Energy Bill [HL]
Debate between Baroness Worthington and Lord Oxburgh(9 years, 3 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Oxburgh
My Lords, I thank all noble Lords who have participated in our lively and interesting set of exchanges, which are too numerous to answer all in detail. However, the noble Lord, Lord Howell, asked about the implications for the North Sea. I probably did not make my submission too clearly, but one of the reasons that CCS is creeping along glacially is that no one can make a business case and there is no investor confidence. A regulation of this kind would plan a clear way forward for industry and CCS would become much more investable for the private sector—and there would be much less dependence on government.
The noble Lord, Lord Teverson, commented on the large scale and expensive nature of CCS. We do not really know what it costs. We know what the operation in Canada has cost, and it is a lot of money. However, there is a hockey stick curve for all these things; they are expensive at first but prices come down. All new technologies and new ways in which to capture carbon would be explored and invigorated with a clear drive from government, and there would be responsibility on companies to find a cheap way of doing this.
The noble Viscount, Lord Ridley, made a number of points, including on the carbon floor price. I am indeed worried about the delay. He commented on the overseas implications. I agree that among the things that we would have to tease out would be the implications for the UK of doing this by itself. What would be the implications for our position more widely? Might we be able to persuade other EU countries to come in on this? For a lot of people, this kind of approach is a no-brainer; it is the obvious, “polluter pays” way forward. I say to the noble Viscount that I never believe the figures on climate projections. He will have noted that, although I mentioned 4 degrees, I did not say when. What is beyond doubt is the direction of change, and cutting down our emissions and putting them out of the way as quickly as possible is a sensible precaution to take.
I thank the Minister for his words.
Baroness Worthington
I should like to respond to one question about how this matter relates to the Bill and the North Sea. I want to offer this fact to Members of the Committee: over its time, the North Sea has produced 42 billion barrels of oil. It has been of great benefit to us as a country; however, those barrels have contributed 18 billion tonnes of CO2 to the atmosphere. There is a definite link to not only the North Sea’s inevitable economic benefits for us but the environmental consequences of that. I should also say, for information, that buying CO2 commercially as a feedstock at the moment costs £100. We must be able to sort something out whereby the producers of CO2 and those who buy it at £100 can be brought closer together, so we can begin to see the development of an industry in getting CO2 safely out of the atmosphere.
Energy Bill [HL]
Debate between Baroness Worthington and Lord Oxburgh(9 years, 3 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Worthington
My Lords, I thank all noble Lords who have contributed to this debate, which has demonstrated the breadth of opinion and the cross-party consensus on the need for the Bill to be amended to ensure that carbon capture and storage—or certainly the storage and transportation elements of it—is on the face of the Bill, for the avoidance of all doubt. On these Benches, we will not be content for the Bill to leave this House without that issue being addressed. That said, I am grateful to the Minister for his response. I look forward to sitting down and engaging in the discussions he offered with officials and interested parties to see if we can come to an agreement on the review period for the legislation and the objective of the OGA. I understand the points that have been made, but if you create a body that has licensing powers over the storage of CO2, which may well involve itself in meetings in relation to storage and transportation and which may be charging fees, how can this all be possible unless its primary objective includes a reference to that? The potential for judicial reviews or objections from industry would be much wider if we do not make it crystal clear from the outset that this is what we intend the OGA to do. The noble Lord has referenced the fact that this will be self-financing, but government amendments to be tabled today would mean that public money was potentially being given to the OGA. I reiterate that we will not be content unless something appears on the face of the Bill, but I look forward to sitting down with the Minister and his officials and, on that basis, I am happy to withdraw the amendment.
Lord Oxburgh
I join the noble Baroness, Lady Worthington, in thanking those who have participated in the debate and the Minister for his reply. I have one final question for him. Have the officials in his department conducted a study of how the Bill might impact CCS? There are serious questions there: if they have not done that, could they do so? It would be extremely useful as a lead-in to the next stage.
Electricity Capacity Regulations 2014
Debate between Baroness Worthington and Lord Oxburgh
Lord Oxburgh (CB)
My Lords, many of the points that I would have made have already been made by other speakers more eloquently than I could have. I simply make three separate small points.
First, the importance of the OLR to small businesses has been emphasised on every side. I hope the Minister will take this back to her department and seek urgent action on it. It is very important. The Government’s stated objective to bring in small companies and open up the market simply will not happen unless this is fixed.
My second point is more a comment. Does the Minister realise that the very process of consultation that the department has embraced, with the best intentions in the world, discriminates against small businesses? I read that there have been 30 separate consultations over the past 12 months. The big companies can take their responses in their stride—they have people who do nothing but write responses on their behalf—but for small companies it is a major burden. The department runs a serious danger of seeing responses from the big companies overemphasised in what is intended to be, with the best will in the world, an open consultation. The Government have to take that into account when responding to this process and acting on it.
I will not pursue the second point in detail, but it relates to the capacity mechanism, which we have not been discussing in detail today. The information we have received so far is not encouraging. Clearly, competition is important—many of us around the table here support that—but there is competition and competition. An awful lot depends on the precise and detailed rules associated with that competition.
To go back in history, we had the ROC system—we still do—which was introduced as a technology-blind mechanism. It did not matter what technology was used. The fact is that, given the structure of the ROC mechanism, only one technology could compete: wind. There was not really any competition between technologies. We are in serious danger of getting into the same apparent open competition, with the capacity mechanism as we see it now, without it being truly open.
Without going into detail today, I need to be persuaded that the capacity mechanism as we see it at the moment, given what has been published so far, is not heavily weighted in favour of the continuation of heavy use of coal. That is not consistent with the Government’s objectives, legally committed to, to climate change and carbon reduction. I would be very grateful if the Minister could describe how she sees the capacity mechanism playing out in the balance between coal and gas.
My final point—I declare an interest as honorary president of the Carbon Capture and Storage Association—is to ask the Minister why carbon capture and storage has not been included in the list of CFD-eligible technologies. I see no reason for that. We have had a competition on carbon capture and storage, and two companies were selected. I do not criticise the basis of that selection, but, if I remember rightly, five or six companies had done a lot of work on that competition. We would like those companies to continue to engage with carbon capture technology, because it is one of the legs of the Government’s low carbon strategy. I am a little surprised not to see it mentioned here, because it would at least give those companies that were unsuccessful in the main national competition something to think about and some encouragement to go forward.
Baroness Worthington
My Lords, I am grateful to the noble Baroness for her comments by way of introduction and for taking us through the instruments that we face today, and for the contributions of noble Lords from all sides to this debate.
Here we are again. I seem to remember that for most of last summer we were working through very similar topics and subjects. Now we see some of the detail flowing from that primary legislation before us.
I want to start by making a couple of general points before considering the instruments in more detail, when I will have a number of questions for clarification. First, this is our first opportunity to discuss the energy market reform package since the finalisation of the Energy Act. Between then and now, something quite significant happened in the Budget, when it was announced that the carbon price floor, which was a fundamental part of the EMR package, was to be frozen. Noble Lords will remember that during the passage of the Bill, that topic was debated at length, and we received many reassurances from department officials and from the noble Baroness, both in the House and in meetings, that the carbon floor price was integral, because that was to ensure that we move towards a low-carbon economy. However, the ink had scarcely dried on the Act before we saw a fundamental change announced in the Budget—there was no mention of it in the Pre-Budget Report, which I thought was quite odd—simply bringing it in.
That serves to highlight something that we have all commented on, which is that that instrument is not a firm policy. It is not bankable or something that investors can take into account as a material policy, because it is subject to change at the whim of a Chancellor. I think that we are less than two years into its operation and it has already been fundamentally changed.
My first question is: what impact did that decision in the Budget have on DECC’s dynamic dispatch model? By that I mean: how has it changed the forecasts that DECC now uses for capacity and what does it do to the fuel mix? If that is perhaps too complex an issue to go into here, I would welcome a note on this, because it is fundamental in thinking through how the EMR hangs together.
That leads me to my second general point. This is an incredibly complex set of regulations and, at some point, you have to try to take a step back and see how they all affect each other. It is a yarn of wool; you pull one end and the other gets affected. We are making a massive intervention in the market and this afternoon we have had something of a philosophical discussion, in which noble Lords have expressed differences of opinion over whether we should be more state-governed or more market-governed. What we have at the moment is, potentially, the worst of both worlds. We have a hugely state-driven system but with no power for the state to deliver. The state is entirely dependent on private entities coming forward to invest in this market. They will do so only if they feel they have clarity and confidence, and can understand the rules that they are being asked to apply. So we have a lot of micromanagement from government but no ability for government to make anything happen without the private sector. This morning Peter Atherton, a renowned commentator, stated after listening in on the budget announcements about the CFD:
“We are now in a world of staggering complexity, micro management and second guessing by the state”.
I am afraid that that is quite an accurate portrayal of where we are today.
We have also seen, just this week, that we have had state aid clearance. That was welcome although, as I understood it, there was a queue of state aid clearances with Hinkley as number one, then the rest of the CFD and then the capacity mechanism. We have not had a decision on Hinkley yet but we have on the capacity mechanism and have had the renewables part of the CFD cleared. Should we infer from that that there is something of a delay on the Hinkley decision? Can the Minister explain why we have received these judgments slightly out of the order in which we thought they were being considered and when we are likely to see pronouncement on Hinkley?
I mentioned that this is complex and that we need to take a step back to look at how all these parts interrelate. I now want to say something in relation to how these two major planks of the EMR package that we are considering today interrelate. Obviously, we have CFDs, which are there to bring on low-carbon capacity and to give guaranteed payments over a period of years to ensure that we can get capital-intensive projects away. We then have a capacity mechanism which, to give a shorthand definition, is designed to try to keep the lights on. However, there is something of a conceptual gap between these two mechanisms. I would really like to hear more from the Minister on that.
The reason that there is a gap is that CFDs reward low-carbon capacity. We are told that they will do this at some point through competition, where price will determine it. At the moment, it is not quite clear what the determinant is between somebody getting or not getting a CFD, so it is administratively decided. Nevertheless, that is the system. Then there is the capacity mechanism, which is designed to reward those people who are able to provide firm power and maintain system availability. In order for the capacity mechanism not to double reward, the decision has been taken that anybody receiving a CFD will not be eligible for the capacity mechanism. That essentially means that there is a class of CFD-eligible technologies which are firm—they provide you with available, predictable and, more importantly, dispatchable power—but are not being given any reward for that element.
To clarify: if we consider biomass or CCS, they are very different to wind or solar in that they can be fired up at will and used to meet spikes in demand. They therefore have an inherent value that is not rewarded through the capacity mechanism or the CFDs. How does the department value that element of capacity—the firm, low-carbon power that is coming on? I would appreciate an answer to that question.
Energy Bill
Debate between Baroness Worthington and Lord Oxburgh
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—
Energy Bill
Debate between Baroness Worthington and Lord Oxburgh
Lord Oxburgh (CB)
My Lords, this, too, is intended to be a helpful and supportive amendment. During the various clauses that we have debated today, the costs of natural gas to consumers and the effect on their prices have come up time and again. As we go forward into the coming decades, gas from the North Sea will get progressively less, and we shall be more dependent on imported liquefied natural gas, or LNG. The market shows strong seasonal spikes already, with the winter price significantly higher than that in the summer.
This amendment offers the Secretary of State an extra tool in his tool box for controlling gas prices that are paid. It allows the Secretary of State to invite bids from anyone who supplies gas to undertake to make available to the market an agreed amount of gas over an agreed period at not more than a particular price. It is not clear that this will be necessary, but it could be. I beg to move.
Baroness Worthington
My Lords, I support Amendment 49 of the noble Lord, Lord Oxburgh. Throughout the evening and the passage of this Bill we have discussed the need for competition and for keeping downward pressure on price a great deal. It is clear, as the noble Lord, Lord Oxburgh, has pointed out, that the majority of the increases in consumer and business bills in recent years have been down to the increase in gas prices.
It is regrettable that we heard recently from British Gas that it had decided to withdraw a project to enhance and expand its gas storage capabilities. This is another sign that there is insufficient downward pressure on prices. It probably suits British Gas quite well to have prices rising, because that leads to higher profits. It is probably the wrong body to make any kind of economic assessment on whether it makes sense for them to invest in gas storage. There has to be some form of intervention from government to ensure that there is timely investment in gas capacity.
Gas prices fluctuate between the summer, when demand is low, and winter, when it is high. If we can smooth that out and provide a more stable price throughout the year, it makes sense to have a tool in the armoury, as the noble Lord, Lord Oxburgh, has said, to facilitate this. I am sure that the Minister will come back with some thoughts on this. It is quite a new element to introduce to the Bill at this late stage and perhaps an amendment of this kind is not the way to deliver it, but I strongly support the sentiment behind it. As the noble Lord, Lord Oxburgh, has pointed out, we are seeing our North Sea gas reserves diminish and we are moving into a more international situation in which we rely on gas from many different parts of the world. Much of it is being delivered by ship. Ships can change course in the middle of the ocean if they see fit, if offered a better price. Our reliance on gas needs to be underpinned and secured through greater capacity and gas storage.
I hope that the Minister can say something about how the Government intend to bring more of this to ensure that we are not facing a situation where it is in everyone’s interest apart from the consumer to have gas prices rising continually, and that there is some way in which they can intervene to bring investment to this important aspect of energy security and affordability.
Energy Bill
Debate between Baroness Worthington and Lord Oxburgh
Baroness Worthington
We are now discussing the part of the Bill that concerns the emissions performance standard. By way of background, I thought it would be useful to recount where these provisions arise from. It was in response to the Kingsnorth demonstrations, which were a green group response to the threat of a new unabated coal plant being built by E.ON. At that time, climate change concerns meant that there was a great deal of public opposition to the idea that we would be locking ourselves into many decades of unabated coal if a new plant were to be built.
The then Labour Government responded with a new planning restriction that meant that all new coal plants would have to fit at least 300 megawatts of carbon capture and storage, essentially closing the door on unabated coal. The then Opposition stated that they would move to rule out new unabated coal through the introduction of an emissions performance standard. That was prompted in part by a visit by one of the shadow Ministers to California, which is one of a number of US states that already have emissions performance standards in place. When he became Prime Minister, David Cameron stated that he would legislate—he would put an EPS into an energy Bill—and consultation on that began, in conjunction with the rest of the energy market reform package, in December 2010. Here we are today, talking about the detail of that proposal.
The Government did not get everything right in their first draft proposals. One loophole that was quickly identified was that the plan was to give exemptions to any plant fitting CCS. The fear was that this would mean that large plants could be built with only a small portion of the capacity being fitted with CCS. Representations were made. The Government did listen and have closed the loophole so CCS plants will now be caught by the EPS.
We have tabled a number of amendments concerning the EPS. This amendment addresses the concerns of the Carbon Capture & Storage Association. While accepting that plants with CCS will need to be compliant with the EPS, there is a fear that if the industry were required to meet those standards from day one, that would be unduly burdensome and could deter investors. The association has asked that a period of grace of three years be introduced during the commissioning and testing of the new plant, when there would be a derogation of the EPS. This amendment has been tabled to achieve that. We see that very much as part of a package of measures, in conjunction with the EPS. I will shortly talk to two more amendments that we support strongly, and I know that my noble friend Lord Hanworth is going to speak to his amendments too. There is much more to be said about the EPS, but this is a specific amendment and I beg to move.
Lord Oxburgh
My Lords, I declare an interest as honorary president of the Carbon Capture & Storage Association. This is an extremely important amendment if CCS is to go forward. It has not been easy to attract investment to this area; the investment required is heavy. This amendment simply minimises the risk for those who are introducing a new technology. As noble Lords will be aware, the Government’s decarbonisation plan is probably unachievable without CCS, so it is important that this kind of reassurance is given to the industry. I strongly support the amendment.
Energy Bill
Debate between Baroness Worthington and Lord Oxburgh
Baroness Worthington
My Lords, I wanted to make a few comments about how such an obligation might work. Of course, I completely concur with noble Lords who have spoken already; this is clearly a probing amendment, and a lot of work will need to be done to think through how it might work in practice.
The one thing that I would like to illustrate is that, on the fuel disclosure requirements that we currently have, 12 suppliers are required to report and many of those report very low carbon intensities because they are specifically green suppliers. Of those that are mixed suppliers, there is a very great difference between them; at the top end of the scale, we have Scottish Power in 2011, whose CO2 intensity was 580 grams per kilowatt hour. At the bottom end of the scale you have EDF Energy, with 253 grams per kilowatt hour. Obviously, that is because the plant self-serves to those supply companies; they are both energy generators and energy suppliers, so they choose to use their own power. It would be hard to imagine giving one figure that they should all meet, but an obligation might be that they should demonstrate an improvement over time by percentage per annum on their current levels, as recorded over the past six years.
There are a couple of reasons why that idea might be a good one to explore. We know that there is an issue among independent generators, which fear that they will not be able to gain access to the market because of self-serving—the tendency to use your own plant and be vertically integrated. If they were required to shift to a low-carbon footprint and intensity, they would have an incentive to find those independent generators that can generate low-carbon electricity and reduce their footprint. That could knock off quite a few issues in one, if we looked at it in detail.
Another thing to commend that idea is that the measures in the Bill are designed to bring forward investment, but nothing is there to compel anybody to come forward. You can set up a CFD strike price and offer these contracts, but if no one wants to bother getting them they can simply carry on with business as usual. If they had this obligation, it would create a great incentive to find those CFDs, apply for them and come forward. The alternative is simply to keep offering higher and higher strike prices until the carrot becomes so attractive that they have to come forward. So it is a good insurance policy for the Bill, providing a way for the Government to link those targets that they propose to set in 2016 with an actual mechanism for delivery. Let us be honest: a target set by the Government to deliver carbon intensity of any value will be delivered only if you find a way for the commercial operators in the market to deliver it. This is one way, and it has potential supplementary benefits in giving independents confidence that their products will have a market.
I hope that we can look at this issue. As my noble friend has mentioned, this is a probing amendment and lots of the details have to be worked out, but it would be encouraging to hear some positive signals from the Government that we might be able to continue the discussion.
Lord Oxburgh
My Lords, I simply add my support for this amendment and urge the Minister to give it careful consideration to meet its objectives, if not the words. Previous speakers have shot all the relevant foxes, so I will not pursue any of those, but simply comment that if we had been considering this Bill two years ago I would have urged the Government to use this as their main means of regulating emissions. We could have done away with acres of complexity in the rest of the Bill. However, that is, unfortunately, water under the bridge. I hope that the Minister will give this careful consideration.