Baroness Verma
Main Page: Baroness Verma (Conservative - Life peer)
Baroness Worthington
I think that we are all quite relieved to have reached our last day in Committee on the Energy Bill. I would like to thank everyone who has contributed to our debates, and I thank the Minister for her responses and for all her correspondence, which has been very useful.
Amendment 55ALA is designed to provide an opportunity to discuss an element of the Bill which has not had much attention so far, and that is the financial investment enabling investment contracts. Our amendment would provide a sunset clause to this aspect of the Bill such that it would no longer be part of the mix of policy two years following the legislation being given Royal Assent. We have tabled this as a probing amendment because we wanted to give the Minister an opportunity to provide some background information and clarity on the thinking behind the investment contracts element. When the draft Bill emerged, it was clear that quite a high degree of emphasis was being placed on a provision to enable the Secretary of State to enter into contracts for difference with investors ahead of all the detail of the Bill being worked through. The most significant difference is that this would be a contract between the Secretary of State and a party who wished to develop low-carbon electricity, not an enabling counterbody. The rationale was that such a counterbody would not be in existence, so it would be a direct contract with the Secretary of State.
It is fair to say that there has been considerable interest in these FID-enabling contracts. We were grateful to receive information from the department about the number of applications that have been submitted to date in relation to this element of the Bill, which now total 57. I note that that is just the number of applications that have come from renewable energy. The table we have been given does not indicate the level of interest that has been expressed by CCS or nuclear. Obviously the FID-enabling process is there for all technologies and yet the supporting literature and table show that while we have a lot of information about the renewables aspect, very little is supplied in relation to the other two major categories of low-carbon electricity. Can the Minister provide a bit of background information in relation to those nuclear and CCS projects which may have expressed an interest? Have there been any? If so, how many, and at what level of gigawatts? That information would be very useful and it is pertinent to the discussions around investment contracts.
It was my understanding that the FID-enabling contracts were necessary in order to prevent a hiatus in investment, but that is the least of the problems with regard to the renewables. Renewables have an existing support mechanism and we have already discussed in Committee the transitional arrangements that are in place for that. We have some concerns, but in general there is a transfer and crossover period for renewables that is clear. However, CCS and nuclear will be embarking on a completely new policy of support; I would have thought that those are the projects which need early sight of and access to the contracts, yet we are not being given much detail at all. That strikes me as odd. Perhaps the Minister can give the Committee an update on where we are in relation to being able to arrive at strike prices for those two technologies. It is important that the strike prices are subject to parliamentary scrutiny. We have been given an awful lot of information about renewables, but not about the other two technologies.
It will be increasingly important to treat these three diverse groups of technologies as similarly as we can, given that that is how we will be able to argue that our measures are subject to competition and to comparisons that will enable the least cost and the most sensible decisions. I am sure that that will be of great interest to state aid discussions. One of the main rationales for EMR intervention in the first place was that we were seeking to treat low-carbon electricity providers equally, yet still we seem to be proceeding in a fairly unequal way, with renewables being treated separately from CCS and nuclear. There is a great dearth of information on CCS and nuclear.
The state aid question is important, of course, for this section of the Bill. The rationale is that these investment contracts can be signed. I note with interest that the latest investment contract allocation update from the department says that they will not be signed until March 2014. Previous timetables implied that that would happen in autumn this year and that they would be subject still to state aid clearance. I struggle to see how this whole jigsaw will fit together. How will the investment contracts be able to be assessed for state aid if the remainder of the Bill is not yet worked through? Is it realistic to think that by March 2014 the Secretary of State will enter into contracts before the Bill has been approved or signed off in its detail?
As I have said, this is a probing amendment. It is specifically designed to try to elucidate more information in relation to these contracts. I note that it seems to have gone very quiet on the negotiating front with EDF. I saw today that in a 17-page press release, EDF found no space to mention Hinkley Point in the update on its results. I do not want to be overly pessimistic; however, if this is a really serious negotiation that is of material interest to its investors and people interested in its company, it seems odd that there was no mention of Hinkley Point. Perhaps I may end by asking that we have as much of an update as the Minister is allowed to give on that process of negotiation and when we might have more transparency around its terms. I beg to move.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I thank the noble Baroness, Lady Worthington, for these amendments, which seek to time limit the provisions on investment contracts. Amendment 55ALA would time limit the provisions in Schedule 2 to the Bill, which relate to investment contracts, to two years following enactment.
The investment contract provisions in the Bill are already time-limited. The Secretary of State can only enter into investment contracts on or before 31 December 2015. However, the remaining provisions set out in Schedule 2 cannot be time-limited, as they provide the Secretary of State with the necessary powers to administer and make payments under investment contracts in the unlikely event that the enduring EMR regime is substantially delayed or does not come into force at all. In the main, the powers mirror those in Chapter 2 of the Bill on contracts for difference.
If payments had to be made under an investment contract, it is likely that they would need to be made for considerably longer than two years, potentially for the duration of the contract. The effect of time-limiting the investment contract provisions through this amendment would be that developers would not have the confidence to take final investment decisions on much needed low-carbon generation projects that might otherwise be delayed or cancelled, as there would no longer be a means to make payments under the contracts. The amendment would therefore negate the purpose of these powers and risk creating the investment hiatus that they are intended to address.
Amendment 55ALC seeks to amend the powers relating to varied investment contracts. A varied investment contract will, in the opinion of the Secretary of State, materially increase the likely cost to consumers of electricity. To ensure transparency, the Bill requires that varied investment contracts are laid before Parliament together with a statement explaining why the variation is appropriate, having regard to the likely cost to consumers.
This amendment would require that varied investment contracts could be laid before Parliament only up to 31 December 2015. There would, therefore, be no possibility to make amendments pursuant to this provision after this date. While it is not the Government’s policy intention to reopen investment contracts for further negotiation once they are agreed, this clause provides for useful flexibility should it be necessary—for example to comply, as the noble Baroness rightly points out, with state aid rules.
Before I ask the noble Baroness to withdraw her amendment, I would like to respond to her question on the number of CCS and nuclear final investment decision applications. Apart from the renewable developers, we are in discussions on the potential investment contract for Hinkley Point C which, if agreed, will build a 3.2 gigawatt nuclear power plant. As the noble Baroness is aware, these hugely sensitive negotiations are ongoing and it would be imprudent of me to go further than that. I can say that, while it may have gone quiet out there, we are currently in very close discussions. A number of CCS developers have approached the department for FID arrangements.
The noble Baroness asked about the timetable changing from autumn 2013 to March 2014. That is because we are using the final strike prices and final contract terms instead of draft pricing and draft terms.
Baroness Worthington
It is helpful to know that there are a number of CCS projects, but a precise number would be even more so if that could be forthcoming in a letter. If the timing is moving in order to have final strike prices, when will we be able to have any commentary on the strike prices for nuclear and CCS? We have nothing. This has to be bounded within a range: there is not an infinite amount of money that can be spent and there has to be a lower limit. Why can we not at least have a range to understand and consider in relation to those two technologies?
Baroness Verma
I accept that the noble Baroness is keen to get the range. I am not in a position to offer that comfort to her at this point but I will take away her question and hope to illuminate the Committee with a fuller, written response. The negotiations on the agreed strike price are very sensitive and I therefore need to go back to the department to see what I can offer to further inform the Committee. Given my reassurances on writing to the noble Baroness on outstanding questions, I hope that she will withdraw her amendment.
Baroness Worthington
My Lords, I am grateful for that response and welcome the Minister’s offer to write with further details. I accept that negotiation is sensitive but at what point does the interest of negotiating with one company override the very real interest of the wider public, the entire sector and all the consumers who will be paying for the outcome of that negotiation? It is odd that, in everything else, the department has provided very welcome levels of detail and yet there is such a degree of silence in this area that it makes people unnecessarily suspicious. There should be no one negotiation that is so sensitive and so overridingly important that we are unable to have a discussion about it. That is skewing things unnecessarily. Let us try and get these technologies on an even keel, get through state aid and move forward. One negotiation should not require this degree of special treatment.
I look forward very much to the Minister’s letter and, on that basis, I am happy to withdraw the amendment.
Lord Whitty
My Lords, Amendment 55ALB is largely an attempt to get greater clarity than we got on, I think, the second day in Committee about the way in which the Bill as a whole applies to Northern Ireland. There is also the particular question of why Northern Ireland is referred to here in relation to investment contracts with the Northern Ireland generator, and whether that actually means generation in Northern Ireland into Great Britain. At the moment, the whole balance of interconnection is into Northern Ireland, with both the gas pipeline and the electricity line, and there is a separate issue between Northern Ireland and the Republic.
As I have said before, Northern Ireland has a very different energy market structure. It has a dominant supplier and a different systems operator, which is in part owned by interests in the Irish Republic. There is a wholesale electricity market that is jointly operated with the Irish Republic. The consumer regulator works on very different precepts than Ofgem, in that it is still, essentially, a price-regulation process. Finally, of course, consumers there face different problems and higher prices. I suppose I should declare a slight interest and an affinity in that I have done some work for the Consumer Council in Northern Ireland.
I have never quite understood how contracts for difference apply in Northern Ireland within that structure. I can see that capacity payments might apply, because the history relates to what they used to call availability contracts in Northern Ireland and the island of Ireland as a whole, which were quite expensive to consumers and business in Northern Ireland. However, I do not really see how investment contracts apply in Northern Ireland, particularly if they are ongoing—in reply to my noble friend just now, we are not in favour of putting an end date on the period in which investment contracts are issued. Rather than go into vast detail on this last day in Committee, I simply ask whether the Minister could contrive with her department, possibly in conjunction with DETI in Northern Ireland, to produce a paper that would indicate to us, before we reach Report, just how this operates in Northern Ireland. I am still bemused and suspect that those who have even less familiarity with the situation in Northern Ireland are even more bemused. There are references to Northern Ireland all the way through the Bill.
There is one other particular point in this amendment, which was raised, if I remember rightly, by the noble Earl, Lord Caithness, in an earlier debate. There are references to the department rather than to the Minister, whereas for the other devolved Administrations, there are references to the Minister. That sounded on the face of it to be a bit of a hangover from direct rule, and an explanation would be helpful on that front. Northern Ireland is distinct from Scotland and Wales in this regard because energy is a devolved matter in Northern Ireland. However, this provision appears, in one sense, to provide for the possibility—not necessarily the absolute certainty—of the schemes that we are devolving in vast detail for Great Britain being applied in Northern Ireland. If it only relates to the possibility of Northern Ireland supplying some electricity into the GB grid, that is a slightly different and probably unlikely matter. The Minister can probably answer this point fairly succinctly. If she is prepared to let me have a note over the summer that could be circulated to the other Members of the Committee, explaining how this applies to Northern Ireland—one which she has agreed with her Northern Ireland counterpart—I will say no more about it. I beg to move.
Baroness Verma
My Lords, I again thank the noble Lord, Lord Whitty, for his amendment, which would require investment contracts relating to electricity generation stations in Northern Ireland to be entered into jointly with the Minister for Enterprise, Trade and Investment. Instead, the Bill currently provides for a contract to be entered into with the consent of the Department for Enterprise, Trade and Investment. For the information of the Committee, I will lay out our position and then try to respond to the noble Lord’s questions.
The amendment would add the Minister for Enterprise, Trade and Investment as a party to the contract, but it would not confer the powers in Schedule 2 relating to administration and payments under the contract, which apply only to the Secretary of State. This would create serious practical difficulties in administering the contract.
It is not clear from the amendment as drafted what obligations or liabilities the Minister for Enterprise, Trade and Investment would have under the investment contract. Furthermore, there is no power currently in the Bill that would allow the Northern Irish Minister to transfer the investment contract to the CFD counterparty once that is established, as we envisage will happen for all investment contracts. It is difficult to see how this would work in a tripartite arrangement given the current powers.
The Secretary of State’s powers in Schedule 2 extend to Northern Ireland to ensure payments can be made to electricity generation stations in Northern Ireland. This position has been agreed with the Northern Ireland Executive, and the Northern Ireland Assembly passed a legislative consent Motion on 12 February to enable the UK Parliament to legislate to provide the Secretary of State with these functions.
I reassure the noble Lord that gaining the consent of the Department for Enterprise, Trade and Investment will include gaining the consent of its Minister. The Minister will therefore need to give consent to any investment contract relating to generation in Northern Ireland.
The noble Lord asked how CFDs would apply in Northern Ireland. UK and Northern Ireland Ministers agree that the preferred approach is a UK-wide one with an associated institutional framework. We are working closely with the Northern Ireland Executive to design the application of the FIT-CFD for the whole of the UK. UK Ministers will set FIT-CFD strike prices in Northern Ireland in conjunction with Northern Ireland Ministers and the cost of support will be socialised across the UK. However, Northern Ireland Ministers will maintain the right to set Northern Ireland-only strike prices for CFDs, if required.
I hope the noble Lord is reassured that we are giving an important role to the Department for Enterprise, Trade and Investment in relation to investment contracts in Northern Ireland. Given that reassurance, I hope that he will agree to withdraw his amendment. He asked me to write to him on a question he raised to which I do not have the answer at the moment. I will look at Hansard carefully to ensure that I have given him and the Committee a response to points raised earlier in the debate on his amendment.
Lord Whitty
My Lords, I thank the Minister for those comments and look forward to receiving a letter from her. However, what I am really looking for is something which explains how we envisage CFDs applying in the very different market in Northern Ireland in the same way as they apply in the market in Great Britain. I am sure that all the political niceties have been followed but I still do not see how the pattern is replicated within Northern Ireland. I can see that it can be replicated in terms of the possibility of Northern Ireland supplying energy to the GB grid, but that is a separate matter. Given all the complications of the very different Northern Ireland structure, including the all-Ireland complications, I still find it difficult to see how this measure applies. Therefore, something a bit more than a letter will probably be needed to convince the Northern Ireland authorities that they should go down this road. There must be something which sets out how the measure applies within Northern Ireland, even if it is a fairly technical background note which hardly anybody understands, or hardly anybody over here understands. Other documents of that nature have been floating around. It would be useful to have it in our hands before we return to this point.
On the question of the Minister for the Department of Energy and Climate Change, I understand what the Minister said and I will not press that point. It just looks slightly odd when we refer to Scottish and Welsh Ministers but to Northern Ireland departments. Again, that is a presentational matter, which perhaps the Minister will have another look at. It is not central to my question, which is: how do these three new forms of supply contract apply in a very different market? For example, is there to be a separate counterparty, or is it the same counterparty we are talking about? If it is the same counterparty organisation, how does that relate to Northern Ireland’s devolved responsibilities and to that of the Ministers there?
I think I have probably said enough to give somebody a couple of months for a few communications between Belfast and Whitehall to perhaps set this out in ways that I and other Members of the Committee will be able to understand. With that, I beg leave to withdraw the amendment.
Baroness Verma
My Lords, I thank the noble Lord, Lord Whitty, for his amendment. The Government are fully committed to ensuring transparency of investment contracts. The existing provisions are clear that in order for a contract to become an investment contract it must be laid before Parliament and published in order to benefit from the powers in the Bill. In addition to the contract itself, the Bill requires that the Secretary of State makes a Statement to Parliament that he considers that the contract would encourage low-carbon generation; and that without the contract, there is a significant risk that the electricity generation would not be built or would be significantly delayed. The Statement must also summarise the regard that the Secretary of State has had to the impact on energy security, decarbonisation, affordability and the renewables directive targets.
For the Hinkley Point C investment contract, the Government have already committed to publishing a summary of the reports from external advisers and the value-for-money appraisal of any contract agreed. With these provisions, we are trying to achieve a delicate balancing act between making available as much information about the contract as possible, while at the same time allowing commercially sensitive information to be withheld from publication. It would not be appropriate to publish this information if it would risk significantly damaging the developer’s commercial interests. However, it is crucial that the developer can provide such information to enable us to be confident that the contract represents good value for money for the consumer.
I believe that the current wording of the Bill strikes this balance appropriately. The information that can be withheld from publication, as the noble Lord said, is information that is a trade secret, would prejudice a person’s commercial interests and would constitute a breach of confidence. The key commercial information—the strike price and the reference price—cannot be withheld from publication. While the Bill was being discussed in the other place, the Government identified two areas where we are able to further improve transparency of investment contracts.
First, we decided that alongside the investment contract that is laid before Parliament, the Government will also publish a description of the information that has been withheld, and the reason for doing so. Secondly, we removed the Secretary of State’s discretion to withhold information from the contract after it has been agreed but before it has been laid before Parliament. This means that any confidential information will have to be clearly identified as such during contract development, and there is no further discretion to withhold information once the contract is concluded. These commitments and legislative improvements ensure that there will be transparency in investment contracts, and that only the most sensitive information will be withheld from publication.
The noble Lord, Lord Whitty, asked why the Government resisted amendments to the Bill to restrict the definition of confidential information to information that is a trade secret. The Government’s intention is to publish as much information on investment contracts as possible. As I have already laid out, the extra things that we committed to after the Commons Report stage have now been put into the Bill. I hope that the noble Lord is reassured by the explanation that I have given and will withdraw the amendment.
Lord Whitty
My Lords, I am reassured only to a limited extent. I thank the Minister particularly for her reference to the fact that one has to identify what is going to be commercially confidential early in the process and that one cannot change that at a later stage. That was a reflection of a discussion in the Commons.
However, it still seems to me that sub-paragraphs (3)(c) and (3)(d) are expressed in extremely wide terms and I am still not clear what would constitute a problem not already covered by trade secrets, particularly under sub-paragraph (3)(c). Without being a total conspiracy theorist, one must recognise what lies behind the anxiety here. I shall have to choose my words carefully because, as the noble Baroness has said, we are in negotiations over one nuclear contract. However, people believe, particularly in relation to nuclear power, that historically things have been agreed by Governments over and above what has been disclosed publicly. Some of that is related to state security but some is related to regulation planning permission and other payments. In other words, there is a suspicion that in order to gain a commitment for a contract for difference it is conceivable that the strike price is not the only commitment that the Government make and that there may be other commitments. If that were to be a suspicion which the Government would find it difficult to counter, they could find themselves in a difficult public relations situation further down the line.
I hope that I am being overparanoid but, believe me, there are other people who are far more paranoid than me, not least in the media, and it will be important that Government are seen to be squeaky clean regarding these contracts.
Baroness Verma
My Lords, perhaps I may try to further reassure the noble Lord that the reason why certain parts of the information will be trade secrets is, for example, when allowing the future actions of a company, such as in relation to a potential financing structure. Basically, this relates to future financing—issues such as those are always commercially sensitive—rather than anything else.
Lord Whitty
I understand that, and it would be possible to express those provisions in slightly narrower terms than the exclusions in the Bill. I shall leave it there. It is a warning that this could be a danger for the Government and for those who want to see some contracts for difference signed, particularly in the nuclear industry. If there is any feeling that something has not been disclosed, future Governments may well suffer from it. I thank the Minister for the reassurances that she has given. Before the end of the process, the Government should make a few more but, for the moment, I beg leave to withdraw the amendment.
Lord Roper
My Lords, I support the noble Lord, Lord Grantchester, on this amendment. I believe that we have a responsibility on behalf of the House to follow the report of our Delegated Powers Committee. Although I was in some ways disappointed, in other ways I was relieved when I saw in the Forthcoming Business published this morning that we will not be reaching Report stage in the first three weeks after the Recess. That will give the Government time to have these regulations published and for the House to examine them carefully. I was worried that we would get them just before we came back without a proper opportunity for discussion. I would be very grateful to have reassurance from the Minister that the regulations will be available in good time for Report.
Baroness Verma
My Lords, I thank the noble Lord, Lord Grantchester, for his amendment which would implement the recommendations of the Delegated Powers and Regulatory Reform Committee. It would require that all regulations made using the powers in Schedule 2 should be made using the affirmative procedure, apart from regulations made under paragraphs 10 and 11 on the provision of information and advice. These would need to be made using the affirmative procedure the first time such regulations are made.
I welcome the Committee’s scrutiny of the Energy Bill. As I have previously mentioned, the Government are carefully considering the recommendations of the Delegated Powers Committee’s reports and will respond in due course. I reassure the Committee that throughout the Summer Recess, Ministers and officials will be working very hard to try to provide as much information on the regulations as soon as we can. We intend to consult from October on the detailed implementation of the EMR, which will give noble Lords an opportunity to scrutinise the detail ahead of Report. Further details of our plans for secondary legislation can be found in the memorandum we recently sent to the Delegated Powers and Regulatory Reform Committee. I hope that with this reassurance that we will be working extremely hard to try to satisfy not only him but the Members of the Committee the noble Lord will withdraw his amendment.
Lord Grantchester
I thank the Minister for those comments and the noble Lord, Lord Roper, for telling the Committee that we may well get a chance to have a look at this in October so that we can take careful cognisance of the situation before we return on Report. I beg leave to withdraw the amendment.
Baroness Worthington
We tabled Amendment 55ALF in order to consider in detail the provisions in Chapter 5 about conflicts of interest and contingency arrangements in relation to the creation of the counterparty and the role that National Grid will be given in the delivery of many of the features of the electricity market reform proposals.
The amendment would slightly change the current wording of the clause that allows for the Secretary of State to determine the kind of appropriate measures needed to ensure that there is no conflict of interest between National Grid’s commercial enterprises and the role that it has been given under the EMR. I am sure that our amendment is not perfectly worded—it is a probing amendment intended to clarify that this should not be a question of discretion. The current wording makes it clear that the Secretary of State has a certain degree of discretion in deciding whether it would be “necessary or desirable”. That seems slightly too broad. We have tried to encapsulate in our amendment the idea that sufficiency is the important aspect, not desirability, and that there should be absolutely no question but that action will be taken to eliminate conflicts of interest between National Grid’s commercial enterprises and activities and its EMR role.
Along with, I am sure, many other noble Lords, we received a briefing from National Grid on this issue. We obviously recognise and take note of the many measures that National Grid has already put in place to manage conflicts of interest in other parts of its business and its very strong undertaking to continue to operate in a way that has no conflicts of interest. We do not mean to question National Grid’s desires or motives and are sure that it does indeed seek to work in such a way that it has no conflicts of interest—our concern is with the legal basis for the interventions that the Secretary of State will undertake to ensure that.
It is worth considering that the Utilities Act 2000 and the Electricity Act 1989 built in certain provisions that prohibit National Grid from undertaking certain activities. For example, it is not allowed to disclose to a third party any information about individuals or businesses that it receives by virtue of their transmission licence activities. That seems to be the kind of quite tightly drawn provision that might need to be updated in the context of the EMR. Clearly, National Grid will receive information from third parties in relation to the functions that it will carry out under the EMR. It is the body that will be tasked by the Government with signing the investment contracts and the CFDs, which will give it access to information that it would not otherwise receive. I just question whether the provision created under the Utilities Act needs updating to ensure that it applies to not just the transition licence but the new role in the EMR.
It is an example of why we need to get this right and make sure that we have thought of every angle. We should not create a framework in which the Secretary of State can determine whether something is necessary or desirable. It is the word “desirable” that gives us slight cause for concern. We think the actual criteria should be that it is “sufficient” and would like to see explicit mention that there should be no conflict of interest between the system operators’ roles and the new roles they are being given under the EMR. I beg to move.
Baroness Verma
My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. I understand the concerns she has raised regarding the potential for conflicts of interest to arise between National Grid’s existing businesses and its new EMR role.
The Government want to use the best people for the job of delivering electricity market reform. The national system operator within National Grid is well placed to succeed in the task of delivering contracts for difference and the capacity market. The expertise it will bring to the role is the reason we gave that role to the system operator in the first place. For example, there are strong links between the capacity market and the existing range of balancing services that the system operator currently provides.
In addition, the system operator has the relevant technical expertise and the commercial and financial skills to ensure that the capacity market can be delivered in an efficient way—for example, through the modelling of future supply margins and the delivery of auctions. The system operator is also uniquely placed to understand the implications for the electricity system of different technology mixes brought on by contracts for difference, ensuring that we have the highest quality analysis on which to base our decisions on how we support low-carbon technologies.
The matter of conflicts of interest that arise between National Grid’s existing businesses and this new role was identified at an early stage. That is why we have worked closely with the regulator, Ofgem, over the past 18 months to assess thoroughly the potential conflicts that might arise and to consider how best to manage them. The process has involved extensive engagement with stakeholders, including a call for evidence and a public consultation.
In April we published the findings of that joint work with Ofgem, together with our analysis, which included an impact assessment. The work with Ofgem and independent analysts showed that the risk of conflicts being acted on is small, which is why we will be putting proportionate measures in place, using the powers proposed in this clause. That approach retains the valuable synergies with the system operator’s wider role, and gives confidence to those who need it: industry, investors and, I would hope, this House.
Neither the Government nor Ofgem assumes that this is the end of the process. While I am confident that the proposals we have made are up to the task, we will keep close watch over the situation so that industry can be certain that any conflicts, real or potential, can be managed appropriately. The exercise of these powers potentially has significant implications for National Grid’s business and it is not a decision that the Government would take lightly.
We must always keep in mind the factors that make the system operator the best organisation for the job, otherwise we risk losing the benefits of having the system operator perform the EMR delivery role. That is why the measures must and will be targeted and proportionate. We do not want to put in place a disproportionate response to the problem, which would lead to us sacrificing the synergies and all the benefits to consumers that flow from them.
The noble Baroness asked whether the provisions in the Utilities Act 2000 and the Electricity Act 1989 need to be updated in the light of EMR. We are proposing specific powers in this Bill that would enable us to put in place specific measures to protect sensitive information relating to EMR. We have worked with Ofgem to decide how to use those powers and set out the detail publicly. Therefore we do not consider that the changes that the noble Baroness proposes are in fact necessary. I hope that the detailed analysis that we have carried out with Ofgem and our public commitments on how we will tackle these conflicts of interest will mean that the noble Baroness feels content to withdraw the amendment.
Lord O'Neill of Clackmannan
Before the noble Baroness sits down, what is the competence of DECC and Ofgem in deciding what a conflict of interest would be? As I read it, the amendment has two parts. One relates to National Grid and the other to a responsibility on the department, which does not normally deal with competition issues as such. What expertise does the department have? In the event of there being a dispute which is not resolved to the satisfaction of both sides, is it possible for an offended party to appeal to any other competition regulatory authority?
Baroness Verma
The noble Lord raises a very important point. As he is aware, when we need to look at specialist areas we bring in experts to oversee DECC’s work. We have worked closely with Ofgem which, as an independent regulator, is well placed to have expertise within it. As I have said throughout, we are mindful of the need to keep an eye on this and we will keep it under review. If areas need improvement we must ensure we are able to move in and do that immediately. We are not just setting it in place and then leaving it. We recognise that specialisms may need to be involved and we will continue to look at the proposals set out in the Bill.
Lord O'Neill of Clackmannan
I am sorry, but I do not think the Minister has quite understood my point. In the event of one of the parties not being satisfied with the breadth of expertise brought to bear, the external experts and what have you, is there anywhere else they could go to appeal? I am not talking about some vexatious litigant but about a disgruntled utility that might feel there ought to be some form of review, outwith the department, with one of the competition authorities. Is there that option, in the event of a dispute about conflict of interest?
Baroness Verma
My Lords, rather than delay the Committee, it would be more prudent to write with a more detailed response. That might satisfy the noble Lord, Lord O’Neill.
Baroness Worthington
I thank the Minister for her response. The amendment was not seeking to add a disproportionate hurdle or to create a lengthy procedure or encumbrance that would prevent us benefiting from the expertise of National Grid. On the contrary, we were trying to give National Grid cover and protection by ensuring that we remove the discretion that is currently in the Bill. It comes down to another example of creating enabling powers that can be broadly interpreted. Obviously, we all trust that future Governments and Ministers will have the best interests of everyone at heart, but it is incumbent on us to make sure we write legislation in such a way that it enshrines that principle.
The purpose of the amendment was simply to question the reason for the degree of discretion and desirability factored into the clause. I would be grateful if the noble Baroness would reflect on that a bit more over the summer. The potential conflicts of interest are wide-ranging. I was grateful that the Minister mentioned the capacity mechanism, a measure which strikes at the heart of what National Grid does. The Committee already knows this, but we currently have two parallel solutions for capacity: the capacity mechanism as proposed in the Bill, which will not come into force until 2018-19, and in the interim period we have National Grid consulting on interim measures, apparently under its own licence initiatives and powers, to address what it considers to be a short-term concern about capacity markets. That already seems to be evidence that this is a highly complex and many-faceted Bill that creates unique circumstances within which the National Grid has to operate.
I am willing to withdraw the amendment, but I would like the Minister to consider the degree of discretion that the Secretary of State has. I beg leave to withdraw the amendment.
Baroness Verma
Baroness Verma
My Lords, I am extremely grateful to my noble friend Lord Roper for moving the amendment on behalf of the noble Lord, Lord Cameron. I hope that I can address the points made by my noble friend and other noble Lords and assure him that the practice adopted for the assessment of these projects for non-domestic rates is fair and consistent.
Non-domestic rates, otherwise known as business rates, are a tax on properties that are not domestic and capable of beneficial occupation. Most onshore renewable generating power stations, such as hydro or wind plants, are non-domestic properties and, therefore, liable for business rates. The amendment would give a tax break from business rates for hydro plants with a capacity of 1.25 megawatts or less, provided they were on the operator’s domestic premises. It would mean that two otherwise similar plants would be treated differently for tax purposes merely because one was located next to the owner’s house. I do not think that that would be a fair outcome for this sector.
The amendment raises some good questions about when plants at domestic properties should be assessed for business rates. I hope that on that point I can offer the noble Lord some assurances that the business rates system operates fairly. The rating list is maintained by the Valuation Office Agency, which is responsible for deciding when an installation should be assessed for business rates and for assessing its rateable value. In this regard, the Valuation Office Agency acts independently of Ministers, and we cannot therefore intervene in its decisions. However, we are aware that during 2010-11 the VOA undertook a review of hydro projects to ensure that all facilities that should be considered non-domestic were assessed for business rates. In some cases, these installations were located in the grounds of what would otherwise have been domestic premises. Where a hydro facility is considered to be domestic—for example all installations under 10 kilowatts—it is included in the council tax assessment of the house. Larger installations may also be considered domestic if the output of the plant is being used to provide power to the living accommodation. However, other projects where the output is being sold to the grid are assessed separately for business rates. This means that the smallest domestic hydro projects, which in the main are used only to provide power to the owner’s home, are not caught by the business rates system. Only those larger projects, where more power is exported and sold to the grid, are assessed for business rates.
In the evaluation of larger hydro projects, I can assure my noble friend that the Valuation Office Agency’s model has been adopted specifically to deal with the lack of direct rental evidence. Renewable energy plants, such as wind farms, hydro schemes, PV installations and anaerobic digesters, are assessed using a receipts and expenditure method of valuation. This is because the value of such properties is very closely related to their trading position and their ability to make profits. The costs of generating power at an electricity generator and the earnings from the sale of that power are tangible evidence of assumed rental value. The model is also based on a fair and maintainable forward projection of output averaged over a number of years, and the figures used are derived from actual outputs received from occupiers. Additionally, a ceiling level of output equivalent to a 40% load factor has been applied to the model, even though some schemes generate at well in excess of this level. The model also allows for borrowing costs and is consistent with the general application of receipts and expenditure valuations. I hope that the noble Lord agrees that this is a fair approach to drawing the line for this tax and that it ensures consistency across the sector.
I should also point out that more than 500,000 businesses in England benefit from the small business rate relief scheme, and about a third of a million of them pay no rates at all. We anticipate that many domestically based hydro schemes will benefit from the small business rate relief scheme, provided the owner does not operate any other non-domestic premises. We have also given authorities powers to provide their own discounts, which they can use to provide further support for hydro projects. Should they do so, central government would meet 50% of the costs. In addition, the Government’s feed-in tariff scheme supports the deployment of hydro, and as the noble Lord will recall from earlier in our proceedings, we are planning to extend the scheme to 10 megawatts for community projects.
I hope that I have assured my noble friend that the non-domestic rating system is built on a reasonable set of rules, which decide fairly which projects should be assessed for business rates, and that we have taken steps to cut bills for small businesses. In the light of that, I hope that he will withdraw his amendment.
Lord Roper
My Lords, I am grateful to all noble Lords who have taken part in this short debate. I was particularly interested by the intervention of the right reverend Prelate. The role of communities in developing microgeneration, although slightly different from the case of houses, is quite important, and we have seen a number of other useful examples of this. I believe that it is a way of making an important contribution to renewables that does not necessarily have too many disagreeable environmental impacts, in spite of what the noble Lord, Lord Whitty, said in his intervention. From the points that he made, I now understand that this is an area where some more unintended consequences may occur; the impact on anglers and others was something to which I had not previously given full consideration.
I am also grateful to my noble friend the Minister for her full and detailed response, in which she explained the context of the non-domestic rating of microhydro. The noble Lord, Lord Cameron, will want to read the Minister’s reply. Although I wish to withdraw the amendment at this stage, he may wish to return to the issue on Report. I beg leave to withdraw the amendment.
Lord Grantchester
I thank the noble Lord, Lord Teverson, and my noble friend Lord Judd for bringing forward the subject of the use of organic waste and wider aspects of renewable generation. We welcome the opportunity to debate this, alongside amendments on other developing technologies. I understand that EU Sub-Committee D will be conducting an inquiry into food waste during the next Session.
A diverse mix of technologies and providers is crucial to a well functioning market, a point that was highlighted last week when this Committee debated access to the market for independent generators. Last week, we heard that while the rest of the economy showed meagre but welcome signs of growth, green growth in 2011-12 was 4.8%, thereby outstripping almost every other part of the economy. It bears saying again that investment in emerging technologies, such as biogas, that will provide the engine of growth in years to come is vital.
Sustainable development means that we must get a lot smarter about the management of our natural capital stock and flow, and this means smarter management of the entire life cycle of the resources we use. Recycling organic waste for renewable energy generation is no substitute for eliminating the volume of food waste produced in the first place, and I ask the Minister to update the Committee on what progress the Government have made in reducing this organic waste.
The amendment relates to reducing food waste from the retail supply chain. I shall extend this amendment’s probing to anaerobic digestion in the wider agricultural sector and sewage works in local authorities’ areas of activity. Where waste is unavoidable, anaerobic digestion can be a double win by reducing methane emissions caused by land-filling and, if used in CHP, generating renewable heat and energy. In addition, the digestate produced by anaerobic digestion can be used as a fertiliser.
In government, my party transformed our relationship with waste by quadrupling household recycling, introducing measures to divert waste from landfill and securing capital investment in these new technologies. We would not wish to see this work wasted—no pun intended—and urge the Government to build on this legacy.
In 2011, the Government published an Anaerobic Digestion Strategy and Action Plan for England. Can the Minister update the Committee on its progress? I shall raise a number of points in that regard. The Government say that they see AD CHP providing between 3 and 5 terawatt hours by 2020. Can the Minister update the Committee on the current level of deployment? The Government set themselves no specific targets for regional adoption of AD; however, they aim to remove unnecessary obstacles to its development. Given the Combined Heat and Power Association’s concerns about the ability of decentralised energy to access the market, are the Government confident that they have now removed these barriers to development of this important technology? Finally, what funding has been provided to date through the Waste and Resources Action Programme, WRAP, for the development of AD?
In Denmark, more than 80% of district heating is provided through CHP plant. Embedded, decentralised renewable generation of this kind requires a comprehensive strategic approach, and it is welcome that the amendment has brought this to our attention. The Committee looks forward to hearing from the Minister whether the Government will bring forward a plan to promote the sustainable development of this technology as part of our European commitment to recycle.
Baroness Verma
My Lords, I am grateful to my noble friend Lord Teverson for prompting a very important debate on setting targets for the landfilling of waste.
The amendment is designed to require the Secretary of State to set out a plan and timeframe, as soon as practicable, for reducing and eventually eliminating the landfilling of organic waste to make it available for renewable energy generation and other appropriate uses consistent with the waste hierarchy, as defined in the Waste (England and Wales) Regulations 2011.
We support the minimisation of organic waste going into landfill and are sympathetic to the aims of this amendment. To date, we have made considerable progress. We have reduced the amount of food waste produced and encouraged separate food waste collections that are suitable for anaerobic digestion and composting. We have already seen a substantial increase in the number of anaerobic digesters generating energy from food waste and expect many more to come on stream in the next few years.
As noble Lords will be aware, there are currently targets, set out in the EU landfill directive, for reducing the amount of biodegradable municipal waste entering landfill. Those require the UK to reduce the amount of biodegradable municipal waste entering landfill in 2020 to 35% of the levels that entered landfill in 1995; the UK is currently on course to meet that. An EU review of those targets is under way as part of a wider review of EU waste policy and legislation. I must stress that the outcome of the EU review will not be known until mid-2014, but there is a possibility that the European Commission will propose setting new targets. Therefore it would not be appropriate to commit ourselves to targets in addition to those set by the EU, particularly at this point in time when the outcome of the review of the EU targets is still unknown.
The Government have worked very successfully with industry to reduce supply chain food waste by nearly 10% over the past three years. Household food waste is down by even more: 13% since 2006. As noble Lords have pointed out, we want to focus in particular on waste prevention, rather than landfill targets or restrictions. As noted in the 2011 waste strategy, preventing food waste is the most effective approach in carbon-saving terms, compared to landfilling. Each tonne of food waste prevented means that 4.2 tonnes of carbon dioxide equivalent emissions are avoided. We believe that there are more efficient options than targets or restrictions in this area, with companies themselves knowing best where to make changes for maximum impact.
The voluntary approach has been shown to work and allows businesses to reduce waste and make themselves more efficient and competitive. We want to build on that work with businesses rather than impose targets or restrictions. As well as the continuation of the Courtauld agreement to reduce food and packaging waste in the retail and manufacturing sector, the Government have also recently launched a further voluntary agreement, which takes the same approach with the hospitality and food service sector.
We are also making progress in the collection and recycling of food waste, which is used to generate electricity by means of anaerobic digestion. Local authorities in the UK collected and recycled approximately 250,000 tonnes of separately collected food waste from households in 2011, which is a 54% increase on 2010. We expect that to be nearer 300,000 tonnes in 2013, which could provide electricity for 30,000 homes.
We can continue to support a growing anaerobic digestion industry without targets. Current evidence suggests that introducing further statutory targets would impact on businesses and local authorities in terms of compliance and monitoring, which would risk additional cost burdens on business.
I will respond briefly to a couple of points made by my noble friend Lord Teverson on the sector’s need for a plan that will avoid landfill from food waste. My noble friend will agree with me that the measures we are taking on anaerobic digestion are a success story. The Government have achieved their ambition of increasing the energy produced from anaerobic digestion of waste. The number of plants has increased from the 54 that existed when we published our strategy and action plan to 110. There are many other plants with planning permission in development.
We provide incentives for anaerobic digestion through the renewables obligation feed-in tariffs and the renewable heat incentive, which the noble Lord, Lord Grantchester, asked about. We have also provided a £10 million anaerobic digestion loan fund through the Green Investment Bank, whose fund managers have already invested in AD plants. The action plan has also delivered a driving innovation anaerobic digestion fund that is helping to challenge costs in the industry and a range of other measures, including reducing red tape for businesses in the sector. All these measures are helping the sector to grow and achieve its potential. Like my noble friend Lord Teverson, I am a keen supporter of composting, but I suspect he is probably much better at it than I am.
The noble Lord, Lord Grantchester, asked what the Government are doing to try to reduce the amount of food waste going to landfill. I referred to that in my speaking notes. We are working with business, and the voluntary approach has been successful. I hope that my noble friend finds my explanation reassuring and will withdraw his amendment.
Lord Teverson
My Lords, I thank the Minister for going through that. The momentum has been growing in this area, helped very much by the Government’s support measures. In the spirit of subsidiarity, I am not sure that the fact that European regulations might be coming along in the middle of next year should get in our way. I do not think that European directives stop member states having tougher environmental targets. That would be something. I would be strongly behind the Eurosceptics in resisting that. I am very pleased that the Minister mentioned the investment by the Green Investment Bank because a very large plant in Dagenham has been put forward for use by London boroughs. It is an excellent investment, and I do not think it would have happened without the Green Investment Bank. That is an example of how that has worked well.
I fundamentally believe that on certain occasions you use markets to a certain degree. When it comes to households rather than larger organisations, it is very difficult to make these processes commercial. I would never say that through legislation we should stop certain levels. This is not pollution, but it leads to pollution in terms of greater emissions. I understand there is momentum there. I shall think about this further. The momentum is good, so I beg leave to withdraw the amendment.
Lord O'Neill of Clackmannan
We have had an interesting debate that was kicked off by the noble Lord, Lord Stephen. Before telling us about the need for electricity storage, he told us that, as a Minister in the Scottish Government, he was in favour of moving towards 100% renewables. His speech had a certain revelatory note as though, when he was advocating 100% renewables, he had not really thought about storage. If you are dealing with renewables, you are of course dealing with interruptibles and you have to have something to fill the gap. Storage has always been one of those things. I find it a bit disturbing that the Scottish Government—of whom my party was a part at the time—signed up to what seems to be a somewhat ill-considered approach to renewables. However, it shows that when something with an element of newness and freshness comes along, it is thought that it must be good; and once its goodness is established, everything is possible. I get the message this afternoon that everything involving storage is good and therefore possible. I happen to be in favour of storage and in favour of a strategy, but if we are going to have a strategy, it means that there will be priorities. If there are priorities, it means that some of the projects now enjoying the cosy embrace of Members of this Committee on both sides may well be cast to the wind.
On the question of cost, the energy industry is saddled with bad investments from the bright ideas bank, but that is something which goes back through history. When the sector was publicly owned, the CEGB had probably the best scientific brains in the energy industry. They would go to civil servants and offer them, for example, nuclear energy—of which I am an enthusiast—saying that it would be too cheap to meter. We have got to be a lot cooler in our enthusiasm. It might well be that the advocates of a strategy find that the strategy turns round and punches them on the nose, knocking out some of their favourite little schemes.
I happen to be something of an enthusiast for the Leighton Buzzard project because it is of a reasonable size and it seems to be technically in order. I have a slight association through an interest in this area, which I have already declared. However, we have to be careful. I favour the concept of a strategy because it will instil a bit of discipline into what I think is the wishful thinking that has prevailed in so much of today’s discussion. I am not sure whether we are going to get very much more in the way of pump storage, as you need to have the terrain and the water. I remember talking years ago to people in the hydro industry in Scotland and they did not think there was really very much more that you could eke out of the Scottish landscape. That might have changed by now, but the point is that we are getting to the small and cuddly bits of technology.
We have all been hounded over the years and, indeed, over the last few months, by people coming and saying, “With a bit of money from the Government, we can change the world and make a fortune for ourselves”. I get a wee bit cynical. Perhaps it is because I have been in this game for far too long and have seen so many of these schemes founder. I want us to have a strategy and I think that we should have storage, but let us not lose our sense of proportion. At the end of the day, we will not be storing that much because it will be the surplus electricity. We will not be generating for storage purposes. It will be a case of storing the extra, the margin and the bonus. Let us keep a sense of proportion so that when a strategy is produced, we are ready for the fact that some folk may be disappointed because they did not get everything they wanted. We have heard already with regard to renewables the arguments beginning, “Ah, but” and, “It was not really intended like this” or “The nasty Chinese are now undercutting our prices. We must stop them coming in. We must impose taxes in this area because the Germans and the Spaniards have invested in photovoltaics and the like, which are not making the returns that once they did”.
If the Government take on board the spirit of this amendment, produce a strategy in due course, and give it a place within the newly reformed electricity market, let us make sure that that is done on the basis of serious priorities. We should not be pushed by every pressure group or commercial interest that comes along with some half-baked bright idea which, with a few million pounds more of public money, will resolve everything. Often we find that the UK comes to a scheme rather later than other countries, which have spent a lot of money on similar projects and then rejected them. There is a lot to be said for partnering with other countries and companies because they may have done far more research and experienced a lot more of the disappointments that normally arise from research in areas of this nature. We should give the spirit of the amendment a fair wind, but at the same time recognise that this has to be about priorities. We should not chase after every pot of gold at the end of every rainbow we see.
Baroness Verma
My Lords, I am grateful to my noble friend Lord Stephen and to all noble Lords who have contributed to this very helpful and useful debate on Amendment 55D. Subsections (a) and (b) of the proposed new clause support the development and piloting of storage systems for electrical energy. The Government agree that technologies that can be used to help balance the supply and demand of electricity, such as energy storage systems and demand-side response and interconnection, are increasingly likely to be required. This was the conclusion in DECC’s report, Electricity System: Assessment of Future Challenges, which was published in August 2012.
Energy storage systems can be used to store surplus electrical energy for use at times of high demand. They help to match the supply and demand of electricity efficiently and cost-effectively. Technology companies in the UK and elsewhere are actively developing energy storage systems which could help to address the problems associated with intermittency of supply. However, different energy storage technologies are currently at different stages of development and further innovation and development is needed to reduce the costs and thus make storage technologies applicable to wider deployment.
The department therefore identified energy storage systems as a priority area for funding under its Innovation Programme. We then consulted with storage technology developers and users, as well as other public sector innovation funders, before developing a plan to help support the development of storage systems. This led, in October 2012, to the department launching two innovation competitions to support research, development and demonstration of energy storage systems. As a result of these competitions, funding has already been awarded to 16 energy storage projects, and in the autumn DECC expects to announce details of up to four energy storage demonstration pilots, which it will be supporting during the current spending review period. The aim of these pilot projects is to demonstrate the scope for cost reduction of innovative energy storage technologies and to explore the opportunities for deployment of energy storage technologies to address a wide range of future UK electricity network balancing and other storage needs. I agree with the noble Lord, Lord O’Neill, that this should be part of fulfilling the capacity of needing more energy rather than it being a means to an end.
Under Ofgem’s Low Carbon Networks Fund, three pilot projects are already under way to incorporate storage into our electricity distribution networks. These projects have the potential to assist in balancing local demand to facilitate the timely and cost-effective connection of renewable energy. My noble friend Lord Stephen referred to the Leighton Buzzard six megawatt battery project, which is one of the three pilot storage projects being supported by Ofgem’s fund.
I turn to subsection (c) of the amendment, the proposal to set targets for the provision of renewable energy storage capacity. Energy storage systems are one way to address issues arising from intermittent supply and so to support the deployment of renewable generation. However, other mechanisms such as demand-side reduction, interconnectors and smarter networks can also be used to help to balance supply and demand. Different mechanisms are likely to be needed to meet different balancing applications depending on the characteristics they offer, such as power, duration of supply and response times. The commercial markets should be best placed to select the most cost-effective solution to address each balancing requirement.
Energy storage of all sizes will have the opportunity to compete alongside generation and demand-side response in the capacity market. This will provide a secure revenue stream, ensuring sufficient investment in the reliable capacity we need. Of course we recognise the importance of developing a more responsive demand side for the longer-term efficient functioning of the market. Given that certain technologies such as storage have different characteristics from generation, we are developing transitional arrangements to provide particular support to demand-side response and alternative capacity types, including smaller scale storage which is connected to the distribution rather than the transmission network.
As I have set out previously in our debates, the early stages of the capacity market will include “go early auctions” for specific technologies in 2015 and 2016, which are designed to help certain emerging industries to grow. We envisage that these auctions will include demand-side response, embedded generation below a size threshold and storage connected to the distribution network. The auctions will allow storage to take on limited obligations and benefit from regular guaranteed payments.
Finally, subsection (d) of the amendment would require the Government to set out progress made on these energy storage system issues in the form of a report which must be laid before Parliament. DECC is already planning to carry out post-project evaluation on the outcomes of the energy storage innovation schemes once the supported projects have been completed. In response to this request, I can commit that copies of this evaluation information and project reports will be deposited in the Libraries of both Houses.
I shall pick up on a couple of points that were raised during the debate. My noble friend asked how much funding DECC is putting into current projects. There is a list of things that we are doing and I have highlighted one or two of them. In spring 2013 we awarded £500,000 to a total of 12 organisations to carry out phase one feasibility studies into innovative and diverse energy storage ideas under the Energy Storage Technology Demonstration Competition. We will invite some of the innovators who have won funding under this competition to take part in the second demonstration phase of the competition, which is worth up to £17 million, to test designs on the ground. We also awarded £1.5 million to four organisations in the first round of the Energy Storage Component Research and Feasibility Study Scheme. We will also award grant funding of up to £1.5 million for winning projects in the second round of the scheme. There are a number of things that the department is already doing.
Lord Deben
My Lords, I am sorry not to have been able to be here earlier. I declare an interest, given that in the past I have assisted firms of this kind to try to get a wider application of their equipment. There are certain drawbacks with this, but what I find so interesting is that it is a particularly British problem. It is simply because we have gone along with a voltage that is out of line with that of other people. Given that everybody manufactures to a voltage that is common elsewhere, we have something that is less than optimal. That is all. If the system is less than optimal we waste significant amounts of energy and our equipment works less sensibly and wears out more quickly.
I do not to repeat what the Committee is perfectly well aware of but simply to say that this is another example of how much can be done in very simple and small ways, which all add up. One of the things that worries me about governments of all kinds—this is not a comment about the present or the previous Government—is that small things that add up do not get the same attention as big things that very often do not add up at all. There seems to be a kind of desire to do things people will take note of, rather than understand how much there is which, if we add it up, makes a huge difference.
I do not want to go over it all, but I am sure that there has been a significant saving of energy simply because kettles now show you how much water has been put in, so that you know what you need for a cup of tea and do not put in too much. All those simple mechanisms actually make a difference. The trouble is that people tend to laugh at them, because in themselves each one does not matter. If we had voltage optimisation as a built-in feature of every new home, for example, and if it was automatically offered in every circumstance, we would save a significant amount of energy.
I therefore hope my noble friend will be able to say that her department will concentrate on the small things that add up but which will not get headlines in the Guardian. That is the fact. Let us see if we can do some of that because it would certainly make a big difference to meeting our energy demands.
Baroness Verma
My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. Over the past few months, a number of questions on voltage optimisation have been raised in this House and the other place. This is the result of having an industry that is passionate about its product and its estimates of potential savings. The Government, however, have to look at this objectively and consider the evidence of performance. I am not sure whether my noble friend Lord Deben was here during our previous debate but it demonstrated that the Government look at smaller projects. Perhaps my noble friend would look at Hansard to see how we are already supporting some smaller projects.
Voltage optimisation is a piece of electrical technology that could potentially reduce the energy consumption of household appliances and industrial machinery by lowering the supply voltage. Manufacturers of voltage optimisation devices have asked for recognition of this potential to save energy through its adoption in government-sponsored schemes, including the Green Deal, which the noble Baroness, Lady Worthington, mentioned. The Green Deal is an example of how a government strategy has been introduced that encourages householders and businesses to invest in technology, as long as it has a measurable and verifiable energy saving and can be recommended for a given building. These criteria are important to ensure that we realise real energy savings and ensure good value for money to consumers.
There is an established process for admitting new technology into the Green Deal, which entails the industry submitting its evidence to the Government’s contractor for entry to the standard assessment procedure, which is the tool for determining the energy efficiency of domestic buildings. In the case of voltage optimisation, this evidence has been reviewed by BRE, and its report has confirmed that there was a saving from the installation of voltage optimisation in some of the properties tested. In all these instances, however, part of this saving was found to result from a reduction in the level of service provided to householders—for example, by making lights dimmer. This cannot be counted as a real energy efficiency saving.
The report also highlighted further reductions in the estimated savings from voltage optimisation arising from the impact that EU directives are having on the energy efficiency of household appliances. The effect is that appliances are becoming more tolerant to, and efficient at, working within a range of supply voltages. A realistic projection of the likely take-up of modern appliances reveals that the potential saving from voltage optimisation will reduce each year, such that by 2020 the saving is likely to reduce to zero in a typical home and then become negative in later years. This is due to the voltage optimisation unit’s own power consumption.
In the commercial sector, it is more difficult to make generalisations about the efficacy of voltage optimisation due to the wide range of electrical plant that could be in use. However, this sector, too, is subject to improvements in the energy efficiency of electrical plant due to EU directives, which will reduce the savings from voltage optimisation. It is against this backdrop of evidence that the Government cannot commit to supporting voltage optimisation. There already exists a strategy within the Green Deal that allows industry to get its technology recognised and adopted, subject to it meeting key criteria. If the evidence for voltage optimisation were to change, then we could reconsider whether the market forces found within the Green Deal were sufficient to encourage its uptake.
I should also like to touch on the scale of savings that the noble Baroness believes will be made with voltage optimisation. We found that the indicative costs and savings were as follows: voltage optimisation units could cost around £300 plus the cost of installation but may save, on average, only £2 per annum. It has been suggested that by 2020 the units will use more energy than they save and will therefore have to be removed at further cost. This is evidence provided by the industry to the BRE, and the organisation Which? agrees with DECC about this. Given that, I hope that the noble Baroness is reassured that we are taking every possible opportunity to look at new entrants, and that on that basis she will withdraw her amendment.
Baroness Worthington
My Lords, I am grateful to the noble Baroness for those comments. What they serve to do is illustrate quite how closed the department is to this technology. If it was true that there was a saving of only £2 on an investment of £300, no one in their right mind would develop, manufacture and install it, and yet we have an industry that is doing so. Not only that, it is a British industry which is manufacturing in the UK.
I am grateful to the noble Lord, Lord Deben, for his intervention to say that small things which add up may not generate headlines, but actually they can generate headlines when it is a British-based industry creating British jobs and which can go on to export its technology around the world, leading to a positive balance of trade. Each individual bit of technology may not make the headlines, but the investment in UK skills, infrastructure and jobs should do so. Obviously the technical issues that have been quoted will, I am sure, be contested by the industry. All I am asking is that the department should not start out with a negative predisposition, it should look at the evidence in the round and listen to the industry.
Baroness Verma
My Lords, as I have said, if the initial criteria can be met, of course we will reconsider everything. The point is that the industry has to be able to provide benefits in the same way as those who are already involved in the Green Deal.
Baroness Worthington
I take the point, but what the industry is feeding back to me is that it is finding the process to be incredibly slow and time-consuming. People are pushing against an attitude of resistance which starts out by considering what they say to be false. However, that does not add up because some quite hard-nosed commercial operators such as Tesco have installed this equipment and are finding that it saves them money. If that is the case, some support should be offered. It is probably true that the quantum of savings and investment is better in larger-scale uses, but it cannot be true that this is an industry based on a fallacy. I refuse to believe that people would put their hard-earned money, hours and initiative into something which is of no benefit. I recognise that there is a procedure that needs to be gone through, but I hope that it can be opened up to scrutiny and perhaps a conclusion can be reached rather more swiftly than is the case at the moment.
The question of loss of service will be barely noticeable. People have said that voltage optimisation does not work because the lights are so dim that you cannot read a book. However, it is not on that scale at all. It is probably true that most households would not notice it. We probably enjoy a surfeit of lighting because we have all installed lots of halogen lighting in recent years. The loss of service is a contestable issue.
Energy efficiency and demand reduction comes with all sorts of potential loopholes and problems. I go back to what I said about fridges. The Government have been perfectly happy to hand out eco-credits, or whatever they were before they were called that, for the installation of appliances, but there is no requirement that those appliances should contribute to a net reduction in demand. They simply have to be efficient. As I have said, a larger and more efficient fridge, which is what the current trend is moving towards, uses more energy than a smaller, less efficient fridge. There is an inconsistency here. I know for a fact that when the light bulbs credits were available, we were handing out support to people who were simply putting those light bulbs into the cupboard under the sink. It is slightly unfair on the part of the Government to apply incredibly tight and overly restrictive criteria to a technology which I do believe is of benefit while not recognising that great leniencies have been shown towards other technologies in the past. I am not saying that we should go back to that but there is an inconsistency here.
I hope that this process will resolve itself and am sure that the industry will be keen to engage with the department to answer the concerns that have been reiterated here today. I am pleased to withdraw the amendment at this time.
Baroness Verma
My Lords, Amendment 55F from the noble Viscount, Lord Hanworth, provides me with an opportunity to outline what the Government are already doing to better co-ordinate and develop research and development in nuclear technology.
The Government welcomed the Science and Technology Committee’s excellent 2011 report on Nuclear Research and Development Capabilities in the UK, and in responding to it we committed to undertake a programme of work designed in the simplest terms to assess where the UK was in terms of nuclear R&D, where we and the industry believe the sector could be by 2050, and how to get there. The work under this programme completed around the beginning of this year and went on to form the basis for the development of the nuclear industrial strategy. The strategy was published alongside the outputs from our R&D work in March.
This package of work highlights how essential research and development will remain in ensuring that nuclear power can play its role in the current and future energy mix while allowing us to continue to deal safely and securely with the legacy of our nuclear past. The strategy was clear that the co-ordination and development of nuclear R&D needs to be taken forward in collaboration between industry, academia and public bodies. In doing so, we aim to maximise the use of public and private resources and provide a level of harmonisation between industry’s commercial aspirations and maintaining energy options for the UK’s future growth. As such, we believe that it is unnecessary and even counterproductive to put a legislative requirement on the Government part of this larger collaboration when we have already committed to moving forward together. We recognise that while R&D on advanced fission technologies and alternative fuel cycles is important, it is just part of the wider whole that includes essential work on decommissioning and long-term waste management.
On the management of the UK’s plutonium stockpile, all the options being considered involve the spending of public money, and a key driver will be ensuring best value for taxpayers. Following a public consultation on long-term plutonium management, the Government have concluded that for nuclear security reasons the preferred policy for managing the vast majority of UK civil separated plutonium is reuse, and that plutonium should be converted to mixed oxide fuel for use in civil nuclear reactors. The Government’s expectation is that at current uranium prices the value of the fuel generated will be significantly less than the cost of its manufacture; in other words, for the foreseeable future, the manufacture of MOX is primarily a route for consuming plutonium stocks rather than a commercial operation in its own right. However, the Government remain open to any alternative proposals that offer better value to the taxpayer, and the Nuclear Decommissioning Authority continues to work on an assessment of both the CANDU and PRISM technologies, the use of either of which would involve the use of advanced reactors and new fuel forms.
I turn now to the reporting requirement to Parliament that is set out in the amendment. The nuclear industrial strategy sets out our intention to create a co-ordination structure across the UK nuclear R&D landscape, including the formation of the Nuclear Innovation and Research Advisory Board with its own expert secretariat. We envisage that this body will be in place by the end of the year. Part of its remit will be to provide publicly available progress reports about the strategy and the pathways in the road map, and comment on any divergence from these. This will provide an independent report that will be available to Ministers, the public and Parliament, which will be wider ranging and more detailed than what is proposed in the amendment.
I shall touch on a couple of points raised by the noble Baroness, Lady Worthington, on the remit of the Nuclear Decommissioning Authority. We believe that it plays an essential role in ensuring that the historic civil nuclear legacy sites are decommissioned safely, securely, cost-effectively and in ways that protect the environment. As we set out in the Government response to the committee’s report, we would have serious concerns about changing the authority’s remit or reallocating essential resources from it because we do not want to dilute its ability to focus on this critical mission. It is also worth noting that over the past five years, the NDA estate has itself contributed more than £544 million to R&D activities, with an annual spend of between 3% and 5% of its overall budget.
The noble Lord, Lord O’Neill, and the noble Viscount, Lord Hanworth, both asked why we are not using fast breeder reactors in the UK, and I think that the noble Viscount said that we had already done so. Dounreay used fast breeder reactors, but we found them to be commercially not viable. It was generating less than 50% at the time and was also a prototype, so there was some reasoning behind that decision.
I hope that I am able to reassure the noble Viscount, Lord Hanworth, that the Government are taking the issue of nuclear research and development very seriously and are working in partnership with experts from a variety of sectors. On that basis, I hope that the noble Viscount will withdraw his amendment.
Baroness Worthington
Before the Minister sits down, I have a question about one key phrase that was used. The noble Baroness talked about value for taxpayers. However, I was trying to communicate that the Bill will introduce considerable extra costs for consumers. What I am trying to get at is that taxpayers and consumers are one and the same—we are all taxpayers and all consumers of electricity. If you focus purely on the disposition of plutonium as something completely separate that the public purse has to fund, and argue that we just spend money on what costs the least, you are missing the bigger picture. As a citizen, I am both a consumer and a taxpayer, and will be paying for nuclear projects as a consumer. I would like to see a coherent strategy that says, “Here is a solution that gives two outcomes. We get rid of plutonium and we have low-cost electricity, which saves consumers money”. I just want to test that.
Baroness Verma
Absolutely—as I alluded to earlier, we are looking at proposals from both CANDU and PRISM. We have not put them to one side but are looking at them seriously. In the bigger context, it has to be about value for money as well as doing all the things that the noble Baroness and I would want to see.
Lord Deben
My Lords, I very much oppose the amendment, which seems unnecessary. A great deal of advice is available and it is not necessary to have yet another committee. A committee has been proposed with a different role, which seems to me to have a much more sensible and wider view. That was in an earlier amendment—which has been withdrawn but which I have no doubt will come back—proposed by the former chairman of Shell UK, the noble Lord, Lord Oxburgh. That seems to be a much better proposal than this one. It is not necessary to shove this in at this point. The Secretary of State will have at his behest a whole range of people on whose advice he can rely. This gives him permission to do that, and although I am all in favour of giving him that permission, I do not want him to have yet another committee. I think that this is the wrong way to do it and I very much hope that my noble friend will resist the amendment. I rather suspect that she will, and it is always a pleasure to end such an afternoon, now almost evening, by entirely supporting my noble friend.
Baroness Verma
I am extremely grateful to my noble friend. I thank the noble Lord, Lord Whitty, for his amendment, which would set up an expert panel to advise the Secretary of State on the exercise of his powers relating to CFDs, investment contracts and capacity payments. I reassure the noble Lord that we are working hard to ensure that the process through which final contracts for difference and strike prices are set is transparent, robust and informed by a full range of expert input. The consultation on the draft delivery plan, as well as workshops and events with stakeholders, will allow industry, consumer groups and all other stakeholders to scrutinise the figures, and the evidence used to develop them, and provide us with feedback to inform the final plan.
Prior to the consultation, the draft strike prices were also informed by two pieces of independent advice: the analysis provided by National Grid, which helped the Secretary of State understand the potential impacts that different strike prices could have on the Government’s objectives and, of course, the independent scrutiny of that analysis by the panel of technical experts. Both these reports were published alongside the draft EMR delivery plan and copies have been deposited in the Libraries of both Houses. The panel of technical experts in particular, which consists of experts in relevant areas such as economics and generation costs, was appointed through an open competition. It is impartial and independent of any particular viewpoints. I do not therefore think that we need to create another expert advisory panel. We have used existing powers to appoint the current interim panel of technical experts and, following Royal Assent, we intend to establish an ad hoc advisory group. Clause 139(2)(c) provides the spending authorisation to support this work.
Baroness Verma
“( ) Part 1 (decarbonisation);”
Baroness Verma
“( ) section (Feed-in tariffs: increase in maximum capacity of plant) (feed-in tariffs: increase in maximum capacity of plant);”
The Deputy Chairman of Committees (Lord Skelmersdale)
My Lords, this concludes the Committee’s proceedings on the Bill, but before I let noble Lords go, I, on behalf of all Deputy Chairmen who have served this Committee over a very long period—and noble Lords feel it more than I do—wish noble Lords a very happy Recess.
Baroness Verma
My Lords, I shall take just one or two more minutes of the Committee’s time to put on record my thanks to all chairs of the Committee’s proceedings. I also thank those who have worked behind the scenes: the clerks, Hansard, the doorkeepers and, of course, my very efficient officials from DECC, the Ministry of Defence, the Department for Communities and Local Government and the Department for Environment, Food and Rural Affairs who have been here to support the Government throughout our debates. I also thank all noble Lords who have participated in the Committee for the way in which we have conducted proceedings. We have had a good and thorough debate and have scrutinised the Bill in full. I particularly welcomed the spirit of collaboration that has been adopted with the aim of improving the Bill. We have been in broad agreement on the main objectives, and noble Lords have made some helpful suggestions for further improvement which the Government will consider very carefully. I wish all noble Lords a very happy Recess, and I reassure them that I will be working with officials during the Summer Recess to try to get all the information they require to them before Report stage.
The Deputy Chairman of Committees
That definitely concludes proceedings on the Bill.