Clause 25

Northern Ireland (Miscellaneous Provisions) Bill – in a Public Bill Committee at 5:00 pm on 25 April 2006.

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Single wholesale electricity market

Question proposed, That the clause stand part of the Bill.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Northern Ireland)

It was my pleasure to spend two years studying the Great Britain energy market, and very detailed and complicated it was too. I must confess to having not spent a great time studying the position in Northern Ireland or, indeed, in the Republic of Ireland, but I want to make one or two remarks about it. People in Northern Ireland pay more for energy than we do in Great Britain. I want to explore why that is so and whether the Bill holds out prospects of cheaper electricity for people in Northern Ireland.

Members of the Committee will remember that it was the Conservative Government who brought about privatisation, but that it was the Labour Government who took it further and introduced NETA—the new electricity trading arrangements—which, under the Energy Act 2004, became known as BETTA—the British electricity trading and transmission arrangements. The Government were right to introduce the change because it moved the position away from the old pool system of electricity that was based on long-term contracts to a much more fluid system that operated more like the stock market than it had previously. As a result, electricity prices in Great Britain fell considerably in relative terms to the extent that it became a slight problem in that, at one point, there was a shortage of investment in electricity generation because the price was so low and there was no incentive for companies to invest in generation. During recent months, there has been an increase in the price of electricity and gas, although that is a slightly different issue. It has been due to the world market that has been affected heavily by the oil situation. As much as anything else, it is a readjustment  of the prices of fuel rather than a failure of the market. The trading arrangements that the Government introduced did a good service to both producers of electricity in the long term and domestic and industrial consumers.

Changes are planned, but the benefits did not extend to Northern Ireland in the way in which they should have done, nor am I sure that they will do so under the clause. Although the clause is headed “Single wholesale electricity market”, having discussed it with the relevant authorities in Northern Ireland my understanding is that the regulation of the market is being changed rather than a market being created. I would be glad to be corrected. There is not even one overall body being created; I understand that there will be an attempt to harmonise the regulation of electricity in Northern Ireland with that in the Republic. We will not move towards the type of market that we enjoy in Great Britain, so the benefits will not flow to consumers in Northern Ireland in the way that they have to those here. Again, if I am wrong, I will be pleased to be corrected.

I am a little concerned about the creation of north-south bodies, considering what the Government said in their recent statement. I hope that the Assembly does get up and running because of the Bill that we will consider tomorrow, but I did not like the insinuation that there could be a strengthening of cross-border bodies even if the Assembly is not running. That was not what was agreed in the Belfast agreement, and I have some concern about it.

I do not want to be seen to be urging the creation of a north-south body, given the uncertainty of the situation, but there are possible benefits in the creation of a bigger electricity market across the whole of Ireland, just as there would be in one that covered both the UK and Ireland. I am as anti-EU as one could wish to find in the House, but there could even be benefits in creating a bigger electricity market across Europe. That does not necessarily mean that regulation would have to be as one, although there would have to be some harmonisation.

There are great difficulties in energy at the moment. The UK increasingly has to get its energy from further afield. Not long ago we were a great producer of gas from the North sea; we are now net importers of gas. The places from where that gas is coming are slightly worrying: Russia, Algeria and other countries that might not be considered politically stable. Russia has recently ended its supply of gas to a couple of countries, which cannot be a good thing.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. I am reluctant to stop the hon. Gentleman, who is giving an interesting exposition of the energy situation, but can he bring his comments back to the clause, which refers to Northern Ireland?

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Northern Ireland)

I apologise for straying away from Northern Ireland. The point that I seek to make is that I am not convinced that the clause will move us towards greater security in the supply of electricity or cheaper prices for consumers in Northern Ireland. We need to look further into the future than the clause apparently does. I would be pleased to be corrected,  but from discussions with authorities in Northern Ireland, I understand that the clause is modest. Maybe the Government are planning ahead, or maybe they intend to leave the issue to the Assembly, but I would like to hear the Minister’s response to my points.

Photo of Alasdair McDonnell Alasdair McDonnell Shadow Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Health), Shadow Spokesperson (Education), Shadow Spokesperson (Treasury)

I endorse the broad context of the remarks of the hon. Member for Tewkesbury. If time permitted, I should like to talk at length, as he did, not just about the content of the Bill, but about east-west connections between Britain and Ireland, and those with continental Europe. I shall forgo doing so, however.

The clause and the Bill implement an ambition on which all parties agreed when the Assembly was functioning. I sat on a committee there that moved forward energy issues. It had nothing to do with constitutional politics, and there did not seem to be any threat to anybody’s political interest.

The situation in Northern Ireland is serious. Historically, we have had severe stranded costs, caused by the privatisation of power stations and the setting of prices at levels that are much too high by today’s standards. The cost of producing electricity had dropped for a period, but now it may be going up again. The severe stranded costs will continue until 2010 or 2012. The clause probably does not go far enough, but I see it very much as opening a door to create the space for serious discussions, which the hon. Member for Tewkesbury referred to earlier in more depth. I would like those discussions to be pursued, because the island of Ireland as a whole has fewer than 2 million people in the north and 4 million in the south. We need 12 million people for a serious energy market. We have some connection with the grid in Scotland. We have a connector there, but it is fairly fully occupied and we need another connector. It could be between Wales and southern Ireland, or we could have a second connector between Northern Ireland and Scotland.

The clause is a prelude to such discussions, and it will facilitate their opening. It will create confidence for players in the market. Opening up and facilitating a discussion is the political intention of the House, and I think that the commercial interests want to see a clear indication that that is happening. From that point of view, I endorse and support the clause.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Education) 5:15, 25 April 2006

The vague terms that have been used so far show that none of us is sure how the single energy market will operate or indeed what the implications will be. I made it clear from the outset that the DUP considers that, if there are grounds for north-south co-operation on issues that are of economic benefit to people in Northern Ireland and the Irish Republic, we will not stand in the way. Indeed, we would be foolish to do so.

I want to ask the Minister several questions about this clause, however, as I do about clause 26. First, the single energy market will create a pool into which generators will supply their electricity, which will then be sold to the various distributors. Every half-hour of the supply into the pool will be monitored. The demand and the price will be set accordingly.

There are some hidden dangers that I want the Minister to address, perhaps when we come toclause 26. Creating a middleman—the pool in the single energy market—means that there will be additional capital costs, including initial capital costs. Can he say what they will be? They have been estimated at between £10 million and £30 million. There will then be ongoing monitoring costs, because both the input to the pool and the output to the various suppliershave to be monitored, after which there will be billing arrangements and so on. The revenue costs and the initial capital costs, together with any change inthe arrangements during the time, are likely to add to the overheads when it comes to supplying electricity to the consumer.

Before we go down such a route, I want to be assured that, instead of looking at the political glow that might come from a single market, we actually examine the harsh economic realities. If they do not stand up to rigorous economic analysis, it would be better to steer away from the arrangement.

My second point relates to subsection (2)(b), under which the provisions would

“confer powers on bodies or persons specified in, or appointed under or by virtue of, the Order, including powers to make statutory rules (within the meaning of the Statutory Rules)”.

There is a worry for the existing generators in Northern Ireland, because the consultation paper entitled “Northern Ireland’s Generators — Managing Security of Supply in a Period of Transition” said that the implementation of a single electricity market could lead to existing contracts being revoked. That has caused grave concern.

There are two major generators in my constituency of East Antrim, and that statement has caused major concern for those who have already invested heavily on the basis of the prices that they anticipated and the revenue streams that they expected to receive from the electricity that they generated and supplied to the grid. It has severe implications for them.

If the Bill enables the proposed body to revoke those contracts willy-nilly, it will have an implication for future investment as well. Investors want to know that when they invest, rules are set down that will continue to apply and will not be changed at the discretion of a newly created body or through some new rule that it decides to introduce. Otherwise, companies will not have the confidence to invest.

As the hon. Member for Belfast, South pointed out, there are capacity problems in the market as a whole. Over the next number of years, additional capacity must be added to the system for the whole island, both for Northern Ireland and the Irish Republic. If investors see that contracts have been changed, what guarantee will we have that we will get the stability of supply that we need? Will new generators come into the market to provide diverse means of production and security of supply over the longer period? Will the Minister reassure me as to the meaning of clause 25(2)(b)? How far will the powers extend for existing contracts?

My third point concerns a matter that will require legislation in the Irish Republic. We discussed such  matters when we debated the arrangements for donations to political parties. If legislation is not introduced in the Irish Republic to provide the same safeguards as are provided in Northern Ireland, it will have serious implications for the single market. Will the Minister tell us what discussions he has had with the Government in the Irish Republic to ensure that the legislation that is required in that jurisdiction reflects the provisions made in Northern Ireland?

Photo of David Hanson David Hanson The Minister of State, Northern Ireland Office

I shall try my best to answer the points that have been made by hon. Members during this short debate on clause 25. I welcome the fact that the hon. Member for East Antrim welcomes the provision in the Bill. I understand that his party will adopt a pragmatic approach to these matters, and the clause will bring great benefit to Northern Ireland in the long term. I shall also try to deal with the points made by the hon. Members for Belfast, South and for Tewkesbury, as well as those of the hon. Member for East Antrim.

I pay tribute to the Under-Secretary of State for Northern Ireland, my hon. Friend the Member for Basildon (Angela E. Smith), who is taking the lead on dealing with this matter as a policy issue. She has day-to-day responsibility for these matters outside this Committee with officials from the Northern Ireland Assembly.

Clause 25 will enable Her Majesty by Order in Council—I am afraid that again it is by Order in Council—to give legal effect to any agreement that my hon. Friend the Under-Secretary can achieve between the British and Irish Governments relating to the creation of a single wholesale electricity market in Northern Ireland and the Republic. I hope that I can reassure all hon. Members that in the event of an agreement being reached between the Irish and British Governments, it will be presented to Parliament by my right hon. Friend the Secretary of State for information and confirmation.

To answer the point made by the hon. Member for Tewkesbury, my hon. Friend the Under-Secretary of State and the Irish Government hope that a memorandum of understanding, rather than a formal treaty, will be established between the British and Irish Governments to put in place several safeguards and ensure that the key elements needed to establish a single wholesale market will be put in place. Although that memorandum is still subject to discussion with the Irish Government and the electricity operators—to answer the point made by the hon. Member for East Antrim—it is still being consulted on and discussed with them. However, in the event of an agreement being reached, it is hoped that the memorandum of understanding will cover a range of issues, such as regulatory arrangements, the role of the market operator, dealing with market power and dominance, sharing information between the Republic and the British Government, licensing arrangements and access to the market.

We have taken an assessment of the costs of the exercise that could be undertaken, subject to the agreement between the two Governments. An early estimate is that, if the single market were established, the total implementation and operational costs in Northern Ireland would be in the region of £34 million  over a 10-year period. The cost during that period would be offset by a potential saving of £30 million, so at the end of the first 10-year period, if the agreement is reached, the net cost to Northern Ireland would have been about £4 million. However, after 10 years, savings accruing to Northern Ireland would, I hope, be passed on in the long term to the hard-pressed electricity payer in Northern Ireland.

I have to say to all hon. Members who have raised this question, including the hon. Member for Belfast, South, that in the short term I doubt whether the ordinary electricity payer in Northern Ireland will make savings as a result of this exercise. In the long term, however, there are potential savings to be made, and after the 10-year period, they will accrue in ever increasing amounts, subject to ever-rising electricity prices, which are causing problems in all hon. Members’ constituencies, not least those in Northern Ireland.

The market will bring greater competitive opportunities as well as efficiencies and economies of scale. The most important thing to emphasise to the hon. Members for Tewkesbury and for East Antrim is that, potentially, after 10 years the economies of scale and efficiencies that can be made for generators and suppliers will lead to savings that I hope will, in due course, be passed on to ordinary individuals in Northern Ireland. Again, I emphasise that energy will ultimately be the responsibility of the Assembly. I would hope that, in due course, when the Assembly is reconstituted—as I hope it will be—it will monitor and take forward this aspect of policy provision.

I hope that that has answered some of the points made by hon. Members. I am attempting to answer them on behalf of my hon. Friend the Under-Secretary, who I am sure would be happy to meet colleagues in the event of the agreement being progressed.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Education)

I appreciate the point that the Minister made regarding the cost; I suppose that he can give only an estimate. However, will he address the issue that I raised about how secure the current contracts will be with the advent of a single electricity market? Will it be possible for the operator to revoke those contracts, or will they be guaranteed to run to end of the relevant period?

Photo of David Hanson David Hanson The Minister of State, Northern Ireland Office 5:30, 25 April 2006

I shall return to that point in a moment, if the hon. Gentleman will allow me to do so.

As I mentioned, the £34 million cost over the 10-year period will be taken into account with the£30 million of savings. The hon. Gentleman made a good point with regard to the current operators, with whom the matter is being discussed. The memorandum of understanding, if agreed with the Irish Government, will take into account all those matters.

The Order in Council that proposes the memorandum will be subject to consultation.Clause 25 simply gives to the Government the power to make that agreement, but the agreement and its potential implications for existing operators regarding savings or otherwise and for the relationship between  the Irish and British Government will all be subject to the order, which will itself be subject to consultation.

To get back to the basics, the clause will give my hon. Friend the Under-Secretary legal backing to negotiate the memorandum of understanding with the Irish Government and to introduce an Order in Council to bring that into effect.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Northern Ireland)

I realise that this is a specialist area, and I appreciate the Minister’s attempts to explain a difficult and complicated situation.

I shall reiterate what I was trying to say: the regulation is one thing, but the actual opening up of the market is another. The existing long-term contracts present a bit of a problem because they could end up keeping the price of electricity high, but as the hon. Member for East Antrim said, it is important to honour those contracts. I hope that the Minister will speak to his hon. Friend the Under-Secretary, because it is important that we move as quickly as is fair towards an open market in electricity, and not just harmonisation of regulation.

Photo of David Hanson David Hanson The Minister of State, Northern Ireland Office

I anticipate that the current contracts will operate certainly until 2010. After that date, they will be a matter for discussion and consultation; discussions on the single electricity market and how it will operate and affect contractors in the future are under way already with existing operators.

Clause 25 will give my hon. Friend the Under-Secretary the power to negotiate the memorandum of understanding and to bring it back here after consultation for execution by this House and implementation beyond that date. I understand the concerns that current operators will have, and I hope that the reassurance of 2010 will be of assistance to them. Those matters will be subject to consultation, at which stage the hon. Member for East Antrim, with his constituency interest, is welcome to make his points.

Question put and agreed to.

Clause 25 ordered to stand part of the Bill.