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16 Dec 2008 : Column 1030

Many of my constituents in rural Angus do not have access to the gas network—and, with the best will in the world, they never will. There are good renewable energy schemes that can help, but at the moment many of my constituents use LPG or home fuel oil. I am pleased that, following our recommendation, Consumer Focus has said that it will take this issue into account, which is progress. I nevertheless agree with both the hon. Members for Carmarthen, West and South Pembrokeshire and for Mid-Worcestershire that Ofgem needs to be involved as well. The point that the hon. Member for Carmarthen, West and South Pembrokeshire made about LPG also applies to coal and fuel oil prices.

Let me ask the Minister to give consideration to this issue: we always pay the winter fuel allowance in the winter, but it may well be cheaper for someone to fill up a tank or buy coal in the summer months. I would like the Minister to reflect on whether, in certain circumstances, the winter fuel allowance could be paid to some people earlier in the year to allow them to take advantage of the lower prices. I appreciate the difficulties that that may cause, but it is worth considering, as it would help some people. There is no magic bullet to deal with fuel poverty and, as the report states, there are many other things to be done to combat it—home insulation, for example. Many homes need to be retro-fitted with good insulation to save energy.

The Scottish Government have launched an ambitious programme to help tackle fuel poverty and, unlike with Warm Front in England, they have maintained spend on fuel poverty programmes through the year. They have allocated an additional £10 million for the central heating programme, which is about installing such heating in vulnerable homes, and for giving more help to fuel-poor households. A record number of central heating installations were completed last year. The Scottish Government have also proposed increased help beyond basic insulation, which is being provided UK-wide, to families on income support with children under five or with disabled children under 16, as well as to pensioners. The Minister should look into extending those measures to other vulnerable groups in the rest of the UK. Those existing programmes reveal the wide range of issues that need to be addressed in tackling fuel poverty. With all that going on, I have to tell the Minister that it is a scandal for the UK Government at this time to slash the budget of the Scottish Government by £1 billion, which is bound to impact on many necessary programmes.

I promised that I would not speak for much more than 10 minutes, so I will start to conclude. The report is not only about fuel poverty and energy prices, but about the security of our future energy supply. The Select Committee Chairman made many of the points that I would make so I will not dwell on the issue, other than to say that when we think about the big six energy companies we have to take into account the fact that we are asking them to do two contradictory things—to reduce prices, but at the same time also to make the huge investments needed for future energy generation of whatever type. The Government need to look further into how to deal with such contradictory priorities. A bankrupt company cannot invest in generation and we need to consider whether the current market provides the best means of meeting those priorities.

The profits of the energy companies were mentioned, so I should like to return to a point I raised in an intervention. Because four of the big six are multinational
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companies, it is difficult to ascertain how much profit they are making from generation, how much profit comes from sales and how much of it is actually made in the UK. In some ways, British Gas and Scottish Power and Southern are disadvantaged in that we can see how much profit comes from the UK, but the Government need to look further into the matter, perhaps in tandem with the European Union. We need more clarity and we need real thought about how to get the energy companies to meet the two contradictory objectives—to invest in generation and to deal with climate change as well as with prices, particularly for vulnerable customers.

7.36 pm

Mr. Elliot Morley (Scunthorpe) (Lab): In the remaining time available, I shall ask a couple of questions, as some points in the report will have to be followed up and progress made. Having heard the issues raised in the debate about Ofgem, does the Minister believe that its terms of reference need to be revised in the light of market changes and current pressures? The electricity and gas companies, for example, have asked for an enormous increase in contributions to monthly payments. Is that justified and is Ofgem adequate to protect people from those demands? Although there is no doubt that the deregulation of the market brought about a fall in prices for consumers, is the Minister satisfied that the market is working adequately now—and not just for domestic consumers, who are very important, but for business consumers? I represent a constituency in Scunthorpe that has much energy-intensive industry, so I am concerned to ensure that there is fair competition in respect of energy prices for companies in this country as compared with prices in the rest of Europe.

My final point is about carbon capture and storage, which was mentioned earlier. Yorkshire Forward presented a proposal for a carbon capture pipeline in the south Humber bank, leading to the gas fields and allowing energy-intensive industry to connect to them. I declare an interest here, because the installation of a carbon capture blast furnace in Scunthorpe is under active consideration and having that sort of infrastructure would make the project all the easier. I am very keen to see such new technology implemented in our own country. I believe that this represents one way forward for the low-carbon economy. I understand that, at the European Council, the EU agreed to make a sum of about €6 billion or €7 billion available. Given the existence of that European funding, is the Minister open to thinking again about a bid from Yorkshire Forward, perhaps in partnership with some of the energy-intensive companies in that area, as a means of providing such important infrastructure investment?

7.38 pm

Charles Hendry (Wealden) (Con): I begin by congratulating my hon. Friend the Member for Mid-Worcestershire (Peter Luff) and his Select Committee on its work in preparing these reports. As the Select Committee starts to lose its responsibility for looking into energy matters, these reports will provide a lasting and important testament to the diligence and expertise of its members in studying the energy challenges that our country faces.

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The reports have given rise to a thoughtful and constructive debate and I hope that you, Madam Deputy Speaker, will make strenuous representations to the business managers of the House about the fact that so many outstandingly able right hon. and hon. Members who have tremendous expertise have been denied the opportunity to speak in the debate because of the lack of time.

I want to focus on the issues of fuel poverty and this country’s future energy supply. Today has been a bad day for consumers. I think that they had hoped for relief from the Ofgem announcement, but they have not received it. That is why this morning’s announcement has received a poor response from organisations such as Age Concern, Help the Aged and the National Housing Federation.

Of course we welcome the progress that has been made on prepayment meters and in relation to those who are not on the gas grid, but more is clearly needed. Now that it has been recognised that people in those categories had a bad deal in the past, I hope that the Minister will say whether he will seek compensation for the way in which they lost their income.

There is little here for consumers more generally. We know now that there are probably 5.5 million households in fuel poverty, and every 10 per cent. increase in fuel prices pushes another 400,000 people into fuel poverty. We know that here in the UK energy prices are rising twice as fast as the EU average. We know as well that many people face a raw deal from how the direct debits operate. We also know that this is about not only those who are defined as being fuel-poor—millions of households across the country will struggle to pay their bills this winter. Worst of all, knowing that 25,000 people died last winter because of cold-related illnesses, it is likely that that figure will be higher this year.

We must recognise that more should have been done earlier. In October, we were told by the Secretary of State that he would give the energy companies four weeks to take urgent action. In November, he said that he would give them another four weeks. Today, he is saying that he will think about consulting on having a review to discuss what more should be done if they do not do something now.

The time for action has passed and we should have seen more. We should now be seeing the Government taking action to make excessive profiteering on prepayment meters illegal. There should be legislation to provide social tariffs for vulnerable households. There should be a requirement that the companies from which people get their energy should say on their bills what would be the cheapest tariff. There should be an extension of the Post Office card account to enable those who do not have bank accounts to get the best tariffs available.

We think that the time has come for the Government to ask the Competition Commission to look into how the companies operate. So, while the Government have said that affordability is a priority, it must be a matter of great concern that we have not seen that achieved.

The report also considers how Warm Front works. A couple of weeks ago, I raised that matter with the Prime Minister at Question Time. I received a letter from him today and he says:

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That is a very partial reply, because he does not say that new money is simply reinstating some of the funds that have been taken out. For those three years, we are still left with a Warm Front budget of £100 million less than originally intended for that period. We need to know whether the Prime Minister is aware of the fact that the budget has been cut, or has he deliberately chosen to hide that? The bald fact is that the Warm Front budget has been cut, but because some of the cut has been restored, he seeks to portray that as an increase.

Moving on to security of supply, which is so crucial to the debate because of its impact on future energy prices, there is recognition across the House that we need investment in new capacity. Paragraph 17 of the Select Committee’s first report of the 2008-09 Session puts it well:

Although I recognise that the Minister is relatively new to his brief, I am afraid that he is showing complacency in how that is being addressed. On the “Today” programme a few weeks ago, he said that the lights would be burning even more brightly in 2015 because there would be 37 per cent. more generating capacity on stream by then. He must be the only person in the country who thinks that is true.

The Minister took the figures from the national grid’s seven-year statement, but he knows that they do not take account of planning consents, financing or the cost of commodities, which will determine whether some projects will be built. Crucially, they do not take account of the facilities, particularly in coal and nuclear, which will come off stream, or indeed the variability of wind power: 8 GW of that figure will come from onshore and offshore wind, but he treats wind power as providing the same reliability of supply as would come from gas.

We also need to recognise that this situation is getting worse. The return on equity required by companies, according to Alistair Buchanan, will be 15 per cent. or more, rather than 10 per cent., which it has been. He says as well that there will be significant refinancing needs across the industry.

If we need any more warning, we should heed the words of Wulf Bernotat, chief executive of E.ON, who, writing about Britain in The Sunday Times, said:


We have to be realistic because many of the things that we are looking to are simply not likely to happen. We have a problem here with people wanting to invest in coal: because of the Government’s lacklustre approach to carbon capture and storage, they are questioning whether they can make those investments. We are seeing issues even in gas, with RWE in Pembroke saying that it needs an urgent decision on the 2 GW plant for it to go ahead. If that does not happen in the next few months, the financing of it may change.

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Day by day, people in the renewables sector, and particularly those in offshore wind, are saying that they need more funding if their schemes are to come on stream. Centrica has put one of its plants on hold, Shell is pulling out of London Array, and Eclipse and AMEC’s wind business have been taken over. RWE says that it needs more support. Projects that looked to be developed in round 2 are struggling, let alone those needed in round 3. They are all saying that the moves towards banded renewables obligation certificates, which we have supported, do not give them enough support.

The UK has 11,000 miles of coastline and should be a natural place to lead the world in marine renewables sector technologies, but the marine renewables deployment fund cannot be accessed. As Ministers have said, that is because they are not at the deployment stage. Well, the rules should be changed and that funding should be got through to the companies, the brilliant schemes and the brilliant academics so that Britain can lead the world in the sector, rather than seeing that lead heading off towards Portugal and elsewhere.

I come finally to the issues of gas storage and the role that it plays. The Minister has again shown disturbing complacency and when he gave evidence to the Select Committee, his own hon. Friends said that he did not seem to recognise what was happening. They pointed out the fact that we have moved from being an energy exporter to being an energy importer, so the need for gas storage is greater than ever.

We have about 4 billion cu m of gas storage and National Grid suggests that we might have 6 billion cu m by 2013. The Minister thinks that we might have 18 billion cu m by 2015. Nobody thinks that that, realistically, will happen because we are finding that projects on the list—the Minister has referred to them—are dropping off it.

Yesterday, National Grid issued a 10-year statement based on the report that the Minister is relying on, but that report says that 2.5 billion cu m of storage capacity will not proceed as planned, 0.7 billion cu m has been rejected in planning in relation to the Saltfleetby application, 1 billion cu m at Portland has been put on hold because of the investment climate, and a proposal for a further 1 billion cu m has been rejected by the Secretary of State, although it is still showing in the figures as something that might happen.

We face formidable energy challenges and that will be the key issue of the winter for people who cannot pay their bills because they simply cannot afford the prices out there. They have been looking urgently for support and they deserve support because these problems are not of their own making, but the Government have delayed. As a result, people face a more challenging time this winter than was necessary.

As the Select Committee report points out, damage has been caused not just to those short-term issues, but to the long-term energy security needs of this country, because the Government have not put in place the steps to secure the necessary investment.

7.49 pm

The Minister of State, Department of Energy and Climate Change (Mr. Mike O'Brien): I join the general congratulation of the Select Committee on its report. The report that it published over the summer was a
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professional and impressive piece of work, and I said so when I met the Committee. The latest report on future challenges involves a little bit of crystal-ball gazing, and when gazing into the future it seems to see things a little darkly, but a lot of challenges need to be met, and the Government are determined to meet them.

I can hardly think of any justification for the claim of Government complacency made by the hon. Member for Wealden (Charles Hendry). We have just enacted the biggest legislative programme on energy that has ever been carried through by this Parliament. The Energy Act 2008, the Climate Change Act 2008 and the Planning Act 2008, are a major set of policy initiatives that the Government have undertaken to meet some of the key challenges. The formation of a Department of Energy and Climate Change shows that the Government treat seriously the key challenges of energy sustainability, security of supply and the ensuring of affordability. The Government aim to cut emissions, hit our climate change targets, defend consumers and ensure diversity of supply of energy.

I welcome the breadth of the debate. A number of serious points were made by hon. Members. My hon. Friend the Member for Southampton, Test (Dr. Whitehead) gave an excellent analysis of fuel poverty issues and my hon. Friend the Member for Carmarthen, West and South Pembrokeshire (Nick Ainger), with his knowledge of the oil industry, made interesting points about the commodity market. My right hon. Friend the Member for Scunthorpe (Mr. Morley), with his knowledge of intensive energy users, made some important points, as have other Members, and I hope to deal with some of them.

We need to deal with the key issue of affordability. Consumers must be able to get the energy they need at the lowest sustainable prices possible. Beyond that, they need to be confident that the prices that they pay are fair, and they are not at the moment. Healthy competition and fairness should be the hallmark of our independently regulated energy markets, and if there is any suggestion that consumers are being ripped off, we should not hesitate to take action by rooting out unfair practices. The Government want to ensure that that happens.

Mr. Winnick: Will my hon. and learned Friend give way?

Mr. O'Brien: I will, but before I do so, I say to my hon. Friend that he used very provocative descriptions of the energy companies, and I have one point to make to him. We are looking to those energy companies, their shareholders and their foreign boards to make about £100 billion of investment in the coming months and years, and to refer to them as he did is hardly likely to encourage that investment, much of which will come from abroad.

Mr. Winnick: That may well be. I was going to defend the Government in one respect because until 1997 there was no winter fuel allowance at all. However, despite what my hon. and learned Friend said, everyone knows that the wholesale price of energy has substantially reduced, and he has said so on previous occasions. Are we to take it that the Government will use the utmost pressure to bring prices down, and if the energy companies refuse to do so, what action will the Government take?

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