Lord Whitty
Main Page: Lord Whitty (Labour - Life peer)
Lord Whitty
My Lords, this has been a fascinating, interesting and well informed debate. I pity the Minister who has to sum it up, so I will try to help her out by giving my view of the debate.
My thanks to the Minister and her staff for all the information that she has given to us, in particular to the noble Lord, Lord Oxburgh, and his group. That was a good preparation for this debate, and it is something that we perhaps should follow in other circumstances.
This is a radical Bill. It needs to be a radical Bill because we have a serious problem. However, it is also a flawed Bill. Many noble Lords have pointed to some of the flaws and suggested ways of addressing them.
Going back to first principles, there are three reasons why we need the Bill so urgently. The first reason—and the one that has been the most remarked on—is that it should be a means of achieving our decarbonisation targets. To decarbonise our economy we need to decarbonise electricity supply first. Without that, we cannot decarbonise transport and we cannot decarbonise building heating.
I was pleased that my noble friend Lady Worthington, followed by other noble Lords including the noble Lords, Lord Teverson, Lord Stern and Lord Deben, and latterly by my noble friend Lord Prescott, set out the case for us to take climate change seriously. It was a minority view within this House that argued against that. The noble Lord, Lord Lawson, and the noble Viscount, Lord Ridley, did not express a general view in the House. However, I would caution the Government that that does not necessarily reflect the degree of difficulty in explaining our commitment to decarbonisation targets to the country. There is some scepticism there. While most of us may disagree with the noble Lord, Lord Lawson, that does not mean that there is not a resonance out there, and a political problem for the Government in providing a narrative that can take consumers and business along with them in delivering the objectives of the Bill.
The second main reason, which is connected, is that a very large amount of investment is needed regardless of whether we are meeting decarbonisation targets— £110 billion is the figure that has been referred to. We need to ensure that it is brought here. To get it, as many noble Lords have said, we need greater certainty in what the regulatory framework will be, or at least significantly less uncertainty. We need that to keep the lights on and to provide for our longer-term energy security.
The third reason goes back to those who use the electricity—to household consumers and to British business. As it stands, and I cannot see any other way of doing it, the Bill places the whole burden of paying for the investment that is needed on consumers. That needs to be done in a way that does not damage British industrial competitiveness, that is fair to domestic individual consumers and, in particular, that will not worsen the terrible situation with regard to fuel poverty. I am afraid that there is virtually nothing in the Bill that provides a new regulatory framework to achieve that.
I therefore want to start on Part 2 of the Bill, which is the most important part, on the issue of consumers. The provisions on consumers in Part 5 of the Bill are, frankly, woefully inadequate. The Government, the industry and the regulator are all under scrutiny by consumers, and the Government need that credible narrative in explaining their Bills, their choices and their need for energy efficiency measures. A number of noble Lords, particularly the noble Baroness, Lady Maddock, referred to this issue. It is not only a question of energy efficiency but a question of fuel poverty.
We could have used the Bill to greatly strengthen the regulatory framework for the tariffs that we charge to domestic consumers, but it was very late in the proceedings in another place that we introduced Clauses 127 to 130, I think it is, on simplified tariffs. The Bill is still pretty vague about how they are going to work. I appreciate that there are political problems. The Prime Minister committed himself rather rashly a few months ago to simplifying tariffs, and Ofgem and DECC have been struggling to find a way of delivering that ever since. As yet, the Bill does not actually deliver that. The late addition regarding simplified tariffs is welcome, obviously. We all welcome simplification, but simplification in itself does not improve either fairness or effectiveness in driving consumers to better choices with regard to how they use their electricity.
At present, and the noble Earl, Lord Cathcart, and the right reverend Prelate the Bishop of Hereford particularly emphasised this, we have a tariff structure that is illogical in that it both encourages the use of electricity, since the marginal cost of electricity falls as you use more, and is socially unjust as it hits the poor more than it does the better off. That needs to be changed but the Bill does nothing to change it. As I understand it, the Ofgem activity to try to deliver the simplified tariff structure does not do anything either.
Nor does the structure ensure that the ECO mechanism, which is still in its infancy, performs in a way to reduce fuel poverty. At the moment there are fewer resources being devoted to fuel poverty than there were under the old system if you combine EEC, CERT and expenditure on Warm Front. They are also being used inefficiently. Unit costs for cavity walls, for example, are going up. At the same time, there are installers and workers in that area who cannot actually get work. That is aggravated because of the slow take-up of the Green Deal, but it would have applied in any case. At the moment the ECO is not quite a poll tax but it is close to one, and it is deeply regretted. It also disproportionately falls on electricity consumers as against gas consumers. There is no real logic in that. If we are discussing tariff reform, these issues also need to be tackled.
Tackling fuel poverty and providing for improved domestic energy efficiency need to be a central part of the energy strategy, as the noble Baroness, Lady Maddock, and my noble friend Lord Judd emphasised. The original part of the Bill concerned with consumers, when it first went to the House of Commons, was timely and related to redress. Indeed, we need to do something about redress; my noble friend Lady Liddell was pointing to the number of cases where there are problems of mis-selling to consumers. However, the provisions are pretty weak, as is the enforcement. For example, I do not understand why mis-selling redress is limited to five years. That is not the situation with financial services; a lot of the PPI claims that are going on go back years and years, so I do not understand why energy should be restricted in this way. There is also no provision for collective redress, which would be the most effective way of dealing with past problems.
I intend to come back pretty heavily on these consumer matters. My general approach is very similar to that of my noble friend Lord O’Neill, who has regarded, as I have, Ofgem as being pretty toothless in this area over many years.
I turn to a couple of other parts of the Bill that have been less remarked on. On nuclear regulation, again I agree with my noble friend Lord O’Neill that we need the ONR to be set up and that all parties are key to that. However, I do not understand why we have 50 clauses setting up the ONR when it is essentially a simple task of transferring the responsibilities from what was an agency of the HSE and putting it on to a statutory basis. We have 50 clauses and, I think, 60 pages of schedule setting up the ONR. Before we come to that part of the Bill in Committee, I think that the Minister and her officials need to set out where the responsibilities, duties and resources are actually different from those of the HSE and the ONR acting in shadow form within the HSE. Obviously there are advantages in having an independent quango of a new sort with new governance, as it can escape some of the restrictions on civil service pay and attract nuclear inspectors and others with expertise at rates which the market is now throwing up. This would keep it out of the restraints that are being imposed by the Treasury. I do not suppose that that was greatly remarked upon in Treasury circles, but it is the main and most immediate advantage of having the ONR put on a new basis. I largely approve of that. However, does it require all this superstructure?
Very briefly, I also ask whether the Minister can point out where these requirements on provisions for strategy and policy statements differ from the requirement on national policy statements that we already have on energy matters. I am not sure whether this is a step forwards or a step backwards in terms of the transparency of the Government’s strategic thinking.
I go back to Part 2 and energy market reform. Contracts for difference is a bold innovation, as has been pointed out, and in this exact form it has no parallel anywhere else in the world. When first proposed, it was greeted with scepticism by supply companies and others, but we have moved on and seem to be accepting that this is the only show in town. I agree with that. However, we have to recognise that it is, in some ways, a very odd proposition—particularly, if I may say so, coming from what is supposed to be a free market oriented Government.
It is neither a free market nor, of course, a command economy, but it has aspects of both. At the moment, it is all about the Government providing very long-term contracts that are technology-specific and, in many cases, location-specific, to large individual oligopolistic companies, effectively giving them a price guarantee for 10, 25 or 35 years. While that is not quite Gosplan, it is, shall we say, a little more Vladimir Putin than Milton Friedman. It is a partially centrally controlled system operated through an oligopoly. During the course of the Bill and once we have seen the draft delivery plan, we hope to be able to insert a little more competition and choice into this process, and a little more ability to have break points in the contracts where we can review, in the light of economic, technological and environmental change, whether they are still appropriate. However, that depends on a proper regulatory framework. I, like many other Lords, hope that the Minister can guarantee that if we get to Report stage in the autumn, we will have at least some of the major pieces of draft secondary legislation before us so that we can see what we are doing.
Probably all I can do now is put to the Minister the questions that have largely already been asked and ensure that she covers all these points. On CFDs, that includes whether she can give us an indication of the likely length of the contracts, whether there will be a break point and what exactly is the role of this rather shadowy counter body. Is it correct that it will be a public body now and that there will be only one of them? I believe that is the case, but we need to be quite clear what the nature of the body is and whether, even if it is a semi-private body, it clearly has the backing of the Government, as my noble friend Lord Davies asked.
Can independent generators easily access this system and bring different technologies into it? How do individual site-based generators or community generating projects fit into the scheme? Is there scope for a green market auction or is the Minister prepared to extend the ceiling for FITs above the five megawatt limit so that they can provide for community and other one-off generation schemes? Other noble Lords pointed to a potentially damaging hiatus between the ending of the ROCs system and the full effects of CFDs coming into play. Are the Government prepared to envisage extending the demise of ROCs beyond 2017? If not, a number of serious investment projects will be stalled. There needs to be some overlap until 2020 or even beyond.
CFDs are essentially for nuclear and renewable low-carbon technologies, so I am not clear how carbon capture and storage fitted to gas appliances fits into this. The noble Lord, Lord Dixon-Smith, referred to using the heat from gas or biomass generators. If we were to come up with a proposition that was seriously low carbon because it reused what would otherwise be waste heat, would that also qualify under CFD? Will the Minister respond to the questions about state aid and say something about the likely timescale? Will the investment contracts provisions, designed in part to cover a period when we might still be clarifying state aid, run into the same kind of problem as CFDs?
The Government have to answer a lot of questions on CFDs, as well as some on the capacity mechanism. A major improvement appears to be the recognition by the Government in Clause 37 that energy demand reduction and energy efficiency in general should be part of the approach of the capacity mechanism. The provision of energy demand reduction within the electricity distribution system itself—as distinct from action at the user end—must surely be a standard part of the capacity mechanism procedure. We therefore do not want just one, two or three pilot projects, but to work towards a situation where that is part of the capacity mechanism as a whole.
We need to see the regulations on the capacity mechanism. The noble Lord, Lord Teverson, and my noble friend Lord Grantchester said that we need to clarify the position of unabated coal-fired power stations that are extending their lives beyond 2023, when the EPS does not apply to them. They could benefit from the capacity mechanism if they made their capacity available.
Several noble Lords asked questions relating to interconnection. I asked whether the capacity mechanism would be capable of being delivered via arrangements on interconnections with the French nuclear system or Irish wind farms. If so, would they be treated as available energy or capacity in roughly the same way as domestic-based generation? The noble Lord, Lord Oxburgh, also asked about storage, which is a part of the availability of capacity.
The Government have a number of questions to answer. Colleagues will be pleased to hear that I have not gone through my full list and that I do not intend to do so. However, I will return in part to one of the most contentious issues: the decarbonisation target. I am in favour of strengthening the commitment to a decarbonisation target. The very weak provision in Clause 1(5) which simply allows the possibility of a 2030 target but does not require it, and in any case not before 2016, has already had a detrimental effect on confidence and understanding. Investors need to know that we are on a clear trajectory on this. Most of the investment decisions that will be contemplated in the next two or three years will relate to a period beyond the current target of 2020. If the House alters nothing else in the Bill, assuredly we must alter that.