New Clause 11

Energy Bill – in a Public Bill Committee at 4:45 pm on 11 March 2008.

Alert me about debates like this

Duty to encourage a reduction in emissions of greenhouse gases

‘In section 3A of the Electricity Act (c. 29) (the principal objective and general duties of the Secretary of State and the Authority), at end of subsection (1), insert “while reducing the emissions of greenhouse gases in accordance with Government targets for greenhouse gas emissions reductions.’.—[Charles Hendry.]

Brought up, and read the First time.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

With this it will be convenient to discuss the following: New clause 12—Duties of the regulatory authority —

‘(1) For sections 4AA(1) and (2) of the Gas Act 1986 (c.44) substitute—

“(1) The principal objective of the Secretary of State and the Gas and Electricity Markets Authority (in this Act referred to as “the Authority”) in carrying out their respective functions under this Part is to deliver a secure and sustainable energy system operating within greenhouse gas emission limits notified by the Secretary of State to the Authority in accordance with the provisions of the Climate Change Act 2008 [c. ].

(2) The Secretary of State and the Authority shall carry out those functions in the manner which he or it considers is best calculated to further the principal objective, having regard to—

(a) the protection of the interests of consumers in relation to gas or heat conveyed through pipes, through effective competition between persons engaged in, or in commercial activities connected with, the transportation or supply of gas or heat; and

(b) the need to secure that, so far as it is economical to meet them, all reasonable demands in Great Britain for gas and heat conveyed though pipes are met; and

(c) the need to secure that licence holders are able to finance the activities which are the subject of obligations imposed by or under this Part or the Utilities Act 2000 (c.27).”

(2) For section 3(1) and (2) of the Electricity Act 1989 (c.29) substitute—

“(1) The principal objective of the Secretary of State and the Gas and Electricity Markets Authority (in this Act referred to as “the Authority”) in carrying out their respective functions under this Part is to deliver a secure and sustainable energy system operating within greenhouse gas emission limits notified by the Secretary of State to the Authority in accordance with the provisions of the Climate Change Act 2008 [c ].

(2) The Secretary of State and the Authority shall carry out those functions in the manner which he or it considers is best calculated to further the principal objective, having regard to—

(a) the protection of the interests of consumers in relation to electricity conveyed by distribution systems, through effective competition between persons engaged in, or in commercial activities connected with, the generation, transmission, distribution or supply of electriciy; and

(b) the need to secure that all reasonable demands for electricity are met; and

(c) the need to secure that licence holders are able to finance the activities which are the subject of obligations imposed by or under this Part of the Utilities Act 2000 (c.27).”’.

New clause 13—Access for renewable energy to the electricity and gas grids

‘(1) After section 3A of the 1989 Electricity Act (c.29) there is inserted—

“3B Access for renewable energy to the electricity networks

(1) In carrying out their respective functions, the Secretary of State and the Authority shall ensure that—

(a) transmission system operators and distribution system operators guarantee the transmission and distribution of electricity produced from renewable energy sources, without prejudice to the maintenance of the reliability and safety of the grid;

(b) transmission system operators and distribution system operators provide for priority access to the grid system for electricity produced from renewable energy sources;

(c) when dispatching electricity generating installations, transmission system operators shall give priority to generating installations using renewable energy sources insofar as the security of the national electricity system permits;

(d) transmission system operators and distribution system operators are required to set up and publish their standard rules relating to the bearing and sharing of costs of technical adaptations, including grid connections and grid reinforcements, which are necessary in order to integrate new producers feeding electricity produced from renewable energy sources into the interconnected grid, and that such rules—

(i) shall be based on objective, transparent and non-discriminatory criteria taking particular account of all the costs and benefits associated with the connection of these producers to the grid and of the particular circumstances of producers located in peripheral regions and in regions of low population density,

(ii) may provide for different types of connection, and

(iii) shall provide for the sharing of costs to be enforced by a mechanism based on objective, transparent and non-discriminatory criteria taking into account the benefits which initially and subsequently connected producers as well as transmission system operators and distribution system operators derive from connections;

(e) transmission system operators and distribution system operators are required to provide any new producer wishing to be connected to the system with a comprehensive and detailed estimate of the costs associated with the connection;

(f) the charging of transmission and distribution fees does not discriminate against electricity from renewable energy sources, including in particular electricity from renewable energy sources produced in peripheral regions, such as island regions, and in regions of low population densitiy;

(g) fees charged by transmission system operators and distribution system operators for the transmission and distribution of electricity from plants using renewable energy souces reflect realisable cost benefits resulting from the plant’s connection to the network.

(2) The Secretary of State shall review and take the necessary measures to improve the frameworks and rules for bearing and sharing of costs referred to in paragraph (d) by 30th June 2011 at the latest, and every two years thereafter, in order to ensure the intergration of new producers.

(2) After section 4AA of the Gas Act 1986 (c.44) there is inserted—

“4AB Access for renewable gas to the gas networks

(1) In carrying out their respective functions, the Secretary of State and the Authority shall ensure that—

(a) gas network operators guarantee the transport of gas produced from renewable energy sources, without prejudice to the maintenance of the reliability and safety of the gas networks;

(b) gas network operators provide for priority access to the gas networks system for gas produced from renewable energy sources;

(c) when dispatching gas, network operators shall give priority to renewable energy sources insofar as the security of the national gas system permits;

(d) gas network operators are required to set up and publish their standard rules relating to the bearing and sharing of costs of technical adaptations, such as gas network connections and gas network upgrades, which are necessary in order to integrate new producers feeding gas produced from renewable energy sources in to the interconnected gas networks, and that such rules—

(i) shall be based on objective, transparent and non-discriminatory criteria taking particular account of all the costs and benefits associated with the connection of these producers to the gas networks and of the particular circumstances of producers located in peripheral regions and in regions of low population density,

(ii) may provide for different types of connection, and

(iii) shall provide for the sharing of costs to be enforced by a mechanism based on objective, transparent and non-discriminatory criteria taking into account the benefits which initially and subsequently connected producers as well as gas network operators derive from the connections;

(e) gas network operators are required to provide any new producer wishing to be connected to the system with a comprehensive and detailed estimate of the costs associated with the connection;

(f) the charging of transport fees does not discriminate against gas from renewable energy sources, including in particular gas from renewable energy sources produced in peripheral regions, such as island regions, and in regions of low population densitiy; and

(g) fees charged by gas network operators for the transport of gas from plants using renewable energy sources reflect realisable cost benefits resulting from the plant’s connection to the network.

(2) The Secretary of State shall review and take the necessary measures to improve the frameworks and rules for bearing and sharing of costs referred to in paragraph (d) by 30th June 2011 at the latest, and every two years thereafter, in order to ensure the integration of new producers.”’.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

We are going to try again to persuade the Minister that the new clause contains matters that are not yet included in the scope of the Bill. Even at this late stage, as we reach the twilight of the Committee stage, I hope that the Minister will see the light—if one can see the light in twilight—and recognise that further changes could be made to the Bill.

The new clause relates to the primary duties of Ofgem—again, something that was mentioned many times on Second reading and during the submissions that have been made to us. In 2000, Ofgem was given new duties to contribute to the Government’s social and environmental objectives. In 2004, it was given a duty to contribute towards sustainable development. The new duties were additional to Ofgem’s primary duty, which did not change. In addition to its primary objective, Ofgem has a series of 11 secondary duties.

We have looked at the work being done on the issue by the Sustainable Development Commission, such as its report, “Lost in Transmission?”, in which it made a compelling case about why Ofgem’s remit should be changed. It recognised that Ofgem’s remit needs to adapt to reflect the fact that the world has moved on and the problems that society faces have changed.

We can have a debate about Ofgem’s work to protect consumers—it does a good job and is well led as an organisation—but it is not doing as much as it needs to do to move us towards a system in which we use more renewables than fossil fuels. The UK currently generates 5 per cent. of its electricity and 2 per cent. of its energy from renewables, compared with 12 per cent. of electricity and 5.8 per cent. of total energy generated from renewables in Germany.

A huge number of onshore wind applications are stuck in the planning system. If the UK is to achieve its target of 15 per cent. renewable energy by 2020, between 35 and 40 per cent. of all electricity must come from renewable sources. That will not be achievable without a concerted effort and a clearer direction to Ofgem about the work that it must do.

In addition, there are considerations that relate to connectivity to the national grid, which could also be addressed by reforming the primary duties for Ofgem. An enormous amount of the national grid network is reaching the end of its lifetime and will need to be replaced. At the moment, Ofgem is required to connect new installations in the order in which the applications are made. So it is connecting some wind farms that might not get planning consent for some years, but others, which have been given planning consent, will not be connected to the national grid for some years to come. Clearly, that does not make sense as a coherent strategy. Ofgem should have more powers to intervene and to suggest that installations should be connected in an order that reflects their viability and the extent to which they can make a contribution to promoting renewables.

The WWF, which the Minister quoted in relation to the Prime Minister, said:

“The remit of Ofgem was established before the urgency of climate change became clear. WWF believes its primary remit should be updated to include efforts to reduce carbon emissions in the energy sector.”

Similarly the Sustainable Development Commission has recommended that Ofgem’s duties should be changed to include strong reference to greenhouse gas emissions reductions.

The Royal Society for the Protection of Birds said that the Bill should

“Reform the gas and electricity regulator... so that its primary purpose is the protection of the environment and customers.”

The Energy Saving Trust said:

“Ofgem’s current primary responsibility to promote effective competition in the energy sector means it does not promote increased energy efficiency and renewables as much as it could. Ofgem’s remit should be altered by the Bill to include a primary responsibility for the delivery of a low carbon energy system”.

The British Wind Energy Association said:

“Ofgem’s interpretation of its rules mean National Grid cannot invest in upgrading connection and cabling for new wind farms until developers are able to underwrite their costs. Companies are unable to do this until their schemes are approved and they have secured finance, which can take several years: under current arrangements they would then have to wait further for grid upgrades before they can generate. Ofgem fears that early investment in system reinforcement would result in stranded assets being built... We believe that Ofgem must be more strongly directed to give higher priorities to tackling climate change and increasing security of supply alongside itself economic focus.”

When the Sustainable Development Commission produced its report, it proposed three options, one of which was to create a primary duty for environmental matters and climate change issues and to put that ahead of consumers’ interests. That is a difficult position to sustain in the current climate, when we are all concerned about fuel poverty and how people will pay their bills. There must be a continuing primary  duty to protect consumers. The SDC also suggested an option whereby those issues would be viewed in tandem. New clause 11 would add to its primary duty about protecting consumers and includes the words,

“while reducing the emissions of greenhouse gases in accordance with Government targets for greenhouse gas emissions reductions”.

A clear body of opinion sees that as the right way forward.

The SDC has looked into this in great detail, and I hope that the Minister will be able to respond positively to the new clause and recognise that we need to address this matter to meet our climate change objectives. We are reaching the final moments of the Committee. The prospect that we are soon to be released is almost like Christmas. We therefore ask the Minister to give us that little Christmas present—that final little nugget after weeks of saying no in the Gallic manner—and say, “Yes, here’s an issue that we can support. Here’s an issue that we should rally round,” and accept the new clause.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test 5:00, 11 March 2008

I want to speak to new clause 12, which is a more comprehensive version of new clause 11, tabled by the hon. Member for Wealden. I would not characterise these as Christmas clauses, but rather as owl of Minerva clauses, in that the best bit comes just before the ending. In that case, it was Greek civilisation, but we will not go down that road.

The purpose of new clause 12 is simply to reverse the subsidiary nature of the clauses within Ofgem’s remit, which concern sustainability and environmental obligations, and place them as a principle objective. Rapid progress is being made to ensure that our future energy concerns relate to climate change, sustainability, renewable energy and the use of other forms of energy, either more economically or through the use of technologies that make them more sustainable.

The idea that the energy regulator is tasked to ensure that that is a primary consideration is very important. It is also important because Ofgem has suffused the considerations of the Committee—it has a very important role and undertakes a whole range of activities that relate to grid connections, the operation of the energy market, arrangements that relate to renewables and all sorts of similar matters. Therefore, having a primary duty to do that is important, but of course I recognise and understand that simply to do so would be to fundamentally disrupt the range of considerations that Ofgem should properly take into account.

Consequently, in furtherance to its principal objective, new clause 12 lists a number of considerations that Ofgem should have regard to, which will effectively fall within its primary duty. At the moment, that duty is set out thus:

“to protect the interests of consumers, present and future, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas conveyed through pipes, and the generation, transmission, distribution or supply of electricity or the provision or use of electricity interconnectors.”

As hon. Members will understand, those elements of the primary duty would be reflected in the things that Ofgem should consider in pursuit of its primary objective—it is effectively a tandem arrangement as far as those objectives are concerned.

The issue is certainly beyond serious dispute, but there have been some difficulties, not necessarily because Ofgem is a perverse organisation that does not want to pursue environmental objectives, but rather because of the way in which its duties and powers are set out. The hon. Member for Wealden mentioned some of those difficulties in relation to the connection of transmission for renewables and various other activities, and I believe that they have resulted from the subsidiary nature of the contribution to the achievements of sustainable development in Ofgem’s present remit. That is a result first of the systematic undervaluing of carbon by Ofgem in its calculations of what is meant by significant financial implications and because of Government guidance from 2004, which was supposed to help Ofgem in its interpretation of social and environmental issues, but which probably had the opposite effect.

In their guidance, the Government stated:

“where the Government wish to implement social and environmental measures which could have significant financial implications for consumers or for regulated companies, these will be implemented by Ministers, rather than the Authority, by means of specific primary or secondary legislation.”

The interpretation of what is a “significant financial implication” in the context of Ofgem’s primary duty has led to conclusions that do not advance the question of sustainability and environmental management in the way that is increasingly becoming imperative in the management of energy supplies. At the very least, I hope that my hon. Friend the Minister, in replying to these questions, will consider whether there should be new guidance for Ofgem, because I do not think that the guidance does the job that it was originally intended to do; indeed, it could have perverse consequences for Ofgem’s overall role.

Finally, I emphasise that the idea of setting out principal and subsidiary objectives in the way that is set out in new clause 12 is not unique for regulators. Indeed, the rail regulator has a duty to contribute to sustainable development that ranks alongside the duty to promote competition and is not subsidiary to it. Therefore, regulators can work within a competitive environment with that duty; rather, such a framework of duties can probably contribute to the development of a workable and competitive environment, while sustainable objectives are pursued, in the way that I imagine everyone on the Committee wants us to proceed in respect of energy management.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

The Liberal Democrats have a lot of sympathy with the goals in new clauses 11 and 12, which touch on the same issue—Ofgem’s remit—and goals as new clause 13, which has not been discussed even though it is grouped with new clauses 11 and 12, so I assume that it is in order to refer to it.

Clearly, there are two slightly different approaches to Ofgem’s remit. There is a more comprehensive approach from the hon. Member for Wealden in new clause 11, which seems to be more effective, because it appears to cover both gas and electricity legislation, and I sense that it might be preferable to the other approach. Nevertheless, the goal of both approaches seems to be right. We all know that, if we have one primary duty or one priority, we will focus our attention; if we have 10 priorities, we have no priorities. My worry with the current Ofgem structure is that the  primary duty overrides and that, when there is a conflict between the primary duty and the subsidiary duty, the primary one, by definition, dominates.

From our point of view, sustainability and adherence to greenhouse gas targets are not at all subsidiary matters—this is the future of the planet, for goodness’ sake. The idea that sustainability is a subsidiary consideration—I hesitate to say that it is an afterthought, but it is certainly a subsidiary consideration—just seems wrong to us.

We agree with the Sustainable Development Commission’s suggestion that Ofgem’s primary duty should be aligned to Government energy and environment policy; why would it not be aligned to it? The fact that there could be disjunction between the two suggests that change to the remit is needed. In passing, I note that the Sustainable Development Commission also recommends that energy and environment policy should be handled by one Secretary of State; having a view on that may be above the Minister’s pay grade, but it is a very good recommendation and one that we have implemented in our party.

The question that we have not yet considered is what does Ofgem think of all this. Obviously, Ofgem would not dream of trespassing on party political matters, but it produced a briefing for us, called “The Role of Ofgem in a Changing Climate”, in which it said that these are obviously matters for politicians and Departments to decide, but it then came up with a raft of reasons why we should not change its remit. One of the reasons that Ofgem gives in the briefing is that we should judge it by its actions on sustainable energy networks and markets. It lists a set of bullet points of things that it has done, saying that it has advised the Government and promoted choice. However, I cannot help smiling because one of the actions that we are supposed to commend it for is its

“Leadership role on smart metering, including overseeing Government backed 10m trials (ongoing since 2005).”

I cannot help feeling that, if the remit for sustainability and greenhouse gas emissions had been primary rather than secondary, a three-year smart meter trial might have led us to some action. In a sense, it is probably unfair to criticise Ofgem for that; it has simply administered the Government’s trials. However, in no sense has it been driving smart metering forward, although I am sure that it has done a very competent job of administering trials.

Perhaps I am pointing the finger in the wrong place and pointing it unfairly at Ofgem. However, I just think that perhaps it would have been pressuring Ministers and saying, “Look, we have got a remit to fulfil. We are supposed to be promoting sustainable energy. You are dragging your heels on smart meters. How about pulling your finger out”—metaphorically—“and getting on with it?” If Ofgem had been given that remit, there might have been more pressure on the Government to act on some of these issues. Therefore, of the two new clauses, new clause 12 probably gets closest to the mark, but we would very much support the spirit of those people who put sustainability and curbing greenhouse gas emissions right up there, in the headlines, at the top.

Briefly, new clause 13 is about preferential access to the grid for renewables. A brief reference was made to that earlier and again it is something that we support.  The danger is that the grid currently picks off the cheapest marginal source of supply. If we are serious about getting renewables into the mainstream, rather than having them as just a peripheral additional supply, some sort of preferential arrangement would complement what we have been talking about under the Bill, such as the renewables obligation. It will be interesting to see why the Government have not adopted that approach. I hope that the Minister will be sympathetic to it.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test 5:15, 11 March 2008

I am conscious that I tabled new clause 13, but have not moved it. I wish to do so.

Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

I remind the hon. Gentleman that he is not moving the clause but speaking to it. His new clause has been grouped with new clause 11.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

I am conscious, therefore, that I should have spoken to new clause 13 when I spoke to new clause 12. I apologise that I failed to do so. I will not detain the Committee for any length of time other than to commend the idea about grid connections.

Clause 40, which we discussed what seems like a very long time ago, made great strides on the grid connection for offshore renewable energy. I welcomed the Minister’s verbal indication of further consideration over whether there should be a hub-and-spoke arrangement for future grid connections as the offshore grid develops. I also note the proposed clauses in the marine Bill White Paper concerning how permissions for offshore grid connections will be undertaken. Nevertheless, problems will continue to arise upon landfall in the way that they currently exist for connections for land-based wind farms.

There is the so-called Scottish queue of something like 9 GW of potential power that remains to be connected up because of the considerations relating to how connection is undertaken. Viable schemes that can proceed have a lengthy period of waiting prior to going online because the capacity of the grid is taken up by existing operators. Those operators reserve elements of the grid according to their capacity operation, which does not necessarily take place.

Elements of the grid for dealing with potential grid failures are normally not used because failures to the grid are reducing considerably. Therefore, a connection and management regime on the basis of that marginal, additional capacity according to the priorities set out in new clause 13 would offer a very positive way to deal with grid connection problems.

The clause prioritises renewable connections, but the effect would be to ensure that the way that the grid connection arrangements were laid out meant that the full management capacity of the grid was used in parallel, rather than in sequence. Therefore, that would cause the grid to be used in a much more efficient way and bring on the considerations of how the grid is strengthened—at what point on the grid new connections are landed and how they go into the high-power grid.

For all those reasons, I hope that my hon. Friend the Minister would look carefully at the considerations in the new clause. I anticipate that he will suggest that it might be withdrawn, but it is on the amendment paper, in part, at least to underline that we have to get grid  connections right in the future, so as to bring out the benefits of renewables, which are underlined by the Bill and are essential to our future targets.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

This matter has occasioned a lot of parliamentary and wider interest, so it is useful that we have had a good discussion. There are three new clauses here, so I am afraid that it will take a little while for me to present my analysis.

The hon. Member for Wealden, hoped that, at this late hour, I would be able to satisfy him. My endeavour is to satisfy him; I want to make him happy. I am sure that during the course of my speech, I will do that, but with only one small, rather specific and technical qualification, which is the tedious business, sadly, of my not being able to accept his new clause. Apart from that, I think that he will be satisfied.

We have heard a lot in the debate as to whether the duties and powers of Ofgem—I mean here the Gas and Electricity Markets Authority—are still fit for purpose in the light of the challenges that we face to meet our EU 2020 targets. New clauses 11 and 12 in particular attempt to address what some hon. Members feel is perhaps an imbalance in Ofgem’s overall focus. Before I cover the specific issues raised by new clauses 11 and 12, I thought it might be helpful if I took the time to remind the Committee of the rationale for having an independent economic regulator for the electricity and gas markets.

The Government are committed to delivering safe, secure and sustainable energy supplies through independently regulated energy markets, promoting competition where possible. Ofgem has been specifically established as the independent regulator, with consumer protection and competition as its primary duty. The intention of independent regulation is to provide the regulatory stability necessary for investor confidence through independence from Government and a clear statutory framework; to introduce competition into the market wherever possible; and to regulate the prices of any natural monopolies, such as networks, where not.

Investments in the gas and electricity industry, be it networks or generation, are generally long term and returns are made over a long period. Once the investments have been made and the infrastructure built, it can be costly for companies to pull out. It is the combination of Ofgem’s independence—which demonstrates that regulatory decisions about the market will be made for the long term on an economic, not a political, basis—and a clear statutory framework of duties in which to take its decisions that provides companies with the stability and regulatory certainty that they need to invest with confidence in the power stations, gas infrastructures and electricity networks that we need in the UK.

A competitive market with sufficient, timely investment brings benefits for consumers by providing the most cost-effective way of delivering our energy objectives of tackling climate change and ensuring secure supplies of energy. Ofgem also regulates prices in elements of the gas and electricity system that are natural monopolies. That ensures that the owners of the pipes and wires do not abuse their monopoly power and helps to drive efficiencies in the system. As part of that, Ofgem sets price controls to limit the charges for  access to those networks and provides incentives for the companies regarding investment and service. That helps to ensure that costs to consumers are minimised as far as possible.

Changing the nature of Ofgem’s remit so that it will no longer primarily be an economic regulator, as new clause 12 proposes, without sufficient analysis of the potential impact on the broader market and other unintended consequences, would be imprudent. Placing sustainability above consumer protection and competition would take Ofgem’s primary focus away from the latter. I have already discussed some of the reasons why we believe that it is important that Ofgem retains its economic focus. Moreover, the new clause proposes giving Ofgem a primary duty to deliver sustainability, but no practical powers or tools to make it possible, as many of the important policies such as the design of the renewables obligation and other trading schemes are the remit of Government, and rightly so.

A recent Select Committee report in the other place on regulators concluded that they are “creatures of statute”, and that therefore, an effective statutory remit for a regulator is one that is, above all else, clear. The report also concluded that regulators need limited and relatively narrow duties.

A dual primary duty, as suggested in new clause 11, would require Ofgem to make trade-offs between the economic interests of consumers and promoting sustainability. How, for example, would Ofgem be able to decide what should take precedence when making decisions about whether to encourage renewable technologies, which are generally more expensive, or to keep costs down for consumers to minimise fuel poverty? It is only right for an elected Government to make the political decisions about such matters. That is why the Secretary of State provides guidance to Ofgem on social and environmental policy, to which Ofgem must have regard. In light of significant developments in this area since the guidance was last updated, we intend, as the Secretary of State announced yesterday, to consult on new environmental and social guidance for Ofgem shortly.

The guidance will set out the Government’s expectation of the contribution Ofgem should make on social and environmental issues. It will cover issues such as facilitating the faster deployment of renewables, both on and offshore, and the development of local or distributed energy. On the social side it will, among other things, address our expectation that Ofgem will take a strong lead in co-ordinating activity to help low-income and vulnerable customers.

Rather than a knee-jerk reaction to change Ofgem’s remit and duties we should step back and look at what the potential barriers to deploying more renewables actually are. Stakeholders have highlighted several key areas of concern in relation to the deployment of renewables, particularly around grid access, transmission and charging. Some point to Ofgem’s remit as the cause, but that oversimplifies the problem. The grid-related issues are complex and interconnected and rather than believing that we can solve them at a single stroke by changing Ofgem’s remit, we need to develop a more rounded strategy.

That is why we are developing our renewable energy strategy, which we have discussed, to be launched in Spring 2009. As part of that we will be launching a  consultation this summer that will consider what more we should do to increase renewable energy production to meet our share of the EU 2020 renewables target, including how we can ensure renewable projects secure swift connection to the grid. We need to look at the rules governing access to the grid and at ways of speeding up the delivery of new infrastructure. We need to be sure that the grid as a whole is equipped to handle significant increases in largely intermittent renewable generation.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

A few pages back, the Minister described changing Ofgem’s remit as a knee-jerk reaction, but would he not accept that the Sustainability Development Commission, which was set up by his Government, has recommended this in a thoughtful, multi-page report after many months of thinking about it? Is he saying that its approach is knee-jerk? Would he not accept that there is a rigorous, carefully thought through case for doing this?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I was not talking about the SDC’s report, which, as ever from the SDC, was an important document. That does not mean that we always have to agree with independent commissions.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

No, I did not say that that report was knee-jerk. Some people think that changing Ofgem’s responsibilities is the sole answer to these problems and I would describe that as knee-jerk, but not the SDC. When we more fully understand the issues and barriers in the context of a much more ambitious renewables target—and the best way to overcome them—we can make any changes needed to deliver the outcomes.

Ofgem already has a secondary duty on sustainability, and has been criticised for not delivering on that. That is unfair, in the light of the work that it has taken forward on a number of projects. For example, Ofgem and my Department are already working on incentives for energy businesses to be innovative in terms of sustainability and reducing greenhouse gas emissions and losses of gas and electricity, through their price control work. Ofgem is also working with my Department on other projects, such as the important transmission access review.

In summary, there are strong reasons for retaining Ofgem’s focus on consumers and competition. However, we know that, as well as updating its guidance, there is further work to do in understanding the potential barriers to deploying more renewables—grid-related issues, for example. Those barriers will be considered as part of our strategy for meeting the European 2020 target.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform) 5:30, 11 March 2008

Can the Minister tell us what the time scale for the consultation process will be? It could clearly go on for some time. It is six months since the SDC produced its report and there has therefore been a good opportunity to look at the issues in that report and take account of its recommendations. Will the consultation be over quickly or could it take a long time?

In relation to that, changes to Ofgem’s primary duties would require primary legislation, unless the Minister were to include in the Bill powers to change those duties by secondary legislation. Is he prepared to table an amendment on Report, or in another place, that would allow the duties to be changed by secondary legislation, if that were what his consultation concluded?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

To clarify, is the question about the time scale for the new guidance for Ofgem? Sorry, I may have misunderstood.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

The Minister said that the Government were about to consult on the process for giving more powers or changing the remit. How long will that consultation take?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

We will consult in the spring and expect to issue new guidance by the end of 2008.

Can I go on to new clause 13? Tempting though it would be to accept the new clause, we wish to resist it. The new clause seeks to provide priority access for electricity and gas produced from renewable energy sources to the electricity and gas transmission and distribution systems. The new clause places new duties on the Secretary of State and the authority, which would govern how they discharge their functions under the Electricity Act 1989 and the Gas Act 1986, as amended.

The proposed text on access for renewable energy to electricity networks is taken from the draft EU renewables directive, and many of the provisions referred to in the new clause were contained in the 2001 renewables directive. Those provisions are already in place in Great Britain through licence conditions and underlying industry codes. The key difference is that the new clause would introduce a requirement to mandate priority access to the grid for electricity from renewable sources. That is currently a discretionary matter for member states. Although gas is not covered in the EU renewables directive, the text has also been applied to gas through the proposed new section 4AB in the new clause.

I will first address access for renewable energy to the electricity networks, and then access for renewable gas to the gas networks. We are giving careful consideration to the merits of prioritising renewable access to the grid, and we need to address a number of issues. First, there is some uncertainty about the meaning of priority access in the national context. It is important that we do not introduce uncertainty for existing generators and those planning future investments. We need to be careful not to discourage essential investment in all generating technologies.

The next consideration is whether priority access is consistent with our wider energy policy goals, and whether it is the best route to accelerate growth in renewable generation and integrate what is largely variable generation into the electricity networks, while keeping those networks safe and reliable. Offshore and onshore wind generation is likely to play the largest part in meeting our renewable energy targets in 2020. To accommodate such variable renewable generation, it will be essential to have a significant amount of responsive back-up generation to maintain system reliability. A mixed-generating profile is therefore consistent with, rather than opposed to, our ambitions for renewable generation.

We need to ensure that the access regime encourages essential investment to come forward. If conventional generation were displaced because of the prioritisation of access for renewable generation for a period of time, or if new investments in reserve capacity were not made, there are foreseeable difficulties for maintaining a reliable electricity system. We are considering reforms to grid access arrangements to ensure that the regulatory framework remains fit for purpose in the medium and longer term, and to speed up the connection of renewable generation as part of the transmission access review with Ofgem. An interim report of the review has been published and my Department and Ofgem are working towards a final report in May 2008. We will work further on the matter as we work with industry to deliver the conclusions of the review and as we develop the renewable energy strategy. That may mean bringing forward, in the strategy, further measures to speed up the connection of renewable generation. Clearly, if we decide that the Commission’s proposals for priority access as set out in the draft directive is the right approach, the proposals will be implemented in the UK.

On the second part of proposed new clause 13, the Government are keen to support and investigate the potential of renewable gas to contribute to the UK’s share of our European target. Renewable gas, or biogas, is produced by feeding organic material such as food waste, sewage sludge, animal slurries or energy crops into an anaerobic digestion plant—if my intelligence is right, such a plant is currently the subject of some controversy in Ambridge—or from the decomposition of organic matter in landfill sites. The Department for Environment, Food and Rural Affairs has recently announced that £10 million will be made available for the construction of new commercial-scale anaerobic digestion demonstration plants. By removing carbon dioxide and other impurities, biogas can also be used to make biomethane, which could, theoretically, be injected directly into the gas networks. However, there are a number of challenges to address before it is possible to inject biomethane directly into networks in the UK, such as standards for quality and pressure.

The “Heat Call for Evidence” invites contributions on the potential of biomethane, the barriers to its deployment and how best to tackle those. It is essential to consider the responses to that and to feed our considerations into our broader work on the renewable energy strategy. Moreover, until we have reviewed the evidence on how to get biomethane into the gas system, we will not be able to judge what potential unintended or undesirable consequences might flow from the somewhat ad hoc change to the duties of the Secretary of State and the authority proposed by the new clause. Therefore, the kind of market-enablement that the new clause would provide seems entirely premature.

As I have said throughout this process, we should not make significant changes to a regulatory framework without careful consideration of the consequences. We cannot simply add powers and measures to the statute purely because we happen to have a legislative opportunity.

I should, however, say more on the connecting of renewables. There is currently a queue of projects at  various stages of development, mostly in Scotland. National Grid is developing a suite of measures to ensure that available connection capacity is offered to the projects that are best able to connect early, which is to say those with planning consent. That is in line with the objective described by the hon. Member for Wealden to connect the most viable projects first.

I hope that I have said enough to assure hon. Members that there is no lack of interest in renewables that leads me resist the new clause—far from it. However, if we are to develop the UK’s contribution to our European target, we need a comprehensive strategy, not a variety of piecemeal ones.

I believe that important considerations of system reliability and investor confidence need to be addressed before we can conclude that priority access is in itself the right way forward to accelerate the growth of renewable generation. The draft EU renewables directive is, of course, still subject to negotiation between member states. It would not be appropriate to transpose the draft text under discussion into the Bill. When the negotiations have concluded, the finally agreed directive will be transposed into legislation in the United Kingdom in the usual way. In the light of those comments, I ask members of the Committee to withdraw the new clause.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

It was clearly too much to hope that the Minister’s stony heart would melt at this last moment in our proceedings. It made me think of my little boy who was sure that he would get a PlayStation for Christmas, but found that he had been given a dictionary, and burst into tears. The Minister’s response was in the same vein. Nevertheless, it was not wholly unexpected. It is a happy coincidence, however, that the day before we reached such a debate in Committee the Secretary of State announced a consultation process on the way forward. At least, we can feel some joy at the fact that we might have advanced that consultation process.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

The hon. Gentleman has been so kind and understanding. I just want to make matters clear. I am sure he understands that we are consulting on Ofgem’s guidance, not on Ofgem’s remit.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I am grateful to the Minister for explaining matters. Clearly, such a process would not therefore require primary legislation to change it. Given that we have waited some time for an Energy Bill to be published, it is frustrating to know of the number of measures that have been put out to consultation. They really should have been dealt with before we reached this stage and thus included in the Bill. Nevertheless, we shall reflect on matters further, and take soundings from the SDC and other interested parties about what they think will be the appropriate way forward. We reserve the right to bring the provision back perhaps as a new clause or an amendment on Report. In the light of what the Minister has said, it would be inappropriate to press the new clause to a Division now. Instead we shall reflect further on the best way forward. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.