Q83 Mr. Dave Anderson: You said at the beginning you had not anticipated being where you are, yet other than the depth and length of the financial crisis every other issue was relatively well known, so how did you not anticipate we would be where we are?

Mr Buchanan: If we were analysing this issue, and indeed we spent some time looking at it, even three years ago, you are right, we did not have the impact of the credit crisis. The credit crisis affects all of the other issues in a very substantial way and I will try and pick it up, if I may. If we go on to carbon, what has become quite clear in the last couple of years is that there has been doubt about whether the institution within Europe, the EU ETS trading scheme, is going to work as originally planned. The East Europeans have signalled that they would not want to go to a fully open market in 2013, they would want to go to 2020, creating a degree of doubt about the institution. The recession, linked to the credit crisis, has led to profound weakness in the carbon price in the last two years, so it is not working as it should have done. The price moved up as we went towards Copenhagen, but with the failure of Copenhagen the price has fallen away again and, therefore, there is both a concern about the value and the institution that was not there two years ago. The third element was the importance of the international gas markets. Whilst, on the one hand, people correctly say Russia has not cut off Germany since the Second World War, what we have noticed in the last few years is three years ago we had Ukraine-Russia, then we had Georgia-Russia, then we had Ukraine-Russia and this winter we have had a standoff between Kaliningrad and Minsk and Moscow, which has been very uncomfortable. The attention on the nature of the supply is much higher, but even there the credit crisis has had a substantial impact on Gazprom and, therefore, we have seen, for example, Bovanenko, one of the key gas fields they were going to develop, being pushed back in time. We have also seen one of the key gas fields called Shtokman delayed by three to four years, and that was announced two weeks ago. These facts have actually combined in a way now that was not there three years ago. You are absolutely right, we always knew that the large combustion plant was going to take a chunk of our generation out, but we believed where we were two or three years ago that the market would be broadly able to handle that as it had handled the winter of 2005-06 fairly well.

Q84 Mr. Dave Anderson: We also knew that we were getting gas from pretty dodgy countries. Can I move on to something other than that? You talk about the £200 billion that is going to be needed. Does that not essentially put us as a Government in a really bad negotiating situation because if the companies say, "We cannot raise this money", effectively they will come to the Government with a begging bowl held out and the only answer we can say is, "Go away" and if we say "Go away" the lights go off. We are in a situation where we have got no options and this is because of the failure of the market system.

Mr Buchanan: I think the importance of Project Discovery but also, I believe, of the Government bringing out on Budget Day the 2015 route map, and there is another paper coming out with regard to energy market arrangements, is that to a certain extent the Government is acknowledging that we do have a window of opportunity. In the next three to four years we have, in fact, rising power station reserve margins and we have comfortable gas positions. Clearly you can never say there will not be a problem, because you may have a number of problems occurring at a single moment in time that may lead to some shortage, but all things being equal we have three to four years to look at the situation and see if we need to make changes. Now is the time that we can do that. With regard to the Big 6 or the Big 4, which I think the first part of your questions was alluding to, I think you can probably look at it in two ways. On the one hand, you might say it is very good news that we have four of the six largest global utilities in Great Britain, they are here, they are involved and, therefore, this is something they will want to invest in. You may also say that because of the nature of the choices that Britain appears to be pursuing, which is nuclear, large-scale wind, particularly offshore wind, if you look at Crown Estates' auction rounds two and three and also who is in round one, these are only the major players, the major utilities who we know are in this field because of the scale of the uncertainty of the investment that it requires. Carbon capture, again it is only the main players. It is the scale, the skills base and the appetite to be in this space that are issues that will have to be addressed very carefully. I believe quite strongly that the Government is looking at this and will come out with a solution that is best for the country. I do not think they sit there saying, "We have got to do something that is necessarily best for a Big 6".

Q85 Mr. Dave Anderson: They might have no choice if the Big 6 say, "We cannot raise the finance, therefore you have got to give us it".

Mr Buchanan: I think this is why there are some serious discussions going on with regard to should we look at financing solutions, is there a financial solution that may entail a degree of government involvement that provides some kind of financing instrument, so some kind of trust, some kind of Green Bank, some kind of private-public partnership, maybe a municipality style approach, some kind of financing approach which means if your view is shared by those who make the decisions, which is we are concerned that perhaps the answers all lead you to the same companies and we want to have competitive instincts here, then there may be some kind of public finance element to that. I am not in that position, I do not get all that information, although I know those debates are going on.

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Q105 Mr. Dave Anderson: Has any work been done on that? It would appear that we have not had any success in convincing the Europeans that they are wrong and we are right, but what we do know is effectively if it comes to the crunch they will get supplies and we will not.

Mr Wright: This is a really important area. It is important that whether we do it through the market or through obligations we have the right signals to make sure that the gas stays here when it is needed and does not just flow to whichever country has the strongest obligation and the strongest signals at the time of crisis. We need to make sure we get that right and that is an important priority. When we talk about the early actions, that is one of the key areas we want to move ahead sooner rather than later.

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