Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Baroness Featherstone and Lord Grantchester

Committee: 1st sitting (Hansard): House of Lords
Monday 11th June 2018 Grand Committee

[Baroness Featherstone]

This amendment is about context and the prevention of any repetition of a need for a cap. It is again a probing amendment to get the Government to talk about advancing their thinking on how not to allow a broken energy market to arise again. A cap should never be necessary. It is not a good answer but an answer. Everyone agrees that competition and a properly working market should be the effective way to do this. This amendment suggests that a review needs to be carried out to understand the circumstances that necessitated the introduction of the cap. Could the circumstances that heralded that necessity have been avoided had action been taken earlier? Were there warning signs? I would say that there were. With more consumers switching and more competition, I hope we will not be in that situation again, but the big six still have around 80% of the market. Was that a contributing factor? Of course it was. How is it that prices became so high? What measures might be introduced at an earlier and more expedient point to prevent a recurrence? What are the Government going to do to monitor what companies say to customers?

I raised another issue at Second Reading. Recently, some of the large energy suppliers raised their prices. I questioned the rise and the answer I got was that wholesale energy costs were rising and therefore prices had to rise. Shortly after that, E.ON’s profits rose by 41%, which was so far beyond any rise in the cost of wholesale energy that it made one wonder whether there really was cause and effect and whether rising energy costs were the sole arbiter of the rise in price. That is something the Government need to look into. If we do not examine, review and contextualise what brought us to having to introduce a cap to protect people on standard variable and default tariffs, how can we be sure it will not happen again? I look forward to the Minister’s answer about what the Government will put in place to ensure that that never happens again.

[Lord Grantchester]

I shall speak to Amendments 21 and 24, which are in my name. Under Clause 4, Ofgem must undertake various actions by way of notice of proposed modifications, including giving notice that it proposes to make modifications. Amendment 21 specifies that Ofgem must provide reasons in a narrative that explains why it is making modifications—ideally, an assessment of why modifications are being proposed.

We all recognise that energy bills soared 20% between 2007 and 2013 and that the average household pays around £300 more today than it might otherwise do in a more competitive market. However, in the interests of transparency it is imperative that Ofgem outlines its reasons for setting the price cap at any given level for the benefit of suppliers and customers alike. That would help set parameters when undertaking later reviews and assist greater scrutiny.

Amendment 24 has been proposed following the debate last week in your Lordships’ House on the European Union Committee’s report Brexit: energy security. In its report the committee portrayed how the UK and the EU are already increasingly interconnected on energy. Already, high levels of gas are being piped from Norway and over 5% of electricity demand is being met from the EU, with estimates that this source of electricity supply is likely to increase to over 25%. At present the UK is a member of the internal energy market and the committee’s report underlines the risk should the UK not remain within the IEM. From evidence received, it is universally argued that the UK could be more vulnerable to supply shortages or challenges, making supply less efficient, with the result that retail prices to consumers could rise. Amendment 24 specifies that the consequences of Brexit must become part of the review of the market and the application of the cap.

In the Government’s response to the Select Committee, they failed to address this point while being pressed to undertake an assessment of the consequences of the UK leaving the IEM. How do the Government propose that Ofgem should assess the situation in its review? The effect should be recognised for the application of the cap and, hence, included in the Bill.

[Baroness Vere of Norbiton]

My Lords, I will speak to Amendments 20, 21 and 24, which relate to the reasons for this cap and the details of its implementation.

The noble Baroness, Lady Featherstone, proposes a review of the energy market, in particular setting out the reasons for the cap, whether it could have been avoided and how a price cap can be avoided in the future. The Bill follows on from an extensive two-year investigation undertaken by the Competition and Markets Authority. This reported that there was, in effect, a two-tier market, with good value tariffs for those who engage in switching suppliers but for those who do not, the market was uncompetitive and these consumers were being charged an unjustifiably high price for their basic energy needs.

The CMA also found that the significant market share of the largest energy companies and the use of the standard variable tariffs had led to a situation where customers, including some of the most vulnerable in society, are simply paying too much, They are also paying for the inefficiencies of the larger companies to the tune of around £1.4 billion a year. The noble Baroness, Lady Featherstone, mentioned E.ON and its 41%. I was not quite sure what she was referring to and whether that was a return on capital. A profit increase of 41% would depend on its starting and end points; it is not hugely relevant, depending on the leverage of the company. Potentially, we should look at its return on capital, which is far more instructive.

It was as a result of this very detailed, two-year report that the Government and Ofgem undertook to protect those on the poorest-value tariffs on a temporary basis until the conditions for effective competition are established. In addition, Ofgem is actively considering the future of the energy retail market. This work is looking at barriers to innovation and whether the current market model needs to be reformed. Another review at this stage would simply tell us what we already know and take resources away from the vital work being carried out to support the necessary reforms of the market.

On Amendment 21 proposed by the noble Lord, Lord Grantchester, I am sure he is aware that, as part of the licence modification process, Ofgem will be required to state that it proposes to make the modifications and their effect. Subject to the will of Parliament, it is clear that this action is going to take place; indeed, suppliers and other interested parties are actively involved in the consultation being conducted by Ofgem. The amendment is therefore not necessary.

The noble Lord’s Amendment 24 relates to those matters which Ofgem should consider during its review of the level of the cap, which must take place at least once every six months. It is incredibly important that Ofgem, as the industry regulator, be allowed to consider what it feels matters the most. He may be pleased to learn that Ofgem has published a consultation paper which sets out the matters it proposes to review when considering the level of the cap. That will of course include wholesale prices and many of the factors raised in the debate of last week, which he mentioned. Hence, the amendment is unnecessary at this stage.

I hope that the noble Baroness and noble Lord are content with my explanations and will be willing to withdraw or not move their amendments.

Nuclear Safeguards Bill

Debate between Baroness Featherstone and Lord Grantchester

Ping Pong (Hansard): House of Lords
Wednesday 6th June 2018 Lords Chamber

[Baroness Featherstone (LD)]

My Lords, to be frank, I wish that we could have just stayed in Euratom, which would be the simplest and most straightforward answer to nuclear safeguards, but I am relieved that the Government have listened to the concerns expressed on all sides of the House during the passage of the Bill, and I am very grateful that an amendment has been laid with which we can all agree. It is an important point that addresses any potential disaster, such as what if bilateral agreements were not in place, and avoids the cliff edge that we, like the Government, hope will never be reached. However, as the noble Lord opposite has just said, an insurance policy is a good thing and we now have that.

[Lord Grantchester (Lab)]

My Lords, it is a moment to be enjoyed when a Government Minister brings back to your Lordships’ House an amendment that all sides can resoundingly support. This amendment in lieu is in essence the amendment agreed on Report—admittedly, more deftly drafted—to ensure a responsible, less risky and more certain transition from the Euratom-monitored safeguarding regime to a uniquely robust regime operated by the ONR to full international recognition. The final version of the Bill is a vindication of the work of your Lordships’ House and the Government are to be congratulated on finally getting the legislation correct in the other place. While some noble Lords would contend that the Government had no need to trigger withdrawal from Euratom, given the difficulties around the notification letter and the Article 50 Bill, the House was right to focus this Bill on securing that the withdrawal from Euratom should proceed on a sound basis, satisfying all the contingencies that could arise during the process. This amendment in lieu allows the House to reflect on the fact that it has fulfilled its role successfully. Let us examine that in detail.

First, the Bill strengthens Parliament’s oversight and improves transparency by putting the Government’s reporting commitments on a statutory basis. Secondly, on the recommendations of your Lordships’ Delegated Powers and Regulatory Reform Committee, the Bill puts a further definition of “civil activities” on the face of the Bill and sets a time limit on the Government’s use of so-called Henry VIII powers. Thirdly, the Bill provides further information to the report that the Government will be making periodically. It may include arrangements with Euratom relating to nuclear research and development, as well as the import and export of qualifying nuclear material such as medical isotopes. The facility at Culham and the JET programme will be pleased with this outcome.

Finally, in this amendment in lieu the Government are agreeing that the practical realities of the UK’s withdrawal from Euratom will need to be recognised. The Euratom arrangements will cover all the conditions and standards to allow a continuation of trade and non-proliferation certification without disruption, interruption or dilution. At all times, whether phased or not, the UK’s withdrawal will not be put at risk and will not jeopardise the present status of operating within fully recognised international IAEA standards in place. The implementation period is still to be fully agreed and put on a statutory basis. It will qualify under Section 3(b) as a corresponding Euratom arrangement. This will allow a further period in which the Government can recruit and train inspectors. In addition, from exit day, we are satisfied that, where needed, the amendment would cover the six vital agreements necessary to maintain the status quo. Two of them cover agreements with the IAEA and there is one for each of the four countries with nuclear co-operation agreements: namely, the USA, Canada, Japan and Australia.

I am grateful to the Minister for his letter following our meeting to discuss the amendment. Together with the Minister in the other place, Richard Harrington, and the noble Baroness, Lady Vere, he has put considerable effort into recognising and addressing valid concerns in both Houses throughout this process. I thank him and his team for co-operating with us on the Bill. The nuclear industry can be reassured that it may not need to face a cliff-edge moment and that the UK will continue to work constructively with Euratom. All sides recognise that the UK still has some way to go, yet we now have the right framework to bring that about.

In conclusion, I thank the House for its support and those who have participated so persistently and decisively in the Bill, namely the noble Lords, Lord Broers, Lord Warner, Lord O’Neill, Lord Carlile, Lord Teverson, Lord Hutton and Lord Fox, the noble Baronesses, Lady Featherstone and Lady Neville-Rolfe, and the noble Viscount, Lord Hanworth. I certainly cannot forget my noble friend Lord Hunt on the Front Bench, with the expert assistance of Grace Wright in Labour’s support team. This Bill has been a fusion of all the talents: it is a job well done.

Smart Meters Bill

Debate between Baroness Featherstone and Lord Grantchester

Report stage (Hansard): House of Lords
Tuesday 15th May 2018 Lords Chamber

[Lord Grantchester (Lab)]

My Lords, the Bill is a largely technical Bill, introducing three elements, namely: extending the Government’s powers; introducing a special administration regime for the national smart meter communication and data service provider, the DCC; and providing powers for Ofgem to deliver half-hourly settlement using smart metering data. By and large, these elements have been critically examined in the other place, as well as in your Lordships’ House. We do not particularly take issue with these measures but we recognise that Ofgem’s monitoring and powers over pricing should enable adjustments to make the possibility of a special administration regime extremely unlikely. It is fair to say that we remain concerned that consumers could ultimately pay the price either way.

However, on the analysis of the present circumstances in the rollout of smart metering, the programme is to a large extent in disarray, with enormous confusion and uncertainty in the marketplace. This inevitably leads to reticence and a lack of confidence in the mind of the consumer. We continue to highlight this in our Amendment 1 today. The technical nature of the Bill belies its national importance; it deals with critical national infrastructure, whose modernisation is crucial. We agree with the Minister that the large-scale rollout of smart meters across the UK by 2020 is a substantial technical, logistical and organisational challenge. Everyone is clear that meeting that challenge depends on collective and co-ordinated delivery. In Committee and in subsequent discussions, the Minister has been emphatic that the programme should be led by government. We have therefore altered our amendment and recognised that Ofgem has a different role to play.

The amendment puts the challenge to the Government to provide the leadership. We still believe that a national plan is required. The Government may challenge our diagnosis and claim that they have a high-level plan. However, the perception in the marketplace is very different. The mixed message—on the one hand that the consumer needs only to be offered a smart meter while, on the other, that smart meters need to be installed to a rollout target programme—has not been helpful. We need technical difficulties to be resolved, solutions to be promoted and accountability to be put into the hands of government to make this infrastructure upgrade the success that it needs to be.

The main elements of the amendment remain from our Committee discussions. The Government must galvanise the situation and be seen to be guiding the process: taking ownership of the issues, building ambition into the programme to deliver benefits and putting the consumer in control of their energy use, so that they become more informed and efficient and save themselves money. We have also put a check into the process by the addition of a subsection in our proposed new clause such that should fewer than 500,000 SMETS 2 meters be installed by the end of the year, a review and reassessment must take place. The challenge of careful management is herein included.

Energy efficiency is a crucial element of enabling the UK to meet its energy demands. The achievement of this must be put into the hands of consumers, through the transformation that smart meters will bring to their lives. A smarter, sensor-enabled network would be able to assess live power demand and current usage, transferring power from place to place as needed, reallocating or postponing charging times automatically and potentially allowing the UK to identify the ultimate source of the power through a modern, decarbonised energy mix.

Electrification is still essential to meeting long-term emission targets. It is clear that upgrades to the power network through renewables, storage and additional investment in household-to-grid infrastructure are all crucial elements. This amendment will bring visibility to the process and place responsibility in the hands of the Government. I beg to move.

[Baroness Featherstone (LD)]

My Lords, I support this proposed new clause on the national plan for smart metering, to which I have added my name. As I said in Committee, I came to the smart meter table relatively late, far more recently than most of your Lordships, who seem to have been debating it in one form or another for some years. I was shocked at the seemingly piecemeal way it has evolved, as if it were not one of the major infrastructure projects of this century, which it is. As a consequence of this approach, I have seen a lack of vision, scale and form, which is why this project has been so poorly executed. I was astounded to find that the suppliers were to be the agents of change; I did not understand why it was not the distributors.

However, we are where we are, as they say, so this new clause is proposed to give the opportunity for the rest of the scheme to be conducted in a far more responsible and farsighted way. It would allow the Government and all the players to ensure the best way forward and to deliver certainty and security for consumers, who have been expected to change—we know how difficult change is—but then have heard conflicting and different advice at different times from different people.

The proposed new clause would make sure that all parties are involved; it puts in metrics, targets and incentives to maximise take-up. It makes tracking progress on those tasked with delivering the objectives of smart meters and details what that will require. It would make sure that everything is properly reported, measured and documented. At last, we might actually have a critical path and a critical path analysis from which to work.

The proposed new clause would put this massive civil infrastructure project on a certain basis; it provides certainty for the consumer and a more sure and stable critical path for providers and all those participating in the rollout and beyond. As the noble Lord, Lord Grantchester, said, that is central to all our commitments on energy and energy efficiency in the future.

I very much hope that the Government will take a deep breath and graciously accept that they need help, and that the national plan would be a sensible and professional way forward.

Smart Meters Bill

Debate between Baroness Featherstone and Lord Grantchester

Committee: 1st sitting (Hansard): House of Lords
Tuesday 24th April 2018 Grand Committee

[Lord Grantchester (Lab)]

My Lords, I will speak also to Amendments 2 and 4 in this group. Amendment 1 gives the Secretary of State a further three years beyond the date the Government are asking for in the Bill. The Government seek to extend the existing powers provided to the Secretary of State to develop, amend and oversee regulations relating to the licensing of smart meters from 2018 to 2023. Unusual as it may seem, we would like the Government to have more time. We want them to get the smart meter implementation programme right.

We are all in favour of smart meters and the benefits that they will bring to energy efficiency and customer satisfaction. I could cheekily say that we do not want to have to grapple with whatever state of distress the smart metering programme has reached when we take over at the next general election. We want the plan to work for consumers, and at the moment we see a smart meter rollout that is unclear, incoherent and unco-ordinated in its approach. The Second Reading debate revealed the delays, complexities and escalating costs at this juncture. We want the Government to take more time. We think that they will need more time. Ostensibly, they are seeking the five-year extension—three years beyond the 2020 deadline—in order to conclude a review of the data access and privacy framework by the end of 2018, and to fulfil any actions needed from the review.

In addition, I understand that the National Audit Office review of the cost-benefit analysis, due in July, will also be delayed because of a lack of resources. The review was also going to consider the technological choices made to ensure that the programme was not going to be installing obsolete equipment. I would appreciate it if the Minister would include the latest position on the NAO report in his remarks. This indicates that there is going to be a pause in any case. We believe that this time should be used constructively. Experience has already shown that the timetable has slipped. We say to the Government, “Take more time. We think you might need it. And in return, let’s get it right. Let’s be more ambitious. Let’s capture the latest technology to bring real benefits to consumers”.

Also contained in the amendment is the consideration that the statutory obligation to complete the rollout by 2020 needs to be reassessed. First, there is a mixed message or misunderstanding about what is to be completed by 2020. I am grateful to the Minister for his letter of 22 March, after Second Reading. In his second paragraph, he writes:

“The obligation on energy suppliers … is to take all these steps to install smart meters … by the end of 2020”.


However, in the first paragraph of page 2 of the letter he writes:

“The Government is committed to ensuring all homes and small businesses are offered smart meters by the end of 2020”.


There is a lack of clarity between installation and being offered a smart meter by 2020.

The Government needs to reassess the whole programme, revisit the milestones and reset the parameters in a collaborative way with the various interested parties charged with making smart metering happen. Just as the Government need sufficient time to undertake and execute actions from the post-rollout review of the programme, as the Minister’s letter states, so the industry needs the confidence to implement worthwhile solutions for its consumers.

I move to Amendment 2, which was moved in the other place, and we repeat it here merely to retest under what circumstances the Secretary of State may wish to remove certain licensable activities to which his department has drawn attention in its memorandum, submitted to your Lordships’ Delegated Powers and Regulatory Reform Committee. Although it is stated that there is no intention to use this power, one licensable activity that could be removed is a revision of the smart meter communications service, the DCC. In line with the ambitions under Amendment 4, perhaps the Minister might clarify why his department may wish to use the power included here.

On Amendment 4, although the Minister and the Government may wish to portray that smart metering is now back on track and proceeding constructively towards its objectives, very few independent assessments concur with that view. There continues to be confusion regarding which types of SMETS 1 meters can be upgraded without replacement to be interoperable and from what date. There is confusion around differing standards and the use of differing technologies around the UK; confusion over whether pursuing the 2020 deadline has the potential to increase costs and risks and jeopardise the programme’s increasingly suspect credibility to consumers; and concern that a lack of fully tested SMETS 2 meter devices will further undermine meeting supposed timescales.

In considering the number of reports across the various parameters important to stakeholders, the necessary consumer activity required and the technological challenges inherent in these meters, we concluded that it would be far more constructive if all those intimately challenged by the rollout were to come together to share perspectives and work constructively together to find common solutions and co-ordinate the rollout. We consider that Ofgem as the industry’s regulator would be best placed to lead and develop this national plan. We consider that consumers should be put at the heart of the programme, costs monitored to secure benefits for them and the programme able to take advantage of all developing consumer technologies.

Proposed new subsection (3) clarifies those that Ofgem must consult, and subsection (4) specifies all the ambitions to which the national plan must have due regard. The plan must set out credible milestones with appropriate timescales for achievement, including the installation or termination date. The plan needs careful monitoring and adjustment, with frequent reports from Ofgem. For example, I draw attention under proposed new subsection (4)(g) that all other national rollouts of smart meters have been conducted through DNOs—distribution network operators—not suppliers. Here the rollout has been conducted by energy suppliers. I do not wish to challenge the whole implementation model, but it could be that different answers are required as implementation proceeds, and Ofgem needs to be able to take account of this and promote effective delivery mechanisms.

A reset needs to be made so that the consumer can begin to have confidence again that smart meters will be deliverable and beneficial. Smart metering needs to be the first crucial initial infrastructure in place to deliver the benefits of smart technologies to the home. It needs to be effective—it needs to be got right. I ask the Minister to respond positively to this amendment. It may not be correct in every detail: for example, it does not include a review of the cost-benefit analysis, as it had been understood that the NAO was already going to be doing this. The Minister needs to advise the Committee on the status of that review. It can be included on Report, should the NAO not conduct the review after all. However, I ask the Minister to agree that a national plan along these lines is required and to bring something back himself on Report. Perhaps this can be discussed next week, but a favourable response would be very constructive. I beg to move.

[Baroness Featherstone (LD)]

I support Amendment 4. Compared with other noble Lords present, I came late to the smart meters table. They have participated in a number of debates leading up to where we are now and during that process they have obviously met a number of bodies associated with the smart meters programme. I have to say that I have been somewhat shocked at how what should be an energy revolution, welcomed on all sides of this House and beyond, has turned into a shambolic mess. As was mentioned, the cost—much higher than was ever envisaged—will no doubt end up with the consumer. This could and should never have happened.

I was a member of the London Assembly when it was formed in 2000 and I was chair of the transport committee. When we introduced in London the biggest civil engineering project since the end of the Second World War—the congestion charge—a great deal of planning and work went into making sure that on the day it went live, it was so well thought through that nothing went wrong, despite the Daily Mail circling the perimeter of the charge to, it hoped, see it go wrong. I do not really understand why the commissioning of such a major infrastructure project has not been treated in that fashion. This is an absolutely huge change and an infrastructure priority, heralding a better future for all when energy is very important to this country. It seems to have involved a kind of piecemeal bun fight over which companies will deliver which meters to which people under what circumstances and for how long, with no co-ordination, no collaboration and nothing bringing it together.

Everyone has made it quite clear that the deadline will be missed. I am afraid that I have not met anyone, other than the Minister, who thinks that this deadline will be reached. That being the case, rather than move the programme to 2023 or whatever, it would be far better to grab hold of it now: otherwise, consumer confidence, which is vital to this project, will be completely undermined. I hope that the Government will grasp hold of this and take up the recommendation of the noble Lord, Lord Grantchester, coming back with a similar suggestion for halting the project and promoting a national plan. Not only does what needs to be done to whom, by whom and at what cost need to be thought through but there is a great need for a new communications programme to market the project. There is possibly also a need to incentivise consumers and to find a way not to put them off but to bring them back into the fold after they have become somewhat disillusioned.

The opportunity to make the project work is there, but at the moment we are in danger of the absolute opposite happening, with diminishing returns and diminishing confidence, shooting ourselves in the foot over what should be a fantastic programme for the future. The project has been piecemeal, inadequate and not thought through. If the Minister will excuse me, I believe that he should bring it together, do the necessary and bring back an amendment on Report.

--- Later in debate ---

[Lord Grantchester]

My Lords, I shall speak to Amendments 6 and 11 in due course. Amendment 3 places a duty on GCHQ to conduct an annual risk assessment regarding the security of the smart metering system. One of the delays experienced in the rollout of smart meters concerns whether or not the system is secure from cyberattacks. Considering that the technology used to communicate the information from the smart meters is a basic 2G technology which can hardly be said to be secure, it is remarkable that GCHQ is able to pass the system as fit and secure.

In the Minister’s letter dated 20 March, which I referred to earlier, he clarified that critical communications with smart meters will happen only when authenticated by strong encryption and independently countersigned by the DCC. I would be grateful if the Minister could clarify what that means, whether GCHQ is demanding technological improvements and whether security issues are part of the Government’s review of the data access and privacy framework to be completed this year. What processes do the Government have in place to ensure the robustness of the system? Cybersecurity is a constant challenge, and we believe that an annual risk assessment will be required to keep the UK’s infrastructure secure from potential attack. I beg to move.

[Baroness Featherstone]

My Lords, I tabled Amendment 11 to probe issues around the use of data obtained by the powers in the Bill. It takes the form of a review into the use and potential misuse of the data obtained via the smart meters scheme. The review would look at the risks of data theft and of data being passed to a third party without the consent of the consumer, and if the risk of theft or passing on without consent was substantial the report would bring forward measures to be implemented to combat such events. Lastly, the amendment would require the Secretary of State to lay a report of that review before both Houses within six months of the Act coming into force.

I think the intent of the amendment is quite clear. We have recently seen the extreme value of data to a number of organisations. It is clearly valuable in a world where we create and feed markets through information, and the more personal that information, the more targeted sales or persuasion can be. The amendment seeks to put measures in place to mitigate those risks.

Electricity Supplier Payments (Amendment) Regulations 2018

Debate between Baroness Featherstone and Lord Grantchester

Tuesday 27th March 2018 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for his introduction to the order before your Lordships’ House today. He has set out the details very well, in that the order amends the rates for the operational costs levy for the next three financial years in the contract for difference regime and the rates for the settlement costs levy also for the next three financial years in the capacity market. These costs are borne by electricity suppliers who pass them on to their customers through their bills. These costs are levied to cover the operational and administrative charges borne by the CfD counterparty, the Low Carbon Contracts Company that operates the ESO regulations, and the Electricity Settlements Company that is responsible for the operation of the capacity market.

As the Minister said, these costs have previously been calculated on an annual basis. As both these operations have been successfully running for a few years and have become predictably regular, it makes sense to convert these from annual to three-year periods. The Minister is also correct to point out that both the capacity market and the CfDs have been a success in bringing forward reduced bids at the various auctions, resulting in lower costs to consumers. Against this, it must be acknowledged that both companies are now managing increased market complexity with a greatly increased number of participants that is reflected in the increased rates in the order today.

Discussions on the order in the other place focused on these costs, the not insignificant amount that is translated on to consumer bills and the enormous cost inflation—an increase of some 700% in the operational budgets of the ESC since 2014. Mercifully, we need not rehearse those discussions today. The Minister in the other place was able to clarify that, in the case of the ESC, the number of participants increased from 46 to 447, providing initially from 0.6 gigawatts of capacity to 55 gigawatts. It was interesting that, while operational costs as part of the whole scheme should reduce from 1.6% last year to 0.6% in 2020, this is against a forecast of a fall in gross electricity demand of some 2% over the same period, meaning levy rates increase. I hope that all that makes sense to the uninitiated.

What was not discussed in the other place was that, in relation to the LCCC in the CfD market, the budgetary increase was principally due to the inclusion of a provision set aside for disputes. Paragraph 8.4 of the Explanatory Memorandum explains that the Government will keep this contingency under review but that the LCCC must have sufficient funds to defend a dispute.

My questions to the Minister revolve around disputes. What do these disputes tend to be about; what have been the past costs in the operation of the CfDs; and has any dispute resulted in a court case and, where appropriate, involved the recovery of losses, with costs being borne by the loser? These points have not been explained—perhaps the Minister could explain them now. I phoned the department this morning and I am very grateful to Fiona Reynolds for discussing the issue with me; I trust she has been able to advise the Minister. Finally, are these disputes to be categorised more as queries, challenges or appeals against decisions, and what has been the experience from past years, such that a regularity can now be transposed into a budgetary contingency? While the order can be approved today, this would be interesting to understand.

[Baroness Featherstone (LD)]

My Lords, capacity markets and contracts for difference have been a roaring success and came in during the coalition years when Ed Davey was Secretary of State—we would expect no less. The regulations will pass today, but it is absolutely right to question any rise in cost, particularly when a small proportion of it is passed on to the consumer. It is always important to keep an eye on costs and particularly when renewing a contract with an entity that is effectively the sole supplier in the field, thus making competition on pricing an impossibility—there is no one competing, so they get more.

Having read the debate in the other place, the rationale given for the steep rise in costs to the Low Carbon Contracts Company and the Electricity Settlements Company since commencement, is basically the expansion of the number of providers, as the noble Lord, Lord Grantchester, mentioned, from 46 to 447—which, of course, is a good thing—as well as the need to cover disputes. I too am very interested in the information on exactly what those disputes are and look forward to reading that in due course. We need to remain vigilant that all costs are properly scrutinised.

I could not help but note that the Minister in another place, Claire Perry, in order to assuage any concerns over the creeping inflation of costs beyond what they should be, said:

“I am always keen to run the calculator over these companies’ calculations. As the Minister ultimately responsible, I will continue to do so”.—[Official Report, Commons, Delegated Legislation Committee, 19/3/18; col. 8.]


I am impressed with the Minister’s personal intervention in this mission and trust that her background in banking and finance mean that her use of a calculator is unimpeachable—but I hope there are some accountants keeping an eye on this too. I simply wish to reiterate that companies in receipt of large sums of public money need strict monitoring. On the basis that this will happen, I am content that the regulations should pass.

Renewables Obligation (Amendment) (Energy Intensive Industries) Order 2017

Debate between Baroness Featherstone and Lord Grantchester

Thursday 30th November 2017 Lords Chamber

[Baroness Featherstone (LD)]

My Lords, the noble Lord, Lord Deben, made some of the points I intended to make although he is somewhat more forgiving than I am. I want to put on record concerns about the exemption for the eligible energy-intensive industries from a proportion of the indirect policy costs of the renewables obligation scheme. Obviously, I can understand why it seems desirable to remove any cost to our industries that might make them less competitive. However, what would make them most desirable would be to reduce their costs by addressing the need to decarbonise, even in the most challenging of those industries. I am concerned by the message that this measure sends out—namely, that to an extent these industries are being made a special case, as the noble Lord, Lord Deben, said, and that environmental measures are dispensable when they come up against competition.

To meet our 2050 ambition to cut emissions from UK industries from 100 to 27 metric tonnes of carbon dioxide, we need to address the issue, not circumnavigate it. Obviously, that is challenging, as certain materials—such as those in steelmaking—require a lot of energy to reach the required temperatures, and certain materials developed for industrial use create emissions because of the chemical processes that they must undergo.

I know that the Minister referred to some of the things that the Government are doing, but they must encourage and, in a sense, force the issue. They need to make industries take action to reduce their carbon footprint, and push them to find suitable low-emission substitutes for materials, introduce radical resource efficiency programmes and reverse supply chains, as well as look at energy efficiency for industrial plants and CCS programmes.

The reallocation of financing for the exemption means that it will fall on those who have done nothing to deserve it. I am a great fan of the “polluter pays” principle, rather than it being put on the “canard” of energy prices, as the noble Lord, Lord Deben, said. The exemption is not the biggest of deals; I think some 130 companies will be affected by the scheme. As I said, it is not merely about the money; it is the fact that companies are being let off the hook and not being forced to do the right thing.

[Lord Grantchester (Lab)]

I thank the Minister for her introduction of the order. She explained it very well; I will not need to detain the House for very long. I am grateful to her for explaining all the technicalities, updates and timetabling.

As is customary on these occasions, I do not oppose the order. Indeed, I support it, albeit with some comments to make and questions to ask. This side of the House supports the objective behind the order to enable energy-intensive industries to be internationally competitive. They are large, important sectors of the economy; they are of key strategic importance to the UK’s future well-being, not only on their own merit but because they provide key core products needed in many other industries.

I have a few questions on the order that highlight some possible snags where clarity would be of great assistance. I thank the Minister’s department for the excellent memorandum that it produced for the order, although I was surprised by page 4, which states:

“This move will also reduce government spending and is in line with Government’s long term economic plan”.


I was wondering what long-term economic plan it means. Do the Government have one? The statement is perhaps pertinent where it states that this will reduce government spending. The order removes the cost borne by the taxpayer in the previous, post-event compensation scheme and puts it, via the exemption scheme, firmly on real-time bills, borne by the bill payer—the consumer. That element was keenly debated in the other place, as it transfers the costs from every taxpayer on to only those who are householders. The Government are correct to state that there is a huge cash-flow benefit for the energy-intensive industries to do this, and that it is administratively beneficial. That is recognised and agreed. However, behind the shift from taxpayers to bill payers, I have several questions where this effect should be clarified, so that one can judge whether we should be doing this. At this point in my remarks, I am grateful for the contribution of the noble Lord, Lord Deben—his points were very well made, and echoed by the noble Baroness, Lady Featherstone.

The memorandum explains that the RO exemption can be valued at £200 million a year to energy-intensive industries. That is further explained as being worth £3.2 million per annum to the average EII—a considerable sum. The memorandum states that the Government wish to expand the list of energy-intensive industries to many competitors in the industry. Does this value of £200 million relate only to the existing exempt participants, and, if so, what would be the total cost should the exemption be expanded? The memorandum explains that the Government are awaiting state aid clearance for this, whereas the Minister in the other place, since echoed by the Minister tonight, seems to suggest that this clearance has been denied by the EU. Is there time to seek other solutions or will the Government merely await the UK leaving the EU?

The costs of the RO exemption following this order will be redistributed to non-eligible domestic and business users, increasing their bills. The memorandum illustrates the redistribution between households and businesses of various sizes without defining the category of small, medium and large businesses. I presume that there is a continuum of business sizes rather than a banding. Would it not therefore be more transparent to include the increased cost in terms of cost per kilowatt hour? The key aspect to understand is the precise increase in percentages on each business size.

The memorandum has confused me, as it states on page 4 that to a small business energy user the cash cost average would be £160 per year, yet on page 7 of the impact assessment the figure is put at £4,300 as a best estimate. Can the Minister explain this discrepancy? Whatever the figure, if the average small energy user has their energy bills increased by the introduction of this measure—from what I have been able to research, by a figure of 10% or more—this is a significant amount and should have a bearing on the policy. Is this not a key disbenefit of the policy on the large entrepreneurial section of the economy—the small business sector? Similar arguments could also be applied to medium and large businesses.

Another key consequence of the transfer from taxpayers to bill payers will include the effect on the poorest of our society: those in fuel poverty. The impact assessment recognises this but makes no monetary impact assessment other than making the statement that,

“there will be a very small increase in the number of fuel poor households”.

This is hardly an appropriate position to take without explaining exactly what this will mean in their numbers, the increase in cost and what percentage that cost is, both with the narrow and the wider definition of those in the energy-intensive industry. Will the Government revisit the ECO and other measures in consequence of this measure?

This measure is also subject to the levy control framework. When the memorandum states that this matter will reduce government spending, will it result in a reduction of the budget of the levy control framework, allow another important aspect of expenditure to go ahead under the framework, or merely reduce the disputed amount of the overspend of the framework? Can the Minister explain? Are the Government making progress in their review of the levy control framework?

While I welcome the help this provides to the energy-intensive industries, there seems to be a bit-by-bit implementation of measures, first in relation to the CFD, now in relation to the RO, and soon in relation to the FIT scheme. The Minister indicated in her remarks that there are problems with the FIT scheme and that state aid difficulties could delay it further. However, what is the continuing extra creep on costs transferred to other businesses by the accumulation? Relentless increases on bills to the householder under the standard variable tariff is quite rightly an issue to be addressed. Have the Government thought this through and do they have a consistent and comprehensive plan?