Baroness Liddell of Coatdyke
Main Page: Baroness Liddell of Coatdyke (Labour - Life peer)Energy Bill
Baroness Liddell of Coatdyke Excerpts
Baroness Liddell of Coatdyke
My Lords, I am delighted to have this opportunity to follow the noble Lords, Lord Roper and Lord Cameron, because I, too, lent my name to the amendment. I draw attention to my entry in the register of interests and apologise for my croakiness. It will have one advantage: I will be brief.
I am delighted that the Government have tabled broadly similar amendments but I am very concerned about their tentative nature. I started out by being concerned about the backstop and how it would operate because the reality is that at the point at which the backstop kicks in, you are already at the 11th hour. If I may mix my metaphors, it is like saying to someone who is standing on at the edge of a crumbling cliff, “Don’t worry if you fall off; the RAF has a very good search and rescue operation”. It is very troubling that there is no recognition of the stage at which a company or project would be when the backstop was applied. I am delighted that someone as eminent and knowledgeable as the noble Lord, Lord Roper, found the Baringa report a bit impenetrable; I found it totally impenetrable. One of our main problems is that no one is certain about how this will work.
I am slightly jealous of the Minister because this is a classic situation in which a Minister could bring common sense through the middle. The Bill has been about two years in gestation—it has the gestation of an elephant—and we are still at a stage where we do not have the kind of clarity that, frankly, the funding market really needs. There is a fantastic opportunity over the summer for the noble Baroness, with her officials, to go through some rigorous testing of what is proposed here. There is no doubt that we will come back to this on Report because when cold towels are wrapped around heads there will be recognition that we need to go beyond the theoretical and look at the practical. If there is one warning from how the market has operated so far, it is the current attitude of the financiers, the investors.
As the noble Baroness said, when we were discussing Amendment 53BB, no one is blessed with perfect foresight and energy markets are wonderful at knocking people sideways. Things happen off stage that disrupt the functioning of energy markets. That makes it all the more essential to have a degree of flexibility. I can understand why the department has relied so heavily on the big six because they are the big operators in the field, but they are not entrepreneurs. We had an interesting side debate the other day about capitalism. What we are talking about here is entrepreneurialism on the part of the independent generators.
If noble Lords cast their minds back, it was interesting to hear what the noble Lord, Lord Deighton, said at the Dispatch Box during Question Time on Tuesday about infrastructure development. He referred to how important renewable energy, particularly offshore renewable energy, would be in helping our investment in infrastructure to move ahead. Yet these independent generators are the very people who are coming along and saying, “Hold on a minute; we don’t have the certainty to invest”. I get the impression that some people, when they are looking at the scale of these investments, think that we are talking about something that will cost £200,000 or even £2 million. There is a project in Edinburgh that could supply sufficient energy for all of Edinburgh and Fife. Its cost is somewhere in the region of £1.3 billion—not small fry. You could buy a very big part of an aircraft carrier for that; you might even be able to buy some planes to fly on it. That project, Neart Na Gaoithe—I am glad that the noble Earl, Lord Caithness, is not here, because I suspect that he is a native Gaelic speaker, which I am not—is in the market at present. This is not a model that we are looking at here; this is men and women out knocking on investors’ doors now and having difficulty in raising money. I ask the Minister, during the summer, when she has had the opportunity to have a good break, to take the chance to jump over the lobbyists and talk to the companies that are investing and experiencing considerable difficulties.
Amendment 55AC refers to the green power auction market. Like the noble Lord, Lord Cameron, I am more attracted to that than I am to the idea of the backstop. It is strange for someone sitting on this side of the Committee to be saying, “I am in favour of a fully operating marketplace”, as distinct from those on the other side, where they are talking about market manipulation. I think GPAM would be a clearer way in which to operate but, frankly, I would settle for anything that gives us the certainty in the marketplace that those involved in these investments very much desire.
There is no doubt that we will come back to this. I very much look forward to hearing the Minister say, on returning to us in the coolness of the autumn, “We’ve worked out how this is going to work—this is how we’re going to change it”. The downside is that we have about three months to go and there are investors out there having difficulty raising money. That is the thin end of the wedge and that is what we should be thinking about.
Lord Deben
My Lords, we may have noticed that there is a good deal of support on both sides for what the Government are trying to do. I hope that my noble friend the Minister has noticed the tone in which these discussions have been carried through. We would like to be convinced, and we are unconvinced only because these measures are quite difficult to understand. The document that I have here is not for bedtime reading, unless you wish to give up on the Mogadon, because it is very complex.
One thing in the Climate Change Act that the climate change committee is supposed to do is to ensure that the public understands what it is doing. I do not think that that is a bad thing to have at the back of one’s mind. I just hope that I do not have to stand on a platform at this moment and explain in simple terms what is in here. I suspect that my noble friend the Minister would agree that that is not the most comfortable place in government just at this moment. It is not because there are things that are necessarily wrong with it, but there are extremely complicated things in it, and we want to make sure that it is as good as it can be. That is my first point.
On the amendments, I remind noble Lords that this is no small matter. Electricity from renewables increased last year by 19%, which is pretty remarkable; it is 11.3% of the total. We are not talking about some tiny little thing, which is what the climate change dismissers are always saying. This is no longer a gleam in the eye of Greenpeace; it is a central part of what we are seeking to do. Therefore, we have to recognise that enabling the elbow room for the renewables sector is very important. The Government have recognised that and, on all sides, people have said that the government amendments do extremely well.
I want to put three simple propositions to my noble friend. First, it is instinctively difficult for free marketeers such as me to be entirely keen on a system where the Government are fixing almost every element of the process. I recognise that it may be necessary—and, indeed, if it is necessary, I shall be the first to defend it. But I think that she understands why one starts by being a little concerned about that.
Secondly, we need a convincing explanation of why some kind of auction is not part of the set up. It has been shown around the world that the one way in which you get lower prices is through a descending auction. There is no doubt about that. The advantage of that is that it does have that effect. From what happened in Brazil it is clear—it is not that it has not been tried and found wanting; it has been tried and it works—that you can bring prices down if you operate in that way.
It gives huge confidence to the public because, instead of the Government having to explain in the context of a document such as this why they have delivered this, that or the other, they are able to say to the market, “Look, the price has been fixed at the lowest figure we can see working”. There is a real issue of communication here and a need to explain why—apart from the unconvincing pushing aside in the other place when Ministers said it would be very expensive and complicated. I was a Minister for 16 years and I knew that any civil servant who said we could not do something because it was expensive and complicated had not worked it out. That mechanism is always used; it is the technique. I look with care at those behind my noble friend. An issue may be complicated but you might be able to make it simple, but the idea that it is expensive I have never seen proved in any independent area. I would like to be 100% on the side of the Government on this but the whole concept of a competitive system based upon some kind of auction is so valuable that we should not lose it.
Thirdly, the worst kind of debates in the other place, and even more so in your Lordships’ House, are about what it means rather than about what should be done. My worry in this area is that if we get to the Floor of the House and spend our time trying to work out what it means, we will probably get it entirely wrong. It would be valuable if the Government could clear that bit out.
The noble Baroness, Lady Liddell, and I have not always agreed on matters over the years but at least on this we can be at one. We want to arrive in October with a clear view of what is being proposed and what its ramifications are so that if we do not agree with it at least we are talking about the same thing. I fear that if we argued about it now we would be arguing about something that was different in the mind of every Member of the Committee. After all, we have chosen to try to understand these things rather more than the generality. I hope my noble friend will treat the amendment with that kind of approach, rather than saying, “It does not quite work in this way or that way”.
Baroness Worthington
I thank the noble Lord for his timely intervention. I could not agree more. It is a shame that those statistics were not trumpeted more. We would all feel very proud that that happened at a time when the rest of the economy was not doing so well. It was not just that there was good growth in that sector but it positively affected our balance of trade. There are very few sectors in which we can say we have a positive balance of trade with China, but in this sector we can. As the noble Lord alluded to, the global average rate of growth in this sector was only 4%, while we were at 4.8%. Tiny nation though we are, our growth in this sector is outstripping much larger nations. We are up in the top six countries in this sector. I am sorry that I am waxing lyrical slightly here but it is important. We are a nation of innovation and entrepreneurial spirit. We were the country that brought the Industrial Revolution to the world; let us not forget that. Let us hope that we will remain at the forefront of this industrial revolution. I know that that sounds like a grand introduction but it is pertinent to this part of the Bill. We really need to make sure that this sector is protected and that no unintended consequences are meted out to it as a result of the Bill.
Why is there an issue? It is probably fair to say that it was already emerging. The renewables obligation has been a good policy that has driven a lot of investment, but we were already hearing that independent generators were finding it difficult to secure power purchase agreements. At the heart of this issue is the problem, alluded to many times throughout our deliberations in Committee, of the vertical integration of the big six. There is no liquid, open competition in generation. We have an oligopolistic system of six vertically integrated companies that dominate. It will come as no surprise that on this side of the House we believe that the time has come to address that. We would have preferred to see genuine market reforms that required the selling of power into a competitive pool, which would be good for competition, liquidity, the independent generators and the consumer. We know that the Government are not yet there but we hope they will join us soon.
It is true that the Bill helps to make the case even stronger for splitting apart that vertical integration because we are moving into a system of contracts for difference. We are moving away from the arguments in favour of vertical integration, which are that you need it to secure finance and build new capacity, but when you have a CFD the argument is, by and large, weakened. There is also a big intervention in the capacity mechanism. The time is therefore coming, if not now then very soon, for the issue to be properly addressed.
I want to say a word about Amendment 55AGA, to which the noble Lord, Lord Roper, has spoken. These proposals, though welcome, come quite late in the day. As has been mentioned, we have known about this problem for two years and yet here we are addressing the issue on the eighth day in Committee and on the final stretch. I think it was the noble Lord, Lord Jenkin, who said that it feels as though we are making things up as we go along. I would not say that it was as bad as that but it does feel as though these measures have been considered quite hastily. Making this a negative resolution risks the ire of the Delegated Powers Committee, which has not yet had a chance to consider it, and we strongly urge acceptance of Amendment 55AGA in order that we may properly scrutinise this complex and rather late addition to the Bill.
I should have said at the start that I want to pay tribute to my colleague, Alan Whitehead, in the Commons, who helped raise this issue. I apologise on behalf of my noble friend Lord Grantchester, who was going to speak to the amendment. He cannot be in his place today but he wishes us every speed.
I have explained why there is an issue and, in the spirit of collaboration and seeking to make the Bill as strong as possible, I should perhaps now explain what I think the solutions are. First, we know that the industry wants to find a resolution to this issue. It is very keen to work with the Government and would like to have proper consultation with the department. It has been mentioned to us that the organised consultation process was slightly opaque. I know that five of the renewables trade associations, as a group, have written to the department requesting more clarity in the consultation process around the detail of these provisions. They are worried about communications not being consistent and they are worried about the timelines. They need reassurances from the department and a clearer process of involvement.
Further to the point made by the noble Baroness, Lady Liddell, this should also include investors, who are absolutely at the heart of the issue. Clause 44 is about facilitating investment and not about liquidity, which is dealt with in Clause 43. It is very important that the consultation process fully involves the investors who will be necessary to get these projects under way.
I have not spoken about the GPAM alternative. I am not sufficiently across the details to know whether the GPAM is a better option than the backstop power but the wording of the government amendment limits the options. At the moment, Clause 44 gives a broad power to do what is necessary. The government amendments would remove that flexibility and narrow it down to the PPA. The PPA may be the right answer but I am not certain that that narrowing down is a good idea. I have been critical of the breadth of some of the powers but in this case, given that it is still in development and that consultation is necessary, I urge the Government to keep open the option of making a different type of intervention if necessary. That would tweak the government amendment. It is important that we do not put all our eggs in a basket that is still being made when we are not quite sure whether it will work.
The industry itself can find solutions. The big six are obviously dominant but there are other players such as independent suppliers who can give PPAs. Unfortunately, the creditworthiness of those suppliers is an issue.
Baroness Liddell of Coatdyke
My noble friend is right to draw attention to the fact that there are a range of different institutions that one can talk to. For some of us, one of the easiest things to do would be to have a cup of tea with the noble Baroness, Lady Armstrong, who until two weeks ago was the chairman of a community energy company that has just fallen off the cliff because of the attitude of a major generator. She, of all people, can tell us the view of the independent generators about this period of uncertainty, which is having an impact on people even as we speak. It is a small pro bono operation that has been jeopardised by the attitude of a major generator.
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.