Clause
25Single
wholesale electricity
market Question
proposed, That the clause stand part of the
Bill.
Mr.
Robertson: It was my pleasure to spend two years studying
the Great Britain energy market, and very detailed and complicated it
was too. I must confess to having not spent a great time studying the
position in Northern Ireland or, indeed, in the Republic of Ireland,
but I want to make one or two remarks about it. People in Northern
Ireland pay more for energy than we do in Great Britain. I want to
explore why that is so and whether the Bill holds out prospects of
cheaper electricity for people in Northern
Ireland. Members of
the Committee will remember that it was the Conservative Government who
brought about privatisation, but that it was the Labour Government who
took it further and introduced NETA—the new electricity trading
arrangements—which, under the Energy Act 2004, became known as
BETTA—the British electricity trading and transmission
arrangements. The Government were right to introduce the change because
it moved the position away from the old pool system of electricity that
was based on long-term contracts to a much more fluid system that
operated more like the stock market than it had previously. As a
result, electricity prices in Great Britain fell considerably in
relative terms to the extent that it became a slight problem in that,
at one point, there was a shortage of investment in electricity
generation because the price was so low and there was no incentive for
companies to invest in generation. During recent months, there has been
an increase in the price of electricity and gas, although that is a
slightly different issue. It has been due to the world market that has
been affected heavily by the oil situation. As much as anything else,
it is a readjustment
of the prices of fuel rather than a failure of the market. The trading
arrangements that the Government introduced did a good service to both
producers of electricity in the long term and domestic and industrial
consumers. Changes are
planned, but the benefits did not extend to Northern Ireland in the way
in which they should have done, nor am I sure that they will do so
under the clause. Although the clause is headed “Single
wholesale electricity market”, having discussed it with the
relevant authorities in Northern Ireland my understanding is that the
regulation of the market is being changed rather than a market being
created. I would be glad to be corrected. There is not even one overall
body being created; I understand that there will be an attempt to
harmonise the regulation of electricity in Northern Ireland with that
in the Republic. We will not move towards the type of market that we
enjoy in Great Britain, so the benefits will not flow to consumers in
Northern Ireland in the way that they have to those here. Again, if I
am wrong, I will be pleased to be
corrected. I am a
little concerned about the creation of north-south bodies, considering
what the Government said in their recent statement. I hope that the
Assembly does get up and running because of the Bill that we will
consider tomorrow, but I did not like the insinuation that there could
be a strengthening of cross-border bodies even if the Assembly is not
running. That was not what was agreed in the Belfast agreement, and I
have some concern about it.
I do not want to be seen to be
urging the creation of a north-south body, given the uncertainty of the
situation, but there are possible benefits in the creation of a bigger
electricity market across the whole of Ireland, just as there would be
in one that covered both the UK and Ireland. I am as anti-EU as one
could wish to find in the House, but there could even be benefits in
creating a bigger electricity market across Europe. That does not
necessarily mean that regulation would have to be as one, although
there would have to be some
harmonisation. There
are great difficulties in energy at the moment. The UK increasingly has
to get its energy from further afield. Not long ago we were a great
producer of gas from the North sea; we are now net importers of gas.
The places from where that gas is coming are slightly worrying: Russia,
Algeria and other countries that might not be considered politically
stable. Russia has recently ended its supply of gas to a couple of
countries, which cannot be a good
thing.
The
Chairman: Order. I am reluctant to stop the hon.
Gentleman, who is giving an interesting exposition of the energy
situation, but can he bring his comments back to the clause, which
refers to Northern
Ireland?
Mr.
Robertson: I apologise for straying away from Northern
Ireland. The point that I seek to make is that I am not convinced that
the clause will move us towards greater security in the supply of
electricity or cheaper prices for consumers in Northern Ireland. We
need to look further into the future than the clause apparently does. I
would be pleased to be corrected,
but from discussions with authorities in Northern Ireland, I understand
that the clause is modest. Maybe the Government are planning ahead, or
maybe they intend to leave the issue to the Assembly, but I would like
to hear the Minister’s response to my
points.
Dr.
McDonnell: I endorse the broad context of the remarks of
the hon. Member for Tewkesbury. If time permitted, I should like to
talk at length, as he did, not just about the content of the Bill, but
about east-west connections between Britain and Ireland, and those with
continental Europe. I shall forgo doing so,
however. The clause
and the Bill implement an ambition on which all parties agreed when the
Assembly was functioning. I sat on a committee there that moved forward
energy issues. It had nothing to do with constitutional politics, and
there did not seem to be any threat to anybody’s political
interest. The
situation in Northern Ireland is serious. Historically, we have had
severe stranded costs, caused by the privatisation of power stations
and the setting of prices at levels that are much too high by
today’s standards. The cost of producing electricity had dropped
for a period, but now it may be going up again. The severe stranded
costs will continue until 2010 or 2012. The clause probably does not go
far enough, but I see it very much as opening a door to create the
space for serious discussions, which the hon. Member for Tewkesbury
referred to earlier in more depth. I would like those discussions to be
pursued, because the island of Ireland as a whole has fewer than 2
million people in the north and 4 million in the south. We need 12
million people for a serious energy market. We have some connection
with the grid in Scotland. We have a connector there, but it is fairly
fully occupied and we need another connector. It could be between Wales
and southern Ireland, or we could have a second connector between
Northern Ireland and
Scotland. The clause
is a prelude to such discussions, and it will facilitate their opening.
It will create confidence for players in the market. Opening up and
facilitating a discussion is the political intention of the House, and
I think that the commercial interests want to see a clear indication
that that is happening. From that point of view, I endorse and support
the
clause. 5.15
pm Sammy
Wilson (East Antrim) (DUP): The vague terms that have been
used so far show that none of us is sure how the single energy market
will operate or indeed what the implications will be. I made it clear
from the outset that the DUP considers that, if there are grounds for
north-south co-operation on issues that are of economic benefit to
people in Northern Ireland and the Irish Republic, we will not stand in
the way. Indeed, we would be foolish to do
so. I want to ask the
Minister several questions about this clause, however, as I do about
clause 26. First, the single energy market will create a pool into
which generators will supply their electricity, which will then be sold
to the various distributors. Every half-hour of the supply into the
pool will be monitored. The demand and the price will be set
accordingly.
There are some hidden dangers
that I want the Minister to address, perhaps when we come
toclause 26. Creating a middleman—the pool in the
single energy market—means that there will be additional capital
costs, including initial capital costs. Can he say what they will be?
They have been estimated at between £10 million and £30
million. There will then be ongoing monitoring costs, because both the
input to the pool and the output to the various suppliershave to be
monitored, after which there will be billing arrangements and so on.
The revenue costs and the initial capital costs, together with any
change inthe arrangements during the time, are likely to add to the
overheads when it comes to supplying electricity to the
consumer. Before we go
down such a route, I want to be assured that, instead of looking at the
political glow that might come from a single market, we actually
examine the harsh economic realities. If they do not stand up to
rigorous economic analysis, it would be better to steer away from the
arrangement. My
second point relates to subsection (2)(b), under which the provisions
would “confer powers on
bodies or persons specified in, or appointed under or by virtue of, the
Order, including powers to make statutory rules (within the meaning of
the Statutory
Rules)”. There is a worry
for the existing generators in Northern Ireland, because the
consultation paper entitled “Northern Ireland’s
Generators — Managing Security of Supply in a Period of
Transition” said that the implementation of a single electricity
market could lead to existing contracts being revoked. That has caused
grave concern. There
are two major generators in my constituency of East Antrim, and that
statement has caused major concern for those who have already invested
heavily on the basis of the prices that they anticipated and the
revenue streams that they expected to receive from the electricity that
they generated and supplied to the grid. It has severe implications for
them. If the Bill
enables the proposed body to revoke those contracts willy-nilly, it
will have an implication for future investment as well. Investors want
to know that when they invest, rules are set down that will continue to
apply and will not be changed at the discretion of a newly created body
or through some new rule that it decides to introduce. Otherwise,
companies will not have the confidence to invest.
As the hon. Member for Belfast,
South pointed out, there are capacity problems in the market as a
whole. Over the next number of years, additional capacity must be added
to the system for the whole island, both for Northern Ireland and the
Irish Republic. If investors see that contracts have been changed, what
guarantee will we have that we will get the stability of supply that we
need? Will new generators come into the market to provide diverse means
of production and security of supply over the longer period? Will the
Minister reassure me as to the meaning of clause 25(2)(b)? How far will
the powers extend for existing
contracts? My third
point concerns a matter that will require legislation in the Irish
Republic. We discussed such
matters when we debated the arrangements for donations to political
parties. If legislation is not introduced in the Irish Republic to
provide the same safeguards as are provided in Northern Ireland, it
will have serious implications for the single market. Will the Minister
tell us what discussions he has had with the Government in the Irish
Republic to ensure that the legislation that is required in that
jurisdiction reflects the provisions made in Northern
Ireland? Mr.
Hanson: I shall try my best to answer the points that have
been made by hon. Members during this short debate on clause 25. I
welcome the fact that the hon. Member for East Antrim welcomes the
provision in the Bill. I understand that his party will adopt a
pragmatic approach to these matters, and the clause will bring great
benefit to Northern Ireland in the long term. I shall also try to deal
with the points made by the hon. Members for Belfast, South and for
Tewkesbury, as well as those of the hon. Member for East
Antrim. I pay tribute
to the Under-Secretary of State for Northern Ireland, my hon. Friend
the Member for Basildon (Angela E. Smith), who is taking the lead on
dealing with this matter as a policy issue. She has day-to-day
responsibility for these matters outside this Committee with officials
from the Northern Ireland
Assembly. Clause 25
will enable Her Majesty by Order in Council—I am afraid that
again it is by Order in Council—to give legal effect to any
agreement that my hon. Friend the Under-Secretary can achieve between
the British and Irish Governments relating to the creation of a single
wholesale electricity market in Northern Ireland and the Republic. I
hope that I can reassure all hon. Members that in the event of an
agreement being reached between the Irish and British Governments, it
will be presented to Parliament by my right hon. Friend the Secretary
of State for information and
confirmation. To
answer the point made by the hon. Member for Tewkesbury, my hon. Friend
the Under-Secretary of State and the Irish Government hope that a
memorandum of understanding, rather than a formal treaty, will be
established between the British and Irish Governments to put in place
several safeguards and ensure that the key elements needed to establish
a single wholesale market will be put in place. Although that
memorandum is still subject to discussion with the Irish Government and
the electricity operators—to answer the point made by the hon.
Member for East Antrim—it is still being consulted on and
discussed with them. However, in the event of an agreement being
reached, it is hoped that the memorandum of understanding will cover a
range of issues, such as regulatory arrangements, the role of the
market operator, dealing with market power and dominance, sharing
information between the Republic and the British Government, licensing
arrangements and access to the market.
We have taken an assessment of
the costs of the exercise that could be undertaken, subject to the
agreement between the two Governments. An early estimate is that, if
the single market were established, the total implementation and
operational costs in Northern Ireland would be in the region of
£34 million
over a 10-year period. The cost during that period would be offset by a
potential saving of £30 million, so at the end of the first
10-year period, if the agreement is reached, the net cost to Northern
Ireland would have been about £4 million. However, after 10
years, savings accruing to Northern Ireland would, I hope, be passed on
in the long term to the hard-pressed electricity payer in Northern
Ireland. I have to say
to all hon. Members who have raised this question, including the hon.
Member for Belfast, South, that in the short term I doubt whether the
ordinary electricity payer in Northern Ireland will make savings as a
result of this exercise. In the long term, however, there are potential
savings to be made, and after the 10-year period, they will accrue in
ever increasing amounts, subject to ever-rising electricity prices,
which are causing problems in all hon. Members’ constituencies,
not least those in Northern
Ireland. The market
will bring greater competitive opportunities as well as efficiencies
and economies of scale. The most important thing to emphasise to the
hon. Members for Tewkesbury and for East Antrim is that, potentially,
after 10 years the economies of scale and efficiencies that can be made
for generators and suppliers will lead to savings that I hope will, in
due course, be passed on to ordinary individuals in Northern Ireland.
Again, I emphasise that energy will ultimately be the responsibility of
the Assembly. I would hope that, in due course, when the Assembly is
reconstituted—as I hope it will be—it will monitor and
take forward this aspect of policy
provision. I hope that
that has answered some of the points made by hon. Members. I am
attempting to answer them on behalf of my hon. Friend the
Under-Secretary, who I am sure would be happy to meet colleagues in the
event of the agreement being
progressed.
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