My Lords, I rise to speak to Amendment 50 in this group. In our Committee proceedings, we looked at the demand side response clauses introduced at the late stage of Report in the other place. We noticed that they were late additions to the Bill, yet they cannot be underestimated as there can be no simpler way to reduce the pressures on the capacity market, increase resilience, improve decarbonisation, and enhance efficiency and security of supply. Reducing energy demand is much cheaper than building new generating capacity. It is also the cheapest way to protect households from rising bills and cut carbon emissions.
Clause 37 introduced a spending power to authorise the spending of money to fund a pilot or pilots, yet
concern was expressed about whether sufficient funds were being made available. Anxiety was also expressed that pilot schemes were proposed to take place in the capacity market, as the response to the consultation in May this year made clear that this was the Government’s preferred way forward.
Difficulties were expressed that the capacity market is designed primarily to ensure capacity during potential shortages or troughs in supply. In these circumstances, it will only reward demand reduction projects that reduce the amount of generating capacity needed at such times, and not reward projects that reduce demand more generally. The capacity market, therefore, only rewards energy efficiency for its security benefits and not its much larger benefits such as emissions reductions and affordability, as well as behavioural change policies.
Many submissions that we received wished to see multiple pilot schemes to include premium payments as well as capacity markets and other innovative incentive schemes. This was proposed to enable small businesses and generators to be able to access payments and to press the Government that demand reduction is not simply an afterthought to bolt onto the capacity market, designed around the provision of supply by large-scale plant prioritised through the workings of the capacity auction.
There is also the question of determining what capacity is required once demand has been reduced. These thoughts led us to consider that the Government need to set a coherent strategy about delivering permanent demand reduction and is the purpose of Amendment 50. The amendment adds to the Government’s own Amendment 47 and the amendment in the name of the noble Lord, Lord Jenkin. These only refer to pilot schemes and the Government’s Amendment 47 is eminently sensible. However, my amendment proposes that the Government must think further and more deeply and place demand reduction in a wider strategic context.
I also tabled it as an alternative to Amendment 51, proposed by the right reverend Prelate the Bishop of London, that seeks to place a numerical target for demand reduction. The difficulty here is that I have seen three different figures from three different methodologies. First, in November 2012, the McKinsey final report identified 92 terawatt hours of potential savings not covered by existing policy by 2030. Alternatively, the energy efficiency strategy, also in November 2012, used a different method and identified 69 terawatt hours of savings by 2020, based on existing and future policy. Yet in May this year, the Government used yet another method in response to the electricity demand reduction consultation where the figure of 32 terawatt hours saving was identified.
Will the Minister clarify which method and which figures her department recognise as correct and the most appropriate? My amendment avoids this difficulty being placed on the face of the Bill and seems an eminently sensible concession that the Government should agree to.
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