My Lords, I support the amendment of my noble friend Lord Berkeley. If his amendment were adopted, and indeed if the policies that it prescribes were implemented, I believe that
many of the problems that afflict our electricity industry would be overcome—notwithstanding what my noble friend Lord O’Neill has just said, which I shall consider at some length.
The amendment would radically alter the oligopolistic environment in which the big six vertically integrated companies dominate the generation of electricity and its supply to industrial, commercial and domestic consumers. There would then be some chance that a genuine economic competition could ensue. The vision of the free-market fundamentalists, who inspired the radical restructuring of the industry through a privatisation that occurred a quarter of a century ago, would come closer to being realised than ever it has been.
Having said that, I confess that I greatly regret the demise of the state-owned electricity industry. Mine is not a doctrinaire position, as some might imagine, albeit that much could be said to justify a doctrine of state ownership. An attitude in favour of state ownership of the electricity industry needs no further justification than a reference to the example provided by the French electricity industry. Although the dominant French company Électricité de France, or EDF, sometimes adopts a cunning commercial concealment, it is state-owned, excepting a very small proportion that is attributable to shareholdings which are predominantly in the hands of other companies closely allied with the French state.
I am an admirer but not a friend of Électricité de France. A testimony to its success is the fact that, apart from being one of the aforementioned big six companies dominating the English market, this company owns virtually all of Britain’s nuclear generating plant. Over many years, Électricité de France has worked in close collaboration with the French Government to realise the latter’s strategic objectives regarding the provision of the nation’s electrical power. Only recently, with the advent of François Hollande, has there been any significant difference of opinion between the politicians and the management of EDF regarding the investment strategy.
An investment strategy is precisely what the Bill is about. The danger we face is that the industry’s dominant firms will have no interest in providing the investment in the UK that would serve to avert the risk of a serious electricity shortfall. Although the free-market economists might deny this reality, the fact is that these are multinational companies, often with head offices in other countries. This implies that their primary interests and loyalties are not with the UK. When they are seeking profitable investment opportunities, they are liable to look much further afield.
There are some minor players in the UK electricity market that are based predominantly in this country and have few interests abroad. These are the independent electricity generators which are concentrated in the renewables sector. It is perhaps inevitable that the Government should look to these companies to provide a substantial proportion of the new investment in renewable generating capacity. Notwithstanding the fact that they currently account for only a small proportion of the generating capacity, it is hoped that they will provide something between 35% and 50% of the new investment in renewable plant.
The truth of the matter is that these companies are in trouble. They are being squeezed out by the big six, which have an increasing proportion of renewable capacity in their own portfolios and a declining reliance on the independent generators to fulfil their renewables obligation. The eventual suspension of the renewables obligation in 2017 will spell the doom of these companies, unless measures are adopted to safeguard their position. This is what the present amendment and subsequent amendments being spoken to today propose. It may well transpire that the measures proposed in subsequent amendments represent the only viable ways to protect the interests of the small generators and ensure that they continue to have a market into which to sell their produce.
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Amendment 53 suggests what a Labour Government might do to protect the interests of these vital players, and I offer my support to it in an idealistic spirit. It would certainly free the market up to create an environment that might be genuinely competitive. Having acknowledged as much, I contend that a competitive market on its own is incapable of making the deliberate strategic decisions required by a national energy policy.
Careful strategic planning implies an active appraisal of the available technologies. Such planning is bound to envisage the need for fostering the research and development of new technologies, which necessitates an active involvement of the state. It was the involvement of the state over many years that bequeathed to us the electricity industry that we began to disassemble in the 1990s. This industry had been the envy of the world. There is no explicit recognition in the Bill of the need for state involvement.
At its inception, the Bill was inspired by the notion that the markets could be relied on to discover an optimal investment strategy in respect of a varied portfolio of generating technologies. In the protracted course of its development, the Bill has been confronted by the economic realities of a malformed energy market that was created by privatisation. In the process, a welter of discretionary powers has been accorded to politicians in an attempt to redress the imperfections of reality.
The Government have been slow to recognise the peril in which the measures of the Bill place the independent generators upon whom they are relying so heavily to realise their aspirations regarding new investments. They continue to lack a coherent policy but the present amendment points to a direction that they might consider taking. For that reason, I commend the amendment to the Committee and the Government.