Energy Bill

Viscount Hanworth Excerpts

Monday 4th November 2013 Lords Chamber

[Lord Berkeley (Lab)]

My Lords, the purpose of this amendment, in my name and that of my noble friend Lord Hanworth, is to require the Secretary of State, in dealing with the modifications to the licence conditions, to include in Clause 43(3)(b),

“provision imposing restrictions on the sale or purchase of electricity to or from group undertakings”.

This is an attempt to persuade the Minister, when she responds, to go a little further than she did in Committee last Monday when she said:

“There is no clear evidence that the divestment of retail businesses will increase competition or lower consumer prices”.—[Official Report, 28/10/13; col. 1386.]

I think that there is probably quite a lot of evidence, but we now have the opportunity to test this because, among many statements by the Prime Minister and the Secretary of State for Energy last week, Ed Davey said that they would introduce annual reviews of the state of competition in the energy markets and that the first of these new competition assessments will be delivered by spring of next year. He went on to say:

“The assessment will be undertaken by Ofgem, working closely with the Office of Fair Trading and the Competition and Markets Authority, when it comes into being”.—[Official Report, Commons, 31/10/13; cols. 1095-96.]

Those organisations, separately and together, are probably some of the best experts on competition issues we have in this country. It would be logical and right for them to include within certainly the first annual review a comment about separation. There has been an awful lot of talk about competition, which appears rightly to boil down to considering whether there is competition among those from whom you buy your electricity. However, the issue of competition at the other end and separating the generators from the retail end is just as important. I therefore wish to persuade the Minister to agree that the issue of separation within the assessment of competition that has been announced—and is very much to be welcomed—should be included. I beg to move.

[Viscount Hanworth (Lab)]

My Lords, I wish to speak to Amendment 61A in my name and that of my esteemed colleague, my noble friend Lord Berkeley. According to common testimony, the Bill is an extremely complex affair. It seems to have been designed by lawyers and parliamentary draftsmen to render politicians incompetent to assess its intentions and to predict its likely effects. There is a suspicion that the Government are not fully in control of this juggernaut.

Our anxieties in this respect are particularly acute in connection with the provision of a so-called route to market. Such a route should enable the independent generators to survive what seems to be the clear intention of the big six energy companies to squeeze them out of the market. The independent generators are important because they represent the germ from which a genuinely competitive energy market could develop. They are also important because they could be expected in ideal circumstances to provide a large proportion of the investment in renewable energy generation. Some of the Government’s documents recognise this potential. They imagine the proportion of new investment in renewables attributable to independent generators being between 30% and 50% of the total.

Amendment 61A reflects our knowledge that small generators are presently constrained to sell their output to the oligopolistic suppliers at a very heavy discount. A long-term power purchasing agreement costs the independent generators approximately between 10% and 17% of their net revenue, whereas in Nord Pool, which is the multinational Scandinavian exchange for trading energy, the equivalent cost is between 2% and 6%.

There has been recent evidence that some in the Government are becoming aware of the dysfunction in the energy market and the fact that, notwithstanding their ideological presuppositions, a free-market environment cannot be relied upon to engender competition. Indeed, the Secretary of State for Energy and Climate Change, Ed Davey, said last week in a Statement made to both Houses that he intended to,

“consult on the introduction of criminal sanctions for anyone found manipulating energy markets and harming the consumer interest”.—[Official Report, Commons, 31/10/13; col. 1096.]

One doubts whether this sound and fury has any practical significance. The Government seem to lack the leverage and will to intervene effectively in the markets.

The Labour Party takes a more positive approach. It promises to break the vertical integration of the energy oligopolists by separating the generators from the suppliers. The intention is to require energy companies to conduct all trades in a competitive manner on an open exchange. My proposal has been for a state-sponsored electricity and marketing board that would purchase its supplies from independent generators. It would aggregate them and sell them in competition with the supplies of the big six energy companies. In my opinion, the participation of the state would be the most effective way of introducing genuine competition into the energy market.