Energy Bill
Debate between Lord O'Neill of Clackmannan and Baroness Worthington
Lord O'Neill of Clackmannan (Lab)
My Lords, when an amendment of this character came up in Committee, I pointed out that we were talking about an amendment that would take us back to some of the original ideas that were circulating at the time of energy privatisation—you might say at the time just before liberalisation, because the two did not happen with quite the speed that one would have wished. I do not think much attention was paid to that point, but initially, we had a system in the UK where we had massive generators responsible for nuclear and the Central Electricity Generating Board. We also had regional electricity companies which could generate no more than 15% of their requirements.
Due to the attractiveness of the liberalisation process to some foreign energy companies, many of them in North America, we saw the acquisition of a number of the regional electricity companies by American companies. Thereafter, we began to see the merging of some of these regional electricity companies, and we boiled it down to what you might call the “big four”. Two of the companies had always been vertically integrated—that is to say, the two Scottish companies which at that time were Scottish Hydro and ScottishPower. By a process of merger acquisition, we had the vertical integration of the companies.
This was not what was intended by some of the ideologues who were the original authors of the liberalisation and privatisation programme. They wanted a system which would be akin, in generating terms, to something along the constitutional arrangements of pre-Cavour Italy. It would have had a catastrophic effect if it had been allowed to happen; a number of city states generating electricity in bits and pieces over the country, much as we had with gas and electricity prior to the Labour nationalisation in the 1940s.
It is fortunate that we did not have that, but what concerns me is that if we are going to have generators of a relatively small kind coming in—windmills attached to the national grid and water mills here and there—they are not going to change the character of the market to any great extent. We could have a situation similar to that in North America, where there are companies still considering the construction of nuclear power stations. In some instances, those stations cost twice the capitalised value of the companies that want to build them, so they have to look for partners across the world.
While these two amendments are well intentioned, I do not think that they will do very much in terms of promoting competition. My feeling is that if we are going to have the promotion of competition and the protection of the consumer from oligopolistic malpractice, we have to have a system of regulation which is capable of addressing that. These amendments go no real way to doing that. Quite frankly, I think they are something for another Bill. That is one of the reasons why I am supporting my party’s proposition that we spend 20 months after the next Labour victory putting through effective legislation which will change the regulatory framework, and may well result in a degree of reduction in the vertical integration process.
It is a problem; I do not deny that. However, we have to recognise that if we simply try to create opportunities for small players to become involved, we are not necessarily going to challenge the oligopolistic power of the big players. To challenge the purchasing power of the big four, big six or big seven if you were to include First Utility which, as I understand it, do not presently do any generating, we need far more in the way of regulatory conditions that would work. At the moment, I am not confident that these amendments can do that.
It is useful that, even at this late stage, we have probing amendments, but I find it very difficult and rather embarrassing that colleagues on my side of the House are supporting some of the random writings of the Austrian school of discredited economics that landed us with a great many of the problems that we are now confronting. I would like to think that my noble friend will withdraw his amendment. At the same time, something needs to be done but I do not think that the terms of the Bill and what we are trying to do at present makes the amendment appropriate. It is one thing for us to try to change the electricity market; it is quite another, at this stage, to try to change the structure of electricity generating and the integrated nature of our electricity industry.
Therefore, this is not the time for an amendment of this character. It needs to be better thought out and a lot more care and attention needs to be paid to the significant point which was the undoing of the Austrians in the recent past—that through a process of merger and acquisition you can easily change the nature of the industry. It could be argued that the Major and early Blair Governments did nothing about that process of acquisition and merging. However, unless we had changes on that side of the legislation as well, we could simply encourage the end of vertical integration and then see a process of merger and acquisition. That would take us back to where we are at present, which I do not think anyone would find a particularly satisfactory situation.
Baroness Worthington (Lab)
My Lords, I am grateful to my noble friend for tabling these amendments but, although we are sympathetic to their intent, it is fair to say that we would take a different approach.
This part of the Bill, which introduces measures to try to protect independent generators, is a clear indication that there is something very wrong with our electricity market. It is another layer of complexity that the Bill introduces to the market, and it is needed because we have probably all had considerable representation from independent generators saying that they are simply not able to gain access to the market on fair terms. That is very regrettable and a clear sign that something major needs to take place in the shake-up of the electricity market. Unfortunately, the Bill does not do that and was never intended to, and I am inclined to agree with my noble friend Lord O’Neill that another Bill would be needed to sort this out.
As I said, this is an extra complexity, and my general rule of thumb is that increased complexity equals decreased efficiency. I am sorry that we have had to enter into this market with new provisions to enable independent generators to gain access. All electricity ought to be sold into an open and transparent pool or market so that everyone has a fair crack at the whip and ultimately everybody can gain fair access to customers through supply companies. I fear that these amendments, although welcome, are something of a sticking plaster and would not really get to the root of the problem.
The Labour Party has made it very clear that our solution to this is to split up the vertical integration of the big six and to introduce a new regulator with real teeth, focusing squarely on the consumer and delivering better competition in all aspects of the electricity market. The amendments go some way towards achieving that but I do not think that they do enough, so I am afraid that, although we are sympathetic, we are not able to support them.
Energy Bill
Debate between Lord O'Neill of Clackmannan and Baroness Worthington
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.
Energy Bill
Debate between Lord O'Neill of Clackmannan and Baroness Worthington
Baroness Worthington
My Lords, I thank the noble Lords, Lord Jenkin of Roding and Lord Roper, for tabling their amendment. We have tabled a very similar amendment—great minds must think alike.
Our Amendment 52A seeks to do almost exactly the same as Amendment 52, which is to make it a requirement for the Secretary of State to have the same duties as under the Electricity Act 1989, in which the protection of “existing and future consumers” is enshrined through the advancement of competition. We will discuss this in more detail when we come to the amendment in the name of the noble Lord, Lord Berkeley, who has come up with a much more precise way of tackling this problem.
These amendments seek to ensure that the Secretary of State has a duty to advance competition. Much has been said, very eloquently, about the need for that and how, if we are going to rely on a truly competitive market, that needs to be enshrined in this Bill. So much of this Bill relies on competition to deliver efficiency. There are many complexities in many aspects of this Bill, particularly in Part 2, where you have contracts for difference and capacity mechanisms, the interplay between them and the effect that that has on investment decisions, all of which is very complicated. The more transparent the market is, the less opportunity there is for gaming and the more successful this Bill will be in meeting its objectives. I fully support the amendment tabled by the noble Lords on the other side, and our own amendment seeks to do something similar.
Lord O'Neill of Clackmannan
I remember the birth of the 1989 legislation. At that time, due to what were deemed to be the fundamentals of competition, generation was split from distribution in England and Wales. In Scotland, the companies were vertically integrated. Throughout the 1990s it became a kind of adventure playground for takeovers. We are where we are now in large measure because a number of interested foreign companies, usually American, took over the distribution companies; they subsequently sold them and they were picked up by various people at different times. So we have six players, which by and large are vertically integrated, as well as Centrica.
A lot of wise words are being spoken about competition but I am not sure if these amendments go far enough. As soon as a company becomes big enough to be a threat or to be of interest to the large players, the oligopolists of the present structure, they are gobbled up. We have seen this fairly recently with the takeover of Ecotricity, a very interesting, predominantly Irish company that engages in renewable generation. I am not sure that these amendments are going to make an awful lot of difference.
When we go further and look at the break-up of the vertically integrated companies, there is the likelihood of the two remaining companies being taken over by other foreign players that have money that they wish to expend in the United Kingdom. Therefore, I am very sceptical about how we are going to achieve anything meaningful in the way of competition.
We have at the moment six players—seven if you include First Utility, but that is rather special because it is exclusively in the retail market—and by and large they do the same as each other. They confuse the tariffs, introduce difficult pricing schemes that we do not always understand—
Energy Bill
Debate between Lord O'Neill of Clackmannan and Baroness Worthington
Lord O'Neill of Clackmannan
My Lords, I support my noble friend on this issue. As he was speaking, I was thinking that we have a model for what he is talking about. If you go along Oxford Street or the main street of pretty well any town there is at least one telecoms shop, where you can sign up to get a new phone. The last shops to close seem to be the mobile phone shops. Yet this is a far more pressing requirement than just a mobile phone.
One of the consequences of privatisation has been the demise of the old electricity and gas showrooms, in which various pieces of equipment, from washing machines to cookers to refrigerators, were on sale. Unfortunately, of course, they have now been superseded by the likes of Currys and tend to be in shopping areas outside the high street. With regard to the level of public concern about electricity and gas prices, and the confusion over the effectiveness of one piece of equipment against another, it is fair to say that if you go to some of the high street shops you will get very good, helpful assistance but that tends to be in the minority. Due to the churn of staff in the retail trade, people are there for relatively short periods and do not have the experience that was built up in the old showrooms.
The telephone companies and the makers of telecoms equipment seem to be able to provide a service for the public which the big six energy companies seem incapable of doing. They have retreated from the high street. The cost of property on the high street is not very high these days and one would imagine that it would not cost an awful lot to get people in there, but of course they would say that that was too much and that if people were better informed they would probably be looking for better tariffs than the ones that they get and we would be back talking about mis-selling and the like.
This is something that the Government ought to put their mind to and I wait with interest to hear what the Minister has to say. As my noble friend said, it is part of the big society, part of a well informed consumer society, and one would have thought that it might be an attractive proposition for some of the big companies to look at in terms of looking after their customers.
Baroness Worthington
My Lords, the amendment in the names of the noble Lord, Lord Hunt, and the noble Viscount, Lord Hanworth, raises a really interesting issue, and I commend them for tabling it. It brings this Bill into contact with people, consumers and citizens.
When I read about the amendment, I thought back to my childhood, where in a medium-sized town in south Wales, there was the South Wales Electricity Board showroom, right in the centre among all the shops. You could get advice about your bills and you could speak to people, but it also had a showroom for the sale of electrical goods. Of course, in those days—and I am sure this started a long time before—the energy companies had a great interest in making sure that every family had a washing machine, a fridge-freezer and an electric cooker because it would boost the sale of their product. They were ensuring that we were all making the most of all the labour-saving devices that were coming forward in order to boost the sale of the units of electricity that they generated. It probably made very good business sense. However, times have changed and over the years energy companies have receded into the background. Now they are engaged mainly in a massive database management exercise, in which they try to keep interaction with the consumer to a bare minimum. I have been told that, from a supply company’s point of view, every time someone rings up it is money off the bottom line and it does not like it. Companies invest in call centres, which have become a modern job-creation exercise here and overseas. We can talk to people only on the phone. There is very little interaction on the high street.
Energy Bill
Debate between Lord O'Neill of Clackmannan and Baroness Worthington
Lord O'Neill of Clackmannan
I am merely quoting what the Minister said. As a consequence of, for example, the large plant directives, our dependence on coal-fired generation will contract to a great extent. The Germans have created a number of problems for themselves and, in some respects, hell mend them. They have turned their back on nuclear power in a petulant and immature manner and they are now trying to resolve problems of generation in a situation where they have the wind in the north, the demand in the south and nothing in between.
Coal may well be an issue but I do not think that they will satisfy the regulations without CCS, which is still a pipe dream in many respects. It is one that we wish to pursue and, I hope, achieve, but for the next 10 years it will be a gleam in the eye of a few technologists and nothing else.
We are not asking the Government to do anything that they do not already do. It begs the question whether, were it not for a European directive, they would be collecting this information in the first place. They do not seem to be doing anything with it. It is there gathering dust and I do not understand the point of collecting it. It might be better to try to rescind the directive and say, “Let’s get this burden away from the companies. We do not need the information, we do not do anything with it and we are not going to use it to encourage them to reduce their emissions”.
Baroness Worthington
I am sorry to prolong the debate but I think this is really important. I stress that, in addition to providing a solution for how vertically integrated companies can meet their carbon intensity targets, by requiring them steadily to divest and move into low carbon, you solve one of the other problems that the Bill does not currently adequately address. I am getting e-mails daily from independent generators saying, “Fine, we can get CFD but who is going to buy our power?”. We are removing the obligation from the suppliers to buy low-carbon power. One of the features of the RO until recently was that there was an obligation on suppliers to increase their renewable percentage and that gave them access to the market. There is nothing to replace that in the CFDs. So, if you are an independent generator of renewable energy, you know that you have a good product but if no one wants to buy it you are really stuck.
On that basis, this issue deserves more attention, not merely because it helps us meet the carbon intensity targets but because it helps to solve the problem that the Bill currently faces of what we are going to do about access for independent generators.