Draft Combined Heat and Power Quality Assurance (Temporary Modifications) Regulations 2021

Alan Whitehead Excerpts

Wednesday 19th May 2021 General Committees

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

Thank you very much, Dr Huq. I am grateful to have been able to get here almost on time. I apologise for the discourtesy of not actually being here on time. I reflected on my journey from Waterloo station to here—I literally ran the whole distance—that I was doing all that just to say that we thoroughly agree with the statutory instrument in front of us—[Hon. Members: “Hear, hear!”]

This proportionate and measured administrative change will ensure that quality CHP arrangements can continue, and that those taking part in such schemes, which are, by and large, the most innovative and best organised combined heat and power organisations, are able to use their 2019 data for the purpose of qualifying for the next stage in the quality assurance proposals, and indeed for the renewable heat incentive and its successors. It is necessary to do that because of the destruction caused by the pandemic and the problems that several such plants have experienced in getting their data properly organised for the present period.

To disqualify or disadvantage good schemes because they have not been able to get their data in on time would be a great injustice. This measure sets out a way to deal with that, while maintaining the proper regulation and arrangements for quality assurance for the future. I wholeheartedly support the proposal, and I see from the consultation carried out that it was endorsed thoroughly by the industry associations. We might therefore say that there is not much to talk about, other than to wish this proposal every success in ensuring that quality assurance is maintained.

I would just like to ask the Minister a question to which I think I know the answer with reasonable certainty. I am sure she will be delighted to hear that this will not entail a further letter to me, as has been the case on previous occasions. What is happening with the wider proposals, which are very relevant to the good-quality schemes that are taking part in CHPQA activities? What is happening on the wider scheme to regulate the combined heat and power industry properly for the future? The Minister will recall that we had a Westminster Hall debate about that very recently, in which she was able to give some assurances about what is happening on regulation.

I see that nothing has appeared in the Queen’s Speech on the legislation that might be necessary to undertake this regulation, perhaps as part of a larger energy Bill. I understand that a draft energy Bill may be presented in the next Session, but there is no proposal to legislate in this Session, as far as regulation is concerned. We do not need to rehearse the reasons for good regulation. Among other things, good regulation of the CHP sector will ensure that the best become even better and the worst come into the fold, as far as overall regulation is concerned. That is a real issue, in terms of the delivery of heating schemes, which is very much the subject of this SI.

My first thought is that it may be possible to regulate CHP schemes by way of secondary, rather than primary, legislation. Will the Minister investigate whether such a regulation route might be a better way of proceeding, rather than waiting for something perhaps two or three years hence to come through in primary legislation?

I emphasise the need to do so, because of the enormous expansion that I think both the Minister and I anticipate for CHP district heating schemes in the future. It is essential that we have proper regulation for that future expansion and for new operations coming into the existing scheme, so that they are included in the best possible way, making the best possible use of the incentives and other assistance that comes there way as a result of being part of the scheme, and which will enable them to be much better CHP district heating schemes in future. That is a very friendly nudge to ask the Minister to get on with, as quickly as possible, a full range of regulation and undertakings to make this SI, important though it is for the immediate present, fit for the future as well.

Draft Electricity Trading (Development of Technical Procedures) (Day-Ahead Market Timeframe) Regulations 2021

Alan Whitehead Excerpts

Tuesday 18th May 2021 General Committees

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

We have no issue with the thrust of the proposals in the draft SI. They are sensible in terms of the regulation and ordering of the passage of electricity both ways through interconnectors, so that the UK can trade across interconnectors, and all the countries associated with them, coherently. I might add that, of course, not all UK interconnectors go to EU countries. Although the arrangements are essentially a partnership between the UK and EU countries, one interconnector goes to Norway, which is not a member of the EU. I understand, however, that it falls within these rules as they stand for the purpose of its end of interconnectors for the future.

This SI, however, is shrouded in such a huge mosquito cloud of acronyms that it is difficult to understand exactly what is going on. I think I understand what the proposals purport to do overall, and I want to ask the Minister a couple of questions, on the basis of my understanding, about how other actions the UK may now be undertaking fit in with this particular proposal. To give hon. Members a brief example of what I am talking about, I shall take a paragraph at random from the explanatory memorandum, which states:

“Ahead of this, the United Kingdom secured the TCA with the European Union. Title VIII (Energy) and Annex ENER-4 of the TCA set out requirements for the development of new cross-border electricity trading arrangements at the day-ahead market timeframe that are distinct and separate from those established under CACM.”

I am sure we are all clear about that, are we not. What I take from that paragraph, and the rest of the explanatory memorandum, is that this SI is about cross-border trading. It is about ensuring that cross-border trading is regulated and organised in a way that is not only advantageous for prices, but is advantageous for the judicious use of capacity in interconnectors. It organises the day-ahead market in a much better way than would be possible were, for example, people to be auctioning both capacity and flow on different occasions.

As I am sure hon. Members will be aware, if a flow is secured, but not capacity, and capacity is then squeezed as the day-ahead market comes to closing point, the prices will go up substantially; what seemed to be a good deal from an arbitrage point of view then turns out to not be the case. In the long term, that can lead to the production of electricity at disadvantageous prices as an alternative in-country, when an interconnector arrangement would have been better, all things considered.

In those terms, the regulations seem a very sensible and wise move to take, as they essentially align the UK with arrangements across the EU, both in terms of its capacity considerations and arrangements for electricity flow. I think that is a good thing, and clearly the Government do as well. However, we need to understand that that means that interconnector traffic will now not simply be a question of deciding how much capacity—how much flow they can get down it—someone can use in their interconnector, possibly at the cost of other interconnectors in operation, but will actually be subject to a co-operative arrangement, so far as interconnector practice is concerned.

Assuming that is the case, I am concerned about what the UK will do about its interconnector exemptions policy. As I am sure hon. Members will know, someone could avoid the obligations that came along with the previous interconnector cap and floor regime, or those sort of regimes, by proposing to exempt an interconnector from all those rules and regulations and joint trading arrangements. In the instance of cap and floor, interconnector operators get a minimum amount of income for their capacity and flow, but they have to give income back beyond a certain point, so they have a stable investment environment; but if they want to make a lot of money out of an interconnector and wish to take the downsides with the upsides, they may apply for an exemption in order to—so they may think—make their interconnector work to their advantage.

The exemptions regime, which was previously conducted on both sides of the interconnector end jointly, has now come to an end, obviously, with the UK leaving the EU. Previous hearings on exemptions, which were carried out jointly by the UK and its EU partner states, have now come to an end, but the UK has not yet established its own exemptions regime, so far as I understand it. That is potentially important, because what a UK exemption regime will look like could be very important to the extent to which interconnector operators consider that they should reasonably be bound by the provisions outlined in the draft regulations—regulations which, as the Minister said, are subject to a number of detailed, technical further considerations to work out exactly how the scheme will operate and what its ins and outs are likely to be. I would be grateful if the Minister could confirm that, although a specific UK exemptions regime is not in place at the moment, work is under way to put one in place in the not too distant future. I assume that to be case.

That question is not academic, because at present, there are no fewer than four interconnectors either operating or proposed to operate between the UK and France, the total capacity of which actually comes to more than the total amount of interconnection that the UK has at present with all other EU states. One might say that the passage of interconnection between the UK and France is very crowded. We are potentially in a position in which the only way to make money out of an interconnector between the UK and France is to, as it were, eat the lunch of other interconnectors, rather than by actually operating according to the sort of rational arrangements set out in the draft regulations. Two of the interconnectors that are either operational or proposed between the UK and France are either applying to be exempt or are exempt, and two are not. Depending on the UK’s exemption regime, those non-exempt interconnectors could have their lunch eaten much more efficiently by those exempt interconnectors in the future. Alternatively, they may even work together at a lower possible income level, but nevertheless under a organised and co-operative arrangement that actually secures the two-way traffic in the most felicitous way for both countries—not necessarily in the interest of any one interconnected company, but in the interests of those countries.

Can the Minister tell us what progress is being made on the UK exemption regime? Will it be aligned with the provisions in the SI, or does the Minister have plans to make it far less collaborative and co-operative than the regulations before the Committee suggest?

District Heat Networks

Alan Whitehead Excerpts

Wednesday 28th April 2021 Westminster Hall

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

I congratulate the hon. Member for Carshalton and Wallington (Elliot Colburn) on securing the debate. Although such positions are not declarable on the Register of Members’ Financial Interests, I ought to say that I am a vice-president of the Association for Decentralised Energy, formerly the Combined Heat and Power Association. The position I hold reflects my long-standing interest in district heating and local energy schemes, which I have maintained throughout my time in Parliament, which is now a very long time. I will mention briefly in my comments my interest in these schemes and arrangements.

I was not sure what the thrust of the debate was going to be, but I anticipated that it would probably be about the concerns that some Members have expressed over time about circumstances relating to the operation of some, but by no means all, district heating schemes. Like my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), I have expressed concerns about that, and I have put forward remedies for those concerns over a number of years in this House.

I think district heating will be an important part of our approach to the decarbonisation of heating. It certainly has a substantial part to play, under particular circumstances and in particular areas, in delivering low carbon heat reliably and satisfactorily to populations. At its heart, it is a system about networks, not about what goes into the networks. A variety of different forms of fuel can go into the network and deliver heat very efficiently. It is not just about taking heat from incinerators. It has much wider applications through heat engines or through low-carbon sources of energy that can be a part of a network. The network can adapt and change over time.

The efficient use of heat that this represents has been rolled out much more in other parts of Europe than has been the case in the UK. I visited Denmark a little while ago, which has more than 50% of its total heat provided by district heating schemes, and in Copenhagen it is about 90%. They are well-regulated schemes with a very low level of complaints and a very high level of delivery and efficiency, and they generate affordable heat in the process.

My city of Southampton now has five district heating schemes within the city boundary, including the nation’s only geothermally heated district heating scheme, which I often draw attention to. That demonstrates that the fuel types for heat schemes can be very different. Where the schemes are well run, there are few complaints and they continue to deliver affordable and, in this instance, low-carbon energy to the city.

That is one side of the coin. The other side is what happens with the schemes that already exist, and indeed have existed for a long time and have different forms of ownership and input. I am pleased that the Government have recently woken up to the potential of district heating. Through the green heat network fund and various other things, they will be providing money and support, mainly for local authority-based schemes, to bring forward district heating in the future, but I am well aware that the good schemes that may be brought about in the future are by no means the whole picture of district heating across the country. There are currently about 2,000 schemes in the country, which produce something like 2% of domestic, public sector and commercial heat demand, and supply just over 200,000 buildings and almost 2,000 commercial and public buildings across the UK.

As we have heard, a proportion of those 2,000 schemes are not well run at all, frankly, and for various reasons they have produced a bad deal for customers. Indeed, in some instances, because of the age of the system, there has not been any investment in the system and they are producing very inefficiently. In some instances, because of a frequent change in private ownership, they have simply been starved of the sort of investment they need to run at a good level, and there has not been the level of customer care that there should have been in the systems over the period. The points that hon. Members made about their local schemes are well founded. It is up to us to recognise that that is the case and to do something about it; otherwise, the next generation of district heating schemes, which will be essential, will not be well founded, as far as their operation is concerned, for the future.

The Government have sort of recognised over the years that that is a problem, but I am afraid they have not done very well by customers in those circumstances. Until relatively recently, they considered that regulation should not be statutory, as my hon. Friend the Member for Greenwich and Woolwich said, but that it should be entirely voluntary and done on the basis of an industry scheme. The 2013 paper “The future of heating: meeting the challenge” stated:



“The Government does not want to stop the growth of the sector through introducing unnecessary regulation. DECC is therefore initially seeking an industry-led scheme”.

Up to relatively recently, that was the position of the Government over a long period.

A heroic effort to do just that was introduced by the Combined Heat and Power Association, now the ADE, through the Heat Trust, which, in its own right, is a good scheme. Of course, as hon. Members have mentioned, it is entirely voluntary. If schemes do not want to join it, they do not have to—a lot have not. The redress is strictly limited to those people who are already likely to be the good guys in the first place, and not those that are, perhaps, the most egregious underperformers as far as the overall system is concerned.

Fair play to the Government, who have recognised that that system is not the right way to go about regulation for the future. In spring last year, we had the “Heat networks: building a market framework” consultation, which set out a scheme for universal regulation —not a perfect scheme, but a scheme nevertheless. We had that consultation, introduced last February and concluded last summer—and have heard nothing whatsoever since. There has been no Government response or discussion of how the very sketchy scheme set out in the original consultation could be improved and assured as a universal scheme, both retrospectively and prospectively, for district heating.

In the end, we only have one line on the subject in the energy White Paper:

“We intend to legislate in this Parliament for the regulation of heat networks to protect

consumers and reduce carbon emissions.”

That is a fine ambition, but hon. Members will notice that the proposal is to legislate in this Parliament on something that we do not know the content of because there has been no comeback from the consultation on what a scheme might be. Should we legislate in this Parliament, say at the very end, there will inevitably be a time lag in bringing a scheme to fruition, and we could be well into the end of this decade before we get the sort of regulation that we clearly need. I guess the Minister is going to make some considerable play of the fact that the Government intend to legislate, but, frankly, that really is not good enough. As I say, we do not know what this regulation will consist of, how universal it will be, what redress will be in it, how legally enforceable it will be and how it will shape new networks, or retrospectively encompass all existing networks.

Finally, a vague suggestion that we might legislate sometime in this Parliament, with a possibly extended implementation date, does not answer the issues that hon. Members have raised in any coherent and satisfying way. First, we need to get the response to the consultation out as soon as possible, so people are much clearer about what it is we might be considering, and if they think it is insufficient, they can talk about how better to deal with the issues mentioned in that regulation in a satisfactory and comprehensive way.

Secondly, we need a commitment from the Minister this afternoon that she will not just rest on the idea that there might be legislation some time in this Parliament, but that she will go away this afternoon and get writing that legislation—not personally, necessarily, but with the support of some of her colleagues and civil servants in BEIS— and get that through Parliament as quickly as possible. That means next year. I know the Minister is close to being a miracle worker in her position, but if she can achieve that over the next period she will certainly have my full support.

Electricity

Alan Whitehead Excerpts

Tuesday 27th April 2021 Commons Chamber

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

I welcome the statutory instrument this afternoon to extend the warm home discount for another year. Indeed, what is there not to like about extending the warm home discount for a further year at least? It has been a very successful scheme. It is now coming up to its 11th year, and, as the Minister has mentioned, it provides £140 guaranteed for those in fuel poverty and in vulnerable circumstances to help with their fuel bills.

I have a sense that the SI is a little Augustinian. It is a little, in the saying of St Augustine, “Oh Lord make me good, but not now.” [Interruption.] Sorry, “not yet”. I should look at my “Dictionary of Great Quotations” a little more assiduously.

The Minister has mentioned the suggestions in the energy White Paper about the future of the warm home discount and the proposals not only to continue it beyond next year but to at least 2026. However, that is not addressed in this particular piece of legislation today. I assume that is because, as the Minister said, consultations need to be undertaken in order to refashion the longer-term warm home discount into a slightly different form. Indeed, in the energy White Paper, there is mention of what might be in store for us as far as that refashioning is concerned. In particular, it includes an increase in the envelope so that there is a substantially larger amount of money in the pot for extending the scope of the warm home discount; an increase in the size of the rebate, with a suggestion that it goes to £150, rather than £140; and a consultation on a reform of the targeting of the warm home discount so that it faces rather more towards fuel poverty than is presently the case.

All those things appeared in the White Paper, albeit in a fairly sketchy form, but more than some of them could have been done earlier. They need not have been put off to next year. I assume that a further piece of secondary legislation will be introduced to extend the scheme beyond one year. By the way, it is important that we have some certainty about the longer-term arrangements for the warm home discount so that we are not constantly hopping from one year to the next; we must have a longer-term view of the future of the scheme.

Not only could some of the things signalled in the White Paper, but not detailed or actioned, have been brought forward and put in this year’s extension, but there are further problems with the warm home discount scheme—I think the Minister is well aware of them—that have not been addressed in this year’s suggested extension. It is certainly true that there are a number of welcome things in this SI that relate, for example, to the way that the supplier of last resort arrangements are dealt with. It provides more certainty that a failed supplier’s warm home discount obligations do not disappear with the failure of the supplier and are carried over to obligations going to the supplier that is taking over as the supplier as last resort.

That welcome enhancement of the scheme does not resolve one of the fundamental problems relating to obligated suppliers. The Minister mentioned that she does not wish to change the threshold for next year’s WHD arrangements, but I am sure she is aware that the obligation level leads to the continuing problem of what happens to someone’s entitlement to the warm home discount if they switch during the year from a supplier that is above the threshold to one that is below it. Although I accept that the threshold has been reduced, there is still an issue of the loss, potential or actual, of that entitlement to an obligation on switching. The customer, of course, does not know which supplier has 150,000 customers or fewer than 150,000 customers when they do that.

[Jim Shannon (Strangford) (DUP)]

I declare an interest: I am the chair of the all-party parliamentary group for healthy homes and buildings. I understand that the scheme the Minister is proposing is important for people who need to improve their homes. Does the shadow Minister believe that the funding is in place to ensure that the finance is there for all those who wish to have their homes brought up to a certain standard?

--- Later in debate ---

[Dr Whitehead]

Well, the finances are not there, in general terms. That is one thing mentioned again in the White Paper as an ambition, and the Minister has herself mentioned the ambition of essentially resolving fuel poverty by uprating the energy efficiency of homes up to 2035. Indeed, money has been committed both, I think, in the Conservative election manifesto and in the White Paper itself for that purpose. But actually we have not seen any of that yet, and I doubt we are going to see any of that for quite a long time to come.

The question of this continuing problem of entitlement to warm home discounts if a switch takes place is possibly exacerbated by the new provisions that have been put into the SI as we see it today. That is, of course, that it is not necessarily the case that a company that takes over as a supplier of last resort, when another company has failed, is always going to be a company with more than 150,000 customers. Under the new arrangements, the obligations could continue but then be dissolved by the fact that the new company taken on as a supplier of last resort is below that threshold level. I would suggest that that leads to a rather complicated outcome as far as entitlements are concerned.

I am particularly disappointed that no attempt was made to resolve this issue in this year’s extension, rather than batting it down the road to the extension for the future. I would hope the Minister can assure us this afternoon that she will certainly be very diligent in attempting to secure a solution to this particular problem when the new arrangements come in place up to 2026. I wonder whether the Minister could not just this year, simply by reducing the threshold to a de minimis level, have resolved the issue essentially for this year.

I am pleased to hear the Minister mention the continuation of the industry initiatives element of the warm home discount. She will know that that has led to a great deal of very solid and good assistance being given to people who are in receipt of the warm home discount for a range of issues relating to their pension and other tax credit entitlements, and perhaps their receipt of top-up vouchers and various other things. I take it from the Minister’s assurances that she has given us this afternoon that the industry initiatives will be fully retained in this year’s extension, and indeed that the industry initiatives arrangements will be rolled over into the warm home discount after 2026, as it goes forward.

The final thing I would ask the Minister to comment briefly on is the ambition in the White Paper proposals for the extension of the warm home discount to concentrate to a greater extent on fuel poverty as such in the delivery of the warm home discount. She will appreciate that a number of the people who receive warm home discounts will not qualify, as it were, particularly under the revised definition of fuel poverty that the Government have now indicated is to be the future benchmark for fuel poverty. Nevertheless, those people will be in great need of the warm home discount for the future. I would be grateful if the Minister could briefly inform us whether it is her intention to ensure that people who need the warm home discount but do not necessarily fit into the Government’s new definition of fuel poverty will actually be protected as the arrangements are put in place for ensuring a greater emphasis on fuel poverty for the future.

--- Later in debate ---

[Anne-Marie Trevelyan]

I thank the hon. Gentleman for that intervention, and I will make sure we give him the detail of the figures in due course.

I am really pleased that there is agreement across the House that low-income and vulnerable households should continue to receive the valuable support provided by the warm home discount at a time when they most need it. Over the 10 years of the discount scheme so far, more than £3 billion in direct assistance has been provided to low-income and vulnerable households.

[Dr Whitehead]

I thank the Minister very much for giving way. I detect that she may be coming towards the end of her comments. I wonder if she might pause to reflect briefly on the whole question of thresholds and obligations, and how they might work out over the next year, particularly with the new scheme as it comes forward after her proposed consultation period.

[Anne-Marie Trevelyan]

I fear the hon. Gentleman may have to wait for our consultation to consider that, but I absolutely hear his point and reassure him that we will be looking at that in the round. I think we will have capacity. It is so important that we get to grips now, at the start of this really big challenge on buildings efficiency, and think in the round to help those most vulnerable households, and ensure we are as effective as we can be with taxpayers’ money and as impactful as we can be for each and every one of those homes regardless of their situation. I hope he will be reassured, as the consultation gets going, that we will look at that across the board.

The regulations will enable the continuation of support for a further winter. One million of our poorest pensioners and a further 1.2 million households in or at risk of fuel poverty will continue to receive £140 off their bills. I encourage all Members to continue to use the messaging—I am happy to share the detail with them—to reach out to their constituents who might be eligible for pension credit but have not applied for it. We want to ensure that people apply for it. The numbers are lower than we think they should be, so I encourage all colleagues to ensure that all their constituents who are eligible receive it.

As we outlined in the energy White Paper, beyond this extension we are committed to extending the scheme from 2022 until at least 2025-26, and to expanding the spending envelope to £475 million to enable us to reach a further 750,000 households, while consulting on reform of the scheme to better target fuel poverty spending. We intend to consult on the scheme beyond 2022 later this year. I commend the draft regulations to the House.

Question put and agreed to.

Draft Greenhouse Gas Emissions (Kyoto Protocol Registry) Regulations 2021

Alan Whitehead Excerpts

Wednesday 21st April 2021 General Committees

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

The Minister hopes that the SI will have the support of the hon. Members present. It certainly has the support of the Opposition Members present, small in number though we are, so there will be no Division or opposition to the proposal.

However, we need to be clear, among ourselves at least, about what the measure does. It is not the commencement of trading under the new UK ETS arrangement. It is not in any way a measure relating to alignment of the new UK ETS arrangement. It is instead essentially a preparatory measure to enable the UK ETS to operate properly. It clears up a lot of issues about the KP—Kyoto protocol—registry, brings the registry arrangements under the control of the Environment Agency, and regularises the arrangements for membership of that registry for UK companies trading in that protocol area.

The measure is not the UK ETS itself; it is breaking the ground for it, four months after we have formally left the EU ETS, and were supposed to be setting up our own ETS and trading independently. The Minister has indicated that the UK ETS will be better, if anything, than the EU ETS, and has warmly heralded its arrival, but of course it has not actually arrived. However, we have an announcement by the body that has been commissioned to undertake trading at auctions for the new ETS that the first auction will take place on 19 May, subject to regulatory approval.

I am not sure whether this afternoon’s proceedings are part of the regulatory approval that will allow those auctions to take place. I suspect that they are not, but interestingly I see that there is, as the Minister mentioned, an aim for the IT platform for the UK KP registry to be ready in spring 2021. I think that she and I will agree that we have anything but spring-like weather at the moment in the UK. Nevertheless, it is spring, so that platform should have been ready by now, but it is not. As the Minister mentioned, it is not projected to be ready until May and there will not be activities on the UK registry until June—which is the summer, by my reckoning. Can she say, reasonably hand on heart-ish, that the platform really will be ready by, shall we say, the end-ish of spring and working as she described? As she clearly understands, that is important to the workings of the ETS scheme as a whole.

The Minister indicated, as the explanatory memorandum to the regulations indicates clearly, that companies who have accounts in the UK’s KP registry have lost access to the original registry for the period during which the new UK registry is being compiled and the software sorted out for the platform. Indeed, the explanatory memorandum has the strange advice that companies involved in the original KP registry and awaiting transfer should, if necessary, open accounts in Europe to use the original KP registry. This is getting to be a bizarre state of affairs. It really should have been sorted out simultaneously with UK withdrawal so that a reasonably seamless transition could have taken place, but that that is clearly not the case.

The Minister mentioned that we have no reports of UK companies being seriously incommoded, but it could be that they are giving up on progress for the time being and awaiting further developments, as indeed they are on the auctions with the new UK system that we are promised. Can she assure us that no damage to the future of the UK ETS has occurred by the strange set of affairs of companies being in a hiatus, unable to trade in the UK and perhaps having to trade in Europe?

Finally, what are the arrangements likely to be for the alignment of UK ETS systems with other carbon trading platforms in the world and, most essentially, with the EU ETS? The UK-EU trade arrangement, signed on Christmas eve, clearly indicated that there would be alignment between the EU and UK systems at an early stage, but the energy White Paper, published at about the same time, merely says that

“the UK is open to linking the UK ETS internationally in principle and we are considering a range of options, but no decision on our preferred linking partners has yet been made.”

Can the Minister tell us whether that range of options has been considered, and whether any decisions about preferred linking partners have been made, or are in the process of being made, to allow the UK ETS to work in the best possible way?

To be helpful to the Minister, I can indicate that the EU authorities confirmed at the beginning of March that no negotiations with them about any EU ETS-UK ETS linkage had started. Perhaps the Minister can let us know today whether any negotiations have started and, if they have not, whether the decisions on preferred linking partners might concern schemes operating elsewhere in the world—China, some states of the USA or South Korea. I would have thought the rather obvious one to link with was the EU ETS. I am anxious to hear whether that is the Minister’s view. If it is, what has happened to allow that linking to happen?

Draft NuclEar Safeguards (Fissionable Material and Relevant International Agreements) (EU Exit) (Amendment) Regulations 2021

Alan Whitehead Excerpts

Tuesday 13th April 2021 General Committees

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

The Committee will be pleased to hear that we do not intend to oppose the draft statutory instrument. As the Minister has said, it relates to an international protocol that amends our relationship with the Government of Japan as far as co-operation on and the peaceful uses of nuclear energy are concerned. It has been properly arrived at with the Government of Japan, and it appears before us today for ratification. As the Minister can observe, if we did decide to oppose it, I think we would lose 3-2, so it is perhaps not worth going down that route.

[Chris Elmore (Ogmore) (Lab)]

That is tighter than usual.

[Dr Whitehead]

Tighter than sometimes.

I will ask the Minister a couple of questions, which will take a moment to unfold. I hope that she will be able to respond to me this afternoon. If not, perhaps she would be willing to write to me. When looking at this particular protocol, we need to nest it in what happened before it came about, its purpose and what it either adds to or replaces. In this particular instance, and in the instance of a number of other protocols that have been agreed bilaterally between the UK Government and foreign countries, it stems from the Nuclear Safeguards Act 2018, which clarified that the Government should sign a “relevant safeguards agreement”, in this instance

“relating to nuclear safeguards to which the United Kingdom and the International Atomic Energy Agency are parties.”

At that time, the relationship between the International Atomic Energy Agency and the UK was effectively through the medium of Euratom. The UK was a member of Euratom, which had international protocols with various other states. It was therefore necessary, on the UK leaving Euratom, for us to not only replace a voluntary agreement with the IAEA but, as is set out further in the Act, ensure that principal international agreements had been signed prior to the UK leaving Euratom. The Act states that, if

“one or more of the principal international agreements have not been signed”,

a “relevant request” has to be made for a continuation of effective membership of Euratom until such signatories had been achieved.

That was given effect by the Nuclear Safeguards (Fissionable Material and Relevant International Agreements) (EU Exit) Regulations 2019, from which this protocol effectively derives. Among other things, that secondary legislation required a Minister to specify the relevant international agreements. In other words, they had to carry out the part of the legislation that required those agreements to have been signed or, if they had not been signed, make a relevant request to Euratom for continuation. The UK formally left Euratom on 31 January 2020, which was not the same day as exit day from the EU. Euratom is a treaty organisation that precedes the EU, so the process of leaving was different.

The statutory instrument setting out those agreements was passed in 2019. During the course of the Nuclear Safeguards Bill Committee, the then Minister indicated that all the international agreements that should have been signed were well under way and there was not going to be much of a problem. Indeed, he was confident that they would all be signed and

“presented to Parliament before ratification, ahead of the UK’s withdrawal from Euratom”.––[Official Report, Nuclear Safeguards Public Bill Committee, 2 November 2017; c. 57.]

What then appeared in the secondary legislation of 2019 was a little curious. On 7 June 2018, a protocol was agreed to distinguish the UK’s relationship with the IAEA from its relationship with Euratom. On 4 May 2018, a similar agreement was made with the USA, which is one of the countries with which it is necessary to sign. Similar agreements were made with Canada on 2 November 2018, and with Australia on 21 August 2018. Curiously, the 2019 regulations mentioned an agreement with Japan, but dated it February 1998. That agreement did actually exist but it was essentially superfluous because of the UK’s relationship with Euratom. That agreement with Japan specifically stated that the UK was a member of Euratom and that the agreement should therefore be in addition to those arrangements.

The 2019 regulations state:

“The Secretary of State specifies each of the following agreements as a ‘relevant international agreement’ for the purposes of section 112(1A) of the Energy Act 2013,”

which was, of course, amended by the Nuclear Safeguards Act 2018 and relates to the agreements that needed to be signed. My first question is: why did the 2019 regulations state that the agreement with Japan, which was signed on 25 February 1998 and which specifically said that we were a member of Euratom, was a relevant international agreement for the purpose of stating that we were not a member of Euratom?

The protocol that was signed in December 2020 is fairly hard to find, but happily I have a copy in front of me. It states specifically that the protocol deletes the words:

“and Recognising that the United Kingdom of Great Britain and Northern Ireland is a member of the European Atomic Energy Community (hereinafter referred to as ‘EURATOM’).”

I agree that the protocol does a few other things in terms of nuclear co-operation, but its main purpose is to state that we are not a member of Euratom anymore. Indeed, that is why this draft SI is before us today—to amend our relationship with Japan on the basis that we are not a member of Euratom and are, therefore, acting independently of it with the IAEA.

My second question is: does the Minister recognise that what was passed in the secondary legislation of 2019 was simply a mistake and that it has been rectified by the protocol under discussion, on which I hope we all agree? Alternatively, does she think that that secondary legislation was all right, in which case what we are discussing this evening is superfluous? If that is the case, she should reflect on the possibility that what we have been doing since we left Euratom is not legal according to the legislation passed in 2018.

If we have been operating in a non-legal or semi-legal way for the past year or so, I hope it will not have any real consequences, but I would be grateful if the Minister would write to me about this matter. I do not expect her to give me all the answers today, but I hope that she can at least give me an assurance that everything has been done properly. If that is not the case, were steps taken to ensure that we did not cause any problems, given that we appear to have not done the relevant international agreements properly until the appearance of this agreement today?

Those are my couple of easy questions for the Minister. I hope she will consider them carefully and either tell me that I am completely wrong or reassure me on what has happened between 2018 and today.

[Anne-Marie Trevelyan]

I thank the hon. Gentleman for his support, his forensic analysis and his challenge to the Government on process. Once I and officials have looked at his points in detail, I will absolutely write to him.

As the hon. Gentleman has highlighted, the UK and Japan have previously had relevant nuclear co-operation agreements in force—the 1998 UK-Japan bilateral nuclear co-operation agreement and the 2007 Euratom-Japan nuclear co-operation agreement—which was not the case with the US, Canada and Australia. Of course, the 2007 agreement ceased to apply when we stepped away from the EU, but the 1998 nuclear co-operation agreement remains in force.

Given that the policy changes made to the 1998 UK-Japan nuclear co-operation agreement were minor, it was not deemed necessary to agree a whole new nuclear co-operation agreement. Instead, a protocol to the agreement was deemed to be the most appropriate measure. There was an exchange of notes, which was considered a temporary solution that would come into force in any scenario where Euratom arrangements ceased to apply, which indeed they did, and the protocol had not then come into force. This protocol obviously represents a robust solution for our UK-Japan civil nuclear trade and co-operation, following our departure from Euratom, and it ensures continuity with an important partner.

[Dr Whitehead]

I thank the Minister for that partial elucidation. However, does she appreciate that, in terms of our leaving Euratom, at the very least this did not appear to have been made in time for the arrangements set out under the 2018 Act? I think she has partly confirmed that in her consideration of the status of the original protocol and what needed to be added to it in order to get us to a proper position—which is, indeed, the position we are now in today.

[Anne-Marie Trevelyan]

I hope that I have provided the necessary assurances for now and I absolutely commit to writing to him with the finer points of detail that I hope will give him the reassurance he needs that the UK-Japanese relationship is absolutely watertight and continues to be of great importance to both countries.

As I said at the start, these draft regulations will ensure that the United Kingdom can comply with the provisions of the protocol agreed between the Governments of the United Kingdom and Japan, and by extension will help to maintain mutually beneficial civil nuclear trade and co-operation between ourselves and Japan. Therefore, I commend these regulations to the Committee.

Question put and agreed to.

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 23rd March 2021 Commons Chamber

[Mr Speaker]

Thank you everybody.

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

May I say that Opposition Members wish to be strongly associated with your words this morning, Mr Speaker, and that I am sure that goes for everybody else in the Chamber today?

The Government’s flagship programme to improve energy efficiency in homes, the green homes grant scheme, has produced figures for the latest month: vouchers applied for—18,526: vouchers issued—1,186; measures installed—99; and, I am not making this up, measures paid for—20. Does the Minister take responsibility for this catastrophic failure of a scheme? Will she say now whether she intends to extend the programme and roll the funding over so that it has a chance to succeed in the end? If she does, will she be sacking the US-based private consultancy firm she hired to run this awful mess?

[Anne-Marie Trevelyan]

May I, too, associate myself with your words earlier, Mr Speaker? I think we have all, sadly, been touched by the loss of someone, or more than one person, whom we have known to this dreadful disease in the past year. Thank you for your words, because it is so important that we are able to hold this moment together.

The green homes grant voucher scheme has made significant strides since its launch in September 2020. We have received more than 90,000 applications and issued 33,000 vouchers, worth £142 million, and an additional £500 million has been given to local authorities to improve the energy efficiency of low-income households, helping to reduce fuel poverty for about 50,000 households by the end of this year. This is such an important part of the just transition that we want to ensure that we achieve with net zero. We recognise that the scheme has faced a number of delivery challenges, as many new mechanisms do, which has meant it has not delivered at the rate or the scale that we had originally hoped it would. However, we are working with the scheme administrator to process the backlog of voucher applications, streamlining the voucher issuance and redemption process as a top priority. Some delays in voucher processing are due to our robust fraud and gaming checks, which we have implemented by learning from previous schemes.

Draft Renewables Obligation (Amendment) Order 2021

Alan Whitehead Excerpts

Tuesday 9th March 2021 General Committees

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

The SI is, frankly, three years too late. It could be described as more of a disaster relief fund arrangement than anything else because there is a significant alternative history behind the measure in terms of the changes to mutualisation and the ROCs market.

The explanatory notes that were kindly sent out with the SI state:

“The mutualisation threshold has failed to keep pace with the growth in the scheme. When the threshold was introduced in 2005, it was equivalent to about 1% of the cost of the scheme.”

The Minister mentioned that when the scheme was first introduced in 2005 it was equivalent to 1% of the cost of the scheme, but that now it is equivalent to about 0.25%. All that is true, but those figures conceal an alarming story.

When the threshold was first introduced, it was never considered that it would be breached; it was regarded as a very, very long backstop for RO payments and repayments. The Minister has set out how the RO works, and how it distributes fund back to suppliers after putting money in the fund in the first place. Until about 2015, the issue of shortfalls was pretty much an academic issue and the mutualisation levels had not been breached. There were occasions on which generators received a slight shortfall on what they might have received, but that was nothing serious in terms of what they expected to receive as their reward for creating renewables obligation certificates in the first place which were then presented by a supplier for a scheme to proceed. I am not sure that we need to debate the complications of the renewables obligation scheme, but it is quite complicated in terms of how it works.

The point we ought to focus on is the period 2015 to 2016, when new licence arrangements were put in place by Government for entrants to the electricity supply markets. Those arrangements have been described thus:

“Energy suppliers could get a licence with little or no capital and no relevant industry experience.”

Licences were literally given away to people who turned up and said that they would like to set up an electricity supply company. That meant an explosion of supplier companies. Indeed, by the end of 2017, there were 73 supplier companies in the market—an increase from just 32 in December 2015. In the course of two years, the number of supplier companies in the market doubled. It was fairly inevitable that because of the lax licensing procedure arrangements, a number of those companies then proceeded to go bust—22 companies have gone bust in the last three years or so. Just this year, two further companies covering some 400,000 customers have gone bust. A total of 1.8 million customers have switched their accounts, not because they wanted to but because they had to. The supplier of last resort—another interestingly complicated device—has come in and customers have been transferred to companies that have not gone bust.

Over the past three years, supplier companies that have done their job properly, have ensured their customers are properly protected and, most importantly, paid their renewables obligation requirements have, quite naturally and not surprisingly, increasingly voiced their concerns. They have observed that companies were coming into the market, undercutting those companies that had acted responsibly, and hoovering up customers but then were unable to sustain the momentum of those efforts and were going bust. The people who paid the money were those energy supply companies that actually did their job properly. That was an extremely unjust outcome and one should have great sympathy for those suppliers that found themselves in that situation having done their job properly. For that reason I am in complete agreement with the thrust of the motion, but the problem has not just arisen. In the last three years, there has been an exceptional new development; not only has the mutualisation threshold of £15.4 million, which the Minister mentioned, been breached but it has been breached at an astonishing level. There was a short- fall of £53.4 million in 2018; £88 million in 2019; and £31.4 million in 2020. Those sums are way over the theoretical and academic mutualisation threshold originally set in 2005.

Of course, something has to be done about it. The measure will ensure that the mutualisation threshold increases substantially, as the Minister has mentioned. That does mean that generators will bear some of the results of any shortfall and suppliers to a much lesser extent. The level of mutualisation means that, probably, it will not be breached in the near future but, as we can see from the figures, even that new level was breached in two of the past three years.

I hope the Minister will acknowledge that what I have recounted is not just an alternative history, but, substantially, the history behind this particular SI. It is a measure to retrieve the disastrous situation that the Government have got themselves into by allowing the market to go in a wild west way, underpinned by the changes to the licensing arrangements in 2015 to 2016.

The Opposition will certainly not oppose this measure today, because it is the right thing to do given the situation we now find ourselves in, but I would like the Minister to reflect for a moment on the history of how we got here and to indicate to the Committee whether she has confidence that the new thresholds in place will take us back to that semi-academic position of theoretical mutualisation arrangements—mutualisation arrangements that would not be breached. I must say, however, that the signals that came out at the beginning of this year were not good: 400,000 further customers forcibly switching and confidence going down.

As we all know, last year Ofgem introduced tougher entry tests for energy suppliers, and I would be grateful were the Minister to reflect briefly on whether she thinks those new tougher tests will substantially ameliorate the problem that we saw between 2018 and 2020. If those tougher tests do not work and we have continuing large-scale failure of companies, as we have seen in the past three years, this measure will simply not work.

I hope that the Minister will give us a brief thought on what confidence she has that the measure will work and that the number of failures we have seen in recent years will be reduced. Will the market return to some semblance of balance in the relationship between what generators have to bear—insofar as far as shortfalls in ROs are concerned—and what suppliers have to bear in mutualisation?

For the past three years, in effect, every September a stern note has been put out by Ofgem to say, “The following companies are on notice because they have not paid their ROs by now.” Indeed, we got to the point where, regularly, that was the canary in the coalmine, when energy companies started to signal, “We’re in trouble.” Some got out of that by paying their ROs and coming to arrangements with Ofgem, but for others—regrettably in very large numbers of cases—that notice was followed shortly by the company going bust and abdicating its responsibility for the RO payments.

That has been happening for three years now. I would have thought that the Government might have spotted that and taken action to deal with the issue rather earlier. I therefore welcome the change—although it is really two years too late and a lot of damage has been done in the process—but it is incumbent on the Minister to assure us that she thinks that the measures in the draft order will really work and will put us into a new era for RO payments, restoring that balance between the concerns of the suppliers, customers and generators, which has been given as the purpose of this SI. We want to get back to a stable environment in which all such concerns are properly met.

Electricity

Alan Whitehead Excerpts

Monday 1st March 2021 Commons Chamber

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

The Minister has done the heavy lifting in this debate by explaining to us the detail of the regulation before us. She has also explained very succinctly why it is necessary to operate the calculations concerning the operational budgets both for the CfD counterparty body and for the settlement body as far as the capacity market is concerned on a one-year basis rather than a three-year basis, as has previously been the case in the House. The reason is that the operational levy costs rate for both bodies is effectively calculated by dividing a proposed annual budget by the total forecast electricity demand for the future. Under present circumstances, we are finding it very difficult to find out what electricity demand will be for the next year given the substantial fluctuations in demand that have occurred with the covid pandemic. Consequently, it seems sensible to allocate the total operational budgets for these bodies on a one-year basis, rather than on a three-year basis as has happened since 2018. The arrangement from 2018 onwards aimed to ensure that suppliers had no surprises, and had a much better view of their liability in respect of these operational budgets, because those budgets are recovered by levies on suppliers, and as I will state in a moment, those levies are passed on to customers. We do not oppose this statutory instrument, because in the circumstances it is sensible.

My first question for the Minister relates to her intentions regarding the periodicity of this arrangement in future years. I assume it is her intention to revert to a three-year settlement at the earliest opportunity, that this proposed one-year arrangement is because of the force of present circumstances, and that there is no suggestion by the Government that we should go back to the pre-2018 arrangements. I would be grateful if she stated that very clearly for us this afternoon.

The second question I have for the Minister relates to the method for recovering these operational budgets. We have already talked about how it works; the operational costs are recovered from suppliers according to the calculations I have described. Those costs—the Minister has set the CfD counterparty budget costs at £20.7 million for this year—are recovered by the levy on suppliers, and the suppliers pass those costs on to customers, which means that customers’ bills go up. This is not an enormous part of the whole levy process, but it is not an insignificant part of it; it is calculated that the cost for the CfD counterparty body alone will add something like 40p to customer bills this next year. Indeed, there is quite a startling rise since the previous period of settlement. My calculations are that there will be about a 17.5% rise this year.

As we progress with the auctions, and progress down the road towards the 40 GW of offshore wind by 2030, to which we have committed, inevitably those operational costs will rise substantially, so the levy will also rise substantially. Whether it will continue to rise by 17% a year I am not sure, but certainly that is a very substantial increase, and I suspect those increases will continue over the period.

In addition to this, in the White Paper that has just been published, a new levy is suggested on gas bill payers to facilitate the development of green gas, anaerobic digestion and associated activities. I thoroughly support that development, but not necessarily raising the money for it by a continuation of the levy mechanism.

Finally, if we do go ahead with the regulated asset base arrangement as far as nuclear power is concerned, that will create a huge additional levy on bill payers for the future. We have a pattern here of levies being put on customers’ bills to underwrite these activities. I happily concede that it is certainly a very small levy compared with others, but I think the Minister would agree that every little bit adds up. We have a picture in front of us, potentially, of a very substantial increase in customers’ bills to pay for these sorts of arrangements.

When the Minister reviews the arrangement at the end of the one-year hiatus, what will her thinking be on whether there are different ways of paying for those counterparty costs? Will the answer always be a levy on customers, or are there other ways of facilitating this, so that the cost does not fall on the customer? I think she will agree that that is probably the most regressive way of funding these arrangements; there are certainly better ways. It may be that the matters before us should be subject to one of those better ways.

--- Later in debate ---

[Anne-Marie Trevelyan]

I thank hon. Members for their valuable contributions to the debate. I will do my best to answer their questions and commit to replying by letter or having meetings with any of them if they wish to follow up on any of the issues that I do not cover.

In answer to the hon. Member for Southampton, Test (Dr Whitehead), periodicity for future years of pricing is not yet determined. However, as he rightly set out, the challenges of the past year have meant that we felt it was more appropriate to look at it on a single-year basis this year, hoping, clearly, that things will settle and we will get back to some sort of normality in the year ahead.

The budgetary increase for the LCCC is in fact 19%. There are three main reasons for that. It is partly due to the impact of covid on energy and insurance markets. The LCCC will now be managing an increased number of CfDs in the year ahead. It is also having to move to a new building this year because the one it has been in is being demolished, so that is a technical reason for having to invest in a new site. The hon. Member for Kilmarnock and Loudoun (Alan Brown) raised the question of savings. In fact, with the new building, the LCCC has taken the opportunity to look at staff working patterns and the flexibility that some staff will want to use, and that has brought a saving of £184,000 on the overall costs, which is a good thing.

Interestingly, in relation to the hon. Gentleman’s point about pumped hydro, he is the second person today who has raised that with me and asked that we can look at it, so I look forward to speaking to him and others on the subject. There are three pots for the contracts for difference. Pot 1 will cover onshore wind and solar, pot 2 is for the less developed technologies like tidal, wave and geothermal—that is perhaps where pumped hydro might sit if we look to do that—and pot 3 is for offshore wind, which is obviously a fast-growing sector. I hope that answers hon. Members’ questions, but if there is anything I have missed, I am happy to write to them.

The hon. Member for Strangford (Jim Shannon) raised the important question of the challenges with fuel bills for many of our constituents following a really difficult year. I was in fact discussing exactly that with Ofgem this morning, and we will be doing a piece of work to make sure that we are as apprised as we can be of the challenges.

[Dr Whitehead]

The question that I asked at the end of my contribution was whether, in the light of those increases and of greater increases in the future, as I think we both agree will be the case in terms of counterparty costs, the Minister is actively thinking about other ways of funding that, or is she happy to continue with the levy arrangements we have discussed this afternoon?

[Anne-Marie Trevelyan]

It is very much a live issue, and, across the multiplicity of the energy resources that we are looking at, we are thinking very much about how we will do that. I am very happy to meet the hon. Gentleman, if he would like, to discuss that in more detail in the weeks ahead.

I hope that I have been able to provide the necessary assurances for hon. Members to approve the statutory instrument, and I am grateful to them for indicating their support. As I said at the start of the debate, the regulations that the Government are seeking to amend through this instrument will revise the operational cost levies for the LCCC and ESC. These companies play a crucial role in delivering the contracts for difference scheme and the capacity market. They must be sufficiently funded to perform that role effectively, but those costs must be kept to a minimum. It is my view that the operational budget for 2021-22 strikes an appropriate balance between ensuring that companies are adequately funded and that consumer bills are minimised. I therefore commend the regulations to the House.

Question put and agreed to.

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 9th February 2021 Commons Chamber

[Anne-Marie Trevelyan]

We are committed to making the UK a global leader in developing carbon capture and hydrogen production, so we are supporting both through new commercial frameworks and financial support, via our £1 billion for a carbon capture and storage infrastructure fund and £240 million for our net zero hydrogen fund.

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

I welcome the Prime Minister’s 10-point plan announcement of the proposal to develop 5 GW of low-carbon hydrogen production capacity by 2030 and, as the Minister has mentioned, the £240 million net zero hydrogen fund to support that. Is it her intention to deploy that fund to support the production of green hydrogen and not to use any part of it to support production capacity consisting of grey or blue hydrogen?

[Anne-Marie Trevelyan]

I thank the hon. Gentleman for his support for the 10-point plan, which I think the whole House believes is the right way forward. The £240 million net zero hydrogen fund is, of course, only one element of this, and we are supporting innovation, heat trials, standards, business models and a revenue mechanism to stimulate that private sector investment which is so important. This is going to put the UK firmly at the front of the pack. We will be setting out much more detailed work later in the year when I publish the hydrogen strategy.