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In relation to climate change, we have the climate change committee, which is deliberately tasked with looking at the longer-term horizons and taking the issue at least partly out of the immediate political agenda. Whether Ofgem can fulfil that remit, if it is given to it, I am not sure, but the need for some
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5.12 pm
Lord Oxburgh: My Lords, I declare an interest as president of the Carbon Capture and Storage Association. I am also a director of two renewable energy companies: blue-ng and Falck Renewables. This Bill is important but complicated. Its complexity arises not only from the regulatory and technical matters with which it deals, but from the way it intertwines with the two other pieces of legislation to which reference has been made several times already; namely, the Climate Change Bill and the Planning Bill. The Climate Change Bill, which we have already considered and is now with the other place, aims to make a substantial reduction in this country’s greenhouse gas emissions. However, it will be impossible to implement these changes fully without the provisions in the other Bills. We have a three-legged stool which will fall over if one of the three legs is weak or missing.
I shall turn to some of the detailed provisions of the Bill later, but I begin by addressing what seems to be a fatal weakness in the stool as a whole, as we have it today. It is, however, a weakness that can be addressed, at least in part, within the Bill before us. As has been pointed out by the Minister, the 2007 energy White Paper established the Government’s high-level energy policy. The present Bill deals with a range of detailed mechanisms by which individual projects may be supported and regulated. What we do not have—I think the right reverend Prelate made this point—is a large-scale and accepted vision of the infrastructure that should link the two. I shall argue that, without that vision and without certain other changes, we shall have serious difficulty in developing the low-carbon economy that we seek to achieve.
Although a range of technologies will contribute to the new energy mix to meet the proposed 2020 target of 15 per cent of our energy coming from renewables, it is inevitable that within the electricity generation sector the greatest contribution will come from wind. Meeting that obligation will involve adding around 30 gigawatts of wind generating capacity to the distribution grid. That may be compared with the existing generating capacity of around 90 gigawatts, some of which is due to be retired as the wind capacity is brought in. That is a minimum addition, and there are several scenarios under which more wind could be needed.
The new windmills will be built, pretty obviously, in places with the best wind. To a first approximation, that is in the north-west and around the coasts of the UK. However, the greatest demands for electricity are in the Midlands and the south. That means that there will have to be changes in the electricity distribution system that are massive in scale and cost. When discussing electricity supply, we commonly concentrate on the cost of the generation technology without realising that the investment in the grid is of the same order as
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Not only will the grid changes involve construction on a very large scale but there will be technological challenges as well. The grid will need to be intelligent enough to deal with wind intermittency. At a local level, as local generation assumes a greater role, the distribution networks will have to be able to deal with connections at different scales that sometimes connect demand and at other times provide supply. Therefore, the question is: how is this major infrastructural change to be planned and implemented? At present we do not seem to have the proper machinery for doing that, and what machinery we have is encumbered in so many ways that it cannot function effectively.
It is instructive to consider how the machinery operates in connection with a proposed new power generation development today. Such a proposal has to receive sanction from four independent and unconnected bodies: the planning authority for the generating facility, whether it is a power station, a wind farm or whatever; the planning authority for the transmission line that connects to the grid; the national grid itself that manages all the connections and has to give its consent; and Ofgem, the body that has to give approval to any proposal to spend money on infrastructure, bearing in mind that the costs will ultimately be borne by consumers. Those four bodies have to give their approval. None of them has within its remit the achievement of the national objectives on climate change or renewable energy. All have the power either to veto projects or to seriously delay them, and to do so in ways and for reasons that do not take into account the national interest. In one sense they cannot be blamed for that, because the national interest has not been clearly defined.
The Planning Bill should go some considerable way to dealing with the first two problems by allowing the same application to cover both electricity generation and its connection to the grid. Furthermore, by establishing an infrastructure planning commission there will be a means of evaluating particular projects in the light of the national interest. However, one should not be misled by the name of the proposed planning commission. It does not plan; it simply assesses whether any particular proposal is consistent with something known as a national policy statement. The Planning Bill discusses how such a policy statement should be established only after a process of lengthy consultation and how this statement is intended to be a definitive statement of national interest.
The first requirement is that we should have a national planning statement for electricity generation and distribution. Such a statement may already exist, but if it does I have not been able to find it. In the
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It is all very well to have a framework, but if the expenditure to implement it is not authorised it will simply remain a paper framework. Nothing will happen. This is where it is important to examine the role of Ofgem, the Gas and Electricity Markets Authority. This body was established in the 1990s with a view to ensuring that vigorous competition in the energy market was used to drive down consumer prices. It has to approve expenditure and price changes proposed by bodies involved in the generation and distribution of gas and electricity. The Ofgem remit has been modified to some extent in subsequent years, and today the office has such a mind-boggling array of secondary objectives to be borne in mind when making its decisions that one cannot but have some sympathy for it. In practice, Ofgem struggles to approve expenditure that cannot be demonstrated beyond reasonable doubt to have a clear, short-term and low-risk justification.
My conclusion, and that of many others, is that although the remit of Ofgem was appropriate for the time that it was established, it is no longer appropriate today. If it is to retain its existing authority over expenditure on energy infrastructure, that authority must be exercised in a different framework. It is essential that the Bill should be amended to do that. One possibility is to do so along the lines of an amendment offered in the other place by Dr Desmond Turner but not called or debated. I will not detain the House with the details of the amendment but its essence is captured in the following brief extract:
- “in carrying out their respective functions ... is to deliver a secure and sustainable energy system operating within greenhouse gas emission limits notified by the Secretary of State”,
and so on. I believe that there is considerable support, both inside and outside the House, for an amendment along those lines.
Having devoted a considerable amount of time to what is not in the Bill, perhaps I may now turn more briefly to provisions that are there. I think that much of the Bill is devoted to what I would call sensible housekeeping, although we shall no doubt have discussions over some of the details.
I wish to draw attention to only two sections at this stage. The first relates to the scheme for renewable obligation certificates—the ROCs—which have already been discussed. The proposed banding is to be welcomed. It is clear that the support needed by different renewable technologies is different and the intention to double
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The Government probably need to extend the timescale for another reason. Many are sceptical that it will be physically possible to build the planned new wind capacity by 2015 to reach the 15 per cent renewables target. There will be no investment beyond 2015 unless the scheme is extended. I suppose that there is a consistency argument for retaining the ROC system for the future, but it is an excessively complicated and arcane system. Once the principle of banding is accepted, it is not a million miles from feed-in tariffs which are used in most other places and are a great deal simpler.
The second part of the Bill to which I wish to draw attention is that relating to carbon capture and storage. It is certain that, whether we like it or not, we shall be obliged, as various noble Lords have pointed out, to go on using fossil fuels for power generation for a number of decades. Because coal is very different from oil and gas in its geographic distribution and because traditionally it is less expensive, it is likely that it will play an increasingly large role worldwide in electricity generation, particularly in India and China. The problem is that coal is a very CO2-rich energy source. It produces about double the amount of CO2 per unit of electricity produced as does gas. There is a vital need to develop technologies that can separate CO2 and other greenhouse gases at power stations and immobilise them, probably in suitable geological features underground. It is in our interests that we in the West should develop these technologies as quickly as possible so that they can be implemented in places where they are urgently needed.
As the price of carbon in the European trading scheme rises, in an ideal world it would be sufficient to meet the costs of capturing carbon at power stations. Unfortunately, the lead time for developing the technology is very long. If we wait for the carbon price to rise high enough to meet the costs, the opportunity for useful deployment is likely to be missed. The magnitude of the coal problem is so great that it is fair to say that although carbon capture and storage is not a complete answer to managing emissions, there can be no complete answer without it. I welcome the attention that the Government are paying to this important technology.
In conclusion, I reiterate three points. The Energy Bill, the Planning Bill and the Climate Change Bill must dovetail seamlessly if they are to be effective. Perhaps the Minister would inform the House about the interdepartmental machinery that is in place to
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In all the documents I have seen, I get little sense of the urgency of our present situation. After all the consultative processes are over, development and heavy engineering take time, and time, my Lords, is not on our side.
5.29 pm
Lord Puttnam: My Lords, I should like to make the most of the time available to me by simply supporting everything—everything—the noble Lord, Lord Oxburgh, has just said in a very compelling speech. I intend energetically to follow the arguments he has set out to what I hope and anticipate will be a successful conclusion.
It is hard to take issue with the contents of the Bill as set out by the Minister. However, in common with other noble Lords on all sides of the House, I will argue strongly for the inclusion of a number of new clauses which might go some way towards offering hope of an energy strategy that could honestly be described as “fit for purpose” for the complexities of the 21st century. As I see it, failure to make those arguments would be a serious dereliction of responsibility to both present and future generations.
This is the third occasion in the past five years on which I have had the opportunity to question and, I hope, help to redefine statutory duties and responsibilities in the regulatory world. It is worth recalling that our present concept of regulation was developed as a means of heading off those who argued against the principle of privatisation on the grounds of consumer protection. Needless to say, regulation has been in a fairly constant process of evolution, as the individual sectors have evolved or, in some cases, even changed out of all recognition. However, regulation is still failing to keep up with the pace of change.
Some regulatory lag is perhaps inevitable. None the less, I am of the view that at the design stage—where we are at the moment—we must do everything in our power to ensure that there is the right combination of rigour and suppleness within our regulatory framework to anticipate the consequences of change and, most particularly, to protect and even enhance our control over the means of supply.
As the Bill proceeds through your Lordships’ House, I will argue that, in the rapidly evolving energy sector, neither the remit nor the resources available to Ofgem have adapted with anything resembling the urgency and importance of the issues they are required to address. It is also vital that we continually balance our actions in the energy sector with the overwhelming importance of our commitment to environmental sustainability. To pretend that there is some kind of either/or option in consideration of these twin challenges is entirely fatuous.
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Many in this House will remember the so-called “family silver” speech made by the Earl of Stockton in November 1985, in which he roundly criticised the economic policy of the then Government. Last weekend, on my computer, I listened to the whole of that remarkable 30-minute speech; it is available at the click of a mouse on the Tory Reform Group website. What seems to have been forgotten is that the true burden of Harold Macmillan’s speech was a call to what he described as a “third industrial age”, the first having been driven by coal and steam, the second by oil and the third—I paraphrase because there is no hard copy of the speech available and I am afraid my shorthand proved entirely inadequate—was going to have to be a “post-oil economy”: an economy based on what we would today term renewable forms of energy.
Here was a 91 year-old statesman setting out a vision for our country and our world remarkably similar to that in which we find ourselves living today. He talks about laying aside our divisions, as we did in wartime, because the urgency and gravity of what we are likely to face make them a luxury we can ill afford; the issues surrounding feed-in tariffs might well be a case in point. He correctly chides us for having squandered the God-given reprieve of North Sea oil instead of using it to build a national infrastructure robust enough to deal with the many uncertainties that undoubtedly lay ahead. And remember, my Lords, the greatest threat of all—that associated with climate change—had barely raised its head as being among the uncertainties that he was referring to.
Shortly thereafter, a rising politician, possibly encouraged or even inspired by Harold Macmillan's prescience, was making a name for himself writing books and pamphlets addressing many of the same issues, and in much the same way. To quote briefly from Where there is greed, a book published in 1989, addressing the inadequacies of privatisation in general and of the regulatory system in particular:
“There has been no substantial extension of consumer rights, no new right of redress for consumers, no new right to refund or right of representation, no guidelines or legislation for improved service or improved consumer safeguards, and little in the way of improved safety standards ... Indeed there has been very little attempt to stand up for ordinary people against the vested interests of business and vast corporations”.
Later, in a speech on 12 February 1991 in the House of Commons, the same politician said that the Government,
- “would appease the vested interests of their friends in the private sector before advancing the public interest which it is their duty to uphold ... We will ensure that the public interest is upheld”.—[Official Report, Commons, 12/2/91; col. 754.]
That young politician was, of course, the present Prime Minister, Gordon Brown. In advancing my argument for the overriding importance of a public interest test in respect of mergers and acquisitions in the energy sector I am confident of having in my corner at least two Prime Ministers. I could easily add a third—Winston Churchill—but that is probably another speech for another day.
Your Lordships will remember that, some five years ago, this House successfully added a clause to the Communications Act 2003, requiring almost
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The Minister is an old and valued friend of mine and I made him aware some time ago that I intended to raise what is, for me, an absolutely fundamental issue. I have also apologised to him for the fact that I may not be here when he winds up; unfortunately, I have to give prizes at a function. But I am pretty sure that in his notes his excellent officials will have supplied him with any number of assurances that there is no cause for worry and that any attempted amendment could easily be seen off by reference to the powers already vested in the Secretary of State. In his earlier life, however, the Minister had a reputation as a shrewd solicitor and, like any good solicitor when dealing with a matter of this gravity, he would, I am sure, always advise a belt-and-braces approach. I hope that the House will insist upon exactly that: something far more robust than any set of vaguely framed assurances or limp over-reliance on existing competition law—let alone a suggestion, in desperation, that we trust the goodwill of the marketplace.
In this vital area of our national interest, as with the financial crisis currently assailing the banking industry, I see the situation as precisely analogous to that set out in an article on lessons learnt from the credit crunch in the current issue of the Economist. Our long-term energy security cannot become vulnerable to what it describes as,
That section of the article finishes by observing:
“Regulators lack the knowledge, the clout (and often the talent) to keep up with the ... next brilliant scheme”.
As I see it, our job as the Bill passes through this House is to ensure that Ofgem and its sponsoring department have the knowledge, clout and talent—as well as all of the resources and powers that they need—to head off what may well prove to be the most brilliant, or even the most devious, of schemes devised by the most powerful of those global energy interests which may already be casting a covetous eye at our marketplace and, indeed, our all too obvious vulnerabilities.
If I seem overly anxious, that is only because increasingly, in the past few years, I find myself agreeing with an observation repeated last month in the Guardian by Professor Ulrich Beck of the London School of Economics that, in his words, the,
- “market has shrugged off any responsibility for democracy and society in the exclusive pursuit of short-term profit maximisation”.
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That, in synthesis, is precisely what I believe Harold Macmillan was warning us of 25 years ago, and what Gordon Brown was telling us 20 years ago. If it were true then, I would argue that it is even more profoundly true today. That is certainly not a political or economic reality that we can afford to bow before, as if it were some kind of force of nature, at the very moment that we are being asked to give urgent consideration to this nation’s energy needs for the early part of the 21st century, and well beyond that.
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