Clause 78 - Annual report by Secretary of State on security of energy supplies

Energy Bill [Lords] – in a Public Bill Committee at 4:30 pm on 16th June 2011.

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Photo of Caroline Lucas Caroline Lucas Leader of the Green Party 4:30 pm, 16th June 2011

I beg to move amendment 169, in clause 78, page 59, line 37, at end insert—

‘(2BA) In 2012 the report required under section (2A) shall be accompanied by proposals for a formal definition of distributed energy and include plans to develop a strategy setting out the role of distributed energy in energy policy, including in ensuring the security of energy supplies.’.

Subsections 2A and 2B commit the Government to producing an annual report on the electricity supply capacity. This amendment requires the Government to formally define distributed energy and to set out how distributed energy will be recognised in energy policy, including when considering the security of supplies.

Photo of David Crausby David Crausby Labour, Bolton North East

With this it will be convenient to discuss amendment 170, in clause 78, page 60, line 7, at end insert—

‘(f) electricity generated from distributed energy sources’.

This amendment will ensure that the new assessment of what electricity supply capacity is required will take into account electricity generated from distributed energy sources. It does so by adding distributed energy to a list of other factors that have to be considered.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

The Bill is rightly focused on saving energy. However, I want to draw the Committee’s attention to the need also to ensure that the energy being used has as small an impact on the environment as possible. My proposed new clause 18 addresses the emissions from large-scale power plants, seeking to limit their emissions to no more than 300 grams of CO2 per kWh, but we will come to that later.

These amendments address the other end of the market, seeking to promote the use of small-scale power generation through distributed energy, which is sometimes also known as decentralised energy. In 2009, energy supply was responsible for just over a third of the UK’s carbon emissions, making it the UK’s single greatest contributor to climate change. At present, up to 6% of energy used to generate electricity from centrally burnt fossil fuels is wasted, with only 40% or so actually making it to the transmission network. If that were not bad enough, roughly a further 7% of that energy that does reach the grid is lost during transmission. In total, the energy wasted at the power station and on the wires is equal to the entire water and space heating demands of all the buildings in the UK—industrial, commercial,  public and domestic. Such inefficiency needlessly adds to the cost to consumers, while also creating more carbon emissions.

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells

While we are on the subject of transmission of electricity, I would draw the Committee’s attention to a point and ask the Minister to comment later. I suspect he knows what is coming. The best way we could minimise some of those transmission losses is by putting power cables underground. Nobody ever expects to find their water or gas going overhead. If we were to put power underground, it would reduce those transmission losses significantly.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I thank the hon. Lady for her intervention.

All the efforts that we make to reduce the consumption of energy, important as they are, are severely compromised if we do not also revolutionise the way that we generate the energy that we need. Distributed energy systems produce power close to or at the point of use, significantly cutting inefficiencies. Instead of being passive consumers of energy, buildings can become constituent parts of local energy networks, through, for example, the installation of small and medium-sized renewable or local combined heat and power plants. A further advantage is that locally based energy generation can empower communities to take charge of their energy use and its cost.

Distributed energy has already proven that it can be a vehicle for tackling fuel poverty, with, for example, substantial interest in the feed-in tariff in the social housing sector, where schemes have eliminated or substantially reduced energy bills for social housing residents. As energy prices from the traditional fossil-fuel based suppliers continue to rise, a decentralised approach, dominated by renewables, can significantly help to insulate customers from price jumps.

Decentralised energy also encourages smaller independent entrants to the market, helping to provide greater market liquidity and generating the competition needed to keep prices down.

Photo of Zac Goldsmith Zac Goldsmith Conservative, Richmond Park

I strongly endorse the hon. Lady’s comments so far. I have a quick question. Are there any reliable estimates of the contribution that can be made nationally by distributed or decentralised energy?

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I am sure those figures do exist. I do not know them off the top of my head, but everything I have read suggests that a significant degree of energy could come from distributed sources. I will not put a figure on it because, if I do, it is the sort of figure that would be found to be wrong, but it could be significant.

Many people have been working tirelessly to roll out the energy revolution across the country, and it could start to be officially recognised if the Government were to adopt these two amendments. Members may be concerned that such a radical transformation of our energy system would be costly, but decentralising our energy sources, instead of replacing our huge and expensive energy network of cables, pylons and substations, could save money in the longer run.

Amendment 169, as Members can read in my explanatory statement, would ensure that distributed energy is formally defined for the first time and that  plans are developed for setting out its role in UK energy policy. The amendment would be an important step forward.

Amendment 170 would ensure that the new assessment of electricity supply capacity envisaged by clause 78 takes into account the electricity generated by distributed energy sources.

At present our electricity market is structured around two extremes: microgeneration and traditional, large-scale, centralised fossil fuel generation. The industry consensus is that in future we will need a greater range of generator size, and the coalition agreement reflects that view by committing the Government to encouraging the uptake of community-owned renewable energy schemes in which local people benefit from the power produced. That concept needs to be defined. Does it mean community ownership and management, community equity shares, community financing or simply that a community receives benefits from outside developers?

We must also decide what role distributed energy can play as part of our overall electricity supply. Amendments 169 and 170 are a modest but important step towards answering those important questions, and they open the door to greater recognition and consideration of distributed energy supply.

Photo of Zac Goldsmith Zac Goldsmith Conservative, Richmond Park

Is it too late to intervene?

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

No, I am still in my flow. I am happy to give way.

Photo of Zac Goldsmith Zac Goldsmith Conservative, Richmond Park

I appreciate this last-minute door opening.

I do not know whether the two proposed mechanisms will lead to the uptake that the hon. Lady and I would like to see across the country. The Minister has been a champion of decentralised energy and he launched the main report, the name of which I forget.

Photo of Zac Goldsmith Zac Goldsmith Conservative, Richmond Park

It is a brilliant report, which he launched four years ago with the now Prime Minister. It is an exciting document.

I want the hon. Member for Brighton, Pavilion to join me in asking the Minister, irrespective of whether the amendments are the right amendments to advance the cause of decentralised energy, to tell the Committee what else exists in this package and will exist in subsequent packages to deliver the power to the people revolution that has been talked about by the Conservative party both in opposition and in government.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I join the hon. Gentleman in supporting that report, which is a very good document, and if, as I expect, the Minister says that the amendments are not the right way to pursue this issue—perhaps he will accept the amendments, which would be marvellous—I join the hon. Member for Richmond Park in asking what clear pathway the Minister envisages for recognising the role that distributed energy can play in our overall energy supplies and how we can develop that policy in future.

Tessa Munt rose—

Photo of David Crausby David Crausby Labour, Bolton North East

Order. Have you finished, Dr Lucas, or is this an intervention?

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells

It is an intervention.

The hon. Member for Brighton, Pavilion a moment ago mentioned the proportion of energy that comes from home-grown sources. Will the Minister confirm that such energy buffers the consumer from price increases? My particular interest is that only renewable energy can do that, because we will no longer be held hostage by power sources that come from outside. Even the most ardent advocate of nuclear power would admit that it does nothing to increase our energy security. Nuclear energy is reliant on uranium, which is mined abroad. I am not sure that Kazakhstan is the most secure of sources, and neither are Niger and Russia, which has caused chaos in the gas market. The price of fuel, if not from sources that are home-grown, is still susceptible to international instability, which will affect us. Fuel poverty affects everything. If we can sort out the price, that will be a help.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I thank the hon. Lady for her intervention. I absolutely agree with her, particularly about energy security. It is one of the subtitles of the Bill and, as she said, distributed, renewable energy can make a huge contribution to our overall energy security, and I look forward to hearing the Minister’s response.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I am grateful to the hon. Lady for tabling the amendments and the thoughtful and constructive way in which she introduced them. Clauses 77 and 78 are about security of supply and they should be seen alongside the significant package of reforms in the electricity market reform process, which is being developed separately from the Bill. I understand her intentions in tabling the amendments, but I hope I can reassure her that they are not required. I say that, not because I disagree with the sentiments behind them, but because such matters are already covered under the Bill.

We fully recognise the important role that distributed energy has to play in the United Kingdom in meeting our objectives for energy and climate change, and the benefits that it brings in increasing competition throughout the energy market and helping communities to maximise opportunities that exist within their local areas. We also know that, as demand increases for electrification of heat and transport, local generation and local heat networks can help to reduce the cost of transmission system reinforcement. Distributor generation can also play a role in short-term demand side response. I want to reassure the hon. Lady and my hon. Friends the Members for Richmond Park and for Wells that such matters will be an integral part of our policy going forward. We want more local distributed energy within the mix.

The Government are committed to ensuring that appropriate support exists at all scales of the energy market. The feed-in tariffs for renewably generated electricity, in particular, will provide support for the small-scale distribution market. One of the clear  commitments that directly answers the question about the coalition is to support community-owned renewable projects. We have launched the community energy online web portal, which is aimed at providing advice to communities and local authorities looking to install energy projects at such a scale.

We have also lifted the bar on local authorities generating their own electricity, and many of them will be keen to do so in a way that generates electricity locally for the local community and will of its nature be distributed energy. We are soon to publish a full microgeneration strategy and, within the market reform process, the capacity mechanism will be able to bring forward some technologies and give support to them. Under clause 78(2)(2D), the assessment of capacity required must take into account a number of issues, including the “generation of electricity”. I am happy to place it clearly on the record that, in that context, it includes distributed generation, provided there is a practical way in which to assess it. That is not a cop-out; it is simply to say that some of the distributed generation installations might be of a scale that means they do not have to register, thus we are not necessarily aware of them. Moreover, they do not need planning consent, so the local council is not aware of them. However, where we are aware of them, they will be incorporated within the procedure. The structure of the process takes absolute account of distributed generation.

The hon. Member for Brighton, Pavilion will appreciate that one of the benefits of distributed generation is the range and scale of technologies that it covers. It also presents a challenge in terms of the amount and quality of information that is available. I have therefore asked my officials to work with Ofgem to agree on how best to take account of distributed generation in our assessment of the security of supply. My hon. Friend the Member for Wells made a valid point about renewables, and we have to be much more on the front foot about explaining the role that renewables have in the security of supply.

I do not know what the price of gas will be in the early part of next year, but I know what the price of wind will be for the rest of my life. I know what the price of the tide will be, and that there is a significant element in how we provide long-term protection for consumers if we know that there is a fixed installation cost and that we are using a free resource. The contribution that they make to the security of supply is very significant.

There is also an advantage in using domestic resources. Increasingly, gas will be imported, as will oil. More than half of our coal is imported. Uranium has to be, although one of the largest producers of uranium is Australia, which is a very benign nation and a good trading partner for us, in that respect. Taking advantage of what I call our home-blown, rather than home-grown, energy resources should be part of our energy security strategy.

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells 4:45 pm, 16th June 2011

I accept the Minister’s point that Australia and Canada can both provide uranium. When there are market pressures, because everybody will want some—with the initial exception of Germany and one or two other nations, perhaps—the cost pressure will be added to, so there will be inflation in the price of our energy.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

The OECD has produced a report saying that it is very comfortable about the availability of uranium. I understand that we are straying away from distributed generation by talking about the global sources of uranium, but there are clearly costs and risks that the generators would have to take into account. If those make it unaffordable, generators would find that they cannot get the return that they sought on their investment. I would say, however, that I see this as part of a mixed-balance energy approach: we want to take advantage of the renewable resource that exists; we want clean coal through carbon capture; I believe that we want new nuclear within that mix; and we need to find out what the long-term role is for gas in terms of security, which it can also bring. Balance in energy matters is a critical part of the policy.

Finally, I want to address the point that my hon. Friend the Member for Wells makes regularly. I think that she has asked me more parliamentary questions on this matter than all the Members of Parliament have put together, on every other issue, so I congratulate her for her tenacity. We are continuing to work on the undergrounding costs, although more work needs to be done. I am absolutely committed, however, to ensuring that we have a proper handle on the costs of undergrounding, compared with overgrounding, and that we look more carefully at where it is appropriate to underground, so that we can see where sensitive areas are and find ways to address that. That is not a conclusion in relation to policy, but it is a sense of direction that I hope reassures her.

In terms of distributed generation, I hope that the fact that that will absolutely be included within the security of supply report gives the hon. Member for Brighton, Pavilion the comfort that is necessary to withdraw her amendment.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I thank the Minister for his comments. What would reassure me even more would be a bit more clarity about whether there will be a strategy for distributed energy. I can see that it could form part of the microgeneration strategy mentioned by the Minister, and I would be interested to know what the time scale for that is—I apologise, because I do not know when it is due. To me, however, it still seems that there is a need for something that sets out more of a pathway for how distributed energy will be operationalised. I understand that it is happening in different parts, but I want the overall picture.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

May I say to the hon. Lady that the microgeneration strategy will be published within the next few weeks, certainly before the summer recess? We also fully understand that microgeneration is not the end of the story. It is a very exciting part of decentralised energy, and it is the most consumer-facing part of the story, so it gets the most airplay. We think that there is huge potential to drive this much more widely, but in the electricity market reform process we will look at how decentralised energy systems can play a much greater role—in particular, low-carbon and renewable DE. We look to the example of economies such as Denmark and the Netherlands, where industrial combined heat and power—for example, gas-fired as a transitional fuel—meets a big chunk of energy supply and energy security needs. We are a long way from being anywhere  close to that, but I hope that when we publish our White Paper, the hon. Lady will see that sort of ambition reflected in the EMR proposals, which I know are eagerly awaited.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I thank the Minister for that response. It is helpful to know that this issue will be tackled under the EMR and to some extent under the microgeneration strategy, too. I am still seeking something that would bring those things together and look at the overall potential, whether that is through the EMR, the microgeneration strategy or another measure. I would like an overall strategy that tells us how we will get from where we are now to a much greater investment in decentralised energy. I appreciate that, at the moment, it is in different parts of the overall Department of Energy and Climate Change remit. Will anything bring those things together into a more integrated strategy for decentralised energy?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

The best answer is that EMR is considering the whole future of our low-carbon energy sector, but I take on board the hon. Lady’s points, and I will reflect on what she said. Going forward, we need to give greater focus to that. It is not that we are not doing so already, but perhaps we need to give greater focus to convey a sense of the Department’s ambition on that agenda.

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells

I thank the Minister for giving way. Clearly, at a time when we have—

Photo of David Crausby David Crausby Labour, Bolton North East

Order. You cannot intervene on someone who is intervening. After I call Caroline Lucas, you can intervene.

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells

Fine. I was not sure whether the Minister was answering or not.

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells

I thank the hon. Lady for giving way. I hope that the Minister will recognise that at a time when we depend on imports for 60% of our energy, it is terribly important to ensure that we have some framework so that developers and communities know where they are going and planning is sorted out. People must have an absolutely clear indication that it will not be done by what I suppose would be called small-l liberals who knit yoghurt, or whatever it is that we do. It is a realistic prospect to reduce the quantity of energy that comes from outside. It is not fringe activity; it is central to where Government will go in terms of energy provision for the future.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I thank the hon. Lady for that incredibly helpful intervention. It outlines a few more things that it would be nice to have in the overall strategy for where we are going. I thank the Minister for his undertaking to go away and think about the matter a bit more. If he were moved to put something in a letter, it would be even more useful, because then we could go back to it and follow through.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

Hopefully, hon. Members will have seen our seamless, joined-up Front-Bench approach to these matters and how we work together on security of supply and the parts of the strategy dealing with decentralisation and microgeneration. I hope that what comes through clearly to the hon. Lady and others is exactly the joined-up thinking that my hon. Friend the Member for Wells calls for. It will be evident in the final iteration of the national policy statement and the renewables road map, which we will publish shortly, along with the microgeneration strategy. It will also be evident in the forthcoming market reform proposals. July is energy month for the House. We will have an enormous amount more clarity and structure, so we can move through the consultation phase into firm and concrete proposals so that people know how to take matters forward.

We will certainly be pleased to write to the hon. Member for Brighton, Pavilion to clarify things further and provide her with greater comfort. I hope that it will be the Committee’s will that the amendments should be withdrawn.

Photo of Caroline Lucas Caroline Lucas Leader of the Green Party

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 78 ordered to stand part of the Bill.