Mark Reckless
Main Page: Mark Reckless (UK Independence Party - Rochester and Strood)
Dr Alan Whitehead (Southampton, Test) (Lab)
I rise to speak to my amendments 48 to 50, which, as we have heard from Minister, are concerned with the development of a capacity market intended to ensure that we have the range of capacity that we will require over the coming years and decades. Not to put too fine a point on it, it is intended to ensure that the lights stay on and that there is a decent margin between what people demand and what we supply.
A capacity market is a choice. It is not the only option available to secure the necessary capacity for the future. It seems to me that that choice needs to be based not just on whether the right capacity margin can be maintained. We should also ask at what cost it can be done, with what reliability and at what risk. I suggest that the choice of mechanism for maintaining capacity that is being made in the Bill fails on all those counts.
I have not invented that conclusion; the Department itself produced an impact assessment on the two choices that it had considered for securing capacity—a strategic reserve arrangement and a capacity market arrangement. Among other things, that choice is about ensuring that the amount of money that can be obtained through the sale of power into the market at times when capacity is tight stays within reasonable bounds. The impact assessment suggested that, in future, those reasonable bounds might get larger and larger. At the moment there is a maximum of about £1,000 per megawatt-hour, but it could go up as high as £10,000, in which case the consumer would be paying an enormous amount for their electricity under certain circumstances. The whole idea of keeping the costs of the capacity market under control would be completely overthrown.
The question then arises: which method best suits the need both to keep the right capacity and to keep it at a reasonable price and with reasonable reliability? Hon. Members will not be surprised that costs of the capacity market option over the period 2010 to 2030 have been assessed at two and a half times those of the strategic reserve option, and the effect on bills at 11 times higher. At first sight, that is not a good sign of the capacity market’s ability to provide a good deal for consumers.
According to the impact assessment, the reason why the Department eventually chose the capacity market idea was the entirely theoretical one that a reliability market
“limits the scope for generators to receive scarcity rents.”
However, the fact is that by introducing a capacity market and auction system in the way that we are, we will effectively provide guaranteed free money for a long period for people who are building conventional generation that provides capacity.
It may come as a surprise to some hon. Members that by introducing an auction market for capacity, we are ensuring that there is a subsidy across all aspects of energy generation, not just some. There is potential for gaming of that arrangement. The Government will have to decide how tight the capacity is after considering what the market will look like four years ahead, and then they will have to create an auction. That choice will be necessary for the auction to take place at all, and it will determine how much money there is in the auction. If the market is gamed so that the capacity looks much tighter than it is, the amount of money will be larger and the price will be even higher.
It is no coincidence—I think that is the best way I can phrase it—that we already see the capacity market tightening. A large number of gas plants are going into either deep or shallow mothballing in advance of 2014, and the Government’s decision about what capacity will look like will be informed by that mothballing. Were I an energy company operative, I would be rather pleased about that, because I would imagine that I would do rather well out of a capacity market in the future.
Mark Reckless (Rochester and Strood) (Con)
Surely an even more important reason for the tightening of capacity to which the hon. Gentleman refers is the shutting down of several large coal-fired power stations under the relevant EU directive.
Dr Whitehead
Yes, indeed. A number of plants are to close down over the next few years, and given how the energy market works, which I have described, one would expect the ability to obtain rents at the margins of the market to encourage the development of new plant. The statement made by the development of a capacity market auction is that that mechanism will not exist, so a permanent underwriting of new plant development needs to be auctioned to allow that to take place.
The strategic reserve option, which works quite well in a number of parts of the world, is that certain plant—perhaps mothballed plant—is taken out of the market and then placed back into it at times of stress on the market. As a result of that action, rents are reduced. Indeed, the fact that there is a strategic reserve that can be put back into the market at stressful points damps down the possibility of rents being obtained. That option comes at a much lower cost and
“should be relatively simple to set up and administer as it is a relatively small intervention in the market”—
not my words but those of the impact assessment. It
“could avoid gaming in the capacity market if there is a plentiful supply of mothballed plant”,
as indeed there is right now. Overall, it
“has the potential to be the smallest intervention in the market and accordingly has least overall policy design and implementation risk associated with it.”
The capacity market, on the other hand,
“has a higher overall level of design risk given the relative complexity of the model…a Capacity Market, if not well designed, could create opportunities for gaming the new capacity auctions; and…is the more costly mechanism to set up and run and it puts a greater administrative burden on businesses who will participate in the capacity market.”
Again, those are not my words but those of the departmental impact assessment of the choice between a strategic reserve and a capacity market.
Yet a capacity market was chosen to underpin the entire energy market reform and the Bill. I imagine—in fact, I am pretty certain—that that is what we will eventually go for. However, I modestly suggest that it might be a good idea to put in the Bill the idea that if that does not work very well, as I also modestly suggest it probably will not, the Minister has the option of moving towards a strategic reserve arrangement. That would keep the costs down and damp down the gaming of the capacity market auctions that may well take place over the next few years. That would be helpful for our ability to run a coherent energy policy over the next few years, and I tabled my amendments in the spirit of that helpfulness and to ensure that, whichever way we decide to go, we do not shut the door on something that is cheap for consumers in the long term, better for the energy market overall, and will keep our energy supplies in good shape for the future.
Martin Horwood
First, let me make it clear, particularly to Ministers, that I support the Bill. The attempt to lock investment in low carbon technologies into British energy markets is vital and demands an interventionist approach. In a sense, I agreed with a lot of what the hon. Member for Daventry (Chris Heaton-Harris) said in describing what are in effect subsidies and quite an interventionist approach in the Bill—something I think is justified for renewables and when bringing forward clean, greener technologies to tackle the urgent question of climate change. I also welcome the important Government amendments that try to ensure that consumers enjoy the lowest possible tariffs.
As is obvious from the debate, there is a growing chorus of scepticism about aspects of the Bill, and particularly subsidies that may be unearned. New clause 5 and new schedule 1 seek to address that issue, which is why I will press new clause 5 to a vote. I have managed to gather support for the new clause, and I acknowledge that of Which?, the Royal Society for the Protection of Birds, the Association for the Conservation of Energy, WWF, Friends of the Earth and Greenpeace, as well as my right hon. Friend the Member for Hazel Grove (Andrew Stunell) and the hon. Members for Stoke-on-Trent North (Joan Walley), for Brighton, Pavilion (Caroline Lucas), for Hove (Mike Weatherley), for Angus (Mr Weir) and for Rutherglen and Hamilton West (Tom Greatrex). I am grateful for support across the House, and for the implied support from Members close to the hon. Member for Daventry who are concerned about subsidies in general but include in that their particular concerns about nuclear power.
My worry is principally about nuclear because the subsidies in the Bill contravene the spirit of the coalition agreement. That agreement distinguished between renewables, where it implicitly accepted there was a case for subsidy, and the nuclear industry, for which it specifically ruled out a subsidy. Only a few years ago, the Labour Government line was also that there should be no subsidy for the new generation of nuclear power.
Amendment 23 and others tabled by the hon. Member for Brighton, Pavilion are specifically anti-nuclear, and there is a case to be made for distinguishing between nuclear and renewables, principally because renewables are emerging technologies. In many cases they are highly competitive, and over time they are generally getting cheaper. Nuclear is an old industry—56 years old—and has generally been getting more and more expensive. The latest new reactors at Olkiluoto—I hope hon. Members will excuse my Finnish pronunciation—and Flamanville in France are both many years behind schedule, and from the original estimates of between €3 billion and €4 billion are now heading towards estimates of more than €8 billion each—more than 100% over budget. I gather that the Finns and the French are now in litigation with each other over some of those costs and time overruns.
Mark Reckless
The hon. Gentleman refers to nuclear energy becoming more expensive, but I am not sure whether, like the hon. Member for Rutherglen and Hamilton West (Tom Greatrex), he caught the Minister’s earlier reference to when the new nuclear contract is signed with EDF. Does he think that reference to when, rather than if, is likely to increase or decrease the price we pay for that electricity?
Martin Horwood
Perhaps courses in negotiating skills might be recommended for members of the Department of Energy and Climate Change on that front. To be fair, Ministers have made it clear that they do not intend to sign the contract with EDF at any price, but the difficulty is that we in Parliament simply do not know that there has not been adequate scrutiny.
Mark Reckless
I am pleased to follow the hon. Member for Brighton, Pavilion (Caroline Lucas) and to hear that she intends to press amendment 24, a relatively moderate amendment, to a Division. She envisages subsidy for nuclear as long as it is not greater than the subsidy for renewables, but I would prefer a world in which we do not subsidise any energy production. Under this dog’s breakfast of a Bill, we will end up subsidising almost everything.
My worry with nuclear—my hon. Friend the Member for Cheltenham (Martin Horwood) addressed this—is the length of the contract. I do not go all the way with him on the £1 billion a year cost, or the very large sum grossed up over the period of the contract, but my calculations suggest something in the range of £600 million to £700 million a year just for the new Hinkley stations. That is a huge amount of money. Earlier, the Minister seemed unable to get to grips with the idea that the House might express a view on that. The contract is enormous and could put hundreds of pounds on consumers’ bills, and cost billions of pounds over the length of the contract. It would therefore be highly appropriate for the House to consider the matter, and for hon. Members to vote by positive resolution on whether we believe it is the right thing to do with our constituents’ money.
The key problem with the Bill is that it changes the law and puts very large subsidies to different technologies, which Ministers pick as winners in an opaque process, on a contractual basis that cannot realistically later be unpicked. The Chancellor has told us of an increase in the limit from about £2.4 billion to £9.8 billion per year, which is a quadrupling of the amount spent. That will be added to consumers’ bills for those various technologies, but the Bill implements that into contracts that cannot be unpicked. The nuclear contract could be absolutely enormous. I would like far greater concern for our constituents and the bills they pay for electricity.
We used to have the most competitive energy market in the world. I thought that the Minister believed in free markets, yet essentially what we are doing here is almost the final stage of replacing the freest energy market in the world with one that is rigged against consumers. The cost will be far more than the £9.8 billion figure, which ignores the fact that it is not just through the European Union and its directive that we are planning to close existing coal-fired plant, which are the cheapest at producing electricity. Unilaterally, we are banning the construction of new coal-fired power stations, when Germany has several new coal-fired plants under construction.
John Robertson
Will the hon. Gentleman clarify something for me? Is he saying that we should not worry or think about our obligations on climate change? If he is not saying that, how does he expect his electorate to pay for what he is suggesting?
Mark Reckless
I am sorry to hear the hon. Gentleman not focusing on his constituents’ heritage. Climate reduction and the carbon issue should relate to cost. The coal price has collapsed globally largely because of the success of shale gas in the US and its export of coal, and that means that the cost of the proposals is now far larger than it was. Global temperatures rose until 1998 or 2000. Since then, projections of an exponential increase in temperature have not been borne out by recent data. We have cut our emissions by 24% since 1990, which I think is larger than any other country. What we are left with is a complete mess of policy in the Bill, with various subsidies interacting and greatly increasing bills for our consumers, and I am not sure what the effect will be on reducing carbon emissions compared with, say, the US, which has had a big decrease.
We should look at the cost of coal and the extent to which carbon may be reduced by different things. In this country, we have a price of £16 per tonne on carbon. Under the EU emissions trading scheme, it is less than £2. We are making a great unilateral cross that we must bear when other countries in Europe, for example Germany, are constructing more unabated coal. We will have to buy electricity through the interconnectors, which will hurt our balance of payments and increase the cost to our constituents while we shut down our cheap coal plants. At the same time, shale gas has not come on stream due to the moratorium, as well as ownership and other regulatory restrictions. We will end up with some of the most expensive energy in the world and it is not clear what the impact will be on reducing carbon output.
At the same time as we are closing existing power plants because of the EU, we are banning unilaterally the construction of new plants. The cost of how much we are putting up electricity prices for our constituents should be added to the £9.8 billion figure. We would be much better off if we had a proper market in electricity production, rather than a market rigged against consumers. The Minister, through clauses 38 to 40, wants to introduce a huge network of conflicting subsidies that will let the Government, ex-post, change the conditions of someone’s electricity supply contract. All that will do is increase the price of investment to guard against that risk—yet another thing moving us away from the free market in electricity that might drive down prices for consumers who, certainly in my constituency, are finding the costs very difficult to bear. The previous Government’s policies were bad enough, but the Bill will lead to long-term contracts that may be impossible to get out off, and which will force consumers to pay higher prices for energy for years into the future.
Barry Gardiner
I rise to speak to amendments 148 and 150 in my name, and to amendment 179 in the names of my right hon. and hon. Friends.
Under the large combustion plant directive, 8 GW of old coal has to close by 2015. Of that, 6 GW has already gone, with the remaining 2 GW being considered for conversion to biomass. That leaves 20 GW of old coal set to stay on the system. Of that, approximately 15 GW is being considered for all options, which means that it could be opted into the integrated emissions directive, investing in air filters for NOx and SOx in order to comply. This plant would then not have to close in 2023, and would naturally seek to maximise its return on that capital cost by continuing to provide base load generation capacity unconstrained by the EPS.
Amendment 148 would ensure that where substantial pollution abatement equipment properly dealing with the oxides of sulphur, nitrogen, heavy metals or particles is fitted to the generating station in such a way that makes it compliant with the EU IED while still emitting above 450 grams per kWh, the plant would then be brought under the EPS framework. Without the amendment, many plants will succeed in circumventing the EPS, which would undermine the EMR, the UK’s carbon budgets, the incentive to invest in CCS and the coalition agreement, which committed the Department of Energy and Climate Change to introducing an EPS as a backstop to unabated coal. Remember, these old coal plants have already recouped their capital costs. Allowing them to avoid the EPS cannot therefore be justified, and I dispute what the Minister said about the importance of not accepting the amendment in order to allow new coal to recoup its costs.