Electricity Market (EAC Report)

Lord Darling of Roulanish Excerpts

Monday 17th July 2017 Lords Chamber

[Lord Darling of Roulanish (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Forsyth: I agree with just about everything he said. I look forward to him chairing the Economic Affairs Committee and embarking on his new career as a bipartisan politician. I also pay tribute to my noble friend Lord Hollick, who chaired the committee for some time, long before I was appointed to it. This is the latest in a succession of excellent reports produced under his leadership. I am sorry that he has to stand down because of the rules of this House. He has given a comprehensive view of the report’s recommendations: I do not need to go into them all but will refer to one or two.

I refer the House to my entry in the Register of Lords’ Interests. I also remind the House that 10 years ago I was Secretary of State for Trade and Industry—the last one I think—and had responsibility for energy policy for all of 13 months before the banking crisis and other matters diverted my attention. At that time, I produced a White Paper which identified the need for a mix in electricity generation, including nuclear. There is now a big question mark over the future of nuclear power, partly for the reasons stated in our report. My preliminary observation is that there may have been a rationale for a functioning electricity market from 1982 when the noble Lord, Lord Lawson, was Secretary of State for Energy. It worked for many years: as noble Lords have said, electricity prices fell. However, the electricity market today is not a market in any normal sense of the word. Because the Government have, quite rightly, intervened, most notably in the demand to decarbonise the generation of electricity, this is not a market that one would expect to see functioning and where the state has pretty much stood aside. The state is rightly concerned about green energy and the security of supply, to which the committee referred. It is not nationalisation, but it is part of the way there. The policy is nationalised, for understandable reasons, but the operation and the day-to-day sale of electricity is still in a sort of market, but one where there is increasing concern about its costs and regulation.

The committee came to the conclusion that you cannot have a joint priority of affordability, decarbonisation and security: you have to rank them. Security has, quite rightly, to be the number one priority and the White Paper I published came to a similar conclusion. That is one of the reasons why I want to talk about Hinkley. I expect the House will gather that Hinkley C had very few fans on the committee—quite the opposite. It seems a classic case of the Government being desperate to get a joint public-private sector initiative, with the result that the public have been short changed. It is not just that the grandson of the noble Lord, Lord Forsyth, will be paying for this until he is 44 or 45. The British Government have potentially underwritten an awful lot of this power station and British consumers will do so very directly for years to come.

That is one of the reasons why we were concerned but when we look at where this power station actually is—or is not—alarm bells ought to be ringing. I know that the Minister will reply and say that it is all under control and that they are looking at it closely, but this power station is 10 years late; the costs are going up, even since the committee heard evidence; and EDF itself is now embarking on a review of the project’s viability. Mr de Rivaz, who has been referred to, is standing down as the CEO. His successor is bound to look at this project and, if he has any sense, he will do what you do when you get a new job: make sure that if there is any trouble you can pin it on your predecessor and get rid of it. We are told that President Macron is looking at this and no wonder; EDF is the French state. What is it doing building a power station in Somerset, in a country that is soon to become very foreign indeed to France, when we leave the European Union? It is not beyond the bounds of possibility—indeed, it is now highly likely—that EDF and/or the French Government will come back to the British Government and say, “Sorry, we can’t do it”, or, “We can do it only if you step up and contribute more to it”. For those who say that we can stand by the contract, what happens if EDF goes into liquidation, as it could quite easily do, depending on how the decommissioning costs are accounted for? No British Government can simply stand by with a half-built power station in Somerset. The British public would not stand for it. This is not something where you can just say, “It is all up to the private sector and nothing to do with us”. This is always going to be on the British Government’s balance sheet, both politically and economically.

So I hope the Government will tell us what plan B is, but that begs the second question. If Hinkley C is not to be built, even on the very generous terms to the industry and to the disadvantage of British consumers, what about the nuclear programme in the future? The White Paper I published said that nuclear was very much part of the mix. We said that deliberately because there was a feeling at one point during the term of the Government in which I served that perhaps nuclear would not be built again. The noble Lord, Lord Hollick, mentioned Toshiba’s problems. As far as I can see, nobody is queuing up to build nuclear power stations anywhere at the moment. If we want to build them, perhaps the state will have to do it. There is nothing wrong with that: perhaps the state ought to be building things that the market is not best designed to do. What exactly is the Government’s position? I hope we will not just be told that it is all under control, because the more people look at it, whether the NAO or anyone else, the more out of control it seems to be.

Allied to the question of security is something the committee touched on rather than emphasised. As a back-up for our electricity supplies, we have, quite sensibly, four interconnectors connecting us with parts of Europe, as often as not through France. There are about seven more under review. These interconnectors provide us with energy as part of the European Union’s internal energy market. Now, we are about to leave the European Union. I am sure Mr Davis has had a very successful day in Brussels negotiating our departure, but he will have to add to his list what we do about these interconnectors. Another committee of this House looked at the agreements and concluded that they were rather unsatisfactory because they were opaque. I remember that, when I had responsibility for this area, the winter of 2006 was colder than expected. There was meant to be electricity coming through these interconnectors but, surprisingly, it did not; it got siphoned off somewhere along the line. That is not a satisfactory position to be in. If we are not getting the nuclear capacity, if the capacity margins are as close as we are told, and if there is a bad winter—these bad winters have an awful habit of spreading across the Channel, so other countries will be affected as well—the interconnector safeguard falls away.

This report is clearly about electricity but I mention in passing that I read the other day that it has now been decided that it is too expensive and difficult to maintain the Rough field in the North Sea, the only place where we store gas in large quantities. Therefore, we are pushing things right to the margin. In a country that depends so much on electricity and other energy to look after its citizens and build the goods and services that we need, that is very important indeed.

That brings me to my last point, which concerns costs. As my noble friend Lord Hollick and the noble Lord, Lord Forsyth, have said, electricity prices fell in the 20 years after the introduction of the market in the 1980s but are now rising again. At the last general election, and, indeed, in the general election before that in 2015, this was a political hot topic and we were promised all sorts of things by this Government. However, I assume this promise is like every other manifesto promise that was made and, following the election result, is dead in the water. We are entitled to know what the Government’s policy is on this. It is a matter of concern that our prices are going up and it affects our manufacturers and consumers. It is not at all clear to me what the Government’s policy is. We have a situation where we do not have the sort of market that was envisaged 30 years ago for perfectly understandable reasons. We are now in a situation where the Government, who ultimately have a responsibility to make sure that we have secure and green supplies and electricity and energy that we can afford, cannot hide behind the idea that somehow the market will fix this. The majority of us—certainly on this committee—came to the view that it is not fixed and that there is an increasing need for it to be fixed as quickly as possible.