Energy Bill

In this debate, we have had a canter around various parts of energy policy and climate change. It has been said that this is a modest Bill, but it is an important one that covers three distinct areas that impact on us all. Indeed, the Bill impacts on some issues that I have spent many happy hours debating in the Chamber over the years. Part 1 deals with the framework for establishing carbon capture and storage, which follows the Budget announcement in April of""a new funding mechanism to support up to four carbon capture and storage demonstration projects, and £90 million to fund detailed preparatory studies."" The original carbon capture and storage project, or contest, seems to have been grinding on for some considerable time. The hon. Member for Sherwood (Paddy Tipping) was on the mark when he said that the rules seemed to keep changing. A shiver ran up my spine when the Secretary of State mentioned a contest for the remaining three projects. I hope that they will be an awful lot quicker than the contest we are currently going through, although better late than never. Ministers are keen on telling us about our world leadership in carbon capture and storage technology, although sadly I doubt whether that is entirely correct now. We had an excellent opportunity to be in the lead with the proposed development of the gas station in Peterhead, but unfortunately that was lost, owing to endless dithering by the Government, and the project is now proceeding in Abu Dhabi. It appears that the reason the Government did not want to proceed with that project was that they wished instead to concentrate on pre-combustion processes, which they hoped would lead to an export industry, particularly to developing nations such as China. Unfortunately, that dithering led to China developing its own industry. Indeed, one of the few commercial projects that is up and running is the one in Beijing. We could end up importing such technology instead of being in the lead, and if we had developed it in the first place, we could well be in the lead. Peterhead could also have helped to develop a method that would have been of particular benefit to the UK, as it would have allowed gas stations to de-carbonise and the carbon to be stored in the North sea's depleted oil and gas reserves. Sadly, it appears that the prejudice against gas continues, as I note that clause 6 defines a CCS demonstration project as""a project to demonstrate and assess carbon capture and storage technology through its use in commercial coal-fired electricity generation"." Gas seems to be specifically excluded by that definition. I wonder whether the Minister could explain in summing up why gas is excluded and why only coal is to be helped by the scheme. That point was also raised with the Secretary of State, who said that gas could come in further downstream, but we already have a lot of gas-fired stations and we still have a lot of gas in the UK continental shelf, although obviously it is diminishing. It therefore seems crazy not at least to look at the prospects of carbon capture and storage for gas, and instead put all our eggs in the basket of coal, important though that is. That said, CCS provides an important opportunity. I strongly support the claim of the Longannet project, which is being developed in Fife, as a strong candidate for help from the scheme, especially given its proximity to the North sea and the ability, therefore, to enable the current infrastructure of the North sea oil and gas industry to be utilised in the development of CCS. The hon. Member for Carmarthen, West and South Pembrokeshire (Nick Ainger) made the good point that the oil and gas industry could develop to include aspects of CCS. There is a huge opportunity to ensure the transfer of those skills to new industries after the run-down of oil and gas, as many of them will be useful in CCS, particularly if it is developed by storing the carbon under the North sea. The Scottish CO2 study has concluded that there is a possibility that the North sea could store up to 200 years of CO2 emissions, bringing in a huge amount of work and billions of pounds to the economy over a long time. Indeed, the EU is interested in a North sea grid to help to develop CCS and seize the potential for development in the old oil and gas fields and the saline aquifers. However, that brings up another issue that is not covered in the Bill and which the Government will need to address: how do we ensure that the North sea infrastructure is in place to enable that development to happen? Much of the existing infrastructure of the oil and gas industry is now becoming fairly elderly. As the main fields in the North sea begin to wind down, there is a danger of losing that essential infrastructure unless action is taken to ensure that it is retained. Many of the new discoveries in the North sea are of much smaller fields, where the oil and gas industry perhaps needs a different set of infrastructure, but what is now in place for the depleted fields could be important for CCS. Given that we are probably still a decade away from the technology becoming commercially viable, will the Minister tell us whether either the Department for Energy and Climate Change or the Treasury have been in discussions with the oil and gas industries to try to agree on a regime that would ensure that that infrastructure is maintained and available for CCS? Part 2 of the Bill deals with fuel poverty, an issue in which I have taken a great interest over the years. I hope that many of these measures will be entirely non-controversial. I warmly welcome the efforts to replace the existing voluntary schemes operated by the energy companies with a mandatory scheme. That is welcome and long overdue. One of the great problems with the existing system has been the bewildering variety of schemes that have been marketed by the energy companies. It is sometimes difficult for people to find out what the best social scheme for them might be. The new system should be much simpler for consumers, and will be a huge improvement. Like many other Members, however, I regret that a vital element among the fuel poor has once again been omitted from the statutory regime—namely, those who rely on liquefied petroleum gas or home fuel oil to heat their homes. The Bill specifically defines the suppliers as electricity and mains gas suppliers. I appreciate that there are difficulties with the LPG and home oil market. There has been a Competition Commission inquiry into this matter, which ran for years and came to no real conclusions. The market is much more complex than that for electricity and gas supplies, which contains only a limited number of large companies, but this is none the less a serious issue for its customers. Many of them live in rural areas, where the gas mains will never reach, and their choices are very limited indeed. The hon. Member for Carmarthen, West and South Pembrokeshire mentioned the difference in cost between the average mains gas bill and the average home fuel or LPG bill, but another factor that works against consumers in this market is that the problem is exacerbated by the fact that many face minimum delivery amounts. This means that they sometimes have to pay substantial sums up front in order to get a delivery of fuel. Those on low incomes—many of whom live in rural areas, and suffer disguised rural poverty—suffer particularly badly because of this. They simply do not have the funds to pay up front for large amounts of fuel oil. This can lead to their being unable to get the fuel, and unable to heat their homes. That is unacceptable in this day and age. I appreciate that efforts are being made to get alternatives such as small-scale renewables to those consumers, but again there is a problem of cost. Many small-scale renewables, such as heat pumps, are very expensive and therefore outwith the reach of many people, even with the grants that are available. I agree with the hon. Member for Carmarthen, West and South Pembrokeshire that it is simply wrong that that group of people do not have the same access to social tariffs as those on mains supplies. Ministers must look again at this issue, which has plagued the whole fuel poverty debate for some considerable time. This is discrimination, pure and simple, against those people who are fuel-poor in rural areas. We must do something about this, and ensure that they get the same benefit as those who live in towns and can access mains gas. I also echo what has been said by others about those with long-term medical conditions who need more heat. One of the impacts of ensuring that we meet our carbon targets and improve our infrastructure is that increasing amounts of subsidy are being paid by consumers through their energy bills. Centrica is the first to put a percentage on that, but I am sure that the other companies will do so. The CCS levy will inevitably be another part of that, as will all the other subsidies that are coming through. People who do not benefit from the various tariffs or the winter fuel subsidy are going to find it increasingly difficult. It is simply unfair that those who require more heat because of long-term medical conditions do not get the help available to pensioners. Again, that must be looked at—as was said earlier, energy bills are not going to go down in the near future. Indeed, when Ofgem was before the Select Committee last week, I believe it said that up to 20 per cent. of the bill could come from various subsidies within a few years. That is a worrying statistic for those who have to pay the full amount of their electricity bills. Part 3 deals with the change to the regulation of gas and electricity markets and the role of Ofgem. In my time in the House, I have had many spirited discussions with Ofgem about its actions, particularly regarding the hoary old issue of transmission charges. It has always seemed to me that Ofgem had a totally blinkered attitude defined by its ideological interpretation of its principal duty to look at the interests of consumers. That seemed to give it the idea that all generation should be based near the main centres of population, which meant that many renewable energy developments in the more remote areas of Scotland—having listened to the hon. Member for Carmarthen, West and South Pembrokeshire, I appreciate that this may also be a problem in Wales—where much of the wind and many of the waves actually are, faced very discriminatory transmission and access charges over the years to be able to get into the grid and transport the energy to market. I appreciate that the Secretary of State is taking powers, which deals to some extent with the access charge problem, but there is still a transmission charge problem, although it has been slowly improving. I very much hope that the changes brought about by clause 17, which ensures that climate change and security of supply will become much more important for Ofgem to consider in coming to its decisions. I hope this will mean that much of the ideological baggage of the past will have to be jettisoned. I would caution, however, that before this can be done, there will have to be a major cultural change at Ofgem. It is one thing to put these clauses in the Bill, but strong action is needed to ensure that they are given the required weight in Ofgem's decisions. The recent report that Ofgem was seeking to undermine the introduction of feed-in tariffs is a matter of huge concern and shows that it is one thing for a Government to declare a policy and for Parliament to pass a Bill, and quite another to ensure that it is energetically followed through. I am not sure that clauses 18 to 25 are so welcome, as there is a potential for them to have a negative impact on investment in energy generation in Scotland. These provisions relate to various constraints within the energy distribution system, and it has been a particular problem at the Cheviot gap between Scotland and England, which has rumbled on for quite some time. At the moment, there are constraints on transmission under the British electricity trading and transmission arrangements. Generators in Scotland pay to be connected to, and to use, the Great Britain transmission system. Annually, such payments amount to 40 per cent. of the total transmission charges, which, allowing for the fact that Scottish generation represents only 12 per cent. of total generation, means that Scottish generators contribute approximately £100 million a year more than what would be a fair share. In return for the payments, generators are entitled to access and to use the transmission system to move their generated electricity to market. Consequently, when they cannot have full access to the system because of inadequate grid capacity, they should be entitled to compensation for the resulting loss—and these are referred to as constraint payments. Electricity generation in Scotland already exceeds the capacity of the network, and additional renewable generation in Scotland will exacerbate the situation. Neither National Grid nor Ofgem has previously taken sufficient steps to address the capacity shortfall, even though the problem has been known about since well before 2005. There is an ongoing programme of infrastructure reinforcement works to increase capacity, but it will be several years before the interconnector capacity between Scotland and England is sufficient to eliminate constraints. National Grid and Ofgem previously put forward a proposal that appeared to target Scottish generators. They wanted to change the system of balancing costs so that constraint payments would effectively be charged back to the same generators, which is to say that generators would pay constraint charges for not being able to access the system, which seemed bizarre in the extreme. Thankfully that proposal was junked. However, the Bill seems to be trying to achieve much the same, although I can see that its proposals are slightly better than the original one. They are limited to the balancing market, there are good appeal mechanisms, and there is a sunset clause that will remove the provisions when the much delayed upgrades have been introduced. Placing artificial limits on the level of compensation that Scottish generators would receive—irrespective of the value that they provide for National Grid or the losses incurred by generators—seems daft, but the proposal also seriously undermines the confidence of those who might otherwise invest in Scotland's thermal and renewable energy sectors, including carbon capture and storage. We are placing a great deal of faith in the future of CCS to meet our emission targets, and we need to do everything possible to ensure that that happens. We cannot discriminate against existing and future Scottish generators, because that would call into question the validity of the British electricity trading and transmission arrangements. I ask Ministers to consider the matter again, and to ensure that they do not introduce a measure that will work against future generation. We need investment in new generation, regardless of whether it involves renewables or not, but such investment will not come about if constraints of this kind are imposed. Another part of the Bill intrigues me. I may be completely—as we say in Angus—up the wrang dreel, but I should be obliged if the Minister would clarify the meaning of clauses 27 to 31. Clause 27, entitled "Adjustment of charges to help disadvantaged groups of customers", empowers the Secretary of State to adjust charges if he thinks that some consumers are paying unfair charges. So far, so good; none of us, I hope, would disagree with that. I fully appreciate that the clause constitutes, in effect, more or less a restatement of powers that exist in the Utilities Act 2000. It seems to me, however, that the definition of the categories of customers covers all the customers of the energy companies as set out in subsection (5). That is important because of subsection (3), which states that disadvantaged customers can constitute all the members of the group specified in subsection (5). In theory, the upshot of that is that the Secretary of State would have the power to decide that all the customers of one energy company, or indeed all of them, were paying too much for their energy, and could decide that everyone's bills should be reduced. That might be welcome, but I think we need to know exactly what the clause means. One interpretation is that it would give the Secretary of State power to decide the level of charges that energy companies could impose. Despite the reservations that I have expressed in regard to certain clauses, I support what the Government are trying to do. If I am fortunate enough to be selected as a member of the Committee, I shall look forward to many happy hours debating the issues. This may be a small Bill, but it contains a great deal that is very important to the future of energy generation in this country.