HL Deb 29 November 2004 vol 667 cc257-9

2.43 p.m.

Lord Ezra asked Her Majesty's Government:

Whether, in the light of the recent reports by National Grid Transco and Ofgem, they are satisfied that there will be adequate supplies of gas and electricity to meet the winter demand, including demand in exceptional circumstances.

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

My Lords, National Grid Transco's Winter Outlook Report was published by Ofgem on 20 October. It concluded that there is enough electricity-generating capacity to meet demand, even in a very severe winter. The forecast plant margin is now nearly 22 per cent, up from the 20.2 per cent mentioned in the Winter Outlook Report, and it could rise still higher if generators bring more mothballed plant back into service. As for gas, the report states that gas supplies can also be maintained using a combination of supplies from the UK continental shelf, gas imports, storage and demand management where necessary, even in a winter of the severity expected only once every 50 years.

Lord Ezra

My Lords, I note what the noble Lord said, but does he not agree that a disturbing factor in this situation is that the depletion of our North Sea reserves is happening faster than was anticipated and that the additional import infrastructures are unlikely to be in place before 2007? Furthermore, does he agree that that has been reflected in forward prices? The price of gas has recently increased substantially in the wake of oil price increases. Compared with the current price of 30 pence per therm, the forward sales of gas for the first quarter of next year have risen to 53 pence per therm, even though the price of oil has stabilised. Does that not suggest that the market fears a shortage of gas?

Lord Sainsbury of Turville

My Lords, it is certainly true that gas supplies for the next two winters are likely to be tighter than in previous years due to the long-term decline in production from the North Sea. But it is encouraging that we have seen market participants coming forward with an expanded range of gas import projects, including new gas interconnectors, major new gas import pipelines from Norway and three new terminals to import liquefied natural gas. So we are seeing a new infrastructure coming into place. Contrary to what the noble Lord said, with those projects coming on stream, we expect the supply of gas to be significantly increased in time for winter 2006–07. We have seen prices come back recently, which shows that the market is not now anticipating major problems this winter.

Lord Tanlaw

My Lords, the Minister made no mention of the contribution that renewables could make to the situation. Is that because the Ministry of Defence is continuing to oppose planning permission for the erection of wind turbines in south-west Scotland and in other areas which are very suitable for wind turbines? Can the Minister say whether any consideration has been given to when the blocking of such planning permission will be withdrawn?

Lord Sainsbury of Turville

My Lords, obviously in the long term we are looking to renewables to make a major contribution but that subject is not relevant to the Question, which concerns what will happen this year. Whatever happens in relation to renewables, it will not affect the situation to any great extent.

Lord Trefgarne

My Lords, looking to the longer term, given the decline in United Kingdom supplies, to which the noble Lord referred, and the uncertainty of some overseas sources of supply, is it not now time to investigate further and more carefully the prospect of making gas from coal, given that at present unused and extensive supplies of coal are lying idle?

Lord Sainsbury of Turville

My Lords, clearly we are going to become a net importer of gas and, as I explained, the market participants are putting in place strategies to import gas. It will come in via a number of different supply routes and from diverse sources around the world, and that should enable us to have a stable supply of gas. So far as concerns gas from coal, we are continually looking at the different technological options available.

Baroness Miller of Hendon

My Lords, following on from the question from my noble friend, as about 30 per cent of Europe's gas supplies come from Ukraine and given the current threat of civil disturbance there, which I believe underlines the fragile nature of those sources of supply—a matter about which we spoke continually during our debates on the Energy Bill—can the Minister tell the House in a little more detail than he gave in his previous answer what the Government will now do to reduce this dependence on overseas supplies and certainly those from potentially unstable countries?

Lord Sainsbury of Turville

My Lords, as I hope I explained in response to the previous question, we are already taking action, and have been doing so over a number of years, to make certain that our supplies come from a range of different parts of the world and by different routes. That means that we are already strongly diversifying the supply which comes into this country.

Lord Elton

My Lords, in seeking to reassure the noble Lord, Lord Ezra, in his substantive reply the noble Lord said that one thing that we would use would be demand regulation. Does that mean telling some people that they cannot have it when they want it, and is that not what the noble Lord, Lord Ezra, is concerned about?

Lord Sainsbury of Turville

No, my Lords, I did not say "demand regulation"; I said "demand management". Obviously if the price of particular fuels increases, the participants in the market will switch demand to other areas. In a situation described by Ofgem as a "Siberia-style winter"—that is, one winter in 50—we would see prices in some areas go up and that would lead to some shift in demand between different sources of supply. That seems to me to be a perfectly sensible situation in such extreme conditions.

Lord Avebury

My Lords, is it not likely that, as the price of fossil fuel increases, heat pumps will come into their own in a country like Britain which has a moderately high temperature in the winter?

Lord Sainsbury of Turville

My Lords, there are always plenty of different options for dealing with the situation. I was trying to reassure the noble Lord that we would not have to deal with heat pumps this winter because there will be other perfectly good supplies of energy.