Lord O'Neill of Clackmannan
Main Page: Lord O'Neill of Clackmannan (Labour - Life peer)Energy Bill
Lord O'Neill of Clackmannan Excerpts
Baroness Verma
My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. I understand the concerns she has raised regarding the potential for conflicts of interest to arise between National Grid’s existing businesses and its new EMR role.
The Government want to use the best people for the job of delivering electricity market reform. The national system operator within National Grid is well placed to succeed in the task of delivering contracts for difference and the capacity market. The expertise it will bring to the role is the reason we gave that role to the system operator in the first place. For example, there are strong links between the capacity market and the existing range of balancing services that the system operator currently provides.
In addition, the system operator has the relevant technical expertise and the commercial and financial skills to ensure that the capacity market can be delivered in an efficient way—for example, through the modelling of future supply margins and the delivery of auctions. The system operator is also uniquely placed to understand the implications for the electricity system of different technology mixes brought on by contracts for difference, ensuring that we have the highest quality analysis on which to base our decisions on how we support low-carbon technologies.
The matter of conflicts of interest that arise between National Grid’s existing businesses and this new role was identified at an early stage. That is why we have worked closely with the regulator, Ofgem, over the past 18 months to assess thoroughly the potential conflicts that might arise and to consider how best to manage them. The process has involved extensive engagement with stakeholders, including a call for evidence and a public consultation.
In April we published the findings of that joint work with Ofgem, together with our analysis, which included an impact assessment. The work with Ofgem and independent analysts showed that the risk of conflicts being acted on is small, which is why we will be putting proportionate measures in place, using the powers proposed in this clause. That approach retains the valuable synergies with the system operator’s wider role, and gives confidence to those who need it: industry, investors and, I would hope, this House.
Neither the Government nor Ofgem assumes that this is the end of the process. While I am confident that the proposals we have made are up to the task, we will keep close watch over the situation so that industry can be certain that any conflicts, real or potential, can be managed appropriately. The exercise of these powers potentially has significant implications for National Grid’s business and it is not a decision that the Government would take lightly.
We must always keep in mind the factors that make the system operator the best organisation for the job, otherwise we risk losing the benefits of having the system operator perform the EMR delivery role. That is why the measures must and will be targeted and proportionate. We do not want to put in place a disproportionate response to the problem, which would lead to us sacrificing the synergies and all the benefits to consumers that flow from them.
The noble Baroness asked whether the provisions in the Utilities Act 2000 and the Electricity Act 1989 need to be updated in the light of EMR. We are proposing specific powers in this Bill that would enable us to put in place specific measures to protect sensitive information relating to EMR. We have worked with Ofgem to decide how to use those powers and set out the detail publicly. Therefore we do not consider that the changes that the noble Baroness proposes are in fact necessary. I hope that the detailed analysis that we have carried out with Ofgem and our public commitments on how we will tackle these conflicts of interest will mean that the noble Baroness feels content to withdraw the amendment.
Lord O'Neill of Clackmannan
Before the noble Baroness sits down, what is the competence of DECC and Ofgem in deciding what a conflict of interest would be? As I read it, the amendment has two parts. One relates to National Grid and the other to a responsibility on the department, which does not normally deal with competition issues as such. What expertise does the department have? In the event of there being a dispute which is not resolved to the satisfaction of both sides, is it possible for an offended party to appeal to any other competition regulatory authority?
Baroness Verma
The noble Lord raises a very important point. As he is aware, when we need to look at specialist areas we bring in experts to oversee DECC’s work. We have worked closely with Ofgem which, as an independent regulator, is well placed to have expertise within it. As I have said throughout, we are mindful of the need to keep an eye on this and we will keep it under review. If areas need improvement we must ensure we are able to move in and do that immediately. We are not just setting it in place and then leaving it. We recognise that specialisms may need to be involved and we will continue to look at the proposals set out in the Bill.
Lord O'Neill of Clackmannan
I am sorry, but I do not think the Minister has quite understood my point. In the event of one of the parties not being satisfied with the breadth of expertise brought to bear, the external experts and what have you, is there anywhere else they could go to appeal? I am not talking about some vexatious litigant but about a disgruntled utility that might feel there ought to be some form of review, outwith the department, with one of the competition authorities. Is there that option, in the event of a dispute about conflict of interest?
Baroness Verma
My Lords, rather than delay the Committee, it would be more prudent to write with a more detailed response. That might satisfy the noble Lord, Lord O’Neill.
The Lord Bishop of Chester
My Lords, I very much support the amendment. This may well be the last time I speak in this Committee and I thank the Minister for the way in which she has conducted herself and for writing to me with answers to some previous questions that I raised.
In addition to the reasons which have been so clearly enunciated, I would like to inject into the discussion the issue of culture, because much of what we are about in energy policy in this country is working on a change of culture. It has become a fashionable word. The Second Reading of the Financial Services Bill was all about changing the culture of banking and financial services, and that is absolutely right. However, the same applies in the energy realm. The sort of installations that we are talking about are relatively small in themselves but speak more widely.
I will digress very slightly to a non-domestic instance. In Chester in the 1920s, the tram system was powered by a small hydroelectric plant on the River Dee. The University of Chester, where I am president of the council, is in the process of bringing that hydroelectric plant back into operation, partly to satisfy its obligations to HEFCE vis-à-vis its green credentials but also as a very reasonable project in itself. It will have a cultural impact in Chester quite beyond the actual electricity component of the project, and I think that the same will apply in the circumstances we are discussing.
There is something about hydroelectric power that goes with the grain of the countryside and nature rather better than windmills and some of the other things we are doing. We should do more to encourage local use of natural resources. If the projections about future rainfall are right, there will be even more rain flowing into our rivers to power these microhydro projects. Although I cannot comment on the precise terms of the amendment, it seems to me that the spirit of it is absolutely right at the present time.
Lord O'Neill of Clackmannan
I rise stimulated by the right reverend Prelate’s remarks, partly because when hydropower developments took place in Scotland, the nature of the opposition to them was very similar to the nature of the opposition to wind turbines today. Indeed, if you read any of the histories of hydropower in Scotland, you find the same arguments and the same kind of protagonists. Indeed, as I recall, one of the supporters of hydropower in the 1930s was expelled from the Perthshire hunt on the grounds that they were going to deface Pitlochry. Anybody who knows Scotland will know that Pitlochry is a great tourist attraction on the way up to Inverness and that the jewel in the crown of Pitlochry is the hydroelectric dam and the salmon leap there. If anyone were now to try to say that they wanted to close it down because it is spoiling the countryside, they would get rather a lot of fleas in their ears from the kind of people who say that they want to have hydropower but not wind power. That has to be taken into account.
Hydropower is one of the most attractive forms of generation. It is also interesting that subsidies for refurbishment have been made available to small-scale hydro, which may well be the case in Chester as well as in Deeside in Scotland. I had the opportunity of visiting one site some years ago because the kit had been refurbished in my constituency by the Weir Group of Alloa. The output had been increased from 70 megawatts of power to 81 megawatts, which was a considerable achievement. This is far smaller, but we can bring into play hydro opportunities that have perhaps fallen into disuse. It would be better if they could get the best possible deal because river flow—drought notwithstanding—tends to be pretty reliable. One would imagine that this, out of all the renewables, would be less prone to interruptibility and that therefore an amendment of this nature seeking to give a bit of extra assistance would be extremely helpful at this time. I support the amendment.
Lord Whitty
My Lords, the noble Lord, Lord Roper, and other speakers have made a very good case for looking at what the noble Lord says is an apparent contradiction, but I think is a clear contradiction, between the approach of the Valuation Office Agency and DECC to these things. We are talking about schemes that are very different from Pitlochry or whatever. We talking below 1.2 megawatts, but even at that level, I have some hesitation. If you were doing it for domestic purposes only, it is unlikely that you would get huge benefit in terms of your energy bill or your carbon footprint or that climate change would benefit any more than from putting a windmill on the side of your house in Notting Hill. It is not for domestic purposes. The way in which it is financed feeds into the grid and it therefore becomes a business. It is not entirely illogical for the business rates people in the Valuation Office Agency to take that into account, although the point made by the noble Lord, Lord Roper, about this being treated differently from other forms of renewable energy is an issue. I wish this amendment godspeed in terms of looking at the contradiction.
Lord O'Neill of Clackmannan
We have had an interesting debate that was kicked off by the noble Lord, Lord Stephen. Before telling us about the need for electricity storage, he told us that, as a Minister in the Scottish Government, he was in favour of moving towards 100% renewables. His speech had a certain revelatory note as though, when he was advocating 100% renewables, he had not really thought about storage. If you are dealing with renewables, you are of course dealing with interruptibles and you have to have something to fill the gap. Storage has always been one of those things. I find it a bit disturbing that the Scottish Government—of whom my party was a part at the time—signed up to what seems to be a somewhat ill-considered approach to renewables. However, it shows that when something with an element of newness and freshness comes along, it is thought that it must be good; and once its goodness is established, everything is possible. I get the message this afternoon that everything involving storage is good and therefore possible. I happen to be in favour of storage and in favour of a strategy, but if we are going to have a strategy, it means that there will be priorities. If there are priorities, it means that some of the projects now enjoying the cosy embrace of Members of this Committee on both sides may well be cast to the wind.
On the question of cost, the energy industry is saddled with bad investments from the bright ideas bank, but that is something which goes back through history. When the sector was publicly owned, the CEGB had probably the best scientific brains in the energy industry. They would go to civil servants and offer them, for example, nuclear energy—of which I am an enthusiast—saying that it would be too cheap to meter. We have got to be a lot cooler in our enthusiasm. It might well be that the advocates of a strategy find that the strategy turns round and punches them on the nose, knocking out some of their favourite little schemes.
I happen to be something of an enthusiast for the Leighton Buzzard project because it is of a reasonable size and it seems to be technically in order. I have a slight association through an interest in this area, which I have already declared. However, we have to be careful. I favour the concept of a strategy because it will instil a bit of discipline into what I think is the wishful thinking that has prevailed in so much of today’s discussion. I am not sure whether we are going to get very much more in the way of pump storage, as you need to have the terrain and the water. I remember talking years ago to people in the hydro industry in Scotland and they did not think there was really very much more that you could eke out of the Scottish landscape. That might have changed by now, but the point is that we are getting to the small and cuddly bits of technology.
We have all been hounded over the years and, indeed, over the last few months, by people coming and saying, “With a bit of money from the Government, we can change the world and make a fortune for ourselves”. I get a wee bit cynical. Perhaps it is because I have been in this game for far too long and have seen so many of these schemes founder. I want us to have a strategy and I think that we should have storage, but let us not lose our sense of proportion. At the end of the day, we will not be storing that much because it will be the surplus electricity. We will not be generating for storage purposes. It will be a case of storing the extra, the margin and the bonus. Let us keep a sense of proportion so that when a strategy is produced, we are ready for the fact that some folk may be disappointed because they did not get everything they wanted. We have heard already with regard to renewables the arguments beginning, “Ah, but” and, “It was not really intended like this” or “The nasty Chinese are now undercutting our prices. We must stop them coming in. We must impose taxes in this area because the Germans and the Spaniards have invested in photovoltaics and the like, which are not making the returns that once they did”.
If the Government take on board the spirit of this amendment, produce a strategy in due course, and give it a place within the newly reformed electricity market, let us make sure that that is done on the basis of serious priorities. We should not be pushed by every pressure group or commercial interest that comes along with some half-baked bright idea which, with a few million pounds more of public money, will resolve everything. Often we find that the UK comes to a scheme rather later than other countries, which have spent a lot of money on similar projects and then rejected them. There is a lot to be said for partnering with other countries and companies because they may have done far more research and experienced a lot more of the disappointments that normally arise from research in areas of this nature. We should give the spirit of the amendment a fair wind, but at the same time recognise that this has to be about priorities. We should not chase after every pot of gold at the end of every rainbow we see.
Baroness Verma
My Lords, I am grateful to my noble friend Lord Stephen and to all noble Lords who have contributed to this very helpful and useful debate on Amendment 55D. Subsections (a) and (b) of the proposed new clause support the development and piloting of storage systems for electrical energy. The Government agree that technologies that can be used to help balance the supply and demand of electricity, such as energy storage systems and demand-side response and interconnection, are increasingly likely to be required. This was the conclusion in DECC’s report, Electricity System: Assessment of Future Challenges, which was published in August 2012.
Energy storage systems can be used to store surplus electrical energy for use at times of high demand. They help to match the supply and demand of electricity efficiently and cost-effectively. Technology companies in the UK and elsewhere are actively developing energy storage systems which could help to address the problems associated with intermittency of supply. However, different energy storage technologies are currently at different stages of development and further innovation and development is needed to reduce the costs and thus make storage technologies applicable to wider deployment.
The department therefore identified energy storage systems as a priority area for funding under its Innovation Programme. We then consulted with storage technology developers and users, as well as other public sector innovation funders, before developing a plan to help support the development of storage systems. This led, in October 2012, to the department launching two innovation competitions to support research, development and demonstration of energy storage systems. As a result of these competitions, funding has already been awarded to 16 energy storage projects, and in the autumn DECC expects to announce details of up to four energy storage demonstration pilots, which it will be supporting during the current spending review period. The aim of these pilot projects is to demonstrate the scope for cost reduction of innovative energy storage technologies and to explore the opportunities for deployment of energy storage technologies to address a wide range of future UK electricity network balancing and other storage needs. I agree with the noble Lord, Lord O’Neill, that this should be part of fulfilling the capacity of needing more energy rather than it being a means to an end.
Under Ofgem’s Low Carbon Networks Fund, three pilot projects are already under way to incorporate storage into our electricity distribution networks. These projects have the potential to assist in balancing local demand to facilitate the timely and cost-effective connection of renewable energy. My noble friend Lord Stephen referred to the Leighton Buzzard six megawatt battery project, which is one of the three pilot storage projects being supported by Ofgem’s fund.
I turn to subsection (c) of the amendment, the proposal to set targets for the provision of renewable energy storage capacity. Energy storage systems are one way to address issues arising from intermittent supply and so to support the deployment of renewable generation. However, other mechanisms such as demand-side reduction, interconnectors and smarter networks can also be used to help to balance supply and demand. Different mechanisms are likely to be needed to meet different balancing applications depending on the characteristics they offer, such as power, duration of supply and response times. The commercial markets should be best placed to select the most cost-effective solution to address each balancing requirement.
Energy storage of all sizes will have the opportunity to compete alongside generation and demand-side response in the capacity market. This will provide a secure revenue stream, ensuring sufficient investment in the reliable capacity we need. Of course we recognise the importance of developing a more responsive demand side for the longer-term efficient functioning of the market. Given that certain technologies such as storage have different characteristics from generation, we are developing transitional arrangements to provide particular support to demand-side response and alternative capacity types, including smaller scale storage which is connected to the distribution rather than the transmission network.
As I have set out previously in our debates, the early stages of the capacity market will include “go early auctions” for specific technologies in 2015 and 2016, which are designed to help certain emerging industries to grow. We envisage that these auctions will include demand-side response, embedded generation below a size threshold and storage connected to the distribution network. The auctions will allow storage to take on limited obligations and benefit from regular guaranteed payments.
Finally, subsection (d) of the amendment would require the Government to set out progress made on these energy storage system issues in the form of a report which must be laid before Parliament. DECC is already planning to carry out post-project evaluation on the outcomes of the energy storage innovation schemes once the supported projects have been completed. In response to this request, I can commit that copies of this evaluation information and project reports will be deposited in the Libraries of both Houses.
I shall pick up on a couple of points that were raised during the debate. My noble friend asked how much funding DECC is putting into current projects. There is a list of things that we are doing and I have highlighted one or two of them. In spring 2013 we awarded £500,000 to a total of 12 organisations to carry out phase one feasibility studies into innovative and diverse energy storage ideas under the Energy Storage Technology Demonstration Competition. We will invite some of the innovators who have won funding under this competition to take part in the second demonstration phase of the competition, which is worth up to £17 million, to test designs on the ground. We also awarded £1.5 million to four organisations in the first round of the Energy Storage Component Research and Feasibility Study Scheme. We will also award grant funding of up to £1.5 million for winning projects in the second round of the scheme. There are a number of things that the department is already doing.
Lord O'Neill of Clackmannan
I welcome the amendment and the noble Viscount, Lord Hanworth, is to be congratulated on giving us an opportunity to debate this matter. In many respects, if in the nuclear industry we had been able to get things started at Hinkley right away, we probably would have been committed to different reactors from the ones that are now coming along as opportunities. There is therefore some virtue in a degree of delay in the process. However, both PRISM and CANDU have to go through the generic design assessment process, which could take up to 30 months although, in fairness to the regulators, they have suggested that they will try to accelerate that by using foreign experience and so on.
We are talking here about a nuclear programme of construction that will continue for probably 30 years. As someone once said in the context of school dances, “You rarely went home with the person you danced with first”. In this context, we may well find emerging technologies that provide us with opportunities. At the moment we have to be realistic about the fast breeder element in the technologies that have been spoken of this afternoon—they are somewhat limited. When I was chairing the Nuclear Industries Association, I had the opportunity to attend a conference in Paris that was meant to be a shop window for the French nuclear industry. I think that the French were a bit miffed when Japanese and South Korean companies came forward and spoke very confidently about their capacity to realise fast breeders in what will now probably be 15 years’ time. We did not go down the road of fusion today, which every schoolboy knows will be available in 35 years’ time; 35 years ago, they said it was going to be available in 35 years’ time. We therefore have to be a wee bit cautious about fast breeders, but we could be talking in terms of getting one in the United Kingdom perhaps 20 years from now, when we will probably still be building—
Viscount Hanworth
Perhaps I may interject. The truth of the matter is that we have already had a fast breeder in the UK that worked fairly well, in spite of rather diminished support. There were two fast breeders in France. There was Phénix and Superphénix. Phénix was very successful. There were some doubts about Superphénix, which had some engineering difficulties. However, its primary difficulty was, of course, political. I will reassert what I said previously, which is that fast breeders constitute an eminently practical technology. They are not 15 years away, but are as far away as it would take to ratify and certify them.
Lord O'Neill of Clackmannan
This is a classic example: if it was that good, why are we not using it?
Lord O'Neill of Clackmannan
It is no longer for political reasons. Proliferation arguments have been set aside for a long time. The Koreans would not be knocking their socks off to try and do this if there was a technology they thought was good enough lying there untouched.
We have to be realistic. There is no question that I am an enthusiast for nuclear power but I also live on planet Earth. This planet is governed by rules of economics which the noble Viscount probably knows more about than I do. These technologies are, to a large extent, not proven in a commercial context for the generation of electricity. There are arguments about whether or not you should be using plutonium and how it can be dealt with. These are understandable but they are yesterday’s arguments. Today’s concern is producing reactors which can do the job at a reasonable price, efficiently and safely. At the moment, these criteria have not been met. If they had, the Japanese and Koreans would have the full-blown fast breeder on the table.
We know that there have been these things. There is a case for thorium but, as I understand it, the reactor in India produces 40 megawatts of power at the moment and it has quite a way to go. Some years ago I was fortunate to host a conference when a group of Indian technologists came over and described their work. It was fascinating but it was still small scale: I could compare it to carbon capture and storage. An enthusiast will tell me that somewhere in the world there is carbon capture and storage on a big scale but nobody has yet been able to find a way of developing it in an economically efficient manner.
Within 10 to 15 years we will probably have this kind of thing. Is Britain in a position to either contribute to this process or properly benefit from it? This is where the Science and Technology Committee report was highly critical of Government for not taking this seriously enough, over a number of years; this was not a coalition-specific charge. The previous Government, when they woke up to the requirement to embrace nuclear, understandably did a number of commendable things in terms of training and widening the opportunities for nuclear to be part of university engineering qualifications. Something like 13 university courses across the UK offer that, which is an achievement which is down to both Governments’ active encouragement. However, we still have a long way to go. We have a national laboratory at Sellafield which is not getting the funding it merits. This was the view of the Science and Technology Committee. Professor MacKay, the scientific adviser to DECC, who was before the committee last week but we have yet to get Michael Fallon, the Minister responsible, who will come before us after the recess.
Without getting too specific or hung up on particular technologies within the nuclear framework, it is essential that if we are going to take advantage of the new technologies as they come through we have got to have trained, capable people to do that. At the moment, I am not certain that the Government are giving it the highest priority and that is what this debate should be about. We could go through the specifics of Select Committee reports but that is not productive. If we are going to have this technology it is not a once-and-for-all thing. It is not like combined cycle gas plants which just need a little tweaking here and there. There are possibilities for bigger changes but, in order to invest in the right and most appropriate one, we must have a skilled labour force and institutions and research establishments capable of dealing with that. As someone hinted, we need to have an open-mindedness in the industry which, at times, it does not have—because they are very much companies wedded to particular technologies, as EDF is. It is just unfortunate in some respects that the company that is first to the starting line is the one that in the European context uses the least reliable technology in terms of construction, and probably the most expensive to run. If we get a strike price, as we will eventually, it will have to be set in such a way that it does not provide the more efficient and perhaps cheaper technologies with a chequebook to make fabulous amounts of money out of. I realise that that is the predicament that the Government have, but we must not just keep saying, “We don’t have a UK capability—we’re dependent on foreign countries”. The technical changes that will come through in the medium term will be such that it would be a tragedy if we repeated the failure of the 1980s, the 1990s and the noughties in terms of getting the proper people and technical capabilities.
We do make reactors in the United Kingdom; we make them for our nuclear submarines, and they are made by Rolls Royce. If a proper programme was developed, one would imagine that Rolls Royce would be interested in getting into the new generation of nuclear technologies. There are companies within the United Kingdom that have the capability to take advantage of this, but they need encouragement from government more than anybody else.
Baroness Worthington
On the question of what the UK can contribute, the noble Lord is absolutely right that Rolls Royce is already involved here in reactor design and manufacture. That company is sponsoring a student in the Dalton Research Institute in Manchester, looking at a small modular reactor based on a thorium fuel cycle; it is looking at different reactor designs, including molten salts. So it is here. One example of how a small amount of money can have a big effect is the $10 million grant given by the Department of Energy in America to a number of universities, plus the Oak Ridge National Laboratory, to look at molten salt-cooled pebble-bed reactors. That funding programme enabled them to leverage into the Chinese nuclear reactor research programme, such that the Chinese changed direction and are now collaborating in work on a molten salt-cooled pebble-bed reactor using thorium. I use that as an illustration that you do not have to build everything yourself and spend hundreds of millions; you can have a highly leveraged impact if you are smart about your R&D choices and build on your existing strengths.
One great thing about the all-party parliamentary group has been exposure to an increasing number of scientists in the UK who are working on thorium and molten salts—and in combination. It is true that Sellafield and the National Nuclear Laboratory, by being commercial, have to go out and seek funding from the existing incumbents in the market. Therefore, they do not have the luxury of being able to horizon scan or think slightly more outside the box, because they are continually looking for funding. If more funding were provided by government and we had a genuine R&D for nuclear fusion strategy, the NNL would be an absolute asset in this search for the most sustainable forms of nuclear power. They are the ones working with Thor Energy, fabricating solid fuel thorium rods today that are being tested in the Halden reactor. So there is plenty to be very proud of and to build on in the UK.