New Clause
11
Duty
to encourage a reduction in emissions of greenhouse
gases
‘In section 3A of the
Electricity Act (c. 29) (the principal objective and general duties of
the Secretary of State and the Authority), at end of subsection (1),
insert “while reducing the emissions of greenhouse gases in
accordance with Government targets for greenhouse gas emissions
reductions.’.—[Charles
Hendry.]
Brought
up, and read the First time.
Charles
Hendry:
I beg to move, That the clause be read a Second
time.
The
Chairman:
With this it will be convenient to discuss the
following: New clause 12— Duties of the regulatory
authority
—
‘(1)
For sections 4AA(1) and (2) of the Gas Act 1986 (c.44)
substitute—
“(1)
The principal objective of the Secretary of State and the Gas and
Electricity Markets Authority (in this Act referred to as “the
Authority”) in carrying out their respective functions under
this Part is to deliver a secure and sustainable energy system
operating within greenhouse gas emission limits notified by the
Secretary of State to the Authority in accordance with the provisions
of the Climate Change Act 2008 [c.
].
(2) The Secretary of State
and the Authority shall carry out those functions in the manner which
he or it considers is best calculated to further the principal
objective, having regard
to—
(a) the protection
of the interests of consumers in relation to gas or heat conveyed
through pipes, through effective competition between persons engaged
in, or in commercial activities connected with, the transportation or
supply of gas or heat; and
(b)
the need to secure that, so far as it is economical to meet them, all
reasonable demands in Great Britain for gas and heat conveyed though
pipes are met; and
(c) the need
to secure that licence holders are able to finance the activities which
are the subject of obligations imposed by or under this Part or the
Utilities Act 2000
(c.27).”
(2) For section
3(1) and (2) of the Electricity Act 1989 (c.29)
substitute—
“(1)
The principal objective of the Secretary of State and the Gas and
Electricity Markets Authority (in this Act referred to as “the
Authority”) in carrying out their respective functions under
this Part is to deliver a secure and sustainable energy system
operating within greenhouse gas emission limits notified by the
Secretary of State to the Authority in accordance with the provisions
of the Climate Change Act 2008 [c
].
(2) The Secretary of State
and the Authority shall carry out those functions in the manner which
he or it considers is best calculated to further the principal
objective, having regard
to—
(a) the protection
of the interests of consumers in relation to electricity conveyed by
distribution systems, through effective competition between persons
engaged in, or in commercial activities connected with, the generation,
transmission, distribution or supply of electriciy;
and
(b) the need to secure that
all reasonable demands for electricity are met;
and
(c) the need to secure that
licence holders are able to finance the activities which are the
subject of obligations imposed by or under this Part of the Utilities
Act 2000
(c.27).”’.
New
clause 13—Access for renewable energy to the electricity and
gas grids
—
‘(1)
After section 3A of the 1989 Electricity Act (c.29) there is
inserted—
“3B
Access for renewable energy to the electricity
networks
(1) In carrying out
their respective functions, the Secretary of State and the Authority
shall ensure
that—
(a)
transmission system operators and distribution system operators
guarantee the transmission and distribution of electricity produced
from renewable energy sources, without prejudice to the maintenance of
the reliability and safety of the
grid;
(b) transmission system
operators and distribution system operators provide for priority access
to the grid system for electricity produced from renewable energy
sources;
(c) when dispatching electricity generating
installations, transmission system operators shall give priority to
generating installations using renewable energy sources insofar as the
security of the national electricity system
permits;
(d) transmission
system operators and distribution system operators are required to set
up and publish their standard rules relating to the bearing and sharing
of costs of technical adaptations, including grid connections and grid
reinforcements, which are necessary in order to integrate new producers
feeding electricity produced from renewable energy sources into the
interconnected grid, and that such
rules—
(i) shall be
based on objective, transparent and non-discriminatory criteria taking
particular account of all the costs and benefits associated with the
connection of these producers to the grid and of the particular
circumstances of producers located in peripheral regions and in regions
of low population density,
(ii)
may provide for different types of connection, and
(iii) shall provide for the
sharing of costs to be enforced by a mechanism based on objective,
transparent and non-discriminatory criteria taking into account the
benefits which initially and subsequently connected producers as well
as transmission system operators and distribution system operators
derive from connections;
(e)
transmission system operators and distribution system operators are
required to provide any new producer wishing to be connected to the
system with a comprehensive and detailed estimate of the costs
associated with the
connection;
(f) the charging of
transmission and distribution fees does not discriminate against
electricity from renewable energy sources, including in particular
electricity from renewable energy sources produced in peripheral
regions, such as island regions, and in regions of low population
densitiy;
(g)
fees charged by transmission system operators and
distribution system operators for the transmission and distribution of
electricity from plants using renewable energy souces reflect
realisable cost benefits resulting from the plant’s connection
to the network.
(2) The
Secretary of State shall review and take the necessary measures to
improve the frameworks and rules for bearing and sharing of costs
referred to in paragraph (d) by 30th June 2011 at the latest, and every
two years thereafter, in order to ensure the intergration of new
producers.
(2) After section
4AA of the Gas Act 1986 (c.44) there is
inserted—
“4AB
Access for renewable gas to the gas
networks
(1) In carrying out
their respective functions, the Secretary of State and the Authority
shall ensure that—
(a)
gas network operators guarantee the transport of gas produced from
renewable energy sources, without prejudice to the maintenance of the
reliability and safety of the gas
networks;
(b) gas network
operators provide for priority access to the gas networks system for
gas produced from renewable energy
sources;
(c) when dispatching
gas, network operators shall give priority to renewable energy sources
insofar as the security of the national gas system
permits;
(d)
gas network operators are required to set up and
publish their standard rules relating to the bearing and sharing of
costs of technical adaptations, such as gas network connections and gas
network upgrades, which are necessary in order to integrate new
producers feeding gas produced from renewable energy sources in to the
interconnected gas networks, and that such
rules—
(i) shall be based on objective, transparent and
non-discriminatory criteria taking particular account of all the costs
and benefits associated with the connection of these producers to the
gas networks and of the particular circumstances of producers located
in peripheral regions and in regions of low population
density,
(ii) may provide for
different types of connection, and
(iii) shall provide for the sharing of costs to be
enforced by a mechanism based on objective, transparent and
non-discriminatory criteria taking into account the benefits which
initially and subsequently connected producers as well as gas network
operators derive from the
connections;
(e) gas network
operators are required to provide any new producer wishing to be
connected to the system with a comprehensive and detailed estimate of
the costs associated with the
connection;
(f) the charging of
transport fees does not discriminate against gas from renewable energy
sources, including in particular gas from renewable energy sources
produced in peripheral regions, such as island regions, and in regions
of low population densitiy;
and
(g) fees charged by gas
network operators for the transport of gas from plants using renewable
energy sources reflect realisable cost benefits resulting from the
plant’s connection to the
network.
(2) The Secretary of
State shall review and take the necessary measures to improve the
frameworks and rules for bearing and sharing of costs referred to in
paragraph (d) by 30th June 2011 at the latest, and every two years
thereafter, in order to ensure the integration of new
producers.”’.
Charles
Hendry:
We are going to try again to persuade the Minister
that the new clause contains matters that are not yet included in the
scope of the Bill. Even at this late stage, as we reach the twilight of
the Committee stage, I hope that the Minister will see the
light—if one can see the light in twilight—and recognise
that further changes could be made to the
Bill.
The new clause
relates to the primary duties of Ofgem—again, something that was
mentioned many times on Second reading and during the submissions that
have been made to us. In 2000, Ofgem was given new duties to contribute
to the Government’s social and environmental objectives. In
2004, it was given a duty to contribute towards sustainable
development. The new duties were additional to Ofgem’s primary
duty, which did not change. In addition to its primary objective, Ofgem
has a series of 11 secondary
duties.
We have
looked at the work being done on the issue by the Sustainable
Development Commission, such as its report, “Lost in
Transmission?”, in which it made a compelling case about why
Ofgem’s remit should be changed. It recognised that
Ofgem’s remit needs to adapt to reflect the fact that the world
has moved on and the problems that society faces have
changed.
We can have
a debate about Ofgem’s work to protect consumers—it does
a good job and is well led as an organisation—but it is not
doing as much as it needs to do to move us towards a system in which we
use more renewables than fossil fuels. The UK currently generates 5 per
cent. of its electricity and 2 per cent. of its energy from renewables,
compared with 12 per cent. of electricity and 5.8 per cent. of total
energy generated from renewables in Germany.
A huge number of onshore wind
applications are stuck in the planning system. If the UK is to achieve
its target of 15 per cent. renewable energy by 2020, between 35 and 40
per cent. of all electricity must come from renewable sources. That
will not be achievable without a concerted effort and a clearer
direction to Ofgem about the work that it must
do.
In addition,
there are considerations that relate to connectivity to the national
grid, which could also be addressed by reforming the primary duties for
Ofgem. An enormous amount of the national grid network is reaching the
end of its lifetime and will need to be replaced. At the moment, Ofgem
is required to connect new installations in the order in which the
applications are made. So it is connecting some wind farms that might
not get planning consent for some years, but others, which have been
given planning consent, will not be connected to the national grid for
some years to come. Clearly, that does not make sense as a coherent
strategy. Ofgem should have more powers to intervene and to suggest
that installations should be connected in an order that reflects their
viability and the extent to which they can make a contribution to
promoting
renewables.
5
pm
The WWF, which
the Minister quoted in relation to the Prime Minister,
said:
“The remit of
Ofgem was established before the urgency of climate change became
clear. WWF believes its primary remit should be updated to include
efforts to reduce carbon emissions in the energy
sector.”
Similarly the
Sustainable Development Commission has recommended that Ofgem’s
duties should be changed to include strong reference to greenhouse gas
emissions
reductions.
The Royal
Society for the Protection of Birds said that the Bill should
“Reform the gas and electricity
regulator... so that its primary purpose is the protection of the
environment and
customers.”
The Energy
Saving Trust
said:
“Ofgem’s
current primary responsibility to promote effective competition in the
energy sector means it does not promote increased energy efficiency and
renewables as much as it could. Ofgem’s remit should be altered
by the Bill to include a primary responsibility for the delivery of a
low carbon energy
system”.
The
British Wind Energy Association
said:
“Ofgem’s
interpretation of its rules mean National Grid cannot invest in
upgrading connection and cabling for new wind farms until developers
are able to underwrite their costs. Companies are unable to do this
until their schemes are approved and they have secured finance, which
can take several years: under current arrangements they would then have
to wait further for grid upgrades before they can generate. Ofgem fears
that early investment in system reinforcement would result in stranded
assets being built... We believe that Ofgem must be more strongly
directed to give higher priorities to tackling climate change and
increasing security of supply alongside itself economic
focus.”
When
the Sustainable Development Commission produced its report, it proposed
three options, one of which was to create a primary duty for
environmental matters and climate change issues and to put that ahead
of consumers’ interests. That is a difficult position to sustain
in the current climate, when we are all concerned about fuel poverty
and how people will pay their bills. There must be a continuing primary
duty to protect consumers. The SDC also suggested an option whereby
those issues would be viewed in tandem. New clause 11 would add to its
primary duty about protecting consumers and includes the
words, “while reducing
the emissions of greenhouse gases in accordance with Government targets
for greenhouse gas emissions
reductions”.
A clear
body of opinion sees that as the right way forward.
The SDC has looked into this
in great detail, and I hope that the Minister will be able to respond
positively to the new clause and recognise that we need to address this
matter to meet our climate change objectives. We are reaching the final
moments of the Committee. The prospect that we are soon to be released
is almost like Christmas. We therefore ask the Minister to give us that
little Christmas present—that final little nugget after weeks of
saying no in the Gallic manner—and say, “Yes,
here’s an issue that we can support. Here’s an issue that
we should rally round,” and accept the new
clause.
Dr.
Whitehead:
I want to speak to new clause 12, which is a
more comprehensive version of new clause 11, tabled by the hon. Member
for Wealden. I would not characterise these as Christmas clauses, but
rather as owl of Minerva clauses, in that the best bit comes just
before the ending. In that case, it was Greek civilisation, but we will
not go down that
road.
The purpose of
new clause 12 is simply to reverse the subsidiary nature of the clauses
within Ofgem’s remit, which concern sustainability and
environmental obligations, and place them as a principal objective.
Rapid progress is being made to ensure that our future energy concerns
relate to climate change, sustainability, renewable energy and the use
of other forms of energy, either more economically or through the use
of technologies that make them more sustainable.
The idea
that the energy regulator is tasked to ensure that that is a primary
consideration is very important. It is also important because Ofgem has
suffused the considerations of the Committee—it has a very
important role and undertakes a whole range of activities that relate
to grid connections, the operation of the energy market, arrangements
that relate to renewables and all sorts of similar matters. Therefore,
having a primary duty to do that is important, but of course I
recognise and understand that simply to do so would be to fundamentally
disrupt the range of considerations that Ofgem should properly take
into account.
Consequently, in furtherance
to its principal objective, new clause 12 lists a number of
considerations that Ofgem should have regard to, which will effectively
fall within its primary duty. At the moment, that duty is set out
thus:
“to protect the
interests of consumers, present and future, wherever appropriate by
promoting effective competition between persons engaged in, or in
commercial activities connected with, the shipping, transportation or
supply of gas conveyed through pipes, and the generation, transmission,
distribution or supply of electricity or the provision or use of
electricity
interconnectors.”
As
hon. Members will understand, those elements of the primary duty would
be reflected in the things that Ofgem should consider in pursuit of its
primary objective—it is effectively a tandem arrangement as far
as those objectives are concerned.
The issue is
certainly beyond serious dispute, but there have been some
difficulties, not necessarily because Ofgem is a perverse organisation
that does not want to pursue environmental objectives, but rather
because of the way in which its duties and powers are set out. The hon.
Member for Wealden mentioned some of those difficulties in relation to
the connection of transmission for renewables and various other
activities, and I believe that they have resulted from the subsidiary
nature of the contribution to the achievements of sustainable
development in Ofgem’s present remit. That is a result first of
the systematic undervaluing of carbon by Ofgem in its calculations of
what is meant by significant financial implications and because of
Government guidance from 2004, which was supposed to help Ofgem in its
interpretation of social and environmental issues, but which probably
had the opposite effect.
In their guidance, the
Government
stated:
“where the
Government wish to implement social and environmental measures which
could have significant financial implications for consumers or for
regulated companies, these will be implemented by Ministers, rather
than the Authority, by means of specific primary or secondary
legislation.”
The interpretation of
what is a “significant financial implication” in the
context of Ofgem’s primary duty has led to conclusions that do
not advance the question of sustainability and environmental management
in the way that is increasingly becoming imperative in the management
of energy supplies. At the very least, I hope that my hon. Friend the
Minister, in replying to these questions, will consider whether there
should be new guidance for Ofgem, because I do not think that the
guidance does the job that it was originally intended to do; indeed, it
could have perverse consequences for Ofgem’s overall
role.
Finally, I
emphasise that the idea of setting out principal and subsidiary
objectives in the way that is set out in new clause 12 is not unique
for regulators. Indeed, the rail regulator has a duty to contribute to
sustainable development that ranks alongside the duty to promote
competition and is not subsidiary to it. Therefore, regulators can work
within a competitive environment with that duty; rather, such a
framework of duties can probably contribute to the development of a
workable and competitive environment, while sustainable objectives are
pursued, in the way that I imagine everyone on the Committee wants us
to proceed in respect of energy management.
Steve
Webb:
The Liberal Democrats have a lot of sympathy with
the goals in new clauses 11 and 12, which touch on the same
issue—Ofgem’s remit—and goals as new clause 13,
which has not been discussed even though it is grouped with new clauses
11 and 12, so I assume that it is in order to refer to it.
Clearly, there are two
slightly different approaches to Ofgem’s remit. There is a more
comprehensive approach from the hon. Member for Wealden in new clause
11, which seems to be more effective, because it appears to cover both
gas and electricity legislation, and I sense that it might be
preferable to the other approach. Nevertheless, the goal of both
approaches seems to be right. We all know that, if we have one primary
duty or one priority, we will focus our attention; if we have 10
priorities, we have no priorities. My worry with the current Ofgem
structure is that the
primary duty overrides and that, when there is a conflict between the
primary duty and the subsidiary duty, the primary one, by definition,
dominates. From our
point of view, sustainability and adherence to greenhouse gas targets
are not at all subsidiary matters—this is the future of the
planet, for goodness’ sake. The idea that sustainability is a
subsidiary consideration—I hesitate to say that it is an
afterthought, but it is certainly a subsidiary
consideration—just seems wrong to us.
We agree
with the Sustainable Development Commission’s suggestion that
Ofgem’s primary duty should be aligned to Government energy and
environment policy; why would it not be aligned to it? The fact that
there could be disjunction between the two suggests that change to the
remit is needed. In passing, I note that the Sustainable Development
Commission also recommends that energy and environment policy should be
handled by one Secretary of State; having a view on that may be above
the Minister’s pay grade, but it is a very good recommendation
and one that we have implemented in our
party.
The question
that we have not yet considered is what does Ofgem think of all this.
Obviously, Ofgem would not dream of trespassing on party political
matters, but it produced a briefing for us, called “The Role of
Ofgem in a Changing Climate”, in which it said that these are
obviously matters for politicians and Departments to decide, but it
then came up with a raft of reasons why we should not change its remit.
One of the reasons that Ofgem gives in the briefing is that we should
judge it by its actions on sustainable energy networks and markets. It
lists a set of bullet points of things that it has done, saying that it
has advised the Government and promoted choice. However, I cannot help
smiling because one of the actions that we are supposed to commend it
for is its
“Leadership
role on smart metering, including overseeing Government backed 10m
trials (ongoing since
2005).”
I
cannot help feeling that, if the remit for sustainability and
greenhouse gas emissions had been primary rather than secondary, a
three-year smart meter trial might have led us to some action. In a
sense, it is probably unfair to criticise Ofgem for that; it has simply
administered the Government’s trials. However, in no sense has
it been driving smart metering forward, although I am sure that it has
done a very competent job of administering trials.
Perhaps I am
pointing the finger in the wrong place and pointing it unfairly at
Ofgem. However, I just think that perhaps it would have been pressuring
Ministers and saying, “Look, we have got a remit to fulfil. We
are supposed to be promoting sustainable energy. You are dragging your
heels on smart meters. How about pulling your finger
out”—metaphorically—“and getting on with
it?” If Ofgem had been given that remit, there might have been
more pressure on the Government to act on some of these issues.
Therefore, of the two new clauses, new clause 12 probably gets closest
to the mark, but we would very much support the spirit of those people
who put sustainability and curbing greenhouse gas emissions right up
there, in the headlines, at the
top.
Briefly,
new clause 13 is about preferential access to the grid for renewables.
A brief reference was made to that earlier and again it is something
that we support.
The danger is that the grid currently picks off the cheapest marginal
source of supply. If we are serious about getting renewables into the
mainstream, rather than having them as just a peripheral additional
supply, some sort of preferential arrangement would complement what we
have been talking about under the Bill, such as the renewables
obligation. It will be interesting to see why the Government have not
adopted that approach. I hope that the Minister will be sympathetic to
it. 5.15
pm
Dr.
Whitehead:
I am conscious that I tabled new clause 13, but
have not moved it. I wish to do
so.
The
Chairman:
I remind the hon. Gentleman that he is not
moving the clause but speaking to it. His new clause has been grouped
with new clause
11.
Dr.
Whitehead:
I am conscious, therefore, that I should have
spoken to new clause 13 when I spoke to new clause 12. I apologise that
I failed to do so. I will not detain the Committee for any length of
time other than to commend the idea about grid
connections.
Clause
40, which we discussed what seems like a very long time ago, made great
strides on the grid connection for offshore renewable energy. I
welcomed the Minister’s verbal indication of further
consideration over whether there should be a hub-and-spoke arrangement
for future grid connections as the offshore grid develops. I also note
the proposed clauses in the marine Bill White Paper concerning how
permissions for offshore grid connections will be undertaken.
Nevertheless, problems will continue to arise upon landfall in the way
that they currently exist for connections for land-based wind
farms.
There is the
so-called Scottish queue of something like 9 GW of potential power that
remains to be connected up because of the considerations relating to
how connection is undertaken. Viable schemes that can proceed have a
lengthy period of waiting prior to going online because the capacity of
the grid is taken up by existing operators. Those operators reserve
elements of the grid according to their capacity operation, which does
not necessarily take
place.
Elements of
the grid for dealing with potential grid failures are normally not used
because failures to the grid are reducing considerably. Therefore, a
connection and management regime on the basis of that marginal,
additional capacity according to the priorities set out in new clause
13 would offer a very positive way to deal with grid connection
problems.
The
clause prioritises renewable connections, but the effect would be to
ensure that the way that the grid connection arrangements were laid out
meant that the full management capacity of the grid was used in
parallel, rather than in sequence. Therefore, that would cause the grid
to be used in a much more efficient way and bring on the considerations
of how the grid is strengthened—at what point on the grid new
connections are landed and how they go into the high-power
grid.
For all those
reasons, I hope that my hon. Friend the Minister would look carefully
at the considerations in the new clause. I anticipate that he will
suggest that it might be withdrawn, but it is on the amendment paper,
in part, at least to underline that we have to get grid
connections right in the future, so as to bring out the benefits of
renewables, which are underlined by the Bill and are essential to our
future
targets.
Malcolm
Wicks:
This matter has occasioned a lot of parliamentary
and wider interest, so it is useful that we have had a good discussion.
There are three new clauses here, so I am afraid that it will take a
little while for me to present my
analysis.
The hon.
Member for Wealden, hoped that, at this late hour, I would be able to
satisfy him. My endeavour is to satisfy him; I want to make him happy.
I am sure that during the course of my speech, I will do that, but with
only one small, rather specific and technical qualification, which is
the tedious business, sadly, of my not being able to accept his new
clause. Apart from that, I think that he will be
satisfied.
We have
heard a lot in the debate as to whether the duties and powers of
Ofgem—I mean here the Gas and Electricity Markets
Authority—are still fit for purpose in the light of the
challenges that we face to meet our EU 2020 targets. New clauses 11 and
12 in particular attempt to address what some hon. Members feel is
perhaps an imbalance in Ofgem’s overall focus. Before I cover
the specific issues raised by new clauses 11 and 12, I thought it might
be helpful if I took the time to remind the Committee of the rationale
for having an independent economic regulator for the electricity and
gas
markets.
The
Government are committed to delivering safe, secure and sustainable
energy supplies through independently regulated energy markets,
promoting competition where possible. Ofgem has been specifically
established as the independent regulator, with consumer protection and
competition as its primary duty. The intention of independent
regulation is to provide the regulatory stability necessary for
investor confidence through independence from Government and a clear
statutory framework; to introduce competition into the market wherever
possible; and to regulate the prices of any natural monopolies, such as
networks, where
not.
Investments
in the gas and electricity industry, be it networks or generation, are
generally long term and returns are made over a long period. Once the
investments have been made and the infrastructure built, it can be
costly for companies to pull out. It is the combination of
Ofgem’s independence—which demonstrates that regulatory
decisions about the market will be made for the long term on an
economic, not a political, basis—and a clear statutory framework
of duties in which to take its decisions that provides companies with
the stability and regulatory certainty that they need to invest with
confidence in the power stations, gas infrastructures and electricity
networks that we need in the
UK.
A competitive
market with sufficient, timely investment brings benefits for consumers
by providing the most cost-effective way of delivering our energy
objectives of tackling climate change and ensuring secure supplies of
energy. Ofgem also regulates prices in elements of the gas and
electricity system that are natural monopolies. That ensures that the
owners of the pipes and wires do not abuse their monopoly power and
helps to drive efficiencies in the system. As part of that, Ofgem sets
price controls to limit the charges for
access to those networks and provides incentives for the companies
regarding investment and service. That helps to ensure that costs to
consumers are minimised as far as possible. Changing the
nature of Ofgem’s remit so that it will no longer primarily be
an economic regulator, as new clause 12 proposes, without sufficient
analysis of the potential impact on the broader market and other
unintended consequences, would be imprudent. Placing sustainability
above consumer protection and competition would take Ofgem’s
primary focus away from the latter. I have already discussed some of
the reasons why we believe that it is important that Ofgem retains its
economic focus. Moreover, the new clause proposes giving Ofgem a
primary duty to deliver sustainability, but no practical powers or
tools to make it possible, as many of the important policies such as
the design of the renewables obligation and other trading schemes are
the remit of Government, and rightly so.
A recent Select Committee
report in the other place on regulators concluded that they are
“creatures of statute”, and that therefore, an effective
statutory remit for a regulator is one that is, above all else, clear.
The report also concluded that regulators need limited and relatively
narrow duties.
A
dual primary duty, as suggested in new clause 11, would require Ofgem
to make trade-offs between the economic interests of consumers and
promoting sustainability. How, for example, would Ofgem be able to
decide what should take precedence when making decisions about whether
to encourage renewable technologies, which are generally more
expensive, or to keep costs down for consumers to minimise fuel
poverty? It is only right for an elected Government to make the
political decisions about such matters. That is why the Secretary of
State provides guidance to Ofgem on social and environmental policy, to
which Ofgem must have regard. In light of significant developments in
this area since the guidance was last updated, we intend, as the
Secretary of State announced yesterday, to consult on new environmental
and social guidance for Ofgem shortly.
The guidance will set out the
Government’s expectation of the contribution Ofgem should make
on social and environmental issues. It will cover issues such as
facilitating the faster deployment of renewables, both on and offshore,
and the development of local or distributed energy. On the social side
it will, among other things, address our expectation that Ofgem will
take a strong lead in co-ordinating activity to help low-income and
vulnerable customers.
Rather than
a knee-jerk reaction to change Ofgem’s remit and duties we
should step back and look at what the potential barriers to deploying
more renewables actually are. Stakeholders have highlighted several key
areas of concern in relation to the deployment of renewables,
particularly around grid access, transmission and charging. Some point
to Ofgem’s remit as the cause, but that oversimplifies the
problem. The grid-related issues are complex and interconnected and
rather than believing that we can solve them at a single stroke by
changing Ofgem’s remit, we need to develop a more rounded
strategy.
That is
why we are developing our renewable energy strategy, which we have
discussed, to be launched in Spring 2009. As part of that we will be
launching a
consultation this summer that will consider what more we should do to
increase renewable energy production to meet our share of the EU 2020
renewables target, including how we can ensure renewable projects
secure swift connection to the grid. We need to look at the rules
governing access to the grid and at ways of speeding up the delivery of
new infrastructure. We need to be sure that the grid as a whole is
equipped to handle significant increases in largely intermittent
renewable
generation.
Steve
Webb:
A few pages back, the Minister described changing
Ofgem’s remit as a knee-jerk reaction, but would he not accept
that the Sustainability Development Commission, which was set up by his
Government, has recommended this in a thoughtful, multi-page report
after many months of thinking about it? Is he saying that its approach
is knee-jerk? Would he not accept that there is a rigorous, carefully
thought through case for doing
this?
Malcolm
Wicks:
I was not talking about the SDC’s report,
which, as ever from the SDC, was an important document. That does not
mean that we always have to agree with independent
commissions.
Steve
Webb:
It is not knee-jerk.
Malcolm
Wicks:
No, I did not say that that report was knee-jerk.
Some people think that changing Ofgem’s responsibilities is the
sole answer to these problems and I would describe that as knee-jerk,
but not the SDC. When we more fully understand the issues and barriers
in the context of a much more ambitious renewables target—and
the best way to overcome them—we can make any changes needed to
deliver the
outcomes.
5.30
pm
Ofgem
already has a secondary duty on sustainability, and has been criticised
for not delivering on that. That is unfair, in the light of the work
that it has taken forward on a number of projects. For example, Ofgem
and my Department are already working on incentives for energy
businesses to be innovative in terms of sustainability and reducing
greenhouse gas emissions and losses of gas and electricity, through
their price control work. Ofgem is also working with my Department on
other projects, such as the important transmission access
review.
In
summary, there are strong reasons for retaining Ofgem’s focus on
consumers and competition. However, we know that, as well as updating
its guidance, there is further work to do in understanding the
potential barriers to deploying more renewables—grid-related
issues, for example. Those barriers will be considered as part of our
strategy for meeting the European 2020
target.
Charles
Hendry:
Can the Minister tell us what the time scale for
the consultation process will be? It could clearly go on for some time.
It is six months since the SDC produced its report and there has
therefore been a good opportunity to look at the issues in that report
and take account of its recommendations. Will the consultation be over
quickly or could it take a long time?
In relation
to that, changes to Ofgem’s primary duties would require primary
legislation, unless the Minister were to include in the Bill powers to
change those duties by secondary legislation. Is he prepared to table
an amendment on Report, or in another place, that would allow the
duties to be changed by secondary legislation, if that were what his
consultation
concluded?
Malcolm
Wicks:
To clarify, is the question about the time scale
for the new guidance for Ofgem? Sorry, I may have
misunderstood.
Charles
Hendry:
The Minister said that the Government were about
to consult on the process for giving more powers or changing the remit.
How long will that consultation
take?
Malcolm
Wicks:
We will consult in the spring and expect to issue
new guidance by the end of
2008.
Can I go on to
new clause 13? Tempting though it would be to accept the new clause, we
wish to resist it. The new clause seeks to provide priority access for
electricity and gas produced from renewable energy sources to the
electricity and gas transmission and distribution systems. The new
clause places new duties on the Secretary of State and the authority,
which would govern how they discharge their functions under the
Electricity Act 1989 and the Gas Act 1986, as
amended.
The
proposed text on access for renewable energy to electricity networks is
taken from the draft EU renewables directive, and many of the
provisions referred to in the new clause were contained in the 2001
renewables directive. Those provisions are already in place in Great
Britain through licence conditions and underlying industry codes. The
key difference is that the new clause would introduce a requirement to
mandate priority access to the grid for electricity from renewable
sources. That is currently a discretionary matter for member states.
Although gas is not covered in the EU renewables directive, the text
has also been applied to gas through the proposed new section 4AB in
the new
clause.
I
will first address access for renewable energy to the electricity
networks, and then access for renewable gas to the gas networks. We are
giving careful consideration to the merits of prioritising renewable
access to the grid, and we need to address a number of issues. First,
there is some uncertainty about the meaning of priority access in the
national context. It is important that we do not introduce uncertainty
for existing generators and those planning future investments. We need
to be careful not to discourage essential investment in all generating
technologies.
The
next consideration is whether priority access is consistent with our
wider energy policy goals, and whether it is the best route to
accelerate growth in renewable generation and integrate what is largely
variable generation into the electricity networks, while keeping those
networks safe and reliable. Offshore and onshore wind generation is
likely to play the largest part in meeting our renewable energy targets
in 2020. To accommodate such variable renewable generation, it will be
essential to have a significant amount of responsive back-up generation
to maintain system reliability. A mixed-generating profile is therefore
consistent with, rather than opposed to, our ambitions for renewable
generation.
We need to
ensure that the access regime encourages essential investment to come
forward. If conventional generation were displaced because of the
prioritisation of access for renewable generation for a period of time,
or if new investments in reserve capacity were not made, there are
foreseeable difficulties for maintaining a reliable electricity system.
We are considering reforms to grid access arrangements to ensure that
the regulatory framework remains fit for purpose in the medium and
longer term, and to speed up the connection of renewable generation as
part of the transmission access review with Ofgem. An interim report of
the review has been published and my Department and Ofgem are working
towards a final report in May 2008. We will work further on the matter
as we work with industry to deliver the conclusions of the review and
as we develop the renewable energy strategy. That may mean bringing
forward, in the strategy, further measures to speed up the connection
of renewable generation. Clearly, if we decide that the
Commission’s proposals for priority access as set out in the
draft directive is the right approach, the proposals will be
implemented in the
UK.
On the second
part of proposed new clause 13, the Government are keen to support and
investigate the potential of renewable gas to contribute to the
UK’s share of our European target. Renewable gas, or biogas, is
produced by feeding organic material such as food waste, sewage sludge,
animal slurries or energy crops into an anaerobic digestion
plant—if my intelligence is right, such a plant is currently the
subject of some controversy in Ambridge—or from the
decomposition of organic matter in landfill sites. The Department for
Environment, Food and Rural Affairs has recently announced that
£10 million will be made available for the construction of new
commercial-scale anaerobic digestion demonstration plants. By removing
carbon dioxide and other impurities, biogas can also be used to make
biomethane, which could, theoretically, be injected directly into the
gas networks. However, there are a number of challenges to address
before it is possible to inject biomethane directly into networks in
the UK, such as standards for quality and
pressure.
The
“Heat Call for Evidence” invites contributions on the
potential of biomethane, the barriers to its deployment and how best to
tackle those. It is essential to consider the responses to that and to
feed our considerations into our broader work on the renewable energy
strategy. Moreover, until we have reviewed the evidence on how to get
biomethane into the gas system, we will not be able to judge what
potential unintended or undesirable consequences might flow from the
somewhat ad hoc change to the duties of the Secretary of State and the
authority proposed by the new clause. Therefore, the kind of
market-enablement that the new clause would provide seems entirely
premature.
As
I have said throughout this process, we should not make significant
changes to a regulatory framework without careful consideration of the
consequences. We cannot simply add powers and measures to the
statute purely because we happen to have a legislative
opportunity.
I
should, however, say more on the connecting of renewables. There is
currently a queue of projects at
various stages of development, mostly in Scotland. National Grid is
developing a suite of measures to ensure that available connection
capacity is offered to the projects that are best able to connect
early, which is to say those with planning consent. That is in line
with the objective described by the hon. Member for Wealden to connect
the most viable projects
first. I hope that I
have said enough to assure hon. Members that there is no lack of
interest in renewables that leads me resist the new clause—far
from it. However, if we are to develop the UK’s contribution to
our European target, we need a comprehensive strategy, not a variety of
piecemeal ones.
I believe
that important considerations of system reliability and investor
confidence need to be addressed before we can conclude that priority
access is in itself the right way forward to accelerate the growth of
renewable generation. The draft EU renewables directive is, of course,
still subject to negotiation between member states. It would not be
appropriate to transpose the draft text under discussion into the Bill.
When the negotiations have concluded, the finally agreed directive will
be transposed into legislation in the United Kingdom in the usual way.
In the light of those comments, I ask members of the Committee
to withdraw the new
clause.
Charles
Hendry:
It was clearly too much to hope
that the Minister’s stony heart would melt at this last moment
in our proceedings. It made me think of my little boy who was sure that
he would get a PlayStation for Christmas, but found that he had been
given a dictionary, and burst into tears. The Minister’s
response was in the same vein. Nevertheless, it was not wholly
unexpected. It is a happy coincidence, however, that the day before we
reached such a debate in Committee the Secretary of State announced a
consultation process on the way forward. At least, we can feel some joy
at the fact that we might have advanced that consultation
process.
Malcolm
Wicks:
The hon. Gentleman has been so kind and
understanding. I just want to make matters clear. I am sure he
understands that we are consulting on Ofgem’s guidance, not on
Ofgem’s remit.
Charles
Hendry:
I am grateful to the Minister for explaining
matters. Clearly, such a process would not therefore require primary
legislation to change it. Given that we have waited some time for an
Energy Bill to be published, it is frustrating to know of the number of
measures that have been put out to consultation. They really should
have been dealt with before we reached this stage and thus included in
the Bill. Nevertheless, we shall reflect on matters further, and take
soundings from the SDC and other interested parties about what they
think will be the appropriate way forward. We reserve the right to
bring the provision back perhaps as a new clause or an amendment on
Report. In the light of what the Minister has said, it would be
inappropriate to press the new clause to a Division now. Instead we
shall reflect further on the best way forward. I beg to ask leave to
withdraw the
motion.
Motion and
clause, by leave, withdrawn.
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