Brexit: Energy Security (European Union Committee Report)
(6 years, 5 months ago)
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Lord Teverson
That this House takes note of the Report from the European Union Committee Brexit: Energy Security (10th Report, HL Paper 63).
Lord Teverson (LD)
My Lords, while noble Lords from the previous debate leave, I will declare my interests. I am a trustee of the Green Purposes Company and a trustee of Regen Southwest, both of which are non-financial interests. I am also a board member of the Marine Management Organisation, which has responsibility for licensing offshore renewable projects in English waters.
If one thing is clear, is it is that a robust, reliable and affordable energy system and network in a country are absolutely vital for its economic—let alone its social—stability. It is in that context that we wrote the report and I am bringing it to the Floor of the House today.
A key point to remember is that while imports of energy from electricity make up only 5% from the EU and 7% for gas—although when we include imports from Norway it is much higher at close to 46%—they are growing because of interconnectors in place and the need to be able share loads in terms of energy systems. For that reason, and because we will be connected to the rest of the European Union’s energy systems after Brexit, this is an area where we believe that government action will be important.
One of the ironies of Brexit is that the United Kingdom has been one of the leaders on energy policy development within the 28 and, indeed, at the time of the 15. The internal energy market was created at the behest of, and is in the image of, a market that the UK would want to see and has helped to evolve. How that evolution takes place after we have left is of course another matter, but we have been fundamental to securing the position we are in at the moment.
I believe that the report is measured. While it sets out the challenges it also looks at the opportunities, and I shall go through some of those because it is important to stress them as well as looking at the challenges. There have been a number of developments since the report was originally published and there are areas in which I am sure that the committee would welcome the changes that have taken place. The Prime Minister spoke in her Mansion House speech of wanting a close association with Euratom, which is key to the energy area. She also said that she wanted to ensure that there would continue to be a single electricity market in Ireland, a market that is absolutely unified, indeed more so than the wider internal energy market itself. She has also stated that she wants to see our continued participation in the internal energy market. As a committee we strongly endorse that wish, although how to do so might be rather more difficult. I shall come on to that.
Claire Perry, the Minister responsible for energy from renewables, in response to a question put by the noble Lord, Lord Krebs, who will speak later in the debate, told the committee that Britain would remain operational within the EU emissions trading scheme up until the end of the transition period. We welcomed that statement. As we discussed earlier today, we welcome the progress that has been made on the Nuclear Safeguards Bill and the various discussions not only with the International Atomic Energy Agency but with our partners worldwide as well. Lastly, we welcomed in their response to the report the Government’s continued commitment to the Paris agreement, which is fundamental not only to us and the European Union but to the global position in terms of climate change.
I will go through some of the opportunities that we set out in the report. Post Brexit, we can operate our systems and networks in a way that suits our own energy grids within Great Britain. We can set our own decarbonisation and renewables targets, something that has been a source of friction in the clean energy package legislation that has come recently from the European Union. We may have more flexibility on state aid for chosen projects and how the Government might want to take forward their own energy strategy. At the moment, the charging structures for interconnectors are highly regulated by the European Union and we could opt out of those. Moreover, we must have a 5% tax floor for VAT and we could remove that for consumers. That was our list, but I am sure that the Government will set out many other opportunities that we look forward to hearing about from the Minister.
However, our report clearly needed to concentrate on the challenges, whether on costs for consumers both industrial and retail, security of supply, influence and continuing participation in a system that we will still be closely connected to, investment levels whether in interconnectors or energy systems, and the whole question of labour supply, an issue which has been a theme in all my committee’s Brexit reports. Moreover, as we heard from speakers in the previous debate, it is a theme in other areas as well. The island of Ireland is particularly key in the energy area, but not on that list is the issue of tariffs. There is no substantial risk of tariffs. They are potentially possible on electricity, but at a minimal level and are very unlikely. They are not applied to gas, although there is a potential issue as regards tariffs on spare parts and machinery imported for replacement of energy systems, particularly in the nuclear area.
On costs, our key concern was that outside the internal energy market we will not have the ability to participate in what is known as market coupling or the network codes that drive European energy systems, particularly in electricity. Does that really matter? It matters in terms of efficiency of trading, and it particularly matters the more that we are connected to the continent, as we will be increasingly, and the fact that those interconnectors give us a good opportunity to share loads and to import and export according to the different peaks in various countries, as well as the ability to share loads to prevent and reduce the amount of capital investment that will be needed for our energy systems, which of course saves on costs. As a part of that, our current membership of the European Agency for the Cooperation of Energy Regulators, known as ACER and one of the many acronyms used in this area, and its so-called subsidiaries, ENTSO-E and ENTSO-G for electricity and gas respectively, will come to an end. We will not be members unless we are inside the internal energy market.
Something that came over very strongly from our witnesses was that those inefficiencies in terms of trading will mean that upward price pressures in wholesale markets for gas and particularly for electricity will be inevitable. The answer to that is to stay within the internal energy market if that is possible, and indeed our witnesses almost universally wanted to achieve that. There is a real upward pressure on prices at a time when all of us are aware through the price cap Bill that energy prices are of considerable concern on all sides of the House and of course to the public and consumers.
I turn to security of supply. An area of the internal energy market that has grown in solidarity is in gas through the security of gas supply regulation. Where there are shortages in supply, there are requirements for individual nations within a region to help each other out. We will no longer be a part of that. However, the key area in security of supply is in the nuclear sector, which provides around a fifth of our energy. On Euratom, it comes back to our being able to trade in nuclear supplies, people, and in all the other areas where we enjoy flexibility at the moment. I will not go into detail on Euratom because we discussed those issues earlier. If we solve the Euratom issue and settle our nuclear co-operation agreements, we will be okay, but that is one area where we have an issue around security.
A stark point came from the energy ambassador for Switzerland—it has an ambassador just for energy issues. We wanted to explore as a third country, even though it is one that is very close to the European Union in all sorts of ways, what sort of influence it had. It was quite a shock to learn that, although Switzerland is literally at the centre of the European electricity and gas networks, its ambassador said that it has very little influence on European policy; sometimes it had some influence on regional policy for member states around it, but that was as far as it got. That again reinforced the need for us to find a way to stay close to the internal energy market; outside it, one has very little influence on European policy in this area, even when one is connected to those networks. Norway has a little more influence, perhaps, because it is a major gas supplier, but not a great deal more.
One of the other themes apart from labour was investment. As in many other areas, the European Investment Bank, which has invested some €37 billion in energy in the UK since 2000, is a major source of finance. This is about not just finance but expertise in terms of large deals and getting lower cost capital, hence evaluation expertise and being able to crowd in private investment. The Green Investment Bank is no longer a public sector body in this country. There is the challenge of where that investment, which is often the foundation of other investment—particularly offshore —will come from in the future. That is true in terms of both interconnectors and investor certainty once we leave the EU. In fact, programmes such as the Connecting Europe Facility, which has €5 billion available to it, and projects of common interest, where the UK has had €40 million for interconnectors, are also key areas that will no longer exist.
It was interesting that skilled labour was mentioned in the previous debate. One of the areas of concern for my committee is not just skilled, but less skilled labour or labour that would not be defined as skilled by the Home Office. In this instance, particularly in the nuclear field but also in the broader energy industry, there is a shortage of engineers and we rely very much on foreign labour. That is certainly the case in the nuclear industry: we have mentioned in this House the problem of feel-stixers—oh! steel-fixers—for EDF and Hinkley C, where such skills would not be included in a skills shortage list at the moment.
Lastly, I want to come on to the question of Ireland. We already have a single market there, which has become even more meshed and inseparable this year. It is vital that we maintain that single market in the island of Ireland. It is so impossible to pull it apart that a practical solution will have to be found. That will be key in the Irish negotiations.
How do we stay closer to the internal energy market if we keep our red lines? How do we keep our influence if we are not in that market? How do we remain an associate of organisations such as ACER that are critical in terms of energy and market efficiency throughout Europe? How do we keep investment? How do we find investment when the EIB and other European schemes have disappeared? How do we ensure our labour mobility for not just skilled but unskilled labour? How do we ensure that Ireland remains as one? How do we take advantage of the opportunities of Brexit as well? I am sure that my committee would be very pleased to hear the Minister’s reaction. I beg to move.
Lord Davies of Stamford (Lab)
My Lords, the report is excellent. With the leave of the House, I will quote a number of sentences from it. Paragraph 24 states:
“Whatever the final detail of the EU exit terms the UK is likely to be more peripheral to EU energy markets which will mean higher prices and more unreliable supply”.
Paragraph 29 states:
“Post-Brexit, the UK may be more vulnerable to supply shortages in the event of extreme weather or unplanned generation outages”.
Paragraph 30 states:
“Energy UK claimed that operating in a less efficient market ‘will have an impact on consumer bills’”.
Paragraph 32 states:
“It is likely that the UK’s withdrawal from the EU will lead to less efficient energy trade, which could in turn increase the price paid by consumers for energy security”.
Paragraph 55 states:
“Market coupling is currently estimated to be worth £100m/year to the UK … Energy UK argued that GB operators could be excluded from market coupling post-Brexit”.
Paragraph 56 states:
“In the absence of the REMIT Regulation, we would need to seek alternative arrangements to access this data and to facilitate information sharing”.
I will stop here but similar quotes are available right the way through the other 200 paragraphs of the document. Paragraph 62, which I think says it all, states:
“None of our witnesses expressed a desire to leave the IEM”.
In other words, the argument is completely one-sided. All sorts of people are pointing to the dangers and risks of Brexit to energy, such as leaving Euratom and, potentially, the IEM. No one is suggesting that it is a good thing. The House would be in dereliction of its duty if we simply ignored that fact. The British people are having serious energy costs imposed on them, which will affect every family in the country and impact on future economic growth, propensity to invest, output, employment and so forth, as sure as night follows day.
Who caused all this? Did some external enemy impose this on us? Are we the victims of an international conspiracy? Did the gods send a plague on us? Are we suffering from a curse of Zeus? No, this is a case of a Government deliberately imposing costs and risks on its people to a considerable degree. I cannot think of an analogy in history for what is going on at the moment with Brexit. This is true right across the piece, not just in the energy market but in pharmaceuticals, the automotive industry and civil aviation. As we saw in the previous debate, it is also true in financial services.
So it goes on. Every day, every week, the Government come up with proposals that they will ram through with their majority in the House of Commons—concocted from their relationship with the DUP—apparently irrespective of the cost to the British people. More and more of this comes along and we do not get any estimate of the cost to the British economy. When estimates are prepared by Whitehall, they are kept secret by the Government and we hear about them only through leaks. It is an absolutely extraordinary and disgraceful situation. We know the considerable potential cost of our leaving Euratom and that if we do so in a situation with no agreement to replace it, all sorts of disastrous things will occur: we will not be able to import radioactive isotopes, which will bring radiotherapy to an end in this country, costing lives, and so forth. That is quite horrific. We will have lorry-loads of vegetables rotting in the Port of Dover. All these things have been described by Whitehall and the departments that have been doing contingency studies into what might happen, but the Government have done their best to disguise them from the British public.
What can we do about it? It is extraordinary that leaving Euratom is an entirely gratuitous decision. There is absolutely no need whatever, simply because we leave the European Union, to leave Euratom. I know that if you ask the Government, “Why are you doing this?”, they will say, “Oh, because the British people voted for it”. The British people never voted for us to leave Euratom. I challenge the Government to give me one reference in the referendum campaign to Euratom or the energy market generally. There was not one. The British people were never told about the cost of this. The Government decided retrospectively, after the end of the referendum, that this was included in the vote. It was not at all. Why have they done such a thing? I think we all know the reason: because the Eurosceptics in the Tory party are holding the Prime Minister to ransom. She is afraid of 48 letters going to the chairman, Sir Graham Brady, if she does not satisfy their demands, so we are pushing through these policies, which are quite gratuitous, unnecessary and extremely costly. It is an extraordinary situation.
I do not think that the British public have fully understood what is going on. Of course, they will when the higher energy prices come through in a few years’ time if we go ahead with this programme. I have some simple questions for the Government. What is the cost to the British economy of leaving the EU? What is the cost to the British economy of leaving the internal energy market? What is the cost to the British economy of leaving Euratom? What is the maximum cost, if there is one, that the Government are prepared to pay to achieve these very dubious objectives?
Lord Selkirk of Douglas (Con)
My Lords, I am glad to follow the noble Lord who just spoke, but I have a different interpretation of the evidence the Minister gave the committee. I quote paragraph 64:
“The Minister informed us that ‘our top priority is to be as near as possible to the current arrangements … Where there is such mutuality of interest I do not believe it is beyond the wit of those involved to work this out very quickly’”.
On the whole subject of research, his emphasis was that there should be collaboration. I quote paragraph 113:
“The EU provides not only energy research and development funding, but also collaboration opportunities that are of value to both the UK and the EU. We therefore support the ambition of both Government and industry to continue to collaborate with the EU on research initiatives post-Brexit”.
Like the chairman of our committee, I should mention an interest that I have in a small family company that has pockets of land and the possibility of one or two turbines. I congratulate the noble Lord, Lord Teverson, on the excellence of his chairmanship and his objectivity, and the clerks, who have shown very great ability and considerable skills in drafting.
When the British Foreign Secretary Sir Edward Grey famously declared that the lamps were going out all over Europe, he was of course speaking metaphorically. He was contemplating the terrible conflict which was about to erupt across the channel in 1914. Most fortunately, we are not facing disaster and open warfare as was Sir Edward. Our concerns are very much more mundane. They are economic, functional and structural. But the committee report that we are debating contains some serious warnings for the Government on the matter of our post-Brexit energy security and supply, concluding as it does that the UK’s current frictionless trade in energy with Europe could be at risk.
Indeed, there is concern due to bad weather, which is not always foreseen, and interruptions caused by outages. Last week, a series of predictions were made and entered the public domain that can be described only as alarming about how a no-deal Brexit might impact on various spheres of our lives here in the United Kingdom. They were refuted strongly by members of the Government, so can the Minister assure us that no such drastic consequences or deprivations would affect the vital energy sector if we were to leave the European Union without a properly regulated free trade agreement?
When the Parliamentary Under-Secretary for Business, Energy and Industrial Strategy, Richard Harrington, gave evidence to our sub-committee he said that the Government’s determination with regard to the maintenance of energy security was as far as possible to try to maintain the status quo, which I mentioned to your Lordships in different language. His actual words were:
“So, our top priority is to be as near as possible to the current arrangements”.
He stressed that and we are entitled to ask the Minister how far that aspiration has been fulfilled. Can an update be given about the extent of the progress and success achieved in pursuit of this objective, despite the Government’s determination to leave the single market and the customs union—a policy which makes it more likely that we will no longer remain inside Europe’s internal energy market? Responding to the report’s conclusions that the UK should seek to stay within the IEM, the Government have said that they are “exploring options” for our continued participation, but it would appear that is unlikely to be possible if we continue to insist that the UK will no longer acknowledge the jurisdiction of the European Court of Justice.
An important related question in Mr Harrington’s evidence was on future funding for energy research initiatives. We are currently working alongside our European neighbours and in particular we need to know about nuclear research, in which Britain plays a pre-eminent role. I was told when I put that particular question to the Minister that it was the Government’s objective to achieve a far-reaching science and innovation agreement with the EU. He said, as I mentioned:
“We want the framework for future collaboration that we have now”.
The report also stresses the importance of the recruitment of highly skilled workers from Europe to the energy industry, which is particularly important in the nuclear energy sector, and the need to take account of this as new immigration policy is developed.
I refer to the committee’s concerns about the Government’s decision to leave the Euratom treaty, which regulates the nuclear industry throughout the EU. This determination to depart, about which Ministers claim that they have no choice, has caused considerable concern and warnings have been issued about its impact, which range from the difficulties that could be caused for the import of medical supplies to treat cancer to a possible threat to the building of the new nuclear power station at Hinkley Point. The report suggests various steps that the Government could take to mitigate the adverse effects of leaving Euratom, including negotiating some form of associate membership. Once again, however, the need to accept some form of jurisdiction of the European Court of Justice could be a stumbling block, although I hope that will not happen.
This House recently backed an amendment to the EU withdrawal Bill to try to prevent the Government leaving Euratom unless and until alternative arrangements on nuclear co-operation were in place. I hope that the Minister will be able to reassure us that the UK will be ready to put in place its own safeguards and inspections regime when the implementation period ends in 2020.
According to my recollection, the Minister expressed the hope that we would visit the National Grid. We were in a position to inform him that we had. It was quite moving to witness the decision-making taking place with consummate professionalism. The great expertise of those concerned and their dedication caused me to believe that those who are giving such tremendous service to our countrymen and women deserve the strongest possible support. I hope the Minister will be able to give some reassurance tonight.
Lord Rooker (Lab)
My Lords, I draw attention to my interest, declared at the end of the report, as a director of the Ludlow Hydro Co-operative, which operates an Archimedes screw—a community-owned hydro-electricity project—on the River Teme at Ludlow. We are in our second year, and it is going quite well.
I want to deal with three issues, each of which was touched on briefly by the chairman, the noble Lord, Lord Teverson, in a bit more detail. The first is Ireland. A new interconnector between north and south is planned for 2021. Currently, 88% of the electricity on the island of Ireland is imported from Great Britain, and 40% of the gas on the island of Ireland is imported from Great Britain. In Northern Ireland, 100% of the gas is imported from Great Britain, and that gas is crucial to the generation of electricity in Northern Ireland. There has been an integrated market, in some ways as a result of the Good Friday agreement, in operation for several years now. I can remember visiting one power station in Northern Ireland, when I had the privilege of being there for a year as a direct rule Minister, which has closed down. The fact of the matter is that the system is planned to work, but there is still more work to be done. However, my view is that I do not think that Dublin or Belfast should trust London. The situation is so fragile that I know there are long-term plans for an interconnector from the island of Ireland—from the Republic—directly to Europe, to the northern coast of France. That would be a very expensive operation, but it would be a lot cheaper than the lights going out and your industry closing down. So there is some serious planning required, I think, as to what should be done.
We have raised these issues in the report about the security of supply and the sensitivity regarding what is, in effect, a border down the Irish Sea as far as electricity is concerned. DUP politicians just lie through their teeth every day, because there are borders down the Irish Sea on a whole host of issues, which are already there, and electricity is just one of them—and they do not represent the people of Northern Ireland anyway, because the people of Northern Ireland voted to remain. The fact of the matter is that these issues were raised in our report, but the government response to the report, on the three issues that I want to raise, is pathetic. We are sleep-walking into major problems. In response to our recommendations 25 to 28, the Government just quoted the Prime Minister’s speech of 2 March:
“This includes protecting the single electricity market across Ireland”.
However, she is in no position to promise that at all. Therefore, there are some serious issues of planning to be done.
What is really a bit concerning—and I know that we will be told, “Oh, there is no confirmation; it is only a rumour”—is the story in the Times this morning:
“After economic collapse, food shortages and even Armageddon one might have thought that Brexit was running out of dire consequence. But under one contingency, Britain’s exit from the EU results in blackouts. Plans to use tens of thousands of electricity generators to keep Northern Ireland’s lights on are included in proposals for the most disruptive form of Brexit, according to a Whitehall source”.
The story goes on to refer to the single energy market, but it also identifies,
“the possibility that power providers in the Republic could withhold energy in the absence of a legal document”,
and legal structures. I know that we will be told, as we have heard from the Government today in relation to other things, that Governments have to prepare for all kinds of contingencies, and quite clearly that is true. Where the generators will come from, I do not know, but it is quite clear that they will be needed as a contingency if things go wrong.
Now, I do not expect the Minister to confirm that story or otherwise, but it would be nice if he could show—I do not say this to him personally—a modicum of interest in the fact that people in Northern Ireland, and in the Republic for that matter, are in a completely vulnerable situation regarding the rest of Europe, being reliant, as they are, on Great Britain for massive amounts of energy supplies. And let us leave to one side where we will get it from, given the interconnectors across to Europe. My view is: “Don’t trust London. Make plans for the future”.
The second issue raised by the noble Lord, Lord Teverson, which I want to consider in a bit more detail—it was raised also by the noble Lord, Lord Selkirk—is labour in the energy sector. The report states in paragraph 41:
“The highest concentration of non-British nationals as a percentage of the total employed workforce is within Nuclear New Build”—
which is pretty important for us anyway. It continues:
“Angela Hepworth, Corporate Policy and Regulation Director at EDF, provided some concrete detail: ‘At the peak of the construction of Hinkley Point, we are going to need 1,400 steel fixers. At the moment, the total population of certified steel fixers in the UK is 2,700 so we would need more than half of the total steel-fixing population in the UK in order to meet the peak requirement for Hinkley Point’”.
A lot of these people are not UK citizens. As the report mentions in paragraph 45, Angela Hepworth,
“was concerned that steel fixing, a key skill for the construction of Hinkley Point, ‘does not meet the criteria for skilled employment under the UK’s points-based system’”.
We are heading for deep trouble, and the Government’s response—on page 5 of their letter—is to say:
“The Government continues to support new nuclear. We recognize it is essential that access to workforce for projects, such as Hinkley Point C, are not adversely affected by the UK’s withdrawal … The Government has commissioned the Migration Advisory Committee … to gather evidence on patterns of EU migration and the role of migration in the wider economy”.
Forget the wider economy; what are you going to do about the steel fixers? We cannot just drum up steel fixers. It is a very professional occupation. It does not fit the Home Office criteria for being super-super-qualified in the technical sense, but one plant—on which we are due to rely for 6% of our future energy requirements— will take more than half of the qualified steel fixers in this country, and we get a pathetic response in the Government’s letter responding to the report that shows not the slightest inclination that they have taken on board the seriousness of the situation.
The third point that I want to raise relates to Switzerland, which was also touched on by the chairman. I will not go over Norway—we have dealt with Norway—but in Switzerland the issue is slightly different. Switzerland has 40 electricity interconnectors with Europe; given its geographical situation, it would be surprising if there were not. However, when the Swiss energy ambassador spoke to us, as the report states in paragraph 198, he,
“explained that although the Swiss tried to amend the drafting of the CACM”—
that is, the capacity allocation and congestion management regulation, which is pretty serious as far as central Europe is concerned—
“‘all that was simply unsuccessful. The EU wants to have an internal electricity market as one coherent thing, and either you are in it and abide by the rules or you are not in it.’ For an exception to be made, ‘you have to have a very strong case that you as a country bring something to the internal electricity market that is indispensable to the functioning of the energy market’”.
I would argue that Britain, having helped create the internal energy market in Europe, is not bringing something indispensable to the current EU arrangement. That is history—the market is set up and functioning— and we have nothing to offer. Indeed, as we said in paragraph 205, the ambassador,
“struck a note of caution: ‘I am not aware of the UK having anything that I would call a unique selling point; that is, something that you would bring to the Internal Energy Market, both electricity and gas, which in the countervailing scenario of you not bringing it to the market would put the Internal Energy Market in some sort of jeopardy’”.
In other words, they do not need us. In Switzerland’s case, as was hinted at by the chairman, the Swiss are members of various committees and structures—they have to be, because they have all these interconnectors—but sometimes they are not allowed in the room when the committee meets. That is the way that the Swiss are treated. Because they are not actually a member of the internal electricity market, they are kept out of the room, and yet they have this massive arrangement, geographically, of interconnection of electricity with Europe.
And what did we get from the Government in their response? In terms of words used, we got less of a response, on page 23 of the Government’s letter, than the actual recommendations in our report to which it was responding. It is contemptible that lazy Ministers—and it is Ministers, not civil servants—should give us a response that is shorter than the recommendation. They simply refer to,
“the value provided by UK expertise in the development of the IEM, and the starting position of alignment with EU rules”.
That is our selling point. The Swiss ambassador has already ruled that out; it is in the report. So why do we get this rubbish in the government response? It is completely and utterly inadequate, and it is all on the record. The chickens will come home to roost one day. True, they will not be roasted if we have no power, but this Government show not an iota of recognition of the seriousness of the situation as far as energy is concerned.
We visited the National Grid; we also visited the fusion plant at Oxford. It is quite right: there was no debate in the referendum about Euratom—I doubt that the Prime Minister had ever heard of the term before it turned up in one of her briefing papers, showing not the slightest interest, given the shallow arrangements that she has for running the Government. I do not expect the Minister to respond to any of my points. I wanted to put them on the record just for audit purposes later on, when the blame game will really start.
Baroness Sheehan (LD)
My Lords, as a member of the sub-committee, I add my congratulations to those offered by other noble Lords to my noble friend Lord Teverson on his skilful chairmanship on this complex topic and to the clerks on excelling themselves in drawing together all the threads that make up this informative report.
Brexit is a far more traumatic experience than the joy-filled journey to sunlit uplands that was sold to the public. Your Lordships’ House has been instrumental in adding some realism to preparing for the journey, through the painstaking work of the EU Select Committee, which has produced reports of depth and quality on the opportunities and challenges that Brexit presents.
I have been a member of this committee while it has conducted several Brexit inquiries, including on the impact of Brexit on agriculture, fisheries, farm animal welfare and environment and climate change. It is clear to me that, of the sectors that the committee has inquired into to date, the arrangements that we currently enjoy within the EU with respect to energy security are those from which the UK reaps the largest benefit.
The energy market is ferociously complex. The finely-tuned balance that our membership of the internal energy market brings, to our advantage, was recognised by all expert witnesses to this inquiry, including by the Minister, Mr Harrington, who more than once in his evidence session stated that,
“our top priority is to be as near as possible to the current arrangements”.
That was also brought up by my colleague on the committee, the noble Lord, Lord Selkirk. We are hearing more and more that the Government are seeking “business as usual”, which is a real giveaway, because it gives us a clue that light is dawning that the deal we have forged over the decades within the EU is as good as it gets, allowing us to have our cake and eat it. Given that the Minister agrees that close association with the IEN is where we would like to end up, why are we setting red lines that could jeopardise our retaining the benefits of the IEM? In what alternative universe does this make any sense?
My contribution to this debate will focus on the cost of electricity, because energy security is as much about cost to those who do not have much money as about availability for the rest of us. Electricity markets in the UK, Ireland and continental Europe are physically linked by interconnector cables. Interconnectors are critical in ensuring a stable and secure energy system. They help integrate renewable electricity by smoothing out peaks and troughs across the EU, which is a key requirement if we are to meet our climate change commitments. The more we move towards renewables, the more important interconnectors become.
Crucially, interconnectors also offer lower costs to both system operators and consumers. While there was general agreement among witnesses that even in a no deal scenario we are unlikely to see tariffs on electricity, it is also clear that no longer being a part of the IEM would likely make electricity trading less efficient and more costly, as GB interconnectors could be excluded from current and future market coupling mechanisms—my noble friend Lord Teverson has already touched on this.
Market coupling is a mechanism by which IEM participants use a shared algorithm to arrange cross-border electricity trades by matching supply and demand efficiently. Research commissioned by the National Grid suggested that being excluded from market coupling and other balancing mechanisms could cost the GB system £260 million per annum. Energy UK expressed concern that GB operators could be excluded from market coupling if we were to leave the IEM without replacement arrangements,
“as there are no provisions in the texts for ‘third countries’”.
This was reinforced by His Excellency Jean-Christophe Füeg, head of international energy affairs at the Swiss Federal Office of Energy, who has already been quoted extensively today. He told us that Switzerland is excluded from market coupling despite a large, mutually beneficial energy trading relationship with the EU. I mention the testimony given by His Excellency because it underscores the importance of political considerations, which often supersede pure market considerations when it comes to dealing with the EU.
The cost of electricity is something I wish to focus on, so I will say a few words about interconnectors. At the moment, interconnectors supply 7% of the UK’s electricity. Another 14 gigawatts of capacity is either in preconstruction or at various planning stages, expected to become operational between 2019 and 2022. We are told that each 1 gigawatt of new supply through interconnectors could reduce Britain’s wholesale price of electricity by 1% to 2%. Clearly, the impact of this in terms of cheaper costs for consumers, ranging from 14 to 28%, is not lightly to be put in jeopardy; it would be negligent of any Government to do so. Yet this is what we are playing with when we toy with leaving the EEA: we are risking higher energy costs for those least likely to be able to afford them. NEA has warned that,
“the UK leaving the EU could … badly impact the people who struggle to keep their homes adequately warm”.
In response to the report’s recommendation 4, asking government to conduct and publish an assessment of the impact of leaving the IEM on the price paid by consumers for their energy and to take steps to mitigate this impact, particularly for financially vulnerable customers, the Government outlined a number of measures to help consumers manage their bills. Can the Minister give an assurance that no one, but especially those on minimum wage or on benefits, will have to pay more for energy as a consequence of us leaving the EU? Like the noble Lord, Lord Rooker, I live in no expectation of receiving any such confirmation from the Minister, but it may be a matter that we can come back to once the consequences of Brexit, whatever shape it may take, unfold.
I hope that the Minister will recognise, nevertheless, the value to the poorest in society of the UK being a meaningful member, with a meaningful seat at the table, of an energy market that is designed to achieve lower costs for its members—designed, in large part, through substantial UK input.
Lord Hunt of Chesterton (Lab)
My Lords, the effect of Brexit on nuclear energy will be critical for the United Kingdom. I declare my interests as an energy scientist and a consultant for a company, Tokamak Energy, which is progressing a private sector approach to fusion. I was formerly chief executive at the Met Office and learned something there about the unpredictability of weather, which is an important part of energy, as has already been mentioned.
As agreed this afternoon, and as endorsed by this report, it is essential for the UK to remain as a working state within Euratom, both for standard and regulatory activities but also in dealing with long-term nuclear issues. The UK is still a very significant nuclear country, both nationally and internationally, through its membership of the International Atomic Energy Agency. It also has bilateral arrangements, which we will discuss this evening. For example, the IAEA is a vital forum, with other north-western countries of Europe, for dealing with radioactive material that leaks into the sea and, to a smaller extent, the atmosphere. The UK must have high-level scientists who are well respected in order to ensure that these international negotiations are well conducted. It is very important that the UK should have enough nuclear scientists and engineers at the highest international level. It was encouraging to hear today from the Minister, the noble Lord, Lord Henley, that the Government will be maintaining and contributing to this programme with some money. I suspect it might need more than the £10 million he mentioned, but that will certainly be necessary for us to maintain this at a high level.
One issue we have already discussed today is the need for the Government to allow migration to the UK to enable the UK nuclear industry to expand as the Government intend. The House of Lords Science and Technology Committee has recently been discussing improved, more efficient methods of construction. Of course, one of the biggest construction projects in the UK at the moment is the Hinkley Point nuclear power station. Interestingly, in order to speed up productivity, which my noble friend Lord Rooker described vividly, new techniques are being developed by a company we investigated. Some new methods are emerging from this, but it is extremely important to relate technology to the people in order to effect it.
The Government and the nuclear industry also need to have a big leadership role in defining the UK’s long-range strategy, working with Euratom and the IAEA. One of most long-term, most profound problems is dealing with radioactive waste. Maintaining its existing waste is a major expenditure for the UK, which has very advanced technology to deal with this. The question is what will happen as we continue to expand our nuclear energy, as other countries do, and what to do with this waste. This is an area where Euratom has had some innovative R&D in the past. The current idea, of course, is to put it in geological repositories, but in such a way that it could be extracted if some new technology emerges. This has been a Euratom programme for some years and it is very important that the UK is part of it.
In the long term, there may be a possibility of combining the extraction of nuclear waste and turning it into material that has a very much shorter reaction time, and to use the technology of fusion power. Developing fusion power is the main scientific and technology programme in Europe. It started in 1980, but in collaboration with major countries such as the USA, Japan, China, Russia and others. However, progress has been much slower than was envisaged when it started; the original prospect of electrical power is now not likely before 2040, as has been stated by Euratom and other organisations. This was discussed at a Royal Society meeting in March.
The UK’s contribution to this international programme comes through the Culham laboratory. What is interesting now is that the Government are putting their money into this international, very long-range programme. A whole new approach has in fact begun to emerge. This really came about through new ideas of plasma physics, from the Culham laboratory, and new computations. Most importantly, it came about because we can now have superconducting magnets at a considerably higher temperature—about 30k as opposed to 1k. This has led to the concept of a much smaller, modular fusion reactor that will deliver practical power by 2025: in other words, seven years from now.
This Tokamak project, amazingly, is funded by the private sector, including insurance companies, charities and private funding organisations, including a big company owned by a prominent member of the Conservatives. There was a press statement today, which I can refer noble Lords to, about the latest progress and how temperatures now, in this contained fusion, exceed the temperatures at the centre of the sun—15 million degrees. The International Atomic Energy Agency described this as the leading innovative idea in fusion worldwide. I very much hope that the UK’s influence in Euratom will continue and will ensure that innovative private sector contributions work at the same time and in collaboration with state-funded contributions.
We hope that fusion reactors will be providing this power but while the source of power is one thing, one of the most extraordinary possibilities that motivates much of the research is that, with the neutron flux in these smaller devices it will be possible to bombard and transform radioactive waste, which of course is developing all over the world. That could then decay in 100 years as opposed to lasting, in current plans, perhaps 10,000 years, which is hardly a sustainable policy. I hope that Euratom and the UK Government will encourage this and other private sector advanced fusion systems. We need great leadership across Europe.
Lord Krebs (CB)
My Lords, I start by declaring my interest as recorded at the back of the report: I am a former member of the Climate Change Committee and chair of its adaptation sub-committee, and a current member of the advisory board of the Energy and Climate Intelligence Unit. I also join other noble Lords who are members of the sub-committee in thanking the noble Lord, Lord Teverson, for his outstanding chairmanship of this report—and indeed the other reports we have produced—and thanking the committee clerk and policy analyst.
Before we started on this inquiry I had read a report from Chatham House, published in 2016, before the referendum. It said:
“In the field of energy and climate policy, remaining in the European Union offers the best balance of policy options for Britain’s national interests”.
I had expected—perhaps even hoped—that in the many hundreds of pages of written evidence and many hours of oral evidence, including the evidence from the Minister that has been referred to, we would find out why Chatham House was wrong. Unfortunately, we did not find out why it was wrong, so I want the Minister to explain at the start exactly why leaving the European Union will be better for the national interests of Great Britain in terms of energy and climate policy.
As we know, and as the Government state in their response, the challenge for energy policy is to reconcile three imperatives that are essential for the future: security of our energy supply, affordability of our energy supply, and decarbonisation of our energy supply. As things stand, and as we have already heard from other noble Lords, the Government’s delivery of these objectives is supported not only by national legislation but by our membership of the European Union and its various component parts that deal with energy.
I will be brief, bearing in mind the late hour, but I want to spend a few minutes talking about the third leg of energy policy: decarbonisation. The Government’s response to our report makes several references to our legally binding national decarbonisation targets, the Paris Agreement and the Clean Growth Strategy. Commenting on the last of these, the government response states:
“The Clean Growth Strategy sets out how the country can benefit from the creation of new technologies and new businesses, while meeting our climate change targets”.
This may well be true but what the government response does not say is that the Committee on Climate Change has pointed out that the measures set out in the Clean Growth Strategy do not take the Government anywhere near meeting their own legally binding commitments. The committee has said:
“Although ambitious, the Strategy does not go far enough. Urgent action is needed to flesh out current plans and proposals, and supplement them with additional measures, to meet the UK’s legally-binding carbon targets in the 2020s and 2030s … Even if delivered in full, existing and new policies, including those set out in the Clean Growth Strategy, miss the fourth and fifth carbon budgets by around 10-65 MtCO2e—a significant margin”.
Without going into detail, the CCC also points to areas in which more action is needed, including transport, domestic buildings, low-carbon electricity, energy efficiency, landfill and agriculture.
The Committee on Climate Change has also pointed out that by the 2020s, about half of the required emissions reductions will be dependent on policies that come from the European Union. I ask the Minister to explain to us how, post Brexit, the Government intend to combine the objectives of maintaining a secure and affordable energy supply while meeting their legally binding commitments on decarbonisation.
Finally, I want to say just a few words about the internal energy market, although much has been said already and I do not want to repeat it. As we have already heard, the Minister, Richard Harrington, told us that the Government’s,
“top priority is to be as near as possible to the current arrangements”,
but he did not explain, given that, why he thought it was such a good idea to leave the current arrangements. If you want them to remain, why not just stay with them? More recently, on 27 April, the European Commission published its Notice to Stakeholders on Brexit and the internal energy market, which contains some stark messages for this country. For instance, as a third country, the UK will have to pay for transmission costs inside the internal energy market, which could seriously alter the economics of interconnection. What is the Government’s assessment of the Commission’s Notice to Stakeholders, particularly in the context that, as we have heard from other noble Lords, virtually all projections of UK power supply indicate that we will have to import more, rather than less, over the next decade or longer?
Viscount Hanworth (Lab)
My Lords, I will deal with only one or two aspects of energy security. The present state of the electricity supply industry in the UK has been determined by two major and virtually contemporaneous events: the discovery and exploitation of North Sea gas, and the privatisation of the industry. These events have determined both the predominant technology of the electricity supply industry and the means by which it markets its output.
Prior to privatisation, generating capacity was provided predominantly by large coal-fired power stations. The last of these to be constructed was the massive Drax power station, which was commissioned in 1987. This was shortly before the passage of the Electricity Act 1989, which prepared for the privatisation of the electricity industry in Great Britain. The privatised industry was no longer capable of large capital investments on the scale of the Drax power station, nor was there any possibility of the industry pursuing nuclear power generation; instead, the new generating capacity was provided, almost exclusively, by combined-cycle gas turbine plants fuelled by North Sea gas.
The fact that private enterprise was able to provide the new infrastructure of our electricity generating industry seemed to confirm the opinion of Conservative Governments that the private sector could be relied upon to provide much of the social and industrial infrastructure that had hitherto been the responsibility of central government. Latterly, that opinion seems to have been confirmed by the manner in which private industry has financed and constructed most of the renewable generating capacity in this country. However, by relying on private enterprise to provide the infrastructure, we have allowed both a dearth and an imbalance to affect our generating capacity.
Soon we shall be facing a severe shortfall in our capacity for baseload generation, which is a necessary adjunct to our increasing reliance on intermittent renewable generation. To provide for our electricity in the future while pursuing a policy of decarbonisation, we need to build new nuclear power plants. So far, the only nuclear power station under construction in the UK is at Hinkley Point in Somerset. The Government have been unwilling to provide the necessary funding. It has therefore incurred the exorbitant costs of private finance, at a time when the interest rates associated with government borrowing have been at an all-time low.
In consequence of the privatisation of the industry, the UK has led the way in devising flexible and innovative ways of marketing electricity via a system of futures markets. This is relied upon to equate the supply with a demand that varies in annual, weekly and daily cycles. Our system of energy markets has been adopted by the European Union. It is ironic that, in pursuing the Brexit agenda, we will be divorcing ourselves from a European internal energy market—IEM—that has been largely a product of our own endeavours. Our committee’s report makes it clear that there will be significant disadvantages if we cannot remain part of the IEM. It instances the circumstances of Norway and Switzerland, which are constrained to abide by the rules of the IEM without having any influence over its policies.
I turn to some issues that have arisen out of what has been described as one of the most outstanding of the self-inflicted injuries of Brexit: the decision to withdraw from the European Atomic Energy Community —Euratom, as it is commonly called. The decision to withdraw has given rise to the Nuclear Safeguards Bill. Euratom has provided much more for us than an inspection regime for ensuring that radioactive material does not fall into the wrong hands. It governs the supply of fuel and all the nuclear engineering materials and equipment that come to us from abroad. It facilitates international exchanges of personnel trained in nuclear technology. It governs the acquisition and supply of medical radioactive isotopes. It funds an extensive nuclear research and development programme, including the programme for nuclear fusion.
Euratom, which predates the Common Market, was established in 1957, and exists largely independently of the European Union. However, in a speech of 17 January 2017, Theresa May declared that she would not countenance,
“anything that leaves us half-in, half-out”,
of the European Union. Since the European Court of Justice plays a marginal role in its affairs, Euratom was judged to be half-in, half-out of the European Union and, therefore, an organisation that the UK was bound to leave.
On leaving Euratom, the functions of nuclear safeguarding will have to be assumed by the Office for Nuclear Regulation—ONR—which is the UK’s nuclear regulatory agency. To have all the necessary facilities in place by March 2019 will be impossible, and it is doubtful whether other nuclear nations would be convinced of the adequacy of our provisions, as they must be if we are to continue to co-operate with them. There have been fears on the part of the nuclear industry that unless the status of the ONR as a viable safeguarding authority can be ratified by the date of our formal departure from the EU, and unless all the necessary nuclear co-operation agreements with overseas suppliers of nuclear fuel and materials are in place, we shall have to close down our nuclear power plants. However, today we have passed an amendment to the Nuclear Safeguards Bill that will enable the Government to approach the European Council with a plea to be allowed to remain under the auspices of Euratom if the necessary arrangements are not in place in good time. The Government have simply reworded a Lords amendment that was passed on Report on that Bill in the face of their opposition.
I turn to the matter of our access to the skilled labour that will be required for the various nuclear infrastructure projects that are either mooted or already under way. It is vital that these projects should proceed in a timely manner if we are to have an electricity supply industry that meets our needs while fulfilling the objectives of decarbonisation. I am told that the Government are carefully considering a range of options for the future immigration system and will set out initial plans in the coming months. This is where the difficulty lies. We have no idea as yet of the sorts of allowances that will be offered to the industry in respect of the EU and non-EU nationals whom they might wish to recruit.
I am aware that the Government have received strong representations from some of the companies involved in projects for new nuclear power stations. The most prominent of these is EDF, which has repeatedly reminded the Government of the skills shortages that it will face in connection with the construction of the Hinkley Point C nuclear power station. The limitation in the supply of civil engineering workers, including welders, steel fixers and concrete pourers, is a particular concern of EDF. These are the kinds of workers who are liable to be excluded by an immigration policy that gives priority to so-called tier 1 immigrants of “exceptional talent” who possess high-level professional or academic qualifications.
I should also mention the concerns of Rolls-Royce, which is engaged in a project for the construction of small modular nuclear reactors. It continues to await a long-delayed decision from the Government regarding the outcome of a competition to identify the reactor of best value for the UK. There may come a point soon when the company can no longer sustain its project in the face of the continuing uncertainties. Rolls-Royce is committed to training a native nuclear workforce but should it walk away from this project, which is quite likely, Britain will lose much of its nuclear engineering competence.
Baroness Featherstone (LD)
My Lords, we have had an excellent debate and I congratulate my noble friend Lord Teverson and the EU sub-committee on this excellent report on the energy security ramifications of leaving the EU. Our status as a full member of the EU has, up to now, ensured our energy security, efficient trading and a focus on energy efficiency while, as mentioned by the noble Lord, Lord Krebs, also ensuring a continued advance on decarbonisation. A number of your Lordships across the House—I think it was the noble Lords, Lord Selkirk of Douglas and Lord Krebs, and my noble friend Lady Sheehan—referred to the Commons Minister himself admitting to the committee that we will have to remain as near as possible to current arrangements. He is probably sorry that he said this. That particular sentence, I guess, highlights the complete folly of this. We seem to be cutting off our nose to spite our face in this fool’s rush to be free of the EU.
This excellent report demonstrates in every sphere the necessity of replicating or continuing each and every area of our energy relationship with the EU. Almost all of your Lordships who have spoken raised the necessity of remaining in or having an exact replica of our membership of the internal energy market, whose creation we led on. If we are to keep energy costs down, we will need to remain in it if and when we are outside. The Government are incredibly fond of referring to energy prices, so perhaps they should take notice of themselves. Perhaps the Minister can tell us in his response how we are to avoid the imposition of broader EU energy policy if we no longer have any voice in its creations but are mere supplicants to the table. Switzerland was highlighted as an example of how bad it gets.
A number of your Lordships raised the challenges and dangers of leaving Euratom, which was debated at length during the passage of the Nuclear Safeguards Bill, and where across the House we fought tooth and nail for the amendment that eventually came forward from the Government during ping-pong. It gives us an insurance policy so that if everything that should be in place by March 2019 is not, there is that fallback position.
A number of your Lordships also raised the issue around interconnectors. What do the Government believe will happen when these circumstances arise? At the moment my understanding is that, as a country, you get priority according to your need in the direction of energy flow. We have benefited from that to date but it will no longer be the case if we are not in the club. Club members will be served first.
We cannot presently meet our own heat and power requirements. I would obviously argue with the Government that we could if they really supported renewables, actually did something about energy efficiency, invested in renewable heat and supported innovation to scale. The noble Lord, Lord Rooker, certainly made clear his view of the Government’s response and, having read it, I was pretty much in agreement with his view. It is apparent from that response that the Government are relying to an extent on shale gas to answer their prayers. I can see the attraction of having the problem of the energy gap filled by private money coming in. It leaves the Government only to break all their promises and remove planning protections for local people, as if shale is some sort of economic miracle that will rescue us from the gas gap.
The Government look to the American experience to be replicated. Outside the recent report showing the new scientific evidence on the danger of fracking in ex-mining areas, I point out to the Government that our geology and geography is very different from America’s. Even if it were feasible to produce shale gas at scale, the economic miracle is fading. Asset life is critical, and the outlook is poor. In the USA, shareholders are now experiencing the reality rather than the promise of shale. A company such as Cuadrilla, which is looking for shale in Lancashire right now, has seen its shares fall to a quarter of what they were worth in 2009. That bubble is bursting. Shale is proving difficult in this country. The Government’s answer to the challenge of giving local people their right to protest is to change these applications to permitted development, and that from a Government who promised local people the final say. The shale bandwagon has passed. This is not the time to climb on it. This is the time to say yes to tidal lagoons, to invest in renewables and to take innovation to scale.
As the noble Lord, Lord Krebs, neatly highlighted, the Government’s answer to many things is the clean growth strategy and the industrial strategy. They form the stock answer to all questions on the future of energy security, but I find no security in them. They are full of ambition, but they are also full of words rather than actions. Actions speak louder than words, and we have seen many a time that the Government’s actions are going in the wrong direction. The Minister will be relieved that I shall not rehearse all the measures this Government have removed or have taken that have damaged our green credentials, which include removing the zero-carbon homes standard and the precipitate removal of subsidy that devastated many in the solar industry. The even more serious part of that is that the consequent undermining of investor confidence—if we Brexit, we will need investor confidence —is real and tangible in the investment community. Thank goodness we have pioneers pushing the boundaries.
This brings me to the last issue I want to address, which is the loss of EU investment in so many projects and areas in this field: the European energy programme for recovery, the connecting Europe facility, Horizon 2020 and the European Investment Bank, which many noble Lords raised. Perhaps when he replies the Minister will say how EU funding worth billions, which we will lose on our exit from the EU, will be replaced.
I will finish on the island of Ireland. I heard no solutions for it, and I look forward to the Minister giving us such a solution.
Lord Grantchester (Lab)
My Lords, I thank the noble Lord, Lord Teverson, for his excellent introduction of the committee’s report, which is the subject of the debate today, and I thank noble Lords who have spoken. I congratulate the noble Lord, Lord Teverson, on his chairmanship and on the work of his committee. As evidenced here, he is very adept at identifying and choosing important issues for investigation, often at an early stage of debate. This report was prescient in raising many of the issues that have arisen concerning Euratom and the Nuclear Safeguards Bill. His opening speech was mirrored by the interesting closing remarks of his colleague the noble Baroness, Lady Featherstone.
The report brings forward 43 well-thought-through recommendations and by and large the Government have given comprehensive answers in their response, with detailed replies outlining the latest up-to-date position on the Government’s Brexit energy programme at the end of March, following the conclusion of the EU-UK discussions on the implementation period. However, it can be argued that the Government continue to reveal complacency about the seriousness of the issues in this report. What comes across on nearly every page is the industry’s anxiety should the UK be required to leave the internal energy market, with the implications and possible consequences following that, not the least of which may be increased costs to consumers.
The public debate that has raged between the Brexiteers and the Government over the single market, regulatory alignment and hard borders could be replicated across the energy market. To the Government’s credit, they are getting on with dialogue over the energy sector, which may reflect that there is much less contention that the UK’s national interest lies in continued participation in the EU’s internal energy market, as the Government state at paragraph 33 of their response. When the UK’s energy security, a fundamental aspect of everyday life, is at stake, it is in everyone’s interest to ensure the least disruption and that the lights stay on at the least cost and at maximum efficiency. The wider the participation and the exchange of energy across the continent, the more effective and secure energy supplies will be.
However, the Government still have a long way to go to achieve a successful Brexit. The report brings up interconnectors and the future expansion of their use as a case in point. They formed a crucial part of the remarks of my noble friend Lord Rooker on Ireland and of the challenges from the noble Baroness, Lady Sheehan. The report quotes National Grid’s estimate that the levels of electricity interconnection planned by 2020 could meet 35% of the UK’s peak electricity demand, making interconnectors an indispensable asset base for providing energy security. While it is understood that the UK will become a third party in EU internal arrangements, the report stresses, and the Government endorse, that there should be no new trade barriers; that the UK will look to remain in certain EU agencies, as the Prime Minister expressed in her Mansion House speech on 2 March; and that it remains a key ambition for the UK to form a new deep and special relationship with the EU, as the Government’s response at paragraphs 54 and 57 reveals, including the fulfilment of a single energy market on the island of Ireland, as set out in paragraphs 84 and 87 of the report.
Given that emphasis and that there are no interconnectors, planned or not, other than to the EU or member states in the EEA, how strong a weighting are the Government putting on continuing membership of the internal energy market as a negotiating priority with Europe? Have the Government undertaken any activity or proposals as an alternative for the UK to continuing participation in the IEM, and what does that look like? Some time ago, National Grid quantified the risk of exclusion from the IEM at £500 million per annum by the early 2020s.
Less efficient trading is likely to increase UK consumers’ bills, and my noble friend Lord Davies expanded on that considerably throughout his remarks. In their response to the report, the Government outline measures that they are already taking to reduce costs to consumers. Paragraph 21 mentions the Domestic Gas and Electricity (Tariff Cap) Bill, which is due to have its Committee stage next week, as evidence. However, the Government have not addressed concerns around potentially higher energy prices resulting from any changed relationship with the EU. Have they given this any thought in the legislation that is still progressing through your Lordships’ House? How are they going to ensure that Brexit does not result in undue increases in consumer energy bills? This could well be the subject of an amendment next week.
The importance of the nuclear industry to energy security was underlined tonight by the noble Lord, Lord Teverson, my noble friends Lord Hunt and Lord Hanworth, and others, especially in relation to the arguments expressed—or not—at the time around the Brexit vote. As was to be expected from the timing of this report, the committee examines the UK’s position in respect of Euratom and makes 11 recommendations. To a large extent, the discussions undertaken during the passage of the Nuclear Safeguards Bill have taken this up. From the outcome of that Bill earlier today and the Government’s response to the report, the position has been addressed—notwithstanding that there is still a lot of activity to be successfully pursued to secure a robust and effective conclusion. The House will appreciate that the Minister will be making Statements as the situation develops and that the UK will continue in its relationship with Euratom as we develop UK safeguards.
While the report has been comprehensive in addressing the current position of the UK’s energy security, by its own admission it largely excludes an examination of the EU’s emissions trading scheme as this was the subject of another report, Brexit: Environment and Climate Change. The noble Lord, Lord Krebs, spoke eloquently on climate policy and decarbonisation. As well as the serious questions that he posed, there are some pertinent questions to ask the Minister on the EU ETS. Could he outline what contingency plan is in place to manage the UK’s exit from the EU ETS in the case of no deal, and how the interests of UK companies with obligations under the ETS will be protected? Has the Minister’s department undertaken any plans for a stand-alone UK ETS that could be linked to the EU ETS to provide continuity in carbon trading arrangements and certainty for companies?
Lastly, I shall mention two aspects of energy security that the report does not examine: demand-side response and energy efficiency. Both are critically important. It should be pointed out that the market development of goods continues to improve through innovation. When most household equipment gets replaced, be it a washing machine or a boiler, it is usually with a new, more modern and more efficient piece of equipment. There is a passing reference at paragraph 74 of the Government’s response to demand-side response, DSR, regarding battery storage as evidence of achievements secured through the capacity market—but it is not expanded on.
There is much mention of energy efficiency in the IEM and other developments, but no analysis of energy efficiency measures as part of national infrastructure. Your Lordships’ House only recently concluded its assessment of what is now the Smart Meters Act, which has huge potential to rationalise household energy use. Both subjects could fill an entirely new debate. Perhaps I could pose questions to the Minister regarding the Government’s commitment for the UK to mirror EU standards, which could at least ensure that the UK will maintain similar levels of response to innovation to those that would occur through EU regulation. However, the challenge remains that the UK is yet to develop a comprehensive policy over demand-side energy reduction and energy efficiency measures. In his reply to the debate, will the Minister respond to the challenge and outline the Government’s ambitions in these two regards? In conclusion, this is an excellent report that has triggered excellent responses from noble Lords all around the House.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)
The noble Lord has set me a rather large challenge in terms of how much he wants me to respond to in my comments—particularly as he strayed into the Smart Meters Bill, now the Smart Meters Act. I do not think we want to rehearse that. I may have to refer to the Nuclear Safeguards Bill, shortly to become an Act, because I think it will be important for this issue, but I am grateful for his mention that he will be tabling amendments to the price cap Bill—or whatever its proper name is. I look forward to seeing them as soon as possible to make it easier for us to respond to them in good time when we meet in Committee on Monday and Wednesday.
I join other noble Lords in offering my congratulations to the noble Lord, Lord Teverson, on chairing the EU Energy and Environment Sub-Committee and my thanks for producing the report. I am grateful that my right honourable friend was able to respond in good time—although I am not sure that I recognised her response in the remarks made by the noble Baroness, Lady Featherstone, and the noble Lord, Lord Rooker. I thought that she responded in a proper and timely manner.
I should also say that I hope that the noble Lord, Lord Teverson, has received a letter from my right honourable friend sent only today—if he has not, I have a copy—in response to the European Commission’s notices to stakeholders, referred to by the noble Lord, Lord Krebs. The noble Lord, Lord Teverson, nods, so I take it that he has received it. The noble Lord, Lord Krebs, referred to the various questions raised in that capacity. I shall ensure that a copy of the letter is placed in the Library so that the noble Lord can see the more detailed response. I apologise for the fact that it came out only today, but I think it was probably of use to him in his response.
Many points and questions have been put to me, some of which I will be able to respond to. As always, I give an assurance that I will write in due course to noble Lords to deal with other, more detailed points if I feel that I cannot answer them in the time allowed. The noble Lord, Lord Rooker, complained about the brevity of some of my right honourable friend’s responses. He will be the first to understand that it is not always possible in a short debate happening late at night to respond in the detail that he would like to some of the points that he has made.
We believe that the UK has a well-functioning, competitive and resilient energy system and that our energy market is one of the most liquid and developed markets in the world. As we have made clear, we also believe as regards costs that it is right to intervene where necessary. That is why we have brought forward the price cap Bill as a temporary measure.
As noble Lords will be aware, we have also commissioned the independent review of the cost of energy by Professor Dieter Helm. We are currently considering his findings and will be sorting out the next steps after further consultation with stakeholders. I hope that the noble Lord, Lord Davies, will accept that as a response to some of his points about costs and will be prepared to wait for it in due course.
At the heart of our plans for a reliable electricity system in Great Britain is the capacity market. It secures the capacity required to meet peak demand in a range of scenarios, and it will continue to do so after EU exit. To ensure long-term security, we are broadening GB’s power generation base, including through new nuclear generation and offshore wind. Several noble Lords referred to the building of Hinkley, including the noble Viscount, Lord Hanworth. He will also be aware of the announcement that my right honourable friend the Secretary of State made about Wylfa in Anglesey. For some reason, his noble friends did not want me to repeat that Statement in this House, but it is there in Hansard for him to see. I can further add that the latest contracts for difference round secured record renewable energy capacity—I say this to the noble Baroness, Lady Featherstone—at a record low price.
The GB gas market is highly diversified, with a variety of different sources of supply that do not depend on a relationship with the EU. We have domestic production, short-range and flexible gas storage facilities, gas pipelines from Norway, and three liquefied natural gas terminals, as well as gas interconnectors, about which I shall say something a little later, because they were raised by the noble Lord, Lord Grantchester and the noble Baronesses, Lady Featherstone and Lady Sheehan.
Whatever our future relationship with the EU, we remain committed to delivering dependable, secure and low-carbon energy. Our Clean Growth Strategy, published in October—again, the noble Baroness was faintly dismissive of it—set out plans to build further on our successful decarbonisation of the power sector, while looking across the whole of the economy and country, through the 2020s and beyond. The clean growth grand challenge in our industrial strategy sets out to maximise the advantages from the global shift to clean growth for UK industry. The grand challenge will require us to embed clean growth across government’s activities. We remain strongly committed to the Paris climate change agreement, and will satisfy our international obligations and seek to maintain the shared approach enshrined in the agreement. Leaving the EU will not change any of our domestic statutory commitments to reduce our emissions, as laid out in the Climate Change Act 2008; indeed, those targets are more ambitious and challenging than those set by EU regulation.
As set out in the Prime Minister’s Mansion House speech, we are seeking the broadest and deepest possible agreement, covering more sectors and co-operating more fully than any free trade agreement anywhere in the world today, for its future economic partnership with the EU. We have made significant progress on negotiations so far; we have agreed the terms of a time-limited implementation period, and on the wider withdrawal agreement have locked down entire chapters on the financial settlement and citizens’ rights. More recently, as was made clear at Question Time today by my noble friend Lord Callanan, we will produce a White Paper that will set out in detail the UK’s position on a future relationship.
With respect to energy, as was made clear in the evidence given by my honourable friend Richard Harrington, we seek broad co-operation with the EU, ensuring that energy trading continues as efficiently as possible with the EU to underpin our future economic relationship. This includes exploring options for the UK’s continued participation in the EU’s internal energy market, as was mentioned by many noble Lords but particularly by the noble Lords, Lord Teverson, Lord Davies of Stamford and Lord Grantchester. It also includes protecting the single electricity market across the island of Ireland, which was a concern to many noble Lords. The Irish Government and the rest of the EU share the UK Government’s intention to support the stability of energy supply on the whole of the island of Ireland.
The Government are also clear about the importance of continued efficient electricity and gas interconnection between the island of Ireland and Great Britain, which the committee’s report rightly highlights. In the ongoing negotiations with the EU, we are making good progress on agreeing a basis on which the single electricity market can continue, as part of the draft withdrawal agreement. We are confident that we will secure a UK-EU future partnership that will achieve that shared objective.
Can I say a little about electricity interconnection? The UK and the EU have a common ambition to make energy trading easier and more efficient by opening up national markets and by increasing the level of interconnection between them. Facilitating cross-border energy trade so that it is as efficient as possible will remain in the interests of not only ourselves in the United Kingdom but of the EU, following our exit. The UK is continuing to develop more electricity interconnection and to open up trade with neighbouring markets. In addition to the 4 gigawatts of existing interconnection capacity, a further 4.4 gigawatts is now under construction and, beyond this, 9.4 gigawatts of potential additional interconnection projects already have regulatory approval from Ofgem.
Positive investment decisions on new interconnectors have taken place since the referendum. There have been final investment decisions on two interconnector projects, with approximately €1 billion of construction contracts being awarded. The ElecLink interconnector awarded contracts worth approximately €400 million in November 2016, and the IFA2 interconnector awarded contracts worth approximately €600 million in April 2017. So progress is being made and we are working to ensure that we can continue trading as efficiently as possible over those assets. We also want to continue with the gas interconnectors—mentioned by other noble Lords—with Belgium, the Netherlands and Ireland, which support the gas markets in those regions.
Moving on to Euratom, I dealt with quite a lot of that earlier today and throughout the passage of the Nuclear Safeguards Bill. I do not want to repeat all the points that I made earlier today and at other times, but I assure the noble Lord, Lord Davies, that there is no threat to medical radioisotopes. We will still be able to import them from Europe and the rest of the world. Those assurances have been given by myself and by other Ministers on other occasions. The simple fact is that it has been agreed that we will leave Euratom when we leave the European Union; the two are interconnected. As stated in the Prime Minister’s Mansion House speech, the UK will continue to seek a close association with Euratom, which shows our commitment to maintaining close and effective arrangements relating to civil nuclear co-operation, safeguards and safety with Euratom and the rest of the world. Maintaining continuity for the nuclear sector is a key priority.
I say to the noble Lord, Lord Rooker, that we also recognise the importance of being able to attract the right workers and we recognise the challenges that he mentioned in relation to Hinkley Point. The noble Lord, Lord Teverson, mentioned those with a wonderful spoonerism when he talked about steel-fixers—I will not try to repeat it. We recognise the importance for the nuclear sector and we must remember that “skilled” is not always the same as “highly qualified”. We know that we need construction workers in that industry and we are working closely with the Home Office—a department that the noble Lord, Lord Rooker, knows well—to ensure that the needs of the nuclear sector are understood and will be addressed.
I repeat what I made clear earlier today—although I think the noble Viscount, Lord Hanworth, was not here at the time—that as part of developing our policies for coming out of Euratom, in Vienna today we received an agreement from the International Atomic Energy Agency which provides for the voluntary application of international civil nuclear safeguards. That was formally approved by its board of governors today. In addition, looking across the Atlantic, I am delighted that we have now signed a new nuclear co-operation agreement with the United States of America, which will go through the ratification process both there and here. Although the noble Lord, Lord Teverson, seems to think that it will take rather a long time, I am confident that that will come into play in due course.
In Brussels, our negotiations with the European Commission on separation issues have gone well. We have reached agreement with the EU on the majority of Euratom issues under discussion, including on the legal text to be included in the withdrawal agreement.
The noble Lords, Lord Krebs and Lord Hunt of Chesterton, and others expressed considerable concern about continuing collaboration on science and innovation. We have a strong history of collaborating with our European partners through the EU, pan-European, and other multilateral and bilateral initiatives on science and innovation, and we are committed to establishing a far-reaching science and innovation pact with the EU, facilitating the exchange of ideas and researchers. In her recent speech at Jodrell Bank the Prime Minister stated that she would like the option to fully associate with the excellence-based European science and innovation programmes, including the successor to Horizon 2020 and the Euratom Research and Training Programme.
Finally, on investment, we are very mindful of the need to give certainty to investors. The UK is a global leader in attracting investment, and there is still significant appetite to invest in UK renewables, including offshore wind, from developers and financial investors. The UK will remain a great place to do business after we leave the EU, and we expect the strong investment climate in the energy sector to persist, attracting inward investment from all over the world.
I do not think that the noble Baroness, Lady Featherstone, would expect me to end without saying just a little about shale gas and the opportunities it gives us. As stated in the government response, the UK Government are committed to ensuring we have secure energy supplies that are reliable, affordable and clean. As part of this, shale gas has the potential to be a home-grown energy source which can lead to jobs and economic growth, contribute to our security of supply, and help us to achieve our climate change objectives. The Government are clear that shale development in the UK must be safe and environmentally sound, and we have a strong regulatory system in place. I hope that the noble Baroness and her party will come round to my way of thinking in due course. She looks as though that is unlikely, but I live in hope.
I hope that I have dealt with most of the problems but, as I said, I will reply by letter in due course. I am grateful to the noble Lord, Lord Teverson, for taking the opportunity to bring this report before the House and for the hard work that he and his committee put into it.
Lord Teverson
My Lords, I thank the Minister for his response. First, I reflect the thanks expressed by a number of members of the committee to our clerk, Alexandra McMillan, and our policy analyst Jennifer Mills, who looked after this report so well. They are not here this evening, and one of the reasons for that may be that they are not in their offices this week because the energy security of Millbank House has totally failed. So, although Britain might not be in energy security mode at the moment, this House is. I have not been in my office this week for the same reason, but I hope that that will be put right next week.
I shall not thank all noble Lords individually but I thank everyone collectively for their contributions. I particularly thank the noble Lord, Lord Davies of Stamford, who participated in the previous debate, although I was not here for that. I suspect that it had a very similar theme but I will not be checking it to such a great extent in Hansard. I am also very pleased to see the noble Lord, Lord Grantchester, on the Front Bench. He has obviously recovered well from his malady.
I thank my noble friend Lady Sheehan for mentioning prices. During his witness session, the Minister, Richard Harrington, was fairly relaxed about the whole subject. It is worth taking up the point about the importance of energy prices, in that we still have some 34,000 premature deaths over the winter and in England alone some 2.5 million households are still in fuel poverty. This is a real issue. I know that the Government understand that as well and they have introduced their price cap Bill, but this is an important area.
I shall say just one thing about the internal energy market, which many of us discussed. I do not see how we will remain a member of that market given the red lines that we and the European Union have in the negotiations, unless the conversation changes fundamentally. That inevitably means that we will not be at any table in any significant way with any influence whatever over EU energy policies post Brexit. The Government probably understand that but it is something we need to work on and we need to find a different basis for the discussions.
I challenged the Minister to go through the positives of Brexit regarding energy but I did not notice any in his speech. I listed the ones that the committee found but, in going through them, we found that they were minor and pretty pathetic. That internal energy market is the goal and I do not see how we can leave it at the moment.
We have come to the end of the evening. The very last thing that I want to say is that, as the negotiations go on and on, Europe is losing interest in Brexit. It has problems with Italy, eastern Europe and the rule of law, as well as migration and, potentially, the eurozone. Brexit will become more and more minor. Whether on energy or more broadly, if we do not get ourselves into gear pretty quickly, our negotiating position will degrade because there is a lack of interest in us as a subject. Regrettably, I think that that is true with regard to energy as well. However, I wish the Government well in the negotiations and I too look forward to their negotiating position, which I hope will have energy as a core part, as reflected in the Prime Minister’s Mansion House speech. I thank everyone for their contributions.