Energy — Statement

– in the House of Lords at 5:26 pm on 31st October 2013.

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Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change 5:26 pm, 31st October 2013

My Lords, with the leave of the House, I will now repeat a Statement made earlier in another place by my right honourable friend the Secretary of State for Energy and Climate Change. The Statement is as follows.

“Today I am laying before the House the annual energy statement, alongside the statutory security of supply report. This coalition Government are putting in place the most coherent, sustainable energy policy the United Kingdom has ever had, creating one of the most competitive and attractive electricity investment markets in the world, improving our energy security, boosting home-grown clean energy and providing jobs and economic growth in the process.

This ambitious energy and climate change policy is vital so that Britain can meet our significant challenges. The coalition Government inherited from the previous Administration an energy future with a huge, multibillion pound black hole at its heart, the result of years of underinvestment, dithering and delay, so this Government are having to take the tough decisions others have ducked to make sure Britain’s lights stay on. Everything we are doing has to ensure that we drive investment into the system, not scare it off or freeze it out. But as I will make clear in this Statement, energy security must go hand in hand with affordability.

So let me set out the robust plans we have to deliver affordable energy security. To deal with the problem of tightening electricity margins up to 2018, the Government have been working with the national grid and Ofgem to develop existing safeguards to have more electricity available for the grid at peak times, including, if needed, the use of power plants currently mothballed. We are introducing to Britain a capacity market to ensure we attract the investment we need in new power stations. The first capacity market auction will take place next year for delivery from the winter of 2018.

In addition to these measures to keep the lights on, Britain now has a long-term strategy encapsulated in the Energy Bill. Over the summer we published draft strike prices for renewable electricity under contracts for difference. Detailed proposals for the implementation of electricity market reform were published this month. The fruits of bringing this greater predictability and certainty to investment are already showing. Latest estimates suggest that at least £35 billion has been invested in new electricity infrastructure since 2010, and much more is in the pipeline. In the past 12 months alone, we have provided consent for seven major energy infrastructure applications worth around £20 billion with the capacity to generate electricity to more than 6 million homes, including, of course, last week’s announcement that we have reached key commercial terms with EDF for the first new nuclear power station in a generation at Hinkley Point C.

And there is more. Through the Energy Bill’s final investment decision-enabling programme, 23 applications for 26 investment contracts are currently being evaluated by the Department of Energy and Climate Change for a broad range of renewable technologies, including offshore wind, onshore wind and biomass projects.

Even though British households pay some of the lowest prices for gas and electricity in Europe, such facts are scant comfort to those who have seen prices rise considerably over the past 10 years. The main driver of these energy price rises has been rising wholesale energy costs, not social and environmental policy. But apportioning blame is also scant comfort to people who are struggling to make ends meet. That is why we have been taking action to help people and businesses struggling with their energy bills.

We have already introduced some help that is immediate. Two million vulnerable households will get £135 off their energy bills this winter, thanks to the Government’s warm home discount. Around 12.5 million pensioners will get the winter fuel payment—£200 for the under-80s and £300 for those over 80. And of course there are cold weather payments if needed, which last year delivered over £146 million to help cut bills for the most vulnerable.

This year we have added to these policies with more direct action. Our new Big Energy Saving Network is training 500 volunteers to go out into communities to help people get better deals from energy suppliers and reduce their energy bills. These volunteers will be fully supported. We know how much people in communities across the country rely on the post office network, so we will be working with the Post Office to raise the profile of the Big Energy Saving Network so that it can make the links with the elderly, the vulnerable and other cost-conscious families trying to make their budgets go further.

We have also brought together in one place all the advice from across government—from DECC and DWP—and from charities such as Age Concern and Citizens Advice. Today, I am writing to all Members of this House with information about this new guide so that they can share it with their constituents to make sure they are getting all the help that they are entitled to.

But while such immediate help for consumers and companies is important, we need more permanent change if we are to keep bills down, not just for 20 months but for 20 years and beyond. The energy company obligation is delivering such permanent change by modernising our housing stock and making it cheaper to heat our homes. Some 230,000 low-income households will be warmer this winter thanks to energy efficiency measures installed through the ECO.

Energy efficiency remains a central part of our strategy both to help the fuel poor and to deliver permanent energy savings, but the permanent energy change we seek also needs more competitive markets. This, however, is not something that the party opposite understands, for the previous Government created the big six, and their irresponsible policies would help only the big six. In contrast, from day one, this coalition Government have been determined, with the stick of competition, to take on the big six for consumers. We have done a lot but, as I will set out, we need to do more.

Already our measures to deregulate have seen a major growth in the number and size of independent energy suppliers. In 2011 there was no independent supplier with a customer base greater than 50,000. Now we have three independents with more than 100,000 customers, and a further eight companies have entered the market since May 2010. We have delivered a doubling of the number of independent energy suppliers offering competition to Labour’s big six, and already hundreds of thousands of people are benefiting, but we are doing more. We are backing Ofgem’s reforms to help consumers get better deals—market reforms to make sure that customers are on the lowest tariffs for them, are moved off poor value dead tariffs and no longer face the complex web of hundreds of tariffs designed more to confuse than to compete.

Our reforms are making sure that people are given clearer, more personalised information on their energy bills so that they can compare tariffs more easily and switch more easily to save money. We are promoting collective switching, particularly aiming to ensure that the more vulnerable get to benefit from the best deals on the market.

But today I am challenging the industry to deliver faster switching. If you can change your broadband provider with a few clicks of the mouse, why should you not be able to do the same with your gas or electricity? It should not take five weeks for the change to take effect; 24-hour switching is my ambition.

First Utility has been out in front with its target of reaching 24-hour switching. Now, E.ON, SSE, ScottishPower and a number of independent suppliers, including Good Energy, Ovo Energy and Co-operative Energy, have accepted my invitation for urgent talks over the next month on how we can dramatically speed up switching. I want five-week switching to come down to one-week switching, and then I want to go faster still. Let us be clear that it will not happen overnight. We could announce 24-hour switching and then suppliers would say, “Okay, we will put our prices up to cover the cost”. That cannot and will not happen.

So I want to talk to suppliers who can agree and deliver a plan to speed up switching down to 24 hours, without increasing bills. Any company interested in making things easier for customers to switch, in addition to those that have already agreed, is invited to come and see me. Our preference is to do this jointly with suppliers, building on the good work of Energy UK, which has raised the ambition on this issue across the industry. But we are prepared to take action, if required, to compel those who drag their heels.

I have also written to energy companies about direct debits. I share concerns that they may be holding on to significant credit balances where customers have overpaid through direct debits. I expect all suppliers to make every effort to return money to customers with closed accounts. I accept that sometimes that will not be possible but, when it is not, my strong view is that credits should be directly applied to help the fuel poor and other vulnerable customers. My right honourable friend the Member for Bexhill and Battle will be meeting energy suppliers next week to discuss this question, and the question of the level of credit balances that energy companies are holding on to.

In our debates on energy bills, many have understandably been asking whether competition is working in our energy markets. While this coalition has already done a great deal to promote competition, we are ready to do more. As the Prime Minister announced last week, we now propose to introduce annual reviews of the state of competition in the energy markets. The first of these new competition assessments will be delivered by spring next year. The assessment will be undertaken by Ofgem, working closely with the Office of Fair Trading and the Competition and Markets Authority, when it comes into being.

The exact metrics for the review will be a matter for the regulators but I will be asking them to look in depth and across the energy sector at profits and prices, barriers to entry and consumer engagement. This Government have equipped the regulators with strong powers to deal with unjustified barriers to competition. If abuses are found, they must be addressed.

We also need to make sure that the energy suppliers are open and honest about the profits they are making, so I have also asked Ofgem to deliver—again, by spring next year—a full report on the transparency of the financial accounts of the energy companies and the ways this could be improved, building on the work already completed from accountancy firm BDO. Ofgem will be publishing its consultation on financial transparency this afternoon.

The public need to know that our reforms will have teeth—that companies that play outside the rules will be penalised and fined. With our Energy Bill, Ofgem now has powers to require energy companies to make compensation payments directly to consumers who have lost out. But today I want to go further. That is why I intend to consult on the introduction of criminal sanctions for anyone found manipulating energy markets and harming the consumer interest.

So, ours is a record of action and delivery. As set out in the annual energy statement, the Government are acting to help those most in need to keep warm this winter and to make sure that everybody will get a better deal from the energy companies. We are acting to deal with Labour’s energy crunch, filling in its energy black hole with more cleaner, home-grown energy, bringing stability and certainty to drive investment. This is our strategy for affordable energy security—a strategy to power the country and protect the planet, and to help keep bills affordable. I commend this Statement to the House”.

Photo of Baroness Worthington Baroness Worthington Opposition Whip (Lords), Shadow Spokesperson (Energy and Climate Change) 5:40 pm, 31st October 2013

My Lords, I am grateful to the Minister for repeating the annual energy Statement in this House. I have listened to the content carefully twice now, and I am disappointed to say the least.

There are many important questions about the future direction of our energy sector that this Government are simply failing to clarify. One of the biggest, which was referred to in the debate that we had on Monday, is the degree to which this Government are still committed to decarbonising our electricity sector, yet there was no mention of this in the Statement. The Prime Minister has indicated that he wants to roll back green support mechanisms, without stating which ones. This is bound to decrease investor confidence across the board and increase the cost of borrowing. Just this morning the Leader of the House in the other place wrongly said that it was only Labour that wanted a decarbonisation target and that had we won the vote on Monday, this would have added £125 to consumer bills. Has there been a change of policy? Are the Government no longer committed to setting a decarbonisation target? Are the first few clauses of the Energy Bill now redundant? If so, we need to be told. Will the Minister please confirm that the official estimate of the cost of adding the decarbonisation target is £20, not the £125 which is being repeatedly trotted out by government claims that that is what the target would add to bills.

The other reason why I was disappointed was that the Secretary of State appeared, quite wrongly, to be trying to blame the situation in the energy market today on the previous Labour Government. Let us be clear, under Labour, 26 gigawatts of new capacity was added to the grid—19 gigawatts of non-renewable capacity and seven of renewables. Since then we have seen a hiatus in investment, with reports that renewable energy investment has now halved under this Government. The Statement says that £20 billion-worth of new infrastructure projects have been consented, but does not list what they are. To consent a project is nowhere near the same as having one delivered, built and providing electricity to the grid. We know this because there are many gigawatts of consented gas stations sitting by with absolutely no movement towards bringing them on to the grid. Will the Minister state clearly how much capacity has been added under this Government—not what is proposed or under construction, but what has been added?

We support a few things in the Statement. The most important is the Secretary of State’s statement that the main driver of energy price rises has been wholesale energy costs, not social and environmental policy. We know that they contribute less than 10% of the increase in bills that we have seen in recent years, and that many of them are precisely the measures we need to insulate ourselves against higher prices in the future, and to help the poorest and most vulnerable in making their homes more energy efficient. I am delighted that he made that very clear statement, and I hope that that could be reiterated by government across the board.

Sadly, to return to things that disappointed me, clearly the weakest part of the Statement is the Secretary of State’s claim that he is standing up to the big six. That is very hard to believe. The Government have given everything to the big six that they have asked for. They wanted a rollback in green and social measures, so the Prime Minister says that that will happen. They wanted a review of competition, and the Secretary of State has said today that that is what he will do. We do not need any more reviews; there have been 17 investigations into energy market competition since 2001. What has the regulator been doing all these years? Why do we still not have a competitive market either in generation or retail? We do not need another review. What we need is another approach and another Government; we need to split the big six generation companies from the supply companies to open up that market forcing them to sell their product through an open and transparent market in which everyone can compete fairly; and we need a new regulator. This is what Labour is committed to and what it will deliver.

On security of supply to the UK energy system—of course, there has been another statement today on this issue—the Government are failing to face up to the fact that the greatest uncertainty in security of supply of electricity at the moment is what will happen to our coal-fired power stations. Twelve such stations remain on the system. Built in the 1960s, they are ageing relics and have twice the emissions of gas-fired stations; they are old and they are prone to break down. There is no indication in the Statement that the Government are interested in finding out what these stations intend to do. As long as we do not know what they will do, we cannot move forward with investment in new infrastructure. The longer the coal-fired stations stay on the system, the less there is a clear incentive for investors to bring old gas-fired stations back into the market and to invest in new gas capacity. This is the big question on security of supply but the Government do not have an answer. We need to seek clarity, and soon.

It is welcome that the Secretary of State will be introducing new measures to bring the cost of bills down—we all want to see wholesale prices coming down—but this Government have not got to grips with the scale or the nub of the problem. Labour has a clear plan—we have been crystal clear on what we will do—but the Government simply do not have an answer. They do not even have a consistent message across the department and across government as a whole. The Statement is sadly lacking, but that is not surprising given where the Secretary of State finds himself these days.

Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change 5:46 pm, 31st October 2013

My Lords, I have listened carefully to the noble Baroness. Of course, she would say what she has just said; it was the kind of speech that her colleague gave in the House of Commons.

We have laid out quite clearly in the Statement all the measures that we have taken. The noble Baroness has asked me a range of questions, to which I will try to respond in the time I am allowed, but she should be aware that continually saying that Labour will freeze energy prices will raise prices before and after any such action. These wonderful jingoistic statements do not mean very much. They might be populist but, at the end of the day, will they make a difference to the consumer? I doubt it very much.

It would be interesting to know whether the noble Baroness knows where her own leader’s electricity supply comes from because that particular company has already stated that energy freezes will cause hardship for investors and threaten the survival of some of the smaller independent generators. She should bear that in mind when talking about energy price freezes.

The noble Baroness asked whether we were still serious about decarbonisation. As I said in the debate on Monday, the Government are absolutely committed to meeting their decarbonisation targets. Legal requirements are in place in the Climate Change Act 2008 and we have commitments to our European partners. We have always stated that the best time to set a decarbonisation target would be in 2016 with the fifth carbon budget, taking advice from the Climate Change Committee. We must consider the whole economy and not only parts of it because we need to know what condition it will be in at that point. We also need to consider any action against the backdrop of what our partners in Europe and more globally are doing. We do not want to disadvantage ourselves competitively either.

The noble Baroness can rest assured that we are as committed as she is to decarbonising the energy sector, but we need to do so at a time when we know what the whole economy looks like, not in 2014 or earlier, when we will not have that analysis at our fingertips. This will take detailed work, and of course the noble Baroness is aware of that.

The noble Baroness asked about the rollback of our support for the green agenda. That is absolutely not the case. It is an important agenda for us all. We believe that we need a much cleaner, greener energy sector, so of course we are signed up to it. Within that, however, we have to recognise that a sensible Government can see what is working well, how it is working and how it is impacting on consumers, and are able to take stock of where the measures are.

The noble Baroness asked about investment. Since 2010, we have seen £35 billion-worth of investment, £20 billion of which has been made in the renewables sector. We have not put people off investing in Great Britain. It is wonderful to realise that people are very confident about coming to this great nation to invest, and we need to talk that up. I hope that the noble Baroness will join me in making sure that people go on wanting to come here and invest. This is a great place for investment and I would hate the conversation to lead to anything other than that.

The noble Baroness went on to point out that 17 investigations have been conducted since 2001. I would just like to remind the noble Baroness that her party was in government until 2010. If her party thinks that Ofgem is the toothless regulator it is making it out to be, why did it do not do something about it then? Why are the Opposition now planning on putting more costs on to the consumer by trying to develop a new regulator? What we want to do is ensure that the regulator we have in place, under new leadership, has the powers and the means to do the job it needs to do. That job is to go out there and make sure that the energy market is performing to the best of its ability for the consumer.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative 5:52 pm, 31st October 2013

My Lords, I thank my noble friend for what she has said, but might I press her a little further on the point with which she ended her reply to the noble Baroness, Lady Worthington? I refer to the question of the competition reviews. The Statement says that although much has already been done, the Government are ready to do more, and then goes into detail about annual reviews of the state of competition in the sector. If, as seems entirely possible, one of the results of a review is that the regulator, Ofgem, for example—I agree with my noble friend that we need to build on what is already in place and not try to create something entirely new—needs strengthened powers to make competition more effective, how might Ministers expect to deal with that? As the Secretary of State said in his Statement:

“If abuses are found, they must be addressed”.

Would it not be wise to take powers now in order to avoid having to introduce fresh primary legislation? Interestingly, EDF has come out in only the past few minutes to say that it would welcome a review, because that will help to restore trust in the system. If that is indeed likely to be the result, would it not be a good idea to act fairly quickly?

Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change

My noble friend is absolutely right. The purpose of the review is to enable the regulators, led by Ofgem, to see what needs to happen in order to strengthen competition. They should be able to look carefully at whether there is transparency or not and accountability or not. What we need to do is wait for the competition review to take place, conduct a consultation on the review, feed into the review and then comment on it. It would be wrong for the Government to comment at this moment in time. It is right to get the competition review under way by having all three regulators look at the position carefully. They have the expertise and they know what they are looking for. If they need extra powers, it is for the Government to ensure that we support them by ensuring that those extra powers are put in place.

Photo of Lord Teverson Lord Teverson Liberal Democrat

My Lords, with this kind of Statement, we get rather infected with the way of doing things and the mood of the House of Commons. I welcome the fact that the Statement concentrates on competition. We have to keep it absolutely focused there. Is there an easy answer to this and is anybody offering one? No, there is not, but we need to keep working at it. I have a particular question for the

Minister on that point, which I will ask in a minute, but first let me say that I welcome the security of supply report that came with this Statement. It is one of the clearest and most interesting documents that has come out of DECC for some time and includes things such as the electricity diversity diagram and report. I particularly welcome the move to make switching much easier and quicker; that is clearly important both for consumer power and for competition. I also particularly welcome the market manipulation pledges that have come from my right honourable friend the Secretary of State. We certainly expect that when it comes to other types of asset and other financial instruments, which is effectively what energy is nowadays, and we should have it now in this case.

My question was about the proportion of the wholesale supply that the Government intend should go through a market and be auctioned. Where is the government thinking on that? My own wish is that we start to expand the proportion of the market that has to go out there and is traded between the supply side and distribution to customers. One issue that came out in our consideration of the Energy Bill was the transparency of those actions. I know that that is a priority for the Government and would like to understand how that is moving forward.

My last point is about energy prices. We are told time and again that electricity prices very much rely on and follow wholesale gas prices, but we are questioning how much wholesale prices have gone up in reality over the past year. We are now engaged in greater questioning of the big six. Given that electricity generation is now dominated by much cheaper coal, can the Minister tell me where that extra margin from the cheaper fuel input has gone? It has certainly not gone to consumers. That is an area that the Minister would do well to pursue.

Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change

My noble friend is of course absolutely right. All the questions that he asks are poignant, as are the remarks that he made around switching and making sure that we have the security of supply that we require. As my noble friend is aware, in the short term we have measures in place. However, in the longer term we have to look at a range of measures and mechanisms. I know that my noble friend is very keen on demand-side reduction, which of course is part of that and another measure that we are seriously looking at piloting through the Energy Bill.

My noble friend also raised the issue of manipulation. The Secretary of State has said that we need to look at stronger measures. If we do not see action on greater transparency and accountability, we may have to look beyond just financial penalties at criminal sanctions. We are undertaking a range of measures. My noble friend is absolutely right that we are of course debating many of the questions that he has asked today in relation to the Energy Bill. There are further debates to be had and I hope that my noble friend will be reassured that we are undertaking very much the sort of action that he expects us to as a responsible Government.

Photo of Lord Horam Lord Horam Conservative

I have a further question about the security of supply. Along with the noble Lord, Lord Teverson, I very much welcome the strength of the Statement when it comes to security of supply. It is a very important issue, which people are concerned about. If there is any possibility of—to use the rather dramatic phrase—the lights being turned off, do I understand the Minister to be saying that mothballed capacity will be available and brought into action should that eventuality arise?

Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change

I reassure my noble friend that, yes, we have measures in place that will ensure that we have enough capacity to keep the lights on.

Photo of Lord Grade of Yarmouth Lord Grade of Yarmouth Conservative

I, too, thank my noble friend for repeating the Statement. It was comprehensive, intellectually rigorous and resistant of soundbites, which is to be welcomed. My question relates to the regulator. The question of consumers switching between utilities is not a new concept. In the telecoms sector, Ofcom was quick to address the question of switching from one mobile phone provider to another. Was it a failure of the regulator or of the statutory powers and remit of the regulator that meant that this question was not addressed earlier?

Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change

My Lords, it is a failure of energy companies ensuring that consumers have easy-to-understand information. That has been a big part of the problem, as well as the fact that we have not pushed enough to get energy companies to be more transparent and accountable. First Utility has been one of the first companies to come forward, with E.ON, Scottish Power and SSE, to say that it will be leading the charge to try to make switching quicker and easier. We are inviting more energy companies to come forward to join us. The Secretary of State has made it very clear: we want to talk with all energy companies and we are keen to see their consumers’ bills go down. It will become apparent that those energy companies that do not want to do this will end up losing customers to those suppliers that are at the front of the game.