Lord Berkeley
Main Page: Lord Berkeley (Labour - Life peer)
The Earl of Caithness
My Lords, I could not help but smile when I heard my noble friend Lord Deben start his peroration to us because my mind went back to the 1980s when House of Lords Committees were doing exactly the same as they are doing today in a very effective way. My noble friend happened to be a joint Minister with me on a couple of Bills. He did not like what we did then I seem to recall. I am very glad now that he thinks we were right all along and doing a very good job in the 1980s as well as in 2013.
Turning to the amendment, I was interested by what the noble Baroness said because that was not how I read her amendment at all. She said, particularly when she intervened just now, that she did not want to drive coal out. But the effect of her amendment would be to drive coal and gas out and rely solely on renewables. The way that she phrased things at the end was much more balanced. She is a great crusader for renewable energy, but having read her amendment, I thought, “Well that’s great: the nuclear industry has the best advantage now. We can build a whole lot of nuclear plants because they have no carbon and that would be extremely good”.
I have always supported the nuclear industry. It is a pity that the previous Government did not support it more fully. We might not now be in the potential difficulties that we face, which my noble friend Lord Jenkin outlined in his amendment. Given what the noble Baroness said later in her intervention, I look forward to what the Minister has to say.
Lord Berkeley
My Lords, I support my noble friend. The amendment only says “prioritise”: it does not say only lowest-carbon providers should be involved. She has a very good point. The amendment, as other noble Lords said, is not the answer, but it does enable us to have a debate. Since most of the low-carbon providers are probably the independents, which are not part of the big six, this rather confirms the argument that I put in an earlier debate on Amendment 55, I think, that it would be fairer if there was a separation. There is a wonderful potential for the big six to keep many of the low-carbon providers out that they do not own. I look forward to hearing a little more from the Minister about how this can be resolved.
Baroness Verma
My Lords, I am extremely grateful to my noble friend for bringing some sanity to this debate. I begin by saying to the noble Baroness that whenever we talk about high carbon and low carbon we must also consider the costs to the consumer.
We are, through the Bill, ensuring the decarbonisation to which I know the noble Baroness is firmly committed. At the same time, it cannot be at any cost. Time and again I have stood at this Dispatch Box and said that it is really important that the measures we take do not have a profound effect on consumers’ bills. Currently, we are already seeing that there is a movement of will against the green agenda simply because people believe that the green agenda is putting extra on their bills. We are very careful in government to ensure that the measures we are taking decarbonise the energy sector at the same time as ensuring that energy is secure and that consumers do not pay heavily for the cost of our policies.
I know that the noble Baroness is passionate about this. She asked a number of questions and I will try to refer back to them. Yesterday we had a meeting. I have some notes that I hope have been distributed to the Lords’ informal scrutiny committee referring to the analyses that the noble Baroness asked about. If she does not have them, they will be made available. They give a broad outline of the analyses that we are using. But I remind the noble Baroness that it was the Conservative Party in opposition that in 2008 asked for the emissions performance standard. It was this party that was pressing ahead to ensure that we brought in decarbonisation and it was the noble Baroness’s party that opposed every action we took at that time. It is a little difficult for us to take the passion of opportunism that is now being demonstrated.
This is about working together to make sure that we not only see a decarbonised energy sector, but we make sure that consumers are not penalised heavily. The noble Baroness’s amendment seeks low-carbon technologies to be given preferential treatment in capacity market auctions. We consider that the capacity market is not the right means to deliver that objective. Decarbonisation is best achieved through other provisions that we have put within the Bill, including the introduction of contracts for difference and emissions performance standard as well as other policy interventions such as the carbon price floor and international carbon signals such as the EU Emissions Trading Scheme.
These measures are designed specifically to ensure that the economics of low-carbon generation are transformed in comparison to traditional thermal plant. The cumulative impact of these policies is such that we expect only 3% of our electricity generation to be provided by unabated coal in 2025 and none by 2030. Therefore, it is these policies that will drive the decarbonisation of the electricity sector that I know the noble Baroness wants to see, as do we all.
The capacity market, on the other hand, has been designed to ensure security of electricity supply at least cost to consumers. Again, I know that that is what the noble Baroness wants to see as an outcome. It does this by providing all forms of capacity with the right incentives to be on the system to deliver electricity when needed.
The capacity market is designed to be technology neutral and all types of capacity will be able to bid for capacity contracts, apart from those technologies already receiving support from other mechanisms. This means that no type of technology will be given preference in capacity auctions and all eligible capacity will be compared on the basis of cost.
The philosophy is one of humility and to use the power of markets. Sadly, neither I nor anyone in my department is blessed with perfect foresight. We do not know which technologies will be cheapest, what fossil fuel prices will be in the future, or what myriad other factors will determine the optimum path to decarbonisation. That is why we have designed a framework that aims to capture the power of the markets to achieve things at least cost. Prioritising the lowest-carbon generators in the capacity market would force the market to build capacity and commit capital when extending the life of an existing plant might be a better bet—both economically through lower costs to consumers and environmentally. A few years of a coal plant cleaned up to meet the emissions limits in the IED, but operating at low-load factors, while demand-side action, interconnection and CCS develop and more low-carbon capacity comes on, could be a more competitive outcome than committing capital to new gas plants.
Lord O'Neill of Clackmannan
We have been told that the dome is now on the power station at Flamanville, so in the not-too-distant-future, four or five years behind schedule, we might start to get some electricity from that station. I am not being Francophobic here, but I do not think that the French will have that much spare capacity that they will want to keep selling to us. There may well be others in Europe who would be prepared to pay more because their position will be even more dire than ours could be if the worst scenario came about.
On the other question, I am confident that on 14 September next year, Scotland will vote to remain part of the United Kingdom. Then we might start to have a Government in Scotland who will not have us living off windmills, because that is the problem that we are going to have as long as the nationalist Administration is in power and we are going to have to depend on Salmond’s hot air to keep the windmills going.
Lord Berkeley
Is the technology at Flamanville, which my noble friend said is five years late, not the same technology with which EDF is proposing to equip our stations in this country, or is it new?
Lord O'Neill of Clackmannan
It is. Not only is it slow to build, but it is more expensive than some of the other kit that could be available. It is on a wing and a prayer. We have fallen behind. It may well be that the Finnish and the Flamanville experiences will be such that all the problems will be ironed out and we will have EDF building the first reactor at Hinckley on time and within budget. One can only hope that. Companies ride learning curves. One hopes that Arriva has ironed out all the kinks. The problems in Finland were different from the problems in France, but the combination of the two seems to suggest that they had not really done so in Europe at least, because power stations of this character are being built efficiently and speedily in the Far East but unfortunately not in continental Europe.
The Earl of Caithness
Given that the noble Lord, Lord Whitty, wants to formalise this proposal and put it in the Bill, does he anticipate that members of the panel, and the staff, should be paid? If so, is that going to be pensionable? If that is the case, where is the money coming from?
Lord Berkeley
My Lords, I would like to speak briefly in support of the amendment. I see it as a way of advising the parties on the details in the contracts, which are quite often unclear or not there at all. As we have debated before, and many noble Lords have said, we are dealing with some very large companies and very large amounts of money are at stake. So I think there is a comfort in having something like this, but the key is probably who will be on the expert panel and what their background, experience and history will be.
The Minister said in her response to the last amendment that the Government took independent advice on the strike price and scrutiny from technical experts. I would like to ask who they work for, or have worked for, because I am afraid that that sometimes colours how one thinks about these things and how they might like to think. If they are seconded from the big six, as consultants or something, how independent are they? It would be very helpful if the Minister could write to me and say who these people are, and who they work for or have worked for. At this stage, it would give people a lot of comfort to know that there was something like this—an expert panel to look at these things and form an independent view on things such as strike prices and all the other things in Clause 2. I do not think that Members of either House, in the Chambers or the committees, will want to look at those things in too much detail.
Lord Berkeley
“(4) Regulations must set the duration of support provided by CFDs to renewable technologies at a minimum of 25 years.”
Lord Berkeley
My Lords, I tabled the amendment as a result of a lot of communication from the renewables sector about its concerns about raising finance, given the current uncertainties that are going on, not only around the Bill but around a few others things that I will mention. The sector says that that is making it difficult to raise finance, which of course means that less electricity will be produced.
The risks and uncertainty are around the strike price and whether and how much of their power these companies can sell. In addition to that, there are other uncertainties such as planning. The planning system has become better in recent years with the legislation that both Governments have taken forward, but it is still uncertain. We still sometimes see ministerial decisions that look a little odd. It takes time and a lot of money, as we all know. But there is also the question of political risk. However, it is not helpful when Ministers and, I am sorry to say, Prince Charles make statements about not liking windmills or something. This does not apply only to windmills, but these technologies should be developed and commissioned and permissions sought for their planning on their merits, be they offshore or onshore. We have even heard about how successful PV is in Germany today, because the sun is shining.
There is a risk to these new developments. The renewables sector has said to me very strongly that if it could get 25 years, duration of support for CFTs, it would encourage companies and their investors to go for a greater volume of the different technologies, not only the ones that are going up already quite successfully but new ones, much more quickly and easily. I beg to move.
Viscount Ridley
My Lords, I know that particularly in the case of offshore wind a Royal Academy of Engineering report is forthcoming, which I hope we will see before Report. Rumours are that it is extremely negative about the risks and dangers of the practicalities of installing wind turbines on a large scale, and in particular on their likely lifetime.
If we were to consider giving an offshore wind company a 25-year contract for a technology that is supposed to last 20 years, and many engineers think will not last more than 15 years, we will not have done the consumer and indeed the taxpayer a service. We would have let them down very badly. We have to take into account that a lot of these technologies will turn out not to last as long as we thought and deliver the benefits that we thought they would. In the case of offshore wind, once again, it is becoming clearer by the day that the carbon dioxide savings that offshore wind will deliver will be very disappointing because of the need for backup power, the need for that backup power to be open cycle, as has been mentioned, and because of the cost and carbon cost of some of these technologies.
It would be a mistake on behalf of the consumer to enter into these eye-wateringly high, £155 per megawatt-hour, strike price costs for a quarter of a century when all sorts of things may change over that time.
Baroness Verma
The amendment moved by the noble Lord, Lord Berkeley, seeks to ensure that renewable technologies in receipt of a CFD have a contract life of at least 25 years. As the noble Lord is no doubt aware, we have recently published more detail on the contract terms, building on the operational framework of November 2012. This reconfirms our position that the appropriate contract length for payments to renewable technologies receiving a generic CFD remains 15 years.
In determining the length of the CFD, we considered a number of factors. The 15-year length is based on a trade-off between value for money for consumers, affordability within the levy control framework and bankability for investors. For the purpose of setting the contract lifetime, we have assumed that investors will require debt to be repaid within the CFD life. Therefore, having too short a contract length could impact on the cost of debt finance, given the increased exposure to wholesale price risk. Our analysis also indicates that investors discount very heavily the last few years of revenue from a project, particularly when compared to the social discount rate. Taking all these factors into account, extending the length beyond 15 years would not necessarily be significantly valued by the investor but would come at a cost to consumers.
In addition, the noble Lord may be aware that guidance from the European Commission states that support must be less than the accounting life of the asset. Extending the lifetime duration as the noble Lord proposes would extend a CFD beyond the asset life of a number of renewables technologies, which are generally less than 25 years. All these factors suggest to us that a contract life of 15 years is still appropriate.
I should also make clear that just because there is a generic contract, that does not prevent the Secretary of State directing the counterparty to issue a contract which differs on certain terms where that is considered appropriate. We have retained the ability to do this and would look to treat such occurrences on a case-by- case basis.
The noble Baroness, Lady Liddell, asked about the uncertainties of risk, mitigating them and ensuring appropriate rates of return. The strike price provides certainty on levels of support for the length of the contract. There will also be some change in legal protections. More details on the CFD terms will be published in early August, as the noble Baroness, Lady Worthington, said.
The noble Baroness, Lady Worthington, asked about nuclear and CCS. As she knows, we are currently in negotiations on a nuclear project, so I am not able to comment further on that point. On CCS, it may be better if I write to her. I hope that the noble Lord, Lord Berkeley, will withdraw his amendment.
Lord Berkeley
My Lords, I thank the Minister for her reply and am grateful to all noble Lords who have spoken on the amendment. I did not expect that it would be accepted but we have had a good debate. The noble Earl, Lord Caithness, indicated that I had a go at him for not liking windmills, which is not true; I did not mention his name.
The Earl of Caithness
You commented that you did not like people who said that they did not like windmills; I just fall into that category and am happy to be there.
Lord Berkeley
Perhaps I may suggest that if the cap fits, wear it. More seriously, as regards whether the specified period is 30 years, 20 years or whatever, I worked briefly on North Sea oil projects 30 years ago, some of which did not last that long. My noble friend declared her interest and I am sure that windmills will need regular servicing in that time. The key question after they are built is whether they will continue to operate, produce good electricity when we want it and make a good return for their investors. We have had a useful debate and I shall mull over what noble Lords have said. I beg leave to withdraw the amendment.