Energy Prices Act 2022 (Extension of Time Limit) (No. 2) Regulations 2026
(Limited Text - Ministerial Extracts only)
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Lord Whitehead
That the Grand Committee do consider the Energy Prices Act 2022 (Extension of Time Limit) (No. 2) Regulations 2026.
Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, these draft regulations were laid before the House on 8 June and, in case noble Lords think we are suffering from a small dose of déjà vu, similar regulations, which we debated at the time, were laid months ago for reasons that I will come to in a moment. Further regulations were laid concerning Northern Ireland a little while after that.
As the background to this SI, the Government acted in the Autumn Budget to reduce electricity costs to the benefit of all households with a domestic electricity meter by scrapping the energy company obligation— ECO—scheme and moving 75% of the domestic costs of the renewables obligation to the Exchequer. We have been able to provide immediate savings for households in kind. These actions also mean that the energy price cap grew by less than it would otherwise have done on 1 July this year.
On 27 May, Ofgem announced that the price cap level for the period from 1 July to 30 September would be set at £1,862—an increase of £221 from April. The changes that we made at the Autumn Budget are still factored into bills and, without that action, the price cap would be significantly higher.
This concerns the transfer of 75% of the levies on the renewables obligation scheme to the Exchequer. The renewables obligation scheme exists to incentivise UK renewable electricity generation through a system of tradeable certificates. Of course, it is not a current scheme—it closed to new applications in 2017—but existing sites will continue to receive support until the scheme ends in 2037. The scheme has been instrumental in taking a nascent renewable energy sector to where it is today, with the scheme supporting around 30% of total UK electricity generation.
The core of the renewables obligation scheme is a process in which electricity suppliers purchase certificates from renewables generators. This process continues unchanged. However, previously, suppliers ultimately recovered the costs of complying with their renewables obligations from consumers via electricity bills. Ofgem considered these costs when setting the quarterly price cap for domestic consumers in Great Britain.
From 1 April, the Government have instead been providing grant funding to electricity suppliers to cover 75% of the cost of these obligations attributable to domestic energy supply in GB. We have given a legal direction to electricity suppliers requiring them to pass these savings on to domestic consumers. Translated into the typical dual-fuel bill used by Ofgem, and accounting for other changes, our intervention delivered a reduction of £117 in the price cap on 1 April. Although the price cap on 1 July increased by £221 as a direct consequence of events in the Middle East, it would have been considerably higher still without the ongoing effect of moving the renewables obligation to the Exchequer, which continues to suppress bills.
I come to the vehicle through which those changes could be placed in legislation. The legislative basis for the grant funding that enables the energy bill reductions was originally due to expire in April; that is because the Energy Prices Act 2022 contained provisions that have been used, for the purpose of this legislation on these reductions, to sunset the possibility of those reductions being undertaken. As I mentioned, we debated the Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026 in the Chamber this year. They came into force in April and extended the power so that it is now set to expire on 25 October. The regulations before us extend this time limit once more to ensure that the removal of costs from energy bills can continue.
I should say at this point by way of a confession that, when I was the shadow Energy Minister in opposition and took part in our consideration of the then Energy Prices Bill in 2022, I did state that I was rather concerned that some other Government might come along and use the provisions in that Bill for something else entirely. I was a little mollified by the fact that a sunset clause was placed in the Bill, but I consider that the changes that have been put into legislation here have a rather similar purpose to that of the Bill in 2022—at least as far as the clauses at that time are concerned; they aimed to provide additional assistance for people who had very high energy bills as a result of the Russian invasion of Ukraine and the volatility that resulted from that.
What we are looking at today is a further extension of those sunset clauses to cope with the next phase of that transfer of responsibility from energy bills to the Exchequer. The arrangements in the settlements were for three years to 2029 so, as things stand, these regulations will have to be extended repeatedly during the time that those savings on customers’ energy bills are in place.
This extension to the regulations is only until 25 April 2027. It says in my brief: “I therefore expect to return to the House by February to seek a further extension”, but that should read, “Whoever happens to be there at the time will come to the House to seek a further extension”. However, I can assure noble Lords that the department is working hard on some primary legislation, at the moment, which will provide a more permanent solution to be taken forward when parliamentary time allows. Your Lordships would therefore not be in a position of having to return every six months to take this matter forward.
I emphasise to noble Lords that the position is slightly different in Northern Ireland, as I think we know because we have debated it separately. Energy costs are a transferred matter for the Executive, and the Northern Ireland renewables obligation forms a smaller cost on electricity bills. The department has been supporting colleagues in Northern Ireland as they develop a comparable offer to the policy in Great Britain. Following a request from the Minister for the Economy in Northern Ireland, separate regulations were laid on 20 June, as I mentioned, to enable the Northern Ireland Department for the Economy to deliver a comparable offer. Those regulations have since been signed and have entered into force.
These regulations are a straightforward extension of an existing time-limited power, but they ensure that the Government can continue to deliver the bill reductions announced at the Budget while work progresses on a longer-term legislative solution. I beg to move.
Baroness McIntosh of Pickering (Con)
I thank the Minister for presenting the regulations before us. I express the hope that he stays in his position, as indeed does the Whip. We do not like changes in the House of Lords.
I will make a couple of comments. Eons ago, I served as the shadow Environment Minister on an energy Bill in 2006 or 2007, I think it was, so plus ça change, plus—or rather, the more things change, the more they stay the same. I do not know how Hansard will cope with a French quotation so I will not say it.
What the Minister has put before us just confirms that this is smoke and mirrors. We are all playing for what is, in effect, a subsidy, and this has been the case since the mid-2000s, when his Government introduced this type of policy. Instead of me, as a householder, paying my household electricity bill, I am now paying it as a taxpayer, through my general taxation. I just hope the Minister and the department will step back from saying that this is a reimbursement or a return to me of £117, because that is not the case.
Where the department and the Minister could make a difference is by reducing the standing charge, as Martin Lewis, the money-saving expert, has said on many occasions. I know it has been outside the remit and the purport of the statutory instrument, but I just make a plea to the Minister, who has now disappeared behind the Dispatch Box—I cannot see him any more. I think he is still there.
Lord Whitehead (Lab)
I think that, in fact, our government lectern is higher than the opposition lectern.
Lord Moynihan (Con)
My Lords, I apologise for the interruption due to the vote. I was simply going to give the Committee one example of the consequences of overreliance on renewables.
On 23 June this year, NESO, the National Energy System Operator, faced severe supply constraints caused by high electricity demand for cooling during an extreme heatwave, combined with—this is important—low wind generation at the time, unplanned gas plant outages and network constraints. These factors cause the grid frequency to fall below the normal operating limits. It should have been reported to Ofgem immediately. I ask the Minister: why was it not reported to Ofgem on the day or early the following morning?
Many other important aspects related to this matter are outside the scope of this SI, so I will either write to the Minister with specific questions or potentially table them in a Written Question. This was an exceptionally important moment for the grid, and it appears that there were many problems associated with it: control room engineers being forced to take emergency action without it being reported; allegations from whistleblowers that the grid came closer to blackouts than was reported; and senior corporate staff instructing control room engineers to avoid making or preserving permanent paper trails of their operational decisions. All of that would be wholly unacceptable; I know that the Minister will share in my condemnation of those working practices.
In closing, I revert to the point that I made at the outset. I sincerely thank the Minister for always being so gracious, receptive, polite and engaging. I wish him a good break. I hope that he will still be in his place when he comes back from the Recess, because I anticipate that the energy Bill will take up a good deal of our time in the next 12 months, and I hope that he will be a renewed voice of influence in the U-turns that Andy Burnham will be making to energy policy. I am very grateful to him for everything that he has done and the courtesy that he has shown me throughout. I attribute those comments also to the noble Earl, Lord Russell, because he has always been similarly engaging in these debates during the current Session. These have been an interesting and appreciated six months back in the job. I look forward to the following year and working with the Minister.
Lord Whitehead (Lab)
I thank noble Lords for their constructive contributions and hope they will forgive me if I do not tarry too long in my closing speech and try to give a detailed response to everything that has been put forward. They are all very valid points but, among other things, we have a vote in about 20 minutes. I will certainly write to noble Lords on those points.
In particular, I am happy to write to the noble Baroness, Lady McIntosh, on standing charges. I have thought about this a great deal, but the issue is fraught with practical difficulties in how you do it. As the noble Lord pointed out, everyone has to pay for something somewhere. The question is what sort of equity you put in place if you are removing standing charges. A standing charge that goes on people’s bills as a block might be more properly allocated in terms of who pays for what and where. It is not a question of just taking standing charges away but of making sure that people are properly remunerated for network costs, distributed costs and all those sorts of things in a different way. That will be part of the content of my letter.
The noble Baroness is also sort of right to say that this measure is having the effect of taking charges off bills and putting them on to the general taxpayer. I would not exactly call it smoke and mirrors, but a charge will continue to be levied. However, there is one important point in this change that I hope noble Lords will consider. This changeover has an effect on the energy price cap each time round; changing billing from the levy to the general taxpayer means that the energy price cap is lower than it would otherwise be, which really is a saving for energy customers. As we can see, that is what has transpired as a result of these changes.
The noble Earl, Lord Russell, asked about the situation in Northern Ireland. I am grateful to him for being brief, as I know he has concerns in a number of other areas. If he has any further concerns, I am sure we can take those up. As far as Northern Ireland is concerned, my understanding is that everything is now complete. We have had the legislation through to enable the Northern Ireland Executive to put their own scheme in place, which they are now doing. The net benefit is going to be less, about £30 per customer, because of the different circumstances in Northern Ireland, but there are now no impediments in the way of that scheme being fully funded by the Treasury and fully operational under the aegis of the Northern Ireland Executive. That process is completed.
I assure the noble Lord, Lord Moynihan, that the costs of operating this will be very small. It involves small administrative changes and no large costs will be outstanding from them. He mentioned NESO, the frequency response and the margin call that was made recently. I can assure him that, as far as the narrow version of events is concerned, there are active inquiries under way as to what happened on that occasion which NESO is undertaking as we speak.
Lord Moynihan (Con)
In the interests of transparency, will the Minister write to us with the outcome of that report, so that this Committee, and indeed the House, are fully apprised of what happened that day and the actions being taken?
Lord Whitehead (Lab)
Yes, I am very happy to do that, but I anticipate—I do not know whether the noble Lord has this actively in mind—that we may have an Urgent Question coming on this, so we may be able to start talking about it at that point.
On the wider question of frequency response, it is true that, as far as having a substantially renewables-based system is concerned, the possibility of wider perturbations in frequency is something that one has to consider. That is why, among other things, as he will know, there have been regular auction calls for frequency response mechanisms which can be brought to bear to make sure that those perturbations are very rapidly brought under control, because it is a question of more than 50 megahertz on either side of the 400 barrier. When it goes down too low, you have to intervene. Those frequency response mechanisms can do that very efficiently and have done it very efficiently. Therefore, there was no question that we were beyond the buffer as far as that margin call was concerned. That may be something that I add to my correspondence with the noble Lord.
Tackling affordability is the Government’s number one priority, and we acted at last year’s Budget by taking, on average, £150 of costs off energy bills, with those decisions now factored into bills for three years to come, as I have said. The recent price cap announced by Ofgem will be deeply concerning news for families. We understand that developments in the Middle East are concerning, and we will continue to monitor that situation ahead of winter and plan for contingencies. Should there be any further action relating to what is happening in the Middle East, it may well be that the Energy Prices Act 2022 comes to the rescue, as far as any of those measures are concerned. We will keep that under close review, and let us hope that things work out in a good way, but the Government will certainly keep a close eye on it should things not work out as well as we hope.