I rise to speak to the group of amendments on the value to the United Kingdom of a European internal energy market, and in particular to move Amendment 55ZB, which stands in my name and that of my noble friend Lord Teverson and the noble Lord, Lord Whitty.
The amendment would require the Government to introduce a strategy to address the policy barriers to interconnection and the distortions introduced by the proposed capacity market. I highlighted at Second Reading the benefits of greater interconnection across Europe, so I will be brief now. It makes a significant contribution to security of supply as Ofgem's recent electricity capacity assessment demonstrates. If the UK imports electricity from the continent at times when supply is tight, capacity margins increase from 5% to nearly 9%. By making more efficient use of renewable energy, it can have positive effects on energy costs, as the Government have confirmed in their response to the House of Lords EU Select Committee report, No Country is an Energy Island, which is to be debated in this House next Monday.
In her concluding remarks at Second Reading, the Minister made it clear that the Government,
“are fully supportive of increased interconnection”.—[Official Report, 18/6/13; col. 236.]
I am aware of some welcome initiatives, including a memorandum of understanding with the Irish and Icelandic Governments. Also the Government are
supporting Ofgem’s integrated transmission planning and regulation project to take it forward. But there is no denying that the decision not to allow interconnected capacity to participate in a capacity auction now will distort the internal market. Why? Because an overseas power generator wishing to supply the UK market will receive the wholesale electricity price alone, while generators in the UK will receive a capacity payment and a wholesale electricity price. This would mean that there would be less efficiency resulting from less competition in the auction and, crucially, less incentive to build additional interconnection capacity.
The Government have said in very recent correspondence that they are keen to find a way for interconnected capacity to participate in a capacity market in future. This is to be welcomed, but we need a clear commitment in the Bill that this Government prioritise interconnection alongside the capacity market and demand-side reduction measures to deliver the energy that we need. We need to know what other avenues they are going to pursue for interconnection and by when. It is legislation, not the sometimes contradictory comments within government, that shows investors what government will do and creates the necessary confidence to invest. Let us be clear: the European Commission estimates that investment of more than €200 billion is needed before 2020, two-thirds of that in the electricity market, in cross-boarder infrastructure. Putting this amendment in the Bill would help to give that investor confidence, requiring the Government and this department actively to look at ways in which to develop mechanisms, working with the regulators and European partners to support cross-border energy trade. Doing so would show that, on energy, just us on crime, trade and the environment, we are better working with our European partners and neighbours. I beg to move.