Electricity and Gas etc. (Amendment) (EU Exit) Regulations 2020
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Lord Callanan
That the Grand Committee do consider the Electricity and Gas etc. (Amendment) (EU Exit) Regulations 2020.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, when the transition period ends, direct EU legislation and EU-derived domestic legislation that forms part of the legal framework governing our energy markets will be incorporated into domestic law by the withdrawal Act. My department is working to ensure that the UK’s energy legislation continues to function smoothly and supports a well-functioning, competitive and resilient energy system for consumers after the end of the transition period. This draft instrument is part of the wider legislative programme preparing for the eventuality that the UK does not reach a further agreement with the EU by the end of the transition period, or if any reached agreement does not cover the relevant policy area.
I now turn to what this statutory instrument does. Prior to the UK’s departure from the EU on 31 January, my department laid several statutory instruments in preparation for the eventuality that the UK left the EU without a withdrawal agreement. Since then, the terms of the withdrawal Act mean that EU legislation, including new EU legislation brought in during the transition period, will continue to apply in the UK.
This includes three pieces of legislation. The first is Regulation (EU) 2019/943 of the European Parliament and the Council of 5 June 2019, on the internal market for electricity, which I will refer to as the electricity regulation (recast). The second is Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019, establishing a European Union Agency for the Cooperation of Energy Regulators, which I will refer to as the agency regulation (recast). The third is Directive (EU) 2019/692 of the European Parliament and of the Council of 17 April 2019, amending Directive 2009/73/EC concerning common rules for the internal market in natural gas.
The Electricity and Gas etc. (Amendment) (EU Exit) Regulations 2020 amends six previously laid SIs, which I will refer to as the principal SIs. These principal SIs prepared the UK to leave the EU without a withdrawal agreement. These changes take account of the three new pieces of EU legislation since those principal SIs were made. The electricity regulation (recast) and the ACER regulation (recast) form part of a programme of legislation known as the clean energy package, created to further integrate markets across the EU. All of the clean energy package will have entered into force by the end of the transition period, hence the need for these regulations.
The electricity regulation (recast) sets out the high-level principles and structures for the operation of EU electricity markets and defines relationships between EU bodies with a role in this area. The agency regulation (recast) sets out the role of the Agency for the Cooperation of Energy Regulators—or ACER—to co-ordinate energy regulator implementation of the clean energy package and to resolve disputes between member state regulators.
The principal SIs were made between December 2018 and March 2019 and fixed deficiencies in domestic law and direct EU law, which would become retained EU law at the end of the transition period. These amendments included provisions relating to the original electricity regulation and the original agency regulation. These original electricity and agency regulations have now been repealed, as a result of the recast regulations entering into force on 1 January 2020 and 4 July 2019 respectively.
The principal SIs are now out of date, as they pertain to the original electricity and ACER regulations, which no longer exist because they have been recast by the European Union. This draft instrument fixes those deficiencies by changing references from the original regulations to the recast regulations, omitting now redundant provisions and making changes consequential on the amending gas directive.
The draft instrument also obviously amends references to “exit day” in the principal SIs to instead reflect the reality of the transition period. The draft instrument takes account of changes made to UK domestic law required to implement the new electricity regulation. Finally, it removes provisions relating to Northern Ireland wholesale electricity markets in the previous SIs to avoid any conflict with the Northern Ireland protocol, which requires EU law governing wholesale electricity markets to continue to apply in Northern Ireland after the end of the transition period.
The draft instrument aims to maintain existing rules domestically while amending or removing provisions that will no longer be functioning after the end of the transition period. As a result, this draft instrument will help to maintain the operability and integrity of the UK’s energy legislation and to maximise business continuity for market participants.
In conclusion, these regulations are an appropriate use of the powers of the withdrawal Act, which will maximise continuity in our energy regulation and business continuity for UK market operators and ensure that there is no uncertainty in the role and functions of UK and EU bodies in the market and requirements on market participants as we leave the European Union. I commend the regulations to the House.
Lord Callanan (Con)
My Lords, I thank all noble Lords for their valuable contributions to the debate. The Government are committed to achieving a smooth end to the transition period for our energy system. As such, a programme of legislation is required to ensure that retained EU law is workable and free from deficiencies by the end of the transition period. This draft instrument falls within this category of legislation. Failure to address in full the deficiencies in retained EU legislation, or to ensure that the relevant aspects of the Northern Ireland protocol are able to work properly, will create uncertainty and inefficiency in the operation of both Great Britain and Northern Ireland’s market regulation, the role and functions of domestic and EU bodies in the markets, and requirements on market participants. This uncertainty could result in an increase in wholesale prices.
I must stress that this draft instrument, and the UK’s departure from the EU as a whole, does not and will not alter the fact that our energy system is resilient and secure. This resilience is built on our diversity of supply. The UK has one of the most secure energy systems in the world and the industry has well-practised contingency plans to keep energy flowing and to ensure that our energy supplies are safe.
In Great Britain, the Government have been working closely with the electricity system operator, the national grid, and with the regulatory body, Ofgem, to ensure that measures are in place to deliver continuity of supply and confidence in the regulatory framework in all scenarios. The Government are therefore confident that the UK’s electricity system is able to respond to any changes safely, securely and efficiently, whether these changes are a result of leaving the EU or other challenges facing the UK today, such as the coronavirus pandemic. Our energy system will still be physically linked to the EU after the end of the transition period through interconnectors, which bring significant benefits, including lower consumer bills, as well as security of energy supply.
In response to the questions from the noble Lords, Lord Oates and Lord Grantchester, it is indeed the case that our future energy relationship with the EU is being discussed as part of the ongoing negotiations. As set out in the UK’s approach to the negotiations, we are open to an agreement in this area that provides for efficient electricity trade. Noble Lords will understand that I am unable to go into any further details of our negotiating position at this stage because the negotiations are confidential. However, should we not have reached any further agreement with the EU by the end of the transition period, or if any agreement does not cover the relevant policy area, there will continue to be significant value in increased interconnection and trade of electricity and gas with our neighbours.
This instrument will help maintain the stable functioning of the domestic energy market by fixing deficiencies across retained EU and domestic legislation, while retaining the regulatory functions required to keep the market working effectively.
I will move on to the specific questions I was asked, all of which were of a similar nature. The noble Lords, Lord Oates and Lord Grantchester, and the noble Baronesses, Lady Burt and Lady McIntosh, asked whether the devolved Administrations have been engaged. It remains the case that devolved Administration ministerial consent is not required for these SIs because energy is not a devolved matter for either Scotland or Wales. However, BEIS regularly engages on EU exit and energy matters, and both Governments were informed about the SIs before they were laid in draft.
The situation with Northern Ireland is slightly more complicated. In preparing the electricity and gas amendment regulations, BEIS consulted and worked closely with the Northern Ireland Department for the Economy to get its views on the changes required, and Northern Ireland ministerial consent for the SI was provided. BEIS also engaged with the Utility Regulator on the content of the SI. I cannot remember who asked the question, but the specific request from Northern Ireland was to remove the provisions contradicting the protocol as described above.
The noble Lords, Lord Oates and Lord Fox, and the noble Baronesses, Lady Burt and Lady McIntosh, referred to the single electricity market and Northern Ireland. I can confirm that it is the UK Government’s long-standing position that by far the best outcome for electricity in Northern Ireland is to maintain the single electricity market across the island of Ireland. This has consistently been supported by both the Irish Government and the EU Commission. Continuation of the single electricity market has been achieved through the Ireland/Northern Ireland protocol to the withdrawal agreement, and nothing in this legislation affects that. As to what would happen to the single electricity market if we do not reach any further agreement with the EU, the provisions for the market were established under the Ireland/Northern Ireland protocol to the original withdrawal agreement and that provides the basis for the single electricity market.
The noble Baroness, Lady McIntosh, asked about the impact on prices. Many factors impact energy prices, including fuel prices, exchange rates and energy mix. As I said earlier, we will continue to be physically linked to the EU post exit through a number of electricity and gas interconnectors. We expect that any change in electricity prices in Great Britain as a result of changes to interconnector trading arrangements would fall within the range of normal market volatility. Therefore, we do not expect any significant impact on prices.
Again, with regard to gas markets, the mechanisms for cross-border trade are not expected to fundamentally change after exit. The UK gas market is one of the world’s most developed and provides security through supply diversity, most of which comes through LNG tankers, and is therefore not dependent on the EU.
The UK Government have taken steps to enable electricity and gas trade to continue and to maintain the effectiveness of domestic regulation, providing legal clarity for industry on the future operation of Great Britain and Northern Ireland’s energy markets.
To go into a bit more detail for the benefit of the noble Lord, Lord Oates, and the noble Baroness, Lady Burt, the SI will help support the continued operation of the single electricity market by removing the provisions relating to electricity in Northern Ireland, so that they do not come into force at the end of the transition period and therefore contradict the Northern Ireland protocol. The Northern Ireland protocol provides for a limited set of EU law provisions relating to wholesale electricity markets, carbon pricing and industrial emissions to apply to Northern Ireland at the end of the transition period to ensure the continued operation of the single electricity market. The Northern Ireland Executive are responsible for implementing the Northern Ireland protocol in relation to the single electricity market, as energy is a transferred matter, with my department—BEIS—continuing to provide support where appropriate.
The noble Lord, Lord Grantchester, asked about the difference between the two SIs. They both make technical changes to ensure that retained EU law will work in a domestic context, minimising impact on businesses and consumers should the UK reach no further agreement with the EU or if any agreement does not cover the relevant policy area after the end of the transition period. Most of the changes are minor—for instance, removing references to member states or EU bodies, which will of course be no longer appropriate in the circumstances.
The noble Lord, Lord Fox, in his typically genius way, used the word “electricity” in the title of the instrument to ask a whole series of unrelated questions on targets for offshore wind capacity. I am very happy to write to him with a proper answer to those questions and on the details of the Ofgem consultation, which are, as I am sure he will understand and realise, unrelated to these regulations. As always, however, I commend him on his ingenuity.
In conclusion, this draft instrument is required to ensure continuity for our energy system and certainty for both market participants and consumers. In doing so, it will support the implementation of an effective legislative framework needed for reliable, affordable and clean energy. It is my pleasure to commend the draft regulations to the Committee.