Energy Costs

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Thursday 6th January 2022

(2 years, 6 months ago)

Lords Chamber
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Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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My Lords, I first pay tribute to and thank my noble friend Lady McIntosh for securing this debate on what is, of course, an extremely important topic. I think that all of us will agree that the debate has, yet again, been interesting and informative. I am also grateful to all others who contributed.

First, I make it absolutely clear that this Government are committed to supporting vulnerable households with their energy bills, both now and in the long term, as we seek to decarbonise our energy system and transition to net zero by 2050. I say to the noble Lords, Lord Berkeley and Lord Grantchester, that the Government are currently engaging with stakeholders, including consumer groups, energy retailers and other business sectors to consider what further action may be necessary in the short term.

The recent rise in energy prices has been driven by the increase in the price of wholesale gas, the demand for which has grown, as we and other nations recover from the Covid pandemic. Consequently, higher gas prices were observed internationally in the latter half of 2021, with tremendous increases across the world. In addition, greater liquefied natural gas—LNG—demand in Asia, upstream maintenance affecting supply capacity last summer, a fire at one of the UK’s major electricity interconnectors with France, and increased demand for gas in electricity generation in the UK and on the continent, as coal is disincentivised, have all played a role in and contributed to rising prices.

However, it is important to emphasise that this has not impacted on our energy security. The Government continue to work closely with Ofgem, National Grid, National Grid Gas and other key industry organisations to monitor gas supply and demand.

A number of Peers—the noble Lord, Lord McNally, the noble Baroness, Lady Boycott, the noble Lord, Lord Hendy, and others—raised the issue of protection for households. The Government already have a wide range of support measures in place to help the most vulnerable households reduce their energy consumption, through both rebates and energy efficiency measures. These include, first, the warm homes discount, providing support with energy bills through rebates and helping households to stay warm and healthy in winter. The scheme currently provides more than 2 million low-income and vulnerable households with a £140 rebate of their winter energy bill, and BEIS has already consulted on proposals that would expand the scheme from about £350 million to £475 million per year at 2020 prices, which will help the scheme to reach 3 million households from winter 2022-23 onwards. Let me say to my noble friend Lady McIntosh that in 2011, that scheme replaced the social tariff to which she referred, and, in our view, it provides better targeted support than the tariff. The additional funding and proposed reforms would mean that 780,000 more households would receive rebates every winter, with a proposed increase in the value of rebates to £150 per household. In addition, most households would receive their rebates automatically, without having to apply.

On the many points raised on energy efficiency by the noble Lords, Lord Berkeley, Lord Oates, and others, we of course have the energy obligation scheme, which has already installed 3.3 million measures in 2.3 million homes. We are increasing the amount that energy suppliers invest in energy efficiency measures for low-income households, extending ECO until 2026 and boosting its value from £640 million to £1 billion per year. We estimate that this will help at least an extra 305,000 families with green measures such as insulation and low-carbon boilers, which will reduce their energy demand and save them an average of £300 a year on their dual fuel bills.

I remind the noble Lord, Lord Oates, that we are also investing more than £2 billion in other energy efficiency schemes through projects such as the home upgrade grant, the local authority delivery scheme, the sustainable warmth competition, which brings together HUG 1 and LAD 3, and the social housing decarbonisation fund. All those measures are helping to provide long-term solutions by improving the energy efficiency of homes.

In addition, the Department for Work and Pensions provides support for both vulnerable users and pensioners through its winter fuel payment and cold weather payment schemes. The winter fuel payment is worth between £100 and £300 and is paid automatically to those in receipt of state pension or other social security benefits, while the cold weather payment is a £25 payment for vulnerable householders on qualifying benefits when the weather is expected to be unusually cold. In addition, the Department for Work and Pensions announced last autumn a £500 million support fund to help those most in need this winter, and that includes provision for utility costs, including energy.

A number of noble Lords—the noble Lord, Lord Grantchester, and my noble friend Lady McIntosh in particular—raised the issue of the price cap, which has protected households this winter from the short-term volatility of wholesale gas prices. Ofgem has confirmed that the cap will stay at the current level this winter. The Government have committed to retaining powers to implement a price cap beyond the current long-stop date of 2023, should that be necessary. I say to the noble Lord, Lord Hendy, that the Government have made protection of consumers their priority, and the price cap has indeed protected millions of consumers. Setting it is, of course, a matter for Ofgem, and the regulator has issued a number of consultations in recent weeks on how the price cap could adapt to changes in the cost of supplying energy to households; we look forward to its decision on this matter. In the longer term, in reply to the noble Lord, Lord Grantchester, the Government are looking at how policy costs that help to fund low-carbon energy infrastructure, to provide support to vulnerable consumers and to ensure security of supply are distributed between gas and electricity.

My noble friend Lord Lilley raised the issue—I think it was also raised by the noble Lord, Lord McNally—of green levies. As set out in the Heat and Buildings Strategy, we will publish a fairness and affordability call for evidence to set out the options for energy levies and obligations in order to help to rebalance electricity and gas prices and to support green choices, with a view to taking decisions this year.

My noble friend Lady McIntosh asked me about a number of matters, particularly the removal of green levies, as did my noble friend Lord Lilley; I think the noble Baroness, Lady Fox made a similar point. I say to all of them that the Government’s energy, investment, environmental and social policies have helped to protect the most vulnerable, to lower emissions and to increase security of supply. However, we also want to make sure that our policies enable consumers to make decisions that support decarbonisation. As set out in the Heat and Buildings Strategy, as I said earlier, we will publish a fairness and affordability call for evidence to set out the options for energy levies and obligations, in order to help to rebalance electricity and gas prices to support the transition to net zero.

On scrapping VAT on energy bills, raised by my noble friends Lady McIntosh and Lord Lilley and the noble Lord, Lord Sikka, I suspect all noble Lords know that this remains a matter for the Chancellor and Her Majesty’s Treasury and is not something I am able to comment on, although it is worth bearing in mind the point made by my noble friend Lord Lilley: that the only reason why we can even consider doing this is that we have now left the EU.

On energy loss from transmission lines, raised by my noble friend Lady McIntosh, the Government and Ofgem recognise the value of minimising energy losses in reducing emissions and protecting consumers from unnecessary cost. It is an important feature of Ofgem’s regulation of energy companies.

The noble Lord, Lord Grantchester, and my noble friend Lady McIntosh raised the issue of off-grid homes. The Government are of course aware that the price of oil has remained around levels not seen since 2018, which has had an impact on the price of heating oils. Heating oil consumers are of course able to shop around for the best price for each delivery, and we believe that this provides the best long-term guarantee of competitive prices.

On the costs of renewables and decarbonisation, raised by the noble Baroness, Lady Fox, as we set out in the Net Zero Strategy, the Government are introducing a balanced range of low-carbon technologies, including new nuclear and hydrogen technologies. The noble Baroness also raised the important issue of the costs to businesses. We recognise the impact of rising energy prices on businesses of all sizes, and Ofgem and the Government are in regular contact with business groups and suppliers.

Unfortunately, I am running out of time, so I say in conclusion that the Government are committed to protecting vulnerable households in respect of their energy bills, which is why we have in place the many support schemes I have outlined to help those most in need, both through direct financial rebates and through measures to improve energy efficiency in the home. We will continue to engage with consumer groups and industry and consider what further support may be necessary. I apologise to those noble Lords whose points I did not get a chance to refer to, but I will write to them.