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Mrs. Liddell: How can we know about undiscovered reserves?
Mr. Gibb: That is a revelation. There are estimates of undiscovered gas reserves in the North sea. An appendix to the Minister's own energy White Paper gives figures for the likely number of years of undiscovered gas reserves in the North sea. Companies will not investigate and prove that gas reserves exist until they are needed; they start to "firm up" on where reserves are only once the figure falls to a certain number of years.
Those are important questions about a vital area of industrial and environmental policy. We await the Minister's response with great interest.
Mr. Andrew Stunell (Hazel Grove): New clause 2, amendment No. 28--which stands in my name and those of two of my hon. Friends--and Government amendment No. 3 are closely related.
Almost for the first time during the debates that we have had in and around the House, I find myself in substantial agreement with what was said by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). The United Kingdom lacks a national energy policy. That lack has not cropped up suddenly; it is long-standing. For a long time, decisions have been either deferred or made on a short-term basis, and the long-term investment strategy that is so clearly needed has not materialised--not least because industry has been given no clear signals or pointers towards the direction in which it should go.
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At the lowest level, new clause 2 introduces a sensible monitoring procedure, so that the Government's intentions can be clarified and the energy industry's performance in relation to the Government's intentions can be determined.
Mr. Ian Bruce: The hon. Gentleman will probably recall that, in Committee, I tabled an amendment on the diversity of supply. We have all been accused of having short memories. I wonder whether he remembers that Ministers resisted giving special treatment to fuels, particularly coal, yet the Secretary of State for Trade and Industry on Monday and the Prime Minister today at Prime Minister's Question Time specifically said that they wanted to help coal to have such a position in the marketplace. Now that it is Wednesday, does the hon. Gentleman agree that we would like to hear from Ministers exactly what their policy is on fuel supplies, given that they have changed policy on that issue so many times in the past few weeks?
Mr. Stunell: I thank the hon. Gentleman for his comment. I have received no advice on what the Government's energy policy for Wednesday is. As far as I know, it has not been issued, but, as he says, it would be interesting to hear that. The point is well illustrated by the Government's announcements this week. I am sorry that my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith), who was with us a few
minutes ago, is not here at the moment because he clearly has a strong constituency interest in the future protection of the coal industry and I know that he welcomed the announcement.On overall energy policy for the UK, may I pick up some of the issues that the hon. Member for Bognor Regis and Littlehampton outlined about the share that different fuels will have in the electricity market? It is clear that there will be substantial changes not just in the next 10 years, but in the next 20 and 30 years. No one would have predicted 30 or even 10 years ago that gas would be the fuel of choice for generating electricity. It is difficult to be sure what the fuel of choice will be in 10 years' time. Energy policy needs to set some markers, which are hinted at in the Bill, particularly through its support in one form or another for the renewable energy generation industry, but the policy is not set out strongly enough.
I accept that one could not insert a new clause that included an energy policy, but the hon. Gentleman has usefully introduced a mechanism for that policy to become more transparent and self-evident. Should he press the matter to a vote, we will be happy to support him.
Amendment No. 28, in the name of the Liberal Democrats, amends clause 48, whereas Government amendment No. 3 amends clause 60. Amendment No. 28 places two additional duties on electricity distributors: first, to facilitate the provision of embedded generation within the transmission and distribution network; and, secondly, to facilitate small-scale renewable generation through the implementation of net metering.
Government amendment No. 3 is to reverse the amendment that was accepted in Committee: amendment No. 745. Were we to accept the Government amendment, we would delete Labour's manifesto commitment to renewables. My hon. Friend the Member for Lewes (Mr. Baker) may seek to catch your eye, Mr. Deputy Speaker, to comment on that.
The two amendments pull in diametrically opposite directions. I shall confine my remarks primarily to amendment No. 28, which relates to the additional duties that we seek to impose on distributors within the electricity market.
The Bill has some laudable aims. It certainly seeks to liberate the forces of competition and to bring benefits to consumers. Liberal Democrat Members have, when appropriate, supported those objectives. The Government claim that the Bill will produce lower prices, and there is some evidence to underpin that claim. It could also produce better service for consumers, as competition hots up and competitors are forced to provide better prices and service, which consumers will increasingly value.
Mr. Gibb: I understand the hon. Gentleman's point about the evidence showing that the long-term price of electricity is decreasing--it does seem to have decreased because of the proposed new electricity trading arrangements--but I am surprised that he believes that the Bill will increase competition. The Bill specifically demotes the promotion of competition to a second-order objective, whereas it is currently a prime, first-order objective.
Mr. Stunell: I shall have something to say in a moment about the difficulties that new entrants may face under the new arrangements. Nevertheless, the hon. Gentleman has made a useful point.
The market can be used to reduce prices and to improve service, and it is a sensible mechanism for achieving those objectives. However, there are problems--which the Bill recognises, at least partly--with unrestrained and unregulated competition. One of the problems is that social and environmental obligations are not easily fulfilled in a completely open-market, competitive economy.
There are some specific situations in which competition is a poor driver in achieving the Government's desired results, the first of which is when profit is increased by selling more product at a higher price. As competition can keep prices down, the argument against competition on the basis of higher price is defeated. However, competition will increase sales volumes. In a fiercely competitive environment, more profit is made by increased sales, not decreased sales.
The electricity market has a hierarchy comprising the levels of generation, transmission, distribution and supply. At every level, profit is increased by selling more product to the next level down in the hierarchy. Each level certainly gains value from selling more product to consumers. They all want more, not fewer sales. Their market-driven imperative is wholly hostile to the idea of decreasing the amount of energy that they produce and supply and to the idea of ensuring that their consumers use energy efficiently.
Amendment No. 28 recognises the fact that competition is entirely hostile to diversification in the sources of energy used to generate the electricity used by consumers. The market mechanism will not deliver diversification of supply. Therefore, if the intention of public policy is to achieve better conservation, greater efficiency in consumers' energy use and more renewable products in the market, the regulatory framework has explicitly to state those objectives. If the framework is not explicit, it will not achieve those objectives.
Interestingly, one of the companies that responded to the DTI's own consultation on licensing changes stated:
- The obligation to maintain an efficient distribution system potentially conflicts with the proposed obligation to facilitate competition in generation and supply . . . distribution networks have been laid down in a co-ordinated fashion over many years . . . each proposal for embedded generation must be considered individually and on an economic basis, rather than under any kind of blanket obligation.
Therefore, embedded generation--that is, generation that is at the lower end of the transmission and distribution hierarchy, at a lower voltage and nearer to the consumer--is in no way facilitated. Nor is net metering, whereby a small generator can supply electricity to and receive it from the distribution system, and pay a net price for it.
Amendment No.28 and the additional duties that it would impose on the distribution industry would lead to cost reductions rather than increases. However, it would not result in increased profits for the distributing companies, so they would have no incentive. The cost reductions would result from lower transmission losses on the electricity generated and, in the longer term, a reduced
requirement for major investment in trunk electricity transmission. It would also result in fewer sales by those who are already in the market.Our amendment could have been written by the DTI, because the DTI's consultation document on "Electricity Network Management Issues" states:
- In the medium and longer term
- encourage distribution companies to design networks so as to facilitate the accommodation of future embedded generation.
I have a number of questions which I hope that the Minister will address.
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