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

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Mr. Kevin Hughes (Doncaster, North): I welcome the draft guidelines, which are very useful. I particularly welcome the statutory duties, which will be shared with the Secretary of State, because, unlike the hon. Member for Hazel Grove, I feel that Ofgem can play a significant role by helping the Government in two particular areas—the environment and security of supply. Those two issues are particularly important because we are at a defining moment as we decide what we should do about our energy supply for the next 20 to 30 years. We know that the PIU has reported, and we also know that the Minister will shortly publish a White Paper on energy supply.

Environmental issues and security of supply issues go hand in hand. Ofgem has a significant role to play because there is no doubt that we must reduce our CO2 emissions for the good of everyone in the world, not just the people of this country. We must address security-of-supply issues. We need to take decisions about how that is approached, with which Ofgem can help. We cannot leave the entire electricity supply to market forces. That will not help us realistically to achieve our environmental goals or help our security of supply.

Energy giant TXU Energy's UK business hit the rocks recently. That had immediate knock-on effects on the electricity supply industry—not least the coal industry in Yorkshire. The Minister had to rescue British Energy with a £650 million loan. That had to be done for security-of-supply reasons because he could not have sat back and watched the industry collapse.

We should take some of the energy supply out of the market forces scenario by underpinning about 20 per cent. of nuclear supply. That might require getting rid of several older Magnox stations. The Government should underpin clean coal technology using such new technologies as integrated gasification combine cycle technology and combined heat and power, although that is a fairly old technology, as is flue gas desulphurisation technology, which is used in several of the larger coal-fired power stations. If they do that, it will help us to meet our Kyoto targets. We would be secure in the knowledge that about 50 per cent. of electricity—20 per cent. from clean coal technology, 20 per cent. from nuclear power and 10 per cent. from renewables—would give us a fallback position, whatever happens. The draft regulations will be helpful if the Government decide to follow that road. If we underpin 50 per cent. of the

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supply, the remainder of the energy market could be left to market forces. Owing to environmental reasons and security of supply, we cannot afford to leave all our energy supply to market forces. The Minister is probably bored of hearing me say that because I have said it to him on several occasions, both in the House and privately. Without regulations such as those that we are considering, it will be difficult to reach that position.

I welcome the guidance and look forward to the White Paper on energy. I want the Government to underpin 50 per cent. of our energy supply in the way that I outlined and to leave the rest to market forces. That is fair and the regulations could help us to reach that position.

5.19 pm

Mr. Simon Thomas: I am pleased to be able to speak about the guidance and that the Committee is able to consider it. It is important and will affect the way in which the Government try to achieve their objectives on sustainable development, fuel poverty and energy efficiency. It is useful for Members of Parliament to have the opportunity to debate the guidance. I am pleased to follow the hon. Member for Doncaster, North (Mr. Hughes), although I reject his analysis of, and solution to, our energy problems. I accept that, to a certain extent, security and the environment are two important principles at stake; however, the hon. Gentleman's solution, which is to fossilise 50 per cent. of our energy market for any particular set-up—whether it is nuclear or clean coal technology—would stifle innovation and keep us where we are. It would not allow us to move on.

The hon. Gentleman's criticism is really directed at the Minister, because it is the Government who, through the Utilities Act 2000, freed up the market so much that it is difficult to have any sort of planning in the market. That led to some of the difficulties earlier this year with the new electricity trading arrangements and their effect on combined heat and power and renewables. It also led to our difficulties in the autumn with British Energy. Because the Government left the market so free and easy, they have had to intervene several times.

One reason why the guidance is so important, having been absent so long, is that the absence was encouraging Ofgem to follow the wording, not the spirit, of the legislation. The Government therefore needed to intervene directly in the market.

Mr. Hughes: I should like to know what the hon. Gentleman's solution would have been if, for example, the TXU situation had not been managed as it was, and it had hit the rocks and gone out of business. The dominoes would then have started to fall. If British Energy fell at the same time, and if the Minister had not intervened as he rightly did, the lights in this country could have gone out within a matter of days. There needs to be some solution to that. The solution is to underpin, and I should like to know whether the hon. Gentleman would leave the whole of that underpinning to the market. How would he overcome the type of scenario that I mentioned? It could happen; it did in California.

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Mr. Thomas: To be fair, I think that the hon. Gentleman has missed my point completely. My point was not that the Government could not or should not intervene in the market; it was that they created the situation in which they had to do so. One of the problems was the absence of this guidance.

Gregory Barker: May I advise the hon. Gentleman not to pay too much credence to the scare stories that are advanced on behalf of the nuclear power lobby? We should remember that there is an unprecedented amount—a record level—of oversupply in the electricity industry at the moment.

Mr. Thomas: I agree with much of what the hon. Gentleman said, and I shall make one last remark on the matter: the Government have, to date, been putting total emphasis on price, rather than security of supply and the environment. I think that the guidance slightly changes that picture; on those grounds, at least, I welcome it. However, the guidance is overdue.

I shall quote evidence given to the Environmental Audit Committee inquiry on sustainable energy, and the inquiry into the PIU report. We took evidence from Callum McCarthy, the Chief Executive of Ofgem, on 30 April. I questioned him on the draft guidance, and he said:

    ''We gave them''—

that is, the Department of Trade and Industry—

    ''our views on the draft guidance. We did that some months ago''.

That was in April. He continued:

    ''it has been a decision by the DTI . . . that no guidance has been issued.''

I asked Mr. McCarthy:

    ''would you not accept that it would have been better in responding to some of the environmental concerns that have come out of NETA if you had had that guidance to at least show that you had been following the Government guidance?''

Mr. McCarthy responded:

    ''I think I would have preferred the environmental and social guidance to have been issued, yes.''

That was said on 30 April, seven months ago. Only now do we have the opportunity to debate the guidance. Although I welcome much of the content of the guidance, I must say that the Government have been very tardy in introducing it.

The clear implication of what Mr. McCarthy told the Environmental Audit Committee was that the disastrous time that we spent in early summer debating NETA, embedded generation and the resulting problems for renewables and CHP could have been avoided if the Government had produced the guidance earlier. It is clear that when Parliament debated the Utilities Act 2000, hon. Members expected that there would be the legislative framework, but also that this guidance would have been a strong indicator from Government to the regulator of the sort of views that should be taken on some of these issues. The absence of that has meant that, de facto, the regulators have taken a narrow, price-based view. That reflects some of the concerns of the hon. Member for Doncaster, North.

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The result of that fiasco was a key recommendation from the Environmental Audit Committee:

    ''Ofgem's duties under the Utilities Act should therefore be amended to incorporate as a primary objective the need to promote sustainable development.''

The Committee took that view because we felt that whatever the statutory guidance was—it had not been debated in Parliament at that stage—it was unlikely to be sufficient. The PIU report accords with that, as the hon. Member for Hazel Grove has made clear. With regard to sustainable development, the PIU report states that

    ''it is difficult to see how Ofgem can accommodate such an approach given its present statutory remit.''

Therefore, the challenge that was laid down by the Environmental Audit Committee was to try to get Ofgem to focus more specifically on sustainable development. That applies not only to the environment; the social and economic impact should also be more aligned to sustainable development. The question that I ask is, does the guidance measure up to that task? It is not binding, which is a problem. However, I am pleased that the DTI has put sustainable development at the forefront of the introduction to the guidance and of the debates within the guidance. It is the overarching general principle in the guidance.

I have been lobbied by some organisations that feel that the guidance should have had a different overarching priority, such as fuel poverty. However, the objectives that the Government are trying to set out, and which I broadly support, of alleviating fuel poverty, encouraging energy efficiency and moving towards a more environmentally stable future are best achieved under the overarching principle of sustainable development. I should not like us to take some of the elements of sustainable development—fuel poverty might be one of them—and promote them up the list and give them superiority over anything else. I hope that the Minister will confirm that sustainable development—and the need for Ofgem to work in line with that—is the key principle of the guidance.

Parliament will have to return to this area. I offer an example from Wales, where the guidance also applies. There are increasing debates around fuel poverty—one of which I will mention—but the overarching aim of the National Assembly for Wales is to promote sustainable development. That is a legislative requirement, of course. When Ofgem is working in Wales, it has to work with all the agencies in Wales that are already following a legislative and statutory requirement of sustainable development. We must revisit this area reasonably soon to look again at whether the utilities should have a statutory requirement to work towards sustainable development.

The guidance addresses two areas—the social and the environmental issues. On the social issues, it clearly states that the benefits of competition should be fairly distributed. That is not currently the case. The fuel-poor have to pay more than the fuel-rich for their gas and—in particular—their electricity. That is a result of the way that the gas and electricity markets work: if one is rich enough to pay by direct debit or on the nose, one will

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save £7 or £12 or a similar sum each quarter. People such as we who debate these issues should be organised enough, and are certainly well off enough, to be able to get the benefits of competition in electricity and gas markets. Those who cannot afford to pay the bill on the day that it arrives—because they have to wait until their pay cheque is paid into their account or until they have received a benefit to which they are entitled—do not get those benefits. The guidance must help those people—the 40 per cent. or so who do not have bank accounts, and benefit claimants.

There is now a plethora of tariffs: it is a bit like travelling on the railways. One tries to work out which tariff and which payment method from which gas or electric company is best. I am not convinced that that plethora benefits consumers, especially those on a lower income. It would be much better if Ofgem could now use the guidance and the clear statement of sharing out the benefits of competition fairly. Ofgem should ensure that the fuel-rich and fuel-poor benefit equally from competition. Does the Minister agree that that means equality as well as fairness? It is wrong that people on a low income who cannot afford to have money going straight out of their bank account by direct debit cannot obtain the benefits of competition within the gas and electricity market. That inequality should be addressed.

However, I believe that the issue of fuel poverty can be examined within the overarching agenda for sustainable development. We should not confuse overcoming fuel poverty with increasing consumption. It is true that the initial response to the problem of people living in poor accommodation who want to avoid illness during the winter, for example, would be to make them financially empowered to turn on the heating more often. However, the long-term response should be more sophisticated. The response should include sustainable development, energy efficiency and home improvements as well as investment in our public housing stock.

Today, I received a consultation paper from the National Assembly for Wales on the Warm Homes and Energy Conservation Act 2000. The paper related to a fuel poverty commitment for Wales. I welcome that consultation. It places an emphasis not on price, although that is an important element, but on home energy efficiency and the condition of local authority and housing association housing stock—on investment in social housing. That is how we tackle fuel poverty in a long-term, sustainable way. Fuel poverty cannot be tackled only by making it cheaper for people to burn more gas and electricity. That will not work for any of us in the long run.

A key test of the guidance is whether it helps to alleviate that aspect of fuel poverty in conjunction with other things that the Government are doing. As a Member of Parliament representing a predominantly rural constituency, the key test for me is one that I made when I intervened on the hon. Member for Hazel Grove: how can the fuel-poor in rural areas, who are dependent on tankered-in oil, gas or coal, share the benefits of a cheaper or more sustainable energy market? It does not happen at the moment. Ofgem has

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no role in the control of tankered-in fuel. Because of that, Energywatch, the watchdog for Ofgem and the regulator, also has little control or influence over the matter. There have been massive increases in the price of tankered-in oil and gas in my area over the past few months and my constituents face huge bills if they burn this winter what they burned last winter.

The solution must involve energy efficiency and not only be about burning more energy. There is a gap at present. The National Assembly report identified 7,000 households in rural Wales that have no way of accessing the benefits of flow-out from the guidance. I hope that the Minister will respond to that problem. What plans do the Government have to bring people under that aegis?

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