Electricity Market (EAC Report) - Motion to Take Note

Part of the debate – in the House of Lords at 8:01 pm on 17th July 2017.

Alert me about debates like this

Photo of Baroness Bowles of Berkhamsted Baroness Bowles of Berkhamsted Liberal Democrat 8:01 pm, 17th July 2017

My Lords, I too am a member of the committee. I thank the noble Lord, Lord Hollick, for his chairmanship during this inquiry.

We have many committee members rich in UK energy policy and experience. I can only claim an upbringing at Harwell, surrounded by energy research, doing my own small bit on solar energy materials in the mid-1970s, and my former career as a patent attorney covering some of the technology, so I am more technology than policy on this.

My more recent experience with financial markets means that looking at thin capacity margins, spoken about with confidence, gives me a sense of déjà vu in relation to thin bank capital. It works until something big happens. It is not clear that we are out of the shadow of something big with an ageing nuclear fleet and uncertainty over timely delivery of its replacements.

The electricity market is changed from when it was set up. It is easy to point to subsidies, targets and mechanisms used to incentivise low-carbon energy production and say that it has distorted the market, but there were always constraints on what was achievable at the time, and it had to be done.

We have also done better than predicted with some renewable technology: solar generation boomed, now with 11 rather than the projected 3 gigawatts of generation. Offshore wind has developed, in the words of Hugh McNeal of RenewableUK, in a way that you associate more with TVs and computers than major infrastructure, with turbines doubling in size and costs coming down 40%. Now the future does not necessarily look like it belongs to large inflexible generation such as big nuclear, although the realisation of that is perhaps only just dawning. That takes me to Hinkley Point C. I agree with the noble Lords who have already spoken on that issue. Perhaps it behoves us ill to criticise commissioning major generating capacity when the report itself elevates security of supply to the primary consideration. There are many lessons of the Hinkley process, including lack of transparency, the need for independent scrutiny and exaggerated claims about delivery, but foremost has to be, “Do not get into a capacity mess, it does not lead to value”, and delays in the operation of the capacity market mean that we may not be out of the mess. Therefore, it is not surprising that the committee put security of supply as the foremost requirement. However, in security of supply I include self-sufficiency. Wind and sun may be intermittent but they remain available without importation or interconnectors.

I too welcome the Faraday initiative for research on energy storage to complement renewables. This should press ahead with vigour, so an update would be welcome to me too. The capacity market is also making changes to how markets operate. If the truth is told, we do not have a market in price, only a market in capacity and subsidies. Flexible generation is squeezed between nuclear and renewables and ultimately that must carry a price. Presently, the price is paid by the environment with extension of old generation and standby diesel generators. I was somewhat alarmed by the statement from the director-general for energy security at BEIS that appears in paragraph 71 of the report:

“We don’t want to use the capacity market to bring forward new investment before it is needed”.

Planning a just-in-time strategy does not fit with a high level of security of supply and I query what value it will deliver.

The capacity market means that a plan B for delayed nuclear is not needed, according to the Government’s response, so how and when would need for new investment be recognised and brought forward through the capacity market or otherwise? Are the Government confident that their current criteria are not supressing investment? These are all issues where having an energy commission and greater transparency would help.

We heard evidence from various sources that renewables should bear the cost of their intermittency, mainly heard from rival generators, but it is just as reasonable to recognise a cost that is imposed by the inflexibility of nuclear, and, indeed, getting it on the grid if it is turned off. It was pointed out in evidence from Bloomberg Energy Finance that every form of generation has times when it does not generate. We should not introduce disincentives for renewable energy that are not fairly based, not least when the whole understanding of energy delivery is changing away from centralisation and fixed modes of delivery, a point explained in the evidence of Professor Peter Littlewood. He also said that those countries that invest in energy sustainability will harvest the benefits of technology adoption. That is where we should be.

The report explains that the development of cheap electricity through privatisation and a market was seen as a triumph that other subsequent criteria have since disturbed, but it was also a period that saw the demise of research and development, as elaborated in the evidence of Professor Sir Richard Friend of the University of Cambridge and Professor Richard Jones of the University of Sheffield. We may have got cheap electricity but we also sowed the seeds of what we reap today, including a lack of skills and engineering base. We do not have, as the professors pointed out, national laboratories of scale that fill the gap between work that universities do and the point at which industry can take over and engineer at scale. The Energy Technologies Institute and catapult centres are small measured against international comparators, and nearer-term focused too, so there is work to do to invest in the UK’s own R&D. This is an issue that needs to be widely addressed through the promised industrial strategy, but in terms of picking sectors one thing that is never going out of fashion is energy, with electricity becoming an increasing part of that through electric vehicles and, quite likely, some heating. The report suggests using flexibility to allow for new technology. Here I disagree slightly with the noble Lord, Lord Forsyth. It should not be to do with economic downturn, as that puts you on the never-never. The new technologies would need to be genuine, not overoptimistic, and, I hope that they would use some of our own developments.

Finally, the report touches upon the Competition and Markets Authority investigation and the totally disappointing recommendation that customers should be urged to switch. The constant refrain that switching is the answer to everything is overrated. Is it realistic for hard-pressed people, especially families and the elderly, to repeatedly spend time surfing the net and switching electricity, gas, telecoms, data providers, bank accounts and just about everything else? It condones the idea that you have to keep on doing it if you do not want to be funnelled off into a bad deal. Time absorbed in switching does nothing for productivity and would be better spent helping children with their education, homework or on other ways of building the economy. Making people the regulators of decency and aggressive marketing policies is a shameful failure of good governance. There might be opportunity for technology to create gig switching, but is that really making us more productive, improving quality of life or teaching trust and decency? No—it is saying to business, “Grab what you can until you’re rumbled”. It is all in the same boat with the other things that have bred lack of trust in business, and I hope that the Secretary of State can see the pattern and will back the recommendation for a strong and effective regulator.