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Electricity Market Reform

I will limit my remarks to one or two points. One disadvantage of having such a knowledgeable, far-sighted and competent Committee Chair is that after he has spoken there are few sensible contributions left to make. I will, therefore, confine my remarks to one or two less sensible points, which I hope will add something to the debate. In the Green Paper, and certainly in the subsequent White Paper published after the Committee's report, one must look a long way to find comments on electricity market reform. Although the White Paper addresses a range of topics, such as capacity, the carbon floor price and energy performance standards, its central oddity is that it leaves the electricity markets as they were designed 10 years ago under NETA—the new electricity trading arrangements. It leaves the electricity markets in pretty much the same place, with the same assumptions and mechanisms. However, it countenances a very different landscape as far as electricity trading is concerned. When NETA was set up, there was a substantial number of wholesalers selling and retailers buying. That is no longer remotely the case—not by conspiracy, but through the accretion of suppliers, generators and retailers into the big six. By accident, what has come about is, in effect, a cartel—we have to say that—that essentially hedges, using the strategies that my hon. Friend the Member for Brent North (Barry Gardiner) mentioned: it buys on the futures market and sells to itself, using the same market mechanisms, and therefore pretty much bypasses most of the things that NETA was originally set up to do. When NETA was set up 10 years ago, it was carbon-blind. Its purpose was to secure, among other things, the cheapest price between wholesale and retail. In the early stages, it looked as though it was substantially succeeding in doing that, until other factors took over. However, there was the emergence of what one might call the other things that are central to the electricity market reform White Paper. To some extent, they were mechanisms that mediated that central electricity market. The renewables obligation, for example, was a mechanism attached to the original NETA/BETTA system to bring renewables to market; to underpin emerging technologies; and, in an echo of the recent debate on feed-in tariffs for solar photovoltaics, to recognise that over time the obligations may change as the technologies come to market. Nevertheless, the aim was to underpin those technologies in the first place. Now, as hon. Members have said, we need to decarbonise our electricity market rapidly and invest substantially, not just in replacing capacity but in providing additional capacity, because of the nature of the capacity that we are bringing on board as far as the low-carbon market is concerned. We are talking about perhaps £200 billion in investment. All but two of the big six companies have pretty much borrowed up to the limit of their balance sheets, so we need important mechanisms to secure not just the good running of the market, but low-carbon investment on the basis of good value for customers. I do not underestimate at all the breadth of the challenge implied by the electricity market reforms. There are various things in the reform. The central electricity market remaining must have a substantial question mark against it, with regard to whether it is fit for purpose as one of the central mechanisms driving all the demands forward. I think—evidence was submitted to the Select Committee on this—that a single purchaser pool of some description is a necessary way of dealing with the issues of cartelisation and the lack of transparency in the wholesale market that has emerged. There must also be a question mark against the contract for difference as set out in the White Paper.