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Energy: Electricity Supply

My Lords, I join all other noble Lords who have participated in warmly thanking the noble Lord, Lord Tombs, for once again initiating this important and interesting debate. He has led similar debates every year since 2002—though I am a comparative late-comer, having entered the fray for the first time last year. This is a vital subject to the future security of our country—and how very appropriate to be discussing it on a day of cold weather such as this. The noble Lord, Lord Tombs, will correct me if I have the definition wrong, but my understandingof the term ““strategic decision mechanism”” is thata statutory body would centralise planning of electricity to guarantee secure supplies to our country, taking into account the imperatives of climate change. A key component of it is that it is for the long term. The noble Lord has been routinely disappointed that the Government’s response has been along the lines that market forces will solve long-term problems so that no strategic decisions are called for. He believes that without a strategic decision mechanism, it is difficult if not impossible to have security of energy supply. He argues that it is not good enough to have an adequate plant margin, especially given the risk that important supplies of primary fuel may be interrupted for considerable periods. I am sure that the concerns of the noble Lord, Lord Tombs, will not be entirely assuaged by the briefing from Ofgem, from which the Minister may quote, to the effect that, among other things, that the massive rises in energy prices over recent years are now being replaced by falls, that investment has been at unprecedented levels and that competition will solve all the problems. It would be rash indeed not to be cautious, given the behaviour and volatility of one or two of the countries from which our gas supplies come, for instance, as my noble friend Lord Jenkin of Roding, said. While the importance of the opening of a new pipeline from Norway and new LNG terminals must not be underestimated, they are only part of the solution to securing our future energy supplies. The Government's report of last July on the energy review identified two main security challenges forthe United Kingdom: first, managing increased dependence on oil and gas imports, and, secondly, ensuring that the market delivers substantial and timely investment in electricity generating capacity and networks, so that households and businesses have the electricity that they need at affordable prices.Well, so far, fair enough. The report then suggested, as a policy proposal to meet the energy security challenges, first, a strong international agenda to promote more open and competitive markets, and, secondly, a market framework in the United Kingdom that is positive for investment and diversity of supplies and for the growth of our own home-grown energy. Well, of all the deep and insightful thoughts! The report went on to suggest that the Government are building stronger political relationships with producers to secure supply and backing the European Union Commission in its attempts to secure a liberalised energy market. It also referred to a preference for achieving energy reliability through diversity of our sources of energy, suppliers and supply routes. While there may not be a huge amount to disagree with in it, we have to ask if it was worth the wait. Then, as if we had not had enough, the Government launched a consultation—and we are still waiting for them to respond to that consultation. If, as the Prime Minister pointed out last year, energy is so important, why is it taking so long? I askthe Minister for a firm date for publishing the Government's energy White Paper. Can he please undertake that it will not be the day before we rise for a recess or, worse still, the day after? Another key recent development has been, on10 January this year, the European Commission's announcement of a proposed package of measures to establish a new Energy Policy for Europe, whichit claims will combat climate change and boostthe European Union's energy security and competitiveness. The proposals include reducing dependence on imported hydrocarbons, diversifying sources of energy, building infrastructure such as new liquefied natural gas terminals, and improving Europe's capacity to cope with disruptions in supply. The Commission is also seeking a new long-term pact with Russia on energy supplies. Opening up European energy markets is something we on these Benches have been demanding for a long time. The lack of a liberalised market in Europe has punished British customers with high fuel bills. The moves towards liberalising and unbundling the European Union energy market are therefore most welcome. European energy markets, particularly in France and Germany, have become characterised by corporate structures which protect one country against another and companies within them which have market-dominant positions in retail supply, transmission and distribution. This conflicts directly with single market rules and the Commission is right to act to end these practices. Will the Minister therefore undertake on behalf of the Government now to put pressure on other member states to implement the Commission’s findings? We do not accept the argument that a single European Union energy regulator is needed to facilitate cross-border electricity trade, which would involve yet more stultifying European Union regulation and duplicate national arrangements. When the proposals to make the market more open and transparent are implemented, co-operation between regulators should be more than sufficient to provide for Europe-wide electricity trade. It would be helpful to have the Minister’s views on this. For the poorer members of our society, however, and, in particular, pensioners, who spend a relatively large proportion of their income on energy, the cost of living is rising at an alarming rate. So in this respect, if and when fully implemented, we support the Commission’s proposals which aim to lower prices for these consumers. The increased focus on reducing carbon emissions and developing renewable energy sources contained in this package is also good news. The United Kingdom presently falls short of pulling its weight in Europe in terms of renewable energy and the Government must do more if they are to meet the tough targets now being proposed. Returning to this country specifically, I am concerned about the future of the electricity supply industry and I believe that the Government’s role should be to set the right framework for emissions reductions and energy security. As my noble friend Lord Dixon-Smith and other noble Lords said, we must develop a clear, long-term policy framework which incentivises the electricity supply industry simultaneously to reduce carbon emissions and to guarantee affordable security of supply. My noble friend Lord Jenkin of Roding set out his concern—the noble Lord, Lord Teverson, joined him in this—about the future regime for setting a price for carbon. Of course, he did not suggest that that was relevant only to nuclear. Among other things, as he says, the framework for the pricing of carbon emissions under the European Union Emissions Trading Scheme has not so far covered itself in glory. Furthermore, as my noble friend said, it will expire in 2012, which leaves the potential investor in plant which will not come on-stream until the middle of the next decade completely in the dark as to the key economic data, without which he cannot evaluate a project. We must know what the Government’s plans are for resolving these uncertainties. While it is for the market to operate the system, it is for government to set the framework. The uncertainty has been exacerbated by the abolition of capacity payments in the New Electricity Trading Arrangements, which were introduced only as recently as the year 2000. This obfuscation has led directly to a reduction in the spare electricity capacity available in Britain, putting security of supply atrisk. In order to meet the strategic objective of a guaranteed secure supply of electricity at all times, we should develop plans for a new system to incentivise electricity generators to invest in spare capacity that can be kept on standby. Streamlining of the planning procedure is absolutely vital. Several noble Lords referred to that. What assurance can the Minister give that ministerial decisions will be made as quickly as possible following positive outcomes of planning inquiries? I ask this specifically because the Government appear to have been lax in announcing ministerial decisions on schemes following planning inquiries in cases suchas Canatxx and Byley, but, of course, the concern extends into all forms of energy generation. To sum up, we must be concerned about the growing energy gap. Approximately 30 per cent of the United Kingdom’s existing capacity is scheduled to retire over the next 20 years, including all our Magnox and AGR nuclear power stations except for Sizewell B. That is why we have called for capacity to be a key factor in the formula for determining the wholesale price of electricity. This will encourage new investment in power generation plant without the need for the Government to ““pick winners””. We believe that electricity supply that produces no, and low, carbon emissions should be incentivised over those that produce higher emissions. So, for example, this would encourage development of methods for capturing carbon from gas-fired power stations where this, through technical development, can be made cheaper than investment in other low or zero-carbon sources. My noble friend Lord Dixon-Smith referred to tidal energy and other noble Lords referred to wind. We must foster an environment which avoids over-dependence on one or a small number of sources of energy. Of course, this might mean—several noble Lords referred to this—having new nuclear build in the mix. It is not properly renewable, but we have plenty of fuel here already and fresh supplies do not come from the same parts of the world as oil and gas. This would make us more secure and could also help us achieve our green goals. Electricity generated in smaller, more local units such as neighbourhood combined heat and power schemes needs encouragement. The noble Baroness, Lady Ford, referred to that. But the current regulatory framework is impeding the growth of decentralised energy; for example, making it difficult and costly for local generators to sell any spare electricity they generate back to the National Grid. This needs to change. Lastly, and of vital importance, we need to include energy security in our foreign policy. We sharethe concerns of many noble Lords and other commentators who are concerned about the reliability of imported fuels for our electricity supply. Yet in reality over the next 20 years we are likely to become more, rather than less, dependent on imported fossil fuels. We must forge strategic energy partnerships with energy rich nations and we must ensure that the infrastructure and storage are in place to protect us against the shocks which are certainly in store.