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Electricity Market (EAC Report) - Motion to Take Note

Part of the debate – in the House of Lords at 7:41 pm on 17th July 2017.

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Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Chair, Economic Affairs Committee, Chair, Economic Affairs Committee 7:41 pm, 17th July 2017

My Lords, it is a pleasure to follow the noble Lord, Lord Hollick, who sadly, under our rules, has had to vacate the chairmanship of our Economic Affairs Committee and who has led us with great distinction. Only this week, yet another report appeared to become government policy, on making tax digital—and, of course, the housing and various other reports have made a fundamental change to government policy. The noble Lord’s leadership and the support of a very strong committee have been something that I have been proud to take part in. On taking over as chairman, I said to the committee that I felt that I had just passed my driving test and been given a Ferrari—and, at the first committee meeting, it became pretty clear to me that I was not going to be allowed out of the car park.

It is a strong committee, and this is a vital issue of great importance to the country, which is why the Press Gallery is full to overflowing, and why it will form an important part of our national debate, I am sure, in next Sunday’s newspapers, rather than the tittle tattle that seems to be the stuff of daily politics. The hour is late; my Whip told me that the House would be getting up round about now, but there are quite a number of contributions to be made. The noble Lord has covered the report pretty fully, but you need read only one page of it—the conclusions—to realise the seriousness of this matter.

I am sorry that my noble friend Lord Lawson, is not in his place. The reforms that he carried out resulted in a revolution in the electricity industry and in a better service and lower costs for consumers. Sadly, that good work is being undone, because of the overemphasis on carbon emission reduction at the expense of security of supply, competitiveness and costs to the consumer. As the noble Lord, Lord Hollick, hinted, we are seeing the virtual nationalisation of electricity production in this country. It is almost impossible, as the report points out, for anyone now to build a power station without getting some kind of subsidy or guarantee from the Government.

We have reached a moment of high farce when we are closing down coal-fired power stations so rapidly that we have to pay consumers and industries not to take the product—the electricity—and, even worse, to turn on diesel generators to supplement the national supply. That is a parody that not even “Yes Minister” would have thought credible. Prices have soared nearly two-thirds in 13 years, in contrast to the fall of £150 which followed the 13 years of my noble friend’s reforms.

The Committee on Climate Change is by no means an objective source, but I take it that it will provide a reasonable estimate; it reckons that one-quarter of electricity bills will be needed to provide funding for a low-carbon policy by 2020. That is a triumph for Sir Humphrey—the idea that you should pass the bill on to the householder and businesses in a hidden form and then mass up against the electricity companies, demand to know why prices are rising and say that they need to cap them.

The committee heard evidence of jobs being exported around the world to lower energy cost countries—the most dramatic example being China. There is absolutely no point, and no methodology that is going to save the planet that consists of importing carbon from your competitors and driving your own industries out of business. As the noble Lord, Lord Hollick, pointed out, we have long since lost our place as the lowest cost electricity producer in Europe, and therefore our competiveness.

A classic case that illustrates the difficulties of the current energy policy is that of Hinkley C, which shows how the taxpayer and consumer are being short-changed. As the noble Lord, Lord Hollick, pointed out, the NAO report simply echoes, in perhaps more vigorous language, the findings of our own report on value for money and costs to the taxpayer. But the concern surely must be with the risks of the supply. When the chief executive of EDF, which is to build this nuclear plant, came before the committee, the noble Lord, Lord Turnbull, questioned him about whether the technology worked, and I asked him why his finance director, who had resigned in March, told a parliamentary committee in France:

“Who would bet 60 to 70 percent of his equity on a technology that has not yet proven that it can work and which takes 10 years to build?”.

That seemed to me a remarkable thing for the finance director to say. Mr Vincent de Rivaz said:

“The CFO of EDF is fully supportive of this project”.

We were a little puzzled, because he seemed to have resigned, but it turned out that this was the new CFO. He said:

“The individual whom you mentioned has left the company. It is his choice to talk down the company that he has just left. I will not comment further. He was replaced the day after his resignation by a CFO of high quality, who is highly respected and fully supportive of the project”.

I just wonder how safe the Government’s idea is that the risk will be borne by EDF. This is a nationalised business which has an unproven product that is not working in France or Finland. Who actually believes, if the project runs awry or the French Government refuse to bail out EDF, that the British taxpayer will not actually have to move in and rescue the situation?

The deal that has been struck on Hinkley C is quite extraordinary. My latest grandson was born in October last year; he will be 44 by the time he finishes paying for the guaranteed prices given to EDF. That is not a small matter; we are talking about 7% of the UK’s use of electricity. That is before we begin to question matters such as where, if we are all driving around in electric cars, the increased supply will come from to meet that—which the committee did not look at. The truth is that Hinkley C represents a severe risk to security of supply and a possible shock to future generations, especially if new technology, perhaps fracking or other processes, reduces the costs of energy.

The 2008 Act provided a very important recommendation—the Secretary of State gave the impression that he would look at it when we interviewed him—which enables the Government to alter the pace at which they implement emissions restrictions. This could provide the Government with a lifeline to help customers and take account of new technology. We understand the need to meet the climate change targets, but there is a period of time to do this. It is not necessary to do it in a linear way. It is surely possible to take account of the fact that if the economy has turned down or if new batteries or other kinds of technology are available in future, they might take a view which will lessen the pressure on consumers. Consumers are finding things getting pretty tight. If there is pay restraint in the public sector and the end of the business cycle, it could only help if Government were to look at the cost of electricity in the context of their other objectives.

This is another outstanding report from the committee and I hope the Government will consider it carefully. Their response showed that more work was, perhaps, needed on that matter. It is a big, red warning light. If the Government ignore that, they may find that all the lights have gone out and they might even face being asked by Her Majesty the Queen why no one saw this coming. This report does.