Energy Bill

Debate between Alan Whitehead and Nigel Evans

Wednesday 19th December 2012 Commons Chamber

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to follow the wise words of the former Minister, the hon. Member for Wealden (Charles Hendry).

The Bill, as its long title states, is intended to reform the energy market by encouraging low-carbon electricity generation. Essentially, the Bill should ensure that we have the mechanisms and regulations at our disposal not just to keep the market working well, with a secure electricity supply and reasonable prices for customers, but that that is done over the next 20 years within a framework of decreasing carbon emissions from all energy-producing plants that makes every drop of energy go as far as possible through efficiencies, good management in the system and, just as importantly, by removing from the system as much demand as possible, so that emissions are avoided by not producing additional energy in the first place.

The present energy market arrangements—the British electricity trading and transmission arrangements system—have served us well in some ways. They have ensured that a capacity margin has been constantly available to guarantee supplies and at some stages of its existence has applied downward pressure on prices. However, the world has changed radically since the present market arrangements were first introduced more than a decade ago. Prices are going up, not down, massive amounts of plant are being retired from the system in the next few years and their replacements will need to be far lower carbon than the retiring plants. Most importantly, the trading arrangements of the market are carbon blind and do not, in themselves, advantage low carbon over high carbon; it is left to other devices, such as the renewable energy obligation, and subsequent work with the market to do that.

If the ambition of the Bill is to be realised, three things will be central. First, we cannot in the end use the devices of the past market reliably to achieve the goals set out in the Bill for the future market, yet, remarkably, the Bill claims to reform the energy market without reforming its mechanisms. Real reform, such as the introduction of a pool system to make the wholesale selling and purchasing of energy for retail fully transparent and accessible for all, is wholly absent.

Secondly, we need a sense of where we are supposed to go with the encouragement of low-carbon electricity. What does that phrase mean in practice? Is it just a warm aspiration that can be set aside when the going gets a bit tough? If it is not, it seems essential that a target level of emissions should be included in the Bill, but there is no such target. The Secretary of State favours a target, but I am afraid that we have a bit of a problem with what we might call Liberal Democrat capture and storage. [Interruption.] A glass of water for the Secretary of State, please. During the passage of the Bill, I hope that a coalition of people who believe that there should be a target can get together to rectify that, regardless of party stances.

Thirdly, even if there were a target in the Bill, measures elsewhere in it will still take us in precisely the opposite direction and make its aspiration redundant. They need removing or replacing. I strongly believe that the Bill needs to do what it sets out to do in the long title. We need a robust framework that can guide the next stage of deployment of renewable and sustainable energy and that can establish effective mechanisms for those plants, once deployed, to bring their energy to market. We need a market that can deal with new and existing producers fairly and consistently, so that the goal of a well-balanced marketplace encouraging new entrants, rewarding and supporting the best management of energy and celebrating the removal of demand from the system as the ultimate way to decarbonise it can be achieved.

The Bill does some of those things, but, overall, in its present state and with its manifest large gaps, it is not fit for the purpose that it has to advance. These shortcomings simply have to be remedied, because we need the stability and certainty of a coherent and fair market system to encourage and sustain the unprecedented investment in our plant, our networks and our neighbourhoods that will be necessary for an enduring low-carbon energy environment. The regime needs to instil confidence and last for perhaps twice as long as a central system as its predecessor did. The measures in the Bill, many of which I accept are complex and difficult to get right, fail that test at present.

The Bill needs extensive surgery, and in the limited time available perhaps I can list one or two of the major operations that need to be rostered. Are the arrangements for securing a counterparty to contract for difference deals really right? Is there a potential conflict of interest in the body that the Bill selects to be both the system operator and the delivery body for CFDs? Is the proposed transition period between the end of the renewable obligation and the emergence of CFDs workable? Should there be a longer period of changeover and a better opportunity for next stage renewable developers to work with renewable obligation certificates?

Does the ending of an obligation for renewable power purchase and the disappearance of power purchase agreements not place potentially insuperable obstacles in the way of independent generators of low-carbon energy bringing their output to market? Are the administrative arrangements for the setting of a strike price in the Bill not so weighted as to give an advantage to new nuclear that they risk undermining the veracity of other strike price arrangements and the possibility of meaningful auctions in the future? Is a market-wide capacity payment system not just a recipe for paying too much bill payer money to produce overcapacity, when better, cheaper arrangements such as strategic reserve arrangements exist?

Why are there no demand-side reduction measures in the Bill and why will any measures as yet undetermined by the Government appear only at the very end of the legislative process? Why does the level at which energy performance standards are set effectively exempt all gas throughout its operational life?

[Mr Deputy Speaker (Mr Nigel Evans)]

Order.

Durban Climate Change Conference

Debate between Alan Whitehead and Nigel Evans

Monday 12th December 2011 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

I gave a little latitude there, but I am not looking for an extension of the first statement.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I congratulate the Secretary of State on the outcome of a conference that was widely regarded as unlikely to succeed, even in the objectives that have been set down now. It is substantially because of the EU’s negotiating position and the British role in it that that very good outcome was achieved, even though there is a great deal more to do.

Will the right hon. Gentleman expand on the role of Connie Hedegaard, the EU Commissioner for Climate Action, originally from the Danish Conservative People’s party, in careful negotiation, keeping the parties together and making sure that the EU presented a united front and that no one withdrew from that? Will he confirm that the EU position, which I hope will develop up to 2020, will have the full-hearted participation of the UK as the new treaty approaches a conclusion?

Energy Prices

Debate between Alan Whitehead and Nigel Evans

Wednesday 19th October 2011 Commons Chamber

[Dr Alan Whitehead (Southampton, Test) (Lab)]

What the public want to know, in the context of this debate and elsewhere, is why energy prices keep going up, and why we have the so-called rocket and feathers effect, whereby prices go up when wholesale energy prices go up, but they do not appear to come down when wholesale prices come down. The truth is that, in terms of our knowledge of how these things work, it is difficult to find out why—for the reason, among others, that the market is now so un-transparent and, as my hon. Friend the Member for Islwyn (Chris Evans) just outlined, so concentrated in so few hands.

It is true that the price of wholesale gas has varied over several years between about 70p and 15p a therm, but nevertheless the overall trend is up. Indeed, a recent Deutsche Bank report suggested that notwithstanding shale gas, gas prices will probably double by about 2014. It is true that wholesale prices are going up, but the increase does not bear close relation to the energy company price rises that we have seen. That is the central problem. Some 46% of our generation is by gas, the price has increased by 90% over the past 10 years, and other prices follow gas as the market maker.

All that is based on trading in an energy market that was set up 10 years ago, with 20-odd wholesalers, 20-odd retailers and little vertical integration between them. It was also established at a time of privatisation, when those companies inherited a market in which we were self-sufficient in gas and had a substantial capacity margin in electricity generation plant. Neither is now the case.

Furthermore, the market was created carbon-blind; its purpose was simply to keep trading prices down when there was no vertical integration. It did so for a while, but now we are in entirely different territory. Indeed, six large companies control 99% of the retail market and about 60% of generation, and they have some grid and transmission assets as well.

The power of such vertical integration means that the market that was created 10 years ago simply no longer works. The long-term deals that the companies set up account for almost all energy company trading, they are mostly bilateral and totally un-transparent, and energy companies trade with themselves, so it is difficult to see where the pricing goes and whether it is fair to the consumer.

More and more, the big six also hedge their arrangements on price variables, so they all mirror each other, and the result of a price increase by one is that, inevitably, other companies put up their prices, too. Increasingly, therefore, there is effectively—even if not deliberately—a cartel-type price arrangement.

As for new entrants, they are almost all retail-only, and they have to buy their power from the big six. It is a bit like encouraging corner shops to set up, knowing that they will have to get their stock by shopping at Tesco and then somehow compete with Tesco on price.

There are also still positive Government disincentives for new entrants. Small retailers, for example, are exempt from the recently increased obligation payments for up to 125,000 dual fuel customers. Above that level, however, not only is the company obligated for all levy payments, but all customers are then eligible. In other words, their 125,001st customer costs them £7 million, and on that basis no small niche company in their right mind right now will seek to exceed 125,000 customers. It is a straightforward lock-out disincentive.

Monday’s energy summit did not deal with any of those issues. We were exhorted to switch, which is a good idea, but in those circumstances, and for the reasons that I have outlined, it is of only marginal utility. Logically, one cannot keep switching and saving what is claimed—and anyway, some 80% of customers simply do not switch, leaving the big six energy companies with a huge pool of resources to draw upon in order to outcompete those small entrants on retail tariffs.

As we have heard, tariffs are hopelessly confusing. It would not be beyond the wit of the regulator or the Government to introduce mandatory simple tariffs—a standing charge and a tariff per unit used. I personally favour introducing rising block tariffs, which make lower usage levels even less expensive.

Insulation was dealt with at the summit, where it was stated that 4 million people were to get letters saying that they could get insulation free—on the basis that support from the public finances for insulation measures will disappear in 2013, after which there will be the green deal, which will provide the same insulation, but in exchange for a permanent charge on the property. I am not sure that many members of the public would automatically see that as the good deal that some people suggest.

We must deal with the market. The Government have confirmed that electricity market reform proposals are coming forward, but those proposals do not deal with the way that the market actually works. The Government put all sorts of bells and whistles on the back of the proposals—contracts for difference instead of the renewables obligation, capacity payments and so on—but they do not address the central issue of whether the market works for the future, how transparent it is, and whether other ways of trading would be more fit for purpose in this century.

We need a pool system of 100% auctions on all markets, or a single-buyer stakeholder pool. That will ensure transparency and a level playing field for new entrants and, if coupled with an obligation, will ensure an orderly dispatch of energy between wholesaler and retailer. That is not addressed in electricity market reform, but it is addressed in the Opposition’s motion. It is good to see that the Government have apparently signed up to the idea that there should be a pool, so I anticipate that they will shortly make amendments to the White Paper on electricity market reform in order to bring about a pool as the centrepiece of a new electricity market system.

We need aggressive policies on energy efficiency and insulation. We currently have no idea how the green deal will work. No funding has been identified, and it may not be available in very large quantities for the energy company obligation. On that basis, there is no real prospect of achieving the levels of insulation that we need, combating fuel poverty or pushing down bills.

Environmental measures do not account for a large proportion of bills. Indeed, last year the previous 6% level fell. The Government are stuck in a dilemma. They want the big six to undertake most of the investment of up to £200 billion in new plant and grid renewal that we will need, but unless those companies make big profits they are unlikely to undertake that investment. However, several of the companies are over-borrowed in any case. We need different sources of money to ensure the reality of a transparent and investable future.

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. The wind-ups are to start no later than 6.30 pm.

Summer Adjournment

Debate between Alan Whitehead and Nigel Evans

Tuesday 19th July 2011 Commons Chamber

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Approximately 7.5 million to 8 million tonnes of waste wood is produced every year. It is mostly construction waste, and the greater part—some 80%—is landfilled, which is a far higher proportion than for other waste items. About 1.2 million tonnes is recycled and reused for animal bedding, plywood, fibreboard and so on, but energy is recovered from only about 0.3 million tonnes or 4% of the total. However, according to Eunomia Research & Consulting, a net estimated saving of 1,400 kg of CO₂ per tonne of wood can be made where waste wood is used as fuel for biomass energy. If waste food in landfill was sent to digestion with wood to energy recovery, the joint product would be about 42 TW of energy a year, or getting on for a fifth of our renewable energy target, by 2020.

The benefits of diverting wood and indeed other categories of waste from landfill are clear and straightforward. Despite the strides that have been taken to reduce landfill as a destination for our waste, we still have a long way to go, and for some waste streams, as I have illustrated, almost the whole distance. So how might we get moving on this diversion? There have been suggestions that such wastes should simply be banned from landfill. That is what a number of countries do, and that in itself stimulates substantially the sort of use that I have outlined. That appears to be the Government’s intention, because in the waste review 2011 they stated:

“As a starting point, in 2012 we will consult on whether to introduce a restriction on the landfilling of wood waste…Building on this we will review the case for restrictions on sending other materials to landfill over the course of the Parliament”.

That is encouraging until we recognise that that is exactly where we were in 2009. The 2009 renewable energy strategy stated that the Government would consult later that year on banning certain kinds of material from landfill. In March 2010, the Department for Environment, Food and Rural Affairs did indeed produce such a consultation with a view to banning a number of wastes from landfill. That consultation set out an EU target that by 2020 a minimum of 70% by weight of non-hazardous construction and demolition waste should be prepared for reuse, or should be recycled or recovered. We have a long way to go on that target.

The results of the consultation were “published”—I say that advisedly—in September of last year. Hon. Members will have to work very hard to find them because, astonishingly, they were published straight to DEFRA’s archive, and I am not sure that that counts as publication at all. Fortunately, the Welsh Assembly Government published the responses to their part of the consultation on their website, and hon. Members can access the results there. I suppose that it is not surprising that the consultation responses were smuggled out and filed away so abruptly, because a landfill ban was supported by over two thirds of consultees. However, the Government’s response was that they were

“not minded to introduce landfill bans in England at the present time”

but would reach a view on the best way to ensure waste was dealt with in the most appropriate way as part of the waste policy review that was announced by Secretary of State earlier this year.

Yes, Madam Deputy Speaker, that waste review was under way at the same time as the consultation, following which the Government decided to consult on a landfill ban of wood followed by other waste, with a view to banning them between 2012 and 2015.

If a consultation had taken place, why have another one? And why did the Government say that they were not minded to introduce a landfill ban if they might do so just a few months later? Why hide the results of such a consultation from public view at a time when they were consulting on something very similar? If we really wanted to make progress on such a ban—and I think the case for doing so is overwhelming—would it not be easier to note the consultation results and get on with it? I fear that I am missing something, but I hope that when the Minister responds to the debate he will be able to put me right. At the very least, I hope that he can restore the results of the consultation to the DEFRA website so that we can all see what has transpired, then perhaps get on with it substantially before 2015.

[Mr Deputy Speaker (Mr Nigel Evans)]

I call Chris Kelly—as long as you do not call me Madam Deputy Speaker.