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Lord Tombs: My Lords, I support this amendment, because it is arguably the most important one before us. I will confine my remarks today to electricity, because that is where my experience has some relevance.

There is no coherent view of how electricity will be supplied in five or six years' time. Ofgem operates within what it sees as its remit in operating a few months ahead—very short-term regulation—and makes no provision in its tariffs or by any other means to encourage capital investment. Both Ofgem and the Government say that market forces will deal with such matters. They say that almost as a childlike prayer. They certainly do not say it on the basis of any rational examination. I will put forward a childlike view in the hope that the Government may take it on board.

Market forces consist of investors and companies. That is what we are talking about. If we think they will solve the medium term—that is, five to eight years ahead—on the basis of short run marginal costs, then we are being very unrealistic. For them to invest in new plant on the basis of short run marginal costs means that they will dilute their earnings. It is as simple as that. I do not understand why the Government and Ofgem cannot see this. I suspect they do see it, but do not want to admit it.

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I think this is far too important a topic to be allowed to go by default. I have tried in two previous debates, which I have sponsored, to raise this question, and on each occasion I have met with very unsatisfactory, evasive answers of the type I have described as "childlike". There is lip service paid to future security of supply, in that National Grid Transco published a table of the extent by which future generation capacity will exceed demand for the next seven years. But that table is anecdotal. It is what the company says it might do. There is no commitment to doing it. It does not make any provision for the retirement of 40 year-old generating plant, and makes assumptions about interconnections which are not yet built, so it is of little real consequence. I have made that point again and again with, I regret to say, no effect.

This is such an important topic that I support this amendment, not to have somebody to pin the blame on but in the hope that it might concentrate the department's attention on the problem and make those concerned examine it, try to identify it and do their basic duty of dealing with it. The problem is that we do not have anyone effectively in control of energy policy. We have a number of departments dabbling, and a number of advisory bodies and committees also making recommendations that I have never seen. This needs to be pulled together and examined in a positive way. If not, the Government will bear a grave responsibility.

3 p.m.

Lord Whitty: My Lords, it is important we have this debate at the beginning of Report, because in Committee there were anxieties about the security of supply. Let me make it quite clear that it is a central objective of government energy policy, one of the four key policies outlined in the energy White Paper, that energy supply needs to be maintained, and the responsibilities of those operating in the market at a political and regulatory level must reflect that.

The amendment, I will argue in a moment, is unnecessary, because of the existing legislative position. Indeed, the noble Lord, Lord Jenkin, has been describing how the opposition amendment managed to convince the House. The Government, having reflected on it, decided to accept that position. It goes a very long way towards meeting the objectives of this amendment, and he is rather undermining his historic achievement in this respect.

Lord Jenkin of Roding: My Lords, the point that I was making is that the statement that I quoted from the noble Lord, Lord McIntosh, is still not in any legislation. It merely rests on his assertion. In fact, as the noble Lord, Lord Tombs, my noble friend, and others have said, I see the Government as having been trying to shuffle it off. They have not accepted that point. That is why it has got to go in this Bill.

Noble Lords: Hear, hear!

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Lord Whitty: My Lords, the Electricity Act already, partly as a result of the amendment to which the noble Lord, Lord Jenkin, refers, states this pretty clearly. Legal responsibility for energy security is shared by the Secretary of State and Ofgem. The Gas and Electricity Acts require both the Secretary of State and Ofgem to exercise all their functions having regard to the need to secure that all reasonable demands for gas and electricity are met. In the Electricity Act there is also the reference to which the noble Lord, Lord Jenkin, has already referred,


    "to secure a diverse and viable long-term energy supply",

which is an obligation both on the Secretary of State and Ofgem. They have complementary roles in this respect.

Lord Tombs: My Lords, the real point, it seems to me, is that the responsibility is not unique. It is shared, at best, between the Government and Ofgem. The Government are in charge of Ofgem, and they are responsible for its terms of reference, which presently preclude it from looking at the need to encourage investment. It is no good trying to say it is already there. If it is there, it is not working. It is not working because the Department for Trade and Industry is not accepting its responsibilities. That is why there has to be a categorical requirement for that to be done.

Lord Whitty: My Lords, the point of this amendment is to write a provision into this Bill which I am arguing is already, in effect, in the Electricity and Gas Acts. The responsibility already rests on the Secretary of State. Responsibility also rests on Ofgem, which is the chief regulator of this market, to ensure that the role, which is a statutory one, is exercised in order to achieve this objective.

The noble Lord, Lord Jenkin, referred to conversations with and statements by the chairs of Ofgem, but the fact remains that Ofgem is clearly under a statutory responsibility to carry out its role in relation to the duty to ensure effective security of supply. I therefore do not think this is a legislative issue between us. I think that there is an issue between us; namely, that of how the Secretary of State exercises those powers and what are the mechanisms for the Secretary of State and Ofgem—and, indeed, the private sector—to exercise their roles in order to secure security of supply.

In a sense, for those of us with long memories, I find myself in a slightly bizarre position in that I am here saying that the main mechanism for us delivering security of supply is a highly regulated market and one that is subject to very effective guidance from the Secretary of State; but, nevertheless, it is a market solution. However, the noble Lord, Lord Jenkin, appears to be veering towards what I might call a "Stalinist solution" whereby there is a requirement on the Secretary of State to prescribe what the balance of sources of electricity supply—what the level of

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investment should be many years in advance of the electricity provision, and so forth—is likely to be.

The combination of a strong regulator, strong guidance to that regulator and signals to the industry from the Government do deliver a flexible system that ensures security of supply.

Lord Jenkin of Roding: My Lords, the Minister is engaging in fantasy. In its first two or three years, Ofgem interpreted its mandate to protect consumers from high prices so far that it drove one generator after another out of business. British Energy was only one where the Government had, in the end, to pick up the tab. It made Drax uneconomic and drove TXU into administration. There were also a number of others. Ofgem did not see this as its role. I had the argument with the former chairman, and he said "No, it is not for us to tell companies whether they should invest or not". The Minister is deluding himself by imagining that that is the way it works.

Lord Whitty: My Lords, I am not saying it is the role of Ofgem to determine what investment should be required of the private sector in order to deliver a particular pattern of electricity supply. Ofgem's role—that of all government bodies with a role in relation to the DTI—is to ensure that the market is sufficiently guided and regulated to deliver the capacity that is required.

Perhaps I may take a recent example, which is certainly not fantasy. It was true that in about July there were strong anxieties about the margin of capacity expressed in this House, and elsewhere, and the excess margin of supply fell to about 16.5 per cent. This is higher than many other countries, but we have normally assumed that we need at least 20 per cent. National Grid Transco, in accordance with the way the regime works, indicated that it would bring more capacity online and very soon; indeed, within a matter of months. The margin of capacity rose to over 21 per cent. That is exactly how the market should work.

Lord Tombs: My Lords, we are continuing with delusion. I have heard this said three times in the past week by Ministers, boasting about the fact that something like two megawatts of mothballed plant was restored within two or three months. That is a short-term reaction. It is not a capital investment decision. It is not a construction decision. It is not a commitment to future resources. There is not much more mothballed plant available. You cannot go on staggering from one crisis one year to the next one next year. It takes seven years to build a decent sized power station, while a nuclear one would take a great deal longer. Nothing is being done. If the Minister cares to look at the forthcoming seven-year statement from National Grid Transco—I have not seen it yet; I am predicting what it is going to say—he will see that the commitment to future plants has vanished.


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