Baroness Laing of Elderslie
Main Page: Baroness Laing of Elderslie (Conservative - Life peer)(10 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Yeo
No, I do not regret that at all. My concern about Ofgem is that it has very considerable powers that it is failing to use. If it were more effective in carrying out its functions, some of the present crisis would at least have been mitigated. The downside of the reference is that it may provide companies with a further reason to delay investment decisions for the period of the reference, which, in practice, is likely to last the better part of two years from now. If, as I strongly suspect, the CMA reference produces the conclusion that vertical integration must be addressed, that process itself will then take more time to implement, which will prolong the period of uncertainty and lower investment even further. There is now a case for ending vertical integration. Such is the loss of trust in the big six companies that only by separating generation from retail supply can that trust start to be rebuilt. I acknowledge that there will be some damaging consequences of vertical integration, as my hon. Friend the Member for Warrington South (David Mowat) has already touched on in an earlier intervention. In practice, we must grind through the CMA process.
My final point is that I very much regret that Ofgem, quite characteristically, has missed an important part of the target, which is the transmission and distribution industries. Those industries are, in the case of transmission, a monopoly, and in the case of distribution, a quasi-monopoly. In the past, they have escaped scrutiny by Ofgem to an extraordinary extent. As the public do not pay bills directly to either National Grid or its regional distribution company, very few consumers have ever heard of them. The truth is that transmission and distribution costs account for one fifth of the average bill. That is double the proportion accounted for by the green levies, which have received so much attention in the past few months.
I am glad to say that my Committee is about to examine transmission and distribution, including the charges that they make. There is little or no competition in the distribution sector. The difficulties of getting connected to the grid and the costs of doing so are a significant obstacle to many desirable, small-scale projects. Only this week, I talked to a large investor in solar power who told me that getting new projects connected to the grid is now a bigger problem than getting them through the planning system. Effective scrutiny of transmission and distribution and the introduction of real competition to the distribution sector would do far more to cut energy bills than any artificial externally imposed price freeze.
Instead of freezing prices, let us work for more competition. The CMA reference is not an ideal outcome because of the length of time it will take to complete, and its scope should be widened. Let us at least try to make it work and serve the aims of energy policy instead of obstructing them, as a Government-imposed price freeze would do.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The House will be aware that there are more Members who wish to speak than there is time allowed in this debate if everyone takes a long time. I am therefore obliged to impose a time limit on Back-Bench speeches of six minutes.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to follow the hon. Member for South Suffolk (Mr Yeo), the Chair of the Energy and Climate Change Committee. He made a number of points in his contribution, not all of which support what the Secretary of State was saying this afternoon.
This debate is about ensuring that competition works better across the board—for those who generate and supply power, for those who retail power and for what happens in between. I found curious it that the Secretary of State had the air of a querulous member of the Opposition trying to pick holes in Government policy, using some fairly obscure devices yet apparently forgetting he is the Government.
The Government are presiding over a situation, of which we are all aware, in which competition does not work well at all. We all understand that that is related to the vertical integration of companies that have dealings across the board—in both generation and retail—and the extent to which opportunities to put that right over time have conspicuously been missed. The debate this afternoon over what we do about an energy price freeze and how that brings in other arrangements, which secure much better competition and a much better functioning market, does not solve the problem of world energy prices but goes an enormously long way to ensuring that those arrangements can deliver the best possible outcome, particularly for customers, in the context of varying world prices. The question of whether a price freeze creates a problem for investment seems to be rather misplaced, inasmuch as one argument for a better framework for investment in the future is that if the market works better in the first place people will invest in supply and the workings of the market.
It is not just Centrica that has stopped investing in gas power plants. No one is investing in gas power plants in the UK at the moment; 14 planning permissions are available but only one has been taken up, by an Irish energy company that has a long-term view of how the market will work rather than a short-term view of how it is working. Other plants are being mothballed as we speak. It is not that the market is working well at the moment in attracting investment and future arrangements might harm it; the question is how to maintain the long-term arrangement to secure proper investment.
In some of his rather more obscure defences of the fact that the Government have done only minor things to secure better competition in the market, the Secretary of State mentioned the Ofgem report on wholesale power market liquidity produced a little while ago. The report does not support the Secretary of State’s claims. All it says on the market making obligation is that if the market has
“robust price information…available…along the curve, the market will be functioning sufficiently well to support competition.”
It does not say that along the curve most of the trading is between energy companies, not on the market, and that reforming the day-ahead market does not make any difference. Claims that a pool is only about the day-ahead market are also rather misplaced, in that a functioning pool also deals with issues along the curve. The problem of independent companies having access to the markets is therefore substantially ameliorated by the existence of the pool, because it gives them access to the market that they do not have at the moment.
The Secretary of State says that the Government made some competition changes in the Energy Act 2013: they made only one, which he mentioned and which was a result of an amendment that I tabled, by creating an offtaker of last resort. That was it—that was the one thing in the Energy Act that concerned competition—and now, as a result of going for an auction contract for difference market for established players rather than an administrative market, they have destroyed the effect of that.
The aim is to get competition working better across the board. Things are better for investment in the long term as a result, and that is the way in which we should consider this issue for the future. I suggest therefore that the motion, which says exactly that, is one that the House should embrace, because that is what the markets need to work better for customers and investors—
Mr Weir
The hon. Gentleman clearly is not listening. I said it would make the situation worse. I fully appreciate that we need this investment. It is not happening sufficiently now, but it will get worse under this. The hon. Gentleman should perhaps listen a little more closely. Effectively there will be a slow down in investment whatever happens now, and that could be disastrous since it is only by investment in new renewable energy that we can break away from the dependence on carbon-emitting generation and bring down bills permanently in the long run.
But if we are to have an investigation, it should look at the whole of the energy industry and in particular the very costly subsidies that are being provided for new nuclear. The deal announced for Hinkley C is almost double the current wholesale energy price, and incidentally, I understand, very much higher than prices agreed by EDF for similar stations overseas. It will cost the taxpayer an eye-watering sum of money and be guaranteed for at least 35 years. Indeed, the cost of that station alone will be more than four times the total amount paid out in renewable obligations for the first 10 years of its existence. If more stations are built, we can assume that developers will be seeking the same sort of deal, and Hinkley will become the benchmark of how nuclear developers can soak the taxpayer. Perhaps this is an area that could be improved by more ‘transparency’ and ‘accountability’ as sought in the motion. All this, despite the fact that the similar stations being built in Finland and France are many years behind target and vastly over budget. Surely in any investigation into the market this should have been a major factor, yet there is simply no mention of it in the documents issued with the announcement of the review.
We believe that if we are to reduce and retain lower energy bills, we need to move to a renewable future and make that investment now. We believe that we need to remove the cost of the energy company obligation and warm home discount from energy bills and put it into general taxation, but maintain the level of spend. It is interesting to note that although the UK Government have removed those to some extent, that is a temporary measure for a couple of years, not a long-term measure. Doing this would be much fairer and allow a much more targeted approach to dealing with these issues. It is undeniably true that there is now so much distrust of the energy companies that even a good deal from them is now looked at with suspicion and rejected out of hand by many consumers.
The investigation by the CMA may well finally get some agreement on what is happening in the energy market and allow us a way forward. I could agree with most of the Opposition motion, but I do have difficulty with the last part which seems to have come to a conclusion about the investigation before it has taken place. Given that previous investigations by the OFT have decided that the market was working, I am not entirely sure that we can rely on this current one coming to the conclusion that the market is broken, as the motion puts it, although most of us would agree that there are indeed serious problems with it. It will be interesting to see the conclusions that it comes to. Clearly there must be changes in our energy industry, and the sooner the better.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. With all due respect to the hon. Member who has just delivered his speech, I should point out to the House that three hon. Members in a row have spoken past the point at which they should have stopped. There are clocks in the Chamber, and when they show zero, it means it is time to stop speaking.