HL Deb 17 May 2004 vol 661 cc512-4

2.52 p.m.

Lord Ezra asked Her Majesty's Government:

What is their response to the conclusion of the recent utilities report by PricewaterhouseCoopers that security of supply is now the leading strategic aspect of the power market.

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

My Lords, the Government reaffirmed their commitment to the reliability of energy supplies delivered through the market as a key goal in their energy White Paper published in February 2003. We therefore share the report's view that it is essential that the right signals are being given to the market in relation to ensuring sufficient investment in the required infrastructure. We agree with the PricewaterhouseCoopers head of utilities when he said: A consistent and stable regulatory environment is required to make the sector more attractive to investors. Capital will only come with good rates of return".

Lord Ezra

My Lords, I am obliged to the noble Lord for that reply. Is he aware that in its report, PricewaterhouseCoopers drew attention to the fact that concern over security of supply had risen sharply in 2003, due on the one hand to the prospective withdrawal of aging plant, and on the other hand to the continued increase in electricity demand and a reluctance to invest in new capacity? Furthermore, is he aware that Dr Paul Golby, the chairman of Powergen, estimated that between £50 billion and £70 billion would need to be invested in the electricity sector in the next decade in order to achieve reliability and to cover demand growth? How is that to be achieved?

Lord Sainsbury of Turville

My Lords, the survey is of senior executives around the world, and it actually has rather few specific comments about the UK scene. I think that the UK scene is slightly different; we are well ahead in the field of deregulation, and we have established a stable regulatory environment. Indeed, there were favourable comments in the report, as the noble Lord will have seen, about the National Grid, Transco, and its role in capacity. Of course, at the moment we do not need additional generating capacity. The margins for this year, this winter and next winter are around 20 per cent, which is what it has been for the past 10 years. In due course, with a stable regulatory environment, we think that investment will come.

Lord Forsyth of Drumlean

My Lords, how is the Government's policy of encouraging large parts of our country—some of the most remote and most beautiful parts—to be covered with windmills, which do not generate power when the wind does not blow, adding to the security of power supply in our country? Is it not the failure of the Government to show the courage to address the nuclear question that is at the root of these difficulties?

Lord Sainsbury of Turville

My Lords, it is the case, as has been explained many times, that there is more than one objective of our energy policy. There are cost considerations, security considerations and environmental considerations. Any energy policy must take account of these three objectives. Clearly, renewable energy is a key part of the environmental issue. As far as concerns the nuclear question, which we have covered in great detail on innumerable occasions in the past few weeks, it has emerged as clearly as ever that there is not a cheap source of nuclear energy readily available at this point.

Lord Jenkin of Roding

My Lords, is it not ironical that within days of the publication of the PricewaterhouseCoopers report to the effect that security of supply is now at the top of the list of priorities the Government should have announced that they are going to repeal Clause 1 of the Energy Bill in another place, where this House laid a firm duty on the Government to ensure security and integrity of the energy supply? It is not surprising that the Government are in a bit of a muddle, because the noble Lord, Lord Whitty, said that the clause was not necessary; and the noble Lord, Lord Sainsbury, accused me of being Stalinist. They cannot both be right.

Lord Sainsbury of Turville

My Lords, I would never accuse the noble Lord of being Stalinist. As far as concerns this Question, we are not in disagreement about the central importance of security of supply. Indeed, that is stated in both the Electricity Act and the Gas Act. The phrasing of that requirement on the Government is what is in dispute. I am sure that the noble Lord will have seen from the newspapers that the industry is not at all enthusiastic about this amendment, because it thinks that it will make a radical change to the regulatory framework, which it does not want to see, because it wants to see a stable regulatory framework, which is exactly what this report is about.

Lord Haskel

My Lords, is my noble friend aware that the report deals largely with the concerns of the utility companies? Has he seen other parts of the report that deal with the concerns of customers and consumers? The main concerns of consumers are service and price. These were identified as their leading concerns. Does my noble friend agree that the best way to deal with this is with a fully liberalised market?

Lord Sainsbury of Turville

My Lords, in any sensible energy policy, there must be a balance between the interests of producers and those of customers. Clearly, you can get security of supply by simply having margins of capacity, as we have had sometimes in the past, of over 30 per cent. It is not clear that that is in the interests of consumers, and we have had to take steps through the New Electricity Trading Arrangements to ensure that there is not overcharging of consumers. On the other hand, that must be balanced with making certain that there is a proper flow of investment into the industry, which depends on there being proper returns on capital.

Baroness O'Cathain

My Lords, I ask the Minister to reconsider his reply to my noble friend Lord Forsyth. He said that we had discussed the nuclear industry in the past few weeks. We have discussed it, but we have not had any answers. One of the questions that have not been answered is whether or not nuclear power can be regarded as sustainable, renewable energy, as it is in parts of Canada.

Lord Sainsbury of Turville

My Lords, to be correct, the House has had the answers. There is disagreement about the nature of those answers, which is why they constantly get asked again. We have given the answers, and the position of nuclear energy is clear. With regard to CO2 emissions, nuclear energy is entirely beneficial to the environment, but other aspects of it, such as pollution and waste, are serious environmental hazards. We must take both considerations into account when looking at nuclear energy in the future.