Energy Bill [HL]

My Lords, I support this amendment and compliment the noble Lord, Lord Jenkin, on covering pretty well the whole of the case. Like him, I was approached by a company called Gateway, which is in the business of constructing storage facilities—or would like to be in the business of constructing storage facilities. My understanding, which the Minister will perhaps confirm, is that at the moment we have around 5.9 billion cubic metres of gas storage facility in the UK, and that we could need in extremis to double that or—instead of storing the four or five days’ worth of gas that we have at the moment—go up to 20 days’ worth. The consumption of this additional gas is not on a pro rata basis; it tapers because other things would happen. My point is that the balancing mechanism is essentially the market mechanism, which assumes that this will be fine if we have a gas storage facility that blows up, as happened a few years ago. World market conditions were not affected to any great extent by that but we still had to buy in additional supplies. If something happened in the United Kingdom that in some way interrupted or interfered with our present indigenous supplies, we would not be affected by world prices. On the other hand, there could be a world crisis and an interruption to supply because we may well be the last in line for Russian gas supplies. There are reasons why we would be last in line in a world crisis, not least because for a long time we were self-sufficient and exported gas. There were periods in the 1990s when we changed the nature of our gas contracting and, as a consequence, we have tended more towards short-term contracts than long-term ones. Therefore, we have less of a claim on access to the world market. The point I want to make is that it is fine to use the market-balancing mechanism when there is, in effect, a UK problem, but when there is a world problem, it becomes exceedingly expensive. If we are to be prudent, it is necessary for us to look at what would be regarded as getting the balance right between the two options. Neither of them is exclusive. In the case of the PSO, we would give a signal to the market that our very low level of storage ought to be increased. When we touched on this subject at Second Reading, the Minister told us, ““I have just signed the document offering planning permission””, and said that this may well go ahead. Something like 15 projects at present enjoy planning permission but nobody sees the need to act on them because there is no clear indication that the Government are prepared to give them active support by way of a PSO. We need additional supply if what I have been told by Gateway is true. I have no reason to doubt that, although I accept that Gateway is in this business and will want to enhance its case, which is not unreasonable. The same could be said for the gas traders who have been successful in tipping the balance the other way. It is necessary for us to have a clearer indication. Am I right in saying that we have somewhere in the order of 5 billion or 6 billion cubic metres and that if we were to double that it would probably afford us supplies to meet the demands of 20 days or slightly beyond that? I do not think that we need to go anywhere near the French or German models because we still have access to the North Sea and some long-term contract facilities with Norway and the like. However, we are not guaranteed supply. As for the one in 50 winter statistic, I have spoken to people from British Gas who used to do balancing in days gone by and they say that the 1929 winter is perhaps a better base year to take than the winter of 1963, which is normally referred to. I imagine that the noble Lord, Lord Oxburgh, being a geologist and a specialist in these matters, could give us chapter and verse on this. I merely raise this point to indicate that there is a debate here, not only between the two options, but also on the option of the PSO and whether the wisdom currently embraced by Ofgem and DECC should be revisited. An amendment of this nature would merely put on the statute book the opportunity for us to deal with a fuel shortage should we have a third bad winter in 50 years within the next four or five years. As we move through 2015 the implications of the Large Combustion Plant Directive will become that much clearer. We will no longer be able to access coal-fired generation in the way that we have in the past and, until nuclear comes along, there will be an enhanced dependence on gas-fired electricity and the other purposes to which gas can be put. There will be a need for an increase in storage because we will be consuming more gas. I am not confident that the supplies that we have presently would be sufficient to be accommodated by a balancing act. The chances are that if we have a rotten winter in Britain, it will be mirrored by our neighbours 20 or 30 miles away across the Channel. If that is the case, the price of gas will rise and the costs of the balancing mechanism will be extremely high. Whether or not we accept the optimism of the Government about the likely outcome of our present economic travails, we hope that by 2016 or 2017 our economy will be expanding. We will have to use more electricity, and more of that electricity than we have at present will be dependent on gas. I take that as just one simple example of the likelihood of an increase in demand for gas, a likelihood which may not be capable of being economically addressed by the option that the Government are currently favouring in exclusion to the other. I would ask that the PSO be included as an additional option in the Bill. It will give the industries the opportunity of some certainty, and we will then have the likelihood of investment in what is an expensive, although not such a technically difficult or lengthy, process. If we were to indicate that a PSO option was there, it is quite likely that the planning applications will be exercised. Some of the applications that have been granted will be taken up and used; at the moment they are not being acted upon. Enhancing our storage facilities is therefore a very prudent approach to our energy supplies. We should do so because we may well find in future, when we are in danger of running short of gas, that market conditions are extremely unfavourable and supplies are very expensive. It is probably better to give the nod to the spending of some money now rather than waiting for a solution which could well be far more expensive in the future. For these reasons I am happy to support the amendment of the noble Lord, Lord Jenkin.