Energy Bill
Debate between Lord Davies of Stamford and Baroness Maddock
Lord Davies of Stamford
My Lords, I will deal briefly with the first of my amendments, which would replace “may” with “must”. I think that there is far too much use of the word “may” in this Bill. If Parliament thinks that something is important, it should, in my view, be decisive about it. If we decide that we ought to give an instruction to Ministers, we should give them a clear instruction and not just a vague exhortation, such as is encapsulated in a subjunctive word such as “may”. In fact, as I said earlier in a different context, it is very important that the law generally should be precise and unambiguously comprehensible. If you give someone an instruction which is not an instruction, you are not producing good law. That is the simple reason why I want to change “may” to “must”, and it is a theme that applies to many other instances in the Bill.
I now come to my more substantive second amendment. By way of introduction, when I read the Bill I was quite surprised to see in Clause 21 the capacity market dealt with jointly with the issue of demand reduction. Of course, the whole Bill is really about demand reduction—how you can get the price mechanism generated by concepts such as the decarbonisation principle and contracts for difference and so forth to force people to be more efficient in their use of energy and to bring down our carbon emissions. That is the whole purpose of the Bill.
The capacity market is rather specialised; it concerns how we provide ourselves with a margin of safety over periods of peak demand so that there is not a serious danger of the lights going out. I thought that that would require and deserve separate treatment in a specialised section of this Bill. There is an aspect, of course, of demand reduction that is intimately related to the capacity market. It is intimately related in an inverse sense, in the sense that when you have more of one, you have less of another. That is the issue of demand reduction in the sense of modulation of demand—or what I prefer to call intelligent management of demand so as to reduce the aggregate volatility of demand for energy, particularly for electricity, in the economy—to reduce the peaks, and reduce the peaks that perhaps raise the troughs; to reduce volatility. There are many ways in which modern technology enables one to do that, which was extremely well described by the noble Lord, Lord Cameron, as regards dealing with smart meters and so forth. I do not need to go back over that.
The Minister has already referred to this approach several times and the Government in principle are entirely signed up, which is why it is in the Bill. There is a certain logic in dealing with the capacity market and demand reduction as reciprocals in the same part of the Bill. However, it would be a great mistake if we held up progress on intelligent demand management and demand reduction until we have a capacity market up and running. I should have thought that we should do things the other way around. It will be very difficult to know how much additional capacity we will need—that is, what we need by way of a capacity market and a definition of what the task of a capacity market is—unless we know the potential for demand reduction and specifically for the reduction in the volatility of electricity demand in the economy. Until we have experimented with some of these new systems, and have seen whether people and the market respond to these intelligent meters and so forth, we will not really know how much we need in terms of additional capacity as a safety margin in the electricity market.
It is clear that the general principle is universally acknowledged. My amendment would make sure that we do not neglect smaller businesses and households in all this. From what I can gather, all the discussion up to now has been with big generators or big consumers of electricity. It is extraordinarily important that we do not ignore, on grounds of fairness and economic rationality, smaller businesses or private individuals and families. If the Minister says that the Government are not ignoring them at all and that they are absolutely in the front line of their concerns, the substance of my amendment very largely would be achieved. That is why I am very explicitly putting forward this matter today.
I deliberately mentioned that there are two principles behind my amendment. One is fairness and the other is economic efficiency. The fairness point is that unless small businesses are encouraged to have equal access to these new smart meters and other means of monitoring price in the market so as to make sure that they can modulate their consumption of electricity to maximum advantage from their point of view, there will be a terrible distortion between the smaller people and the larger people. It will be much more difficult for small businesses, which have to cover many issues and risks with limited management, to be up to speed with new technologies of this kind. I suspect that regulations may be required in order to make sure that they get an equal crack of the whip. That is the way in which I want the Government to think about this. Certainly, small businesses should be equally sensitive, or perhaps more sensitive, to the price of energy than big businesses. They need this as much as possible.
There is a clear fairness point in terms of households. I thought that most of us in this country were concerned—although I am not quite sure about this increasingly Thatcherite Government, with the invention of the bedroom tax and so on—about the potential impact of the very necessary decarbonisation targets and increase in energy prices on poorer households in this country. In so far as that is the case, we should want to make absolutely certain that these new technologies of the smart meters and so forth are available to all families and households, but particularly to poorer families. Poorer families will have what I think would be known technically as a very high price elasticity of demand for energy. That is to say, their demand will vary quite a lot depending on the price.
To put it in terms of a graphic, the demand curve will be sloping—everybody requires some electricity for cooking, heating or what have you—but not too steeply. At the other end of the spectrum, I do not suppose that bankers, lawyers, Premier League footballers, movie stars, Russian oligarchs or Arab sheikhs are at all sensitive to price in their consumption of electricity. Their demand curve is almost certainly vertical or as close to vertical as makes no difference. Between those two extremes, there is a vast number of people with different demand curves. Overall, there will be very substantial opportunities for people to save on energy if they are given the opportunity to do so and if it is clear to them where the price advantage of doing so is.
On the grounds of both fairness and efficiency, in maximising this process of intelligent demand and consumption of electricity in the future, we need to ensure that households and small businesses are kept to the fore of the attentions of the Government, the regulator, the big beasts—the big six generators—and all the other players in this market. Without some very specific regulations, I suspect that things will not work out that way. That is the purpose of my amendment and I hope that the Government will be able to assure me that my amendment is unnecessary because they have already embarked on that very necessary course. I beg to move.
Baroness Maddock
My Lords, I do not think it is absolutely true that we have not talked about small businesses and households at Second Reading and in Committee.
Lord Davies of Stamford
I was not suggesting that we had not talked about small businesses. Of course people have talked about small businesses. What I am concerned about is the extent to which the Bill enforces on the Government an obligation to have particular regard to small businesses and households, which are inevitably less sophisticated and need more help in adopting some of these new technologies. That is my point.
Baroness Maddock
I totally agree with the noble Lord, but he gave the impression, I think, that we had not concerned ourselves with this subject. I apologise if that was not what he meant but it was the impression I got. We have done that and the Government have shown that they recognise some of the problems by bringing forward a clause specifically about fuel poverty and a fuel poverty strategy. I agree with the noble Lord that these are important issues but he has slightly distorted how the passage of the Bill has gone, and the Government’s interest. But I support him in trying to ensure that this is at the heart of what we are doing and share his hope that the Minister can reassure him that we do not need the amendment.
I talked about small businesses and domestic customers particularly in the context of demand reduction pilots. I cannot remember whether it was in Committee or at Second Reading but several of us went into that in quite a bit of detail.