My Lords, I am grateful to the Minister for presenting these regulations. Given that this might be the last time we meet over the Dispatch Box after what has been an interesting four and a half years of energy policy development, these regulations give us an opportunity to take a step back and reflect on how things are going with the energy market reforms introduced in the Energy Bill.
Here we have what seems to be quite a technical, small regulation that is being implemented, but at the heart of it is something quite significant; that is, that we have moved into a world where, rather than the private sector having overall responsibility for the delivery of projects and the decision-making processes, as you would have in an open and liberal market, by and large it falls on the Secretary of State to cause investment to happen in low-carbon energy.
That is quite a fundamental shift and one that has quite a few challenges attached to it, one of which is that, in the interests of containing price rises, we have introduced a levy control framework that sets a nominal budget for how many low-carbon projects will be signed and then, I hope, delivered. This is not an easy task, and these regulations hint at some of the complexities. It might well be that in the nice confines of Whitehall we are able to sit down with a plan and try to estimate how much low-carbon energy we need, which projects are the best and how we go forward with those that we deem to be cost-efficient, but out in the real world there can be unforeseen circumstances that cause things to change. The difficulty will be having all that responsibility resting on the shoulders of the Secretary of State and the Civil Service. Are we confident that we have the right information and skill sets and a sufficient degree of detailed understanding of the
energy system to ensure that we do not pursue projects, or seek to have projects come forward, that ultimately are not delivered?
I suspect it is clear what I am hinting at here: the ongoing concern over the Hinkley Point nuclear power station. If the Minister will forgive me, I have a series of questions relating to that contract. Part of the impetus for introducing energy market reform in the first place was a desire to see nuclear power stations once again being built in the UK. The decision was taken by the Secretary of State that we would pursue contracts for difference as the means to make that happen. That is what lay behind the entire Energy Bill: a desire for the confidence for investors to make a large-scale capital-intensive project like Hinkley possible in the UK. We heard an awful lot about it and discussed it at length, and yet in the Chancellor’s Budget yesterday there was not one mention of the project. Why is that? Why is such a huge project—let us be honest about this, it is massive; it is a huge infrastructure project with a huge budget attached—not something that the Chancellor felt it wise to mention, and indeed simply glossed over? He referred instead to a tidal lagoon project in Swansea Bay that does not have a CFD and is only just entering into negotiations. The one project that has been central to all government thinking on energy policy has been Hinkley, yet it gets scarcely a mention. I worry about why that is. It concerns me that we have a system set up that is now not sufficiently subject to market forces, and we might find ourselves taking decisions and picking apparent winners that turn out not to be the winners that we thought. That is at the heart of this new system.
On a positive note, one of the side-effects of the intervention to make Hinkley happen has been the introduction of competitive auctions for renewables. The department should be commended for bringing forward the timetable for those competitive auctions, and we have seen those auctions deliver cost savings in the strike prices that we were anticipating for established renewables. So there is some good news, but almost as a by-product of what the original intention was. I am concerned about the silence, and I have questions. How are we doing regarding the timetable that the department expected the Hinkley project to follow? When do we now expect to see a contract signed, and when will it ultimately deliver low-carbon electricity, which of course is the end that we want to achieve? Will that be in time for the closing down of some of our older capacity in the early 2020s? The concern was always that we were going to lose some thermal capacity as a result of tightening air quality standards, and we needed new, clean, large-scale nuclear to bridge that gap. Indeed, some of the nuclear will be going off in that timescale too. Where are we at? When will we know whether that contract will be pursued? It was my understanding throughout our debates that it would be a fairly quick decision and that we would see EDF go ahead with the build and the signing of the contract early this year, with the NAO poised to scrutinise the contract, yet we have seen nothing.
Why is all this relevant to the regulations? It is because here we have regulations designed to prevent companies gaming or occupying the space under the
LRF that would then preclude others from bidding in. I am not accusing EDF of gaming—far from it; I do not think that this is a premeditated attempt to pretend that it can do something that it cannot—but it is subject to circumstances outside of its control. It represents a huge chunk of that LRF and the signs are that it is not now on track for the delivery schedule that it anticipated. It is a significant issue, not just because of the need for capacity but because of the scale of this one project. If it were not to go ahead, we would have to rethink our strategies for other technology groups and projects and hope to bring those forward to replace the gap that would be created. That is why I am interested in what the non-delivery disincentive is for those big projects.
Do the regulations apply to Hinkley? I suspect, on some of the grounds outlined by the Minister, that they do not. There is a reference under ground 4 to “relevant court proceedings”. Austria is pursuing a court case, which I understand Luxembourg has now joined, in which it is challenging the state aid rulings for the Hinkley Point decision in the EU. Does that count as “court proceedings”? Does it mean that the Hinkley project would be exempt from the disincentives? The Minister referred to those projects bidding in to the auction rounds, but the Hinkley project was a bilaterally negotiated contract. Do the regulations cover bilaterally negotiated contracts? If they do not, what measures is the department considering to avoid this cuckoo-in-the-nest problem whereby the expectation is that the arrangement will deliver, yet circumstances beyond the control of government mean that it ultimately will not, putting significant pressure on departmental structures and the energy system?
Perhaps we should have considered these instruments in the opposite order because then we could have ended on a high. Throughout our debates, we have raised our concerns about the degree to which interventions change the balance between government control and the market’s ability to find the right solutions. We obviously want new nuclear power stations to be built in Great Britain but we need some early clarity from government on the status of the project, and a definitive answer on whether it is going ahead and when it is likely to start delivering us the low-carbon energy that we will need to keep the lights on. I look forward to the Minister’s response to those questions.