Electricity Supplier Payments (Amendment) Regulations 2017
Baroness Maddock Excerpts(7 years, 8 months ago)
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Baroness Maddock (LD)
My Lords, it is always a pleasure to follow the noble Lord, Lord Deben, on these issues. I agree with much of what he has said. I had not intended to speak, but he reminded me, as did the Minister in his opening comments, of how complicated the Bill that put all of this into place was. To this day, some of us still find it quite difficult to get to grips with. I thank the Minister for trying to explain it as well as he did. I miss Lord Jenkin who saw us through that Bill. I was saying to my noble friend Lady Featherstone, who was not here at the time, that Lord Jenkin was the man who really understood what was going on and helped us all through a difficult Bill. I put that on the record.
Lord Grantchester (Lab)
I thank the Minister for explaining the amendments to these regulations. They seem eminently sensible, drawn from the experiences of operating the regulations, which are vital to reforming the electricity market and encouraging low-carbon electricity generation to ensure the UK’s security of supply. I also express my gratitude to the noble Lord, Lord Deben, for his helpful remarks as background to the regulations, and for underlining the importance of the progress we have made.
The amendments to the regulations should increase the cost-effectiveness of the two main measures, the CFD scheme and the capacity market, since they reduce the heavy-handedness of the belt-and-braces approach of the CFD counterparty, the Low Carbon Contracts Company, and that of the Electricity Settlements Company for the capacity market. The Minister’s introduction eloquently explained the improvements. These companies exist only to make payments for low- carbon generation or demand-side responses, and to collect these payments from suppliers. The companies must also cover their costs. The regulations set up the system to do this in as transparent, equitable and cost-effective a way as possible, allowing for a sensible amount of reserves as some guarantee. One would hope and expect these payments to balance out through the reconciliation process.
Much of the debate on these regulations in the other place focused on the probability of error. I could join in and tease the Minister by asking him about 20 scenarios, any one of which could be the one occurrence that could not be reconciled. However, that would be facetious. The modelling looks robust, indicating that the companies have the ability to raise the funding necessary in a modern, technologically efficient manner and make the payments required.
The regulations merely deal with the process of funding. The bigger question is the accuracy of the strike price, which is relevant to the setting up of this compulsory regime. Noble Lords will know that that is contained in the contracts agreements and is not part of these regulations. The two most controversial applications relate to nuclear power and the Hinkley Point C plant, and onshore wind.
The Government have shown how quickly they can alter their assessments and mechanisms for adjustment through Part 2 of the Energy Act 2016 in relation to onshore wind and the compensation payments in the FIT regime. On the prevention of double-counting of exemptions in the measure, exemptions from payments are available to suppliers which import renewable electricity from EU member states. This green excluded electricity—GEE—will not count towards electricity suppliers’ market share for calculating their CFD liabilities. This raises questions about security of supply; whether government policy is blind, whether British-based or not; the relative pricing of renewable energy in the UK and in the EU; and whether security-of-supply policy should seek to encourage import substitution. It also begs questions relating to Brexit; I could ask the Minister various hypothetical questions about the internal energy market and any likely scenarios of tariff applications. I imagine he would say that further amendments can be made as circumstances change.
I am grateful for the clarity provided regarding the operational budgets of the two companies and the professional fees increase, brought about by the inquiries of your Lordships’ Secondary Legislation Scrutiny Committee. I very much agree with the Government’s financial policy to expense rather than capitalise software upgrade costs.
I have a few questions about the regulations. First, on the amendment to allow CFD reconciliation determination after the 10th quarter to be classified as non-generation payments, is a longstop provision of time envisaged, or is that included in the general retrospective provisions? Could this be one of those 20 unknown unknowns? Secondly, following the onshore wind provisions in last year’s Energy Act and given that onshore wind is now so much cheaper, are the Government any closer to allowing onshore wind to participate in future CFD auctions now that the threat of UKIP has receded? Can the Minister update the Committee on the position following the consultation on onshore wind in November 2016? Thirdly and lastly, I understand that the net savings to be passed on to electricity consumers are not a cash item and cannot therefore be shown or guaranteed in some way. However, the memorandum states that the operational costs budget of the two companies will increase, resulting in an increase, albeit minimal, in household electricity bills. Will these two features balance out and the net effect on consumers be neutral?
Having said that, I am content to approve the regulations.
Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017
Baroness Maddock Excerpts(7 years, 8 months ago)
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Lord O'Neill of Clackmannan (Lab)
My Lords, this order is something of a curate’s egg. There are a number of aspects that one would be quite happy with were it not for the fact that one player in this whole scheme is absent: the Government. They are changing some of the regulations and arrangements but they are providing no money themselves, unlike the Administrations in Belfast, Cardiff or Edinburgh. Therefore, we have to say in the first instance, on the objective of moving the starting time by six months, from 12 to 18 months, if we are to get a better scheme, that might be very well. However, it is a delay, in fact from 2015, when the opportunity to introduce an improved scheme first arose.
It begs the question: why is there a delay? If it is because the Government are wrestling with the complexity of it, I submit that they have had plenty of time to do that. I know from the briefing I received from National Energy Action—of which I happen to be the honorary president, and therefore declare a limited, non-pecuniary interest—that this estimable charity has somewhat mixed feelings, which reflect my own. The Government seem to be doing a little bit with one hand, and then taking it away with the other. When we see the reduction in boiler replacement, it is not because the job is nearly ending—that we have completed the replacement of inefficient boilers—but simply because the Government take the view that it costs too much.
There is also the fact that if you want to make households more conscious of the benefits of energy efficiency, a dramatic change such as the replacement or introduction of a boiler is of critical significance in this change of thought process. We know that in many respects the households that are most disadvantaged are those which have so many problems that trying to be energy efficient is very much a kind of finger-in-the-dyke operation, and they need assistance. Very often, when we are able to secure the replacement boilers, we get a change of step and a greater willingness to help.
It is also fair to say that we have insufficient sums to meet even the most modest of home improvements. We are told by a number of bodies—including, for example, the Committee on Fuel Poverty, the Committee on Climate Change, and Policy Exchange—that even to meet the very modest target of getting households to EPC E level by 2020 will require £1.9 billion. To get households to EPC D level by 2025 will cost £5.6 billion. To get all households up to EPC C level by 2030 will require £12.3 billion. These are large sums. However, what the Minister is talking about seems to be nowhere near what is required to reach these households. Indeed, it has been suggested that a baby born today into inadequate housing would probably be about 75 before their home was properly heated.
A number of the changes are sensible and not unwelcome. However, the Government cannot get away with the platitudinous nonsense the Minister spoke at the beginning of his speech when he quoted the Prime Minister. If the Prime Minister really wants to help hard-working families and do something about this kind of household, the Government will have to use central taxation as a mechanism to do it. It is not enough just to express pious hopes and, on occasion, go for cheaper options. That seems to be at least part of the thinking behind a number of the changes in this measure.
Therefore, as I say, this is a curate’s egg. This Committee does not have the opportunity to overturn or amend it. I know that it has been the subject of fairly wide consultation but I do not think that all the organisations that were consulted would necessarily embrace everything in the order. Therefore, as I say, my welcome of it is highly qualified and I am somewhat disappointed. An opportunity has been missed here—and not because the Government have rushed into this. They have had since 2015 to get something done and the best that they can come up with is this rather feeble list of changes and a further six-month delay in bringing about many measures that would be regarded as improvements. We cannot take any consolation as some of the less desirable aspects of this measure will continue for some time.
As I say, I think that this is a missed opportunity for the Minister. He and I are old friends from Select Committee days in the Commons. I am trying to chastise him as gently as I can as I know that he is new to the job and I expect that his influence over the drafting of this order was probably minimal. However, I would like to think that in the months and years that he may still be in the job he will be able to come up with something better before too long.
Baroness Maddock (LD)
My Lords, something is better than nothing. We on these Benches, at least, welcome this measure, although there are many “buts”. There is no doubt that improving the quality of existing homes can play a very important part in increasing warmth and comfort and help to make fuel bills far more affordable, particularly for vulnerable occupants. However—I think the Minister recognises this—it is also a highly cost-effective way of reducing carbon emissions and saving energy. In addition, ambitious energy efficiency savings programmes can capture substantial macroeconomic benefits.
I remember taking through the House of Commons a Private Member’s Bill that became the Home Energy Conservation Act 1995, and saying that the job creation potential in making homes energy efficient was enormous. I regret that some 20-plus years later, we are still grappling with this issue and people are still living in fuel poverty. As the noble Lord said, people born into fuel poverty today will probably still be in fuel poverty at the end of their lives. That is very sad.
Lord Prior of Brampton
My Lords, I accept that noble Lords who have spoken regard this order as a curate’s egg and that it does not go as far as they would like. I will try to address the more general questions raised by all three noble Lords. The Government feel that the supplier obligations have proven to be remarkably successful, but we have probably pushed them as far as they can go. That is why we have decided to cap the supplier obligation at £640 million. The noble Baroness, Lady Maddock, and the noble Lord, Lord O’Neill, think that we should go further. If I might slightly oversimplify it, I think I am right that the noble Lord, Lord O’Neill, feels that we should consider raising taxation more generally to solve this issue, whereas the noble Baroness, Lady Maddock, thinks that we could take money from other areas that we are spending money on to put more money into this area.
To start with the noble Lord’s point, our response is not to increase central taxation. He mentioned a figure of £12 billion, and the noble Lord, Lord Grantchester, came up with a figure of £20 billion to 2030. That level of increased taxation is simply not an option—at least not for our Government. Our response to the issues that the Prime Minister has focused on is not to raise general taxation, but to try to address the issue by improving the productivity of the country, which is why we have an industrial strategy. Frankly, to load a lot more general taxation on to our economy cannot be a way to improve productivity. I do not know whether that view will be shared by the leader of the Opposition—who knows these days?—But it is certainly not an option for us to raise central taxation. The noble Baroness, Lady Maddock, said that there must be other areas that we could take money from.
Baroness Maddock
For example, we know that people who live in cold or damp homes, particularly elderly people, cost us a huge amount in the health service. Over the years, NEA has run various schemes and has looked carefully at this. That is one area where we could look to see whether we could get some money because it will save money in the long run.
Lord Prior of Brampton
I understand that argument, but it would take five minutes to have a whole list of other parts of the population, whether it is people who have mental health problems or learning difficulties or old people who are lonely. There are lots of people we would like to do more for and from whom there will be knock-on benefits to the NHS, social services and the like. As the noble Baroness will know well, the trouble with politics is that choices have to be made. It is very easy to say that we should take more money from this group and give it to that, but if only life was so simple.