Chris Heaton-Harris
Main Page: Chris Heaton-Harris (Conservative - Daventry)
Madam Deputy Speaker (Dawn Primarolo)
Order. I remind the House that the debate must end at 7 o’clock. Quite a few Members wish to participate in the debate, so I ask each Member to make their contribution briefly so that we can facilitate as many contributions as possible.
Chris Heaton-Harris (Daventry) (Con)
I will certainly obey your request, Madam Deputy Speaker, and skate through what I have to say. I should declare an interest at the very beginning, because I run a campaign outside the House. It is a not-for-profit company and I do not take a salary or any expenses, but I declare an interest, in the spirit of the time and in the hope that others pushing amendments may do exactly the same later.
I was pleased to hear the Minister address many of the concerns that I have raised in my amendments. I did not bang on about the thing that most would have expected me to bang on about in my amendments. I believe that the Minister agreed with one of them, and just wanted to check; I am slightly concerned that that might be the case. Alas, it was not the amendment that I really wanted him to agree with—amendment 169, which concerns the costs to consumers of the outcomes of the Bill.
The motivation of my amendments was simple: to include a reference to the consumer interest and force the Secretary of State and the Government to have regard to that, and to require much greater transparency about the contracts created and the costs imposed by the Energy Bill. We all know that the Bill came out of the Government’s electricity market reform process, which began in 2010 and had three elements. The first is the carbon price floor, which has been introduced by the Finance Act 2013 and sets out a path for a minimum carbon price in the UK from the fiscal year 2013-14 from £16 per tonne to £30 by 2020.
There is a new renewable and nuclear subsidy mechanism. The Government will replace the existing regime with a contract for difference mechanism. This new mechanism will very largely transfer the price risk from the developer to the consumer by guaranteeing an achieved power sale price for each power station covered. Unlike the renewables obligation, the new contract for difference mechanism will also provide subsidy support to the developer of new nuclear, about which I know other Members have concerns.
Another strand is that the Government will create a capacity market that will seek to ensure the retention of sufficient existing generation capacity and the building of new capacity. The design of the capacity market is still ongoing, so the exact nature of the market in the future is unclear, and we do not know when it is planned to hold the first capacity auction. I believe that it will potentially be in 2014 for delivery in 2018. Then there are the bits about emission performance standards to talk about.
Realistically, though, there is an overall problem with the Bill, which was highlighted by the Opposition’s general agreement. It is a kind of renationalisation of the power sector—very, very nearly. To deliver their policy goals the Government require utility companies and third-party investors to build assets that are fundamentally not economic, often in technologies that are far from robust or mature. The Government have taken upon themselves the responsibility of deciding which generation technologies are bad, such as coal and unabated gas, and which are good, such as hydro or nuclear or wind perhaps. They have also decided the pace of change, that coal should largely be removed from the power matrix by 2024, and that unabated gas should operate only at peak from 2027. They have decided which future technologies should or should not be developed and are pushing forward with a leap of faith on as yet completely unproven technologies, as we have heard before, including carbon capture and storage.
The Bill will take Government intervention up yet another level. Under the powers granted by the Bill, the Department of Energy and Climate Change will allocate contracts for difference to developers in those technologies and at those locations that DECC favours. It will set the strike price and so determine the revenue of the asset, what the consumer pays and the returns on investment. It is very much a centralising measure. I am not convinced that it gives the opportunities for new sources that bubble up, as we might perhaps say in this case.
Graham Stringer (Blackley and Broughton) (Lab)
We might have an ideological difference if the Bill was actually nationalising the energy industry, but it is not; it is doing something far worse. It is guaranteeing profits for parts of the energy industry that have been chosen from a limited intellectual base. Does the hon. Gentleman agree that by picking so-called winners, which may be losers, the Bill is squeezing out money that could have been spent on research for better newer technologies?
Chris Heaton-Harris
I do agree. Let us look at what has just happened in America with the advent of shale gas and the development of non-conventional gas and oil exploration in the US. That has essentially destroyed the notion that the world has already hit peak oil or peak gas. If we compare projected gas prices—the Minister mentioned this—with what is happening in markets where unconventional gas is being developed quickly, we see that new developments could come forward if allowed in the future. I fear that we are picking winners on that basis. I know that all Members are concerned about greenhouse emissions and the like. The development of shale gas in the United States has reduced America’s greenhouse emissions. Therefore, there is an interesting benefit from doing these things.
To deliver the Government’s plans in the Bill will be hugely challenging, but they are even more challenging because there is a whole host of factors. If renewable technologies were easy to deploy at the utility scale, the Bill might be helpful, but they are not. If renewable technologies were economic to deploy, the Bill would be very helpful, but as of yet they are not. If nuclear power stations could be built quickly and economically, the Bill would help, but in the UK we struggle with building quickly and economically on that sort of scale. It may have been done overseas, such as in Finland, but, realistically, we cannot do that. If the public were willing to pay any price in their bills to fund this policy—this is my major concern, hence my amendment 169—the Bill might be helpful, but they are not willing to pay huge extra sums. These provisions are placing a huge extra regular contribution on bills, up to an estimated £600 each year by 2020 at the very least.
Mr Brian Binley (Northampton South) (Con)
Was my hon. Friend also surprised at the lack of reference to the impact on business in this country over the next 20 years? The Chancellor wants growth, yet the Bill will impede the ability to get that growth. Will my hon. Friend say a word about that?
Chris Heaton-Harris
I dare not say a word about small businesses in the presence of my hon. Friend, the champion of small business in the House. When I used to run my own small business, the power bill was one of the biggest items that could not be avoided, and the Bill will increase that.
The Bill does not help with the core concerns of many in the House about fuel poverty. Reliable estimates of fuel poverty are difficult to come by because the Department has been hedging its bets on publishing any detail. The latest estimates are for 2010 when 3.5 million households in England and 4.75 million across the UK were thought to be in fuel poverty, based on the 2012 poverty statistics released by DECC. The latest dataset used by the House of Commons Library to estimate the impact of changes to prices is for 2009. This suggests that the increased cost of electricity due to the renewables obligation alone may have pushed 100,000 households into fuel poverty. We should be very aware what we are doing when we increase the cost to consumers of their energy. It powers everything from broadband to their heating, and many other things essential to the country’s development, and we should be very aware about how it works.
David Mowat
I accept the thrust of what my hon. Friend says on matters such as fuel poverty, but I rise to defend the Bill a little. Does he accept that we have to cut carbon? If so, does he accept that the way set out in the Bill is a path forward towards that?
Chris Heaton-Harris
Yes, I accept that we need to be aware of our carbon emissions, and I actually think that being responsible for the environment and trying to deliver the best for it is a Conservative principle. The Bill has some good elements to it, but the centralisation that I mentioned and the increased costs to consumers, businesses and the like are outcomes that we should think more about. I will happily leave my contribution there so that other Members can speak.
Dr Alan Whitehead (Southampton, Test) (Lab)
I rise to speak to my amendments 48 to 50, which, as we have heard from Minister, are concerned with the development of a capacity market intended to ensure that we have the range of capacity that we will require over the coming years and decades. Not to put too fine a point on it, it is intended to ensure that the lights stay on and that there is a decent margin between what people demand and what we supply.
A capacity market is a choice. It is not the only option available to secure the necessary capacity for the future. It seems to me that that choice needs to be based not just on whether the right capacity margin can be maintained. We should also ask at what cost it can be done, with what reliability and at what risk. I suggest that the choice of mechanism for maintaining capacity that is being made in the Bill fails on all those counts.
I have not invented that conclusion; the Department itself produced an impact assessment on the two choices that it had considered for securing capacity—a strategic reserve arrangement and a capacity market arrangement. Among other things, that choice is about ensuring that the amount of money that can be obtained through the sale of power into the market at times when capacity is tight stays within reasonable bounds. The impact assessment suggested that, in future, those reasonable bounds might get larger and larger. At the moment there is a maximum of about £1,000 per megawatt-hour, but it could go up as high as £10,000, in which case the consumer would be paying an enormous amount for their electricity under certain circumstances. The whole idea of keeping the costs of the capacity market under control would be completely overthrown.
The question then arises: which method best suits the need both to keep the right capacity and to keep it at a reasonable price and with reasonable reliability? Hon. Members will not be surprised that costs of the capacity market option over the period 2010 to 2030 have been assessed at two and a half times those of the strategic reserve option, and the effect on bills at 11 times higher. At first sight, that is not a good sign of the capacity market’s ability to provide a good deal for consumers.
According to the impact assessment, the reason why the Department eventually chose the capacity market idea was the entirely theoretical one that a reliability market
“limits the scope for generators to receive scarcity rents.”
However, the fact is that by introducing a capacity market and auction system in the way that we are, we will effectively provide guaranteed free money for a long period for people who are building conventional generation that provides capacity.
It may come as a surprise to some hon. Members that by introducing an auction market for capacity, we are ensuring that there is a subsidy across all aspects of energy generation, not just some. There is potential for gaming of that arrangement. The Government will have to decide how tight the capacity is after considering what the market will look like four years ahead, and then they will have to create an auction. That choice will be necessary for the auction to take place at all, and it will determine how much money there is in the auction. If the market is gamed so that the capacity looks much tighter than it is, the amount of money will be larger and the price will be even higher.
It is no coincidence—I think that is the best way I can phrase it—that we already see the capacity market tightening. A large number of gas plants are going into either deep or shallow mothballing in advance of 2014, and the Government’s decision about what capacity will look like will be informed by that mothballing. Were I an energy company operative, I would be rather pleased about that, because I would imagine that I would do rather well out of a capacity market in the future.