EU: Energy Governance (EUC Report)

Lord Bourne of Aberystwyth Excerpts

Monday 13th June 2016 Lords Chamber

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, I am most grateful for contributions to what has been an extremely wide-ranging debate, far beyond the issue of energy governance, as many noble Lords would acknowledge. It covered just about every aspect of energy policy, possibly apart from smart meters, so I will try to give those a mention as well as I go through. I will try to pick up all points brought up by noble Lords. I will ensure that officials and myself read a report of the debate, pick up every aspect of the debate and write to all noble Lords who have participated in what was, as I have said, a very wide-ranging debate.

First, I join with the thanks to the noble Baroness, Lady Scott, who has done an outstanding job over three years as chairman of this committee, and to committee staff and officials. The noble Baroness, Lady Scott, as she said, now rotates off and I welcome to the rotisserie the noble Lord, Lord Teverson, who follows her; she is obviously a very difficult act to follow. There must be something in the water in Needham Market, I think. I thank her very much for the work she has done and for this report.

I say at the outset, pursuant to what was said by the noble Viscount, Lord Hanworth, the noble Lord, Lord Grantchester, and my noble friend Lord Suri, that the position of the Government on the European Union is very clear: we believe that it is in the best interests of the United Kingdom that we remain members. That is certainly my view too and it colours some of what I will be saying as I go through the various points that have been made. On an international level, international points were made as well, highlighting the importance of the European Union, the relatively recent success in Paris and the role that the United Kingdom and the European Union made in that—we were part of the European Union negotiation team. My right honourable friend the Secretary of State, Amber Rudd, played a leading role in that. The leading official for the European Union was Pete Betts from our own DECC and we were very proud of the role that he played too. That is a clear example of the importance of the European Union in relation to climate change.

Energy and climate policy is an area where there is significant added value for the United Kingdom in working with our European partners, whether to shape the single market or to drive ambitious action on climate change in Europe and more widely. The Government support the energy union because it should help ensure that the Commission and all EU member states take a more holistic, long-term and strategic approach to energy and climate policy. I should say something at this stage about the Energy Council in Luxembourg a week ago today, to which the noble Baroness, Lady Scott, referred. The only reason we did not sign the agreement, the North Seas countries declaration, was simply purdah, as I made clear at the time and have since. I am absolutely clear that we will sign it, but we were not in a position to do so last week or this week. As soon as we are able to do so, we will.

The holistic approach I have referred to should cover all five pillars of the energy union. These are energy security, the internal market, energy efficiency, decarbonisation, and research and innovation. They are all central parts of UK government policy as well as energy union policy. At the heart of it, the energy union should support the delivery of a competitive, interconnected and fully functioning single energy market. The single energy market is the cornerstone of our ability to provide secure, affordable and sustainable energy supplies. That is the approach of the Government and I am very pleased to hear the support that the noble Lord, Lord Grantchester, offers to that approach.

The United Kingdom has long been a strong advocate of making the single energy market a reality, because it helps keep bills down and improves the energy security of all. Inside the EU it is cheaper and easier to buy and sell energy across borders. By 2030, a fully integrated EU energy market could save EU consumers £50 billion a year in energy costs. Therefore, we fully support the further development of the single energy market and are working with the Commission on its electricity market design proposals, a point raised by my noble friend Lord Suri. We understand your Lordships’ interest in common EU standards for capacity markets. However, until there is a fully functioning internal market, we do not think that such common standards are practically possible or, indeed, politically desirable. The development of capacity markets is a political decision which needs to take into account the circumstances of individual member states. It is not appropriate or desirable to be harmonised at European level, in our view.

It is, however, important that the effect of capacity markets on the working of the single energy market is kept to a minimum. That is why the United Kingdom, the first member state to receive clearance for our capacity market, supports agreed general principles for capacity markets and encourages member states to share best practice and to develop our common understanding of how capacity markets in different countries interact. Of course, we are happy and indeed keen to share our practice and our own experience in relation to that. Capacity markets are a very important part of dealing with the capacity that we have and the importance of security of supply, a point raised by my noble friend Lord Howell. I was at the National Grid this morning, discussing this. We actually have a slightly better margin than we have had for the past winter, but it is obviously something where capacity markets, demand-side reduction and interconnectors are all helping us to address the challenges: there are challenges, of course.

I move on to regional co-operation, a point raised by the noble Baroness, Lady Scott, and my noble friends Lord Selkirk and Lord Howell. The sharing of information, plans and best practice can also improve energy security for the United Kingdom and our partners across Europe. My noble friend Lord Selkirk of Douglas raised recommendations 19 and 20, which we unequivocally support, about balancing the need for EU frameworks with member states’ right to choose the best and most cost-effective way to meet their emissions reductions targets. We strongly support that and would strongly oppose any attempt to use the governance framework to impose de facto binding national or regional renewable targets.

As I think I have made clear, we also support increased interconnection. The United Kingdom plans to more than double the amount of electricity we can import over the next five years, saving consumers nearly £12 billion in energy costs over the next two decades, involving interconnectors with France, Belgium and Norway and so on. Combined with recent measures to facilitate cross-border energy flows, interconnection should improve energy security and give the United Kingdom access to continental electricity when it is cheaper.

We strongly believe in an energy union and that it is important to strike the balance between national interests and the way the energy union will operate in the interests of the whole community. That is what we seek to do. Indeed, based on the experience of last Monday, I think that is what other member states seek to do. I forget which noble Lord made the point about differing national interests and differing national energy mixes—I think it was my noble friend Lord Selkirk although it may have been my noble friend Lord Howell or somebody else—with Germany ruling out nuclear, France being strongly nuclear and the United Kingdom being somewhere in between. The nuclear issue arose at the recent Energy Council and was dealt with. It seems that most states in the energy union take a different view from that of Luxembourg, Austria and Germany, which are fairly strongly anti-nuclear. Member states have different national interests and should have the right to determine the way in which they reach decarbonisation targets.

If the single market works well, the overall effect will be to reduce prices. The energy union should also give investors the greater policy certainty—many noble Lords mentioned this—that they need to make the long-term investments in energy infrastructure projects required to continue to deliver secure, affordable and clean energy in the future. Investor certainty is certainly important. A very clear signal was given in Paris. We should keep at the very forefront of our minds the importance of that clear message. I say “should” in relation to the energy union giving investors that greater policy certainty because we are at a very early stage in the development of thinking about the energy union, what it means and how it can best be implemented. This was discussed last Monday and clearly things will move on. This is why the report and indeed this debate are so timely.

Discussions are beginning in capitals and in Brussels to determine what an energy union governance framework should look like and how to develop an approach that works for countries not used to taking a holistic approach to energy and climate policy, and for countries such as the United Kingdom which have done so for many years. Given what is at stake, it will be vital to develop the right framework for the governance of the energy union, one that seizes the opportunity to enable all member states to have a clear and credible road map for decarbonisation of their economies over the long term. That point was made by many noble Lords, including my noble friends Lord Howell and Lord Ullswater and the noble Lord, Lord Teverson. The framework should support those member states that will be producing national energy and climate plans for the first time. We shall proceed on the basis of the carbon plans that we are already producing, so this will form the basis of our own national energy and climate plans. However, it must respect those member states such as the United Kingdom which have produced such plans for many years. We believe that the United Kingdom can play a strong leadership role here, continuing to share with other member states the experience we have gained from the complex cross-government work required to both produce and implement our carbon plans.

We have set out our position on ending energy from coal. We are unique in the European Union and in developed countries in that regard. That highlights the differences that often exist in this field. My noble friend Lord Howell referred to the importance of the marine possibilities that we have such as hydro, which is important at the moment. Tidal lagoons are being looked at and we need to move that forward. We believe that with our experience we can help others develop long-term, robust, credible national plans and so ensure a level playing field across the EU.

However, the arrangements for energy union governance need to be flexible. Member states must be responsible for developing and delivering their own national plans. Crucially, member states’ right to determine their own energy mix must be respected. With this in mind, we do not believe that national renewables targets in particular should be part of the 2030 framework. This should not surprise noble Lords as this has been a very clear stance of the Government for a considerable period.

The United Kingdom is a world leader in offshore wind deployment and we recognise the role played by the 2020 framework to kick-start renewables deployment and drive down costs in the United Kingdom, across Europe and globally. But for the period after 2020, it is right that member states have the flexibility to decarbonise in the most cost-effective way. Energy union governance should not create unnecessary burdens or constraints, nor restrict member states’ policy choices on those issues best addressed at national level. I briefly mention nuclear, which has come up. I do not want to get bogged down in a discussion about Hinkley. That is perhaps for another time. I am happy to pick that up in correspondence but will say that the increased cost of Hinkley is an increased cost for EDF and the Chinese Government. That is not reflected in the strike price. In decarbonising, the contribution of nuclear is important not just from Hinkley and developments at Wylfa, Moorside and so on but also from small modular reactors.

In policy terms this means balancing the need for EU frameworks on issues such as market integration and emissions reduction with preserving national flexibility to choose the best and most cost-effective way to meet national greenhouse gas targets. It also means balancing the need for certainty and predictability with the need to adapt as the market changes and technologies develop. It has also been mentioned in the debate that there will be developments that we may not even anticipate at the moment—known unknowns. With an eye to the better regulation agenda, the energy union should not create additional burdens for countries such as the United Kingdom which are ahead of the pack. We will be arguing strongly for a flexible template for member states to use in completing those national plans.

As regards DECC’s goals, clearly there is the trilemma. Our first priority is energy security—as I think noble Lords know—affordability and, of course, the importance of clean energy and decarbonisation. We are strongly committed to those goals. Nobody can doubt that, having seen what we did in Paris with the commitment to decarbonisation.

I apologise for picking up other points made by noble Lords in a somewhat random way but they were not perhaps central to the report. The challenge of security of gas supplies in Europe is certainly a central one and—to be fair—comes up in relation to the energy union. That obviously is linked with not just the energy union but also the energy community in south-east Europe and, indeed, the energy charter which governs the former Soviet Union, the European Union and a few others in terms of ensuring that we have security there. That clearly is important. I have mentioned some of the other issues relating to nuclear. I think I have covered the importance of interconnectors. Energy efficiency is certainly important. We hope that that can contribute to demand-side reduction. It is already bringing down demand, as has been acknowledged today in relation to the national grid. Demand is an important point in ensuring that we have that security of supply. We are now getting the demand-side reduction on the industrial business side. We can expect to see that delivered through smart meters and smart grids on the domestic side as they roll out to 2020 and, indeed, beyond.

CCS is vital. We discussed that very recently in New York when signing the international treaty and when discussing bilateral arrangements with other states on the importance of coming together to see whether we can pool resources in terms of research and data on CCS. That work will be ongoing. Therefore, an awful lot is happening. I restate my thanks and those of the Government for the report, which is timely and well thought through. We largely accept it and welcome it, as noble Lords are aware. I am very grateful for it. I thank the noble Baroness once more for all that she and the committee have done and wish them all the best in the future.