Energy Market Design

Kelvin Hopkins Excerpts

Monday 23rd November 2015 General Committees

[Kelvin Hopkins (Luton North) (Lab)]

It is a great pleasure to serve under your chairmanship, Mr Turner, I think for the first time.

It might be helpful to the Committee if I take a few minutes to explain the background to the documents and the reason why the European Scrutiny Committee recommended them for debate.

One of the Commission’s strategic objectives is to secure reliable and affordable energy supply as part of its climate policy. That requires fundamental transformation of Europe’s energy system. Document 11018/15 is a consultative communication that seeks views on how that might be achieved, while taking consumer interests into account. The document notes:

“Europe’s electricity system is in the middle of a period of profound change…but…still faces considerable challenges”,

which include the move towards decentralised generation and the importance of integrating all those involved. In addition, there is a need to provide clear price signals for new investments, to facilitate renewables, and to provide a truly European dimension to the security of supply. The remainder of the communication sets out in more detail, specific issues on which the Commission has invited comments.

The Government strongly support integrated and well functioning energy markets, but recognise the challenges that that poses for member states and the effective functioning of the internal energy market. The Government also comment on a number of specific issues identified in the communication.

The communication is one of several produced recently by the Commission on European Union energy policy, and although its purpose is essentially to seek views, it raises a number of important issues. The European Scrutiny Committee took the view that it would be helpful if the House were to consider those at this formative stage, and therefore recommended the document for debate in European Committee A.

--- Later in debate ---

[Andrea Leadsom]

The hon. Gentleman is exactly right that storage will play a huge part in future. I certainly feel that not enough has been done at a time when power generation from renewables has been rising rapidly not only in the UK but throughout Europe and the world. Of course, that renewable generation has added stresses to the system because of its natural intermittency, so finding a way to bring down the costs of storage and exploring the different storage technologies is important for all of us throughout the world who aspire to decarbonise our energy systems.A particular advantage of greater focus on the electricity market design across Europe is that we will be able to share with our European neighbours the costs of the technology and of research and development. We will be able to co-operate and find the best and most cost-effective solution for all our consumers.

[Kelvin Hopkins]

Following on from the question from the hon. Member for Coatbridge, Chryston and Bellshill, storage comes in two forms: for the grid, there are things such as the scheme at Dinorwig—we need many Dinorwigs, in my view—but there is also domestic battery storage, which apparently is now available in America. Will the Minister tell us how the Government propose to approach storage at both those levels and what plans there are for the future?

[Andrea Leadsom]

The hon. Gentleman might be aware that significant investment has already been made into research at both grid and domestic-level storage in the UK. My Department has invested significantly in trying to bring design ideas to fruition. We are at the cusp of a big change, with storage costs coming down. He is right that some of the household battery designs in the States are becoming significantly cheaper. We are seeing those costs fall, supported by co-operation not only at EU level but elsewhere. Last week I was at the International Energy Agency, which is also very keen to focus on research and development into new storage technology to ensure that costs come down for us all.

The hon. Gentleman is exactly right that at both system and domestic level, storage and the whole demand-side response to enable people to reduce their own demand on the system are extremely valuable, not only to keep down costs for consumers but to help to support our energy security.

--- Later in debate ---

[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.

[Kelvin Hopkins]

A decade or so ago, Germany had 300 times more installed solar capacity than Britain. In terms of renewables, we were second worst in the European Union after Malta, which is obviously a warmer country. Now, although we have been making progress in catching up, and solar has been coming on stream a lot more, the Government have chosen to reduce feed-in tariffs, which will be a disincentive to installing solar. Why have they done that? Can they not see that we still have a long way to go on solar? We must have better feed-in tariffs if it is going to be successful.

[Andrea Leadsom]

I am sure the hon. Gentleman knows that the absolutely overriding issue with the feed-in tariffs, and with the levy control framework more generally, is that the costs were expected significantly to overrun the budget for 2020. When the Government came into office, we discovered that the deployment rate of wind, solar and other renewables had exceeded the expected levels, and we are in fact running well ahead of the deployment levels we thought we would see by now. If things had stayed as they were, the expected deployment levels by 2020 would significantly exceed the likely target, and the cost associated with them would represent a significant overspend.

The hon. Gentleman will be aware that the levy control framework budgeted for a £7.6 billion per annum cost to consumers by 2020, and the Office for Budget Responsibility forecast that it would have reached £9.1 billion by 2020. We have therefore had to take measures to keep the costs of bills to consumers down. That is an incredibly important point with so many still living in fuel poverty and the need to address energy bills. We do not consider that there is concern over electricity generation. We are ahead of our targets in terms of renewables electricity generation. We are where we expect to be, even with these measures to cut the cost to consumers. However, keeping the bills down is absolutely vital.

--- Later in debate ---

[Andrea Leadsom]

That is not something to which I have given a great deal of thought. The key thing, from an energy policy perspective, is for the market to come forward with ideas. We do not go out and seek bids directly from the Crown dependencies, the islands, other member states and so on. We are looking for ideas to come forward. They can be generated by developers who have a good idea or by Governments in other countries that feel there is an opportunity. I understand that, in the Channel Islands, there is the potential for a tidal project in Alderney, but we are looking to developers or other Governments to come forward with those suggestions.

[Kelvin Hopkins]

The Minister is understandably concerned about prices for consumers, but there seems to be no concern about the extraordinary prices that will be accorded to nuclear. Nuclear will have a rigged strike price, which will put a massive burden on consumers, without considering the decommissioning costs, the clean-up costs and so on. Of course, the nuclear power stations that we are planning have been shown not to be working well in other parts of the world. They are miles behind time and over budget. How can the Minister justify going ahead with nuclear while restraining other forms of energy provision?

[Andrea Leadsom]

I am very disappointed with the hon. Gentleman; I thought he would take a pragmatic view. Hinkley Point offers excellent value to the UK consumer. It provides baseload, it is as low carbon as offshore wind, the consumer pays nothing until such time as it is producing electricity and private investors will be making the investment. The decommissioning price is included in the strike price of the CFD and the funded decommissioning programme has to be agreed up front, so it is simply not true that the decommissioning has not been considered. Hinkley Point will contribute enormously to our energy security at a time when we want low-carbon sources.

Every day of the week, we receive about 19% of our electricity from ancient nuclear power plants that will be shut down some time during the 2020s. We have to replace them either with something that is higher carbon or with new nuclear. France benefits from a relatively older, but not too old, nuclear fleet that reliably provides it with low-carbon energy day in, day out. That is what we want for Britain, which is why we are so committed to new nuclear.

In the UK, we have a huge opportunity to design our own small modular reactors. All the amazing R and D that is going on in the UK right now gives us the opportunity to be part of that. As the hon. Gentleman no doubt knows, Hinkley Point C offers about 25,000 jobs in the Somerset area, and 60% of the £24 billion being spent on it will be spent in the UK. It is a great news story for economic growth, jobs and security of supply, and it will keep the bills down.

[Andrea Leadsom]

I do not agree at all that the Secretary of State’s speech suggested centralised energy systems. The UK is facing the most superb and exciting revolution in power generation. One of our biggest challenges in managing the system is the diverse range of power generators coming on to the system, putting stresses on the system and leaving us with the risk of projects being delayed due to the inability of getting a grid connection, for example. Those are the sorts of challenges that we are trying to address right now. Far from being centralised, our energy policy is very decentralised. The Secretary of State was trying to make it clear that the transition away from coal towards gas, which is the greenest, cleanest fossil fuel, and a renewable future is the right way for the UK to go, and I think she is absolutely right.

[Kelvin Hopkins]

I have high regard for the Minister, but we disagree about nuclear, although I do not want to debate that now. Another component of energy is insulation. We have very inefficient buildings across the country, and progress towards insulating all our buildings is slow, yet we can save the output of many power stations simply by properly insulating every building in the country. What does she have to say to that?

[Andrea Leadsom]

I completely agree with the hon. Gentleman on that, and I am glad that we are back on the same page. I agree with him on many things, and I am happy that this is one of them. From a policy perspective, we are keen to see a continued programme of insulating homes. I struggle to recall the figure, but there have been in the region of 780,000 measures to insulate and promote energy efficiency in homes. We are keen to do much more. Obviously, we will soon hear from the Chancellor what the spending envelope will be, but we want to refocus our spending measures for fuel poverty and fuel efficiency on those in greatest need. Of course, insulation and other energy efficiency measures are a core part of that.

--- Later in debate ---

[Kelvin Hopkins]

Some 35 years ago I had the pleasure of contributing as a joint author to a document called, “Energy: a planned policy” for the trade union NALGO, where I was a research officer. Another joint author was Dave Prentis, the current general secretary and an old friend. Even then there was a conflict between those who supported nuclear and those wanted other forms of energy generation. Many of the themes that have come up today—insulation, solar and wind power—were all debated 35 years ago. We are incredibly slow in catching up, particularly with some of the countries in northern Europe.

Denmark, for example, on sunny Sunday afternoons, is going to have the whole country ticking over on renewable electricity, which is incredible and way ahead of where we are. We are behind the pace on that. Also, we have started to rush to get rid of coal too quickly. Coal is not a clean fuel, but we have clean-coal technology. If we worked hard on carbon capture as well, it could have a much better future than the Government seem to think. Indeed, in Poland and Germany they are building coal-fired stations, not because the stations are a long-term solution but because they can make a contribution in the short to medium term. We still have coal in the ground in Britain, yet are closing down our last deep mine very soon, and are importing coal when we could have chosen to mine our own.

We should be planning for self-sufficiency in the long term. Having interconnectors or links with other countries that are generating electricity is all very well, but we could become dependent on those other countries, and who knows what the politics of the future might be? I would have thought it would be much more sensible to try to have as much domestic energy generation as we can.

Some of the other countries that are burning coal have abandoned and are closing down their nuclear power stations, because they fear that they are dangerous. That is true of Sweden and Germany. France was always heavily dependent on nuclear—that was its choice—but some of its nuclear power stations have been out of action for a long time because they do not work well. France keeps them ticking over because they are its main source of energy.

I do not think that we should rely on nuclear for the future. There are serious worries about dangers and costs, and ultimately decommissioning. We should be looking to other forms of energy generation—and, indeed, insulation. We know that renewables cannot provide the base-load we need unless we have good storage systems—batteries, and stations like Dinorwig, and so on—so we need a base-load provider for the time being. Keeping some of coal-powered stations going would be sensible. Gas is cleaner, and has a contribution to make as well, but in the long term both produce carbon and we want to see a world in which we produce energy in other ways.

Another aspect that has been sadly neglected is tidal power and estuaries. We should have built the Severn barrage years ago. We would have produced a very high proportion of our electricity just from the barrage alone. We are now talking about a lagoon and generating electricity in that way, but, again, we are behind the pace.

Then we come to the question of so-called markets. Energy should be planned, in my view. It should not be left simply to markets. We have a rather distorted one now; it is not a true market. A market is left alone: companies invest, and if they do not make a profit they go bankrupt, whereas if they do they stay in business. The energy markets have very close relationships with Governments, who are trying to work and plan through the private sector. But that is not that private, either—look at Hinkley Point. In France, energy is publicly owned, with EDF 85% owned by the French Government, and we can hardly call the Chinese Government private, given that it is a state communist Government.

Privatisation is not quite what it seems. Two thirds of the energy companies in Britain are foreign owned. The companies were supposed to have been privatised, but one of them—EDF—is 85% owned by the French Government. It has been openly admitted that EDF exploits the British market to subsidise its own market. It would be a good idea to start thinking about bringing the ownership of our energy companies back to Britain and possibly integrating the companies into some sort of national energy corporation. That is my view, and it is not just a socialist dream; it is what any sensible, practical person would do if they were concerned about energy security and making sure that we were not controlled by companies based abroad or even foreign Governments, as is the situation now.

There are a lot of big questions about energy in Britain that we have not really answered. I am sceptical about the energy policies of not just this Government but previous Governments—including that of my own party—and I shall remain so until the Government can demonstrate that they have got it right. I do not think that they have, or that other countries would allow their energy supply to fall into foreign hands in the way that we have. If we are dependent on importing energy, there will be a cost as well. We have a gigantic trade deficit, with the European Union in particular, so do we really want to start buying in more energy instead of producing it ourselves?

We ought to look hard at planned investment in domestic energy production, in every way possible. I believe that we could do that without relying on nuclear—certainly new nuclear—if for the time being we kept our coal-fired power stations open, invested heavily in storage and considered estuary tidal barriers and new forms of tidal energy. Technologies for generating electricity from tidal flows were being talked about even 35 years ago, but we have not made sufficient progress on them. We have underplayed all those new technologies, we have not invested enough in them and we have given far too much to the overseas energy companies, which make considerable profits out of the British market. The proposals are somewhat socialist in their flavour, but I do not resile from that; I am a socialist, and I believe that they are a practical and sensible way forward.

--- Later in debate ---

[Andrea Leadsom]

I can agree that it is vital that we maximise the economic recovery from the North sea. The hon. Gentleman will be aware of all the measures we have taken, including on the fiscal regime, the setting up of the new Oil and Gas Authority, and our seismic studies to help businesses that want to consider the under-explored parts of the North sea basin. I certainly agree that the industry is vital to the whole UK.

The hon. Member for Luton North said that he thought that we are behind the pace in tidal. We are keen to consider such projects but, notwithstanding our desire to bring on new technologies, the projects need to offer value for money to bill payers if they are to be deployable. He also talked about nationalising energy businesses, and I am sure he will recognise that I do not agree with him on that. The UK has always been open to foreign investment but that does not mean usurers’ profits going overseas, nor does it threaten our energy security. Foreign investment in UK energy projects benefits the UK consumer, bringing in the competition that keeps the costs down.

[Kelvin Hopkins]

There is a problem for Britain at the moment. We have a gigantic trade deficit and it is effectively being paid for by inflows of money buying up assets and companies in Britain. That cannot go on forever. In the end we become completely owned by foreign institutions and people and have no control over our own capital in our own country. That is not a sensible way forward.

[Andrea Leadsom]

I do not agree. Now is probably not the time to debate capitalist philosophy, but I will give the hon. Gentleman just one example. I understand that the biggest Siemens project anywhere in the world at the moment is the turbine factory Siemens is building in Hull—a fantastic development—on an old part of the virtually derelict docks. It is creating up to 1,000 jobs in the local area and I have met young apprentices who are getting involved. It offers enormous potential, jobs and an exportable project that will be used for offshore wind turbines right across the world. It is a fantastic investment for UK energy security, as well as for jobs and growth.

[Kelvin Hopkins]

We are talking about net investment. If we had similar investment overseas and the net investment flowed outward rather than inward we would be making income from abroad, but the balance is wrong and we are selling off assets. So much of our industry is now foreign-owned that there will come a point when we own nothing of our own and the income from all our industries flows overseas.

[Andrea Leadsom]

The UK is a trading nation. We invest overseas. We allow foreign investors to invest in the UK. I still strongly argue that foreign investment in UK energy has benefited consumers by keeping bills down, and energy security by keeping the lights on.

Finally, the hon. Member for Coatbridge, Chryston and Bellshill discussed his concern about the lack of energy security. I point him to the capacity mechanism that ensures that we provide capacity for the future, to ensure that we have the security on which we all depend. He will be aware of the demand-side response. We enter into agreements with companies that wish to be paid either to reduce their demands on the system or go off-grid and generate their own power at times when that is needed. That response is a vital contribution to energy security, as is the capacity mechanism, and the hon. Gentleman should rest assured that my Department’s absolutely non-negotiable core focus is ensuring energy security.