Draft Social and Environmental Guidance to the Gas and Electricity Markets authority

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Mr. Kevin Hughes (Doncaster, North): I should like to know what the hon. Gentleman thinks about the £650 million. Will he share with the Committee his thoughts on the consequences of not doing that, and of allowing the lights to be switched out at those nuclear power stations? I should like to know what he thinks of that scenario.

Mr. Stunell: I am sure that the hon. Gentleman would like to know. I therefore refer him to Hansard. The Minister and I participated in a debate in which we both set out our views; but our views do not coincide. However, Mr. Amess, I am sure that you would prefer me to speak about the document before us.

I shall illustrate the importance of the words ''significant financial implications'' by way of example. Paragraph 2.14, which is about metering, states:

    ''In considering regulatory actions with the potential to affect metering, the Government asks the Authority to continue to carry out its functions in a way which is supportive of innovation.''

That is certainly encouraging. Paragraph 3.2 states:

    ''An important part of the environmental policy context of the Authority's exercise of its functions is the Government's sustainable development strategy . . . to reduce greenhouse gasses now, and plan for greater reduction in the longer term.''

In paragraph 3.3, the document states:

    ''Objectives which the Government considers particularly relevant to energy regulation include . . . the Government's target to increase the country's combined heat and power capacity to at least 10 Gwe by 2010.''

I shall skip worrying about whether we are in the slightest bit likely to reach those targets, but it is good to see those words included. Paragraph 3.13 states:

    ''The Government asks the Authority, taking account also of its duty to encourage competition in generation, to have regard to the desirability of . . . removing barriers to embedded generation.''

The guidelines include clear commitments to reducing CO2 emissions, to expanding and promoting combined heat and power, and to removing the barriers to embedded generation. My question to the Minister is, will the guidelines permit

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the removal of one of those barriers: the lack of two-way electricity metering for domestic premises? He knows that it is a subject in which I have a considerable interest and have done a certain amount of research.

Every year about 1 million electricity meters are replaced, and they cost between £12 and £14 to supply. The cost of a two-way meter would be between £15 and £17. That is a cost difference of about £3 per installed meter. In other words, the cost to the electricity suppliers of being required by the regulator to install two-way meters would be £3 million a year. There remains the interesting question of who owns the meters. They belong to the supply company for the time being. One of the problems with the liberalised market is that one can change one's supplier by giving 28 days' notice. Therefore, the meter installed only a month ago may be transferred to someone else at the discretion of the consumer. Suppliers are strongly driven to install the cheapest meter technology that is available to them, because meters bring them no added value. When installing new meters, most of them therefore duck the chance to install electronic technology and have reverted to electromechanical metering technology. High-tech factories in this country that produce electronic meters therefore do not get the jobs, and each year we import almost 1 million electromechanical meters from manufacturers in India.

Installation costs are of course a factor. Broadly speaking, however, they are exactly the same whether the meter is electromechanical, electronic or two way. A regulatory requirement to install two-way meters—when the change is being made in any case—is a very low-cost option and would allow us to consider introducing micro CHP and renewable technologies on a domestic scale at much reduced cost. The failure to consider such issues is a major disincentive for those who might want to use those technologies.

Mr. Jack: On the point about the overseas manufacture of two-way meters, what assurances has the hon. Gentleman received that an overseas source would not want to fulfil any market opportunities that arose in the United Kingdom?

Mr. Stunell: I will certainly comment on that remark, because it is extremely oblique. Meter manufacturers in this country are capable of making meters to any degree of sophistication that we wish. At least two meter-manufacturing companies can produce two-way meters at the price that I mentioned. I have no idea whether Indian companies can do so, but it is quite possible that they can. The fact is, however, that this country no longer has an electromechanical, ultra-low cost meter-manufacturing capacity because we have driven the business overseas. Whether that is good or bad is a matter of judgment. I am simply making sure that the Committee is aware of the facts, which are important.

Mr. Thomas: On a slightly more positive note, is the hon. Gentleman aware that the 100,000 roofs programme in Germany, under which photovoltaic units are installed on roofs, has been so successful

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precisely because it is allied to a two-way metering system? When there is decent sunshine, consumers can pass the electricity that they generate but do not use on to the grid. When necessary, they can take electricity from the grid. The two-way system works well in Germany and could surely work well here.

Mr. Stunell: That is absolutely true. The cost of removing an existing meter and installing a two-way meter is a significant inhibition for small-scale photovoltaic schemes in this country and it is certainly a major disincentive for micro CHP.

Gregory Barker (Bexhill and Battle): I fully support the hon. Gentleman's point about encouraging micro CHP, but the cost of installing a micro CHP facility is such that the additional £17 to install the meter would be incidental. Yet we are talking about imposing an additional cost of £3 million on the industry. The uptake for micro CHP is likely to be relatively limited in the first few years, and I cannot believe that anyone installing micro CHP or another generating technology would say, ''I'll install solar panels on my roof at a cost of several thousand pounds, but I'm not forking out the extra £3 for the meter.'' That does not make sense.

Mr. Stunell: I quite agree that something does not make sense, but it is the arithmetic that has just been presented to the Committee. I said that the difference in the cost of supplying the two types of meter was about £3, but there would be a lot of difference in another sense: nil extra cost would be involved if the house already had a two-way meter, but it would cost £300 to buy and install one. We are talking about the cost not only of supplying the meter to the site but of installing it—that is where the extra cost comes in.

The hon. Member for Bexhill and Battle (Gregory Barker) made a worthwhile comment about micro CHP. However, we do not have the benefit of knowing precisely what stage developments in the industry have reached. Micro CHP plants will come on stream only in two or three years' time and for 10 years after that. When they do, however, they will offer competitive prices, and applications will be available for only a small premium over the cost of replacement.

Given the life cycles of the equipment involved, this country is quite fortunate. The life cycle of meters and central heating boilers is such that about 1 million of each are replaced each year, although I fully accept that they will not be in the same houses. However, those figures mean that in, say, 10 years' time half of all houses will have two-way meters and half of our fleet of domestic central heating boilers may have micro CHP potential. We shall make progress by focusing on the next decade or two, not the next six months.

Mr. Wilson: I am slightly puzzled by the hon. Gentleman's line of argument, and I wonder whether he could help us. He spent nearly 20 minutes telling us about the utter uselessness of the regulations and the guidance and about motherhood, stale apple pie and all that stuff. Immediately afterwards, however, he quoted a provision from the guidance that would encourage micro CHP and remove the impediment to embedded generation, which seems to be exactly what

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he is after. How is that consistent with his general denunciation of the guidance?

Mr. Stunell: I thank the Minister for that, because it brings me to paragraph 1.2, which states that where the Government want to introduce

    ''social or environmental measures which would have significant financial implications'',

the guidelines do not apply. My question to the Minister is whether £3 million a year is a significant financial implication. If the Committee and the House accept the guidelines, and I go to see Ofgem next week, will it tell me, ''That doesn't affect anything. We still won't do anything''? That is what it has said for the past two years. On the other hand, will it say, ''We heard what the Minister said in Committee and of course the cost is below the level of significance''?

Mr. Mark Hoban (Fareham): I was loth to intervene, but having spent time over the summer examining renewable energy in Japan and having read the report by the Environmental Audit Committee, of which my hon. Friend the Member for Bexhill and Battle is a distinguished member, I believe that the problem is not the meters as much as the fact that the distribution network cannot cope with two-way metering and cannot transfer electricity from homes to the grid. It is pointless to worry about the significance of £2 million or £3 million; the fundamental problem is the much greater sum that will have to be dealt with in primary and secondary legislation, as outlined in the guidance.

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