Energy Bill

Lord Forsyth of Drumlean Excerpts

Wednesday 11th December 2013 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, if there is no one else who wishes to speak now, I will.

Here we all are, almost at the end of the process of electricity market reform in the Energy Bill. We have spent many months debating these interventions in the electricity market and felled a fair few trees printing all the documents. However, despite all this effort, the Bill is still deficient in a number of important respects. It fails to bring about true competition in generation, handing yet more power and money to incumbents via the capacity mechanism, and it fails to make clear that the objective of all this intervention is to decarbonise our electricity. The net effect of these deficiencies is that the process of decarbonisation, which the Bill seeks to introduce, is more expensive than it need be.

The original Amendment 105 and the new compromise amendment tabled by the noble Lord, Lord Oxburgh, seek to achieve the same thing: providing a back-stop for existing government policy that seeks to make unabated coal a diminishing part of the energy mix by preventing lock-in to high-emissions plant in the 2020s. This plant can be upgraded to comply with tighter air quality standards. The more coal we burn, the more effort we have to undertake, using more expensive options, to meet the same emissions reduction targets.

The Government’s chosen policy to constrain coal investment is the carbon floor price, but this is a deeply unpopular and very expensive policy. It lacks credibility as it is a financial Bill measure that can be easily done away with. It therefore creates a huge amount of political risk for investors.

The emissions performance standard underwrites that policy, reducing risk. The EPS is a tried and tested policy and it has the benefit of providing absolute clarity to the market about what is required. It is already used in California and Canada and in both cases the limit on emissions applies to old coal plant, not just new. In Canada the clarity of that regulation has brought forward investment in the world’s first commercial-scale CCS plant, which will open next year. In the UK we have not followed this but have opted instead to try to tax coal off the system—an option that is not delivering at the moment. Unfortunately, there is a great risk that this course of action will continue to fail and operators of coal will decide to sweat their assets for longer, using the large up-front payments they will now receive from the capacity market.

The original amendment required the old coal stations seeking life extensions to operate for only 40% of the time, under the EPS limit, guaranteeing that they would be available for the peak but not allowing them to baseload. In rejecting the amendment, the Government argued in the other place that this change might dissuade some plant from upgrading at all and therefore reduce the amount of plant available for peaking.

The noble Lord, Lord Oxburgh, has listened to these concerns and now tabled an amendment which offers a different approach. His amendment would require the limit on emissions equivalent to 40% of capacity to apply only in 2025, 12 years from now. Operators of upgraded plant would therefore be able to use their three-year capacity payments to offset the costs of upgrading and continue to sweat their assets for another five years at full capacity, which would then be available for 40% of the time thereafter. This seems like a good deal. By 2025, all but one of the six plants that this amendment would apply to will be more than 55 years old, having emitted together over 1 billion tonnes of CO₂ over their lifetimes, so 2025 is well past their closure date.

This amendment is a compromise but one which still has the benefit of clarity for everyone: clarity for the coal plant; clarity for gas investors; and clarity for the environment. To leave things as they stand is to allow a known unknown to persist needlessly. With no decarbonisation targets to guide government policy—

[Lord Forsyth of Drumlean (Con)]

The noble Baroness is probably drawing her remarks to a close but before she does so, can she explain to me how what she is saying in supporting this amendment is consistent with the leader of the Opposition’s declared policy to hold down energy prices and with maintaining security of supply?

[Baroness Worthington]

It is absolutely consistent because what we have said is that we will seek out the least costly forms of carbon abatement. There is no cheaper way of reducing carbon dioxide than using existing gas stations in place of existing coal stations. That is how the UK decarbonised its economy in the 1990s and that is how we should be doing it again now. However, there is sufficient doubt about that, because of the price of coal relative to the price of gas. It is absolutely consistent to say that we want to keep prices low by supporting this amendment.

One of the things that the Government are currently struggling with is that, at the root of this, there is not sufficient clarity in the backing of these decarbonisation objectives. It would obviously be very easy to solve the energy trilemma by simply lopping off one of the legs. If you simply say, “All we need to do is keep the lights on at least cost”, there is no problem; you would stick with the coal. It seems that this Government are not actually committed to decarbonisation as they have lopped off one of the legs and are seeking a return to coal at just the time when, internationally, we are pressing everybody else to move away from unabated coal.

This is a sensible and moderate amendment, and it gives clarity to everyone. It reduces investor risk, particularly for those people operating gas stations and seeking to invest in new gas stations. I hope that noble Lords on all sides of this House will find that they can support this amendment and I hope that the Minister will ultimately support it, too.

--- Later in debate ---

[Lord Turner of Ecchinswell (CB)]

My Lords, I speak in favour of the amendment. I find it difficult to understand, for anybody who concentrates not on tactical issues such as the speed of passing of the legislation but simply on the wording, what their opposition in principle could be. The simple fact of the case is that Parliament several years ago passed an Act of Parliament by huge majorities, committing us to the very significant decarbonisation of our economy: an 80% reduction in CO₂ emissions by 2050. It is the clear conclusion of all analysis, including that of the Committee on Climate Change that I used to chair, that there is no believable path to that emissions reduction by 2050 which does not involve the very significant—almost total—decarbonisation of electricity in particular by around 2030.

Clearly that is completely incompatible with a role for coal other than as providing a small number of hours a year of peaking capacity into the mid or late 2020s. This amendment would simply ensure that that possibility would clearly be excluded—with, however, a get-out under Section 48 if that at all endangered an adequacy of supply. It simply seeks to ensure that we will not have unabated coal in significant quantities in the late 2020s, and it does so 12 years ahead, in order to influence the decisions on investment that are required for security of supply.

I fail to see what the disadvantages of the amendment are. It would give greater clarity over our plans for coal and over the opportunities for gas, and I therefore support the noble Lord, Lord Oxburgh, in his amendment.

[Lord Forsyth of Drumlean]

My Lords, I am prompted to rise because of the rather unwarranted attack that the noble Viscount made on Ministers. None of us takes responsibility for security of supply in the future. The late Baroness Thatcher used to say that the only thing that was certain in politics was uncertainty. None of us knows what the future holds or what the likely position will be in 12 years’ time. This amendment would remove the flexibility that a future Government would have in order to keep the lights on. It is really quite wrong of the noble Viscount to present this as some kind of political matter that is exercising Back-Benchers in the other place, as he did, with Ministers responding to that rather than to their responsibility to ensure that we have security of supply. I notice that when I asked the noble Baroness on the Opposition Front Bench about security of supply, she did not deal with the issue.

At the end of Question Time, we had a Question about China. We are now importing vast quantities of carbon from China because of the expansion of coal-fired power stations there, and exporting jobs that would otherwise have been here. To present this as some kind of neutral political argument—

[Baroness Worthington]

My Lords—

[Lord Forsyth of Drumlean]

I shall give way in a second, if I may. I bow to the considerable experience of the noble Lord, Lord Turner, in this matter, but there was a thing called the financial crisis, which he is also very familiar with, which followed and which has big implications for jobs and prosperity in future. Ministers are entirely right to take account of that.

[Baroness Worthington]

I thank the noble Lord for giving way. I referenced security of supply in indicating that this would create greater certainty for gas investment, not least by changing the merit order so that gas operated for more of the time. The noble Lord’s interruption made me lose my place at the time, but I was going to go on to mention that I learnt yesterday that one of our biggest renewable projects, the biomass conversion at Eggborough, is now in jeopardy because Ministers in this Government have changed the early CFD feed-in rules in this Bill, which we have yet even to sign into law. The rules have been changed midway through so that the Eggborough project, which currently accounts for 4% of our supply and gives us firm renewables that mean that we can back off from wind, is now in deep jeopardy and is expected to have to close as a result of this Government changing their mind.

[Lord Forsyth of Drumlean]

The noble Baroness makes my point for me: there is no certainty in the future.

[Baroness Worthington]

Under this Government.

[Lord Forsyth of Drumlean]

Under this Government, under future Governments—whatever. All that the Government are arguing in this regard is, “Don’t close off options that may, in the event of the unforeseen happening, occur”. The noble Baroness, who presumably has concluded that she is never going to be in government again, has no interest in that, but those of us who believe that our parties will be in government would like to see our Ministers keep their options open. I hope that the House will reject this amendment.

[Baroness Worthington]

Does the noble Lord accept, though, that because demand for electricity is currently flat, keeping options open squeezes out investment in new options?

[Lord Forsyth of Drumlean]

Before I sit down, I say to the noble Baroness that I would be more persuaded by her if she and her party were to be more open-minded about the prospects for fracking, for example, in her advocating the future generation of electricity by gas. As always, though, the noble Baroness wants it both ways, and I hope very much that the House will support my noble friend and reject this amendment.

[Lord Teverson]

My Lords, I will comment on the amendment of the noble Lord, Lord Oxburgh. I agree and sympathise with my noble friend Lord Jenkin’s point that the Bill needs to proceed and that we must get it on to the statute book. The only reason I have pursued this is that, as the noble Lord, Lord Turner, suggested, the issue of the continued generation of electricity by coal is fundamental to the policies of both this and the previous Government, and therefore needs to be clarified. These two amendments are attempts to increase as far as possible certainty for investors and clarify the way forward. As the noble Lord, Lord Forsyth, said, that is not completely possible, but at least we can start to close down the risks and probabilities, which is one of the main purposes of the Bill. That is why the amendment has been pursued. I have been happy—although reluctant—not to pursue my own amendment but to try to reach a compromise.

Pricing is not a problem here. Would coal being removed from electricity generation lead to the threat of price increases? In the past few years, when coal has come on, we have not seen prices fall; in fact, the more coal has come on the system, the more they have gone up. That is the correlation; I would not say it is directly causal, but that is the history of how this has worked.

On security of supply, the vast majority of that coal comes from Russia and Colombia, with a little bit from the United States as well. The security of supply arguments do not, therefore, all run in one direction. On the question of how the coal generating industry is treated under any of these amendments, it will be free to operate at peak times for a long time. That, along with contributing into the capacity market, will be greatly to the financial benefit of the power station operators.

That is why these amendments are important. I know that this is not important to everybody, but it is estimated that our carbon emissions went up by 4.5% last year, at a time when we were hoping to bring them down. That was because of the increase in coal generation of electricity, according to the Department of Energy and Climate Change.

This is a good Bill. I congratulate my noble friend the Minister on all that she has succeeded in doing during the passage of the Bill. This is the only contentious Lords amendment, and I seriously regret that the Government have not been able to find a compromise or to help us through this important, core issue.