Report (2nd Day)
Relevant documents: 5th, 6th, 9th and 11th Reports from the Delegated Powers Committee.
Clause 43: Power to modify licence conditions etc: market participation and liquidity
59A: Clause 43, page 27, line 18, leave out “may” and insert “shall”
My Lords, the purpose of this amendment, in my name and that of my noble friend Lord Hanworth, is to require the Secretary of State, in dealing with the modifications to the licence conditions, to include in Clause 43(3)(b),
“provision imposing restrictions on the sale or purchase of electricity to or from group undertakings”.
This is an attempt to persuade the Minister, when she responds, to go a little further than she did in Committee last Monday when she said:
“There is no clear evidence that the divestment of retail businesses will increase competition or lower consumer prices”.—[Official Report, 28/10/13; col. 1386.]
I think that there is probably quite a lot of evidence, but we now have the opportunity to test this because, among many statements by the Prime Minister and the Secretary of State for Energy last week, Ed Davey said that they would introduce annual reviews of the state of competition in the energy markets and that the first of these new competition assessments will be delivered by spring of next year. He went on to say:
“The assessment will be undertaken by Ofgem, working closely with the Office of Fair Trading and the Competition and Markets Authority, when it comes into being”.—[Official Report, Commons, 31/10/13; cols. 1095-96.]
Those organisations, separately and together, are probably some of the best experts on competition issues we have in this country. It would be logical and right for them to include within certainly the first annual review a comment about separation. There has been an awful lot of talk about competition, which appears rightly to boil down to considering whether there is competition among those from whom you buy your electricity. However, the issue of competition at the other end and separating the generators from the retail end is just as important. I therefore wish to persuade the Minister to agree that the issue of separation within the assessment of competition that has been announced—and is very much to be welcomed—should be included. I beg to move.
My Lords, I wish to speak to Amendment 61A in my name and that of my esteemed colleague, my noble friend Lord Berkeley. According to common testimony, the Bill is an extremely complex affair. It seems to have been designed by lawyers and parliamentary draftsmen to render politicians incompetent to assess its intentions and to predict its likely effects. There is a suspicion that the Government are not fully in control of this juggernaut.
Our anxieties in this respect are particularly acute in connection with the provision of a so-called route to market. Such a route should enable the independent generators to survive what seems to be the clear intention of the big six energy companies to squeeze them out of the market. The independent generators are important because they represent the germ from which a genuinely competitive energy market could develop. They are also important because they could be expected in ideal circumstances to provide a large proportion of the investment in renewable energy generation. Some of the Government’s documents recognise this potential. They imagine the proportion of new investment in renewables attributable to independent generators being between 30% and 50% of the total.
Amendment 61A reflects our knowledge that small generators are presently constrained to sell their output to the oligopolistic suppliers at a very heavy discount. A long-term power purchasing agreement costs the independent generators approximately between 10% and 17% of their net revenue, whereas in Nord Pool, which is the multinational Scandinavian exchange for trading energy, the equivalent cost is between 2% and 6%.
There has been recent evidence that some in the Government are becoming aware of the dysfunction in the energy market and the fact that, notwithstanding their ideological presuppositions, a free-market environment cannot be relied upon to engender competition. Indeed, the Secretary of State for Energy and Climate Change, Ed Davey, said last week in a Statement made to both Houses that he intended to,
“consult on the introduction of criminal sanctions for anyone found manipulating energy markets and harming the consumer interest”.—[Official Report, Commons, 31/10/13; col. 1096.]
One doubts whether this sound and fury has any practical significance. The Government seem to lack the leverage and will to intervene effectively in the markets.
The Labour Party takes a more positive approach. It promises to break the vertical integration of the energy oligopolists by separating the generators from the suppliers. The intention is to require energy companies to conduct all trades in a competitive manner on an open exchange. My proposal has been for a state-sponsored electricity and marketing board that would purchase its supplies from independent generators. It would aggregate them and sell them in competition with the supplies of the big six energy companies. In my opinion, the participation of the state would be the most effective way of introducing genuine competition into the energy market.
My Lords, when an amendment of this character came up in Committee, I pointed out that we were talking about an amendment that would take us back to some of the original ideas that were circulating at the time of energy privatisation—you might say at the time just before liberalisation, because the two did not happen with quite the speed that one would have wished. I do not think much attention was paid to that point, but initially, we had a system in the UK where we had massive generators responsible for nuclear and the Central Electricity Generating Board. We also had regional electricity companies which could generate no more than 15% of their requirements.
Due to the attractiveness of the liberalisation process to some foreign energy companies, many of them in North America, we saw the acquisition of a number of the regional electricity companies by American companies. Thereafter, we began to see the merging of some of these regional electricity companies, and we boiled it down to what you might call the “big four”. Two of the companies had always been vertically integrated—that is to say, the two Scottish companies which at that time were Scottish Hydro and ScottishPower. By a process of merger acquisition, we had the vertical integration of the companies.
This was not what was intended by some of the ideologues who were the original authors of the liberalisation and privatisation programme. They wanted a system which would be akin, in generating terms, to something along the constitutional arrangements of pre-Cavour Italy. It would have had a catastrophic effect if it had been allowed to happen; a number of city states generating electricity in bits and pieces over the country, much as we had with gas and electricity prior to the Labour nationalisation in the 1940s.
It is fortunate that we did not have that, but what concerns me is that if we are going to have generators of a relatively small kind coming in—windmills attached to the national grid and water mills here and there—they are not going to change the character of the market to any great extent. We could have a situation similar to that in North America, where there are companies still considering the construction of nuclear power stations. In some instances, those stations cost twice the capitalised value of the companies that want to build them, so they have to look for partners across the world.
While these two amendments are well intentioned, I do not think that they will do very much in terms of promoting competition. My feeling is that if we are going to have the promotion of competition and the protection of the consumer from oligopolistic malpractice, we have to have a system of regulation which is capable of addressing that. These amendments go no real way to doing that. Quite frankly, I think they are something for another Bill. That is one of the reasons why I am supporting my party’s proposition that we spend 20 months after the next Labour victory putting through effective legislation which will change the regulatory framework, and may well result in a degree of reduction in the vertical integration process.
It is a problem; I do not deny that. However, we have to recognise that if we simply try to create opportunities for small players to become involved, we are not necessarily going to challenge the oligopolistic power of the big players. To challenge the purchasing power of the big four, big six or big seven if you were to include First Utility which, as I understand it, do not presently do any generating, we need far more in the way of regulatory conditions that would work. At the moment, I am not confident that these amendments can do that.
It is useful that, even at this late stage, we have probing amendments, but I find it very difficult and rather embarrassing that colleagues on my side of the House are supporting some of the random writings of the Austrian school of discredited economics that landed us with a great many of the problems that we are now confronting. I would like to think that my noble friend will withdraw his amendment. At the same time, something needs to be done but I do not think that the terms of the Bill and what we are trying to do at present makes the amendment appropriate. It is one thing for us to try to change the electricity market; it is quite another, at this stage, to try to change the structure of electricity generating and the integrated nature of our electricity industry.
Therefore, this is not the time for an amendment of this character. It needs to be better thought out and a lot more care and attention needs to be paid to the significant point which was the undoing of the Austrians in the recent past—that through a process of merger and acquisition you can easily change the nature of the industry. It could be argued that the Major and early Blair Governments did nothing about that process of acquisition and merging. However, unless we had changes on that side of the legislation as well, we could simply encourage the end of vertical integration and then see a process of merger and acquisition. That would take us back to where we are at present, which I do not think anyone would find a particularly satisfactory situation.
My Lords, I am grateful to my noble friend for tabling these amendments but, although we are sympathetic to their intent, it is fair to say that we would take a different approach.
This part of the Bill, which introduces measures to try to protect independent generators, is a clear indication that there is something very wrong with our electricity market. It is another layer of complexity that the Bill introduces to the market, and it is needed because we have probably all had considerable representation from independent generators saying that they are simply not able to gain access to the market on fair terms. That is very regrettable and a clear sign that something major needs to take place in the shake-up of the electricity market. Unfortunately, the Bill does not do that and was never intended to, and I am inclined to agree with my noble friend Lord O’Neill that another Bill would be needed to sort this out.
As I said, this is an extra complexity, and my general rule of thumb is that increased complexity equals decreased efficiency. I am sorry that we have had to enter into this market with new provisions to enable independent generators to gain access. All electricity ought to be sold into an open and transparent pool or market so that everyone has a fair crack at the whip and ultimately everybody can gain fair access to customers through supply companies. I fear that these amendments, although welcome, are something of a sticking plaster and would not really get to the root of the problem.
The Labour Party has made it very clear that our solution to this is to split up the vertical integration of the big six and to introduce a new regulator with real teeth, focusing squarely on the consumer and delivering better competition in all aspects of the electricity market. The amendments go some way towards achieving that but I do not think that they do enough, so I am afraid that, although we are sympathetic, we are not able to support them.
My Lords, I thank noble Lords for the debate on the amendments and I shall speak to them after I have spoken to my own amendments in this group. The amendments standing in my name pertain to powers that enable the establishment of a power purchase agreement scheme, which could provide generators with access to an offtaker of last resort. The offtaker of last resort mechanism will benefit both independent renewable generators and investors by providing a guaranteed backstop route to market through which generators can sell their power. This will enable generators to use new and different routes to market, ending their dependency on established players and stimulating new entry and innovation in the PPA market.
The amendments I am speaking to today address specific concerns raised in Committee that the price at which electricity is purchased in PPAs under the scheme should be determined by reference to the current market price. Amendment 61 clarifies that a PPA under the scheme is an arrangement under which a supplier agrees to purchase electricity,
“at a discount to a prevailing market price”.
This amendment confirms our policy intent that the offtaker of last resort mechanism is exactly that: a last resort. Electricity purchased through the PPAs under the scheme must be purchased at a discount to a market price. This will give confidence to suppliers that they will not be required to purchase electricity at above-market prices. I assure the House that it is the Government’s intention that the level of discount should also represent a sufficient level of revenue to enable generators to raise finance. The discount level will form a key part of our consultation in early 2014.
Amendment 63 enables the Secretary of State to make provision in licence or code modifications to determine the appropriate discount and market price for PPAs under the scheme. I believe that these amendments clarify our policy intentions.
Amendment 61A, tabled by the noble Lord, Lord Berkeley, and the noble Viscount, Lord Hanworth, would mean that a PPA under the scheme is an arrangement under which a supplier agrees to purchase electricity at a discount to the market price and that the discount is no more than 5%. It is important that the discount is large enough to ensure that PPAs under the scheme are a last resort. The requirement for the discount to be no larger than 5% is not compatible with that; given that open-market PPAs typically have larger discounts, the scheme would quickly become a first, rather than last, resort. This would undermine new entrants to the PPA market and mean that anticipated benefits of the scheme in terms of facilitating a more dynamic and competitive PPA market would not materialise.
On Amendment 59A, I begin by stating my strong, and, I believe, shared desire to see ambitious action to improve wholesale market liquidity, which is crucial to allow independent generators and suppliers to compete without restriction. That is what Ofgem is doing through its ambitious package of reforms to address low levels of liquidity in the market, and what this Government will do should Ofgem’s reforms be delayed or frustrated. If it proves necessary for the Government to act, they should consider all options to achieve their objectives, including those listed in Clause 43. However, it would not be prudent to tie our hands to a particular course of action at this stage.
I hope that noble Lords have found my explanations reassuring and that the noble Lord will agree to withdraw his amendment.
My Lords, I am grateful to all noble Lords who have spoken—some in support, some less so. We have had a very good debate. I think we all agree that this issue is not going to go away. We probably will need to see whether there is new legislation after the Labour Party wins the next election, or whether the annual review from the competition people will result in a recommendation. I beg leave to withdraw the amendment.
Amendment 59A withdrawn.
60: Clause 44, page 28, line 6, at end insert “; and the Secretary of State must exercise that power and the power to make regulations under section 45 so as to ensure that a power purchase agreement scheme begins to operate no later than the time at which the first CFD is awarded”
My Lords, in moving this amendment in my name and that of my noble friend Lord Jenkin of Roding, I will speak also to Amendment 62, which is in my name and that of the noble Baroness, Lady Liddell, and to Amendment 64, which is in my name and that of the noble Lords, Lord Jenkin of Roding and Lord Cameron, and the noble Baroness, Lady Liddell.
We have already begun to discuss the issue of the independent generators, whose success is extremely important if we are to have a significant increase in the amount of new generation in renewables; perhaps 35% to 50% of what we need will have to come from independent generators. Therefore, a viable route to market for these generators, in what is not a particularly satisfactory market, is important. The need to break into the current dependency of the independent generators on the big six is obviously important. That is why we had discussions both in the Commons and in Grand Committee on the need to find an appropriate solution. The Government tabled an amendment, which is now Clause 44, to enable the creation of what is referred to as an offtaker of last resort. Curiously, the words “offtaker of last resort” never appear anywhere in the legislation, which is a little confusing to say the least, but that is what we are talking about.
This is particularly important, but it is not totally clear what the effectiveness of the provisions put forward in Clause 44 will be, particularly in light of the wording of the letter that the noble Baroness, Lady Verma, wrote to the noble Baroness, Lady Worthington, and copied to other noble Lords on 22 July, which was rather cautiously hedged as to how far there was a commitment. The reference was that there would be implementation only “if necessary”. The amendment, and the clause now before us, give only a power to the Minister, not a duty. One of the things that we need to do, and which these amendments attempt to do, is to ensure that it is clear that there will be an offtaker of last resort.
I am aware that there will be a consultation in the first part of next year and that the Minister may therefore feel limited as to how far she can go in responding about the nature of such an offtaker of last resort. However, it is essential that before the Bill leaves this House we are clear that the consultation is not about whether or not there will be an offtaker of last resort but of how that offtaker of last resort will operate. That is perfectly legitimate. Unless it is clear that there is to be an offtaker of last resort, the independent generators will not have a bankable proposition that they can discuss with their financiers to get the necessary finance for the new projects that we all believe are so important. Therefore, I hope that we can have some assurance about that matter before we conclude our discussions in this House.
I have raised this matter in the past with the Minister and it is covered by Amendment 60: it is important that these arrangements should be operational in time for the allocation of the first contracts for difference in 2014 and operate for the duration of those contracts. Otherwise, the independent generators would find it difficult to get the financial resources to get bids in those allocations. It is therefore a reassurance to their investors that independent generators will be able, if necessary, to sell their electricity and cover their debt and equity from the outset of the new regime. Until the OLR is operational, the contracts for difference will not be of such value for the independent generators. It is therefore important that we have some assurance that the OLR arrangements as discussed in Clause 44 are clearly defined in time for the first allocation of contracts for difference.
There are two other matters, one of which has already been touched on. The one that has not is covered by Amendment 62 in my name and that of the noble Baroness, Lady Liddell: if you are going to have such an emergency system, it has to be something that can operate quickly, avoiding a long period of negotiation, if you need to turn to it because there is a problem. There must be some assurance from the Government that they will be available quickly when they need to be. I hope for an assurance on that matter as well
The final point has already been discussed to some extent under the last group of amendments. It is the level of discount at which the offtaker of last resort would be able to provide his PPAs. The discount should be fixed at a viable level for the duration of the contract for difference. To make the arrangement bankable for investors and for the generators to negotiate with investors, there should be a fixed discount off the strike price or the market reference price, set at a point where independent generators can determine the impact on their cash flows and how much debt they are able to raise to fund a particular project.
As has been said before, to reassure investors in these essential projects of the independent generators, there is a need for a commitment from the Government to viable and workable solutions that meet the points that I have raised. That is essential if we are to step forward on the arrangements that we have discussed under contracts for difference. I beg to move.
My noble friend Lord Roper has spelt out very clearly the purpose that lies behind this group of amendments. The Government have allowed themselves to get into some difficulty on this. A very good point that may have been made during the discussion of the previous group of amendments concerns a feeling on the part of the independent generators that, although they welcome the addition of four clauses to provide for these power purchase agreements that represent the offtake of last resort, there is considerable scepticism within the industry as to whether they are actually going to be operated. As I mentioned at some length a week ago when I moved the amendment about more competition in the industry, there is a feeling that the oligopoly of the big six larger operators—they account for 92% of the electricity supply to domestic and commercial users in this country—is not going to allow this to work.
Some of the reactions from Ministers have to some extent been contradictory. This is what creates the uncertainty, and in some quarters a degree of scepticism, about whether this is in fact intended. In private, my noble friend’s ministerial colleague, my right honourable friend the Minister for Energy Michael Fallon, was reported as saying:
“I confirm that we intend to have the OLR mechanism in place around the time that the first CfDs are allocated, and Baroness Verma will also confirm this at an appropriate opportunity during the Energy Bill’s passage”.
We have not had that yet. These matters were discussed briefly at Second Reading. More importantly, there were some considerable debates in Grand Committee. Any statement of that kind was conspicuous by its absence. As my noble friend Lord Roper said a few moments ago, before the Bill leaves this House we must have a clear statement from my noble friend that that will happen. As he said in the previous debate, this is not just something to be enabled as a last resort; it has to be seen as an integral part of the new system. That is how it was presented but not how it has actually been drafted. The reluctance of Ministers to say on the Floor of the House what they have said privately to the industry is, quite frankly, disturbing.
It is not the first time we have seen that. Last Monday, I moved an amendment about competition in the capacity mechanism system that is being introduced, which my noble friend was quite firm in resisting. She has since written a letter saying that she is prepared to go on negotiating with the independent generators concerned, which is very welcome, but that was quite different from what Michael Fallon said before the Bill reached this House. He made it clear that he was expecting amendments seeking to promote more competition and to make it a very clear duty on the Government, and that he would not quarrel with that. I know that my noble friend was under some pressure last Monday because the Leader of the House was waiting to make a Statement on the European Council, but none the less she refused to do that. I felt it right to withdraw the amendment rather than spend more time dividing the House, and it was not at all clear that there were enough noble Lords in the House at that stage who would have supported it. Still, the fact of the matter is that we were faced with a contradiction between what the Minister for Energy said and what my noble friend has so far been able to say, no doubt under legal advice from her department.
With the greatest of respect to her, that is not good enough. If this offtaker of last resort is to mean anything at all, it must be perfectly clear that it will be able to operate where necessary and on the terms that my noble friend Lord Roper has already indicated. If my noble friend is unable to give that undertaking today, I ask that she goes back to her department and discusses the issue with her colleague, perhaps when he has returned from the Middle East, where he is at the moment. We should get a very clear statement on this when we reach Third Reading on 19 November.
I cannot stress too strongly the degree of unhappiness that exists in substantial sections of the independent industry, which feel that they are being messed about. One reads in the article in the Telegraph today about the difficulty in getting the investment going—as the Telegraph says, a large amount is simply waiting on the drawing board. To a large extent, that is due to a sense of uncertainty about the intention of this legislation. It is open to my noble friend, now or at Third Reading, to clear up some of these uncertainties, particularly those relating to hire-purchase agreements and the offtaker of last resort, on the lines of the amendments to which my noble friend has spoken, so that the companies and the funds that will be providing finance for them will know where they stand and can go ahead. At the moment, they do not feel that; I really must stress that very hard indeed.
My Lords, in supporting Amendments 62, 64 and 65, I draw attention to my entry in the register of Members’ interests. I will be very brief because the noble Lord, Lord Jenkin, has very much encapsulated the nature of the debate around the offtaker of last resort and the issue of certainty.
I would perhaps be kinder than the noble Baroness’s noble friend as I think that the noble Baroness probably does get the issue that we are seeking to articulate here. It is about giving a degree of certainty to companies that are of necessity much smaller than the big six and have difficulty raising finance because in many cases they are involved in infant industries. In the front of my mind is the generation of renewable energy in the islands of Scotland; for example, in the Western Isles, Orkney and Shetland. I know there is to be a consultation on that, but there are opportunities throughout the United Kingdom to access the various kinds of renewable energy that will be available through the activities and investments of independent generators. However, independent generators need to go to the market to raise their funds and if there is not certainty that the Government are really committed to the offtaker of last resort—that it is not a programme for a situation that exists in extremis but is integral to the operation of the market for that 8% or perhaps even less that exists—not only will the market become unbalanced but we will fail to give support to industries and generating capacity that already have the potential to be world leaders.
The noble Baroness’s words at the Dispatch Box will be looked at very carefully by the industry and the funders. Those who have deep pockets and will be prepared to invest in the sector and allow it to move on to a harmonious future need certainty. I will not delay the House any longer but I urge the noble Baroness to think very carefully about what she says. The noble Lord, Lord Jenkin, is right. I suspect that the lawyers have had a lot to do with what her right honourable friend Michael Fallon has being saying and what she has been able to say. I have no doubt that she understands from her own business background that the issue of certainty for investors is what lies behind these amendments, which I support.
My Lords, perhaps I might help my noble friend on this issue. There is a win-win solution, which is to recognise what has happened very recently in Germany. The big generators always start off being unhappy about the competition. However, RWE in Germany is expected to announce, after decisions made very recently, that it has concluded that it is no longer possible to take that attitude towards other generators in the German market. The Germans have been so tough about the provision for smaller generators. As I have said before in this House, it is remarkable that 50% of the very significant amount of renewable generation in Germany is done by municipalities, co-operatives and individuals.
Until recently, the big generators have fought that because they felt that their own business model was being undermined. It is quite clear from the latest evidence that RWE will take a different view, that it ought to become much more a facilitator of this rather than an opponent of it. If we get the way this is phrased in this Bill right, we will be able not only to help the independent generators but to help the bigger ones to move rather faster in understanding that this is going to be a multiple market in the future.
Therefore, I hope that the Minister will be able to discuss this again with her colleagues because it is a very fast-moving situation. This is not something that is the same today—literally—as a fortnight ago because we did not know the RWE movement then so we did not see, although we hoped, that that was what was going to happen elsewhere. If we can take advantage of learning from other people rapidly, this excellent Bill can be made that much better. I hope that she will find it possible to be a little stronger in what she says now and will take this away and discuss it with her colleagues, as my noble friend Lord Jenkin suggested, because there is now a new circumstance in which she will be able to be stronger in her support.
My Lords, I support all the amendments in this group, as well as the amendments to which I have put my name. Last week we had our debate on the need to open up all sectors of the electricity industry to more competition. We on our side of the amendment were surprised at the reluctance of the Government to acquiesce enthusiastically to what we were proposing. We were even more surprised when later in the week the Secretary of State for Energy and Climate Change went on the “Today” programme and also spoke in the other place about how greater competition was at the heart of the Government’s electricity market reform. I have to admit I had the surreal feeling that there seemed to be one Government at that end promoting competition and talking about its importance and a completely different Government at this end seemingly trying to ward off competition. I hope that this week we have one pro-competition Government in both Houses.
In my short remarks in the debate last week, I linked the need for competition with the need for investment and spoke about how the two are closely intertwined. The UK’s aging energy infrastructure needs some £75 billion invested in new, largely renewable, generation facilities by 2020, and the Government are relying on independent generators, or at least their investors and financial backers, to produce some 35% to 50% of this—that is, £27 billion to £38 billion—before 2020, so this is not a marginal problem. Only by solving it will we ensure that we get the investment we need along with the much needed competition.
Of course, there is a problem. In an ideal world, an independent generator would want a backer for 15 years, because that is the normal length of any form of mortgage agreement for such a scheme, but no supplier is going to gamble on a 15-year PPA because the demand for electricity could reduce over 15 years and a supplier could find itself having bought more power than it could sell. Indeed, already four out of the big six suppliers are not buying power at all from independent generators, while the other two are charging up to 15% or 20% commission on even short-term contracts, which for the independent generator makes for an unviable PPA.
As has already been explained, this situation scares the independent generators and, above all, their investors, so no truly independent generator is going to invest without some form of compromise in the long-term marketplace. Equally, no aggregator is going to enter the fray with the big six oligopoly holding all the cards. We desperately need these independent generators to invest and, as the Government—well, the Government at the other end—keep telling us, it is only by encouraging more competition that we will achieve that investment.
The department has gone for an offtake of last resort—an OLR—to solve this problem, which is fine, but as it stands, the solution in the Bill is completely useless, as Clause 44 is so hedged about with “may”s rather than “must”s that no self-respecting financier would put any trust in it at all. The Minister’s letter of 26 July, I think it was, does not give them any encouragement either. It is a political cop-out rather than a financial foundation on which to build a competitive electricity industry. The words “political cop-out” may be a bit harsh, but the clause is clearly written from a political perspective, rather than the drafters putting themselves in the minds of an investor or a mortgage company and thinking, “What can I put in this Bill that will really reassure these much needed investors that we the Government say we desperately want?”. They just have not done that.
I hope we all agree that this is not a marginal issue. That is why it is vital that these amendments are adopted. It is vital that OLRs are available from day 1 of CFDs. It is vital that they are operational the moment—well, within seven days—of a generator finding itself squeezed out of the marketplace without a commercial PPA. It is vital that the price on offer is evidently—I stress that word “evidently”—going to be enough to reassure a financial backer that lending money in this new and uncertain marketplace is not going to be a wasted investment. There is an enormous amount hanging on getting this right, so I hope that the Minister will be able to reassure us.
My Lords, my previous remarks might have been interpreted as being antagonistic to small generators but I am not. What we are talking about here is a reform of the market that will encourage investment, but investment can only be encouraged if there is the prospect of stability. We are yet to receive from the Government a clear indication that there will be stability in this area.
I am not certain that praying in aid the German experience is necessarily that relevant seeing as Germany is having to accommodate the withdrawal from nuclear generation on a considerable scale and will be happy to get generating supplements or replacements from any source that it can. To a certain extent, that might be the same for the United Kingdom if coal is to be exited from our energy mix in a significant way. If that is the intention, and I believe that it is, we must have facilities available to mop up, or fill in the gaps, of what remains.
These amendments provide a clear and explicit set of measures. But they are only amendments and were the Minister able today to give us the degree of certainty required, I imagine that they would be withdrawn. However, what Mr Fallon said elsewhere probably was based on the optimism that has existed throughout the activities of the Department of Energy and Climate Change these many months—that every deal is just days away. Yet the days become weeks and the weeks become months. We do not have much more time. Therefore, it is essential that the Minister gives us a far more positive assurance than she was able to give last week. If she can do that, these amendments will melt like snow off a dyke, as we say in Scotland. However, if they do not, they will come back to haunt the Minister, because there will be a clear indication of what could have happened had there been a greater sense of urgency in the Department of Energy and Climate Change than had been anticipated by Michael Fallon before he went eastward.
My Lords, there can be no doubt that there is a unanimous view within the Chamber that we want independent operators and more competition. Of course, the difficulty for the Government is getting the balance right. We talked about the trilemma last week: finding the right balance of affordability, supply and decarbonisation of energy that we all want.
However, I disagree with the noble Lord, Lord Cameron of Dillington, when he spoke of Clause 44 being hedged around with “may”s and not “must”s. It always amuses me that when one is in opposition “may” should always be “must”, but the moment that one gets into government, one is advised that “must” should always be “may”. Therefore, I do not think that having “may” in Clause 44 will put off investors or financiers in any way.
My noble friend Lord Deben said that if we get this right, it will be a win-win situation. I think that my noble friend on the Front Bench is aware that it will be a win-win situation, but I do not think that the amendments actually help. They tilt the balance too far. In Amendment 62, the idea is to allow a party to a CFD to be able,
“to borrow money commercially for its business purposes at adequate levels, reasonable cost and over a reasonable period”.
As a businessman, I would love the Government to give me that guarantee for my business. It would be exactly what I wanted, because if I were not happy I could go to judicial review against the Government for not forcing financiers and investment people to give me the terms that I considered right.
That is a point of detail on the amendment, but my general point is that we are all agreed that we want competition, and I think that the Government have just about got it right in the Bill. However, I would like a firmer commitment from my noble friend the Minister that this will actually work in practice.
My Lords, I support Amendment 60. I am grateful to all noble Lords for their contributions to this debate. I will not reiterate my earlier comments, which are that I consider this whole section of the Bill to be a sad necessity that need not have been there had the Government grasped the bigger picture of properly introducing competition during their energy market reforms. However, Amendment 60 seems to be eminently sensible. It is clear, from all the contributions we have heard today, that there is insufficient confidence among independent generators that the Government are serious about introducing something to assist them at this time. It is also quite clear that the clauses we are now debating are a last-minute addition to the Bill.
When the Government started out on this process they maintained that there was no problem and nothing to be worried about; I suspect that this was because they paid far too much attention to what the big six were telling them and insufficient attention to what the independent generators were saying. We therefore have these four clauses, which do not go far enough in providing the detail or the certainty that investors require. Ministers should at the very least be able to concede that these arrangements will be in place in time for the awarding of the first CFDs; that would be the absolute minimum.
On the other amendments, which are slightly more detailed—I agree with the noble Earl, Lord Caithness, that they may be too prescriptive for primary legislation—the regulations that flow from these clauses must be published before the Bill leaves this House, as we need to see the detail. I apologise if the draft regulations have in fact already been published; they may have been lost in the huge number of documents, for which we are grateful, that have been issued to us. However, if they have not been published, can the Minister tell us when they will be so that we can see how this policy will work and appreciate the detail? I hope that that will go some way to reassure the noble Lords who have spoken in this debate this afternoon.
My Lords, I thank my noble friends Lord Roper and Lord Jenkin, and the noble Baroness, Lady Liddell, for their amendments on the issue of route to market for independent renewable generators. Taken together, these amendments would place the Secretary of State under a duty to ensure that: a PPA scheme is in place by the time the first contracts for difference are allocated; the terms of PPAs under the scheme are demonstrably viable for eligible electricity generators and will enable them to borrow money on reasonable terms; eligible generators can obtain a PPA under the scheme within seven days; and that all generators eligible for a CFD are eligible for a PPA under the scheme.
I am grateful to noble Lords for the opportunity to clarify the Government’s intentions, which are very much in keeping with the spirit of these amendments. I assure the House that, as my right honourable friend Michael Fallon has said, the Government are committed to consulting on the introduction of an offtaker of last resort mechanism, and that they intend, subject to consultation, a scheme to be in place by the time the first CFDs are signed. That will give generators and investors the certainty that they need to make investment decisions. However, it would not be appropriate to place the Secretary of State under a duty to establish a scheme by a particular date before the final policy design has been completed and consulted upon.
The Government are also committed to ensuring that the mechanism is viable for eligible independent generators, which should enable generators to borrow money on reasonable terms. However, the Government cannot guarantee that, since access to finance and the viability of the scheme for individual generators are affected by a variety of factors that are out of our control. We also fully intend that those generators which need to access a PPA under the scheme will be able to do so quickly and simply via a transparent and fair process.
It is important that the scheme is targeted at those generators which genuinely need to access it. The scheme may not be suitable or necessary for all CFD-holding technologies, so we do not judge that it is appropriate for this to be required in primary legislation. I also assure the House that the Government intend to grandfather the terms of PPAs under the scheme, including the level of discount, from the date a generator signs its CFD.
I met with the Independent Renewable Energy Generators Group last week to reassure it on these points. It confirmed that it believes that the offtaker of last resort is a viable solution to its concerns, subject to the final decision—sorry; subject to the final design. The details of the offtaker of last resort mechanism will be specified in secondary legislation following consultation early next year, so it is not appropriate at this stage to set them out in the Bill. I reassure noble Lords that we aim to have secondary legislation in force by the time the first CFDs are signed. This is a challenging timetable. It is subject to consultation and parliamentary process. However, this should not have a material impact on generators since they will not need access to backstop PPAs until after projects have been commissioned, which is likely to be several months after signing the first CFD.
Noble Lords also asked when the first CFD allocations will become available. We have already signalled that we intend to consult, possibly in the early new year, and aim to have secondary legislation in force by the time of the first CFD. I hope that I have reassured noble Lords that the Government’s intention is to ensure certainty for smaller generators. We want to see greater competition. We believe that the measures we are taking and the mechanisms we are using are the right ones. I hope that the noble Lord will find my explanations reassuring and will therefore agree to withdraw his amendment.
I am grateful for the support my amendment has had from all parts of the House. I am also grateful that the Minister has listened to what has been said and, indeed, made some reassuring comments. I am certainly reassured to a significant extent. She said that she wished to act in keeping with the spirit of the amendment and I am happy about that. I also understand the constraints imposed upon her by the consultation. However, I return to one of the points I made in introducing the amendment and that comes back to a phrase she used, which I hope I understood. She said initially the final “decision” and then moved on to say the final “design”. I believe that she meant the final design; that is, not whether or not there will be an offtaker of last resort but how it will work—the design for such an offtaker.
My Lords, that is indeed a very reassuring statement. It suggests that the Government are moving in the direction that we wish. I suspect it means we will not need to return to this at Third Reading. We have had some useful assurances today and, on the basis of that, I beg leave to withdraw the amendment.
Amendment 60 withdrawn.
61: Clause 44, page 28, line 14, at end insert “at a discount to a prevailing market price”
Amendment 61A, as an amendment to Amendment 61, not moved.
Amendment 61 agreed.
Amendment 62 not moved.
63: Clause 44, page 28, line 24, at end insert “(including provision for determining a market price and the amount of a discount at any time)”
Amendment 63 agreed.
Amendments 64 and 65 not moved.
66: Before Clause 49, insert the following new Clause—
“Closure of support under the renewables obligation
(1) After section 32L of EA 1989 insert—
“32LA Renewables obligation closure order
(1) The Secretary of State may make a renewables obligation closure order.
(2) A renewables obligation closure order is an order which provides that no renewables obligation certificates are to be issued under a renewables obligation order in respect of electricity generated after a specified date.
(3) Provision made under subsection (2) may specify different dates in relation to different cases or circumstances.
(4) The cases or circumstances mentioned in subsection (2) may in particular be described by reference to—
(a) accreditation of a generating station, or(b) the addition of generating capacity to a generating station.(5) A renewables obligation closure order may include provision about—
(a) the meaning of “accreditation” and “generating capacity” in subsection (4);(b) when generating capacity is to be treated as added to a generating station for the purposes of that subsection.(6) References in this section to a renewables obligation order are references to any renewables obligation order made under section 32 (whenever made, and whether or not made by the Secretary of State).
(7) Power to make provision in a renewables obligation order (and any provision contained in such an order) is subject to provision contained in a renewables obligation closure order; but this section is not otherwise to be taken as affecting power to make provision in a renewables obligation order of the kind mentioned in subsection (2).
(8) Section 32K applies in relation to a renewables obligation closure order as it applies in relation to a renewables obligation order (and subsection (3) above is not to be taken as limiting the application of that section).
“32LB Renewables obligation closure orders: procedure
(1) Before making a renewables obligation closure order, the Secretary of State must consult—
(a) the Authority,(b) the Council,(c) such generators of electricity from renewable sources as the Secretary of State considers appropriate, and(d) such other persons, if any, as the Secretary of State considers appropriate.(2) The requirement to consult may be satisfied by consultation before, as well as consultation after, the passing of the Energy Act 2013.
(3) A renewables obligation closure order is not to be made unless a draft of the instrument containing it has been laid before and approved by a resolution of each House of Parliament.”
(2) In section 32M(1) of EA 1989 (interpretation of sections 32 to 32M)—
(a) for “32L” substitute “32LB”;(b) after the definition of “renewables obligation order” insert—““renewables obligation closure order” is to be construed in accordance with section 32LA;”;
(c) in the definition of “specified”, after “renewables obligation order” insert “or a renewables obligation closure order”.(3) In section 106 of EA 1989 (regulations and orders), in subsection (2)(b) after “32,” insert “32LA,”.
(4) In Article 56(1) of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6)) (power to amend Part 7 of that Order to take account of amendments of corresponding Great Britain provisions), the reference to amendments made to sections 32 to 32C of EA 1989 includes a reference to subsections (1) and (2) of this section.”
My Lords, Amendment 66 provides the Government with the power to close the renewables obligation to new capacity. As noble Lords know, this closure is planned for 31 March 2017 as part of the transition to contracts for difference. We had previously considered that the renewables obligation could be closed using existing powers within the Electricity Act 1989. However, we have now concluded that a specific power in this Bill will put the closure arrangements on a more reliable and transparent legislative basis.
To ensure that consumers and industry have confidence that closure will take place consistently across the UK, the amendment provides the power for the Secretary of State to close the RO in England, Scotland and Wales. It enables the Northern Ireland Executive to make similar provision for the Northern Ireland renewables obligation. To give industry early certainty on the way in which the Government propose to use this power, we intend to publish this week detailed proposals on RO grace periods for those projects that are delayed due to circumstances beyond their control. These proposals will include a 12-month grace period for projects subject to current investment decisions, giving developers making such decisions this winter substantial reassurance that their investments are not at undue risk from the RO closure date.
Amendments 70 and 107 to 109 support Amendment 66 by making consequential drafting changes. Amendment 110 ensures that the power on RO closure will come into force immediately upon Royal Assent. This allows the secondary legislation for the RO closure to be brought forward quickly, which is important for investor certainty.
In response to the very helpful points made in Committee by my noble friend Lord Stephen and by the noble Baroness, Lady Worthington, the Government have brought forward Amendments 67 to 69 to clarify the scope of the powers for the fixed-price certificate scheme. Amendment 67 removes the power for regular reviews of support levels under the fixed-price scheme. The Government have no plans to change these support levels as, in a closed and grandfathered scheme, we are unlikely to need to do so. It is therefore appropriate to remove the provision for regular reviews, which implied that we expected to make such changes. However, it is also appropriate to retain a mechanism to change support rates if unexpected developments were to make that essential. I assure noble Lords that the conditions that must be satisfied for a review to take place will be specified in secondary legislation, and subject to statutory consultation and affirmative resolution by Parliament.
Amendment 68 places a requirement on the Secretary of State to exercise certain powers under the fixed-price certificate scheme in a manner which replicates the renewables obligation. This requirement confirms the existing purpose of the clause, in response to concerns raised by the renewables industry and by my noble friend in Committee. The fixed-price scheme will respect our grandfathering policy and will reflect the RO, which has always been our intention. Amendment 69 ensures that the duties on the Secretary of State in relation to the strategy and policy statement do not apply to the fixed-price certificate scheme in Northern Ireland. I hope that noble Lords have found this a helpful explanation of the amendments, and I beg to move.
My Lords, I am grateful to the Minister for explaining the amendments that she has tabled and spoken to today. I am particularly grateful for new Clause 66, which was something that we debated in Committee.
The issue that was under discussion was that we are, in this Bill, removing the renewables obligation—the policy that has supported renewables and has led to a significant increase in renewable energy and different forms of renewable electricity. The removal of the renewables obligation is significant because it contained an inbuilt incentive on the big six to keep investing in new clean technology. We are now removing that through this Bill. Unfortunately we have not been able to convince the Government to replace any form of obligation into this Bill on either the Government or the suppliers. We are now entering a period where we have to entice investors rather than oblige them. That is an issue that may come back to haunt us—a phrase that has been used before today.
I seek words of reassurance that, in the detailed arrangements that are set out in the regulations that close the RO, the Government will not prescribe a date until they are absolutely certain when the CFDs can come into operation. The issue here is that this Bill is going to be subject to state aid clearance; we need to be absolutely confident that we do not wind down the existing support mechanism before we are completely sure that we have a new support mechanism in its place.
There has been mention of the year 2017 in numerous government consultation documents and documents on this topic. At this stage we cannot be sure that 2017 is the right year. I urge the Minister to make sure that draft regulations are not overly prescriptive and that they give us the flexibility we need to ensure that there is a very good transition from one successful policy to a new untested policy which we hope will deliver but, as has been mentioned on a number of occasions, we still have concerns that it will not—especially for independent generators.
My Lords, I thank the noble Baroness and reassure her that we are of course mindful of all the concerns that she has raised. The RO closure date of 31 March 2017 was chosen in order to allow for that period of parallel running between the RO and the CFD. If we were to extend the RO, we might need to hold a further banding review for the post-2017 banding levels, and generators would not know the post-2017 banding levels until 2015-2016.
Any accreditation after 2017 would receive less than 20 years of RO support. The RO is subject to a 2037 end date. It would be wrong to extend this given that the CFDs are being put into place to provide better value for generators.
I merely point out that these amendments remove the need for banding reviews, so I do not think it is true to say that we cannot have more flexibility over the end date because of banding reviews as these amendments remove the requirement on government to review the banding. I urge the Minister to reconsider that.
Amendment 66 agreed.
Clause 49: Transition to certificate purchase scheme
Amendments 67 to 70
67: Clause 49, page 42, leave out lines 45 to 47
68: Clause 49, page 44, line 46, at end insert—
“32XA Certificate purchase orders: corresponding provision
(1) This section applies where the Secretary of State exercises a listed power in the making of a certificate purchase order.
(2) The Secretary of State must—
(a) so far as the order is made for a GB purpose, exercise the listed power in the way that the Secretary of State considers will replicate the effect of provision contained in a renewables obligation order (whenever made, and whether or not made by the Secretary of State) by virtue of the equivalent GB power;(b) so far as the order is made for a NI purpose, exercise the listed power in the way that the Secretary of State considers will replicate the effect of provision contained in an order under Article 52 of the 2003 NI Order (whenever made) by virtue of the equivalent NI power.(3) The duty in subsection (2) to exercise any listed power in the way mentioned in that subsection applies only to the extent that it appears to the Secretary of State that—
(a) it is reasonably practicable to exercise the listed power in that way, and(b) exercising the power in that way is not inconsistent with other duties or requirements of the Secretary of State (whether arising under this Act or another enactment, by virtue of any EU obligation or otherwise). (4) In the Table—
(a) a “listed power” is any power specified in the first column;(b) the “equivalent GB power”, in relation to a listed power, is the power specified in the corresponding entry in the second column;(c) the “equivalent NI power”, in relation to a listed power, is the power specified in the corresponding entry in the third column, and in that column references to an Article are to an Article of the 2003 NI Order. Listed power Equivalent GB power Equivalent NI power Section 32O(2)(a) Sections 32A(2)(a) and 32G(2)(a) Articles 53(2)(a) and 55(2)(a) Section 32O(2)(b) Sections 32A(2)(b) and 32G(2)(c) Articles 53(2)(b) and 55(2)(c) Section 32O(2)(c) Section 32G(2)(e) Article 55(2)(e) Section 32O(2)(f) Section 32A(2)(c) Article 53(2)(c) Section 32S Section 32B --- Section 32T --- Article 54 Section 32U(5) and (6) Section 32C(5) and (6) Article 54A(5) and (6) Section 32V(1) Section 32D(1) Article 54B(1) Section 32W(5) to (8) Section 32E(4) to (6) and (8) Article 54C(4) to (7) Section 32X Section 32J Article 55C Section 32Z1(2) (so far as relating to definition of “renewable sources”) and (3) Section 32M (so far as relating to that definition) and (2) Article 55F(1) (so far as relating to that definition) and (2) Section 32Z1(9) Section 32M(7) Article 55F(3)
Equivalent GB power
Equivalent NI power
Sections 32A(2)(a) and 32G(2)(a)
Articles 53(2)(a) and 55(2)(a)
Sections 32A(2)(b) and 32G(2)(c)
Articles 53(2)(b) and 55(2)(c)
Section 32U(5) and (6)
Section 32C(5) and (6)
Article 54A(5) and (6)
Section 32W(5) to (8)
Section 32E(4) to (6) and (8)
Article 54C(4) to (7)
Section 32Z1(2) (so far as relating to definition of “renewable sources”) and (3)
Section 32M (so far as relating to that definition) and (2)
Article 55F(1) (so far as relating to that definition) and (2)
(6) The relevant part of Great Britain to which a renewables obligation order relates may be ignored for the purposes of subsection (2)(a).
(7) It does not matter for the purposes of subsection (2) whether or not a renewables obligation order, or an order made under Article 52 of the 2003 NI Order, is in force at the time when the listed powers in question are being exercised.
(8) In this section—
“2003 NI Order” means the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6));
“GB purpose” means the purpose of imposing the certificate purchase obligation on the purchasing body of GB certificates;
“NI purpose” means the purpose of imposing the certificate purchase obligation on the purchasing body of NI certificates.”
69: Clause 49, page 45, line 37, after “Part)” insert “, and by section 123(2) of the Energy Act 2013 (duties in relation to strategy and policy statement),”
70: Clause 49, page 48, line 25, leave out ““32,”” and insert ““32LA,” (as inserted by section (Closure of support under the renewables obligation)(3))”
Amendments 67 to 70 agreed.
Clause 50: Duty not to exceed annual carbon dioxide emissions limit
71: Clause 50, page 49, line 1, leave out “Until (and including) 2044,”
My Lords, in moving Amendment 71, I will speak to my Amendments 73 and 74 as well. I understand that people who know better than I have described my Amendments 71 and 73 as clunky and I immediately put up my hand. I am trying to do the very simple thing of turning something that the Government described as a grandfathering clause into something that really is a grandfathering clause. It came as some surprise to us in Committee, when we perhaps read the Bill with greater care than we had done previously, that in terms of emissions performance standards, the Bill effectively fixes an EPS right up until the beginning of 2045. I refer not just to plants that already exist but to those that will be built well into the future. The emissions performance standard in this section of the Bill applies to plants built right up to 2044.
I seek to improve this position. I hope that I am offering greater investor certainty in terms of grandfather rights to those who might invest in new gas plant or plant in other power sectors covered by the EPS. Certain vehicles, for example, are approved when they are manufactured and first go on the road and keep the relevant grandfather rights until the end of their working life. That is what I propose in this amendment. As I say, it would provide investor certainty in terms of grandfather rights but, just as importantly, it would ensure that a regular review takes place.
Section 5 of the 2010 Act refers to three-yearly reviews, but those are non-statutory. I have been reminded that Clause 58, on page 56 of this Bill, contains a statutory mechanism to look at these things every five years. I suggest that this should be done every three years and that there should not be a need to change primary legislation—that is the difference—in order to change the EPS. It seems to me a very strong lock if the EPS is defined specifically in the Bill. I understand that the existing provision in the Bill seeks to provide investor certainty but I seek to give greater investor certainty by saying that once a plant is consented it keeps that EPS right the way through, at least until it has to be reconsented. I hope that the Government will think that that is an improvement.
Amendment 74 deals with a very important area. Coal plants are effectively excluded from the EPS under this legislation. However, unabated coal plants are one of the main sources of our nation’s overall emissions of CO2. This is a major challenge in terms of our climate change targets and our desire to bring down carbon emissions in the United Kingdom. The amendment seeks to do a number of very positive things. It would help fulfil the Government’s intentions around carbon emissions and their energy policy. The Government have rightly made provision in the Bill that if certain major modifications are made to fossil fuel generating stations they have to be reconsented and the EPS becomes applicable, thereby making it impossible to run an unabated coal station. I seek to extend that provision to all major changes, including those plants attempting to reinvest to comply with the industrial emissions directive—the successor to the large combustion plant directive. We seek to do this because the Government’s trajectory for their carbon plan has always assumed that fossil fuel unabated coal stations will come out of UK generating capacity in an ordered manner after 2016. All that this amendment intends is to make sure that that actually happens.
Why is there a question mark now? It is because coal, primarily because of shale gas in the United States, has now become incredibly cheap. One of the outcomes has been that last year coal accounted for around 40% of total electricity generation and overtook gas which is now only about 28% of electricity generation—hence the UK’s carbon emissions went up last year quite significantly. The amendment would ensure that, although investment to prevent the output of mainly nitrous pollutants and thereby comply with the IED might now become economic and allow coal stations to carry on with this exemption from the EPS for many decades to come, the Government will actually keep to their trajectory in terms of taking carbon out of the system.
Let me first stress, perhaps paradoxically, what the amendment would not do. It would not take out coal immediately. As I said, it complies with the carbon plan which the Government have already published. Coal can continue to operate beyond 2016 under derogations and, in fact, can operate for some 17,500 hours, limited, right up to 2023. The importance of that is that coal-fired power stations can still operate during peak times and therefore make sure that we do not have blackouts. So the amendment does not get in the way of security of supply.
The other thing the amendment would not do is put up electricity prices. As we well know, electricity prices are primarily driven by the wholesale gas price and although coal prices have come down quite significantly, unfortunately, as we know, wholesale gas prices have not and so electricity prices have not either. It sometimes makes me ask what the generating companies have done with the extra margin from the coal production, but we will leave that argument for another day.
The amendment would ensure that there is no longer a baseload coal generation into and beyond the next decade. That is crucial for climate change and the Government’s wish to bring down carbon emissions. It would also meet those Government predictions. There are two other things that the amendment will make sure of: one is that there is a continued incentive for carbon capture and storage. Clearly and quite obviously, if unabated coal can continue exempt from the emissions performance standards, then CCS will go absolutely nowhere.
Crucially, the amendment would make sure that new gas investment can actually take place. It was interesting to read this morning in the Daily Telegraph, which has a great interest in energy, about a report that was, I think, released today by an organisation called EY. The article is headed:
“Gas and nuclear plants that could power all UK homes ‘on hold’”.
It goes on to say:
“Gas and nuclear power plant projects with sufficient capacity to supply electricity to every UK household are on hold … some 23GW of new gas plant has received planning permission but just 4pc is being built, with the rest suspended or on hold ‘with owners waiting to see if the economic and policy environment become more favourable’”.
One of the reasons it gives for that is the cheap coal influx from America which has made the situation worse.
As I often do, I endorse exactly what the Daily Telegraph says; this is a really important issue. We need new gas generation; the planning permissions are there and cheap coal is one of the reasons that investment is being held back. We need to move forward with it and the amendment is important because it helps fulfil the Government’s carbon plan and policy and makes sure that the investment that we need in new gas is actually able to move forward. I beg to move.
My Lords, if no one else wants to stand up at this stage, perhaps I may just say a few words. I have found this a very difficult question. I have received a good deal of representations in favour of my noble friend’s amendment, and others sounding a warning note. I have said to them all that I will want to listen to the full debate, particularly to what my noble friend on the Front Bench has to say.
As I see it—I may be wrong, and I am open to be corrected—the Government face something of a dilemma. The noble Lord, Lord Teverson, quoted the figures on the existing volume of coal-fired electricity generation in this country. I think he said that it is now about 44%, despite the significant closures of some of our biggest coal-fired power stations which have taken place in the past 12 months. The Government clearly recognise that there must be no power cuts and that the impact of such cuts on the country’s business and, indeed, on the Government’s reputation would be quite devastating. Therefore, as the Prime Minister said to me and a number of my noble friends back in July, there must be no power cuts and we will have to do whatever we have to do to make sure that we keep the lights on. As the Minister who presided over the three-day week back in 1974 I have every sympathy with that, because it is not a comfortable position for any Government or Minister to be in. That is the first priority of which the Government have to take account.
On the other hand, if the Government want to make it possible for coal-fired power stations to continue, there will be a severe impact on the incentive to build new power stations. The gas-fired power stations have much lower emissions; a modern station may have as little as one-third the emissions of a coal-fired station. Given that we have spent a lot of time during our consideration of the Bill discussing the need for a proper financial structure for the new generators, many of which would want to build gas-fired stations, one can see the Government’s dilemma. I am not entirely sure that I can see the matter as clearly as my noble friend Lord Teverson has, and I will want to hear the argument.
I, too, have a copy of the Daily Telegraph article. My noble friend left out rather a significant sentence and was very kind to my noble friend on the Front Bench. The article said that the problem was due to the Government’s “dithering”. We have heard a certain amount about that—it is what the Telegraph said and what my noble friend left out. As has been said many times, there is no doubt that there is a considerable hiatus in the investment in new generating capacity, a consequence of which has been the oft-repeated and increasingly serious Ofgem warnings about the narrowing of the margin between capacity and demand. The Government, therefore, simply cannot go on risking that hiatus. So what is to be done?
I have read an interesting report in a paper that was prepared for the European Climate Foundation by Simon Skillings of Trilemma UK. I found it a helpful analysis of the whole problem. One of the things that Mr Skillings said—and I am following some of the argument of my noble friend—is that:
“Perversely, the decision of large amounts of coal-fired generation to opt-in to the IED”—
the European directive—
“presents a greater threat to security of supply. This is because opted-in coal plant would be able to operate at higher load factors, presenting a significant risk to investors in new gas-fired plant and owners of existing gas-fired plant that may currently be mothballed”.
I have drawn attention, both on Second Reading and subsequently in Committee, to the substantial amount of gas-fired plant which is currently being mothballed, and which would take varying lengths of time to bring back into production. Mr Skillings continues:
“New plant is, therefore, less likely to be built, and mothballed plant is more likely to be closed, under these circumstances”.
That seems a considerable dilemma. I have to confess, having studied both sides of the argument and tried to understand all the evidence, that I am still unclear as to what is the right course.
As I said at the beginning of my speech, I have been replying to those who have been making representations to me about this group of amendments by saying, “I will want to listen to both sides of the argument before finally making up my mind”. I do not know whether my noble friend will want to press the amendment to a Division; we shall have to wait and see. Other noble Lords who have signed other amendments in this group may wish to come in and I will listen to them with equal attention. However, I find this a difficult dilemma. We have got existing coal power stations, they are producing energy and they are helping to close the gap between demand and capacity. Therefore, to countenance a significant reduction from that source and assume that it will be made up with generating capacity by new investment seems to be taking a considerable risk.
My noble friend has advisers who follow this a great deal more closely than I can, and I shall be interested to hear what she has to say. I have to confess that, for me, it is a difficult issue.
Coal is the dirtiest of fuels: it emits around twice as much carbon dioxide per kilowatt hour as gas; it is responsible for more than 40% of world energy greenhouse gas emissions, and for more than 25% of UK greenhouse gas emissions. Amendment 74 will encourage the switch from coal to gas; delaying that switch could substantially increase the cost of meeting our climate change targets. Gas itself has emissions which, if unabated, are far too high for the medium or longer term but may provide a useful bridge in the shorter to medium term—that is, until around 2030 or so. After that, gas or coal would have to be abated or replaced with renewables or nuclear if we are to meet our targets. Unless the world acts to phase out or abate via carbon capture and storage, in the next few decades coal will be very likely to take the world into very dangerous levels of greenhouse gas concentrations.
If we could be confident of a strong carbon price then Amendment 74 might not be necessary. That would be a clear way of addressing the colossal market failure associated with greenhouse gas emissions. Such a strong carbon price would likely make renewables and nuclear more than competitive with gas and coal in the next one or two decades. However, with apparent quarrelling within the Government, and possible backtracking and “reviewing” constantly in the air, who could be confident about such a strong carbon price?
Work as an academic economist, as chief economist of the EBRD, as chief economist of the World Bank and as head of the Government Economic Service in the UK has made it clear to me that government-induced policy risk is a major deterrent—perhaps the major deterrent—to investment around the world. That is indeed why energy investment in the UK has been so inhibited and it is why we need the clarity that this amendment brings. Clarity can unleash investment; confusion, on the other hand, risks both the lights going out and a world of dangerous climate change.
The Government have been working towards a clearer strategy in the Bill, and many, including me, welcome that, but they have allowed uncertainty and vacillation to creep back in. This amendment would go far to overcome the doubts on policy that the Government themselves have created. It would essentially drive out unabated coal from the UK by 2030 other than in a back-up role. That is exactly what we have to do to achieve our targets and to make our contribution. How can we ask others to stop treating the atmosphere as a dump if we are not prepared to move strongly to do so ourselves?
China, where I have been working for 25 years, India, where I have been working for 40 years, and many other countries look to Europe and the US for leadership. If we do not show that leadership, they will conclude that the rich world is not serious on this subject. Let us recognise that China—the largest economy in the developing world and the biggest emitter in the world—is changing. Targets in the 12th five-year plan were strong. A peak in emissions in 2025 is now being discussed in relation to the 13th five-year plan. I have been involved in a number of those discussions and, before now, dates earlier than 2030 have not been mentioned. In addition, a peak in coal consumption in China within a decade is under open discussion. However, China is looking at others, including us. We should not delude ourselves that because we are small our example does not count.
By accepting the amendment, we can provide the clarity that will unleash investment, reduce our emissions, manage effectively the costs of so doing and have a real influence on others. That is why I support Amendment 74 in the name of the noble Lord, Lord Teverson.
My Lords, when we discuss a group of amendments, the majority of which are government ones, one of the difficulties at Report is that we will not have heard the Minister talk to those government amendments. However, I expect that my noble friend will talk to them and I should like to ask her to take a little time to explain why we have the date 31 December 2027 in Amendment 73B.
Carbon capture and storage was one of the areas highlighted in the report of Sub-Committee D, which I referred to last week. I think we were all saddened that so little progress had been made on it. Therefore, I should also like my noble friend to say how she anticipates an increase in the use, and perhaps even the commercialisation, of carbon capture and storage, particularly when Germany has turned its back on it and apparently does not want to take any active part in it.
Turning to Amendment 73 in the name of the noble Lord, Lord Teverson, I understood that in any case the Government were going to review the EPS on a three-yearly basis. The Bill states that it will be statutorily reviewed every fifth year in accordance with the 2010 Act, but I understood that they were going to do so on a three-yearly basis as well. I wonder whether my noble friend could confirm that.
With regard to Amendment 74, which is obviously the key amendment here, I, like my noble friend Lord Jenkin of Roding, am torn. I have certainly received representations from people saying that this would be a disastrous way to go. The noble Lord, Lord Stern, made a very powerful case, as would be expected, but that is only one side of the argument. There is, of course, the trilemma, which we are all very much aware of: it is not just a question of decarbonisation and the removal of bad pollutants; there is also affordability of supply and continuity of supply. Like my noble friend Lord Jenkin, I have received representations that Amendment 74 would, if passed, jeopardise our security of supply.
I believe, too, that it puts us out of kilter with the rest of Europe. There is only a limited amount that we can do as an individual country. I was grateful that the noble Lord, Lord Stern, said that our voice is still heard; but we live in a nasty, tough, commercial world. If others can import cheap American coal and keep their energy prices lower as a result, and we prohibit ourselves from doing so, we put our businesses at risk. We make it more difficult to get the growth that this country so badly needs; and it is through that growth that we will be able to implement the reduction in carbonisation that we all want.
I am therefore unable to support my noble friend Lord Teverson on this—it takes us too far. It tilts the trilemma too much towards the green agenda and does not take enough account of the other important issues.
My Lords, I was in China the week before last, in Xi’an and Beijing. I will say just this. Having witnessed the smog that inhabits the whole of Xi’an and Beijing, and from my conversations with Chinese opinion-formers—who made it clear that they look to this country and recognise their own failings in not having tackled these problems earlier—I can confirm everything that the noble Lord, Lord Stern, has said about China. For those and other reasons, I support the amendment.
My Lords, I, too, support these amendments. We have to recognise that the Bill has been a long time in gestation. What has changed since the Bill was originally conceived is that the bottom has dropped out of the coal price. It is very important to point out to the noble Earl, Lord Caithness, that in fact cheap coal does not mean cheap power: it means big profits for the owners of coal-fired power stations. As the noble Lord, Lord Teverson, pointed out, the electricity price is effectively tied to the gas price because of the operation of the mechanisms. As things are at present, it is effectively the low coal price that is driving the operation of coal-fired power stations and giving very substantial profits to those companies that have them. Indeed, roughly half that capacity is owned and operated by the big six.
I will not draw on your patience longer, but simply say that I understand the point made by the noble Lord, Lord Jenkin. There is effectively a chicken-and-egg situation here. Unless we give the market the certainty that these amendments would give, we shall not see the investment in gas that is needed to maintain the attainability of our longer-term targets.
My Lords, the noble Lord, Lord Jenkin has rightly pointed to the crucial problem, which is: how do we deal with that period in which there is fear that the lights will not stay on? That is a proper fear to have and should be the first fear of any Government, because there is a responsibility to keep the lights on. There ought to be a second fear, too: namely, that we keep the lights on in such a way that the next generation has an even worse position, because we have polluted the atmosphere further and made the fact of dangerous climate change even greater. We naturally have to look at this very carefully.
However, on this occasion it seems that those who are most concerned with keeping the lights on, and I certainly put myself in that category, and those who are also concerned with climate change, and I put myself in that category, too, are in fact pushing at the same door. If we do not have a mechanism whereby it is sensible to invest in gas, that bit of the transition will not take place. That would seem to most of us to make it more difficult to provide affordably for the energy that we need.
The noble Lord, Lord Oxburgh, as so often, put his finger on one of the other problems. When we talk about these things, let us not confuse the cost of production with the price at which it is sold. Those of us who, like me, have represented constituencies, know how many people are close to the edge when it comes to warming their homes. The whole question of affordability is utterly crucial. However, the idea that if we burnt coal we would get cheap power is not so. We need to have a mixture—a portfolio of means of generation—in which gas will play its part.
We have heard a lot recently about the opportunities that shale gas will give us. I find both extremes unacceptable—from those who think it means the end of the world at one end to those at the other who feel that it will be a game-changing matter. They are both wrong, but there is a place for gas. If that gas were produced at home, that would contribute considerably, not to a lowering in cost because it would have little to do with that, but to greater energy sovereignty, which is worth while.
The question is how we move from a situation which we hardly imagined, because the bottom had not fallen out of the coal market, in which we have to provide for the transition from coal to gas to one in which we do provide for that transition. The difficulty is that I suspect both those who tabled the amendments and the Government are on the same side—both groups want to achieve this. The real question is that there is a kind of fear of letting go of nurse’s hand—that is, the coal—in case we do not get the gas. I would like to turn it around the other way: if we do not do this, I am not at all sure that we will get the gas. That is crucial. I hope very much that the Government will enable us to have a situation in which we provide for that transition.
I have been trying very hard during these debates to remain entirely independent because all I have spoken are the words that the Committee on Climate Change, which I chair, has put forward. The committee has made it clear that it feels that this kind of transition needs to be facilitated in this way. I do not want to make this a great division because I do not think it is one; it is a question of how we do this safely in the new circumstances to which the noble Lord, Lord Oxburgh, referred.
I very much hope that my noble friend will be able to give us confidence in the Government’s answering of this question if she is unable to accept the amendments that are put before her. If we do not do one or other, we will find ourselves unable to guarantee reasonable prices or the continuance of the lights being on because we have not made the transference that is essential in any case and which I thought everyone supported.
My Lords, I was pleased to add my name to Amendment 74, and I support the other amendments in the group. At the start of this process way back in 2010, the Government said in a consultation document:
“The objective of the EPS is to ensure that while coal continues to make an important contribution to security of supply, it does so in a manner consistent with the UK’s decarbonisation objectives”.
The way that the EPS is drafted does not achieve that aim. The EPS was a response to the Kingsnorth protests against the building of a new, unabated coal plant. It was borrowed, but not fully, from similar regulations in California. The Minister, Greg Barker MP, can take credit for introducing this policy. However, in California they are clear that the limits that are placed on coal stations apply in the event of a coal station seeking a life extension. That is what this amendment is designed to do: to complete this process by adding that important missing element.
New coal was never the most carbon-intensive source of electricity; old coal is. The world has moved on since Kingsnorth. Low coal prices and high gas prices have caused higher operating levels at coal stations now than ever before. As a result, as the noble Lord, Lord Teverson, mentioned, we have seen UK emissions going up, not down, and our carbon intensity increasing last year, not decreasing. How are we going to hit decarbonisation targets if we do not have a tool in our armoury to do something about this issue? We could have a policy of carbon pricing, as the noble Lord, Lord Stern, has mentioned. However, carbon pricing policy has not addressed this issue, and will not. We need regulation.
Turning to the security of supply, 8 gigawatts of old coal capacity has recently shut. This has brought down our historically high overcapacity to a more modest level, yet our carbon intensity is stubbornly high, at around 500 grams per kilowatt hour. This is because the 12 coal stations that are still operating, representing 15 gigawatts of power, are base-loading. They are no longer providing back-up power in the winter peaks but are operating throughout the year and making their owners a considerable amount of money. The Committee on Climate Change has been clear that were we to get the merit order of existing plants right, we could shave almost 200 grams off that figure overnight without having to build a single brick or power station.
The 12 stations that I have mentioned have tightening air quality regulations in front of them, which will affect their operating post-2016. However, they have a range of options for what to do in the face of those tightening regulations. One is not to refurbish; they will then be required to close by 2023. Another option is to convert to biomass. The final option is to fit the filters that would enable them to comply with the air quality standards. They could then remain open indefinitely. In that situation, they would certainly wish to continue base-loading, since they would have made new capital investment on which they would want to seek a return.
The new air quality standards start in 2016. I am sad to say that Defra, the lead department, is in danger of not complying with those regulations because it is failing to provide enough detailed information about what these power stations are planning to do. This can be only because it is intent on giving the maximum flexibility while the details of the Bill are worked out, because the Bill contains another very important element that changes the fortunes of coal: the capacity mechanism payments. The capacity mechanism will give existing coal plants an up-front cash injection just at the time they need it to make those refurbishment decisions. Plants will be eligible for three-year contracts. We cannot be certain how much those contracts will be worth, but it will certainly be in the range of £80 million to £100 million or more over the three years. The cost of fitting the filters is a surprisingly similar number of around £100 million for a 1 gigawatt plant.
If they decide to make these capital investments and tip into this compliant state, this will reduce their thermal efficiency even further. Are the department and the Minister aware of how inefficient these stations are and quite how much of the heat is escaping as lost energy into the atmosphere? That is quite apart from the carbon load that is also being added. Fitting these filters would also increase the operating costs of these plants. The chemical plants necessary do not operate for free.
The Government’s policy is not to support the application of an EPS to coal seeking life extensions, and no doubt we shall hear some of the reasons from the Minister. Other noble Lords have touched on the security of supply issue. As long as this question over 15 gigawatts of coal is allowed to remain unanswered, how can any investor in replacement capacity move forward? If you are not sure how many plants will be operating and whether they will be base-loading, you will find it very difficult indeed to make the case for investment in new capacity and to bring mothballed capacity back on. I will not go into too much detail on this but we have all had representations from gas investors saying that they support this amendment. We should just remember that, in a carbon-constrained world and under a carbon-budgeting system, every coal station that remains on the system displaces two gas stations because gas can operate with half the emissions of coal
The Government may also try to argue that the introduction of this EPS would create regulatory uncertainty but that is not at all the case. We have made it clear that it is needed now. Only those defending the status quo and continuing to profit from the use of their existing assets will claim that this is changing the rules for them. The owners of these stations ought to be fully aware that, as we move forward to a low-carbon economy, their stations will be the first to go. It is far and away the cheapest and most efficient way of reducing emissions, as the UK found during the 1990s when we did exactly this and transitioned out of coal and into gas. I am very hopeful about the next decade. This EPS does not mean that we will not see investment in coal. We will see investment in coal, which will come through in carbon capture and storage projects. The arguments that have been made today about investor certainty when it comes to gas equally apply to CCS. It is in the coal industry’s best interests to see this amendment passed so that it, too, can invest in its future. Coal has a future, but only with CCS.
The final reason that the Minister may offer for not supporting this amendment—which would be very regrettable—is that it is not needed because we have a carbon floor price. No one can really say, with all honesty, that there is any political certainty that the carbon floor price will survive. We have had comments recently from the Prime Minister and others that have very much cast doubt on whether that carbon floor price will still be around. You cannot roll back green levies, or even review them, without seriously looking at the carbon floor price again. Even if it were to be maintained, it would need to be at a very high level, around £40 a tonne, in order to achieve the sort of fuel switching that this amendment would instigate.
The Government will no doubt say that everything is fine in their models and that these coal stations will close, as the cost of fitting the filters is too great and the benefits are not there. During my time at Scottish and Southern, I saw it go through the investment decisions that needed to be taken to comply with sulphur limits. The benefit of having an asset in an existing, connected station, with all the staff that you need, is enormous. A bird in the hand is always worth two in the bush, and these companies are very likely to make these decisions to invest. I would go as far as to say that we will see Scottish and Southern, the owners of Fiddlers Ferry, making that decision if we do not get this policy right. EDF, which owns West Burton and Cottam, will do the same, as will Scottish Power, owners of Longannet. There may be others. There are certainly 12 stations that could do this and we need to see none of them do it.
The final point that I am sure will be raised is that this is somehow going to push up the cost for consumers. The noble Lords, Lord Teverson and Lord Oxburgh, have already eloquently explained that it is gas prices that set the wholesale price and therefore we are not seeing the benefit of the very reduced price of coal. It is true that, upstream, the generators are making in the region of 20% profit, a large part of which comes from these coal stations. However, it is far from clear that they are handing it on to the consumer.
If we do not take this most obvious, easy and simple way of reducing our carbon emissions and we are serious about our decarbonisation—the Minister has reiterated the Government’s commitment to our decarbonisation targets—we will be forced to adopt more expensive subsidies. This policy will deliver us carbon reduction quickly and at least cost. Supporting this amendment is an indication that we are serious about climate change but, more importantly, that we are serious about achieving our objectives at the least cost for the consumer. This is an amendment that supports the consumer and I hope that the Government will find that they can support it.
My Lords, I will speak to the amendments in my name. I am grateful to my noble friend Lord Teverson and the noble Lord, Lord Whitty, for their amendments and to all those who have contributed to this debate. I remind the House of the policy intent behind the EPS. It is to ensure that no new coal-fired power station is built without CCS, and that it is done in a way that does not undermine the investment we will need in gas generation to keep the lights on at a reasonable cost to consumers.
Amendment 72 seeks to shorten the grandfathering period of the EPS from the end of 2044 to 2029. This shortening by some 15 years will increase uncertainty for gas investors. Without this certainty, we risk deterring or increasing the cost of new gas investments, with the obvious potential consequences for security of supply and costs to consumers. I recognise that 2044 is a long way off but this date is derived from what investors tell us is required. Under the current provisions, new gas plants consented in the later part of this decade and built in the early 2020s would have a little over 20 years of certainty in respect of how the EPS will apply to those assets. That is the amount of time that investors tell us is required to pay back all debt and see a return on equity in the project. In other words, with grandfathering, the EPS is not a barrier to financing new gas generation plants.
Noble Lords may be concerned that we may be locking in high levels of unabated gas generation well into the future that could risk achieving our legally binding 2050 carbon emissions target. I reassure noble Lords that the other measures under our market reforms will ensure that this is not the case and, therefore, that the EPS is consistent with our 2050 decarbonisation target. This is because unabated gas generation will be increasingly displaced by low-carbon generation over time. The Government set out clearly in our gas generation strategy how we expect gas plants’ load factors to decline as low carbon comes on to the system, and how in the very long term we expect it to be economically attractive for gas plants to retrofit carbon capture and storage equipment. Grandfathering the EPS until 2044 will not prevent this from happening. Grandfathering to just 2029 would risk deterring or increasing the cost of the investment in the new gas plants that we need to be built up to 2030.
I turn to Amendments 71 and 73. The approach proposed by my noble friend is very close to the one that we have already adopted. The Government have already committed to a regular three-yearly review of the EPS. The EPS will also be reviewed as part of the statutory review of EMR under Clause 58 of the Bill. The amendments would enable the statutory rate of emissions and the period for which it will apply to be revised very quickly following a review by way of an order. This is an approach that the Government have considered but have concerns about. The ability to revise the EPS very quickly could result in a specific investment hiatus in the run up to a review, due to the uncertainty that the review process introduces. Pre-development costs for power projects can run into tens of millions of pounds, so investors will be very aware of the risk that a quickly implemented decision to revise the EPS could render a project economically unviable, with the financial loss that could result.
That is why we have taken the approach that any future changes to the EPS should be by way of primary legislation. Combined with the three-year period between reviews, this will help to ensure that projects that are already in the planning system—by that stage having already had significant financial commitment—are able to complete that process before any changes to the EPS that would affect their project come into force. However, I recognise the spirit in which my noble friend has brought this amendment and the helpful intent to bring greater certainty to the review process and the process for making any future changes to the EPS. I will reflect on his suggestions with a view to how we might underpin his concerns without creating any unnecessary investment hiatus.
Turning to Amendment 74, the Government’s goal is an orderly transition away from coal to lower-carbon fuels over time in a way which does not create unnecessary costs for consumers. While we do not expect large numbers of coal plants to invest in clean-up equipment, a very small number of our more efficient plant may wish to do so. This amendment is very likely to deter that investment. In this scenario, more coal stations would have their operation constrained, and there could be more stations closing around the end of the decade than might otherwise be the case. This could require more gas plant to be built earlier to fill the gap at greater cost—ultimately, to consumers. Why should we close down our options in this way now when it could put our security of supply at risk and significantly increase costs to consumers? A small number of cleaned-up coal plants could provide greater diversity and bring additional resilience to the electricity system in the coming years, helping to ride any bumps in the road, given the significant investment challenge that we face.
I have also considered carefully the argument that by taking action to drive the closure of all of our coal power stations, we would be giving certainty to investors in new gas generation. While this may be conceptually true, it could also be true to say that you would give certainty to investors in electric cars if you banned all petrol vehicles, but that does not mean it would be a prudent or cost-effective thing to do.
Is the Minister aware that the setting of the EPS on these refurbished plants would not cause them to close but would simply prevent them baseloading? They would still be available for the rest of the decade and the decade beyond to act as backup plant.
If the noble Baroness will allow me to continue, I may be able to illustrate further and more clearly the Government’s intentions.
The Bill is about creating the conditions for investment. Intervening in this way and targeting the EPS on a particular set of generators and their assets risks damaging the confidence of investors in the UK as a place to invest in the energy sector. This is precisely the opposite of what the Bill is designed to achieve.
The amendment would also create a direct interplay between the EPS and what is a complex European directive, and I question whether the proposed amendment would be compliant with the UK’s European obligations, especially those under the industrial emissions directive. The way in which European law interacts with our domestic law in this area is complex, and the Government are not in a position to reassure the House today that the amendment would be compliant.
In summary, to accept this amendment would not be consistent with the purpose of the EPS. It is unnecessary and could potentially have negative impacts. Our position is supported by the CBI which said in its Report stage briefing,
“the current EPS proposal should remain unchanged”.
Do not be mistaken, the Government do not want old coal hanging around for ever. We want, through the combined effect of all the measures in this Bill, to create the conditions for an orderly, cost-effective transition away from high-carbon coal through investment in lower carbon alternatives. We want this to be achieved in the way that best protects the consumer.
I turn now to the amendments that stand in my name. They seek to assist the development and commercialisation of carbon capture and storage by providing that a time-limited exemption to the emissions performance standard will apply to carbon capture and storage projects during their commissioning phase. While this has always been the Government’s policy intention, these amendments seek to provide certainty in the Bill. Amendment 73B provides for a three-year exemption period for fossil fuel plant that use a complete CCS system. It also provides that the exemption period may only begin once the complete CCS system is ready for use and is physically in place. The exemption is time-limited and available until the end of 2027. This reflects our view that the exemption is a temporary measure designed to assist the development of CCS and we expect learning from the first projects and those expected quickly to follow to remove the need for an enduring exemption.
Amendment 74B adds to the existing powers available under Schedule 4 and enables the exemption to be applied with modifications so that it can be applied to only those parts of the fossil fuel plant that are fitted with a complete CCS system. This ensures that any unabated parts of the fossil fuel plant remain subject to the limit imposed by the EPS. The remaining amendments are consequential to deliver these objectives.
I emphasise that the exemption will be available to all future CCS projects that meet the necessary requirements, irrespective of whether they come forward under the Government’s CCS competition.
I hope that noble Lords will agree that these amendments provide helpful certainty to potential CCS investors. I hope that my noble friend will take reassurance from my response to his amendments and think carefully before deciding what to do. Investors will be watching us closely. The Government want to ensure that the UK remains an attractive place to invest. In the transition to a low-carbon economy, we want to put the interests of the consumers first.
We are beginning slowly to turn the corner of one of the bleakest economic downturns that we have faced for many decades. We see confidence returning in the interest of investors wanting to come to our great nation. Noble Lords raised the question of investment. Since 2010, we have seen £35 billion-worth of investment come to the UK, £20 billion of that in renewables. We know that we must do all that we can to reduce any financial burdens that consumers will ultimately bear. We did not invest when we should have done. This Government are doing so. My department is determined that we should not be facing threats to our energy security. It is because we are serious that this Bill is before your Lordships. The decision that you must take and bear is simple. Any delays to investment ultimately will impact on consumers.
I hope that I have made it clear that we want to see dirty fossil fuel off our grids, but in a timely, cost-effective and managed process. I hope that I have reassured my noble friend.
My Lords, I thank the Minister for going through that so comprehensively. She is right that this is a very green Bill. My noble friend Lord Lawson was quite right to accuse it of being a decarbonisation Bill. That is exactly what it is.
I very much welcome my noble friend’s comments about Amendment 71 and my amendments around grandfathering clauses. I do not think that I got the phrasing absolutely right and I look forward to her looking at that.
On Amendment 74, I want to come back to something said by my noble friend Lord Caithness. He said that we need to be practical and down to earth and to get involved in the reality of energy. This amendment was precisely about that. We have to remember that, as this provision stands, it does not guarantee that coal capacity will be there; it is left entirely to the whims of investment committees of the big six as to whether they decide to invest. We give up control at that point—we do not know. The future is indeterminate. If we passed this amendment and it became part of the Bill, we would then know what would happen. To me, that is better than knowing what might or might not happen.
As the Minister said, we are looking for investor certainty here. The only way that new gas will be invested in as an intermediate technology is through that certainty. At the moment, that investment is not taking place, despite the clear ambitions that it should. However, I understand the position of the Minister that if it were not for this Bill we would not have an emissions performance standard. I advocated it several times to the party opposite pre-2010 and it was never accepted, so this is a major step forward. I beg leave to withdraw Amendment 71.
Amendment 71 withdrawn.
Amendments 72 and 73 not moved.
Amendments 73A and 73B
73A: Clause 50, page 49, line 11, after “to” insert—
“(a) section (Introduction of carbon capture and storage: exemption from emissions limit), and(b) ”
73B: After Clause 50, insert the following new Clause—
“Introduction of carbon capture and storage: exemption from emissions limit
(1) The emissions limit duty does not apply during the exemption period in relation to fossil fuel plant for which there is a complete CCS system.
(2) For this purpose, a complete CCS system, in relation to fossil fuel plant, is a system of plant and facilities for—
(a) capturing some or all of the carbon dioxide (or any substance consisting primarily of carbon dioxide) that is produced by, or in connection with, generation of electricity by the generating station comprised in the fossil fuel plant,(b) transporting the carbon dioxide (or substance) captured, and(c) disposing of it by way of permanent storage.(3) The exemption period for any fossil fuel plant is the period—
(a) beginning with the first day on which the fossil fuel plant and its complete CCS system are ready for use, and(b) ending with—(i) the expiry of 3 years beginning with that day, or(ii) 31 December 2027,whichever is earlier.(4) In subsection (3), “use” includes testing in connection with the generation of electricity on a commercial scale.
(5) Subsection (1) is subject to any provision made by regulations under section 50(6)(b).”
Amendments 73A and 73B agreed.
Schedule 4: Application and modification of emissions limit duty
74: Schedule 4, page 130, line 3, at end insert—
“(iii) substantial pollution abatement equipment dealing with oxides of sulphur, oxides of nitrogen, heavy metal emissions or particles is fitted to the generating station.”
Amendments 74A to 74C
74A: Schedule 4, page 130, line 16, at end insert “, or the exemption in section (Introduction of carbon capture and storage: exemption from emissions limit),”
74B: Schedule 4, page 130, line 26, at end insert—
“Modifications where carbon capture and storage process used in relation to part of generating station3A (1) Regulations under section 50(6)(b) may provide for the exemption in section (Introduction of carbon capture and storage: exemption from emissions limit) to apply with modifications in cases where the complete CCS system for the fossil fuel plant relates to only part of the generating station.
(2) For this purpose—
(a) a complete CCS system relates to part of a generating station if it is a system for capturing some or all of the carbon dioxide (or any substance consisting primarily of carbon dioxide) that is produced by, or in connection with, generation of electricity by that part of the generating station, and(b) “complete CCS system” has the same meaning as in section (Introduction of carbon capture and storage: exemption from emissions limit).”
74C: Schedule 4, page 130, line 29, leave out from “where” to end of line 32 and insert “—
(a) the generating station is used for the first time, or permanently ceases to be used, for the generation of electricity,(b) any period during which the emissions limit duty does not apply in relation to the plant by virtue of section (Introduction of carbon capture and storage: exemption from emissions limit) begins or ends, or(c) the generating station, or any CCS plant comprised in the fossil fuel plant, is altered.”
Amendments 74A to 74C agreed.
Clause 53: Interpretation of Chapter 8
Amendments 74D and 74E
74D: Clause 53, page 52, line 5, after second “plant” insert “, or a system of plant and facilities,”
74E: Clause 53, page 52, line 37, after ““year”” insert “, except in section (Introduction of carbon capture and storage: exemption from emissions limit),”
Amendments 74D and 74E agreed.
Amendment 75 had been withdrawn from the Marshalled List.
76: After Clause 58, 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, Amendment 76 would insert a brief new clause after Clause 58. I declare an interest in that I am a member, supporter and honorary officer of a number of environmental and related NGOs working in this sphere. There is a considerable and significant consensus among a growing number of organisations that the approach put forward in the amendment is overdue. Prominent among those organisations is the Green Alliance—which really has done a great deal of important research—to which I personally am very grateful. I thank it for having very much prompted me to put forward the amendment. However, it is not just the Green Alliance. For example, the Committee on Climate Change noted in its recent report of 26 June that,
“further consideration should be given to banning specific types of biodegradable wastes, such as food waste, from landfill”.
I am glad to see that the noble Lord, Lord Deben, is in his place because nobody knows more about these things than he does. I was interested to be reminded that on 12 February this year he asked in this House whether it was not time that we banned this material—food waste—from landfill. As I recall, he argued that it was seriously dangerous to create methane. Banning it would enable us to insist upon wider recycling of what is wasted. Commenting on WRAP research into the feasibility of landfill bans, Liz Goodwin, chief executive officer, said:
“This piece of research shows that we could make some significant financial and environmental savings if we stopped sending certain types of rubbish to landfill”.
Tamar Energy and the PDM Group, both large AD investors, have called for food waste landfill bans. The Renewable Energy Association has also produced highly relevant supporting arguments.
During the first day on Report last Monday, proponents of the decarbonisation target amendment, backed by an impressive coalition of businesses, investors and civil society groups, powerfully argued that such a target would provide businesses with the certainty that they needed to invest. The target in their view would have lowered the cost of borrowing, the benefits of which would have filtered to consumers in the form of lower energy bills. A speedier move from a carbon-based energy system, which is becoming progressively more expensive, to a low-carbon system with high investment in energy efficiency would have guaranteed comparatively lower energy prices in the long term. In addition, the certainty of a target would have encouraged development of low-carbon supply chains and associated jobs in the UK.
Like the decarbonisation target amendment, this amendment would provide investors with greater certainty so that we can end the dumping of a substantial renewable energy source in the form of organic waste into landfill. This will benefit business and consumers, and help the UK to meet carbon and renewable energy targets. There are four key benefits. First, it will help the UK meet its renewable energy and climate change targets. Waste emissions, mostly from organic waste in landfill, represent about 3% of total UK emissions. Secondly, it would reduce the amount of waste going to landfill. As recently as 2009, the UK was still land-filling nearly 21 million tonnes of organic waste. Thirdly, the diversion of food waste from landfill would drive at least £693 million of feedstock to anaerobic digestion each year. Diverting this food waste from landfill would also save over £500 million in disposal costs. This is well demonstrated in valuable research by the Green Alliance. Fourthly, it would reduce risk. AD plants are not being built because of concerns about feedstock. Of Tamar Energy’s 40 proposed AD plants, 25 are at risk due to difficulties in sourcing food waste. Investment in these plants, which is already secured, represents the single largest clean-tech capital deal of 2013.
It was claimed in Committee that AD does not require targets because these would risk the creation of new compliance burdens for business and local authorities. However, the amendment would offer certainty to business. For example, as I have just outlined, Tamar Energy recently called for a ban on food waste to landfill. Feedstock risk is currently a major contributor to financing problems for the AD industry: banks are simply not lending to incineration plants without guaranteed feedstock arrangements with local authorities. It was recently reported that 25 of Tamar Energy’s 40 proposed AD plants are at risk due to difficulties in sourcing food waste, and that a landfill ban and separate food waste collections would address this problem. Indeed, PDM Group also supports a landfill ban for food waste as this would underpin investment in AD plants.
What is more, it is worth noting that the lack of concern in official quarters about feedstock risk for anaerobic digestion contrasts poorly with the strong concern about feedstock risk for conventional gas generation. In July 2012, the Chancellor announced £500 million in tax breaks for new oil and gas field development to give,
“investors the long-term certainty needed to make decisions on investment in … gas”.
In 2013, he halved the tax rate for onshore gas production. This contrast surely needs to be addressed. If the amendment does nothing else, it enables us to address it.
My Lords, I am flailing around slightly but I want to make a different point. The noble Lord’s point is well taken: there is no point in food waste unnecessarily going to landfill. It can also be composted in the right mixture with other green waste, and so on. That is an alternative, because it then makes a very good soil improver. The only problem is that the regulations around the mobile plant SR2010 No. 4 permits that you have to get can hold things up. They can be quite difficult to get and there is sometimes quite a backlog. The other thing is that you do not really know how much they are going to allow you to put on. Instead of trusting your agronomist to get your fertiliser recommendations right, the Environment Agency insists on trying to do it some time ahead. I am not quite sure why.
The Environment Agency seems to think that farmers are trying to poison their soil. A sensible farmer is not trying to poison their soil. They will have a proper agronomist giving recommendations. That would be much easier to manage, because you have to start putting the waste onto heaps during the year. You cannot suddenly get, in our case, 12,000 tonnes out of a composting operation in one month. You can only put it on in that gap when you are harvesting, before you cultivate the next year. You are expected to incorporate it within a day, because if anyone complains about the smell they come down on you like a ton of bricks—even though there can be other farmers spreading slurry and all sorts of manures around the place, so the smell could easily be coming from them.
At the moment, those who are trying to avoid food waste going to landfill are sometimes having a difficult time. It might be nice if the Environment Agency looked slightly more kindly on it at times. So far we have not had any real problem, but I can see it building up. Last year we suddenly had the amount that we could put on reduced, which caused a certain amount of chaos to our planning because we buy fertiliser a long time in advance, and so need predictability. It would be far better to leave it to our agronomist.
My Lords, this is the amendment that we discussed in Committee in July. On this side of the House, we have considerable sympathy and agreement with my noble friend’s amendment and the sentiments behind it. In Committee, the debate highlighted the achievements made by the previous Labour Government in initiating waste reduction plans; the progress made since the last election, with the setting up of the Courtauld agreement; and the developments made at EU level with the landfill directive, setting up targets to reduce the amount of biodegradable municipal waste entering landfill in 2020 to 35% of 1995 levels. The UK is on course to meet that target; there is an EU-wide review which should reveal that next year.
Over the past couple of years, the number of plants set up to produce energy from anaerobic digestion of waste has doubled to 110. The Minister spoke of encouraging this through feed-in tariffs and the renewable heat incentive, as well as the Green Investment Bank’s initiative, in her reply in July. My noble friend’s amendment is pushing at an open door; it is happening already, but as part of an industry and the EU-wide process rather than through adding it to the Bill.
In my response in July, I said that recycling organic waste for renewable energy generation is no substitute for eliminating the volume of food waste produced in the first place. Ten days ago, Tesco revealed that in the first six months of 2013 it generated 30,000 tonnes of food waste. Obviously, this figure revealed widespread differences between different foodstuffs. To reduce waste, it is important first to discover where that waste is taking place, so that action can be made more effective. Tesco added that, where possible, any food which could not be sold could also be donated to the charity sector, Foodshare and other food banks, or diverted to animal feed for livestock. This is also part of an effective answer.
While the Minister will be resistant to the amendment, it gives me the opportunity to ask her to commit the Government to certain helpful activities. Would she promise to report back to the House at regular intervals—I suggest twice annually—on actions that the Government are taking with the aim of reducing organic landfill waste, as well as undertaking to report back to Parliament immediately after the 2014 EU review is published, offering an updated strategy for reducing landfill of organic waste?
My Lords, I shall speak slightly out of order here, for which I apologise. I tabled a similar amendment in Committee, and I am very pleased that the noble Lord, Lord Judd, has brought this matter forward again.
This is not my noble friend the Minister’s area, or her department’s; it is very much a Defra area. Although I suspect that this Bill is not the best place to do this, I very much hope that Defra will take this area increasingly seriously and that the Government will find a way in which to move the agenda forward.
My Lords, I am grateful to the noble Lord, Lord Judd, for prompting further debate on the setting of targets for the landfilling of waste. Amendment 76 is designed to require the Secretary of State to set out a plan and timeframe, as soon as is practicable, for reducing and eventually eliminating the landfilling of organic waste. It would 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.
The Government support the minimisation of organic waste going into landfill and are sympathetic to the aims of this amendment. When we debated this matter in Committee, I outlined the considerable progress made in minimising organic waste entering landfill by the reduction of food waste and the increase in the number of anaerobic digesters generating energy from food waste. We very much agree with the points that the noble Lord made during that debate about the value of avoiding emissions of greenhouse gases from landfill. Preventing food waste is the most effective approach in carbon-saving terms: compared to landfilling, each tonne of food waste prevented means 4.2 tonnes of CO2-equivalent emissions are avoided.
We have worked very successfully with industry to reduce supply chain food and packaging waste by nearly 10% over the past three years, while the Waste and Resources Action Programme’s “Love Food Hate Waste” campaign helps consumers to make informed choices on reducing food waste. Household food waste is down by 13% since 2006, and we expect a 20% reduction to be achieved during the three phases of the Courtauld commitment that all the major supermarkets have signed up to. These results show that the voluntary approach can deliver real reductions in waste while allowing businesses to be more efficient and competitive. We want to build on this work with businesses rather than impose targets or restrictions. When food waste cannot be avoided, anaerobic digestion is currently the best option that we have, because it produces renewable energy and a valuable fertiliser. Over the years, we have provided a range of support through WRAP for anaerobic digestion, including £11 million in grant funding.
The substantial increase in the number of anaerobic digesters generating energy from waste continues. We now have more than 100 megawatts of capacity for waste and, together with the long-standing use of anaerobic digestion in the sewage treatment sector, this gives us capacity to generate 1.5 terawatt hours annually. In the Government’s anaerobic digestion strategy to tackle barriers to anaerobic digestion, we estimated that there was a potential to generate 3 terawatt hours to 5 terawatt hours of electricity by 2020. With another 300 megawatts of capacity consented or being built, the industry is well on its way to delivering that potential.
Most of the actions in our anaerobic digestion strategy are now complete. The Government published a second progress report in August and it is now for industry to use the outputs to ensure that the barriers they identified are removed. I hope the noble Lord will be reassured that we can continue to reduce organic waste entering landfill by encouraging food waste prevention and supporting a growing anaerobic digestion industry without introducing further targets to those set out in the EU landfill directive. I also add that current evidence suggests that further statutory targets would have an impact on businesses and local authorities in compliance and monitoring, risking additional cost burdens on business. It is likely that these additional cost burdens faced by industry and local authorities would be passed on to the consumer, which means that consumers could risk facing higher costs if additional statutory landfill bans were introduced.
The noble Lord, Lord Grantchester, asked about reporting on a reduction of landfill. Landfill tax is the main form of reducing organic waste from landfill. Defra is encouraging food waste prevention and encouraging the use of anaerobic digestion; the Environment Agency monitors emissions under the industrial emissions directive. Under the permitting regulations, the Environment Agency also monitors the air quality.
We are mindful of the concerns expressed by the noble Lord, Lord Judd, around this sector, but I hope that I have been able to satisfy the noble Lord that the actions that we are taking and our encouragement of industries such as anaerobic digestive generators to make use of waste will help him to decide to withdraw his amendment.
I thank those who have participated in this short debate. I particularly thank my noble friend on the Front Bench for his rather double-edged intervention. I do not doubt his good will, but I have anxieties about his complacency—and I hope that he forgives me for putting it so bluntly. I am afraid that goes for the Minister as well.
What we have not heard from either Front Bench is any kind of response to what is already in evidence: that those who are responsible for developing the industry in this sphere are already running into difficulty. It is all right coming here and telling us, “We have got a trend and it is going well”; the warning signals are there: they are not attracting the money they should be attracting for investment. The reason for this is uncertainty over key supplies. Surely we do not wait until the whole thing collapses. That is not a very sensible approach to political management. If the warning signs are there, this is the time to take action. I sometimes find it quite extraordinary. In quite a number of countries in Europe it is absolutely taken for granted that this is the way to approach it; for example, Flanders, the Netherlands, Germany, Austria and Sweden all have compulsory arrangements in this area.
We say that we want to ensure that this change takes place and that we are very glad that it has proved itself as something that can develop. We do not, however, want it to dry up. I ask the Minister to go away from this brief exchange—perhaps I might very gently suggest that my Front Bench does the same—and look at what is actually happening now; not the trends in the past, but what is happening now. It is because of that that action is necessary.
I shall, of course, at this stage withdraw the amendment, but I hope that it is not just a matter of the Minister coming and reporting to my noble friend, “Ah, I’m afraid it has all dried up; it is not happening”. It is a matter of looking at it, saying what the warning signs are and taking action. I beg leave to withdraw the amendment.
Amendment 76 withdrawn.
Clause 60: Nuclear safety purposes
76A: Clause 60, page 57, line 14, after “persons” insert “and the environment”
My Lords, in moving Amendment 76A, I shall speak also to Amendment 76B which is grouped with it.
We now come to the central part of this Bill which takes up 60 pages of the main Bill; it comes to something like 60 clauses and a large chunk—two-thirds—of the schedules. It has received relatively little attention in the course of the Bill’s proceedings, and virtually none in another place. We gave it reasonable consideration in Committee and we reached a degree of consensus. There are some things I still have queries about, but I am grateful to the Minister for explaining aspects of that and also to her officials who explained some of the aspects even further.
It still remains, however, that this is part of the Bill which has received very little public and wider attention. Yet it is one of the most important parts of the Bill because it regulates the nuclear industry. The policy of the Government, and to a large extent the policy of all parties now, is that of a significant shift towards nuclear power within our energy mix. We know the history of nuclear power is controversial, not only in the past here, but also worldwide. It is therefore essential that we get the system of regulation in this area right and the balance right. The Government have, to a large extent, done that. It has been quite a long gestation period taking what will be the ONR out of the Health and Safety Executive, giving it certain additional powers and clarifying in one piece of statute what its role is. I commend that. While it makes for a rather lopsided Bill, it is an important achievement. My amendments, therefore, are not attempting to upset the main thrust of the provisions within these sections, but they are trying to clarify some aspects of it. I hope that the Minister can give me some satisfaction on that.
One of the main roles of the ONR, and one of the most important public roles, will be the approval of designs for new reactors and the construction process that goes with it. Yet in all those pages there is very little mention of that role. It is mentioned here in Clause 60 and it is mentioned specifically under nuclear safety. The reason that it is so important is that both those who argue strongly in favour of nuclear power and those who argue strongly against it are concerned about the nature of the design of the reactor. It has been an issue in relation to the Hinkley Point approval that this reactor may not be the most appropriate reactor for the future—it may not be the most cost-effective and it may not be the best in terms of the contribution to the environment. Whether those criticisms are true or not, the Government rightly had a very heavy assessment, verification and approval process before they gave the go-ahead to the Hinkley Point project. The ONR in its shadow form and the Environment Agency both had a role in looking at that design. They looked at the design itself, its engineering, its safety requirements, its operational requirements, its effect on the ecology and the environment and of course they looked at its economics. They gave approval following a pretty long process and managed to rationalise the number of planning and other approvals that were needed.
I declare an interest in that until the end of last year I was a member of the board of the Environment Agency and I took a particular interest in the nuclear dimension of its activities. Both on the ONR/HSE side and on the Environment Agency side that was a very effective process. It was, however, an ad hoc process. It was a process that the Government invented when we were talking about several different designs that were possible and several different sites a couple of years earlier. It is still true that there has been some criticism of the choice of design being what some people refer to as an old design for what is a 35-year project. I do not want to enter into an argument about the merits of those criticisms myself, but it is important that the Government and the regulatory system have a robust system of ensuring that the design has been through the most rigorous appraisal system.
There are of course other designs that will be coming along. We have other sites that are capable and have been already designated by the Government as potential nuclear sites. There are other designs out there which are already operational or nearly operational: the CANDU system, a boiling water system, a PRISM system and there are companies and consortia that are promoting those here and elsewhere in the world. It is therefore highly possible that a different consortium from the one that is operating at Hinkley Point will come up with a different design which will need to be subject to an equally rigorous process. In that process it is vital that part of the responsibility of the ONR is to be at the cutting edge of nuclear technology and all the sub-technologies that go to make up the design. It is also important that it is cost-efficient.
The other criticism of the Hinkley Point deal is that we are paying too much for it. I again make no point on that at this stage. It is clearly right, however, that it is done on the most cost-effective basis, both for public acceptability and for the importance to the economy of moving to a greater share of nuclear power through the 2020s. It is also important that maximum safety is built in and, more generally, the protection of the environment.
Reading these sections of the Bill, one would not immediately deduce that this is, in a sense, the central role of the ONR. The approval of new systems, the new reactor designs and the appropriateness in the timescale is an important part of our ability to meet our carbon targets and to ensure that there is no detrimental effect either to the economy or to the environment. It deserves at least underlining—which is all my amendment does—that the role of the ONR in this respect is crucial and comprehensive, and that it is not only to do with safety but all these other matters as well.
Amendment 76A makes it clear that it is not only the safety of persons that is relevant but the safety of, and impact on, the environment. For that reason it is also important that there is specific reference in the Bill to the role of the Environment Agency. That agency played an equal role in the Hinkley Point case. The Environment Agency clearly has powers under the environment Acts but what we discussing is a joint responsibility. The ONR is not taking over that responsibility from the Environment Agency, which presumably could have been an option when the ONR concept was delivered.
Amendment 78B underlines what I have been talking about and makes it clear that in approving a design, and the construction plans that go with it, there is an absolute obligation on the ONR to ensure that they are of the very highest quality. The amendment also covers issues of cost-effectiveness, safety and security. This is central to the task of the ONR, as I have argued. The safety dimension is central to the safety of the population and of the environment. It is also important in a political sense. The public’s acceptance of the shift to nuclear power is fragile. It is significant but fragile, as we saw in Germany and other countries following the events at Fukushima. Therefore, it is important that the regulator we put in control of this system is seen as having a comprehensive and robust responsibility to deliver on all those elements when approving a major new reactor design. On every occasion we need to go through a very detailed process. It is important that it is written in large letters that this is one of the ONR’s central functions.
The Minister may say that this amendment is superfluous but in terms of reassuring the public it is important. The Government’s policy on this issue may be sufficient but the issue of the certification and approval of design must be an important part of the Bill. I hope that my few words on these two amendments will take it some way in that direction. I beg to move.
My Lords, the House is very much indebted to the noble Lord, Lord Whitty, for the amount of time and the expertise that he has brought to bear on this important part of the Bill, as he rightly said. It has been a very long time in gestation. It was recognised two, even three, years ago that the difficulties which the ONR—it was then the nuclear inspectorate—faced in recruiting people to do the very specific task that is required when approving nuclear designs meant that they had to be sui generis so far as the terms of the employment were concerned. They could not be subject to the normal standard Civil Service rules. That is the primary aim of this part of the Bill: namely, to take the ONR out of the standard Civil Service terms of contract for the people it employs. It takes anything up to 20 years before an inspector becomes fully qualified to carry out the extremely expert work that is necessary to approve the designs of nuclear power stations and they are difficult people to come by. One needs to be competitive in this regard. The Select Committee on Science and Technology heard evidence from the former chief inspector, Dr Mike Weightman, who was very clear about this and, indeed, was glad that the issue was at last coming forward in this Bill. He made it clear that he had had to wait rather a long time for this to be done. The Government are very much to be congratulated on including the issue in the Bill.
Amendment 76A, in the name of the noble Lord, Lord Whitty, and others, seeks to add the words “and the environment”. As a former board member of the Environment Agency, the noble Lord has had much more experience of this issue than I have. As he rightly said, the regulation of this area is done by both bodies—the inspectorate, now the Office for Nuclear Regulation, and the Environment Agency. Their roles may overlap but they are most emphatically not the same. Nuclear science and technology is essentially the area of expertise of the ONR whereas the Environment Agency has the broader role of looking at the impact of a nuclear plant on the surrounding environment and at atmospheric pollution and so on. These roles are not the same. I will be interested to hear what my noble friend has to say on this. However, if I may say so, to add “and the environment” would confuse the issue. This part of the Bill does not deal with the Environment Agency, which continues to do exactly what it did when the noble Lord was a member of its board. I would be interested to know the reaction of the Environment Agency to the amendment. I think it would say, “It is not for them, it is for us”, meaning the agency. As I say, I shall be interested to hear what my noble friend has to say but it raises a question.
As regards Amendment 78B, we need to pay greater attention to cost-effectiveness. I do not know how many noble Lords have read the very interesting article by my noble friend Lord Ridley published a few weeks ago in which he talked about the cost pressures of the nuclear inspectorate on the price of a nuclear power station. I do not have the article in front of me but I remember he said that the inspectorate is taking a very, very safe system and insisting that it will be a very, very, very safe system. The question is: what will that cost? I would be interested to know to what extent it is the inspectorate’s role to consider the cost of the additional requirements that it may impose on the design of a plant.
I am absolutely satisfied that the public will expect the inspectorate to have very high standards. Indeed, I spent some years as the honorary president of the Energy Industries Council, which represents some 650 companies in the supply chain for all the energy industries. One of the things I find myself saying over and over again is that if firms are going to sell to the nuclear industry they must get used to nuclear standards which, for the most part, are considerably higher than general engineering standards, and rightly so. However, is it the role of the ONR to look to the question of cost? It has to consider the design of the plant that is put before it. As the noble Lord rightly said, there will be several. It is already looking at the advanced boiling water reactor put forward by Horizon Nuclear Power, which is now owned by Hitachi. It is not yet looking at either CANDU or PRISM—the other two items the noble Lord mentioned—which are still being examined by the Nuclear Decommissioning Authority and the department. However, if a design is put forward for either of those two items, the inspectorate will have to look at those as well. Should it be concerned about the cost? The only cost with which it ought to be concerned is whether we are expecting too high a standard at too great a cost, and whether this is absolutely essential. I suspect there is a temptation to say that anything which makes an installation safe—even if it has to be very, very, very safe—should be done even if it costs a lot. I do not agree with that. There must be a role here for looking at the particular cost for the particular requirement that the inspectorate is asked to look at.
As I say, I shall be interested to hear what my noble friend says about that but I think there may be greater merit in this amendment than in Amendment 76A.
My Lords, I apologise that I was unable to play much of a role in Committee on this important Bill because of a clash with other work here. When one is in a party of one, or one and a quarter at best, it is difficult to spread oneself around. I have a considerable interest in the question of nuclear energy and I am not in the mainstream of my party’s opinion. My party has tended to be anti-nuclear on the basis of fearing consequences if accidents of the sort we have seen in Japan and elsewhere were to happen. I did a degree in physics at Manchester University which contained a large element of nuclear physics; I worked for a time building the Trawsfynydd nuclear power station; and the Wylfa nuclear power station is also within the old county of Gwynedd, my home area. Therefore, I was most grateful to the noble Lord, Lord Whitty, for introducing the amendment in a broad context, bringing in the environment, because the environmental consequence of nuclear decisions is central to the public perception.
We are expecting the go-ahead, in Anglesey, for the Wylfa B station, something that I am very much in support of, as is a majority of opinion within the county of Anglesey. There are, however, many people who have worries about safety. As the noble Lord, Lord Whitty, mentioned, those worries have to be taken on board and have to be central to the thinking of the structures we are dealing with here. I listened to the noble Lord, Lord Jenkin, a moment ago, saying that there is sometimes the danger of going for the extra step of safety at a disproportionate cost. Obviously, there is a risk that has to be taken at some point, but the communities are only happy to support the nuclear industry when they think that that risk is very small indeed, that all steps can be taken to minimise those risks and that structures are being put in place to do that.
In the context of this part of the Bill and this amendment, one aspect of the environmental impact that arises from nuclear energy is the environmental impact associated with decommissioning. The Minister may recall that I raised this question at Question Time not so long ago: it is a matter of some concern. The new generation of nuclear power stations have easier and faster decommissioning built into them—one is very much aware of that. It is not the same decommissioning process as was necessary for the previous generations. One thinks of the Trawsfynydd nuclear power station which stopped generating electricity 20 years ago and is still being decommissioned, with 700 people still working on site on the decommissioning and another three years at least of work for those 700. That is an enormous cost. One accepts that, with luck, the costs of decommissioning will be less when the technological needs of decommissioning have been more appropriately designed into the original design of the nuclear power station, but there are always uncertainties.
The question that I put to the Minister on the back of the amendment, which deals with the environment—and it is an environmental consequence—is what if those who are involved in the construction and running of nuclear power stations and who are charged with the internalising of the costs of decommissioning into the overall cost package were to go bankrupt? What if that company goes to the wall? What happens to the steps needed to ensure safe decommissioning with regard to the impact on the environment if it is not properly handled?
I understand that at the point of negotiating contracts with companies such as Hitachi and the others, the Government clearly want to make sure that the companies that may make profit out of this pay the costs that are consequential on the work they are undertaking. Of course, it is right that this should be so, but there still needs to be some guarantee, at the end of the road, that the communities that are hosting this new generation of nuclear power stations cannot, under any circumstances, be left with a nuclear hulk the cost of decommissioning of which nobody is willing to take on. I believe that assurances along these lines are needed in order to make it easier for those, such as myself, who are in favour of nuclear power, to be able to argue the case. It is a worry and I have not heard how it will be addressed in those unfortunate, unlikely but still possible circumstances that could arise at some date in the future.
My Lords, after the slight wobble with my Front Bench a moment ago, I am very glad to find myself 300% on board with them. I think that the amendments are absolutely right; I hope that they press them hard and that the Minister will find the opportunity to respond positively.
I always get a bit worried about what is happening with climate change in the sense that I am never quite sure that the principles with which I grew up still apply, but if the prevailing wind in Britain is still south-westerly, I live 12 miles north-east of Sellafield so I obviously take these arguments very seriously indeed. I am in favour of the next generation of nuclear energy: there is no argument about that, and obviously we in Cumbria will play our part in one way or another. That is given, but this is highly dangerous, lethal engineering of which we are speaking and it seems to me that we cannot have anything but the highest standards. I was very glad to find myself sympathising with a great deal of what the noble Lord, Lord Jenkin, was saying, but I could not quite buy his total argument that very, very, very safe was perhaps too much. I think that the developments have to be as safe as they can be.
As we go into this new generation of construction we have heard quite explicitly from the Government—it has been repeated tonight—that we have not got the necessary expertise. This is a very hazardous development. I think that we need some very specific, concrete plans from the Government for bringing the preparation of our own engineering capacity up to date and I urge my own colleagues in opposition to take this seriously too. I do not like the prospect of our being dependent upon foreign expertise in the area of safety: I do not think that it is in any way an ideal situation.
The noble Lord, Lord Wigley, made the point about, “What if?”. I do not think that one can ask too many such questions when we are going into this very important new development. The basic issue is that we have an engineering deficit in terms of our own capabilities and we are putting ourselves into the hands of foreign engineers. Everyone will know that I am an internationalist second to none, but it seems to me that we need to be very clear about how we are going to generate the expertise in this country and very fast indeed.
My Lords, I am slightly wary of the amendment including the environment in the duties of the ONR. The only reason for that is that I think that it confuses the issue. My noble friend Lord Jenkin was absolutely right: the environment should be with the Environment Agency and design should be with the ONR. If we give the ONR the environment as well, I think that there will be more confusion than light and that would be an unhappy situation.
The noble Lord, Lord Judd, talked about the importance of having our own people on the safety and security standards. Have we not blown it, from being world leaders to having to rely on overseas firms? Not that I am against that, but to have lost the world lead that we had is one of the great tragedies of the past 50 years. I am particularly sad that the fast breeder reactor at Dounreay, just down the road from my home, is not flourishing but is being decommissioned.
One of the reasons why we lost our world lead is that we did not take public opinion with us. This is a crucial issue and Amendment 78A in the name of the noble Lord, Lord Whitty, is perhaps more relevant in that regard. When the ONR and the Environment Agency look at these plans they have to be able to say that this has the seal of approval under the highest standards and quality that are right for Britain. If that does not happen, we will lose the support of public opinion again. It will be back to not just square one but minus five on the scale. That would be a sadness.
The noble Lord, Lord Whitty, reminded us that there are different designs. That is a concern and I wish that we would stick to one design in the competition. If you can replicate that design, you are going to lower costs. My noble friend Lord Jenkin referred to my noble friend Lord Ridley’s article of not so long ago in the Times. One of his arguments was that we should have a number of smaller nuclear plants, all identical. You could then set the safety standards right at the beginning, replicate the plants and have in-house expertise. Although I am a great proponent of and believer in competition, there is an argument here for saying that, having reached this stage, we ought to stick with one design and replicate it because that will help lower costs and help us get the relevant expertise into this area. If you have to have one set of expertise for what you are building at Hinckley, another for Anglesey and another for elsewhere, that might stretch us too far. I would therefore welcome anything that my noble friend can say on that.
My Lords, as I read subsection (1) of Amendment 78B, it seems to distinguish between design and construction; and in subsection (2), cost-effectiveness seems to be required only in relation to construction and does not seem to apply directly to the design. That may be deliberate—I am not sure—but that needs some explanation.
My Lords, I should like to express my opinion and interest in Amendment 76A. It is clear from what it says that the ONR will have responsibility for protecting “persons” against risk of harm from ionising radiation. In fact, pretty well all the risks that one can think of are those that affect persons. Perhaps in slight contrast to my noble friend Lord Caithness, my worry would be that the Environment Agency will have a big role in the approval, design and putting in place of a nuclear power station but it is more likely that the Office for Nuclear Regulation will be the body that is watching what happens day by day as the plant is running. While one can state that someone has responsibility for the environment—which is a nice, all-embracing term that we might think would take care of everything—we need to consider what the threat to the environment might be. We do not expect nuclear power stations to blow up but a whole lot of my sheep were prevented from going to market because of the nuclear explosion at Chernobyl, and various neighbours of mine were required to put all their sheep through a nuclear scanner. One man actually tried to put his dog through it in order to show the possible dangers from radiation. However, there is the possibility of food supplies being affected. At Fukushima, the issue was marine pollution. I want to be sure that the Office for Nuclear Regulation will be aware of the ongoing operation of plants in order to protect those elements.
My Lords, I thank the noble Lords, Lord Whitty and Lord Grantchester, and the noble Baroness, Lady Worthington, for their amendments. I also thank all noble Lords who have taken part in this important debate on the nuclear regulation clauses in the Bill. My noble friends Lord Jenkin and Lord Caithness, who have a great deal of experience and knowledge in these matters, are right to point out that there could be some confusion if we were to take these amendments as they are laid out.
Amendment 76A seeks to expand the ONR’s nuclear safety purposes to include responsibility for the environment. As my noble friend Lord Jenkin pointed out, a regulatory framework is already in place to protect the environment and the relevant agencies—the Environment Agency, the Scottish Environment Protection Agency and Natural Resources Wales—are well placed to carry out this role. The interim ONR has a strong working relationship with these regulators, which will continue once the ONR becomes a statutory body.
I understand noble Lords’ interest in the regulation of the environment but it would not be appropriate to expand the ONR’s purposes to overlap with those of established regulators. This would create conflict between two different regulators in the same field and place additional regulatory burdens upon members of the regulated community. As I said earlier, it would create confusion.
Amendment 78B seeks to include a new clause in the Bill concerning the design and construction of nuclear installations. It places a responsibility on the ONR, in conjunction with the Environment Agency, to regulate the design and construction of installations. The amendment also requires that the ONR alone is responsible for ensuring not only the highest technological and safety standards but that the most cost-effective measures are taken.
First, I reassure noble Lords that the regulation of the design and construction of nuclear installations is firmly within the ONR’s purposes and that the organisation, through well established legislation such as the Nuclear Installations Act 1965 and the Health and Safety at Work etc. Act 1974 will continue to do this. Secondly, the ONR has a strong working relationship with the Environment Agency in its generic design programme, and this will continue to be in place. To place such a duty in the Bill is therefore unnecessary. It would also be inappropriate to place the ONR under a duty to require the industry to use the most advanced technology available. The role of the ONR is to ensure that the design and construction of nuclear installations meet safety standards. This may involve the use of new or advanced technology. However, the focus is rightly on achieving the highest possible safety standards.
I reassure noble Lords that in undertaking its function with respect to the design and construction of nuclear installations, the ONR will work to ensure that these plants are designed and built not only to be safe but to make use of appropriately advanced and proven technology. It would be grossly inappropriate to place a duty on the safety regulator to regulate the cost efficiency of the construction of these installations. Such a requirement risks diverting the ONR’s attention away from its crucial safety role and placing potentially conflicting requirements on its regulators.
I agree with the sentiment that nuclear installations must be designed, built and operated to deliver value for money. However, I do not believe that this should or can be achieved by placing the safety regulator in the position where it must ensure that this is the case. It is for companies such as EDF to build and operate new nuclear power stations and make decisions about which reactors they use. It is important that any reactor used is safe and effective in its design, and the UK has a strong regulatory regime in place to ensure that that is the case. I understand that we need to have value for consumers, but it is not the role of the ONR to involve itself in the cost of design. The central role for the ONR is to ensure that we have the highest standards of safety in place.
My noble friend Lord Jenkin asked whether the ONR was expecting too much in terms of safety. The ONR expects nuclear installations to reduce risk as far as is reasonably practical. That is an established tenet of health and safety law and the nuclear industry is comfortable working within this regulatory framework.
The noble Lord, Lord Wigley, asked what would happen to the decommissioning costs if an operator became bankrupt. Under the funded decommissioning programme, operators of new nuclear power stations will be required to meet agreements from the Secretary of State to ensure that costs of waste management and decommissioning are met from day one for operators. These arrangements will need to be independent of the operator and will therefore take account of the operator going bankrupt.
I am very grateful to the Minister. I have no doubt that there will be a funding process that ensures that there is a pool of money to meet what is foreseen as the decommissioning costs. However, what happens if the standards, as they develop over a lifetime or 20 or 30 years, change in a way that leads to additional costs, or if the economic circumstances of the company disintegrate, for whatever reason, and it is not able to top up that pool as it goes along? What, then, is the safeguard that she and the Government can give to communities that there will be somebody who will step in and not leave them with a nuclear hulk, with all the implications that that could have? Those assurances are needed by the communities that are going to be welcoming these nuclear installations.
My Lords, I take the noble Lord’s concerns very seriously. It may be helpful if he would allow me to write to him in further detail about the decommissioning plans that we have in place. I will try to reassure him that the independents with these funds in place are away from the operators, and we are keen to make sure that the funds are met. However, since I have not reassured him enough, I think it may be helpful to write to him.
My noble friend the Duke of Montrose asked if the ONR will regulate ongoing operations of power stations. The ONR will continue to regulate and monitor installations as they are operating and beyond. It will continue to work closely with the Environment Agency and, of course, the other, separate agencies of the devolved powers to ensure that the effects of nuclear power generation on the environment are monitored and action taken where necessary.
My noble friend Lord Caithness said that we should have a single design for reactors. The Government’s position has always been clear in that we encourage diversity in reactor design but of course, as with all things, they have to meet the highest standards that we expect of them.
Frankly, I am a little confused, and I wonder whether the Minister could put me right. She said earlier in her response that of course these things were up to the company to perform as required. Of course, this is all happening as a result of a tough political decision by the Government. We cannot walk away, as a nation or a Government, from our ultimate responsibility. What some of us are concerned about is having systems in place that ensure that companies are indeed performing as expected. In this context, we come back to what we were discussing earlier, that we cannot be certain that everything is being done as it should be because we ourselves say that we have not got that expertise. Can the Minister address these issues? There really is a credibility gap.
My Lords, I recognise that the noble Lord, Lord Judd, talks about the resources and the capabilities that we require going forward. We are mindful of that, and so is the ONR. There are a range of measures that the ONR is already engaged in to replace a depleted number of experts. I reassure the noble Lord that in saying that it is for companies to build and operate does not detract from the ONR’s main business, which is to ensure that reactors meet the highest standards of safety. We are measuring two things together, including the fact we have got the resources and capabilities in place, which the ONR is very aware of, as are the Government.
This is a historical vacuum that we are filling—the ONR is well aware of it—but there are a great deal of measures that the ONR is taking to ensure that we have those ongoing capabilities coming forward. We know, and take seriously, what the noble Lord is asking.
I really am grateful to the Minister because she is trying very hard to reassure me and I always find myself being seduced when she is at the Dispatch Box with her arguments. However, I hope that she will agree with me that it is an aspiration on our part; as a nation, we have not got the means to be certain that what we are aspiring to, and exhorting people to do, is in fact being done. That is why it is so incredibly urgent to close this engineering expertise gap and to make sure that the credibility is foolproof.
My Lords, I thank the Minister and everybody who has taken part in this debate, and I will answer some of their points. The noble Lord, Lord Jenkin, is clearly right that the trigger for setting up the ONR under a new statutory basis was to take it out of the Civil Service, and a large part of the reason behind that was the need to ensure that we have adequate expertise in this field. It is a field that has been allowed to run down; we are probably not without expertise at this point, but they are ageing. Some of them are tempted elsewhere and it is a global market, and therefore it was important for us to ensure that this happened.
Although that may have been the trigger, we have a wider prospect here of a largely comprehensive regulator having its duties set out in a fair amount of detail in this Bill. It would be wrong to say that it is entirely a reflection of the fact that we potentially face a scarcity of resources. Having said that, it is of course important, as the noble Lord, Lord Jenkin, and my noble friend Lord Judd have said, that we address that issue in terms of training provision, investment and our ability to compete for global talent. However, there are wider issues involved here as well.
Objection was made to the reference in the first of these amendments to putting “and environment” in the responsibilities of the ONR. I have no desire—and my previous colleagues at the Environment Agency would no doubt shoot me if I had—to change the boundaries of responsibility between the EA and the ONR. It is important that they are both operating in this area and operating to their own expertise. However, it is also true, if you look at nuclear processes, and some other processes as well, that the hazard involved, the potential risk and the need for minimising that risk is not only to the personnel in the immediate area and those who may be visiting in the immediate population, but also to the environment. If my noble friend Lord Judd lives 12 miles from Sellafield, he will know what I am talking about. If anything were to happen at Sellafield, not only would he and the population in his village be at risk but the totality of the environment of West Cumbria would be at risk as well. It is therefore important that, in approving a particular process or way of dealing with that process, the ONR at least takes cognisance of the fact that there is an environmental dimension. The expertise and regulatory authority may rest with the Environment Agency but the ONR will also have to take that into account. I do not find that confusing; it rounds off what the responsibilities are but does not change the regulatory boundaries.
Amendment 78B refers to the ONA acting in conjunction with the Environment Agency, not taking over the role of the EA. In answer to the noble and learned Lord, Lord Mackay, with my reference to approval of design I was not making an absolute distinction between design and construction, but the role of the EA is different in each case. In terms of construction, all sorts of things come into place in terms of the effect on the ecology, the flood risk and everything else, but in terms of design, both environmental and safety issues have to be built in by the two bodies acting in conjunction with each other.
To answer the noble Earl, Lord Caithness, it would be interesting if the Government decided that all the designs would be the same, but we are talking about 50 years of new nuclear build. We are already faced with the view of some people that the design at Hinkley Point is out of date. That may be wrong or it may be right, but it would be wrong for us to close our minds and say that we are looking for a single design for all the nuclear power stations in the places that we have designated as potential sites. There are existing designs and there will be more. There will be improvements in the designs that are currently out there and therefore it is important that this is an ongoing issue. We do not want to have a standard design. If I may say so to the noble Earl, it is taking a slightly Stalinist view of these matters to say that we should decide what is fitting now in 2013-14 for the operation of nuclear power stations in the mid-2020s, with a view to that design lasting for the next 25 years. I do not think that that is sensible at all. Therefore, the ONR will have an ongoing responsibility to approve new designs and to look at potential designs, whether or not we proceed with them.
I brought forward the second of these amendments because I regard that as being, in a sense, the central operational responsibility of the ONR. That is why I sought to underline it. As I said, it is also, frankly, the central political role of the ONR in relation to a new station so that it can reassure the kind of people whom the noble Lord, Lord Wigley, referred to and, more widely, address the general concern about moving into a new nuclear era. I think that that objective needs underlining. The noble and learned Lord, Lord Mackay, made it plain that my wording is not entirely clear and there have been other objections to it. However, I hope that the Government will take on board the need to ensure that that is seen as almost the number one priority for the ONR and that it will somehow be reflected in the final version of the Bill that the rest of the ONR’s responsibilities relate to the ongoing operation of nuclear installations but that this is the key one. In my view, it needs a greater emphasis than it currently has in the Bill. However, for now, I beg leave to withdraw the amendment.
Amendment 76A withdrawn.
77: Clause 60, page 57, line 16, at end insert “their”
My Lords, the amendments in this group respond to a number of issues, the majority of which were raised in Committee or by the Delegated Powers and Regulatory Reform Committee. They are intended to add further clarity to the Bill.
Amendments 77 and 78 have been tabled in response to the suggestion of the noble Lord, Lord Whitty, that we define “associated sites” within this part of the Bill. I thank him for his contributions to the debate and hope that he finds that the proposed definition adds clarity to Part 3.
Amendments 79 to 82 are made in response to the DPRRC’s recommendations that a parliamentary procedure be applied to the production of approved codes of practice. A procedure akin to the negative procedure will now apply to any issuance or amendment of an ONR code, and the Secretary of State’s approval must be granted for the withdrawal of such a code.
Amendment 83 has been tabled to ensure that the provisions on disclosure of “protected information” in Schedule 9 apply to information shared by HMRC under Clause 89 and an inspector appointed by the ONR under the Health and Safety at Work etc. Act 1974.
Amendment 84 aligns the definition of “relevant provision” in Schedule 10 with the definition in Clause 73.
Amendments 85 to 87 apply the affirmative resolution procedure to the first set of nuclear regulations that the ONR makes under the Bill, any nuclear regulations which amend the Nuclear Installations Act 1965 or the Nuclear Safeguards Act 2000, and any such regulations that create new offences. This is in response to the recommendations made by the DPRRC, for which the Government are very grateful.
Amendments 88 to 90 will allow the Secretary of State to make transitional provision for the ONR to continue to apply certain regulations under the current regulatory regime until specific regulations are made for the ONR. This includes provision for the conduct of inquiries and the current health and safety fees regime for the nuclear industry. These small amendments will allow us to make a smooth transition to the statutory ONR and will also ensure that the ONR is not significantly reliant on grant in aid for the first few years of its existence.
Amendment 91 clarifies that compensation can be paid by the Secretary of State only in respect of property transfers and not in respect of staff transfer schemes.
Finally, Amendment 92 has been added to allow for regulations to be made jointly under the Energy Bill and the Health and Safety at Work etc. Act 1974 where the Energy Bill requires an affirmative resolution procedure to be followed. Where this is the case, we have chosen that the route followed by such regulations should be subject to the subordinate legislation provisions in Clause 104.
I hope that noble Lords are satisfied with my explanation of these amendments and can agree to their inclusion in Part 3 of the Bill. I beg to move.
My Lords, I very much welcome these amendments. Obviously, I particularly welcome the ones that relate to my suggestions for the definition of sites. I think that they make a significant improvement and add clarity.
I am sure that were the noble Lord, Lord Roper, here, he would very much appreciate the move in the direction of the Delegated Powers Committee that the Government have taken in introducing a number of these other amendments. It is always right that any Government should not only take note but follow the advice of the Delegated Powers Committee’s recommendations, otherwise they would find themselves in serious trouble. The Minister has managed to avoid that, at least in this part of the Bill.
The transitional provisions in Amendments 88 to 90 also seem sensible. I welcome the amendments and hope that the House will accept them.
Amendment 77 agreed.
78: Clause 60, page 57, line 37, after “site” insert “(its “associated site”)”
Amendment 78 agreed.
Schedule 7: The Office for Nuclear Regulation
78A: Schedule 7, page 137, line 17, leave out sub-paragraph (3) and insert—
“(3) At least one non-executive member must have experience of, or expertise in—
(a) matters relevant to nuclear safety management;(b) representation of employees in health and safety;(c) matters relevant to the ONR’s nuclear security purposes.”
Amendment 78A deals with the governance of the ONR. There is relatively little in all these pages about that governance; the amendment attempts to beef it up, in terms of who should be the independent members, or non-executive members or whatever you like to call them. It relates to two issues, which are separate and can be dealt with separately if the Government so wish, although they need to take both of them on board.
The first relates to the expertise of the members of the governing body, on nuclear safety and nuclear operations in particular. That point has been raised with us by the potential operating companies of nuclear installations. The second relates to expertise in the area of worker representation and attempts to carry over the provision that has always been there under the Health and Safety Executive and the shadow ONR.
The only reference to expertise in this section of Schedule 7 is to a non-executive member who has expertise in,
“matters relevant to the ONR’s nuclear security purposes”.
That is important; some would argue that it is very important. We know that it is different, and has different connotations, from somebody having expertise in the area of nuclear safety and operating systems for nuclear safety. We would be looking out for somebody who has industrial expertise in managing such systems and who was not a member of the ONR staff. That is, the post could not be filled by appointing the chief inspector, who would be, in any case, a member of the governing body. If I were to second-guess—although “second-guess” is probably the wrong expression—we would be looking for somebody who can bring expertise to bear from a different perspective from that of somebody directly employed by the ONR.
The Government must have received representations—if I can put this in a subtle way—from those who very soon might be operating such a system. They want to see that those overseeing the ONR have expertise in the operation of the safety system and the general management of such sites, or at least that one of them does so.
Secondly, we have seen that the ONR is, essentially, a spin-off from the Health and Safety Executive. Since 1974, the Health and Safety Executive has operated on a tripartite basis. That has been reflected in its superstructure and, in a slightly informal way, in the oversight structure of the shadow ONR that operates under the HSE’s purposes. It has helped the engagement and co-operation of the workforce and has ensured that the worker side of operating complex plants and sites is fully taken into account. It is my contention that that needs to be reflected explicitly in the new structure. If it is not, a valuable part of the whole HSE experience will be lost; and it is unnecessary to lose it in a structure in which the ONR is responsible not only for nuclear safety but for health and safety generally on nuclear sites. It is important that we retain that structure and oversight.
It is not just a question of not wanting to rock the boat. Worker engagement on nuclear sites is a particularly important issue. A complicated site such as Sellafield, which has huge potential hazards and where the workforce itself has huge expertise, will have to undergo a number of very difficult changes in the way in which it is operated. The co-operation and expertise of the workforce is vital; that needs to be reflected at the highest levels of the ONR. To provide confidence in the system among the several thousand people who work at Sellafield and the few hundred who work on nuclear sites elsewhere, we ought to retain the essentials of the HSE structure and the provisions of the 1974 Act.
There are two deficiencies, therefore, in the governance structure of the ONR. The first relates to expertise; the second relates to the way in which the workers themselves, or, at least, knowledge of their views, can be represented at the highest level. Unless we address both of those, the management structure underneath may not regard them as a priority to the degree that is essential if we are to make nuclear sites operate both effectively and at the highest levels of safety. I hope that the Government can take up one or both points—even if that is in a way different from the phrasing here—and will at least accept, on both fronts, the principle in these amendments. I beg to move.
My Lords, the noble Lord’s amendments go too far. We are talking about only five non-executive members who are going to be appointed by the Secretary of State. One must have regard to the main purpose of non-executive directors of a board, which is, broadly, to hold the executive to account. I have been a chairman of a board, although only part-time, in a totally different environment, and found the non-executive members of that board extremely useful. They assisted me in holding the executive members of the board to account—not because of their expertise in a particular area in which an executive director would be operating, but because they had wider experience and could look at the activity of the executive in a wider context.
That is obvious in the provision in the Bill for at least one non-executive member to have responsibility for the security aspects of the ONR’s job. I do not know whether this is the Government’s intention but it seems to me that what is wanted is not somebody who is expert in nuclear security, but who has wider experience of the whole of the national security position and can bring that background knowledge and perspective to the particular issues that arise in the nuclear field.
If that is right, it is entirely understandable that the Government should want to see that in the schedule. On the question of safety, however, I do not understand what, exactly, a non-executive member’s role would be. This is essentially a management matter. A non-executive director would want to be sure that the right procedures were being followed, particularly when it is a question of appointing someone who will have some executive responsibility in this. You want somebody with the experience of being able to do it, but to have a specific safety non-executive person would be very difficult. I am not sure where it leaves the professional management. Is it constantly being second-guessed? That is not what you want from a non-executive board. It should not second-guess the management but satisfy itself that the management is approaching the problem in the right way and has made sensible decisions.
To some extent, that is equally true of labour, staff relations and so forth. I would not expect a non-executive director who had come straight from a human resources job to say, “I’m going to tell the human resources director exactly how to do his job”. That is not the way in which non-executive members of the board should be expected to operate.
The amendments mistake the purpose of having non-executive directors. The Bill has the right approach because having someone with a wider experience of national security could be extremely useful, and nuclear security could be looked at in that context. However, I would not want to take it further and I would be very much opposed to the amendments proposed by the noble Lord.
My Lords, with great respect, I do not follow the arguments of the noble Lord, Lord Jenkin. We are not talking about a chocolate factory or even a motorcar manufacturer: we are talking about highly sophisticated, advanced, cutting-edge science. It has the potential to adversely affect staff and the wider public acutely. It is not either/or; it is a matter of having people with wider experience. The noble Lord is right: that is the purpose of a non-executive director. However, there must be people on the board who know what they are talking about, if they talk about it, when we come to the specific issues of this special, advanced and potentially very dangerous new form of energy generation.
This is not, incidentally, just limited to the nuclear sphere. I remember very vividly many hours toiling home to the north-west finding myself isolated on Preston station in the small hours. Railtrack had built up a great record of property development and all the rest, but it was suddenly realised after Hatfield that it had neglected the very special knowledge about how to run the railways and what that is about. It is not just any industry: it is about having the knowledge and background to ask whether management is taking this or that into account. It is not an either/or.
In the case of the railways, with that awful Hatfield incident, we had reached a stage where virtually nobody knew where the danger spots were on the track across the country. If we take those experiences seriously, it is a matter of getting the right combination of knowledge and expertise. I realise that when you use the word “expertise” you are beginning to go down a questionable road, but there has to be enough real knowledge of the special tasks and hazards, together with the wider experience to which the noble Lord rightly referred.
My Lords, I support the amendment, especially subsection (3)(b) dealing with,
“representation of employees in health and safety”.
That is so important. I worked at a power station myself. It was not a nuclear power station, but it was a power station. I was also secretary of the local advisory committee. I therefore have some experience of how essential it is that working people are taken into account regarding management of a plant.
Those advisory committees, incidentally, both at national and local level, were set up under the electricity and gas Acts of, I think, 1949 and 1950. There was a statutory duty to provide opportunities for employees to be consulted, at least, not only on matters of health and safety but on the broader workings of power stations and other installations. Indeed, it is necessary for employees to have those powers because it is helpful to management to ensure that working at ground level is safe. Managers cannot know everything that goes on, but most of the employees do. I support the amendment simply and solely because the question of employee consultation should appear somewhere in the Bill.
My Lords, I thank the noble Lord, Lord Whitty, for this amendment to Part 3 of the Bill, and my noble friend Lord Jenkin for his sensible and measured intervention. Noble Lords will recall that we debated the matter of the make-up of the ONR board in Committee. Amendment 78A would introduce a requirement for the ONR board to have at least one member with experience of, or expertise in, nuclear safety management and one member with experience of, or expertise in, employee health and safety representation.
As currently drafted, the legislation allows the Secretary of State to appoint non-executives with skills and experience that best meet the needs of the ONR. This may include experience or expertise in nuclear safety, which I think is what the phrase “nuclear safety management” means, although this is already provided by the chief nuclear inspector, who is an executive member of the board. This experience or expertise may include that of employee health and safety representation. However, that should be a matter for the Secretary of State to determine over time and, while the matters identified in the amendment are no doubt of great importance, it should be left to the Secretary of State to determine whether that experience would benefit the ONR.
The ONR also requires flexibility to change its skills-mix over time as it develops as an organisation and as the industry it regulates changes. The amendment significantly restricts the flexibility available to the Secretary of State in setting those appointments to only two non-executives. It would be unwise to restrict the ONR’s flexibility in this way. However, the legislation does make provision for a non-executive with security expertise. This role is required to ensure that the ONR’s security interests are carried out in the context of wider national security policies. It is required to prevent nuclear security matters being developed in isolation from the wider, national security agenda. The current security non-executive, for instance, does not have specific nuclear security experience.
Turning to employee representation on the board, as I have explained, the intention is to have a skills-based board, not one made up of representatives. Therefore, just as it would be inappropriate for the board to include a representative of the nuclear industry, it is also inappropriate to mandate a representative of workers.
It is important to remind noble Lords that the Health and Safety Executive, which will retain overall policy responsibility for wider health and safety in Great Britain, including health and safety on nuclear sites, will have a trades union representative on its board. Thus the interests of employees will continue to be represented in the ONR’s wider work on health and safety on nuclear sites. In addition to this, Schedule 7 makes provision for the Health and Safety Executive to appoint one of its members to the ONR board, should it wish to do so, and for the arrangement to be reciprocal. This will also provide for employee interests to be represented on the ONR board. I hope that noble Lords find my explanation reassuring and I hope the noble Lord will withdraw his amendment.
My Lords, on this occasion I cannot say that I am happy with the Minister’s response. The nature of the board, together with the expertise of the personnel of the ONR, will determine the degree of confidence there is in the ONR. On the issue not of worker representation in the sense of somebody who represents the workers of the nuclear industry on the board but of someone who has knowledge of working concerns, which in HSE terms has normally been a trade union representative, the fact is that the Government are taking out of the HSE an important, high-profile and, in industrial relations and personnel terms, quite a delicate part of its responsibilities. They are abandoning what was the great strength of the HSE, that at the highest level it had tripartite representation which had the confidence of all sides of industry and the Government. Most of the other provisions of these clauses of the Bill reflect procedures and responsibilities which have been directly or indirectly under the aegis of the HSE. It is odd that the one thing removed is the HSE’s governance, which has proved its worth for over 40 years. That is a serious mistake.
Expertise in nuclear safety management affects the confidence that the management of the industry has in the ONR. One hopes management will have confidence in the inspectorate and the chief inspector, but it has been put to me and I expect it has been put to the Government that the operators of nuclear installations want to think that there is somebody who knows their side of the story in the governance structure. They are worried that that is not prescribed in the Bill. The Minister says the Secretary of State will make a judgment and it is quite possible that he will appoint people with these qualifications or background, but the Government do not want to stipulate that in the Bill. However, sometimes it is the Bill which gives the confidence and the particular appointments are what give confidence. At the moment we are potentially reducing the confidence that workers in the nuclear industry might have in the governance and therefore the direction of the ONR—unnecessarily threatening it, because the rest of the provisions, I think, look after their interests well. We are also threatening the confidence of management of nuclear sites in the overall governance of the ONR.
These may not be big issues in practice but in certain circumstances they could become big issues. It is therefore important that the Government take on board the argument so that, if we cannot stipulate it in the Bill, the Secretary of State will have regard to these two dimensions to make sure that the ONR operates not only in the best traditions of the HSE but in a way that inspires confidence in the industry and the workforce. I fear that, by not accepting this amendment, the Minister may be jeopardising both. It would not be a big thing for either proposal to be included, maybe not in the terms that I have them here but in terms of how the Secretary of State should look at appointments to the governing body.
I am disappointed. I thank my noble friend Lord Stoddart—who I think I can call my noble friend on this occasion—and my noble friend Lord Judd for their support for my position. I regret that the Minister has not been positive. I am slightly surprised that the noble Lord, Lord Jenkin, was not more supportive at least on the first of the propositions, but I understand his position. However I do not fully understand the Government’s position and I hope that they will think again. For the moment, I beg leave to withdraw the amendment.
Amendment 78A withdrawn.
Amendment 78B not moved.
Clause 71: Codes of practice
Amendments 79 to 81
79: Clause 71, page 64, line 20, leave out “with the consent of the Secretary of State” and insert “in accordance with section (Procedure for issue, revision or withdrawal of codes of practice)—
80: Clause 71, page 64, line 23, leave out from beginning to “revise” and insert—
81: Clause 71, page 64, line 25, leave out subsections (3) to (5)
Amendments 79 to 81 agreed.
82: After Clause 71, insert the following new Clause—
“Procedure for issue, revision or withdrawal of codes of practice
(1) The ONR may—
(a) issue or revise a code of practice under section 71 only in accordance with subsection (8);(b) withdraw a code of practice under that section only in accordance with subsection (11).(2) Before issuing, or revising or withdrawing, a code of practice, the ONR must submit a proposal to the Secretary of State.
(3) Before submitting a proposal to the Secretary of State the ONR must consult—
(a) any government department or other person that the Secretary of State has directed the ONR to consult, and(b) any other government department or other person that the ONR considers it appropriate to consult,about the proposal.(4) A direction under subsection (3)(a) may be general or may relate to a particular code, or codes of a particular kind.
(5) A proposal for issuing or revising a code of practice must include a draft code of practice or, as the case may be, proposed revisions of a code of practice.
(6) Where the ONR submits a proposal for issuing or revising a code of practice to the Secretary of State, the Secretary of State may approve the draft code of practice, or proposed revisions, as the case may be—
(a) without modification, or(b) with the consent of the ONR, with modifications.(7) If the Secretary of State approves the draft code or proposed revisions, the Secretary of State must lay before Parliament the draft code or proposed revisions in the form approved.
(a) the Secretary of State has laid a draft code or proposed revisions of a code before Parliament, and(b) no negative resolution is made within the 40-day period,the ONR may issue the code in the form of the draft laid before Parliament or, as the case may be, make the proposed revisions in the form so laid.(9) For the purpose of subsection (8)—
(a) a “negative resolution”, in relation to a draft code or proposed revisions, means a resolution of either House of Parliament not to approve the draft code or proposed revisions;(b) the “40-day period”, in relation to a draft of a code or proposed revisions, means the period of 40 days beginning with the day on which the draft is laid before Parliament (or, if it is not laid before each House of Parliament on the same day, the later of the 2 days on which it is laid).(10) For the purposes of calculating the 40-day period, no account is to be taken of any period during which—
(a) Parliament is dissolved or prorogued, or(b) both Houses are adjourned for more than 4 days.(11) Where—
(a) the ONR submits to the Secretary of State a proposal for the withdrawal of a code of practice, and(b) the Secretary of State approves the proposal,it may withdraw the code.(12) The ONR must—
(a) publish any code of practice issued under section 71; (b) when it revises such a code, publish—(i) a notice to that effect, and(ii) a copy of the revised code;(c) when it withdraws such a code, publish a notice to that effect.”
Amendment 82 agreed.
Schedule 9: Disclosure of information
83: Schedule 9, page 157, line 9, leave out “or an” and insert “, an inspector or a health and safety”
Amendment 83 agreed.
Schedule 10: Provisions relating to offences
84: Schedule 10, page 164, line 27, leave out “or under”
Amendment 84 agreed.
Clause 104: Subordinate legislation under Part 3
Amendments 85 to 87
85: Clause 104, page 83, line 39, after “containing” insert “(whether alone or with other provision)”
86: Clause 104, page 83, line 40, leave out from “regulations” to “or” in line 42 and insert “which fall within subsection (2A)”
87: Clause 104, page 83, line 45, at end insert—
“(2A) Nuclear regulations fall within this subsection if—
(a) they are the first nuclear regulations to be made,(b) they include provision amending or repealing any provision of—(i) the Nuclear Installations Act 1965, or(ii) the Nuclear Safeguards Act 2000, or(c) they include provision creating a new offence by virtue of section 67;and for this purpose nuclear regulations which revoke and re-enact an offence are not to be regarded as creating a new offence.”
Amendments 85 to 87 agreed.
Clause 105: Transitional provision etc
Amendments 88 to 90
88: Clause 105, page 84, line 30, after “as” insert “—
89: Clause 105, page 84, line 32, at end insert—
“(ii) regulations under section 76, or(iii) regulations under section 92.”
90: Clause 105, page 84, line 43, leave out “section 15 of the 1974” and insert “section 14 of the 1974 Act (power to direct investigations and inquiries);
(ba) section 15 of that”
Amendments 88 to 90 agreed.
Schedule 11: Transfers to the Office for Nuclear Regulation
91: Schedule 11, page 172, line 9, after “A” insert “property transfer”
Amendment 91 agreed.
Schedule 12: Minor and consequential amendments relating to Part 3
92: Schedule 12, page 177, line 47, at end insert—
“(1) Section 82 (general provisions as to interpretation and regulations) is amended as follows.
(2) In subsection (3)(b), after “subsection” insert “(3A) or”.
(3) After subsection (3) insert—
“(3A) In the case of a statutory instrument which also contains regulations under section 66 of the Energy Act 2013 (nuclear regulations), subsection (3) is subject to section 104 of that Act (subordinate legislation).””
Amendment 92 agreed.
Consideration on Report adjourned.