Energy Bill [ Lords ] (Eleventh sitting)
Alan Whitehead ExcerptsThursday 15th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2023 - (15 Jun 2023)
The Chair
That is not quite actually what the Minister should be moving. The Minister is moving amendment 135, proposed to clause 245, as on the amendment paper; the question is that the amendment be made. The Minister does not move clause stand part. I move stand part; the Minister doesn’t.
Dr Alan Whitehead (Southampton, Test) (Lab)
As the Minister has said, we are making progress with this enormous Bill, part of which is the enormous clause 245 and everything that goes with it. Hon. Members will see that Mr Gray has undertaken a difficult task in accommodating these clauses, which cover various factors, and a considerable number of amendments in a single group for debate. I am afraid that that means that a considerable amount of unpacking is necessary, so I hope that hon. Members will forgive me for spending a little time doing so.
To put the Government and Opposition amendments in context, I will reflect briefly on how part 12 seeks to better incorporate in planning arrangements a combination of circumstances relating to offshore wind electricity generation. The reason for that is to ensure that those planning arrangements proceed much more efficiently, including by reducing the time spent getting consent for offshore wind developments. It also proposes bringing a number of other things into the zone—I will give one or two examples in a moment—in order to make the offshore wind planning process much more holistic, as opposed to current approach of wind farm by wind farm, and device by device. It is about making sure that the process can be carried out much more efficiently by speeding it up and redefining it. We must also try to ensure—and we will come to this in a moment—that we take a balanced approach towards speeding up the process, by considering environmental and conservation issues both offshore and in the North sea.
Various clauses in this group deal with different aspects of what we are trying do with offshore wind. Hon. Members will see that both the Bill and the Government amendments suggest doing so via particular routes. The purport of the Government amendments, as far as I understand them, is mainly to ensure that issues wider than just wind farms are included in the whole planning discussion.
Government amendment 136 states that “offshore wind electricity infrastructure” means
“a generating station, in the UK marine area, that generates electricity…or infrastructure, in the UK marine area, used or intended for use in connection with—
(i) an offshore wind generating station, or
(ii) the conveyance of electricity generated by an offshore wind generating station.”
That includes not just the generating stations themselves, but the cables, wires and other arrangements going to and from the stations, including to the point where they are landed onshore.
That is particularly important, given that it is inevitable—indeed, this should have been the case a long time ago—that offshore generation will be undertaken not by point-to-point arrangements with cables to individual wind farms, but by cabling systems that will, for instance, connect wind farms with nodal points to collect their power at sea and then convey that power via one common cable, perhaps to a particular landing station, as opposed to our current point-to-point arrangements.
The development of a grid highway in the North sea—or, indeed, in the Celtic sea—will be integral to the future operation of those wind farm arrangements. It is, therefore, quite proper that that should be considered in the overall planning arrangements. Government amendment 136 allows for that and also very helpfully states in its explanatory statement that it also covers bootstraps. I am sure that everybody knows what a bootstrap is. In a sense it has nothing to do with offshore wind. It is actually an interconnector cable that is anchored at one point on the shore—on land in the UK—and conveys a high-voltage current, via the seabed, to another land point, particularly to get around constraints of onshore cabling congestion.
Katherine Fletcher (South Ribble) (Con)
While I understand the argument that the hon. Gentleman is trying to prosecute, surely we should not let the perfect be the enemy of the good. We are talking about how to sensibly protect the environment while establishing a broader regime for offshore wind, which has huge benefits for the environment. Can he understand that what he proposes might tip the balance towards making the perfect the enemy of the good?
Dr Whitehead
The hon. Member makes a valid point. Certainly, we do not want to effectively veto the development of offshore wind by putting restrictions on it place by place, scheme by scheme, in such a way that those schemes cannot go ahead. However, the North sea and the Celtic sea, for example, are very large places. They have a great many sites that can be used for offshore wind development in a perfectly good and environmentally conscientious way, which allows for enhanced development to take place without trashing the marine environment. The issue is not whether we make the best the enemy of the good, but how we pursue the good in tandem with environmental considerations, while not stopping the progress of that enhanced development.
Katherine Fletcher
I am grateful to the hon. Gentleman for giving way again, and I will make this my last intervention. He has just described offshore wind as trashing the marine environment. I really do not think that we can leave that on the record. In fact, we could highlight the good about offshore wind development. One of the most destructive marine practices is bottom trawling, which is made much more difficult with wind turbines in place. Once installed, wind turbines actually create nursery environments for the marine life that I was so fortunate to study at university.
Dr Whitehead
The hon. Member would be absolutely right again, had I said that offshore wind was trashing the environment. I think that when we get the record back we will see that I said, “so that we can proceed without trashing the environment.”
Dr Whitehead
Okay. What I was trying to convey—perhaps I did not do so in quite the pellucid way I might have—was what we want to achieve with offshore wind development. As I have said, the Opposition are committed, along with the Government, to a huge increase in offshore wind, which we think can be achieved, most importantly, while taking proper note of the environmental considerations that surround those sites. As the hon. Member for South Ribble says, in the right places and under the right circumstances offshore wind can be, in the end, a substantial enhancement of the underwater habitat and environment.
Kerry McCarthy (Bristol East) (Lab)
I think my hon. Friend made it perfectly clear that some places are appropriate for offshore wind and some are not because of the nature of the marine environment. Does he share my concerns about existing protections? A lot of marine protected areas are described as little more than “paper parks” because they are not achieving what they are meant to. We need to enhance the protections for those designated areas. Just as in some places it is appropriate to fish and in others not, we ought to respect the fact that in some areas, marine protection has to be the No. 1 priority.
Dr Whitehead
My hon. Friend is quite right. She will no doubt be thinking back to the Marine and Coastal Access Act 2009, which started to develop exactly the concept that she sets out—that there are right and wrong places for development. There are places that we should seriously ensure are protected as much as possible—marine conservation zones—and it would be really quite a sin to put development on those. There are also places where there are known marine traffic routes, and siting an offshore wind farm right in the middle of a major offshore traffic route would not be a good idea either. There are other areas where the communications required for offshore wind farms could themselves be subject to environmental considerations, and those need to be taken into account too.
After the 2009 Act was passed, a number of marine conservation areas were supposed to be set up. Many of them have not been, and those that were have not had the level of policing and enforcement that they should have had.
Kerry McCarthy
As Labour left government, we had plans for an ecologically coherent network of, I think, 113 marine conservation zones. Does my hon. Friend share my disappointment that we are now 13 years on and still far from achieving that? It is important that we do not go backwards on the issues that we are discussing today. Obviously, we need to go forwards, but going backwards would be even worse than remaining in the same place.
Dr Whitehead
My hon. Friend is right again, and she recalls the exact number of conservation zones, which had escaped my memory. We might say that if we had those marine conservation zones in place now, we would be much clearer today about exactly what we will be doing as far as planning in the North sea and Celtic sea is concerned.
Lyme Bay fairly near me, which should be a marine conservation zone—I am not sure that it is—has cold-water coral features, and it would be quite lethal to those formations were we to develop offshore activities there. That is why that zone should be protected. Other areas further down—
The Chair
Order. I am reluctant to interrupt the hon. Gentleman because he is a great expert on these matters and I greatly enjoy his expositions. However, marine conservation zones do not come into this part of the Bill. If he could tether his remarks to the question of offshore wind, they might be more within scope.
Dr Whitehead
Yes. I think, Mr Gray, you are drawing an analogy between floating offshore wind and tethered offshore wind and saying that I should restrict my remarks to tethered offshore wind rather than free-floating.
Dr Whitehead
Indeed. I will endeavour to tether my remarks to the offshore wind in the North sea that we are thinking about.
What I was trying to get clear is not that Labour Members want to restrict unnecessarily or negatively the development of offshore wind—we want it to go ahead as quickly as possible and on as many sites as possible in the North sea—but that we want it go ahead on the basis of a proper regime that ensures that we equate environmental protection with the development that goes ahead. We are not at all sure that the compensation principle, which appears to be applied here substantially, is the best way to do that.
Amendment 164 very much goes along with what the Government have now put in their own amendment, so amendment 164 is probably pretty redundant. It seeks to bring in a more holistic picture of what it is to develop offshore activities and would, according to our explanatory statement,
“extend the fast-track consenting process for offshore wind to supporting marine development necessary to support the offshore wind project.”
The Minister might want to comment, but I think that is pretty much covered by the Government’s amendments, so I am happy about that.
Amendments 165 to 167 get rather more to the heart of what I have been talking about. Clause 248, which concerns the assessment of environmental effects, allows the Minister by regulation, among other things, to switch off a number of environmental protections—I will not read them all out because it would take a very long time—that are already in place and replace them with the compensation arrangement. We do not think it is right that those protections should be switched off, and with amendments 166 and 167 we seek to switch off the switching off. Amendment 166 would leave out subsection (4)(i), which refers to
“any relevant Habitats Directive rights,”
and amendment 167 would switch off subsection (5), which lists the provisions set out in subsection (4)(i)(i). As I said, it is a long list of sections of Acts and regulations that very much underpin marine environmental protection.
Having done that, we want to replace those provisions with a positive alternative, set out in amendment 165. As I said, we want the appropriate authority to
“have regard to the particular importance”—
I emphasise “have regard”—
“of furthering the conservation and enhancement of biodiversity.”
The amendment also states that the appropriate authority
“may make regulations under this section only if satisfied that the regulations do not reduce the overall level of environmental protection or the level of protection for individual sites and species, and…before making regulations under this section, must publish a statement explaining why it is so satisfied.”
The amendment would also require the appropriate authority to
“seek advice from persons who are independent of the authority and have relevant expertise,”
and to
“include an explanation relating in particular to protection provided by”
measures such as the Marine and Coastal Access Act, the Conservation of Habitats and Species Regulations 2017 and the Conservation (Natural Habitats, &c.) Regulations 1994. The positive alternative we have put forward is that the Secretary of State should have regard to all those things.
As underlined by the brief exchange between myself and the hon. Member for South Ribble, I mean not that the environmental regulations have a veto on progress, but that the Secretary of State should have regard to them and should make regulations that are compatible with them as far as possible. If they are not compatible, the Secretary of State needs to provide a good explanation as to why, and the circumstances under which that projected development has gone ahead. The development arrangements should work with provisions such as the Marine and Coastal Access Act, rather than against them. That is a much more sensible way to proceed, with a combination of proper and rapid planning consideration and proper environmental protection.
As the hon. Member for South Ribble said, the ultimate outcome should be one where we have a settled marine environment, which is beneficial overall. That includes, for example, the additional assistance that fish conservation may receive from wind farms being in particular places, allowing species to flourish and expand out of the range of fishing vessels, under the shelter of the turbines and so on. The possibility of producing a beneficial outcome overall for marine environments as a result of our trying to develop these new sources of low-carbon power need not be an oppositional activity. It is not a zero sum game; we can have the two together. We think our amendments set out the right way of doing that.
I look forward to the Minister defending the alternative way, as set out in the clauses. The extent of what he has to say will determine whether we decide to divide on any of the amendments. It is important that we get this right together. Ideally, the Minister would come at least some way towards encompassing our alternative method, rather than that which is presently set out in the clauses.
The Chair
Technically, the Minister does not actually move clause stand part. I move clause stand part; the Minister merely speaks to the debate. However, I am being a bit picky, just for the sake of it. Does the shadow Minister wish to take part?
Dr Whitehead
Yes, Mr Gray, I intend to take part—briefly, the Committee will be relieved to hear. As the Minister has mentioned, the clause concerns the development of new forms of activity in the North sea that might be seen as analogous to those involving oil and gas, but are actually not. However, the activities might share quite a lot of infrastructure and other things, so it is appropriate that the arrangements for responding to such circumstances are analogous to the arrangements for oil and gas.
This part of the Bill is very different from the last one, in that it tries to ensure that developments go ahead in a safe and reasonable way, that we have plans in place should there be problems, and that those plans are based substantially on the plans that are in place already for oil and gas. That is my understanding of the clause, and I hope the Minister can confirm that. Other than that, I do not have anything much to say about clause 251, which seems sensible for the future.
It is noted that in clause 252, on the effects on habitats of offshore oil or gas activities—new things such as carbon capture and storage—no one is switching anything off in that area, which is also something that the Opposition support.
Question put and agreed to.
Clause 251 accordingly ordered to stand part of the Bill.
Clause 252 ordered to stand part of the Bill.
Clause 253
Charges in connection with abandonment of offshore installations
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause amends existing powers to allow for the making of a charging scheme in respect of decommissioning functions, under part 4 of the Petroleum Act 1998, to charge for regulating decommissioning of offshore oil and gas. The decommissioning of offshore oil and gas installations and pipelines on the United Kingdom continental shelf, or UKCS, is regulated through the 1998 Act, and the responsibility for ensuring that the requirements of that Act are complied with rests with my Department.
Owners of oil and gas installations and pipelines are required to decommission their offshore infrastructure at the end of a field’s economic life. The current powers allow us to charge for regulating offshore oil and gas decommissioning activity at only two fixed points in the regulatory process. The existing charging framework is no longer fit for purpose. Currently, the Government are unable to recover the full costs of undertaking the regulatory functions from industry, leaving the taxpayer liable for the shortfall. Furthermore, the current regime is too inflexible and will be unable to recover the full costs of decommissioning the offshore carbon storage infrastructure of the project.
Clause 253 will amend the 1998 Act to allow for the establishment of a new charging regime for activity related to the regulatory functions for the decommissioning of offshore oil and gas installations. The clause will also make amendments to future-proof the cost recovery mechanism in line with the “polluter pays” principle of environmental law, as already established. Maximising our cost recovery will enable us to ensure a sufficiently resourced regulator. That will ensure that we do not cause the industry to delay decommissioning projects, which would adversely affect the industry’s contributions to reducing emissions and achieving their net zero ambitions.
Further details of the new charging regime, including how it works and what rates will be charged, will be set out in the scheme itself, which will be established administratively and then published. The charging scheme is intended to be in line with other charging schemes operating for complex regulatory functions within my Department and elsewhere across the Government.
Dr Whitehead
I have a question on clause 253, which makes provision for decommissioning where, clearly, the decommissioning of new forms of offshore installation cannot be undertaken. When the well is exhausted—obviously there is not a well to exhaust under these circumstances—the decommissioning has to be under other circumstances. An example would be when the carbon capture and storage site has been agreed to be full, and is capped off.
On traditional oil and gas decommissioning, there are provisions for sanctions on companies that have responsibility for decommissioning but do not actually carry out the decommissioning. Does that carry across to the new forms of offshore activity? Or should there be legislation to ensure that when someone is up for decommissioning, they really do it and do not abdicate their responsibility? That is not just a question of charging; it is a question of responsibility for the future.
Andrew Bowie
In answer to the hon. Gentleman’s important question, it is the intention, through this regulation and the existing regulations, that those who are responsible follow through with their commitments to decommission—the “polluter pays” principle has been well established. Nothing in this regulation would stand in the way of that. Nor, we hope, would it put barriers in the way of that. What the regulation seeks to achieve is a new updated charging regime to enable the decommissioning to take place in such a way and in such a fashion that it does not leave the taxpayer liable for any shortfall from the operator who is liable for the decommissioning of an asset in the North sea.
Question put and agreed to.
Clause 253 ordered to stand part of the Bill.
Clause 254
Model clauses of petroleum licence
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Currently, the North Sea Transition Authority can only retrospectively challenge a change in control of a petroleum production licence. Clause 254 will allow the NSTA to consider a proposed change of control of a petroleum production licensee before it takes place, to ensure that the governance, technical and financial capability of a licensee in possession of a such a licence remains appropriate.
Companies that wish to drill and extract petroleum must do so under a petroleum production licence granted by the NSTA to the licensee under the Petroleum Act 1998. Prior to issuing these licences, the NSTA satisfies itself that the prospective licensee company and any parent company are fit to hold the licence and will meet their obligations.
At times during the life of a licence it may be the case that the ownership and control of a licensee should pass to a new parent company or person. An undesirable change of control could undermine investor confidence in the commercial environment, making the United Kingdom continental shelf a less attractive place for investment. The NSTA is currently able to take remedial action to a change of control of a licence holder only after such a change has occurred. This is seen by both the NSTA and industry as being inefficient and of limited effectiveness in preventing harms, both to wider industry and the Government.
Clause 254 sets out the amendments that schedule 19 will make to the model clauses in the Petroleum Licensing (Production) (Seaward Areas) Regulations 2008 and the Petroleum Licensing (Exploration and Production) (Landward Areas) Regulations 2014. The changes will introduce new before-the-event powers for the NSTA regarding the change of control of a licensee in possession of current and future seaward or landward petroleum production licences. The clause also sets out how provisions inserted into a petroleum production licence by schedule 19 may be altered or deleted.
Schedule 19 amends existing legislation to replace the current after-the-event powers in relation to a change of control of petroleum production licensees with powers intended to apply before a change of control has taken place. The schedule has a similar effect to that which schedule 6 has in relation to carbon storage licensees.
The schedule will introduce a requirement for licensees to apply in writing to the NSTA for consent to a change of control at least three months before the planned date of the change. Following receipt of an application, the NSTA may give unconditional or conditional consent, or refuse consent to the proposal. Conditions imposed may be financial and/or relate to the timing of the change of control and/or relate to the performance of activities permitted by the licence.
In the case of conditional consent or refusal, the NSTA must give the licensee the opportunity to make representations and must consider those representations. The NSTA must decide an application within three months of receiving it, unless it writes to interested parties to notify them of a delay in its decision making. The NSTA’s decision on an application and any conditions must be given in writing.
The schedule also introduces amendments in respect of the NSTA’s powers of revocation and partial revocation of a licence, intended to replace the existing after-the-event powers with before-the-event powers. The NSTA will be able to revoke a licence if its prior consent has not been obtained for a change of control. The NSTA will therefore be able to regulate the suitability of petroleum production licensees in a more robust and timely manner. This will reduce risk and boost confidence in a sector that will play a key part in helping the UK to achieve its net zero goals.
Clause 255 introduces information-gathering powers in relation to a change or potential change of control of a petroleum production licensee in the same way that clause 101 does for carbon storage licensees. Currently, the NSTA does not have information-gathering powers to assist it in considering a change of control in respect of a petroleum production licensee. In some instances, the NSTA is therefore limited in conducting proper due diligence to determine whether a change of control of a licensee is undesirable.
Clause 255 will allow the NSTA to request that a relevant company or person provide it with any information it may require in exercising its functions in relation to a change or potential change of control of a licensee. The information will help the NSTA to consider the financial and technical capability, operational and commercial plans, and governance and fitness of the licensee in relation to its proposed controlling entity. This will provide the NSTA with the necessary information to appropriately consider an application for consent, or when considering whether to revoke a licence where a change of control has occurred without consent.
Information that would be protected from disclosure or production in legal proceedings on grounds of legal professional privilege or, in Scotland, confidentiality of communications is not included under clause 255.
Dr Whitehead
I do not have much to say about the detail of the clauses, inasmuch as they appear to be sensible measures, but I gently point out to the Minister that when he presented the clauses he referred repeatedly to the NSTA as the authority, but of course the NSTA does not exist other than as a trading name. Indeed, clause 254 specifically mentions the Oil and Gas Authority, which is of course the real name of the organisation, as opposed to its trading name. We will come to that later in our deliberations, but I highlight to the Minister that issue or problem, which may be germane to his thoughts when we get to that discussion. Other than that, I have no issue with the substance of the clauses.
Energy Bill [ Lords ] (Tenth sitting)
Alan Whitehead ExcerptsThursday 15th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2023 - (15 Jun 2023)
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
It is a pleasure to serve yet again under your chairmanship, Dr Huq. The clause—the final clause in part 10—simply sets out the interpretation of terms used in the clauses on the energy savings opportunity scheme, which we discussed at length on Tuesday. It also explains where provisions fall within devolved competence for the purposes of this part of the Bill.
Dr Alan Whitehead (Southampton, Test) (Lab)
Welcome to the Chair again, Dr Huq; it is a pleasure to serve under your chairmanship. The clause concerns just the interpretation of previous clauses—I am sure that they are great interpretations and will go down in history as such—and I have no comments on it.
Question put and agreed to.
Clause 221 accordingly ordered to stand part of the Bill.
Clause 222
General objective
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause marks the start of part 11, which concerns core fuel sector resilience. By “core fuels” we mean the essential liquid and gaseous fuels used for transport and other purposes, whether derived from crude oil or renewable transport fuels.
Ensuring resilience and security of supply for such fuels has become even more critical given the change that we are experiencing in the energy sector globally. Although renewable technologies are making inroads—electric cars, for example, are of growing importance—core fuels still account for more than 95% of the energy used for transport, and over 1.5 million households use heating oil or liquefied petroleum gas for heating. The Government are determined to reduce our dependence on fossil fuels, but that will take time, and it will be a challenging time for the industry.
Analysis by His Majesty’s Government has shown that there are already single points of failure in the fuel system that are critical to regional fuel supply, and those risks require better management. Recent events, such as covid-19, the tanker driver shortages of 2021 and protest activities at oil terminals, have demonstrated the level of risk to fuel supplies. It is therefore a responsible approach for the Government to take powers to ensure that fuel supplies remain secure.
Existing powers are available to Ministers under the Energy Act 1976; however, those are essentially reactive and may be used only when a disruption to fuel supplies is an actual or threatened emergency. The purpose of these measures is to enable us to mitigate risks before they develop into actual disruptions to supply.
Risk management is at the heart of these measures. Not all risks can be eliminated, but a resilient system is more likely to withstand shocks and to recover from them faster. The Government seek to strengthen the resilience of the sector, now and through the net zero transition, and to proactively minimise and address risks that could cause disruption to the supply of fuel.
Clause 223 provides clarification on the scope of the powers and who they can be applied to. The intention is to cover all the critical operators in the supply chain for core fuels, including refiners, infrastructure operators, suppliers, hauliers and wholesalers. The clause sets out which products are considered core fuels, including conventional transport fuels from oil—such as petrol, diesel and jet—heating oil, liquefied petroleum gas and renewable transport fuels.
Dr Whitehead
We have reached an important part of the Bill, concerning core fuel sector resilience. As the Minister stated, we need to ensure that our core fuel supplies are not cut or interrupted by external circumstances, that we have resilience in our supplies, and that we can be assured at all times that petroleum and so on is getting to and from refineries, and to where it is supposed to go. The Minister has reflected already on past disruption to fuel supplies, which hon. Members will recall. It is understandable that we wish to be assured that supplies are secure.
The Minister also stated that we have powers already to ensure that, where disruption takes place, action can be taken to secure resilience. However, these measures on the principle of core fuel resilience go further than that. As the Minister says, this is about trying to anticipate potential disruption and problems as far as core fuel sector resilience is concerned, and then providing the Government with powers to respond proactively, rather than reactively, to the anticipated issues.
I suggest that one needs to be very careful in how one drafts something for that purpose. I assume that what we do not want, although perhaps the Government do, is to get into the situation in the film “Minority Report”, quite a while ago, in which the lead actor, who happens to be Tom Cruise—not that I regularly watch Tom Cruise films—
Dr Whitehead
Oh, all right. We can have a debate about whether Tom Cruise makes good films or not, but I think the general consensus would be no. The point about that film is that he was, as I recall, a detective who had to go round anticipating crimes before they were committed. Indeed, he did not just anticipate crimes—I think my hon. Friend the Member for Bristol East is looking this up on her iPad—
Kerry McCarthy (Bristol East) (Lab)
I have no idea what you are talking about. I am not sure I have ever seen it.
Dr Whitehead
In that film, people were profiled in case they might commit crimes in later life, and they were arrested well before they could commit a crime, or because their profile suggested that they might do so in the future. That is the problem that we may come across with these clauses.
As we will unpack when we come to later clauses, the way the Bill is drafted puts the onus on suppliers and the owners of undertakings that relate to possible disruptions to do “anything”—that is the word in the Bill —to secure core sector resilience. As we will see, if the people in those sectors fail or fall short of doing “anything”, there are penalties: they can be imprisoned, and they can be fined at the discretion of the Secretary of State.
I am interested to hear what the Minister has to say about that, but it seems to me that that gets rather close to the “Minority Report” line about anticipating offences and, as it were, taking people out before they have committed an offence. Furthermore, it puts an enormous onus on the people carrying out those activities to do things that perhaps ought to be for the Government to undertake and enforce, as the Minister said earlier, at the time that a disruption takes place. It could be said that these clauses are about anticipatory activity. The Government quite properly have powers under previous environmental legislation to deal with disruption.
Clause 222 sets out the general objective for core fuel sector resilience and states that the Secretary of State’s functions must be exercised with a view to
“ensuring that economic activity in the United Kingdom is not adversely affected by disruptions to core fuel sector activities, and…reducing the risk of emergencies affecting fuel supplies.”
That is a very wide brief.
Andrew Bowie
I do not want to stray into Captain Mainwaring and Lance Corporal Jones territory, but I think we have been delving into the realms of fantasy. Just for the record, I should state that Tom Cruise is a fine actor and director. The “Top Gun” films, the “Mission: Impossible” series, “Jerry Maguire” and “Minority Report” are all excellent films that I enjoy watching, and Tom Cruise does a very good job acting in them.
The hon. Gentleman is right to mention the existing powers, but those are reactive; we are seeking to be proactive in order to mitigate the risk to the supply of fuel. Some of us—I was still at school—remember the fuel crisis of 1999 under the last Labour Government. Of course, we would not like to see anything like that happen again. There have been disruptions more recently, and we need to take action to mitigate them.
The power in part 11 allows the Government to regulate the sector, but the intention is to have an effective power to preserve fuel supply for end users. A narrower power would risk missing the next unexpected event, and we would end up with an extensive list of possible risks and actions, which we do not want. The hon. Gentleman is right to say that, in most circumstances, the sector acts voluntarily. However, we must remember that such companies are commercial entities and will always act in their interest. Therefore, it is the Government’s role to ensure that there is a protection in place nationally to support the supply of fuel and ensure that this essential service continues for the British people.
Question put and agreed to.
Clause 222 accordingly ordered to stand part of the Bill.
Clause 223 ordered to stand part of the Bill.
Clause 224
Directions to particular core fuel sector participants
Dr Whitehead
I beg to move amendment 116, in clause 224, page 191, line 17, at end insert—
“(9) The Secretary of State may not issue directions to core fuel sector participants that are in contravention of the Trade Union and Labour Relations (Consolidation) Act 1992.”
This amendment sets in legislation the need for the Secretary of State to act in accordance with the Trade Union and Labour Relations (Consolidation) Act 1992 when dealing with core fuel sector participants.
Dr Whitehead
The amendment is, I hope, germane to the general picture that I have painted of the purport of part 11, which places an onus on companies and those engaged in core fuel sector activity to undertake activity—quite often anticipatory activity—that will ensure that the Government’s aims for core fuel sector resilience are achieved.
We saw in clause 223 the range of activities that are envisaged as being covered by part 11: storing oil, handling oil, the carriage of oil or renewable transport fuel by sea or inland water, transporting oil by road or rail, conveying oil or fuel by pipes, processing or producing oil or renewable transport fuel, and so on. That covers a huge range of industrial concerns, companies and undertakings, and all those companies and undertakings will effectively be bound by clause 224. That means that those companies and undertakings can have directions given to them to do various things, on a substantial anticipatory basis, that are necessary for core fuel sector resilience.
Clause 224(4) states:
“If the Secretary of State considers that there is a significant risk of disruption to, or a failure of, continuity of supply of core fuels, the Secretary of State may direct a person to whom this section applies to do anything in relation to the person’s relevant activities or assets which the Secretary of State considers necessary or expedient for the purpose of…reducing the risk, or…reducing the potential adverse impact of the disruption or failure.”
That is not a very closely specified list of things that the participants in core fuel sector resilience—those people who are doing all those activities—may be directed to do. The Secretary of State can direct those companies to do “anything”.
The amendment seeks to clarify one particular area of what “anything” might mean. The clause could be construed as saying that, in doing “anything”, the Secretary of State could assume—again, on an anticipatory basis as far as core fuel sector resilience is concerned—that the companies concerned may or should start to infringe the rights of their employees in relation to employees’ activities in those companies. That is a pretty wide-ranging power. It suggests that, if it is thought that there might be disruption, the onus is on the companies to take actions that might infringe other established provisions in our legal system in order to carry out what the Secretary of State directs them to do in relation to resilience.
From the structure of the clause, it certainly looks as though the Secretary of State might assume—again, at arm’s length—that those companies could, for example, take actions in relation to their employees not because the employees had done something, but because they might do something in the future that affects core fuel sector resilience and therefore means that the companies would be in breach of the Secretary of State’s directions. Of course, the things that might be done include the company’s employees exercising their trade union rights. As we set out in our amendment, those rights are established by the Trade Union and Labour Relations (Consolidation) Act 1992, which governs and regulates the sort of actions that are reasonable for employees to undertake in respect of their trade union and workplace rights. We do not think they should be thrown away on the basis of an anticipatory direction requiring companies to do things in relation to the Secretary of State’s concerns about fuel sector resilience.
I can see the pretty good labour relations with those engaged in fuel sector resilience, which exist in most circumstances in the sector, turning into very bad relations if there is a sort of undefined onus on the companies, at the direction of the Secretary of State, to do something— anything—about something that may or may not happen. Even though there are rules and regulations governing the companies’ relations with their employees, the temptation—in fact, the rational response—will be for them to say to the trade union representatives, “We are going to make sure you cannot exercise your rights in our firm because we are worried that we might fall under this direction in the future.” If an employer were to do that, even though nothing had happened but something might happen in the future, that would be a guaranteed way to break down labour relations, and might quite possibly precipitate the sort of crisis that the Minister is seeking to deal with on an anticipatory basis.
It is therefore conceivable that the very existence of these arrangements could precipitate crises of fuel sector resilience rather than prevent them. I think all hon. Members would agree that we would not be very happy to have that on the statute book, so we want to add a clear understanding that the Secretary of State’s directions should not imply or direct that the companies should act in contravention of the 1992 Act. That is an attempt to clear up a little this series of very vague and far-reaching powers and arrangements.
The amendment would not, of course, impede the force of the Secretary of State’s directions to ensure that the companies involved in core fuel sector resilience are doing everything they can to ensure resilience, but it would framework the circumstances under which they and the Secretary of State act so that the anticipatory arrangements are within reasonable bounds. I am sure the Minister will see the force of the issue: we may conceivably make anticipatory arrangements into real arrangements if we are not careful about how we go about it. I therefore think that the amendment is a protection not just for those who are employed in core fuel sector resilience areas, but for their employers and for the Secretary of State, such that what the Secretary of State is anticipatorily doing has some clear boundaries as far as what that activity may mean.
Andrew Bowie
Industry participants would be companies, the industry as a whole, trade union bodies and so on. They are absolutely part of the entire process and, of course, if any of them had an issue with the direction being issued, they would have the right to appeal such a decision.
Clause 224 gives the Secretary of State the power to issue directions for the purpose of maintaining or improving core fuel resilience or to recover from or reduce the risk of a disruption to continuity of core fuel supplies. The past few years have demonstrated that the resilience of the core fuel sector needs to improve significantly. We have seen queues at pumps and stock-outs at petrol stations more often than we should. The supply of fuel remains critical to the operation of the country’s economy and essential services.
The individual companies in the supply chain are flexible and manage their own risks. In extreme cases that are out of these companies’ control, it is likely that they can declare force majeure, meaning that because of the extenuating circumstance, they will not be held liable for their failure to perform contractual obligations. It is therefore crucial that the Government have the power to direct key players in the sector to take actions necessary to manage the risk of disruption to fuel supply that could arise.
The clause gives the Secretary of State the power to issue a person carrying on core fuel sector activities, or a facility owner in the core fuel supply sector, with a direction in three different circumstances. The first is to maintain or improve resilience. It is important to note that this power can be used only if the Secretary of State considers that insufficient progress has been made by the proposed recipient to take the steps necessary to address the issue.
A direction can also be issued to restore continuity of supply or to reduce a significant risk of disruption to supplies. Such directions can be issued without waiting for the sector to make progress voluntarily, given the impact that a disruption or significant risk might have on the public. A direction will be issued only if circumstances mean that it is not practicable to make regulations. That could be because of the urgency of the issue or because of the number of cases—if they are not sufficiently numerous to justify making regulations.
A direction can be issued only to persons carrying on core fuel sector activities in the course of a business with capacity in excess of 500,000 tonnes or to a facility owner if the facility has capacity in excess of 20,000 tonnes. That will cover refineries, terminals, pipeline operators and hauliers when a disruption associated with an individual company could have a significant impact on the continuity of supply of core fuels in our United Kingdom. The direction might be to take an action or to stop the recipient doing something that could have an adverse impact on the resilience of the sector. There is a requirement to provide written notice to the recipient and the reason for the direction, so the sector should be reassured that the recipient will be duly informed and will have the opportunity to make representations regarding such a decision.
The power is designed to cover a broad range of scenarios, because the range of conceivable risks is wide and inevitably uncertain. For that reason, we are unable to provide guidance as to the circumstances in which the power will be used. However, I emphasise that His Majesty’s Government intend to work with industry on a voluntary basis whenever possible and that the power can be considered as only a backstop power where a voluntary approach is not effective.
Clause 225 sets out the procedure to be followed before issuing a direction. The recipient of the direction must be given a written notice that sets out the proposed direction, the reason why the direction is being issued and when the direction is intended to come into effect. They will also get an opportunity to make written representations in respect of the proposed direction.
Given that directions will relate to sites covered by regulations for the control of major accident hazards, it is also appropriate that the relevant competent authorities —such as, in England, the Health and Safety Executive and the Environment Agency—are consulted to ensure that the direction does not inadvertently compromise safety. There is also provision to consult other persons whom the Secretary of State deems appropriate. The Secretary of State will consider any representations from the recipients, or those authorities, when deciding whether to issue the direction.
Clause 226 sets out the consequences for failing to comply with a direction. There could be severe impacts to the security of supply if there is non-compliance. It is therefore essential that there are criminal as well as civil sanctions to deter businesses from failing to comply. The offences set out in this clause are criminal offences and they serve as a deterrent measure so that they can provide credibility to the direction power.
The clause sets out both summary and indictable offences for either imprisonment or a fine, or both. The severity of the offence will determine whether it will be a summary conviction or a conviction on indictment. There has always been a history of compliance in the sector. Our hope is that the provisions will be a strong deterrent to future non-compliance and that businesses will realise that it is cheaper and more responsible to comply.
Dr Whitehead
I put what I hoped was a fairly reasoned case for amendment 116. I understand what the Minister has said about the circumstances in which directions would be given and the aim of working on a voluntary and collegiate basis with the industry and ensuring that things proceed, as far as possible, on a voluntary basis. However, the circumstances about which we are talking may tempt the Government to remove themselves from that principle. The Minister may say that is his aim, but I always think that we have to legislate for the worst circumstances, not the best.
It would be a good idea to have the requirement in the amendment in the part of the Bill that talks about directions. I am not particularly satisfied by what the Minister has said about how the clause will work generally and would like a Division on the amendment, because we want it on the record that we think it is important. It is not because we wish to undermine the Bill’s progress in any way, but the amendment relates particularly to what the Minister said about the circumstances under which he thinks directions should or should not be made. We may discuss some of those things in the debates on other clauses as they come up, but at this point I wish to press the amendment to a Division.
Question put, That the amendment be made.
Dr Whitehead
The clause further underlines what I said about this part as a whole. It relates to the powers of the Secretary of State to make regulations and to the circumstances in which those regulations may be made. As hon. Members will have read, subsection (4) states:
“If the Secretary of State considers that there is a significant risk of disruption to, or a failure of, continuity of supply of core fuels, the Secretary of State may by regulations require persons of a class or description specified in the regulations to do anything in relation to their relevant activities or assets which the Secretary of State considers necessary or expedient for the purpose of…reducing the risk, or…reducing the potential adverse impact of the disruption or failure.”
Once again, we have the word “anything”, which should trouble considerably hon. Members in Committee and, rather more so, the employees and companies involved in core fuel activity.
What discussions and consultations has the Minister had with the industry involved in the resilience of the core fuel sector? What was the response, formally or informally, to the provisions that the Secretary of State will be enabled to put in place under this clause? Did the sector react favourably or unfavourably to the clause? If it reacted unfavourably, was anything done about further discussion with the companies involved—or, by the way, the trade unions at those particular companies—to address such concerns?
If the Minister is proceeding without such a consultation, that rather calls into question what he has said in the past about the good relationship with the industry. Bearing in mind that the Minister and the Secretary of State are asking the industry to do some potentially onerous things—we cannot get more onerous than “anything”—it would be of relevance to the Committee to hear, whether now or in future, what employees and companies think about it. How easy do they think it will be possible to make arrangements that comply with the directions? After all, as we will come to, it is a question not just of their being subject to the directions, but of them actually going to prison if they do not get it entirely right—rather an important point for employers to consider when responding to the clause. If the Minister has useful information to convey to the Committee, that would be helpful to our considerations.
Andrew Bowie
Clause 228 introduces a power for the Secretary of State to require information from individuals or companies in the core fuels supply sector. It will enable the Government to have an accurate picture regarding the resilience of the sector.
Currently, the Government rely on the sector to voluntarily provide the information necessary to assess, mitigate and respond to any disruption to the core fuels sector. Although most companies comply with requests, some do so only partially and there is a lack of consistency in the quality of some information collected. There is a risk that that leaves the Government unprepared and unable to assess a situation that might impact security of supply.
Clause 228 will apply to operators with throughput in excess of 1,000 tonnes, which encompasses the majority of key sector players. The type of information requested can vary given the circumstances. It may include information around site infrastructure, operations, supply capacity and volume supplied.
The notice to require information specifies the way that the information must be provided, ensuring that the quality of information provided is consistent. The Secretary of State must notify the proposed recipient of the notice in advance to allow them to make representations, and must consider any such representations before deciding whether to issue such a notice.
Clause 229 places a duty to report a notifiable incident and outlines a clear protocol for businesses to inform the Government, should they identify or suspect a potential risk of disruption. It is expected that businesses should be required to report only a notifiable incident relating to an incident that disrupts or causes failure to—or, indeed, creates a significant risk of the same—the continuity of supply of core fuels.
Guidance is currently being developed, following engagement with industry representatives, to set out the parameters for incident reporting. Examples of the sorts of incidents or risks that might be included are physical and operational issues with infrastructure, industrial action and insolvency. The duty is imposed on core fuel sector players with throughput in excess of 500,000 tonnes, such as refineries, major oil terminals and oil hauliers, but that list can be expanded through regulations.
Clause 229 also permits the Secretary of State to seek further information from the person who has reported the incident. That will aid the Government in identifying supply issues before they develop into emergency situations and in taking appropriate action when necessary. The Secretary of State must notify the proposed recipient of the notice in advance to allow them to make representations and must consider any such representations before deciding whether to issue a notice.
Clause 230 creates an offence where there has been a failure to comply with the requirement to provide information when notice has been given to do so. It also creates an offence when there has been a failure to report incidents and a failure to provide further information about a reported incident on request. The Secretary of State has the right to request information from the sector by written notice for the purpose of ensuring resilience. Failure to comply with those requirements without reasonable excuse means that an offence has been committed. Similarly to clause 226, the offences are criminal offences and are designed to act as a deterrent.
Clause 231 allows the Secretary of State by regulation to require information to be provided at specified intervals. The Government currently conduct periodic reviews of resilience in the system through a voluntary approach. The current reporting scheme does not provide sufficiently detailed information to allow the Government to understand fully the risks and capabilities of the sector, and the voluntary nature of the approach carries the risk that the industry could stop providing the information needed at any time, without notice.
The provision of information at specified intervals—for example, annually—will allow the Government to monitor the supply chain, anticipate pinch points in the system and identify any potential issues. The information provided will then be used by the Government to better monitor resilience and to support decision making in relation to determining whether further action, such as issuing a direction, should be taken. Much like other clauses in this part, there are powers to create criminal offences relating to non-compliance with any regulations.
Clause 232 sets out the circumstances in which the Secretary of State may disclose information provided under clauses 228, 229 or 231 to any Government Department or devolved Administration for the purposes of maintaining sector resilience or restoring a disrupted supply, or, if necessary, for the purpose of a criminal proceeding. The clause does not give the Government the right to contravene the Data Protection Act or certain limits under the Investigatory Powers Act 2016.
Clause 233 sets out that His Majesty’s Revenue and Customs has the power to disclose information to the Secretary of State solely for the purpose of facilitating the Secretary of State’s functions relating to core fuel sector resilience. HMRC currently collects data from core fuels operators on the volume of fuel sold to customers, which provides information on their market share and is important in the assessment of their resilience. The power would allow HMRC to disclose that information when needed for the purpose set out in the clause. That will help to ensure that the Department has a robust and reliable understanding of the state of fuel supply and resilience across the sector and can take appropriate action if needed.
The power is important in ensuring that the Government do not seek the same information from the sector twice, and helps to reduce any administrative burden imposed by His Majesty’s Government. It is also worth noting that protections are in place to prevent the disclosure of information if it breaches provisions under Data Protection Act and certain parts of the Investigatory Powers Act 2016. I commend the clauses to the Committee.
Dr Whitehead
I have no further comments on the clauses; we are happy for them to proceed.
Question put and agreed to.
Clause 228 accordingly ordered to stand part of the Bill.
Clauses 229 to 233 ordered to stand part of the Bill.
Clause 234
Appeal against notice or direction
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause sets out the appeal options available to a person who has been issued with either a notice under clause 224 or, under clauses 228 and 229 respectively, a notice to provide information or a notice to provide further information about a reported incident. I commend the clause to the Committee.
Dr Whitehead
I think I come under the category of “anyone else”, Dr Huq.
I may be wrong, but the clause appears to be about appeals against a notice or direction that relates not just to the immediate clauses we have discussed but in particular to clause 227, on the power to make regulations and, as I have said previously, direct
“persons of a class or description specified in the regulations to do anything in relation to their relevant activities”.
If we set that against clause 234, on the authority to undertake an appeal against a direction, it is noticeable that an
“appeal to the First-tier Tribunal against the direction or notice”
can be made on the ground that the decision is
“based on an error of fact...is wrong in law, or...is unfair or unreasonable”.
Does the Minister consider that the extremely vague wording of the requirement to do “anything” could give rise to a lot of income for lawyers, shall we say? Employers could go along to a tribunal and say, “We were required to do ‘anything’ but do not think that is particularly fair or reasonable under the circumstances, because we could not understand what ‘anything’ constituted.” Employers may be under a direction to do things that they are not clear about and, indeed, that could require them to do something they consider to be directly against the interests of the companies they run and, indeed, the broader question of good relations and so on in respect of energy sector resilience.
Dr Whitehead
I am a little puzzled by what the Minister has said previously about the extent to which there has been consultation and discussion with industry and employers in this area. The Committee needs to be clear that he is now advocating Ministers undertaking enforcement of directions that, as we have discussed, apparently have sanctions, certainly for conviction on indictment, of imprisonment for a term not exceeding two years—or 12 months in Scotland and six months in Northern Ireland, given the respective general limits in magistrates courts.
In other words, we are discussing sanctions on employers—one might say that is an interesting turnaround from sanctions on employees—that could lead to their being imprisoned for a time. That appears to be disproportionate to what is suggested as far as enforcement undertakings are concerned, in particular in view of the arrangements that we have already agreed on regarding the circumstances of a direction and the situation that an employer may or may not find him or herself in as far as trying to comply with those directions is concerned.
Certainly, were I an employer or a company engaged in this area, I might well say to the Minister or the Secretary of State: “Yes, we understand that you may be placing on us particular actions in relation to anticipated disruption, but we would be pretty unhappy if failure to comply with a direction, which might not be entirely in our own hands as a company, could result in us as the directors going to prison for two years.” I would not like that to be a consideration were I a director of such a company.
I am therefore a little surprised, because either those companies have perhaps not read the detail of the Bill—although this bit has been around long enough—or the Government simply have not drawn their attention to it, or consulted them, or discussed the circumstances under which such exist. Have the Government just conjured up these important undertakings and the penalties attached to them as a list in the Bill, or was it the result of iterative discussions with the industry as to what is and is not proportionate for the industry?
Andrew Bowie
I do not wish to go over the same ground in too much detail, but a consultation took place in 2017 and an open discussion and debate continues with the industry on this and many other issues. I know the hon. Gentleman speaks with the best of intentions, but he did mention the detail of the Bill, and it is in that detail that there is a choice to enforce either criminal offences or civil sanctions. In many cases, it is in the interests of both parties and the public to use civil penalties to guarantee enforcement, and that would be appropriate. However, there will be cases in which criminal offences are better for enforcement. The Department will consult on guidance and sanctions, which are also subject to parliamentary scrutiny after Royal Assent, so we will have another chance to debate this. The best way to avoid a sanction or, indeed, going to prison is not to break the law.
Dr Whitehead
That’s what Tom Cruise says. [Laughter.]
Question put and agreed to.
Clause 239 accordingly ordered to stand part of the Bill.
Schedule 18 agreed to.
Clause 240
Guidance: criminal and civil sanctions
Question proposed, That the clause stand part of the Bill.
Dr Whitehead
I hear what the Minister says. It is certainly a balanced approach that the power should be used only in exceptional circumstances, and is not a general bail-out or financial handout. I still have some residual concerns about the way the clause was originally worded. As a result of the amendment, it is to be worded marginally differently. The explanatory statement states that the amendment
“does not alter the substantive effect of clause 242(1).”
I am reminded of the following statement by an analytical philosopher whose name escapes me:
“A difference which makes no difference is no difference at all.”
I did not get a clear answer when we talked about clauses 103 and 134. The Minister moved an amendment to clause 103 to take out the words
“out of money provided by Parliament”,
leaving the clause to state that financial assistance may be provided in general. Is there a difference to clause 242 as a result of this similar amendment? If the Government may draw on moneys that have not been provided by Parliament for the purpose of financial assistance, where are they likely to come from, and what controls would Parliament have?
The present wording of clause 242 provides control, inasmuch as if moneys are provided by Parliament, Parliament has the ability to scrutinise and account for them. If removing that element of the clause gives rise to moneys provided not by Parliament but by, say, the Government of Kazakhstan, might that not worry us a little, or is there no need to worry because the Government’s ability to raise money by non-parliamentary means is tempered by other things?
Andrew Bowie
There is absolutely nothing for the hon. Gentleman to worry about. That is what I say in response to his question on parliamentary oversight and ensuring that there is scrutiny of where the money comes from. We are currently in the process of agreeing a protocol with the Energy Security and Net Zero Committee. We propose that the Secretary of State will write to the Chair of the Committee to notify them of instances where the Department has provided financial assistance under the power, so there will be parliamentary scrutiny throughout the process. I am reliably informed that this is a consistent point with respect to Bill drafting.
Amendment 22 agreed to.
Clause 242, as amended, ordered to stand part of the Bill.
Clause 243
Power to amend thresholds
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause contains a power for the Secretary of State to amend or modify the threshold for capacity in excess of which these measures can be applied. Capacity refers to the tonnage of oil that the operator has handled in the previous calendar year. This would not change the person to whom the powers under this part could apply.
The core fuel sector is dynamic, and our net zero goals may change the landscape of the sector in the future. We therefore need to future-proof the legislation to account for potential changes that may occur in the sector such that the thresholds may need to be changed over time. It is important to stress that any regulations made under the power are subject to the affirmative procedure.
Dr Whitehead
I have no particular comments on the clause, although my hon. Friend the Member for Bristol East has reminded me that the philosopher was William James.
The Chair
Fastest finger first—Kerry McCarthy.
Question put and agreed to.
Clause 243 accordingly ordered to stand part of the Bill.
Clause 244
Interpretation of Part 11
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause identifies several key terms that are used throughout part 11, and lets readers know which sections contain the corresponding definitions. It is therefore intended solely as an aid in interpretation.
Dr Whitehead
I have no comments other than that the word “anything” does not appear in the definitions. That is a minor observation.
Question put and agreed to.
Clause 244 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Energy Bill [ Lords ] (Ninth sitting)
Alan Whitehead ExcerptsTuesday 13th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 June 2023 - (13 Jun 2023)
The Chair
Before proceedings commence, may I indicate that I am very relaxed and if Members wish to remove their jackets, that is fine by me?
Dr Alan Whitehead (Southampton, Test) (Lab)
On a point of order, Ms Nokes. It has come to my attention that an article published today by Politico says that the Secretary of State has
“signaled a coming U-turn on the government’s plan to put a levy on household energy bills to support the nascent hydrogen gas sector in the U.K.”
The article reports the Secretary of State as saying that
“while hydrogen was a ‘great opportunity’ for the U.K. it was ‘unlikely’ that the gas would be a major future source of domestic heating.”
Pertinent to this Committee, he said that the Government did not want to see
“a situation where a levy is penalizing people who don’t use it”
—almost the exact words that were discussed in Committee—and added that hydrogen would be
“a better bet for heavier industry”
and transport.
The Secretary of State was also reported as saying:
“We’ll look at ways to create a levy or a financing that works for everybody as best as possible”.
What I take from that is that the Government are actively looking at ways to undertake a form of levy different from the one we discussed in Committee recently. You will recall, Ms Nokes, that you had to cast the deciding vote on the relevant amendment. I am sorry that the Minister was unable to give us the information that the Secretary of State has given us in that article, in particular that the Government are actively looking at developing an alternative levy arrangement. It is more than conceivable that had that information been available to the Committee at the time, that vote may have had a different outcome. In particular, the convention of the Chairman casting the deciding vote in favour of the status quo, which you quite correctly did at that time in your position as Chair, Ms Nokes, could have meant that a vote could have been cast for a different status quo—that is, one in which the Government were actively looking
“at ways to create a levy or a financing that works for everybody as best as possible”.
The original formulation in the Bill would therefore have fallen, in effect.
Ms Nokes, do you have any guidance on how we could rectify this problem? Might we invite the Government to table a new clause, which could be discussed at the end of our deliberations on the Bill? As Chair of the Committee, would you accept a new clause later in the Bill that might allow a debate to take place in the light of the information we now have before us? It is entirely in your hands to decide, Ms Nokes.
Alec Shelbrooke (Elmet and Rothwell) (Con)
Further to that point of order, Ms Nokes. It is great to serve under your chairmanship. I am sure the hon. Member for Southampton, Test recalls the comments that I made in the fourth sitting when I abstained on the vote. Hansard will confirm the exact language that I used, but I believe I said that the Government had said to me that they were actively looking to table an amendment on Report. The article that has been produced today ties in with the comments that I made on the record a few sittings back, and I am relieved to hear that because it shows that we are moving forward. I do not believe there is any material change in what has happened because, as I said, I was told that the Government were actively looking at making an amendment on Report.
Dr Whitehead
Further to that point of order, Ms Nokes. I thank the right hon. Member for Elmet and Rothwell for his point of order, which related to mine. Far be it for me to downplay his importance in proceedings but, although he is quite right, the material difference is that I was quoting what the Secretary of State said, even though the right hon. Gentleman was clearly well informed in what he said to the Committee.
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
Further to that point of order, Ms Nokes. I said in Committee at the time, in response to contributions from the hon. Member for Southampton, Test and other right hon. and hon. Members, including on the Government Benches, that we are listening and carefully considering the situation regarding that specific clause. We are listening to all the concerns raised in Committee, on the Floor of the House on Second Reading and in the other place. I gave that commitment in this Committee and see nothing that contradicts that in what the Secretary of State said to Politico this morning.
The Chair
I remind the Committee that with this we are discussing the following:
Amendment 161, in clause 199, page 170, line 21, after “section” insert
“‘high risk vendors’ means vendors of appliances that pose potential or actual security and resilience risks to energy networks,”.
Clause stand part.
Clauses 200 to 203 stand part.
That schedule 17 be the Seventeenth schedule to the Bill.
New clause 40—Designated load controller—
“(1) The Secretary of State may give a designated load controller direction only if the Secretary of State considers that—
(a) the direction is necessary in the interests of national security; and
(b) the requirement imposed by the direction are proportionate to what is sought to be achieved by the direction.”
This new clause ensures that load controllers undergo national security checks to establish the nature of connections to potentially hostile actors and the threats they may pose.
Dr Whitehead
It seems rather a long time since I got through the first half of my remarks on this clause, but I am happy to continue. I will recapitulate briefly what is in the clause, and then we can move on to the next business.
Members will recall that, with amendments 160 and 161 and new clause 40—I appreciate that it will be voted on later in proceedings, not today—we are drawing attention to the possible risks attached to certain load controller activities relating to appliances that are under the authorisation of load controllers. As we have discussed, appliances that are used in smart energy networks may be able to undertake autonomous information and data transmission activities—and, indeed, activities relating to their own operation—independently of the consumer or the person who installed the device.
I previously drew attention to a company that secured a 6% or 7% share of the market in SMETS2 smart meters by putting its price 30% below the market average, thereby ensuring that energy companies have an interest in commissioning third parties to purchase and install that brand of meter. I pointed out that that company, Kaifa Technology, has very close links to—indeed, is controlled by—the state-owned China Electronics Corporation, which has been sanctioned by the United States regarding high-risk activities concerning data and electronics. Kaifa smart meters are not available for installation in the United States as a result of that sanction, yet in the UK we are apparently going ahead with no concerns whatsoever.
I am not saying that Kaifa smart meters are necessarily a source of the possible transfer-link use of data. I pointed out this morning that there are remote-switching facilities within smart meters, so it is possible that a smart meter could be switched off by an outside agency, or that its data could be transferred for not necessarily very good purposes. We have a pretty strong regulatory regime, which was recently strengthened by an information security Act. I am certainly not pointing the finger at Kaifa smart meters and saying that they are definitely not to be pursued, but we do not have any method in our current legislation—nor, indeed, in this Bill—that would enable scrutiny to be brought to bear on companies such as Kaifa in relation to national security and resilience, so that our questions can be answered. We should be as certain as possible that, should these things come to be a part of our smart energy network environment they do not, as it were, just slip in under the carpet. It should be done consciously through a review of what they mean as far as our energy security is concerned and, indeed, in respect of the security of smart energy networks.
Alec Shelbrooke
The hon. Gentleman is making an important point about energy security and the ability for outside players—certainly, if we consider this from a Chinese perspective—to take control. On energy security, does he share my concern about the fact that 98% of the materials used in renewable energy come directly out of China? Does that not in itself represent a similar security risk to the one he is outlining?
Dr Whitehead
I thank the right hon. Member for his intervention, but I do not quite share his implied view that everything that comes out of China needs to have that level of security clearance. There are concerns about the proportion of our solar panels that are made and manufactured in China, for example, and a concern that one particular country has effectively captured the market in solar panels. It would be a good idea for those purposes, not for the purposes I am talking about, to rectify that situation. China is also increasingly manufacturing components for wind turbines and various other renewables, so yes, it would be a very good idea to have a much more diverse supply chain for renewables. As far as China is concerned, that is an issue of commerce; I am talking about a potential issue of national security and resilience. Yes, it involves the same country, but there are different concerns and, indeed, concerns about other countries that may be in the same position as I outlined as far as their smart energy technology offerings are concerned.
Andrew Bowie
It is an absolute pleasure to serve once again under your chairmanship, Ms Nokes. I thank the hon. Member for Southampton, Test for his amendments; he is of course right to consider the security impacts of load control devices. We share his concern that grid security should be protected, which is why I am happy to reassure him that we have already spent considerable time preparing means to manage the risks associated with hostile actors and the transformation of our energy system.
The outcome of our recent consultation on delivering a smart and secure electricity system confirmed our intent to regulate all organisations that remotely control large electrical loads, using the Network and Information Systems Regulations 2018, or the NIS regulations. Under those regulations, load controllers would be required to take appropriate and proportionate security measures to manage risks to their network and information systems. They would also be required to report to the relevant authority incidents that disrupt the continuity of services and take action to rectify those incidents.
The application of the NIS regulations in the energy sector in Great Britain is based on outcome-focused principles, using the cyber assessment framework developed by the National Cyber Security Centre. This approach focuses on proportionate risk management. Moreover, the licensable activities established through the powers in the Bill could impose security requirements on those organisations within its scope. The licence would complement our separate enhancements to the NIS regulations made through the Bill.
Finally, the National Security and Investment Act 2021 includes a broad range of powers enabling the Secretary of State to intervene in transactions that give rise to national security concerns. That includes the power to scrutinise transactions based on national security risks for electricity purposes. That incorporates acquisition of ownership of load controllers, who control electricity on behalf of their customers. On that basis, a power to direct a load controller on national security grounds, which new clause 40 would introduce, would be excessive in comparison with the rest of the electricity sector.
The Secretary of State does not have powers to direct private companies outside of an energy emergency or crisis scenario. Establishing such a precedent may risk undermining the development of the sector, with little compensatory benefit in additional security protections. Given our existing measures to control foreign investment, and our intentions to increase the cyber-resilience of load controllers, an additional power for the Secretary of State to direct on national security grounds would be disproportionate.
Amendments 160 and 161 centre on alleviating any security risks posed at the device level in the provision of load control. Amendment 160 would give the Secretary of State the power to regulate or prohibit the provision of load control by or to appliances supplied by vendors that are deemed to be high risk. Amendment 161 would define that group as
“vendors of appliances that pose potential or actual security and resilience risks to energy networks”.
I assure the hon. Member for Southampton, Test that measures to maintain the security of energy smart appliances are already in place. For example, the Electric Vehicles (Smart Charge Points) Regulations 2021, which are already in effect, require most private charge points for domestic and workplace use to meet minimum device-level cyber-security requirements. In addition, we committed through our response to the consultation on delivering a smart and secure electricity system to ensure that licences for the purpose of domestic and small non-domestic load control should include cyber-security requirements. We are confident that, taken together, the existing regime is sufficiently robust and that a further power to amend the licensing condition is unnecessary. I hope that with those reassurances the hon. Member will be able to withdraw his amendment.
Clause 199 sets out how the Secretary of State may modify conditions of licences granted under the Electricity Act 1989 and certain licences granted under the Gas Act 1986 for purposes of load control. It also provides powers for the Secretary of State to modify industry codes that are maintained under those licences for such purposes. More generally, the powers give the Secretary of State the flexibility to amend existing regulatory arrangements to reflect the introduction of a new licensing regime for load control. That new licensing regime will be introduced using the powers provided for in schedule 17.
Clause 200 sets out the process that the Secretary of State must follow before making changes to the conditions of licences, or documents maintained under them, for load control or related purposes, as set out in clause 199. The requirement to consult the parties listed in subsection (1) before making changes to licence conditions or documents maintained reflects standard practice in such cases and is consistent with other clauses. When modifying the conditions of a licence, the Secretary of State must specify the date on which the modification will take effect and publish the details of any modifications as soon as reasonably practicable after they are made.
Clause 201 establishes that the Secretary of State may make a modification to a standard condition of a licence using clause 199. It also establishes that that does not prevent any other part of the condition from continuing to be regarded as a standard condition. In essence, the power will allow the Secretary of State to make targeted changes to parts of a licence, without changing the overall status of that licence, or changing any other standard conditions to that licence. When the Secretary of State makes changes, the Gas and Electricity Markets Authority will amend future licences so that the amended standard conditions apply to future licensees. The authority will also publish the modification to the licence.
Clause 202 extends the regulatory provisions in relation to licensing that were established in the Gas Act and the Electricity Act to load control. The clause amends the Gas Act, the Electricity Act and the Utilities Act 2000 to apply several provisions of those Acts to the Secretary of State’s exercise of regulatory powers to load control. More specifically, the clause will extend several of the duties and obligations on GEMA within the Acts, particularly those in relation to protecting the interests of current and future consumers of electricity. GEMA would need to apply to the Secretary of State when exercising powers under clauses 195 to 197. Finally, clause 202 defines “gas licence” and “electricity licence”.
Clause 203 introduces schedule 17, which makes provision for the regulation of the load control of energy smart appliances. Schedule 17 amends the Electricity Act, allowing the Secretary of State to make regulations that amend the list of activities subject to the licensing framework to include activities connected with load control. The schedule sets out the terms of that regulation-making power, including the extent to which the regulations can make consequential or transitional provisions.
Dr Whitehead
I heard what the Minister had to say about the amendments. I am pleased to hear that the Government are taking this seriously, and I hope that the measures that he suggests by which they will do so are sufficient for the purpose. I think that the Secretary of State in question for the National Security and Investment Act is the Chancellor and not the Secretary of State for Energy Security and Net Zero, so the option to do anything about it will be at one remove from his Department, although I am sure the Secretary of State would be able to communicate with the Chancellor were there serious issues.
On the understanding that the Government are going to pursue this as a serious issue as part of the development of energy smart networks, and will incorporate that view at the heart of the arrangements, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 199 to 203 ordered to stand part of the Bill.
Schedule 17 agreed to.
Clause 204
National Warmer Homes and Businesses Action Plan
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The Government have carefully considered the effect of the clause, which was added on Report in the Lords. On 17 May, I tabled an amendment indicating my intention to oppose the clause. The Government do not consider that it would be effective in helping to deliver our commitments to improve the energy performance of buildings and to deliver net zero. However, I know that opinions among Committee members differ, and I look forward to the discussion that we may well be about to have.
The heat and buildings strategy, published in autumn 2021, sets out how the Government plan to reduce emissions from buildings and provides a clear long-term framework to enable industry to invest and deliver the transition to low-carbon heating. The Climate Change Committee already plays a key role, providing independent advice and scrutiny, and holding the Government accountable by publishing statutory progress reports to Parliament. Those are comprehensive overviews of the Government’s progress. The clause would simply duplicate those efforts.
The Government have already set out our aim to phase out the installation of new and replacement natural gas boilers from 2035, in line with natural replacement cycles, while scaling up the installation of low-carbon heating. We recognise that there are many options with the potential to play an important role.
The Government remain committed to the aspiration for as many homes as possible to reach energy performance certificate band C by 2035 where cost-effective, affordable and practical, as set out in the clean growth strategy. There has been good progress towards achieving that aim, with 47% of homes in England having reached EPC band C, up from a measly 14% in 2010.
In our net zero growth plan and energy security plan, the Government announced that we will publish a consultation on options for upgrading houses in the owner-occupier sector by 2023. The content of the consultation has not yet been finalised, and we need to gather further evidence on the potential impacts of interventions in that sector. More time is needed to ensure thorough consideration of options in this area, and the clause would not allow that time.
We are also taking significant steps to encourage businesses to reduce their energy demand through voluntary schemes and regulations. In the 2020 energy White Paper, the Government proposed that the trajectory for the minimum energy-efficiency standard for non-domestic rented buildings should be EPC band B by April 2030, with an interim milestone of EPC band C by April 2027.
We are evaluating the responses to our consultation and will publish the Government response in due course. It is important that the impacts, such as those on business and supply chain readiness, can be fully considered. The clause would pre-empt the response and commit the Government to a timeframe for implementation different from the one that has been consulted on.
The Government have set an aspiration to introduce the future homes standard by 2025. We will publish a full technical consultation for it in 2023. We intend to introduce the necessary legislation in 2024, ahead of implementation in 2025.
I thank Baroness Hayman and Lord Foster of Bath in the other place for raising these matters.
Dr Whitehead
We are in a curious position with this clause, which is a bit akin to my writing to the then Energy Minister to ask him to reintroduce the Bill as soon as possible. The Government at the time seemed not to want to introduce their own Bill as soon as possible, whereas we wanted them to do so. Clause 204 was introduced as an amendment in the House of Lords, so it has come to us as a substantive part of the Bill. We therefore find ourselves in the position—if I can persuade Opposition Members to vote accordingly—that we support the Bill as it stands and the Government apparently do not.
That is made more curious by what the clause actually says. With one small exception to do with dates, it takes things that the Government have already agreed to do—by the way, as far as I know, the future homes standard is not an aspiration; it is something the Government have already said will be mandatory by 2025—and says that the Secretary of State must produce an action plan for how they will be done. That seems to me a pretty good idea in any legislation, and in anything that anybody says will be the case in legislation. It is really not good enough to go around saying that things may well happen and that there might be legislation, and then not have any idea how that legislation can be properly discharged.
The clause puts that right by making sure that there is some kind of plan in place for these things to be achieved. It draws attention to the following targets: achieving
“100% of installations of relevant heating appliances and connections to relevant heat networks by 2035,”
which is in the energy security strategy; achieving
“EPC band C by 2035 in all UK homes where practical, cost effective and affordable,”
to which the clean growth strategy and the heat and buildings strategy contain specific commitments; achieving
“EPC band B by 2028 in all non-domestic properties”—
that is in a consultation that has already taken place, and the Government intend to produce either regulations or legislation to ensure that it happens, as I have mentioned—and introducing
“Future Homes Standard for all new builds in England by 2025,”
which the Government have already said they want to do.
In a sense, the clause is a bit of a break with how things have been done before, but in another sense it is not, because it just recapitulates things that already exist, puts them in order and states that we need some form of plan to ensure that they happen. Frankly, I am really surprised that the Government have decided that they want to knock the clause out. It is not superfluous. In fact, it supports the Government in delivering their plans and ensures that we all know where we stand.
That brings me to the purpose of this Committee. The amendment that the Government tabled to remove the clause has not been selected, which means that the only way for them to achieve their desired outcome is for the Committee to vote against clause stand part. That puts Committee members in a different position from that of voting on an amendment.
The likelihood of anybody having a go at any member of this Committee for voting in favour of this Bill is remote. Therefore, I would have thought that Committee members should be allowed to exercise their own judgment as to whether they support or oppose the clause. By asking us to vote against clause stand part, the Government are in effect asking the Committee to vote against itself. If members on both sides of the Committee support the Government’s targets and aspirations—and I would have thought that everybody does—and if they think that it would be a good idea to encapsulate them in an action plan, I do not think that they should be sanctioned for voting in favour of that and, in a sense, securing Government policy.
That is code for saying that no one should be pulled up by the Whips—although perhaps the Whips have a different idea—if they vote in favour of the Bill. I assume, although I do not know this yet, that every Opposition member of the Committee will vote to retain the clause, and I would hope that every Government member will also—
The Chair
Order. May I gently suggest, Dr Whitehead, that you have moved away from the substance of the clause and are somewhat straying into whipping arrangements?
Dr Whitehead
As always, you are right, Ms Nokes, so I will temper my remarks. I hope that common sense will prevail and that a thumping majority will ensure that the clause is retained so that the Bill can progress to its next stage intact. The clause is important to Government policy, so it should not be taken out and disabled in the way suggested.
Olivia Blake (Sheffield, Hallam) (Lab)
It is a pleasure to serve under your chairship, Ms Nokes. I rise to speak in defence of clause 204, and I agree with the shadow Minister, my hon. Friend the Member for Southampton, Test, that the Government have suggested an interesting tactic.
Our housing stock has been described as the least energy-efficient in Europe. That means we are the least prepared to absorb future price hikes, like those experienced in recent years, and to address future temperature changes. In England alone, more than 13 million homes—59% of them—are below a C rating on the energy performance certificate standard. As a result, housing is one of the main sources of carbon emissions in the UK, accounting for around 20% of total emissions.
We should be making massive efforts and strides to improve in this policy area, yet energy efficiency programmes have been cut and home insulation rates have plummeted over the past decade. In 2013, the coalition cut energy efficiency programmes, after which insulation rates fell by 92%. The number of energy efficiency insulations peaked at 2.3 million in 2012, yet fewer than 100,000 upgrades were installed in 2021. That is rather pathetic, it has to be said.
The Bill and clause 204 in particular provide a golden opportunity to put in place the financial structures and programme to give the necessary upgrades to the 19 million homes in our country that are below band C on the EPC scale. Clearly, that is what a Labour Government would do.
Andrew Bowie
It is a pleasure to respond to the debate. There is some confusion at the minute. Indeed, I was slightly confused at the beginning of the debate, given that the hon. Member for Southampton, Test seemed at one stage to be whipping on behalf of the Government and giving advice to Conservative Members— I urge all colleagues on this side not to listen to his words. If I am not mistaken, he was suggesting that the clause we are against was tabled by the Government in the other place; Baroness Hayman is a Labour peer and Lord Foster of Bath is a Liberal Democrat peer.
Dr Whitehead
For clarity, I did not say that it was introduced by the Government, nor would I say that, because it certainly was not. The point I was trying to make was that it is now a part of the Bill, not that it was introduced by the Government in the other place.
Andrew Bowie
I am glad that is clarified for the Committee. For further clarification, we are seeking to revise the Bill back to its original state as drafted and remove an amendment that was made by Labour and Liberal Democrat Members of the House of Lords. I believe that is a relatively regular occurrence for the House of Commons. There should be no confusion on that.
Again, as they were when we were talking about smart meters, the Opposition are such a glass half-empty kind of party. We have made huge progress in the energy efficiency of UK homes. I understand why the Opposition do not want to speak about this: when they left office only 14% of homes had an EPC grading of course; now, after 13 years of Conservative Government, the proportion stands at 47%, and we are driving forward to get it over 50% soon. As for the suggestion that we do not have a plan to move forward, the Government do have a plan. We have set out a heat and buildings strategy and we have announced further measures in the net zero growth plan, which was announced just recently.
Andrew Bowie
Clause 205 will provide the Secretary of State with the power to make changes to the existing Energy Performance of Buildings (England and Wales) Regulations 2012 to ensure that they are fit for purpose and contribute effectively to improving the energy efficiency of premises. Following the UK’s withdrawal from the European Union, it is necessary to create new primary powers to permit changes to be made to the 2012 regulations, as that power was lost with the repeal of the European Communities Act 1972.
Clause 206 will enable the Secretary of State to make changes to the Energy Performance of Buildings (England and Wales) Regulations in relation to new premises. That includes new premises in the process of being constructed or changed, as well as new premises whose construction or adaption is planned but has yet to be started. The changes will ensure that the anticipated energy usage and energy efficiency of new premises are taken account of.
Clause 207 enables us to ensure that we have an effective enforcement regime underpinning the energy performance of premises policy by amending existing requirements. We will review the current enforcement regime to ensure that there are sufficient enforcement options in place, with a view to improving compliance with the energy performance of premises framework. The existing regime includes civil penalties, and the clause enables us to amend those penalties or provide for new civil penalties by enforcement authorities up to a maximum of £15,000.
Finally, clause 208 provides that the regulations made under part 9 may amend, repeal or revoke provisions made in primary legislation and that this must be done through the affirmative resolution procedure. It also provides that the affirmative resolution procedure will be used if new criminal offences or civil penalties are created. This will ensure that there is parliamentary oversight of the uses of the power. I commend the clauses to the Committee.
Dr Whitehead
Clause 205 is the beginning of the part of the Bill on the energy performance of properties. I must admit that I thought for a moment there was going to be a spectacular U-turn on the previous clause, but I was sadly disappointed when the Minister decided which way he was really going to vote. I fear the same result in respect of this part of the Bill.
Let me speak briefly to our new clauses 41 and 42, which would considerably strengthen the Bill’s provisions on the energy performance of premises. They relate specifically to energy performance regulations for existing premises. Rather like clause 204, which is now not in the Bill but contained previous Government aspirations and claims in respect of outcomes, new clause 41 relates to things the Government have already said about energy performance certificates for properties in the private rented sector, about what should happen in respect of the improvement of properties in that sector to bring them up to an appropriate band, and about the amount specified in legislation that private landlords should spend on getting their properties up to that level before they are exempted from having to make further improvements.
The really important bit in new clause 41 would require the Secretary of State to make regulations
“amending the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (S.I. 2015/962) to require that, subject to subsection (2)”—
which contains exemptions—
“all tenancies have an energy performance certificate (EPC) of at least Band C by 31 December 2028”.
The new clause would also require the Secretary of State to make regulations
“amending the Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019”—
which Members will recall introduced a £3,500 cap on the cost to landlords of achieving band E—to raise to £10,000 the amount that should be invested before landlords are exempt.
Those are reasonably ambitious outcomes for the private rented sector, but they were completely presaged by the Government’s previous proposals, which we supported at the time. Specifically, in September 2020 they consulted on improving the energy performance of privately rented homes in England and Wales. The consultation had proposed outcomes at its heart, but—well I never—there has not yet been a Government response. Only three years have gone by. We hope that there may be a response one day fairly soon, so that progress can be made.
The proposed outcome of the consultation—the favoured option at the time—was exactly as set out in subsection (1) of new clause 41: raising the energy performance standard of private rented properties to band C, a phased trajectory to get there by 2028, and a £10,000 average per-property spend under a £10,000 cap. Everything in the new clause is already there in what the Government said they would do in respect of private rented sector energy efficiency. The only difference is that the Government have not actually done anything about it.
I recently looked up the reaction to the proposals, and a number of commentators and advisers are saying, “Well, landlords, you perhaps ought to get yourselves steeled up to the idea that your properties, to be lettable in future years, will have to be band C, and that you may have to spend up to £10,000 to make your properties lettable at that point.” By the way, that seems a relatively small amount to have to spend, bearing in mind that this is essentially a question whether a property is of merchantable quality. In any other area of commerce, if it were not of merchantable quality, it would not be sold. These measures, if implemented, would ensure that properties were merchantable for letting purposes as far as efficiency standards are concerned, and landlords would be required to spend that relatively small amount before they were exempted and to use every endeavour to get their properties up to that point.
Mark Jenkinson
In my constituency of Workington, I have some wonderful conservation areas with lovely old stone-built houses. A Labour council will not allow the replacement of single-glazed windows with uPVC double glazing, for example, which we know works well for energy efficiency. Why does the hon. Gentleman think that they would not be of merchantable quality?
Dr Whitehead
If the hon. Member cares to go back to the consultation in 2020, he will see that there are certain exemptions, depending on things such as conservation areas, from getting properties up to the standard that we are discussing provided that other things are in place. I have no particular insight into the workings of the hon. Member’s local authority, but it may be that something like that is at the heart of those concerns.
The point is that in general, we would certainly support—and we did at the time—what is set out in the consultation and the Government’s declaration of policy intent. One area where energy efficiency needs to move forward quite rapidly is the private rented sector; after all, that is the housing sector with the worst energy efficiency record. It is just not good enough to stand by the idea that properties in band E, which is a very low energy efficiency band, should be at that level any longer—certainly not in the 2020s, when we are trying to get all the properties that we can up to a standard fit for 2050.
Andrew Bowie
I thank the hon. Member for Southampton, Test and my right hon. Friend the Member for Elmet and Rothwell for their comments on the new clauses. In answer to the question of why we have not produced a full response to the consultation, we are committed to raising standards in the sector in line with our ambition, set out in the clean growth strategy, and we will publish a summary of responses to the consultation on improving standards in the private rental sector this year.
Andrew Bowie
Yes, this year.
We are continuing to refine the policy design to ensure that the costs and circumstances relating to energy efficiency improvements are fair and proportionate for landlords and tenants, as my right hon. Friend the Member for Elmet and Rothwell pointed out. The economic headwinds that have been buffeting us, and the changing circumstances in the private rented sector in particular, have made it difficult at the minute, but as I said, we will be publishing our response—a summary of responses, anyway—this year.
New clause 41 seeks to require the Secretary of State to make regulations in relation to energy performance in existing rented premises. His Majesty’s Government agree on the need to improve the energy efficiency of buildings to lower energy bills and deliver carbon savings to meet our net zero and fuel poverty targets. Indeed, this is reflected in the Government consultation on proposals to raise the minimum energy efficiency standard for privately rented homes. Under the Energy Act 2011, the Secretary of State already has powers to amend the private rented sector regulations in order to raise the minimum energy efficiency standards and set the dates by which landlords must comply with the new regulations. The new clause would not allow us to reflect the valuable feedback that the Government received from the consultations in the final policy design, which is essential to ensure that the final policy design is fair and proportionate for landlords and tenants. As I have said, the Government have committed to publishing the summary of responses by the end of this year.
Let me turn to new clause 42. In September 2020, we published the energy performance certificate action plan, in order to ensure that consumers can trust energy performance certificates and to make sure that certificates are accurate and reliable. Certain actions are expected to require regulatory change under the new powers to be implemented. The energy performance certificate is designed to rate the energy performance of a building, as considered as an asset that passes from one occupant to another during sale or rental.
As those occupants may or may not possess energy optimisation technologies or an electric vehicle with bi-directional charging capability, it is not currently considered appropriate to assume a benefit from this in the calculated energy performance rating. Including this nascent technology, which relies on consumer behaviours and equipment not integral to the premises, would increase the complexity of the EPC scheme. Bi-directional charging is a promising technology, but it is not yet viable for use in the mass market.
Question put and agreed to.
Clause 205 accordingly ordered to stand part of the Bill.
Clauses 206 to 208 ordered to stand part of the Bill.
Clause 209
Energy savings opportunity schemes
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
We now turn to part 10 of the Bill, which deals with the energy savings opportunity scheme, which I will refer to as ESOS.
Clause 209 provides a power relating to ESOS. ESOS mandates energy audits of large undertakings at least once every four years, which cover their buildings, transport and industrial processes. The audits result in cost-effective recommendations for improving energy efficiency. The power would replace the repealed power in the European Communities Act 1972, under which the UK established ESOS in 2014, and without which ESOS is a frozen scheme and cannot be updated.
ESOS is important to the UK’s plans to meet net zero targets and reduce energy costs for businesses. The existing scheme’s net benefit is estimated at £1.6 billion. The power covers four core options, as set out in the July 2022 ESOS consultation response: to standardise ESOS reports, improve the quality of audits, add a net zero element to audits, and require public disclosure of information from ESOS reports. It also covers two potential longer-term options to mandate action and extend ESOS to medium-sized enterprises, which are for future consultation. The power will enable the amendment of ESOS, or the establishment of such a scheme, and sets out the general provisions to make regulations.
Clause 210 sets out the application of ESOS, including in relation to geographical application and determining responsibility for energy consumption for the purposes of ESOS. It allows regulations to set the description of undertakings that fall within scope of ESOS, and to provide for two or more participants to be treated as a single participant. It would allow ESOS to extend to a far wider range of undertakings, subject, of course, to future consultation. I therefore commend clause 209 to the Committee.
Dr Whitehead
I do not have anything to say on these clauses, other than to note that we are now into the energy savings opportunity scheme, and that the Minister is indeed right that schemes would have been frozen under EU regulations. However, I am not yet sure whether what would have been the case under the EU regulations is reflected accurately in the things coming forward. I hope that it is. The scheme looks okay to me, but I would like an indication from the Minister that, in effectively updating the scheme for the purposes of this legislation, nothing has been lost from what previously was there.
Andrew Bowie
I am happy to give that guarantee. Indeed, one of the benefits of our now not being in the European Union is that we can devise and implement schemes that are fit for businesses and, indeed, homeowners—people within the United Kingdom—depending on the circumstances that we are facing at the time.
Question put and agreed to.
Clause 209 accordingly ordered to stand part of the Bill.
Clause 210 ordered to stand part of the Bill.
Clause 211
Requirement for assessment of energy consumption
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 211 makes provision for regulations to set out when, how and by whom an ESOS assessment should be carried out, and other requirements. It introduces a new power for future details from ESOS reports to be published to increase the transparency of the scheme and promote the uptake of energy efficiency measures.
Clause 212 enables regulations to set out functions and requirements relating to ESOS assessors, including who may be an assessor, the maintenance of assessor registers, and requirements on designated bodies that maintain assessor registers. New powers are provided to the Secretary of State or the scheme administrator to ensure the standards of assessors. The powers will allow intervention where there is evidence that an assessor or designated body is not carrying out its responsibilities under ESOS regulations appropriately, to improve the overall quality of ESOS reports.
Clause 213 includes a power to introduce new requirements for ESOS participants relating to the production and publication of an ESOS action plan covering intended actions to reduce energy use or greenhouse gas emissions. The requirements aim to increase participants’ engagement with ESOS and stimulate greater uptake of energy efficiency measures.
Clause 214 introduces a power to impose new requirements on ESOS participants to achieve energy savings or greenhouse gas emissions reductions. It sets out two approaches: ESOS regulations may either require participants to take specific actions, or may set out other requirements, such as the public reporting of actions, that aim to encourage participants to take those actions. Regulations would be able to specify that the requirements should refer to a cost-benefit analysis. As stated in the Government response to the ESOS consultation, the former approach would be subject to further consultation before any decision was taken regarding its introduction. Regulations making such provision would, under clause 218, also be subject to the affirmative parliamentary procedure.
Dr Whitehead
I have nothing to add to what the Minister said. I am happy for the clauses to stand part of the Bill.
Question put and agreed to.
Clause 211 accordingly ordered to stand part of the Bill.
Clauses 212 to 214 ordered to stand part of the Bill.
Clause 215
Scheme administration
Question proposed, That the clause stand part of the Bill.
Dr Whitehead
Clause 215 is about administrators and the administration of schemes, and those administrators will have at their elbow action plans determined by previous clauses. It is good to see in the context of this afternoon’s discussions that a part of the Bill has action plans as a requirement and that those action plans will be positively administered. Having a plan seems to be a bit of a sine qua non for administrators; we do not seem to have that in other parts of the legislation. The Opposition have been assiduous in trying to put that idea forward, but it is nice to see that that line has been breached at least as far as these clauses are concerned.
Andrew Bowie
I am very happy that the hon. Gentleman is very happy.
Question put and agreed to.
Clause 215 accordingly ordered to stand part of the Bill.
Clauses 216 and 217 ordered to stand part of the Bill.
Clause 218
ESOS regulations: procedure etc
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
This is another short one. Clause 219 provides the Secretary of State with a power to give directions to a scheme administrator, with which it must comply—for example, when views differ over the interpretation of legislation or when the Secretary of State wishes to order a scheme administrator to remove an individual from its designated register of persons who may be appointed as a lead assessor. Clause 220 enables the Secretary of State to provide or arrange for financial assistance to scheme administrators and ESOS participants.
Dr Whitehead
I will just mention in passing that there is an interesting progression in clause 219, relating to directions. Subsection (1) says:
“The Secretary of State may give directions to a scheme administrator.”
So far, so good. Subsection (2) says:
“The power to give directions under this section includes a power to vary or revoke the directions.”
From that, it appears that the Secretary of State has the power to revoke their own directions—
Dr Whitehead
Indeed, but presumably if the Secretary of State changed his mind, he would not start with subsection (1) in the first place, so it is a bit of a strange formulation. I think that had the Opposition moved that as an amendment, the Minister would have said it was superfluous and unnecessary. I do not know why that particular formulation has been put in but we know that subsection (3) says:
“A scheme administrator must comply with any direction given to it under this section”—
however confusing—so it is probably all right then. But I must admit that subsection (2) looks a bit odd.
Andrew Bowie
I understand the hon. Member’s question and the direct answer is yes, the Secretary of State can revoke his own direction. I think it is important to set that out in the Bill and, indeed, there is precedent for it in comparable provisions in section 51 of the Climate Change Act 2008, passed by the then Labour Government.
Question put and agreed to.
Clause 219 accordingly ordered to stand part of the Bill.
Clause 220 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Energy Bill [ Lords ] (Eighth sitting)
Alan Whitehead ExcerptsTuesday 13th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 June 2023 - (13 Jun 2023)
The Chair
There is no interest from elsewhere. The Question therefore is—[Interruption.] If the shadow Minister wishes to take part in the debate, he needs to let me know; otherwise, we will move on.
Dr Alan Whitehead (Southampton, Test) (Lab)
I did raise my hand, but it was my left hand rather than my right hand.
Dr Whitehead
I should start by apologising to you, Mr Gray, for being marginally late. Those who know me will know that although I am usually rather close to the line in getting to my seat, I am rarely not actually there in time. I apologise for that slight problem this morning; I blame the lifts in Parliament.
The regulation of the whole system of heat networks, and combined heat and power for district heating schemes, is an important part of the Bill, which is long overdue in its arrival. Members will be increasingly familiar with district heating schemes in their constituencies, which provide heat, power and sometimes cooling both to properties and to industrial and commercial premises within a network scheme.
District heating schemes are by no means new. A number of them have been operating for many years, such as the system in Pimlico—the system in Westminster has been going for many years. Partly because such schemes have been going for many years, they have fallen out of the spotlight in terms of regulation and bringing their provisions into line with what customers expect from elsewhere in the energy system, particularly in relation to customer-facing retail and so on.
Because district heating schemes are enclosed, they are essentially monopoly providers of heat within their own area. They are generally advantageous to customers because they provide reliable heat, usually at a considerably lower price than the general market. The Government are seeking to promote the idea of local authorities extending heat networks for precisely those reasons. They are potentially very low carbon, and agnostic in terms of heat sources for the network. The key is that the network goes around a particular area, providing heat directly to people’s homes, and, as I said, to offices and industrial premises.
In many ways the schemes just do not fit: they stand aside from what customers are normally expected to pay attention to these days, and the energy, gas, heat and power that they receive. As I said, that is because the heat networks in this country, and indeed the combined heat and power systems relating to heat networks, quite often provide electricity as a by-product of the heat-engine process. But they predominantly provide heat for customers.
A number of problems relate to the customer arrangements, and customer expectations, regarding that closed system. Because each of the individual extant networks in the country is effectively a mini-business in its own right, they have at their heart an arrangement whereby a company, not-for-profit or local authority, in some instances, that runs a scheme is responsible for procuring the fuel as if it were a retail energy company for the network, and then supplying it to customers through the heat engine and the network that goes into people’s homes.
The issue for customers is quite often, first, whether the company that is providing supplies for the heat network has procured them in a reasonable and cost-efficient manner. Secondly, is the system that is delivering the heat for customers efficient in its own right? Particularly in older schemes, there are a number of circumstances in which the system provides heat to customers, but not efficiently. The pipework may be old, furred up and not functioning well. Of course, it is extremely difficult for the customer to recognise whether the system is efficient. Sometimes its inefficiency comes to light only when people start being charged unreasonably large bills. The company that is providing the service will then go through its reasoning about the supplies coming in and the service being provided, but not the efficiency of the service.
There is little customer redress in the systems because they generally are not regulated. They have voluntary regulation, run by the Association for Decentralised Energy, whereby heat networks sign up to a redress programme, but currently it covers only a minority of the total heat networks in operation. Bearing all those things in mind, as well as the system’s likely future, the system is long overdue being regulated in a way that delivers for customers the certainty of a good service, redress where the service is not so good, and access to an understanding of how the system as a whole works, and what the companies that provide the service are doing—hopefully in the interests of customers, but in some circumstances not.
The system as a whole works pretty well: most of the companies that run heat networks are honourable organisations, often set up on a not-for-profit basis to provide a district heating scheme. The issue is at the margins of those schemes that do not run their service particularly well, or that do not provide decent redress for their customers and have a monopoly situation as far as their supply is concerned.
The Chair
We now come to the Question on clauses 172 to 174 stand part—we have just debated them. With the leave of the Committee, I will take them together.
Dr Whitehead
Do you want to know whether I am going to withdraw amendment 101, Mr Gray?
The Chair
No. The hon. Gentleman should not interrupt me while I am putting the Question. In answer to him, however, his amendment 101 comes after the decision on clauses 172 to 174. I thank him for his intervention, but he is wrong.
Clauses 172 to 174 ordered to stand part of the Bill.
Dr Whitehead
I will include an indication of our position on new clause 39, Mr Gray, although I understand that any vote on the new clauses will take place at the end of our proceedings and not today. That is right, is it not? I will also say something on amendment 101.
The Chair
The hon. Gentleman has already spoken to amendment 101 as part of the group that we have just debated.
Dr Whitehead
Yes. I am seeking to state why I might wish to withdraw amendment 101, or otherwise, and in so doing I was seeking clarification, Mr Gray. My understanding is that new clause 39, which is included in the group, will not be up for a vote now, because that would come at the end of our proceedings.
The Chair
That is correct. New clauses come at the end of proceedings. If the hon. Gentleman wishes to move amendment 101, he may do so now. Immediately after that, we will come to the Question on schedule 16 —that is the next thing to happen. The Question on new clause 39 comes at the end of our proceedings, so is for a decision later. Right now, the only question is whether he wishes to move amendment 101.
Dr Whitehead
Right.
On amendment 101, I do not think that there is anything explicit in schedule 16 relating to the position of efficiency in regulation. Having had a look at the schedule again, I am confirmed in that view. I take what the Minister said about the intention to ensure that that is part of regulation, but I am afraid we are a little in the hands of what the Minister may decide about the regulations as far as efficiency goes. The Minister is an honourable one, so I am sure that he will seek to carry out what he has said today to the letter. I am therefore happy not to move amendment 101, but I note that that was one of the purposes of regulation should have been made rather more explicit in the schedule.
The Chair
The amendment is therefore not moved.
Schedule 16 agreed to.
Clauses 175 to 179 ordered to stand part of the Bill.
Clause 180
Regulations about heat network zones
Question proposed, That the clause stand part of the Bill.
Dr Whitehead
I do not have much to say other than that we now move on to heat network zones as opposed to heat networks themselves, and we will be debating what the term means and how the zones work. Clause 180 sets the stage, and as we will be debating amendments on a future clause, I have nothing further to say about this one.
Question put and agreed to.
Clause 180 accordingly ordered to stand part of the Bill.
Clause 181
Heat Network Zones Authority
Dr Whitehead
I beg to move amendment 102, in clause 181, page 152, line 27, after “the Secretary of State” insert
“or the Gas and Electricity Markets Authority”.
This amendment is to ensure that the Gas and Electricity Markets Authority may be designated as the regulator for heat network zones.
The Chair
With this it will be convenient to discuss the following:
Amendment 115, in clause 181, page 152, line 30, at end insert—
“(5) The Heat Network Zones Authority shall be responsible to and regulated by the regulator.”
This amendment makes the regulator responsible for Heat Network Zones.
Clauses 181 and 182 stand part.
Dr Whitehead
We have tabled two amendments to clause 181. As far as I understand it, the clause adds to the heat network system, which, as I have said, has evolved over the years into a number of heat networks in various parts of the country.
A good idea for future heat network development would be to have a much more systematic approach and an understanding of where our heat networks may be most appropriately sited and the best conditions for them to be established. We know a number of potential good and bad conditions for heat networks. For example, a certain density of population, buildings and so on is needed for heat networks to be efficient, although there are in existence small heat networks that serve very small communities. Indeed, heat networks can range from being marginally larger than a few properties to covering large parts of cities.
There are five major heat networks in my city of Southampton, one of which serves the whole city centre and surrounding areas, and has an 18 km heat delivery pipe network. It is connected to a geothermal scheme in the city centre, so it efficiently provides heat to that whole area. It is connected not just to domestic properties but to a number of commercial users, which I think includes the nation’s only geothermally heated supermarket, civic centre, health authority centre, and so on.
One component of a decent heat network is what is in the network to validate the load that is supplied. A heat network may be just for domestic properties, as is the case in some housing developments in Southampton, but that is not the most efficient way of developing a heat network because the load from domestic properties changes seasonally. If a heat network is connected both to a number of properties—an estate or whatever—but also has industrial or commercial users, the load can be spread out and equalised over the years.
The Southampton schemes operate quite efficiently within the right places for zones. Nevertheless, it is—or should be—a function of local circumstances that heat networks are more likely to be applied in constituencies where there is a considerable gathering of industrial and commercial activities and population zones, and are less applicable in large rural constituencies, although there are some heat networks in small towns and villages. Within that zone understanding, there may be arrangements that pertain to local circumstances: for example, zones may be organised in such a way that ensures the likelihood of success for the heat network is relatively high.
I understand that this section of the Bill seeks to ensure that local authorities are required to look at research, to consider where it would be good to have a heat network and to produce a heat network zone plan, so that as we develop heat networks for the future we have a much better picture of where the schemes would work well, where investment may best go and the extent to which success is likely to be high, rather than someone perhaps taking a flyer on something that probably will not work well for the future.
We are happy with the idea of heat network zones being put into the Bill, that we approach them in the way that I have described and that they complement the regulation of the system in as much as the whole system now is much more in the mainstream of energy planning and energy futures as a whole. I hope that our amendments are complementary to the general scheme of things. They simply try to align the regulation of the heat zone development process with that of heat zones themselves, proposing that the process of heat zone discovery and development should be regulated by the same regulator that regulates heat as a whole: the Gas and Electricity Markets Authority.
It is important that there should be a regulator for this particular activity so that it does not stand alone from everything else happening as far as heat networks are concerned. I do not think that would impede the development of heat networks—on the contrary, it would assist them by making sure that the way we were bringing forward heat zone arrangements was generally of assistance to heat networks as a whole.
What if a local authority or similar body involved with developing heat network zones were not interested in heat networks? It might locally regulate heat zones in a way that did not take seriously the whole question of heat network development. The regulation of heat zone arrangements under the circumstances that I am discussing would ensure that there was a pretty uniform approach as far as heat network development was concerned. Those engaged in it would know that someone was looking over their shoulder to make sure that they were doing the job properly. That is all we want to add to the measure and I think the Minister will agree that it is a pretty positive addition. It certainly does not detract in any way from the validity of the heat network process and the idea that there are right and wrong places for heat networks. We must get them in the right places so that they can succeed for customers as well as they possibly can.
Andrew Bowie
I thank the hon. Member for his amendments, all of which are designed to ensure that the regulatory frameworks for heat networks and the building-up of capacity in this country for heat network zoning gets to a place that will support the growth of the industry in the future. I resist the amendments only because I feel that the powers in the Bill meet the required level of engagement and regulation necessary at this stage for what is currently a nascent but will in time become an incredibly important part of the wider energy mix.
I turn first to amendment 102, which relates to designating GEMA as the heat network zones authority. The zones authority will be a national body responsible for zoning functions that require national-level standardisation or are most efficiently or effectively carried out at a national level. This approach will allow for national standards and consistent rules to apply in the initial identification of a potential heat network zone.
As for who could fulfil the zones authority role, clause 181(3) is explicit that
“The Secretary of State may, but need not, be designated”
as the zones authority. Therefore, the clause, as drafted, already provides that regulations may appoint GEMA as the zones authority.
The zones authority will fulfil a different function from the heat network regulator, which we propose, as set out in clause 172, should be fulfilled by GEMA for Great Britain. That role will cover all heat networks, both within and outside heat network zones. We do not envisage a separate regulator for heat network zones in England.
We will specify the zones authority’s functions and responsibilities within the regulations when they are brought forward. That will be subject to further consultation in due course as we continue to develop our policy proposals, and we look forward to engaging with Parliament on that. Appointing the zones authority in regulations will allow for amendment, should that be required, as and when its functions change over time and as heat networks become more established throughout the United Kingdom. I hope that has helped to clarify our proposed approach and the scope of the powers already provided for in the Bill.
I turn to amendment 115, regarding the relationship between the Heat Network Zones Authority and the heat network regulator. As I have said, we intend for GEMA to fulfil the heat network regulator role in Great Britain. The zones authority will be a national body responsible for certain zoning functions. We will consult on who should fulfil the zones authority role in due course, but we do not consider that the zones authority should itself be subject to oversight by the heat network regulator. I hope this has helped to clarify our proposed approach regarding the zones authority and how its role relates to the heat network regulator, and I therefore ask the hon. Member for Southampton, Test to find it within himself to withdraw his amendment.
Dr Whitehead
Once again, the bona fides of the Minister are not in any question at all, but what he is saying to us relies quite a lot on the regulations that will follow from the Bill and how the Secretary of State may designate under clause 181 a person to act as the Heat Network Zones Authority. If the Secretary of State decides that there should be a Heat Network Zones Authority, we are not sure exactly how that will come about. It may be that we do not have an authority as such, but the Department effectively operates as the authority, or a complete Heat Network Zones Authority could be set up with offices and civil servants or quasi-civil servants, although that might be a bit bureaucratically overbearing.
Again, the Bill does not specify how that authority, whatever it is, will be tucked into the system as a whole. The Minister says, “I’m sure it will be, because we are sensible people and we will make sure we do it,” but that has not been put on the face of the Bill, which is always good practice. Whatever our intentions may be today in this Committee—and they are good intentions—a piece of legislation has to stand in circumstances where those intentions may not be so good under a future Government. That is why we tabled our amendment, but I hear what the Minister has said, and that is on the record. Given my boundless trust in the Minister’s good intentions for the future, I hope that he will do what he has said regarding heat network zones authorities, and their regulation and operation. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 181 and 182 ordered to stand part of the Bill.
Clause 183
Identification, designation and review of zones
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 183 gives the Secretary of State the power to make regulations to establish the process for creating heat network zones, which we have just discussed. In the legislation that is referred to as identifying and designating a zone. The clause also gives the Secretary of State the power to make regulations to establish the process for the review of zone designations. A review of zones could lead to changes in the boundary—for example, making the zone larger or combining two existing zones.
Subsection (2) provides that the regulations must require the identification of zones to be done in accordance with the zoning methodology, which is established under clause 184. Subsection (3) outlines further matters that the regulations may specify in relation to the designation of areas as zones. Subsection (4) outlines what may be specified in regulations regarding changing or revoking zone designations. Subsection (5) outlines regulations that can be made about the review of zone designations.
Clause 184 gives the Secretary of State the power to establish a methodology for identifying heat network zones. The methodology will standardise the identification of zones nationally. Proposals for the use of, and approach to, that national methodology received widespread support from stakeholders during the Government consultation.
Clause 185 allows the Secretary of State to make regulations about the ability of the zones authority and zone co-ordinators to request the information required to support the national methodology for the identification, designation and review of heat network zones. The clause, and the regulations that follow, will facilitate the zones authority and zone co-ordinators in requesting and receiving the necessary information to ensure that heat network zones are situated in the right locations. As I discussed in the context of zone reviews under clause 183, the location of heat network zones can be changed as necessary to reflect the impact of changing technologies and neighbourhoods over time.
Dr Whitehead
The Minister reflects that circumstances may change over time so it is necessary to have such a power. He is right that circumstances are not static; indeed, we may well miss a lot of good opportunities if we place too much emphasis on the static nature of what we have designated for the future. I think that we will debate, in a future clause, circumstances concerning the development of heat networks within zones, but on the changes that may be necessary in order to keep heat network zones up to date, this is a sensible provision that we support.
Question put and agreed to.
Clause 183 accordingly ordered to stand part of the Bill.
Clauses 184 and 185 ordered to stand part of the Bill.
Clause 186
Heat networks within zones
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 186 allows the Secretary of State to make regulations about heat networks within heat network zones. That includes specifying which buildings may be required to connect to a district heat network within a designated zone. Subsections (2)(a) and (2)(b) allow regulations that specify the types of buildings within zones that will be required to connect to heat networks, when they must connect, and how they are notified of that requirement.
Subsection (2)(c) allows the regulations to specify when and how the zone co-ordinator can grant exemptions from the requirement to connect to the heat network. Subsections (2)(e) to (2)(h) allow regulations to make provision about requiring heat sources in zones to connect to a heat network. Subsections (2)(i) and (2)(j) allow regulations that provide for the zoning co-ordinator to set local limits on emissions from heat networks and any grace period to comply with that limit.
Subsection (5) allows regulations to specify when the zoning co-ordinator may or must ask a heat source to connect to a heat network, the types of heat source that can cover, and how the heat source owner can appeal against the requirement to connect. Subsection (6) allows regulations to specify how local limits on emissions from heat networks in zones are set. Subsection (7) provides details about what regulations can be made about grace periods for local emissions limits.
Clause 187 allows the Secretary of State to make regulations about the delivery of district heat networks within heat network zones. Those regulations will give structure to the zoning co-ordinator’s role and responsibilities. “Delivery” refers to the design, construction, operation and maintenance of heat networks. His Majesty’s Government recognise that there are several feasible models for delivering heat networks in zones depending on local circumstances, including the level of involvement of the zone co-ordinator. The clause, and the regulations that flow from it, aim to provide a flexible approach to zone delivery.
The engagement we have had with the heat network industry and with local government has highlighted a desire for flexibility in how heat networks are delivered within zones, as there are a range of ownership and delivery models that could be employed in the future. The Government’s expectation is that the regulations will define what decisions zoning co-ordinators and other bodies can take regarding zone delivery, with guidance from the zones authority to help inform their decisions. The clause provides that regulations may determine when zone co-ordinators may decide what heat networks are delivered in their zones, and by whom, including circumstances in which the zoning co-ordinator may deliver heat networks themselves.
The Government recognise that there is a risk that leaving decisions about zone development solely in the hands of zone co-ordinators could risk a heat network zone not being developed. Therefore, subsection 5(g) allows regulations to define the circumstances in which zone co-ordinators may lose the ability to make decisions about heat network delivery in zones. The intent is that that will happen if the zone co-ordinator has not taken certain steps to develop the zone following a set period after the zone designation.
Dr Whitehead
Clause 186 rather reminds me of Bertrand Russell’s definitions of propositions that are automatically members of their own class and propositions that are not automatically members of their own class, but I do not think we will debate that to any great extent this morning.
Dr Whitehead
For no other time, probably. Clause 186 is a relevant and necessary proposition concerning the development of heat zones and heat zone authorities, but one thing that does rather concern me is that although it is important that heat networks are able to develop in the most appropriate way and under the most appropriate circumstances, it is also important that the connections between heat networks can develop in the most appropriate way within a particular area.
I mention that point because there are circumstances in which heat networks may develop independently in parts of cities. The geographical and other siting considerations could lead to the development of interconnections between heat networks so that their joint efficacy is improved. If an extensive heat network, such as the one in Southampton, has a number of independent networks relatively nearby that have developed under different circumstances but are providing the same thing, there is considerable advantage in ensuring that they are interconnected so that they can share heat production and, if necessary, heat network inputs.
As I am sure the Minister is aware, heat networks are agnostic as to the fuel that goes into them. It could be from a heat engine, a geothermal source or a low-carbon source—hopefully, we will develop those to a much greater extent—such as multiple ground source heat pumps or hydrogen engines, which are already in existence and can replace gas engines in heat networks.
Andrew Bowie
Clause 191 is the final clause in chapter 2, which concludes part 7 and the clauses on heat networks. The clause covers definitions for the heat network zoning clauses.
Dr Whitehead
I have nothing to add, other than “Hooray, we’ve got to the end of that part!” We now have lots of regulations in place, which is a good thing.
Question put and agreed to.
Clause 191 accordingly ordered to stand part of the Bill.
Clause 192
Energy smart appliances and load control
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 192 introduces part 8 of the Bill, which relates to energy smart appliances and load control. It defines the key concepts relating to that part, namely energy smart appliances, energy smart function, load control signals and load control.
The smart energy market is in its early stages but is growing rapidly, as we discussed in detail on Thursday. As the take-up of electric vehicles and other devices such as heat pumps increases, we need to remain agile in responding to new developments in the market. This is to ensure that we maintain grid stability and protect consumers from cyber-security risks. Transitioning to a smart and fully flexible electricity system will play a vital role in decarbonising the power system by 2035. Such a transition could reduce costs by up to £10 billion a year by 2050.
I will briefly set out some key definitions. Energy smart appliances are electrical consumer devices that are communications-enabled and capable of responding automatically to signals such as energy price changes. In response to such signals, they can adjust their electricity consumption or production in line with consumer choice and cost preferences. Load control refers to the act of sending and receiving those signals and adjusting the consumption of the product in response.
Subsequent clauses in part 8 will limit powers to make regulations to products with functions such as refrigeration, cleaning, battery storage, electrical heating, and air conditioning or ventilation.
Dr Whitehead
We have now moved smoothly and efficiently to the question of energy smart appliances and load control; I will have something to say about load control later. The arrangements for energy smart appliances are important, given the increasing range of activities that appliances can now undertake. The specified purposes set out in clause 193—refrigeration; “cleaning tableware”, or dishwashing; “washing or drying textiles”, or using washing machines; and energy storage—are all circumstances in which things can be added to devices to allow them to operate independently, to operate at particular times and to respond to dynamic demand requests. For example, a chip can be put in a refrigerator to allow the appliance to respond to signals from outside saying, “Switch yourself off between 3 am and 4 am,” which will save some power or regulate the power in a better way.
Appliances increasingly have the potential to operate as mini-computers in their own right: they have IP addresses and various other things. It is possible to capture a series of washing machines that are smart-enabled and use them as locks under certain circumstances. Indeed, I think there was a recent prosecution of some young men who had done just that; I am not quite sure for what purpose, but they secured a number of smart devices in order to operate them in concert. It is important that we have energy smart regulations that enable us to deal with such circumstances and get them in hand. Of course, this is potentially a subset of the debate about AI and the extent to which our devices in the home may be subject to the control of other authorities entirely.
From the customer’s point of view, it is important that they know that they are in control of their own devices. Smart appliances offer various exciting advantages such as allowing people to change central heating controls before they get home, by pressing a button when they are 50 miles away, but the principle behind the security arrangements should be that the customer—the person in the home—is the eventual arbiter of how those things work. Does the Minister think that the way the clause is drafted will ensure that the customer—the person who is operating those smart systems, or who thinks they are—actually has eventual control, and particularly the consent for the operation of those smart devices in the way that we have described?
Alan Brown
I realise that this is an introductory clause and the Minister was doing some scene setting. The clause mentions load control signals and digital communications. I draw the Minister’s attention to my written parliamentary question No. 186867, submitted following a meeting I had with representatives of the Energy Networks Association. They tell me that to take forward a proper smart grid, the energy network companies need additional radio spectrum access. The Government need not just to put in place regulations, but to facilitate that radio spectrum access.
In response to my question, the Minister for Energy Security and Net Zero, the right hon. Member for Beverley and Holderness (Graham Stuart), said that the Government are moving forward on the issue with a study and a calculation of costs. I know that the Under-Secretary cannot write a blank cheque, but the reality is that radio spectrum access will be needed. I just put that on his radar.
Andrew Bowie
I am not able to give any firm dates right now, but the Government’s hope is that we will move quickly to consultation on the regulations as soon as the Bill receives Royal Assent.
Relevant economic actors will be required to monitor and report on their compliance with the terms of the regulations, as well as to take specified steps to remedy any non-compliance. Clause 195(2) includes provision for a range of investigatory powers to track and assess non-compliance for use by enforcement authorities. Those include powers of entry, inspection, search and seizure, and powers to enable the testing of energy smart appliances by enforcement authorities. Finally, the Secretary of State may make payments or provide resources to the enforcement authority for the purpose of enforcing the energy smart regulations.
Clause 196 establishes that energy smart regulations may impose a range of sanctions for non-compliance. A full list of offences will be set out in the final regulations, on which the Government will consult publicly and which will be subject to debate in both Houses. I hope that answers the question from the hon. Member for Kilmarnock and Loudoun. The clause sets out several offences, including contravening requirements imposed by enforcement authorities or knowingly providing false information to enforcement authorities. Punishments for such offences will be provided for in regulations. The punishments will not include imprisonment. Regulations may also allow enforcement authorities to recover their costs by means of civil fines.
Clause 197 makes provision for the regulations to include a right of appeal to a court or tribunal against a requirement or civil penalty made by an enforcement authority. The right of appeal to a court or tribunal against a requirement or penalty for non-compliance, as set out in energy smart regulations, can include, but is not limited to, provisions set out in subsection (2). The right of appeal can be extended by the regulations beyond those parties against whom the requirement has been imposed. The Secretary of State may revoke or amend subordinate legislation, including an Act of the Scottish Parliament or the Senedd, where they consider it appropriate for the purpose of any provision falling within subsection (2).
Clause 198 sets out the procedure by which energy smart regulations will be made. The clause begins by setting out that energy smart regulations made under clause 193 may provide for exemptions or exceptions in their coverage. It requires the Secretary of State to consult before making regulations that subject a specific type of energy smart appliance to regulations or that amend the list of relevant purposes in clause 193. It also sets out the cases in which the affirmative scrutiny procedure is to be used when making regulations under clause 193. I commend the clauses to the Committee.
Question put and agreed to.
Clause 193 accordingly ordered to stand part of the Bill.
Clauses 194 to 198 ordered to stand part of the Bill.
Clause 199
Power to amend licence conditions etc: load control
Dr Whitehead
I beg to move amendment 160, in clause 199, page 170, line 3, at end insert—
“(f) regulate or prohibit the provision of load control in relation to appliances that are provided by high risk vendors.”
The Chair
With this it will be convenient to discuss the following:
Amendment 161, in clause 199, page 170, line 21, after “section” insert
“‘high risk vendors’ means vendors of appliances that pose potential or actual security and resilience risks to energy networks,”.
Clause stand part.
Clauses 200 to 203 stand part.
That schedule 17 be the Seventeenth schedule to the Bill.
New clause 40—Designated load controller—
“(1) The Secretary of State may give a designated load controller direction only if the Secretary of State considers that—
(a) the direction is necessary in the interests of national security; and
(b) the requirement imposed by the direction are proportionate to what is sought to be achieved by the direction.”
This new clause ensures that load controllers undergo national security checks to establish the nature of connections to potentially hostile actors and the threats they may pose.
Dr Whitehead
We now come to the section of the Bill concerning licensing of load control. Load control is very much associated with the previous debate, inasmuch as it relates to how energy smart appliances operate overall, and such appliances will often operate under the aegis of a load controller—a body or person who is responsible for the network within which they work. It is important that we regulate and license not only the appliance but the bodies and people that control the load arrangements that smart appliances potentially give rise to.
The Chair
If the interests are declared in the Register of Members’ Financial Interests and the right hon. Gentleman believes that they are relevant to the debate, it would be prudent for him to call the Committee’s attention to the register. That is not enforced entirely, but the question is whether there might be a perception of bias. Therefore, if the Member has interests that he believes might be of importance, it is probably worth his calling them to the attention of the Committee before he speaks.
Dr Whitehead, will you be concluding in the next 20 seconds?
The Chair
In that case we will adjourn, it being as close to 11.25 am as it can possibly be.
Energy Bill [ Lords ] (Seventh sitting)
Alan Whitehead ExcerptsThursday 8th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 June 2023 - (8 Jun 2023)
The Chair
I remind the Committee that with this we are discussing the following:
Amendment 96, in clause 119, page 109, line 3, at end insert
“and of distribution systems in conjunction with licenced distribution system operators”.
This amendment would include certain distribution systems in the functions of the ISOP.
Amendment 97, in clause 119, page 109, line 5, at end insert
“and of distribution systems in conjunction with licensed distribution system operators”.
This amendment would include certain distribution systems in the functions of the ISOP.
Clause stand part.
Clause 120 stand part.
New clause 37—Assurance of independence of system and distribution operators—
“(1) The Secretary of State must appoint a supervisory and advisory board of at least eight suitably qualified independent energy figures to assist the person designated as the ISOP under section 120.
(2) The purpose of the board appointed under subsection (1) is to assure the independence of transmission and distribution system operators through independent oversight of and advice to the ISOP.
(3) Energy UK and the Energy Networks Association must be consulted on the appointment of the board under subsection (1).
(4) The Secretary of State may make provision of financial assistance to enable the board to carry out its functions.”
This new clause aims to ensure the independence of system and distribution operators.
Dr Alan Whitehead (Southampton, Test) (Lab)
We had a good debate, Ms Nokes, on the principles of the independent system operator and planner. From what the Minister said, I detect that we are both pretty broadly in agreement about what we want the ISOP to do and how we want it to exercise its functions. Should Labour get into government, we would be interested in the idea of introducing regional ISOPs, which are the subject of two amendments that are on the amendment paper but were not selected for discussion today. I will not go into that in any depth, because I am sure that you, Ms Nokes, as our esteemed Chair, will rule me entirely out of order.
We have set down where we want the ISOP to go and I hope that the Minister will go along with that. When it is up and running—in perhaps a year and a half, I am pleased to hear—it will be just in time for a new Labour Government to run with the ISOP in a really positive way and to get all those things built in a timely fashion. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 119 and 120 ordered to stand part of the Bill.
Clause 121
Duty to promote particular objectives
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
Clause 121 sets out the ISOP’s main objectives—on net zero, security of supply, and efficiency and economy—and introduces the concept of a relevant activity. The conflict in Ukraine, the climate crisis and rising fossil fuel energy costs all underline the serious need to transition and decarbonise our energy system in an efficient and secure manner. The ISOP will play a central role, as we have all agreed so far, in helping us to meet these challenges and fulfil our energy ambitions.
The clause imposes a duty on the ISOP to carry out its functions in a way that it considers will best achieve the three central objectives. It does not give any weighting to any objective relative to any other, so the ISOP will have discretion to make appropriate trade-offs where they conflict. It is worth noting that the ISOP will not be a final decision-making body on policy. Making high-level strategic trade-offs between the objectives will be for Government, but it will be for the ISOP to balance them at an operational level and to advise Government or the regulator on them.
The first of the three objectives is net zero. The ISOP will drive net zero outcomes by proactively identifying and creating opportunities to facilitate the transition through its functions. The second objective is to ensure the security of supply, which refers to the ISOP’s core function of keeping the lights on. It will ensure that electricity and gas supply can meet demand and that they are appropriately resilient, including the consideration of national and cyber-security. The third objective is focused on promoting an efficient, co-ordinated and economical electricity and gas system. That is a continuation of the existing statutory objectives for the network operators and will become increasingly important to ensure that consumer bill payments are kept as low as possible.
Subsection (5) defines “relevant activity”. The definition allows ISOP to consider a wider set of business actors, including those relating to hydrogen and carbon capture, usage and storage, which we fully expect to be important in future.
Clause 122 sets out specific matters to which the ISOP will be required to have regard when carrying out its functions. Those include: the need to facilitate competition; the desirability of facilitating innovation; and the energy system as a whole. Some regulated activities in the energy sector are monopolies. However, the Government’s view is that where competition is possible, it should be introduced and fostered. ISOP will have a duty to think about how to make competition more effective where it exists, and to consider whether it should be introduced where it does not. That will underpin ISOP’s potential role as a tender body for electricity network competition.
It is worth clarifying that in this clause the Government are not referring to “consumer impact” as the need to deliver value for money to consumers. That is addressed by the “efficiency and economy” objective in clause 121. Rather, ISOP will need to have regard to two key matters: first, how consumers are affected, or likely to be affected, by the behaviour of those energy sector businesses engaged in “relevant activities”; and secondly, the impact of consumers’ behaviour on those activities. ISOP is also to be cognisant of the kinds of products and services that consumers want, and the effects of consumer behaviour on products, services and the markets in which they operate.
The intent of the duty relating to the whole-system impact is to enable ISOP to take a more joined-up approach across the whole energy system, including electricity, gas—onshore and offshore—and other emerging markets. On the innovation duty, the intention is for ISOP to be alive to the possibilities of new and better ways of doing things. Examples could include working with industry on the improved collection and use of data and various digital technologies to improve consumer experience and outcomes.
Finally, clause 123 imposes a duty on ISOP to have regard to the strategy and policy statement defined in part 5 of the Energy Act 2013. This duty helps to clarify the link between ISOP and the Government’s energy priorities. The intention is that ISOP will act independently, but in the context of wider energy sector policy and the Government’s objectives. The Government will use the SPS, once designated, as a tool to provide strategic focus to ISOP and ensure that it, and Ofgem, are aligned with the strategic priorities of the Government’s energy policy.
Clause 123 also imposes a requirement on ISOP to notify the Secretary of State if at any point it thinks that a policy outcome in the SPS will not be met. The notice must include the reasons behind the conclusion and any steps that ISOP will or might take to deliver the policy outcome. The Secretary of State also has an obligation to consult the ISOP when reviewing or preparing the SPS. The SPS is expected to set out a number of priorities for both Ofgem and ISOP, and it is not anticipated to fundamentally change the organisation. I commend clause 121 to the Committee.
Dr Whitehead
This debate enables us to count off a few clauses—clauses that are all good stuff. They clarify and facilitate the role, function and activity of ISOP. We have indicated that we would like ISOP’s remit to be widened as far as possible. On the high-level objectives in clause 121, an objective on net zero could shape the widening of ISOP’s responsibilities, because obviously that is what we are all about now, as far as the grid and various other things are considered. A wider remit for ISOP in facilitating net zero is clearly to be desired; that may be a basis on which to build on ISOP’s powers and activities in future.
Alan Brown (Kilmarnock and Loudoun) (SNP)
As I said earlier, I support the principle behind ISOP, and I support clauses 121 to 123, and will not vote against them. I want to explore a point with the Minister. The explanatory notes on the clauses highlight possible conflicts and tensions between the role of ISOP and the impact of Government policy—of what the Government do. For example, paragraph 345 of the explanatory notes outlines that there is
“a duty on the ISOP to carry out its functions in a way that it considers is best calculated to promote…net zero”.
It also acknowledges that while ISOP is not making decisions on generation mixes, it should still be
“proactively identifying and creating opportunities to facilitate the transition”
to net zero.
Paragraph 347 to the explanatory notes confirms the imposition of a duty on ISOP
“to carry out its functions in a way that it considers best calculated to promote a coordinated electricity and gas”
grid in the interests of the efficiency and economic operation of the grid. Paragraph 352 says:
“The ISOP will take a whole-system approach to coordinating and planning Great Britain’s energy system”.
That is all very logical, and I agree with the principles set out there—they are certainly the most important functions of ISOP in many ways—but how does the Government regulator allow for that, and how do the Government take into account the ISOP’s recommendations?
The Minister rightly pointed out the differences between what the ISOP is looking at and the fact that policy and implementation is the role of Government. To give an example, the National Grid Electricity System Operator already predicts that there will be less nuclear in the grid in any future scenarios compared with what the Government are promising about new nuclear, and that in 2024-25 a quarter of electricity generation will be from nuclear. The reality is that that will not happen. The National Grid ESO does not allow for that in future scenarios, yet the Government still tell us that that is their policy. That is already a clear conflict before the ISOP is up and running.
What if the ISOP says to the Government that instead of spending £35 billion to £40 billion on a new nuclear station at Sizewell C it could much better balance the system by recommending extra energy efficiency measures, battery storage, pumped-storage hydro or a smarter grid, which we keep hearing about in the plan going forward? What if the ISOP says that we should upgrade the grid urgently between Scotland and England, which would help to better balance the system and deploy renewables better, and get rid of the £4.6 billion in constraint payments that National Grid ESO paid last year to turn windfarms off because there was not sufficient grid capacity? How do the Government deal with the recommendations of the ISOP? Some of the suggestions that I have outlined would meet the aims outlined in clauses 121 and 122 and in the explanatory notes.
We are still to come to clause 131, but in this context it puts a duty on the ISOP to monitor and review developments, including technological changes and Government policies. It seems to me that the Government can make policies that undermine the ISOP’s recommendations; then the ISOP has the responsibility to review Government policy and start all over again. That does not seem very efficient, so the Minister needs to give a bit more clarity on that.
Clause 123 is on the strategy and policy statement, which is long overdue from the Government. On 30 March, in answer to a written question that I submitted, I was advised:
“The Government has consulted Scottish and Welsh Ministers on a draft SPS and taken their comments into account. The Government intends to publicly consult on an updated draft soon.”
When will we get that draft, given that clause 123 reiterates the responsibility of the Government to provide that strategy and policy statement?
Andrew Bowie
The clause amends the Electricity Act 1989 for four main purposes: first, to define the new electricity system operation licensable activities; secondly, to create the ISOP’s new electricity system operator licence and empower the Secretary of State to grant the first licence; thirdly, to ensure that the holder of the electricity system operator licence also holds the gas system planner licence; and finally, to ensure that if a person ceases to hold the gas system planner licence, they cease to hold the system operator electricity licence.
Clause 125 also relates to licensing. It is too early to determine the best course of action to create the ISOP’s electricity system operator licence. The Government consider it prudent to ensure that they have flexibility to ensure a smooth and efficient transition to the ISOP. One option is to revoke the existing licence and grant a completely new electricity system operator licence, but this clause offers another approach. It empowers the Secretary of State to direct that an existing transmission licence becomes the ISOP’s electricity system operator licence. If that power is used, the Secretary of State can make appropriate modifications to the existing licence when making such a direction, and the direction must be published.
Clause 126 covers the licensing of gas system planning activity. It makes amendments to the Gas Act 1986 that mirror the electricity licence in clause 125, but in respect of a gas system planner licence.
Clause 127 empowers the Secretary of State or Ofgem to make changes to licences and codes and revoke licences in preparation for, in relation with or in consequence of the designation of the ISOP.
Clause 128 sets out the process and rules for making licence modifications under the power in section 127. Before making any modification to licences or codes, the Secretary of State or Ofgem is required to publish a notice explaining the reasons for the changes, the proposed modifications and when they will take effect. The persons listed in subsection (2) must be notified, and their representations, if made within the specified period in the notice or before the changes take effect, need to be considered.
Dr Whitehead
This is all terrific stuff. I do not have much to say on this, other than that I was struggling to keep up with the Minister’s speed reading; I think I just about made it.
Question put and agreed to.
Clause 124 accordingly ordered to stand part of the Bill.
Clauses 125 to 128 ordered to stand part of the Bill.
Clause 129
Provision of advice, analysis or information
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause imposes a duty on the ISOP to provide advice, analysis or information requested by the Government or Ofgem. The Government and Ofgem will have to make important policy and regulatory decisions across many areas of the energy system to enable progress towards net zero. As a trusted independent entity, the ISOP will be well placed to provide expert and technical advice to decision-making bodies.
There are no provisions in legislation that oblige the current electricity and gas system operators to provide advice to the Secretary of State on request. Ofgem currently has more generalised powers to request information from its regulated bodies, but only for the purposes of monitoring and enforcement. The content of the advice, analysis or information requested should be on matters related to the ISOP’s functions, main objectives or matters that the ISOP must have regard to. The requestor should be able to provide some reasonable terms in respect of when and how the advice, analysis or information should be provided, which the ISOP must comply with in its response.
The Government recognise and agree with calls from respondents to the future system operator consultation that the ISOP’s expertise will be useful to the wider energy industry and consumers. That is why the Government plan to build on the existing responsibilities of the ISOP in licences or associated documents to enable the ISOP to share expertise and provide guidance to others where it considers it beneficial to consumers.
Clause 130 provides the ISOP with a power to request information, including data, where it is needed to help it fulfil its functions. Information can be requested from those engaged in, or those whom the ISOP reasonably considers intends to engage in, relevant activities as defined in clause 121(5).
Clause 131 imposes a duty on the ISOP to keep under review information about any policy initiatives or other developments in the energy sector that may be relevant to its functions. The clause is drafted by reference to the ISOP’s functions, and the obligation it imposes will align with those functions. We must ensure that the ISOP is horizon scanning and monitoring how markets and regulation may develop in the shorter or longer term. As discussed in the debate on clause 123, the ISOP will be required to have regard to five-yearly strategy and policy statements. The duty to keep under review is important for the ISOP to keep up-to-date with developments in the intervening five years. I commend the clause to the Committee.
Dr Whitehead
I have nothing to add. I am happy to agree to the clauses.
Question put and agreed to.
Clause 129 accordingly ordered to stand part of the Bill.
Clauses 130 and 131 ordered to stand part of the Bill.
Clause 140
Designation of codes etc
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Part 5 of the Bill deals with the governance of gas and electricity industry codes. The energy codes are documents that contain the detailed rules of the electricity and gas systems. The rules cover everything from how buyers and sellers must interact in commercial markets, to the technical specifications required to connect to the grid. The codes are currently governed by industry parties such as electricity suppliers and gas transporters. The Government will create a new governance framework for the energy codes, which will move that responsibility to one or more newly created code managers. The code managers will be directly accountable to Ofgem rather than industry, which will allow Ofgem to drive strategic change across the codes, for the benefit of consumers and competition.
Clause 140 plays a central role in establishing the new framework, by allowing the Secretary of State to identify which codes and engineering standards fall within its scope. It does so by granting the Secretary of State the power to create and amend lists of documents that are critical to the operation of our electricity and gas systems. Once a document has been designated, all the enduring functions of the new governance framework will immediately go live for that document. At the same time, all the transitional powers granted to the Gas and Electricity Markets Authority by schedules 10 to 12 will cease to apply.
The Secretary of State may only designate documents that are maintained in accordance with the conditions of specified gas and electricity licences. The Secretary of State will not be able to expand the scope of the new governance framework beyond the gas and electricity sectors in Great Britain without a legislative change.
Clause 141 defines a “code manager” as the holder of a code manager licence in relation to a document that has been designated by the Secretary of State. Code managers are intended to replace the industry-led bodies that currently govern the code change process. The clause also defines a “code manager licence” as a licence under new section 7AC of the Gas Act 1986, or new section 6(1)(g) of the Electricity Act 1989. Once those sections are added to those Acts by clauses 136 and 137, it will become a criminal act for any person to manage a designated document without a licence or an appropriate exemption. The GEMA will be empowered to grant the two types of code manager licence—one in connection with electricity and one in connection with gas.
Clause 142 empowers the Secretary of State to identify which central systems fall within the scope of the governance framework in this part of the Bill. It does so by granting the Secretary of State the power to create and amend lists of relevant central systems, and enables the Secretary of State to identify the person responsible for operating, or procuring the operation of, those systems.
A “central system” is defined as an IT system that either supports the operation of an energy code, or processes, transmits or stores data in connection with the operation of that code. Once a system has been added to the list, the only practical effect will be to make the body responsible for operating the system eligible to receive directions from the GEMA, to ensure that the body complies with its obligations under the codes and, where necessary, takes steps to ensure the efficient operation of the code. The enforcement of the directions will be made possible by the amendments in schedule 10, which will allow the GEMA to treat relevant bodies as regulated persons in this specific context.
The Bill specifies that the Secretary of State may only designate central systems that support the operation of a designated document, such as an electricity or gas code. All changes to the initial list of designations will require receipt of an appropriate recommendation from the GEMA. As the market continues to adapt and evolve, it is likely that new systems will need to be developed, and that existing systems may need to be decommissioned. The Secretary of State’s ability to create and maintain a list of central systems will help to future-proof the framework. I commend the clauses to the Committee.
Dr Whitehead
We now turn to energy codes and their managers, probably one of the most baffling and tedious parts of the entire energy spectrum. I understand that people who have gone into codes and code managers have on occasion subsequently been found miles from home in a distressed state, unable to remember their name or how they got there. The Minister has been speaking in a pretty chirpy voice, though, so he might not fall into that category, or perhaps he has not got too far into codes.
I seek some elucidation from the Minister. One purpose of clause 140 is to facilitate the bringing together of codes and the operation of those codes under new licensing—ownership, we might say—arrangements. That needs to be put in the context of where we are at the moment with codes. We have no fewer than 11 different codes for different parts of the industry, including the balancing and settlement code, the connection and use of system code, the distribution connection and use of system agreement, the grid code, the system operator transmission owner code and, more recently, a consolidated retail energy code under a new company called the Retail Energy Code Company—an imaginative name for such a firm.
The point about all those disaggregated and sometimes very much stand-alone codes is that they are owned by different actors. Some of the code management ownership is in the hands of companies that are active in the energy field, some in semi-free-standing, not-for-profit organisations, and some in entirely free-standing, not-for-profit organisations. There is no consistency in who manages the codes at the moment.
I hope that, as a result of these clauses being passed, the Government will have the opportunity systematically to make a much more coherent and integrated system of codes. It is important, however, to have a principle in that process for who will actually own the code management system. I hope and expect that the Minister will say that that will, at the very least, be independent, free-standing, not-for-profit companies or organisations, rather than at least part of the code management being kept in the hands of the industry that is itself bound by the codes. That looks a bit circular.
If the Minister is able to elucidate on that a bit, then I think we will be happy to ensure that this part of the Bill passes in an expeditious manner.
Andrew Bowie
The hon. Gentleman is absolutely right. We do not want to introduce anything that makes reaching our net zero goals or the future governance of the energy system any more complicated or circular—to use his word—than it already is. He went through some of the 11 codes and engineering standards: the balancing and settlement code; the connection and use of system code; the distribution connection and use of system agreement; the distribution code; the grid code; the retail energy code; the smart energy code; the system operator transmission owner code; the security and quality of supply standard; the uniform network code, and the independent gas transporters uniform network code. It would be wrong to do anything that further complicates an already complicated area; he is right in what he says about finding ourselves miles from home, forgetting our own name.
Andrew Bowie
It gives me great pleasure to speak to clauses 143 to 147. Clause 143 establishes code management as a licensable activity within the gas sector. The primary responsibility of the code managers, once licensed, will be to make arrangements for the governance of their respective codes. The GEMA’s ability to license code managers is a central feature of the new governance framework established by this part of the Bill. Clause 143 makes it possible for the GEMA to license code managers by making three sets of amendments to the licensing regime in the Gas Act 1986. Clause 144 serves the same purpose for the Electricity Act 1989, and the two should be seen as working together to establish the new licensing framework.
The first set of amendments makes it a criminal offence to perform the activity of code management in the gas sector without a licence, unless an exemption has been granted. That is necessary to ensure that no more than one person is able to make lawful arrangements for the governance of a gas code at the same time. The second set of amendments makes it possible for the GEMA to grant code manager licences to qualifying persons through the code manager selection processes established elsewhere in the Bill.
Finally, the third set of amendments will require the GEMA to grant licences for codes that contain both gas and electricity provisions at the same time. That requirement will prevent inadvertent breaches of the prohibition on code management in the electricity sector, which is set out in the clause 144. Without the combined effect of these three sets of amendments, it would not be possible for the new code governance framework established by this part of the Bill to function as a licensable activity.
Clause 144 establishes code management as a licensable activity in the electricity sector. The responsibilities of these code managers will be the same as those licensed in the gas sector, as outlined in clause 143. Clause 144 makes it possible for the GEMA to license code managers by making three sets of amendments to the licensing regime in the Electricity Act 1989. Those amendments serve the same purpose as the three outlined in the previous clause to the Gas Act 1986.
My arguments in recommending clause 143 apply equally to clause 144, so I will not labour those points. Without the combined effect of these sets of amendments, it would not be possible for the new code governance framework established by this part of the Bill to function as a licensable activity.
Clause 145 empowers the GEMA to select code managers on a competitive or non-competitive basis. The selection method will be informed by regulations that may be made by the Secretary of State. It is important that the GEMA has the flexibility it needs to select the right body for each role.
Code managers will play a central role in the new governance framework. Their primary responsibility will be to make arrangements for the governance of their respective codes. They will support the delivery of any strategic direction published by the GEMA. Any person who is selected for the role will need the right mix of code-specific knowledge and expertise to be effective.
Due to the differences between the codes, it may be difficult to determine a single best-fit selection method. Some codes may benefit from a competitive tender process, whereas others might find a direct selection process to be more efficient. That variation exists because the codes have evolved independently to occupy unique positions in the market. It would be beneficial for the selection options available to the GEMA to be equally varied.
The Secretary of State may wish to inform the GEMA’s choice of selection method by specifying in regulations the criteria that it would need to apply. Those regulations will allow the Government to ensure that the selection process will produce suitable candidates, while enabling the GEMA to make the final decision on which selection method to use and, indeed, who to select. The details of the regulations are still subject to public consultation. Potential criteria could include minimum conditions that a body must meet to qualify for selection.
The GEMA’s ability to select and license code managers is a central element of the new governance framework. To ensure that the process works as expected, it will be vital for the Secretary of State to have the option of creating regulations to inform how code managers are selected and who should be eligible for the role.
Clause 146 empowers the Secretary of State to make regulations about the non-competitive selection of code managers by the GEMA. Those regulations may be used to make provision about the selection of code managers other than by competitive tender, such as who may or may not be eligible for selection.
Clause 147 allows the GEMA to draft regulations about the selection of code managers by competitive means, which would then require approval by the Secretary of State. Those regulations would be used by the GEMA if it ever decided to select a code manager by running a competitive tender process.
Dr Whitehead
I have no comments on the clauses. I am happy for them to stand part of the Bill.
Question put and agreed to.
Clause 143 accordingly ordered to stand part of the Bill.
Clauses 144 to 147 ordered to stand part of the Bill.
Clause 148
Strategic direction statement
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 148 places a duty on the GEMA, which is getting quite the airing this afternoon, to publish an annual strategic direction statement about the codes. It also sets out various process requirements and empowers the Secretary of State to supplement the list of required content via regulations.
The purpose of the strategic direction statement is to set out how the codes will or may need to evolve over the following 12 months. At a minimum, it will be required to include a strategic assessment of Government priorities and wider developments in the energy sector relating to codes. The Secretary of State will have the ability to add to the minimum list of content by regulations.
The publication of the annual statement will serve as a framework for code managers when they develop their annual delivery plans. It will also provide interested parties and the Government with information regarding pending code changes, allowing insight into the overall direction of travel. Finally, it will be the primary vehicle by which Government policy priorities are factored into the future development of the energy codes. That will be achieved by regulations, whereby the Secretary of State may add to the list of content that the GEMA must include in its statement. However, any decisions regarding what decisions to take based on that content will always remain with the GEMA.
The clause also sets out the processes that the GEMA must follow when drafting and publishing the statement, including a requirement to consult with all persons who are likely to be affected and to send notice to various consumer-focused organisations. The strategic direction statement is a central element of the new governance framework. To ensure that it continues to meet these purposes, it is important that the Secretary of State has the option to update the list of required content over time.
Clause 149 allows the Secretary of State to permanently transfer the GEMA’s new duty to produce an annual strategic direction statement to the ISOP through regulations. This power has been included to future-proof for a scenario in which the ISOP may emerge as the most suitable entity to take on this duty. While the GEMA is currently the best placed organisation to publish the strategic direction statement, the ISOP, created by part 4 of the Bill, which we discussed earlier, may emerge to be better placed to take on the duty in the future.
Once it is fully established, the ISOP will have various advisory capabilities, an overview of the full energy system, and dedicated planning functions. That may make it a better candidate to publish a strategic direction statement for the codes. However, when the ISOP is first established, it may not have the capabilities or operational maturity in its system-wide strategic and planning functions to take on such a duty. The electricity system operator may therefore remain a code administrator for multiple codes—at least until a new code manager is selected for them. This role could therefore present an undesirable conflict of interest were the ISOP to write the strategic direction early on in the process. As a result, any transfer would be unlikely to take place until the ISOP is fully established and the wider code reforms are complete.
The Secretary of State may make regulations to effect the transfer in duty. Clause 149 sets out the specific changes to legislation that those regulations must make to update references from the GEMA to the ISOP in clause 148. The wording of the clause will ensure that the regulations are used only for a specific purpose, which is important given that they would modify primary legislation. The Secretary of State will be required to consult with the GEMA, the ISOP and other affected parties before making any regulations. In addition, the regulations would need to be laid using the affirmative procedure to ensure the appropriate level of parliamentary scrutiny.
Dr Whitehead
We certainly have no objections to the clauses. I commend to the Committee clause 149, which enables the transfer of functions on strategic direction between the GEMA and the ISOP. That is a wise and prudent element to include. I accept what the Minister says about the maturity of the ISOP in its early years to carry out the functions. That provision means that the changes can be made at the right time, and on a permanent basis, and I welcome that.
Andrew Bowie
I welcome the hon. Gentleman’s welcome.
Question put and agreed to.
Clause 148 accordingly ordered to stand part of the Bill.
Clause 149 ordered to stand part of the Bill.
Clause 150
Modification of designated documents by GEMA
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 150 empowers the GEMA to modify codes directly in certain circumstances to ensure the smooth operation of and transition to the new governance framework. It also empowers the Secretary of State to make regulations setting out how and when the power may be used, and to act as a necessary backstop to clarify and frame the scope of the use.
Clause 151 sets out the practical steps that the GEMA must follow before it can make a direct modification under the circumstances set out in clause 150. Clause 152 empowers the GEMA to issue directions to the bodies that are responsible for operating, or procuring, the critical IT systems that underpin the energy system. Clause 153 sets out the procedural steps and associated controls that the GEMA must follow when making a direction to a central system delivery body, under the powers granted in clause 152.
Dr Whitehead
I have no comments on the clauses, and commend them to the Committee.
Question put and agreed to.
Clause 150 accordingly ordered to stand part of the Bill.
Clauses 151 to 153 ordered to stand part of the Bill.
Clause 154
Principal objective and general duties of Secretary of State and GEMA under Part 5
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 154 extends the principal objectives and general duties set out in the relevant sections of the Gas Act 1986 and the Electricity Act 1989 to all the new functions granted to the Secretary of State and the GEMA under this part of the Bill. The extension includes an obligation on both the Secretary of State and the GEMA to carry out their new functions in a way that protects the interests of existing and future consumers. That obligation will place consumers at the heart of our new code governance framework.
Clause 155 updates the GEMA’s reporting requirements so that it must include an overview of any developments or decisions relating to codes in its annual report. It does that by inserting relevant provisions into the list found in section 5 of the Utilities Act 2000.
Question put and agreed to.
Clause 154 accordingly ordered to stand part of the Bill.
Clause 155 ordered to stand part of the Bill.
Clause 156
Regulations under Part 5
Dr Whitehead
I beg to move amendment 98, in clause 156, page 135, line 26, after “section” insert “146 and”.
The section presently is all under negative SI formation, with the exception of clause 149, which is positive. However, other sections in the part, including section 146, look as if they should have affirmative treatment because of the Secretary of State powers in respect of those sections. As such, this amendment seeks to include it as an affirmative exemption from the rest of the part.
The Chair
With this it will be convenient to discuss the following:
Clauses 156 to 158 stand part.
That schedules 10 and 11 be the Tenth and Eleventh schedules to the Bill.
Clause 159 stand part.
That schedule 12 be the Twelfth schedule to the Bill.
Dr Whitehead
I will speak strictly to the amendment. I advise Members not to go anywhere near schedules 10 to 12, because they might not come back in the same state in which they started to read them.
Amendment 98 is part of my largely forlorn mission to ensure that Parliament is fully involved in decision making, with regulations being made on an affirmative rather than negative basis. The Committee will observe that, in clause 156, the affirmative procedure is specified for regulations only as far as clause 149, which we have already briefly discussed and relates to the transfer of functions from GEMA to the ISOP for strategic purposes. However, it seems to me that there are other clauses in this area that Members ought to have more of a say in, at least in terms of the product of those clauses coming before them through the affirmative procedure, and thus to be debated in the House before being put into place. For example, the selection of a code manager on a non-competitive basis by GEMA might be something that Members might like to have a rather more serious look at, rather than the process being done under the negative procedure, whereby, if a Member is lucky, they might spot that it has been published and then have a certain number of days in which they can do anything, but otherwise the regulations will just go into force.
I think it would be a good idea to extend the protections for Parliament, as it were, under clause 156 to some of those other clauses. It is not something that I would want to go to the wall on, but I hope that the Minister will have a look to see whether he thinks that some of those being subject to the affirmative procedure rather than the negative might be a better way to proceed.
Andrew Bowie
I thank the hon. Gentleman for his amendment. The regulations established in part 5 will be technical in nature, with a focus on describing the different types of direct selection options, such as appointment of an existing licensee and any constraints on their use. In determining the suitable procedure, we have considered the impact on parliamentary time and the precedents in similar regulations in other areas of statute. For example, similar powers for the Gas and Electricity Markets Authority under section 6C of the Electricity Act 1989 have no parliamentary procedure in relation to offshore transmission owner tenders.
The regulations will provide for variations of the direct selection route already spelled out in the Bill. We do not think that parliamentary time will be effectively used by subjecting these regulations to the affirmative procedure. I hope that the hon. Member feels suitably reassured and will therefore be content to withdraw his amendment—notwithstanding what he just said a few minutes ago.
I will now turn to clauses 156 to 159. Clause 156 confirms that the regulations established under part 5 will be subject to the negative or the affirmative procedure. Clause 157 identifies several key terms that are used throughout part 5 and explains which sections contain the corresponding definitions. It is therefore intended solely as an aid to interpretation. Clause 158 introduces schedules 10 and 11 to the Bill, which contain various transitional provisions that may be exercised in connection with this part. It is intended solely to convey that the contents of those schedules exist and will be critical to the implementation of energy code governance reform.
Clause 159 introduces schedule 12, which contains details of various amendments required to other Acts as a consequence of this part of the Bill. The purpose of schedule 12 is to set out the details of the relevant amendments, which deal with one of two topics. The first topic relates to clause 152, which, as we have already heard, empowers GEMA to issue directions to the bodies that are responsible for operating, or procuring the operation of, the critical IT systems that underpin the energy system. I therefore commend the clauses to the Committee.
Dr Whitehead
The Minister has not entirely satisfied me on this. In general, regulations should be affirmative, unless there is a good reason for them to be negative—not the other way around. The Minister has suggested this afternoon that the other way around appears to be the default for his Department in this respect. I do not think that that is good practice for legislation in general, but who am I to take on the entire forces of parliamentary legislation writers all by myself? I hope that we can perhaps get a better outcome for such things in future, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 156 to 158 ordered to stand part of the Bill.
Schedules 10 and 11 agreed to.
Clause 159 ordered to stand part of the Bill.
Schedule 12 agreed to.
Clause 160
Competitive tenders for electricity projects
Dr Whitehead
I beg to move amendment 99, clause 160, page 136, line 20, at end insert—
“(2) Strategic transmission network projects that are—
(a) identified in the Electricity Networks Strategic framework,
(b) built ahead of need whilst long term good value for money, and
(c) in the opinion of the Secretary of State essential to support renewable and energy security objectives,
are not subject to Schedule 13 of this Act.”
This amendment seeks explicitly to exempt certain strategic transmission network projects from the provisions of Schedule 13.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
That schedule 13 be the Thirteenth schedule to the Bill.
Clause 161 stand part.
That schedule 14 be the Fourteenth schedule to the Bill.
Dr Whitehead
We come to the first section of part 6 of the Bill, which deals with market reform and consumer protection. The first clauses in this part relate to developing far greater competition for electricity generation, networks and so on.
The idea that there should be greater competition in the development of networks and other such things is not in dispute. Indeed, one argument in favour of the principle is that some of the delays in the development of the network from its previous centralised, spine-outwards approach, to a decentralised, spine-inwards approach, are due to the rather sterile ways in which the new network was commissioned. Having greater competition will not only bring potential new investors into the process, but may in certain circumstances speed the process up. It would certainly be a much better vehicle for bringing forward the anticipatory investment that is necessary to get the grid going in the way that we need it to go. However, what is happening with new grid development appears to point in the opposite direction.
Ofgem published its “Decision on accelerating onshore electricity transmission investment” in December 2022, concerning the extent to which investment in certain projects should not be subject to competition. As I am sure the Minister is aware, that relates to the accelerated strategic transmission investment programme that Ofgem has been pursuing. It will identify all the big strategic network challenges and projects to decide how important and strategic those projects are likely to be and how important they are to the realisation of the other ambitions of the network, and decide through the ASTI programme which ones will be accelerated up to 2030, which ones may be considered for after 2030, and which ones stand outside the system as a whole. As we have previously touched on, those standing outside the system as a whole may well be those of less strategic significance—maybe at a distribution network operator level—although they are no less important, even though they are below the very highest level of grid generation.
Following Ofgem’s intervention in this field, we now have a situation where most of the large onshore transmission investment framework and, indeed, some of the framework that goes offshore as well as onshore, will effectively be handed over to the National Grid to develop before 2030. There may well be an argument—quite an important argument, I think—that, right now, our grid structure is in such a bad way that we are saying, “Go away and get on with it. Do it as soon as possible. We will back you in doing it.” Obviously, a lot of additional things must be added to that decision to get on and do it, such as accelerated planning and deciding whether some routes may give more value for money in the long term—by going partly underground, for example. Even though they are more expensive, they actually overcome some of the objections in the process so that the whole thing can be done at a rapid rate.
There are substantial arguments in that direction, but it could be that the overall need for speed means that the ASTI programme would be extended beyond the 2030s and to a wider range of projects, at which point the provisions in the Bill and the actual provisions undertaken on the ground will pull in two quite different directions. It is important that we are able to bring those two together so that we have a clear distinction between what we are and are not competing for in terms of speed and direction.
Other questions are involved here, particularly about the financing of such projects and whether the company now undertaking to bring forward these truly nationally strategic investment projects will actually be able financially to run them in parallel rather than in sequence. That is an important consideration in terms of what is in the legislation and what we are trying to do strategically to get out of the current position, where we are moving too slowly for the development of low-carbon systems. We do not have major concerns about the competition process itself, other than those we expressed in this amendment, which aims to do roughly what Ofgem has started to do, but in a way that makes a clear distinction between what is and is not competition for future strategic purposes. I hope that the amendment will be seen as helpful, but there may be other ways that that sort of outcome, with the strains we have upon us that I have described, can be successfully negotiated.
Andrew Bowie
I thank the hon. Gentleman for his amendment, which I believe is intended to be helpful—as are all of his amendments. However, I gently disagree with him that we might be heading in the wrong direction on this.
The Government recognise the importance of clarifying which projects are within the scope of competition and which are to be exempt, and steps have already been taken to provide that clarity. We are already seeking powers for the Secretary of State to set criteria to determine whether projects are eligible for competition through clause 160. The underlying guiding policy in their design is whether there is a consumer benefit to competing any given project.
The Government recognise that their application could cause some uncertainty in the immediate term. That is why, last year, we committed to exempting certain strategic projects from competition. Ofgem, the independent regulator, published in December 2022 a decision on which projects are exempt—projects worth approximately £20 billion—and is working with industry to accelerate those network projects so they are ready for 2030.
Therefore, I believe that, sadly, the amendment is unnecessary. It would duplicate existing policy work to exempt certain strategic projects and would create an unnecessary avenue for exemptions, beyond the existing criteria that Ofgem will apply to determine eligibility for competition. For those reasons, I hope the hon. Gentleman feels able to withdraw this amendment.
Clause 160 gives effect to schedule 13 to the Bill, which sets out the mechanism for enabling competitive tenders to take place in onshore electricity networks. To ensure energy security for Great Britain, significant investment is needed in our electricity network to meet an estimated doubling in demand up to 2050. The electricity networks strategic framework, published in August 2022, sets out the estimated additional £100 billion to £240 billion of investment required in the onshore network to meet net zero.
Under the current system, network companies that are regional monopolies build, own and operate our network. They are regulated to do so efficiently through Ofgem’s price control processes, but it is vital that we guarantee value for money by ensuring that network investment is cost-efficient and strategic. That is why clause 160 is important.
I turn now to clause 161 and schedule 14. The first part of the clause introduces schedule 14, which establishes the new energy network special mergers regime. The regime is designed to enable the Competition and Markets Authority to assess whether a merger between certain energy network enterprises in Great Britain substantially prejudices Ofgem’s ability to carry out certain regulatory functions. Specifically, it relates to the price control process by which Ofgem determines how much energy network companies can spend and, therefore, how much they will pass on to consumers through energy bills.
The Government have estimated that introducing the regime could save energy consumers up to £420 million over 10 years by avoiding excess profits for energy network enterprises.
Dr Whitehead
The Minister may well be right—I do not say that very often, but I will say it on this occasion. This amendment, by the way, was initially drafted in the long-distant period when the Bill first emerged over the horizon, beyond the timeframe of most of our memories now, and it has been superseded at least partly by what Ofgem has been doing as far as ASTI is concerned. I am happy to withdraw it on that basis, but I hope we will keep that clear distinction for the future. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 160 ordered to stand part of the Bill.
Schedule 13 agreed to.
Clause 161 ordered to stand part of the Bill.
Schedule 14 agreed to.
Clause 162
Licence required for operation of multi-purpose interconnector
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 163 to 167 stand part.
That schedule 15 be the Fifteenth schedule to the Bill.
Andrew Bowie
Multi-purpose interconnectors are assets that combine electricity interconnectors between Great Britain and other jurisdictions with electricity transmission connections for offshore wind. They can help us achieve our net zero target by further integrating renewables into the grid. However, the existing legal framework does not enable the operation of a multi-purpose interconnector. Without a legal definition, there is a lack of clarity over their treatment.
Clause 162 introduces the definition of a multi-purpose interconnector into the Electricity Act 1989. It also amends that Act to ensure that a person who operates a multi-purpose interconnector will be required to hold a licence or exemption. To minimise conflicts of interest, the clause also ensures that the same person may not hold a multi-purpose interconnector licence while simultaneously holding a licence for electricity generation, transmission, distribution or supply. It also prohibits the same person from simultaneously holding multi-purpose and standard interconnector licences.
Multi-purpose interconnectors are a nascent technology, and the clause ensures that the definition of a multi-purpose interconnector is broad enough to account for the range of technologies involved in their operation, including future technologies. For example, although early multi-purpose interconnectors look to combine electricity interconnection with offshore wind, future multi-purpose interconnectors may link with energy islands or include the electrification of offshore oil and gas and CCUS platforms.
Clause 163 introduces the requirement for the Secretary of State to set the standard conditions for the multi-purpose interconnector licence, ensuring Government oversight. It outlines the requirement for the Secretary of State to publish the standard conditions, with the publication to be done in the manner considered appropriate by the Secretary of State. The clause contains a provision for specific standard conditions included in the multi-purpose interconnector licence to not have effect until brought into operation. It also includes a provision for the suspension of the effect of specific standard conditions included in the multi-purpose interconnector licence, as well as a provision to reintroduce the effect of suspended standard conditions. That may be necessary due to changes in trading arrangements, for example.
To ensure the standard conditions determined by the Secretary of State are incorporated, clause 163 will amend the Electricity Act 1989. That amendment will need to be commenced by secondary legislation to allow sufficient time for development of the standard licence conditions. Once commenced, the Secretary of State will not be able to further modify the standard conditions; however, they may veto proposals made by the Gas and Electricity Markets Authority to modify the standard licence conditions. The procedures detailed in the clause are in line with those that were introduced for interconnector licences.
Clause 164 amends the Electricity Act 1989 by inserting new section 10NA, which ensures that any person who operates a multi-purpose interconnector has been certified by Ofgem to be independent from electricity generation and supply activities, reducing the risk of conflicts of interest. That Act already provides for standard interconnectors to receive certification from Ofgem, and it is thus considered appropriate to extend that provision to multi-purpose interconnectors. Certification is a necessary precursor to the award of multi-purpose interconnector licences.
Clause 165 details the power of the Secretary of State to grant MPI licences to existing operators developing pilot project MPIs. The Government and Ofgem have continued to support pilot MPI projects to develop, as it is the Government’s intention to encourage operators to move towards a more co-ordinated and efficient offshore network. The clause enables the Secretary of State to grant an MPI licence to existing operators who hold an interconnection or offshore transmission licence for the purposes of developing a multi-purpose interconnector. That licence will replace operators’ existing interconnector or offshore transmission licence.
The clause also reads in minor modifications to the Electricity Act 1989, so that relevant sections will apply to the exercise of the Secretary of State’s power in this clause. It also includes a requirement for the Secretary of State to consult the potential MPI licensee and the Gas and Electricity Markets Authority prior to granting a licence. Furthermore, this provision mirrors existing powers that were brought forward through the Energy Act 2004. Those powers allowed the Government to grant interconnector licences to persons who were operating interconnectors under transmission licences. Reflecting that standard, clause 165 will allow the Government to grant MPI licences to persons who are operating MPIs under interconnector or transmission licences.
Clause 166 essentially enables the Secretary of State to amend existing legislation to ensure that multi-purpose interconnectors are not accidentally impacted by current laws. As MPIs—as I have already said—are a nascent technology, there is the potential for some aspects of the regulatory frameworks, market trading arrangements, and operational processes to transform once MPI activity commences.
The full detail of any possible necessary changes is difficult to identify at this stage. Following the pilot MPI projects, the Government will be in a better position to understand the full range of changes needed. The Secretary of State must consult GEMA before bringing forward any regulations. Any regulations will be subject to the affirmative procedure. In this way, the Government can adequately balance the need to be flexible in a changing landscape with the need to ensure that there is appropriate parliamentary scrutiny.
Clause 167 introduces schedule 15, which makes minor and consequential amendments to existing Acts. The majority of the consequential amendments will be made to the Electricity Act 1989, which makes provision regarding the supply, generation and transmission of electricity. Other Acts affected include the Energy Act 2004, the Utilities Act 2000 and the Civil Contingencies Act 2004. The changes will ensure that the legal framework for multi-purpose interconnectors functions properly alongside existing legislation.
I commend the clauses to the Committee.
Dr Whitehead
The Minister obviously had to read all that stuff out, so I will try to simplify it a bit for the Committee. At the moment, we have a number of interconnectors, which basically go from A to B. They go from Norway, Belgium, Holland and France and between England, Wales and Ireland. They are very much A to B, two-way connectors. When I say that they come from Norway, France and so on, it is a potential two-way process.
However, under regulation, the interconnectors have very much stayed exactly as that. For the next stage of our development, as far as low-carbon renewables are concerned, we need interconnectors that can actually take what is coming from, say, the North sea and bring it on board to the interconnector—possibly via an energy island, as the Minister said—and then send the resulting electricity in any direction. Currently, that is effectively banned. A two-way interconnector cannot be interrupted for that purpose. Having multi-purpose interconnectors not only enables that, but, as we try to develop a much better grid system in the North sea, it enables a great deal of use to be made of those interconnectors. That means being used not only for the purpose of landing offshore wind, but, as the Minister said, for, for example, repowering North sea oil and gas rigs. In other words, that means integrating all the things happening in the North sea into a big energy endeavour. Multi-purpose interconnectors are absolutely vital for that.
I very much welcome the clauses, but I would say just one thing. I am pleased to hear that the Minister will pursue an iterative process in developing regulation for multi-purpose interconnectors, or MPIs, as we will call them from now on, but interconnectors go between two jurisdictions and sometimes have to deal at both ends with slightly different electricity markets in order to carry out the functions of the two-way electricity flow—that is the same for gas interconnectors, by the way. We may therefore get into the position where they will straddle different jurisdictions in terms of their operability to gather and collect what is going to that interconnector, but without landing directly and then going to another country. For example, MPIs may well interface between the UK and Norwegian offshore zones, while potentially straddling UK and Dutch offshore zones, and so on. Therefore, the matter of who is responsible for what is coming into and out of the system could be much more complicated than it is at the moment with the current A to B interconnectors. Multi-purpose interconnectors could even serve several different countries’ territorial areas across the North sea.
Andrew Bowie
Electricity storage can enable us to use energy more flexibly and decarbonise our energy system cost effectively. For example, it can help to balance the system at lower cost, maximise the use of intermittent renewables, and reduce the need for network upgrades and new generation. However, the regulatory framework for electricity was not built with technologies such as electricity storage in mind; they did not exist. Without a definition there is a lack of legal clarity over its treatment, which can disincentivise investment and hence the deployment of storage.
The clause clarifies that electricity storage is a distinct subset of generation in the Electricity Act 1989. It also defines storage as energy that was converted from electricity, and is stored for the purpose of its future reconversion into electricity. The measure removes current ambiguities and provides long-term clarity over electricity storage’s treatment within the existing frameworks and possible future frameworks. By doing so, it facilitates the deployment of storage.
Dr Whitehead
All I can say is: hooray! I have spent quite a lot of time on previous occasions attempting to get the House to legislate on separate electricity storage licences—freestanding without the current restrictions on storage. It is regarded as being both in and out, and therefore potentially subject to separate licences. An important change will come about as a result of this clause.
To go back to our previous discussion on codes, quite a lot of energy storage is likely to be further hampered by the existence of the codes themselves, which are very restricted to battery storage, long-term storage and the arrangements that go with that. It is important that we look at those codes at the same time to ensure that they are as up to date as possible, in line with new licences that may be put out. However, the fact that we at last have a category for storage in licensing, which will greatly facilitate the rise of particularly long-duration storage, is only to be applauded.
Question put and agreed to.
Clause 168 accordingly ordered to stand part of the Bill.
Clause 169
Payment as alternative to complying with certain energy company obligations
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause enables the Secretary of State to introduce a voluntary buy-out mechanism under the energy company obligation—ECO—scheme, through amending the Gas Act 1986 and the Electricity Act 1989.
Under the ECO scheme, there is currently an exemption for energy suppliers with fewer than 150,000 domestic customer accounts. The exemption is contentious, and the Government committed to consulting on how it could be reduced without smaller suppliers incurring disproportionate costs. We are proposing to do so through a buy-out mechanism. The clause provides the powers to create buy-out, with secondary legislation required to establish the details of the said mechanism. The measure enables small suppliers to meet their ECO obligations by simply making a payment to an approved third party for an approved purpose.
The clause also enables the Secretary of State to determine and publish the buy-out price, which can be set differently for different periods or scheme phases. By doing so, it ensures that the buy-out price is based on the most up-to-date information on the estimated cost of the promotion of measures. The final part of the clause sets out that the Secretary of State and Scottish Ministers can impose criteria for approving third parties and purposes. There are no limitations in primary legislation on such criteria, because the use of the buy-out will depend on the wider policy goals behind the administration of future schemes, which are subject to change over time.
By introducing the buy-out mechanism and obligating more suppliers under the ECO, the costs of meeting the obligations will be shared across a larger customer base. That will result in a fairer energy market by reducing any current distortions between obligated and non-obligated suppliers, and it will spread the cost of the ECO more equally across customers’ bills.
Question put and agreed to.
Clause 169 accordingly ordered to stand part of the Bill.
Clause 170
Smart meters: extension of time for exercise of powers
Dr Whitehead
I beg to move amendment 100, in clause 170, page 146, line 7, at end insert—
“(5) Within six months of the date of this section coming into force, the Secretary of State must produce and lay before Parliament a report setting out options for securing a guaranteed roll-out of smart meters to at least 70% of premises in all regions and nations of the United Kingdom by 2025.
(6) The report under subsection (5) must consider, among other options—
(a) obligatory smart meter installation,
(b) transfer of responsibility for smart meter roll-out to Distribution Network Operators, and
(c) time limits for phasing out meters which are not smart meters.”
The purpose of a report under this amendment is to emphasise that the Government should be aiming for at least 70% coverage in all regions and nations of the UK by 2025.
Dr Whitehead
The amendment relates to clause 170, which is very much another stand-alone clause; it concerns smart meters, and nothing else in the Bill relates to smart meters. We think that there ought to be a rather more serious approach to the question of smart meters and their present position in the energy firmament than the clause provides. I want to amplify that for a moment.
Where we are with smart meters is nothing short of a creeping long-term disaster as far as the UK energy economy is concerned. I am sure that Members will be aware that the introduction of smart meters came about through a 2012 piece of legislation with a view to starting the roll-out in about 2013 or 2014. The Minister responsible for the 2012 legislation said that the roll-out would start in 2014 and would be complete by 2019, when we would have 100% smart meters across the country. Ever since the 2012 legislation and the beginning of the roll-out, there have been repeated returns to the legislative process, including the Smart Meters Act 2018, which among other things included various measures on the Data Communications Company, about which I perhaps should not say too much for fear of becoming upset.
The thrust of that Act was to extend the timescale during which there would be jurisdiction over the process by the regulator, various other people and the DCC from 2019 to 2023. And here we are in 2023, having a further go at doing exactly the same: extending the exercise of powers from November 2023 to 1 November 2028. It is as though, if we continue to flog the dead horse for another five years, maybe the horse will miraculously come back to life again and we will all have the smart meters installed.
Katherine Fletcher (South Ribble) (Con)
I can speak from my own personal experience about why the horse is not dead and is benefiting from new technology. I wanted to have a smart meter and I could not, because the mobile phone signal was not good enough in the north of England. We have made great strides since 2019, so I think that horse still has a breath of life as technology, especially gigabit coverage, expands.
Dr Whitehead
My dead horse was perhaps something of an over-dramatic metaphor, but at the very least the horse is pretty sickly. That is partly because the smart meter wide area systems in the north of England are different from those in the south of England; the roll-out of smart meters in the north of England and in particular regions has been much slower and more problematic than has been the case in the south of England.
When we see the roll-out of smart meters now being 56% of all meters in Great Britain, the figure hides a number disturbing points, one of which I think the hon. Member for South Ribble will certainly want to worry about: that the roll-out in certain parts of Great Britain—strictly speaking, statistics are not provided on a regional basis, so I am citing evidence gathered by other means—could be as low as 30-odd per cent. in certain regions of the UK.
That is important not just because it is a good idea to have a smart meter that reads bills so that people do not have to continue to send their reading in, and not just because someone can look at their meter and see what sort of energy they have used and therefore can economise —although those are important things. One of the overwhelmingly important parts of the smart meter roll-out has always been and will always be the extent to which the smart meter network gives the country the opportunity to move forward radically with different forms of managing its electricity structures, including: a demand-side basis equivalent to the supply-side basis; ensuring that systems are resilient in terms of the information the smart meters are giving out; and enabling both prosumers and consumers to come closer together when it comes to what is going in and out of the smart meter via self-generation or other devices. There are all sorts of things, including half-hourly settlements, that will collectively make our energy system much greener, much better and much more resilient.
Indeed, the ability of smart meters to aggregate data—another area that we might want to consider—means they can read in real time the nation’s electricity activity. In the context of the roll-out of electric vehicles and all that goes with it, and all sorts of other things such as heat pumps, the ability to gauge in aggregate electricity demand at particular times, including where that demand may stress the system, means that activities can be undertaken that will divert from that and use the system much more effectively. That all depends on what is happening with smart meters and the information they give out. It is about—Daily Mail, take note—not capturing people’s personal information but capturing aggregate information that comes out of smart meter use as a whole. And that is where we are in a potentially disastrous position for the future, because the 55% roll-out does not mean 55% of all meters; as I have said, there are big regional divergences. I am very pleased that the hon. Member for South Ribble has got her smart meter in—[Interruption.] She has not.
Katherine Fletcher
Unfortunately, I have only an electricity one now, after the mobile phone signal was upgraded; the gas cannot take it, because of the construction of the house. There are a number of practical problems that we have to get over. The issue is not just consumer desire.
Dr Whitehead
Indeed. That was why I was pretty dubious about the 2G system, essentially, being used for this purpose in the north of the country. It is not fit for purpose and will not be fit for purpose in the future. It needs to be substantially revised.
Dr Whitehead
Yes. The various retail energy companies that have been responsible for the roll-out have in many instances tried their hardest, but they have been overcome by the sort of obstacles that the hon. Member mentions. For example, in an urban environment, meters may be in the basement of a block of flats and then somehow the smart meter is supposed to communicate from the 7th floor to the meters in the basement—the arrangements between the meter and the householder. That is over and above the problems with radio signals and phone signals that there have been in the north of England.
The roll-out is 55% after nine years of active operation, so let us say that that goes on at the same rate, although it very probably will not, because we have captured all the low-hanging fruit as far as smart meters are concerned, and smart meters are getting more and more difficult to install.
Charlotte Nichols (Warrington North) (Lab)
My hon. Friend the shadow Minister is making an important point about where smart meters cannot always be installed and some of the difficulties that there have been in this process. I am sure that both he and the Secretary of State will be aware of the situation in the area around RAF Fylingdales, for example, where, because of the strength of some of the radio technology used there, people cannot get a smart meter in something like a 40-mile radius of the airbase. Does he think that the Government considered such things when they put in the 2019 target that they have so spectacularly failed to hit?
Dr Whitehead
My hon. Friend is absolutely right: the Government did not consider that. There were discussions at the time of the earlier smart meter roll-out about radio systems that could get over precisely those problems by patching in—that is, going on the back of a good radio signal and patch in on the next radio signal, where the overwhelming radio signal is against signals operating properly. But that decision was not made at the time. It was a one-frequency signal for the south of England and phone arrangements for the north of England, with the results that we now see.
Halfway through the roll-out it was decided to change the specification of the meter itself. Because the process of changing the specification was so slow, a number of retail companies that had large stocks of the original meters continued to install the SMETS1 meters long after they should have stopped installing them—just because they had those stocks, which the new specification had not got round to replacing because of the delays in the so-called SMETS2 meters coming on to the market and being installed. Consequently, a number of meters are still not operating in smart mode, because they are either awaiting update or replacement so that they can go into the smarter system. Of the 31.3 million smart and advanced meters that are currently in homes, only 28.1 million are operating in smart mode. The roll-out is worse than it looks from the overall statistics.
What do we do about all that? The Government have put a clause in the Bill that simply says to retail companies, “Okay, we are going to give you more of the same. We are going to regulate you and give you targets”—which, by and large, the retail companies are not achieving—“and if you don’t achieve those targets we are going to fine you and whip you harder to ensure you achieve them.” Frankly, if we go on in the present direction we will get to 2028, and we do not need detailed maths to demonstrate that we will not be much further forward in the roll-out.
That is important because, in terms of the use of smart meters across the board to collect aggregate data for marking our system as a whole, we probably need about 70% penetration to get the figures right under the circumstances. We are way away from that, and we will be for a quite some time. We may well have a situation where our smart systems are racing ahead, but the means of communication on those smart systems are not, thus the smart system itself is compromised in the medium to long term.
Amendment 100 seeks to put some options in front of the Government. It states that
“the Secretary of State must produce and lay before Parliament a report setting out options for securing a guaranteed roll-out of smart meters to at least 70% of premises in all regions and nations of the United Kingdom by 2025.”
That is a reasonable target to try and aim for. Not that we would necessarily adopt this approach right now, but the amendment then states that the report must consider, among other options, different ways of rolling out smart meters for the future.
Members may push back substantially on obligatory smart meter installation. Do we transfer responsibility for the remaining smart meter roll-outs from the retail companies, perhaps to distribution network operators? That would put an end to the current system, in which literally four or five installers could go up the same street on the same day to try to install smart meters on different premises, depending on what retail company the person was with. There would instead be one body that would be installing smart meters in the various regions, and doing so in a much more systematic way. By the way, a lot of the to-ing and fro-ing that goes on when someone switches supplies to their smart meter, and how that can be transferred in an operable way, would be ended as well.
I am on record from about 2015, I think, saying that it was not a bright idea to have given the roll-out of the smart meter system to energy retailers, and that it should have been given to distribution network operators at that particular point. That is now a widespread view, and, looking back with the wisdom of Captain Hindsight, it is something that we should have considered. We can still consider it now because smart meters are not owned by the companies that install them. They pretty much all employ third parties, which actually own the meters in people’s homes, to run them. We could relatively easily —without transferring the ownership of the smart meters from those third parties—transfer the contracting agent from energy retail companies to district network operators.
The Minister is a little less advanced in years than I am, and may not remember the switchover in television lines from 405 to 625. That was basically accomplished by saying, “You can keep a 405 line television—you don’t have to have a 625 one—but it might not work in a few years’ time if you have kept your 405 TV.” The switchover was accomplished pretty much in good time, and universally. We are asking the Government for a report that considers all the different options for getting us out of the hole that we are in regarding the smart meter roll-out, to ensure that smart meters can fully play the role that we want them to play in our future low-carbon energy economy, and that we have the means to do that and can confidently come back with something better than the flog-a-sickly-horse routine in the amendment.
I hope the Minister will have a positive response to the amendment. I feel so fed up with yet again considering a Bill that just seeks more of the same that I am tempted to press it to a Division if he is unable to come substantially towards what we are saying regarding the future of smart meters. It is that important. I am trying to ensure that some Government Members go home so that we can win, but obviously it is up to the Minister how far he can come towards that view regarding the future of smart meters.
Olivia Blake (Sheffield, Hallam) (Lab)
The amendment is eminently sensible. I speak with the experience in my constituency before Christmas of what is now referred to as the great gas flood of Stannington. Hundreds of millions of litres of water entered the gas system, causing 3,000 properties to have water ingress, in some cases it was so harsh that water was coming through gas appliances and hitting the ceiling with force, or wrecking the whole interior of people’s properties. I mention that because almost every property involved in the crisis had to have its meter replaced. To the exasperation of some of my constituents, their smart meters had to be replaced with refurbished meters. We had issues with the second-hand meters that were put in.
I am still carrying out conversations with the energy companies because there were differences in the units of some of the meters. Some measure cubic metres and some measure cubic feet, which means that some people are getting a very good deal at the moment on their energy, because their energy company does not know that they changed the unit, and some people are getting awfully ripped off. It is very complicated, but because Cadent, which did a fantastic job during the crisis to make people’s homes safe and to ensure that the faulty gas meters were immediately replaced—I have no problem with that—did not have any agency providing smart meters, there was a missed opportunity to upgrade or keep them.
We have actually seen a decline in the number of smart meters in my constituency because of that major incident. We know that such incidents will probably become increasingly likely and with climate change there are likely to be more problems with water ingress—although hopefully not at the scale we had in my constituency, which left constituents without hot water and gas for many weeks during a very cold snap when there was snow on the ground.
Andrew Bowie
I thank Members for their contributions on amendment 100. The situation in the hon. Member for Sheffield, Hallam’s constituency over the winter period sounds dreadful. My heart goes out to all those affected and I would be happy to arrange meetings with the relevant Minister in the Department for Energy Security and Net Zero, if she has not already had one, because it cannot be that we find ourselves in that situation again, should that event take place—we hope not—in her constituency or, indeed, in any other constituency throughout the country. That has to be addressed.
On the amendment more widely, I like to think of myself as a glass half-full, positive guy. I think we should be celebrating the fact that more than 32.4 million houses, homes and residences in the United Kingdom now have smart meters. That is nearly 54% of homes and we should celebrate that. Indeed, on the point about older smart meters not being able to connect to the network, I am happy to tell the Committee that more than 12 million SMETS1 meters have now been connected to the Data Communications Company’s network, which enables communication with all energy suppliers so that consumers regain and retain their smart devices. That work continues at pace and, indeed, I can inform the Committee that through the wonders of modern technology the upgrade is happening remotely without consumers needing to take any action themselves. That is all good stuff and I hope people can join me in being positive and congratulate the work of officials and everybody in the industry who has been in charge of the roll-out thus far.
I thank the hon. Member for Southampton, Test for his amendment. I know that it comes from the right place and that he wants to see an increase in the pace and scale of our smart meter roll-out in the United Kingdom, for all the reasons he set out. I reassure the Committee that His Majesty’s Government have already taken measures to normalise smart metering as the default meter offer across Britain. Indeed, under the smart meter targets framework, which began only in 2022, energy suppliers have minimum annual installation targets for smart meters until the end of 2025. We believe that will drive the highest possible levels of smart meter coverage. I know, however, that the hon. Gentleman disagrees. Those targets are binding and Ofgem is responsible for regulating suppliers against them, with a range of enforcement tools at its disposal.
Energy suppliers have a long-standing obligation to take all reasonable steps to install a smart meter when a meter is fitted for the first time or an existing meter needs to be replaced. Their installation targets for 2022 and 2023 have already been set and, as the Committee may be aware, we have recently consulted on suppliers’ minimum installation targets for 2024 and 2025—here is a number that we can all cheer about—at coverage levels over and above the 70% called for in the amendment. We are currently considering the evidence provided by stakeholders and industry, and the Government will issue their response in due course. That work supersedes the need for the report requested in the amendment.
The amendment also calls for the report to consider the transfer of responsibility for the smart meter roll-out to distribution network operators. The Committee might recall that the option of a DNO roll-out was carefully considered and consulted on in 2009, at the start of the smart meter programme, when another party was in government. It was discarded as an inappropriate model for a roll-out that has, rightly, always prioritised consumer benefits. Who am I to question the decisions of the then new Labour Government?
A supplier-led roll-out will deliver more benefits for Great Britain. Metering has also been the responsibility of energy suppliers which, unlike network operators, have an existing direct relationship with their consumers. To change the approach at this stage would slow down roll-out progress considerably, reducing the crucial resultant benefits for consumers and our energy system.
Finally, the amendment proposes mandating smart meters or a date-limited phase-out of non-smart meters. You will be interested to learn, Ms Nokes, that such an approach to installations would present considerable practical barriers. For those who refuse, energy suppliers would in practice need to obtain forced powers of entry, which would be costly and highly intrusive for consumers.
I have already described the comprehensive regulation in place that is driving industry to deliver the highest levels of smart coverage, without mandating consumers. There remains good consumer demand for smart meters and, as I have explained, making smart meters mandatory is unnecessary and counterproductive, given the current high levels of uptake. I hope that, given the reassurances I have provided, the hon. Member for Southampton, Test will feel able to withdraw his amendment.
Let me turn briefly to clause 170. As I have said, 32.4 million energy meters in homes and small businesses across Great Britain were smart by March 2023. That is a significant achievement in one of the most ambitious upgrades to our energy infrastructure for a generation, but there is still more to do.
On 1 November 2023, the regulatory powers that the Secretary of State has in relation to smart metering are due to expire. Those vital powers have been used by the Government to establish and develop the framework necessary to support a successful smart meter roll-out across Great Britain, giving households and small businesses the information they need to feel in control and manage their energy usage. Clause 170 would extend by five years, from 1 November 2023 to 1 November 2028—we will be coming to the end of this period of Conservative government then—the period within which the Secretary of State can exercise the powers in relation to smart metering contained in the Energy Act 2008, the Electricity Act 1989 and the Gas Act 1986.
The powers provide Government with the ability to modify energy licence conditions and documents maintained in accordance with the energy licence conditions—for example, industry codes—and create new licensable activities or veto a proposed transfer of the whole or any part of a smart meter communication licence. The clause does not change the nature of the existing powers. So far, the powers have enabled the Government to drive significant progress in the smart meter roll-out, realising huge benefits for consumers and our energy system. They have been used to require energy suppliers to use smart meters that are interoperable and meet robust security requirements, and to ensure that consumers receive energy efficiency advice at the point of installation.
Clause 170 will also enable us to deliver the four-year targets framework for smart metering through to December 2025, ensuring that energy suppliers’ smart meter installation targets remain robust and effective, after which we must maximise the long-term benefits of a Great Britain-wide smart metering system, following a post-implementation review.
There is robust evidence from the roll-out to date that consumers are achieving sustained savings using their smart meters and in-home displays. Unleashing the full potential of smart systems and flexibility in our energy sector will reduce the costs of managing Britain’s energy system by up to £10 billion a year by 2050. I therefore commend the clause to the Committee.
Dr Whitehead
The Minister is not just a glass half-full guy; he is a glass overflowing and going down the side of the glass on to the table kind of guy. I am not sure I can work out the best metaphor. This is like someone being just over halfway round a marathon course and noticing that all the officials have gone home and everyone else has packed up. This person is unlikely to complete the course because everybody has gone and they are not quite sure how to get to the end, but then they sit by the side of the road and say, “Yippee, I have done 14 miles. That is a great achievement. We should all be proud of ourselves for doing that.” That was never the purpose of the smart meter roll-out; the purpose was to get full smart meter coverage in the shortest time. That was what the Government said at every stage of the process.
Some very early consultations took place when the last Labour Government were in office, but no legislation was passed and no formal material about legislation was published until the Conservatives had been in power for two years. I really do not think it is much to do with the previous Labour Government, though it was a good try.
I am disappointed, to be honest. The Minister has given us a Panglossian version of the smart meter world, but I am sure he knows that things are not well at all in that world. There is no gainsaying the really hard work of officials, companies, installers and everyone who has done such good, hard work to get the roll-out complete—I am not saying anything about them. I am saying that the original goal of the smart meter programme is so far off beam now as to make it really difficult to achieve its original purpose in the time that is left for us to get our act together and get those smart meters in place.
I know we are all about to go home—I hope we are all about to go home—so I hope the Committee will not feel too bad about being detained for another five minutes to have a brief Division on this amendment, because it is important that we put on the record that we really want something more to happen in respect of smart meters than is currently happening. I am sure, Ms Nokes, that you will be in the unenviable position of having to decide on the tie and where we go next. That is an exciting duty. [Interruption.] Oh yes, sorry—the SNP spokesman slipped out unnoticed; that is not like him at all. We would still like to push the amendment to a vote, even though it is likely to be negatived, for the reasons I have outlined.
Question put, That the amendment be made.
Energy Bill [ Lords ] (Sixth sitting)
Alan Whitehead ExcerptsThursday 8th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 June 2023 - (8 Jun 2023)
The Chair
Before we begin, I remind Members that Hansard colleagues will be very grateful for speaking notes to be emailed to hansardnotes@parliament.uk. Please have all electronic devices on silent. Tea and coffee—none of you are sinning today—are not allowed during sittings; the only refreshment permitted in Committee is water.
I understand that the Government wish to move a motion to amend the programme order agreed by the Committee on 23 May and amended on 25 May, to change the order of consideration of the provisions of the Bill.
Motion made, and Question proposed,
That paragraph 2 of the Order of the Committee of Tuesday 23 May (as amended on 25 May) be amended—
(a) by leaving out “132; Schedule 7; Clause 133; Schedule 8; Clauses 134 to 137; Schedule 9; Clauses 138” and inserting “131; Clauses 140”;
(b) by inserting, after “273;”, “Clause 132; Schedule 7; Clause 133; Schedule 8; Clauses 134 to 137; Schedule 9; Clauses 138 and 139;”. —(Andrew Bowie.)
Dr Alan Whitehead (Southampton, Test) (Lab)
The Government motion will remove some of the discussion we would have had this morning on the independent system operator from this part of the Bill to the end of it, in effect—in terms of our proceedings. I have no objection to that happening, but I would like to know why.
While we are on matters of procedures, I also ask the Minister about his intentions for the new clauses tabled yesterday. They are clauses on the support of—
The Chair
Order. Dr Whitehead, I query whether that is in scope of this particular motion.
The Chair
I think that would be better. The Minister will respond to the substantive point.
The Chair
The motion has not been agreed by the Programming Sub-Committee, so it may be proceeded with only if everyone is content. Does anyone object to the motion being considered? No objection.
Question put and agreed to.
Dr Whitehead
On a point of order, Ms Nokes. I was trying to slip this into our previous conversation, but I am happy to do it as a point of order. By the way, welcome to chairing the Committee; it is a pleasure to serve under your chairmanship. You are my next-door neighbour in Southampton, Ms Nokes—sorry, not Southampton, but near Southampton—
Dr Whitehead
A little bit—a road at the top of my constituency has you, Ms Nokes, as MP for half of it, while I am the MP for the other half. We are indeed close neighbours.
As has been discussed, the Government have kindly tabled a number of new clauses relating to Great British Nuclear and energy-intensive industry assistance. That brings to four the number of areas on which the Government have introduced new clauses while the Bill has been proceeding. This is beginning to resemble those episodes where people book a holiday in Spain, thinking they have a nice hotel, only to get there and find that it is a building site, with no rooms booked in sight.
That aside, given that the clauses have been tabled, it would be helpful to have an indication of when the Government intend to consider them. I say that because the Opposition need to properly scrutinise them, and may want to introduce amendments. The Minister will know that the deadline for tabling such amendments is today, so if the Minister was considering dropping those clauses into the Bill next week, that would obviously prevent us from tabling amendments in the usual manner. I would be grateful if the Minister clarified his intentions.
Andrew Bowie
I guarantee that the new clauses will be debated at the end of our process in Committee. I am sure there will be adequate time to debate them in depth. It may resemble a building site, but we are on the route to building a luxury, all-inclusive, five-star resort through this Bill, so he has nothing to worry about in that regard.
The Chair
We resume consideration of the Bill with amendment 91 to clause 106, with which it will be convenient to debate clause 106 stand part. I call Dr Whitehead to move the amendment.
Dr Whitehead
I do not wish to move or speak to amendment 91 because it is factually deficient. I have a few words to say in the clause stand part debate.
Question proposed, That the clause stand part of the Bill.
Alan Brown (Kilmarnock and Loudoun) (SNP)
I know that the shadow Minister said he did not want to speak to amendment 91, but for pure indulgence I would like to say a few things. The shadow Minister admitted that the amendment is not quite factually correct. It is clear that it was actually more on message for the Government than the Government are themselves in terms of heat pump installations. If it had been moved, I would have supported the amendment because it would set a much more ambitious target for the installation of heat pumps: at least 600,000 per year by 2025, instead of the Government’s target of 2028, which is completely out of kilter with the recommendations of the Climate Change Committee. I urge the Government to reconsider that and adopt a more ambitious programme.
Will the Minister say how many heat pumps were installed in 2022? What is the plan to get up to the Government’s target of 600,000 heat pump installations a year? This is an important Bill but it also shows the need for the Government to think in the round in terms of legislation. The clause and the amendment are all about heat pump installations. We are still awaiting the future homes standard. Will the Minister outline what will happen with that? Last year more than 200,000 houses were built in the UK—the largest number completed since the 2008 housing crash—and the majority of them are going to be connected to the gas grid and will not have heat pumps installed. Year in, year out, the number of houses that will need to be retrofitted with heat pumps will increase until the Government bring forward the future homes standard. I would like more clarity from the Minister on that, and about targets the Government are looking to set to drive it forward.
Dr Whitehead
The clause relates to the question of the installation of heat pumps, as the hon. Member for Kilmarnock and Loudoun correctly drew attention to. The intention of the amendment, had it been moved, was to place the Government’s own targets in the legislation. There is a question about the difference between those targets and what has actually happened so far with the boiler upgrade scheme, for example, with 30,000 heat pumps per year being underwritten for a three-year period, leaving a difference between the target and the number of heat pumps likely to be installed under that scheme of more than 500,000.
There is a considerable difference between Government targets, how many heat pumps have already been installed and how many heat pumps are likely to be installed over the next few years. One of the purposes of the amendment, which was not moved, was to stiffen the Government’s resolve in that respect by placing those targets on the face of the Bill, so that the question of how the gap is made up is rather more focused in the minds of the Government now and, indeed, any future Government.
It is important that we start the process of filling in the gap between target and actuality. I would be grateful if the Minister could give us a few brief views on how that might be done, and what he intends to do, possibly on the basis of this legislation, to make that gap clearly reachable and incorporate it into the progress that has already been made with heat pump installations.
Andrew Bowie
To answer the hon. Gentleman’s substantive point on why we are not incorporating the Government’s own target of 600,000 heat pumps per year by 2028, there are compelling reasons why we believe it would be unwise to set any particular target in the enabling powers in the Bill. The setting of scheme targets is best suited to the making of regulations. That is in part because that is when the best assessment of the relevant market conditions can be made, so that targets do not exceed what is viable and result in unintended consequences, which we would be worried about had we put the target on the face of the Bill.
Andrew Bowie
It is a pleasure to serve under your chairmanship, Ms Nokes. Clauses 107 to 113 detail the administration, enforcement, penalties and appeals related to the low-carbon heat schemes. Clause 107 sets out the various operational, administrative and monitoring features of the scheme that the regulations may provide for. As set out in a recent second policy consultation, the Government believe that it is important that the scheme enables participants a degree of flexibility to meet the targets. To that end, the clause allows the regulations to specify how scheme participants may meet or partially meet targets, other than directly selling low-carbon heating appliances themselves, such as through trade in certificates with other parties. The clause also provides for regulations to specify the consequences and options for scheme participants who fail to meet a target under the scheme.
Clause 108 enables the appointment in regulations of an administrator for a low-carbon heat scheme and the conferral of functions on that scheme administrator. The clause sets out that one or more public authorities may be appointed as scheme administrator. That would include the Secretary of State, as well as public bodies and regulators such as the Environment Agency and Ofgem. The clause also provides for regulations to authorise an appointed administrator to arrange for functions to be carried out by a third party.
Clause 109 provides for the assessment, enforcement and sanctioning of non-compliance with a low-carbon heat scheme. It enables the administrator to conduct a range of enforcement activities and provides for the regulations to establish sanctions for non-compliance, such as the failure to produce the required documentation or to make a necessary payment. That could be in the shape of both civil penalties, and potentially criminal offences where warranted. Clause 110 sets out that regulations may determine how any payments made by virtue of the penalties set out in clause 109, or by virtue of the payment framework provided for by clause 107, are to be used.
Clause 111 provides for the regulation to establish an appeals process against decisions by the administrator of a low-carbon heat scheme, or against penalties or other enforcement action taken for non-compliance by a scheme participant. Such an appeals process is relatively commonplace for obligations and trading schemes of that kind, so that disputes can be settled, enhancing confidence in decision-making processes related to scheme administration.
Clause 112 establishes procedural requirements for the making of low-carbon heat scheme regulations. The affirmative parliamentary procedure will be used for statutory instruments that first establish a low-carbon heat scheme. The affirmative procedure will also apply for regulations that make substantive changes to the fundamental parameters of a scheme—that is to say, the parties in scope of the targets or the heating appliances that the scheme is designed to encourage. Where the regulations are more administrative in nature, and the fundamental elements of a scheme are not being altered, the negative resolution procedure will apply. That will include, for instance, adjustments to the requirements for the keeping or provision of information, year-to-year adjustment of targets, or adjustments to the rules around the certificate trading between parties.
The clause also stipulates a requirement that before making scheme regulations the Secretary of State must consult the relevant Ministers in the devolved Administrations, so far as the regulations apply in relation to those respective nations. The Government have constructive engagement with our counterparts in the devolved Administrations at both official and ministerial level on the development of the clean heat market mechanism. We look forward to continuing to work closely and consultatively as we move forward with the scheme’s development. Finally, clause 113 provides definitions of key terms within the chapter.
Dr Whitehead
These are sensible provisions, following the initial clauses about low-carbon heat schemes, and they will help greatly with the regulation of the schemes generally. I have nothing to say about the clauses, other than that I was so excited by the Minister’s oratory a moment ago that I knocked my glass of water over.
Andrew Bowie
The clause defines what we mean by a hydrogen grid conversion trial and expands the duty of the gas transporter running the trial to participants to undertake work without charge. It also extends certain powers of entry contained in the Gas Act 1986 so that they apply for the trial. That will facilitate the effective and safe delivery of a large village hydrogen heating trial by 2025, which will provide crucial evidence to inform future decisions on the role of hydrogen in heat decarbonisation.
Taking timely strategic decisions on heating is critical to meeting future carbon budgets and the UK’s net zero target. Subsection (1) allows the Secretary of State to designate a hydrogen grid conversion trial and ensures that both clause 114 and clause 115 are narrow in scope and would apply only for the purposes of such a trial. Clause 114 also makes certain modifications to the Gas Act 1986 to build on existing provisions concerning powers of entry. That will ensure that the organisation running the trial has clear grounds to enter private properties to carry out any essential works, including replacing appliances and installing and testing safety valves; undertake inspections and tests for the trial, such as safety checks; and safely disconnect the gas supply in a property.
Gas transporters already have powers of entry into properties through the Gas Act. We are extending those powers in a very limited way to conduct the necessary work to set up and deliver the trial. Gas transporters will use the extended powers only ever as a last resort, once all other attempts to contact property owners and reach an agreement are exhausted. The existing rules on powers of entry requiring the gas transporter to obtain a warrant from a magistrates court will continue to apply. No one in the trial location will be forced to use hydrogen.
The gas transporter delivering the trial will develop an attractive consumer offer for participants, as well as viable alternative options such as electric cookers and heating systems, for consumers who do not wish to or cannot participate in the trial. Finally, I draw the Committee’s attention to the fact that most responses to the Department’s 2021 public consultation on facilitating a hydrogen village trial were broadly supportive of our proposals to change the legislation in this way.
Clause 115 focuses on establishing consumer protections for people taking part in this first-of-its-kind hydrogen village trial. It will do so by giving the Secretary of State two delegated powers to make regulations that require the gas transporter running the trial to follow specific processes to engage and inform consumers about the trial and ensure that consumers are protected before, during and after it.
Consumer engagement and support are vital for the successful delivery of the trial. The Department is working closely with the gas transporters as they develop their plans for consumer engagement and protection. Regulations will ensure that the gas transporter running the trial takes the necessary steps to inform consumers about how they will be impacted. That means that people will have the information they need to make an informed choice about whether to connect to hydrogen or accept the alternative offer during the trial. The gas transporter will also need to give adequate notice about the requirement to disconnect properties from natural gas.
The power to introduce regulations for consumer protections will work alongside existing protections such as the Consumer Rights Act 2015 and the Gas (Standards of Performance) Regulations 2005. I am sure that Members of the Committee will agree that the provisions in clause 115, which were well received by stakeholders when we consulted on them in 2021, are crucial to ensure the fair treatment and protection of people in the trial area. The powers will also allow the Department to set out the enforcement requirements for the regulations, which may include civil penalties but will not create any new criminal offences.
Dr Whitehead
The clause addresses some very important issues with the process of hydrogen trials, which are in fact already under way in a couple of parts of the UK. It relates to the first part of the ambition that the Government set out in the energy security strategy: to have village trials, leading perhaps to town trials later and, by the end of the decade, a city trial. Of course, to some extent that is subject to what may be decided in 2026 about whether hydrogen will go into heating systems in general. Even if the decision ends up as a negative and the Government decide not to universalise hydrogen for heating at that stage, the trials will of course be necessary should there be circumstances in which hydrogen can be used on a grid-isolated basis for heating in particular places, and it will be necessary to have the appliances and equipment capable of taking that hydrogen. The Minister will be aware that a number of boiler companies are already producing hydrogen-ready boilers and the like, some which are being used in the village trials.
There are two village trials under way at the moment: one in Ellesmere Port and one in Redcar. Interestingly, public appreciation of those trials is markedly different. One is trying to get everybody on board straight away. In the other, the company running the trial has taken a different approach to universal involvement. We might think that all the properties in a particular area need to be in the trial for it to be entirely valid, but that is not necessarily the case. One company is intending, at rather a late stage of the trial, to introduce a separate hydrogen main into the area. The other trial company is trying to get people on board without modifying the main and will use what was the gas main for carrying the hydrogen. That creates a considerable issue for participation in the trial.
The Minister said that no one would be forced to take part in trials, but at the same time spoke about enhanced powers of entry and various other things, which suggests that the powers could be used to force everyone to take part. That is what amendment 118 is concerned with. It states:
“where a gas transporter is conducting a trial involving a fully alternative grid for the purpose of hydrogen delivery”.
If we wish to adhere to the principle that not everybody has to take part in a trial—there might be many good reasons why people do not want to do so—there must be guaranteed arrangements for the installation of other forms of low carbon heating or indeed for no low carbon heating at all if an alternative main is put in place for people who do not wish to take part in grid conversion trials. Under subsection (4), the amendment would require companies undertaking trials to guarantee the installation of other forms of low-carbon heating, such as heat pumps or low-carbon gas heating. That would enable the trials to bring valid results, and give people in those areas the ability not to take part if they do not wish to do so.
The Chair
I would like to check with Dr Whitehead whether he wishes to move his amendment formally?
Dr Whitehead
I would like to move the amendment formally and explain briefly why the Opposition would like the amendment.
The Chair
The debate has already taken place. It is down to you, Dr Whitehead, to move the amendment formally.
Amendment proposed: 118, in clause 115, page 106, line 23, at end insert—
“(4A) Provision under subsection (4), where a gas transporter is conducting a trial involving a fully alternative grid for the purpose of hydrogen delivery, must include guaranteed installation of other forms of low carbon heating by the gas transporter where a household does not wish to take part in the hydrogen grid conversion trial.”—(Dr Whitehead.)
This amendment seeks to ensure that no household will be forced to take part in the trial and will be given an alternative heating solution by the gas transporter (the DNO).
Dr Whitehead
This is a bit of a stand-alone clause, in as much as it seeks to separate fusion energy from fission energy in terms of its future regulation. As the Minister set out, it is a pretty negative clause, in as much as it appears to suggest that fusion energy is equivalent to worrying about regulation for a warehouse or a general industrial site, as opposed to what is, in the Nuclear Installations Act 1965, a very systematic programme of regulation and care taken for the installation of nuclear plants.
Katherine Fletcher (South Ribble) (Con)
This summer, along with colleagues on the Science and Technology Committee, I had the opportunity to visit the Torus at Oxford—a particularly impressive site—and to hear from not only academic scientists but private businesses, and they were calling for this measure. Having seen as a little girl, and worked in, the nuclear fission industry in Sellafield, I can assure the hon. Gentleman that these are two completely separate processes. The stripping of electrons to produce a plasma—while nuclear, in that it is engaging with nuclear atoms in the centre—is not the same as splitting large amounts of, say, uranium and creating by-products that could be injurious to human health and require an enormous amount of regulation, such as alpha and beta radiation. Does he agree that it is possible that in seeking to be mega safe, we risk choking off an energy source that could be the answer for all our futures, and one in which Britain is genuinely recognised as a global leader?
Dr Whitehead
The hon. Member is right that the processes are quite different—I was about to put forward a few reflections on that—but they are not completely unconnected. As she mentioned, fusion is essentially about containing a very high-temperature process of the fusion of molecules into other molecules—
Dr Whitehead
Into a plasma within a contained vessel. The processes of producing that plasma for the purposes of electricity generation are indeed very different from producing steam, effectively, for electricity generation through the decay of radioactive isotopes within a controlled reactor. However, what happens when that plasma is produced is that a very large amount of neutrons are released, which bombard the sides of the vessels within which the whole process is contained so that, over a period of time, the atomic structure of those vessels starts to change and there is considerable radioactivity contained within the vessels, which, when the site is decommissioned, would have to be taken down and probably stored in a repository in the long term because of its enduring radioactivity. The hon. Member is also right to say that the life of the radioactivity that is produced in the plasma process is a question of, among other things, tritium.
Katherine Fletcher
Is the hon. Gentleman suggesting that an individual neutron is a body that can further emit a radioactive source? That cannot be true. Radioactivity, by its nature, is the smaller bits that come as a co-product. While I accept that there is a need to make sure that any industry is responsible and can look after itself, it is about making sure that the industry is being properly regulated, but perhaps not regulated as a fission nuclear site. I am sure he will agree that although the containment vessel is important in the process, it is actually about the generation of the electromagnetic fields that contain the plasma, which is the subject of much research at the moment and would prevent the problem he is describing—of neutron leaking into both the concrete and steel containers. Will he clarify that point? A neutron, in itself, can only decay into quarks. That is what the clever guys at CERN do when they smash things together at speed.
Dr Whitehead
The hon. Member is of course right to say that neutrons, in their own right, cannot produce radioactivity, but that is not what I was saying. What I was saying is that the process by which neutrons are released to bombard the vessel in which the process is contained indirectly produces radioactivity through changes in the structure of that outer casing. Perhaps I can inform the Committee briefly by setting out the description in a recent note from the Bulletin of the Atomic Scientists, which says:
“To produce usable heat, the neutron streams carrying 80 percent of the energy from deuterium-tritium fusion must be decelerated and cooled by the reactor structure, its surrounding lithium-containing blanket, and the coolant. The neutron radiation damage in the solid vessel wall is expected to be worse than in fission reactors because of the higher neutron energies. Fusion neutrons knock atoms out of their usual lattice positions, causing swelling and fracturing of the structure. Also, neutron-induced reactions generate large amounts of interstitial helium and hydrogen, forming gas pockets that lead to additional swelling, embrittlement, and fatigue. These phenomena put the integrity of the reaction vessel in peril.”
I think the hon. Member will be clear from that that it is not the neutrons that are the issue; it is the radiation.
Dr Whitehead
I hope we have established that it is not the case that fusion activity is much more advantageous than fission from a safety and waste point of view. It is not, in itself, radioactive neutral. Additionally, the process produces a relatively small amount of tritium—much more of which is produced in fission reactors—which clings to the vessels and can get into the waste stream and produce radioactive water. Although that is not a big concern, it certainly needs to be taken into account as far as safety features of the overall plants are concerned. The case that I am trying to make is that, though it is important to progress with fusion—which is a much safer and, as the Minister said, potentially much more abundant source of energy—we should not be blind to its side effects.
As I have described, the side effects are not just about the problem of the potential embrittlement of the casing and the need to treat that casing in due course, the need to stop tritium release through lithium blankets around the sphere core and the difficulty of making those blankets completely sealable. All those things suggest that the sorts of actions in the nuclear installation regulations and the Nuclear Installations Act 1965 are rather more pertinent than we might have thought, than the Minister suggested or than the clause seems to provide. I suggest a modest revision of the clause so that, instead of dismissing the safety concerns about and operational arrangements for fusion, it brings forward a revised, and perhaps acceptably less rigorous, process that nevertheless falls within overall nuclear guidelines for fusion activities.
In any debate on fusion, it has always been said that fusion is a very bright future for us but that it is 40 years away. Well, it is not 40 years away now; it is much closer to being realised. As the Minister said, in the UK, spherical tokamak for energy production is potentially producing good results, so we could be a few years away from having to get this regime right, and it is right that we do so now. Our new clause 51, which—for the guidance of those who have given up going through all the amendments and new clauses in the amendment paper—is to be found right at the back on page 58, states:
“The Secretary of State must consult on and establish a revised nuclear site licence regime for fusion energy which will not be subject to the full range of safeguards associated with the use of fissionable materials but must have regard to the residual radioactivity of the proceeds of fusion activity.”
That is a sensible alternative that will not, or should not, in any way impede the development of fusion, but will provide a clear understanding as to what we are dealing with as far as fusion is concerned. It would be a programme of appropriate and proportionate safeguards—yes, associated with nuclear safeguards in the background—that makes clear the very different circumstances under which fusion works. That would be helpful.
Andrew Western (Stretford and Urmston) (Lab)
I am listening carefully to the debate that is unfolding. We appear to be heading towards a binary position—fulfilling all the requirements under the Nuclear Installations Act 1965 or effectively removing all the requirements as the fusion process comes in. Does my hon. Friend agree that actually the balance of risk is not binary in that way—that fusion can activate the walls of the plasma vessel as he has set out and that therefore, although we all agree that we should seek to step down some of the licensing requirements, it would indeed be prudent to have some process, subject to broader restrictions around nuclear, that would place us within the realms of acting in a way that is “better safe than sorry”?
Dr Whitehead
My hon. Friend has put forward very well a potential problem that we are moving towards here—a problem that the new clause, which I am sure he will support, is designed to get us out of. This is a specific solution to the potentially binary nature of the debate. It is to accept that some safeguards are necessary, that there is some radioactivity, that it is not of the same nature or extent as under fissionable arrangements and that it is not necessary to put in place all the same safeguards as for fissionable activity, as if fusion were just a subset of fissionable activity. I recognise that that is not the case and that the safety regime need not be the same as for everything related to fissionable activity.
This morning, I heard the Minister say that the Government are perhaps thinking about some form of regulation that would go beyond what appears to be the negative nature of this particular proposal, but at the moment I cannot see any moves in that direction. The new clause would, I think, give us the best of both worlds. It would allow us to proceed with fusion activity with safety clearly uppermost in our minds, but we would not be impeding the process by the way we regulated. We would all want this to happen. It is a proper arrangement as far as safety is concerned, and would enable proper progress as far as fusion is concerned.
Once again, if the Minister is not more forthcoming in moving away from the position of this particular new clause, we may want to divide on it: it is an important principle that we should get regulation right, from the start of the fusion process. I agree with the Minister that it could mean an exciting future, but it needs to have the proper safeguards in place for it to work in all our interests in the years to come.
Andrew Bowie
Transport is the largest emitting sector of greenhouse gas emissions, producing 26% of the UK’s total emissions in 2021. Low carbon alternatives to traditional fuels such as petrol and diesel will play an important role in our energy transition. The renewable transport fuel obligation and the forthcoming sustainable aviation fuel mandate supports our policy on decarbonising transport by encouraging the production and use of renewable fuels that do not damage the environment.
Clause 117 will enable two types of low carbon to be treated as though they were renewable for the sole purpose of those schemes, helping the UK to further decarbonise transport. The two low carbon fuels are recycled carbon fuels, produced from otherwise unrecyclable waste plastics or industrial waste gases that cannot be avoided, reused, or recycled, and fuels derived from nuclear energy.
Currently, powers under the Energy Act 2004 only permit renewable fuels to be supported. The clause has been carefully drafted so that it does not classify recycled carbon fuels and nuclear-derived fuels as renewable fuels, ensuring these fuels are treated as though they were renewable for the sole purpose of part 2, chapter 5 of the Energy Act 2004. That allows schemes such as the renewable transport fuel obligation and forthcoming sustainable aviation fuel mandate to support the use of those types of fuels. It does not grant them wider consideration as renewable fuels.
Both fuel types have the potential to deliver significant carbon savings over traditional fossil fuels and are a vital replacement for difficult-to-decarbonise sectors such as commercial aviation and heavy goods vehicles.
Dr Whitehead
I have nothing to say on the clause, but I believe that my hon. Friend the Member for Sheffield, Hallam does.
Olivia Blake
I have a few concerns about clause 117, which would, as the Minister outlined, allow fossil fuel waste to be reclassified as renewable energy in the form of fuels for policies including the proposed sustainable aviation fuel mandate, which is currently being consulted on by the Department for Transport. It seems the Department would like to be able to include recycled carbon fuels, including unrecyclable plastic, as eligible fuels under the sustainable aviation fuel mandate. That is why the Bill will permit recycled carbon fuel to be treated as renewable, to help us to meet our sustainability targets.
Andrew Bowie
This is a very short clause. The purpose of the clause is to enable engineered removals of greenhouse gas emissions to count towards our carbon budgets by amending the definition of UK removals in the Climate Change Act 2008. This amendment follows a direct recommendation from the Climate Change Committee in their sixth carbon budget report on greenhouse gas removals. In the net zero strategy, we set the ambition of deploying at least 5 million tonnes of CO2 per year of engineered removals, such as bioenergy with carbon capture and storage and direct air carbon capture and storage, by 2030, in line with assessments made by the Climate Change Committee and the National Infrastructure Commission. This amendment provides for these removals to be included in the calculation of carbon budgets.
Dr Whitehead
This is another stand-alone clause. We have discussed the question of DACCS and other forms of mechanical greenhouse gas removal before, and our consensus of understanding was that potentially this could be quite an important element of carbon removal in the future. It is therefore important that it is included in definitions and calculations, and we certainly support the change to achieve that outcome.
Andrew Bowie
I do not disagree. As the hon. Member knows, I am a passionate advocate of carbon capture, utilisation and storage and the clusters emerging across the United Kingdom. As I know he supports and champions, we have already spent over £40 million supporting the Scottish cluster as a UK Government.
Question put and agreed to.
Clause 118 accordingly ordered to stand part of the Bill.
Clause 119
The Independent System Operator and Planner (“the ISOP”)
Dr Whitehead
I beg to move amendment 95, in clause 119, page 108, line 34, at end insert
“including the oversight of efficiency and loss reduction in cabling”.
This amendment would give the Independent System Operator oversight of cabling efficiency and loss reduction in cabling.
The Chair
With this it will be convenient to discuss the following:
Amendment 96, in clause 119, page 109, line 3, at end insert
“and of distribution systems in conjunction with licenced distribution system operators”.
This amendment would include certain distribution systems in the functions of the ISOP.
Amendment 97, in clause 119, page 109, line 5, at end insert
“and of distribution systems in conjunction with licensed distribution system operators”.
This amendment would include certain distribution systems in the functions of the ISOP.
Clause stand part.
Clause 120 stand part.
New clause 37—Assurance of independence of system and distribution operators—
“(1) The Secretary of State must appoint a supervisory and advisory board of at least eight suitably qualified independent energy figures to assist the person designated as the ISOP under section 120.
(2) The purpose of the board appointed under subsection (1) is to assure the independence of transmission and distribution system operators through independent oversight of and advice to the ISOP.
(3) Energy UK and the Energy Networks Association must be consulted on the appointment of the board under subsection (1).
(4) The Secretary of State may make provision of financial assistance to enable the board to carry out its functions.”
This new clause aims to ensure the independence of system and distribution operators.
Dr Whitehead
We come to a section of the Bill that I heartily approve of. I have long championed the idea that we set up an independent system operator in this country. It is really important in our next phase and where we go in renewing our infrastructure, and ensuring there are delivery mechanisms to cope with the renewable energy that we hope will be the mainstay of our carbon production. It is important not only that those systems are in place, but that they are in place as soon as possible. There will be discussions in this section about the best way of ensuring that the ISOP is set up in such a way that it can perform that function.
As the Minister will know, the independent system operator has been in gestation for a while, in terms of the separating of National Grid ESO from the National Grid itself. National Grid ESO now performs something of the function I have started to describe, but without the remit to do so. What we need over the next period is not just National Grid ESO, nor something with a different name from National Grid ESO, but something that is much closer to a system architect in upgrading our systems for renewable purposes. That is how I see the development of the ISOP. It is important that in our first go at what the ISOP does, as it were, we get the best combination of things it is responsible for and that we get right its ISOP set-up.
In the development of the grid so far, certainly as far as renewable energy connections are concerned, there is no real distinction between the high-level grid, which was the historic purview of National Grid and ISOP, and the lower-level grid, which is still pretty powerful but is in the hands of the distributed network organisations. Sometimes a false distinction is made between what is happening at National Grid level and what is happening at a more regional or local level. There is no real distinction now, because renewable sources, in particular, are seeking to substantially connect to 123 kV cables to a far greater extent than they are seeking to connect to high-level grid 440 kV cables. Consequently, some of the biggest backlogs in connection dates are not just in the high-level grid.
The Minister will be aware—we have discussed this previously in the House—that a number of large wind farms are getting connection dates to bring ashore and distribute the electricity they are producing not just a few years away, but in 2036. As I have mentioned previously in the House, that is one year away from when the Government have indicated they wish to see a predominantly renewable energy system in place. We may well have the tools to have the low-carbon energy system in place, but if we cannot deliver the electricity from those tools to anybody, we do not have a low-carbon energy system in place in the end. It is important that we get the system properly in place, so that it can deliver the connections and the offshore re-cabling. That way we will have a decent grid highway with anticipatory investment.
Alan Brown
On the hon. Member’s comments about offshore green infrastructure, does he share my concern that offshore developers in Scotland are now being told that they need to connect to the grid in Blyth because the connections are not available in Scotland? It just seems counterproductive and clearly adds additional costs to these projects.
Dr Whitehead
Indeed. The hon. Member makes an important point about where we connect and the facilities for connection, which I will consider briefly in a moment. This is also a substantial problem with DNOs, as we know from published data on local junction boxes and various other things. How long a local or a regional connection will take is determined by whether the system is red, yellow or green in terms of its local connections within the DNO network. We are seeing similar waiting times for smaller connections and the sort of large offshore connections that the hon. Member mentioned. Obviously, that is difficult in helping to ensure that onshore electricity is delivered as well as offshore electricity. That is one reason why the distinction between the high-level grid and the lower-level grid in the circumstances of our renewable, low-carbon future is not as great as has hitherto been the case.
The hon. Member for Kilmarnock and Loudoun rightly draws attention to the fact that some Scottish-based offshore schemes are now being asked, on a point-to-point basis, to connect south of the border, because the facilities for delivering from those connections, were they to be north of the border, are not as good as they should be. Interestingly, the Government are presently considering a bizarre series of arrangements called marginal cost pricing, which will deter certain people from taking particular views about where they should connect because there will be a price differential in connecting. As I am sure the hon. Member will agree, the solution is not to start messing about with theoretical market considerations about who might connect where, but to build the stuff so that people can connect to it properly, where they are and where they want to be, with a certainty that there will be a connection in a short period of time and that what they have connected to gets to where we want it to be. Those are all reasons why the ISOP will be so important.
Through these amendments we want in no way to undermine, but rather to enhance, the substance of the ISOP. Our amendments, which are on page 5 of the amendment paper, seek to do several things regarding the structure and operation of the ISOP. First, we think that the ISOP should have oversight not just of the cabling itself, but of the cabling efficiency and loss reduction in cabling as it goes around the country. That is a potentially important issue for the future. I am sure that hon. Members know how much electricity is lost just by the transmission function.
Katherine Fletcher
I believe it is about 6% in standard main lines, which presents a huge opportunity for us to be more efficient with the energy we generate and transmit.
Dr Whitehead
The hon. Member is absolutely right. I think the figure is around 6%—sometimes a bit higher—but part of the issue with that loss is not just the general inefficiency of the system; under certain circumstances, we are using cables for transmission that are much less efficient than they should be.
I visited—this shows the exciting things that I do as shadow Energy Minister—a test site of a highly efficient cable system. I will not mention the company’s name, but as far as I know it is pursuing a much more efficient cable system with a number of DNOs. When I got to the site, there was not very much to see because the cable had been buried underground; I was pointed to a field. There was, however, in the corner of the field, a hut in which calculations on how the cable was performing, and how it would perform in conjunction with other forms of cable, were being undertaken. I was able to see for myself an increase in the efficiency of the cable of about 15%, just by having that cable design as opposed to others.
It seems to me quite important that the cabling introduced to our new system be as efficient as possible. It needs to be clear to the companies that will put the closed cables in that that is what will be expected of them. That is why we would like an additional function to be added to the ISOP’s concerns: oversight of efficiency and loss reduction in cabling.
We have tabled other amendments, which concern the relationship with the DNOs. It is important that we do not make an artificial distinction in terms of what we are doing with the ISOP in the high-level system and others. I am afraid that the Bill, whether intentionally or not, appears to create that divide. The DNOs can get on with their activities, and the high-level grid will have a different system of governance and management. That is why amendment 96 would add
“and of distribution systems in conjunction with licenced distribution system operators”
to the end of line 3, in clause 119. Amendment 97 would add the same words. That would create a much better system of co-operation and collaboration between the DNOs and the new system operator.
I appreciate that we will not vote on new clause 37 today. It is important for the independent system operator really to be independent, and not a creature of either the energy companies or the Government, so that it has its own ability to look at the system, to produce recommendations and arrangements, and to oversee the development of the system as its own master within that.
We therefore suggest in new clause 37 that an independent advisory board be set up to ensure the independence of the ISOP. There are other ways of doing this, but we are suggesting one particular way of ensuring that the ISOP operates in the genuinely independent way that we all want it to in pursuit of the future of grids and connections.
I hope that the Minister and the Committee understand that our amendments and new clauses all seek to help with the ISOP. I hope that the Minister will respond positively by saying that there are different ways of achieving what we want to achieve with the ISOP’s powers, or that, although he might not be able to accept the amendments today, he is actively minded to have a good think about them. By the way, I am grateful for the note that the Minister wrote to me last night about the fact that the Government have done just that with one particular amendment to the Bill. That sort of process could easily be followed in such circumstances in future.
Andrew Bowie
Before I expand on the Government’s position and explain why we will not accept new clause 1 or the hon. Gentleman’s amendments, I will acknowledge absolutely that connections and connection timelines are the biggest challenge we face—for electrification to grid, for driving our economy forward in the way we seek to and for reaching our net zero goals. Every single day for the past few months, but in particular this week, I have been engaging with DNOs, transmission operators, Nick Winser who conducted the independent review, Ofgem and the National Grid ESO about what we can do to drive down those timelines. At a critical point, part of that will be the creation of the ISOP. For the benefit of those who might be slightly confused, that is what we refer to outside the Bill as the future system operator—ISOP and the future system operator are one and the same thing.
I will now turn to the question asked by the hon. Member for Southampton, Test about why an advisory board would make ISOP risk-averse and not fully independent. We are concerned that, rather than enhancing independence, the members of such a board would likely hold various energy sector conflicts. That could crystallise in many ways, including resistance to systematic reform, advice to pay compensation to energy sector participants or an incumbent bias that would seek to frustrate new market entrants. Establishing an industry-led advisory board for the ISOP would be similar to establishing one for the Climate Change Committee—it is not required for an organisation that needs to remain independent, such as the Climate Change Committee, which we are using as the basis for how we proceed.
A prime consideration of the ISOP consultation was that the body should be independent from day-to-day Government control and from other energy sector interests. That is why we need to ensure that the ISOP is a trusted and independent voice within the energy sector.
Energy Bill [ Lords ] (Fifth sitting)
Alan Whitehead ExcerptsTuesday 6th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 6 June 2023 - (6 Jun 2023)
Dr Alan Whitehead (Southampton, Test) (Lab)
indicated dissent.
Question put and agreed to.
Clause 79 accordingly ordered to stand part of the Bill.
Clause 80
Enforcement
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Thank you, Mr Gray. I was unable to finish my mint imperial; I was rather hoping that the Opposition might have something to say on the previous clause.
The clause enables regulations to make provision for the Gas and Electricity Markets Authority and the Northern Ireland Authority for Utility Regulation to enforce hydrogen levy requirements imposed on relevant GB and Northern Ireland market participants respectively. It will allow the regulators to, for example, issue orders to secure compliance, impose financial penalties and, where other enforcement measures are insufficient, consider possible licence revocation. It is critical that the levy is supported by a suite of enforcement measures. This will help reduce the risk of defaults on levy payments and help ensure that the levy administrator can collect the moneys required to fund the hydrogen business models.
The clause also provides the Secretary of State with the power to make provision in regulations for the Gas and Electricity Markets Authority to enforce requirements that may be imposed on the independent system operator and planner as a hydrogen production allocation body. That may include requirements that relate to Northern Ireland. The clause helps ensure a consistent regulatory regime for the independent system operator and planner.
Dr Whitehead
I am sorry, Mr Gray, but I am going to have to leave the Minister with a mint imperial in his mouth as I do not have anything to say on this clause either.
Question put and agreed to.
Clause 80 accordingly ordered to stand part of the Bill.
Clause 81
Consultation
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Mint imperial completed. The clause requires the Secretary of State to consult the Department for the Economy in Northern Ireland and Scottish and Welsh Ministers before making revenue support regulations where the matter being consulted on is within the legislative competence of the relevant devolved legislature. In addition, the Secretary of State must consult other persons as they consider appropriate. This provides an opportunity for those directly affected by the regulations and those with special expertise to express their views on their design. The clause also requires the Secretary of State to consult those persons he considers it appropriate to consult before publishing standard terms under clause 70.
Question put and agreed to.
Clause 81 accordingly ordered to stand part of the Bill.
Clauses 82 and 83 ordered to stand part of the Bill.
Clause 84
Shadow directors, etc
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
I will keep this brief. Clause 84 makes it clear that in exercising their functions under chapter 1 in relation to a revenue support counterparty, neither the Secretary of State nor an allocation body are to be deemed to be managing or controlling a counterparty in a way that would class them as, for example, “shadow directors”.
Clause 86 caters for a scenario where the independent system operator and planner—also known as the ISOP—is appointed as the hydrogen production allocation body. The clause will allow the Secretary of State to modify the electricity system operator and gas system planner licences expected to be held by the ISOP, as well as related documents, for the purposes of facilitating or ensuring the effective performance of hydrogen production allocation and related functions.
Question put and agreed to.
Clause 84 accordingly ordered to stand part of the Bill.
Clauses 85 to 87 ordered to stand part of the Bill.
Clause 88
Financing of costs of decommissioning etc
Dr Whitehead
I beg to move amendment 88, in clause 88, page 79, line 4, at end insert—
“(9A) Guidance by virtue of this section shall have regard to the circumstances under which a prospectively decommissioned carbon capture and storage facility came to be established and what relation that point of establishment had with provisions under part 4 of the Petroleum Act 1998.”
This amendment seeks to clarify the position of decommissioned oil and gas plants that are not fully decommissioned before they are transitioned to a carbon capture usage and storage plant, and where financial responsibility then lies at the end of the CCUS lifecycle when it is due to be decommissioned. This amendment says that the Secretary of State must have regard for this complexity and assess where the responsibility lies.
We now come to chapter 2 of part 2 of the Bill, which deals mainly with decommissioning of carbon storage installations. That is likely to be of concern rather later in the day than currently, but it is important to get it right from the outset. Many carbon capture and storage installations will not have been set up just for the purpose of carbon capture and storage; they will have been recommissioned from a previously decommissioned oil and gas facility, or one that was not entirely decommissioned but put to use as a repository for carbon dioxide, usually offshore. As we go through that sequence, there will be many circumstances where what we had in place previously with respect to North sea oil and gas decommissioning, and the responsibilities of the company that has been producing oil or gas in a particular field as it moves to decommissioning, may become a little blurred.
Abandonment of offshore installations is covered by part IV of the Petroleum Act 1998. There is a lot in there about the circumstances under which those who operate offshore oil and gas facilities have a legacy duty to decommission the well from which they have been producing. They have responsibilities in that respect. They have to decommission the well to proper standards, ensuring that it is properly capped and that the plant has gone from the production platform. The platform itself may be towed away and scrapped in a Norwegian yard somewhere. The cycle is therefore complete as far as that oil and gas decommissioning is concerned.
One increasingly apparent issue is that we no longer want that to happen completely if we are to have successful carbon capture and storage facilities, under the North sea in particular. We want to see to what extent we can take those installations and turn them to another purpose—carbon capture and storage. They are adaptable for such purposes, and we will certainly use a lot of transferred facilities. I imagine that we will produce little in the way of brand-new carbon capture and storage facilities, but for some infrastructure—pipelines and so on. The pattern for carbon capture and storage has already largely been laid down by what we do in the North sea now.
One task for the future will be unrolling some of the decommissioning activity, which is a big business now, with a lot going on. One concern is that if the decommissioning of infrastructure continues at the pace it is going at the moment, when we come to concentrate our production in the North sea into smaller fields that have already been discovered but not yet exploited, we might well find that a lot of the infrastructure for the larger fields that we have decommissioned will have to be recreated all over again to allow the economic exploitation of the smaller fields, which are effectively in existing fields that have had the infrastructure stripped from them already.
That is one reason why we should not continue the decommissioning regime exactly as it is. The second reason, which is as or more important, is the extent of the infrastructure as a whole. I emphasise that this is a question not just of capping off oil wellheads and leaving the field alone when it is exhausted, but of trying to keep the infrastructure in place to allow for the transportation, landing and all the rest of the carbon capture activity to take place within the framework that was there before.
At the very end of the decommissioning process—for example, once a carbon capture and storage institution created from a depleted field is full, which I appreciate is quite a long way off—we will have to have a decommissioning programme in reverse. The question then arises: what sort of legacy duty will arise for those people who used the field in other circumstances, if it has been extended for carbon capture purposes and must then be decommissioned? Is there a joint legacy duty between the previous oil and gas users and the current carbon capture and storage users, or do the carbon capture and storage users take over completely the legacy duty for the previous field as far as decommissioning is concerned? Is there some kind of shared responsibility?
The amendment seeks to instruct guidance on such matters to have regard to those kinds of circumstances. I will read its exact wording:
“Guidance by virtue of this section”—
that is, clause 88, on decommissioning—
“shall have regard to the circumstances under which a prospectively decommissioned carbon capture and storage facility came to be established and what relation that point of establishment had with provisions under part 4 of the Petroleum Act”.
The amendment would link the carbon capture and storage activity straight back to the Petroleum Act, so that there is a continuous skein of commissioning, use and decommissioning, with the responsibilities that go with all that.
Andrew Bowie
Amendment 88, tabled by the Opposition spokesperson, seeks to expand the scope of guidance on the decommissioning fund. He has explained why he is presenting this amendment, and we should acknowledge his point about the complexities where a former oil and gas installation is repurposed for carbon storage purposes. It is important to get the question of who is responsible for decommissioning right.
The Petroleum Act 1998 is the principal legislation governing decommissioning offshore and the decommissioning of offshore carbon capture, usage and storage infrastructure, and provides a framework for the decommissioning of offshore pipelines and installations. However, it is not necessary to rely solely upon the guidance we are setting out in the Bill to deal with the situation in the North sea, because of what I have just set out: the existing law in the 1998 Act, combined with amendments to sections 30 and 30B of the Energy Act 2008 provided for by clauses 91 and 92 of this Bill. We believe that those already provide the necessary safeguards, because under part 4 of the Petroleum Act, the Government can call upon the previous owner of an asset to fulfil the decommissioning obligation if the current owner is unable to do so. That creates a chain of liability throughout the asset’s life, which would extend into carbon capture, usage and storage if an asset is reused. Previous oil and gas owners therefore continue to be liable for decommissioning a repurposed asset, unless the Secretary of State has designated the asset as eligible for change of use relief and other qualifying requirements are met.
The conditions to qualify for change of use relief are set out in sections 30A and 30B of the Energy Act 2008. In turn, it is proposed that sections 30A and 30B be updated by clauses 91 and 92 of the Bill. The amendments made by clauses 91 and 92 mean that, to qualify for the relief, the previous oil and gas owner would need to pay a top-up amount into the decommissioning fund to reflect the decommissioning liability that that previous owner is being relieved of. In addition, a decommissioning notice under section 29 of the Petroleum Act 1998 must have been served on other persons, such as the CCUS operator who will ultimately have to decommission the carbon storage installation at the end of its life.
The Government do not rule out the possibility of guidance providing additional explanation and detail on that and other matters pertaining to it, but we do not believe that it needs to be stated in the legislation, for the reasons that I have given. I therefore humbly ask the hon. Member for Southampton, Test to consider withdrawing his amendment.
Dr Whitehead
The Minister has set out admirably the sub-controls and clarifications that can be provided by texts outside part IV of the 1998 Act, but with respect, those address circumstances in which the operator of a carbon capture and storage facility cannot meet their liabilities and obligations. In those circumstances, as the Minister says quite correctly, the previous owners will have some liability to step into the breach. By and large, as the new owners of carbon capture and storage facilities invest in them, they will not want to have liability, unless they go bust—that is effectively what the Minister is saying—and they presumably do not intend to go bust during the life of the carbon capture and storage plant. If their only lifetime guarantee from the repurposed body is that someone will come to their aid if they go bust, that is not really sufficient to establish the chain throughout the whole process. That is essentially what we are seeking through our amendment.
I appreciate that the Minister thinks that that can be done outside the Petroleum Act, but I would like an assurance that he has taken my point on board. When additional guidance is supplied, it should address the whole cycle, ensuring a good outcome for everybody, rather than a distressed outcome for certain people. If the Minister can give that assurance, I will be happy withdraw the amendment.
Andrew Bowie
As I said, additional guidance will be forthcoming. We do not believe it necessary, in this Bill, to legislate for what we are discussing. These are serious points, and in speaking to clauses 88 and 89, I will go into more detail about subsequent support for decommissioning, who is responsible, and so on. I hope that that is acceptable for the hon. Gentleman and that he feels able to withdraw his amendment.
Dr Whitehead
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Dr Whitehead
I have no particular objections—indeed, I strongly support the strategy and policy statement and everything that goes with it as far as the CCUS is concerned. As the Minister has pointed out, this does not cut across any other strategy and policy statement; conversely it should be guided by other strategy and policy statements where appropriate. Later, we will debate the extent to which the regulator, Ofgem, may have a strategy and policy statement of its own that gives it a carbon reduction net zero imperative in its operations. I assume that under those circumstances this particular strategy and policy statement would be subject to that strategy and policy statement as far as its operation is concerned. Will the Minister confirm that?
Andrew Bowie
I am happy to confirm that. The economic regulator, Ofgem, would be required to take into account the strategic priorities set out in any CCUS strategy and policy statement when carrying out its CCUS-related functions. Clause 40, which we have already debated, requires Ofgem to publish a document as soon as is reasonably practicable after a strategy and policy statement has been designated, setting out the strategy it intends to adopt to further the delivery of the policy in the statement and how that will be implemented. I am very happy to confirm that that would be the case.
Question put and agreed to.
Clause 94 accordingly ordered to stand part of the Bill.
Clauses 95 to 97 ordered to stand part of the Bill.
Clause 98
Specified provisions in carbon dioxide storage licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 98 will allow the Oil and Gas Authority, whose business name is now the North Sea Transition Authority, to consider a proposed change of control of a holder of a carbon storage licence before it takes place to ensure that the governance, technical and financial capability of such a licensee remains appropriate. At present, the NSTA issues licences to give the right to store carbon dioxide in offshore geological formations; prior to issuing the licences, the NSTA satisfies itself that the prospective licensee company and any parent company are fit to hold the licence and will meet the obligations.
At times during the life of a licence, the ownership and control of a licensee may pass to a new parent company or person. An undesirable change of control could undermine investor confidence in the commercial environment, making the UK continental shelf a less attractive place for investment. Currently, the NSTA is able to take remedial action regarding a change of control of licence holder only after such a change has occurred. This is seen by both the NSTA and the wider industry as being inefficient and of limited effectiveness in preventing harms to the wider industry, the Government and the economy. The existing remedy is also time-consuming, typically taking a year or more, during which a potentially undesirable owner of a licensee could harm investor confidence in the commercial environment.
A requirement will therefore be introduced through schedule 1 to the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010 for current and future licensees to apply in writing to the NSTA for consent to a change of control at least three months before the planned date of the change. Following receipt of an application, the NSTA may give unconditional or conditional consent, or indeed refuse consent to the proposal. Conditions imposed may be financial, relate to the timing of the change of control, and relate to the performance of activities permitted by the licence. In the case of conditional consent or refusal, the NSTA must give the licensee the opportunity to make representations and it must consider those representations. The measure will also allow the NSTA to revoke a licence where its prior consent has not been obtained for a change of control. The NSTA will therefore be able to regulate the suitability of carbon storage licensees in a more robust and timely manner.
Clause 98 also sets out how provisions inserted into a carbon storage licence by schedule 6 may be altered or deleted. Clause 99 clarifies that where a carbon storage licence is revoked, the NSTA also has the power to revoke the permit. Without this clause, an undesirable investor might argue that they are able to continue to operate under the permit, and investor confidence in the commercial environment will be harmed.
Where the NSTA is the licensing authority under section 18 of the Energy Act 2008, it also approves and issues storage permits. The granting of a licence allows the licensee to carry out various activities in the licensed area; to carry out storage of carbon dioxide or to establish and maintain installations for the purpose, a storage permit must also be issued. Clause 98 will create a requirement for carbon storage permit holders to seek consent from the NSTA at least three months before a change of control is due to occur. Where that procedure has not been followed and a change of control has occurred without its prior consent, the NSTA will be able to revoke carbon storage permits.
Together, clauses 98 and 99 will ensure that the new approach will apply for both licences and permits, as is intended. This will ensure that the basin continues to attract investment while protecting the taxpayer from funding liabilities not met by potential undesirable investors.
Clause 100 inserts a new subsection into section 23 of the Energy Act 2008, ensuring that a licensee does not commit an offence due to a failure to obtain the prior consent of the NSTA in relation to a change of control. Section 23 covers offences relating to carbon storage licences, including setting out that a licence holder commits an offence if
“a thing is done for which the licence specifies that the prior consent of the licensing authority or any other person is required, without that consent first having been obtained”.
Section 23 was designed to address situations where the action of seeking consent from the NSTA and the “thing” being done is within the licensee’s full control. Applying section 23 to a change of control of licensee would be inappropriate, because often a licence holder cannot prevent such a change of control or have any control over the timing of such a transaction. For example, section 23 could be applied to those who have control over the company, such as directors or high office holders. However, in relation to a change of control event, a director may have no control over such a transaction taking place, and it may be the case that they had no way to prevent the change of control or influence the timing. This clause will amend the existing legislation by clarifying that section 23(1)(a) or (1)(b) will not apply in respect of a change of control of licensee. Without that clarification, directors or high office holders of a carbon storage licence holder could be fined up to £50,000 and/or jailed for up to two years for failing to obtain the consent of the NSTA prior to a change of control occurring.
Clause 101 will allow the NSTA to request that a relevant company or person provide it with any information it may require in exercising its functions in relation to a change or potential change of control of a licensee. Currently, the authority does not have information-gathering powers to assist it in considering a change of control in respect of a carbon storage licensee. In some instances, the authority is therefore limited in conducting proper due diligence to determine whether a change of control of a licensee is undesirable.
The information will help the NSTA to consider the financial and technical capability, operational and commercial plans, and governance and fitness of the licensee in relation to its proposed controlling entity. That will provide the authority with the necessary information to appropriately consider an application for consent, or when considering whether to revoke a licence where a change of control has occurred without consent.
Information that would be protected from disclosure or production in legal proceedings on grounds of legal professional privilege or, in Scotland, confidentiality of communications is not included under this clause.
Dr Whitehead
I congratulate the Minister on his speed-reading abilities this afternoon, which help the progress of the Committee considerably. I do not object to the clause, but we ought to be clear about the nomenclature used in it. The Minister invoked the name of the North Sea Transition Authority on a number of occasions in connection with carbon capture and storage provision. Of course, the North Sea Transition Authority is just the North Sea Transition Authority in name. It is not the North Sea Transition Authority in law; it is the Oil and Gas Authority in law.
Indeed, it has a whole lot of responsibilities specified by the Energy Act 2016, which include, among other things, overseeing the maximum economic extraction of oil and gas in the North sea. One might say that the provision of carbon capture and storage and maximum economic extraction of oil and gas in the North sea do not necessarily fit well together. Indeed, this is a debate we will come to later in our consideration of the Bill, but we need to be clear that as things stand, the supervision, licences and so on that are set out in this clause appear to rely on a slightly inappropriate authority. That does not necessarily mean that it is not going to work okay, but it does mean that it would be a good idea to have the actual name of the North Sea Transition Authority in law, as well as in characterisation.
After all, let us say that someone called Andrew Bowie decided that he wished to be known as Ziggy Stardust in future. Provided he could get people to agree that he really was Ziggy Stardust, that would be fine, except under circumstances where the law came to be applied. Mr Ziggy Stardust would find that under those circumstances, he had to refer to himself as Andrew Bowie. That is where we are with this transition authority at the moment. It is intention rather than fact, and it concerns me that we are writing into the Bill a number of references to the Oil and Gas Authority as if it were the North Sea Transition Authority, when the North Sea Transition Authority is an authority in name only. As I say, this is not something that one goes to the wall on—we do not oppose the clause—but I think it would be a good idea if the Government at least took some steps towards regularising the legal name and the daily name of the Oil and Gas Authority, so that its future purpose fits its legal position. Obviously, this is a bit of a precursor to a debate we will have later.
Andrew Bowie
I will not be drawn on whether or not a certain individual will be changing their name, and what position that would give them legally. However, I get the hon. Gentleman’s point regarding the legal entity that is the Oil and Gas Authority and the references we are making to the North Sea Transition Authority in the Bill, and indeed in other pieces of legislation. I agree with him: there should be some clarification to that effect. I will have to go away and explore exactly what work would have to be done, presumably through legislation—primary or secondary—to effect a legal name change from the OGA to the NSTA, but I think it would help us all if that were undertaken. I will explore how exactly that would take place and the work that would have to be done.
In terms of whether an organisation that was set up following the oil price crash in 2014-15 with the explicit aim of supporting the oil and gas industry and maximising economic recovery can work, and can have within its purview licences being issued for carbon capture, usage and storage, I disagree: I think that they are perfect bedfellows. One complements the other; in fact, the skills and requirements of the companies involved in oil and gas extraction are very much involved in the operation, or potential operation, of CCUS and other connected technologies. Therefore, I think that the OGA, the NSTA—call it what you will—is the perfect authority that should hold the power to issue those licences and have regulatory control over that industry as we move forward.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Clauses 99 to 101 ordered to stand part of the Bill.
Clause 102
Access to infrastructure
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Government amendment 21 amends the financial assistance power in clause 103 by removing the words
“out of money provided by Parliament”.
Those words are not considered necessary, and their removal ensures a consistent approach with the power to provide financial assistance under clause 134.
Clause 103 enables the Secretary of State to incur expenditure and provide financial assistance for the purpose of encouraging, supporting or facilitating activities for carbon capture, transport and storage, the production of low carbon hydrogen, and the transport and storage of hydrogen. This will enable the Government to deliver on their commitment of £20 billion investment in CCUS and support the establishment and subsequent expansion of the first two industrial clusters by the middle of this decade, and a further two CCUS clusters by 2030. Government support for CCUS will incentivise private investment, economically benefit our industrial heartlands and support in the region of 50,000 jobs by 2030.
It will also help enable the Government to deliver on their ambition for up to 10 GW of new low-carbon hydrogen production capacity by 2030, subject to value for money and affordability. That has the potential to unlock up to 12,000 jobs and £9 billion of private investment and could play a critical role in the UK’s commitment to net zero by 2050. It could be supported by the development of hydrogen transport and storage infrastructure, which represents the critical next step in the growth of the hydrogen economy to meet our levelling- up ambition. I commend Government amendment 21 and clause 103 to the Committee.
Dr Whitehead
I am a bit puzzled. Government amendment 21 takes the words
“out of money provided by Parliament”
out of clause 103(1). It would then read: “The Secretary of State may provide financial assistance to any person for the purpose of encouraging” and so on. Those purposes are the transportation and storage of carbon dioxide, carbon dioxide capture facilities, low carbon hydrogen production and so on—all the things we have been talking about. The implication of taking those words out is that the Secretary of State may, from other money, provide this assistance. So it will come from somewhere else.
I would have thought that it is not particularly superfluous to actually set out where the money is coming from, which is Parliament, as it should be. It may be that in the Minister’s zeal to simplify the Bill, which it certainly needs, he has gone a bridge too far with the amendment. That may allow a construction to be placed on the Bill that might not be what he intended, or what I would intend, but could be read into the Bill in the future.
I do not know where the Minister might get money from if not from Parliament—certainly not in the sums necessary to provide this kind of assistance—but we could conceivably say that the Minister might get the money from, for example, a large overseas donor. It is important that we specify where the money is coming from, and “provided by Parliament” does that. I do not think it is superfluous. We do not want to go to the wall and divide on the amendment, but I have some questions about it, and I think the Minister ought to have some questions in his mind as well.
Andrew Bowie
I thank the hon. Gentleman for his questions. The reason why we no longer consider the wording necessary is because, subject to parliamentary agreement of the Bill’s provisions, clause 103 will provide for expenditure from the public purse on carbon capture, carbon dioxide transportation and storage, low-carbon hydrogen production, and hydrogen transport and storage. It is not necessary to specify that such expenditure will come from moneys provided by Parliament, so it is simply a case of simplifying the Bill. Financial assistance may be provided through grants, loans, guarantees or indemnities, or by provision of insurance, and it may be provided subject to conditions provided under a contract, but we feel that the wording in the Bill is superfluous, given that such assistance will be agreed, through the Bill, by Parliament in the first instance.
Amendment 21 agreed to.
Clause 103, as amended, ordered to stand part of the Bill.
Clause 104
Low-carbon heat schemes
Dr Whitehead
I beg to move amendment 89, in clause 104, page 98, line 35, at end insert
“which must include provision for—
(a) a ban on the installation of unabated gas boilers in new properties from March 2025; and
(b) a ban on the sale and installation of unabated gas boilers in all properties after March 2035.”
This amendment would mean that any scheme the Secretary of State wanted to bring in would have to be based on the above timescales for banning the use of gas boilers by 2025/2035.
We now come to a new part of the Bill, which concerns new technology. The chapter that we are discussing concerns low-carbon heat schemes, and the clause allows the Secretary of State, by regulation, to make
“provision for the establishment and operation of one or more low-carbon heat schemes.”
The clause also talks about targets and so on in relation to low-carbon heat schemes.
We think it might be a good idea—not that this is our policy—for the targets to which the clause refers to be specified in terms of what the Government have determined as their targets on the sale and installation of unabated gas boilers between March 2025 and March 2035. After all, those targets are in the public domain. The Government have stated them in the future homes strategy, the future homes standard and the energy security strategy. The Government have stated the targets in two forms: one is a ban on the installation of unabated gas boilers in new properties from March 2025, and the other is a ban on the sale and installation of unabated gas boilers in all properties after March 2035.
As things stand, those targets, which the Government have explicitly stated and which we would certainly go along with—we might want them to be a little more advanced, but we think they are about right—do not have any force. They are just aspirations. We think that putting them on the face of the Bill—after all, they are already Government policy—would not be hard for the Government to accept, but would enhance the validity and scope of those targets by ensuring that they are in the part of the Bill on low-carbon heat schemes, so that we can see everything together. It is a very modest and friendly suggestion, which I am sure the Government will have no problem adopting.
Andrew Bowie
As ever, I thank the hon. Gentleman for his well-thought-out remarks. The amendment would require that, in order to introduce a low-carbon heat scheme such as the planned clean heat market mechanism, the Government would also have to legislate for a ban on the installation of gas boilers in new build and existing properties respectively.
Committee members will know that the Government are introducing a future homes standard in 2025, which will require that new properties be equipped with low-carbon heating and high levels of energy efficiency from the outset, avoiding the need for future retrofitting. In addition, the Government have set out clearly the intention to phase out the installation of new natural gas boilers from 2035 in existing properties. There is therefore no disagreement that fossil fuel heating appliances have no long-term role. The recent volatility in global natural gas markets only makes that logic more apparent—on that, I think we are all in agreement.
However, the Government are firmly of the view that it would not be appropriate or helpful to make the ability to make regulations to launch a low-carbon heat scheme conditional on an entirely separate legislative measure such as an appliance ban, as the amendment proposes. Creating such a dependency would risk delaying or even forestalling the introduction of the planned clean heat market mechanism scheme altogether. Perversely, that would have the effect of constraining the development of the very markets and supply chains whose growth would be a prerequisite of phasing out natural gas boilers. I therefore respectfully and humbly urge the hon. Member to withdraw his amendment.
Dr Whitehead
I hear what the Minister has said. I am a little sorry that the Government cannot place their own policy in the Bill, but I hear that they will make plans to take that into account, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Dr Whitehead
I beg to move amendment 90, in clause 104, page 98, line 35, at end insert—
“(1A) In making provision for the establishment of one or more schemes under subsection (1), the Secretary of State must produce a plan for low carbon heating in homes in which it is uneconomic or impractical to install heat pumps.”
This amendment ensures that, when the Secretary of State is making a low carbon heat scheme, they have to provide a plan for low carbon heating in homes in which it is uneconomic/unfeasible to have a heat pump (large, rural, off-grid homes etc).
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Clause 105 stand part.
Dr Whitehead
The amendment concerns a different aspect of clause 104. When the Secretary of State establishes one or more low-carbon heat schemes under subsection (1), they must produce a plan for low-carbon heating in homes in which it is uneconomic or impractical to install heat pumps.
There is considerable debate about exactly how efficacious heat pumps are. Some people consider that about 40% of heat pumps will not work very well or at all in certain kinds of housing, particularly poorly insulated homes, rural off-grid homes and some very large homes where quite a lot of additional work has to be done to facilitate the flow of central heating around the home. The heat pump itself may simply be unable to keep up with the inefficiency of the home in question, particularly in very large homes. Therefore, the heat pump is slaving away all hours of the day and night but never quite gets to the required room temperature.
One solution would be to retrofit all UK properties in such a way as to make them all very energy efficient. Therefore, heat pumps would pretty much work anywhere, but that is not the case at the moment. Other people say that there is a very small area within which heat pumps do not work, and there is also a debate about the size of heat pumps put in. Under certain circumstances, hybrid heat pumps can be installed where a boiler is working in conjunction with the heat pump so that the run-up is relative to the use of the two devices, rather than the heat pump trying to slave away all by itself.
There are all sorts of issues in the current debate about the extent to which heat pumps can or cannot do the entire job. Within that debate, whatever the final assessment of the points at which heat pumps really do not work, we know that, under some circumstances, some heat pumps do not, and pretty likely never will, work. For those properties, it is therefore important that, rather than leaving them as they are, they have other low-carbon plans available so that we do not decarbonise most heat in properties throughout the country but leave behind a residual that does its own thing with its current heating arrangements and the carbon implications.
Andrew Bowie
I thank the hon. Gentleman for his comments on his amendment. The Government have been clear that a range of low-carbon technologies will be needed to play a role in decarbonising heating and reducing the nearly 50% of UK fossil fuel gas demand that heating represents. District and communal heat networks with low-carbon heat sources have an important role to play in all future heating scenarios, as do heat pumps. Work is ongoing with industry, regulators and others to assess the feasibility, costs and benefits of converting parts of gas networks to supply 100% hydrogen, for example, for heating. Other technologies such as solid biomass and liquid biofuels, as well as direct electric heating where appropriate, may also play a supporting role.
Although the proportion of UK buildings technically suitable for heating with a heat pump is very high—indeed, an estimated 90% of UK homes are technically capable of being heated by heat pumps—there is a small proportion of buildings for which a heat pump would not be an appropriate solution. The Government are working to develop strategic and policy options for all these technologies and for different building types. That work includes: trials and research and development to build towards strategic decisions on the role of hydrogen for heat in 2026; work on heat network zoning; and the forthcoming biomass strategy, which will assess the amount of sustainable biomass feedstocks available in the UK, including for biofuels, and the most strategic uses of those across the economy. It also includes action such as the green heat networks fund to scale up key markets where that is of strategic importance in all scenarios.
The clean heat market mechanism provided for by this measure is another key part of our policy action. Ultimately, it will be for the market—and consumers and building owners—to determine the best solutions and combinations of technologies within the performance standards and market signals that it is the role of His Majesty’s Government to provide. Through establishing a strategic approach to developing that policy framework while building up key supply chains, the Government’s “Powering Up Britain” plans have set us on track for net zero. Another plan seeking somehow to prescribe the right solution for every property is not what is needed right now. I therefore respectfully urge the hon. Member for Southampton, Test to withdraw the amendment.
Together with clauses 105 to 113 in this chapter, clause 104 provides for the establishment of a low-carbon heat scheme to encourage the installation of low-carbon heating appliances, such as electric heat pumps. As nearly half the UK’s fossil fuel gas consumption each year is used to heat buildings, it is important that we accelerate the transition to clean, efficient alternatives, thereby bolstering our energy security.
The Government back the dynamism of industry to meet the needs of British consumers, which is why we are taking a market-based approach that puts industry at the heart of leading a transformation of the UK heating market, while keeping consumers in the driving seat with choice. Through the planned low-carbon heat scheme—the clean heat market mechanism—we will provide the UK’s world-leading heating appliance industry with a policy framework that provides the confidence and incentive to invest in low-carbon appliances. That will make heat pumps a more attractive and simpler choice for growing numbers of British households.
Similar to other such market-based mechanisms, such as the UK emissions trading scheme, this provision enables targets to be set so that companies can act to develop the market. That will allow them to build up key supply chains with the confidence that all actors in the market are facing the same incentives and policy conditions. Together with wider policy action, the clean heat market mechanism will help to create the conditions for rapid innovation and investment in the sector. That will support the creation of new products and services that work for British consumers and building owners, and help to encourage companies to find efficiencies in time and cost as this and other markets grow.
In addition to providing the overarching regulation-making power, the clause also establishes a set of relevant low-carbon heating appliances to which such a scheme could apply. The subsequent enacting regulations for a scheme will then determine whether that scheme will apply to all the appliances in the clause or just a subset of them. As has been recognised by respondents to the first policy consultation on the proposals, a low-carbon heat scheme as provided for in this measure has the potential to kick-start a transformation of the heating market in the United Kingdom. That will mean that by the end of this decade, it is easier for millions of households to slash their energy consumption by making their next heating appliance an ultra-efficient electric heat pump.
The purpose of clause 105 is to require regulations that establish a low-carbon heat scheme to make certain provisions as to the scope of the new scheme. It also allows regulations to make further provisions in relation to how a scheme will apply to parties that are in scope. In particular, it requires the regulations to set out the scheme participants to whom targets will apply, the types of low-carbon heating appliance that will qualify towards meeting those targets, and the period or periods of time for which targets will be set.
Relatedly, clause 105 also enables the scheme regulations to specify circumstances in which credit for activities carried out outside a given period may be allowed to qualify in that period. That would, for instance, allow for an approach taken in several comparable trading schemes, where a degree of credit carry-over and target carry-over from one period to another is sometimes allowed, which is sometimes referred to respectively as “banking and borrowing”. This and similar scheme design features could help to maximise the opportunity for scheme participants to successfully meet the scheme standards and build the heat pump market. That, of course, is a core aim of His Majesty’s Government.
Dr Whitehead
I do not think I have anything further to say. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 104 and 105 ordered to stand part of the Bill.
Dr Whitehead
We do not particularly want to adjourn.
Motion made, and Question put, That further consideration be now adjourned.—(Joy Morrissey)
Energy Bill [ Lords ] (Fourth sitting)
Alan Whitehead ExcerptsTuesday 6th June 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 6 June 2023 - (6 Jun 2023)
Dr Alan Whitehead (Southampton, Test) (Lab)
On a point of order, Mr Gray. Before we proceed with the impressive first group of amendments and new clauses, may I use your offices to inquire about other new clauses that it was indicated to me, in a meeting with the Minister just before we started proceedings, would be tabled at an early date? Two sets of new clauses have appeared on the amendment paper, but another two, pertaining to Great British Nuclear and assistance for energy-intensive industries, have not yet been tabled, although we are now well into our deliberations on the Bill. Have you had any indication that they are about to be tabled, and if so could you share that information?
The Chair
I am most grateful to the hon. Gentleman for that point of order and for giving me advance notice of it, which gave me the opportunity to discuss the matter —unofficially of course—with officials. They tell me that both new clauses will be tabled imminently—one today, I think, and one very shortly. I hope that satisfies him.
Clause 56
Chapter 1: interpretation
Andrew Bowie
I confirm to the hon. Member for Southampton, Test that the new clause on energy-intensive industries will be tabled tomorrow, and the new clause on Great British Nuclear will be tabled early next week. It is a delight to return to the Committee and to serve under your chairmanship again, Mr Gray.
The amendments that I will outline are consequential on the amendments made to introduce hydrogen transport and hydrogen storage business models. Hydrogen business models are required to encourage investment in, and the development of, hydrogen transport and storage infra-structure, alongside the existing provisions in clauses 61 and 62 for hydrogen production business models. The development of hydrogen transport and storage infrastructure, such as pipelines and salt caverns, represents the next critical step in the growth of the hydrogen economy.
Government amendment 23 makes it clear that existing references in clause 59 to transport and storage relate to the transport and storage of carbon dioxide and not to hydrogen. New clauses are to be added to make specific provision for hydrogen transport and storage. Government amendments 28, 29, 36, 38, 40, 42 to 52, 60 and 73 are consequential on Government amendment 23. The amendments substitute new definitions for existing definitions to distinguish carbon dioxide transport and storage from hydrogen transport and storage. Clause 56 provides the meanings and definitions of various terms used in chapter 1.
Government amendment 30 supports the establishment and operation of revenue support contracts as part of the hydrogen transport and hydrogen storage business models. That amendment, alongside other amendments to chapter 1 of part 2 of the Bill, provide the Secretary of State with the power to make regulations to enable hydrogen transport and storage revenue support contracts to be put in place. Those revenue support contracts, as part of the business models, will remove market barriers, most notably high up-front costs and uncertain financial investment returns. The overcoming of those barriers should encourage investment in, and the development of, hydrogen transport and storage infrastructure.
Clause 57 provides the Secretary of State with a power to make regulations about revenue support contracts, which will be known as revenue support regulations. A number of provisions throughout the chapter set out matters that regulations made under the overarching power in clause 57(1) may cover. Revenue support regulations are intended to underpin relevant business model schemes and to help to ensure that revenue support contracts are allocated and managed effectively, and that stable funding flows are in place.
Government amendment 53 seeks to clarify that contracts can be offered only to eligible low-carbon hydrogen producers and that, after the point of contract signature, it is for the contracts to stand on their own two feet and to set the parameters of the ongoing support that they provide. That approach is similar to that of the contracts for difference for renewables, in respect of which it has worked to great success. The amendment ultimately helps to ensure that projects and their investors are absolutely clear on the terms of their support and should help to inspire significant confidence in the new regime. Government amendments 26, 32, 33, 54 and 55 are consequential on Government amendment 53.
Government amendment 56 seeks to clarify that contracts can be offered only to eligible carbon capture entities and that, after the point of contract signature, it is for the contracts to stand on their own two feet and to set the parameters of the ongoing support that they provide. That approach is similar to that of the contracts for difference for renewables, in respect of which, again, it has worked to great success. The amendment ultimately helps to ensure that projects and their investors are absolutely clear on the terms of their support and should help to inspire significant confidence in the new regime. Government amendments 25, 34, 35, 57 and 58 are consequential on Government amendment 56.
Government new clause 29 will enable the designation of a counterparty to administer hydrogen transport revenue support contracts. The delivery of the hydrogen transport revenue support contracts is intended to be via private law contracts between eligible hydrogen transport providers and a hydrogen transport counterparty. The counterparty, which is the subject of the new clause, will manage the contracts and act as a conduit for funding.
The proper functioning of a revenue support counter-party is fundamental to the stability of the revenue support contracts. As the counterparty will be responsible for managing large amount of funds to meet its payment obligations, it is essential for the Secretary of State to exercise a degree of control over how it operates. Government new clause 29 allows the Secretary of State to designate a consenting person to be a counterparty for hydrogen transport revenue support contracts.
Government new clause 30 confers powers on the Secretary of State to issue a direction to a hydrogen transport counterparty. The counterparty will offer a contract to a hydrogen transport provider with a proposed project that the Government wish to support. That will enable a hydrogen transport provider to receive revenue support, which will help to remove market barriers associated with its infrastructure project. In turn, this should see the deployment of hydrogen transport infrastructure in the UK, thereby further supporting the hydrogen economy.
Government new clause 30 will ensure that revenue support regulations can make further provision about a direction, such as the terms that may or must be specified in said direction. Those regulations must include the meaning of “eligible” in relation to hydrogen transport providers with whom the counterparty may enter into a contract. Additionally, the powers are expected to be exercised in relation to successful projects that apply for revenue support under the hydrogen transport business models.
Government new clause 31 will enable the designation of a counterparty to administer hydrogen storage revenue support contracts. The delivery of the hydrogen storage revenue support contracts is intended to be via private law contracts between eligible hydrogen storage providers and a hydrogen storage counterparty. The counterparty, which is the subject of the new clause, will manage the contracts and act as a conduit for funding.
The proper functioning of a revenue support counterparty is fundamental to the stability of the revenue support contracts. As the counterparty will be responsible for managing large amount of funds to meet its payment obligations, it is essential for the Secretary of State to exercise a degree of control over how it operates. Government new clause 31 allows the Secretary of State to designate a consenting person to be a counterparty for hydrogen storage revenue support contracts.
Government new clause 32 confers powers on the Secretary of State to issue a direction to a hydrogen storage counterparty. The counterparty will offer a contract to a hydrogen storage provider with a proposed project that Government wish to support. That will enable a hydrogen storage provider to receive revenue support, which will help to remove market barriers associated with its infrastructure project. In turn, this should see the deployment of hydrogen storage infra-structure in the UK, thereby further supporting our growing hydrogen economy.
Government new clause 32 will ensure that revenue support regulations can make further provision about a direction, such as the terms that may or must be specified in said direction. The regulations must include the meaning of “eligible” in relation to hydrogen storage providers with whom the counterparty may enter into a contract. Additionally, the powers are expected to be exercised in relation to successful projects that apply for revenue support under the hydrogen storage business models.
I commend to the Committee the Government amendments, Government new clauses 29 to 32 and clauses 56 and 57.
Dr Whitehead
Most of the provisions in this group deal with the establishment and terms of a hydrogen counterparty. The establishment of the counterparty is clearly important in the raising and distribution of the hydrogen levy, which we will discuss later. The raising of the levy goes through the counterparty—that is, the counterparty will be responsible for raising the demands of the levy upon whoever is liable to pay it. The counterparty has a substantial role in holding those amounts and distributing them to those who are developing, in this instance, hydrogen production. Of course, that is why it is called the hydrogen production counterparty.
It is a method similar to that adopted by the Low Carbon Contracts Company for arranging to levy charges on, in that instance, the electricity suppliers, and then distributing that to those in receipt of that levy. Those in receipt will primarily get money coming to them through the counterparty by means of the difference between the strike price for what it has been decided to levy on and the reference price—the general price for electricity after the strike price has been agreed. We do not yet have an indication of what the strike price for hydrogen production will be, but we have in front of us the experience of the likely reference price for electricity, which is likely to pertain over the years when the hydrogen levy will be administered by the hydrogen contracts counterparty.
The experience of the Low Carbon Contracts Company is that it is not always the case that money simply comes in and is then disbursed, because on occasions, and indeed on recent occasions, the LCCC has found itself in the position where the reference price and the strike price have inverted—that is, the organisations responsible for paying into the LCCC no longer get a payout from the LCCC because the relationship between the strike price and the reference price is positive. In this instance, then, the LCCC is actually accumulating amounts that it would normally not put into its funds because it would return them straight to the people who have contracted for a difference between the strike price and the reference price but at that point have an obligation to pay into, rather than expect to collect out of, those funds.
There has been some issue with the LCCC in terms of what happens to the money that goes into its funds but is not distributed out. Does that money accumulate in the funds of the LCCC perpetually? Or is it redistributed? If it is redistributed, to whom is it redistributed and on what terms? I do not see any provision for that sort of arrangement to take place, or, indeed, for it to take place in a secure way in the particular interests of consumers—we will talk about the interests of consumers later—in the Bill or in the Government amendments we have debated this morning.
It is important that as soon as the counterparty is in place, the full set of contingent and possible arrangements for the operation of that counterparty are clearly set out. Depending on how electricity prices change over the next few years, the hydrogen production counterparty may well, at a fairly early stage, be in the same sort of position of accumulating additional funds that the LCCC has been in recently. It is therefore important that there are clear provisions, preferably spelled out in the Bill, as to what the counterparty does under those circumstances. Have the Minister and his Department thought about that eventuality? If they have, how does the Minister envisage the hydrogen production counterparty operating under those circumstances? Why has he decided not to put anything in the Bill that gives us greater guidance as to how the counterparty will function?
Andrew Bowie
Let me clarify for the hon. Gentleman that later this morning we will come to clause 67, which specifically enables regulations to make provision for amounts to be paid to levied market participants by the relevant counterparty or hydrogen levy administrator. That includes the pass-through of payments received by the relevant counterparty under revenue support contracts, such as payments made by a hydrogen producer to a hydrogen production counterparty. I hope that answers the hon. Gentleman’s questions in more detail. We will return to this matter later this morning.
Amendment 23 agreed to.
Amendments made: 25, in clause 56, page 50, line 21, for “63(3)” substitute “64(4)”.
This amendment is consequential on Amendment 58.
Amendment 24, in clause 56, page 50, line 21, at end insert—
“‘eligible hydrogen storage provider’ is to be interpreted in accordance with section (Direction to offer to contract with eligible hydrogen storage provider)(4);
‘eligible hydrogen transport provider’ is to be interpreted in accordance with section (Direction to offer to contract with eligible hydrogen transport provider)(4)”.
This amendment adds definitions to the list in clause 56 in consequence of NC29 and NC31.
Amendment 26, in clause 56, page 50, line 23, for “61(3)” substitute “62(4)”.
This amendment is consequential on Amendment 55.
Amendment 27, in clause 56, page 50, line 36, at end insert—
“‘hydrogen storage counterparty’ has the meaning given by section (Designation of hydrogen storage counterparty)(3);
‘hydrogen storage provider’ has the meaning given by section (Designation of hydrogen storage counterparty)(7);
‘hydrogen storage revenue support contract’ has the meaning given by section (Designation of hydrogen storage counterparty)(2);
‘hydrogen transport counterparty’ has the meaning given by section (Designation of hydrogen transport counterparty)(3);
‘hydrogen transport provider’ has the meaning given by section (Designation of hydrogen transport counterparty)(7);
‘hydrogen transport revenue support contract’ has the meaning given by section (Designation of hydrogen transport counterparty)(2);”.
This amendment is supplementary to NC29 and NC31.
Amendment 28, in clause 56, page 51, leave out lines 3 to 6.—(Andrew Bowie.)
See the explanatory note relating to Amendment 23.
Clause 56, as amended, ordered to stand part of the Bill.
Clause 57
Revenue support contracts
Amendments made: 29, in clause 57, page 51, line 16, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 30, in clause 57, page 51, line 16, at end insert—
“( ) a hydrogen transport revenue support contract (see section (Designation of hydrogen transport counterparty)(2)),
( ) a hydrogen storage revenue support contract see section ((Designation of hydrogen storage counterparty)(2)),”.—(Andrew Bowie.)
This amendment adds hydrogen transport revenue support contracts (see NC29) and hydrogen storage revenue support contracts (see NC31) to the definition of “revenue support contract”.
Amendment 31, in clause 57, page 52, line 5, after “60(3),” insert
“(Direction to offer to contract with eligible hydrogen transport provider)(2) or (4), (Direction to offer to contract with eligible hydrogen storage provider)(2) or (4),”.
This amendment provides for regulations under the specified powers to be subject to affirmative procedure.
Amendment 32, in clause 57, page 52, line 5, leave out “61(3)”.
This amendment is consequential on Amendment 53.
Amendment 33, in clause 57, page 52, line 6, after “62(2)” insert “or (4)”.
This amendment is consequential on Amendment 53.
Amendment 34, in clause 57, page 52, line 6, leave out “63(3)”.
This amendment is consequential on Amendment 56.
Amendment 35, in clause 57, page 52, line 6, after “64(2)” insert “or (4)”.—(Andrew Bowie.)
This amendment is consequential on Amendment 56.
Clause 57, as amended, ordered to stand part of the Bill.
Clause 58
Duties of revenue support counterparty
Amendments made: 36, in clause 58, page 53, line 2, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 37, in clause 58, page 53, line 3, after “counterparty,” insert
“hydrogen transport counterparty, hydrogen storage counterparty,”.
This amendment and Amendment 39 make provision for ensuring that hydrogen transport counterparties and hydrogen storage counterparties can meet their liabilities under revenue support contracts.
Amendment 38, in clause 58, page 53, line 4, after “any” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 39, in clause 58, page 53, line 5, after second “contract,” insert
“hydrogen transport revenue support contract, hydrogen storage revenue support contract,”.
See the explanatory statement for Amendment 23.
Amendment 40, in clause 58, page 53, line 8, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 41, in clause 58, page 53, line 8, at end insert—
“(aa) a hydrogen transport counterparty (see section (Designation of hydrogen transport counterparty)(3));
(ab) a hydrogen storage counterparty (see section (Designation of hydrogen storage counterparty)(3));”—(Andrew Bowie.)
This amendment adds hydrogen transport counterparties and hydrogen storage counterparties to the definition of “revenue support counterparty”.
Question proposed, That the clause, as amended, stand part of the Bill.
Andrew Bowie
Clause 58 sets out the duties of a revenue support counterparty and the Secretary of State’s ability to exert control over the activities of a revenue support counterparty, given that its role is critical to the effectiveness of a revenue support contract. It includes, for example, a duty for a counterparty to act in accordance with revenue support regulations and a power for the Secretary of State to specify in regulations things that a counterparty must, can, or cannot do.
The proper functioning of a revenue support counterparty is fundamental to the stability of the revenue support contracts. The counterparty will be responsible for managing large amounts of funds to meet its payment obligations under a contract. It is therefore important for the Secretary of State to exercise a degree of control over how it operates. I therefore commend clause 58 to the Committee.
Dr Whitehead
The clause does indeed provide for a number of duties of the revenue support counterparty. I particularly note the requirement that it
“must exercise the functions”
conferred on it
“by virtue of this Chapter so as to ensure that it can meet its liabilities under any revenue support contract to which it is a party.”
In order to do that, as the Minister has said, the counterparty must be buoyantly funded—shall we say—both in terms of the money coming in and out and the money to enable it to perform its functions.
What regulation is there on the counterparty to ensure that it is carrying out its obligations with its funding, in such a way that there is not too much in the bank, and not too little in the bank to meet its liabilities? As the Minister has said, we will later debate on how that works in with the possible restitution of funds from the counterparty at particular junctures. Is the Minister satisfied that the regulation of the counterparty is sufficient to ensure that it actually operates in that economical way, as far as the use and disbursal of its funds is concerned?
Andrew Bowie
I thank the hon. Member for his question. Again, it is a very pertinent, sensible and serious question, and one on which I am happy to give more clarity. The Government anticipate that the LCCC, which is the existing counterparty for contracts for difference, will be the counterparty for the hydrogen production, industrial carbon capture and waste industrial carbon capture business models—subject to successful completion of administrative and legislative arrangements, obviously.
The LCCC already has experience in similar types of contract management from its role as counterparty to contracts for difference; it is already established in that respect. The LCCC is also anticipated to be the counterparty for the carbon dioxide transport and storage revenue support contracts—again, subject to successful completion of administrative and legislative arrangements.
To address the specific point, in taking the decision to proceed with LCCC as the counterparty, the Secretary of State considered, among other things, its ability to deliver the required functions, and its experience and track record in contract management. Those considerations would be made on any future decisions, which would also be subject to normal principles of public decision making.
The envisaged greenhouse gas removals business model would also require a counterparty to manage the contracts, and the Department for Energy Security and Net Zero is currently assessing options as to the most appropriate organisation to perform that function.
Question put and agreed to.
Clause 58, as amended, accordingly ordered to stand part of the Bill.
Clause 59
Designation of transport and storage counterparty
Amendments made: 42, in clause 59, page 53, line 14, after “for” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 43, in clause 59, page 53, line 15, leave out “‘transport” and insert “‘carbon dioxide transport”.
This amendment is consequential on Amendment 23.
Amendment 44, in clause 59, page 53, line 17, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 45, in clause 59, page 53, line 19, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 46, in clause 59, page 53, line 22, leave out “‘transport” and insert “‘carbon dioxide transport”.
This amendment is consequential on Amendment 23.
Amendment 47, in clause 59, page 53, line 28, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 48, in clause 59, page 53, line 30, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 49, in clause 59, page 53, line 32, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 50, in clause 59, page 53, line 36, after “any” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 51, in clause 59, page 53, line 38, after first “a” insert “carbon dioxide”.—(Andrew Bowie.)
This amendment is consequential on Amendment 23.
Question proposed, That the clause, as amended, stand part of the Bill.
Andrew Bowie
Initial licensed carbon dioxide transport and storage companies are expected to be supported by a revenue support agreement, which is a contractual arrangement to be entered into by a counterparty. The clause will enable the Secretary of State to designate a consenting person to be a counterparty for carbon dioxide transport and storage revenue support contracts. A counterparty will be responsible for managing the contracts and making payments to the contract holders, as well as collecting any necessary payments from contract holders, as set out in the contracts.
Clause 60 confers a power on the Secretary of State to issue a direction to a carbon dioxide transport and storage counterparty to offer to contract with an eligible person. It also ensures that revenue support regulations can make further provision about a direction—for example, the terms that may or must be specified in a direction. I commend the clauses to the Committee.
Dr Whitehead
The clause designates a transport and storage counterparty to perform a similar function to that of the hydrogen production counterparty or, indeed, to that of the LCCC. In the case of the hydrogen production counterparty, the Government’s intention is to roll the function in with the LCCC, so that the LCCC has an expanded role. I am not quite so clear about the Government’s intention for the carbon dioxide transport and storage counterparty. Is it the Government’s intention that that counterparty will also be rolled into the LCCC? If so, does the Minister not think that that will be a rather giant organisation responsible for different streams of funding in different ways? In such circumstances, are the Government satisfied that the streams could be sufficiently separate from each other to ensure the efficient running of all the different strands that will increasingly come under, in effect, one counterparty company?
Andrew Bowie
The hon. Gentleman is right to point out the inherent risks in the model. However, it is incumbent on the Secretary of State, the Department, the Government and indeed Parliament to assess and to keep watch continually on the arrangements to ensure that they are fit for purpose as we proceed and develop our hydrogen industry to the extent that we want to in future. The LCCC already does similar types of contract management in its existing role as the counterparty to the contracts for difference, so I do not envisage that as being as big a challenge as the hon. Gentleman sets out, but I accept the inherent risks, in particular in what we will be doing under the Bill, which is something completely new. Of course it is right for Parliament to have a role in scrutinising the Government to ensure that the model that we establish keeps pace and is fit for what we seek to do in future.
Question put and agreed to.
Clause 59, as amended, accordingly ordered to stand part of the Bill.
Clause 60
Direction to offer to contract
Amendment made: 52, in clause 60, page 54, line 3, after “a” insert “carbon dioxide”.—(Andrew Bowie.)
This amendment is consequential on Amendment 23.
Clause 60, as amended, ordered to stand part of the Bill.
Clause 61
Designation of hydrogen production counterparty
Amendments made: 53, in clause 61, page 54, line 18, leave out from second “contract” to “was” in line 22 and insert—
“to which a hydrogen production counterparty is a party and which”.
This amendment modifies the definition of “hydrogen production revenue support contract”.
Amendment 54, in clause 61, page 54, line 25, leave out subsection (3).—(Andrew Bowie.)
This amendment is consequential on Amendment 53.
Dr Whitehead
The Minister kindly wrote to me a little while ago about the questions raised in this Committee about the UK seabed, which is the subject of Government amendment 4. I was grateful that he wrote to me so quickly after that debate, but his letter did not entirely set my mind at rest about the problem we raised on that occasion, which is also pertinent to hydrogen production.
As the Minister stated, it is entirely possible and feasible that hydrogen production could take place at sea, either on energy islands, converted rigs or specific platforms set up for that purpose, in conjunction with offshore wind farms. A number of those wind farms and installations will be well beyond the limits of the territorial sea adjacent to the United Kingdom.
My question in the previous debate that prompted the Minister’s letter to me was: what is the jurisdiction in relation to what is in the UK economic zone up to 200 miles, but beyond the 12-mile territorial sea adjacent to the United Kingdom? In his letter, the Minister effectively repeated the idea that the territorial sea adjacent to the United Kingdom was indeed the 12-mile zone. Does the Minister have any further clarification this morning about the relationship of the two different zones, and how they interact in terms of effective jurisdiction for these activities?
Andrew Bowie
I do indeed have an answer for the hon. Gentleman. As the hon. Gentleman and I have set out in Committee and in the letter, the territorial sea adjacent to the United Kingdom is the sea that extends 12 nautical miles from the low-water line along the coast, as defined in section 1 of the Territorial Sea Act 1987. However, the renewable energy zone extends from the boundary of the territorial sea to an area within the UK’s exclusive economic zone.
Dr Whitehead
I presume that I will, notionally, be invited to debate it at the appropriate point.
The Chair
You are invited to debate it now. This group is being debated whole. The point on which I was bringing the Minister up is simply that he is not moving all the Government amendments now; he is moving amendment 7 now, and can move the others when we get to the relevant part of the Bill. You are, of course, absolutely entitled to debate all the new clauses and amendments in this group.
Dr Whitehead
Thank you, Mr Gray.
Opposition amendment 84 would amend the definition of “carbon capture entity” in clause 63(8). We tabled it because we considered that definition insufficient to encapsulate what is now increasingly likely to be at least part of carbon capture and storage activity: DACCS, which involves carbon that has been captured from the air, or indeed from the sea. The DACCS process is up and running in the UK on an experimental basis and will undoubtedly become quite a substantial element of carbon capture in future, so we thought it important that direct air capture technologies should be included within the definition of “carbon capture entity”.
I thought we might have a bit of discussion about that point this morning, but I observe that, subsequent to our tabling amendment 84, the Government have tabled amendment 10, which results in similar wording. My first point is a positive one: well done to the Government on that. My second, slightly less positive point is, “Why couldn’t you have done that in the first place?”
My third point is one for the record: it may be that the Government and the Opposition’s thoughts were running along entirely parallel lines at precisely the same moment. Alternatively, it may be that the Government looked at our amendment and thought, “Oh, we haven’t done that—maybe we ought to, but of course we can’t accept an Opposition amendment, so we’ll have to use our own.” It might have been nice for the Government to say, “You’re absolutely right, so we’ll accept your amendment,” but I am fairly graciously saying that I am pleased that they have managed to table amendment 10. On that basis, it does not seem necessary to proceed with our amendment 84 this morning. We can rest satisfied that we maybe played a small part in the general progress of the Bill through the House.
Andrew Bowie
All I would say to the hon. Gentleman is that, of course, imitation is the most sincere form of flattery. While I do not deny that the Government and the Opposition were thinking along the same lines at exactly the same time, and therefore came to the same conclusion, I am glad that he is not going to press amendment 84 to a vote, and that he accepts that the definition in our amendment covers the definition of direct air capture and carbon storage. We share the view that greenhouse gas removal technologies will be essential to reach net zero, and I am glad that, as has so far been the case with most of the Bill, there is broad cross-party agreement about where we are headed, and definitions required to get there.
The Chair
Technically speaking, the Minister need only move that clause 65 stand part of the Bill. That is the first debate in the group.
Dr Whitehead
We have two concerns about this group. One relates to Government amendment 12, and the other to amendment 117, which we seek to advance. Amendment 117 simply seeks to widen the definition of relevant market participants beyond purely gas suppliers, electricity suppliers and gas shippers. There are other relevant market participants that might actually come under the definition, and we feel that the current wording in the Bill, which effectively says that only the market participants set out here can be included, is overly restrictive. We suggest in our amendment that the words should state that those participants—gas suppliers, electricity suppliers and gas shippers—should be included, but that the definition should not be limited to them. We have therefore added the words
“including but not limited to—”
to the definition in the Bill. I would be grateful for the Minister’s response to the amendment, whether we move it formally or not. Some reassurance on the limitations perceived to be there at the moment would be helpful.
I will turn to the main issue in this part of the Bill. As the Minister states, Government amendment 12 seeks to overturn what passed in the other place, which is that their lordships felt that the idea of pursuing a hydrogen levy by means of a levy on customers, essentially, was not a good one. I would go rather further than that: I think it is an absolutely suicidal one.
Their lordships considered an amendment to the Bill at that point, which made it clear that there would be a limitation on who could be the levy payers as far as the hydrogen production levy is concerned, and that that limitation should be the Consolidated Fund or gas shippers. Arguably, gas shippers would have an effect on customers’ bills in the future, and the Consolidated Fund has an effect on taxation levels, but not on bills as such.
Where we had got to when the Bill came to this House is that a consolidated part of the Bill was actually a restriction on who could be levied as far as the hydrogen levy is concerned. I, for one, thought that was a very wise restriction to place in the Bill, and I know from their statements, particularly on Second Reading, that a number of members of this Committee also thought at the time that that was a pretty wise move.
That is why I am really disappointed this morning to see that the Government are seeking to overturn the restriction that was placed on levy raising in the other place. I am not the only person, of course, who is worried about this issue, as far as levy payers are concerned. I refer, for example, to the MailOnline on 4 June, which stated:
“Grant Shapps is poised to ditch a plan to add around £120 to Brits’ energy bills to fund the transition to hydrogen.”
The article continued:
“The Net Zero Secretary is understood to be ‘not at all convinced’ that the levy should go ahead, after fierce criticism from Tories.”
Of course, it is MailOnline, so it does not say that there has been fierce criticism from the Labour party as well, but there you are. The article went on to say:
“The government has been accused of heaping more pain on struggling consumers with the proposals for a charge to fund the fledgling industry.”
Obviously, I have got to know the Minister quite well while we have been considering the Bill, and indeed beforehand, and we have a very good relationship. I, for one, would not like to see him being hung out to dry by his Secretary of State on this issue. Whether it is a wise thing for the Minister and his career to advance this amendment right at this minute is something that we will leave for others to judge.
However, the substantive point I want to make is this: just what will be the effect of a levy payment, in the way that this amendment suggests, on the development of hydrogen itself? The Government have quite rightly targeted 10 GW of hydrogen production by 2030 and they have put in place in the Bill arrangements for a system similar to that for offshore wind, with strike prices, reference prices and so on being involved in the process of levying whoever it is that will be levied.
Determining what the strike price is likely to be will be difficult. The Government have indicated—well, the then Department for Business, Energy and Industrial Strategy gave an indication in November 2022—that they would assume a strike price of about £100 per MWh for hydrogen production. Once that is established, it is important to look at what the difference is likely to be with the prevailing electricity price, since they are contracts for difference. With electricity prices as they are at the moment, the difference between the £100 strike price and the electricity price might be fairly small, but if we assume a more reasonable difference—what the selling price of hydrogen will be in the market at that point and based on gas as a comparator—we can come to something like £55 per MWh, which is the prevailing gas price and a premium on carbon pricing within gas. The difference between the £100 per MWh strike price and the likely reference price of £55 gives us a gap of £45, which would be the financial support for the 10 GW of hydrogen production by 2030 that would be fundable through a hydrogen levy. What that gap actually means is that some £53 billion over a 10-year period would be required.
That funding would not be flat because the hydrogen levy would be levied on a rising amount of production over the period. Initially the cost of the gap would be reasonably low, starting at about £700 million per annum between 2025 and 2030, but by 2030 it would be about £3.5 billion per year and then would continue through the period of 15-year contracts. The support that will be necessary—£3.5 billion per year by 2030—can then be translated into what it is likely to cost the bill payer per year as a proportion of that cost. If we divide the number of paid units by the amount per year by 2030, the cost on bills is likely to be in the region of £118 to £120 per year. That is a levy that dwarfs all previous levies.
The total amount of green levies, which are not being paid at the moment because the Government are covering them during the energy crisis—and not a much longer period, I suspect—is about £165 in total. So what is being proposed here this morning is a plan that will add two thirds to those levies over the period running up to 2030. Other levies are proposed in the Bill, and we have agreed to a number of others that are coming down the road—well, I say we agreed to them, but I unsuccessfully attempted to obstruct them. For example, the nuclear regulated asset base will come in as a levy, and there will be further levies under the Government’s—and, indeed, the Opposition’s—plan to quadruple offshore wind and, if we have our way, double onshore wind by 2030. If we continue trying to add levies for everything to customer bills, they will increase hugely by 2030, not because the prices of electricity or gas have gone up or because Mr Putin has invaded anywhere else, but because of conscious policy design and the way the Government set up the levy system.
Dr Whitehead
I agree, Mr Gray. It is not a good idea, and I will bring my remarks to a close.
My kind advice is that the Minister should think very carefully before proceeding with the amendment. We have a good Bill overall, which has been strengthened by the decision made in the other place and it sits well with the Bill as it stands. Why can we not just leave it like that? Let us continue to discuss the Bill on the basis that we can all agree on that structure for the future. I fear the Minister may not take that advice. If he does not, we will certainly try and force a Division to make sure that that advice is well taken. The way to do that is simply to vote against the Government’s amendment.
Dr Whitehead
If the Minister does pursue this, that is what we would propose. I would just add, finally, that I think there is considerable support for that in this Committee. The right hon. Member for Elmet and Rothwell—
Dr Whitehead
He said:
“We have to take the public with us on this—we cannot keep adding to people’s bills to try to make things work.”—[Official Report, 9 May 2023; Vol. 732, c. 276.]
That was well said, and I hope that that view will be reflected in the decisions taken by this Committee this morning.
Alec Shelbrooke (Elmet and Rothwell) (Con)
I thank the hon. Member for Southampton, Test for what was almost a warm-up act to introduce me to the stage. I agreed with every word: we do have to take the public with us, and a movement is building in the country against net zero and an increase in bills. There are many issues, as he has outlined.
I have good news and bad news for you, Mr Gray: I have quite a lot to say, but the hon. Member has covered a few of those things by setting out the financial implications, using some well-researched material that is available to the Committee, so I shall leave some of that aside.
One problem is that it is a little bit of lazy economics to come along with a new area of energy generation—renewable generation—and just say, “Well, we’ll add another tax to do it.” I hope to set out some alternative ways of doing it. There are some considerable potential uses of hydrogen, which I will come on to describe. If we take them in turn, they could suggest areas where the focus could be changed.
My hon. Friend the Minister is a dear friend of mine, and I will try to be gentle with him. He commented that the Bill will enable funding streams that are not yet decided. However, I say to him in all good heart that conversations in the background have opened with the comment, “Well, if we don’t do this, how are we going to pay for it?” That would suggest that decisions have already been made about the levy coming into place. I find that exceptionally disappointing, within the brief that the Minister has been given, because I do not want to see him hung out to dry.
Where I think the Minister has a very valid argument is in what he said about discussions taking place in the background. I have been led to believe that the Government are trying to work on alternatives for Report; I hope very much that that is true. The hon. Member for Southampton, Test quoted my comments on Second Reading; he will have noticed that my comments were not unique, as many colleagues on the Government Benches had similar concerns. I think that it is the view of the House, overall, that there are concerns about Government amendment 12. There is therefore an imperative on the Government to come along and find a way to make hydrogen work without a direct taxation on people’s bills.
Here is the reality. I have some figures and comments from the Library. Costs to consumers due to Government policy are known as policy costs. They consist of the renewables obligation paid on electricity bills to support large-scale renewables; the feed-in tariff paid on electricity bills to support small-scale renewables; contracts for difference paid on electricity to support low-carbon generation; the energy company obligation paid on both electricity and gas to support household energy efficiency; the warm home discount paid on both to provide a discount to vulnerable households; assistance for areas with high electricity distribution costs paid on electricity; and the green gas levy, which funds the green gas support scheme, paid on gas bills.
Based on the Q2 2023 price cap, the breakdown of annual costs annually is as follows: the renewables obligation is £80.26; the feed-in tariff is £18.70; the energy company obligation is £43.87; the warm home discount is £20.60; assistance for areas with high electricity distribution costs is £1.45; and the green gas levy is 45p. That shows that a significant number of green levies are already applied to people’s bills.
The Chair
For clarity, I group various things together in one group when it is convenient to discuss them together. The Minister moves only the first clause in that group. Therefore, in this case the Minister moves only clause 69.
Dr Whitehead
These are all riveting clauses, which seem to be pretty well put together. We have nothing to say about them, other than that we trust they will be part of the Bill.
Question put and agreed to.
Clause 69 accordingly ordered to stand part of the Bill.
Clause 70 ordered to stand part of the Bill.
Clauses 71 to 76 ordered to stand part of the Bill.
Clause 77
Further provision about designations
Amendments made: 70, in clause 77, page 66, line 35, after “59,” insert “(Designation of hydrogen transport counterparty), (Designation of hydrogen storage counterparty),”.
This amendment together with Amendments 71, 72 and 74 make supplemental provision about designations under NC29 and NC31.
Amendment 71, in clause 77, page 67, line 3, after “59,” insert “(Designation of hydrogen transport counterparty), (Designation of hydrogen storage counterparty),”.
See the explanatory statement for Amendment 70.
Amendment 72, in clause 77, page 67, line 9, after “59(1),” insert “(Designation of hydrogen transport counterparty)(1), (Designation of hydrogen storage counterparty)(1),”
See the explanatory statement for Amendment 70.
Amendment 73, in clause 77, page 67, line 12, after “a” insert “carbon dioxide”.
This amendment is consequential on Amendment 23.
Amendment 74, in clause 77, page 67, line 12, after “counterparty,” insert “hydrogen transport counterparty, hydrogen storage counterparty,”.—(Andrew Bowie.)
See the explanatory statement for Amendment 70.
Question proposed, That the clause, as amended, stand part of the Bill.
Andrew Bowie
Clause 77 enables the Secretary of State to revoke a counterparty designation by notice. A designation will also cease to have effect if the counterparty withdraws consent to the designation by giving not less than three months’ notice in writing to the Secretary of State. Subsection (4) enables the Secretary of State to make provision in regulations enabling a person who has ceased to be a revenue support counterparty to continue to be treated as such a counterparty, including provision about the circumstances in which, and the period for which, such a person may be so treated. I recommend that clause 77 stand part of the Bill.
Question put and agreed to.
Clause 77, as amended, accordingly ordered to stand part of the Bill.
Clause 78
Application of sums held by a revenue support counterparty
Dr Whitehead
I beg to move amendment 86, in clause 78, page 67, line 31, at end insert—
“(4A) Revenue support regulations may make provisions for the return of sums held by a revenue support counterparty that have been secured from gas shippers over and above necessary reserve levels to energy supply customers.”
This amendment would guarantee that, where shippers have above what is in reserve provision, the difference would be restored directly to customers from the shippers (in contrast to the way the LCCC works with retailers/customers now).
The amendment follows on from the discussion that we had earlier in Committee about the role of the hydrogen production counterparty in administering the sums that may come its way. We have already had some discussion about the counterparty, which will potentially be enormous in terms of its likely new duties both in hydrogen production and in carbon capture and storage. The counterparty will have a very large amount of money coming in and out, and possibly staying in its reserves and being allocated for the purposes of what the counterparty is being set up for—to develop hydrogen production in this instance, but also carbon capture and storage development.
What is the position at the moment with the LCCC, which, as we have agreed, is likely to be the designated body for the counterparty for various things? The position at the moment is that there is no position on what the LCCC does with sums over and above what is necessary for it to hold in reserve or as contingency for the pay-out of sums to hydrogen production bodies, which is an important omission, because there is no specific guidance or legislative certainty. In practice, the LCCC hands over money greater than its reserves where it has accumulated additional sums of money because of the periodic inversions of strike price and reference price—hence there is money coming into it, rather than being paid out of the LCCC. It does pay those sums out, but there is no certainty as to where they go. Indeed, there is no certainty that anything should be paid out. At the moment, it would be quite possible for the LCCC to say, “We need more reserves, so we’re not paying any money out,” or it could pay that money back to industry or to certain parts of industry. I understand that the LCCC pays out that money to energy suppliers, but, again, there is no certainty that even the money paid out by the LCCC to those energy suppliers ever reaches the customer.
For surpluses over and above what is necessary for reserves and operational costs of the LCCC—the counterparty—if the principle is that the customer pays the levy, which we sincerely hope it is not, but if it is, should there be surpluses within that levy, the customer should get the money back one way or another. Similarly, if the Consolidated Fund is the source of a levy, the Consolidated Fund should get that money back one way or another. It should not be used for other purposes or sit in a bank account somewhere. It should be actively used, either for restitution of customer bills or for further use via the Consolidated Fund for the future.
The amendment would ensure that the revenue support regulations provide for the return of sums held by a revenue support counterparty, which have been secured over and above necessary reserve levels, to energy supply customers. It makes a very specific directional instruction, as it were, in the Bill, about what the destination of those funds should be over and above the reserves for the counterparty. I think that is a useful addition to the Bill and a useful clarification of what levy money for the future we are contemplating entrusting this very large body with.
It is a clear instruction as to what that body should do. It is a clear instruction from the Committee of what it wants to ensure happens when the Bill becomes an Act of Parliament. That is why we have tabled this amendment. I think the Minister will agree that the situation at the moment with the LCCC is a little shadowy, although it works okay in practice. That allows us to be much clearer for the future about not only how these things will work in practice but how they should be directed in principle.
Andrew Bowie
I thank the hon. Member for his amendment. I probably would not use the same language and describe the LCCC as a shadowy organisation, but I understand the spirit in which he makes those comments. The Opposition are absolutely right to focus on ensuring that the Bill can make provision for fair and efficient payment and reconciliation arrangements. However, I would like to reassure the Opposition and anybody else following our proceedings today that the existing provisions in the Bill already enable regulations to provide for such arrangements.
As previously discussed, clause 67 explicitly enables regulators to make provision for the amount to be paid to levied market participants by a relevant counterparty or hydrogen levy administrator—in this case the not-shadowy LCCC. That includes the pass-through of payments received by a relevant counterparty under revenue support contracts, such as payments made by a hydrogen producer to a hydrogen production counterparty. We would expect that in such instances the levied market participants would pass these payments on to their customers.
However, to provide extra assurance on this matter, subsection (3) of clause 67 also enables the Secretary of State to make regulations requiring that the customers of levied market participants benefit in accordance with those regulations. I hope this provides the hon. Member for Southampton, Test with the assurance he requires to withdraw his amendment.
Dr Whitehead
I think it is incumbent on me to ask the Minister a question. Yes, the Minister will have the power to make regulations, but will he commit himself to making those regulations should the Bill pass? As he knows, making regulations is something Ministers may do, but they can sometimes sit on their hands and not make them. It is important to be clear on that.
Andrew Bowie
I am suggesting that the Secretary of State make regulations. I am not quite the Secretary of State, but maybe one day. The Government are committed to working to ensure that the design of the levy enables fair and efficient payment and reconciliation arrangements. Work on the detailed design of the levy, including decisions related to calculation, is ongoing. We will consult on the detailed design of the levy before laying the regulations that introduce it.
Dr Whitehead
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 78 ordered to stand part of the Bill.
Energy Bill [ Lords ] (Third sitting)
Alan Whitehead ExcerptsThursday 25th May 2023
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 May 2023 - (25 May 2023)
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship, Dr Huq. Hopefully, the passage of the rest of the Bill will be pacific and friendly under your chairmanship and that of the other Chairmen. Members know how closely I was kept to order by the Chairman we had earlier this week, and I am sure you will do exactly the same, Dr Huq, although I do not intend to stray off today’s exciting business.
The clause and schedule are concerned with the enforcement of licence holders’ obligations. The schedule goes into greater detail about how that enforcement works. I do not have any particular objections to them, but I would like to know from the Minister what the process for a final order under the schedule will be. We talked in Committee previously about termination events, and the subject raises its head again this morning. As I understand it, a final order under this schedule may or may not precipitate a termination event. Is that right?
There is a process in the schedule for provisional orders and final orders. A final order is presumably where a termination event occurs. Perhaps the Minister can say something about whether there are any procedures beyond that final order for the persons to whom the order has been served. We will come to some of the reasons why orders may be made in the next clauses, but it is important to clarify at what point that final order is operational, what happens then and what happens up to a termination event. I would be grateful for the Minister’s clarification.
Andrew Bowie
I thank the hon. Member for his questions. It is important to get the definition absolutely right. When Ofgem is satisfied that a regulated person has contravened or is contravening any relevant condition or requirement, it may impose a financial penalty or, in the words of the Bill, issue a “final order”. In terms of the appeal process, before imposing that financial penalty or issuing the final order, the economic regulator must publish a note stating its intentions and the relevant condition of requirements to be imposed. The notice should also specify the act or omissions that, in the economic regulator’s opinion, justify the penalty, and there should be a period of at least 21 days from publication in which objections can be made. The economic regulator must consider any objections made before imposing the penalty.
Schedule 3 provides for regulated persons to be able to appeal to the courts against the imposition of a penalty by Ofgem, the amount of the penalty or the timeline within which any penalty is required to be paid. An appeal must be made within 42 days of the penalty notice.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 33
Making of false statements etc
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
To ensure that the Secretary of State and the economic regulator can secure the provision of information necessary to conduct their respective functions in relation to carbon dioxide transport and storage, the clause establishes an offence if a person, either knowingly or recklessly, provides false information. A criminal sanction ensures that there is suitable redress for the making of false statements and should act as a disincentive to doing so. This is important and necessary as falsifying information could conceal issues or concerns that would otherwise be material to the decision making of the economic regulator or Secretary of State. Without knowledge of such information, there could be less effective decisions and less effective protections for users of the networks.
Dr Whitehead
Yet again, the clause appears to be relatively straightforward, but I would like to unpack the meaning of “false statements”. The Minister has given a general outline of what it means, but as far as I can see it potentially concerns the making of false statements or declarations, or whatever, at all stages of the licensing process. Presumably, that could be where a false statement is made in order to receive a licence, and the false statement comes to light after the licence has been provided. In that case, I presume the licence would be terminated on the basis of the false statement. Alternatively, it could apply to false accounting or false statements during the carrying out of the licence. Does the clause concern false statements made at the commencement of a licence or the granting of a licence, or does it concern false statements made during the operation of the licence as well? What procedure does the Minister envisage for those false statements coming to light?
The clause states that a person who makes a statement that that person
“knows to be false in a material particular, or recklessly makes any statement which is false in a material particular, is guilty of an offence”,
and is liable on summary conviction to a fine. Presumably the question of whether a false statement is sufficient for a process leading to a conviction is in the hands of the regulator. That is, if the regulator is worried about a false statement, it presumably has some discretion about the extent to which that false statement invalidates the process of the licence. Is that the Minister’s understanding? Is the process on a conveyor belt, as it were, such that a statement that appears to be false leads absolutely to a conviction? Or are there shades of grey about what a false statement is, how false that statement might be and how material that is to the continuation of the licence?
Andrew Bowie
Again, I thank the hon. Member for his questions. On his question about when a false statement might be made, it can be throughout the entire licence. On when an offence might be deemed to have occurred, it would be at the point that the statement was made. Schedule 2(10)(4) establishes that it is an offence to wilfully alter, suppress or destroy a document that the Competition and Markets Authority has required a person to produce as part of considering an appeal against a licence qualification decision by Ofgem. I think that what we seek to define as an offence and when we expect that offence to have been determined to have been made are quite clear.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
Clause 34
Liability of officers of entities
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Part 1 establishes certain criminal offences in relation to the economic licensing of carbon dioxide transport and storage, where transport and storage activities can take place both onshore and offshore. Clause 34 clarifies that, where an offence is committed by a corporate entity with either the consent or collusion of an officer of the company, or as a result of neglect by an officer, that officer, as well as the company itself, is culpable of the offence. The clause defines a company officer as any director, manager, secretary or similar officer of the body corporate, or any person purporting to act in that capacity.
Clause 35 clarifies that proceedings under part 1 can be brought anywhere in the UK. That ensures that an offence arising by virtue of the provisions of this part that is committed in an offshore place may be prosecuted in the United Kingdom. Criminal proceedings in relation to offshore activities may be instituted only by the Secretary of State or by, or with the consent of, the Director of Public Prosecutions.
Dr Whitehead
This is another fairly straightforward clause about criminal proceedings, but we ought to focus on the statement at the end of clause 35 about the definition of “offshore place”. Obviously, in the context of carbon capture and storage, there will be considerable concern about offshore places as well as onshore places, because presumably criminal offences can be committed during the transportation and sequestration of the carbon dioxide. As we know, those offshore places may be in repositories that are fairly far offshore but within the UK zone as far as, in principle, jurisdiction is concerned. However, as the Minister will know, there are different definitions of the territorial waters of the United Kingdom. Indeed, the Bill describes them as
“the territorial sea adjacent to the United Kingdom”.
Andrew Bowie
I thank the hon. Member for his pertinent and important question. For the purposes of the Bill and the industry we are discussing, the territorial sea is up to 12 nautical miles. The Gas Importation and Storage Zone (Designation of Area) Order 2009 sets that out, which is why we have taken the step of disapplying, for the purposes of the Bill, section 3 of the Territorial Waters Jurisdiction Act 1878. That section requires the consent of a principal Secretary of State, or a Governor in the case of the dominions and overseas territories, to institute proceedings for criminal offences within scope of the Territorial Waters Jurisdiction Act 1878. Disapplying section 3 enables proceedings for an offence that is alleged to have been committed in an offshore place to be instituted without the consent requirement. As set out in the 2009 order, offshore waters are defined as up to 12 nautical miles.
Dr Whitehead
That is a bit of a worrying definition, because it suggests that outside the 12-mile zone, the offence would not be prosecutable. A lot of carbon capture and storage installations are in the UK economic zone but outside the territorial zone, so there appears to be a bit of dissonance between what the Bill says about offences that may occur at any stage of proceedings, and these provisions, which, as the Minister says, cover the territorial 12-mile zone. Of course, the 1878 Act did not take any account of economic zones. Territorial waters were closely defined under that Act, but since then, we have moved considerably on what we might regard as territorial waters for the purpose of economic activity; that might not be the same as territorial waters as defined by the 12-mile limit. Is there a gap there that needs filling?
Andrew Bowie
I thank the hon. Gentleman for his question. While I understand the concern, it is important to stress that the zone, which is up to 12 nautical miles from shore, is a continuation of the gas importation and storage zone as designated under the 2009 order. It would be outwith the scope of the Bill to change the 2009 definition, because that is the definition with which the industry has been working since then.
Dr Whitehead
That does not address the fact that carbon capture and storage, and the repositories for it, are way out to sea. Putting a pipe at the bottom of those repositories, and connecting it to an evacuated oil field or whatever, may mean that there is a platform at the head of the pipe on which offences could be committed. The Bill does not appear to get up to speed with where carbon capture and storage will take place, where the repositories will be, and what the jurisdiction of the UK will be in those circumstances. Is that not a problem? Does the definition require further amendment?
Andrew Bowie
It is important to stress that the definition in the Bill is not only a continuation of the definition in the 2009 order, but the same as that used for other gas activities in the North sea. It is important that we stick to the same definition.
Andrew Bowie
Yes.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clause 35 ordered to stand part of the Bill.
Clause 36
Functions under the Enterprise Act 2002
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Ofgem has the power, concurrently with the Competition and Markets Authority, to carry out market studies and make market investigation references in relation to the gas and electricity markets in Great Britain under part 4 of the Enterprise Act 2002. Other sectoral regulators have the same powers in relation to the sectors for which they are responsible. Under the Enterprise Act, the CMA and Ofgem may undertake market studies in relation to the gas and electricity markets in Great Britain, and may make market investigation references to the chair of the CMA for the constitution of a CMA group to conduct an in-depth market investigation of competition in the market or markets concerned. The purpose of those investigations is to examine the markets and implement appropriate remedies where competition problems are identified.
Clause 36 confers the same powers on Ofgem in its capacity as the economic regulator for carbon dioxide transport and storage. That will enable Ofgem to undertake market studies and make market investigation references to examine potential distortions that may give rise to restrictions in competition in relation to carbon dioxide transport and storage. As provided for in clause 38, neither the CMA nor Ofgem shall exercise functions under part 4 of the Enterprise Act in relation to any matter if such functions have been exercised in relation to that matter by the other. Clause 37 additionally provides for the economic regulator to exercise certain functions under the Competition Act 1998 concurrently with the CMA. Enabling the exercise of those Competition Act functions allows the economic regulator to deal with anti-competitive agreements or abuses of a dominant position in the carbon dioxide transport and storage sector.
To ensure that the powers are used efficiently, clause 38 requires the economic regulator and the CMA to consult each other before exercising the functions. Clause 38 is also clear that the power may be used only by either the economic regulator or the CMA in relation to a particular matter. If there is a question as to whether the economic regulator has concurrent powers under clauses 36 or 37 in relation to a particular case, this clause provides for the Secretary of State to make that determination.
Dr Whitehead
Try as I might, I cannot find much at fault with this chapter of the Bill. On the contrary, I actually think it is rather well drafted. I am happy to sit down, having said nothing about these clauses whatsoever, and allow business to proceed.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clauses 37 and 38 ordered to stand part of the Bill.
Clause 39
Forward work programmes
Question proposed, That the clause stand part of the Bill.
Dr Whitehead
As the Minister says, these clauses are important in establishing reporting requirements relating to carbon capture and storage strategy and policy statements, and the requirement to report how the policy is going and what the problems are. It is important that we establish proper mechanisms for ensuring that the report is properly brought before Parliament. Given the interest of Members in the progress of CCUS, they may well want to debate the report in the House, and to have the Minister answer questions on it.
Clause 41(7) states:
“The Secretary of State must”—
it is nice that the provision has the word “must” in it—
“lay a copy of each annual T&S report before each House of Parliament”.
As the Minister will know, the phrase “lay before” has a lot of possible interpretations, just as “publication” does; we discussed the general question of publication in a previous sitting. Just laying a report before each House of Parliament has, potentially, a number of problems attached to it. Is it likely to be flagged up in any way that the report has been laid before Parliament? Is the onus on every Member of Parliament to find out whether that has happened? Do the Government intend to be proactive about laying reports before Parliament, and in offering opportunities to debate the report, or at least answer questions on it? Those are all extensions of the idea of laying a report before the House.
I do not want to say that the wording is inadequate, because it is the general wording on laying reports before the House, but the Minister will appreciate and understand that some legislation enters into greater detail on how a report is to come before Parliament. It would be helpful if the Minister gave his interpretation of the provision and said how he intends to transfer or convey the policy report from the regulator to the Floor of the House.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Dr Huq. I will make only a few comments. I will not object to these clauses, which I realise are important, but I share the concerns expressed by the hon. Member for Southampton, Test. It is critical that we have confidence in proper parliamentary oversight, and in Parliament being able to hold the regulator and particularly the Secretary of State to account. I am slightly concerned that the clauses give the regulator too much power to decide what they report on, how they report and what information they bring forward. As the Minister described, it is up to the regulator to explain why they have not brought forward a statement, for example. We need more than that. It should not be at the whim of the regulator whether to bring forward a statement; if they do not bring one forward, they should say why. It is for the Secretary of State to make sure that these things happen, obviously with parliamentary oversight.
Subsection (2) says:
“That description must include the objectives of each relevant project.”
Clearly, we need a lot more than just the objectives; we need to know how the objectives are being met. I know that the Minister will not want to make the Bill too prescriptive about what goes in the report, but we need that to include, for example, details of the efficiency of the project. Cynics say that carbon capture does not capture enough of the emissions, whereas obviously the industry says that we can capture 95% of them. I want to see how efficient projects are, and how they contribute to meeting net zero.
There are concerns that carbon capture might lead to the burning of more fossil fuels, so we need to understand the level of extraction of fossil fuels, what the inputs and outputs are, the emissions from any extractions of fossil fuels, and where the fossil fuels come from, including whether they come from other countries; we need to know that when it comes to meeting that wider net zero objective. Those are the things that I would want set out, so that I could question the Secretary of State in Parliament on them and make sure that we have confidence in how these objectives will be met.
Andrew Bowie
I can confirm to the hon. Gentleman that it has had an impact. Obviously, we continue to assess the impact of the special administration regime in the instance that he refers to. Lessons learned from that process and procedure feed directly into how we have thought about and developed the process for the Bill.
Clause 48 grants the Secretary of State the power by regulations to apply or make modifications to existing insolvency legislation in relation to this chapter of the Bill. The power will help to ensure that the special administration regime for carbon dioxide transport and storage networks fulfils its purpose to protect users of the network.
The power enables the Secretary of State to make modifications to insolvency legislation should, for example, practical experience highlight difficulties in the application of the regime, or should a change in general insolvency law necessitate a change to the special administration regime. The ability to do that is important given the expected long operational lifetime of a licensed carbon dioxide transport and storage network, and the potential for changes to broader insolvency law during this time.
Clause 49 defines relevant terms for interpreting chapter 4 of part 1 of the Bill. The terms refer to definitions in relevant existing primary legislation where it is appropriate. I commend clauses 42 to 49 to the Committee.
Dr Whitehead
We are now dealing with orders that follow from material we have considered previously in relation to false statements, the insolvency of companies and various other things. Clause 42 provides for orders to be made through the court that effectively place the licence holder into administration.
Under what circumstances can a transport storage and administration order be made? In view of what we have discussed, I assume that in addition to the insolvency of a company, a number of offences could lead to such an order. Normally, if a company cannot meet its obligations under the licence and therefore has effectively wound itself up, or seeks to do so, an order will be made through the courts to set up the regime that the Minister has described.
However, I am not entirely clear about the triggering point at which an order will be applied for and put before the court, who does that or the criteria under which the order is put into action. There are a number of circumstances in which one might concede that an order may be appropriate, but it might not have been applied for yet. The question that needs some clarification is when one might think that such an order is appropriate. Under what criteria may an order be offered before the court?
It will be pretty straightforward when a company has completely gone bust and someone has to rescue it, its assets or its operations. However, other circumstances under which an order may be required are less clear. Although this chapter provides that an order may lead to the rescue of the company as a going concern, other provisions—particularly clause 42(3)—show that an order may be used to transfer the operation of that company to another company. That is reasonably standard in provisions concerning the administration of a company, but it is not entirely clear how the treatment of the company will be decided. The court will make an order, but a decision will have to be made about whether the company should be salvaged or its assets transferred to another company.
We had a similar debate in the Bill Committee for the Nuclear Energy (Financing) Act 2022. We discussed what happens when a company that is developing a nuclear reactor goes bust during development or operation, and how we may have to deal with different circumstances surrounding the transfer of assets and ongoing activities depending on which stage the company is at. That will be more complicated during a production and operation phase than in a development phase.
It is important to be clear about the decision making process for what is done with each company, and it does not seem to me that the Bill gives the courts a view. I presume it is more likely that the Secretary of State or the regulator will say, “It looks like the assets need to be transferred to another company, rather than the company being salvaged, and that is how we will proceed.”
That leads to a further issue. If a decision is made to transfer the licence to another company, or to two or more companies, who decides which companies will take it over? Is that done on a tender, or is it done administratively by the appointment of a company to take over the licence arrangement? If the latter, who takes the administrative decision to appoint that company, and what are the criteria by which it is appointed? The provisions do not quite run to a fit and proper persons test, but they constitute a test on the suitability of a company to take over. Presumably, the scrutiny of that is in the purview of the Secretary of State, but it may be for the regulator or a combination of both.
Finally, I echo the point that the hon. Member for Kilmarnock and Loudoun made in his intervention about the status of the special administration regime. Before I do that, it has been remiss of me not to congratulate him on the relative success of his team.
Dr Whitehead
I was about to say that. I can reveal that the hon. Member for Kilmarnock and Loudoun was seen in the Library yesterday evening wearing a Kilmarnock shirt, which attested to his slight nervousness and fervour for his cause. I would not have worn a Southampton shirt in the Library, bearing in mind our ignominious exit from the premier league this year, but we will let that pass.
I want to mention the lessons learned from the special administration regime as it applied to Bulb. The Minister was not in post then, but I spent a lot of time tabling successive written questions to try to get some clarity and transparency about the process. I appreciate that under those circumstances, and quite possibly under these, considerable matters of commercial confidentiality and various other things might be involved in an order, including a transfer to another company, but I found the special administration regime as it applied to Bulb to be completely non-transparent.
We did not know what the Government’s liabilities were for the special administration regime; we did not know when it was likely to come to an end; we did not know how the decisions on the assets and arrangements related to Bulb were going—that is important, in terms of transfer to another company—and I got pretty frustrated trying to get any light into the proceedings. I would not like to think that that is how these arrangements might be conducted if it were necessary to transfer assets to another company. Indeed, the opacity of the Bulb proceedings led to an unsuccessful High Court challenge from several companies that felt they had been excluded from the transfer of liabilities and assets.
A clear intention that these proceedings will operate with the utmost transparency would help the progress of the Bill. The lesson that may be learned from Bulb is that it is generally not a good idea to undertake proceedings as if they were a state secret. On the contrary, disclosure and transparency, within the limits of commercial confidentiality, should be the watchword for such proceedings. When the Minister undoubtedly enlightens us with comments on my previous points, will he also reflect on how the regime might work best?
Andrew Bowie
Let me answer the hon. Gentleman’s questions in order and, I hope, in enough detail to satisfy him and the Committee. The aim is for a special administration regime to be used only in the instance of an insolvency. As we all know, it allows for the protection of essential services in a company solvency scenario to ensure that those services continue.
It is worth reflecting on the fact that in the absence of such a regime, if a carbon dioxide transport and storage company were to become insolvent, an administrator or liquidator working under the standard objectives—they include achieving a better result for creditors than winding up—would not necessarily have cause to keep transport and storage services running, or to secure the ongoing safety and security of the network. That is why we believe an SAR is relevant, and it would only be used in the instance of insolvency.
Andrew Bowie
The regulator will have the power, under clause 17 of the Bill, to terminate a carbon dioxide transport and storage licence in certain circumstances. The circumstances in which the economic regulator can terminate a licence will be set out in the licence itself. Those circumstances could include where a licence holder has contravened or failed to comply with enforcement orders made by the regulator, or by the courts where the licence holder has ceased to carry on as a transport and storage business or has become insolvent.
If a licence is being terminated due to company insolvency, the economic regulator or the Secretary of State have the option, under the provisions of chapter 4, to apply to the courts for a special administration order, as we have just discussed. Where a licence is to be terminated for non-insolvency reasons, clause 50 allows the Secretary of State the option to make a statutory transfer scheme. A transfer scheme would allow the Secretary of State to transfer relevant property, rights or liabilities of a licence holder either to another appropriate body or to the Secretary of State himself.
The aim of the transfer scheme is to secure the ongoing operation of the network, so that emitters that are attached to a network can continue to have their carbon dioxide emissions transported and stored in an economic, safe and secure manner. Where the ongoing operation is no longer viable, a transfer scheme would enable the Secretary of State to ensure that the safety and security of the network is maintained. As set out in clause 50, the Secretary of State cannot make a transfer scheme without the consent of the current licence holder and the persons to whom the licence and associated property, rights or liabilities are proposed to be transferred.
Clause 51 states that, before making a statutory transfer scheme under clause 50, the Secretary of State must consult both the licence holder—the transferor—and the person to whom the licence and associated assets are to be transferred—the transferee. If the proposed transferee is not a public authority, the Secretary of State must consult the economic regulator and other listed public bodies before making such a scheme, as well as the relevant carbon storage licensing authority. That is intended to ensure that the proposed transferee is able to meet the requirements of the licensing authorities.
Clause 52 gives effect to schedule 4, which makes further provision about transfer schemes made under clause 50. Schedule 4 sets out the scope and obligations for any statutory transfer that is made by the Secretary of State in relation to a carbon dioxide transport and storage licensed company. The schedule sets out that a scheme is capable of transferring property, rights and liabilities, including those that would not otherwise be capable of being transferred or assigned.
The provisions of the schedule enable transfers that are affected by the scheme to take effect as if there were no requirement to obtain a person’s consent under the relevant contract, licence or permit that is being transferred, and the transfer will not create any liability due to the apparent contravention of restrictions on transfer that would ordinarily apply. The exception to that is that the transferor and transferee company would be required to provide consent to a transfer. The intention is that, in effect, a transfer scheme is capable of seamlessly parachuting the transferee in the place of the transferor.
On the day on which a scheme comes into force, which would be the date appointed in the scheme, the transferee or transferees must pay to the transferor, or the transferor must pay to the transferee or transferees, such sums as may be agreed.
Dr Whitehead
Yet again, there are some sound provisions in the Bill on transfer schemes and how they might work. We have had the debate about how transfer schemes might follow from orders and how that all works through. As I have said, it is important, however, to think about the circumstances under which transfer schemes might arise. Normally, as the Minister has outlined, transfer schemes will come about because the company was unable to fulfil its obligations as the licensee because it did not exist any more or was in such a dire financial situation that it could not be seen as properly carrying out its licence obligations.
As I have said, there are other circumstances under which a transfer scheme could arise. Clause 51 sets out the question of consultation on transfers and that the company that is subject to having its assets and activities transferred has to be consulted. Obviously, if the company no longer exists, it might be difficult to consult that company. Clause 50 goes further and states in subsection (5):
“The Secretary of State may not make a scheme without the consent of…the licence holder”.
It appears that the licence holder—the company having the assets transferred from it—has a veto on whether the transfer scheme goes through.
If a company exists in reasonable working order, but it has contravened its licence for reasons that are not wholly to do with insolvency, that company might be pretty aggrieved about the process of the transfer. Under those circumstances, it might simply refuse to co-operate. The clause appears to confirm, in the way it is written, the potential non-co-operation of that company.
I do not know whether there is anything elsewhere in the Bill that modifies this statement, but it does look rather stark as it stands:
“The Secretary of State may not make a scheme without the consent of”
that company. I do not know whether that needs to be looked at, or whether there are circumstances—say a company is unreasonably refusing to co-operate or unreasonably withholding consent—in which that can then be overcome. I frankly do not know whether those circumstances or arrangements exist.
Deep in the recesses of schedule 4 is paragraph 10, on compensation for third parties. It deals with circumstances in which an innocent third party, as it were, has had dealings with the licensee that has gone bust or otherwise failed to carry out the terms of its licence, and is financially or otherwise inconvenienced—or has a loss attached to it—as a result of a transfer scheme.
For those who are desperate to read it, paragraph 10(1) on page 269 says that, under those circumstances,
“the third party is entitled to compensation in respect of the extinguishment of the third party’s entitlement.”
That means that when the third party had a reasonable expectation that something was going to happen as part of the licence arrangement, which has been extinguished because of a transfer scheme, and, I assume, it has not proved possible for the entitlements and expectations to be transferred to, say, another company that will undertake the licence activities, with all the procedures we have discussed, that third party is entitled to compensation.
Further down in the schedule, though, we see where that compensation comes from. Paragraph 10(3) states:
“A liability to pay compensation under this paragraph falls on the Secretary of State.”
Does it not in any way fall on the recovery of some of the assets of the company that failed to carry out its licence? Are there procedures whereby that might be done first, perhaps by the Secretary of State? Or is it an absolute requirement that if compensation is required, that is the end of the involvement of the company that is losing its licence and the Secretary of State must find that compensation, howsoever that has been arrived at? I do not know the answer to that—I am not asking the Minister a trick question—but it seems to me that a company that is losing its licence should be expected to provide at least some of the compensation to which the third party is entitled.
Andrew Bowie
I thank the hon. Gentleman for his questions, which again are pertinent and important to the Bill’s passage and implementation. I will answer them in turn.
When the Secretary of State considers making a transfer scheme, he may opt to do so when a network operator’s licence is expected to revoked. The purpose would be to transfer the ongoing operation of the transport and storage network to another operator. Pertinent to that is the hon. Gentleman’s question about the balance of power between the economic regulator and the Secretary of State. He asked whether they will both have the power to initiate a transfer scheme. Only the Secretary of State has the power to make a statutory transfer scheme under the provisions of chapter 5. Unless the Secretary of State is proposing to bring the assets within his own control, he must consult the economic regulator, Ofgem, when making a transfer scheme under the provisions of chapter 5.
On the question of whether the provisions go against the rights of a private company to which the assets belong, clause 50 confirms that the transfer scheme should take effect only with the consent of the transferor and the transferee. The consent of a licence holder to a statutory transfer scheme in the event of a licence termination, and the basis for the valuation of any compensation in the particular circumstances, is expected to be agreed to as part of the licence condition.
Dr Whitehead
With respect, that slightly misses the point about the question of the consent of the pre-existing licence holder. My question was: does the fact that the Bill says the Secretary of State
“may not make a scheme without the consent of”
the pre-existing licence holder mean that the pre-existing licence holder effectively has the whip hand as far as any subsequent scheme is concerned? In other words, if the licence holder simply says, “No, I’m not going to consent,” is that the end of the matter, or are do other things happen? I am not clear about that. If other things can happen, how can they?
Andrew Bowie
The hon. Gentleman asks another appropriate question. It is my understanding that, under the Bill, that would be the end of the matter. However, as he says, there is a more general point, and we will be working to add more detail to the procedure in future. I am happy to keep in touch with the hon. Gentleman as we do that over the next few months.
Andrew Bowie
I am terribly sorry; I missed the hon. Gentleman’s question about the schedule.
Dr Whitehead
I was getting so into the weeds that that is not surprising. My question concerns compensation for third parties and the extent to which the Secretary of State appears to be liable for that compensation, rather than at least attempting to involve the previous licence holder, who may have assets that could add to that compensation. Schedule 4 appears to provide that the previous licensee has no part in the proceedings. It states at paragraph 10(3):
“A liability to pay compensation under this paragraph falls on the Secretary of State.”
Are there circumstances in which the force of that particular statement may be mitigated? Alternatively, does the Minister regard it as good practice that, as far as the previous licensee is concerned, that is the end of it?
Andrew Bowie
As with my answer to the hon. Gentleman’s previous question, there are details that still need to be worked through. On his specific question, there will be mitigations in terms of the responsibility being wholly on the Secretary of State and in terms of whether the previous licence holder should be responsible for paying that compensation. I will keep in touch with the hon. Gentleman about the issue as we work up the specifics of the provision.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Clauses 51 and 52 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 53
Cooperation of storage licensing authority with economic regulator
Question proposed, That the clause stand part of the Bill.
Dr Whitehead
I think we have identified the relevant notifications on the termination event. The clause seems to be an admirable way to do it, particularly in respect of the co-operation with the economic regulator. I am happy for it to stand part of the Bill.
Question put and agreed to.
Clause 53 accordingly ordered to stand part of the Bill.
Clause 54
Amendments related to Part 1
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 5 be the Fifth schedule to the Bill.
Clause 55 stand part.
Andrew Bowie
Clause 54 gives effect to schedule 5, which makes amendments to other Acts that result from measures in part 1 of the Bill.
Schedule 5 makes consequential amendments to existing legislation to reflect the functions and powers conferred on Ofgem as the economic regulator of carbon dioxide transport and storage under part 1. They include amendments to the Utilities Act 2000 to make it clear that requirements in that Act relating to Ofgem’s work programming and annual reporting functions do not include the functions in relation to carbon dioxide transport and storage conferred on Ofgem by the Bill. That is necessary because the Bill makes separate provision for Ofgem to prepare a forward work programme and annual report on its transport and storage functions, as we discussed earlier.
The restriction on the disclosure of information in section 105 of the Utilities Act is amended to provide that the unauthorised disclosure of information obtained under the provisions of part 1 is a criminal offence, except where disclosure is for the purpose of facilitating the performance of Ofgem’s statutory functions under part 1. Amendments are also made to the Enterprise Act 2002 to reflect the market investigation powers being given to Ofgem in respect of the carbon dioxide transport and storage sector. The Enterprise and Regulatory Reform Act 2013 is amended to ensure that appeals to the CMA in relation to licence modification decisions are heard by a specialist panel. That will ensure that people with the most appropriate expertise are involved in an appeal.
Clause 55 sets out the definitions of terms used in part 1, including include technical definitions relating to the geological storage of carbon dioxide, which are consistent with definitions used in the existing carbon storage licensing legislation.
Dr Whitehead
We come to the part of the Bill where we go through all the definitions and talk about the various amendments that have been made to other pieces of legislation. I always worry slightly about that, in as much as that without actually referring to those bits of legislation, we do not quite know whether someone has smuggled through the revocation of our rights under Magna Carta or whatever in a small amendment to a Bill far away. As far as I can see, everything is in order and the Bill does the right thing to tidy up all the relevant ends, so I am very happy for it to proceed.
Andrew Bowie
I confirm that we are in no way revoking the hon. Gentleman’s rights under Magna Carta.
Question put and agreed to.
Clause 54 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 55 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Energy Bill [ Lords ] (Second sitting)
Alan Whitehead ExcerptsTuesday 23rd May 2023
(1 year, 7 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 23 May 2023 - (23 May 2023)
Dr Alan Whitehead (Southampton, Test) (Lab)
I do not have anything much to say about clause 7 standing part. I will have some things to say about some of the clauses that follow, but the power to grant licences is pretty unexceptional, and we do not have anything to add or take away from the clause.
Alan Brown (Kilmarnock and Loudoun) (SNP)
Unusually, I will speak for longer than the hon. Gentleman—I say that just as everybody was getting excited. I understand that clause 7 and subsequent clauses on granting licences and the economic models are critical to getting carbon capture up and running. Obviously, I want these provisions in place, but I ask the Minister for a bit more detail.
Clause 7 is all about the grant of licences, which is to be undertaken by the regulator. That will be Ofgem, as was said earlier in response to an intervention. The Minister assures us that it has the expertise and resource to do all the additional licensing work, but we discover in the explanatory notes for clause 7 that under clause 16, for an interim period, it is actually the Secretary of State who has responsibility for granting licences. Why is that? Why have the interim period? What expertise is available to the Secretary of State in-house when they are granting these licences? Who will oversee that? How long does the interim period last? From what I can see in schedule 1, it lasts until the Secretary of State passes regulations to end the interim period. I would like a bit more clarity on how long the interim period will last.
Is the interim period and the granting of licences by the Secretary of State a mechanism to speed up the grant of licences for track 1 projects that have already been selected by the Government? Does that not potentially give them an unfair financial advantage? The Minister touched, in his opening remarks, on competition for licensing and keeping everything competitive. How does he square these two things?
When does the Minister envisage the first licences being granted by the Secretary of State, and when does he envisage them being granted by the regulator? How will the licences that are issued in the interim period be compliant with clause 12, which is still to come and is all about standardisation? That helps to keep things competitive and transparent.
Dr Whitehead
My knees get worse as the afternoon goes on.
The clause is, as the Minister said, about the power to create a licence type. I appreciate that that is in the gift of the Secretary of State in the first instance; the power will be transferred subsequently, as we said when debating clause 7. This clause, however, appears to do two things, and possibly goes far wider than the Minister envisages. It allows for regulations so that
“different types of licence may be granted…in respect of different descriptions of activity falling within section 2(2).”
Clause 2(2), as we have discussed, defines activities that are prohibited if unlicensed. Those are:
“operating a site for the disposal of carbon dioxide by way of geological storage”;
and
“providing a service of transporting carbon dioxide by a licensable means of transportation”.
We mentioned the possibility of an amendment that would have covered carbon dioxide usage as well, as the Minister will be aware. The power under clause 8 would allow different licence types within that overall framework. As the Minister said, different activities may emerge. Various activities will fall well within clause 2(2), and others will be to the side of that.
As far as I can see, the power in clause 8 allows the Secretary of State to sweep up what is both central to and to the side of the activities in clause 2(2). That may be good for the Secretary of State, but it is not good for the companies developing carbon capture and storage, who are not sure whether this power will or will not sweep them up—they do not know. They are not sure whether the activity they are carrying out on the margins of the licensing arrangement is non-licensable, or will become licensable if and when the Secretary of State decides by regulation that different kinds of licences can be provided. A lot of that depends on what the regulations say. If they are broad, as this power to create licence types appears to be, companies will not have any assurances about what they are doing. When the regulations come out, they might prefer a menu of the different licence types in the Secretary of State’s mind.
I appreciate that we are in the realm of known knowns, known unknowns and unknown unknowns, but a menu of different licence types that are reasonably close to licensability in the mind of the Secretary of State would be very helpful for companies operating in this sphere. Will they be more or less likely to need to apply for a license? Would the licensing situation hold up their activities in any way, or could they go ahead with what they were doing on the margins, not within the new license type? Could the Minister comment on what is in his mind about the regulations? Will he provide that menu? If so, what might it consist of?
Andrew Bowie
I thank the hon. Member for his questions. I do not think the former Defence Secretary of the United States would have expected to be mentioned so much in the UK’s Energy Bill Committee—we have talked about known knowns, known unknowns and unknown unknowns. The hon. Member is correct: we are dealing with a lot of unknown unknowns when we talk about exactly how and when the industry and technology will develop. As they develop, a decision will be taken at an appropriate point about what will and will not be licensable, and what types of licence will and will not apply.
The hon. Member talks about the regulations and whether there will be a menu of options. Clarity is good for everyone, especially when developing a new technology and deciding whether to invest in carbon capture, usage and storage. We will be as clear as we can in regulations about what will and will not be licensable and what licences will apply. However, I would not like to be drawn at this stage on what will be in the regulations. That will be for Government and industry to work up together as we move toward the date when they will apply.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Procedure for licence applications
Dr Whitehead
I beg to move amendment 77, in clause 9, page 10, line 6, after “the Secretary of State” insert
“must ensure that licences are only granted to fit and proper persons, and”.
The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
The Chair
With this it will be convenient to discuss the following:
Amendment 78, in clause 18, page 19, line 33, at end insert—
“(c) may only be transferred to a person the Secretary of State considers to be a fit and proper person for this purpose.”
The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
Amendment 79, in clause 43, page 39, line 16, at end insert
“provided that the transferee is considered by the Secretary of State to be a fit and proper person for this purpose”.
The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
Amendment 80, in clause 50, page 45, line 35, after “any” insert “fit and proper”.
The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
Amendment 82, in clause 61, page 54, line 16, after “given to a” insert “fit and proper”.
The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
Amendment 83, in clause 61, page 55, line 5, at end insert
“provided that the transferee is considered by the Secretary of State to be a fit and proper person for this purpose”.
This amendment refers specifically to the need for the hydrogen counter party to be a fit and proper person. The aim of this amendment is to put the onus on the Secretary of State to personally deem the individual as “fit and proper”.
Amendment 87, in clause 82, page 71, line 42, at end insert—
“(l) for the certification by the Secretary of State that the transferee is a fit and proper person.”
If the Secretary of State needs to find a new counterparty this amendment obligates that they must ensure they are a fit and proper person.
Dr Whitehead
Amendment 77 concerns licences being granted to fit and proper persons; the other amendments relate to matters such as the transfer of licences. Members may think that the application of the term “fit and proper” to licensing arrangements is pretty obscure, but I will try to disabuse them of that notion. The term “fit and proper” can apply to both a real person and a person in law, which can be a company or an organisation. It appears in a number of laws and regulations where the Government or a regulator have a responsibility for appointing or licensing individuals or companies.
Andrew Bowie
I thank the hon. Gentleman for his amendments. They seek to place responsibility on the Secretary of State to ensure that individuals obtaining a carbon dioxide transfer and storage licence are fit and proper. The amendments would affect the licence application, the licence transfer, the special administrative regime and transfer schemes.
It is clear that the Opposition and the Government share the same desire here, requiring the utmost standards for those wishing to engage in the transport and storage of carbon dioxide, in support of the Government’s ambitions to scale up the deployment of CCUS and its important role of achieving our net zero target. I therefore support the hon. Member for Southampton, Test’s aim; however, as addressed in the other place, the specific inclusion of “fit and proper” within the drafting of clauses across part 1 is actually unnecessary. That assurance is already inherent within the Secretary of State and the economic regulator’s role within the licensing regime. Despite sharing the desire, I ask for the amendment to be withdrawn because I believe that it is superfluous in this instance.
Amendments 82, 83 and 87, which were also tabled by the hon. Member for Southampton, Test, seek to make the Secretary of State responsible for ensuring that an individual designated as a hydrogen production counterparty is deemed “fit and proper”. The Government anticipate that the Low Carbon Contracts Company Ltd, or LCCC, which is the existing counterparty for contracts for difference and the planned counterparty for the dispatchable power agreement, will be the counterparty for the low-carbon hydrogen agreement, subject to its successful completion of administrative and legislative amendments.
In taking the decision to proceed with LCCC as the counterparty to the low-carbon hydrogen agreement, the Secretary of State considered, among other things, LCCC’s ability to deliver the required functions and its experience and track record in contract management. Those considerations would bear on any future decisions, which would also be subject to normal principles of public decision making. Again, I agree with and share the same aim and desire as the hon. Member for Southampton, Test, but the amendments are superfluous. I politely ask that he withdraw his amendment.
Dr Whitehead
Naturally, the fact that the Minister did not eagerly grasp and endorse the substance of the amendments and run off to the Table Office is disappointing, but I accept that he has perhaps looked in detail at how the legislation will work and is satisfied that an equivalent of the “fit and proper person” test can effectively be carried out under the provisions of the Bill. However, that has not been the judgment of other parts of Government, which have found that particular wording to be of great help in underlining what their responsibilities are. It also ensures that the judgments that they make in exercising their responsibilities are fairly bomb-proof: if the Secretary of State presses the “fit and proper person” button, there is not too much an aggrieved party can do about it. I appreciate that that is different for different licences.
The Government have effectively decided that the LCCC, which I think is a fit and proper person, will be the hydrogen counterparty, although that is still to come in legislation—so we are legislating for something that we think will happen later, but not right this minute. I leave that with the Minister. He has not agreed to amendment 77; he thinks it superfluous. I slightly disagree—I think it would be useful—but that is to some extent a matter of judgment. Perhaps in a few years’ time, when a Minister becomes seriously unstuck with a particular appointment, we will get together again and see what can be done about it. For now, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Andrew Bowie
I beg to move amendment 1, in clause 9, page 10, line 15, leave out subsection (10) and insert—
“(10) Section 10(6) (meaning of ‘appropriate devolved authorities’) applies for the purposes of subsection (3) of this section as it applies for the purposes of section 10(3).”
This amendment corrects a drafting error in the definition of “appropriate devolved authorities”.
Andrew Bowie
As the hon. Gentleman knows, we have launched a track 2 process; there will be an update on timings in the summer. Of course, we want to open up the process to as many companies and organisations seeking to get into this technology as possible, but it is really important that the appropriate steps are followed to get to that stage. That is why we are proceeding at pace with track 2 and why we will update everybody concerned with that in the summer.
Whether a competitive process is appropriate in the enduring regime will depend on how the CCUS market develops, including the anticipated number of market participants—that relates to the answer I just gave to the hon. Member for Kilmarnock and Loudoun. Any regulations that may be made under the power would first be subject to consultation with the economic regulator and the devolved Administrations, and they would be subject to the affirmative procedure.
Dr Whitehead
This is a bit unsatisfactory, to be honest. I appreciate that the Minister has very carefully said that this is a discretionary power for the future and the Department may, as the CCUS market develops, consider making—I presume—some licences viable on a competitive basis, and that the Government may do that by regulation; I am pleased to hear that the regulation will be subject to the affirmative procedure, should the Government do that. Nevertheless, that seems to leave huge gaps in the procedure by which competitive licences might be determined. Is the determination based on, for example, how much money a company gives for the licence, and would the competitive licence mean that the highest bidder won the licence regardless of their suitability for the purpose?
Would the judgment on the creation of the licence be subsumed in other factors such as finances, or would the competitive licence be tendered on the basis of who is geographically most able to do something in terms of the viability of the body or company complying with a licence? Would there be a financial test? Once a competition has been entered into and the terms are not carefully set, we may get to a situation of “Beware your wishes; they may come true.” What we get as an outcome of a competitive tender may not be what we wanted to happen, but if we set it in train through the competitive process and have not defined it carefully enough, there will be no going back at that point.
It will be necessary to think through this way of doing things very carefully before proceeding, even with discretion being exercised. I am concerned that there is not enough in the legislation to guide us on how that thinking process might be carried out. Perhaps the Minister will give us a little guidance on the sort of things that would be to the fore should the competitiveness process be undertaken, and indeed the things that he would not consider in such a process. I am delighted to see that he has received bit of guidance on the matter. That may well help us all.
Andrew Bowie
I thank the hon. Member, and completely understand his concerns and where he is coming from. Ultimately, however, the appropriateness of a competitive approach to licence allocation will be considered, taking into account the learning from both the track 1 and the ongoing track 2 licence allocation processes, as well as the wider developments in CCUS markets and technology. This is not without precedent. In gas and electricity, Ofgem runs different processes for allocating different licence types. Some are allocations that are run competitively, such as offshore transmission licences, and other licence types are not.
The power in clause 8 also enables consequential amendments to be made to the Bill should they be considered necessary to facilitate the making of different licence types, but as the hon. Member pointed out, and as I said, the power is discretionary, and it should be for the Secretary of State to choose whether to exercise such powers.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Conditions of licences: general
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
A number of conditions will be appropriate to include as standard in all licences of the relevant type. The power in clause 12 enables the Secretary of State to specify what those standards are. The Secretary of State will be required to publish the standard conditions in an appropriate manner once they have been determined, and they will then be automatically included when a licence is granted.
To allow for the possibility that the standard conditions may need to be tailored to the circumstances of a particular licensee, the clause also enables standard conditions to be either excluded or amended in an individual licence. That can be done only if both the licence holder in question and other holders of the same licence type would not be unduly disadvantaged as a result.
Notice must be given of the intent to modify or exclude standard conditions in an individual licence, setting out the proposed modifications or omissions and the reasons for them, with sufficient opportunity for representations or objections to be made. Any objections or representations must be fully considered. I commend the clause to the Committee.
Dr Whitehead
The Minister has set out what the standard conditions of licences are likely to be and how they are going to be determined by the Secretary of State, but the clause goes a bit further than that. It says in subsection (2) that
“the Secretary of State must”
—that is a good thing—
“publish any standard conditions determined under subsection (1)”,
which says:
“The Secretary of State may determine the conditions that are to be the standard conditions of licences”,
and subsection (2) then says the Secretary of State must publish the conditions
“in whatever manner the Secretary of State considers appropriate.”
That is a bit of an odd formulation. I am more used to the idea that the Secretary of State must publish any standard conditions determined under subsection (1)—full stop.
The question of publication has always been important when conditions are to be published that licence applicants will be expected to look at and know about. The onus is, or should be, on the Department to publish those conditions as widely as possible, whereas this power appears to narrow that substantially. I am not suggesting that in any way the Minister would seek to restrict the public’s free access to information, but under this formulation it is possible that, just as publications are set up specifically for the purpose of obscuring the publication of various things from the general public, the Secretary of State could decide to publish the conditions in something like The Competitors Journal. Indeed, they could be published as—I don’t know—a TikTok video, as I mentioned earlier, or in some other way that is inappropriate to the circumstances under which their publication should appear, which should give those who apply for licences the maximum amount of, and ease of access to, the information that would be necessary to inform their application.
We have not moved an amendment to strike out the second part of subsection (2), but I would like from the Minister at least an assurance that he will place an emphasis on the first part, which requires the Secretary of State to publish the conditions, and that, in pretty much all circumstances, “publish” means that the publication is widespread and easily accessible in the public domain, so that it can be digested and read by all concerned.
Andrew Bowie
Yes, I agree with my right hon. Friend. It is precisely about what he was touching on earlier: we are able to provide in the legislation the flexibility to allow the technologies for which we are legislating the space to grow, develop and become commercially viable. That is why it is essential to strike the balance between regulation and ensuring freedom for companies to operate. That is exactly why we would like the clause to stand part of the Bill.
As I was saying, allowed revenues must be set at a level that covers the companies’ costs and allows them to earn a reasonable return, subject to their delivering value for consumers, behaving efficiently and achieving their targets as set by the economic regulator. The amount of allowed revenue that an operator is able earn is set out in the licence conditions, which will need to be updated to reflect the outcomes of the periodic regulatory reviews and to keep pace with the evolution of the market more broadly. The power provides for the economic regulator to make such licence modifications, subject to an appropriate consultation process.
Before making any modifications to licence conditions, the economic regulator must give notice of the proposed modifications, the rationale for them, and an appropriate timeframe within which representations may be made. Any representations that are made must be duly considered. As Exchequer support will be available to certain users of the networks, the Secretary of State must be consulted on licence modification proposals and retains the power to direct that a modification may not be made.
Should the Secretary of State object to a particular modification, the economic regulator would need to consider whether to pursue the modification in an alternative form, which would require restarting the process of notifying and consulting on the new proposals. As is the case in other regulated sectors, licensees should have the right of appeal regarding modifications that are made to licences after they have been granted. The Bill provides for that later in chapter 1.
Clause 14 requires that, where the economic regulator has made a licence modification under clause 13 to a standard licence condition, the standard conditions of all future licences of that type should similarly be modified. That ensures a consistent approach to standard conditions across licences of the same type.
Clause 15 makes provisions for the Competition and Markets Authority or, as may be the case, the Secretary of State, to modify licence conditions in specific circumstances in relation to company mergers. Where there is a merger between licensed entities, that may necessitate licence modifications to ensure compliance with competition law. The power enables the CMA or the Secretary of State to modify licence conditions accordingly. I commend the clauses to the Committee.
Dr Whitehead
I have a question more than anything. Will the Minister state on the record this afternoon who the economic regulator actually is? The reason why I ask is that there does not seem to be any definition in the Bill of who the economic regulator is. It appears to be the CMA, but it might not be, because clause 20, on “Appeal to the CMA”, is under the heading “Appeal from decisions of the economic regulator”, so those do not appear to be the same thing in the Bill’s construction. It is not further defined, so perhaps the Minister will clarify that for us.
Andrew Bowie
I am happy to clarify that the economic regulator to which I and the Bill refer is of course Ofgem. Appeal to the CMA relates to what I have just discussed: occasions when there is a merger between two licensed entities, which may necessitate modifications. That is where the CMA comes into it. To be absolutely clear, Ofgem is the economic regulator.
Dr Whitehead
I point out, therefore, that there are inconsistent references to Ofgem, to the CMA and to the economic regulator. They are one and the same but referred to in different ways in different parts of the Bill. That might be a drafting issue more than anything else.
Andrew Bowie
I have just been reminded by my hon. Friend the Member for Beaconsfield that clause 1 sets out that the economic regulator to which we refer is Ofgem.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clauses 14 and 15 ordered to stand part of the Bill.
Clause 16
Interim power of Secretary of State to grant licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause and schedule 1 provide the Secretary of State with the power to grant carbon dioxide transport and storage licences during an interim period, as has been discussed already this afternoon.
In the enduring regulatory regime, we expect the economic regulator to take decisions on who should be granted a carbon dioxide transport and storage licence. That is provided for by clause 7. However, it is the Secretary of State who will determine the first carbon dioxide transport and storage networks to be granted a licence—through the Government’s CCUS cluster sequencing programme—and the terms and conditions of those licences. That is appropriate given the Exchequer support available to the first CCUS clusters.
The CCUS cluster sequencing process is specifically designed for first-of-a-kind projects. The interim period during which the Secretary of State has the power to award licences will end on a date to be set in regulations, once the industry is sufficiently mature. After that interim period, the economic regulator will have sole power to grant licences.
Government amendment 2 corrects a cross-reference and renumbers a subsection in schedule 1 to ensure that the schedule is read correctly. Schedule 1 provides the Secretary of State with the power to grant carbon dioxide transport and storage licences during an interim period. The interim period during which the Secretary of State has the power to award licences will end on a date to be set in regulations made under schedule 1, once the industry is sufficiently mature. I think that answers some of the questions asked by the hon. Member for Kilmarnock and Loudoun earlier. After that interim period, the economic regulator, Ofgem, will have sole power to grant licences. I commend the clause and the schedule to the Committee.
Dr Whitehead
The clause itself is brief, but refers to schedule 1 and to the interim power of the Secretary to State to grant licences. As the Minister said, that power will come to an end on a date to be determined at a point when the industry is well established and the Secretary of State therefore no longer has to exercise the interim power. Who decides when the industry is well established? If that is the Secretary of State, is it not a rather circular way of bringing to an end the power of the Secretary of State to grant licences on an interim basis? If the Secretary of State decides that the industry is not that well established, he or she will presumably continue to grant interim licences forever.
Presumably, we want to reach a point when the Secretary of State does not grant licences in his or her own right and Ofgem or the economic regulator does, but we do not appear to have any mechanism in the Bill, other than something to be determined at a particular date, whereby the Secretary of State switches off his or her own power and switches on an Ofgem power. It would be helpful if the Minister could clarify that. There may be something in the legislation that I have not noticed, but it appears from schedule 1 and the clause that there is not a clear switch-off mechanism, other than the intention to do so when the market is mature.
Alan Brown
To follow on from that point, and the point that I made earlier, I know that the Minister said that he would write to us, but I am interested in how he envisages the sequencing and the interim period coming to an end. Although he said that in terms of value for money it is up to Parliament, and us as parliamentarians, to hold the Government to account, if the interim period goes on for a long while and individual licences are granted effectively on an ad hoc basis, it will be almost impossible for parliamentarians to hold the Secretary of State to account. We will continually be told that the information is commercially sensitive, so we will be unable to access it. I want a bit more clarity on how this will all come together in a more transparent manner.
Dr Whitehead
The clause concerns termination events, stating:
“If the economic regulator considers that a termination event has arisen, or is likely to arise, the economic regulator must notify the persons mentioned in subsection (2) as soon as reasonably practicable.”
The Minister has given company insolvency as an example of a possible termination event, but I am sure he will agree that there are a number of others.
Subsection (5) says that a
“‘termination event’ means a state of affairs in which the economic regulator is authorised to revoke the licence.”
That explains precisely nothing; it does not give examples of termination events or explain the circumstances in which the economic regulator is authorised to revoke a licence. It does not take us very far.
Is there a roster of termination events? Is there a list of likely termination events that the Minister could put into a menu? Insolvency is one such event, but I can think of a number of other circumstances in which termination may take place either voluntarily or involuntarily. For example, a company may request that the regulator terminate its licence, stating that it cannot carry on with its licence arrangement for reasons other than insolvency.
The clause does not list any circumstances that could constitute a termination event. Is the Minister satisfied that the rather circular definition in the clause is sufficient? Or does he think that more clarity on what a termination event could constitute and how one might be dealt with is required?
Andrew Bowie
I understand the hon. Gentleman’s point. However, I think it is fairly well recognised and understood within the industry that the termination of a licence will come in the event that a licence holder ceases to carry on as a transport and storage business and therefore no longer requires a licence; if it becomes insolvent; or if it contravenes or fails to comply with enforcement orders made by the economic regulator or, in certain situations, the courts. I am not sure what would be added by setting that out in the Bill. I suspect that it is fairly well understood across the industry.
To answer the question of what would happen in the event of licence termination, the Bill provides certain step-in rights for the Secretary of State in a licence termination scenario to be able to transfer the ongoing operation of the transport and storage network to another operator or, where that is not possible, to ensure the safe decommissioning of the infrastructure. If a licence is terminated because of the insolvency of a transport and storage company, the Bill enables the application of a special administration regime to support the ongoing operation of the transport and storage network, prioritising its rescue as a going concern and securing the ongoing safety and security of the network. I reassure the hon. Gentleman that a great deal of consideration has gone into this specific element of the Bill, and we are happy that it is clear in its intent.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Transfer of licences
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
We are powering our way through this afternoon. Clause 18 enables carbon dioxide transport and storage licences to be transferred from one legal entity to another, subject to the consent of the economic regulator, Ofgem. Carbon dioxide transport and storage licences will be granted to a legal entity, and they cannot be bought or sold separate from that legal entity. Circumstances may arise in which it is appropriate or necessary to transfer a licence to another legal entity, and the clause provides for that. For example, a licence may need to be transferred as a result of a company merger or acquisition, or a company restructuring, where the legal entity that is proposed to carry on the licensable activity is not the same legal entity to which the licence was awarded. A transfer may relate to the whole or any part of the licence. The regulator’s consent is required for any licence transfer.
Clause 19 sets out the process that the economic regulator must follow before giving consent to any transfer. That includes public notice of the regulator’s intent to consent to a licence transfer, the reasons for it, any conditions to be attached to the consent to transfer, and a time period within which objections or representations can be made. The economic regulator must also notify the Secretary of State of an intended transfer, and the Secretary of State has the right to direct that a transfer may not be consented to. That is appropriate, as there may have been contractual financial support agreements in place between the Secretary of State and the current licence holder pursuant to the licence.
Dr Whitehead
The clauses deal with transfer of licences when, as mentioned in the previous clause, a termination event takes place. Subsequent to such an event, the licence will have to be put into action again and will be transferred. I am interested to see whether I can get the words “termination event” into common language, so that I can say to people, “That is a bit of a termination event”. However, I will not do that this afternoon.
The transfer of licences under such circumstances, as we have emphasised, needs to be put under the general heading of “fit and proper people”, whether we explicitly say that or not. A termination event may have occurred because someone has proven not to be a fit and proper person—for example, if they were gambling the company’s proceeds on local casinos—and therefore the company or person has been determined not to be able to carry out the term of the licence. The licence therefore needs to be transferred at least to a better kind of person.
Will the Minister expatiate briefly on the circumstances under which transfers will be judged? We need to be sure that when a licence needs to be transferred after a termination event, no one can say, “You over there—you will do. We are in a bit of a fix as far as the licence is concerned, so you get on with it.” I am sure that that is the last thing on the Minister’s mind, but it could conceivably happen if someone wished to cut corners and keep a licensed line of activity going. If the Minister could give an assurance about how licences will be transferred, that would be helpful.
Andrew Bowie
I am glad that we are not going to focus too much on termination or even extermination events during our debate. Indeed, it is to be hoped that we will not need to refer to this aspect of the Bill very much, if at all. However, we have to legislate in the expectation that at some point, there may be termination events for a licensed entity. That is why we have set out the provision for a licence transfer in the Bill.
The hon. Member for Southampton, Test referred to his earlier point regarding the inclusion of the phrase “fit and proper person”. As I said, we believe that the Bill sets out exactly how the Government will determine that a company or an individual is well placed to be a licence holder and carry out their duties as they relate to the Bill. However, let us say that they are not—we hope that that will not be the case—and a transfer takes place. A new licensee will be found, and if they intend to commence the licensable activity shortly after consent is granted, the regulator—Ofgem, in this case—may ask them to demonstrate, for example, that arrangements to accede to relevant codes by the proposed transfer date are in place. I understand why the hon. Member asks these questions, and it is right to do so. It is right that we state on the record today exactly what we expect in the event that a termination event takes place in regard to a licensed entity.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19 ordered to stand part of the Bill.
Clause 20
Appeal to the CMA
Question proposed, That the clause stand part of the Bill.
Bim Afolami (Hitchin and Harpenden) (Con)
I want to add a note of caution in relation to this set of clauses—a word for those on the Treasury Bench and the Minister, who is a good friend and a good parliamentarian, and who is doing a fantastic job on the Bill and in his role.
There is a hidden danger in the Secretary of State and, indeed, the Department not having the ability, outside of an interim period, to intervene at all in the process vis-à-vis licences. If I have misunderstood anything, I stand corrected, but as I understand it, once we have gone past the interim period—in peacetime, so to speak—the regulator, Ofgem, will make a decision. That decision can be, rightly and very understandably, scrutinised. Appeals can be made to the CMA, which is the right place, but there is no provision for the Secretary of State to involve themselves in that process.
If my understanding is right, and it may be wrong, there is no ability for the Secretary of State to intervene in that process. That strikes me as dangerous in the event that there is an emergency, the economic situation changes hugely or the broader political environment changes to the point that the regulator has a very different view of the issue from that of the Department. I should have referred Members at the beginning to my entry in the Register of Members’ Financial Interests: I am chair of the Regulatory Reform Group.
My point is not a dry, technical one that has no real political or economic bearing; it could be hugely significant over the coming years. I urge the Minister and his officials to consider whether we should retain some ability for the Secretary of State to intervene directly in the process if that were required, although I suspect that most of the time it would not be.
Dr Whitehead
I was going to make a slightly different point from that made by the hon. Member for—
Dr Whitehead
I remembered the Hitchin bit, but I could not remember the Harpenden bit; I am sure that the hon. Member treats both parts of his constituency with equal reverence.
Dr Whitehead
I was tempted to refer the hon. Member to the Energy Prices Act 2022, which was recently passed—I think, to paraphrase the Minister, not on his watch. The Act allows the Secretary of State to do pretty much anything that he or she wants in the energy sphere. I do not know whether that applies to the circumstances that the hon. Member for Hitchin and Harpenden suggested, but we are particularly concerned about the powers in that Act, and whether they need to be rowed back a little in this Bill.
I draw the Committee’s attention to the process of appeal from the economic regulator to the CMA. It appears to be a linear process. The appeal is set up by the CMA, effectively, and there is no going back afterwards. There is not a circumstance in which the economic regulator can say, “Actually, we think the CMA didn’t work as well it should in terms of casting that appeal. Can we appeal the appeal—not necessarily the substance of the appeal, but the way in which it has been carried out?”
What is apparent in terms of the CMA’s powers regarding appeals is that they give the CMA a lot of ability to misstep. Clause 20(4) states:
“The CMA may refuse permission to bring an appeal only on one of the following grounds”.
The CMA, actually on fairly wide grounds, can therefore refuse to bring an appeal. It appears to have pretty widespread powers to make a determination without any comeback. For example, clause 22(4) states:
“The CMA may allow the appeal only to the extent that it is satisfied that the decision appealed against was wrong on”
various grounds, including, among others,
“that the decision was based, wholly or partly, on an error of fact”.
Various things in the clauses emphasise the linear nature of the appeal process—that is, the CMA decides, and no one is looking at what the CMA is doing in terms of its appeal processes. I would like to hear whether the Minister thinks that that is adequate or whether a little more attention ought to be paid to what the CMA is doing in those circumstances, and whether the relationship between the CMA and the economic regulator under those circumstances is as good as it could be.
Andrew Bowie
Turning first to the points made by my hon. Friend the Member for Hitchin and Harpenden, who does treat both parts of his constituency with equal diligence—having visited, I have seen that at first hand—he is right: the Secretary of State does not have the power to directly modify licence conditions once they are granted, but he does have a veto over Ofgem decisions. That is set out in clause 13(6).
I genuinely understand the concerns of the hon. Member for Southampton, Test, but the provisions and procedures directly mirror the appeals process in respect of electricity and gas licence modification, set out in the Gas Act 1986 and the Electricity Act 1989. We believe that it will ensure consistency of approach for the economic regulator Ofgem and, indeed, the Competition and Markets Authority, which will provide confidence for the sector, and indeed sectors, as we move forward.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21 ordered to stand part of the Bill.
Schedule 2 agreed to.
Clauses 22 to 25 ordered to stand part of the Bill.
Clause 26
Provision of information to or by the economic regulator
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
They would be subject to the same stringent actions as have been set out, and in the interim the Secretary of State would determine what action should be taken in that respect.
Clause 27 gives the Secretary of State a power to require information directly from a carbon dioxide transport and storage licence holder, to ensure that he has access to information needed to support the effective conduct of his CCUS functions. The clause does not enable the Secretary of State to share or publish the information. To ensure protection of sensitive information, information provided to the Secretary of State will remain protected under the Data Protection Act, and an information request cannot be made to obtain information protected by legal professional privilege or, in Scotland, confidentiality of communications.
Dr Whitehead
The Minister’s final few words appear to show—the hon. Member for Kilmarnock and Loudoun may have a few things to say about this—that there are different conditions for disclosure or production in legal proceedings in England and Wales and in Scotland. I am not a lawyer, so I do not know exactly what the difference is likely to be, but it appears that there is greater protection for the licence holder with respect to information provision in Scotland than in England and Wales. Perhaps I am reading that wrong. Is it the case that, in effect, the two conditions are the same and the wording of the Bill just bows in the direction of the formulation in Scotland, or is there a material difference?
Andrew Bowie
There is no material difference at all. As the hon. Member suggests, it is just a reference to the different regulations that apply in Scotland and in England and Wales, as a result of the devolved legislature in Edinburgh legislating slightly differently from the way that we have for the rest of the United Kingdom. That is the only difference. As this is a pan-UK Bill that affects each area of the United Kingdom, we have to make clear in the Bill the different regulations that will have to be conformed to. That is why the language of clause 27 is as it is.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 27 ordered to stand part of the Bill.
Clause 28
Monitoring, information gathering etc
Andrew Bowie
Clauses 28 to 31 relate to other functions of the economic regulator. Starting with clause 28, as I have already said, carbon capture, transport and storage are nascent industries in the UK and, indeed, globally.
The economic regulation framework for carbon dioxide transport and storage, established by part 1 of the Bill, is focused on the transport of carbon by pipeline for the purposes of geological storage. Through that framework, our aim is to both provide certainty for investors and protect user interests.
As the CCUS market becomes established, we may need to keep the framework under review—for example, on how it is applied to non-pipeline forms of carbon transportation and the most appropriate licensing structure for different types of onshore and offshore infrastructure. To help inform such considerations, clause 28 requires the economic regulator to keep the carbon dioxide transport and storage market under review.
The economic regulator may collect information for the carrying out of such monitoring functions. The regulator is also obliged to share relevant information with the Secretary of State or the CMA if requested to do so, to assist their competition and market functions. Clause 29 establishes the procedure for requesting such information and establishes a penalty if a licence holder does not comply with a request for relevant information.
Where the economic regulator is considering implementing proposals that may have a significant impact on licence holders, on others who are involved in related CCUS activities, on the general public or on the environment, clause 30 requires that the economic regulator carries out an impact assessment ahead of implementing the proposals. The economic regulator is required to carry out and publish an assessment of the likely impact of implementing the proposal or set out why it considers it unnecessary to carry out such an assessment.
An impact assessment for a proposal must be published in an appropriate manner and provide an opportunity for those who are likely to be significantly affected by the proposal’s implementation to make representations. In its annual report, the economic regulator must report on the impact assessments undertaken in the relevant financial year and the decisions taken as a result of those assessments.
Lastly, to ensure transparency of decision making, clause 31 establishes that, for certain decisions, the economic regulator and the Secretary of State must give reasons for the decisions taken. The reasons must be set out in the published notice and sent to the relevant licence holder. Before publishing a notice, the economic regulator or the Secretary of State must give regard to the need to exclude information that could seriously and prejudicially affect the interests of an individual or body.
Dr Whitehead
I must say that these passages are so dry that I may be hearing the Minister’s voice in my sleep this afternoon, rather than tonight. Having said that, I assure you, Mr Gray, that I am wide awake and listening to what is being said.
When considering any piece of legislation, I always think that the first thing we should look at is the impact assessments, because they have to tell the truth about what is going on. It is, therefore, always useful to have impact assessments. Indeed, it is important that an impact assessment is available as often as possible both for Bill Committees and for secondary legislation.
Clause 30, however, appears to be rather vague about whether impact assessments should actually be undertaken. On the duty to carry out impact assessment, it states that
“the economic regulator is proposing to do anything for the purposes of, or in connection with, the carrying out of any function exercisable by it under or by virtue of this Part, and…it appears to the economic regulator that the proposal is important”,
but the clause does not specify what is meant by “important”. It goes on to say:
“but this section does not apply if it appears to the economic regulator that the urgency of the matter makes it impracticable or inappropriate for the economic regulator to comply with the requirements of this section.”
In other words, if the economic regulator thinks that an issue has some significance—subjectively judged, I assume, by the economic regulator—it may carry out an impact assessment. On the other hand, if there is no time to do it or it does not appear to be terribly appropriate to the economic regulator, it does not have to do it anyway. Therefore, we might get an impact assessment, or we might not.
There are a number of grounds in the process under which the impact assessment can be voided or avoided. Although subsection (2) attempts to define what “important” means in connection with a proposal, it also states:
“A proposal is important for the purposes of this section only if its implementation would be likely to do one or more of the following”.
and thereby further downgrades the question of what is still a rather subjective view of what constitutes importance.
I assume that the Minister shares my view that impact assessments are really important not just for important subjects but for most things. Although we have not tabled an amendment, will the Minister consider tightening the wording so as to ensure that carrying out impact assessments is the norm and not something to be decided by the regulator? To use the word “important” again, it is important that we are clear about impact assessments. Indeed, that has been set out in guidance to Ministers, who should seek to undertake impact assessments at all times, where possible, and should not hide behind speed issues or other circumstances in order to avoid them. However, it appears that that is not the case for the economic regulator, and that is not satisfactory.
Andrew Bowie
The Government are always open to suggestions and ideas about how we can improve legislation. As I said earlier, it is important for the industry, nascent as it is, that there is as much clarity as possible about how it is governed and about the regulatory process that it must follow. We must also understand that, as the market and the technology grow, evolve and develop, we will need to keep that under review. However, I am happy to give a commitment to the hon. Member that we will consider whether it is possible to tighten up the language so that exactly what is meant is made clear to industry.