Energy Bill
Debate between Viscount Hanworth and Baroness Worthington(10 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text
Baroness Worthington
It is absolutely consistent because what we have said is that we will seek out the least costly forms of carbon abatement. There is no cheaper way of reducing carbon dioxide than using existing gas stations in place of existing coal stations. That is how the UK decarbonised its economy in the 1990s and that is how we should be doing it again now. However, there is sufficient doubt about that, because of the price of coal relative to the price of gas. It is absolutely consistent to say that we want to keep prices low by supporting this amendment.
One of the things that the Government are currently struggling with is that, at the root of this, there is not sufficient clarity in the backing of these decarbonisation objectives. It would obviously be very easy to solve the energy trilemma by simply lopping off one of the legs. If you simply say, “All we need to do is keep the lights on at least cost”, there is no problem; you would stick with the coal. It seems that this Government are not actually committed to decarbonisation as they have lopped off one of the legs and are seeking a return to coal at just the time when, internationally, we are pressing everybody else to move away from unabated coal.
This is a sensible and moderate amendment, and it gives clarity to everyone. It reduces investor risk, particularly for those people operating gas stations and seeking to invest in new gas stations. I hope that noble Lords on all sides of this House will find that they can support this amendment and I hope that the Minister will ultimately support it, too.
Viscount Hanworth (Lab)
My Lords, we have been told that the Energy Bill has two purposes. The first purpose is to secure the much needed investment in new plant for generating electricity. The second is to decarbonise our electricity supply. Amendment 105, which has been rejected by the Government, was closely aligned with these two purposes. Its effect was to ensure that if there were major upgrades to coal-fired power stations, such as to enable them to meet the European emission requirements in respect of sulphates, nitrates and heavy metal contaminations, they should also be constrained to meet the emissions performance standards in respect of carbon dioxide that are imposed by the Bill. The subsequent amendment tabled by the noble Lord, Lord Oxburgh, reinstates this requirement but includes a let-out clause that would allow the Government to alleviate the requirement, if necessary. Presumably, this would be appropriate in a case where the lack of capacity was so pressing as to imply a real danger of the lights going out.
The Minister, Michael Fallon, argued in the Commons that to include such amendments would add to the risks faced by investors. The logic of his position escapes most of us, who believe that the original Amendment 105, or its replacement by the amendment of the noble Lord, Lord Oxburgh, would clarify the intentions of the Bill in a way that would actually encourage investment. Why does that Minister insist on the rejection of these amendments? Is it that he wishes there to be a loophole in the legislation that would allow dirty, coal-fired power stations to remain in operation, notwithstanding the ostensible purpose of the Bill? There are certainly grounds for such a suspicion. However, the Minister has asserted on several occasions that he doubts, even with the allowances the Bill affords, whether any of the old coal-fired power stations have a future.
Perhaps we should believe in his good intentions and allow ourselves to look elsewhere for the reasons for his intransigence. The reasons are not hard to find. The Minister has a need to conciliate a faction in his party that is firmly opposed to all measures aimed at staunching the emissions of carbon dioxide. They point to the cases of Germany and the Netherlands, which are in the act of commissioning unabated coal-fired power stations. They demand to know why Britain should be imposing constraints upon itself when others are failing to do so.
Energy Bill
Debate between Viscount Hanworth and Baroness Worthington
Viscount Hanworth
Throughout the Committee’s debates, one vital element has been barely mentioned—the future of Britain’s nuclear energy. Without the prospect of major investment in nuclear energy, the nation’s energy policy makes no sense and the Energy Bill is virtually meaningless. The lack of debate about Britain’s nuclear programme has been a reflection of its uncertainty. The Government are still in protracted negotiations with the French state-owned monopoly EDF—Électricité de France—which in reality represents, at present, the only means of achieving new investment in nuclear plant. For reasons of political ideology, allied to fiscal anxieties, the Government are loath to finance the investment. They are relying on EDF to raise the necessary funds from the financial markets, which are currently in a parlous state. The company, in turn, sees an opportunity to recoup some of its recent losses in projects elsewhere at the expense of the British taxpayer. It can look to the examples of foreign national rail companies, which are recouping their losses by adopting rail franchises in Britain. It hopes that it can follow suit.
With such a prospect in view, one might expect greater eagerness on the part of the company to strike a deal. In a previous debate on the subject of Britain’s nuclear programme, one of my colleagues voiced the opinion that our Government were in a strong negotiating position and that they should therefore stand their ground. That is a misjudgment. EDF has other prospects in view, in China in particular, and the scale of those Chinese projects will far exceed anything that is on offer in Britain. Moreover, the company’s expenditure in Britain to date in connection with the prospective Hinkley C nuclear power station is no guarantee of their commitment.
According to an economist’s nostrum, bygones should be bygones, while according to an alternative version of the dictum, one should not throw good money after bad. The Government are therefore advised to have a properly conceived and well publicised plan—a plan B, as it is usually described—to meet the eventuality of a breakdown in the negotiations. There is a strong suspicion that the Government have a plan B, albeit a covert one, given that an influential faction within the Government appears to believe that Britain’s impending energy deficit can be overcome by a dash for gas that would rely on supplies of gas that could be magicked out of the ground beneath our feet.
We have been feeling the effects of the Government’s schizophrenic attitude throughout the debate in Committee on the Energy Bill. The schizophrenia is not unique to Britain but has been severely affecting Germany’s energy policy, which accounts for the fact that the German energy companies that originally intended to bid for nuclear contracts here have withdrawn, The nuclear schizophrenia has also made some inroads into the policies of the French Government.
In this country, we are already seeing strong opposition to the prospect of fracturing the ground in order to extract gas. The short-tem expedient of relying on natural gas to power our generating stations would be in utter contradiction to the avowed intention of decarbonising our energy supplies.
A further reason for the Government’s reliance on foreign utilities to realise their nuclear ambitions is the attenuated state of our nuclear industry. A recent report by the Science and Technology Committee of the House of Lords bore witness to this state of affairs. It recommended that drastic action should be taken to revive the industry and foster its research and development. The consequence of the report was flurry of activity that gave rise to a cluster of government reports centred on the so-called Beddington report that reviewed the civil nuclear research and development landscape in the UK.
Some of us have recently witnessed a resurgence in the optimism of the proponents of Britain’s nuclear industry. There is a strengthening feeling that the time is right for a nuclear renaissance. There are outstanding technical opportunities to be grasped for a generation of nuclear reactors that will succeed the reactors currently being built around the world.
Current reactors are conventional uranium reactors, mainly of the pressurised water variety, which follow the designs of the majority of the original civil reactors, albeit that nowadays they have greatly enhanced safety. There is, however, strengthening conviction that the succeeding reactors should take a new route that proceeds from a design that was realised in prototype form almost at the inception of the civil nuclear age. This is the thorium-based molten salt reactor. It has the signal advantage of using abundant fertile thorium fuel in place of fissile uranium fuel. In contrast to a uranium reactor, a thorium reactor will generate very little of the problematic wastes that afflict conventional reactors. It is also endowed with passive safety, which is to say that a malfunction leading to overheating the reactor would lead to its automatic shutdown. The reason why such a design was not adopted at the beginning of the nuclear age is that the reactor has one signal disadvantage which today is one of its major advantages —it fails to produce weapons-grade plutonium.
Now is not the occasion to describe the technology in detail. However, some Members of this House are very well apprised of the details. They constitute the All-Party Parliamentary Group on Thorium Energy, which is closely allied to the Weinberg Foundation. The foundation has a mission to expound the virtues of thorium technologies as well as to support nuclear technology and nuclear power in general. Those who are interested or curious should visit the websites of the APPG and of the Weinberg Foundation, which contain a wealth of information and are readily accessible.
There are other reactor designs we should also be considering, including fast breeder reactors. Notwithstanding some negative anti-nuclear propaganda that was aimed at them, fast breeders are eminently practical devices. The PRISM fast breeder reactor of the GE Hitachi company has been proposed to our Nuclear Decommissioning Authority as a way of profitably burning our stock of 120 tonnes of plutonium that resides at Sellafield. The authority has been given the task of recommending the best way to dispose of the stockpile, which was once regarded as a menace. Now it is being seen as a valuable nuclear resource which could power efficient and cost-effective ways of meeting our electricity demand.
Originally, it was proposed to bury the plutonium waste. Then it was thought that it could usefully be converted into a mixed oxide fuel for burning in conventional reactors. The emphasis appears to have shifted in favour of either the PRISM fast breeder as a means of burning the plutonium or the alternative Canadian CANDU reactor, which might be described as a slow breeder. It is because of this shift of emphasis, which implies a widening of the discretion of the NDA, that I believe that its original terms of reference, which were set out in the Energy Act 2004, need to be modified.
In 1954, the American physicist, Lewis Strauss, predicted that atomic energy would eventually make electricity “too cheap to meter”. That is the correct attribution of the quotation. He may have had in mind fast breeder reactors, which effectively create their own fuel, or he may have been thinking of power generation by hydrogen fusion. Either way, his vision, or something close to it, is still in prospect. We might therefore ask why, after the rapid progress at the start, the goal is still so distant. There are several answers to this question. One of them points to the nuclear phobia associated with nuclear weaponry, which has been exacerbated by nuclear accidents. However, the nuclear accident at Fukushima, which has created a major impediment, has little bearing on the question of the safety of a new generation of reactors.
There is also, in this country at least, the effects of a failure of the technological courage that once characterised the nation which we urgently need to recover. The effect of the demise of the scientific Civil Service has been experienced throughout the course of our deliberations in this Committee. The bright young people of DECC do not have the resources or the skills to deal competently with the complex matters that we have been considering. They have had to rely extensively on outside consultants. I hope that this will change in the near future. That is no criticism of them; it is a criticism of the circumstances in which they find themselves. I hope, too, that the injunction in my amendment that the Secretary of State should report to Parliament on an annual basis to give an account of his activities in relation to nuclear technology will provide some stimulus and will compel his to grapple with these issues.
I conclude by mentioning an article in the Engineer of 5 October 1956, the eve of the opening of the Calder Hall power station, Britain’s first nuclear power station. The article recounts that it took three and a half years from conception of the project to its realisation. This is the time that will have been spent in negotiations with EDF regarding the proposed Hinkley Point C reactor. The contrast with the snail’s pace at which we proceed nowadays is astonishing. The glory days of the Atomic Energy Research Establishment at Harwell and of the establishment at Sellafield—or Windscale, or whatever you care to call the place—are long since gone, but there is still an opportunity to recover some of the spirit of those times. I beg to move.
Baroness Worthington
My Lords, I will briefly speak to this amendment. I declare an interest as a patron—unremunerated—of the Weinberg Foundation. I also helped to establish the all-party parliamentary group to which my noble friend Lord Hanworth referred. I will not wax lyrical about the benefits of thorium and closed-cycle breeder reactors because I think we are all getting a little tired now as we are very near the end, but I understand the sentiment behind this amendment. I am particularly interested in the latter part of it, which requires the Government to report on,
“any necessary changes to the legal remit of the NDA”.
The reason why I am interested in that is that we have an opportunity here, in considering what we do with our plutonium stocks, to mark a new era in nuclear fission. That shift from seeing the plutonium as a liability that is just costing us money—which it is at the moment, to be honest—to seeing it as an asset that can be exploited to generate low-carbon electricity is, I think, just upon us. Soon it will be there, but we are not quite there yet.
My fear is that there is, quite understandably, a high degree of conservatism—with a small C—in the industry. There is a tendency to stick with what you know and not to do anything risky or to look beyond your immediate priority. The NDA does an amazing job of managing the process of decommissioning our existing nuclear sites, and I just hope that, when it considers what to do next with the plutonium stocks, it will consider in the round and will not be encumbered by a preponderance of doing only what it knows best and sticking to what it has seen previously. If it does that, I fear that once again we will be building a very expensive MOX fabrication plant, for which there will be probably no known customers by the time it is built. Certainly, the PWRs that are being built by AREVA and EDF will not wish to take it. It is much better for them to use newly fabricated fuel while it is available. That will be the “do nothing”, “stick to the plan”, “keep going as we are” strategy.
I am delighted that, in addition to those, new ways of approaching this problem have now been put forward by different industry representatives. My noble friend Lord Hanworth mentioned the PRISM reactor, GE Hitachi’s breeder reactor and the CANDU reactor from Canada. There has been quite a lot in the media about the PRISM reactor, but much less about the CANDU reactor, which is potentially an excellent solution. CANDU reactors are very flexible, are a tried and tested technology developed over many years by the Canadians, and have a very big investment arm behind them. It is a very viable project. There you get the advantage of building not just a fuel disposition solution but a reactor to provide clean energy. Given the precarious—or perhaps protracted—negotiations with EDF over Hinkley, it is very clear that we need to have a plan B. If we just switch our frame of reference to consider the plutonium stocks as an asset and then exploit them to maximise the production of electricity and minimise the production of waste, it will point us to a novel solution that would open up great benefits to the UK. I hope that the department, in the advice that it gives to the NDA, will consider this in the round and consider whether we need, perhaps, to rethink the remit of the NDA.
Energy Bill
Debate between Viscount Hanworth and Baroness Worthington
Baroness Worthington
I thank the noble Baroness for alerting us to that. As I was saying, there is clearly an issue and a need for intervention. There are existing alternatives for the independent generators. Perhaps one thing that we need to explore is how we can strengthen those independent suppliers. Ecotricity was a very good example. It was set up to build wind farms but found that the way that it could build its business best was to have a supply arm creating its own form of vertical integration. It is a way of creating more liquidity and plurality in the market to help those independent suppliers to buy from the independent generators. That seems logical, so perhaps we can explore how those can be better balanced.
There are also aggregators in the market. One problem that independent generators face is that individually they do not have the capacity to employ traders. The big six all routinely employ traders for all sorts of reasons, and that gives them a massive market advantage from being able to enter the various markets themselves. Aggregation and the provision of grouped trading services is necessary to help to support suppliers. That is another area that we could look at in more detail to see whether something needs to be done to make it more effective.
Finally, if we find, once the Bill is passed and we are on the road towards a low-carbon economy, that independent generators are simply not getting PPAs, we must make sure that we are monitoring the situation closely. I hope that the authority will be given a clear direction to be listening and asking what is happening in the market following the Bill's enactment. I shall end on a hopeful note. If it then transpires that that there is insufficient liquidity and PPAs are not being granted, perhaps the authority will accept that it has not done enough to generate competition in generation.
Energy Bill
Debate between Viscount Hanworth and Baroness Worthington
Baroness Worthington
My Lords, the amendment would add a new subsection to Clause 6. We now come to the meat of the Bill: the contracts for difference, which it is proposed will restart investment in low-carbon energy. I think that this is the bit of the Bill that we all share a desire to see succeed and do exactly as we hope.
The reason for my tabling the amendment, which, again, is very much a probing amendment, is for us to have a brief debate about the transition from the current support mechanism for the renewables obligation and the proposed contracts for difference. We will have an opportunity to discuss this further when we come on to the parts of the Bill that deal with the transition, but I have put the amendment here because it is important to highlight how important the strike prices will be in the new mechanism for supporting renewables.
The renewables obligation, which this replaces, had within it a mechanism that created a demand for renewables—an obligation on suppliers to go out and source renewable obligation certificates. That was seen as an essential part of moving us into a low-carbon system at a time when we had a perfectly well functioning system of high carbon. It was accepted that, to create the space for these new sources of power, we needed there to be an obligation to drive that market. We are moving away from that to a system whereby the contracts will be offered and strike prices published but there is no obligation on anybody to come forward and bid for them.
I am very grateful for the information that has been provided by the Minister recently, showing that a number of applicants have come forward for the financial investment early decision contracts. I think that 50 projects have come forward, with 18 potential gigawatts of capacity. So clearly the draft strike prices are driving interest and have given people a reason to come forward with projects, which is very encouraging. It would be useful to have something in the Bill that ensures that that is the situation going forward. It has been mentioned on a number of occasions that one problem we have is that, beyond 2020, there does not appear to be very much certainty for investors in renewables. There are a number of reasons or that. It is partly because the legally binding renewables targets set at a European level stop in 2020. Let us be honest in saying that that is what drives the majority of interest from the Government in seeking renewables, although I also acknowledge that the benefits that renewables bring in diversity of supply and potential cost reductions for consumers are also sought by government.
It is true—and I do not think that it would be particularly controversial to say—that there appears to be some mixed messages coming from the Government that some parts of government are less enamoured of the benefits of renewables than others. So there is this potential issue post-2020. The levy control framework will dictate a large part of how the contracts of difference work, and that, too, only has a time horizon to 2020. So there is understandable nervousness in the industry. I do not want to go over old ground, but we have had lengthy debates about the need for decarbonisation targets post-2020 to try to give back some confidence. In the absence of such targets, we are reliant at the strike prices being set at a favourable level to bring forward interest. That is why we have tabled this amendment—on the off-chance that there should be a moment in future when the Government are slightly less enamoured or, potentially, more hostile to renewables, and that there will not be the ability to kill off this market by simply offering very low and unattractive strike prices. That was not possible within the RO, because it had an inbuilt mechanism to keep demand growing for those technologies. Here we are very much more reliant on a planned, administratively and government-controlled mechanism. For that reason, we have sought to clarify that the purpose of the strike prices is to ensure that they are sufficiently attractive that investors will come forward.
This amendment also gives me an opportunity to comment on the strike prices. Those that were published are subject to consultation, and I am sure that the Government are busy receiving evidence from participants in the market and potential investors. I have heard that the offshore renewable community do not consider the proposal for offshore wind to be sufficient. Again, I think that that highlights how important the strike prices now are. The concern is that the length of contract is too short, that the digression in prices kicks in too soon and that the cost reductions expected are just not realistic. That further underlines why we need to get the strike prices right.
The amendment needs to sit alongside the amendment that we will come on to debate about an expert panel. I know that an expert panel is already in existence and has been helping the Government, which we acknowledge has been a useful part of this process. We will come on to discuss how that could be maintained and even enhanced by making it a more visible part of the infrastructure of the Bill.
I also take this opportunity to say—this is slightly technical so I apologise in advance—that the way in which the supply obligation created in Clause 9 also interplays with the strike prices is important. I am stretching the amendment a little too far, maybe, to talk about this here, but it is worth noting that how you construct the obligation on suppliers to pay towards the strike prices could have quite an impact on the incentives that the suppliers have to then go forward and seek CFDs. If you constrict the supplier obligation in one way where the suppliers are directly exposed to the prices set in CFDs, they will have a greater incentive to go forward and seek those CFDs. If, however, it is a levelised, averaged-out cost to which they are not able to hedge their position through their own participation, it dilutes that signal.
I apologise, but that is all wrapped up in our concern to get the strike prices right. We will, I hope, soon discuss the technical expertise needed to make sure that that happens. I have mentioned why I think something should be in the Bill because it acknowledges the different system that we are moving to from a situation where the RO had an in-built guarantee that there would be demand for these projects to one where we are very reliant now on getting the price right. I beg to move.
Viscount Hanworth
My Lords, we know that strike prices will differ across various technologies but I query whether that degree of flexibility is sufficient. There may be a case for varying the strike prices to cater for the different components of the same technology. I am thinking, for example, of the differences within the technology of gas powered LGC generation between the base load CCGT plant and the plant that is devoted to satisfying peak demand, which may be OCGT.
The cost profiles of the two varieties may be very different as will the wholesale prices commanded by their outputs. Should they be subject to the same market reference price and the same strike price? I am asking that question, in all innocence; it is not a tendentious question. But I have observed that the Minister has indicated or implied that there may be special accommodations within certain technologies for interconnection. If I am making any assertion, it is that we need a lot more detail and I am not sure that it has yet come forth. We need a lot more detail that would address the realities of electricity generation.
Energy Bill
Debate between Viscount Hanworth and Baroness Worthington
Viscount Hanworth
Perhaps I may make a few more comments, some of them addressed to things that have just been said. A great deal of negative propaganda accompanied the privatisation of the electricity industry in the UK, but many studies indicate that the industry was far more efficient than another national industry with which we should compare it, the American industry. There is no question about that. Yet many people tendentiously denied these realities.
If we are to have a nuclear industry, it will be in the hands of a state-owned foreign monopoly. That is a reality that sits very ill beside the fantasy of perfect competition. If we are to have a competitive environment or, indeed, any competition in this environment, perhaps the competition should come from a British state-owned nuclear industry. We have to think somewhat outside the box and not revert to the paradigms of perfect competition versus state industry, which seems still to dominate people’s thinking in this respect. The only countervailing force that I can imagine that could really survive in the British electricity industry to induce competition is if a fraction of it lay in the hands of the state.
Baroness Worthington
My Lords, like the noble Lord, Lord Deben, when I read this I thought that it was a very elegantly phrased and simple set of provisions that are very easy to understand and could go a long way to sorting things out. Having thought about it a bit more, I am still quite attracted to it, but that is not to say that it is necessarily the only way in which the problem could be solved—or, indeed, the right way. What we really want is an acknowledgement from the Government that, rather than thinking about the past— sadly I do not have the benefit of those many years of pre-privatisation—we should really be thinking about the future and acknowledging that the Bill signifies a massive change of direction. As a result of that, it is appropriate that we think again about our competitiveness regime. It will come as no surprise that, from our side, we believe that we need a new regulator to do that—one with real teeth and independence, and one which is not scared to hear from the incumbent, saying, “You don’t like that? We’ll change it for you”. That is the modus operandi of Ofgem, I am sad to say. There are many ways in which we can address the issue.
In answer to the question from the noble Lord, Lord Oxburgh, about how much competition is competition, six companies might be appropriate if it were not for the fact that the vertical integration of generation and supply gives them an enormous advantage in this market. That is what needs to be looked at—and that is why the noble Lord, Lord Berkeley, can be congratulated on his precise and laser-like vision in getting to the nub of it. It is possible to force the integrated companies to operate in a less integrated way, but it is what they do with the DNOs, as my noble friend pointed out. Many of the big six are owners of DNOs. But there are regulations and laws that mean that they have to have a very firm Chinese wall between those parts of their industry, which is precisely because they are natural monopolies and will gain enormous advantage by knowing what is going on in the other parts of the business. So there is a precedent for keeping the corporate structure the same but having clear delineations between the different parts of the business.
Why is this more important in future? One reason that has been oft-cited for allowing vertical integration to continue is that it keeps the cost of capital low. If you are a vertically integrated company and you have a supply base of millions of customers, you can borrow against it very easily and get nice low-cost capital. That was true until this Bill, which completely removes the risk of new generation and potentially gives companies a many decades-long contract against which they can borrow. So the old arguments for vertical integration are falling away, and we should now be reconsidering the logic of allowing it to continue. There are many examples where vertical integration can act against the interests of consumers and of more plurality, competition and lower costs in the market. I shall choose just two.