Domestic Gas and Electricity (Tariff Cap) Bill — House of Lords, 2018-05-22
Topic: Energy
Matthew Ridley (Conservative, Centre-right): I shall come to that point in a minute The recent low bid prices for offshore wind were, frankly, a bad joke. They were a play on the optionality that the Government have created and tell us nothing about what is really happening in the market. Onshore wind, far from being the lowest cost generator, remains one of the most expensive when its systems costs are taken into account. That is the key point: going subsidy free, to which the noble Lord, Lord Teverson, refers, did not include the systems cost of adding wind in remote areas. Systems cost contributes to these energy prices Here, the Government are proposing an ineffective and probably counterproductive price cap to save, at best, £10 billion on bills up to 2023. It is probably more like £3.5 billion and may even be a negative number, when their own failed policies are already stinging the consumer for £50 billion over that period. I am sorry, but I think this makes no sense. In effect, the Government have asked the energy suppliers to be their tax collectors and are now, in an incoherent gesture, forbidding their tax collectors from collecting the revenue. The energy suppliers would be acting entirely reasonably if they were to tell the Government to collect their own taxes and take the consequent blame Yet I believe the situation is even worse than that because the estimate of £1.4 billion a year detriment that the CMA identifies is almost certainly an overestimate. As the former electricity regulator Stephen Littlechild put it in a letter to the BEIS Select Committee in the Commons, Oxera argued that the correct figure could be anywhere between £0.7 billion, which is half of the CMA’s estimate, and minus £0.7 billion. Adjustments of £1 billion were made after the data room closed, so they could not be scrutinised by anyone. This point has not been rebutted Five former energy regulators—Littlechild, Callum McCarthy, Eileen Marshall, Stephen Smith and Clare Spottiswoode—have argued, in a strongly worded criticism of the detriment calculation, that: "In our view this is a very misleading calculation. It is not, as might be thought, an estimate of excess profit. Rather, it is an estimate of how much lower prices could be if all suppliers in the sector were hypothetically more efficient than any actual supplier in the sector today. Such an approach seems to be without precedent in investigations by any UK competition authority" These former regulators warn that the Bill could result in increases in lower prices as suppliers remove offers from the market to offset the cost to them of the cap, and could be harmful to competition and customers generally, a point made by the noble Lord, Lord Stevenson. So even on its own terms the Bill might well be taking a non-problem and turning it into a likely one, and it ignores the real reason why Britain’s electricity prices are so high and are hurting our competitiveness What does the Minister propose to do about the real £10.9 billion a year detriment to customers instead of the specious £1.4 billion? What is his estimate of the cost of renewable subsidies to the British consumer over the next five years? What does he think is the risk that this price cap will drive prices up rather than down? What weight does he put on the criticisms of the five former energy regulators If I have failed to do so, I declare my interests in energy, including mainly coalmining.