§ 3.36 p.m.
§ The Parliamentary Under-Secretary of State, Department of Energy (Baroness Hooper)
My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Baroness Hooper.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The CHAIRMAN OF COMMITTEES in the Chair.]
§ Clause 32 [Electricity from non-fossil fuel sources]:
Baroness Hooper moved Amendment No. 165B:
Page 24, line 42, leave out from ("with") to ("and") in line 43 and insert ("the suppliers concerned, by order require each public electricity supplier in England and Wales or each such supplier in Scotland, before a day specified in the order, to make (in so far as he has not already done so)").
§ The noble Baroness said: It may be helpful to the Committee if, in moving this amendment, I make some general remarks about the non-fossil fuel obligation before dealing in detail with the specific amendments. I believe that would help us to deal more expeditiously with the individual amendments when we come to them.
§ In the White Paper Privatising Electricity, published in February last year, the Government made clear their firm commitment to a secure supply of electricity after privatisation. One means of contributing to such security is to ensure a diversity of fuel sources in electricity generation. Diversity of fuel sources has been recognised by successive governments as an important safeguard against fuel supply disruptions and price shocks. Over the past 15 years, we have experienced two oil crises as well as a number of disruptions to coal production. Over three-quarters of the fuel consumed in generating electricity in England and Wales is coal. Coal is likely to be the dominant fuel in electricity generation for some time to come, and so it is important to 1522 maintain a variety of fuel sources for generating electricity.
§ In addition, we are now much clearer on the environmental effect of too heavy a reliance on coal. Coal contributes to acid rain and the greenhouse effect. A diversity in fuel helps to spread the risk and reduce the cost associated with dealing with the environmental impact of any one fuel. Nuclear power and renewable sources of energy have a particular role to play in reducing the impact of increased carbon dioxide emissions.
§ Renewable sources of energy will also have an increasing role to play in promoting diversity. This is why our obligation is a non-fossil one, and I shall deal with our proposals for additional provisions for renewables in the second batch of government amendments. But for the foreseeable future, nuclear will have a central role to play in ensuring diversity. The Government are convinced that there is a vital strategic need for nuclear power. This Government were elected on a manifesto which contained a commitment to maintaining the nuclear programme. Nuclear power has helped us get through times of fuel disruption in the past and has a clear strategic role for the foreseeable future.
§ Our privatisation proposals therefore take into account the need to maintain a strong nuclear presence. The Government believe it is right to privatise nuclear power. However, it has to be recognised that it is not possible at present to leave it to the new competitive market for electricity to ensure a continuing nuclear involvement in such new capacity. At present, the cost of nuclear power in England and Wales is higher than that of fossil-generated power. This is largely due to the high reprocessing costs of Magnox stations and operational difficulties with some of the English AGRs. The economics of nuclear are, however, likely to improve significantly when the new generation of PWR stations comes on stream.
§ In the meantime, we believe it would be wholly wrong to throw away the experience and expertise that have been built up in this country on nuclear power, together with its contribution to fuel diversity, because of an adverse price differential which may well be only temporary.
§ Clause 32 therefore provides that the Secretary of State may, after consultation, require public electricity suppliers to produce evidence to the Director General of Electricity Supply showing that they have made arrangements to contract for a minimum aggregate amount of non-fossil generating capacity. This will ensure that, even if the costs of nuclear or other non-fossil capacity are higher than that of fossil generating capacity, a non-fossil generating capability will be maintained.
§ The obligation will be applied in England and Wales only, although it could be extended if necessary to Scotland in due course. At present, however, Scotland has a sufficient diversity in elecricity generation for the foreseeable future.
§ Perhaps I may explain the proposed mechanics and likely timetable. We propose that the obligation will be applied separately to each public electricity supply company by order to be made later this year.1523
§ The Magnox power stations were all constructed in the 1950s and 1960s. They are coming towards the end of their planned lives. Berkeley has already closed and the SSEB has announced plans for closure of Hunterston A. On the assumption that other Magnox stations close after a 30-year lifetime, in the absence of new capacity being constructed, non-fossil capacity will be reduced by between 3GW and 3.5GW by the year 2000. In order to maintain the existing level of diversity, the non-fossil fuel obligation will be set at levels designed to replace this by a new non-fossil capacity. Different levels may be set for different years.
§ The White Paper made clear that there would be no restriction on the origin of this non-fossil capacity. Renewable sources of energy will be able to make a contribution. Non-fossil capacity in Scotland, France, the AEA and BNFL are all potential sources of supply.
§ The obligations set before the end of this year, together with the additional exclusively renewable tranches, will ensure that the present level of diversity is maintained well into the first decade of the next century. The Government do not believe that there is any need at present to consider the case for setting obligations designed to bring forward new capacity beyond the year 2000. The relative economics of nuclear power, renewables and fossil-generated power may well change. We believe that there is no need to take a decision now. It will be for a future government to take such decisions.
§ I turn now to Amendment No. 165B, which has been grouped with Amendments Nos. 169F, 170A, 172A, 172B, 172C, 173A, 232A and 232B. These are all government amendments which are technical amendments designed to tidy up the Bill. They are designed to make it clear that the obligations we shall be setting at the end of this year, to which I have referred, will be for the public electricity suppliers in England and Wales only and will cover only their authorised areas. Although the Bill would permit an obligation to be set in Scotland, as I have said, there is at present adequate diversity in generation in Scotland.
§ As originally drafted, the Bill would anomalously have required the Secretary of State to consult the Scottish public electricity suppliers before setting the obligation in England and Wales even though those public electricity suppliers would not be affected by it. Amendment No. 165B removes that anomaly and makes clear that only the public electricity suppliers affected need be consulted.
§ Amendments Nos. 172A, 172B, 172C and 173A on Clause 33 and Amendments Nos. 232A and 232B are all consequential arising from this change. They have therefore been grouped together.
§ That leads me to the next technical point which these amendments are designed to deal with. At the time we come to set the initial non-fossil fuel obligation later this year the area boards will not have been converted into public electricity suppliers. Amendment No. 170A therefore allows consultation with the area boards to take the place of consultation with the public electricity suppliers. Those involved will of course be the same individuals. It therefore 1524 seems reasonable to consult the area boards as proxies for the companies which they are soon to become.
§ Another anomaly which these changes resolve concerns Berwick upon Tweed and the surrounding area. That area is in fact supplied, and will continue to be supplied, by the South of Scotland Board even though it is in England. Clearly the customers in that area already enjoy the considerable diversity of the Scottish system. There is therefore no reason why they should be required to pay a share of the costs of maintaining diversity in the English and Welsh system, which is what the non-fossil fuel obligation and the fossil fuel levy will achieve. Amendments Nos. 169F and 172B therefore make clear that the non-fossil fuel obligation and the levy are limited to the authorised areas of public electricity suppliers on whom that obligation has been placed. Berwick is thereby excluded from the English and Welsh non-fossil fuel obligation, but would be included if at any time in the future it was decided to have an NFFO north of the Border.
§ I hope that the Committee will see that these are simple, commonsense changes which can be agreed. I beg to move.
§ 3.45 p.m.
§ Lord Peston
I had not realised that the noble Baroness was to make a mini-Second Reading speech on non-fossil fuels. Nevertheless that does not detract from the interest of what she had to say. With permission, I shall respond to some of what she said but save some of my remarks on the points that she raised for the specific amendments which deal with those matters.
One accepts entirely that security is an important objective. One also accepts that diversity is a means of achieving that security to some degree. What is of interest to us is that this Bill takes it for granted that private enterprise, left to itself, cannot arrive at the correct solution in providing security and therefore one has to legislate to make up that deficiency on the part of the free market. We think that the Government are right in doing that, but the Committee should realise what the Government are saying: that the private sector cannot be relied upon to provide a secure source of electricity supply.
I was extremely interested in what the noble Baroness had to say about the nuclear industry. There are other amendments on which we can say a few words on that subject. One point that puzzled us was the apparent lack of consistency. Essentially the nuclear consideration arises first and foremost in connection with security. Perhaps I may add, as I have said before, that I have no hang-ups about nuclear production. I am simply interested in having electricity produced as cheaply and securely as possible, taking due account of environmental matters. I feel that all methods of generating electricity ought to be considered on the basis of the same set of criteria.
There is one worrying aspect of the nuclear issue, and I wonder whether the Government have this clear in their minds. They appear to argue that nuclear power is simply a part of the process of 1525 obtaining diversity and security, but then add that somehow we are protecting the nuclear industry. I put it to the noble Baroness and to the Committee that the logic of the argument has nothing to do with the nuclear industry. There is nothing special about the nuclear industry. What matters is security and diversity and how it can contribute to them. One must not confuse the two issues.
I press that point on the Committee because a couple of weeks ago I raised the question of whether nuclear power generated in France counts towards whatever the nuclear commitment is. As I understand it—the noble Baroness explained it to me, but, if I had read the Bill more carefully, I should have understood it anyway—nuclear power generated abroad counts towards the nuclear commitment.
I should make two points in that respect. First, that clearly does not protect the British nuclear industry because I take it that the British Government are not in the business of protecting the French nuclear industry. Therefore, in so far as we are discussing the British nuclear industry, as it were, security abroad does not meet that point. Secondly, it is not obvious to me what the nuclear bit of "abroad" has to do with it. What matters is "abroad" generally; however its electricity is produced, it adds to our security. I think that there is a certain amount of confusion on the Government's part as to quite what that is all about. For once, I make that comment rather than my usual remark that the confusion is on my part.
Another point about nuclear power, which I shall come to again, is the question that I always ask: why does it turn out to be as expensive as it is? I hope that we shall have a chance in due course to say a few words about that subject. I should emphasise one other aspect of the matter. Certainly, from my experience of nuclear power stations—and this is true of almost all power stations—they seem to cost enormously more to set up in the first place than one budgets for. Nuclear power used to have a particular capacity for overrunning. Alternatively, the planners had a particular capacity for not telling the truth when they were trying to get the thing through in the first place.
However, either way, one of the worrying points about nuclear power—I reiterate that I am not in the least anti-nuclear—is that one always seems to end up with higher bills than one wants. Since one has to discount the eventual flows using a discount rate, the higher one's initial capital costs, and the higher the discount rate, the more it is biased against nuclear power. I was therefore rather surprised that the noble Baroness emphasised other matters as the reason why nuclear power was so expensive. I should like some enlightenment on that point.
We are glad that the noble Baroness has raised the environment questions; but I hope that she will accept my slight apology for preferring to debate those questions after another amendment or two, rather than deal with them now. Perhaps I may now turn to the specific amendment and the consequentials. I suppose—and I should think that 1526 I am capable of annoying my noble friends at least as much as anyone else on this matter—that we must constantly accept the division between Scotland and England and Wales in this matter. I do not see the logic of such propositions; namely, that we have sufficient diversity in Scotland and that the problem therefore lies with England and Wales. That is to assume—I hesitate to say this on this particular day, given at least one by-election that is taking place—that Scotland is already a separate nation. I should like some explanation of the economics of why diversity is not an overall United Kingdom, or at least Great Britain, phenomenon and can be dealt with on that basis rather than on an England and Wales basis.
Having said that, and given that we accept the England and Wales versus Scotland division—because that is part of the rules of the game—I accept the amendments of the noble Baroness. They are of the sort that we must keep England and Wales separate from Scotland and must not let the Scots be consulted on matters relating to England and Wales. I therefore take her word for it and entirely accept that this is a technical matter. I hope—using the word "chauvinist" with its correct meaning—that I am not being an ultra-English chauvinist, when I say that I still end up slightly puzzled as to why England and Wales and Scotland are separated yet again. That is perhaps a trifle frivolous at the beginning of a serious day's debate. On the main point, it seems to me that the amendments are with merit and do not need to be opposed.
§ Lord Nelson of Stafford
As we are dealing with this clause generally, perhaps I may just welcome the statement by my noble friend Lady Hooper which gives support to the wider spectrum of sources of energy for our electricity supply industry for the future. But I am a little confused and I should like to clarify one point.
My noble friend referred at one point to maintaining a proportion of non-fossil fuel generating capacity. She referred in another case to non-fossil generating source of supply. "Capacity" relates to the ability of the UK to supply non-fossil fuel sources of energy, whereas "supply" includes the ability to buy from overseas. I hope that her assurances to us refer to capacity and not to supply.
§ Lord Hatch of Lusby
Like my noble friend Lord Peston, I was somewhat surprised at the tone of the speech of the noble Baroness which, as he said, was somewhat in the nature of a Second Reading speech. But, within that speech, she uttered a kind of throw-away line on which I should like to tackle her.
During her introductory speech, she said that the Government accept that there must be a maintenance of British nuclear energy in their electricity programme. She put that comment within the context of the requirement for a proportion of non-fossil fuel generation.
Throughout the Committee stage, I and other people have been asking what is the Government's position regarding renewable sources of energy and energy efficiency. I am sorry that we have to come 1527 to this matter now because I should much prefer it to be left until we come to later amendments to be moved by the noble Lord, Lord Ezra. But, as the noble Baroness included that point in her speech, it is necessary to tackle it head-on now.
When the noble Baroness states that the Government have taken that decision so far as concerns nuclear energy, have they taken into account the true costs of nuclear energy? Have they taken into consideration not just the costs of building, but the subsequent costs of decommissioning and of the disposal of waste? Have they taken into account health costs and the degree of leukaemia that is now quite apparently becoming established around a number of the nuclear reactors? The noble Baroness says, as though it were a throw-away line, "Well, the costs may change". Yes, they may change; they will change. But surely she agrees that it is inevitable that the more nuclear power is generated, the more nuclear waste will also be generated, and therefore that the costs of disposal of that waste and the methods of disposal must be taken into account when the Government blithely say, "We accept that nuclear energy will play a part in this whole privatisation scheme". It seems as though the Government have all the time been saying that that proportion of generation which is to come from non-fossil fuels is first of all nuclear. Only then can we perhaps include, at least in rhetoric, wave power, solar power and other sources of renewable energy.
Cannot the noble Baroness come clean on this matter and say where the Government stand or where they will stand? What do they intend to do about discovering the extent to which nuclear energy can be replaced by the safer and more efficient forms of energy from renewable sources? I say "safer" and "more efficient" because the Government have made great play of down-grading, reducing and restricting fossil fuel burning because of their express concern for the greenhouse effect.
As I have told the noble Baroness time after time during our discussions in Committee, it has now been established that energy efficiency and renewable sources are far more cost-effective and efficient in reducing the greenhouse effect than is nuclear energy itself. As she raised this issue this afternoon, I hope that the noble Baroness will address herself to that central point. It is an international point that is now being debated all over the world and I am sure she is aware that other countries have taken decisions different from the one that she announced this afternoon on behalf of her Government.
§ 4 p.m.
§ Lord Peyton of Yeovil
I listened carefully to the speech of the noble Lord, Lord Hatch, and I cannot help thinking that my noble friend on the Front Bench was perhaps a little unwise in provoking the discussion at this stage. My noble friend should regard the speech made by the noble Lord, Lord Hatch, as something of a self-inflicted wound which she encouraged in a rather careless way.
As I am on my feet, I should like to ask how far the Government are convinced that these 1528 amendments are at all necessary. The original text provided that the Secretary of State "may" consult with the public electricity suppliers. At the relevant time the public electricity supplier will not be in existence yet we have to go through all the labour of amending the Bill. I cannot help feeling that the Secretary of State and those who advise him could possibly have taken the liberty of consulting those who were about to become public electricity suppliers without necessarily worrying about whether the Act would authorise them to do so. I do wonder whether my noble friend was right in accepting the advice that she has received and thus prolonging the discussion.
§ Baroness Hooper
I thank all noble Lords who have contributed to this discussion. As I said, my intention was to provide a little background to a number of government amendments which have been grouped together. I hope that the Committee will appreciate that in the long run that will shorten the debates on many individual amendments.
In response to the noble Lord, Lord Peston, I should stress that it is not that the private sector cannot produce a secure supply but that on current economics and due largely to the inherited costs in the nuclear industry to which I referred, the diversity of supply, which we believe should include nuclear, was seen to be in need of some support. As the noble Lord said, diversity of supply is one of the most important aspects.
As regards the inclusion of overseas supplies—I feel sure that the Committee will have a rather fuller discussion of this aspect when we come to deal with later amendments—because of our European obligations we are not only not in the business of protecting our home industry but we simply would not be allowed to do so because of the provisions of the Treaty of Rome. With regard to the noble Lord's remarks on the cost of nuclear power, I repeat that the cost is largely due to the inheritance principally of the Magnox stations which proved to have very high reprocessing elements. As I understand it, that is the reason why a Labour Government originally—in the shape of Mr. Benn as Secretary of State—decided to look at the PWR option. Based on that option we see the economics of the nuclear industry changing because the PWRs have proved to be successful in other countries which have wide experience of that particular technology.
§ Lord Peston
Perhaps I may interrupt the noble Baroness for a minute. I should like a little elucidation. If it is a question of past costs, then why does not the most fundamental principle of economics apply; namely, that bygones are bygones? Those are sunk costs. Why do the Government not just write them off? It seems to me to be very odd that a nuclear quota is needed in order to deal with past costs. That is my first question to the noble Baroness.
This is my second question: is the Minister saying that so far as new investment in nuclear power is concerned, there is no need for any protection? Is she saying that the Government are confident that nuclear stations can compete without any protection 1529 so long as past costs are ignored? Is she saying that there is no problem about potential new stations? If so, that is certainly news to me.
§ Baroness Hooper
The point is that the reprocessing costs extend over a very long period and many of those costs, which relate particularly to the Magnox stations, and certainly the decommissioning costs—only Berkeley has already been closed, as I said—are costs which will arise in the future. There is also the cost relating to maintaining the capacity which, in phasing out Magnox, will have to be replaced by the new system of PWRs; that is the capital investment cost related to that.
I believe that the Bill has many virtues and in this process of privatisation one of those virtues is that it has shown very clearly that those costs which formerly had been hidden in the bulk supply tariff in relation to nuclear power are now much more clearly visible and therefore understandable.
The noble Lord, Lord Peston, raised a point about Scotland. Of course the existing diversity in Scotland which I mentioned is based largely on nuclear and hydro power. I understand that only something like one-third of Scottish electricity is produced by coal and other fossil sources. The reason why this is not simply a United Kingdom matter but concerns England and Wales and, separately, Scotland is that at present only a limited amount of power can be sent through the interconnector between England and Scotland. As many noble Lords will already know, the capacity of the line is currently some 850 megawatts, although it is intended that it should be strengthened to take 1,600 megawatts—that is, virtually doubling the capacity within the next few years. The capacity requirement of England and Wales is upwards of some 50 gigawatts and it would not be possible to rely on Scottish capacity to resolve supply shortages in England and Wales.
I shall attempt to reply to my noble friend Lord Nelson of Stafford by saying that what is important is diversity of supply. The duty to supply rests on the public electricity supply companies and therefore the non-fossil fuel obligation will be placed on them. So in that sense the obligation relates to supply although the capacity in England and Wales will largely fill that need.
In reply to my noble friend Lord Peyton—
§ Lord Peston
Before the noble Baroness continues, perhaps I may bring up again the question that was asked by the noble Lord, Lord Nelson. He put it in much clearer terms than I did but nonetheless it concerns the same point and it is fundamental. Perhaps the noble Baroness can clarify the matter. The French may well have vast amounts of spare nuclear capacity and, as I understand it, the supply companies will be free to buy electricity wherever they want. I take it that ours will not be an industry which will be told specifically by the Secretary of State to buy British and not French. I believe that that is against Community law anyway. It is at least possible that the nuclear industry does not have the very large degree of protection in terms of nuclear 1530 generation that it believed it had, as the noble Lord, Lord Nelson, said. We do not know that it has such protection because we do not know from where the supply companies will seek to buy their electricity.
I press this very serious point for this reason. I do not know whether it also applies to the noble Lord, Lord Nelson. When the White Paper appeared, I did not understand the issue in those terms. I thought that it was totally about the protection of nuclear generation in this country, as the noble Lord, Lord Nelson, stated. But as I read it now, the Bill is not about nuclear protection in this country. Is what the noble Baroness stated a confirmation of what we find on page 26 at about line 17? That this is all about non-fossil fuel generation wherever such non-fossil fuel generation is? It is an extremely serious issue. I did not expect it to arise under this heading. However, the noble Lord, Lord Peyton, has already chosen to raise it. We therefore might as well deal with it now.
§ Baroness Hooper
I agree that it is an important matter. Perhaps I may point to paragraph 49 of the White Paper on privatising electricity. It specifically refers to sources from Scotland, France, the Atomic Energy Authority and BNFL. That is why I made that specific reference in my opening remarks. It should not come as a total surprise that we had looked to those sources as part of the contribution to the diversity of supply. But there can be no doubt that in setting the obligation, as will be necessary, at the beginning of the process, that obligation will be set to cover the existing UK capacity. In so doing, there will have to be proof of contractual arrangements to ensure that the obligation is fulfilled from the public electricity supply companies with stations that will include the English and Welsh plants. The contracts will of course be with National Power which will have the ownership of those assets. There is therefore a contractual safeguard on top.
My noble friend Lord Peyton suggested that the consultation requirement is optional. I confirm that the requirement is mandatory and not optional. It also refers to the public electricity suppliers. In law that is not the same as a reference to the boards, and cannot be taken to be the same. I believe that I have already explained that as the reason for one of this group of amendments.
I realise that the noble Lord, Lord Hatch, is waiting patiently for a response to his remarks. I would ask him to show a little more patience because in the next batch of government amendments which I am due to introduce as soon as we have finished our discussion on this group of amendments, I shall be dealing specifically with renewables. I hope that I shall be able to respond to many of the anxieties that he expressed.
§ Lord Peyton of Yeovil
Before my noble friend sits down, I should like to say that I was not quite clear about what she said on the mandatory issue. Clause 32 states:The Secretary of State may, after consultation with the director".That surely gives him the right to consult. I am not quite sure why it was necessary to put that in the 1531 Bill in the first place. To amend such provision does not seem necessary.
§ Lord Dean of Beswick
Before the noble Baroness sits down, my noble friend Lord Hatch made specific reference to nuclear power and its effect on, or it being the cause of, leukaemia. For my sins, I happen to be a supporter of nuclear power. Unless it has been stated quite recently, I am not aware that any definite link has been established between the use of nuclear power and leukaemia clusters. The latest information that I have is that there are conflicting reports. It would be remiss of us if we were to go through these proceedings on the assumption that there was a definite link. The noble Baroness may wish to refer to the matter, if not on this amendment, on succeeding amendments.
§ Baroness Gardner of Parkes
I should like to support the statement that has just been made. In our desire not to prolong debates on these amendments, we have tended to allow the statements of the noble Lord, Lord Hatch, to go unchallenged. The feeling of this Committee would not necessarily be in support of what he said on this issue in two respects. First, he stated the position as a fact, when no fact has been proved as to the medical situation yet. Secondly, he implied that solar and wave power, and all these other issues, could overnight provide sufficient energy for our needs. I do not accept that. It is good that this point has been brought up now.
§ Baroness Hooper
I am most grateful to the noble Lord, Lord Dean of Beswick, and my noble friend for clarifying that point. I should have made the clarification myself. I agree entirely that there is absolutely no proof of the assertion that the noble Lord, Lord Hatch, made in this respect.
It also gives me the opportunity to refer to the supplementary question of my noble friend Lord Peyton. Although Clause 32 states that the Secretary of State may make an order, the consultation process is mandatory.
On Question, amendment agreed to.
§ 4.15 p.m.
Baroness Hooper moved Amendment No. 165C:
Page 25, line 4, leave out from ("is") to ("less") in line 9 and insert ("that, for a period specified in the order, there will be available to the public electricity supplier—
§ The noble Baroness said: As has already been said, we attach very great importance to the renewable sources of energy generation. In moving Amendment No. 165C, I am speaking to Amendments Nos. 169A, 169B, 169C, 169E and 173J. Those are related amendments.
§ I shall endeavour not to make what can be called another Second Reading speech. However, I am in 1532 a position now to elaborate on a matter to which I referred during my Second Reading speech. Not only does it relate to the amendments, but I know that renewable generation supporters, having heard what was said at Second Reading, have been anxious to find out more of the details. Perhaps I may set the background to our thinking.
§ We believe that renewables have a significant contribution to make to diversity in generation. This is true now, and I believe that it will be increasingly true in the future as a number of the developing renewable technologies are able to prove themselves to be attractive commercial options. That is why we framed the obligation as a non-fossil obligation, not as a nuclear obligation. Of course the renewable sources also have a contribution to make to limiting the damage which the burning of fossil fuels does to the environment in terms of both the greenhouse effect and acid rain, as has been said. In the case of landfill gas generation, this is particularly important because the methane which is burnt is one of the more damaging gases when released in the atmosphere.
§ I believe we are all aware that some renewable sources, like wind, tidal and solar power, are by their nature intermittent. They cannot be relied upon to be generating exactly when they are needed because the wind may not be blowing or the tide may be at the wrong time of day. So to make sure that these intermittent sources are given fair capacity Clause 32(8)(a) will allow the Secretary of State to issue regulations to say how their capacity should be calculated for the purposes of the non-fossil fuel obligation. It is intended that the regulations will provide that the capacity for such sources for non-fossil fuel obligation purposes will be calculated by reference to their average availability over the year, compared with the typical availability for nuclear power. That will mean that their capacity entitlement for the non-fossil fuel obligation will be considerably higher than it would on a strict interpretation of what counts as firm capacity.
§ The obligation which will be placed on the public electricity suppliers by order later this year will, as I have already made clear, require the bringing forward of sufficient new non-fossil capacity by the year 2000 to maintain roughly the existing level of diversity in generating sources. I emphasise that it will be a minimum figure, not a maximum one. This is a vital national need. Once the obligation has been met the Government and the nation will be assured of secure supplies well into the next century. It is clearly important that this capacity is contracted for before the flotation of the companies in order to give the industry, its investors and the country certainty that the diversity, of which we all approve, will be maintained.
§ Renewable projects will of course be able to contribute to the initial obligation through contracts signed before the end of this year. We shall be setting the obligation with this in mind, as I have said, to encourage the distribution companies to contract for all practical and ecnomic propositions. We are conscious, however, that in many cases renewable projects have not yet developed to the extent that contracts can be offered to the distribution 1533 companies as soon as the end of this year. A number of renewable generators in this position made representations to us which we considered very carefully. This group of amendments to which I am speaking represents the course of action that we have decided to take. To have failed to take this into account would have meant that renewable projects would not be able to make their full contribution to the non-fossil obligation. We do not intend this to happen.
§ The Secretary of State therefore announced on 5th April our intention to create a special, privileged place for renewables within the non-fossil fuel obligation. This is what I referred to in my Second Reading speech. This will be done by setting special extra tranches of capacity, defined, as I have already explained, as declared net capacity within the non-fossil fuel obligation which can be filled only by renewable forms of energy. The amendments enable the Secretary of State to do that.
§ As originally drafted the Bill allowed the order to specify that the capacity should be only from non-fossil stations. Amendment No. 165C introduces the alternative of specifying that it must be from non-fossil stations of a particular description. The Secretary of State will therefore be able to set orders specifying that they can only be met by capacity from renewable generators.
§ In total, we envisage increasing the obligation by up to 600 MW specifically for renewable resources by the year 2000. We believe that is large enough to provide real incentives for renewables while ensuring that there will be genuine competition. The majority of renewable projects are small in terms of megawatts so 600 MW will allow a considerable number of projects to be contracted. I must emphasise that renewable resources will not be limited to only these tranches. If generators are in a position to sign contracts before the end of this year they will be able to contribute towards the main part of the obligation. Indeed, we understand that some will be in that position. Thus renewable forms of energy are in no way being confined to these tranches or excluded from the main obligation, but this special section of the obligation will not be able to be filled in any way by nuclear capacity.
§ To give time for the developing renewable generators to work up their proposals into firm contracts which the distribution companies can sign, we shall set these extra tranches to take effect at various dates through the 1990s. So even if a project is not able to compete within one of the earlier tranches there will be other tranches later to which it can contribute.
§ In setting the size of each tranche we shall consider the progress which has been made in developing the different technologies and the lead times necessary to build new stations. Different renewable technologies take different lengths of time for stations to be built. A large tidal project can take around seven to 10 years to construct; waste incineration plants can take around three years to plan and construct, and landfill gas and wind turbine installations can be built in as little as two years in some cases. We shall clearly 1534 have to take account of these differences so that promising technologies are not excluded simply because they need an earlier commitment. In this way we shall make sure that the extra tranches will provide a continual spur to the development of new renewable sources. Renewable generators can always look to the future with optimism.
§ We have given some thought to when the first of the extra tranches might come into effect. I can say today that the date for the first extra tranche will be 1992, and that the size of that tranche should be around 50MW. We have deliberately chosen this early date of 1992 to give renewable generators who only narrowly missed being included in the main obligation the prospect of contributing the NFFO in the near future. After this initial early tranche our present intention is to add further tranches of 100 to 150MW by 1995, and then a further 100 to 150MW by 1997, and finally a further 300MW by the year 2000, all within the 600MW overall limit.
§ This initiative, combined with all the other measures we are taking to help independent generators, will give renewables a major boost. It will ensure that a competitive market exists so that renewable generators can develop their proposals in that knowledge. Once again we are taking clear, positive steps to make sure that the nation enjoys the full benefits which the non-fossil sources of power offer. I hope the Committee will agree that this is an important step forward.
§ Finally, I should like to say a few words on the last of the government amendments to Clause 32, which is Amendment No. 169E. This gives the Secretary of State the final word on whether any particular arrangements meet the non-fossil obligation when it is first set later this year. The Government have made clear that in the nuclear area there will not initially be sufficient competition to impose true market disciplines on National Power. Regulation will therefore be achieved primarily with the approval of the nuclear contracts by the Government, so the Secretary of State is particularly interested in the nuclear contracts because he has to make sure that they contain the right incentives to good performance and cost control.
§ It would create uncertainty if there were a divergence of view between the Secretary of State and the director on whether the terms of the contract were the right ones. It is therefore only appropriate that the Secretary of State should be the final arbiter of whether an arrangement is suitable to meet the obligation. However, this power extends only over the initial set of arrangements to meet the first non-fossil fuel obligation order. When we set the extra tranches exclusively for renewables it will be the director who will judge whether the evidence presented to him by the public electricity suppliers meets the obligation.
§ I feel sure that the Committee will see that these changes are sensible and I trust Members will feel able to accept this group of amendments in due course. For the moment, I beg to move Amendment No. 165C.1535
§ 4.30 p.m.
§ Lord Hatch of Lusby
I welcomed the noble Baroness's initial speech. Is she saying that the Government intend that the renewable proportion of the non-fossil fuel requirement will start, as it is today, as a minimum and that they hope that it will expand in the future? If that is right and if the expansion is successful, as in other countries, will it be at least theoretically possible for the whole of the non-fossil fuel percentage to be allocated to renewable sources without any contribution from the nuclear side?
§ Baroness Hooper
In theory that is so. However, we know that in practice there are insufficient available renewable sources but we hope that they will continue to improve and grow.
§ Lord Peston
My true hope is that, with British science and technology, what my noble friend says will turn out to be true. I believe that the amendments are sensible but I have a few questions to ask. I always have one obvious comment. I hope that because the Government's thinking is not so divergent from ours we can look forward to the noble Baroness accepting some of our amendments today.
Renewables are a sub-set of the set of all non-fossil fuels. The Government do not appear to be keen to use the word "renewables" in the Bill. Her intervention has been extremely useful. I had assumed that the amendment was in part about renewables but the difficulty was that the word did not appear in the Bill. It provides for what is called "non-fossil fuel generating stations" of any particular description. What is there about the word "renewables" which is unsuitable? Perhaps her lawyers have advised her that it is so, but because the clause is all about renewables I am a little taken aback that the word does not appear.
I shall not follow my noble friend Lord Williams with one of his excellent speeches on the powers of the Secretary of State, orders and so forth. However, whatever protection is given to renewables will be via an order made by the Secretary of State. I believe that the noble Baroness used phrases such as "the Secretary of State intends" and "the Government intend". Secretaries of State and governments are transitory. The fact that one Secretary of State or government have an intention does not mean that the next one will have the same intention. One must make the point that, if there is a commitment to renewables—which we all agree there should be but we accept the problems of science and technology—is there not a case for the amendment to be improved by not just relying on orders or the Secretary of State's intentions? Rather—to use a phrase which everyone uses but which I dislike—we should have the provision on the face of the Bill.
I do not put forward that suggestion in any mean debating spirit, because there is not much between us. If Members present did not realise that the clause was about renewables, the point I am making holds strongly.
I have a question which I intended to raise in connection with the previous amendment moved by the noble Baroness. It also applies here and will arise 1536 later, so I give notice of it. It is the question of who will pay. Essentially we are arguing that extra costs in the ordinary sense of paying out money will arise because of our concern with non-fossil fuels and renewables. We argue that enormous benefits will be gained in environment, security and so forth. I give notice to the noble Baroness that in relation to the relevant charging clause I shall ask a more specific question. However, does she appreciate that the "Who will pay?" question depends on the nature of the benefits.
If the benefits are of a security kind—in other words, households and firms want to feel secure that the electricity is available—it is entirely right that they should pay for that because they are receiving the benefit. However, if the benefit is of environmental or national interest, it should be paid for by the taxpayer. I believe that, according to the Bill as it stands, the electricity consumer will pay for all the national interest side, even though it does not accrue solely to the electricity consumer in proportion to his or her consumption of electricity.
The "Who will pay?" question is important and does not detract from these amendments. Apart from the point that I should prefer the provision to be on the face of the Bill rather than by order, these appear to be sensible amendments. The noble Baroness will appreciate that we are keen on renewables and non-fossil fuels, so I do not seek to draw us away from the spirit of what she is doing. However, I mentioned that we shall be raising other issues.
§ Lord Ezra
In my contribution at Second Reading I expressed reservations about the way in which renewables did not appear to be entering into the picture. The reference to non-fossil fuels did not appear to specify which were nuclear. I was also concerned that there might be a cut-off point for renewables. I am glad that the statement which the noble Baroness has made has gone a long way towards allaying those fears. We now have a definition of renewables that will be included within the non-fossil fuel element.
I agree entirely with the noble Lord, Lord Peston, in that, if we are talking about renewables, we may as well include the word in the Bill. I can see nothing wrong with it. I like the idea of the tranches and of building up the amount of renewables in the system. However, I should like to make one point. It is clear when one considers the question of renewables that a large amount of research is required in order to bring them to fruition. The longer range part of that research has hitherto been contributed to by government. We shall need an assurance that that contribution will be continued, if not, desirably, extended.
§ Baroness Hooper
I am grateful to Members of the Committee who have welcomed this group of amendments. I shall endeavour to reply to the specific questions that have been raised. We do not use the word "renewables" because some forms of generation, such as waste-derived fuel or rubbish burning, do not legally count as a renewable fuel. Nevertheless, we should wish to embrace it as a non-fossil fuel generating station.
1537 The renewable tranches are not set out specifically on the face of the Bill, but I believe that my statement and the Government's commitment are quite clear. Although binding on this Government, and I understand even more so on a succeeding government of another complexion, it is considered difficult to assess technical and economic potential for renewables over as comparatively short a period as the next 10 years. Therefore, it is important to be able to adjust to better information and to meet the comments made by the noble Lord, Lord Hatch, pointing towards a more rapid explosion in the field of renewable sources.
As regards the cost of the non-fossil fuel obligation, the cost of diversity will be covered by the non-fossil levy. The fact that there are also environmental advantages is neither here nor there. The taxpayer's involvement is in the field of research and development referred to by the noble Lord, Lord Ezra. I realise that the noble Lord has tabled a specific amendment dealing with that point. However, the Government already have a commitment to research and development in this area. They have recently increased it substantially and they intend to maintain it.
On Question, amendment agreed to.
Lord Ezra moved Amendment No. 166:
Page 25, line 11, at end insert—
("(2) The Secretary of State in consultation with the Director, when specifying the non-fossil fuel generating capacity required by each public electricity supplier shall set as a percentage to be met from generating companies with a capacity of less than 10mw.").
§ The noble Lord said: With this amendment have been grouped Amendments Nos. 167 and 169. Perhaps I may deal with all three together. I believe that these amendments, which all relate to a further definition of the non-fossil fuel generating capacity, follow on from the proposals which we have just had from the Government. Therefore, I hope that there will not be too much difficulty in accepting their intention, if not the precise wording.
§ I can deal with Amendment No. 166 very briefly. It is merely to try to safeguard the position of those generators with very low capacity. I have been approached by the organisation which represents them and those firms are concerned that they may be squeezed out by the larger generators. Therefore, this is merely to give them a form of safeguard that they will have a share of the action. I hope that that very simple amendment can be agreed as to its intent at any rate.
§ Amendment No. 167 follows on from what we have just heard from the noble Baroness; namely, that in dealing with non-fossil fuel generating capacity, the Secretary of State in consultation with the director shall set quotas for the non-fossil fuels. Those will obviously be arrived at after full discussion with the parties concerned.
§ I believe that there would be great merit in this because it would indicate the potential for developing each particular form of non-fossil fuel—and I avoid using the word "renewable" 1538 because we have now been told why that must not be used. Wind, water, solar, waste, combined heat and power or nuclear could all come into that definition. I believe that that could greatly help in research programmes allocated to those fuels and could help very much in the investment intentions to develop them. It could also act as general guidance. Therefore, I feel that that is a logical follow-on from what the noble Baroness has just told us.
§ Of course for the purposes of setting these quotas, as is proposed in Amendment No. 167(2)(b), demand reductions brought about by energy efficiency programmes should be included as part of the non-fossil fuel provision. Therefore, that is the intent of Amendment No. 167.
§ Amendment No. 169 comes back once again to this whole question of how we can stimulate and encourage energy efficiency programmes. The noble Lord, Lord Hatch, referred to that at an earlier stage, as have other Members of the Committee who have so far spoken in the debate. Therefore, this raises the point that energy efficiency programmes could be included within the non-fossil fuel capacity because of the big contribution which they make not only to energy efficiency as such but also environmentally.
§ Therefore, in conclusion, in moving this amendment I feel that these proposals follow on logically from what the noble Baroness has just told us and I hope that they will find the favour of the Committee. I beg to move.
§ 4.45 p.m.
§ Lord Trafford
I have a slight anxiety about these amendments in that they are confusing. They certainly follow on from what my noble friend on the Front Bench has said but there is a difference between energy generation and energy saving. Of course I agree with the noble Lord, Lord Ezra, that it is necessary to stimulate energy efficiency programmes and energy saving. I do not argue with that. The argument I have with this series of amendments is simply that we are including that which is not generation with that which is; for example, in Amendment No. 167 subsection (2)(a) refers to,wind, water, solar, waste and … nuclear power.I believe that the others refer to a slightly different situation which is not the generation, but the saving, of energy. I am sure that those should be seen differently and treated differently, otherwise we could find ourselves in quite a confused situation. That is my only dispute.
§ Lord Renton
These amendments are so obviously well intentioned that I hope that any criticism I make will not be considered unhelpful. Quite frankly, I have read Amendment No. 166 several times and it may be due to the limitation of my intellectual capacity but I cannot make it mean anything. Perhaps I have missed the point, but as expressed it does not seem to me to be even grammatical. I hope that the noble Lord will consider the wording because it does not seem to express the intention which he had with regard to it.
1539 Amendment No. 167 would require the Secretary of State to specify for each public electricity supplier a quota for each non-fossil fuel for that supplier to use. A quota is not expressed as a maximum, a minimum, a percentage or a thermal quantity. Therefore, there is that element of doubt about it.
One does not need to be much of a scientist to realise that at any rate what the noble Lord is proposing is somewhat unrealistic. Perhaps I may explain. It is unrealistic because it involves too many unpredictable and variable factors. For example, let us take the wind. The wind varies greatly from place to place with weather conditions. Although we know that it is possible to have valuable generation by means of the wind in some places, especially on high, exposed land, where it could be very effective, to set a quota irrespective of weather conditions seems to me to be unrealistic.
What about water? Even the two hydro-electricity boards in Scotland have found that their generating capacity necessarily varies with the amount of rainfall and water available, and in a very dry season they have had quite considerable difficulties, especially in the South of Scotland Electricity Board—an area which I know better than the Highlands.
The amount of solar energy which can be produced also varies with the weather. Therefore, we have to be very cautious before inviting the Secretary of State to set quotas as mentioned in paragraph (a).
As my noble friend Lord Trafford mentioned, we get into immediate difficulties when we start relating demand to generating capacity. They are quite different things. I think we would give a most imponderable factor a place in our legislation if we were to introduce what seems to me in Amendment No. 169 to be a fictitious assumption. Reductions and increases in demand are affected by all kinds of factors which bear no relation to the type of fuel used, whether a fossil or non-fossil fuel. Therefore, I find that a difficult amendment.
Frankly, I think that Amendment No. 168 in the name of the noble Lord, Lord Williams of Elvel, and others is more realistic because it relates to reduction of demand which is caused by energy efficiency programmes. I am not seeking to speak in favour of the amendment because I very much doubt whether my noble friends on the Front Bench could accept it, but it expresses a more realistic technical position to my untechnical mind. Therefore, one appreciates what the noble Lord, Lord Ezra, is trying to do but I feel that we would be unwise to accept his amendments as they stand.
§ Lord Peston
We are certainly sympathetic to these amendments. It might help the Committee if I cover two or three points first and get them over and done with in one go. I believe that for once the intervention of the noble Lord, Lord Renton, is less cogent than usual because, to anticipate what the noble Lord, Lord Ezra, may say, his amendment with respect to non-fossil fuels refers to generating capacity and not to generating output. Even though we know that the wind does not blow every day we can still, with what little we know about the science and technology of a windmill, determine its capacity.
1540 The noble Lord, Lord Ezra, is putting down a marker on capacity. He is not saying that there should be a specific amount of electricity output per day but how much capacity a supplier would have to generate in the same sense as any other generating capacity exists. The noble Lord is right about the less than perfect reliability of some of these sources, but I do not think that the amendment falls on those grounds, given that it refers to capacity and not to how much electricity has to be delivered by a supplier on any particular day. It seems to me, therefore, that that allows us to follow up what the noble Lord, Lord Ezra, said, given that his amendment is meaningful, and to support what he says under subsection (2)(a).
What he does in the amendment relates to a point I made earlier about renewables. I entirely accept what the noble Baroness said about the wording, but what the noble Lord, Lord Ezra, gives us is a list. I agree that I would not like to do an examination question on which are renewables and which are not, but at least it is a list of one or the other and it includes items which I would regard as renewables; so even though the noble Baroness feels that she must reject the amendment—and I hope she does not—it opens the way to getting renewables into the Bill and overcoming one or two problems. In other words, if we cannot have renewables I should very much like to have the words used by the noble Lord, Lord Ezra, perhaps in the earlier amendment of the noble Baroness which she could amend again.
What the noble Lord, Lord Trafford, said is entirely right. There is a difference between questions of capacity and how capacity is met, and the benefits that we gain from using our energy much more efficiently. To anticipate my Amendment No. 168, which the noble Lord, Lord Renton, said he slightly preferred but still would not support, the reason we again do it this way is that it is not easy at this stage of our proceedings to get the energy efficiency question back into the Bill in a form in which we can debate it. However, I believe that what the noble Lord, Lord Trafford, said is right, and therefore, to save having to speak on my amendment in a moment, I make what I take to be the central point now rather than later.
First, I accept entirely that we do not get energy efficiency easily. I am certainly not one of those who say that all we need is a little more energy efficiency to avoid the necessity to build any more power stations and that there will no longer be any environmental problem and so on. I should like to believe that that is right, but it is not. Energy efficiency is hard to get and also expensive. However, the point I make—and I make it in connection with what the noble Lord, Lord Trafford, said—is that it will involve capital investment. What concerns us is that we seem to be setting up a system in which correct capital investment decisions will be taken about power generation—whether it is cheaper to produce it using this power station compared with that—but the question on which we do not seem to be getting any leverage is this: Can we compare capital investment that we might undertake in order to save building those power stations anyway?
1541 One of the difficulties seems to be that no one is left with any kind of responsibility. Therefore, the answer to the noble Lord, Lord Trafford, although I entirely accept what he has said, is that one wants to ensure that a capital investment decision is made correctly. Having started considering the Bill without many thoughts about energy efficiency, I now believe that I should have taken it more seriously and that the Government should be taking it more seriously. In particular, if energy efficiency is in the national interest, is there not some way in which we can bring to bear a capital investment consideration in the same way as we do elsewhere? That is the reason why we are doing it this way, though I do not want to disagree with the noble Lord, Lord Trafford, when he says that we are not entirely comparing like with like because I am sure that he is right.
§ Baroness Gardner of Parkes
I should like to speak against Amendment No. 169. Although I support the views put forward on energy efficiency I think that the amendment as set out is almost impossible to quantify. It would place a tremendous burden on the supply company. To quantify or even try to equate what demand reduction has actually produced through an energy efficiency programme and try to work that backwards into this formula it would be necessary to develop a considerable bureaucratic system. This is becoming a mathematical and almost unworkable formula.
The area boards are concerned that Amendment No. 169 would create a great deal of extra bureaucratic work which would not be to the advantage of energy efficiency. Certainly it would not be to the advantage of the consumer in cost terms if it required a great deal of extra staff simply to try to quantify something that is not quantifiable. Therefore, my argument against Amendment No. 169 is that, while it might in principle, as the noble Lord, Lord Ezra, said, be an interesting idea—and there are other very good points in the amendments that he has put forward—as it stands it is unworkable and unnecessarily bureaucratic. Therefore, I oppose it.
§ 5 p.m.
§ Baroness Hooper
We most certainly have sympathy with the explanations given and the reasons behind the amendments put forward by the noble Lord, Lord Ezra. I can readily understand why they should have an initial appeal to so many Members of the Committee. Perhaps I may try to show why we believe that they are not necessary and, indeed, might prove difficult.
Turning to Amendment No. 166, first, I believe that the objective behind this amendment—to make sure that small generators are able to flourish and play a role in satisfying the non-fossil fuel obligation—is an entirely laudable one. It ties in with much of what I have said this afternoon. I am pretty clear that this is not the best way to achieve this aim. We have already taken a number of steps to ensure that the smaller generators will be able to flourish after privatisation.
1542 First of course we are opening up competition within generation for the first time. Independent generators will therefore have a far greater number of potential customers to whom they can sell. And they will have fair and open access to the distribution system so that they can get their power to their customers, with transparent charges for use of system. We accept that the terms for use of system under the Energy Act 1983 have not necessarily worked to the benefit of independent generators. That is why the new arrangements have built on that and will change the situation.
The public electricity suppliers will be under a licence obligation to purchase from the most economic source, so efficient small generators will be assured that, so long as they offer attractive terms, the public electricity suppliers will buy their power. And if they have any worry that the public electricity suppliers might be acting in an anti-competitive way, the director general has powers to investigate.
In addition, the licences we are proposing for independent generators and suppliers may, if a case can be made, include powers to break streets and purchase land compulsorily where this is necessary for the carrying out of their activities. As from 1st April 1990 all electricity generators or combined heat and power schemes that have the capability to export electricity to the electricity supply industry's distribution network will have their rateable value assessed on a comparable basis. These are all steps in the right direction.
On top of all of this we are keen to make sure that independent generators using non-fossil fuels are able to contribute to the non-fossil obligation. That is why we are leaving it until later this year before we set the level of the obligation so that smaller generators have a chance to develop their proposals. Independent generators have a role to play in achieving diversity and I am confident that supply companies will see the benefits of having a range of sources of generation, including small local generators.
In addition, for those generators who are not quite able to meet the deadline later this year, as we have already established, there will be additional tranches in the obligation reserved solely for renewables.
Finally, we recognise that the new arrangements may create some uncertainty for existing independent generators and particularly the small ones, who may not feel confident about testing the new market. Therefore we have agreed transitional arrangements with the supply companies. These offer assured tariffs to those generators who have invested against the backdrop of the guaranteed market offered by the Energy Act 1983. The supply companies will continue to guarantee to purchase such electricity on comparable tariffs to those available under the Energy Act for a period of five years. I hope that the Committee will accept that this all adds up to a much improved competitive environment for the smaller non-fossil generators. I am sure that generators themselves will not be slow to take advantage of this opportunity.
I now turn to Amendment No. 167. As I hope I have made it abundantly clear, the Government 1543 wholeheartedly share the commitment to diversify in generation. The purpose of the non-fossil fuel obligation is expressly to ensure that diversity. However, we feel that this amendment will require the Secretary of State, in setting individual quotas, to introduce an element of restriction.
As our amendments on the new tranches for renewables show, the Government also fully accept that renewable sources of energy have a significant contribution to make to this diversity. But to go further and to specify the exact amounts that each non-fossil source must contribute is unnecessary and could harm their long-term prospects, as I said earlier in relation to the previous amendment. There are a number of renewable sources which are currently moving rapidly towards commercial operation and we wish to encourage them all, but it is impossible at this stage to predict the exact amounts of each source which will become economic over the next 10 years.
Were we to try to do this we would be quite likely to get it wrong. This would put the public electricity suppliers in the impossible position of being subject to an obligation part of which they cannot meet, or can only meet at very high cost. This could only add to electricity prices and would not help in promoting economic renewable projects. I hope the Committee will agree this is not sensible.
Moving on to CHP and energy efficiency, a number of people have made it quite clear that they are extremely interested in extending the non-fossil obligation to cover these areas. The Government share the views that have been expressed about the importance of energy efficiency and CHP. My noble friend Lord Trafford put his finger on the fact that the non-fossil fuel obligation is not the right place to promote these measures. Before explaining what the Government are doing in these areas, perhaps I may say why I believe that.
First, as I have said earlier, the aim of the NFFO is simple. It is to promote a diversity of fuel inputs for electricity generation. It is not to promote efficiency in fuel use. We would not only have to take into account energy efficiency and CHP, but the levels of efficiency of electricity generation by different power stations, the level of transmission and distribution losses and so on. Our approach is simple: competition in electricity supply will encourage efficiency in fuel use. Diversity in fuel use at present has a cost and so would not necessarily be maintained in a competitive structure. So we are introducing the minimum constraint necessary to ensure diversity.
Secondly, since diversity has a cost, it is necessary to legislate to ensure that it is maintained. And it is reasonable to share that cost among electricity customers. Diversity in fuel use benefits the nation as a whole through the ability to maintain electricity generation at times of fuel shortage. I believe the noble Lord, Lord Peston, raised this matter. The difference is that measures to improve efficiency of use, such as energy efficiency and CHP, benefit those who implement them. They benefit directly from the lower fuel costs they themselves face. The measures themselves do not contribute to diversity in fuel use, except for CHP schemes based on non-fossil fuel, 1544 which will of course be able to contribute to the non-fossil fuel obligation.
§ Lord Peston
Perhaps I may interrupt the noble Baroness for a moment. She has put her finger on the nub of the matter, and I believe this is the right time to clear it up. I do not see how competition between electricity suppliers in any way leads to energy efficient programmes, but quite the contrary. The companies are in the business of selling electricity and that is what they are competing to do. Except on PR grounds—and we certainly cannot rely on those—why should they promote energy efficiency? That is the first question. The second question is this: is the noble Baroness saying therefore that energy efficiency will have to lie with the individual firm and household taking its own private and "atomistic" decision? I believe that that is what the Minister is saying. Therefore, she is saying that there is no national interest in energy efficiency. That is the worrying thing; namely, that she does not see any overall interest in energy efficiency other than those decisions taken by private firms and individuals. It seems to me that she has said this before, but I was hoping that the Government would see that there is an energy efficiency interest here over and beyond that. That is where she has rather lost me, and that is why some of our little debates have not led to any meeting of minds. It may well be that this is something she does not wish to pursue on this amendment; but if it will help her, that is what we are about. We are saying that we do not see that it is in the interests of the supplier to promote energy efficiency, and we do not see how it can be left to the demander. That makes the position as clear as I can.
§ Baroness Gardner of Parkes
If I may interrupt on that point, I have spoken before about the supplier wanting to promote energy efficiency, and I do not think it can be overlooked. It is in the interests of the supplier to have satisfied customers, and customers do not want to pay more and more for less satisfaction. Therefore each area board at the moment is running an economy system whereby they are encouraging conservation of energy. Of course they want to sell more appliances, such as air conditioning and so on, which may use more energy; but they want more energy-efficient items. They are also competing with the gas and oil industries. It is not simply that they are competing with one another and satisfying the customer only. There is an overall point that the customer will go where he gets the appliance that, for example, gives him the most heat for the least money. Therefore it is in the interests of the board to keep that consumer by providing energy efficient appliances.
§ Baroness Hooper
I am grateful to the noble Lord and indeed to my noble friend. I was coming on to talk a little more about energy efficiency, although I appreciate that we debated it very fully at an earlier stage, and that an amendment on the matter was passed by the Committee.
The emphasis in the Bill on the duty on the Secretary of State and the director general is in relation to the end use of electricity, and the licence 1545 conditions which will bear upon the supply of the public electricity companies will enable the Secretary of State and the director general to perform that duty. But what we believe is an anomaly is to legislate to require proposals which are in the consumer's own interests and which do not have a cost. It is clear that, if energy efficiency and CHP measures have a cost, they are uneconomic and should not be supported. It is far better to place a more general obligation on the public electricity suppliers to contract for non-fossil fuel capacity and to leave it to them to choose which source of non-fossil is the best choice. This, we believe, will ensure that the most economic sources are encouraged, and that the more expensive sources are given an incentive to get their price down.
As I said, we have already debated the question of energy efficiency at some length on at least two other occasions and I have enumerated the various ways in which the Government are promoting that. We believe that there are better ways of promoting CHP and energy efficiency. Nevertheless, because of the fact that we have said a great deal on this subject so far, I can sum up by saying that all the areas which these amendments seek to support are indeed laudable ones. But they are ones where, with proper pricing and with the removal of barriers to competition, the market should, and shall, lead consumers to make the right choices and to reap the benefits.
Diversity is different. Without government intervention, the diversity we enjoy would be eroded and our security of supply lost. To me this is the crucial distinction which lies at the heart of why we find it impossible to accept these amendments.
§ 5.15 p.m.
§ Lord Ezra
I should like to thank all noble Lords who have taken part in this debate, because it has been very useful and a good preliminary to other important issues which will arise in a few moments. Perhaps I may deal briefly with the three amendments. As regards Amendment No. 166, I was very glad to note the views expressed by the noble Baroness of the support which will be given whenever possible to ensure that there is a fair share for the smaller generators. They feel that they are being launched on to an unknown sea and they are genuinely very worried about the new situation in which they may find themselves. So it is important that the noble Baroness made the remarks that she did and that they be in Hansard.
On Amendment No. 167, I am most indebted to the noble Lord, Lord Peston, for underlining the fact that what is referred to here is capacity and not output. I hope that that answers the point raised by the noble Lord, Lord Renton, about the wind, etc. This is merely the capacity. How much is actually produced will depend on all kinds of other circumstances.
I should have thought it would have been useful, if not to have quotas, at least to have broad indications of where one would be going with these various forms of energy. When Sub-Committee B of 1546 the European Communities Committee examined the question of the Community's policy on renewables, it was very clear what effort was being put into the different kinds of energy specified here. There was a fairly clear indication where, according to certain circumstances, they might get to by the year 2000. I should have thought there was nothing wrong with having broad indications, even if one did not have precise quotas.
On the question raised in Amendment No. 169, I should like to defer my remarks to later when I have a specific proposal to make in conjunction with CHP. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 167 to 169 not moved.]
Baroness Hooper moved Amendments Nos. 169A, 169Band 169C:
Page 25, line 24, after ("a") insert ("particular").
Page 25, line 29, leave out ("non-fossil fuel").
Page 25, line 30, after ("supplier") insert ("from that station").
§ On Question, amendments agreed to.
Lord Ezra moved Amendment No. 169D:
Page 25, line 30, at end insert—
("(5A) That electricity generated in a combined heat and power plant shall be treated for the purposes of subsection (5)(a) above as generated by a non-fossil fuel generating station for the proportion of the electricity produced that is equivalent to the measured quantity of heat distributed at a temperature greater than 60°C or more from the power station.").
§ The noble Lord said: I should like to say something more about CHP and this gives me an opportunity to do so. I know that it has been referred to many times, but this is a specific amendment related to the whole concept of CHP. I must declare an interest there. I have been involved in trying to promote CHP schemes with limited success for the past 30 years or so. Whereas other countries have moved forward at a great rate in this area, we have fallen behind.
§ It must be explained very clearly what CHP is all about. In normal power station generation, as noble Lords are well aware, the conversion factor from primary energy to distributed electricity is of the order of between 35 and 37 per cent. depending on the power station. But in generating electricity a large amount of water is required to produce the steam to drive the turbines. This water is normally cooled after it has performed its purpose and then it goes around the system again.
§ The proposition with CHP is that if we could make use of that hot water by, instead of having a cooling tower on the site, having what is the equivalent of a cooling tower by using pipes to circulate the hot water to heat premises, we would then be getting an additional useful source of energy out of power stations and something like 60 or 65 per cent. in total. This seems a highly desirable objective and if we can achieve that kind of result and double the efficiency, why has it not been done? There is a problem and I shall explain it. In order to circulate the hot water we must have the pipework. We must dig up the roads, or whatever it is; we must lay the pipes; we must install them in the houses; 1547 and we must connect them. Finally, the proposition must be made to look attractive to people so that they will prefer that sort of heating rather than any other.
§ The system requires a good deal of up-front capital expenditure. We must spend the money on the pipework in order to do the job. That means that until we have paid back the capital we will not receive much of a return in financial terms. However, as soon as the system starts working we will receive a very good return in terms of fuel efficiency. In due course, when the capital is repaid, we will reap a very substantial financial benefit. That is precisely the situation which occurs in Scandinavia, France and Germany and in many other countries in Western and, indeed, in Eastern Europe. The capital has been spent in such countries and by now much benefit is being achieved.
§ Much support has been given to the concept of CHP. Moreover, those Members of this Chamber who took part in the debates on the 1983 energy legislation will recall that CHP was specifically mentioned as one of its underlying objectives. In fact, it provided the concept with no help at all. As one who has strongly supported CHP over the years, I am much disturbed to find that the word is not even mentioned in the Bill, let alone specifically supported. If we in this country had adopted the same approach to nuclear power as we have adopted to CHP there would not have been a single nuclear power station built. I say that because, as we all know, nuclear stations require a large amount of capital; you spend the capital and you receive the benefit later over a period of years. That is precisely the position with CHP.
§ Therefore the purpose of this amendment is to say that CHP adds an additional energy dimension to a power station. The station takes the hot water and instead of putting it in a cooling tower in order to cool it down, it circulates it and ultimately uses it as a new heat source which otherwise would not exist. That source could then displace additional fossil fuel sources, and so on. Further, it has a positive environmental impact; indeed, it is a new form of energy which at present is going to waste.
§ What we suggest by way of this amendment is that where there are CHP schemes, or where there are intended to be such schemes, the hot water element should count as a non-fossil fuel and not as the totality of the product of the power station. The hot water element can very easily be measured. It can be measured precisely in terms of kilowatt hours just as you measure the electricity leaving the power station in terms of kilowatt hours—something which is done all the time on the continent. Therefore you can measure precisely the amount of hot water leaving a power station for the purpose of heating premises. This is a new form of energy precisely defined, meeting the criteria of energy efficiency, meeting the criteria of environmental improvement and, in due course after capital costs have been met, proving to be very positively financially attractive.
§ I should like to add that unless something along those lines is done to enable major CHP schemes to be launched, we shall not have any. We have not 1548 had any for the past 30 years and we shall not have any for the next 30 years, because of the initial capital cost requirement. Some form of stimulus and some form of initial support is required.
§ It seems to me that the non-fossil fuel formula contained in the Bill provides just what is needed. I have spent quite some time trying to explain the concept because it seems to me that it is a special case of great importance. I think that a major decision must be reached by Members of this Chamber as to whether we want to see major combined heat and power schemes go forward in this country. It is perfectly true that there is a large number of small ones. Indeed, many industrial concerns find the system quite useful. Of course, they have limited pipe runs and they receive the immediate benefit themselves. However, large schemes are very few and far between. In fact, the Battersea Power Station scheme was for many years the only one in the country, but that no longer exists because the station has closed down.
§ Therefore I ask Members of the Committee to consider this issue very seriously. I say that because if we miss this opportunity to stimulate CHP then there probably will not be another for decades. I beg to move.
§ Viscount Hanworth
I should just like to emphasise the point that we are getting increasingly concerned about the greenhouse effect and the C02 emissions from power stations. Potentially, CHP could provide an enormous saving as regards the coal which we burn. In fact, if the schemes which are considered possible were implemented the saving would amount to something in the region of 17 per cent.
What is so disappointing in this respect is that although the Government say, "Yes, we like the idea of CHP", and despite the fact that they have spent several millions of pounds in assisting some cities to look at the possibility of this concept, when the question of legislation arises they seem to refuse to give any kind of encouragement. This is the time when CHP really might take off with just a little encouragement. I say that because it is probable that many of our power stations will be smaller ones and that will cut down the difficulty of digging up a city and laying the pipes.
I cannot understand why the Government should not agree to CHP being mentioned in the Bill and, as was done on a previous occasion, why they should not agree to do their best to promote—I think that was the phrase we used—the concept. But no, they have turned the opportunity down.
§ Baroness Hooper
Our difficulty as regards this amendment is the fact that—although we are grateful to the noble Lord, Lord Ezra, for his explanation of the system; and, indeed, I am a great supporter of CHP as the noble Lord knows—it is not a form of primary energy in itself; it is a process of conversion designed to make the most of the primary fuels used to generate electricity and heat. As such, CHP can be applied to any fuel which raises heat to generate electricity, whether non-fossil or fossil. Electricity generated from CHP schemes will, as I said, count towards the obligation when the fuel upon which it 1549 is based is non-fossil—such as, rubbish burning or landfill gas.
The Government and the Department of Energy have funded an extensive programme to seek to establish the potential for CHP both on a city-wide and on a local basis. Further, the Energy Efficiency Office has been most active on the industrial and commercial front. But, if there is a case for CHP—and we believe that there is—we are of the view that it must pay its own way.
I have already described some of the ways in which our privatisation proposals are specifically designed to encourage competition in generation and ensure that all economic sources of electricity supply will have fair access to the market. All generators, including CHP operators, will have fair and equal access to the transmission and distributing systems after privatisation.
We have also looked carefully at the legislative framework within which a CHP plant has to operate and we have done our best to remove any unnecessary obstacles. I fully appreciate that this amendment has been most carefully drafted so that it extends the benefit of the obligation only to the heat generated by CHP stations, as the noble Lord, Lord Ezra, explained. That is ingenious, but it does not remove the fundamental difficulty which we have with the amendment.
It is because heat can be produced at the same time as electricity is generated that CHP has an economic advantage over ordinary generation. It is that feature which means that it does not need the protection of the non-fossil fuel obligation. It also introduces considerable complexity into the attribution of a capacity of CHP projects because the obligation is defined in terms of capacity. Not only would measures of heat have to be converted into kilowatt hours, but those kilowatt hours would have to be converted into the equivalent megawatts. That would be a formidable and unavoidably arbitrary calculation in an already complex situation. For those reasons, I regret that I am unable to accept the amendment.
§ 5.30 p.m.
§ The Earl of Lauderdale
Has my noble friend adjusted her mind to the fact that the argument we have just heard is academic and abstract? It comes down to the proposition that because CHP heat is not primary energy it cannot be included in the Bill. That is a theoretical distinction of the Government's own making. The real question is whether we want some extra energy for virtually nothing after the capital has been paid off. If we do, if we want cheaper energy for the country—the Government seem to put up energy prices like anything anyway—why turn our backs on a scheme that works elsewhere? It is being pursued elsewhere. It is a scheme to which there are no environmental objections and which in the end amounts to a saving of fuel. The objection is purely abstract.
If we are told that it will be necessary to convert temperatures into kilowatt hours and then into something else and that that is beyond our capacity, 1550 I suggest that the gentleman who invented the X minus Y formula, or whatever it is called, should be asked to give his mind to it. He produced a formula which was about five inches long. It is not beyond the capacity of someone in the government machine to devise a way of doing the calculation. If the mathematics are the only problem, we must start again.
Perhaps my noble friend will agree to have another look at this point between now and Report stage. I am not trying to be difficult. I am not making fun for the sake of fun. I heartily support the arguments of the noble Lord, Lord Ezra, and the noble Viscount, Lord Hanworth. I wonder whether the reply has been sufficient, if I may put it in the nicest possible way.
§ Baroness Phillips
Perhaps I may follow the noble Earl because I agree with him and I support the amendment moved by the noble Lord, Lord Ezra. He mentioned Battersea power station. I remember the great enthusiasm with which that scheme was set up and the fact that the heating for a large estate on this side of the river was all provided at a low cost. It was an imaginative scheme.
One of the things mentioned when we talk about non-fossil fuels is waste. When I lived on a farm we had to dispose of our own waste. We used the waste to generate heat by piling it on a large stove. I am not going to suggest that we should return to that, but I suggest that there was an element of scientific knowledge there which we could usefully use. We are despoiling the edges of our cities with the revolting waste that we seem to generate. Surely we have an opportunity to do something which will show how imaginative we are in this vital industry which benefits us all.
§ Baroness Hooper
We also believe that the Bill provides an opportunity and that is why, as I tried to say, we have endeavoured to create a legislative framework which would enable CHP to compete effectively. I say to my noble friend Lord Lauderdale that we are not turning our backs on the question. We promote the use of CHP in the various ways that I have described. We have created a proper framework within which it can operate. To try to include it within the non-fossil fuel obligation is like comparing apples with pears.
§ Viscount Hanworth
Here is an opportunity for the Government to do a little to promote this form of heat. It is necessary to do that to get if off the ground. The amendment costs them nothing. I am afraid that the arguments put forward by the Minister have almost no weight. The Government must stand condemned for doing almost nothing to help to reduce the Co2 when there are such possibilities for doing so and when we have an amendment which costs the Government nothing.
§ Lord Ezra
Having started as vigorously as I could to promote the amendment, I end by feeling dejected. I agree with my noble friend Lord Hanworth that this would have been the opportunity to be imaginative. We have at our disposal potentially a vast amount of energy which could be 1551 produced with no environmental ill effects, based on an existing energy source, which could heat millions of homes, factories and plants throughout the country. There is, however, a capital .cost associated with getting it there and therefore it should be possible to look on it as a form of energy to be encouraged under the non-fossil fuel obligation. After all, the whole intent of the non-fossil fuel obligation was to maintain and possibly develop nuclear energy, which is highly regarded by the Government, and I fail to see why they cannot regard CHP on the same basis.
I am much indebted to the noble Earl, Lord Lauderdale, and the noble Baroness, Lady Phillips, for their support. I am sure that had there been time other noble Lords would have spoken in support of the amendment. I do not wish to press the amendment to a Division at this stage, but having heard what has been said I shall take it away and think about what steps to take at a further stage. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Baroness Hooper moved Amendments Nos. 169E and 169F:
Page 25, line 37, at end insert—
("(6A) If the Secretary of State is satisfied that any such arrangements as are mentioned in subsection (1) above have been made before the day specified in the first order under that subsection, he may certify that those arrangements—
Page 26, line 10, at end insert ("and for the purposes of this section a public electricity supplier shall be regarded as such a supplier in England and Wales or such a supplier in Scotland, according as his authorised area falls wholly or mainly in England and Wales or wholly or mainly in Scotland").
§ On Question, amendments agreed to.
§ The Deputy Chairman of Committees (Lord Aylestone)
If Amendment No. 169G is agreed to, I cannot call Amendment No. 169H.
Viscount Weir moved Amendment No. 169G:
Page 26, line 15, leave out from ("prescribed;") to end of line 19.
§ The noble Viscount said: I understand that it will be for the convenience of the Committee to consider also Amendment No. 169H. The part of the Bill which Amendment No. 169G seeks to remove is that which, to put it in practical everyday terms, permits the Secretary of State to decide that electricity imported from France is nuclear power.
§ Let me first make it clear that I strongly support the principle that there should be a minimum quota of nuclear power in our electricity supply. That objective is met today by the existing nuclear capacity and in future will be complemented by the PWR programme, starting with Sizewell B, which will replace old reactors as they are phased out and will meet the growth required in nuclear capacity as overall demand grows.1552
§ If there are two things which a major nuclear power programme needs they are certainty and continuity: certainty because of the long-term commitments which the industry has to make in specialised technical and manufacturing resources if such a programme is to be successful; and continuity because of the learning curve involved. A large part of the cost of Sizewell B, as the first in a class of stations, is one-off cost. In such circumstances it cannot be sensible if the programme can be disrupted by the Secretary of State arbitrarily operating a clause such as this.
§ The second practical objection is the cost in foreign exchange. From the 1988 accounts of the CEGB we see that it purchased some £300 million worth of electricity in that year. Allowing for the supplies which it took from Scotland and from other domestic sources, it would look, on a pro rata basis, as though it spent something like £250 million on imports from France.
§ If the French connection, as one may describe it, were to be doubled we should be talking about something like half a billion pounds a year. Surely, that would be a long-term outflow, as the cost of putting in an additional link could only be supported by a long-term contract. Thus, if the decision is taken to rely on French power—arbitrarily described as nuclear—to make up the nuclear quota, then we should inevitably be talking about a balance of payments cost running into billions of pounds.
§ This is not a debate on the economy, but given this country's very worrying balance of payments problems I cannot see that such a commitment could make much sense at all when we could perfectly well build the nuclear capacity for ourselves. So for that reason also the clause seems to me to be undesirable.
§ Finally, if one needs a third common sense objection to the clause, we need look no further than the original White Paper on privatisation. It was sensibly argued there that diversity of supply improved security of supply. But surely, to rely on supplies from France is far from satisfactory in terms of security. Whatever the contract terms, if Electricité de France had to choose in emergency conditions, for example, between supplying its own customers or the UK there can surely be no doubt what its decision would be.
§ To these three reasons—the uncertainty caused to our nuclear programme, the balance of payments cost and the unsatisfactory security of supply—I should add not a fourth reason but a question. Are we quite satisfied that in any case French nuclear power is not dumped, in international trading terms? There seems therefore to be no good reason why the clause should remain in the Bill. I beg to move.
§ Viscount Hood
I wish to support the amendment. It has never seemed to me to be logical that the import of power should be part of the nuclear component. The present contract is a topping up contract. It can be terminated at very short notice—I believe two hours—and that is not generating capacity. We do not know, or at least I do not know what will be the means of entering into contracts in the future. The CEGB will cease to exist and it may 1553 be that contracts will be with generating companies or the grid company, or it may be the 12 area companies which are in a position to enter into the contract. Surely, it would be much better if any supply, whether imported from France or from Scotland, was in the great area of competition, which was one of the main objectives of the Bill, rather than being attached, illogically in my view, to the non-fossil fuel component.
§ 5.45 p.m.
§ Lord Peyton of Yeovil
I too wish to support the amendment. It seems to me very odd that the Government should have so strongly resisted the last amendment in giving no place to CHP in their programme and should then deliberately turn round and go in the other direction, being prepared to rely on and give due place to French imports.
I take the point made by my noble friend Lord Weir that there are too many occasions in which the Government appear to take a lofty and detached view of the need to sustain heavy engineering industry. It is not a matter of giving especially favourable terms to a vested interest, but it is a question in my mind of doing what every other advanced country in the world does—at least taking those opportunities which occur in order to give heavy industry a chance to compete. The emaciated state of the engineering industry in our country stems, to my mind, very largely from the attitude which has been sustained over many years and, if I may say so, under more than one government.
Further, it is the Government's intention to sustain development in the nuclear industry. That was made clear in the White Paper, it is clear on the face of the Bill and I cannot understand why they should not take this chance. When I say "nuclear industry", I mean the domestic nuclear industry. For the life of me I cannot understand why the Government should not take the opportunity afforded by the Bill and by their own policies to go ahead, instead of saying, "We'll take such supplies as we can from overseas". I should be most unhappy if the Government were not willing at least to take the amendment away and give it very serious thought in the context of their own policies and of the needs of heavy engineering in this country which has suffered serious neglect over many years.
§ Lord Trafford
I have some reservations about this matter. Very simply, they are related to treaty rights. It seems to me that it is extremely unlikely that, whatever the intrinsic merits of the amendment from the point of view of the British nuclear industry and so forth, it conforms to treaty rights. I do not have the connections or the knowledge in this field of the Members of the Committee who have just spoken, but of course from the point of view of the industry, as my noble friend Lord Peyton has just said, it might be very beneficial in some respects, particularly for the British nuclear industry, and to pass the amendment would encourage it in some ways.
However, it would almost certainly be contrary to European law by the time the legislation comes into 1554 force effectively. It seems to me that it would be regarded as straight discrimination and would interfere with the competition rules in the EC. I am not making any great plea for the rules nor for anything else. I have views on the subject, but as regards this specific amendment it seems to me that it is most likely to contravene the forthcoming directives. Therefore, whether we like it or not, in effect we should not be able to do it.
Further, I feel strongly that we need to encourage the diversity of supply. I agree with that, and also with the remarks of all three Members of the Committee who have just spoken about the promotion of a nuclear industry in this country. I fully support that. But I am anxious that if we go down this channel or road all that will happen is that we shall run straight into the problems of European directives, irrespective of the good or harm which the amendment might achieve intrinsically, were we to have total independence with regard to investment in the future of the British nuclear industry.
§ Lord Dean of Beswick
I support the amendment. As regards the remarks of the previous speaker, the noble Lord, Lord Trafford, what frightens me is that if we are not careful, if we do not pass the amendment we may well hand a monopoly situation to France in the provision of electricity from nuclear power. Members of the Committee will recall the debate which took place some time ago in your Lordships' House on nuclear energy. I spoke in favour of it and I wish once again very briefly to put the three main points which I made then.
I support nuclear energy on the basis that whatever global reserves exist of fossil fuel, oil or other fuels, they are finite. Eventually there will have to be an increasing reliance on nuclear energy. The technology in that particular industry advances fast. As a result, unless we give our own industry the chance to compete at least on equal terms and, if necessary, sometimes on slightly preferential terms, once we fall behind as regards technology we shall stay behind for all time.
If we are talking in terms of exports and reducing our appalling balance of payments deficit in our manufacturing sector, it is essential that we do not lose this potentially expanding industry. It is a known fact that when other countries wish to purchase or place orders for nuclear power stations, they want to see what is on offer in real terms, and not just on paper.
I was a little disturbed to hear this morning when listening to the radio that one of the first announcements to be made on Mr. Gorbachev's visit to Germany concerned the fact that Germany is now to build a new nuclear power station in Russia. I am just making this point as a point of information. If we lose out in this industry, there is no way that we will be in a position to compete in the future, even if we were asked to do so.
The noble Lord, Lord Trafford, asked, quite rightly, about the treaty rights. What about them? Let us just try our best for our own particular industry. It is a superbly organised industry. Some years ago I used to work on the shop floor in that industry. I 1555 worked on the turbines that were being produced for the first nuclear power stations in this country. I think the least that this Chamber can do is to give a strong indication that we support this industry. As I have said, unless we act and give the industry some kind of protection on a reasonable basis, we could be faced with a monopoly supplier such as France. That situation could, in a general sense, be to the complete detriment of the industry in this country.
§ Lord Trafford
I support the nuclear power industry, too. However, the noble Lord is saying that the way to support that industry is to give it some kind of special protection. That is contrary to what will probably be required under the rights of the treaty within two-and-a-half years' time.
§ Lord Dean of Beswick
I am not suggesting for one moment that we give the industry any special treatment, other than to make sure that it is in a position to be able to compete on a fair and competitive basis. I do not know what kind of system the French would operate. However, although the countries of the EC are to become more unified in the future, some of those countries are not unknown to show more than a little bias towards their own national industries. All I am saying is that we must be very careful what we do here, because if we lose our capacity to produce or build our own nuclear stations, based on a substantial part of our domiciliary market, we could be doing ourselves incalculable damage. Once we fall behind, we shall never be able to catch up.
§ Viscount Hood
I do not think the amendment conflicts with any European legislation, present or future. There is nothing in the amendment to stop the import of power from France. The amendment merely states that those imports will not be part of the quota of non-fossil fuel generation.
§ The Earl of Lauderdale
The clause, as it stands, gives protection to French exports of electricity to Britain, however they are generated. That is protectionism. I use the word "1992" as a shorthand for the developments that will follow from that date. However, when the developments of 1992 are running full blast as it were, and there is a free interchange of energy across the Community, this kind of protection will not be possible. This measure must fly in the face of the plans for 1992. I do not begin to understand the purpose of giving the French nuclear industry, or indeed other industry, a particular preference over the industry in this country. I shall be very interested to hear my noble friend's reply. There may be a very good reason for that. I hope that we shall receive a substantial reply.
§ Lord Peston
I wish to join the debate, especially as one of my amendments is allegedly being debated. The amendment that the noble Lord, Lord Williams, and I have tabled is intended to show that we are being our usual helpful selves to the Government in attempting to improve the clause. The words that we wish to leave out seem to us to add nothing whatever to the Bill, unless one were to add the words, "In such circumstances and to such extent as 1556 may be prescribed to every single clause of the Bill". The existing wording seems to us to be absolutely classic Civil Service-ese and we can do without it.
On the substantial subject, I believe that the noble Lord, Lord Trafford, and my noble friend Lord Dean of Beswick have both put their fingers on the central point. We were guided to that by the noble Viscount, Lord Hood, who referred to French electricity being dumped. It is, of course, being dumped. I believe I saw a figure which stated that the nuclear industry had cost the French in excess of £25 billion. In terms of the treaty, that is money down the drain. That cannot be counted now as part of the rules of the game.
Our difficulty, which is part of the hole that the Government are digging themselves into, is that the Government want to protect the nuclear power industry, but cannot do it under the terms of the Treaty of Rome. I believe the noble Lord, Lord Trafford, is entirely right. The Government cannot protect the nuclear power industry under the terms of the Treaty of Rome now, but they shall certainly not be able to do it under the terms of the single market in two or three years' time.
The logic of the Government's position, as I see it, is that the Government are stating that on the present economics of nuclear power no private enterprise will build a nuclear power station. It does not make any sense. The Government make that assumption based on what they see happening in the rest of the world. The Government are saying that they would like to have a British nuclear power industry. However, the problem is how the Government will achieve that when they know they cannot break the rules of the treaty. Therefore, the Government invent the concept of diversity. The Government further announce that we cannot leave the private sector to take its own decisions on diversity, so the quota system is invented. It is perfectly obvious what the logic of the whole thing is.
Then the noble Viscount, Lord Weir, pointed out that when the Government add the French dimension, we shall not receive quite as much protection as we thought we were going to receive. He is, of course, entirely right. Therefore, the noble Viscount wishes to leave out the relevant passage in the Bill.
It is very clear that this matter involves the mess that the Government have got themselves into, and the additional mess that has resulted from the Government not accepting our advice, which is not to privatise the nuclear power industry in the first place. We could avoid the whole of the problem by leaving nuclear generation in the public sector, at least for a few years. I believe we shall get a chance to debate that matter next week, so I shall not press it now. Members of the Committee opposite, in their desire to improve matters, should realise that it is their own party which got them into the mess in the first place.
§ Baroness Gardner of Parkes
I must apologise to the Committee that I was called out of the Chamber when the amendment was moved. However, I know 1557 that the noble Viscount, Lord Weir, has told us in the past that he is very involved in building power stations of this kind. Is that the reason for this amendment, or does it concern an entirely independent matter? No doubt he has declared an interest in this Bill, as I have myself. Why is the noble Viscount so opposed to French generation, and why does he feel that it is so necessary to protect our industry? If we are thinking of the consumers' interest, we must be willing to import this cheaper power.
§ Viscount Weir
I am not opposed at all to French power, nor indeed to the French power industry, either the generating side of it or the equipment manufacturing side. I, personally, was very involved in the manufacture and design of quite substantial parts of some of the French power stations.
I put this amendment for three simple reasons. First, I thought that it cost a great deal of money in foreign exchange which we could ill afford; secondly, I do not like to repeat myself but I thought that it produced potential uncertainty in an industry which needs certainty; and, Finally, I thought that we did not have an adequate degree of security. I have nothing whatever against the French or French power—I think that they are both splendid.
§ 6 p.m.
§ Baroness Hooper
I recognise that we have already touched upon this subject in relation to earlier amendments. However, I should again like to make clear that, ever since the White Paper, the Government have said that imports will be capable of contributing to the non-fossil fuel obligation in the same way as nuclear capacity from BNFL, the Atomic Energy Authority and Scotland, and renewable capacity. The NFFO is not intended only to support National Power's nuclear programme.
In relation to this specific amendment, as my noble friend Lord Trafford and others have said, we have treaty obligations which do not allow us to do otherwise. With 1992 fast approaching, it would be unwise, to say the least, to think of discriminating against imports of electricity, and we do not intend to do so. Nor is it sufficient to say that imports of electricity will be permitted but that they will not contribute to the non-fossil fuel obligation. To link the non-fossil fuel obligation solely to domestic non-fossil capacity could be considered in itself to discriminate against imports.
However, in order to allay the anxieties that have been expressed by many noble Lords in relation to the future of our indigenous nuclear industry and the related engineering industry, perhaps I should explain how supplies from inside the United Kingdom will contribute to the non-fossil fuel obligation. The public electricity suppliers will be under an obligation to contract for a specified amount of non-fossil capacity. Indeed, negotiations on contracts are already under way.
In those nuclear contracts in particular, the Government are closely interested in the negotiations to make sure that the contracts contain 1558 incentives to good performance and cost control. As with all the initial supply contracts, the Government will be approving the initial nuclear contracts before they are signed. This clause is drafted on the basis that contracts which will qualify as arrangements under the obligation are contracts for non-fossil fuel generating capacity. It is reasonable to assume that for contracts in the UK both parties will be able to take this into account in drawing up the terms of their contracts. However, this may not be the case where the supplier is from outside the United Kingdom.
I must emphasise in relation to this subsection that there is no intention to give French imports an advantage. I fail to see how my noble friend Lord Lauderdale has managed to deduce that. I would go further and say that any additional supplies above the existing supplies which we receive under the arrangements with France would require a new or further link in order to effect the imports. Therefore the cost of those links would also have to be taken into consideration. While we are talking about the effect of the European Economic Community in this field, let us not forget that in the energy field it is working to greater transparency of prices and that dumping is also contrary to the rules of the European Community.
With regard to the point which has been made by my noble friend Lord Weir more than once as to the effect of French supplies on the balance of payments, we believe that there will be no additional effect. That will of course depend on the price negotiated, but any effect is likely to be small because, as I said, France provides only a small proportion of our supplies at present and any increase would require a further link or links. We believe that competition from the improving performance which we expect from our UK nuclear power stations will help to keep the price down.
§ Lord Peston
Will the noble Baroness permit me to intervene? It seems to me that the noble Earl, Lord Lauderdale, is right. Essentially, if the supplying companies have to meet a non-fossil fuel quota, as they do under the Bill, they will certainly want to meet it at least at cost. The fact that the French supply counts against that cost, and that the French supply is provided at marginal cost, which, so far as I can see (because bygones are bygones) the French can do without infringing the Treaty of Rome, means that the companies will buy as much as they can from the French industry at marginal cost. It seems to me that that is exactly the point which the noble Earl made. This arrangement is particularly beneficial to anyone who can supply at least marginal cost. It is a help to them. I do not say that it should not be allowed to happen but it is peculiar that it comes within the quota.
§ The Earl of Lauderdale
I thank the noble Lord opposite for putting into more academic and intelligent language than I could the point I tried to make. The net result is to give a special advantage to French exports of electricity. I call that protectionism. It may be the wrong term and I may be very stupid, but that is how I understand it.
§ Baroness Hooper
Perhaps I may go on to explain the existing supplies which we obtain from outside the UK—the only existing outside supplies being through the cross-Channel link from France—and how those are affected. My noble friend Lord Hood referred to the fact that in the past the CEGB has been supplied under a protocol and an associated electricity supply agreement. In future it will be the public electricity suppliers, rather than the generators, who will contract for the power. That is the point which the noble Lord, Lord Peston, has just made in relation to the obligation to supply. The sort of contract that they will negotiate may well be different from the UK non-fossil contracts in many significant respects.
That brings me again to the purpose of paragraph (b) of this subsection which is to give the Secretary of State the power to make regulations to cope with any contract which might be negotiated. The regulations will establish a fair basis on which the contribution a contract for imports of electricity can be assessed for the purposes of the NFFO. The approach may depend on the precise form of the contract, but it is intended to be no more favourable and no less favourable than the basis on which supply contracts in the UK are assessed. I hope that that explanation will enable my noble friend to understand the Government's position and to withdraw his amendment.
§ Viscount Weir
I am afraid that when I put down the amendment I was rather an innocent and I never imagined that the clause was all about the Treaty of Rome. I only put down the amendment for the simple and I hope valid reasons that I have explained. However, I am sympathetic to problems that arise—as they seem so often to do—under the Treaty of Rome, and the last thing I wish to do is to create any additional difficulties.
I ask the Government to look again carefully at this part of the Bill. I am sure that if they did so they could find a way to meet the problems, as I see them, which were the reasons for my tabling the amendment in the first place, and still manage to protect their own position. In the hope that the noble Baroness will do so, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 169H and 170 not moved.]
Baroness Hooper moved Amendment No. 170A:
Page 26, line 19, at end insert—
("(9) In relation to any time before the commencement of section 4 above, any requirement imposed by subsection (1) above to consult with public electricity suppliers in England and Wales or public electricity suppliers in Scotland shall be construed as a requirement to consult with the Area Boards or, as the case may be, the Scottish Boards.").
§ The noble Baroness said: This amendment has been spoken to. I beg to move.
§ On Question, amendment agreed to.
§ [Amendments Nos. 171 and 172 not moved.]1560
§ 6.15 p.m.
Lord Peston moved Amendment No. 172ZA:
Leave out Clause 32 and insert the following new clause:
32.—(1) The Secretary of State shall, after consultation with the Director and with public electricity suppliers, by order require each of those suppliers to take steps to ensure that fuel sources and generation technologies available to them are adequate to ensure the long term security of supply to their customers.
(2) Each of the public electricity suppliers shall, in accordance with orders laid down by the Secretary of State, from time to time report to the Director in order to demonstrate to him that the arrangements they have made in respect of these fuel sources and generation technologies available to them—
§ The noble Lord said: We come to this amendment slightly late in the afternoon. It covers a number of important matters. Happily, we have discussed some of them already, and I shall not add to the tedium of the proceedings by going over all of them again. Again, this is all in the spirit of diversity and security and is not unconnected with the amendments tabled by the noble Baroness which we discussed earlier. Indeed, the amendment, which has been put down by my noble friend Lord Williams of Elvel and myself, simply seeks to replace everything in Clause 32 with our wording which we think is superior.
I wish to emphasise the following aspects of the matter. The first point on which I think our approach is slightly better is that we use the words
long term security of supply".
§ We wholly accept that security is of enormous importance. As we have said before, in crude terms, in their homes and firms people expect that, when they switch on the system, electricity comes out. One cannot conceive of a greater failure in that industry than the failure to supply. So we accept the need for security and that diversity is a large part of the key to obtaining security. Perhaps I may add that it is not the only way. Spare capacity is another way of ensuring security, but diversity is fundamental. There is nothing between us there. We wish to emphasise, first, the long-term view. Secondly, following on from that, we believe that it would be better, in order to generalise how we obtain the diversity, simply to say "all possible sources". We think that, in some ways, that is a better form of words.
§ As we may have discussed in an earlier amendment tabled by the noble Lord, Lord Ezra, we can only obtain that long-term security from those different technologies if there is a suitable research base. One reason for our use of the wording "long term" is to remind the Government of the need for a research base. The environmental aspect of the matter is related to that. At this stage, I do not want to have yet another environmental debate. I am thinking of offering a prize to anyone who can think of a new environmental argument. I cannot think of one, but that does not cause me to under-value not merely the importance of taking the amendment into account, but a further matter which I do not think that we have fully accepted. It relates to my research 1561 point; namely, that, in my judgment, increasingly, in both British and world terms, demands for a better environment will be made more pressing.
§ We have not yet seen anything like the peak of the environment movement, if I may again use simple language. Although I do not know how to produce secure electricity except using conventional technologies—I wish that that were otherwise—the demands for those conventional technologies—not merely the non-fossil fuel technologies—to be made cleaner will become much stronger. I do not think that Clause 32 as currently drafted does enough along those lines. The pressures on the private generating companies to produce their electricity in a cleaner way will grow and will be intensified. A form of words of the sort that my noble friend and I have put down will guide us in the right direction in that regard.
§ However, we are not foolhardy in that respect. We are neither being foolhardy in pretending that one can solve all those problems by some kind of extraordinarily clean technology that is lying out there so long as we go and get it quickly, or in saying that we can devote limitless sums of money to the matter. That is why we have used the phrase "prudently incurred". However, we are discussing that as a way to pressurise people in the right direction.
§ Perhaps I should add, in case the noble Baroness makes the point, that we are well aware that many of the renewable sources of energy have environmental problems. She has probably had the same experience; namely, that, with regard to almost any kind of energy source that I dream up and about which I say to someone, "This looks like a good line", some pressure group will tell me that that destroys precisely the part of the environment with which the group is most concerned. I therefore agree—and am slightly sympathetic to the Government in this matter—that it is much easier to do wrong than to do right in this area. However, having said that, that should not undermine the need for research and the long-term view.
§ I shall repeat these two points for the last time today. I still hold the view that the energy efficiency dimension has not been taken seriously enough by the Government. It has been apparent from this afternoon's debate that we must agree to differ on that matter. I must raise the question of the European dimension again. I was particularly indebted to the noble Lord, Lord Trafford, for raising that matter earlier because it had worried me whether the non-fossil fuel commitment would run into European problems. I do not know whether that would be interpreted by the Commission as a distortion of competition. That is separate from supporting the nuclear industry directly. I do not know whether the noble Baroness has taken advice on the matter. If she has not, we shall certainly wait to hear a more definitive statement from her in due course. But I have an uneasy feeling that, as we think we are going through this part of the Bill with no problems, people are lurking in Brussels, scrutinising the legislation and saying, "If the British think that they will get away with distorting the fuel market by 1562 inventing these things, they will not". Again, I must put that matter hypothetically. I might easily be wrong. It may well be that the department of the noble Baronesss has already taken the best legal advice and that we do not have to worry about the matter.
§ Perhaps I may now turn to my final point in energy efficiency. In a way, it is pleasing to economists, but not pleasing to most other people. I wonder whether the noble Baroness has read the article on energy efficiency in the current number of Economic Trends. If not, perhaps I may recommend it to her. It is a superb article written by an economist in her own department. It demonstrates that there has been a drastic improvement in what I believe is called the energy ratio—that is, ratio of the energy used to GDP in the economy—but it seems to have been a once-for-all improvement. It seems to have occurred for one reason and one reason only; namely, the oil price rise and the consequent rise in the relative price of energy. Having knocked that into the system and made energy more expensive, we achieved an improvement in energy efficiency, but there seems to be little else going on. I mention that point at this stage partly because the work has come from the department of the noble Baroness and partly as a warning about how difficult it is to achieve energy efficiency, or at least how difficult it is to achieve by exhortation and general waving of hands.
§ Those are the main points that I wish to make under this heading. I look forward to hearing the reply of the noble Baroness. I beg to move.
§ Baroness Hooper
The effect of the amendment would be to replace the non-fossil fuel obligation with a duty on the public electricity suppliers to take measures to ensure that their fuel sources and generation technologies are adequate to ensure that the long-term security of supply of their customers is protected, as the noble Lord, Lord Peston, has explained.
However, the amendment gives the public electricity suppliers no guidance as to how they may fulfil that duty. We believe that it would not be fair on the public electricity suppliers. They are—or will be—private sector companies which quite naturally, given no constraints, would be looking for the cheapest source of generation. We accept that nuclear power is currently—and I emphasise the word "currently"—not the cheapest form of generation, but we believe that it has a vital role to play in maintaining the level of diversity, which is something that we have enjoyed in the past and wish to see continued. Were it not for nuclear power, we should have found it much more difficult to keep the lights on during the miners' strike, we should be unprotected against any future rises in fossil fuel prices and we should be needlessly adding to the greenhouse effect. At this point I shall go no further on the environmental front either.
That is why there is and always has been a clear government commitment to nuclear power. Without a clear statement of the importance which the Government rightly attach to nuclear power, the public electricity suppliers would have no certainty 1563 on which to plan and invest. That certainty, as we have already heard in relation to a previous amendment, is vital to them. They cannot be expected to sign contracts leading to the construction of new nuclear power stations unless they know that what they are doing will not be open to challenge by the director or the Secretary of State.
This amendment would put them in a quite impossible situation. They might decide that it is necessary to contract for new nuclear power stations to replace the Magnox stations as they are retired only to find subsequently that the Director General of Electricity Supply decides that they ought not to have done that. Or they might decide not to contract for some renewable capacity only to find later that the Secretary of State has decided that they should have done so. Or, worse still, the Secretary of State and the director may not agree on what they should have done.
The only way to give the public electricity suppliers the certainty that they need in order to plan and invest is to set down quite unequivocally in legislation what they have to do to meet their obligation. This is what we are doing to Clause 32 and the orders which are to be made under it. We shall have clearly set out the Government's priorities for all to see so that the public electricity suppliers can plan with certainty.
I hope that I can reassure the noble Lord by adding that, obviously, we have considered our European treaty obligations in this connection. Although it may be an on-going situation, when one is approaching it in a fresh way one must always look at it afresh. We believe that the provisions of the Bill are within the requirements of those obligations. I hope that what I have said is sufficient to enable the noble Lord to withdraw his amendment.
§ Lord Peston
I thank the noble Baroness for her extremely clear exposition. She has of course made it very clear that it is a matter of protecting the nuclear industry. We are back on that track. The argument is not about non-fossil fuels, because our amendment puts all the fuels on a par. Nonetheless, the noble Baroness makes it clear—and I do not say that she is mistaken—that we do not have a level playing field but one on which the bias lies toward the nuclear industry.
I am glad to hear that the advice that her department has received is that there is no European problem at this point. My own advice is that there may be a problem. I hope that there is not because I too do not wish to see the end of our nuclear industry. All that one can say on this matter, as one often has to do from this side of the Committee, is that we have uttered our words of warning. Certainly if the Government run into trouble on this matter we shall not hesitate to get into the I-told-you-so business.
Having done our duty in scrutinising this section of the Bill, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 32, as amended, agreed to.1564
§ Clause 33 [Fossil fuel levy]:
Baroness Hooper moved Amendments Nos. 172A and 172B:
Page 26, line 21, after ("above") insert ("in relation to public electricity suppliers in England and Wales, or public electricity suppliers in Scotland").
Page 26, line 22, leave out ("persons authorised by a licence to supply electricity") and insert ("such suppliers, and on persons authorised by a licence under section 6(2) above to supply electricity within the authorised area of such a supplier,").
§ The noble Baroness said: I beg to move Amendments Nos. 172A and 172B en bloc. These amendments have already been spoken to.
§ On Question, amendments agreed to.
Baroness Hooper moved Amendment No. 172C:
Page 26, line 26, leave out ("public electricity") and insert ("such").
§ On Question, amendment agreed to.
§ [Amendment No. 173 not moved.]
Baroness Hooper moved Amendment No. 173A:
Page 26, line 37, leave out from second ("the") to ("and") in line 38 and insert ("day appointed by the first order under section 32 above which has effect in relation to the supplier").
§ The noble Baroness said: In moving this amendment I should like to speak also to Amendments Nos. 173C, 173D, 173G, 173H and 173K. It may be helpful at this point if I explain a little about our proposals for the fossil fuel levy.
§ Lord Williams of Elvel
If I may intervene for a moment, the noble Baroness has already spoken to Amendment No. 173A.
Baroness Hooper moved Amendment No. 173B:
Page 26, line 41, after first ("the") insert ("total").
§ The noble Baroness said: I shall not start my comments all over again but I shall try to explain, since this is a complex issue, something about our proposals for the fossil fuel levy. As I have already explained, Clause 32 permits the Secretary of State to impose an obligation on public electricity supply companies to secure a minimum amount of non-fossil fuel generating capacity. This will ensure that diversity is maintained. However, I have explained that there may well be an additional cost associated with such diversity. If so, it would impose higher costs on public electricity supply companies compared with their competitors who would be free to meet their own electricity supply requirements at lowest cost. This would distort competition between the public electricity supply companies and their competitors and would lead to the possibility that they could lose market share because they could not match their competitors' prices.
§ Therefore, in essence, the levy is designed to recover from suppliers the difference between the cost of non-fossil capacity purchased in pursuit of the non-fossil fuel obligation and the cost of purchasing an equivalent amount of fossil capacity.1565
§ Contracts for existing and planned nuclear capacity are in the process of being negotiated at present. It is not yet possible to be clear what form payments under those contracts may take. It is possible that payments will be made only in months when electricity is actually generated. On the other hand, it may be financially advantageous for some payments to be made during the period of construction of the stations or during times when the stations are undergoing maintenance or are shut down for some other reason. This is of course a matter for negotiation between the area boards and National Power. The Government will have to approve the terms of the contracts to ensure that there are suitable incentives to good performance and that customers' interests are protected.
§ There has been a lot of misguided speculation about what will be the size of the levy and its impact on electricity prices. The cost of nuclear power is already in the price of electricity as we have it today. What the fossil fuel levy does is not to add to the cost of electricity but to identify that part of the cost of electricity which is the cost of diversity, as I have explained. However, for the first time we are making this cost transparent.
§ It is not possible at present to say what the initial rate of levy will be. Prices for nuclear and fossil-fuel power have still to be negotiated. To attempt to estimate the levy now would be mere idle speculation. We hope that the initial rate of levy will be announced when contracts have been signed towards the end of the year. What I can say however is that as a consequence of the high-cost Magnox stations being closed down and the PWRs coming on stream over the next decade, we believe that the levy is likely to get smaller.
§ 6.30 p.m.
§ Baroness Hooper
The levy will be smaller than it will be at the outset when we have the cost of the Magnoxes to take into account.
I speak to the group of amendments, Amendments Nos. 173B, 173C, 173D, 173G, 173H and 173J. I do not think that I listed the amendments correctly at the outset. Having explained the thinking behind the fossil fuel levy, clearly to achieve its aim the calculation of the levy must be capable of including all the additional costs which the public electricity suppliers might have to bear as a result of being asked to contract for the non-fossil capacity which they might otherwise not choose. It would be quite wrong for the drafting of the Bill either to leave additional costs to be borne by the public electricity supply companies or to constrain the form which the contracts for non-fossil capacity might take.
For these reasons, Members of the Committee will know that we have been endeavouring, by amendments already introduced in another place, to make sure that the calculation of the levy is capable of encompassing all possible payments under those contracts. It was for this reason that the Government 1566 introduced into Clause 33 the definition of "advance payments". Amendments Nos. 173B, 173C, 173D, 173H and 173K simply complete that job. They make clear that if there are to be any costs which are due under the contract after the non-fossil station has stopped generating, or while it is temporarily out of action for repairs and maintenance, as I have described, these will not be excluded in the calculation of the levy. Of course we are all aware that nuclear power has clear-up costs which extend long after the station has stopped generating. It may therefore be that the contracts will also include provision for payments after generation has ceased.
It may also be that the contracts will provide bonus payments if the generators achieve high levels of performance or if they build new stations ahead of schedule. It is clearly important for performance bonuses like these to be capable of coming within the levy. I must stress that this does not in any way prejudge whether such payments will exist. The contracts for non-fossil power are currently being negotiated. While the Government will approve the initial contracts, they do not wish to stand in the way of sensible financial arrangements if these are in the interests of the consumer. These amendments are therefore made on a contingency basis, in case they include such payments.
I trust that members of the Committee will see that this is a prudent course to take and will accept these amendments. I beg to move.
§ Lord Williams of Elvel
We are embarking here on the vexed question of the levy. The noble Baroness has done her best to explain exactly what the levy is about and why these amendments are necessary. If I heard her aright, she said that the cost of nuclear power was already in the system. That is certainly true. The grid runs a cost merit order. It brings in nuclear power as a base load because there is a marginal cost which is very low. If one moves to a price merit order, and one builds into the price which is quoted to the grid all the amortisation costs of the capital and so on on the nuclear power stations, one will have a quite different figure. One will not have the marginal cost which is in the cost merit order operated by the grid at the moment.
What we are talking about in the fossil fuel levy is quite different from the cost of nuclear power that is already in the system. If the noble Baroness can persuade me that I am wrong on this, I shall be very happy to listen to her. I do not believe that I am wrong.
She also stated that it is idle speculation even to worry about what the levy might be. All she can say is that when the Magnox systems are retired and the PWRs are brought in the levy will be smaller than it may be at some stage in the future. We do not know the figure. She then stated that there could be advance or deferred payments. She specified that the payments could be after generation had ceased, so that a Magnox station such as Berkeley which has been shut down very recently, which will stop producing electricity—a number of Magnox stations will be decommissioned in the reasonably near future—will still bear a cost and will still be part of this levy to be imposed on public electricity suppliers 1567 and consumers. We are told that we do not know, and cannot know until contracts are signed, what this levy will be. We are told that the Secretary of State will exercise many vague powers under the clause as drafted and that the levy will be fixed by a method and in a manner which remain to be seen. The consequences also remain to be seen.
We are discussing a Bill which is going before Parliament in its final stages. It has been through another place and is now before this Chamber. The Government seem unable to do better than simply to say, "The levy will be something or other. We do not quite know what it will be. It will be this, and somehow we shall fudge it all at the end of the day". If that is what the Government are saying they ought to have another look at it. Protection of the British nuclear industry is a fundamental feature of the Bill. Until we, and the public, know what the cost of that is I do not believe that the Government have a serious argument for the clause.
I ask the noble Baroness whether she will be very kind and consider the clause. When we come to another stage of the Bill perhaps she can tell us a little more than she has been able to do today about what will happen. How will the Government deal with the issue? How will the Secretary of State deal with it? What are the methods of calculation? I assure the noble Baroness that we shall not let this one go.
§ Lord Trafford
It seems that the noble Lord has put one or two words into my noble friend's mouth. As I understand it, she stated that today, when electricity supply is in the public sector, if one buys one unit of electricity at a cost of, say, 10p (to make matters simple), under the system on which the levy was introduced the cost of one unit of electricity to the consumer would still be 10p. The difference would be that it would be declared more accurately to be a cost of 8p from fossil fuels and a cost of 2p from nuclear power. However, the total cost to the consumer would be unchanged. In other words, the total bill is unchanged. There is now to be identification of the cost from fossil fuels and the cost from non-fossil fuels.
§ Lord Williams of Elvel
Perhaps I may answer that point. If I have put words into the noble Baroness's mouth she is perfectly capable of responding on her own account. I do not believe that I did. I wrote down very carefully what she was saying.
On the question of cost, the noble Lord has to distinguish between full and marginal cost. I do not wish to give the noble Lord a lecture in economics; he understands the subject perfectly. At the moment we have a marginal cost system into the grid. What is proposed is a full total cost system into the grid.
§ Lord Trafford
I take the point that the noble Lord is making. Obviously my noble friend will say whether or not she thought that words were being put into her mouth. I thought she was saying that the total cost to the consumer would not be different.
The noble Lord speaks of the different marginal costs. It depends very largely on how one makes 1568 these calculations. In that respect I accept what he says: that as time goes by the more we learn about how the calculations are made the better able we are to make a judgment. That must be true of nearly all calculations.
The other factor on which the noble Lord is perhaps not very forthcoming is that the price of other fuels—the fossil fuels, in other words—could also change for a variety of reasons. We saw what happened dramatically in one respect in the 1970s with the oil prices. There could be considerable changes. I do not disagree with the noble Lord that one of the aims we wish to achieve through the Bill and in the future of the electricity industry as a whole is the protection and development of nuclear power. We regard that as very important.
Many Opposition Members share our view of the significance of the generation of power from nuclear sources in the future. It is my personal feeling that it will become increasingly important as the decades go by. It is therefore very important that we get this right straight away so that we do not lose that capacity as time passes. I was thinking that perhaps the noble Lord had been a little unfair in the interpretation he put upon what my noble friend said about the levy.
§ Lord Williams of Elvel
Again I must respond to that because the noble Lord criticised me quite properly for what I said. I have no objection to that. What I am saying is that under the present system the nuclear side of the generating industry feeds electricity into the grid at marginal cost. Furthermore it is almost impossible to shut down nuclear stations at will if suddenly the grid decides that in the cost merit order Heysham B is no longer interesting. One cannot just shut down a nuclear station in the way that one can shut down conventional stations. The noble Lord only has to go to the National Power Centre at Bankside to look at this. The base load at the moment is provided by the nuclear system. It is justifiable economically on the basis of marginal cost.
Once one loads onto that marginal cost an element of all the other costs which have been amortised and written off, there is then a completely different equation. The problem that the Government have to face is that when there is a completely different equation—as the noble Baroness quite rightly said (I am not putting words in her mouth)—nuclear power becomes much more expensive than conventional power. But that only happens when you load in all those costs which have been amortised and written off and not put into the cost at which nuclear power stations sell to the grid. Thus there is this problem that in the future in a total cost system based on a price merit order rather than a cost merit order, some nuclear stations will not be as competitive as conventional stations.
Nuclear stations cannot be shut down. That is why there has to be this extraordinary levy, tax or whatever it is in order to keep them going as they are at present.
I hope I am not saying anything with which the noble Baroness disagrees, because I believe that we all clearly understood what she said. However I am 1569 saying that we find it odd that we should suddenly be faced with a new tax (which is what it is) just because the accounting conventions of who feeds what into the grid at what time are being changed.
§ Baroness Hooper
I do not believe that I can usefully add to these arguments that I put forward in proposing the amendment in the first place. As the noble Lord has said, we shall be returning to this argument again. I therefore commend the amendment.
On Question, amendment agreed to.
Baroness Hooper moved Amendments Nos. 173C and 173D:
Page 27, line 1, after ("the") insert ("total").
Page 27, line 5, leave out from ("and") to ("payments") in line 6 and insert ("including any advance or deferred payments other than, in the case of the cost mentioned in paragraph (a) above,").
§ On Question, amendments agreed to.
§ [Amendment No. 173E not moved.]
§ 6.45 p.m.
Lord Williams of Elvel moved Amendment No. 173F:
Page 27, line 19, at end, insert—
("( ) Regulations made under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.").
§ The noble Lord said: This terminates the discussion that we have had on the previous amendments because the noble Baroness said that we would all know the truth when the contracts were signed. There would be a great revelation of what the levy would be and how the costing would all work. All I am asking in my amendment is that the Secretary of State should tell Parliament. I am not saying that it should be by affirmative procedure. I am simply asking that Parliament should be informed of how all this will be calculated. It is clear that no one knows how it will be calculated at the moment. I should like Parliament to be told when we know. I beg to move.
§ Baroness Hooper
I am happy to be able to agree with the noble Lord, Lord Williams of Elvel, in saying that he is wise to seek to ensure that regulations made under this clause are subject to parliamentary scrutiny. I am pleased to assure him that this has been provided for. To be precise, Clause 101 provides that any regulations made by the Secretary of State under the Bill:shall be subject to annulment in pursuance of a resolution of either House of Parliament".Any regulations made under Clause 35(5) will be scrutinised by the Joint Committee on Statutory Instruments. Members of both Houses of Parliament will have the opportunity to debate any such regulations if they so wish. I trust that that explanation meets the noble Lord's concerns and that he will therefore feel able to withdraw his amendment.
§ Lord Williams of Elvel
I am grateful to the noble Baroness and I apologise if I have detained the Committee on what was an otiose amendment. It seemed to me important to make sure that I knew the facts. If the noble Baroness assures me that it is covered by the Bill as drafted I am very happy with that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hooper moved Amendment No. 173G:
Page 27, line 22, leave out from beginning to ("and") in line 27 and insert ("any payment made or expense incurred in relation to a particular generating station before electricity is first generated by that station").
§ On Question, amendment agreed to.
Baroness Hooper moved Amendments Nos. 173H, 173J and 173K:
Page 27, line 28, at end insert—
(""deferred payment" means any payment made or expense incurred in relation to a particular generating station after electricity ceases to be generated by that station;").
Page 27, line 31, leave out from ("arrangements"") to ("satisfy") in line 34 and insert ("in relation to a public electricity supplier, means any arrangements evidence of the making of which he has produced to the Director in pursuance of an order under section 32 above and which—
Page 27, line 36, leave out from first ("month") to end of line 39 and insert ("in relation to a public electricity supplier or a person authorised by a licence under section 6(2) above to supply electricity within the authorised area of such a supplier, means a month beginning on or after the day appointed by the first order under section 32 above which has effect in relation to that supplier").
§ On Question, amendments agreed to.
§ Clause 33, as amended, agreed to.
§ Clause 34 [Fossil fuel levy]:
Lord Ezra moved Amendment No. 173L:
Page 27, line 42, after ("any") insert ("licensed").
The noble Lord said: I shall also speak to Amendments Nos. 173M and 174A. The purpose of the amendment is to safeguard the position of those who generate largely for their own use. It seems quite unnecessary for the Secretary of State to lay down standards for stockholdings of those who are generating in such a way that only a small amount of their output is used externally. As the clause stands any generator with a generating capacity of
not less than 50 megawatts or such other capacity (not exceeding 100 megawatts) as the Secretary of State may by order specify
will be caught under the provisions of the subsection, irrespective of whether all or part of the electricity generated is for own use.
§ I believe that the implications of this are far-reaching, because it means that the Secretary of State will determine what people do when running their own internal businesses. There could be no end to that kind of intervention.
§ Companies outside the electricity supply industry who generate electricity primarily for their own consumption should surely be the best judges of their strategic fuel stocks. Therefore the purpose of these amendments is to apply this purely to the amount 1571 of electricity which is externally supplied. I beg to move.
§ The Minister of State, Scottish Office (Lord Sanderson of Bowden)
I note what the noble Lord said in moving the amendments. It may be helpful if I respond by linking together Amendments Nos. 173L, 173M and 174A.
As the noble Lord has explained, their purpose is to apply the fuel stocking and other provisions of Clause 34 to those generating stations which have an export capability of 50mW rather than just an installed capability at that level. I note that he suggests that waste fired plants which have the capability to include an element of fossil fuel burn as part of their normal operations, or which have capability to run on fossil fuels as a back up to their main fuel source, should be exempted from the scope of this clause.
Fuel stocking powers are primarily designed to overcome any unforeseen interruptions to fuel supplies to power stations and to ensure, as far as possible, that supplies of electricity can be maintained to consumers. It is for this reason that we need to look not only to the level of electricity supplies that a generator can make available to the grid, but also to the demands that a generator might make on the grid for supply to himself should he not be able to generate through a shortage of available fuel. Let us take as an example a generator with a total capacity of 90mW. Of this he may export half and retain half for his own uses. If this amendment were accepted he would be excluded from the scope of Clause 34. However, in a fuel shortage not only would the public supply system lose the 45mW that had been available for export but in all likelihood that generator would look to the public supply system to make good the 45mW that he himself consumes. It would clearly be inequitable if a number of such generators were able to require supplies, at short notice, from the public supply system without having contributed to the national stocking obligations. It would clearly be wrong, where such generators took from the supply system, that they should be able to ride on the back of others who had made prudent fuel stocking arrangements.
It is essential on a national basis in the interest of ensuring continuity of electricity supplies that full account is taken of the additional demands that might be made on the system as a result of fuel shortages as well as the loss of potential supply to the system. It is for this reason that Clause 34 is framed in terms of 50mW of installed capacity. It is also for this reason that the clause distinguishes between any generating station with a capacity of 50mW and licensed generators. I put it to the noble Lord that, by qualifying the fuel mix with the word "principally", his amendment introduces an unwelcome degree of uncertainty into the regime. However, more importantly the amendment is unnecessary in practical terms because these stations are in general too small to be caught by the generating capacity figure of 50mW and would therefore be exempt from directions anyway.
Where however these plants do meet the capacity criteria—and in looking to the future it is not 1572 impossible that larger commerical waste-fired plants may be built—I think it is important that we do preserve a degree of flexibility. We must be able to look carefully at each case on its merits and have the ability to direct such stations in circumstances where their fossil-fuel capability could be of use during a period of fuel shortage. I repeat however that the cases where these plants will be of a size to be covered by the terms of this clause will be few and far between. Nevertheless where a plant is large enough I hope your Lordships will agree with me that they should if necessary, play their part in helping to ensure security of supply.
I would therefore ask the noble Lord to withdraw this amendment on the grounds that the practical effect of the clause as drafted, given the present size of the generating capacity in question, is such that such stations would be excluded anyway. But, looking to the future, we do not want to lose flexibility in being able to include such plant were its capacity to warrant it.
§ Amendment, by leave withdrawn.
§ [Amendment No. 173M not moved.]
The Earl of Dundee moved Amendment No. 174:
Page 27, line 43,. leave out from ("megawatts") to ("and") in line 45.
§ On Question, amendment agreed to.
§ [Amendment No. 174A not moved.]
The Earl of Dundee moved Amendment No. 175:
Page 27, line 48, at end insert—
("(1A) The Secretary of State may by order provide that subsection (1) above shall have effect as if for the capacity mentioned in paragraph (a) there were substituted such other capacity (not exceeding 100 megawatts) as may be specified in the order.").
§ On Question, amendment agreed to.
Lord Sanderson of Bowden moved Amendment No. 175A:
Page 28, line 42, leave out subsections (6) to (8).
§ The noble Lord said: I should like to speak also to Amendment No. 175B. This amendment simply recognises the important role that the national grid company will play in maintaining electricity supplies in times of dislocation to fuel supplies. The NGC will be responsible for ensuring that electricity is transmitted to where it is needed. That is to the consumers.
§ The powers in Clause 34 are primarily directed to the operators of generating stations, not the operator of the national grid. Nevertheless, Members may have noted that subsection (5) of Clause 34 allows directions to generators effectively to include obligations with which the NGC must also comply. There is therefore already an indirect power to direct the NGC.
§ The amendment also gives the Secretary of State the power to require the NGC to advise in general terms about the exercise of the powers in Clause 34. 1573 The NGC will be uniquely placed, given its general obligation to balance supply and demand, to liaise with generating companies and distribution companies and provide advice on how the system is operating, how fuel stocks compare with demand on the system, and so forth.
§ In times of fuel shortage the importance of this role will be all the greater. Therefore, I hope that Members will agree that these powers are a necessary complement to those already in Clause 34. Taken together, they represent an effective and flexible means of combating fuel supply dislocations which may otherwise threaten electricity supplies to consumers. I beg to move.
§ Lord Williams of Elvel
We are embarking on an important amendment concerning the national grid. I have no objection to subsection (1) of the noble Lord's new clause in Amendment No. 175B. However, I look cautiously as subsection (2) of his new clause, which authorises the Secretary of State to give a direction to the national grid:to operate [his] transmission system, at any time when a direction under section 34(3) is enforced, either in a specified manner or with a view to achieving specified objectives".Presumably, the specified manner and the specified objectives are to be specified by the Secretary of State in his direction.
The noble Lord quickly skated over that point in introducing the amendment. It is actually proposed that, through the grid, the Secretary of State can make the company responsible for security of supply. If that is the noble Lord's proposal the whole question of security of supply is turned on its head. Until now we have been told that the grid has no responsibility and that the public electricity suppliers have the responsibility for the security of supply. I and Members from all parts of the Committee have argued that that proposal will not work. Now the Government appear to be conceding the case and saying that the Secretary of State can tell the grid that, in the event of a breakdown of some kind, it is responsible. Does that not go against everything that we have heard in previous debates?
If that is the case we are in a new situation which we shall be delighted to discuss. There is no a priori objection to the proposition but it appears to be important and to merit further argument.
§ Lord Sanderson of Bowden
I understand what the noble Lord is saying. I had intended to convey to him that we envisage that the National Grid Company would wish to do nothing other than co-operate in times of fuel shortage but, for example, the grid or part of the grid might need to be operated in a special way which goes beyond strictly normal technical criteria as specified in the grid code in the case of emergencies.
This amendment would give the Secretary of State the power to ensure, as the noble Lord said, that that could happen and would also provide the grid company the comfort that if it were required to go beyond normal operating critieria, it can do so safe in the knowledge that there is a clear legal 1574 requirement on it so to do. In other words, we are trying to make sure in every possible way that there is no loophole in the case of an emergency.
§ Lord Williams of Elvel
Perhaps I can clarify this matter with the noble Lord, and perhaps he will give me a yes or no answer to the question which I am about to put. Under this new clause, will the Secretary of State be entitled to direct the grid, whether or not in an emergency, to operate in a certain way so as to ensure security of supply?
§ Lord Sanderson of Bowden
No, we are talking about a special situation where certain powers have to be taken.
§ Lord Williams of Elvel
In that case, perhaps I may suggest to the noble Lord that the wording of subsection (2) of his new clause is perhaps too broad for what he has in mind.
§ Lord Sanderson of Bowden
I believe that the wording in subsection (2) of the new clause which we propose is not too broad. However, I shall take the opportunity, having heard what the noble Lord said, to look very closely at this with legal advice and at that stage to decide whether it is too broad. As I understand it, it is not too broad for the circumstances which we see may occur.
§ Lord Williams of Elvel
I am grateful to the noble Lord. I am not a legal expert but a layman. However, as I read the clause, it gives the Secretary of State power to direct the grid in a completely different manner which cuts right across other provisions in the Bill. I am most grateful that the noble Lord has accepted that this is a matter which the Government may wish to consider.
§ On Question, amendment agreed to.
§ Clause 34, as amended, agreed to.
The Earl of Dundee
Members of the Committee may feel that we have reached the right moment at which to break, and I suggest that we return to this Bill in one hour at five minutes past eight. I beg to move that the House do now resume.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.