Energy Bill

Lord Oxburgh Excerpts

Wednesday 11th December 2013 Lords Chamber

Moved by

[Lord Oxburgh]

As an amendment to Motion A, at end insert “, and do propose Amendment 105B in lieu”

105B: Page 46, line 31, at end insert—“( ) No fossil fuel plant shall operate after the year 2025 if its emissions are not less than the statutory rate, unless it has been exempted under the provisions of section 48 (suspension etc of emission limit in exceptional circumstances).”

[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—

--- Later in debate ---

[Baroness Verma]

My Lords, I shall continue by trying to conclude quickly. The Bill has undergone thorough scrutiny and the Government have listened very carefully to all the concerns raised during its passage through this House. I am grateful to my noble friend Lord Teverson for his warm words. We have responded to a great many of the issues raised by colleagues from all sides of the House on, for example, domestic tariffs and access to markets, and we have introduced new topics—for example, carbon monoxide and smoke alarms.

We must acknowledge that the other place has accepted 112 amendments and, moreover, has welcomed them. It has recognised the expertise that this House has brought to the scrutiny of the Bill and the real improvements to it that this House has made. However, the other place has decided with a considerable majority that it does not agree with this amendment. The elected Chamber saw an unprecedented majority for the Bill as it completed its passage through the other place. Today, we can decide that the Bill proceeds to the statute book—a Bill that is essential for protecting consumers and for ensuring security of supply and decarbonisation of our economy. Nothing will send a firmer signal to investors than that this House will do nothing that prevents the Bill receiving Royal Assent.

[Lord Oxburgh]

My Lords, so much for my attempts to find an uncontroversial middle way of bringing all sides together. The temperature of this debate has been a little higher than I would have expected and, indeed, than I would have hoped. I agree with a great deal that the Minister has said on both security of supply and the Bill’s importance for investors. However, the fact is that the amendment increases, rather than reduces, both those things. If Members with a keen sense of smell have detected a faint aroma in the Chamber, it is the aroma of red herrings.

The Minister spoke of concerns about certainty for investors if my amendment is agreed, and the noble Lord, Lord Forsyth, said the same thing. He is quite right: we do not really know what is going to happen in 10 years’ time, but the Bill contains a measure that allows the Government to disregard these constraints if severe circumstances mean that it is necessary to do so. Therefore, that question of security of supply does not really exist.

As far as looking at certainty for investors is concerned, in the near term the necessity is for investment in gas-fired power stations. Everyone agrees with that. This amendment would improve, not reduce, certainty for investors in the time that we can look forward to. I do not know anyone who does not think that we need new gas-fired power stations, and the amendment would help investment in that regard.

The noble Lord, Lord Jenkin, rightly said that we have to get on with it. I am going to press this matter to a vote. I do not think that it need delay the passage of the Bill for more than a few days. As far as investors are concerned, getting the right Bill before Christmas, which the Government can certainly do if they are so minded, will be the main thing. The fact that that happens a day or two later is neither here nor there, and there will be a much more certain basis for investing in new gas.