Charles
Hendry: You heard it here first: the prediction of the
Amber Valley milk crisis, due to hit by the weekend, when the children
of Amber Valley will be forced to switch to alcopops instead of their
daily “pinta”, if they have not already done
so.
We have had a
very interesting and important debate on gas storage. I am very
grateful that the Committee has had the opportunity to discuss the
matter in some depth. The fundamental point is that we are trying to
look ahead at the challenges that the country might face in the next
decade, and to move beyond a debate about what has happened in the last
fortnight. The Minister talked about some of the other sources of
supply that might come into the mix. Realistically, however, on the
time scale we are talking about, they are of very little benefit. New
nuclear cannot come into play before 2017-18 at the earliest. On the
massive roll-out of renewables, the offshore wind change that the
Government has planned will be toward the end of that decade rather
than in the early and middle part. We know that our coal plant is
significantly coming out of commission in the middle of this decade and
therefore the likelihood is that, if we are to keep the lights on and
generate the
necessary power, gas will have to play a more important part. If we move
to a world, as Ofgem predicts in part of its Project Discovery work, in
which by 2020 80 per cent. of our gas will be imported, then we have to
take steps now to ensure that we have the storage facilities for that
eventuality. The Minister
used some fairly obscure arguments to try to make her case. She said,
on security, that the amount of money needed could make storage a bad
investment because it will not be needed most of the time. In all
issues of national security one pays money in the hope that one will
never actually need it, but one knows that it is there in extremis. The
same argument could be made about Trident, I imagine. Indeed, the hon.
Lady probably made that argument about Trident in a different
life.
Bill
Wiggin: But they stopped making
it.
Charles
Hendry: They have indeed stopped making that argument. But
there is a very strong case for saying that some investment is
necessary to protect us against moments of extreme need and extreme
danger.
Joan
Ruddock: Surely the hon. Gentleman needs to acknowledge
two things. First, there are many other ways—and I cannot
imagine that my arguments sounded so obscure—of bringing gas
into the country when we are under pressure. We have demonstrated how
many investments we have made; in fact, we have 125 per cent. capacity
in terms of imports. Secondly, we are, as I indicated, already seeing
more gas storage planned and coming on stream. It is a question of,
“What more does the hon. Gentleman
want?”
Charles
Hendry: If we look further ahead, we see that it is quite
possible to have an environment where more gas facilities will have
been built internationally than there are the molecules available to
power them, and therefore gas will be rationed by price. The energy
facilities will be working at full capacity only if we are prepared to
pay top dollar—if we are prepared to pay more than the other
countries in the world who might be bidding for that gas at the same
time. A year or so ago that was not the case. The Americans and the
Japanese were prepared to pay more for that gas and therefore those
facilities were lying idle for significant periods. That is not the
case now, but it was the case. Therefore, price will become a rationing
factor. If one wants to smooth out those price fluctuations, having gas
storage is an important way of doing it, as my hon. Friend the Member
for Northampton, South emphasised.
The Minister
also made the point that if there is more gas storage, then there is
less incentive to switch from gas to other fuels. I think that is a
rather perverse approach. One wants to ensure that if people want to
use gas, the gas is available. Therefore, having a greater Government
approach to delivering that will be important. Critically, we have not
tried to impose a single solution. We have not said that everybody who
wants to use gas in generation must have their own storage. We think
that is much too prescriptive. We want to allow the market to deliver
the right solution. A significant energy company in this country is
actively looking to buy its own gas field internationally and then use
the existing
pipeline infrastructure to make sure that it has all the gas that it
needs at any time. It would be peculiar to say that it must also have a
gas storage facility in the United Kingdom when it has invested to that
degree to try to ensure securities of
supply. What
we seek to do through the amendment is give the Secretary of State the
ability to assess, company by company, the arrangements that they have
in place. We also want to make sure that, as we approach a period in
which gas is going to be more important to the United Kingdom, either
as a basic fuel or as a back-up fuel as renewables come on stream to a
greater extent, we can be comfortable that the gas storage
exists. The
Minister talks about 22 projects at various stages of development, but
many of those have not even submitted planning applications. Those that
have do not have the funding; they have not agreed on the partners to
take them forward. Those that we assumed would be in their final stages
according to National Grid’s 10-year statement—we
expected to have that in place by the end of last year—have
still not done it. There is a significant amount of uncertainty, and we
are trying to provide greater
security.
Joan
Ruddock: I am finding this difficult to follow. Why would
the hon. Gentleman not believe that the commercial interests of the
companies and the development that they clearly want would not go
ahead? It is entirely in their interests to be able to supply their own
markets and customers with the energy that they need. What will the
Secretary of State have to do to the companies to make them behave in a
way that differs from their own commercial
interests?
Charles
Hendry: If we look at what happened early last year when
the Russia-Ukraine dispute was building up, we see that German gas
storage, even though it was pumping out an enormous amount of gas to
its neighbours who simply did not have the storage, was substantially
full at the end of that period and was almost at the same levels at
which it started. Ours, in the meantime, has been massively depleted,
because we had a different and much more liberal regime that allowed it
to be exported at will according to where the demand was. The market
worked, but our national security was
compromised. What
we are saying is that, as we inevitably become more dependent on gas
imports, we need to do more to protect the consumer against such
external shocks. We cannot predict where they will come from, but there
is a high likelihood that there will be future shocks. We are not
talking about the Government owning and running the gas storage
themselves, but they have a leadership role to ensure that it is put in
place.
Joan
Ruddock: The difference between us is that we believe that
what is necessary will come on stream; the companies have made it
evident that that is the case. The hon. Gentleman refers to the
difficulties in mainland Europe, but the UK did not fall into
difficulties. We were able to continue with our suppliers and were not
in the position that he
suggests.
Charles
Hendry: Let us have a further reassessment: we were down
to just three or four days’ worth of gas storage left in this
country, because so much gas had
been shipped out at a time of national pressure approaching what was the
coldest winter for 18 years. There were real difficulties that needed
to be
assessed. The
amendment would be a precautionary measure. We are entering more
difficult periods, because we will be less able to depend on our own
sources of supply. Supplies will come from a range of different
countries and we recognise that there will be agreements in place on
those contracts. Nevertheless, we are moving toward a greater period of
uncertainty. What the Government need to address most is the role they
truly expect gas to play. Their low-carbon transition plan states that
the role of gas is declining from 40 per cent. of generation capacity
to less than 30 per cent. As part of its Project Discovery, however,
Ofgem stated that it could possibly be double that amount. In other
words, 60 per cent. rather than 30 per cent. of our electricity
generation could come from gas. That makes a critical difference to the
amount of gas that we will be importing and to the need for storage in
this
country. I
have indicated that we do not plan to press the amendment to a vote and
that we will withdraw it. I am keen, however, to work with the Liberal
Democrats to see whether we can return with an amendment on Report. The
fundamental issue, which is of greatest importance, is that this is not
just about what is happening now. We are moving into a more difficult
period, when we are going to be more import-dependent. Government need
greater powers to secure the necessary storage and other long-term
contracts, in order to ensure that consumers do not run out or face
significant price spikes, which happens in times of shortage. I beg to
ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn.
12
noon
Charles
Hendry: I beg to move amendment 12, in
clause 16, page 13, line 14, leave
out ‘or the Authority (as the case may
be)’.
The
Chairman: With this it will be convenient to discuss the
following:
Amendment 13,
in
clause 16, page 13, line 22, leave
out ‘or the
Authority’. Amendment
14, in
clause 17, page 14, line 23, leave
out ‘or the Authority (as the case may
be)’. Amendment
15, in
clause 17, page 14, line 31, leave
out ‘or the
Authority’.
Charles
Hendry: Mr. Bayley, I hope we can move with
greater speed through this part of the Bill. The amendments seek
greater clarity about what is intended. Our view is that there should
be a clear distinction between the role of the Secretary of State and
the Government, which is to set policy, and the role of the regulator,
which is to regulate within that policy framework. I seek clarification
from the Minister on where that boundary lies. We are seeing some
changes, which we understand. We discussed them during the course of
the Energy Act 2008, when the Government resolutely refused to go down
this route, in spite of much encouragement and temptation. We need to
be clear where the balance of decision making applies. Clause 16(3)(1A)
says: “Those
interests of existing and future consumers are their interests taken as
a whole, including—
(a) their
interests in the reduction of gas-supply emissions of targeted
greenhouse gases; and
(b) their
interests in the security of the supply of gas to
them.” The
issue that arises from that is clearly that the interest of consumers
is the primary duty of Ofgem. It is not clear who decides the relative
importance to be put on security of supply or low carbon. The phrasing
of the Bill says that Ofgem can decide on that relative balance. By
deleting the word “authority” in a number of these areas,
the amendments would make it clear that the Secretary of State has that
primacy. Policy making is at the heart at the role of Government and we
are keen to see that with greater clarity.
That is no
reflection on Ofgem; the work that Ofgem has been doing on Project
Discovery has been of immense importance to the nation in understanding
the challenges and options that are open to us. It would be helpful to
have greater clarity from the Minister as to where the primacy of power
will
lie.
Joan
Ruddock: Clauses 16 and 17 clarify Ofgem’s
principal objective by setting out that the interests of current and
future consumers include their interests in reducing greenhouse gases
and in security of gas and electricity supply. Those interests need to
be considered by the regulator when it is undertaking its functions in
regulating gas and electricity markets. It is worth noting that clauses
16 and 17 do not give Ofgem any new powers. The effect of amendment 12
would be that, in cases where Ofgem is carrying out its functions in
regulating the gas market, it would be for the Secretary of State to
decide how it could carry out its functions and what would further the
principal objective. In other words, Ofgem would no longer have
discretion to consider how best to regulate gas markets in order to
further its principal objective. Amendment 14 would have the same
effect with respect to Ofgem’s functions as regulator of the
electricity markets. Amendments 13 and 15 are consequential on
amendments 12 and 14.
The
amendments would have the impact of undermining the current system of
independent regulation of the gas and electricity markets. Ofgem would
need to refer every decision it made to the Secretary of State to test
whether the Secretary of State thought the decision was the best way to
further its principal objective. Undermining regulatory independence in
that way would reduce regulatory certainty and risk investment at a
time when it is
needed. The
reason for the references in clauses 16 and 17 to
“the Secretary
of State or the
Authority” is
that they amend the Gas Act 1986 and the Electricity Act 1989. Those
Acts give both Ofgem and the Secretary of State powers to act in
regulating the gas and electricity markets. We intend each to carry out
its functions in the way that is best calculated to meet the principal
objective of protecting the interests of current and future consumers,
including their interests in reducing greenhouse gases and ensuring
security of gas and electricity
supply. The
amendments would have a detrimental effect on the operation of the
regulatory framework. I hope that that I have indicated to the hon.
Member for Wealden that it is very clear that the Secretary of State,
as always, sets the policy and the regulator’s principal duties
are in statute. Within that, the regulator must have independence, and
the proposed new subsections bring clarity to the principal
duty.
Charles
Hendry: May I take the Minister back to clause 16(3),
which introduces the issues of reduction of emissions and security of
supply? It does not give them relative weight and does not suggest that
the Secretary of State will give further guidance on the relative
weight. Therefore, it will be for Ofgem to
decide.
Joan
Ruddock: That has to be the case, but, obviously, policy
constantly develops on security of supply and emission reductions to
tackle climate change, so there will always be a dialogue and a policy
framework within which Ofgem will act. However, when it comes to
deciding on a particular course of action, as the independent
regulator, it will have to weigh up the balance between the two issues.
It is impossible to say that more weight should be given to one or the
other because the circumstances in which Ofgem has to perform that
balancing act cannot be predicted. To fix the balance between the two
in stone would be to shackle the regulator. I agree with the hon.
Gentleman that that may seem somewhat unsatisfactory, but I do not
think that we can expect to go further. It is important that we have
introduced the clarification of the principal role of Ofgem, not least
because current consumers may not benefit directly, or may even suffer
some degree of disbenefit, if it became necessary to take a course of
action that could impose an additional burden on them to serve the
interests of future
consumers. It
is a complex matter. Ofgem will have to make difficult decisions and
there will be conflicts in doing that. Through the Bill, we seek to
indicate to Ofgem that both issues will have to be weighed in the
balance.
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