Energy Bill

Lord Kerr of Kinlochard Excerpts

Tuesday 18th June 2013 Lords Chamber

[Lord Kerr of Kinlochard]

My Lords, I mention my entry in the register of interests, particularly that it includes a mining company and a power company.

I will not detain your Lordships long. My understanding of this complex Bill is as yet incomplete, but it is a very different Bill from the one that the committee chaired by the noble Lord, Lord Oxburgh, reported on last July. It is a very different Bill from the one that turned up in the other place seven months ago. It is a very different Bill from the one that finished Committee stage in the other place at the end of the last session. More than 90 clauses were added at Report stage without substantive debate.

It is also an extremely dense text; a very complex text describing a very complex structure. With great trepidation, I have to disagree with the noble Lord, Lord Lawson of Blaby, who exempted me today—extraordinarily—from his strictures on everybody else in the House, the Bill, the Government and the Opposition. I was very grateful for what he said, but when he said that Dieter Helm was right to describe this as the Gosplan solution, he was wrong. I spent some time in Moscow as a young man and used to read a lot of Gosplan texts. They were clear, straightforward, decisive, precise and detailed. They were all wrong, of course, but it was all there with tremendous clarity. This text, and indeed the whole structure, seems to be a sort of magic toyshop with something for everyone, and a sometimes awkward balance between environmental aspiration and traces of the market here and there. It seems sometimes to put a little more emphasis on the greening of the economy than on cutting costs and keeping the lights on.

The Bill will take a lot of studying. Nevertheless, I welcome it because at least the long period of investment hiatus may be about to end. Companies cannot spend shareholders’ money unless the rules of the game are clear. Although I may not agree with all the rules of the game as proposed, clarity will be important. Without substantial investment soon, the lights will indeed go out. If and when the Bill passes, as I hope it will, a modicum of clarity will exist. It is not in the Bill now because the details on capacity mechanism and contracts for difference are apparently to be set out in subordinate legislation that we have not yet seen. I understand that the detail on CFDs, including draft strike prices, may appear in a draft delivery plan next month. Getting this right will be crucial to ensuring that investment in low-cost generation is cost-effective, and it is very important that this work should not be based on aspiration but should be founded on evidence-based analysis.

As for the capacity mechanism, I understand that the consultation on its design and the draft legislation is planned for the autumn and that the first auction will be next year, but that the first delivery year will not be until 2018-19, which puzzles me. Why the delay? Presumably, the Government are thinking about the construction of new capacity. However, the lights could go out well before 2018, and companies need to consider whether to run on or phase out existing plant. I hope that in Committee we will learn a bit more about how the auction system is to work and its timing.

Three points arise from the debate. First, I agree with virtually everything that the noble Lord, Lord Oxburgh, says on this subject but, again with great trepidation, I need to register a note of dissent from what he and the noble Lord, Lord Stephen, have said about the 2030 decarbonisation target and the absence of such a target in the new Clause 1 in Part 1 of the Bill. Here I agree 100% with the noble Lord, Lord Browne of Madingley. With all due respect to the argument advanced by the noble Lord, Lord Cameron of Dillington, from these Benches, companies like Siemens are not impressed by 2030 targets. Such companies make their decisions on what capacity they need and where they should site their plant on the basis of clear commitments. They are pretty cynical about targets, as am I about the idea of a legally binding target 16 or 17 years out. Bindings fray, and no Parliament can bind its successor. What matters for investors, as the noble Lord, Lord Stephen, says, is certainty and continuity. They need to see the underpinning of any targets by credible costings and a credible commitment to meet those costs. Realistically, that would not be attainable by 1 April 2014, and I do not think we are foolish to have failed to add to the Bill a requirement by 2014 to set a 2030 target. If that arises in Committee, I will be arguing against including such a target.

Secondly, I disagree with what the noble Lord, Lord Deben, said about carbon capture and storage, and here I am disagreeing also with the noble Lord, Lord Browne of Madingley. I am sure they are right that CCS is the technology of the future. A number of great companies have already spent a long time and large sums of money in trying to make it work economically, but no one has succeeded. I am sure that in 10 years’ time CCS will have a very important role to play, and I am as sure of that as I was 10 years ago when I first said it. It is the technology of the future and it may stay that way for a very long time into the future—alas, because it looks like a marvellous solution, but it is extremely hard to make it work.

Thirdly—this is very daring because here I am disagreeing with my old boss—the noble Lord, Lord Lawson, was kind enough to exempt me from his strictures on my old department and DECC for what sounded like rather absurd language about how the United Kingdom would influence the energy and environmental policy of China. I agree that there is a fly-on-the-wheel problem that one sees from time to time in such language. But the Chinese, too, deserve the Lawson lash because they seem to believe in climate change and to believe that it is at least partly man-made. They are building one nuclear plant every month, and investing hugely in LNG. They, like the noble Lord, Lord Lawson, are strong advocates of shale, and they have a huge exploration programme across China now; it is at an early stage but they clearly believe, like the noble Lord, that it too is the technology of the future. They have invested massively in solar power and have wiped out the European industry. They have a massive investment in wind power, and of course they are still burning enormous amounts of coal. They believe that the exponential increase in their demand, and the need to try to avoid dustbowls and desertification in northern China and poor air quality in the great Chinese cities force them to be as green as possible, and they would like to reduce their reliance on coal. Unlike us, they do not hang around. Like us, they think that they need to use every available source of supply. I hope that we will not hang around much longer and I look forward to the progress of the Bill in Committee and an end to the investment hiatus.