Electricity Market Reform

Baroness Smith of Basildon Excerpts

Tuesday 12th July 2011 Lords Chamber

[Baroness Smith of Basildon]

My Lords, I thank the Minister for repeating the Statement. We welcome the fact that Chris Huhne, the Secretary of State, is seeking to address the matter and agrees with his predecessor on the need for reform. We should recognise that he has come a long way on this issue. He no longer describes nuclear as a “failed technology”, but says that it is an essential part of the UK getting off the “oil hook”, accepting its role as part of the energy mix for energy security. I am still unclear on the Government’s position on subsidy for nuclear. Chris Huhne has mentioned on many occasions that there will be no subsidy, but that seems to be interpreted as no subsidy that is different from that for other low-carbon generation.

In his December Statement, the Secretary of State said:

“We have a once-in-a-generation chance to rebuild our electricity market, rebuild investor confidence and rebuild our power stations … this will be a seismic shift, securing investment in cleaner, greener power and delivering secure, affordable and low-carbon energy for decades to come”.—[Official Report, Commons, 16/12/10; col. 1066.]

We agree that that is what this reform should deliver, although I would have put greater emphasis on affordability. That is why this Statement and the legislation that will follow are so important. If we were to get this wrong now, it would be a missed opportunity and would bind future generations to costly and ineffective measures.

So what do we expect from this reform? First, the consumer must be at the heart of any reform. We have to reconcile the interrelated aims of energy affordability to protect the consumer, decarbonisation to protect the environment, and energy security to protect both the consumer and the economy. The Government have recognised that the current energy market structure will not deliver investment in new low-carbon technology and provide the additional capacity that is needed to meet our carbon reduction targets. We welcome that acceptance, because it is clear that fundamental change is necessary to meet these targets, secure energy supply and encourage investment. We will want to be reassured that these proposals add up to a responsible and realistic package that will deliver those interrelated aims

I regret that, to date, despite our seeking to be very constructive with the Government, we consider that they have fallen short in their stated aim to be the “greenest Government ever”. Every time that one firm announces a price increase, the Secretary of State’s advice is to shop around and change energy supplier. We can do that only so many times as one after another company puts up its prices. For the sake of the economy, business and domestic consumers cannot continue paying ever higher prices.

The Energy and Climate Change Committee in the other place has recommended that any reforms need to be accompanied by,

“sound social policy to protect vulnerable consumers”.

Given that the Government have pulled all government-funded energy efficiency programmes, can the Minister say anything today about how these reforms will help both business and domestic energy consumers with their ever-increasing bills?

The Minister’s comment in the Statement that bills for households and businesses are,

“likely to be lower and less volatile over the period … than if we had left the market as it is”,

really is not good enough. If, as predicted, consumers are going to be asked to pay more to deliver this programme, we need to give them far greater certainty. I ask the Minister and his colleagues to reflect on that.

Another concern is that recent ill-judged government intervention in the energy market has already led to a hiatus in energy investment and uncertainty across all sectors. I do not want to labour the point today as we will debate on Thursday the solar feed-in tariffs fiasco that has destabilised the solar sector and sent shockwaves through other renewable sectors, but there are other issues which have had an impact on investment. Companies, including RWE, are considering pulling out of the UK because of the uncertainty caused by the Government on investment. That has been underlined by the Pew Environment Group’s report showing the UK slumping from fifth to 13th in a global ranking of countries for green investment. Constraints on the green investment bank have led the CBI deputy director-general, John Cridland, to say that the bank,

“certainly won't work if it needs the Treasury's permission to blow its nose”.

The Energy Bill seems to have disappeared into a black hole in the other place; it will not even have its final stages before the recess. To date, the Government’s track record is not as good as we would want it to be. In all our interests, with the White Paper before us today, the Government cannot afford to get this wrong.

As the Minister has acknowledged on many occasions, we want to be supportive, and I always approach these issues constructively. We will support measures that achieve the Government’s stated aims and benefit the consumer and the economy. The Government will want to satisfy some key tests if reform is to work. A new market needs to be greener but also create confidence, clarity and certainty for industry; make room for innovation in emerging energy solutions; provide a good deal for both domestic and business consumers as users and taxpayers; and deliver the necessary investment in the UK energy sector for security of supply.

The document before us today is quite lengthy, as are the associated documents published by the Government. They propose a mixed bag of measures. I am not sure that I yet fully understand how they will work together to give us the policy structure that we need to achieve our objectives.

For example, the Energy and Climate Change Committee in the other place considers that the level at which the emissions performance standard has been set,

“would have no material impact and is therefore pointless”.

Since that report was published, have the Government been able to take note of those concerns and make any adjustments before the final White Paper was published today?

The carbon price floor was introduced by the Budget independently of these proposals. DECC seems now to understand the impact of what is seen as a tax grab on industry, thereby potentially exporting businesses and their emissions overseas. What action will the Government take to ensure that this does not disadvantage British business, and what discussions on these issues has the Minister had with organisations representing intensive energy users in industry in the UK?

I certainly welcome the Government’s acceptance that their message that low-carbon electricity is a key part of our future energy mix has not been clear enough and that action will be taken to remedy this. I look forward to further announcements on the detail. As he will appreciate, the renewables road map, to which he referred, can work only if investors can have confidence in the Government’s ambitions.

The detail in the Government’s plans regarding the ongoing consultation on the capacity mechanism and the contract for difference will be crucial. These are complex issues and the devil will be in the detail.

The transitional arrangements to ensure that there is no hiatus in investments while this new system is set up are welcome, but, as I have already said to the Minister, there is a hiatus now and transitional arrangements are urgently needed to restore confidence in the market. Perhaps the Minister could say something about the timing of the transitional arrangements. That would be very helpful.

Our existing “big six” energy companies will undoubtedly need to help to provide our new energy generation, but we need to free up the suffocating oligopoly which stifles real competition from new energy investors. Today’s announcement and publication of the documents is welcome and part of an ongoing process. However, to identify the problems is easy—we have discussed them in your Lordships’ House and the other place on many occasions—but the challenge is to meet the objectives. We will continue to play our part in that.