Committee (9th Day)
Clause 38 : Investment contracts
55ALA: Clause 38, page 22, line 4, at end insert—
“( ) This section shall cease to have effect two years following enactment.”
I think that we are all quite relieved to have reached our last day in Committee on the Energy Bill. I would like to thank everyone who has contributed to our debates, and I thank the Minister for her responses and for all her correspondence, which has been very useful.
Amendment 55ALA is designed to provide an opportunity to discuss an element of the Bill which has not had much attention so far, and that is the financial investment enabling investment contracts. Our amendment would provide a sunset clause to this aspect of the Bill such that it would no longer be part of the mix of policy two years following the legislation being given Royal Assent. We have tabled this as a probing amendment because we wanted to give the Minister an opportunity to provide some background information and clarity on the thinking behind the investment contracts element. When the draft Bill emerged, it was clear that quite a high degree of emphasis was being placed on a provision to enable the Secretary of State to enter into contracts for difference with investors ahead of all the detail of the Bill being worked through. The most significant difference is that this would be a contract between the Secretary of State and a party who wished to develop low-carbon electricity, not an enabling counterbody. The rationale was that such a counterbody would not be in existence, so it would be a direct contract with the Secretary of State.
It is fair to say that there has been considerable interest in these FID-enabling contracts. We were grateful to receive information from the department about the number of applications that have been submitted to date in relation to this element of the Bill, which now total 57. I note that that is just the number of applications that have come from renewable energy. The table we have been given does not indicate the level of interest that has been expressed by CCS or nuclear. Obviously the FID-enabling process is there for all technologies and yet the supporting literature and table show that while we have a lot of information about the renewables aspect, very little is supplied in relation to the other two major categories of low-carbon electricity. Can the Minister provide a bit of background information in relation to those nuclear and CCS projects which may have expressed an interest? Have there been any? If so, how many, and at what level of gigawatts? That information would be very useful and it is pertinent to the discussions around investment contracts.
It was my understanding that the FID-enabling contracts were necessary in order to prevent a hiatus in investment, but that is the least of the problems with regard to the renewables. Renewables have an existing support mechanism and we have already discussed in Committee the transitional arrangements that are in place for that. We have some concerns, but in general there is a transfer and crossover period for renewables that is clear. However, CCS and nuclear will be embarking on a completely new policy of support; I would have thought that those are the projects which need early sight of and access to the contracts, yet we are not being given much detail at all. That strikes me as odd. Perhaps the Minister can give the Committee an update on where we are in relation to being able to arrive at strike prices for those two technologies. It is important that the strike prices are subject to parliamentary scrutiny. We have been given an awful lot of information about renewables, but not about the other two technologies.
It will be increasingly important to treat these three diverse groups of technologies as similarly as we can, given that that is how we will be able to argue that our measures are subject to competition and to comparisons that will enable the least cost and the most sensible decisions. I am sure that that will be of great interest to state aid discussions. One of the main rationales for EMR intervention in the first place was that we were seeking to treat low-carbon electricity providers equally, yet still we seem to be proceeding in a fairly unequal way, with renewables being treated separately from CCS and nuclear. There is a great dearth of information on CCS and nuclear.
The state aid question is important, of course, for this section of the Bill. The rationale is that these investment contracts can be signed. I note with interest that the latest investment contract allocation update from the department says that they will not be signed until March 2014. Previous timetables implied that that would happen in autumn this year and that they would be subject still to state aid clearance. I struggle to see how this whole jigsaw will fit together. How will the investment contracts be able to be assessed for state aid if the remainder of the Bill is not yet worked through? Is it realistic to think that by March 2014 the Secretary of State will enter into contracts before the Bill has been approved or signed off in its detail?
As I have said, this is a probing amendment. It is specifically designed to try to elucidate more information in relation to these contracts. I note that it seems to have gone very quiet on the negotiating front with EDF. I saw today that in a 17-page press release, EDF found no space to mention Hinkley Point in the update on its results. I do not want to be overly pessimistic; however, if this is a really serious negotiation that is of material interest to its investors and people interested in its company, it seems odd that there was no mention of Hinkley Point. Perhaps I may end by asking that we have as much of an update as the Minister is allowed to give on that process of negotiation and when we might have more transparency around its terms. I beg to move.
My Lords, I thank the noble Baroness, Lady Worthington, for these amendments, which seek to time limit the provisions on investment contracts. Amendment 55ALA would time limit the provisions in Schedule 2 to the Bill, which relate to investment contracts, to two years following enactment.
The investment contract provisions in the Bill are already time-limited. The Secretary of State can only enter into investment contracts on or before 31 December 2015. However, the remaining provisions set out in Schedule 2 cannot be time-limited, as they provide the Secretary of State with the necessary powers to administer and make payments under investment contracts in the unlikely event that the enduring EMR regime is substantially delayed or does not come into force at all. In the main, the powers mirror those in Chapter 2 of the Bill on contracts for difference.
If payments had to be made under an investment contract, it is likely that they would need to be made for considerably longer than two years, potentially for the duration of the contract. The effect of time-limiting the investment contract provisions through this amendment would be that developers would not have the confidence to take final investment decisions on much needed low-carbon generation projects that might otherwise be delayed or cancelled, as there would no longer be a means to make payments under the contracts. The amendment would therefore negate the purpose of these powers and risk creating the investment hiatus that they are intended to address.
Amendment 55ALC seeks to amend the powers relating to varied investment contracts. A varied investment contract will, in the opinion of the Secretary of State, materially increase the likely cost to consumers of electricity. To ensure transparency, the Bill requires that varied investment contracts are laid before Parliament together with a statement explaining why the variation is appropriate, having regard to the likely cost to consumers.
This amendment would require that varied investment contracts could be laid before Parliament only up to 31 December 2015. There would, therefore, be no possibility to make amendments pursuant to this provision after this date. While it is not the Government’s policy intention to reopen investment contracts for further negotiation once they are agreed, this clause provides for useful flexibility should it be necessary—for example to comply, as the noble Baroness rightly points out, with state aid rules.
Before I ask the noble Baroness to withdraw her amendment, I would like to respond to her question on the number of CCS and nuclear final investment decision applications. Apart from the renewable developers, we are in discussions on the potential investment contract for Hinkley Point C which, if agreed, will build a 3.2 gigawatt nuclear power plant. As the noble Baroness is aware, these hugely sensitive negotiations are ongoing and it would be imprudent of me to go further than that. I can say that, while it may have gone quiet out there, we are currently in very close discussions. A number of CCS developers have approached the department for FID arrangements.
The noble Baroness asked about the timetable changing from autumn 2013 to March 2014. That is because we are using the final strike prices and final contract terms instead of draft pricing and draft terms.
It is helpful to know that there are a number of CCS projects, but a precise number would be even more so if that could be forthcoming in a letter. If the timing is moving in order to have final strike prices, when will we be able to have any commentary on the strike prices for nuclear and CCS? We have nothing. This has to be bounded within a range: there is not an infinite amount of money that can be spent and there has to be a lower limit. Why can we not at least have a range to understand and consider in relation to those two technologies?
I accept that the noble Baroness is keen to get the range. I am not in a position to offer that comfort to her at this point but I will take away her question and hope to illuminate the Committee with a fuller, written response. The negotiations on the agreed strike price are very sensitive and I therefore need to go back to the department to see what I can offer to further inform the Committee. Given my reassurances on writing to the noble Baroness on outstanding questions, I hope that she will withdraw her amendment.
My Lords, I am grateful for that response and welcome the Minister’s offer to write with further details. I accept that negotiation is sensitive but at what point does the interest of negotiating with one company override the very real interest of the wider public, the entire sector and all the consumers who will be paying for the outcome of that negotiation? It is odd that, in everything else, the department has provided very welcome levels of detail and yet there is such a degree of silence in this area that it makes people unnecessarily suspicious. There should be no one negotiation that is so sensitive and so overridingly important that we are unable to have a discussion about it. That is skewing things unnecessarily. Let us try and get these technologies on an even keel, get through state aid and move forward. One negotiation should not require this degree of special treatment.
I look forward very much to the Minister’s letter and, on that basis, I am happy to withdraw the amendment.
Amendment 55ALA withdrawn.
Clause 38 agreed.
Schedule 2 : Investment contracts
55ALB: Schedule 2, page 111, line 32, leave out “with the consent of the Department of” and insert “jointly with the Minister for”
My Lords, Amendment 55ALB is largely an attempt to get greater clarity than we got on, I think, the second day in Committee about the way in which the Bill as a whole applies to Northern Ireland. There is also the particular question of why Northern Ireland is referred to here in relation to investment contracts with the Northern Ireland generator, and whether that actually means generation in Northern Ireland into Great Britain. At the moment, the whole balance of interconnection is into Northern Ireland, with both the gas pipeline and the electricity line, and there is a separate issue between Northern Ireland and the Republic.
As I have said before, Northern Ireland has a very different energy market structure. It has a dominant supplier and a different systems operator, which is in part owned by interests in the Irish Republic. There is a wholesale electricity market that is jointly operated with the Irish Republic. The consumer regulator works on very different precepts than Ofgem, in that it is still, essentially, a price-regulation process. Finally, of course, consumers there face different problems and higher prices. I suppose I should declare a slight interest and an affinity in that I have done some work for the Consumer Council in Northern Ireland.
I have never quite understood how contracts for difference apply in Northern Ireland within that structure. I can see that capacity payments might apply, because the history relates to what they used to call availability contracts in Northern Ireland and the island of Ireland as a whole, which were quite expensive to consumers and business in Northern Ireland. However, I do not really see how investment contracts apply in Northern Ireland, particularly if they are ongoing—in reply to my noble friend just now, we are not in favour of putting an end date on the period in which investment contracts are issued. Rather than go into vast detail on this last day in Committee, I simply ask whether the Minister could contrive with her department, possibly in conjunction with DETI in Northern Ireland, to produce a paper that would indicate to us, before we reach Report, just how this operates in Northern Ireland. I am still bemused and suspect that those who have even less familiarity with the situation in Northern Ireland are even more bemused. There are references to Northern Ireland all the way through the Bill.
There is one other particular point in this amendment, which was raised, if I remember rightly, by the noble Earl, Lord Caithness, in an earlier debate. There are references to the department rather than to the Minister, whereas for the other devolved Administrations, there are references to the Minister. That sounded on the face of it to be a bit of a hangover from direct rule, and an explanation would be helpful on that front. Northern Ireland is distinct from Scotland and Wales in this regard because energy is a devolved matter in Northern Ireland. However, this provision appears, in one sense, to provide for the possibility—not necessarily the absolute certainty—of the schemes that we are devolving in vast detail for Great Britain being applied in Northern Ireland. If it only relates to the possibility of Northern Ireland supplying some electricity into the GB grid, that is a slightly different and probably unlikely matter. The Minister can probably answer this point fairly succinctly. If she is prepared to let me have a note over the summer that could be circulated to the other Members of the Committee, explaining how this applies to Northern Ireland—one which she has agreed with her Northern Ireland counterpart—I will say no more about it. I beg to move.
My Lords, I again thank the noble Lord, Lord Whitty, for his amendment, which would require investment contracts relating to electricity generation stations in Northern Ireland to be entered into jointly with the Minister for Enterprise, Trade and Investment. Instead, the Bill currently provides for a contract to be entered into with the consent of the Department for Enterprise, Trade and Investment. For the information of the Committee, I will lay out our position and then try to respond to the noble Lord’s questions.
The amendment would add the Minister for Enterprise, Trade and Investment as a party to the contract, but it would not confer the powers in Schedule 2 relating to administration and payments under the contract, which apply only to the Secretary of State. This would create serious practical difficulties in administering the contract.
It is not clear from the amendment as drafted what obligations or liabilities the Minister for Enterprise, Trade and Investment would have under the investment contract. Furthermore, there is no power currently in the Bill that would allow the Northern Irish Minister to transfer the investment contract to the CFD counterparty once that is established, as we envisage will happen for all investment contracts. It is difficult to see how this would work in a tripartite arrangement given the current powers.
The Secretary of State’s powers in Schedule 2 extend to Northern Ireland to ensure payments can be made to electricity generation stations in Northern Ireland. This position has been agreed with the Northern Ireland Executive, and the Northern Ireland Assembly passed a legislative consent Motion on 12 February to enable the UK Parliament to legislate to provide the Secretary of State with these functions.
I reassure the noble Lord that gaining the consent of the Department for Enterprise, Trade and Investment will include gaining the consent of its Minister. The Minister will therefore need to give consent to any investment contract relating to generation in Northern Ireland.
The noble Lord asked how CFDs would apply in Northern Ireland. UK and Northern Ireland Ministers agree that the preferred approach is a UK-wide one with an associated institutional framework. We are working closely with the Northern Ireland Executive to design the application of the FIT-CFD for the whole of the UK. UK Ministers will set FIT-CFD strike prices in Northern Ireland in conjunction with Northern Ireland Ministers and the cost of support will be socialised across the UK. However, Northern Ireland Ministers will maintain the right to set Northern Ireland-only strike prices for CFDs, if required.
I hope the noble Lord is reassured that we are giving an important role to the Department for Enterprise, Trade and Investment in relation to investment contracts in Northern Ireland. Given that reassurance, I hope that he will agree to withdraw his amendment. He asked me to write to him on a question he raised to which I do not have the answer at the moment. I will look at Hansard carefully to ensure that I have given him and the Committee a response to points raised earlier in the debate on his amendment.
My Lords, I thank the Minister for those comments and look forward to receiving a letter from her. However, what I am really looking for is something which explains how we envisage CFDs applying in the very different market in Northern Ireland in the same way as they apply in the market in Great Britain. I am sure that all the political niceties have been followed but I still do not see how the pattern is replicated within Northern Ireland. I can see that it can be replicated in terms of the possibility of Northern Ireland supplying energy to the GB grid, but that is a separate matter. Given all the complications of the very different Northern Ireland structure, including the all-Ireland complications, I still find it difficult to see how this measure applies. Therefore, something a bit more than a letter will probably be needed to convince the Northern Ireland authorities that they should go down this road. There must be something which sets out how the measure applies within Northern Ireland, even if it is a fairly technical background note which hardly anybody understands, or hardly anybody over here understands. Other documents of that nature have been floating around. It would be useful to have it in our hands before we return to this point.
On the question of the Minister for the Department of Energy and Climate Change, I understand what the Minister said and I will not press that point. It just looks slightly odd when we refer to Scottish and Welsh Ministers but to Northern Ireland departments. Again, that is a presentational matter, which perhaps the Minister will have another look at. It is not central to my question, which is: how do these three new forms of supply contract apply in a very different market? For example, is there to be a separate counterparty, or is it the same counterparty we are talking about? If it is the same counterparty organisation, how does that relate to Northern Ireland’s devolved responsibilities and to that of the Ministers there?
I think I have probably said enough to give somebody a couple of months for a few communications between Belfast and Whitehall to perhaps set this out in ways that I and other Members of the Committee will be able to understand. With that, I beg leave to withdraw the amendment.
Amendment 55ALB withdrawn.
Amendment 55ALC not moved.
55ALD: Schedule 2, page 113, line 29, leave out paragraphs (c) and (d)
My Lords, we are moving on to the transparency part of the provisions on investment contracts, but some of this reads across to other parts of the Bill. My amendment essentially would limit the exclusions in the information that the Minister will provide on the contracts and the transparency that they provide to Parliament. It would restrict it to trade secrets, which is provided for in Schedule 3(3)(b), and would delete two other exceptions on the grounds that they add nothing to the issue of trade secrets. Sub-paragraph (3)(c) refers to,
“information the disclosure of which, in the opinion of the Secretary of State at that time, would or would be likely to prejudice the commercial interests of any person”,
and sub-paragraph (3)(d) refers to,
“information the disclosure of which would, in the opinion of the Secretary of State at that time, constitute a breach of confidence actionable by any person”.
Quite apart from the subjectivity of that judgment by the Secretary of State, is not the information that we would rightly wish to exclude from any disclosure to Parliament or elsewhere all related to trade secrets? It is related to information held by the companies which are party to the agreements or other companies which are relevant to the agreement, which it would not be in the public interest to disclose and would not be in the interests of the signatories or contractors to the agreements to disclose.
I tried to find a definition of a “trade secret”. It apparently relates to anything which has not been disclosed to the public and which is of benefit to the holder of that secret. It is normally enforced by the confidentiality rules, which include commercial in confidence. In that case, surely sub-paragraph (3)(c), which deals with commercial in confidence, and sub-paragraph (3)(d), which deals with breaches of confidence that are actionable, fall under the paragraph dealing with trade secrets. If not, the suspicion has to be that the Secretary of State, by his or her subjective judgment, could exclude a whole range of other information that was pertinent to an understanding, by Parliament or by the public in general, of what are going to be pretty complex contracts. If we get a contract that is public and available to Parliament but heavily redacted because the Secretary of State thinks that in some direct or indirect way there might be a breach of commercial confidentiality of somebody who is not only not party to the agreement but not directly relevant to the agreement—or, indeed, any person—what does the Minister think, if I may boil it down to this, is covered by sub-paragraphs (3)(c) and (3)(d) which is not already covered by sub-paragraph (3)(b)? If other kinds of material are covered, we either need to be much tighter on the exclusions or spell out precisely what kinds of information could be legitimately redacted from any disclosure of the contracts.
These are hugely important contracts, matters of huge public concern which affect the future of our energy security, the cost to the consumer, the environmental impact and the cost to British industry and therefore British industry’s competitiveness. It is vital that as much as possible is disclosed about a contract without jeopardising the contract itself. That requires a relatively narrow delineation of what can be excluded: we must not have what looks like a fairly open door available to the Secretary of State to redact a whole lot more from the contract. I beg to move.
My Lords, I thank the noble Lord, Lord Whitty, for his amendment. The Government are fully committed to ensuring transparency of investment contracts. The existing provisions are clear that in order for a contract to become an investment contract it must be laid before Parliament and published in order to benefit from the powers in the Bill. In addition to the contract itself, the Bill requires that the Secretary of State makes a Statement to Parliament that he considers that the contract would encourage low-carbon generation; and that without the contract, there is a significant risk that the electricity generation would not be built or would be significantly delayed. The Statement must also summarise the regard that the Secretary of State has had to the impact on energy security, decarbonisation, affordability and the renewables directive targets.
For the Hinkley Point C investment contract, the Government have already committed to publishing a summary of the reports from external advisers and the value-for-money appraisal of any contract agreed. With these provisions, we are trying to achieve a delicate balancing act between making available as much information about the contract as possible, while at the same time allowing commercially sensitive information to be withheld from publication. It would not be appropriate to publish this information if it would risk significantly damaging the developer’s commercial interests. However, it is crucial that the developer can provide such information to enable us to be confident that the contract represents good value for money for the consumer.
I believe that the current wording of the Bill strikes this balance appropriately. The information that can be withheld from publication, as the noble Lord said, is information that is a trade secret, would prejudice a person’s commercial interests and would constitute a breach of confidence. The key commercial information—the strike price and the reference price—cannot be withheld from publication. While the Bill was being discussed in the other place, the Government identified two areas where we are able to further improve transparency of investment contracts.
First, we decided that alongside the investment contract that is laid before Parliament, the Government will also publish a description of the information that has been withheld, and the reason for doing so. Secondly, we removed the Secretary of State’s discretion to withhold information from the contract after it has been agreed but before it has been laid before Parliament. This means that any confidential information will have to be clearly identified as such during contract development, and there is no further discretion to withhold information once the contract is concluded. These commitments and legislative improvements ensure that there will be transparency in investment contracts, and that only the most sensitive information will be withheld from publication.
The noble Lord, Lord Whitty, asked why the Government resisted amendments to the Bill to restrict the definition of confidential information to information that is a trade secret. The Government’s intention is to publish as much information on investment contracts as possible. As I have already laid out, the extra things that we committed to after the Commons Report stage have now been put into the Bill. I hope that the noble Lord is reassured by the explanation that I have given and will withdraw the amendment.
My Lords, I am reassured only to a limited extent. I thank the Minister particularly for her reference to the fact that one has to identify what is going to be commercially confidential early in the process and that one cannot change that at a later stage. That was a reflection of a discussion in the Commons.
However, it still seems to me that sub-paragraphs (3)(c) and (3)(d) are expressed in extremely wide terms and I am still not clear what would constitute a problem not already covered by trade secrets, particularly under sub-paragraph (3)(c). Without being a total conspiracy theorist, one must recognise what lies behind the anxiety here. I shall have to choose my words carefully because, as the noble Baroness has said, we are in negotiations over one nuclear contract. However, people believe, particularly in relation to nuclear power, that historically things have been agreed by Governments over and above what has been disclosed publicly. Some of that is related to state security but some is related to regulation planning permission and other payments. In other words, there is a suspicion that in order to gain a commitment for a contract for difference it is conceivable that the strike price is not the only commitment that the Government make and that there may be other commitments. If that were to be a suspicion which the Government would find it difficult to counter, they could find themselves in a difficult public relations situation further down the line.
I hope that I am being overparanoid but, believe me, there are other people who are far more paranoid than me, not least in the media, and it will be important that Government are seen to be squeaky clean regarding these contracts.
My Lords, perhaps I may try to further reassure the noble Lord that the reason why certain parts of the information will be trade secrets is, for example, when allowing the future actions of a company, such as in relation to a potential financing structure. Basically, this relates to future financing—issues such as those are always commercially sensitive—rather than anything else.
I understand that, and it would be possible to express those provisions in slightly narrower terms than the exclusions in the Bill. I shall leave it there. It is a warning that this could be a danger for the Government and for those who want to see some contracts for difference signed, particularly in the nuclear industry. If there is any feeling that something has not been disclosed, future Governments may well suffer from it. I thank the Minister for the reassurances that she has given. Before the end of the process, the Government should make a few more but, for the moment, I beg leave to withdraw the amendment.
Amendment 55ALD withdrawn.
55ALE: Schedule 2, page 115, line 15, leave out sub-paragraphs (5) and (6) and insert—
“(5) An instrument containing regulations which make provision falling within paragraph 6, 7, 8, 9, 12 or 13 (whether or not also making any other provision) may not be made unless the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(6) The first regulations under paragraph 10 or 11 may not be made unless the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
My Lords, Amendment 55ALE would implement the recommendations of your Lordships’ Delegated Powers Committee. Noble Lords will forgive the slight sense of déjà vu with which we return to this subject but, as the Delegated Powers Committee highlighted, the scale and nature of the extensive powers this Bill affords to the Secretary of State are vast. That these powers are subject to annulment only and could require no parliamentary approval seems completely inappropriate in the most part. This amendment also extends the provision for parliamentary approval to the CFD counterparty as well as enforcement provisions and the oversight of consultations. When commenting on this section of the Bill, the Delegated Powers Committee notes that much of the provision for investment contracts mirror those that will implement the CFDs in Schedule 2. Therefore its recommendation is the same.
Paragraph 14 of the sixth report states:
“We re-iterate in the context of Schedule 2 the view we expressed in the final two sentences of paragraph 4 above about the importance of draft regulations being made available to the House in sufficient time before it embarks on the report stage of the Bill”.
Paragraph 15 states:
“We also consider that any regulations made under Part 2 of Schedule 2 should require the affirmative procedure, with the exception of those which make provision falling within paragraph 10 or 11, which should require the affirmative procedure on first exercise”.
Without repeating remarks made in Committee previously, it is clear that this is not an appropriate way to legislate. We are now on the final day in Committee on this Bill, which has already been passed in another place, and we still lack most of the detail to enable us to understand how the new landscape will work in practice. Parliament is being asked to approve little more than a framework for legislation that should guide investment in the energy market for many decades to come. I sense that the Government are keen to heed the advice of the Committee, and therefore ask the Minister to ensure that draft regulations, in particular for Part 2, are published in good time for this House to analyse them ahead of Report when we return after the Recess. I beg to move.
My Lords, I support the noble Lord, Lord Grantchester, on this amendment. I believe that we have a responsibility on behalf of the House to follow the report of our Delegated Powers Committee. Although I was in some ways disappointed, in other ways I was relieved when I saw in the Forthcoming Business published this morning that we will not be reaching Report stage in the first three weeks after the Recess. That will give the Government time to have these regulations published and for the House to examine them carefully. I was worried that we would get them just before we came back without a proper opportunity for discussion. I would be very grateful to have reassurance from the Minister that the regulations will be available in good time for Report.
My Lords, I thank the noble Lord, Lord Grantchester, for his amendment which would implement the recommendations of the Delegated Powers and Regulatory Reform Committee. It would require that all regulations made using the powers in Schedule 2 should be made using the affirmative procedure, apart from regulations made under paragraphs 10 and 11 on the provision of information and advice. These would need to be made using the affirmative procedure the first time such regulations are made.
I welcome the Committee’s scrutiny of the Energy Bill. As I have previously mentioned, the Government are carefully considering the recommendations of the Delegated Powers Committee’s reports and will respond in due course. I reassure the Committee that throughout the Summer Recess, Ministers and officials will be working very hard to try to provide as much information on the regulations as soon as we can. We intend to consult from October on the detailed implementation of the EMR, which will give noble Lords an opportunity to scrutinise the detail ahead of Report. Further details of our plans for secondary legislation can be found in the memorandum we recently sent to the Delegated Powers and Regulatory Reform Committee. I hope that with this reassurance that we will be working extremely hard to try to satisfy not only him but the Members of the Committee the noble Lord will withdraw his amendment.
I thank the Minister for those comments and the noble Lord, Lord Roper, for telling the Committee that we may well get a chance to have a look at this in October so that we can take careful cognisance of the situation before we return on Report. I beg leave to withdraw the amendment.
Amendment 55ALE withdrawn.
Schedule 2 agreed.
Clause 39 : Modifications of transmission and other licences: business separation
55ALF: Clause 39, page 22, line 30, leave out from “be” to end of line 31 and insert “sufficient to ensure there is no conflict of interest between the system operator’s EMR and commercial priorities”
We tabled Amendment 55ALF in order to consider in detail the provisions in Chapter 5 about conflicts of interest and contingency arrangements in relation to the creation of the counterparty and the role that National Grid will be given in the delivery of many of the features of the electricity market reform proposals.
The amendment would slightly change the current wording of the clause that allows for the Secretary of State to determine the kind of appropriate measures needed to ensure that there is no conflict of interest between National Grid’s commercial enterprises and the role that it has been given under the EMR. I am sure that our amendment is not perfectly worded—it is a probing amendment intended to clarify that this should not be a question of discretion. The current wording makes it clear that the Secretary of State has a certain degree of discretion in deciding whether it would be “necessary or desirable”. That seems slightly too broad. We have tried to encapsulate in our amendment the idea that sufficiency is the important aspect, not desirability, and that there should be absolutely no question but that action will be taken to eliminate conflicts of interest between National Grid’s commercial enterprises and activities and its EMR role.
Along with, I am sure, many other noble Lords, we received a briefing from National Grid on this issue. We obviously recognise and take note of the many measures that National Grid has already put in place to manage conflicts of interest in other parts of its business and its very strong undertaking to continue to operate in a way that has no conflicts of interest. We do not mean to question National Grid’s desires or motives and are sure that it does indeed seek to work in such a way that it has no conflicts of interest—our concern is with the legal basis for the interventions that the Secretary of State will undertake to ensure that.
It is worth considering that the Utilities Act 2000 and the Electricity Act 1989 built in certain provisions that prohibit National Grid from undertaking certain activities. For example, it is not allowed to disclose to a third party any information about individuals or businesses that it receives by virtue of their transmission licence activities. That seems to be the kind of quite tightly drawn provision that might need to be updated in the context of the EMR. Clearly, National Grid will receive information from third parties in relation to the functions that it will carry out under the EMR. It is the body that will be tasked by the Government with signing the investment contracts and the CFDs, which will give it access to information that it would not otherwise receive. I just question whether the provision created under the Utilities Act needs updating to ensure that it applies to not just the transition licence but the new role in the EMR.
It is an example of why we need to get this right and make sure that we have thought of every angle. We should not create a framework in which the Secretary of State can determine whether something is necessary or desirable. It is the word “desirable” that gives us slight cause for concern. We think the actual criteria should be that it is “sufficient” and would like to see explicit mention that there should be no conflict of interest between the system operators’ roles and the new roles they are being given under the EMR. I beg to move.
My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. I understand the concerns she has raised regarding the potential for conflicts of interest to arise between National Grid’s existing businesses and its new EMR role.
The Government want to use the best people for the job of delivering electricity market reform. The national system operator within National Grid is well placed to succeed in the task of delivering contracts for difference and the capacity market. The expertise it will bring to the role is the reason we gave that role to the system operator in the first place. For example, there are strong links between the capacity market and the existing range of balancing services that the system operator currently provides.
In addition, the system operator has the relevant technical expertise and the commercial and financial skills to ensure that the capacity market can be delivered in an efficient way—for example, through the modelling of future supply margins and the delivery of auctions. The system operator is also uniquely placed to understand the implications for the electricity system of different technology mixes brought on by contracts for difference, ensuring that we have the highest quality analysis on which to base our decisions on how we support low-carbon technologies.
The matter of conflicts of interest that arise between National Grid’s existing businesses and this new role was identified at an early stage. That is why we have worked closely with the regulator, Ofgem, over the past 18 months to assess thoroughly the potential conflicts that might arise and to consider how best to manage them. The process has involved extensive engagement with stakeholders, including a call for evidence and a public consultation.
In April we published the findings of that joint work with Ofgem, together with our analysis, which included an impact assessment. The work with Ofgem and independent analysts showed that the risk of conflicts being acted on is small, which is why we will be putting proportionate measures in place, using the powers proposed in this clause. That approach retains the valuable synergies with the system operator’s wider role, and gives confidence to those who need it: industry, investors and, I would hope, this House.
Neither the Government nor Ofgem assumes that this is the end of the process. While I am confident that the proposals we have made are up to the task, we will keep close watch over the situation so that industry can be certain that any conflicts, real or potential, can be managed appropriately. The exercise of these powers potentially has significant implications for National Grid’s business and it is not a decision that the Government would take lightly.
We must always keep in mind the factors that make the system operator the best organisation for the job, otherwise we risk losing the benefits of having the system operator perform the EMR delivery role. That is why the measures must and will be targeted and proportionate. We do not want to put in place a disproportionate response to the problem, which would lead to us sacrificing the synergies and all the benefits to consumers that flow from them.
The noble Baroness asked whether the provisions in the Utilities Act 2000 and the Electricity Act 1989 need to be updated in the light of EMR. We are proposing specific powers in this Bill that would enable us to put in place specific measures to protect sensitive information relating to EMR. We have worked with Ofgem to decide how to use those powers and set out the detail publicly. Therefore we do not consider that the changes that the noble Baroness proposes are in fact necessary. I hope that the detailed analysis that we have carried out with Ofgem and our public commitments on how we will tackle these conflicts of interest will mean that the noble Baroness feels content to withdraw the amendment.
Before the noble Baroness sits down, what is the competence of DECC and Ofgem in deciding what a conflict of interest would be? As I read it, the amendment has two parts. One relates to National Grid and the other to a responsibility on the department, which does not normally deal with competition issues as such. What expertise does the department have? In the event of there being a dispute which is not resolved to the satisfaction of both sides, is it possible for an offended party to appeal to any other competition regulatory authority?
The noble Lord raises a very important point. As he is aware, when we need to look at specialist areas we bring in experts to oversee DECC’s work. We have worked closely with Ofgem which, as an independent regulator, is well placed to have expertise within it. As I have said throughout, we are mindful of the need to keep an eye on this and we will keep it under review. If areas need improvement we must ensure we are able to move in and do that immediately. We are not just setting it in place and then leaving it. We recognise that specialisms may need to be involved and we will continue to look at the proposals set out in the Bill.
I am sorry, but I do not think the Minister has quite understood my point. In the event of one of the parties not being satisfied with the breadth of expertise brought to bear, the external experts and what have you, is there anywhere else they could go to appeal? I am not talking about some vexatious litigant but about a disgruntled utility that might feel there ought to be some form of review, outwith the department, with one of the competition authorities. Is there that option, in the event of a dispute about conflict of interest?
I thank the Minister for her response. The amendment was not seeking to add a disproportionate hurdle or to create a lengthy procedure or encumbrance that would prevent us benefiting from the expertise of National Grid. On the contrary, we were trying to give National Grid cover and protection by ensuring that we remove the discretion that is currently in the Bill. It comes down to another example of creating enabling powers that can be broadly interpreted. Obviously, we all trust that future Governments and Ministers will have the best interests of everyone at heart, but it is incumbent on us to make sure we write legislation in such a way that it enshrines that principle.
The purpose of the amendment was simply to question the reason for the degree of discretion and desirability factored into the clause. I would be grateful if the noble Baroness would reflect on that a bit more over the summer. The potential conflicts of interest are wide-ranging. I was grateful that the Minister mentioned the capacity mechanism, a measure which strikes at the heart of what National Grid does. The Committee already knows this, but we currently have two parallel solutions for capacity: the capacity mechanism as proposed in the Bill, which will not come into force until 2018-19, and in the interim period we have National Grid consulting on interim measures, apparently under its own licence initiatives and powers, to address what it considers to be a short-term concern about capacity markets. That already seems to be evidence that this is a highly complex and many-faceted Bill that creates unique circumstances within which the National Grid has to operate.
I am willing to withdraw the amendment, but I would like the Minister to consider the degree of discretion that the Secretary of State has. I beg leave to withdraw the amendment.
Amendment 55ALF withdrawn.
Clause 39 agreed.
Clauses 40 and 41 agreed.
Schedule 3 agreed.
Clauses 42 to 52 agreed.
Clause 53 : Licence modifications: general
55AM: Clause 53, page 53, line 22, leave out “or (4)” and insert “, (4) or (6A)”
Amendment 55AM agreed.
Clause 53, as amended, agreed.
55B: After Clause 53, insert the following new Clause—
“Domestic microhydro power
(1) Domestically based microhydro power shall be exempt from non-domestic rates.
(2) For the purposes of the section “domestically based microhydro power” is a single plant located within the curtelege of an owner or owner’s residential property with a plant capacity of up to and including 1250 kW.”
My Lords, this amendment was originally tabled by the noble Lord, Lord Cameron, who very much regrets that he cannot be here today, and therefore I shall speak to it. He asked me first of all to make it clear that he is not personally involved in any microhydro scheme although in the west country where he comes from, and elsewhere in our countryside, a growing number of families and individuals are trying to make the best use of our many rivers, old mill leats and mill houses to create small amounts of renewable power both for themselves and their communities. Therefore, it seems odd that one part of government, DECC, should arrange a subsidy to encourage such investment through feed-in tariffs and ROCs, while another part of government, the Treasury, through the Valuation Office Agency, seeks to remove part of that subsidy.
The noble Lord, Lord Cameron, has set out nine reasons why microhydro should not be assessed for business rates and, with the Committee’s indulgence, I shall quickly go through them. Domestic hydro sites may be located on rivers that are able to provide much more power than the owners require for their own consumption. It is obviously in the interests of the nation that domestic owners be encouraged to generate as much power as their sites are able to provide and consume as little of their output as necessary, otherwise the potential benefit of their hydro plants’ contribution to the grid and the community as a whole is diminished.
Domestic owners do not want the complication of their residential property being designated as a business. There is already clear evidence of gaming around the capacity bands chosen for the feed-in tariff, and some owner-operators will perhaps downsize the scale of their investment to avoid non-domestic rates being levied, which, again, cannot be in the interest of the nation as a whole.
The Valuation Office Agency’s rating models have not been designed to accommodate domestic hydro plants, where there is no landlord, no tenant and no market rents to test the validity of the office’s assumptions. Indeed, its rating model and the DCLG legislation on non-domestic rates are insensitive to yearly variations in the weather. For example, the output from the run-of-river site may vary by more than 40% from one year to the next, depending on rainfall. There are no operating costs that an owner-occupier can cut to offset the consequential losses in revenue.
A site’s revenue will be reflected in the income of the owner and taxed accordingly, taking into account capital allowances for this very long-term investment. The approach of the Valuation Office Agency to calculating rateable value does not allow for the repayment of loans or the cost of borrowing and assumes that funding will be through equity, which, in the view of the noble Lord, Lord Cameron, is a ridiculous assumption for domestic microhydro. Non-domestic rates have been applied retrospectively, creating havoc and uncertainty for a number of domestic-scale financing plans. Indeed, according to evidence supplied by DECC, no allowance was made for non-domestic rates when the state subsidies were originally established.
A further example of the inflexibility of non-domestic rates means that when the subsidy ends, the drastic reduction in revenue—a reduction of 40% in the case of the renewables obligation and 75% for the feed-in tariff—will not be acknowledged or included in the calculations for rateable value until the five-yearly antecedent valuation date arrives. It will then be another two years before the adjusted rateable value comes into operation. Clearly, these two systems are incompatible. It is also worth pointing out that no other domestic renewables, for example photovoltaic solar panels, are charged business rates on the amount of power they export. This is a strange anomaly, and the noble Lord, Lord Cameron, was right to bring an amendment in these terms to the Committee. I look forward to hearing the response of my noble friend the Minister.
My Lords, I very much support the amendment. This may well be the last time I speak in this Committee and I thank the Minister for the way in which she has conducted herself and for writing to me with answers to some previous questions that I raised.
In addition to the reasons which have been so clearly enunciated, I would like to inject into the discussion the issue of culture, because much of what we are about in energy policy in this country is working on a change of culture. It has become a fashionable word. The Second Reading of the Financial Services Bill was all about changing the culture of banking and financial services, and that is absolutely right. However, the same applies in the energy realm. The sort of installations that we are talking about are relatively small in themselves but speak more widely.
I will digress very slightly to a non-domestic instance. In Chester in the 1920s, the tram system was powered by a small hydroelectric plant on the River Dee. The University of Chester, where I am president of the council, is in the process of bringing that hydroelectric plant back into operation, partly to satisfy its obligations to HEFCE vis-à-vis its green credentials but also as a very reasonable project in itself. It will have a cultural impact in Chester quite beyond the actual electricity component of the project, and I think that the same will apply in the circumstances we are discussing.
There is something about hydroelectric power that goes with the grain of the countryside and nature rather better than windmills and some of the other things we are doing. We should do more to encourage local use of natural resources. If the projections about future rainfall are right, there will be even more rain flowing into our rivers to power these microhydro projects. Although I cannot comment on the precise terms of the amendment, it seems to me that the spirit of it is absolutely right at the present time.
I rise stimulated by the right reverend Prelate’s remarks, partly because when hydropower developments took place in Scotland, the nature of the opposition to them was very similar to the nature of the opposition to wind turbines today. Indeed, if you read any of the histories of hydropower in Scotland, you find the same arguments and the same kind of protagonists. Indeed, as I recall, one of the supporters of hydropower in the 1930s was expelled from the Perthshire hunt on the grounds that they were going to deface Pitlochry. Anybody who knows Scotland will know that Pitlochry is a great tourist attraction on the way up to Inverness and that the jewel in the crown of Pitlochry is the hydroelectric dam and the salmon leap there. If anyone were now to try to say that they wanted to close it down because it is spoiling the countryside, they would get rather a lot of fleas in their ears from the kind of people who say that they want to have hydropower but not wind power. That has to be taken into account.
Hydropower is one of the most attractive forms of generation. It is also interesting that subsidies for refurbishment have been made available to small-scale hydro, which may well be the case in Chester as well as in Deeside in Scotland. I had the opportunity of visiting one site some years ago because the kit had been refurbished in my constituency by the Weir Group of Alloa. The output had been increased from 70 megawatts of power to 81 megawatts, which was a considerable achievement. This is far smaller, but we can bring into play hydro opportunities that have perhaps fallen into disuse. It would be better if they could get the best possible deal because river flow—drought notwithstanding—tends to be pretty reliable. One would imagine that this, out of all the renewables, would be less prone to interruptibility and that therefore an amendment of this nature seeking to give a bit of extra assistance would be extremely helpful at this time. I support the amendment.
My Lords, the noble Lord, Lord Roper, and other speakers have made a very good case for looking at what the noble Lord says is an apparent contradiction, but I think is a clear contradiction, between the approach of the Valuation Office Agency and DECC to these things. We are talking about schemes that are very different from Pitlochry or whatever. We talking below 1.2 megawatts, but even at that level, I have some hesitation. If you were doing it for domestic purposes only, it is unlikely that you would get huge benefit in terms of your energy bill or your carbon footprint or that climate change would benefit any more than from putting a windmill on the side of your house in Notting Hill. It is not for domestic purposes. The way in which it is financed feeds into the grid and it therefore becomes a business. It is not entirely illogical for the business rates people in the Valuation Office Agency to take that into account, although the point made by the noble Lord, Lord Roper, about this being treated differently from other forms of renewable energy is an issue. I wish this amendment godspeed in terms of looking at the contradiction.
I shall make one other point. It appears to be an attractive and environmentally sensitive technology that makes use of the flow and drop of the river, but you have to bypass the river and therefore take some water out of it. By definition, you will probably take some fish out of the river and alter its ecosystem. I am reflecting, I suppose, on my experiences as a member of the board of the Environment Agency, where this became a hugely controversial issue because of the views of the nature conservancy people and the angling community in particular, who it is unwise entirely to ignore.
It is therefore important for anyone thinking of investing in and installing one of these mini or microhydro systems to rationalise it in order to benefit from the FITs that attach to it but not thereby bypass the other planning and environmental restrictions. It affects the water as well as other people’s interests. I know that the whole permitting process in this area is quite complex and I would not want the deletion of a requirement to regard it as a non-business premises to bring with it exclusion from those other environmental regulations and planning considerations. Apart from that, the Government have a case to answer in terms of the contradiction between the two different approaches here, as the noble Lord, Lord Roper, indicated.
My Lords, I am extremely grateful to my noble friend Lord Roper for moving the amendment on behalf of the noble Lord, Lord Cameron. I hope that I can address the points made by my noble friend and other noble Lords and assure him that the practice adopted for the assessment of these projects for non-domestic rates is fair and consistent.
Non-domestic rates, otherwise known as business rates, are a tax on properties that are not domestic and capable of beneficial occupation. Most onshore renewable generating power stations, such as hydro or wind plants, are non-domestic properties and, therefore, liable for business rates. The amendment would give a tax break from business rates for hydro plants with a capacity of 1.25 megawatts or less, provided they were on the operator’s domestic premises. It would mean that two otherwise similar plants would be treated differently for tax purposes merely because one was located next to the owner’s house. I do not think that that would be a fair outcome for this sector.
The amendment raises some good questions about when plants at domestic properties should be assessed for business rates. I hope that on that point I can offer the noble Lord some assurances that the business rates system operates fairly. The rating list is maintained by the Valuation Office Agency, which is responsible for deciding when an installation should be assessed for business rates and for assessing its rateable value. In this regard, the Valuation Office Agency acts independently of Ministers, and we cannot therefore intervene in its decisions. However, we are aware that during 2010-11 the VOA undertook a review of hydro projects to ensure that all facilities that should be considered non-domestic were assessed for business rates. In some cases, these installations were located in the grounds of what would otherwise have been domestic premises. Where a hydro facility is considered to be domestic—for example all installations under 10 kilowatts—it is included in the council tax assessment of the house. Larger installations may also be considered domestic if the output of the plant is being used to provide power to the living accommodation. However, other projects where the output is being sold to the grid are assessed separately for business rates. This means that the smallest domestic hydro projects, which in the main are used only to provide power to the owner’s home, are not caught by the business rates system. Only those larger projects, where more power is exported and sold to the grid, are assessed for business rates.
In the evaluation of larger hydro projects, I can assure my noble friend that the Valuation Office Agency’s model has been adopted specifically to deal with the lack of direct rental evidence. Renewable energy plants, such as wind farms, hydro schemes, PV installations and anaerobic digesters, are assessed using a receipts and expenditure method of valuation. This is because the value of such properties is very closely related to their trading position and their ability to make profits. The costs of generating power at an electricity generator and the earnings from the sale of that power are tangible evidence of assumed rental value. The model is also based on a fair and maintainable forward projection of output averaged over a number of years, and the figures used are derived from actual outputs received from occupiers. Additionally, a ceiling level of output equivalent to a 40% load factor has been applied to the model, even though some schemes generate at well in excess of this level. The model also allows for borrowing costs and is consistent with the general application of receipts and expenditure valuations. I hope that the noble Lord agrees that this is a fair approach to drawing the line for this tax and that it ensures consistency across the sector.
I should also point out that more than 500,000 businesses in England benefit from the small business rate relief scheme, and about a third of a million of them pay no rates at all. We anticipate that many domestically based hydro schemes will benefit from the small business rate relief scheme, provided the owner does not operate any other non-domestic premises. We have also given authorities powers to provide their own discounts, which they can use to provide further support for hydro projects. Should they do so, central government would meet 50% of the costs. In addition, the Government’s feed-in tariff scheme supports the deployment of hydro, and as the noble Lord will recall from earlier in our proceedings, we are planning to extend the scheme to 10 megawatts for community projects.
I hope that I have assured my noble friend that the non-domestic rating system is built on a reasonable set of rules, which decide fairly which projects should be assessed for business rates, and that we have taken steps to cut bills for small businesses. In the light of that, I hope that he will withdraw his amendment.
My Lords, I am grateful to all noble Lords who have taken part in this short debate. I was particularly interested by the intervention of the right reverend Prelate. The role of communities in developing microgeneration, although slightly different from the case of houses, is quite important, and we have seen a number of other useful examples of this. I believe that it is a way of making an important contribution to renewables that does not necessarily have too many disagreeable environmental impacts, in spite of what the noble Lord, Lord Whitty, said in his intervention. From the points that he made, I now understand that this is an area where some more unintended consequences may occur; the impact on anglers and others was something to which I had not previously given full consideration.
I am also grateful to my noble friend the Minister for her full and detailed response, in which she explained the context of the non-domestic rating of microhydro. The noble Lord, Lord Cameron, will want to read the Minister’s reply. Although I wish to withdraw the amendment at this stage, he may wish to return to the issue on Report. I beg leave to withdraw the amendment.
Amendment 55B withdrawn.
Clauses 54 and 55 agreed.
55C: After Clause 55, insert the following new Clause—
“Reduction of landfilling of organic waste
The Secretary of State must, as soon as reasonably practicable, set out a plan and timeframe for the reduction and eventual elimination of landfilling of organic waste in order to make it available for 100% renewable energy generation, and other appropriate uses consistent with the waste hierarchy as defined in the Waste (England and Wales) Regulations 2011.”
My Lords, I thank the noble Lord, Lord Judd, for supporting and putting his name to this amendment. Unfortunately, he is involved in the debate on Europe in the Chamber at the moment and cannot be here.
An obvious issue is sorting out and taking a much more robust approach to food waste. This arises within the context of a much broader issue. Worldwide, some 30% of all the food that is produced is lost between the field and the end consumer. In developed countries, it is mainly around wastage because we do not use our refrigerated produce quickly enough or we buy more than we need and throw it away. In non-developed countries, it is around the failure of the supply chain so that food is wasted, lost or defiled as it is distributed. We have one last chance to make up for what we have wasted at the end of the food chain by using it to produce energy and other materials. The amendment seeks to guide the United Kingdom more in that direction.
There is a double benefit here. First, renewable energy is produced and, secondly, the cost of landfill is substantially reduced. It has been estimated that landfill worth some half a billion pounds would be saved if we managed to treat all our food waste in this way. I shall come on to some of the practical experiences seen in parts of the UK and elsewhere in the world on food waste strategies, but let me go through the practicalities briefly. The amendment does not provide that this should happen immediately. It understands clearly that there is a timeframe and there must be a proper strategy which is worked through in a practical fashion during the following years. Having said that, we know that recycling works and that people are able and willing to sort their rubbish in different ways. In fact, food waste is already being segregated and taken away in a number of different areas.
In Wales, a food waste collection service is available to 88% of households. The technology is already in place and well proven, particularly in anaerobic digestion. A quite staggering estimate is that in Wales some £420-worth of food is wasted by each family every year, and I suspect that the figure is exactly the same for the rest of the UK. It represents food that has already been bought but is thrown away. It is much better to reduce such wastage first of all, but if that cannot be done, we need at least to use it later. In London, 23 out of 33 boroughs provide some sort of food waste collection. Fifteen boroughs are very adept at it and do well, but 10 still do not manage to undertake any food waste collection at all. It has also been estimated that if the whole of London managed to segregate and reuse its food waste, that would avoid some 900,000 tonnes of landfill which would save 400,000 tonnes of CO2 emissions and reduce landfill costs by £9 million. Again, that demonstrates the multifaceted benefits of doing this. This is strongly promoted elsewhere in Europe, particularly in Austria, Sweden, Germany and the Netherlands, as well as in a number of municipalities in north America.
Given all that, what is there to lose? It is slightly more difficult because we have to make sure that households can segregate their food waste more easily. A number of households, of which mine is one, are deeply into composting so that uncooked food waste is used in the garden. I have become a real convert to composting over the past couple of years. However, we would win in many ways. We would see a major reduction in the cost of landfill. There would be a substantial source of renewable energy. I think that some 3% of our greenhouse gas emissions are attributable to methane, which is one of the most powerful greenhouse gases. We could really get our anaerobic digestion industry going, we would have landfill reductions and methane reductions and at the end of the process we would have a fantastic compostable material that can be used in gardens and on agricultural land to make sure that every aspect of the technology is used. I beg to move.
I thank the noble Lord, Lord Teverson, and my noble friend Lord Judd for bringing forward the subject of the use of organic waste and wider aspects of renewable generation. We welcome the opportunity to debate this, alongside amendments on other developing technologies. I understand that EU Sub-Committee D will be conducting an inquiry into food waste during the next Session.
A diverse mix of technologies and providers is crucial to a well functioning market, a point that was highlighted last week when this Committee debated access to the market for independent generators. Last week, we heard that while the rest of the economy showed meagre but welcome signs of growth, green growth in 2011-12 was 4.8%, thereby outstripping almost every other part of the economy. It bears saying again that investment in emerging technologies, such as biogas, that will provide the engine of growth in years to come is vital.
Sustainable development means that we must get a lot smarter about the management of our natural capital stock and flow, and this means smarter management of the entire life cycle of the resources we use. Recycling organic waste for renewable energy generation is no substitute for eliminating the volume of food waste produced in the first place, and I ask the Minister to update the Committee on what progress the Government have made in reducing this organic waste.
The amendment relates to reducing food waste from the retail supply chain. I shall extend this amendment’s probing to anaerobic digestion in the wider agricultural sector and sewage works in local authorities’ areas of activity. Where waste is unavoidable, anaerobic digestion can be a double win by reducing methane emissions caused by land-filling and, if used in CHP, generating renewable heat and energy. In addition, the digestate produced by anaerobic digestion can be used as a fertiliser.
In government, my party transformed our relationship with waste by quadrupling household recycling, introducing measures to divert waste from landfill and securing capital investment in these new technologies. We would not wish to see this work wasted—no pun intended—and urge the Government to build on this legacy.
In 2011, the Government published an Anaerobic Digestion Strategy and Action Plan for England. Can the Minister update the Committee on its progress? I shall raise a number of points in that regard. The Government say that they see AD CHP providing between 3 and 5 terawatt hours by 2020. Can the Minister update the Committee on the current level of deployment? The Government set themselves no specific targets for regional adoption of AD; however, they aim to remove unnecessary obstacles to its development. Given the Combined Heat and Power Association’s concerns about the ability of decentralised energy to access the market, are the Government confident that they have now removed these barriers to development of this important technology? Finally, what funding has been provided to date through the Waste and Resources Action Programme, WRAP, for the development of AD?
In Denmark, more than 80% of district heating is provided through CHP plant. Embedded, decentralised renewable generation of this kind requires a comprehensive strategic approach, and it is welcome that the amendment has brought this to our attention. The Committee looks forward to hearing from the Minister whether the Government will bring forward a plan to promote the sustainable development of this technology as part of our European commitment to recycle.
My Lords, I am grateful to my noble friend Lord Teverson for prompting a very important debate on setting targets for the landfilling of waste.
The amendment is designed to require the Secretary of State to set out a plan and timeframe, as soon as practicable, for reducing and eventually eliminating the landfilling of organic waste to make it available for renewable energy generation and other appropriate uses consistent with the waste hierarchy, as defined in the Waste (England and Wales) Regulations 2011.
We support the minimisation of organic waste going into landfill and are sympathetic to the aims of this amendment. To date, we have made considerable progress. We have reduced the amount of food waste produced and encouraged separate food waste collections that are suitable for anaerobic digestion and composting. We have already seen a substantial increase in the number of anaerobic digesters generating energy from food waste and expect many more to come on stream in the next few years.
As noble Lords will be aware, there are currently targets, set out in the EU landfill directive, for reducing the amount of biodegradable municipal waste entering landfill. Those require the UK to reduce the amount of biodegradable municipal waste entering landfill in 2020 to 35% of the levels that entered landfill in 1995; the UK is currently on course to meet that. An EU review of those targets is under way as part of a wider review of EU waste policy and legislation. I must stress that the outcome of the EU review will not be known until mid-2014, but there is a possibility that the European Commission will propose setting new targets. Therefore it would not be appropriate to commit ourselves to targets in addition to those set by the EU, particularly at this point in time when the outcome of the review of the EU targets is still unknown.
The Government have worked very successfully with industry to reduce supply chain food waste by nearly 10% over the past three years. Household food waste is down by even more: 13% since 2006. As noble Lords have pointed out, we want to focus in particular on waste prevention, rather than landfill targets or restrictions. As noted in the 2011 waste strategy, preventing food waste is the most effective approach in carbon-saving terms, compared to landfilling. Each tonne of food waste prevented means that 4.2 tonnes of carbon dioxide equivalent emissions are avoided. We believe that there are more efficient options than targets or restrictions in this area, with companies themselves knowing best where to make changes for maximum impact.
The voluntary approach has been shown to work and allows businesses to reduce waste and make themselves more efficient and competitive. We want to build on that work with businesses rather than impose targets or restrictions. As well as the continuation of the Courtauld agreement to reduce food and packaging waste in the retail and manufacturing sector, the Government have also recently launched a further voluntary agreement, which takes the same approach with the hospitality and food service sector.
We are also making progress in the collection and recycling of food waste, which is used to generate electricity by means of anaerobic digestion. Local authorities in the UK collected and recycled approximately 250,000 tonnes of separately collected food waste from households in 2011, which is a 54% increase on 2010. We expect that to be nearer 300,000 tonnes in 2013, which could provide electricity for 30,000 homes.
We can continue to support a growing anaerobic digestion industry without targets. Current evidence suggests that introducing further statutory targets would impact on businesses and local authorities in terms of compliance and monitoring, which would risk additional cost burdens on business.
I will respond briefly to a couple of points made by my noble friend Lord Teverson on the sector’s need for a plan that will avoid landfill from food waste. My noble friend will agree with me that the measures we are taking on anaerobic digestion are a success story. The Government have achieved their ambition of increasing the energy produced from anaerobic digestion of waste. The number of plants has increased from the 54 that existed when we published our strategy and action plan to 110. There are many other plants with planning permission in development.
We provide incentives for anaerobic digestion through the renewables obligation feed-in tariffs and the renewable heat incentive, which the noble Lord, Lord Grantchester, asked about. We have also provided a £10 million anaerobic digestion loan fund through the Green Investment Bank, whose fund managers have already invested in AD plants. The action plan has also delivered a driving innovation anaerobic digestion fund that is helping to challenge costs in the industry and a range of other measures, including reducing red tape for businesses in the sector. All these measures are helping the sector to grow and achieve its potential. Like my noble friend Lord Teverson, I am a keen supporter of composting, but I suspect he is probably much better at it than I am.
The noble Lord, Lord Grantchester, asked what the Government are doing to try to reduce the amount of food waste going to landfill. I referred to that in my speaking notes. We are working with business, and the voluntary approach has been successful. I hope that my noble friend finds my explanation reassuring and will withdraw his amendment.
My Lords, I thank the Minister for going through that. The momentum has been growing in this area, helped very much by the Government’s support measures. In the spirit of subsidiarity, I am not sure that the fact that European regulations might be coming along in the middle of next year should get in our way. I do not think that European directives stop member states having tougher environmental targets. That would be something. I would be strongly behind the Eurosceptics in resisting that. I am very pleased that the Minister mentioned the investment by the Green Investment Bank because a very large plant in Dagenham has been put forward for use by London boroughs. It is an excellent investment, and I do not think it would have happened without the Green Investment Bank. That is an example of how that has worked well.
I fundamentally believe that on certain occasions you use markets to a certain degree. When it comes to households rather than larger organisations, it is very difficult to make these processes commercial. I would never say that through legislation we should stop certain levels. This is not pollution, but it leads to pollution in terms of greater emissions. I understand there is momentum there. I shall think about this further. The momentum is good, so I beg leave to withdraw the amendment.
Amendment 55C withdrawn.
55D: After Clause 55, insert the following new Clause—
“Energy storage systems
The Secretary of State must—(a) set out a plan to support the development of storage systems for electricity that is generated from renewable sources,(b) put in place pilot schemes to store renewable energy and reduce the problem associated with intermittency of supply,(c) set targets in relation to the provision of renewable energy storage capacity, and(d) set out progress made on these issues in the form of a report, which must be laid before Parliament.”
My Lords, I refer to my entry in the register. Amendment 55D is tabled in my name and that of my noble friend Lord Teverson. When I was the Minister responsible for energy in Scotland and, in particular, for renewable energy, the Scottish Government set some very ambitious targets to increase renewable generation and decrease reliance on fossil fuels. I used to give speeches saying that 100% of Scotland’s electricity should come from renewables. I got challenged on this quite substantially from certain sources. One of the big challenges was intermittency. People said that it was okay if renewables were 10%, 15% or 20% of what we were generating, but if it went higher than that and into base load territory, it would be a disaster as renewables could not be relied upon and could not be a secure source for future energy supply. When you adopt that line of argument, what happens when fossil fuels become extremely expensive or substantially start to run out, I do not know, but there are plenty of people, some of whom we have seen in this Room over the past few weeks, who are quite prepared to put that to one side and hope for the best.
Instead of that and instead of backing off or changing my mind, I now realise I was being too timid. We have to start tackling, in a substantial way, not only electricity generation in this country but two other major areas of energy use in all countries: transport and heating. Making major inroads into reducing our reliance on fossil fuels for transport and heating will require even more renewable energy and, almost certainly, even more renewable electricity. One of the most important answers and, I would argue, the most central one, is storage. I do not know what sort of storage it will be but it will probably be big. At the moment it is estimated that for every megawatt of storage you need a block roughly the size of a London double-decker bus, though that may reduce over time. Could we have storage the size of Peterhead power station in vast buildings in centralised locations, or will it be much smaller-scale, decentralised storage? There may be a need for both but if so we need to get on with it. We need to develop our skills, technology and experience in relation to storage. Will it be fuel cells or liquefied air? Will more pumped storage be more environmentally acceptable in this century? All of this and more—new technologies that have not even been thought of or developed yet— will probably be needed.
If we are, through this Bill, helping to set down and create the energy infrastructure for the century ahead, then storage is important. How important is storage? For example, is it more important than carbon capture and storage? I do not know but I guess it probably is. I do know that people talk far, far more about carbon capture and storage than about electricity storage. Is electricity storage crucial in the same way as electricity demand reduction? I believe it is just as important. Both carbon capture and demand reduction are being encouraged or progressed and are specifically referred to in the Bill, yet there is currently nothing, nil, zero on electricity storage.
I am not in any way disheartened by this. As we will all recall, when the Bill was first published decarbonisation was not any part of it but it is now, rightly, absolutely central to it. I am not seeking a whole new Part 1 of the Bill for electricity storage but rather one short, simple amendment introducing a new clause. In all of this, we are building on what is already there and what is being done in other countries. For years, we have had large-scale electricity storage in the United Kingdom. We have already referred to hydroelectricity in Scotland and Wales and some of that is in storage plants with 3 gigawatts of pumped hydroelectricity. So we already have, in a different form, quite a few London double-decker buses of stored electricity capability. However, we have to do a lot more. I suspect that not many in this room will know about the newer types of electricity storage. There are large-scale batteries in Shetland, Orkney and Northumberland. A new type of electricity storage based on liquid air is operating in Slough, developed by Highview Power Storage, a UK company, and UK Power Networks is due to start construction on a 6 megawatt electricity storage project in Leighton Buzzard. That project is the biggest battery in Europe, even at only 6 megawatts. The Japanese, in contrast, are already developing a 34 megawatt battery to balance wind power, and their proposals clearly dwarf ours at present. Interestingly, the Leighton Buzzard project will illustrate how electricity storage defers the upgrade of new power lines as well as providing essential balancing services to the National Grid and services to the local community, so it is not all about renewable energy.
We will place more and more reliance on renewable generation, but the output from both solar photovoltaic and wind generation is time-variable. Photovoltaic is the best example of that. This means that we need a method to balance the output to make it useful for our electricity system. There are suggestions that the problem could be solved by more interconnectors and adding more flexible gas fire generation through the capacity payments system, switching demand or just averaging out the renewable generation over the whole country. However, recent reports to DECC point out that interconnectors cannot be relied on as a source for balancing services and demand response is not a complete solution.
Electricity storage is a perfectly valid and achievable method to provide system balancing. It can absorb and reject power and act as reserve capacity to cover short or long-term interruptions. Through trading, it smoothes prices and so reduces the overall system cost. By reducing the peak demands on the system, it lowers the investment costs of our distribution networks; by absorbing energy from our wind farms and PV installations at times of low demand, storage lowers the carbon intensity of our electricity industry. Electricity storage remains one technology that does not receive support or any form of secure income stream under the Energy Bill proposals.
My noble friend the Minister said recently in response to a question on electricity storage from the noble Lord, Lord Grantchester, that both storage and demand-side response were eligible to participate in the capacity market auctions. However, I am told that the capacity market does not provide the right commercial framework for new build electricity storage. I have been given reasons for that, although I will not list them here—but one thing I can say with absolute certainty is that the capacity market has not in any sense been designed to support electricity storage, which is a technology with high initial capital expenditure and low operating expenditure. Because of the lack of the right signals, there are still not enough orders to achieve economies of scale in terms of initial upfront capital cost and the operating costs involved. All this could change if there was a greater focus, new momentum and new investment.
Financial support is available in all other areas—and we are led to believe that that includes tax breaks for fracking—giving lower costs of capital for supported green tech projects at the expense of increasing the cost of capital for electricity storage. Without a clear revenue stream, higher costs of capital place financing costs out of reach of most electricity storage projects. As I have said, our competitors in Italy, Japan, Korea, Germany and the USA have recognised the value of electricity storage. These countries are developing a commercial structure in their electricity markets to recognise the valuable role of electricity storage.
The UK’s industry expert group, the Electricity Storage Network, which contacted me after I had tabled this amendment, proposes a target of 2,000 megawatts, or 2 gigawatts, of additional new electrical energy storage in the UK by 2020, and recommends a plan to develop a market framework that brings forward pilot and demonstration projects within the framework of electricity market reform.
This amendment seeks to encourage and support these developments. I have set out the different elements of the amendment in terms of the onus I wish to place on the Secretary of State to include a strategy for storage, to put in place sufficient pilot projects, to set targets for the introduction of energy storage and so on. I believe, in short, that this is crucial to the sort of infrastructure that we will create in this early part of the 21st century. It is a hugely neglected issue and I would very much like the Government to recognise the need to strengthen the Bill by bringing in an amendment of this kind.
My Lords, as we have been reminded today and, indeed, in a previous session of the Committee, an installation providing an intermittent supply of electricity cannot be expected to stand on its own. It must be accompanied by an ancillary installation designed to supply power when the primary installation cannot provide enough. This can be either a storage system that can capture the power of the primary installation when it is in excess of the current demand, or it can be a means of importing power from a region where it happens to be in surplus or from another power plant that can be deployed rapidly to meet the deficit. The latter is currently the most common recourse and the ancillary plant is likely, nowadays, to be an open-cycle gas turbine installation.
In that case, given that the plant has a significant carbon footprint, it is liable to subvert the virtue of emissions-free renewable generation. For that reason, we ought seriously to consider other options. In fact, it has been asserted that the upper limit of the proportion of a nation’s electrical power that can reasonably be expected to be supplied by intermittent renewable sources is about 20%. This figure is well within the aspirations of the European Union energy directives. The EU aims to get 20% of its energy from renewable sources by 2020. Whereas renewables include wind, solar, hydroelectric and tidal power as well as geothermal energy and biomass, we imagine that the preponderance of the power will be from wind turbines.
Let us put aside the question of importing power from afar, which was discussed yesterday in Grand Committee, in order to concentrate on the matter of energy storage. There are two principal means of energy storage that appear to have the greatest potential for development. The first to be considered is a system of reservoirs and dams. At times of low power demand, water can be pumped up to the reservoirs. When demand peaks, it can be released and passed through turbine generators. Approximately 70% to 85% of the electrical energy used to pump the water into an elevated reservoir can be recovered, so this is an efficient affair in terms of energy conservation. The technique, so far at it has been pursued, has also proved to be a cost-effective means of storing large amounts of energy, but high capital costs are entailed in creating such facilities, and they depend on the existence of an appropriate geography.
The most visible leading example of pumped storage in the UK is the Ffestiniog reservoir and dam in north Wales. One of the largest facilities, which is also the least visible, is at Dinorwig, in north Wales, where a huge reservoir sits in a hidden cusp in the mountain. There is currently a peak capacity in pumped storage in the UK of around 2.8 gigawatts, which is about half the installed capacity for wind-powered generation. There is potential for an increase in capacity, albeit that the associated costs are uncertain. The Department of Energy and Climate Change conducted a hydropower resource assessment for England and Wales in 2010 but not, it seems, for Scotland, and there is much that needs clarifying.
It should be noted that, in the UK, the volatility of electricity demand is greater than in any other country. The reason for this lies in the electric kettles that satisfy the tea drinking urges of our citizens, which are closely linked to the evening schedules of our television programmes. Much of our pumped storage capacity is devoted to meeting the resulting spikes in electricity demand and the reaction of the system to the conditions of demand can be almost instantaneous.
The next means of storage to consider is one with a vast potential. It is based on the production of hydrogen by the electrolysis of water, which is most efficient if conducted at high temperature. The energy efficiency of this chemical means of energy storage is low compared with pumped storage, but I believe that, in its various forms, it represents the best way forward. Currently, 48% of global hydrogen production is from natural gas, 30% from oil and 18% from coal. Water electrolysis accounts for only 4%. These facts reflect the thermodynamic constraints and the consequent economic choices, which are made within the context of the costs of the feed stocks and the energy. The advent of hydrogen-based storage will, therefore, depend on the availability of abundant supplies of energy and the rising costs of hydrocarbons. I shall deal with the question of the supply of energy later.
There are both direct and indirect uses of the energy stored in hydrogen. The direct uses are in fuel cells and combustion engines. Fuels cells, which nowadays represent a mature technology, pose high capital costs and require a supply of hydrogen of the highest purity. It is probable that combustion engines, both turbine engines and Otto cycle engines—that is, pulsed combustion engines analogous to petrol engines—will eventually predominate.
Hydrogen might also be used, as it has been in the past, to produce synthetic fuels, either synthetic petroleum or so-called synthetic natural gas—that is something of an oxymoron. These are ways of eking out the supplies of hydrocarbons but, on their own, they do not represent a way of reducing emissions of carbon dioxide. However, it is possible to establish a closed cycle whereby methane could be synthesised from carbon dioxide and hydrogen and burnt to produce water and carbon dioxide. The cycle would be closed by recapturing the carbon dioxide and using it to generate a further supply of methane.
There are some fascinating technical opportunities, and we ought to be devoting considerable resources to research and develop some of them. Two things are clear. The first is the need for a strong governmental role in research and development if the opportunities are to be grasped. The second is that most of what is envisaged will require ample supplies of energy. Renewable sources of energy can go only a small way towards fulfilling the requirement. We shall need to resort to nuclear energy to provide ample supplies of electricity and hydrogen.
My Lords, I support the amendment tabled in the names of the noble Lords, Lord Stephen and Lord Teverson. It is an excellent amendment, and had I been administratively competent enough, I am sure we would have tried to add our name to it because it raises an important aspect of this energy trilemma that we are trying to solve. As the noble Lord, Lord Stephen, eloquently pointed out, it is sadly missing from the Bill. This amendment or a similar amendment would be an excellent addition to it and would help to make it clear that this will be a very important part of the energy system. The reason it belongs in this Bill is because it is a significant move towards supporting the greater use of variable sources of electricity. As has been pointed out by previous speakers, one clear way of addressing the issues and challenges that variability creates is through the use of storage.
It is often—I think wrongly—stated that electricity cannot be stored. That is incorrect. It can be and is stored in many ways. We have heard of some of them today. Dinorwig is an amazing example. It was a government-funded public work, and it has been operated very successfully by a number of private companies. It is a jewel in the crown of our grid and provides fantastic, very fast and very efficient back-up at times of need.
However, there are many other sources. Hydro pump storage is not just in North Wales. There is an awful lot of it in Scotland, where it is a very reliable and well integrated source of renewable energy that has become at one with the environment in which it is located. These are technologies that were built in the 1950s and are still serving us today. They are amazing examples of what renewable energy can achieve. With the renewed interest in storage, a plethora of new approaches is emerging. I read with interest that GE, the wind turbine manufacturer, has launched a turbine that it is calling the “Brilliant” turbine. It is 2.5 megawatts and has a chemical storage facility built in to smooth the curves when wind power is operating or not operating. Obviously, that is a statement from the manufacturers that they can see a commercial advantage to being able to provide storage to help deal with the variability of the energy supply.
The Leighton Buzzard project was mentioned by the noble Lord, Lord Stephen. This is a fascinating and great example of where Britain can really excel. It is fairly straightforward engineering excellence at its best. The challenge is to take electricity at times of high supply using a filtration system to separate out nitrogen and then to cool the nitrogen as a liquid. That is the storage mechanism. Once it is heated and released, it can power a turbine. The great thing about the Leighton Buzzard project is that it is located next to a source of low-grade waste heat, which would otherwise be wasted, and that is helping to improve the efficiency of the system. These are exactly the sort of projects you can rely on the engineers and innovators of Britain to deliver. I really hope that we will see much more of such projects and more support for them.
The chemical project has also been mentioned—but I might have got this the wrong way round. The liquid air project is in Slough, and the chemical project—the 6 megawatt chemical battery, also mentioned by the noble Lord, Lord Stephen—is the one in Leighton Buzzard, so I apologise for the confusion. Nevertheless, those are two examples.
There is also a wide amount of pre-existing distributed storage available on the grid in the form of Economy 7 and storage heating. This is another aspect of storage that has been slightly forgotten. When we had our initial push for nuclear power and found that we had an overabundance of power in the night, when there was not much use for it, a parallel process was introduced to encourage householders to fit storage heaters in order to absorb that excess electricity at times when it was cheap and use it to heat their homes. I do not see why that should be forgotten. I think it has an essential part and could now, with the advances we have made in smart metering and the information that will be available to consumers, provide another form of storage.
I will just point out that the noble Baroness is absolutely right about that. It is true that heating water by electricity can still be done. Storage heating has perhaps become less popular—most water heating is by gas—but there is still a substantial element of electrical water heating.
I absolutely agree. If immersion heaters were now plugged into the grid and could be switched on at times of high supply, they would be a great source of storage on the network.
I do not want to take too much time, but I also mention one of my favourite discoveries of this year: the flywheels at Culham. A little-known fact of our grid is that the fusion research unit at Culham demands a huge burst of power in order to work, and it was deemed to be too great a demand to place on the grid. So, in the 1970s, flywheels were installed, which are still operating today, based on the flywheels that operate in Dinorwig. This is another example of fantastic engineering that solves a problem. I am dwelling on all these examples because I think they really show that, as our energy system transforms itself and as we embark on this road with, I hope, a very clear and unswerving purpose, we will solve many of the problems and obstacles that have been cited today as insuperable. Innovation in engineering is something we excel at and I expect that noble Lords will come forward with many more examples.
I turn to the amendment and the requirements to introduce a strategy and set a target. I am at times a little sceptical about the setting of targets, but I am very supportive of the idea of a strategy. Representatives from the industry have told me that they are very confused about how to interact with the Department of Energy and Climate Change. There is not a single point person in the department who really has an overview of this issue, and they have asked if we could raise that issue and ask that it be prioritised and given a home within the department. They tend to feel that they are being passed from side to side, with no-one taking overall responsibility for it. I think that is in part because the definition of “storage” is not quite clear, and this hits at a core issue. Dinorwig is classed as a generator and holds a generating licence, but if you have an Economy 7 storage facility in your home, you are not a generator. Lots of technologies may emerge that are somewhere in between because they are both absorbers and generators of power. They could offer very particular services to the system. Is there a need for a separate licence category for such operators? The Government need to think about this and perhaps come to a conclusion. In the course of writing a strategy, I am sure that this is one of the things that needs to be addressed.
This becomes particularly important in relation to the distribution network operators. We tabled amendments in earlier Committee sittings to tease out the fact that the DNOs are currently preparing the business strategies which they will implement over the next eight years. It is my strongly held belief that the capacity mechanism within this Bill, if it is done correctly, could have a dramatic effect on the introduction of electricity storage, and therefore should have a material impact on the DNO strategies. We have said before that it seems crazy to be signing off on DNO strategies before the detail of this Bill and the capacity mechanism within it is fully worked through.
The Electricity Storage Network, which is the relevant trade association, has pointed out that support for electricity storage is currently available. It is not quite clear from the briefing whether the grant is worth £30 million or £50 million, but it is clear that the Government are making available some tens of millions of pounds for grid-scale demonstrations of storage. That is very welcome indeed. However, the association makes a point which makes sense to me: if you spend that kind of money on the demonstration but you do not have a policy to secure the route to market, that is effectively wasted money. What the sector is really looking for is a clear signal that it will be able to participate in the capacity mechanism and that there will be a way in which it can compete against the other potential sources of capacity that will be brought forward. The problem is that we are dealing with what is essentially quite a new set of technologies which is facing all the challenges that you would associate with that. Potentially, these technologies could be commercially viable, but they are not yet. How can they compete in a capacity market that essentially seeks to be technology neutral and provide one price for all? This is a contradiction in the proposals being made by the Government that really needs to be thought through.
The Bill makes it clear that on the supply side, when it comes to supporting low-carbon electricity supplies, the Government have accepted that we need a tailored strategy for the different technologies. We have differentiated strike prices as well as different treatment for nuclear and renewables—and within the renewables category, there is an enormous difference in approach. The reason for that is that the Government recognise that in bringing forward the low-carbon economy, it is not just a question of the least cost initially because these technologies are at different stages of development. The Government have expressed a desire to bring forward a range of technologies and not simply to compare them all against levelised cost. It is more subtle than that. Those interests may include the ability to establish a supply chain, which might have a material bearing on how we support certain technologies. The Government have gone so far as to create a levy control framework which is split up into the different technologies and potentially into different sizes of technologies, and even into different locations. I say that because on the supply side it is clear that the Government accept that one size fits all will not work and that different policies need to be brought forward in order to help all the various technologies at their different stages of development.
The demand management and reduction side is thrown out of the window and we are told that all technologies must be able to compete on a level playing field. What I would argue is that that simply will not work for those technologies which are less far along the development curve. Those include electricity storage, which has huge potential and will be very important, but at the moment would find it extremely hard to compete against the existing coal-fired generators, with gas that has just been mothballed or, indeed, potentially with new CCGT, although I hope it would be able to compete with it. I would simply state that on the supply side, the Bill recognises the need for differentiated approaches, but when it comes to the demand side we take a completely different approach. I would like to hear from the Minister what the justification is for those very different approaches. I am sure that she will respond by saying “the least cost”, but if it is a question of the least cost, the argument should apply to both sides. There must be something different on demand to which we are applying a different logic, and I would like to hear what it is.
I could make many other points but perhaps the final question is whether the Green Investment Bank could be given a new category of projects to fund. It has quite tight constraints on what it is allowed to fund, but electricity storage would seem to be a very interesting area for it. Perhaps we can add this to the list of technologies that it is able to support. I am very supportive of the amendment and am delighted that it was tabled, thus enabling us to have this very interesting debate.
We have had an interesting debate that was kicked off by the noble Lord, Lord Stephen. Before telling us about the need for electricity storage, he told us that, as a Minister in the Scottish Government, he was in favour of moving towards 100% renewables. His speech had a certain revelatory note as though, when he was advocating 100% renewables, he had not really thought about storage. If you are dealing with renewables, you are of course dealing with interruptibles and you have to have something to fill the gap. Storage has always been one of those things. I find it a bit disturbing that the Scottish Government—of whom my party was a part at the time—signed up to what seems to be a somewhat ill-considered approach to renewables. However, it shows that when something with an element of newness and freshness comes along, it is thought that it must be good; and once its goodness is established, everything is possible. I get the message this afternoon that everything involving storage is good and therefore possible. I happen to be in favour of storage and in favour of a strategy, but if we are going to have a strategy, it means that there will be priorities. If there are priorities, it means that some of the projects now enjoying the cosy embrace of Members of this Committee on both sides may well be cast to the wind.
On the question of cost, the energy industry is saddled with bad investments from the bright ideas bank, but that is something which goes back through history. When the sector was publicly owned, the CEGB had probably the best scientific brains in the energy industry. They would go to civil servants and offer them, for example, nuclear energy—of which I am an enthusiast—saying that it would be too cheap to meter. We have got to be a lot cooler in our enthusiasm. It might well be that the advocates of a strategy find that the strategy turns round and punches them on the nose, knocking out some of their favourite little schemes.
I happen to be something of an enthusiast for the Leighton Buzzard project because it is of a reasonable size and it seems to be technically in order. I have a slight association through an interest in this area, which I have already declared. However, we have to be careful. I favour the concept of a strategy because it will instil a bit of discipline into what I think is the wishful thinking that has prevailed in so much of today’s discussion. I am not sure whether we are going to get very much more in the way of pump storage, as you need to have the terrain and the water. I remember talking years ago to people in the hydro industry in Scotland and they did not think there was really very much more that you could eke out of the Scottish landscape. That might have changed by now, but the point is that we are getting to the small and cuddly bits of technology.
We have all been hounded over the years and, indeed, over the last few months, by people coming and saying, “With a bit of money from the Government, we can change the world and make a fortune for ourselves”. I get a wee bit cynical. Perhaps it is because I have been in this game for far too long and have seen so many of these schemes founder. I want us to have a strategy and I think that we should have storage, but let us not lose our sense of proportion. At the end of the day, we will not be storing that much because it will be the surplus electricity. We will not be generating for storage purposes. It will be a case of storing the extra, the margin and the bonus. Let us keep a sense of proportion so that when a strategy is produced, we are ready for the fact that some folk may be disappointed because they did not get everything they wanted. We have heard already with regard to renewables the arguments beginning, “Ah, but” and, “It was not really intended like this” or “The nasty Chinese are now undercutting our prices. We must stop them coming in. We must impose taxes in this area because the Germans and the Spaniards have invested in photovoltaics and the like, which are not making the returns that once they did”.
If the Government take on board the spirit of this amendment, produce a strategy in due course, and give it a place within the newly reformed electricity market, let us make sure that that is done on the basis of serious priorities. We should not be pushed by every pressure group or commercial interest that comes along with some half-baked bright idea which, with a few million pounds more of public money, will resolve everything. Often we find that the UK comes to a scheme rather later than other countries, which have spent a lot of money on similar projects and then rejected them. There is a lot to be said for partnering with other countries and companies because they may have done far more research and experienced a lot more of the disappointments that normally arise from research in areas of this nature. We should give the spirit of the amendment a fair wind, but at the same time recognise that this has to be about priorities. We should not chase after every pot of gold at the end of every rainbow we see.
My Lords, I am grateful to my noble friend Lord Stephen and to all noble Lords who have contributed to this very helpful and useful debate on Amendment 55D. Subsections (a) and (b) of the proposed new clause support the development and piloting of storage systems for electrical energy. The Government agree that technologies that can be used to help balance the supply and demand of electricity, such as energy storage systems and demand-side response and interconnection, are increasingly likely to be required. This was the conclusion in DECC’s report, Electricity System: Assessment of Future Challenges, which was published in August 2012.
Energy storage systems can be used to store surplus electrical energy for use at times of high demand. They help to match the supply and demand of electricity efficiently and cost-effectively. Technology companies in the UK and elsewhere are actively developing energy storage systems which could help to address the problems associated with intermittency of supply. However, different energy storage technologies are currently at different stages of development and further innovation and development is needed to reduce the costs and thus make storage technologies applicable to wider deployment.
The department therefore identified energy storage systems as a priority area for funding under its Innovation Programme. We then consulted with storage technology developers and users, as well as other public sector innovation funders, before developing a plan to help support the development of storage systems. This led, in October 2012, to the department launching two innovation competitions to support research, development and demonstration of energy storage systems. As a result of these competitions, funding has already been awarded to 16 energy storage projects, and in the autumn DECC expects to announce details of up to four energy storage demonstration pilots, which it will be supporting during the current spending review period. The aim of these pilot projects is to demonstrate the scope for cost reduction of innovative energy storage technologies and to explore the opportunities for deployment of energy storage technologies to address a wide range of future UK electricity network balancing and other storage needs. I agree with the noble Lord, Lord O’Neill, that this should be part of fulfilling the capacity of needing more energy rather than it being a means to an end.
Under Ofgem’s Low Carbon Networks Fund, three pilot projects are already under way to incorporate storage into our electricity distribution networks. These projects have the potential to assist in balancing local demand to facilitate the timely and cost-effective connection of renewable energy. My noble friend Lord Stephen referred to the Leighton Buzzard six megawatt battery project, which is one of the three pilot storage projects being supported by Ofgem’s fund.
I turn to subsection (c) of the amendment, the proposal to set targets for the provision of renewable energy storage capacity. Energy storage systems are one way to address issues arising from intermittent supply and so to support the deployment of renewable generation. However, other mechanisms such as demand-side reduction, interconnectors and smarter networks can also be used to help to balance supply and demand. Different mechanisms are likely to be needed to meet different balancing applications depending on the characteristics they offer, such as power, duration of supply and response times. The commercial markets should be best placed to select the most cost-effective solution to address each balancing requirement.
Energy storage of all sizes will have the opportunity to compete alongside generation and demand-side response in the capacity market. This will provide a secure revenue stream, ensuring sufficient investment in the reliable capacity we need. Of course we recognise the importance of developing a more responsive demand side for the longer-term efficient functioning of the market. Given that certain technologies such as storage have different characteristics from generation, we are developing transitional arrangements to provide particular support to demand-side response and alternative capacity types, including smaller scale storage which is connected to the distribution rather than the transmission network.
As I have set out previously in our debates, the early stages of the capacity market will include “go early auctions” for specific technologies in 2015 and 2016, which are designed to help certain emerging industries to grow. We envisage that these auctions will include demand-side response, embedded generation below a size threshold and storage connected to the distribution network. The auctions will allow storage to take on limited obligations and benefit from regular guaranteed payments.
Finally, subsection (d) of the amendment would require the Government to set out progress made on these energy storage system issues in the form of a report which must be laid before Parliament. DECC is already planning to carry out post-project evaluation on the outcomes of the energy storage innovation schemes once the supported projects have been completed. In response to this request, I can commit that copies of this evaluation information and project reports will be deposited in the Libraries of both Houses.
I shall pick up on a couple of points that were raised during the debate. My noble friend asked how much funding DECC is putting into current projects. There is a list of things that we are doing and I have highlighted one or two of them. In spring 2013 we awarded £500,000 to a total of 12 organisations to carry out phase one feasibility studies into innovative and diverse energy storage ideas under the Energy Storage Technology Demonstration Competition. We will invite some of the innovators who have won funding under this competition to take part in the second demonstration phase of the competition, which is worth up to £17 million, to test designs on the ground. We also awarded £1.5 million to four organisations in the first round of the Energy Storage Component Research and Feasibility Study Scheme. We will also award grant funding of up to £1.5 million for winning projects in the second round of the scheme. There are a number of things that the department is already doing.
I listened carefully to the noble Viscount, Lord Hanworth, and, sitting here, I wished that I had paid far more attention to my chemistry and physics lessons. Hydrocarbons and all these things that I studied many years ago suddenly came to the front again. He asked about pumped hydro schemes. One of the energy storage schemes already being supported by DECC is a study into possible novel locations for pumped hydro schemes. The noble Viscount also asked for the Government’s position on the use of hydrogen fuel cells and about electrolysis. Using fuel cells and generating hydrogen is at present very expensive and inefficient. DECC is investing in collaboration with the Technology Strategy Board in a number of hydrogen system demonstrations, so we are working on it. I promise the noble Viscount that I shall take far more interest in those projects to have a greater understanding of them.
The noble Baroness, Lady Worthington, asked about DECC’s lead for storage. I can confirm that we do not have a single policy lead for energy storage, but there is, of course, strong interest and technology leadership from DECC’s own Science and Innovation Group, which is managing the current innovation support projects for storage, so it is a key part of the department’s role. I very much take her point that it would be helpful to have a named person, which is something that we perhaps need to think a little bit more about. She also asked why we were being neutral in the capacity market when we are differentiating between technology and CFDs. It is a point raised by the noble Lord, Lord O’Neill. The capacity market is intended to deliver security of electricity supplies at least cost. That is where the differential lies.
I hope that my noble friend Lord Stephen will be reassured that the department is taking this matter very seriously and that there is considerable work in hand without a statutory requirement. On that basis, I hope that he will withdraw his amendment.
I thank my noble friend the Minister. I absolutely agree that there is a lot of very good work going on within the department and some of the other government or public sector organisations providing support in this area that she has referred to. I do not see that as in any way contradictory to the benefits of bringing in this sort of amendment. In being prepared to withdraw it today, I would ask the Government to consider the benefits of introducing an amendment of this kind at a later stage in the consideration of the Bill. This is such a centrally important issue that it merits introduction to the Bill, for the reasons that I have mentioned. I will not go over all those reasons again, but we need to say that it is important and include it in the Bill, in the same way as we think that decarbonisation is important—and a number of us want to include a target in the Bill for decarbonisation.
I was interested in the comment from the noble Baroness, Lady Worthington, that she is not particularly keen on targets, because I thought that the issue of targets was pretty central to the arguments coming from the Opposition Bench in relation to its criticism of the Bill. When I first came into government in Scotland in 1999—and the noble Lord, Lord O’Neill, referred to that—one issue that we had to deal with in coalition negotiations was the enormous number of targets that the Labour Party wanted to introduce into every aspect of government. At that time, there was a general view in Scotland and in my party that we could do with slimming down considerably the number of targets that the new Labour Party—bright-eyed and bushy-tailed in 1997—came surging forward with in its early days of government.
I thank the noble Lord for giving way. I want to clarify that, as I said in my speech at Second Reading and as I have consistently said in Committee, I agree with the setting of outcomes in terms of what the Government want to achieve. However, I am nervous of the micromanagement of individual technologies through ever smaller targets. An editorial in the Financial Times this week asked why we could not have a process where the Government set the objectives and the market chose the least costly and most sensible solution. I have consistently said that is what we should be doing. This Bill is not taking that approach and I fear that another very specific technology target might be the straw that breaks the camel’s back.
I am sorry to raise this again as we are sparking up another debate here. There might well be concerns about a specific post-2020 renewables target but it is strange that the Secretary of State should not be more strongly advocating a decarbonisation target as this is necessary. We can carry on with this offline.
We have touched on a very interesting area but we can all agree that a strategy is a very good thing here. Even the noble Lord, Lord O’Neill, thought that a strategy was a good idea. Sometimes in government you have to be bold and ambitious in setting strategy and, sometimes, in setting targets. I take the point made by the noble Baroness about the importance of outcomes and not micromanaging. If the noble Lord, Lord O’Neill, had been given John F Kennedy’s speech about sending a man to the moon by the end of the decade, he would probably have set it to one side and declined to go for it. Sometimes we have to be ambitious and we are dealing with very important change that needs to be driven by government. None of the major changes we are seeing in energy infrastructure in the United Kingdom and many other developed nations would be happening without huge intervention and commitment from government.
In many aspects, the Energy Bill will deliver exactly the sort of change we are all hoping for but not in relation to storage where much more needs to be done. The noble Lord, Lord O’Neill, was exactly right that when these big targets for renewable energy were first set storage was seen as a vital issue if they were to be introduced. They can also be achieved through a mixed basket of renewable energies, not all of which are intermittent in the way that wind and solar energy are. Storage is not rocket science; it is not so uncharted. We are aware of the technologies right here and now: the issue is how to deploy them sensibly. It is not all about balancing the network: it is about focusing some energy storage on renewable energies. I was interested to hear about the proposal for an individual turbine having its own internal storage capability. When we are building, as we have done, the biggest wind farm in Europe, there should be consideration of some sort of energy storage alongside such a huge investment. We have a lot more to do and I am excited at the prospect. I am ambitious for all of this and genuinely believe that we can do it. With the right commitment, support and focus, we can make this happen. I beg leave to withdraw the amendment.
Amendment 55D withdrawn.
55E: After Clause 55, insert the following new Clause—
Within 12 months of enactment, the Secretary of State shall publish a strategy to support the development and usage of commercial and domestic voltage optimisation.”
My Lords, this amendment is dissimilar in many respects from the amendment we have just debated. I am not calling for a target, just to be consistent with voltage optimisation. It is a good opportunity for us to have a discussion about the role that voltage optimisation can play in helping to reduce our demand for electricity.
I first heard about voltage optimisation when I was working for Scottish and Southern Energy which was considering internally how it might go about meeting a theoretical demand to reduce the demand of its customers. I was advocating voltage optimisation as a policy that it should embrace and the company was mulling over how it might meet it if it were to happen. The things the company thought about off the top of its head to reduce consumers’ demand were the greater use of thermometers and controls in heating, which was very obvious, and voltage optimisation on the electricity side. I had never heard of it, but the engineers understood the system far better than I could. They knew about voltage optimisation and its potential for knocking down demand in a very certain way.
One of the problems with demand reduction is that it can have a rebound effect. Some energy efficiency measures increase efficiency but do not produce a net reduction in demand. The fridge is a classic example. You get a bigger fridge that may be A++-rated, but its overall demand is greater. Voltage optimisation gave very clear and concrete outcomes.
When I arrived in this House, I came across a group of companies that are building and installing voltage optimisation equipment. They have formed a trade association, which I am very pleased about.
I have tabled this amendment to reiterate some of the benefits of voltage optimisation and to highlight that at the moment it is slightly falling between the cracks and does not receive any support, despite the fact that it can and does reduce electricity bills, has a very short payback period for companies and households that fit it and has the added advantage of stabilising the voltage used in equipment and extending the lifetime of that equipment. If you consider that the voltage coming into a home can fluctuate quite widely, a voltage optimisation unit will hold the voltage at an optimised level so that everything in the house is using that controlled voltage, which can extend the lifetime of white goods and other equipment that works far better on a stable voltage. I should have explained voltage optimisation at the start, but I assume a very high level of understanding among eminent noble Lords here.
The UK can lay claim to being a world leader in this industry. Two of the companies that I have spoken to spun out of universities and have established a UK manufacturing base for this equipment. I am told that the industry is currently contributing around £60 million per annum to the UK economy. It only started in 2000, so it is obviously a sector that is quite young, but growing.
The reason for this amendment is the concern that this technology is currently excluded from existing support mechanisms. It does not qualify for support under the ECO or the Green Deal. It seems that the reason is that it has not been accepted as part of the SAP rating of energy efficiency assessment for homes. The industry says that it has been trying to resolve this for a number of months—in fact, for years—and is feeling very frustrated that the department has not done more to expedite the issue. It seems that there is a slightly negative perception of this technology at the BRE. The industry is doing all it can to address the BRE’s concerns, but is seeking a little more political support from the department to expedite this process and recognise the great benefits that VO can bring.
I shall leave it there because we have already had a lengthy debate on a particular type of technology and this is a similar plea for greater awareness and priority to be given to this solution. There cannot be many things that will so clearly bring down demand, which also have the benefit of reducing customers’ bills, very short payback periods and increasing the lifetime of appliances. It seems to me strange that this is not being supported more by government. I know that the Government use this technology—I think that it has been installed in both No. 10 and DECC’s buildings and in many other public buildings. If it is as good as they say it is—and I am persuaded that it is—we should support it; it is as simple as that.
Obviously, this is a probing amendment, but I look forward to hearing reassurance from the Minister that voltage optimisation is an industry which the Government wish to support, and that she will address the fact that currently it falls outside all the support mechanisms. I beg to move.
My Lords, I made a brief reference to voltage optimisation earlier in the Grand Committee’s proceedings. I referred to the very useful lunch organised by the noble Baroness, Lady Worthington, where a number of us were able to learn from members of the trade association what was being done. In the rather steep learning curve on the topic of energy that I have experienced over the last 12 months, that was one of the high points, given that not only has the UK been a pioneer with this technology, but it is very effective, both at the level of the large consumer and, in other ways, at that of social housing.
I will make one suggestion to the Minister, if I may. We discussed earlier the situation laid down in Clause 37 of a pilot scheme or schemes for electricity demand reduction and the possibility of the Government setting up or examining pilot schemes to see what could be done. It seems to me that voltage optimisation is one of the areas that could come under what we have already considered in Clause 37. I would be interested to know whether the Minister feels that there is any chance of considering it within that framework.
My Lords, I am sorry not to have been able to be here earlier. I declare an interest, given that in the past I have assisted firms of this kind to try to get a wider application of their equipment. There are certain drawbacks with this, but what I find so interesting is that it is a particularly British problem. It is simply because we have gone along with a voltage that is out of line with that of other people. Given that everybody manufactures to a voltage that is common elsewhere, we have something that is less than optimal. That is all. If the system is less than optimal we waste significant amounts of energy and our equipment works less sensibly and wears out more quickly.
I do not to repeat what the Committee is perfectly well aware of but simply to say that this is another example of how much can be done in very simple and small ways, which all add up. One of the things that worries me about governments of all kinds—this is not a comment about the present or the previous Government—is that small things that add up do not get the same attention as big things that very often do not add up at all. There seems to be a kind of desire to do things people will take note of, rather than understand how much there is which, if we add it up, makes a huge difference.
I do not want to go over it all, but I am sure that there has been a significant saving of energy simply because kettles now show you how much water has been put in, so that you know what you need for a cup of tea and do not put in too much. All those simple mechanisms actually make a difference. The trouble is that people tend to laugh at them, because in themselves each one does not matter. If we had voltage optimisation as a built-in feature of every new home, for example, and if it was automatically offered in every circumstance, we would save a significant amount of energy.
I therefore hope my noble friend will be able to say that her department will concentrate on the small things that add up but which will not get headlines in the Guardian. That is the fact. Let us see if we can do some of that because it would certainly make a big difference to meeting our energy demands.
My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. Over the past few months, a number of questions on voltage optimisation have been raised in this House and the other place. This is the result of having an industry that is passionate about its product and its estimates of potential savings. The Government, however, have to look at this objectively and consider the evidence of performance. I am not sure whether my noble friend Lord Deben was here during our previous debate but it demonstrated that the Government look at smaller projects. Perhaps my noble friend would look at Hansard to see how we are already supporting some smaller projects.
Voltage optimisation is a piece of electrical technology that could potentially reduce the energy consumption of household appliances and industrial machinery by lowering the supply voltage. Manufacturers of voltage optimisation devices have asked for recognition of this potential to save energy through its adoption in government-sponsored schemes, including the Green Deal, which the noble Baroness, Lady Worthington, mentioned. The Green Deal is an example of how a government strategy has been introduced that encourages householders and businesses to invest in technology, as long as it has a measurable and verifiable energy saving and can be recommended for a given building. These criteria are important to ensure that we realise real energy savings and ensure good value for money to consumers.
There is an established process for admitting new technology into the Green Deal, which entails the industry submitting its evidence to the Government’s contractor for entry to the standard assessment procedure, which is the tool for determining the energy efficiency of domestic buildings. In the case of voltage optimisation, this evidence has been reviewed by BRE, and its report has confirmed that there was a saving from the installation of voltage optimisation in some of the properties tested. In all these instances, however, part of this saving was found to result from a reduction in the level of service provided to householders—for example, by making lights dimmer. This cannot be counted as a real energy efficiency saving.
The report also highlighted further reductions in the estimated savings from voltage optimisation arising from the impact that EU directives are having on the energy efficiency of household appliances. The effect is that appliances are becoming more tolerant to, and efficient at, working within a range of supply voltages. A realistic projection of the likely take-up of modern appliances reveals that the potential saving from voltage optimisation will reduce each year, such that by 2020 the saving is likely to reduce to zero in a typical home and then become negative in later years. This is due to the voltage optimisation unit’s own power consumption.
In the commercial sector, it is more difficult to make generalisations about the efficacy of voltage optimisation due to the wide range of electrical plant that could be in use. However, this sector, too, is subject to improvements in the energy efficiency of electrical plant due to EU directives, which will reduce the savings from voltage optimisation. It is against this backdrop of evidence that the Government cannot commit to supporting voltage optimisation. There already exists a strategy within the Green Deal that allows industry to get its technology recognised and adopted, subject to it meeting key criteria. If the evidence for voltage optimisation were to change, then we could reconsider whether the market forces found within the Green Deal were sufficient to encourage its uptake.
I should also like to touch on the scale of savings that the noble Baroness believes will be made with voltage optimisation. We found that the indicative costs and savings were as follows: voltage optimisation units could cost around £300 plus the cost of installation but may save, on average, only £2 per annum. It has been suggested that by 2020 the units will use more energy than they save and will therefore have to be removed at further cost. This is evidence provided by the industry to the BRE, and the organisation Which? agrees with DECC about this. Given that, I hope that the noble Baroness is reassured that we are taking every possible opportunity to look at new entrants, and that on that basis she will withdraw her amendment.
My Lords, I am grateful to the noble Baroness for those comments. What they serve to do is illustrate quite how closed the department is to this technology. If it was true that there was a saving of only £2 on an investment of £300, no one in their right mind would develop, manufacture and install it, and yet we have an industry that is doing so. Not only that, it is a British industry which is manufacturing in the UK.
I am grateful to the noble Lord, Lord Deben, for his intervention to say that small things which add up may not generate headlines, but actually they can generate headlines when it is a British-based industry creating British jobs and which can go on to export its technology around the world, leading to a positive balance of trade. Each individual bit of technology may not make the headlines, but the investment in UK skills, infrastructure and jobs should do so. Obviously the technical issues that have been quoted will, I am sure, be contested by the industry. All I am asking is that the department should not start out with a negative predisposition, it should look at the evidence in the round and listen to the industry.
I take the point, but what the industry is feeding back to me is that it is finding the process to be incredibly slow and time-consuming. People are pushing against an attitude of resistance which starts out by considering what they say to be false. However, that does not add up because some quite hard-nosed commercial operators such as Tesco have installed this equipment and are finding that it saves them money. If that is the case, some support should be offered. It is probably true that the quantum of savings and investment is better in larger-scale uses, but it cannot be true that this is an industry based on a fallacy. I refuse to believe that people would put their hard-earned money, hours and initiative into something which is of no benefit. I recognise that there is a procedure that needs to be gone through, but I hope that it can be opened up to scrutiny and perhaps a conclusion can be reached rather more swiftly than is the case at the moment.
The question of loss of service will be barely noticeable. People have said that voltage optimisation does not work because the lights are so dim that you cannot read a book. However, it is not on that scale at all. It is probably true that most households would not notice it. We probably enjoy a surfeit of lighting because we have all installed lots of halogen lighting in recent years. The loss of service is a contestable issue.
Energy efficiency and demand reduction comes with all sorts of potential loopholes and problems. I go back to what I said about fridges. The Government have been perfectly happy to hand out eco-credits, or whatever they were before they were called that, for the installation of appliances, but there is no requirement that those appliances should contribute to a net reduction in demand. They simply have to be efficient. As I have said, a larger and more efficient fridge, which is what the current trend is moving towards, uses more energy than a smaller, less efficient fridge. There is an inconsistency here. I know for a fact that when the light bulbs credits were available, we were handing out support to people who were simply putting those light bulbs into the cupboard under the sink. It is slightly unfair on the part of the Government to apply incredibly tight and overly restrictive criteria to a technology which I do believe is of benefit while not recognising that great leniencies have been shown towards other technologies in the past. I am not saying that we should go back to that but there is an inconsistency here.
I hope that this process will resolve itself and am sure that the industry will be keen to engage with the department to answer the concerns that have been reiterated here today. I am pleased to withdraw the amendment at this time.
Amendment 55E withdrawn.
55F: After Clause 55, insert the following new Clause—
“Nuclear Research and Development
( ) The Secretary of State must seek to foster Research and Development in nuclear technologies, including—
(a) advanced fission and alternative fuel cycles; and(b) profitable ways of employing Britain’s stock of plutonium in generating electricity.( ) The Secretary of State must report to Parliament annually on the progress made on these issues and any necessary changes to the legal remit of the NDA in furtherance of these aims.”
Throughout the Committee’s debates, one vital element has been barely mentioned—the future of Britain’s nuclear energy. Without the prospect of major investment in nuclear energy, the nation’s energy policy makes no sense and the Energy Bill is virtually meaningless. The lack of debate about Britain’s nuclear programme has been a reflection of its uncertainty. The Government are still in protracted negotiations with the French state-owned monopoly EDF—Électricité de France—which in reality represents, at present, the only means of achieving new investment in nuclear plant. For reasons of political ideology, allied to fiscal anxieties, the Government are loath to finance the investment. They are relying on EDF to raise the necessary funds from the financial markets, which are currently in a parlous state. The company, in turn, sees an opportunity to recoup some of its recent losses in projects elsewhere at the expense of the British taxpayer. It can look to the examples of foreign national rail companies, which are recouping their losses by adopting rail franchises in Britain. It hopes that it can follow suit.
With such a prospect in view, one might expect greater eagerness on the part of the company to strike a deal. In a previous debate on the subject of Britain’s nuclear programme, one of my colleagues voiced the opinion that our Government were in a strong negotiating position and that they should therefore stand their ground. That is a misjudgment. EDF has other prospects in view, in China in particular, and the scale of those Chinese projects will far exceed anything that is on offer in Britain. Moreover, the company’s expenditure in Britain to date in connection with the prospective Hinkley C nuclear power station is no guarantee of their commitment.
According to an economist’s nostrum, bygones should be bygones, while according to an alternative version of the dictum, one should not throw good money after bad. The Government are therefore advised to have a properly conceived and well publicised plan—a plan B, as it is usually described—to meet the eventuality of a breakdown in the negotiations. There is a strong suspicion that the Government have a plan B, albeit a covert one, given that an influential faction within the Government appears to believe that Britain’s impending energy deficit can be overcome by a dash for gas that would rely on supplies of gas that could be magicked out of the ground beneath our feet.
We have been feeling the effects of the Government’s schizophrenic attitude throughout the debate in Committee on the Energy Bill. The schizophrenia is not unique to Britain but has been severely affecting Germany’s energy policy, which accounts for the fact that the German energy companies that originally intended to bid for nuclear contracts here have withdrawn, The nuclear schizophrenia has also made some inroads into the policies of the French Government.
In this country, we are already seeing strong opposition to the prospect of fracturing the ground in order to extract gas. The short-tem expedient of relying on natural gas to power our generating stations would be in utter contradiction to the avowed intention of decarbonising our energy supplies.
A further reason for the Government’s reliance on foreign utilities to realise their nuclear ambitions is the attenuated state of our nuclear industry. A recent report by the Science and Technology Committee of the House of Lords bore witness to this state of affairs. It recommended that drastic action should be taken to revive the industry and foster its research and development. The consequence of the report was flurry of activity that gave rise to a cluster of government reports centred on the so-called Beddington report that reviewed the civil nuclear research and development landscape in the UK.
Some of us have recently witnessed a resurgence in the optimism of the proponents of Britain’s nuclear industry. There is a strengthening feeling that the time is right for a nuclear renaissance. There are outstanding technical opportunities to be grasped for a generation of nuclear reactors that will succeed the reactors currently being built around the world.
Current reactors are conventional uranium reactors, mainly of the pressurised water variety, which follow the designs of the majority of the original civil reactors, albeit that nowadays they have greatly enhanced safety. There is, however, strengthening conviction that the succeeding reactors should take a new route that proceeds from a design that was realised in prototype form almost at the inception of the civil nuclear age. This is the thorium-based molten salt reactor. It has the signal advantage of using abundant fertile thorium fuel in place of fissile uranium fuel. In contrast to a uranium reactor, a thorium reactor will generate very little of the problematic wastes that afflict conventional reactors. It is also endowed with passive safety, which is to say that a malfunction leading to overheating the reactor would lead to its automatic shutdown. The reason why such a design was not adopted at the beginning of the nuclear age is that the reactor has one signal disadvantage which today is one of its major advantages —it fails to produce weapons-grade plutonium.
Now is not the occasion to describe the technology in detail. However, some Members of this House are very well apprised of the details. They constitute the All-Party Parliamentary Group on Thorium Energy, which is closely allied to the Weinberg Foundation. The foundation has a mission to expound the virtues of thorium technologies as well as to support nuclear technology and nuclear power in general. Those who are interested or curious should visit the websites of the APPG and of the Weinberg Foundation, which contain a wealth of information and are readily accessible.
There are other reactor designs we should also be considering, including fast breeder reactors. Notwithstanding some negative anti-nuclear propaganda that was aimed at them, fast breeders are eminently practical devices. The PRISM fast breeder reactor of the GE Hitachi company has been proposed to our Nuclear Decommissioning Authority as a way of profitably burning our stock of 120 tonnes of plutonium that resides at Sellafield. The authority has been given the task of recommending the best way to dispose of the stockpile, which was once regarded as a menace. Now it is being seen as a valuable nuclear resource which could power efficient and cost-effective ways of meeting our electricity demand.
Originally, it was proposed to bury the plutonium waste. Then it was thought that it could usefully be converted into a mixed oxide fuel for burning in conventional reactors. The emphasis appears to have shifted in favour of either the PRISM fast breeder as a means of burning the plutonium or the alternative Canadian CANDU reactor, which might be described as a slow breeder. It is because of this shift of emphasis, which implies a widening of the discretion of the NDA, that I believe that its original terms of reference, which were set out in the Energy Act 2004, need to be modified.
In 1954, the American physicist, Lewis Strauss, predicted that atomic energy would eventually make electricity “too cheap to meter”. That is the correct attribution of the quotation. He may have had in mind fast breeder reactors, which effectively create their own fuel, or he may have been thinking of power generation by hydrogen fusion. Either way, his vision, or something close to it, is still in prospect. We might therefore ask why, after the rapid progress at the start, the goal is still so distant. There are several answers to this question. One of them points to the nuclear phobia associated with nuclear weaponry, which has been exacerbated by nuclear accidents. However, the nuclear accident at Fukushima, which has created a major impediment, has little bearing on the question of the safety of a new generation of reactors.
There is also, in this country at least, the effects of a failure of the technological courage that once characterised the nation which we urgently need to recover. The effect of the demise of the scientific Civil Service has been experienced throughout the course of our deliberations in this Committee. The bright young people of DECC do not have the resources or the skills to deal competently with the complex matters that we have been considering. They have had to rely extensively on outside consultants. I hope that this will change in the near future. That is no criticism of them; it is a criticism of the circumstances in which they find themselves. I hope, too, that the injunction in my amendment that the Secretary of State should report to Parliament on an annual basis to give an account of his activities in relation to nuclear technology will provide some stimulus and will compel his to grapple with these issues.
I conclude by mentioning an article in the Engineer of 5 October 1956, the eve of the opening of the Calder Hall power station, Britain’s first nuclear power station. The article recounts that it took three and a half years from conception of the project to its realisation. This is the time that will have been spent in negotiations with EDF regarding the proposed Hinkley Point C reactor. The contrast with the snail’s pace at which we proceed nowadays is astonishing. The glory days of the Atomic Energy Research Establishment at Harwell and of the establishment at Sellafield—or Windscale, or whatever you care to call the place—are long since gone, but there is still an opportunity to recover some of the spirit of those times. I beg to move.
My Lords, I will briefly speak to this amendment. I declare an interest as a patron—unremunerated—of the Weinberg Foundation. I also helped to establish the all-party parliamentary group to which my noble friend Lord Hanworth referred. I will not wax lyrical about the benefits of thorium and closed-cycle breeder reactors because I think we are all getting a little tired now as we are very near the end, but I understand the sentiment behind this amendment. I am particularly interested in the latter part of it, which requires the Government to report on,
“any necessary changes to the legal remit of the NDA”.
The reason why I am interested in that is that we have an opportunity here, in considering what we do with our plutonium stocks, to mark a new era in nuclear fission. That shift from seeing the plutonium as a liability that is just costing us money—which it is at the moment, to be honest—to seeing it as an asset that can be exploited to generate low-carbon electricity is, I think, just upon us. Soon it will be there, but we are not quite there yet.
My fear is that there is, quite understandably, a high degree of conservatism—with a small C—in the industry. There is a tendency to stick with what you know and not to do anything risky or to look beyond your immediate priority. The NDA does an amazing job of managing the process of decommissioning our existing nuclear sites, and I just hope that, when it considers what to do next with the plutonium stocks, it will consider in the round and will not be encumbered by a preponderance of doing only what it knows best and sticking to what it has seen previously. If it does that, I fear that once again we will be building a very expensive MOX fabrication plant, for which there will be probably no known customers by the time it is built. Certainly, the PWRs that are being built by AREVA and EDF will not wish to take it. It is much better for them to use newly fabricated fuel while it is available. That will be the “do nothing”, “stick to the plan”, “keep going as we are” strategy.
I am delighted that, in addition to those, new ways of approaching this problem have now been put forward by different industry representatives. My noble friend Lord Hanworth mentioned the PRISM reactor, GE Hitachi’s breeder reactor and the CANDU reactor from Canada. There has been quite a lot in the media about the PRISM reactor, but much less about the CANDU reactor, which is potentially an excellent solution. CANDU reactors are very flexible, are a tried and tested technology developed over many years by the Canadians, and have a very big investment arm behind them. It is a very viable project. There you get the advantage of building not just a fuel disposition solution but a reactor to provide clean energy. Given the precarious—or perhaps protracted—negotiations with EDF over Hinkley, it is very clear that we need to have a plan B. If we just switch our frame of reference to consider the plutonium stocks as an asset and then exploit them to maximise the production of electricity and minimise the production of waste, it will point us to a novel solution that would open up great benefits to the UK. I hope that the department, in the advice that it gives to the NDA, will consider this in the round and consider whether we need, perhaps, to rethink the remit of the NDA.
In 2004, the picture for nuclear was very different. Things have changed and it might just be a good thing to think again about what the NDA is doing, how it relates to the broader thrust that the Bill introduces, and consider whether a slight tweak might mean that we get a really good outcome that opens up a great deal of potential for low-cost, safe and very low-waste nuclear energy, which I think is what we are all aiming for and the nuclear industry accepts we now have to deliver. We have had decades of public support for nuclear energy; it has had a period of contraction and might be seeing some return to growth. However, it will grow only if it can develop reactors that are inherently safe and therefore more cost-efficient, and for which the costs will not escalate and the building timetables will not overrun. They have to come in as cheap as the alternatives. That is a real challenge.
I am pleased that the noble Viscount, Lord Hanworth, has tabled the amendment. I am not sure that its wording is exactly correct, and I am sure that the Government will come back with some interesting comments on whether they will accept it. However, it would be great to hear some encouraging words about the future purpose of the NDA.
I welcome the amendment and the noble Viscount, Lord Hanworth, is to be congratulated on giving us an opportunity to debate this matter. In many respects, if in the nuclear industry we had been able to get things started at Hinkley right away, we probably would have been committed to different reactors from the ones that are now coming along as opportunities. There is therefore some virtue in a degree of delay in the process. However, both PRISM and CANDU have to go through the generic design assessment process, which could take up to 30 months although, in fairness to the regulators, they have suggested that they will try to accelerate that by using foreign experience and so on.
We are talking here about a nuclear programme of construction that will continue for probably 30 years. As someone once said in the context of school dances, “You rarely went home with the person you danced with first”. In this context, we may well find emerging technologies that provide us with opportunities. At the moment we have to be realistic about the fast breeder element in the technologies that have been spoken of this afternoon—they are somewhat limited. When I was chairing the Nuclear Industries Association, I had the opportunity to attend a conference in Paris that was meant to be a shop window for the French nuclear industry. I think that the French were a bit miffed when Japanese and South Korean companies came forward and spoke very confidently about their capacity to realise fast breeders in what will now probably be 15 years’ time. We did not go down the road of fusion today, which every schoolboy knows will be available in 35 years’ time; 35 years ago, they said it was going to be available in 35 years’ time. We therefore have to be a wee bit cautious about fast breeders, but we could be talking in terms of getting one in the United Kingdom perhaps 20 years from now, when we will probably still be building—
Perhaps I may interject. The truth of the matter is that we have already had a fast breeder in the UK that worked fairly well, in spite of rather diminished support. There were two fast breeders in France. There was Phénix and Superphénix. Phénix was very successful. There were some doubts about Superphénix, which had some engineering difficulties. However, its primary difficulty was, of course, political. I will reassert what I said previously, which is that fast breeders constitute an eminently practical technology. They are not 15 years away, but are as far away as it would take to ratify and certify them.
It is no longer for political reasons. Proliferation arguments have been set aside for a long time. The Koreans would not be knocking their socks off to try and do this if there was a technology they thought was good enough lying there untouched.
We have to be realistic. There is no question that I am an enthusiast for nuclear power but I also live on planet Earth. This planet is governed by rules of economics which the noble Viscount probably knows more about than I do. These technologies are, to a large extent, not proven in a commercial context for the generation of electricity. There are arguments about whether or not you should be using plutonium and how it can be dealt with. These are understandable but they are yesterday’s arguments. Today’s concern is producing reactors which can do the job at a reasonable price, efficiently and safely. At the moment, these criteria have not been met. If they had, the Japanese and Koreans would have the full-blown fast breeder on the table.
We know that there have been these things. There is a case for thorium but, as I understand it, the reactor in India produces 40 megawatts of power at the moment and it has quite a way to go. Some years ago I was fortunate to host a conference when a group of Indian technologists came over and described their work. It was fascinating but it was still small scale: I could compare it to carbon capture and storage. An enthusiast will tell me that somewhere in the world there is carbon capture and storage on a big scale but nobody has yet been able to find a way of developing it in an economically efficient manner.
Within 10 to 15 years we will probably have this kind of thing. Is Britain in a position to either contribute to this process or properly benefit from it? This is where the Science and Technology Committee report was highly critical of Government for not taking this seriously enough, over a number of years; this was not a coalition-specific charge. The previous Government, when they woke up to the requirement to embrace nuclear, understandably did a number of commendable things in terms of training and widening the opportunities for nuclear to be part of university engineering qualifications. Something like 13 university courses across the UK offer that, which is an achievement which is down to both Governments’ active encouragement. However, we still have a long way to go. We have a national laboratory at Sellafield which is not getting the funding it merits. This was the view of the Science and Technology Committee. Professor MacKay, the scientific adviser to DECC, who was before the committee last week but we have yet to get Michael Fallon, the Minister responsible, who will come before us after the recess.
Without getting too specific or hung up on particular technologies within the nuclear framework, it is essential that if we are going to take advantage of the new technologies as they come through we have got to have trained, capable people to do that. At the moment, I am not certain that the Government are giving it the highest priority and that is what this debate should be about. We could go through the specifics of Select Committee reports but that is not productive. If we are going to have this technology it is not a once-and-for-all thing. It is not like combined cycle gas plants which just need a little tweaking here and there. There are possibilities for bigger changes but, in order to invest in the right and most appropriate one, we must have a skilled labour force and institutions and research establishments capable of dealing with that. As someone hinted, we need to have an open-mindedness in the industry which, at times, it does not have—because they are very much companies wedded to particular technologies, as EDF is. It is just unfortunate in some respects that the company that is first to the starting line is the one that in the European context uses the least reliable technology in terms of construction, and probably the most expensive to run. If we get a strike price, as we will eventually, it will have to be set in such a way that it does not provide the more efficient and perhaps cheaper technologies with a chequebook to make fabulous amounts of money out of. I realise that that is the predicament that the Government have, but we must not just keep saying, “We don’t have a UK capability—we’re dependent on foreign countries”. The technical changes that will come through in the medium term will be such that it would be a tragedy if we repeated the failure of the 1980s, the 1990s and the noughties in terms of getting the proper people and technical capabilities.
We do make reactors in the United Kingdom; we make them for our nuclear submarines, and they are made by Rolls Royce. If a proper programme was developed, one would imagine that Rolls Royce would be interested in getting into the new generation of nuclear technologies. There are companies within the United Kingdom that have the capability to take advantage of this, but they need encouragement from government more than anybody else.
On the question of what the UK can contribute, the noble Lord is absolutely right that Rolls Royce is already involved here in reactor design and manufacture. That company is sponsoring a student in the Dalton Research Institute in Manchester, looking at a small modular reactor based on a thorium fuel cycle; it is looking at different reactor designs, including molten salts. So it is here. One example of how a small amount of money can have a big effect is the $10 million grant given by the Department of Energy in America to a number of universities, plus the Oak Ridge National Laboratory, to look at molten salt-cooled pebble-bed reactors. That funding programme enabled them to leverage into the Chinese nuclear reactor research programme, such that the Chinese changed direction and are now collaborating in work on a molten salt-cooled pebble-bed reactor using thorium. I use that as an illustration that you do not have to build everything yourself and spend hundreds of millions; you can have a highly leveraged impact if you are smart about your R&D choices and build on your existing strengths.
One great thing about the all-party parliamentary group has been exposure to an increasing number of scientists in the UK who are working on thorium and molten salts—and in combination. It is true that Sellafield and the National Nuclear Laboratory, by being commercial, have to go out and seek funding from the existing incumbents in the market. Therefore, they do not have the luxury of being able to horizon scan or think slightly more outside the box, because they are continually looking for funding. If more funding were provided by government and we had a genuine R&D for nuclear fusion strategy, the NNL would be an absolute asset in this search for the most sustainable forms of nuclear power. They are the ones working with Thor Energy, fabricating solid fuel thorium rods today that are being tested in the Halden reactor. So there is plenty to be very proud of and to build on in the UK.
My Lords, Amendment 55F from the noble Viscount, Lord Hanworth, provides me with an opportunity to outline what the Government are already doing to better co-ordinate and develop research and development in nuclear technology.
The Government welcomed the Science and Technology Committee’s excellent 2011 report on Nuclear Research and Development Capabilities in the UK, and in responding to it we committed to undertake a programme of work designed in the simplest terms to assess where the UK was in terms of nuclear R&D, where we and the industry believe the sector could be by 2050, and how to get there. The work under this programme completed around the beginning of this year and went on to form the basis for the development of the nuclear industrial strategy. The strategy was published alongside the outputs from our R&D work in March.
This package of work highlights how essential research and development will remain in ensuring that nuclear power can play its role in the current and future energy mix while allowing us to continue to deal safely and securely with the legacy of our nuclear past. The strategy was clear that the co-ordination and development of nuclear R&D needs to be taken forward in collaboration between industry, academia and public bodies. In doing so, we aim to maximise the use of public and private resources and provide a level of harmonisation between industry’s commercial aspirations and maintaining energy options for the UK’s future growth. As such, we believe that it is unnecessary and even counterproductive to put a legislative requirement on the Government part of this larger collaboration when we have already committed to moving forward together. We recognise that while R&D on advanced fission technologies and alternative fuel cycles is important, it is just part of the wider whole that includes essential work on decommissioning and long-term waste management.
On the management of the UK’s plutonium stockpile, all the options being considered involve the spending of public money, and a key driver will be ensuring best value for taxpayers. Following a public consultation on long-term plutonium management, the Government have concluded that for nuclear security reasons the preferred policy for managing the vast majority of UK civil separated plutonium is reuse, and that plutonium should be converted to mixed oxide fuel for use in civil nuclear reactors. The Government’s expectation is that at current uranium prices the value of the fuel generated will be significantly less than the cost of its manufacture; in other words, for the foreseeable future, the manufacture of MOX is primarily a route for consuming plutonium stocks rather than a commercial operation in its own right. However, the Government remain open to any alternative proposals that offer better value to the taxpayer, and the Nuclear Decommissioning Authority continues to work on an assessment of both the CANDU and PRISM technologies, the use of either of which would involve the use of advanced reactors and new fuel forms.
I turn now to the reporting requirement to Parliament that is set out in the amendment. The nuclear industrial strategy sets out our intention to create a co-ordination structure across the UK nuclear R&D landscape, including the formation of the Nuclear Innovation and Research Advisory Board with its own expert secretariat. We envisage that this body will be in place by the end of the year. Part of its remit will be to provide publicly available progress reports about the strategy and the pathways in the road map, and comment on any divergence from these. This will provide an independent report that will be available to Ministers, the public and Parliament, which will be wider ranging and more detailed than what is proposed in the amendment.
I shall touch on a couple of points raised by the noble Baroness, Lady Worthington, on the remit of the Nuclear Decommissioning Authority. We believe that it plays an essential role in ensuring that the historic civil nuclear legacy sites are decommissioned safely, securely, cost-effectively and in ways that protect the environment. As we set out in the Government response to the committee’s report, we would have serious concerns about changing the authority’s remit or reallocating essential resources from it because we do not want to dilute its ability to focus on this critical mission. It is also worth noting that over the past five years, the NDA estate has itself contributed more than £544 million to R&D activities, with an annual spend of between 3% and 5% of its overall budget.
The noble Lord, Lord O’Neill, and the noble Viscount, Lord Hanworth, both asked why we are not using fast breeder reactors in the UK, and I think that the noble Viscount said that we had already done so. Dounreay used fast breeder reactors, but we found them to be commercially not viable. It was generating less than 50% at the time and was also a prototype, so there was some reasoning behind that decision.
I hope that I am able to reassure the noble Viscount, Lord Hanworth, that the Government are taking the issue of nuclear research and development very seriously and are working in partnership with experts from a variety of sectors. On that basis, I hope that the noble Viscount will withdraw his amendment.
Before the Minister sits down, I have a question about one key phrase that was used. The noble Baroness talked about value for taxpayers. However, I was trying to communicate that the Bill will introduce considerable extra costs for consumers. What I am trying to get at is that taxpayers and consumers are one and the same—we are all taxpayers and all consumers of electricity. If you focus purely on the disposition of plutonium as something completely separate that the public purse has to fund, and argue that we just spend money on what costs the least, you are missing the bigger picture. As a citizen, I am both a consumer and a taxpayer, and will be paying for nuclear projects as a consumer. I would like to see a coherent strategy that says, “Here is a solution that gives two outcomes. We get rid of plutonium and we have low-cost electricity, which saves consumers money”. I just want to test that.
Absolutely—as I alluded to earlier, we are looking at proposals from both CANDU and PRISM. We have not put them to one side but are looking at them seriously. In the bigger context, it has to be about value for money as well as doing all the things that the noble Baroness and I would want to see.
I am distressed by the inertia, the lack of vision and the dilatoriness of the Government and particularly of those agencies of government that have to deal with our technological future. I feel sure that we will come back to these questions time and again and will do so until we get some satisfaction. That may be a long time coming but in the mean time I will, of course, withdraw my amendment.
Amendment 55F withdrawn.
Clauses 137 and 138 agreed.
Clause 139: Financial provisions
55G: Clause 139, page 107, line 41, leave out paragraph (c) and insert—
“(c) the establishment and operation of an Expert Advisory Panel to advise on the exercise by the Secretary of State of powers relating to CFDs, Investment Contracts or Capacity payments made under Part 2 of this Act.”
My Lords, we really are at the end now. I shall try to be brief but make no apology about turning to a subject that affects the deliverability and credibility of the entire Bill. When we had a discussion on the establishment of an expert committee, the Minister referred me to the clause to which this amendment applies. Clause 139(2)(c) provides for resources to be raised for the employment of advice. I have no objection to that, but ad hoc advice, as we said the other day, is not sufficient for delivering such a complex project. We are now horribly aware of that, having been through nine days in Committee. Apart from a few serious experts in DECC and possibly Ofgem, a few very sharp lawyers sitting in the big six and other interested parties that may be on the other side of these deals, we probably know as much as is likely to be known at this stage about the nature and process of the contracts, the difference in the process of investment contracts and to a lesser extent, given that a lot still is fairly obscure, about capacity mechanisms.
The public know nothing, the potential participants know nothing and consumers know nothing. DECC, the counterparty and Ofgem will face a complex process. They will have to deal with extraordinarily complicated and novel arrangements that do not reproduce anything extant anywhere in the rest of the world when it comes to electricity supply. They will be dealing with companies who are very sophisticated, who employ the very best advice and who, necessarily and rightly, are looking for a deal which will profit them as well as helping the long-term future of our energy security.
Delivering what is in the Bill, even though it is not that thick a Bill, will be an extremely complex process. Parliament and the public would expect departments and others representing the Government and the public in this process to have very solid advice. Some of that can be dealt with on an ad hoc basis, contract by contract and aspect by aspect. However, as was made clear in a previous debate, you need an institutionalised body which is clearly publicly known and respected, consisting of people with deep experience of the legal, financial, technological and economic issues which it is tackling. Above all, you need consistency. You need corporate memory and a body to oversee the individual officials and Ministers who, whether we like it or not, are not there for ever. They are often there only for a few months or years and cannot take full responsibility for negotiating these contracts.
The expert panel is an advisory panel, but it is an important strengthening of the whole process. I do not expect the Minister to change her mind today, but unless the Government recognise that they need something like this—they may want to call it something else—the deliverability of this whole process, on which so much depends, will look extremely shaky. I therefore hope that the Government will at least take on board that they ought to look at this concept again. I beg to move.
My Lords, I very much oppose the amendment, which seems unnecessary. A great deal of advice is available and it is not necessary to have yet another committee. A committee has been proposed with a different role, which seems to me to have a much more sensible and wider view. That was in an earlier amendment—which has been withdrawn but which I have no doubt will come back—proposed by the former chairman of Shell UK, the noble Lord, Lord Oxburgh. That seems to be a much better proposal than this one. It is not necessary to shove this in at this point. The Secretary of State will have at his behest a whole range of people on whose advice he can rely. This gives him permission to do that, and although I am all in favour of giving him that permission, I do not want him to have yet another committee. I think that this is the wrong way to do it and I very much hope that my noble friend will resist the amendment. I rather suspect that she will, and it is always a pleasure to end such an afternoon, now almost evening, by entirely supporting my noble friend.
I am extremely grateful to my noble friend. I thank the noble Lord, Lord Whitty, for his amendment, which would set up an expert panel to advise the Secretary of State on the exercise of his powers relating to CFDs, investment contracts and capacity payments. I reassure the noble Lord that we are working hard to ensure that the process through which final contracts for difference and strike prices are set is transparent, robust and informed by a full range of expert input. The consultation on the draft delivery plan, as well as workshops and events with stakeholders, will allow industry, consumer groups and all other stakeholders to scrutinise the figures, and the evidence used to develop them, and provide us with feedback to inform the final plan.
Prior to the consultation, the draft strike prices were also informed by two pieces of independent advice: the analysis provided by National Grid, which helped the Secretary of State understand the potential impacts that different strike prices could have on the Government’s objectives and, of course, the independent scrutiny of that analysis by the panel of technical experts. Both these reports were published alongside the draft EMR delivery plan and copies have been deposited in the Libraries of both Houses. The panel of technical experts in particular, which consists of experts in relevant areas such as economics and generation costs, was appointed through an open competition. It is impartial and independent of any particular viewpoints. I do not therefore think that we need to create another expert advisory panel. We have used existing powers to appoint the current interim panel of technical experts and, following Royal Assent, we intend to establish an ad hoc advisory group. Clause 139(2)(c) provides the spending authorisation to support this work.
We will use the strike prices published in the final delivery plan to set strike prices for investment contracts for renewable technologies. As such, they will be informed by the analytical process and independent panel that I have described. For investment contracts that are bilaterally negotiated, specialist advice will be sought as appropriate and there will be rigorous scrutiny of proposals. For example, the Government have appointed technical and financial specialists to scrutinise a developer’s plans and proposals. We will publish summaries of reports from these advisers and a value-for-money appraisal in the event that agreement is reached alongside the contract when it is laid before Parliament.
Let me reassure the Committee that the Government have listened to concerns of Parliament. Similar concerns to those being raised now were voiced in the other place, and that is why we made amendments to this Bill in response. We removed the discretion of the Secretary of State to withhold information when publishing an investment contract, beyond what was explicitly agreed as confidential in the contract negotiations. For information agreed as confidential and thus withheld, we have committed to publishing a description of that information and the reasons for doing so. In relation to EMR more widely, we introduced a statutory reporting duty at Clause 5(4) which requires an annual report on how the Secretary of State has exercised his functions under Part 2.
In relation to scrutiny of contract terms, I agree that this needs to take place but believe that it would be better done by industry and consumer groups at large. This is why, over the past year, we have been working with an expert group consisting of industry and consumer group representatives in the development of key terms. We will also shortly be publishing the CFD contract spine, which builds on the draft contract terms published alongside the operational framework in November 2012. This will allow industry and other stakeholders to examine the terms of the contract and discuss them further with my officials. Because investment contracts for renewables will be based on the final standard form CFD, they will benefit from the same scrutiny that I have set out.
I therefore hope that the noble Lord is reassured that the Government are listening to the concerns of Parliament and have taken steps to ensure adequate scrutiny and consultation. On that basis, I hope that he will withdraw his amendment.
My Lords, I think that we are near the end and, clearly, I am going to withdraw the amendment. However, I am both disappointed and unreassured. I say to the Minister and the noble Lord, Lord Deben, that the body proposed in the amendment has a very different and more precise role than the one proposed by the noble Lord, Lord Oxburgh, which we can argue for in a different context.
The Minister is effectively saying, “We have all these technical experts; we’ve got an ad hoc panel; we are going to have another body involving industry and consumers; and we are going to have another ad hoc technological panel, once the legislation is passed”. It is obviously reassuring to some extent that the department is getting all this advice, but why not make it clear that we have a body of real expertise to oversee this gigantic exercise of changing the whole way in which we deliver our energy—a body that is to some extent institutionalised and recognised by Parliament? I think future Ministers will regret not having that body to support them. I hope I am wrong, but I think it would give Ministers sharpness of advice in the process and protection after it. I regret to say that I think the Minister’s successors may well regret her dismissal of this amendment today. With that, and with a happy summer to everybody and my thanks to the Minister and her department for all the help she has given us, I beg leave to withdraw what I think is the final amendment to be debated.
Amendment 55G withdrawn.
Clause 139 agreed.
Clause 140: Extent
Amendments 56 and 56A
56: Clause 140, page 108, line 20, at end insert—
“( ) Part 1 (decarbonisation);”
56A: Clause 140, page 108, line 30, at end insert—
“( ) Section (Fuel poverty) extends to England and Wales only.”
Amendments 56 and 56A agreed.
Clause 140, as amended, agreed.
Clause 141: Commencement
Amendments 57 and 58
57: Clause 141, page 109, line 18, at end insert—
“( ) section (Feed-in tariffs: increase in maximum capacity of plant) (feed-in tariffs: increase in maximum capacity of plant);”
58: Clause 141, page 109, line 18, at end insert—
“( ) section (Fuel poverty) (fuel poverty);”
Amendments 57 and 58 agreed.
Clause 141, as amended, agreed.
Clause 142 agreed.
Bill reported with amendments.
My Lords, this concludes the Committee’s proceedings on the Bill, but before I let noble Lords go, I, on behalf of all Deputy Chairmen who have served this Committee over a very long period—and noble Lords feel it more than I do—wish noble Lords a very happy Recess.
My Lords, I shall take just one or two more minutes of the Committee’s time to put on record my thanks to all chairs of the Committee’s proceedings. I also thank those who have worked behind the scenes: the clerks, Hansard, the doorkeepers and, of course, my very efficient officials from DECC, the Ministry of Defence, the Department for Communities and Local Government and the Department for Environment, Food and Rural Affairs who have been here to support the Government throughout our debates. I also thank all noble Lords who have participated in the Committee for the way in which we have conducted proceedings. We have had a good and thorough debate and have scrutinised the Bill in full. I particularly welcomed the spirit of collaboration that has been adopted with the aim of improving the Bill. We have been in broad agreement on the main objectives, and noble Lords have made some helpful suggestions for further improvement which the Government will consider very carefully. I wish all noble Lords a very happy Recess, and I reassure them that I will be working with officials during the Summer Recess to try to get all the information they require to them before Report stage.
Committee adjourned at 3.54 pm.