HL Deb 18 November 2002 vol 641 cc133-5
Lord Ezra

asked Her Majesty's Government:

Whether the fall in wholesale electricity prices and the consequent problems being encountered by generating companies will lead to difficulties in the supply of electricity.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, the Government do not expect the fall in wholesale prices to lead to difficulties in the supply of electricity but, as always, we are monitoring carefully the short-term balance of supply and demand. The energy review is considering all aspects of security of energy supply for the longer term, and we shall publish a White Paper in the new year.

Lord Ezra

My Lords, I thank the noble Lord for that Answer. But, as he is obviously aware, since 1998 wholesale prices have fallen by 40 per cent. Is he further aware that that has caused serious financial problems for a number of generating companies and has led to the mothballing or closure of a number of power stations? While this substantial market adjustment is taking place, is it not likely that serious interruptions of supply could occur from time to time and, therefore, does that not argue for a change in the new electricity trading arrangements?

Lord Sainsbury of Turville

My Lords, there has been a considerable and, I believe, highly desirable fall in wholesale prices from what were previously clearly artificial levels, and that has been of huge benefit to consumers. It has led to some mothballing of capacity which is not required at this stage. As I said, we have been monitoring carefully the position as regards capacity and demand. The latest National Grid company figures suggest that this winter 65 gigawatts of capacity are available for England and Wales against a forecast of peak demand of 55.3 gigawatts under average cold-spell conditions. That gives a margin of 17.5 per cent, which we regard as adequate in the circumstances.

Baroness Miller of Hendon

My Lords, following the detailed and somewhat comforting answer given by the Minister, can he be absolutely certain that that position is right? After all, that is what was thought in America but, as a result of very low prices, the generating industry got into trouble and a black-out occurred for many days. We certainly welcome low prices and consider them to be very good. But, in view of the American experience, can the Minister tell the House what representations are being made to the regulator to ensure the financial viability of the electricity generating industry?

Lord Sainsbury of Turville

My Lords, we keep that matter under review. Of course, it should be understood that, if a generator gets into financial difficulties, that does not necessarily mean that capacity will go out of use. As we saw in the case of TXU, it is likely that generating capacity will be taken over by another supplier, given that, in most cases, energy prices are still higher than the cost of supplying it. Therefore, I do not believe that that represents a danger. As I said, overall capacity is in reasonable condition and, in emergency circumstances, mothballed plant could also be brought back within a reasonable timescale.

Lord Mason of Barnsley

My Lords, first, can my noble friend say how much we are importing from abroad and, secondly, are we still importing electricity from France?

Lord Sainsbury of Turville

My Lords, so far as I know, we continue to obtain a large amount of our coal supplies from abroad and we also obtain energy from France.

Baroness Oppenheim-Barnes

My Lords, is the Minister aware that a number of practices by suppliers are greatly disadvantageous to consumers? Is he a ware that it took me six months to change supplier and that, since the change took place, I have been bombarded daily with letters from the old supplier asking whether I am sure that I have not made a big mistake?

Lord Sainsbury of Turville

My Lords, I do not believe that it is for me to defend the position of all suppliers. I am sure that the noble Baroness can do that very well for herself. However, that does not have anything to do with a fall in wholesale prices, which is another issue.

The Lord Bishop of Hereford

My Lords, can the Minister say what effect these very low prices have had on the viability, and therefore the availability, of electricity from renewable sources, which is not the cheapest form of power? Is it still possible for those who wish to buy electricity from renewable sources to do so in this particular commercial climate?

Lord Sainsbury of Turville

My Lords, I believe that there is no question that if lower prices have an impact on the generating industry, that will have an effect on the ability of suppliers of renewables to sell into the grid. However, the renewables obligation scheme, which applies to the electricity generation industry, makes the situation very advantageous for renewables.

Lord Stoddart of Swindon

My Lords, is the Minister aware that spare capacity of 17.5 per cent is the barest minimum that should be available if one is to have a safe and viable electricity supply system? Is he also aware that, if this winter is very hard, that amount of spare capacity will not be sufficient? Are we not becoming over-reliant on imported gas supplies since our own indigenous gas supplies are being run down at a very heavy rate?

Lord Sainsbury of Turville

My Lords, I do not accept that that is the bare minimum. I believe I said previously that there is thought to be a 50 per cent chance of the average cold-spell conditions being reached or exceeded in any one winter. That has happened only twice since 1990. The margin is quite significant. As I also said, the assumption is that 7.1 gigawatts of mothballed plant are available. That is probably an overstatement of what the situation will be and it is probably also a slight overstatement of demand. In reality, the figure is probably closer to 20 per cent, which is reckoned to be the base line that one should have.

Lord Dixon-Smith

My Lords, is the Minister satisfied that the regulator is sufficiently fleet of foot and of policy to avoid the electricity industry needing to make further calls on the Treasury?

Lord Sainsbury of Turville

My Lords, I believe that the noble Lord refers to the situation that has arisen with British Energy. Given the Government's overriding priorities as regards the safety of nuclear generation and the security of supply, we have taken action to maintain the situation with that supplier. I do not believe that that action should be taken across to other situations in the industry.

Lord Stoddart of Swindon

My Lords, will the Minister answer my question on gas supply?

Lord Sainsbury of Turville

My Lords, on the importation of gas, yes, we are dependent on a substantial amount of imported gas, which will grow considerably in the future as we become an importer rather than an exporter of gas. Account will have to be taken of that in the long-term review of energy security that will be covered in the White Paper when it is published.

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