The Secretary of State for Energy and Climate Change (Chris Huhne)
With permission, Mr Speaker, I would like to make a statement on reform of the electricity market. Since privatisation in 1990, our electricity market has served us well, delivering reliable, affordable electricity, but in the years ahead we face unprecedented challenges, which the existing market was not designed to meet. Over the next decade, around a quarter of our existing power stations will close, threatening the security of our electricity supplies. Some £110 billion of investment is needed to replace those plants and to upgrade the grid. That is twice the rate of investment of the last decade and the equivalent of 20 new power stations. At the same time, demand for electricity could double over the next 40 years as the population increases and as we increasingly turn to electricity for heat and transport. We also face ambitious carbon emissions and renewable energy targets as we seek to build a cleaner energy future for Britain and for the world. To achieve our goals, we need to take decisive action now to increase low-carbon electricity generation, including nuclear and renewable energy as well as carbon capture and storage.
None of these challenges can be met for free. We will have to pay to secure reliable, clean electricity for the future and we cannot ignore the long-term trends in electricity prices. Increases in wholesale costs and the carbon price are likely to lead to higher bills in future, even without factoring in the huge investment in new infrastructure that is needed. It is vital that we put in place market arrangements that deliver this investment as cost-effectively as possible. The current electricity market simply is not up to the job and cannot deliver investment at the scale and pace we need. Without reform, our reserve capacity—the power plants we can call on when demand surges—will fall to uncomfortable levels. We would face a much higher risk of black-outs by the end of this decade and we would also be locked into a worrying reliance on fossil fuel imports, putting us at risk of rising and volatile prices. Consumers could end up paying more.
That is why I am putting before the House today a series of measures to reform the electricity market, diversifying our generation mix and boosting investment in secure, sustainable and home-grown low-carbon technologies. There are five key elements to our reforms. First, the Chancellor announced in the Budget a new carbon price floor to put a fairer price on carbon, thereby reducing uncertainty for investors and providing a stronger incentive to invest in low-carbon generation now.
Secondly, we will send a clearer message that low-carbon electricity is a key part of our future energy mix. We will introduce a new system of long-term contracts to remove uncertainty for investors and consumers and to make low-carbon energy more attractive. Contracts for difference will be introduced for all forms of low-carbon generation, lowering the cost of capital and allowing clean technologies with high up-front and low long-run costs to compete fairly against traditional unabated fossil fuels. This will build on the carbon price floor, providing the additional clarity and certainty that investors need.
Thirdly, we will introduce an emissions performance standard to send a clear regulatory signal about the amount of carbon that new fossil-fuel power stations can emit. This will reinforce the requirement that no new coal-fired power stations are built without carbon capture and storage, while ensuring that vital investment in gas can take place. Carbon capture and storage is a key part of our plan to decarbonise electricity generation. It is the only technology that can potentially reduce emissions from fossil fuel-fired power stations by as much as 90%.
Fourthly, to ensure security of supply in the future, we will introduce a new contracting framework for capacity, changing the way we secure our back-up electricity. That capacity mechanism could mean centrally procuring capacity that is set aside from the market and used only when needed, or it could mean a market-wide mechanism, in which all providers offering reliable capacity are rewarded. Under both options, we plan to ensure fair and equivalent treatment between all the different ways of accomplishing what we seek—demand response, storage, interconnection with our European partners, and extra generation. Shifting or cutting demand for electricity is likely to be more cost-effective than simply building more and more power plants, and complements our work to drive down demand through energy efficiency measures such as the green deal and smart meters. Fifthly, we will put in place transitional arrangements to ensure that there is no hiatus in investment while the new system is set up, and we will create new institutional arrangements to deliver the reform package.
Together, the reforms will tackle the immense challenges facing the electricity market. They will put in place the framework to deliver the capacity and demand-side response that we need to guarantee future security of supply. They will encourage investment in proven low-carbon generation technologies, and will give investors confidence that there will be a market for electricity generated with commercial carbon capture and storage—confidence that will drive investment in both demonstration and commercial CCS plants.
Six energy companies supply around 99% of customers in the UK. Alongside action by Ofgem to improve liquidity, the reforms will boost competition within the market. They will make the UK a magnet for low-carbon investment, generating jobs and growth. That will help energy-intensive industries. However, we are also committed to bringing forward a package of measures to ensure our continued international competitiveness.
The reforms will achieve our aims at least cost to the consumer, with bills for households and businesses likely to be lower and less volatile over the period to 2030 than if we had left the market as it is. They will enable us to build a flexible, responsive electricity system, powered by a diverse and secure range of low-carbon sources, en route to a cleaner, greener future. The reforms insure us against fossil fuel price shocks, end 25 years of policy dithering, and will keep the lights on, and bills down.
Alongside the electricity market reforms, I am also publishing today the renewables road map. For too long, discussion about renewable energy has focused on barriers. Now, for the first time, we have set out a detailed, step-by-step plan to overcome those obstacles. The road map sets out a comprehensive action plan to accelerate the UK’s deployment and use of renewable energy. It puts us on the path to increase our renewable energy consumption fourfold by 2020 while driving down the cost over time. Growth on that kind of scale will be challenging, but necessary.
The road map identifies eight technologies that have the greatest potential for the UK, such as offshore wind, where we have abundant natural resources and already have the world’s largest market. Subject to further value-for-money assessment, the Department is setting aside up to £30 million over the next four years to support technology development programmes to improve the efficiency and reduce the costs of offshore wind. With industry, we are setting up a taskforce to drive the work to achieve cost-competitive offshore wind. The recently published microgeneration strategy also outlines the actions that the Government are taking to tackle the non-financial barriers that could prevent microgeneration from realising its full potential. Together, the renewables road map and the microgeneration strategy, which has already been published, will reduce costs for consumers, and enable mature renewables to compete against other low-carbon technologies in the longer term.
I am also publishing today the final report of the Ofgem review. The review reaffirms the Government’s commitment to a strong, independent regulator, able to give confidence to investors, protect consumers and help meet our energy and climate targets. The summary of conclusions was published in May; the final report provides further detail on how the Government will seek to strengthen the regulatory framework.
The package of reforms that I have announced today will yield the biggest transformation of the market since privatisation. They will create an enduring framework for future investment, and will secure our electricity supplies for the future, providing our consumers with the best deal possible, helping us meet our ambitious carbon targets, and putting us at the forefront of low-carbon technological development, ready to lead the world in the next energy revolution. I commend this statement to the House.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I thank the Secretary of State for advance sight of his statement. We are pleased that he agrees with his predecessor, my right hon. Friend the Member for Doncaster North (Edward Miliband), about the need for reform. The Government have already sent some signals about the future shape of the UK energy market.
The Secretary of State should be congratulated on standing up to the fuzzier elements of his party with his U-turn on nuclear, which he no longer happily describes as a “failed technology” but says is an essential part of the UK's getting off the “oil hook”. The Government’s eventual acceptance of the recommendation of the Committee on Climate Change in its fourth carbon budget was largely welcomed by most people, even if his colleague the Business Secretary was described as “squirming in his seat like a schoolboy” at the Cabinet meeting which discussed it.
However, the Government have failed to deliver on many fronts since the Secretary of State for Energy and Climate Change took office. Recent ill-judged Government intervention in the energy market has already led to a hiatus in energy investment and uncertainty across all sectors. The solar feed-in tariffs fiasco destabilised the solar sector and sent shockwaves through other renewable sectors. Companies, including RWE, are considering pulling out of the UK because of the uncertainty caused by the Government in the investment landscape. That was underlined by the Pew Environment Group’s report, which showed that the UK dropped from fifth to 13th in a global ranking of countries for green investment. We have seen a green investment bank failing to deliver the necessary investment now and being criticised by the CBI director general, John Cridland, who warned that the bank
“certainly won’t work if it needs the Treasury’s permission to blow its nose.”
There is a question mark over whether the Secretary of State’s proposals will deliver. The track record is not good. We believe that the Government must meet some key tests if reform is to work. A new market needs to be greener and to create certainty for industry, room for innovation in emerging energy solutions, and crucially, a good deal for consumers both as users of energy and as taxpayers, and it must deliver the necessary investment in the UK energy sector for security of supply.
In the White Paper, we have a mixed bag of measures. There is an emissions performance standard—a policy that the Energy and Climate Change Committee considers, at the level set,
“would have no material impact and is therefore pointless.”
I could say rather uncharitably that that sounds a little like a summary of Government green policy. Certainly, it is not popular, and already industry is puzzled about exactly what it will achieve. If we are to have an emissions performance standard, the Secretary of State needs to explain to us why it is any more than green window dressing. How will the transition to carbon capture and storage be accommodated within this measure, when we are still awaiting not only the sign-off on project 1, but the future Treasury and European funding for projects 2, 3 and 4?
The proposals also include a carbon floor price, although we knew about that because it was announced in the Budget independently of these proposals—a running theme for the Department, which most of the time seems to be run by remote control from 11 Downing street. The Department has only just woken up to the impact that this tax grab on industry and its potential to export businesses and their emissions overseas will have on the UK industrial landscape. Better late than never, but it is catch-up.
Two measures are being consulted on. A contract for difference will pump public money into supporting more expensive energy production—a mechanism which we hear from the Secretary of State will encourage other users into the market, but with such complex administration, we worry, as do many businesses, that small suppliers and new investors will struggle to keep up. We also see proposals for a capacity mechanism and energy auctions, the devil of which will be in the detail. The right hon. Gentleman should expand on which technologies will deliver most benefit, what the costs to the UK will be, how the consumer will afford it, and how we will avoid expensive stranded assets in a new dash for gas.
Investors need confidence, certainty and clarity. The White Paper could help, or it could herald an era of overly complex and overlapping measures, paid for by the taxpayer, that will lead to higher than necessary energy bills. Customers are currently getting a raw deal, so any change must support the consumer. The existing big six energy companies will undoubtedly need to provide in this era of new energy generation, but we need to free up the suffocating oligopoly that stifles real competition from new energy investors. The prize is driving down the cost of new energy generation and prices and increasing real choice for consumers. The Secretary of State, who has been insouciant in the face of rising energy bills, should stop worrying so much about his next meeting with the big six chief executives and start worrying a bit more about the consumer.
Will the Secretary of State please tell us exactly when the legislation will come before Parliament and when he expects the reforms to be implemented? We already have the delayed Energy Bill circling Parliament and a renewables road map announced today: he cannot keep stacking up policies like waiting aircraft. I am pleased that he is convening a group to look at decentralised energy, but can he give us more details on that? So far his Department has been rolled over by the Treasury at every turn, so could he tell us what these changes will cost the taxpayer and what he is doing to protect the public from unreasonable price rises? How will the Government decide when to conduct energy auctions, and how will he ensure that all players will be able to bid in order to reach this new dream world he talks of? Apart from the now delayed green deal, what is his strategy for reducing energy demand?
Mr Speaker
Order. I am sure that the shadow Secretary of State is bringing her remarks to a close, because she has exceeded her time.
Meg Hillier
We cannot afford the dithering, delay and postponement that has characterised Government policy so far. We want to support and work with the Government to achieve these outcomes, but we need answers on those points from the Secretary of State.
Chris Huhne
We are certainly having to play catch-up—I make no bones about it—because after 13 years of Labour Government we inherited a situation in which the UK was ranked 25th out of the 27 European Union member states on installed renewables. The hon. Lady talks about the speed and dynamism exhibited by the Opposition when they were in government, but not a single new nuclear power station has been consented to since 1986, so the reality is that the track record of which she boasts is entirely mythological, like some Grecian beast seen far off in the mists that suddenly vanishes.
We are confident that there will be enormous benefits for small suppliers as a result of these changes, because it is precisely the long-term contracts that will encourage new entrants into the market and ensure that they have certainty about price, which they cannot rely on if they do no understand the market as well as the big six. That will make our market more competitive, which is a fundamental way of ensuring that we get a better deal for the consumer in the long run.
The hon. Lady asked which technologies will benefit more. We are not attempting to pick winners, unlike the Opposition, evidently. We want a level playing field for all low-carbon technologies, because we recognise the genuine uncertainties about the development of such technologies. As we learn more about which technologies will be the most effective and have the lowest cost, we will invest more in the winners, and that will be discovered through normal market processes.
When it comes to consumers, we have been clear about the need to reduce the complexity of tariffs and insist that every energy bill shows the lowest tariff available from the supplier, and we have had a clear review of the retail market from Ofgem. We want greater competition and are encouraging new entrants through all these means, in addition to the support of a 67% increase in the social discount budget, compared with the money set aside under voluntary agreements by the previous Labour Government. We are helping in particular those who most need help with their energy bills, because they are the most vulnerable, and Government Members can be proud of that.
New legislation will be introduced at the beginning of the next Session, in May 2012. The working group on decentralised energy will attempt to tackle all the different barriers to decentralised energy, ensuring that it is able to play its full part in diversifying our supply. The key to auctioning, which I very much want us to adopt, is that there should be greater certainty about costs so that those who are participating in the auction are able not only to see that they have a reasonable chance of winning but to identify their costs.
The hon. Lady asked what measures we are taking on the reduction of energy demand. The most significant of those is the pioneering measure in the Energy Bill—the green deal. We are the first of any of the leading G20 countries to introduce this measure, which we continue to maintain is on course for launch in October 2012, when it will be a roaring success.
Mr Speaker
Order. A great many right hon. and hon. Members are seeking to catch my eye, but there is heavy pressure on time and I must therefore appeal for single, short questions without preamble and for comparably pithy replies from the Secretary of State.
Mr Tim Yeo (South Suffolk) (Con)
As the task of attracting huge amounts of new investment into new low-carbon electricity generating capacity is extremely urgent, can the Secretary of State assure us that the passage of the necessary legislation will be a top priority for the Government in the next Session? Will he ensure that as much clarity as possible about the levels and manner of operation of the feed-in tariffs, with contracts for difference, will be available as soon as possible to reassure investors that it is a new, stable and predictable regime?
Chris Huhne
I assure the hon. Gentleman that the Government are extremely seized of the urgency of getting the legislation through during the second Session and of issuing the contracts, so that they will be on course and we are able—I hope—to issue the first contracts in 2013.
Malcolm Wicks (Croydon North) (Lab)
I will put to one side a Liberal Democrat Secretary of State attacking the Labour Government for being slow to build nuclear reactors, which shows a capacity for humour that I admire. Do the Secretary of State and the Department now have contractual details from our gas supply companies, which used not to be the case? That would, first, enable him to assure himself about the security of supply, not least given that we often buy gas on the spot market or in the short term, and secondly, enable his Department to scrutinise those contracts to make sure that when companies increase gas prices they are doing so in ways that are fair to the customer.
Chris Huhne
The right hon. Gentleman makes a very good point; he is expert in this area. The Energy Bill, which we hope will achieve Royal Assent in the autumn when we come back from the recess, contains provisions that ensure that we are able to be informed about these measures and ensure greater security of supply. He will have read in the press about long-term arrangements being contracted, for example, between Centrica and the state of Qatar. We have a number of these longer-term arrangements. Security of supply is important in physical terms, and we also think about it in price terms. The 30% increase in gas prices over the past year has been a significant shock to a number of consumers. One of the reasons we want to get to low carbon is to protect the economy and consumers against that sort of shock.
Mr Speaker
I always enjoy reading the Secretary of State’s book, but on the whole I prefer the abridged to the “War and Peace” version.
Tony Baldry (Banbury) (Con)
As a Minister in the Department of Energy at the time of the privatisation of the electricity industry, I have watched with concern as a market that had 13 participants at that time has shrunk to just six under Labour. How will my right hon. Friend’s proposals drive competition?
Chris Huhne
I thank the hon. Gentleman. That is exactly right. The biggest feature of the market is the fact that 99% of British energy consumers are served by just six companies, and we desperately need to increase that number. The arrangements that we are announcing today are designed to bring new entrants into the market by providing certainty on price, because one obstacle that they have is in understanding how the market works. Many of the new entrants will therefore be encouraged to invest.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
The Secretary of State referred to the need for a “strong, independent regulator” to protect consumers. Given the store he places by that, is it not time that Ofgem looked again at the practice of door-to-door selling, through which many vulnerable consumers are being ripped off by the big six?
Chris Huhne
The hon. Gentleman is absolutely right. We continue to monitor that issue and are discussing it with Ofgem. We will bring forward any appropriate measures when we have considered the matter.
Mr Charles Walker (Broxbourne) (Con)
Carbon charging is a tax on jobs. Why are we retarding economic recovery by introducing what is in essence a carbon tax on business and job creation?
Chris Huhne
I do not accept my hon. Friend's analysis. Nick Stern has described the failure to take account of the carbon consequences of our actions as the greatest market failure of all time. Sometimes we have to incorporate the consequences of our actions for the environment into the market decision. That is what we are doing.
Caroline Lucas (Brighton, Pavilion) (Green)
Given that electricity market reform will lead to windfall profits for existing nuclear plant of at least £50 million a year and given the rising concerns about fuel poverty, of which the Secretary of State will be aware, will the Government introduce a windfall tax on nuclear and use the revenue to help those living in fuel poverty?
Chris Huhne
The hon. Lady is referring, I think, to the potential impact of the carbon price floor, which will of course begin in 2013 and then rise slowly. There will be no impact of the type that she is suggesting until its introduction. It must be considered alongside all the measures we are introducing to save energy and protect those in fuel poverty.
Mrs Anne Main (St Albans) (Con)
The Secretary of State will be aware of the amount of green tax that is already put on people’s energy bills. I am puzzled about why his Department will set aside £30 million of taxpayers’ money for a certain technology. Surely if we are encouraging the market, it should be the market that puts up the money and not the taxpayer.
Chris Huhne
There is a sound argument in economic literature for encouraging early-stage technologies. Many British Governments have done that for many years. Green taxes are much lower than the estimates that have been bandied about recently in the press. We are committed to bringing forward in the annual energy statements our estimate of the overall impact of all our policies—not only the low-carbon policies, but the energy-saving policies—on consumer bills. The last time we did that, it was estimated that in 2020 our policies would add just 1% to consumer bills, and that assumed a world in which gas prices are lower than they are today and in which oil prices are only $80 a barrel, instead of $118 a barrel. If we want to protect British consumers against the vagaries of these markets that are buffeted by events, such as those in Libya and the middle east, we have to move to low-carbon sources of electricity. That is good news for British consumers, not bad.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
The Secretary of State has said little about the role of solar energy in future policy development. Representatives of the industry have told me that the Government’s feed-in tariff proposals have effectively decapitated the industry. What discussions has he had with industry representatives to overcome that and promote the industry?
Chris Huhne
My colleagues and I have had many discussions with the solar industry. The hon. Gentleman should know that nobody installing less than two tennis courts’ worth of solar panels has been in the least bit affected by the scheme announced by the Government whom he supported. For three years, the previous Government also made no allowance for those proposing to install more than two tennis courts’ worth of solar panels. I make no bones about the fact that we need to protect the consumer interest. If we had not acted, we would have taken so much money out of the budget that it would have affected not only small-scale solar, but other renewables. It is time to end boom and bust not just in the economy but in solar panels.
Martin Horwood (Cheltenham) (LD)
I will skip my own anti-nuclear preamble and just congratulate the Secretary of State on his plans for an emissions performance standard. Does he agree that that and other parts of his plans will in the end protect consumers from the price shocks associated with fossil fuels?
Chris Huhne
There is absolutely no doubt; my hon. Friend makes a very good point. Over the past year we have had a 30% increase in the price of gas, which has fed through exactly into consumers' gas prices and into electricity prices, too, because gas is such a significant part of how we generate electricity. By moving more towards low-carbon sources of electricity—renewables and nuclear—we will insulate ourselves against such price shocks. That is good news for the economy, good news for all businesses, whether they are in this area or not, and good news for jobs, and I hope that it will be welcomed in all parts of the House.
Dr Alan Whitehead (Southampton, Test) (Lab)
Does the Secretary of State agree that a targeted capacity mechanism almost inevitably becomes untargeted as it chases lagging investment? That inevitably also leads to overcapacity, at a high price. Does he accept that a representation market, coupled with interconnection, storage and demand reduction arrangements, goes with the grain of a low-carbon energy economy and the electricity market reform measures that he is proposing? If he does, why is he holding a further consultation on capacity mechanisms outside the time scale of his main proposals? Does he have no idea what a capacity mechanism might look like, and is someone twisting his arm in the whole process?
Mr Speaker
I was not very good at maths at school, but I counted five questions there. I know that the Secretary of State will provide a pithy reply.
Chris Huhne
There is a clear description in the White Paper of the different models on which we are consulting, and we are clear that there are essentially two families. One is the strategic reserve, which is effectively bought by the Government and released into the market at a clear trigger point, and the other is a wider range of capacity that is bought through a generalised mechanism for the market as a whole. Either of those targets a particular level of spare capacity, because we have to avoid black-outs in future. If the hon. Gentleman reads the detail of the proposals, I think he will find them compelling. We will reach decisions by the end of the year.
Laura Sandys (South Thanet) (Con)
I welcome this fundamental reform of the electricity market. To what extent do we believe we can attract the supply chain to the renewables sector, and is the Department working closely with the Department for Business, Innovation and Skills to ensure that we see an industrial benefit, not just a carbon benefit?
Chris Huhne
My hon. Friend makes a very good point, and yes, we are doing that. We have an enormous potential market with a lot of expertise, particularly in offshore wind, as she well knows. I had the pleasure of opening in her company what was at the time the largest offshore wind farm, quite near to her constituency. We can have an enormous supply chain, and we have to send out clear signals of our commitment, as we are doing. We are also getting the costs down to £100 per megawatt hour, and we can have an enormous and effective industry.
Albert Owen (Ynys Môn) (Lab)
We all want to see an affordable, secure and low-carbon supply of electricity. On affordability and price, the Secretary of State will know that people who live in peripheral areas of the United Kingdom pay more for their electricity. Is there anything in the White Paper that can assist them, particularly as those areas produce the electricity in the first place?
Chris Huhne
That is a good point. One thing that Ofgem is currently examining is the transmission review, and we will have to wait and see. The point that I and a number of other people have been making is that in future, in a world in which electricity will not be generated very close to centres of population—we will no longer be siting power stations in the middle of our cities, like Battersea power station; they may instead be far away from cities, as they will have to be where the wind blows or where the tides are—we will have to reconsider transmission charging to ensure that renewable types of energy are not penalised. That will go for distant communities as well.
Conor Burns (Bournemouth West) (Con)
The Secretary of State may be aware of the proposals for a wind park of between 900 MW and 1,200 MW covering some 76 square miles just 10.2 miles off the coast of my constituency. Many people in our area are profoundly concerned about that. Given that the local authorities do not have any role in the process, is he prepared to meet me, and my hon. Friends the Members for Christchurch (Mr Chope), for Poole (Mr Syms) and for Bournemouth East (Mr Ellwood), so that we might discuss it with him?
Chris Huhne
I would be happy to meet my hon. Friend on the subject. I caution him, however, against being too hostile to what is, after all, potentially a very interesting development that could have considerable benefits not just for the country as a whole but locally. Every single energy source has its detractors, whether it is nuclear, onshore wind turbines, offshore wind turbines, natural gas or fracking. The reality is that we need to find our electricity from somewhere, and that includes offshore wind farms.
Mr Mike Weir (Angus) (SNP)
I am very encouraged by the Secretary of State’s response to the hon. Member for Ynys Môn (Albert Owen) on transmission charges. Does he recognise that such charges are fundamentally discriminatory against renewables in their current form? Will he give an undertaking that, as part of his electricity market reform, he will finally tackle that matter?
Chris Huhne
That is a responsibility for Ofgem, with which I have had good discussions on the subject. I have made my position very clear—I believe that I am in exactly the same place on this as the hon. Gentleman—and we look forward to Ofgem’s proposals with interest.
Simon Hughes (Bermondsey and Old Southwark) (LD)
The introduction of emissions performance standards is a welcome new policy, but may I ask the predictable follow-up question? Will the Secretary of State confirm that coalition Government policy says that nuclear power stations will be built only if there is no public subsidy, which means no greater subsidy for them, irrespective of subsidies that are given to other parts of the energy industry?
Chris Huhne
I have made it absolutely clear that there is no public subsidy for nuclear. Let me explain exactly what we are saying. At the moment, we have the EU emissions trading scheme, which is designed to encourage low-carbon forms of activity and to discourage high-carbon forms of activity. I do not regard that as a subsidy to nuclear. I do not regard the carbon price floor, which exists to support the EU emissions trading scheme, as a subsidy to nuclear—I do not regard a price guarantee that is designed to get certainty for low-carbon generation as a subsidy to nuclear. There will be no extra subsidy for nuclear.
The only justification for giving a subsidy to a technology when it is out there in the market is if it is an early-stage, pioneer technology, such as wave or offshore wind, that has not reached full commercialisation. Otherwise, there should be a low-carbon, level playing field right across the board to discourage carbon emissions and to encourage low-carbon activity.
Mr Iain Wright (Hartlepool) (Lab)
The Minister of State, Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry), who is on the Treasury Bench, has been kind enough to visit Hartlepool and has seen for himself the huge potential in new nuclear and offshore wind. The statement was good on the analysis of problems, but not so good on providing solutions. What practical, tangible support will the Secretary of State provide to ensure that Hartlepool can realise its vision as the European leader in energy?
Chris Huhne
The hon. Gentleman is being slightly unfair, given that our proposal provides precisely the certainly and clarity to investors that will mean a real increase in investment in all of those low-carbon technologies. I very much hope that his constituency benefits from that process.
Sarah Newton (Truro and Falmouth) (Con)
I believe that this reform package could unlock billions of pounds of private sector investment, and that it is critical for our national security and new technology, including marine and deep geothermal energy. What analysis have the Government undertaken to estimate how much money will be unlocked by the reforms?
Chris Huhne
Ofgem’s overall estimate is that we need new energy infrastructure investment across all energy sources, including gas, of £200 billion. In terms of plant and grid connections alone for electricity, we are talking about £110 billion over the next 10 years. That is roughly double the normal level of energy investment that takes place in this country. That will be a significant source of demand to fuel the recovery, and of extra jobs, and there will be enormous opportunities for growth throughout the country.
Barry Gardiner (Brent North) (Lab)
Four million families heading for fuel poverty does not constitute affordability; a £200 billion shortfall in infrastructure does not constitute security of supply; and a new dash for gas does not constitute low carbon. The Secretary of State knows, as the Minister of State, Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry) certainly does, that vertical integration in the big six is the biggest single problem. Why did the Secretary of State not address that in his statement, and when will he do so to break up the monopoly of the big six?
Chris Huhne
I have great respect for the hon. Gentleman’s expertise in this area, but slightly less respect for the passion with which he tries to hold this Government to account. Given that no type of electricity-generating plant can be built in less than 18 months—if I am not entirely incorrect, the Government in power 18 months ago were a Labour Government—the idea that any enormous shortfall in infrastructure investment is down to this Government is far-fetched.
Mr Mark Spencer (Sherwood) (Con)
Given the Secretary of State’s comments about fluctuations in the price of imported fossil fuels, does he recognise the strategic importance of UK Coal and the market to delivering flexible electricity via carbon capture and storage? Will he undertake to work with the UK coal industry so that it can assist in solving the problems in which we find ourselves?
Chris Huhne
The ministerial team are committed to bringing on CCS, which will provide a place in the long term for coal to continue to meet our energy needs. The Minister of State, Department of Energy and Climate Change, my hon. Friend the Member for Wealden (Charles Hendry), who has responsibility for energy, is meeting representatives from the coal industry tomorrow to discuss precisely this matter.
Ian Lavery (Wansbeck) (Lab)
In addition to what has been said about the British deep-mine coal industry, does the Energy Secretary agree that it will play a crucial role in future electricity generation in the UK? If so, what sort of assistance can he give to ensure the survival of the UK coal industry?
Chris Huhne
I can assure the hon. Gentleman that coal is an important part of our energy mix now and going forward, which is why we have found £1 billion in the comprehensive spending review to fund CCS. Indeed, there has been a substantial increase in deep-mine coal over the past year.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
My constituents in Suffolk Coastal, which I christened the “green coast” in my maiden speech, will be very happy with the announcement of these reforms. Given those announcements, will the Secretary of State indicate when something such as Sizewell C might be built?
Chris Huhne
The first of the new power stations is at Hinkley Point—construction of the earthworks is already under way—and the others will arrive in fairly short order after that. There will be a further opportunity to consider that in detail during the debate on the national policy statements on Monday.
Jon Ashworth (Leicester South) (Lab)
Many of my constituents are understandably angry about increased electricity and gas prices—British Gas is a striking example—so can the Secretary of State guarantee that these reforms will not contribute to increased energy prices in the short to medium term?
Chris Huhne
It is inevitable that, given that we need the new investment that we have been discussing today, there will be a cost. The energy companies are not the Salvation Army. They do not do things out of altruism; they do them because they are going to reach a rate of return on capital. However, I can assure the hon. Gentleman of this: if he looks at the detail in the White Paper, he will see that our proposals will reduce costs to the consumer compared to leaving the market as it is. Central to our ambition is ensuring that we have affordable, low-cost electricity and that we protect British consumers from the vagaries of past years—with the 30% increase in gas prices and a corresponding increase in electricity prices.
Andrew Percy (Brigg and Goole) (Con)
My right hon. Friend will be aware of the successful Pulse Tidal project in the Humber. Will he assure the House that, as the Government move forward, tidal will remain a key priority for them and that funding will be secured for investment so that that investment does not go overseas?
Chris Huhne
Tidal power is exciting and has great prospects. We have some enormously important potential sites for tidal stream—for example, the area around the Severn barrage—and I am confident that as the technology progresses it will play an important part in our energy mix.
Mark Tami (Alyn and Deeside) (Lab)
In the Secretary of State’s statement, there is one mention of nuclear power, but I do not recall him mentioning it at all when he delivered it. Putting that aside, does he not accept that the industry needs certainty? Otherwise there is a danger that the investment will go elsewhere.
Chris Huhne
I entirely agree with the hon. Gentleman. Investors need certainty and clarity, and that is what we are giving them today.
Andrew George (St Ives) (LD)
I warmly welcome my right hon. Friend’s statement. On decentralised energy, does he agree, particularly with regard to onshore wind, that the sooner it is enabled, the sooner we can overcome the innate reluctance of many communities to accept it. and ensure that they can share in the benefits?
Chris Huhne
I agree with my hon. Friend about the importance of community schemes. That message has come clearly from the successful schemes, particularly those north of the border. He is absolutely right to point out that when the community has a clear stake in a proposal, it is much more likely to back it.
Mr William Bain (Glasgow North East) (Lab)
The United Nations Environment Programme has found that investment in large-scale renewables in China reached $49 billion last year, whereas in Europe it fell by 22% to $35 billion. Where will the Secretary of State find the capital to drive the expansion in the offshore wind sector, given that the green investment bank is having its borrowing and lending powers so badly restricted by the Treasury?
Chris Huhne
The achievements in the low-carbon sector in China are quite extraordinary, and the hon. Gentleman has cited one of them. However, I do not agree that we will have a problem with capital shortage. If we provide the certainty and clarity that we are providing, we will find the investment. It is also very noticeable—I hope that he has noticed this—that the green investment bank will begin to borrow and lend from 2015, and that the biggest investment in many of our renewables programmes will come in the latter part of this decade, so the green investment bank will be there in time to help.
Glyn Davies (Montgomeryshire) (Con)
Many of us believe that there is currently an over-dependence on onshore wind to achieve the Government’s low-carbon targets. The mid-Wales uplands are under threat of being desecrated through industrialisation by a plethora of multiple wind farms. Does the Secretary of State agree that cumulative impact and high landscape value should be material planning considerations in deciding on onshore wind projects?
Chris Huhne
I accept the position that my hon. Friend has taken on the particular proposals that affect his area. All I would say is that by comparison with other renewable technologies, onshore wind is a tested, effective and affordable technology. It is the lowest-cost renewable technology available in these islands, and it produces electricity at a similar cost to first-of-a-kind nuclear power stations. However, I return to what I said earlier to my hon. Friend the Member for Bournemouth West (Conor Burns) about energy sources. It so happens that every energy source has its detractors. As I view wind turbines as beautiful, I hope that we will not find opposition all over the country to what is a cheap and effective source of energy for our consumers.
Paul Flynn (Newport West) (Lab)
Post Fukushima, many of our competitor countries in Europe are planning nuclear-free futures, mainly because of the increased cost that Fukushima has created, by making nuclear reactors uninsurable, with a possible bill of hundreds of billions of pounds afterwards. Is it not irresponsible to go ahead with the plans in Britain without any reassessment of cost? Weightman is not allowed to consider that. Can the Minister really say that he is going ahead without subsidy? He seemed to be saying today, “We’re going to have subsidies for old nuclear and new nuclear, but call them something else.”
Chris Huhne
No, the hon. Gentleman is wrong on that. We are setting out a framework to discourage high-carbon activities and encourage low-carbon activities. We do not make any technological judgment about how those particular things proceed. The hon. Gentleman is right that Germany, Italy and Japan have all announced either moratoriums or pauses for new nuclear construction. However, it would be wrong to jump to the conclusion that costs will necessarily increase in those circumstances, because obviously if there is less demand for some of the components in nuclear power stations, the normal economics would tell us that their price might fall, so the process might become cheaper. However, I can assure him that we will bear safety in mind first and foremost. That is what I asked Mike Weightman to address, and that is what he has answered in the interim report and will answer in the final report.
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
I wonder whether the Secretary of State is aware that there has been a proposal in my constituency for a tidal barrage for the last 20 years. Is there anything in the proposals that will finally allow such developments to compete on a level playing field with proposals for wind?
Chris Huhne
That is one of the technologies that we are taking forward in the renewables road map, and I want to make progress on it. We have a considerable resource in that technology, which we want to develop further right the way around the United Kingdom’s sea frontier.
Mark Durkan (Foyle) (SDLP)
Whatever other concerns the Secretary of State might try to refute in relation to the carbon floor price, he cannot dispute the fact that if levied in Northern Ireland, it would have a hugely distorting impact on the single electricity market—which is based in statute—north and south in Ireland, with its own regulatory framework, and remove the very certainty and clarity for investors, the need for which he has said his reforms are addressing. Does he recognise not only that the carbon floor price will harm consumers and industry in Ireland, but that distorting the single electricity market at this stage would damage the prospect of this island harnessing offshore energy from Ireland in the future?
Chris Huhne
The hon. Gentleman is right to say that the electricity market arrangements in Northern Ireland are quite distinct from those in England, Scotland and Wales. There is effectively a single market between Northern Ireland and the Republic, and we need to be aware of and respect that. I gather that discussions are ongoing at official level and elsewhere to ensure that there are no unintended consequences of the changes that we introduce.
Jo Swinson (East Dunbartonshire) (LD)
Feed-in tariffs are proving effective in encouraging people to generate their own renewable energy. Will the Secretary of State look at how they could also be used to encourage the use of negawatts—that is, energy saved—to give people an additional cash incentive to ensure that their homes are warm and snug, and well insulated, so that they do not waste energy?
Chris Huhne
We have been clear in the White Paper on electricity market reform published today that we want to encourage demand-side response. My hon. Friend makes the good point that, in an ideal world, we would move beyond the temporary switching off of demand in order to close the gap between demand and supply and adopt the practice of paying people to reduce overall demand at all times. We are working on that, and we show awareness of that matter in the White Paper. This is a holy grail, however, and we have not yet found a way of doing that without opening up the possibility of wholesale fraud and other problems, but it is a good, interesting idea and we would like to look at it further.