Dieter Helm Energy Review

Graham Stringer Excerpts

Tuesday 24th April 2018 Westminster Hall

[Graham Stringer (Blackley and Broughton) (Lab)]

I beg to move,

That this House has considered the cost of the energy review by Dieter Helm.

It is a pleasure to serve under your chairmanship, Mr McCabe. The motion has a slight ambiguity as to whether we are considering the cost of producing the report or the contents of the report itself, and I want to make it clear that we are considering the report itself, and not the £500 a day paid to Professor Helm for producing it.

The report is a devastating critique of Government policy over the past 10 years or so. That is not just this Government, but the coalition Government and the previous Government. The report’s extraordinary headline is that we will have paid £100 billion—that is one hundred thousand million pounds—more than necessary by 2030 for current energy policies. Consumers are paying 20% more for energy than would otherwise have been necessary. Thinking about the debates, rows and discussions we have about major infrastructure in this place, High Speed 2 will cost £40 billion or £50 billion, which is half as much. Some of my hon. Friends are against that highly controversial project, and many Government Members are in favour of it. Cost is a crucial issue, but it looks as though, for no real infrastructure benefit whatever, by 2030 we will be paying twice as much—£50 billion more—for an energy system that is, in the words of Professor Helm, “not fit for purpose”. One could also argue about the marginal differences in cost that people see for remaining in or leaving the EU. The sheer size of this £100 billion figure leaves many such arguments in the shade.

Professor Helm’s report is long—240 pages long—but if people want a simple version of his views, I recommend reading the transcript from when he was before the Business, Energy and Industrial Strategy Committee on 16 January. He knocked down some of the criticisms of the report when he was quizzed by Members. The transcript is much easier to digest and more to the point than the 240 pages of dense, well-argued points.

One can agree or disagree with the report, but it is logically coherent. One surprise is that, given the sheer magnitude of the figures involved, the Government have not responded in detail to it. I am sure there are responses that could be made. There could be disagreements on much of the detail in it, but it is a real failure that the Government have not responded to such an important report, which they of course asked for.

One thing that the report emphasises is how the energy market is working and has been set up. The Government have tried to pick winners, but as often happens, they have not. We would all like to pick winners; we would all like to win on the Derby or the Grand National, but most of us are not very good at it, and Governments by and large are not much better at picking winners in industry and energy. The people who are good are inefficient businesses—losers, rather than winners, if you prefer, Mr McCabe. They are good at picking weak Governments and lobbying and arguing for subsidy for less-than-competitive industries. The report says that they have done that, and it is devastating in its analysis.

Not only have the Government—as I said, I am not making a particular charge against this Government; this charge is levelled at the last three Governments—been subject to lobbying and wasted money, but in the background of the process are many lobbyists and green groups whose acquaintance with the truth sometimes leaves a lot to be desired. We not only have industry with vested interests, but groups such as Greenpeace lobbying in the background, many times dishonestly, to support policies that fit their ideological preference.

Mr McCabe, you may remember walking into the House of Commons before Christmas and seeing big signs outside sponsored by Greenpeace that said the cost of wind had been cut by 50%. That was an outright lie. It was challenged at the Advertising Standards Authority, and Greenpeace was made to take those adverts down. When Greenpeace and others were asked to justify their position, they said that they were using projected costs for wind farms in the North sea that had not yet been commissioned, let alone built. That is the background to a controversial policy area that the Government should by now have responded to.

I said that Professor Helm was coherent, which he is, but—this will come as no surprise to the shadow Minister, my hon. Friend the Member for Southampton, Test (Dr Whitehead)—I do not agree with the objectives that Professor Helm has always agreed with. They are the Government’s objectives, too, and I will explain why I do not agree. He starts the energy review by talking about the Government’s target in the Climate Change Act 2008 to reduce carbon emissions in this country by 80% from 1990 levels by 2050. I do not agree with that, and I will explain why. However, it is the Government’s policy and the law, and that is the basis of the review. His second objective, which he took as concrete, was the security of energy supply. Along with those two objectives, he wanted to see whether costs could come down.

My disagreement is that I have always thought that there should be a hierarchy of targets in energy policy. Security of energy supply should always be the top target, because if the lights go out, not only would we be in trouble as Members of Parliament for creating a system that does not keep the lights on, but the country would be in trouble. I have always thought that security of energy supply, rather than arbitrary carbon targets, should be the top priority.

Secondly, I would find it difficult to explain to my constituents and industry in my constituency if price was not one of the top priorities. For it to be tertiary is a mistake. Lower prices should be a priority, but a consequence of the policy is that they have been neglected, and they have gone up by more than they would have otherwise. That is where I disagree.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

I congratulate the hon. Gentleman on securing the debate; he makes some good points. I agree entirely with what he has just said about price, and with what the report seems to indicate. There has been a complete failure of competition in the domestic energy market; Governments always talk about it, but they have failed to deliver. There is still a predominance of the big six energy companies, effectively rigging prices. Does the hon. Gentleman agree that that needs to be fundamentally addressed if we are to have a proper energy market that benefits customers?

[Graham Stringer]

That is my reading of the report. I think Professor Helm goes slightly further than that—beyond the big six energy companies—and talks about the problems that have been caused by investing in costly new technologies that might have been cheaper to purchase later, but I essentially agree with the hon. Gentleman.

The price of energy is important not just in the way that I have described; it is also probably the most important industrial policy that this country can have. Matt Ridley pointed out in The Times some 12 months ago that at the start of the industrial revolution—this is from memory, so I might have the numbers slightly wrong, but they will not be far out—the cost of energy in Newcastle was about one 20th or one 25th of the cost of energy in China. We know what happened: this country, Europe and the United States boomed ahead because what previously required 20 horses could now be done with a few lumps of coal.

Recklessly putting up the price of energy has been a huge mistake for the country. When I say that, I do not want anyone to think that I am somehow in the category of anti-science. My background is that of a scientist, and I understand the opacity or otherwise of carbon dioxide to different wavelengths of electromagnetic energy. I understand the greenhouse effect in some detail, and I do not deny its existence—I think that what its impact will be is sometimes exaggerated, but that is a debate for another day.

We have been putting the price of energy up and closing coal stations—probably the coal stations should have been closed earlier, as Professor Helm says. As an intermediate pathway to the Government’s goals, it might have been sensible to use gas-fired power stations, which have half the carbon emissions of coal-fired power stations. If we look at the whole-world picture, we see what little impact we have—I think we produce about 2% of the carbon dioxide in the world. Over the next 10 years or so, 1,600 coal plants are planned in 62 countries around the world. China will make 700 of them. Approximately 65% to 70% of India’s energy production is from coal, but last Monday India cancelled the vast majority of its planned nuclear power plants.

Whatever impact we have will be minimal to negligible, yet we are putting the price of energy up for some of the poorest people in the country, including my constituents. We are also undoubtedly damaging industry, because due to the high price of energy we are, in effect, exporting many jobs to countries such as China, India and Malaysia, where they are often less efficient, and there is the carbon cost of the transport by ship or plane when we buy their goods.

Professor Helm, taking the Government’s policies as firm, has a number of suggestions. First, he believes that there should be one uniform carbon price. He points out, in a chart towards the end of the report, that we have many carbon prices at present, where we add to the cost of fossil fuels through many of the interventions to VAT. He believes that they should be unified, which would make things transparent. He also believes that there should be auctions for energy suppliers. Devastatingly, he says in the report that he is surprised, and I think it was a surprise to everybody else, that when things were put out to auction, rather than using interventionist prices, the prices dropped dramatically.

Professor Helm gives us his reasons on the interventions. I do not want to read too much of the report directly, but he says that the different interventions have made the market extremely complicated and expensive. He points out:

“The legacy costs from the Renewables Obligation Certificates (ROCs), the feed-in tariffs (FiTs) and lowcarbon contracts for difference (CfDs) are a major contributor to rising final prices, and should be separated out, ring-fenced, and placed in a ‘legacy bank’. They should be charged separately”.

On the complexity, Professor Helm’s answer to the Business, Energy and Industrial Strategy Committee was devastating, because some of the vested interests had been into the Committee previously and had lobbied. Some of the renewable energy people and some of the people from the Committee on Climate Change—all of them professors, you understand, Mr McCabe—had said, “There’s no problem with complexity whatever.” I think there is a problem, and anybody who has been in the real world for very long knows that there is a problem. Professor Helm’s key finding and recommendation on that was:

“The scale of the multiple interventions in the electricity market is now so great that few if any could even list them all, and their interactions are poorly understood. Complexity is itself a major cause of rising costs, and tinkering with policies and regulations is unlikely to reduce costs. Indeed, each successive intervention layers on new costs and unintended consequences. It should be a central aim of government to radically simplify the interventions, and to get government back out of many of its current detailed roles. This review explains how to do this.”

In taking on the professors who think that complexity is not a problem, Professor Helm said:

“It is empirically impossible to work out the costs of current policy, because each policy intervention interacts with every other policy intervention. Any cost-benefit analysis of a particular intervention has to do the plethora of interactions with all the other bits as well. If you want an empirical piece of proof, you need to have all that analysis done and then analyse the empirics of the counterfactual, of what would have happened if you did not have all that complexity.”

I agree with him: it is impossible.

The report also says that, having created that complexity:

“As a consequence of Electricity Market Reform (EMR), the government now determines the level and mix of generation to a degree not witnessed since these were determined by the nationalised industries”.

I suspect that if I had been a Member of this House when Lord Lawson, as Energy Secretary, proposed privatising the energy industries, I would have voted against. Nationalised industries at least have a direct line of responsibility between the taxpayer, who may benefit from them and subsidise them, and the controlled industry. What we have here is a complete mess: Government intervention, interfered with by lobbyists and vested interests with no accountability, which ends up with the poor consumer paying more than they need to.

Professor Helm criticises the Government for focusing too much on electricity and not enough on agriculture, which is a tiny part of the economy and creates about 10% of carbon dioxide emissions. He strongly believes—this should please the Government—in a free market solution. He believes that the auctions will not pick winners, but that the winners will pick themselves by being efficient in the auction process.

I want to deal with one of the main questions put forward by my hon. Friends who represent constituencies where Vesta, for instance, produces wind turbines. That question is whether the alternative, renewable energy business would have got going without intervention. Nobody can really answer that. When all that extra cash has been put into the energy market, there are bound to be spin-off benefits, but it cannot be known at any time, unless the market is tested, whether someone could have got more bangs for their buck for investing differently.

One area where I completely agree with Professor Helm is that we need research—not just the research carried out by vested interests who want to produce energy, but pure research. There is a long way to go in battery technology, which may be part of the solution. Unless something has happened since I left the Energy and Climate Change Committee, we do not even have a proper pilot scheme for carbon capture devices. All those things could be explored in a pure way and then, in the way that often happens after pure research, industry could look at what could be used and the way we are investing at the moment.

The final point made by Professor Helm is that tens of billions have been invested in subsidising wind farms in the north sea. On what basis can we say that was the right decision, rather than putting the money into carbon capture and storage? I do not have the answer to that, and I know the Government do not have the answer. They have opened their arms to vested interests and have ended up with a system that disadvantages our constituents and is essentially not fit for purpose. The Government need to respond thoroughly and properly to this important report. It is possible to disagree with it or to agree with parts of it, but it certainly needs a response.

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[James Heappey (Wells) (Con)]

It is a pleasure to serve under your chairmanship, Mr McCabe. I congratulate the hon. Member for Blackley and Broughton (Graham Stringer) on securing the debate.

I agree with much of what has been said. The Helm report is imperfect, although my copy is greatly improved by the artwork on the back of it contributed by my children. Such a report was always going to be imperfect. For the past 18 months, since the report was first discussed and commissioned, the whole industry and the Government have been holding their breath in anticipation of the response. It was always unlikely that the clouds would part and Professor Helm—as brilliant as he is—would provide the absolute solution for all future energy policy.

Professor Helm is right that the auction system we have been operating over the past decade or so is imperfect. It is complicated, and parts of it have given us the wrong result. Until recently, in the grid services markets, in particular, we ended up with lots of diesel coming through to meet that need. Clearly, that is not what the Government or anybody in the lobby in favour of decarbonisation hoped for. Clearly, it was not perfect. I accept Professor Helm’s criticism of the Government’s picking winners. More accurately, losers are very good at picking Governments. There is no doubt that some things we committed to in the past would not bear scrutiny today.

I do not accept that it is all doom and gloom. I accept the criticism from the hon. Member for Blackley and Broughton of the advertising that suggested that the cost of offshore wind had come down by 50%, but let that not hide the fact that the speed at which the cost of offshore wind has come down is a stunning success. Whatever the reduction is—we can debate that—there is no doubt that, only a few years ago, it was well over £100 per megawatt-hour, and it is now well below that. That is a consequence of the Government seeing the opportunity both from an energy perspective and for industrial strategy in the north-east of England. I think that is a good thing.

[Graham Stringer]

I appreciate the hon. Gentleman’s point, but does he agree that there has not been a huge technological advance in windmill technology over the past few years? The drop in costs probably represents how inefficient the energy market was previously, rather than an increase in wind turbines’ efficiency.

[James Heappey]

I do not have the evidence at hand to disagree with the hon. Gentleman absolutely, but my understanding from the industry—I accept that he is sceptical about the industry’s lobbying prowess—is that there have been some fairly significant improvements in the cost of manufacture and in the scale of the wind turbines that can be deployed. It may be that the cogs, wires and mechanisms within are no more efficient than they were—I honestly do not know—but if they can now be deployed much more cheaply because of the scale at which they are being manufactured, and if they can generate so much more electricity because of the size of these things, I think that those are cost reductions even if the underlying technology has not moved on. I suspect it has a little, but I do not have the evidence at hand to debate that point today.

Renewables have, I think, become the cheapest form of generation. Solar has been going gangbusters in the speed at which it has brought down its costs and so, too, has onshore wind, notwithstanding the political pressures against it in this place. It is increasingly hard to argue that the burning of hydrocarbon for the purpose of generating electricity is the cheapest way of providing electricity. More and more often, we can buy out the intermittency of renewables to deliver very cheap clean green energy, and it is no longer a choice between decarbonisation and cheap energy. It is just that the greener energy happens to be the cheapest as well. Crucially, what renewables also allow us to do, which will realise a big saving, is to decentralise the energy system. That will certainly bring with it significant reductions in the costs of transmission, and potentially even distribution as well.

I have said that our auction mechanism is imperfect, but it is worth noting that many other countries have sought to emulate what we have done with Government policy on the deployment of renewables. It has sped up our decarbonisation—spectacularly so—and has reduced the wholesale price of energy. I accept that that has been clouded by a combination of the energy companies not necessarily passing on the savings to consumers as quickly as they could and of the green taxes that the Government put on top of the wholesale price. That has meant that consumers do not see it, as some people in this room would, as the right thing, because, as the hon. Member for Blackley and Broughton said, they have not seen on their bill the translation of that change into their energy costs.

Professor Helm also rightly mentioned that there are other areas for decarbonisation where the Government have not yet made as much progress as they might. Some very good things are being talked about within the Minister’s Department and I know that she is a big champion of the decarbonisation of heat and how we do that better. I am a Parliamentary Private Secretary in the Department for Transport and I know that a lot of work is going on there to look at how we decarbonise transport and the future of mobility.

My right hon. Friend the Secretary of State for Environment, Food and Rural Affairs is doing great things on waste. I accept the criticism of Professor Helm and others in this place that agriculture has been lagging behind. Representing a farming constituency, I know exactly why that is the case. It will be very challenging when we have to start telling people that they need to reduce their consumption of meat, milk, cheese and everything else in the interest of decarbonisation, but that conversation is surely coming.

The issue is how we translate all the advances in technology in the power sector into reduced bills. The Domestic Gas and Electricity (Tariff Cap) Bill, which I spoke to on Second Reading—I also served on the Public Bill Committee—should not be regarded as the process by which we do that. I am reassured by my previous discussion with my right hon. Friend the Minister, and I hope that the Bill will not be a temporary raid on the market.

The analogy that I like to use is that the current market, the caterpillar, is going into the chrysalis and on the other side we will have the butterfly that is the wonderful, digitised, decentralised energy system of the future. It would be disastrous if the caterpillar went into the chrysalis and after an inordinate period of time what emerged on the other side was still a caterpillar. We need to give Ofgem the latitude to use this as an opportunity not just to introduce a price cap, but to transform the energy system so that all of the savings that clean tech undoubtedly will afford start to translate into reduced bills for consumers.

In this place, we have a job to keep ahead of what will undoubtedly be a change in the mindset of consumers. Electric vehicles are not gaining in popularity among the electorate because we in Parliament have told people they are a good thing. They are gaining in popularity because they are unquestionably the future of motoring. They are technologically advanced, better than normal cars and cheaper to run, and people will be going for such things as a result of that, not because they are motivated by decarbonisation. We need an energy system that is ready to give them not only the ability to motor effortlessly because the charging network is all there, but from which, with their electric vehicles, they can take full advantage of the fact that they now have a battery parked outside their home and can participate in the energy system to further reduce their bills.

Increasingly, people will start to get the internet of things within their home and businesses. They might not realise that that transition is happening because all that it might mean at the moment is a smart speaker in the corner of the room from which they invite Alexa to tell them the weather. Increasingly, people will find that as their homes become smart, they will be able to participate in the energy system and access services that will allow them to deliver their domestic energy much more cheaply because something like Alexa, Siri, Google Home or whoever else will be able to run their homes more cheaply and will work out when they need to perform various functions to take advantage of cheaper market prices.

In turn, as policy makers we need to ensure that everything is in place for storage to be fully unlocked both in catalysing the research and development for grid scale storage and making sure that the market is ready for people who have storage in their business, home or community. We need to make sure that the market is ready for storage to participate.

Demand-side response has been spoken about for so long, but I am not sure we have the policy levers quite right yet to make sure that demand responds on a meaningful scale, particularly when aggregated across lots of domestic users and small businesses. We have the big users signed up to it, but delivering it when it is aggregated across a large number of consumers is very important. We need to accelerate that transmission because I suspect that consumer demand for those things will start to take off quite quickly in the next five to 10 years. There is a danger that we will get caught out having not put in place policy and regulatory frameworks for the new energy system that people will realise they want, and it will not be delivered if we do not get that right.

The other thing it is tempting to do when talking about Professor Helm’s report, which focuses on the big stuff, is to forget that energy efficiency is far and away the best way to deliver savings to consumers. I know the Government have made some eye-catching announcements on this recently, and it is absolutely right that we continue to see small gains in people’s homes and businesses as just as important as the things that we talk about in the North sea or the big power stations that we build here in this country. They will deliver the biggest savings by far for consumers in the short and medium term.

I will wrap up simply by saying that the report is not perfect—we know that—but it raises interesting points that have stimulated a conversation in Parliament and helped to focus the Government on what could change. We are in danger of losing the argument with the bill payer if we do not start to show how all the clean technologies can and will translate into lower bills for users. The longer-term challenge is how we make sure that we fully decentralise and digitise the energy system. With that comes an opportunity to balance upwards from behind the meter through the community and then the region, rather than having the current system that is run rather inefficiently by a centralised system operator.

Last week BP announced some eye-catching policies for their internal decarbonisation goals over the next 10 to 15 years, but what was interesting was to hear Bob Dudley. When asked about the role BP might play in helping its customers decarbonise, he was clear that getting carbon pricing right is the thing that will move the dial most obviously, particularly for the big industrial users of energy. As policy makers we need to start considering urgently how we strike that balance between prompting the right behaviour from industry and not being punitive when it comes to increasing the price of energy. The opportunity for a future hydrogen economy requires decades of planning as we seek to transition, so starting that conversation now is very important indeed.

The discussion that we are having today is excellent. There is a lot that the Government need to do, and that Professor Helm will have prompted them to do through his report. It is not perfect, but the fact is that renewables are driving down the costs of energy. We need to be able to translate that into cheaper bills for the consumer. I know that the hon. Member for Blackley and Broughton is sceptical on such matters, but I passionately believe that the evidence shows that what we are doing is the right thing, and that we should keep our course.

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[Graham Stringer]

It has been a good debate. I thank the Minister; I understand why she says she is reluctant to formally reply to the report in the short term. That is disappointing—an interim reply on the Government’s position would be useful. I am pro-renewables: I just think that we are at the stage where they have to answer the question of whether they can exist without subsidy. If they cannot, auctions look to be the way forward, as Professor Helm says.

Motion lapsed (Standing Order No. 10(6)).