Clause 1 - Security and integrity of supply
Energy Bill [Lords]
8:55 am
Mr Laurence Robertson (Shadow Minister, Economic Affairs; Tewkesbury, Conservative)
The hon. Gentleman is right; there were different reasons for the power cuts. The problem arose mainly because of the system network, and that requires investment. There was deliberate confusion in the press about the two issues, which, in some ways, have nothing to do with one another.
Overall, however, there is concern about security of supply, and the Government's response has given us no comfort. The engineering inspectorate's investigation into the cuts in London and the west midlands was not published but kept secret; that was certainly the case initially, although the Minister will correct me if I am wrong. That did not help in terms of industry confidence.
I tabled a parliamentary question, which was answered on 29 October 2003, to ask what discussions the Secretary of State for Trade and Industry had had with National Grid Transco about the failures. The answer was that she had not had any but that she was being informed of the situation. The Government, having instructed the engineering inspectorate at the Department of Trade and Industry to investigate, did not help matters by not releasing the information.
I asked a further parliamentary question, which was answered on 11 February, as to whether the report's findings would be made public, and the answer was that they would not. Again, the Government's response to the problems in London and the west midlands gave us no real confidence.
We cannot blame consumers for feeling the way they do. During the past 30 years, people have not leapt out of bed in the morning and thought about energy, unless they have leapt out of bed, switched on the light and found that it has not come on. The power cuts in London and the west midlands brought the issue back on to the agenda.
There are problems and concerns in the industry, and I have been at meetings with the Minister where those concerns have been expressed. Following the
incidents and concerns, on 10 March the BBC ran the now famous programme, ''If . . . the lights go out''. That caused some alarm, but there would have been more alarm had it been announced in the programme, or in the subsequent debate on it, that, earlier that day—I do not know whether hon. Members remember, but it was a very cold day—National Grid Transco had given a notice of insufficient margin. That meant that its margin of surplus electricity had fallen below the desirable level. On that day, the margin fell to just under 7 per cent., when, as stated in a parliamentary answer on 26 February, it should have been 20.3 per cent. If that had been known when the programme went out, it would have had an even greater impact. Indeed, in 2003, 13 such notices were issued by National Grid Transco.
Added to the concern in the programme, those notices, the cuts that we have discussed and the industry concern about a lack of investment contribute to a general concern about the electricity supply in the medium term. As we discussed on Second Reading, our indigenous gas supplies are running down, and coal generation, coal-fired power stations and the mining industry are under great environmental pressures, particularly from EU directives such as the large combustion plant directive and the emissions trading scheme. As things stand, the nuclear industry will see further decommissioning from 2008; indeed, the Bill is largely about decommissioning. With renewables struggling to meet their target and further targets looking increasingly unlikely, the medium-term supply situation is not as comfortable as we have enjoyed in the past 30 years.
As I said, the Government's response to those problems has not been entirely reassuring, especially with the privacy over the engineering inspectorate's report. I am concerned that discussions with countries such as Russia regarding gas supplies are not as advanced as one would hope, given that we will become net importers of gas by 2006 and that the Norwegian gas pipeline, a treaty for which has been signed, will not deliver gas until 2007. We have had what can be described only as vague and ambiguous references to the future of the nuclear industry and an apparent obsession with wind power as the only renewable alternative. None of that is reassuring to the industry or the country. Against that background, the Lords understandably felt that they needed to act and so tabled what has become clause 1.
The clause concerns who is responsible for the security of supply. The Minister of the Crown, who is paid by the taxpayer, clearly has responsibilities; if the Energy Minister's role is not to keep the lights on and ensure that sufficient energy supplies are available to satisfy the demands of the fourth largest economy of the world, I do not know what it is. The question is not whether the Minister has that responsibility—he clearly does—but how it is exercised.
I know that concern has been expressed in the industry about whether clause 1 would lead to interference, and I would certainly not want that. However, we do not have a free market in energy,
which, in some ways, is to be regretted. Freeing up the industry helped enormously in terms of efficiency and price, and constraining the market might have the reverse effect, so I repeat that nothing I have said should be taken as endorsing a reversal of the privatisation policy, which we initiated. I have merely been explaining the background to the Lords amendment.
As I said, a free energy market does not exist. To start with, Ofgem regulates the proceedings to a greater or lesser extent, and it is ultimately responsible to the Secretary of State. The Government must implement EU directives. The renewables obligation was constructed by the Government. Although we do not oppose it, we recognise that it will, by its very nature, have an increasingly distorting effect on the free market as it increases from 4.9 per cent. this year to 15.4 per cent. The Government give capital grants to offshore wind farms. Planning policy is dictated by central Government. There is also taxation policy, such as the climate change levy that they introduced. My point is that the Lords amendment would not introduce distortion into the market; distortion is, in some ways inevitably, already there.
Added to the distortions are the functions relating to security of supply that only the Secretary of State can carry out, such as the signing of treaties with foreign countries for the building of gas pipelines. As was the case with Norway recently, that role is performed by the Government. The fact that National Grid Transco reports its notices about insufficient capacity or margins to the DTI also shows that the DTI has a responsibility in the matter.
Far from the Lords amendment being a ringing endorsement of state interference—I would not hesitate to vote against it if it were—it represents an attempt, in an uncertain energy world, to get the Government to take their existing responsibilities seriously and to address them urgently. The question is how the responsibilities are best exercised. I recognise the effect that the Lords amendment would have on the industry. However, the responses of industry representatives have been rather too similar to be coincidental. I suspect the presence of the heavy hand of Whitehall in the manoeuvrings. I am anxious to ensure that this place does nothing to destabilise further the already nervous potential investors in the industry, particularly on the generating side. That would be counter-productive; hence the amendment that we have tabled.
We have attempted to address the concerns of many people in the industry about the medium-term security of the supply of electricity—that point also concerned their lordships—and to address the concerns of those in the industry who feel that the Lords amendment might inadvertently impede the investment that the industry needs. It is a fine balance to try to strike, but I hope that our amendment has struck it. The market can provide and it has provided. That is why we have tabled this amendment instead of just sticking with the Lords amendment.
We want to create a duty, so that the Secretary of State can enable the framework to ensure that the market delivers and, importantly, to ensure that she regularly reports to Parliament on the effectiveness of her strategy. By framework, we mean the right remit being given to Ofgem, the right planning regulations, treaties being in place in time to secure gas supplies, the right taxation regime, an interpretation of EU directives that is sympathetic to our industry, a renewables obligation that delivers what it is supposed to and so on. We do not mean interference by Government that would be counter-productive.
Of course, we endorse the main objectives of the White Paper: security of supply, reduction in carbon emissions and affordable heating for everyone. We recognise that those objectives conflict, and that it will be difficult to achieve them all at once. Nevertheless, we support attempts to achieve them, and we hope that our amendment will provide the right setting to enable the Government—whichever Government that may be—to achieve them.