Geothermal Energy

Alan Whitehead Excerpts

Tuesday 19th June 2018 Westminster Hall

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

I congratulate my hon. Friend the Member for Bishop Auckland (Helen Goodman) on securing this important debate and on putting her case with such clarity and precision. After what she found out about geothermal during her research for this debate, I am sure she will agree with me that it is indeed Britain’s forgotten renewable. It is not forgotten because it is not feasible or because it does not bring tremendous benefits. It is forgotten simply because no one has done much about it, even though that resource is under our feet in many parts of the country and is relatively easy to access. When that resource is accessed and developed, it provides potential free heat and power, probably for 100 to 150 years, as a result of a single borehole drilled down into the ground to unleash it.

Why it should be forgotten is a source of puzzlement to me, because it is a universal and beneficial renewable. Some people may regard deep geothermal as not quite renewable, in that if there is drilling into a deep geothermal aquifer, the aquifer, in theory, depletes over time. However, if water is being raised from the aquifer at the typical temperature level in the UK of about 73° or 74° Celsius, that resource will deplete at only 1° in heat per 100 years. Yes, it depletes a bit, but it is not exactly calamitous—unlike, one might say, drilling a fracking well, where the well depletes after about eight years.

[The Minister for Energy and Clean Growth (Claire Perry)]

Such a fact-free debate.

[Dr Whitehead]

No, it is a very factual debate—that is the difference.

The geothermal potential of the country is enormous, and the hon. Member for Falkirk (John Mc Nally) set out what the potential would be, in electricity and heat, for the UK were we to proceed seriously with geothermal energy. Perhaps a limiting factor is the fact that geothermal energy is not available everywhere in the country. We need to be clear about the fact that deep geothermal is available on the basis of three different kinds of site. Basins with very ancient water at the bottom are one kind of site. Another kind, which require slightly different technology, are areas with radiothermal granite batholiths. I believe that the Minister, as a first-rate geographer in her time, will know all about batholiths and lopoliths and various other things. We have quite a lot of radiothermal batholiths in the UK, with naturally occurring radioactive-based heat coming from deep within the earth’s crust. Another kind of site relies on the availability of technology to release heat by putting water down one pipe and up another, giving geothermal as a result.

As my hon. Friend the Member for Bishop Auckland mentioned, lower-temperature geothermal resources arise from abandoned mine workings. With heat-concentration techniques that is not a problem, in terms of concentrating the heat to get into production either for heat distribution or, indeed, for making steam to generate electricity.

As hon. Members have kindly mentioned, I have an interest in the debate because I think I can claim to be the only sitting Member of Parliament who has directly set up a geothermal energy scheme. I know a little, therefore, about how it all works. That scheme is based, as has been mentioned, in the middle of Southampton in a not particularly prepossessing shed, with a small wellhead in the carpark of the former Toys R Us store. That unprepossessing setting hides a well, drilled to about 1,800 metres. Water comes up at just over 70° Celsius and is converted into the material for a district heating scheme by a heat exchanger and concentrator. Now Southampton has a city centre district heating scheme with some 17 km of pipes, covering the university, the civic centre, the country’s only geothermally heated hypermarket and a five-star hotel. In other words, there is a complete city centre arrangement, heated substantially by geothermal energy. Not only that, but it has been heated in that way on an untroubled basis since 1987, and will continue to be so until 2087 on present estimates of what may be available. That is the potential, in practice, for geothermal energy.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

The hon. Gentleman speaks with great knowledge, and I pay tribute to his work promoting geothermal power in his constituency. What are his thoughts on the potential for geothermal power in more rural areas, where there is great reliance on oil central heating, often at great cost and with a high carbon footprint? Does he believe that more could be done to incentivise and encourage developers in rural areas to look at geothermal power for new developments and homes?

[Dr Whitehead]

I have to tell the hon. Gentleman that he is the only Member present for the debate who does not have a geothermal resource under his constituency. I have mentioned the different types of geothermal resource, and the large Mesozoic basins are in East Yorkshire and Lincolnshire, around the whole Wessex area, in Southampton and Worcester, and in Cheshire. The radiothermal batholiths are in the eastern highlands, across the north-east and north-west of England, and in Cornwall. The hon. Member for Strangford (Jim Shannon) will be delighted to know that about half of Northern Ireland is covered by two Mesozoic basins, giving most areas a strong resource.

The problem is, first, that that resource is not available everywhere and, secondly, that because of the capital cost of the borehole, geothermal energy is probably best suited to larger district schemes. One of the key issues is that because of the immediate availability of the resource, if an area—particularly a rural area—is capable of receiving it, it can be used for relatively small district heating schemes, or for local plant producing electricity in the area with a combination of a relatively small heat take-off. There is considerable potential, but I am sorry to tell the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) that drilling under his constituency at the moment would be fruitless, as far as I am aware. However, it is possible to do it in some rural constituencies where the resource is more available.

[Dr Poulter]

A number of new, larger homes—particularly barn conversions, which are very popular in Suffolk—have invested in the technology as a means of heating. My question is more about how we can do more to incentivise developers on small-scale developments, perhaps on the edge of rural villages and towns, to look at similar schemes, and what suggestions the hon. Gentleman may have to bring forward those incentives.

[Dr Whitehead]

I think that the hon. Gentleman is referring to vertical hole shallow geothermal ground source heat installations. They are perfect for rural homes, as he described. They will provide sufficient heat, from a relatively shallow penetration into the earth, for heat exchangers to heat a home to a regular temperature of 60°-plus. Although I do not think that that is an essential part of this afternoon’s debate—it is more to do with ground source heat pumps—the hon. Gentleman is right. It is a technology that I would strongly recommend for off-grid properties in which, in the past, the alternative heating might have been oil. It can absolutely reliably replace that form of heating. I join the hon. Gentleman in recommending to the Minister and the Government that efforts to secure the installation of ground source heat pumps for off-grid properties in rural areas would bear considerable fruit and ought to be strongly supported—rather more strongly supported, I suggest, under the renewable heat initiative than is currently the case.

I hope that I have set out the potential for geothermal energy, and stated how it can be done in practice and what its benefits are. I was leader of Southampton City Council at the time that the scheme I described was initiated, but provided that it had the resource, almost any local authority in the country could pilot and undertake such a scheme relatively easily. The main issue is how to raise the initial capital funding up front to get the scheme under way.

Let me say one or two words about what the Government ought to be doing—in addition to the constructive and sensible suggestions made by my hon. Friend the Member for Bishop Auckland—to start using this resource. Capital grants will be required up front for the essential drilling of the well. The Government have underwritten several such schemes in various parts of the country to the tune of about £2 million a time, and we should extend the availability of those initial grants. Currently, the money available through the non-domestic renewable heat incentive is not sufficient to get those schemes under way from a capital point of view. As far as deep geothermal is concerned, the RHI currently provides 5.38p per kWh. That does not compare favourably with funding for ground source heat pumps, which comes out at 9.36p.

At the moment, the incentives to get such a scheme going properly in any area are not sufficient. That is particularly unfortunate; geothermal energy ought to be considered a different form of renewable energy, because of its known longevity. When we invest in a geothermal energy plant, we are investing in a capacity that will give us free energy for 120 years—we cannot say that about pretty much any other renewable energy source, except possibly the Swansea tidal lagoon. I therefore think that the criteria under which geothermal energy is considered should be based on that kind of payback and that kind of timeframe.

[Helen Goodman]

My hon. Friend tempts me down a path that will be familiar to many colleagues. His point raises the question of whether it is appropriate to use the same Treasury discount rate for something that is so long-run as we would for a project that would last for 25 years. That would be another way of squaring the circle.

[Dr Whitehead]

My hon. Friend makes an interesting point—that might be her seventh recommendation for the Minister this afternoon.

In conclusion, all hon. Members who have contributed to this debate have made clear their support for the potential of this form of renewable energy, and they have given examples from various parts of the UK. I particularly applaud the Scottish Government’s initiative to bring forward real funding for geothermal schemes, and I hope that in the not-too-distant future Southampton will no longer be the only geothermal plant in the entire United Kingdom that operates in the way I described. There are glimpses of progress here and there, but it is by no means continuous or anywhere near to fulfilling the enormous potential that geothermal energy offers.

My request and suggestion to the Minister is that she might like to come to Southampton and have a look at the little wellhead in the Toys R Us carpark and the shed in which the scheme is housed, so that she can see for herself just how much comes from that little site, how much good it has done for a whole community and city, and how much good it will do for many years to come. We should consider geothermal energy in that way, and if we do, we will go a long way towards understanding how good it could be for the UK. I hope that we will then put our resources where our hopes are and ensure that geothermal energy has a bright future in the UK, just as it already does in other countries.

The hon. Member for Falkirk said that 66% of Iceland’s overall energy requirements come from geothermal energy. Indeed, a project called IceLink is currently considering the possibility of an interconnector between Iceland and the UK, in partnership with National Grid and Landsvirkjun, the state-owned generator in Iceland. That is a real possibility for the future. We could be in the position of having home-grown geothermal energy and bringing into the country someone else’s geothermal energy to complement that, so that together we would have a completely carbon-free source of energy that would last the UK for a century. I think that is a prize to be worked for.

Draft Scotland Act 2016 and Wales Act 2017 (Onshore Petroleum) (Consequential Amendments) Regulations 2018

Alan Whitehead Excerpts

Monday 4th June 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Sir Henry. For the purposes of our debate, the Minister has done all the heavy lifting and explained in some detail and with great clarity what the statutory instrument before us concerns. As she set out, essentially it concerns the completion—I think it is fair to say—of a number of steps to devolve authority to the Scottish Government in particular for licensing onshore petroleum activities. Of course, it also completes the process of devolving such responsibility to the Welsh Government in principle, except we have not done the first bit: undertaking the devolution of authority to the Welsh Government. Presumably we will have to catch up with that at some stage. I see there is a provision in the regulations for those two elements to come together at the point at which it has been agreed that the Welsh Government will have responsibility for licensing onshore within Wales, as defined by the legislation.

The process is admirably straightforward, following from what was in legislation previously and trying to bring all the processes together. The notes are all there. However, as Morecambe and Wise once said, they are

“not necessarily in the right order.”

There is an issue about what happens now with the Welsh provisions. The Minister might want to say a few words about her Department’s intentions on laying provisions for Wales to complete the picture—albeit in the wrong order.

As far as Scotland is concerned, the provisions are in the right order. Essentially we are discussing the process, following the devolution of licensing authority, to ensure that the Scottish Government have the ability, currently in the purview of the Oil and Gas Authority, to require financial assurances to be given about the ability of a company engaged in onshore petroleum activities to clear up after itself: to cap and decommission wells that it may have drilled. As the Minister says, tempting though it is to think about the Scottish Government and onshore gas and oil exploration, fracking and so on, that is not, essentially, what the statutory instrument is about. It is about putting into order what is done, as far as the Scottish Government in particular are concerned.

There may, however, be a need to clarify one area of the statutory instrument, in addition to what the Minister has mentioned this afternoon: the extent to which the devolution to the Scottish Government really means onshore petroleum. The draft regulations include a provision that the competence of the devolved Administration will relate to the Scottish onshore area, which the explanatory memorandum states is

“the area of Scotland that is within the baselines established by any Order in Council under section 1(1)(b) of the Territorial Sea Act 1987 (c.49) and The Wales Act 2017”

which

“devolved onshore petroleum licensing to Welsh Ministers in respect of the Welsh onshore area (the area of Wales that is within such baselines).”

The Territorial Sea Act 1987 states that

“the breadth of the territorial sea adjacent to the United Kingdom shall for all purposes be 12 nautical miles”.

Therefore, a regime would be in place that devolved not only onshore petroleum activity but, to a limited extent, offshore petroleum activity, to the Scottish Government. What happens outside the 12-mile zone and up to the 200-mile limit of course remains a reserved matter, and is the responsibility of the Oil and Gas Authority, but there could be circumstances in which a proposal for what is essentially offshore activity would be taken under onshore petroleum legislation.

There might be something 11.5 miles offshore. By the way, the 1987 Act handily defines a nautical mile as 1,852 metres, so an offshore installation could be 12 times 1,800 metres offshore and be the responsibility of the Scottish Government. Slightly outside that, it would be the responsibility of the OGA. How will those two authorities work together in the circumstances to ensure that what is done is done properly, with respect to something that to all intents and purposes is offshore, but which the legislation effectively defines as onshore? Does the Minister have any reflections on that point, or are there legislative provisions that I have not seen, specifying that the shoreline and not the territorial sea limit is meant?

Finally, I would like brief clarification on one point. I assume that the draft regulations are the final brick in the arch and that there is nothing more to come, other than to put right the devolution to Wales to match the regulations before the Committee. I assume that the Minister will be able to confirm that. I want that clarification to make sure we have really finished the business that we set out to do under previous measures and the measure before the Committee today.

--- Later in debate ---

[Dr Whitehead]

I am sorry, but I thought the Minister was finishing her comments about bringing together the various pieces of secondary legislation relating to Wales with the commencement of the Act, but I assume she has something to say about an additional negative instrument that is to come.

[Claire Perry]

I am happy to clarify. The Wales Act 2017 provisions overall commence on 1 October 2018. I have been informed that there is one additional statutory instrument for Wales. I assume we will have to detain our colleagues one more time to ensure we have all the relevant pieces of legislation in order for the Wales Act to commence. I am looking forward to a final conversation about that. Clearly, it is right to ensure that we have the correct licensing provision flowing to the devolved Administrations, to fulfil the commitments made with our various commissions.

The hon. Gentleman asked a series of questions about what was on and offshore. I am happy to write to him to clarify further. I am told that the Territorial Sea Act sets baselines and that within 12 nautical miles is regarded as onshore.[Official Report, 19 June 2018, Vol. 643,c. 1MC.] Outside that is territorial sea. We are transferring functions only in the onshore areas. He will ask what happens if there is a field that straddles both; I assume that there will be joint responsibility. We may have to debate that at a later date. If he is not satisfied with that answer, I am happy to go away and see if there is more information that I might be able to give him.

I cannot read what has been passed to me by my officials, so we will have to leave it there, unless the hon. Gentleman has any further questions. If not, I commend the regulations to the Committee.

Question put and agreed to.

Draft Offshore Combustion Installations (Pollution Prevention And Control) (Amendment) Regulations 2018

Alan Whitehead Excerpts

Tuesday 22nd May 2018 General Committees

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

It is a pleasure to serve under your chairmanship this afternoon, Mr Sharma. I thank the Minister not only for her explanation of the regulations, but for her valiant attempts to make them sound interesting.

[Claire Perry]

I try my best every time.

[Dr Whitehead]

It really did sound quite interesting as a result. I say that because these are particularly dense regulations—dense in the sense of close-packed. Essentially, as the Minister has said, they are the process of transposing European directives into UK legislation, which I notice that we were supposed to have done under the directives by 19 December 2017. We are a little behind time and, should we get an extension of our leaving point of Brexit, issues could arise from that.

[Claire Perry]

I am always amazed by the hon. Gentleman’s ability to get Brexit into every conversation and I take the chastisement. Of course, we would not want to detain the Committee any further by delaying these regulations today.

[Dr Whitehead]

That is absolutely right. Let me make it clear that it is right and proper that we transpose the directives in the way the Minister has described, particularly in terms of the newer circumstances now in place offshore, which were not the case in 2013 when the original regulations came into place.

We have no issues with the process being undertaken. It seems to be a thoroughly sensible and well worked-out process. I am glad it now covers the installations operating in the North sea in the way the Minister has described. Indeed, she mentioned the two larger offshore plants—over 50 MW—and the existing 13 smaller offshore plants that will be covered by the transposition of the medium combustion plant directive.

I would like some brief clarification on a few points relating to those plants and how the regulations apply to them. First, the regulations include a phased implementation for both the IED and MCPD requirements on the point at which plants will not be deemed to be compliant and could be chased for enforcement on not being compliant. The regulations state that existing plants with a thermal input of greater than 5 MW will require a permit from 1 January 2024 and those with a thermal input of greater than 1 MW but equal to or less than 5 MW will require a permit from 1 January 2029.

I have two observations about that transposition. In fact, that grace period—as it were—before compliance is deemed to be necessary is not a transposition but a choice we have made in UK legislation. Strictly speaking, it does not relate to those two directives, and the ranges for the permits are different from those covered by the directives. The IED covers plants of over 50 MW and the MCPD covers plants of 1 MW to 50 MW. We therefore now have a different compliance regime here from that in the two directives. The question is, therefore, which side of our compliance line do the plants that we have mentioned—the 13 covered by the MCPD and the two by the IED—fall? For example, are all the plants listed as being covered by the MCPD under 5 MW? If so, they will have a long period before they require a permit. If they are mostly above 5 MW, the period for them is the same as for those covered by the IED.

The date of 1 January 2029 sounds like a very long way away and a long grace period as far as compliance is concerned. Can the Minister give further elucidation on why that period was chosen? If the smaller plants are all more than 5 MW, it may be that it does not cover anything; in which case, it is an academic exercise. That may well not be the case, but we have not had elucidation on that, which would be useful.

Secondly, are all the smaller plants external or internal? They are all present on rigs in one way or another, and clearly the larger plants will all be external, but the smaller plants could be partly or completely internal to the rigs. If that is the case, further safeguards may need to be considered for their operation. The Minister mentioned, for example, that there is no limit on carbon monoxide emissions, which could be relevant should those plants be internal.

Thirdly, to what extent do the draft regulations sit alongside or in any way supersede or otherwise replace the regulations that the Department for Environment, Food and Rural Affairs has made under the IED concerning concentrations of emissions from diesel plant generally? I assume that it is mostly diesel plant on the offshore rigs, and that might well be covered by the DEFRA regulations as well. I am not clear from what we have before us whether there will be any dual or cumulative effect from passing both sets of regulations.

My final question is on penalties. I assume that the penalty regime that we discussed last week is the one that will apply as far as the plants are concerned, but how does it relate to the penalty regime that was in the 2013 regulations? That 2013 penalty regime has been left virtually unamended by the draft regulations before us. If hon. Members refer to the 2013 regulations, they will find little to enlighten them, in as much as the penalty regime relates simply to the maximum penalty provided for in statute, and that appears in principle to have been superseded by the penalties in the regulations that we discussed last week. Will the Minister confirm whether that is the case? Have the regulations from last week in effect produced another layer on the draft regulations before us through assumption of that penalty regime? If not, is there any necessity to look further at what the penalty regime in the 2013 regulations refers to, so that it is fully compliant with what has been put forward in the new regulations before us?

I hope that my bowling this afternoon will have been regarded as fairly easy. I look forward to hearing from the Minister what she has to say about those particular points, with a view to making the draft regulations as good as we can get them.

Draft Offshore Environmental Civil Sanctions Regulations 2018

Alan Whitehead Excerpts

Tuesday 15th May 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Ms McDonagh. I have read the proposals carefully. My understanding is that, as the Minister set out, the plan in essence is not to create a further series of offences—indeed, the statutory instrument does not create any new offences—but to attach a series of civil penalties to the existing penalties so that there is a range of civil remedies available to OPRED in addition to the criminal remedies available to it under existing legislation.

There are two kinds of civil penalties for offshore breaches of environmental regulations: fixed penalties, ranging from £250 to £5,000, and variable penalties, ranging from £500 to £50,000. The distinction between those ranges is considerable, but the fixed penalties clearly would be very minor for companies found guilty of a breach.

[Claire Perry]

Will the hon. Gentleman accept a clarifying intervention? My officials have provided me with a helpful table, which sets out the offences to which the civil sanctions will apply—the underlying regulation, the offence and the proposed level of sanction. I am happy to share that with him and with other Committee members who are interested, if that would help.

[Dr Whitehead]

I thank the Minister for that helpful intervention. I was attempting to establish the range of penalties that will be available under the new regime. It would be helpful to have that additional information, but the penalties basically fall into the two categories I mentioned—one with a minor range and the other with a rather more major range. Nevertheless, the top of the range of variable penalties is £50,000.

In addition to what the Minister has told us, the explanatory memorandum published alongside the SI deals with why it is claimed those penalties are needed. It states:

“The need for the instrument has arisen due to a number of contraventions of environmental Regulations going unpunished as a result of OPRED’s lack of a proportionate enforcement response. The introduction of instrument will provide a more flexible, timely and proportionate enforcement tool by conferring on OPRED the power to impose civil sanctions on operators who are found to have breached existing environmental Regulations.”

It also states, as the Minister mentioned, that prosecutions

“are costly and time consuming and ultimately, the decision whether to bring criminal proceedings lies with external prosecuting authorities, not OPRED.”

That gives the impression—my hon. Friend the Member for Wallasey pressed the Minister on this—that a number of contraventions are going unpunished. It appears that they are happening but, because OPRED either is too busy—it is snowed under with other work—or does not have a proportionate enforcement response, they are not being prosecuted. It would be helpful, either now or for future reference, to hear a little more about exactly what those unprosecuted contraventions consist of. My hon. Friend made an excellent effort to pin that down, but I do not think we got very far with that question.

That is a puzzling question in the context of a number of oddities with the proposed procedure. As far as I understand it, the procedure is not supposed to substitute offences and civil penalties of a different order for those that are in place at the moment. It specifically does not do that. The idea that a number of offences go unpunished because they are below the radar of criminal prosecution therefore appears to be gainsaid by the structure of the new arrangements.

The explanatory memorandum states:

“The instrument does nothing to change the burden or standard of proof in relation to the offences, so civil sanctions will only be imposed where OPRED is satisfied that a prosecution could have been pursued.”

In other words, the civil sanctions will be the punishment for an offence that could have been subject to prosecution and the present criminal sanctions available to OPRED, and it would be OPRED’s choice to impose those civil sanctions. The new regime will not be able to spot and punish a series of under-the-radar offences; rather, the existing criminal sanctions regime will continue, but with a series of new penalties on top. That is one oddity of the proposals.

One could conclude that this approach is being taken in the belief that a fixed penalty regime enables us to, as it were, stick notices on the windscreens of offshore operating companies, thereby making life easier all round, and that some of the offences that have been scooped up under the existing regime are not really as bad as all that, so a small fixed penalty of a few hundred pounds should do the trick. I am sure that that is an unfair characterisation, but it is an interpretation of some of the consequences of the new regime.

It also sounds like the particular issue of environmental offences committed in the North sea and elsewhere is not that great, so a new regime will cope better with an overall downsizing of what we think we are doing in enforcing regulations on companies. Moreover, OPRED is extremely busy and does not have a proportionate enforcement response; prosecutions are costly and time-consuming; and the measure fills a gap in a very busy schedule.

OPRED already has enforcement notices under its belt. The Minister mentioned a number of OPRED enforcement notices over the past year or so, but what, on a broader canvas, has OPRED been doing recently regarding those offences? She helpfully set out for us the number of prosecutions that could have been considered for possible breaches, but I have here the actual notices and prosecutions carried out by OPRED over the year prior to May 2017. It issued five enforcement notices under the Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005; two under the Fluorinated Greenhouse Gases Regulations 2015; and a further improvement notice. That is eight notices all together, with one prosecution completed and three further cases referred to the relevant prosecuting authorities.

OPRED did not, therefore, have a massive burden of prosecutions and enforcement notices under its belt during that particular year. I hope the Minister will explain whether she believes that that level of activity amounts to the crippling burden suggested by the explanatory memorandum, which has been used to justify the new regulations.

It is also interesting that OPRED already has a range of civil penalties available to it for environmental pollution and breaches of regulations related to environmental stewardship. Surprisingly, they are not mentioned in the notes accompanying the SI, but OPRED has been active on notices under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, which provide for substantial civil penalties for breaches such as failure to comply with a condition of a permit; failure to pay a penalty for exceeding an emissions target for an excluded installation; under-reporting of emissions from an excluded installation; failure to comply with a condition of an emissions plan, a direction relating to an operating ban, an enforcement notice or an information notice; and providing false or misleading information.

Those are civil penalties for breaches that in many cases mirror the sorts of things listed in the SI under discussion. OPRED has been quite active in pursuing penalties under the 2012 regulations: hon. Members will be interested to know that in 2016-17 no fewer than six civil penalties were issued, and fines of more than £900,000 were collected as a result. That suggests that OPRED is already quite active in pursuing civil penalties for breaches of regulations under legislation that is inexplicably completely absent from our discussions this afternoon.

I hope that the Minister will clearly tell the Committee that she considers there is no danger that the introduction of new penalties will lead to the downgrading of enforcement, particularly environmental standards enforcement. Also, I hope she will indicate that in future we will be able at the end of each year to see in full the working of the breaches that have occurred and how they have been dealt with, as a matter of regular record. Then we can see on a continuing basis that such downgrading is not happening.

Perhaps the Minister will also inform us what is to happen to the existing civil penalty regime under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, as a result of the introduction of the new penalties, particularly given that, at first sight, we see that a number of penalties provided for in the new regime mirror those already available under existing legislation. What would be the preferred option for OPRED? Will it stop applying the higher-penalty civil remedies available under the legislation I have mentioned, and begin to operate the lower-penalty arrangements available to it under the new regime, or has the Department issued no guidance on that? If not, will such guidance be available in the guidance document that we are promised will be available in November?

We do not intend to divide the Committee, but as I think you can appreciate, Ms McDonagh, a number of aspects of the proposals look frankly a little odd, and further consideration is needed of how they will sit within the existing criminal and civil penalty regimes. Clarity from the Minister to diminish that feeling of oddness would be an admirable way to conclude our proceedings.

--- Later in debate ---

[Claire Perry]

The hon. Lady shakes her head, but she will know that this Government proposed the transferrable tax history, which my hon. Friends north of the border campaigned for very strongly and the industry had been asking for. Along with investment in the Oil and Gas Authority, which is the oil and gas regulator, and the wonderful Oil and Gas Technology Centre in Aberdeen, which is co-funded by the Westminster Government and the Scottish Government, that has stimulated a whole wealth of new investment and interest, and asset transfers from the big boys—she was correct to call them that: they are mostly boys—to smaller, more nimble companies that are better able to exploit those assets. We should all be very proud of that.

I want to push back a bit on the idea that the regime is being weakened. There are some serious large breaches—in effect, oil and chemical spills—that are absolutely worthy of prosecution. Then there are a whole suite of lesser offences for which enforcement notices can be issued and, most importantly, remediation action can be taken, both in clean-ups and ensuring that it does not happen again. However, other than through an exchange of letters and conversations, there is no way to make it clear to that operator that that is totally unacceptable behaviour which must not happen again.

I argue that having a civil sanctions regime enables that message to be sent even more strongly. For operators who—knowingly or unknowingly—are effectively allowing smaller breaches to happen, a suite of sanctions that did not exist will exist and be in force thanks to the regulations. I say unequivocally to the hon. Lady that this feels like a tightening of the regulatory regime. She is right that we have an offshore sector that is capable of generating hydrocarbons into the future. Ultimately, we will get to a hydrocarbon-free world, but, in the case of gas, if we invest in carbon capture and storage technology as we want to do, we can keep that gas being burnt cleanly in the system for a long period of time. It is economically vital to this country that we do that, and we need a regulatory regime that enables good operators to do what they do.

The hon. Lady said there might be some rogue operators creeping in. I am not suggesting that—there is no evidence of that—but we do have to bear that in mind, and these are the sorts of regulations that will send a strong message. Sanctions can be applied and penalties, which can be reinvested in the industry, can be collected to ensure that that message is sent loud and clear.

[Dr Whitehead]

The Minister has been making remarks in the important context of the burden of proof in circumstances where there are civil penalties. Should not the burden of proof for the new penalties be the civil burden rather than the criminal burden when they are in place? That would really underline how the regulations are an extension of powers rather than a contraction.

Nuclear Safeguards Bill

Alan Whitehead Excerpts

Ping Pong: House of Commons
Tuesday 8th May 2018 Commons Chamber

[Richard Harrington]

I entirely agree with the hon. Gentleman: Dounreay has one of the finest reputations. I have not yet had the pleasure and honour of visiting it—although if I were able to visit it, I should be pleased to do so—but I have visited Sellafield, and have discussed matters extensively with all the nuclear decommissioning authorities there. Dounreay is thought of very highly, and I assure the hon. Gentleman that nothing will be done to denude it of its reputation or lower the current non-proliferation standard. I was delighted to hear that the skills to which he has referred are being exported all over the world. The last thing that this or, I hope, any Government would want to do is bring about a reduction from the gold standard that is led by his constituency. [Interruption.] I am sorry if I am nit-picking again. The hon. Member for Barrow and Furness is very alert to nit-picking, and I shall try not to do so.

I hope Members will agree that the Government have proceeded with the Bill on a consensual basis. As I have said, we have made several important concessions in both Houses. Although we have not been able to agree to Lords amendment 3, I have listened to the arguments advanced today, and I believe that the compromise amendment goes a long way to achieving what the Opposition want. It preserves the key features of their amendment by requiring the Government to write to the EU seeking support if certain agreements or alternative arrangements are not in place. I therefore hope that Members will join me in agreeing to amendments that provide important reassurance for Members of both Houses.

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

This is, I trust, the last occasion on which we will deal with the Bill in the House of Commons. I thank the Minister for the careful, courteous and inclusive way in which he has handled it, which I have found very helpful. We all want the Bill to be enacted, and I think that our discussions about how it should proceed have benefited from the way in which he has conducted himself and presented his side of the argument.

--- Later in debate ---

[Stephen Kerr]

Does the hon. Gentleman welcome the progress that the Government are evidently making towards the conclusion of these agreements? That is good news, is it not?

[Dr Whitehead]

I think the hon. Gentleman has slightly anticipated what I was about to say. It is indeed good news that progress is being made in that regard, but there is not much time left between now and March 2019, and there are still a number of treaties to go.

Lords amendment 3 addresses what is perhaps the most central point of the whole exercise. If those treaties are not securely in place before the date of withdrawal, we must have mechanisms for extending the period of coverage of Euratom, as it were—which means not just an extension during the implementation period, but an extension in its own right—until they are in place. We were told earlier in the Bill’s passage that all this was unnecessary, because everything would be put in hand before March 2019, and we have discussed the progress that has been made, but we have heard nothing about a plan B to be deployed in the event of its not being concluded. It may be that all the treaties will be in place, and we heard today that one of the bilaterals had been signed with the United States, but there are three more to be signed with major civil nuclear countries, and there is also the voluntary arrangement to be established with the IAEA. The Lords amendment gives us that fall-back protection, and a clear route towards obtaining it.

[Layla Moran (Oxford West and Abingdon) (LD)]

Does the hon. Gentleman agree that while some of the safeguards the Minister mentions might well work, it would be easier to stay in Euratom until such time as everything is concluded so that there is absolutely no way we would fall off any cliff edges? Does he agree that “may” is not good enough in this scenario?

[Dr Whitehead]

The hon. Lady makes the important point that to have the full protection of staying in Euratom would be the best thing to do, not just on nuclear safeguarding but on a range of other civil nuclear activities, until we are absolutely certain that we have ticked every box and ensured that we have alternatives that are as good as what we have under Euratom. That, very largely, is what Lords amendment 3 seeks to do. It seeks to ensure that there is recourse to the full covering arrangements of Euratom if those boxes have not been ticked.

After waiting until the very last moment to tell us that Lords amendment 3 is not needed and will be opposed, the Government have finally come up with an amendment in lieu of their own that suggests that perhaps a fall-back plan is needed after all. Its wording is, in many respects, very similar to Lords amendment 3. It places the signing of these treaties as the essential element in securing the transition to a full nuclear safeguarding role without Euratom, and specifies, as amendment 3 does, what they are. That in itself is a considerable victory for those who counselled for this over a period of time, and is a substantial turnaround from the Government’s previous position. But, at the last, the amendment falls short. It places the option to decide not on whether principal agreements have been signed—for that will be evident, or not, at the time of departure—but on what one might call an interim stage on a fall-back which provides for circumstances where, at the beginning of a period of 28 days prior to exit, agreements may not have been signed and completed, but will in the Secretary of State’s opinion have been so signed before that 28-day period is up. In other words, there is a very abbreviated, but nevertheless significant, period during which the Secretary of State will decide whether treaties are going to be signed. That will, in effect, be putting off the relevant request to the European Council for an extension of the time during which Euratom provisions hold, because the Secretary of State thinks it is, after all, going to be all right. That is a far shorter period than under the original general provisions that the Secretary of State said he would try to organise and get right in time for exit from the EU, but we are still back to that assumption that it will be “all right on the night” with no complete plan B in place. I accept that the amendment in lieu proposed by the Government comes a very long way, and that it has taken a considerable amount of U-turning, if we want to call it that, to put in place these arrangements, but in reality it is not quite far enough.

[Ben Bradley (Mansfield) (Con)]

It was a pleasure to serve with the hon. Gentleman on the Bill Committee. Does he agree that the Government’s new approach offering more flexibility and the ability to take a common-sense approach based on the circumstances at the time is a better approach than an inflexible decision taken now which might not fit the circumstances next year?

--- Later in debate ---

[Dr Whitehead]

I am not sure that the term “inflexible decision” can be accurately addressed to this set of circumstances, because we have a very inflexible date by which these decisions will have to be made. If we have a provision that is based on the Secretary of State deciding whether things are going better or worse, and if the House then does not have time to apply to the European Commission for an extension, an objective judgment will be made about whether to make an application to the European Commission for an extension of Euratom’s overview, particularly in relation to nuclear safeguarding activities.

That is another reason why we seek to preserve the original clause and ensure that it goes into the final Bill. My hon. Friend the Member for Barrow and Furness (John Woodcock) mentioned nit-picking in respect of some of the wording of the amendment. It would have been possible, I think, to fix that wording without diluting the effect of the clause in the way the Government have done through their amendment in lieu. It still has the flaw in it that there is a period when the Secretary of State has the option to decide whether he thinks something is going to be done, as opposed to the absolute guarantee that it will have been done at the point of departure. For that reason, we seek to preserve the original clause, if necessary by means of a vote. Depending on the result of that vote, we might then offer the amendment in lieu back to the other place for it to decide whether it thinks it comes close enough to its intention not to be sent back to this House once more.

[Stephen Kerr]

I do not intend to detain the House with a long speech, but I want to commend the Minister on the way in which he has guided the Bill to this point and to assure him of my support for the amendment that he has tabled. He has been, and is being, attentive and responsive to the concerns he has heard; he has listened and responded, and I believe that that is what makes for good legislation. I also wish to add to his compliments to the hon. Member for Southampton, Test (Dr Whitehead), whose positive contribution to the progress of this Bill has been greatly appreciated by us all.

To be clear, we need this Bill. Leaving the European Union creates the necessary, even if unwanted, step of leaving Euratom. The Government’s stated preference is for Euratom to continue to provide safeguarding functions in the UK. That is a laudable example of the pragmatic approach that the Government, and in particular the Prime Minister, are taking to issues surrounding our departure from the European Union. I like to think that my conservatism is based not on ideology but on pragmatism, and it is pragmatism that is going to see us through the process by which we leave the European Union. This Bill is a vital contingency plan, because if it transpires that we cannot agree with Euratom to continue with the civil nuclear safeguarding, we will need to have the regulatory framework, the infrastructure and the capabilities in place to maintain our international obligations and responsibilities as an independent and responsible nuclear state.

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 1st May 2018 Commons Chamber

[Claire Perry]

The hon. Lady, as always, speaks up powerfully for her constituency. I assure her that exactly those assessments are being made, both by ourselves and by the Welsh Government, to whom there have been very specific requests from the developer. It is right that we are having a cordial, open-book conversation about what commitments are actually being asked for, because this all comes back to UK consumers and/or UK taxpayers.

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

The Minister mentions that the Welsh Government have committed, in January, to provide substantial equity and loan investment to get the Swansea tidal lagoon project off the ground. Indeed, they are anxious to explore with the UK Government how this might be incorporated into an overall support package for the lagoon. Over and above contacts between officials of the two Governments, what meetings has she or other Ministers in the Department held with Ministers in the Welsh Government to examine and progress this offer?

[Claire Perry]

The hon. Gentleman is right to say that these conversations have to happen jointly. There have been numerous meetings between my officials and officials in the Welsh Government, and I have met the Welsh Environment Secretary and her special advisers to discuss this and many other issues.

Domestic Gas and Electricity (Tariff Cap) Bill

Alan Whitehead Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

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

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

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Amendment 5, in clause 1, page 1, line 3, leave out “after this Act is” and insert

“, and within five months of this Act being”.

This amendment would require the Authority to insert the standard supply licence conditions within five months of Royal Assent.

Amendment 2, page 1, line 9, at end insert—

“(1A) A cap imposed by tariff cap conditions shall be calculated so as to require that the difference between the cheapest advertised tariff and the most expensive standard variable or default tariff offered by a holder of a supply licence is no more than a specified proportion of the cheapest advertised tariff.

(1B) The proportion under subsection (1A) shall be specified by the tariff cap conditions.”

This amendment would require the tariff cap to be calculated with reference to the difference between supplier’s cheapest tariff and most expensive variable or default rate.

Amendment 3, page 1, line 24, at end insert—

“(c) “cheapest advertised rate” means the lowest rate or amount charged for, or in relation to, the supply of gas or electricity under any contract available to the customer.”

This amendment is consequential to Amendment 2 and provides a definition of “cheapest advertised rate”.

Amendment 4, page 2, line 15, at end insert—

“(e) the ability of the Authority to accurately forecast and model wholesale energy prices, and the need to minimise the impact of inaccuracies on domestic customers and holders of supply licences in the future.

(f) the difference between the cheapest advertised rate and the most expensive standard variable or default rate offered by a holder of a supply licence.”

This amendment would extend the matters Ofgem is required to consider when setting the tariff cap to include the matters listed in the amendment.

Amendment 6, page 2, line 15, at end insert—

“(e) the need to ensure that customers on standard variable and default rates have their annual expenditure on gas and electricity reduced by no less than £100 as a result of the tariff cap conditions”

This amendment would require the Authority to ensure that the tariff cap conditions result in customers on standard variable and default rates having their annual expenditure reduced by no less than £100.

Amendment 7, page 2, line 15, at end insert—

“(e) the need to ensure that adequate protection exists for vulnerable domestic customers, including ensuring those customers who currently benefit under a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity because they appear to the Authority to be vulnerable, retain those benefits.”

This amendment would require the Authority to have regard to the protection of vulnerable customers, including ensuring those who currently benefit under a safeguard tariff continue to do so.

Amendment 9, page 2, line 15, at end insert—

“(e) the need to ensure that adequate protection exists for—

(i) customers who benefit from a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity on the basis that they appear to the Authority to be vulnerable;

(ii) in circumstances where a cap described in sub-paragraph (i) has been withdrawn, customers who would have benefited from such a cap had it still been in force; and

(iii) other vulnerable domestic customers.”

This amendment would ensure that when exercising its functions under this section, the Authority must have regard to protection for vulnerable customers, including those who are protected or (in circumstances where it is no longer in force) would have been protected by a safeguard tariff.

Amendment 8, in clause 7, page 4, line 39, leave out from “must” to end of line 40 and insert “have regard to the extent to which—

(a) progress has been made in installing smart meters for use by domestic customers,

(b) incentives for holders of energy supply licences to improve their efficiency have been created,

(c) holders of energy supply licences are able to compete effectively for domestic supply contracts,

(d) incentives for domestic customers to switch to different supply contracts are in place,

(e) the barriers which prevent the customers from switching from different supply contracts quickly and easily are addressed,

(f) holders of supply licences who operate efficiently are able to finance activities authorised by the licence,

(g) holders of supply licences have eliminated practices that are to the detriment of customers in their tariff structures,

(h) District Network Operator costs and dividends are proportionate to expectations and the impact of that on domestic supply contracts, and

(i) vulnerable and disabled customers are adequately protected.”

This amendment sets out additional matters that the Authority must have regard to when conducting a review of competition for domestic supply contracts.

Amendment 1, page 4, line 39, leave out from “which” to the end of line 40 and insert “—

(a) progress has been made in installing smart meters for use by domestic customers; and

(b) holders of supply licences are using available data, whether collected through smart meters or through other means, to—

(i) assess the energy consumption patterns of domestic customers; and

(ii) use such data to identify, and move domestic customers onto, the most competitive tariff.”

This amendment requires Ofgem to consider the progress made by energy companies in offering domestic customers the cheapest available rate based on their individual consumption patterns when determining whether there is an effective market.

[Dr Whitehead]

We support the Government’s aim to introduce a temporary absolute price cap as set out in the Bill. We claim some intellectual property rights in this, in that Labour proposed a temporary price cap before the 2015 election, which was famously denounced by the then Prime Minister as

“wanting to live in some sort of Marxist universe.”

It is good to see that the Government have not flinched at the possibility of the apparition of its former leader returning to denounce this price cap in the same terms, but then we live in interesting times.

It is necessary to introduce an absolute cap, not a relative price cap, as soon as possible and for a limited period beginning no later than this winter. We have noted the continuing anomalies in the market, the continuing opportunities to game the market, and indeed, the report by the Competition and Markets Authority that customers were being overcharged by £1.2 billion over the recent period as a result of those anomalies. Therefore, a price cap and a pause in price increases, other than those agreed by Ofgem and relating to wholesale price movements, is the right thing to do now, providing, as we have always said and as we said when we introduced the idea of a price cap previously, that action is taken to correct those anomalies during the period of the cap, so that the market resumes at the end of it under circumstances that do not just result in prices running away again and our all being here a little further down the road, finding that nothing has changed and that perhaps a further cap is necessary.



We want to ensure that the Bill does just that—that the terms under which Ofgem operates the price cap give due attention to the current market problems; that the basis on which the cap is ended is clear in the legislation; and that, subsequent to the cap ending, there are measures in place to ensure that some of the more egregious problems of the present market arrangements are not repeated in the future. That is the basis on which we are judging the Bill and on which we are suggesting amendments, as we did in Committee. We do not want to overthrow or weaken the Bill, and we understand that it needs to be robust against possible challenges. Our amendments would therefore have the sole effect of strengthening the Bill and its purpose, and they would ensure that its architecture fully reflects that purpose.

--- Later in debate ---

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I draw to my hon. Friend’s attention the comments of Miss Burdett from Rayners Lane in my constituency, who notes that online rates for energy bills are often cheaper than the standard rate, potentially leaving elderly and vulnerable people who cannot go online for whatever reason at a significant disadvantage compared with the rest of us. Would my hon. Friend’s amendments help people such as Miss Burdett, in the situation that I have described?

[Dr Whitehead]

I thank my hon. Friend for that important observation about what one might describe as one of the current market anomalies. It is not just about the differentials between the different ways that one can secure a tariff; it is about the issue of prepaid metering and the differential between the bills of people who are in fuel poverty or are vulnerable in other ways and the bills of those who have more resources. Indeed, some of the amendments that we have tabled—and one in particular—would secure firmly in the Bill matters that Ofgem and the Minister would be required to take into account when considering the introduction of the price cap and the period after which it ends.

Amendment 5 would start the process of strengthening the Bill by ensuring that the cap takes effect within no more than a known period that is stated in the Bill. That is because we want the cap in place for this winter. We know that the equivocation on the cap has lost valuable time. The Government introduced it as a manifesto item before the last election, but then apparently went cool on the idea, before suggesting that it was the administrative responsibility of Ofgem. Only then, after a pause of a number of months, was it actually introduced as legislation, and we are now rushing to get the Bill on the statute books so that the cap can be in place this winter.

[James Heappey (Wells) (Con)]

The shadow Minister has brought forward his definition of winter from 30 November in Committee to something that is hopefully a bit sooner. Does he still not agree, as we discussed in Committee, that setting a date for the Bill to be implemented may mean that we rush Ofgem in a way that may not prove to be helpful? Indeed, if Ofgem exceeds our expectations and gets this done quicker, we may be giving the energy companies a target by which to raise their prices. It might be better to let Ofgem go away and prepare the cap as quickly as possible, and act as soon as possible thereafter.

[Dr Whitehead]

Indeed, the hon. Gentleman has a point, which is why now—on Report—the amendment would put a maximum number of months, not a specific date, in the Bill. One might say that hon. Members listened to each other in Committee regarding possible future amendments, which is why I tabled amendment 5 in this manner. However, the fundamental point of the amendment is still to get the Bill working, so that the cap is in place before the winter. Ofgem has said that it thinks it can have a cap up and running in five months, as we have suggested in the amendment. We therefore want the maximum timeframe of five months to be reflected in the Bill, so that the cap is guaranteed at around the time when people get their winter fuel allowance, not when winter returns, as it seems to do these days, in the middle of next spring.

Amendment 6 seeks to quantify the saving that customers might expect as a result of the cap, but we do not wish to make up a figure in so doing. We want to take the Prime Minister’s word on this, when she specified that customers would save £100 as a result of the price cap that her Government were about to introduce. To be precise, The Sun of 27 February this year had the splendid headline “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. This was just one of a number of sources reporting the Prime Minister’s price save promise, but The Sun went further, stating:

“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”

Now, I do not know whether there are any Government insiders in the Chamber—or, indeed, whether the Minister is one of those cited—but we can assure them that we will take the conservative route on this occasion and propose only that the Bill will do what the Prime Minister says it will.

[Stephen Kerr (Stirling) (Con)]

I am slightly perturbed that the hon. Gentleman is quoting The Sun as the authority by which we make legislation in this House.

[Dr Whitehead]

On reflection, I can join the hon. Gentleman in being slightly perturbed that I am quoting The Sun in this context. I assure him that although I quoted The Sun, a range of authorities from the Daily Mail —getting better?—up to the BBC’s website suggested that the Prime Minister did actually say that people would save £100. If the hon. Gentleman thinks that quoting The Sun was not entirely appropriate under all the other circumstances, I can do nothing other than agree with him.

Amendment 7 would ensure that vulnerable customers, including those already protected by a tariff cap, do not lose that protection as a result of the overall cap being introduced.

[Sir Oliver Letwin (West Dorset) (Con)]

If we put together the hon. Gentleman’s remarks about amendments 5 and 6—the general gist of which I have no quarrel with—and if Ofgem were subject to legal challenge as a result of trying to impose a cap of this size on that timetable, what does he suggest would be the effect of his amendments if they had entered law? How would Ofgem deal with the conflict between the courts and an Act of Parliament?

[Dr Whitehead]

My understanding is that the question of a timeframe for implementation of the cap would be strengthened considerably regarding a potential legal challenge by providing for a maximum period for the introduction of the cap, rather than a specified date. I think that we accept the principle that there should be some indication in the Bill of when the cap is to arise; certainly, in previous discussions of the Bill, there has been a real concern about the body responsible for implementing a cap after the legislation has been passed through the House taking any or no specified period to prepare the cap for its actual execution. The preparation of the cap will also be part of the process by which it is strengthened against legal challenge. That therefore needs to be done carefully and properly so that it is implemented it in a way that is proofed against such legal challenges. Ofgem indicated in its evidence to the Committee the period that it thought reasonable for it to be required to take forward the implementation of the cap. Placing that period in the Bill therefore seems, at least to the Opposition, to be adding to the proof against legal action rather than detracting from it.

[Sir Oliver Letwin]

I completely accept that it is advantageous to give Ofgem a push to do this on the timescale that the hon. Gentleman is describing. However, clause 1(1) says that

“the Authority…must modify the standard supply licence conditions”,

and under his amendments, it would have to have done that by a given date, yet the court may be preventing it from doing so. I still do not understand how he deals with that legal conflict.

[Dr Whitehead]

The Bill says that what needs to be done to modify licences to bring the cap about, among other things, has to be done by Ofgem as part of its implementation process. The question of legal challenge to Ofgem concerns, at its heart, what Ofgem does over whatever period may be specified to ensure that the implementation of the cap does not deviate from what is set out in legislation. That is the clear basis on which the cap should be undertaken, and that is the responsibility of Ofgem.

The second issue is the time within which Ofgem considers that it can introduce that cap in the way that the right hon. Gentleman has described, given its workload and capacity to do so. Indeed, Ofgem is on the public record, through the evidence that it gave to the Committee—he will know that that has some weight through being a public statement in Hansard—as saying that it felt that it could do it within five months. The amendment merely tries to tidy up the process by putting that timeframe into the Bill, while not in any way detracting from the strength or otherwise of what Ofgem is required to do in acting to implement the cap in a way that is both effective and legally watertight.

I am not sure that I can go too much further with the right hon. Gentleman’s point. I am happy to take it up with him separately if he wishes. However, I have explained where we are in seeking a combination of watertightness in the Bill and clarity that the wishes of this House can be undertaken in through the price cap coming in during the period when it is supposed to come in.

Amendment 7 relates to the point made by my hon. Friend the Member for Harrow West (Gareth Thomas) about vulnerable customers and people who are not in a position to take advantage of all the devices that other, less vulnerable customers would be able to take advantage of—that is, customers protected by the existing tariff cap in particular. In our view, it is important that those who are protected by the tariff cap do not lose that protection as a result of the overall cap being introduced. It would be helpful if the Minister, even if she is not minded to accept the amendment, put it beyond doubt that that is the Government’s intention and that they will not seek to lose the current safeguard tariff as the overall tariff cap comes in.

[James Heappey]

Clearly amendments 7 and 9 both have real merit in getting the protection of vulnerable customers right, which is important, but why does the hon. Gentleman feel that his amendment is better than amendment 9?

[Dr Whitehead]

I am afraid that I cannot give the hon. Gentleman that assessment, because I think that both have equal merit in dealing with very similar issues.

[James Heappey]

In a slightly different way.

[Dr Whitehead]

Indeed, but both have equal merit, and I would not want to distinguish between them in what they would add to the Bill. They both have the central concern that vulnerable customers should not be treated adversely as a result of the overall tariff cap coming in. That is the point that I wish to pay attention to. I am sure that my hon. Friend the Member for Leeds West (Rachel Reeves) will also want to do so when she speaks to amendment 9.

[Frank Field (Birkenhead) (Lab)]

Without wanting to enter into a beauty contest regarding whose amendment is best, will not my amendment 1 be quite consistent with what the Government wish to achieve, which is to require Ofsted—I mean Ofcom—[Hon. Members: “Ofgem.”] Yes, Ofgem—or Ofcap, perhaps. The Government wish to require Ofgem to write to companies to ensure that those who are poorest and least likely to change have been offered the best deal by their provider. I promise that by the time I speak to my amendment, Madam Deputy Speaker, I will know which regulatory body it is.

[Dr Whitehead]

Yes, there is certainly merit in that idea. It is true that some of the amendments take some of the specific actions that may be taken a little further than is suggested in amendment 7. However, whichever of the amendments one wishes to pin the first-place rosette on to, the key point is that vulnerable customers need to have proper protection as the tariff cap comes forward.

It is in the Government’s interests, I think, to clarify exactly what they intend the Bill to do regarding that protection. That can easily be done by the Minister clearly stating today, as I hope she will, that vulnerable customers will not lose the current safeguard tariff as the overall tariff cap comes in. Indeed, if the overall price cap consumes the safeguard tariff, vulnerable customers could see their prices could go up by more than £30 as a result of the difference between the safeguard and the absolute tariff. That would, as I am sure she will agree, be a perverse outcome that she would be anxious to disavow.

The Minister will have to clarify for us that the Bill means that Ofgem can bring forward the extended safeguard tariff at the same time as the standard variable tariff cap; that the extended safeguard tariff can continue after the absolute cap has ended; and that she will bring forward the necessary secondary legislation before the summer to enable the data sharing needed to extend the safeguard tariff. I am sure that she will be able to reassure us on these points. I look forward to what she has to say about all the amendments before us.

Amendment 8 seeks to introduce to the Bill the symmetry in architecture that appears to be missing from what Ofgem must consider in introducing the cap. As hon. Members can see, the Bill lists a number of matters to which Ofgem should have regard in setting the cap, which relate to

“protecting existing and future domestic customers who pay standard variable and default rates”.

However, when we cast our eyes forward in the Bill, we see that those conditions are wholly absent from the matters that Often is required to consider when it reports to Government on whether circumstances exist that allow the cap to be terminated, as it is required to do by clauses 7 and 8.

Indeed, there is no guidance in the Bill at all on what Ofgem will have to take into account, except, alarmingly, for one consideration: the extent to which progress has been made in installing smart meters, a provision that, if taken too literally, might mean that the cap will be with us until the end of 2023. Our amendment essentially seeks to place in the outbox—the point at which Ofgem reviews the expiry of the cap—the same considerations that it is required to pay attention to in its inbox when it sets the cap.

Finally, we seek in new clause 1 to start the process of introducing what needs to be in place to ensure that the market works well for customers and does not recreate the anomalies that have led us to where we are today. I have no doubt that there will be a number of such provisions, but in our view one of them should be that the arrangement of tariffs by energy companies should not continue as it is.

That is also the substance of amendment 2, tabled by the hon. Member for Weston-super-Mare (John Penrose), whom I salute for his unflagging work in bringing the idea of a price cap to this point. He introduces in his amendment the suggestion that tariffs should have a piece of elastic on them for each company, to prevent companies from introducing customers to apparently low tariffs initially, only to place them on much higher tariffs when the first offer expires and relying on their loyalty to gain a lot of profit and cause an unfair outcome for customers. That is essentially the instrument that his amendment would introduce, but it is cast as a relative price cap. We do not think it is a satisfactory mechanism for a price cap, but he will no doubt argue his corner. The relative nature of a tariff range restriction means that it can be introduced at any price and is not therefore a cap as such. It is, however, a vital means of keeping prices and fair dealings with customers on a steady trajectory.

[Antoinette Sandbach (Eddisbury) (Con)]

The Business, Energy and Industrial Strategy Committee heard an overwhelming amount of evidence opposed to a relative price cap. Can the hon. Gentleman explain why he rejects that evidence and has tabled this new clause?

[Dr Whitehead]

The hon. Lady is, I think, under the impression that the new clause seeks to introduce a relative price cap. It does not seek to do that at all, or indeed during the period when an absolute price cap is in place. When the absolute price cap has come to an end, which could happen on various dates, there should be a mechanism in place to ensure that tariff differentiation is within certain bounds—I mentioned having a piece of elastic on tariffs—so that companies cannot return to the practice that unfortunately exists today whereby they can take people on board on one particular tariff, and even introduce a discount tariff for a certain period to entice people on to it, and then place people on one of their highest tariffs when that one comes to an end. It is a long piece of elastic in that case. That disadvantages the customer and is not what they thought would happen when they first went on to that tariff, and it seems thoroughly laudable to prevent that.

We need to ensure that market mechanisms are in place to prevent us from returning to where we are at present and to the situation that got us into this position in the first place. We believe that the mechanism for a relative tariff differential has a different function entirely from the relative price cap being suggested in some quarters. I think we would all agree that a relative tariff differential is not a price cap in its own right, as the Select Committee concluded strongly, but a strong mechanism for ensuring that the market works better in future.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

One concern about a relative cap is that there could be a bit of floor-raising, with some of the cheaper tariffs disappearing. Although there might not be a cap in future, what is to stop the same thing happening with a relative tariff system, where we lose the bottom tariffs in the market?

[Dr Whitehead]

The hon. Gentleman makes an important point about the possibility that within a relative tariff range arrangement, a company could put forward a very high tariff as a starting point and then put customers on an even higher tariff subsequently, if that tariff is within the piece of elastic keeping the tariffs within reach of each other. If an energy company were to do that outside a price cap, it would be a sure way of losing a large number of customers, because it would have put its initial tariff way above that of any competitors. If it was agreed that market circumstances were such that those sorts of arrangements should be able to return, companies would have to be kamikaze-inclined to pursue that way of doing things.

[Alan Brown]

I appreciate what the hon. Gentleman is saying, but is that not why we are introducing an energy tariff Bill in the first place—because people have been on standard variable tariffs that are too expensive, but they are not moving? It is the same with a relative tariff differential; people will not necessarily move, and that is what we really need to sort out in the market.

[Dr Whitehead]

We have to bear in mind that people will be introduced to a new tariff. Indeed, we hope that by the time the market returns, the issue of people remaining on SVTs for years and not switching will be a thing of the past and there will not be SVTs in the system, but also that there will be other tariff arrangements that effectively prevent SVTs from playing the role they have played before.

[John Redwood (Wokingham) (Con)]

In amendment 6, the hon. Gentleman is trying to ensure that people get money off, which we would all like to see, but would it not be necessary to include some kind of rider so that it applies only if people are burning the same amount of energy year after year? If we went from a warm winter to a very cold one, presumably he would not think we could guarantee the same amount.

[Dr Whitehead]

Amendment 6, as I recall, would simply place the Prime Minister’s words into legislation. It was estimated that a saving of at least £100 would result from the measures, and one aim of the legislation was to bring that saving about. It does not mean that the amount would be exactly £100—indeed, had the Prime Minister not reported that to The Sun, we might have got a rather more complex version of that price promise. We are merely reflecting what was heard on that occasion, and I hope the right hon. Gentleman will take the amendment in the spirit in which it is intended.

[Sir Oliver Letwin]

I just want to be clear, because I have got very confused about these propositions on a relative cap. On the face of it, the words of new clause 1 are strikingly similar to those of amendment 2. Is the hon. Gentleman proposing that after the absolute cap, there should be a relative cap?

[Dr Whitehead]

It can be interpreted in that way. We are fully in accord with the Government’s idea of an absolute cap, as opposed to the relative cap proposed in the amendments. We suggest that what has been characterised as a relative price cap plays an entirely different function, which is to narrow the gap between tariffs after an absolute price cap has been in place so that companies cannot game the market by switching tariffs in the way I have described. That is nothing to do, at that point, with a price cap; it is about tariff stability over a period and, indeed, an assurance for customers that they are not going to be ripped off as a result of entering on a particular tariff and subsequently being placed on a very high tariff once that initial tariff has come to an end.

--- Later in debate ---

[Claire Perry]

There has been a huge amount of scrutiny, and I am hoping that we can get the legislation through to the other place, but my door is open. We want a well-functioning energy market that works for everybody and provides competitively priced energy.

I was asked an important question about the statutory instrument, which is also going through the House, that enables data sharing between the DWP and others. It has completed its pre-legislative scrutiny and will be introduced during the passage of this Bill. It is a vital and necessary part of ensuring that the powers in the Bill work.

[Dr Whitehead]

Will the Minister be clear with us tonight that the safeguard tariff and the absolute cap do not contradict each other and that they can be introduced together, so that the protections can continue? Is she convinced that that is the way forward?

[Claire Perry]

There is nothing in the Bill that interferes with Ofgem’s ability to extend the safeguard tariff, which is part of an existing separate set of powers. By having this discussion, we are sending a clear message that we expect Ofgem to retain adequate protections for the most vulnerable consumers once the Bill is passed. I thank colleagues for putting that matter forward for debate today, because it is an absolutely vital point that we must get across. However, on the basis of my responses, I hope that the hon. Member for Leeds West will not feel the need to press amendment 9.

Amendment 8 essentially sets out the conditions that would determine success when we consider whether the price cap should be removed. As we discussed in Committee, it is not the job of Ministers to prejudge the regulator’s work on what a good market will look like in two years’ time. This country has seen some of the most rapid evolution in energy innovation, and in the future there may well be factors that are no longer considered relevant in establishing competition or factors that do not best address consumers’ needs. I do not want to put anything into the Bill that would give energy companies something to target. The Bill is supposed to be about giving the regulator broad powers to ensure that companies deliver a better price for consumers, not try to engineer a particular outcome. I hope that the hon. Member for Southampton, Test considers that a sufficient explanation and will not press amendment 8.

It has been great to have so much cross-party conversation and discussion on this important piece of legislation. I forgot to mention the vital point made by the right hon. Member for Don Valley (Caroline Flint) about green tariffs, but the process of setting such tariffs will be scrutinised as never before and we will have better, more transparent tariffs as a result. I hope that all Members are satisfied with the explanations I have provided and that we will not need to trouble the Lobby Clerks this evening.

[Dr Whitehead]

On the basis of the explanations that have been put forward, we will be happy not to press our amendments, but we will wish to press new clause 1, which has not been properly understood or responded to this evening.

Question put, That the clause be read a Second time.

Dieter Helm Energy Review

Alan Whitehead Excerpts

Tuesday 24th April 2018 Westminster Hall

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

I congratulate my hon. Friend the Member for Blackley and Broughton (Graham Stringer) on securing this debate. He is well ahead of the Government in having the first response to the Helm review—as he rightly said, a response from the Government who commissioned the report in the first place is currently conspicuous by its absence. Given how these things proceed, it is a little odd that the Government’s initial response to the Helm review into the costs of energy was essentially to call for evidence on the cost of energy. I am not quite sure where we are with the Government response to the report they commissioned, although I am sure we will hear about that from the Minister. Because we have no indication of what the Government intend to do with the Helm review, we are slightly at sea in terms of how best to respond to it at this stage. Should we consider the commissioning of the report, its terms of reference, the recommendations within it, or, indeed, what the Government will do with it?

[Stephen Kerr (Stirling) (Con)]

A good place to start would be Dieter Helm’s conclusion that there is apparently nobody in government or any other sphere who can explain all the interventions being made in the energy market, such is the clutter of interventions in that market.

[Dr Whitehead]

The hon. Gentleman makes a strong point. That point is also made strongly in the Helm report, which has a list of the various interventions in play. Indeed, I think we can add a few more to those in the report, some of which have appeared more recently, such as energy intensive industry, underwriting and so on. What the Helm report says is right: we have vastly over-complicated many of the areas that we consider necessary as policy levers. Indeed the temptation, not just for the current Government but for successive Governments, has been than when they see a shed that is slightly leaning, they build another outhouse on the side to stop the shed leaning. They subsequently have to do something with the outhouse, and then we get the current extraordinary complexity of the whole process.

To get a feel for exactly how complex the market is, I refer hon. Members to a recent chart produced by the University of Exeter about the various interactions that the energy market now undertakes. Helm makes that point strongly. The question is this: if we are simplifying the market and how it works, how do we do that? How do we dismantle the complexity as we simplify the market, and what will be the consequences of that simplification?

All other things apart, this review was a hospital pass for Dieter Helm, and, as the hon. Member for North Ayrshire and Arran (Patricia Gibson) emphasised, it was, frankly, an unbelievably rushed job. It was commissioned on 6 August last year, and concluded on 25 October last year. Not only was it commissioned on 6 August, but it had terms of reference that ran to one and a half pages. If hon. Members read them, they will see that not only do they greatly curtail what the review could have covered, but they are internally contradictory regarding what they ask the review to do. For example, the review states that the Government have

“the ambition for the UK to have the lowest energy costs in Europe”,

but, as the hon. Member for Kilmarnock and Loudoun (Alan Brown) emphasised, the review merely talks about power. Although we are supposed to have the lowest energy costs, the review is only supposed to consider power, and not heat or energy efficiency; that point was made by the hon. Member for Wells (James Heappey). The review has apparently wide ambition, but in practice it covers a constrained area of examination. It is essentially a review of the cost of electricity, and that is what it concentrates on.

Given where energy is now, if we talked properly about its overall cost we would have to mention that, as the Helm review lays out in some circumstances, the cost of energy is higher in a number of other European countries but the cost to consumers is much lower. That is because of the difference in energy efficiency in those countries, and the interaction between different forms of energy—what happens to heat, for example—and the power sector. If we take the lowest energy costs in Europe as our theme, it is not immediately clear what we are talking about. What will those lowest energy costs be compared with? If we restrict ourselves to the power sector, how can we complete that examination in terms of overall energy costs? That is a bit of a theme of the report, hospital pass that it is, although given the short time span and the terms of reference given to Professor Helm he has done a tremendous job.

Nevertheless, we should be clear that the report in essence represents an extended opinion piece: the opinions of Professor Dieter Helm on how the energy market and the electricity market in particular will work in future. He has been expressing those opinions—I am familiar with a number of them—forcefully for a considerable period. I strongly agree with some of his opinions and I do not agree as much with some, but they are mostly there in the report, one way or another.

The question we have to ask about the recommendations that Professor Helm makes in the report is, how are they backed up with evidence? Having read the recommendations or even the executive summary, we might confidently assume that in the report we would find not only evidence to back up the recommendations, but talk of their consequences. However, we do not find that. What we find is material to back up why Dieter Helm’s opinions are right. As a satisfactory answer to the question asked, the report falls rather short of what one wishes might have been achieved. That is a problem in responding to it fully.

I strongly agree with some of Professor Helm’s conclusions, but some I do not agree with at all. However, I would have liked to see in the report what informs his conclusions, what the consequences of those conclusions are, and how they will be worked through. Professor Helm, for example, talks about the legacy costs of energy and of interventions by Government. As the hon. Member for Stirling (Stephen Kerr) intimated in his intervention, the extent of those potential legacy costs is laid out for us in the Helm report.

The solution provided is that those legacy costs should be discontinued as something that goes on people’s bills, as they do at the moment, but that they should be all bundled up and put somewhere else. Where are they put? There is nothing in the report to tell us that, except that they will be socialised across consumers and not across to industry. One way or another, the bundle of legacy will reach back on consumers’ bills, in just the way that the social and environmental costs that appear on bills now are also borne by customers. Not only that, that cost will land on customers’ bills in a more concentrated way because, according to Professor Helm’s recommendation, industry will be exempted from the impact of the legacy costs. That means that customers’ bills will go up considerably and not down considerably over the period, as I assume is the intention of that particular proposal.

Similarly, one suggestion is that generators that produce power intermittently might be required to back that up by commissioning their own power resources to ensure that the intermittency is not spilled across the rest of the market. That sounds like a good idea except that if we do that, with each of those power generators independently commissioning their own power back-ups, that is a recipe for extreme inefficiency in the market over time. The market would have a series of near-redundant back-up power stations, not socialised across the piece but responsible only to those people who commission them and, therefore, in the market as a whole probably substantially increasing rather than decreasing the cost of energy.

There are a number of things in the report—the question of who runs the distributed energy service, how that is best run in the public interest, the simplification of the system over the period, and how the carbon price can be used in future to manage the transition to a low-carbon economy—but I am not convinced that it is much other than a good talking point as far as future energy policy is concerned. The report is a good, elegant and well-constructed talking point, but nevertheless it is a starting point and not a conclusion by any means.

I hope that that is how we see the report in future, because there is a long way to go before we get to the conclusions necessary to back up what the hon. Member for Wells described as the difference between the caterpillar turning into the pupa but still ending up as a caterpillar, or the caterpillar turning into a butterfly. As I think I have already mentioned to the hon. Gentleman, I personally prefer the example of the axolotl, which is a Mexican salamander. As I am sure hon. Members know, unlike other salamanders, it does not undergo the metamorphosis necessary to become a land-living amphibian; it stays for the whole of its life unmetamorphosed, with gills, under water. We do not want the energy market to end up like the axolotl. We are in a process of rapid transition—

[Steve McCabe (in the Chair)]

Order. I am very conscious of time, Dr Whitehead. Perhaps we could get back to the wind-up.

[Dr Whitehead]

Yes, Mr McCabe. I am just about done with the axolotls.

To conclude that remark and indeed all my remarks, in our energy markets we are above all—indeed, the terms of reference to an extent underline this—in a period of rapid transition towards forms of energy generation, transmission, distribution and supply that will look very different from most things that we are used to today. We know that is the case, because that transition is proceeding apace. I am not sure that the report does justice to that transition, and I hope that the Government response to it and their actions on its recommendations—that transition and the need to achieve a safe landing with that transition in the interest of customers and carbon emissions—are properly undertaken for the future. I look forward to the Minister’s response.

Draft Renewable Heat Incentive Scheme Regulations 2018 Draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018

Alan Whitehead Excerpts

Monday 23rd April 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Hanson. I ought to state from the outset that we want these regulations in place as soon as possible.

The delays in moving from the revision of the RHI White Paper, through the consultation, to the production of the original draft regulations, and finally to the regulations that we are considering, have been considerable—indeed, they have been the subject of a number of inquiries over the past months asking when the regulations are coming in. Bodies involved in non-domestic RHI have said, “We have schemes ready to go. We are not sure what is happening. Can we please have the regulations so we have clarity for our forward development processes?”

The draft regulations have appeared today, and certainly not before time. I see that they will come into force the day after they have been agreed, which will not be a day too soon. Hopefully a number of the concerns that have been expressed can at last be laid to rest and people can get on with the process of delivering the renewable heat that I think we all want to progress. The Opposition will not oppose the draft regulations, but as the Minister should expect, we do not want them to go through without proper examination, one or two questions being answered and, ideally, some indication of what the longer term route for renewable heat is envisaged to be.

I have to say that I welcome many of the changes that will take place in terms of the scope and focus of the draft regulations—particularly, as the Minister mentioned, the concentration on biomethane and heat pumps, and the injection of biomethane into the grid. Those technologies are seen as increasingly relevant to the attack on the decarbonisation of heat, as it were. The different ambitions the renewable heat incentive will have as a result of these changes reflect a lot better where we actually are in terms of the development of those technologies going forward.

However, this is a change in ambition in that it is an overall reduction in ambition. We need to be clear about that. Not only is the renewable heat incentive, as it stands at the moment, not remotely enough for the ambitions that we have and should have on the decarbonisation of heat in terms of being a vehicle to bring that decarbonisation forward, but it is, as the Minister mentioned, very much a time-limited device, which will expire for new entrants in March 2021. In terms of the measures put forward in the clean growth strategy as some of the building blocks for serious clean growth and meeting climate targets, this is actually one of the most short term.

Indeed, in so far as investors and businesses are concerned, that time limit represents, in many ways, a cliff edge as to what will happen in the longer term future. As hon. Members will be aware, the period between where we are now—allegedly spring 2018—and March 2021 is barely time to get projects from conception, to proof, to development, to financing, to realisation. The cycle that is now in place with the renewable heat incentive is barely sufficient to support a lot of the schemes that will be needed—with all the care and detail that will be needed in their development—over the next few years, in so far as a major attack on the decarbonisation of heat is concerned.

A central question that we need to address in looking at the draft regulations is: what next? What will happen at the point at which this particular scheme, as presently rostered, comes to an end? In the clean growth strategy, the Government said that they have

“commissioned research into different heat demand scenarios, the use of hydrogen, what changes might be needed to the electricity grid in response to large scale uptake of heat pumps, the role that bioenergy might play in decarbonising heat and international activity.”

They then state that they

“plan to publish initial findings from a number of studies later this year, and a full report on our review of the evidence by summer 2018.”

Assuming that we have a summer, that Government report will then be in front of us. I imagine that that will be the occasion to look at the future of the RHI, in conjunction with the review that we are told is forthcoming, and to look at what imperative there is for a longer range renewable heat incentive, or a similar scheme, to take us perhaps to 2030 and give us the certainty we need for that period. I am interested to understand whether that is the view of the Government in their report due in the summer of 2018 on heat and heat demand, and whether possible commitments to the longer term basis of the RHI can be within the scope of that review of evidence.

There is one other alarming point we need to bear in mind. While the ambition of the RHI regarding what technologies it is focusing on has come into a more satisfactory trajectory, the National Audit Office and others recorded—as the Minister mentioned—that the new RHI has reduced its ambition substantially, as opposed to the original starting ambition of the RHI overall. For example, the NAO states that renewable heating that is not eligible for the RHI by 2020 has increased by 270%. Renewable heating funded by the RHI in 2020 has gone down by 65%. The total of renewable heating estimated by 2020 has gone down by 18%, from 71 terawatt hours to 58 terawatt hours. The lifetime carbon emission reductions funded by the RHI, in terms of the projections of the starting ambition compared with the current ambition, have gone down by no less than 44%.

This is a relatively modest scheme on the back of what was a relatively modest scheme in the first place. We should be under no illusion: these changes downgrade our climate change and heat decarbonisation ambitions quite substantially. To that extent, we cannot register anything other than considerable disappointment at that particular reduction. It makes it all the more essential that, in the summer of 2018, we get a grip on understanding what role the RHI or a similar incentive can and should play in heat decarbonisation, and how much further we need to go than the scheme presented to us today.

That is the framework in which I would be grateful to hear the Minister’s reflections on how the RHI as a whole may work for the future. I want to touch on one or two elements in these regulations. By the way, we have perhaps not fully reflected on the fact that these regulations reflect on both the domestic RHI and the industrial and commercial RHI, both of which started at different times and have slightly different objectives, but are brought considerably closer together by these changes, so I will talk about them interchangeably. However, there are issues where elements in one set of regulations do not appear to be read across fully in the other set. The Minister may have thoughts about some of those read-acrosses, if such a word exists. That would assure us that the overall coherence of the draft regulations for the two schemes, and how they come together, has been looked at properly.

My first specific point is about the assignment of rights, which is a welcome change in the new RHI. It enables a much better relationship between the people who fund an RHI project, the people who actually use it and the people who get the RHI funding for it, and it clarifies what happens if circumstances change. The draft regulations bring in full assignment of rights and a clear path for funding to be continued on the basis that there is proper documentation for a change to the assignment of rights, but just for the domestic RHI. I would have thought that it was just as important to make that arrangement for the assignment of rights in both sections of the RHI. Is there a clear and pressing reason why that has been done just for the domestic RHI, rather than across the board?

Secondly, the Minister mentioned the arrival of tariff guarantees in the new RHI. I wholly endorse the idea that there should be tariff guarantees. I mentioned investors; tariff guarantees will mean that, once their project is in the system, they are guaranteed a tariff, and it is not subject to the vicissitudes of subsequent degression or stops and starts in the scheme, so they can get on with the project with much more certainty. That is a sensible step forward.

Unfortunately, it is apparent from the explanatory memorandum that the tariff guarantees are not really the guarantees we think they are. They are subject to closure if it is considered that the guarantee amount has been exceeded in any particular period. There is an overall cap as a proportion of the total funding of the scheme in particular periods. The tariff guarantees will also come to an end before the RHI itself comes to an end in its present form—the beginning of 2021, as opposed to March 2021.

Therefore, people who thought they could safely move forward as far as tariff guarantees for their projects were concerned will have a rather rude awakening, because those guarantees are not guarantees. They are guarantees only inasmuch as Ofgem considers, given what else is happening in the scheme overall at any particular stage, that tariff guarantees can be offered. I am sure that the Minister understands that that is not exactly the cast-iron guarantee that one might have hoped investors would be able to get for RHI projects.

Thirdly, I welcome the geothermal element in the non-domestic scheme. The Minister will be aware that such projects are dear to my heart—I have invited her to see the geothermal project in Southampton. However, they are long-term projects that take a lot of funding up front and have long development periods. Although geothermal is in the allowed scheme for non-domestic RHI, it is probably sufficient for only a couple of schemes over the period. A geothermal developer is unlikely to be interested in geothermal projects where they think that the resource available to assist such projects—the short-term resource available in the RHI and across the board—is not enough to support the number of projects that they would need to make what they were doing stack up. That is a theoretical rather than a practical presence for the future of RHI.

Finally—I am sure the Committee will be glad to hear that word—I will talk briefly about the Minister’s comments on combined heat and power and power efficiency. In the regulations, the change the Government made a while ago and then withdrew has become a firm part of the RHI infrastructure.

CHP will not be eligible in full for its outputs if its electricity output is less than 20% efficient. The Minister will be aware that the same proposal was put forward several years ago and then withdrawn. The threshold was reduced to 10% after a review and consultation as to whether the 20% was justified. As part of the wider recent consultation, a special consultation was undertaken into the CHP proposals. Although the vast majority of those consulted agreed that there should be an efficiency level, 71% disagreed that the level should be 20%.

The reasons for that disagreement are fairly evident. CHP does not work on the basis of a known level of electricity efficiency that can be built in scheme by scheme and that could make it possible to decide whether one scheme was electricity efficient and, if it were deemed not to be electricity efficient below a certain point, to say without fear of contradiction that the scheme was not efficient and should not get the money for its activity.

Although I accept that a scheme that is less than 20% efficient will get a proportion of the RHI, schemes that cannot get to that 20% energy efficiency level will be substantially penalised, even though they are efficient schemes in their own right.

CHP schemes will be put in place in a lot of different circumstances. Some will have a relatively high electricity output, and some will have a relatively high heat output. The two are essentially interchangeable in terms of how CHP works, because the activities that produce heat can be diverted to produce steam for electricity production. A number of schemes have to have an emphasis on a slave heat load. That does not mean they are inefficient, but they will not be able to reach that 20% level under all circumstances. By setting that 20% level as if it were something achievable across the board without exception, the scheme potentially penalises and undermines the viability of several perfectly good CHP schemes that do not and cannot operate entirely on that basis.

As I have mentioned, I do not wish any of those concerns to be taken to mean that we do not support the regulations overall, but they need some looking at by the Government. I would welcome it if the Minister considers that at least some of the requests I have raised should be subject to further consideration, and if there is a wider review of RHI in future. I look forward to the Minister’s thoughts.

--- Later in debate ---

[Claire Perry]

Obviously we consulted on the cap last year. Given the current scope, the scheme will be affected. Part of its output will have a guaranteed tariff, but perhaps the development team can come in to speak to officials and have a conversation. The hon. Gentleman mentioned that the scheme was bidding into CfD regulations as well. There are other routes and opportunities. Hopefully the people of Grangemouth whom he represents will be pleased that there is so much incentive. We want developers to bring forward the schemes to take us to a lower-carbon future. If a meeting would be helpful, I would be glad to arrange it.

I praise the hon. Member for Southampton, Test, who is almost my hon. Friend these days. He has brought his typically detailed level of scrutiny, and I will try to cover as many points as possible. On the question of the cliff edge, we are undertaking a lot of work. We published a call for evidence on 19 March. We are keen to develop cost-effective policies for the 2020s through to the 2030s and beyond, but we have a unique situation in this country. We have a centralised gas distribution network to which 85% of houses are attached, and 15% of us, including many in my constituency, live off the gas grid. It is about trying to work out cost-effective ways of delivering those low-carbon, cost-effective solutions on which we all agree. We have published a number of studies. Only last month, we published one showing initial findings on the options available for long-term heat decarbonisation, which are typically hydrogen, bioenergy and electrification. As promised, we will publish a full report of evidence in 2018. I look forward to discussing that with the hon. Gentleman.

The hon. Gentleman raised a challenge about reducing ambitions. It is important to recognise the size of the scheme—£23 billion of taxpayers’ money is committed over its lifetime, which is a substantial investment. Its goals were ambitious, but it is important that we have responded to some of the concerns.

[Dr Whitehead]

I think we need to be clear that the £23 billion is over the lifetime of all the projects that would have got anything from the scheme up to its closure, which could be a period of up to 35 years. The £23 billion should be looked at in that context, rather than as something being funded by the scheme now. Indeed, the £23 billion should be compared with the estimated lifetime undertaking on the same basis with the original RHI, which I think the NAO put forward as £70 billion or so.

[Claire Perry]

I am not going to detain the Committee debating Her Majesty’s Treasury policy, but effectively this is an on-balance-sheet commitment to a liability for either current or future taxpayers that is part of the Government’s spending commitment in perpetuity, and I think £23 billion is a fairly substantial sum. The hon. Gentleman will be pleased to hear that we were keen to understand whether we were rolling this out in the right direction. The Select Committee on Energy and Climate Change made the point that mass roll-out was not the right way forward. That is partly because—this relates to some of the other comments raised—as with all elements of decarbonisation, we need to cut carbon, find cost-effective deployment pathways and create strategic ways to invest where we can grow a manufacturing base and deliver. This is what the reforms are about—trying to reform the scheme for technologies that are more likely to be strategically important in the long run, for example heat pumps. It is less about the fewer, larger installations that use technology that we all know about. I think that is really important for driving through our UK plc investment profile.

The hon. Gentleman raised a question about CHP and why we were bringing in the 20% efficiency point. Again, we do not believe that offering a full CHP tariff to plants with lower electrical efficiency represents good value for taxpayers. We have talked about the strategic elements of this. If I have not answered any of his questions, I will write to him. I did want to discuss an area where we both have a great interest: geothermal. That can be part of the scheme. I am particularly interested in geothermal energy from abandoned mine workings, which is possibly a great untapped source of heat. That would bid in as a heat pump scheme, as opposed to any other scheme. There are really good opportunities for us to look at where we can bring forward some heat from the work that has already been done.

My hon. Friend the Member for Stafford raised an important point, showing that he has read all his documents. I am very impressed. Let that be a lesson to the Committee. He and I always like to debate the numbers. I will write to him with the absolute detail, but essentially there was a revaluation of the air quality and decarbonisation benefits. We may not necessarily agree with them, but if it is sufficient, I will write to him to give him more detail on the calculations. I would like to put it on the record again that as much as we all love being bound by our Treasury guidelines, which are important for delivering value for money, sometimes others make the case that they do not always capture the benefits, particularly these early-mover schemes. They do not yet capture the benefits of any investment in UK manufacturing or service expertise that we might be developing as a result of these, effectively, very big Government procurement programmes.

My hon. Friend the Member for South Thanet offered a very nice invitation, which I would be delighted to accept, and raised a really important and telling point about assignment of rights. I do not know the answer and I will write to him, but it is a tribute to his background that he is thinking hard about avoiding any form of payment protection insurance scandal or any sort of mis-selling. We want to assign these rights to ensure that people in potentially lower-income households are able to get that third-party capital investment into these schemes, but not in a way that causes problems. I am told that the Financial Conduct Authority will look at contracts to ensure compliance with the Consumer Credit Act 1974, if needed, but it would be reassuring to him and me to put that in a letter. I would be happy to send that to him.

UK Oil and Gas Industry

Alan Whitehead Excerpts

Thursday 19th April 2018 Westminster Hall

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

I concur with the hon. Member for Kilmarnock and Loudoun (Alan Brown) and congratulate the hon. Member for Gordon (Colin Clark) on securing the debate, which has been informed and thoughtful, with excellent contributions. Although we have had a not overwhelming turnout this afternoon, as the Minister reminded me on a previous occasion, there are still two speeches to go, so I hope that my contribution will be up there with those who have already spoken this afternoon.

On where the oil and gas industry is right now, I heartily concur with hon. Members that the outlook at the moment looks much better than had been thought possible a few years ago. Indeed, looking at Oil and Gas UK’s “Business Outlook” for 2018, there are substantially more greens and yellows than there have been for a long time, particularly in relation to production, new field approvals, liquids production, capital expenditure and so on. That is a credit to the way in which the industry has cut its costs, increased its efficiency and got itself much better organised in terms of what will be a very different future for the UK continental shelf than has been the case in the past. That change in approach heralds a brighter future not only for 2018, but for a longer period, because of the change in approach. As the hon. Member for Banff and Buchan (David Duguid) reminded us, the circumstances will not be characterised by, to put it bluntly, hoping for another Brent find.

The future is going to be different. It is, as the hon. Member for Aberdeen North (Kirsty Blackman) said, going to be about looking at small pools, at how exploration can advance without there being a bonanza of new fields, and at consolidation of what already exists. As the hon. Lady and the hon. Member for Banff and Buchan reminded us, it is also a question of decommissioning, and how thoughtfully we go about the process. Oil and gas is not an industry where we can just talk about various spending estimates—£35 billion, £50 billion, or whatever. There is a question of decommissioning in such a way that the process for the possible future exploitation of small pools is maintained, rather than taking all the infrastructure away and feeling bad when it comes to getting on with things subsequently because, lo and behold, the infrastructure that could help is gone. The emergence of the OGA and the success that it has already had is an important element in getting some of those issues right for the future, with a greater sense of co-ordination and understanding within the process in the next period.

In other circumstances I might have said that the hon. Member for Aberdeen North had stolen a lot of what I was thinking of saying, but I know it is a coincidence because anyone who knows my office will also know that I am the only person who knows where my notes are, among the huge pile of papers. Nevertheless, she has articulated many of the themes that I wanted to talk about, particularly how we can ensure that the UK continental shelf has a bright future not just because of oil and gas but beyond them. That includes what we are doing to ensure that carbon capture and storage can be advanced. I believe that could happen in the UKCS, not just with a UK repository but also possibly, in the future, a European one. That would also mean being very careful about what was done in decommissioning, to facilitate rather than downgrade that future industry.

The hon. Member for Waveney (Peter Aldous)—I keep wanting to call him my hon. Friend, but convention in this place does not quite allow me to go that far—made a thoughtful contribution. He will know from the various Committees and other bodies that we have both been on that the opportunity for carbon capture and storage in different forms of gas use has the potential to be important for the future of the UKCS. His suggestion that we can see the UKCS as an entity for energy as a whole was an important thought, and I hope that we shall pursue it. Indeed, my actual hon. Friend the Member for Stockton North (Alex Cunningham) mentioned that there are other practical things to be done by way of decommissioning to produce not just opportunity but infrastructure for industries of the future in the North sea.

I want to give the hon. Member for Gordon an assurance. I do not think it was deliberate, but he chanced on a characterisation of some of those who consider the climate change debate to be an imperative in considering the future of oil and gas in the North sea—that those people would suggest that oil and gas should not have a bright future there. That is not the case. I regard the climate change imperative as encompassing all that we do in connection with energy, as I think does the Minister. However, that does not mean there is not a long-term need for oil or gas; there is a need for both. The question is not whether we have the need, but what we do with the stuff once we have got it, and what sort of responsibility we take for its subsequent use.

An example, which the hon. Member for Waveney will well recall, is the future arrangements that we might have for decarbonising the gas system. One way might be to develop a hydrogen gas economy—a green gas economy—for heating our homes. The cheapest and most efficient way to produce the necessary hydrogen would be through a steam methane reforming system, and that of course needs gas. We can envisage circumstances in which we would take gas from the North sea and make hydrogen from it—possibly in the Teesside cluster that my hon. Friend the Member for Stockton North described—and, to make sure that it would be climate-efficient, the process would need CCS as well. The carbon captured in the hydrogen-making process would be put back into the North sea repositories, which would have been saved by efficiency in the decommissioning process. By a variety of devices, we could have different ways of using what we had to secure a bright future for the North sea, but it would not necessarily be the bright future that we envisaged hitherto.

It is important to be clear about our intentions for what we extract from the North sea—that what we use should be domestically sourced as far as possible. That would be good news for the UK as a whole, but we would also have the wider responsibility of the climate change imperative behind us. We need to think through what we will do with our North sea products and, on that basis, how we shall sustain the industries that have served the UK so well in the past 40 years or so. I am not one of those who says, “The North sea is finished; it is a mature basin.” There is quite a lot more to get out of that basin. We must do that in rather different ways, with rather different responsibilities, but provided we take that approach the bright future for the North sea and the oil and gas industry there is assured. I hope that we can work together on achieving that in the coming years.