I beg to move,
That this House has considered the matter of energy providers.
My right hon. Friend the Secretary of State for Energy and Climate Change has just told the House that our new Department aims to have a climate change policy that is fair for people and an energy policy that is fair for the planet. The issue is how we balance those things, and I want to set out how we intend to do so.
I join other colleagues in paying tribute to my predecessor as energy Minister, my hon. Friend the Member for Croydon, North (Malcolm Wicks), who for three years provided leadership and a deep commitment to dealing with fuel poverty and ensuring energy security in this country. My right hon. Friend the Secretary of State and I look forward to working with him in his role as the Prime Minister’s special representative.
It is important that we reach a balanced view on climate change policy and energy policy. We must understand three key points. First, global circumstances shape our choices at home. Secondly, we must ensure that energy suppliers are encouraged to deliver affordable energy in sufficient quantity. Thirdly, we must be clear-eyed about the need for new energy generation in Britain.
On the first point, we know that the global financial situation means that we all face serious times. Now, more than ever, climate change and the green agenda will face a testing time. There will be what my predecessor called siren voices, who will say that to deal with the financial problems we need to forget about the green agenda. The statement made today by my right hon. Friend the Secretary of State had not only an important practical objective but a symbolic importance. He clearly said that the Government will not be distracted, will maintain their focus and will ensure that climate change is at the forefront of the Government’s agenda.
The Stern report made it clear that the longer we wait to deal with the problem, the greater it will be and the higher will be the price to pay for not dealing with it. It is important that we focus on the issue in the coming years. However, these are serious times for people who have to pay bills—for companies, small businesses and individuals. In the first half of this year, average UK domestic electricity prices were the fifth lowest in the EU; average gas prices were the lowest. However, during the following months, price rises for households and companies followed substantial rises in international wholesale prices for crude oil, natural gas and coal. That, of course, fed into the increasing prices of electricity and the bills that people receive.
International prices more than doubled between 2006 and early to mid-2008, principally because of rising global demand for fossil fuels, bottlenecks in freight and underinvestment in global production. Customers around the world are paying more for their energy and, even with a competitive UK supply market, our markets alone cannot entirely protect us from global pressures and competition for energy sources and resources.
The Minister is right that we are now in a globally dependent market, but it is very important that we maximise production from our own market. Is he aware of the growing concern in north-east Scotland that although the big companies—I declare an interest as a shareholder in Shell—have enough cash to invest, much of the future production and investment in the North sea has been from smaller companies entering the market. The smaller companies rely on the capital markets, which are frozen at the moment. Will he ensure through PILOT that a strategy is in place to tackle the impact of the credit crunch on that vital investment in the next round of North sea exploration and production next year?
The hon. Gentleman is quite right that we need to ensure that the credit crunch and problems in the financial markets do not prevent the long-term investments that we need in the North sea and off the coast of Scotland to ensure that we get the maximum benefit. There is still a lot of benefit to be obtained from the oil and gas that is still accessible. The need to ensure that some of the smaller companies—particularly some of the American companies, but others, too—can access the more difficult-to-access resources is enormously important.
Of course, with the credit crunch problems there are likely to be some issues with the accessibility of finance. We want to use PILOT, as the hon. Gentleman suggests, and work through some of the issues with the companies to see whether we can maintain as much of that financial long-term investment as possible.
We must remember that that investment is long term and that many of the companies will already have sorted out some of the finance. They may well produce some problems as a result of what has happened in the past month or so. If we can work through some of those issues with them, and see whether we can get some recognition that there is a stable, long-term Government interest in ensuring that the investment happens, we can provide some element of reassurance. I cannot promise that we will solve all the problems, but we are certainly very alive to them.
Does my hon. and learned Friend agree that although there might be sustainable oil, we should not base an economy on it, recognising the fluctuations that we have seen over the past five or six months?
My hon. Friend knows that oil and gas is depleting, and although it still provides about two thirds of the oil and gas needed for our economy as a whole, it is depleting at a rate of about 10 per cent. a year. Basing a whole economy on that is obviously not the way forward. A diverse economic base is needed, and the Government have tried to encourage the diversity of that economic base. I only wish that we had a level of co-operation from the Government in Scotland that would enable much more of that diversity, rather than a pretence that they can rely on resources that are merely depleting at the moment.
We need to ensure that we deal with the issues to do with fuel poverty and the high bills that people are being forced to pay because of the world energy markets.
I shall give way to my hon. Friend the Member for Blaydon (Mr. Anderson) and then to my right hon. Friend the Member for Scunthorpe (Mr. Morley). I am conscious that time is limited in this debate, and I therefore do not want to give way too often as other Members will want to speak.
May I raise with the Minister the reality of the increase of up to 80 per cent. in the cost of domestic coal? A constituent of mine is now paying £9 a fortnight more than he was this time last year. In the debate about the cost of oil, electricity and gas, we should not forget that a lot of people in this country still rely on domestic coal.
Domestic coal will certainly play a role in a diverse energy supply, and we want to ensure that it does.
I welcome my hon. and learned Friend to his new post. I want to pick up on the point made by my hon. Friend the Member for Barnsley, West and Penistone (Mr. Clapham) during the statement about the windfall profits from the carbon credits to the generators. They are not exposed to international competition. That money basically goes straight on to their balance sheet. Is the Minister satisfied that there is proper scrutiny of where that money is being used and of whether it could be used to help the fuel-poor?
We must ensure that we have the policy right. We are ensuring that that is so, but we also have to ensure that we balance the way in which the policy is developed over the coming months. We want to ensure long-term investment, too, and it is important to get substantial investment from companies in new infrastructure. Those companies will say that they want to make a good return on that investment. We will have to strike the right balance, but my right hon. Friend is right to suggest that we must always be aware that that balance needs to be struck with a great deal of care, bearing in mind the fuel-poor.
I now wish to make progress. There is a limit on the length of my contribution, as I am sure those who want to contribute to the debate will recognise.
My right hon. Friend the Prime Minister set out a new package of proposals for dealing with fuel poverty, and this debate is our first opportunity to outline what it contains. The new measures aim to reduce the amount of energy that households need, not just this winter but in the long term. They could help an extra 2 million households improve insulation and efficiency, and save them up to £300 a year in fuel bills. An additional £560 million obligation on energy companies is to be provided under the supplier’s carbon emissions reductions targets to fund home improvements such as loft and cavity wall insulation. Eleven million elderly and low-income households will qualify for those measures, at no extra cost to themselves.
This is about not just individuals, but communities. Gas and electricity suppliers and electricity generators will also contribute a further £350 million to a new community energy savings programme. That will support new and existing partnerships between local authorities, voluntary bodies and energy suppliers, and will provide intensive help to some of our most deprived communities on a house-by-house, street-by-street basis.
Will my hon. and learned Friend give way?
Given the time constraints, I regret to say that I will not be able to.
Experience with existing schemes such as Warm Front suggests that a locally based approach, which offers householders face-to-face contact and advice, maximises the take-up of help available and addresses the problem of reaching every part of the community. As well as helping people to save energy this winter and in the long term, the measures announced will help households keep their bills affordable. This time last year, there were 365,000 customers on social tariffs; today, the energy companies tell me that there are more than 670,000, around three quarters of whom are guaranteed that there will be no price rise this winter.
Earlier in the year, the Pensions Bill that I piloted through the House was amended to allow data to be shared with energy suppliers to help them to identify those poorer pensioners at risk of fuel poverty. When it is passed, the legislation will help suppliers to ensure that some of the most vulnerable customers have access to social tariffs and other measures.
The measures that we have taken help the most vulnerable people pay their bills. We have trebled cold weather payments this winter, raising them from £8.50 to £25 a week. Homes that benefit from the community programme will also receive benefit entitlement assessments, which can add significant sums to the incomes of vulnerable households. The average annual increase in income where a household is found to be under-claiming is around £1,400, and of course we have increased winter fuel payments for pensioners over 60 from £200 to £250, and for those over 80 from £300 to £400.
When I began, I said that the global context shapes our choices. When global prices rise, our circumstances and choices at home change. Thankfully, there has been a reduction in the oil price in recent weeks, and we want that to feed through into gas and electricity prices. The fact that gas companies buy ahead from their suppliers means that there will be a lag of about six months. However, given the movements of gas wholesale prices in a better direction, we told the gas companies at the meeting we held yesterday that we want them to give some indication about what they are going to do. We want the benefits of price changes to feed through to individuals who have to pay their bills, and as a boost to the economy as whole.
Today, the Government have made it clear that the 80 per cent. target shows our commitment to ensuring that we give a high priority to dealing with climate change and to ensuring that we have an affordable energy supply. That is our commitment, and it is one that we will deliver on.
May I begin by welcoming the Minister warmly to his position? Perhaps it would be more appropriate to welcome him back, as he held the post for a few months four years ago. I also welcome his new ministerial colleagues, and I think that there will be some interesting discussions among that team. The Under-Secretary of State will be required to consent to new nuclear power stations and to the proposed facility at Kingsnorth, and that will be a fascinating process to watch.
May I also use today’s greetings as an opportunity to pay a warm tribute to the right hon. Member for Barrow and Furness (Mr. Hutton), who is now Secretary of State for Defence but who used to have responsibility for these matters when he was Secretary of State for Department for Business, Enterprise and Regulatory Reform, and to his former Minister of State, the hon. Member for Croydon, North (Malcolm Wicks)? Both really had begun to come to grips with the size of the energy challenge that we face. They did not do enough, but they had begun to understand the problem.
We wish the Minister of State well in this important role, but we also have to recognise that people outside are frustrated at the number of changes that have taken place. The hon. and learned Gentleman is the 10th energy Minister in 11 years, and he was also the sixth—just as his predecessor was the seventh and the ninth. That shows this Government have a true commitment to recycling, but many people are frustrated about the changes that have taken place.
There is also no doubt that this is a very challenging time for the Minister to take up his post. There is massive pain in households as fuel bills go up, and there is a real threat that companies may close as a result of the lack of competitiveness in our electricity pricing. In November, the forward price for electricity for business is one third higher in this country than it will be in France. We face an energy gap in less than a decade, when the lights may go out, and the current financial pressure makes the targets on renewables even more challenging.
However, the charge against the Government is that they have made problems worse than they needed to be by failing to make decisions at the right time, and sometimes failing to make them at all. The Government have received warnings since the spring about fuel poverty, which was completely inevitable given the huge price rises coming through. Gas prices have risen by 50 per cent. since January, and electricity by 30 per cent., but the Government did not act until September. Of course we all agree that energy efficiency is vital, but it is not possible for enough to be done before winter starts, even though the warning signs were there.
That will have catastrophic consequences for the Government’s fuel poverty targets. They want to remove all vulnerable households from fuel poverty by 2010, and that is a legally binding target, but the numbers are shooting up in the wrong direction. We need clarity from them about whether they think that those targets can still be met.
The winter fuel allowance has been of considerable help since the Government have been in office. If the Conservative party is elected at the next general election, will the hon. Gentleman say that the allowance will be retained?
We shall make our financial commitments clearer as we get closer to the election. We have no idea whether the shortfall in public spending this year will be the £40 billion that was predicted, or the £100 billion that is now expected. We cannot begin to make spending predictions at this stage. The other thing to recognise is that this year’s increase is for one winter only and not a lasting commitment.
The hon. Gentleman has attempted to lambast the Government for failing to make decisions. Will he make a decision about winter fuel payments, as many pensioners will be very disturbed by what he has just said? While he is at it, what is the Conservatives’ attitude to nuclear power? Does he still agree with his party leader that wind turbines are merely bird blenders?
The Minister could have addressed some of those issues in his own contribution. On winter fuel payments, we will make our position on financial matters clear as we move towards the election. That is not likely to happen for 18 months, and we expect to be able to make our spending commitments clear at that time. However, given that we have no idea of the extent of the mess that this Government will leave us with, we cannot give that clarity at the moment.
I refer the Minister to the comments made by the previous Secretary of State with responsibility for nuclear power. He thanked the Conservative party for the constructive way in which we engaged with him and his officials to try to provide a secure platform for nuclear investors. We have said that we will work with the Government to provide security and a stable investment scenario. If the Minister had talked to his officials before making those comments in the House, he would have been better informed.
However, the Government have rejected some of the proposals that would have helped them to deal better with the problem of fuel poverty. In the Energy Bill that is going through Parliament, we proposed that the Secretary of State should have powers to set social tariffs. That would mean that he would not have to consult, let Ofgem consult and then consult again: the necessary powers could have been included on the face of the Bill, so that he would be able to act if he decided that that was necessary. Without those powers, he will need to have primary legislation before he can act, and this winter will be over before he has that ability. It is a shame that our proposals were not accepted.
The Government have abolished Energywatch and now, under pressure from other Governments, there are moves afoot to allow the European Commission to slip off the hook of tackling liberalisation.
At the heart of this debate about energy providers is the issue of energy security. How can we keep the lights on in 2014-15, by which time most of our nuclear power stations and one third of our coal-powered stations will be out of commission? The Government have failed to establish a framework to bring forward investment in new energy generating capacities. As a result, we are seeing higher prices in this country, especially for business users. The prices are now above the European average.
Critically, the Government have also failed to address the issue of gas storage. We have 14 days of gas storage in this country compared with 100 in Germany and 120 in France. In the cold period at the end of 2006, when we desperately needed gas to be imported through the interconnector with France, France was unable to provide it because it had legal requirements to keep gas storage facilities topped up. We need a real determination from the Government to push forward gas storage. That will be fundamental to our energy security.
In spite of what the Minister says, the Government have been timid on the issue of carbon capture and storage. Even when they were telling us that the economy was doing well and the coffers were flush, they did not invest in more than one pilot project. They said that they would fund three projects from the receipts from the EU emissions trading scheme. [Interruption.] The Secretary of State intervenes from a sedentary position. However, two potential technologies have been ruled out. Far from our being in a position to export expertise to China, China has opened its pilot project while we are still deciding who might win ours and it is determined to export its technology to us. We could have shown true global leadership and established a tremendous lead in a vital new sector, but the Government have allowed the opportunity to slip away.
The Government should also be looking to show leadership by following our approach to emissions performance standards. We looked at the matter carefully. Initially, we had a concern about it; we have been persuaded that it is the right way forward. We need to be clear that it is not an anti-coal policy, but it is crucial for future investment that a clear framework be established.
The hon. Gentleman talks about carbon capture and storage. There are other methods of dealing with carbon. One is coal gasification and the other is burning coal in integrated combined cycles. All the prototype technology for our clean fluidised bed coal gasification programmes was abolished by the Conservative Government in 1988.
The hon. Gentleman makes a point about what happened many years ago, but we are now—as the Secretary of State said—in a very different set of circumstances. We have seen a significant move to gas, which has enabled us to meet our Kyoto commitments. We have not seen the necessary investment in new plant, and we have to look again at how we can give new life to coal. We have not reluctantly accepted this policy; we are passionately committed to delivering it because we think that coal has an important role to play in the future.
The other aspect of the debate is low-carbon energy. While the Government have talked the talk in this area, they have not walked the walk. We have seen lots of targets, but we have not seen enough real action. The Government set up the marine renewables deployment fund with £15 million, but not one penny has been spent. They should be helping to market emerging technologies in which we can lead the way rather than setting rules that companies cannot meet.
The Government consented to 33 GW of offshore wind, but they did not consult anyone in the industry about the feasibility of building that by 2020. The wind industry says that it cannot do more than 20 GW, so the Government have set a target that the industry does not believe it can deliver.
In other areas such as smart meters we have offered the Government a way forward. Smart metering is a crucial element in encouraging microgeneration and tackling fuel poverty. It could be achieved in a decade—but not if the Government do not accept the framework. There has been some movement in the Energy Bill, but there is complete support in industry and among many politicians and environment and consumer groups for setting a timescale, and I hope that the Minister will go away and reflect on whether that could still be built into this debate.
We have worked with the Minister’s colleagues and others outside the House to push forward the case for feed-in tariffs for microgeneration. We are glad that that has been accepted now. We want to see the detail of how it will be done. It could have been done months ago when there was clear agreement across the House. We could have been making much more progress than we have made up to now.
We have seen a Government obsessed by targets. They have a target of 10 per cent. of electricity from renewables by 2010, of 20 per cent. of electricity from renewables by 2020, 15 per cent. of our energy to come from renewables by 2020, all homes to be insulated by 2020, abolition of fuel poverty by 2016—interestingly, 22 November 2016; we do not know if it is the morning or the afternoon, but we are told that it will happen that day for certain—targets to reduce carbon emissions and other targets. We need action rather than targets from the Government. People want delivery. We want to move away from the endless process of consultation. The conclusion of the smart meter consultation was that there should be three more consultation exercises. We have not had decisions. The Government have shied away when decisions have been essential.
We are totally with the Government about the urgency of issues that need to be tackled, but we shall be able to deliver on the challenge of tackling fuel poverty, moving to cleaner energy and ensuring energy security only if the Government make real decisions and stop simply talking the language of what they would like to achieve.
I welcome the establishment of a new Department. It is long overdue. We had an energy Department, as you will be aware, Mr. Deputy Speaker, up to 1992. Since then, energy has been part of the integrated remit of the DTI. That has taken the focus away from some of the real issues, so it is good that we now have a Department of Energy and Climate Change.
I want to concentrate on two things. The first is the increase in energy prices, especially gas prices and the knock-on effect on electricity prices. There are now just six energy companies in the market. There is an oligopoly. There are more inputs into the gas market, but the peculiarity of the gas market has meant that we have seen quite high gas prices. They have increased by 30 per cent. in the past year and electricity prices have increased by 50 per cent. That has had an enormous impact on domestic consumers and industry.
When the Business, Enterprise and Regulatory Reform Committee took evidence from the Energy Intensive Users Group in spring, we were told that gas prices in France and Germany were 30 per cent. below those in the United Kingdom. I understand that across Europe electricity prices are 5 per cent. below UK prices. That has put British industry in a difficult position. Its competitiveness was challenged by those prices.
When we look at why energy prices have increased, we see the indexation of gas prices to oil prices. The Select Committee took evidence from Energywatch. We were told by the chief executive that it was an irrational indexation and that there were other ways in which we might move. I accept that it would require an international endeavour, but I urge the Minister to consider whether we could embark on such an endeavour to separate gas prices from oil prices. The increase in gas prices has caused great hardship across the economy. As a result of the linkage between gas prices and electricity prices, high gas prices have driven up electricity prices. We have 33 per cent. of our electricity generated by gas and because those stations are the last to be called on—the marginal stations—they set the electricity price for the whole market. High gas prices mean high electricity prices, because the marginal set that is called on is gas-fired. That causes enormous problems.
The hon. Member for Wealden (Charles Hendry) mentioned price increases and when he was chided by my hon. Friend the Member for Barnsley, Central (Mr. Illsley) he said that we cannot look back and that we should not dwell on the past. However, the two factors that had an impact on the energy market came about as long ago as 1989. The Conservative Government allowed the use of gas in power stations. Until then, the use of gas in power stations had been restricted. Using gas in power stations has burned an enormous amount of gas, to the extent that this year—2008-09—the UK may be importing 40 per cent. of the gas we use. It is estimated that the figure will go up and that by 2018 the UK will be dependent on imports for 80 per cent. of its gas.
The other decision that had a big impact on the energy market was that of the Conservative Government to abandon all the research that had been done on clean coal technology; they demolished the research unit at Grimethorpe colliery. That removed our lead and gave it to other countries, such as Scandinavia. China, too, is making a lot of progress on that technology. A number of factors have an impact on the price of gas. If we are to deal with them meaningfully, it will require international endeavour.
The big six are in a much more influential position in respect of electricity, with an enormous say on electricity prices in the market. That does not mean that they sit down in smoke-filled rooms and come to an agreement on the price, but because there is an oligopoly of only six major electricity producers the price signals from one to the other are easily picked up and consequently they follow each other. Over the past year, all the energy companies have increased prices. To be fair, Scottish and Southern Energy did not increase its prices in April; it waited until the end of the winter. Nevertheless, all the companies have increased their prices, by 50 per cent. and 30 per cent. for gas and electricity—and that has had an enormous impact.
What can we do to deal with electricity prices? Is there a way to reduce them? The price of oil has already come down from $146 a barrel in July to $81 a barrel this week. That means that the gas price has also started to fall, which is likely to bring down inflation from the 5.2 per cent. announced this week. At the same time, we have to be aware that there will be a fall in economic activity in the UK that will also have an impact. Although on the one hand, energy prices are beginning to fall, on the other we shall have to deal with a difficult situation with more people out of work as the economy begins to slow.
The Government can do more to deal with the situation, especially with regard to the EU emissions trading scheme, where the energy companies are set to make an enormous amount of money. They have been given free permits and Ofgem reckons that the price of carbon will increase by £9 per tonne, so taking that figure right across the industry, the companies are likely to make £9 billion over phase 2 of the European emissions trading scheme—from January 2008 until 2012. There is an opportunity to consider whether there is room for a windfall tax on that windfall profit. An enormous amount of profit will be made, so there is an opportunity and the Minister may already be considering the possibility of a windfall tax. We could use that money to start to tackle the big issue of fuel poverty.
The hon. Member for Wealden asked how many people were already in fuel poverty as a result of the price increases. We know that for every 10 per cent. increase in energy prices, 400,000 households are put into fuel poverty. When we consider the gas price increase of 50 per cent. over the past year, we realise that we could be talking about 2 million households being put back into fuel poverty. The energy companies have a social responsibility. If they do not make money available to deal with fuel poverty from the profits they are making, the Minister must seriously think in terms of a windfall tax.
There is another aspect that we must look at carefully. The one thing that we could not do in the BERR Committee when we looked at energy prices was determine where the profit was coming from. On the one hand, the wholesale gas price goes up and on the other, because 30-odd per cent. of electricity is generated from gas and gas prices increase in relation to oil, the price of electricity also brings a profit. There are large profits in the wholesale area of gas usage and the Minister may want Ofgem to concentrate on that in its regulation of the energy industry. If that can be done, it could provide another opportunity to work with the energy industry to tackle fuel poverty.
All in all, a number of things can be done. We need transparency in the forward gas market, which is not there at present. Some gas companies, in previous acquisitions, bought companies that had long-term gas contracts, and the Minister may want to consider whether those contracts are anti-competitive and what we might do to loosen them up so that they are conducive to more competition. That certainly needs to be looked at.
We should also look at the enormous amount of profit that will come from phase 2 of the European emissions trading scheme. In the Minister’s previous role, he was close to what was being done on clean coal technology and carbon capture and storage, but there has been such delay. I understand that this year we have listed four companies for further negotiation, but we are not likely to choose one for a contract until next autumn. That is too long. We need to expedite carbon capture and storage. That is not just to deal with coal-fired stations, although that is an important aspect; a gas-fired station produces about half the CO2 emissions of a coal-fired station, so we need to ensure that we use carbon capture and storage on gas-fired stations as well.
My hon. Friend has hit on an important point. Carbon capture and storage could be some time away. The demonstration plant is still only at competition stage and a decision has not yet been made. There is a technology we could use in the interim, which has been around for a long time and can be retro-fitted—the system of removing carbon pre-combustion. In the old days when we had town gas and coke works, there was a simple method for removing carbon from coal before it was burnt. I hope to host a reception on 3 November, to which my hon. Friend will be invited, which will hear about a technology that does exactly that. We could use coal gasification or clean coal technology in advance of carbon capture and storage.
I am grateful to my hon. Friend for that intervention. I know that the Minister heard what my hon. Friend said and may well be at the reception that he is hosting.
There are some important measures that we need to take pretty speedily. Carbon capture and storage is one, because it would allow us to deal with the crisis that will arise between 2012 and 2016 with the simultaneous closure of some of the coal-fired stations and nuclear stations. We therefore need a technology that we can use to reduce emissions, because if the gap is filled by gas-fired stations, it will not reduce CO2 emissions. Those emissions will increase, and we could eventually have gas-fired stations, nuclear stations and renewable input, and yet produce a greater amount of emissions because of our emphasis on gas-fired stations. Given that we are likely to be importing 80 per cent. of the gas that we use in the UK by 2018, the Minister might consider putting a cap on the number of gas-fired stations that we will allow in the energy economy.
Order. Has the hon. Member for Barnsley, West and Penistone (Mr. Clapham) finished his speech, or is he giving way?
I was giving way, Mr. Deputy Speaker.
I thank my hon. Friend for giving way. I wonder whether he wishes to add the words “combined heat and power” to his thoughts on gas-fired power stations. I am thinking not just of the need to make any new gas-fired power station that should come on stream CHP-ready, but of the need to provide a heat network to deliver the captured heat from such a gas-fired power station, which would double its efficiency.
I am grateful for that intervention. It is important that we ensure that we have CHP units, and using CHP with the gas-fired stations would make them really efficient—much more so than at present.
I shall address my brief remarks to the title of the debate, “Energy providers”, and move from the very micro to the macro.
I want to draw the Minister’s attention first to an issue that was drawn to my attention by a local resident, who received a letter at the start of October from her energy company, telling her that at the end of August it had raised her prices. I queried that with the company, and it told me that that was perfectly legitimate, because under Ofgem rules, energy companies have six weeks to tell customers that they have put their prices up.
It is very hard to think of any other form of trade in which one continues to consume a product for six weeks, only to learn from the provider that it was charging more six weeks ago. Will the Minister look into that? It worries me that many people who are getting estimated bills, or who are paying by direct debit at a level that is below their current consumption, will face really big hikes in their monthly outgoings, and if they are not told until six weeks after, the market will not work, because they will not start shopping around for a better price if they do not know that the price has gone up until six weeks afterwards.
Secondly, I want to explain one of my whacky ideas, which will become received wisdom very soon. As the new Minister has not had a chance to hear it, I want to raise with him the idea of what I call the super-smart meter. The Secretary of State said a few minutes ago that many people who switch do not actually switch to a better deal. We also know that the poor tend not to switch—and that they tend not to have internet access. Will the Minister ensure that when Ofgem specifies what a smart meter looks like, one of the functionalities it puts into it is that the meter does the switching for the consumer?
The meter needs to be able to communicate with the outside world in order to be a smart meter. Why should it not go to a price comparison site, on behalf of the consumer, knowing the consumer’s pattern of consumption of gas and electricity or whatever, and shop around for the best price? Then we would not have the problem that the Secretary of State mentioned—that the consumer swaps supplier and then a week or a month later things have changed and they ought to swap again. The meter could monitor the market on behalf of the punter. It could be possible to lodge one’s bank details with a central clearing house, so that it was not necessary to have one’s bank details with 100 different companies. Then there would be real competition in the market—almost the economist’s picture of perfect competition, because the meter would do the switching. I hope that the Minister will pursue that idea.
My right hon. Friend the Member for Gordon (Malcolm Bruce) mentioned earlier the issue of people who are not on mains gas. That is a big issue. Funnily enough, it does not occur only in rural areas; in a surprisingly large number of places, people just are not on mains gas. When we bought the house that we live in, 15 years ago, it did not have mains gas, and all the houses along the row had oil tanks in the garden. I have not yet heard what we are going to do about fuel poverty for these people. The big six do not provide the non-electricity power; they do not provide liquefied petroleum gas, by and large, or heating oil. I think that the Secretary of State hopes that the big six would address that group, but by and large they are not selling to that group, apart from electricity.
Can my hon. Friend appreciate the insult that is added to the injury when consumers receive through the door invitations from a gas company that does not supply them to opt for dual fuel? Does he find it interesting that since the privatisation of the gas industry, the extension of the gas network seems to have ground to a halt? There seems to be no incentive to give people gas.
Access is a very real issue, as my right hon. Friend says, and of course the absence of dual-fuel tariffs for these people is an extra penalty. Not only do they pay a lot when the price of heating oil goes up, but they do not have access to dual-fuel tariffs either. The regulator could do something about that.
Does the hon. Gentleman accept that there is a real problem with the Warm Front programme? Many of the people who are off the mains gas network are living in older property, and the current cap is causing them enormous problems. They will almost certainly have to pay more than they will get in grant, and something needs to be done desperately quickly about that.
The hon. Gentleman makes an important point. I will return to the issue of home insulation programmes.
I shall stay on the issue of fuel poverty, and the figures that I referred to earlier this afternoon. I asked the Library to look at single pensioners, to rank them by quintile from the poorest to the richest, and to look at what they spend on fuel and what their actual incomes are. The Library projection, on figures provided by the Office for National Statistics, was that not just the poorest quintile were on average in fuel poverty this autumn, but the second, third and fourth poorest quintiles. All quintile groups except the top fifth were on average in fuel poverty this autumn. The scale and the urgency of the problem are absolutely incredible.
The Minister said that two thirds of a million customers were on social tariffs. That is great for the two thirds of a million, but that must mean that if fuel poverty is running at well over 3 million, and possibly at 4 million or more, the vast majority of people in fuel poverty are not getting social tariffs. It is not just that the glass is half full or half empty; it is about a sixth full. That is the scale of the problem. So how do we get social tariffs through to the fuel-poor on a much greater scale?
I want to address the issue of the companies. The Secretary of State has had a meeting with them and that is great; his predecessor had meetings, and the Prime Minister has had meetings, but we are not getting out of them what is needed. The Secretary of State said—I believe he did so in The Guardian this morning—that he hoped that the companies would not pass on the cost of the home insulation scheme to consumers, but he can hope all he likes; the companies can do it, and the consumer can do nothing.
Surely, Ofgem should be stopping the companies passing on the costs of these social measures. If it is a duty on the companies, the customers should not be forced to pay. The shareholders should be forced to pay, because as was said in a previous contribution, the generators—not the distribution companies, although obviously there are some pretty close links—have had this huge windfall, according to Ofgem. In my view, one does not have a windfall tax that takes the money off them and then spends it; one places a duty on them to do the things that one wants them to do. In our view, we go very much further down the track than the Secretary of State said in terms of neighbourhood energy efficiency.
The problem with the carbon emissions reduction target is that a road with six houses can be served by the six different companies, and six different men in six different vans can go down to help that company achieve its CERT obligation. As the hon. Member for Stroud (Mr. Drew) said, there are great variations in the types of houses and in different areas. We need a neighbourhood- based approach on a massive scale. The problem with Warm Front is that it adopts a piecemeal approach, although it has done good work. Local authorities know their neighbourhood. The answer will be different in Stroud and in South Gloucestershire, for example. We need substantial money from the supply companies—a windfall duty on them—to deliver systematic energy efficiency. Yes, as the Minister said, they can provide benefit advice too—if someone is going to knock on those doors, they might as well ask that set of questions as well—but I think there is a paucity of ambition here. Literally millions of pensioners are affected, and I would mention, too, disabled people below pension age who do not qualify for the winter fuel payment but who may face extreme heating bills that they have no choice but to incur.
There is a serious worry this winter, particularly for people on pre-payment meters, about self-disconnection. We do not see those people in the headline figures, and I hope that the Minister will ask the energy companies how much that happens. People on pre-payment meters simply do not have the money to top them up, and they just switch off the power. That does not feature in disconnection statistics, because no one disconnected them—they disconnected themselves. That could well be a hidden disconnection scandal that gets worse this winter. There are some serious issues for consumers, as the problem is imminent. Further consultation on possible legislation simply does not meet the scale and urgency of that problem.
rose—
A time limit was not imposed on Back Benchers’ speeches, and I see that two more hon. Members wish to take part in the debate. There will be slightly less than 40 minutes left, if we allow the Minister two or three minutes for his winding-up speech, so perhaps hon. Members will keep an eye on the clock. I call Dr. Alan Whitehead.
In welcoming my hon. and learned Friend the Member for North Warwickshire (Mr. O’Brien) to his new post as energy Minister, I sympathise with the dilemma that he faces, particularly in the light of the statement immediately before this debate about energy providers and how they will provide our energy in future, as well as the compatibility of those choices with our goals and the need to make a positive contribution and keep the lights on.
That process has been likened to attempting to change at least one wheel on a car while steering it along the road and making sure that it does not go into a ditch. It is a serious issue, and my hon. and learned Friend has mentioned the high investment required in the energy economy over the next few years to keep the lights on and to move our energy supply in a different direction. We have to replace 40 per cent. of our generating capacity over the next 15 years, as it is not just coal-fired power stations that are being decommissioned under the large plant directive but nuclear power stations and, indeed, older power plants, which are being retired on the grounds of age.
Furthermore, we have to look fundamentally at the question of wholesale renewal of large sections of the national grid, and its ability to supply energy from power stations. In particular, as we deploy new forms of power generation, such as large-scale renewables, there will be a growing queue for connection as the grid runs into problems when dealing with different connections for new forms of energy and continues to try to provide the wherewithal to transfer energy from the north to the south and to achieve a fair distribution of the products of those power stations.
We have heard mention of smart meters, which are not just a good idea for the future but a long overdue investment. There is still a clockwork economy in metering in an era of computers and internet communication. Metering in the UK is not fit for purpose, and it does not fulfil the requirements of the energy supply.
A moment or two ago, we heard the Liberal Democrats’ suggestion for an upgrade to smart meters that would allow meters to select a tariff. Does my hon. Friend, like me, think that that suggests computers that track shares in stock exchanges, which then cause prices to plummet? The logic would be that everyone on such smart meters would switch to a cheaper supplier, so there would be real instability.
The hon. Member for Northavon (Steve Webb) and I have discussed his interesting proposal for super-smart meters, but I agree with my hon. Friend the Member for North-West Leicestershire (David Taylor) that the danger arises if one applies the prisoner’s dilemma theory to that bright idea. It may well be the case that all the meters would switch to a single supply at the same time or, alternatively, there would be a constant, chaotic switching, because perfect information about a market would be available. [Interruption.] Indeed, markets operate only on the basis of imperfect information, as the hon. Member for Northavon knows from his studies, so there would be a problem.
I would prefer to characterise meters as smart, smarter, and super-smart according to what goes into them and what they can do. It is not just a question of giving a real-time reading, so that someone’s energy supply is under their control to a far greater extent. People should be able to read the meter by getting it to deliver a signal either via computer or to a remote reading facility, so that they are not waiting at home all day for someone to come and read a clockwork meter at 3.30 pm, when they said that they would do so at 9 am. It is a question, too, of the extent to which meters are two-way, incorporating energy generation as well as energy supply, and can do things such as responding to dynamic demand in the household—switching off devices when they are not needed—thus reducing the cost of supply.
When we make decisions about smart meters—it is urgent that we do so—we must ensure that those meters are rolled out in the best possible way. We need some form of area franchise, rather than each company looking after their own meters. It is important that we get smart meters right, otherwise we will simply install a new generation of clockwork meters to replace the old generation. Given the radical change in the way in which energy will be supplied in future, it is essential that meters are up to the task of making sure that the different form of supply can be properly mediated by householders.
We have to make those changes, but the need to reinvest in our energy economy in a substantial way poses a dilemma. Unless one suggests—I do not—that all the energy supply companies should be nationalised immediately, it is extremely likely that that investment in all those different forms will largely be down to the energy companies, and it is essential that they can make that investment. It is important, too, to place that new investment in the context of the long-term prospect of high energy prices, regardless of the volatility of the market.
Under those circumstances, I wonder whether the idea of a windfall tax that simply gives people money to become competitors in getting expensive energy supplies and to give the money back to energy companies so that they can provide them with more expensive energy supplies is necessarily the smartest way to go forward. I suggest that when we are looking at the renewal of our capacity, we should approach it in different ways. Renewing our power plants will be achieved by means of different devices. We will have to introduce a substantial amount of renewables to replace existing power stations. In traditional power stations, we will have to introduce different ways of ensuring that their output is efficiently captured and that the emissions are properly controlled. Carbon capture and sequestration means combined heat and power and measures to ensure that the use of the fuel is efficiently discharged for the production of electricity.
With reference to the grid, I am attracted by the elision in Chinese of the words “danger” and “opportunity”. Will we say to energy suppliers, “We ought to be reorganising and restructuring the grid, but we will reorganise it in the same way as it was previously organised,” when we know that we are moving into an energy economy of distributive energy, with households producing electricity and that going into the grid in ways for which the grid was fundamentally not designed? The grid is essentially a spine system going down the country, linking very large power stations with what one might regard as dumb terminal users.
One is reminded of the statement that the chief executive officer of IBM made in the late 1940s, when he was asked how many computers he thought the world would need. He said about six, on the basis that there would huge computers with long terminals with dumb ends on them. That is not how the energy economy will work over future decades. The grid must be resupplied, so that it works for renewables and decentralised energy. Should it go on land or sea? Can we envisage the connection of offshore wind with this country and interconnections with other countries, serving also as a grid device for distributing energy round the country? Can we make an opportunity of the dangers in such a way that the companies supplying energy reinvest in the grid, in power stations and in meters to make them fit for purpose and for the way in which the energy economy will run in future?
That brings me to the way in which we should approach those energy companies. In the new energy economy, with the sort of goals that we have heard about today, it is absurd that we should continue to envisage energy suppliers being required in future to provide each and every one of us with as much energy as they can at the highest price they can, and that that is how they will make their money.
Yes, of course energy companies must make money for the tasks of investment and supplying energy in future, but a far better paradigm is to develop ways for them to cease to be energy supply companies and to become energy service companies engaged in contractual arrangements with commercial or domestic customers. The energy supply companies would invest, along with the customer, in saving energy, installing energy production and energy-efficient devices, making sure that the energy provided is the smallest amount possible and that the proceeds that arise as a result of that contract saving money are split between the householder or company and the energy supply organisation.
The opportunity and the danger come together in a new paradigm for how we deal with our energy supply companies, first, in the interests of arresting climate change; secondly, to the benefit of our energy security by ensuring that we use less energy and use it far more efficiently; and thirdly, by re-equipping our energy infrastructure to deal with the problems of the 21st century, rather than the 19th century, which it appears at present to be designed to do.