Lords force Government's hand with amendments to Energy Bill

The House of Lords has passed several amendments to the Energy Bill which have thrown down challenges to Government policies. Key changes cover security of energy supplies, a sustainable development duty on energy regulator Ofgem, support for combined heat and power and biofuels, changes to the renewables obligation and the impact of offshore windfarms on shipping.

The Energy Bill has three main prongs - the establishment of a Nuclear Decommissioning Authority to tackle the UK's civil nuclear liabilities, a system for licensing offshore renewable energy projects and the new BETTA framework for electricity trading.

During the second reading last December, many peers complained that the Bill's piecemeal provisions failed to match the ambitions set out in the Government's energy White Paper (ENDS Report 347, pp 40-41 ).

In late April, the Bill completed its passage through the Lords. Some 500 amendments were considered in the course of 11 days' debate in Grand Committee and six days at Report stage.

Many amendments passed by the Lords were relatively minor, or related to issues such as the tax treatment and pension arrangements for the NDA. However, several have important environmental implications - and are a direct challenge to existing Government policy.

The Bill received its second reading in the Commons on 10 May - and Ministers made clear that they are hoping to reverse several of the Lords' amendments. However, they will need to tread carefully - with the risk that lengthy debate when the Bill returns to the Lords could derail the Government's timetable for setting up both the NDA and BETTA.

The main points include:

  • Security of supply and nuclear power: Many peers and MPs continued to press the case for new nuclear power stations. In a repeat of the well-rehearsed arguments in the run-up to last year's energy White Paper, they pointed to increasing dependency on imported gas, the intermittency of renewable sources and the phase-out of most existing nuclear capacity over the next few years.

    Two new factors added some spice to the mix - a high-profile television programme on the risk of the "lights going out", and a report by the Royal Academy of Engineering claiming that renewables are much more expensive, and nuclear much cheaper, than the Government has assumed.

    Tory shadow Industry Minister Stephen O'Brien attacked wind turbines as "a blemish on the landscape", and accused the Government of "making the most giant mistake about windmills since Don Quixote." The Conservatives have, he said, "an open mind on the future of nuclear energy."

    Peers approved two important amendments. The first - sitting at the top of the Bill - places a duty on the Secretary of State to "ensure the integrity and security of electricity and gas supply".

    Former Conservative Minister Lord Jenkin said that Ofgem had made it clear that it does not accept its existing duty to "secure a diverse and viable long-term energy supply". Indeed, Ofgem's focus on low prices "drove one generator after another out of business. British Energy was only one where the Government had, in the end, to pick up the tab."

    Lord Whitty maintained that existing arrangements are sufficient to protect security of supply, and challenged the "rather alarmist assessment of our energy position". He accused Lord Jenkin of "veering towards...a Stalinist solution" which would require the Government to prescribe the fuel mix for power generation. However, peers passed the amendment by 119 votes to 84.

    Energy Minister Stephen Timms told the Commons that the amendment is "a huge step backwards to state intervention" - and pointed to the power industry's warnings that it could jeopardise investment in capacity by increasing regulatory risk. The Government is hoping to find a way forward with the Opposition.

    Peers also passed an amendment obliging the Government to report annually on progress in developing renewable and clean coal technologies and reducing energy demand. The Government will also have to report on efforts to "avoid undue reliance on imports", including measures to keep the nuclear option open.

    Lord Whitty argued unsuccessfully that the Government is already required to report on most of these issues under the Sustainable Energy Act (see p 13 ). He also complained that the amendment was "a further Trojan horse for bringing the use of nuclear power back on to the agenda in a way which is not in line with the current energy White Paper strategy."

    Other more explicitly pro-nuclear amendments were not successful. These included an attempt to exempt nuclear power from the climate change levy and a requirement that the decommissioning of sites by the NDA should not preclude their future use for electricity generation.

    Another proposed amendment would have given the NDA a duty to commission, plan and develop nuclear power stations. This was heavily defeated after the Government argued that it would conflict with the NDA's key role in site clean-up and undermine public confidence in the new body.

  • Sustainable development duty for Ofgem: In another significant challenge to the Government, peers agreed to impose a new principal duty on Ofgem, requiring it to "ensure the contribution to the achievement of sustainable development".

    Liberal Democrat peer Baroness Miller cited the "fiasco" with the new electricity trading arrangements as an example of Ofgem's "critical" influence on sustainable development.

    For the Government, Lord Whitty argued unsuccessfully that the issue had been the subject of "extensive consultation" before the White Paper. He claimed that removing "the priority that [Ofgem] has afforded to the economic interests of consumers present and future" would be "confusing for [the regulator] and for those who deal with it."

  • Annual report on energy efficiency: The Lords also approved an amendment obliging the Government to report annually on energy efficiency.

    Crucially, the amendment specifies that the report must cover progress towards domestic energy efficiency savings of 5mtC (million tonnes of carbon) by 2010 and 4mtC by 2020 - figures set out in the White Paper, but from which the Government has now retreated (see pp 45-46 ).

  • Offshore renewables: The Government's plans to create a permitting system for renewable energy projects beyond the 12-mile limit have come under strong fire from shipping interests. The Bill will pave the way to declaring renewable energy zones (REZs) stretching out as far as the 200-mile territorial limit.

    Lord Greenway claimed that the shipping and ports industries "were not properly consulted under round one of the offshore wind sites licences". He claimed that "the Government are hell-bent on rushing forward" to meet their renewables target for 2010.

    Lord Higgins warned that "if we do not take fully into account the safety aspects, we shall almost be planning for a disaster, and not necessarily only one."

    Baroness Miller argued that much of the problem stemmed from the Government's failure to come forward with a "long-promised" marine Bill (ENDS Report 350, p 44 ). "Without a spatial framework," she said, "it is very difficult to balance the competing demands of renewable energy, commercial shipping and even recreational yachting."

    In response, Government spokesman Lord Davies of Oldham stressed that it "will not permit the location of offshore renewable energy installations where they would put at risk the safety of navigation." He defended developers' ability to win consent via the Transport and Works Act 1992 - which some peers claimed allowed safety concerns to be bypassed.

    Peers proposed a dozen or so amendments seeking to reassure the shipping industry. Several were passed, including a requirement that installations may not be established "where interference may be caused to the use of recognised sea lanes essential to international navigation", and a requirement for the cumulative effects on safety of navigation to be taken fully into account.

    Lord Higgins argued that no licences for offshore wind farms should be granted until the impact on radar, radio and electronic navigation equipment had been fully investigated. In response, Government spokesman Lord Davies of Oldham promised that such a study will be carried out "as a priority".

    In the Commons, Industry Secretary Patricia Hewitt confirmed that the Government intend to "retain the substance" of the new clauses on interference with recognised sea lanes and cumulative effects.

    Concerns over the impact of offshore wind farms on shipping were also addressed in an inquiry by the House of Commons Transport Committee in late April. The industry is already under pressure from concerns over its potential impact on birds (ENDS Report 350, pp 10-11 ).

  • Renewables obligation: The Lords agreed several important modifications to the obligation.

    A Government amendment provides for full mutual recognition of renewables obligation certificates (ROCs) in Great Britain and Northern Ireland. The Province intends to implement an obligation next year.

    Another Government amendment aims to reduce the likelihood of future shortfalls in the obligation's "buy-out fund". Last year, the collapse of energy supplier TXU left a £23 million hole in the fund - depressing the ROC price and denting investor confidence.

    The amendment allows the Government to introduce shorter obligation periods, so reducing exposure from late or non-payment. It plans to consult on the details this year. However, peers voted against a Tory amendment designed to prevent suppliers defaulting on their payments.

    The Conservatives also proposed a merger between the buy-out funds in Scotland and England and Wales - pointing out that the two parallel systems had proved vulnerable to "manipulation" and "gaming" by suppliers such as Scottish Power. The Government blocked the amendment - but agreed that the issue is "a key one" for the forthcoming review of the obligation.

  • Combined heat and power: In a rare piece of good news for the CHP sector, the Lords passed an amendment to exempt CHP from the renewables obligation.

    For the Tories, Baroness Miller of Hendon claimed that if CHP capacity reaches 10GW - the Government's target for 2010 - the obligation would cost the sector more than £60 million to "cross-subsidise other low-carbon technology." She cited work for the CHP Association by Ilex to claim that exempting CHP from the obligation would give it a "significant" boost, with "no adverse impact on renewable investment or ROC prices".

    In contrast, Lord Whitty maintained that the amendment would "undermine the renewables obligation". He said that the Ilex report showed that ROC prices would be depressed by about 5% - equivalent to the impact of last year's shortfall in the buy-out fund - and felt that the true figure could be higher still.

    "The only way in which the amendment could stack up," Lord Whitty said, "would be to increase the size of the renewables obligation to compensate for the effect which the removal of CHP...would cause." He failed to win the day - but Ms Hewitt told the Commons that the Government will seek to reverse the amendment.

    The Lords also passed an amendment requiring the Government to produce a strategy for "microgeneration" - or domestic CHP - within 12 months of the passing of the Act. The strategy should set out the potential for reducing CO2 emissions, alleviating fuel poverty and enhancing security of supply - and include such targets as the Government considers "practical and cost-effective".

  • Biofuels obligation: After initial reluctance, the Government agreed to an amendment at Report stage enabling it to set an obligation on road fuel suppliers to ensure that biofuels comprise a specified proportion of their products.

    The Government has become increasingly attracted to the concept of an obligation as a way of implementing the EU biofuels Directive (see pp 46-47 ). However, Lord Whitty stressed that the amendment will require "considerable" refinement.

    Key details of the obligation need to be worked through - including which companies and fuels will be covered, how the scheme will be policed, the scope for buy-outs and trading, and the relative treatment of imported and indigenous biofuels.

  • Coal mine methane and clean coal: Lord Jenkin proposed the introduction of a "feed-in" tariff - which would guarantee prices - to support the coal mine methane industry.

    However, the Government saw off the amendment, arguing that feed-in tariffs are expensive and inefficient. Ministers also referred to recent research which put a low figure on the level of uncontrolled methane emissions from coal mines, and to plans for the Coal Authority to introduce a competitive grant scheme - though this is likely to support flaring rather than electricity generation (ENDS Report 351, p 17 ).

    Lord Ezra tabled an amendment seeking support for a "clean coal" obligation. He argued that the Government is "dribbling a few million pounds here and there into research and development", with no means to move to full-scale demonstration plant.

    Ministers successfully argued that this would be "hugely more complicated" than the renewables obligation, not least because of the problems in defining eligibility.

    Lord Whitty also blocked an amendment to establish a programme for clean coal demonstration plants. In an apparent reverse from the energy White Paper, he argued that "experience around the world...suggests that cleaner coal technology demonstrators do not fulfil their objective of moving the technologies into the marketplace."

  • Transmission charges in Scotland: The Government introduced a controversial amendment designed to encourage the development of renewables in remote areas such as the Scottish Highlands. Lord Triesman said this would allow transmission charges in such areas to be limited for up to ten years, and "could help to ensure that the Government's renewable energy targets are not put in any jeopardy."

    The move was blasted by Ofgem when it was first trailed in February. The regulator denounced an "unnecessary and misguided" move "away from the principles of cost-reflective charging in transmitting generation" - and said there was "no evidence" that it would lead to further investment in renewables.

    Peers approved the new power. However, they insisted that the Government must produce an annual report on the cost of the scheme - and that any order cannot be approved without parliamentary debate.

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