16:18 Mr Tim Yeo (South Suffolk) (Con)

Let me straight away address emissions reductions, which are the second driver of policy. A clear target for decarbonisation would increase certainty. The Government’s goal to largely decarbonise the power sector by 2030 is a bit too vague for my liking. The Energy and Climate Change Committee’s report recommends that the Government should set a specific target of 50 grams of carbon dioxide emissions per kilowatt-hour by 2030, and should also set out a clear trajectory on how Britain should reach that target. I regret that the Government have so far not accepted those recommendations, but merely reiterated their intention that the sector be largely decarbonised by 2030.

As important as a clear target for decarbonisation is the need for a stable policy framework. Another priority for Government must now be to create confidence for investors quickly, but without setting the level of renewables obligation certificates, feed-in tariffs and other incentives for low-carbon energy at levels that are so generous that the subsidies become unaffordable. The huge spend of more than £100 billion may be beyond the resources of the big six energy companies, so Britain must compete for energy investment in a global financial market at a time when many other countries are also seeking huge funds to increase their electricity-generating capacity. For many years, the major utilities have financed renewable projects as well, but their balance sheets are now being loaded up with increasing levels of debt at a time when there are competing investment opportunities and when prices are under pressure. The challenges of financing the new investment that is needed, especially in low-carbon technologies, are formidable.

Will the Minister set out in advance the dates when the Government will review the feed-in tariff levels and make a commitment to avoid early reviews? We also need the right kind of institution to implement the feed-in tariffs. The report concludes that the Department of Energy and Climate Change must identify which institution will be given the power to create appropriate contracts and set this up as quickly as possible. If that role is not taken on by Ofgem, a shadow body should be set up in advance of legislation. The agency must be totally independent and not susceptible to political influence.

The Government have proposed that the EPS would be grandfathered for a predetermined period—for example, 20 years—rather than for the economic lifetime of a particular plant, as previously suggested. However, even a 20-year period would allow gas-fired power stations built before the 2015 review to operate unabated into the 2030s, which could make achieving our long-term climate goals much more difficult. Some of what was said in the previous debate is also relevant to that point. Will the Minister say how often he expects the EPS level to be reviewed, and whether he would consider setting a long-term trajectory based on the carbon targets set in the fourth carbon budget?

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16:36 Barry Gardiner (Labour)

We need to replace 25% of our existing generating plant by 2020 merely to keep the lights on—that is one side of the Rubik’s cube. We are obliged by the European Union to have 30% of our electricity come from renewable sources by 2020—currently it is only 7%—and that is another side of the cube, as is energy consumption in the UK being set to double by 2050 if we continue with business as usual. We also need to tackle fuel poverty and to keep prices low, and that is a big side of the Rubik’s cube. We need to decarbonise our economy to combat climate change—yet another side. The sixth side is that we need to incentivise £200 billion of investment in new capacity and infrastructure in the space of only nine years. The puzzle is intractable indeed.

Let us pick another two sides of the cube: what of delivering £200 billion-worth of infrastructure and of decarbonising our economy? Investment analyst Peter Atherton told the Committee that

Carbon price support is like a tax on carbon, as the Chairman of the Energy and Climate Change Committee said. It simply makes the cost of generating electricity from fossil fuels more expensive, and that means that carbon-free generation like wind becomes relatively more attractive the higher the Government set the carbon price.

Emissions performance standards is the fourth of the pillars: the final tool in the Government’s incentives box. In reality, the EPS is more a disincentive, because it simply proposes a ban on any generator emitting more than a certain level of CO 2 per kWh. The Government want to set that limit at 600 grams of CO 2 per kWh. In practice, this would stop only unabated coal—the coal-fired power stations that did not have CCS fitted to reduce their emissions. It would still be enough to allow gas-fired stations. That is not good enough, given the Committee Chairman’s earlier remarks about adopting the Committee’s fourth carbon budget with targets of between 40 grams and 60 grams per kWh.

The EMR set out three high-level objectives: decarbonisation of the electricity sector, energy security and affordability. I wish to focus for a moment on affordability, because it is becoming—certainly for my colleagues—one of the biggest issues that we find on the doorstep. One in every four households in the UK is now classed as fuel-poor. A fuel-poor household is defined as one where the expenditure required to maintain adequate warmth exceeds 10% of household income. It is a measure of the number of households needing to make impossible decisions on expenditure just to meet their basic human needs.

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16:53 David Mowat (Warrington South) (Con)

“It is important that the Electricity Market Reform package is geared to deliver our renewables targets as well as our decarbonisation objectives.”

We have just heard an exchange about the cost of solar power, which is still high. A finding by the Parliamentary Office of Science and Technology and Cambridge university suggested that, over its lifecycle, solar power uses three times as much carbon as nuclear power, including the manufacturing cost of PV cells. I support the objectives of decarbonisation, but I wonder whether some of the renewables objectives could be a distraction.

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16:57 Dr Alan Whitehead (Southampton, Test) (Lab)

Now, as hon. Members have said, we need to decarbonise our electricity market rapidly and invest substantially, not just in replacing capacity but in providing additional capacity, because of the nature of the capacity that we are bringing on board as far as the low-carbon market is concerned. We are talking about perhaps £200 billion in investment. All but two of the big six companies have pretty much borrowed up to the limit of their balance sheets, so we need important mechanisms to secure not just the good running of the market, but low-carbon investment on the basis of good value for customers. I do not underestimate at all the breadth of the challenge implied by the electricity market reforms.

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17:07 Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)

We have seen a change in recent months that perhaps calls some of the sentiments behind that statement into question. While it is important to consider the security of supply and decarbonisation, we must always keep the people across the country who are struggling to meet energy bills at the forefront of our minds. The issue is not about a small number of people in fuel poverty, because it affects families and businesses up and down the country. Too often, in some of our discussions, we overlook the impact on consumers. We must ensure that we do not do that when reforming the electricity market and as the Bill progresses in the next Session.

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17:13 The Minister of State, Department of Energy and Climate Change (Charles Hendry)

The Chair of the Select Committee on Energy and Climate Change, my hon. Friend the Member for South Suffolk (Mr Yeo), asked a number of questions when introducing the debate—it was like a bullet train going through the energy terrain. A comprehensive range of issues and questions were raised. He asked how much investment we have seen in the past year. Just in the renewables sector, in six weeks between 1 September and early October, we saw £800 million of new investment, offering nearly 2,000 new jobs, and we expect that to pick up. However, he has had to accept that much of the investment is lumpy—a nuclear power station needs £5 billion or £6 billion of investment, and an offshore wind farm needs billions of pounds of investment. Therefore, there will not be a straightforward progression to 2020, but we will have big steps up over time. We are quite clear that without the measures we are putting in place, it will not be achievable.

My hon. Friend also asked why we had not gone for a target such as 50 grams per kilowatt-hour for the electricity sector by 2030. We will set out our formal response to the Energy and Climate Change Committee later in the year. We recognise, through the work that we have done, that there are a number of ways to reach our 2050 requirement, which is that we need to have reduced our carbon emissions by 80%. There is not just one way to do that, and we need to look at what is the best way. At the end of the day, we need to do it in a way that is cheapest for consumers. A common theme in this brief debate has been to ask how we deliver that in a way that will protect consumers, both industrial consumers and people in their own homes.

My hon. Friend the Member for South Suffolk asked us not to tinker with the policy as it progresses. The history of previous Energy Ministers suggests that I will most certainly be long gone by the time anyone gets a chance to tinker, but if I am still in the position at the time, I guarantee to him that the whole system is designed to stop tinkering. It is not just an agreement or Government policy, but a long-term contract that tells investors over 20, 30 and more years how much they will be paid for each unit of electricity generated by a certain technology. That means that we need to build a system that is as close to automatic as possible in order to recognise how the costs are coming down, so that new entrants coming in beyond a certain point understand how they will be remunerated in the process. The policy will also deliver investment, particularly in renewable energy, at a cost lower than that of the existing renewable obligation. As the policy supports all low-carbon technologies, it will make a greater contribution to our decarbonisation targets than is otherwise possible.

I am not going to give way, because I want to give time to the Select Committee Chair. I have spoken for less time than the hon. Member for Brent North, so I hope that he will understand if I do not give way. I am grateful for the advice and input of the Select Committee, and I hope that we can put in place a structure that recognises the scale of the challenge, the need to decarbonise and the need to rebuild our energy infrastructure, while doing it at the lowest cost to consumers.

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