Lord Barker of Battle
Main Page: Lord Barker of Battle (Conservative - Life peer)
The Minister of State, Department of Energy and Climate Change (Gregory Barker)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Government new clause 12—Pilot scheme for electricity demand reduction.
New clause 2—Strategy for electricity demand reduction—
‘(1) The Secretary of State must within 12 months of the passing of this Act publish a strategy setting out policies to achieve a reduction in demand for electricity of at least 103 TWh by 2020 and 154 TWh by 2030.
(2) The strategy must include an assessment of the cost effectiveness of the policies included in it.
(3) Before publishing the strategy the Secretary of State must consult such persons as in his opinion may have information that will assist him in drawing up the strategy.
(4) The Secretary of State must—
(a) implement the strategy; and
(b) report to Parliament every year on progress.’.
Amendment (a) to new clause 2, at end add—
‘(5) Nothing in the strategy shall rely upon the use of the price mechanism to reduce demand.’.
Amendment 1, in clause 10, page 8, line 8, at end insert—
‘( ) Section 41(4)(a) of the Energy Act 2008 (“specified maximum capacity”) is amended as follows: “Specified maximum capacity” means the capacity specified by the Secretary of State by order, which must not be less than 10 megawatts.’.
Amendment 42, page 8, line 8, at end insert—
‘( ) Regulations must—
(a) place a duty on the Secretary of State and the Authority to promote new generation capacity from distributed generation schemes; and
(b) define “distributed generation schemes”.’.
Amendment 43, page 8, line 8, at end insert—
‘( ) In section 41(2)(a) of the Energy Act 2008, at end insert—
“() establishing, or making arrangements for the administration of, a scheme of financial incentives to encourage the distributed generation of electricity;”.’.
Amendment 44, page 8, line 8, at end insert— In section 41(2)(b) of the Energy Act 2008, at end insert—
“() requiring or enabling the holder of a distribution licence to make arrangements for the distribution of electricity generated by distributed generation;”.’.
Amendment 45, page 8, line 8, at end insert—
‘( ) In section 41(2)(c) of the Energy Act 2008, at end insert—
“() requiring the holder of a licence to make arrangements related to the matters mentioned in paragraph () or ().”.’.
Amendment 46, page 8, line 8, at end insert—
‘( ) Section 41(4)(a) of the Energy Act 2008 (“specified maximum capacity”) is amended as follows—
“specified maximum capacity” means the capacity specified by the Secretary of State by order, which must not exceed 50 megawatts.’.
Amendment 47, in clause 15, page 10, line 13, at end insert—
‘(d) conferring on the Secretary of State the power to establish an auction market (the “green power auction market”) in which generators are entitled to offer, and holders of supply licences are entitled to bid for, electricity generated from renewable sources.
(e) the the Secretary of State must exercise the powers in subsection (d), and take such other steps as they consider necessary, for the purposes of ensuring that—
(i) the green power auction market begins to operate when the first CFD is made and does not cease to operate until expiry of the last CFD that has been made; and
(ii) the reference price under a CFD entered into by a generator who is a party to any agreement made through the green power auction market is based on the price payable to the generator under that agreement,
(iii) in this section, “supply license” means a licence under the section 6(1)(d) of the Energy Act 1989.’.
Amendment 34, in clause 21, page 12, line 41, leave out ‘this section’ and insert ‘subsection (1)’.
Government amendment 100.
Amendment 35, in clause 21, page 13, line 6, at end insert—
‘(4A) The Secretary of State must within one year of the passing of this Act make regulations establishing a scheme or schemes to make payments for the purpose of rewarding the installation of energy saving measures.
(4B) Regulations under subsection (4A) are referred to in this Chapter as “demand reduction regulations”.
(4C) Prior to the making of regulations under subsection (4A), the Secretary of State must publish a report setting out the total potential for energy demand reduction and the extent to which this potential will be achieved by Government policies including—
(a) the scheme or schemes, and
(b) other relevant programmes, regulation or expenditure.’.
Amendment 36, in clause 22, page 13, line 13, at end insert—
‘(1A) Demand reduction regulations must make provision about demand reduction payments.’.
Amendment 37, page 13, line 21, at end insert—
‘(2A) Subject to any further provision made under this Chapter, a demand reduction payment is an instrument by virtue of which—
(a) an energy user is paid for reducing the demand for energy or investing in a technology which can be shown to reduce the demand for energy either permanently or for a specified period;
(b) all electricity suppliers may be required to make payments (“demand reduction payments”) to or for the benefit of these users.’.
Amendment 38, page 13, line 23, at end insert—
‘(3A) Provision included in regulations of demand reduction payments for the purposes of subsection (2A) may make provision about the meaning of “energy user”.’.
Amendment 39, page 13, line 41, at end insert—
‘(4A) Provision included in regulations of demand reduction payments by virtue of subsection (2A) may include provision about—
(a) the terms of a demand reduction payment;
(b) the circumstances in which, and the process by which, a demand reduction payment may or must be made;
(c) the persons who may be paid;
(d) the circumstances in which and technologies for which payments may be made;
(e) the number and size of payments;
(f) the means by which demand reduction payments are to be calculated;
(g) a person or body who is to administer the settlement of demand reduction payments (“a settlement body”);
(h) the enforcement of the terms relating to demand reduction payments;
(i) the resolution of disputes relating to a demand reduction payment payment;
(j) the circumstances in which a demand reduction payment may be terminated or reclaimed or varied;
(k) the circumstances in which a demand reduction payment may be assigned or traded;
(l) the means for monitoring and verifying the energy reduction for which demand reduction payments are made.’.
Amendment 40, page 14, line 6, at end insert—
‘(5A) Provision falling within subsection (4A) includes provision—
(a) conferring on the national system operator the function of issuing demand reduction payments;
(b) about any conditions that must be satisfied by or in relation to a person before that person may receive a demand reduction payment;
(c) about any matters in relation to which a person must satisfy the national system operator before the person receives a demand reduction payment.’.
Amendment 41, page 14, line 9, at end insert—
‘(6A) Provision made by virtue of this section may include provision requiring a person to consent to the inspection of plant or premises, either before or after that person receives a demand reduction payment.
(6B) Subject to the provisions in section 24, the Secretary of State must within six months of the making of demand reduction regulations establish a fund drawn from capacity payments for the purpose of issuing demand reduction payments.’.
Government amendment 135.
Gregory Barker
We now turn to the topics of electricity demand reduction and route to market. I shall speak in favour of the new clauses and amendments in the name of the Secretary of State and I thank hon. Members for tabling the other new clauses and amendments in this group, prompting debate on this vital set of issues.
I will start by setting out the Government’s approach to electricity demand reduction. Making good my pledge in Committee, the Government have brought forward new clauses 11 and 12 and amendments 100 and 135, which, for the very first time in our energy history, would allow energy saving projects to compete for new investment on an equal footing with power stations. It has long been recognised that in many cases it is cheaper, as well as greener, to save electricity rather than generate it. However, the coalition’s radical legislative proposals for large-scale energy efficiency are a double win—a win not only for the green agenda, but for hard-pressed consumers worried about rising bills.
The fact is that successive Governments have failed to grab the opportunity to get units of saved power, or “negawatts” as they are sometimes called, to compete with traditional megawatts. Thanks to this reforming Energy Bill, the era of negawatts has finally arrived. We already have a number of important policies aimed at driving greater efficiency, but these measures mean that we can go further. As I said to the Financial Times way back in September 2010, we need to create new markets for electricity efficiency projects to bring in the scale of new investment needed that is commensurate with the challenges and opportunities.
Following our consultation on options to promote electricity demand reduction, we concluded that a new financial incentive would be the most effective way of delivering a step change in the efficient use of electricity. The most cost-effective way to achieve this, without cannibalising the budget for renewables, is to include demand reduction in our proposed capacity market, and that is achieved through Government amendment 100. Hon. Members and their constituents can now be reassured that while we have a massive, multi-billion pound, low-carbon infrastructure programme ahead of us, we will not be building expensive new energy plants unnecessarily where cheaper alternatives for energy efficiency are available.
Delivering EDR through the capacity market will let us achieve three key objectives: targeting reductions at more expensive peak times; securing value for money because it will set megawatts against potentially cheaper “negawatts”; and bringing permanent demand reduction projects into line with shorter-term demand-side response measures to enable more effective, joined-up delivery of energy efficiency across the board. The approach of delivering EDR through a capacity market is proven—it is already being done in the United States of America—but our approach is more visionary and will certainly be much more ambitious. Government new clause 12 will provide a spending power to enable our approach to be tested via a large pilot, or pilots, to better understand, among other things, the complexity of the issue and the scale of the potential. Government new clause 11 and Government amendment 135 allow the Secretary of State to appoint and make payments to an alternative delivery body to National Grid for the capacity market. If it is decided that National Grid is not best placed to carry out the EDR elements of the scheme, then we will have this legislation ready.
I am most grateful to the hon. Members for Southampton, Test (Dr Whitehead) and for Brighton, Pavilion (Caroline Lucas) for their thoughtful amendments, which were tabled prior to the Government’s amendments. I am also grateful for their consistent and constructive, as well as passionate, advocacy of this agenda. I particularly thank the hon. Member for Southampton Test. He and I have long been proponents of action in this area, but his expertise in and technical understanding of these issues are, I think, universally acknowledged to be unsurpassed in this House. I hope that the House will join me in recognising his contribution. Amendments 34 to 41 seek to include demand reduction in a capacity market. In the light of the amendments that I have tabled, which achieve that objective, I hope that hon. Members will feel comfortable withdrawing their amendments.
New clause 2, with its amendment, would require the Secretary of State to publish a strategy to reduce a stated amount of electricity demand by 2020 and 2030 while requiring no use of the price mechanism to reduce demand. I welcome the principle behind the proposal. However, let me point out that as well as establishing the first ever Energy Efficiency Deployment Office within my Department, the Government have published a number of seminal documents, including the first ever comprehensive Government energy efficiency strategy, which will be updated again later this year. We have also published DECC’s energy and emissions projections and, most recently, the Government response to our EDR consultation. These documents provide a comprehensive view of the Government’s approach, which was encapsulated at the launch by the Prime Minister of the first ever energy efficiency mission earlier this year.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I want to push the Minister on that point. Will any of those documents address the opportunities for smart metering to play a role in the rapid reduction in energy use in domestic and other premises? Many of us believe that smart metering is the answer for a dramatic reduction. Moreover, the Minister will know that I have tabled new clause 16, which would require the installation of carbon monoxide detectors alongside smart meters. That would help reduce the 40 deaths and 4,000 admissions to A and E a year caused by carbon monoxide poisoning.
Gregory Barker
Indeed. I hope we will have time to discuss the hon. Gentleman’s amendment on carbon monoxide detectors, of which he is an unprecedented and unparalleled champion in this House. I am glad to say that his point about smart meters is fully recognised in the strategy documents. He is absolutely right to say that smart meters will give far better access, as well as information, to consumers to participate in this new, two-way energy efficiency economy and open up all sorts of opportunities. They will also be an essential part of our vision to build an electricity, internet and smart group in the UK. On the development of a demand reduction measure, we are clear that a financial incentive is the most appropriate way forward and that it should lie in a capacity market.
Climate change is, according to the vast majority of scientific experts, with whom I emphatically agree, a clear and present danger to our planet and our economy. Our measures reflect yet another example of the coalition’s determination to rise to this challenge and allow the UK to play an ambitious part in combating the worst excesses of dangerous, man-made climate change.
Hon. Members can be reassured that the measure is not an additional green burden on consumer bills. It will make energy policy greener and potentially cheaper—a genuine win-win situation. I therefore hope that hon. Members will withdraw new clause 2 and its amendment (a).
I now turn to the Opposition amendments—I am grateful to them for tabling them—on the important issues of distributed energy and route to market for independent renewable generators. Independent renewable generators are key to the Government’s ambitions for not just green energy, but the energy market as a whole—not just in helping us achieve secure, affordable and low-carbon electricity, but in delivering a more plural, competitive and dynamic market.
The Government agreed during the Bill’s Committee stage to consider an amendment similar to amendment 1, the intention of which is to increase the maximum generating capacity of feed-in tariff eligibility from 5 MW to 10 MW. I have a great deal of sympathy with the proposal. It continues to be under active consideration and I am committed to finding a workable solution. However, it is a complex issue, because not everyone agrees on this way forward. The Solar Trade Association has stated, for example, that it would be against such an increase. My Department is considering whether it could be delivered without destabilising the existing FITs and renewables obligation schemes or creating perverse incentives.
Andy Sawford (Corby) (Lab/Co-op)
Will the Minister define more clearly what he means by “active consideration”? Those Members who support amendment 1 will be encouraged by his remarks, but they will also fear that the impetus of amendment 1 might be lost if it is not agreed to tonight.
Gregory Barker
I deem the raising of the FITs threshold to be very attractive and am personally driving the issue in the Department. However, when looking at the proposal in further detail, I have been made aware of potentially perverse consequences and impacts on the renewables obligation. I was slightly surprised by the views of the STA but have taken them on board. We need to unpack a number of issues and I currently have officials working on the matter. I am hopeful that we can find a way through or partially through, and land at an outcome that, while it might not be the one the hon. Gentleman exactly wants, he would find satisfactory. I cannot say any more on that because I have not come to the House in a position to make a commitment or statement, but I hope he takes from the tenor of my response that we are not just considering the matter; work is being done in the Department and we hope to bring further measures to the House. I reassure him that we hope to respond as the Bill continues its passage through Parliament—most likely, in the other place.
Amendment 46 seeks to increase the specified maximum capacity of the FITs scheme to 50 MW. I have considerable sympathy with that objective, which recognises the effective nature of the reformed FITs, but such an uplift could produce unintended consequences on FITs, budgets, the levy control framework and renewables obligation certificates. As things stand, we do not consider that such a large change offers the best value for money, because it could have significant impacts on the functioning of the renewables obligation and push up costs for energy bill payers.
Amendment 42 seeks to define distributed generation. I applaud the motive of the amendment, but having carefully considered it, and as sympathetic as I am to its intention, on balance, we do not consider it necessary. The reformed and highly successful FITs scheme already ensures that communities can generate their own electricity from a range of technologies. I am proud that, under the coalition, hundreds of thousands of people have decided to do so, and are now successfully self-generating electricity to meet some or all of their needs—in some cases, they export to the grid—on both community and domestic scales. Public buildings, particularly schools, are a popular choice.
Amendment 43 aims to implement a new support mechanism for generation attached to our electricity distribution network. I have led reforms on the FITs scheme to ensure that it remains not only open, but successful and increasingly ambitious, while delivering value for money. We are now closing in on half a million installations. Virtually all the installations supported by the FITs scheme are distributed generators. We therefore do not see the need for a new mechanism, which could confuse consumers and potential generators. The reformed FITs system is doing a good job and is increasingly popular.
Amendments 44 and 45 aim to require distribution companies to supply distributed generation—even if that does sound like a slight oxymoron. UK distribution network operators already ensure that electricity generated by distributed generation is transmitted to where it is needed, if it is not consumed locally. While I am sympathetic to the intent behind the amendments, I do not see that they are strictly necessary.
I am grateful to the hon. Member for Southampton, Test for tabling amendment 47, which seeks to address an important issue: the independent renewable generators’ route to market. The amendment would create a duty on the Secretary of State to establish a green power auction market for renewable generation—GPAM, as it is often known. I hope the hon. Gentleman knows, and the House appreciates, that I am sympathetic to the intention behind the amendment. Bringing on board new, dynamic and disruptive new entrants is a key aim of the Bill. I am personally committed to breaking the grip of the big six and making our vision of a far more decentralised energy economy a reality.
John Robertson
The Minister will appreciate that this is music to my ears, but how does he expect to be able to do that—by bringing new people into the market or by trying to help smaller companies to develop?
Gregory Barker
Both, I hope. Certainly, it would not be satisfactory if the big six became the big seven or eight. Ultimately, we need the big 60,000. We want to extend the enthusiasm for micro-generation and community generation, and scale it up so that small-scale generators, who currently cater only for their own needs, begin to have the ambition to export electricity in their areas and create community interest companies. We also want entrepreneurial companies. The sector is ripe and rich for entrepreneurs. We want to see new disruptive players coming into the market and using new technologies or offering better services. There are already some good independents in existence. I have met a number of them and they are seeing their customer numbers grow considerably. As things stand, however, there is still a long way between them and the big six.
Bob Stewart (Beckenham) (Con)
Does the Minister mean that a district such as Bromley in my constituency might have its own green power generation system, which would be designed specifically for that area and would provide for all its needs? Is that what we are going for?
Gregory Barker
That is a real possibility. A number of local authorities already have that ambition and are using a range of technologies. Woking is using gas-fired CHP, but renewable fuels such as woodchip can be used, too. Such processes can generate substantial amounts of reliable electricity, and if they are carried out locally, the heat generated can also be used constructively, with cheap affordable heat being sent into social housing and public buildings, or to private residents. This model is already starting to take shape in pioneer local authorities. The city of Nottingham has exciting plans for district heating networks on a scale not seen in this country for generations.
The irony is that this is not new technology. District heating by local generation companies is where this energy was born; it began on a distributed model. It was only in recent years that the Labour party nationalised the industry and created one big monopoly, and it was under the previous Labour Government that the number of energy companies shrank from 14 to six.
We are striving to put the “local” back into local energy provision, but we are not prescribing any one model; it could be rolled out in lots of different ways—there are exciting projects around the country, and we want to see a lot more of that—but it must be done in a way that, first and foremost, works for local people and is affordable. I return, however, to a point I made on the previous amendments: we have within our reach the opportunities to do that in a way that is not only green, but affordable—and sometimes even cheaper than the alternative.
Katy Clark
I am extremely interested in what the Minister is saying. Is not one of the problems, however, that we do not have the infrastructure to do what he suggests? A few weeks ago, the Isle of Arran, in my constituency, was without electricity for a week. Even if it had its own generators, the substation is one-way traffic, and I understand that it would need a smart grid to use any energy created on the island. How will the Energy Bill help that island?
Gregory Barker
We are already embarked on a massive programme of grid renewal. The National Grid has published at length its proposals for how to roll it out. Obviously it cannot be done overnight, but we have made it clear that we are looking to build, with billions of pounds of investment, overwhelmingly from the private sector, a completely new grid that will do exactly as the hon. Lady says and permit a new relationship—a two-way, more equal one—between the consumer and the producer, and allow for the adoption of these diffuse new technologies. She is right that while the old grid is still there, there are certain barriers, but wherever possible and wherever it makes economic sense, we are keen to work with local communities and district network operators to help them overcome those barriers and to see what can be done within a reasonable economic cost. She is right that there are still barriers, but my Department is working proactively to try to overcome them.
I hope that the House appreciates that I am sympathetic to the intention behind amendment 47 to create a green power auction market—bringing onboard these disruptive new entrants is the key aim. GPAM is a means to an end, however, rather than an end itself. No one solution is inherently good; what matters is what it can deliver, and there are several ways of delivering the agreed outcome while navigating in slightly different directions. Our concerns stem from the fact that GPAM is effectively a fixed feed-in tariff, as it provides the generator with a guaranteed price for all the power it generates. As a result, the generator would have no incentive to manage its imbalance risks, as these would be taken away from it, which could work out more expensively for the consumer.
Although I welcome and fully appreciate the aims of GPAM, we have to be careful, despite having all the right motives, not to create an expensive, long-term solution to what might turn out to be a short-term problem. CFDs will undoubtedly improve conditions, which I know have been challenging, in the market for power purchase agreements, enabling independent renewables projects to get off the ground much more easily. They should not only help the smaller independents out there now and doing a great job, but attract—I hope—new entrepreneurs into the market. Although I have issues with GPAM, therefore, I want to make it clear to the House that I am not complacent and am not saying that we have all the answers.
I fully recognise that there is an issue at stake, which the GPAM amendment endeavours to address, but the route-to-market issue is complex. It is such a technical issue that we perhaps cannot do justice to it in a debate on the Floor of the House. However, it is an issue that my officials, with all their skill and expertise, are absolutely committed to tackling. At a political level, I am personally committed to finding a solution to it, albeit a solution that must be workable and not lead to greater costs for consumers.
Luciana Berger
We wanted properly to scrutinise the Government’s plans in Committee. We have only recently had the opportunity to do so, and we have just heard what the Minister said. I remind the hon. Gentleman that pay-as-you-save efficiency scheme pilots were started under the last Government. We are waiting to see exactly how the green deal is doing. We await the Government’s figures, and we expect to see them at the end of June.
During pre-legislative scrutiny, the Energy and Climate Change Committee concluded that Ministers were failing to give enough priority to demand-side measures. As I have said, we still had no firm proposals on Second Reading. In Committee, the Minister would not confirm whether the Government would definitely seek to include demand reduction amendments in the Bill once his consultation had concluded. Now, at long last, we have the results. We received them two weeks before Third Reading and a year to the day since the Bill was first published.
The Minister has now said that he is minded to pilot measures to reduce electricity demand through the capacity market, and we welcome that step. However, the Government’s own response to their consultation accepted that that course of action still presented a number of uncertainties. A number of questions remain unanswered. I am sorry that the Minister will not have an opportunity to answer them, but I would be happy to give way if he would like to intervene on me. It would be helpful to know, for example, exactly how the pilots will work and by how much the proposals will reduce electricity demand. Those are currently complete unknowns.
The Government’s forecasts from before the new clauses were published showed that current policies would reduce electricity demand by 59 TWh in 2018 and by 68 TWh in 2030. That energy saving would be dwarfed, however, by an additional 92 TWh of untapped potential saving that could be achieved by 2030, according to analysis by McKinsey. That could be the equivalent of a 25% reduction in total electricity demand, representing a colossal saving. It is unfortunate that the Minister could not share with us the Government’s estimate of by how much the capacity market could reduce electricity demand over the same period.
Many people have also raised serious concerns about how effective the capacity markets can be in rewarding energy saving. In the United States, for example, a similar policy in Massachusetts resulted in energy efficiency projects receiving just 3% of total capacity payments. Despite complex design, 70% of capacity payments went to existing fossil fuel generation instead. Were the Government aware of that scheme? If so, what lessons have they learned from it?
The way in which new clauses 11 and 12 are drafted provides the mechanism for pilots to happen, but they do not offer any further detail. I listened carefully to the Minister’s remarks, but there were a lot of gaps. The proposals do not specify what measures will be piloted, or whether more than one measure will be trialled. We are no clearer, following his remarks, as to when the Government are planning to launch the pilot or when they expect the first capacity auction to take place.
Gregory Barker
We are expecting to run a capacity market trial in 2014. We expect the pilot for energy demand reduction to be run then as well. We will be providing further details.
Luciana Berger
I thank the Minister for his intervention, and hope he will lay before the House the rules governing those auctions so that we can properly scrutinise them. We hope they will be forthcoming.
I was disappointed by the Minister’s response to the amendment proposed by my hon. Friend the Member for Southampton, Test (Dr Whitehead). I echo the Minister’s words that my hon. Friend, as the whole House will know, has long-standing expertise and considerable experience in this area. His amendment 35 would require the Secretary of State to establish
“a scheme…to make payments for the purpose of rewarding…energy saving measures”
and to do so “within one year” of this Bill becoming law. That would introduce clear, simple payments for households and businesses, and it could start immediately, with no wait for a capacity crunch to trigger an auction. I understand that the majority of respondents to the Government’s consultation favoured a premium payment option along those very lines, but we did not hear from the Minister the rationale behind the Government’s decision to reject that option and favour instead incentivising demand reduction through the capacity market.
Let me touch briefly on amendment 47, also proposed by my hon. Friend the Member for Southampton, Test, which would establish a green power auction market, or GPAM. This would combat a significant issue. The UK needs to invest £75 billion in new renewable generation by 2020. Analysis of DECC’s own figures has shown that the Government are currently relying on 35% to 50% of this investment being delivered by independent renewable energy generators, or the “disruptive new entrants”, as the Minister referred to them on a number of occasions. Their current route to market is dependent on long-term purchase power agreements with the big six. A green power auction market of the kind my hon. Friend proposes could open up the market to new suppliers, increase competition and potentially deliver a cash saving to consumers of £2 billion. Although I welcome the Minister’s saying that he wants to address this sector and that a real issue is at stake, I sincerely hope that a viable solution, which he said would be forthcoming, is in place in time for the allocation of the first CFDs in 2014.
I conclude by dealing with our amendment 1 on community energy, which stands in my name and those of my right hon. Friend the Member for Don Valley (Caroline Flint) and my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex). Speaking as a Labour and Co-operative Member, I am very proud to speak to this amendment. It would appear that the Minister and I agree that community energy schemes deliver enormous benefits to our country. They bring diversity, resilience and security to the energy market. They boost our economy by attracting new sources of investment, and they help to tackle fuel poverty through a strategy for generating and saving energy that is owned by local people.
I recently saw that first hand when I visited Brixton Energy, an award-winning solar project run by Repowering South London. It is the UK’s first inner-city co-operatively-owned energy project, and I urge hon. Members to pay it a visit if they have not already had the pleasure. As well as offsetting 28 tonnes of carbon every year, the project is providing invaluable work experience opportunities for young people. There are many other fantastic community energy projects throughout the country: Westmill wind farm co-operative in Oxfordshire, Neilston community wind farm near Glasgow and the Lochcarnan community wind farm—the list goes on. There is a risk, however, that as drafted the Bill could stop these types of larger community schemes ever happening again. That is why we need to amend it today.
The Secretary of State has said that he
“wants nothing less than a community energy revolution”,
but those words ring rather hollow when we examine how this Bill fails to address how community energy schemes can compete with large-scale commercial generation. The issues have been well summarised by Cornwall Energy, when it said that the high degree of technical knowledge needed to participate in the system is a barrier for many smaller generators, and that the proposed CFD system does not compensate smaller generators for the lower market prices they receive for their power. With the end of the renewables obligation, the Bill provides no incentive for suppliers to purchase renewable electricity from independent generators.
David T. C. Davies
I am normally a loyal Back Bencher. I sometimes skip merrily through the Division Lobbies behind my leaders, and at other times go through those Lobbies with a slightly heavier heart. I am afraid that this will be one of the occasions on which I back the Government, but do so with a certain amount of trepidation.
I listened with great interest to the Minister’s explanation of how he would reduce electricity demand, but one of the most important questions that can be asked from these Benches is not “how”, but “why”. Why is it necessary to do this in the first place? The Minister gave us a bit of an explanation by referring to climate change, which he described as a clear and present danger. Of course it is a clear and present danger. No one whom I know of has denied the reality of climate change, and I have certainly never done so. The point is that the climate has always been changing. That has been a clear and present danger for the last 4.5 billion years. The new clause, and indeed the entire Bill, was tabled on the basis that the 0.8° rise that we have seen over the last 300 years is somehow more of a danger than any of the other rises and falls that we have seen over the last 4.5 billion years.
I did a bit of scribbling as I was sitting here and listening with interest, and I worked something out. I have seen many graphs in the documents backing up these claims, and if we had a graph that showed every 100 years as 1 cm, in order to show how long the earth had been in existence, the graph would have to be 280 miles long, which is twice the length of the High Speed 2 rail route. If we really did have a graph that was that long and we were going to look at just 3 cm of it, would it be wise to put forward such far-reaching amendments and Bills based on changes that are not that far out of the ordinary over the course of the 280 miles that my imaginary graph stretches?
Gregory Barker
Despite my hon. Friend’s eloquence, I fear that he and I are never going to agree on his interpretation of the science of climate change or on the need to act. I will just say to him about energy efficiency measures, however, that even if there were not man-made climate change, there would still be a compelling reason to act, because saving money is always a good thing to do, and that is what these energy efficiency measures will deliver for hard-pressed consumers.
David T. C. Davies
The Minister is right. He did not, however, mention the other reason that is sometimes put forward—that we are about to run out of carbon-based fuels and uranium—and as he did not mention it, I will not knock that argument back. Instead, let us address the point he made: that this may well lead in the longer term to cheaper energy.
I have no objection at all to many of the things the Government are doing: the smart meters, the decentralisation—which the Minister talked about—and the insulation, which was not mentioned, but which I assume is part of the same package. I get slightly more nervous when I hear him talking about negawatts rather than megawatts, however, as that suggests people will be paid for not producing things.
We have already had that situation in farming, where people have been paid not to produce food. I sometimes wonder whether the Minister—or, indeed, the hon. Member for Brighton, Pavilion (Caroline Lucas)—would like to pay me for not making speeches. I see much nodding of heads. I ask myself, however, whether this proposal is economically sensible. I am a keen student of economics, and it is my understanding that there are only two ways to reduce demand for anything. One way is to ration the goods that are in demand, and to some extent the Government are making provision for that, as they know there is a danger that we could run out of electricity over the next 10 to 15 years. My understanding is that there have been discussions as to how, if that were to happen, demand might be rationed in respect of certain high users of energy. The second way to reduce demand for any commodity is to increase prices.
Whatever the Minister says about negawatts and insulation and smart meters, the reality is that prices are going up partly in response to the policies this Government are putting forward. We have a system that now subsidises production of electricity that would otherwise be economic, in order to make it harder for people to get hold of it.
At the moment, the clear and present danger to all of us is the economy. The one thing the coalition was elected to do was sort the economy out.
David T. C. Davies
Well, I am going to have to think about that one for a few minutes before coming back with a substantive response. I will say, however, that it is not wise to talk about reducing people’s access to electricity at a time when we want to be saying to businesses across the world, “Come to the United Kingdom and invest.” We are not going to be able to compete with anyone on the basis of labour costs; indeed, we do not want to compete on that basis. We do, however, want to be able to say to business, “If you come here, you’re going to get a large and reliable source of electricity.”
Gregory Barker
Let us just be clear that we are not talking about reducing businesses’ access to electricity; we are talking about seeing energy as part of being in a resource-efficient, competitive, global economy, where businesses that can use less energy in creating their products or delivering their services will have a competitive edge.
David T. C. Davies
I fear that within 20 or 30 years those who are now talking about the temperature changes we are seeing will find that they are not that out of the ordinary in the context of the past 8,000 years or 4.5 billion years. We may look back and ask, “Why did we suddenly decide to make it more expensive to generate electricity in this country? Why did we suddenly decide to decarbonise at a time when other nations, such as China and other places in south-east Asia, were doing quite the opposite?” We may look back from a point in the future when not only the GDPs of those countries, but their GDPs per head are much larger. Carbon emissions will not have stopped, temperatures will not have risen that much and those rises that do take place will be as much to do with things such as the Pacific decade, oscillation and the natural changes that go on in the Earth, and we will wonder whether we were right to go down this path.
Gregory Barker
I have been following the argument closely. Although we are not in a position to announce details today, our thinking is very much in tune with that of the hon. Gentleman, and we recognise the issues that he raises. We expect the capacity market to run in 2014, but we expect that, separate from that, piloted projects for energy demand reduction will be funded to help scale up the market, and in future we expect ring-fenced auctions, at least for a transitional period, for specific demand response and demand reduction projects.
Dr Whitehead
I thank the Minister for that clarification. I am encouraged by the thinking that clearly is beginning to be done on what these things might look like. I wish the Minister luck when the Treasury realises that the pilots taking place on capacity payments may have more substance to them than the Treasury might think. I should not have said that, in case someone there reads the Hansard transcript of this debate! I am encouraged by the Minister’s response.
The other matter that I want to raise relates to amendment 47, which calls for the establishment of a green power auction market arrangement in wholesale and retail sales of energy. I want to spend a moment establishing why something like GPAM is so important. My amendment attempts to resolve, or at least to go some way to resolving, a very serious issue: the drying-up of opportunities for independent generators to establish reliable markets for their low-carbon generation once the renewables obligation comes to an end in the spring of 2017.
Hitherto, those independent generators have been able to secure power purchase agreements on the back of renewables obligation certificates, and to use those agreements effectively to bank their investments, so that they have the sort of market certainty that enables those investments to be funded because it is known that there is a stream of sale coming forward that will ensure that the investment is made and works well, as far as both the independent generator and the bank are concerned. With the arrival of contracts for difference, that simply will not be the case. Indeed, power purchase agreements for those people still undertaking RO arrangements before the end of the renewables obligation have already dwindled to virtually zero. In fact, only one company, as far as I know, is presently providing power purchase agreements.
Most independent generators, whether we are talking about onshore, offshore, or other forms of low-carbon generation, are already thinking, when it comes to their investment decisions, about CFDs rather than ROs, simply because of the time period over which those investments have to be considered. They cannot go back to the bank and say, “Can we have that investment on the basis of what we can demonstrate to you, in the absence of other financial credit lines, is a known supply line for our energy product?”
The outcome could be quite perverse, with regard to what the Bill’s intentions have always been. It was always the intention, with the contracts for difference, to try to bring a lot of new, different investment into the energy market, as well as independent generators of different sizes. It was also the intention to ensure that the vertical integration seen in recent years did not become the enemy of investment, or of small, independent operators and others trying to get into the market, but rather became its friend, as other entrants came into the market alongside larger generators.
If the outcome is that as a result of the Bill we further consolidate the vertical integration of the market rather than the opposite, that will be a perverse outcome relative to everything that the Bill was supposed to bring about. If we can get a mechanism similar to the green power auction market—if it quacks a bit like GPAM and walks a bit like GPAM—I would be happy with that. We need some mechanism that can ensure that independent generators are not captured by the very large companies and that they do not have to enter into such disadvantageous contracts that they will fail to make a living from the energy that they are trying to put into the market in the future.
Caroline Lucas
I apologise, I thought they were all wrapped up together in one happy family.
I am delighted that amendments 42 to 46 are supported by the hon. Member for Hove (Mike Weatherley), so in recognition of that I will call them the amendments from Brighton and Hove. They are basically about decentralised energy, which was another area where the Minister said that he appreciated the direction but did not feel that action was necessary. I quote from “Power to the People—the Decentralised Energy Revolution”, a document from the Prime Minister himself:
“In other countries low carbon energy sources have led a process of decentralisation—in the Netherlands, for instance, in little more than a decade, combined heat and power (CHP) became the single largest supplier of the country’s energy needs.
I want to see a similar revolution happen in Britain.”
I want that too, but I do not see it happening unless we put the means in place. It is a real shame that that vision has gone the same way as the abandoned huskies—once hugged, now hated. Distributed generation is about producing and using energy locally.
Gregory Barker
We have a long way to go, but since the coalition came to power, hundreds of thousands of homes and businesses have started generating their own electricity—and that is only the beginning.
Caroline Lucas
I am delighted to hear the Minister say that. All I want to do is build on that wonderful beginning and make it go even faster with even more ambition. That is why I so hoped that he would support the amendments that go in exactly that direction. Seriously, I know that the Minister is deeply committed to the issue; I simply think that we could get there faster and with a bit more ambition by having a clearer strategy and focus.
Decentralised energy is not even formally defined in Government policy. I would have thought that it would be simpler if it were; that is one of the issues that my amendments would address. Of course, decentralised energy is already used in hospitals, schools, small towns and so forth, but its untapped potential remains vast. I cannot help thinking that if Ministers spent a fraction of the time promoting decentralised renewables that they spend promoting the nuclear industry, we might have a different kind of energy system today.
The amendments would create a new feed-in tariff scheme for distributed generation, with a maximum capacity limit of 50 MW. I am glad that I now understand the amendment tabled by the hon. Member for Liverpool, Wavertree (Luciana Berger); I am delighted that the 10 MW was a bottom line rather than a top limit. The 50 MW was the level recommended by the Energy and Climate Change Committee and we should be more ambitious than the 5 MW that the Government currently foresee or the 10 MW ballpark figure from the official Opposition.
Finally, the amendments would require distribution network licence holders to play their part in facilitating decentralised energy. It is worth pointing out that a distributed generation feed-in tariff would involve no additional cost for consumers or the Treasury; it would simply provide an effective way for small generators to invest in electricity generation and participate in the market.
Again, the new clause is complementary to amendment 47 on a green power auction market and to Opposition amendment 1. I hope that the amendments can be taken together as a positive contribution to moving to decentralised energy in a swifter fashion.
Gregory Barker
This has been a very thoughtful debate. I am sorry that I have not been able to deliver everything that Members have sought, but I think there has been an unusual degree of consensus on the direction we are taking, our objectives and the Bill’s overall intent.
It is clear that we need to do more on independent generators. I listened carefully to the hon. Member for Southampton, Test (Dr Whitehead) and I assure him that we are working to come up with an acceptable proposition to address the real concerns of independents about the barriers to markets they face, but in a proportionate way that makes sense. The green power auction market, as has been said, is a means to an end, not an end in itself, and we believe that we can navigate our way to that destination in an effective, proportionate way.
On community energy, a great deal unites us throughout the House. I have been campaigning for it since 2006, so I am sympathetic to calls to raise the feed-in tariff threshold. Now that we have reformed the feed-in tariff scheme—in the teeth of the Opposition—we can consider going further. The hon. Member for Corby (Andy Sawford) should not infer from the fact that we are unable to support amendment 1 that we are in any way set against the proposal. We are actively looking at it, but we need to think about the impact on all of the technologies. As my hon. Friend the Member for Selby and Ainsty (Nigel Adams) said, the Solar Trade Association is opposed to it. I was slightly surprised by that, but if we consider just how big a 5 MW solar array is, perhaps we will conclude that it makes sense. It is the size, I think, of several football pitches, so 5 MW of solar is a significant installation. Concerns about the potential siting of inappropriate large-scale solar on greenfield prime agricultural land before our sustainability criteria are in place, rather than on where we want to see it, namely rooftops, brownfield sites, industrial sites, factories, warehouses and supermarket car parks—basically, integrated into the built environment wherever possible and certainly on non-agricultural land—could present certain problems. We need to think through the unintended consequences that raising the tariff threshold would have. On the surface it seems extremely desirable, but it will have further impacts.
We also need to think about how that relates to the renewables obligation. In the short term—for the next few years, at least—the alternative for community schemes will not be contracts for difference, but renewables obligation certificates, which are now, finally, after a series of improvements, being used and understood by the small player. However, we believe that in the longer term, even for the smaller-scale independent, contracts for difference will be a significant improvement. We are determined to make them work for small-scale and community players.
I hope Opposition Members take on board that the coalition has an unprecedented commitment to rolling out a distributed model of generation, and that the Government are taking steps to put that vision into reality. I am sure the hon. Member for Brighton, Pavilion (Caroline Lucas) is right that there is always more to do. We have not finished yet—it will take two or probably three terms of government to achieve our ambition—but in the Bill we have the foundations of a new, exciting, dynamic, secure, low-cost and low-carbon energy economy. I urge colleagues to support the Government’s amendments and urge Opposition Members not to press their amendments to a Division.
Question put and agreed to.
New clause 11 accordingly read a Second time, and added to the Bill.
New Clause 12
Pilot scheme for electricity demand reduction
‘There may be paid out of money provided by Parliament expenditure incurred by the Secretary of State in connection with arrangements made—
(a) for the purpose of reducing demand for electricity, and
(b) wholly or partly for the purpose of determining provision to be included in electricity capacity regulations.’.—(Gregory Barker.)
Brought up, read the First and Second time, and added to the Bill.
Clause 10
Direction to offer contract
Amendment proposed: 1, page 8, line 8, at end insert—
‘( ) Section 41(4)(a) of the Energy Act 2008 (“specified maximum capacity”) is amended as follows: “Specified maximum capacity” means the capacity specified by the Secretary of State by order, which must not be less than 10 megawatts.’.—(Luciana Berger.)
Question put, That the amendment be made.