My speech from the Energy Debate with Friends of the Earth, University of Birmingham Guild of Students, 19 February 2013

Introduction

Higher energy prices are one way to achieve lower energy consumption, a desirable goal for those who want to save the planet, but higher energy costs hit hard working families, the old and the vulnerable. Is it possible to reduce costs, reduce energy consumption and switch to decarbonisation in a society like ours without exposing the poor and the vulnerable to real risks?

 

International Dimension

Britain isn’t the only country facing the planet versus prices dilemma. Europe’s use of fossil fuel spiked last year after a long period of decline, powered by a surge of cheap US coal. In the USA natural gas is now less expensive than coal so coal demand has plummeted resulting in US coal exports rising; up 26% to Europe in the first 9 months of 2012 and a massive increase in exports to China.

Germany is often thought to be a country pursuing a particularly green energy strategy. They have announced plans to cut energy demand by a quarter as they decarbonise by 2030. Contradictorily the current policy has led to a growth in the use of lignite, domestically produced brown coal, filling the gap. This sticky, sulphurous, high emission fuel is being used in power plants operating at full throttle. Several new coal plants have been unveiled recently, despite solar panel installations more than doubling. In Jaenschwalde, a stone’s throw from the Polish border, the power plant consumes 88,000 tons of lignite per day and generates more electricity than it has since 1981. That record is even more impressive given that in 1981, the Communist East German officials didn’t have to contend with labour laws or environmental regulations and could operate mines almost every day of the year.

Setting a target of reducing EU carbon emissions by 30% by 2030 would seem the most likely way of achieving low carbon objectives. Such an approach would also reduce EU dependence on imported fossil fuels which are subject to volatile prices. A Parliamentary Question on 8th March 2012 suggested this was the view of the British government but astonishingly the same government now seems set to force through an Energy Bill stripped of carbon targets. Both the International Energy Agency and the World Bank have warned that the world needs a shift in investment patterns towards energy efficient and renewable technologies if we are to keep global warming below the 2% limit that all countries agree is the safe threshold.

 

Labour’s Record and Plans

In 1997 when Labour came to power there were 6.5 million households in fuel poverty, there were one million fewer by 2009. The position has deteriorated since the coalition came to power. The current definition of fuel poverty is where a household needs to spend more than 10% of income on adequate energy.

Labour introduced Winter Fuel payments and made enhanced payments between 2007 and 2010. George Osborne scrapped the enhanced payments in 2011, claiming there was no provision for them in the budget.

It was Ed Miliband who as Energy Sec introduced a statutory system, with compulsory energy company contributions, for vulnerable customers. We legislated for this in the 2010 Energy Act. The Warm Homes Discount came into effect under the Coalition but was legislated for by Labour.

Labour wants everyone over the age of 75 to be offered the cheapest tariff. We estimate this will be of benefit to about 4  million pensioners and reduce their average bill by about £200 per year. There is a wealth of evidence to show that elderly people are more at risk from the threat of fuel poverty. Pensioners are currently even less likely to switch than the average consumer.

We want to force energy companies to pool the power they generate and make it available to retailers on a competitive basis in order to force down prices. The current complex and opaque ways in which energy is sold help to keep the true costs hidden. Our approach would make the market more transparent.

We need a tougher regulator to force energy companies to pass savings on to consumers.

 

Green Technology

Energy companies levied price rises of 20% last year. The costs of renewable energy investments accounted for only 6% of those rises according to Ofgem.

Recent government announcements have created uncertainty in the renewable and insulation markets. Over 200 jobs have gone in the West Midlands insulation industry as a result of government changes and another 100 people, in the region, are on redundancy notice. The costs of renewable technologies such as onshore wind and solar PV are falling rapidly and the UK is currently a world leader in offshore wind and wave and tidal technologies but the government needs to send a clear signal about its long term intentions for green energy businesses to grow.

The Energy Bill has various barriers which make it difficult for small, independent or community generators to enter the electricity market. Since there is wide acceptance that there is a lack of competition, this is a mistake. The government is relying in ‘Contracts for Differences’ in the Bill as an instrument to attract investment into clean electricity generation. In theory CFDs will ensure clean energy generators are paid a set price for the energy they generate, thereby assuring investors that they will receive a return on their money over a set number of years. A strike price is set for a CFD. If the market price (the cost per unit of energy purchased) is below that of the strike price, the CFD counter-party will top up the payment to the generator, ensuring a stable price. If the market price is above that of the strike price, the generator will be required to pay back the difference to the CFD counter party. If this mechanism is going to work the CFDs need to be established ASAP and we need to know about the length of contracts, the preferred energy mix and the proposed strike prices. It might make more sense to allow the financing of smaller projects through the Feed in Tariff system or green power auctions.  

Biomass electricity from wastes and sustainably managed feed stocks can deliver some significant greenhouse gas reductions particularly in heat or combined heat and power schemes but the real issue is about a sustainable biomass supply.

 

Tariffs

There are currently over 400 tariffs. Labour wants a radical simplification of the tariff structure so that there are fewer tariffs and it’s easier for people to compare charges.

Energy is cheaper in the UK relative to Europe because we have relatively low energy taxes compared to Europe; although George Osborne’s first budget increased VAT on fuel. If you exclude taxes, raw energy prices are higher in the UK than most of Europe. Even gas prices that have been historically lower are higher in the UK than the EU27 average.

Feed in Tariffs have been successful in encouraging people to get involved in clean green energy generation. Over 100,000 homes now generate their own electricity. Solar PV has been by far the most popular but has also enjoyed the highest level of public subsidy. Government argues that because the costs of a PV system have fallen since the introduction of FITs subsidy, this justified a cut in the subsidy which came into force in December 2011.  

 

Energy Saving

Energy saving is the quickest and cheapest way to cut consumer bills and carbon emissions.

The Government spent only half the Warm Front budget for 2012/13 and turned down 13,500 families. They claim that the remainder will be transferred to a local authority competition to assist poorer people with home insulation. When this scheme was announced they said it was new money.

Warm Front is government funding. CERT (Carbon Emissions Reduction Target) and CESP (Community Energy Savings Programme) are industry obligations to provide energy efficiency measures to reduce carbon emissions. Ofgem claims these measures helped insulate 2.1million cavities and 3 million lofts between 2002 and 2012. CERT and CESP are being phased out and Warm Front ended in December 2012. Direct govt funding through the Carbon Trust has now been axed. In the last year of full grant 2011-12 only 40 companies received grants. They are being replaced by the Green Deal and ECO (Energy Company Obligation) which is supposed to provide help to vulnerable households through insulation and better boilers.

The government says that their flagship Green Deal policy is the solution to home owners insulation needs but it’s a complicated market led solution with upfront assessment fees of at least £112, on DECC’s own indicative figure. The average assessment seems to cost nearer to £150 whether any work is done or not and the predicted interest rate of around 7.5% suggests that those with the money would be better to have the work done and bypass the Green Deal and those without will never be able to afford it. And, of course there’s a punitive penalty charge for those who want to pay off the loan early.

 

Bills and Profits

In 2011 energy companies paid out £7billion in dividends to shareholders. In February last year a survey I carried out with my constituents in Selly Oak revealed that 63% said they were using less heating as a result of energy price rises while 43% said they were cutting back on other items in order to afford their energy bills. Consumer Focus has pointed out that the number of households in electricity debt has risen to 25% i.e. 1 million households while energy company profits have risen by 14%.

In 1999 there were 21 electricity suppliers and 13 gas suppliers. Today the big six supply 99% of households. An IPPR report suggests that with better competition bills could be £70 per year less. The Institute of Public Policy Research estimates that as many as 5 million homes are being overcharged by their supplier with some households paying almost £800 per year more than needs be. They estimate that a genuinely competitive and transparent market would knock about £70 off the average household bill almost at a stroke.

Rising gas prices have been and continue to be the largest cause of energy bill increases. Estimates suggest they have added £290 to an average household bill between 2004 and 2010 and Ofgem says bills could rise by 60% between 2009 and 2016 as a result of heavy gas reliance. Shale, even if effective, on a significant scale is likely to have a marginal impact on gas prices.

The Energy Bill makes provision for a Capacity Market; this is effectively standby energy in the event that it’s needed but as generators will be paid up front in advance, it risks creating an incentive for new fossil fuel plants and windfalls for existing plant. It might be better for the government to own a strategic reserve, rather like the Americans do.

Renewable investors will be deterred if it appears that nuclear is receiving a hidden subsidy and they are not competing on open terms.

 

The Energy Bill

The Energy Bill could shape the use of energy in this country for the next 40 years. It’s estimated that about £100billion of investment is needed over the next decade to deal with replacement of older power plants, a fifth of which are facing closure.

In a letter dated 12 October 2012, the Minister of State (John Hayes) said that, ‘Analysis published in the December 2011 Carbon Plan suggests that the most cost effective paths to deliver the 2050 target require the electricity sector to be largely decarbonised during the 2030s.’  A sector specific target for 2030 would give investors a clear signal about the direction of energy policy after 2020 and encourage greater investment in UK based supply chains.

There is widespread but far from unanimous agreement that the Bill needs to reduce demand for power and tighten controls on carbon emitting plant and allow for more innovative and community low carbon power generators. It also needs to provide greater transparency on how tax payer’s money for low carbon power is being spent to ensure best value for consumers. The Bill should have a decarbonisation target. Labour tabled, at 2nd Reading, an amendment calling for the Bill to include a 2030 decarbonisation target for the entirety of the energy sector; and provisions designed to reduce electricity demand and help the fuel poor with the cost of their energy bills. The amendment was voted down by coalition MPs and the Bill went into Committee over January and February. Tim Yeo and Barry Gardiner’s amendments are an attempt to reinstate a carbonisation target but at present the government has decided to delay a decision on carbon targets for the energy sector until after the next election. The Bill should include a plan to tackle the dirtiest power stations and measures to reduce barriers to independent and community generators and deal with domestic energy inefficiency and open up the electricity market to genuine competition.

Emission Performance Standards sound like a way forward but they only apply to new power stations and the limit is so high that it won’t have any impact on new gas plants. New coal fired stations will have to be built with carbon storage and capture technology which is still in the prototype stage of development.

The Green Investment bank lacks teeth and it’s not clear how it will raise further investment on the markets. It is essentially reliant on government money and has been criticised for not putting enough effort into wade and tidal power where we have a technological lead.

 

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