Energy Bill
Debate between Baroness Liddell of Coatdyke and Baroness Worthington
Baroness Worthington
I thank the noble Lord for his timely intervention. I could not agree more. It is a shame that those statistics were not trumpeted more. We would all feel very proud that that happened at a time when the rest of the economy was not doing so well. It was not just that there was good growth in that sector but it positively affected our balance of trade. There are very few sectors in which we can say we have a positive balance of trade with China, but in this sector we can. As the noble Lord alluded to, the global average rate of growth in this sector was only 4%, while we were at 4.8%. Tiny nation though we are, our growth in this sector is outstripping much larger nations. We are up in the top six countries in this sector. I am sorry that I am waxing lyrical slightly here but it is important. We are a nation of innovation and entrepreneurial spirit. We were the country that brought the Industrial Revolution to the world; let us not forget that. Let us hope that we will remain at the forefront of this industrial revolution. I know that that sounds like a grand introduction but it is pertinent to this part of the Bill. We really need to make sure that this sector is protected and that no unintended consequences are meted out to it as a result of the Bill.
Why is there an issue? It is probably fair to say that it was already emerging. The renewables obligation has been a good policy that has driven a lot of investment, but we were already hearing that independent generators were finding it difficult to secure power purchase agreements. At the heart of this issue is the problem, alluded to many times throughout our deliberations in Committee, of the vertical integration of the big six. There is no liquid, open competition in generation. We have an oligopolistic system of six vertically integrated companies that dominate. It will come as no surprise that on this side of the House we believe that the time has come to address that. We would have preferred to see genuine market reforms that required the selling of power into a competitive pool, which would be good for competition, liquidity, the independent generators and the consumer. We know that the Government are not yet there but we hope they will join us soon.
It is true that the Bill helps to make the case even stronger for splitting apart that vertical integration because we are moving into a system of contracts for difference. We are moving away from the arguments in favour of vertical integration, which are that you need it to secure finance and build new capacity, but when you have a CFD the argument is, by and large, weakened. There is also a big intervention in the capacity mechanism. The time is therefore coming, if not now then very soon, for the issue to be properly addressed.
I want to say a word about Amendment 55AGA, to which the noble Lord, Lord Roper, has spoken. These proposals, though welcome, come quite late in the day. As has been mentioned, we have known about this problem for two years and yet here we are addressing the issue on the eighth day in Committee and on the final stretch. I think it was the noble Lord, Lord Jenkin, who said that it feels as though we are making things up as we go along. I would not say that it was as bad as that but it does feel as though these measures have been considered quite hastily. Making this a negative resolution risks the ire of the Delegated Powers Committee, which has not yet had a chance to consider it, and we strongly urge acceptance of Amendment 55AGA in order that we may properly scrutinise this complex and rather late addition to the Bill.
I should have said at the start that I want to pay tribute to my colleague, Alan Whitehead, in the Commons, who helped raise this issue. I apologise on behalf of my noble friend Lord Grantchester, who was going to speak to the amendment. He cannot be in his place today but he wishes us every speed.
I have explained why there is an issue and, in the spirit of collaboration and seeking to make the Bill as strong as possible, I should perhaps now explain what I think the solutions are. First, we know that the industry wants to find a resolution to this issue. It is very keen to work with the Government and would like to have proper consultation with the department. It has been mentioned to us that the organised consultation process was slightly opaque. I know that five of the renewables trade associations, as a group, have written to the department requesting more clarity in the consultation process around the detail of these provisions. They are worried about communications not being consistent and they are worried about the timelines. They need reassurances from the department and a clearer process of involvement.
Further to the point made by the noble Baroness, Lady Liddell, this should also include investors, who are absolutely at the heart of the issue. Clause 44 is about facilitating investment and not about liquidity, which is dealt with in Clause 43. It is very important that the consultation process fully involves the investors who will be necessary to get these projects under way.
I have not spoken about the GPAM alternative. I am not sufficiently across the details to know whether the GPAM is a better option than the backstop power but the wording of the government amendment limits the options. At the moment, Clause 44 gives a broad power to do what is necessary. The government amendments would remove that flexibility and narrow it down to the PPA. The PPA may be the right answer but I am not certain that that narrowing down is a good idea. I have been critical of the breadth of some of the powers but in this case, given that it is still in development and that consultation is necessary, I urge the Government to keep open the option of making a different type of intervention if necessary. That would tweak the government amendment. It is important that we do not put all our eggs in a basket that is still being made when we are not quite sure whether it will work.
The industry itself can find solutions. The big six are obviously dominant but there are other players such as independent suppliers who can give PPAs. Unfortunately, the creditworthiness of those suppliers is an issue.
Baroness Liddell of Coatdyke
My noble friend is right to draw attention to the fact that there are a range of different institutions that one can talk to. For some of us, one of the easiest things to do would be to have a cup of tea with the noble Baroness, Lady Armstrong, who until two weeks ago was the chairman of a community energy company that has just fallen off the cliff because of the attitude of a major generator. She, of all people, can tell us the view of the independent generators about this period of uncertainty, which is having an impact on people even as we speak. It is a small pro bono operation that has been jeopardised by the attitude of a major generator.
Baroness Worthington
I thank the noble Baroness for alerting us to that. As I was saying, there is clearly an issue and a need for intervention. There are existing alternatives for the independent generators. Perhaps one thing that we need to explore is how we can strengthen those independent suppliers. Ecotricity was a very good example. It was set up to build wind farms but found that the way that it could build its business best was to have a supply arm creating its own form of vertical integration. It is a way of creating more liquidity and plurality in the market to help those independent suppliers to buy from the independent generators. That seems logical, so perhaps we can explore how those can be better balanced.
There are also aggregators in the market. One problem that independent generators face is that individually they do not have the capacity to employ traders. The big six all routinely employ traders for all sorts of reasons, and that gives them a massive market advantage from being able to enter the various markets themselves. Aggregation and the provision of grouped trading services is necessary to help to support suppliers. That is another area that we could look at in more detail to see whether something needs to be done to make it more effective.
Finally, if we find, once the Bill is passed and we are on the road towards a low-carbon economy, that independent generators are simply not getting PPAs, we must make sure that we are monitoring the situation closely. I hope that the authority will be given a clear direction to be listening and asking what is happening in the market following the Bill's enactment. I shall end on a hopeful note. If it then transpires that that there is insufficient liquidity and PPAs are not being granted, perhaps the authority will accept that it has not done enough to generate competition in generation.
Energy Bill
Debate between Baroness Liddell of Coatdyke and Baroness Worthington
Baroness Liddell of Coatdyke
I should reassure the noble Viscount that the wind farm that I inaugurated was offshore, so he is to be congratulated if he managed to get some money out of it.
Baroness Worthington
My Lords, I am grateful to my noble friend Lord Berkeley for tabling this amendment for no other reason than that we found out that very interesting fact. We cannot support this amendment. I have great sympathy with the concerns that have been raised that 25 years may be too long, but the way this amendment is phrased means that it would capture all renewable technologies. There is a great range of technologies that the strike prices are seeking to bring forward, and at the moment it seems that the majority of them might be conversion to biomass. I do not think you would want to lock that in to 25 years. I support the spirit behind the amendment of questioning and trying to understand the different lengths of contracts. That is something that we could discuss, but I do not think this amendment should make its way into the Bill.
We now have the draft delivery plan and the strike prices for renewables. The plan contains some suggested lengths for contracts, but I do not think we yet have anything similar for CCS and nuclear. We are expecting some more information on that in early August, when we will all be having a much deserved and well earned rest. It would be helpful if the Minister were to say something about that in her response.