Electricity Market (EAC Report) - Motion to Take Note

Part of the debate – in the House of Lords at 8:21 pm on 17th July 2017.

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Photo of The Bishop of Chester The Bishop of Chester Bishop 8:21 pm, 17th July 2017

My Lords, as one of the few non-members of the committee speaking in the debate, I gladly pay tribute to its report, although it is not for our comfort. I think it makes it clear that the supply of electricity has become a very complex matter. For me, the central question is whether this complexity provides a richer range of policy options in relation to our electricity supply or whether it points to a rising level of confusion and risk.

Why is a bishop—I say to the noble Lord, Lord Turnbull, that bishops are always curates at heart—interested in this area? I have a scientific background and have always been drawn to issues where science and public policy interact. Thirty years ago, I was concerned that the then “dash for gas”, as it was called, in electricity generation on the back of new supplies from the North Sea was a poor and profligate use of a flexible fuel and chemical feedstock that would be available for only a limited duration. All sorts of estimates were being made about when “peak oil” would be reached and about the ever-escalating price of oil and gas. But how wrong I was, and indeed how wrong most—I might almost suggest all—forecasts were. The world is now awash with cheap oil and gas for the foreseeable future. The unimaginable has come to pass.

Subsequently, and especially in my years as a bishop, I have become concerned about the rising cost of electricity and its differential impact upon those who, by a socioeconomic judgment, are among the poorest in our society. Levels of fuel poverty have been stubbornly high, underpinned by rises in the cost of electricity. The report describes how the cost of electricity in the UK has risen over the past decade, from being among the cheapest in Europe to much higher comparative levels for everybody. The figures given in the report are stark. In the first half of 2016, for the most energy-intensive industries in Britain, electricity costs were no less than 86% higher than the median in the EU. This has stimulated various government measures to compensate the energy-intensive industries and stem their movement abroad. These are set out in paragraph 102. Will the Minister please tell us what the overall costs are of these schemes and confirm that these costs are met from general taxation and not by distribution to other consumers?

The report is right to call for greater transparency in bills for domestic consumers, especially as the various carbon and climate-related costs will rise sharply in the coming years. In their response, the Government state:

“Adding further information to consumer bills would run counter to Ofgem’s ambition to simplify bills”.

But is there not a confusion between the proper desire to simplify the range of tariffs that are available and the need for transparency around the costs that are being incurred by consumers?

Scottish Power has supplied me with electricity for a number of years, and the transparency has decreased. I compared my four-page bill from 2010 with a bill received in 2017. In 2010, I was told that 62% of my bill comprised wholesale costs, which is rather more than is the case today: 18% transmission, 9% administration and profit, and 11% VAT and government obligations, including 6% green levies. My latest bill runs to six pages and includes various advice and information about saving energy. It tells me, for example, that it will cost me 1p to run my laptop for two hours. But it contains no information whatever on the breakdown of the bill and what proportions are attributable to the different components, including green taxes, which are rising year by year. Does the Minister seriously defend this lack of transparency?

The cost of the new contracts for difference will add to the green levies, and here Hinkley Point takes star billing. I will not repeat all that has been said but the headline figure from the NAO is £30 billion—from one power plant, in a time of austerity and cuts in public expenditure. Think what £30 billion could do. It is a huge amount of money. If we are to have further nuclear plants, will we have the same strike price of £92 a megawatt? We need some assurances, because £30 billion—even spread over the lifetime of the heir and successor to the noble Lord, Lord Forsyth—is a huge amount of money.

These costs, and others that come with current climate change policies, are recouped through the electricity bills of consumers. That is weighted towards domestic consumers because of the subsidies for big industrial consumers. This is a very regressive form of taxation and attributing the costs; that point has not been made clearly enough. At the very least, all this surely demands the maximum transparency rather than the obfuscation that the report reveals.

I would like to make some comments about the capacity market, which the Government have stated is at the heart of their plans to maintain security of supply, at least in the immediate future. What assumptions are being made about the interconnector capacity, to which the noble Lord, Lord Darling, and others have referred? By 2022, the interconnector capacity will have almost tripled, from the present 4 gigawatts to almost 11 gigawatts. Is supply delivered through the interconnectors to be permitted to enter the capacity market? If so, the important question is: what legal and contractual guarantee of supply will exist? I underline the words “legal” and “contractual. My understanding is that, at the moment, the supply comes and goes according to who is willing to pay most—it is purely economics. If that 11 gigawatts is to be brought into play for security of supply, what security is really there? We need some answers.

If Hinkley Point falls further behind schedule—which seems an odds-on certainty, although we hope not—the capacity market auctions will be very important. That is true not least if an additional pressure on the capacity margin arises due to the switch to electric cars, as the national grid warned only last week in the Financial Times, which I happened to pick up.

Finally, I will refer briefly to what I call the two elephants in the report. The simpler one, to which the noble Lord, Lord Turnbull, alluded in passing, is carbon capture and storage. It seems to have all but disappeared from current planning, but not long ago it was all the rage in these debates. All around the House people were saying this was the future and now it is not mentioned at all. I am not surprised because I was a chemist in a previous incarnation. The chemistry is not difficult but the cost of doing it on a big scale will be huge. It is a cost issue. With CCS it is not a technical problem but a cost problem. Adding those costs now, on top of everything else, has surely made it a political no-chancer. However, it would be good for the Minister to state a suitable epitaph for CCS, or otherwise bring us up to date about what its place is in government planning.

The second pachyderm in the room—again the noble Lord, Lord Turnbull, identified it—is the large and diffused one of current climate polices and the Climate Change Act. It was outside the scope of the report—I understand why—but its influence runs through the report and we should acknowledge that.

Along with the noble Lord, Lord Turnbull, I must declare my interest as a founder trustee of the Global Warming Policy Foundation, which is committed to open debate on these matters. I share the view that it is unfortunate that the noble Lord, Lord Lawson, who chairs the foundation and comes out well from the report, is not able to be here. Only time will provide the empirical evidence to justify or otherwise current climate theories and predictions, but the practical impact in the present is huge—and not only on electricity. Let me doff my cap in two other directions. I do not know whether any other noble Lords saw “Newsnight”, last Thursday, when Professor Richard Hull, professor of chemistry and fire science, summed up the cause of the Grenfell tower tragedy as follows:

“The Government has prioritised insulation over fire safety”.

It will be interesting to see how the judicial inquiry looks at that.

One could also refer to the complete reversal of government policy on diesel cars as the serious impact on public health became apparent. All that was driven by the same decarbonisation agenda.

These matters are obviously beyond the current report but the common factor is the practical impact of current climate policies. Perhaps time will justify these policies. I cannot rule that out as a possibility, although my judgment is to doubt this. What is certain is that the price to be paid for current policies, in all sorts of ways, is very high and typically falls disproportionately on the poorest and most vulnerable in our society. Will it all have been worth it? My only hope is that I will live long enough to find out.