Energy Bill

Lord O'Neill of Clackmannan Excerpts

Tuesday 18th June 2013 Lords Chamber

[Lord O'Neill of Clackmannan]

My Lords, this is an ambitious and important Bill. It is ambitious in that it is trying to achieve a unique objective—the establishment of a monitored and regulated market, which would incorporate carbon emission reduction and environmental sustainability by harnessing a variety of seemingly incompatible technologies—baseload generation involving nuclear and gas-fired CCGTs, along with biomass-adapted coal stations and smaller renewable thermals. Alongside that there will be interruptible renewables, such as on and offshore wind, hydro and small-scale, and probably as yet unproven, technologies, claiming to be renewable—and, of course, if you claim to be renewable, that is acceptable. Renewable is cuddly, small and nice. It is akin to WC Fields’ snake oil. There is basically no illness that it cannot cure. It can create jobs and reduce unemployment; it can increase productivity—it can do almost anything. The only thing that it cannot do is to produce electricity on a reliable basis in great amounts. The basic amount of electricity that we require has to come from baseload generation. The rest can be of assistance, but it cannot be a realistic substitute.

It is fair to say, however, before we go any further, that all these different technologies have inconveniently different timescales for development or for the life of the stations involved. Each different form of investment will require a different form of reassurance. This is the fundamental challenge in the creation of a new market.

Utilities have been seen historically as a fairly safe form of investment. You get a return of 7% to 9% one year after another. They can be long term. They can be pretty safe. Demand is likely to be constant. Today, technical uncertainty, because of the relative newness of some of the equipment, raises questions about the possibilities of a dependence on unproven technology, or questions of access and the interruptability of one technology against another. We do not really know about the maintenance of a lot of the technologies that we are talking about. We might therefore have unreliability of a technical character that we have not yet experienced.

For these reasons, the business of reassuring investors is a far greater challenge than we have had before. We have been told that we are going to get the grand design in July—we will have the delivery plan, the strike prices and the accommodation of capacity payments. We would like to have most of those things before the House rises. I take the point that this is to be incorporated within a market system. Perhaps not all of us have been students of the United Kingdom energy markets over the past 20 years but this is the fourth attempt that we have made at having a market. It is by far the most challenging one. We have had the pool system, NETA and BETTA, the three predecessors, each of which tried to correct something that was wrong with the other one. There was gaming or it was pooled; the next one was not quite good enough but the one after that would be better. This is the first arrangement that is actively seeking to incorporate within the market system questions of climate sustainability and emission reduction.

As a consequence of this and European decisions, we have to reject the coal option until such time as we have carbon capture and storage. Like fusion, that is always going to be 15 or 25 years away, depending on how optimistic you are. Coal is not an option, so we have hydrocarbons, nuclear and a range of as yet, in many instances, interruptable or unproven renewables. I am happy to have a mixture of gas and nuclear as the main components. I am not sure that we really want to change the character of this Bill to have, at the top, competition at all costs. That was part of the philosophy of the privatisers in the 1980s and early 1990s. We had a system then that, had it been taken to its logical conclusion, would have produced electricity generation along the lines of pre-Cavour Italy, when there was a succession of city states all running little power stations.

Our system never quite got to that state, but it created entities that were easy to absorb and take over. Now we rail against—or some people rail against—the fact that there are six utilities, six big players, which pretty well dictate everything. It is an oligopoly but it is a regulated oligopoly, and it could be better regulated. We could have clearer bills. We could have better tariffs. We could have systems with greater transparency. In some respects it is the toothlessness of Ofgem over the years which has allowed a number of these excesses to take place. We have to recognise that we are trying to keep many more balls in the air with our new market system than we have attempted before. That will carry risks. If we can get it, however, we will be able to secure the assurance that a number of investors are waiting for.

I am not totally pessimistic about the investment situation. When E.ON and RWE, in the shape of Horizon, its nuclear company, decided to get out of nuclear, they found a buyer, Hitachi, which was prepared to pay rather a lot of money, albeit at this stage for real estate. Nevertheless, it was prepared to buy access to the sites and the possibilities that those offered. As far as nuclear is concerned, people are not totally pessimistic and running away from it all the time. It is essential, however, that by July we get a clear indication of the strike price, the capacity payments and the nature of what the market structure will be. If we can get those with clarity and transparency we will get the beginnings of the investment that we require.

This is a large Bill. It covers a lot of areas. There is one point about the nuclear industry that has not really been made, although the Minister did refer to the establishment of the new nuclear regulatory authority. This is long overdue. When I was the chairman of the Nuclear Industry Association, I argued that it was frightening that we were seeing the departure of so many nuclear inspectors from the regulatory body to the potential players in the British nuclear industry. We now have a body that will allow the regulatory functions to be carried out in an appropriate way and the staff to be paid at the rates that the market would wear. It is highly appropriate that we are able to do that.

Under Mike Weightman, the chief executive, this body has achieved an international standing that not a lot of people fully appreciate. Mike Weightman went to Japan after Fukushima and produced a report that did not necessarily give consolation, but it was of a rigour and authority that established once again the very important position that the British nuclear industry has in the world. We talk about quangos and government bodies, but this is one that will be going out to bat for Britain in a variety of circumstances when other countries are getting into the nuclear business in a big way.

It would be churlish of me, before I finish my remarks, not to thank the Minister and her staff for the briefings that they have given us. I have to say, however, that I am reminded of F.E. Smith’s words when he said, “I may not be much the wiser but at least I’m a lot better informed by the process”. We know that there will be a lot of complexity in the Bill. For that reason the Committee stage will be exciting and interesting. However, I reiterate a point that has been made by colleagues this evening. We want to see a lot more of the flesh that there should be on the skeleton of the Bill before we get to Report. In Committee it may not be in quite the form that we want, but we can look at it carefully. If we can get a market settlement with the delivery plan in the public domain before the recess, we will have an interesting time in Committee and at Report. I wish the Bill well.