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In other areas such as smart meters we have offered the Government a way forward. Smart metering is a crucial element in encouraging microgeneration and
tackling fuel poverty. It could be achieved in a decade—but not if the Government do not accept the framework. There has been some movement in the Energy Bill, but there is complete support in industry and among many politicians and environment and consumer groups for setting a timescale, and I hope that the Minister will go away and reflect on whether that could still be built into this debate.
We have worked with the Minister’s colleagues and others outside the House to push forward the case for feed-in tariffs for microgeneration. We are glad that that has been accepted now. We want to see the detail of how it will be done. It could have been done months ago when there was clear agreement across the House. We could have been making much more progress than we have made up to now.
We have seen a Government obsessed by targets. They have a target of 10 per cent. of electricity from renewables by 2010, of 20 per cent. of electricity from renewables by 2020, 15 per cent. of our energy to come from renewables by 2020, all homes to be insulated by 2020, abolition of fuel poverty by 2016—interestingly, 22 November 2016; we do not know if it is the morning or the afternoon, but we are told that it will happen that day for certain—targets to reduce carbon emissions and other targets. We need action rather than targets from the Government. People want delivery. We want to move away from the endless process of consultation. The conclusion of the smart meter consultation was that there should be three more consultation exercises. We have not had decisions. The Government have shied away when decisions have been essential.
We are totally with the Government about the urgency of issues that need to be tackled, but we shall be able to deliver on the challenge of tackling fuel poverty, moving to cleaner energy and ensuring energy security only if the Government make real decisions and stop simply talking the language of what they would like to achieve.
1.55 pm
Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): I welcome the establishment of a new Department. It is long overdue. We had an energy Department, as you will be aware, Mr. Deputy Speaker, up to 1992. Since then, energy has been part of the integrated remit of the DTI. That has taken the focus away from some of the real issues, so it is good that we now have a Department of Energy and Climate Change.
I want to concentrate on two things. The first is the increase in energy prices, especially gas prices and the knock-on effect on electricity prices. There are now just six energy companies in the market. There is an oligopoly. There are more inputs into the gas market, but the peculiarity of the gas market has meant that we have seen quite high gas prices. They have increased by 30 per cent. in the past year and electricity prices have increased by 50 per cent. That has had an enormous impact on domestic consumers and industry.
When the Business, Enterprise and Regulatory Reform Committee took evidence from the Energy Intensive Users Group in spring, we were told that gas prices in France and Germany were 30 per cent. below those in the United Kingdom. I understand that across Europe electricity prices are 5 per cent. below UK prices. That has put British industry in a difficult position. Its competitiveness was challenged by those prices.
When we look at why energy prices have increased, we see the indexation of gas prices to oil prices. The Select Committee took evidence from Energywatch. We were told by the chief executive that it was an irrational indexation and that there were other ways in which we might move. I accept that it would require an international endeavour, but I urge the Minister to consider whether we could embark on such an endeavour to separate gas prices from oil prices. The increase in gas prices has caused great hardship across the economy. As a result of the linkage between gas prices and electricity prices, high gas prices have driven up electricity prices. We have 33 per cent. of our electricity generated by gas and because those stations are the last to be called on—the marginal stations—they set the electricity price for the whole market. High gas prices mean high electricity prices, because the marginal set that is called on is gas-fired. That causes enormous problems.
The hon. Member for Wealden (Charles Hendry) mentioned price increases and when he was chided by my hon. Friend the Member for Barnsley, Central (Mr. Illsley) he said that we cannot look back and that we should not dwell on the past. However, the two factors that had an impact on the energy market came about as long ago as 1989. The Conservative Government allowed the use of gas in power stations. Until then, the use of gas in power stations had been restricted. Using gas in power stations has burned an enormous amount of gas, to the extent that this year—2008-09—the UK may be importing 40 per cent. of the gas we use. It is estimated that the figure will go up and that by 2018 the UK will be dependent on imports for 80 per cent. of its gas.
The other decision that had a big impact on the energy market was that of the Conservative Government to abandon all the research that had been done on clean coal technology; they demolished the research unit at Grimethorpe colliery. That removed our lead and gave it to other countries, such as Scandinavia. China, too, is making a lot of progress on that technology. A number of factors have an impact on the price of gas. If we are to deal with them meaningfully, it will require international endeavour.
The big six are in a much more influential position in respect of electricity, with an enormous say on electricity prices in the market. That does not mean that they sit down in smoke-filled rooms and come to an agreement on the price, but because there is an oligopoly of only six major electricity producers the price signals from one to the other are easily picked up and consequently they follow each other. Over the past year, all the energy companies have increased prices. To be fair, Scottish and Southern Energy did not increase its prices in April; it waited until the end of the winter. Nevertheless, all the companies have increased their prices, by 50 per cent. and 30 per cent. for gas and electricity—and that has had an enormous impact.
What can we do to deal with electricity prices? Is there a way to reduce them? The price of oil has already come down from $146 a barrel in July to $81 a barrel this week. That means that the gas price has also started to fall, which is likely to bring down inflation from the 5.2 per cent. announced this week. At the same time, we have to be aware that there will be a fall in economic activity in the UK that will also have an impact. Although on the one hand, energy prices are beginning to fall, on
the other we shall have to deal with a difficult situation with more people out of work as the economy begins to slow.
The Government can do more to deal with the situation, especially with regard to the EU emissions trading scheme, where the energy companies are set to make an enormous amount of money. They have been given free permits and Ofgem reckons that the price of carbon will increase by £9 per tonne, so taking that figure right across the industry, the companies are likely to make £9 billion over phase 2 of the European emissions trading scheme—from January 2008 until 2012. There is an opportunity to consider whether there is room for a windfall tax on that windfall profit. An enormous amount of profit will be made, so there is an opportunity and the Minister may already be considering the possibility of a windfall tax. We could use that money to start to tackle the big issue of fuel poverty.
The hon. Member for Wealden asked how many people were already in fuel poverty as a result of the price increases. We know that for every 10 per cent. increase in energy prices, 400,000 households are put into fuel poverty. When we consider the gas price increase of 50 per cent. over the past year, we realise that we could be talking about 2 million households being put back into fuel poverty. The energy companies have a social responsibility. If they do not make money available to deal with fuel poverty from the profits they are making, the Minister must seriously think in terms of a windfall tax.
There is another aspect that we must look at carefully. The one thing that we could not do in the BERR Committee when we looked at energy prices was determine where the profit was coming from. On the one hand, the wholesale gas price goes up and on the other, because 30-odd per cent. of electricity is generated from gas and gas prices increase in relation to oil, the price of electricity also brings a profit. There are large profits in the wholesale area of gas usage and the Minister may want Ofgem to concentrate on that in its regulation of the energy industry. If that can be done, it could provide another opportunity to work with the energy industry to tackle fuel poverty.
All in all, a number of things can be done. We need transparency in the forward gas market, which is not there at present. Some gas companies, in previous acquisitions, bought companies that had long-term gas contracts, and the Minister may want to consider whether those contracts are anti-competitive and what we might do to loosen them up so that they are conducive to more competition. That certainly needs to be looked at.
We should also look at the enormous amount of profit that will come from phase 2 of the European emissions trading scheme. In the Minister’s previous role, he was close to what was being done on clean coal technology and carbon capture and storage, but there has been such delay. I understand that this year we have listed four companies for further negotiation, but we are not likely to choose one for a contract until next autumn. That is too long. We need to expedite carbon capture and storage. That is not just to deal with coal-fired stations, although that is an important aspect; a gas-fired station produces about half the CO2 emissions of a coal-fired station, so we need to ensure that we use carbon capture and storage on gas-fired stations as well.
Mr. Illsley: My hon. Friend has hit on an important point. Carbon capture and storage could be some time away. The demonstration plant is still only at competition stage and a decision has not yet been made. There is a technology we could use in the interim, which has been around for a long time and can be retro-fitted—the system of removing carbon pre-combustion. In the old days when we had town gas and coke works, there was a simple method for removing carbon from coal before it was burnt. I hope to host a reception on 3 November, to which my hon. Friend will be invited, which will hear about a technology that does exactly that. We could use coal gasification or clean coal technology in advance of carbon capture and storage.
Mr. Clapham: I am grateful to my hon. Friend for that intervention. I know that the Minister heard what my hon. Friend said and may well be at the reception that he is hosting.
There are some important measures that we need to take pretty speedily. Carbon capture and storage is one, because it would allow us to deal with the crisis that will arise between 2012 and 2016 with the simultaneous closure of some of the coal-fired stations and nuclear stations. We therefore need a technology that we can use to reduce emissions, because if the gap is filled by gas-fired stations, it will not reduce CO2 emissions. Those emissions will increase, and we could eventually have gas-fired stations, nuclear stations and renewable input, and yet produce a greater amount of emissions because of our emphasis on gas-fired stations. Given that we are likely to be importing 80 per cent. of the gas that we use in the UK by 2018, the Minister might consider putting a cap on the number of gas-fired stations that we will allow in the energy economy.
Dr. Alan Whitehead (Southampton, Test) (Lab) rose—
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. Has the hon. Member for Barnsley, West and Penistone (Mr. Clapham) finished his speech, or is he giving way?
Mr. Clapham: I was giving way, Mr. Deputy Speaker.
Dr. Whitehead: I thank my hon. Friend for giving way. I wonder whether he wishes to add the words “combined heat and power” to his thoughts on gas-fired power stations. I am thinking not just of the need to make any new gas-fired power station that should come on stream CHP-ready, but of the need to provide a heat network to deliver the captured heat from such a gas-fired power station, which would double its efficiency.
Mr. Clapham: I am grateful for that intervention. It is important that we ensure that we have CHP units, and using CHP with the gas-fired stations would make them really efficient—much more so than at present.
2.12 pm
Steve Webb (Northavon) (LD): I shall address my brief remarks to the title of the debate, “Energy providers”, and move from the very micro to the macro.
I want to draw the Minister’s attention first to an issue that was drawn to my attention by a local resident, who received a letter at the start of October from her energy company, telling her that at the end of August it
had raised her prices. I queried that with the company, and it told me that that was perfectly legitimate, because under Ofgem rules, energy companies have six weeks to tell customers that they have put their prices up.
It is very hard to think of any other form of trade in which one continues to consume a product for six weeks, only to learn from the provider that it was charging more six weeks ago. Will the Minister look into that? It worries me that many people who are getting estimated bills, or who are paying by direct debit at a level that is below their current consumption, will face really big hikes in their monthly outgoings, and if they are not told until six weeks after, the market will not work, because they will not start shopping around for a better price if they do not know that the price has gone up until six weeks afterwards.
Secondly, I want to explain one of my whacky ideas, which will become received wisdom very soon. As the new Minister has not had a chance to hear it, I want to raise with him the idea of what I call the super-smart meter. The Secretary of State said a few minutes ago that many people who switch do not actually switch to a better deal. We also know that the poor tend not to switch—and that they tend not to have internet access. Will the Minister ensure that when Ofgem specifies what a smart meter looks like, one of the functionalities it puts into it is that the meter does the switching for the consumer?
The meter needs to be able to communicate with the outside world in order to be a smart meter. Why should it not go to a price comparison site, on behalf of the consumer, knowing the consumer’s pattern of consumption of gas and electricity or whatever, and shop around for the best price? Then we would not have the problem that the Secretary of State mentioned—that the consumer swaps supplier and then a week or a month later things have changed and they ought to swap again. The meter could monitor the market on behalf of the punter. It could be possible to lodge one’s bank details with a central clearing house, so that it was not necessary to have one’s bank details with 100 different companies. Then there would be real competition in the market—almost the economist’s picture of perfect competition, because the meter would do the switching. I hope that the Minister will pursue that idea.
My right hon. Friend the Member for Gordon (Malcolm Bruce) mentioned earlier the issue of people who are not on mains gas. That is a big issue. Funnily enough, it does not occur only in rural areas; in a surprisingly large number of places, people just are not on mains gas. When we bought the house that we live in, 15 years ago, it did not have mains gas, and all the houses along the row had oil tanks in the garden. I have not yet heard what we are going to do about fuel poverty for these people. The big six do not provide the non-electricity power; they do not provide liquefied petroleum gas, by and large, or heating oil. I think that the Secretary of State hopes that the big six would address that group, but by and large they are not selling to that group, apart from electricity.
Malcolm Bruce (Gordon) (LD):
Can my hon. Friend appreciate the insult that is added to the injury when consumers receive through the door invitations from a gas company that does not supply them to opt for dual fuel? Does he find it interesting that since the privatisation
of the gas industry, the extension of the gas network seems to have ground to a halt? There seems to be no incentive to give people gas.
Steve Webb: Access is a very real issue, as my right hon. Friend says, and of course the absence of dual-fuel tariffs for these people is an extra penalty. Not only do they pay a lot when the price of heating oil goes up, but they do not have access to dual-fuel tariffs either. The regulator could do something about that.
Mr. Drew: Does the hon. Gentleman accept that there is a real problem with the Warm Front programme? Many of the people who are off the mains gas network are living in older property, and the current cap is causing them enormous problems. They will almost certainly have to pay more than they will get in grant, and something needs to be done desperately quickly about that.
Steve Webb: The hon. Gentleman makes an important point. I will return to the issue of home insulation programmes.
I shall stay on the issue of fuel poverty, and the figures that I referred to earlier this afternoon. I asked the Library to look at single pensioners, to rank them by quintile from the poorest to the richest, and to look at what they spend on fuel and what their actual incomes are. The Library projection, on figures provided by the Office for National Statistics, was that not just the poorest quintile were on average in fuel poverty this autumn, but the second, third and fourth poorest quintiles. All quintile groups except the top fifth were on average in fuel poverty this autumn. The scale and the urgency of the problem are absolutely incredible.
The Minister said that two thirds of a million customers were on social tariffs. That is great for the two thirds of a million, but that must mean that if fuel poverty is running at well over 3 million, and possibly at 4 million or more, the vast majority of people in fuel poverty are not getting social tariffs. It is not just that the glass is half full or half empty; it is about a sixth full. That is the scale of the problem. So how do we get social tariffs through to the fuel-poor on a much greater scale?
I want to address the issue of the companies. The Secretary of State has had a meeting with them and that is great; his predecessor had meetings, and the Prime Minister has had meetings, but we are not getting out of them what is needed. The Secretary of State said—I believe he did so in The Guardian this morning—that he hoped that the companies would not pass on the cost of the home insulation scheme to consumers, but he can hope all he likes; the companies can do it, and the consumer can do nothing.
Surely, Ofgem should be stopping the companies passing on the costs of these social measures. If it is a duty on the companies, the customers should not be forced to pay. The shareholders should be forced to pay, because as was said in a previous contribution, the generators—not the distribution companies, although obviously there are some pretty close links—have had this huge windfall, according to Ofgem. In my view, one does not have a windfall tax that takes the money off them and then spends it; one places a duty on them to do the things that one wants them to do. In our view, we go very much further down the track than the Secretary of State said in terms of neighbourhood energy efficiency.
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