Baroness Worthington
Main Page: Baroness Worthington (Crossbench - Life peer)Energy Bill
Baroness Worthington Excerpts
Baroness Worthington (Lab)
My Lords, it is a great pleasure to speak at the end of this debate—a wide-ranging debate, something on which other noble Lords have commented. I am delighted to add my name to the amendment of the noble Lord, Lord Oxburgh, this afternoon. I will not get drawn into the debate that we have had about the climate science, because other noble Lords have done that far better than I could: the noble Lords, Lord Smith of Finsbury, Lord May, Lord Krebs and Lord Deben, have all, very clearly and lucidly, explained the dire situation and the threats that we face with climate change. I am also not going to comment on individual technologies, as it is very clear to me that the debate we should be having today is about the principle of decarbonisation, not about individual technologies. Nothing in any of these amendments dictates that we use renewables, do not use shale gas or use nuclear. They are entirely technologically neutral, which is one of their great assets and benefits. It is fair to say that on this issue we, as a party, and the noble Lord, Lord Oxburgh, are very close to DECC Ministers. We are not here to debate whether or not we should set a decarbonisation target but simply to debate when that target should be set. The Bill has been amended during its passage to state that a target will be set in 2016. The lead amendment is really about timing, and I have a few words to say about why it is right to set that target now.
The main reason is that, without this amendment and without bringing forward the setting of this target, the Bill largely lacks purpose. It is an enabling Bill which includes many measures that enable the Secretary of State to do things at his or her own discretion, but does not require anybody to actually do anything very specific. Therefore, despite the fact that we have been deliberating the Bill for many months—indeed, years now—investors are not celebrating the fact that it is nearly complete and are not yet clear about what the Bill actually delivers. There is still insufficient clarity of purpose, too much doubt about the Government’s commitment to cleaning up and modernising our electricity sector, and too much control now being given to the Government, who, unfortunately, are equivocating about the need for low-carbon investment. The Bill does not enable enough competition to ensure a broader range of projects and investors are delivered by it. The Bill is an enabling Bill and lacks a clear purpose. The amendment of the noble Lord, Lord Oxburgh, is intended to address that failing.
I have no doubt that the Minister will say that it is not targets, in and of themselves, that will drive investment. The noble Lord, Lord Teverson, has already indicated that that is what he believes. That would be true if we could point to detailed elements of the Bill that gave certainty. The mechanisms that the noble Lord, Lord Teverson, alluded to, which I have no doubt the Minister will also allude to, including the contracts for difference, the strike prices and the capacity mechanism, are not being celebrated by industry; in fact, quite the opposite. We are hearing very strongly that, for example, the strike prices being offered for offshore wind do precisely the opposite of enabling investment and actually deter it. The same is true of the capacity mechanism, which we were told would bring forward investment in gas power generation. Again, this part of the Bill is not being celebrated. It is being lamented because it does not appear to give the certainty investors need. We need to see action, not just targets, but unfortunately, without a target, it seems clear that action will not be delivered.
This is a modest and very moderate amendment. The noble Lord, Lord Oxburgh, could, had he wished, have put in place an amendment that dictated a target in the Bill. He has not done that; he has merely asked that the target be set by April next year. One might say, “Well, of course that’s sensible”, but in other parts of the Bill there are numerate and precise numbers which, when the Government see fit to try to encourage gas investment, they seem perfectly happy to put on the face of the Bill. I am alluding to the energy performance standard, which is incredibly prescriptive and detailed. The noble Lord, Lord Oxburgh, has not followed that; he has made a moderate and necessary amendment and I hope that the Members of this House will find support for it.
If we want to get to the real reason why this amendment is potentially going to be blocked by the Minister, it is not because we do not have a fifth carbon budget. It is absolutely clear to me that if the noble Lord, Lord Deben, as the chair of the CCC, can advocate the setting of this target, then there is clearly no link between the need for a carbon budget and the need for a carbon intensity target. The two things do very different jobs, and it is merely a ruse to state that we must wait for it.
It is also wrong to say that we cannot move without Europe. The situation in Europe is that we are being asked to consider a renewables target, as many noble Lords, including the noble Lords, Lord Jenkin and Lord Deben have alluded to. We may not want a renewables target in 2030, but we may be dictated to by Germany to have one, which seems absolutely certain that that is what it wants. If we had a decarbonisation target set early, we could then influence that debate and prevent the setting of a technology-specific target in favour of a decarbonisation target.
It seems clear that these reasons for opposing these moderate amendments are not the real ones. The real reason is that there is a complete lack of cohesion within the Government on whether we want to seriously pursue our climate change targets. One need look no further than Prime Minister’s Question Time just a week ago when a panicked Prime Minister was making up policy on the hoof. Without a real response to Labour’s challenge on how to bring prices down, he has now started blaming green electricity, or indeed social, environmental and energy-efficiency policies for those price rises.
I reassure the noble Lord, Lord Donoughue, that it is absolutely consistent for us to call for a decarbonisation target while wanting to see changes to the way that our electricity market is run. We have a regulator that is not fit for purpose, and an oligopolistic energy market that needs to be broken open so that we can have true competition and transparency and see that we are not overpaying for the electricity that is generated.
The real nub of this debate is: why can we not set the target now? Why are the Government insisting that it be set after the next election? It is purely political expediency because they have been unable to arrive at a sensible position in government. I really hope that Liberal Democrats—who have this as part of their party policy—will stand up and vote for this amendment because it is absolutely clear that, although many things are being attempted with this Bill, the bargain that has been struck is not yet balanced. The levy control framework that has been wrested from the Treasury is only a promissory note. That £7.6 billion that may be spent on clean energy will be spent only if strike prices are agreed at the right level. If all of the control that is being given to government means that the strike prices are continually set at the wrong level, we will see no investment and we will have sacrificed clarity of purpose for a bargain which will not ultimately deliver what I think the Liberal Democrats believe it will.
As I said, I am not going to get involved in the debate on climate science. However, I will say that if we are thinking that this amendment will somehow damage our competitiveness, that somehow Europe and the UK are out on their own tackling climate change, then that is absolutely incorrect. The most dynamic economies—China, Germany, California, South America—all now accept that the only future for energy is clean energy, and that we must act together to globally decarbonise. I am sure that we will see in Paris in 2015 the passing of an international framework that will demonstrate that we are not alone and that the big economic powerhouses of the US and China are behind this too. We will therefore move forward in tandem and it will not be a race to the bottom as some would prefer.
In the other place, this amendment was lost very narrowly; had 12 votes gone the other way, it would have been put into the Bill. That, of course, is in a situation where there is a large government majority. Here, in this House, the balance of power is such that on issues of great importance we can send a strong signal to the Government that they have got something wrong and must institute a rethink. This issue of when we set this target is not a huge issue but it is one of those important issues where we must cause the Government to rethink.
The noble Lord, Lord Oxburgh should be commended for tabling these moderate amendments. I hope that if the opinion of the House should be tested, we will be able to cause the Government to rethink this important issue.
Lord Teverson
My Lords, I do not want to speak specifically in favour of the spirit of the amendment proposed by the noble Lord, Lord Berkeley, about the vertical integration of this industry. It has seemed to me over the past 12 months in particular that there has been, if I may say, a growing corporate arrogance in the energy industry. Power seems to have gone to the heads of many of those six organisations. They feel that they can do what they like to their own customer base and that they do not have to pay much regard to democratically elected Governments or Parliaments, let alone your Lordships’ Chamber.
I was particularly struck by this one evening when I visited my 94 year-old mother. She had just had a letter from British Gas which said that she would have to pay an increase of 10% on her bills for the year. Then it kindly went through—in very small type, which was not easy for a 94 year-old—all the reasons for the rise. It gave as the top reason, the first on the list of bullet points explaining why energy prices had gone up, not one of the reasons that we know are actually the reasons for the price increase; instead, it blamed the Government. It is a dual fuel tariff, so the charges are affected by the various bits of government legislation. I think that reflects a real arrogance. It is very difficult indeed to fix this competitive area, as noble Lords are trying to do. It is time to think what has previously been the unthinkable and say, although perhaps not tonight, “Yes, it is credible that we split supply from production”. That should be seen as a real way forward.
However, we have another problem, which leads to the arrogance that we are seeing within the industry. The companies know that we know that some £100 billion needs to be invested to keep the power lines going to make sure that we keep the lights on in terms of capacity. That is a dilemma for any Government. Nevertheless, we should start thinking what has previously been the unthinkable: that this arrogance is not acceptable. We expect them to be more responsive, not necessarily to us but certainly to their customer base and to the nation in terms of their pricing strategies. They should know that if we cannot solve the competitive issues, that split could indeed happen.
Baroness Worthington
My Lords, I am grateful to noble Lords for tabling this amendment. It enables us to have a debate about what I believe is an obvious missing element in the entire Bill, which is the need and the desire to promote competition. It is clear that there has been a quickening of pace in the thinking about energy policy since the conference season. That is largely because the Labour Party has called time on the existing system which is operating in our electricity market. We stated clearly that if we win the next election we would make dramatic reforms to introduce greater competition. It is evident that we have an oligopolistic system and that there is an insufficient downward pressure on prices. Otherwise, why would British Gas and other members of the big six opt to spend half a billion pounds on share buy-backs when they could have used that money to keep prices down for their consumers or to stop the price rises they have recently announced? It is absolutely clear that something needs to be done.
The amendments tabled go some way to trying to crowbar this issue into the Bill but, unfortunately, I do not think they go far enough. We certainly support the desire to put the requirement for further competition into the general considerations. We cannot see an argument against that and it seems very sensible.
The noble Earl, Lord Caithness, said that the Bill was all about competition. That could not be further from the truth. What the Bill actually does is deliver a system that will largely be determined by administrative negotiations between the Government and single parties quite often representing the big six. We have seen the first such announcement to emanate from this Bill, the contract awarded to EDF to build Hinkley Point C. Indeed, the noble Lord, Lord Deighton, was responsible for negotiating it. I have no doubt that he would have found it much easier to negotiate a price and length of contract that was better value for consumers if we had had more competition. What we needed was more competition in our choice of vendors of nuclear reactors. We were choosing one from one, which is never a good situation to be in.
I shall put that aside because I have used it as an illustration that the Bill does not introduce or increase competition, but narrows it. Later this evening we will debate—very briefly, I promise—my Amendment 7, which seeks to state that this contract for difference process must very quickly pass to a competitive process. It cannot continue as this bilateral, negotiated discussion behind closed doors with one or two very large companies that already play a dominant role in the market. In the interests of consumers and of competition, we must open up the whole process to competition so that we can keep prices down.
This group also contains the amendment in the name of the noble Lord, Lord Berkeley, which would split the big six. Again, we are very sympathetic. Rather than crowbar it into the Bill, we have already stated that we would use legislative powers on election to do exactly that. The argument in favour of the big six and vertical integration has always been that they need the balance sheet of the supply industry to be able to raise the finance required to invest upstream in generation, but that is not what they have been doing. They have not ploughed their profits back into investment; there has been a hiatus in investment.
The renewables industry, which has grown the most, has not relied on the big six. More than half of the investment that has gone into renewables has come from independent investors: new, independent companies. We should seek to support those companies and see them prosper. However, they report that it is becoming increasingly difficult to get power purchase agreements from the big six because they control the vast share of access to customers. Why is this? It is another clear signal that there is not enough competition in the market. We now have yet more contortions added to the Bill, such as purchasers of last resort and buyers of last resort, provisions that have been put in precisely because the big six are not offering decent contract terms to the independent investors. If that is not a signal that something is wrong, I do not know what is.
I will briefly touch on the reference made by the noble Lord, Lord Deben, to Germany. I fully support the idea that the big six should become the big 60, and ultimately the big 600. We need to democratise our generation of electricity. The signs are that it is already starting, from the man on the street fitting solar panels to communities coming together to find PV for their schools or building wind farms. Real change is happening and we must endeavour to make it happen more quickly and substantially. Only then will the big six or their equivalents be challenged. This is happening already in Germany, where after a relatively short period RWE, the giant of the German electricity industry, is claiming that its business model is broken. The support for decarbonised, community-owned power has broken that industry, which is a good thing, as it has been responsible for a huge amount of carbon emissions over the decades and has shown itself to be incapable of adapting quickly enough to the new, modern needs of electricity.
I will not go on any more. We have covered the main points: the big six system is broken and we absolutely need more competition in this market. The Bill, by introducing contracts for difference, makes it possible and credible for us to make the decisive move to split vertical integration and halt the market power that is gained from having generation and supply in the same companies. We are in principle supportive of this, and we look forward to the Minister’s response. It is a sticking plaster, but nevertheless a very important one.
Baroness Verma
My Lords, I thank my noble friends Lord Jenkin and Lord Roper, and the noble Lords, Lord Cameron and Lord Berkeley, for their amendments. They all relate to competition within EMR and the electricity market. I should like to reassure noble Lords across the Chamber that I fully recognise the importance of effective competition in the market. I also recognise my noble friend’s desire to help independent gas-fired generators in particular. My noble friend tabled Amendment 4 in Committee, and I have considered carefully the points he made. In particular, he said that this amendment would,
“help the Government to achieve their stated desire of having greater market competition”.—[Official Report, 18/7/13; col. GC 339.]
However, I still do not think that it will deliver the competition that he rightly seeks. We will make a difference to competition only if we take action and deliver actual reforms that are designed for that purpose.
The list of matters to which the Secretary of State must have regard in Clause 5(2) is about balancing different objectives: balancing the need to decarbonise against ensuring security of supply, and at the least cost to the customer. However, competition does not fit into such a list. We are not balancing competition against delivering decarbonisation or cost to the consumer. Competition is one of the means of minimising cost to the consumer, and the purpose of EMR is to move us to an electricity market where low-carbon generation can compete fairly on price. Amendment 4 could cause confusion as to the practical effect on the design and implementation of EMR. Noble Lords will recognise that we do not have the luxury of time at the moment, and that to understand the effect of such a change would undermine our efforts to quickly implement EMR and bring forward investment.
Baroness Worthington
I am sorry to interrupt, but I forgot to ask a question in my contribution, particularly on the capacity mechanism, in which I know the noble Lord, Lord Jenkin, is very interested. What representations have the Government had from independent gas generators on the penalty prices? We are being told that because of the way that the capacity market is stretched, they will not be able to raise finance with those punitive penalties within the capacity mechanism.
Baroness Verma
My Lords, while I wait for some inspiration to wing its way down to me, I will continue and respond later to the noble Baroness. I recognise what my noble friend Lord Jenkin and others have said about how liquidity reforms benefit consumers. These reforms make it easier for independent suppliers and new entrants to access the wholesale market. They will increase competitive pressure in the retail market, which will benefit consumers in terms of downward pressure on bills, greater choice, and better service, which is what I know all noble Lords want.
My noble friends Lord Deben and Lord Jenkin, and others, mentioned Ofgem’s liquidity proposal. We want to make the energy market as competitive as possible. An increasingly level playing field for independent suppliers and generators is precisely what will help drive competition, which delivers better value for consumers and business. Ofgem’s proposal to increase transparency in the way electricity is traded will give independent generators a foothold in the UK market and encourage new players to invest.
While I am waiting for inspiration, which has not quite arrived yet, I will touch on the proposals the noble Baroness, Lady Worthington, has mentioned on the price freeze. We cannot see the Labour Party’s proposals solving the problems of competition. What we see is that we will get price hikes before and after the freeze. What we need is to get a better understanding of where the Labour Party is coming from when it says that it wants to reset the energy market, because we do not know whether that is just jingoistic terminology or if there are some proposals in place.
The inspiration I was waiting for has arrived. We are engaging with industry. It said that it was pleased with our proposal for a higher cap in the first auction. I suspect that does not quite answer the noble Baroness’s question, so perhaps I will come back to her on that.