Energy Bill

Lord Cameron of Dillington Excerpts

Tuesday 18th June 2013 Lords Chamber

[Lord Cameron of Dillington]

My Lords, I must first declare an interest as a farmer and landowner with family and trustee interests in small renewable energy schemes.

Electricity is now as vital a part of modern human life as air, water or food. It is only a mild exaggeration to say that we cannot survive without it. So much depends on it: from the pumped water we drink and the growing and processing of the food we eat, to lights, heating and cooking, through music, communication, navigation, health, design and even democracy—think about this Chamber with its lights, air-conditioning, microphones and TV and radio services all dependent on electricity. Furthermore, our use of electricity can only increase: electric cars, for instance, could be a huge new field of demand.

It is therefore vital that we plan well ahead to ensure that we “keep the lights on”, Bear in mind though that that flippant phrase could equally well be replaced with “preventing catastrophic life-endangering situations”, or “maintaining the vibrancy of our economy”. Electricity is the vital fuel of modern life and it would be unthinkable for our system to fail.

Noble Lords will have gathered that in the trilemma between decarbonisation, the cost of power and the security of power, for me the greatest of these three is security. If we do not have security of power, the rest are as of nothing.

Ensuring security of power means that we have to plan ahead for more than one decade. Even a gas-fired power station, from conception through planning, construction and commissioning, can take the best part of a decade, while a nuclear station takes considerably longer. Furthermore, if you take a long-term view—decades rather than years—I do not believe that there is a straight choice between green energy and cheap energy. The danger of ever rising costs of fossil fuels in the long run is possibly even a greater danger than the initial high cost of alternative sources of energy.

For instance, looking forward, between now and 2030 it is likely that China will increase its use of gas by over 500%. What will that do to the world price of gas? Or you may prefer to look at, say, Germany, where since 2000 the price of electricity has gone up by 61%, of which 75% is due to the rising cost of gas rather than its support for renewables. It is the same in the UK. Only a small proportion of the increase in the cost of our power is due to renewables—less than 15%

So never mind the climate change debate—although I should make it clear that I am a firm believer in man-made climate change—in the long run we need as many alternative sources of energy as we can muster or encourage. Furthermore, we must never put all our generation eggs in one technology basket.

Therefore, the overriding need for and the purpose of this Bill, to me, is that during the next two decades or so we will need huge amounts of money to be released for investment into the generation of power, the transmission of power and even the saving of power—literally hundreds of billions of pounds. Coming straight, therefore, to the $64,000 question—or perhaps that should be the $1 trillion question—will this Bill be enough of a signal to release that kind of money for the markets? Possibly, is my answer.

Contracts for difference are excellent; they seem a fair way of supporting new technology and even old technology, speaking as one who lives not a million miles away from Hinkley Point. CFDs seem a fair way of balancing the demands of new sources of power against the interests of consumers should there be a dramatic shift in the marketplace. However, as other noble Lords have mentioned, I worry about the complexities and uncertainties of CFDs for the small-scale generator. We still need either a small-scale FIT or a green power auction mart or something similar to give the small-scale generators—or, more importantly, their banks and backers—the 15 to 20-year comfort they need to enable them to invest. These are expensive projects for often quite small players. With all the money needed up front, you cannot start small and grow as in a normal business venture. We need this investment.

The capacity market, again, seems a good way of keeping the lights on and all that entails. As I say, security is the key. However, I am concerned that, with the first auction in 2014, the intention is to have a capacity market in place only by 2018, and I ask whether we could not do it a bit quicker. Sadly, the baton of the 2015-16 power supply was dropped some time ago and power cuts at that time seem quite likely.

The only other problem with the capacity market exercise as currently planned is the likely lock-in to gas generation, possibly up to 2045. When we are trying to get out of expensive and non-renewable gas this is an unfortunate, but perhaps inevitable, result of our need for security in the medium term. I hope that CCS could be a solution.

I support the levy control framework as providing a cap on the effect of alternative technologies on fuel poverty and manufacturing competitiveness. We will have to consider both these issues in Committee but the levy control framework allows people to know where they stand, at least up until 2020.

That brings me to the major point of contention surrounding the Bill: do we or do we not need a decarbonisation target for 2030—or, more precisely, do we need to set a decarbonisation target for 2013 and 2014 or will it wait until after the next general election? Will a two or three-year delay make all the difference in releasing the billions of pounds desperately needed to keep the lights on?

If it was merely a question of buying wind turbines and towers to place offshore, say, in the 2020s, it would not necessarily matter. However, we know that Gemesa, Siemens, Vattenfall, Vestas and so on need the signals as soon as possible to start building the factories, to create the jobs and to build the parts necessary for such wide-scale investment in power in the 2020s.

The same goes for CCS, although this time the signal is as much for the Treasury as the private sector: it really needs the self-discipline to commit this time to what could be a very profitable area for the UK. There will be a huge worldwide market for CCS if we can create a safe and reliable system. I sympathise with the Government over decarbonisation targets. There is a lot of uncertainty about where our power sector could go over the next 15 to 20 years. Will we have a shale gas revolution? Will nuclear become too expensive to replace? Will the only practical source of power be gas and will CCS fail? Will the gas lock-in, which I spoke about, become an accepted feature of our energy landscape? Can we burn cheap coal-bed methane or will algae be the solution to the world’s energy problems? Will the economy soar and increase demand, or will it plummet and make cheap electricity the overriding need? It is hard to know which will be the safest road. We could go in any direction.

That is the key point. These same thoughts are going on in the minds of investors, too. They, too, do not know which way to jump. They, too, are tempted to hold back their billions until they see which way the cookie is going to crumble. Which technology is going to succeed in the UK? What is going to happen to the levy control framework after 2020? It is all very well the Government relying on the Climate Change Act, but that is about general targets across the board. What sector-specific commitments are the Government giving within the electricity industry? Why should investors commit their money if politicians cannot commit their and their successors’ reputations? In my view, the Government should provide certainty to investors. The target need not be as low as 50 grammes per kilowatt-hour, but a target is needed. Then the investment that follows will, in my view, bring down the cost of power, boost our employment and economy, and raise the certainty and security of power, which is really important.