Draft Infrastructure Planning (Electricity Storage Facilities) Order 2020

Alan Whitehead Excerpts

Thursday 17th September 2020 General Committees

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

I will put the Committee out of its potential misery this morning by saying that we do not intend to divide it. As I said in a recent Delegated Legislation Committee, I am not sure it would be terribly constructive, given the number of Opposition Members present. In fact, I fully welcome the order, not only for the clarity with which the Minister set out its effects, but for the clear difference that it will make to the development and onward march of battery storage, which is a crucial development in our energy arena.

I am slightly disappointed that the pumped storage threshold was not increased to 200 MW in the planning regime. The Minister did not make a great deal of that, but consultation on pumped storage that indicated that the industry would certainly like the change. That was not considered to be necessary; however, it is a pretty minor thing compared with the step forward being taken in the draft order.

I want to spend a few moments talking about how the SI reached the present stage. It has been known for a long time that the NSIP regime, compared with the planning regime, is a substantial impediment to the development of battery storage, particularly as it gets to about 50 MW. The Minister is right to say that there has been a clustering of developments below that level. Indeed, in some instances, developers have proposed chains of below-50 MW battery storage units with the aim of staying under the threshold. That point was raised during consideration of the Energy Act 2016, along with another important element of support for the development of battery storage: the creation of a separate licensing regime for storage, either as a subset of generation or as a stand-alone arrangement. There was a clear case for action on both those elements in 2016.

The proposal emerged again in the smart systems and flexibility plan in July 2017. Indeed, it was stated at the time that the intention was to make changes to both the licensing arrangements and the threshold arrangement and consultations were held two years later. On changes to the licensing regime, the latest statement on that is in the update to the smart systems and flexibility plan, which states:

“The Government has completed preparatory work to define storage in primary legislation.”

By the way, that is two years after I tabled an amendment to the Energy Act 2016, which I will modestly say was brilliantly crafted and absolutely fit for purpose. The Minister at the time said that amendment could not be accepted because it might interfere with the preparations that the Government were making for the discussion of this precise point.

Roll on four years and we finally have this SI. As I said, I welcome that greatly, but I also reflect on the fact that it has taken four years to get to this position, when the industry has been crying out for this change throughout that whole period. Not only that, but as far as amendments to the Electricity Act 1989 are concerned—the Minister said there will shortly be an amendment to that Act, to fully plant this change in the legislative process—there has been no such progress with the licensing regime. Nothing has happened. Four years on, we are still no further forward with the change in the licensing regime under the 1989 Act.

These are not academic reflections; they are real reflections about a real industry that is suffering badly in terms of the development that we absolutely need if we are to achieve a low-carbon energy market. We still do not have the finishing line in sight as far as those changes are concerned. Will the Minister reflect on the time that this SI has taken to get to the statute book? I ask him to get his skates on in making sure that the regime for battery storage, and indeed for storage generally, is as good as we can get it, as quickly as we can get it, so that the changes we all want are made as soon as possible.

DRAFT ELECTRICITY AND GAS ETC. (AMENDMENT) (EU EXIT) REGULATIONS 2020 DRAFT ELECTRICITY AND GAS (INTERNAL MARKETS AND NETWORK CODES) (AMENDMENT ETC.) (EU EXIT) REGULATIONS 2020

Alan Whitehead Excerpts

Monday 7th September 2020 General Committees

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

I rise to tell the Committee, in the first instance, that we do not think the proposals are particularly contentious and that we will, therefore, not seek to divide the Committee—although someone might say that, even if we did, we would not get very far, because of who is present. Having said that, I would like to seek a little elucidation from the Minister about certain aspects of the SIs, particularly so that it is on the record. That elucidation relates to slightly separate issues within the two SIs, so I will talk about them separately.

As the Minister said, one SI—the Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020—essentially deals with common standards for internal markets and network codes. In the event of no further agreement being reached between the UK and the EU on these matters—or, indeed, of agreements not extending to this area—amendments will be made to allow those common standards and common code arrangements to be effectively maintained, which is important. We have an intricate network of trading arrangements on energy with European Union member states, most notably through both gas and electric interconnectors, and it is important that there are common standards on both ends and that the codes by which that trade takes place are also compatible with each other over the period. This is not an insignificant thing that is happening in this SI as far as our future arrangements are concerned.

The Minister did not say what the future agreements are that could be reached before IP date that could avoid these regulations taking place. I must say I am a little puzzled, because the explanatory memorandum states:

“This instrument is one of several statutory instruments required to ensure that legislation governing the energy system in Great Britain (‘GB’) will function effectively if at the end of the implementation period…the UK does not reach a further agreement with the European Union…or if the agreement reached does not cover the relevant policy area.”

If we reach further agreement before the IP date, one might assume from that that the regulations that presently exist would effectively continue, or continue in similar form.

If, on the other hand, an agreement is not reached, it appears that what is being put forward in this SI are measures that will unilaterally do that anyway—that is, it will introduce measures for harmonisation of transfer arrangements and codes to allow that trade to continue. I am sure the Minister will be able to explain this to my satisfaction, but I am not sure whether the difference that there might be, in terms of what we are about to agree this afternoon in the event of no agreement being reached, is significant in terms of the possibility of agreement being reached, if we are able to find out exactly what agreement could be reached in order to continue with arrangements as they are at the moment.

Later on, the explanatory memorandum states that if these measures are not agreed, there could be problems and that this

“uncertainty could result in an increase in wholesale prices.”

I am not quite sure why an agreement that makes no great difference between what is there now if a deal is reached and what we are putting in place here to ensure harmonisation and the continuance of trade would increase wholesale prices. Is it simply because of the uncertainty that would arise if there is no final elucidation on these matters, or is there anything in the wording of any change that might cause those wholesale prices to rise? I am not clear. I do not have the answers to this—it is not a trick question, but a request for some elucidation about what the effect of doing nothing today would be if an agreement is either reached or, alternatively, not reached by IP date. Indeed, if no agreement is reached, would there, for example, be an imbalance in trading arrangements that would exacerbate arbitrage arrangements, with the result that wholesale prices might rise? If, on the other hand, we had an agreement that would not do that, or, alternatively, we had these measures in place, that additional arbitrage probably would not arise in the first place.

The second statutory instrument that we are looking at are the draft Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020. As the Minister has mentioned, it looks rather more straightforward than the first one, in that it essentially, for future reference, proofs legislation in the correct way—that is, it substitutes, in the main, the IP date for the exit date so far as the legislation is concerned. So far, so good. However, the SI does not, in the main, extend to Northern Ireland. Indeed, Northern Ireland is specifically left out. Again, our reliable explanatory notes tell us that this might be useful for the Northern Ireland Executive at a later date—if they do not organise things properly in Northern Ireland, they can refer to the SI in their domestic legislation in the future. That is significant because, unlike Great Britain, Northern Ireland has a grid system and an internal energy market system that are wholly integrated with the Republic of Ireland. It is therefore essential that there is harmonisation from day one, in order for what are essentially internal systems within the island of Ireland to work well.

I am slightly surprised that that section of the SI appears to have been left for possible measures at a later date. Given the importance of harmonisation from the start, I would have thought that it would be something that we should, in the first instance, look at here. I am somewhat persuaded in that view by information that is generally known: there are, in fact, two interconnectors between Great Britain and the island of Ireland. One goes to Larne in Northern Ireland; the other goes between Wales and the Republic. We could be faced with the possibility that what is essentially an internal interconnector within the UK is not harmonised, whereas an external interconnector between the UK and the Republic of Ireland is harmonised. That would, in turn, make a nonsense of the internal market and the single arrangements for the grid within the island of Ireland as a whole.

Does the Minister have any thoughts on those potential problems? Perhaps he does not consider them as potential problems at all and he can give me assurances that these matters have been thought out—that there is an agreement that will sort them out or that the legislation in front of us can fully take account of the issues to which I have given some consideration in this afternoon’s debate.

[The Chair]

There appear to be no other Members of the Committee wishing to take part in the debate, so I ask the Minister to respond.

[Kwasi Kwarteng]

I am very pleased to respond to the hon. Gentleman, whose diligence in these matters is always to be commended, but I feel that there is a slight misapprehension about the force of the two SIs. As I described in my opening remarks, the whole point of the first SI is that it amends SIs that were laid before the withdrawal agreement was signed. Those SIs reflected, or tried to describe, the arrangements in Northern Ireland. The hon. Gentleman will know, as will other Members of the Committee, that at least a third of the withdrawal agreement related to the Northern Ireland protocol. I know that, because I was the Minister on the relevant Bill, but I failed to get the Bill through, as you, Ms Elliott, will remember. As the withdrawal agreement has come through, the SIs that we laid before its agreement are essentially redundant.

The first SI that we are debating essentially amends those SIs in the light of the fact that we have a withdrawal agreement and that the agreement has a Northern Ireland protocol attached to it, which determines many of these issues in relation to Northern Ireland. The hon. Gentleman is quite right to say that the second SI does not deal directly with the Northern Ireland issue. However, what has happened since then is that we have got a Northern Ireland Government. We all know—this was an issue that we have talked about at length, and I think that he and I debated it—that the single electricity market, or SEM, is what largely determines these issues on the island of Ireland. The workings of the SEM have been the subject of other SIs, as both he and I know well.

To answer the hon. Gentleman’s first question, it is not true to say that if we do not legislate in this way and there is not an agreement, the status quo just carries on. It does not just carry on, because, as I have said, the SIs have been superseded by the withdrawal agreement. In a way, this measure is a sort of safety blanket. We fully expect that there will be a deal, and that when there is a deal, we will have to reflect the institutions and how the energy market works according to that future deal, whenever it arrives and whatever its details are, when they are fleshed out. This measure is essentially just a safety blanket. It is not true to say that if we do nothing, we can simply carry on as before.

[Dr Whitehead]

I accept, of course, that it would not just be a case of status quo. Nevertheless, there is a question, in my mind at least: within a wider and overall deal, what would a specific deal on energy markets and energy transmission consist of? Does the Minister have information on that, with which he can reassure us this afternoon?

[Kwasi Kwarteng]

It would be quite an extraordinary ask, given that the negotiations are ongoing, for me to be able to tell the hon. Gentleman exactly what the details of those negotiations are. He will understand—this is public knowledge—that we hope to be part of or have a stand-alone emissions trading scheme, which is related to the EU’s ETS. However, as I have said, that is exactly the meat of the negotiations that are taking place, and it would be extraordinary for me in this public forum to say what the outcome of those negotiations will be.

If I may, and without further ado, I will say a couple of words in conclusion. The Government are committed to achieving a smooth end to the transition period so that our energy system operates with continuity and certainty. We confidently believe that these regulations will help to accomplish that in the event—the regrettable event—of there being no further agreement. We think that there will be an agreement, but should there not be one, these SIs will be very useful, because they will ensure continuity for our energy system, they will remove outdated references to legislation that no longer exists and that is not relevant, given the passing of the withdrawal agreement, and, as a consequence, they will provide more certainty for market participants. On that basis, I am pleased to commend them to the Committee.

Question put and agreed to.

DRAFT ELECTRICITY AND GAS (INTERNAL MARKETS AND NETWORK CODES) (AMENDMENT ETC.) (EU EXIT) REGULATIONS 2020

Resolved,

That the Committee has considered the draft Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020.—(Kwasi Kwarteng.)

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 21st July 2020 Commons Chamber

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

All we have right now, as far as energy efficiency for homes is concerned, is an announcement of a one-year scheme to provide vouchers for energy efficiency improvements in mostly lower priority properties, with no detail yet as to how that will work. The Minister simply did not answer the question from my hon. Friend the Member for Lewisham East (Janet Daby) about businesses in the field who are telling us that jobs are being lost now, because people are cancelling work in anticipation of those details, if and when they come out.

What we need for green recovery is a long-term programme that develops jobs and skills and really contributes towards low carbon energy efficiency improvements across all homes in England and Wales. When does the Minister intend to provide details of how the short-term plan will work and what is he doing to establish a proper long-term home energy efficiency programme on the back of that plan?

[Kwasi Kwarteng]

Obviously, the hon. Gentleman and I will have slightly different views of what the Government are doing. I was surprised to hear him dismiss the £3 billion commitment. I remind him that green homes grants will deliver improvements to more than 650,000 homes, supporting 140,000 jobs in 2020-21. These are significant strides and a huge amount of money has been committed to that programme.

Draft Contracts for Difference (Electricity Supplier Obligations) (Amendment) (Coronavirus) Regulations 2020

Alan Whitehead Excerpts

Monday 29th June 2020 General Committees

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

The SI before us is, in one way, quite uncontroversial; it is eminently justified and reasonably undertaken, given the present pandemic and the problems it is creating for energy companies in relation to the payments into and out of the LCCC. The Opposition do not object to it; on the contrary, we support it and think it will help considerably with the difficulties energy companies have in both ways as they react to the LCCC’s concerns regarding this pandemic.

To add to the Minister’s admirable explanation of the regulations, my understanding is that they reduce the obligations on energy suppliers to pay a levy to the LCCC in one quarter and increase those obligations by the amount that they were decreased in that particular quarter four quarters later, so that there is no long-term difference to the overall arrangements as far as obligations are concerned, but the effect is delayed by a year.

The recent effects are twofold. First, energy prices are very low, which means that organisations and companies that take money from the LCCC for their generation receive a greater amount. The difference between the strike price—for example, for an offshore wind farm—and the reference price is greater when energy prices are low, so generators will be paid more out of the funds that the LCCC holds at that time. There is an effect on the money going out of the LCCC to generators as a result of low energy prices.

Secondly, there is very low demand. As prices are determined on a megawatt-hour basis, the amount of revenue coming into the LCCC to pay for the money going out is also decreased. It is a perfect storm of lack of resource for the body that is supposed to keep the money coming in and going out and to settle what is happening in between. It is likely that the LCCC will not have sufficient resources in its reserves or its immediate revenue to easily deal with that without putting a large new imposition on energy companies to balance the books in the meantime. That is my understanding of the situation behind the regulations.

I do not mean this in an unkind way, but the regulations kick the can down the road for a year to deal with the immediate problem and crisis that we are in. The answer to the intervention rightly made by the hon. Member for Windsor is that when the levy is reassessed in a year’s time, it will be based on the then market share of those companies, not their market share today. So if there are changes in market share, or indeed, if certain companies have no market share by that point, that would be reabsorbed among other companies that will thereby have a greater amount of market share, so it will come to the same amount of levy as would have been the case today.

The issues surrounding the levy and the measure being proposed give rise to a couple of questions, although not to opposition to the measure, and I would be grateful if the Minister could address these questions. They are not intended to be hostile or to trip the process up, but to reflect on some of the consequences of what is being proposed and how that reflects across other areas.

First, the statutory instrument sets out measures whereby it is possible for this measure to be used again without recourse to a further piece of secondary legislation if there are “similar exceptional circumstances”, as the explanatory memorandum states. It is important for the Minister to set out today what he thinks those similar exceptional circumstances might be in future.

It would clearly be inappropriate for the measure to be used if there was just a temporary dip in energy prices, or there was lower seasonal demand than anticipated, and for no other reason than that was slightly in excess of predictions. This is a wholly exceptional circumstance, inasmuch as there is a combination of low prices, low demand and the likelihood of that continuing for quite a while under the circumstances of the present pandemic. I hope the Minister can say that it would not be the intention of the Government to use the changes that have taken place with this SI for anything other than similar exceptional circumstances such as the present pandemic.

My second point is that a hike in the requirement for the LCCC in the next quarter—as the Minister says, that would have to be settled by 9 July—would undoubtedly have had implications for customer prices had it gone ahead, because levy payments are routinely passed on to customers by energy companies when those payments are made. The same thing will therefore happen four quarters from now, when we may or may not have a price cap on energy prices. As the Minister will know, Ofgem is required to report each year—as the price cap develops—on market conditions either being present or not being present, in order to advise the Government on whether the price cap should be continued or discontinued for the next year.

Kicking the can down the road for a year means that the market arrangements for the price cap will need to be determined next year rather than this year, in the light of those changes. I am not sure that Ofgem has the remit, in terms of its requirement to report on the price cap and market conditions, to take the circumstances that will cause this change in the requirement for the levy—and, hence, potential price rises—into its consideration of the price cap. I would be grateful if the Minister can give me his thoughts on that and explain whether that has been taken into account with this SI.

My final point is that the LCCC was, as I am sure the Minister will recall, introduced in the Energy Act 2013 only because the Government wanted to introduce a levy payment to the disbursement system that did not impact on the Treasury and that effectively guaranteed payments by Government backing. It was a method of keeping the whole thing outside the Treasury and, hence, independent of the whole process. Indeed, there was discussion at the time about whether that would work efficiently. It did work efficiently, so there has been no further issue with that. Through this process, however, the Government are effectively bringing the Treasury back into the dealings of the LCCC.

Although I appreciate that this is a temporary measure, or a measure for exceptional circumstances, which require exceptional actions to be taken, does the Minister consider that this breaches, in some long-term way, the understanding that was undertaken at the time of the passing of the 2013 Act? Does he perhaps also consider that it might be prudent in the light of this piece of secondary legislation to consider whether, for future purposes, the LCCC ought to be effectively brought within Treasury guidelines, so that, rather than having a body that is theoretically independent but actually has occasional support, we have a body that is clearly backed, supported and resourced, if necessary, by the Government, so that these sorts of issues do not materialise in the future?

[Kwasi Kwarteng]

I will deal with the three points made by the hon. Gentleman in reverse order. He will have noticed that the Treasury has made all sorts of interventions across the whole economy. That does not mean that the Treasury should sustain its intervention in every business that has been furloughed. Similarly, with the LCCC, I made the decision that these were exceptional circumstances that warranted an exceptional response. It is in that sense that the Treasury has intervened; there is no notion that this will be ongoing. I want to put his mind to rest about that. Secondly, that is a loan—essentially, a working capital facility of £100 million that we expect to be repaid

On the hon. Gentleman’s second point about Ofgem and the price cap, that is something to which I am not privy. Ofgem will have a discussion about the price cap; it knows the circumstances of the energy suppliers and about the legislation. I have had weekly rounds with the sectors and the energy suppliers, and twice-weekly conversations with Ofgem, in which we have talked about a lot of those issues. They fully understand the context in which the draft instrument has been laid, so I do not think that there will be any kind of read-across in what Ofgem will do, and I strongly suspect that the price cap will be in force for a number of years to come.

[Dr Whitehead]

Does the Minister recognise that the draft instrument could mean inflated customer levies in a year’s time when that effect comes through?

[Kwasi Kwarteng]

I do not think that the hon. Gentleman or I have any idea what the circumstances will be next year. Lots of things operating in the market may or may not reduce wholesale gas and electricity prices. It would be very foolish for him or me to speculate about the state of the wholesale market in 12 months’ time. Ofgem will take into account a whole range of factors; some may relate to deferred payments, which we had to bring in to alleviate the pressure on the suppliers, and the hon. Gentleman recognised that as a good thing. There is no way that he or I can say exactly what the effect will or will not be on the price cap or on bills in 12 months’ time.

The first issue that the hon. Gentleman really goes to the heart of the matter. This is an exceptional time. A friend of mine—a banker—said to me, “If there ever was a case of force majeure, the covid crisis is it.” The Government have made exceptional interventions, of which this is one. There is no sense in which we would use the powers in the draft instrument to intervene on a regular basis in the market for the LCCC. I fully assure the hon. Gentleman that we will only do so in exceptional circumstances. He will understand that the very nature of exceptional circumstances means that we cannot predict here or now the specifics of what they might be, just as a year ago, we could not say that covid-19 was going to come upon us in February and March of this year—nobody foresaw that, or certainly not the timing. The very nature of exceptional circumstances should give him some assurance that we will only use the legislation in exceptional circumstances. I cannot here and now give him chapter and verse about what those exceptional circumstances would look like.

The Government are committed to the regulations, and I commend them to the Committee.

Question put and agreed to.

Electricity

Alan Whitehead Excerpts

Monday 15th June 2020 Commons Chamber

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

I concur with the Minister that today is not the time to have a major debate about a number of wider issues relating to energy, although there are lots of issues which we could debate. Among others, there is the whole question of whether the capacity market itself is fit for purpose in our present energy arrangements. I do not intend to raise that issue today, but I hope there will be other occasions on which it can be raised and discussed.

I look forward to the emergence of the White Paper, which the Minister mentioned. We are now almost on the first birthday of the imminent emergence of the White Paper, so it would be helpful if he could indicate when the White Paper actually will emerge and, when it does, whether it will be fully formed or more of a greenish White Paper than a whitish White Paper. I am sure that he will be able to elucidate this afternoon exactly what form it will take and when it will arrive, which I trust is very shortly.

This statutory instrument does two things in particular. First, it introduces a number of changes to the capacity market, following the annulment and eventual reinstatement of the UK capacity market’s state aid approval by the EU Court and the European Commission. Secondly, it introduces a number of measures relating to performance requirements, the Secretary of State’s discretion, and how reconsideration and review of decisions take place in respect of the effect of the coronavirus pandemic on construction, finances and network connections.

The Opposition regard the measures in the second part of the SI as sensible and proportionate to the particular problems we have at the moment. It is right that, where capacity market contractors have problems with construction deadlines or financing arrangements, there should be the leeway and discretion set out in the SI to help them through the difficulties that exist at the moment.

However, I have one small question about that part of the SI. The Minister mentioned that there will be leeway and discretion on deadlines—for example, in terms of assurances of performance in the run-up to the capacity market operation. I note that arrangements for assurances of performance or termination of contracts for non-performance have expanded from six months to 12 months. That provides—particularly where a capacity market contractee has contracted in the T-1 market—for the possibility of ending the contract because of non-performance right up to the point at which that performance is expected to take place. Does the Minister have any concerns about that potential timescale? If not, why not? If he does have concerns, could any other formulation that protects the arrangements in the way I have described be used to get around that problem? I would be grateful for his views on that.

There are some more serious issues with the other part of the SI, which makes changes to the capacity market rules. As the Minister has informed us, those changes arise as a result of the coming back to life of the capacity market, as it were, after its annulment following the judgment in the EU courts that the capacity market may not have been compliant with state aid rules, because the Commission had not sufficiently considered those state aid considerations when it first looked at the UK’s capacity market application before the market itself had come into being. The Commission produced a report and an agreement after that judgment and after the market had been annulled, which put the capacity market back into being, but on the basis of a number of undertakings that the UK Government had provided. One can reasonably infer that some of those undertakings were part of the reason why the Commission said that the capacity market could continue and that its construction was indeed not in contravention of state aid rules.

The UK suggested six measures for the capacity market, and they were appended to the Commission decision on 24 October 2019. In the explanatory notes to this statutory instrument, the Government refer to those amendments to the capacity market. They are amendments to demand-side response and to permission for access to the market for holders of store contracts and various other things, none of which are terribly controversial or indeed produce deleterious outcomes to the capacity market. Therefore, on balance I welcome them, particularly those on demand-side response, although I would say—this may be a redundant reflection—that if two of the changes to demand-side response had come into the capacity market earlier we might not have had the challenge to the EU courts in the first place. The challenge was based largely on demand-side response, and therefore the whole question of annulment would not have arisen. [Interruption.] The Minister says “Who knows?”, and we should perhaps not dwell on this for too long, other than to be slightly sorry that that is the case.

The explanatory notes state that this instrument implements the majority of the commitments recorded in the state aid decision, but it is quite a generous reading of what those commitments are and what this instrument does. Can the Secretary of State set out for us what commitments given at the time of that judgment are not included in the measures today, and if and when he intends to implement them in legislative changes to the capacity markets subsequent to this instrument? If he is not intending to do that or to implement those other things that have not been listed for implementation in today’s SI, why not?

I can help point the Minister to the nub of this question by reminding him of two of the commitments, the first of which is about including foreign capacity in pre-qualification to the capacity market. That is not the same as increasing the amount of interconnection coming through the system; it is about pre-qualifying generators that are not in the UK for bidding into the capacity market for capacity through the interconnectors, but not related to the actual size of the interconnection that goes into the UK itself. The second involves introducing a generation emissions ceiling on capacity both by kilowatt hour of electricity and by the average per year for installed kilowatt hours for contracting. I know the Minister has consulted on that particular change, but it does not appear before us today. I wonder why that is and whether the Minister intends to put forward separate legislation to bring that and other matters that are in those commitments concerning capacity markets on to the statute book, or whether the Minister intends to simply not carry out the commitments that were made at the time of the judgment.

If the Minister was able to enlighten me about those particular questions, then I am sure we would find it possible not to divide the House today on this statutory instrument, but rest ourselves content with the present state of the debate; that those questions had been answered and that the portal to the wider debate could then move forward from a successful statutory instrument today.

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 3rd March 2020 Commons Chamber

[Alok Sharma]

I thank the former COP President for her work. The hon. Lady talks about the Prime Minister’s leadership. I can assure Members that when we were at the UN General Assembly in September, there was a huge amount of positivity around his leadership in doubling our International Climate Finance commitment. She will also know that last month the Prime Minister launched the Year of Climate Action. He is absolutely leading on this issue from the front, and the rest of us are supporting him. Let me tell her that we are absolutely determined to make sure that COP26 is a success, not just for the UK but because it matters to the whole world.

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

Every country has to submit its contribution to climate action before COP26 meets. Why is the Secretary of State preparing the UK’s contribution statement on the basis of the fifth carbon budget, which works towards a target of only 80% reduction in greenhouse gas emissions by 2050, when this House has determined that the target to be met should be net zero by 2050?

[Alok Sharma]

We met the first two carbon budgets, and we are on track to meet the third. Of course, I recognise the need for further action: 2020 will be a year of climate action, as I have said, and we have new plans to decarbonise key sectors in industry.

UK Oil and Gas Industry

Alan Whitehead Excerpts

Tuesday 25th February 2020 Westminster Hall

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

I congratulate the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) on securing the debate. I follow the hon. Member for Aberdeen North (Kirsty Blackman), and I am also somewhat of a veteran in debates on this subject.

Cynics have mentioned that such debates are called on the cusp of a Budget to talk about why the oil and gas industry should have lots more support from Government. However, it is significant that the hon. Member for West Aberdeenshire and Kincardine did not talk just about that. I concur with the sentiment expressed around the Chamber that the Government should not continue to treat the oil and gas industry as a cash cow, as has happened on previous occasions. The industry has come out of a difficult period and is recovering, but it still has enormous challenges ahead and needs considerable support in the next phase of its development. That support will be of a different nature to that needed hitherto, because of the context mentioned by the hon. Gentleman: climate emergency, climate change and the challenge of net zero. Those issues suffuse our considerations of the future of the oil and gas industry.

Our considerations therefore need to be sober and varied in reach. For example, the North sea basin is a highly mature basin from which 43 billion barrels of oil have been extracted, and it is estimated that there are about 10 billion barrels left. There will probably not be any new oilfield discoveries in the North sea. However, a large number of small pools have been found. They remain unexploited and have not been developed for various economic reasons. The sector should perhaps concentrate on those in the future. The gains in efficiency in the industry in recent years, and the net reduction in carbon intensity of production, suggests that small pool extraction could be a viable proposition in the not-too-distant future. The infrastructure already in the North sea needs to be available for small pool extraction, rather than being taken away and decommissioned, and then having to be recommissioned for those small pools to be developed.

Decommissioning is another enormous industry that the North sea oil and gas community can benefit from, not just in the North sea but worldwide. We can export the decommissioning expertise we have in the UK to projects elsewhere in the world. In the North sea, some 250 platforms, 10,000 km of pipelines and 50,000 wells are to be decommissioned. That is an enormous industry that needs to be taken forward solidly over the next period, notwithstanding the need to retain some structure for small pools and the other major potential industry, which is carbon capture and storage.

A number of hon. Members, including my hon. Friend the Member for Stockton North (Alex Cunningham), mentioned the possibility—indeed, I think, the absolute necessity—of developing not just carbon capture and storage capacity, but carbon capture and storage nodes. That would mean we could develop entire chain arrangements of CCS, from inland to nodes and out to the North sea, and that we could get involved in the production of hydrogen. All those exciting developments could provide an enormous and bright future for the North sea oil and gas industry. There should be better collaboration between the oil and gas industry and the offshore wind industry to look at the necessary skills, infrastructure and supply chains, so that the similar technologies involved can be better developed, which would be in the UK’s interests.

In the context of climate change, we need to recognise not only that there is going to be a different future for North sea oil and gas, but that oil and gas will be needed in different forms in the UK over a long period. We are not simply going to dispense with oil and gas. All sorts of applications need oil and gas. For example, the production of hydrogen over the next period will conceivably substantially involve steam-methane reformation from gas. Even if we are bringing hydrogen forward with CCS, that will be a substantial part of the process.

We therefore cannot say that there will be no oil and gas in the future in the UK, but the projections by the Department for Business, Energy and Industrial Strategy on the amount of oil and gas we are going to use show a substantial decline up to 2035. That is the period of Oil & Gas UK’s Vision 2035. I very much commend to hon. Members its approach to changing the nature of the oil and gas industry to be climate change-facing, as far as developments are concerned. We then have the prospect, as the hon. Member for Strangford (Jim Shannon) mentioned, of seeking self-sufficiency in a declining market for UK oil and gas products. That would be centred on those different uses for oil and gas, and it seems to me to be an essential part of the future of the oil and gas industry. That is what a bright future looks like.

My final thought is that the sooner we get a sector deal for the industry that recognises those imperatives and those particular ways forward, and that produces stability for the sector in the context of those changes, the better off we will be.

[Stephen Flynn]

The hon. Member mentions stability. The Labour party stood on a manifesto commitment for a windfall tax. Is that something it still supports?

[Dr Whitehead]

The question of a windfall tax depends to a considerable extent on the health of the industry as a whole. Members have mentioned what revenues may arise for development purposes, and that is essentially what we are talking about. I emphasise that the ability to provide revenue very much depends on whether the industry reshapes itself in the way I have described, and that is why a sector deal is imperative.

As a veteran of these debates—I am sure the hon. Member for Aberdeen North will recall this—I remember Richard Harrington, the then Minister, saying in October 2018 that we were at

“the final stage of the process”.—[Official Report, 9 October 2018; Vol. 647, c. 22WH.]

He said that we would be at the end of the process soon. In the debate in March 2019 on sector deals, he said:

“I am very much looking forward to advancing these proposals.”—[Official Report, 14 March 2019; Vol. 656, c. 222WH.]

We received a knock-back shortly after that, when the Government said they did not think it was such a good idea to have a sector deal after the Select Committee had produced its report. Then, the Conservative manifesto stated that there would be a sector deal after all.

I look forward to hearing from the Minister whether there is a sector deal in the pipeline, so to speak, in the way we are talking about this morning. If there is, when will that sector deal come out of the end of the pipeline and secure the industry for the future, in the way that every Member in this Chamber would want? The Minister could greatly advance our discussion—I am sure he will—by putting those points on the table today.

Draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019

Alan Whitehead Excerpts

Monday 3rd February 2020 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Paisley. In one sense, the regulations look pretty simple: they add one new category of energy-intensive industries to the list drawn up in, I think, the Electricity Supplier Obligations (Amendment and Excluded Electricity) (Amendment) Regulations 2017, following the 2015 regulations that first established the scheme. The 2017 regulations changed the way of rewarding energy-intensive companies from what was originally, in effect, a grant system to an exemption system. That change came in during 2017, with an 85% exemption. At that time, some companies were excluded from the arrangements.

The Minister mentioned that part of the regulations deal with companies in difficulty, which were not eligible for the exemption given to other companies through the 2017 regulations. However, in these regulations, the definition of a company in difficulty remains as a negative; that is to say a company “not in difficulty” is referred to in relation to the European Commission’s guidelines on state aid for rescuing and restructuring non-financial undertakings in difficulty. Now, of course, we no longer have to have regard to state aid concerns—for the time being we have to, but for the purpose of legislating we do not have to. Assuming the Government continue to ensure that companies that are in difficulty are not eligible for the exemption, one assumes it would be necessary to produce an alternative definition of a company that is not in difficulty, or, alternatively, a definition of a company that is in difficulty, but that does not appear in the SI. All that appears is a definition according to the European Commission’s guidelines on state aid and a catch-all phrase that says that if we are not subject to state aid, it does not apply, but, logically, something else should apply. An ongoing problem arises because we have no definition of what a company in difficulty looks like in terms of eligibility for the exemptions, and apparently no method whereby the Government can easily, without being taken to court by somebody, define what it is about a company that puts it in such difficulties as to make it ineligible for these definitions, flour milling or otherwise—it is all the people who are within the definition of eligible companies. I would be grateful if the Minister could set out this afternoon the alternative definition of a company in difficulty, overcoming the state aid issue presently in the regulations.

A second point that needs clarification arises from that. In the 2017 regulations, an issue arose, which was clarified in those regulations, about the extent to which companies that were competitive with companies that had been placed in the exemption register could obtain the exemption because of the fact that, even though those companies were not in the register, the business that they did in the area of the company that was in the register was competitive to that company and therefore should have been included in an exemption. When the 2017 regulations were passed, it was stated that the Government very much wanted to include the companies that were in direct competition with companies that received the exemption, but did not receive the exemption because they had not been put on the register, within the ambit of the receipt of exemptions. Indeed, the Government put in an application to the EU at that time on that particular assumption, but the EU said, “No, this can only apply to companies that are strictly within the guidelines.” Therefore, in the 2017 regulations, the Government indicated that they were unable to extend applicability, because they had not succeeded in achieving such a position. Now, of course, we are in a position where the EU is presumably not going to tell us who should and should not get exemptions according to EU state aid regulations.

In the light of what the Government stated in the explanatory notes and in the 2017 regulations, have matters now substantially changed in terms of companies possibly receiving exemption contributions, even though they are not on the list because they are in direct competition? Now that there is no state aid provision to worry about, might those companies conceivably mount legal actions to put themselves inside the exemption status, because they are competitors in a way the Government felt sympathetic about previously but were unable to act on because of what the EU had said? Does the Minister intend to pursue the unsuccessful 2017 effort to include those companies? Does he think that, in the absence of state aid restrictions, those companies might have a case to be included in the exemptions—flour milling or otherwise—that now apply? That is the second area on which I would very much like some guidance as to the Minister’s thoughts and the direction the Government intend to take.

The third area on which I would like some clarification relates to the fact that the regulations were written and announced quite a long time ago, but have not come before us until today, which is why they are the Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019. Part of the regulations, as they apply now, provides for the more efficient metering of companies that can receive money under the exemptions. There is certainly a suggestion, because of the extended period during which the regulations were not brought before us, that those companies might have received allowances and remuneration under the exemptions in a way that they would not have, had the regulations been introduced earlier. Does the Minister have a handle on whether that is the case and whether some renumeration might have been sent out without entirely accurate methods of determining what it was? Could some of that money have been recovered had the regulations been introduced earlier?

The final point on which I seek the Minister’s thoughts is one that he raised in his introductory remarks. These regulations introduce a new actor in the eligibility criteria in the regulations that first came forward in 2015. Indeed, they not only introduce a new actor, but they quantify—the explanatory notes certainly do—the cost to the bill payer of this new inclusion in the exemptions. They suggest there will be a further effect on customer bills of 20p per year for domestic customers and £600 per year for medium energy users—that is not a tiny amount, although it perhaps does not look substantial in terms of the total amount added to the exemptions. However, the Government said a while ago that they did intend any further impositions on bill payers as a result of levies, and this inclusion is, effectively, a further levy on bill payers. It is not a large levy, but it is a levy nevertheless.

Can the Minister say whether the Government have introduced a new policy of further levies on customers as a result of policy changes, or does he stand by the original statement made a while ago that it is the end of levies, and that this is perhaps an exception to the general rule that will not be repeated? If I get some reasonable assurances on all those issues, the Opposition will be happy not to take the statutory instrument to a vote, and we will not oppose it. We see, in principle, the general sense of the regulations, but a number of points need to be clarified before we can reach that stage. It may be that if we cannot get to that point completely and the Minister agrees to write to me on several of those matters, we will be happy, nevertheless, not to take this to a vote.

--- Later in debate ---

[Nadhim Zahawi]

Not quite, because obviously the baseload is still needed. We have been able through efficient and safe operation to mitigate the delay, but obviously we do not want further delay.

[Dr Whitehead]

How dispatchable and flexible does the Minister think nuclear power in the future will be, bearing in mind that that is what we particularly will need, in terms of baseload, for the future variability of the majority of our energy supply? Does he think nuclear power can provide that dispatchability and flexibility to ensure that the system works as well as he hopes it will?

[Nadhim Zahawi]

It needs to be part of the mix—that is my very strong view. We will, quite rightly, have a portfolio tilted heavily towards renewables, and leaning into offshore wind even more than we have done to achieve the 36% that we have achieved; but it is certainly worth our continuing to make the investment. The technology is moving fast—whether that is fusion, in 10 or 20 years’ time, or AMRs or SMRs, which we are also very excited about. It absolutely needs to be part of the portfolio mix.

I want to return briefly to the points that the hon. Member for Kilmarnock and Loudoun made. The reason for the 2023 review date is that it is aligned with the Commission’s review of the energy and environmental aid guidelines in 2022. As to his question about the grain mill sector, it submitted sufficient evidence that satisfied our trade in electricity intensity criteria. We consulted businesses in a robust and open way, and published the Government’s response on 17 October. I made the point about nuclear earlier.

The shadow Minister asked a number of important questions about state aid and an alternative definition. Of course, state aid will be very much part of the free trade agreement negotiations, when they begin, and will be included in the level playing field position paper that the Government will publish soon. As the hon. Gentleman will know better than most, during the implementation period the UK will be bound by EU law, including state aid law, until the end of 2020.

[Dr Whitehead]

We are legislating this afternoon and presumably need to consider the circumstances under which state aid will not be applicable, because we will be bound by EU law only temporarily. Is the Minister saying that in the long-term future, we will continue to act as if the state aid rules are unchanged? Alternatively, is he saying that we will not do that and that we will need new legislation at the end of the transition period to effect that position?

[Nadhim Zahawi]

Let me be clear: during the implementation period, we have to follow EU state aid rules. The legislation that we are considering today will continue to apply under EU state aid rules. Therefore, the EU definition will continue to apply. We will issue guidance around that test. I cannot say to the hon. Gentleman today what the negotiations will produce, other than that we will deliver a position paper on the issue. That is what he must assume the decision he is making today is based upon.

[Dr Whitehead]

We still do not know what constitutes a company in difficulty.

[Nadhim Zahawi]

So let me come to the hon. Gentleman’s second point around whether we can include companies that do not pass the direct exemption, although it can be indirect because part of their business may come into competition with those companies that are exempt. Again, that will depend on the UK’s future subsidy regime. During the transition period, EU state law will continue to apply. I hope that offers him clarification.

On the hon. Gentleman’s final point about whether this is a further levy, it is not a new levy. It is a redistribution of the existing CfD levy. As he rightly pointed out, the amendment will mean a 20p addition to annual household bills.

I thank you, Mr Paisley, and hon. Members for their valuable contributions to the debate. The regulations will extend and improve the existing scheme that exempts eligible energy-intensive businesses from a proportion of the cost of funding renewable electricity. It is worth remembering that it is only a proportion of the cost, not the full cost. That will support the competitiveness of our energy-intensive manufacturing industries in the UK.

Alongside the regulations, we will support our manufacturing industries to become more energy and resource efficient and reduce their greenhouse gas emissions through several programmes, including the industrial energy transformation fund, which offers £315 million of additional support; a low carbon hydrogen production fund, which offers £100 million of further support; and the transforming foundation industries industrial strategy challenge fund, which is £166 million.

The Government are serious about delivering their net zero commitment by 2050 and leading the world. That is not just good for the environment, but good business, which I know is dear to your heart, Mr Paisley, and the hearts of your constituents. Therefore, I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019.

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 21st January 2020 Commons Chamber

[Kwasi Kwarteng]

My right hon. Friend is right. As I have mentioned before at the Dispatch Box, it is remarkable that we have managed to reduce our carbon emissions by 40% in the past 30 years while growing our economy by two thirds. That is living proof of the remarkable fact that that we can decarbonise, grow and promote economic expansion at the same time. This is something in which we in this country are world leaders.

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

I am sure that the Minister agrees that there is a wealth of skills and transferrable jobs in existing energy industries that may well be supplanted by low-carbon energy industries in the not too distant future. What steps is he taking to capture those skills and transfer those jobs to low-carbon industries in the future?

[Kwasi Kwarteng]

The hon. Gentleman will be pleased to know that we have sector deals handling exactly that problem, for example in the oil and gas sector. We are making a successful transition from old industries to the new low-carbon-emitting, greener industries of the future. Offshore wind, of which there are a number of examples—I believe that there is a supply chain near the hon. Gentleman’s constituency—is a great success: we have 35% of global capacity. That is part of the transformation of the economy that we are talking about.