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Energy Bill

My Lords, I declare an interest as president of the Carbon Capture and Storage Association. I am also a director of two renewable energy companies: blue-ng and Falck Renewables. This Bill is important but complicated. Its complexity arises not only from the regulatory and technical matters with which it deals, but from the way it intertwines with the two other pieces of legislation to which reference has been made several times already, namely the Climate Change Bill and the Planning Bill. The Climate Change Bill, which we have already considered and is now with the other place, aims to make a substantial reduction in this country’s greenhouse gas emissions. However, it will be impossible to implement these changes fully without the provisions in the other Bills. We have a three-legged stool which will fall over if one of the three legs is weak or missing. I shall turn to some of the detailed provisions of the Bill later, but I begin by addressing what seems to be a fatal weakness in the stool as a whole, as we have it today. It is, however, a weakness that can be addressed, at least in part, within the Bill before us. As has been pointed out by the Minister, the 2007 energy White Paper established the Government’s high-level energy policy. The present Bill deals with a range of detailed mechanisms by which individual projects may be supported and regulated. What we do not have—I think the right reverend Prelate made this point—is a large-scale and accepted vision of the infrastructure that should link the two. I shall argue that, without that vision and without certain other changes, we shall have serious difficulty in developing the low-carbon economy that we seek to achieve. Although a range of technologies will contribute to the new energy mix to meet the proposed 2020 target of 15 per cent of our energy coming from renewables, it is inevitable that within the electricity generation sector the greatest contribution will come from wind. Meeting that obligation will involve adding around 30 gigawatts of wind generating capacity to the distribution grid. That may be compared with the existing generating capacity of around 90 gigawatts, some of which is due to be retired as the wind capacity is brought in. That is a minimum addition, and there are several scenarios under which more wind could be needed. The new windmills will be built, pretty obviously, in places with the best wind. To a first approximation, that is in the north-west and around the coasts of the UK. However, the greatest demands for electricity are in the Midlands and the south. That means that there will have to be changes in the electricity distribution system that are massive in scale and cost. When discussing electricity supply, we commonly concentrate on the cost of the generation technology without realising that the investment in the grid is of the same order as that in the generating system. Even though demand may not change, the new system will have to be significantly larger than what we have at present. Massive interconnectors will be needed between north and south and from the windy coastal areas to the inland. This will be the largest change in electricity transmission since the Second World War, and arguably the largest change ever within the UK. Transmission systems typically have a life of 40 years, so we are speaking of system that will be with us until around 2050. Not only will the grid changes involve construction on a very large scale but there will be technological challenges as well. The grid will need to be intelligent enough to deal with wind intermittency. At a local level, as local generation assumes a greater role, the distribution networks will have to be able to deal with connections at different scales that sometimes connect demand and at other times provide supply. Therefore, the question is: how is this major infrastructural change to be planned and implemented? At present we do not seem to have the proper machinery for doing that, and what machinery we have is encumbered in so many ways that it cannot function effectively. It is instructive to consider how the machinery operates in connection with a proposed new power generation development today. Such a proposal has to receive sanction from four independent and unconnected bodies: the planning authority for the generating facility, whether it is a power station, a wind farm or whatever; the planning authority for the transmission line that connects to the grid; the national grid itself that manages all the connections and has to give its consent; and Ofgem, the body that has to give approval to any proposal to spend money on infrastructure, bearing in mind that the costs will ultimately be borne by consumers. Those four bodies have to give their approval. None of them has within its remit the achievement of the national objectives on climate change or renewable energy. All have the power either to veto projects or to seriously delay them, and to do so in ways and for reasons that do not take into account the national interest. In one sense they cannot be blamed for that, because the national interest has not been clearly defined. The Planning Bill should go some considerable way to dealing with the first two problems by allowing the same application to cover both electricity generation and its connection to the grid. Furthermore, by establishing an infrastructure planning commission there will be a means of evaluating particular projects in the light of the national interest. However, one should not be misled by the name of the proposed planning commission. It does not plan; it simply assesses whether any particular proposal is consistent with something known as a national policy statement. The Planning Bill discusses how such a policy statement should be established only after a process of lengthy consultation and how this statement is intended to be a definitive statement of national interest. The first requirement is that we should have a national planning statement for electricity generation and distribution. Such a statement may already exist, but if it does I have not been able to find it. In the absence of such a statement we cannot make sensible progress on key elements of the infrastructure that is needed to make all the things we have been talking about today work. This will be required by the Planning Bill, and there seems to be no reason at all why BERR should not immediately begin consultation on such a plan. I should be grateful if the Minister could give the House an assurance that this progress will begin forthwith if it has not already done so, and provide the House with a timetable for its completion. That statement should provide the framework against which all new developments can be assessed. It is all very well to have a framework, but if the expenditure to implement it is not authorised it will simply remain a paper framework. Nothing will happen. This is where it is important to examine the role of Ofgem, the Gas and Electricity Markets Authority. This body was established in the 1990s with a view to ensuring that vigorous competition in the energy market was used to drive down consumer prices. It has to approve expenditure and price changes proposed by bodies involved in the generation and distribution of gas and electricity. The Ofgem remit has been modified to some extent in subsequent years, and today the office has such a mind-boggling array of secondary objectives to be borne in mind when making its decisions that one cannot but have some sympathy for it. In practice, Ofgem struggles to approve expenditure that cannot be demonstrated beyond reasonable doubt to have a clear, short-term and low-risk justification. My conclusion, and that of many others, is that although the remit of Ofgem was appropriate for the time that it was established, it is no longer appropriate today. If it is to retain its existing authority over expenditure on energy infrastructure, that authority must be exercised in a different framework. It is essential that the Bill should be amended to do that. One possibility is to do so along the lines of an amendment offered in the other place by Dr Desmond Turner but not called or debated. I will not detain the House with the details of the amendment but its essence is captured in the following brief extract: "““The principal objective of the Secretary of State and Gas and Electricity Markets Authority””—" that is, Ofgem— "““in carrying out their respective functions … is to deliver a secure and sustainable energy system operating within greenhouse gas emission limits notified by the Secretary of State””," and so on. I believe that there is considerable support, both inside and outside the House, for an amendment along those lines. Having devoted a considerable amount of time to what is not in the Bill, perhaps I may now turn more briefly to provisions that are there. I think that much of the Bill is devoted to what I would call sensible housekeeping, although we shall no doubt have discussions over some of the details. I wish to draw attention to only two sections at this stage. The first relates to the scheme for renewable obligation certificates—the ROCs—which have already been discussed. The proposed banding is to be welcomed. It is clear that the support needed by different renewable technologies is different and the intention to double certificate allocation for electricity generated by emerging renewable technologies is to be welcomed. However, we have to recognise that emerging technologies are slow to come to market and no one will invest in an emerging technology today unless they are confident that it will be possible to deploy it on an economic scale before 2015, which is when the present scheme ends and when the Government hope that their current renewables target will be reached. If this support for emerging technologies is to have any realistic hope of bringing new modes of generation to the market, the Government will need to extend the time horizon for their introduction to 2020 at least, otherwise there simply will not be time. The Government probably need to extend the timescale for another reason. Many are sceptical that it will be physically possible to build the planned new wind capacity by 2015 to reach the 15 per cent renewables target. There will be no investment beyond 2015 unless the scheme is extended. I suppose that there is a consistency argument for retaining the ROC system for the future, but it is an excessively complicated and arcane system. Once the principle of banding is accepted, it is not a million miles from feed-in tariffs which are used in most other places and are a great deal simpler. The second part of the Bill to which I wish to draw attention is that relating to carbon capture and storage. It is certain that, whether we like it or not, we shall be obliged, as various noble Lords have pointed out, to go on using fossil fuels for power generation for a number of decades. Because coal is very different from oil and gas in its geographic distribution and because traditionally it is less expensive, it is likely that it will play an increasingly large role worldwide in electricity generation, particularly in India and China. The problem is that coal is a very CO2-rich energy source. It produces about double the amount of CO2 per unit of electricity produced as does gas. There is a vital need to develop technologies that can separate CO2 and other greenhouse gases at power stations and immobilise them, probably in suitable geological features underground. It is in our interests that we in the West should develop these technologies as quickly as possible so that they can be implemented in places where they are urgently needed. As the price of carbon in the European trading scheme rises, in an ideal world it would be sufficient to meet the costs of capturing carbon at power stations. Unfortunately, the lead time for developing the technology is very long. If we wait for the carbon price to rise high enough to meet the costs, the opportunity for useful deployment is likely to be missed. The magnitude of the coal problem is so great that it is fair to say that although carbon capture and storage is not a complete answer to managing emissions, there can be no complete answer without it. I welcome the attention that the Government are paying to this important technology. In conclusion, I reiterate three points. The Energy Bill, the Planning Bill and the Climate Change Bill must dovetail seamlessly if they are to be effective. Perhaps the Minister would inform the House about the interdepartmental machinery that is in place to achieve this. Secondly, it is urgent that we have a national planning statement on electricity generation and distribution so that the infrastructure planning commission and Ofgem have a clear statement of national interest when considering proposals put before them. Thirdly, it is essential that Ofgem’s remit should be broadened so that it is able to take a wider and longer-term view of the expenditure that it can authorise. It must be in a position to approve major infrastructural investment. In all the documents I have seen, I get little sense of the urgency of our present situation. After all the consultative processes are over, development and heavy engineering take time, and time, my Lords, is not on our side.