20130403_NN

Source: BBC TV: Newsnight

URL: N/A

Date: 03/04/2013

Event: Paxman interviews Davey re £22 energy price rise by 2020: "Are you serious?"

Credit: BBC TV

People:

• Harold Armitage: Retired energy-efficiency engineer
• Tom Burke: Former UK government energy advisor, also former Director, FoE
• Nigel Cann: Director of Construction, EDF Energy
• Ed Davey: Secretary of State for Energy and Climate Change in the UK
• Henry Edwardes-Evans: Associate Editorial Director, Power Newsletters EMEA, Platts
• Joe Lynam: Business correspondent, BBC Newsnight
• Jeremy Paxman: English journalist, author and broadcaster

Jeremy Paxman: We've been warned. This place - your place, my place - doesn't work without energy. There's not enough to go around, and as every bill testifies, it costs more and more. Does Britain have the means to keep the lights burning, and how much more are we each going to have to pay to do so?

* * *

Jeremy Paxman: One of our biggest energy companies, SSE - Scottish & Southern, as was - has been fined £10.5 million for selling what they claimed was cheap energy when it wasn't. The company spent the day publicly tucking into big helpings of humble pie. Some people may, therefore get a bit of money off their gas or energy bills, but compensation for miss-selling is one thing and actually pretty small beer by comparison with what's happened - and is going to happen - to the cost of energy itself.

Just look at this - prices have already more than doubled in the last eight years. Analysis by uSwitch shows that the average household bills for gas and electricity cost £522 in 2004. Just eight years later, by November 2012, that figure had risen to £1309. And now, if the government's to be believed, by 2020 we'll be paying just another £22 more, at £1331. That figure is widely disputed.

I'll be talking to the Energy Secretary Ed Davey in a moment or two, but first though, Joe Lynam reports.

[Start of Joe Lynam's report. Sound of BBC radio news "pips".]

Male newsreader: It's Friday 1st February 2016. The headlines this morning: large parts of Britain are preparing for yet another day of blackouts as energy plants around the country struggle to meet the increased demand caused by the recent cold snap. The energy problems are costing the economy an estimated £100 million a day in lost productivity. And the Energy Secretary will chair an emergency meeting of Britain's largest energy... [Fades out.]

Joe Lynam: It's not as fanciful as you might think. Britain hasn't had electricity blackouts since the 1970s, when rolling strikes and energy supply problems led to the three-day week and regular evenings spent by candlelight.

[Old video footage from the 1970s, including people walking around a supermarket in the dark with candles, and queuing outside some shops.]

Male reporter: So you're completely without cooking and heat, at the moment?

Female pensioner: Yes.

Joe Lynam: Almost four decades later, energy is still on most minds because the cost of heating our homes and businesses has doubled over the past eight years, and the fear is it could double again in the next decade. A spectre which could bring people out onto the streets, just as it did in Bulgaria last month. [Video footage of rioting Bulgarians.] Their fuel bills had soared while wages had remained stagnant. Sound familiar? Politicians here know all too well that the cost of living will be the focal point for the next general election in 2015, so how can we keep prices under control, if the supply of energy is about to fall off a cliff?

Over the next decade, the government hopes that Britain's energy output will look a little bit like this [draws a wide U-shaped curve on the screen.] In the immediate future, old coal and gas plants will start shutting down, so that the supply will reach the minimum level to keep the lights on [draws a horizontal line on the screen, just below the U-shaped curve] in Britain before ramping back up, as renewables and new nuclear come on-stream. But the problem is, new nuclear and renewables are behind schedule, so it might look a little bit more like this [traces previous U-shaped curve but then after the half-way point, extends a line out to the right-hand side, at just a slight angle from horizontal.] That's the point at which the demand for energy almost meets the supply.

[Heading: Coal. Video footage of the recently closed Didcot A Power Station.]

This coal-fired power plant in Didcot in Oxfordshire has been around for 43 years, supplying two million homes at its peak. But it produced its very last watt of energy last month. Didcot's owner, npower, has already replaced it with a brand-new, more efficient plant in Pembroke. But the cost of keeping Didcot open is uneconomical in the current, low-carbon environment. Shutting these old plants down, to meet new emissions standards, only serves, though, to double Britain's dependency on gas. Add in that the UK now imports more gas than it produces, and you've got a problem.

Tom Burke: Gas prices are set globally. There's nothing the British government, or any other government, can do about that. Energy bills are set here - it depends on how you structure the energy market, and that is what the energy bill is doing. But it's doing it in a way that's missing a huge opportunity to really allow our bills to be driven down. Which means that customers will be subject to - much more vulnerable to - volatile global prices.

[Video footage of Bacton Gas Terminal in Norfolk.]

Joe Lynam: And this is where much of Britain's imported gas will arrive. The interconnector in Bacton, Norfolk, was originally designed to pump North Sea gas to the continent. Now it spends most of its time receiving fuel from our EU neighbours. Because gas prices are set internationally, and influence the price of all other forms of energy, Britain will have no say on how dear energy will become in future, especially if we see another Fukushima.

[Heading: Gas. Video footage of the 2011 Japanese tsunami, and the damaged nuclear power station at Fukushima.]

Joe Lynam: In a vivid example of the butterfly effect, a devastating tsunami 6000 miles away could have a bearing on the cost of living here in Britain. The giant wave destroyed the reactor in the Fukushima power plant, which in turn spooked Europe's largest energy consumer, Germany, into shutting its entire nuclear energy programme. That meant that Germany had to turn to other types of fuel, such as gas and coal, to supply its buoyant industry, and in doing so, energy prices for the rest of us spiked up.

[Video footage of LNG tanker Arctic Princess.]

Joe Lynam: And the tsunami didn't just affect the nuclear sector. It also forced Japan to urgently seek alternatives, such as liquefied natural gas, shipped mostly in these mega vessels from Qatar. The urgency meant Japan is paying almost twice as much as Britain for its LNG, which accounts for 7% of our needs. But that contract with Qatar ends next year, and any new one will almost certainly be more expensive.

Joe Lynam: [speaking to Henry Edwardes-Evans]: What does this mean to end users? They've seen their energy bills double in the last eight to ten years. What should they expect in the next eight to ten years?

Henry Edwardes-Evans: My personal opinion is: we're in for a big shock.

Joe Lynam: 30, 40, 50% more?

Henry Edwardes-Evans: Potentially, yeah, why not? When you look at the level of subsidies that you need, to bring on low-carbon generation - particularly, really big, big units like a 1600-megawatt nuclear reactor - then those subsidies are going to have to be passed on directly to the customer. They're not in our bill at the moment.

[Heading: Nuclear. Video footage of Hinkley Point B Nuclear Power Station.]

Joe Lynam: Despite Fukushima, Britain is pressing ahead with the next generation of nuclear plants, one of which will be built here in Hinkley, Somerset. I'm standing on top of a nuclear reactor, thankfully encased in five metres of solid concrete. This particular reactor accounts for 1% of Britain's entire electricity requirement. That's peanuts. The proposed new nuclear site here at Hinkley will be seven times as big, with an output of 3.2 gigawatts of energy. Preparatory work may be already under way but this new plant may never be built. The government is in protracted talks with the only bidder left in the game - the French government-controlled EDF. They're haggling over the so-called "strike price", or the price the government promises to pay EDF for its nuclear power for the next 30-40 years. Too low, and it won't be worth EDF's time spending £14 billion on a new plant. Too high, and UK taxpayers will be effectively overpaying the French government for four decades.

Nigel Cann: I think the time for dithering's over, and I think, you know, we do need to commit now to replace the infrastructure. We are coming to a crunch point now, I think. No doubt you will visit the power stations that are coming to the end of their life - it's clear that they can't go on forever, and you know, we do need a strategic plan, looking forward.

Joe Lynam: But many feel that this direct subsidy by the government in nuclear, as well as in renewables, is effectively re-nationalising the energy market by stealth.

Tom Burke: Essentially, electricity market reform means the government will be purchasing electricity on behalf of consumers for the next 40-50 years. The energy bill will reverse, in effect, Mrs. Thatcher's liberalisation of the energy market. The government will become using the national grid as its agent, essentially the wholesale purchaser of electricity.

[Heading: Renewables. Video footage of sunny skies, trees and country cottages.]

Joe Lynam: Then there's the Xanadu of our future energy needs - renewables. Harnessing Mother Nature's endless supply of energy could be the Holy Grail of cutting bills, and exactly what Harold Armitage has done in his Herefordshire home.

Joe Lynam [to Harold Armitage in his garden]: I see you've got a lot of photovoltaic solar panels there. Tell us about those.

Joe Lynam: He's spent £20,000 converting his cottage to a point where he now earns £4000 a year by selling power back to the National Grid.

Harold Armitage: When you look at this little panel here... and when it shows it's generating - it's free electricity. Power from the sun.

Joe Lynam: So when it reaches a certain level, you can then turn on energy-hungry devices like your washing machine?

Harold Armitage: Yeah, washing machine... We can do the baking, charge the car up - free petrol.

Joe Lynam: According to one major energy company, households will have to cut their domestic usage by 40% over the next decade, just to keep bills at their current level. That would mean major lifestyle changes for millions. Mr. Armitage's energy-saving measures could soon be the norm. In the meantime, Britain has set itself a radical target of, effectively, cutting carbon out of the energy mix entirely, by 2050. [Video footage of offshore wind turbines.] To attain that, Britain may need a lot more of these vast offshore wind farms, and some way of storing the energy they generate. Achieve that, and we may never again need to burn fossil fuels to heat our homes.

Henry Edwardes-Evans: Grid parity is when a technology becomes viable. The cost of electricity generation from that unit is similar to in the open market. Now, for solar, that's being reached - today, in southern Europe. And onshore wind? It's being reached - today, in central Europe. So it could be that if we can break through on the storage side of electricity, on the management of demand, then we could see some very, very cheap, large amounts of electricity coming into the market that's very usable.

Joe Lynam: The ominous reality is that the cost of heating our homes is only going one way, in the near term, as Britain and Europe grapple with old energy being replaced with delayed new energy sources. The good news, though, over a 20-30 year horizon, is that once renewable sources such as wind, wave and solar power reach a critical mass, they could radically drive down bills for our children and grandchildren.

Tom Burke: I think people make different judgements, based on their assumptions, and come, quite honestly, to different conclusions about what is and isn't going to happen. We'll only know when events transpire. My guess is we'll be sitting here, in five or six years' time, with the lights on.

[End of Joe Lynam's report.]

Jeremy Paxman: Well, the Energy Secretary, Ed Davey, is in Taunton. Ed Davey, eight years ago, the average family was spending about £500 a year on its energy. Now it's spending about £1300 on energy. And yet your department is predicting that the rise in energy bills, for the average family, will be £22 in the next seven years. Are you serious?

Ed Davey: Well, we're very worried about rising energy bills, the rises we've seen, and we do expect rises to increase, but what we're trying to do -

Jeremy Paxman [interrupting]: So the figure of £22 isn't serious, just to be clear about it...

Ed Davey: - what we're trying to do, Jeremy, we're trying to insulate people from those rising energy bills, cushion them, by driving a wedge, if you like, between global energy prices - which we have to pay for importing gas - and the bills that people have to pay. And we're doing that -

Jeremy Paxman: Sure. Okay, look, just engage with the figure.

Ed Davey: - by increasing competition and by helping people insulate their homes more effectively.

Jeremy Paxman: Just engage with the figure, for a second - the £22 is complete fantasy, isn't it.

Ed Davey: No, it's not. If you look at -

Jeremy Paxman [interrupting]: You seriously think our energy bills will go up by only £22 by 2020. Are you serious?

Ed Davey: Well, if you look at our report which we've published, which was a hugely detailed report, last week, on bills and prices, we have a number of estimates of how the bills will go up over the next few years if we do nothing. But we're not doing nothing. We are intending to insulate and help people from these high energy prices - that are coming from global prices, just as your film showed - and it's important that we use every single measure to help people struggling with high energy bills -

Jeremy Paxman: Mr Davey -

Ed Davey: - and to help businesses who are paying those high energy bills.

Jeremy Paxman: Mr Davey, you told the Daily Telegraph that the government had kept people's energy bills down. You've just conceded they've gone up from £500 to £1300 in the last eight years. Will you accept that that statement was at least wrong? You haven't kept them down.

Ed Davey: No, no - because you're misquoting me. What we've said, in our report, a detailed report, was that we - through our measures - have kept bills lower than they otherwise would have been. We set out very clearly, in the report, that bills have gone up - we're very aware of that. And we're very worried about it. And what we're trying to do, through product regulations - to make sure appliances are more efficient - through insulation measures, and a whole range of things that we're taking, is we're trying to prevent the bills going up higher than they otherwise would. And there's no doubt -

Jeremy Paxman: So people can keep - let's be clear about this, people can keep their bills down, provided they spend money buying new washing machines, new dishwashers, and the rest of it, and getting their homes insulated.

Ed Davey: No, what our, er -

Jeremy Paxman [interrupting]: Is that what you're saying?

Ed Davey: What our figures - if you'll let me finish - what our figures show is that they take into account how often people replace their appliances, how often they replace their boilers, how often they replace these different machines. And over the period we're talking about, a lot of - millions of households will replace a lot of these appliances. So what we're doing is - we're actually using real figures-

Jeremy Paxman: If they spend that money, they can keep their energy bills down.

Ed Davey: What we're actually showing is what people - we're not asking them to change their behaviour.

Jeremy Paxman: Yes, you are.

Ed Davey: We're taking clear - no we're not. We're taking -

Jeremy Paxman: You want them to insulate their homes, don't you?

Ed Davey: Jeremy - Jeremy, please don't interrupt, because I can tell you people and your viewers what we're calculations are showing -

Jeremy Paxman [interrupting]: But you've just said something that's patently not true.

Ed Davey: What our calculations show is that looking at the behaviour of people as they replace their washing machines, as they replace cookers, as they replace their fridges and replace their boilers, without changing their behaviour, compared to what they've done in the past - people will make the savings that we show.

Jeremy Paxman: All right.

Ed Davey: So these are very cautious assumptions. They're not over-egging the pudding, they're very cautious assumptions.

Jeremy Paxman: Can we look at the nuclear question? We know, because you've told us, that you believe that nuclear power is unsafe, environmentally unfriendly and is only sustainable by rigging the market and with a big public subsidy. Can you tell us, then, why you propose to go ahead with an extension of nuclear power?

Ed Davey: Well, you're quoting from what I said in, I think, about 2005. And I certainly was -

Jeremy Paxman: 2006, in fact.

Ed Davey: All right. Okay, well I certainly was of that opinion. I've certainly looked at the safety record, and actually I've been really impressed by Britain's safety record. I've looked at the waste issue, and given that we've got to store waste safely from the first two generations of nuclear power and the military nuclear, I'm convinced that we have to do that anyway. The real issue -

Jeremy Paxman [interrupting]: Right. So you were talking about -

Ed Davey: - if I may finish, the real issue that concerns me now - that concerned me then, still concerns me - is making sure we get the right price. So we are in intense negotiations with EDF -

Jeremy Paxman: That isn't what you said at the time, as you've conceded.

Ed Davey: - I'm - well, I've conceded that. Fine -

Jeremy Paxman: When is the first nuclear power station to be built?

Ed Davey: - let's move on, let's have a debate now about what the price needs to be. Because we need to make sure that we're not overcharging the consumer, the taxpayers, our businesses. It's absolutely vital that we have secure energy, that we have clean energy and that we have affordable energy.

Jeremy Paxman: And when is the first nuclear power station to be built, please?

Ed Davey: Well, assuming we do reach an agreement - which is value for money and affordable price with EDF, they estimate that as soon as we reach that agreement and they can start, it would take about seven years to build.

Jeremy Paxman: Could you afford not to sign an agreement with EDF?

Ed Davey: We have got a number of options, and the whole point about our energy policy is to have as diverse and mixed an energy policy as possible. There are some people who tell me we should back just one form of energy, just one type of technology. I reject that.

Jeremy Paxman: No, we're talking nuclear here. Is there anyone else, apart from EDF?

Ed Davey: If we don't - if we don't invest in all forms of low carbon, we're putting our economy at risk, and our energy strategy at risk, and I'm not prepared to do that, Jeremy.

Jeremy Paxman: So, in the pursuit of nuclear power - which you now think is a good thing - is there anyone apart from EDF you could strike a deal with, to build nuclear power stations?

Ed Davey: Yes, there are three consortia-

Jeremy Paxman [interrupting]: How soon could that happen?

Ed Davey: There are three consortia in the UK - there's the EDF one we've been talking about, that is nearer striking a deal than anyone else. But we saw, when Hitachi invested nearly £700 million in the Horizon project last year, that they were with an extremely good record of building nuclear power plants on time and on budget, are very keen on entering the nuclear market in the UK. And there's a third consortium of GDF Suez and Iberdrola in the north of England. So we have three consortia, all who want to invest serious amounts of money in new nuclear. But of course we're not putting all our eggs -

Jeremy Paxman: - [inaudible] over a barrel, hasn't it? That's EDF.

Ed Davey: Absolutely not. We have a strong negotiating handle - I've insisted on that, all through the start. You have to wait, I'm afraid, Jeremy. When we have struck the deal, we've committed to - we have the most transparent process in nuclear history, where we will publish the price, we'll publish the duration, we'll publish the terms and conditions -

Jeremy Paxman [interrupting]: When are we going to hear this?

Ed Davey: - and the media can do it.

Jeremy Paxman: When's it going to happen?

Ed Davey [laughs]: We're in negotiations, and anyone who's unwise enough to put a deadline on those negotiations gets a bad deal. I'm not prepared to do that. I've got to make sure we get the best possible deal for the country -

Jeremy Paxman: Before the lights go out.

Ed Davey: - and if that takes a bit longer, well, you talk about the lights going out, and your film talks about the need to make sure we've got power in the next few years. Actually, nuclear isn't critical for that, because, as you rightly said, it will take a little while to build the first new nuclear reactor. So actually, over the next few years, we're looking at major investments in renewables, and we're looking at gas taking up the slack as well. As well as, actually, better use of demand, reducing our needs for using too much electricity and energy. So we've got a whole range of policies, to make sure that we've got secure energy and we do keep the lights on, and we will.

Jeremy Paxman: Okay, Ed Davey, thanks very much.

Ed Davey: Thank you.