Lord Teverson
Main Page: Lord Teverson (Liberal Democrat - Life peer)Energy Bill
Lord Teverson Excerpts
Lord Teverson (LD)
My Lords, I commend the noble Lord, Lord Oxburgh, on his amendment. Decarbonisation is fundamental, and is absolutely what the Bill is all about. The 11th word of the Bill is “decarbonisation”. The Long Title refers to,
“reforming the electricity market for purposes of encouraging low carbon electricity generation”.
The entirety of Part 1 of the Bill is about decarbonisation. The methodology there allows the Secretary of State to set a decarbonisation target. The Bill is about nothing if it is not about decarbonisation.
Of course, the majority of the Bill beyond Part 1 is about ensuring, not just through targets but in practice, that we have decarbonisation. There are many chapters about the nuclear industry. Whether one is for or against nuclear, it is a low-carbon technology and it is enabled by the Bill.
The Bill has a whole chapter devoted to the “emissions performance standard”, which is all about decarbonisation. I have a number of issues with it, but the standard is there and it is the practice for ensuring that decarbonisation actually happens. There is a whole chapter on the capacity mechanism, introducing the possibility of electricity and energy demand reduction and management.
Of course, at the core of the Bill, are the contracts for difference, which have taken up a lot of our time in Committee and elsewhere in the House. Contracts for difference would not exist, would not be in the Bill, if there were not a practical and urgent need to get low or zero-carbon technology investment into the generating sector.
There is no point in having this Bill if not for decarbonisation. As we know, this Bill started back in 2010 with a White Paper and has been through many other processes. It is all around one of the four pillars of government at that time—which are still there and which include carbon capture and storage—trying to decarbonise, in this case, fossil fuels, as the noble Lord, Lord Oxburgh, will know better than anybody. The second pillar of this energy strategy was emission performance standards, which are in the Bill. The third pillar was the carbon price floor, which has already been delivered. In terms of green taxes, we are already taxing output of carbon emission from fossil fuels. That is practical decarbonisation. In addition, the Government have introduced energy reduction through the Green Deal and the energy company obligation. As well as all these practical actions, do we need another target? That is what I really want to look at.
As this is a coalition Government, there are differences not just between parties but between departments. We have differences between the Treasury and DECC on occasions, and perhaps BIS as well. There are also different directions in which the two coalition parties look. Nevertheless, what the coalition came together for was to provide a specific programme in terms of government for the five years of this Parliament. A key part of that concerned the economy and debt reduction. Another, which both parties shared, was being a green Government with respect to the environment, part of which is decarbonising. The agreement, willingly entered into by both parties, called for a levy control framework that allows contracts for difference and decarbonisation investment to work, with some £7.6 billion by 2021. We have an agreement that the energy company obligation, which is really important in terms of households’ energy efficiency, stays at its present level until the end of this Parliament. We have electricity demand reduction in the Bill. We have an agreement at EU level that a 50% reduction of carbon emissions by 2030 should be negotiated with our European partners. We already have the carbon tax floor and we have emission performance standards legislated for, we hope, when this Bill finally gets through.
We, as Liberal Democrats, ask whether it is more important to deliver targets at this time, when issues of energy—energy bills and energy security—are so fractious, perhaps between all parties. Is it important to make sure that through this Bill we deliver real, practical, £100 billion-worth of investment decarbonisation, or do we go for just another target? I look back at targets, whether they were for fuel poverty being eradicated by 2010, which failed quite considerably, or whether carbon emissions for 2010 were met—they were not in terms of the original obligations. Do they make a difference for business? Yes, I think that they do—the noble Lord, Lord Oxburgh, is right.
What makes the real difference in terms of investment? It is stability and understanding that there is the right environment for investment in terms of cash flow, in terms of where the market is going and in terms of a determination to deliver a much broader agenda for investing in decarbonisation. That is the area that I feel is of the greatest importance. We should have a decarbonisation target. I am happy to wait until 2016 to deliver real decarbonisation.
Lord O'Neill of Clackmannan (Lab)
My Lords, in proposing Amendment 2A in this group, I will go roughly along the same lines as the noble Lord, Lord Oxburgh. We had to wait six minutes to get any indication of the previous speaker’s attitude towards these amendments.
We have all had approaches from a plethora of organisations; in my years in this House and the other place I can rarely remember such a broad coalition. You normally get the greens and one or two others, but it is quite surprising to get support from across the spectrum of industry, banking and environmental concern for an amendment along the lines that the noble Lord, Lord Oxburgh, and I are proposing. The amendment I have tabled is in some ways slightly different from the amendment in the name of the noble Lord, Lord Oxburgh, in so far as it seeks to define the decarbonisation obligation, which it sees as the level of carbon intensity of electricity generation which may not be exceeded in total kilowatt hours. However, it does not set a target by plucking a figure out of the air. The idea is that it should give the Minister probably longer than the amendment in the name of the noble Lord, Lord Oxburgh, which gives the target of 1 April. Amendment 2A mentions 12 months, which would mean another six months in the process. That is important in itself.
The other fundamental requirement is that having set up a Committee on Climate Change, the Secretary of State should take account of what the committee has to say and what its findings are. It is a very important body, formed of a distinguished group of people from academia and business who take an interest in these matters—and it has a distinguished chairman from this House. However, it is not the only body. We are seeking to establish a consensus that would broadly agree to the figures that would then emerge.
We have international obligations, some of which have been imposed upon us, in so far as we have been forced to troop in and put our hand up in the Council of Ministers. In this instance we seek to fill a gap in the British obligations beyond 2020, a gap that would effectively extend from 2020 and 2030. It is important that any Government can go into Europe with a clear programme so that we are not seen to be chasing an agreement—and equally, so that the target figure we would set ourselves would be arrived at by British agreement and British discussion. A country of 60-plus million people with our diverse industry, economy and geography is that kind of country, the limitations or parameters of operations of which are very similar in many respects to a lot of the member countries of the EU that will be sitting on the Council of Ministers in this area.
Some say, “We mustn’t be allowed to be dragged along by the EU”, but in this instance we would be, in many respects, ahead of the game—not, however, to get our green badge to put on our jacket. Rather, we will have made a rational decision on the basis of sound information and wide discussion, and we would be doing so because it is necessary for us to have a degree of foresight. I will not use the word “planning”, but “foresight”. We have to recognise that the investment requirements of our energy economy are not just only long term. I remember talking here about setting down roads. We know that we have a 2050 target, but frankly, at the moment, after 2020 there is no road map and no signposts or proper targets. We must recognise that we will not have 30 years of doing a bit of this and that, then a mad helter-skelter run between 2040 and 2050 to try to get to where we are supposed to be. This has got to be done on the basis of proper consideration. These amendments give business, the investment community and the people who are engaged in research signals regarding the kind of timescales in which to operate.
The Earl of Caithness
My Lords, my noble friend Lord Jenkin has yet again put his finger on a hugely important issue, but it is a little bit of motherhood and apple pie. We all want competition and there is no disagreement about that. Indeed, the Bill is all about competition, and the Government’s policy that has already led to more competition. It is worth remembering that in 2000 there were 14 major energy suppliers, but by 2010, within 10 years, they had shrunk to six. In the past two years, seven more energy suppliers have joined the market. The mere fact of what the Government are doing has already started to improve the position with regard to competition. Therefore, the question is: how do we expand that without in any way damaging the Bill?
This part of the Bill covers the trilemma which I mentioned on the first amendment that we debated. It covers the core matters of decarbonisation, security of supply and least cost. It is a very difficult balance to get right. As such, I think that this part of the Bill was quite well framed. It seems to be the wrong place to bring in something about competition when the whole Bill is about competition. It could also open up opportunities for other amendments such as securing the efficiency of the rural economy by having cheap energy. There are many other things you could add to this list once you start to move away from the core principles.
That leads me back to the question of how we get more competition without damaging the Bill. I would ask my noble friend Lord Jenkin: what is the situation where there is little competition? I am particularly keen on tidal energy. Living beside the Pentland Firth for the part of my life when I am allowed out of this place, I think there is huge potential for energy generation there. However, if I set up an energy company to try to exploit that, and the noble Lord down in Sussex set up a company, would he be able to say that he did not get a fair crack of the whip because there was not enough competition? If that is the case, what happens if he goes to judicial review on the wording of this amendment? That will only delay matters. My real concern is that we might be introducing something here that could delay the much-needed investment about which the noble Lord, Lord Cameron, and I were given a lot of evidence when we sat on the sub-committee together and which he has expanded on tonight. I agree with him totally.
My concern is that this opens up the potential for a legal challenge. What about nuclear? As I said on Amendment 1, we were the world leaders, but now we have to go overseas. Can that be a possibility for a legal challenge? I would say to my noble friends Lord Jenkin and the Minister on the Front Bench that, since we all agree on this, can we somehow get it into the Bill? This is the wrong amendment in the wrong place, but the principle is absolutely right. Can we have a form of wording that gives effect to competition but which does not open loopholes that those who dislike a particular form of energy or want to delay a scheme could exploit to the disadvantage of all?
Lord Teverson
My Lords, I do not want to speak specifically in favour of the spirit of the amendment proposed by the noble Lord, Lord Berkeley, about the vertical integration of this industry. It has seemed to me over the past 12 months in particular that there has been, if I may say, a growing corporate arrogance in the energy industry. Power seems to have gone to the heads of many of those six organisations. They feel that they can do what they like to their own customer base and that they do not have to pay much regard to democratically elected Governments or Parliaments, let alone your Lordships’ Chamber.
I was particularly struck by this one evening when I visited my 94 year-old mother. She had just had a letter from British Gas which said that she would have to pay an increase of 10% on her bills for the year. Then it kindly went through—in very small type, which was not easy for a 94 year-old—all the reasons for the rise. It gave as the top reason, the first on the list of bullet points explaining why energy prices had gone up, not one of the reasons that we know are actually the reasons for the price increase; instead, it blamed the Government. It is a dual fuel tariff, so the charges are affected by the various bits of government legislation. I think that reflects a real arrogance. It is very difficult indeed to fix this competitive area, as noble Lords are trying to do. It is time to think what has previously been the unthinkable and say, although perhaps not tonight, “Yes, it is credible that we split supply from production”. That should be seen as a real way forward.
However, we have another problem, which leads to the arrogance that we are seeing within the industry. The companies know that we know that some £100 billion needs to be invested to keep the power lines going to make sure that we keep the lights on in terms of capacity. That is a dilemma for any Government. Nevertheless, we should start thinking what has previously been the unthinkable: that this arrogance is not acceptable. We expect them to be more responsive, not necessarily to us but certainly to their customer base and to the nation in terms of their pricing strategies. They should know that if we cannot solve the competitive issues, that split could indeed happen.
Baroness Worthington
My Lords, I am grateful to noble Lords for tabling this amendment. It enables us to have a debate about what I believe is an obvious missing element in the entire Bill, which is the need and the desire to promote competition. It is clear that there has been a quickening of pace in the thinking about energy policy since the conference season. That is largely because the Labour Party has called time on the existing system which is operating in our electricity market. We stated clearly that if we win the next election we would make dramatic reforms to introduce greater competition. It is evident that we have an oligopolistic system and that there is an insufficient downward pressure on prices. Otherwise, why would British Gas and other members of the big six opt to spend half a billion pounds on share buy-backs when they could have used that money to keep prices down for their consumers or to stop the price rises they have recently announced? It is absolutely clear that something needs to be done.
The amendments tabled go some way to trying to crowbar this issue into the Bill but, unfortunately, I do not think they go far enough. We certainly support the desire to put the requirement for further competition into the general considerations. We cannot see an argument against that and it seems very sensible.
The noble Earl, Lord Caithness, said that the Bill was all about competition. That could not be further from the truth. What the Bill actually does is deliver a system that will largely be determined by administrative negotiations between the Government and single parties quite often representing the big six. We have seen the first such announcement to emanate from this Bill, the contract awarded to EDF to build Hinkley Point C. Indeed, the noble Lord, Lord Deighton, was responsible for negotiating it. I have no doubt that he would have found it much easier to negotiate a price and length of contract that was better value for consumers if we had had more competition. What we needed was more competition in our choice of vendors of nuclear reactors. We were choosing one from one, which is never a good situation to be in.
I shall put that aside because I have used it as an illustration that the Bill does not introduce or increase competition, but narrows it. Later this evening we will debate—very briefly, I promise—my Amendment 7, which seeks to state that this contract for difference process must very quickly pass to a competitive process. It cannot continue as this bilateral, negotiated discussion behind closed doors with one or two very large companies that already play a dominant role in the market. In the interests of consumers and of competition, we must open up the whole process to competition so that we can keep prices down.
This group also contains the amendment in the name of the noble Lord, Lord Berkeley, which would split the big six. Again, we are very sympathetic. Rather than crowbar it into the Bill, we have already stated that we would use legislative powers on election to do exactly that. The argument in favour of the big six and vertical integration has always been that they need the balance sheet of the supply industry to be able to raise the finance required to invest upstream in generation, but that is not what they have been doing. They have not ploughed their profits back into investment; there has been a hiatus in investment.
The renewables industry, which has grown the most, has not relied on the big six. More than half of the investment that has gone into renewables has come from independent investors: new, independent companies. We should seek to support those companies and see them prosper. However, they report that it is becoming increasingly difficult to get power purchase agreements from the big six because they control the vast share of access to customers. Why is this? It is another clear signal that there is not enough competition in the market. We now have yet more contortions added to the Bill, such as purchasers of last resort and buyers of last resort, provisions that have been put in precisely because the big six are not offering decent contract terms to the independent investors. If that is not a signal that something is wrong, I do not know what is.
I will briefly touch on the reference made by the noble Lord, Lord Deben, to Germany. I fully support the idea that the big six should become the big 60, and ultimately the big 600. We need to democratise our generation of electricity. The signs are that it is already starting, from the man on the street fitting solar panels to communities coming together to find PV for their schools or building wind farms. Real change is happening and we must endeavour to make it happen more quickly and substantially. Only then will the big six or their equivalents be challenged. This is happening already in Germany, where after a relatively short period RWE, the giant of the German electricity industry, is claiming that its business model is broken. The support for decarbonised, community-owned power has broken that industry, which is a good thing, as it has been responsible for a huge amount of carbon emissions over the decades and has shown itself to be incapable of adapting quickly enough to the new, modern needs of electricity.
I will not go on any more. We have covered the main points: the big six system is broken and we absolutely need more competition in this market. The Bill, by introducing contracts for difference, makes it possible and credible for us to make the decisive move to split vertical integration and halt the market power that is gained from having generation and supply in the same companies. We are in principle supportive of this, and we look forward to the Minister’s response. It is a sticking plaster, but nevertheless a very important one.