On to another topic, although a related one. Many of us in this room today spent a good deal of time last year working on the Energy Bill. That received Royal Assent and passed into law and we are now working through the detail. One aspect of the suite of measures brought in under the Energy Act was an environmental performance standard. This was to be applied to new installations of large-scale generation and would bring in a limit on the amount of CO2 per kilowatt that could be emitted by substations. In effect, it ruled out the building of new coal stations without CCS.
We had a good old debate about that and noble Lords may remember that we sought to amend that legislation to address what we considered to be quite a serious loophole. That was that, in applying these performance standards to new coal, there was a danger that old coal, which is less efficient, older and less reliable, would escape from such a regulation and people would then seek to continue in operation. Essentially, companies owning these assets would continue to sweat those assets for as long as they possibly could use whatever method they could. We warned that under the capacity mechanism—another key aspect of the Energy Act—such old coal plant would be able to receive generous amounts of money that would enable retrofits to be carried out to keep the plant limping along and meet the international environmental regulations. Therefore, we would see coal not only in the system for longer but operating at higher load factors than would otherwise be the case. During the debate, we were reassured that this was not a necessary
provision and that everything was fine. Coal was going to be phased out and we should not worry our heads about it.
Why have we retabled this amendment? We have done so because, as we said before, half the projects under the Infrastructure Bill are energy related. We have to get a clear set of messages out to investors about what type of investment to pursue. Given that we are trying to solve quite a complex set of challenges, including moving to a lower carbon economy, there has to be a clear signal about the need for investment in low carbon. Unfortunately, the combination of the capacity market and the absence of any kind of EPS backstop on coal mean that there are conflicting signals.
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This amendment is timely because in the past couple of weeks we saw the publication of the list of qualifying stations applying for contracts under the capacity mechanism. As we warned, a considerable chunk of old coal is applying for three-year contracts. The significance of the three-year contract is that it indicates a certain level of investment in those plants to keep them running at higher load factors and, potentially, for longer periods. In total, 8 gigawatts of old coal have come forward. Of it, 2 gigawatts already have filters fitted to meet the European standards and 6 gigawatts are proposing to undertake investments to meet those standards. That is, potentially, 6 gigawatts of coal that would otherwise be steadily running down and closing to be replaced by cleaner plant.
In addition to coal bidding for capacity, we see some new gas capacity. That is welcome. It is roughly 8 gigawatts in capacity—pretty much the same as the old coal, as it happens. This is clearly an issue because, overall, there is more capacity than we need. There is more existing and proposed capacity than is needed to keep the lights on. In the auction that is about to take place, someone will not get what they want. Will it be the old coal stations or the gas? This is the question that we are now looking at. If it is the coal stations—which exist, so the level of investment is necessarily lower than building something new—we will see higher than necessary emissions from those plants because they will be able to base load with their new investments.
When we set out on the Energy Bill, I do not think we thought that its result would be a huge upgrading of coal capacity, but that is potentially what we are seeing. In the discussions over the summer, this was theoretical. We said there was a problem, the Government said there was not, and so we carried on. This is no longer theoretical. These stations have come into the capacity market, the plans are now being enacted, and we do not have a policy to address the emissions from these stations. I think the sensible way forward is to look at this again.
Things have changed since we debated them in the summer. The price of coal is falling, making the price you need to switch from coal to gas ever higher. Just to say, “We’re going to use emissions trading”, is not going to cut it. The emissions trading scheme does not deliver the prices that you get to switch from gas to coal, and nor would you want it to because that is a broad-based measure that applies to a huge swathe of
industry. You do not want a €45 per tonne price in the European trading scheme, but that is what it might take to tip these stations out of the merit order at the moment. We have got to have a plan that sees a transition away from old, inefficient plant which, by fitting these filters, will become less efficient. I want to stress “less efficient”. These things are already sub-40% efficient. In fact, they are closer to 30% efficient. They are going to be knocking that efficiency down further when they fit these filters, and they will be able to base load if the economics stack up.
That is not a situation we wanted to see coming out of the Energy Bill. We have an opportunity here to look at it again. We have tabled this amendment now simply to say that this is no longer theoretical. These auctions are happening now. We, as the Opposition, do not want to inherit a problem in 2015 that has come about because of the combination of the effects of the capacity market and the lack of an EPS. Let us take this opportunity. Let us revisit this. I am very much looking forward to hearing the Minister and other noble Lords, who I am sure will remember the debates we had and who perhaps took part in the votes on this issue which we ultimately won in the Lords, only to be overturned in the Commons. We said there was a problem. I think the evidence now is that there is a problem. We need to take a backstop policy to address it, otherwise we will be remiss and will not be giving the signals that investors need to ensure that we get the right investments in the long-term future of the low-carbon economy. I beg to move.