Energy Bill

Public Bill Committee, 31 January 2013.

Clause 35

Alan Whitehead (Labour, Southampton, Test)

I beg to move amendment 124, in clause 35, page 21, line 15, at end add—

‘(4) The Secretary of State may not exercise the power in subsection (1) in such a way that confers an advantage upon one land-based low-carbon generation technology over another.’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss new clause 4—Market access for independent renewable generators—

‘( ) The Secretary of State must exercise the powers conferred by this Chapter so as to establish an auction market (the “green power auction market”) in which generators are entitled to offer, and holders of supply licences are entitled to bid for, electricity generated from renewable sources.

( ) The Secretary of State must exercise those powers, and take such other steps (including the exercise of any other power conferred by or under a provision of this Part) as the Secretary of State considers necessary, for the purpose of ensuring that—

(a) the green power auction market begins to operate when the first CFD is made and does not cease to operate until expiry of the last CFD that has been made; and

(b) the reference price under a CFD entered into by a generator who is a party to an agreement made through the green power auction market is based on the price payable to the generator under that agreement.

( ) In this section—

“CFD” means a contract for difference as specified in subsection 2(a) and (b);

“supply licence” means a licence under section 6(1)(d) of EA 1989.’.

Alan Whitehead (Labour, Southampton, Test)

These two provisions have slightly different purposes, but they are linked in terms of how the clause works. I will detain the Committee briefly on amendment 124, which would ensure that the powers in the clause are not exercised in such a way that they confer particular advantage on one land-based low-carbon generation technology. It is based on the assumption that we do not pick winners and, indirectly, on the suggestion that, as far as strike prices are concerned, no low-carbon generation on land can be advantaged in such a way as to make the arrangements disproportionate.

That would be a useful brake on the Secretary of State at the point at which decisions are made on administrative allocation, as opposed to subsequent auction. The Secretary of State would need to be mindful of the relationship between land-based technologies, and would not, in deciding the administrative allocation, decide on a strike price or series of arrangements that so advantaged one low-carbon land-based generation technology over another that the subsequent allocation and operation of contracts for difference was distorted. That would be a useful addition to the Bill. There are other ways such an outcome could be assured, but these provisions are one possibility.

I want to spend a little more time talking about new clause 4, which concerns market access for independent renewables generators. It addresses a potentially serious and possibly terminal problem that may face independent generators when the Bill comes in. As matters stand, independent generators—those that do not have the advantage of vertically integrated generation, wholesale, supply and retail operations—tend to have reasonable access to the market. That is because of the renewables obligation certificates system and, consequently, the availability of power purchase agreements when those independent generators seek to supply energy. A power purchase agreement is essentially a long-term agreement that the power provided by a generator will be purchased over a period of perhaps 12 or 15 years. Having that power purchase agreement means that, among other things, an independent generator has an effective guarantee, in particular for financing a project. Should that project go onstream—be undertaken, be financed and be built—then those who might finance it can be assured that it will work subsequently, as far as the output is concerned. With a renewables obligation in place, there is a clear incentive for those who are purchasing that power to enter into an agreement, because there is something in it for them—that is, they receive the certificates that enable them to undertake their obligation—so that is win-win all around.

Under CFDs, whatever other advantages there may be overall in their operation, it is quite clear that there is no obligation to purchase. Hence, that impulse to operate power purchase agreements on the part of those purchasing the power will disappear. Indeed, we have already seen in the market that PPAs are in serious decline, and the Department has recognised that to the extent of introducing a consultation, only a little while ago on, to puzzle out the reasons for the strange disappearance of PPAs and what might be done about it. I am afraid that, as matters stand, the consultation does not appear to have come up with any particular resolutions on why PPAs are in decline, although it does suggest that in the future some kind of auction market might be introduced as a back-stop, if PPAs continue not to function.

Michael Weir (Scottish National Party, Angus)

I am listening carefully to what the hon. Gentleman is saying, and I mostly agree. One concern expressed about back-stop powers, however, is that by the time they are available for use the industry may have disappeared, unless a change ensures greater access to smaller generators.

Alan Whitehead (Labour, Southampton, Test)

I did not spot the hon. Gentleman in my office when I was writing my notes on the amendment, but he must have been there, because that is exactly the point I am coming to, which is, as he emphasised, the question of how the back-stop that is now proposed in the Bill, although it was not previously, may well be insufficient to deal with the issue, given what some people consider the situation might be. The reason for the back-stop to be in legislation is so that the Secretary of State, if things do not go very well after CFDs are introduced—not to put too fine a point on it—may take measures, for example, to introduce an auction market at a later date, on review of how things are going. The difficulty for independent generators, facing such new circumstance in which ROCs are replaced by CFDs, is that they cannot effectively get a CFD unless they are already selling into the market. If an independent generator is seeking to bring a project to market, it would not know whether it will be able to sell any of its power in such circumstances and it would not know whether it can get CFDs at all.

Robert Buckland (Conservative, South Swindon)

Following on from that uncertainty, it would be difficult, would it not, for investors and independents to obtain funding from banks, which themselves need certainty to know whether a project is viable? The question of viability, therefore, is one that needs to be addressed, and the option we are discussing is one that needs to be considered seriously by the Government now. Does the hon. Gentleman agree with that?

Alan Whitehead (Labour, Southampton, Test)

Indeed. It is astonishing that two hon. Members must have been in my office when I was putting my notes together, because the hon. Gentleman is exactly right. When independent generators seek to bring a project to market, one thing that they will probably do further down the line when they get their planning permission and finance together is to ensure that they can guarantee that the project is viable, which the financing will require. The fact that the project will sell once it is introduced is an essential part of proving viability. Therefore, if we reach a situation where such projects simply cannot demonstrate their viability, but a person may intervene in such a way that improves the viability, that will be too far down the line. They need to prove that viability when they seek to establish their project, not after the project has crashed, burned and disappeared and needs someone to come along and proffer a solution that may pick up the pieces.

As the hon. Gentleman emphasises, the problem is particularly serious when the transition takes place. Frankly, the solution put forward—welcome though it is in some ways—essentially says, “Let’s see if the patient dies, because we can then send for an undertaker,” rather than sending for an ambulance when the patient is not well. We need better than that. Independent generators will probably provide 70% to 80% of the necessary finance for smaller-scale projects—particularly land-based projects, but also some offshore—over the next period.

In the run-up to the Bill, I wholeheartedly endorsed the repeated emphasis in the White Paper and the draft Bill that the legislation would seek to introduce new entrants to the market, to diversify how supply was undertaken and to ensure a healthy market and a range of operators other than the vertically integrated big six that already exist. It is unlikely that the big six will carry the burden of investment in new projects by themselves. Indeed, it is essential that independents play a substantial role in getting those new projects under way. At the moment, however, it is distinctly possible that a perverse outcome quite opposite to the hopes and wishes of the legislation could happen, because vertically integrated operators have no problems in accessing the market. They do not have problems, for example, of balancing the product when they get to market, because they can offset such costs within their internal vertically integrated arrangements. They do not have the problem of selling their products, because they can use bilateral deals essentially within the company structure.

Independent generators therefore have a particular issue. As we move to CFDs, they will simply be shut out from the market and from the process of getting their projects away in the first place so that they can access the market.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

At the risk of making his room seem even more crowded, I wondered whether he had also addressed Ofgem’s liquidity review and the fact that that was probably aiming at solving other problems, and was not necessarily a solution to this problem.

Alan Whitehead (Labour, Southampton, Test)

Yes, indeed. Ofgem’s liquidity review will essentially, one hopes, result in a far greater amount of deals being known and transparent. It will therefore give a quantum assurance about likely prices for deals, and enable a wider range of those people who are coming into the market to make deals to do so on a known, fair basis. I welcome this, but whatever the future transparency of those deals may be, it does not have an impact on the issue of an operator, even an existing one, being forced to strike a deal on the basis of what might look like a power purchase agreement, but is actually so disadvantageous to achieving the reference price that they cannot make any money out of the arrangement in the first place, because that would-be power purchase agreement is not assured by the renewables obligation arrangement. In that situation, having transparent deals which do not work is no more advantageous than having non-transparent deals which do not work. Therefore the hon. Gentleman is absolutely right that it is not something we should refer to in seeking a solution to this particular problem.

As I have mentioned, the Government put a back-stop arrangement in this legislation. I believe this needs to be amended so that there are arrangements right from the start of the new era CFDs to give some assurance—not necessarily on the basis of PPAs—that those independent generators can actually work through the process of getting to market in a viable way. That is something which acts as a demonstrable instrument in place of PPAs at the point at which projects are seeking finance. The amendment proposes that the Government instigate a green power auction market, which would be a short-term auction market with a term of twice a year. It would be linked to CFDs and a reference price, so that as a result of access to that auction market generators who do not necessarily have, say, BBB+ credit ratings, would be able to ensure that their product would be auctioned. Access to that stable auction market over a period of time—albeit in chunks—would become the equivalent of a long-term power purchase agreement on a stable basis. Therefore, among other things, it would very substantially damp down the problem of balancing that generators would otherwise have to deal with.

Robert Buckland (Conservative, South Swindon)

To reinforce the hon. Gentleman’s point, having it twice a year would mean that if the independent was not able to succeed with regard to an auction, the lender—a bank—would potentially be looking at a six-month period during which there would be turnover difficulties. This is a much shorter window, and a defined window, that could allow them more security when it comes to lending to independents.

Alan Whitehead (Labour, Southampton, Test)

Yes, indeed. It appears that a short-term auction market actually provides a number of advantages, as it were a replacement win-win, for the PPA arrangements related to the ROCs that were there previously. As the hon. Gentleman correctly states, it both reduces risk, because it is a repeated and known market, and once the market has been established it has the virtual effect of being a long-term arrangement. That indeed reduces the risk as far as balancing is concerned, and enables those independent generators with lower credit ratings to give gold-plated assurances about their viability that they otherwise may not be able to do. That has a number of important advantages as far as the new system is concerned, but it is essential that that starts from the beginning of CFDs rather than being used as a rescue package should things fail to materialise otherwise.

The result of a short-term auction market will probably see many independent generators getting their projects to market over the coming years, and they will get their products to market at a far lower cost—if they had got them to market—than would have otherwise been the case. The bottom line of that will be a saving to consumers, because the knock-on risk costs related to balancing and the deals that can be made relative to reference price all land back in the consumer’s bill by means of charges. Perhaps, to have a £70 million to £80 million saving on what might otherwise be the case seems to me not just a win-win, but a win-win-win situation for future arrangements—[Interruption.]. Win-win-win—it is win power.

I hope that, even if the Minister cannot accept the exact terms of the new clause, he will assure me that the Department will look closely at these arrangements or, perhaps better still, give an indication today that that is the direction that the Department is minded to go on the important area of independent generation. Then, at least one of the important aims of the Bill, to ensure a diverse series of supply arrangements that enable operators of all sizes—not just vertically integrated companies—to work well in the market to the advantage of consumers and our energy security, can be achieved.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I thank the hon. Member for Southampton, Test for tabling the new clause, which focuses the Committee’s mind on independent generators. As he pointed out, we do not want to have to rely just on the big six to provide our energy investment; we must attract a wider range of generators if at all possible. As I said in my intervention, the feeling is that while the Ofgem liquidity review will help to provide transparency, it will not help to address the investment climate for this market.

The final point the hon. Gentleman made was on the calculated benefit to the consumer. If we can create a market that maximises investment while keeping prices for the consumer as low as possible, we will get the win-win that he is so keen to promote. I hope that the Minister will reassure us that the Department is addressing this issue and that it recognises the problems that independent generators foresee from the proposals before us.

Luciana Berger (Labour, Liverpool, Wavertree)

I do not wish to detain the Committee for any longer than necessary. I had intended to make my comments in the clause stand part debate on Tuesday, but with the Chair’s permission I will make them now, because they are an extension of those made by my hon. Friend the Member for Southampton, Test and the hon. Member for West Aberdeenshire and Kincardine.

The Chair indicated assent.

Luciana Berger (Labour, Liverpool, Wavertree)

Thank you. Clause 35 enables the Secretary of State to modify licence conditions and codes to promote the availability of arrangements for the sale of electricity in order to facilitate investment in electricity generation. We have heard that those powers are required for viable power purchase agreements to be offered to independent generators. We support giving the Secretary of State the powers, but we need more information about exactly how and whether they will be used.

As the Minister will know from previous Opposition amendments, we are particularly concerned—I endorse the comments made by my hon. Friend the Member for Southampton, Test—about the ability of small and independent generators to gain access to PPAs. The Government have acknowledged that the big six on their own cannot fund all the investment needed to upgrade our energy infrastructure, owing to constraints on their balance sheets and competition for capital, so independent generators will have to play a substantial role in meeting that cost. The independent generators estimate that, under the right conditions, between a third and a half of the £110 billion needed by 2020 might be provided by them.

With the removal of the renewables obligation, the big energy companies will no longer have the same incentive to offer long-term contracts or PPAs to smaller generators, which will severely impact on them and prevent them from being able to secure finance for new projects. Many of the independent generators that I have met already find that funding is beginning to dry up, and banks are telling them that they simply will not finance a CFD FIT without a PPA.

In one of our evidence sessions, Maf Smith, the deputy chief executive of RenewableUK, spoke about PPAs and queried whether a back-stop power on its own would be effective. He argued:

“The Government have said that they will create the back-stop power and then review whether they need to use that power after the first allocation period. Essentially, that is too late, however, because at that point those small independents and small generators will already have wanted to contract and seek a CFD, but they may not be at the point at which they have sought a PPA, because some will leave that until later. So at the allocation process, the Government will not know whether there is a problem—that will still be hidden. We therefore need to be clear about what the Government would do if there was a problem if that comes out.”––[Official Report, Energy Public Bill Committee, 17 January 2013; c. 170-171, Q479.]

I hope that the Minister will address those serious concerns and reassure the Committee in relation to these three questions. First, have he and his Department examined how the measures in the Bill will affect small-scale and independent generators, and is he happy that they will still be able to secure finance? Secondly, will he agree to meet independent generators regularly as the Bill progresses and measures come into force, so that he stays informed about how they are being affected? Thirdly, if small and independent generators are adversely affected by the new arrangements, will he take action to rectify such a situation and what action will he take? I look forward to hearing the Minister’s remarks.

Roger Gale (Conservative, North Thanet)

I indicated to the hon. Lady that I was more than happy to accommodate issues relating to the clause in this debate, so I do not anticipate having a stand part debate. I say that now in case any other member of the Committee has a burning desire to raise other issues.

John Hayes (Conservative, South Holland and The Deepings)

We are enjoying having a range of Chairmen, which adds a certain colour and excitement to our proceedings, so I am pleased to welcome you to the Chair, Sir Roger. I come fresh and in good heart from departmental questions and, having survived an attempted assault by a superannuated peacenik, I am here and ready to do battle again.

This debate is important, and I am grateful to the hon. Member for Southampton, Test for giving us the chance to hold it. He has again done the Committee a service, because we are dealing with interesting material, particularly in new clause 4. His amendment 124 would require the Secretary of State to exercise the powers in clause 35 in a way that did not discriminate between technologies, and I understand the reason for tabling it. However, there may be a case at particular times for using different technologies, because of their scale of development. If that can be justified on the basis of the particularity or the circumstances, there is a case against treating all technologies the same and for discriminating between them.

I emphasise that because it is important to remember that the clause was added to the Bill following pre-legislative scrutiny, of which the hon. Member for Southampton, Test is aware, and in part as a result of the representations of the independent generators for whom he has made his case. This is a good example of where the Government listened to argument on what I describe as the particularity of the circumstances of different kinds of generators and different technologies and amended the Bill accordingly. On that basis, I am not inclined to offer support to the amendment, but it has provided us with the opportunity to debate at greater length new clause 4, which would establish a green power auction market.

Before I deal with some of the points made by the hon. Gentleman, I will answer the hon. Member for Liverpool, Wavertree, as a matter not merely of chivalry but of oratorical convenience. The hon. Lady asked for three things, and the arguments were well made. The first is that we look at the impact of this area of the Bill on independent generators. Such analysis is important, and we have done much work on it, but I commit today that, if we look at things again, and I will ask my officials to do so, and feel that further work needs to be done, that will happen. There is a good argument to look closely at the effect on particular kinds of generators, because I agree with the arguments made by the hon. Gentleman and others that independent generators provide an important part of the mix in the plural market that we want to create.

As you, Sir Roger, made your point about stand part, may I digress—not radically, I hasten to add—for a second? Consideration of the Bill involves much debate about liquidity. Indeed, liquidity matters. As well as creating a more liquid market, however, we must create a more plural market. Those are overlapping points, but they are not the same. The role of independent generators in pursuit of those aims is very important, not least for what the hon. Member for Southampton, Test—I listened to him carefully—identified as the likelihood of such generators to be innovative. They are likely to be the people who drive forward particular technologies and approaches to generation, so, arguably, they provide a disproportionate degree of that capacity to move forward, which he and we are enthusiastic about. I happily agree, therefore, on impact.

The hon. Lady’s second point was about meeting the independent generators. I, too, think that that matters. I had a helpful meeting with the renewables sector yesterday and, of course, we talked about this part of the Bill—we could hardly be expected to do otherwise—and, in particular, the green power auction market, which was raised by the sector. She is right that a proper dialogue with the independent sector is important, and I will commit to engage in that dialogue, both now and when what I hope will be the Act has effect, because this process is cathartic, and it is very important that we mark the changes that the legislation brings about and that we are sufficiently flexible to respond when those changes have an effect that we had not anticipated, or even an unintended malign consequence—after all, Acts can have that. That dialogue is therefore important in giving us a perspective from those most directly involved so that we can adjust our thinking following implementation.

Thirdly, the hon. Lady called for us to monitor matters on an ongoing basis. I suppose that, implicitly, I have just said we will do that, but for the sake of the record, let me say that we will, absolutely, do that. There is a risk in all these affairs that the perspective we get from the large suppliers about power purchase agreements is not the same as the perspective we get from smaller companies. It is important that smaller companies are not excluded from that dialogue or underestimated in our assessment of any impact.

Luciana Berger (Labour, Liverpool, Wavertree)

I hope the Minister will forgive me for slightly challenging him, but my third point was about the action he would take. I appreciate he will monitor the situation on an ongoing basis, and the independent generators will be grateful for his commitment to meet them on an ongoing basis. However, my third point was about the action he might take to rectify the situation should independent generators be adversely affected, despite any engagement and consultation with them.

John Hayes (Conservative, South Holland and The Deepings)

I do not want to prejudge what action I would take, because we would have to base any action on the character of the problem, but two things occur to me. The first is that independent generators often report that they find it challenging to navigate the system for getting PPAs and that just using the system is excessively burdensome. The second is that it is important to gauge the value-for-money aspect. In the broader matter of considering the impact, the specific matter of value-for-money analysis, or audit, is significant. I will not explore all the things we might do to adjust the system and calibrate our arrangements in the light of evidence before that evidence has emerged. However, from what we have been told, we know that independent generators have concerns about those two issues, and the hon. Lady is right that having that meeting with them would allow Ministers to gain an insight that reflected the specific concerns of specific organisations. As I say, I am happy to agree to do that.

Let me turn to some of the points made by the hon. Gentleman before I move on to the main thrust of my argument, for these—some will be pleased to know, some less so—are merely my introductory remarks. The hon. Gentleman mentioned a liquidity review. As I have said, that is one part of the way forward, and we may be able to enable those who trade directly to do so. I agree that that is not necessarily a solution in itself. However, I emphasise that there is no restriction on the powers in the clause. I think he suggested—this may be a misunderstanding—that those powers can be used only after CFDs have been introduced or when we know for certain that there is a problem, and one could argue that that is shutting the stable door after the horse has bolted. Let me be clear: we would be able to use the powers in the clause right away after Royal Assent. Given what I have just said to the hon. Lady, we will want to be analytical and considered in ensuring that any action we take matches the character of the problem. I am not suggesting we would use the powers in the way I have described, but I would not want there to be a misunderstanding that the Bill limits our ability to respond appropriately, as required.

Perhaps I should offer another reassurance. It is important, notwithstanding the arguments that have been made this morning, to note that independents will continue to invest in offshore wind as we move from RO to CFDs. DONG Energy has just announced that it will invest in and build the Westermost Rough offshore wind farm, just off the Yorkshire coast, east of Hull, which is expected to be operational from 2015.

Alan Whitehead (Labour, Southampton, Test)

I merely point out that perhaps we should distinguish between those generators that look as though they are independent and not vertically integrated, but are vertically integrated on other markets, and those generators that have no possibility of integration in other markets or this market. DONG Energy is an example of the former.

John Hayes (Conservative, South Holland and The Deepings)

The hon. Gentleman, with the nimbleness for which he is known, anticipated the qualification I was going to make as a suffix to that point to say that I appreciate that he will also have had in mind the smaller independents. While it is true to say that this is partly about whether the generator is independent, it is also about the type and character of those businesses, and that is precisely the point that he has just made.

The hon. Gentleman says that strike prices should not be used to favour particular technologies. The clause does not relate to strike prices, but it is important to be clear that we are not in the business of giving any single technology unfair advantage. I understand why people want to raise that, but, as I said in the House earlier, we are not in the business of making assessments about particular technologies outside of the considerations of value for money that has to be pervasive across all our thinking around what we do in market reform and in encouraging investment. Perhaps that is a further word of reassurance to the hon. Gentleman.

Alan Whitehead (Labour, Southampton, Test)

An important part of the issue relating to the circumstances facing independent generators after CFDs come in is related not necessarily to the strike price, but to what they are actually achieving in terms of their discussions for marketing their product and whether they get near the reference price. If their sale of the part of the reference price is heavily discounted as a result of not having a PPA, whether or not the strike price comes in at the top in a fair way, they will have lost that gap prior to their overall sale being completed, and the strike price at that point is of no help to them at all.

John Hayes (Conservative, South Holland and The Deepings)

That is a specific and good point. I quite understand the hon. Gentleman’s argument. All I would say about that though is that the Government believe that CFDs offer the opportunity for PPAs to be potentially simpler, more transparent and more accessible. They could also offer better terms mainly due to the simplification of risk management—the hon. Gentleman mentioned risk. That is obviously a salient for independents. I guess it is a salient for all generators, but it can be a disproportionate salient for independents. Our view is that the change to the system that we are putting in place will—let me put it more modestly. Our view is that the changes that we are putting in place must be of a kind that does not disadvantage independents and, more than that, should provide them with a system that they can navigate more straightforwardly, for the very reason why we seek the plurality that the hon. Gentleman advertised and advocated in his speech on this important new clause.

The reason why I will not, however, immediately accept the new clause with vigour is that, although it is important that we help those we seek to encourage to invest to come to terms with risk, we must not shield any commercial organisation from the proper assessment and measurement of the risk-advantage balance. It is rather as I said: if we were to favour a particular kind of business or technology by overcompensating for the commercial risks that organisations were bound to take, we would be subject to the criticism that we were not providing best value for money for taxpayers or consumers. It is important that we help the mitigation of risk, but we are mindful that if we go too far, costs will be passed on to consumers; they will pick up what we do in their bills, and we will struggle to justify our actions.

There are concerns. I do not want to elaborate on them at too great a length, but we are aware that the imbalance costs are difficult to predict over the long term, and could rise following an increase in intermittent generation or due to changes by Ofgem in the cash-out arrangements. We know that that, as the hon. Gentleman has argued, is likely to make it difficult to price power purchase agreements appropriately, which could affect the ability to offer long-term contracts. We know the arguments, therefore, for having this sort of provision in the Bill.

I will consider the issue further. I certainly do not rule out a similar sort of provision. I had discussions with my Department when I saw the new clause and I am prepared to look at the issue again before Report. We want to measure the implications of the approach that he has described, including the likely impact on bills that I mentioned and the incentives to contribute to the efficient management of a balanced supply system. Nevertheless, his argument has merit and I want to consider it further.

Alan Whitehead (Labour, Southampton, Test)

I am encouraged by the not exactly white smoke, but the greyish smoke, tinged with some white flecks, that we have seen this morning. On that basis I am happy to withdraw my amendment. As the Minister has said that he is happy to consider the issues further before the end of the passage of the Bill, and as the new clause would be voted on towards the end of our proceedings, that would give appropriate time for further considerations to mature and emerge, fresh and formed. I beg to ask leave to withdraw the amendment.

Clause 37 - Transition to certificate purchase scheme

Tom Greatrex (Labour, Rutherglen and Hamilton West)

It is a pleasure to serve under your chairmanship, Sir Roger, among our cast of Chairmen. We had a lengthy debate on the amendment we just voted on, but there are a number of other issues that I want to discuss briefly, and I want to seek some reassurances from the Minister.

The transition from the ROC regime to contracts for difference is of considerable concern to many of those with projects currently in the planning process. I am sure that when the Minister met with representatives of the renewables industry, they discussed some of those concerns, so they will not necessarily all be new to him. I hope he will share with the Committee the response he has no doubt already intimated to those industry representatives.

The Minister will be familiar with the change to the fixed price instrument from 2027. Projects credited under the renewables obligation for the new fixed-price instrument will receive the same number of certificates per megawatt-hour. Price-fixed certificates will have the same value as a ROC: the buy-out price in 2027 plus 10%, index-linked to RPI. The powers currently envisaged are quite broad, so there is some uncertainty about those particular points. I know the Minister will say, and has said on a number of occasions, that some of that certainty will come in the secondary legislation. I am sure that is so, but the current drafting leaves a degree of uncertainty. While the policy intent is being set out, the White Paper and technical update are not documents that can necessarily legally be relied upon. I am sure the Minister’s comments in this instance will help to provide some clarity for those who seek it.

The second point concerns proposed new section 32P(4), which states that:

“The order may secure that the levy is not to be charged in respect of particular descriptions of supplies of electricity.”

Will the Minister clarify the intention and likely outcome of the operation of this provision? A concern has been raised that the offering of exemptions—which does not currently take place under the RO—would cause a redistribution in 2017 of costs on to consumers for all those projects which have recently entered renewable obligations. This concern has been raised with me by consumer groups and the renewables industry. Could the Minister respond to that point?

Proposed new section 32Q(6) would appear to perform the same function as clause 8(4), which we have discussed previously, in relation to CFDs, and there is the issue of whether it allows money to be paid to the Consolidated Fund. As we discussed in relation to earlier clauses, the counterparty is already able to hold funds for reserve. Can the Minister therefore explain the reason why the administrator has this ability, and in what scenarios he envisages that additional payments to the administrator would be justified? The Minister will have heard my scepticism—and I think that of others—earlier in our discussions about any clause which refers to the Consolidated Fund, the prospect of funds entering it and how they will subsequently be disbursed. A lack of clarity in these matters is rightly always of concern to Members, and it should be to Ministers—and not just Treasury Ministers. Will the Minister respond to that point?

Finally, I raise the issue of the potential for a banding review during the transitional period from ROCs to CFDs. Proposed new section 32V sets out the criteria for setting bands during the transitional period, which could then be subject to review and changed during that relatively short period. That is also a cause for concern, as developers would be unable to show with confidence the rate of support they would get for the lifetime of the transitional scheme. Will the Minister provide some clarity and reassurance on that?

John Hayes (Conservative, South Holland and The Deepings)

Clause 37 inserts new sections into the Electricity Act 1989 giving the Secretary of State the power to transition from the renewables obligation to the certificate purchase scheme. Under the transition, in 2027 the current obligation on suppliers will disappear and an obligation will be placed on a purchasing body instead to purchase renewables certificates at a fixed price. It is intended that these certificates be issued in place of renewables obligation certificates, and in similar circumstances.

Renewables generators will be able to choose whether to sell their renewables certificates to the purchasing body or a third party, who in turn would then sell the certificates to the purchasing body. The purchasing body will be Ofgem, the Secretary of State or the CFD counterparty.

The hon. Gentleman asked why the administrator will be paid. Essentially, that is to provide a float before levy payments are received. As I said earlier in our deliberations, the aim is not to find a revenue-generating source—it is not a way of making money—but to make the system work more effectively.

Proposed new section 32P(4) enables exemptions to be made from the levy. For example, unlicensed electricity suppliers, which tend to be very small suppliers, are currently exempt from the renewables obligation. Electricity to be exported abroad is also exempt. We cannot rule out the possibility that other exemptions to the levy may be appropriate by 2027—for example, for energy-intensive industries or for electricity that is itself used to generate electricity for on-site use; hence this part of our proposals.

On proposed new section 32U(1)(a), there are many circumstances in which a renewables station should not get any certificates for the electricity that it generates. For example, under the RO, stations are not eligible for certificates in any month in which they use peat. Stations cannot get certificates is they are supported under the small-scale feed-in tariff, or if their period of eligibility for RO support expires. As the hon. Gentleman will know, there are more detailed and specific rules in the Renewables Obligation Order 2009; I refer him to articles 17 to 23. This provision will enable those rules to be included in the fixed-price certificate regime.

There is a case to be made as to why the certificate purchase price is not set in the Bill. Details about the fixed-price certificate have been set out in the EMR White Paper. Subject to the passage of the Bill, the fixed price will be included in the order that the hon. Gentleman referred to, which I would expect to be laid before Parliament early in 2015. As a result, that would be subject to parliamentary approval and state-aid clearance.

On that basis, we propose to set the fixed price in line with the long-term value of renewables obligation certificates, which should be automatically adjusted each year in line with inflation. I mention the date because the aim is to do this in 2015, so that developers get long advance notice of the value of renewables certificates, bearing in mind that that will be 12 years before 2027. That is contrary to what some people wondered when we began to speak of the Bill and, indeed, at the beginning of the process when the draft had been published. That will give greater certainty than is currently available under the RO. This is about allowing businesses to plan on the basis of more certainty and information, given that we know that ROCs can fluctuate depending on the relative difference between the supply certificates and the level of demand.

The Secretary of State also has the power to impose a levy on electricity suppliers to recoup the cost of purchasing the renewable certificates by the purchasing body. The levy will replace the current obligation to submit ROCs and will be in line with their share of the market for electricity supplied. I emphasise that the RO will remain open to new entrants until March 2017, at which point the length of support offered under the RO will begin to reduce. From 2017 the RO will be closed to new entrants, but all projects that are already receiving support within the RO at that time will continue to do so, subject to the maximum period of 20 years of support. The RO will close in 2030, and as that date approaches, the obligation, which is currently set annually, will be set against an ever-decreasing pool of generators.

We have listened to the views of the industry. The hon. Member for Rutherglen and Hamilton West was kind enough to repeat that I had met representatives from the renewable sector yesterday, and of course I have discussed the matter with my officials and met industry representatives before. We are committed to ensuring that the transition from the RO meets the industry’s needs. The removal of the obligation on electricity suppliers through the introduction of a fixed price certificate scheme will enable generators to access the full value of the ROC. Generators will have access to an income from certificates on a more regular basis than the current lag of up to 18 months. That should, in turn, remove the perception that a shrinking obligation might be volatile in quantity, and hence vulnerable to price volatility.

The change is important and must be considered carefully, but I am confident that the proposals will introduce sufficient certainty to allow businesses to plan, and that the transition can be managed effectively and efficiently.

Clause 38 - Duty not to exceed annual carbon dioxide emissions limit

Barry Gardiner (Labour, Brent North)

I beg to move amendment 122, in clause 38, page 39, line 36, leave out subsection (2) and insert—

‘(2) For generating stations constructed pursuant to a relevant consent given or made on or after the date on which subsection (1) comes into force and prior to 1 January 2020, until (and including) 2029 the statutory rate of emissions is 450g/kWh.

(2A) For generating stations constructed pursuant to a relevant consent given or made on or after 1 January 2020, until (and including) 2034 the statutory rate of emissions is 200g/kWh.’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss the following:

Amendment 115, in schedule 4, page 109, line 37 leave out ‘may’ and insert ‘will’.

Amendment 121, in schedule 4, page 110, line 4, at end insert—

(iii) substantial pollution abatement equipment dealing with oxides of sulphur, oxides of nitrogen, heavy metal emissions or particles is fitted to the generating station.’.

Amendment 123, in clause 46, page 47, line 20, at end insert—

‘(f) Chapter 8 (Emissions Performance Standard).’.

Barry Gardiner (Labour, Brent North)

Thank you, Sir Roger, and may I say what a delight it is to serve under your chairmanship? Indeed, I believe it is the first opportunity I have had to address you as Sir Roger, and I am delighted to do that as well.

EL = RxCx7.446 is absolutely at the heart of amendment 122. I am sorry if I have lost half my colleagues already; it would not be the first time I have done so, but it would probably be the swiftest. Clause 38 states:

“The operator of any fossil fuel plant must secure that the emissions of carbon dioxide from it that are attributable to the use of fossil fuel do not exceed EL tones of carbon dioxide (“the emissions limit”) in any year”.

The clause goes on to define R and C:

“R is the statutory rate of emissions, in g/kWh; C is the installed generating capacity, in MW, of the electricity generating station comprised in the fossil fuel plant.”

The problem with the clause is that it fails to provide the necessary indicators and incentives in the market. It fails absolutely and in paramount fashion to incentivise something that I know the Minister and the Government accept is vital to our future energy security, and which I hope they accept is also vital to our future industrial and economic policy, namely CCS. With CCS, we had the opportunity to develop the Don Valley project, which was reckoned to be the No. 1 infrastructure project in the game in Europe. We were told that the Treasury had £1 billion in its budget over the next few years to support such a project. I have studied the figures. The Treasury figures show that there is £575.81 million available; £115 million in 2011-12, £172 million in 2012-13, £201 million in 2013-14, and £86 million in 2014-15, with nothing thereafter. I am afraid the £1 billion was never there in the first place, but the key thing is how to send a signal to the market that we want CCS? I hope the Minister will have strong words with his Treasury colleagues and make sure that £1 billion is there into the future, and not only that £1 billion but some of the other £4 billion that was left for this. They changed the project.

The Don Valley project was not pursued on the grounds that CCS for gas was more important to our future energy mix. In terms of UK energy policy that was understandable, because the Chancellor and the Department took a joint decision on how they would structure the market in the future which placed an increased emphasis on a dash for gas over the medium-term period. However, they failed to look more broadly at the UK economic context, and to say: what is going to be the most important element of our industrial and our export capacity? What is going to do most for our economy in a world where in the next 30 to 40 years we will see coal still at the forefront of energy in China, in India, in the whole of south-east Asia, and in Indonesia?

Dan Byles (Conservative, North Warwickshire)

The hon. Member might be interested to know that, according to the IEA, between 2012 and 2035 some 600 GWe of new unabated coal plant is expected to be constructed in the world.

Barry Gardiner (Labour, Brent North)

My hon. Friend—I call him that because we served together on the Energy and Climate Change Select Committee—is absolutely right. I am sure he is looking forward, as I am, to the forthcoming lecture in London by Fatih Birol, Director of Global Energy Economics at the International Energy Agency, where precisely these points will be made. I think we are both attending that.

Our capacity to develop CCS technology, and to be able to export it throughout the world, is critical, not just to our domestic energy supply, but to Britain’s future industrial strategy. If we are to make any real contribution to combating anthropogenic climate change, the best way is through coal CCS. Why is EL = R x C x 7.446 the secret to doing that, to unlocking CCS? It is this: subsection (2) gives a grandfathering period up to and including 2044, right up to 2045. The statutory rate of emissions would be 450 grams per kWh for the energy performance standard. That means that we will not send the right signal to industry that we need CCS. It will take out unabated coal, but in terms of our domestic supply it will not incentivise CCS for gas, which I know the Minister wants. It is interesting to see the way in which this has been broken down. If one looks at the way the Government reached their conclusions, one can go back right to July 2011, when the White Paper “Planning our electric future” said that the EPS should be set at 450 grams per kWh and suggested that the time frame for that grandfathering would be 20 years. Subsequently, the regulator looked at the issue and said that the costs of building gas-fired facilities would be recovered in 10 years to make the plants commercial and economic, and it therefore suggested that a 15-year grandfathering period would be suitable.

It was only on 17 March 2012 that there was a joint statement by the Treasury and the Department, which rather took the market and everybody else by surprise. In it, they set a time frame for the EPS that went right the way through to 2045, doubling what the regulator had suggested was an appropriate period. If one thinks of that in terms of the necessary subsidy from the Government—that is you and I, as the bill payers—in order to see a proper commercial return to the companies, which we would all wish to see, the Government have, in effect, said, “We’ll double it. We’ll go from 15 to 30 years.”

There is another problem with setting such a long time frame. Investors need certainty, and that point has been made extensively in this Committee, in virtually every debate on every amendment and every clause. However, they need certainty in two ways. They need certainty long term, and this Government’s actions have been absolutely consistent with those of the previous Government on that. Ministers have said that the long-term, 2050 targets should be safeguarded and should be sacrosanct. They have said that we should have the 80% reduction on 1990 by 2050. I commend them on that, and I wholly endorse the fact that they have maintained bipartisanship on the issue.

However, it is clear, and the Government acknowledge, that investor certainty is also medium term. That is because if it is too long term—if we talk in terms of 40 years’ time—industry will ask, “But what is going to happen in the meantime? What is going to happen in 15 or 20 years’ time? Will another Government come in and change this? Will they do something different?” That is precisely where the industry needs certainty; it needs the double lock of knowing that there is not only a long-term, backstop date with absolutely rigid targets, but a medium-term target. That will draw investment in now and provide certainty that a subsequent Administration will not change things in the light of what happens in the EU or domestically.

Dan Byles (Conservative, North Warwickshire)

My hon. Friend says people are worried that another Government might come in and change things, but this Government have made it clear that they will not do that. Is he suggesting that people should be worried about a hypothetical future Labour Government?

Barry Gardiner (Labour, Brent North)

Let me read out something that E3G sent to members of the Committee this morning. It said:

“The currently proposed grandfathering of unabated gas plant to 2045 is not credible. It is not politically sustainable in the face of continued expected domestic and international commitments to reduce carbon emissions. It is in contradiction to existing requirements for capture readiness for all new fossil plant over 300MW. It also fails to provide improved investor certainty, as alternative policy instruments could be applied within this period instead, under either UK or EU law. The 2045 grandfathering commitment…reduces the policy tools usable by government. It would further increase the costs of bringing forward CCS in competition with unabated gas rather than as part of a coherent transition strategy.”

No Government can see right the way through to the next 40 years. It is tough enough to see through the next couple of years. However, industry demands some medium-term certainty and it is important to deal with that now. I would not endorse a new Government of any flavour—theirs or ours—that came into power and said, “You know what? We are going to rip up what the last lot did. Okay, you may have started building power stations on one basis, but we think differently and so we are doing something else,” which would screw up all the investment decisions.

That would be disastrous, which is why it is right to give industry an indication of where we need to be in 2030. Then we can incentivise the investment that comes through and make sure that the time scale allows costs to be recouped and the enterprise to be seen as a commercial one at the point where companies need to make investment decisions. I hope that that answers my hon. Friend’s question.

John Hayes (Conservative, South Holland and The Deepings)

We are human, and so there are contradictions mixed into our affairs, but my general advice is that it is best not to confirm that in speeches in the House. I think there is a contradictory element in the hon. Gentleman’s case, and perhaps he could clarify it. On the one hand he anticipates the early arrival of CCS, in line with the Government and the experts that we have appointed. On the other hand he complains about the period of the grandfathering. Frankly, we, like the CCS cost reduction task force, hope that CCS will be available and commercially viable before long. So why should we so worry about the grandfathering?

Barry Gardiner (Labour, Brent North)

The Minister is always gracious, colourful, courteous—

John Hayes (Conservative, South Holland and The Deepings)

Erudite.

Barry Gardiner (Labour, Brent North)

He is erudite. He brings in the most wonderful references. This morning we have had Ruskin and all sorts of historical references, but on this occasion—[ Interruption. ]—I will not say uniquely, but he has been uniquely uncogent and uncharacteristically inchoate.

He has accused me of inconsistency in proposing the amendment, in that I say we want to encourage CCS but fear it may not come along. My fear that it may not come along stems precisely from the fact that the grandfathering arrangement goes on till 2045.

Why would a commercial gas or coal operator build a plant knowing that they could go on until 2045 at 450 grams per kWh and then, once the technology is available—goodness who knows who will develop it, as there is no incentive to—simply say, “You know what? We will spend all this extra money to lose money on our production, in terms of our energy productivity, by fitting it with the CCS capacity”? That would be insanity, and the Minister knows it.

The whole point of the early point of 2029 for the grandfathering limit of 450 grams per kWh is precisely that the investors will see that it is worth investing in developing CCS technology now, because they will want to be able to run their plant with it when the limit kicks in. The Minister knows that, and I will happily give way to him if he wants to clarify his remarks.

John Hayes (Conservative, South Holland and The Deepings)

I will have my turn in a moment.

Barry Gardiner (Labour, Brent North)

I am sure that the Minister will have his turn in a minute.

Roger Gale (Conservative, North Thanet)

I have to tell the Minister that that will depend on whether he catches the Chairman’s eye.

Sir Robert Smith rose—

Barry Gardiner (Labour, Brent North)

I give way to the hon. Gentleman.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

There are other levers to motivate CCS, including contracts for difference, the emissions trading scheme and the setting of a proper price of carbon across the European Union. We have to ensure that those other levers must be used effectively and appropriately to ensure that the CCS succeeds.

Barry Gardiner (Labour, Brent North)

I must have been drawing up my amendment in the very same room as my hon. Friend the Member for Southampton, Test, because obviously the hon. Member for West Aberdeenshire and Kincardine was looking over my shoulder also. The driving rationale for the Government’s approach to the EPS has been as a back-stop for emissions from new coal plant, with CCS performance incentivised primarily by CFDs and the carbon price.

In the DECC EMR White Paper, the Government recognise that they might wish to revise the EPS in future to drive further emissions reductions and the deployment of CCS. They explicitly state that the existing requirement under the Energy Act 2010 to review progress on CCS and power sector decarbonisation on a three-yearly basis could be used for that purpose. However, that was not considered in the first review report, which was published in December 2012.

Previous consultations considered EPS levels of 450 grams per kWh and 600 grams per kWh, both of which are higher than emissions from the most efficient unabated gas plant, particularly if energy from heat were to be accounted for, and neither of which would require CCS to be applied to gas plant—I am sure that the hon. Member for West Aberdeenshire and Kincardine acknowledges that point. The signals sent to investors to date have been that investment in unabated gas is being encouraged over investment in CCS, either for coal or for gas. If the hon. Gentleman wishes to come back at me on that point, I will be happy to listen to his arguments, but I think he will acknowledge that as things stand, the problem is that the CFDs and the carbon price alone will not be enough to incentivise and drive through the new technology of CCS that is so badly needed.

CCS on gas would allow for higher load factors than the marginal peaking role that has been envisaged under other scenarios. That is also important, because we want CCS gas to be productive and a part of that mix, but we have to ensure that we drive out emissions from the system as much as possible.

I started by talking about the way in which these revisions to the formula will incentivise CCS capacity and the importance of that to our industry. I think I have used the analogy before, but we must consider the matter not like a phlebotomist looking at the blood supply—the energy supply—of the economy, but like a doctor looking at the organism of the British economy.

The risks to industry and consumers of a gas-heavy pathway are considerable. Many hon. Members in the Committee today have high hopes for shale gas and some are deeply sceptical, but many see a future role for gas in this mix that increases dramatically. The analysis by Redpoint Energy, the consultancy used by DECC, shows that the maximum increase in the cost of power in scenarios with increased support for low-carbon generation is 8% by 2030; the same analysis shows that the maximum increase in the cost of power under high gas scenarios is 98% by 2030. Those are not risks that UK businesses or UK household bill payers can afford to take. That is why the amendment is so important: it is a back-stop against those high price rises. Again, I emphasise that these figures have been modelled by the Department’s own analysts, Redpoint Energy, so I know the Minister will take them with his customary seriousness.

At this point, I want to bring in amendment 123, which proposes that the EPS be included in the review process. To the list in clause 46(1), which provides for

“As soon as reasonably practicable after the end of the period of 5 years beginning with the day on which this Act is passed…a review of…

(a) Chapter 2 (contracts for difference);

(b) Chapter 3 (capacity market);

(c) Chapter 4 (conflicts of interest and contingency arrangements);

(d) Chapter 6 (access to markets);

(e) Chapter 7 (the renewables obligation: transitional arrangements)”

we believe it is important to add:

“(f) Chapter 8 (Emissions Performance Standard).”

That is because this debate is not simply about CCS, not simply about the wider British economy, and not simply about businesses and consumers being hedged against the much higher energy costs that they might otherwise incur from a high gas scenario strategy that the Government are going for. It is also fundamentally about meeting our carbon targets and our emissions reduction targets.

The Minister knows well that, in his oral evidence to this Committee, David Kennedy, chair of the Committee on Climate Change, was very clear about the carbon budgets that have been set and the projections. In response to a question, which I think I asked, about whether it was necessary to have a 40-60 grams per kWh level in the Bill, he clearly indicated that that would be extremely helpful but he added a caveat to that, which quite surprised me. He said that up to 100 grams per kWh would be compatible with maintaining a trajectory that could reach the 2050 goal at the appropriate time, but what he was very clear about—what is absolutely clear—is that 450 grams per kWh busts our carbon targets apart, not just in 2050 or 2045, but in 2030 as well.

When he considers the amendments, I urge the Minister to think about more than our energy security. We want to incentivise generators to come on with new gas supply, to get us over that point in 2017 or 2018 when we know that there will be difficulties with the margins, as the regulator has already told the Committee. None of us wants supply to be constrained—none of wants the lights to go out, as the public would say. All of us understand why the Government, to ensure that that does not happen, have said that they need to bring on a form of generation that is capable of coming on to the market quickly, and that they need to show the investors in that form of generation that there is the opportunity to recoup their investment and recover their costs in a reasonable, commercial way.

The amendments would allow precisely that: new generation capacity—that is, gas capacity—could come on to the market in the sure and certain knowledge for investors that, as long as that is done before 2020, they will have the ability to recover their costs through to 2030, so it is commercially viable for them to invest. That would give a fair incentive to the market and deal with the issues of security of supply; it would also protect consumers by incentivising CCS and bringing through that new technology, which is greatly needed for our export capacity, for the wider economy and also within our own economy.

The figures I gave on the projected increase in costs with a high and a low gas strategy bear my argument out. CCS is a tremendously effective hedge against a 98% rise in costs, which none of us wants, and it is vital not just for protecting consumers or ensuring our security of supply, but for delivering economic growth and, finally, for decarbonising our energy sector. That sector is the most important to decarbonise in, because that will be vital to our meeting our long-term targets. The only way we will get that decarbonisation is by setting clear benchmarks and grandfathering limits that allow investors to make a decent return on their investment and do not prejudice the commercial sector, yet also make a clear statement that generators will not be able to go on producing at 450 grams per KwH after 2030.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss the following:

Amendment 115, in schedule 4, page 109, line 37, leave out ‘may’ and insert ‘will’.

Amendment 121, in schedule 4, page 110, line 4, at end insert—

(iii) substantial pollution abatement equipment dealing with oxides of sulphur, oxides of nitrogen, heavy metal emissions or particles is fitted to the generating station.’.

Amendment 123, in clause 46, page 47, line 20, at end insert—

‘(f) Chapter 8 (Emissions Performance Standard).’.

Tom Greatrex (Labour, Rutherglen and Hamilton West)

I will not detain the Committee very long; my hon. Friend the Member for Brent North went through a lot of the issues in detail in his usual comprehensive manner before the series of Divisions in the House, and there is no need to repeat those points. I want to put a couple of other points on the record before the Minister responds.

I will say at the outset that I am sure that the Minister would not be under any misapprehension that Opposition Members do not accept and understand the need for new gas plant for our generation mix. However, in our oral evidence sessions, the representative of E.ON summed the situation up perfectly when she talked about a generation mix backed up by gas, not based on gas. That is where our primary concern around the operation of the emissions performance standard and its level is focused. We need gas, will continue to need gas and indeed need new gas; but we do not want to end up in a situation, whether intentionally or otherwise, where the balance is not right and we have too much gas. The debate around what might happen with gas prices is ongoing. None of us in this room can be sure about where gas prices will be in five, 10 or 15 years. We should therefore be very conscious of the need to ensure that we do not compromise our security of supply or cause an impact on consumers by having too much gas and not enough of other energy sources.

In his contribution before lunch, my hon. Friend was right to make points around carbon capture and storage. The Minister and I have discussed CCS a number of times. The EPS is crucial to CCS. I heard some sedentary comments and interventions about there being other mechanisms to ensure the promotion of CCS; my concern is that the EPS at this level, without the digression, could inhibit CCS, and could have unintended consequences, as the Government are currently expecting other signals to help ensure that CCS comes to market.

We do not need to rehearse the issues around the amount of money involved. I know the Minister will refer to the £1 billion competition. I have questioned him on this issue before, and I have in front of me the Cabinet Office document that is explicit about the £200 million available in the current spending review period. I know we have discussed that before; if the Minister does not have that document with him, I am happy to pass it over to him to look at. But there is a concern here: we can talk about £1 billion being available into the future, but none of us can say what is accounted for in the next comprehensive spending review period, because that comprehensive spending review has not yet happened. There is a very real concern around that, as the Minister will know, in terms of the CCS industry.

CCS is vital in helping us decarbonise and ensuring that we have a balanced generation mix. I find it very hard to see how we can manage without CCS in the future. That is why it is vital that the signals are right, that other policy instruments do not undermine CCS and that people who have concerns about this issue are properly reassured and are given proper clarity. Without some of the detail on how the contracts for difference will apply to CCS, which my hon. Friend touched on this morning, it will be difficult for us to be sure on this issue. A combination of all those factors could lead to the EPS causing a real problem.

I therefore ask the Minister to take these issues seriously, as CCS is vital. The Opposition have not been shy about promoting CCS as a significant part of our mix. Although renewables, nuclear and CCS are among the Government and the Department’s energy priorities, CCS sometimes appears to be simultaneously the holy grail and the forgotten relative. We are concerned about that, and we ask the Minister to clarify that. If we are to decarbonise, keep the right balance and ensure that the system is properly and flexibly backed up we need CCS. We need gas as well, but not at any cost, and we must not have an overshoot of gas because of the impact that that might have on our emissions and our ability to achieve decarbonisation targets.

Michael Weir (Scottish National Party, Angus)

It is a pleasure to serve under your chairmanship, Mr Leigh. I would like to make a short contribution to this important debate. I have always been supportive of CCS and I would love to see it widely deployed. It is somewhat ironic that we are discussing gas CCS, because two Energy Bills ago I introduced a proposal—strongly supported by the hon. Member for Wealden (Charles Hendry), who was then the shadow Energy Minister, and by colleagues who are now in Government—to include gas as one of the four planned CCS projects. The then Labour Government strongly opposed the measure, and they only caved in and brought forward their own amendment on Report.

I have followed with interest the seemingly endless CCS competitions, which have yet to produce any winners, and I fully support the desire of the hon. Member for Brent North for a lower EPS limit. Normally, I would line up enthusiastically behind his amendment, but there is a danger that the effect of the amendment will be the opposite of the hon. Gentleman’s intention, and that it might stop the effective development and deployment of CCS. I remind hon. Members of the discussions we had with Dr Luke Warren from the Carbon Capture and Storage Association in our evidence sessions. He told us:

“The work undertaken by the cost reduction task force showed, with a high degree of confidence, that CCS can be delivered in the early 2020s at a cost equivalent to other low-carbon technologies. The first projects are likely to be more expensive. They will be smaller and more expensive in terms of cost-per-unit performance.”

When I pressed him later on the matter, he said:

“Just to be clear, our expectation is that we can have the first projects operating before the 2020s. The point about the 2020s is that that is when the first commercial-scale projects could be operating.”––[Official Report, Energy Public Bill Committee, 17 January 2013; c. 116-21, Q334 and Q348.]

To be scrupulously fair to him, he went on to make the point that the hon. Member for West Aberdeenshire and Kincardine made this morning, namely that the carbon floor price would drive CCS more than the EPS.

My concern is about the 2020s. Luke Warren is not expecting to be able to deploy the technology commercially until the 2020s, but the amendment would force any plant given a construction consent on or after 2020 to comply with the lower limit. It can take several years from a construction consent for a plan to be constructed and operated. With the best will in the world, it is clearly a possibility that time scales will shift and that delays will occur. We may end up preventing development of CCS because by that date it has not been possible adequately to demonstrate that a commercial plant can operate at that level, although clearly the intention is that it will operate well below that level, and we all hope that that will happen.

That concern is exacerbated by the submission we received the other day from the Carbon Capture and Storage Association about the clause as it stands, let alone how it would read after the amendment. [Interruption.]

Edward Leigh (Conservative, Gainsborough)

Order. Will Members please put their phones on silent, because there are a few tings going off?

Michael Weir (Scottish National Party, Angus)

The association made the point that although the draft Energy Bill allowed a period for CCS to develop, the current Bill

“requires CCS projects to operate under the EPS regime from day one. The CCSA believes that the application of an EPS to a CCS plant from day one is problematic as a CCS project needs to be commissioned before it is able to operate to its designed limits. The commissioning and proving of a new, full-scale, end-to-end CCS project is a lengthy and complex process and it may take a significant period of time, potentially several years, before the capture, transport and storage components are fully integrated. The structure of the EPS significantly curtails the number of hours that CCS project developers have in a year to undertake the commissioning and integrating of the chain. The EPS therefore creates a significant regulatory risk for CCS developers as they could ‘run-out-of-hours’ under the EPS before commissioning has been completed.”

That is under the current EPS limit, which as we all know is set because effectively it would allow new unabated gas plants. However, there is a specific difficulty. While I am fully supportive of what is being sought—we all want the lowest possible EPS limit—there is a real danger that by setting this in the Bill at the moment, instead of hurrying up CCS and bringing it to market more quickly, it could have the opposite effect. I think that this is where the desire for EPS limits crashes up against the commercial realities of getting CCS up and running. I ask the hon. Member for Brent North to reflect on that before pressing his amendment to a vote.

Barry Gardiner (Labour, Brent North)

I am happy to respond to the hon. Member for Angus, because he has made a considered contribution in challenging the basis here. I understand the points he makes, and I say to him that of course it may be that a plant is not actually up and running until 2020. However, we are talking about a seven-year period from now, whereby developers will be incentivised to put forward stations for consent. I think he would accept that seven years is a reasonable period of time, for a gas station in particular. If that is taken into account, it is then again a reasonable period to recoup the investment made in that through to 2029. If one goes beyond that, or if one does not accept this amendment, one is committed to grandfathering all the way through to 2045, as the Government have it. He knows that is not a feasible way to meet the objectives which he and I share, both in 2050 and also in 2030.

I accept that there may be some would-be generators who will find it difficult to meet that 2020 target. In deciding which way to vote on this amendment the hon. Gentleman must consider whether it is best to put in an amendment that would encourage potential gas suppliers to get on with it and put in their bids for plant, and speed up the process of them applying before 2020. Or would it be better for them to be given a free rein not to develop CCS, because they are confident of the 450 grams per kWh threshold that would then last right through to 2045?

Michael Weir (Scottish National Party, Angus)

I understand the hon. Gentleman’s point, but given the history of CCS the seven-year period he talked about is still relatively short. For how long have we been talking about the development of CCS? How many projects have come and gone within that period? It seems to me that it would be better for him to withdraw his amendment, and at least consider—clearly with the association—the best way to push this forward, to make sure that the Bill contains procedures to reduce the EPS, but ensure we still get CCS. The hon. Member for Rutherglen and Hamilton West has said that this is vital for the decarbonisation of the economy in due course.

Barry Gardiner (Labour, Brent North)

I am happy to have taken that intervention. Let me clarify that we propose that they do not necessarily have to come forward with a CCS proposal; they have to come forward with a gas proposal. If they come forward with a gas proposal, which is a much easier prospect for them, they then have to be able to fit CCS to that by 2030 in order to then go on emitting at the revised 200 level thereafter. So it is not that they must have all their ducks in a row for CCS before 2020; they do not. What they must do is put in place their proposal for a gas plant by 2020. That is the deadline, and subsequently they have a 10-year period, once the CCS technology has come through, in which to then fit that technology and make sure that they are operating at the revised emissions level of 200.

John Hayes (Conservative, South Holland and The Deepings)

It is good to have you back in the Chair, Mr Leigh. I am anxious that we should make progress this afternoon. None the less, we have had a fairly long and detailed debate on important matters that require some consideration.

Let me first say that I have often wondered whether fact or fiction matters more. Generally speaking, I think that fiction matters more, because fiction provides the opportunity not just to dream but to imagine and to invent. For the purposes of our consideration this afternoon, however, it is fact that I want to deal with. In dealing with fact, let us dispel some of the fiction that we have heard.

Our commitment to CCS is profound and determined. In respect of the connection with gas and coal, which was mentioned at an early stage in the discussion by the hon. Member for Brent North, it should be remembered that only one of the four shortlisted projects is a gas project; the other three are for coal. If we were preoccupied to the point of obsession with gas, we would hardly be encouraging the continuing investment in technology that would allow the abatement of coal. I am on the record as saying that I want to bring coal to the coalition. I think that clean coal has a future—it is a great pity that the hon. Member for Wansbeck is not here because he would be salivating at this part of my speech.

Graham Jones (Labour, Hyndburn)

Coalicious.

John Hayes (Conservative, South Holland and The Deepings)

Indeed, and I am sure that he will when he reads it in Hansard.

Having said all of that, as the shadow Minister said, gas is important, as long as it does not become predominant in the mix. I entirely acknowledge that point. Gas is important not only because it allows us to fill the projected gap between supply and demand—as he will know—because of the state of the existing infrastructure, which will age more rapidly than we can bring a number of other technologies on stream, but also as a back up for more intermittent technologies and as a means of providing the flexibility in the mix that we believe is essential to provide resilience and, therefore, sustainability.

The hon. Gentleman is right to point out, however, that if we are to make an argument for a mix, it has to be a mix and not essentially gas with a few other bits on the margin. Thus my support for coal, thus my—I choose this word carefully—unabated support for nuclear, which is a zero-carbon technology and thus my belief that renewables have their part to play in the mix, too. That brings me to the essence of the amendments.

Amendment 115 seeks to remove the Secretary of State’s discretion with respect to applying the EPS to existing coal plants that undergo upgrades to extend their technical lifetime to that of a new plant. I know that Opposition Members, like Government Members, are enthusiastic advocates of carbon capture and storage, so let me make a further point about our £1 billion competition in response to what has been said so far. Before I do so, however, I want to acknowledge the shadow Minister’s knowledge of, enthusiasm for and commitment to, CCS, and I welcome the fact that he challenged me on the funds available to support it.

In any future spending review, it is certain that I, and my Department, will make a powerful case for carbon capture and storage. Indeed, that is an understatement, given that we launched a £1 billion competition; given that so often, as a matter of record, we have advertised that fact; given that we are working with those four shortlisted projects; and given that, as the hon. Gentleman knows, I am in discussion with the European Union—I always slightly spit those words out—in respect of carbon capture and storage. Of course, I cannot anticipate that review, but I can say that this is absolutely critical to our considerations—as the hon. Gentleman recommends—about the abatement of carbon in gas and coal generation in order to meet our 2050 target and to provide the energy security from the mix that I described.

The other point that was made about the competition was a reprise. I do not mind reprising arguments: I like the past and I like to return to things we have visited before—literally and less literally.

Edward Leigh (Conservative, Gainsborough)

Tedious repetition, however, is out of order, Minister.

John Hayes (Conservative, South Holland and The Deepings)

I am trying to think whether “tedious repetition” is tautological, Mr Leigh, but it would be impolite for me to claim so, so I will not repeat a word.

The hon. Member for Brent North made the case that the Don Valley scheme, which was originally part of the competition, had been dropped for—I do not wish to put words in his mouth—less than defensible reasons. He said it was the top-performing scheme according to Europe, and questioned whether we were therefore right to end up where we have. I do not think I am overstating his case. I looked at the issue very closely because, like him, I wanted to be sure that the process we enjoyed was rigorous, fair and led to the best possible outcome. I went through this with my officials in some detail. I know that the criteria on which the competition was based were well-established, well understood by those involved and applied with rigour and precision, and that the bids were ranked entirely properly on that basis. I know that the local Member of Parliament—the right hon. Member for Doncaster North (Edward Miliband), who happens to be Leader of the Opposition and has some knowledge of these matters—met the Secretary of State on this matter, as any local Member of Parliament would, and has looked at the issue in some detail. So, I can assure this Committee and the hon. Gentleman that these things have been done properly.

On the essence of the argument about the relationship between the EPS, CCS and gas, I understand the hon. Member’s position. The virtue of this amendment would be to accelerate investment in CCS, but I will simply make three points to him, and then we should move on. First, to support the commitment to CCS that I have described, we will have CFDs in place specifically to give the funding, provoke the investment and build confidence in that technology, which I believe, as he does, beyond the abatement of gas and coal in this country, can be an opportunity for us to export British excellence. This could be an industry of value of itself in terms of jobs, skills and revenue.

Secondly, our carbon floor is an important further catalyst to that abatement. If the only means by which we were to encourage the abatement of carbon was as the hon. Gentleman describes, then the point he makes would have weight and be persuasive. But we have a number of mechanisms by which we would encourage CCS and discourage carbon. The Government are committed to this by agreement: there is no equivocation about our belief that a low-carbon generating mix is an essential part of what we wish to achieve. So the mechanisms we have in place include what I have described, but by their very nature, through the EMR, they will fill the gap in generating need in a way that reduces the space for carbon-based forms of generation. There will thus be some virtuous displacement, if I can coin a phrase, of the kind the hon. Gentleman would doubtless welcome.

My third and final point is that there could be a perverse, unintended consequence of these proposed changes. The measures already taken by coal plants in reducing emissions could be disincentivised by amendment 115. No one would want, as a result of the industry’s desire to meet the requirements of the EU industrial emissions directive, emissions abatement equipment to be a less attractive option for generators, and I know that that is not the intention behind the amendment.

The grandfathering process, which the hon. Gentleman described, is a means by which we hope to encourage new investment. We need to send a powerful signal that if we are to get investment at the scale required for demand to be met by supply, we must change the paradigm in terms of the Government’s ambitions. The proposed amendment, by significantly shortening that period—for a plant consented before 2020, it would be 2029, and for a plant consented from 2020, it would be 2034—would send the opposite signal to potential investors, which is not what the Government want and, much more importantly, not what the nation needs to guarantee energy security. We are giving a signal that vital new gas plant has regulatory certainty. In the circumstances we face, that seems to me to be essential.

The reason why I describe the hon. Gentleman’s position as contradictory is not that I do not regard him highly or do not respect his understanding of these matters, and nor do I believe his intent to be in any way malign; it is clear that he seeks to improve the Bill. But if he believes in CCS, to assume that it will not come on stream in line with the cost reduction taskforce report, with which he will be familiar, long before the period in question, is in itself to send a contradictory signal about how much faith we have in that technology and the people who are as determined as we are to make it work and make it happen, with all the virtuous effects that that would bring.

In that spirit, and casting aside the longer version of my speech so that we can make progress, I hope that hon. Members are reassured and will agree to withdraw their amendments.

Barry Gardiner (Labour, Brent North)

I do not want to detain the Committee for long—I recognise that the Government have the firepower and we do not—but I would like to respond to the challenges that the Minister laid down. He said that this is a matter of incentivising industry. I agree with him about that, but he has chosen to do it for a 30-year period when the regulator has said that 15 years would be sufficient, and 10 years already has been achieved by gas-fired plant. Therefore, the incentive that he gives—not one given by the Government, but one that forces households to pay out of their own pockets—provides double the incentive that the regulator says is required. In that sense, I disagree with him; I think that he is wrong and the British public will end up paying the price.

Secondly, it is important to consider just what it is that one incentivises. The Minister incentivises, in the Bill as it stands, not CCS but unabated gas to come on to the system. Once that gas is on the system, it is there right the way through to 2045, emitting at 450 grams per kWh. Let us be clear that this provides too much of an incentive for the wrong thing, which is unabated gas, and for a period of 30 years.

Out of 19 of the different electricity capacity modelling exercises, seven of which were commissioned by the Department of Energy and Climate Change, only two concluded that it is possible to meet the 50 grams per kWh target in 2030 without a significant deployment of CCS. The two models that achieve the 50 gram target without significant CCS deployment require 83 GW and 105 GW of renewable capacity, which is far beyond the estimates of what the CFD with the levy cap is capable of delivering. I understand the Minister’s remarks about the CFD and the different incentives in the system, but he must acknowledge that even his own model shows that CCS will not be achieved at the levels he has predicated.

The Minister has talked about certainty. The only certainty that his Bill as it stands will provide is the certainty that we will not meet our carbon targets. With that, I beg to ask leave to withdraw the amendment.

Edward Leigh (Conservative, Gainsborough)

I was rather hoping that someone might explain to me EL= RxCx7.446.

Barry Gardiner (Labour, Brent North)

I did this morning, Mr Leigh.

Edward Leigh (Conservative, Gainsborough)

Oh, this morning. We are not very good at maths. I apologise.

Barry Gardiner (Labour, Brent North)

With your leave, Mr Leigh, I would be happy to explain it again.

Edward Leigh (Conservative, Gainsborough)

Thank you, Mr Gardiner. I am so grateful to you. Another time.

Clause 43 - Exemption from liability in damages

Tom Greatrex (Labour, Rutherglen and Hamilton West)

I do not wish to detain the Committee for long. Let me put a question to the Minister in relation to a specific point in the clause. Subsection (1) states that National Grid as system operator will not be

“liable in damages for anything done or omitted in the exercise or purported exercise of a relevant function specified in the regulations.”

With the exception of where National Grid has acted in bad faith or unlawfully, the organisation will be exempt from the payment of damages for its actions. As far as I am aware, the clause was not in the draft version of the Bill, so will the Minister explain why that was the case and why it has since been added in to the Bill, because, obviously, it was not available for pre-legislative scrutiny.

National Grid, as we have discussed, is a highly reputable commercial organisation that will carry out an important role in the delivery of EMR, but as a private company the purpose of at least some of its activity is to make a profit for its shareholders. It does not appear to be fair or sensible to protect a private company from being held responsible in court for its actions. Will the Minister outline the route open to a party that believes that it has been wronged or that it has suffered financially because of National Grid’s actions in relation to this clause? If that party cannot sue National Grid, should it sue the Government? Is the real impact of the clause to shift liability from a private company to the taxpayer?

John Hayes (Conservative, South Holland and The Deepings)

Those are perfectly fair questions, and it is important that we put these matters on the record. The shadow Minister is correct to say that the measure was not in the draft Bill and was added later. As a result partly of representations that we received from a number of parties—the hon. Gentleman knows that the metamorphosis and evolution of the Bill was the product of many representations during pre-legislative scrutiny, as it should have been—we chose a system operator with care. It is an organisation with the skills and expertise necessary to do the job, because it already lies at the heart of the energy system. It is critical for those skills to be available so that we can deliver EMR. The solution is an innovative one, which will utilise private sector know-how to deliver low costs for taxpayers, consumers and industry. Had we gone down a different road, we would have been obliged to encourage or invent an organisation that would have ended up with a profile and skills very similar to those of National Grid.

As with any innovation, we cannot foresee every issue that might arise. Indeed, we have debated such issues over the past few days—it seems like weeks. It is important, therefore, that we limit National Grid’s liability for damages on the specific EMR functions it carries out. In answer to the hon. Gentleman, such protection is not unlimited. The measure certainly does not protect the system operator from complaint or deny people redress against its decisions—we will build such routes of redress into the design of EMR—but it does afford the system operator appropriate protection from litigation similar to some public sector bodies.

Let us be clear that the clause does not grant or promise any limitation on liability at this stage for National Grid. It merely provides us with the option, as we examine the progress of the change, to limit the liability on specific functions when, after due consideration, we deem it appropriate. We do that because the innovation is an important one, and we want sufficient flexibility to gauge the character of the liability. We are certainly neither confirming that we will limit liability at this juncture nor specifying the limits on that liability. We will not, and with this power we cannot, shield National Grid from liability derived from acts done in bad faith that breach the Human Rights Act 1998 or for which it is liable under the Electricity Act 1989. Even the powers we seek are limited powers.

Alan Whitehead (Labour, Southampton, Test)

The Minister mentioned that the change will be made at no cost to the consumer, and one of the consequences will be the limitation of liability in a procedure that is a fairly new departure. Will he set out how National Grid will be rewarded for its work as system operator? Will it be rewarded directly, or will it be rewarded indirectly by being provided additional income in a block sum, out of which it might take some profit? If that is the case, might he propose any limitations on what National Grid might do as the result of its activities as a system operator?

John Hayes (Conservative, South Holland and The Deepings)

That is a slightly broader matter that is beyond the specific scope of the amendment, as I am sure the hon. Gentleman knows, but it is a fair question. We would expect National Grid costs to be recovered through an extension of the existing system operators’ incentive regime, which he will know is administered by Ofgem. We do not see a significant change in those terms. Obviously, it will work within particular guidelines for the EMR. That is why he should not be excessively concerned about the powers over liability: liability will simultaneously be equally limited, of course, to the same territory.

We are not saying at this juncture that that liability would pass to the Government, but I take the point made by the hon. Member for Rutherglen and Hamilton West. If we were to exercise those powers, it is important that we should consider that carefully. I do not want to do the Opposition’s job for them, but it would not be unreasonable for him to ask us to consider both the impact and the value for money. If we were to exercise the powers and liability were to pass to the Government, further work by Government would be needed to test the scale, extent and consequence of that liability.

On the basis of his remarks, I will certainly go back and consider all those things closely. However, in essence, the measures are born of our determination to ensure that National Grid does as good a job as possible, and we will decide on a case-by-case basis where the exemption will apply as we confirm the functions through secondary legislation, which Parliament will of course have a chance to scrutinise. On that basis, I commend the clause to the Committee.

Clause 47 - The ONR’s purposes

Tom Greatrex (Labour, Rutherglen and Hamilton West)

I am conscious that we may have provided some of the Minister’s officials with a day out and not very much to do. I did not want to go through all the clauses on nuclear regulation without making a couple of points so that they feel that their time has been at least partly well used, although I do not wish to detain the Committee for long on this set of clauses. Clauses 47 onwards deal with the Office for Nuclear Regulation, and as we mentioned briefly on Second Reading, they broadly put on a statutory footing the arrangements currently in place. I do not believe that these issues are particularly contentious, although, as we heard this morning during oral questions, many other aspects of nuclear power are slightly more so.

We are aware that the Office for Nuclear Regulation works on 34 sites across the UK, from Dounreay to Dungeness; I do not think that there are two points further apart on the mainland of Britain. It is an operation that works diligently across the whole UK. The only issue I wanted to touch on in clause 47 is that of parliamentary accountability and ministerial responsibility in relation to the interaction with Health and Safety Executive, which is of course the responsibility of the Department for Work and Pensions. However, given that this body is being placed on a statutory footing through a piece of legislation from the Department of Energy and Climate Change, I ask the Minister to clarify whether the intention is that parliamentary accountability for the Office for Nuclear Regulation will continue to be through the Department for Work and Pensions, because of its responsibility for the Health and Safety Executive. Or, because it is now going to be on a statutory footing, will that responsibility lie with the Minister’s Department, as distinct from the Health and Safety Executive? I think it would be useful for Committee members to have clarity on this, if the Minister is able to provide that now.

John Hayes (Conservative, South Holland and The Deepings)

I am grateful for the shadow Minister’s comments on these clauses. They represent a very substantial part of the Bill, as members of the Committee will have observed. I say with confidence that they are not by any means the most contentious part of the Bill. The changes we envisage are both about the process by which we establish the new Office for Nuclear Regulation, and its terms of reference.

The clause sets out the five sets of purposes, and the detail of what these purposes lead to in terms of how the new office will operate are addressed later in this Bill. None the less, this part of the Bill marks an important step forward. It represents one of the main reasons for creating the ONR as an independent statutory body. It will consolidate civil, nuclear, radioactive and transport safety and security regulation in one place, and hon. Members will see the sense of that.

The hon. Member for Rutherglen and Hamilton West asked about responsibility and accountability to Parliament. The Department for Work and Pensions will have overall sponsorship responsibility for the ONR, and will be accountable to Parliament for the overall governance of the ONR, the effective use of its resources and conventional health and safety at nuclear sites. This complements DWP’s responsibility as a sponsor Department of the Health and Safety Executive, exactly as the hon. Gentleman described. But my Department will have some responsibility for the ONR’s function in areas where it has ministerial accountability to Parliament. So in relation, for example, to the UK’s civil nuclear industry, Ministers in my Department are accountable to Parliament for nuclear safety, nuclear security, nuclear safeguards, and the transport of radioactive material in some circumstances.

It is therefore appropriate that the DWP should be the sponsor Department for the statutory ONR with an independent regulator, recognising the need for the regulator to be—and to be seen to be—independent of the policy responsibility for nuclear power, which is exercised by DECC. This is an important area. Although these are unpretentious clauses which certainly are not partisan in any way, I think a note to the Committee about those lines of accountability would be helpful. I have set them out, I hope, reasonably clearly, but it is very important that we understand how this new structure will relate to parliamentary scrutiny and to ministerial responsibilities. So with your permission, Mr Leigh, for absolute clarity I will support what I have said today in response to the hon. Gentleman with a letter to all Committee members. With that I hope we can make progress.

Clause 49 - Nuclear site health and safety purposes

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Again, I wish simply to raise one specific point with the Minister. Clause 49 defines the ONR’s non-nuclear health and safety purposes, which include, as the explanatory notes set out,

“securing the protection of persons at work on licensed nuclear sites in Great Britain, as well as the prevention of risks to the health and safety of other persons which arise from the activities carried out on these.”

The explanatory notes go on to say:

“Although this is one of the ONR’s purposes, the predominant regulator of conventional health and safety in Great Britain will continue to be the Health and Safety Executive. This is reflected in the relationship between the ONR and the HSE”.

Will the Minister clarify whether the measures will therefore result in any changes in the day-to-day responsibilities of the ONR? I understand that there will be a board member of the Health and Safety Executive on the ONR board, and that the Bill allows for an ONR member to be on the HSE board, but it is unclear what will happen on a more practical level. It would be useful to the Committee if the Minister could provide any further detail—if not today, perhaps subsequently, in writing.

John Hayes (Conservative, South Holland and The Deepings)

The clause sets out the ONR’s nuclear site health and safety purposes—in other words, the purposes that will govern the ONR’s general responsibilities for conventional, or non-nuclear, hazards on nuclear sites in Great Britain. The clause is therefore fundamental to the ONR provisions. Key areas will include construction safety, and safety when working at height and in confined spaces. However, those are just examples and the ONR will be responsible for regulating all health and safety regulation on nuclear sites.

The clause is a direct consequence of the ONR’s establishment as an independent regulator for the nuclear industry. It means that the ONR, and not the Health and Safety Executive, will regulate conventional health and safety on licensed nuclear sites in its own name. Naturally, the Health and Safety Executive and the interim ONR will work closely together; specifically, in response to the hon. Gentleman’s request for more detail, they will work together to ensure that there is a smooth transition and that the statutory ONR is fully equipped to take on its new responsibilities. Clause 75 requires a co-operation agreement. To answer the hon. Gentleman’s question, there will be no change in the day-to-day regulations; the ONR will continue to work closely with the Health and Safety Executive in the way that he requested.

Clause 64 - Inquiries

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Again, I have a specific question for the Minister. The clause gives the ONR the power to

“direct an inquiry to be held into any matter if it considers the inquiry necessary or desirable for any of the ONR’s purposes.”

However, the clause contains the caveat that the ONR may only set up an inquiry

“with the consent of the Secretary of State.”

Will the Minister confirm whether that is the consent of the Secretary of State for the Department for Work and Pensions or the Secretary of State for his Department?

Subsection (3) states:

“An ONR inquiry must be held in accordance with regulations made by the Secretary of State”,

and subsection (5) sets out in detail what provisions those regulations may contain. The purpose of the provisions for the ONR is to give that body, which is independent, a statutory footing. Yet it is not clear to me why an independent body must first receive the consent of the Secretary of State to conduct an inquiry and why it must follow the process set out by the Secretary of State in regulations.

What is the logic behind that? Is there a particular reason for requiring the approval of the Secretary of State? Does the Minister accept that that could be seen as detracting from the independence of the ONR? Given all the issues to do with nuclear regulation that we have touched on, it is important that the ONR should be absolutely independent, and should be widely perceived to be so.

Perhaps the Minister will address those points: which Secretary of State; the potential issues to do with independence; and the direction of the inquiries.

John Hayes (Conservative, South Holland and The Deepings)

When either the Government or the public raise serious concerns on a subject that is within the remit of the new body, an inquiry can be set up, as the clause makes clear, to look into the matter. I know that members of the Committee will be familiar with the kind of inquiries in question, but, to clarify, they would be along the same lines as the Ladbroke Grove rail inquiry and the Piper Alpha inquiry.

It is important that the regulator’s expertise should be available to assist in determining where things have gone wrong and to make recommendations about what steps can be taken as a result of the inquiry to avoid similar occurrences. Of course no one wants such a thing to happen or anticipates a serious nuclear incident in Great Britain, but the purpose of the legislation is to be sure that the ONR is able to set up an inquiry to establish causes and learn lessons from any incident that requires such an approach.

The hon. Gentleman asked why any inquiry would have to be held in accordance with regulations made by the Secretary of State—it would be the Secretary of State for Energy and Climate Change, by the way. It is a perfectly reasonable question. In essence, the reason is that it would make it possible to ensure that any inquiry was robust, for example by allocating the power to call witnesses and creating offences of failure to comply with the person directing the inquiry. Also, it would make it possible to report back to Parliament through the normal process of scrutiny that the Secretary of State enjoys in this House. It is important that the Secretary of State be at the apex of the process, for all those reasons.

The requirement also matches the Government’s commitment to creating an open and transparent regulator. The conduct of, and reports from, an inquiry must be put into the public domain unless provision is made in regulations requiring that they be kept private, for example in the instance of sensitive nuclear information being considered. The arrangements would guarantee proper scrutiny but provide appropriate levels of authority, to ensure that any relevant inquiry was fit for purpose.

Clause 73 - Consent of Secretary of State for certain communications

John Hayes (Conservative, South Holland and The Deepings)

I beg to move amendment 95, in clause 73, page 63, line 19, at end insert—

‘() advice given in a particular case.’.

The ability of the ONR to give unfettered independent advice to individuals and individual licence holders on specific regulatory issues is critical. The amendment makes that explicit.

Clause 73 requires the ONR to seek the Secretary of State’s consent before publishing certain communications relating to nuclear security, and the amendment means that the ONR will not be required to do before issuing advice or guidance to individual duty holders on specific matters. The amendment is minor but important, in that it reflects the general policy intent. It provides the further clarity that the Government, the ONR and the regulated community require on the application of the power provided for in the clause.

Schedule 9 - Disclosure of information

John Hayes (Conservative, South Holland and The Deepings)

I beg to move amendment 100, in schedule 9, page 143, line 33, at end insert—

(1) Paragraph 2 does not prohibit a disclosure of protected information which is made—

(a) by the ONR, an inspector, a health and safety inspector or an ONR inquiry official, and

(b) for any of the purposes specified in section 17(2)(a) to (d) of the Anti-terrorism, Crime and Security Act 2001 (criminal proceedings and investigations).

(2) Section 18 of that Act (restriction on disclosure of information for overseas purposes) has effect in relation to a disclosure authorised by sub-paragraph (1) as it has effect in relation to a disclosure authorised by any of the provisions to which section 17 of that Act applies.’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss Government amendments 96, 97, 101 to 114 and 99.

John Hayes (Conservative, South Holland and The Deepings)

I do not want to take up too much of the Committee’s time, but we are making rapid progress, for which you, Mr Leigh—

Edward Leigh (Conservative, Gainsborough)

I bear all the credit.

John Hayes (Conservative, South Holland and The Deepings)

You have changed the tone and speed of our consideration almost magically, Mr Leigh. The Committee will want to know that the amendments are to clarify the ONR provisions and ensure that they interact appropriately with existing legislation. You will be familiar with the Explosives Act 1875, and I thought it was worth mentioning that Act and the impact of these changes on it. I can see that Opposition Members are not on the ball—they have not picked that one up.

Edward Leigh (Conservative, Gainsborough)

It was probably a good joke, so perhaps the Minister will repeat it.

John Hayes (Conservative, South Holland and The Deepings)

But you said earlier that tedious repetition was not allowed, Mr Leigh.

Edward Leigh (Conservative, Gainsborough)

Not in your case.

John Hayes (Conservative, South Holland and The Deepings)

I will do the joke with more drama, as I understated it a bit and threw it away too much—the whole Committee will be familiar with the Explosives Act 1875 and will understand the relationship between these changes and that Act. I have no doubt that the hon. Member for Brent North will have something to say about it in a moment.

The provisions interface and, indeed, interact with that Act, as well as the Factories Act 1961, the Railways Act 2005 and the Energy Act 2004. The vast majority of the amendments are consequential ones to ensure that the independent statutory ONR continues to have the same role as part of the Health and Safety Executive. Amendments 99 and 102 will ensure that certain consequential amendments to the Nuclear Installations Act 1965 do not affect the legal position in Northern Ireland. I will increase my pace, because I can see the hon. Gentleman looking up that Act. Amendment 96 will allow the amendments to the 1965 Act that are to be made under clause 91 to apply to the whole of the UK, which will ensure that parallel versions of the Act are not created for different parts of our United Kingdom.

Amendment 97 will clarify the transitional arrangements that can be made by order to aid the creation of the ONR. Amendment 101 will provide for the assignment of enforcement responsibility between the ONR and the Office of Rail Regulation to ensure that their regulatory roles under the Health and Safety at Work etc. Act 1974 are clear. Amendment 107 will place the ONR in the correct category of responder in civil contingency legislation, which will ensure that, as a specialist agency, it continues to support front-line emergency services.

Amendments 103, 104, 106, 108, 111, 113 and 114 will ensure that the status quo is preserved with respect to the ONR inspectors’ regulatory powers and the ONR’s position as an expert consultee. Amendments 100, 105 and 112, hon. Members will be pleased to know, are technical amendments—as though the others were not—intended to preserve the existing regulatory framework. Finally, amendments 109 and 110 are technical drafting amendments that ensure that health and safety legislation is cross-referenced correctly in a number of pieces of existing legislation.

The majority of these amendments are simply the dotting of i’s and crossing of t’s that could not be completed ahead of introduction. Taken as a whole they provide clarity to the Bill and are important in making good legislation. They do not change the overall intent or effect of part 2 of the Energy Bill, but it is important that they are made—and not even I could weave W. B. Yeats into that. I beg to move these amendments.

Barry Gardiner (Labour, Brent North)

The Minister was absolutely right. I did immediately take up the challenge, and I have gone to legislation.gov.uk to look up the Explosives Act 1875. I am appalled, Mr. Leigh, because I find there that it says:

“Changes to legislation: There are outstanding changes not yet made by the legislation.gov.uk editorial team to Explosives Act 1875”.

Given that his party has been in power for 80 years of the intervening period I just wish he would hurry up and get on with it.

John Hayes (Conservative, South Holland and The Deepings)

I have nothing to add.

Clause 80 - Crown application: Part 3

Tom Greatrex (Labour, Rutherglen and Hamilton West)

Clause 80 stipulates that regulations may

“provide for fees to be payable for, or in connection with, the performance of any the following functions (whenever conferred)”

and then goes on to list those functions. A briefing provided by DECC officials in December advised that, at present, the nuclear industry covers 95% of the costs incurred by the ONR, with the other 5% provided from grants in aid through the DWP. According to that briefing, the proportions were changed to 98% from the industry and 2% from DWP, meaning the industry will cover a greater proportion of the costs.

However I have yet to understand completely, and perhaps the Minister can help, whether the Government expect the value of those costs to increase. It is welcome that the industry will bear a greater share of the burden, rather than taxpayers, but I would be grateful if the Minister could set out what estimate has been made, if any, of the monetary value of those costs. I do not accuse the Government of sleight of hand, but it is possible that while the taxpayer share of the cost falls as a proportion, in monetary terms it actually increases. I would be grateful for clarity on that specific point from the Minister.

John Hayes (Conservative, South Holland and The Deepings)

Again, the shadow Minister makes a reasonable inquiry. To do its job properly the ONR needs to be properly resourced, and that is why the fee clause is part of these proposals. As part of the reform that we seek, the clause, in essence, widens the cost-recovery powers available to the current nuclear regulator. These amended cost-recovery powers will therefore be available to the ONR in future. I use the word “widens” because the existing regulator already has a range of cost-recovery powers at its disposal, for example under the Nuclear Installations Act 1965, and already recovers the majority of costs from those it regulates. It is established practice in nuclear, as in other high hazard industries, that a regulator’s costs are borne by the industry and not by the taxpayer. This clause will therefore supplement and expand on the nuclear regulator’s existing cost-recovery powers, up to the point where virtually all of the regulator’s costs will be recoverable from the industry.

I think that what lies behind the shadow Minister’s inquiry is a proper desire to ensure that this process is not a licence to print money. The ONR will not be able to increase its costs at random, but it needs to be confident in the knowledge that it can always recover such costs from the nuclear industry. The ONR is not designed to be a revenue-raising vehicle, and this measure is not a revenue-raising measure but one that is about cost recovery.

If the ONR has any proposals for new fees regulations, it must consult on such proposals under clause 60 before putting them to the Secretary of State to be made. The monetary value is around £1.5 million, in real value, to be precise. Furthermore, we would expect the ONR as a matter of good practice to consult the industry on any increases to any of its existing fees that it may propose. These costs are borne by the industry, so it is important that the industry is part of the process by which any changes are considered and made.

Finally, let me stress that there is nothing in this fees clause approaching a tax or a levy on the nuclear industry. That has been specifically ruled out. In essence, that does not change the process that has taken place, but it empowers and—as I described, but only in the terms that I described—widens the fee-recovery arrangement. So the passing of any fees to the employees or to those seeking or training for employment is also ruled out. The clause only enables fees to be charged in connection with specific regulatory functions delivered by the ONR to the industry. It is heavily constrained; there is nothing more.

Having given these reassurances, I beg to move that clause 80 stands part of the Bill.

Clause 91 - Subordinate legislation under Part 2

Clause 92 - Transitional provision etc

Schedule 12 - Minor and consequential amendments relating to Part 2

Clause 103 - Right to transfer the government pipe-line and storage system

Luciana Berger (Labour, Liverpool, Wavertree)

Clause 103 gives the Government the power to sell or lease the Government pipeline and storage system—the GPSS—at a future date should they want to do so. The GPSS, run by the oil and pipelines agency—the OPA—for the Ministry of Defence, consists of some 2,500 km of pipeline and plays a vital strategic role in providing a secure supply of aviation fuel for military needs across the country.

The Minister with responsibility for defence equipment, support and technology set out the Government’s rationale for contemplating a sale during the evidence session. He said that the MOD currently receives only 10% of the thoroughfare of the pipeline and that 40% of commercial aviation fuel is currently supplied through it. He went on to say that, given the increasing use of the pipeline for commercial purposes and the future cost of upgrading, maintaining and securing the GPSS, it was right that the Government consider the case for selling the pipeline and paying for its use for military needs.

On that basis, I want to make a brief contribution with the intention of probing and seeking assurances from the Minister about the conditions of any potential sale of the GPSS. Most of the questions relate to a sale of the GPSS under clause 103, but a few may relate to surrounding clauses. I thought it better to raise them all under this clause rather than to detain the Committee for any longer than is needed. I hope you will grant me some slight discretion in doing so, Chairman.

Edward Leigh (Conservative, Gainsborough)

Naturally, in your case. I will not be so generous to the Minister.

Luciana Berger (Labour, Liverpool, Wavertree)

We would like assurances on what would happen in three key areas in the event of a sale. The first is the security of the pipeline and surrounding installation. The second is the cost of maintaining a publicly owned pipeline, set against the cost of the Government paying for its use and access following a sale. Finally, there are some safety issues.

On security, the GPSS is an important strategic asset for the country as well as for the Ministry of Defence. It is important that in the event of a sale, the security of the pipeline from attack—a physical or a cyber-attack—be maintained. How will the Government ensure that a potential purchaser commits to guaranteeing a high level of security, particularly cyber-security, across the pipeline and its supply chain? If the Government are not willing to seek guarantees as a condition of a sale, that would raise significant concerns about the viability of any sale.

On costs, during our evidence session, the Minster with responsibility for defence equipment, support and technology refused my request that this Committee be provided with information on potential costs to the Government as a result of a sale, the current value of GPSS and its operating costs. His argument was that such information is not needed to make a judgment on whether or not the Government should have the power to sell the pipeline in the future. That makes it impossible for this Committee to decide whether selling the GPSS is the right course of action. Given that, will the Minister commit today that any future sale will receive parliamentary scrutiny before it is approved and that these commercially sensitive documents will be examined by a Committee of the House on a confidential basis, so that the public can be assured that they will receive value for money?

Will the Minster also give an indication of how access charges are likely to be calculated in practice? Will they be agreed at the point of sale? Will they be fixed for a set period, or will they be negotiated on an annual basis, in which case how will the Government protect themselves from being held to ransom by a commercial owner?

On future supply, what conditions will be put in place following a sale to guarantee the supply of aviation fuel to MOD airbases, which my colleagues from the shadow Defence team tell me require a minimum of three days of supply? Will the Minister also explain the process by which the Government could commandeer use of the pipeline in the event of the UK being placed on a war footing?

Finally on safety, the Minster will remember the Buncefield fire in 2005, which was caused by an explosion at the Hertfordshire oil storage terminal. Will the Minster outline how any sale of the GPSS would not lead to an increased risk of a similar such fire occurring in the future? Crucially, in the unfortunate event of an accident, will the Minister confirm that the Government will retain liability?

I have a few further questions for the Minister, but I cannot take credit for them. Although the issue of a future sale of GPSS has not yet become front-page news, it has, however, received significant attention in Private Eye. In its most recent issue, on page 29, it poses a number of important questions that the Government have yet to address. I am sure the Minster is an avid reader of Private Eye and will no doubt already have prepared his detailed answers. None the less, the questions are worthy of consideration now, and it is important that we get the answers on the record. I am grateful to Private Eye for outlining these issues.

The GPSS is operated from the Defence Petroleum Centre, which also houses a military oil storage depot and a petroleum training school. Will the Minister tell us what would happen to them under a commercially owned GPSS? What would happen if a new owner used the GPSS to transport biofuels, which, as Private Eye points out, can attack the rubber seals on aircraft fuel systems?

Finally, what action would the Government take in the event of a co-ordinated strike action by both tanker drivers and any new private sector pipeline work force? I appreciate that I have posed a number of questions for the Minister, and I can see that the officials are very busy. Perhaps the fact that I have had to ask so many questions is an indication of the lack of detail the Government have provided thus far. All the questions require answers, and I would be grateful if the Minister addressed them in some detail so that we do not need to revisit them on Report.

Alan Whitehead (Labour, Southampton, Test)

I will detain the Committee only briefly by adding one question to the comprehensive list asked by my hon. Friend the Member for Liverpool, Wavertree. What would happen if a sale attracted the attention of a prospective purchaser who happened to be the system operator? Does the Minister believe that any issues might arise from such a sale, and does the Bill need to contain some way of dealing with such issues?

Gregory Barker (Conservative, Bexhill and Battle)

The hon. Member for Liverpool, Wavertree raised a number of points. She is right to scrutinise this less glamorous but important part of the Bill, which makes provision for the potential sale of the GPSS. Clause 103 is crucial because it allows for the sale or lease of the GPSS or a part of it. The sale contract would be a private matter and not wholly for Parliament. Government will have to be reassured that the contract meets their requirements before signing it. I am sure that the Public Accounts Committee would also want to scrutinise any sale in the usual way. I must emphasise that nothing in the Bill deals with the contractual nature of such a sale. The provisions in clause 103 and related clauses simply deal with the theoretical possibility of giving the Secretary of State the power to conduct a sale, rather than the details of any sale to a particular party.

At present, although the Secretary of State for Defence could theoretically sell the fabric of the system, he cannot transfer the associated rights to operate and maintain the system and to access land for that purpose. Clause 103 allows the Secretary of State for Defence to transfer those rights along with selling or leasing the GPSS. It also gives the Secretary of State flexibility as to whether the GPSS should be sold or leased, and to impose such conditions as he considers appropriate. Many of those would cover exactly the sort of issues the hon. Lady raised. A decision on sale or lease will be made only once further analysis has been undertaken and we have engaged with the market.

The clause also allows for the transfer of liabilities. We are confident that we will be able to put a contract in place to meet the continuing requirements of the Ministry of Defence and United States visiting forces, and which will offer the appropriate level of protection needed to meet the armed forces’ requirements. The Department of Energy and Climate Change is looking at whether additional measures may be required post-sale regarding access and charging for all pipelines, over and above existing legislation.

The hon. Lady asked some more detailed questions, and I will endeavour to answer them. If she feels that I have not been able to answer them in sufficient detail, I will be happy to write to her. She asked whether the system would be more vulnerable to possible terrorist attack once it had been sold. The sale of the GPSS may well lead to greater information regarding the pipeline being in the public domain, but we do not believe that that will make it any more vulnerable than any other equivalent infrastructure operated by the private sector, such as the electricity and gas distribution networks, particularly because the pipeline and storage tanks are predominantly built underground to make the system less vulnerable to attack. The Ministry of Defence regularly assesses risks to its supply chain in the UK, and it is satisfied that the sale of the GPSS does not pose an unacceptable risk to defence outputs.

The hon. Lady asked whether the sale of the GPSS would end up costing the taxpayer more in the long run, which is a sensible question to ask. A final decision on the sale would, of course, take that into account. Such a decision would be dependent on being able to strike the right deal with the private sector, and value for money is a key consideration. Work is under way to update the initial value-for-money analysis undertaken last year. Defence Ministers will be asked to decide whether to invite bids for the GPSS on the basis of that work.

The hon. Lady also asked whether the impact assessment shows that the sale will not provide value for money. Although the initial analysis shows that retention within the Government, rather than sale, currently provides best value for money, changes to the service charge, increased capital expenditure to comply with evolving environmental legislation, and changes to the commercial revenue stream or the asset receipts could result in sale providing best value for money in future. We are working with the Oil and Pipelines Agency to identify the restructuring opportunities that would enable the changes. I point out that it is the Oil and Pipelines Agency that is assisting with this, not the Defence Petroleum Centre as quoted by the hon. Member for Liverpool, Wavertree from Private Eye.

The hon. Lady also asked how we can be sure that the sale will not adversely impact on safety or the environment, which are other important considerations. There is no reason to believe that the sale of the GPSS will adversely impact on safety or the environment. The OPA already has to comply with a number of safety regimes, such as the Health and Safety at Work, etc. Act 1974, the Control of Major Accident Hazards Regulations 1999, regulations under the Environmental Protection Act 1990 and the Pipeline Safety Regulations 1996. That will not change.

The hon. Lady also asked whether armed forces requirements would be met post-sale and whether we would be able to guarantee them. That is obviously a high priority for the Government. There is a range of potential mechanisms for ensuring that the armed forces’ requirements can be met in future. They include contractual arrangements with any potential new owner in respect of both the sale and the ongoing provision of services, which again will be able to offer the same level of protection to meet armed forces requirements as any of the other contracts. Other possibilities may include a long-term lease or concession of the GPSS, rather than sale.

The hon. Lady asked about cyber-attack. Officials at the Oil and Pipeline Agency regularly discuss with appropriate external organisations measures best to protect the GPSS, including from the risk of cyber-attack. We would expect that to continue. She also asked about the threat of a fuel tanker drivers’ strike and other co-ordinated industrial action, and whether selling this asset could exacerbate that risk. The GPSS plays a crucial role in providing fuel to some of the UK’s key airports, and we are clear that that supply must not be compromised in the event of its sale. Any other capabilities, military or civilian, offered by the GPSS that the Government believe they should be able to continue to draw on will be safeguarded in contractual arrangements connected with any sale, should such a sale take place.

On biofuels, I can assure the hon. Lady that they will be used only if they do not compromise pipeline integrity; currently, they are not used at all.

We do not believe that the sale of the GPSS, as I have said, makes the system more vulnerable to terrorist attack than equivalent infrastructure operated by the private sector. We believe that it is a sensible move to give the powers to the Secretary of State. Further scrutiny closer to the point of sale may be necessary. However, it is a sensible provision to include in the Bill.