Energy Bill

Public Bill Committee, 17 January 2013.

Examination of Witness

Edward Leigh (Conservative, Gainsborough)

Dr Kennedy, will you introduce yourself, just for the sake of the record? Please say who you are and what you do, so it is all written down for Hansard.

Edward Leigh (Conservative, Gainsborough)

Thank you very much.

I remind Members that questions must be limited to matters within the scope of the Bill, and we must stick strictly to the timings of the programme motion, which the Committee has agreed. So just keep an eye on the clock, please. We do not want to have to interrupt people mid-sentence.

Dr Kennedy, I do not know how many Members will want to ask you questions, but I suspect there may be quite a few, so if you could try to keep your answers as brief as you possibly can we would be very grateful, subject—of course—to your covering the ground.

We will go through broad headings, and Members will just come in as they wish. We will start with the need for electricity market reform.

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Good morning, Dr Kennedy. I know that you have indicated previously the importance of electricity market reform in delivering a decarbonised power sector. Regarding the content of the Bill, as you have looked at it, where do you think there are areas that still require improvement following on from the changes since the pre-legislative scrutiny?

Edward Leigh (Conservative, Gainsborough)

Can I stop you there, because there are other questions? Is there a supplementary?

Tom Greatrex (Labour, Rutherglen and Hamilton West)

On the point that you were making about decarbonisation, Dr Kennedy, I know your position is that there should be a decarbonisation target. Is your view that without that target we would not be able to achieve what your organisation says we need to achieve in terms of energy change in the UK?

John Hayes (Conservative, South Holland and The Deepings)

Two points, if I may. First, you will know that we changed the arrangements to make access to CFDs easier for renewables. Why do you feel that was important? That argument was put out by many when the draft Bill was published.

Edward Leigh (Conservative, Gainsborough)

I think we ought to stick to one question, otherwise it gets complicated.

John Hayes (Conservative, South Holland and The Deepings)

On the issue of the levy control framework, you mentioned the figure of £7.6 billion. That presumably gives businesses a chance to plan strategically because of the clarity and certainty it establishes. Again, why is it so important?

John Hayes (Conservative, South Holland and The Deepings)

And that is why consensus is so important. If we can get consensus across the House on the Bill and the strategy in general, we will add to the certainty you just described.

Peter Aldous (Conservative, Waveney)

We heard on Tuesday about the importance of timeliness and getting on with it for utility companies and investors, as time is of the essence. Do you agree with that, and are there any particular timelines that you think we should be hitting?

Dan Byles (Conservative, North Warwickshire)

Dr Kennedy, you said that there is uncertainty about the direction of travel. We have one of the toughest 2050 emission reduction targets in the world. We have the carbon budget, which effectively gives a 50% emission reduction target by 2027. Surely our direction of travel is not only clear but one of the most robust in the developed world.

Dan Byles (Conservative, North Warwickshire)

You keep saying “investors”. We on the Select Committee have spoken to a lot of investors, and they do not necessarily say the same thing. Only on Tuesday, National Grid, E.ON, Centrica and Scottish Power all agreed with me when I asked whether they agreed with previous witnesses who said, “For God’s sake, don’t delay the Energy Bill with arguing over the 2030 target. The important thing is the contracts for difference, the levy control framework, nuts and bolts.” I said, “Do you all broadly agree?” They all said yes.

Dan Byles (Conservative, North Warwickshire)

But certainly the supply chain—

Edward Leigh (Conservative, Gainsborough)

We are not going to have people talking over each other. Let him answer.

Alan Whitehead (Labour, Southampton, Test)

Following that, what impact do you think might arise from the proposals in the Bill to introduce a capacity market, and how do you think that arrangement might be compatible with those climate change targets? How might delivery arrangements best be aligned with what the Committee on Climate Change is saying about emission levels and how the gas market might align with that, or indeed bust it if other routes are adopted?

Alan Whitehead (Labour, Southampton, Test)

But unabated gas has been grandfathered, has it not, in terms of what comes on to the system?

Gregory Barker (Conservative, Bexhill and Battle)

I am surprised to hear you say that, actually. If you are looking into the 2020s and beyond, it is not a choice between unabated gas or not. The choice is about whether we have a progressive emissions performance standard. Although we clearly do not have the technology at the scale required to deploy carbon capture and storage at the moment or to be able to say clearly now what the CCS project will be able to deliver, that is clearly where we have to get to in the next decade. I am surprised that you seem to be positing an all-or-nothing-at-all scenario, and not including the emissions performance standard in your thoughts about the signals that we are sending to the industry and investors, in terms of the choice between a gas strategy and support for renewables and the need for a decarbonisation target.

Gregory Barker (Conservative, Bexhill and Battle)

That is not right, though, is it? If gas were running with CCS, you could have lots of it.

Gregory Barker (Conservative, Bexhill and Battle)

I just said that.

Edward Leigh (Conservative, Gainsborough)

Do not talk over each other, because Hansard cannot cope.

Gregory Barker (Conservative, Bexhill and Battle)

I prefaced my comments with that. The whole point is that that is why we are investing over £1 billion in carbon capture and storage.

Gregory Barker (Conservative, Bexhill and Battle)

That was what I just said. That was my question.

Gregory Barker (Conservative, Bexhill and Battle)

We can make some assumptions about the need to drive development. There are lots of things that we do not know right now in detail: for example, we do not know about the efficiency of a whole range of technologies and how they can be deployed at scale. However, we are making assumptions and setting out a level of ambition. I am surprised that you are not supportive of an emissions performance standard, yet you are very clear in your support of a decarbonisation target which I do not remember being part of the discussion during the proceedings on the Climate Change Act.

Edward Leigh (Conservative, Gainsborough)

Okay, that is enough—questions, not speeches.

Barry Gardiner (Labour, Brent North)

The Committee has received written evidence that demonstrates concern that the growth of the levy control framework up to 2020 and beyond will not be adequate to support the required level of renewables energy deployment. What steps could be taken at this stage, and perhaps in secondary legislation, to allay those concerns, and would you—

Edward Leigh (Conservative, Gainsborough)

All right, start with that, and then you can ask another.

Barry Gardiner (Labour, Brent North)

In relation to the delivery arrangements for contracts for difference, would you wish to see a role for the Committee on Climate Change in that?

Edward Leigh (Conservative, Gainsborough)

We are now running out of time and a lot of people are trying to catch my eye. Let us have a quick question and a quick answer.

Barry Gardiner (Labour, Brent North)

You said that it would be helpful to have intensity targets in the Bill. The Government have said that, because of the timing of the carbon budget, they do not wish to do that and pre-empt the fifth carbon budget. Would you be in favour of an intensity target for 2027, which would bring it back within the ambit of the fourth budget?

Mel Stride (Conservative, Central Devon)

If we had a 2030 target in the Bill, do you recognise that there might be some inconsistency between that target and the levy control framework? I will quote evidence that we heard on Tuesday from Dieter Helm. He said that

“if you put a 2030 target on the face of the Bill, the levy control mechanism may turn out to be inconsistent with that target. There would then be a question about which has primacy. That creates a difficult, complex component of the Bill.”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 71, Q216.]

Mel Stride (Conservative, Central Devon)

The Government are most anxious that we reduce bills as much as possible for consumers. Do you recognise that there is at least some danger that the restrictions of a 2030 target could lead to higher bills for consumers?

Luciana Berger (Labour, Liverpool, Wavertree)

I listened to your concerns about whether an EPS is the right instrument. On the basis that we have it, do you believe that the level of 450 grams of carbon dioxide per kWh is an appropriate level? On the back of that, what is your assessment of our ability to meet our long-term climate change targets as a result of this Bill?

Luciana Berger (Labour, Liverpool, Wavertree)

One of the things missing from the Bill is elements of demand reduction, the importance of which your Committee has spoken about at great length. What amendments or additions would you like to see to address demand reduction in the UK?

Edward Leigh (Conservative, Gainsborough)

Okay, stop there. We have four minutes left and we have two more people who want to come in. We are going to start with Mike Weir and then go to Sir Robert Smith, who have not asked a question. They can divide up the time between them.

Michael Weir (Scottish National Party, Angus)

You mentioned earlier that CFDs were a better instrument than the renewables obligation. However, given the time scale of investment, are you satisfied that investors are confident enough in CFDs to allow the renewables obligation to be closed in 2017?

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

So it is definitely important that we get the Bill through quickly in order to get on to the next stage and make sure that the CFDs deliver. On a more detailed point, do you have concerns about how independents and smaller generators will be able to access the CFD market?

Edward Leigh (Conservative, Gainsborough)

I think Peter Aldous wanted to ask a question.

Peter Aldous (Conservative, Waveney)

Both of my questions have been asked.

Dan Byles (Conservative, North Warwickshire)

May I ask one very quickly, if we have 30 seconds? No other country has a 2030 decarbonisation target, so where are these supply chain companies going to get the security that we are now giving them?

Dan Byles (Conservative, North Warwickshire)

But they manage that without a 2030 decarbonisation target. There are other ways of doing it.

Dan Byles (Conservative, North Warwickshire)

That is not the core purpose of the Bill, of course.

Robert Buckland (Conservative, South Swindon)

“Destroyed the investment community”—are you sure that you meant to use those words?

Robert Buckland (Conservative, South Swindon)

Destroyed?

Barry Gardiner (Labour, Brent North)

The most recent DECC impact assessment concludes that it is possible to reach the 50 grams of CO2 per kWh figure by 2030 with the Bill as it stands. Is DECC’s modelling of the effects of a significant increase in the carbon price up to 2030 accurate, and is it reasonable to expect a significant increase in that price and to achieve that figure?

Edward Leigh (Conservative, Gainsborough)

You have 50 seconds to answer that question. Try your best.

Edward Leigh (Conservative, Gainsborough)

Our time has run out. Thank you very much, Dr Kennedy.

Examination of Witnesses

Edward Leigh (Conservative, Gainsborough)

We now move to this morning’s second evidence session. For the record, would you please introduce yourselves?

John Hayes (Conservative, South Holland and The Deepings)

Gentlemen, thank you for coming. What do you welcome most about the Bill? Where have the Government got it right?

John Hayes (Conservative, South Holland and The Deepings)

So on CFDs for example, particularly given the change we made to make them more easily accessed by renewables companies, you feel that the Bill has made progress from its draft stage to its final stage.

John Hayes (Conservative, South Holland and The Deepings)

I hear what you say about feed-in tariffs but, in essence, the Bill supports the idea of a mixed economy of generation. In terms of balancing energy security against our ambitions in respect of carbon emissions, that is the right strategy, is it not?

Edward Leigh (Conservative, Gainsborough)

I have made absolutely no statements at all. I am completely neutral.

Graham Jones (Labour, Hyndburn)

My question follows on from that, and you have partly answered it. The Minister asked where the Bill is strong, and I was going to ask where you think it can be improved and whether you think it is going in the right direction.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I should remind the Committee of my entry in the Register of Members’ Financial Interests relating to oil and gas, and particularly my shareholding in Shell. On the criticism of CFDs, do you not think, though, that they help to balance the risk between investor and consumer, and help to protect the consumer from paying too much?

Gregory Barker (Conservative, Bexhill and Battle)

I would point out that degression in feed-in tariffs is not retrospective; it works only when it is applied, so you might want to reflect on your answer. Also, Mr Timms, I absolutely share your enthusiasm, passion and analysis regarding the need for more community-end distributed energy as part of the energy mix to challenge the big six, but I think you are confusing that with the need for a large-scale, unprecedented investment in offshore wind. Community energy is not an answer to deploying offshore wind, which often has a minimum ticket price of £1 billion. Even the most enthusiastic big society proponent—

Edward Leigh (Conservative, Gainsborough)

We need to get on to the next issue.

Gregory Barker (Conservative, Bexhill and Battle)

Are you not confusing the issues of attracting at-scale investment in offshore wind with the need, possibly through a separate mechanism, to drive the take-up and deployment of community solutions?

Edward Leigh (Conservative, Gainsborough)

I will stop you there because other people want to come in.

Ian Lavery (Labour, Wansbeck)

What are your views on the setting of a decarbonisation target for the power sector? Should it be in the Bill? Should it not be in the Bill? The Government have suggested that perhaps it would be in secondary legislation. Does that alleviate any concern you may have?

Michael Weir (Scottish National Party, Angus)

The important part about CFDs is how the strike price is set. Eventually, it will be set by the market, but initially, perhaps for obvious reasons, administratively and, in the case of nuclear, by negotiation with the developers. Do you have any views on whether that is appropriate and whether it will provide value for money for the consumer?

Barry Gardiner (Labour, Brent North)

The Tyndall Centre has produced a report that suggests that as much as £19 billion to £31 billion of investment in renewables could be diverted with the development of shale gas. Would you please comment on whether you believe that the current levy framework up to 2020, which as we heard from Dr Kennedy is very welcome, took account of the current situation only or of a prospective development of shale gas? What would be the impact long term of that, particularly if we did not have intensity targets in the Bill?

Barry Gardiner (Labour, Brent North)

I understand your argument about it being hypothetical jam tomorrow, but I would specifically like you to address what you believe the impact might be on the diversion of investment funds, which the Tyndall Centre has talked about. It strikes me that between £19 billion and £31 billion coming out of investment in renewables is really quite substantial, as is the impact that that would then have.

Barry Gardiner (Labour, Brent North)

Could you perhaps, after you have read the report, write to us with your views on it?

Phillip Lee (Conservative, Bracknell)

In the context of the economics of decarbonisation, would you agree that the need for a gas-generation strategy has been brought about—indeed, reinforced—by an absence of a coherent nuclear strategy for the past 10 to 15 years?

Phillip Lee (Conservative, Bracknell)

But you would agree that to hit 2050 targets we have to have significant nuclear power as part of that.

Phillip Lee (Conservative, Bracknell)

So you disagree with David MacKay’s 2050 calculator.

Phillip Lee (Conservative, Bracknell)

But the cost implications of that to the consumer are what?

Phillip Lee (Conservative, Bracknell)

I am asking you what the cost implications of your plan not to use nuclear by 2050 are to the consumer.

Phillip Lee (Conservative, Bracknell)

No, I am asking you what your plan is, which seems miraculously to avoid using nuclear but does not seem to have an impact on consumer bills. Hitting a 50 gram target—

Phillip Lee (Conservative, Bracknell)

But back here in the real world, sir, the impact on consumers—

Edward Leigh (Conservative, Gainsborough)

We do not want a general argument about nuclear power. Let us concentrate on the Bill, with a specific question.

Phillip Lee (Conservative, Bracknell)

With respect, Chair, this is about decarbonisation of the electricity market.

Phillip Lee (Conservative, Bracknell)

I have not talked about individual technologies.

Phillip Lee (Conservative, Bracknell)

The purpose of my question is that the need for gas-generation strategy is there economically, and it is there because we have not had a coherent strategy on any other low-carbon form of electricity, and the major one would be nuclear. That is my point. On your criticism of the gas-generation strategy, our need for it has been created by the fact that we have not had any coherence in energy policy in this country for many a year.

Edward Leigh (Conservative, Gainsborough)

Let us carry on now and let us stick strictly to the Bill. This is a Bill Committee.

Alan Whitehead (Labour, Southampton, Test)

On the subject of alternative ways of managing either demand side response, through storage, interconnectors and so on, or demand side reduction, through taking capacity out of the system, how do you see the capacity market arrangements, as presently set out, impacting on that? Do you think that such measures, which everyone agrees ought to be in or around the Bill, should be under contracts for difference or capacity mechanisms?

Laura Sandys (Conservative, South Thanet)

I am interested in picking up on those points. I respect the Chairman’s view that we must stick to the Bill, but the Bill is in the context of many wider policy areas, not least the consultation on demand reduction. I am sure you have both responded to that. Sometimes policies might not need to be in legislation. They can be framed in quite different ways. The Bill is designed around low-carbon technologies and when the other pieces of policy from green deal, from demand reduction come together as policies on the demand side as well as supply, they are a very strong commitment to a decarbonised and reducing energy consumption agenda.

Laura Sandys (Conservative, South Thanet)

Absolutely, but it is the consultation that will deliver the responses from wonderful organisations like yourselves to ensure that the policy is implemented. Is it a legislative solution, is it a policy solution? There are all sorts of different variations. It is close to the deadline as a consultation.

Laura Sandys (Conservative, South Thanet)

But you would recognise that the Government have a very clear determination to address the demand reduction potential? Dave Timms: We absolutely take the intent of the consultation at face value.

Laura Sandys (Conservative, South Thanet)

But do you recognise that the Government have proposed a huge number of different policies and different measures that address these things for the very first time?

Peter Aldous (Conservative, Waveney)

Notwithstanding, Mr Timms’s concerns about renewable obligations and contracts for difference, we are where we are. I would just welcome your views on the transitional arrangements relating to the renewable obligation. Are you satisfied with the 2017 closure date for the renewables obligation?

Dan Byles (Conservative, North Warwickshire)

I am just coming back to the 2030 decarbonisation target, which is becoming one of the big issues for discussion. Why do you think it so important for the UK to have a 2030 decarbonisation target, when no other EU country has one? In fact, Germany, which already has higher emissions per capita than we do, is building 20 GW of new coal.

Dan Byles (Conservative, North Warwickshire)

Did they develop those supply chains as a result of, for example, the 2030 decarbonisation target or have they demonstrated that we do not necessarily need that in primary legislation?

Dan Byles (Conservative, North Warwickshire)

Do any of those countries that you have just mentioned have written into primary legislation something equivalent to a 2030 decarbonisation target? Every time you mention another country, you are demonstrating to me the fact that we do not need this in primary legislation because other countries are managing to do it through other methods.

Dan Byles (Conservative, North Warwickshire)

Has any part of the Climate Change Act been changed by the coalition agreement? The only people who seem to think that there is a crisis in investor confidence seem to be people like yourself. On Tuesday, E.ON, National Grid, Centrica and Scottish Power sat in front of us and said that they were ambivalent—

Luciana Berger (Labour, Liverpool, Wavertree)

How would both the panellists change the Bill to allow independent generators to compete in the market? What are your views on a pool to ensure proper competition and generation?

Luciana Berger (Labour, Liverpool, Wavertree)

It was about a pool.

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Earlier, Mr Timms, I think that you said that you would like the threshold increased to 100 MW. Did I hear you correctly?

Mel Stride (Conservative, Central Devon)

May I turn to consumers for a moment? The Government are extremely keen that we keep bills as low as possible. One of the few axiomatic elements of economics seems to be that if you apply a restriction to a market, that almost certainly leads to an increase in price. What are the arguments that you would employ to suggest that a 2030 decarbonisation target would not have the ultimate effect of increasing prices for the consumer?

Mel Stride (Conservative, Central Devon)

Simply that if you start to impose targets that a market has to adhere to, it has to change its behaviour in a way that it might not otherwise have done. That mechanism in itself tends to drive price and cost upwards, not downwards.

Mel Stride (Conservative, Central Devon)

So a 2030 target would have no risk whatsoever of increased consumer bills, in your opinion?

Mel Stride (Conservative, Central Devon)

Have you made any assessment of what effect your proposed target of 50 grams/kWh would have on consumer bills?

Mel Stride (Conservative, Central Devon)

Sorry—on that target.

Ian Lavery (Labour, Wansbeck)

The Government announced just before Christmas the potential for bringing 30 new gas-fired power stations unabated online. What impact do you think that will have on the Government’s ability to achieve their long-term climate change targets?

Edward Leigh (Conservative, Gainsborough)

We have only got a few minutes left. Very quickly, Barry Gardiner.

Barry Gardiner (Labour, Brent North)

Mr Timms, on that level of unabated gas by 2030, David Kennedy has suggested that its role should be limited to balancing the system at that point.

Edward Leigh (Conservative, Gainsborough)

I am going to stop you there. Very quick answer, and then I am going to let Sir Robert come in, because he has not had a go yet.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I just wanted to get your views on the £7.6 billion levy control framework 2020, and whether you felt that was pitched about right.

Edward Leigh (Conservative, Gainsborough)

That brings us to the end of the time allotted by the Committee. I thank our witnesses.

Hugh Bayley (Labour, York Central)

Good afternoon. We come to the first of our evidence sessions this afternoon with representatives of the Safety Directors Forum, EDF Energy and the Carbon Capture and Storage Association. For the record, could I ask each of you to introduce yourselves by name and organisation?

Hugh Bayley (Labour, York Central)

Before calling the first Member to ask a question, I should remind colleagues that questions should be limited to matters within the scope of the Bill, and I should tell everybody, including the witnesses, that we have to stick absolutely strictly to the timings in the programme motion, which means that this evidence session cannot continue beyond 3 pm. I might even have to interrupt you in mid-sentence when 3 pm comes. Looking at the headings within the Bill, is there any colleague who would like to ask questions relating to its overall aims?

John Hayes (Conservative, South Holland and The Deepings)

Perhaps I could ask this of Vincent in particular: how important, do you estimate, is the greater certainty that the Bill provides in terms of investment and, in particular, how important is FID enabling—final investment decisions—which allows organisations such as yours to plan their business around long-term investment?

John Hayes (Conservative, South Holland and The Deepings)

In respect of carbon capture and storage, may I ask Dr Warren for his comments on the progress that has been made by the cost reduction task force in exploring at what point carbon capture and storage could be commercially viable, and on the difference that would make to carbon-based technologies as a part of the energy mix that the Government are seeking in order to deliver resilience and sustainability?

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Dr Warren, you touched on the importance of cost reduction and the need for scale to effect that cost reduction. Is it your organisation’s view that a 2030 decarbonisation target is critical to investment in CCS, or is it an add-on?

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Can I just pick up two points? You made a point about a delay to the Bill, but is there any reason why incorporating a target into the Bill would delay it? Secondly, the Government have suggested that there will be a power to set a decarbonisation target in 2016. Do you think that that prolongs the period of uncertainty? Is it better to have a target in the Bill, as opposed to a power to set a target in three years’ time?

Tom Greatrex (Labour, Rutherglen and Hamilton West)

On the point about signals to investment, presumably you would want that, along with everything else, sooner rather than later. Is that right?

Peter Aldous (Conservative, Waveney)

On the contracts for difference and the single counterparty, having read the representations from both EDF Energy and the Carbon Capture and Storage Association, I get the impression that you are supportive of the direction of travel, but you both appear to have concerns about the contractual arrangements. I would like to hear a little more about those.

Hugh Bayley (Labour, York Central)

Will the witnesses try to make their answers to questions a little bit briefer? We have a lot of ground to cover, and at the moment we are just asking questions about the overarching aims of the Bill. We will certainly come back to the specifics and contracts for difference, if members of the Committee have further questions on that matter.

Barry Gardiner (Labour, Brent North)

Dr Warren, are you satisfied that CCS will be afforded the appropriate priority in the allocations market? Mr de Rivaz, given that all bar one of the companies represented on the debt capacity mechanism expert group have significant gas interests, do you believe that that has made sure that there is sufficient representation for the renewables and other low carbon? Mr Brandwood, do you think it sensible that the Government, in the funded decommissioning programme, have said that they will not set the waste transfer price until the early 2040s?

Barry Gardiner (Labour, Brent North)

Yes, appropriate priority and allocation.

Barry Gardiner (Labour, Brent North)

How could it have been improved within the Bill?

Barry Gardiner (Labour, Brent North)

Did the abandonment of the Don Valley project give the industry cause for concern?

Barry Gardiner (Labour, Brent North)

Could you remind the Committee of its rating in the EU stats as the projects most likely to get funded?

Hugh Bayley (Labour, York Central)

I am very conscious that we are still considering the overall aims of the Bill and I have three further Members who want to ask questions. We are halfway through the question time and we have the whole of the rest of the Bill to discuss afterwards. Perhaps Mr de Rivaz could answer the question that was addressed to him.

Barry Gardiner (Labour, Brent North)

No, Mr de Rivaz, my question to you was different from the one to Dr Warren. It was about the capacity mechanism expert group that DECC set up and the interests that were represented on it, all the companies bar one being companies with substantial gas interests, and whether you felt that that had influenced the drafting of the Bill against low-carbon technology.

Hugh Bayley (Labour, York Central)

And Mr Brandwood, there was a question that Barry Gardiner directed at you.

Hugh Bayley (Labour, York Central)

We would be grateful for that.

Alan Whitehead (Labour, Southampton, Test)

This is a question for Mr de Rivaz. There have been more than a few suggestions that the chapter in the Bill on investment instruments has been written specifically to assist EDF and their ambitions as far as CPC power stations are concerned. Do you consider that the advantage that that chapter conveys in that way outweighs the general interest of the Bill in ensuring that the CFD market for the future is not disrupted by the existence of pre-agreed investment instruments which precede the allocation of further CFDs at a later date?

Alan Whitehead (Labour, Southampton, Test)

Do you think that there might be a better requirement on you to accept some pretty tight dates on investment instruments, so that an investment instrument that perhaps has a very wide application does not thereby drive out the possibility of an allocation of CFDs being swamped in a particular year by the uncertainty surrounding whether the investment instrument comes into play in that particular year?

Michael Weir (Scottish National Party, Angus)

Dr Warren, may I press you on one point about CCS? You talked about CCS being deployable from the 2020s, I think. Given that the emissions performance standard in the Bill will set a figure for unabated gas up to 2024, could that act as a brake on the deployment of CCS?

Michael Weir (Scottish National Party, Angus)

Surely, if an investor is looking at new gas plant and has the option of a plant that will meet the emissions performance standard, or perhaps a much more expensive plant including CCS for some 20 or 25 years in the future, is there not a danger that they will go for the unabated gas plant as a cheaper option?

Laura Sandys (Conservative, South Thanet)

We are looking to achieve a truly mixed low-carbon energy economy. Would you agree that the Bill, with the strengthened counterparty and CFD regime, provides a truly equal platform across all low-carbon energy technologies—renewables and nuclear?

Laura Sandys (Conservative, South Thanet)

When you compare that with other regimes internationally, do you see that this actually creates that equalisation probably more effectively than other mechanisms?

Laura Sandys (Conservative, South Thanet)

Fantastic.

Hugh Bayley (Labour, York Central)

There are more and more people who want to speak. We are still supposed to be asking general questions, so we might lose the opportunity to ask the more detailed questions.

Ian Lavery (Labour, Wansbeck)

Have you any doubts that contracts for difference will be available for carbon capture and storage with gas or with coal?

John Hayes (Conservative, South Holland and The Deepings)

There are those who claim that it is paradoxical to devise and deliver public policy that aims to promote investment in both renewables and gas. Why do you think that they are wrong? You might be guided by Proust’s claim that today’s paradoxes are tomorrow’s prejudices.

Tom Greatrex (Labour, Rutherglen and Hamilton West)

I have a question for Dr Warren, which is perhaps more specific and less philosophical than the last one. You referred to the potential danger, under the levy control framework, of there not being scope for CCS, because of various factors, including time. Going back to the question Mr Gardiner asked, do you see a need in the Bill for more clarity around the allocations process to ensure that CCS does not get squeezed out by other technologies?

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

Mr de Rivaz, you raised the point of fairness and the importance for the consumer. When and if the price is finally agreed, will you be happy for the consumer to have, through Parliament, access to the scrutiny of how that price has been arranged?

Barry Gardiner (Labour, Brent North)

Paragraph 3(3) of schedule 3 goes against what you have said, because of course that excludes, under the business of confidential information, the strike price and the reference price. There are other elements that the Secretary of State does not need to disclose, so precisely what you have said is not stated in the Bill, is it?

Barry Gardiner (Labour, Brent North)

Have you not read the Bill?

Barry Gardiner (Labour, Brent North)

Excellent, and therefore you would wish to see this aspect of the Bill amended to ensure that there is that transparency?

Hugh Bayley (Labour, York Central)

I invite questions on the contracts for difference concept in the Bill. I know that Dr Phillip Lee wants to come in on that.

Phillip Lee (Conservative, Bracknell)

Mr de Rivaz, in EDF’s submission, you suggest some amendments that you would like to see. You said:

“we believe that CfDs should provide protection to generators for events outside of their control that could have a significant impact on construction and operating costs”.

Could you give a couple of examples of events that would be outside of EDF’s control?

Phillip Lee (Conservative, Bracknell)

That is an example of an operating cost, so what is an example of a construction cost that is out of your control? In view of the fact that Flamanville is significantly over budget and not complete—I am struggling to think of a plant that is on time, on budget and complete—I am trying to think of a construction cost that is out of your control so that the risk should be borne by the taxpayer and/or the consumer.

Phillip Lee (Conservative, Bracknell)

So there is not a single example of an event outside your control as a company that applies to construction cost. Is that what you are saying?

Phillip Lee (Conservative, Bracknell)

To be clear, there are no events outside of your control that can affect the construction cost at Hinkley?

Phillip Lee (Conservative, Bracknell)

But you are not asking for a change in the way in which the contract for difference is drawn up in order for you to be allowed to come back and say, “This event was out of our control, which is why the construction cost has gone up”?

Phillip Lee (Conservative, Bracknell)

I am just trying to clarify from EDF’s submission whether there are any events outside the company’s control that apply to construction. You have given me an example for operating—I accept that—but this is important for construction, because the construction cost of this nuclear reactor could have a profound impact on the country’s intentions to build further reactors in the future. The construction cost matters above all else, and you are saying that there are no events outside the control of EDF on construction.

Hugh Bayley (Labour, York Central)

We have less than 10 minutes left with this panel, so I am happy to take questions on any part of the Bill.

Graham Jones (Labour, Hyndburn)

This is just a general question. Vincent, you have talked considerably about the Bill. Do you think it will be beneficial to EDF as it currently stands? Do you think it is a good Bill, and will EDF be able to profit from it?

Graham Jones (Labour, Hyndburn)

Let me put it another way: will it be good for business for EDF?

Graham Jones (Labour, Hyndburn)

Is it fair at the moment? Sorry to press you, but is it fair at the moment as far as EDF is concerned? You seem to be evading the question.

Graham Jones (Labour, Hyndburn)

Do you think the Bill as it stands will be very profitable for EDF?

Graham Jones (Labour, Hyndburn)

Do you think that the Bill, as it stands, will be good for EDF as a company?

Graham Jones (Labour, Hyndburn)

You must know the answer to that question.

Graham Jones (Labour, Hyndburn)

I did not use the word “fair”. I was just asking your opinion.

Peter Aldous (Conservative, Waveney)

I have a question for Mr Brandwood. I would welcome your views on the proposal to establish the Office for Nuclear Regulation.

Barry Gardiner (Labour, Brent North)

I absolutely agree with you that this is not a Bill for any one company. It is a Bill where you need to get fairness, and that is absolutely right.

Barry Gardiner (Labour, Brent North)

What I would ask you, therefore, is in relation to the negotiations around the strike price. Nuclear is in a slightly different situation because most of the costs of nuclear are construction risks. They are up-front risks, therefore the estimated cost of construction is extremely important in the negotiation over the strike price. I am not saying this as an accusation; I am simply stating it as a fact: there is therefore a perverse incentive for companies to load their anticipated construction costs in order to be able to negotiate a higher strike price.

Do you think then, as a matter of principle, there should be a mechanism within the Bill whereby, if the construction costs do not come in at the projected level and are lower than that projected level, there should be some compensatory mechanism to ensure the strike price is subsequently lowered, because that then reflects a fair return to the company and also a fair return to the taxpayer?

Hugh Bayley (Labour, York Central)

We have come to the end of our time. I thank all three witnesses, Alan Brandwood, Vincent de Rivas and Dr Luke Warren. Thank you for coming to meet the Committee and answer its questions. I invite the next three witnesses to come forward and take their place at the table.

Hugh Bayley (Labour, York Central)

We will now hear oral evidence from Consumer Focus, the Institute for Public Policy Research and Which?. I invite the three witnesses to give their names and tell us which organisations they represent.

Hugh Bayley (Labour, York Central)

We will start by considering the question of energy tariffs with this panel.

Laura Sandys (Conservative, South Thanet)

If you do not mind, Mr Bayley, I want to talk about consumer redress. The Bill introduces clear procedures on consumer redress. That is a first for the electricity sector, and I wondered what your responses were to it being included on the face of primary legislation.

Dan Byles (Conservative, North Warwickshire)

I would like to explore the angle of affordability to the consumer. I am often concerned that we have academia, industry and Government sitting around in a room discussing energy policy, and the missing chair at the table is the one for the consumer. Do you think the Bill contains enough protection in terms of affordability for Mrs Jones in Acacia avenue trying to heat and light her home, as we go forward with our decarbonisation agenda?

Dan Byles (Conservative, North Warwickshire)

So it is that transparency, principally.

Dan Byles (Conservative, North Warwickshire)

Do you think that a simplification of the tariff system would help, then?

Dan Byles (Conservative, North Warwickshire)

I saw that in your submission. Can you explain why—are you thinking about the future price of gas being high?

Dan Byles (Conservative, North Warwickshire)

There is a lot of change going on.

Dan Byles (Conservative, North Warwickshire)

It would be interesting to see that work.

Hugh Bayley (Labour, York Central)

To try to structure the discussion a bit, of the many people on my list, were there other colleagues wishing to ask questions about tariffs and the price to consumers? I will take Mike, then the Minister.

Michael Weir (Scottish National Party, Angus)

On energy tariffs, we have not yet seen the Government’s exact proposals about cheapest tariffs, but it was suggested to us, I think by witnesses from the utility companies, that it would be the lowest tariff within the type of tariff the consumer already had. Do you have any views on how that will really impact on those who are paying the highest amount for electricity, such as those on pre-payment meters?

Michael Weir (Scottish National Party, Angus)

But it is often very difficult to move off pre-payment meters, because of the reason you are on one. It does not matter what the tariff is if you are stuck on a pre-payment meter because of past debt, and cannot get on to a lower tariff. For those people stuck on a pre-payment meter it does not really matter what the tariff is, to a large extent.

John Hayes (Conservative, South Holland and The Deepings)

On that precise point about the marriage of simplicity and transparency of which you have spoken, is it not the case that that mix is likely to have the effect of restraining price increases, because it is harder to hide uncompetitive deals? In that context, has this debate not been most welcome, and, actually, rather overdue?

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Earlier on, in response to the first question on consumer redress, you welcomed those elements of the Bill. Do you have a view on clause 8, which suggests that surpluses held by counterparties should go back to the Treasury? Would you rather see any surplus directed towards consumers, rather than it being a backhanded way of the Treasury raising revenue from the process?

Peter Aldous (Conservative, Waveney)

I want to go back to a point that Mr Hall raised earlier. You expressed an opinion that it might have been more appropriate for the Government to be concentrating on a narrow range of lower-carbon technologies. Can you just elaborate as to what technologies you had in mind?

Luciana Berger (Labour, Liverpool, Wavertree)

We have heard from Mr Moorey. Will the other two panellists expand on what they would like to see from Government in their plans to ensure that everyone is on the cheapest tariff? Will mentioned pooling. What do the other two members of the panel think about pooling?

Luciana Berger (Labour, Liverpool, Wavertree)

Do you have any thoughts on pooling?

Barry Gardiner (Labour, Brent North)

Mr Hall, I want to focus on costs to consumers. You will recall that between 2004 and 2010 the average UK consumer bill rose from £605 to £1,060. Of that £455 rise, can you recall how much was due to a rise in the wholesale price of gas?

Barry Gardiner (Labour, Brent North)

Indeed. I do not want to put figures into your mouth, but does the figure of £290 out of that £455 come to mind as being roughly accurate?

Barry Gardiner (Labour, Brent North)

Will has just given you the same figure. Well, Mr Straw, perhaps I should turn to you to pursue this line of questioning. Of that £455 rise, £290 of which was due to the rise in the wholesale price of gas, do you recall how much was linked to the measures to support low-carbon energy generation?

Barry Gardiner (Labour, Brent North)

No, I am not working from that. I believe it was only £30 during that period.

Barry Gardiner (Labour, Brent North)

Yes, indeed. I asked you specifically about generation. Let me ask a further question, Mr Straw. Have you looked at the international energy outlook 2012, the latest international energy outlook projections on world gas?

Barry Gardiner (Labour, Brent North)

Oh well, perhaps I can jog your memory too. Do you recognise the projected rise in China’s demand for gas from 130 billion cubic metres in 2011 to 545 billion cubic metres projected by 2035?

Barry Gardiner (Labour, Brent North)

You do. Thank you. That is a more than fourfold increase in China’s demand. Tell me what you believe the demand in world gas prices is going to do. I take it you have read what it also says about the relatively static demand in Europe taking time to get back even to the 2010 figures. What do you think that demand in world gas will do to prices in the UK if we have a further dash for gas?

Barry Gardiner (Labour, Brent North)

So you are cautious about putting too much reliance on what Mr Parr from Greenpeace earlier called the “fairy” or the “fairy godmother” of shale gas?

Barry Gardiner (Labour, Brent North)

Could you round off with your conclusions, perhaps all three gentlemen, about what you think a new dash for gas might do to consumer prices? Up or down?

Barry Gardiner (Labour, Brent North)

Thank you. Mr Moorey?

Alan Whitehead (Labour, Southampton, Test)

On the question of future prices, have you done any analysis of the packages of either direct or indirect demands that will arise on consumer bills, as a result of various measures in the Bill? I am thinking of CFDs; a possible expensive capacity market arrangement, which will derive payments to increased capacity resilience recovered from customers; the indirect effect of the exemption of energy-intensive industries from paying CFDs and, of course, the question of what gas prices will look like subject to carbon floor price, assuming they continue to be market makers, and the impact, therefore, on other people’s prices, who would take the price from the customer but would not necessarily pay that carbon floor price. If you have done such analysis, what does it look like?

Alan Whitehead (Labour, Southampton, Test)

Do the other two of you have a handle on any of those factors?

Laura Sandys (Conservative, South Thanet)

You have seen the Government’s consultation on demand reduction. It is the first consultation in the UK on that important part of energy policy. A lot of people are looking at the Bill as a possible vehicle for some elements of demand reduction. I am sure you have all submitted a response to the consultation. Did you propose parts of the Bill you think could be a platform for amendments aimed at demand reduction as an important part of the energy mix, if the consultation resulted in conclusions like that?

Laura Sandys (Conservative, South Thanet)

Pete!

Laura Sandys (Conservative, South Thanet)

Do you not think that any mechanism that reduced the use of energy would also reduce the cost of energy to the consumer?

Laura Sandys (Conservative, South Thanet)

Can I come back to something you were saying? On the face of it, the Bill is about supporting generation, although that is not necessarily the intention in the future. Is there not also a role for supporting megawatt hours, as such? Do you see any mechanisms or platforms in the legislation that could help to reduce demand rather than just increasing generation with no ceiling? The lack of ceiling on generation will end up costing the consumer, will it not?

Hugh Bayley (Labour, York Central)

I am getting signals that your contribution has sparked some supplementary questions.

Mel Stride (Conservative, Central Devon)

I was interested in Will Straw’s comment about promoting energy efficiency take-up through local authorities and getting to the street level rather than the individual property. One of the challenges that I think you identified is getting people, particularly the harder to reach, to take up these schemes. Can you flesh that out for us a bit?

Mel Stride (Conservative, Central Devon)

Within that approach, do you think there are levers that can increase the propensity of people in those areas to engage in that process or is it more to do with the targeting, as you suggested?

Hugh Bayley (Labour, York Central)

I have a sudden rush of questions here, and we have just 14 minutes to go. I ask for brief questions and quite brief answers.

Gregory Barker (Conservative, Bexhill and Battle)

You are preaching to the choir in terms of advocacy of a street-by-street roll-out. However, you have rather confused the issue—or muddled it. This is the EMR Bill. You have confused electricity efficiency with thermal efficiency. Obviously, the roll-out of the projects you suggest in exactly the way in which you suggest is very good for achieving savings on gas bills and heating primarily. There will be some benefits through installing efficient electrical devices, but so far as the average house or home is concerned, the overwhelming savings from that sort of project are to do with thermal efficiency rather than electricity, unless you are one of those few people who still heat their home through electricity.

I am afraid that it is not an alternative to the inclusion of projects in an electricity capacity market, which needs to identify electrical processes when there is scope for efficiency. It is actually one of the frustrating things. You could keep on stretching the Bill. In an ideal world, it would be energy market reform rather than electricity market reform, but this is quite enough to digest as it is.

In the light of that, perhaps you might reflect on—back to Laura’s question about understanding the potential of a capacity market to bid for projects for electricity demand reduction—residential and commercial against new build generating assets, the megawatts theory. How do you think you could apply those in the same way, but in a way that attacks electrical efficiency rather than thermal efficiency?

Gregory Barker (Conservative, Bexhill and Battle)

Absolutely. The challenge, which is where we really want input from experts and stakeholders such as yourselves, is aggregating those sorts of projects into a scale whereby they can compete with generating assets where the ticket price for minimum entry is significantly larger than any projects on energy efficiency that we have seen to date. The question is: how do you build that market quickly enough so that they can compete? Otherwise, you will have projects that have a value in the low millions competing with projects with values of hundreds of millions, which would be a mismatch. I wonder if you have any thoughts on how you could do that?

Gregory Barker (Conservative, Bexhill and Battle)

Do you have a view on using—

Hugh Bayley (Labour, York Central)

Forgive me, I have got five more people wanting to ask questions and, since we are all great mathematicians on this Committee, that allows for less than a minute per question and a minute per answer if we are to get through them. I think that we should move on.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

Just a quick question, back on tariff performance. When you were looking at tariff problems, did you come across people on dynamic teleswitching where it was very difficult to switch to other suppliers because of the wiring and the way that their house operates? When it comes to tariff reform, is there anything specific that needs to be done for them? Or would you like to write to us on that?

Hugh Bayley (Labour, York Central)

Thank you. We would be grateful if you did.

Michael Weir (Scottish National Party, Angus)

One of you mentioned that one of the main things needed from reform was greater competition in the market. Concerns have been raised by some that the contracts for difference will solidify the control of the big six and make it more difficult for new entrants into the market. I wonder if you have any views on that?

Alan Whitehead (Labour, Southampton, Test)

Sorry, this is a “would you agree” question. Will, in particular, would you agree that the description that you have given of a community-based enveloping programme, in terms of energy efficiency, is an accurate description of the community energy saving programme, as it operated? If you go to Walsall, you will see a good example of how that worked, including improvements for homes that were not directly related to the original CESP coverage. Do you agree that that has just recently been abolished by Government and therefore we no longer have a CESP?

Finally, would you agree that substantial savings in heat, particularly as far as gas is concerned, have an effect across to electricity generation—in terms of the demand for gas for both electricity generation and domestic consumption?

Alan Whitehead (Labour, Southampton, Test)

So it is a yes, then?

John Hayes (Conservative, South Holland and The Deepings)

You spoke earlier about demand reduction. I am interested in your thoughts about demand reduction and its relationship with the capacity market. I presume that you take the view that capacity market design has to be sufficient to allow demand to be a salient in considerations of capacity.

Peter Aldous (Conservative, Waveney)

I will ask another “do you agree?” question. Would you agree that the plans in the Bill to commission an open book scrutiny of developers’ documents provides the necessary transparency?

Hugh Bayley (Labour, York Central)

Okay. Well, because of brief questions and brief answers, we have just made it by the drop-dead time. Thank you to the three members of the panel, Richard Hall, Will Straw and Peter Moorey, for meeting the Committee and answering its questions.

I invite the next panellists from NEA and the GMB to take their places, please.

Hugh Bayley (Labour, York Central)

We shall start, as we did with the previous sessions, by inviting the three witnesses to introduce themselves, giving their names and explaining which organisation they represent.

The rest of the debate is in Hansard.