Nigel Evans
Main Page: Nigel Evans (Conservative - Ribble Valley)(12 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am going to try to fit in as many speakers as I can. I am therefore reducing the time limit to eight minutes, with the usual extra time for interventions.
David Mowat
Is it the position of the Opposition Front-Bench team that the big six should be fined 10% of turnover? That was the point made from the Opposition Back Benches.
We have also heard words such as “obscene greed”. We have to make the market more competitive, and I agree with the motion that it is right that to get new entrants coming in and to make the market more transparent. It is clearly right that we make it much easier to switch between suppliers. I hope the Government make progress on that as quickly as they can.
Eight months ago Government Members voted for a windfall tax on energy companies, including one of the big six. That proposal, which was opposed by almost all Opposition Members, has resulted in fuel prices coming down for motorists, which is part of the mix. I find it a little difficult to take that the Opposition opposed that windfall tax on people who are making more money in terms of return on capital employed than the big six, and now the Opposition say that we are being light on the industry.
Mr Deputy Speaker (Mr Nigel Evans)
Order. We have three remaining speakers. The winding-up speeches will start at 6.30, so speeches of just under eight minutes, including interventions, should get everybody in.
Dr Alan Whitehead (Southampton, Test) (Lab)
What the public want to know, in the context of this debate and elsewhere, is why energy prices keep going up, and why we have the so-called rocket and feathers effect, whereby prices go up when wholesale energy prices go up, but they do not appear to come down when wholesale prices come down. The truth is that, in terms of our knowledge of how these things work, it is difficult to find out why—for the reason, among others, that the market is now so un-transparent and, as my hon. Friend the Member for Islwyn (Chris Evans) just outlined, so concentrated in so few hands.
It is true that the price of wholesale gas has varied over several years between about 70p and 15p a therm, but nevertheless the overall trend is up. Indeed, a recent Deutsche Bank report suggested that notwithstanding shale gas, gas prices will probably double by about 2014. It is true that wholesale prices are going up, but the increase does not bear close relation to the energy company price rises that we have seen. That is the central problem. Some 46% of our generation is by gas, the price has increased by 90% over the past 10 years, and other prices follow gas as the market maker.
All that is based on trading in an energy market that was set up 10 years ago, with 20-odd wholesalers, 20-odd retailers and little vertical integration between them. It was also established at a time of privatisation, when those companies inherited a market in which we were self-sufficient in gas and had a substantial capacity margin in electricity generation plant. Neither is now the case.
Furthermore, the market was created carbon-blind; its purpose was simply to keep trading prices down when there was no vertical integration. It did so for a while, but now we are in entirely different territory. Indeed, six large companies control 99% of the retail market and about 60% of generation, and they have some grid and transmission assets as well.
The power of such vertical integration means that the market that was created 10 years ago simply no longer works. The long-term deals that the companies set up account for almost all energy company trading, they are mostly bilateral and totally un-transparent, and energy companies trade with themselves, so it is difficult to see where the pricing goes and whether it is fair to the consumer.
More and more, the big six also hedge their arrangements on price variables, so they all mirror each other, and the result of a price increase by one is that, inevitably, other companies put up their prices, too. Increasingly, therefore, there is effectively—even if not deliberately—a cartel-type price arrangement.
As for new entrants, they are almost all retail-only, and they have to buy their power from the big six. It is a bit like encouraging corner shops to set up, knowing that they will have to get their stock by shopping at Tesco and then somehow compete with Tesco on price.
There are also still positive Government disincentives for new entrants. Small retailers, for example, are exempt from the recently increased obligation payments for up to 125,000 dual fuel customers. Above that level, however, not only is the company obligated for all levy payments, but all customers are then eligible. In other words, their 125,001st customer costs them £7 million, and on that basis no small niche company in their right mind right now will seek to exceed 125,000 customers. It is a straightforward lock-out disincentive.
Monday’s energy summit did not deal with any of those issues. We were exhorted to switch, which is a good idea, but in those circumstances, and for the reasons that I have outlined, it is of only marginal utility. Logically, one cannot keep switching and saving what is claimed—and anyway, some 80% of customers simply do not switch, leaving the big six energy companies with a huge pool of resources to draw upon in order to outcompete those small entrants on retail tariffs.
As we have heard, tariffs are hopelessly confusing. It would not be beyond the wit of the regulator or the Government to introduce mandatory simple tariffs—a standing charge and a tariff per unit used. I personally favour introducing rising block tariffs, which make lower usage levels even less expensive.
Insulation was dealt with at the summit, where it was stated that 4 million people were to get letters saying that they could get insulation free—on the basis that support from the public finances for insulation measures will disappear in 2013, after which there will be the green deal, which will provide the same insulation, but in exchange for a permanent charge on the property. I am not sure that many members of the public would automatically see that as the good deal that some people suggest.
We must deal with the market. The Government have confirmed that electricity market reform proposals are coming forward, but those proposals do not deal with the way that the market actually works. The Government put all sorts of bells and whistles on the back of the proposals—contracts for difference instead of the renewables obligation, capacity payments and so on—but they do not address the central issue of whether the market works for the future, how transparent it is, and whether other ways of trading would be more fit for purpose in this century.
We need a pool system of 100% auctions on all markets, or a single-buyer stakeholder pool. That will ensure transparency and a level playing field for new entrants and, if coupled with an obligation, will ensure an orderly dispatch of energy between wholesaler and retailer. That is not addressed in electricity market reform, but it is addressed in the Opposition’s motion. It is good to see that the Government have apparently signed up to the idea that there should be a pool, so I anticipate that they will shortly make amendments to the White Paper on electricity market reform in order to bring about a pool as the centrepiece of a new electricity market system.
We need aggressive policies on energy efficiency and insulation. We currently have no idea how the green deal will work. No funding has been identified, and it may not be available in very large quantities for the energy company obligation. On that basis, there is no real prospect of achieving the levels of insulation that we need, combating fuel poverty or pushing down bills.
Environmental measures do not account for a large proportion of bills. Indeed, last year the previous 6% level fell. The Government are stuck in a dilemma. They want the big six to undertake most of the investment of up to £200 billion in new plant and grid renewal that we will need, but unless those companies make big profits they are unlikely to undertake that investment. However, several of the companies are over-borrowed in any case. We need different sources of money to ensure the reality of a transparent and investable future.
Mr Deputy Speaker (Mr Nigel Evans)
Order. The wind-ups are to start no later than 6.30 pm.