New Clause 8 — Power to make capacity market rules

Oral Answers to Questions — Communities and Local Government – in the House of Commons at 3:40 pm on 3 June 2013.

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‘(1) The Secretary of State may make capacity market rules which, subject to subsection (2), may contain any provision that may be made by electricity capacity regulations.

(2) Capacity market rules may not make—

(a) provision falling within—

(i) section 21(3);

(ii) section 22(3);

(iii) paragraphs (f) or (g) of section 22(4);

(iv) section 22(5)(a);

(v) paragraphs (b), (c), (d) or (f) of section 23(2);

(vi) section 24;

(vii) section [Provision about electricity demand reduction];

(b) provision for the Secretary of State to require a person to provide information or advice to the Secretary of State.

(3) Electricity capacity regulations may make provision to confer on the Authority, to such extent and subject to such conditions as may be specified in the regulations, the power to make capacity market rules.

(4) The conditions may in particular include conditions about consultation; and provision made by virtue of subsection (3) must provide that, before any exercise of the power to make capacity market rules, the Authority must consult—

(a) any person who is a holder of a licence to supply electricity under section 6(1)(d) of EA 1989;

(b) any person who is a capacity provider.

(5) Provision made by virtue of subsection (3) may include provision—

(a) for the reference to the Secretary of State in section27(2)(c) to have effect, for the purposes of capacity market rules and to such extent as may be specified in the regulations, as a reference to the Authority;

(b) for section27(3) to apply in relation to a disclosure required by virtue of the capacity market rules.’.—(Michael Fallon.)

Brought up, and read the First time.

Photo of John Bercow John Bercow Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Speaker of the House of Commons, Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission

With this it will be convenient to discuss the following:

Government new clause 9—Capacity market rules: procedure.

Government new clause 10—Capacity market rules: further provision.

New clause 5—Expert panel—

‘Schedule [The Expert Panel] has effect.’.

New schedule 1—

‘The Expert Panel

1 Regulations shall establish a panel of experts (in this Act referred to as “the Expert Panel”) in accordance with paragraphs (2) to (6) below.

Duty to consult

2 (1) Regulations made by virtue of paragraph 1 shall provide that before—

(a) any contracts for differences are entered into under Part 1; or

(b) any investment contracts are entered into under Schedule 3 the Secretary of State shall seek advice from, and the opinion of, the Expert Panel in relation to the matters specified in sub-paragraph (2) below.

(2) The matters in relation to which advice and opinion is to be sought from the Expert Panel are—

(a) any advice provided to the Secretary of State by the national system operator;

(b) the financial and other terms on which it is proposed a contract for difference or an investment contract be entered into;

(c) whether the agreed strike price (or equivalent) and the term of the contract represents value for money for consumers; and

(d) whether, in all the circumstances, it is appropriate for the CFD Counterparty to enter into the relevant contract.

(3) Where the Secretary of State proposes to disregard in whole or in part any of the advice or opinion provided by the Expert Panel, he shall be under a duty to ensure the Expert Panel is provided with his reasons for disregarding or disagreeing with the advice or opinion and place a copy of the reasoning in the Library of the House.

3 (1) provide that it shall be the duty of the Secretary of State and the national system operator to provide the Expert Panel with all such information as it may require;

(2) require the Expert Panel to provide the Authority and Parliament with details of any advice and opinion provided under this Part;

(3) require the Expert Panel to publish minutes of its meetings; and

(4) permit the Expert Panel to publish such information as the Expert Panel thinks fit about the advice it gives.

Membership etc. of the Expert Panel

4 The members of the Expert Panel shall be appointed by the Secretary of State and shall comprise a Chairman, a consumer representative, a representative of the Committee on Climate Change, a representative of the Authority and such other members as the Secretary of State may decide.

5 (1) In appointing persons to be members of the Expert Panel, the Secretary of State must secure, so far as practicable, that the Expert Panel—

(a) is independent; and

(b) is comprised of technical, academic, economic, legal and such other experts necessary to give the informed advice required.

(2) The Expert Panel must not include any person who is—

(a) employed by an eligible generator, or who has been employed by an eligible generator in the previous 12 months;

(b) employed by an electricity supplier, or who has been employed by an electricity supplier in the previous 12 months; or

(c) employed by the national system operator.

(3) The Chairman and every member of the Expert Panel—

(a) shall be appointed for a fixed period, specified in the terms of their appointment, but shall be eligible for reappointment at the end of that period;

(b) shall not serve on the Expert Panel for longer than eight years in total;

(c) may at any time be removed by a notice from the Expert Panel to the Secretary of State following a majority vote.

Committees and other procedures of the Expert Panel

6 The Expert Panel may make such arrangements as they think fit—

(a) for committees established by the Expert Panel to give advice to it about carrying out the Expert Panel’s functions, providing such committees only include persons who are members of the Expert Panel;

(b) for regulating its own procedure and for regulating the procedure of committees established by them, including timescales of giving advice, as it sees fit;

(c) as to quorums and the making of decisions by majority.’.

Amendment 162, in clause 5, page 4, line 42, at end add—

‘with predominating weight given to (2)(c) the cost to consumers.’.

Government amendment 52.

Amendment 163, in clause 6, page 5, line 21, at end insert—

‘(c) which is a public document and will be made available, together with all related documents, by the Secretary of State and the parties to the contract.’.

Amendment 23, page 5, line 28, at end insert—

‘, with the exception of electricity generated from nuclear power stations’.

Amendment 32, page 5, line 29, at end insert—

‘ “Biomass” means fuel used in a generating station where—

‘(a) at least 90 per cent of its energy content is derived from relevant material (that is to say, material which is, or is derived directly or indirectly from, plant matter, animal matter, funghi or algae), and

(b) if fossil fuel forms part of it—

(i) the fossil fuel is present following a process—

(aa) to which the relevant material has been subject, and(bb) the undertaking of which has caused the fossil fuel to be present in, on or with that material even though that was not the object of the process; or

(ii) it is waste and the fossil fuel forming part of it was not added to it with a view to its being used as a fuel.

“Qualifying combined heat and power generating station” means a combined heat and power generating station which has been accredited under the CHPQA.’.

Government amendments 53 to 60.

Amendment 33, in clause 10, page 8, line 28, at end insert—

‘(10) A direction may not be given under this section to a fossil fuel or renewable energy plant with a rated capacity of 15MW or greater that use any biomass unless they are—

(a) a qualifying combined heat and power generating station; or

(b) an operational carbon capture and storage plant.’.

Government amendment 61.

Amendment 24, in clause 11, page 8, line 37, at end insert—

‘(3) Payments offered under a contract for difference relating to the supply of electricity generated by nuclear power must not exceed payments offered under any contract for the supply of electricity from renewable sources.

(4) For the purposes of subsection (3)—

(a) the calculation of payments must include both the strike price and the duration of the contract;

(b) renewable sources are defined in accordance with Article 2 of Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources.’.

Government amendments 62 to 65.

Amendment 152, in clause 17, page 11, line 6, at end insert—

‘(2A) In determining for the purposes of an order under subsection (1) whether the maximum cost provided for by the order has been reached, or a cost greater than that maximum would be incurred, a cost is to be taken into account if, and only if, it has been incurred, or is to be incurred, in connection with low carbon electricity generation.

(2B) The Secretary of State may give a direction suspending the effect of an order under subsection (1) for such period, and in relation to costs of such description, as are specified in the direction.

(2C) Before giving a direction under subsection (2B) the Secretary of State must consult such persons as the Secretary of State thinks appropriate.’.

Amendment 164, in clause 18, page 11, line 33, at end insert—

‘(i) All consumers of electricity upon whom the costs of the regulations will fall.’.

Amendment 27, page 11, line 35, at end insert—

‘(3) Before making regulations under this Chapter which relate to nuclear electricity generation, the Secretary of State must ask the National Audit Office to carry out an examination of and produce a report on whether the terms of the contract for difference offer value for money.

(4) The Secretary of State may ask the National Audit Office to carry out an examination and produce a report on the terms of a contract relating to non-nuclear generation.

(5) The National Audit Office report and recommendations must be published one month before a contract is laid before Parliament.’.

Amendment 48, in clause 21, page 12, line 40, at end insert—

‘capacity may be secured by capacity auctions or by the establishment of a strategic reserve or by other means’.

Amendment 165, in clause 22, page 13, line 15, after ‘agreement’ insert—

‘is a public document to be made available, together with all related documents, by the Secretary of State and the parties to the agreement; and’.

Government amendments 101 and 102.

Amendment 29, in clause 22, page 13, line 21, at end insert—

‘(2A) Electricity capacity regulations may not make provision in respect of fossil fuel plants.

(2B) For the purposes of subsection (2A) “fossil fuel plant” means an electricity generating station which satisfies the conditions in Chapter 8, Section 42(4)(b).’.

Amendment 28, page 13, line 23, at end insert—

‘(3A) Capacity agreements may not be made in respect of nuclear electricity generation.’.

Amendment 49, page 14, line 6, at end insert—

‘(e) conferring on the Secretary of State the power by regulation to introduce a system of strategic reserve of supply; and

(f) conferring on The Secretary of State by regulation the power to designate a nominated person to hold and manage the Strategic Reserve on his behalf (“the Strategic Reserve Operator”).’.

Government amendment 103.

Amendment 50, in clause 22, page 14, line 9, at end add—

(a) A person is eligible to be designated as the Strategic Reserve Operator if the person is—

(i) a company formal and registered under the Companies Act 2006; or

(ii) a public authority, including any person whose functions are of a public nature.

(b) The Strategic Reserve Operator must contract with the System Operator for the circumstances under which the Strategic Reserve Operator supplies power to the System Operator.

(c) The Secretary of State must approve the drawing up of any contract between the System Operator and the Strategic Reserve Operator and may from time to time vary the terms of the contract should circumstances require.

(d) The Secretary of State must lay before Parliament a reasoned case for any change of content under subsection (5).

(e) Strategic Reserve regulations may make provision for payments to be made by electricity suppliers or capacity providers to a settlement body for the purposes of enabling the body—

(i) to meet such descriptions of its costs that the Secretary of State considers appropriate;

(ii) to hold sums in reserve;

(iii) to make payments to the Strategic Reserve Operator for the purpose of securing and operating Strategic Reserve capacity.’.

Government amendment 104.

Amendment 166, in clause 27, page 15, line 40, leave out ‘may’ and insert ‘must’.

Government amendments 105 to 107.

Amendment 94, in page 23, line 5, leave out Clause 38.

Amendment 151, in clause 38, page 23, line 34, at end add—

‘(5) The Secretary of State may not exercise the power under subsection (1) if the consequence would be to raise the price of electricity for consumers.’.

Amendment 153, in clause 41, page 25, leave out lines 35 to 42.

Amendment 154, page 27, leave out lines 9 and 10.

Amendment 155, page 28, line 17, leave out ‘may’ and insert—

‘must, so as to make good the shortfall,’.

Amendment 156, page 27, line 14, before ‘make’, insert—

‘and insofar as subsection (12) applies must,’.

Amendment 157, page 29, line 8, leave out subsection (6).

Amendment 158, page 29, line 7, leave out ‘(10)’ and insert ‘(9)’.

Amendment 159, page 34, leave out from line 8 to end of line 37 on page 35.

Amendment 160, page 36, leave out from line 1 to end of line 46.

Amendment 161, page 37, leave out lines 18 and 19.

Amendment 167, page 36, line 5, leave out ‘the costs’ and insert ‘the publicly substantiated costs’.

Amendment 168, page 36, line 8, leave out ‘the income’ and insert ‘the publicly substantiated income’.

Amendment 169, page 36, line 24, at end insert—

‘(g) the costs to consumers’.

Amendment 170, page 38, line 10, leave out

‘A certificate purchase order may provide for’ and insert—

‘A certificate purchase order will require at least the same level of information as required under the Renewables Obligation and may provide for’.

Amendment 171, page 38, line 37, leave out ‘may’ and insert ‘must’.

Amendment 172, page 38, line 38, leave out ‘subsection (3)’ and insert ‘Section 32X’.

Amendment 95, in page 42, line 27, leave out Clause 42.

Amendment 173, in clause 42, page 42, line 28, at beginning insert—

‘Unless the Secretary of State or the Regulator permits otherwise in the consumer interest,’.

Amendment 174, page 42, line 31, leave out ‘7.446’ and insert ‘8.760’.

Amendment 179, page 42, line 35, at end insert—

‘( ) Section 42(1) is not to apply in relation to CCS plant until completion of the commissioning and proving period that shall last no longer than 3 years.’.

Amendment 150, page 42, line 36, leave out ‘2044’ and insert ‘2029’.

Amendment 96, in page 43, line 41, leave out Clause 43.

Amendment 175, in clause 43, page 43, line 43, at end insert—

‘or significant risk of other disadvantage to the consumer.’.

Amendment 97, in page 45, line 14, leave out Clause 44.

Amendment 98, in page 45, line 32, leave out Clause 45.

Amendment 99, in page 46, line 36, leave out Clause 46.

Amendment 176, in clause 50, page 50, line 16, leave out

‘As soon as is reasonably practical’ and insert ‘Within one month’.

Amendment 177, page 50, line 16, leave out ‘five years’ and insert ‘one year’.

Government amendment 66.

Amendment 178, page 50, line 31, at end insert—

‘(d) assess and detail the impact on electricity prices to the various classes of consumers of the measures described in the Act.’.

Government amendments 119 to 125.

Amendment 21, in clause 121, page 92, line 15, leave out from ‘objects’ to end of line 17.

Amendment 22, page 92, line 17, at end insert—

‘(f) requiring a licence holder to ensure that—

(i) customers on prepayment meters shall be charged the lowest tariff available from that licence holder;

(ii) no more than 20 per cent. of each payment made goes towards meeting outstanding debt.’.

Government amendments 126 to 133, 68 and 134.

Amendment 26, page 106, line 40, in schedule 2, at end insert—

‘(2A) Before entering into an investment contract, the Secretary of State must ask the National Audit Office to carry out an examination of and produce a report on whether the terms of the contract offer value for money.

(2B) The National Audit Office report and recommendations must be published one month before a contract is laid before Parliament.’.

Government amendment 71.

Amendment 25, page 107, line 43, in schedule 2, at end insert—

‘(6A) An investment contract may not include provision to underwrite or provide state guarantees for all or part of the construction costs of nuclear generation plants.’.

Government amendment 72.

Amendment 9, page 108, line 24, at end insert—

‘( ) For the purposes of paragraphs 1 and 2, information is “confidential information” only if it constitutes a trade secret.’.

Amendment 8, page 108, line 26, leave out paragraph 3.

Government amendments 73 to 90.

Amendment 148, page 119, line 13, in schedule 4, at end insert—

‘(iii) substantial pollution abatement equipment dealing with oxides of sulphur, oxides of nitrogen, heavy metal emissions or particles is fitted to the generating station.’.

Amendment 149, page 119, line 39, leave out ‘42(5)(b)’ and insert ‘42(6)(b)’.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I rise to speak to Government new clauses 8, 9 and 10, and Government amendments 52 to 66, 68, 71 to 90, 101 to 107, and 119 to 135. I should also like to respond to the amendments tabled by hon. Members. I ask the indulgence of the House if my speech is necessarily fuller than it might be so that I can do justice to each of the six main areas in the group, namely the transparency of investment contracts; the counterparty arrangements; the capacity market; nuclear power; other issues including biomass, emissions performance standards and the costs of electricity market reform; and consumer tariffs.

I thank Opposition Members and other hon. Members for their contributions in Committee. The Minister of State, Department of Energy and Climate Change, my right hon. Friend Gregory Barker, said at the time that the Bill needed clear accountability and that Parliament must have the information it needs to scrutinise the delivery of electricity market reform properly.

New clause 5 and new schedule 1 seek to establish an expert panel to scrutinise electricity market reform. Let me assure hon. Members that development of the contracts for difference and investment contracts will be informed by close consultation with relevant experts. We have already taken a number of steps in that regard, which is why I suggest that new clause 5 and new schedule 1 are unnecessary.

Our decisions on strike prices for CFDs will be informed by analysis from the National Grid. The robustness of that analysis will be scrutinised by an independent panel of technical experts who will report to the Government. Their report will be published. Any divergence of opinion between the panel, the Government and National Grid will be reported and explained. Given the existing role of the panel of technical experts, I do not see a wider remit for another expert panel to look at CFDs.

I agree that investment contracts should be subject to rigorous scrutiny and the best available advice, which they will be. For investment contracts relating to renewables projects, I am minded to use the draft CFD strike prices informed by the robust process just outlined. For other low carbon technologies, which are bilaterally negotiated, specialist advice will be sought as appropriate and there will be rigorous scrutiny. For example, for Hinkley Point C we have appointed technical and financial specialists to advise on whether any proposal represents value for money. We will publish details of that contract when and if it is negotiated.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change)

I am listening closely to the Minister. Does he share the worries of many hon. Members? The Bill will presumably finish its progress in the House tonight, but we still do not know what the strike prices are. We have been promised the publication of a document setting out details including strike prices for months, but it keeps being put back. I am told that it will not appear before July. Does the Minister understand the concern about the transparency of the process because we will not know what the strike prices are before the Bill completes its passage?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

The Bill is before the House today and tomorrow, and has some way to go before it completes its passage through Parliament. Let me assure the hon. Gentleman that he will have an indication of the draft strike prices before the Bill completes its passage. If he will allow me, I want to say more in a moment about how we can improve transparency.

Amendments 8 and 9, tabled by Caroline Flint and the hon. Members for Rutherglen and Hamilton West (Tom Greatrex) and for Liverpool, Wavertree (Luciana Berger) focus on the important issue of transparency of investment contracts. The Bill requires all investment contracts to be laid before Parliament alongside a statement of their importance to Government objectives. For Hinkley Point C, we have also committed to publishing summaries of reports from our external advisers. There is a difficult balance to be struck between publishing as much as possible about a contract, while also allowing some commercially sensitive information to be withheld from publication. It is crucial that developers provide the information we need to show that a contract represents value for money, but it would be inappropriate to publish information that damages a developer’s commercial interests.

This point is relevant to amendments 163, 165, 166, 171 and 172, which were tabled by my hon. Friend Chris Heaton-Harris and relate to information acquired or produced under the Bill. It would not be appropriate to release commercially confidential information provided under the provisions, but let me reassure the House and Mr Weir that we will publish details on the CFDs and capacity agreements signed each year through annual updates to the EMR delivery plan, and details of how much of the budget has been expended. Secondary legislation, such as that under the capacity market provisions, will set out details of the information flows, transparency and handling of sensitive information. That includes information acquired under clause 27. Ofgem will continue to publish information gathered from generators about the biomass they have used.

Photo of John Robertson John Robertson Labour, Glasgow North West

On the rules governing what is considered sensitive, who will set the criteria: the companies themselves or the Government?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

The judgment will be one for the Government, and I want to come on to a proposal on that. I also want to assure my hon. Friend the Member for Daventry, in relation to amendment 164, that there will be public consultation on the draft regulations in autumn. On amendment 170, relative to what is currently required under the renewables obligation, we would remove only redundant information requirements under the fixed price certificate scheme. However, in answer to John Robertson, I am mindful of the points made in Committee on the need to maximise transparency.

There are a number of other improvements we can make to investment contracts. First, following the good points made in Committee by Barry Gardiner on the distinction between withholding and redacting information, I will make a commitment to publish a description of any information that is withheld and the reason for that. Secondly, I have tabled amendments 71 and 72, which remove the Secretary of State’s discretion to withhold information from a contract after it has been agreed, but before it is laid before Parliament. That means that any confidential information will have to be clearly identified as such during contract negotiations, and there is no further discretion then to withhold information once those are concluded.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

The Minister is, however, describing a process in which information is published and laid before Parliament after the contracts have been signed. If, as is likely in the case of Electricité de France, we are talking about a 30-year contract, does he agree that it is practically pointless to have scrutiny after the event, when we would in effect be locked in for nearly a generation? What exactly does he expect Parliament to do if it then looks at the published details of the negotiations and does not like them?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I will describe in some detail the arrangements for the scrutiny of any deal done or any negotiations concluded at Hinkley, but I would suggest to my hon. Friend that Parliament is pretty good at scrutinising such arrangements, including through its various Committees. Likewise, it is of course also open to the National Audit Office to provide scrutiny.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I must make some progress, if the hon. Lady will forgive me.

The third improvement I am suggesting through amendment 52 is to place a duty on the Government to publish a report each year setting out how they have exercised their powers and carried out their functions under part 2 of the Bill. I hope that that provides particular comfort to my hon. Friend the Member for Daventry, who, through amendments 176 and 177, is looking to bring forward the five-year review in clause 50 and require speedy progress, but the review that he suggests would take more than one month, while enough time must elapse if we are to collect sufficient data to make an informed judgment. On his amendment 178, however, I can assure him that we will look closely at the impact on different consumers when carrying out the five-year review, as we already do with our impact assessments on electricity market reform.

Finally, Government amendment 66, which follows a helpful suggestion in Committee—again from the hon. Member for Brent North—will bring the emissions performance standard within the scope of the review.

I turn now to the counterparty arrangements for CFDs and investment contracts. I have tabled several amendments on this topic—again, many of them responding to very reasonable points made in Committee. Amendments 53 to 55 and 74 to 76 set out the circumstances in which we might need more than one counterparty, while amendments 56 and 77 extend the notice period before a body can withdraw its consent to act as counterparty. Amendments 57, 62, 63, 78, 82 and 83 make minor changes to avoid any confusion over the use of the terms “obligations” and “liabilities”, while amendments 58, 65, 85 and 86 create a statutory guarantee that the counterparty will exercise its functions to ensure CFD and investment contract liabilities are met and place a duty on the Government to provide the powers to do this.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I will just finish this section.

Amendments 60, 64, 80 and 84 make it clear that supplier debts can be pursued through the courts and that payments to generators will be pro rata in the unlikely scenario that the counterparty does not have sufficient funds immediately available, while amendments 59 and 79 ensure that suppliers only face costs that are related to the regime, including operational costs of the counterparty. Amendments 61, 68 and 81 are minor corrections and clarifications to ensure that the settlement of payments can work effectively, and amendments 88, 89 and 90 introduce a duty to transfer investment contracts to the CFD counterparty, thus ensuring they transfer quickly once the CFD regime is in place next year—that reflects points made by Dr Whitehead in Committee—while amendments 73 and 87 are minor changes to align the drafting of schedule 2 with part 2.

I am sorry to have kept John Robertson waiting.

Photo of John Robertson John Robertson Labour, Glasgow North West

I thank the Minister for being generous in taking interventions.

Who will scrutinise the counterparties’ liabilities? We saw how everyone thought that the banks were safe and had plenty of money and that things were good, but it did not turn out that way, and even the Treasury’s own predictions over the last three years have not been met properly. What guarantee can the Minister give, therefore, that the counterparties will have sufficient finances to meet their liabilities?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I am happy to give the hon. Gentleman further written assurances on that. He might be on rather weak ground in discussing the regulatory framework put in place for the banks, given that we have had to take immediate and fairly radical steps to improve it, but if I can give him any further reassurances on his main point, I certainly will.

The third main issue covered by this group of amendments is the funding and governance of the capacity market. I shall deal with the remaining Government amendments and new clauses, which relate to that market and are, I hope, relatively uncontroversial, before coming to the more important amendments tabled by the hon. Member for Southampton, Test. New clauses 8 to 10 and amendments 105 to 107 will enable us to set out detail of the capacity market in a combination of two places: in regulations, changes to which would be made and overseen by the Secretary of State; and in rules, which once made by the Secretary of State could be overseen by Ofgem.

The intention is to give Ofgem the responsibility for consulting on and implementing future changes to those elements in capacity market rules, in line with evolutions in the existing market structure. These changes enable that. However, Ministers would retain accountability for key aspects of the scheme, such as capacity volumes and cost control. Amendments 101 to 104 make clear our intentions for the capacity market settlement body, which has overall responsibility for managing payment flows—in short, that capacity payments will have to flow through the settlement body; that it can discharge certain technical obligations and functions through an agent; and that it can recover costs only in connection with the obligations placed on it as the settlement body.

Amendments 45 to 50, tabled by the hon. Member for Southampton, Test, would allow a second, alternative capacity mechanism, known as a strategic reserve, to be included in the Bill. As I understand it, a strategic reserve would hold a small amount of capacity outside the market, to be deployed only in limited circumstances. The Government have always acknowledged the potential benefits of a reserve as a short-term measure. If it is necessary to respond to a short-term security of supply challenge, Ofgem already has powers it could use. For instance, it could strengthen the options that the national grid has, to ensure sufficient capacity is in place before the capacity market is implemented. However, I would suggest to the hon. Gentleman that a capacity market is a better medium-term solution to address the current investment challenge and ensure continued security of supply, for two reasons.

First, if used as a longer-term intervention, a strategic reserve could undermine the market signals for capacity providers by reducing revenue certainty. That is because of the uncertainty about when the reserve might be deployed and the negative impact on the revenue of other capacity providers. There is a danger that investors may decide that future Governments will be tempted to use the reserve too frequently—a reasonable concern in a world of rising prices—which would increase the risk of not getting a sufficient return on their investment. The resultant increase in financing costs would flow through to the consumer, with the long-term risk that less capacity is built and the Government are forced to create a larger and larger reserve, at which point the competitive market disappears. By contrast, a capacity market is open to all providers of reliable capacity, with the only exceptions intended to be plant receiving support under CFDs. This provides the right, market-based signals for both existing and new capacity. Secondly, offering both capacity mechanisms in the Bill—the capacity market and the strategic reserve—would create regulatory uncertainty about the Government’s preferred approach and, again, act as a disincentive to investment.

Let me turn, fourthly, to nuclear power. The Government have made it clear that nuclear generation has an important part to play in decarbonising electricity generation. It is a source of reliable generation capacity and it is a vital part of our energy mix. CFDs are intended to provide support to all forms of low carbon generation; hence I could not support amendment 23, as it would exclude nuclear generation. I also have concerns about amendment 24, which seeks to limit the amount paid under a CFD to nuclear generation to no more than what can be paid to renewables generation. It would not make sense artificially to link the amount of support for one technology with support for another. Support should be set based on robust evidence and advice that demonstrates, for instance, that the level of support makes a project economically viable—and thus will attract investment—and that it delivers our policy objectives while minimising costs for consumers. More widely, renewables support rates will vary over time, as has happened with the renewables obligation, and a mechanism to link support levels in this way, as proposed in amendment 24, could be cumbersome and could restrict our discretion to set support levels that might otherwise provide value for money.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion 5:15, 3 June 2013

Does the Minister agree, however, that the Government’s position on nuclear ought to be guided by the coalition agreement, which clearly stated that new nuclear should “receive no public subsidy”? Is he not acting rather like Humpty Dumpty in “Through the Looking Glass”, in that he is making words mean what he wants them to mean? Subsidy means giving extra money to that technology; it does not matter that he is also giving subsidies to renewables. He seems to be arguing that it is not a subsidy if it is being given to renewables and to nuclear, but it is still a subsidy. Will he not recognise that and stick to the line in his own coalition agreement?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

Of course I stick to the line. On this side of the House we all stick to the terms of the coalition agreement, and it is important that we keep doing that. I do not see any reference in the Bill to the word “subsidy”. When the hon. Lady sees the terms of any contract that might be concluded with EDF for Hinkley, or indeed with Horizon Hitachi for the next two stations, she will see that the word “subsidy” is not involved.

Amendment 25 would prohibit the Government from underwriting, or providing in investment contracts, guarantees to cover nuclear construction costs. Let me reassure the House, if there is a concern about construction cost overruns, that such overruns for new nuclear will be borne by the developer. There are two scenarios, however, in which it might be reasonable for certain construction risks to be shared. They include cases involving less mature technologies such as carbon capture and storage, reflecting the high level of uncertainty around those construction costs, and those relating to certain events outside a developer’s control, such as specified change in law events. An example could involve a law that specifically discriminated against nuclear.

More widely, I can assure the House that we will only sign a contract in respect of Hinkley that is fair, affordable and represents clear value for money for consumers. Amendments 26 and 27 would delay the Government’s making CFD regulations relating to nuclear power or signing an investment contract until the National Audit

Office had first carried out a value-for-money assessment of nuclear power or the relevant investment contract. It would not be right to hold up the delivery of a major Government programme that is vital for economic growth and jobs across the country until the NAO had undertaken a review. We have already put a significant amount of expert scrutiny into the decision-making process to ensure a robust evidence base, and will be consulting on the draft electricity market reform delivery plan to augment that.

More generally, the major CFD regulations will be consulted on and will be subject to affirmative parliamentary approval. Investment contracts are already subject to close scrutiny by external advisers to ascertain whether they represent value for money. Combined with my earlier commitments and amendments to the Bill, this will ensure transparency of investment contracts.

Photo of Joan Walley Joan Walley Chair, Environmental Audit Committee, Chair, Environmental Audit Committee

Is there not a concern about the role of the National Audit Office in all this? There is no way of achieving transparency during the negotiation process, and unless we accept the amendments proposing a panel to oversee the process, there will be no way of finding out what is being agreed before we are presented with a fait accompli.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

My first answer to the hon. Lady is that there is nothing to prevent the National Audit Office from looking into anything it wants to. The Government cannot control that, and nor can she. Secondly, I have already said that summaries of the advice will be published, and it will be perfectly possible for Committees of this House to look into these matters and satisfy themselves that the appropriate advice has been taken.

Photo of Joan Walley Joan Walley Chair, Environmental Audit Committee, Chair, Environmental Audit Committee

Is not part of the problem the fact that the National Audit Office and the Comptroller and Auditor General do not have statutory powers to scrutinise public spending on behalf of Parliament before the negotiations have been completed?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I am not sure that is wholly right. I think that the NAO has, as I recall, already been looking at High Speed 2—before the contract for it has been placed.

Photo of Joan Walley Joan Walley Chair, Environmental Audit Committee, Chair, Environmental Audit Committee

I am most grateful, but the point is that while the Comptroller and Auditor General might consider doing a review once a negotiation has been struck, at that stage it is too late to understand what has been included. We thus have a situation in which the Minister should perhaps comment on the role of Parliament in scrutinising this issue.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

It is for Ministers to take these decisions and for Ministers to be accountable to Parliament for them. It is for Parliament to scrutinise the decision taken. I am sure the hon. Lady is not suggesting that Parliament itself should take this decision; in the end, it is for the Executive to take their decisions about investment and infrastructure and for those decisions to be fully accountable to, and scrutinised by, Parliament.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion

I reiterate the point that the hon. Lady has just made because the National Audit Office cannot look at the issue at the key point where we need the information. My wider point is this. The Minister keeps saying that nuclear offers value for money, is fair and affordable and so forth, but how can that possibly be the case when this Government envisage locking taxpayers into a 35-year contract to pay around twice the current market price for power, with the money then going to line the coffers of the French nuclear power station operators?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I wonder how the hon. Lady seems to have more information about the final details of the contract than I do, as I would suggest to her that I am a little closer to it than she is. When the details are published, she will find that not everything that has appeared in the newspapers is wholly accurate.

Several hon. Members:


Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I must be fair to the House and make some progress because I am only half way through this group of amendments. If I am pressed to give way one more time, I will of course do so.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

The Minister is very generous in giving way. I would like to ask him about one aspect, which was raised by Dr Paul Dorfman of the Warwick business school, and University College, London. They have speculated that the contract now being discussed with Electricité de France could be as long as for 40 years. In the spirit of parliamentary openness and scrutiny that the Minister has described, will he clarify whether that is an accurate guess?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

My hon. Friend tempts me, but I am afraid that, much as I would like to do so, I am not able to speculate about the terms currently being negotiated with Electricité de France.

Finally on this group, amendments 28 and 29 seek to stop nuclear and fossil fuel generation from participating in the capacity market, which is designed to ensure the security of future electricity supplies. To ensure the most efficient mix of capacity and to avoid favouring specific technologies, the market needs to be technology neutral and support a range of generation sources, such as from fossil fuels, existing hydroelectric and nuclear plant and the demand-side response. I can confirm, however, that we do not intend to allow plant receiving a contract for difference, including new nuclear plant receiving a CFD, to participate in the capacity market. We do, of course, expect existing nuclear plant to play an important role.

Let me deal with some of the wider issues in this group of amendments, including bill impacts, biomass, liquidity and so forth. Amendments 32 and 33 specifically relate to biomass. I would like to thank my hon. Friend Sir Nick Harvey for raising this issue. His amendment 32 seeks to define biomass in the Bill. Let me make it clear to him that I see no problem with the definition he has drafted, but I suggest that this would be better left to secondary legislation, which would give us the flexibility to amend the definition over time to reflect changes in technologies or, indeed, in the evidence.

In respect of amendment 33, I would not want to limit the amount of support that an individual biomass generator could receive under a CFD, or to impose a condition that biomass generation greater than 15 megawatts could receive support only if it utilised combined heat and power or carbon capture and storage. That would risk excluding efficient forms of biomass generation or forcing all new generation to include combined heat or power, or carbon capture and storage equipment, which it might not be possible to utilise effectively, and I think that it would have the unintended consequence of increasing costs for consumers.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

I am grateful to the Minister, who has been extremely generous in engaging in debate. Will he clarify one point? My understanding was that the definition that had been proposed was already incorporated in primary legislation, in an earlier Act of Parliament, and that the objection that he seems to have to it would therefore not apply.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I should be happy to check that. I suspect that the hon. Gentleman may be right, but I think that some of my objections would still apply. These things change over time, and I should prefer to have them in secondary legislation. However, if I have wrongly suggested that this is a novel approach, I will certainly get back to the hon. Gentleman.

On amendment 94, we need to be sure that independent generators have a fair chance of entering the market. I am sure that my hon. Friend Mark Reckless, and other Members who have signed his amendment, would support that. Ofgem will shortly be releasing details of its proposed reforms to improve market liquidity, and I welcome that progress. However, it is crucial for the Government to be able to act if Ofgem is unable to deliver ambitious reforms allowing more independent generation in a timely fashion. That is why we need the backstop powers in clause 38.

Amendments 95 to 99, also tabled by the my hon. Friend the Member for Rochester and Strood, would remove the emissions performance standard from the Bill. I know that my hon. Friend is concerned about its impact on coal-fired generation, and suspect that he feels that the carbon price floor provides sufficient market signals to disincentivise such generation, but the Government's objective is to deliver a clear and unambiguous message to investors that coal-fired generation must significantly reduce its emissions to have a long-term role in our energy mix.

The commitment to decarbonisation is delivered through economic signals such as support for the carbon price, through planning policy—which states that new coal-fired power stations should be equipped with carbon capture and storage—and through the EPS, a coalition commitment that places a firm limit on the amount of carbon that can be emitted, regardless of the price of coal or carbon. That commitment to reducing emissions would be undermined by amendments 173 to 175, and I hope that my hon. Friend the Member for Daventry understands why I cannot accept them. In relation to amendment 174, I should point out that the formula in clause 42 was carefully designed to ensure that potential emissions from new coal plant would be at least halved.

Amendment 148, tabled by the hon. Member for Brent North, would apply the EPS to existing coal-fired plant that installed pollution abatement equipment to comply with the industrial emissions directive. I understand his fear that, if the relatively low price of coal continues, it may lead to levels of coal generation that will put our decarbonisation objectives at risk. However, our electricity market reform measures should mitigate the risk of carbon “lock-in” by driving investment in new low-carbon generation which will increasingly displace generation from fossil fuel.

Amendment 150 would reduce by 15 years the period in which the emissions limit for a new plant is “grandfathered”. Grandfathering until 2045 gives investors in new gas plant the regulatory certainty they need that the EPS will not stop them from making a return on their investment, thus assisting the provision of the new plants that we require in order to replace ageing capacity. Let me be clear: we need gas-fired generation in our future energy mix to balance increasing levels of intermittent and inflexible plant coming on to the system. Amendment 150 would deter such investment and thus reduce, not increase, the reliability of our electricity supplies.

Lastly on the EPS, Opposition Members have tabled amendment 179, which seeks to exempt CCS projects from the EPS during their commissioning period. The House will recall that the draft Bill contained a similar exemption, but was removed following recommendations from the Select Committee on Energy and Climate Change.

Our view is that the best way to manage risks to CCS projects from the EPS is through each project’s funding contract. That provides greater flexibility to manage project risks in one place and on a case-by-case basis. Also, the EPS already provides a degree of flexibility for plant during the commissioning period.

Photo of David Mowat David Mowat Conservative, Warrington South 5:30, 3 June 2013

The Minister has referred several times in the last few minutes to CCS technology. What is his core estimate of that being deployable on a commercial basis in the UK?

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

I am not able at the moment to give my hon. Friend a precise timetable. Last year, we had a competition, as he will recall, for CCS. We selected the two principal bids and we are continuing to negotiate, but as soon as I have more news on that, I will ensure that he is one of the first to hear.

I must thank the hon. Member for Brent North for amendment 149. He will see that the small error has already been corrected in the version of the Bill that was introduced to the House on 9 May.

My hon. Friends the Members for Daventry and for Waveney (Peter Aldous) have tabled a number of amendments to clause 41 covering the certificate purchase scheme, which is designed to replace the renewables obligation for the last 10 years of its existence. First, let me reassure my hon. Friend the Member for Waveney that the provisions he seeks to remove through amendments 153, 154 and 157 to 159 simply replicate legislation that exists under the renewables obligation. Caps have been set before, such as for bioliquids; exemptions already exist for very small suppliers; and costs of administering the scheme are already recovered from the RO buy-out funds. The powers he wants to remove through amendment 159 would, for example, be needed to revoke any incorrectly issued certificates. These provisions therefore ensure the continued effective operation of the scheme.

On amendments 155 and 156, requiring the immediate recovery of shortfalls in the levy from suppliers would be unnecessarily prescriptive. That may not be necessary if, for instance, the shortfall is very small and can be made up in the next round of regular levy payments.

Amendments 160, 161, 167 and 168, would either remove our ability to change future support levels for the scheme, or add further validation requirements on the underpinning evidence for a change. Although the Government do not intend to make banding changes under the certificate purchase scheme, I would not want to remove our ability to do so. As we have seen, where there is compelling new evidence to change support levels, such as to protect consumers, it is important that the Government can act, and these provisions are important as they set out the controls on any such change.

On the underpinning evidence, we already take a rigorous approach to the assessment of costs and income in banding reviews under the renewables obligation. I can assure the House that we would do so again in any review of support levels under the certificate purchase scheme.

Let me reassure my hon. Friend the Member for Daventry that, in relation to amendment 169, consumer costs will always be an important consideration in banding reviews. New section 32V(4)(e) in clause 41 makes specific provision for that.

That brings me to the last but most important issue in this group: the costs and benefits of electricity market reform to consumers. A number of amendments have been tabled by my hon. Friends the Members for Daventry, for Waveney, for Gainsborough (Mr Leigh) and for Christchurch (Mr Chope), and we must thank the last two of them for providing such excellent chairmanship of the Bill Committee.

First and foremost, let me be clear that electricity market reform—EMR—is good for the consumer. Gas prices are rising and are projected to carry on rising. We need to move to a more diverse energy mix, which breaks our dependency on both gas and fossil fuel generation. The contract for difference provides protection for consumers by ensuring that generators pay back when the market price goes over the strike price, and the price certainty it brings will reduce the cost of financing new power stations, and thus reduce costs to the consumer. EMR also serves the public interest by reducing carbon emissions and ensuring everyone can benefit from reliable electricity supplies. These are important matters, which is why I would not want to accept amendment 162 and make them subordinate matters when the Secretary of State is exercising functions under part 2 of the Bill.

On amendment 151, I would not expect use of the liquidity powers in clause 38 to increase costs for consumers over the lifetime of any intervention. The purpose of these powers is to protect consumers by driving competition and reducing prices. A positive outcome for consumers must be proven before action is taken, and that would be shown through an impact assessment, which would be published when consulting on any proposed use of these powers. On amendment 152, contracts for difference can only be for the purpose of encouraging low-carbon generation, so that change is not necessary.

Both today and tomorrow, we need to work in the best interests of consumers and ensure that energy is cheaper as well as greener. I hope that all Members on both sides of the House can see that EMR represents the cheapest way of securing a diverse, low-carbon and reliable energy mix.

I want finally to turn to the amendments involving tariffs and to speak to the relatively minor Government amendments in that group before addressing the amendments tabled by the hon. Member for Angus. In line with the Prime Minister’s crucial commitment to ensure that people are on the cheapest tariff for their preferences, Government amendments 119 to 133 will align the powers in clause 121 more closely with Ofgem’s retail market review proposals. Government amendments 119, 120, 122 and 123 further clarify that those powers cannot be used for the purpose of imposing price controls by limiting the powers of the Secretary of State to make provisions under clause 121 only to the list set out in subsection (3).

In line with Ofgem’s retail market review proposals, Government amendments 125, 127, 128 and 131 will restrict the power to move customers from one tariff to another only to those customers on tariffs closed to new joiners. Government amendment 126 ensures that suppliers will have at least one core tariff slot that is not prescribed. Government amendment 130 clarifies that the power to prescribe that a supplier offers fixed or variable rate tariffs does not equate to setting the price or term for the tariff. Finally, Government amendments 121, 124, 129, 132 and 133 reword a number of the definitions to ensure that the powers can be exercised in the context of existing requirements placed on suppliers as a condition of their supply licence.

Amendments 21 and 22 were tabled by the hon. Member for Angus and address concerns he raised in Committee. Amendment 21 relates to the proposed Secretary of State power set out in clause 121 to move consumers off poor-value dead tariffs. His amendment would leave the only basis on which people can be moved off poor-value dead tariffs as an opt-out for consumers. Moving customers off such tariffs is a key part of meeting the Prime Minister’s commitment on energy bills. I would like to reassure hon. Members that in the event that Ofgem’s reforms are unduly delayed, we fully intend to make use of the opt-out approach rather than an opt-in. As a result of Ofgem’s review, however, it could become clear that there are certain circumstances in which some consumers could be actively disadvantaged by an opt-out approach, so we consider it prudent to retain the option to pursue an opt-in approach if necessary. Consumers could be disadvantaged should it, for example, transpire that as a result of market changes they would actually be better off staying on specific closed tariffs or that taking an opt-out option means they face contractual difficulties, such as a breach of contract.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change)

I understand what the Minister is saying, but as it stands clause 121 says that there can be a switch to a different supplier or different terms, “unless the customer objects”. The customer can always come back and say, “No, I don’t want to do that”; even though the company is saying, “This is a better tariff for you”, the customer still has the ability to do that. The difficulty with including subsection 3(e)(ii) is that, as the regulatory impact assessment said, very many customers never get round to switching and do not react when they are given offers or told a better deal is available. Leaving that provision in would allow companies simply to offer customers these things but not push them forward.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change

There may well be consumers who are not aware that they are being left on these tariffs, so we need to be careful about that, too. Ofgem could, however, deal with such matters, and I want to make it absolutely clear that the decision on whether to take an opt-out approach or an opt-in one will be made by the Secretary of State, or by Ofgem acting on his behalf, and not by energy suppliers.

Amendment 22 would add a new power for the Secretary of State in relation to customers with pre-payment meters, and there is a difficulty with it, too. The amendment is in two parts: proposed new paragraph (f)(i) specifies that these customers should receive the lowest tariff offered by the supplier, regardless of meter type; and proposed new sub-paragraph (ii) specifies that no more than 20% of each of their payments should go toward repaying existing debts.

Clearly, the aim of the amendment is to help out the most vulnerable customers, and I wholeheartedly support that. The Government are keen to see that consumers who use pre-payment meters are not disadvantaged, particularly the 20% of the fuel poor who currently pay for their gas or electricity in this way. Since 2010, there has been a major step forward in the treatment of consumers with pre-payment meters, with all the large energy suppliers choosing to equalise their pre-payment tariffs with standard credit prices.

The second part of the amendment relates to changing the way debt is repaid by customers on pre-payment meters. Customers in this situation currently repay a fixed amount at fixed intervals, for example, each week. The amount repaid is calculated for each consumer on the basis of their personal circumstances and ability to pay. The amendment proposes a limit of no more than 20% of the top-up amount, which in practice would turn most or all repayments from a fixed rate to a proportional one.

There are at least three reasons why we should not legislate in that way, the first of which is the cost to consumers of changing meters to accommodate such a provision. Secondly, let us consider the following: if a family paid a total of £10 a week, with 20% going towards repaying the debt, it would take the family seven years to clear the debt. This plan would also require the family to continue to pay £10 a week or £20 a week during the summer months, when most pre-payment meter customers use very little gas. If they reduce the total weekly payment in that period, the overall repayment period of the debt will, of course, increase again. Thirdly, there are existing obligations on suppliers under their licence to take into account a customer’s ability to repay when setting a repayment schedule. Suppliers are currently obliged to develop individualised repayment plans that take account of ability to pay, but existing pre-payment meters are not designed to allow for debt levels to be deducted on a proportional basis.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change)

I understand what the Minister is saying and I understand his objection, but if he looks at the excellent report on the issue from Citizens Advice he will see that it gives an example of someone who had £7 of every £10 put into the meter taken towards debt. We are trying to introduce a limit—although perhaps 20% is the wrong figure—so that that sort of thing does not happen.

Photo of Michael Fallon Michael Fallon The Minister of State, Department for Business, Innovation and Skills , Minister of State, Department of Energy and Climate Change 5:45, 3 June 2013

I will certainly look at that. I understand the purpose behind the hon. Gentleman’s amendment and I share it, but I hope that he will recognise that a percentage cap might not be the best answer. There might be other opportunities to return to the issue as the Bill progresses, and I hope that he understands the risk that setting a percentage limit could encourage suppliers to use that limit as a default position.

I do not think a legislative solution is appropriate, but we are investigating with suppliers what non-legislative action can be taken to improve the situation with prepayment meters. We have also recently announced funding for the big energy saving network, which is a co-ordinated network of voluntary organisations and community groups that will develop and deliver support for vulnerable consumers.

I am grateful to the hon. Gentleman for his continued interest in getting a better deal for consumers. I hope that he has found my explanation on the amendments reassuring and will, on that basis, agree for the moment to withdraw them. I apologise to you, Mr Deputy Speaker, and to the House for taking an inordinate amount of time to respond to the amendments, but the group contains a range of amendments from a large number of hon. Members and I wanted to do justice to each one of them.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I welcome the Minister to his first parliamentary interaction with the Bill. His predecessor, Mr Hayes, took the Bill through Committee and we know from our experience today that the Minister can speak—although perhaps in slightly less florid language—for at least as long as his predecessor could on such matters.

A range of issues are covered by this group of amendments, and I am conscious that many Members want to speak about their amendments. I shall do my best to be as brief as possible, but I want to mention a few points both in response to the Minister’s speech and in support of some of the amendments tabled by me and my right hon. and hon. Friends.

I welcome Government amendment 66, which will put in place a five-year review of the emissions performance standard. That is very important. I am sure that my hon. Friend Barry Gardiner will try to catch your eye, Mr Deputy Speaker, to speak in support of his amendment 150. I hope that the Minister will take that seriously in the context of the length of the grandfathering period—gas investors suggest that their investment is usually over 30 years rather than 45—and give it a degree of consideration.

In relation to the EPS, let me say a few words about amendment 179 on carbon capture and storage. The provisions in chapter 8 on the EPS will have a significant impact on the future development of CCS. The Opposition have consistently and clearly set out our support for developing that technology, which we believe has a vital role to play in our future energy mix alongside other low-carbon technologies. We do not need to go over the same ground again, but I probably first raised with the Minister’s predecessor but one some of the issues about the £1 billion that was supposedly available for capital funding. We know what the Cabinet Office document said was available for this comprehensive spending review period, although I am conscious that the Minister’s Department—or one of his Departments, the Department of Energy and Climate Change—seems to have secured its negotiations with the Treasury on the CSR. I wonder whether the remainder of that £1 billion is part of the savings that have been offered up.

If we do not get the technology developed for CCS, we will face a significant gap in our ability properly to deal with the peaks in our generation requirements. That is why we tabled amendment 179. As David Mowat perhaps suggested in his intervention about carbon capture and storage, we are conscious that there have been bumps in the road in moving that technology towards commercial development; I think it is fair to put it in those terms. We are concerned, as are a number of industry bodies, that an unintended consequence of the Bill is that it makes that technology less likely to be developed.

The Minister was right to say that the exemption was in the draft Bill, but was taken out as a result of concerns, expressed by the Select Committee on Energy and Climate Change and others, that it could be a loophole allowing unabated coal generation. The way in which the amendment is framed—it relates to a specific commissioning period—helps to address that sensibly, and to ensure that CCS is given the best chance of developing and being part of the future-generation mix, as many of us wish it to be. I therefore intend to push amendment 179 to a Division.

There are a number of amendments relating to contracts for difference. I am sure that Caroline Lucas and others will seek to speak to some of them. I wanted to say a word on new schedule 1 and new clause 5, which stand in the name of Martin Horwood and a number of other Members from across the House, on establishing a panel of independent experts to offer advice and guidance to the Government before they enter into a CFD. Although the Minister was not on the Committee, I am sure that he is familiar with the tenor of our debates on the subject; we tabled a number of similar amendments in Committee, and argued strongly for an independent expert panel to offer transparency, expertise and, crucially, protection for consumers. That differs from the Government’s plan to set up a non-statutory panel, and would deal with the concerns that the non-statutory proposals do not go far enough.

I am sure that the Minister will be aware that in Committee, we argued that for many people, this is still a controversial issue. The best way to ensure confidence in the negotiations that are under way—I think I heard the Minister refer to “when”, rather than “if”, the contract is secured; I am not sure whether that was a Freudian slip—is to ensure transparency around the process. Having that panel is a sensible way of providing scrutiny and transparency. If those Members who tabled the amendment seek to push it to a Division, they will have the support of Labour Members.

On a related issue, amendments 8 and 9, which are in my name and the name of my right hon. Friend Caroline Flint and my hon. Friend Luciana Berger, push the Government to be more transparent about agreements with generators through investment contracts. It would be churlish of me not to recognise that the Government have moved on the issue since Committee, and have listened to what the Opposition said in Committee about what information could be restricted. I listened carefully to what the Minister said about the information that is not made available being described. However, I am unconvinced that that goes as far as it could or should. I take the point that it may be appropriate for certain information not to be put in the public domain, particularly when we are dealing with nuclear energy, but that should be the very limited exception, rather than the rule. That is why amendments 8 and 9 make it clear that the exception will be for “trade secrets”, rather than “confidential information”, as the Government could decide what was, or was not, confidential. That is important for transparency and confidence.

The Minister will be aware that the representative of EDF Energy who gave evidence at the start of Committee proceedings was very clear about the importance of transparency. It would be slightly odd if the Government sought to restrict that transparency. We will never have the confidence that we should have in nuclear as part of our generation mix if people are able to gainsay aspects of agreements between the Government and companies. The best way of ensuring that that does not happen is to make all the information available; people can then make their judgments. I am sure that that would not stop some Members from being against nuclear power, but it would give a number of others—and, more importantly, people more widely—confidence that nuclear should continue to be part of our generation mix.

Photo of David Mowat David Mowat Conservative, Warrington South

I have listened carefully to what the hon. Gentleman said about the need for an expert panel, and all that that implies. Is it the position of the Opposition Front Benchers that the Government should not be able to enter into a binding contract with EDF, after negotiating with it in good faith, without that coming back to Parliament?

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I understand, from what the Minister said, and what his predecessor said in Committee, that the agreed contract will come before Parliament, and

I would expect that to happen, but an expert panel that included consumer representatives could help to bring a degree of rigour and transparency that will be important in ensuring that there is confidence if—or when, to use the Minister’s term—an agreement is reached.

Photo of David Mowat David Mowat Conservative, Warrington South

Does the hon. Gentleman envisage the Government coming to an agreement with EDF that is subject to ratification by some panel? Would he expect EDF to negotiate on that basis?

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I expect that EDF would want the Government to be sure that the agreement that they were entering into was safe and sound, and conformed to the best possible degree of scrutiny. An expert panel could bring some of that scrutiny, rigour and analysis. That is, in the end, in the interests of not just the Government and EDF or any other company, but the whole energy sector. That is an important point that we pushed in Committee and will continue to push today.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I thank the hon. Gentleman for his support for my new schedule 1. In answer to the point just made, the schedule does not provide for a veto by Parliament on the contract for difference, but it does expect the Secretary of State to lay before Parliament written reasons why he disagreed with the advice of the expert panel, in the event of such a disagreement. It therefore provides greater assurance of scrutiny and transparency.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I am grateful for that clarification. I hope that that helps to address the point that the hon. Member for Warrington South sought to make; it also underlines the importance of the measure. It is possible and probable that the Government would come to a conclusion that members of the expert panel did not share, but as long as that was explained, I would not necessarily think that it was a problem. It may well be that the expert panel would come to a conclusion that the hon. Gentleman and others disagreed with and I agreed with, or vice versa. It is important that there is a degree of transparency and rigour in the process. That is why we will support new clause 5 and new schedule 1, if the hon. Member for Cheltenham divides the House on them.

The Minister touched on the capacity market and the amendments in the name of my hon. Friend Dr Whitehead relating to the strategic reserve. The Minister seemed to use the same defence that we heard in Committee—that introducing a power to have a strategic reserve would send confusing signals. Indeed, his predecessor said:

“The new clause would allow us to have both a strategic reserve and a capacity mechanism. That might be the worst possible option, because it would send a confused signal to investors about the Government’s intentions.”––[Official Report, Energy Public Bill Committee, 24 January 2013; c. 329.]

The Government argued in Committee that it would be wrong to give the Secretary of State the power to introduce a new system or mechanism in future, as it would cause uncertainty. That is very different from the stance taken by the Government in the amendments that we will discuss tomorrow on 2030 decarbonisation, which give the Secretary of State a power to set a target if he so chooses, so the argument does not stand up to scrutiny. There are important points relating to a strategic reserve that I am sure my hon. Friend the Member for Southampton, Test will seek to make. I do not think that having that power in the Bill will necessarily have the impact that the Minister suggests.

A number of amendments relating to biomass have been tabled. It was the Minister’s predecessor who took through Parliament the statutory instrument dealing with the renewables obligation earlier this year. He made a number of commitments in relation to biomass, as I gently remind this Minister, in case they were missed in the comprehensive handover that no doubt took place earlier this year. His predecessor undertook to seek from those using biomass to generate power details about the sourcing of the biomass, and to make that information more widely available.

At that stage, I believe, the correspondence had been sent out. I am not sure whether it has come back and whether it can be shared, but that would do this debate a service, as it has been characterised by conflicting evidence. It is difficult to make a coherent and comprehensive judgment on biomass and on some of the concerns expressed in the amendments before us without being able to reconcile the discrepancies in the evidence.

The Minister’s predecessor also suggested that he would form an expert group that he said would meet before the end of the month. That month was March. Again, I am not sure whether the expert group has yet met. I would be grateful if the Minister could provide more information about that. The issue has received attention in the recent past because of conflicting information and evidence, and if we want to be sure about the place of sustainable biomass within our generation mix, we need to ensure that the evidence on which those judgments are based is comprehensive and clear. The Government could usefully undertake that task.

The Minister’s predecessor also made a commitment to look at the difference between imported and indigenous biomass supply. Again, I seek further information about that from the Minister.

Photo of Dan Byles Dan Byles Conservative, North Warwickshire 6:00, 3 June 2013

The hon. Gentleman is probably aware that the Energy and Climate Change Committee recently had a one-off session on biomass. We concluded that this is almost certainly an issue that the Select Committee will revisit in more detail because, as he said, there is differing evidence that needs to be thoroughly teased out. Sadly, however, the results will come too late to inform this debate.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I thank the hon. Gentleman for his intervention. I am pleased to hear that the Select Committee will be examining the matter further. I should have said that the Committee did the Bill a great service through its pre-legislative scrutiny. We will return to some of the issues on which he, as a member of the Committee, may have supported the conclusions but may not vote in line with them tomorrow. The Committee has done good work on the Bill overall and I am pleased to hear that it will do further work. It is important that we get greater clarity so that the debate is properly informed.

Finally, I shall touch on the clauses relating to tariffs, which have been grouped with the wider electricity market reform amendments. I need not remind the

House that it was seven and a half months ago that the Prime Minister stood at the Dispatch Box and announced that the Government would force energy companies by law to put everybody on the cheapest tariff. For the avoidance of doubt, his exact words were:

“I can announce…that we will be legislating so that energy companies have to give the lowest tariff to their customers”—[Hansard, 17 October 2012; Vol. 551, c. 316.]

The Bill in its 200-odd pages contains no provision to put every customer automatically on the cheapest tariff. Indeed, what the Minister said in his remarks and what his ministerial colleague said on the radio at the weekend and in Committee was slightly different—that tariffs would be in line with customers’ preferences.

The intriguing source of Tory energy policy who has been busy entering the world of Twitter today talking about the impact of the measures in the Bill on consumer bills is using a figure which Ofgem suggested would be the case if every person were automatically put on the lowest tariff. If that means that the Minister is suggesting that that is the case, his amendments are deficient because they do not do what the Prime Minister said and what the Prime Minister and others have repeated in the Chamber 12 times since last October. I noticed that the Minister chose his words carefully and said “in line with”. If he is not doing as the Prime Minister said, I anticipate that the Prime Minister may seek to correct the record later in the week when we have the opportunity to ask him about that.

The Bill addresses some aspects of the energy market but there is a huge gap in it, as it does not deal properly with the retail market. We flagged up that gap in Committee and we have been clear and consistent in our stance. We want to see the Bill as the mechanism for ensuring that we get the right level of investment in our energy infrastructure. There are other issues that will be raised in another place, but the heart of the problem is how our energy is bought and sold. That is not addressed properly in the Bill. This sticking plaster attempt to implement what the Prime Minister said in October—he was particularly flustered that afternoon, as I remember it—is patently not achieved by the measures to which the Minister spoke today.

There are real reforms that could and should happen in relation to the retail market. At a time when the Bill seeks to change other aspects of the energy market, it seems odd that we are not dealing properly with the retail market, which would provide greater clarity and transparency going forward.

During the course of the Bill’s passage, we have not opposed for the sake of opposition. We will continue in that vein, as I am sure will others in another place. We have sought to be constructive in the amendments that we tabled to try to improve the framework offered by the Bill. There is a considerable amount of information that is not available to us to scrutinise. I heard the Minister say that information would be published at a later date in secondary legislation, but we are conducting our scrutiny in Committee and on Report without information that would have been appropriate.

The Minister’s predecessor undertook to publish some of that secondary legislation in draft, but that never quite happened. No doubt Members in another place will seek some of that information. Although the Bill sets out the framework for contracts for difference, some of the crucial detail about the operation and the capacity market is not available for us to scrutinise. To be able to make a sound evidence-based and comprehensive judgment of the content of the Bill, we need a degree of detail that is still missing.

Although I accept what the Minister said about the affirmative resolution procedure being used, he is obviously aware that without some of that information it is difficult to test some aspects of the Bill. I am sure other Members who speak in the next 53 minutes will make the same point. We are reliant on the Minister’s words. I have no doubt that he is sincere in his comments about the Bill to the House, but he is the third person to occupy his role in the past eight months, and those in the role have not always said precisely the same thing. The degree of confidence, clarity and certainty needed to transform the Government’s agenda and intentions for the Bill into reality requires a great deal more information to enable us to make that sound judgment. I hope the Minister will provide that information in another place to enable the Bill to address our shared concerns and to ensure that we get security of supply and a reduction in carbon emissions, and the most affordable way of doing those things.

Several hon. Members:


Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I remind the House that the debate must end at 7 o’clock. Quite a few Members wish to participate in the debate, so I ask each Member to make their contribution briefly so that we can facilitate as many contributions as possible.

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry

I will certainly obey your request, Madam Deputy Speaker, and skate through what I have to say. I should declare an interest at the very beginning, because I run a campaign outside the House. It is a not-for-profit company and I do not take a salary or any expenses, but I declare an interest, in the spirit of the time and in the hope that others pushing amendments may do exactly the same later.

I was pleased to hear the Minister address many of the concerns that I have raised in my amendments. I did not bang on about the thing that most would have expected me to bang on about in my amendments. I believe that the Minister agreed with one of them, and just wanted to check; I am slightly concerned that that might be the case. Alas, it was not the amendment that I really wanted him to agree with—amendment 169, which concerns the costs to consumers of the outcomes of the Bill.

The motivation of my amendments was simple: to include a reference to the consumer interest and force the Secretary of State and the Government to have regard to that, and to require much greater transparency about the contracts created and the costs imposed by the Energy Bill. We all know that the Bill came out of the Government’s electricity market reform process, which began in 2010 and had three elements. The first is the carbon price floor, which has been introduced by the Finance Act 2013 and sets out a path for a minimum carbon price in the UK from the fiscal year 2013-14 from £16 per tonne to £30 by 2020.

There is a new renewable and nuclear subsidy mechanism. The Government will replace the existing regime with a contract for difference mechanism. This new mechanism will very largely transfer the price risk from the developer to the consumer by guaranteeing an achieved power sale price for each power station covered. Unlike the renewables obligation, the new contract for difference mechanism will also provide subsidy support to the developer of new nuclear, about which I know other Members have concerns.

Another strand is that the Government will create a capacity market that will seek to ensure the retention of sufficient existing generation capacity and the building of new capacity. The design of the capacity market is still ongoing, so the exact nature of the market in the future is unclear, and we do not know when it is planned to hold the first capacity auction. I believe that it will potentially be in 2014 for delivery in 2018. Then there are the bits about emission performance standards to talk about.

Realistically, though, there is an overall problem with the Bill, which was highlighted by the Opposition’s general agreement. It is a kind of renationalisation of the power sector—very, very nearly. To deliver their policy goals the Government require utility companies and third-party investors to build assets that are fundamentally not economic, often in technologies that are far from robust or mature. The Government have taken upon themselves the responsibility of deciding which generation technologies are bad, such as coal and unabated gas, and which are good, such as hydro or nuclear or wind perhaps. They have also decided the pace of change, that coal should largely be removed from the power matrix by 2024, and that unabated gas should operate only at peak from 2027. They have decided which future technologies should or should not be developed and are pushing forward with a leap of faith on as yet completely unproven technologies, as we have heard before, including carbon capture and storage.

The Bill will take Government intervention up yet another level. Under the powers granted by the Bill, the Department of Energy and Climate Change will allocate contracts for difference to developers in those technologies and at those locations that DECC favours. It will set the strike price and so determine the revenue of the asset, what the consumer pays and the returns on investment. It is very much a centralising measure. I am not convinced that it gives the opportunities for new sources that bubble up, as we might perhaps say in this case, such as—

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

We might have an ideological difference if the Bill was actually nationalising the energy industry, but it is not; it is doing something far worse. It is guaranteeing profits for parts of the energy industry that have been chosen from a limited intellectual base. Does the hon. Gentleman agree that by picking so-called winners, which may be losers, the Bill is squeezing out money that could have been spent on research for better newer technologies?

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry 6:15, 3 June 2013

I do agree. Let us look at what has just happened in America with the advent of shale gas and the development of non-conventional gas and oil exploration in the US. That has essentially destroyed the notion that the world has already hit peak oil or peak gas. If we compare projected gas prices—the Minister mentioned this—with what is happening in markets where unconventional gas is being developed quickly, we see that new developments could come forward if allowed in the future. I fear that we are picking winners on that basis. I know that all Members are concerned about greenhouse emissions and the like. The development of shale gas in the United States has reduced America’s greenhouse emissions. Therefore, there is an interesting benefit from doing these things.

To deliver the Government’s plans in the Bill will be hugely challenging, but they are even more challenging because there is a whole host of factors. If renewable technologies were easy to deploy at the utility scale, the Bill might be helpful, but they are not. If renewable technologies were economic to deploy, the Bill would be very helpful, but as of yet they are not. If nuclear power stations could be built quickly and economically, the Bill would help, but in the UK we struggle with building quickly and economically on that sort of scale. It may have been done overseas, such as in Finland, but, realistically, we cannot do that. If the public were willing to pay any price in their bills to fund this policy—this is my major concern, hence my amendment 169—the Bill might be helpful, but they are not willing to pay huge extra sums. These provisions are placing a huge extra regular contribution on bills, up to an estimated £600 each year by 2020 at the very least.

Photo of Brian Binley Brian Binley Conservative, Northampton South

Was my hon. Friend also surprised at the lack of reference to the impact on business in this country over the next 20 years? The Chancellor wants growth, yet the Bill will impede the ability to get that growth. Will my hon. Friend say a word about that?

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry

I dare not say a word about small businesses in the presence of my hon. Friend, the champion of small business in the House. When I used to run my own small business, the power bill was one of the biggest items that could not be avoided, and the Bill will increase that.

The Bill does not help with the core concerns of many in the House about fuel poverty. Reliable estimates of fuel poverty are difficult to come by because the Department has been hedging its bets on publishing any detail. The latest estimates are for 2010 when 3.5 million households in England and 4.75 million across the UK were thought to be in fuel poverty, based on the 2012 poverty statistics released by DECC. The latest dataset used by the House of Commons Library to estimate the impact of changes to prices is for 2009. This suggests that the increased cost of electricity due to the renewables obligation alone may have pushed 100,000 households into fuel poverty. We should be very aware what we are doing when we increase the cost to consumers of their energy. It powers everything from broadband to their heating, and many other things essential to the country’s development, and we should be very aware about how it works.

Photo of David Mowat David Mowat Conservative, Warrington South

I accept the thrust of what my hon. Friend says on matters such as fuel poverty, but I rise to defend the Bill a little. Does he accept that we have to cut carbon? If so, does he accept that the way set out in the Bill is a path forward towards that?

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry

Yes, I accept that we need to be aware of our carbon emissions, and I actually think that being responsible for the environment and trying to deliver the best for it is a Conservative principle. The Bill has some good elements to it, but the centralisation that I mentioned and the increased costs to consumers, businesses and the like are outcomes that we should think more about. I will happily leave my contribution there so that other Members can speak.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

I rise to speak to my amendments 48 to 50, which, as we have heard from Minister, are concerned with the development of a capacity market intended to ensure that we have the range of capacity that we will require over the coming years and decades. Not to put too fine a point on it, it is intended to ensure that the lights stay on and that there is a decent margin between what people demand and what we supply.

A capacity market is a choice. It is not the only option available to secure the necessary capacity for the future. It seems to me that that choice needs to be based not just on whether the right capacity margin can be maintained. We should also ask at what cost it can be done, with what reliability and at what risk. I suggest that the choice of mechanism for maintaining capacity that is being made in the Bill fails on all those counts.

I have not invented that conclusion; the Department itself produced an impact assessment on the two choices that it had considered for securing capacity—a strategic reserve arrangement and a capacity market arrangement. Among other things, that choice is about ensuring that the amount of money that can be obtained through the sale of power into the market at times when capacity is tight stays within reasonable bounds. The impact assessment suggested that, in future, those reasonable bounds might get larger and larger. At the moment there is a maximum of about £1,000 per megawatt-hour, but it could go up as high as £10,000, in which case the consumer would be paying an enormous amount for their electricity under certain circumstances. The whole idea of keeping the costs of the capacity market under control would be completely overthrown.

The question then arises: which method best suits the need both to keep the right capacity and to keep it at a reasonable price and with reasonable reliability? Hon. Members will not be surprised that costs of the capacity market option over the period 2010 to 2030 have been assessed at two and a half times those of the strategic reserve option, and the effect on bills at 11 times higher. At first sight, that is not a good sign of the capacity market’s ability to provide a good deal for consumers.

According to the impact assessment, the reason why the Department eventually chose the capacity market idea was the entirely theoretical one that a reliability market

“limits the scope for generators to receive scarcity rents.”

However, the fact is that by introducing a capacity market and auction system in the way that we are, we will effectively provide guaranteed free money for a long period for people who are building conventional generation that provides capacity.

It may come as a surprise to some hon. Members that by introducing an auction market for capacity, we are ensuring that there is a subsidy across all aspects of energy generation, not just some. There is potential for gaming of that arrangement. The Government will have to decide how tight the capacity is after considering what the market will look like four years ahead, and then they will have to create an auction. That choice will be necessary for the auction to take place at all, and it will determine how much money there is in the auction. If the market is gamed so that the capacity looks much tighter than it is, the amount of money will be larger and the price will be even higher.

It is no coincidence—I think that is the best way I can phrase it—that we already see the capacity market tightening. A large number of gas plants are going into either deep or shallow mothballing in advance of 2014, and the Government’s decision about what capacity will look like will be informed by that mothballing. Were I an energy company operative, I would be rather pleased about that, because I would imagine that I would do rather well out of a capacity market in the future.

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood

Surely an even more important reason for the tightening of capacity to which the hon. Gentleman refers is the shutting down of several large coal-fired power stations under the relevant EU directive.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

Yes, indeed. A number of plants are to close down over the next few years, and given how the energy market works, which I have described, one would expect the ability to obtain rents at the margins of the market to encourage the development of new plant. The statement made by the development of a capacity market auction is that that mechanism will not exist, so a permanent underwriting of new plant development needs to be auctioned to allow that to take place.

The strategic reserve option, which works quite well in a number of parts of the world, is that certain plant—perhaps mothballed plant—is taken out of the market and then placed back into it at times of stress on the market. As a result of that action, rents are reduced. Indeed, the fact that there is a strategic reserve that can be put back into the market at stressful points damps down the possibility of rents being obtained. That option comes at a much lower cost and

“should be relatively simple to set up and administer as it is a relatively small intervention in the market”— not my words but those of the impact assessment. It

“could avoid gaming in the capacity market if there is a plentiful supply of mothballed plant”,

as indeed there is right now. Overall, it

“has the potential to be the smallest intervention in the market and accordingly has least overall policy design and implementation risk associated with it.”

The capacity market, on the other hand,

“has a higher overall level of design risk given the relative complexity of the model…a Capacity Market, if not well designed, could create opportunities for gaming the new capacity auctions; and…is the more costly mechanism to set up and run and it puts a greater administrative burden on businesses who will participate in the capacity market.”

Again, those are not my words but those of the departmental impact assessment of the choice between a strategic reserve and a capacity market.

Yet a capacity market was chosen to underpin the entire energy market reform and the Bill. I imagine—in fact, I am pretty certain—that that is what we will eventually go for. However, I modestly suggest that it might be a good idea to put in the Bill the idea that if that does not work very well, as I also modestly suggest it probably will not, the Minister has the option of moving towards a strategic reserve arrangement. That would keep the costs down and damp down the gaming of the capacity market auctions that may well take place over the next few years. That would be helpful for our ability to run a coherent energy policy over the next few years, and I tabled my amendments in the spirit of that helpfulness and to ensure that, whichever way we decide to go, we do not shut the door on something that is cheap for consumers in the long term, better for the energy market overall, and will keep our energy supplies in good shape for the future.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham 6:30, 3 June 2013

First, let me make it clear, particularly to Ministers, that I support the Bill. The attempt to lock investment in low carbon technologies into British energy markets is vital and demands an interventionist approach. In a sense, I agreed with a lot of what Chris Heaton-Harris said in describing what are in effect subsidies and quite an interventionist approach in the Bill—something I think is justified for renewables and when bringing forward clean, greener technologies to tackle the urgent question of climate change. I also welcome the important Government amendments that try to ensure that consumers enjoy the lowest possible tariffs.

As is obvious from the debate, there is a growing chorus of scepticism about aspects of the Bill, and particularly subsidies that may be unearned. New clause 5 and new schedule 1 seek to address that issue, which is why I will press new clause 5 to a vote. I have managed to gather support for the new clause, and I acknowledge that of Which?, the Royal Society for the Protection of Birds, the Association for the Conservation of Energy, WWF, Friends of the Earth and Greenpeace, as well as my right hon. Friend Andrew Stunell and the hon. Members for Stoke-on-Trent North (Joan Walley), for Brighton, Pavilion (Caroline Lucas), for Hove (Mike Weatherley), for Angus (Mr Weir) and for Rutherglen and Hamilton West (Tom Greatrex). I am grateful for support across the House, and for the implied support from Members close to the hon. Member for Daventry who are concerned about subsidies in general but include in that their particular concerns about nuclear power.

My worry is principally about nuclear because the subsidies in the Bill contravene the spirit of the coalition agreement. That agreement distinguished between renewables, where it implicitly accepted there was a case for subsidy, and the nuclear industry, for which it specifically ruled out a subsidy. Only a few years ago, the Labour Government line was also that there should be no subsidy for the new generation of nuclear power.

Amendment 23 and others tabled by the hon. Member for Brighton, Pavilion are specifically anti-nuclear, and there is a case to be made for distinguishing between nuclear and renewables, principally because renewables are emerging technologies. In many cases they are highly competitive, and over time they are generally getting cheaper. Nuclear is an old industry—56 years old—and has generally been getting more and more expensive. The latest new reactors at Olkiluoto—I hope hon. Members will excuse my Finnish pronunciation—and Flamanville in France are both many years behind schedule, and from the original estimates of between €3 billion and €4 billion are now heading towards estimates of more than €8 billion each—more than 100% over budget. I gather that the Finns and the French are now in litigation with each other over some of those costs and time overruns.

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood

The hon. Gentleman refers to nuclear energy becoming more expensive, but I am not sure whether, like Tom Greatrex, he caught the Minister’s earlier reference to when the new nuclear contract is signed with EDF. Does he think that reference to when, rather than if, is likely to increase or decrease the price we pay for that electricity?

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

Perhaps courses in negotiating skills might be recommended for members of the Department of Energy and Climate Change on that front. To be fair, Ministers have made it clear that they do not intend to sign the contract with EDF at any price, but the difficulty is that we in Parliament simply do not know that there has not been adequate scrutiny.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I think Madam Deputy Speaker will catch me with her rather steely eye if I give way too many times, so I will move on.

In the UK, the nuclear industry is not very competitive and is overwhelmingly dominated by one nationalised industry supplier—Electricité de France. There are risks that we are in effect organising a massive transfer of funds from British bill payers, if not taxpayers, to a French nationalised industry of dubious profitability. The scale of that possible subsidy has been underlined by former Friends of the Earth directors, including Tom Burke who said:

“At a strike price of £100/MW and a 30-year contract life this would require a subsidy of £1 billion/year above today’s wholesale price for electricity. This would lead to a transfer of £30 billion to EDF from Britain’s householders and businesses. Should the whole of the 16GW of new nuclear anticipated by the Energy Minister be financed on similar terms it would cost householders and businesses £150 billion by 2050.”

That is an enormous commitment that we must scrutinise and ensure that value for money is inserted into the process.

Photo of David Mowat David Mowat Conservative, Warrington South

Specifically on that point, the hon. Gentleman says that a strike price of 10 is unacceptable. Would he extend that to offshore wind?

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I did not say 10, I said 100, and figures as high as 165 have been discussed and contract times as long as 40 years speculated about. The Minister has been unable to reassure us about that in the debate. It is true that high prices are talked about for offshore wind, but that is an emerging and quite competitive technology that deserves support. It is not a 56-year-old technology that has already proved to have a massive record of cost and time overruns. I am happy with supporting offshore wind but unhappy with supporting nuclear.

The effect of new clause 5 and a panel of expert scrutiny would be to ensure that all technologies negotiating contracts for difference were subject to scrutiny, including offshore wind and other renewables. New clause 5 and new schedule 1 are not specifically anti-nuclear, but they are anti unearned subsidies. The Energy and Climate Change Committee called for that in its report, and Which? addressed it in the drafting of these provisions—I am grateful for that. Such scrutiny and transparency are particularly relevant when, as the Committee pointed out, a mature technology dominated by a single large supplier means there is little competitive pressure and the strike price naturally tends to rise in such a situation—even more so, as Mark Reckless pointed out, if one side has almost conceded that it needs to sign the contract at the end of the process.

Alternatives have been discussed, such as scrutiny by the National Audit Office and others, and in a parliamentary debate some months ago it was suggested that the Public Accounts Committee play a role in this kind of scrutiny. The problem with all these suggestions, however, is that they investigate after the event. As I said in my intervention on the Minister, if we are talking about a contract of 20 or 30 years, it is practically useless to investigate whether it is good value after the event because we are locked into it for a whole generation. Right now, negotiations are under way with EDF for this contract.

New clause 5 and new schedule 1 would establish an independent expert panel, which would differ from the expert panel that the Government have already established. As the affordable energy campaign by Which? pointed out:

“A panel of technical experts has been established by the Government to scrutinise the evidence National Grid presents for the setting of CfD strike prices. However this panel does not have a sufficiently broad role. For example, it does not have value for money as part of its remit. The panel must have a clearly defined oversight role set out in the Bill”.

If the Government support the concept of an expert panel, why on earth can they not put it in the Bill, as defined in new clause 5 and new schedule 1? I would have thought they would have absolutely nothing to fear from that.

New clause 5 and new schedule 1 are in the same spirit as amendment 162, although I do not buy everything the hon. Member for Daventry said in support of his proposals. However, energy bills are a major cause for concern among consumers—all hon. Members know that. Whether we are proposing renewables or nuclear, a strong case needs to be made, and transparency and accountability need to be at the forefront. Consumers need a good deal as well as a green deal. The Bill does not guarantee to deliver that, which is why I shall press new clause 5 to a Division.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion

I rise to speak to my proposals and give notice that I will press amendment 24 to a Division.

I am pleased to follow Martin Horwood, who made a compelling case, demonstrating that, even if the word “subsidy” does not appear in the document, we are talking about a public subsidy for nuclear, which goes against the coalition agreement. The bulk of my proposals on new nuclear simply seek to return us to the coalition agreement, which said that new nuclear should receive no public subsidy. Many people are hugely disappointed that Ministers are ditching their commitment so shamelessly.

A Government who genuinely want to tackle high electricity bills would not sign taxpayers and bill payers up to a 35 or 40-year contract—we do not know how long the contract will be for, but that is the ballpark figure out there. The contract would also involve paying around twice the current market price for power. As has been said, that money will line the coffers of French nuclear corporations.

If we were serious about tackling fuel poverty, we would not be going down that route, yet that is precisely what the complex mechanisms for providing financial support for nuclear in the Bill do. We should add the liability cap, underwriting, and indirect subsidies such as for decommissioning and for the unsolved waste problem. Essentially, we are writing a blank cheque for an expensive, inflexible old technology that we cannot afford and simply do not need.

A Government who were serious about tackling fuel poverty and high energy costs would instead pursue more effective ways of meeting our energy needs and decarbonising our power sector, namely through renewable energy, energy efficiency, demand reduction, and demand-side measures such as energy storage, genuinely smart grids and interconnectors.

The UK has the potential to be a massive industrial leader in renewables and efficiency—solutions that could deliver huge cost reductions and a substantial boost to the UK economic recovery, manufacturing and jobs, yet the Bill goes in the opposite direction. Moreover, the secrecy of the Department of Energy and Climate Change negotiations with EDF further undermines confidence in the credibility of the Government’s claims that the deal represents value for money for consumers.

Even if hon. Members are happy for the coalition to break its promise of no public subsidy for nuclear, one would hope that they had some interest in the Minister’s claim that any deal reached would be fair, affordable and value for money. Nuclear costs more than the alternatives and does not represent value for money. We have the opportunity to test that via the expert panel, or by giving the National Audit Office a role in ascertaining value for money, which one of my amendments would do, but Ministers do not look favourably on those proposals.

The truth is that nuclear is a mature technology that has enjoyed nearly 60 years of support. Despite that, the price tag keeps going up. The hon. Member for Cheltenham mentioned the price of nuclear in Finland and France. We should compare that with the fact that the costs of renewables are falling across the board. Last month, Citi Investment Research and Analysis highlighted that, in many cases, renewables are at cost parity with established forms of electricity generation. Recent analysis by Bloomberg New Energy Finance found that the levelised cost of onshore wind had fallen dramatically in recent years, that the best onshore wind farms in the world currently produce power as economically as coal, gas and nuclear generators, and that the average onshore wind farm will reach grid parity by 2016.

That is the point of my first three proposals. They are not anti-nuclear; they would simply ensure that Minister’s warm words on cost-effectiveness and value for money for bill payers were kept. They would also introduce transparency to a shockingly opaque process. If nuclear power is as cost-effective as we are told, I can see no reason why hon. Members would not support my proposals to ensure it. Amendment 24, which has cross-party support, would simply ensure that payments under a CFD for nuclear electricity are not greater than payments for any form of renewable generation, in terms of price per megawatt-hour and taking into account the length of the contract provided.

Amendments 26 and 27 deal with transparency and parliamentary scrutiny of investment contracts and CFDs. They are essential if the public and the House are to have any hope of deciding for themselves whether the terms provide anywhere near value for money compared with alternatives. They would require the Secretary of State to ask the NAO and Parliament to examine whether the contracts represent value for money, in line with the motion debated in a Backbench Business Committee debate on 7 February, and a letter sent recently to the NAO by a cross-party group of MPs and academics.

Amendments 23 and 25 are more far-reaching. They would in effect rule out new nuclear altogether. Having examined the evidence, I am increasingly convinced that we should reject new nuclear for economic and environmental reasons. There are better, cheaper and faster ways to achieve a zero-carbon power sector by 2030 than going down the nuclear route. Moreover, many experts are concerned that Government support for new nuclear power would mean significantly less investment in renewables and energy efficiency. To do the right thing for our economy, for constituents struggling with fuel bills, and for the environment, amendment 23 would rule out payments for new nuclear through CFD mechanisms. Amendment 25 would rule out any public underwriting of construction costs or other public support for new nuclear through investment contracts.

I will be brief because other hon. Members wish to speak. Amendment 29 would rule out handouts for new fossil fuel plants under the capacity mechanism, which means that capacity payments would go to non-fossil fuel ways of ensuring that power supply met demand. The big six energy suppliers are pressing the Government to support gas-fired power, and urging Ministers to go faster on their capacity market plan to encourage investment in new gas-fired power stations, but a dash for gas, as envisaged by the gas strategy, would be completely incompatible with the nation’s legally binding carbon emissions targets. According to the Committee on Climate Change, that should be plan Z. Perpetuating our reliance on expensive and imported gas means perpetuating high fuel bills. Nor is that the golden solution to energy security that lobbyists would like us to believe it is. Alternative solutions, including the construction and use of interconnector routes, electricity storage, and temporarily shifting or reducing demand during peak periods, should be considered instead. Such solutions should be prioritised.

Finally, anyone who is willing to do the maths on climate change should look at how much more carbon can be safely emitted into the atmosphere and compare it with how much carbon is stored in fossil fuel reserves. For the UK to fulfil its repeated commitment to keep climate change below 2°, around 80% of known fossil fuel reserves must stay in the ground. In the context of that unburnable carbon, using the capacity mechanism to encourage a new dash for gas is both dangerous and irresponsible.

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood 6:45, 3 June 2013

I am pleased to follow Caroline Lucas and to hear that she intends to press amendment 24, a relatively moderate amendment, to a Division. She envisages subsidy for nuclear as long as it is not greater than the subsidy for renewables, but I would prefer a world in which we do not subsidise any energy production. Under this dog’s breakfast of a Bill, we will end up subsidising almost everything.

My worry with nuclear—my hon. Friend Martin Horwood addressed this—is the length of the contract. I do not go all the way with him on the £1 billion a year cost, or the very large sum grossed up over the period of the contract, but my calculations suggest something in the range of £600 million to £700 million a year just for the new Hinkley stations. That is a huge amount of money. Earlier, the Minister seemed unable to get to grips with the idea that the House might express a view on that. The contract is enormous and could put hundreds of pounds on consumers’ bills, and cost billions of pounds over the length of the contract. It would therefore be highly appropriate for the House to consider the matter, and for hon. Members to vote by positive resolution on whether we believe it is the right thing to do with our constituents’ money.

The key problem with the Bill is that it changes the law and puts very large subsidies to different technologies, which Ministers pick as winners in an opaque process, on a contractual basis that cannot realistically later be unpicked. The Chancellor has told us of an increase in the limit from about £2.4 billion to £9.8 billion per year, which is a quadrupling of the amount spent. That will be added to consumers’ bills for those various technologies, but the Bill implements that into contracts that cannot be unpicked. The nuclear contract could be absolutely enormous. I would like far greater concern for our constituents and the bills they pay for electricity.

We used to have the most competitive energy market in the world. I thought that the Minister believed in free markets, yet essentially what we are doing here is almost the final stage of replacing the freest energy market in the world with one that is rigged against consumers. The cost will be far more than the £9.8 billion figure, which ignores the fact that it is not just through the European Union and its directive that we are planning to close existing coal-fired plant, which are the cheapest at producing electricity. Unilaterally, we are banning the construction of new coal-fired power stations, when Germany has several new coal-fired plants under construction.

Photo of John Robertson John Robertson Labour, Glasgow North West

Will the hon. Gentleman clarify something for me? Is he saying that we should not worry or think about our obligations on climate change? If he is not saying that, how does he expect his electorate to pay for what he is suggesting?

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood

I am sorry to hear the hon. Gentleman not focusing on his constituents’ heritage. Climate reduction and the carbon issue should relate to cost. The coal price has collapsed globally largely because of the success of shale gas in the US and its export of coal, and that means that the cost of the proposals is now far larger than it was. Global temperatures rose until 1998 or 2000. Since then, projections of an exponential increase in temperature have not been borne out by recent data. We have cut our emissions by 24% since 1990, which I think is larger than any other country. What we are left with is a complete mess of policy in the Bill, with various subsidies interacting and greatly increasing bills for our consumers, and I am not sure what the effect will be on reducing carbon emissions compared with, say, the US, which has had a big decrease.

We should look at the cost of coal and the extent to which carbon may be reduced by different things. In this country, we have a price of £16 per tonne on carbon. Under the EU emissions trading scheme, it is less than £2. We are making a great unilateral cross that we must bear when other countries in Europe, for example Germany, are constructing more unabated coal. We will have to buy electricity through the interconnectors, which will hurt our balance of payments and increase the cost to our constituents while we shut down our cheap coal plants. At the same time, shale gas has not come on stream due to the moratorium, as well as ownership and other regulatory restrictions. We will end up with some of the most expensive energy in the world and it is not clear what the impact will be on reducing carbon output.

At the same time as we are closing existing power plants because of the EU, we are banning unilaterally the construction of new plants. The cost of how much we are putting up electricity prices for our constituents should be added to the £9.8 billion figure. We would be much better off if we had a proper market in electricity production, rather than a market rigged against consumers. The Minister, through clauses 38 to 40, wants to introduce a huge network of conflicting subsidies that will let the Government, ex-post, change the conditions of someone’s electricity supply contract. All that will do is increase the price of investment to guard against that risk—yet another thing moving us away from the free market in electricity that might drive down prices for consumers who, certainly in my constituency, are finding the costs very difficult to bear. The previous Government’s policies were bad enough, but the Bill will lead to long-term contracts that may be impossible to get out off, and which will force consumers to pay higher prices for energy for years into the future.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

I rise to speak to amendments 148 and 150 in my name, and to amendment 179 in the names of my right hon. and hon. Friends.

Under the large combustion plant directive, 8 GW of old coal has to close by 2015. Of that, 6 GW has already gone, with the remaining 2 GW being considered for conversion to biomass. That leaves 20 GW of old coal set to stay on the system. Of that, approximately 15 GW is being considered for all options, which means that it could be opted into the integrated emissions directive, investing in air filters for NOx and SOx in order to comply. This plant would then not have to close in 2023, and would naturally seek to maximise its return on that capital cost by continuing to provide base load generation capacity unconstrained by the EPS.

Amendment 148 would ensure that where substantial pollution abatement equipment properly dealing with the oxides of sulphur, nitrogen, heavy metals or particles is fitted to the generating station in such a way that makes it compliant with the EU IED while still emitting above 450 grams per kWh, the plant would then be brought under the EPS framework. Without the amendment, many plants will succeed in circumventing the EPS, which would undermine the EMR, the UK’s carbon budgets, the incentive to invest in CCS and the coalition agreement, which committed the Department of Energy and Climate Change to introducing an EPS as a backstop to unabated coal. Remember, these old coal plants have already recouped their capital costs. Allowing them to avoid the EPS cannot therefore be justified, and I dispute what the Minister said about the importance of not accepting the amendment in order to allow new coal to recoup its costs.

Photo of Ian Lavery Ian Lavery Labour, Wansbeck

Does my hon. Friend agree that coal has a huge role to play in the energy mix of this country? It must, however, be on the basis of burning coal cleanly, using carbon capture and storage. The Government must get a move on and provide the finances to ensure that that happens as soon as possible.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

I am in 100% agreement with my hon. Friend. I am happy to put on the record that coal is the energy of the future for the next 40 years; not necessarily in this country, but around the world. Unless we develop CCS and export it to such countries as China and India, which are going to be using coal, the future will be bleak for all of us. It is imperative to incentivise CCS, which is why amendment 179, in conjunction with amendments 148 and 150, is so important.

The central purpose of the grandfathering provision in the EPS is to enable investors in newly-consented plant to recover their costs prior to being forced to fit CCS and/or limit their running hours. The grandfathering date in the Bill as it stands is simply not credible. The EPS currently allows unabated gas to operate as base load until 2045. This is not plausible in a carbon-constrained world in which international commitments to reduce carbon are more likely to increase than otherwise. More to the point, grandfathering to 2045 reduces the policy levers available to government, and is likely to reduce the demand for CCS for coal and seriously undermine the credibility of CCS for gas. The EPS is the backstop; it is a very different policy lever from the decarbonisation target. As such, it should retain flexibility to account for policy failure. I have not sought, therefore, to amend the level of the EPS, because in a situation of extreme policy failure, we might need to continue to use some of the unabated gas into the late 2020s. The inclusion of a 2030 decarbonisation target should reduce that risk significantly, but it would remain a risk, and one for which the EPS would have to account.

Amendment 150 proposes a 15-year window up to 2029 providing an adequate commercial time frame and aligning itself with the 2030 power sector decarbonisation trajectory. It would provide increased investor confidence by being more credible than the current 2045, and by setting a shorter grandfathering period, new gas plant would be incentivised to begin operation sooner, assisting efforts to address energy security concerns in this decade.

Amendment 179 would remedy the problem of the Energy Bill’s requiring CCS projects to operate under the EPS regime from day one. The amendment would apply the EPS to CCS projects only once an agreed and clearly defined commissioning and proving window had passed. That approach would remove an unnecessary regulatory burden for project developers and lower the cost for consumers, as the EPS risk would not need to be factored into the CFD strike price, and would achieve the Government’s aim—

Debate interrupted (Programme Order, this day).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the clause be read a Second time.

New clause 8 accordingly read a Second time, and added to the Bill.