18:59 - The House divided: - Ayes: 206 / Noes: 279 - Question accordingly negatived.
Madam Deputy Speaker (Dawn Primarolo)
Before I call the Secretary of State to move Second Reading, may I say to all hon. Members that there is a very long list of Members who have indicated that they wish to speak in this debate? Even with a tight time limit, it will not be possible in the time we have left to call every Member. I regret, therefore, that some Members will be disappointed and will not be able to participate in this afternoon’s debate. May I also inform the House that the Speaker has selected the amendment in the name of the Leader of the Opposition, Mr Edward Miliband?
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
I beg to move, That the Bill be now read a Second time.
We need to pass this Energy Bill if Britain is to have a credible and ambitious energy and climate change policy. The Bill represents both a practical and a radical approach to reforming our electricity market. It is essential if we are to deliver on our three objectives for energy and climate change policy—namely, secure energy that is affordable and clean—yet I believe the Bill offers the country much more than a better energy policy. With our current economic difficulties, as we along with many other nations strive to ignite sustainable growth, this Bill offers a significant opportunity to stimulate the sort of infrastructure investment that our country desperately needs, for both the short and long term. We estimate that an enormous £110 billion of energy infrastructure investment is needed between now and the end of the decade in low-carbon energy generation and the grid network.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
What hope, assurances or promise can the Secretary of State give to those wishing to engage in renewable energy generation in the Hebrides that the infrastructure will reach the Hebrides? Will the interconnector come?
Mr Davey
The hon. Gentleman knows that I set up a group to look at this issue, which has got together with the councils from the various islands, officials from my Department and others. We must await its work. I know he welcomed it at the time and I am sure that he, too, will await its work with patience.
This is not just an energy Bill; it is a growth Bill. I believe it can lead to new jobs in every region and nation of our country. If right hon. and hon. Members vote for this Energy Bill, they will be voting to give the British economy the long-term boost it needs.
Dame Joan Ruddock (Lewisham, Deptford) (Lab)
I am most grateful to the Secretary of State for allowing me to intervene at this early stage, but is not the very best boost we could give our industry in this country, particularly the renewables sector, to have the decarbonisation target for 2030 on the face of the Bill, as recommended by the Committee on Climate Change, as argued for by 1,500 companies and the CBI, and as apparently endorsed by the Prime Minister just two years ago?
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
Does my right hon. Friend agree that in order to ensure the investment that the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) described, it is crucial that we get this Bill through, with its contracts for difference and its market reform? To do that, the Bill has to receive a Second Reading, so the best thing that hon. Members on both sides of the House can do is reject the reasoned amendment, which would delay any movement towards getting this new Bill through.
Mr Davey
I shall make some progress first, and then I shall take some more interventions.
I pay tribute to the many people who have contributed to producing a Bill which, let’s face it, could not be described as having been rushed. Even before the pre-legislative scrutiny so ably undertaken by the Select Committee on Energy and Climate Change—I thank it for its work—it was long, long in the consultation. Some have even argued that the fingerprints of the Leader of the Opposition can be found on the first designs for it, but in the event of a paternity test, I think that the name of my right hon. Friend the Member for Eastleigh (Chris Huhne) would probably end up on the birth certificate. Its careful nurturing owes much to my hon. Friend the Member for Wealden (Charles Hendry). Indeed, Members in all parts of the House have played a role in its production, and it is a better Bill for that level of cross-party development and scrutiny.
The reason why members of all parties recognise the need for a major change is easy to explain. First, about a fifth of Britain’s existing power plants are scheduled to close during this decade, which will reduce supply. Secondly, even if we are heroically successful in terms of energy efficiency and reducing energy waste, overall demand for electricity is set to rise—partly because of population growth, but also because our transport system is likely to be more electrified over the next two decades, as are our heating systems. What with supply falling and demand increasing, we would have a real energy problem if we sat back and did nothing. Energy security—keeping the lights on—is a critical rationale for the Bill.
Mark Reckless (Rochester and Strood) (Con)
Will the Secretary of State confirm that the key reason for the energy crisis is the fact that a vast amount of coal-fired generation is being forced to close down, not because of carbon dioxide emissions but because of emissions of sulphur dioxide, which, if anything, counters carbon dioxide. That is due to the European Union and its large combustion plant directive.
Huw Irranca-Davies
May I make a point about the reasoned amendment? It is because of the go-ahead for licences for a new fleet of combined cycle gas turbine power stations, the potential for shale gas, and the current absence of the development of carbon capture and storage technology in this country that it is necessary to top up with a 2030 decarbonisation target. I think the Secretary of State is more than sympathetic to that idea, and that he would implement it if he were not encumbered by Cabinet colleagues.
Mr Davey
I am grateful for the hon. Gentleman’s intervention. He has merely convinced me more that this will be a hot topic of debate. However, I can confirm to him and the House that one of the purposes of the Bill is to decarbonise our electricity supply. That is a critical purpose. We need to move from coal to gas, from fossil fuels to low carbon. We need a more diversified energy mix, with renewables, carbon capture and storage, and new nuclear all playing their part in enhancing the security of our electricity supplies. Low-carbon energy security will help to insulate consumers from fossil fuel price spikes and will help us to meet our climate obligations, including our emissions and renewables target.
The key challenge that prompted the Bill was the need to attract tens of billions of pounds of investment, including investment in low carbon, while keeping energy bills affordable. Given that global gas prices had almost doubled since 2007, which was already putting huge upward pressure on bills, the need to stimulate that essential energy investment as cheaply as possible became a central consideration. Whatever the many debates in which we will rightly engage today and during the Bill’s passage, let no one lose sight of the three core challenges that it was designed to meet: attracting more than £100 billion of investment, creating the world’s first ever market in low-carbon energy, and helping people and businesses around our country who were struggling in the face of rising world energy prices. I think that those aims are widely shared across the House.
Caroline Lucas (Brighton, Pavilion) (Green)
I agree with the Secretary of State about the importance of reducing fuel bills, but if that is important, why does the Bill enshrine a dash for gas? Organisations from the CBI to the International Energy Agency say that that will not reduce fuel bills, whereas much greater investment in renewables and efficiency certainly would.
Mr Davey
I reject the notion that our policy supports a dash for gas, and I absolutely reject the suggestion that the Bill is designed to do any such thing. On the contrary, it is designed to reform our electricity market. It favours not fossil fuels but low-carbon sources, and I should have thought that the hon. Lady and, indeed, all Members would support it for that reason.
You will understand, Mr Deputy Speaker, why I am genuinely disappointed that the Opposition decided to withhold their full support for the Bill in their reasoned amendment. They say that they want our economy to grow, they say that they support low-carbon energy, and they say that they want a better deal for consumers and business, but if they vote against the Bill, they will be opposing growth, opposing decarbonisation and opposing help for people who are struggling with high energy bills. Just a few years ago all the major parties worked together to deliver the Climate Change Act 2008. Why is a party led by the architect of that landmark Act refusing to support the practical reforms that will help to deliver its lofty objectives?
I predict that we will have many debates and exchanges about a decarbonisation target for the power sector—an issue that features prominently in the Opposition’s reasoned amendment—yet it should be noted that this Government will legislate so that the next Government can set a decarbonisation target alongside a fifth carbon budget, even though at the last election the manifesto of no party argued for such a power sector decarbonisation target. We will no doubt hear that industry would benefit from such a target, and I strongly sympathise with that argument, yet industry would be seriously damaged if we were not to take forward our wider reforms of the electricity market.
The right hon. Member for Don Valley (Caroline Flint) has the power to send a much stronger signal to energy investors in the UK even than setting a 2030 decarbonisation target. Almost every investment in energy is a long-term investment lasting far longer than any Parliament, and investors therefore worry about political risk. They worry about what happens if the governing party or coalition is replaced, and they therefore listen to what the Opposition say.
I presume that the right hon. Lady will press her amendment to a Division. If it is defeated, however, will she and her party colleagues support the Bill on Second Reading? I am happy to give way to her if she wants to answer that question—I am afraid she has not been tempted to respond. We shall, therefore, all await her speech with even greater anticipation, to discover whether she intends to vote against the Bill on Second Reading.
Mr John Leech (Manchester, Withington) (LD)
My right hon. Friend’s support for such a target has been well documented, so I suppose the current position is one of the practical realities of coalition Government, but what will be the effect of setting a target in 2016 rather than 2012, and what impact will that have on our reaching the target in 2030?
Mr Davey
My hon. Friend makes an interesting point. National Grid will have the job of setting the first stage of the electricity market reform delivery plan, and I will give it guidelines, as agreed with the Chancellor, on how it should set that plan. We will make it clear that it must consider power sector decarbonisation even ahead of the target that will be set in 2016.
It is worth reminding the House that the renewables energy target for 2020 was set in 2008, some 12 years ahead of the target date. If we set a decarbonisation target for 2030 in 2016, that will be a full 14 years ahead of its target date. It is therefore clear that we are planning for the longer term and that we have logic on our side. It would have been great if the Opposition could say that they had argued for this before, but they did not. I am glad they are joining us now.
The Bill’s central objective is to achieve electricity market reform, with a new investment mechanism at its core: the feed-in tariff with contracts for difference. Contracts for difference will provide long-term electricity price stability, and therefore revenue certainty, to developers and investors in technologies such as carbon capture and storage, renewables and nuclear.
Neil Carmichael (Stroud) (Con)
The Bill’s measures will provide clarity and certainty for investors wishing to develop infrastructure. Does the Secretary of State agree that that is imperative in delivering the model he is talking about?
Mr Davey
My hon. Friend has great expertise in this area, and I entirely agree with what he says. Revenue certainty will reduce investment risk, and it should therefore also reduce the cost of financing—the cost of capital. That is far more important for low-carbon technologies than for fossil fuels, because so much of the cost of renewables and nuclear is the set-up capital cost. Our electricity market reform is, essentially, shaping a new low-carbon market, in order to stimulate the energy investment Britain needs.
Mr Donohoe
Does the Secretary of State agree that one way to overcome the problem of the deficit in energy generation would be if the nationalists were to allow new nuclear stations to be built north of the border? Does he agree with that as a way forward?
Mr Davey
The hon. Gentleman notes that the energy debate is an important part of the debate on independence for Scotland, but I would not want to cloud that debate by suggesting that there should be new nuclear power plants there. He will know that our new nuclear build proposals include three consortiums, none of which is proposing new nuclear build in Scotland. We have a long way to go before that question arises.
Mr Weir
I was not looking for a right of reply, but I thank the Secretary of State for giving way anyway. Many are concerned that the contract for difference will not be introduced until later on and there is a real danger of a hiatus in investment because of uncertainty if the renewables obligation is closed in 2017. Will he consider extending that deadline if there are real challenges in obtaining that investment?
Mr Davey
I am grateful to the hon. Gentleman for his question. We have certainly spoken to people in the industry who make that argument, but our response has been to note that we have the final investment decision enabling contracts for difference, which will prevent a hiatus in investment in the immediate future. We are running contracts for difference side by side with the renewable obligations certificate to help people get more familiar with them before 2017. Some of the problems people had raised are now being answered and I hope that I will be able to persuade the hon. Gentleman that he need not have those concerns.
Mike Crockart
I am merely astounded by the nationalists’ interest in the renewables obligation for 2017, given that they hope that Scotland will be independent by that point.
Mr Davey
My hon. Friend makes a very good point. Perhaps the nationalists have given up before the referendum has even started.
It has been pointed out to me that my constituency neighbour and good friend, the hon. Member for Richmond Park (Zac Goldsmith), wishes to intervene, and, given his knowledge on this subject, I would like to take his intervention.
Zac Goldsmith (Richmond Park) (Con)
I thank my right hon. Friend for allowing me to intervene. Energy efficiency is by far the easiest, quickest and cheapest method of reducing bills and emissions. I know that the Government are consulting on measures to reduce electricity demand, but can he reassure the House that time will be made available for genuine scrutiny of the amendments when they eventually arrive and that they will be radical enough to ensure that efficiency is a core part of our energy programme?
Mr Davey
I am grateful to my hon. Friend for pointing out that we are consulting on electricity demand reduction. I am passionately keen to see that taken forward, but I do not want to prejudge the outcome of the consultation. There are a number of ways of taking forward that policy measure. It might require amendments to the Bill and if so, we have time to introduce them, but there might be other ways to make progress on that policy objective.
Mr Ian Liddell-Grainger (Bridgwater and West Somerset) (Con)
Will the Secretary of State give way?
Mr Davey
No, I am going to make some progress, I am afraid.
Some have argued that CFDs are somehow complex, but I disagree. Generators will receive the market price for their electricity plus a top-up to an agreed level known as the strike price. When the market price is above the strike price, the generator will pay back the difference, ensuring value for money and greater price stability for consumers.
CFDs are also a major improvement on the current system of renewable obligation certificates, because they keep the cost of energy to the consumer lower. During the scrutiny of the draft Energy Bill, one issue dominated the debate about CFDs, and the Energy and Climate Change Committee spent some time considering it. It was, in essence, the payment system and how generators would get their money in a CFD. The Select Committee recommended that the Government change the draft Bill in that respect and appoint a single counterparty to these contracts for difference so it was easier for investors to know who would pay them. We have accepted that proposal. There will now be a new Government company that will sign and manage the contracts over their lifetime and collect money from suppliers to meet the payments due to generators.
Electricity market reform will stimulate investment in new low-carbon energy, but low-carbon energy sources have different generating features from fossil fuels, so our market reforms must take account of them. For example, wind and solar are intermittent, and may need either storage technologies and/or back-up generation. Both nuclear and renewables tend to have low margin running costs and are likely to mean that fossil fuel power stations run at lower load capacities than in the past. If we do not consider the implications of such things, there might in the future be a danger of insufficient investment in the flexible generating capacity needed at certain times, especially at the peak, for example on less windy days.
Moreover, given that new nuclear reactors will take some time to come online, and that new renewables may not fill the energy gap created by the closure of old coal and nuclear quickly enough in the next few years, there is the challenge of ensuring energy security over the next decade or more. Alongside CFDs we will introduce a capacity market to ensure that sufficient reliable generating capacity is available to meet electricity demand as it increases over the next decade. The capacity market will provide an up-front payment for capacity, reducing the risk of investing in flexible generation. The capacity market will provide an insurance policy against the possibility of future black-outs—for example, during periods of low wind and high demand.
Mr Liddell-Grainger
I want to take the Secretary of State back to the rates retention scheme and community benefit, which both this Government and the previous Government have talked about. The scheme is not in the Bill, but can he confirm that it will help local investment and local communities, and that above all it will ease the pain of very large infrastructure projects for local communities?
Mr Davey
My hon. Friend has campaigned on the issue and he initiated a recent Adjournment debate on it. Whether it is new nuclear, onshore wind or other energy infrastructure, we need to consider how local communities can benefit, and we will do that. I give him that assurance again today.
Dr Alan Whitehead (Southampton, Test) (Lab)
Is the Secretary of State aware that according to his impact assessment, a market-wide capacity payment system would cost the customer 11 times more on their fuel bill than a strategic reserve system of capacity arrangements? Does he intend to take that into account as the Bill progresses?
Mr Davey
I urge the hon. Gentleman to read the impact assessment a little more carefully. The bit he draws to the attention of the House assumes a perfectly operating electricity market. One reason why capacity payments will be a lot less than indicated in the part of the impact assessment he quotes is that without a capacity market, peak-demand electricity prices could go very high. One of the benefits of a capacity market is that it will smooth out the price of energy, so consumers will not have to pay high prices at the peak. That will offset the payment, and he needs to take that into account. The impact on the consumer will be far more beneficial than he suggests.
Mr Davey
No, I will not give way.
The two new instruments I have just outlined—CFDs and the capacity market—will be underpinned by a robust and transparent institutional framework that will provide certainty for industry and investors. Government will retain responsibility for both instruments, and will make decisions on strike prices for CFDs, taking into consideration our objectives for the electricity sector, and wider economic and sustainability impacts as appropriate. The system operator, National Grid, will administer and deliver both the CFDs and the capacity market, and Ofgem will regulate the system operator.
The Select Committee argued that there is a risk of conflicts of interest arising between National Grid’s existing role, including owning the transmission infrastructure, and the new role, so to reassure investors, we are working jointly with Ofgem to assess that risk, mindful of the very good reasons why the system operator should take the role. The Bill provides the Government with powers to manage any conflicts of interest if necessary, and ultimately to confer the functions on an alternative delivery body.
Industry and investors have urged us to press on with our reforms to the electricity market, but it would be damaging and costly if in anticipation of an improved investment environment, they postponed final investment decisions on existing, shovel-ready projects in the meantime. I want to ensure that those decisions can be taken with confidence, even before our reforms come into effect. Therefore, as a transitional measure, the Bill will enable the Government to give effect to early CFDs, referred to as investment contracts, on a case-by-case basis at an early stage, in advance of the CFD regime. Our intention is that any investment contracts will be transferred to the single counterparty once it has been established.
I am determined that the Bill will increase competition in all aspects of our energy markets, whether retail or wholesale, and I am particularly concerned about the lack of liquidity in the wholesale power market, and especially in the forward markets, which can deter investment by independent suppliers—so important for effective competition. By improving liquidity we would improve competition, promote long-term security of supply, reduce barriers to entry and increase the robustness of the reference price for CFDs. Ofgem is currently working on proposals to improve liquidity, but in the absence of significant improvements, Government intervention may be necessary. The Bill therefore provides for such intervention. It also provides for powers to intervene to support investment by improving access to long-term contracts for the sale of electricity. This is a key concern for independent renewable developers. While the CFD will significantly reduce risk for these developers, it is important to be able to act if necessary. I therefore refute the Opposition’s assertion that the Bill does not address liquidity and competition; it clearly does.
There are a range of measures in the Bill that deserve more attention than I can give them: the emissions performance standard, which will act as a regulatory backstop on the amount of carbon emissions that new fossil fuel plants are allowed to emit; the reform of Ofgem, with the introduction of a statutory strategy and policy statement, setting out the Government’s strategic priorities and intended outcomes with respect to energy policy, helping to align better the work of Government and the work of the regulators; and a new enforcement power for Ofgem, so where energy companies have breached regulatory requirements but are unwilling to provide redress voluntarily to affected consumers, Ofgem will be able to require them to do so, with fines going to the consumers affected, which will ensure fairer outcomes for consumers. There is also a key measure to support investment in offshore transmission systems, which is so vital to Britain’s offshore wind industry, specifically with an amendment to the Electricity Act 1989 which will provide confidence to offshore generators that for a time-limited period they can lawfully commission any transmission assets that they build. We also expect to introduce measures on tariff reform during the Bill’s passage, so that we can ensure consumers get the best deal; and after we have consulted on electricity demand reduction, we will consider amendments to the Bill to support this radical approach to saving electricity, at the appropriate time.
Yet there are two parts of the Bill that are substantial reforms but have received little attention to date, so I want to dwell a little more on those before concluding. The first is on the issue of nuclear regulation. Nuclear power has an important part to play in the low-carbon energy mix of the future, and the sector requires an appropriately resourced and responsive regulator. In April 2011 we set up the Office for Nuclear Regulation, and the Bill will place what is already a world-class regulator on a statutory footing. The ONR will build on its current strengths as a modern, independent regulator working to the principles of transparency, accountability, proportionality, targeting and consistency. Its five key areas of responsibility are nuclear safety, nuclear security, nuclear safeguards, the transport of radioactive material, and health and safety on nuclear sites. The ONR will have the financial and organisational flexibility required to meet its business needs on a sustainable basis. The Bill also contains an amendment to the nuclear waste and decommissioning cost recovery mechanisms, which contributes to the coalition’s commitment that new nuclear power stations should receive no public subsidy.
The final reform that I wanted to highlight is to the Government pipeline and storage system. This network was originally built for defence purposes, but is now predominantly used commercially, especially for civil aviation—it delivers around 40% of aviation fuel in the UK. Following a review, we have concluded that there is no need for this asset to be owned by the Government, and that its sale could encourage private investment in the system, potentially bringing wider economic benefits as well as reducing Government debt. We are confident that any continuing military requirements could be met through contractual arrangements with a purchaser, and that a sale would have no adverse effect on safety or security. A final decision on any sale will depend on striking the right deal with the private sector, with value for money a key consideration. The earliest date for a sale would be during 2014.
The House will see that the Bill is an ambitious one. It contains radical reforms, above all to secure the energy supply that Britain needs for our homes and businesses into the 21st century, boosting economic growth at the same time. The Bill will keep the lights on, it will help keep people’s energy bills down, and it will decarbonise Britain’s electricity system. I commend the Bill to the House.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Many Members wish to get in. I remind the House that there is a six-minute limit after the Front-Bench speeches. We may have to reduce the limit further, but if Members can be generous and try to shave some time off their speeches, they will be helpful to each other.
Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House, whilst affirming its support for measures included in the Bill to reform the electricity market to deliver secure, clean and affordable electricity, declines to give a Second Reading to the Energy Bill because it fails to include a clear target to decarbonise the power sector by 2030, and because it fails to include direct measures to increase transparency, competition or liquidity or ensure that the energy market is properly regulated and works in the interests of consumers.
I am conscious of time so let me say at the outset that I will take very few interventions, as I welcome the positive way in which Members in all parts of the House have applied to speak this afternoon.
The challenge facing the Government is to produce a Bill that provides fairness for consumers today, security for consumers tomorrow and a sustainable energy supply for the future of our economy, our nation and our planet. These are the tests on which we will hold the Government to account during the passage of the Bill. As a responsible Opposition, we will support measures that balance the interests of the whole nation. On the broad objectives of the Bill, we have no disagreement.
We will support proposals that genuinely reform the electricity market to deliver secure, clean and affordable electricity. In part 2 of the Bill, we will support the establishment of the Office for Nuclear Regulation on a statutory footing—work begun under the previous Government, which the Bill will complete. In part 3, we support proposals on the Government pipeline and storage system, provided they are consistent with our national security and safeguard the resilience of our fuel supply. We will support the provisions on offshore transmission systems. They are a sensible modification enabling offshore wind generators to connect to the grid during the commissioning period. That is the good news.
As to whether the Bill as a whole will meet its objectives, we remain to be convinced—hence, the reasoned amendment before the House today. At this early stage of the Bill, permit me to set out how it could be improved to genuinely reform the electricity market to ensure that Britain has a secure, clean and affordable power supply for the future. Let me start with security. As the Secretary of State has said today and in the past, in the next decade a quarter of the UK’s generating capacity will be shutting down as old coal and nuclear power stations close. To rebuild our energy infrastructure will require an unprecedented level of investment, not just in new generation, but in energy transportation.
To provide the incentives to attract the investment that we need, the Government have proposed three main mechanisms. I will deal with each in turn—first, the introduction of contracts for difference. Since the draft Bill, the Government have provided greater clarity on where the liability for CFDs will lie, which is welcome. In principle, if CFDs are executed correctly, they should provide investors with long-term certainty, but ultimately the success of CFDs will depend on the details. Many details, such as the length of contracts, how contracts will be allocated or paid for, what the balance will be between renewable, nuclear and carbon capture and storage, and the process for setting the reference and strike prices, are still to be worked out.
Mark Tami (Alyn and Deeside) (Lab)
Does my right hon. Friend agree that we have to act now in a co-ordinated fashion, and not just talk about it? That has been the problem of previous Governments, both Labour and Conservative. We tend to have reviews but do not take the necessary action.
Caroline Flint
I agree. As has been said, the Climate Change Act 2008, led by my right hon. Friend the Leader of the Opposition when he was Secretary of State for Energy and Climate Change, was a world first. It put us in a position, with cross-party support, with a few honourable—or maybe not honourable—exceptions, in the forefront of change.
Mr Peter Lilley (Hitchin and Harpenden) (Con)
Is she allowed to say we are not honourable?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. If the right hon. Gentleman wants to make a point, he must stand up and do so to the Chair, not from a sedentary position. He should know better after so long in the House.
Mr Deputy Speaker
I am telling the right hon. Gentleman. When he says “she”, that is not acceptable language either. It is Christmas; we ought to give a little more humble time to each other, and certainly we do not want the debate to deteriorate. I hope we will have no further interventions from either side in that manner.
Caroline Flint
The second mechanism is the introduction of a capacity market designed to address possible shortfalls in generation. Again, in principle a capacity market could work, but whether it does will depend on important details, such as whether a capacity market will actually be introduced, the format of the auction, how the amount of capacity needed will be decided, what should be the balance between supply and demand reduction measures and how the capacity payments will be funded. All that still needs to be worked out.
The third mechanism is the creation of an emissions performance standard that sits alongside the Government’s gas strategy. Gas will have a role in our future energy mix, especially as we move away from coal-fired power stations, but setting the emissions performance standard at 450g of carbon dioxide per kilowatt-hour, which allows unabated gas and planning to build as many as 40 new gas-fired power stations, would blow a hole through our carbon budgets. It would leave consumers vulnerable to price shocks and rising bills. It would put investment in clean energy and the jobs and opportunities that come with it at risk. It would leave us, as a country, exposed to a wide range of risks over which we would have little or no control. A second dash for gas is not the basis for a secure energy policy for the future.
David Mowat (Warrington South) (Con)
On that point, will the right hon. Lady give way?
Caroline Flint
I will not give way to the hon. Gentleman.
Instead, we must shift our economy away from its dependence on fossil fuels and build a new low-carbon economy. But the hard truth is that the UK is now falling behind with green growth. Research by Bloomberg New Energy Finance shows that investment in renewable energy was half in 2011 what it was in 2009. Unless there is a remarkable upturn in the final quarter, investment will be lower this year than last year. The respected Pew Environment Group agrees. According to it, when Labour left office the UK was ranked third in the world for investment in clean energy, but today we are seventh. Figures published only last month from Ernst and Young paint the same picture. Its research on attractiveness for investment in renewable energy suggests that we have now fallen to sixth place, slipping below France, a country that generates nearly 80% of its electricity from nuclear.
The challenge for this Bill was obvious: to provide a clear policy framework to encourage investment in new, clean sources of energy. We know—this is very positive—that there is money out there to be invested in renewable energy, but unlocking it requires clear signals about the long-term direction of public policy. What the Bill needed was a commitment to decarbonise the power sector by 2030, because that is not only the most cost-effective way to meet our climate obligations, but the best way to protect our economy and consumers from volatile international gas prices and to attract long-term investment in new jobs and industries.
Of course, we have the levy control framework and the EU renewable energy target, which are already in place, but both will come to an end in 2020. For firms such as Vestas, Siemens and Areva—major energy and engineering businesses with operations all over the world—investment horizons extend well beyond 2020. For a business considering opening a new plant or factory, to justify the costs and the lead-in time they need to know what the order book will look like in 10, 15 or 20 years’ time.
So why have the Government failed to include in the Bill a commitment to decarbonise the power sector? Three reasons have been provided, so let me deal with each in turn before taking another intervention. First, the Secretary of State claimed that he did, in fact, want to set a target next year but was blocked from doing so by the Conservatives. Last month he told the Guardian:
“I wanted to set the decarbonisation target in 2013-14. The Conservatives wanted to wait”.
But the Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), told the House last week that there is
“a unanimous view among DECC Ministers”—[Official Report, 13 December 2012; Vol. 555, c. 437]—
on the Government’s decarbonisation policy. Both statements cannot be true.
The second reason that has been given is that it would not make sense to set a target until 2016 because that is when the fifth carbon budget, which covers 2030, is set. That is a smokescreen. The view of the Committee on Climate Change is absolutely clear: decarbonisation of the power sector by 2030 is not only crucial to the 2050 economy-wide emissions target, but the most cost-effective way of achieving it. That was its view in 2008 and that is its view today. The suggestion that for some as yet unknown reason that will not be its recommendation in 2016 is not only wrong, but disingenuous. It is disingenuous because we all know the real reason why the decision has been put off—because the coalition wants to have it both ways. The Liberal Democrats want to insist that a target is just around the corner, and the Tories do not want to have to admit that, if they were ever elected on their own, they would have no intention of setting a target to clean up Britain’s power sector by 2030.
As I said in the House last week, if I am wrong and if there are good reasons for waiting until 2016 before setting a target for 2030, there is nothing to stop the Government setting an interim target before then. The third and fourth carbon budgets have already been agreed and they run until 2027. Why not set a target for 2027, 2025 or even 2022? There is simply no good reason for putting the decision off for another four years. Ministers have to understand that any delay in setting a target does not just fail to reflect the urgency of the situation that we face, but will make it more difficult and expensive to achieve.
The third excuse that we have been given is that we already have too many targets, but the exact opposite is true. Between 2020 and 2050, there are no more targets for cleaning up our power sector—no benchmarks or staging points along the way. For investors, there is no certainty about what contribution the Government expect renewables to provide for the overall energy mix beyond 2020. If there is no certainty, why would firms choose to invest here when plenty of other countries are competing for investment?
Mark Reckless
Under the Government’s proposals, one thing that is pretty certain is that, on average, electricity bills will go up by about another £100. Will the right hon. Lady explain how much more electricity would go up by if she tried to ensure that electricity was produced without any carbon at all?
Caroline Flint
I could not have had a better intervention; I am just moving on to how we can reform the market to get fairer prices.
At a time when we are asking consumers to underwrite tens, if not hundreds, of billions of pounds to pay for the investment that we need, we must have an energy market that delivers fair prices. For the first time ever, the average annual energy bill has now hit £1,400—up by nearly £300 since the last election. Just this week, the Government’s own advisers on fuel poverty warned that unless Ministers change course, another 300,000 households will fall into fuel poverty this winter and up to 9 million people could be in fuel poverty by 2016.
From what the Secretary of State has said today and in the past, I think there is agreement across the House that Britain’s energy market needs to be more transparent, competitive and liquid if it is to work in the public interest. Having identified the problem, however, the Bill fails to do anything about it. As far as I can see, there is no provision to increase transparency; of 126 clauses, only one—clause 34—even addresses the issue of liquidity in the energy market, and even that clause does not propose concrete action. All it provides is a back-stop power, a measure of last resort, with no information about how or when the Government would actually use it to encourage market participation or improve liquidity.
The Bill could have scrapped the old model of unaccountable markets and secret deals and created a new, open, competitive market for energy by introducing a pool. I know that the Secretary of State has been hostile to the idea of a pool, simply because it did not work in the past, but the market has changed. When the pool was last in operation, there were effectively just two generators and the pool was one-sided with only generators placing bids. Today there are many more generators, so the issues we saw with the dominance of National Power and PowerGen in price setting would be much less of a problem—particularly if the pool were two-sided and both buyers and sellers could bid into it, as happens with the Nord Pool in northern Europe.
A pool would have three clear advantages over the current market arrangements. First, it would increase transparency. At the moment, no one really knows the true cost of energy because most of it is bought and sold through bilateral trades that are never made public. If all energy had to be traded through an open pool, those secret over-the-counter deals would end, companies would no longer be allowed to self-supply and we could establish a robust market reference price. If energy companies tried to blame wholesale costs for putting up bills, we would be able to see for ourselves whether that was true. When setting strike prices and reference prices for contracts for difference, as proposed in part 1, we would be in a much stronger position to set the right price, which will be vital to ensure that consumers get a fair deal.
The second advantage of a pool is that it would increase competition. If energy companies had to sell all their generation and buy all their supply through an open pool, anyone could compete on price to generate power or sell it to the public. This would encourage new entrants to enter the market, provide fairer access for independent generators and community and co-operative energy schemes, increase competition and put a downward pressure on prices.
Thirdly, a pool would increase liquidity. We hear a lot about liquidity, but all it really means is whether the market is providing the things that people want to buy. While there have been some improvements in liquidity on the day-ahead market, one of the biggest barriers to effective competition is the lack of liquidity in the forward market. In order to compete, firms need to be able to buy energy a week ahead, a month ahead, a year ahead, or even further, to ensure that they are not over-exposed to sudden changes in the price of energy. However, many smaller suppliers struggle to get access to these longer-term contracts. The big vertically integrated companies are in a better position because they can, in effect, hedge their supply against their own generation. By introducing a pool, we would effectively ban self-supply, whereby energy companies can generate energy and sell it to themselves. If any company wanted a longer-term deal, it would have to secure it through the open market. What better way is there to improve liquidity than to insist that everything is sold in an open marketplace?
Alongside reform to the energy market itself, we must put in place a regulatory system that protects consumers. The views of the Opposition on the existing regulator, Ofgem, are well known. In our view, it has failed to use the powers that it already has to enforce its own rules. It has turned down new powers—on trading, for example—and time after time it has ducked the opportunity to get tough with the energy companies. Today I reiterate our policy: the next Labour Government will abolish Ofgem and create a tough new watchdog with the teeth to protect the public.
I recognise that that is not, unfortunately, the policy of this Government. Let me contrast their proposals on Ofgem with ours. Clause 117 will enable fines levied by Ofgem to be paid directly to consumers rather than going to the Treasury, as happens now. In itself, this is a perfectly reasonable change to make. Consumers who have been mistreated, not the Treasury, should receive redress. Over the past 10 years, the Treasury has received just over £30 million in fines from Ofgem. Evenly spread across all households, that works out at about 10p per household per year. However, according to research by the independent price comparison website, energyhelpline.com, the mismatch between the prices that energy companies pay for the energy they buy and what they charge their customers for it means that last year alone consumers could have missed out on savings of over £1 billion pounds—more than £50 per household.
The real issue is not about a redress framework for when companies get caught out misleading their customers or putting people on the wrong tariff but about creating a fair market in the first place. The first solution is to make the market more competitive and transparent, which our proposal for a pool would do. Given the dominance of the big six energy companies, their huge regional market shares, and the low numbers of people switching supplier, the second solution must be to create a regulator with the power to correct the existing market failure and force the energy companies to pass on savings to consumers when wholesale costs fall.
This Bill must provide a pathway to the world we hope to pass on to future generations. It must put the consumer first, providing the fair prices and fair dealing that they have demanded for too long, with a guard dog for a regulator, not a poodle. It must stand up to the energy giants, providing the means and the will to make the energy producers the servants of our nation, not its masters. It cannot be a fudge to hold together disparate factions of the coalition until an election; it must be a roadmap for our nation’s destiny beyond our own lifetimes. I urge this House not to pass a law that is forgotten in a few years but to pass the legislation that we need and of which future generations will be proud—legislation for one nation, but for many generations ahead. I commend our amendment to the House.
Mr Tim Yeo (South Suffolk) (Con)
I draw attention to my entry in the Register of Members’ Financial Interests. In this context, I point out that my passionate conviction that more urgent action is needed to address climate change and to cut greenhouse gas emissions from both the energy and transport industries was formed in 1993, when I had ministerial responsibility for these issues, and that the financial interests listed in the register were all acquired more than a decade later, after I left my party’s Front Bench.
I welcome the Bill, although its introduction is overdue. To keep the lights on, Britain needs huge new investment in generation and transmission capacity. To make energy costs affordable, we need a step change in energy efficiency and improved competition in both the wholesale and retail markets. To achieve our carbon emissions reduction commitments, we need the right incentives for low-carbon energy.
I welcome the Government’s acceptance of some of the recommendations made by my Committee—the Energy and Climate Change Committee—particularly the inclusion in the Bill of the aims of electricity market reform and the change to the counterparty arrangements for contracts for difference. I regret, however, that the Bill still needs Government amendments, particularly in relation to energy efficiency, which should be right at the heart of energy policy, not an afterthought tacked on under pressure from outsiders.
Obviously, I cannot deal with the whole Bill in the space of six minutes, so I will stick to a few headlines. To secure investment at the lowest cost to consumers, absolute clarity of policy is needed. That clarity does not exist if different Government Departments put out different messages or, even worse, if different messages emerge from within the Department of Energy and Climate Change itself. Mixed messages create uncertainty.
Investors seek higher returns to compensate for the extra risk of investing in long-term assets in a country where energy policy appears to be subject to short-term changes. That is one of the reasons we need a carbon-intensity target in legislation. The need for that target is supported by my Committee, by the Government’s statutory adviser, the Committee on Climate Change, and by a large number of companies. It is even accepted by the Government themselves, but they will not decide what that target should be until 2016.
Delaying that decision for four years leaves investors wondering whether energy policy will be based on the gas strategy, which envisages a possible increase in the fourth carbon budget and the construction of 37 GW-worth of new gas-fired power stations, or on the energy mix rightly favoured by the Department. Running 37 GW of unabated gas at more than a third of its potential would end any hope of cutting carbon intensity from electricity generation to even 100 grams per kWh, let alone the 50 grams per kWh advocated by the Committee on Climate Change.
Dame Joan Ruddock
Does the hon. Gentleman agree, like me, with the finding by the Committee on Climate Change that, largely as a result of the rising price of gas, a virtually carbon-free sector by 2030 would cost consumers £23 billion less than relying predominantly on gas in the 2020s? It is, therefore, of huge benefit to consumers, as well as to companies that want to invest.
Mr Yeo
I noted the views of the Committee on Climate Change with great interest. I also note that, up to now, both Government parties have accepted its recommendations without alteration.
Deciding the intensity target now, or even in 2014, when the fourth carbon budget will be reviewed, would helpfully clarify the position. Alternatively, emissions performance standards could be amended to curtail the operation of unabated gas plants after 2030, instead of allowing grandfather rights for those power stations until 2045.
I stress that my Committee was one of the first to call for Britain’s shale gas reserves to be exploited, but basing energy policy on the assumption that Britain has decades’ worth of cheap, recoverable shale gas reserves before a single flow test has been completed in this country would be reckless. Shale gas is a game changer in America, but there is no certainty that similar benefits in the UK would be so dramatic. Therefore, particularly as a result of high transport costs, the price of gas in both Europe and Asia may be significantly different and possibly higher than that in America for decades to come. Gas will and must play an important part in our energy mix, but we need low-carbon technologies as well. Carbon capture and storage has huge potential benefits, but there is no guarantee that it will be available at an economic price.
The model in DECC’s “Pathways to 2050” helpfully shows how hard it will be to achieve emissions reductions without new nuclear power stations. To bring new nuclear and other low-carbon technologies forward, we need clarity on strike prices. I accept that, initially, strike prices must be set centrally, but I hope that we can move to an auction system before too long. Auctioning would allow the benefit of cost reductions in the more mature low-carbon technologies to be captured for the benefit of consumers much more quickly than if strike prices are decided centrally in perpetuity.
Turning to energy efficiency and the demand side, we must be hard-headed about value for money. I commend the success in energy-rich Texas where, on some days, 30% of the electricity is generated by wind power without any subsidy at all. As has been shown in Texas, demand-side measures can reduce the need for capacity market payments, even if they do not eliminate that need entirely. Better incentives for electricity storage or a bigger strategic reserve are other ways of addressing problems of capacity and peak demand. I hope that the Government amendments will reflect the most cost-effective way of tackling those issues.
We also need more clarity about how the incentives for energy efficiency will be funded. If the cost of capacity market payments will be met from outside the LCF total—I am sorry, but I am trying to do this in six minutes—surely the cost of energy efficiency payments could come from the same pool. The LCF is the levy control framework.
I firmly believe that countries that decarbonise their energy and transport industries and their built environment will enjoy a huge competitive economic advantage in the long term. Some low-carbon technology involves a small upfront cost compared with fossil fuel-based alternatives, but even those costs will fall significantly as economies of scale are achieved. As concerns about climate change become more acute, as I believe they will in the next 15 years, and the carbon price rises, driven either by emissions trading or carbon taxes, investment in low-carbon electricity will prove to be not only right environmentally, but beneficial economically.
John Robertson (Glasgow North West) (Lab)
I congratulate the Chairman of my Select Committee, the hon. Member for South Suffolk (Mr Yeo), on his contribution. I believe that our Select Committee has been more than diligent in calling the Government to account. Unfortunately, the Government have not exactly been forthcoming in giving us the information that we require. We deliberated on the Bill some time ago and had five weeks of pre-legislative scrutiny. That is roughly seven weeks shorter than the time in which anybody else has ever been asked to do pre-legislative scrutiny. As such, it put us under a great deal of pressure.
We are told that the Government will table a number of amendments to the Bill. I appreciate that this is a very technical Bill and that the Government are not sharp enough to fill in the details. The Minister was right that the Bill was long in the making. We expected to get it some time last year for our scrutiny. The Government have had plenty of time to put together what they require, but—here we go again—they are going to table a load of amendments that Members in this Chamber will not be able to scrutinise or talk about. That is not good enough. I believe that, as the elected Chamber, we should be able to scrutinise, ask questions and get answers. I do not believe that we are getting the answers.
We have to look at the Bill in general terms. In the short time that I have, I want to talk about my pet subject: the consumer—the person who has to pay the bill—and what we are going to do to help them. I do not believe that the consumer is getting a good deal in this day and age. In fact, they are getting a deplorable deal. The Government are part of the problem because in Ofgem they do not have a body that helps them by setting out where they can call the companies to account.
Will the Secretary of State consider whether some form of windfall tax could be written into the Bill? The Labour party would be happy to table an amendment for such a tax, based on excessive profits. I believe that at a time of austerity, energy companies—particularly the big six—should not be making excessive profits or receiving billions of pounds from the Government to develop other forms of energy without providing a return for that money. The Bill should therefore include a measure that would, perhaps, allow those companies only to make profits that are in line with inflation at this point in time. We could then look at the issue again in a few years’ time. Those companies must be held to account, and the only way to do that is by hitting them in the pocket.
Sir Robert Smith
There is a real frustration with the prices people pay and we must ensure that we have the best market possible. We also need huge investment, but that must make a return on its capital. Otherwise, it will go to another country. Does the hon. Gentleman think that his proposal could drive away that investment?
John Robertson
I agree to a certain extent with my hon. Friend—I will call him that because we both sit on the Energy and Climate Change Committee, which on this matter is non-party political and we support each other—but energy companies owe it to their customers to try to keep prices down as much as possible at this time. My hon. Friend may remember that the Committee wanted to consider—or, rather, could not consider—the companies’ accounts. Who knows what they make? In many cases they refused to give us information because they did not want their competitors to know what was going on. I am sorry but we need an open and honest industry.
I chair the all-party group on nuclear energy, and I tried to create an industry that was open and honest although it did not have a reputation for that. Energy companies must show their books and let people see what they are doing. The Secretary of State could not tell me what the companies’ profits really are. The companies tell us what they think their profits are, but we can be sure that the information will not be correct and that they will be earning a lot more money than they admit. Multinational companies in other areas do not even pay tax in this country. Are the energy companies paying what they should?
David Mowat
I am excited at being given way to, so I thank the hon. Gentleman for that. My point is similar to that of the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith). What return on capital employed would the hon. Gentleman consider reasonable for such an organisation? Does he believe that anything in those companies’ accounts demonstrates that the return on the capital employed that they have been making is unreasonable? What is a reasonable figure?
John Robertson
That would be a good question if I knew the turnover of those companies. They say that their turnover is roughly 2%, but I do not think that is correct. We must look in depth at what their profits really are and how much money they actually spend. The money that energy companies receive from the Government to invest in other forms of energy never appears in their accounts; it does not seem to be part of the equation. That money comes not from shareholders or the companies themselves but from a third party: the Government. I want to know exactly what that money is for and what we have had as a return. I have not seen a very good return, and in particular I do not believe that money given to the renewables onshore wind industry provided value for money. It has even been a drawback, because we should have been spending money on experimentation and research and development in other areas. If we had done that, we might be in a better place today.
However, the hon. Member for Warrington South (David Mowat) is right and it is imperative that we get investment. We must show that our industry not only does a good job but can be trusted and is reliable. I do not think the word “trust” can currently be attributed to the big six energy companies and we must look at that.
Ofgem needs to be beefed up, and if it needs to be replaced, we should do that; I know my right hon. Friend the Member for Don Valley (Caroline Flint) would like that. I am not against the idea, but those jobs in Glasgow are important to my constituency and others in the area and I would like to keep them. I would also like to give Ofgem staff the power to do something—to get out there and threaten those companies—but they cannot currently push people about.
The companies have put prices up three times in the past two years, which is ridiculous, and they want to put them up further. The main debates in Committee will be on how much the strike price will be and what contracts for difference will mean to companies, but the dearer things get, the more they will cost the general public. We do not do enough for the customer, and, as the Secretary of State knows, I believe we do not do an awful lot for the people who cannot help themselves—those who do not have access to computers and cheque accounts. We must see how we can help them.
In my short speech, I have covered a lot of matters. I will support the Bill and look forward to being in opposition again with the Secretary of State.
Charles Hendry (Wealden) (Con)
At the outset, may I put on record my new role as a visiting professor at the university of Edinburgh, which does outstanding work on the energy sector? My mantra as a Minister was that the fundamental building block of energy policy is energy security. My view was that the Minister would probably stay in post if the cost of energy went up by slightly more than anticipated or if we missed a few of our carbon targets, but that he would be sacked if the lights went out. He would probably be sacked by John Humphrys on the “Today” programme and gone by lunchtime, but nobody would know because their radios would not be working. I had not taken account in that thinking of the fact that the Minister could be sacked in any case.
I want to put on the record my thanks to the Prime Minister for the privilege of having the role that I had for seven years in opposition and in government and for the chance to work with two outstanding Secretaries of State and world-class civil servants. It was an immense privilege and the most rewarding part of my political and adult life.
The Bill is an extremely good one—I would say that, because I was deeply involved in many of its elements. It deals with critical issues such as affordability and nuclear regulation, but at its heart is investment. As we have heard, we know pretty clearly when much of our power plant—coal and nuclear—will close down. We now face a race to get the new investment in place. If we do not, at around the second half of this decade, we will face a critical energy challenge. That does not necessarily mean that the lights will go out, but prices will spike, particularly for heavy energy users. Therefore, the package of measures proposed in the Bill is essential to long-term energy security. It will enable us to bring forward new investment, recognising that the companies concerned have a choice about where they invest in the world, and therefore that we need to make this a more attractive place.
With a combination of the Bill, the gas strategy and the autumn statement, I hope that we can begin to get the debate back to a sensible place. It is profoundly damaging to investors to have an absurd debate in which people can be pro-renewables only if they are anti-gas, and pro-gas only if they are anti-renewables. That is damaging to investors, and introduces the new problem of political risk. One of my goals as a Minister was to try to take energy policy out of politics. The investment decisions are expected to last for 30, 40 or 50 years and more, and people want as much long-term clarity as possible. Therefore, cross-party agreement, including agreement within the coalition, and as much agreement as possible with the devolved Governments are integral to delivering that long-term strategy.
Political risk has a cost. It puts up the cost of borrowing. If we need £100 billion-plus of new investment, an increase in the cost of capital of just 1% will cost the consumers of this country an extra £1 billion a year on their bills. Ministers are therefore beholden to find ways in which we can try to ensure that we bring down those costs. The reality is that there is a broad consensus across the House. Most of us, though not everyone, want nuclear as part of the mix. Thanks to the work of Lord Hutton, the current leader of the Labour party, the two Secretaries of State and a broad coalition, this is now one of the most exciting and positive places in the world for new nuclear investment.
It makes sense, of course, for us to harness our own resources and take forward renewable development. If it is right for most of the oil and gas-rich countries in the world—Norway, Kazakhstan and Saudi Arabia—to look at how to harness their own renewables, it has to be right for us. If it is right in China—almost half the onshore wind turbines installed in the world last year were installed in China, and they would not have done so without an economic case—we, too, have to look at the economic benefits.
Carbon capture and storage gives a new opportunity for coal to be a critical part of the mix. Our coal industry has an extraordinary heritage, and I am personally extremely attached to it. I think, however, that we also recognise that much of that investment cannot happen before the end of the decade and that we therefore need to have new gas in the mix and policies that will encourage new investment in that sector.
David Mowat
I agree with my hon. Friend on the need for consensus. Was he therefore as surprised as I was to hear the shadow Secretary of State attack the 450 gram limit for gas, which by implication means that the position of shadow Front Benchers appears to be that we should build no unabated gas stations? If that is their position, it is an extraordinary one.
Charles Hendry
My hon. Friend makes an interesting point. I well remember debating a previous Energy Bill while in opposition and trying to persuade the then Minister of the case for an emissions performance standard, and her saying robustly that it was not part of the process at all. I am glad that we have made some progress, but the key issue is for the emissions performance standard to be a driver of investment, not a barrier. By providing long-term clarity, that is part of what it does in this process.
If we are to build new gas plants, it would, as my hon. Friend the Member for South Suffolk (Mr Yeo), the Chair of the Select Committee on Energy and Climate Change says, be a mistake automatically to assume that they will all be powered by our own shale gas. We have to recognise that more gas may mean more imported gas. I would like further consideration of what that will do for gas storage. What do we need to do to enhance our gas storage? I hope that the Public Bill Committee will address that when it goes into the detail.
There are a couple of other issues. I agree that there needs to be clarity in relation to energy efficiency. That should be at the heart of the Bill. We need finally to address the issue of a long-term decommissioning target. I will not vote for the Labour amendment, but that does not mean that there is not a significant amount of industry support for it. Right across the sector—in nuclear, renewables and even the hydrocarbon sector—people want long-term clarity. It is therefore right that this is debated and we try to find consensus.
It is often said that ministerial careers all end in tears and sadness; mine did not. The Bill is critically important to our long-term energy infrastructure, and I am very proud to have had the chance to be a part of that process.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to follow the wise words of the former Minister, the hon. Member for Wealden (Charles Hendry).
The Bill, as its long title states, is intended to reform the energy market by encouraging low-carbon electricity generation. Essentially, the Bill should ensure that we have the mechanisms and regulations at our disposal not just to keep the market working well, with a secure electricity supply and reasonable prices for customers, but that that is done over the next 20 years within a framework of decreasing carbon emissions from all energy-producing plants that makes every drop of energy go as far as possible through efficiencies, good management in the system and, just as importantly, by removing from the system as much demand as possible, so that emissions are avoided by not producing additional energy in the first place.
The present energy market arrangements—the British electricity trading and transmission arrangements system—have served us well in some ways. They have ensured that a capacity margin has been constantly available to guarantee supplies and at some stages of its existence has applied downward pressure on prices. However, the world has changed radically since the present market arrangements were first introduced more than a decade ago. Prices are going up, not down, massive amounts of plant are being retired from the system in the next few years and their replacements will need to be far lower carbon than the retiring plants. Most importantly, the trading arrangements of the market are carbon blind and do not, in themselves, advantage low carbon over high carbon; it is left to other devices, such as the renewable energy obligation, and subsequent work with the market to do that.
If the ambition of the Bill is to be realised, three things will be central. First, we cannot in the end use the devices of the past market reliably to achieve the goals set out in the Bill for the future market, yet, remarkably, the Bill claims to reform the energy market without reforming its mechanisms. Real reform, such as the introduction of a pool system to make the wholesale selling and purchasing of energy for retail fully transparent and accessible for all, is wholly absent.
Secondly, we need a sense of where we are supposed to go with the encouragement of low-carbon electricity. What does that phrase mean in practice? Is it just a warm aspiration that can be set aside when the going gets a bit tough? If it is not, it seems essential that a target level of emissions should be included in the Bill, but there is no such target. The Secretary of State favours a target, but I am afraid that we have a bit of a problem with what we might call Liberal Democrat capture and storage. [Interruption.] A glass of water for the Secretary of State, please. During the passage of the Bill, I hope that a coalition of people who believe that there should be a target can get together to rectify that, regardless of party stances.
Thirdly, even if there were a target in the Bill, measures elsewhere in it will still take us in precisely the opposite direction and make its aspiration redundant. They need removing or replacing. I strongly believe that the Bill needs to do what it sets out to do in the long title. We need a robust framework that can guide the next stage of deployment of renewable and sustainable energy and that can establish effective mechanisms for those plants, once deployed, to bring their energy to market. We need a market that can deal with new and existing producers fairly and consistently, so that the goal of a well-balanced marketplace encouraging new entrants, rewarding and supporting the best management of energy and celebrating the removal of demand from the system as the ultimate way to decarbonise it can be achieved.
The Bill does some of those things, but, overall, in its present state and with its manifest large gaps, it is not fit for the purpose that it has to advance. These shortcomings simply have to be remedied, because we need the stability and certainty of a coherent and fair market system to encourage and sustain the unprecedented investment in our plant, our networks and our neighbourhoods that will be necessary for an enduring low-carbon energy environment. The regime needs to instil confidence and last for perhaps twice as long as a central system as its predecessor did. The measures in the Bill, many of which I accept are complex and difficult to get right, fail that test at present.
The Bill needs extensive surgery, and in the limited time available perhaps I can list one or two of the major operations that need to be rostered. Are the arrangements for securing a counterparty to contract for difference deals really right? Is there a potential conflict of interest in the body that the Bill selects to be both the system operator and the delivery body for CFDs? Is the proposed transition period between the end of the renewable obligation and the emergence of CFDs workable? Should there be a longer period of changeover and a better opportunity for next stage renewable developers to work with renewable obligation certificates?
Does the ending of an obligation for renewable power purchase and the disappearance of power purchase agreements not place potentially insuperable obstacles in the way of independent generators of low-carbon energy bringing their output to market? Are the administrative arrangements for the setting of a strike price in the Bill not so weighted as to give an advantage to new nuclear that they risk undermining the veracity of other strike price arrangements and the possibility of meaningful auctions in the future? Is a market-wide capacity payment system not just a recipe for paying too much bill payer money to produce overcapacity, when better, cheaper arrangements such as strategic reserve arrangements exist?
Why are there no demand-side reduction measures in the Bill and why will any measures as yet undetermined by the Government appear only at the very end of the legislative process? Why does the level at which energy performance standards are set effectively exempt all gas throughout its operational life?
Ian Swales (Redcar) (LD)
I welcome this Energy Bill and will speak about the provisions dealing with carbon capture and storage. I pleased to see this exciting new technology incorporated in the Bill, but clause 41, entitled “Interpretation of Chapter 8”, defines CCS technology as
“technology for…capturing carbon dioxide…that has been produced by, or in connection with, generation of electricity on a commercial scale…transporting such carbon dioxide”
and
“disposing of such carbon dioxide…by way of permanent storage”.
I am concerned that this definition is too narrow to cover the benefits deliverable from emerging CCS projects. There is the obvious one—where all or part of the energy is delivered as heat rather than electricity—but I am more concerned to ensure that industrial carbon capture and storage is covered too. I know that the Bill is targeted at generation and the market, but I do not expect that there will be another Bill to cover wider aspects of energy and CCS, so I feel that the relevant clauses must be properly structured.
Nia Griffith (Llanelli) (Lab)
Does the hon. Gentleman share my disappointment that the Government have made a savage 80% cut in investment in CCS?
Ian Swales
As far as I am aware, the £1 billion that was promised for CCS is still on the table. I am not sure where that 80% figure comes from, although I would be disappointed if what the hon. Lady said was true. [Interruption.] I hope the Minister will respond to that later.
The Minister of State, Department of Energy and Climate Change (Mr John Hayes)
Let me be quite clear: the £1 billion competition is entirely as my hon. Friend described it—it is in place and on target.
Ian Swales
I thank the Minister for that clarification; that was my understanding too.
I raise this issue because of the importance of the proposed Teesside carbon capture and storage network to my constituency, the local economy and, I truly believe, to the national economy. I was delighted by the recent announcement that placed the project in the UK shortlist of two for the European competition and the shortlist of four for the UK competition. I am obviously disappointed that it seems that the UK projects will not be supported in round 1 of the European competition. It was notable that the UK announcements—and, indeed, the European ones—simply listed the technology and electrical output of each project, whereas the Teesside project included the potential to bring back International Power’s mothballed 1.8 GW power station at Wilton. However, power is not the main driver of the project. Teesside has 18 of the top 30 carbon emitters in the country, excluding power stations.
Alex Cunningham
I am grateful to my Teesside neighbour for giving way. He talks about carbon capture. Does he share my concern about the lack of detail in the Bill on which companies will be exempt from the cost of contracts for difference? For example, it would appear that the Sahaviriya Steel Industries works in his constituency were not operating throughout the 2005 to 2011 period to quality for an exemption. What will happen to them? Will we need amendments to protect the steel works on Teesside?
Ian Swales
The hon. Gentleman makes a good point. There are issues about how some of the calculations have been made, given that companies were coming and going through the reference period, and he raises an obvious example.
The SSI steel works in Redcar alone account for around 1% of the UK’s carbon emissions. Supporting the Teesside project with an oversized network will therefore not only be good for decarbonising energy generation, but have the potential to decarbonise energy-intensive industry. In doing so, the project will protect existing industry—that includes steel, fertilisers and petrochemicals—and make it more competitive, and also make the area a magnet for future investment in both energy generation and industry. May I therefore gently remind Ministers that their Department is responsible not just for energy, but—the clue is in the name—for climate change? I also ask that the definition of CCS be reworded to ensure that it covers the wider opportunities that the technology represents. Meeting our carbon reduction goals requires action on all major emissions.
The Energy Bill and the move to a low-carbon economy are welcome on Teesside. In fact, the area is already something of a Disneyland for green technology. We have Ensus running Europe’s largest bioethanol plant, a £60 million anaerobic digestion power-generation unit run by Northumbrian Water, SembCorp’s Wilton biomass power station, SITA’s waste-to-energy plants, the pyrolysis of waste plants being constructed by Air Products, and 27 wind turbines being constructed just off Redcar by EDF, which I can see from my bedroom window.
The Energi Coast consortium in the north-east, consisting of more than 20 companies, has already invested £400 million, and is ready to exploit the offshore wind and marine energy sectors. I should also mention Redcar and Cleveland college, one of the first colleges in the country to be accredited for the provision of green deal training. Future plans include a biomass power station at Teesport, which has attracted Korean investment; a new community power station based on aeroplane engines; a plant for the pyrolysis of tyres, generating energy and fuel oil; more anaerobic digestion plants, one of which received money from round 3 of the regional growth fund; and sub-stations to deal with half the output of the proposed giant offshore wind farm at Dogger Bank, which are likely to be in my constituency.
I am pleased that we appear to have reached the end of the consultation period, and that there seems to have been an outbreak of agreement between DECC and the Treasury, because it is important for us to move quickly. There are many opportunities for business growth and technical leadership, but the rest of the world is not standing still. It is time to be bold and clear, and to get going. I welcome the Bill, and I hope that the Minister will note my comments on the clauses relating to carbon capture and storage.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Let me begin by referring to my entry in the Register of Members’ Financial Interests, which relates to my involvement—on an unpaid basis—with the Edinburgh community and energy co-operative.
I strongly support the call in Labour’s amendment for a commitment to the 2030 decarbonisation target to be included in the Bill. Before the Secretary of State leaves the Chamber, let me say that although he felt obliged to attack our amendment, he clearly supports that call. Indeed, he presented some good arguments for the inclusion of the target. For instance, he told us that discussions and negotiations with National Grid would shortly be under way, and suggested that the fact that there would be a decision in 2016 will strengthen his case in the negotiations, but his negotiating hand would be even stronger if National Grid knew now that the target was included in the Bill. I hope that he will work wonders with his colleagues in the coalition. If our reasoned amendment is not passed, an amendment could no doubt be tabled at a later stage.
There are other reasons for including the decarbonisation target in the Bill. As has already been mentioned, there is still considerable uncertainty in the industry about the direction of Government policy. That uncertainty has been caused primarily by the different messages coming from the Government, as even Conservative Members have pointed out. It does not relate only to renewables, although the impact has been particularly obvious in that instance. Many people work in the renewables industry in my constituency, and what they say leaves me in no doubt that uncertainty about the direction of Government policy is having an effect on future investment programmes. Anything that the Government can do to emphasise that certainty and clarity exist in their policy would be extremely important.
There have been some positive steps, such as the recent launch of the green investment bank and its initial programme, but much more needs to be done to provide clarity, not just for the purpose of encouraging future investment but in many other areas. A lack of certainty and clarity in Government policy will have an impact on what the Bill is trying to do as a whole. The proposals for a capacity mechanism are one example. The more uncertainty there is and the greater the consequent lack of long-term investment, the more need there is likely to be for increased capacity to deal with ups and downs in supply and demand; and the greater the need, the more that capacity is likely to cost the consumer at the end of the day. Uncertainty about policy will also affect the ability of the Government—or, if Members prefer the term, the counterparty—to negotiate the arrangements for contract for difference, and, again, it is consumers who will ultimately suffer as a result when prices rise.
Let us hope that the Government soon provide some clarity and consistency, and one way of doing that would be to accept our proposal for the decarbonisation target to be included in the Bill at some stage.
I also want to talk about the effect of these measures on Scotland. That is, of course, important to me and other MPs representing Scottish constituencies, but it is also important for the UK as a whole. England and Scotland benefit in different ways from the current situation; Scotland has greater renewables resources, and Scottish energy producers have access to the larger market in England.
There is uncertainty because the renewables obligation in Scotland is devolved and, unsurprisingly, the Scottish Government have not said how they intend to proceed as they do not yet know what will happen across the UK as a whole. I urge the Government to expedite their discussions with the Scottish Government about the arrangements for Scotland after 2017. The renewables sector is particularly important for the Scottish economy, and both the Scottish and UK Governments must ensure that renewables are supported across the UK. Already, some 11,000 jobs in Scotland are dependent on the renewables industry, and there is the potential for many more such jobs to be created, but lack of certainty and confidence will threaten that. I hope that, either today or later, Ministers can give an indication of the state of play in these negotiations with the Scottish Government and the possible implications of the Bill’s measures for Scotland.
Mr Deputy Speaker (Mr Nigel Evans)
Order. So as to accommodate all Members who wish to speak, the time limit for contributions is now reduced to five minutes.
Nigel Adams (Selby and Ainsty) (Con)
I support the Bill and applaud the momentum that has been built up towards achieving a secure and stable low-carbon electricity supply to see us through the coming decades. I also want to pay tribute to the former Minister, my hon. Friend the Member for Wealden (Charles Hendry), who spoke earlier. He contributed an immense amount to this Bill, and I know that there is immense respect for him in the industry.
In Eggborough and Drax, I have two of the country’s largest coal-fired power stations, and I refer Members to my entry in the Register of Members’ Financial Interests. Both of those stations were built to the highest standards by the Central Electricity Generating Board and are therefore still operating effectively well beyond their planned life. Indeed, it is a measure of our country’s past engineering skills that these plants are in their fourth and fifth decade and are still playing such an important role for the country.
Julian Sturdy (York Outer) (Con)
Does my hon. Friend agree that energy mix plays a vital role in energy security, and Drax and Eggborough contribute to that both for our region and across the country?
Nigel Adams
My hon. Friend is absolutely right. Drax, Eggborough, and Ferrybridge on our border, play an important part in making sure the lights are kept on.
Fossil fuel stations such as Eggborough can be converted from coal to sustainable biomass, which is an accepted form of renewable energy. Indeed, Drax is already being converted. That is being done in response to policy demands and is a move fully supported by DECC. It will also be helped by the Bill’s proposed transitional arrangements. Such a move will not only help ensure that the UK meets its 2020 carbon reduction targets, but will act as a vital bridge during the country’s transition to a lower carbon future, one in which I can envisage a new generation of more efficient—and, ideally, combined heat and power—plants being designed and built. They might be similar to those already in existence in Scandinavia, and they will benefit from what by then will be a more mature, sustainable global biomass supply chain.
Independent power generators such as Eggborough and Drax provide the country with flexible, dispatchable generation and, as a result of the measures in this Bill, I trust that that will continue. Such generation is essential not only to balance the intermittency and inefficiency of large-scale wind generation, which, in my view—perhaps controversially—is blighting countryside areas such as mine in Selby and Ainsty, but to keep the country’s lights on. I refer to the recent Ofgem report, which estimates that the capacity margin in UK generation will fall to 4% in 2015. That is equivalent to the full output of Eggborough or half that of Drax.
In support of such biomass conversion and to pre-empt any detractors, after much inquiry I am convinced not only that large quantities of biomass can be sourced sustainably—admittedly from overseas, like most of our present coal supply—but that by revitalising redundant plantations in, for example, the south-east USA, we will increase the carbon uptake across the forest landscape. By providing a commercial use for the vast area of beetle-killed boreal forest in Canada, an area the size of England, which is growing year on year, we can help to turn this emitter of harmful greenhouse gases into a new carbon sink through clearance and replanting.
It can be argued that by converting our coal-fired stations to burn sustainable biomass the UK would be part of a global regeneration programme for the lungs of the world. However, perhaps I had better move on from our possible global contribution to something more immediate and, for me, more local. The two coal-fired stations in my constituency currently employ thousands of people across the region. Those jobs are essential and they must be safeguarded.
I am delighted to see that Drax has commenced its initial conversion programme and am pleased to report that Eggborough is now shovel ready. Those conversion programmes are creating and will continue to create essential employment opportunities in the hard-pressed construction industry and will also provide long-term infrastructure improvements to our ports and railways, a legacy that will last long beyond the time those conversions are life-expired. I am heartened by elements of the Bill and by DECC’s stated support for full conversion programmes such as those at Eggborough and Drax, but I am aware—and so is the Minister—that some important issues about the funding of such projects remain outstanding.
We must not lose the opportunity to use our proven generation assets, which are already connected to the grid—assets that we as taxpayers originally paid for—to maintain a stable electricity supply and bridge the capacity squeeze we now so clearly face. Additionally, we must not squander the immediate potential to commence large-scale civil engineering projects in the UK. The combined value of the Eggborough and Drax projects is more than £1 billion and such investments will secure thousands of existing jobs and create many more in Selby and Ainsty and across the north.
Albert Owen (Ynys Môn) (Lab)
I agree with the Secretary of State that the Bill certainly has not been rushed, but although I support its main thrust—I have been arguing for it for many years—it is underdeveloped and needs to be developed further.
Electricity market reform would have been carried out by any Government who had won the election. It is the natural next step and a lot of work has been done in the past to establish a low-carbon economy. The Climate Change Act 2008—a very important piece of legislation—and other Acts in the previous Parliament and the one before it, paved the way for this Bill, so I shall support its main thrust, even though it is under development. I agree with the former Minister, the hon. Member for Wealden (Charles Hendry), that we need to build consensus on these big energy issues. Indeed, he extended many of the issues on which the previous Government moved forward.
There has been a hiatus and a very public disagreement between the Treasury and DECC, which has been too obvious and has caused uncertainty. When I speak to a number of groups, including non-governmental organisations and industrialists, they all say that they want that political certainty in the future. It is incumbent on us all to build it so that we have a safe and secure energy supply for the future that meets low-carbon targets, which are set at all levels of government. I welcome the provisions from that perspective.
Hon. Members know that I am pro-nuclear, pro-renewables and pro-energy efficiency. I see no contradiction in holding those three views, because we need to move forward. We need the base load electricity that nuclear, clean coal and gas can provide, if the capture and storage systems are in place, along with renewables.
I have a few questions for Ministers. I cite the CBI, which has lobbied us heavily and joined a broad coalition. Not even the Minister of State, the hon. Member for South Holland and The Deepings (Mr Hayes) could call the CBI left-wing academics—there may be one or two, but the CBI is very much the voice of business, and business is asking for decarbonisation targets. It is a mistake for the Government not to put a clear message about decarbonisation in the Bill and not to honour the Climate Change Act in full. Having a target of 2030—[Interruption.] The other Minister, the right hon. Member for Bexhill and Battle (Gregory Barker) asks which Act. The Climate Change Act was probably the biggest piece of legislation on these things and the Bill should have signposts to secure—[Interruption.] Business is telling me this. The Minister is chuntering from a sedentary position. Perhaps he does not want to listen to business, but if he wants to make an intervention, I should be pleased to take one. The business sector is worried about uncertainty.
I have some specific questions. Businesses, particularly the independents, are expressing concerns to me about access to the marketplace in the future. They are concerned about lack of feed-in tariffs for smaller companies; in particular, those below 50 MW. If we decentralise the grid, we shall need a support mechanism as well as a grid for big industry. I do not think that subsidy is a dirty word; we need support mechanisms in the interests of the country so that we can produce the energy we need for business to survive. Will the Minister reconsider the position on feed-in tariffs for smaller businesses? The Select Committee looked at the issue, and the evidence that they are needed is overwhelming.
Will the DECC team look again the renewable obligations transition period? There is a danger of losing investment if we do not have continuity. The contracts for difference could play a big part. I welcome the £7.6 billion that has been set aside under the levy.
I welcome the basis for the Bill, but the lack of decarbonisation targets is a weakness. I think we should have them. The Secretary of State wanted them, as did industry. That is why we tabled the reasoned amendment. I want a pro-nuclear, low-carbon economy to be the future, and I want the Bill to be the mechanism that takes it forward.
Dan Byles (North Warwickshire) (Con)
It is hard to overstate the importance of the Bill, but sometimes we need to pause and get back to basics, and remind ourselves what drives the tensions at the heart of strategic UK energy policy.
Traditionally, DECC has had two priorities: to keep the lights on and to do so at an affordable price. In recent years, a third priority has been shoehorned into the mix—decarbonising the sector. It is fair to say that at times the decarbonisation agenda butts up against the energy security and affordability issue. Much of the current debate is about how we manage that conflict. I am of the view that decarbonisation is vital, but that it cannot be considered in isolation. We cannot say at any point that there will be decarbonisation at any price. Indeed, when the Secretary of State came to the Select Committee last week he conceded that point.
Another problem in the UK is investment, which has already been mentioned by various Members. A fifth of our capacity will be gone by 2020; 12 GW of oil and old coal generation will be offline by 2015, and most of the remaining coal and older gas plant that stays online after 2015 will not be able to run at full capacity for various reasons. Nuclear power plants are coming offline without life extension; all bar one will be gone by 2023. I am pleased to see those life extensions coming forward, but the long and short of it is that we have an oft-quoted £110 billion investment challenge by 2020. That is a huge investment challenge.
Ofgem threw a hand-grenade into the debate in October, when it reported that we face a very real risk of power shortages in just four years’ time, when our capacity—our overhead—goes from 14% to 4%. My hon. Friend the Member for Selby and Ainsty (Nigel Adams) put that in context by saying that 4% is just Eggborough power station coming offline, which I find quite frightening. That is why the Bill is vital, and that is why it needs to be passed, and passed quickly. I am disappointed that the Opposition, who apparently support the Bill, have managed to word their reasoned amendment in such a way that they could end up voting against Second Reading.
Dan Byles
A reasonable amendment, is it?
There are investors out there who want to invest in the UK. Members of the Energy and Climate Change Committee have spoken to them. I have personally spoken to numerous private equity companies and pension funds. There are billions of pounds sitting, burning holes in investors’ pockets, but they are holding back because they need to see the detail in the Bill. There are a number of issues that we kicked around in pre-legislative scrutiny on the Select Committee, around the counterparty and the detail of the contracts for difference. I am very pleased that DECC has moved considerably on the counterparty, and I think has taken on board many of industry’s concerns, but some still remain about exactly how the contracts for difference will work, where in the investment cycle those contracts will be awarded and the route to market for small generators.
Nigel Adams
Does my hon. Friend agree that the contracts for difference must be absolutely defined and clear to allow such investment to go ahead?
Dan Byles
Absolutely. My hon. Friend makes the point very precisely. In fact, most of the arguments about the counterparty were prompted by exactly that. The contracts need to be bankable. They need a robust and clear counterparty who, to be blunt, may be sued if necessary, and has deep enough pockets; and at the end of the day, that really means the Government. We know that the counterparty will be Government-owned. It is still not entirely clear whether it will be underwritten entirely by the Government, but those are some of the details that we shall be teasing out in the Public Bill Committee. These are the issues that investors are looking at.
There has been much discussion of the 2030 target. We discussed it at length in the Select Committee. Some investors out there are calling for it. We also had investors who came before the Committee who—even though some supported it—said, “For God’s sake, do not delay the Energy Bill by arguing about it, because in the short to medium term the 2030 decarbonisation target is not the key issue that investors are looking at as a driver for investment. The key issues are the details of electricity reform, the contract for difference, the counterparty and so on.”
Before I finish, I want to speak briefly about costs. I mentioned at the start that I do not believe that we can decarbonise at any cost, and to be fair I do not think that anyone in the Chamber would argue that we could. It is important that the decarbonisation agenda—a very important agenda, which I support—proceeds at a sustainable pace. I sometimes get concerned when, as a member of the Select Committee, sitting around the table with representatives of Government, industry and academia, I find myself thinking that there is an empty chair at that table—that of the consumer. We are not having enough of a conversation with Mrs Jones in Acacia avenue about what we are doing in this place, and the impact that will have on her electricity bills. Because let us face it: structurally higher energy bills not only have a wider cost to the economy, but every pound that Mrs Jones spends on her electricity bills, she is not spending in Comet—and look what happened to Comet. Higher energy bills have a dynamic impact on the economy, and we need to ensure that the decisions we make here do not unnecessarily add to those bills.
In summary, the Bill is vital. If we want to keep the lights on and attract the huge levels of investments that we need, we cannot be seen to be bickering in a partisan way in this place. We cannot hold up the Energy Bill arguing about a 2030 target. There are other opportunities to talk about that target; it is still a long way off. The Bill has managed to unite the CBI and RenewableUK in its support. That is quite a feat.
I echo the words of my hon. Friend the Member for Wealden (Charles Hendry), who is no longer in his place, by saying that this is not about a choice between renewables and gas. We need a balanced energy policy. We need gas and renewables and nuclear, and we need to decarbonise our electricity sector and, eventually, our entire economy, but at an affordable pace and an affordable rate.
Mr Mike Weir (Angus) (SNP)
At the time of the autumn statement the Government’s gas strategy was also published. That perhaps tells us why there is no decarbonisation target—merely the ability in the Bill to set one, which is something entirely different. If we are to build a large number of new gas-fired stations without carbon capture and storage from the outset, there is little chance of meeting a decarbonisation target. Indeed, given the recent report from the Committee on Climate Change, which forecast that household bills would be £600 higher per year in the future if the UK relies increasingly on gas, rather than £100 higher if the country concentrated on renewable power generation, it would seem that the Prime Minister’s promise on energy prices will not be met either.
It is worth noting in passing that Ofgem predicts that spare capacity within the Great Britain system will fall from its current level of 14% to around 4% by the winter of 2015-16. The same methodology, however, shows that Scotland, which is pursuing renewables, will have spare capacity of around 35%.
As the Bill stands, contracts for difference form a large part of the meat of it. The provisions are perhaps not as bad as originally set out, but they are still very complex. If I am fortunate enough to get a place on the Committee that will consider the Bill, I will look forward to many happy hours examining the detail. At this stage, I have two main concerns about the use of contracts for difference. First, I am concerned about whether they provide a sufficiently robust system to allow investors to get planning permission and obtain finance. Investors are very clear about how the current system works but are yet to have sufficient clarity over the new system.
It is worth noting that Scotland has been successful in attracting several new investments in renewables over the past few years, but the level of investment in the UK as a whole has been falling over the same period. Some of that is due to the general economic situation and possibly the general tightening of finance, and it is concerning to say that some investment has dropped off, possibly because of uncertainty about the intentions of the UK Government. If we are to be successful not only in meeting carbon-reduction targets but in creating a green energy future, that needs to be addressed urgently, so if the Government are determined to change from renewables obligation certificates to contracts for difference, they must ensure that the new system is robust and easily understood by investors and delivers what is needed.
At present it is envisaged that the renewables obligation will end in 2017, but it is far from clear to many potential investors that CFDs will be up and running fully by that time. That uncertainty could lead to difficulties with projects which come on line after 2017. I understand that, for example, to get an offshore wind project through the consenting and development stages, developers typically spend between £30 million and £50 million. Such an investment would obviously need high-level approval and may be hard to get if we cannot be assured that the returns are clearly modelled, and the new contract for difference has been shown to work. It is likely that both developers and financiers will require several years to become familiar with the mechanism and how it works in practice. That poses a danger not only to such investments, but to the supply chain.
That risk was highlighted by the pre-legislative scrutiny process. The Committee noted that
“it may be necessary to delay closure of the RO in order to reflect slower progress in finalising the details of EMR”—
that is, electricity market reform. I urge Ministers to take that point on board and consider carefully whether we need to ensure that the renewables obligation continues beyond 2017.
The second concern about the CFD is that it is an instrument for giving a hidden subsidy to nuclear generators. It is interesting to note that the first reaction from nuclear generators was not entirely favourable. The key part of the system is the setting of the strike price, which determines the level of support that is given to each technology. I appreciate that the strike price in the first instance has to be set administratively, but that will give a strong signal to the market. It is rumoured that the strike price for nuclear will be very high and greater than for offshore renewables, which seems ridiculous. I urge Ministers to consider that.
The time available to me means that I cannot go into many of the other aspects that I would have liked to speak about, such as the potential difficulty with the capacity market. Although I have grave concerns about the Bill, I will not support the Labour amendment. We have to move forward and get the system up and running as soon as possible. I hope that a decarbonisation target will be introduced in Committee or on Report and I will certainly support that. We need to get on with this project.
Mike Crockart (Edinburgh West) (LD)
It would be difficult enough to cover this matter in six minutes, Mr Deputy Speaker, but in five minutes it is virtually impossible. I will canter through my speech as quickly as I can.
The Energy Bill represents the most complete and complex reform of the energy market to date, reflecting the Government’s ambition to be at the forefront of a green revolution. It sets out a series of steps that will change our energy footprint and our energy future, shaping our energy sources for the foreseeable future.
I never miss an opportunity to mention the green investment bank, and this is one such opportunity. The green investment bank, which opened for business last week, is leading the way in establishing the UK as a leader in low-carbon technologies and positioning us as a nation with a modern, energy-efficient economy capable of attracting investment and creating jobs while reducing emissions and bringing down energy bills. Those are fundamental changes to the way our economy is driven, but we also need to drive a change in the way people view energy and use it.
Energy saving is the quickest and cheapest way to cut carbon emissions and so should be at the heart of electricity market reform. To quote the Energy and Climate Change Committee’s report:
“Demand-side measures… are potentially the cheapest methods of decarbonising our electricity system… reducing overall demand”.
I welcome the Government’s move to consult on measures to reduce demand for electricity but urge that we clarify our ambition in that area, because without a clear target we are immediately on the back foot.
In business it is often said that what gets measured is what gets done. The Government’s analysis shows that demand for electricity could be cut by 40% by 2030, but the current policies will achieve only 15% of that demand reduction potential, and that is based on DECC official figures. The figures also show that, at 119 TWh, the residential sector made the largest contribution to the UK’s overall electricity demand of 328 TWh in 2010, so it is essential that we work with energy providers to maximise the potential for residential demand reduction.
The green deal is a step, or rather a leap, in the right direction. Allowing homeowners and businesses to pay for energy efficiency improvements over time through their electricity bills should see a greater take-up of efficiency measures. I hope that we will soon hear an announcement about green investment bank funds being available to finance the green deal.
As was acknowledged in a written ministerial statement today, smart meters are the best tool we have in energy reduction. They have the potential to give customers accurate, real-time information about how much energy they are using and how much it costs. In my constituency, British Gas has already installed 837 smart meters. With the average home saving 5% through the use of a smart meter, that is a potential saving of £54,405 in one constituency alone. It is essential that smart meters have the capacity for real-time management as well as the ability to record the energy that is fed back into the distribution network from co-generation sources, such as wind turbines and solar panels.
Small businesses could also benefit from that. However, the Federation of Small Businesses has raised concerns that under current proposals small businesses could face paying their energy supplier to access their energy consumption data. As the helpful FSB briefing paper states:
“This will seriously undermine the credibility of the programme as well as limiting its potential economic and environmental benefits.”
I agree. If we add to that the sharp practices of some energy companies in relation to the renewal of small business contracts, it could act as a significant brake on progress in that area.
Measures announced by the Government to ensure that consumers get the best deals on their energy prices reflect our determination to tackle rising energy bills, and I am pleased that we have taken action to help people with the cost of heating their homes. Which? has stated that 82% of consumers list the cost of energy and fuel as a top financial concern. The major way to deal with that, of course, is to open the energy market to more independent providers. At present, it is difficult for small players to enter the sector, so I hope that measures in the Bill will help deal with that.
We have a unique opportunity to reform our energy market and state our ambition, but setting a decarbonisation target is as much about stating our ambition for a green future as it is about delivering the kind of certainty that industry requires. Although targets already exist under different legislation, they are economy-wide. I believe that it would be beneficial to set sector-specific reduction targets, and not just in the energy sector, but in aviation and shipping. I am disappointed that today’s ministerial statement failed to do that and has moved the decision to 2016.
The Bill is a once-in-a-generation opportunity to decarbonise and ensure a more competitive green sector in the future. I hope that the points I have raised today will prove helpful in raising areas in which an already very strong Bill can be improved further.
Mr Peter Hain (Neath) (Lab)
In achieving the Bill’s aim to deliver secure, affordable and low-carbon energy, there is no bolder delivery vehicle for a greener Britain than Hafren Power’s Severn barrage. The Severn estuary has the second largest tidal range in the world and the Cardiff-Weston barrage would generate fully 5% of the UK’s electricity need—16.5 TWh a year of low-carbon, predictable and therefore baseload energy.
The barrage will power the UK for more than 120 years, cleanly, securely and sustainably generating as much electricity as three to four nuclear reactors or more than 3,000 wind turbines. It injects more than £25 billion of private investment into the UK economy; no Treasury funding is needed at all. With the multiplier impact on the economy, that is a stimulus of about £70 billion.
The barrage will be a massive boost to the economies of south Wales and the south-west of England, with 80% of the investment being spent in the UK; other forms of renewable energy have to date imported up to 80% of their equipment and services from abroad. Some 50,000 jobs will be created during the nine-year build, also leaving a legacy of industrial, tourism and leisure jobs.
Some 1,026 turbines will be installed in the barrage—new, slow-spin turbine technology capable of being exported from Britain to the rest of the world. Gigantic caissons will be built and assembled and then floated out from its deep-water casting yard at Port Talbot, which will be transformative for south-west Wales. The other benefit is a legacy in Port Talbot of the largest deep-water port in north-west Europe, which will be ideal for the new generation of container ships—ultra-large container ships, or ULCs, which otherwise would have to find a port on the other side of Britain.
However, the barrage will not affect existing shipping to other ports, because special locks will enable ships to pass through without charge. Additionally, because of the more benign sea environment in the giant 570 sq km sea lake behind the barrage, there will be enormous new opportunities for marine leisure and commercial activity currently rendered impossible by the Severn’s fearsome current, bringing extra work to ports in both the south-west and south Wales.
Contrary to what critics have alleged, Bristol port will also benefit in other ways from the barrage. During construction over nine years, millions of tonnes of aggregate will be shipped out from Bristol and other ports including Newport, Cardiff and Barry. Compared with previous barrage projects, this one dramatically reduces the impact on fish and birds by using the latest turbine technology and generating on both the ebb and the flood tides, simulating the natural flow of the Severn estuary. There is already a great deal of engagement with wildlife groups to try to configure the barrage in a way that is as friendly as possible to fish and bird life.
The barrage will produce electricity 50% to 75% cheaper than coal, gas, wind or nuclear beyond the initial consumer support phase that all renewable technology attracts. For more than 90 years, it will be the cheapest electricity source in Britain. The barrage has the lowest levelised cost of any electricity generating source—lower than nuclear, lower than wind, lower than gas.
Hafren Power supports the new contract for difference price support mechanism outlined in the Energy Bill. That enables consumers to share in the upside as wholesale electricity prices rise. The barrage will also offset 7.1 million tonnes of CO2 per year; over its life, that has a value of £2 billion in today’s money. It will defend 90,000 properties and 500 sq km of floodplains from rising sea levels, saving the nation billions in flood damage and defence costs. It will protect Bristol, Cardiff, Newport and Weston from storm surges. A storm surge narrowly missed the Severn estuary in 2010; when it hit France, it caused $1.3 billion in damages. Those flood savings can be netted out against the cost of price support. Construction is 100% privately financed, so the barrage will cost the nation very little indeed.
The barrage is the biggest green energy project by far, enabling us to meet our renewable energy targets, as the Bill seeks. It will create jobs and investment; all in all, it should be a no-brainer for the Government. I ask the Secretary of State and the Government to make a decision in the context of the Bill, supporting the barrage in the first half of next year.
Glyn Davies (Montgomeryshire) (Con)
There are two reasons why it is a huge pleasure for me to speak about this Bill today. First, it is a very important Bill. Secondly, today is a significant personal milestone for me, because precisely 10 years ago, in the afternoon, I was at the Nuffield hospital in Shrewsbury in the throes of a six-hour operation to remove a cancerous tumour from my body. For those who are medically minded, it was a lower bowel perineal resection, which is pretty significant. One would have got very long odds indeed on my speaking in this Chamber 10 years later and representing my constituency of Montgomeryshire, particularly as it was one of the safest Liberal Democrat seats in the country.
I welcome the Bill and its commitment to energy market reform. Its purpose is to keep the lights on at an affordable cost to the country and to control the amounts of harmful gases which, it is said, are leading to global warming. Although I understand that we have not had global warming for 15 years, that is still a laudable aim for us to have. It is a complex and wide-ranging Bill, and we can come at it from a variety of angles. I do not want to repeat what other Members have said, which often happens later on in a debate; I want to put forward considerations that Ministers might take into account when they deal with the element of contracts for difference and put some detail on to that.
I have spoken in this Chamber several times before about my antipathy to onshore wind projects in my area, and it has been difficult for me to do so without becoming very angry because of the unreasonableness of the situation. My constituency has been very supportive of renewable energy for as long as I can remember. It probably has more turbines than any other constituency in England and Wales, and in the middle of it is the Centre for Alternative Technology. It had general support for renewable energy until the two Governments—here in Westminster and in Cardiff—came together to attempt to impose on the constituency the Mid Wales Connection. That project involves between 500 and 700 extra turbines, on top of what is there now, and almost 100 miles of cable, 35 miles of which is on 150 foot-high steel towers. It has transformed the attitudes of the people of mid-Wales because of its sheer unreasonableness.
It is not just me, as one Member in Montgomeryshire, who feels this way. I would point out to my right hon. Friend the Secretary of State that the other two MPs representing mid-Wales constituencies, both of them Liberal Democrats, share my view absolutely. There is a cross-party realisation of the unreasonableness of what is proposed for mid-Wales.
The element of local democracy is important. Governments in London or in Cardiff may feel that mid-Wales can be sacrificed in what might be termed the national interest, but it is not surprising that the people who live in these constituencies take an entirely different view and feel that we want to defend them. The applications by the development companies make no reference at all to the cumulative impact, to the importance of wild spaces and wild land in Britain, or to the scenic impact that the project might have. All these things are devastating to the local community.
A few days ago, the local council—the planning authority—announced that it had set aside £2.8 million to defend itself in the decisions that were going to appeal. There were only five such decisions. Powys county council does not have £2.8 million, and this would be devastating for local services. The council therefore asked the Welsh Government if they would help it to defend its planning judgments. The spokesman for the Welsh Government said that the council knew the costs involved when it turned the applications down. Clearly, the view is that the council should take the costs into account and approve applications because it could not meet them. That is an affront to democracy.
Another constituency issue relates to anaerobic digestion, of which I am a great supporter. Mr Clive Pugh from Mellington is a pioneer in this field, which he moved into before the feed-in tariff legislation went through. He is currently paid 7p or 8p per unit, while all new developments of the same size are paid 14p per unit. He is a pioneer who put himself on the line, and he will be driven out of business. We need to ensure that any new system under contracts for difference takes into account the impact on the pioneers—those who came before.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
I first commend Members of all parties for their thoughtful contributions to the debate and associate myself with the comments made by my hon. Friend the Member for Ynys Môn (Albert Owen), who is no longer in his place. His words represented the type of mature and thoughtful approach that we need to take to energy and climate change and the Bill. We must redouble our efforts, both on renewables and on energy efficiency. Like many of my Opposition colleagues, I am deeply concerned about the failure to include the 2030 decarbonisation target in the Bill.
I want to touch briefly on four areas. The Minister and others have spoken many times about prices for ordinary consumers. I and, indeed, many of my constituents are deeply confused about how the energy markets function and how that affects the prices that we pay in our monthly energy bills. It has been deeply frustrating to hear the Prime Minister give confusing messages on this issue in recent weeks. That has simply added to the chaos and confusion faced by many people. The cheapest deal in an uncompetitive market is not a good deal. I associate myself with what my right hon. Friend the Member for Don Valley (Caroline Flint) said about abolishing Ofgem and instituting a regulator with real teeth that can fight the consumer’s corner, as that is what is needed.
One of the ways in which I believe we can increase the capacity, security and diversity of our energy supply lies in co-operative and community energy solutions, one of which is based in the constituency of my hon. Friend the Member for Croydon North (Steve Reed). A lot could be done to support such solutions, and I am concerned that the Bill does not mention such support. Will the Minister comment on that and consider the measures that the Government could take to support co-operative and community energy solutions?
It is important that we work on these issues with the devolved Administrations and the European Union. I commend the Welsh Government in particular on their efforts to introduce a sustainable development Bill and on their own measures for energy efficiency, particularly the Arbed scheme, which is making a difference in improving the energy efficiency of many homes throughout Wales, including in my constituency.
Will the Government consider devolving to the Welsh Government responsibility for decisions on energy developments of up to 100 MW? We may be able to discuss that in Committee.
Finally, I recently visited the Celsa Steel UK facility in my constituency. Energy-intensive users, particularly in the steel industry, are concerned about the pressures that they face. The Celsa Steel UK facility is one of the most energy efficient in Europe, using electric arc furnaces. I had the pleasure of going around the facility and seeing those furnaces in operation. The facility uses 100% scrap steel that has been recycled using top-of-the-range energy efficient methods. It is concerned, however, about the prices that it is paying for electricity in UK markets, as opposed to what some of its competitors are paying in other European markets. Will the Minister comment on what is being done to support such energy- intensive users? We need to meet our decarbonisation targets and climate change obligations, while ensuring that those industries that are working efficiently can transition effectively and continue to employ people in my constituency and throughout the UK.
Christopher Pincher (Tamworth) (Con)
Members will be relieved to learn that I plan to speak only briefly. I welcome the Bill, which is long overdue and of tremendous significance to our constituents. Who can blame them? In the past several years, gas prices have nearly doubled and the number of people trapped in fuel poverty has trebled. Between 2004 and 2010, 2.8 million more people were trapped in fuel poverty. Although the previous Government introduced remedial measures to help those people in crisis and although the current Government have done the same with the warm home discount and the cold weather payment and by freezing council tax, those measures are merely a sticking plaster. They treat the symptom, but they do not provide a cure.
It is sobering to reflect that the previous Government spent £25 billion on measures to combat fuel poverty, but those measures were swamped by the volatility of gas and oil prices. Those are not my words; they are the Library’s words. I will support any measure and any reform that will ensure cheap energy. I will also support any measure and any reform that, in the words of my hon. Friend the Member for Wealden (Charles Hendry), who is professorial, takes politics out of energy policy.
I should like to address two matters specifically: the capacity mechanism, which is in the Bill, and demand management, as referenced by my hon. Friend the Member for Richmond Park (Zac Goldsmith), which largely is not.
The capacity mechanism is designed to ensure that we have a secure supply of energy. I believe that it also needs to provide us with an affordable supply of energy. I therefore hope that Ministers will listen to the calls from across the industry. Big six companies such as E.ON, gas storage providers such as Stag Energy, and the Carbon Capture and Storage Association all say that if we have an extremely complex capacity mechanism that places undue risk on generators and suppliers and that comes into effect only in 2018, it could increase their costs by between £3 billion and £13 billion. Those costs would be passed on to the consumer, adding £14 or more to energy bills. I am sure that the Government will agree that we should not introduce a measure that is intended to reduce bills but that has the perverse effect of increasing them, particularly for the poorest and the most vulnerable.
With respect to demand management, if we are serious about reducing the cost of bills and reducing our carbon footprint, we have to be serious about reducing our energy consumption, which has increased by about 75% since 1970. I therefore hope that Ministers will use the Bill to put rocket boosters under the green deal. It is an excellent concept, but it needs to be more effectively communicated. The electorate need to be informed, so that they embrace it and so that the take-up rate meets the Government’s expectations. I want the green deal not just to rely on cavity wall insulation, but to bring the installation of the best and most effective boilers and the use of the most effective smart meters, so that consumers are put front and centre in the driving seat, controlling their own consumption.
The Bill has the potential to deliver transformational change to our energy landscape and to have the biggest effect on it since privatisation a generation ago. I hope that the Secretary of State will use the flexibility that he has given himself through the long parliamentary journey that the Bill has to go on and through the mass of secondary legislation that we await to listen to the causes of consumers, the industry and investors and to deliver a robust Act that has the confidence of those investors, that reduces bills, that ensures that we cut our carbon emissions and that puts the consumer first.
Nia Griffith (Llanelli) (Lab)
First, I must register my disappointment that there is no decarbonisation target for 2030 in the Bill. When Labour was in government, it took the lead and brought in the world’s first Climate Change Bill. At that time, the then Opposition Members were only too keen to parade their green credentials and to ask for demanding decarbonisation targets. It is therefore very disappointing to see yet another broken promise and the Government ignoring the clear advice of their advisers in the Committee on Climate Change who have consistently recommended a target for 2030 of 50 grams of carbon per kilowatt-hour. A sector-specific target for 2030 would give investors a clear signal about the direction of energy policy after 2020 and encourage greater investment in the UK-based supply chains. I hope that that can be remedied in Committee.
I am also concerned about the lack of emphasis on energy saving and reducing demand. Such measures by no means take away from the urgent need to increase generating capacity, but they have a significant role to play. Reducing demand and improving energy efficiency reduce the overall generating capacity that is required. It also reduces bills for consumers when their homes or businesses are made more energy efficient.
The Government’s decision to end the Warm Front programme is short-sighted. It contrasts sharply with the Welsh Government’s commitment to energy efficiency. Following on from their Arbed 1 programme, which put £68 million of investment into energy efficiency, using mainly local installers, they have now embarked on Arbed 2, which will make energy efficiency improvements to 4,800 homes, with a minimum reduction of 2.54 kilotonnes of carbon.
The Welsh Government must be commended on their commitment to renewables. It would be nice if they had the opportunity to take charge of renewables up to 100 MW, but perhaps that, too, will be discussed in Committee.
No one denies that we need to rely on gas for electricity generation in the interim, but it is a mistake to see gas as a quick and easy solution at the expense of renewables. First, there is a problem of the security of supply. Relying on gas makes us dependent on supplies from abroad, but we cannot be sure that supply countries will always want to supply us or that they will not increase prices significantly. The domestic consumer may find that they have all their eggs in one basket because, if gas prices rise, the price of electricity that is produced from gas will also rise, which will be a double whammy. We seem to be wasting the opportunity to use gas for its versatility—it can be transported as gas and used as such, rather than used for electricity generation—and we must look carefully at that balance in the Bill.
As secretary of the all-party group for the steel and metal related industry, let me move on to energy-intensive industries. It is vital that appropriate help is given to those industries, many of which are making significant investments in upgrading their equipment and reducing their energy demand, which is clearly in their interest. At Port Talbot, for example, Tata Steel has spent more than £60 million on the waste gas recovery scheme, reducing carbon dioxide emissions by 240,000 tonnes per annum, and its new blast furnace will be 10% more efficient than previous models.
If we are to keep heavy industry in the UK and stop carbon leakage—allowing our steel to be replaced by imports from countries that are less strict on emissions—we must get things right for energy-intensive industries. As the Bill goes through Committee, it is essential that the Government stick to their pledge to give sufficient consideration to protection against the rising cost of energy from electricity market reform. Tata Steel paid £13.9 million in 2011 in renewables obligations and feed-in tariffs, which will rise to £26.4 million in 2013. That risks making steel in the UK uncompetitive compared with other European countries.
What measures—if any—are the Government considering to compensate for the impact on energy-intensive industries of existing pre-EMR renewables subsidies, the renewables obligation and small-scale FITs? What analysis has been made of the impact of the proposed capacity mechanism and increased balancing costs on industrial electricity prices, and how will energy- intensive industries be compensated for that?
David Mowat
The hon. Lady makes a number of interesting points on energy-intensive industries, most of which I agree with. Does she agree that, although the Government may be doing some things to help energy-intensive industries, energy use is a continuum and any energy that is differentially expensive compared with our competitors will hurt our economy? It is not only the intensive industries that we have to sort out.
Nia Griffith
It is important to be aware of the effect of our provisions on all industry and business.
In conclusion, I congratulate my right hon. Friend the Member for Neath (Mr Hain) on his support for the Severn barrage, and I hope that such support will be found more generally. It disappoints me significantly that the right hon. Member for North Somerset (Dr Fox) has taken to opposing the barrage and whipping up opposition, rather than engaging constructively and looking at ways to make it a valuable project. I congratulate my new hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) on his contribution to the debate, and I emphasise his point that we must remove barriers to independent and community generators to allow them to take part and contribute to energy sources in this country.
Peter Aldous (Waveney) (Con)
To my mind this is the most important Bill to come before the House in this Parliament, and if we get it right the rewards are significant. We will develop a secure energy supply for a generation—a supply that is home-grown, made in Britain and clean, and that means we are less vulnerable to fluctuations in the price of oil and gas on global markets. The move to low-carbon energy production could be the catalyst that ignites the green economy and provides the growth that we all want to get the country moving.
I see that potential in my own backyard, in East Anglia and my Waveney constituency. Last month, EDF launched its consultation for the construction of Sizewell C in the constituency of my neighbour, my hon. Friend the Member for Suffolk Coastal (Dr Coffey). This week, ScottishPower and Vattenfall have submitted their planning application for the East Anglia ONE offshore wind farm, the first of six potential projects in the East Anglia zone.
Low-carbon energy supply is the foundation stone on which a green economy can be built. It will enable us to rebalance the economy away from a reliance on the service sector, and provides the opportunity to regenerate parts of the country—often coastal communities—that we have left out in the cold for too long. The New Anglia local enterprise partnership recognised that opportunity in its green economy pathfinder manifesto, which outlines the significant growth potential that Norfolk and Suffolk possess. It is important that the Government provide the framework within which that growth can be unleashed.
The Bill sets about providing the framework and achieves the right balance of transforming our electricity market and minimising cost and consumer bill increases. It shifts our energy supply from largely fossil-fuelled power stations to a balanced mix of nuclear and renewables, and makes the electricity market more attractive to smaller, independent generators and suppliers. I welcome the investment and commitment shown by companies such as EDF, ScottishPower, Vattenfall and SSE, but it is important that we ensure the market is open to smaller community providers.
The Bill is a welcome move forward and provides the country with a great opportunity, but this is a complicated subject and the devil is in the detail. The Energy and Climate Change Committee pre-scrutinised the Bill and made recommendations, some of which the Government have taken on board. It is important that that spirit of co-operation continues in the Public Bill Committee. Issues such as whether there should be a decarbonisation target need to be considered carefully. I will not vote for the reasoned amendment, because the Bill points firmly in the right direction, but I ask the Minister for an assurance that that target will be considered fully in Committee and in the necessary evidence sessions. There is a view that setting a decarbonisation target now will help to develop the supply chains of businesses—this country’s businesses—that can and should build and install wind turbines and construct nuclear power stations. Suffolk is on the cusp of being home to two of the largest construction projects in the world. I want local businesses and local people to benefit. We need to provide every encouragement, and to nurture that local supply chain.
Last year, the Aldersgate Group, of which I am a member, produced a pamphlet, “Greening the Economy: A strategy for growth, jobs and success”, which expressed the view that the Government must provide long-term policy frameworks with a different combination of market-pull and supply-push interventions. That approach has helped to drive Germany’s renewable sector, made silicon valley a centre of technological innovation, and built South Korea’s high-tech manufacturing virtually from scratch. A great deal of work remains to be done, but the Bill has the potential to be a similar catalyst in this country. Let’s get on with it.
Alex Cunningham (Stockton North) (Lab)
The need for reform of the energy market could hardly be more pressing, with rocketing prices from the big six. They have a stranglehold over the market, and yet are content to make billions in profits between them while millions of people cannot afford to heat their homes. The Bill rightly tries to deal with the lofty issues of investment contracts, capacity agreements, barriers to market, access for new investors, low-carbon generation, and countless rules and regulations, but not one of them will mean much to consumers if they do not provide an answer to the crisis that has plunged millions of people back into fuel poverty, leaving many with the decision of whether to eat or heat.
The prices crisis extends to industry, and particularly to energy-intensive industries, of which I have many in my Stockton North constituency. We need to build confidence in our country’s energy policy and reverse the coalition Government’s failure to grow our economy. We know the UK renewable energy market has suffered under the weight of mixed and inconsistent messages from the Government. While we have dilly-dallied in Britain, other countries have simply got on with it. The EU contribution of renewables to total energy is around 13.4%, but we are third bottom of the EU renewable energy league table, and our renewables contribution is just 3.3%.
Other countries have built the capacity for manufacturing wind turbines and solar panels, so much so that Germany and Holland in particular are picking up billion-pound contracts for British offshore wind farms while British companies are excluded by the foreign-owned energy generators. That is very bad news for constituencies such as mine, where many of us saw the wind and solar industries as the future for thousands of jobs and as major manufacturing activities that could prove to be the saviour for our faltering economy. If the Government will not listen to industry, maybe they will take note of Roseberry primary school in Billingham in my constituency. It is engaged in the solar schools project because it recognises the environmental and financial benefits of solar power, and it is raising funds to install it.
The consensus among campaign groups seems to be that the Bill will not do enough for consumers. Which? recommends that rather than placing customers on the lowest tariff, the new regulations should ensure that all tariffs are structured with a simple, consistent unit price that allows people to compare and immediately identify cheaper alternatives, as they do with petrol prices. When even the lowest price in an uncompetitive market is too high, the Government must make it work better for ordinary people. Requiring generators to pool their power to create a genuine market would ensure that decreases in wholesale prices are passed on to consumers, not just the increases, which happens at present. Gas from around our coast is largely used up and we are now at the mercy of overseas prices. We need alternatives and cannot be totally dependent on other countries for our long-term energy needs.
During my career, I was involved in setting up fuel poverty campaigns, in partnership with energy suppliers, to develop projects that rescued tens of thousands of people from fuel poverty, to add to the several million others who benefited from similar schemes under the previous Labour Government. Stockton Warm Zone took thousands out of fuel poverty. Sadly, a large proportion of those people, and people across the country who benefited from efficient boilers and loft and cavity wall insulation, have now seen a reverse in their prospects. I am sad to say that more than 20% of households once again count as fuel poor. That is bad enough, but what saddens me further is the way in which the Government plan to take energy efficiency schemes forward, because it means that the kind of benefits enjoyed from schemes across the country can no longer be replicated effectively on a scale that will make a real difference. They should rethink the energy efficiency measures policy and maximise the sums invested by ensuring that every penny raised from consumers is spent on such measures.
From April 2008 to December 2012, the Department of Energy and Climate Change estimated that the carbon emissions reduction target and community energy saving programme cost the energy supply companies £5.5 billion, but it does not know how much each energy company paid per tonne of carbon saved. There is no clear audit trail of what happened to the money. Energy companies must be compelled to be transparent in their approach to how that money is invested—after all, it is a tax raised for the specific purpose of reducing fuel poverty and tackling carbon emissions.
I mentioned earlier that our energy-intensive industries are worried about the limited detail in the Bill about exactly which companies will be exempt from the cost of contracts for difference. For example, what would happen to SSI steelworks, which recently reopened at Redcar? It was not operating during the 2005 to 2011 window to qualify for an exemption. I hope the Minister will address that point, and tell us whether it will be protected.
David Mowat (Warrington South) (Con)
The overarching policy statement sets out the context of the problem we are trying to solve, and to which there are three dimensions: cost, decarbonisation and security. We have heard quite a lot about decarbonisation, and something on security, which has two parts to it: the level of imports that we continue to need and keeping the lights on. We have heard less about cost, and I will also talk about that.
On security, the big issue unique to the EU is that we must spend £200 billion on new capacity in the next two decades. The companies that need to spend that money are more or less the same companies that we have heard so much about from the Opposition, who say they are ripping off consumers and so on. I gently say to the Opposition Front Bench, and to other hon. Members, that if that sort of language is heard in the boardrooms of some of those companies—which, due to the previous Labour Government, are now principally foreign-owned—it will not be an incentive to invest in our country. A great deal of work needs to be done on that. The biggest source of the increase in electricity supply in the past three years has come from imports through the interconnectors from France and Holland. That is a failure.
On cost, fuel poverty increased from 6% to 16% in the decade up to 2010. It is not possible to grow an economy with differentially high energy prices, particularly when trying to rebalance it towards manufacturing. We must be cognisant of that.
It is right that we decarbonise, but decarbonisation comes at a cost. Ministers must accept that there is a cost to be paid and not hide behind savings from better energy use and all that goes with it. We need to win that argument, otherwise the whole thing will unwind over the next two decades.
I want to ask Ministers about a particular issue. Hon. Members have talked about the European dimension and globalisation. The hon. Member for Stockton North (Alex Cunningham) rightly said that we are 25th out of 27 when it comes to renewables, although that—I gently tell him—is something we inherited in 2010. Nevertheless, it is true. It is also true, however, that we are one of the best when it comes to carbon per head and carbon per unit of GDP. In particular, Germany uses 30% more carbon per head than we do and 25% more per unit of GDP. It is often set up as an exemplar when it comes to renewables, and it is true that it has a lot of renewables, but the reason it performs so much worse than us is that it burns so much coal.
David Mowat
It is more than remarkable. Germany has also banned carbon capture and storage. That says to me that the people in the heavy industries of the German economy will not put up with differentially high energy prices. Germany is about to build 23 unabated coal-fired power stations. We have heard about how the Opposition Front-Bench team apparently do not want us to build gas-fired power stations, but the amount of carbon coming out of coal-fired stations is huge.
Shale gas will probably not change the world. It has already happened in the US, which now has gas prices one quarter of ours, and it will use that to suck in the chemicals industry and the global chemicals capacity that we need in places such as Teesside and Stockton North. It might well be true that we will never get our gas prices down to the level in the US, but something has happened structurally in the world when an economy the size of the US has energy prices one quarter of what they are in Europe. We need to be cognisant of that and respond. PricewaterhouseCoopers has estimated that the benefit to US heavy industries of differentially low energy prices is $12 billion a year. Our shale gas prices might not deliver that, but shale gas could have a big impact on our economy.
I would like Ministers to consider certain actions. The first relates to honesty. If we must decarbonise, let us say that there is a price to it. Let us not say that it is actually cheaper. It is true that renewables are a hedge against rising fossil fuel prices—I do not hear that argument being deployed often enough—but it is also true that, at least for the foreseeable future, they are more expensive. We need to win that argument and take it head on, otherwise we will lose it incrementally. That is very important. Secondly, we should take on the EU over the confusion between renewables targets and decarbonisation. We are trying to decarbonise, not get higher up on a graph of who has the most renewables. They are not the same thing.
Mr Deputy Speaker (Mr Nigel Evans)
Order. The time limit is being reduced to four minutes. If hon. Members can make their points in less than four minutes, others may get in.
Mr Iain Wright (Hartlepool) (Lab)
I vividly remember speaking in the Second Reading debate on the Energy Bill of May 2011. I remember thinking that the Bill was a wasted opportunity, treading water while British industry and enterprise were being left behind by our competitors and failing to help vulnerable households at a time of rising bills. Nineteen months on, those comments could be replicated word for word about this Energy Bill.
When the Labour Government left office, this country was in the leading pack of economies for low-carbon technology, ensuring that we could exploit comparative market advantage in an important global sector. By May 2010, the UK was third in the world for investment in new low-carbon manufacturing and innovation. My constituency and the north-east region still have the potential to be the leading centre of excellence for energy production and distribution in its many forms—from nuclear to offshore wind, carbon capture and storage and energy from waste. However, this country is sliding down the competitiveness and investment tables faster than Father Christmas comes down the chimney. As my right hon. Friend the shadow Secretary of State said, Bloomberg New Energy Finance has stated that investment in renewable energy fell by a half in 2011. The debacle of the feed-in tariff for solar has damaged investor confidence. The CBI has said that
“while business wants to keep up the pace, they are equally clear that the government’s current approach is missing the mark, with policy uncertainty, complexity and the lack of a holistic strategy damaging investment prospects.”
There are also splits at the top of Government, with Ministers saying contradictory things. That has stalled investment and undermined the competitiveness of industry. The Chancellor says one thing, the Energy Secretary says another and the Minister of State—who is on the Treasury Bench—says something quite poetical and profound, but none the less questionable and contradictory. Little wonder that Camilla Cavendish wrote in The Times that companies
“remain uncertain about investing in the UK…the impression that the coalition is split has spooked companies whose boards need to commit capital for 20, 30, 50 years, whether in wind or nuclear power, biomass or solar.”
The Chair of the Select Committee on Energy and Climate Change said much the same thing in his contribution to today’s debate. Indeed, he said in a speech this week that
“instead of being out in front again, leading the green industrial revolution, Britain risks being left behind. Our competitors—China, Japan, Germany and the US—are pushing ahead on clean new technologies.”
This Energy Bill could have righted those policy wrongs. It could have provided a compelling vision, but it has failed to do so.
My second point is about the effect on people in Hartlepool. The situation in my constituency is getting worse: 42 people died in Hartlepool last year due to the effects of cold weather, up from 38 the previous year. That figure will increase this winter. Of course, nobody in this House wants to see death, which is the most extreme and unwanted example of a failed social energy policy, but there are far too many examples in Hartlepool of people being unable to keep warm this winter. Hartlepool is particularly vulnerable, owing to a relatively large proportion of pensioner households, people with long-term illnesses, high unemployment and low and part-time wages. One in six households in Hartlepool is fuel poor. Bills have gone up by nearly a third over the lifetime of this Parliament. Many people in Hartlepool now simply cannot cope with the rises in fuel bills.
This Energy Bill does nothing to alleviate those concerns or help vulnerable households in Hartlepool or elsewhere. There is nothing in the Bill to incentivise energy efficiency schemes, which might provide some respite to vulnerable households and provide some much needed employment in my constituency. Taken together with other things the Government are doing—such as ending Warm Front and slashing budgets to help fuel-poor households—this Bill is another missed opportunity to help those who are struggling and help the competitiveness of our economy. That is why I will vote for the reasoned amendment this evening.
Mark Reckless (Rochester and Strood) (Con)
Twenty years ago this country led the world in creating a competitive electricity market. This Bill promises electricity market reform, but the reality is that the contracts for difference, the capacity payments and the emissions performance standard will put an end to that market in any recognisable form. Instead, we will have a market that is fixed by civil servants.
When we hear “contracts for difference”, what that means is that instead of the price being set by the market, prices will be set by civil servants for decades in advance, with different prices for different technologies and, potentially, different prices for different consumers. They will not even depend on how much CO2 a particular technology emits; rather, they will depend on what civil servants happen to agree in their commercial negotiations with providers, who I fear will have them over a barrel. Our constituents will be ripped off, with tens of billions of pounds of their money being transferred to producers who manage to negotiate the best deal with civil servants, who I am afraid are not up to the job of running electricity in the way that a market could in the interests of our constituents.
We should consider the price that our constituents will pay. We hear Opposition spokesmen say airily, “It is only £100 a year: it is remarkably good value.” However, the DECC levy-funded spending is to rise from £2.1 billion last year to £9.8 billion in 2020, which is almost a fivefold increase. The Department’s spending is rising even faster than our contribution to the European Union budget. Moreover, our constituents will pay a great deal more than £100 a year. If we divide that £9.8 billion by the 27 million households in the country, the result is £360 per household.
Martin Vickers (Cleethorpes) (Con)
My hon. Friend is making some interesting points. Will he expand on the implications of that £360 figure? Is it connected with EU regulation?
Mark Reckless
A lot of it is connected with EU regulation, but many of the costs of EU regulation are outside and in addition to it. It does not include the EU’s emissions trading scheme. It does not include our own carbon tax, which will rise from £16 to £70 a tonne. It does not include what is happening with the national grid: just two days ago it was announced that that would add a further £15 to each household’s bill, and £8.50 of it will kick in next year—on top of the £53 that the national grid is already adding to bills.
The depreciated investment shown on National Grid’s balance sheet is only £20 billion, yet over the next eight years £38 billion more will have been invested. I fear that much of the investment that has taken place is merely to link wind turbines and other renewables from remote parts of the country with major population centres in order to make the grid less unstable than it would otherwise be. Because of what we are doing with these technologies, all of which are subsidised and costing our constituents large amounts of money, my constituents will have to choose between heating their homes and buying Christmas presents. I fear we have got ourselves into a Westminster bubble.
The only thing that I can say for the Bill is that it is not quite as bad as it would have been if the other lot were in charge. Debating how many hundreds of pounds we should be adding to electricity bills when 6 million, 7 million or 9 million households are in fuel poverty, with more than 10% of their spending going on electricity, is simply wrong. Sooner or later the electorate will prick that Westminster bubble, and many of us will be faced with the reality that very few of our constituents think it acceptable for politicians to load hundreds of pounds on to their electricity bills for the purpose of what is essentially a political conceit.
We hear it said that because so many other power stations are shutting down, we have to replace all the coal. No, we do not have to replace all the coal. The reason we are replacing the coal is the EU’s large combustion plant directive. It is shutting Kingsnorth power station in my constituency, with the result that 300 workers are losing their jobs, and we are losing £7 million in business rates because of the rateable value of the station. It could perfectly well go on producing electricity. It emits sulphur dioxide, which if anything is a cooling rather than a warming agent. However, it cannot be replaced with a more efficient coal-fired station that emits much less CO2 because of the emission performance standard that we are introducing, which basically bans any new coal-fired power even if it is much cleaner and emits much less CO2 than what it would replace.
David Mowat
My hon. Friend may know that Germany is about to build 23 unabated coal-fired stations. Perhaps those 300 people from Kingsnorth could find work over there.
Mark Reckless
My constituents work for E.ON, which is a German company, but I am not sure that they would want to move to Germany even if jobs were available. However, I understand what my hon. Friend is saying. We do not see the Germans, let alone the Chinese—or the Americans: we have just heard about the gas price there—applying legislation like the legislation that we are applying to ourselves. Although the Bill will constrict our industry and impose vast additional costs on consumers—on our constituents—we are going to vote it through tonight. I think that we need to care much more about the family budget, and minimise the costs that we, as politicians, are imposing on our constituents.
Mark Reckless
I do not think I should give way any more.
Why should we not just allow people to build power plants if they get local planning permission, thereby allowing them to support and pay the local community and sell into the market? Why do we want to ban some of the cheapest possible technologies for producing electricity? Why do we want to subsidise others, too—tens of billions of pounds might be transferred to an emanation of the French state? We should instead put our constituents first, and prioritise cheap electricity bills for them, and vote against this Bill tonight.
Mr Deputy Speaker (Mr Nigel Evans)
Order. May I point out that interventions could result in some Members not getting a chance to speak?
Ian Lavery (Wansbeck) (Lab)
The Bill is supposed to deliver secure, affordable and lower carbon energy. It is divided into six parts and is 195 pages long, and in the brief time available it will be impossible for me to discuss many of its most important measures, such as the contracts for difference, the capacity mechanisms, the emissions performance standard and the investment controls. I shall focus on the position of coal in the energy portfolio.
Several Members on both sides of the House have mentioned coal. The hon. Member for Rochester and Strood (Mark Reckless) mentioned it twice, once in an intervention and again in his speech. He said that the coal industry is being slaughtered as a result of EU legislation, and in particular the large combustion plant directive. That is partly true, but the fact is that coal has been frowned upon by Government after Government. Even in respect of the emissions performance standard for gas, the Bill allows the gas sector 450 grams of carbon dioxide per kWh, whereas coal has not got any such exemption, yet coal produces 50% of the UK’s winter-time energy requirement, and the average overall proportion is probably between 20% and 25%. Coal is, therefore, unbelievably important.
The Minister, the hon. Member for South Holland and The Deepings (Mr Hayes), is a great supporter of coal, and I am looking forward to hearing him say that he agrees with me that we must do everything we can to maintain what is left of the British deep-mine coal industry. We learned this week that Maltby colliery is to close. It is one of the last five or six collieries in the UK, and it has vast reserves. I look forward to hearing from my friend the Minister on how we can best maintain the British deep-mine coal industry.
We should bear it in mind that the rest of the world will be burning coal. As has been mentioned, Germany has shut down its nuclear power stations and will build 23 unabated coal-fired power stations. I am totally opposed to that. I believe that we should use coal, but we should do so responsibly by using carbon capture and storage and burning coal cleanly. That policy option is probably not on the agenda at present, but it should be. I am not sure how we can get rid of our coal capacity between now and 2020 or 2025 without there being an energy crisis.
Some 30 new gas-fired power stations will supposedly come on stream between now and 2030. I am amazed about that. Those power stations will be emitting gases at a rate of 450 grams of carbon dioxide per kWh.
Richard Graham (Gloucester) (Con)
I understand the hon. Gentleman’s passion for coal, but does he not agree that the decision to open three new power stations, with commitments from EDF Energy and Hitachi, will make an enormous difference in the provision of secure, clean and affordable electricity in this country, and does he not see the advantage of nuclear as well?
Ian Lavery
I see nuclear as part of a cross-portfolio of different types of clean energy, and leading that portfolio should be clean coal technologies, such as carbon capture and storage and burning indigenous coal reserves.
China will double its coal production over the next few years into billions of tonnes and will be burning coal largely unabated. The Germans and other nations that have coal beneath their feet will be digging it and burning it. Why should we not do that and use the new Energy Bill, with its capacity mechanisms and the contracts for difference, to bring investment forward for carbon capture and storage? We need to consider that and I hope we will get some small crumbs of comfort from the Minister on that issue.
Oliver Colvile (Plymouth, Sutton and Devonport) (Con)
Thank you for calling me, Mr Deputy Speaker, to speak in support of the Bill. The debate has reminded me why I should have paid much closer attention to my physics lessons when I was at school.
It seems to me that our country will face a series of issues over the next 10 years: securing a good, stable energy supply; ensuring that we play our part in cutting CO2 emissions in the fight against global warming; and developing new business growth in our economy. A number of Members have spoken about Ofgem and how it expects our energy capacity to fall from 14% to 4% by 2015-16. We must get on with this and I hope that the Bill will be the first step in delivering a much more sustainable energy supply.
Unless we are very careful, Britain will be increasingly reliant on foreign energy or, for that matter, will have to turn the lights out shortly before the general election. I am sorry to say that in my opinion the Labour party, when it was in power, was partly responsible. The Labour Government failed to deliver any nuclear power stations and when they were elected in 1997, they decided to introduce a moratorium on any new gas power stations but cut VAT on energy to just 8%. The policy was at war with itself.
In February, I went up to have a look at the British Antarctic Survey. Those working for BAS have drilled down into 800,000 years-worth of ice, have taken it out and are analysing it. They have found that for the majority of that time—700,000 years—there was almost no global warming, and when there was it was due to a tilt in the earth. Over the past 300 years, when we have had industrialisation, they are finding from the analysis that there have been significant levels of change in our atmosphere, which has ended up going into our sea and having an impact on our fishing stocks. It is very important that we do something about that.
In a meeting I attended recently, I heard that America is doing a significant amount of work and will be independent on energy in the next 10 or 15 years, whereas, as others have said, China will not.
I want to thank my right hon. and hon. Friends on the Treasury Bench for delivering a marine energy park down in the south-west, and I am delighted that part of it will be in my constituency of Plymouth Sutton and Devonport, using the south yard. I am grateful for that and will work closely with those on the Front Bench to try to deliver it. However, in order to ensure we can deliver the marine renewable energy park we must ensure that we have a significant amount of investment from the private sector. I am campaigning for that, because if we do not get it right, like a game of chess, it will be checkmate and we will be out of the game.
Steve Reed (Croydon North) (Lab)
The Bill misses an opportunity to support community energy co-operatives. Brixton solar energy 1 was the country’s first urban energy generation co-operative and was set up by the local community in Brixton, working in co-operation with the local authority, Lambeth council. Solar power generation is not generally feasible on the majority of houses, because they might face the wrong way or suffer from shading from chimneys or other structures, or because the roofs are too small. Collective schemes, such as Brixton energy, are far better. They require partnership working. Solar panels are more likely to be financially viable when they are built on social housing blocks, schools or other public buildings, or on churches or businesses that have a large roof space facing the sun.
Brixton solar 1 was built on the roof of a social housing estate, Loughborough Park in Brixton. Brixton solar 2 is being built on another part of the same estate and a third scheme is planned for another estate in the area. The schemes are funded by community subscription and offer a 3% return to investors, most of whom are local. They are part-resourced by the local authority, which makes the buildings available.
Those projects tackle fuel poverty by offering lower energy prices to residents, who benefit from the feed-in tariff. They reduce carbon emissions by generating energy sustainably, and some of the profits are invested in schemes such as draught-busting, retrofitting, home energy audits and training on energy efficiency. In addition, they build social capital; they bring communities together and keep profits circulating in the local community in a way that does not happen with larger energy companies.
Instead of supporting such schemes, the Bill offers smaller community generators lower market prices for their power, making them less financially viable, and it fails to recognise the administration costs needed to run them. The Bill also ends the renewables obligation, which means that suppliers have no incentive to purchase from independent generators such as Brixton solar energy.
The Bill should be amended to increase the fixed feed-in tariff threshold for community projects, guarantee a market for community energy schemes and set a minimum annual target for new generation capacity from community schemes. I should like to see local authorities incentivised to lower overall household carbon emissions in their area, which they could do in part by supporting projects such as Brixton solar energy.
The Government should recognise the benefits of co-operative energy generation projects in tackling fuel poverty and promoting sustainability, but instead of acting to help them expand to areas such as Croydon North, which have relatively high levels of fuel poverty, they have introduced a Bill that I fear will damage those initiatives.
Martin Vickers (Cleethorpes) (Con)
The Bill is important for the country and particularly for my constituency, as its economic future is closely linked to the development of the offshore renewables sector, which is a vital ingredient if we are to see the economic renaissance of northern Lincolnshire and Humberside. Indeed, the Government recognised that by establishing the pan-Humber local enterprise partnership with specific responsibility for developing an energy super-cluster for the renewables sector. Growth is already happening, with more than 1,500 jobs having been created in the year to April. More than 20 vessels now sail from Grimsby docks to service offshore projects. Those jobs did not exist two years ago.
The green economy is producing jobs as well as improving the environment, but taxpayers and customers must be convinced. The Humberside area highlights the difficult balance the Government must achieve, as a large proportion of the jobs in or close to my constituency are in energy-intensive industries—oil refineries, chemicals, Tata Steel at Scunthorpe and others—while as I said, thousands of future jobs depend on the offshore renewables sector. Crucial to those long-established employers is the secure, reliable supply of energy that allows them to compete on the world stage. I welcome the scheme that goes some way to compensate some of those energy-intensive businesses.
I make no apology for stressing offshore. I recognise the industry’s preference is for onshore, where costs are considerably less; but it must be accepted that across the country, especially in a constituency such as mine, which is located on the edge of the Lincolnshire Wolds—an area of outstanding natural beauty—an overwhelming number of residents oppose onshore turbines. Recent comments by the Minister of State, the hon. Member for South Holland and The Deepings (Mr Hayes), have been warmly welcomed throughout Lincolnshire. I fail to understand why developers do not consider dockland and industrial areas for onshore turbines.
Doubts remain among our constituents as to the value of wind power, and I share them; but the course is set and I want the much needed investment on the Humber bank. If we are to have wind turbines, I want them designed, constructed, serviced and maintained in northern Lincolnshire with the corresponding benefits to existing local businesses, including the supply chain. I am pleased that, after a protracted planning process, progress is now being made with the south Humber energy park. The area is also gearing up, through its local colleges, to establish better training courses.
Whatever course is followed, what potential investors want is certainty, and what those of us paying the bills want is transparency and clear, logical reasons as to why those bills must subsidise large, multinational energy conglomerates. From the point of view of domestic customers, the most welcome feature will be the proposals, helpfully trailed by the Prime Minister, that will result in a reduction in household bills of between 5% and 9% between now and 2030.
This issue is yet another tightrope across which the Government must tread. The public, though still somewhat sceptical about climate change and moves to wind energy, recognise that there are massive costs in its development, but there is a limit to what they are prepared to pay. I have already mentioned the need to limit the costs to industry, but for hard-pressed households, particularly in areas such as my own, where wages are much below the national average, that is absolutely vital. Constant attention is needed to that, and I urge Ministers at all costs to ensure that the consumer is the focus of their—
Mr Michael Meacher (Oldham West and Royton) (Lab)
The interpretation that the Secretary of State put on the two main mechanisms underpinning the Bill was, in my view, disingenuous at best and seriously misleading at worst. Under the contracts for difference, the Government will agree a strike price with an electricity generator, offering a guaranteed payment per megawatt-hour of electricity. That means that nuclear generators will have a built-in certainty that, come what may, they will get whatever they demand as a necessary return on their investment—and nuclear plants do not come cheap at £8 billion a time—courtesy of the taxpayer.
Today the Secretary of State repeated again the fake promise that there will be no public subsidy. Parliamentary answers of 8 March 2011 showed that the cost of generating new electricity will be up to £98 per MWh, yet even EDF’s chief executive, Vincent de Rivaz, has estimated that the strike price will be at least £140 per MWh. That implies a public subsidy of £4 billion or more. However, Citigroup analysts have estimated that it is likely to be £166 per MWh. That would require a public subsidy of £5 billion—so much for there being no public subsidy.
Then there is the issue that nuclear costs are on an ever-rising spiral, while renewable costs are set to fall dramatically. For example, large-scale solar will reach grid parity prices this coming year, so feed-in tariff payments to renewable technologies have falling digression rates attached to them, requiring ever lower annual payments for their electricity. Nuclear, however, is a technology requiring an internal subsidy on a rising cost curve. Contracts for difference are therefore in this Bill the mechanism to lock the UK into an ever rising cost spiral for uncompetitive nuclear.
Then there are the so-called capacity mechanisms, which bail out the old fossil fuels. Wind, waves and sun are, of course, free, unlike gas. The obvious policy is to give them priority in meeting grid requirements, leaving the more expensive and polluting fossil fuels to fill in the gaps. That is exactly what happens in Germany, which has reduced the price of electricity at peak demand by between 25% and 40%. If that were done in the UK, it is estimated that it would generate another 77,000 jobs and remove nine out of 10 families from fuel poverty. But that is not what is going to happen in this country under the Bill. Experience in the US of the first six rounds of capacity payments showed that existing fossil fuels took over 70% of the payments under such auctions. It is really tragic that this Government are squeezing renewables in this way, even though they are the most cost-effective methods.
There is one further absurdity. DECC’s own demand-reduction project, published in July this year, found the following:
“We have identified…155 TWh of demand reduction potential…across all…sectors, of which current policy is estimated to capture…54 TWh”.
Frankly, that undermines the whole case for building any nuclear power stations at all, since the 100 or so TWh of savings that remain to be captured are almost exactly the same as the total quantity of electricity that the eight new nuclear power stations are expected to generate.
Caroline Lucas (Brighton, Pavilion) (Green)
I tabled a reasoned amendment to decline giving the Bill a Second Reading. I do not do that lightly, and I recognise that there are some small steps forward, including the £7.6 billion for low-carbon energy to 2020, but overall the Bill fails miserably when compared with the scale of the challenges we face. It fails, first, on energy bills and the scandal of 6 million households in fuel poverty; secondly, on the scale and pace of carbon reduction needed; thirdly, because it does not fully recognise the huge potential of energy efficiency and renewable energy, including community renewables, to meet energy needs and create thousands of jobs now and into the future; and finally, because it locks us into a centralised fossil fuel and nuclear energy system at exactly the time when we need more decentralised energy.
Lack of time means that I can focus on only a few aspects. I agree with everything that the right hon. Member for Oldham West and Royton (Mr Meacher) said about nuclear. Let me say a few words about energy efficiency and fuel poverty. It is extremely disappointing that the Bill overlooks the huge potential of energy efficiency and demand reduction, despite widespread consensus that they are the cheapest, quickest, most effective ways to protect householders and businesses against high energy bills and to cut emissions.
The Government’s record is dismal. Ministers have slashed overall funding for fuel-poor households by 26% and cut energy efficiency funding for fuel-poor households by almost a half. I very much hope the Government will table amendments on demand reduction when the last-minute consultation is complete, and that they are commensurate with their own analysis, which shows that demand for electricity could be cut by at least 40% by 2030. Unfortunately, current policies would achieve at most about a third of that potential. It is crucial that any such demand-side incentives do not compete with renewable energy, and I hope Ministers will today confirm that demand-side measures will not be funded by the levy control framework.
It is worth reiterating that whether we see proposals for an energy efficiency feed-in tariff or other mechanisms, they must be additional to wider measures, including high efficiency standards for buildings and the recycling of revenue from carbon taxes and the EU emissions trading system to invest in a nationwide housing retrofit to ensure that all our homes need far less energy in order to keep warm.
On renewables, I welcome the announcement last month that the Government will provide sufficient funds through the levy control framework to ensure that the UK meets its legally binding renewables target by 2020. I sincerely hope that that will help reverse the current situation in which the UK is falling miserably behind other EU countries. The UK languishes at third from the bottom of the league table, on just 3.3% in 2011, a quarter of the EU average.
I am worried also about the future of community energy, on which Ministers deliver platitudes and promises but no policy. As a result, the Bill prolongs the uncertainty faced by small electricity generators, including community-owned renewables. What we need is a radical change in ownership—a move towards many more independent generators, smaller companies located in the UK, and community and co-operatively owned energy generation. Many hon. Members will have in their constituencies projects similar to Brighton energy co-operative that offer a real alternative.
I hope we can work together to change the Bill so that it does not disadvantage such schemes, by supporting, for example, the creation of a purchaser of first option to provide a guaranteed market for community energy schemes and other smaller generation projects; an increase in the fixed feed-in tariff threshold to allow funding certainty for community projects; and a minimum annual target for new generation capacity from community renewables schemes.
I will not go into detail—the House can imagine why—on the many reasons why I am a supporter of putting a decarbonisation target in the Bill, but at the risk of sounding just like the Prime Minister did two years ago, I will quote him. He said:
“If we don’t decarbonise electricity, we’ve got no hope of meeting the targets that we’re all committed to.”
That means at the very least a 2030 target of 50g of CO2 per kilowatt hour by 2030. If the scientific evidence shows that we should have more ambitious targets, however, for either power sector or economy-wide decarbonisation, it is crucial that the Bill provides a mechanism to ensure that that can happen in a timely manner.
Mr Deputy Speaker (Mr Nigel Evans)
To resume his seat no later than 6.40, I call Mr David Anderson.
Mr David Anderson (Blaydon) (Lab)
Thank you, Mr Deputy Speaker.
We face the party that inherited the policies of the past 30 years, the party that believed that to tell Sid was the way to go ahead, but what did it tell Sid? “Buy something you already own”, it said. The party told him that he would be part of the great share-owning democracy. The party told Sid not to worry. Those wonderful private companies were dedicated to serving the public, they would ensure that they invested in the infrastructure, and they would give the country great value for money and transfer all the risk away from the public sector.
What the party did not tell Sid was that 9 million people would be living in fuel poverty by 2016; that it would set up a cartel of six big energy suppliers that would have complete control over every facet of energy policy; that the industry would be regulated by the weakest regulator in history; that it would fail badly to invest in the industry’s infrastructure; that we would face the real possibility of power cuts as a result of that failure; that we would have a national grid that has been described as not fit for purpose; that the failure to invest in skills and training would leave a work force incapable of dealing with the challenges we face; and that, 30 years down the line, the industry would want another £250 billion from the men and women of this country—
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
We have had an interesting and, at times, enlightening debate on what will be highly significant legislation. Given the number of contributions that we have heard, I apologise in advance if I am unable to refer to them all in my remarks.
As my right hon. Friend the Member for Don Valley (Caroline Flint) said at the beginning of the debate, the Opposition share the objectives that the Government have set for the Bill. However, as we have heard from many right hon. and hon. Members, including my hon. Friends the Members for Glasgow North West (John Robertson), for Ynys Môn (Albert Owen) and for Southampton, Test (Dr Whitehead), parts of the Bill still require further detail and greater clarity and gaps need to be plugged.
The Minister, who is charged with taking the Bill through Committee, can anticipate full scrutiny on the many issues that have been flagged up today by hon. Members from across the House. I am sure that he would expect nothing less. Indeed, he is known to be a fan of Burke and a prodigious quote machine, so he will know that Burke said:
“Bad laws are the worst sort of tyranny.”
As my hon. Friend the Member for Ynys Môn said, we do not consider the Bill to be a bad one, but we do consider that it requires some improvement and change.
I hope that the Minister’s constructive approach will endure through Committee. Judging by the nature of the contributions from hon. Members on both sides of the House, he will have heard a significant number of concerns expressed about the areas that require further work. It is in that spirit of constructive engagement, genuine scrutiny and an overriding determination to improve the Bill that we will act, as our reasoned amendment makes clear.
As the hon. Member for South Suffolk (Mr Yeo), who chairs the Energy and Climate Change Committee, said earlier this week:
“This legislation is far too important for Britain’s future to get wrong.”
As the hon. Member for Wealden (Charles Hendry) and my hon. Friend the Member for Wansbeck (Ian Lavery) observed, in the next decade around 20% of the UK’s generating capacity is likely to cease to operate. The hon. Member for Rochester and Strood (Mark Reckless) referred to the power station in his constituency, and although some nuclear power stations have had their lives extended in recent weeks, the power stations at Cockenzie, Didcot and Tilbury are likely to close in the next few months. The hon. Member for Selby and Ainsty (Nigel Adams) referred to the Ofgem report and the impact of the capacity squeeze over the next few years.
For all those reasons, the Bill is very important and the implications of not dealing with these issues are particularly serious, as my hon. Friends the Members for Southampton, Test and for Edinburgh North and Leith (Mark Lazarowicz) said in reference to our carbon targets.
It has been a long road to get to this point. It is almost two years since the Government launched their consultation on electricity market reform. Since then, we have had a White Paper, technical updates, a draft Bill, pre-legislative scrutiny, which my hon. Friend the Member for Glasgow North West and other members of the Select Committee referred to, and now the Bill is before the House. I am sure that Ministers would concede that it has not been a painless process for the Government. The Chancellor’s interventions have not always helped in DECC’s desire to provide, if not certainty, certainly predictability for the investments that need to be made in the future, as my hon. Friend the Member for Ynys Môn observed.
What the Minister described in last night’s Adjournment debate as the great bargain between DECC and the Treasury, with the incessant semi-public fighting within Government, has left many people nervous and reticent about investing in the UK. Those mixed signals are not good for reducing the capital costs of investment, as the former Minister, the hon. Member for Wealden, my hon. Friend the Member for Stockton North (Alex Cunningham) and others observed.
The recent Ernst and Young renewable energy attractiveness index for the third quarter of 2012 blamed
“political miscommunication and the lack of consistency”
over key energy reforms for impeding future investment in the UK. We cannot allow that situation to continue. Without a sense of purpose, the upgrade in energy infrastructure that we need in this country will not happen as quickly and might well cost more, and we will be ever more at the mercy of global commodity prices than we would be with a much more balanced and diverse energy mix that many of us, although not all who have taken part in the debate, see as very important.
As many hon. Members, including my hon. Friends the Members for Southampton, Test and for Ynys Môn and the hon. Member for North Warwickshire (Dan Byles) made clear, there are gaps and omissions in the Bill. There are not yet measures on demand reduction, as my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), my hon. Friend the Member for Llanelli (Nia Griffith) and the hon. Member for Tamworth (Christopher Pincher) mentioned. There is not yet any fulfilment of the Prime Minister’s promise of a few weeks ago on prices and not yet, as my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) and many others observed, a clear 2030 target for the decarbonisation of the power sector.
All those things, I contend, are required to stimulate the necessary investment. As the Chair of the Energy and Climate Change Committee said earlier this week:
“Setting a target for emissions from electricity generation as recommended by the Climate Change Committee has been put off until 2016, prolonging the political and regulatory uncertainty that is killing investment.”
That issue is at the heart of our reasoned and reasonable amendment, and it is an issue for which the Secretary of State and his Cabinet colleague the Chief Secretary to the Treasury argued vehemently less than three months ago at their party conference. We all know how important consistency is to the Liberal Democrats; we also know the perils of inconsistency and the need to ensure that we move towards a decarbonisation target.
As one industry chief executive remarked to me just last week, targets help investors see the direction of travel, like the star shining over Bethlehem that showed the direction of travel for the three wise men. As I look at the ministerial Bench this evening, I indeed see three men; given the charitable time of year, I will wait until Third Reading to judge their wisdom.
Also missing from the Bill are measures to support the type of co-operative and community energy about which my hon. Friends the Member for Edinburgh North and Leith and for Cardiff South and Penarth spoke so eloquently, as did my hon. Friend the Member for Croydon North (Steve Reed), with his experience of what happened in Brixton. Members will be aware that his predecessor was one of the most thoughtful and serious contributors to energy debates in the House; in this, as in many other respects, he has a worthy successor.
The Secretary of State recently said that he wanted nothing less than a community energy revolution. I say to him that the Bill is an opportunity that we will help him to use to encourage that. There remain serious questions. We are all pleased to see the hon. Member for Montgomeryshire (Glyn Davies) here 10 years after his operation; he referred to some of the difficulties with the detail of the contract for difference. Many other hon. Members referred to the capacity market and other things for which some detail has yet to be given.
I can anticipate some of what the Minister, a seasoned and erudite contributor to the House, may well say in response this evening. He will doubtless quote Dickens, Churchill, Burke or Disraeli—if we are lucky, more than one of them. He will indicate his own brand of energetic commitment to the Bill and say that he is working with officials, industry and stakeholders to hammer out the detail to which I have referred. Yet a failure to fill some of the gaps in such a significant Bill, leaving it all to secondary legislation, will prolong the period of uncertainty.
Were the Minister able to offer publication of some of that secondary legislation in draft in Committee, Members on both sides would find that extremely helpful for effective scrutiny. At the very least, Ministers should be able to ensure that the impact assessment is updated before Committee and made available to Members; I have raised the issue directly with the Minister and his officials, but it is important to get that on the record to ensure that there is a commitment to assess properly the impact assessment that needs to be updated.
It is in the best interests of the country that the Bill should leave the House in the best possible shape. The Minister prompts me, just by his presence, into recalling the words of Disraeli:
“The world is governed by very different personages from what is imagined by those who are not behind the scenes.”
I anticipate keenly my behind-the-scenes encounters with the Minister and hope that he will not disappoint me in taking into account the many issues that have been raised not just by Opposition Front Benchers but by Members across the House during the debate.
It is a pleasure to be taking part in the final debate of the year on Government legislation before Christmas, before many of us spend time with our friends and families—and in my case, no doubt, a daily dose of Peppa Pig. Christmas is also a time of year for reflection. Given the pace of our work and proceedings in the House, we often do not get much time for the luxury of reflection. I therefore conclude by genuinely wishing Ministers a happy Christmas and expressing the hope that during this period they will have the opportunity to reflect on the issues raised by Members across the House and come back reinvigorated, refreshed and ready to engage in those issues so that we can ensure that this Bill does the job that many of us want it to do.
The Minister of State, Department of Energy and Climate Change (Mr John Hayes)
Labour Members really are keen now to emulate us as the party of one nation, because we heard the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) quote both Burke and Disraeli. I do not want to disappoint him, so I will start by quoting Mark Twain, who remarked,
“what is a man without energy? Nothing—nothing at all.”
It is in such energetic spirit that I begin to sum up this important debate. Let me say at the outset that we will certainly make the revised impact assessment available before scrutiny starts in Committee, and we will certainly, in the spirit in which I intend to conduct the Committee, make available draft material of the kind that the hon. Gentleman described so that, I hope, all members of the Committee get the chance to shape the Bill, as he suggests.
Let me give the hon. Gentleman another quotation—
Mr Hayes
Not until I have quoted Ruskin—that would be premature—but I will do so immediately afterwards.
“The first duty of government”
according to Ruskin,
“is to see that the people have food, fuel, clothes. The second, that they have means of moral and intellectual education”—
and who better to intervene on the subject of moral and intellectual education than the right hon. Gentleman?
Mr Hayes
As I hope the right hon. Gentleman knows, we are committed to helping low-income and vulnerable households to heat their homes affordably. As part of our work to redefine fuel poverty, we have announced that we will publish a refreshed strategy for tackling it in 2013—he will know, too, that that is the first such strategy since 2001—because we want to ensure that resources are used as effectively as possible. I will be more than happy, following his intervention, to go back to my Department and recommit to that, because I share his passion for the vulnerable. I have little power over food and clothing, although I will continue to do all that I can to make the case for moral and intellectual education. I can certainly say with confidence that the Government, through the Bill, will enable the market to provide the fuel that we need.
My hon. Friend the Member for North Warwickshire (Dan Byles) and the Secretary of State himself said that the Bill has been warmly welcomed. I appreciate the broad welcome that it has been given by hon. Members across the House, including by shadow Front Benchers. It deserves such a welcome because it provides a framework for certainty to bring heat to homes, light to lives and power to the people, as the Secretary of State made clear in his opening remarks. Most importantly, it ensures a future where the needs of the many, not the interests of the few, drive energy policy. Our utmost priority is that consumers get secure energy at the best prices.
Let me say a few words to my old friend, the right hon. Member for Oldham West and Royton (Mr Meacher). It is true that nuclear power is part of our strategy, but not at any price. Some of the things that he suggested are well outside what would be the acceptable range in the interests of taxpayers. I cannot say more, of course, because this is a commercial matter, but I just say again: not at any price.
The Bill will, in the terms that the shadow Secretary of State, the right hon. Member for Don Valley (Caroline Flint) described, bring about unprecedented investment. That is necessary simply to ensure that supply meets demand. As my hon. Friend the Member for Wealden (Charles Hendry) said, the certainty that comes from long-term contracted prices also reduces the cost of capital, which is vital. As the Secretary of State observed, this is a growth Bill. It will bring jobs and investment to every part of the UK, by providing a boost to the energy industries through developing the low-carbon supply chains that my hon. Friend the Member for Cleethorpes (Martin Vickers) said were so important to his area, as to many others.
I ask hon. Members to reflect on this: when we speak of infrastructure investment, we frequently speak of housing, transport, roads and rail, but let us from now on ensure that whenever we speak of infrastructure investment and macro-economic policy, we speak too, largely and loudly, of the importance of energy. That is something that can unite the whole House.
I share the passion of the shadow Secretary of State and the hon. Member for Glasgow North West (John Robertson) for a more plural and more liquid system. I agree that, under the system that will be devised as a result of the Bill, the energy marketplace will need to be more competitive, because it is through that competitiveness that prices can be driven down. It is curious—I will put it no more strongly than that in the interests of creating a consensual approach to the Bill—that the Labour party should say that, given that the number of energy companies fell from 14 to six on its watch.
It is still more curious that Labour Members are advocating a return to the pool. I do not agree with them about that. [Interruption.] The right hon. Member for Don Valley says that it is a different pool, but she will know that the National Audit Office has said that in effect, despite lower input fuel prices and reductions in the capital costs of generating, the pool—which was abandoned by the Labour Government, not ours—meant that consumers paid higher prices than necessary. There are real questions about the gaming that takes place in a pool situation and the effect that that has on consumer interests.
Mr Hayes
My hon. Friend will know that the CCS cost-reduction taskforce reported just a week ago and concluded:
“UK gas and coal power stations equipped with carbon capture, transport and storage have clear potential to be cost competitive with other forms of low-carbon power generation, delivering electricity at a levelised cost approaching £100/MWh by the early 2020s”.
That is not my conclusion, but that of the independent taskforce. By the way, the hon. Member for Wansbeck (Ian Lavery) is right that CCS can and should include coal. It is absolutely right that, in the long term, we should consider gas and coal as low-carbon technologies, alongside renewables and nuclear.
This is a framework for certainty and secure investment, a commitment to rejuvenate our infrastructure and an understanding that, with a mixed economy of generation, we are most likely to build sustainability by building resilience. We grasp that this is a growth Bill that offers a chance to deliver jobs throughout the whole country. Changes have also been made as a result of the scrutiny of the Energy and Climate Change Committee. There has been a proper process whereby the Committee’s considerations on things such as the counterparty body have been taken into account, considered and acted on. The Bill has been framed on the basis that it will not merely be legislation for this Parliament, but an Act that can help us to inform the future and, in the words of the right hon. Member for Don Valley, shape our destiny.
Some will say that the Opposition, in tabling a reasoned amendment, are dancing on the head of a pin, but I want to defend their Front Benchers. It is true that they are dancing—the choreography being more Sid Owen than Cyd Charisse—but they are trying to occupy a space on narrow ground, because they know, in practice, that the Bill will deliver the kinds of reforms that they would also seek in government. They know, too, that they share the Bill’s purpose, which is to deliver safe, secure, sustainable and affordable energy for future generations. I welcome the chance to shape the Bill to that purpose in Committee.
The spirit that the hon. Member for Rutherglen and Hamilton West proposed should enliven all we do is a spirit that I share, and I invite Members to reject the amendment and to support the Bill in that very spirit—the national interest and the common good that drives all we do.
Question put, That the amendment be made.