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Energy Supply

Volume 578: debated on Thursday 3 April 2014

For the security of electricity supply, we are taking short, medium and long-term actions. In the short term, National Grid and Ofgem are implementing a reserve of power stations—stations that would otherwise be mothballed or closed—to be used if necessary, and we are actively supporting new proposals for interconnectors with Europe. In the medium term, we have finalised our plan for a capacity market, and plan to run the first auction for capacity later this year. In the long term, we have introduced our electricity market reform which is leading to the current boom in low-carbon energy investment.

My right hon. Friend will know that under the previous Government, the number of energy suppliers halved, which did nothing to promote energy security. Will he set out the steps that this Government are taking to ensure that new entrants come into the marketplace to promote competition and energy security?

My hon. Friend is right. The generating market, to which not enough attention is paid, is becoming more competitive. The amount of electricity traded on the day ahead market has increased from 5% to more than 50%, which has really improved competition, and Ofgem’s measures to create more liquidity in the forward market, which take effect next week, will enable the entry for which he asks.

Given the public backlash throughout the country against onshore wind farms, will the Secretary of State update me on future investment for tidal and wave energy, which is a much less intrusive form of renewable energy that can provide a constant energy supply that would help to deal with security in the future?

My hon. Friend and I may disagree about onshore wind, as I have visited many popular sites from which local communities see real benefits, but I agree that tidal and wave power has a big future. The Government, and especially the Minister for climate change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), have been active by allocating £20 million for tidal arrays and ensuring that the EU provides funding for other projects. Generous support has also been given through the renewables obligation certificate and contract for difference systems.

Given the almost complete lack of movement on investment for all the permissioned sites for gas-fired power stations, the Department’s estimates of spiralling costs for the capacity market mechanism, the state aid difficulties with proposals for that mechanism and the mothballing of existing power stations, will the Secretary of State review the case for a strategic reserve mechanism, which his Department suggested in 2011 would be a far less expensive and more secure method of supplying future capacity?

The hon. Gentleman is very knowledgeable about such matters, but our plans for the capacity market are on schedule, so the fears that he voices are not there. He talks about the benefits of a strategic reserve, which we debated during the passage of the Bill that became the Energy Act 2013, but what National Grid and Ofgem are doing in the short term has similarities with a strategic reserve, yet avoids the disadvantage of creating perverse incentives for the wider energy market.

Does the Secretary of State agree that security of supply will not be enhanced by the closure of two of the last three deep mines, Kellingley and Thoresby, and open-cast mines? Bearing in mind the fact that the Government have taken £4.5 billion from the mineworkers’ pension scheme, including £700 million this year, surely it is not beyond their imagination to use the miners’ own money to support what is left of the industry.

We do not see a security of supply problem here, but the Government need to engage with all parties to determine what we can do, and we have been incredibly active in doing so.

Ogfem tells us in its most recent energy capacity report that supply will fall by about 5% between 2012 and 2016, leaving an estimated capacity margin of between 2% and 4% in 2016. Will the Secretary of State confirm that contingency planning is allowing for that and that a cold winter will not cause the industry to have to close shifts?

I can confirm that. Obviously, we have been preparing for that for some time and working with the industry, National Grid and Ofgem. As I said, we have short-term plans with National Grid to have a reserve of power plants, as well as our longer-term reforms regarding the capacity market, so I can confirm that the lights will stay on.

Under this Government, just one new gas-fired power station is being commissioned and three power stations have been mothballed. Last week, National Grid warned that any delays to the planned capacity mechanism auction in December could lead to brown-outs throughout the UK. The Secretary of State indicated earlier that the plans are on track, but will he clearly confirm once and for all that there will be no delays to the auction later this year?

We are on track. We are working both within the Department and across Government. We saw the Chancellor of the Exchequer confirm in the Budget that all the remaining issues are being taken forward in secondary legislation. The right hon. Lady will know that there is a state aid case at the Commission. We do not control the Commission—no Government ever do—but our communications and partnership working with the Commission have been very fruitful.

My understanding is that the auction can be held before that, but let me ask another question. Even if capacity auctions are not delayed, they will not be operational until 2018-19, which is why we need the supplemental balancing reserve in time for the capacity crunch this winter and the next. The timetable for that has already slipped, meaning that some plant cannot be brought out of mothballing in time for this winter. Does the Secretary of State believe that the supplemental balancing reserve is still required, and if it is, when will it be operational?

As the right hon. Lady will know, Ofgem has to consult on this. It is expected to complete and announce its plans in May. If, as I expect, Ofgem believes that we should continue for this winter with a supplemental balancing reserve, the working assumption is that the auction would follow fast behind that.