Energy Bill
Debate between Lord Gardiner of Kimble and Baroness Worthington(10 years, 10 months ago)
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Baroness Worthington
My Lords, I am grateful to the noble Lord, Lord Stephen, for tabling the amendments, to which I have added my name. We fully support them. As we have said previously, this Bill is a significant intervention and we need to ensure, where we can, a smooth transition from existing policies which have served us relatively well as we make the move into an unknown system. The amendments of the noble Lord, Lord Stephen, are designed to achieve that.
In this context, it is imperative that we do not breach the trust of the industry and the investors who put their money into projects by misinterpreting the term “grandfathering”, which is a clearly understood phrase. It means that if you invest in good faith, there will not be regulatory interventions to change the fundamental tenets of that investment. Unfortunately, the provisions in this section stretch the definition of grandfathering to breaking point.
We particularly support Amendment 55AL. As has been eloquently expressed, the words in the subsection will certainly strike terror into the hearts of investors. They are far too broad and enable changes to the fundamental facts on which an investment was based. It will damage investor confidence not only in relation to that one narrow aspect but more globally. We are asking many investors, entrepreneurial companies and the existing market players to work with this new system. I think that it can work, but if we start on the basis of regulatory uncertainty and not recognising and respecting grandfathering, we will start off on a very poor foot indeed. I think that I am right to say, although it may not have been directly in this context, that I have heard arguments played back by Ministers that have said that we cannot introduce emissions performance standards on to existing coal plant, because that would damage investor confidence. It would mean that people saw us as an unreliable place to invest. This aspect is actually far riskier than that, and I hope that the Minister can give us words of encouragement in relation to these two amendments, which are essential to get us off on the right foot with the Bill.
Lord Gardiner of Kimble
My Lords, I thank my noble friend and the noble Baroness for tabling these amendments, and for an illuminating, positive and helpful debate. In Committee, we can help to fine tune a Bill. My noble friend mentioned helping the Government; our duty is to help the nation to get this right. Certainty, trust and the smooth passage of transitional arrangements are certainly key.
Amendment 55AK inserts a requirement for the fixed-price certificate scheme to replicate the arrangements under the renewables obligation. The amendment aims to ensure that the fixed-price certificate scheme will be based upon and replace the RO, which is indeed our intention. I can confirm for my noble friend Lord Stephen that those generators that would otherwise qualify to receive renewables obligation certificates in 2027 and beyond will instead qualify for fixed-price certificates.
Clause 46 already mirrors much of the primary legislation for the RO to ensure that we are able to replicate the effect of the RO, so far as is appropriate. The differences from the RO are a result of the different ways in which the schemes operate; for example, the fact that the price of certificates will be fixed means that this will no longer be a market-based scheme. Amendment 55AL removes the provisions for both regular and ad hoc reviews of support levels under the fixed-price certificate scheme. The Government do not expect to make regular support-level changes under the fixed-price certificate scheme. However, I hope that noble Lords would accept that the Government must be able to respond to significant unexpected changes, such as major cost reductions or increases within a particular technology, so that we can deliver the generation we need for our renewables targets at value for money for consumers.
My noble friend mentioned secondary legislation. In the autumn of 2014, we intend to consult on the secondary legislation for the transition of the renewables obligation to a fixed-price certificate regime. We propose to bring forward this legislation in early 2015.
Energy Bill
Debate between Lord Gardiner of Kimble and Baroness Worthington
Lord Gardiner of Kimble
My Lords, I thank the noble Baroness, Lady Worthington, for introducing this chapter of the Bill. I hope that noble Lords will understand that when I first studied the Bill and saw that Clause 47 opens with a formula, I was rather bothered. Providing that we can all keep to layman’s language, I will try my best, but if we go into formulae, I may need more advice.
I thank the noble Baroness also for tabling this amendment, which seeks to provide carbon capture and storage projects with an exemption from the emissions performance standard during their commissioning and proving period, with any exemption limited to a maximum period of three years. I am grateful, too, to all noble Lords for their contributions to this interesting debate at the beginning of this part of the Bill. I continue to learn a great deal.
The Government believe that CCS will have a critical role to play in reducing emissions in our country, allowing coal and gas, including that produced from indigenous sources, to continue to be part of our future low-carbon energy mix. The Government share the noble Baroness’s enthusiasm for CCS and want to see it deployed at scale in the 2020s, competing on cost with other low-carbon technologies. Our CCS programme is designed to drive forward the rapid commercialisation of CCS and includes £1 billion of capital funding for the first projects under the CCS competition. I note that we have two preferred bidders, Peterhead and White Rose; obviously, we will need to consider their progress.
My noble friend Lord Jenkin talked about CCS working abroad. It is advancing particularly in America and Canada. Those projects are combined with enhanced oil recovery, which improves the economics of the projects. Some of the circumstances of Europe and this country may be different, but those examples suggest that progress is being made around the world.
The noble Baroness will no doubt be aware that the original draft Bill contained provision for giving CCS projects supported under our CCS competition an exemption from the EPS. The purpose was to provide CCS projects with some flexibility in relation to the limits imposed on the operation of a plant by the EPS in order to help manage the inherent risks associated with trials of a first-of-a-kind technology. However, during pre-legislative scrutiny of the Bill, concerns were raised around the scope of the exemption provisions, in that the use of broad exemptions could undermine the purpose of the EPS. The Government looked at this again and decided, on balance, that these concerns could be addressed by managing any EPS-related risk through the CCS project-funding contract issued to a project under our CCS competition.
However, there have been a number of developments since last year with our CCS competition, which has stimulated industry to bring a number of proposals for CCS projects. The Government are therefore keen to encourage the development and deployment of CCS, irrespective of whether it is part of the CCS competition, so we have already been considering options for how we might provide CCS projects with some flexibility under the EPS during the early commissioning phase.
The noble Baroness’s amendment is tightly prescribed and would limit the duration of the exemption so that it was explicitly consistent with the overall purpose of the EPS. Undoubtedly there are positive advantages to the approach reflected in the amendment. As I understand the way of things, therefore, I would like to give much further consideration to the amendment ahead of Report. I repeat my thanks to the noble Baroness and ask her if she will consider withdrawing her amendment.
Baroness Worthington
I thank the Minister for his encouraging response and for saying that he will take the amendment away. Today’s contributions have underlined the importance of CCS. Here we stand a chance of the UK really capitalising on our natural assets, in terms of both the storage capability that we have in the North Sea and our engineering prowess and experience in offshore matters. I am hopeful that we will see CCS projects coming forward in the UK very soon.
In response to the question from the noble Lord, Lord Kerr, about whether or not CCS has been demonstrated anywhere, I refer him to the helpful report that the Government produced on CCS. Every three years the Government are legally bound to report on CCS developments. This Bill will actually repeal that but my noble friend Lord Grantchester is suggesting that the report should stay. In that helpful report we learn that investment is indeed going on today in CCS in the UK, and it details two plants that are very close to being commissioned in the US, due to come on stream in 2014. I am hopeful that then, at least, we will be able to put the lie to the idea to that CCS cannot be commercialised. If the US shows the way, I am sure that many others will quickly follow, including China, which, as we know, is investing in a number of CCS projects and, I am sure, is racing to get there too.
We need to up our game and get on with it, and this amendment is designed to ensure that there are no unnecessary hurdles in the way. I am encouraged by the Minister’s response so I am happy to withdraw.
Lord Teverson
Before the noble Baroness does so, the Minister mentioned 2020 in terms of commercialisation. Given the current stage of the tendering process, when might we perhaps predict that the first full-scale CCS demonstration project will be operating? Do we have a date for that now? I think we are all concerned. We all want this technology to win. We are aware, as the noble Baroness, Lady Worthington, has said, that it has taken a huge amount of time to get momentum, despite all the good will that there is for it.
Lord Gardiner of Kimble
I thank my noble friend. My understanding is that we may be working on this as early as 2015.
Lord Gardiner of Kimble
I have said that I will study everything that all noble Lords have said. The point is that you would not have certainty, building in 2043, that the EPS level would stay the same beyond 2044. I think that probably helps to clarify that. However, I will consider all the points that my noble friend has made.
Baroness Worthington
I thank the Minister for his comments. It is incorrect to say that this amendment would introduce more uncertainty. It would introduce certainty of a different kind, one that is compatible with our legally binding targets on climate change. It is not introducing uncertainty because it is still primary legislation that tells the investor the framework within which they need to operate.
Are investors living on a different planet? Do they not know about the climate change targets that have been set for us, the legally binding carbon budgets and the planning requirements on the very plants that they will be building—that they should be carbon capture and storage-ready? Do they think that we are simply going to give up on climate change and ignore all this and that they can be merrily emitting for ever? It beggars belief that investors are saying that this is an absolute necessity for them to invest. Twenty years is ample to get a return on investment.
As I pointed out, when this was first being mooted, a 20-year grandfathering was suggested. Where this 31-year grandfathering came from, who knows? But it is not good enough for the Government to be quoting the CBI as if it is somehow the world’s expert on this. We know that it is not the CBI that has demanded this; we know it is the Treasury, and it comes back to the very point that I have been making throughout these proceedings, that there are two strategies at play in government on energy. There is uncertainty and a lack of clarity because of that. To argue that this amendment somehow introduces more uncertainty is quite rich, frankly, and completely inaccurate.
As your Lordships can tell, I am very disappointed that the Government cannot see the logic of this. As the noble Lord, Lord Deben, has pointed out, these two factors are incompatible. You cannot have unabated gas being built right the way out to 2044 and then suddenly meet your carbon targets. It is simply not possible.
You are creating a legal framework which lacks credibility. There is nothing more uncertain than that; if you ask any investor they will say that. This will be challenged and changed. Investors know that because they are not stupid and live in the real world where climate change is increasingly an issue that we need to tackle and we have a legally binding framework that insists that we do so.
I suggest that this is taken away and looked at again. The suggestion that came in at the end of perhaps putting a clause in which stipulates that this applies to plant built before a certain date is potentially a good way. However, I would say that this amendment is a perfectly good way of doing it, too. I am very disappointed to be withdrawing the amendment, and it is almost certainly something that we will come back to on Report.
Baroness Worthington
My Lords, in speaking to the amendments tabled by the noble Viscount, Lord Hanworth, I will not go over what I have previously said. I feel strongly that this aspect of the Bill has not had the degree of scrutiny that it deserves. Our Committee has gone through it in far greater detail than was achieved in the Commons, where only a cursory debate was had. With the number of noble Lords who have spoken, we clearly have expressed concern that the Government have not quite got it right in their current formulation.
One of the problems is that this is primary legislation with an equation, numbers and dates written into it. That makes it an incredibly inflexible tool that would need more primary legislation to change. I do not believe that the levels here were the product of a great deal of consideration, analysis and thought; I believe that they came out of a hurried meeting between two departments with different views, and to have them enshrined in primary legislation seems reckless. I encourage the Government to think carefully before pushing for these matters to stay unamended in primary legislation. Perhaps it would be better for them to be dealt with in regulation.
Given the wide-ranging powers that the Government have given themselves on everything else with very little detail, it is odd that this rather unhelpful set of prescriptions is in primary legislation. There are lots of things here to be taken back and thought about. I will speak more on the coal issue when we come to those amendments as there are considerable issues about unabated coal in the future, but there is definitely merit in taking this away.
Lord Gardiner of Kimble
My Lords, I am grateful to the noble Viscount, Lord Hanworth, for his amendments, which have given us a further opportunity to consider these matters. As I have said, with my noble friend the Minister I will obviously consider what has been reported in Hansard. That is the important part of what we are doing in Committee.
The EPS focuses on helping us to meet our commitment to preventing new unabated coal-fired power stations being built by limiting the emissions of any new coal plant to around half of what they would otherwise be. The EPS supports the planning requirement that any new coal-fired power station must be equipped with CCS on at least 300 megawatts of its generating capacity, and will ensure that any new coal plant is constructed and operated in a way consistent with our decarbonisation objectives. Setting the limit at 450 grams per kilowatt hour will allow some flexibility to assist the economic optimisation of CCS demonstration projects and to manage the uncertainties associated with first-of-a-kind CCS projects.
We are concerned about going to a limit level of 300, which is below the emissions level of even the most efficient and cleanest new gas plant operating at base load, as proposed by this amendment, because of the major implications it may have for this country’s security of supply and impact on consumers’ bills. The 300 limit would restrict the running hours of new and cleaner gas plant that are needed to replace ageing capacity retiring over the next decade, impacting on the commercial viability of new gas plant and so deterring the much needed investment we need or increasing the costs of those investments.
In addition to introducing a significant risk to investors, the 300 limit could, under certain scenarios, lead to increased emissions and costs. For example, if new gas plants were restricted in their operating hours by the 300 limit, that could lead to the need to use less efficient coal or gas plants to make up the shortfall in operating hours in order to provide power for the country. This is a scenario that I am sure the noble Viscount does not intend to create through his amendment, but I think that there is a danger of that. Setting the EPS at 300 would also increase performance risk for CCS projects and, as a result, would increase the costs of projects that are currently coming forward now under the Government’s £1 billion CCS competition.
The noble Viscount’s Amendment 51KA would insert a provision into Clause 47 that would place a duty on the Secretary of State to publish and lay before Parliament a strategy for the phase-out of unabated coal generation within six months of Royal Assent. The measures in the Bill form part of a suite of policies designed to deliver the Government’s strategy for reducing carbon emissions, as set out in the Government’s carbon plan published in December 2011.
The Government have also published a number of low-carbon technology-specific plans, including road maps for carbon capture and storage and renewables. A reduction in unabated coal generation is therefore strongly implicit in these plans and policies, so I remain to be convinced that a strategy of the type proposed by the amendment is required.
Lord Gardiner of Kimble
I hope the noble Baroness knows that I do not like anyone being disappointed, bur it is the realities. I want to acknowledge straight away the concerns that my noble friend and the noble Baroness seek to address through the amendment, and the need for future levels of carbon emissions from coal generation to be consistent with our decarbonisation objectives. However, to plan the EPS in the way proposed by the amendment has certain difficulties.
The amendment would extend the EPS to existing coal plants, which currently—I emphasise “currently”—make up a significant and reliable proportion of our generation capacity, and are needed to play a continuing and important role in the transition to a low-carbon electricity system, which we all wish for. However, the role of coal over the coming years needs to be consistent not only with our decarbonisation objectives but with ensuring that our electricity supplies are secure and affordable. That is why I am happy to repeat for my noble friend that we have a policy of no new coal without CCS, which the EPS reaffirms.
The measures under our electricity market reforms are designed to achieve these objectives. The introduction of contracts for difference will bring forward investment in increasing amounts of low-carbon capacity, with the carbon price floor improving the economics of gas generation relative to coal. The effect of this will be that we see a gradual decline in generation from unabated coal as it is displaced by lower-carbon forms of generation, including renewables and new gas.
The noble Baroness mentioned the 12 existing coal plants. Our gas generation strategy analysis has shown that no more than two of the existing coal power stations will operate beyond 2025, and none by 2030. It also shows that total generation from coal will be 3% by 2025. That indicates what our direction of travel needs to be.
However, by linking the EPS directly to operators’ decisions in respect of the industrial emissions directive, we risk deterring investment in equipment to reduce harmful pollution and undermining the purpose behind the directive; that is, the reduction in harmful emissions.
Baroness Worthington
I tried to cut that off in my comments to stop the Minister using it. It is illogical to say that you want plants to fit filters to get lower emissions. If the plant closes, those emissions go to zero. If it fits filters, some of the units might be down at 100; others will be at 300. You will have more emissions if you allow old coal to continue operating, so I am afraid that the Minister cannot pray in aid the air quality excuse. It is clear in the IED that member states are at liberty to go further than the directive in pursuit of lower emissions and, specifically, low carbon emissions. Therefore, you would be in compliance and you would have better air quality.
Lord Gardiner of Kimble
Surely, even if a few coal plants carried on until 2025 or 2030, would it not be a good idea to reduce their emissions from existing levels so that we could improve air quality while those coal stations were in being? Whether one likes it or not, they will be in being for a little longer.
There is also the question of investor confidence—I know that the noble Baroness has mentioned this as well and we may have to take differing views. Imposing the EPS on existing plants in a way which is detrimental to those assets is likely to have negative consequences for wider investor perceptions of the UK. I know that that will not please the noble Baroness, but I think that those are points that other people think are important.
Furthermore, under the national policy statements for planning, a “significant extension” to an existing coal-fired power station triggers a requirement that the station be equipped with CCS. That prevents developers circumnavigating the CCS requirement by building additional or replacement capacity on an existing power station.
Schedule 4 will therefore allow the EPS to be applied to an existing coal station in the event it is upgraded in a way that extends its technical lifetime for a period comparable to that of a new plant, but it does not trigger application of the EPS by way of the planning regime.
The Government are working to reduce the country’s reliance on unabated coal in a way which is cost effective for both industry and consumers. The noble Lord, Lord Oxburgh, is not in his place, but in the balance that we are seeking for the new technologies and the way forward for low-carbon technology we have also to be mindful of consumers. That is why consumers should have priority alongside the other matters that the noble Baroness and my noble friend have articulated so strongly. However, I hope that in this circumstance my noble friend will feel able to withdraw his amendment.
Baroness Worthington
My Lords, the Minister mentioned in his reply that under the gas strategy only two plants would be operating. I am rather dismayed to hear that. I am not a great fan of the gas strategy at any time but that has made me even less confident in its analysis. It is absolutely clear that already four plants have opted in to fit, to be compliant with the IED regulations. That is considerably more than two. Once they have fitted that filtration equipment, they will have a capital cost that they will want to see returned. They are not going to suddenly decide to shut up shop in 2025. There is a high degree of complacency, based on the fact that the analysis and the modelling that were done did not take into account the following important factors. Coal prices are low and are going to stay low. If you own a coal-fired power station today, you can see pound signs ringing in your register for many years to come and that is a huge incentive to comply and go forward with the air quality standards. Also, the filtration equipment is very likely to come down in cost, making that equation even more favourable. Finally, with capacity market payments coming—we will have a chance to debate that on Thursday—that is another financial incentive to keep these plants running. The Government are being complacent and I urge the Minister to think again.
Energy Bill
Debate between Lord Gardiner of Kimble and Baroness Worthington(10 years, 10 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Lord Gardiner of Kimble
We do not anticipate that the companies could recoup in those circumstances.
Baroness Worthington
It seems to me that we have got to the bottom of this. It is a very narrow thing that is needed, yet the Government have created an incredibly enabling piece of legislation with no scrutiny. It is poor legislative drafting to have taken such a wide-ranging power. The Minister says that it will not apply to electricity, or will be used only in certain circumstances—which boils down to the Army learning how to drive fuel tankers. That is very narrow, but this is not a narrow provision. It almost sounds as if one could interpret this as the Government going into the energy supply business. It is that broad. I am glad and encouraged that we are not. I am also reassured to hear that this is discretionary, although how that would play out I am not sure. Either you deploy or you do not deploy.
Is the Minister saying that we would not deploy unless the company agreed to pay? That would be a reduction in the security of the country. The company might say, “No, we’re not paying for that”. Who in their right mind would say yes? If you are an oil company, you will not have factored into your bottom line unexpected payments to the Government for people to drive your tankers. The money has to be recouped from somewhere, and a company would be perfectly within its rights to refuse to pay. In that case, the Government will have to deploy their personnel anyway, or risk an interruption in our fuel supply. This needs to be narrowed in its application. It needs more definition in law.
I absolutely agree with the noble Lord, Lord Roper, who pointed to the delegated powers recommendation that subsection (3)(b) does not deserve to be here. It is far too wide-ranging. The whole thing is ill conceived. As I pointed out, in a disaster situation the last thing you want to be doing is negotiating around who is paying who. We have a Government. We pay taxes for a reason. That is what we expect of government. This is penny-pinching from the Treasury and it does not deserve to be in the Bill.
Energy Bill
Debate between Lord Gardiner of Kimble and Baroness Worthington(10 years, 10 months ago)
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Baroness Worthington
My Lords, this amendment speaks to the setting of the strategy and policy statement required by the Bill. Part 5 is an interesting aspect of the Bill because it moves away from purely electricity and considers all energy matters. It requires that a strategy and policy statement be maintained and formulated for Great Britain’s strategic priorities in relation to energy policy. I stress that because, as we all know, energy policy is far more than simply electricity or gas but encompasses all the primary energy used to supply energy to businesses and consumers for heat, electricity and transportation needs. This may seem academic but it is important to stress this because time and again Governments have been tempted to equate energy with electricity. They often extend that to include gas but it is rare for there to be a holistic view of all energy. The establishment of the Department of Energy and Climate Change created a structure in which I had hoped that a more holistic view of energy could be developed.
However, there are still departments of government with responsibility for energy that sit outside the DECC framework, most notably the Department for Transport, and it is not quite clear how the Department of Energy and Climate Change relates to other departments that have an impact on energy policy. That is true at a departmental level.
At the regulatory level—this part of the Bill also deals with the independent regulator Ofgem and its duties—there is clearly a gap. I am encouraged that the setting of a strategic policy statement will, I hope, create a much clearer framework of who is doing what and who has responsibility for what. We have a regulator for electricity and gas, but it is not an energy regulator. The powers do not extend to the many consumers who are off the gas grid network and rely on unregulated sources of energy. Periodically there are concerns, which often reach the media, about people who have been forced to purchase from other suppliers and be completely dependent on that fuel in the winter months. There is no price regulation there.
Colleagues in another place have raised concerns over how non-domestic consumers are represented by our regulator. We tend to equate the regulation as being on behalf of consumers but that is a broad definition and there is a subset of consumers, the small and medium-sized enterprises, which are facing considerable issues. I hope that Ofgem’s remit will cover them and that we hear more about how they can be protected.
I have tabled my amendment to force the Government to consider the gaps in current regulation. That will become increasingly important, not least because, as we move forward with a low-carbon agenda, the three major energy markets—electricity, heat and transport—are starting to merge and cross over. The noble Lord, Lord Flight, last week tabled an amendment on the interplay between biofuels being used in the heat market and transport markets. These issues are becoming increasingly apparent. It is not just that fuels can be diverted into different markets but a process of electrification of transport and heat is underway. I do not know what all the issues will be as we go down this path but we should certainly have a regulator capable of looking across all the energy markets.
Another aspect to this that we hope the SPS will address is the creeping lack of clarity about the relative roles of the department and the regulator. I give just two examples. At the moment, there is a tendency for Ofgem to be involved in policy. Perhaps the most notable example of that is Project Discovery, Ofgem’s foray into the murky world of security of supply, which takes it well beyond the role of a price and market regulator into a policy arena in which the department should operate. On the other hand, the department is starting to act like a price regulator, with the Prime Minister starting to make policy on tariffs. We are shortly to hear a lot more about those proposals but it is clear that there is an increasing crossover and complete lack of clarity here. I hope that this SPS will help to address that.
My next point relates to how the commodity markets are regulated. This is an important issue because, as we have seen in the press in a number of cases, where there is potential for market abuse there needs to be a clear regulatory framework. In the commodity fuel markets, there is a lack of clarity on the distinction between where the FCA is involved in regulating markets and where Ofgem’s role starts. This will become a very important issue, not least because we are now considering a Bill in which we are placing quite a high degree of emphasis on reference prices against which we will be comparing strike prices. I have raised this in the very helpful briefings we have had in the run-up to the Bill. I was referred to the implementation of REMIT, a Europe-wide move to prevent abuses in the wholesale energy market, but I am not fully reassured by that. I have a number of questions in relation to it. Has it been implemented in the UK? When will it be implemented? The deadline for the introduction of penalties for abuse was 29 June. Have we implemented the penalties? Are we compliant with that European requirement?
REMIT goes only so far. When we are looking at a system that is highly dependent on market-based prices, I am concerned about who is going to ensure that the data that go into that process are comprehensive, holistic and not subject to abuse. In the oil market, we have heard of abuses by oil companies and about rating agencies colluding to provide only a small part of the information, not the full picture. If that is possible, do we not need to look at statutory underpinning for this information? How can we develop robust reference prices if the information provided to rating agencies is done on a voluntary basis and has no statutory underpinning? What are we doing to ensure that we have full and complete transparency in the data that are provided to develop these reference prices?
It will come as no surprise that our party is very critical of Ofgem. I have said that I do not think that the role of Ofgem is broad enough and have talked about the lack of clarity and the confusion about where the FCA’s role starts and where Ofgem’s role starts. The most worrying criticism of the regulator is that it is failing in its current remit. It is not acting to enforce fairness. Its process of reform started in 2008 and was evaluated in 2011. Of the 16 benchmarks set to compare progress against, 12 showed no improvement. That is simply not good enough. From 2008 to 2011 is a long period, and there was no improvement in 12 of those benchmarks. Ofgem is clearly failing in its stated purpose of enforcing fairness in the market.
Ofgem has failed to live up to expectations about transparency in the market. I know that this will come up in later parts of the Bill as we talk about access to markets and liquidity. In 2011, the accountants BDO issued a report, I think at the behest of the Government, looking at what could be done to improve transparency in the market. Eight recommendations were made. Of them, six were quietly dropped; only two were pursued, and they were varied from the original advice. This is a serious issue, and this is the part of the Bill where we talk about the authority and the role of regulation. We have very serious concerns about Ofgem’s remit and its ability to deliver on its current functions. Our policy would be to replace this regulator with a regulator fit for purpose to deliver proper regulation and to protect consumers now and in the future across the whole energy market.
Lord Gardiner of Kimble
My Lords, I am grateful to the noble Baroness for providing the opportunity for us to consider these matters further. My understanding is that Amendment 41A is intended to require the Government to publish a report on the case for introducing new regulatory arrangements for the wider energy sector as well as for gas and electricity within a year of the Bill coming into force.
It is true that matters such as the supply of heating oil or liquid petroleum gas do not fall within the energy regulator’s remit, but there are good reasons for this. A chief component of Ofgem’s remit is to regulate the monopoly companies that run the electricity and gas networks. No equivalent natural or structural monopolies for distribution or supply exist in other energy sectors, so the Government do not consider that there is currently a case for them to be regulated by Ofgem or a new energy regulator. We need to bear in mind that increased regulation would be likely to increase the costs for businesses operating in these sectors, which would probably be passed on to their customers. This of course would be a concern to domestic and non-domestic customers. I entirely agree with the noble Baroness; we must think of non-domestic customers and small and medium-sized businesses, which are so much part of the economic recovery.
Baroness Worthington
Can the Minister just say whether or not we have met the deadline of 29 June?
Lord Gardiner of Kimble
My instructions are that I will need to write to the noble Baroness. I am sorry about that but I have my riding instructions, as the noble Baroness can imagine. The noble Baroness also asked about the regulation of business consumers. Ofgem is taking action on issues affecting business consumers as part of the retail market review—for example, rollover contracts.
For the reasons that I hope I have articulated, I do not believe that it would be in the public interest for us to be undertaking the sort of work that the noble Baroness has suggested. I am well aware of her party’s views on Ofgem and the desire for a different arrangement but that is not the policy of the current Government. For the moment, while I am most grateful for the opportunity provided by the noble Baroness to debate these matters further, I hope that she might feel able to withdraw her amendment at this time.
Baroness Worthington
My Lords, I thank the Minister for his answers and for his offer to write on the specific details in relation to REMIT and the setting of the reference prices, which I believe are central to the Bill and may come up in subsequent debates.
It is rather amusing and ironic for the Minister to be praying in aid uncertainty as a reason for not moving forward on this; we have already had debates about the degree of certainty in the Bill, and this side of the Committee clearly believes that the Bill does not provide anything like enough certainty, which is exactly why we have the current hiatus in investment. I do not believe that sorting out proper regulation would cast a shadow over the markets; most people in the market accept that things need to be changed and fixed. If we have a regulator that has gone native, that is in no one’s interests—certainly not the consumer’s. I do not accept that argument.
On the question of extra cost, obviously all regulation has a trade-off between proper regulation and uncovering cost savings for consumers, against the additional burden of the reporting requirements on industry.
I urge the Government to look closely at the policy on transport fuels. One can dismiss it and say that there is no monopoly, but everyone who knows how that industry works knows that it is an oligopoly and that there is very little variance in pricing. There is also a severe problem of vertical integration in all these large energy companies, going up the chain to exploration and down to retail and the pump.
That is not to say that there is nothing to be looked at here. The opposite is the case. The issue has been overlooked for many decades and the time has come for the energy sector to be under the same degree of scrutiny in order to provide value for money for consumers. I do not buy the argument that this would lead to a net cost. You just have to look at the profits in some of these sectors to see that there is plenty of scope for prices to be brought down, with proper competition. That is what regulation should be about. I urge the Government not to be complacent and sweep this issue aside but to do some further work on it. I am happy to beg leave to withdraw the amendment.