Community Energy Schemes

(Limited Text - Ministerial Extracts only)

Tuesday 30th November 2021 Westminster Hall

[The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)]

Let me begin by congratulating the hon. Member for Bath (Wera Hobhouse) on securing this important debate, and for pre-submitting the three questions that I will answer during the course of my speech. I will, however, return to them at the end to make doubly sure that I have answered them to her satisfaction. I realise that this is the first debate on the topic since I took on my new role in September; I think the previous one was on 1 July. I welcome the debate, and it is fantastic to see so much enthusiasm for community energy from all parties, nations and regions of the UK—it is very heartening to see.

I will start by reassuring the House that the Government recognise the role community and locally owned renewable energy schemes can and do play in supporting the UK’s national net zero targets. Since the last debate we published, on 19 October the net zero strategy, which has already been referred to and sets out our road map of how we will get to net zero by 2050 and the staging posts in between. We understand that the value of community energy is not just in delivering energy projects that stimulate clean growth. Projects such as the community energy cafés run in south-east London support the most vulnerable in society by providing impartial domestic energy advice. Community groups can also act as the catalyst for raising awareness of both the energy system and wider environmental issues. They can be a catalyst in the promotion of behaviour change, which we all know is vital to reaching net zero.

I know Members will agree with me that there is already some excellent work under way in the community energy sector. We have heard many examples today, but I will add one: Swaffham Prior is an off-grid gas village of around 300 homes in east Cambridgeshire that is being supported by its community land trust to bring renewable energy to the village through installing a heat network. This will make it one of the first villages in the UK to do so.

I mentioned the net zero strategy, but we have also heard about a lot of different fantastic schemes from across the United Kingdom. As a Government, we fund the rural community energy fund. Delivered through local net zero hubs, this £10 million scheme supports rural communities in England to develop renewable energy projects that provide economic and social benefits to the community. Since its launch in 2019, the fund has received 1,668 enquiries, 203 applications and awarded millions of pounds worth of grants to projects focusing on a variety of technologies, including solar, wind, low-carbon heating and electric vehicle charging. It includes funding for the constituency of the hon. Member for Bath. She referred earlier to Bath and West Community Energy, which has received more than £92,000 from the rural community energy fund for feasibility grants to develop three community solar projects.

Ofgem also supports community energy projects and, following a consultation process, has announced that from February 2022 it plans to welcome applications from community-interest groups, co-operative societies and community-benefit societies to the industry voluntary redress scheme. That will allow groups to apply for funds to deliver energy-related projects that support energy consumers in vulnerable situations, support decarbonisation and will benefit people in England, Scotland and Wales.

More widely, through the introduction of UK-wide growth funding schemes, such as the community renewal fund, levelling-up fund and the towns fund—all very important new funds—the Government are enabling local areas to tackle net zero goals in ways that best suit their needs. I am aware that those schemes may be used to support the development of community energy schemes, which I highlight for all right hon. and hon. Members. For example, the towns fund has awarded more than £23.6 million to Glastonbury town, including to the Glastonbury clean energy project, which aims to generate renewable energy for use by many of the other projects in the plan, as well as other local businesses and residents.

To take forward the vital work on community energy, we committed in the net zero strategy to reintroduce the community energy contact group. That group will provide a single, dedicated forum for community energy groups to engage and co-operate with Government on key policy issues. That could obviously include discussion of the recommendations already referred to, made by the Environmental Audit Committee’s inquiry into community energy. I hope that group will strengthen outcomes for both the sector and the Government.

Turning to the Local Electricity Bill, which has been mentioned frequently in the debate, a right to local supply would allow electricity generators to sell their power directly to local consumers. As we know, the Local Electricity Bill seeks to establish that right by enabling electricity generators to become local suppliers, and to ensure that the costs and complexity of becoming a local energy supplier are proportionate.

Although the Government agree with the broad intentions of the Bill, we do not support the Bill as the means to enable local energy supply. However, I make a commitment today. I am about to write to my hon. Friend the Member for Wantage (David Johnston) to set up a meeting with him. I will leave it up to him which other Members he wishes to pull into that meeting to discuss the Bill and how we can work together, particularly on some of the obstacles to it.

I will take interventions shortly, but I want to lay out some of those obstacles. There is existing flexibility in how Ofgem regulates energy supply to allow for local suppliers. Ofgem has powers to award supply licences—a point raised by the right hon. Member for Leeds Central (Hilary Benn)—that are restricted to specified geographies and/or specified types of premises. However, many hon. Members have observed that, although the right to local supply exists, the costs of becoming a supplier act as a barrier to entering the market.

Making more substantial changes to the licensing framework to suit specific business models may create wider distortions elsewhere in the energy system. Artificially reducing network costs for local energy suppliers, as the Bill appears to imply, is likely to be distortive. It would mean higher costs falling on other consumers, which would increase as more local suppliers enter the market. It is important, therefore, that we take a broad view. I notice there is a Division in the main Chamber, Mr Betts.

[Mr Clive Betts (in the Chair)]

Order. I was letting you finish your sentence—we can now suspend the sitting for 15 minutes.

--- Later in debate ---

[Mr Clive Betts (in the Chair)]

The Minister will now resume his speech. We have 11 minutes to go; we will finish at 4.28 pm. I should just say that Alan Brown has courteously given me his apologies, because he is in the main Chamber for the next debate.

[Greg Hands]

Thank you, Mr Betts; let me carry on. It is important that we take a broad view of all consumers when making changes to the energy markets. That includes consumer protection measures, which form an important part of the supply licence. Suppliers play a key role in providing support to customers, particularly the vulnerable. For example, the energy company obligation requires suppliers to install energy efficiency measures in the homes of vulnerable people. The warm home discount applies a reduction to the bills of vulnerable households, and the price cap protects households from poor-value tariffs. The priority services register is used by suppliers to identify consumers who may need additional support with their energy supply. Of course, suppliers sometimes fail, but we have vital safety nets to ensure supply—as we have seen since the last debate—through the supplier of last resort, or SoLR, process. I would be concerned about the deliverability of such protections under a local electricity supply regime.

Let me turn to the three questions that the hon. Member for Bath asked specifically. I think that I have answered the question on future energy legislation. I have outlined, I think, some of the difficulties with the current Bill as proposed. Also, I think that I have gone into the distortions to the energy system just now and before in some detail. And will I meet her? As I have mentioned, I have an existing commitment to my hon. Friend the Member for Wantage, but I am happy for people to come together. That was the commitment that I made to him—to meet Members with an interest in this area.

[Wera Hobhouse]

I was originally a little disappointed that the Minister’s invitation went only to his colleague the hon. Member for Wantage (David Johnston), but if he has already fixed a meeting and he is opening it out, may I ask whether there is already a fixed date for it that he can share with us?

[Greg Hands]

I appreciate the hon. Lady’s line of questioning. I replied specifically to a letter from my hon. Friend the Member for Wantage seeking a meeting. I think the best thing to do would be for me to speak to my hon. Friend or for her to approach him—it would effectively be his meeting—to find the best way forward. I am keen to be as accommodating as possible to Members across the Chamber, but I responded to the letter that my hon. Friend the Member for Wantage sent me, which I think was on behalf of a group of Members. [Interruption.] In that case, I think the best thing to do would be for the hon. Member for Bath to approach, first, my hon. Friend the Member for Wantage.

On the question of the cost to consumers, though costs are reduced for the few in the scheme, that avoids market costs, which fall on those not in the local scheme. That often includes the fuel-poor, who cannot buy into such schemes.

Germany was mentioned many times. Without going off and setting up my own separate Adjournment debate, there are reasons why Germany works well, and less well, in this space. Germany’s grid, for example, makes it very difficult to get renewable energy from the North sea down to Bavaria. Its grid is not set up in the same way that ours is, on a national basis. That can have advantages and disadvantages. I also point out Germany’s reliance on imported gas from abroad. That again stresses some of the difficulties in scaling up; even in Germany, which has been praised for community energy, it does not necessarily offer a scalable solution in that same way.

The hon. Member for Brighton, Pavilion (Caroline Lucas) asked about the continuing expansion of the rural community energy fund. I will look at the options for funding as part of Department-wide planning.

My hon. Friend the Member for Waveney (Peter Aldous) asked five questions; I will try to deal with them as quickly as possible. First, derogation is possible; Ofgem consulted previously on widening the use and geographic premises licences are possible. Secondly, the right to supply is possible; BEIS will work with Ofgem on retail market reform. Thirdly, this is really a matter for Ofgem, which can do a local supply licence, but we can set out why we do not agree with a local supply licence. Fourthly, we are looking at the supply hub model as part of the retail market reform. It is a complex issue, which, of course, has implications for things such as the smart meter roll-out, and so on. Fifthly, I think we have already covered the smart export guarantee scheme.

The hon. Member for Strangford (Jim Shannon) asked about Northern Ireland. As he and I well know, it is a unique energy market. I am having a meeting with Gordon Lyons, the Northern Ireland Economy Minister, on wider issues tomorrow, and I will try to feed this into a conversation with him. The meeting is with the three devolved Administrations, but I will find an appropriate time to ask him about how we can work together on community energy schemes.

Mr Betts, I think you said we were finishing at four—

[Mr Clive Betts (in the Chair)]

Twenty-eight minutes past.

[Greg Hands]

Fantastic. I will leave some time for the hon. Member for Bath to reply.

Finally, earlier this year, we jointly published with Ofgem our new smart systems and flexibility plan and the UK’s first energy digitisation strategy, which was also developed with Innovate UK. Many of the actions set out in those documents aim to improve locational signals and help to enable smart local energy solutions, such as facilitating further growth of local flexibility markets.

In addition, Ofgem’s access and forward-looking charging review seeks to deliver more efficient choices about where users locate on the networks, and how they use the networks on an ongoing basis. The introduction of better price signals is important in ensuring that local generation is rewarded for the benefits it can bring to the system. It is recognised that, in some parts of the country, the costs of connecting to the grid can itself act as a barrier. Ofgem has therefore proposed to reduce connection costs for generation connections, such as community energy, by socialising more of the network reinforcement element of connection charges. Any changes are expected to come into effect from April 2023.

Many Members have argued in favour of local energy suppliers as an option to mitigate global gas price impacts, which I have already referred to, but risks would continue to exist. For example, local energy suppliers are likely still to need to be connected to the grid during periods of low generation. The failure of a local energy supplier without a grid connection would also leave customers without energy supply in the absence of an effective safety net.

The Government continue to support the development of new business models to supply energy consumers and help achieve our net-zero ambitions. In response to the unprecedented rise in energy prices this year, we are working closely with Ofgem to consider broader reforms to the overall energy retail market regulatory framework. We want a market that will support the longer-term transition to net zero, recognising the need for continued competition and innovation while also ensuring that suppliers have sustainable and resilient business models. That includes Ofgem exploring a move towards a more prudential regulatory regime, recognising that energy suppliers are managing complex financial risks and ensuring that the energy sector is resilient against a wide range of future scenarios, including prices rising further or falling sharply.

This debate is testament to the fact that there is clearly extensive cross-party support for the community energy sector, which we very much welcome. Just as importantly, there is a wealth of innovative schemes—

[Peter Aldous]

I am most grateful to the Minister for setting out so clearly the obstacles that need to be overcome to mobilise community energy schemes. Can he confirm that he and the Government are committed to overcoming those obstacles and removing those barriers so that, when we come back in a few months’ time, we can say that we have achieved tangible progress?

[Greg Hands]

I am certainly committed to examining the obstacles and speaking to my hon. Friend; I know his long-standing interest in this, as indeed in all energy questions—he is the Mr Energy of East Anglia. I am very happy to continue to engage with hon. Members, to look at the obstacles and to see what can be overcome, ameliorated or worked around. I am very keen to meet and continue the engagement with hon. Members. It is a little difficult for me to agree to remove the obstacles until we have scoped them out. The Department is well aware of the obstacles, but if my hon. Friend has suggestions for how to overcome some of them, I am interested in working with him and like-minded hon. Members.

Just as importantly, there is a wealth of innovative schemes across the country, run by passionate people who are committed to creating a cleaner and greener future for us all. I close by thanking the hon. Member for Bath once again for securing the debate.