Energy Bill

Lord Teverson Excerpts

Tuesday 18th June 2013 Lords Chamber

[Lord Teverson]

My Lords, I thank my noble friend the Minister for all the work that she, together with the noble Lord, Lord Oxburgh, has undertaken in preparing us for the moment when the Bill finally arrives in this House, and for all the teach-ins and the work that we have had to get here. One of the things that strikes me most is how great it is that this Bill has arrived. It was December 2010 when the original consultation paper on electricity market reform was published. Over the two and a half years since then, queues of industry suppliers, generators, NGOs and trade associations have tried to bend the ears of a large number of Members of the House to give us their views on this very complex legislation. We are here, and we can start this process in the Lords.

The reasons why this Bill is here are important, and they are important to go through. They include the future capacity to generate electricity for our economy and our homes and the security of supply, which is made more difficult by our own resources running out within our own geographical area. They also include keeping down costs. So often you hear about the subsidies for green energy adding to costs, yet we know that over the years 2004-12 the price of gas for households doubled from £400 to £800, and that was a sector that had no levy control framework. Electricity also went up by a huge amount, although by much less than gas, because of fossil fuels.

It is very difficult to see the future, but I am certain that with renewable energy, and in the longer term maybe even with new nuclear, with its low marginal fuel costs—zero, in fact, for wind and solar—we will ensure that our prices are far less dependent on unpredictable and expensive fossil fuels in future. The Department of Energy and Climate Change suggests that by 2020 energy prices will be just under £100 less than they would have been afterwards. To me, given the past performance of energy prices, that is absolutely credible because it is based on historical evidence. That is important for us to understand.

The real issue of the Bill is climate change. I congratulate the noble Baroness, Lady Worthington, on her description and her attack in that area. She is right that a major part of the Bill is to ensure that our electricity supply industry is not dependent on unabated fossil fuels into the distant future. It is of great concern to me that it is often not realised more broadly that coal now produces 42% of our energy generation. Once again it has replaced gas as the major fuel for electricity generation, yet it is a fuel that produces something like double the carbon emissions for every unit of energy than the cleanest gas generation. We have gone through the limit of 400 parts per million of carbon dioxide in the atmosphere and, as the noble Baroness well described, we still have all the symptoms of climate change, whether that be rising ocean levels at 3 millimetres a year, shrinking icecaps or retreating glaciers—not all of them, but the vast majority.

Let us look at the debates that there will be on decarbonisation and decarbonisation targets. I welcome the fact that there is provision in the Bill for a decarbonisation target. That was not there in the original draft Bill; it has been added. As for whether the year should be 2014 or 2016, maybe we are moving towards theology there.

Two of the things that are repeatedly mentioned to me are the risk of investment in the industry and future generating capacity. We know that the whole industry will look for less and less risk, and indeed those who provide finance will do the same in order to protect their investments, so, whatever they are given, I am sure they will ask for more. I spent a lot of years in the private sector, so I can ask what other industry is given a guaranteed price, index-linked, over several decades. No other industry gets anything like that—it would be heaven on earth for most industrialists—yet that is what we are offering electricity generators as part of the Bill. Frankly, you can start to become a little too greedy about the risk that you want to reduce if you go beyond that level.

I will come back to the agreements in that area. I see a tension within the Government. We have a £7.6 billion levy control framework commitment. That is a great win. It is substantial and it will ensure that in practice a low-carbon economy and a low-carbon network can actually be delivered.

Having said that, I feel that there are certain things in this Bill that still need to be done. I am sure that the Minister will agree with me on the vast majority of these. As for demand management, I suspect that this Bill was originally drafted by DECC officials who love shiny new power plants that impress their friends, look good when built and are great for press releases. However, we do not have such a demand. The UK electricity industry operates, on average, at 50% utilisation of capacity. To me, that is not good enough. We need to look at the demand side as well as the supply. I very much welcome the Secretary of State bringing forward demand-side factors into the capacity market, and hopefully beyond that broader demand reduction. I know that we will flesh out some of those opportunities in Committee. I welcome the Government’s very strong move in that area.

On emission performance standards, I am not quite so confident about the long-term nature of grandfather rights. I also question, and want to explore in Committee, whether there is still opportunity for coal to continue long term as a generating source of electricity under the Bill in its current state. Coal is so much cheaper at the moment, largely because of changes in the United States, along with other factors, that it may still be commercially possible to generate long term by paying the carbon floor price and re-engineering plants so that they are able to stop their sulphur emissions. I am not sure whether that is possible in this Bill as it stands, but I want to make sure that it is not. We need to take coal out of the generating system.

The other area, which I am sure Members from all around the House will be particularly concerned about, is the route to market for smaller producers. If there is one thing about the energy market that is similar to banking, it is its oligopolistic nature. That is what makes some of the strike price negotiations difficult. We need to ensure that the smaller producers, and indeed the smaller suppliers, within the market are able to have much greater access to a greater share of that pie. It is through that competition that we will ensure that price increases are far less than they have been in the past.

There is one last thing. One of the unsung things in the energy market is licence lite, which is being explored by the Greater London Authority. It is about small independent producers, in particular community schemes, being able to supply directly through local networks to final consumers at a consumer price, thus not needing subsidy for that energy. I would like to explore how that great initiative—unsung by DECC, I think—can be expanded more quickly and effectively throughout the United Kingdom.

As I said earlier, it was 2010 when the initial consultation document was produced. We need now to make sure that this Bill gets through this House, gets through it on time and lands on the statute book, so that those investors, however nervous, can invest.