Energy Bill [ Lords ] (Fifteenth sitting)

Lord Whitehead Excerpts

Committee stage
Thursday 22nd June 2023 Public Bill Committees

[Andrew Bowie]

Government new clauses 53 and 54 relate to support for energy-intensive industries. The Government recognise that in recent years EIIs in Great Britain have faced the steepest industrial electricity prices in Europe, even with existing Government support schemes applied. That has been due primarily to the long-term disparity in network and policy costs. It has a particular impact on the competitiveness of UK industry and, in particular, EIIs such as steel and chemicals manufacturing. Internationally higher electricity prices for these sectors put the UK at risk of significant job losses and disinvestment—a position that is growing only more acute against the backdrop of volatility in wholesale energy markets. Consequently, the UK is also missing out on inward investment, as the most energy-intensive industries in comparable neighbouring countries are exempted from similar costs.

In the absence of UK domestic production, we would need to place much greater reliance on import markets in regions with lower emissions standards and less stringent climate policies. That would constitute carbon leakage, which is a risk to both our economic security and our aim to achieve net zero by 2050. In response to this challenge, the Government announced in February the British industry supercharger—a decisive set of measures to make Britain’s strategic EIIs more competitive and to tackle the risk of carbon leakage. That will be achieved by addressing three areas of the domestic energy system, which together contribute to higher electricity costs for EIIs here than is the case in comparable countries.

The new clauses will provide us with the powers to implement one of the three measures in the British industry supercharger package by providing a means to offer relief on network charging costs. New clause 53 provides the Government with the powers to implement the network charging compensation scheme to compensate EIIs for a portion of their network charging costs. It also provides the Government with the powers, if required, to appoint an administrator for said scheme.

New clause 54 provides the Government with the powers to establish the mechanism to fund the NCC scheme through a levy on all licensed electricity suppliers in the form of the EII support levy. It also provides the powers to appoint an administrator for the proposed levy. This measure, in conjunction with the others listed in the British industry supercharger package, will help to reduce electricity costs for EIIs that struggle to remain competitive because of the high cost of electricity.

Failure to tackle high electricity prices would risk the UK losing these critical sectors for good, resulting in missed investment, job losses and a need for us to place much greater reliance on import markets with lower emissions standards. I therefore commend new clauses 53 and 54 to the Committee.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship once again, Dr Huq. The Government tabled the new clauses at a reasonably late stage. We knew they were coming, because the Minister was kind enough to discuss them beforehand, but, having arrived, they do not quite say what I thought they might about the matter in hand, and it would be useful to have a little clarification from him—in addition to what he said a moment ago—about what exactly the new clauses consist of.

The major element of the so-called supercharger package as it relates to the new clauses is, as I understand it, the proposition that energy-intensive industries should be subject no longer to green and similar levies but should have a complete exemption from those levies. For quite a long time they have had an 85% exemption from levies, and I think part of the proposal in the supercharger arrangements is to reduce that to zero.

The Minister will know from our previous discussions that there is an extant list of what are and are not energy-intensive industries. There is some discussion about whether that list might be refined to more accurately define what energy-intensive industries are. Indeed, I recall that the Minister and I had exchanges in a Westminster Hall debate about what would be defined as an energy-intensive industry for these purposes. There are anomalies in the definition of “energy-intensive industries”—for example, certain things relating to plants or plant culture are included as energy-intensive industries because of the energy they use, but agriculture in general is not—so there are questions about what will be defined as such and whether there is any intention to clarify or change the definition.

For industries that are categorised as energy intensive, the changes that can be made to levy obligations through the operation of the new clauses could be fairly considerable. I imagine the Minister may well be inundated with letters and various other communications from people in industries that they think should be classified as energy intensive but are not presently included in the definition. They will wonder whether the Department is going to have any proactive discussion about that, or whether it is content to leave the list as it is for the purpose of the new clauses. I do not know, and it would be helpful to have some sort of guidance as to whether that will be the case.

The position hitherto has been that energy-intensive industries have had an 85% exemption from the levy, and the difference in liability has been recovered from other industries in general—that is, smeared across those other industries’ liabilities for levies, so that their levy requirement goes up a little and energy-intensive levies go down. Given that the levies across industry are broadly defined, that amounts to a pretty small addition to levy requirements for most industries, but a fairly substantial reduction in the levy requirement for energy-intensive industries. Going from the 85% exemption down to 0% would, at least in principle, require a further smearing of the difference across industry as a whole so that the difference would be marginally greater than before, but, again, it would perhaps not be an enormous imposition on industries that are energy intensive. I think the Minister can see, however, that people who are on the wrong side of the cliff edge may see it slightly differently.

The new clauses seem to provide for a slightly different mechanism. New clause 54 sets up a levy to fund electricity support payments. We are familiar with how that might be set up, given our discussions about the hydrogen levy earlier in Committee, and it is a similar sort of arrangement. The difference is that nothing in the new clause says how that levy might be raised. As I say, we currently have methods that do not use this mechanism but effectively raise money by socialising the cost across the rest of industry. However, the levy arrangements set out in the new clause suggest that raising the difference could be a wider activity. For example, just as we have found with the hydrogen levy, the new levy could be raised from suppliers. The new clause suggests that suppliers are supposed to make information available to the regulator, so there is at least a suggestion that that is how this levy will be established.

Of course, we cannot say for certain, because the provisions for the levy to be introduced are currently pretty broad; I assume that the relevant matters will be undertaken by regulation. I am pleased to see at least that the relevant regulations will be subject to the affirmative procedure, so we will hopefully be able to discuss them further, in a room similar to this one, at some stage in the future.

At this stage, it would be good to have further clarification on Government thinking as to how the levy will proceed, what it is intended to encompass, how it will be raised and, indeed, whether there will be a sort of counterparty arrangement similar to that for the Low Carbon Contracts Company—although that may not be necessary if the proposition, particularly in terms of exemption from other levies in general, is that costs will be socialised across industry in the same way that previous levy exemptions were. It might, though, be necessary if other procedures are supposed to be put in place to assist energy-intensive industries.

I would like to hear from the Minister about those matters, but I do not have any particular disputes on the question of whether we set up general measures to provide assistance to energy-intensive industries, other than to ask how they are going to work in practice.

[Andrew Bowie]

I thank the hon. Gentleman for his questions. In my opening speech, I set out in some detail exactly how we expect the levy to function. For clarity’s sake, new clause 54 provides the Government with the powers to establish the mechanism to fund the NCC scheme. It will be a levy on all electricity suppliers in the form of the EII support levy. The new clause also provides the powers to appoint an administrator of the levy.

We believe this is a critical step to ensure that energy costs for key UK industries are in line with those in other major economies. The exact workings of the mechanism and how it will work in practice are still being worked through. Obviously, we will update the House when information comes forward and, as the hon. Gentleman said, there will be opportunities to debate these matters further in the future.

As for expanding the number of companies and sectors that are eligible for support through the scheme, a review of the analysis will be carried out in 2026 to ensure that it is supported by stable post-covid and post-EU data, to give us an up-to-date view of the market and to allow us to target those sectors that are most at risk from carbon leakage. The list of eligible sectors will be refreshed accordingly at the point at which we conduct the review of the analysis in 2026.

What do the new clauses do? I already covered that in my speech. The reason why we are making these changes now is, as the hon. Gentleman said, because the question of how we support these industries moving forward is concentrating the minds of many in this country, given the high electricity prices and the cost of decarbonising those industries. We believe that the supported sector will be approximately 300 firms that are the most at risk of carbon leakage due to the high industrial electricity prices.

[Dr Whitehead]

I am listening carefully to the Minister, but I am still not clear about the role of the levy. Are the Government suggesting—I think the Minister is—that the levy arrangement would have a levy-raising body that could raise fresh levies for direct support to energy-intensive industry from suppliers? Or is that body restricted to the forgiveness of existing levies, which currently, or at least residually, are a 15% liability for energy-intensive industries? If it is the latter, is the Minister not perhaps setting out a few hostages to fortune by suggesting that there may be other levies that this levy board, or whatever it is, could raise separately from suppliers? If that is the case—I do not think it is—what is the role of the levy in doing anything separate from what has already happened in terms of the socialisation of levy forgiveness across the rest of the industry? Why is it necessary to set up a levy-raising body separately from that mechanism?

[Andrew Bowie]

At the risk of repeating myself for a third time, I set out in my speech exactly what we expect the levy to do, precisely why we are introducing the powers through the Bill and exactly why it is important that we support these industries, because of the high electricity cost, fluctuating market prices and cost to decarbonise.

On the hon. Gentleman’s specific question, I cannot quite remember which way round he presented it, but I reassure him that there will be no powers for this levy-raising body to introduce further levies on separate sectors, or whatever it was he was suggesting. It was the former argument—it is specifically for the industries and sectors that we have identified in this Bill, and that is it. That is what the levy is designed to do.

[Dr Whitehead]

Forgiveness of the existing levy.

[Andrew Bowie]

Yes.

Question put and agreed to.

New clause 53 accordingly read a Second time, and added to the Bill.

New Clause 54

Levy to fund electricity support payments

“(1) The Secretary of State may make regulations requiring the payment of a levy by electricity suppliers for the purpose of funding—

(a) the making of electricity support payments by virtue of section 1 (including expected future payments);

(b) any other costs arising by virtue of section 1 or this section (including expected future costs).

(2) The regulations may make provision—

(a) about the calculation of the levy;

(b) requiring electricity suppliers to provide financial collateral in respect of their obligations to pay the levy, and about the form and terms of such collateral;

(c) for the issuing of notices to require the payment of the levy or the provision of collateral;

(d) for the provision of copies of such notices to persons specified in the regulations or for the publication of such notices;

(e) about how amounts of levy are to be applied once paid (including provision for amounts to be held in reserve or paid into the Consolidated Fund);

(f) for the recovery of unpaid amounts of levy in the event of the insolvency or default of an electricity supplier (including provision requiring amounts to be borne by other electricity suppliers in accordance with the regulations);

(g) requiring electricity suppliers or the GEMA to provide information that is needed to determine—

(i) what an electricity supplier’s obligations are in relation to the levy, or

(ii) whether an electricity supplier has complied with those obligations;

(h) about the sharing of information provided by virtue of paragraph (g);

(i) for the enforcement of obligations imposed by or under the regulations (including provision about interest on late payments and imposing financial penalties);

(j) about the resolution of disputes, including provision about arbitration or appeals (which may in particular include provision for the person conducting an arbitration or determining an appeal to order the payment of costs or expenses or compensation).

(3) Where by virtue of subsection (2)(i) the regulations provide for the imposition of a financial penalty, they must also provide for a right of appeal against the imposition of the penalty.

(4) The regulations may—

(a) appoint a person, with the person’s consent, to carry out functions in connection with the levy (a ‘levy administrator’);

(b) confer functions on the levy administrator;

(c) require the levy administrator to provide information or assistance to the Secretary of State, or to another person specified in the regulations, in relation to any functions so conferred.

(5) Where—

(a) the regulations impose a requirement on a regulated person (as defined by section 25(8) of the Electricity Act 1989),

(b) the requirement is enforceable by a levy administrator, and

(c) the levy administrator is the GEMA,

the regulations may provide for the requirement to be enforceable by the GEMA as if it were a relevant requirement imposed on the person for the purposes of section 25 of that Act.

(6) The regulations may provide for any sum—

(a) that a person is required under the regulations to pay to the Secretary of State or to a levy administrator, and

(b) that has not been paid by the date required,

to be recoverable from the person as a civil debt due to the Secretary of State or to the levy administrator (as the case may be).

(7) The regulations may make provision about the terms of a levy administrator’s appointment, including provision—

(a) for the levy administrator to be remunerated, or compensated for costs that they incur;

(b) about how an appointment may be terminated by the Secretary of State or by the levy administrator, and when termination takes effect.

(8) If functions of a levy administrator (“the outgoing administrator”) are to be taken on by another levy administrator or by the Secretary of State (“the successor”), the regulations may—

(a) require the outgoing administrator to take steps specified in the regulations to enable or facilitate the carrying out of those functions by the successor;

(b) provide for the transfer of any property, rights or liabilities from the outgoing administrator to the successor;

(c) provide for anything done by or in relation to the outgoing administrator in connection with any property, rights or liabilities to be treated as done, or to be continued, by or in relation to the successor.

‘Property’ in this subsection includes interests of any description.

(9) Regulations under this section may confer a discretion on the Secretary of State or on a levy administrator.

(10) Regulations under this section are subject to the affirmative procedure.

(11) In this section, ‘electricity supplier’ means the holder of a licence under section 6(1)(d) of the Electricity Act 1989.”—(Andrew Bowie.)

This new clause, intended to be inserted in Part 6, empowers the Secretary of State to make regulations imposing a levy on electricity suppliers, to fund the scheme which may be set up by virtue of NC53. It allows for a person to be appointed to administer the levy.

Brought up, read the First and Second time, and added to the Bill.

New Clause 55

Convention on Supplementary Compensation for Nuclear Damage: implementation power

“(1) The Secretary of State may by regulations make such provision as the Secretary of State considers appropriate—

(a) to implement the CSC, or

(b) otherwise for the purposes of dealing with any other matter arising out of, or related to, the CSC.

(2) The provision that may be made by virtue of subsection (1) includes provision that is authorised by the CSC to be made in relation to a particular matter.

(3) Regulations under this section may amend—

(a) Schedule 20,

(b) the Nuclear Installations Act 1965, or

(c) any other enactment having effect in relation to a matter to which the CSC relates.

(4) In this section, ‘the CSC’ means the Convention on Supplementary Compensation for Nuclear Damage (as amended or supplemented from time to time).

(5) Regulations under this section are subject to the affirmative procedure.”—(Andrew Bowie.)

This new clause confers a power to make regulations in connection with the Convention on Supplementary Compensation for Nuclear Damage, including provision to implement the Convention. The regulations may in particular amend the Nuclear Installations Act 1965.

Brought up, and read the First time.

[Andrew Bowie]

I beg to move, That the clause be read a Second time.

The new clause will provide the Secretary of State with the power to make changes to the UK’s domestic implementing legislation regarding the convention on supplementary compensation for nuclear damage—the CSC—if required in future. That power would be implemented through regulations made through the affirmative procedure.

The UK will be the first country in the world to accede to both the Paris convention on third party liability and the CSC. That is inevitably a complex process, and we envisage four different circumstances in which amendments might be needed to our domestic legislation in the future. First, it is crucial that we deliver CSC accession. Certain implementation matters are still to be worked through with the convention countries and industry, and further changes may be needed to the Nuclear Installations Act 1965 after the Bill receives Royal Assent. Secondly, we must enable the UK to accept future amendments to the CSC.

The third circumstance is the exercise of an option under the CSC where there are optional provisions—for example, paragraph 1(a)(i) of article III, which enables a different national compensation amount to be specified to the depository. We would want the ability to make any necessary changes to the Nuclear Installations Act and any other relevant legislation to implement that option.

The final circumstance is dealing with any other matters arising out of, or related to, the CSC. As the first Paris convention country to seek CSC accession, bespoke approaches to implementation may be required. There is precedent for that approach, as the powers are in line with existing powers in section 76 of the Energy Act 2004, which enabled changes to be made for the Paris and Brussels conventions. In short, it would be prudent to ensure that mechanisms are in place to enable effective delivery in the future.

[Dr Whitehead]

I do not have anything to add to what the Minister said. We have discussed similar issues earlier in our debates and I do not think that anything I would say would add to that.

Question put and agreed to.

New clause 55 accordingly read a Second time, and added to the Bill.

New Clause 59

Key definitions for Part

“(1) In this Part—

‘designated person’ means a person in relation to whom a designation under section (Designation)(1) has effect (and any reference to designation, in relation to a person, is to be construed accordingly);

‘designated project’ , in relation to a person, means a hydrogen pipeline project in relation to which the person is designated;

‘gas transporter licence’ means a licence under section 7 of the Gas Act 1986;

‘hydrogen’ means any gas that consists wholly or mainly of hydrogen;

‘hydrogen pipeline project’ means a project involving the construction, alteration or operation of a pipeline for the purpose of the conveyance of hydrogen.

(2) References in this Part to the extension or restriction of a licence are to the giving of a direction in respect of the licence under (respectively) section 7(4) or (4A) of the Gas Act 1986.” —(Andrew Bowie.)

This new clause, together with NC60, NC61, NC62, NC63, NC64, NC65, NC66, NC67, NC68, NC70 and NC71, is intended to form a new Part to be inserted after Part 2. The new clause defines key terms that are used in the intended new Part, which will give the Secretary of State powers to provide for a regulated asset base model for certain licences for the conveyance of hydrogen through pipes.

Brought up, and read the First time.

--- Later in debate ---

[Dr Whitehead]

Taken together, the new clauses provide a fairly comprehensive series of arrangements relating to hydrogen transportation. In particular, as the Minister has outlined, they introduce at least the concept of a RAB to finance the proceedings.

The Minister also said that the undertaking to which a RAB may be applied is potentially huge, and I am sure that he is aware of the complications and problems that can arise in putting a RAB together for something of this size. RABs have been tried for various schemes, but normally much smaller ones. One of the most recent was Thames Tideway, which was a pretty big undertaking, but there was at least an assurance about the purpose of the undertaking, what would happen at the end of it and so on.

The RAB that has been put in place for nuclear development—Sizewell C, to be precise—is an even more complicated beast, because it effectively makes customers liable well in advance of anything being delivered. Indeed, part of the purpose of the RAB is to ensure that funding is raised for the project before it starts. In the case of Sizewell C, there is a lengthy period between the project’s starting and its making any money, so the RAB provides, in that long period, a reasonably secure funding stream that can ensure that the project is completed and energy produced.

In relation to nuclear, one of the arguments for the RAB is that, although the customer will pay more money in the short to medium term, they will get the benefits of cheaper electricity from the operation of the nuclear plant in the long term. I am not entirely convinced by that argument. There is also the issue of the uncertain timeframe during which the RAB applies. If the timescale of a particular nuclear plant falls behind excessively, much greater obligations may be placed on the customer, over a longer period of time, before anything arises. As we discussed in relation to the Nuclear Energy (Financing) Act 2022, a project may not ever come to final maturity, and in the meantime the customer has paid a lot of money. Indeed, exactly that happened with a nuclear power plant in the United States—I think in Cleveland, Ohio—where the power plant never materialised yet customers had paid a lot of money up front for it.

I say that because the RAB that we need to introduce through these new clauses, which I do not oppose, must be carefully circumscribed. We must ensure that the time for which people are liable up front, and the result of the process, are closely monitored. I assume that those arrangements will proceed by secondary legislation and various other means, but it is worth laying down a few methods of procedure for bringing a RAB forward under these circumstances, the way it might work and how we might ensure that it creates value for money in its operation. It would be helpful if the Minister would say one or two things about that in his response.

My other question relates to Government new clause 71. The Minister says in the clause that it enables a sunset time of December 2040 to be specified as the “relevant date”. Actually, it does not attach that relevant date to the rather stark subsection (1) of the clause, which states—without further qualification or clarification—

“The Secretary of State may by regulations repeal any of the preceding provisions of this Part.”

As far as I can see, that means if at any stage—not 2040—the Secretary of State feels that he or she would like to repeal any or all of the preceding provisions in this part, he or she may do so, subject to the affirmative procedure in the House. However, we know how far statutory instruments go in holding anybody to account for anything, so the Secretary of State appears to have the ability to derail the whole process if he or she feels like it, at any stage during its operation. I would think that is a potential red flag to investors in these projects. They can go ahead with their projects and arrangements and put their investment funds in, but the Secretary of State can pull the plug at any time he or she feels like doing so: that is not a terribly reassuring thing to read in a piece of legislation when people are considering investing in hydrogen transportation, in this instance. It would be better to link that power of the Secretary of State more firmly to the sunset clause in subsection (3)—it is in the clause, but not associated with the first subsection of the clause. It may be that other provisions elsewhere that I have not seen link it in, but as it stands, it is a bit of a stark, free-standing thing to say in a piece of legislation.

As we saw recently with the Energy Prices Act 2022, which included similar arrangements for the Secretary of State to do exactly what he or she thought he or she might do at any stage, industry was very upset about those clauses. Indeed, it raised representations about what would happen to its investments and various other things were those clauses to be invoked. I hope we are not looking at a repeat of that, and have rather better arrangements to ensure that in normal circumstances under these provisions, things would be able to run their course and do what we want them to do as far as hydrogen transportation is concerned.

[Andrew Bowie]

I thank the hon. Member for his questions. He is right to draw attention to subsection (1) of new clause 71, which states:

“The Secretary of State may by regulations repeal any of the preceding provisions of this Part.”

But of course we then need to read the second subsection, which states:

“So far as any of those provisions is still in force on a relevant date, the Secretary of State must—

(a) consider whether it is appropriate to repeal that provision, and

(b) if satisfied that it is not appropriate to do so, publish a statement no later than 3 months after that date explaining why not.”

Then subsection (3) states that “relevant date” in subsection (2)

“means 31 December 2040 and each five-year anniversary of that date”—

quite a way to celebrate Hogmanay. Subsection (4) then states:

“Regulations under this section are subject to the affirmative procedure.”

I hope that the hon. Member accepts that although subsection (1) may seem as though it enables the Secretary of State to, in his words, “pull the plug”, the other provisions give relevant security to the industry and, indeed, to any MPs who may be concerned that the Secretary of State might be willing to do so without going through a process that is clear and transparent and that has options. The intention is to enable long-term investment in hydrogen pipelines, supporting it and providing investor confidence that investments in such projects will have a fair return. We intend to maintain clear and open communication with projects, as appropriate, recognising the benefits of certainty and predictability for the industry.

However, to be able to react to unforeseen issues relating to licence conditions and the operation of the RAB, the Secretary of State must retain the ability to modify the licence conditions of a designated person’s gas transporter licence while a designation remains in place. Ofgem, as the independent regulator, retains its overarching ability to change licence conditions within the existing regime.

[Dr Whitehead]

I appreciate what the Minister says about subsection (2) of new clause 71. Indeed, I paid attention to it in my remarks. But I hoped that he would agree—hon. Members might like to look at this new clause again to see whether they do—that subsection (1) does not necessarily attach itself to subsection (2). Subsection (2) states:

“So far as any of those provisions is still in force on a relevant date, the Secretary of State must”

do various things, as the Minister said. It does not necessarily relate to subjection (1). It might do, it might not. Subsection (1) just baldly says:

“The Secretary of State may by regulations repeal any of the preceding provisions of this Part.”

On the question of the provisions that are still in force on a relevant date, that could be after the Secretary of State has taken action to repeal those preceding provisions, so the subsections are not connected in the way the Minister seems to suggest.

[Andrew Bowie]

I dispute that and argue that they are connected. Yes, subsection (1) states:

“The Secretary of State may by regulations repeal any of the preceding provisions of this Part.”

But directly following is subsection (2), which states:

“So far as any of those provisions is still in force on a relevant date, the Secretary of State must”,

and so on—I am not going to repeat that. I think it is quite clear, in the way this has been drafted, that it relates to “repeal…of this Part” in subsection (1) of the new clause.

I can understand that it might be open to interpretation. I am sure that legislators and lawyers years from now will be able to have great fun arguing over exactly what is meant, but to my mind, the Government’s mind and, I think, the mind of right hon. and hon. Members in this room, subsections (2), (3) and (4) relate exactly to what is in subsection (1).

[Dr Whitehead]

We just need to add the word “and” at the end of subsection (1)—a sensible suggestion—then we might be in a much better position.

[Andrew Bowie]

I thank the hon. Member for his suggestion. I do not think that is required, but I do thank him for the suggestion.

Question put and agreed to.

New clause 59 accordingly read a Second time, and added to the Bill.

New Clause 60

Designation

“(1) The Secretary of State may by notice given to a person designate the person in relation to a hydrogen pipeline project.

(2) The Secretary of State may designate a person in relation to a hydrogen pipeline project only if the Secretary of State is of the opinion—

(a) that it is likely to be appropriate for conditions described in section (Scope of modification powers under section (Modification of gas transporter licences by Secretary of State))(1)(a) and (b) to be included in any gas transporter licence held by the person for the purposes of the project (whether or not the person already holds such a licence), and

(b) that the project is likely to result in value for money.

(3) A person may be designated only with the person’s consent.

(4) A designation may not relate to more than one hydrogen pipeline project (but a person who is designated in relation to one project may be designated separately in relation to another).”—(Andrew Bowie.)

This new clause gives the Secretary of State the power, with a person’s consent, to designate the person in relation to a hydrogen pipeline project. Subsection (2) sets out conditions that apply to the exercise of the power to designate.

Brought up, read the First and Second time, and added to the Bill.

New Clause 61

Designation: procedure

“(1) The Secretary of State must publish a statement setting out—

(a) the procedure that the Secretary of State expects to follow in determining whether to exercise the power under section (Designation)(1), and

(b) how the Secretary of State expects to determine whether the conditions in section (Designation)(2) are met.

(2) A duty imposed by subsection (1) may be satisfied by things done before the passing of this Act (as well as by things done after that time).

(3) A designation notice must include—

(a) a description of the hydrogen pipeline project to which the designation relates,

(b) the Secretary of State’s reasons for the designation,

(c) details of any conditions to which the designation is subject, and

(d) the date of the notice.

(4) The Secretary of State must give the GEMA a copy of a designation notice.

(5) The Secretary of State must publish a designation notice, but may exclude from publication any material the disclosure or publication of which the Secretary of State considers—

(a) would be likely to prejudice the commercial interests of any person, or

(b) would be contrary to the interests of national security.

(6) In this section, ‘designation notice’ means a notice under section (Designation)(1).”—(Andrew Bowie.)

This new clause requires the Secretary of State to publish a statement setting out the procedure that is expected to apply in relation to the exercise of the power under NC60. It also sets out procedural requirements that apply to a designation notice.

Brought up, read the First and Second time, and added to the Bill.

--- Later in debate ---

[Andrew Bowie]

We are racing through it this afternoon, Dr Huq.

The power in new clause 72 is specific to the unique role of hydrogen. The Gas Act 1986 regime was primarily designed around natural gas, and was established nearly 40 years ago. The possibility of using hydrogen as part of a major utility is recent by comparison. Although the Government consider it appropriate to use the Gas Act regime for hydrogen, there is inherent uncertainty in the use of a regime designed in a different era for a different type of gas. Given the highly technical and granular approach to regulation set out in the Gas Act, the issue of whether all of its relevant provisions should apply to hydrogen at scale cannot be fully tested without large-scale projects being operationalised. Therefore, any changes that may be needed cannot be put on the face of the Bill. If a problem is identified at the implementation stage, it will need to be addressed swiftly to ensure that projects are not adversely affected and that hydrogen’s role as a key technology for the UK’s net zero ambitions is not put in jeopardy.

This power, therefore, allows the Secretary of State, after consultation with the Gas and Electricity Markets Authority, to modify the Gas Act to remove unforeseen issues in relation to hydrogen production, storage, transport or use. The power is necessary to ensure that the Gas Act, initially designed for the natural gas markets, does not inadvertently prevent the hydrogen economy from being established. The Government consider it necessary to ensure that the deployment of, and significant investment in, hydrogen projects is not wasted as a result of unforeseen technicalities under the Gas Act.

This power is extremely important and is drafted with a very specific purpose and scope. It enables the Secretary of State to make regulations that provide for any provision of the Gas Act not to apply, or apply with modifications, only in relation to the production, transportation, storage or use of hydrogen. It may be used only for the purpose of facilitating or promoting the production, transportation, storage or use of hydrogen.

The new clause ensures appropriate procedural safeguards for a power of this type. There is a consultation duty under subsection (4), and all regulations are subject to the affirmative procedure to ensure that Parliament has appropriate oversight over any disapplication or modification deemed necessary.

Government amendments 168 and 170 are consequential on new clause 72, which provides powers to the Secretary of State to modify the Gas Act 1986 for a specific purpose and scope, as I have just set out. They clarify that the extent is England, Scotland and Wales because the territorial scope of the relevant provisions of the Gas Act is Great Britain.

[Dr Whitehead]

I congratulate you, Dr Huq, on your reading of the previous new clauses. You made their moving and agreeing sound much more interesting than certain other people have done in this Committee. It is rather like reading the football results and finding a surprise result now and again—it always changes slightly. We have further new clauses this afternoon, and I am sure that high standard will be maintained for the rest of our proceedings.

I have nothing further to add to what the Minister said. New clause 72 is a sensible provision and ought to be added to the Bill.

[Andrew Bowie]

I echo the comments of the hon. Gentleman in congratulating you, Dr Huq, on your reading of the new clauses, and welcome his welcoming of this part of the Bill.

--- Later in debate ---

[Dr Whitehead]

The Minister is slightly unwisely saying that this is the most exciting part of the Bill. We know that the provisions are exactly bang in the middle of the Minister’s brief as part of the team at DESNZ, as we now call the Department—although I understand that there are instructions not to call it DESNZ. Quite how we pronounce it, I am unsure; for the sake of the Minister, I will undertake not to sneak DESNZ into Hansard.

The provisions relate to the establishment of Great British Nuclear. As a suite of new clauses, they are unexceptionable and the right thing to do in terms of getting Great British Nuclear off the ground—although, in a sense, Great British Nuclear is already off the ground, as it was launched in March. The provisions therefore underpin the activities of an existing body, rather than a created one. It might be useful to briefly consider what GBN is tasked to do in the first instance.

[Charlotte Nichols (Warrington North) (Lab)]

My hon. Friend has hit on an important point. As chair of the all-party parliamentary group on nuclear energy, one of my concerns is the fact that Great British Nuclear is going to be in DESNZ at all. Does my hon. Friend agree that the Cabinet Office might be a more suitable Department, given that the two biggest issues in the delivery of new nuclear are planning and people, neither of which are under DESNZ’s ministerial purview?

[Dr Whitehead]

My hon. Friend makes an interesting point; were I to cede to it entirely it would lead to great distress on the part of the Minister. Nevertheless, she makes the valid point that the exact placing of Great British Nuclear is one for further consideration. For now, it is starting off in DESNZ.

Let me read again from the factsheet that was given to me when the new clauses were being mooted. Under the heading “What will GBN do?” it says:

“GBN is tasked with facilitating delivery of government’s nuclear programme. Its focus will be to de-risk new nuclear development by co-funding projects at the critical early development stage and acting as an expert adviser throughout the process.

Having launched within the auspices of the current legal framework in March 2023, the first priority for GBN is to lead a competitive process to select the best Small Modular Reactor (SMR) technologies for investment. This commenced in April 2023, with market engagement as the first phase. The second phase—the down-selection process—will be launched in the summer, with an aim to assess and select the leading technologies by autumn. GBN will deploy government funding to support the development of these selected technologies.”

That sounds like a good idea but, as the Minister will be aware, a number of companies are actively engaged in small modular nuclear technology, and some of them are far more advanced than others and only one of them is fully British. Not only are they at various stages of advancement in their processes, but they are pursuing processes in small modular nuclear development that are very different in their size and application.

At one end, we have Rolls-Royce’s proposals for a not very small, not very modular reactor at about 440 MW —that is, about the size of a medium to large gas-fired power station. Then we go down through the sizes of a number of other companies engaged in the process, and not just through sizes but from pressurised water through to molten salt through to thorium. Then, at what we could say is the bottom end, and with probably an entirely different function, there are the proposals by Last Energy. My hon. Friend the Member for Warrington North has had considerable discussion with that company. Last Energy has made quite a lot of advancement at an early stage in procuring potential contracts for its plants, should they be built. It considers that its proposals do not need to go through the generic consenting process because they are small versions of existing pressurised water arrangements, so they could get going quickly and early. Indeed, in the United States, Last Energy has already constructed a number of the modular reactors that will go forward. Most significantly, it says it does not require any Government assistance or funding for its purposes.

As far as I can see, though, all those different companies and technologies of different sizes and applications are being placed, through Great British Nuclear, into a competition to find the best technology. The best technology will win, and the winner will then have Government funding to support the development of the selected technologies. I wonder whether, in the context of some of those companies saying that their technology does not need to be selected for Government funding—they can actually go ahead and do it—the development of the competition in that way might be seen as a brake on the development of small modular nuclear in the UK, rather than an assistance.

We must be careful with the competitive process. If it puts the stoppers on development in certain places because the competition has not yet been realised, the people developing the proposals may well say to themselves, “Actually, this is not a very fast process after all.” They are ready to go and can get themselves developing pretty quickly, but meanwhile they have to jump through the hoops of a competitive process that they do not want to enter, and they may or may not come out as the winner in the end.

I am sure the Minister has a good answer to my concerns. If I were very unworthy, I might suggest that the competition was launched to, among other things, ensure that the Rolls-Royce proposals get a good looking at, bearing in mind that they are not as well advanced as some other small modular nuclear developers’ proposals, and putting them all on the same level means that Rolls-Royce gets to the starting point in a better order than it might have done otherwise. However, I am sure that is a very unworthy thing to say and that that is far from the Minister’s mind.

I would like to know whether the competition will include all technologies or exclude some of them. Or will it be a mixed bag of arrangements whereby those that are able to make progress at an earlier stage than the competition suggests are basically left alone, and the competition does not impede that progress? That does not particularly affect the way GBN is set up as far as the new clauses are concerned. As my hon. Friend the Member for Warrington North said, we have a question about the final placement of GBN, but I do not have any objections or particular concerns about the way it is set up. I have more concerns about what it is going to do in the first instance, and whether that will push small modular nuclear forward or not, depending on how the arrangements are carried out.