Electricity System Resilience (S&T Committee Report) — House of Lords, 2015-11-03
Topic: Energy
Nicholas Bourne (Conservative, Centre-right): As I have indicated to the noble Baroness, what I will not do is make policy on the hoof and I certainly will not recommend that we cancel the auctions this winter. But as I say, it is an issue that we will look at Let me move on to say something about the reliability standard, which was mentioned by the noble Lord, Lord O’Neill, among others. The committee recommended further research into the true costs of electricity shortfalls to set the reliability standard. We agree entirely that an understanding of the costs of shortfalls is crucial to an assessment of the measures taken to prevent them. They are difficult to assess given that, I am pleased to say, there is a lack of much historic evidence domestically in relation to this issue because we have not had shortfalls. In 2013, a comprehensive study was jointly commissioned by Ofgem and DECC that resulted in the current figure of £17,000 per megawatt hour, which we use for the purposes of our reliability standard. The research looked at the position overseas in a thoroughgoing and exhaustive exercise, and it was as evidence based as possible. We are working with National Grid and the independent panel of technical experts to investigate further the costs of dealing with electricity shortfalls, and we will take action accordingly Let me say something about resilience. The major contributor on this issue was the noble Lord, Lord Harris, who spoke with some passion, and spine-chilling it was, too. In preparing for this debate and looking at the issue more broadly, I asked many of these questions as well; that is, what do we do if the following happens? The noble Lord suggested that there are things that perhaps we cannot foresee happening, and I seem to recall that a similar exercise was undertaken after 2011 in which there was a review of procedures. I think he will understand when I say that detailed information cannot be given out on something like this. If it was something in the nature of a terrorist attack, obviously we would not want to publish any detailed blueprint about what we would do in particular situations. But what I will try to do is ensure that we get a response around to noble Lords to set out the position in broad outline. There are plans in place to take the necessary action in so far as we can. But as the noble Lord rightly said, there are situations which we probably have not foreseen. Again, I will ensure that noble Lords are given a response on this matter in whatever detail is possible, although I think that it will be broad in nature The noble Lord also mentioned the three-digit number and rightly said that it was not going to be a silver bullet. It will help in some situations but not in the most dire ones. Noble Lords will be aware that this is due to be implemented in April 2016, so for those situations that fall short of the catastrophic, obviously it is still important that there is a three-digit number that people are able to use to ensure that they know what is happening in their locality and what the advice is in a particular situation Perhaps I could say something in relation to demand-side response and on storage, which was rightly brought up in the debate. The report stresses the potentially important role of newer technologies such as demand-side response management and storage. Demand-side response could mean industrial customers shifting the timing of their electricity-intensive processes away from peak times, for example. We will ensure that an auction will take place for demand-side response in January 2016, with the first capacity payments for those who are successful following in 2017. An analysis of the currently available evidence indicates that demand-side response in existing generation does not generally require as significant up-front capital investment as new-build plant and therefore does not require as long-term capacity agreements as new-build plants do, and that is the reason for the shorter period in relation to that auction. On 15 October, we published an assessment of this issue which shows the diverse nature of the demand-side response, and one or two noble Lords raised questions about that report On storage, we very much share the view put forward in the report of the potential role that energy storage could play and the flexibility that storage offers as a balancing solution. While we are not currently planning to introduce a framework of incentives specifically for energy storage, we are encouraged that in the recent pre-qualification for the next capacity market auction, which is to take place this December, the majority of existing pump storage sites have pre-qualified this year, bringing a potential 2.7 gigawatts de-rated capacity of storage into the capacity market Some noble Lords also mentioned battery storage in the context of zero-carbon cars and the noble Lord, Lord Teverson, referred to Tesla. Work on this is, as yet, at a relatively early stage but we are the second largest producer of zero-carbon cars and the Government are determined that we do not lose our market edge Smart metering is clearly important and work is progressing on it. We have around 1.7 million meters already installed. I had a meeting about smart meters this morning and, as one would expect, it is beginning to ramp up. This will make a difference to demand, which is welcome The significant issue of interconnection was raised by many noble Lords, including my noble friends Lord Selborne and Lord Howell. We are committed to increasing Britain’s interconnection capacity, which can help to lower consumer bills and meet decarbonisation objectives. Great Britain currently has 4 gigawatts of interconnection, across four interconnectors, to France, the Netherlands, Ireland and Northern Ireland. Earlier this year, financial investment decisions were reached on two new interconnectors—one to Belgium and one to Norway. Denmark and Iceland are also being talked about but they are not yet at the decision stage. Interconnectors will bring additional security of supply benefits by giving access to generation beyond our national borders when it is needed. I stress that connection to neighbouring countries with different sources of generation increases the resilience of our electricity system Cybersecurity is one of the Government’s top national security priorities. I welcome the supportive comments made by the noble Lord, Lord O’Neill. This is taken seriously across government and certainly within DECC, which is working with government departments and agencies, as well as with industry partners, to ensure that the risks to the energy sector are understood and that appropriate mitigations are established. This includes ensuring that cybersecurity factors are considered, where possible, at the early design stages of future systems, as they have been at Hinkley C, for example. Smart meter security has been a key consideration at every stage of system development At the outset, my noble friend Lord Selborne rightly talked of the importance of looking at the whole-system impact. The committee’s report recommends the Government take a look at the whole-system costs of low-carbon technologies. The report on the Energy Systems Catapult is due to be published early in 2016—I think that the noble Earl raised a question about that—and DECC has also commissioned Frontier Economics to examine the whole-system impacts of electricity generation. Its report will be published in March 2016. These points were also raised by the right reverend Prelate the Bishop of Sheffield and my noble friend Lord Ridley. The Frontier Economics review aims to systematise DECC’s understanding of the impacts of electricity technologies, system balancing, overall capacity adequacy and networks My noble friend Lord Selborne, and other noble Lords, mentioned energy efficiency. I agree that it is vital and we are committed to insulating 1 million homes in this Parliament The noble Lord, Lord Dixon-Smith, talked about the importance of the planning system. I agree that it is central to this issue. He also mentioned the loss of heat from the production of electricity. DECC takes this very seriously, too This has been a high-quality debate, to which noble Lords have brought different perspectives. However, it has demonstrated, once again, that there is no silver bullet. There is a diversity of energy supply. Renewables and CCS—to which the noble Baroness, Lady Worthington, referred—are in the Energy Bill and are central to what the Government are doing and were mentioned in the manifesto, and there are the two projects at White Rose and at Peterhead.