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Energy Bill

The Minister of State, Foreign and Commonwealth Office & Department for Business, Enterprise and Regulatory Reform (Lord Jones of Birmingham): My Lords, I beg to move that this Bill be now read a second time. Of the many challenges we face, few can be more significant or more urgent than tackling climate change and maintaining the security of our energy supplies. International Energy Agency projections indicate that global energy demand is set to increase by 53 per cent between 2006 and 2030, in turn driving a 55 per cent increase in carbon dioxide emissions over the same period.

It is clear that we need decisive action at home and abroad to tackle these major issues, including driving forward significant new investment in energy infrastructure. The IEA forecasts that between now and 2020 $20 trillion of investment will be needed to meet these challenges. The UK itself will need investment in around 30 to 35 gigawatts of new electricity generation capacity over the next two decades, around two-thirds of which will be required in the next 12 years. We also need new import and storage infrastructure as the UK becomes increasingly dependent on imported energy. These are large-scale and long- term investments, and the investment decisions taken over the next decade will be critical in determining how successfully the UK and the rest of the world move towards a secure, low carbon energy future.

The Government set out their strategy for tackling these challenges in the 2007 Energy White Paper. This Bill is one of the key legislative strands for implementing that strategy, alongside the Climate Change Bill, which noble Lords have already considered, and the Planning Bill, which is currently in the other place. The objective of the Energy Bill is to help to deliver an environment that will encourage investment not only to maintain the UK’s diverse energy mix but also to make that mix increasingly low carbon. The Bill will update the legislative framework to reflect the availability of new and emerging low carbon technologies, meet our changing requirements for security of supply infrastructure, and ensure suitable protection for the environment and taxpayer as our energy market fundamentally changes.

I turn now to the specific measures. The Bill is split into six parts. Part 1 relates to offshore gas

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importation and storage. This country currently imports around 20 per cent of its gas, but that is probably going to rise to up to 80 per cent by 2020. As we increasingly rely on international energy markets, our strategy for ensuring secure energy supplies must evolve. We must not be dependent on unstable and possibly sometimes conflicting economies elsewhere in the world. Part of this evolution will be a growing need for new offshore gas storage and import infrastructure. It is important to ensure that there is a clear regulatory framework which will support the private sector investment in this type of project. Current offshore legislation was designed largely for the oil and gas production that has dominated the last half century, and as a result there is no single piece of legislation that covers the kind of new offshore gas infrastructure that this country now needs. The current regulatory process is therefore complex and a barrier to new investment from the private sector. Clauses 1 to 16 create a new regulatory and licensing framework specifically designed for offshore gas storage and offshore liquefied natural gas unloading projects. This will allow us to simplify the regulatory process, create greater clarity and, importantly, provide certainty about the way forward for investors from the private sector.

This part of the Bill also creates a new regulatory framework for offshore carbon dioxide storage projects. It is clear that fossil fuels will continue to be part of the UK’s diverse energy mix for a long time to come. The IEA predicts, under the most optimistic scenario, that fossil fuels will still provide around 38 per cent of global electricity in 2030. The successful development of carbon capture and storage technology is vital if we are to achieve a low-carbon future. Clauses 17 to 35 will establish a licensing framework that allows the storage of carbon dioxide under the seabed. This is a key part of enabling the long-term development of CCS. Through this Bill and the Government’s demonstration project—I remind noble Lords that we are one of only three countries in the world undertaking this type of demonstration project, the other two being Norway and the United States—our aim is to drive forward the development of a technology that has the potential to reduce carbon emissions from fossil fuel power stations by as much as 90 per cent.

Part 2 focuses on renewable electricity; that is, electricity generated from renewable sources. The Government are committed to an increasing role for renewables in the UK’s energy mix and want to build on and strengthen the existing renewables obligation— the RO. The changes to the RO include the power to band the obligation to allow differentiated levels of support to technologies. That will help to promote the more rapid deployment of a wider range of renewable technologies. It will include more support for technologies such as offshore wind and less for those technologies which are more cost effective, such as landfill gas, helping the UK to see electricity from renewable sources grow over the medium to long term.

The RO has been highly successful. Since its introduction in 2002, we have seen renewable electricity more than double, from around 2 per cent to more than 4 per cent of the electricity generated in

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the United Kingdom, with a further 18 gigawatts now in the planning systems. By 2010, in some 20 months’ time, alongside exemption from the climate change levy, the RO will be worth around £1 billion per annum in support to the renewables sector. Our reforms will make the RO 30 per cent more efficient in terms of renewables deployment in the period from next year to 2015. As a result we expect to see the electricity generated by RO-eligible renewable sources triple between now and 2015.

The Government expect offshore wind to make a significant contribution to renewable electricity in the United Kingdom in the future. We already have plans, potentially, to open our seas to up to 33 gigawatts of offshore wind energy, subject to the outcome of a strategic environmental assessment of the seas surrounding the UK. Underpinning these ambitions, the Bill will also ensure that we have the infrastructure in place to transmit offshore renewable electricity to the onshore grid. To help enable that, we must establish an effective regulatory regime for offshore transmission. The Energy Billwill add to existing powers in order to ensure that Ofgem can run cost-effective and efficient competitive tender exercises for offshore transmission licences. Introducing competition in offshore transmission infrastructure will help to avoid unnecessary delays and cost to the development of offshore renewables projects, and ultimately reduce risk and support investment. Noble Lords will have seen from the Energy Bill impact assessment that our analysis indicates that a competitive tender process for the construction and operation of these transmission assets could reduce costs by between £230 million and £400 million on investments of around £2.5 billion.

Part 3 of the Bill covers the decommissioning of energy installations. While one of the objectives of our energy strategy is to create the right environment for investment, the Government have a responsibility to ensure that both the taxpayer and the environment are adequately protected. Noble Lords will be well aware that it is the Government’s view that new nuclear power should have a role to play in the UK’s energy mix. New nuclear power will contribute to the diversity of our energy supplies and will definitely help to reduce carbon emissions. The developers and operators will have to fund, build and operate any new nuclear power stations. They will have to meet the full costs of decommissioning and each operator’s full share of waste management and the cost of disposal.

The new legislative framework that we are putting in place through Clauses 42 to 65 of the Bill will ensure that all operators have in place a funded waste and decommissioning programme, approved by the Secretary of State, before operation of the specific power station commences. The programme will have to set out a costed technical plan for how a developer proposes to decommission that station and a financial plan for how those costs will be met. It will be a criminal offence to operate a new nuclear power station if a programme such as that is not in place.

As part of their approved programmes, and to ensure that potential investors from the private sector fully understand the level of their potential liability,

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the Government committed, in the nuclear White Paper, to establishing a fixed unit price for disposing of waste from new nuclear power stations. This will be based on the expected costs of waste management and disposal and will include a significant risk premium. Clause 63 gives the Secretary of State the power to implement that.

The regulatory structure we are putting in place through the Bill is just one of the measures we announced in the nuclear White Paper earlier this year to facilitate the building of new nuclear power stations. Together with the clauses in the Bill, these measures will ensure that nuclear is available as an investment option to companies alongside other low-carbon technologies. Neither will be crowded out from the private sector investment mix.

This part of the Bill also strengthens the existing decommissioning regime for both offshore renewables and oil and gas installations. Developers already have an obligation to ensure that redundant offshore installations are decommissioned properly to protect the marine environment and to ensure the safety of other industries, such as shipping. Provisions in the Energy Bill will strengthen the existing regimes, including, for example, ensuring that funds put aside for decommissioning are expressly protected for that purpose, even in the event of a corporate insolvency.

Part 4 of the Bill covers a number of issues related to the oil and gas sector. The UK still meets around two-thirds of its energy needs from the UK continental shelf, but our ability to continue to maximise domestic production economically will depend on how we incentivise production through a regulatory framework. The Energy Bill makes minor amendments to the oil and gas regulatory framework to reflect the evolving commercial environment, including the growing number of smaller players on the UK continental shelf. The proposals in the Bill, supported by business, will help to ensure that we can continue, efficiently and effectively, to manage the UK continental shelf. To that end, we are making minor changes to the oil and gas licensing regime, including, for example, taking a power partially to revoke a licence in the event of the insolvency of one, but not all, of the parties to that licence. That will benefit consortiums of companies where one party defaults but all the others in the consortium are able to continue.

In addition, to enable fair access by all parties, we are extending the coverage of the existing upstream oil and gas infrastructure third-party access regime and introducing a similar procedure in relation to oil processing facilities.

Part 5 deals with a number of areas of legislation. That includes an enabling power to underpin the rollout of smart meters to medium-sized businesses, in the first instance, and then potentially to all energy consumers, smaller businesses and finally the 44 million domestic consumers. Part 5 also deals with a range of more minor legislative changes, including rationalising energy policy reporting requirements and aligning them with the new requirements that are being introduced as part of the Climate Change Bill. Part 5 also gives effect in legislation to the transfer of

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electricity safety functions from the Department for Business, Enterprise and Regulatory Reform to the Health and Safety Executive and the transfer of the technical regulation of gas and electricity meters from Ofgem to the National Weights and Measures Laboratory.

Finally, the Bill also updates the regulatory framework for nuclear security, thus ensuring that we have stronger sanctions to prosecute people attempting to steal the most sensitive information from specific designated sites. The recent restructuring of the sector means that sensitive information related to uranium enrichment may now be stored off licensed sites, such as a research facility. These provisions will mean that, no matter where this type of sensitive information is held, it is properly protected, including through the availability of appropriate sanctions.

The provisions of the Bill will further improve our regulatory framework so that our energy market can operate more effectively, we can ensure that we have the right environment to encourage timely investment and we can increase the diversity and the low-carbon nature of our energy supplies, ensuring at the same time that we have security of that supply in an ever-changing and often dangerous world. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Jones of Birmingham.)

4 pm

Baroness Wilcox: My Lords, I thank the Minister for introducing the Bill. We have long awaited the great Energy Bill, but this is only a small part of the energy picture. The Marine Bill, the Climate Change Bill, the Planning Bill and a future nuclear waste Bill are all vital to securing Britain’s long-term energy supply and climate change strategy. Even that list leaves out measures that are vital to that strategy, including feeder tariffs, smart metering—which I notice the Minister mentioned today—and other measures to help domestic customers experiencing fuel poverty, and a carbon capture regime that includes liabilities.

While we on this side of the House welcome the proposal for a nuclear decommissioning fund, there are no measures on nuclear waste. It is impossible for the private sector to develop robust financial models when the position on deep depositing is not known.

On Second Reading in another place, my colleague, the shadow Secretary of State, Alan Duncan, while welcoming the broad thrust of the Bill, criticised several specific measures. He said that the Government’s handling of carbon capture and storage—known from here on in as CCS technology—had been poor and that it was not clear what provision, if any, the Bill made for liabilities. While he praised provision in the Bill for banding the renewables obligation, he said that the proposal did not go far enough to enable the UK to meet its EU renewables target. He also regretted that no provision had been made for feed-in tariffs.

The Conservatives and the Liberal Democrats have each pointed out that what is most controversial about this Energy Bill is what is not in it. They used the miscellaneous section of the Bill in the other place

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to try to generate debate about such important provisions as feed-in tariffs, smart metering, prepayment meters, electronic electricity devices, social tariffs and the role of Ofgem. I have no doubt that the Government will hear forceful argument from all sides of the House on these important omissions, both today and in Committee. Ten years’ dithering over energy and consultation after consultation and now, as the Minister says, there is no time left to waste.

The Minister himself has admitted that the UK faces a looming energy gap. Approximately 30 per cent of the UK’s existing capacity will shut over the next 20 years. All our nuclear power stations except for Sizewell B are scheduled for closure, and many older coal-fired power stations will be forced to close under EU law. It will leave a significant capacity gap.

The United Kingdom used to be a net exporter of oil and gas, but by 2004 it became a net importer of gas and last year became a net importer of oil. UK gas production peaked in 2000 at 108 billion cubic metres and has since declined by about 1 per cent every year. From 2008 a rapid decline in production is forecast. The Government have estimated that imports could be meeting 90 per cent of gas demand by 2020 and admitted that the UK’s reserves of gas have declined faster than they expected—how vulnerable this makes our country, our industry, our homes and our economy.

The UK currently imports only 7 per cent of its overall gas requirement but that is expected to rise, as the Minister said, to 40 per cent by 2010 and 90 per cent by 2020. More widely, the European Union currently imports 52 per cent of its gas, a proportion that is steadily growing. The European Union is already the world’s leading importer of such resources, and the Government estimate that by 2020 we may be reliant on overseas resources for 80 per cent of our energy needs.

This is affecting everyone. Companies and consumers alike faced a gas and electricity price shock in the winter of 2005-06 as the margin between supply and demand was too tight. Then, in February, there was a fire at the UK’s largest gas storage facility. By March 2006 a cold snap across Europe and insufficient gas flow through the interconnector led to a gas balancing alert being issued by the national grid. We were suddenly faced with the possibility of gas supply interruptions—unplanned, with nowhere else to turn.

Increases in the price of oil on the international market sent prices shooting up. Domestic bills have risen by 35 per cent in real terms in the past seven years. Bills for medium-sized firms have risen by 50 per cent in two years. The Department for Business, Enterprise and Regulatory Reform set a target to eliminate fuel poverty in vulnerable households and now the total is likely to rise. Despite a target set by Labour to reduce carbon emissions by 20 per cent, emissions are higher now than when Labour came to power. What a mess. The quicker the Government take action, the better. We will, of

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course, do all we can to hasten the Bill along and to improve it where we can. Let me start with some questions for clarification.

The Energy Bill contains a framework for CCS, but what use is it without provision for liabilities? What does the Minister plan to do if the Scottish Parliament blocks plans to build a new nuclear power station in Scotland? Do the Government have any plans to change the nuclear safety targets for a new generation of nuclear power stations? According to the Nuclear Installations Inspectorate, the migration of skills has placed a severe strain on its ability to find, recruit, train and retain the number of skilled employees it requires to assess and approve the different types of reactor that are seeking a licence. What are the Government doing to address this?

The Government have recently voiced their support for three major international agreements which all have higher ambition levels than the targets in the Climate Change Bill—the G8, the Vienna climate change talks and the European Council spring summit. Why have the Government not put the same level of ambition on our own home-grown Bills?

During debate in the other place the Minister announced several forthcoming government consultations, including ones on carbon capture readiness, a renewable energy strategy, and environmental and social guidance for Ofgem. Surely these consultations should have taken place before the Bill was published. The noble Lord, Lord Jones, is a Minister of action—surely he is not going to let the Executive hold up the Government’s business any longer than he has to.

Whatever I have said so far, we are where we are. We must work with what is in the Bill, limited though it is. I make a plea today on behalf of the whole House. The Minister prides himself on travelling the world, banging the drum for Britain and British products—and he is very good at it. But unless he stays put and sees the Bill through all its stages, there will be no products to sell. To paraphrase Lord Grey of Fallodon at the end of the First World War, “The lamps are going out all over Britain, and we shall not see them lit again in our lifetime”.

4.08 pm

Lord Redesdale: My Lords, following on from the doom and gloom of the noble Baroness’s concluding remarks, perhaps I should start my speech on a rather downbeat note. The papers in the Library are full of the future spot price of oil, which has hit a record high. That is rather unfortunate, as many traders believe we are reaching a point where oil scarcity will become the order of the day. In that light, the Energy Bill is most welcome.

At first glance, the Bill seemed extremely uncontentious, partly because most of the issues we are most interested in have been left out of it. That seems unfortunate. However, even though the Bill will probably go into Grand Committee, I hope that the Minister does not take that as an indication that there will not be a good deal of consensus on a number of areas between both opposition parties as well as many Back-Bench Labour Members and Cross-Benchers before we send it back to the House of Commons. In fact, we will be sending

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it back to the House of Commons to look at areas it has not scrutinised due to the rather strange system there whereby important issues can be neglected and not called for debate. We have a wonderful system here whereby issues are debated on their importance.

That, I think, will be crucial and the Minister should take it particularly seriously. One issue on which the Government faced a vote was the subject of one of the largest Back-Bench rebellions in this Parliament. That rebellion will gain traction if the proposal is returned from this place. I therefore hope that the Minister can look at feed-in tariffs with an eye to adopting the measures rather than the confrontational politics. Feed-in tariffs are not a political issue.

We will be focusing on a number of important issues which should be added to the Bill because of timing. Having just sat through debates on the Climate Change Bill, we are greatly concerned that we are running out of time to introduce technologies and act as a world leader. As the Minister stated, we must develop these technologies in short order if we are to meet our climate change commitments. I therefore hope that the Government will look at a number of these issues with a view to reducing carbon.

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