Energy Market Reform

Ian Swales Excerpts

Wednesday 24th October 2012 Commons Chamber

[Mr Davey]

I have already. I explained how the number of companies fell under Labour. [Hon. Members: “How many?”] There were two: PowerGen and National Power. Yes, I do know. And there are more generators now, so going back to the pool, when there were fewer generators, would be a bit odd.

[Ian Swales (Redcar) (LD)]

Does the Secretary of State think that the previous Government’s abolition of the public interest test on takeovers was one reason for the consolidation of the energy market?

[Mr Davey]

As a former competition Minister, I know that commenting on such things is extremely tricky, so I will leave that to my right hon. Friend the Secretary of State for Business, Innovation and Skills.

I want to focus on how we can tackle the real problems in the energy market. I think we all agree that there is a problem with competition. When we compare the UK market with overseas markets, a key observation is that our markets are less liquid, especially the forward market. To get a good, competitive energy market, firms should be buying and selling electricity three, six, 12 or more months in advance. If they were, and if we had greater market liquidity, it would be much easier for independent generators to enter the market and invest in generating plant confident that they can buy and sell electricity and manage their risks.

Faced with the might of large, vertically integrated energy companies supplying their own power, independent generators find it difficult to enter the market. I think we agree on that. The question is: how do we deal with that? The problem is with liquidity, not the pool. The right hon. Member for Don Valley, who clearly dislikes Ofgem, has not noticed that by threatening to take action Ofgem has, to some extent, already made progress on liquidity. As we have seen, large volumes are now being traded in the day-ahead market, which has improved price transparency. That is a good start.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

I want to discuss the part of the motion that talks about

“allowing new businesses to enter the market”.

I would have used the word “encouraging” rather than “allowing”, but I support that section and the Government’s efforts in that direction. Last week, in Seoul, South Korea, a deal was signed by the Minister of State, Foreign and Commonwealth Office, my right hon. Friend the Member for East Devon (Mr Swire), the British ambassador to South Korea, and the chief executives of Korean South-East Power, Daewoo Securities and Eco-Frontier. The deal was signed with the UK company MGT Power to build a new 300 MW biomass power station at Teesport in my constituency, at an estimated cost of £500 million. The deal is being announced today, and the whole House should welcome the investment by ambitious Korean companies in the UK energy sector.

Last week, the House debated the Infrastructure (Financial Assistance) Bill. The support it provides will, no doubt, aid investment by new players, and it represents another move by this Government to encourage new projects. The measures were rightly supported by the whole House.

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

May I just tell the House that I returned last night from Korea, having been there for the PRECOP—pre-conference of the parties—talks? I wish to pay tribute to my hon. Friend’s role, as the constituency Member of Parliament, in helping to attract some substantial and welcome investment.

[Ian Swales]

I thank the Minister for that approbation. Such investment is all good news, but to encourage new investors, especially green investors, we need clarity of policy, simplicity of policy and, above all, certainty of policy over the long term. Any arrangements made must be grandfathered over the period of a project. I wish to say a bit more about green investment, because one of the key features for investors is political risk. Gyrations in policy have seriously damaged the nascent biofuels industry in the past decade, and we must remember that policy can emerge independently in both Westminster and Brussels. Without giving too much encouragement to hon. Members sitting behind me, I believe that we must sometimes stop the change and the conflicting policies emerging from over the water—we are dealing with one such policy on biofuels right now.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

The hon. Gentleman mentions Brussels, and he, like me, is a strong supporter of carbon capture and storage technology; I not sure whether he was about to make some remarks about it. Given what he has just said, does he share my concern about today’s suggestion by his Lib Dem MEP colleague Chris Davies that the NER300 money that was supposed to be available for potential UK CCS projects is now not going to be available? Chris Davies said:

“Carbon capture and storage blocked. UK to lose out on €600 million”

and that this

“is a major defeat for Lib Dems”.

Does the hon. Gentleman share my concern about that? Does he want the Minister to respond to it?

[Ian Swales]

The shadow Minister is raising an issue that I knew nothing about. If he is right, that does sound disappointing. However, I need to go away and look at the details.

Not dealing with long-term political risk will make potential investors simply go away. Alternatively, they will charge a huge risk premium, which may in turn make many schemes not viable. The recent whispering campaign against this Government’s green policies from some quarters has been particularly unhelpful.

I agree with what has been said about the problem of the market between generators and suppliers, and between the sellers and the customers. I spent the first five years of my career in the Yorkshire Electricity Board, which was a monopoly supplier to that part of the world and was buying from a monopoly producer, the Central Electricity Generating Board. So I am well aware of how inefficient such markets are. Despite our criticisms today, I think that we are in a lot better place now than we were at that time.

Encouraging new investment in energy is good for UK business and good for growth. I know that because I see it in my constituency, where, as well as the project that has been mentioned, Ensus runs the largest bioethanol plant in Europe, which has recently restarted; Northumbrian Water has invested £60 million in an anaerobic digestion power generation unit; and EDF is, right now, building 27 giant wind turbines just off Redcar beach.

One part of the Teesside carbon capture and storage project is for International Power to bring its mothballed 1.8 GW gas-fired power station at Wilton back online, and I hope that the current bid in the UK will be successful. The recent Ensus 12-month shutdown was salutary. I made a ten-minute rule Bill speech on bioethanol in this House some time ago, highlighting four different areas of Government policy that were causing problems for that industry. I am delighted that the plant has restarted, but as I said, the recent news from Brussels about indirect land use legislation and proposed new tariffs is extremely unhelpful when people have put £300 million into a long-term investment.

All such projects are for the long term; nobody makes a fast buck on these investments. So the Government must be focused on the long term—far longer than a single Parliament. I am confident that Ministers understand that, that they will put long-term legal, financial and regulatory measures in place, and that they know how important energy investment is to economic growth. So I will be supporting those Ministers in the Lobby today.