Smart Meters

Baroness Maddock Excerpts

Monday 8th July 2019 Lords Chamber

[Lord Henley]

My noble friend brings great expertise to dealing with the interests of consumers. I can assure her that the programme regularly engages with consumer groups such as Citizens Advice. It has a dedicated consumer issues forum, which they and other consumer groups regularly attend. My honourable friend the Minister for Consumer Affairs has regular meetings with the appropriate bodies.

[Baroness Maddock (LD)]

My Lords, how many people who had first- generation smart meters came up against problems when they tried to change their supplier? It was anticipated that people would make savings when they had smart meters. Have those savings reached the Government’s anticipated level?

[Lord Henley]

My Lords, I cannot help the noble Baroness on the first figure she asked for, but if some figures are available, I shall certainly write to her. Earlier meters will be enrolled in the Data Communications Company infrastructure by the end of 2020, which I hope will help on that front. We are expecting to provide bill savings of some £1.2 billion by 2030, making the programme a very good investment for the country.

Renewable Energy

Baroness Maddock Excerpts

Wednesday 5th June 2019 Lords Chamber

[Baroness Maddock (LD)]

My Lords, I too congratulate the noble Lord, Lord Cameron of Dillington, on securing this debate. I feel somewhat intimidated by the two previous speakers, who have a lot of expertise in the area we are discussing, but this is a very important and timely debate about technology that we hope will reduce the UK’s carbon footprint and therefore contribute towards the sustainability of our globe.

As has already been said, around half of Europe’s potential wave and tidal resource is thought to be in the United Kingdom. It is estimated that this resource could generate up to 20% of the UK’s current electricity demands. Yet no large-scale tidal lagoons or wave technology projects have been developed here in the UK, and over the years, UK Governments have been very timid in their support of this source of sustainable energy. They have also missed a great opportunity to support cutting-edge tidal energy projects. This is despite the fact that the UK is in a very advantageous position to establish a natural lead market for marine energy technologies, both wave and tidal. There are favourable natural conditions here in the UK. Globally, the UK is leading on planned power projects and there are a number of major industrial players in this sector. In addition, the United Kingdom has several world-class testing facilities and a variety of public funding mechanisms —the noble Lord, Lord Cameron, was talking about how we could use those to promote lagoons.

Despite this, the Government have continued to reject various projects. The noble Lord, Lord Giddens, has already talked about the scheme in Swansea: as early as 2013, a government department rejected that scheme as “not cost effective”. Again, as the noble Lord pointed out, the Government did not listen to the Charles Hendry report of 2017 either, despite the fact that the report said that this was,

“an … opportunity where the UK can … aspire to be the global leader”.

The Government concluded that the scheme was not value for money. As the noble Lord also pointed out, there are some queries about the costs. We also heard clearly from the noble Lord, Lord Cameron of Dillington, that the costs are actually fairly comparable and that nuclear is not cheaper than what was proposed. However, if we consider that easy-to-reach oil and gas will start to run out, that global energy demand is rising and that the commitment to tackle climate change gets stronger and stronger, surely the case for wave and tidal power also becomes stronger and stronger.

I found the Library briefing for this debate extremely helpful. One thing stood out for me from it, which was the title of one of the links:

“UK missing opportunity as it swims against tidal energy”.


It invited me into reading the article from Professional Engineering of February this year, which turned out to be very interesting. It highlighted the recent success of a single floating turbine off the coast of Orkney and said that in 12 months, it,

“generated over 3GWh—more than the whole Scottish wave and tidal sector managed in the 12 years up to 2016. It supplied energy for the equivalent of 830 households, weathering the worst winter storms … in the process”.

I think the noble Lord, Lord Cameron, mentioned that there was also positive news about tidal turbines in the Pentland Firth between Orkney and the mainland, indicating a generation of 8 gigawatts. Yet the Government seem determined to miss the chance to help the UK take the lead in the tidal and wave energy sector. This parallels the stance taken on onshore wind in the 1970s, where it is now quite clear that we missed the chance to take the lead. Denmark and Germany stole a march on us—we also heard about China from the noble Lord, Lord Giddens—and in 1981, the first large-scale wind turbine in Orkney came from Denmark. We ended up being a net importer of onshore wind technology.

Given this situation, it is not surprising that my Liberal Democrat colleague in another place, Alistair Carmichael, the MP for Orkney and Shetland, questioned the Energy Minister, Claire Perry, in March this year about the importance of financial support for the sector. He asked for assurance that financial support for marine renewable energy would be fully recognised in the forthcoming White Paper. Her response was not totally negative but there was no commitment. I was also interested in another exchange in the Commons in April this year when Dr Alan Whitehead, the Labour MP for Southampton, Test, whom I have worked with over a number of years on these issues, questioned Chris Skidmore, the Minister for Universities, Research and Innovation. He asked the Minister to acknowledge that marine and tidal power had been almost strangled at birth by government indifference and even active hostility. Having prepared for this debate and followed energy matters over the course of my parliamentary career—more than 25 years in both Houses now—I believe there is a lot of truth in Dr Whitehead’s observation.

With climate change at the top of the agenda for not only politicians but the general public, as we have seen over recent weeks, along with our commitment in the Paris Agreement to decarbonise and the need to support cutting-edge British technology—whether we are in or out of Europe—the Government need to seriously re-examine their record on a lack of support for marine and renewable energy. It is 10 years since the Climate Change Act became law and on 2 May this year, the Committee on Climate Change stated that now is the time to set a more ambitious goal for reducing UK greenhouse gas emissions. It recommended ending our contribution to global warming within 30 years and reducing greenhouse gas emissions to zero by 2050, in line with the UK’s commitment under the Paris Agreement. Surely the time has come for the UK Government to embrace the role of wave and tidal renewable energy, to enable us to contribute to this zero target by 2050.

Smart Meters Bill

Baroness Maddock Excerpts

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

[Lord Henley]

Again, I will take advice on that. We will come back to it on a later amendment. The noble Lord, Lord Teverson, has spoken about not moving further until we have a large number rolled out. However, my understanding is that this process is beginning to happen and that numbers are going up. The noble Baroness is looking at me in disbelief, as she so often does. We often disagree.

[Baroness Maddock (LD)]

In defence of my noble friend, we have had briefings which tell us what she has just said to the Minister. I do not know where he gets his briefings, but the industry has briefed us and it is clear that SMETS 2 is not at the stage that he thinks it is.

[Lord Henley]

My Lords, I am not sure whether, strictly speaking, the noble Baroness is correct. My understanding is that the number of SMETS 2 installations will go up over the coming months, in which case it will be possible to test them, and therefore that by October we will be at a stage where we can go ahead. We have time on our hands on this matter and, as I said, I would like to have further meetings with the noble Baroness and others between now and Report. We could then go through some of these particular points.

At the moment perhaps I may get on with these amendments and come back to my point. As I said in response to the noble Lord, Lord Grantchester, there will be this change in October. SMETS 1 meters will no longer count, but suppliers will still be able to make use of their workforce in the installation process.

On the extension that the noble Lord is generously seeking on behalf of the Government, we do not think it can be justified. It would not send out the right signals and could even have—dare I say it?—an unhelpful impact. It could suggest that the Government would play an active role in leading the programme well beyond the point at which the self-sustaining industry model overseen by Ofgem is due to take over. It also risks undermining industry momentum in progressing the rollout just as suppliers are accelerating deployment with the new generation of meters being brought in. Delay to investment decisions and deployment would also bring delay to the benefits that accrue to consumers from receiving smart meters. In turn, that could impact on the pace of moving to a smart meter system with dynamic time-of-use tariffs made possible by smart meter installation. That is why we are firmly committed to the programme’s timetable as reflected in Clause 1.

The noble Lord referred to the NAO report. We welcomed it and the follow-up study on smart meters, and will work closely with the NAO to help review the progress of the programme, but I do not believe that the report necessarily means that we need a pause in the rollout. As the noble Lord knows, it is routine for the NAO periodically to examine every major government programme, as it did on smart metering in 2011 and 2014. We will take note of the report and discuss it with the NAO, but I do not think that the programme needs a pause.

Amendment 2 relates to the power to remove licensable activities. This amendment seeks to limit the extension of the Secretary of State’s power, so that beyond 1 November 2018 he would not be able to exercise the power to remove any licensable activities in respect of smart meter communications. The Government have so far used the power only to establish the provision of a smart meter communication service as a licensable activity. That ensures that we have a communications and data system that supports secure, reliable and interoperable services for smart meters. The DCC is playing a fundamental role in driving smart metering benefits, and we do not currently consider that we will exercise this power to remove the provision of a smart meter communication service as a licensable activity.

However, we cannot rule out that evidence could emerge to suggest that the removal of at least some elements of this licensable activity to the market could be justified. Retaining the power to remove licensable activities in respect of smart meter communications is therefore necessary as a backstop and is consistent with the Secretary of State’s principal objective of protecting the interests of energy consumers. The Secretary of State may also determine that it is appropriate and in energy consumers’ best interests to introduce further licensable activities in support of smart metering by 2023.

As detailed in our delegated powers memorandum, the smart metering programme continues to develop policy in a number of discrete areas, including overseeing the development of technical solutions delivering smart benefits to the small number of premises which are currently not expected to be served by the smart meter communications network as to do so would be disproportionately expensive. This is typically due to location and surroundings. For example, this can affect premises in highly built-up areas with many tall buildings as well as remote or mountainous areas.

One of the tools we may wish to use to deliver the policy is requiring activity to be licensed. For example, it might be considered appropriate to create a licensable activity that relates to arranging the establishment of communications to these properties. Should we introduce a new licensable activity here that is subsequently found no longer to be justified or needed, we would need to have retained until 1 November 2023 the ability swiftly to remove that licensable activity.

As the noble Lord will be aware, we have used the affirmative resolution procedure. We have also referred it to the Delegated Powers and Regulatory Reform Committee. It did not raise any issues with it. Further—I shall read this out because it is not often that one gets praise of this sort—the memorandum from the committee, in the part that I have highlighted, states:

“There is nothing in this Bill we would wish to draw to the attention of the House. We do, however, wish to commend the helpful and well-drafted memorandum about the delegated powers in the Bill, provided by the Department for Business, Energy and Industrial Strategy”.


We do not often get praise, so I think that it is worth repeating it on this occasion to make sure that it is properly on the record. Obviously, it was already on the record, as it was in the committee’s 17th report—but I am grateful for the opportunity to repeat it.

Amendment 4 is the big amendment tabled by the noble Lord, Lord Grantchester, and principally supported by the noble Baroness, Lady Featherstone, and the noble Lord, Lord Teverson. I am grateful to the noble Lord, Lord Grantchester, for what he said about it. He talked about there being confusion on a number of points, which I hope I can help deal with. He also spoke about moving from rollout by suppliers to rollout by DNOs, as happens in another country. I suggest to him that making such a change might bring more confusion and chaos than absolutely necessary. Let us first deal with the amendment and no doubt we can talk about that later.

The amendment would task Ofgem with consulting stakeholders and publishing a national plan for smart meters by 31 December 2018. It would then require the Secretary of State to specify the final version of such a plan in regulations. The large-scale rollout of smart meters across Great Britain by 2020 is a substantial technical, logistical and organisational challenge. As we have made clear, meeting that challenge depends on collective and co-ordinated delivery. I think that that programme should be led by the Government, who set the policy and regulatory framework for the realisation of the benefits. The rollout is delivered by energy suppliers, networks and others. Ofgem’s role is to make sure that consumers remain protected during the rollout, to monitor energy suppliers’ compliance with their obligations and potentially to enforce against any non-compliance. The Government have provided strong leadership and established governance frameworks, with clear roles and responsibilities, across all these parties. Under this leadership, the smart metering programme has already made substantial progress.

Given the scale of the challenge, I understand and welcome the noble Lord’s appetite for information and reassurance on progress. I remind him of the commitments that the Government made earlier in the passage of the Bill—namely, that we will publish an annual report on the progress of the smart metering implementation programme as well as an updated cost-benefit analysis in 2019, to reflect the state of play after the transition from SMETS 1 to SMETS 2 meters has taken effect.

In that context, it is not clear what the additional value of a national plan of the type proposed by the noble Lord would be. The purpose seems to be to task Ofgem with the oversight of smart metering implementation and to reduce the Government’s role. Such a change in approach would simply divert attention and resources from the rollout delivery and associated consumer benefits. The Government are rightly accountable for safeguarding the benefits of smart metering. The new clause would duplicate existing efforts to deliver an efficient rollout and would put an undue burden on Ofgem. Furthermore, requiring the Secretary of State to specify the final version of the national plan in regulations would limit his ability to use the Section 88 power, of which the noble Lord will be aware, to modify the smart metering framework in future. The purpose of the Bill is to enable the Government to respond to the operational realities of the rollout and to adjust the monitoring framework as may be required. The new clause would undermine that intent.

In summary, a high-level plan for the rollout of smart meters was set by the Government in their 2011 prospectus document, which establishes the framework for the rollout.

--- Later in debate ---

[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.

[Baroness Maddock]

My Lords, Amendment 6, in my name, refers to issues that I raised at Second Reading. It calls for a review of the code of practice for energy suppliers. It is a probing amendment. I am anxious to get a bit more information from the Government about how they understand consumer engagement because I feel that whenever we are trying to deal with these issues human behaviour is the last thing about which we have serious concern. If we look back at the Green Deal, some of the disasters there were due to human behaviour, so it is important that we understand how people react. Indeed, the success of the rollout depends on consumers and consumer confidence, yet, as we have already heard, they are not obliged to have a smart meter. Therefore, how they react to the proposals is very important.

--- Later in debate ---

The noble Baroness also touched on the travails she has had on the telephone in dealing with some suppliers. She referred to “You and Yours”, which I am afraid I do not often get the time to listen to but I will make sure that those particular concerns are brought to me. She also referred to examples of gas being turned off. She will be aware that it is obviously the duty of any gas operative—if there is any danger, even a small perceived one—to go down that route and if it is unsafe to ensure that it is turned off.

[Baroness Maddock]

I made two points about gas. When it is turned off, I certainly do not expect them to allow things that are unsafe. My point was that there is no provision for somebody in poor circumstances—say they are elderly and they have a smart meter put in and it is the middle of winter and they cannot use their boiler—to get a new boiler. I think the Government need to look at this. It is a very small point but there will be several people affected by it.

The Minister has explained how the process works at the moment and how the code of conduct works and how it can be amended. Can he tell us how it has been amended as the process has gone along?

[Lord Henley]

I would prefer to write to the noble Baroness regarding any amendments that have taken place. I, like others involved in this, but not all, am relatively new to the subject—but it has been going for some time, so I imagine that amendments have been taking place.

I think the noble Baroness suggested earlier—just in terms of the travails on the telephone—a degree of aggression.

[Baroness Maddock]

It was the lack of understanding of the person who was trying to persuade to have a meter of how it worked and what the options were and whether they were interoperable.

[Lord Henley]

If the operator could not cope with the noble Baroness, obviously they probably need further training. I think that is probably a matter for that particular supplier. There is guidance for them and they should take every opportunity to treat all domestic customers fairly and to be as transparent and accurate as possible in their communications. I hope that they will continue to do so. I note what the noble Baroness said.

I hope I have dealt with the three amendments in sufficient detail and I hope that the noble Lord will feel able to withdraw Amendment 3.

--- Later in debate ---

Moved by

[Baroness Maddock]

5: After Clause 1, insert the following new Clause—
“Review: use of powers to impact energy use in the United Kingdom
(1) The Secretary of State must commission a review to consider how the extended use of powers provided for in section 1 will impact energy use in the United Kingdom, with particular reference to—(a) the impact on fuel poverty; and(b) the impact on energy efficiency.(2) The Secretary of State must lay the report of the review under subsection (1) before each House of Parliament within 12 months of this section coming into force.”

[Baroness Maddock]

My Lords, I rise to move Amendment 5—I hope I have got the right number this time and I apologise if I confused people before.

This is a probing amendment. I have raised issues with the Government before about the interoperability and the joining-up of the different policies that we have. Fuel poverty is an area in which I take an interest and the Bill impacts on fuel poverty strategy and affects those in fuel poverty. It also impacts on energy efficiency, which, as the Government have made clear, is one of the reasons for the programme. However, I am never quite sure how good the Government are at joining everything up. The amendment therefore asks the Government to review how this programme is affecting the fuel poverty and energy efficiency programmes and how it can benefit them.

On fuel poverty, the ability for people on low incomes to get an accurate bill and save energy is important. We know that shock bills can create a sense of fear in people and quite often that is why they end up going into debt. Inaccurate bills can sometimes have the same effect and we recognise that part of this development is to prevent people receiving inaccurate bills. Any delays in the programme will have a greater adverse effect on those who are in fuel poverty or are vulnerable in some way or another.

The pre-payment meter price cap, to which we will come later, is still closely linked with the smart meter rollout. One area of the rollout concerns me. Smart meters have been of great benefit to people on pre-paid meters but I understand there might be problems later when the SMETS 2 come in. Could the Minister reassure us that the Government have this in hand, because some people are concerned about how it might work out?

I learned today something that neither I nor my colleagues had heard of before. Photovoltaics on roofs is one of the energy efficiency programmes that we have introduced in the past, but when one of my colleagues in the House who has such a system asked for a smart meter she was told that she could not have one. However, she might be able to when SMETS 2 comes in. So there are two questions about the SMETS 2 meters: are people who pre-pay going to suffer and what are we doing about people with solar panels? Do the Government know how many houses have solar panels? That is a whole chunk out at the moment. If that is the case, they should be the first people to get SMETS 2. Somebody should try to target it in that way.

The other issue is one that I have discovered, I think from the briefings we got from Smart Energy GB, which is the fact that not everybody has an in-house display when they have their meter fitted. I was quite shocked by this because I thought that was the whole point. As it said in the briefings I received from it, some people have meters in very strange places—in cupboards under the stairs and all sorts of places. I cannot understand why the programme was not insisting that, when you have a smart meter, you have an in-house display, otherwise many of the benefits that we hope smart meters will bring are somewhat negated if you cannot read it very easily.

I am not going to prolong the Committee much longer, but it is important, whenever the Government review what is going on with the smart meter rollout, that they think carefully about the other areas of policy. As I said, and as I raised before, I am particularly concerned about those in fuel poverty. I know that the smart meter rollout companies are working quite carefully with other people to help those in fuel poverty. I declared an interest at Second Reading because I am a vice-president of a fuel poverty charity, National Energy Action. I would be interested to hear whether the Minister can answer a couple of the questions I have given him. I urge that, whatever reviews we have, we must sometimes refer to how it is impacting on other government policies. I beg to move.

[Lord Teverson]

My Lords, I shall speak to my Amendments 12 and 13. One of the things that has exercised me most about this programme is how, in the transition from SMETS 1 to SMETS 2, we assess that we are sufficiently there to fire the gun to roll out what is an £11 billion programme. That is not an insignificant amount of money. My noble friend Lady Featherstone pointed to the congestion charge. I do not know what it cost to roll out; it was expensive, but I suspect it was not anywhere near £11 billion. That is why it is important, before the rest of this happens, that we make sure we are in the right place.

I understand that we currently have some 300 SMETS meters out there being tested. I also understand that there is still a further software upgrade to happen in September—I would be interested to know whether that is the case—yet we have a deadline of October, which is only some six months away. That is why I am saying in the amendment—it is rather a blunt instrument and probably would not be absolutely correct for the final Bill—that there should be some 500,000 SMETS 2 meters out there to make sure that this market works. That seems like a huge number, but I remind noble Lords that it is 1% of the total number of meters that have to be smart by the end of this programme—some 47 million to 50 million. That is why, in terms of the size of the programme and the length of time we have already taken in getting it right and getting consumer confidence, I am trying to understand from the Government and the Minister what tests they have and what threshold they are expecting to see before they say that the programme is fully fit for purpose, they have confidence and they are going to roll the rest of it out as SMETS 2—SMETS 1 no longer, although we have 10 million of those meters already. What is the threshold that says that they have the confidence to roll out one of the most expensive projects? I am not sure that it is as expensive as Hinkley C, but it probably will be by the end of the Hinkley C programme. It is a huge amount of money and a huge national investment that is really important for the future, so what is the threshold test before we roll it out with confidence?

--- Later in debate ---

[Lord Henley]

My Lords, £1 billion here, £1 billion there and pretty soon we are talking real money. I will deal with the amendments in the order they came: that is, Amendments 5, 7, 12 and 13. Amendments 12 and 13 go together. Actually, all three go together, but there was some confusion.

Starting with Amendment 5, which was tabled by the noble Baroness, Lady Maddock, on energy efficiency and fuel poverty, I ought to say in passing that I very much support the spirit behind these amendments but I am concerned that they could undermine the efficient delivery of the rollout and could lead to unintended consequences and costs for consumers. But I will deal with the amendments one by one, starting with Amendment 5.

One of the main objectives of the smart meter rollout in Great Britain—it does not apply to Northern Ireland—is to put consumers in control of their energy use so that they become more informed and efficient, and save themselves money. Smart metering will reduce the costs for prepayment customers and enable remote topping-up, meaning that some of Britain’s hardest-pressed energy consumers will have access to more competitive deals and more convenience in paying for their energy. I was grateful for what the noble Baroness said about people with prepayment meters and the price cap. We will get on to the price cap for others more generally, but it is already in existence for people with prepayment meters and I think that it has been working with some success.

If I heard her aright, the noble Baroness said that she had heard that SMETS 2 meters posed a problem for some prepayment customers. We believe that SMETS 1 meters provide significant smart functionality to consumers, but SMETS 2 will provide them with additional benefits and will allow consumers always to retain smart functionality when they switch suppliers. SMETS 2 meters will also allow consumers, if they choose, to share data with third parties, and those third parties may be able to offer, for example, tailored energy-efficiency advice, which could be of use to certain customers.

Amendment 5 would introduce a new clause requiring the Secretary of State to commission a review to consider how the extended use of powers would impact energy use in the United Kingdom, with a particular focus on the impact on fuel poverty and energy efficiency.

With in-home displays offered to households as part of the installation, low-credit alerts are more visible, giving consumers an early warning. The ability for consumers to set a budget and to see exactly how much they are using, in pounds and pence, is giving prepayment consumers control over their energy use and contributing to greater levels of satisfaction among prepayment consumers. Certainly, the research that we have done shows that 84% of smart prepayment customers are satisfied with their smart meters and 88% are likely to recommend them. Government research shows that eight out of 10 would recommend them to family or friends, and 82% of people with a smart meter have taken at least one step to reduce their energy use. British Gas is reporting that its dual fuel customers with smart meters are making sustained 4% annual energy savings.

To some extent, that brings me on to the question about accessibility of meters raised by the noble Baroness. As she is well aware, the accessibility of existing meters can be pretty difficult, as I discovered in London the other day as I lay down on the floor trying to read a meter. I realised that I did not have my reading glasses with me but then realised that reading glasses would not help as I was wearing my contact lenses. It is a minor problem for someone in a reasonably fit state, but we accept that reading meters can be difficult for certain people, depending on where the meters are put.

The technical specifications for IHDs require them to be designed to enable the information on them to be easily accessed and presented in a form that is clear and easy to understand, including by consumers with impaired sight, memory, learning ability or dexterity. Energy suppliers, led by Energy UK, have been working together to develop a fully accessible IHD, and we expect that device to be available shortly. If it can be made available to those who have problems, the noble Baroness and I will also find it a great deal easier.

[Baroness Maddock]

The thing that surprises me—and I have not really had an answer to it—is why, when the Government planned the programme, it was not part of the plan that everybody with a smart meter should have an in-home display. It would be an obvious enhancement and would not be difficult. I do not know why it was not thought that this should be insisted on from the beginning.

--- Later in debate ---

[Lord Henley]

I am afraid I do not recognise what the noble Lord has offered. I suggest that we continue discussions on this. What the noble Lord is putting to me is not what has been put in front of me in other places. As I said, we will continue to monitor matters and to provide information. That will be sufficient to deal with the amendments. If the noble Lord would like to continue to make these strange allegations about what is happening, we can continue to do that in the discussions that I offered when dealing with the first amendment.

[Baroness Maddock]

My Lords, I am grateful to the Minister for his full response to me on Amendment 5. I am still not totally convinced that the Government always look very carefully at how their different policies interact. I am grateful that he has asked for extra information about the photovoltaics. It was new to me and I will come back to him with a bit more detail. Let us hope that it is just a one-off—that the supplier was just not very interested in doing this particular person’s house and that there is nothing more to it than that. I was quite shocked: lots of people have photovoltaics and if that really was the case we really need to do something about it. As I said, it was a probing amendment to try to open up discussion on these issues that I am concerned about. At this stage, I beg leave to withdraw Amendment 5.

Amendment 5 withdrawn.

Smart Meters Bill

Baroness Maddock Excerpts

2nd reading (Hansard): House of Lords
Tuesday 13th March 2018 Lords Chamber

[Baroness Maddock (LD)]

My Lords, the Minister said in his opening comments that this is a small technical Bill and, as is his wont, painted a very rosy picture. As we have heard, some of it is rosy but some of it is not quite so rosy.

It is difficult not to be too repetitive because noble Lords around the House agree that the Bill contains some positive measures and some negative measures. I think that very few people would disagree that smart meters will make a large contribution to our national energy infrastructure. We have heard, and we know, that they can assist consumers and energy suppliers to use energy more efficiently and to reduce costs on both sides. However, as others have said, we somehow fail to carry to fruition many energy and energy efficiency programmes in an efficient, timely and cost-effective way. The smart meters rollout is no exception and that is why we have this Bill before us today.

As others, including the Minister, have said, the Bill extends the Secretary of State’s powers to develop, amend and oversee regulations concerning the licensing of smart meters for gas and electricity usage. Presumably, we are discussing this issue because not everything has gone well in this area. The Bill sets up a new special administrative regime for the national smart meter communications and data service provider—in short, the DCC.

In the event of insolvency, the noble Lord, Lord Whitty, highlighted many moons ago that there was a problem. Was this considered? We now know it was considered in the original discussions in 2008 but, nevertheless, we went along with it. We now have problems, and we have seen recently that dealing with it has been very slow.

The Bill also introduces new powers to modify industry codes and instruments directly to deliver a market-wide, half-hourly settlement that uses the smart meter data. There is agreement around the House that this would be a good thing but only, as my noble friend Lord Teverson said, if the meters work. The clause dealing with this came rather late in the day in another place. Will the Minister explain why? The original plan was that every household and small business in the UK would be offered a smart meter. We have already heard from others that the plan was for 2020; the Government now need proposals in this Bill giving them until 2023, and doubts have been raised this afternoon about whether they can do it by then. We have heard all sorts of statistics about how many meters will have to be put in every week to make this happen. Other concerns raised this afternoon concern data protection and privacy. The noble Lord, Lord Whitty, gave us more detail on that.

We have also heard concerns about the installation and selling of this equipment to consumers. I have a particular gripe—I get rung up about smart meters and I realise that I am also being told we need to switch suppliers. I am not very good at doing this, but my husband has done it. I am concerned that, if I have a smart meter, I might not be able to have SMETS 1 and I may not be able to switch my supplier again; therefore, I am not prepared to say yes to the installation. When you have a conversation about this with someone representing the supplier, trying to persuade you, they do not seem to understand what you are talking about. There is a big issue about how people talk to consumers when they are trying to persuade them to have a smart meter.

We have also heard about costs. We know that around £11 billion will be spent and there have been projections of a net benefit of £5.8 billion. But, as others have highlighted, rollout is happening more slowly, so it is not clear that the cost benefit will work out as projected. The National Audit Office is reviewing the programme and plans to report this summer, looking specifically at whether the programme is on track and whether the economic case is still the same. I will not repeat how many meters have been put into houses; the big issue is that, while SMETS 1 installation has gone ahead, albeit not as fast as we would like, SMETS 2 is very slow. I have not done as much detailed digging as my noble friend Lord Teverson; the figures he put forward this afternoon are pretty frightening.

Good smart meters can play a part in helping those who find it difficult to pay for their energy—as the noble Lord, Lord Whitty, mentioned. I am vice-president of National Energy Action, a charity that campaigns on fuel poverty, and I am grateful for its briefing. It is supportive of the programme, realising that it has good potential for helping people in fuel poverty. One thing it is particularly concerned about is the role of Ofgem in monitoring and enforcing minimum standards under the installation code of practice, because this is fundamental to the successful rollout. At the moment, there is little information about how or when individual suppliers are rolling out this technology or about their approach to engaging with customers, particularly vulnerable customers—I have talked about people like me—to ensure that they capture the benefits of more accurate billing, which the noble Baroness, Lady Manzoor, referred to. Nor is there much information about how they are helping people to get more of a handle on how they use their energy.

NEA would like to see Ofgem publish the annual rollout plans of individual suppliers and details of how many meters are installed annually. This could be broken down between SMETS 1 and SMETS 2 and the number of smart meters operating in pre-payment mode for those who find it really difficult to pay their energy bills. This could be done each quarter in line with other Ofgem E-Serve quarterly reporting. This information is not commercially sensitive and it would enable bodies such as NEA to offer bespoke advice to customers about when they can expect to benefit from their smart meters.

NEA also stresses that data protection should not be a key reason why more geographic-specific information cannot be put in the public domain. There are concerns and questions about data and data protection, which the noble Lord, Lord Whitty, talked about, but we ought to be able to use the information without people’s data being used in the wrong way. If we developed a GIS-based map of where smart meters have been installed, that would be a great help to organisations all around the country—for example, to charities such as NEA. They could follow up the installations, amplifying the benefits and helping people by providing more extensive behaviour-change advice and support. It is clear that not all installers are providing this help—some are but some are not.

There is one acute concern about installations. We need to know that when an engineer leaves after putting in a smart meter, the heating still works. They might have said that a gas appliance was unsafe and turned it off. Obviously we want things to be safe but at the moment no government policy is in place to help people—particularly vulnerable households—to change a boiler, as used to be the case under the ECO. I had an exchange with the Minister about this back in the autumn because people were not able to replace their boilers—a situation that has got even worse during this cold winter. When I asked him about it, the Minister’s answer was, “Well, of course, we really believe in energy conservation now, and that’s where all the money is going”, but that does not help the person whose boiler needs to be replaced in the winter. We need to do both. From a sedentary position my noble friend says that it is more efficient.

NEA spends a lot of time talking to consumers and that is why it is so concerned about some of the issues that are not going as smoothly as they should. There is also an issue around price caps and pre-payment meters. The meter price cap is very closely linked to the smart meter rollout and to SMETS 2, and I hope that the Minister will be able to tell us a little more about that.

We have heard that Clauses 11 to 13 create powers to oversee the smart meter programme, but I have already highlighted that Ofgem is finding this quite difficult. However, it has now been asked to deal also with the half-hourly settlement. As others have said, this is a good thing because not only does it enable suppliers to offer different prices at different times of day—we have heard about other things that can help people to use their electric products more efficiently in the home—but it can assist in developing, nationwide, a more demand-led energy supply system. The noble Lord, Lord Whitty, my noble friend Lord Teverson and I have raised this issue in successive energy Bills in this House. At one time it seemed that the Government did not understand that at all but they have cottoned on to it now and it is a welcome addition to the Bill.

Many people still do not have meters but research has shown that people who have them have changed their behaviour and are quite satisfied. In one survey, 75% of people said that they would recommend the meter to someone else; and 80% claimed that they were saving energy through their behavioural change.

If this is to continue we need to make sure that SMETS 2, the cleverer meter—so called—rolls out properly. People need to be able to change their supplier because we have two government policies working against each other—persuading people to have a meter, persuading them to change—and the two do not go together.

I welcome the Bill, as do many other noble Lords, but I am disappointed because it has highlighted many problems that perhaps could have been avoided. We keep falling into the same trap on several issues: we are bad at cost-benefit analysis and adjusting as time goes along; and we are bad at understanding human behaviour, which I appreciate is difficult. We assume all kinds of things about human behaviour which turn out not to be quite right. We need to be better at handling different scenarios.

I hope the Minister can assure the House that the programme will go forward in a more rosy way—I am sure he will; he usually does—and that he can reassure the House on some of the issues that have been raised today. There is common ground across the House and I look forward to his reply.

Small Business Commissioner

Baroness Maddock Excerpts

Monday 22nd January 2018 Lords Chamber

[Baroness Maddock (LD)]

The noble Lord, Lord Mendelsohn, has introduced a timely debate, not only with the appointment of the Small Business Commissioner but in the week after Carillion went down. Also, I have read in the past few days a number of pieces in newspapers about how the Royal Bank of Scotland has treated small businesses in the past. In my remarks I will dwell on the plight of small builders in particular, and reflect a little more widely on the importance of small businesses in our communities and our country.

Access to finance and late payment of bills are major factors in the failure of many of our small businesses. Last week, in a debate in the Commons, we heard yet again about the Royal Bank of Scotland’s treatment of small businesses. There it was claimed that, since 2008, 16,000 small businesses had been put into GRG—the bank’s global restructuring group—and the vast majority ended up being liquidated.

My right honourable friend Sir Vince Cable referred to allegations over the restructuring group to the City watchdog four and a half years ago and has questioned why the regulator is still withholding its full report into what many people recognise as a scandal. Does the Minister have any information on that?

As we have heard, access to finance is a particular problem for small and medium-sized builders and I am grateful to the Federation of Master Builders for its briefing. In 2017 its survey of housebuilders showed that 54% of its members cited access to finance as a barrier to enabling them to build more homes; 14% reported a deterioration in lending conditions in the past year; and 45% said they were involved with sites that had stalled for financial reasons.

In addition, the late payment practice of larger firms affects the small builders who work in the supply chain. We have seen this particularly in the case of Carillion recently. Again I am grateful to the Federation of Master Builders for its briefing, which states:

“The case of Carillion is a significant one, as this highlights structural issues associated with contracts and payment practices within the supply chain”.


It continues by stating that one member of the Federation of Master Builders,

“who is involved in a number of Carillion contracts explains that when firms like his contract to work for Carillion, they are essentially investing in Carillion’s business and projects because they invest significant amounts of resources upfront in these projects. However, due to payment practices”—

as we have heard today—

“and in particular retentions, most of their profit is not realised until sometime afterwards. Yet if these smaller specialised businesses want to undertake specialist work on larger projects, they often have no choice but to work for, and invest in, major contractors, while having no say as to who those contracts are awarded to”.

It is clear that late payments and the withholding of payments are a matter of course for major contractors. However, the greatest barrier for small firms is that it is difficult for them to take part in public and private sector supply chains. As we have heard, small firms operate on much smaller margins and this state of affairs makes it difficult for them to survive, let alone grow and prosper. This has resulted in the major housebuilders cornering the market. I took part in a debate in this House a couple of weeks ago about the role of the major housebuilders, who have cornered the market and yet are still not providing more homes. We are grateful to small builders, who we know can sometimes produce better results, particularly on small sites.

The Federation of Master Builders believes that Carillion’s liquidation should act as a wake-up call for the Government. Again I quote from the federation, which suggests:

“Government should now begin to look harder at new approaches which seek to spread its risks better by opening up public sector construction contracts more to small firms by breaking larger contracts down into smaller lots, and exploring where it might be more efficient to work directly with Tier 2 contractors on some contracts. Applying this logic to the Sector Deals would also improve a strategy which appears to be overlooking small firms for the most part”.


The issues we are debating are not new. In my view, the Government have contributed to the state of affairs we find ourselves in. Government spending departments continue to use the “cheapest is best” approach to main contractors. Some seven years ago, Ian Taylor, the former chief executive of Balfour Beatty, told a government-sponsored conference that contractors were winning public sector business by offering the lowest tenders and finding ways to make them profitable. At the time the Government put forward an alternative strategy and urged departments to run pilots as part of it. Apparently only one pilot came forward and I gather that there has been little further change since.

Small businesses are an important part of any national industrial strategy. They are the seed corn for larger businesses and important for international players. I know of one firm that grew from being a small ironmonger’s in the ward I represented when I was first a councillor on Southampton City Council. The business was owned by two gentlemen, one called Mr Block and the other called Mr Quayle. That was the start of B&Q, which ended up with Kingfisher, which I think now belongs to something even larger. Many small businesses will not develop in this way but they will be major players in local economies. They help to shape our local communities. They provide jobs and, as employers and owners, they play an important part in the civic life of many of our towns and cities. We see businesses sponsoring all sorts of things such as Christmas lights and flowers. Those who run businesses are often involved in local chambers of commerce, which are important to the vitality of our towns. Moreover, although not so much these days, I recall when I was first in local government many businesspeople were elected on to local councils. The climate today means that many people find that very difficult to do.

Small hotels, bed and breakfasts, cafes and restaurants are run by small businesses, all of which are very important for attracting tourists. The tourist economy is an important contributor to the economy of our country. I understand that small and medium-sized enterprises train two thirds of all apprentices, so the Government intervening and investing to protect small and medium-sized businesses must be a good way of spreading economic growth more evenly throughout the United Kingdom.

I welcome the fact that we now have a Small Business Commissioner, but it is obvious from my comments that if we really want to support small businesses, there are many more things that the Government could put in place to create the right environment. I look forward to hearing from the noble Lord, Lord Henley. I have been in this House for 20 years now and I have heard the noble Lord reply to many debates. He is always optimistic about what the Government are doing and tries to convince us that all is well, but it is quite obvious that all is not well for many small businesses. I look forward to some reassurances from him when he winds up the debate.

Energy: Home Battery Storage

Baroness Maddock Excerpts

Monday 4th December 2017 Lords Chamber

[Lord Henley]

My Lords, as I said in my answer to the previous question, the cost of lithium-ion batteries has come down considerably—by 50%. Batteries are still expensive but it is in the interests of some consumers to buy them to even out their use of electricity and make savings. Obviously, any advice that they can get, which was partly behind the Government and Ofgem’s smart systems flexibility plan, would be of use to those consumers.

[Baroness Maddock (LD)]

My Lords, the more smart meters are installed in our homes, the more potential there will be for battery storage. Will the Minister assure us that the promise the Government made of 26,000 smart meters in our homes before 2020 will really happen?

[Lord Henley]

My Lords, we are on track for that. As the noble Baroness will be aware, legislation dealing with this is coming forward. I hope we will get there; I see no reason why not.

Electricity Capacity (Amendment) Regulations 2017

Baroness Maddock Excerpts

Wednesday 25th October 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior of Brampton) (Con)]

My Lords, the draft instrument seeks to amend two secondary legislation packages for the capacity market. The powers to make this implementing secondary legislation are found in the Energy Act 2013, which, following scrutiny in the House and the other place, received Royal Assent in December 2013, with cross-party support. The five changes contained in the draft instrument are essentially technical to improve fairness, ensure the competitiveness of auctions and provide important clarifications to scheme operations. They were supported by the majority of respondents in consultation.

Before I explain the changes in detail, it may be helpful as a reminder to noble Lords if I say a few words of background about the capacity market itself. Ensuring that families and businesses across the country have secure, affordable energy supplies that they can rely on is a top priority. We are facing challenges to electricity security of supply resulting from the closure of older plant and the move towards less polluting, but more intermittent and inflexible technologies, such as solar, wind and nuclear. That is why we have the capacity market; this scheme ensures that there will be sufficient electricity capacity in Great Britain for this winter and beyond. It gives generators confidence that they will receive the revenue they need to maintain, upgrade and refurbish their existing plant, and to finance and build new plant to come on stream as and when existing assets retire. It also ensures that those who are able to shift demand for electricity away from periods of greatest scarcity, without detriment to themselves and to the wider economy, are incentivised to do so.

It does this by offering capacity providers, who are successful in competitive auctions held four years and one year ahead of delivery, a steady, predictable revenue stream on which they can base their future investments. In return for these capacity payments, providers must meet their obligations to deliver electricity or reduce demand at times of system stress or face penalties.

The capacity market is working. Fierce competition between providers in the auctions held to date meant that we obtained the required capacity at prices below the levels many had expected. That is good for consumers as it translates to lower costs on bills. The capacity market is driving investment in new, flexible capacity. The most recent four-year-ahead auction secured over 3.4 gigawatts of new-build generating capacity, including combined-cycle gas turbines, open-cycle gas turbines, small flexible engines and battery storage, as well as 1.4 gigawatts of demand-side response.

The clear message from industry and investors is that the mechanism retains their confidence and is the best available approach for ensuring our long-term security of supply. Industry and investors also stress that regulatory stability is crucial but that the scheme, operating in a rapidly changing environment, must be regularly reviewed to ensure it remains fit for purpose. The changes set out in the instrument are the latest in a series of amendments that ensure the scheme is kept relevant and workable. I will briefly expand on the amendments.

First, the instrument amends the method by which the costs of the capacity market are recouped from suppliers. It was felt the current supplier charge arrangements potentially gave an unfair advantage to embedded generators—smaller generators connected to the lower voltage distribution network—and could distort the outcome of the capacity auctions. That arises because, under current arrangements, suppliers are charged according to their share of total demand at peak times, measured by the demand they place on the transmission grid. That is their net demand. By contracting with embedded generators to run over winter peaks, some suppliers are able to reduce their net demand and therefore their share of capacity market costs, with others having to pay more. With some of the savings inevitably being passed on to the embedded generators, such arrangements unintentionally risk giving them a double payment for what is essentially only one contribution to security of supply. The instrument addresses the issue by amending the basis of the capacity market supplier charge and settlement costs levy from net to gross demand. That is a fairer way of sharing costs between suppliers: it ensures suppliers’ costs reflect their overall demand and helps ensure a level playing field between different generators in the auctions.

Secondly, the instrument seeks to prevent new and refurbishing plants being overcompensated in the capacity market where they are also in receipt of aid through risk finance schemes such as the enterprise investment scheme, seed enterprise investment schemes and venture capital trusts. Currently, there is a risk of double subsidy, which would likely distort the outcome of the capacity auctions. To ensure fair competition and value for money for consumers, the instrument asserts that where a capacity provider has accessed investment through one of these risk finance schemes to fund capital expenditure, their capacity payments must be reduced until such a time as this has been off-set. These off-setting arrangements ensure that the total amount of aid is capped at the amount awarded in the capacity market auction.

Thirdly, the instrument seeks to remove an inconsistency in the way demand-side response capacity is de-rated relative to other capacity types. De-rating is the process by which the volume of a provider’s capacity is adjusted to reflect the reliability of the technologies being used. Unlike other participants, demand-side response providers can nominate a lower amount of capacity to bid into an auction than the capacity they estimated at pre-qualification stage, but that nominated amount is not currently subject to de-rating. The instrument addresses that by ensuring that the nominated value is de-rated, thereby improving the overall reliability of the capacity that is procured. I hope noble Lords have got that.

Fourthly, the instrument clarifies the requirement that capacity market participants maintain credit cover until they have fully discharged all the requirements against which the credit cover has been lodged. In addition, the instrument puts beyond doubt that a party’s credit cover will not be drawn down where a termination fee is due unless the termination fee is unpaid.

Finally, the instrument amends the name, but not the substance, of the capacity market warning—a notification that must be issued in specific circumstances under the scheme. Revision to the capacity market notice better reflects the nature of the notification and will be clearer for participants.

My department published two consultations on these changes during September and October last year. In total, 38 responses were received across the two consultations. There was significant support for the majority of the proposals raised. I look forward to hearing what noble Lords have to say about the proposed changes.

[Baroness Maddock (LD)]

My Lords, I am grateful to the Minister for reminding us of the long hours we spent on the primary legislation with the noble Lord, Lord Grantchester, who is in his place on the Labour Front Bench. We are sadly missing a previous Member of this House, Lord Jenkin of Roding, who understood absolutely all this very complicated legislation. Because it is so complicated it is not surprising that after a period of time we need to make some adjustments to it. It would appear that most people involved in this complicated market are in favour of the adjustments the Government wish to make to the previous legislation.

However, one of the areas in which I was involved in my early days in this House was the committee that looks at secondary legislation. In those days we looked quite carefully at the way government departments deal with these matters. There are rules laid down. Given that the way we deal with secondary legislation means we cannot really change it very much, it is important that government departments stick to the rules. I know that committee has highlighted this over the years. I draw the Minister’s attention to the fact that although they held consultations at the end of 2016, one of which closed in December, they did not respond to them until 22 March 2017. We will discuss another instrument in a moment and I will raise similar issues then.

I am happy to support what the Government are doing. It seems uncontroversial, but I charge the Minister, now he is in the department, with looking at the way they follow the rules on how we consult on and deal with secondary legislation.

[Lord Grantchester (Lab)]

My Lords, I also thank the Minister for his introduction to the regulations before your Lordships’ House. I agree with him that they are by and large technical in nature. I second the remark by my noble friend on the Liberal Democrat Front Bench that we miss Lord Jenkin for all the understanding he brought to the House on these quite technical matters.

We are in favour of the amendment regulations tonight because they introduce refinements, clarifications and new wording to manage the system around the operation of the capacity market. From my reading of the Explanatory Memorandum, which is excellent— I thank the Minister’s department for its clarity—I commend the Minister and his team for introducing these regulations to correct the imperfections in the original instrument, which could have led to double payments and loopholes that could have been exploited to the detriment of the consumer. However, that is not to say that there is universal approval for the capacity market. There is a debate to be had regarding whether it has achieved its objectives and whether it is good value for money. While strictly speaking the capacity market is not the subject of the regulations, I nevertheless have one or two questions to put to the Minister on how it is operating.

I liken the capacity market to a quasi-insurance policy. I agree that the lights going out would be a catastrophic event with severe consequences for the Minister, his Government and the nation. The capacity market is designed to ensure that this will never happen. This winter, 2017-18, is the start of the first delivery year and the date from which payments will start, even though there have been five capacity market auctions to date. The contracts for these auctions are for either one year or four years. What is the grossed-up value of these contracts, which I understand is somewhere near the total cost of the capacity market for availability of energy sources until 2021, excepting that there are also the one-year contracts to be awarded for the next three years? Is it useful to consider this figure in assessing the value-for-money aspects of the policy against achieving its objectives? The Minister in the other place suggested that the increase in customer bills amounted to £2 per customer per year. My question to the Minister is to understand the grossed-up figure that has been paid to generators and, from that, the size of the bill to the public.

The answer to the question regarding the success of this quasi-insurance is mixed. First, there will be no blackouts—I am sure that the Minister will be able to sleep well at night—but perhaps he could give some assurances regarding the “black start” that would be needed to re-energise the network following any blackout.

Secondly, has the certainty of return from the capacity market brought forward investments, especially in new gas build? Here, the policy does not seem entirely to be working. Do the plans to which the Minister drew attention in his opening remarks finally translate into certainty of new build being on the horizon?

Thirdly, is the cost to the consumer worth while, and has it been effective? I think that I can reply on the Minister’s behalf and say that to a certain extent it has already brought benefits in that the spikes in cost in marginal supplies to the grid have been reduced. Volatility has been lessened, which has already reduced net costs through bills to the consumer. Nevertheless, how likely would blackouts have been without the existence of the capacity market? That is the ultimate insurance question.

Lastly, has the capacity market brought flexibility and a diverse mix of energy sources to security of supply? On the demand-side response, the auctions are only for one-year contracts, which could hardly be described as bringing certainty. Can the Minister confirm whether there are plans to bring forward four-year auctions for DSR? Have the Government considered bringing forward the statutory review date of this policy from being four years into its operation? There could be other points along the way that are sooner than that at which some of these questions could bring forward further amendments.

Electricity Supplier Obligations (Amendment and Excluded Electricity) (Amendment) Regulations 2017

Baroness Maddock Excerpts

Wednesday 25th October 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior of Brampton) (Con)]

My Lords, these regulations amend the Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015. They make provision for indirectly exempting eligible energy-intensive industries from part of the cost of funding the contracts for difference scheme. They aim to avoid putting these industries at a significant competitive disadvantage.

The transition to low-carbon—and the securing of our energy supplies—must be done in a way which minimises the cost to business and domestic consumers. Our industrial gas prices are internationally competitive but our industrial electricity prices have moved out of line with other European countries. The UK’s industrial electricity prices for large consumers in the EU 15 were the highest after Italy’s in 2016, as set out in The Clean Growth Strategy. This places UK electricity-intensive manufacturing industries at a competitive disadvantage and increases the risk of some deciding to relocate.

In order to meet our legally binding climate change and renewable energy targets, we have implemented a number of policies designed to incentivise generation of electricity from renewable resources. The costs of these policies are recovered through obligations and levies on suppliers, which pass these additional costs on to their customers. This results in electricity bills being higher than they otherwise would have been.

The CfD scheme is such a policy. It gives greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices. The scheme is financed through a compulsory levy on electricity suppliers, which pass the costs on to domestic and business users through their electricity bills. The levy currently stands at almost £2.52 per megawatt hour. The funding costs of the CfD can reduce the attractiveness of the UK as an investment location and increase the risk that companies will invest or even move elsewhere. This is a scenario we wish to avoid, particularly as we exit the EU.

We intend to safeguard the competitiveness of those energy-intensive industries that are exposed to the additional costs arising from the CfD by exempting them from a proportion of these costs. An exemption scheme allows for real-time changes in energy use to be taken into account and provides certainty to business. The European Commission approved our state aid proposal to exempt certain EIIs from the cost of the CfD in December 2015.

The statutory instrument before us updates and improves the 2015 regulations. It brings them into line with the terms of our state aid approval, allowing us to commence the scheme. We recognise that the exemption will redistribute the cost of financing the CfD among other electricity consumers. We estimate that this will increase annual household electricity bills by around £1 between 2018-19 and 2023-24. None the less, we have taken steps to reduce consumer bills, which are now lower than they might otherwise be. Indeed, our energy efficiency policies reduced the average household energy bill by £161 in 2016. After taking account of the cost of policies for delivering cleaner energy, supporting vulnerable households and investing in upgrading our buildings, there was a net saving of £14 on the average household energy bill in 2016. Energy efficiency is the best long-term solution for tackling fuel poverty.

Since April, 70% of the £640 million per year energy company obligation has been focused on low-income households through the affordable warmth part of the scheme. This will upgrade the energy efficiency of more than 300,000 homes per year, tackling the root cause of fuel poverty. Certain households can also get £140 off their electricity bill for winter 2017-18 under the warm home discount scheme.

These regulations amend the original 2015 regulations. These amendments are necessary to bring those regulations into line with the Commission’s state aid approval. We are also making certain technical changes to the regulations to improve the administration of the scheme. The effects of the amendments include, among others: changes to eligibility; allowing new or restructured businesses to claim the benefit of the exemption; a requirement on beneficiaries to notify us, to help us ensure that they receive the exemption to the correct level and only if they are eligible; and allowing a company to apply for the exemption if it does not obtain electricity directly from a licensed electricity supplier.

The House of Lords Secondary Legislation Scrutiny Committee raised a number of points relating to consultation and timing, provision for direct competitors and the impact on consumer bills. I will summarise the main points. The policy to exempt eligible energy-intensive industries from a proportion of the costs of CfD had been subject to three previous consultations. The third consultation covered technical amendments to the regulations rather than policy changes, as the policy had already been consulted and agreed on previously. Our original intention was for these regulations to come into force at the end of February. However, some of the technical issues needed further consideration to ensure that the amended regulations achieve their aim. We involved stakeholders throughout the whole of this process.

Our original intention had been to provide relief to direct competitors—businesses which do not meet the eligibility criterion on electricity intensity but which manufacture the same product as eligible companies in the same sector. This was to create a level playing field and prevent market distortions within sectors. We submitted a state aid notification to the European Commission to address this issue. However, the Commission does not think our proposal is compatible with the relevant state aid guidelines. We are currently considering alternative options which may be open to us within the scope of these guidelines.

These draft regulations will make the necessary changes to the 2015 regulations to allow us to exempt eligible energy-intensive industries from up to 85% of the indirect costs of funding the CfD scheme. As well as providing these businesses with greater long-term certainty, the measures set out in these regulations will reduce the price differential between eligible energy-intensive industries and their international competitors, mitigating against the risk that these companies are put at a significant competitive disadvantage and might choose to move their production abroad. I commend these regulations to the House.

[Baroness Maddock (LD)]

I am grateful to the Minister for ranging a little wider than the regulation before us. I was going to ask him about how some of this fitted in with the Government’s wider policy aims, particularly on decarbonisation. I recognise that industries that are intensive users of energy find some of the decarbonising regulations quite difficult. I recognise that there is a balance to be struck, but I would be interested to know whether the department has looked carefully at or has any figures about what the balance will be on decarbonisation after this.

The Minister also replied a little to the criticisms of the Secondary Legislation Scrutiny Committee. I read with interest what it had to say because six weeks are recommended for consultation, but there were precisely five weeks, and it is rather bad practice to consult across the summer holiday period, which is what the Government did. That was pretty unfortunate. They were trying to get regulations in place by February 2017. In the end, they did not come until March, so I think something is not working quite right in the Minister’s department. He is fairly new there, so I challenge him to see whether in the next year it can have less criticism from the Secondary Legislation Scrutiny Committee when it brings forward matters such as this.

Apart from that, I recognise that the Government are trying to balance several things: how they can help industries that are intensive users, the regulations for decarbonisation and state aid rules from Europe. I recognise that that is not easy. I hope they have it right. I cannot profess to understand some of the very complicated matters in these types of regulations—I wish we had Lord Jenkin of Roding here as he would put us right if we had got it wrong. We are happy to support these regulations as far as they go. I hope we are not supporting something that we will regret in future.

[Lord Grantchester (Lab)]

I thank the Minister again for his clear introduction to the regulations before the House tonight. As on the previous regulations, the amendments to the 2015 regulations are largely technical, although in this case it is largely as a result of receiving state aid approval which requires these amendments. The Government have also brought forward other technical amendments to clarify the 2015 regulations and to improve their workings. I am content to approve the regulations as they reduce the disadvantages to energy-intensive industries, but they give rise to many serious questions concerning the impact of the policy and the relative effect on different businesses and their competitiveness.

The main contentious issue arises from the exclusion in these regulations of the intended extension of relief to energy-intensive businesses that do not qualify as having high energy costs as specified in the order. While the European Commission was happy to approve the 2015 regulations, subject to the alterations we are debating tonight, it was not happy to include the extension the Government sought for businesses other than those specified as being energy intensive.

In the 32nd report of your Lordships’ Secondary Legislation Scrutiny Committee, dated 27 April 2017, it seems the Government are happy to drop this altogether with the thought that the CFD exemption will not have a significant effect on competition within the UK after all. Can the Minister clarify what sort of businesses these are, what their response is to the change in the Government’s position and what the cost is of the competitive disadvantage that they no longer consider significant? Has the assessment changed following dialogue with the commission? The Government’s answer refers only to the UK. What is the competitive position of these excluded businesses internationally? On Brexit, perhaps the Minister could outline the Government’s intention regarding state aid provisions that are part of EU membership once we leave. Is it the Government’s intention merely to amend the regulations to include the original intention once the UK has indeed left the EU?

The Secondary Legislation Scrutiny Committee was also critical of the Government’s short consultation in summer 2016—the noble Baroness, Lady Maddock, drew attention to this feature of the department as well. Perhaps the complexity of the provisions and the adjustments in the Government’s response could entail further and more meaningful consultation regarding the numerous interactions between various government policies influencing renewables and the energy-intensive industries. There are also many questions around the costs of the exemptions for energy-intensive industries on other business and consumers.

One of the questions debated in the other place concerned the fall in the costs added by these regulations, from £1.80 to £1 a year on consumer bills. The Minister in the other place seemed unable to explain the significant drop. What is the grossed-up cost of this measure? Is that what has changed, or the estimates of the number of businesses in the intensive energy sector? How is the discrepancy to be explained? This highlights the complexity in analysing and understanding the impact on businesses and how they will react.

The Government have said they are developing a package of measures to support businesses to improve their energy use and efficiency. The Government are said to be revitalising the Green Deal. They are also considering the costs to the charitable sector. Could the Minister add to these statements tonight and give any indication of timescales? The Government have launched an independent review of the cost of energy, to be chaired by Professor Dieter Helm, in response to the report of your Lordships’ Economic Affairs Committee. Can the Minister update the House on this?

The costs to the consumer of the various government schemes are also subject to the levy control framework. This has also come in for severe criticisms from many sides, including the National Audit Office. Once again, the Government have realised they must have a rethink and start a review. How is that review progressing?

Although the regulations today can be approved in so far as they clarify various measures the Government are undertaking, nevertheless there are huge issues around the Government’s framework that demand swift resolution.

Fuel Poverty

Baroness Maddock Excerpts

Thursday 19th October 2017 Lords Chamber

[Lord Prior of Brampton]

My Lords, I am not able to answer that question. It is not specifically related to the Question in front of us, but it is none the less extremely important and I will write to the noble Lord later.

[Baroness Maddock (LD)]

My Lords, can the Minister tell us why the Government have extended from 12 months to 18 months the period in which the energy company obligation will operate, and why they have put a cap on boilers in that transition period? Could the Government use the upcoming Budget to make sure that emergency funding is available to the most vulnerable for boiler repairs and replacement?

[Lord Prior of Brampton]

My Lords, I believe that the ECO is there until 2028. I do not recognise the 18-month figure that the noble Baroness mentions, but I will check that afterwards. As for how we spend the money under the energy company obligation, there is clear evidence that it is better put towards longer-term improvements such as insulation than the short-term repair of boilers. However, part of the ECO is spent on boiler repair.

Queen’s Speech

Baroness Maddock Excerpts

Monday 26th June 2017 Lords Chamber

[Baroness Maddock (LD)]

My Lords, the gracious Speech commits the Government to bringing forward measures to help tackle unfair practices in the energy market and reduce energy bills. In my brief contribution this evening I will concentrate on fuel poverty. Can the Minister explain exactly what the Government are proposing on energy prices? How does this interact with the Fuel Poverty (England) Regulations 2014 and the fuel poverty strategy of 2015?

I should declare my non-pecuniary interests. I am president of the Sustainable Energy Association, president of the National Home Improvement Council, a vice-president of the Local Government Association and a vice-president of National Energy Action, a fuel poverty charity. I am grateful, as always, for their briefings on this issue.

The scale of fuel poverty is very worrying and has been for well over 20 years. What is more, the levels are increasing and have increased since the publication of the fuel poverty strategy in 2015. Since 2011, levels in England have been based on the low-income, high-cost definition whereby an individual is considered fuel-poor when their fuel costs are above the national median level and when spending that amount leaves them an income below the poverty line.

Monitoring in the other three UK nations uses a 10% definition, which simply means that you are spending more than 10% of your income on fuel. The latest figures for England show a small increase in the number in fuel poverty since the fuel poverty strategy was introduced. It was 2.35 million households and has risen to 2.38 million. That is nearly 11% of all households in England. United Kingdom-wide statistics are no longer produced by the UK Government but the last figures in 2015 highlighted a figure of 4 million households in fuel poverty. Whatever the definition of fuel poverty, the main drivers remain the same—the price of energy, the level of household income, the quality of energy efficiency of dwellings and the vulnerability of the occupants of those dwellings. From 2004 to 2014, we saw gas prices soar by 125% and electricity prices by 75%. In recent weeks, we have all heard announcements of new increases by the major suppliers.

Improvements in the levels of energy efficiency in our dwellings have reduced by 75%. Typically, the vulnerable are older people, children and those with long-term illnesses. We now have 1.8 million households in this category, up by 40,000 since 2013.

Wages and benefits have not kept up with prices. Those unable to work have seen their income stagnate or reduce, and half of all fuel-poor households are in work. We have heard the rosy picture and the not so rosy picture of our economy from noble Lords’ contributions but any rosiness in the economy has not affected the people in fuel poverty I am talking about.

This situation puts huge pressure on our National Health Service. The World Health Organization estimates that 30% of winter deaths are caused by cold housing. That means that in this country 9,600 people are dying needlessly through the winter months. It costs our National Health Service £5 billion to treat the effects of living in cold homes, at a time when we hear daily about the pressures on our health service. The Government have committed to various targets to achieve better energy efficiency but current resources are less than half what is required to meet them. There are no bespoke programmes so progress has been very limited. The 2015 fuel poverty strategy committed to prioritise the most severely fuel-poor through cost-effective measures and ensuring that vulnerability is reflected in policy decisions. However, the transition to supporting those who most need help has been very slow. The energy company obligation is the only delivery mechanism in England and spending reduced from £1.3 billion to £640 million over 18 months, rather than the original 12 months. Therefore, I ask the Minister: will the changes to this be part of the government proposals announced in the gracious Speech?

Another scheme for the vulnerable is the warm home discount scheme, which provides an automatic electricity bill rebate to low-income older-age households. Like ECO, this policy is paid for through a levy on energy consumers’ bills and is delivered across Great Britain. Some people do not always remember to apply for the £140 payment at the right time. If they do not do so, they end up paying for the people who are getting that help.

I have three questions and a suggestion. First, will action on energy prices go alongside co-ordinated support to drive up low household incomes? Secondly, the most sustainable solution to fuel poverty is to increase energy efficiency, so will the Government ensure that the National Infrastructure Commission includes energy efficiency as part of the upcoming infrastructure assessment, as was included, indeed, in the Liberal Democrat manifesto? Will the Government re-target current fuel poverty support and address the gaps in provision? Lastly, I urge the Government to build on local practice and replicate consistent outcomes in all our towns and cities. Much could be done in this way if the Government supported and resourced local authorities’ activities under the Home Energy Conservation Act, which I successfully steered through the other place a very long time ago. We are one of the richest countries in the world. When will we see the end to vulnerable people dying each winter in this country? It does not have to be like this.