The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, the Government work closely with Ofgem and National Grid to consider the outlook for generation capacity each winter. Ofgem’s report is valuable for aiding this process. The Government are taking the necessary steps to ensure that we have enough capacity to maintain a secure electricity supply at the most economic cost to the consumer. This will be achieved through new system balancing services in the short term, if Ofgem decides they are needed, and then through the capacity market. We have confirmed that we will initiate a capacity market in 2014 for delivery in 2018.
Lord Ezra
My Lords, I welcome the measures proposed in the Energy Bill to avoid future shortages of electricity supply. However, as my noble friend has pointed out, these measures cannot come into effect until 2018. Meanwhile, Ofgem, in its report of 27 June, has pointed that reserve electricity capacity could fall as low as 2% by the winter of 2015. This has been brought about by more capacity being closed or mothballed than new plant coming in. Could not a better balance have been achieved, bearing in mind that Ofgem has been warning about this problem since 2009?
Baroness Verma
My Lords, my noble friend raises a number of very important points. While I cannot answer for what the previous Government should have done, since 2010, the coalition Government have been working closely with Ofgem and National Grid to address the security of supply as a very high priority. A significant amount of potential capacity is available through de-mothballed plant and demand-side response. The measures being consulted on by National Grid and Ofgem would, if used, enable the procurement of the amount of capacity needed to ensure security of supply, allowing them to respond accordingly.
Lord Dubs
My Lords, will the Minister confirm that in the middle of last December the lights virtually went out because there was no spare capacity at all, and if the weather had got a shade colder, the lights would have gone out? Is it not time that we made some clear decisions about our fuel supply in this country?
Baroness Verma
My Lords, the noble Lord is right that we need to make some secure decisions. That is why, through the Energy Bill, we are reforming the electricity market and also making sure that we have a greater diversity in the supply of energy. A key part of balancing the service is the short-term operating reserve that we already have. The National Grid aims to have around 1,800 megawatts of this reserve available every day across a number of contracts, so I can reassure the noble Lord that the lights will stay on.
Lord Howell of Guildford
My Lords, is the Minister aware that in Germany, CO2 emissions are rising very fast, they are burning more coal than ever, their solar industry has collapsed, and, of course, that they have banned any expansion or indeed any use of their nuclear power stations? Does she agree that that is not exactly an example that we want to follow? Is not the right course for us, as she herself has steadfastly urged, to get on and invest as fast as possible in new gas turbines and, in due course, when we can afford it, in new nuclear power?
Baroness Verma
I agree with my noble friend absolutely that we do not want to be a country that will increase CO2 emissions and that the path we have taken is a balanced one.
Lord Elis-Thomas
My Lords, does the Minister agree that this situation has been brought about by the failure of successive Governments to invest adequately in alternative low-carbon forms of renewable energy, and also to invest in new nuclear? Will she now agree that it is absolutely essential that projects such as the Horizon project at Wylfa B in Anglesey should go ahead as soon as possible?
Baroness Verma
My Lords, as I have said on a number of occasions at the Dispatch Box, the Government have taken very seriously the point that we need to ensure a diverse source of supply of energy. Among them, of course, are the renewable sector and nuclear.
Lord O'Neill of Clackmannan
My Lords, in the nuclear sector, will the Minister care to tell us how far we have got in the negotiation of a strike price? It was suggested some time ago that EDF was in a mood of cautious pessimism. Are we moving towards cautious optimism or is it just stalemate, as it has been for the last year and a half?
Baroness Verma
As the noble Lord knows, I am a person of great optimism and the negotiations are ongoing. We should be optimistic about what this country can offer for nuclear and for renewables.
Lord Cormack
My Lords, reverting to the point of balance raised by the noble Lord, Lord Ezra, does my noble friend agree that it is far more important that we keep the lights on than that we achieve a European target at a specific time? Perhaps some installations that are mothballed ought to be taken out of mothballs.
Baroness Verma
No, my Lords, the path that the Government have taken is absolutely the right one. A number of plants are mothballed, but, as I said earlier, they can come on board if we require them. At this moment, we do not require them.
Lord Stoddart of Swindon
Did I hear the noble Baroness aright, when she said that the spare capacity was 1,800 megawatts? If so, that represents only 4% of maximum demand. When I worked in the electricity supply industry, we believed that we could not run the system with less than 18% spare capacity. If we are down to 4%, we are in a very serious position.
Baroness Verma
My Lords, I said that we already have 1,800 megawatts to draw on, but that Ofgem and National Grid are consulting on whether, in the short term, we need to procure more.
Baroness Worthington
My Lords, is it not quite clear that the best way to solve any potential capacity crunch would be to focus on demand-side management and response? What has changed in our profile of electricity demand is that demand is now flat and falling. That can be encouraged with smart investment in strategies and policies that bring that forward at an even faster pace.
Baroness Verma
As the noble Baroness is aware— we are, of course, having rounded discussions through the Energy Bill—that is among the options we are looking at.