Matters surrounding the Bill which particularly concern me and on which I hope the Minister will be able to comment include the need for more specific demand reduction measures in the Bill. While I recognise the proposal to “bolt on” demand reduction to the capacity market, there is a remaining serious doubt about just what savings will really be achieved by this, especially for households and small businesses. Taking into account the experience of the US, where only a tiny percentage of capacity payments have in practice gone to demand reduction projects while the overwhelming majority have gone to fossil fuel generation, there is clearly a lot of hard work still to be done on this front. Investors, as has already been argued in this debate, need to be confident that there will be a minimum level of delivered energy savings. It would be tragic to miss a great opportunity of being among the world leaders in engineering and manufacturing capacity on all this. There are the dangers of a dash for gas and the need to ensure that non-generation, interconnected capacity and demand reduction can participate successfully in capacity auctions, receiving a growing proportion of capacity contracts. The indispensability of supply-side capacity auctions invariably requiring independent, transparent and published evidence, which must at all times be robust, is becoming self-evident.

It will be important for the Government to pilot multiple EDR schemes, including those designed for households and small businesses, to ensure thorough and meaningful evaluation. It is vital for an independent panel of experts to scrutinise strike prices agreed between government and investors before contracts are signed. There is still a need to establish the real total cost of transmitting electricity from planned large-scale wind power installations in remote areas to consumers and the economic viability of such projects. Let us take, for example, the issues raised by the

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escalating cost of the Beauly-Denny overhead transmission line. This was originally estimated at £330 million but it is already thought to be costing £557 million or more. There are lessons to be learnt, especially about the crucial importance of proper scrutiny, the proper consideration of options and the pitfalls of fast-tracking.

It is imperative to take peat lands fully into account in calculating targets for greenhouse gas emissions reduction. There is the imperative of debarring new grid systems from being routed through national parks and areas of outstanding natural beauty. Where they are to be adjacent to these priceless assets, let alone—God forbid—within them, it is imperative to place them underground or under the sea. Equally firm provisions are required on all forms of energy construction and infrastructure. The national parks and areas of outstanding natural beauty must be exempt from permitted development rights granted for renewable energy infrastructure which is likely to have a significant impact on landscape—for example, wind turbines.

On the face of the Bill there should be targeted and clearly identifiable responsibility for removing installations and infrastructure when they become surplus to requirements or obsolete. The continued indispensability of the visual amenity allowance introduced by Ofgem to fund the undergrounding of existing distribution lines should be underlined, as indeed should be the implementation of National Grid’s research findings that the allowance recently introduced for transmission lines should be doubled. There is a need for strengthened financial incentives, such as grants, payment tariffs, green taxes and charges for the adoption of low-carbon technologies, coupled with strengthened penalties for unsustainable practices.

It is surely essential to tighten emission performance standards still further than is envisaged at present. I am certain of the indispensability of more research into new forms of renewable energy, not least those that would be appropriate for national parks and areas of outstanding natural beauty. The current pilot to test the potential for underwater tidal energy generation in Pembrokeshire is very important, as indeed is the promotion of mini hydro-generation schemes for villages and hamlets. There is a need to take the potential contribution by geothermal heat far more seriously than, quite inexplicably in my view, we have so far done.

Whatever we do on energy legislation and policy should always have, as a non-negotiable principle, a determination to avoid scarring the unique and special inheritance of our countryside and open spaces. These are essential for our national morale, spiritual regeneration, psychological stability and physical and mental well-being. This should be clearly reflected in the Bill. If ever there were a sphere of life in which an effective, comprehensive and clear-cut national plan, with detailed provision for delivering its objectives, is essential, energy is exactly that. Social justice demands that it is not the already deprived and relatively less influential sections of our nation that are, in the end, landed with the heaviest burden of all the paraphernalia of energy production, distribution and maintenance.

Before I conclude, I will just say something about the nuclear dimension. If we are to go ahead with another phase of nuclear energy, it must be justified by convincing economic analysis, and it must never be

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secured on the basis of direct or indirect subsidies that are not available for the development of other technologies. It is also deeply disturbing to be entering into a new phase without yet having convincingly demonstrated how lethal waste, with all its hazards and acute dangers for our children and grandchildren and for very many generations ahead, is to be resolved. The recent saga in Cumbria has surely underlined beyond doubt the urgent requirement for a convincing, transparent and prioritised report by highly qualified independent experts on the most suitable and least hazardous sites in the UK. This will be for extremely long-term waste disposal. It will have to cover geological suitability, climate change and its consequences, security and other key factors.

Meanwhile, the existing highly dangerous waste is standing in the open. Radioactive birds and insects are multiplying. The acute dangers of terrorism, and now drones, remain. Time is not on our side. Urgency is paramount.

5.42 pm

The Lord Bishop of Hereford: My Lords, as others have said, there is much to commend in the Energy Bill, which proposes significant and welcome changes to create an energy sector fit for the 21st century, not least the reforms to the electricity market and the attention paid to domestic tariffs. However, there are some glaring omissions, which seem to present an opportunity missed. I regret that the Bill does not put into law a requirement on the Secretary of State to set decarbonisation targets for the electricity sector. The reasons have been debated in the other place and there have been references to it in your Lordships’ House, but I would be grateful if the Minister would comment on simply leaving it as a power and not making it a requirement, a point raised by so many others.

Furthermore, it seems to me that to have phased targets would be a benefit. There has been debate about even the 2030 target, but that is many years away. Given our five-year electoral cycles, I would have more confidence that we would address seriously the 2030 target, let alone the 2050 target, if we were to give ourselves graded and stepwise targets along the way, and certainly a requirement that there be at least a 2030 one.

Given the focus on decarbonisation, I am surprised that there is not more emphasis in the Bill on nuclear. The noble Lord, Lord Judd, has just referred to it in relation to waste products and some of the risks—I will say something about those in a moment. It saddens me that the newly suggested body, the Office for Nuclear Regulation, is to be given tasks focusing only on safety and security. Those are, of course, crucial, and nobody questions that. However, it leaves aside many of the other dimensions of the nuclear option that I think we so greatly need. We need, not least, more money for research and development, and we need government investment. There has been a great deal of talk from other noble Lords who know far more about the economics than me, and about the way in which a decarbonisation target would itself help to lever in private investment. If we are to have investment in nuclear energy, with further middle and longer-term aspirations, it seems that without a government commitment, private money is less likely to follow.

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It is worth reflecting, perhaps, when we consider nuclear energy in relation to our decarbonisation targets, that to produce 1 gigawatt of electricity, which would power a city of about 1 million people, would take 3.2 million tonnes of coal, which itself would produce 8.5 million tonnes of carbon dioxide—to say nothing of 900,000 cubic feet of toxic waste. Noble Lords will not be surprised to hear that, by contrast, those 3.2 million tonnes of carbon could be produced by 200 tonnes of uranium or 1 tonne of thorium. The green arithmetic is not too difficult for us to understand. That alone, notwithstanding what the noble Lord, Lord Judd, said, should surely justify putting more money into our nuclear research.

Back in 1975, nuclear fission research and development received about £450 million a year. The figure reduced a bit in 1980, and I believe that the current levels of investment are only 7% or 8% of the 1980 levels, let alone the 1975 heyday. Sir John Beddington, until recently, as Members of the House will be all too well aware, our government Chief Scientific Adviser, said that he could not see a future for UK energy without nuclear energy. It is currently producing about 18% of our energy needs, and he anticipated, as others have, that it could rise to well over the 80% that we are already seeing in France. It may be 86% here but, of course, this cannot be achieved without research and development funding. It needs the Government to lead on that. It needs a joined-up approach, not just in government money but in our national nuclear laboratories, which I would love to see become national again. It also needs a joined-up approach involving the NNL, as well as our universities, and the encouragement of our own industry in its development and research, both here and indeed overseas. John Beddington also said:

“Clearly I think that if we’re going to be thinking about a significant expansion of nuclear capacity as we move toward our goal in 2050 of an 80 percent reduction in greenhouse gas emissions, we need to keep options open … And part of those options is … having the R&D to think about taking it forward”.

There is reference in the Energy Bill’s summary impact assessment to decommissioning, which, I understand, takes currently about 69% of DECC’s £2.3 billion a year. Our own view about decommissioning is remarkably negative in that we see all the waste products, to which the noble Lord referred, only as waste. I do not think we have enough confidence yet to see them also as an asset—as a fuel. It will be quite possible to use some of the plutonium in MOX reactors, with both uranium and thorium reactors, to make the waste into a fuel and make it an asset rather than a liability. Exploration of that is urgently needed. I understand that this is happening in Canada and certainly in China, to which much reference has been made. Indeed, India, to which little reference has yet been made, is also investing huge sums of money in precisely these routes and these options. I ask again whether the Minister would give consideration to that, and whether a wider brief could be given to the new body that will be set up.

We need, therefore, to change our mindset as well as put money into research and development. If we were able to make some waste into an asset and use it for our nuclear fuels, perhaps that would help to reduce the decommissioning budget. It could also release

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money which could be put back into the research and development that originally enabled some money to be released. More of that is needed for us to be able to walk this path with greater confidence.

Reference has already been made, not least by my noble friend the right reverend Prelate the Bishop of London, to reducing the energy demands. A number of other noble Lords have spoken about Clause 37. I, too, would encourage that. As well looking at reducing our carbon footprint from energy, we also should look to complete the circle through reducing our carbon footprint by reducing our demands.

The number of lights switched on in the House has been mentioned. It may seem rather a small matter in comparison with the rather grander and much greater issues in the Energy Bill, but taking small steps as individuals would have a cumulative effect as well as give a lead. I would couple the comment about the number of lights that are on with the fact that it always amazes me that our printers are not set to a default mode of double-sided printing. We can make little steps. If we can get into that mindset, there would be a cumulative contribution and effect, even if it seems rather removed from the arithmetic that we are mostly addressing in this debate.

Noble Lords have also spoken about fuel poverty. I want to close by saying that I regret that this legislation is not bolder in addressing the inequality of domestic energy tariffs. The Government go some way towards addressing the complex and impenetrable tariffs that consumers face today, which is to be commended. However, I am not confident that this sufficiently addresses issues of fuel poverty. Members of the House are well aware that those who pay the most for their domestic energy are often the poorest in our communities. Many of those in fuel poverty pay inflated prices through the meters in their homes or are paying for other types of fuel, which are not addressed in this legislation. Is the Minister able to assure the House that the Government will address these wider issues, so that those currently experiencing fuel poverty can pay a fair price for their energy?

EDF recently said that it will have one domestic tariff if other energy companies follow suit. I understand that Ofgem does not recommend this as a way forward. It may be right. As we debate this legislation in this House, I hope that we will take the opportunity to send a clear message to Ofgem and the energy providers that the pricing structure needs to be fairer, more transparent and clearer. I wonder whether this debate also offers the opportunity to discuss again the possibility of setting a legal framework that requires domestic customers to pay more the more energy that they use. The current position whereby the more energy I use at home, the more likely my tariff is to reduce, is surely unsustainable. There is a cost to the earth and to the poor of the world who are most impacted by climate change as a result of our energy consumption. Surely the Bill provides an opportunity to reflect the wider costs of all our energy habits.

5.53 pm

Earl Cathcart: My Lords, I should like to start with the assumption that the Government’s primary objective for energy must be to ensure that it is available and

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affordable. Self-sufficiency, sustainability, energy security and green energy are equally admirable aims but they are in my opinion secondary to the primary objective. It is no good achieving any of these secondary objectives if energy is not sufficiently available or affordable.

This is an ambitious Bill and I wish for a successful outcome but I have three areas of concern. My first, shared by the right reverend Prelate the Bishop of Hereford, is the alarming number of households in fuel poverty: 4.5 million, or nearly one in five households. This is appalling, if not embarrassing, for one of the richest countries in the world. We are being told constantly that there is no easy solution because if the present tariff system is changed it may put vulnerable households in a worse position. So, nothing is done. I would say, “Where there’s a will, there’s a way”. Unfortunately, there does not seem to be the will.

High fuel poverty probably has something to do with the fact that fuel prices have doubled in the past seven or eight years. That brings me to my second concern. If fuel prices have doubled in the past seven or eight years, what will happen to them over the next seven or eight years? Some experts have argued that they expect them to double again, which no doubt would exacerbate fuel poverty. I hope that the department has done its sums and that the Minister can reassure me that prices will not double. I am quite sure that prices will go up but the question is, by how much?

The Government’s aim is that our energy will come from nuclear and renewables, predominantly wind turbines, with gas as the back-up. Energy from wind is more expensive than that from fossil fuels, and offshore wind generation is more expensive than onshore wind. Also, the cost of building nuclear power stations is enormous but the Liberal Democrats will allow them to be built only if they receive no subsidy from the taxpayer. Therefore, this huge cost of construction will no doubt be passed on to the consumer. Two of our coal-fired power stations have already closed and the Government aim to tax the remaining ones out of existence. Until they finally close, no doubt they will recover this tax charge by passing it on to the consumer.

There is something here that I do not understand. We are taxing our coal-fired power stations out of existence—admittedly they are quite old—no doubt because of an EU directive, while India and China are planning to build 800 new ones between them. I know that China also has huge investment in nuclear and renewables but, all the same, it is still a huge investment in coal when we are scrapping ours. If it is because of a directive from the EU, why is it that Germany is to build 20 new coal-fired powered stations? Will Germany’s 20 new coal-fired power stations be required to have carbon capture and storage built in, or not? If not, why are we taxing ours out of existence? I just do not see the logic.

Getting back to my concern, I do not see how prices will not continue to increase, which will further pile on the agony for those already in fuel poverty and increase the number of households getting into fuel poverty. However, it is not just households: what will these rising costs do to the competitiveness of British business and industry, especially those few industries that are heavily dependent on energy?

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Recently, my right honourable friend the Prime Minister, making a speech about Britain being in the global race, said that one goal is to make Britain one of,

“the top five places in the world to do business”.

Quite so, but probably not for those industries heavily reliant on fuel, especially as fuel prices in America—with its shale gas—China, India and no doubt others are already half of ours. Let us hope that our fuel prices do not drive any industries heavily reliant on fuel away from Britain. I hope that the Minister can reassure me on this.

This brings me to my third concern. With these huge changes proposed by the Government, have the Minister and her department done the sums to ensure that there will be sufficient power available for all our needs until such time as all the new proposed power stations are up and running? Is there a margin of error built into their calculations? What concerns me is that the Government are relying on nuclear to be a major part of the new mix, but the Government have yet to agree any contract with EDF, which, worryingly, is the only player in the field.

Obviously, we hope that the new power stations go ahead, but if they do it will take at least eight years, if not more, before the first is commissioned. What happens between now and then, especially as we will be taxing our existing coal-fired power stations out of existence before we have secured any deal with EDF? If agreement with EDF cannot be reached, is there a plan B? I am sure that some of these topics—fuel poverty, energy prices over the next seven or eight years and the possibility of a shortfall in energy during that time—will be raised in Committee. I look forward to the Minister’s response.

6.01 pm

Lord Berkeley: My Lords, along with many other noble Lords I welcome this Bill and think it needs support, but there does appear to be quite a lot wrong with it. It is going to be difficult to scrutinise. It seems that every clause refers to regulations yet to be identified. I have checked the Bill and its schedules, and the word “regulations” appears 403 times. I do not know whether that is a record, but it is not going to be easy to scrutinise this legislation if it has 403 regulations. However, it demonstrates the need for us to be given a lot more detail if we are going to do our job properly. My noble friend Lady Worthington asked for some details before we get to Committee, but it would be useful if the Minister could tell us when we are going to get information about the regulations.

I am going to concentrate my remarks on the industry structure, but before I do so, it is important to support my noble friend Lord Judd, the right reverend Prelate the Bishop of Hereford, and many others who have emphasised the need for greater support and encouragement for reducing energy consumption. We seem to have incentives to meet demand with supply; I think that is wrong. We should have incentives to reduce demand. It is the same with water. Why are the water companies not installing meters to reduce consumption and plugging the leaks? London is one of the worst offenders but, of course, they make more

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money that way. We really need to change our policies because there are good environmental reasons for reducing the supply of both water and electricity, and thus reduce demand.

I am both interested in and worried about the negotiations with EDF on nuclear power stations because we have a single supplier looking for some kind of firm contract for 20 or 30 years. I wonder whether these are what one might call balanced commercial negotiations: a single supplier and a single customer in the Government. The Government are up against probably the best international negotiators in the world. I compare that with what went wrong a year or so ago with the west coast main line negotiations on the franchise when Virgin exposed a number of serious mistakes in the Government’s handling of them. It is probably true to say that one of the causes was that soon after the general election, the then Secretary of State announced with glee that 30% of the civil servants were to be sacked and that they were not allowed to take any external advice, particularly legal advice. Therefore, it was a contract—rather larger than the contract to build one of our aircraft carriers, which I think is taking place at the moment—between a civil service that had lost a large number of its best staff and was not allowed to take external advice, and an international company that probably has some of the best lawyers in the world. I hope that that does not happen this time, but I do not have much confidence that it will not. If we do not get it right, the customers are, quite frankly, going to be screwed for the next five, 10 or 30 years.

I turn now to biomass. I have been looking into this quite a lot because it seems to be the short-term solution to the energy problem which the Government are proposing, and certainly before the nuclear power station gets up and running in 10 years’ time—if we get it. As noble Lords will know, biomass requires a large investment. For Drax and Eggborough, two of the power stations doing it, it has certainly been a big investment: there is the plant, the special handling facilities and the trains—I was involved as chairman of the Rail Freight Group. One possibility is to import biomass from north America into Milford Haven, which has some of the deepest water in the UK, and that will need 42 trains a day. That is a big investment, plus all the handling equipment at both ends and, of course, the ships.

I understand that Drax and Eggborough together will produce somewhere between 8% and 10% of our capacity. If the agreement with the Government on the selling price for electricity which is contained in this Bill does not go ahead, the investment will not go ahead. I also understand that this biomass negotiation cannot be completed until the nuclear one is completed. What is going to happen next winter and the one after that? According to Ofgem, last winter we had 15% spare capacity over demand, but apparently this coming winter it is going to go down to 3%. If Drax and Eggborough do not go ahead, I think we will need some candles; it is going to be quite serious. I hope that the Minister can tell me what the timescale is for the nuclear negotiations and for any relating to biomass because I think we ought to know. These companies

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are not going to hang on waiting for a decision for ever. Whether it is in this Bill or elsewhere I do not know, but it needs to be done soon.

The real problem is that the market structure that we seem to have ended up with is wrong. The big six generators also have retail ability. The Government policy is to deliver somewhere between 35% and 50% of generating capacity by independent renewals, which entrenches the dependency of the independent renewal energy generators on the large vertically-integrated utilities through long-term power purchase contracts. That is the big six. My understanding is that the problem for the independent retailers is that the big six will buy from the independent generators only if they cannot supply themselves. Therefore, the big six retailers always buy from their own generators as long as they have the capacity; otherwise, they buy from the independents. Apparently it has very little to do with prices. Perhaps the Minister can put me right on this, but I am not sure how the independent generators have the comfort of an open market, which they need to attract investment.

The problem is vertical integration, which means that the generators are also able to retail. In my book, it promotes monopolies, higher costs and poor services. It happens on the railways, which I follow a lot. On the railways, the Government’s policy, which I fully support, is a total separation of the train operators and the infrastructure manager. You cannot have fair competition on the railways if the train operator also runs the infrastructure, and the same applies to electricity. Vertical integration is wrong. It means that the market does not work properly.

I have information that similar things have happened in Germany, where the market does not really work. It has four big suppliers and there is not much competition at the consumer end, although it depends on which part of Germany you live in. However, the big four do very nicely and prices are high. It is interesting that the German Government are doing their best to make sure that that the vertical integration model still applies to the railways across Europe, so they clearly know something, but I hope we do not have to continue with it in the UK. There is a serious risk to investment by the independents, as the noble Lord, Lord Teverson, said, and I question what Ofgem is doing about it. I thought Ofgem had a duty to protect consumer interests but, as it stands, this seems to be a Bill to allow the big six to print money, which I am sure they will love. I do not see much competition. I see higher prices than there would need to be if there was a functioning market.

In the course of scrutinising the Bill, I hope that we will discuss how to break the dependency of the independent generators on the large, vertically-integrated utilities for long-term contracts. That would send a clear price signal to the market that would encourage as many new entrants as possible to participate. It would enable them to sell their power in an open market rather than coming second to the big six once they have got rid of their own electricity at whatever price. Otherwise, the independents will not be able to invest and we will be looking at such a reduction in supply that I suggest we all go out and buy candles for next winter.

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6.12 pm

Baroness Parminter: My Lords, like others, I welcome the Bill. It is critical that investment in the energy sector is procured and any policy inertia or uncertainty now will have a crippling effect on delivering that, securing the energy we need and meeting our legally binding carbon reduction targets. It is the only sustainable way to help keep energy affordable for hard-pressed consumers.

It is naïve to think that policy makers can control price volatility but action can mitigate its impacts, particularly those of volatile fuel supplies. Customer bills are likely to increase long term if we do not develop a clear policy framework to ensure adequate investment in low-carbon sources.

This is about bills and about jobs. The CBI recently reported that in trying economic times the UK’s green businesses have continued to grow in real terms, carving out a £122 billion share of a global market worth £3.3 trillion and employing close to 1 million people.

We have heard today from some climate sceptics—one particularly vocal noble Lord is no longer in his place—but they are in a minority in this House and around the globe. It is interesting that in the United States some of the strongest climate sceptics, including Karl Rove, support government initiatives for renewable projects, such as wind energy credits, given that wind power generates well paying, desirable jobs in rural areas. It is also seen as a cost-effective insurance against the growing number of climate change disasters. Insurers said that last year was the second most expensive in American history for disasters related to climate change, costing them $139 billion. However, private insurance paid only a quarter of those costs, leaving taxpayers to cover the rest. As the Economist highlighted last week, by comparison, funding renewable energy properly seems rather cheap. That was the point that my noble friend Lord Deben, who is not in his place, made earlier in stating that this Bill is UK plc’s insurance policy.

The majority of us accept that the Bill is right to introduce a capacity mechanism that seeks to ensure domestic security of energy supply. It is also clear around the House that there is a majority in favour of demand side response measures. Like others, I am pleased that that issue was addressed on Report in the other place through the introduction of an amendment for a pilot scheme for electricity demand management. However, given the limited opportunity to scrutinise these demand management proposals, I add my voice to the near unanimous number in this House who have called for a close scrutiny of the proposals in Committee. I support the call made by a number of my noble friends and noble Lords on the other side of the Chamber for more than one pilot scheme to be a critical part of the Bill.

There is one difference between myself and my noble friend Lord Deben, who is not in his place, in that I would not say that sovereignty is the only means of ensuring energy security. Yes, it is important, but it is not the only means. Measures better to exploit the benefits of co-operation with our European neighbours through interconnection are omitted from the Bill. Greater interconnection could help with the reduction

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of costs, particularly by making more efficient use of renewable energy. This view was strongly endorsed by the recent report of the House of Lords EU Sub-Committee on Agriculture, Fisheries, Environment and Energy on European energy policy.

Levels of interconnection between the UK and mainland Europe are much more limited than, for example, the 20-30% of interconnection between Belgium and the Netherlands. I applaud the Secretary of State for the recent memorandum of understanding with the Irish Government to trade renewable energy but there are outstanding barriers to better interconnection. Ofgem has highlighted the problem of congestion in the south of England which would require the existing onshore grid to be strengthened to accommodate major trade flows.

The full benefit of interconnection can be delivered only from greater deployment of high voltage direct current lines which allow electricity to be transported over long distances economically. The Bill does not say anything about the potential of interconnection, or how necessary grid strengthening can be financed or, as crucially, how public support can be gained for significantly higher pylons than are currently used. I hope that in Committee we seek clarification from the Government on their policy intentions on interconnection, on overcoming the barriers to building up the European electricity grid and on enabling Britain to benefit from increased security of supply.

There is much to be welcomed in the Bill but I am disappointed that it is a vehicle to provide public subsidy for the nuclear industry. Nuclear may be low carbon but that fact cannot hide the astronomical costs of building—and, indeed, decommissioning, as the right reverend Prelate the Bishop of Hereford ably pointed out—nuclear sites or the failure, after 60 years, to find solutions to storing high-level radioactive waste. All this on top of the fact that the British taxpayer is liable for any clean up of a major nuclear accident. Corporate liability for any nuclear accident is capped at around £1 billion—a derisory sum given that the estimated total clean-up costs for the Fukushima nuclear accident are likely to top £160 billion.

I wish the Bill well, but as we are not an energy island a strong European energy policy framework is critical. I commend the Secretary of State for his leadership in Europe and for arguing strongly for a binding emissions reductions target of 50% on 1990 levels by 2030 in the context of an ambitious global climate deal. Such leadership will be aided by the successful passage of this Bill and help move us towards the all-important global climate deal in Paris in 2015.

6.19 pm

Lord Davies of Stamford: My Lords, I always listen to the noble Baroness, Lady Parminter, on these subjects with great interest and respect. She has great command of the subject. I think what she said about interconnection was a very valuable contribution to the debate.

I do not think that anyone who has read the report of the noble Lord, Lord Stern, published a few years ago, or least of all who, like me, has seen the dramatic retreat of glaciers in the Alps and the Himalayas

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evidenced in photographs taken only 50 years ago, can be in any doubt at all about the reality of climate change and the challenges we face.

I see the purpose of this Bill to provide the country with a diversified and secure basis for future energy supplies on the one hand and to achieve our international obligations on decarbonisation on the other. I totally support both objectives and I certainly will be voting for the Bill on Second Reading in the very unlikely event that there is a vote.

However, there are at least four respects in which I very much disagree with the Government’s approach to energy, and I rather think that the noble Baroness, Lady Parminter, has persuaded me to add a fifth to my list: the need for greater investment in interconnection. First, this Bill does not require the Minister to produce a decarbonisation target. In this respect, I totally agree with the right reverend Prelate the Bishop of Hereford and others who have said that this Bill should be prescriptive and not permissive on this point. Secondly, I am very disappointed that the Bill says nothing about demand reduction. I have yet to hear the Government set out their strategy quite clearly on that. Certainly I cannot find such a strategy in this Bill and we definitely need it.

My third problem with the Government’s energy policy is that we have made a probably excessive commitment to wind power, certainly to offshore wind power. It seems to me that the Government, under pressure from their Back-Benchers, are using the planning system to stop more developments of onshore wind power and are pushing it all offshore. However, offshore is an extremely expensive form of energy and it does not make any sense at all. The usual comparisons are that the cost of nuclear energy is somewhere between 6p and 10p per kilowatt-hour and offshore wind power is somewhere between 11p and 16p, which is about twice as great. However, you are not comparing two comparable things. Wind energy is not base load. It is not even a reliable peak load that you can turn on and off as you require, which you can with a combined-cycle, natural-gas-fired, thermal power station. It is extremely expensive for something that is not that valuable. I think we have gone perhaps too far in that direction.

My real quarrel with the Government is about nuclear power. What they propose is not in any way adequate. I would not go quite so far as the right reverend Prelate the Bishop of Hereford who wants to see 80% of our electricity generated by nuclear fission. That is, as he rightly said, the case in France. That is going quite far and would deprive us of the potential quite considerable advantage of benefiting from shale oil fracking to produce gas in the future. It looks as though gas prices are going to come down quite dramatically as a result of that. We have large reserves in this country and it would be a pity to give up that bonanza.

What is more, for the reasons I have just mentioned, there are advantages in flexibility in having in your portfolio a considerable degree of capacity from combined-cycle natural gas generation as well as nuclear. It is very alarming that the proportion of our electricity produced by nuclear fission has now fallen to below

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20%. It was 25% a few years ago. If the proportion does not go up to 80%, as the right reverend Prelate would like, I would certainly want to see it above 25% very rapidly and it should be 30% or 40%.

If I asked the Government why we do not build 20 new 1.6 gigawatt nuclear stations rather than 10—they have not got round to signing a contract for one yet—they would probably give two answers. I have never asked them so I am probably putting words into their mouths. First, they would say that it would be inordinately expensive and, secondly, that there is very limited appetite in the private sector for this type of risk. This has been demonstrated by the difficulty they have had in getting people to bid for their business in this context already. The two German potential partners, E.ON and RWE, have walked away.

The Government have produced this situation by their own errors. They have adopted the wrong model for nuclear generation—one that is based on misallocation of risk and which consequently is unnecessarily and excessively expensive and deters potential private sector investors. The risk of design, construction and operation should be borne by private sector investors and contractors. It is vital that the same partner is responsible for all three so that design and construction are informed at every stage by the need for maximally safe and efficient operation. That is clearly a role for a contractor, but the Government are quite wrong to think that it is better for the private sector contractor to manage the commercial risks involved.

The Government have already retreated and accept now that the counterparty for contracts for differences must be a single counterparty backed by the state. Previously they were saying that the generators could just deal with the suppliers in an open market. They got that completely wrong. They have realised now that they have to take back that risk for the Government, so they have already accepted the logic of my argument. However, there are many other respects in which commercial risks are better handled by the Government. For example, anything to do with network risk, the failure of the system, and difficulties with suppliers or distributors or anything of that sort is probably better handled by the Government as they have the means to intervene.

If there were a shortage of uranium in the world—very unlikely at present but we are talking 60 or 70 years ahead—the Government are much better able than a private sector contractor to deal with that. We have our own sources of uranium. I speak as the former Minister responsible for the Atomic Weapons Research Establishment. We have international agreements and so forth. There are many respects in which the state is better able to handle those risks than a private sector body.

Some risks have already been mentioned. The noble Baroness, Lady Parminter, referred to one of them, which the taxpayer or the energy consumer cannot walk away from anyway. For example, there are the risks of an accident costing beyond £1 billion and the risks of decommissioning. It is all very well to say that a contractor has to make provisions. Under the contracts that have now been negotiated he will have to provide for the costs of decommissioning, but who knows

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what they are going to be in 60 or 70 years time, or what the value of the fund accumulated in EDF Energy or any other contractor will be by that time. Again, in practice the state will be standing behind those risks and reinsuring them. There will be a contingent liability on the state.

What does all this mean? If you construct a model on that basis, you are passing to the private sector risks that it can less efficiently manage than you can yourself. Therefore they are going to cost more by definition. You are passing to the private sector risks, some of which remain with you anyway, so you are paying double for them. It is not a very intelligent policy. The private sector contractor will factor in those risks in his costing, which will be very expensive. What is more, because of the lack of competition in this business he will expect a very high profit and get away with a very high return, so the cost of capital is going to be extremely high.

With the long lead time in constructing nuclear power stations, the cost of capital will be a major factor, if not the most important factor, in the total cost. The Government have created the problem of the extreme cost of this business. I will give a simple example so that noble Lords can do their own calculation. The impact assessment predicts a cost of capital of 10% for nuclear power stations. I think that might be a little less than the likely level. The cost of equity is vastly more than that, I would have thought twice that at least. What the weighted average cost of capital will end up being I do not know. Take the 10%—do not take any figures that I might suggest—that is used in the impact assessment. That 10% is four times the Government’s cost of capital—2.5% is the 10-year gilt rate at the moment. The Government are paying four times more than they need. I think that is bad Government. It is a great mistake and they have gone for the wrong model.

I am sure that if you put that to the Government or to the Treasury, they will say that they could not have the state owning the stations and raising the finance from the gilt market because that would mean an increase in our total debt ratio, our debt to GDP ratio, and cause us problems in the markets. That is very naïve. First, it means that we are paying a very considerable price in economic terms for purely presentational advantage; and, secondly, that argument depends on the markets being so stupid that they cannot look through the presentation for the reality and do not actually know what is happening.

Of course, the markets are perfectly capable of doing that. The markets will factor in the contingent liabilities of the state for the environmental risk that I mentioned. They will factor in the contingent liability that the Government are now incurring in standing behind the counterparty for contracts of difference. That is obviously a contingent liability in itself. That is not a sensible answer; it is also a reflection of not very intelligent government.

I fear to say that we have sold the pass on that. Of course, we cannot go back to any other model for the construction of those vital nuclear power stations, but we should be aware that by going down this road we have deprived ourselves of a lot of investment that

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we might have had to build much greater nuclear capacity. That is a great mistake and we should look very critically at what the Government come up with in energy policy because, up till now, they have shown something very much less than the competence one would like to see.

6.30 pm

Lord Browne of Madingley: My Lords, I declare my very extensive financial and non-financial interests in the energy sector, which are all set out in the Register of Lords’ Interests. I particularly draw your Lordships’ attention to my position as partner and managing director at Riverstone Holdings, which manages several energy-focused private investment funds with stakes in a range of UK-based and international companies. Those companies operate at all stages of the supply chain and in almost all energy markets.

When the Bill was first published, I wrote that it was complex and that it introduced a range of new risks into the market, threatening to deter planned investment. Since then, some of my concerns have been satisfied. For example, the move to a single counterparty CFD is particularly welcome, and lends the financial instrument at the heart of the Bill a creditworthiness that it was lacking. There remain risks in the Bill, such as the danger that the new regime will make it more difficult for smaller, independent generators to sell their power in a market dominated by large, vertically integrated utilities. Risks such as that must be assessed carefully and adjustments made if necessary.

I want to make two further points about the Bill. The first concerns any amendment to add a decarbonisation target. In my experience as a businessman and investor, a decarbonisation target for 2030 would have little impact. Decarbonisation is just a means to the essential and, indeed, existentially important end of reducing carbon dioxide emissions. Companies do not listen or react to long-term political aspirations, because there are too many technological, economic and political unknowns for them to be taken seriously.

The incentive structures contained in the Bill are far more important than targets or aspirations, because they are the mechanism for action. Only credible, consistent and creditworthy incentive structures can unlock the investment needed. Take carbon capture and storage, for example. CCS is a young technology which requires the state to underwrite some risk so that it is developed here in Britain. That will enable us to benefit in an even more environmentally sustainable way from our abundant domestic gas reserves, which, in any case, have a lower carbon footprint than imported gas.

However, investment in CCS, gas or renewables will not come from a decarbonisation target. It will come from simple incentive structures which allow different energy technologies to compete on a level playing field, with their full set of externalities taken into account, and which are implemented reliably, transparently and quickly. It is therefore critical that the Bill is not subject to yet more delay from wrangling over a decarbonisation target. Uncertainty about the direction and speed of travel has been far more damaging to investment than questions about the detail of policy.

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My second point concerns the broader strategic framework within which the Bill sits. Decisions on energy policy and public investment in energy infrastructure are based on criteria which change frequently, depending on the people in charge and the priorities they decide to pursue. That has proven to be inefficient and damaging to investment in the North Sea, for example, which has seen cycles of windfall taxes followed by tax breaks followed by more windfall taxes. There is no need to reinvent the context every time an investment or policy decision is made. It would be sensible to set an overall strategy just once and then make subsequent decisions with those long-term strategic goals in mind.

The London School of Economics Growth Commission, of which I was a member with the noble Lord, Lord Stern, proposed an infrastructure strategy board to provide independent advice to policy-makers about strategic priorities. That would not be a radical innovation. It is the model followed by NICE, the healthcare body, and the Monetary Policy Committee. A panel of independent experts with knowledge, expertise and experience of the industry could consistently check everyday decisions against the long-term strategy set by the Government. That would be enormously helpful in the energy sector, where different technologies and fuels cannot be assessed in isolation. They are part of a system. Independent and expert advice could help to turn a set of disparate and often conflicting energy policy decisions into a real energy strategy. In this regard, I support the comments of the noble Lord, Lord Oxburgh, and I hope that the Minister will consider in her response whether that will deliver strategy.

We must judge the efficacy of the Bill by its results. Success will come from higher quality investment from a diverse set of investors; investment in a greater range of energy sources, including hydrocarbons used for power, such as gas and the encouragement of CCS; respecting existing commitments, such as the phasing out of coal; and an electricity price that maintains the competitive nature of British industry. Those are the tests against which the Bill should be judged. We have spent almost three years debating the structure of this reform package. I believe that it is now time for implementation and action.

6.37 pm

Viscount Ridley: My Lords, I begin by declaring an interest in coal-mining on my family’s property, as detailed in the register, but I shall not be arguing for coal today but for its most prominent rival, gas, in which I have no interest.

I thank my noble friend the Minister for her courtesy in discussing the Bill and welcome the fact that the Government have grasped the nettle of energy policy, especially on the issue of nuclear power, after the deplorable vacuum left by the previous Government. However, I am concerned that we are being asked in the Bill to spend £200 billion, mainly on the wrong technologies, and that we will come to regret that. We are being asked to put in place a system that will guarantee far into the future rich rewards for landowners and capitalists, while eventually doubling the price of

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electricity and asking people to replace gas with electric space heating. That can only drive more people into fuel poverty.

We have heard a lot about the needs of energy investors and producers. We have not heard enough about consumers. If the industry gets an 8% return on the £200 billion to be spent, just two offshore wind farms or one nuclear plant would be declaring profits similar to what British Gas declares today. That will be an uncomfortable position for the Government of the day.

The Bill is a dash for wood and wind—two medieval technologies—and it is twice as big as the dash for gas of the 1990s. Between 6 and 9 gigawatts will have to be built a year for the next 16 years, compared with 2 gigawatts a year during the dash for gas. I am not sure it can be done, let alone affordably. In the case of biomass, the only way we can source enough is by felling trees overseas. As the noble Lord, Lord Berkeley, said, Drax will soon be taking more than 40 trains a day of wood pellets from North America. That is not energy security.

Under the Bill,

“‘low carbon electricity generation’ means electricity generation which in the opinion of the Secretary of State will contribute to a reduction in emissions of greenhouse gases”.

Shades of Humpty Dumpty: a word means just what I choose it to mean. We are being asked to pretend that the most carbon rich fuel of all, wood, is not a source of carbon. According to Princeton University, trees used for biomass electricity generation increase carbon dioxide emissions by 79% compared with coal over 20 years and by 49% over 40 years, even if you replant the forest. We are through the looking glass.

Offshore wind, meanwhile, is a risky technology with a track record of engineering problems, sky- high costs, disappointing lifespan and problems of decommissioning. At the moment, we generate less than 1% of total energy, or 6% of electricity, from wind, despite all the damage it has already done to our countryside and economy. We are to increase that to something like 30% in just a decade or so, maybe more if nuclear is delayed. It is a huge gamble, and if it fails, the only fallback is carbon capture and storage, a technology that has repeatedly failed to meet its promises at all, let alone affordably, a point made earlier by the noble Baroness, Lady Liddell.

Even if this wood and wind dash is possible, under the contract for a different system proposed in this Bill, while better than the renewable obligations that preceded it, the subsidy to renewable energy will quadruple by 2020. That is only the start. On top of that, there are system costs for balancing the unpredictability of wind; transmission costs for getting wind from remote areas to where it is needed; VAT; the carbon floor price; not to mention the cost of subsiding renewable heat and renewable transport fuels. Hence, at a conservative estimate, the Renewable Energy Foundation thinks that we will be imposing costs of £16 billion a year on our hard-pressed economy for several decades.

Why are we doing this? We are doing this because of four assumptions that were valid in 2010 but, as my noble friend Lord Lawson pointed out, are no longer valid to the same extent. First, we assumed we would

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not be acting alone, so we would not damage our competitiveness. Instead, not only is there no longer a Kyoto treaty, but China is planning to build 363 coal- fired power stations; India 455. On top of that, the European trading system has collapsed to less than €5 a tonne of carbon. Our carbon floor price is more than three times that: £16 a tonne, rising to £32 a tonne in 2020 and £76 a tonne in 2030. Acting unilaterally in this way does not save carbon emissions. It merely exports them and the jobs go with them. Northumberland’s largest employer, the aluminium smelter at Lynemouth, has closed with the loss of 500 jobs, almost entirely because of carbon policies.

The second assumption behind the Bill was that the cost of gas would rise, thus making the cost of energy rise anyway. The Committee on Climate Change said recently in a report that:

“Consensus projections are that gas prices will rise in future”.

This remark has been described by the utilities team at Liberum Capital as “genuinely amazing” in the light of recent events. Now that we know that gas prices have plummeted in the United States to roughly one-quarter of ours, thanks to shale gas; now that we know that Britain probably has many decades worth of shale gas itself; now that we know that enormous reserves of offshore gas near Israel, Brazil and parts of Africa are going to come on line in years to come; now that we know that conventional gas producers such as Russia and Qatar are facing increasing competition from unconventional and offshore gas; now that we know that methane hydrates on the ocean floor are more abundant than all other fossil fuels put together and that the Japanese are planning to explore them; in short, now that we know we are nowhere near peak gas, it is surely folly to hold our economy hostage to an assumption that gas prices must rise.

We will need the gas anyway. The intermittent nature of wind means that we will require increasing back-up and we cannot get it from nuclear because it is not responsive enough to fill the lulls when the wind drops. Far from replacing fossil fuels, a dash for wood and wind means a dash for gas too, only this time we will have to subsidise it because the plants will stand idle for most of the time and pay a rising carbon floor price when they do operate. Having distorted the markets to disastrous effect with subsidies to renewables, we are now being asked, under the capacity market mechanism, to introduce compensating countersubsidies to fossil fuels.

The third assumption was that the cost of renewables would fall rapidly as we rolled them out. This has proved untrue and, indeed, as the Oxford Institute of Energy Studies has shown, the cost curve for renewables inevitably rises as the best sites are used up, not least in the North Sea. I am told by those who work in the offshore wind industry that, at the moment, the industry has every incentive to keep its costs up not down, as it sets out to strike a contract with the Government. They will not have to try very hard. Even at low estimates, offshore wind is stratospherically expensive.

The fourth assumption on which this Bill is based was that the climate would change dangerously and soon. Once again, this assumption is looking much shakier than it did five years ago. The slow rate at which the temperature has been changing over the

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past 50 years and the best evidence from the top-of-the-atmosphere radiation about climate sensitivity are both very clearly pointing to carbon dioxide having its full greenhouse effect but without significant net positive feedback of the kind on which all the alarm is based. The noble Baroness, Lady Worthington, and the noble Lord, Lord Stern, both mentioned Professor Myles Allen and they will be aware, therefore, of his recent paper, which found significantly reduced climate sensitivity. If that is the case, the dash to wind and biomass may well continue to do more harm to the environment as well as to the economy for many decades than climate change itself will do.

However, leaving that on one side, as my noble friend Lord Lawson said, the argument against subsidising wind and biomass does not depend on a benign view of climate change. It stands powerfully on its own merits, even if you think dangerous climate change is imminent. In 1981, my noble friend Lord Lawson, ignoring the prevailing wisdom of the day, as he sometimes does, decided against the predict-and-provide central planning philosophy and instead embraced the idea of letting the market discover the best way to provide electricity. The result was the cheapest and most flexible energy sector of any western country.

We have progressively turned our backs on that. Under this Bill, the location, the technology and the price of each power source is determined by one person—the omniscient Secretary of State. Recent occupants of that position have an unhappy history of not making wise decisions. Remember ground source heat pumps? They do not work as advertised. Remember electric vehicles? They have been a flop. Remember biofuels? They have caused rainforest destruction and hunger. Remember the Green Deal? Must we go on making these mistakes?

We have returned to a philosophy of picking winners, or rather, from the point of view of the consumer, of picking losers. Not even just picking losers, but hobbling winners, because of the obstacles we have put in the way of shale gas. America has cut its carbon emissions by far more than we have, almost entirely because of shale gas displacing coal. By pursuing a strategy that encouraged unabated gas, we could halve emissions and cut bills at the same time. Instead, I very much fear we will find we have spent a fortune to achieve neither.

6.47 pm

Viscount Hanworth: My Lords, this Energy Bill is the product of economic doctrines that have misled a generation of Conservative politicians and have penetrated deeply into the Civil Service. For a while, they also strongly affected the thinking of Labour politicians. The project of energy market reform, which the Bill promotes, is an ongoing attempt to subject the circumstances of energy production and supply to the nostrums of free market economics.

The project is being pursued in circumstances that have been strongly influenced by a previous ideologically motivated reform, namely the privatisation of the country’s electricity industry that occurred in the closing years of the Thatcher Administration. The doctrines in question derive from the ideology of neoclassical economics, which envisages a world composed of perfectly

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competitive agents operating in free markets, which are devoid of government interference and regulation and have been purged of state monopolies. In this world, efficient financial markets operate in such a way as to ensure that investment projects, with very different profiles of costs and benefits, can be placed on an equal footing. In effect, future costs and benefits are to be discounted by a factor that declines as one advances into the future and is directly related to the market rate of interest, which is the reward for lending money.

The resulting discount factor may be equated, in theory, to the marginal social rate of discount—if one is prepared to postulate such a thing—but some believers are keen to assert that there is no such thing as society. However, a basic proposition of the doctrine, which must surely be rejected in the context of a national energy policy, is that public investment can and ought to be evaluated according to the desiderata that govern private and commercial investment. By adhering to this proposition, one is bound to favour short-term commercial gain at the expense of long-term social benefit. The actual world is not the ideal world that neoclassical economics envisages—and it never will be—but the proponents of the ideology pay scant attention to realities. When the opportunity arises and whenever they are in a position to do so, they are liable to attempt to make the reality conform to their idealistic visions.

The free market ideology suffuses the Bill but, as time has passed, some of the more implausible aspects of its original design have been amended and obscured. I shall begin my critique by looking at its central concept, which is a contract for differences to be applied to the price of electricity. This terminology has been borrowed from financial markets, where a contract for differences is a financial derivative designed to indemnify the party who has purchased it against the effects of fluctuations in the price of a financial asset, measured as departures from a so-called strike price. The writer of the contract is described as the counterparty.

The Bill originally envisaged a multitude of counterparties, constituting a free market. In that case, the terms of the contracts for differences would be discovered or revealed by the market; and, given that markets are deemed to be efficient, it was imagined that this would create an optimal outcome. The idea has gone into abeyance. The critics have asserted that, in reality, such a market would be beset by risks of confusion and by dangers of default and bankruptcy. The outcome is that there will now be a single government-owned counterparty and that the terms of the contracts will be set through an administrative process.

However, it remains the Government’s intention that the strike price will eventually be set through a competitive free market process. An expectation of the designers of the Bill appears to have been that a competitive environment would generate a single strike price that would be applicable to all electricity generators, regardless of the technology. The beautiful idea here was that there would be no need for strategic decisions regarding the appropriate technology mix of our future

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power generation. This mix would be discovered by the market, as if by the operation of a hidden hand, and the outcome, according to the theory, would be an optimal one. In my opinion, this is an absurd idea. The costs and benefits of the various technologies in question have very different profiles through time. Notwithstanding the hypothesis of efficient markets, these incommensurable futures cannot be mediated solely by commercial and financial transactions. Instead, they should be determined in the light of some careful strategic planning. Indeed, the markets have no perception of the future, other than as an aggregate of the dim perceptions of the majority of their agents.

Gas-powered electricity generation has the shortest of the time horizons and, for that reason, it accords best with the short-term preferences of financial and commercial markets. Its capital costs are the lowest and its running costs are the highest. However, an imponderable aspect of this option is the future price of the fuel. There are some highly contradictory predictions of what will eventuate. There are anxieties about the security of supply given that, at present, the principal sources are in Russia and the Middle East. There is also an expectation of rapidly rising prices in the face of an increasing world demand. On the other hand, it is observed that gas prices in the US have been falling in consequence of fracking. The optimists imagine that an ample supply of shale gas can somehow be magicked out of the ground on which this nation stands to replace the depleted supplies of North Sea gas.

Those sceptical of the reality of climate change, who include the Chancellor of the Exchequer, also envisage the exploitation of Arctic oil and methane, the supplies of which are presently uncharted and undiscovered. For them, the discovery and exploitation of ample supplies of hydrocarbons is an exciting prospect. For the rest of us, who constitute the majority, this is a terrifying prospect.

The second technology to be reviewed is that of wind-powered electricity generation. Here, the capital costs are high, but the energy that drives the windmills is free. However, the power supply of windmills is intermittent and must be balanced by a compensatory supply, which is liable to be gas-powered. The intermittency implies that a very large renewables capacity is required to guarantee a minimum level of supply. The costs of wind-powered electricity cannot be assessed in isolation and the severity of the problem of intermittency will be a function of the proportion of electricity supplied, on average, by the windmills. To propose that mindless markets should be capable, on their own, of adjudicating these matters so as to determine the optimal proportion seems absurd.

The third technology that needs to be considered is nuclear power generation. Here, the capital costs come in large indivisible lumps and the stations are of such longevity that we should be considering 60 years of operation following a period of as long as 10 years for their planning, construction and commissioning. Once the nuclear power stations are in place, their operating costs are the lowest of all. The outstanding difficulty affecting a nuclear project is the size of the lumps of the capital costs. In one way or another, national Governments have hitherto been involved in

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the construction of every nuclear power station. For a variety of reasons, which are a mixture of ideological predispositions and budgetary restrictions, the present Government have resolved that the capital costs of nuclear power should be borne entirely by commercial suppliers. There are few suppliers willing to bear such costs, and the majority of those who originally expressed an interest have withdrawn.

We are left with one major potential contractor, which is a French nationalised industry in commercial disguise. This is EDF, or Électricité de France. It is an outstanding irony that their pursuit of a free market ideology has brought the Government face to face with a foreign state-owned monopolist. This supplier is expecting to assess the future costs and benefits according to the criteria of a short-term commercial investment appraisal that envisages a rate of return in double figures. In such an appraisal, the future benefits of a nuclear power station, which are delayed in time and subject to a heavy discount, must be weighed against the current up-front costs. In order that the benefits should outweigh the costs in such a calculation, an exorbitant rate of return is demanded. Moreover, this return is being demanded for an extended period. We believe that a contract for differences, designed to provide secure revenue, would be extended over 35 years. This would be a perilous commitment for any Government to make.

There is an obvious recourse that should be available to any Government who are not blinded by their ideology or hamstrung by their fiscal anxieties. It is that the Government should, at their own expense, commission the building of nuclear power stations which should then be owned by the nation. If need be, the stations could be leased out to commercial operators but, given their low operating costs, such arrangements would be a matter of minor detail. In assessing the benefits of nuclear power, a marginal rate of social discount should be used that is considerably below both the commercial rate of discount and the 10% that has been used by the Department of Energy and Climate Change in its calculations of the so-called comparative levelised costs of electricity generation.

I am an ardent protagonist of nuclear power generation and of the yet-to-be-realised superior nuclear technologies that would be available to us if we were actively to pursue their research and development, as the right reverend Prelate the Bishop of Hereford so eloquently enjoined us to do. Nevertheless, I have difficulty in evincing any enthusiasm for the way in which the Government are approaching our nuclear future and our energy future in general.

6.58 pm

Lord Stephen: My Lords, I start by referring to my interests as listed in the Members’ register.

This is an overwhelmingly positive Bill with overwhelming but not—as we have seen clearly today—unanimous support across the political parties and, indeed, the Cross Benches. Many positive changes have been made to the detail of the Bill and much of that detail is now absolutely correct. Some of the changes—for example in relation to the counterparty—have been referenced already. Having the Government underwrite the counterparty role is vital. The proposal to move

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the feed-in tariff limit from 5 megawatts to 10 megawatts is very welcome, while the early release next month of the draft EMR delivery plan, with the information on the strike price for the contracts for difference, will be crucial. In the short to medium term, the capacity market for gas will be crucial in keeping the lights on. The capacity market has not been an issue of huge political debate. It does not get hearts racing in the other place or on the Floor of this House, but it is very important to get it right. The first thing to happen will not be a switching-off of the lights; it will be instructions to major industrial users to stop using electricity. That will be very serious for our economy and for the messages that it sends out.

All those are good points in relation to the detail. In relation to the capacity market, I would be very pleased if more were being said—particularly in the medium to long term—to encourage the storage of renewable power. That is crucial to the credibility of the renewable sector. More could start to be done in the Bill to encourage that.

All of this represents a huge opportunity to the UK economy. The Minister said that there will be £110 billion of investment this decade and £7.6 billion per year by 2020. However, it has not happened yet. There needs to be real industry confidence. That confidence has been severely dented by delay and by the DECC versus the Treasury battle—the Conservative-Liberal Democrat battle—that we have witnessed over recent months and has been played out in the media. That sort of squabbling has done real damage. It is crucial to get not only a confirmed strike price but also EU clearance and political harmony on all of this.

I worry about EU clearance. It would be straightforward to get state aid clearance if this were only about renewables but it is not only about renewables, it is about nuclear as well. I worry about the potential delay and the impact that that could have on final investment decisions in the renewables sector. It is crucial to have continuity, consistency, clarity of political purpose and political support. In too many aspects of the industry, investment is stalled right now. Major international investors are voting with their feet and going elsewhere. I would predict that some of the big announcements that have been made—for example by turbine manufacturers—about inward investments into the UK will not happen due to the lack of continuity and the lack of clear political commitment. That is a real cause for worry.

Tackling climate change is urgent. It cannot wait. There is overwhelming evidence and overwhelming agreement about that among the scientists, the economists and other experts. We have heard it from the very good contributions made by the noble Lords, Lord Stern and Lord Deben. Global warming and climate change is perhaps an inconvenient truth but it is a truth nevertheless—and it is one that must be tackled now. The climate change deniers have got to be challenged. Do they have overwhelming, incontrovertible, infallible evidence on their side? To that I would say, “No, no and no again”. The Bill is a crucial and very major reform.

The ROC system is far from ideal. It is a system under which subsidy stays high even if electricity prices rise. Consumers’ money can therefore be very

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considerably wasted. It was a pretty complex and very British—solely British—solution. However, ROCs did at least create certainty and confidence in the industry. Contracts for difference are theoretically better, but the change has to be well handled to maintain confidence. So far that has not happened. Squabbling, as I mentioned, has led to a loss of confidence and the delay has created the sort of uncertainty that no industrial sector likes.

There is also a degree of illogicality in those who talk about being anti-onshore wind but in favour of offshore wind. If you want to protect the consumer and keep prices down, offshore wind is—as has been mentioned already today—much more expensive than onshore wind.

As for nuclear, I still have very serious concerns. It is slow to deliver. It is expensive. More than 60% of DECC’s budget is currently spent on nuclear. The nuclear waste is toxic and dangerous. It has a very long half-life. The nuclear sector relies on a depleting uranium supply from uncertain sources in politically unstable nations. Fusion would be a wholly different thing but we are far from there yet. Perhaps most importantly, investment in nuclear tends to reduce the urgency of the investment in renewables. As I have already mentioned, it could also lead to a delay in state aid clearance for contracts for difference, and clearly a huge amount of government resource has been taken up in the negotiations with EDF on the whole nuclear issue.

We need a simple and clear determination to stop burning fossil fuels. It is a declining resource. It will also be increasingly expensive, even if there are short-term reductions. It is a very damaging and polluting resource that causes climate change and global warming. There is no bigger issue facing the future of our planet, which is why this debate today is so important.

That brings us to decarbonisation. I would far rather see a decarbonisation target coming sooner. It is another area of coalition dispute—another Treasury versus DECC battle. There was no target in the original Bill, however, and I am very pleased that there is now provision for a decarbonisation target. Although I would be prepared to wait until 2016, the acid test will be the response and the attitude of others. Major investors, manufacturers of turbines, those involved in the renewable sector, those who make the final investment decisions, have made it very clear that they are looking for a strong decarbonisation target to support their investments. I certainly believe that it should not be an enabling or an optional provision. There should be a requirement on the Government to fix a decarbonisation target.

I want to make two final points. The first is on energy efficiency and demand reduction. There is huge potential in these areas, which are vital. They have been neglected areas of energy policy for too long. However, switching from fossil fuel—not just for electricity but also for our heating and our transport—will require very significant amounts of electric energy. That always has to be remembered.

Secondly, community renewable schemes are vital. The Bill rightly encourages them and will do more to support them. However, in the real world—in the

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practical world of finance—the current problems with the Co-operative Bank could be very damaging to many community projects. I believe that a great deal will have to be done to keep these projects alive. A Bill on its own will not be enough.

In summary, we need to get on with it. Let us have no more delays or divisions but instead show political clarity and unity in order to deliver the confidence needed to create thousands of jobs and billions of pounds of new investment and cleaner, greener and more secure energy for everyone in the UK—for business and for consumers. There are many other countries investing in renewable energy where the sort of political divisions that we have witnessed this afternoon simply do not happen. They are going for it and doing so with absolute determination, conviction and commitment. The Bill can help us to do that in the United Kingdom, and it must do exactly that. It should therefore be supported.

7.08 pm

Lord Kerr of Kinlochard: My Lords, I mention my entry in the register of interests, particularly that it includes a mining company and a power company.

I will not detain your Lordships long. My understanding of this complex Bill is as yet incomplete, but it is a very different Bill from the one that the committee chaired by the noble Lord, Lord Oxburgh, reported on last July. It is a very different Bill from the one that turned up in the other place seven months ago. It is a very different Bill from the one that finished Committee stage in the other place at the end of the last session. More than 90 clauses were added at Report stage without substantive debate.

It is also an extremely dense text; a very complex text describing a very complex structure. With great trepidation, I have to disagree with the noble Lord, Lord Lawson of Blaby, who exempted me today—extraordinarily—from his strictures on everybody else in the House, the Bill, the Government and the Opposition. I was very grateful for what he said, but when he said that Dieter Helm was right to describe this as the Gosplan solution, he was wrong. I spent some time in Moscow as a young man and used to read a lot of Gosplan texts. They were clear, straightforward, decisive, precise and detailed. They were all wrong, of course, but it was all there with tremendous clarity. This text, and indeed the whole structure, seems to be a sort of magic toyshop with something for everyone, and a sometimes awkward balance between environmental aspiration and traces of the market here and there. It seems sometimes to put a little more emphasis on the greening of the economy than on cutting costs and keeping the lights on.

The Bill will take a lot of studying. Nevertheless, I welcome it because at least the long period of investment hiatus may be about to end. Companies cannot spend shareholders’ money unless the rules of the game are clear. Although I may not agree with all the rules of the game as proposed, clarity will be important. Without substantial investment soon, the lights will indeed go out. If and when the Bill passes, as I hope it will, a modicum of clarity will exist. It is not in the Bill now because the details on capacity mechanism and contracts for difference are apparently to be set out in subordinate

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legislation that we have not yet seen. I understand that the detail on CFDs, including draft strike prices, may appear in a draft delivery plan next month. Getting this right will be crucial to ensuring that investment in low-cost generation is cost-effective, and it is very important that this work should not be based on aspiration but should be founded on evidence-based analysis.

As for the capacity mechanism, I understand that the consultation on its design and the draft legislation is planned for the autumn and that the first auction will be next year, but that the first delivery year will not be until 2018-19, which puzzles me. Why the delay? Presumably, the Government are thinking about the construction of new capacity. However, the lights could go out well before 2018, and companies need to consider whether to run on or phase out existing plant. I hope that in Committee we will learn a bit more about how the auction system is to work and its timing.

Three points arise from the debate. First, I agree with virtually everything that the noble Lord, Lord Oxburgh, says on this subject but, again with great trepidation, I need to register a note of dissent from what he and the noble Lord, Lord Stephen, have said about the 2030 decarbonisation target and the absence of such a target in the new Clause 1 in Part 1 of the Bill. Here I agree 100% with the noble Lord, Lord Browne of Madingley. With all due respect to the argument advanced by the noble Lord, Lord Cameron of Dillington, from these Benches, companies like Siemens are not impressed by 2030 targets. Such companies make their decisions on what capacity they need and where they should site their plant on the basis of clear commitments. They are pretty cynical about targets, as am I about the idea of a legally binding target 16 or 17 years out. Bindings fray, and no Parliament can bind its successor. What matters for investors, as the noble Lord, Lord Stephen, says, is certainty and continuity. They need to see the underpinning of any targets by credible costings and a credible commitment to meet those costs. Realistically, that would not be attainable by 1 April 2014, and I do not think we are foolish to have failed to add to the Bill a requirement by 2014 to set a 2030 target. If that arises in Committee, I will be arguing against including such a target.

Secondly, I disagree with what the noble Lord, Lord Deben, said about carbon capture and storage, and here I am disagreeing also with the noble Lord, Lord Browne of Madingley. I am sure they are right that CCS is the technology of the future. A number of great companies have already spent a long time and large sums of money in trying to make it work economically, but no one has succeeded. I am sure that in 10 years’ time CCS will have a very important role to play, and I am as sure of that as I was 10 years ago when I first said it. It is the technology of the future and it may stay that way for a very long time into the future—alas, because it looks like a marvellous solution, but it is extremely hard to make it work.

Thirdly—this is very daring because here I am disagreeing with my old boss—the noble Lord, Lord Lawson, was kind enough to exempt me from his strictures on my old department and DECC for what sounded like rather absurd language about how the

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United Kingdom would influence the energy and environmental policy of China. I agree that there is a fly-on-the-wheel problem that one sees from time to time in such language. But the Chinese, too, deserve the Lawson lash because they seem to believe in climate change and to believe that it is at least partly man-made. They are building one nuclear plant every month, and investing hugely in LNG. They, like the noble Lord, Lord Lawson, are strong advocates of shale, and they have a huge exploration programme across China now; it is at an early stage but they clearly believe, like the noble Lord, that it too is the technology of the future. They have invested massively in solar power and have wiped out the European industry. They have a massive investment in wind power, and of course they are still burning enormous amounts of coal. They believe that the exponential increase in their demand, and the need to try to avoid dustbowls and desertification in northern China and poor air quality in the great Chinese cities force them to be as green as possible, and they would like to reduce their reliance on coal. Unlike us, they do not hang around. Like us, they think that they need to use every available source of supply. I hope that we will not hang around much longer and I look forward to the progress of the Bill in Committee and an end to the investment hiatus.

7.18 pm

Lord Jenkin of Roding: My Lords, I start with a word of thanks to my noble friend Lady Verma and the noble Lord, Lord Oxburgh, for the several extremely useful meetings that we have had about the Bill over the past couple of months. I have found it invaluable to see what the departmental view is. We have had the opportunity of talking to many of the Minister’s officials.

I also have another source of advice. I try to talk as much as I can with the companies that would actually have to make this system work. At a breakfast meeting chaired by the noble Lord, Lord Oxburgh, it emerged in our discussions with the wind industry, the CCS people and the nuclear industry that the Bill is essential if there is to be any hope of attracting the capital that is needed for the huge investment that many noble Lords have talked about. Somebody went on to ask a rather awkward question: if we get the Bill in the form that the industry would like—and there is plenty of evidence that they like much of what they see—will we get the investment? The noble Lord, Lord Oxburgh, will remember that there was a long pause, then all the parties said, “No, we cannot guarantee that”. We have to have the Bill because without it there is no hope of getting the investment, but even with it, there is still no guarantee. I endorse totally what has been said by a number of noble Lords during the course of this debate, that the greatest danger is uncertainty. People, firms and companies will not invest when they are faced with uncertainty. We have been going through quite a period of uncertainty in this country and it has resulted in a considerable downturn in investment in the generation of energy. Somebody said a moment ago that they hope that that period is now ending. We shall have to wait and see.

I certainly support the principle that we have to get this Bill through. I hope that we will be able to finish the Committee stage before the long Recess. I foresee

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four or five weeks of pretty hard work. I have tried to cancel as many of my other engagements as I can to make room for it. I have been refusing things left, right and centre for the last couple of weeks.

One point by the noble Baroness, Lady Worthington, that I very much support is that this is in some ways a skeleton Bill that eventually will be filled in with various things, including a large number of regulations. I make a very firm plea: we may not get these regulations in Committee, but we must know what they are by the time we reach Report in the autumn. It will be impossible for the House to debate this in any meaningful way if we do not have a greater degree of certainty as to what is actually going to happen.

I started by thanking my noble friend Lady Verma. Having listened to the speeches, I do not envy her the problem of having to wind up this debate. It is a task that I did for various things over a number of years, and it is very difficult to do. After having listened to so many diverse views, often based on great experience and expertise, I do not envy her.

There is a general view that we face a very considerable problem. There is likely to be a 40% increase in demand for electricity by 2050, but we are facing the closure of about 30% of our existing generating capacity by 2025. Wind power is becoming more intermittent. In the opposite direction, the nuclear programme is less flexible. However, it is equally essential and we must have it. I believe that we are bound to face higher electricity prices for a variety of reasons. I do not think that we are going to find ourselves imitating the Americans. Even if we are able to develop our shale gas deposits, nobody knows how much is recoverable. We also have our environmental obligations, so these are very great challenges.

I find myself increasingly worried about security of supply for the next four or five years. Somebody mentioned the closure of power stations. I have been given a list of power stations that were running on 12 December 2012, but all of which are now closed: Didcot A—a huge one, Fawley, Littlebrook, Cockenzie, Kingsnorth, Uskmouth and Tilbury. That is a huge reduction in our generating capacity. Some have talked about a number of plants being put into mothballs. The problem with mothballing is that it takes time to start up again. The figures I have been given suggest that of 9.2 gigawatts of UK gas capacity that is now mothballed, 2.6 gigawatts are unlikely ever to operate again because they have been effectively dismantled. Of the rest, it will take anything from three to 18 months before they can become operational, because one has dispersed the labour force. The thing has been wound down, and it takes time to start up again. I have anxieties about this and I hope that my noble friend may be able to offer us some reassurance.

In the debate on the gracious Speech, I raised the question of the future competitiveness of our energy industries. In particular, I asked about the Ofgem letter that had been sent out in February to all the bodies concerned—a very wide distribution—proposing what it called “future trading arrangements”. The answer came in a paragraph of that long letter written by my noble friend Earl Howe after he had wound up

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that day’s debate. I have no doubt, however, that this particular paragraph was drafted by my noble friend’s department. I quote this letter of 3 June:

“The government welcomes Ofgem’s actions to improve competition by addressing poor liquidity in the wholesale electricity market. We agree that liquidity, especially in the forward markets, needs to improve and this Government is pleased to see Ofgem indicate a strong preference for intervention with a decision expected by Summer 2013”.

It may not feel like it, but we are nearly there. However, perhaps we have had a decision on this—I will come back to that. I am puzzled about the concept of liquidity, so I asked for advice on that from the department, which defined it as,

“the ability to quickly buy or sell a desired asset, commodity or financial instrument without causing a significant change in its price and without incurring significant transaction costs”.

I am not sure how much wiser that leaves me. I prefer to look at this in terms of competition. If there is a market—and much of this Bill is based on the proposition that there will be markets operating, albeit in the future—then we start from the position, as many noble Lords have already mentioned, of having the big six. They have a 98% share of the domestic retail market, a 78% share of the industrial retail market and a 93% share of the commercial retail market. Estimates typically show that the big six have a market share of 65% to 70%. They are an enormously dominant force in our electricity industry. I have had a number of meetings with the independents and those who support them, and they constantly complain about how difficult it is to break into this market. These big vertically integrated companies have enormous power.

However, it may be that help is on the way. Many noble Lords will have seen the announcement by Ofgem less than a week ago opening up the electricity market to effective competition. I quote from the Ofgem press release:

“Ofgem proposes to establish a more level playing field so independent suppliers can compete effectively with the big six … Big six suppliers and largest independent generators must trade fairly with small suppliers or face financial penalties … Wholesale energy prices to be more transparent with big six required to post prices two years in advance … Ofgem’s proposed reforms build on progress made by the industry, but seek to increase competition and address issues of fairness and transparency”.

That is a beacon of hope in an otherwise quite difficult situation. Will the Government support it? They always talk about having more competition in the industry. If they support it, will that require further amendment of the Bill or will it be covered by the powers that were added in the other place—now Clauses 43 to 45? I think that something more is required: a requirement to promote competition actually needs to be written into the Bill. I give my noble friend notice that I am contemplating an amendment to the clauses on the capacity market to add a requirement; in addition to the objectives of the capacity market set out in Clause 21, they should have an objective to promote and encourage competition in the generating market.

I hope that I am pushing at an open door. My right honourable friend Michael Fallon had a meeting the other day with a number of people who have been arguing for this. A report of the meeting states that:

“Michael Fallon noted that he expects a number of amendments to be tabled to the Energy Bill during its passage through the

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Lords, and did not have any objection in principle to the recommendation for a clause stating that one of the objectives of the capacity market should be to encourage competition”.

Again, I hope that I am pushing at an open door and I look forward to hearing my noble friend’s reply.

7.32 pm

Lord Grantchester: My Lords, after much anticipation, the Energy Bill is before your Lordships’ House. I thank the Minister for her remarks explaining that the Bill is intended to establish a framework for delivering secure, affordable and low-carbon energy. I also thank the noble Lord, Lord Oxburgh, for his chairing of the cross-party seminars on the Bill, which have been extremely helpful.

These are vital moments for the transformation of Britain’s energy market. At the core of the Bill is the necessity, as older power plants become obsolete, for Britain to have enough power at a competitive price, with new infrastructure that could cost more than £100 billion, while mitigating the effects of climate change. It is always difficult to meet more than one target at once. All elements must therefore be taken into account in a multifaceted market where all technologies will be needed. While these supply-side solutions necessarily take up much debate, efficiency measures, together with management and reduction of demand, must not be allowed to slip from consideration.

The main players for 2050 are well known. I will first address nuclear. As my noble friend Lady Worthington said in her opening remarks, the Energy Bill has been characterised as a nuclear-led Bill. Nuclear has huge up-front costs, which are then fixed for life. However, on the negative side, it can be undercut by gas. By nature it is a base-load player, as it is not very flexible. I am concerned about the lack of detail in the Bill and the wide-ranging enabling powers it gives to the Secretary of State. How will a strike price be set that is fair in the long term—measured in decades—strikes a balance between risk and reward, and is a good deal for future citizens? We do not know, because the Bill is silent on power/price comparability, between price reductions from the progress in renewable technologies, with set returns to be guaranteed to nuclear.

Into this mix comes the impact of shale gas. We have yet to determine the extent of possible supplies and its environmental sustainability, which must be strictly adhered to with regulation. It can be safely said that falling prices are a long way off. At best, it seems that shale gas may achieve only a delay in price rises, rather than being a game-changer. The effect of shale gas in the US is to provide excess coal for export that is now being used as base load. Industrial emissions targets for coal and gas have resulted in the energy performance standard. However, there are a number of concerns about these proposals. First, the level proposed is very generous and would not require gas stations to constrain their emissions until 2044—the last possible moment that could be compatible with the UK’s legally binding target. Large amounts of unabated gas would not be compatible with the kind of decarbonisation targets the Committee on Climate Change suggests are necessary to take the country on a cost-efficient path to the target.

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Secondly, it does not apply to old coal-powered stations that decide to fit new filtration equipment to allow them to operate post-2023. Old, inefficient coal stations may remain indefinitely on the system, unconstrained. That could not be compatible with carbon budgets or decarbonisation targets. A similar backstop to the one now proposed for new coal is needed for old coal. The Government may well look at this for marginal back-up, as peaking plant, and may provide capacity payment via the capacity mechanism, rather than being able to base-load. Thirdly, in support of the Carbon Capture and Storage Association, CCS plant may need a three-year exemption from the EPS while CCS equipment is being commissioned.

The further challenge concerns the position of renewables by 2050 and how they can be encouraged to be a rightful part of the UK’s energy mix. We can have renewable power only when we have them. Some say they are largely useless because of their inherent unreliability. However, they are vital because the resource is there and free. Will all technologies in the Bill be equal on the starting line? Indeed, should the Bill get all renewable technologies to the starting line?

There is widespread agreement that the Energy Bill must empower a wide range of new entrants to enter the electricity sector. If a more competitive, innovative and diversified electricity sector is to be part of the energy mix, all contributions must be encouraged to take part. However, the Bill delivers top-down solutions that favour centralised generation, reinforcing current patterns of ownership. Yet in Germany, myriad new types of investor are entering the market, often for lower returns than large utilities expect. In Britain, however, independent generators find themselves challenged to ensure that the Energy Bill is viable for them.

Solar power currently finds itself in a very difficult position. Investment has stalled following the EU-China trade dispute. Furthermore, all solar projects of more than 50 kilowatts are severely constrained by the very modest capacity limits. When these modest limits are exceeded, support reduces. The Energy Bill requires support for solar to be either through feed-in tariffs or contracts for difference. Given the severe constraints on FITs, this needs to be looked at again. The generation profile of wind and solar is very complimentary. If taken together, there are fewer extremes in capacity; intermittency need not be an unmanageable problem. A multifaceted energy mix must not end up in a mentality of silo solutions. A more inclusive approach, whereby everybody is aware of their energy needs and is encouraged to participate, could encourage up to 30% of the UK’s energy needs to be met by community schemes and small businesses; for example, farming and rural enterprises. That could be necessary for their own long-term survival.

An important aspect of how the Bill will bring forward different technologies is contained in the levy control framework, with a cap on the total amount of additional charges that can be added to consumer bills. The limit to this spending review period is £7.6 billion, which dictates the total value of CFD contracts that the Department of Energy and Climate Change can enter into. Yet the Bill is unclear about how the control framework and CFDs will work together. For example,

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when will the projects that have assigned contracts start to be counted towards a control framework? How equal and rigid is the allocation of support to different technologies and what will happen in the event of underallocation in one technology?

Will money be carried forward into future spending rounds or will it be lost if it is not spent? The existence of a cap encourages early application, yet what happens when a technology’s allocation is used up? Lastly, renewable projects can apply either for the renewable obligation or the CFD. Will projects essentially be forced to opt for the CFD, for fear of the cut-off deadline in the RO and being at the back of the CFD queue with no guarantee of funding? The Treasury appears to be trying to control low-carbon spending, while allowing uncapped spending on new centralised capacity on the grounds of security of supply, since money allocated under the capacity market mechanism is proposed to be outside the control framework.

There are concerns that the complex design of the capacity market means that only the large energy suppliers are likely to participate. To achieve the full potential electricity savings identified by the Minister’s department, it is vital that savings from SMEs and homes are captured too. The capacity market rewards energy efficiency only for its security benefits, not for other, much larger benefits. A variety of policy instruments is vital to encourage innovative solutions to all the targets. An additional policy is required to ensure access to market, where funding for payments is decoupled from the capacity auctions and sits outside the control framework.

Rewarding alternative energy efficiency would reduce the level of capacity payments needed for security of supply. This can be explored in Committee, along with ideas for more technology-neutral policies, in order to set clear objectives to decarbonise. It is certainly easier to get smaller projects away than to finance the huge construct. These rewards are necessarily focused on the supply side. As the Committee on Climate Change said in its pre-legislative scrutiny report, the draft Energy Bill was,

“fundamentally flawed by the lack of consideration given to demand-side measures, which are potentially the cheapest methods of decarbonising our electricity system”.

I am therefore pleased that the Government eventually brought forward measures on demand-side reduction, through amendments on Report in another place. However, as with much of the Bill, the new clauses leave us little clearer on the Government’s plans in this area, amounting to no more than an order-making power for the Secretary of State to embark on pilot projects. However, the idea to allow “negawatts” to compete against traditional megawatts is welcome. There are concerns, though, that the capacity market will remain the only solution to access to market. It would be vital for the department to undertake a number of pilots using other mechanisms to allow diversity and innovation. So far there has been little opportunity to debate these proposals, but they can now be Peer-reviewed in your Lordships’ House in Committee.

This side of the House welcomed the previous Energy Bill, which had energy efficiency at its heart. It introduced the Green Deal to bring about energy

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improvements to buildings and houses, cost savings and a reduction in demand. It is a great concern that investment has not been forthcoming, leading to a massive drop in jobs in the sector. The figures expected on the situation on 27 June underline the work that needs to be done. On Report in the other place, the key element of interconnectors to and from the European market was introduced. This will enable a strategic rethink of the levels and efficiency of supply-side generation. It will have the benefit of increasing the geographical spread of balancing energy, as was so well argued by the noble Lord, Lord Oxburgh. As before, much detail has to come forward for assessment of how this can be made effective.

The Bill is welcome. My noble friend Lady Worthington has outlined the approach that we on this side of the House will take. Once again, we will work constructively to clarify and improve many aspects contained in the Bill.

7.45 pm

Lord Empey: My Lords, some time ago I had the opportunity to be Energy Minister in Northern Ireland for three years. Although it was only one part of my enterprise portfolio, it took up an amazing amount of time. Many noble Lords here today have served as Ministers and will be familiar with receiving a first-day brief from the Civil Service. In my case, I was advised that because energy was largely privatised, there would be little call on my time, merely a few regulatory functions to perform. How wrong that turned out to be.

Energy supply is a vital economic as well as a national security consideration, and this has become an even greater governmental responsibility in recent years. We read stories that the UK nearly ran out of gas during a recent cold spell that coincided with a breakdown in some part of the distribution and storage system. Whatever the truth, the point remains that ensuring a secure and affordable energy supply is one of the key requirements of good government.

The Government insist that this Bill is about establishing a framework for delivering secure, affordable and low-carbon energy. This is a sentiment that I am sure we all share. However, there needs to be a close examination of some of the aims and targets that we as a nation are being asked to sign up to. I know from our experience in Ulster that those same sentiments were shared in the 1980s and 1990s when the then Government signed us up to availability contracts, which have stifled competitiveness and kept energy prices unnecessarily high in Northern Ireland for nearly two decades.

Let us stand back for a moment from the complicated clauses in the Bill and look at what we should be doing and why. As a nation, the UK already suffers from a lack of economic competitiveness. We have to charge out to our customers the cost of our growing debt burden as well as our expensive welfare system. Despite the rhetoric of the Government and all parties, the export-led recovery has not yet happened. This is because we no longer produce enough manufactures and services at prices that international customers are prepared to pay. In this regard, therefore, what does this Bill do to our international competitiveness? Does it

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help us or hinder us? What does it do to reduce the overall amount of carbons pumped into the world’s atmosphere?

My contention is that the Bill leads to a reduction in the one and merely to redistribution of the other. I shall explain. Our competitiveness and the reduction of carbon dioxide in the atmosphere are inextricably linked. I believe that unilaterally adding cost to our energy supply for the genuine and admirable purposes of reducing carbon emissions here in the UK merely transfers the carbon emissions to China and other parts of Asia and the world. By making our already high cost base higher, it could be said that we will produce more of our energy from clean sources. That may be right. But the net effect is that, unless it is done simultaneously and universally by the major manufacturing nations, we reduce the amount of manufactures we produce and transfer that production to other places. While strides are being made in China to control emissions, there will be increased emissions, because China will be making the goods that we are no longer competitively making and in addition it will take a lot of energy to get those products to our shores from the other side of the world.

Climate change can be addressed only internationally and the EU and UK cannot allow themselves to get too far ahead of other nations. Otherwise, they will merely make themselves uncompetitive for no valid purpose. I believe that the climate is changing and that man is contributing to that change. We are certainly making a contribution, but its scale is hard to judge. Nevertheless, I do not accept the idea that it is purely manmade. Climate change is natural, but I believe that we are accelerating it. We can make a difference, and we already have. For instance, we took lead out of petrol, which has reduced dramatically the amount of lead in the atmosphere throughout the world. So we can make a difference, but let us keep it in proportion.

On the generation of renewable energy as well as nuclear, we are talking about adding a charge to consumers’ energy bills to subsidise the cost of renewables and nuclear-generated electricity. This is not a new idea, but we have to enable generators to produce electricity at a price that will allow them to borrow the money to provide the service. There is nothing wrong with that in principle, but the cut-in and cut-out points on the subsidy are critical. There is a lot of widely inaccurate speculation about what can be achieved by all this. The truth is that no alternative sources of energy come anywhere near the point where they could provide the UK with a constant and reliable source of energy. Wind is currently the major alternative, whether onshore or offshore. There is no doubt that it has a part to play, as do other forms of renewables, but let us not exaggerate its potential. In this country, energy demand rises during cold spells, which often coincide with high pressure in the atmosphere. High pressure usually means little or no wind. The classic example of this was in the winter of 2010-11 when we had five weeks of freezing weather and little wind. Without the traditional source of generation, we would effectively have been out of business.

I agree with the noble Viscount, Lord Ridley, who is no longer in his place. I cannot understand the difficulty in people grasping the fact that, even if

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we increase the amount of renewable energy from wind and other sources, we will still have to maintain every single megawatt of traditionally produced electricity, plus an amount to allow for breakdowns. We know that wind does not survive high pressure and that the other sources of renewables are vastly underdeveloped. Wind generation will reduce the amount of energy that is produced by traditional sources when it is functioning, but, when it is not functioning, you need to have the back-up. Therefore, the amount of generating capacity from traditional sources, whether fossil or nuclear, is not going to be amended significantly in the foreseeable future for that reason.

People are not going to tolerate the electricity supply going off. I often joke with colleagues that if the electricity went off during cup final people would be prepared to burn Chippendale furniture in the power stations to keep their lights on. The more wind that you have, the less efficient become the traditional sources of fossil fuel and nuclear supply, because that reserve, whether it is spinning or not spinning, will become less competitive. So the irony is that we will vastly increase the amount of electricity capacity in this country from renewables and non-renewables, but we still have to have the back-up. There could be five weeks of bad weather coming down the road and, if you have a series of breakdowns, you have to have power stations spinning, and they are spinning as we debate this Bill today. I do not see that people grasp that fact.

Energy from wind is great. In my own city, Harland and Wolff does not build ships any more—it builds windmills, and that is great. But the fact is that you have to have them backed up. Unfortunately, in a relatively small geographic area such as the British Isles, you have these weather patterns. Yes, we can do a certain amount with interconnection. I pioneered the gas and electric interconnectors with the Irish Republic, and we have an interconnector with Scotland. I am all for that, but the electricity interconnector has two 250 megawatt cables, and one of them is bust. So nothing is totally reliable; you have to have redundancy built in whatever the source, and you cannot have enough of it. That is the experience we all have.

In economies like India, the lights go on and off, and all the major universities and hospitals have huge amounts of generator back-up. In this country we pride ourselves on having a constant supply, which makes a huge difference to certain industries and activities that simply have to have constant, reliable supplies of electricity at affordable prices. I fully support the concept of reducing our carbon footprint as best we can—but we all know that it is vehicles that produce most carbon emissions, and not Mrs Bloggs at number 33. So this deals with only part of it.

We have indigenous potential in this country. Shale gas has been mentioned. At home in Northern Ireland we have vast resources of lignite from Lough Neagh right up through County Antrim. An Australian mining company came to me a few years ago to say, “We could open-cast mine it, because it is high-quality and low sulphur. We could build a big trench up the centre of County Antrim from Lough Neagh up to Ballymoney. We would put in an 800 megawatt power station and fill the hole in as we go along”. You can imagine the amount of interest that that had from the local community,

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who saw their towns, farms and everything disappearing into this great hole. Campaigns were launched, and I have to say that I took a far-sighted and courageous decision as Energy Minister to do nothing. I took the view that it should mature in the ground and that it was there if we needed it. But the truth is that we have resources and we may have to deploy them. Mr Putin and others have been mentioned, and there is no doubt in my mind that this is a national security issue, apart from anything else. We cannot allow ourselves to be at somebody’s mercy.

Research and development has not been mentioned very much. The European Union has significant resources in this area, and we have to do far more R&D into the technologies. All that we are doing at the moment is to use sticking plaster and adding bits on here and there. We are not putting enough money into the R&D of energy supply. I hope that as we go into Committee and on to Report we can drill down into some of these issues and perhaps improve the Bill as it passes through the House.

7.58 pm

Lord O'Neill of Clackmannan: My Lords, this is an ambitious and important Bill. It is ambitious in that it is trying to achieve a unique objective—the establishment of a monitored and regulated market, which would incorporate carbon emission reduction and environmental sustainability by harnessing a variety of seemingly incompatible technologies—baseload generation involving nuclear and gas-fired CCGTs, along with biomass-adapted coal stations and smaller renewable thermals. Alongside that there will be interruptible renewables, such as on and offshore wind, hydro and small-scale, and probably as yet unproven, technologies, claiming to be renewable—and, of course, if you claim to be renewable, that is acceptable. Renewable is cuddly, small and nice. It is akin to WC Fields’ snake oil. There is basically no illness that it cannot cure. It can create jobs and reduce unemployment; it can increase productivity—it can do almost anything. The only thing that it cannot do is to produce electricity on a reliable basis in great amounts. The basic amount of electricity that we require has to come from baseload generation. The rest can be of assistance, but it cannot be a realistic substitute.

It is fair to say, however, before we go any further, that all these different technologies have inconveniently different timescales for development or for the life of the stations involved. Each different form of investment will require a different form of reassurance. This is the fundamental challenge in the creation of a new market.

Utilities have been seen historically as a fairly safe form of investment. You get a return of 7% to 9% one year after another. They can be long term. They can be pretty safe. Demand is likely to be constant. Today, technical uncertainty, because of the relative newness of some of the equipment, raises questions about the possibilities of a dependence on unproven technology, or questions of access and the interruptability of one technology against another. We do not really know about the maintenance of a lot of the technologies that we are talking about. We might therefore have unreliability of a technical character that we have not yet experienced.

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For these reasons, the business of reassuring investors is a far greater challenge than we have had before. We have been told that we are going to get the grand design in July—we will have the delivery plan, the strike prices and the accommodation of capacity payments. We would like to have most of those things before the House rises. I take the point that this is to be incorporated within a market system. Perhaps not all of us have been students of the United Kingdom energy markets over the past 20 years but this is the fourth attempt that we have made at having a market. It is by far the most challenging one. We have had the pool system, NETA and BETTA, the three predecessors, each of which tried to correct something that was wrong with the other one. There was gaming or it was pooled; the next one was not quite good enough but the one after that would be better. This is the first arrangement that is actively seeking to incorporate within the market system questions of climate sustainability and emission reduction.

As a consequence of this and European decisions, we have to reject the coal option until such time as we have carbon capture and storage. Like fusion, that is always going to be 15 or 25 years away, depending on how optimistic you are. Coal is not an option, so we have hydrocarbons, nuclear and a range of as yet, in many instances, interruptable or unproven renewables. I am happy to have a mixture of gas and nuclear as the main components. I am not sure that we really want to change the character of this Bill to have, at the top, competition at all costs. That was part of the philosophy of the privatisers in the 1980s and early 1990s. We had a system then that, had it been taken to its logical conclusion, would have produced electricity generation along the lines of pre-Cavour Italy, when there was a succession of city states all running little power stations.

Our system never quite got to that state, but it created entities that were easy to absorb and take over. Now we rail against—or some people rail against—the fact that there are six utilities, six big players, which pretty well dictate everything. It is an oligopoly but it is a regulated oligopoly, and it could be better regulated. We could have clearer bills. We could have better tariffs. We could have systems with greater transparency. In some respects it is the toothlessness of Ofgem over the years which has allowed a number of these excesses to take place. We have to recognise that we are trying to keep many more balls in the air with our new market system than we have attempted before. That will carry risks. If we can get it, however, we will be able to secure the assurance that a number of investors are waiting for.

I am not totally pessimistic about the investment situation. When E.ON and RWE, in the shape of Horizon, its nuclear company, decided to get out of nuclear, they found a buyer, Hitachi, which was prepared to pay rather a lot of money, albeit at this stage for real estate. Nevertheless, it was prepared to buy access to the sites and the possibilities that those offered. As far as nuclear is concerned, people are not totally pessimistic and running away from it all the time. It is essential, however, that by July we get a clear indication of the strike price, the capacity payments and the nature of what the market structure will be. If we can get those with clarity and transparency we will get the beginnings of the investment that we require.

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This is a large Bill. It covers a lot of areas. There is one point about the nuclear industry that has not really been made, although the Minister did refer to the establishment of the new nuclear regulatory authority. This is long overdue. When I was the chairman of the Nuclear Industry Association, I argued that it was frightening that we were seeing the departure of so many nuclear inspectors from the regulatory body to the potential players in the British nuclear industry. We now have a body that will allow the regulatory functions to be carried out in an appropriate way and the staff to be paid at the rates that the market would wear. It is highly appropriate that we are able to do that.

Under Mike Weightman, the chief executive, this body has achieved an international standing that not a lot of people fully appreciate. Mike Weightman went to Japan after Fukushima and produced a report that did not necessarily give consolation, but it was of a rigour and authority that established once again the very important position that the British nuclear industry has in the world. We talk about quangos and government bodies, but this is one that will be going out to bat for Britain in a variety of circumstances when other countries are getting into the nuclear business in a big way.

It would be churlish of me, before I finish my remarks, not to thank the Minister and her staff for the briefings that they have given us. I have to say, however, that I am reminded of F.E. Smith’s words when he said, “I may not be much the wiser but at least I’m a lot better informed by the process”. We know that there will be a lot of complexity in the Bill. For that reason the Committee stage will be exciting and interesting. However, I reiterate a point that has been made by colleagues this evening. We want to see a lot more of the flesh that there should be on the skeleton of the Bill before we get to Report. In Committee it may not be in quite the form that we want, but we can look at it carefully. If we can get a market settlement with the delivery plan in the public domain before the recess, we will have an interesting time in Committee and at Report. I wish the Bill well.

8.09 pm

Lord Birt: My Lords, I declare an interest as a director of a UK renewable energy company and as an adviser to a fund that is a leading global investor in renewable power. Both bodies are noted in the register.

In the past 50 years, the UK has seriously lost its way with infrastructure. As my noble friend Lord Kerr reminded us a little while ago, unlike the Chinese, we do hang around. We have the least developed road and rail networks of any major country, we have struggled to expand our strategic airport capacity, and we have been slow to create an electricity grid and generation system fit for modern circumstances. This latter task is not easy. As we have heard during this long debate, we have to migrate from an era of plentiful but high-emitting coal and gas in the UK to a power system that balances three equally valid but competing objectives: security and reliability of supply; a substantial reduction in carbon emissions; and the need for economically priced electricity both for business and for consumers. The task may not be easy but we have addressed it with too little dispatch.

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On renewables, far from being world leaders, we currently languish just above Malta in the relegation zone of the EU nations league for the proportion of national power produced from renewable sources. Many other EU countries, large and small, produce getting on for 10 times the proportion that we do in the UK. On nuclear, we overcame our temporary reluctance in 2005, but eight years later we have yet to contract a new generation of nuclear plants. Our storage capacity for gas, as others have mentioned, is notably low, especially by comparison with other countries, such as Germany. And we have failed, too, to build sufficient interconnectors with other electricity markets overseas, which would enable us to import more power, as the noble Baroness, Lady Parminter, mentioned earlier.

The well flagged consequence of those shortcomings is that the UK faces potential blackouts in the mid term and possibly even in the short term. If they happened, that would be a terrible indictment of our system of government—our ability to think and to plan ahead. Indeed, it would be a national shame. Will this Energy Bill put us on the right track?

The Bill sets out a new approach to the operation of the electricity market. Its cornerstones are tight emission standards, greater certainty over the long term on carbon pricing, more revenue assurance for low-carbon generation, and a mechanism to encourage reserve generating capacity. The Bill, as I think most have observed, is directionally sound but, by itself, will not meet the stiff challenges that the UK faces.

I have long supported the value of market mechanisms in both the public and private sectors, and I have long belonged to a consensus that is wary of the state picking winners, of state-owned and state-run enterprises, and of a strong directive role for government—of the kind that we still see, for instance, across the channel in France. However, the complexity of our national energy goals, embracing security and climate change, as well as economic efficiency, obliges us to find the right blend of market mechanisms and government direction, and that is very difficult to do. We need to see real and speedy progress towards nuclear commissioning, towards renewable rollout, towards greater interconnection and towards improved storage capacity and stand-by power.

Government will have to ascertain that the measures in the Bill do in practice give investors confidence, as the noble Lord, Lord Stephen, and others have emphasised. This is critical because modernising our power infrastructure probably requires—I suspect that the figure is far higher than the Government have so far estimated—something of the order of £250 billion to £300 billion of private sector capital over the next 10 to 15 years, most of which will come from outside the UK and from investors who, as others have noted, have other choices, not least as worldwide investment in this sector simply mushrooms the world over.

The risk is that the new construct of CFD and capacity payments, which is difficult to understand, as the noble Baroness, Lady Liddell, mentioned earlier—it is a construct designed to incentivise both nuclear and renewables—will prove, on the one hand, overcomplex for renewables, yet, on the other, insufficient to encourage the replacement of our existing fleet of nuclear plants. With the intermittency of renewables, about

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which many have spoken, and the uncertainty of gas supply in a volatile world, which I think has been underemphasised, a substantial contribution from nuclear is necessary to help manage national risk. Of course, I entirely acknowledge the challenge and difficulty of doing that.

Moreover, as we move forward, our politicians will have to be brave, as well as wise, and hold their nerve, for this transformation will be expensive, as the noble Lord, Lord Jenkin, mentioned earlier. Power prices will rise, even though the cost of some technologies—some renewables, for instance—is reducing very rapidly and is converging on parity with hydrocarbon technologies. Therefore, much beyond the passage of this Bill remains to be settled, and there is many a slip ‘twixt cup and lip.

I echo the noble Lord, Lord Browne, in saying that we will need to be vigilant to ensure—to paraphrase Jonathan Powell—that we execute, execute, execute. We need to monitor not just the introduction of the complex new systems proposed in the Bill but the outcomes, and whether these measures before us put us on a rapid track to a far more robust power infrastructure for the UK than we have now.

8.17 pm

Lord Dixon-Smith: My Lords, it is many years since the late Lord Flowers, who knew a great deal about the nuclear industry, said to me that mankind had only one source of energy, and that was nuclear. However, mankind had a choice, which was to have his nuclear power station here or 98 million miles away. Lord Flowers knew which he preferred. I often wonder, when I get up in the morning, how many years’ worth of geologically stored solar energy mankind burns off every day to enable us to live the lives that we do. Carbon dioxide was locked in in such a way that it ultimately enabled the evolution of mankind. We need to think about that.

In the Bill before us this evening, we are discussing how to provide what I would call the procedural infrastructure to enable us to renew and refresh the electricity and energy generating industry after 15 years of what can be described only as gross neglect. However, that time was not totally wasted because it gave us the Climate Change Act, which establishes a CO2 target for 2050. We have to be extremely careful about what we do because everything we do must be consistent with that target. That target is 80% of our 1990 emissions. It is the amount of emissions that this country was producing in the 1850s, when the population was 22 million. Today we have three times the population and it is five times the energy consumption that keeps modern society going. It is quite an interesting comparison.

Energy investments by their nature are long-term, and 2050 is less than half my lifetime away now. We heard lifetimes discussed in political terms a little while ago, but I prefer the calendar. What we do, therefore, must be consistent with that target. We need to think through what that target means. I have not seen that done, so I will suggest some conclusions. We need to determine what industries we have at present

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that give carbon emissions, or carbon-equivalent emissions, that are so essential that they will have to continue beyond that date.

My list of industries is as follows. First, there is metal smelting; I cannot envisage how we will survive without that. Next, there is cement manufacture; again, I cannot envisage how we will survive without it. Next, there is agriculture, particularly with regard to livestock. I declare an interest as a farmer, but I have no livestock other than two children and seven grandchildren. Agriculture, of course, is a surprisingly large creator of carbon-equivalent emissions. Next, there is aviation. There is a great problem of energy density, and I rule out biofuels because we cannot today feed our existing population on this planet properly, and by 2050 there will be 2 billion more of us to deal with. Therefore, I do not think biofuels will be a viable alternative. I include shipping for a similar reason. Energy density is very important to those in that industry because ships carry cargo, so the less space that is taken up by fuel tanks the better.

Once you have gone through that list, you are a very long way towards the 20% target that we have set. If that is the case, everything else we do must become zero. All land-based transport, all our buildings and all our industries must have zero emissions. That is fundamentally important. Encouragingly, there is already a basket of technologies that could make that possible, but we do not know what technologies will win the economic race, as opposed to the calendar race.

That brings me back to the Bill for a moment. The contracts for difference established by the Bill, it seems to me, are designed to guarantee a return to investors for investing in new nuclear power stations in particular. In addition, there are safeguards in the contracts for difference to provide some protection for consumers—as far as I am concerned, consumers and taxpayers are one and the same—as regards long-term price increases. I do not envy those who are responsible for negotiating those contracts. An apparently high price today could appear to be a very reasonable price in the longer term.

I should explain that my view is coloured by my lifetime in farming. I shall use the example of farm tractor red diesel because its duty is heavily taken away. I began by paying one shilling and three and three-eighths pence for a gallon of farm tractor red diesel. That price was equivalent to about 1.3p. At present, the price is between 77p and 78p per litre. Those with quick minds will realise that we are talking about a price increase of several thousand per cent for energy, and we have been worrying about whether it might go up by 10% or 20%. Frankly, I find that quite difficult. In fact, we do not pay society a sufficient compliment for adaptability. I am not saying that we should be complacent because we should do everything to keep prices down. Returning to the contracts, a price that looks unreasonably high today might, in 20 years’ time, be an extremely good deal for the consumer. Therefore, it adds to the burden of responsibility on those responsible for negotiations.

The other thing that has happened, which could not have been imagined during the passage of the Climate Change Bill, was the advent of shale gas, and shale oil in the United States. We know now that we have large quantities in this country. They have not yet

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been totally confirmed and defined but they are there. We know that they exist in large parts of mainland Europe and under the eastern Mediterranean. We know also that there are considerable quantities in China. One way or another, if we can overcome the problems of providing that, it may be a very useful interim energy source.

Shale is much cleaner than coal. More importantly, using combined-cycle gas generators, it would be possible to use carbon capture and storage and to make it virtually emission-free. In addition, because you could produce clean smaller-scale power stations, you could site them near communities so that the waste heat could be used and they would become combined heat and power stations. That would be a revolution in power generation. At present, most of our power stations release nearly the same amount of energy to the atmosphere in the form of waste heat as they supply to the customer in the form of electricity. We really need to find a way around that problem.

All that may be daydreaming but the point is that we do not need more interim targets for carbon emissions because that final target already rules everything we do. It is not simply that that determines it; I am sure that there are still unknown technologies, which we will have to learn about and adapt to. Some of them may be more helpful than anything we yet know.

8.28 pm

Lord Prescott: My Lords, I feel most inadequate as I have no commercial interests to record either in the register or anywhere else, except perhaps one: I was the UK and European negotiator at Kyoto. Therefore, my interest is to continue to argue the case for climate change—the scientific argument and the connection between carbon and the increase in climate change. This very good debate has reflected the different interests and the division between those who believe in the climate change argument and those who say, “No, it is a nonsense and we should not take any notice of it”. That was probably very much reflected in the evidence and clash of views between the noble Lords, Lord Lawson and Lord Stern. I think that the noble Lord, Lord Stern, well won that argument, but I am in that school of thought. I am an admirer of the comprehensive work that the noble Lord, Lord Stern, has done and the major contribution he has made to the climate change argument.

The noble Lord, Lord Lawson, was referred to by the noble Lord, Lord Deben, not as a sceptic but as a denier. You could tell from his speech that there is no doubt that he is a denier. Perhaps I could add the noble Viscount, Lord Ridley, to that argument. The noble Viscount is indicating that he is not and I take his correction. However, basically, they believe in leaving it to the market. I did not hear an alternative from either of them. There is a great deal of rejection about the science, what we should be doing, how it should be cheaper and how much more efficient it should be. I must say to him that the coal industry and perhaps a number of the banks are not the most perfect examples of the operation of the perfect market. At the end of the day, the state comes in and has to find the money for them.

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Leaving that aside, what we have in the powerful argument of the noble Lord, Lord Stern, is what he actually said and what we all know: that thousands of scientists have come to a view about the connection with climate change. One can say that they are all wrong, but the odd voice against them does not lead me to think, “Which side of the argument should I take?”. I am for the connection. I think the evidence of the weather is there, but that debate is ongoing. However, there is quite clearly a connection. If the connection between the level of greenhouse gases and carbon is accepted, and if we want to prevent an increase in global temperatures, then it has to be kept at that level. As the noble Lord, Lord Stern, has constantly pointed out, we are at a dangerous level. One can reject the argument; once that is done, it is easy to do anything. They can attack every proposal around because they want to leave it to the market to decide. Evidence shows us that the market cannot determine everything in these matters, and it often means that a regulated framework has to be found.

Much of this debate is about the balance of the regulated framework of the market and government. There are many examples. I remember when I was in Government and we convinced the industry of the need for a climate change levy. I remember Tony Blair, the Prime Minister, ringing me up when I was abroad and telling me that we were going to introduce a climate levy. I said, “Oh, you mean an energy tax”. “We don’t call it an energy tax”, he said. That may be so, but the important point was that industry administered that climate change. The levy that was imposed actually helped to make industries more efficient, and that was what was proved by it. I understand that there is a balance in the regulatory form between what governments might do and what the private sector might do and I am prepared to concede that there may well be something in the way that the market operates.

The criticisms have been genuine and informative, and I am sure that in Committee there will be good debates on serious issues. No one is actually speaking out against the Bill. Those who criticised parts of it were saying, “I support the Bill, but there are some things that I don’t like”. I will not go into all the details because they have been mentioned in an excellent manner. However, I suppose I find myself in the same boat. I agree with a lot of the criticism. It is not as good as it could be, but it is a Bill worth supporting and I want to say why that is so.

One of my criticisms is that there is no balance of energy policy; there is doubt in all the areas. We do not know what is going to happen with nuclear and we are in separate negotiations with a French state company as to whether we are prepared to give them sufficient money to provide us with nuclear energy in about 20 years’ time, even though the energy gap is coming in the next 10 years. For wind turbines we have Siemens, who want to put massive investment into my industry and my area, but it is always complaining about uncertainty, as indeed is the case with solar power.

I rather agree with the noble Lord, Lord Teverson, that there is a role for coal. It might mean that a lot of money has to go into carbon capture, but we should be prepared to recognise the role that coal plays. Some

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40% of the energy in this country comes from coal. It might not come from our own coal fields, but it is certainly coming from somewhere. There is going to be a lot more about as the Asian countries begin to develop their demand for oil and coal because it is where 60% of their energy will come from, and that will lead to increased prices. This Bill is not going to prevent an increase in prices; that is one of the realities that we are going to have to live with.

Biomass has also been criticised. It is all right not to believe in it and to attack every kind of industry for every kind of reason, but the reality is that if you do not accept the argument about carbon, then you can forget about the increase in carbon and just talk about price, production and security. But if you do believe in carbon, you have got to adjust the whole system, not only in this country but globally. That is what Kyoto is all about: to find an agreement to reduce the amount of greenhouse gases so that we can reduce carbon. There are challenges coming with climate change and the horrific circumstances that people are telling us about will come if we fail to achieve that.

The uncertainty produces real problems. In my area of Humberside we have 27% of the UK’s oil refinery capacity, 20% of its natural gas, 38% of its imported coal and 17% of UK electricity generation. All of those are an important part of the industrial base. Of course, the Siemens investment, which is now considering coming into this area, is plagued with uncertainty. Are we still going to have an energy policy? Are we going into wind turbines? I think the nimbys have more influence—and this Government gives them more—to actually turn against wind turbines. Whatever the arguments, whether or not they blow all the time, if you are prepared to accept that carbon is one of the limitations in the balance of your policy, you will end up with a different policy and leave it to the market. I know from historical experience that leaving it to the market will not provide a global solution to global problems. Why is that? Because when I was at Kyoto 1 there were only 46 nations; now there are 190 nations.

It is the politicians who have forced through some agreements, so let us not knock the politicians’ role in these matters, but getting a global solution to a clearly global problem requires a framework of consensus that is not easy to achieve. We have to recognise that developing countries which are looking to develop their riches, as we did in our industrial past, will have a high carbon growth. They depend on coal and oil and will go through our process of high carbon production. We poisoned the world and moved on, and now we want to continue doing it but feel that they have not got a place in it. If that race goes on, it will threaten any kind of global solution.

The Siemens investment, which will bring billions of pounds into our area, is an important factor that should be taken into account. I doubt that this Bill will achieve the kinds of things it seeks to achieve. Perhaps it will change in Committee. I am not sure that it will secure our energy or that it will reduce prices—I hope that it will—but in Committee we can discuss the process and find out more about the details, something that everyone has been calling for, so that we can understand it.

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On the same argument, I can remember people saying that targets are not important. I believe that they are important, but we should not depend on targets because what we need is certainty. The noble Lord, Lord Browne, and others have said that we should have more certainty than targets. However, I still believe that we need the targets we set at Kyoto. By the way, many countries have achieved them. In the United Kingdom, not only did we achieve twice the levels set for us at Kyoto, but a million more jobs, growth in the economy and a reduction in gases. The argument that somehow Kyoto was a threat to employment and growth is not borne out by the facts in Europe, which is an important part of it. That was Kyoto 1 and we have to find an agreement on Kyoto 2, make no mistake about it, by 2016. The Americans do not like it. There is no difference between Obama and Bush on this matter, although Obama puts it in different words. They are still not co-operating on getting an agreement. The international negotiations are a challenge for us, but they are important.

Britain became the leader in most of these matters. It became the leader at Kyoto in 1997 and we set up the climate change levy in 2001. In 2006 we introduced the Climate Change and Sustainable Energy Act, and the Climate Change Act in 2008. In 2006, EU emissions trading was established, which was copied from us—it was not as good, but that is life—and the current Government have continued with their Green Investment Bank and this Energy Bill. Britain leads in trying to find a proper regulatory framework.

I have been happy to be involved—I notice the noble Lord, Lord Deben, is in his place—with a group called GLOBE International. I have been working with it for 12 months. The group has been working with parliamentarians in many countries. I am amazed that 33 countries have followed the lead, in different forms, that Britain has given. They can see that a statutory framework is essential if you are to get a global solution. It is coming from the back benches, not the Governments, because Governments are caught up with their civil servants. As our leader said before, there may be too much agreement and not enough common sense about it.

There is a way. We are leading the way towards the global solution which is needed for a global problem. We cannot look the other way and we cannot bury our heads in the sand. I am proud that Britain is leading and that this Government are following the same framework. The criticisms I have of this Bill are similar to the ones I have of other legislation, but at least Britain continues to lead the way on the most essential and difficult problem of how to deal with climate change. We need a regulatory framework. Britain is leading the way on that and I am glad that this Bill continues the process.

8.39 pm

Lord Redesdale: My Lords, I am very honoured to take part in this debate because it shows how unique the House of Lords is. I do a lot of discussions about energy and climate change and I have not been in a debate recently where the fundamental basis of climate change has been questioned. Almost everybody believes that climate change is taking place. We had more than

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200% of our normal rainfall last year. We are facing climate change and its consequences. How do we deal with that and how do we deal with energy generation, which is one of the biggest emitters of greenhouse gases?

We are acting as if the Energy Bill will solve the problem. It does not matter how well drafted this Bill is, it will not solve the problem. We have not built enough generating capacity for a long time. I was trying to explain this to a business audience. Politicians will not bite the bullet and build generating capacity because a power station lasts 50 years. The decision has to be made, the money has to be found and planning permission has to be obtained. It has to be built, it is used and then it is decommissioned. A Government with a maximum life of five years have to make that decision. They have to explain it to a press running a 24-hour news cycle, which has to explain to its readers, who are worried about last month’s bill not next year’s.

The culmination of that is that we have not built any power stations. There has been great talk about it but we are going to face a generating gap. Brownouts and blackouts are round the corner, as has been mentioned by a number of noble Lords. I declare an interest as chief executive of the Energy Managers’ Association. My interests are set out in the register. At a recent conference I put up a slide and asked whether people thought there would be an energy brownout in 2015, 2016 or 2017. We all had those clickers and more than 80% answered 2015. British business is beginning to get very worried about our ability to supply power and investors in British industry see it as a major financial risk.

There is no panacea. Many noble Lords have raised the issue of fracking as if it is going to solve our energy needs. The original estimate for our reserves of shale gas was that, if we used it all, we would be energy independent for a whole six months. Recently a report re-estimated the amount of shale gas at between seven and 10 years’ worth. It is an estimate, so let us take the lower figure. If we use fracking and get shale gas, that is fantastic. We are independent until 2020 for gas, after which it might all be gone. We just do not know.

In Poland, where the Government have not been so worried about the environmental constraints, they have been looking at pushing ahead with fracking but they have found that the gas is unrecoverable economically in the form it is in. America has an enormous amount of shale gas but it is in geological fields above shale oil. It was previously seen as a waste product and the difficulty of getting the oil out was that the gas was in the way. Now they are going after the gas. We do not have the same geology and we cannot claim that we are going to have a sudden bonanza. There may well be shale gas but in its present form it is more expensive to get out than would be economic at the moment.

It might be the panacea for the future but it probably will not be. To get the shale gas out we have to drill 140 test wells and we do not have the planning permission to do that. To recover the gas we need to drill 1,000 wells in the north-west. Members of Greenpeace will have a field day at all those planning permission hearings unless we change the law on planning permission.

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This is the reality of what we are facing. We are very dependent on our generating capacity at the moment. Many noble Lords said that Europe is going to close down our coal-fired power stations. That is not the case. We have not built any for a very long time. The existing ones are very old, they are at the end of their run cycle and, in fact, we are increasing the rate at which they are shutting. The price of American coal has fallen as it has been displaced by shale gas so we have been firing up a lot of coal-fired power stations to run that generating capacity cheaply. This reduces the life-cycle of the coal-fired power stations we had in reserve in moth balls.

We will be reliant on natural gas. That is why I have an issue about decarbonising the electricity grid, because if you are doing it through natural gas, 70% of the energy is being thrown up the chimney of the power stations producing electricity. It is far better to put it in the grid and burn it in condensing boilers, which are about 94% efficient and are at the point of use. There is only about a 0.5% loss on the gas grid compared with the transmission loss on the electricity wires.

I am not certain that contract for difference will even work. I know that that probably puts me in a minority on this side of the House, where we are saying that it will work. Before everyone gets excited, I remember discussing the EMR years ago. The policy started before this Government were in power. That is the problem with energy policy. Even though it might not work, it is still coming through. I know that there are a number of reservations.

I do not think that anyone will object to the Bill as we need to push forward with the investment and the regulatory framework that means that people will invest in generating capacity. It has been the constant call of those who want to invest enormous amounts of money in the industry that we have a secure regulatory framework and security for investment.

The Bill must address the difference that we are facing in society today. The concept is that energy prices will remain at the historic low of the past 20 years. That will probably not be the case. We will probably go back to a position where energy is a far greater proportion of take-home pay than it has been in recent times. An opportunity arises from the rise in energy prices. A recent report stated that 44% of all energy used in this country is wasted. The simplest way to reduce the cost of energy is not efficiency but demand management at every level. We need to change the way that we view energy and instead of saying that we need to provide more and more energy at ever cheaper prices, we should start to pay realistic prices. It does not matter that there may be more finds of gas. Our problem is that China and India are starting to consider converting their coal-fired power stations to gas, and they are closer to the gas fields than we are.

I am secretary of the All-Party Qatar Group, and had a meeting with the Emir. I am not saying that just to drop names, although I am a very important person, of course. This was a while back. As I went in, he had a smile on his face because a Japanese delegation was leaving. He said, “Do you know what is really amusing? You are coming to talk to me about gas, but they just wanted to try to steal all your gas”. That was after

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Fukushima and the Japanese delegation was trying to get as much LNG as it could because they had to run their power stations. He was laughing. I found that quite scary, because it sent the price of gas up. Many areas will be looking for large supplies. There are not enormous supplies of gas out there that we can go to buy easily without political consequences.

The Bill is important. An important aspect of it should not be overlooked. The Government have said that they will be tabling amendments to address electricity demand reduction. Instead of just talking about one pilot, we should be looking at how we get the whole of the population to start changing the way that they use electricity. The place to start is business. The organisation that I run will start by introducing a concept called low-energy companies, where it trains a proportion of all staff up to energy management level 1 or 2, which involves the awareness of energy managers, and then starts to introduce energy managers. The importance of that is that very few businesses have energy managers. The last time we started hiring energy managers was in the 1970s, when the oil shock hit and prices were rising. We can create vast numbers of energy managers who can massively reduce the amount of energy that we use in British industry. That is very attractive to large companies, and we are launching it in London Zoo, in front of the penguin pool. We are launching it there because the penguin pool has a problem, which is that the penguins tend to defecate in the water. There are 100,000 litres of water in the penguin pool. The pool has to be filtered three times a day, which has a massive energy cost. You have to understand how to keep the animals fit and healthy, but if you are running a business, you also have to understand where the cost of the energy is. That is quite an interesting one.

We are bringing companies with more than 2 million employees who want to do it with their employers and they want then to push it on to their supply companies. The very real reason is financial risk. A number of these companies have been told by their suppliers that energy prices will probably rise by 20% a year for the next four years. That is quite a frightening statistic. Most people are talking about much smaller rises, but the energy companies have started to say that these larger price rises are coming down the line. If that is the case, British industry is going to have to do a vast amount more to make itself efficient, or it is going to go out of business. However, the other aspect of this is, of course, that it is not just a British problem. Other countries around the world are facing rising energy prices. Companies that think they can get cheap offshore energy prices are in for a shock in the future.

I hope this Bill is a success. I obviously believe that it will not be held up a great deal as there are incredibly important elements in it. I very much hope that we do not lose sight of making sure that one of the biggest gains in reducing energy prices is by not using energy in the first place.

8.51 pm

Lord Greenway: My Lords, as the last Back-Bench speaker in this debate, I must admit to a certain amount of trepidation, especially when faced by a barrier of such expertise on the other Cross Benches.

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I intend to take a slightly different tack from other noble Lords, but first I should like to say that I wholeheartedly agree with the remarks of the noble Lord, Lord Oxburgh. We are now reaping the rewards of government inaction in not renewing our nuclear capacity when it should have done so. That is a tragic mistake. When I came into this House some 38 years ago, we had the greatest experts in the world on nuclear energy among our membership. Alas, where are they now? All gone—we have lost that expertise and that is to be greatly regretted.

I entirely agree with the right reverend Prelate the Bishop of London and others who said that more effort should be made to reduce demand. The noble Lord, Lord Redesdale, who has just sat down, mentioned that as well. There are many ways in which we can educate people that electricity simply does not grow on trees, and that when they turn on a switch everything will happen. Great strides should be made in educating people in how to reduce their demand for and reliance on electricity.

Solar power has been mentioned only briefly. Living in the south-west, where the sun is supposed to shine rather more than in other parts of the country, I find it very strange that new towns being developed outside Exeter are not mandatorily fitted with solar panels by the property developers. That is something that should be done automatically, certainly in the case of commercial developments.

I said that I would take a slightly different tack and I will direct the major thrust of my remarks to the nautical side of power generation—that is, offshore wind, tide and wave. The first is the most prominent today, as it was the only alternative green energy source available following the Kyoto treaty. It is, as we have heard, an expensive and unpredictable way of generating power and the installation of offshore wind farms is considerably more expensive than that of onshore ones. That expense will increase as the future planned farms move further offshore into deeper waters. The industry is aware of this and is now looking to develop floating turbines to reduce the installation costs. Speaking as a mariner who has witnessed the odd storm in his time—I am sure one or two other noble Lords may have done so as well—I have grave doubts about floating wind turbines surviving a major storm at sea, particularly in deeper water. My doubts also extend to the development of wave power, where the same situation applies. To be really effective, wave power has to be some way offshore, where the waves are largest. A major Atlantic storm off the south-west would simply blow the whole thing away.

One of the unintended side-effects of the proliferation of offshore wind farms relates to navigation. This has certainly been exercising Trinity House, which is responsible for the provision and maintenance of aids to navigation. I declare a non-pecuniary interest as an Elder Brother of that organisation, which will be celebrating its 500th anniversary next year. Initially, the Crown Estate and the developers of offshore wind farms had little knowledge of where ships went and proposed sites that cut right across well used shipping lanes. I am happy to say that things have moved on since then, and that Trinity House and the other two general lighthouse authorities are now properly consulted

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beforehand. However, the positioning of some offshore wind farms has meant that shipping has often had to make considerable deviations around them, which of course leads to greater use of fuel and therefore greater emissions from ships.

In other cases, shipping is squeezed into comparatively narrow channels between wind farms. It is estimated that at these choke points, the risk of collision is increased by more than 400%. I have said on a number of occasions in this House that if you place an object in the sea, either a fixed structure or a floating one, sooner or later a ship is bound to hit it. Thankfully, many of the wind farms in the Thames Estuary are built on sandbanks, so a ship would run aground long before it ran into one of the turbines. However, as these wind farms move further offshore that will not be the case, so there is a danger that two large ships could collide and drift out of control through a wind farm, which would be rather akin to two large balls rolling through a skittle alley.