Energy Price Freeze

Andrew Gwynne Excerpts

Wednesday 6th November 2013 Commons Chamber

[Caroline Flint]

For the past month we have seen the Secretary of State and members of the Government standing up for the big six—[Hon. Members: “The big seven.”] —the big seven, rather than standing up for the consumers and businesses of this country, which are being ripped off. If we want a secure future in which investment can come forward, we need a little less bickering on the Government Benches about green levies and less fighting against what consumers want.

[Andrew Gwynne (Denton and Reddish) (Lab)]

My right hon. Friend is right to debunk the myth about investment. Is she aware that under this Government we have dropped to seventh in the world in investment in clean energy technology?

[Caroline Flint]

Absolutely. Investment has halved from £7 billion to just over £3 billion. It is a shame that the consensus that we created in government has not been held together because of the fractious relationships on the Government Benches.

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[Caroline Flint]

I am not going to give way.

The reason that is needed is simple: the public have been overcharged. Figures we published yesterday revealed a large and growing gap between the costs that energy companies have paid on the wholesale market and the prices they have charged their customers. They confirm what the chief executive of Ovo said the week before last when he noted that wholesale prices had been broadly flat over the last two years and that companies could be facing higher wholesale costs only if they had bought energy from themselves and above the market price.

Those figures, which have been audited by the House of Commons Library, also confirm that the mark-up cannot be explained by any of the other excuses we keep hearing from the companies when they raise prices, be they network charges or policy costs, because more than half the increase in bills has gone straight to the energy companies, either in the form of higher profits or to pay for inefficiencies in their businesses.

[Andrew Gwynne]

My right hon. Friend will also be aware of the information Ofgem published this week showing that wholesale prices have increased by just 1.7%, while the average bill has increased by more than 9%. Is not that why Labour is absolutely right to call for a price freeze?

[Caroline Flint]

My hon. Friend is absolutely right. There is a growing chorus of voices saying that something is wrong in the market and in what we are being told about rising costs leading companies to increase bills. It just does not add up. Research by the Institute for Public Policy Research has shown that efficiency savings alone could knock £70 off the average bill. To correct the overcharging that has happened in the past and give consumers some badly needed respite for the future, we propose to freeze prices for 20 months.

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[Mr Davey]

No, I am not giving way.

Ofgem has looked at whether or not it should mandate 100%. It will ensure that there are new reporting requirements so it can check what is happening. It will say that, if the number does not improve and stays as it is, it will intervene. It is not intervening now—the right hon. Lady will not know this because she has not read the document—because the independent generators have not asked for it to do so. The independent generators say that the day-ahead market is not the problem for competition and that the day-ahead market is not the market in which there is room to drive down prices. They say that the problem is the forward markets—the month-ahead, six months-ahead, year-ahead and the two years-ahead markets.

[Andrew Gwynne]

Will the Secretary of State give way?

[Mr Davey]

No, I will not give way. I want to explain to the House why the document is so important, and why Ofgem’s policies, which the Government support—we have put reserve powers in the Energy Bill to push them through—are so important for competition and pushing prices down for consumers.

Independent generators need to know who will buy their electricity. The right hon. Lady is right that the big six can sell it to themselves, but independent generators cannot do so—they must sell it to someone else. That is a big risk for the independent generators, and they need to be able to cover it. Primarily, they do so at the moment through purchase power agreements or through bilateral trades, which are used mainly when selling to businesses. However, they say that they cannot guarantee those, so they must spend more, and that their capital costs increase because of those risks.

Independent generators face another risk. The question is not only whether they can sell energy, but whether they can buy it. If they have a contractual power purchase agreement and their generation capacity is not working for a particular month and they are unable to supply, they fail their contract. To be able to enter more contracts and expand their businesses, they therefore need to know that they can buy energy in the wholesale markets if their generating capacity is not working.

It is therefore essential that we have a liquid market for four months, six months and 24 months ahead. Guess what? The previous Government did nothing to enable that competition in generating markets. Interestingly, the policies the Opposition have proposed today will also do nothing about the real problem. The description that the right hon. Lady gave of her policies proves that point. If she had read the document, she would have seen on page 8 the analysis by Ofgem—working on all the contributions from the independent suppliers and all the people in the industry—is that the problem she has identified is no longer a problem. It has marked that problem “green”. The problems that we have identified, which we and Ofgem are fixing, are all marked “red”. She really needs to do her homework. There is no point the official Opposition coming to this House with ill-thought-through policies that will not work. Our policies will work for the consumer, push competition into the market and get prices down.

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[Andrew Gwynne]

In the Secretary of State’s wibbly-wobbly world, it sounds as though everything in the energy market is working perfectly well. Does he therefore agree with the chief executive of Centrica that a daily profit of £7.4 million is a modest return?

[Mr Davey]

Let me put it on the record that it is important that our energy companies make profits. I think we need reasonable profits for people to invest. I also know why it is important that companies make profits: the right hon. Lady agreed with me when I asked her, last time we debated this. I asked her whether energy companies should make profits and she agreed.