Q16 Mr. Dave Anderson: Lord Hunt, the Sustainable Development Commission in 2007 suggested that this project should be publicly built and publicly run. Do you have a view on that?

Lord Hunt of Kings Heath: I think inevitably there is going to have to be public finance involved, certainly in the Cardiff Western scheme, because of the sheer size of the scheme and the capital cost. I think the evidence for the smaller schemes is that they could be financed and run by the private sector. Part of the work that we are now doing is looking at those options. Clearly, in general, in terms of energy, the energy sector is run in the private sector but with government regulation and, through the renewables obligation, incentives are put in place to encourage the development of renewables. The scale of what is being proposed here goes, I think, very much beyond what we have been dealing with in the past, so it is quite clear that in the case of Cardiff Western there is going to need to be public money in terms of availability of capital. It is also clear with the cost of the electricity generation that this will not be viable unless there is support. The renewables obligation as it is currently constructed is probably not appropriate because, in the way of these schemes, one would see a long payback in terms of capital and the schemes are expected to run for many decades, over 100 years, so we will have to come back to the issue of financing. If public money is involved, then of course there will be the question of risk transfer and ensuring taxpayer value for money. We will want to ensure that that is as tight as it possibly can be. I think inevitably we see this being very much a public-private type of partnership. The actual mechanism for that needs to be worked on further, and I think there may well be a contrast between Cardiff Western and the smaller schemes simply because of the scale of the size.

Q17 Mr. Dave Anderson: If there is an incentive, which you would need to get the private sector to buy into this, it will probably need to be a huge incentive from the public purse, so why not just go for the public purse in the first place? Over the last week in fact the Secretary of State was writing in The Times on Monday saying he was very concerned about CCS, and we had the decision last week to postpone Kingsnorth for three years on the basis that the demand was not there. While we are talking to each other and deciding who is going to do what, would it not be more in the public interest to bite the bullet and say if we do this, it should be publicly funded and publicly run?

Lord Hunt of Kings Heath: Mr Anderson, you raise a very important question, which goes much wider than Severn Tidal. It really concerns, I think, the whole structure of the energy industry. Looking back over the last few years, it is clear that there has been advantage from having the kind of market we have.

Q18 Mr. Dave Anderson: I will take your word for that!

Lord Hunt of Kings Heath: I realise that we can go into a much more general debate on this issue and, of course, the recent report, the Ofgem, the Committee on Climate Change, Malcolm Wicks' report on energy security in the summer - all of these I think pose questions about the nature of the energy structure in this country, and I think the Secretary of State, Ed Miliband, has signalled that government has to have a really important, strategic role in ensuring that we have energy security in the future and that we meet our renewable energy targets, and that energy plays its role in the transition to a low carbon economy. All of those are accepted. We think of course that that also means that you need an effective regulatory system but there is also, I think, a very strong case for the involvement of private sector companies too to get the advantage of private sector investment, of the efficiencies that would come from that as well. I think the question you raise is a very important one. Coming back to the question of Severn Tidal Power, whilst it is clear that the government will have to be involved, that it is likely that public finance will be involved, I do not think it then follows necessarily that the government itself should be the operator. There are mechanisms which allow government to ensure value for money for the taxpayer that would also get the advantage of private sector expertise, and that is what we would seek to do at the moment. As I say, I think we need to come back to the Committee when we have reached conclusions, and we have a consultation in 2010 on those issues.

Ms Rhodes: I think it is worth saying what the SDC's real interest was, given that government, whether as a taxpayer or consumer, would be subsidising a Severn Tidal Power project initially. Given the long life of these projects - because we are talking up to 120 years, possibly much longer, for some of these - the SDC were really interested that there should be a financing and an ownership structure that reflects over the long term the benefit back to the country, and that is why we are looking at a whole series of different ownership structures. This is expensive electricity over the first 40 years or so while you are paying the capital costs. After that actually it becomes something rather different. You have paid for it, it you have an asset there, it is generating electricity, so the issue really is how you capture that long-term value in your shorter term ownership structure, and that is something we are looking at very carefully.

Q19 Mr. Dave Anderson: The reality is that the private sector does not have a good track record in long-term projects. How are we going to get them to actually consider investing?

Ms Rhodes: I would not necessarily say the public sector has a better track record.

Q20 Mr. Dave Anderson: Let us talk about the National Health Service, shall we?

Lord Hunt of Kings Heath: As you know, my background is the Health Service. I think that if you look at the history of the NHS, the problem with public finance for the NHS was that not enough capital was available and therefore we went into this phase 1, phase 2, phase 3, phase 4, which in the case of hospitals that I have been involved in sometimes go over 30 years. What I think has happened with the injection of private finance is that we have had a great surge in capital expenditure. I know, of course, there are issues about the contracts, and I am happy to discuss that more widely but---

Q21 Chairman: Not today.

Lord Hunt of Kings Heath: No, no. All I am saying is that I think it is perfectly possible for private finance to bring in the capital, and for the government to provide the capital, for there to be sensible arrangements where you use people's expertise, there are proper contracts with proper arrangements, but that in the end, if the private sector is being used, there has to be risk transfer and secondly, there has to be value for money. If the public sector is putting a lot of capital in, there has to be a return.

+++

Q53 Mr. Dave Anderson: I think we are all happy to hear Lord Hunt say that he would not want to get into perverse negative effects on renewables. Can I ask you about other low-carbon technologies, in particular the use of coal. If there is going to be competition for funding, whether it is private or public over the next period, then clearly if we parked the Severn as an issue and said let us leave that for the future, we would then encourage public and private investment in CCS but also in the underground gasification of coal which might possibly be cleaner than even CCS would be but also would access billions of tonnes of coal world-wide and not only would that benefit this economy but it would also be transferable technology. Is that not also an issue to be taken account of?

Lord Hunt of Kings Heath: Yes, I think that is a very fair point to put. The Committee will know that my Secretary of State is very committed to taking forward carbon capture and storage, particularly of course at first in relation to coal. Not only is it important in terms of energy security but also because of the potential leadership role this country can take and the potential for jobs and exports and also because I do not see how we can hope to tackle the worst impacts of climate change given the amount of coal that is being used at the moment and will be used in the future for power generation unless we can show that CCS can be developed at scale and in a way that makes the funding and the technology work. CCS is very important. We have been hosting with Norway in London in the last two days a meeting of the Carbon Sequestration Leadership Forum. I think the message at that forum is very clear; that we want to encourage countries to get on with scale-up technologies and, as you know, we have just finished a consultation on the funding of the up to four scale-up projects that we want to see developed in the UK, so we are working very much on that at the moment. I certainly believe that developing CCS is hugely important strategically for this country.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.

Promoted by Paul Foy on behalf of Dave Anderson, both of St Cuthbert's Church Hall, Shibdon Road, Blaydon, NE21 5PT