New Clause 30 - Duties of the Gas and Electricity Markets Authority towards microgeneration consumers

Climate Change and Sustainable Energy Bill – in a Public Bill Committee am 5:30 pm ar 28 Chwefror 2006.

Danfonwch hysbysiad imi am ddadleuon fel hyn

‘For the purpose of extending the duties of the Gas and Electricity Markets Authority towards microgeneration consumers, the Electricity Act 1989 (c. 29) shall be amended as follows:—

(a)in section 3A (1), for the words from “by” to “distribution” substitute “by, or in parallel with, distribution”,

(b)after section 3A (3) (d), insert—

“(e)individuals wishing to generate all or part of their own electricity demands”,

(c)in section 3A (5) (a), for the words from “by” to “distribution” substitute “by, or in parallel with, distribution”, and

(d)in section 3A (7), for the words from “by” to “distribution” substitute “by, or in parallel with, distribution”.’. —[Mark Lazarowicz.]

Brought up, and read the First time.

Photo of Mark Lazarowicz Mark Lazarowicz Llafur, Edinburgh North and Leith

I beg to move, That the clause be read a Second time.

This new clause seeks to clarify the duty of one of the regulators, the Gas and Electricity Markets Authority, towards microgeneration consumers. Ofgem’s duties include a duty to protect the interests of consumers, which sounds fine as it stands, but the duty has a bearing only on electricity conveyed by distribution systems. Self-produced electricity is by definition not conveyed by distribution systems, yet a plethora of rules and regulations that fall within Ofgem’s sphere of influence affect the electricity produced by consumers. It is therefore important that there is no doubt that Ofgem’s duties should apply not only to general consumers but to those who produce electricity themselves. It has been suggested that the approach  that Ofgem is required to take by legislation is designed for large generators and as a result the rules that apply lead on occasions to disproportionately high transaction costs for small consumers.

Again, this is a probing new clause. I hope that the Minister will say something about how it might be possible to ensure that Ofgem’s duties are extended to the consumer who produces electricity, as well as to general consumers.

Photo of Gregory Barker Gregory Barker Shadow Spokesperson (Environment, Food and Rural Affairs)

I will be brief. As the hon. Member for Edinburgh, North and Leith has eloquently explained, Ofgem’s general duties require it to protect the interests of consumers. That seems fine in principle but the definition of consumer does not protect those who generate their own power, which is something we ought to encourage even when it is through a microgeneration unit connected to the grid. They are not protected because the definition relates only to electricity conveyed by large distribution systems. Self-produced electricity is by definition not conveyed by distribution systems, yet a plethora of rules and regulations in Ofgem’s sphere of influence affect the electricity produced by consumers. Protection for such consumers is therefore justifiable—especially in the case of ROCs, where Ofgem’s procedures contain some real difficulties as they are designed for large-scale generators. That consequently creates proportionately high transaction costs for small consumers.

The hon. Gentleman’s new clause is good, as far as it goes. The Conservative party is increasingly of the view that there must be a wholesale change in the way in which energy is regulated, and we certainly want to consider whether a more flexible and responsive system that encourages microgeneration and decentralised energy is possible. We will ask whether Ofgem should be completely transformed into a sustainable energy regulator or something far more suited to the 21st century, rather than simply administering a system that is profoundly of the 20th century—a coal and wire system that has its antecedents before the second world war. As the party of the future, we are grappling with that issue as we speak.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

The hon. Gentleman might be the future, but it will take some while coming. As I said on Second Reading and on earlier amendments, the Government will not support piecemeal amendments to the principal objective and general duties of Ofgem and the Secretary of State. Regulatory certainty and stability are essential if we are to attract investment into our energy sector.

Although it is for Parliament to set such duties, we would not be acting responsibly if we did not consult properly on such a major change to see how broad and far-reaching any amendments might be. We would want to understand how industry and the regulator might deliver any new duties, given that costs inevitably find their way back to the consumer, whom Ofgem must protect.

The Bill already seeks to amend section 47 of the Electricity Act 1989, which would establish a clear statutory link between Ofgem and microgeneration. At an earlier sitting, I thought that we had reached a consensus that that sent a strong signal from Parliament to the regulator about how important microgeneration is to our energy goals.

Ofgem’s principal objective is clear and gives it clarity and purpose in its decision-making process. Its principal objective is

“To protect the interest of consumers, whenever appropriate through effective competition”,

and we must always remember that the statute describes consumers as both future and existing consumers. That means that Ofgem should not make decisions that discriminate against microgeneration.

Secondary duties require Ofgem to have regard to the environment and the achievement of sustainable development. The Secretary of State also issues social and environmental guidance to Ofgem. That allows it to contribute to broader Government policies without going against the principle of arm’s length regulation. Ofgem has to produce regulatory impact assessments for all its important decisions, and those assessments must include an environmental impact assessment.

Given the benefits that we expect to emerge from an increase in microgeneration, and given Ofgem’s existing duties, I cannot see how microgenerators can be discriminated against. I am not sure whom the new clause would protect by adding the words “in parallel with ... distribution” at a number of points in section 3A of the Electricity Act 1989.

There are two ways in which to operate a microgenerator. The first and most common is to have a microgenerator and a distribution wire. In that way, one’s supplier can provide one with electricity when one’s generator does not deliver the amount that one requires, and the wire can be used to export any unused electricity. In that instance, the consumer is already protected by the current legislation. The second, rarer scenario is that one has a microgenerator and no back-up from the distribution system. In that case, I am not sure what protection the regulator could offer.

I turn now to the suggestion that we amend section 3A(3) by adding

“individuals wishing to generate all or part of their own electricity demands” to the other vulnerable consumers to whom Ofgem and the Secretary of State must have regard. I hope that the Committee agrees that it is perfectly reasonable to consider the elderly, the sick, the poor and those in rural communities, but that owners of microgenerators do not fit naturally on to that list of vulnerable consumers.

I understand the desire to promote microgeneration, and we are working hard to do so in many areas, but the new clause would not help our cause. I hope that my hon. Friend, having listened to the arguments, will consider withdrawing the new clause.

Photo of Mark Lazarowicz Mark Lazarowicz Llafur, Edinburgh North and Leith

I understand why the Minister is unhappy with the new clause. His clarification of the fact that Ofgem, in particular, should consider future as well as present consumers was helpful. In the light of his statement, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.