Barry Sheerman
Main Page: Barry Sheerman (Labour (Co-op) - Huddersfield)
Gregory Barker
We now turn to the topics of electricity demand reduction and route to market. I shall speak in favour of the new clauses and amendments in the name of the Secretary of State and I thank hon. Members for tabling the other new clauses and amendments in this group, prompting debate on this vital set of issues.
I will start by setting out the Government’s approach to electricity demand reduction. Making good my pledge in Committee, the Government have brought forward new clauses 11 and 12 and amendments 100 and 135, which, for the very first time in our energy history, would allow energy saving projects to compete for new investment on an equal footing with power stations. It has long been recognised that in many cases it is cheaper, as well as greener, to save electricity rather than generate it. However, the coalition’s radical legislative proposals for large-scale energy efficiency are a double win—a win not only for the green agenda, but for hard-pressed consumers worried about rising bills.
The fact is that successive Governments have failed to grab the opportunity to get units of saved power, or “negawatts” as they are sometimes called, to compete with traditional megawatts. Thanks to this reforming Energy Bill, the era of negawatts has finally arrived. We already have a number of important policies aimed at driving greater efficiency, but these measures mean that we can go further. As I said to the Financial Times way back in September 2010, we need to create new markets for electricity efficiency projects to bring in the scale of new investment needed that is commensurate with the challenges and opportunities.
Following our consultation on options to promote electricity demand reduction, we concluded that a new financial incentive would be the most effective way of delivering a step change in the efficient use of electricity. The most cost-effective way to achieve this, without cannibalising the budget for renewables, is to include demand reduction in our proposed capacity market, and that is achieved through Government amendment 100. Hon. Members and their constituents can now be reassured that while we have a massive, multi-billion pound, low-carbon infrastructure programme ahead of us, we will not be building expensive new energy plants unnecessarily where cheaper alternatives for energy efficiency are available.
Delivering EDR through the capacity market will let us achieve three key objectives: targeting reductions at more expensive peak times; securing value for money because it will set megawatts against potentially cheaper “negawatts”; and bringing permanent demand reduction projects into line with shorter-term demand-side response measures to enable more effective, joined-up delivery of energy efficiency across the board. The approach of delivering EDR through a capacity market is proven—it is already being done in the United States of America—but our approach is more visionary and will certainly be much more ambitious. Government new clause 12 will provide a spending power to enable our approach to be tested via a large pilot, or pilots, to better understand, among other things, the complexity of the issue and the scale of the potential. Government new clause 11 and Government amendment 135 allow the Secretary of State to appoint and make payments to an alternative delivery body to National Grid for the capacity market. If it is decided that National Grid is not best placed to carry out the EDR elements of the scheme, then we will have this legislation ready.
I am most grateful to the hon. Members for Southampton, Test (Dr Whitehead) and for Brighton, Pavilion (Caroline Lucas) for their thoughtful amendments, which were tabled prior to the Government’s amendments. I am also grateful for their consistent and constructive, as well as passionate, advocacy of this agenda. I particularly thank the hon. Member for Southampton Test. He and I have long been proponents of action in this area, but his expertise in and technical understanding of these issues are, I think, universally acknowledged to be unsurpassed in this House. I hope that the House will join me in recognising his contribution. Amendments 34 to 41 seek to include demand reduction in a capacity market. In the light of the amendments that I have tabled, which achieve that objective, I hope that hon. Members will feel comfortable withdrawing their amendments.
New clause 2, with its amendment, would require the Secretary of State to publish a strategy to reduce a stated amount of electricity demand by 2020 and 2030 while requiring no use of the price mechanism to reduce demand. I welcome the principle behind the proposal. However, let me point out that as well as establishing the first ever Energy Efficiency Deployment Office within my Department, the Government have published a number of seminal documents, including the first ever comprehensive Government energy efficiency strategy, which will be updated again later this year. We have also published DECC’s energy and emissions projections and, most recently, the Government response to our EDR consultation. These documents provide a comprehensive view of the Government’s approach, which was encapsulated at the launch by the Prime Minister of the first ever energy efficiency mission earlier this year.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I want to push the Minister on that point. Will any of those documents address the opportunities for smart metering to play a role in the rapid reduction in energy use in domestic and other premises? Many of us believe that smart metering is the answer for a dramatic reduction. Moreover, the Minister will know that I have tabled new clause 16, which would require the installation of carbon monoxide detectors alongside smart meters. That would help reduce the 40 deaths and 4,000 admissions to A and E a year caused by carbon monoxide poisoning.
Dr Whitehead
I thank the Minister for that clarification. I am encouraged by the thinking that clearly is beginning to be done on what these things might look like. I wish the Minister luck when the Treasury realises that the pilots taking place on capacity payments may have more substance to them than the Treasury might think. I should not have said that, in case someone there reads the Hansard transcript of this debate! I am encouraged by the Minister’s response.
The other matter that I want to raise relates to amendment 47, which calls for the establishment of a green power auction market arrangement in wholesale and retail sales of energy. I want to spend a moment establishing why something like GPAM is so important. My amendment attempts to resolve, or at least to go some way to resolving, a very serious issue: the drying-up of opportunities for independent generators to establish reliable markets for their low-carbon generation once the renewables obligation comes to an end in the spring of 2017.
Hitherto, those independent generators have been able to secure power purchase agreements on the back of renewables obligation certificates, and to use those agreements effectively to bank their investments, so that they have the sort of market certainty that enables those investments to be funded because it is known that there is a stream of sale coming forward that will ensure that the investment is made and works well, as far as both the independent generator and the bank are concerned. With the arrival of contracts for difference, that simply will not be the case. Indeed, power purchase agreements for those people still undertaking RO arrangements before the end of the renewables obligation have already dwindled to virtually zero. In fact, only one company, as far as I know, is presently providing power purchase agreements.
Most independent generators, whether we are talking about onshore, offshore, or other forms of low-carbon generation, are already thinking, when it comes to their investment decisions, about CFDs rather than ROs, simply because of the time period over which those investments have to be considered. They cannot go back to the bank and say, “Can we have that investment on the basis of what we can demonstrate to you, in the absence of other financial credit lines, is a known supply line for our energy product?”
The outcome could be quite perverse, with regard to what the Bill’s intentions have always been. It was always the intention, with the contracts for difference, to try to bring a lot of new, different investment into the energy market, as well as independent generators of different sizes. It was also the intention to ensure that the vertical integration seen in recent years did not become the enemy of investment, or of small, independent operators and others trying to get into the market, but rather became its friend, as other entrants came into the market alongside larger generators.
If the outcome is that as a result of the Bill we further consolidate the vertical integration of the market rather than the opposite, that will be a perverse outcome relative to everything that the Bill was supposed to bring about. If we can get a mechanism similar to the green power auction market—if it quacks a bit like GPAM and walks a bit like GPAM—I would be happy with that. We need some mechanism that can ensure that independent generators are not captured by the very large companies and that they do not have to enter into such disadvantageous contracts that they will fail to make a living from the energy that they are trying to put into the market in the future.
Mr Sheerman
As I understand it, small generators in some parts of the world, particularly America, are increasingly looking at crowd funding in order to get started. That is a new opportunity for finance, which some people are calling a new form of democratic capitalism that empowers local communities.
Dr Whitehead
My hon. Friend is right. Indeed, there are companies in the UK, such as Ecotricity, which have not exactly involved themselves in crowd funding, but have engaged in bond arrangements for the development of their low-carbon power. Even if such a source of funding is available, if the deal for the subsequent sale of the energy is so disadvantaged by a contract for purchase that shaves off the reference price or makes arrangements that are extremely disadvantageous to the ability of that company to sell its energy into the market—while at the same time those potential purchasing companies take advantage of their vertical integration by providing routes to market for their own generation at different costs and under different arrangements—the future market will be very distorted indeed.
I welcome the Minister’s saying that the issue is being actively considered, that he understands the problem at the heart of the GPAM proposals, and that he is actively in dialogue with industry on possible routes to solutions. I look forward to proposals in another place to address the issues. It is essential that they are addressed before the Bill completes its passage, so that the market that we produce as a result of CFDs is fair for those participating in it and produces the varied and pluralistic market that we want for electricity generation, particularly low-carbon energy generation, in the future.