Lord Davies of Stamford
Main Page: Lord Davies of Stamford (Labour - Life peer)Energy Bill
Lord Davies of Stamford Excerpts
Lord Teverson
My Lords, I shall have to be brief, as we are supposed to finish the Bill today, I think it says, so we will need to set quite a pace. The target for the day: to complete. The easiest way to do that is for the Minister to say yes—perhaps not; I suspect that will not happen.
I tabled Amendment 51N specifically under Part 2, Electricity Market Reform, under Chapter 1 entitled “General Considerations”. This is not just about the capacity payment or all the other bits that make up energy market reform; it is about energy market reform as a whole. Clause 5(2) contains a number of general considerations and it goes through those very carefully. Clause 5(2)(c) refers to,
“ensuring the security of supply to consumers of electricity”.
Clearly that is very important. It also mentions a number of things around cost.
One thing that everybody has agreed, particularly the Secretary of State and Ministers at the Department of Energy and Climate Change, is that as this Bill has been considered in its draft stage and by the informal group of this House, it emerged that it had a bias towards supply. That may have come from old thinking from many years ago and had not caught up with a new way of looking at the overall issue of energy provision within the United Kingdom. I very much welcome the fact that the Secretary of State and the Government have started to take this on board and there are a number of mentions within the Bill of the demand side of the equation, in terms of both demand reduction and demand-side response. Of course, the previous Energy Bill was all about energy reduction in terms of the Green Deal so this is an agenda that is live.
I still think it is really important within this Bill to put down as part of these general considerations the fact that the demand side must be taken into consideration in terms of the exercise of the various functions to do with electricity market reform. That is why I seek to add these two additional paragraphs; first,
“to give priority to demand side management and demand reduction measures”.
I have put very strongly,
“in preference to increased generating capacity”,
but I have made the constraint, which ties in with the whole cost area,
“whenever and wherever this is economically appropriate”.
We need to move our mindset on from being dominated by the supply side to ensuring a much more level playing field in terms of how the Secretary of State and future Secretaries of State have to look at the way in which electricity market reform is implemented. So it is a reminder. It is exactly the thing that needs to be in the Bill to make that clear so that in the future civil servants know that when they are advising Ministers about how this Act is applied, these issues have to be taken into consideration.
We had a long debate on the first day of Committee on decarbonisation targets but we never mentioned energy-efficiency targets. In many ways, this is equally if not more important in terms of the way that we plan our electricity usage and our energy usage within the economy more generally as we move forward.
Clearly, I understand that some of this comes within a European Union context, in that we have the energy efficiency directive, the non-statutory target of 20% energy efficiency for the EU as a whole by 2020—one of the three major targets to be met by that time. It is also important to bring that requirement into this Bill.
The Minister might say that I am absolutely right, and that the United Kingdom is one of the most energy-efficient economies in Europe and indeed the world. Part of the reason is that we have a relatively small but, I hope, rebalancing manufacturing sector. We do not have many energy-intensive industries, but we rely on our service sectors—commercial and retail—which are not energy efficient.
On the other hand, we have a housing stock and a building stock which are still very inefficient: in fact DECC estimated in its energy-efficiency strategy, which came out towards the end of last year, and which I welcomed at the time, that 14 million homes were not insulated to an acceptable standard, from a stock of 27 million. For those of you who can do maths—even if they could not do the equation we dealt with earlier this week—that is just over 50% of total housing stock. In fact around 40% of total housing stock was built before the end of World War II, and a significant proportion of that before the end of World War I. That shows the issues we have around energy efficiency in this country, some of it being dealt with, we hope, as the Green Deal becomes more effective as time goes on.
What I intend to do here is to rebalance this Bill in a key area of electricity market reform, where we set out what we are trying to achieve. We are not removing the supply side; we are adding demand as an equal factor. We are saying that there should be a preference for not spending rather than spending, but only where that makes economic sense. In the cost abatement curves shown in the many multicoloured DECC documents, energy efficiency always comes out on the left-hand side of the graph, which means it is the most cost-effective way to attack our energy needs and to shape how the energy market works in the future. I beg to move.
Lord Davies of Stamford
My Lords, I agree with the second part of the amendment proposed by the noble Lord, Lord Teverson, and the noble Baroness, Lady Parminter. It would be rather strange if nothing at all were said on the face of the Bill about the importance of energy efficiency, as it is quite clearly one of the criteria the Secretary of State must always have regard to in conducting a sensible energy policy.
However, I have a problem with the first half of this amendment, which reads:
“to give priority to demand side management and demand reduction measures in preference to increased generating capacity whenever and wherever this is economically appropriate”.
In improving this Bill we are drafting the law. The law has to be unambiguous. The law places obligations on the citizen; the citizen needs to know precisely what those obligations are if the law is going to be effective, dignified and respected. This provision could not possibly from part of a law in that sense. The phrase “economically appropriate” is so vague that it is almost impossible to know what it might mean and where one would need to decide, using this principle, between an energy-saving investment and an energy-generating investment. I notice that the noble Lord, in introducing this amendment, did not actually refer to “economically appropriate”: he used the term “economically sensible”, which he perhaps feels is a synonym. However, the use of a different word only adds to the vagueness and uncertainty, which should not come to rest in the corpus of the law of the land.
I suppose that what the noble Lord might have had in mind with the phrase “economically appropriate”, or even “economically sensible”, is the solution that has the highest economic return, but even that would be a very vague phrase to place in a Bill in the corpus of law. After all, in choosing between one particular project with a relatively high capital cost and a relatively high return and another with a lower capital cost and a lower return, or between a project with a high capital cost and a long payout period and another with the same capital cost and a different payout period, which one to be chosen would depend on the cost of capital, on which one was discounting the projected cash flows. If you wanted to make this a precise obligation, you would have to specify what the cost of capital would be. It would be and should be, of course, different according to the different risks for different types of energy projects, because they would have different risks. Therefore, I do not see any prospect here of reducing the unambiguous guidance that is necessary in law so that the citizen or, indeed, the Secretary of State would know precisely whether he was observing the law or not.
Lord Roper
My Lords, Amendment 55ZA in this group is in my name and that of the right reverend Prelate the Bishop of London. As has already been mentioned, when the draft Bill was published in May last year, there was a great deal of criticism that there was nothing in it on electricity demand reduction. Indeed, those of us who sat on the informal group with the noble Lord, Lord Oxburgh, drew attention to this in the document that we produced and suggested that it ought to be included. When this Bill was published last November, there was still no reference. Fortunately, at the same time, the department started a consultation into demand reduction, and on 21 May it published its response to that consultation. At the same time, it tabled an amendment, which was then proposed new Clause 12 and is now Clause 37 in this Bill, the clause that I wish to amend.
The interesting point in the response to the consultation is that the department suggested that its preferred route to delivering reductions in electricity demand is via a capacity market—I am talking here not of a demand-supply response but of permanent reductions in electricity demand. I have always had some difficulty in seeing how that could fit in to a capacity market. I therefore grabbed the delivery plan last night to read the section on the capacity market in order to discover how it should occur. I am extremely sorry to have to tell your Lordships that, having read that whole section overnight, I found no reference at all to electricity demand reduction, not even to demand-side response. I sometimes wonder whether there are two DECCs, one writing one thing and one writing another. I hope that I am not misleading the Committee in that view. The important thing is that Clause 37, which was introduced in the other place, suggests that a pilot scheme should be developed to look at it.
In our amendment, the right reverend Prelate and I suggest that we should aim it rather more widely. There ought to be a number of different pilot schemes and, if it is possible to envisage how it could be done, they ought to be included within the capacity market. Alternatively, we could look along other lines, including those discussed in Committee in another place, of finding some sort of premium for this. There are quite a number of problems with the use of the capacity market in dealing with the permanent reduction of electricity demand. There is of course uncertainty as to how big a capacity auction will be. Therefore, people who invest in permanent reductions are unclear from time to time as to what sort of return they will get for that reduction.
Lord Davies of Stamford
My Lords, I will deal briefly with the first of my amendments, which would replace “may” with “must”. I think that there is far too much use of the word “may” in this Bill. If Parliament thinks that something is important, it should, in my view, be decisive about it. If we decide that we ought to give an instruction to Ministers, we should give them a clear instruction and not just a vague exhortation, such as is encapsulated in a subjunctive word such as “may”. In fact, as I said earlier in a different context, it is very important that the law generally should be precise and unambiguously comprehensible. If you give someone an instruction which is not an instruction, you are not producing good law. That is the simple reason why I want to change “may” to “must”, and it is a theme that applies to many other instances in the Bill.
I now come to my more substantive second amendment. By way of introduction, when I read the Bill I was quite surprised to see in Clause 21 the capacity market dealt with jointly with the issue of demand reduction. Of course, the whole Bill is really about demand reduction—how you can get the price mechanism generated by concepts such as the decarbonisation principle and contracts for difference and so forth to force people to be more efficient in their use of energy and to bring down our carbon emissions. That is the whole purpose of the Bill.
The capacity market is rather specialised; it concerns how we provide ourselves with a margin of safety over periods of peak demand so that there is not a serious danger of the lights going out. I thought that that would require and deserve separate treatment in a specialised section of this Bill. There is an aspect, of course, of demand reduction that is intimately related to the capacity market. It is intimately related in an inverse sense, in the sense that when you have more of one, you have less of another. That is the issue of demand reduction in the sense of modulation of demand—or what I prefer to call intelligent management of demand so as to reduce the aggregate volatility of demand for energy, particularly for electricity, in the economy—to reduce the peaks, and reduce the peaks that perhaps raise the troughs; to reduce volatility. There are many ways in which modern technology enables one to do that, which was extremely well described by the noble Lord, Lord Cameron, as regards dealing with smart meters and so forth. I do not need to go back over that.
The Minister has already referred to this approach several times and the Government in principle are entirely signed up, which is why it is in the Bill. There is a certain logic in dealing with the capacity market and demand reduction as reciprocals in the same part of the Bill. However, it would be a great mistake if we held up progress on intelligent demand management and demand reduction until we have a capacity market up and running. I should have thought that we should do things the other way around. It will be very difficult to know how much additional capacity we will need—that is, what we need by way of a capacity market and a definition of what the task of a capacity market is—unless we know the potential for demand reduction and specifically for the reduction in the volatility of electricity demand in the economy. Until we have experimented with some of these new systems, and have seen whether people and the market respond to these intelligent meters and so forth, we will not really know how much we need in terms of additional capacity as a safety margin in the electricity market.
It is clear that the general principle is universally acknowledged. My amendment would make sure that we do not neglect smaller businesses and households in all this. From what I can gather, all the discussion up to now has been with big generators or big consumers of electricity. It is extraordinarily important that we do not ignore, on grounds of fairness and economic rationality, smaller businesses or private individuals and families. If the Minister says that the Government are not ignoring them at all and that they are absolutely in the front line of their concerns, the substance of my amendment very largely would be achieved. That is why I am very explicitly putting forward this matter today.
I deliberately mentioned that there are two principles behind my amendment. One is fairness and the other is economic efficiency. The fairness point is that unless small businesses are encouraged to have equal access to these new smart meters and other means of monitoring price in the market so as to make sure that they can modulate their consumption of electricity to maximum advantage from their point of view, there will be a terrible distortion between the smaller people and the larger people. It will be much more difficult for small businesses, which have to cover many issues and risks with limited management, to be up to speed with new technologies of this kind. I suspect that regulations may be required in order to make sure that they get an equal crack of the whip. That is the way in which I want the Government to think about this. Certainly, small businesses should be equally sensitive, or perhaps more sensitive, to the price of energy than big businesses. They need this as much as possible.
There is a clear fairness point in terms of households. I thought that most of us in this country were concerned—although I am not quite sure about this increasingly Thatcherite Government, with the invention of the bedroom tax and so on—about the potential impact of the very necessary decarbonisation targets and increase in energy prices on poorer households in this country. In so far as that is the case, we should want to make absolutely certain that these new technologies of the smart meters and so forth are available to all families and households, but particularly to poorer families. Poorer families will have what I think would be known technically as a very high price elasticity of demand for energy. That is to say, their demand will vary quite a lot depending on the price.
To put it in terms of a graphic, the demand curve will be sloping—everybody requires some electricity for cooking, heating or what have you—but not too steeply. At the other end of the spectrum, I do not suppose that bankers, lawyers, Premier League footballers, movie stars, Russian oligarchs or Arab sheikhs are at all sensitive to price in their consumption of electricity. Their demand curve is almost certainly vertical or as close to vertical as makes no difference. Between those two extremes, there is a vast number of people with different demand curves. Overall, there will be very substantial opportunities for people to save on energy if they are given the opportunity to do so and if it is clear to them where the price advantage of doing so is.
On the grounds of both fairness and efficiency, in maximising this process of intelligent demand and consumption of electricity in the future, we need to ensure that households and small businesses are kept to the fore of the attentions of the Government, the regulator, the big beasts—the big six generators—and all the other players in this market. Without some very specific regulations, I suspect that things will not work out that way. That is the purpose of my amendment and I hope that the Government will be able to assure me that my amendment is unnecessary because they have already embarked on that very necessary course. I beg to move.
Baroness Maddock
My Lords, I do not think it is absolutely true that we have not talked about small businesses and households at Second Reading and in Committee.
Lord Davies of Stamford
I was not suggesting that we had not talked about small businesses. Of course people have talked about small businesses. What I am concerned about is the extent to which the Bill enforces on the Government an obligation to have particular regard to small businesses and households, which are inevitably less sophisticated and need more help in adopting some of these new technologies. That is my point.
Baroness Maddock
I totally agree with the noble Lord, but he gave the impression, I think, that we had not concerned ourselves with this subject. I apologise if that was not what he meant but it was the impression I got. We have done that and the Government have shown that they recognise some of the problems by bringing forward a clause specifically about fuel poverty and a fuel poverty strategy. I agree with the noble Lord that these are important issues but he has slightly distorted how the passage of the Bill has gone, and the Government’s interest. But I support him in trying to ensure that this is at the heart of what we are doing and share his hope that the Minister can reassure him that we do not need the amendment.
I talked about small businesses and domestic customers particularly in the context of demand reduction pilots. I cannot remember whether it was in Committee or at Second Reading but several of us went into that in quite a bit of detail.
Baroness Verma
My Lords, I will not be able to give my noble friend an answer now but, if he will allow it, I will write to him and to the Committee.
Lord Davies of Stamford
My Lords, I am grateful for the contributions to this short debate. On the issue of “may” versus “must”, nothing has been said to persuade me that I was wrong. On the contrary, everybody who has spoken has persuaded me that I am right to make a point about this. If a nonsense is systemic, that is no reason for not combating it and trying to get it right. I shall now feel even more emboldened when the word “may” comes up. I shall feel very sceptical about it; I shall look at it and may very well—not just in this Bill, but in others—put forward amendments of the kind I have today. I hope colleagues who also think that the present system is pretty nonsensical will be emboldened to do the same.
In a free society permissive legislation is otiose. Anything in a free society which is not specifically prohibited is allowed. Therefore, there is no purpose in passing a Bill with a clause saying somebody “may” do something. The issue is whether they must or must not do it. Those are the only things worth including in a legal obligation.
Turning to the more substantive issue, I reiterate that I was in no way suggesting that people had not been talking about the requirements of small businesses or of families and households. I am well aware that the Government have addressed, as the previous Government did, the issue of fuel poverty. We are all conscious of the importance of that, given that energy prices are bound to rise in real terms as a result of our very necessary policies. However, it is extremely important to draw the attention of everyone in this debate to the need to make sure that these new smart methods of monitoring the price of energy through the day, from minute to minute, are available not just to big sophisticated companies and energy users, but to households and small businesses. Only in that way will we get the full benefit of these new technologies, reduce energy demand in the way we need to do, and address the fairness problem and the lack of a distinction between smaller and larger businesses which are substantial consumers of energy.
On the relationship between the capacity market and demand reduction, all I say to the Government is that they had better get on with it. They have got the timing the wrong way around: I repeat, they cannot know what additional capacity they need to meet peak demand, plus a safety margin, until they know how successful the demand reduction efforts are likely to be. The two things are related all the way along: they are reciprocals, as I have said from the beginning. They need to get started with these energy demand methods and pilots very rapidly; they have taken far too long to do it. That is my main message to the Government.
Lord Teverson
I completely agree with the noble Lord over this. However, one thing which happened quite recently was that the National Grid set out to really get moving in this area of demand management in relation to major companies. Smaller ones have, if you like, to be aggregated. That process has started to some degree. The sad thing about it was that the press reported it as being a necessary response to what they saw as a symptom of the crisis in energy supply, rather than as a positive move to get the mental side of supply in line with demand reduction at certain times. That was combined with a number of other government moves at that time. It is not quite as black as that, but the noble Lord is absolutely right to press for even more.
Lord Davies of Stamford
I think that we are all very much agreed. I am grateful to everybody who has contributed. I am grateful to the noble Lord and I am delighted I gave him the opportunity to make that intervention. A very similar message going out from both sides of this Committee about the urgency and importance of these matters is exactly what I wanted.
Baroness Verma
Before the noble Lord withdraws, which I am hoping he will do, I have just been given a note referring to his question about demand and capacity, and when we would publish details of the proposed reliability standard he asked about. It is in the draft delivery plan which was issued yesterday, if the noble Lord would like to refer to it.
I have also been given a note relating to my noble friend Lord Roper’s question about the publishing of the secondary legislation. Detailed proposals will be published from October, along with draft secondary legislation to illustrate our policy intentions. I hope that information is helpful to the Committee.
Lord Davies of Stamford
I am grateful to the noble Baroness. I had not noticed that announcement yesterday, I am afraid, but I am delighted that it has been made. I am sure that the noble Lord, Lord Roper, will be equally pleased with the answer she has given. It is the job of this Committee to keep the pressure on the Government on these matters and I am glad that some measures are now coming through. I beg leave to withdraw my amendment.