My Lords, Amendment 55ZA in this group is in my name and that of the right reverend Prelate the Bishop of London. As has already been
mentioned, when the draft Bill was published in May last year, there was a great deal of criticism that there was nothing in it on electricity demand reduction. Indeed, those of us who sat on the informal group with the noble Lord, Lord Oxburgh, drew attention to this in the document that we produced and suggested that it ought to be included. When this Bill was published last November, there was still no reference. Fortunately, at the same time, the department started a consultation into demand reduction, and on 21 May it published its response to that consultation. At the same time, it tabled an amendment, which was then proposed new Clause 12 and is now Clause 37 in this Bill, the clause that I wish to amend.
The interesting point in the response to the consultation is that the department suggested that its preferred route to delivering reductions in electricity demand is via a capacity market—I am talking here not of a demand-supply response but of permanent reductions in electricity demand. I have always had some difficulty in seeing how that could fit in to a capacity market. I therefore grabbed the delivery plan last night to read the section on the capacity market in order to discover how it should occur. I am extremely sorry to have to tell your Lordships that, having read that whole section overnight, I found no reference at all to electricity demand reduction, not even to demand-side response. I sometimes wonder whether there are two DECCs, one writing one thing and one writing another. I hope that I am not misleading the Committee in that view. The important thing is that Clause 37, which was introduced in the other place, suggests that a pilot scheme should be developed to look at it.
In our amendment, the right reverend Prelate and I suggest that we should aim it rather more widely. There ought to be a number of different pilot schemes and, if it is possible to envisage how it could be done, they ought to be included within the capacity market. Alternatively, we could look along other lines, including those discussed in Committee in another place, of finding some sort of premium for this. There are quite a number of problems with the use of the capacity market in dealing with the permanent reduction of electricity demand. There is of course uncertainty as to how big a capacity auction will be. Therefore, people who invest in permanent reductions are unclear from time to time as to what sort of return they will get for that reduction.
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Similarly, permanent reduction may on some occasions be done on a fairly substantial level but may very often be done, as we heard from the right reverend Prelate in his Second Reading speech, by individual parishes, which could perhaps be aggregated in some terms but also could be undertaken by SMEs or other bodies. How they would fit into a capacity market auction is by no means easy to see. It seems to me, therefore, that it would be helpful if the Government could give us some sort of assurance.
The other important issue is that, if we are going to have some sort of auction eventually, probably it should be a separate auction from the general capacity market auction. We will come back to that in our discussions of later clauses today. But the question of
whether there should be more than one auction obviously has some importance here. We need to have some sort of clarification on the way in which the Government see these pilots being run, including how long they will last, when the results will be reported, and how large the pilots will be. I understand that the current indications from the department are that a demand reduction pilot will not be up and running for a number of years, which is extremely unfortunate. Reduction in demand is an extremely good way to solve some of the problems we are discussing today. Therefore, I very much hope that in replying to this discussion, although this amendment will not be pressed, the Minister will give an indication of the way in which this is to be explored.