Energy Bill

Lord Cameron of Dillington Excerpts

Monday 4th November 2013 Lords Chamber

[Lord Deben (Con)]

My Lords, perhaps I might help my noble friend on this issue. There is a win-win solution, which is to recognise what has happened very recently in Germany. The big generators always start off being unhappy about the competition. However, RWE in Germany is expected to announce, after decisions made very recently, that it has concluded that it is no longer possible to take that attitude towards other generators in the German market. The Germans have been so tough about the provision for smaller generators. As I have said before in this House, it is remarkable that 50% of the very significant amount of renewable generation in Germany is done by municipalities, co-operatives and individuals.

Until recently, the big generators have fought that because they felt that their own business model was being undermined. It is quite clear from the latest evidence that RWE will take a different view, that it ought to become much more a facilitator of this rather than an opponent of it. If we get the way this is phrased in this Bill right, we will be able not only to help the independent generators but to help the bigger ones to move rather faster in understanding that this is going to be a multiple market in the future.

Therefore, I hope that the Minister will be able to discuss this again with her colleagues because it is a very fast-moving situation. This is not something that is the same today—literally—as a fortnight ago because we did not know the RWE movement then so we did not see, although we hoped, that that was what was going to happen elsewhere. If we can take advantage of learning from other people rapidly, this excellent Bill can be made that much better. I hope that she will find it possible to be a little stronger in what she says now and will take this away and discuss it with her colleagues, as my noble friend Lord Jenkin suggested, because there is now a new circumstance in which she will be able to be stronger in her support.

[Lord Cameron of Dillington (CB)]

My Lords, I support all the amendments in this group, as well as the amendments to which I have put my name. Last week we had our debate on the need to open up all sectors of the electricity industry to more competition. We on our side of the amendment were surprised at the reluctance of the Government to acquiesce enthusiastically to what we were proposing. We were even more surprised when later in the week the Secretary of State for Energy and Climate Change went on the “Today” programme and also spoke in the other place about how greater competition was at the heart of the Government’s electricity market reform. I have to admit I had the surreal feeling that there seemed to be one Government at that end promoting competition and talking about its importance and a completely different Government at this end seemingly trying to ward off competition. I hope that this week we have one pro-competition Government in both Houses.

In my short remarks in the debate last week, I linked the need for competition with the need for investment and spoke about how the two are closely intertwined. The UK’s aging energy infrastructure needs some £75 billion invested in new, largely renewable, generation facilities by 2020, and the Government are relying on independent generators, or at least their investors and financial backers, to produce some 35% to 50% of this—that is, £27 billion to £38 billion—before 2020, so this is not a marginal problem. Only by solving it will we ensure that we get the investment we need along with the much needed competition.

Of course, there is a problem. In an ideal world, an independent generator would want a backer for 15 years, because that is the normal length of any form of mortgage agreement for such a scheme, but no supplier is going to gamble on a 15-year PPA because the demand for electricity could reduce over 15 years and a supplier could find itself having bought more power than it could sell. Indeed, already four out of the big six suppliers are not buying power at all from independent generators, while the other two are charging up to 15% or 20% commission on even short-term contracts, which for the independent generator makes for an unviable PPA.

As has already been explained, this situation scares the independent generators and, above all, their investors, so no truly independent generator is going to invest without some form of compromise in the long-term marketplace. Equally, no aggregator is going to enter the fray with the big six oligopoly holding all the cards. We desperately need these independent generators to invest and, as the Government—well, the Government at the other end—keep telling us, it is only by encouraging more competition that we will achieve that investment.

The department has gone for an offtake of last resort—an OLR—to solve this problem, which is fine, but as it stands, the solution in the Bill is completely useless, as Clause 44 is so hedged about with “may”s rather than “must”s that no self-respecting financier would put any trust in it at all. The Minister’s letter of 26 July, I think it was, does not give them any encouragement either. It is a political cop-out rather than a financial foundation on which to build a competitive electricity industry. The words “political cop-out” may be a bit harsh, but the clause is clearly written from a political perspective, rather than the drafters putting themselves in the minds of an investor or a mortgage company and thinking, “What can I put in this Bill that will really reassure these much needed investors that we the Government say we desperately want?”. They just have not done that.

I hope we all agree that this is not a marginal issue. That is why it is vital that these amendments are adopted. It is vital that OLRs are available from day 1 of CFDs. It is vital that they are operational the moment—well, within seven days—of a generator finding itself squeezed out of the marketplace without a commercial PPA. It is vital that the price on offer is evidently—I stress that word “evidently”—going to be enough to reassure a financial backer that lending money in this new and uncertain marketplace is not going to be a wasted investment. There is an enormous amount hanging on getting this right, so I hope that the Minister will be able to reassure us.

[Lord O'Neill of Clackmannan]

My Lords, my previous remarks might have been interpreted as being antagonistic to small generators but I am not. What we are talking about here is a reform of the market that will encourage investment, but investment can only be encouraged if there is the prospect of stability. We are yet to receive from the Government a clear indication that there will be stability in this area.

I am not certain that praying in aid the German experience is necessarily that relevant seeing as Germany is having to accommodate the withdrawal from nuclear generation on a considerable scale and will be happy to get generating supplements or replacements from any source that it can. To a certain extent, that might be the same for the United Kingdom if coal is to be exited from our energy mix in a significant way. If that is the intention, and I believe that it is, we must have facilities available to mop up, or fill in the gaps, of what remains.

These amendments provide a clear and explicit set of measures. But they are only amendments and were the Minister able today to give us the degree of certainty required, I imagine that they would be withdrawn. However, what Mr Fallon said elsewhere probably was based on the optimism that has existed throughout the activities of the Department of Energy and Climate Change these many months—that every deal is just days away. Yet the days become weeks and the weeks become months. We do not have much more time. Therefore, it is essential that the Minister gives us a far more positive assurance than she was able to give last week. If she can do that, these amendments will melt like snow off a dyke, as we say in Scotland. However, if they do not, they will come back to haunt the Minister, because there will be a clear indication of what could have happened had there been a greater sense of urgency in the Department of Energy and Climate Change than had been anticipated by Michael Fallon before he went eastward.