Infrastructure Bill [HL]
Debate between Baroness Verma and Lord Berkeley(9 years, 9 months ago)
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Lord Berkeley
My Lords, I follow the comments of the noble Lord, Lord Teverson, about geothermal plants. People may have read an article in the Times last week on 2 February about the Eden project, which is trying to develop the geothermal plant mentioned by the noble Lord, drilling several miles underground. It says in the article—it is quite surprising to me—that the water that will come out will eventually be 180 degrees centigrade, which is well above boiling point. That is wonderful. It would heat 4,000 homes and all the biomes of the Eden project. I hope that this geothermal drilling—which is purely water based, I think; there are no chemicals or anything else—will not be caught by these various amendments. To quote Michael Feliks, chairman of the Renewable Energy Association’s geothermal group:
“It would be a shame if geothermal energy ended up as collateral damage in a debate about shale gas fracking.”
It is a completely different thing. It is drilling, and it should be allowed under the normal planning procedures rather than coming into this Bill at all.
Baroness Verma
My Lords, I am extremely grateful to all noble Lords for their contributions, but particularly to noble Lords who have supported the government amendments in lieu of the amendments that were made in another place.
A number of questions were raised. I want to make sure that I respond to all of them, but there will be one or two questions that I cannot commit to answering now and on which I will have to write to noble Lords, such as the question posed by my noble friend Lord Caithness about the number of miles of tunnels going underground. I do not think that information is at hand, unless of course the noble Baroness, Lady Jones, has the answer.
I reassure the noble Baroness, Lady Jones, that our regulatory regime is robust. It will ensure that no hydraulic fracturing will be permitted where groundwater and drinking water supplies can be affected. We had a protracted debate not that long ago in which we made it very clear that this Government take very seriously that operations will take place only if all of the environmental impact assessments are met. I had hoped that I had laid out today very clearly in my detailed speaking notes our response to what the other House came up with on Report. We have bettered the amendments that the other place made, so that they will be able to stand up to legal challenge and to ensure that the safeguards that she and other noble Lords, such as the noble Lord, Lord Truscott, have asked for can actually be delivered.
It would be wrong to return to the detail of a debate that has been well practised in this Chamber. The industry is already voluntarily doing a lot of what was asked in the amendments put by the Opposition. I am pleased with the response from my noble friends about what we have taken on board. It is never about a U-turn for a Government, it is about listening carefully and then making sure legislation works. If the noble Lord, Lord Tunnicliffe, wants to make a political point out of it, that is entirely up to the noble Lord. I would say, however, that it is really important that responsible and sensible Governments look very closely at legislation and then respond. I think that the general consensus in the House has been that we have listened, responded and returned with a much better set of amendments, which answer exactly what noble Lords opposite and their colleagues down the corridor have asked for.
Wales: Fracking
Debate between Baroness Verma and Lord Berkeley
Baroness Verma
My noble friend is absolutely right. Of course, we will not know what the potential is until we do further exploration. I imagine that all those who want to see greater economic growth and job growth will welcome any matters that allow that to happen.
Lord Berkeley (Lab)
My Lords, in between the attractive packages that these applicants may offer the community, can the Minister assure the House that whoever issues the licences—in fact, we do not yet know—will have to do a full and comprehensive environmental impact assessment first, monitor methane in groundwater and keep the monitoring going for at least 12 months after production has started?
Baroness Verma
My Lords, I think that many of these issues were raised during consideration of the Infrastructure Bill, and many of the commitments that the noble Lord was asking for were agreed to. I think that he should be reassured that monitoring and reporting of the processes will be there and available, because the companies know that to generate confidence they have to be open and transparent.
Energy Bill
Debate between Baroness Verma and Lord Berkeley
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I thank noble Lords for the debate on the amendments and I shall speak to them after I have spoken to my own amendments in this group. The amendments standing in my name pertain to powers that enable the establishment of a power purchase agreement scheme, which could provide generators with access to an offtaker of last resort. The offtaker of last resort mechanism will benefit both independent renewable generators and investors by providing a guaranteed backstop route to market through which generators can sell their power. This will enable generators to use new and different routes to market, ending their dependency on established players and stimulating new entry and innovation in the PPA market.
The amendments I am speaking to today address specific concerns raised in Committee that the price at which electricity is purchased in PPAs under the scheme should be determined by reference to the current market price. Amendment 61 clarifies that a PPA under the scheme is an arrangement under which a supplier agrees to purchase electricity,
“at a discount to a prevailing market price”.
This amendment confirms our policy intent that the offtaker of last resort mechanism is exactly that: a last resort. Electricity purchased through the PPAs under the scheme must be purchased at a discount to a market price. This will give confidence to suppliers that they will not be required to purchase electricity at above-market prices. I assure the House that it is the Government’s intention that the level of discount should also represent a sufficient level of revenue to enable generators to raise finance. The discount level will form a key part of our consultation in early 2014.
Amendment 63 enables the Secretary of State to make provision in licence or code modifications to determine the appropriate discount and market price for PPAs under the scheme. I believe that these amendments clarify our policy intentions.
Amendment 61A, tabled by the noble Lord, Lord Berkeley, and the noble Viscount, Lord Hanworth, would mean that a PPA under the scheme is an arrangement under which a supplier agrees to purchase electricity at a discount to the market price and that the discount is no more than 5%. It is important that the discount is large enough to ensure that PPAs under the scheme are a last resort. The requirement for the discount to be no larger than 5% is not compatible with that; given that open-market PPAs typically have larger discounts, the scheme would quickly become a first, rather than last, resort. This would undermine new entrants to the PPA market and mean that anticipated benefits of the scheme in terms of facilitating a more dynamic and competitive PPA market would not materialise.
On Amendment 59A, I begin by stating my strong, and, I believe, shared desire to see ambitious action to improve wholesale market liquidity, which is crucial to allow independent generators and suppliers to compete without restriction. That is what Ofgem is doing through its ambitious package of reforms to address low levels of liquidity in the market, and what this Government will do should Ofgem’s reforms be delayed or frustrated. If it proves necessary for the Government to act, they should consider all options to achieve their objectives, including those listed in Clause 43. However, it would not be prudent to tie our hands to a particular course of action at this stage.
I hope that noble Lords have found my explanations reassuring and that the noble Lord will agree to withdraw his amendment.
Lord Berkeley
My Lords, I am grateful to all noble Lords who have spoken—some in support, some less so. We have had a very good debate. I think we all agree that this issue is not going to go away. We probably will need to see whether there is new legislation after the Labour Party wins the next election, or whether the annual review from the competition people will result in a recommendation. I beg leave to withdraw the amendment.
Energy Bill
Debate between Baroness Verma and Lord Berkeley
Lord Berkeley
My Lords, the noble Lord, Lord Teverson, has some very good points there. If, as I do quite often, you go around properties in different parts of the continent, you find that the energy usage and consumption and insulation are generally a lot better than many of our buildings here. I have a feeling, having talked to a few people in the building trade, that it is because the standards to which we build our properties actually require less insulation and draught-proofing than those of many other countries. It may be because we think that the temperature is always the same here, so it does not really matter.
Another problem that we have to sort out soon is the greater use of air conditioning in buildings, because in some countries—I do not think it is the case here—the current use of energy for air conditioning is a great deal more than that for heating. It is possible to design buildings which need much less air conditioning. Noble Lords will have seen them in the architectural press at some time. I do not know why we do not encourage more of this in this country; it has been an issue for years.
However, I am still not convinced that the energy suppliers have any incentive to sell less electricity or gas. It is a bit like the water companies: they love having leakages and no meters, because they sell more water and seem to think that is a good idea in places or times where there is a shortage. We are stuck with some perverse incentives. I agree that these are probably not the right amendments to achieve what we want, but it is something that we need to do to get the incentives, insulation and building regulations right, and look at the air conditioning and the design of our buildings so that they are fit for purpose in the time of global warming, as we debated earlier.
Baroness Verma
My Lords, I welcome the continuing interest shown in electricity-demand reduction. My noble friend Lord Roper’s Amendment 48 raises an issue that came up a number of times at both Second Reading and Committee—namely, that multiple pilots are necessary in order to test a variety of approaches. One of the pilot’s key aims is to test the Government’s preferred approach of delivering electricity demand reduction through the capacity market. That said, from a legal viewpoint the amendment is unnecessary as the Secretary of State is already able to design and run a pilot, or pilots, to test different approaches if this is necessary.
Before I move on, I, too, add my congratulations to the right reverend Prelate the Bishop of London on the great energy reductions he has achieved, which just shows that behaviour change towards energy usage can make a huge amount of difference. I commend what the right reverend Prelate has done. He also mentioned the very important Green Deal and smart meters. These measures will help to revolutionise the way we approach energy usage. It is about being able to ensure that consumers understand the usage of energy, which is why I listened very keenly to what the right reverend Prelate said. Where the Green Deal is concerned, 80,000 assessments have been carried out. Under ECO, many tens of thousands of homes have already benefited from the Green Deal. Like my noble friend Lord Teverson, I think the Green Deal is an excellent vehicle for being able to bring greater efficiency towards homes.
My noble friend Lord Roper and the noble Lord, Lord Grantchester, spoke about there being more than one pilot. We would rather start with what we consider the preferred option but we do not rule out there being multiple approaches simultaneously. If we have too many, it will be difficult to evaluate. We want to be sensible and see a range, if that is what is needed, but we have a preferred approach. It would be better for us as a Government to see that preferred approach dealt with first. There is nothing in the Bill to stop us having more than one approach.
I reiterate that Clause 37 is simply a spending power, required to authorise the spending of Government money. I appreciate the concern to ensure sufficient funds are available for piloting. We considered raising funds for the pilot using the capacity market powers but rejected this approach because it would delay the start of the pilot, which we announced is expected to start next summer.
Amendments 50 and 51, from the noble Lord, Lord Grantchester, and the right reverend Prelate the Bishop of London, would require the Secretary of State to publish a strategy to reduce a stated amount of electricity demand by 2020 and 2030. While I welcome the principle behind these proposals, the Government have already published a number of documents, including on how we will meet our existing energy efficiency commitments. That is through the energy efficiency strategy which will be updated later this year, the DECC energy and emissions projections, and the Government’s response to the EDR consultation. These documents already provide a comprehensive view of Government strategy. As the pilot is designed to improve our understanding of the cost-effectiveness of EDR in relation to that of a variety of supply-side and demand-side measures, we do not consider it appropriate to set a specific EDR target.
The noble Lord, Lord Grantchester, asked about the difference in the estimates that the department has given out. The estimate of the untapped potential was revised from 92 terawatt hours to around 32 terawatt hours by 2030 because there is considerable uncertainty as to the exact level of potential for electricity demand reduction. We believe that this figure represents a much more sensible picture of what can be achieved. That analysis has also been subject to external peer review.
In conclusion, we have listened to concerns about reporting the results of the pilot and have introduced an amendment on this. Our existing legal powers already allow us to test other approaches if it becomes necessary. We believe the minimum £20 million allocated to the pilot is sufficient to support a range of projects in different sectors in these difficult times. We already have an energy efficiency strategy, which will be updated shortly. I hope that my noble friend Lord Roper, the noble Lord, Lord Grantchester, and the right reverend Prelate the Bishop of London will agree to withdraw their amendments. I beg to move the amendment that stands in my name.
Energy Bill
Debate between Baroness Verma and Lord Berkeley
Lord Berkeley
My Lords, I support my noble friend. The amendment only says “prioritise”: it does not say only lowest-carbon providers should be involved. She has a very good point. The amendment, as other noble Lords said, is not the answer, but it does enable us to have a debate. Since most of the low-carbon providers are probably the independents, which are not part of the big six, this rather confirms the argument that I put in an earlier debate on Amendment 55, I think, that it would be fairer if there was a separation. There is a wonderful potential for the big six to keep many of the low-carbon providers out that they do not own. I look forward to hearing a little more from the Minister about how this can be resolved.
Baroness Verma
My Lords, I am extremely grateful to my noble friend for bringing some sanity to this debate. I begin by saying to the noble Baroness that whenever we talk about high carbon and low carbon we must also consider the costs to the consumer.
We are, through the Bill, ensuring the decarbonisation to which I know the noble Baroness is firmly committed. At the same time, it cannot be at any cost. Time and again I have stood at this Dispatch Box and said that it is really important that the measures we take do not have a profound effect on consumers’ bills. Currently, we are already seeing that there is a movement of will against the green agenda simply because people believe that the green agenda is putting extra on their bills. We are very careful in government to ensure that the measures we are taking decarbonise the energy sector at the same time as ensuring that energy is secure and that consumers do not pay heavily for the cost of our policies.
I know that the noble Baroness is passionate about this. She asked a number of questions and I will try to refer back to them. Yesterday we had a meeting. I have some notes that I hope have been distributed to the Lords’ informal scrutiny committee referring to the analyses that the noble Baroness asked about. If she does not have them, they will be made available. They give a broad outline of the analyses that we are using. But I remind the noble Baroness that it was the Conservative Party in opposition that in 2008 asked for the emissions performance standard. It was this party that was pressing ahead to ensure that we brought in decarbonisation and it was the noble Baroness’s party that opposed every action we took at that time. It is a little difficult for us to take the passion of opportunism that is now being demonstrated.
This is about working together to make sure that we not only see a decarbonised energy sector, but we make sure that consumers are not penalised heavily. The noble Baroness’s amendment seeks low-carbon technologies to be given preferential treatment in capacity market auctions. We consider that the capacity market is not the right means to deliver that objective. Decarbonisation is best achieved through other provisions that we have put within the Bill, including the introduction of contracts for difference and emissions performance standard as well as other policy interventions such as the carbon price floor and international carbon signals such as the EU Emissions Trading Scheme.
These measures are designed specifically to ensure that the economics of low-carbon generation are transformed in comparison to traditional thermal plant. The cumulative impact of these policies is such that we expect only 3% of our electricity generation to be provided by unabated coal in 2025 and none by 2030. Therefore, it is these policies that will drive the decarbonisation of the electricity sector that I know the noble Baroness wants to see, as do we all.
The capacity market, on the other hand, has been designed to ensure security of electricity supply at least cost to consumers. Again, I know that that is what the noble Baroness wants to see as an outcome. It does this by providing all forms of capacity with the right incentives to be on the system to deliver electricity when needed.
The capacity market is designed to be technology neutral and all types of capacity will be able to bid for capacity contracts, apart from those technologies already receiving support from other mechanisms. This means that no type of technology will be given preference in capacity auctions and all eligible capacity will be compared on the basis of cost.
The philosophy is one of humility and to use the power of markets. Sadly, neither I nor anyone in my department is blessed with perfect foresight. We do not know which technologies will be cheapest, what fossil fuel prices will be in the future, or what myriad other factors will determine the optimum path to decarbonisation. That is why we have designed a framework that aims to capture the power of the markets to achieve things at least cost. Prioritising the lowest-carbon generators in the capacity market would force the market to build capacity and commit capital when extending the life of an existing plant might be a better bet—both economically through lower costs to consumers and environmentally. A few years of a coal plant cleaned up to meet the emissions limits in the IED, but operating at low-load factors, while demand-side action, interconnection and CCS develop and more low-carbon capacity comes on, could be a more competitive outcome than committing capital to new gas plants.
Baroness Verma
The amendment moved by the noble Lord, Lord Berkeley, seeks to ensure that renewable technologies in receipt of a CFD have a contract life of at least 25 years. As the noble Lord is no doubt aware, we have recently published more detail on the contract terms, building on the operational framework of November 2012. This reconfirms our position that the appropriate contract length for payments to renewable technologies receiving a generic CFD remains 15 years.
In determining the length of the CFD, we considered a number of factors. The 15-year length is based on a trade-off between value for money for consumers, affordability within the levy control framework and bankability for investors. For the purpose of setting the contract lifetime, we have assumed that investors will require debt to be repaid within the CFD life. Therefore, having too short a contract length could impact on the cost of debt finance, given the increased exposure to wholesale price risk. Our analysis also indicates that investors discount very heavily the last few years of revenue from a project, particularly when compared to the social discount rate. Taking all these factors into account, extending the length beyond 15 years would not necessarily be significantly valued by the investor but would come at a cost to consumers.
In addition, the noble Lord may be aware that guidance from the European Commission states that support must be less than the accounting life of the asset. Extending the lifetime duration as the noble Lord proposes would extend a CFD beyond the asset life of a number of renewables technologies, which are generally less than 25 years. All these factors suggest to us that a contract life of 15 years is still appropriate.
I should also make clear that just because there is a generic contract, that does not prevent the Secretary of State directing the counterparty to issue a contract which differs on certain terms where that is considered appropriate. We have retained the ability to do this and would look to treat such occurrences on a case-by- case basis.
The noble Baroness, Lady Liddell, asked about the uncertainties of risk, mitigating them and ensuring appropriate rates of return. The strike price provides certainty on levels of support for the length of the contract. There will also be some change in legal protections. More details on the CFD terms will be published in early August, as the noble Baroness, Lady Worthington, said.
The noble Baroness, Lady Worthington, asked about nuclear and CCS. As she knows, we are currently in negotiations on a nuclear project, so I am not able to comment further on that point. On CCS, it may be better if I write to her. I hope that the noble Lord, Lord Berkeley, will withdraw his amendment.
Lord Berkeley
My Lords, I thank the Minister for her reply and am grateful to all noble Lords who have spoken on the amendment. I did not expect that it would be accepted but we have had a good debate. The noble Earl, Lord Caithness, indicated that I had a go at him for not liking windmills, which is not true; I did not mention his name.