Dieter Helm Energy Review

Alan Brown Excerpts

Tuesday 24th April 2018 Westminster Hall

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mr McCabe. I congratulate the hon. Member for Blackley and Broughton (Graham Stringer) on bringing forward the debate. I was glad that we cleared up, right at the start, the pedantic point about the title and that we were not going to be debating whether Professor Helm should have been paid £500 or £400 a day.

The hon. Gentleman set out his stall with respect to the potential value of the overpayment by consumers. Obviously, we need to realise, going forward, that the issue is about getting the best value for consumers. I was a wee bit alarmed when he said that he was a scientist. I am a civil engineer, and I am always aware of how scientists like even more evidence-based detail. Funnily enough, one of the criticisms of Professor Helm’s report by some parties was that there was perhaps not enough evidence to back up his assertions. However, as other hon. Members have touched on, it certainly provides a good debating point, and throws down a few markers for the Government to consider.

The hon. Member for Blackley and Broughton mentioned a potential 1,600 new coal plants coming in around the world, while we are decarbonising and, correctly, eliminating coal-fired plants, so the UK impact on overall world reductions is pretty minimal. I do not think that that is the correct attitude. We must continue to lead by example on decarbonisation and to lobby and negotiate for others to do so. The hon. Gentleman was correct in pointing out that complexity is an issue—a theme that Dieter Helm brought out in his report.

A recurring theme of the hon. Gentleman’s remarks was the correctness or otherwise of the information presented by lobbyists for what he sees as vested interests. There is no doubt that it is a challenge for the Government and for all politicians when someone sets out how good their technology might be and how it might change the world. As I get more involved with the energy sector, it is a challenge to get to grips with the terminology—the buzzwords and abbreviations.

Most of the hon. Members in the Chamber seem to agree that the review is a good thing, but there has been debate on aspects of it. The hon. Member for Blackley and Broughton seems to question the value of the reductions in respect of offshore wind and how much is through cost reductions or efficiencies. I suggest that, at the very least, there has definitely been an increase in the efficiency of the manufacturing supply chain from going bigger and better. There is obviously an initial up-front cost. Cost reductions can be seen all around Europe. Given those similarities, I think there are genuine reductions in connection with technology.

In a relatively brief speech, the hon. Member for Ayr, Carrick and Cumnock (Bill Grant) touched on smart meters and the progress of the Domestic Gas and Electricity (Tariff Cap) Bill. He mentioned the Rubik’s cube, which is another thing I never got to grips with, and overpriced standard variable tariffs. At least in terms of the tariff cap and overpriced SVTs, cross-party working and political pressure are bringing the energy companies to book at last. I welcome that.

The hon. Gentleman talked about reducing fuel poverty. That is certainly important. I suggest that it is not just energy policy that leads to fuel poverty; austerity clearly feeds into it—if people do not have enough money coming into their household, they will, by default, almost certainly experience fuel poverty. So other Government policies have an impact.

My hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) gave a characteristically laid-back and chilled speech. I am tempted to go down that route, but I certainly agree with all the points she made. She concluded that consumers need to be at the heart of considerations. She is a champion of consumers, and I echo that sentiment. She correctly highlighted the issue of Hinkley Point. I shall come back to that and the fact that the cost of decarbonised energy is equivalent to 20% of bills; perhaps there is a better way of paying for decarbonisation.

Finally, we heard from the hon. Member for Wells (James Heappey). I congratulate his children on the high standard of their art work. The hon. Gentleman echoed Dieter Helm’s assertion that the auction system may be imperfect, but, as he said, it has clearly led to decarbonisation and the introduction of low-carbon technologies. There may be faults, but it has moved things in the right direction.

When the hon. Gentleman spoke of lobbyists and of losers backing Governments, I thought he might mean losers in government—but perhaps that is just a cheap shot by me. Electric vehicles are perhaps an offshoot of the debate, and although he said that there is increased uptake because people see them as the technology of the future, I am not sure we are quite there yet. Electric vehicle uptake is still too low, and we need to do more to get people to use them.

Uncharacteristically, I want to commend the Government for commissioning the review of energy policy. It may have been an admission that household energy bills are too expensive. As we have heard, that point has been reinforced by the announcement of the intended energy price cap—the Bill has its Third Reading on Monday. In October 2017 the Secretary of State said:

“Over the past 15 years energy prices have risen by over 90% in real terms.”

He added that there were bill increases

“on prices the CMA had already concluded were too high.”—[Official Report, 12 October 2017; Vol. 629, c. 473.]

The cap is intended to be temporary—until 2023—which does not give the market too long to become truly cost-effective and competitive. That means that we need longer term, consistent, logical energy strategies in place by then. Hopefully we shall see the butterfly come out of the chrysalis, as the hon. Member for Wells said.

It is therefore not surprising that Dieter Helm obviously agrees that the cost of energy is too high

“to meet the government’s objectives and, in particular, to be consistent with the Climate Change Act”.

Another key finding was that

“energy policy, regulation and market design are not fit for the purposes of the emerging low-carbon energy market, as it undergoes profound technical change.”

Those aspects of the matter, as the hon. Member for Blackley and Broughton said, are the result of a combination of successive Government failures to remedy matters.

The review highlights the fact that the investment strategy of picking winners is not necessarily efficient, and suggests that interventions should be radically simplified. No doubt the latter point will appeal to a Tory Government, but it is also the case that simplification should not happen to the detriment of emerging technologies. I have sympathy for a Government trying to support particular technologies. However, it should not be done on too much of an ad hoc basis. The way the Government have tackled the matter has not always been logical. My hon. Friend the Member for North Ayrshire and Arran mentioned Hinkley Point C, with a price of £92.50 per megawatt-hour, compared with £57.50 per megawatt-hour in the latest auction for offshore wind. That is only half the story. As Dieter Helm correctly reminds us, Hinkley is sucking those costs out for a 35-year contractual period. Meanwhile offshore wind gets only a 15-year contractual period. As he says:

“The nuclear plant will always run, reducing the market available to newer technologies until mid-century or possibly longer. This could act as a brake on technical change”.

Will the Government heed that warning and pull back from other nuclear projects such as Sizewell?

On my recurring theme of onshore wind, we need to find it another route back to market. It has been excluded from contracts for difference auctions, cannot bid for the flexibility market under current arrangements, and is not allowed to bid for the capacity auctions. We need to find a way to get onshore wind and photovoltaics or solar back to market so that we can capitalise on the reduced prices.

Dieter Helm also recommends that the legacy costs for renewables obligations certificates, feed-in tariffs and contracts for difference should be separated, ring-fenced and placed in a legacy bank. It will be interesting to hear the Minister’s recommendations on phasing those out.

Dieter Helm highlights the fact that the “revenue = incentives + innovation + outputs” framework for Ofgem, which covers the transmission and network operating regime, needs to be changed, and is resulting in higher than necessary prices. We have long argued that the current transmission system is outdated and disincentivises the construction of appropriate generation in the correct locations. Of course, it also disadvantages Scotland—particularly the north of Scotland.

Dieter Helm suggests that the Government should establish an independent national system operator and regional system operator in the public sector, with relevant duties to supply and take on some of the obligations of the relevant licences from regulated transmission and distribution companies—again, it would be good to hear a ministerial response on that. Such a provision might be slightly different, but to me it vindicates the SNP Government’s proposals to develop a not-for-profit energy retail company, and further changes that Dieter Helm suggested would complement that venture. It would also reduce Ofgem’s role in network regulation, which would be good.

Dieter Helm highlights that capping the supply margin would be the best way to meet the objectives of new legislation, and that the Government should issue an annual statement to Parliament, setting out required capacity margins and guidance for system operators. That would give parliamentarians greater scrutiny and input, which I would welcome.

Energy costs are a function of two things—the cost of energy and the amount of energy households use, which is linked to a property’s energy efficiency. Other hon. Members have touched on that issue, and I think the Government need to make more direct investment in energy efficiency policies. The SNP Government are doing that, and there is no doubt that the cost of energy then becomes less of a burden on those who might be fuel poor or struggling with their energy bills. If the money comes from direct taxation—especially in Scotland, where we have a more progressive tax system—that is clearly a much better way of paying for such initiatives and creating a fairer society.

As other hon. Members have said, this is a great starting point for debate. In the long term, we look forward to a proper Government response after their call for evidence, and I would certainly welcome a response from the Minister on the matters raised today.

--- Later in debate ---

[Claire Perry]

My hon. Friend has anticipated my speech; I was also going to mention the very dramatic, large roll-out of smart meters. We know we need to move to SMETS2 and make sure that that is done as seamlessly as possible for consumers who already have a SMETS1 meter—I am happy to take that offline.

[Alan Brown]

On the point I made, does the Minister agree that there is also scope for direct Government investment in energy efficiency, rather than relying on the likes of ECO, which still makes the consumers pay for it in their bills?

[Claire Perry]

I do; things such as the warm home discount are part of the long-term commitment that we have made to ensuring that there is better energy efficiency. We are working hard to take out costs wherever possible.

The hon. Member for Blackley and Broughton represents a manufacturing and industrial constituency; we have reduced the policy impact of energy bills on our most energy-intensive industrial consumers by up to 80%. He mentioned the relative costs of energy in Europe, where we tend to do very well in terms of gas costs and not so well in terms of energy. That is often because of political choices that countries make about where they will allocate their network costs. That is exactly why we commissioned the Helm report, to understand what it is we need to do better to ensure that our cost of energy for both households and businesses is as low as it can be.

I heard a lot of conversations about not wanting Government meddling in the design of the energy system, but somehow the terms of reference were too broad and Government should have been involved in setting them, and that the report was too short. Professor Helm is one of the world-leading experts on energy markets and design. It is fantastic that he has come out with some incredibly far-reaching recommendations; it is a no-holds-barred look at how we deliver more affordable energy, keep the lights on, decarbonise, create innovation and build relationships between the market and the public sector. I will not even answer the criticisms about his remuneration; he did a great report and it was good value for money.

We have had a very vibrant debate about the report; we will not rush to respond to it. This is an opportunity when we are at a tipping point on how we generate and deliver our energy. We need to take a very sensible, sober look at what we want to do. Much of that was covered in the report—questions about the importance of energy to our economic success, the disruptors that are going along, the move from passive to active demand, zero marginal low-cost clean generation, and the need to access lower cost, effective storage technologies. The market is changing, regardless of what the Government do. All the analyses of the report benefit strongly from hindsight, which is a wonderful thing, but the hon. Gentleman’s point about complexity, and Government layering intervention on intervention, are really well made. We need a response that is sober and sensible, that sets out an energy policy or strategy for the future that can survive successive political cycles and can respond quickly to what I have no doubt will be enormous technological changes.

The job of Government is to set ambition. We are among the most ambitious Governments in the world—we are the first developed country to ask for advice on what a zero-emissions economy would look like in 2050. It is great to see other countries joining us. We are also responsible for setting a balanced budget, so that all our decisions can be made secure in the knowledge that we will have a stable financial framework. Our job is not to respond to customers who lobby loudest, but to look to work with companies that create value for consumers, so we have frameworks and stability that will stand the test of time. If we get that right, this trilemma that we always talk about of cost, carbon and security, would be solved, at least for electricity.

I thank all the Members who have spoken; it is always a pleasure to talk about this very important subject. I look forward to repeating the debate when we bring forward the response to the Helm review, but I am extremely grateful to Professor Helm for his report and for challenging us to think about these vital issues for the future.