, for having given us the opportunity to look again at the problems of this important industry. I find it impossible to disagree in any way with his concluding comment that much has changed since we debated the Bill and much still remains unclear. I hope that my noble friend will consult his right honourable friend after this debate and ponder over what has been said.

The new Secretary of State is heir to a measure of which the benefits seem exceedingly uncertain and the hazards very real. At one stage during our debates, his predecessor referred to one of the amendments passed by your Lordships' House as "a bit of a dog's breakfast". I very much doubt whether any dog —however keen on its food —would descend to making a meal of the Bill which my right honourable friend the former Secretary of State wished upon the industry.

My right honourable friend the new Secretary of State has —I think wisely—followed the advice contained in the amendment moved from the Cross Benches by the noble Earl, Lord Halsbury, and supported by many of us, as the noble Lord said, on both sides of the House. It made no sense and it was not practical politics in any way to include the nuclear stations in the measure. At the time the Government refused to listen to that argument. Since then, however, my right honourable friend has decided that it is right.

I understand that the measure has left the noble Lord, Lord Marshall of Goring, somewhat disturbed and unhappy. I do not wish to make too much of the point, but I cannot help feeling sad that at no stage did your Lordships have the advantage of the counsel of the noble Lord, Lord Marshall, whose knowledge of the industry is consummate and possibly unrivalled. I am very sorry that the noble Lord, Lord Marshall, did not stick to the opposition which he expressed to the measure. He did not oppose the principle of privatisation but the way in which it was done. If he had opposed it it would have been very difficult, if not impossible, for the Government to proceed.

As the noble Lord, Lord Ezra, said, my right honourable friend has dealt one very sharp blow to the rickety structure set up by the Act. That gives my right honourable friend a very real chance to take another long and serious look at what remains.

There are two principal concerns which I should like to bring to your Lordships' attention. The first is that of cheaper electricity and the second concerns security of supply. The impact of the new entrants from whom competition will flow is likely to be delayed for many years. When those new entrants appear, they will most surely demand an assured return upon their investment. That will involve a share in the base load. I am of the opinion that they are likely to resile from the costs of building very large stations. Therefore, they will forfeit possible economies of scale. If they succeed in achieving cost reductions, then I cannot see any incentive for them to pass on the benefit of those reductions to the consumer. For those reasons I believe that it is wrong to hope for too much from the impact of new arrivals into the industry for many years ahead.

I also believe that the severance of generation and transmission will carry with it very serious risks. Some time ago the Central Electricity Generating Board estimated the cost to be between £500 million and £1 billion. The then Secretary of State would have nothing of that. However, no serious attempt has yet been made by the Government to assess the additional cost which would arise. This is a serious point on which I hope that in due course my noble friend will be able to help.

It is certain that in the new arrangement complexity of regulation, of contract and of relationships will replace the simplicity of the present system. As if that was not enough, the Act lays down that the Secretary of State and the director general of the supply industry will have many shared duties. It would have been sensible to have placed those duties upon the shoulders of the director general and made him answerable to the Secretary of State for their proper performance. However, for these duties to be performed jointly between the two makes no sense at all.

I turn briefly to the question of security of supply, which is all important. The effects on severance, the complexity of the new arrangements and the shared duties to which I have referred are additional hazards in the way of security of supply. There are other powerful arguments. In the past when there has been a crisis, due to weather or some other cause, the present system has afforded the advantage that all resources have been under one central control. They have been mustered and used in the best possible way at times of great pressure. It is difficult to imagine that being repeated under the new system.

I have been discussing the short-term situation. In the long term one must be concerned about the adequacy of capacity. Who will be able to plan and ensure that it happens? With the present system there has always been the danger of the need for more capacity being forgotten until the arrival of a very cold winter when everyone becomes conscious of the need to increase capacity. This has been done, as is our way in this country, after the need has passed. I hope that the Government will give their attention to the question of whether the new system, which has been wished upon the industry, is able to ensure a margin of capacity sufficient to meet the needs of emergencies as well as expanding use.

I turn to the duty of supply. I have always thought it very strange to impose a duty of supply upon those who have no capacity to produce and who are unlikely in the indefinite future to possess such a capacity. The Act places the duty upon the distributing companies. I am not sure where that duty lies now. I am not sure that it has any real meaning. I hope that the Government will in due course be able to give us some guidance upon that matter.

The national grid is in a central position. Like the noble Lord, Lord Ezra, I do not understand how the unified pool system will work; nor do I understand how the system of payment will work with promptness or efficiency, or how anybody can rely upon it, I have no confidence, despite the assurances which we have received, that the merit order will survive. I fear that it could degenerate into a system not much higher than Buggin's turn.

The Government are fortunate to have available at this turn the people who are currently serving on the board of the national grid company, particularly Mr. David Jeffries. I am sure that such people will do their utmost to make the system work. However, I still believe that it is incumbent upon the Government to avoid putting any unnecessary obstacles in their way.

I turn now briefly to the position of the Director General of Electricity Supply, who has been appointed to shoulder very heavy responsibilities. I very much doubt whether either his knowledge of the industry or his powers will match up to his responsibilities and duties.

There will inevitably be those involved with the industry or in the Government who will consider that it is now their duty to make the best of a bad job and to make the present arrangement work somehow. My plea to my right honourable friend and my noble friend on the Front Bench, as well as to those engaged in the industry, is to take a careful look now, while there is time and before irreparable damage has been done, to see whether in their judgment the system can really be made to work. If, after that reflection, they conclude that the risks are too great, I hope that they will face that fact now and not leave it and hope for the best. I hope that they will take effective and courageous action now, as they did over the nuclear content of the industry, and make sure that other defects are cured in a similar way while there is time.

9.1 p.m.

Lord Stoddart of Swindon

My Lords, I too should like to thank the noble Lord, Lord Ezra, for bringing forward this matter tonight. When a spokesman from the Liberal Benches, a spokesman for the Conservative Benches and a spokesman for the Labour Benches are in broad agreement on a matter, then it is incumbent upon the Government to take very serious notice of what is said.

We are all saying that the industry is a hotchpotch; it is a mess and cannot work effectively and efficiently in its present form. That is why we want the Government to take further action and have another look at the way in which the industry has been privatised to ensure that it operates to the good of the customer.

It is incumbent upon the Government to do so bearing in mind that they have broken up an integrated electricity supply industry which has served this country well for 38 or 39 years, which has given the country security of supply, a generating capacity and a secure system which is the envy of the whole world. In those circumstances the Government should consider very seriously whether the organisation which they have now imposed upon the industry will work.

None of the components of the industry believes that it will. Indeed many of the components do not understand what they are to do. We have just heard that the new grid organisation does not know what it has to do. We have heard that it will be difficult for it to operate in the same efficient way as previously when the merit order list was used to give the consumer the cheapest possible electricity at any given time. Therefore it is incumbent upon the Government to reconsider their attitude. Our charge from these Benches is that if the Government had only thought about the matter, if they had only considered all the implications and if they had only studied the costings in the first place they probably would not have embarked upon privatisation at all.

Let us consider the nuclear problem. It is the removal of the nuclear component from the privatisation programme which has given rise to this debate tonight. If the Government had listened not only to this House but also to experts in the nuclear and generating fields, they would have known that there would be great difficulty in privatising the industry with its nuclear component. They only had to look across the water to the United. States to see what has happened to the nuclear industry in that country to realise that no private organisation could possibly undertake a nuclear programme and make it profitable. If they have not been able to do so in the United States over the past 10 years it is certain that we could not do so in this country. That was experience that the Government chose to ignore.

At a late hour, after ignoring the advice of this House, after the Bill had become an Act, the Government decided that they had to take the advice of this House after all. Having listened to the arguments of the nuclear lobby over a long period or time, having listened in the Select Committee on Energy in another place to the justification for providing even more nuclear energy based on figures which could at best be described as unrealistic, having in this House on numerous occasions been told that nuclear energy is competitive with energy from fossil fuels and in particular coal, I feel rather aggrieved. I feel aggrieved that the country and people in this House and in another place —the electricity consumer —have been misled over a long period of time as to the beneficial effects of nuclear energy which are now proved to be so illusory.

When the Secretary of State made his announcement in the House of Commons on 9th November, he told the House: the state-owned nuclear power company's successor for the nuclear element of the CEGB will be a cash-positive company and will earn profits, not make losses. As both sides of the House must recognise, we have made a substantial investment in nuclear power. It is producing returns, and it should finance the cost of the Sizewell B project, with which we wish to continue because we believe it to be an essential part of maintaining the nuclear option". —[Official Report, Commons; 9/11/89, col 1181.] So, even at that stage, when private industry had said, "We do not want any of this because it will not make profits", the Secretary of State was still telling the House of Commons and the nation that the nuclear industry would be profitable. Yet we know from a leaked report that the cost of nuclear generation will be between 6.25p and 7p per unit as compared with 2.8p per unit for coal-generated power. We are still being told that nuclear power is competitive. It will be competitive only because of the fossil fuel levy. In other words, the coal-producing stations will subsidise the nuclear power stations and the electricity consumer will pay for those extra costs. I hope that the noble Viscount will confirm that point when he replies tonight.

However, the position is even worse than that. We now know that the nuclear industry has misled this House, the House of Commons and the nation and has not been under the proper control of the department or of Ministers. We know all that, yet, in spite of what has happened, the Hinkley Point inquiry is still to go ahead. We learn from Mr. Collier, who is chairman of the new nuclear board, that he wants even more of this nuclear power which is so inefficient and has not served the country well. An article in The Times of 1st December stated: Mr. Collier in effect rejected the arguments about the financial risks of nuclear power that led the Government to withdraw the Magnox and AGR reactors from privatisation when the Central Electricity Generating Board is split into National Power and PowerGen". Mr. Collier rejects the arguments. He does not agree with anything that the Government have said. He went on to say that: He regretted the government action to defer a decision for five years on the possibility of building the second PWR-type pressurised water reactor at Hinkley Point, Somerset. He said he was determined that the construction and commissioning of the first PWR, at Sizewell B, in Suffolk, would be completed on schedule and at its present cost estimates". I should like to know what the present cost estimates are. Are they the original £1,200 million or the £2,000 million as reported in the press? Mr. Collier went on to say: Make no mistake about it, it is my ambition to build more nuclear stations". In spite of all that has been said, Mr. Collier is determined to build more and more nuclear power stations at whatever cost to the consumer.

We are entitled to know exactly what the Government's attitude is on this matter. It is unthinkable that electricity consumers should be even more burdened with the costs of generating electricity by nuclear power which is wasteful of manpower resources and not competitive with coal. I think we are entitled to hear from the Government exactly who will be in charge of this nuclear component. Will it be those who have so misled the nation in the past or will it be the Government themselves who will ensure that no further nuclear power stations are built until it can be shown in hard commercial terms —I repeat, in hard commercial terms —that they will be beneficial to the community and will provide electricity at at least the same cost or, even better, at a lower cost than coal produced from fossil fuels.

9.14 p.m.

Viscount Hanworth

My Lords, the time is now past when we can usefully attack the Government's folly over the privatisation of this great industry. In previous speeches I have mentioned the undeclared reasons why they decided on that policy. I shall now say only that cheaper electricity for the consumer is nothing more than a smokescreen and is almost certainly unachievable.

When the Government decided on the privatisation policy they swept aside all difficulties and disadvantages by saying that they would be resolved. Consequently there have been many areas in which problems were not faced at all and where compromises and last-minute changes have had to be made. This is particularly obvious in the nuclear field where sincere warnings from many responsible quarters went unheeded. For years it was said that nuclear generation was cheaper than coal and until very recently the economics of PWRs looked very promising.

What has happened to upset that rosy picture is largely because of the increased cost estimates for decommissioning reactors at the end of their life. Partly it is due to the use of different accounting methods. But the major reason is British Nuclear Fuels' increased cost for processing the fuel elements. That has been caused by expensive measures required to improve radioactive discharges at Sellafield. When a Magnox reactor is decommissioned, roughly eight times as many fuel elements have to be processed as is the annual requirement for a working reactor. Thus, the charges for doing so become very significant. Maybe all that should have been foreseen earlier, but the failure to realise it is not quite as bad as may appear at first sight. Taking our nuclear generation programme as a whole, it should have been clear that any group of private investors would be unwilling to put up a large amount of capital involved in a new nuclear station and to accept the political risks of nuclear power.

What should the Government now do? I have always been a supporter of nuclear power as at least an alternative method of generation which does not have carbon dioxide emissions; but frankly I do not know. I have a very real fear that our generating capacity may be insufficient and that the lights will go out before private generation can meet the demand. When one looks into our past experience in this field I am doubtful whether it is wise to think about the allegedly smaller, safer, new designs of PWR —SIR being one of them. Perhaps after all the debate on cost and performance we might even go back to the proved design of the AGR, which is so successful in Torness in Scotland. But if there is to be a change of government in the next two or three years, we do not want to see again any reversal of policy leaving idle possibly half-built reactors, as happened in America.

With those considerations in mind I think that we should not at present go beyond building the new PWR reactor at Sizewell and the proposed one at Hinkley Point. Instead, the Government should put the capital that they would otherwise have to spend into energy conservation. Of this, although Friends of the Earth may say that more than 50 per cent. is theoretically possible, at least 20 per cent. is practicable, given government help and encouragement.

I do not think that in this debate I should state the ways in which the saving is possible, but, believe me, it does not lie in just improving the thermal insulation of existing houses. Such a policy would have the most potent effect on the carbon dioxide problem. I cannot understand why the civil servants in the Ministry are so half-hearted and apparently antagonistic to this approach, saying, as they did recently, that all gains resulting from better insulation of houses will be taken for increased comfort. Some would be taken in this way, but a vast gain is possible.

Returning now to some of the areas of privatisation that seem to deserve comment, few of us can accept —as has already been said in this debate —that the merit order of bringing power stations into use will work out as well as the old CEGB system. For one thing, there is the added complication of agreed contracts to supply. It must be recognised that shipping large quantities of power any appreciable distance—perhaps as far as 100 miles —is uneconomic because of the losses and destabilisation of the grid. Competition in generation in any big way is largely a chimera, put about as one of the justifications of privatisation.

Finally, we must not forget the all-important effect of these changes upon staff and the need for retention of our trained and skilled people working in the nuclear field. They are far more important than bricks and mortar, both now and in the future. Once again the Government have pressed ahead without considering this aspect. Marchwood may be the tip of the iceberg.

9.22 p.m.

The Earl of Lauderdale

My Lords, like other noble Lords who have spoken, I should like to thank the noble Lord, Lord Ezra, for initiating this debate. We ought also to say a word of welcome to my noble friend Lord Ullswater, who sits on the Front Bench to take a barrage of questions, and in effect attacks, on matters of which he is not guilty and to which he comes as a neophyte. Having said that, I am quite sure that we should congratulate the Government on at least seeing the light and agreeing at last that the nuclear element must be kept in the public sector. However, the statements that we have had explaining the decision are not altogether clear. I hope at the end of the debate to be able to do more than congratulate my noble friend on the clarity of the Governments' evasions.

For example, there is a puzzling piece of evasion about the CEGB which has to be cleared up. The Secretary of State is on record as saying: It was only on 11th October that I finally managed to obtain the figures that I needed to make this decision, having pressed very hard from the moment that I took up office". —[Official Report, Commons; 9/11/89, col. 1181.] That was after all more than two months earlier. He had to press very hard indeed to obtain the figures which enabled him to take that decision. How is it that he had to treat the CEGB like a dentist, extracting a wisdom tooth without an anaesthetic?

More than 10 parliamentary days after the disclosure that all the reactors are now to be kept together in the public sector, one is entitled to ask certain questions. And it simply will not do to say, as was said in a Written Answer in another place: Costs of electricity generation are a matter for the CEGB". The CEGB is going out of business and this whole matter turns on the costs and prices.

It is even more important to be frank and clear about that when we read, also in a Written Answer in another place, on 1st December at col. 451 of Hansard: The Government seek to ensure that the UK has adequate, diverse and secure supplies of energy in the forms that people want at the lowest realistic prices. They aim to achieve this wherever possible by ensuring that energy prices reflect their true economic costs". It goes on to deal with competition.

What are the relevant figures that caused the Government to take the decision? What were the figures that were grave enough to cause the Government to take the Magnox stations back into the public sector and to do so almost before the Royal Assent was dry on the parchment? We have not been given the figures but we have been faced with a gigantic U-turn. We must also know what the corresponding levy will amount to, which we have always been promised will take care of the extra cost of nuclear.

In July we understood that the reason for keeping the Magnox stations in the private sector was the early incidence of decommissioning costs. We now understand that they can last longer. What has happened? How is it that in July the decommissioning costs were a death blow and now decommissioning can be postponed? We do not know what has been changed, and we are entitled to know. How much longer will the Magnox stations be kept in being? What provision is now being made for their decommissioning costs?

We are entitled to ask, what is the Government's nuclear policy? We are told that there is concern about the price of nuclear power because the capital charges and return on investment have emerged as a serious factor. We are told that provision for future decommissioning is a serious factor. We are told that as a result there will be a five-year pause before the commissioning of new stations. At the same time we are told that we are to keep the nuclear option open. Those are mere phrases. The nuclear option is not kept open simply by having a pause of five years and having one new station. Many other issues are involved in a nuclear policy, not merely keeping one station going.

If, as we are told, nuclear power is uneconomic —for that is the implication —at what price would it be economic? For example, what do the Government say to figures that would not commend themselves to the noble Lord, Lord Stoddart, but are produced by the OECD Nuclear Energy Agency in collaboration with the International Energy Agency and UNIPGDE, the International Organisation of Producers and Distributors? They put the base load nuclear power cost for Western Europe as a whole at about 2.3p per kilowatt hour as against 2.4p for electricity from coal.

One must ask whether, in regarding nuclear power as uneconomic, the Government are counting decommissioning costs. If they are counting the costs, what are they? If they are not, why do they say that they are uneconomic? What about the provision of capacity? Is private enterprise expected to keep the lights on? At the moment it does not look like that. Over the past six years noble Lords from all parts of the House have issued warning after warning that we are heading for a shortage of generating capacity at the end of the century. That has been said a dozen times from all parts of the House.

Those warnings were scoffed at, ridiculed and laughed out of court by the Government. What happened when the last Secretary of State took office? The first thing that he did was to tell Members in another place that, unless we do something about it quickly, there will indeed be a shortage of 13 gigawatts by the year 2000.

My Lords, is that still so? If that is so, why suspend the project for another three nuclear power stations? That will make the situation worse. Are we to rely still further on electricity imports from France? If so, at what price? Are we really expected to buy electricity from France cheaper than we can make it ourselves? The French will have us over a barrel and we shall not be in a position to do other than pay whatever price that the French ask.

Another obscurity has emerged regarding the merit order. The privatisation plan was to switch the grid merit order from cost to price. My noble friend the Leader of the House told us on 9th November: The stations with the lowest operating costs will be run first".—[Official Report, 9/11/89; col. 972]. That may have been a slip, and if it was, we shall let that go. However, I wonder, as has been the implication of other speeches this evening, whether the merit order may not now come to be based on some new combination of price and cost. For example, will the electricity from nuclear stations be taken by the grid at price or at cost? We are entitled to know.

I sincerely wish my noble friend Lord Ullswater an enjoyable and useful tenure in his exposed office. It is an exposed office. His head is above the parapet and will be so for a long time. All of us have been impressed by his performance at Question Time and wish him the best of British luck. However, one thing is absolutely clear —and he must have learnt this himself, although he is perhaps not in a position to admit it —the project to privatise the electricity industry is already in a perfectly hopeless mess. We really need the Government to stand back and take a very serious look at the whole question before going any further.

9.32 p.m.

Lord Hatch of Lusby

My Lords, like other speakers, I thank the noble Lord, Lord Ezra, for his pertinacity in pursuing this debate. He and other noble Lords on this side of the House fought many battles side by side during the course of the Electricity Bill. I do not accept all that he has said this evening because, like my noble friend Lord Stoddart of Swindon, I am diametrically opposed to the privatisation of the electricity industry. I am not concerned about the question of how competition can be promoted within it.

There is another issue which the noble Lord raised with which I am in at least partial disagreement. When he looked into the constitutional side of what has happened to the Act, he said that the Government had kept to the letter of the law and Constitution but he at least suggested that they had broken the spirit. I am not so sure that they have kept to the letter and it seems to me that there is at least a case to answer as to whether or not this has now become a hybrid Act as a result of the removal of the nuclear element from the Act as we debated it in this House and as it was debated in another place.

I refer briefly to the point raised by the noble Earl, Lord Lauderdale. I believe that the Government should make their position on this absolutely clear this evening. The noble Earl seemed to wonder whether nuclear generated electricity would be accepted or rejected according to its cost. My understanding of the legislation is that nuclear generated electricity will have to be accepted in any case, whatever its cost. That is written into the 20 per cent. allocated to nuclear-produced electricity. If that is the case, it is quite obvious from all the figures that have been given that the cost of electricity will go up severely under privatisation. We are entitled to an answer from the Government as to whether or not that is the case.

The Government's whole philosophy of privatisation has surely been totally shattered by their experience of the past few months and the U-turns that they were forced to make by their own standards of market forces. They talk about privatisation in order to increase competition and yet in the legislation, as it was originally debated here, the Government fenced off nuclear energy and drew an economic ring fence around it. What kind of competition is it in which one protects one part of an industry, the most expensive part, and then adds on to that a provision that non-fossil fuel energy shall have the right to provide 20 per cent. of generating power, and that in addition there will then be a levy on fossil fuel? Is that competition, market forces and the free play of the market that the Government believe in? In fact it is taxing one part of the industry and the consumer in order to subsidise nuclear-generated electricity. That is surely quite contrary to any normal business practice in this or any other country. It was therefore quite naturally and inevitably rejected by the City investors. Now I understand that this practice is about to be investigated by the EC as breaching its regulations on competition. Are the Government happy to be at least accused of breaching the EC regulations on competition?

The whole of this story is one of pig-headed protection of the nuclear industry while ignoring the facts. Ministers have said that they only obtained the figures on 11th October. In fact they had the figures in this Chamber and in another place long before 11th October but they just brushed them aside and refused to consider them. If they had paid attention to the figures then, they would have known that what they were arguing for was economic fantasy.

Further, after abandoning three of their proposed PWRs, the Government declared that they would continue with Sizewell B. Why is that? Is it the case, as has been widely reported, that the costs of Sizewell B had by last September risen by 10 per cent? I do not state these figures; I am asking the Minister to give us the figures. What is the present Government estimate or the present CEGB estimate of the increased cost of the building of Sizewell B? It has been estimated that the continuation of Sizewell B will cost £1 million a day for each of its planned 35 years of life. Those are not just idle figures. Are those figures correct and, if not, what are they? As the noble Earl has said, we are entitled to know.

During the course of the debates on the Bill we were told that the figures we were giving were not accepted by the Government. They have now had new costings done. We are entitled to know what they are. This debate affords the Government the opportunity to tell noble Lords and the country the figures on which they base the future of their energy policy and in particular the future of their nuclear energy policy.

As regards Hinkley Point C, what on earth is the purpose of continuing the inquiry? Is it not clear from the Government's own Statement that nothing should be done at Hinkley Point until 1994? Why are they continuing to spend public money on a public inquiry? As a result they are greatly undermining the confidence of the local people, particularly in the village of Combwich and its surrounding area.

It is widely believed in that area that already installations are being prepared for Hinkley Point C; that there is generating machinery on the high seas at this moment. I wish to know from the Government whether or not that is correct. A great deal of anxiety has been expressed at the public inquiry, which has cost a great deal of money. Will the Government pay the costs of the objectors as the Hinkley Point C inquiry continues?

It is quite obvious to anyone with common sense that the nuclear option is closed. Is it not time to cut our losses rather than to go on adding more rising costs, exponentially and not just arithmetically? Above all, is it not more than time that the Government reassessed their whole attitude to energy efficiency? Increasing numbers of scientists are trying to tell the Government and the public that the only safe way of producing energy without increasing the greenhouse effect is by energy efficiency.

This is the third time that I have faced the noble Viscount on this issue. I have sympathy for him. As the noble Earl said, he has inherited an impossible task. But it is not good enough to say that the budget of the Energy Efficiency Office has been cut because it has been successful. Has it been successful? Who thinks it has been successful? It has not been successful. There is a great deal more work to be done in energy efficiency over many years and yet the Government are cutting its budget.

Why do the Government ignore or repudiate the Select Committee on Energy of another place when it says that market forces will never reduce those gases that are creating the greenhouse effect and that pollution can be stopped only by a mixture of incentives and penalties? Why do the Government reject that philosophy, and what do they have to put in its place? Surely they know from their experience in the electricity industry that market forces do not work. Market mechanisms will not work. The profit motive will not clean up the atmosphere.

I should like to ask the Minister another direct question. I told him last week that, according to our understanding of government figures, if emissions of carbon dioxide continue at the present rate, they will increase by 73 per cent. over the next 30 years. If that figure is wrong, will the noble Viscount give the House and the country the Government's estimate of the increase in emissions of carbon dioxide over the next 30 years, both from coal-fired power stations and from the automobile? Will they desulphurise; and if so what will be the cost?

Finally, what is the Government's attitude, having learned a bitter lesson from nuclear energy, to renewable forms of energy? Did the noble Viscount read the letter in yesterday's Sunday Correspondent by Mr. Sharpe from the Department of Aeronautical Engineering at Queen Mary and Westfield College, University of London? He stated categorically that energy from wind and wave power could be enough to supply all current United Kingdom electricity needs, and much more than enough if energy conservation were pursued seriously. He said that it would produce cheap electricity —electricity at about 2.5p to 3p per unit. Can the Minister confirm or deny Mr. Sharpe's estimate? What resources are the Government now planning to put into the development of renewable forms of energy? Can the Government not see that if they decided to put into the research and development of renewable energy the same resources as they have put into nuclear energy, and if in addition they gave the resources to energy efficiency, they would be doing something constructive both for safe and cheap electricity generation in this country and for the preservation of global cleanliness on which our planet depends.

9.49 p.m.

Lord Nelson of Stafford

My Lords, I add my thanks to those already expressed to the noble Lord, Lord Ezra, for initiating this extremely timely debate. Many important issues have been raised by previous speakers. I shall confine myself to one, which has already been touched upon by my noble friend Lord Lauderdale. My question is this: does the decision to retain nuclear power stations in the public sector mean a change of government policy towards nuclear power? If that is so, it has very serious implications for the long term security of supply. It also affects not only the supply industry but also the nuclear construction industry and the many thousands of people employed therein.

As noble Lords will be aware, on many occasions the Government have made it clear that they support the maintenance of the nuclear option as an alternative source of energy for future generations against all eventualities and also as a possible defence against excessive contamination by CO2 —in other words, the greenhouse effect —maintaining what is now becoming known as the no regrets policy.

As recently as 8th November, at the United Nations General Assembly, my right honourable friend the Prime Minister referred to the fact that nuclear power was the most environmentally safe form of energy.

Government policy in this respect was supported first by an ongoing programme of nuclear stations beginning with Sizewell B, to which reference has been made, with subsequent stations to follow thus ensuring the advantages of replication and a move towards the type of cheap nuclear power which is now readily available from France. Government policy also reserved 25 per cent. of the generating capacity to non-fossil fuel and that was supported by a long term collaboration agreement with our friends on the continent in support of work going ahead on fast reactor technology.

However, it now seems that all this may be changing. Well, is it? That is the question which is in my mind. As I understand it, there are now no ongoing power stations beyond Sizewell B; in other words, no replication, no continuing work for people there employed. Moreover, there are reservations about the amount of non-fossil fuel sources which will be reserved in the power programme —that is a doubtful element. The head of the AEA, the research centre of our nuclear power programme, has been transferred to a new post where he will run the nuclear power stations. So far as I am aware, no new appointment has yet been announced in this respect.

I ask my noble friend on the Front Bench whether the Government are aware that a feeling is spreading throughout the nuclear power industry that government policy has changed and that the long term commitment to nuclear power has been abandoned. This is a very unhealthy state of affairs. Is my noble friend also aware that there is a growing feeling of uncertainty in the industry that there is no future therein? Again, this is a most disturbing factor in an industry which employs many very highly qualified and skilled people, most of whom are essential for the maintenance of the existing stations, not to mention the construction of future stations.

If the Government have changed their policy, they should say so. Then we shall all know where we stand in the matter. All can then make their investments accordingly, plan their careers and make adjustments to suit their particular interests whatever they may be. If, on the other hand, the policy has not changed —I hope that that is the case, because I do not agree with the noble Lord, Lord Stoddart, that we should abandon nuclear power; I agree with the noble Viscount, Lord Hanworth, that we should retain the nuclear option —let us be clear about what we are doing. Are we in or are we out? I hope that we are in. The Government should say so as quickly, loudly and as clearly as possible so that everyone knows where they stand.

I should like to ask my noble friend on the Front Bench to convey that message to my right honourable friend the Secretary of State, and even to my right honourable friend the Prime Minister, because the matter is so important that the country should know where it stands. Only in that way can irreparable damage be avoided to one of the most technically advanced industries of our country.

9.55 p.m.

Lord Diamond

My Lords, the common theme running through every speech so far, and I have listened to every one, from all sides of the House, has been the anxiety and uncertainty which speakers, all of them extremely well informed have expressed not just about nuclear generation but about the electricity industry as a whole. In particular, however, they have expressed concern about what is going to happen as a result of the Government's change of plan with regard to nuclear generation.

I wish to make my position clear, in case anything I say should be slightly critical of the Government. I warmly welcome their change of heart in accepting what was the basis of my speech on Second Reading of the Electricity Bill —the exclusion of nuclear generation from the scope of the Bill. As a result of recent statements and the debate, I was compelled to read once more what I had said. Perhaps I may confide to your Lordships that I found the arguments there expressed persuasive.

The point is that the Government did not. They rejected, on that and every subsequent occasion, proposals for the exclusion of nuclear generation. They did not want to accept the validity of the arguments. What they have done is to accept the fact that they cannot get rid of that part of the industry in the ordinary way of privatisation, and for that reason it is to be excluded from the privatisation proposals. It was only when faced with the alternatives of financial guarantees or the withdrawal of nuclear generation that they chose the latter.

It is clear that had the Bill excluded the privatisation of nuclear generation from the word go every clause would have been considered by both Houses on that basis. But that was not the situation. The Bill provided for the privatisation of the whole of the electricity industry, not part of it. Moreover, the Government—I believe it was the Prime Minister herself—have recently made clear that nuclear generation is here to stay, for a variety of good reasons. So it follows that for the foreseeable future the structure of the electricity industry is to be substantially different from that on the statute book.

The new proposals have enormous implications for the running of the privatised sector. My first reaction when the Statement was made on 9th November concerned pricing and consumer protection. The noble Lord, Lord Ezra —to whom I repeat my gratitude for making this debate possible —has described many more implications this evening. The noble Lord, Lord Williams of Elvel, has put down a series of Questions for Written Answer, again asking a good deal more about what is to happen to the industry by virtue of these changes.

Then there is Schedule 12. If the Government examine it, it makes virtual nonsense in the light of the new circumstances. There are other parts of the Act which an amateur like myself, merely glancing at it, finds impossible to construe in the light of the new circumstances. Therefore, we have to examine the matter all over again. The Economist makes its view doubly clear. I should like to read two short quotations from a relevant issue of that journal. First, it says: The privatisation plans should now go back to the drawing board". Later it says: the privatisation plans now need a complete rethink". I agree entirely. What method do the Government propose for putting forward amendments to the existing legislation consequent upon these new proposals and obtaining parliamentary approval? Apparently they do not propose to consult Parliament at all. I do not call this evening's debate a consultation; I call it a listening by the Government to the anxieties expressed all around. But they will dismiss them and carry on just the same with their proposals. They have made that absolutely clear. This is not an opportunity where issues can be thoroughly debated on all sides of the House and, if necessary, each issue decided upon the votes in this House. Parliament is not to be consulted at all.

Instead the Government will rely on what I call the pure technicality that, by accident, in their view no primary legislation is required. That must be quite fortuitous, must it not? If asked the Government when they introduced this Bill to privatise the whole of the electrical industry, did they instruct Parliamentary Counsel and say to them, "Would you please draw this Bill to enable us to do that very thing or to change our minds if we want to?" When the noble Baroness, Lady Hooper, introduced the Bill on Second Reading, did she mean what she said about this being a Bill to privatise the whole of the electricity industry? Or did she mean that we might do something different later on?

When the Government spoke —as presumably they did —to Her Majesty's secretary and asked him whether he would be good enough to obtain Royal Assent to the Bill, did they say, "Of course, this is a Bill which looks as though it is a Bill for privatising the whole of the electrical industry, but between you and me it is not. We have something else in mind"? Of course not. Such duplicity and dishonesty in misleading people would not be contemplated by this or any other government. So I repeat that it was not the Government's intention that there should be the power in the Act to do what they are now doing or purporting to do. It was pure accident. The Government cannot rely upon pure accident to avoid the duties of a democratic government in a democratic parliament.

The Government, as usual, have been rushing to realise yet a further chunk of the family silver. In the course of so doing they have achieved the unprecedented marvel of piloting the wrong Bill through Parliament. Had they given themselves the time to examine thoroughly the costs of nuclear generation and nuclear decommissioning, as the City subsequently did, that cock up could have been avoided. The plain fact is that the Government did not do their homework, whereas the professionals in the City did.

If I may say so, with due modesty, it is no use trying to tell a chartered accountant like myself that the basic material from which these professionals extracted the answers that they needed was not available earlier when the Government decided first to privatise the whole of nuclear generation and later to privatise only part of it.

I am concerned about the opportunity that will be given to Parliament to consider, and revise if necessary, every relevant clause of the Act which is affected by the new proposals of the Government.

To makes matters worse, the Government are proposing this affront to Parliament in their panic to complete privatisation during the lifetime of this Parliament. I wonder why that is. I wonder why the Government are so anxious about the next general election. Can the Government say hand on heart that had they intended to privatise only part of the industry, they would have introduced a Bill word for word the same as the present Act, which provides for a different purpose? Of course they cannot.

There is not much doubt about the question of hybridity to which the noble Lord has referred and about which I spoke at some little length when the Statement was made. I raised the matter then and the Leader of the House was good enough to say that he would consider the matter. He has written to me about it and I accept what he says completely. He concludes that nobody can say whether or not the Public Bill Office—which is the way in which this thing is triggered off—would have referred the Electricity Bill to the Examiners who would have decided whether or not it is a hybrid Bill. That is the position regarding hybridity. One cannot discuss it in abstract and say what would have happened had a Bill to provide for the privatisation of part of the industry been put before the Public Bill Office.

However, one can say what the attitude of the official Tory Party is on this issue. If my recollection is correct, there was a time when the Labour Government wished to carry through this House a Bill which had passed the other place. It comprised a series of proposals affecting shipbuilding or ship repairing which the Conservatives regarded as appropriate for treatment as a hybrid Bill. What did the Tory Opposition do, on the advice of its leadership? It decided to deny that Bill to the Labour Government on those grounds. I suggest that there is a good deal more in the point of hybridity than the Government have so far been willing to accept.

Lord Harmar-Nicholls

My Lords, perhaps I may suggest to the noble Lord that the Tory Opposition did its duty in pointing out that the Bill was hybrid so that it was possible to remain within the rules of order and terms of reference.

Lord Diamond

My Lords, I am very grateful to the noble Lord. I hope that he will accept that I have been carrying out my duty on a very similar strain.

Lord Dean of Beswick

My Lords, I am grateful to the noble Lord, Lord Diamond, for giving way. Further to the intervention by the noble Lord on the Government Bench, is it not also a fact that in another place the Speaker had already ruled that the Bill was not hybrid and that it was this House which overturned that ruling?

Lord Diamond

My Lords, I am sure that the witness of the noble Lord, who was in the other place at that time, is more reliable than mine. I do not recollect whether that was so. But I know that the Public Bill Office had not put the matter to the examiners, who in turn had not said that the ship repair Bill was a hybrid Bill; otherwise it would not have started its passage through the other place before reaching this House.

I remind the Government of the attitude taken by the leadership of the Tory Opposition in this House with regard to Bills which it might have seemed appropriate to treat as hybrid Bills. I go further and remind the Government of what they have done previously when new proposals have come forward which affect a privatisation proposal. It happened in the case of water, when the Government decided that certain functions were no longer appropriate for privatisation. What did they do? They took back all their proposals and came forward with a new Bill. That is what the Government did on that occasion, and I invite them to do the same on this occasion.

10.13 p.m.

Lord Dean of Beswick

My Lords, perhaps I may also express my appreciation to the noble Lord, Lord Ezra, for bringing the subject before the House. It is a very important subject and goes beyond the privatisation of electricity.

I speak as an engineer who used to work on the shop floor manufacturing parts for the first atomic power station in this country. The noble Lord, Lord Nelson, spoke of employment within the nuclear industry. My figures, which are nearly two years old, show that more than 137,000 people are now employed directly and indirectly in the nuclear industry—more than are employed in the mines in this country. I may be wrong, but the figure certainly equates or is even greater. That is the type of dimension about which we are talking.

Noble Lords will forgive me if I relate my remarks to what I think is first for the future. I talk not only about the 130,000-plus, which are mainly a workforce, but also about the design teams involved in an advanced and valuable technology. I do not talk in terms of market cost. I talk in terms of a valued commodity and of expertise that will serve us well in the future. Some of the finest nuclear technicians and scientists in the world are employed in this country. If we take a retrograde step and disband those teams, they may never come together again. All the expertise that has been gathered will be lost for all time.

I take issue with some of my colleagues on these Benches on their approach to the matter. I accept that the costs indicate that, as a commercial entity, nuclear energy in this country fares badly at present. My noble friend Lord Stoddart of Swindon used a factor of about six to two against nuclear energy at the present time, but I do not know where the costs start and end in both the nuclear and the coal industries which we are discussing as the two major alternatives before us.

I have heard noble Lords cavil tonight at the massive government investment in the nuclear industry. From my experience in the last Labour Government, I know that they invested billions of pounds in the coal industry, as have done the present Conservative Government, with all their faults. What is taken into account in the costs? Are the costs of early retirement in the mining industry included? Are the total costs of subsidies with regard to coal included in the costs? I do not know. It may be so, but I do not have sufficient knowledge to understand what a tonne of coal costs. We know what it costs at the pithead, but is that the real cost? If the total costs were loaded on, I suspect that one might find a much higher factor than we are talking about.

I should like to return to some remarks made by my noble friend Lord Hatch during the debate on the environment. He repeated the same argument tonight. Commenting on the Prime Minister's speech at the United Nations, he said: I do not believe that the nuclear option is an option at all". He implied tonight that there is a report which states that the whole of our present power requirements could be met by wind and water. I believe that that is what he said, though perhaps I misheard him. To my knowledge, no one else in the world has made any such claim. However, in his speech the other evening he said that the population of the world has trebled within the century. He said: The world's population has trebled during this century, but will double again in the next 30 years with all the consequences for energy use and all the dangers from the use and the burning of fossil fuels".—[Official Report, 27/11/89; col. 278–9.] If we do not have nuclear energy or fossil fuels and if the population of the world doubles, surely demand for energy will also double. One does not need to be a genius to assume that people will need energy. Are we all to die of hypothermia during a cold winter with no energy provided by coal or nuclear means? At least we would be pure in our going.

The whole idea is complete nonsense. If my information is correct, over half the world has little or no fuels of its own on which to count. For instance, Japan, which is the most bustling and thriving industrial unit in the world, has very little fossil energy of its own. What will happen there if no nuclear power is available? We know why they went to Pearl Harbour. It was for the oil and coal in the South Pacific. That happened when America started the blockade. I predict that one of the most valuable commodities in the near future—not the distant future but the not so far future—will be energy, its availability and all that that entails.

Lord Hatch of Lusby

My Lords, if the noble Lord will give way —

Lord Dean of Beswick

I shall, my Lords, although I am reluctant to do so. The noble Lord spoke for a long time the other night—about 20 minutes—and has spoken at length tonight. I shall give way provided his intervention is short.

Lord Hatch of Lusby

My Lords, I am reluctant to interrupt the noble Lord's flow, but as he addressed the specific conclusion from the speech that I made last week, I should like just to point out that the fact that the world's population doubles does not necessarily mean that the demand for energy doubles. That is exactly the case for the conservation of energy—to use less energy than is used today.

Lord Dean of Beswick

My Lords, if the noble Lord is trying to convince me that when the population of the world doubles in the next 30 years, wind and water will solve all the energy problems., he is talking of cloud-cuckoo-land because there is no possibility of that happening. I have to remind the noble Lord—and I am assured of the thoroughness with which he goes into these things—that there was a report published last week by a Select Committee of your Lordships' House on the greenhouse effect. In that report there is a brief paragraph on this point. However, I read the evidence submitted to the Committee and there were 66 or 67 organisations dealing in depth with the greenhouse problem, what causes it and what may eliminate it. On page 62, paragraph 13.44 the report states that: Nuclear power is the only proven adequate alternative to fossil fuel energy generation. Abandonment of research into the fast reactor technology is short sighted. Under section 3 of the Electricity Act the Secretary of State should exercise his duty to promote R&D into new techniques for generation and reconsider the future of…Dounreay". I agree with that statement. It is the part that is worrying me. Britain is an island but we cannot live as one. We talk about helping the third world which has no resources. Who will help them if we adopt a Luddite approach and an almost inward-looking policy of saying, "We shall not export anything"?

Let me make it quite clear. There are areas of the world which want power and power stations but where there is no coal—and that is what we are talking about now. If substantial amounts of fuel cannot be brought quickly to where those power stations are, then that is a non-starter. There is no way in which those countries will be able to opt for coal-fired power stations, even with all the desulphurisation plans. There is no way in which they can do that. I take the view that if there is the technology, there is no question but that the French will continue to use it. I do not know whether their costs are any different from ours because I do not have the French figures, but they must think that it is a success. It may have to be subsidised but we must think of the rate at which the population of the world is increasing. We have to deal with that situation and consider the rate of extraction that would be necessary. The noble Lord, Lord Hatch, also mentioned that the Chinese want to double their coal extraction in the next 10 years. If we talk in terms of a country of nearly 1,000 million people intending to double its coal extraction in 10 years, then, by God!, the finite deposits of coal throughout the world will certainly become exhausted more quickly than was thought possible even 10 years ago.

What shall we turn to? I take the view that the Government have handled the privatisation of electricity badly. They should have left the matter completely alone. If, as my noble friend Lord Stoddart, says—and I accept his case—the electricity consumer (and I am one like anyone else) is paying for research and development in the nuclear energy field, perhaps that should have been considered. The Government would have been wise to be more frank than they were. However, I am of the opinion that the nuclear energy programme, and research into it, must continue.

I have no doubt that the noble Lord, Lord Ezra, is more familiar than I am with an expanding programme of increasing our coal production dramatically by sinking new pits. There is no question of opening old ones, as I understand it. Once a pit is declared redundant and is closed, it is finished, unless there are very exceptional circumstances. If one therefore talks of a programme of sinking new pits, what is the cost of the coal? Is it the cost at the pithead or the cost of the investment before one starts to sink the pit? Many questions have to be asked.

I come from an area of Manchester known as Bradford which had the only large pit in the area. I have no doubt that the noble Lord, Lord Diamond, knows the area. Just after the war the Labour Government spent £4 million —a large sum of money in those days—improving and modernising that pit. It contained high quality coal but, like other pits in Lancashire, it was a deep pit. It was overtaken by the availability of cheap oil. The pit closed with the loss of nearly 4,000 jobs. The area started to die. It is now an industrial desert. Much of Lancashire is the same.

I am asking colleagues in this Chamber to be a little careful before accepting evidence that wind and water will cater for our energy resources. That is little more than wishful thinking. The noble Lord keeps nodding his head. No one can produce any reason why that facility for providing energy is a substitute for present needs. It may be supplementary, but there is no way that such a facility can be a total substitute and can cater for our future needs. When speaking of our needs, I am talking globally. As I said in the debate on the environment, no man is an island; and no country is an island.

I conclude on the basis of what I have said before. If we now let our nuclear know-how and research knowledge that we have acquired over the years on nuclear energy go by the board, I am convinced that our grandchildren and their children will look back on us with extreme disfavour as having let them down very badly.

10.29 p.m.

Lord Jenkin of Roding

My Lords, it would be tempting to follow the dispute that has arisen on the other side of the House by saying that noble Lords on the Labour Benches are entitled to their domestic arguments. But I am immensely grateful to the noble Lord, Lord Hatch of Lusby, his noble friend Lord Stoddart of Swindon, and the noble Lord, Lord Dean of Beswick, for having thrown up one of the major questions that has to be asked and answered as a result of the Statement that was made by the Government on 9th November.

Much of the attention in the debate has been directed to one part of that Statement: namely, taking the nuclear stations out of the privatisation programme. But the other part of the Statement, to which a number of noble Lords have referred, is the decision not to proceed with the second, third and fourth pressurised water reactor power stations. It is to that issue that I should like to address my remarks and take a little further the questions which were pertinently asked by my noble friends Lord Lauderdale and Lord Nelson of Stafford.

For seven brief but inglorious weeks in 1974 I held the position of the country's first Minister for Energy. More significantly, I then became my party's spokesman on energy; I was Shadow spokesman from 1974 to 1976. During that period I faced debates on some interesting and pertinent issues which had come to a head. What was to be the next generation of nuclear power stations? There were many contenders. What was to be the future of the fast breeder reactor to which several noble Lords have referred? Would we take part and act as host to the Joint European Torus? I had already been primed in respect of the first question because I remembered the 1965 debate in another place as perhaps does the noble Lord, Lord Diamond. It launched Dungeness B and the AGR programme. Perhaps I am not the right person to say that in that debate in the other place only one speaker thought that the decision was wrong and backed the American light water reactors instead. However, modesty forbids me to say who that was.

However, by then the evidence was already clear: light water reactors would be more economic and simpler to operate and erect than what has been described as the "watchmaking on a giant scale" which has been the programme of AGRs. Most of them have never come to within miles of their design capacity. I always agreed with the late Sir Arthur Hawkins in saying that it was a disaster of the first magnitude.

I advise noble Lords to read the article which appeared on Saturday in the Financial Times written by David Fishlock. It gave the disturbing history of our nuclear industry over the past 20 or 30 years. It explained how we in this country appear to have managed to make mistake after mistake. The result is that we have now been left behind in this area by the United States, France, Germany, Japan and other countries. It is most salutory and I hope Ministers will read the article. Why have we managed to make so many wrong decisions and are we in danger of making more —

Lord Stoddart of Swindon

My Lords, will the noble Lord —

Lord Jenkin of Roding

My Lords, it is late and I must be allowed to continue with my speech. As a number of speakers have recognised, the irony is that we may have to fill our energy gap by importing the product of nuclear energy from France. One must ask the question: why is it economic for the French to build nuclear power stations? Why can private industry in Germany build nuclear power stations? Why can it do so in Finland, which I visited recently? Why do we now argue that it is not possible to privatise here when those countries have done so? Why must we remove it from the programme or, more important, stop building?

We are now told that there can be no reappraisal of the policy until 1994. I understand the reasons why it is 1994. However, I beg the Government to recognise just what they are saying by stipulating that there can be no reappraisal of our nuclear strategy until 1994. As was said by my noble friend Lord Nelson of Stafford and the noble Lord, Lord Dean of Beswick, what will happen to the industry between now and then? We know about the awful problems which were thrown up by the energy crisis during which there was a long period of no ordering. We shall not have any nuclear capacity left by that time unless there is a prospect of building. Perhaps I may say to my noble friend on the Front Bench that that is a very formidable consequence of the decision which the Government have announced and I believe that we should be told more about it.

I turn to what I saw 15 years ago as the second issue; namely, the fast breeder reactor. Does the decision announced on 9th November lead the Government to look again at their decision to slow down the research on fast breeders? I believe that the prototype fast reactor, the PFR at Dounreay, is due to be closed down in 1994. That decision was justified in the Government's reply to the Select Committee, presided over by my noble friend Lord Nelson, by saying that fast breeders will not be needed for 30 or 40 years. However, if we cannot now afford PWRs because they are not economical, will that not call into question whether we need the breeder technology rather sooner than we might otherwise need it? Is it not rather shortsighted now to be seeking to reduce the research at Dounreay?

Of course the Government will rightly claim that they can be an effective partner in a European programme, and I very much welcome the agreement signed earlier this year. However, the Select Committee to which I have referred recommended maintaining the PFR at paragraph 3.53 which states: PFR is the only reactor in Europe capable of taking fuel elements of the size required for a conventional reactor". It seems to me that if we are to preserve for the nation that part of the nuclear option, we do not do that by more or less halting research.

Again, France and Japan will certainly press ahead with research on fast breeders. Will that be yet another area where we built the first, but in the end we are importing the technology from other countries?

Finally, there is nuclear fusion. My noble friend Lord Ullswater answered a Question on that subject last Tuesday and some of his answers as to the Government's commitment to fusion research were not very reassuring. I have always been led to believe that in the long term fusion represents, although with enormous technological problems still to be overcome, the only credible long-term source of energy. If we are to have any hope of preserving the kind of industrial civilisation which the world has created, that must provide a substantial part of our energy resources although perhaps not until the middle of the next century.

From my noble friend's replies the other day, it seems quite unclear as to whether the United Kingdom will support the extension of the JET —the Joint European Torus —to 1996 or whether they will support what the present Secretary of State referred to in correspondence to me as the "next step device", which I understood to mean the New European Torus —the NET.

It is not as if that research has by any means run its course. Experiments have not yet started on the combination of deuterium and tritium which offers substantially longer "shots" so as to gain a great deal more experience of generating the kind of temperatures necessary to produce the action nor have experiments begun on designing in the so-called warm superconductors, which I am assured will make a very considerable difference to the economics and energy efficiency of a fusion reactor if one is ever built. Therefore, research on fusion still has new vistas to explore. This is not the time for this country to pull out from that.

The decision announced on 9th November to halt work on the PWRs has huge implications going far beyond that particular decision —implications for the nation's future energy policy running well into the next century. Combined with the earlier decision to scale down fast reactor research, to close the PFR in 1994 and a reluctance apparently to give any commitment on long-term fusion research, I have to say to my noble friend that the announcement raises all kinds of questions about the future of the United Kingdom's civil nuclear policy. Therefore, I urge my noble friend to convince his right honourable friend that the Government now owe it to Parliament and to the country to produce a definitive statement of what the Government's nuclear policy really is.

Until now the main lines of the strategy have on the whole been clear. We rely on fossil fuels but with an increasing amount of our electricity produced by nuclear energy as it is environmentally more benign, as the Prime Minister rightly told the United Nations. When uranium becomes too expensive, we shall move to fast breeder reactors and then as fusion reaction becomes feasible we shall see that as the long-term power from sea water, or, as it is sometimes called, the power from the sea. Is that still the policy of the Government? Do the Government still believe that one cannot have an effective energy policy without a substantial nuclear component, as they said in their reply to the report of the Select Committee? The reply stated that there was, no adequate large-scale alternative to fossil fuels other than nuclear energy". That was said only last April. I agree with that view. I should like to be reassured that the Government still hold that view and, more importantly, if that is the case, that they will do what is necessary to make that policy a reality.

10.41 p.m.

Lord Tordoff

My Lords, we now come to the wind-up period of this debate. I wish to comment on two of the items that have been mentioned, although I shall come to one or two others later. I was amused to hear a rather inadvertent slip by the noble Lord, Lord Nelson of Stafford, when he referred to the Prime Minister as his noble friend. I wonder whether he knows something about events in another place tomorrow that we do not know, and if so perhaps he would like to communicate that to Sir Anthony Meyer who might be quite pleased to hear it.

The subject of hybridity has been raised twice this evening and by the noble Lords, Lord Diamond and Lord Hatch of Lusby, on other occasions. I go along very much with what the noble Lord, Lord Diamond, said. It seems a curious situation when the Government can come forward with a Bill which is clearly not hybrid, change it after it has become an Act to something that one suspects could be hybrid and then say, "It is too late, we have done it". That seems to me a device that governments should not be encouraged to use. One wonders perhaps whether a judicial review may not be the way of tackling the problem. Perhaps the Government should consider that they may be faced with that if they continue down this track.

Like all other noble Lords who have spoken, I certainly wish to thank my noble friend Lord Ezra for initiating this debate. It will be no secret to most people that the Government were somewhat reluctant to have the debate on the agenda tonight. I am glad that he persisted with the proposed Motion. It always struck me that an Unstarred Question was less than adequate to deal with what is a major problem. I understand the Government's difficulty in bringing forward a debate themselves as it would be frightfully difficult for them to word a Motion stating that they had made a mess of the electricity industry and asking what should be done about it. I am particularly grateful to my noble friend for doing what he has done.

Like the noble Lord, Lord Peyton of Yeovil, I am in no way critical of the Secretary of State. If he were here, which of course he is not, I would tell him that I think he has been courageous and decisive in what he has done. However, I have to say that those of us who deal with transport in this House are somewhat worried about the impact of the former Secretary of State for Energy on transport. We fear that perhaps he may do for British Rail what he has already done for the electricity industry.

The truth is that the new Secretary of State did not have a lot of choice. The supposedly seamless garment was already becoming unzipped by the time the Hinkley C inquiry got under way. It is greatly to the credit of the inspector, Mr. Michael Barnes, that he took the decision that he was going to listen to economic arguments in relation to Hinkley C.

I believe that the country as well as your Lordships owe a debt to the consortium of opposing local authorities which put an awful lot of time, effort and money into the opposition to Hinkley C. My friend, county councillor Humphrey Temperley, has done a remarkably good job in persisting in the objections to Hinkley C. The fact is that if that had not happened we would have reached precisely the point that we are at now, but much further down the track. These figures would have become apparent eventually, but it is doubtful whether the Government would have been aware of what the figures were at that stage while it was still possible to do something about the situation.

So the country has been saved hundreds of millions of pounds by the persistence of COLA in its opposition to Hinkley C. I echo the question that has been asked as to whether the Secretary of State is prepared to make some refund for the cost of that opposition. I declare an interest here as a ratepayer in Somerset, which is carrying about £500,000 of that cost. In justice, the Government should make some recompense to COLA.

The basic question which has come from all sides of the House tonight is: what happens next? The Government cannot pretend that nothing has happened. We cannot have some anodyne statement from the Front Bench tonight saying that all is well in all possible worlds. We do not believe that the amendments that were tabled from all sides when the Bill was going through the House were wrecking amendments. It is true that some noble Lords on the other side of the Chamber thought so, but I note that they are not here tonight.

I wish to quote one or two points in that connection. The noble Lord, Lord Erroll of Hale, said on 19th June, at col. 21 of the Official Report: My noble friend Lord Peyton referred to a 'vast number of unknowns'. That is going a little far. There are a certain number of unknowns but I believe that they are containable. I believe that previous speakers tended to over-emphasise the difference between nuclear and conventional power stations. ֵ Separation of the two forms would result in two separate cultures: the still nationalised nuclear sector and the much larger private sector. I believe that would be particularly harmful". Doubtless, he is due an explanation from the Government in the present circumstances.

The noble Baroness, Lady Gardner of Parkes, said at col. 26: I know that the motives of the noble Earl, Lord Halsbury, in moving this amendment are that he has a high regard for nuclear energy and for its future. I do not feel the same in relation to the noble Lord, Lord Williams of Elvel. I think his motives are purely that he thinks that these amendments would be effective in wrecking the Bill. I believe that they would wreck the Bill and for that reason I strongly oppose them". There is a large number of quotes coming from loyal government supporters on 19th June saying that we were putting forward wrecking amendments from this side of the Chamber if we sought to retain nuclear power in a separate company. I believe that those noble Lords deserve an answer from the Government. Do they believe that the industry is wrecked because of what happened recently?

The other question that has come out clearly tonight is: how far do the Government consider that they can plug the gap, as it were? Clearly, if PWRs are at a standstill for five years, which has been mentioned on a number of occasions, there must be a gap somewhere in the Government's calculations or those that they were offering the House beforehand. I wish to quote from a letter from the Department of Energy to the Hinkley inquiry secretariat because it sets out the situation in slightly starker terms than have been referred to tonight. It states: The Secretary of State for Energy said inter alio in his statement" — and we have heard that — that the Non Fossil Obligation would be set at a level which could be satisfied without the construction of the new nuclear stations beyond Sizewell B. The proposed Hinkley Point C station is such a station". The letter goes on to say: It follows from the policy announced by the Secretary of State on 9th November that capital investment approval would not be given for new nuclear power stations beyond Sizewell B". That seems to be fairly definitive. That will remain the case at least until the review of the prospects for nuclear power in 1994 announced by the Secretary of State on 9th November". What will fill the gap? The Government have said on many occasions that nuclear power will help to reduce the amount of CO₂ and will consequently reduce the greenhouse effect. We need a massive investment in renewable resources, which, I tend to agree with noble Lords, cannot fill the gap in the short term. I disagree with the noble Lord, Lord Hatch of Lusby, on the potential of renewables to meet the enormous gap. Nevertheless, we must surely increase our investment to make sure that these things come forward as fast as possible. I see that the noble Lord, Lord Dean of Beswick, agrees with that point. I am sure that there is wide agreement on these issues.

There must also be investment in conservation. We must start with the more efficient use of the energy we have. The analogy was once put to me of somebody taking a bath without using the plug. There are two ways of filling the bath. The first is to turn on the tap more and more or find another source of water to go into the bath. The other is to put in the plug. The Government singularly fail to encourage people to put in the plug. They try all the time to meet the demand by increasing the supply. That has to change.

The Government cannot pull up the ladder and say "Business as usual". Questions from all sides of the House and from outside deserve an answer. I hope that the Minister will be able to provide us with some genuine answers and will be able to give better ones than those he has given recently to the noble Lord, Lord Williams of Elvel. I was especially struck by one Written Answer. I do not want to poach too much on the noble Lord's preserve, but he asked the Government why it took the Secretary of State for Energy until 11th October to obtain the figures that he needed to make the decision. The Government replied: The figures in question were supplied by National Power. This information, which was of great importance to the future commercial position of that company, was not made available by them until 1lth October".—[Official Report, 30/11/89; col. 594.] If the answer had been "Because it was the birthday of the noble Lord, Lord Tordoff, on 11th October", that would have been equally factually correct but of as little use in response to the question that had been asked.

It is clear from what has been said tonight that there is a gaping hole in the Government's policy on electricity privatisation and on the future of the electricity industry. A variety of people from the whole spectrum of politics in this House have pointed clearly to the same point that the Government have to stand up and explain what they intend to do now. It is now a month since the Statement was made. The country cannot go on waiting for ever. I thought that the final remark of the noble Lord, Lord Jenkin of Roding, that the Government owe it to Parliament and to the country to explain themselves, both in terms of how they will fill the supposed energy gap and what they intend to do about the future of the nuclear industry, was perhaps one of the most cogent comments made tonight. I look forward to hearing the Minister's answers.

10.54 p.m.

Lord Williams of Elvel

My Lords, it is rare that a spokesman from this Front Bench rises at 10.54 p.m. to wind up a debate for the Opposition. It is very late. I do not intend to keep the House very long because other noble Lords have made the points that I intended to make. However, I cannot resist reminding the Government that the timetable for the passage of the Electricity Bill was set firmly for the end of July —the Summer Recess. On these Benches we moved a Motion at the end of the proceedings asking the Government to think again. The Government refused to do so. They have landed themselves in a mess because the Bill was not thought out properly at the outset.

We are now in a position of uncertainty such as that mentioned by the noble Lord, Lord Diamond. Privatisation started off on one track, it then went onto a further track and now it has gone onto yet another track. If the assurances given by the noble Baroness, Lady Hooper, when the legislation was before us in the form of a Bill are right —that is, in response to our amendment excluding nuclear power from the privatisation procedure —then the Act, as the noble Lord, Lord Tordoff, said, has been wrecked.

Further, the public image of nuclear power as a result of what the Government have said has suffered. Indeed, this point was made by the noble Lord, Lord Stafford, and also by my noble friend Lord Dean of Beswick. We are in a position where we have no clear statement of government policy about nuclear power. Are we, therefore, to assume that we are now in a United States-type of situation where no nuclear station has been commissioned in the past 10 years, or are we to assume that we are in a different situation and that we can move ahead in some manner which I do not quite understand? No doubt the noble Viscount will be able to give us the answer.

Moreover, we have no idea how the grid will operate. As the noble Lord, Lord Peyton, the noble Earl, Lord Lauderdale, and other noble Lords remarked, the grid, although complicated to operate, has a very simple merit cost order system. It then goes on to a merit price system, as was explained to us during the passage of the Bill. However, we now find that a company called Nuclear Electric plc is providing what must be the base load because you cannot shut down nuclear stations just like that. But we do not know upon what basis the grid will operate. We do not know whether it will operate on a base load from Nuclear Electric plc with a merit price system from the rest or with a merit cost system from the rest. We simply have no idea. That is one of the reasons the people in Bankside are wholly confused about the way they are to operate.

As many noble Lords remarked, we have no idea about the security of supply. I think that the noble Lord, Lord Peyton, mentioned that he very much regretted the fact that we had not received advice from the noble Lord, Lord Marshall of Goring, during our debates. In fact, only a week ago he said: For well over a year the electricity industry has sought an answer which would preserve both competition and the security of supply, but for the fundamental reasons I have outlined we have finally come to the conclusion that no workable compromise is possible. This issue, which has hung over the privatisation process for the best part of 18 months, was finally put beyond further debate by Mr. John Wakeham at this meeting with the Electricity Industry in September, where he confirmed that competition was to be the guiding principle of the new arrangements. Since that was incompatible with the obligation to supply, then after an interim period the Distribution Companies would have no obligation to supply in the traditional sense used worldwide". Therefore there is no obligation to supply, whatever the Act may say.

Many noble Lords commented upon the position as regards Nuclear Electric plc and whether, as the chairman Mr. John Collier said, the basic objective will be to regain the confidence of the public in nuclear power by demonstrating that it is not only safe and environmentally clean but that it is also economic in the UK, as it is elsewhere in the world. We have no idea what the Government's policy on that is.

The noble Lord the Leader of the House on 9th November said that he wished to preserve the PWR option. I never understood what the PWR option was. It seemed to me that it meant that we will build Sizewell B, because we have invested £1 billion in Sizewell B, and it is better to invest another £1 billion, and then scrap the rest. In the meantime we know that the Hinkley Point inquiry has continued. If after the 22,000 groups have given evidence and the CEGB has spent £10 million, the Hinkley Point inquiry says that Hinkley Point C is desirable what do we then do? Do we wait until 1994 or do we then have another inquiry? The report of the Hinkley Point inquiry is going to the Secretary of State for Energy in the spring of next year. It is not going to the Secretary of State in the spring of 1994. Next year is only 1990 and so four years will elapse. We must ask the Government what they will do in the interim.

The noble Lord, Lord Marshall of Goring, has spoken in forthright terms about the CEGB's responsibility for, as has been alleged, concealing some of the back-end costs of nuclear power stations (the decommissioning costs). He has said that fuel service charges and decommissioning costs were not their reason for the abandonment of the PWR programme. The factors which really pushed up the estimates of what prices might have to be were the realities of satisfying the financial market.

A letter from Mr. John Baker, the managing director of National Power, to Mr. John Wakeham brought about the final U-turn with the famous llth October figures. He said that the nuclear cost figures, which had been good enough for the annual reports of a public industry and for public inquiries, simply would not survive the scrutiny of accountants advising prospective private investors.

I understand that private investors may be more rigorous than governments in their scrutiny of figures, but nevertheless there are strategic options, as I am sure the noble Lord, Lord Jenkin, will recognise, because that was the object of his intervention. There are strategic options, and either we are going in for a nuclear programme, with all the long-run costs, fusion and the other things that the noble Lord mentioned, or we shall say that those things must be viable in the short term and can be sold on the market. That is where the Government's dilemma lies. It is a dilemma that we have pointed out many times. I hate to quote myself but on Second Reading of the Electricity Bill I remember saying that I was looking forward to seeing the prospectus for National Power, including the nuclear element, all the Schedule 12 decommissioning costs, provisions and all the rest of it. The noble Viscount will remember my speech. Under Section 47 of the Financial Services Act I thought that that was an impossible prospectus to write.

Do the Government accept the criticism of the noble Lord, Lord Marshall of Goring, that the nuclear programme has been dropped because electricity privatisation forced a short-term view on nuclear power rather than a long-term view? I should like the answer to that from the noble Viscount.

Also in the last few days the question of unfair subsidies has arisen. I refer to the Rover Statement. It is perfectly clear that the Community is unlikely to ratify any further state aid agreements with Britain until Ministers explain their actions over what is known as the "sweetener" payments. Are we going to have further support for Nuclear Electric or will we allow it to compete in the market place as normal? If we allow it to compete in the market place, on what basis will its assets be valued and on what return on investment will the Government sell electricity into the grid? These are questions to which we need the answers.

Finally, we need to know what on earth the Government will now produce out of the hat. Where is the energy policy? The noble Lords, Lord Nelson of Stafford, Lord Jenkin of Roding and some of my noble friends wish to know where is the energy policy that the Government have in mind for the coming years. We know that nuclear power is not saleable. We know that on normal accounting costings, both on the capital cost and the back end cost, nuclear power is not profitable. What will the Government do? Where will the Government look for the energy that is required for the next 10, 20, 30 years? We very much hope that the Government will look to energy savings, energy efficiency, energy conservation. After all, in this House we passed an amendment to that effect and we hope very much that the Government will take it seriously. We also hope that, although the contribution may not be more than marginal in the short term, alternative energy sources will have a much greater emphasis from the Government.

I can only say at the moment that the privatisation started off like the Grand Old Duke of York. He had 10,000 men and he marched them up to the top of the hill. He is gradually marching them down again. He has not yet got down to the bottom of the hill, but he is halfway down. I very much hope that the noble Viscount will tell us that the Government have got to the bottom of the hill. Together with the noble Lord, Lord Peyton, I urge him to look at the whole matter again and start from scratch.

11.8 p.m.

Viscount Ullswater

My Lords, I listened very carefully to the speech made by the noble Lord, Lord Ezra, in moving the Motion and to other speeches made by noble Lords. In preparing for the debate I also looked again at the points made by the noble Lord, Lord Ezra, at the time of the Statement by the Secretary of State on nuclear power. There were three points that he made, then and now, to which I should like to respond in my speech. I shall also try to respond to many of the questions put to me during the course of the debate.

The points put to me by the noble Lord, Lord Ezra, were that the decision to keep nuclear power in the public sector undermines the principle of the Electricity Act; that the CEGB should be divided into a larger number of successor generating companies now that National Power will no longer own the nuclear stations; and a description of the contractual regime.

On the first point, the noble Lord said on 9th November (at col. 966 of Hansard): The principle of the Bill was that the whole electricity industry would be sold to the private sector. I must say to him with some respect that the Bill went a great deal further than that. Out of a Bill of some 113 clauses, and 18 schedules, no more than three clauses dealt specifically with flotation matters. The rest of the Bill was concerned with the establishment of a new, customer-driven regulatory framework for the electricity industry based on competition, the reorganisation of the electricity industry into a structure where competition could develop and flourish, and special provisions relating to nuclear and other non-fossil generation. The entire Act continues to be relevant and necessary and it will be implemented.

The Government hold firm to the principles underlying the privatisation White Paper. Decisions will continue to be driven by the needs of customers. There will be full and open competition which will provide downward pressure on prices. There will be regulation of natural monopolies. Security and safety of supply will be maintained. Customers will gain new rights.

Lord Williams of Elvel

My Lords, is the noble Viscount making a Second Reading speech about the Electricity Bill?

Viscount Ullswater

No, my Lords. I am replying to this debate.

Those who work in the part of the industry that is to be privatised will be offered a direct stake in their future. Those who work for the nuclear company will be able to benefit from the sale of the rest of the industry. This situation is provided for in the Electricity Act. We have no intention of throwing away all of these benefits. Indeed, we are well on course to meet our aim of vesting the new structure of industry at the end of March 1990.

In this context, I am glad that the noble Lord is pleased with the news announced earlier today that National Power and PowerGen have reached agreement with British Coal on the supply of coal, following vesting. However, this is clearly not the end of the story. While vesting will introduce the new structure of the industry and a competitive contractual regime, the process will not be complete until the competitive elements have been privatised. Only when the electricity companies have shareholders to answer to will the full benefits of the reorganisation come about. While the companies remain in the public sector, they are only partially exposed to commercial reality; they do not face the scrutiny of analysts and the need to justify their performance at annual general meetings.

We cannot therefore rest on our laurels once vesting has taken place, but must press ahead as quickly as possible with the flotations. That is the reason underlying my right honourable friend the Secretary of State for Energy's opening remarks in his Statement on 9th November at col. 1175 of Commons Hansard: The Government remain determined to complete electricity privatisation, with all the benefits it will bring, in the lifetime of this Parliament". That brings me to the second point raised by the noble Lord, Lord Ezra: that we should reconsider the decision to split the generating assets of the CEGB between a larger company and a smaller company.

In the time since the privatisation White Paper was published, the CEGB has accomplished a major reorganisation of its activities between its National Power and PowerGen divisions. National Power has also divided its activities between conventional and nuclear generation. Because of this latter split, the amount of further reorganisation needed to take account of the nuclear decision can be kept to a minimum. However, if we were to return to the drawing board at this stage, the amount of disruption would be immense. It would jeopardise our objective of completing privatisation this Pariament. The Government are not prepared to put this objective at risk.

I should like to ask the noble Lord what this would achieve. While there is plenty of evidence that there will be intense competition between them, National Power and PowerGen will not be the only generators. The Bill provides for competition in generation, and there are a considerable number of independent proposals for new generating projects. One, between Lakeland Power and NORWEB, has already been signed.

The Electricity Act and the licences to be issued to National Power and PowerGen will ensure that the two major companies will not be able to exploit their dominant position. Thus, fair competition will be ensured and our proposals will enable that competition to be introduced soon. So far as we are all concerned, consumers and taxpayers alike, that is very good news.

The noble Lord, Lord Ezra, also said that the Secretary of State had said that there was no intention to change the structure at this stage and asked whether that meant that it could be changed at a later stage. The answer to that question is that the Secretary of State meant that no change could be contemplated at this late stage: it is a question of emphasis on the word "this". I have already explained the reason.

On the question of hybridity, which was mentioned by the noble Lords, Lord Hatch, Lord Diamond and Lord Tordoff, the Electricity Bill, which became the Electricity Act 1989, was not hybrid. It was alleged in another place when the then Secretary of State announced the withdrawal of Magnox stations from the privatisation programme that the decision made the Bill hybrid. That allegation was not correct. The Bill, and now the Act, provides in Part II for the reorganisation of the electricity supply industry from statutory corporations into Companies Act companies. The form of the reorganisation will change. The CEGB will be divided into four rather than three companies as a result of the decisions on nuclear power, but those decisions did not require any change in the terms of the Bill or the Act.

The Electricity Bill was not hybrid before the Magnox decision and that decision did not require any amendment to the Bill. It follows that the Bill did not become hybrid as a result of that decision.

The noble Lord, Lord Ezra, asked for a description of how the contractual and pooling regime will work. It will be appreciated that detailed discussions are still going on, but noble Lords may find this explanation helpful.

The pool which will be run by the National Grid Company will enable suppliers and generators to buy and sell electrical energy efficiently. It will be a short term or "spot market" for electrical energy based on once daily offer prices for energy from each generating unit. The details of how the pooling and subsequent settlement system will operate are currently under discussion with the industry. Once those discussions are completed, a description of the pooling arrangements will be made available to independent generators and other interest parties.

In the meantime, I can explain that alongside their pool trading, pool members will be able to enter into financial contracts with each other in order to obtain terms and prices for energy which are applicable over the longer term. The bulk of electrical energy supplies are expected to be covered by such contractual arrangements.

One contractual mechanism under consideration is an "options" contract which will reduce the parties' exposure to fluctuations in pool prices and hence provide longer term stability in prices.

The new contractual and operating regime the Government have recently agreed with the industry will involve no permanent restrictions on competition but will ensure that there is an orderly transition to a completely competitive market.

Competition between public electricity suppliers, independent supply companies and generators to supply customers direct will be limited to sites taking more than 1mW for four years, and then sites taking more than 100kW for a further four years. After eight years all restrictions disappear. Sites above 1mW account for about one-third of total electricity supplied while sites above 100kW account for about half of supply.

There will also be temporary limits on the number of customers a public electricity supplier could lose to National Power and PowerGen so as to prevent those two large generators developing local monopolies.

For the first four years, National Power and PowerGen will, in aggregate, be limited to supplying no more than 15 per cent. of demand in any one area supplied by a public electricity supplier. That limit will then be raised to 25 per cent. and removed altogether after eight years. Thus, there will be no restrictions on competition between generators to supply public electricity suppliers. Suppliers will be free to contract with independent generators immediately and those contracts will be implemented through the pool.

Furthermore, independent generators already selling to customers below 1mW will be able to obtain a licence to continue that supply from the Secretary of State. The Secretary of State will also have discretion to consider applications for licences to supply customers below 1MW and 100kW limits. Those proposals will ensure that the benefits of the national merit order, in making sure that power is obtained from the cheapest sources, will be maintained. It will also provide for effective competition for generation from the outset, on equal terms between the existing generators and new independent generators. That will ensure downward pressure on electricity prices.

The noble Lord, Lord Ezra, also asked how prices, in the pool will be reconciled with contracts. Payments in the pool will be settled on a detailed basis between buyers and sellers. Contract payments will be settled initially at least on a bilateral basis and it is hoped that in time a clearing house will be established for the settlement of contract payments. It is not essential to the operation of the new system.

The noble Lord also asked how the obligation to supply will be maintained, as did other noble Lords.

Lord Williams of Elvel

My Lords, before the noble Viscount leaves the question of price with regard to the grid, will he tell us how nuclear electricity will bid into the grid? Will it be on marginal cost or will there be some price mechanism? If so, will he explain what price mechanism that will be?

Viscount Ullswater

My Lords, that is a detailed question to which I do not have the answer at the moment. I shall undertake to discover the answer and write to the noble Lord.

I was in the middle of explaining to the noble Lord, Lord Ezra, how the obligation to supply will be maintained. The obligation to supply will rest on the public electricity suppliers. They will have an obligation to supply those entitled to a tariff supply. Those customers who choose to take a contract supply will be free to contract with their local public electricity supplier or direct with a generator.

My noble friend Lord Peyton asked me the cost of taking the grid from the CEGB. The CEGB estimated the cost of taking the grid away at up to £1 billion. That was widely recognised as an alarmist figure released prior to the Government's decision. The grid company has now been established as a separate division of the CEGB and a new method for running the system is being established in detail.

Lord Peyton of Yeovil

My Lords, perhaps my noble friend will forgive me for intervening. It is all very well to dismiss those allegations as alarmist. That is exactly what the previous Secretary of State did. We are entitled to ask that, if the Government dismiss those figures as eyewash or rubbish, they should put forward a definite figure as an alternative. There must be some costs involved, although the Government are at liberty to say that there will be no cost. Let us have a clear assessment.

Viscount Ullswater

My Lords, I was about to tell my noble friend that there is no evidence that the CEGB's cost estimate was correct. Separating the grid is central to bringing forward competition and so to reducing costs.

Lord Williams of Elvel

My Lords, I am sorry to interrupt the noble Viscount yet again. Will he respond to his noble friend and produce the figure that the Government believe is the cost of separating the grid from the present system of the CEGB?

Viscount Ullswater

My Lords, that is another detailed question to which I do not have the answer. I shall have to undertake to write to my noble friend. Of course I shall send a copy to the noble Lord, Lord Williams.

Lord Peyton of Yeovil

My Lords, perhaps my noble friend will forgive me for interrupting him. It is not in any way my purpose to attribute blame to him, but I hope that he will communicate to his right honourable friend how profoundly disturbed are some of those who sit behind him to find that many months after the CEGB put forward that very serious figure the Government still say, "That is an alarmist figure" but are quite unable to put forward one of their own. I ask my noble friend to communicate to his right honourable friend the very profound sense of unease that exists behind him because of that kind of treatment.

Viscount Ullswater

My Lords, I shall indeed take away from this debate everything that noble Lords have said. I undertake to talk to my right honourable friend and explain to him the concerns that come not only from behind me but from opposite sides of the House. I think that, as the one replying to this debate, it is my duty to do so.

My noble friend Lord Peyton also asked about the way to ensure security of supply and should it be done by central control. The responsibility for security of supply will rest on the public electricity suppliers, as I have said. It is they who are in touch with customers' needs and can contract for new generating capacity. There is no more logic in putting the obligation on the generating companies than in putting it on British Coal which supplies fuel to the generators. Indeed, large parts of Europe are now coming to the view that central control of key resources is not the best way of meeting customers' needs. Therefore my noble friend is recommending a retrograde step.

The noble Lord, Lord Stoddart, asked whether the CEGB had a good record of security of supply. I have to say yes. It has served the country well in maintaining security of supply. It has done that too well, at significant cost to the consumer. It has not planned accurately the need for new stations and in the main it has provided too much capacity at too great a cost because it is not in direct touch with the consumer.

Turning to nuclear power, this House has always been a firm advocate of nuclear power and a supporter of this Government's policy —

Lord Tordoff

My Lords, I am sorry to interrupt the noble Viscount, but it does not seem to answer the question on security of supply, if I may say so. Questions are being asked on all sides as to when the lights are going to go out. Are the Government assured that in the new circumstances there will not be, as we accept, over-capacity but that there may well be under-capacity? What mechanism is there for ensuring that that happens in the new situation? That point was made by the noble Lords, Lord Peyton of Yeovil and Lord Stoddart of Swindon.

Viscount Ullswater

My Lords, I think that I shall be dealing with that notion in my speech. The nuclear industry has provided a lifeline to this country three times in the past 15 years.

Twice when the miners attempted to hold us to ransom, and during the oil crisis of 1973–74, the nuclear industry played a key role in keeping the lights on. We have not forgotten those events. We have all learned the need for diversity in fuel supply and I can assure my noble friend Lord Nelson of Stafford and your Lordships tonight that the Government remain firmly committed to maintaining nuclear power in this country.

Much has been said about the costs of nuclear power in recent weeks and there have been attempts to show that nuclear is an economic disaster.

That is not the Government's view and it is not why we decided to remove the nuclear stations from the privatisation programme. The economics of nuclear power remain much the same today as they have over recent years.

The reasons for keeping the AGR and PWR stations in the public sector were different from those that had earlier led the Government to keep the Magnox stations in the public sector.

So far as the Magnox stations were concerned, our preparations for privatisation showed that earlier estimates of reprocessing and decommissioning costs were not high enough. For that reason we were unable to privatise the Magnox stations. But while those increases were important for the Magnox stations, the reprocessing and decommissioning costs per unit of output for AGRs and PWRs remain substantially lower than those for Magnox.

The simple reason the AGR and PWR stations could not be privatised was that it had become apparent that private sector institutions and the investing public have a different perception of the financial risks associated with the industry than that which can be taken by the Government. The fall in the price of oil and the increase in the cost of capital which have occurred in recent years made the cost comparison less favourable than it was earlier.

These factors mean that investors would require a much higher return from existing AGR stations than the rate currently required. They also mean that the financial institutions would not lend for the future PWR stations except at interest rates which include a high risk premium. They also required loans to be repaid over much shorter periods than in the public sector.

These requirements, placed on a highly capital-intensive industry, would have necessitated substantial increases in electricity prices. We were not prepared to accept that.

The solution proposed by National Power was for the Government to give unprecedented guarantees, which would have required taxpayers and consumers to take almost all the commercial risks associated both with output from the stations and with possible future costs increases. The Government, on behalf of the taxpayer, were not prepared to underwrite the private sector in that way. Our solution was the only one which was fair to both the consumer and the taxpayer.

Lord Williams of Elvel

My Lords, before the noble Viscount leaves the question, could he kindly tell us this? Now that AGRs and future PWRs, if there are any, are in the public sector, will the Government continue the process of lending at low interest rates and not requiring what the institution investor in the City of London would regard as a short-term proper return?

Viscount Ullswater

My Lords, the private sector and the public sector require different rates of return. It is therefore quite right to think that the nuclear power stations in the public sector will not have to stand the full rigours of the interest rates required by the private sector.

Lord Stoddart of Swindon

My Lords, will the noble Viscount give way?

Viscount Ullswater

My Lords, I feel that I have dealt with many of these problems. I have tried to help the noble Lord whenever possible, but I should like to continue with my speech.

Lord Stoddart of Swindon

My Lords, the noble Viscount is raising great doubts in the minds of Members opposite; I do not know about his noble friends. Surely the whole objective of the Government in privatising the industry was to induce competition and to reduce costs. I thought that that was what it was all about. Now he is telling us that that is not so, certainly in relation to the nuclear industry. But as I pointed out in my speech, the matters that he has just raised were very well known. In the United States they have known for 10 years that nuclear power through light water reactors is not viable. That is what we cannot understand and that is what we should like him to explain to us.

Viscount Ullswater

My Lords, I think that I have dealt with the reasons the AGRs and the PWRs have not been left in the hands of the public. I should now like to continue with my speech.

My noble friend Lord Lauderdale drew specific attention to OECD figures which suggest that in many countries nuclear power is either cheaper than coal-fired generation or roughly on a par with it. I certainly take some cautious encouragement from these figures. The basic economics of nuclear have not changed. However, it must be remembered that these figures are not, and do not claim to be, commercial market prices for supplies of nuclear power in the private sector. For example, it uses a 5 per cent. discount rate as its base case and at a 10 per cent. discount rate the picture looks far less rosy for nuclear. As I said, at the rates being sought by financial institutions to fund nuclear power in the private sector, it was clear that the price of nuclear electricity woud have been unacceptably high.

The OECD report is an interesting contribution to the nuclear debate but it does not reflect the commercial factors which my right honourable friend had to take into account.

My noble friend also pressed me to publish the figures provided by National Power which underlay the Government's decisions. The figures cannot be considered independently of the nature of the guarantees pressed hard for by National Power. I have already indicated the extensive nature of those guarantees. If we had been prepared to give such guarantees we would have sought an appropriate reduction in National Power's prices. I cannot tell the noble Lord what would have been the outcome of this negotiation, except to say that it was clear from our knowledge of generating costs that the prices would have remained substantially higher than fossil prices.

The figures for actual supplies —as distinct from negotiating offers in respect of a situation which is now no longer relevant —will, of course, be known in due course when the accounts of the nuclear company are published and when the rate of the fossil fuel levy is announced. I hope that my noble friend will accept that that is as much as I can say.

Many noble Lords have questioned the Government's decision not to include the proposed PWR stations beyond Sizewell B in the non-fossil fuel obligation. I emphasise that we have not said that these stations or others should never be built. We have merely deferred consideration of the prospects for nuclear power until 1994. Meanwhile, these proposed stations will not be within the non-fossil obligation. The Government recognise that the obligation is a distortion of the market.

The noble Lord, Lord Stoddart, asked whether the electorate will have to pay for electrcity from Hinkley Point C PWR station. The Government have stated that they intend to set the non-fossil fuel obligation at a level that can be met without the construction of further capacity beyond Sizewell B. If a forecast cost of Hinkley Point C turns out to be higher than that of fossil fuel plant, it would be necessary to set a new obligation which would have to be laid before Parliament and could be debated.

The non-fossil fuel obligation is rightly justified by the need to maintain diversity. I have already referred to the dangers of ignoring diversity but the obligation must be kept to a minimum consistent with the strategic need. My right honourable friend has therefore had to take into account the many recent changes in the energy scene affecting the need for three more PWRs on diversity grounds.

The noble Lord, Lord Stoddart, suggested that the Secretary of State is still saying that nuclear power is competitive. My right honourable friend did not say that nuclear power is competitive now but that the existing stations and Sizewell B remain necessary for reasons of diversity.

Privatisation is already enhancing diversity of supply. The creation of two major generating companies has an immediate impact. As I have said, the fact that we have devised a structure to promote the growth of new independent generation is of crucial importance. The two main generators and the independents are planning to make use of the latest combined cycle gas turbine stations and the abundance of gas in the North Sea.

The noble Lord, Lord Hatch, asked whether market forces could play a part in reducing pollution. Market forces, in the guise of independent entrants to the generation sector, are already helping the environment. Independents —for example, Lakeland Power—intend to burn gas at higher thermal efficiency than coal and with less environmentally damaging emissions. Competition will encourage more diverse and varied fuel in generation.

The United Kingdom has oil plants which could also make a greater contribution to generation. We also believe that it should be possible, subject to the requirements of the Nuclear Installations Inspectorate, to extend the lifetime of some of the Magnox stations.

All that I have said indicates that the Government are well aware of the energy needs in the short and medium term and that it would be wrong to criticise them for not providing the sources of supply. My noble friend Lord Lauderdale mentioned that we were told that the costs of decommissioning were the reason for the Magnox decision. He asked whether that has changed, as life extensions have been indicated. Nothing has changed since that time. Life extensions of the Magnox stations should have a negligible impact on costs and would still not have allowed it to be privatised. The impact on the company's balance sheet of providing for the liabilities would remain serious.

The Earl of Lauderdale

My Lords, can my noble friend tell us what provision will be made for the decommissioning costs?

Viscount Ullswater

My Lords, again I do not have that figure at my fingertips but I shall make inquiries and write to my noble friend.

The Magnox stations are a valuable national asset. We must use them to the full. I know that many noble Lords are strong and eloquent supporters of renewable forms of power. We are also taking very positive steps to encourage development of renewable technology which promises to make an important contribution to our energy needs in the future. That is why my noble friend Lady Hooper announced that the non-fossil fuel obligation would be extended by 600 megawatts during the 1990s, specifically for renewable projects, and the Government stand by that commitment.

The noble Viscount, Lord Hanworth, pointed to the promotion of energy efficiency, as did the noble Lord, Lord Hatch. The Electricity Act places a duty of the Secretary of State and the Director General of Electricity Supply to promote energy efficiency and economy on the part of persons licensed to supply electricity and to promote the efficient use of electricity supplied by them.

The noble Lord, Lord Hatch, asked me what the Government are doing to support renewables. They are committed to development of economic renewable energy in addition to the sizeable budget for renewable R&D. The non-fossil fuel obligation is designed to support non-fossil fuel generation.

My noble friend Lady Hooper announced the 600 megawatt tranche and we believe that that will give a specific boost to renewable projects. It is already clear that a significant number of renewable projects are in preparation to meet that non-fossil fuel obligation.

Taken together, those factors mean that the case for extending the non-fossil fuel obligation to cover early construction of three further PWRs on diversity grounds is no longer established. Therefore, we shall review the position in 1994.

My noble friend Lord Lauderdale also asked what reasons we have to expect nuclear power to become economic in the longer term. In recent years fossil fuel prices have been at relatively low levels. No one expects them to stay at those levels indefinitely. All around the world people are waking up to the effect which burning fossil fuels has on the environment.

It would be a brave man who would assert today that fossil fuel prices will continue to exclude the indirect costs that are imposed on all of us. What is clear is that our understanding of the environment is improving rapidly at the moment. When the Government review the situation in 1994, as Sizewell B nears completion, we will know a great deal more about the relative economics of fossil and nuclear generation. That will be the time to take a firmer view about the future of the nuclear programme. We shall also take the opportunity of the review to look again at the longer term prospects for renewables in the light of all the factors at the time. I am sure noble Lords agree that it is sensible to look at future prospects for all non-fossil sources together.

I have been asked why we are proceeding with Sizewell B. The station is needed to counterbalance the closure of the Magnox stations in the mid-1990s. We shall also learn from its construction and keep open the option to build further stations after we have completed our review in five years' time. The PWR option must be kept open not only on diversity grounds but also so that we can call on the nuclear industry if it proves the best solution for dealing with our growing environmental problems. For these reasons we must complete Sizewell B on time and ensure that it operates successfully.

The new chairman and directors of Nuclear Electric have made clear their determination to ensure that nuclear power is established as an economic option for base load electricity and that the nuclear industry builds for itself a bright future. They have the full support of the Government in these objectives.

In conclusion I should say that I welcome the opportunity this debate has provided to explain in a little more detail the Government's privatisation proposals following the recent nuclear Statement. I have set out why the Electricity Act remains central to our proposals and have explained why we do not propose to revisit the split between National Power and PowerGen. I have explained how we shall ensure effective competition in generation. I have reiterated the Government's commitment to the nuclear option and have explained the role of the new nuclear company.

Our proposals provide the best means of providing a future for nuclear power and for ensuring the completion of electricity privatisation this Parliament. I regret that I have taken so long to explain all these points and to answer some of the many questions that have been put to me. However, I realise that I have not answered them all. I commend the Government's proposals to the House.

11.47 p.m.

Lord Ezra

My Lords, we have had a well-informed and vigorous debate on an important issue. I wish to thank those noble Lords who have taken part and also the noble Viscount for the detail in which he dealt with the questions raised. However, I wish simply to identify two issues which I believe have emerged from our lengthy discussion on this subject tonight.

In the short term I believe there is still concern about how effectively the new arrangements will work. Anything the Government can do to explain those and allay any doubts there may be would obviously be to the good. In the longer term there is the question of capacity. There is a great deal of uncertainty about what the requirements are likely to be. The 13,000 MW which was an original estimate has been mentioned. How will this extra capacity be met? What will be the role of nuclear, of renewables and indeed of increased energy efficiency in the future? These are questions to which I have no doubt we shall return many times in the future. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

House adjourned at eleven minutes before midnight.