Energy Bill

Lord Birt Excerpts

Tuesday 18th June 2013 Lords Chamber

[Lord Birt]

My Lords, I declare an interest as a director of a UK renewable energy company and as an adviser to a fund that is a leading global investor in renewable power. Both bodies are noted in the register.

In the past 50 years, the UK has seriously lost its way with infrastructure. As my noble friend Lord Kerr reminded us a little while ago, unlike the Chinese, we do hang around. We have the least developed road and rail networks of any major country, we have struggled to expand our strategic airport capacity, and we have been slow to create an electricity grid and generation system fit for modern circumstances. This latter task is not easy. As we have heard during this long debate, we have to migrate from an era of plentiful but high-emitting coal and gas in the UK to a power system that balances three equally valid but competing objectives: security and reliability of supply; a substantial reduction in carbon emissions; and the need for economically priced electricity both for business and for consumers. The task may not be easy but we have addressed it with too little dispatch.

On renewables, far from being world leaders, we currently languish just above Malta in the relegation zone of the EU nations league for the proportion of national power produced from renewable sources. Many other EU countries, large and small, produce getting on for 10 times the proportion that we do in the UK. On nuclear, we overcame our temporary reluctance in 2005, but eight years later we have yet to contract a new generation of nuclear plants. Our storage capacity for gas, as others have mentioned, is notably low, especially by comparison with other countries, such as Germany. And we have failed, too, to build sufficient interconnectors with other electricity markets overseas, which would enable us to import more power, as the noble Baroness, Lady Parminter, mentioned earlier.

The well flagged consequence of those shortcomings is that the UK faces potential blackouts in the mid term and possibly even in the short term. If they happened, that would be a terrible indictment of our system of government—our ability to think and to plan ahead. Indeed, it would be a national shame. Will this Energy Bill put us on the right track?

The Bill sets out a new approach to the operation of the electricity market. Its cornerstones are tight emission standards, greater certainty over the long term on carbon pricing, more revenue assurance for low-carbon generation, and a mechanism to encourage reserve generating capacity. The Bill, as I think most have observed, is directionally sound but, by itself, will not meet the stiff challenges that the UK faces.

I have long supported the value of market mechanisms in both the public and private sectors, and I have long belonged to a consensus that is wary of the state picking winners, of state-owned and state-run enterprises, and of a strong directive role for government—of the kind that we still see, for instance, across the channel in France. However, the complexity of our national energy goals, embracing security and climate change, as well as economic efficiency, obliges us to find the right blend of market mechanisms and government direction, and that is very difficult to do. We need to see real and speedy progress towards nuclear commissioning, towards renewable rollout, towards greater interconnection and towards improved storage capacity and stand-by power.

Government will have to ascertain that the measures in the Bill do in practice give investors confidence, as the noble Lord, Lord Stephen, and others have emphasised. This is critical because modernising our power infrastructure probably requires—I suspect that the figure is far higher than the Government have so far estimated—something of the order of £250 billion to £300 billion of private sector capital over the next 10 to 15 years, most of which will come from outside the UK and from investors who, as others have noted, have other choices, not least as worldwide investment in this sector simply mushrooms the world over.

The risk is that the new construct of CFD and capacity payments, which is difficult to understand, as the noble Baroness, Lady Liddell, mentioned earlier—it is a construct designed to incentivise both nuclear and renewables—will prove, on the one hand, overcomplex for renewables, yet, on the other, insufficient to encourage the replacement of our existing fleet of nuclear plants. With the intermittency of renewables, about which many have spoken, and the uncertainty of gas supply in a volatile world, which I think has been underemphasised, a substantial contribution from nuclear is necessary to help manage national risk. Of course, I entirely acknowledge the challenge and difficulty of doing that.

Moreover, as we move forward, our politicians will have to be brave, as well as wise, and hold their nerve, for this transformation will be expensive, as the noble Lord, Lord Jenkin, mentioned earlier. Power prices will rise, even though the cost of some technologies—some renewables, for instance—is reducing very rapidly and is converging on parity with hydrocarbon technologies. Therefore, much beyond the passage of this Bill remains to be settled, and there is many a slip ‘twixt cup and lip.

I echo the noble Lord, Lord Browne, in saying that we will need to be vigilant to ensure—to paraphrase Jonathan Powell—that we execute, execute, execute. We need to monitor not just the introduction of the complex new systems proposed in the Bill but the outcomes, and whether these measures before us put us on a rapid track to a far more robust power infrastructure for the UK than we have now.