Lord O'Neill of Clackmannan
Main Page: Lord O'Neill of Clackmannan (Labour - Life peer)Energy Bill
Lord O'Neill of Clackmannan Excerpts
Lord O'Neill of Clackmannan
My Lords, I am at a wee bit of a loss here. My understanding was that markets operate on the basis that if there is a shortage and there is a demand, the price rises, and that plant which is presently idle will be brought into play.
The noble Lord, Lord Jenkin, made no reference to those plants which are either under construction or for which planning permission has been granted, and which may well be up and available, if not running, in the period between 2014 and 2018-19. I think that he is taking the long overdue siren noises from Ofgem of June a bit too seriously. Most people just said, “It’s typical of Ofgem”. It has taken so much longer to wake up to the fact that all this capacity is going out because of European directives and the like that there is going to be a problem. So his new-found urgency here I find somewhat unconvincing, because of his dependence on Ofgem's latest edict. I am not sure whether we need to wait four years, but I do not think that six months is necessary. It would be helpful if the Minister could give us some idea; it would be nice if we could get what was going to be in the SIs in the autumn, but not necessarily that. Perhaps she could give us some idea of the estimates and what the nuancing is of the information. As far as I can see, there is idle plant which, if the price was to rise, would become attractive to operate. Furthermore, there are a number of schemes which are either in the course of construction or would be accelerated once the process started. You do not build a power station in six months; you build it in about three and a half years. I suspect that that is the reason for the four-year timeline. So I am not sure that we need the amendment at all, but it would be helpful if the Minister could give us a clearer idea of the forecasts from DECC and others on the availability of plant, which would allay some of the anxieties.
Lord Jenkin of Roding
I remind the noble Lord of some of the figures that I gave at Second Reading. I have been provided by some figures by one of the companies that have mothballed plant; its national estimate is that there would be mothball capacity that could be brought back into production within three to six months of 2.6 gigawatts; between six to 12 months, a further 1.4 gigawatts; and 12 to 18 months, 2.6 gigawatts. That is not in the least bit inconsequential; these are important figures. If nobody is going to get any payment until 2018-19, that is how they will stay—mothballed—because they will not see what their payment is going to be.
Lord O'Neill of Clackmannan
If this plant were to become necessary, the price would rise—but the “if” involved in the “were” of this plant becoming necessary is still open to doubt. The noble Lord has taken the worst possible scenario and tried to build the case on it for something that will be extremely attractive and very convenient for the companies that have been lobbying him. It might suit their purposes but it might not suit everybody else’s—and it may not even be necessary in the first place. That is why I have doubts about this sort of stuff, which is almost built on the back of Daily Express scaremongering. We know that there is going to be a terrible winter next year, as there is going to be every year—and, we are told, there are going to be blackouts. Well, we have had terrible winters and, so far, we have not had any blackouts. It is getting worse because the generating capacity is diminishing, but it is not yet diminishing at the rate that would necessarily require us to do what the noble Lord asks us to do.
Viscount Ridley
I had not intended to intervene on this point, but I would like to make a similar point to the noble Lord, Lord O’Neill, although coming at it from a rather different direction. I agree with him that what we will see in terms of the capacity squeeze are price spikes, and, therefore, capacity coming back into use. In that context, it is very well worth noting that, at the cost end of the spectrum for the generators, there is an increasing view among markets—not a consensus, which would be the wrong word—that gas prices are likely to fall over the next few years. I do not know whether anybody saw the FT blog from Nick Butler yesterday, but he made the point that for four reasons gas prices are likely to fall. Not one of those reasons included shale gas; he was saying that, even outside the effect of shale gas, we are likely to see huge new resources coming on stream in the Mediterranean and East Africa and offshore in the Americas, that the LNG market will produce a much more globalised market in gas and that the Japanese uptick in gas demand following the closure of the Fukushima nuclear plant is coming to an end. Combine that with falling demand in India and China, and it is quite possible that we will see falling gas prices. It is quite possible that, as the noble Lord, Lord O’Neill, said, we will be able to see this mothballed plant come back into operation because of rising prices for electricity and falling prices for gas without having to, as it were, bribe them. It is important that we are not in the business of making life easy for producers but in that of making life as easy as possible for consumers of energy.
Baroness Parminter
I rise to speak to the group of amendments on the value to the United Kingdom of a European internal energy market, and in particular to move Amendment 55ZB, which stands in my name and that of my noble friend Lord Teverson and the noble Lord, Lord Whitty.
The amendment would require the Government to introduce a strategy to address the policy barriers to interconnection and the distortions introduced by the proposed capacity market. I highlighted at Second Reading the benefits of greater interconnection across Europe, so I will be brief now. It makes a significant contribution to security of supply as Ofgem's recent electricity capacity assessment demonstrates. If the UK imports electricity from the continent at times when supply is tight, capacity margins increase from 5% to nearly 9%. By making more efficient use of renewable energy, it can have positive effects on energy costs, as the Government have confirmed in their response to the House of Lords EU Select Committee report, No Country is an Energy Island, which is to be debated in this House next Monday.
In her concluding remarks at Second Reading, the Minister made it clear that the Government,
“are fully supportive of increased interconnection”.—[Official Report, 18/6/13; col. 236.]
I am aware of some welcome initiatives, including a memorandum of understanding with the Irish and Icelandic Governments. Also the Government are supporting Ofgem’s integrated transmission planning and regulation project to take it forward. But there is no denying that the decision not to allow interconnected capacity to participate in a capacity auction now will distort the internal market. Why? Because an overseas power generator wishing to supply the UK market will receive the wholesale electricity price alone, while generators in the UK will receive a capacity payment and a wholesale electricity price. This would mean that there would be less efficiency resulting from less competition in the auction and, crucially, less incentive to build additional interconnection capacity.
The Government have said in very recent correspondence that they are keen to find a way for interconnected capacity to participate in a capacity market in future. This is to be welcomed, but we need a clear commitment in the Bill that this Government prioritise interconnection alongside the capacity market and demand-side reduction measures to deliver the energy that we need. We need to know what other avenues they are going to pursue for interconnection and by when. It is legislation, not the sometimes contradictory comments within government, that shows investors what government will do and creates the necessary confidence to invest. Let us be clear: the European Commission estimates that investment of more than €200 billion is needed before 2020, two-thirds of that in the electricity market, in cross-border infrastructure. Putting this amendment in the Bill would help to give that investor confidence, requiring the Government and this department actively to look at ways in which to develop mechanisms, working with the regulators and European partners to support cross-border energy trade. Doing so would show that, on energy, just as on crime, trade and the environment, we are better working with our European partners and neighbours. I beg to move.
Lord O'Neill of Clackmannan
I would like to ask those who tabled this amendment about the sources of energy that we will be interconnecting with. At present, within Germany, there will be a highly distorted market, with renewables concentrated in the north, demand in the south, and nuclear power stations closing by 2021.
As I understand it, Germany’s nuclear power stations enabled the Danes to keep nice and green by exporting some of its surplus nuclear supply to them. At this stage, we can probably discount Denmark and Germany as potential sources of supply. We have been fortunate to have had an interconnection arrangement with France. In some respects, it has probably done the French more good than us, certainly commercially, but it has enabled us to keep our lights on. On the other hand, one can imagine that the parlous state of not only the Italian economy but that country’s interconnection may present problems. In this little European tour, it is most unlikely that we could depend on Italy as a source of much energy for the United Kingdom. It would be very nice to have connections with Iceland but its significance would be pretty limited.
There is always the issue that long undersea cables have significant transmission losses, and I am not quite sure how much we would get out of Ireland on a good day. We know that there may be gas around Ireland and there have been useful discoveries there. However, the point that I am trying to make is that we could conceivably get some hydro power from Norway but my understanding is that global warming there has created problems whereby hydro power is not quite as reliable as it used to be because the glaciers are getting smaller and there is too much water at the wrong times.
It would be nice to be reassured that someone in Europe at the other end of our interconnections could provide us with a lot of electricity. If we were to obtain 30 gigawatts of nuclear power, we might be able to sell some to Ireland, although the Irish might not like nuclear power. They do not seem to mind it when it comes from Scotland, so long as it is under an agreement with a company that also owns gas-fired and coal-fired power stations. Like the Danes, the Irish are able to remain rather more environmentally acceptable to other people than perhaps they are.
The point that I am really trying to get at is that this will be very expensive, there will be transmission losses because of the distances involved and I am not sure which countries will have surplus capacity capable of providing us with what might well turn out to be extremely expensive electricity. At the moment, it has been useful and helpful to have received it from France. I am pretty certain that the French will sell it to the highest bidder and there will be people on the continent of Europe who will probably need imported electricity to a far greater extent than we do and will therefore probably be desperate enough to pay higher prices for it. Before we embark on a strategy that implies great expense and investment, given the parlous state of a lot of the energy companies in terms of even their share value, increased interconnection is a wee bit fanciful. I am happy to be convinced if there are power generators across the North Sea desperate to sell to us but I am not quite sure that they are. Even if they are keen now, will they be in 10 years’ time? Although we are having administrative difficulties in getting this Bill into a shape that we can deal with on Report, we will probably eventually get it right, but we do not get the impression that our European partners are moving with even the glacial speed at which we are travelling when trying to achieve solutions. A strategy might be very nice but, at the end of the day, it might be wishful thinking.
Lord O'Neill of Clackmannan
We have been told that the dome is now on the power station at Flamanville, so in the not-too-distant-future, four or five years behind schedule, we might start to get some electricity from that station. I am not being Francophobic here, but I do not think that the French will have that much spare capacity that they will want to keep selling to us. There may well be others in Europe who would be prepared to pay more because their position will be even more dire than ours could be if the worst scenario came about.
On the other question, I am confident that on 14 September next year, Scotland will vote to remain part of the United Kingdom. Then we might start to have a Government in Scotland who will not have us living off windmills, because that is the problem that we are going to have as long as the nationalist Administration is in power and we are going to have to depend on Salmond’s hot air to keep the windmills going.
Lord Berkeley
Is the technology at Flamanville, which my noble friend said is five years late, not the same technology with which EDF is proposing to equip our stations in this country, or is it new?
Lord O'Neill of Clackmannan
It is. Not only is it slow to build, but it is more expensive than some of the other kit that could be available. It is on a wing and a prayer. We have fallen behind. It may well be that the Finnish and the Flamanville experiences will be such that all the problems will be ironed out and we will have EDF building the first reactor at Hinckley on time and within budget. One can only hope that. Companies ride learning curves. One hopes that Arriva has ironed out all the kinks. The problems in Finland were different from the problems in France, but the combination of the two seems to suggest that they had not really done so in Europe at least, because power stations of this character are being built efficiently and speedily in the Far East but unfortunately not in continental Europe.
Lord Cameron of Dillington
Perhaps we can get back to the amendment. I support it because connectivity is like an international capacity mechanism, except that it has the ability to incorporate renewable technology and even intermittent power. I say to the noble Lord, Lord O’Neill, that it is not all about the UK. It is about sharing surplus all over Europe. That is the whole point. It is very unlikely that you will get a particular moment when there is no sun in Italy, no wind in Germany or Ireland, no water behind the hydro dams of Norway and no nuclear power coming out of France. There will always be surplus here and there. For instance, at one moment last week in the German market, 33% of the power was being produced by PV. There was a complete surplus in the marketplace. It was disastrous for the coal-fired power stations of Germany because suddenly the price of electricity went very cheap.
The interconnectivity is a transEuropean thing which we can all work together. I believe that an interconnected Europe would be a secure Europe in that way. However, we have a long way to go, and the noble Lord, Lord O’Neill, is correct to refer to the glacial speed. There are different regulations in different countries and different ownership structures, including some nationalised industries and old semi-nationalised industries, which are very inefficient yet determined to fend off any possible competition from abroad. There is also the question of different voltages operating in different countries. Hovering over all these uncertainties are the European public, who seem to want their power but under no circumstances want to have more pylons.
Meanwhile, in all this the EU Commission has made £9.2 billion available for overall connectivity, including gas, when the rough estimate for the electricity grid connections is £104 billion, including £23 billion for subsea cables alone. I ought to correct one other thing that the noble Lord, Lord O’Neill, said: with high-voltage direct current there are almost nil losses in transmission. Although the power stations at either end are obviously more expensive the line itself is much cheaper, particularly if it goes underwater.
The point is that the rest of that money—the £104 billion —has to come from the marketplace but to get even a proportion of that money, the market will need the certainty of international commitment and the certainty of a plan. It will need an EU plan set out by the Commission in a way that guarantees long-term commitment and is signed up to by all the member states involved. Eurelectric, the trade body representing the European electricity sector, says that creating a predictable policy framework would help utilities to finance their investment plans and attract the necessary funds. Incidentally, Herman van Rompuy says that the implementation of such a framework, which includes electricity and gas, could save the EU consumer up to €30 billion per annum. My point is that in order to get a firm and committed EU strategy, we need to start with a firm UK strategy. That, in a nutshell, is why I support this amendment.
Lord Deben
My Lords, I hope that my noble friend the Minister will look at these amendments as probing amendments, because there are some important issues which we need to cover. I declare a past interest in the sense that I was involved in trying to get a particular interconnection. My experience from that is that there are many difficulties which are not systemic difficulties, as the noble Lord, Lord O’Neill, might refer to them, but simply difficulties about the way in which we do things in this country which makes it very complex.
There are two different issues here which are covered in the first of the amendments, which was introduced earlier by my noble friend Lady Parminter. One is connection and the other is connection,
“in order to support the continued development of a European internal electricity market”.
Those are two different things, although I hope that they would run in parallel. Manifestly, in the long-distant future, it would be quite sensible to have a lot of windmills when there was wind and a lot of solar when there was sun. Being able to pass that along would be very good. Modern methods of transmission are very much less wasteful than previously and there is some indication that we will be able to move things very well in the future.
Obviously, therefore, there is a long-term interest in linking up the systems more effectively. I do not know what the latest figure is, but it has been estimated that if we made certain, not-very-difficult changes to the northern European connections, we could save about 11% of our emissions, simply because they are now wasted due to the connecting arrangement. That may have been updated now, but there are clearly savings to be made there. They are the sort of savings that we should make before we do other things. It always seems to me that wastage—I am glad that right reverend Prelate the Bishop of Chester came into this debate—is the least acceptable manner of putting emissions into the atmosphere. It just does not seem to be a right thing to do.
Even if it were not for that reason, we need to open up the opportunities for people to invest. The noble Lord, Lord O’Neill, is right that such investments are quite expensive, but if you open up the opportunities for people to invest, the market will sort out which investments are sensible and which are not. There will be an opportunity then for perhaps rather more cost-effective investment, which would involve interconnection.
The purpose of the amendments, so far as I can see, is to ask my noble friend the Minister, “Are we sure that we’ve looked at this sufficiently well in the general panoply?”. The climate change committee, of which I have the honour to be the chairman, has always talked about a portfolio of energy supplies as being the basis for energy sovereignty, for making sure that we do not become subject to very high prices of gas and for making sure that we fight against dangerous climate change—these three things come together. The portfolio approach is the one that I am always looking at. I am very keen that we should not write this Bill to exclude this. The noble Lord, Lord O’Neill, would probably go along with the concept that we should make sure that there is not an opportunity here. I am not sure that the Bill does that. If my noble friend could say to the Committee that she will make sure there is not a lacuna here, it would be a very helpful outcome of this debate.
Lord O’Neill of Clackmannan
I want to make this point to the noble Lord. We have a department that at the moment cannot provide us with important, immediately required, documents. We are asking them to produce a strategy in 12 months, a lot of which at the moment seems to be wishful thinking. Are this lot capable of doing it?
Lord Deben
I knew that I should not have raised the noble Lord’s name, because it gave him the opportunity to say what he so often does, which is anything that is not complimentary to the Government. I remind him of the early part of Wuthering Heights where there is a peculiarly nasty individual. He ransacked the Bible for the promises that he pulled to himself and the curses that he threw at other people. Sometimes, I am reminded of that in the speeches given by the noble Lord.
Baroness Verma
My Lords, it might be wise for me to write in detail to the right reverend Prelate and the Committee with a fuller answer.
Lord O’Neill of Clackmannan
Given that the Minister is not opposed to the amendment in principle, if the words “12 months” were removed from it and the amendment were to be retabled on Report, would she look at it in a more sympathetic light?
Baroness Verma
I see that the debate has changed the mind of the noble Lord, Lord O’Neill, but, as with all debates in Committee, I shall go away and look carefully at Hansard to make sure that I have understood the debate fully.
Lord O’Neill of Clackmannan
I am just an old hand at this game. Ministers who do not have very much to offer Committees sometimes throw them bones and say, “We like the principle but not the text; were you to change it, we might look sympathetically at it”. That is the kind of thing that prevents unnecessary tensions and allows people to leave with a wee bit of a skip in their step. I was merely asking because I am sure that some of the old greybeards on the noble Baroness’s side would say that that is one way of throwing bones to other Members. Is she in a bone-throwing mood?
Baroness Verma
My Lords, as I have said, I read Hansard with great care to see what responses I can give to noble Lords, but I consider every amendment very carefully and, of course, pay great consideration to each and every point that is raised.
Lord Whitty
My Lords, this amendment would provide for the setting up of an expert committee or advisory group. Our other amendment, Amendment 55ZG, would effectively write a schedule setting out the role and operation of that group.
As my noble friend said just now, there are, of course, technical advisory groups available to the Secretary of State, the department and Ofgem on all sorts of aspects of the Bill. They exist as energy policy is developed. The importance of this role is that we would be putting it on a statutory basis to ensure that there is some check on how the process that we are setting up under the Bill is operated in practice and to give all parties some degree of reassurance and demystification about a process which is very novel and not widely understood. It is one where the Government are still working out the details and which will undoubtedly encounter some hiccups, growing pains, difficulties and setbacks as they try to implement it.
As far as the general public are concerned, this is a completely novel concept. They sort of understand a market, but this is not a market. They understood the old CEGB system, more or less, but this is not a centrally controlled system. It is not a system which is really being delivered by the regulator in the normal sense, which was how the market was for the past couple of decades. It is, perhaps, a managed oligopoly but with big companies—big oligopolists—which by and large are not trusted. These are government deals which necessarily have to be complex and negotiated behind closed doors, but the outcome will arouse misunderstanding and suspicion unless there is some assurance that they have been properly audited in some form or other.
These are contracts for a major part of our energy supply, which last for 15 or 25 years. We are locked into those contracts, and we therefore need experts to look at how they will be operated by the department or Ofgem, or possibly its successor under a different Government. The way in which they deliver will determine a lot of our energy mix and, effectively, determine what broad price business and domestic consumers will face. Hence, they will have social, economic and competitiveness implications and may have serious implications for our energy security, as they are one of the main means of delivering it.
Part of the mystery of all this—even to me, who has tried to understand it through these deliberations—is that the contracts will all be delivered by a counterparty whose form has yet to be defined. We now know that there will be a single counterparty, although that is not fully reflected in the Bill. We know that it will be a private but government-backed company. Apart from that, we do not know what its responsibilities, accountability or structure are likely to be. It will be responsible for the government side, or perhaps the societal side, of these very important contracts. Over 15 or 25 years, the contracts will go through periods of substantial change and may be required to be reviewed or reassessed. In some cases, the contracts will probably not last the full 25 years with the same company because the structure of companies is likely to change, as it has over the past 25 years.
We need some reassurance. At the moment, the Secretary of State and the rather shadowy counterparty are the responsible bodies, supported by Ofgem and by advice from National Grid. Before we go on from this part of the Bill, we need at the very least to have a formal system of advice built into that process so that on each contract for difference and each investment contract there is somebody looking at its financial and legal structure and its value for money. That would not be for the company or indeed for the strategy, but for the consumers and for the security of supply to our businesses and householders. The advice that will be given to the Secretary of State, the authority and the counterparty needs to be seen to be neutral or non-interested in the affairs of the various parties involved.
The first part of the amendment sets out the duties of such a group to advise the Secretary of State and the counterparty on the development of those contracts and to look contract by contract at their effectiveness. The last part deals simply with the composition, but the composition is important. Vitally, it has an independent chair appointed for probably two terms of up to eight years in total, and importantly has a consumer representative involved. At the end of the day, as the Minister reminded us, and as her predecessor constantly reminded us when discussing energy Bills, this is ultimately government policy focused on benefit to the consumer, by which we mean both business and domestic consumers. We need consumer representation and technical, academic, economic and technological advice to the counterparty and the Minister in drawing up these contracts. We are looking at value for money for the consumer.
I hope that the Government will take seriously the need to build into the process some form of such a body. They may not approve of the wording of the amendment and may wish to narrow or broaden its terms of reference. On the face of it, there is no reason why this should not be extended to capacity mechanism deals as well. I hope that the Government will see the sense in having a body that is publicly accountable and will report to Parliament. Certainly if the Secretary of State refuses to accept its advice in relation to particular contracts, it will require the Secretary of State to spell out why such advice has been rejected, and there will be a report to Parliament.
This must be to the long-term benefit of this process in working out at the point of delivery the policy objectives behind this Energy Bill and delivering the long-term interests of consumers of energy in this country. I hope that the Government will consider the proposition. As I say, I do not expect them necessarily to accept the wording, but I hope that they will come up with an entity that performs this and provides a degree of demystification, accountability and a high degree of public and consumer reassurance. I beg to move.
Lord O’Neill of Clackmannan
I express my support for the amendment. A number of the utilities are doing something on their own behalf to try to present themselves to the regulator as responsible citizens, as it were. They tend to use expressions, such as stakeholder engagement monitoring, which is a bit of a mouthful. If it is good enough for the utilities to do it independently to try to present themselves in a way that will meet the requirements of the regulator, it is surely appropriate that this rather complex market system that we are seeking to construct should have a degree of independence. I do not think that it should be seen as anything other than sympathetic monitoring. It is in everyone’s interests that the system works and that those who monitor are credible and independent.
The manner in which it has been constructed here, as my noble friend said, is not necessarily the final word, but the principle of having in the Bill a monitoring mechanism that is seen to be independent—to the extent that these things are possible—of government, the utilities and other players is a highly desirable state of affairs. There is an awful lot of public concern and lack of trust in the utilities and the associated bodies around them. This would go some way to reassure the public that there was an independent monitoring body.