Energy Bill

Baroness Worthington Excerpts

Wednesday 11th December 2013 Lords Chamber

[Lord Oxburgh (CB)]

My Lords, I do not think that I have any relevant interests to declare, but I draw attention to the published record.

We have heard why the Minister feels that we should not persist with the amendment of the noble Lord, Lord Teverson, which was passed by this House with a substantial majority. Noble Lords may also have read the Minister of State’s speech in the other place. Having read the arguments, I concluded that there was little between the Government and those supporting the amendment. For that reason, I am today offering a differently worded amendment that to many of us seems both to meet the spirit of the amendment of the noble Lord, Lord Teverson, and to satisfy government concerns.

I am doing that in my capacity as unofficial chairman of this House’s unofficial cross-party Energy Bill group, which first carried out the unofficial pre-legislative scrutiny of the Bill at the request of the then Energy Minister in our House, the noble Lord, Lord Marland. The group has held widely advertised regular meetings with the Minister and officials during the passage of the Bill, and I take this opportunity to place on record our gratitude.

I also thank the Minister for yesterday convening another meeting of the group and for securing the attendance of the Minister of State for Energy. We heard what he had to say, and he heard what we had to say. We offered him the amendment that is before you today, but his officials advised him not to accept it. I think that to pretty much all those present the reasons offered for not accepting it were pretty thin.

The fundamental purpose of the present amendment —and, indeed, the original Teverson amendment—is to make clear that a role for unabated coal in the national energy mix is not foreseen beyond 2025. Indeed, that is the Government’s position. In the other place, the Minister indicated that he expected the overall contribution of coal to our electricity generation in 2025 to be about 3%. In the unlikely event that external events made it look as though unabated coal would be needed longer, the Bill already contains provisions to deal with that unlikely eventuality.

Noble Lords may ask why we are bothering with this now. It is simply to provide an additional crumb of confidence to those who are contemplating investing in new, gas-fired power generation. It is a bad time for investment in energy utilities and it would be helpful to have a clear indication that gas will be our main means of fossil-fuel generation from the 2020s onwards. It is probably unnecessary to point out that this amendment could have no real effect on energy prices in the foreseeable future. This is mostly because the amendment would have no effect on generation until well into the next decade and partly because power price is largely determined by the swing producer, which is gas. At present, coal is cheap and is making an increased contribution to our power generation. However, you will have noticed that this does not translate into lower electricity prices but rather into better margins for coal-fired power stations.

The Government have said it is urgent that this Bill should become law. We agree, and a simple way of ensuring this is to accept this constructive and simple amendment. I beg to move.

[Baroness Worthington (Lab)]

My Lords, if there is no one else who wishes to speak now, I will.

Here we all are, almost at the end of the process of electricity market reform in the Energy Bill. We have spent many months debating these interventions in the electricity market and felled a fair few trees printing all the documents. However, despite all this effort, the Bill is still deficient in a number of important respects. It fails to bring about true competition in generation, handing yet more power and money to incumbents via the capacity mechanism, and it fails to make clear that the objective of all this intervention is to decarbonise our electricity. The net effect of these deficiencies is that the process of decarbonisation, which the Bill seeks to introduce, is more expensive than it need be.

The original Amendment 105 and the new compromise amendment tabled by the noble Lord, Lord Oxburgh, seek to achieve the same thing: providing a back-stop for existing government policy that seeks to make unabated coal a diminishing part of the energy mix by preventing lock-in to high-emissions plant in the 2020s. This plant can be upgraded to comply with tighter air quality standards. The more coal we burn, the more effort we have to undertake, using more expensive options, to meet the same emissions reduction targets.

The Government’s chosen policy to constrain coal investment is the carbon floor price, but this is a deeply unpopular and very expensive policy. It lacks credibility as it is a financial Bill measure that can be easily done away with. It therefore creates a huge amount of political risk for investors.

The emissions performance standard underwrites that policy, reducing risk. The EPS is a tried and tested policy and it has the benefit of providing absolute clarity to the market about what is required. It is already used in California and Canada and in both cases the limit on emissions applies to old coal plant, not just new. In Canada the clarity of that regulation has brought forward investment in the world’s first commercial-scale CCS plant, which will open next year. In the UK we have not followed this but have opted instead to try to tax coal off the system—an option that is not delivering at the moment. Unfortunately, there is a great risk that this course of action will continue to fail and operators of coal will decide to sweat their assets for longer, using the large up-front payments they will now receive from the capacity market.

The original amendment required the old coal stations seeking life extensions to operate for only 40% of the time, under the EPS limit, guaranteeing that they would be available for the peak but not allowing them to baseload. In rejecting the amendment, the Government argued in the other place that this change might dissuade some plant from upgrading at all and therefore reduce the amount of plant available for peaking.

The noble Lord, Lord Oxburgh, has listened to these concerns and now tabled an amendment which offers a different approach. His amendment would require the limit on emissions equivalent to 40% of capacity to apply only in 2025, 12 years from now. Operators of upgraded plant would therefore be able to use their three-year capacity payments to offset the costs of upgrading and continue to sweat their assets for another five years at full capacity, which would then be available for 40% of the time thereafter. This seems like a good deal. By 2025, all but one of the six plants that this amendment would apply to will be more than 55 years old, having emitted together over 1 billion tonnes of CO₂ over their lifetimes, so 2025 is well past their closure date.

This amendment is a compromise but one which still has the benefit of clarity for everyone: clarity for the coal plant; clarity for gas investors; and clarity for the environment. To leave things as they stand is to allow a known unknown to persist needlessly. With no decarbonisation targets to guide government policy—

[Lord Forsyth of Drumlean (Con)]

The noble Baroness is probably drawing her remarks to a close but before she does so, can she explain to me how what she is saying in supporting this amendment is consistent with the leader of the Opposition’s declared policy to hold down energy prices and with maintaining security of supply?

[Baroness Worthington]

It is absolutely consistent because what we have said is that we will seek out the least costly forms of carbon abatement. There is no cheaper way of reducing carbon dioxide than using existing gas stations in place of existing coal stations. That is how the UK decarbonised its economy in the 1990s and that is how we should be doing it again now. However, there is sufficient doubt about that, because of the price of coal relative to the price of gas. It is absolutely consistent to say that we want to keep prices low by supporting this amendment.

One of the things that the Government are currently struggling with is that, at the root of this, there is not sufficient clarity in the backing of these decarbonisation objectives. It would obviously be very easy to solve the energy trilemma by simply lopping off one of the legs. If you simply say, “All we need to do is keep the lights on at least cost”, there is no problem; you would stick with the coal. It seems that this Government are not actually committed to decarbonisation as they have lopped off one of the legs and are seeking a return to coal at just the time when, internationally, we are pressing everybody else to move away from unabated coal.

This is a sensible and moderate amendment, and it gives clarity to everyone. It reduces investor risk, particularly for those people operating gas stations and seeking to invest in new gas stations. I hope that noble Lords on all sides of this House will find that they can support this amendment and I hope that the Minister will ultimately support it, too.

[Viscount Hanworth (Lab)]

My Lords, we have been told that the Energy Bill has two purposes. The first purpose is to secure the much needed investment in new plant for generating electricity. The second is to decarbonise our electricity supply. Amendment 105, which has been rejected by the Government, was closely aligned with these two purposes. Its effect was to ensure that if there were major upgrades to coal-fired power stations, such as to enable them to meet the European emission requirements in respect of sulphates, nitrates and heavy metal contaminations, they should also be constrained to meet the emissions performance standards in respect of carbon dioxide that are imposed by the Bill. The subsequent amendment tabled by the noble Lord, Lord Oxburgh, reinstates this requirement but includes a let-out clause that would allow the Government to alleviate the requirement, if necessary. Presumably, this would be appropriate in a case where the lack of capacity was so pressing as to imply a real danger of the lights going out.

The Minister, Michael Fallon, argued in the Commons that to include such amendments would add to the risks faced by investors. The logic of his position escapes most of us, who believe that the original Amendment 105, or its replacement by the amendment of the noble Lord, Lord Oxburgh, would clarify the intentions of the Bill in a way that would actually encourage investment. Why does that Minister insist on the rejection of these amendments? Is it that he wishes there to be a loophole in the legislation that would allow dirty, coal-fired power stations to remain in operation, notwithstanding the ostensible purpose of the Bill? There are certainly grounds for such a suspicion. However, the Minister has asserted on several occasions that he doubts, even with the allowances the Bill affords, whether any of the old coal-fired power stations have a future.

Perhaps we should believe in his good intentions and allow ourselves to look elsewhere for the reasons for his intransigence. The reasons are not hard to find. The Minister has a need to conciliate a faction in his party that is firmly opposed to all measures aimed at staunching the emissions of carbon dioxide. They point to the cases of Germany and the Netherlands, which are in the act of commissioning unabated coal-fired power stations. They demand to know why Britain should be imposing constraints upon itself when others are failing to do so.

--- Later in debate ---

[Lord Forsyth of Drumlean]

My Lords, I am prompted to rise because of the rather unwarranted attack that the noble Viscount made on Ministers. None of us takes responsibility for security of supply in the future. The late Baroness Thatcher used to say that the only thing that was certain in politics was uncertainty. None of us knows what the future holds or what the likely position will be in 12 years’ time. This amendment would remove the flexibility that a future Government would have in order to keep the lights on. It is really quite wrong of the noble Viscount to present this as some kind of political matter that is exercising Back-Benchers in the other place, as he did, with Ministers responding to that rather than to their responsibility to ensure that we have security of supply. I notice that when I asked the noble Baroness on the Opposition Front Bench about security of supply, she did not deal with the issue.

At the end of Question Time, we had a Question about China. We are now importing vast quantities of carbon from China because of the expansion of coal-fired power stations there, and exporting jobs that would otherwise have been here. To present this as some kind of neutral political argument—

[Baroness Worthington]

My Lords—

[Lord Forsyth of Drumlean]

I shall give way in a second, if I may. I bow to the considerable experience of the noble Lord, Lord Turner, in this matter, but there was a thing called the financial crisis, which he is also very familiar with, which followed and which has big implications for jobs and prosperity in future. Ministers are entirely right to take account of that.

--- Later in debate ---

[Baroness Worthington]

I thank the noble Lord for giving way. I referenced security of supply in indicating that this would create greater certainty for gas investment, not least by changing the merit order so that gas operated for more of the time. The noble Lord’s interruption made me lose my place at the time, but I was going to go on to mention that I learnt yesterday that one of our biggest renewable projects, the biomass conversion at Eggborough, is now in jeopardy because Ministers in this Government have changed the early CFD feed-in rules in this Bill, which we have yet even to sign into law. The rules have been changed midway through so that the Eggborough project, which currently accounts for 4% of our supply and gives us firm renewables that mean that we can back off from wind, is now in deep jeopardy and is expected to have to close as a result of this Government changing their mind.

[Lord Forsyth of Drumlean]

The noble Baroness makes my point for me: there is no certainty in the future.

[Baroness Worthington]

Under this Government.

[Lord Forsyth of Drumlean]

Under this Government, under future Governments—whatever. All that the Government are arguing in this regard is, “Don’t close off options that may, in the event of the unforeseen happening, occur”. The noble Baroness, who presumably has concluded that she is never going to be in government again, has no interest in that, but those of us who believe that our parties will be in government would like to see our Ministers keep their options open. I hope that the House will reject this amendment.

[Baroness Worthington]

Does the noble Lord accept, though, that because demand for electricity is currently flat, keeping options open squeezes out investment in new options?

[Lord Forsyth of Drumlean]

Before I sit down, I say to the noble Baroness that I would be more persuaded by her if she and her party were to be more open-minded about the prospects for fracking, for example, in her advocating the future generation of electricity by gas. As always, though, the noble Baroness wants it both ways, and I hope very much that the House will support my noble friend and reject this amendment.

--- Later in debate ---

[Baroness Verma]

My Lords, I am grateful to all noble Lords for their contribution to the debate. I hope that in my opening remarks I made it clear that the Government recognise the intention behind this amendment. Of course we share that intention, but I believe that the differences between us are very narrow, even though they are very important.

It boils down to an assessment of risk. All sides in this debate can agree that we neither expect nor desire large amounts of unabated coal to be operating in the 2020s, but, as my noble friends Lord Forsyth and Lord Jenkin of Roding have rightly pointed out, we cannot be sure today exactly what will be required in those years. The Government’s position is that we should take a precautionary approach, given the serious potential for security of supply implications and the impact on consumer bills if we get it wrong. We should send a clear signal that unabated coal has only a limited future in helping us to transition to a lower carbon economy by creating an EPS that applies to any new coal plant. I appreciate the attempt of the noble Lord, Lord Oxburgh, to find an alternative, but no responsible Government could or should take risks that potentially put energy security in danger.

The noble Baroness, Lady Worthington, raised a point on the capacity market; our view is that capacity payments are likely to have only a marginal impact on the overall economics of coal plant and more important drivers on occasions where upgrading will relate to the overall state of an operator’s plant, an operator’s view of the market and the value that they place on retaining coal as a hedge. Even were they able to do so, this could mean that coal plants stay open longer, but they would operate at low-load factors and hence have low carbon emissions, given the evolution of the energy market with more low-carbon generation and carbon pricing. The noble Baroness could not give complete assurance that energy security would not be at risk. She could not say that prices would stay the same—her own party’s policy does not say that.

It is time that we looked at the elephant in the Chamber—the investors. After months of uncertainty, investors are looking at us in dismay. The most important thing we need to do is to provide certainty for investors by securing Royal Assent. The Confederation of British Industry has said that the Energy Bill has undergone significant scrutiny within Parliament as well as by industry and other stakeholders and it has the broad support of industry and investors in its current shape. It is important to the success of EMR that the Energy Bill receives Royal Assent in 2013, allowing investors to make those well needed decisions about investment.

[Baroness Worthington]

I thank the noble Baroness for giving way. Will she comment on my questions about Eggborough, as that is the very first test of whether this Bill is actually going to deliver? It was part of DECC’s announcement on projects that are going forward under the FID enabling scheme but I hear that next week they will receive a letter saying that they are not eligible for the first tranche because of a new system that the Government have introduced of rationing out the CFD contracts.

[Baroness Verma]

My Lords, the noble Baroness is of course aware that negotiations that are commercially sensitive cannot be discussed; I will not go further than that because these are sensitive issues and it would not be right of me to discuss individual plants, particularly on issues of commerciality.

--- Later in debate ---

[Baroness Worthington]

I will just say that the Secretary of State was at Drax unveiling a new project that is being enabled under the CFDs. If it is that confidential, why was he there?

[Baroness Verma]

My Lords, I shall continue by trying to conclude quickly. The Bill has undergone thorough scrutiny and the Government have listened very carefully to all the concerns raised during its passage through this House. I am grateful to my noble friend Lord Teverson for his warm words. We have responded to a great many of the issues raised by colleagues from all sides of the House on, for example, domestic tariffs and access to markets, and we have introduced new topics—for example, carbon monoxide and smoke alarms.

We must acknowledge that the other place has accepted 112 amendments and, moreover, has welcomed them. It has recognised the expertise that this House has brought to the scrutiny of the Bill and the real improvements to it that this House has made. However, the other place has decided with a considerable majority that it does not agree with this amendment. The elected Chamber saw an unprecedented majority for the Bill as it completed its passage through the other place. Today, we can decide that the Bill proceeds to the statute book—a Bill that is essential for protecting consumers and for ensuring security of supply and decarbonisation of our economy. Nothing will send a firmer signal to investors than that this House will do nothing that prevents the Bill receiving Royal Assent.