Baroness Parminter
Main Page: Baroness Parminter (Liberal Democrat - Life peer)Energy Bill
Baroness Parminter Excerpts
Baroness Parminter
“Strategy on interconnection
Within 12 months of this Act coming into force, the Secretary of State shall bring forward a strategy for the UK to increase its interconnection links with other European countries, in order to support the continued development of a European internal electricity market.”
Baroness Parminter
I rise to speak to the group of amendments on the value to the United Kingdom of a European internal energy market, and in particular to move Amendment 55ZB, which stands in my name and that of my noble friend Lord Teverson and the noble Lord, Lord Whitty.
The amendment would require the Government to introduce a strategy to address the policy barriers to interconnection and the distortions introduced by the proposed capacity market. I highlighted at Second Reading the benefits of greater interconnection across Europe, so I will be brief now. It makes a significant contribution to security of supply as Ofgem's recent electricity capacity assessment demonstrates. If the UK imports electricity from the continent at times when supply is tight, capacity margins increase from 5% to nearly 9%. By making more efficient use of renewable energy, it can have positive effects on energy costs, as the Government have confirmed in their response to the House of Lords EU Select Committee report, No Country is an Energy Island, which is to be debated in this House next Monday.
In her concluding remarks at Second Reading, the Minister made it clear that the Government,
“are fully supportive of increased interconnection”.—[Official Report, 18/6/13; col. 236.]
I am aware of some welcome initiatives, including a memorandum of understanding with the Irish and Icelandic Governments. Also the Government are supporting Ofgem’s integrated transmission planning and regulation project to take it forward. But there is no denying that the decision not to allow interconnected capacity to participate in a capacity auction now will distort the internal market. Why? Because an overseas power generator wishing to supply the UK market will receive the wholesale electricity price alone, while generators in the UK will receive a capacity payment and a wholesale electricity price. This would mean that there would be less efficiency resulting from less competition in the auction and, crucially, less incentive to build additional interconnection capacity.
The Government have said in very recent correspondence that they are keen to find a way for interconnected capacity to participate in a capacity market in future. This is to be welcomed, but we need a clear commitment in the Bill that this Government prioritise interconnection alongside the capacity market and demand-side reduction measures to deliver the energy that we need. We need to know what other avenues they are going to pursue for interconnection and by when. It is legislation, not the sometimes contradictory comments within government, that shows investors what government will do and creates the necessary confidence to invest. Let us be clear: the European Commission estimates that investment of more than €200 billion is needed before 2020, two-thirds of that in the electricity market, in cross-border infrastructure. Putting this amendment in the Bill would help to give that investor confidence, requiring the Government and this department actively to look at ways in which to develop mechanisms, working with the regulators and European partners to support cross-border energy trade. Doing so would show that, on energy, just as on crime, trade and the environment, we are better working with our European partners and neighbours. I beg to move.
Lord O'Neill of Clackmannan
I would like to ask those who tabled this amendment about the sources of energy that we will be interconnecting with. At present, within Germany, there will be a highly distorted market, with renewables concentrated in the north, demand in the south, and nuclear power stations closing by 2021.
As I understand it, Germany’s nuclear power stations enabled the Danes to keep nice and green by exporting some of its surplus nuclear supply to them. At this stage, we can probably discount Denmark and Germany as potential sources of supply. We have been fortunate to have had an interconnection arrangement with France. In some respects, it has probably done the French more good than us, certainly commercially, but it has enabled us to keep our lights on. On the other hand, one can imagine that the parlous state of not only the Italian economy but that country’s interconnection may present problems. In this little European tour, it is most unlikely that we could depend on Italy as a source of much energy for the United Kingdom. It would be very nice to have connections with Iceland but its significance would be pretty limited.
There is always the issue that long undersea cables have significant transmission losses, and I am not quite sure how much we would get out of Ireland on a good day. We know that there may be gas around Ireland and there have been useful discoveries there. However, the point that I am trying to make is that we could conceivably get some hydro power from Norway but my understanding is that global warming there has created problems whereby hydro power is not quite as reliable as it used to be because the glaciers are getting smaller and there is too much water at the wrong times.
It would be nice to be reassured that someone in Europe at the other end of our interconnections could provide us with a lot of electricity. If we were to obtain 30 gigawatts of nuclear power, we might be able to sell some to Ireland, although the Irish might not like nuclear power. They do not seem to mind it when it comes from Scotland, so long as it is under an agreement with a company that also owns gas-fired and coal-fired power stations. Like the Danes, the Irish are able to remain rather more environmentally acceptable to other people than perhaps they are.
The point that I am really trying to get at is that this will be very expensive, there will be transmission losses because of the distances involved and I am not sure which countries will have surplus capacity capable of providing us with what might well turn out to be extremely expensive electricity. At the moment, it has been useful and helpful to have received it from France. I am pretty certain that the French will sell it to the highest bidder and there will be people on the continent of Europe who will probably need imported electricity to a far greater extent than we do and will therefore probably be desperate enough to pay higher prices for it. Before we embark on a strategy that implies great expense and investment, given the parlous state of a lot of the energy companies in terms of even their share value, increased interconnection is a wee bit fanciful. I am happy to be convinced if there are power generators across the North Sea desperate to sell to us but I am not quite sure that they are. Even if they are keen now, will they be in 10 years’ time? Although we are having administrative difficulties in getting this Bill into a shape that we can deal with on Report, we will probably eventually get it right, but we do not get the impression that our European partners are moving with even the glacial speed at which we are travelling when trying to achieve solutions. A strategy might be very nice but, at the end of the day, it might be wishful thinking.
Lord Teverson
Perhaps I may thank the noble Lord, Lord O’Neill, for the consideration he has given to this side and for his suggestions. That was an excellent analysis of how things should work.
Baroness Parminter
I thank all colleagues on both sides of the Committee for their contributions, some of whom have made the case more eloquently than me. Certainly, the noble Lord, Lord Deben, in his imitable style, did just that with his portfolio analysis. I am also grateful to the Minister for outlining what are, in effect, the initiatives that the Government have taken to date on interconnection, which give life to what the Secretary of State told our committee last week—I think that his words were that he was as passionate as we were about interconnection. That is to be commended. I remain of the view that it would be helpful to have a clear commitment to a strategy in the Bill. In the light of the Minister’s comments, I will go away with a skip in my step and hope that over the summer the skip might progress into a run, and that we might eventually see something in the Bill. Despite all the work that we are doing to ensure that we have sufficient supply in the UK to keep the lights on, to keep consumers’ bills as low as possible and to deliver the energy that we need, it is imperative that we look to opportunities with our European partners. On that basis, I beg leave to withdraw the amendment.