Lord Roper
Main Page: Lord Roper (Liberal Democrat - Life peer)Energy Bill
Lord Roper Excerpts
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I shall speak also to the other government amendments in this group. These changes provide important clarifications to the implementation of contracts for difference and in addition respond to a number of recommendations made by the Delegated Powers and Regulatory Reform Committee, for which the Government are very grateful. This group also contains a number of minor but essential and consequential amendments.
Amendments 16 and 38 on contracts for difference give the Secretary of State the power to issue and revise standard terms for contracts for difference, subject to consultation and under an explicit duty to consider the matters listed in Clause 5(2), and to publish those standard terms. Amendments 17 and 19 enable provision to be made for how the system operator will notify the CFD counterparty that an eligible generator has been allocated a CFD and, in turn, how the CFD counterparty is to offer a contract to an eligible generator.
Amendment 18 provides for the Secretary of State to set out how the system operator will run the allocation process, in particular through an allocation framework, which will cover such areas as: the process to be used, such as the competitive process in the event of a constraint; the timing of allocation rounds; and any targets, such as minima and maxima, which the system operator will need to consider. The Government are seeking to include this sort of provision in an allocation framework, as opposed to in a statutory instrument, because these are issues that might need to change at short notice in order to manage costs and to ensure value for money along with the smooth functioning of the allocation process. However, it is important to note that the allocation framework will not be free-standing. Provision for an allocation framework will need to be set out through regulations, which will be subject to the affirmative procedure.
Amendment 20 gives the CFD counterparty the power to agree minor and necessary modifications to the standard terms, prior to contract signature. This ensures that the CFD regime is open to the widest possible range of eligible generators, while maintaining a level playing field. Amendments 13, 14 and 15 are consequential amendments, recognising that Clause 10 now refers only to contracts for difference that result from bespoke negotiations with the Secretary of State. This is because powers for contracts for difference that result from allocation by the system operator now have their own clause.
Amendment 21 enables provision to be made in regulations to enable calculations or determinations required by the regulations. Such calculations or determinations are to be made by specified persons—for example, the CFD counterparty. Amendments 6, 10, 26 to 37 and 39 are all consequential to the principal amendments that I have set out.
Amendments 8, 56 and 44 move most secondary legislation relating to contracts for difference, investment contracts and the capacity market to the affirmative resolution procedure, increasing parliamentary oversight in accordance with the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendment 56 also goes beyond the committee’s recommendations by making all secondary legislation in Parts 1 and 3 of Schedule 2 subject to the affirmative procedure. This ensures that the provisions in Schedule 2 are consistent with the equivalent provisions in Chapter 2 on contracts for difference.
Amendment 40 also responds to the committee’s recommendations by preventing the authority—Ofgem—from conferring additional functions on itself when exercising the powers under Clause 28(3) to make capacity market rules, except with the consent of the Secretary of State. However, since tabling this amendment, the DPRRC has provided a further report and makes a recommendation in relation to this, which I will be considering carefully ahead of Third Reading.
Amendments 9, 45 and 57 make explicit provision that regulations made under contracts for difference, the capacity market and investment contract powers will not be treated as hybrid. I have tabled these amendments because the secondary legislation implementing EMR may specify determinations made by Elexon for the purposes of settlement of payments under these powers. As such, the regulations may potentially be considered hybrid and subject to investigation by the Hybrid Instruments Committee. The Government do not think that this is necessary or appropriate, as the existing duty to consult before making regulations will ensure that Elexon’s private interests are fully considered. My department is already working closely with Elexon, which has also confirmed that it has no objections to these amendments. To avoid the risk of delay to the programme and the investment that it will bring forward, I have tabled these amendments to make it clear that no hybridity will arise.
Amendments 11, 12 and 58 are minor drafting amendments with no impact on the substantial legal effect. They have been tabled in order to avoid any perception that we are giving the counterparty new powers to recover moneys owed to it. Amendment 46 is another minor change to make it clear that the duty to consult before making capacity market rules can be satisfied by consultation undertaken before Royal Assent. This aligns Clause 35 with other provisions of the Bill, such as Clause 18(2) and Clause 34(3).
Finally, Amendments 52 to 55 are minor and technical drafting amendments to clarify that an investment contract will continue to be an investment contract even where a party ceases to be an “electricity generator”, and that the definition of an “investment contract” is satisfied if at least one generator is under an obligation to make payments under the contract. I hope that noble Lords find that a helpful explanation of the government amendments and I beg to move.
Lord Roper (LD)
My Lords, I have tabled Amendment 41 in this group to give the Minister an opportunity, to which she has already referred, to respond to the 11th report of the Delegated Powers and Regulatory Reform Committee. The committee felt that the proposal in Amendment 40 was not satisfactory as it would still give the authority power to confer functions on itself without the consent of the Secretary of State, even though the proposed new subsection would allow for such consent to be given generally in relation to the capacity market rules of a particular kind. In its report, the committee did not find that a totally satisfactory response. I ask my noble friend whether she will be able to give some consideration to this point and perhaps bring back at Third Reading an amendment to Amendment 40, which will go some way to respond to the committee’s report.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for introducing this group of amendments. This goes to show that the Government are listening—at least to the Delegated Powers and Regulatory Reform Committee if not, perhaps, to all sides of the House. It has obviously had more success in amending the Bill than some of us in our many days in Committee over the summer. There are a number of amendments here, many of which implement the recommendations.
To strike a serious note, it is important that the Government have listened and accepted the advice of the Delegated Powers Committee. This is quite an extraordinary Bill. It is quite an extraordinary intervention into the market and it carries with it quite considerable enabling powers that give the Secretary of State a huge amount of discretion in how he or she will intervene in the electricity market. It is only right and proper that those powers are subject to the affirmative resolution procedure in as many places as possible, so there can be a degree of parliamentary oversight in what is going to be a hugely significant intervention into the market.
The noble Baroness spoke to some of the amendments which relate to the allocation of contracts for difference under the levy control framework. I seek some form of comfort, and confirmation from the Minister that we will not descend into a system of micromanagement, trying to split up the pot of money into ever smaller, more precise groupings of technologies. We have seen this happen with other DECC policies; with the renewable heat incentive, for example, and the banding of FITs. This temptation to micromanage, to carve up the market and pick winners to make sure that we have control over what comes forward can make for a regrettable situation. It is regressive because it does not allow the market to demonstrate where there is a success. It does not allow the market to find solutions.
I find it quite odd that I am here on the Labour Benches chastising the Conservative Government for not allowing the market to deliver. However, it is clear that this is the current thinking: that we should not allow the market and competition to dictate but somehow try to use the powers in the Bill to organise and plan everything from the top down. That is a recipe for disaster. I am sure that others will agree with me that where we have already seen that in operation, with FITs and RHI, it has been shown to be really sub-optimal. I only say that as an illustration of why it is so important that the many regulations which will flow from the Bill are subject to full and proper parliamentary scrutiny, so that we can try to prevent some of those worst examples being repeated on a much larger scale.
I am grateful to the noble Lord, Lord Roper, for tabling his amendment, which is intended to correct one of the few issues which the Government have not conceded in response to the Delegated Powers and Regulatory Reform Committee. I look forward to the noble Baroness’s response to that, because it is evidently important that it has been raised here.
Lord Jenkin of Roding
I beg to move the amendment standing in my name and that of my noble friend Lord Roper. My noble friend the Minister will recognise that this is the same amendment which my noble friend Lord Roper moved in my absence in Committee. We have tabled it again to see whether the Minister has had any further thoughts about how she can best protect those wood manufacturers who depend on the same source of wood as that used for biomass by generators. That is what they are frightened of. Indeed, they go so far as to say that if there is no certainty that they will be able to source their raw material in this country, or from the same sources from which they have had it in the past, we will lose the industry. It will no longer invest here because it cannot be sure of getting its raw material. That was the case which my noble friend made in Committee.
I have reread the reply which the Minister gave on that occasion. It is not too strong to say that she dismissed the fear as unreasonable and the measure as one which would cause unnecessary bureaucracy. However, the Scottish authorities have decided that there should be a requirement on those intending to burn biomass as a fuel to make a statement of their sources, quantities and sustainability. I know that there is a voluntary scheme. Indeed, my noble friend made that point in Grand Committee. However, the fact of the matter is that this does not give the wood panel and other wood-using industries the confidence that they need. In those circumstances, have the Government had further thoughts as to whether there might be an advantage in preserving an important industry in this country in terms of the number of people it employs and the fact that it is a UK-based manufacturing industry? Will they give it the confidence to enable it to continue in business? I look forward to hearing my noble friend’s reply. Has there been any change in the Government’s attitude since we debated this in July? I beg to move.
Lord Roper
My Lords, as my noble friend Lord Jenkin has said, I moved a similar amendment in Grand Committee. As he has also said, we felt that the Minister’s reply on that occasion was not as helpful as it could have been. Although the wood panel industry is not large, it has a significant annual turnover and employs both directly and indirectly a significant number of people. If it is possible for appropriate guidelines to be issued in Scotland, it is not totally clear to me why it is not possible to have them here. Obviously, it is a good thing that a voluntary disclosure agreement now exists, but I think that the industry would prefer there to be a requirement regarding disclosure rather than this voluntary agreement. Like my noble friend Lord Jenkin, I shall be interested to hear the Minister’s reply.
Lord Cameron of Dillington (CB)
My Lords, I hesitate to speak to the amendment because I am not against it and I sympathise with the intentions of the noble Lords who are proposing it, particularly if it affected the price of construction timber and made housing more expensive, which would not be good. However, I advocate a bit of caution. I have recently come across a company which is trying to build four medium-sized biomass-powered electricity generating stations using brash, tops, coppice, sawmill offcuts and other non-value timber. They are putting them at different ends of the United Kingdom so they have good local sources for the timber. Each power station will be producing between 12 and 25 megawatts and will cost about £60 million. The material is sustainably sourced and will encourage the use of thinnings. For those noble Lords who do not know, thinnings are quite often not taken out because it costs more to do so than to leave them. If you could take more thinnings out it would create more high-value timber for construction or other uses.
I sympathise with the amendment but if it were applied across the board, with a generalised percentage, it would cripple a highly sustainable, beneficial biomass-generating business before it got off the ground. Before an amendment of this nature is enacted, it either needs to be reworded or we need a statement from DECC guaranteeing a flexible interpretation.
Baroness Verma
My Lords, In Committee, a desire was shown for more detail on the pilot: when it will happen, how long it will last and when the results will be reported. A demand-side response—short-term load shifting—is already part of our plans for a capacity market. The Government’s preference is that electricity demand reduction—permanent reductions in demand through the efficient use of electricity—can also join the capacity market in the future. However, given the uncertainties around a financial incentive for efficiency and its operation in the capacity market, we intend to pilot this approach before drawing conclusions. This work is a priority and, since Committee, the Secretary of State has announced the availability of at least £20 million for the pilot, which is expected to start in summer 2014 and run for around two years.
There have been calls to provide assurances that information on the outcome of any electricity demand reduction pilot would be provided to Parliament. In line with best practice, it was already the Government’s intention to report the results of the pilot. However, in order to reassure the House, I am moving this amendment so that reporting the results of the pilot to Parliament becomes a statutory requirement. That will be done as soon as practicable after the results of the pilot are available. I beg to move.
Lord Roper
My Lords, the noble Lord, Lord Jenkin, and I have Amendment 48 in this group. The group also includes Amendment 51, tabled by the right reverend Prelate the Bishop of London, which would insert a new clause.
When the draft Energy Bill was published in May 2012, a number of people were concerned that there was not sufficient indication of measures to reduce electricity demand, which is obviously the most satisfactory way of avoiding having to build further power stations. Both in the pre-legislative scrutiny in another place and in the informal committee chaired by the noble Lord, Lord Oxburgh, the question of demand-side measures was discussed. As a result of that, the Government launched a consultation in November last year and suggested a number of options for electricity demand reduction. Interestingly enough, out of the options on offer, a majority of the respondents favoured a system of electricity efficiency premium payments, which would provide electricity users with a payment on top of the savings that result from reduced use of electricity.
However, when DECC published its consultation response in May this year, it suggested that its preferred route to delivering permanent reductions in electricity demand was via a capacity market. That was of course contrary to the majority of the views expressed in the consultation. Similarly, the response dismissed the idea of introducing a premium payment without adequate explanation. None the less, on Report in another place, the Government introduced Clause 37, allowing the Government to run a pilot scheme for electricity demand reduction. The clause does not explicitly limit the Government to a single pilot or specify the mechanism that they might use. However, given what the Government said in their response to the consultation, there is a pretty clear indication that they wish to look at the capacity market only.
There are a number of uncertainties about the appropriateness of the capacity market, particularly for small and even medium-sized consumers. I am not sure what the right reverend Prelate might say about churches which are considering reducing their electricity demand and whether they would be large enough consumers to go into such a capacity market. None the less, there was a discussion in Grand Committee on an amendment that I tabled suggesting that there should be more than one pilot so that various methods could be explored as ways of dealing with this question of electricity demand reduction. Amendment 48, which I and the noble Lord, Lord Jenkin, have tabled, requires the Government to bring forward multiple pilot schemes so that not just the capacity market but premium payments and perhaps some other form of incentive could be considered. That would demonstrate which scheme or schemes might be most effective in delivering permanent demand reductions and scale.
I very much hope that the Government will give serious consideration to this proposal because I believe it will give us rather more information as a result of the pilot in order to make decisions as to what can be done. I should say that I have a good deal of sympathy with the new clause tabled by the right reverend Prelate which calls on the Government to prepare and implement a strategy for delivering further reductions in demand which the Government themselves say is achievable.
Lord Grantchester (Lab)
My Lords, I rise to speak to Amendment 50 in this group. In our Committee proceedings, we looked at the demand side response clauses introduced at the late stage of Report in the other place. We noticed that they were late additions to the Bill, yet they cannot be underestimated as there can be no simpler way to reduce the pressures on the capacity market, increase resilience, improve decarbonisation, and enhance efficiency and security of supply. Reducing energy demand is much cheaper than building new generating capacity. It is also the cheapest way to protect households from rising bills and cut carbon emissions.
Clause 37 introduced a spending power to authorise the spending of money to fund a pilot or pilots, yet concern was expressed about whether sufficient funds were being made available. Anxiety was also expressed that pilot schemes were proposed to take place in the capacity market, as the response to the consultation in May this year made clear that this was the Government’s preferred way forward.
Difficulties were expressed that the capacity market is designed primarily to ensure capacity during potential shortages or troughs in supply. In these circumstances, it will only reward demand reduction projects that reduce the amount of generating capacity needed at such times, and not reward projects that reduce demand more generally. The capacity market, therefore, only rewards energy efficiency for its security benefits and not its much larger benefits such as emissions reductions and affordability, as well as behavioural change policies.
Many submissions that we received wished to see multiple pilot schemes to include premium payments as well as capacity markets and other innovative incentive schemes. This was proposed to enable small businesses and generators to be able to access payments and to press the Government that demand reduction is not simply an afterthought to bolt onto the capacity market, designed around the provision of supply by large-scale plant prioritised through the workings of the capacity auction.
There is also the question of determining what capacity is required once demand has been reduced. These thoughts led us to consider that the Government need to set a coherent strategy about delivering permanent demand reduction and is the purpose of Amendment 50. The amendment adds to the Government’s own Amendment 47 and the amendment in the name of the noble Lord, Lord Jenkin. These only refer to pilot schemes and the Government’s Amendment 47 is eminently sensible. However, my amendment proposes that the Government must think further and more deeply and place demand reduction in a wider strategic context.
I also tabled it as an alternative to Amendment 51, proposed by the right reverend Prelate the Bishop of London, that seeks to place a numerical target for demand reduction. The difficulty here is that I have seen three different figures from three different methodologies. First, in November 2012, the McKinsey final report identified 92 terawatt hours of potential savings not covered by existing policy by 2030. Alternatively, the energy efficiency strategy, also in November 2012, used a different method and identified 69 terawatt hours of savings by 2020, based on existing and future policy. Yet in May this year, the Government used yet another method in response to the electricity demand reduction consultation where the figure of 32 terawatt hours saving was identified.
Will the Minister clarify which method and which figures her department recognise as correct and the most appropriate? My amendment avoids this difficulty being placed on the face of the Bill and seems an eminently sensible concession that the Government should agree to.