Energy Market Design

James Heappey Excerpts

Monday 23rd November 2015 General Committees

[Andrea Leadsom]

Yes, I am entirely happy with that rate of progress. The hon. Gentleman is quite right to raise the issue of CfDs being made available to foreign generators. Of course, the key point for the British consumer is the evaluation of the contribution that offering a CfD to a non-British generator could make to our energy trilemma: decarbonisation; keeping the costs down: and keeping the lights on. We are considering two projects, but he is absolutely right that we will not be making decisions for the next year or two. The two projects are with the Isle of Man and Iceland. The Isle of Man has shallow waters and the appetite to build an offshore wind project, which it would then seek an export market for, and of course that could be very advantageous to the British consumer, because it could be very cheap energy to produce, so it could be good value for the consumer here. Likewise, a project with Iceland could offer us access to geothermal energy sources, which could be very advantageous for the UK. All those projects require quite a lot of evaluation, but I can assure the hon. Gentleman that we will look at them carefully, based on whether they offer best value to consumers.

[James Heappey (Wells) (Con)]

Last week, the Energy and Climate Change Committee went to the national grid headquarters in Wokingham, where the energy coming in from the continent is clearly displayed on its “flows” board. One became aware of the differences in the wholesale price between that in the UK and that elsewhere. As we build more interconnectors, I would be interested to know the Minister’s views on that: obviously, it will bring down the domestic wholesale price, but what will be the impact on existing CfDs and therefore on the Government’s financial exposure?

[Andrea Leadsom]

The advantage of interconnectors in the round is quite significant for UK consumers. They improve access to cheaper and, quite often, low-carbon sources of additional electricity, and indeed gas, as he will know. We have therefore encouraged more interconnection and we have a number of projects that are under way and under consideration, under our cap and floor regime, which does not leave the consumer completely at risk on the costs payable to the producer.

There is always a balance to be struck, of course. Because of the way that the price determines the flow—the interconnector will send gas or electricity this way, should it pay to do that—prices here will need to be higher for the power to flow this way. However, in aggregate, we anticipate that more interconnection would have a supressing impact on wholesale prices in the UK, but not to such a great extent that that would unbalance the system in the UK. My hon. Friend raises an important point, and we take very seriously the issue of balancing the system in the UK—having the right balance between energy security, keeping costs down and keeping the lights on—and we must keep that under constant review.