Baroness Verma
Main Page: Baroness Verma (Conservative - Life peer)
Baroness Worthington
My Lords, I am grateful to the noble Lord, Lord Oxburgh, for tabling this amendment and to the other noble Lords who have lent their name to it. It has been a springboard for a good and necessary debate this afternoon. In response to the question asked by the noble Lord, Lord Jenkin, on how we got here, I point out that under the previous Government, between 1997 and 2010, we saw 26 gigawatts of new capacity added to the grid. In the previous three years—2008 to 2010—we saw 7.8 gigawatts added. There was clearly a healthy investment system under the previous Government. What happened next is old news. We had a decision to reform the electricity market and in that process, which, let us face it, has been going on almost since 2010, there have been a lot of conflicting messages coming out of government. This has created an investment hiatus and an uncertainty that have led us to where we are today.
Let us not be overly dramatic. In 2010, we had historically high capacity levels. That has partly contributed to the hiatus and it needs to be cleared out for there to be a signal to the market to reinvest. Against the 26 gigawatts or 7.8 gigawatts that were added in the last few years of the previous Government, we have lost since then only 8 gigawatts of old coal. Much mention is made of this, but the LCPD—the large combustion plant directive—took out 8 gigawatts. That 8 gigawatts has already shut and the lights are still on. We must put this in perspective. I am convinced that there is an issue of long-term planning, but right now let us keep it in perspective. We are at the tail end of this Bill process, which has been going on an inordinately long time. Things, I am sure, should get better soon, but for that to happen we have to get this Bill right. I think that all noble Lords who have spoken today would agree that the key to get out of this now is to have a clear regulatory framework that will do the job of restarting investment in our energy infrastructure.
The other factors that have contributed to the hiatus, which I think it is fair to say no Government could have been fully aware of or on top of, were issues outside our control. One example is high gas prices. We have gigawatts of consented gas capacity in this country. Why is no one building it? They simply cannot afford to take that decision. Boards in energy companies all around the country are asking: “Will this pay back?”. They cannot give a definitive answer, because the price of gas is uncertain. They will also say: “We’re in the middle of an Energy Bill process. We’d be mad to commission something now. Wait until the dust has settled”. The Bill is partly in the Government’s control, but the price of gas is an unexpected issue that has arisen quite recently.
The second thing that has gone wrong, for which my party has some responsibility, is that we have dropped the CCS ball. We have been utterly hopeless at getting CCS away and demonstrated. That is partly because—and this where I have some sympathy with the noble Lord, Lord Oxburgh—we have been relying on civil servants to devise a strategy for picking winners to develop CCS in this country. Quite frankly, we have failed. A succession of wrong calls has been made. Our first call was that it should be post-combustion coal, because somehow we were going to help China. Well, it turns out that that is not what we need, so, understandably, those projects have not gone forward. There is a great need to address the future of CCS and to have more market-based commentary on that and less control from the Civil Service.
The third thing to have happened, which, again, has been outside any Government’s control, is that the economics of nuclear have changed. Fukushima was a disaster that happened on the other side of the planet and public attitudes towards nuclear remained remarkably resilient, but in Germany it was a completely different story, with the phasing-out of nuclear. That obviously has an impact here because we have two large German utility companies in this county. Having pulled out of nuclear in Germany, quite quickly, they pulled out of nuclear in the UK. That could not have been predicted, but it definitely contributes to the situation that we are in today, where we are reliant on only one nuclear project, certain aspects of which have proven difficult.
It is fine just to look back and to try to explain why we are where we are today, so I go back to my statement that the way out of this is to get this Bill right. The way to do that is to think about the regulatory framework that it creates. I have some sympathy with the proposal of the noble Lord, Lord Oxburgh, because there are echoes of it in the way in which we govern other aspects of our society. Perhaps the most obvious one is the Monetary Policy Committee. As the noble Lord, Lord Deben, pointed out, we also have the Committee on Climate Change. The creation of that independent body of experts, able to advise the Government publicly and to publish reports, was a major aspect of the Climate Change Act and one of its most successful components. It has depoliticised an issue that I am sure would otherwise have been more debated and undermined than perhaps would be appropriate.
There are, therefore, examples of how the creation of an independent advisory body can work, but I would argue that, if you are going to create such a body, you would want to give it clear parameters within which to advise. Advising on the totality of energy investment is a large task and I defy any group of experts, no matter how many are on the board, to get their heads around every aspect. Setting clear parameters within which you would require independent advice would help to give the body a purpose in providing the right level of scrutiny and advice for the Government.
The levers that the Bill creates are clear. We will have a capacity market, in which the Government will have to make decisions about the levels of capacity that they will try to secure through auctions. That could certainly benefit from advice. We have the decarbonisation obligation, which, I think it is fair to say, has not to date been handled in a suitable or effective way. The hard part has been put off, which is not what we want. I have great sympathy with noble Lords who have said that the tendency in government is to put things off; it is much easier simply to shrug your shoulders and wait for the next person to come and take the hard decisions. Unfortunately, that is what has happened with the decarbonisation obligation.
Another key parameter within which the Bill operates is the levy control framework and the amount of money that the Treasury has put aside. Again, that could do with some external scrutiny. It might be necessary for a body of experts to advise both the Treasury and DECC to depoliticise the issue and to create unity. The last parameter in the Bill, which we will discuss in more detail shortly, is the energy performance standard, which could also benefit from external advice to depoliticise it and underpin it with independent scrutiny and analysis.
Many noble Lords have commented on what such a body might look like and how it might operate. The key themes were that it should be independent, it should have a long-term view, it should issue its advice in public to both Parliament and Ministers and it should address energy efficiency—the noble Lord, Lord Teverson, spotted that that was missing from the list. I am sure that, as the noble Lord, Lord Oxburgh, would say, the amendment will stimulate debate and cause the Government to come forward with something more complete.
I think that the Government recognise that they need advice. They would not have created three specialist advisory groups commenting on aspects of the EMR and a technical advisory group to see them through this process if they thought that they had all the answers themselves or if they could go to Ofgem, the National Grid or any of the other agencies for advice. Clearly a deficit was recognised.
I hope that the Government will come forward with positive words about considering this proposal in greater detail, as we have heard eloquent arguments about why something such as this might be necessary. I hope that they will at least concede that they have created bodies to advise them. Those bodies have been doing a short-term task, but we are asking for the creation of a body that takes a slightly longer-term view, working within parameters. Perhaps they could also consider whether the bodies that they have created already need to be converted into something more permanent. If a clear process is established for what they will do, how they will advise us and the parameters within which they will operate, that would go a long way towards answering many of the concerns that have been raised today. I thank all noble Lords who have spoken and I look forward to the Minister’s response.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I, too, thank the noble Lord, Lord Oxburgh, and all noble Lords who have spoken to the amendment, which proposes the establishment of an energy investment advisory board within DECC. We already have a number of advisory boards and I would like to go through my speaking notes and lay out why we think that, at this moment in time, this could add another layer, as my noble friend Lord Teverson said. I will also respond to some of the questions and points raised.
First and foremost, we attach great importance to ensuring that we consider the long-term views of the UK’s energy needs. DECC therefore has many forums for industry and energy experts to contribute and scrutinise policy on energy and climate change. I will highlight some of these to noble Lords. The main forum that DECC has with industry is the energy leaders forum. This is a quarterly event that brings the DECC Secretary of State, Ministers and senior officials, including the Permanent Secretary, together with the CEOs of vertically integrated and independent generators and suppliers. It is jointly organised by DECC and Energy UK, whose members make up the industry attendance. The high-level and wide-ranging discussions help government and industry to anticipate and respond to existing and future issues in energy policy. Importantly, the forum also discusses how industry and government can attract investment to the UK to ensure that we have secure low-carbon and affordable sources of energy now and tomorrow.
We have a flexible structure of academic and industry experts who are also able to advise the department on a much wider range of topics, including our major programmes from the Green Deal to the electricity market reform. For example, there are EMR expert groups for each policy area and we have set up an independent panel of technical experts to provide the Secretary of State with specific technical advice on the national system operator’s analysis. The Infrastructure UK unit within the Treasury exists to develop the UK’s long-term infrastructure priorities and secure private sector investment. Other important forums include the Science Advisory Group, which is a group of external academic and industry experts who challenge and support the Chief Scientific Adviser and DECC. It also helps to guide the department’s scientific priorities and strategy.
I welcome the noble Lord’s point about skills in the department. We are actively strengthening our systems for prioritisation of resources. We are developing key specialist skills, including ensuring that the department has sufficient corporate memory and leveraging the capability of our delivery partners. As set out in DECC’s annual report, we consider delivery skills essential as the department moves to implementation and delivery as well as policy development.
In addition, we have an internal governance structure. We have a departmental board whose role is to monitor performance and delivery of DECC’s work and to provide strategic and operational leadership for the department. The board has non-executive members who provide advice, support and challenge to the department. The board is supported by sub-committees, most notably the executive committee that closely monitors departmental strategy and delivery of objectives. In light of the existing structures that have proven successful, I do not believe that it is necessary or desirable to set up a new advisory panel.
I am also concerned that the introduction of a board with explicit responsibility for long-term energy strategy could reduce ministerial accountability. The department regularly reports to Parliament on the progress that it is making on energy and climate change. As we have discussed previously, the coalition agreement states that we will give an annual energy statement to Parliament to set strategic energy policy and guide investment. This must be laid before Parliament by 31 December each year. The statement provides a clear, succinct description of the Government’s energy policy within the context of DECC’s overall strategy. We also report to Parliament specifically on security with the statutory security of supply report and, on Report in the other place, we introduced a statutory annual update on EMR.
We report on climate change via the government response to the Committee on Climate Change’s annual report. The Committee on Climate Change consists of independent experts and is a statutory body established under the Climate Change Act 2008. Its purpose is to advise the Government on emissions targets and to report to Parliament on progress made in reducing greenhouse gas emissions and preparing for climate change. I therefore reassure noble Lords that we already have in place forums and structures to deliver the significant changes that we need in the energy system.
A couple of points were raised during the debate. My noble friend Lord Jenkin asked whether we had enough capacity to keep the lights on over the next few years. My noble friend also asked about investment. I can reassure him and other noble Lords that through this Bill we are seeing the biggest reform of the electricity market in recent years and greater confidence from investors than ever before. Even with Ofgem’s new estimates, the risk of the lights going out is low and steps are being taken to ensure that sufficient reserves are in place in the short and medium term. Essentially the short-term measures are an extension of tools that National Grid and Ofgem have already used to contract additional short-term capacity in order to balance supply and demand.
My noble friend Lord Crickhowell said that these days Ministers take advice from officials rather than making up their own minds about policy issues and are not often able to say no to officials.
Lord Crickhowell
With great respect, I do not believe that I said anything of the kind. However, I will read the text of what I really said tomorrow with interest, to discover how I was interpreted as saying that.
Baroness Verma
I stand corrected by my noble friend. I would, however, reassure my noble friend that decisions on policy are taken by Ministers; we have to take advice from officials, as well as other experts, but ultimately we will be responsible for those decisions.
Lord Crickhowell
That was the point that I dealt with in my speech, based on my own experience. I was going to intervene to say that I did not understand my noble friend’s comment that she feared that following the suggestions of this advisory committee might reduce ministerial responsibility. We already have the precedent of the nuclear advisory board; we also have the precedent that I described of the advice that my National Rivers Authority advisory board gave to the Government and then the National Rivers Authority itself. In none of those cases was there the slightest reduction in ministerial responsibility and I cannot conceive that a committee of the kind suggested could possibly have that outcome.
Baroness Verma
My Lords, if I choose to slightly disagree with my noble friend, that is perhaps a position that I will stand corrected on. However, given that we have so many forums and advisory groups in place, I do not believe that we need a further one. If I am allowed to get to the end of my speaking notes, noble Lords may be relieved to know that, having noted the significance attributed to this advisory group by noble Lords, I may go back and reflect on what has been said in Hansard. I see that the noble Baroness wishes to intervene at this point.
Baroness Worthington
It is just a small point, which is that part of the problem is the plethora of advisory boards. People are asking for a sense of cohesion to be created and a hierarchy, so that you pull one expert body together. Also, you try to create something with independence, because many of the advisory boards that you rely on today are, by necessity, made up of people with vested interests. Something more transparent, more publicly accountable and at a higher level would be beneficial.
Baroness Verma
The important thing is that noble Lords know how the governance of existing structures works as a whole. Rather than trying to explain the role of each forum now, I will, if the Committee allows, write to noble Lords on how each forum, advisory group and committee works to support one another in advising government. We have these forums under review all the time. We work to ensure that all views are taken into account. As I said, I have taken on board the seriousness of what the Committee has said and would like to go away and reflect on today’s debate, perhaps responding to noble Lords in writing. With those remarks, I hope that the noble Lord, Lord Oxburgh, will withdraw his amendment.
Baroness Worthington
My Lords, I am grateful to the noble Lords, Lord Oxburgh and Lord Jenkin, for tabling this amendment. I confess that this is not an area where I have a great deal of expertise, so really I just have some questions to add to the debate. I am sympathetic to the desire for government oversight to ensure that gas prices can be levelled out. Demand seems to be very seasonal and storage is an obvious way of helping to smooth out prices. I suppose my question is: to what extent has the department done any analysis of why the private sector is not doing this? It should be in its interests to secure cheaper prices, so you would expect there to be an incentive to invest in more storage.
My second question, which is related to that, is: to what degree do the powers of the regulator—our party’s views on the regulator are well known, but this is a genuine question—extend upstream? Does Ofgem have a power to look at fairness of pricing in the supply of gas, meaning before it reaches the distribution network? There is a high degree of vertical integration in the energy sector, and there are some companies that control the extractive processes, the distribution and then the use of the product. When you have that degree of vertical integration, there is the potential for unfair pricing, or self-serving that could lead to less transparent pricing. That is a genuine question. Does the regulator consider the potential for those vertically integrated companies, right the way up to extractive? Does it cover that? If it does not, it should. I look forward to the answer on that.
I am increasingly being exposed to ideas around renewable gas, by which I mean syngas, which is generated from other carbon sources than the hydrocarbons found in natural gas. This area seems to have been overlooked by successive Governments. It would be helpful to hear the latest thinking on renewable gas, particularly its role in helping to hedge against high natural gas prices. My understanding is that gasification technology and pyrolysis in particular are now maturing as technologies and helping to deliver alternative sources of heating gases for the variety of uses that you can use gas for. Those are my questions.
Baroness Verma
My Lords, I am grateful to the noble Lord, Lord Oxburgh, and my noble friend Lord Jenkin for prompting the debate on gas storage. The noble Lords’ proposal is timely, coming precisely as the Government are thinking about these issues. The GB gas market is one of the best functioning and most liquid in the world, and has brought forward significant investment in the past decade. This has expended our infrastructure to the point where our input capacity alone can meet 189% of our annual needs, and it has spare capacity to respond flexibly to price signals to deliver gas to our market from a diverse range of sources and routes. It has also increased storage in terms of overall capacity, where we have seen a 25% increase in the past decade, and even more so in terms of deliverability—the amount of gas that can be delivered to the grid each day to cope with volatile demand. Once two recently completed fast-cycling storage projects are counted, along with a further two projects under construction, storage deliverability has doubled in the past 10 years. The growth in input, capacity and flexible storage delivered by the market provides the additional flexibility we will need to help meet variable demand for heating requirements on peak winter days in severe weather conditions, or for the power sector, where gas is likely to be called on to respond flexibly to intermittent generation sources such as wind.
The Government are not complacent or averse to making appropriate legislative changes to improve our gas security. Indeed, it was part of our coalition agreement to do so. In relation to gas security, the Energy Act 2011 conferred on Ofgem new powers to sharpen the incentives on gas market participants to secure gas supplies. Ofgem has been consulting on potential reforms and is due to announce its final proposals very shortly. We are also working within the EU to ensure adoption and implementation of a variety of measures to enhance gas security through a well functioning, integrated and transparent European gas market. For example, the implementation of the third energy package has already improved market integration across the EU, so that storage in other countries such as Germany can respond to price signals sent by our own market. In addition, the development of common gas codes provided for by the third package will facilitate further gas trading across borders according to pricing signals. The EU regulation on security of gas supply requires member states to undertake regular assessments of their gas security and prepare plans to mitigate the risks they face, as well as meeting supply and infrastructure standards.
New investments in physical infrastructure are being made available to enable gas to flow more freely around the EU. In addition, DECC is working to maximise sustainable gas production from our North Sea and unconventional gas resources. Furthermore, the Government have been conducting a detailed review of whether further reforms—in addition to those being considered by Ofgem—might be appropriate and we intend to announce our decision in the coming weeks. In reaching a decision, the Government will consider the physical and price security arguments for intervening in the markets and whether any of the potential interventions provide a cost-effective means of improving the security of our supply. Therefore, the Government may conclude that the interests of consumers are best served by not intervening in the market.
However, our assessment is that all measures being considered—these include the measures to promote gas storage envisaged by this amendment—can already be implemented using existing powers. In particular, Ofgem has powers under Section 7B(4)(a) of the Gas Act 1986 to introduce such licence conditions as it considers necessary or expedient, having regard to Ofgem’s duties, which include the promotion of the security of supply. It would also be possible for the Secretary of State to make a direction under Section 7B(5)(a) of the Gas Act 1986 setting out licenceholder obligations. Additionally, Ofgem can apply for an order to be made by the Secretary of State under Section 41C of the Gas Act 1986 to make a new activity such as gas storage a licence activity. Such an order made by the Secretary of State may also provide any consequential changes to primary and secondary legislation.
The noble Baroness, Lady Worthington, asked about the role of renewable gas. The Government have plans to maximise the production of gas from all sources: conventional, shale and renewable. She also asked whether the regulator considers vertical integration and impacts on pricing. Yes, Ofgem considers the impact on pricing in all its regulatory functions. Therefore, the Government do not consider these amendments necessary and I hope that, having found my explanation reassuring, the noble Lord, Lord Oxburgh, will withdraw his amendment.
The Earl of Caithness
My Lords, I waited to intervene until I heard the Minister’s reply because this was a point raised in Sub-Committee D’s report No Country is an Energy Island: Security Investment for the EU’s Future. In paragraph 188, one of our recommendations was for the UK Government to examine the potential for a regulatory framework to increase gas storage. The Government’s written reply and what the Minister has said indicate that a lot of thought has gone into this, but for the whole of the energy sector it is about improving the flow and interconnectivity of supplies of all sorts of energy across the EU. Can my noble friend give us any further information from the Commission about what the EU is doing on this? I know that I am rather bouncing my noble friend—if she would prefer to write to me, I would be very happy for her to do so—but interconnectivity was a point that our committee was concerned about. Perhaps I could move from the storage of gas to the storage of electricity. Will my noble friend drop the Committee a line on that? If we could store electricity, there would be a much greater total energy supply and less need for the storage of gas.
Baroness Verma
I am extremely grateful to my noble friend for allowing me to write to him and to the Committee, because inspiration is slightly slow in coming forward.
Lord Oxburgh
My Lords, I thank noble Lords who have spoken on this. I am certainly gratified to hear from the Minister how much effort and concern the department has put into the question of gas supply. However, we were more concerned about price security than about supply security. That is the important point to emphasise. The Minister said that she thought that additional powers were not necessary to achieve this, but I am not entirely clear from what she said whether that is the case.
In effect, we are proposing a mechanism by which the private sector can come to the Government and say, “Look, we can guarantee a certain amount of gas at a particular price over a particular period”. That would in fact be achieved by gas storage, but I do not think that the Government need to get involved in it; all that they need to do is make a deal with a company or group of companies to supply gas in particular quantities at particular times. That is why the capacity mechanism or the CFD mechanism would be extremely useful. I am not clear that the Minister has the power to use those mechanisms under the legislation as it is currently drafted, which is why I tabled this amendment.
A practical amendment could be extremely simple—probably much simpler than this one. If the Minister is concerned about the resource needed in DECC to draft an amendment properly, I have no doubt that industry would be willing to make legal help available to work under DECC officials to draft something acceptable. I am not entirely sure that the assurances that she gave me were quite relevant to this case but, that said, I beg leave to withdraw the amendment.
Lord Grantchester
My Lords, the noble Lord, Lord Teverson, is to be congratulated on his persistence in tabling amendments on geothermal energy. He correctly identifies the huge contribution that this could make to the UK’s energy mix. I think this may be the third time that he has come forward with his amendment. The last time was in February 2011 during Committee on the previous Energy Bill. At that time, the Government had just slashed the remaining £2 million of a £6 million allocation for research from Labour’s time in office by 50%—plus ça change. Also at the time, the then Energy Minister, the noble Lord, Lord Marland, explained that two ROCs already in place were available for geothermal, which his department deemed to be sufficient to bring forward investment. However, of course, he rightly identified that it is not the ROCs that are important but the regulations to maintain the returns for the investor. At that time, the Minister spoke positively about this power source while saying that DECC would continue to work on the complexities of introducing a licensing system. That was well over two years ago. Perhaps the Minister will update the Committee today on how those regulations are proceeding.
Baroness Verma
My Lords, as my noble friend Lord Teverson has said, he has a longstanding interest in geothermal technologies. The Government share much of his enthusiasm and recognise that deep geothermal will have a part to play in the UK’s energy mix. We are keen to explore and to help realise this overall potential, both deep geothermal for direct heat use and those projects that are primarily about power generation.
Geothermal energy for direct heat use is a clear strategic fit with the Government’s planned transition to low-carbon heating. The Government’s heat strategy identified heat networks as having an important role to play in providing low-carbon heat to dense urban areas. Heat networks can have multiple sources of heat supply. Cities such as Manchester and Newcastle have identified deep geothermal as a possible future heat source for their networks. DECC is helping those cities to develop their heat network plans, including grant support for feasibility work and by creating a new heat networks delivery unit to add capacity and expertise to project teams in individual local authorities. The Government are also proposing a higher renewable heat incentive tariff for deep geothermal heat projects to support such developments.
The noble Lord, Lord Grantchester, and my noble friend Lord Teverson will recall that in 2011 the Environment Agency introduced changes to the abstraction licence procedures to provide greater certainty to deep geothermal investors for those projects accessing groundwater resources. This light-touch amendment to existing regulations was welcomed by the industry.
The department has been considering what additional support might be possible for deep geothermal power to help explore and test the resource for power generation. However, despite grant awards and eligibility for the renewables obligation, no deep geothermal power projects have commenced in the UK.
In response to this, the department has initiated a two-stage process to try to move the deep geothermal power sector forward. The first phase is an expert feasibility study to draw together all the evidence to explore and test the case for additional government support. Subject to the outcome of this first step, and taking into account value-for-money considerations, the various options for further support will be then analysed. The feasibility study, which is being undertaken by Atkins, will conclude shortly. We will need further analysis to help gauge the realisable potential of deep geothermal power and the extent of any support it may need.
My noble friend and, I know, many in industry argue that a licensing regime is required to underpin the expansion of this technology and to ensure that it can approach its full potential in the UK. At present the UK sector is at an early stage of development, which makes it difficult to gauge the impact of a licensing regime. The Government accept my noble friend’s argument that the impact is likely to be positive. The question is one of proportionality. At present, all parts of UK law are essentially silent on the subject of heat from deep below the earth’s surface. Any legislation would therefore proceed from a blank page, and full licensing regimes are complex to create. The legislation to do this in the Australian state of Queensland runs to more than 500 pages of primary legislation, which suggests that the call on the time of this House would not be trivial. The Atkins report will guide the Government’s position on how best we may be able to help support the geothermal sector, which will help to steer a future position on any new regulatory approaches.
I hope that my noble friend will agree with me that we must be guided by the Atkins report’s outputs and recommendations to help inform the Government’s position and next steps. I hope that on that basis my noble friend will feel reassured and withdraw his amendment.